Part 3: Decision making and consultation

3.1
In this Part, we:

• outline certain requirements of the Local Government Act 2002;
• state our expectations; and
• assess councils against our expectations.

The Local Government Act 2002

3.2
The overriding requirement for a local authority in making any decision is to satisfy itself that the decision accords with the purpose of local government set out in section 10 of the Act and the principles relating to local authorities set out in section 14 of the Act.

3.3
Supporting this purpose, there are a number of sections in Part 6 of the Act setting out the obligations of local authorities when making decisions.¹

3.4
The Act allows councils to make judgements about how to apply the decisionmaking requirements in proportion to the significance of the matters affected by the decision.²

3.5
Section 77 of the Act requires councils, in the course of the decision-making process, to identify all reasonably practicable options for achieving the objective of a decision. It is implied that councils will need to identify their objective before considering their options for achieving that objective.

3.6
Councils must assess those options, taking account of:

• the benefits and costs;
• the effect on community outcomes;
• the effect on the council’s ability to provide for present and future needs; and
• any other matter the council thinks relevant.

3.7
As part of their decision-making, councils may be required to undertake consultation. Provision for consultation is also contained in Part 6 of the Act.

What we expected

3.8
We expected that councils, in designing and choosing to adopt a rates postponement policy, would have adequately complied with the consultation and decision-making sections in the Act.

3.9
Rates postponement affects councils’ income streams because they are not receiving the postponed rates until a later date. Councils may need to borrow to make up the shortfall. If a significant number of ratepayers choose to postpone their rates, funding of rates postponement could become a major source of debt for the councils involved. We therefore expected that councils would accurately and reasonably inform their communities about the potential implications of their rates postponement policy, including the potential effect on the council’s debt and how the council intends to manage this.

3.10
We expected that councils would include the effect of rates postponement in their financial projections if the amount of postponed rates was significant for the council.

Decision-making and consultation by councils with optional rates postponement policies

3.11
Councils that offer optional rates postponement have adopted this as a new policy since the 2002 legislation.

3.12
The four councils offering optional rates postponement that we audited were part of a group of councils that pioneered optional rates postponement. These four councils decided to be part of the rates postponement consortium when both the rates postponement scheme and the consortium itself were in the early stages of development.

3.13
In preparation for forming the consortium, Western Bay of Plenty District Council spent some time considering whether there was a need for rates postponement and how this need might be met.

3.14
After the consortium was formed, the councils collectively considered a variety of policy options for delivering rates postponement. They also formulated an objective reflecting the purpose of the policy.

3.15
As part of the process of designing the optional rates postponement policy, the consortium considered the costs and benefits of various features that could be included in the policy.

3.16
The final consortium policy was designed to allow older ratepayers to choose to postpone paying their rates. The councils considered that this furthered the four “well-beings” for their district. Specific benefits identified included:

• allowing older ratepayers to use the money they would have spent paying rates on enjoying a higher standard of living or staying in their own home;
• allowing older ratepayers to avoid the stigma attached to applying for rates postponement under hardship provisions; and
• reducing the resistance to rates rises on the part of older ratepayers.

3.17
Under the consortium policy, ratepayers who postpone their rates pay interest and fees on the postponed rates. These charges are intended to cover the costs of the postponement, and make rates postponement financially neutral for other ratepayers.

3.18
The policy developed by the consortium includes risk management strategies. The consortium has also identified funding paths that protect councils’ ability to provide for present and future needs.

3.19
The four councils consortium we audited included the optional rates postponement policy in their 2004-14 LTCCP (or 2003-13 LTCCP in the case of Western Bay of Plenty District Council), and so complied with the special consultative procedure in the Local Government Act.

3.20
At present, only a small number of ratepayers are choosing to postpone their rates under optional rates postponement policies. Therefore, offering optional rates postponement does not currently have a significant effect on councils’ finances.

3.21
Any significant growth in postponed rates will require councils to borrow extra money to cover the shortfall in annually collected rates. As we will discuss in Part 4, councils may investigate using on-balance sheet borrowing or securitisation to fund the rates postponement debt (see paragraphs 4.21-4.26).

3.22
Gisborne District Council told us that they had included an amount for rates postponement in their cashflow modelling for their 2006-16 LTCCP.

3.23
However, none of the four councils informed ratepayers about the potential implications of optional rates postponement for council borrowing, either in their 2003-13 or 2004-14 LTCCPs or in their 2006-16 LTCCPs.

3.24
The consortium and the associated rates postponement scheme were still in development when the six original councils decided to join the consortium and offer optional rates postponement. Given these circumstances, in our view, their decision-making and consultation procedures adequately complied with the requirements in the Local Government Act.

3.25
In the future, however, we would expect councils that identify a need for rates relief to assess whether the optional rates postponement scheme offered by the consortium is the best option for achieving their objective before they choose to join the consortium.

3.26
A robust decision-making procedure would involve formulating a high-level objective first, then identifying and assessing potential options for achieving that objective, including joining the consortium.

Decision-making and consultation by councils with hardship rates postponement policies

3.27
Under local government legislation before 2002, financial hardship was one of the prescribed grounds on which rates postponement could be offered. Wellington and Christchurch City Councils, the two councils we audited that offer rates postponement on hardship grounds only, have not changed their rates postponement policies since the Local Government Act 2002 came into force. However, their existing hardship policies have been included in their LTCCPs, and have therefore been subject to a degree of council and public scrutiny.

3.28
Given that these councils had not changed their policies since the Local Government Act came into force, we did not examine the decision-making processes that were followed when the policies were adopted. However, we would expect that any council reviewing or changing their rates postponement policies in future would follow the decision-making principles in the Act.

3.29
Given that the total amount of rates postponed on the grounds of hardship is small for all of the councils we audited or surveyed, we do not consider that councils need to take action to inform ratepayers about the financial implications of this form of rates postponement. However, if councils found they had significant growth in the number of people applying for rates postponement on the grounds of hardship, the recommendations we have made in this Part for optional rates postponement would apply.

1: Sections 76-81 of the Local Government Act 2002.

2: Section 79 of the Local Government Act 2002.