Local government for better or worse

The Government released this week its template for improvingthe performance of local government: Better Local Government.   This documentrightly recognises the importance of local government performance for overalleconomic performance, and in general offers a sound set of policy prescriptionsthat will have a positive influence on local government performance.   However,the policy proposals are not uniformly positive.     In particular the proposednew definition of the purpose of local government could potentially be toonarrow and the so-called provisions to strengthen council governance lookpositively barmy.  

The so-called proposal to strengthen council governanceprovisions by allowing elected councillors to set employment and remunerationpolicy is hopefully one that will not be implemented.   Instead of promotinggovernance this proposal is more likely to encourage micro-management andinterference in council operations by councillors.   This issue seems to havegained prominence due to public concern about the pay packages of some localgovernment chief executives.   Yet the salaries of chief executives are alreadythe responsibility of councillors as the chief executive is the only directemployee of the elected council.   If elected councillors already exhibit poorjudgement in setting chief executive salaries, who they meet frequently, howgood is their judgement going to be in setting salary and employment limits onfunctions for which their understanding is more limited?   This proposal willnot address the source of the problem: poor collective judgement of electedcouncillors.   Instead it will perversely increase the potential for poorlyfunctioning councils to create damage.

The other proposal in "Better Local Government" that I amconcerned about is the proposal to amend the Local Government Act 2002 toreplace the references to the "social, economic, environmental and culturalwell-being of communities" with the purpose for councils of "providing goodquality local infrastructure, public services and regulatory functions at theleast possible cost to households and business".   At first blush there seems tobe a lot of sense to this proposal.   As noted in "Better Local Government" havingtoo many inter-related objectives raises the risks of creating falseexpectations over what councils can achieve, creating confusion about what therole of councils are, making it more difficult to assess the performance ofcouncils, and bluring the line between central government, local government andprivate sector roles.

Better Local Government identifies local infrastructure,public services and the administration of regulations as the key focus of localgovernment.   From a purely functional perspective this might be a reasonabledescription of local government activities.   But surely it also requires asense of purpose; why should local government provide these services and towardswhat ultimate aim?   The answer inherent in the existing legislation, although perhapstoo broad, at least tried to do this: it is something about the wellbeing ofthe local community.   And this is something that any new legislation stillneeds to incorporate.   Infrastructure is of use only if it improves thewellbeing of those who use it.   Considering cost only has a bearing when youbalance it against community wellbeing.   Otherwise you potentially promote thedelivery of low cost and low value services.   The cheapest road option is notnecessarily the one that generates the greatest wellbeing for its community.  But this is the potential risk of the government’s current approach; we promotean emphasis on cost reduction, without considering the value of what is beingproduced.

There is also a risk that the prescribed purpose for localcouncils could be overly narrow.   No one really knows which local governmentactivities really make a difference for their community.   Part of the reasonfor this is that the path from council service to ultimate community benefitcan be complex with not directly obvious consequences.   Indeed many councilactivities do not necessarily generate any direct material benefit, or at leastbenefits that can be easily quantified.   Yet this does not mean that theactivities are of low worth.   For example, a beautification project might beregarded by some to be frivolous and a potential waste of ratepayer money.  However, there may be less obvious indirect benefits.   For example, successfulentrepreneurs may choose to locate activities in the area and skilled workersmay choose to live and work in the area due, at least in part, to the ambiencecreated by beautification projects.

This is where a cost mandate can be overly simple andnarrow.   The lowest cost option is not necessarily the most effective option.  It may minimise the costs to the community, but it may not generate the desiredbenefits.   A better mandate would be to require councils to demonstrate thebenefits relative to costs of proposed projects.   Benefits can in manycircumstances be very difficult to quantify, and one would not want to beoverly prescriptive in defining what constitutes an acceptable benefit to costratio.   But it is worthwhile going through the exercise in a methodical way andinsisting that councils demonstrate explicitly the facts and judgements thatunderpin their decisions.

We should want to promote rigour in council decisionprocesses but perhaps be less prescriptive about what communities consider tobe of value to them.  

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