Auditor General / Minister
INCOMPETENT WATCH-DOGS 22.02.12
Huge amounts of ratepayers monies are paid to Audit NZ (a subsidiary of the Office of the Auditor-General) and they are entrusted with protecting ratepayers interests. They are supposed to audit Council's plans.
The Auditor-General is seen as the watch-dog whose task it is to take action as soon as any irregularity or illegality is identified. Or at least they are supposed to keep a watching brief over the local government sector.
Embarrassing as it is for the Government, it appears that both watch-dogs failed dismally.
I could write a thesis on the short-comings of both offices. However, I will suffice with one instance for each.
Equally important is the fact that the FIS is the base document for the rates. When rates are set, or legally created, by the rates resolution then it must be in accordance with the FIS. The terms in the two documents must be consistent. If they are not the rates are quite simply invalid.
The Office of the Auditor-General provides a reference check document for Audit NZ to guide auditors examining documents. The guide for the LTP deals with the FIS and sets out all the individual requirements in far more detailed format than I have set out above. It then includes the following warning:
The FIS is one of the prerequisite information requirements for a rate to be lawfully set. If a rate and how liability for the rate is to be calculated has not been set out in the FIS the rate may not be lawful. Therefore Auditors need to ensure that all the information requirements are met with a coherent overall presentation in the FIS.
Kaipara's FIS for Ecocare for all four years is an incomprehensible mess. It is totally confused and conflicting. It uses terms which are not appropriate for rating. It fails to indicate which rate it is referring to and refers to the same rate by different names. It fails to identify the categories of properties to be targeted, and the basis of liability for the rates.
It also conflicts with the terms of the rates resolution.
In short it is an abomination. And yet for four years Audit NZ, even with a check sheet and a stark warning, failed to pick up the fact that the FIS was totally defective.
Office of the Auditor General
My carefully crafted legal submissions about the illegality of the EcoCare rates - which are in line with those in the Salter report - were dismissed with an arrogant disregard that was alarming. I have selected one instance as an example.
The Salter report states quite clearly that pursuant to section 43 of the Rating Act a local authority cannot levy a proportion of a rate for part of a year when a service is provided part way through a year.
I presented that very same argument to the Office of the Auditor-General. It is a very simple matter of law. The provision in the Act is abundantly clear and there are no legal nuances to consider. It is cut and dry.
This is how the Tony Uttley of the Office of the Auditor -General responded:
We have considered the Council's approach in 2009/10 to charging for connection to the scheme during the year based on the quarter of the year when properties were scheduled to be connected. We do not think the Council's overall approach was unreasonable, being based on people being charged from the start of the quarter of the year in which their properties were to be connected. We note that some people understood from information provided by the Mayor that a different approach would be taken. However, where a service is in fact provided during the quarter it is not unreasonable to be charged for it provided there was not undue delay.
The public guardians of the Rating Act obviously did not have a clue about the provisions of the Act, did not understand my submissions, and clearly did not consult the Act.
To base a decision on a whimsical off-the-cuff notion of reasonableness when the Rating Act provides a specific ruling on the point, paints a dreadful picture of an organisation that does not know what it is doing.
When Kaipara finally disintegrates and the Minister is trying to work out what wrong, he should take a long look at his watch-dogs.
Was it because of their incompetence and indifference that Jack McKerchar was able to wreak his havoc for so long?
Which government would you trust to do the right thing....the Italian or the New Zealand government?
by Legal Eagle 14 February 2012
Charges of manslaughter and criminal negligence are likely.
Although Captain Tiller and his crew, along with a new first mate are working to patch up the extensive damage to the ship, experts suggest that the SS Kaipara will be a complete write-off, and the owners of the ship will suffer millions of dollars in losses.
Government sources have indicated that the Captain and his crew have not complied with good navigation procedure, have persistently flouted legal requirements, and there has been totally inadequate communication of vital information.
HOW ITALY DEALS WITH THE PROBLEM
The Office of the Auditore-Generale rejected any involvement in the matter. Here are extracts from correspondence from that Office:
We cannot question a decision made by the Captain or give a ruling on compliance with legislation. Only a Court could determine whether Captain Schettino has complied with the law and the rules of navigation and whether any breaches of the legislation or the rules caused the deaths and the loss of the ship.
We therefore recommend that the Captain hold his own inquiry as a means of satisfying himself that his approach was robust. However, we do not have any formal role in the progression of this matter.
We note that the Captain has taken advice from his own solicitors and that the legal advice that he has received is that he has no liability. We consider that the Captain is entitled to rely on that advice.
In these circumstances, we have concluded that there is no need for us to devote any further resources to investigation of this issue. The Captain has responsibility for this matter and is in the process of reviewing his actions including the question of compliance with the criminal law and the rules of navigation. We expect that to resolve the matter.
Minestrone di Navighetti Marinara
The Minister also side-stepped the issue.
These quotes are taken from a letter from the Minister, RodnIo Aido, following a meeting with Captain Schettino.
As I made clear at our meeting, I am not considering using my statutory powers to intervene in your role as Captain of the Costa Concordia, or in the way that your control or navigate your ship. You have assured me that you are already taking steps to address the issues you are facing following the unfortunate accident. It is preferable for local accountability and democracy, and for building capability and integrity, that you are responsible for resolving the problems yourself and that a sustainable solution is found. These are important elements to ensure a foolproof system of safe navigation.
Progress must be made and you will need to demonstrate that this is happening to me and the new Minister (Doctore Nico Smitti). Moreover, it is vital the you as Captain demonstrate this to the families of those passengers who were killed, to future passengers who will sail in ships under your captaincy, and to the shareholders who have lost so much money because of your negligent and criminal acts. It is also vital that you act to restore the confidence of the people who entrust you with their personal safety, as passengers on your ships, and those who place their trust in you for the appropriate management and the safe-keeping of their substantial assets.
Attached is a list of key areas where I consider progress is required:
1. Your navigational communications should be improved so that you know where you are going. Going forward, it is expected that you know where you are going, and I believe that any shortcomings in this area will be resolved in the future review of navigational procedures.
2. There appears to be problems with evacuation of passengers when an accident happens, and, going forward, it would be helpful if you could give some consideration to how you might handle such a situation if it happened again.
3. It seems that one of the causes of the mishap was the fact that the passage of the ship coincided with a relative's party on a nearby island. It may be worth ensuring that in future that there are no parties at the time that your ship passes through that particular area. Going forward, this would remove the main cause of the unfortunate occurrence.
4. It would appear that you may have breached the law in several instances. You were responsible for up to 32 deaths and possibly guilty of manslaughter, and you may have also been responsible for criminal negligence resulting in the loss of nearly one billion dollars. However, even though I have access to the best legal brains in the country I am not in a position to decide if your actions were indeed criminal. That is for the court to decide and, if we play our cards right, that is unlikely to happen.
I suggest that you seek legal advice from your own lawyers on whether this mishap can simply be ignored, and, going forward, we can resolve the matter by incorporating new rules in the review of navigational procedures. If you feel it necessary, my staff could offer help and guidance, going forward.
The Minister has the clear legal power to appoint an independent review authority but refused to do that even though most observers considered that it was inappropriate that Captain Schettino and his crew should be given the sole power to resolve all matters relating to the disaster. Given the clear evidence of criminality and negligence and the size of the loss, the circumstances demanded a review by a completely independent authority.
Following the appointment of a new Minister, Doctore Nico Smitti, a new request was made for the appointment of an independent review authority.
This was the reply received from the new Minister:
REPLY FROM MINISTER, DOCTORE NICO SMITTI OF 8 FEBRUARY 2012
Captain Schettino is expected to report on progress in several key areas to me by 30 April 2012. This time frame is appropriate given the serious nature of these issues, and many of them will need to be addressed in the future. the Captain and his crew need time to thoroughly examine each issue and effect the changes required.
