In the room where it happened: Government’s back-to-basics benchmarking challenge to councils

MartinJenkins’ Partner Sarah Baddeley reflects further on what “back to basics” might mean for local government following the challenge set down by central government in August. She does it by badly stretching a reference to the Lin-Manuel Miranda musical “Hamilton”, after spending too much time with her children over the school holidays and having the musical on repeat.

Some 10 years after Hamilton first premiered off-Broadway, and with my daughter being a little late to the party, the musical was on high rotation at my house over the recent school holidays, and it seems set to continue. Each time I heard the song “The room where it happens” I was reminded of what it felt like to be in the room when the Prime Minister spoke at the Local Government New Zealand’s “SuperLocal” conference way back in August, and the sense of growing tension and alarm.

Alexander Hamilton, a US “founding father” and its first Secretary of the Treasury – here captured in a non-musical moment (Source: John Trumbull, Public domain, via Wikimedia Commons)

“The room where it happens” is about a different kind of political event, about the mystery surrounding the backroom deal that Hamilton, Jefferson, and Madison hammered out for where to locate the US capital. This hook also seems relevant given the US election fever that has been sweeping through us political junkies. By contrast, the SuperLocal conference saw a very much front-room confrontation, with very direct and transparent messaging from the Government that councils need to “get back to delivering the basics brilliantly”.

So what are the basics that councils need to get back to?

The Prime Minister didn’t leave much doubt:

“Pick up the rubbish. Fix the pipes. Fill in potholes. And more generally, maintain local assets quickly, carefully, and cost effectively.”

The local-government sector has had two months now to process what this back-to-basics message might mean for them, in a world where they were already reviewing their role in providing water services, and also hot off the heels of finalising their Long-Term Plans.

The core functions of councils’ service delivery differ across the country only at the margins. For all of them, asset-managing roads, water, and waste is key, as is providing regulatory services, such as building consents and resource management, and enforcing local bylaws. Parks and recreational services are also important, especially if you’re a high-growth area where your rate of housing development is outstripping your investment in community facilities.

For councils those core functions are hard and getting harder. For example, just ask the Far North District Council what it takes to manage dogs in their area. And Dunedin is only the most recent among councils that have shown what has to happen when council employees lay down the tools of their day jobs to take up civil-defence functions for their communities. 

Across the range of asset types and service lines, local-government service delivery has been affected by changes in the scope of responsibilities, unfunded mandates, increasing regulatory complexity, declining revenue (including in development contributions due to the economic downturn), and increasing expectations across more diverse communities.

In our work for central and local government, we at MartinJenkins often remind our clients that the business of providing government services is just hard. If it were straightforward someone else would be doing it, and probably for a good profit.

But this complexity isn’t an excuse for avoiding the hard choices that are necessary when costs are going up and revenue is going down. This was at the heart of the challenge laid down by the Prime Minister – and similar to the challenge faced by the Coalition Government itself, as outlined by my colleague Cat Moody in her article “Walking the fiscal tightrope”.

Why a performance-benchmarking framework?

The Government is signalling that New Zealand's local-government sector could benefit greatly from having a comprehensive performance-benchmarking framework, most likely drawing inspiration from successful models in Victoria and New South Wales.

The case for benchmarking local government is largely the same as for other forms of service delivery that aren’t subject to competitive pressure.

First, it provides more transparency and accountability. Citizens can easily find out and understand how their council is performing, and that public scrutiny also motivates councils to improve their performance and encourages the community to care more about their local council’s performance. This could also lead to a bigger voter turn-out, which would be a good thing for the sector.

A standardised reporting framework also ensures that performance is measured uniformly across all councils, and it promotes efficiency by enabling councils to learn from each other about best practices.

In New Zealand, our local-government sector currently has several voluntary performance standards, making it difficult to make meaningful comparisons. It’s therefore also difficult for decision makers (and ratepayers) to drive expectations about efficiency, and to ensure investment decisions are informed by a good understanding of trade-offs.

