June 2011

Local Government changes highlight challenges common in public sector.    May 2011

The Government passed the Local Government 2002 Amendment Act (commonly known as the “Transparency, Accountability and Financial Management Act” (TAFM) in November 2010. TAFM places extra demands on local authorities to present and prove rigorous financial management. The requirements include the need to benchmark against other councils, and clearly show Council’s financial management strategy. Of most significance is a separate pre-election report, signed by the Chief Executive, to be released prior to each local government election.

The new legislation comes at the time of a ‘perfect storm’ of financial issues for local authorities. This includes: The financial crisis has curtailed the ability to increase revenue from both rating and user pays income; Central government is continuing to place an increasing number of compliance and reorganisation costs onto local government. This ranges from the agreement on the leaky homes to potential reorganisation of building consent processes; Council amalgamations are almost certain to require investment and increased costs in the short-term in order to secure long-term gains.

The perfect storm of events suggests that local authorities, like many public sector organisations will need to use this opportunity to undertake some indepth consideration of the options available. Rather than the previous approach of incremental changes and trimming of budgets the situation requires a strategic approach with an intention to fundamentally change the way some services are delivered.

Five lessons that we would promote as important to the process, based on our experience are:

1. Take the councilors with you. The underlying objectives of a change in direction needs to be understood and this can’t be achieved with a one-off business analysis. The process requires councilors to be involved from the beginning and to become champions of the objectives behind a change.
2. Beware of the challenges of achieving “apples with apples” comparisons. The new Act requires the development of ‘benchmarking’ against other organisations. However, the important component is to understand what makes each local authority unique. The challenge will be to discern whether differences in costs reflect differences in infrastructure and local environmental conditions – or different levels of delivery, which have been endorsed by the community.
3. The underlying focus must be value for money – and this implies an understanding of the ‘outcomes’, which are meant to be achieved.
4. Avoid focusing benchmarking on easy-to-measure input costs. A challenge for the new Act’s benchmarking requirements will be capture the hard-to-measure outputs and results that define value for money.
5. Don’t underestimate the difficulties of getting acceptance of shared services business models. The move will result in a move toward increased shared services, both within local government and in partnership with the private sector. Councils need to understand the business model that is being used and the challenges of integrating new and ongoing Council cultures.

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Recent relevant projects

• Costing & pricing advice

• Ontrack / Toll track access charge adjudication.
• Critique of Martime safety charge.
• Insourcing of legal services.
• Fees & charges scoping reviews for city & regional Councils.
• Cost of Building Act functions.

• Revenue and Financing PolicyReview of funding tools for the Bay of Plenty Regional Council including options for allocation of Lake Rotorua restoration costs.
• Review of the Building Act. We worked within the Department of Building and Housing on the review of the consents process, and how this was going to be delivered. The result was moves toward a streamlined process and an understanding of the realities of the system operating in both small towns and large cities.
• Bay of Plenty Regional Council. Consulting with officials and councillors through a series of workshops on the options for rating policy, including the allocation ofRotorua lakes restoration costs.
• Establishment of Fiji Procurement Office. Establishing a new Central Government organisation to manage the procurement of government goods and services in Fiji. Once Cabinet approves new regulations, procurement processes and training will be rolled out across government.
• Merger of land-fills. Scoping the rationalisation of solid waste management functions between two local authorities.