2.4 Power to make donations

Local government: Results of the 2003-04 audits.

A question was asked of our Office after major flooding in the lower North Island in February 2004 concerning the lawfulness of council donations to other councils whose districts or regions were affected by the floods.

It is part of how local government operates in New Zealand − and one of its admirable qualities − that resources and expertise are shared in a way that takes advantage of collective experience and promotes good practice. Likewise, donations of this kind are made in the spirit of helping out neighbours in times of need. The majority of NZ communities are likely to support such donations.

The Department of Internal Affairs newsletter of 8 April 2004 advised as follows–

Donations by Local Authorities

An issue that arose in the recent severe floods was the ability of councils to provide relief funding to other councils or organisations outside their district, city, or region. Although the 'full capacity' provisions of section 12(2) of the Local Government Act 2002 give councils extensive powers, the areas in which these powers can be used are restricted by sections 12(4) and 12(5). These sections require that a territorial authority or regional council must exercise their functions under section 12 wholly or principally for the benefit of its district or region.

This seems clearly to prevent a local authority from simply donating money or resources to another local authority.

Section 12(6), however, does allow local authorities to enter into joint undertakings, joint activities, or co-operative activities. These terms are not defined in the Act and do not appear elsewhere in the Act. The limitations of section 12(4) and 12(5) do not apply to such joint or co-operative arrangements.

It is likely, therefore, that some assistance could be provided by one local authority to another local authority if it were done as a joint activity etc under section 12(6).

We saw no reason to question this view, and advised that one council making donations to another was unlikely to constitute a breach of the law, assuming that:

  • the local authorities involved benefited collectively; and
  • reciprocal support was expected in time of need.

However, under sections 12(4) and 12(5) of the 2002 Act, donations must primarily benefit a council’s particular community. This is likely to be a difficult test to meet, and appears to preclude many types of donations for purposes outside a particular district or region.

We recommend that the Department of Internal Affairs take steps to satisfy itself that the current statutory provisions give effect to Parliament’s intentions with respect to councils’ ability to grant donations.

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