Structured benchmarking in the areas of financial performance, asset management, governance, and service delivery would bring real benefits to ratepayers, and help to develop trust and confidence in service delivery. 

But how to account for the variations in our local government sector?

In New Zealand, the use of averages to make comparisons across our local authorities would have limitations, as our local government institutions vary significantly.

We have a few large councils, and many very small ones. Half of the population is concentrated under the leadership of five councils, while 22 councils have fewer than 20,000 people, and 32 councils have fewer than 10 people per square kilometre.

We also have a number of urban areas that are split between multiple councils – for example,  Wellington, Hutt City, Porirua, and Upper Hutt City; Tauranga and Western Bay of Plenty; and Christchurch, Selwyn, and Waimakariri.

So our local government boundaries haven’t kept pace with changes in economic geography or increased urbanisation. The benchmarking of services across councils will require an approach that can recognise and use different measures for rural, provincial, and metropolitan population groups.

What can we learn from Australia?

Comparisons with Australia are clouded by the federal system and the fact that some of the services that New Zealand councils provide are delivered by state government in Australia.

But we may be able to learn useful things from how New South Wales and Victoria consider the socio-economic and other features of their councils to enable meaningful comparisons between them.

The NSW approach breaks down performance data by type of council using the categories Metropolitan, Metropolitan fringe, Regional, Large rural, and Rural. On the “Your Council” website hosted by the NSW Office of Local Government, a ratepayer in a Large-rural council, for example, can check out how the council’s expenditure per resident in a particular service area like “Environment (inc waste)” compares with the average for all Large-rural councils in the state, as well as with the average for all NSW councils.

Victoria has a mandatory system of performance reporting for all councils. As with NSW, Victoria’s approach allows comparisons of similar councils, broken down into Metropolitan, Interface, Regional city, Large shire, and Small shire. On the Know Your Council site, Victorian ratepayers can see where their council is ranked within its cohort of similar councils for each of 15 service areas – from “Roads” and “Food Safety”, to “Liquidity” and “Efficiency”.

In New Zealand we may be able to adapt those smart Australian approaches to our own local-government terrain.

A Melbourne tram passing the city’s town hall. For local councils in Victoria, performance reporting is mandatory.

What about funding?

Beyond benchmarking, Australia is also seeing debates around sustainable funding arrangements. For example, the Australian Local Government Association has recently called for at least 1% of Commonwealth Tax Revenue to go to local government to provide financial certainty and security for the sector.

The arguments being mounted across the Tasman closely reflect those raised by local government here. They highlight the challenges the sector faces in trying to control input costs while also adapting to climate change and providing civil-defence responses to increasingly frequent extreme weather events. 

Can both local and central government respond to the challenge? 

The Government has signalled that it intends to develop a new benchmarking approach backed by legislation, which it would potentially introduce in this current quarter. 

Local councils need to get match fit to prepare for these new statutory requirements – and for potential sweeteners being offered through the regional deal framework for those lucky enough to be selected. They’ll need to fully understand their cost structures and cost-allocation methods in order to make benchmarking exercises more meaningful, and to meet the demands not just of government but also of their own communities.

For central government, the PM’s speech at the August LGNZ conference had the desired effect. While it was not quite a “pistols at dawn” challenge, in the moment at the conference it didn’t feel far off. It was at least a “Do I have your attention now?!” moment.  

But central government itself also has a lot of work to do. It will need to consider exactly what it’s going to bring to the issues. As well as the shape of its new legislated benchmarking framework, it will need to think about the extent it will engage with communities, and about ensuring that high-quality, consistent data is available to support the new system’s credibility. 

Ultimately benchmarking will benefit ratepayers and local communities, but this will depend very much on central government getting the settings right and on local government making sure their houses are in order. It will also depend on whether central and local government can collaborate constructively, rather than doing pistols at dawn. Getting back to Hamilton: An American Musical, we all know how the duel ended for Alexander Hamilton. Not well.

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