It is important to note that asking a Captain to report to the Minister is a significant step, and one that occurs rarely. Although I am not planning to take further action at this time, I have written to Captain Schettino to ensure that this matter is being taken seriously and to confirm that a progress report is still required. My officials will continue to monitor this situation closely and update me regularly.
The extracts were modified slightly to fit the Cost Concordia situation but the sentiment and views expressed in the letters are factual and express the views of the Office of the Auditor General, the Ministers of Local Government, and the New Zealand Government.
In other words, the New Zealand Government, fully aware of the incompetence, the negligence, and the illegal actions of Captain Tiller and his crew, and aware that there has been persistent and serious non-compliance with legislation and that huge losses have been made without any explication, has refused to appoint an independent review authority. It has given Captain Tiller and his crew the task of sorting out the problems themselves.
The massive loses suffered are to be completely ignored and simply billed to the owners of the SS Kaipara, the Kaipara ratepayers. Likewise there is to be no liability for the incompetence, the negligence, the illegal acts, (some bordering on criminal acts), which have caused those losses.
Or is it because the world is not watching, as it is in the case of Captain Schettino, and the 12,000 ratepayers in Kaipara will be dumped with the problem in relative secrecy.
Or is it because the Government and its watch-dogs are partly responsible for the losses because they have steadfastly ignored the incompetence, the negligence, and the illegal actions of Kaipara and other local authorities, and have turned a blind eye to the rorts that are costing ratepayers millions of dollars?
The latest Chief Executive's report is dated 27 July 2011. It can be found at:
Another ratepayer alerted me to the following entry under meetings attended by the Chief Executive during the month:
Tuesday 26 July Lyn Provost and Tony Uttley (Office of the Auditor General)
I find that interesting.
Lyn Provost is the Auditor General and Tony Uttley is her offsider who a year ago handled the complaints of several ratepayers in respect of the illegal EcoCare rates.
It was Tony Uttley who refused to proceed with our complaints on the basis that they were either not sufficiently important for an overworked/understaffed/underfunded Government Department, or the Office of the Attorney General (OAG) had no power to issue legal opinions, or it was not the Office's policy to interfere where a local authority had obtained legal advice.
I considered all this to be a total cop-out. We presented incontrovertible evidence of non-compliance with rating law, which is now slowly being conceded by Council's own lawyers. We struggled to understand why the robust attitude of the OAG displayed in respect of matters of legal compliance on the OAG's website had now become a softly-softly approach to Jack McKerchar and the Kaipara Council.
As a sort of consolation prize Tony Uttley made a few comments about the Council's non-compliance and recommended an independent "first principles review". He then appeared to endorse the Chief Executive's proposal to substitute for this review a secret piece of legal advice from Council's own solicitors, that was not a review, that was not concerned with first principles, and was not independent.
When we approached Tony Uttley about this he did an imitation of Pontius Pilate and washed his hands of the whole thing saying that the OAG had no further interest in the outcome of the review. (See the letter from Tony Uttley of November 2010 set out below.)
In the past year I have struggled to understand why the TOP COP, so to speak, should turn a blind eye to a Council caught virtually in flagrante delicto.
I was well aware of the dismal performance of the Securities Commission that sat and watched whilst a generation of New Zealanders were ripped off by the finance companies and all the other rorts, and it could be assumed that all other Government watchdogs were tarred with the same brush. Certainly I had heard rumours about the OAG - tame dogs and no teeth, and all that sort of thing.
I also mused whether the Office was caught in a conflict of interest situation. It is the responsibility of the OAG to audit local authorities' Long Term Plans. This responsibility is delegated to Audit NZ which is a sub-branch of OAG. It appears to me that the auditor of the Council's last Long Term Plan missed a couple of important errors that could have a significant impact on Council finances in the future.
The first oversight was the failure to pick up the incomprehensibility of the funding impact statement. This is the document in the Long Term Plan that spells out clearly, and in compliance with the Rating Act, the rates that Council intends to set in the rates resolution. The funding impact statement in the Plan is confused, uses inappropriate terminology, and is incomprehensible. Not only that, the auditor for Audit NZ was well aware that Council intended to target separate units. To do that Council must clearly identify in the funding impact statement that it intends to target "separately used or inhabited parts of a rating unit". It must then include a definition of "separately used or inhabited part of a rating unit". This is fundamental stuff. Council failed to do it. The auditor failed to pick it up.
Interestingly, Council has now invented a completely new system of levying EcoCare rates completely outside the Rating Act. It has even come up with a new name - "unit of demand" (well not exactly "new", but stolen from the totally separate legislation for development contributions). This rating regime is about as legal as the Councillors donning Mickey Mouse masks and wielding AK47s and presenting themselves to a teller at Kiwi Bank. And yet, not a murmur from the OAG.
The next oversight was in respect of development contributions. The Local Government Act is quite clear that the Long Term Plan must include a policy on development contributions, and that it must also include the detailed methodology that is set out in the LGA for calculating development contributions.
The Council failed to include the policy in the Plan.. It failed to include the methodology in the Plan. The Council simply referred to the policy and the methodology in the previous Plan. The problem is that you cannot do that. The policy and the methodology cannot be included by reference (especially where the previous plan is not available to ratepayers....). The auditor failed to pick up the oversight.
It is interesting that the financial report from PJ Associates picks up this omission, and the auditor's oversight, and adds that this puts Council at risk.
Indeed it does. Taken together these two oversights could result in all development contributions paid during the currency of the plan being declared invalid and having to be refunded. In respect of the EcoCare rates it is probable that they would also be invalid and have to be refunded. That could well push Council over the edge financially.
At the end of the day Council has a clear legal obligation to comply with legislation and is primarily at fault. However, there is no doubt that the OAG has a serious amount of egg on its face because it failed to pick up the errors. I have seen the check-lists that auditors use (and are prepared by the OAG) and there are clear instructions to the auditor to check both of these matters.
The other relevant point is that I told the OAG about these omissions a year ago. I told the OAG about the illegal "unit of demand" rates that were being demanded from Kaipara ratepayers. In spite of that the OAG has done absolutely nothing.
Could that be because any enquiry would reveal the OAG's own short-comings in auditing the Long Term Plan? Or is local authority legal non-compliance so widespread that it has become a Pandora's Box that is just too big to open?
Then, out of the blue, the OAG had a meeting with the Chief Executive last week.
My mind is now in overdrive trying to fathom what the meeting could have been about, especially after ignoring KDC's brazen non-compliance with the law for nearly a year
Immediately it strikes me that Councillor Larsen wrote to the OAG on 3 July 2011 expressing his concerns at how Council was being run and the lack of financial information that was being provided to Councillors.
The Chief Executive then met with the OAG on 26 July.
The financial report from PJ Associates was released to the public on 25 July and at the Council meeting on 27 July the copies of the EcoCare financial models were given to Councillors - finally.
Was the Chief Executive under pressure from the OAG to make this information available?
What else did the OAG say to the Chief Executive? Did it read the Riot Act to him, or more appropriately the Rating Act?
Did the OAG put pressure on the Chief Executive to go ahead with the independent first principles review through a barrister?
Or am I completely wrong?
TONY UTTLEY'S RESPONSE (November 2010)
Note that there is no aplogy for failing to respond to my emails.
Your recent email to the Auditor-General has been passed to me to respond to.
Firstly, you mention that “I understand that the auditor has completed his review”. I assume you are referring here to our appointed auditor of the Kaipara District Council (the Council) having completed her annual audit. This is the case.
In the context of the annual audit of financial statements included in the Council’s Annual Report, one of the things that the auditor had to consider was whether the issues that have been raised in relation to the EcoCare scheme had a material effect on the Council’s financial statements, and, if so, whether these matters were adequately dealt with overall in those financial statements. The outcome from this consideration was that these matters were dealt with adequately in the financial statements. This includes some disclosure that the Council planned (at the time) to include in its published Annual Report.
