Video transcript: Insights into local government 2023
Title: Insights into local government 2023
Mark Maloney (Assistant Auditor-General, Local Government)
Today, we have tabled in Parliament our insights report on the results of the 2023 annual audits.
Overall, the report really reflects our observations on the audits that we conducted across 78 councils across New Zealand, both territorial local authorities and our regional councils.
What the report does is actually acknowledge that councils are facing a really complex set of challenges, whether that be economic challenges, the effect or the uncertainty around government reform programs such as water and Resource Management Act reform, the uncertainty and the challenges provided by significant weather events in the last year.
We are seeing those, play out across the sector, and particularly for councils, which are really, really complex, multifaceted businesses. And what I would say that, despite these challenges, what we have observed is that service delivery across the sector has continued to hold up. There have been no significant service delivery failures across the sector. And that's actually a credit to the sector. It's also a credit to our auditors, who have operated in this space and have to actually think about these challenges as they embark upon the audits.
Now that's not to sugarcoat things. We had made some observations where councils probably need to focus more moving forward, certainly in the space of investment and infrastructure. Our Office has been saying for 10 years now that councils need to do more to invest in critical infrastructure. When I say critical, infrastructure goes to critical service delivery. Councils over the last ten years have been taking up that challenge. So we have seen progressively a significant increase in the upramping of capital expenditure, particularly in what I call critical assets.
In 2023, councils as they grapple with the issue of affordability – what they can afford, what their communities can afford – we have seen for the first time for a number of years a plateauing in that investment. And so we compare, when we do the audits, the amount of money that councils spend on renewals, the cost to replace assets versus the depreciation – the rate at which assets have used up. It's an indicator – it's not a perfect indicator – but it is an indicator. And we have seen a decline in that relationship with the first years. And what that says to us is that assets are being used up more at a faster rate than what councils are investing in them. So, that is certainly a risk area that the sector needs to remain cognizant of.
What we are also seeing in the infrastructure space is that councils generally struggle to actually deliver on their capital expenditure programs. So, that is actually also an area of reflection and concern for the sector. And we can see that in the fact that council debt over the entire sector is not as high as projected, which says to us that they're not delivering on their capital programs.
The other key thing I'd like to point out in the report is that there are certainly opportunities for the sector to improve its service performance reporting. Fortunately, the sector is actually in a good space, from a maturity perspective. They have the benefit – unlike other sectors – of the Local Government Act. They have been required to do long-term planning, including as part of that long-term planning, considering their performance frameworks and certainly focusing on the appropriateness of their performance frameworks for 20 years. So they’re certainly a lot more advanced than other sectors. On the whole, they do reasonably good long-term planning, but there are certainly opportunities to improve that and the report does highlight where there are gaps in that reporting, particularly around the use to which councils put monies that they receive from central government agencies, such as the Provincial Growth Fund, shovel-ready projects. In more recent times, monies received to deal with relief from recent cyclones.
Certainly, the practice is variable across the sector, but it is certainly very hard for communities at the end of the day and Parliament to actually work out what that money has been used for, what outcomes have actually been delivered from the use of that money, and that really goes to accountability back to our communities.
So, on the whole, I think a good result for the sector, but certainly the sector is doing well to respond to the challenges that it faces. The report does point out risks though are rising from those challenges and the way that the councils are responding to those challenges and that the sector needs to remain cognizant of those risks and manage those risks appropriately as we move forward.