Auditor-General's overview

This report outlines the results of, and matters arising from, our audits of local authorities' 2009-19 long-term council community plans (LTCCPs). My predecessor has previously reported on the audits of the 2006-16 LTCCPs.¹

The intent of this report is to:

• summarise our findings from our audits of the 2009-19 LTCCPs;
• focus on positive aspects and good examples; and
• identify how and where local authorities could improve further when they prepare their 2012-22 LTCCPs.

How long-term planning has improved

A major theme of the Local Government Act 2002 is longer-term planning, which is common sense, given the nature of the services that regional and territorial local authorities provide. The theme is reflected in legislation through concepts such as sustainability and intergenerational equity.

The 2009-19 LTCCPs show that the sector has come to terms with, and is now embracing, the importance of long-term planning – both at elected member and senior management levels.

Overall, our audits of the 2009-19 LTCCPs showed that local authorities are demonstrating an increased acceptance of the importance of "thinking long term" through both the content of their LTCCPs and their approach to producing them. These observations have also been made in comments to my staff by others working with the sector.

Compared with the 2006-16 LTCCPs, the 2009-19 LTCCPs showed:

• increased attention to planning for the sustainable delivery of services;
• a strengthening commitment to raising longer-term issues with local authorities' communities; and
• better processes for preparing the LTCCP.

Where improvements are still needed

Although we can clearly see progress in long-term planning, local authorities still need to improve their practices supporting long-term planning. These improvements are needed to match local authorities' intent to plan effectively for the long term.

Local authorities could improve their practices in:

• completing and integrating robust underlying information, such as asset management plans (including understanding and monitoring levels of service) and forecasting assumptions; and
• complementing long-term thinking by preparing appropriate financial strategies.

Both of these have been challenges for the sector for some time. We continue to recommend that local authorities focus on them because they are fundamental for a local authority. Until local authorities have robust underlying information and appropriate financial strategies, the potential inherent in local authorities' willingness to think long-term will not be fully realised.

In our view, many local authorities can still produce better LTCCPs. We saw progress and improvements in the 2009-19 LTCCPs, but other changes, such as the steps that have been taken more recently to focus on effective reporting against performance frameworks, will also help.

The improvements some local authorities have achieved show the sector, and other parts of the public sector, that effort put into the planning and reporting of performance information, both financial and non-financial, does add value to an entity's reported information.

Role of the recession in longer-term thinking

The recession was clearly significant in getting the sector to think long-term in preparing the 2009-19 LTCCPs. The recessionary environment accentuated the need for local communities to consider affordability. It also forced local authorities to evaluate whether the trend of increasing levels of service was viable for the long term.

To an extent, the recession made thinking longer term a necessity. It threatened local authorities' ability to maintain, let alone improve, levels of service.

The recession led local authorities to anticipate less activity in the first three years covered by the 2009-19 LTCCP. It also increased local authorities' desire to limit annual rate increases to, or near to, increases in the Consumer Price Index.

These conditions would suggest that local authorities might not be able to maintain levels of service to meet the community's expectations in the future. However, the 2009-19 LTCCPs showed that a number of local authorities sought to mitigate this and balance their books by increasing debt. The 2009-19 LTCCPs signal that debt will almost double during the ten-year period of the plans.

Our observations on this approach are:

1. Local authorities are increasing their use of debt to spread the costs to the community over the longer term. The increased use of debt will, in the next three to five years, mean increased debt servicing costs. It will also affect local authorities' ability to manage rates in the later years of the 2009-19 LTCCPs and beyond.
2. Local authorities need to prepare approaches, systems, and strategies to enable an appropriate response to an environment where resources are likely to be constrained in the future.

Our audit opinions on the 2009-19 LTCCPs

The increased focus of elected members and management on completing robust LTCCPs is reflected in the audit opinions we issued on the draft and final LTCCPs. There were far fewer breaches of legislative requirements than we found in the 2006-16 LTCCPs.

Our non-standard audit opinions on the 2009-19 LTCCPs primarily related to matters of substance. We issued only four qualified audit opinions on the final LTCCPs, but, in our view, those LTCCPs were not fit for purpose. The matters the local authorities were struggling with are significant and challenging.

We also used an "emphasis of matter" paragraph in our audit reports on 14 local authorities' LTCCPs to draw the reader's attention to matters such as:

• financial strategies that did not set revenues in the 2009-19 LTCCP at high enough levels to be able to replace assets in the future (this approach will require significant rate increases or reductions in levels of service in the future);
• uncertainty about continued funding from central government, on which the local authority depends; and
• risks in relying on dividend streams from subsidiaries to reduce the level of the local authority's borrowing.

We also used an "emphasis of matter" paragraph to highlight the effect of local government reorganisation in the Auckland region.

Preparing for future accountability requirements

Planning for the long term is difficult for local authorities. It always has been, and will be in the future. A substantial number of components are needed to build a comprehensive LTCCP (see Parts 5-9 of this report).

The sector has shown a growing acceptance of the need for long-term planning, which goes beyond compliance. The next step is for local authorities to move to integrating the components of an LTCCP into their "business as usual" operations. Taking this step will ensure that local authorities can deliver their planning documents efficiently and have in place the internal capacity to project and analyse the effects of proposed decisions.

Parliament is currently considering the Transparency, Accountability and Financial Management proposals which, if enacted, will amend the Local Government Act 2002. The importance of local authorities establishing and maintaining well-integrated systems to produce a comprehensive LTCCP will be emphasised if the current proposals are implemented.

Concluding comments

It is pleasing to see the improvements that local authorities have made in their 2009-19 LTCCPs. I am confident that the sector is capable of improving further in the years ahead. I encourage local authorities to consider the observations and challenges set out in this report as they begin preparing for the 2012-22 LTCCPs.

Lyn Provost
Controller and Auditor-General

16 August 2010

1: Matters arising from the 2006-16 Long-Term Council Community Plans, June 2007.