In relation to the first principles review, you will recall that our position on the question of legality of rating approach was that these were not matters for our Office to determine. In the light of the concerns being raised about the Council’s approach, we recommended that the Council should use a “first principles review” as a means of satisfying itself that its approach was robust. We have no formal involvement in the first principles review that we recommended the Council should undertake. To the extent that you do have questions about the details of the review – including its nature, scope, progress, and any resulting actions – we suggest that you direct these to the Council.
We will be maintaining a general interest in the progress and resolution in this matter, and our appointed auditor will continue monitoring this generally on our behalf. However, as noted above, we do not have any formal role in the further progression of this matter.
AUDITOR GENERAL'S REPORT ON COMPLAINTS THAT ECOCARE RATES ARE INVALID
By Legal Eagle
Both the Auditor General and the Ombudsman have responded to the complaints that I lodged with them concerning the invalidity of the Mangawhai EcoCare rates set, assessed and levied by the Kaipara District Council for the 2008-09, 2009-10 and 2010-11 rating years.
Both Offices have a reputation for being ineffectual watch-dogs when it comes to dealing with transgressions by local bodies and I did not anticipate receiving a positive response to my complaints. To a certain extent that turned out to be correct.
The Auditor General’s Office has advised that it could not rule on matters of law and that only a Court could decide if the KDC had acted illegally in setting its rates. That is technically correct, but the Auditor General’s Office does have the power, if it chooses to use that power, to carry out an investigation and offer a very strong legal opinion on whether a council’s actions were legal or not. However, the Office has limited resources and has to ration them and will therefore only investigate those matters that it considers serious. The KDC’s illegal levying of rates in Mangawhai did not come into that category.
The Office of the Ombudsman’s response was taken from the same Hymn Book. It came up with a barrage of reasons why it could not investigate the matter. That Office was not prepared to review the Auditor General’s decision (it was not asked to), it could not rule on disputed questions of law (but could offer an opinion, but opted not to) and advised that only a Court could rule if the KDC had acted legally.
However, it was not all completely bad news. The Auditor General’s Office grudgingly conceded that there were issues that the KDC needed to respond to. It admonished the Council in rather timid phraseology when it stated:
The Auditor General has advised me that KDC has agreed to the proposal and that an auditor has been appointed.
The Ombudsman’s Office has suggested that the review by the auditor will include a scrutiny of the legal submissions that Legal Eagle has made and if the auditor “concludes that KDC’s rating decisions do not comply with the legislation then consideration will be given as to the options for remedying this situation”.
The review proposal of the Auditor General’s Office is surprisingly vague. It is not clear who appoints the auditor and what the terms of reference are. Clearly the rates for 2010-11 are to be subjected to the review but what about the rates for the two previous years that are obviously illegal? What about development contributions? KDC has clearly failed to comply with the Local Government Act so these levies should also be subject to a thorough independent audit. We do not know what powers the auditor has in respect of the investigation and what type of ruling that he can make.
I have therefore written to the Auditor General to clarify these matters.
I imagine that the Chief Executive and his staff will do everything that they can to keep this matter secret, to limit the scope of the review, and ensure that the full extent of rating irregularities remain hidden, so that the incompetence of the Chief Executive and his staff, in setting the EcoCare rates and introducing the farcical unit of demand regime, is not revealed.
A lot depends on the Mayor and Council that are elected. I would not be surprised if the sitting Mayor and Councillors have not been advised by the Chief Executive of the findings of the Auditor General, and probably remain unaware that an independent ‘first principles’ review has been recommended, that the review has been agreed to by KDC, and that an auditor has already been appointed.
If that is the case then that is a matter that the newly elected Council will have to take up with its Chief Executive.
It is to be hoped that the new Council will vigorously endorse the review and get to the bottom of the EcoCare legal irregularities, and all the other hidden financial and technical problems, so that the new Council and its ratepayers know exactly where they stand and we can all move positively forward.
The Council needs to broaden the scope of the review to cover all EcoCare rates and development contributions from 2008 onwards so that it can start with a clean slate. This is an excellent opportunity for the new Council to resolve the EcoCare difficulties without the delay and expense of having the various matters resolved by the Courts. One might even hope that the current policy of confrontation is replaced by a culture of cooperation and inclusion.
To the ratepayers of Mangawhai, I suggest a little more patience. The unit of demand farce, concocted in desperation by the Chief Executive and Mayor Tiller, will soon be consigned to history and you will have SUIPs to contend with. But they are much more friendly animals. Council will be obliged to define an SUIP in the draft annual plan – and comply with statutory and case-law precedents (none of this back-shed nonsense) - and all ratepayers will be able to have their say before the annual plan is adopted.
KaiparaConcerns will keep the pressure on the Council and the review auditor to ensure that any past failures to comply with the Rating Act are accounted for. In other words, we will be insisting that any rates that have been illegally levied in the 2008-09, 2209-10 and 2010-11 rating years will be refunded. We will also do all that we can to ensure that the EcoCare rates set for the 2010-12 rating year meet all the requirements of the Rating Act.
AUDITOR GENERAL'S REPORTS:
Each year the Auditor General's Office issues reports on different aspects of Local Government. The ones that are relevant to rating and development contributions are set out below.
3. SUIPS - separately used or inhabited parts of a rating unit.
1. MANAGING THE RELATIONSHIP BETWEEN A LOCAL AUTHORITY'S ELECTED MEMBERS AND ITS CHIEF EXECUTIVE
Auditor General 2002
Managing the Relationship Between a Local Authority's Elected Members and its Chief Executive.
In 1994, we expressed concern that, over the preceding five years, high turnover among chief executives had created significant costs for regional and territorial local authorities,1 and had led to a loss of skills and experience at the most senior level of local authority administration.2
In that five-year period, 36 of 86 councils had replaced their chief executive. Over the last three years alone, turnover has been even higher, with over half of all councils replacing their chief executives since the local authority elections in 1998. Only a handful of those chief executives have taken up chief executive positions in another local authority.
The chief executive is a key figure in a local authority. Positive working relationships between the elected members and the chief executive – based on mutual trust – are critical to the proper functioning of a local authority. We have seen indications in recent years that relationships between councils and their chief executive have deteriorated. The current high turnover of chief executives may be one symptom of this deterioration.
In our 1994 report, we expressed the view that a council should ideally retain its chief executive for at least five years. Since that time, the responsibilities of a local authority chief executive have become more complex and even more wide-ranging. These factors give further weight to that argument.
The advice we provided in our 1994 report on management of the employment relationship between the council and its chief executive is still relevant. In conducting this exercise we have sought the views of elected members and chief executives on a number of issues associated with different aspects of their relationship.
The key aspect that we examined was how elected members and their chief executive manage their relationship in the grey area between governance and administration. Difficulties in managing that part of the relationship appear to be a common cause of problems between councils and their chief executive. We suggest ways in which this situation might be improved.
We are grateful to elected members and local authority chief executives for their contribution to this report. We hope that the report will help elected members and chief executives to find their own understanding of their respective roles and develop the mutual trust necessary to work together in the interests of their communities.
K B Brady
Controller and Auditor-General
24 July 2002
For the full report click here.
Local government: Results of the 2004-05 audits.
3.401 We receive a steady stream of correspondence from ratepayers asking the Auditor-General to investigate the activities or decisions of their local authorities.
3.402 Issues commonly raised by ratepayers and organisations that interact with local authorities include:
whether or not the consultation processes (including identifying and considering options) are adequate;
whether or not consultation is genuine – ratepayers can perceive that consultation is a sham when the local authority’s decision is against the weight of submissions;
decision-making – including whether or not decisions are appropriately implemented by local authority officers, decisions are made within delegated powers, and councillor and management roles are clear;
use of, control over, and accountability for council-controlled organisations;
code of conduct issues – in particular, increased interest in the use of the code of conduct by members of the public wishing to challenge local authority decisions.
