Auditor-General's overview

Communities continue to expect that their local authority will manage spending well and keep rate increases to a minimum. But the demand for services, and therefore the need for ongoing investment in infrastructure, is generally not reducing. With a changing demographic profile − particularly an ageing population − and a corresponding change in the nature of some services likely to be required in the future, local authorities must think about the long term and consider how to adapt.

Financial analysis of local authorities' revenue and spending

Overall, capital expenditure in 2014/15 reduced from 2013/14 and continues to be substantially less than the amounts budgeted for. Although some local authorities are consistently spending money on assets in line with what they budgeted for, other local authorities have not managed so well. If the under-investment continues, it calls into question the long-term ability of local authorities to deliver services to their communities.

Because of its size, Auckland Council's figures continue to distort the sector's results. To get a clearer picture, we removed Auckland Council's results from some of our analysis. Having done so, we note steady increases in the other local authorities' revenue, operating expenditure, and debt.

This year, we have considered the use of uniform annual general charges as a rating mechanism and we also discuss internal borrowing. Members of the public often ask us about local authorities' rating practices and debt management, including internal borrowing, which can be difficult matters to understand.

Governance and accountability is important

Governance and accountability has been the focus for our work in 2014/15. All my recent reports have considered the factors that make for strong public sector governance and accountability. The common thread in all these reports is that effective governance relies on clear roles and responsibilities, good relationships between all parties, a clear sense of purpose, and a shared understanding of expectations. Governors need to have the right skills and experience to make an effective contribution, and they should set up strong and effective systems for reporting performance so people can hold the entity to account.

Audit committees are a useful governance tool. Although there is no model that will work in every situation, audit committees can enhance the performance and accountability of entities and can help entities to mitigate risks. I continue to encourage local authorities, particularly after the next local body elections, to consider the merits of an audit committee and the value of having some independent members who contribute different perspectives, experience, and knowledge.

In 2014/15, two local authorities did not adopt their annual reports within the statutory deadline. Although this is a slight improvement on 2013/14, it is always disappointing when any local authority fails to adopt and publish its annual report within legislative time frames. I urge all local authorities to make it a priority to meet this requirement.

Airports

For this report, I decided to include a focus on airports, particularly because small regional airports have been experiencing increasing challenges.

Airports operate in a difficult environment. Their various stakeholders have competing objectives. High costs for often essential infrastructure and declining passenger numbers threaten the continuity and long-term viability of some airports. Good long-term planning for infrastructure and ongoing dialogue between all stakeholders about the future of some airports are essential.

Preparing for the next local body elections

With local body elections approaching, 2016 will be another busy time for local authorities. There are a number of matters that local authorities will be beginning to think about as part of their election project planning.

To help inform public debate during the pre-election period, every local authority's chief executive must prepare a pre-election report. This document is a valuable accountability document. It updates the reader on what the local authority has achieved against previously agreed objectives and the major projects planned for the next three years. It is a useful opportunity for local authorities to account for their performance.

I am pleased to note that improving governance and accountability has been a priority for the local government sector recently. Local Government New Zealand has several initiatives planned or introduced for the year ahead to enhance the governance capabilities of elected members. It is my hope that all new and returning elected members will take advantage of the training that is offered to them after the elections.

Future focus

Changes in 2014 to the Local Government Act 2002 require local authorities to be more strategic in their approach to delivering services. The new requirements encourage local authorities to seek efficiencies and improve arrangements for service delivery. Services must be regularly assessed to ensure that they are delivered in the most cost-effective way. In particular, equipping councillors with the skills to make decisions about infrastructure and the delivery of services in a changing environment is critical.

Investment and asset management is the theme of my work programme for 2015/16. I am paying particular attention to how well local authorities address the ongoing need to provide services, manage existing assets, and fund new infrastructure in the face of changing demographics and continued pressure to contain costs, keep rates affordable, and maintain prudent debt levels.

In 2016/17, my Office will look at how information is used and managed to support long-term decision-making. We will look at how local authorities are investing in systems to improve their understanding of their assets. This is important − good knowledge about the condition of assets is necessary for determining the nature and frequency of maintenance and the timing of renewals. Reliable asset condition information enables financial forecasts and asset management plans to better inform the 30-year infrastructure strategies that contribute to more effective planning. Elected members need reliable information to make good decisions about managing the assets that are critical to long-term service delivery.

My staff and I look forward to continuing to work with local authorities in the year ahead.

Lyn Provost
Controller and Auditor-General

4 April 2016