Part 1: Background

The proposal

1.1
Environment Canterbury (the Council) incurs costs in investigating and monitoring work associated with managing the region’s water resources, including state-of-environment monitoring. In this report, we refer to these as water management costs. Water management costs are costs over and above the direct costs associated with individual water-related resource consents (for example, processing applications and compliance monitoring) that are separately paid for by consent holders. The Council’s draft long-term council community plan (LTCCP) for 2009-19 estimated the water management costs to be $7.1 million a year. These costs have previously been met from general rates.

1.2
The Council has been considering since early 2005 the use of funding sources other than general rates to meet these water management costs (for example, using uniform annual charges or “user pays” charges). When consulting on the 2006-16 LTCCP, the Council sought views on the concept of charging resource consent holders directly for the costs of managing water resources in Canterbury. The Council told us that there were 191 responses, with 132 (69%) supporting such charges, 57 (30%) opposing them, and two (1%) with no preference. Since the 2007 local authority elections, the Council has further considered the idea of recovering a portion of the water management costs directly from holders of certain types of consents issued under the Resource Management Act 1991 (the RMA).

1.3
In the draft 2009-19 LTCCP, the Council included a proposal to recover $2.2 million (31%) of its water management costs from holders of certain types of consents through charges applied under section 36 of the RMA. The costs were to be recovered from the holders of permits to take ground water and surface water, and from holders of permits to discharge contaminants either to land or water. In this report, we refer to them as consent holders.

1.4
The remaining $4.9 million (69%) of the Council’s water management costs would be paid for out of general rates. Previously, the Council’s water management costs had been paid for entirely out of general rates.

1.5
The proposal was quite complex. The Council proposed that the charges payable by consent holders would differ depending on the:

• location of the consent;
• type of consent held; and
• amount of water taken and/or type of contaminant discharged to land or water.

1.6
The proposal presented a number of different options for differential charges. For example, it proposed different methods for levying the charge on water permit holders:

• a standard charge for each consent; or
• a charge based on the rate of water take; or
• a charge based on both a standard charge for each consent and on the rate of water take.

1.7
If the proposal had been adopted, consent holders would have paid $2.2 million of the Council’s total water management costs of $7.1 million and $4.9 million would have been met from general rates. Therefore, ratepayers who were not consent holders would have paid less in regional council rates. Ratepayers who were consent holders would have paid less in regional council rates, but would have also had to pay the charges under section 36 of the RMA.

The councillors and their interests

1.8
The four councillors who held consents and were affected by the proposal were Cr Pat Harrow, Cr Angus McKay, Cr Mark Oldfield, and Cr Bronwen Murray. The councillors or their spouses held consents either in their own name or through companies in which they were shareholders:

• Cr Oldfield holds two permits to take ground water and a permit to discharge dairy effluent to land. He holds two of these consents jointly with his wife and the other jointly with his father. A property for which one of the consents is held is leased.
• Cr Harrow is a shareholder in Berry Fields Limited, which holds a permit to take ground water.
• Cr McKay is a shareholder in Kanuka Syndicate Limited, which holds a permit to discharge dairy effluent to land. Cr McKay also holds shares in companies or schemes that have consents to take water and those shareholdings entitle him to certain amounts of water to irrigate his land. He told us that these companies would be likely to pass on the water consent charges to him and to other shareholders.
• Cr Murray’s husband is the sole shareholder in The Wolds Station Limited, which holds two permits to take surface water. Cr Murray was a shareholder and director of that company until November 2008.

Discussions on the risk of conflicts of interest

1.9
The Council considered the proposal at meetings during 2008 and 2009. The issue of whether Cr Murray may have a conflict of interest in the proposed charges was raised at a meeting of the Council’s Finance and Audit Committee in February 2008.