The Auditor-General’s role
3.403 We receive about 160 requests each year for inquiries from ratepayers and organisations in the local government sector. Some people contact the Auditor-General because they are unhappy with a local authority’s decision and hope that the Auditor-General will require the local authority to reconsider the decision .However, it is not the Auditor-General’s role to consider the merits of a local authority’s decisions, prevent it making a decision, or ask it to change its mind. The Auditor-General also does not have any power to question matters of local authority policy. Making policy decisions is the role of elected representatives.
3.404 The Auditor-General is authorised under the Public Audit Act 2001 to inquire into any matter concerning a local authority’s use of its resources, either on request or on his own initiative, and, in addition to the annual financial audit, to conduct a more detailed performance audit of an aspect of a local authority’s performance. An inquiry or performance audit may involve looking into financial, accountability, governance, or conduct issues in a local authority. It is usual for an inquiry to focus on a local authority’s decision-making process and question whether or not the local authority has:
3.405 These functions are discretionary. The Auditor-General is not a formal complaints agency, and no-one can make the Auditor-General investigate a particular matter. Our usual approach is to invite the complainant to first raise the concern with the local authority concerned, unless there is good reason for not doing so. We always consider whether we are the most appropriate agency to consider the matter, and work closely with the Office of the Ombudsmen and the Parliamentary Commissioner for the Environment.
3.406 Some inquiries are straightforward, and are concluded by our writing to the local authority concerned and the original correspondent explaining our findings. However, other inquiries address more complex matters. We may, if the issues are significant, produce a public report that is presented to the local authority or Parliament.
3.407 We describe below some significant recent inquiries in the local government sector in the areas of decision-making, transport, and codes of conduct, to highlight some of the concerns raised by ratepayers and to show how we conduct our inquiries.
3.408 When asked to investigate a local authority’s decision, our focus is on the decision-making process, rather than the merits of the decision itself. We consider whether the local authority can demonstrate that it has complied with the principles in the Local Government Act 2002 (the 2002 Act), as well as the decision-making framework in Part 6 of the 2002 Act and any applicable council policies.
3.409 We have found variable levels of compliance with the decision-making framework in the 2002 Act. The following examples illustrate some different approaches.
3.411 The ratepayer’s main concerns were the funding proposal and the Council’s relationship with the events centre trust, but we considered all concerns in our inquiry. We considered each concern in terms of:
3.412 The funding proposal involved selling the Council’s shares in an airport company to a newly established council-controlled organisation, and issuing redeemable preference shares to an investor who would benefit from imputation credits attached to those shares. The Council was not able to benefit from the imputation credits, as it is not a taxpayer. The effect of the transaction was that the Council could raise funds from the investor at a cheaper rate than if the Council had borrowed the funds directly. The ratepayer was concerned that the proposal amounted to tax avoidance, as the investor would obtain a tax benefit at the expense of the Crown. The ratepayer was particularly concerned that the Council intended to proceed before obtaining a ruling from the Commissioner of Inland Revenue on the tax avoidance issue.
3.413 We reviewed a considerable amount of material, including external legal, taxation, and accounting advice obtained by the Council. We interviewed council officers who were closely involved in the proposal. We found that the reports of council officers to the Council were of high quality, and contained a comprehensive analysis and discussion of the provisions of the 2002 Act relevant to the decision. The Council had consulted on the proposal in its Long-Term Council Community Plan (LTCCP) and subsequent annual plan, and had considered the submissions it had received.
3.414 We did not agree with the ratepayer that the Council had acted inappropriately or that its actions lacked financial prudence or showed a lack of probity. We considered that the Council’s decision to proceed with the funding transaction before a binding ruling from the Commissioner of Inland Revenue was obtained did create risks. However, the Council had assessed those risks as low and decided to proceed, which was a decision it was entitled to make.
3.415 Concerning the Council’s involvement with the events centre trust, the Council had been involved with the Trust since the Trust was formed several years earlier. It had a large file on its dealings with the Trust. We reviewed all council documents, including a funding agreement between the Council and the Trust. We found that the Council was actively monitoring its investment in the Trust, and had a comprehensive and robust due diligence process in place to ensure that the Trust was meeting its obligations under the funding deed and other agreements. This was appropriate, given the significant level of council funding for the Trust. The ratepayer was unaware of the nature and extent of the Council’s monitoring regime for the Trust, so our inquiry informed the ratepayer in that respect.
3.416 We made similar findings in the other areas of concern raised by the ratepayer. Generally, we found that a very high level of compliance with the decision-making framework in the 2002 Act. This is what we would expect for a large, well-resourced city council. We considered that councillors were well served by the reports from council officers.
3.417 A smaller local authority had a different, less formal approach to complying with the 2002 Act when making a significant decision.
3.418 At the Council’s request, we inquired into the Council’s decision-making process for changing the way rates were set in 2 urban wards in the district. The Council had been divided on the decision, and we also inquired into allegations of conflict of interest and bias by councillors in the decision-making process (none of which were upheld). We visited the Council and interviewed relevant councillors and council officers.
3.419 Concerning decision-making, we found that the process complied with legislative requirements and that councillors were given enough information on which to make the decision. The reports from council officers contained detailed information and analysis about the effect of the rating change on particular properties in each ward. However, we noted that the reports did not refer to the legislative framework in the 2002 Act; nor to its applicable principles.
3.420 This contrasted with the reports by the city council officers in example 1 (see paragraphs 3.410-3.416), many of which followed a template that worked through the provisions and principles in the 2002 Act relevant to the decision. However, in reaching conclusions we took account of the size and scale of the decision and the Council.
3.421 We asked councillors whether they would have found reports from council officers more helpful if they had included more analysis of the decision-making regime and principles of the 2002 Act relevant to the rating decision. The councillors said they did not consider the lack of legislative context to be important in the rating decision we reviewed.
3.422 Generally, in reviewing local authority decisions against the decision-making framework in the 2002 Act, we consider that references to the legislative framework appropriate to the particular matter, as well as applicable principles in the 2002 Act and the effect of social, economic, environmental, and cultural well-being, are useful to set the context and focus discussion at meetings. It is easier for a local authority to demonstrate that it has complied with statutory decision-making requirements when those requirements are referred to, and discussed, in reports and in minutes of meetings.
3.423 Another significant inquiry raised issues about:
3.424 A city council decided in March 2004 to embargo all future work on the Council’s civic offices, apart from essential maintenance, because the Council expected to develop new civic offices within the next 5 to 10 years and had provided funding for that purpose in its LTCCP. The embargo was proposed by a council committee as part of the Council’s 2004-05 planning process, and was adopted by the Council without discussion.
3.425 In April 2004, a Local Government Commission determination halved the number of city councillors with effect from the 2004 local authority elections. At the mayor’s request, council officers were asked for options to redevelop the existing council chamber to make it suitable for the smaller council and to have the upgraded chamber ready for the new council after the 2004 elections.
3.426 In August 2004, the mayor invited all councillors and executive staff to an informal presentation on proposed renovations to the council chamber. No minutes were taken. In October 2004, with the mayor’s approval, council officers let 2 contracts, totalling $802,336. One contract was to renovate the council chambers and the other related contract involved alterations to enable more council staff to be located in the civic offices. The second contract had not been discussed at the informal presentation.
3.427 We received a complaint from a former councillor that the expenditure on renovating the council chamber and the related contract was inconsistent with the earlier decision of the Council to embargo spending on the council buildings apart from essential maintenance.
3.428 We found that the expenditure was inconsistent with the Council’s embargo as the work was not “essential maintenance”. We also found that it should have been referred back to the Council for formal decision. We noted that the expenditure had been approved by the mayor following the informal presentation, and that no-one involved considered the effect of the earlier embargo.
3.429 The inquiry showed a need by the Council to consider the adequacy of its decision-making processes to ensure that decisions of the Council were actually implemented. In this case:
Results of 2004-05 audits.
