On Thursday 18 November 2010, Parliament passed the Local Government Act 2002 Amendment Act 2010 through its second and third readings. In this FYI we provide an overview of the changes made to the Bill during the legislative process.

Overall, the changes made to the Bill during the legislative process have not been significant or involved any major policy shifts.

Select committee's changes

The Local Government Act 2002 Amendment Bill was introduced into Parliament on 29 April 2010, and referred to the Local Government and Environment Select Committee. The committee's report on the Bill was delivered to Parliament on 3 November 2010 and the highlights are as follows.

Performance measures

The Bill allowed for rules to be made specifying standard performance measures for local authorities in relation to five groups of activities (water, wastewater, stormwater, flood protection, and roads/footpaths).

The committee recommended adding a purpose section to clarify that the purpose of the performance measure rules is to enable the public to compare levels of service between local authorities for the relevant activities.

The committee also recommended that criteria for selecting performance measures should be added to the Bill. The criteria include whether a performance measure: measures the level of service for a major aspect of the group of activities, addresses an aspect of the service that is of widespread interest to the public, and contributes to the effective and efficient management of the group of activities.

The committee recommended that council-controlled organisations that deliver any of the five groups of activities should have to include specified performance measures and targets in their statements of intent.

Following advice from the Regulations Review Committee, the committee also recommended:

  • using standard wording in sections relating to the incorporation of material by reference;
  • replacing the power to exempt a class from paying levies to fund the rules with a power to refund levies where the amount collected exceeds the cost of developing the rule.  

Pre-election reports

The Bill required local authority chief executives to prepare a pre-election report, the purpose of which is to provide information and promote public discussion about the issues facing the local authority.

The committee was concerned that requiring a chief executive to comment on the local authority's compliance with its financial strategy could politicise the role. It therefore recommended that the Bill be amended to limit a chief executive's statement to factual observations of rates, rates increases, borrowing, and investment returns compared to the financial strategy.

The committee also recognised that the timing of the pre-election report would mean that the figures included for the election year may be unaudited estimates and that it could be difficult for smaller local authorities to produce this information in time. It therefore recommended amendments to enable local authorities with a population under 20,000 to choose to provide annual plan information for the election financial year instead of unaudited estimates (ie, the funding impact statements prepared for the annual plan and summary balance sheet based on forecast financial statements).

Water services

The Bill extended the permitted length of contracts for water services from 15 to 35 years, and allowed a private partner to provide and own new infrastructure for up to 35 years. The purpose of the amendments was to enable the use of public-private partnerships for water infrastructure (notably the use of "build, own, operate, and transfer" schemes).

Labour and the Greens viewed these amendments as the privatisation and commercialisation of water. Many submitters also expressed concerns about the amendments.

The committee acknowledged the divergent views on water services, but did not significantly change the Bill. It recommended a new provision be added to enable the sale of existing local government water infrastructure to a private partner only if the local authority reasonably believes that it is incidental to a joint arrangement (ie, a public-private partnership) and desirable for the success of that arrangement. It also recommended amendments to provide that concession or other franchise agreements be prohibited (ie, agreements where a private entity is entitled to receive payments from consumers, rather than a local government organisation).

Assessment of investing in or undertaking commercial activities

The Bill added a new principle that requires local authorities to periodically assess their returns from investing in or undertaking commercial activities. The committee recommended removing the reference to investing in "equity securities" from this principle, so that it focuses only on investments in commercial activities.

Issues on which no changes were recommended

Although many submissions were made on various matters in the Bill, the committee decided not to recommend any changes to the following matters:

  • the list of core services,
  • the repeal of sections dealing with decision-making and consultation (being sections 78(2), 88, and 97(1)(c) and (d)),
  • the repeal of the requirements to identify and report on community outcomes (sections 91 and 92), and
  • community board funding.

Minority views

The select committee's report included minority views for Labour and the Greens, and the Māori party.

Labour and the Greens challenged the underlying policy of scaling back local government services, and viewed the amendments as further steps towards privatisation and corporatisation of local authority services.

The Māori party highlighted the lack of Māori representation on local authorities and in local authority decision-making processes.

Changes in the House

After receiving the committee's report on 3 November 2010, Parliament completed the second and third readings of the Bill under urgency on 17 and 18 November 2010.

In passing the Bill, Parliament agreed to adopt all of the committee's recommendations and some technical drafting amendments put forward by the Minister of Local Government through a supplementary order paper.

Labour, the Greens, and the Māori party all voted against the Bill through all stages in the House.

Next steps for local authorities

Most provisions in the Act commence the day after the Bill receives Royal Assent (it is expected that Royal Assent will be given on 26 November 2010). Therefore, the amendments to the decision-making provisions in the Act, and the introduction of the provisions dealing with core services and assessments of commercial activities, should be in force by next week.

The parts of the Act that do not apply immediately are:

  • changes to the LTP will not be required until the 2012-2022 LTPs are prepared (although, until a financial strategy is adopted, any amendment to a liability management or investment policy must be by LTP amendment);
  • provisions affecting annual plans and reports will also not apply until the 2012/2013 financial year;
  • remission and postponement policies for Maori freehold land and general land will be treated as being last reviewed on the date that the 2009 LTP was adopted; and
  • the requirement to have pre-election reports commences on 1 July 2011, meaning the first reports will be produced in the 2013 election year.