1.10
At that meeting, the Committee considered a paper that showed the potential effect of water management charges on the 20 consent holders that would be most affected by the proposed charges, and the 20 consent holders that would be least affected. The list of the 20 consent holders most affected by a water management charge included The Wolds Station Limited, with a possible charge of $13,675.¹ At that time, Cr Murray was a director and shareholder in that company, along with her husband.

1.11
The minutes of that meeting note that:

• Cr Murray asked if identifying her property as one of the most affected would compromise her role as a councillor in the decision-making process on this issue.
• It was suggested that Cr Murray’s interest was no more than an interest in common with the public, but she should seek advice on this matter.

1.12
In October 2008, the then Chairperson of the Council, Sir Kerry Burke, emailed Cr Oldfield suggesting that he may have a conflict of interest in relation to the proposal. He also raised the issue with Cr Murray at a briefing meeting of the Council’s water portfolio group on 5 November 2008.

1.13
On 31 October 2008, Sir Kerry contacted us for guidance about whether councillors who were consent holders had an interest in common with the public in a proposal to recover a share of water management costs directly from consent holders rather than through general rates. He did not provide details about the number of councillors potentially affected or their interests, but sought general guidance only. He told us that consent holders were likely to make up about 1% of the population of any region in New Zealand,² and asked if we thought the interests of councillors with water consents were likely to be “in common with the public”.

1.14
We replied to Sir Kerry on 14 November 2008. We advised him that the interests of councillors who are consent holders in a “user pays” charging regime is of a different nature and size to most members of the public. We said that such councillors would, therefore, be prohibited from participating in discussion or voting on a proposal of that nature. We also noted the ability of the Auditor-General to make a declaration under Local Authorities (Members’ Interests) Act 1968 (the Act) to enable a member with a financial interest to participate in the discussion and vote on a proposal where Council business would otherwise be impeded (for example, where several councillors were affected) or where it would be in the public interest that all members take part.

1.15
Sir Kerry wrote to Crs Harrow, Oldfield, and Murray on 27 February 2009 about their conflicts of interest in relation to the proposal. He also sent them a paper that cited part of our advice, and then gave this paper to all councillors. In the paper, Sir Kerry advised that Council staff could arrange for the three councillors to receive legal advice on the matter at the Council’s expense if they wished. However, Sir Kerry did not provide a full copy of our November 2008 advice to him to the councillors, and nor did he advise the three councillors at that time about the option of seeking a declaration from the Auditor-General to enable them to participate.

1.16
Sir Kerry told us that councillors were aware of the declaration option, and showed us some notes on managing conflicts of interest that he prepared and gave to councillors in late September 2008 that referred to the declaration provisions in the Act.

1.17
Cr Oldfield took up the Council’s offer to get legal advice about whether he had a conflict of interest. He received legal advice that he was not prohibited from voting or discussing the proposal at Council meetings. The legal advice considered that the exceptions in section 6(1A) and section 6(3)(f) of the Act applied. It argued that the prohibition on voting and discussing did not apply when the matter being considered was one of policy. It also said that, provided Cr Oldfield did not have an improper motive in voting or discussing the matter, the prohibition did not apply.

1.18
Cr Oldfield circulated his legal advice to the other councillors on 4 March 2009, before the Council met on 5 March 2009 to consider the draft 2009-19 LTCCP that contained the proposal. Sir Kerry considered that the legal advice was unsound, and tabled a paper setting out his concerns at the Council meeting on 5 March. He advised councillors that he did not consider that the legal advice provided a secure foundation for consent-holding councillors to participate in voting or discussion on the proposal. In this paper, he noted that the Auditor-General could make declarations to enable councillors with pecuniary interests to participate in discussing or voting on a matter. The legal advice, and Sir Kerry’s letter of 27 February 2009 (see paragraph 1.15), were tabled at the 5 March meeting at Cr Oldfield’s request.