Implementation of the Local Government (Rating )Act 2002
Separately used properties
(1) A local authority may set a uniform annual general charge for all rateable land within its district, being—
(a) a fixed amount per rating unit; or
(b) a fixed amount per separately used or inhabited part of a rating unit.
[Note that under Section 18 one of the Schedule 3 factors that must be used for calculating liability for a targeted rate is factor 7 - the number of separately used or inhabited parts of a rating unit.]
3.212 Our understanding is that section 15(1)(b) was included in the Rating Act to address difficulties that had arisen under the now-repealed Rating Powers Act 1988. These difficulties concerned levying separate charges, such as UAGCs, on separately used or separately inhabited parts of a single property. While separate charges for water supply or waste removal could be levied on separately used or inhabited parts of a rateable property under section 24 of the Rating Powers Act, there was no authority to levy UAGCs on such parts.
3.213 We have received enquiries from ratepayers concerned about:
a council policy of levying separate UAGCs on dual-use properties with a single inhabitant; and
a council policy of levying a UAGC on a part of a property that was capable of separate inhabitation, but was not in fact separately inhabited and where separate inhabitation would have been in breach of building standards.
3.214 In the first case, the owner of the property lived in the property and operated a part-time business in the other part. The property was purpose built for business use in one part and residential use in the other part. The owner was concerned about paying 2 UAGCs for the property. The owner was also concerned that the Council was not applying rates consistently within the district, as he believed that other properties with more than one use were not subject to more than one UAGC.
3.215 The Rating Act does not define “separately used or inhabited”, and the Council uses the following “working definition” –
any part of a rating unit separately used or inhabited by the ratepayer, or by any other person having a right to use or inhabit that part by virtue of a tenancy, lease, license, or other agreement.
3.216 Whether a part of a rating unit is separately used or whether it is separately inhabited is a question of fact. After the Rating Act was enacted, the Council had surveyed ratepayers about separate use and separate inhabitation. The Council had determined that the ratepayer’s property had 2 separately used parts (one business, one residential) and therefore charged the ratepayer 2 UAGCs.
3.217 The ratepayer considered the Council’s approach to be illegal and unfair. They referred the Council to other councils that had a policy of not applying a second UAGC on a dual use property where there is a single inhabitant.
3.218 The Council considered the ratepayer’s concerns in detail but did not change its policy. The Council considered a remission policy for rating units designed for dual use where one of the uses is of a minor nature and where there is a single inhabitant, but found it impossible to word a policy in such a way as to prevent unintended application to a wide range of rating units. The Council had legal advice that a court would be likely to uphold the Council’s approach to rating the ratepayer’s property. We advised the ratepayer that the Council was entitled to rely on its legal advice and that its approach did not appear to us to be unlawful or unreasonable.
3.219 In the second case, a Council levied a second UAGC on a part of a property that the ratepayer asserted was not in fact separately inhabited. While the part had a separate entrance and a separate kitchen, the ratepayer did not believe that the property would meet building regulations requirements for separate inhabitation. This was because the 2 parts of the property were not separated by a fire wall that would comply with building regulations and was therefore not legally capable of separate inhabitation.
3.220 While we could not make a legal determination on the matter, we advised the Council of our view that section 15(1)(b) requires councils to undertake factual enquiries about separate use or separate inhabitation, rather than levy UAGCs based on a property’s capacity for separate inhabitation. We also considered that the Council’s rating policy and practice should be aligned with the requirements of the Building Act 1994.
[Note that since this report was written the Local Government Act has been amended and councils are now obliged to include their definition of a separately used or inhabited part of a rating unit in the funding impact statement in the annual plan and in the LTCCP (Sections 93 and 95 and Parts 1 and 2 of Schedule10 clauses 10 and 13.)]
Results of 2002-03 audits
2.609 We are not sure whether such omissions of information about rates have an effect, as there is no direct statutory link between the Revenue and Financing Policy and the rates set. However, we consider that, given the spirit and intent of the 2002 Act, it is reasonable to expect that Funding Impact Statements and rates resolutions would be consistent with the decisions reached in a local authority’s Revenue and Financing Policy. Where this is not the case, section 80 of the 2002 Act requires that the reasons for any inconsistency, and any intentions the local authority has to rectify the situation, be stated at the time of the decision. We consider that this information should be noted in the relevant long-term council community plan (LTCCP) and annual plan.
Funding Impact Statements – Setting of General Rates and Uniform Annual General Charges
2.610 We reviewed local authorities’ Funding Impact Statements to ensure that, for proposed general and targeted rates, the statements contained the information required by Schedule 2 and Schedule 3 of the Rating Act. Under sections 14, 17, and 18, a local authority can only set rates in accordance with these schedules.
2.611 Under Schedules 2 and 3, when setting rates, a local authority must take account of certain:
2.612 Under sections 14 and 17, the “matters” in Schedule 2 that may be used to define categories of rateable land are:
1. The use to which the land is put.
2. The activities that are permitted, controlled, or discretionary for the area in which the land is situated, and the rules to which the land is subject under an operative district plan or regional plan under the Resource Management Act 1991.
3. The activities that are proposed to be permitted, controlled, or discretionary activities, and the proposed rules for the area in which the land is situated under a proposed district plan or proposed regional plan under the Resource Management Act 1991, but only if –
(a) no submissions in opposition have been made under clause 6 of Schedule 1 of that Act on those proposed activities or rules, and the time for making submissions has expired; or
(b) all submissions in opposition, and any appeals, have been determined, withdrawn, or dismissed.
4. The area of land within each rating unit.
5. The provision or availability to the land of a service provided by, or on behalf of, the local authority.
6. Where the land is situated.
7. The annual value of the land.
8. The capital value of the land.
9. The land value of the land.
2.613 Under section 18, the Schedule 3 “factors” that may be used in calculating liability for targeted rates are:
1. The annual value of the rating unit.
2. The capital value of the rating unit.
3. The land value of the rating unit.
4. The value of improvements to the rating unit.
5. The area of land within the rating unit.
6. The area of land within the rating unit that is sealed, paved, or built on.
7. The number of separately used or inhabited parts of the rating unit.
8. The extent of provision of any service to the rating unit by the local authority, including any limits or conditions that apply to the provision of the service.
9. The number or nature of connections from the land within each rating unit to any local authority reticulation system.
10. The area of land within the rating unit that is protected by any amenity or facility that is provided by the local authority.
11. The area of floor space of buildings within the rating unit.
12. The number of water closets and urinals within the rating
2.614 The Rating Act provides Regional Councils with power to set a uniform annual general charge. This power had not been available to Regional Councils under the Rating Powers Act 1988. One Regional Council took advantage of this new provision.
2.615 Another Regional Council did not set either a general rate or a uniform annual general charge. Instead, the Regional Council set a targeted annual charge, differentiated by location of properties within each territorial authority in its region.
2.616 Five Regional Councils set general rates as a rate in the dollar on an undifferentiated basis. Five set general rates as a rate in the dollar on a differential basis. These five differentiated on the basis of the land situation “matter” set out in Schedule 2 of the Rating Act, to take into account the different revaluation dates that apply to territorial authorities within their region.
2.617 Eighteen territorial authorities used a general rate set as a uniform rate in the dollar. One City Council in this group also did not set any targeted rates except in respect of non-rateable properties (which would otherwise pay no rates for water supply, sewage disposal, waste collection, or services provided in relation to the land).
2.618 In general, the remainder of territorial authorities set differential general rates using the following “matters” under Schedule 2 of the Rating Act:
the use to which the land is put (by far the most frequently used);
where the land is situated (also frequently used); and
the area of land within each rating unit.
2.619 Fourteen territorial authorities did not set a uniform annual general charge.
Funding Impact Statements – Setting of Targeted Rates
2.620 Targeted rates are similar to separate rates under the Rating Powers Act 1988, but provide a greater range of factors for setting differential targeted rates. Section 16 of the Rating Act provides that:
(1) A local authority may set a targeted rate for 1 or more activities or groups of activities if those activities or groups of activities are identified in its funding impact statement as the activities or groups of activities for which the targeted rate is to be set....
(3) A targeted rate may be set in relation to – (a) all rateable land within the local authority’s district; or (b) 1 or more categories of rateable land under section 17.
(4) A targeted rate may be set –
(a) on a uniform basis for all rateable land in respect of which the rate is set; or
(b) differentially for different categories of rateable land under section 17.
2.621 Overall, local authorities appear to have had no difficulty in dealing with the requirement to select Schedule 2 “matters” and Schedule 3 “factors” in setting targeted rates. However, we have yet to see the more innovative approaches that were expected to emerge with flexible targeted rating powers, such as rating for particular services. At this stage, most local authorities are merely using the targeted rating power to continue rates formerly levied as separate rates under the Rating Powers Act 1988.
2.622 All Regional Councils set one or a number of targeted rates. The most common activities for targeted rates are land transport, environment, and biosecurity.
2.623 For each of these activities, we considered the “matters” and “factors” used to set targeted rates. The most commonly used “matter” from Schedule 2 by which properties are identified as liable for a particular rate was where the land is situated. The provision or availability of a service provided by or on behalf of a local authority was also occasionally used. From Schedule 3, which provides the “factors” on which a property’s liability for a targeted rate is calculated (unless it is a uniform per property rate), the “factors” generally used were:
capital value of the rating unit (the most commonly used);
land value of the rating unit; and
area of land within the rating unit.
2.624 The wide range of targeted rates set by a number of territorial authorities and the extensive use of targeted rates made it difficult to prepare an analysis of trends in targeted rates used by territorial authorities. From our analysis, it appeared that all territorial authorities had set one or more targeted rates.
2.625 We looked at the Schedule 2 “matters” and Schedule 3 “factors” used by territorial authorities to set targeted rates over several common activities. The analysis of targeted rates for these activities showed fairly consistent patterns in the identification of “matters” and selection of “factors” for calculating rating liability across the country:
Water supply: We identified more than 65 territorial authorities that set a targeted rate to fund some part of their water activity. For this activity the most frequently used “matters” were the availability of service, followed by where the land is situated. “Factors” commonly used were the extent of provision of service to the rating unit by the local authority, the number of separately used or inhabited parts of the rating unit, and the number or nature of connections for the land within each rating unit to any local authority reticulation system.
Sewerage and Wastewater: We identified nearly 70 territorial authorities that set a targeted rate to fund some part of their sewerage and wastewater activity. For this activity, the provision or availability to the land of a service provided by or on behalf of the local authority was by far the most commonly used “matter”, followed by where the land is situated. A range of “factors” were used to a greater and lesser extent with:
the number of water closets and urinals within the rating unit being the most commonly used, followed by;
the number of separately used or inhabited parts of the rating unit, followed by;
the extent of provision of service to the rating unit by the local authority, and the number or nature of connections for the land within each rating unit to any local authority reticulation system.
A small number of local authorities also used the capital or land value of the rating unit.
Storm Water: We identified more than 30 territorial authorities that set a targeted rate to fund some part of their storm water activity. The main “matter” used was where the land was situated, while the main “factors” used were:
the capital or land value of the rating unit;
the number of separately used or inhabited parts of the rating unit; and
the extent of provision of service to the rating unit by the local authority, and the number or nature of connections for the land within each rating unit to any local authority reticulation system.
Refuse Collection: We identified more than 50 territorial authorities that set a targeted rate to fund some part of their refuse collection activity. For this activity, where the land is situated was the most frequently used “matter”, followed closely by the provision or availability to the land of a service provided by or on behalf of the local authority. The main “factor” used was the number of separately used or inhabited parts of the rating unit, followed by the extent of provision of service to the rating unit by the local authority.
Roading: We identified nearly 30 territorial authorities that set a targeted rate to fund some part of their roading activity. For this activity, where the land is situated was the most commonly used “matter”, followed by the use to which the land is put. The main “factors” used were the capital value or land value of the rating unit.
Community Board or Ward Rates: We identified nearly 20 territorial authorities that set a targeted rate to fund community board or ward activities. Almost all community board and ward rates were set using the “matter” of where the land is situated. However, the “factors” on which liability was calculated were more evenly distributed, with the land value of the rating unit, and the number of separately used or inhabited parts, being most commonly used, followed by the extent of service provision to the rating unit by the local authority, and the capital value of the rating unit.
Compliance with the 30% Cap on Uniform Charges
2.626 The Rating Act retains a 30% cap on the proportion that certain rates can comprise of a Council’s total rates revenue. This cap applies to:
targeted rates that are–
calculated as a fixed dollar amount per rating unit or separately used or inhabited portion of a rating unit (and which is not used solely for water supply or sewage disposal); and
uniform for all properties to which the rate applies; and
uniform annual general charges.
2.627 While the cap is not new, the Rating Act introduced the new, more flexible, targeted rating powers. As a result, calculation of the cap under the Rating Act is more complex and creates a risk that local authorities could inadvertently breach the cap – especially until they became more familiar with the requirements of the Rating Act. We therefore decided to review how local authorities calculated the rating cap.
2.628 Overall, while we noted two breaches of the cap in our review of draft Funding Impact Statements, the local authorities concerned had taken steps to remedy these before adoption of their rates. Therefore, we did not observe any breaches of the cap in rates as finally adopted.
2.629 Of the two local authority draft plans that contained breaches, in one instance – as part of the public consultation process – a ratepayer submitted that the cap had been breached. In the other, the Council had adopted a rates resolution but had not sent out rates assessments. Therefore, the Council was able to revoke the resolution that breached the cap, and adopt a resolution that complied with the cap calculation.
2.630 We selected a sample of one-third of local authorities to look at the actual percentage of revenue generated by uniform general and targeted rates within the cap calculation. This analysis showed that the actual proportion of revenue raised by uniform general and targeted rates ranged from 6% to almost 29%, with the median being 21%.
2.631 We would caution local authorities that have chosen to generate revenue through uniform general and targeted rates that is close to the 30% cap, to ensure that, in the process of making changes in response to public consultation, adjustments to revenue do not result in the cap being inadvertently breached.
2.632 The potential for inadvertent breach and public confusion about what is set under targeted rating powers versus general rating powers is not helped where local authorities are not clear in their description of rates and do not provide a description of the activities for which the targeted rate is set, for example:
a uniform annual general charge set using the targeted rating powers over both rural and urban land; and
a rate described as a targeted uniform general rate set on every rating unit, using the targeted rating powers over the four locations in the district.
2.633 Section 16(1) of the Rating Act states:
A local authority may set a targeted rate for 1 or more activities or groups of activities if those activities or groups of activities are identified in its funding impact statement as the activities or groups of activities for which the targeted rate is to be set.
2.634 In our view, local authorities should take care in their Funding Impact Statements and rates resolutions to:
accurately describe the type of the rate being set; and
identify the activity or group of activities for which a targeted rate is set.
2.635 We also noted a number of instances where the Funding Impact Statement description of rates to be set did not match the presentation of categories of revenue in local authority financial forecasts. Consistent presentation of information is necessary if ratepayers are to be able to use LTCCPs and annual plans as a basis for assessing the proposals of local authorities, and the costs involved.
2.636 Finally, we note that the flexible powers available to set targeted rates could allow local authorities to set rates that, in substance, are uniform general rates, but which do not form part of the rating cap calculation – primarily through setting a targeted rate that varies by location but is flat in each location. For example, one local authority set a rate that purported to be a flat rate differentiated by location – however, the flat rate paid in each location was the same. This appears to make the differentiation by location irrelevant, as the same flat amount was paid by every property on which the rate was set.
2.637 We consider that this is a position likely to generate public confusion, and have suggested to the Department of Internal Affairs that it monitor the use of targeted rates to see whether the current rating cap is effective as a means of managing the extent of rates that are set on a uniform basis.