1.19
Cr Oldfield told us that he got verbal assurance from his lawyers at the lunch break during the 5 March meeting that they stood by their advice, despite Sir Kerry’s criticism of it. On 13 March 2009, the legal advisors reconfirmed in writing their earlier advice that Cr Oldfield had no conflict of interest. Cr Oldfield circulated this advice to the other councillors at their next meeting on 24 March 2009.

1.20
Crs Murray and Harrow told us that they saw the legal advice to Cr Oldfield and that they relied on it, believing that they were in a similar position to Cr Oldfield and that the legal advice applied to them. Cr McKay notes that the issue of his financial interest in the proposal was not raised with him until the complaint to our Office in October 2009, but that in hindsight he should have considered the financial effect of the proposal on him.

The Council meetings where the proposal was considered

1.21
The proposal came before the Council at two meetings in 2009. The first meeting was on 5 March 2009, when the Council – as part of the draft LTCCP process – was required to vote on whether to approve the draft fees and charges for 2009/10 for consultation. The proposed fees and charges included the proposal to recover water management costs.

1.22
Crs Oldfield and Harrow declared that they were irrigators, but took part in discussion and voting. Crs Oldfield and Murray voted against approving the fees and charges for consultation, Cr Harrow voted in favour of consulting on them, and Cr McKay abstained from voting.

1.23
The Council then received and heard submissions on the draft LTCCP, including the proposal to recover water management costs. There were 360 submissions made on the proposal, of which 320 were opposed. This was in contrast to a Council survey of 380 households in February 2009, on views on the water charges, during the LTCCP consultation programme. The Council told us that 73% of those surveyed agreed that a proportion of costs should be borne by consent holders and 21% disagreed.

1.24
The Council met on 4 June 2009 to consider submissions on the draft LTCCP and to adopt the LTCCP. There were a number of motions put at the meeting about the proposal. Voting was split seven for and seven against the proposal to adopt the water management charges, and the motions that sought to introduce it six months into the 2009/10 financial year or introduce the charges from 1 July 2010.

1.25
All four councillors voted against the various motions that sought to adopt the proposal. A final motion was put that the charges under section 36 of the RMA be deferred for 12 months, to allow a working party to be established to discuss charging options with major stakeholders. All four councillors voted against that motion. However, there were sufficient votes from other councillors for the motion to be carried.

The effect of the proposal on the four councillors

1.26
The proposal was complex, and it was difficult for consent holders to determine from the draft LTCCP the exact financial effect of the proposal on them. However, the broad principle that consent holders would be directly affected by having to pay charges under section 36 of the RMA was clear.

1.27
The Council gave us information about the likely financial effect of the proposal on the four councillors. All four councillors owned high-value properties, and so would benefit significantly from the reduction in general rates that would accompany the new charges under section 36.

1.28
For two of the councillors, the charges under section 36 would have been very low and would have been outweighed by the reduction in their general rates. There would have been an overall financial benefit of around $134 for one councillor and $391 for the other.³

1.29
However, for the other two councillors, the charges under section 36 would have been reasonably significant despite their savings in general rates. The overall net effect would have been a cost of around $977 to one councillor and $1,628 for the other.

The effect of the proposal on other ratepayers

1.30
Had the proposal been adopted, the Council would have raised $2.2 million from consent holders who were subject to the charges under section 36 of the RMA rather than from other regional council ratepayers.

1.31
The Council has told us that:

• the effect of introducing the charges under section 36 of the RMA on rates would have been an average reduction in general rates of $2.04 for every $100,000 of capital value; and
• the average capital value for each rateable assessment for the region is $478,000, so the effect on the average property would have been a reduction of $9.75 a year in general rates.

1: As the proposal was further developed, the financial effect on The Wolds Station Limited was significantly less than this.

2: The Council has told us that 4.2% of its ratepayers are consent holders. Based on Council data on water and discharge consents, we calculate that 2.7% of Canterbury ratepayers are water or discharge consent holders.

3: This councillor told us that his benefit would be reduced by $165-202 if irrigation companies supplying him with water passed on water consent charges.