Setting a Rate for Unforeseen and Urgent Needs
2.638 We are aware that, during the year, one local authority used the power under section 23(3) to set a rate that was not provided for in its Funding Impact Statement. This is allowed if the local authority is satisfied that:
… the rate is required to meet an unforeseen and urgent need for revenue that cannot reasonably be met by any other means …
2.639 We are concerned that the legislative tests were not met by this local authority’s circumstances, and we are discussing this with the local authority. However, we emphasise that any local authority considering using this provision must, at the time of making the decision, be satisfied that:
the rate is to meet an unforeseen need;
the need for revenue is urgent; and
the need cannot reasonably be met by any other means.
Footnote 30: Funding Impact Statements are required to be included in local authorities’ long-term council community plans and Annual Plans, and to set out information that discloses the revenue and financing mechanisms to be used by a local authority. Under section 23, rates are required to be set in accordance with Funding Impact Statements.
Footnote 31: Schedules 2 and 3 of the Rating Act establish:
the units of liability where a local authority is setting a general rate differentially under sections 13 and 14 of the Act; and
factors for calculating the liability where a local authority is setting a targeted rate under sections 16-20 of the Act (targeted rates are similar to separate rates under the now-repealed Rating Powers Act 1988).
1. Setting rates in accordance with the LTCCP.
2. Amendments to LTCCPs
3.2 Implementation of the Local Government (Rating) Act 2002
Local government: Results of the 2004-05 audits.
3.201 The purpose of this article is to discuss 2 rating issues that came to our attention during the 2004-05 audits.
Setting rates in accordance with the Long-Term Council Community Plan
3.202 Section 23 of the Local Government (Rating) Act 2002 (the Rating Act) provides that rates set by a local authority must:
relate to a financial year or part of a financial year; and
3.203 The funding impact statement, in either the LTCCP or the annual plan, must include information about revenue and financing mechanisms to be used by the local authority. It must also include certain information about general and targeted rates, and activities that will be funded from those rates.11 If a targeted rate is to be set differentially, the funding impact statement must state the total revenue sought from each category of rateable land, or the relationship between the rates set on rateable land in each category.
3.204 The following example illustrates the difficulties that may arise in complying with section 23 of the Rating Act where a decision that is inconsistent with a current policy is made late in the financial year.
3.205 A local authority decided to introduce a differential to a targeted rate for land transport for the 2005-06 rating year. The local authority wanted to do so to avoid potential litigation from an energy company that was paying a large amount of the rate but was not a major user of roads in the district.
3.206 In its draft annual plan, the local authority said that it intended to introduce a differential to the rate. The effect of the differential was to significantly decrease the rate payable by the energy company, but to increase the rate for other ratepayers by about 5%. However, as the local authority’s revenue and financing policy did not provide for a differential land transport rate, the proposed rate was inconsistent with the revenue and financing policy.
3.207 The Local Government Act 2002 (the 2002 Act) recognises that councils will from time to time make decisions that are inconsistent with policies or plans, including the LTCCP. Section 80 of the 2002 Act provides that, if a decision is significantly inconsistent with a policy or plan, a council must, when making the decision, identify:
3.208 In this case, the local authority did not consider that the decision was significantly inconsistent with its revenue and financing policy, but followed the section 80 process in its draft annual plan in any case. The local authority said that it would change the revenue and financing policy as part of the 2006-16 LTCCP. The revenue and financing policy forms part of the LTCCP, so a local authority could adopt a new policy with a new LTCCP or amend an existing policy during the period of the LTCCP by using the formal amendment process.
3.209 We discussed with the local authority whether or not it could meet the requirements of section 23 of the Rating Act, which are that rates must be set in accordance with relevant provisions of the funding impact statement and the LTCCP. The proposed differential land transport rate was in accordance with the funding impact statement for the financial year, as outlined in the draft annual plan, but was inconsistent with the revenue and financing policy in the LTCCP. In our view, the revenue and financing policy is likely to be a “relevant provision” of the LTCCP for the purpose of setting rates.
3.210 We considered that the local authority faced some risk in setting the land transport rate without amending the revenue and financing policy. However, we did not consider that the matter was of significant concern, as the local authority had clearly signalled its intended action in the draft annual plan for the year. We therefore did not consider that ratepayers had missed out on relevant information, because they had the opportunity to comment on the proposed rate during consultation on the annual plan.
Local government: Results of the 2006/07 audits.
3.1 In this Part, we describe the legislative and operational processes for amending Long-Term Council Community Plans (LTCCPs). We also provide an overview of the amendments that have been carried out by local authorities since the adoption of 2006-16 LTCCPs.
3.2 The Local Government Act 2002 (the Act) requires local authorities to have an LTCCP “at all times”.1 The LTCCP must be audited2 and the plan remains in force for three years.3
3.3 The LTCCP does not a commit a local authority to act. However, there are certain decisions that can only be made and acted on if they are provided for in the LTCCP. If these decisions are not already included in the LTCCP, an amendment is necessary. Decisions that require an amendment are:
significant new activities proposed by regional councils (section 16);
significant alterations to an intended level of service provision for any major activity; the transfer of ownership or control of a strategic asset; the construction, replacement, or abandonment of a strategic asset; and decisions about an activity in the LTCCP affecting the capacity of, or cost to, the local authority (section 97);
amendments to funding and financial policies (section 102(6)); and
sale or exchange of endowment property (section 141).
3.4 Section 93(4) allows the LTCCP to be amended at any time. Section 84(4) requires every proposal to amend the LTCCP to be audited.
3.5 The LTCCP retains its adopted form unless it is amended. A local authority can seek an amendment only when it follows the special consultative procedure set out in section 93(5) of the Act.
3.6 A local authority may decide to amend an LTCCP at any time, although most amendments are likely to be considered with the annual planning process.
3.7 Each year a local authority is required to adopt an annual plan.4 The primary purpose of the annual plan is to support the adopted LTCCP (in enabling integrated decision-making). It outlines the proposed budget for the financial year to which it relates. Its purpose includes “identify[ing] any variation from the financial statements and funding impact statement included in the LTCCP”.5
3.8 However, the annual plan, containing the LTCCP variations, does not replace the LTCCP. This means that the annual plan:
does not replace the existing LTCCP “numbers” or other forecast information;
is adopted through the special consultative procedure,6 but it is not subject to audit; and
does not “amend” the LTCCP. Although a local authority will adopt an annual plan, it has no direct effect on the LTCCP. The existing LTCCP remains “in force” without change.
3.9 The annual plan sits alongside the LTCCP as a record of annual variations rather than being integrated with the existing LTCCP. We discuss the difference between a variation in an annual plan and an amendment to an LTCCP in paragraphs 3.22- 3.24.
Overview of amendments by the sector
3.10 During the period from 1 July 2006 to 31 December 2007, 11 city councils, six regional councils, and 27 district councils completed 51 LTCCP amendment processes. These amendments addressed 155 issues that resulted in changes to their 2006-16 LTCCPs.
3.11 Three local authorities each proposed one amendment for consultation within four months of the adoption of the 2006-16 LTCCPs. Each of these local authorities has since carried out another amendment process (in the period to 31 December 2007). Four other local authorities also completed two amendment processes during the 2007 calendar year.
3.12 Forty-two local authorities carried out an LTCCP amendment process in conjunction with the 2007/08 annual planning process.
3.13 An LTCCP amendment process usually addresses between one to four major changes to the adopted 2006-16 LTCCP. However, a small number of amendments covered a greater number of issues. The largest number of issues within one amendment was 11.
3.14 After the consultation process and the assessment of public submissions, it was rare for the original amendment proposal to change. In the vast majority of cases, the amendment was adopted without any changes.
Nature of amendments
3.15 The most common and significant amendment issue related to changes to the revenue and financing policies of a local authority. Twenty-three local authorities made changes of this kind. This was closely followed by 19 local authorities who made changes to their development contribution policies.
3.16 The requirements of section 102(6) of the Act force any change to a funding or financial policy to be an amendment. The 42 amendments noted in paragraph 3.12 ranged from very small changes to wording within these policies (with minimal effect on ratepayers) to much more substantial and complex changes reflecting fundamental changes to the previous policy. Usually the more complex changes were made only for a specified or limited sphere of activities rather than for all activites.
3.17 Interestingly, 12 amendments related to new capital projects or the start of new activities where the 2006-16 LTCCP had not included the operational or capital costs associated with the projects. Some indication of the project, as yet unspecified and uncertain, was often included in narrative to the 2006-16 LTCCP. In addition, four amendments related to significant cost increases for projects that had previously been included in the LTCCP. Another four amendments related to significant changes to the timing of large capital projects.
3.18 Other main areas where amendments were made were:
changes to rating policies;
changes to underlying assumptions;
changes to levels of service;
changes to the structure of the performance management framework;
a proposal to sell endowment property;
a proposal to sell a strategic asset; and the creation of a new council-controlled organisation.
3.19 There were a large number of other proposals that were unique to a particular local authority.
3.20 We and our appointed auditors have made a considerable effort to look for issues that may give rise to an LTCCP amendment. On the whole, there has been a high level of communication between the sector and auditors about these issues. In most instances, it is reasonably clear when an amendment process is triggered. However, particularly when issues arise that reflect a change in the intended level of service provision7 or a change to the cost of an activity,8 judgement is required to assess whether the change is significant enough to trigger the amendment process.
3.21 Good communication between the sector and auditors is important to help promote consistency in the approach to issues where “significance” must be assessed.9 This will help to determine whether the issue should be processed through the annual plan or as an amendment.
Audit requirements for amendments
3.22 The audit requirement for an amendment reflects the distinction between a local authority adopting variations from the existing LTCCP (essentially for annual rating purposes) compared to making a change of such scale that it requires specific public consultation on the proposed changes and their impact and auditor’s assurance in the manner intended by section 84(4) of the Act. Under section 97 of the Act, the distinction is based on the “significance” of the matter proposed. If a change is deemed “significant”, then it must be treated as an amendment rather than a variation. Sections 16, 102, and 141 do not directly relate to “significance” but are specific events deemed to be significant by the Act.
3.23 The primary annual planning requirement for a local authority is to identify variations from existing plans (with the consequential effect on rating levels and levels of service). Where local authorities wish to change their previously expressed intent in a “significant” manner, they must pursue a separate amendment. While an amendment is subject to a separate consultation process, the Act recognises that it may be efficient for this to be carried out with an annual plan process. It needs to be clear to the community that it is being consulted on two counts – one on setting the annual plan for the year, and the other on a change to the 10-year plan.10
3.24 The main issue for a local authority is assessing what constitutes an amendment, in contrast to the normal and expected annual variations from the 10-year plan. We have noted since the adoption of the 2006-16 LTCCPs that this assessment often requires a significant amount of professional judgement. The difference between variations and amendments is not always clear cut.
Reporting on the amended Long-Term Council Community Plan
The audit report
3.25 In contrast to the requirement to issue an audit opinion on the LTCCP Statement of Proposal and at the point when the LTCCP is adopted, there is no statutory responsibility for the auditor to report on the adopted amendment. However, section 84(4) of the Act requires that every proposal to amend the LTCCP is to be audited.
3.26This position is unsatisfactory from both an auditor’s and, more particularly, a reader’s perspective. It does not make clear what has been audited during the LTCCP amendment process.
3.27 Without the specific legislative requirement for the auditor to issue an opinion, we felt there was a need to inform the reader about the amended LTCCP and the extent of the auditor’s involvement. To achieve this, we established a process where a local authority is asked to add a statement or “alert” to the amended LTCCP document. This ensures that the reader is aware of the extent of audit review that the amended LTCCP has been subject to. The original opinion issued on the adopted LTCCP still remains part of the LTCCP and the “alert” is published alongside the original opinion.
3.28 In the longer term, we would prefer to see the Act clarified to resolve this reporting anomaly.
Format of reporting on the amended Long-Term Council Community Plan
3.29The intent of the Act is that, once an amendment is adopted, the existing LTCCP is updated with that amendment, and the two documents merge.
3.30 Very few local authorities have produced a new “hard copy” of their amended LTCCP. In addition, we note that most local authorities that have completed amendments have not actually updated their LTCCP after adopting the amendment. For efficiency reasons, they have chosen to publish the amendment (on their website) as a separate document associated with the original LTCCP. Although this is not strictly consistent with the intent of the Act, we have accepted it as a practical and cost-effective approach. There needs to be a clear link between the two documents, and the amendment needs to be easily related to the original LTCCP.
3.31 We are satisfied that local authorities have been appropriately sensitive about the nature of the amendment when they have decided to attach the amendment to the original plan. They have also done so when publishing a new LTCCP document with the amendment fully merged into the original LTCCP. This decision has largely been based on the extent to which the amendment generates consequential amendments to other parts of the original LTCCP.
1: Section 93(1) of the Act.
Local government: Results of the 2003-04 audits.
1.503 Section 119(1) and (2) of the Rating Act provides that –
Local authority may set rates again
1.504 The purpose of section 119 of the Rating Act, and the related section 120 dealing with the “replacement of invalid rates”, is to enable councils to fix rating defects without needing special validating legislation every time something goes wrong with the procedures or circumstances change (as was required by the Rating Powers Act 1988). However, while section 119 provides an administratively easier option for local authorities wanting to correct such defects, we expect it to be rarely used.
1.505 One local authority decided that its rates should be reset because it had failed to recognise the implications of a revaluation of properties at the time those rates were set. The revaluation had resulted in one group bearing a substantial increase in rates relative to other residents in the district, and the local authority considered this to be “a relevant change in circumstances” under section 119(2)(a)(iii).
1.506 Another local authority assumed that its resolutions adopting the annual plan and funding impact statement also formally set the proposed rates referred to in those documents. As a result, it failed to pass the separate rates-setting resolution required by section 23 of the Rating Act. The local authority decided this was “an irregularity in setting the rate” under section 119(2)(a)(i), and accordingly relied on section 119 to reset its rates.
1.507 In both circumstances, the local authorities concerned took legal advice and we accepted the positions they arrived at. However, we thought it useful to set out our views on the application of section 119(2)(a).
1.508 Section 119(2)(a) prescribes 3 alternative tests, and councils should take considerable care in considering whether any of these tests apply before deciding that it is “desirable to set the rate again”. In our view, each of the tests must be approached on the basis of the natural meaning of the words used.
1.509 “Irregularity” does not have a technical or statutory meaning. One plain but useful definition of the word is “not in conformity with the law prescribing and regulating that process”.36
1.510 In that regard, any failure by an individual council to comply with a requirement for a separate rates resolution could be considered a type of “irregularity”. The omission of a particular step in the process of setting a rate may also constitute an irregularity.
1.511 A situation in which a local authority is given wrong figures that result in an error in setting the rates, or rates that do not reflect the intentions of that local authority, could constitute a “mistake”. However, it is unlikely to apply to a situation where the council simply overlooks the implications of a rating decision.
Relevant change in circumstances
1.512 The word “circumstances” could be read in 2 different ways − as a fact or condition connected with the council’s rate as a whole or any part of it, or (more narrowly) as the financial or material circumstances of an individual ratepayer in relation to the rate. In our view, the circumstances in question must relate to the rate itself.
1.513 There also needs to be a “change” in circumstances. That change must have taken place since the rate was originally set, and it must also be “relevant” to the rate itself (e.g. affecting its necessity or integrity). These conditions could provide a council with a basis for deciding that it is “desirable” to set the rate again.
1.514 In our view, simply changing one’s mind, or realising afterwards that the rate is unduly harsh on some ratepayers, does not meet the test of “a relevant change in circumstances”. On the other hand, events such as the following examples could amount to a “relevant change” in the circumstances relating to the rate: