achieving results in the public sector Wairarapa District Councils

Transcription

1 AUCKLAND SYDNEY BRISBANE PERTH Wairarapa District Councils Phase Three Report: Investigation into the formation of an Amalgamated Wairarapa District Council and a Wairarapa Unitary Authority achieving results in the public sector

2 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION Background to the Study Purpose of the Current Study: Phase Three THE WAIRARAPA METHODOLOGY Amalgamated Wairarapa District Wairarapa Unitary Authority Model Assumptions Benchmarking AMALGAMATED WAIRARAPA DISTRICT COUNCIL Total Operating Revenue and Expenditure Operating Revenue and Expenditure by Groups of Activity Amalgamated Wairarapa District Council: Summary WAIRARAPA UNITARY AUTHORITY Total Operating Revenue and Expenditure Operating Revenue and Expenditure by Groups of Activity Wairarapa Unitary Authority: Conclusions BENCHMARKING High level benchmarking Benchmarking Regional Functions DISCUSSION SUMMARY...38 APPENDIX A: Joint Vision and Objectives APPENDIX B: Base Data Supplied by the Greater Wellington Regional Council Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils i

3 Morrison Low & Associates PO Box 9126 Newmarket Auckland 1149 Tel: Fax: Except for all client data and factual information contained herein, this document is the copyright of Morrison Low & Associates Ltd. All or any part of it may only be used, copied or reproduced for the purpose for which it was originally intended, except where the prior permission to do otherwise has been sought from and granted by Morrison Low & Associates Ltd. Prospective users are invited to make enquiries of Morrison Low & Associates Ltd concerning using all or part of this copyright document for purposes other than that for which it was intended. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils ii

4 EXECUTIVE SUMMARY In February 2012 the three Wairarapa District Councils commissioned Morrison Low and Associates to work with a Joint Working Party to consider options for the future delivery of local government services and the governance of the Wairarapa. This work has been undertaken in three phases: Phase one: development of a shared vision and objectives to inform the study Phase two: an operational review and high level analysis of a range of local government management and service delivery options At the completion of phase two of the study it was concluded that the best local government arrangements for the Wairarapa were likely to be a either an amalgamated Wairarapa District Council or a Wairarapa Unitary Authority Phase three: an investigation in to the formation of and likely operational and expenditure requirements of an amalgamated Wairarapa District Council and a Wairarapa Unitary Authority. This report presents the findings of phase three of the project The purpose of this study was to investigate the likely operational revenue and expenditure requirements resulting from the formation of: an amalgamated Wairarapa District Council a Wairarapa Unitary Authority For the purposes of this study operational revenue and expenditure requirements were: for local activities based on the LTP financial policies and 2012/13 budgets for each of the three Wairarapa District Councils for regional activities based on the financial policies and an apportionment of 2012/13 budgets set out in the Greater Wellington Regional Councils LTP, where possible This study suggests that the formation of an amalgamated Wairarapa District Council would result in a small operating surplus and savings resulting from reduced governance and senior management costs. Potential efficiency savings that could be realised in the medium to long-term are also identified. These savings largely result from economies of scale, increased purchasing power and increased organisational capability and capacity. In respect of the formation of a Wairarapa Unitary Authority, this study suggests that there would be an operating deficit given current local and regional revenue and the current expenditure for local and regional activities in the Wairarapa. This operating deficit would, at least in part, be offset by the operating surplus and reduction in governance and management costs for the amalgamated Wairarapa District Council. Some potential efficiency savings for regional activities have been identified; however, the remaining operating deficit would still be significant. New Zealand and international experience suggests that potential amalgamation savings identified prior to amalgamation may not always be realised. Research also suggests that any savings generated by efficiency gains in amalgamated Councils are usually delivered to the community by increased services and depth of services (Consolidation in Local Government: A Fresh Look, Aulich et al, May 2011), rather than through rates reductions. Any decision to amalgamate should not be premised on the cost savings alone, but rather on the wider benefits to the community. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 1

5 1. INTRODUCTION 1.1 Background to the Study Masterton, Carterton and South Wairarapa District Councils have commissioned Morrison Low and Associates to undertake an investigation into the formation of an amalgamated Wairarapa District Council and a Wairarapa Unitary Authority. In 2010, through the Wellington Mayoral Forum, the Wellington Region jointly commissioned Price Waterhouse Coopers (PWC) to conduct a review of the governance of the Wellington Region. Following that review all the Councils in the Wellington region conducted a consultation review with their communities on the future governance options proposed in the PWC review report. The consultation undertaken by the Wairarapa Councils resulted in the following conclusions: Wairarapa is a separate area from Wellington and there was no appetite for a Wellington Supercity that includes the Wairarapa The consultation did not have the benefit of an analysis of the advantages and disadvantages of any amalgamation That more information should be commissioned Following on from this, in February 2012 the three Wairarapa District Councils commissioned Morrison Low and Associates to work with a Joint Working Party, consisting of elected members and the Chief Executives of the three councils, to undertake further work 1. The purpose of the work commissioned by the Wairarapa District Councils was to consider options for the future delivery of local government services and the governance of the Wairarapa. This work has been undertaken in three phases: Phase one: a strategic review and the development of a shared vision and objectives for the Wairarapa Phase two: an operational review and high level analysis of a range of local government management and service delivery options Phase three: an investigation in to the formation of an amalgamated Wairarapa District Council and a Wairarapa Unitary Authority (this report presents the findings of this phase of the project) Each of these phases is described in greater detail in the following sections. Phase One: the strategic review, involved working closely with the Wairarapa Governance Review Working Party to develop a draft joint vision, objectives and strategic initiatives for the Wairarapa. The purpose of the joint vision and objectives was to inform the operational review phase of the project. Consultation with Iwi and identified stakeholders on the joint vision and objectives was also undertaken during phase one of the study. Attached as appendix A is a copy of the joint vision and objectives as agreed by the Wairarapa Governance Review Working Party. 1 The Greater Wellington Regional Council has also established an Wellington Review Panel to consider the future local government arrangements for the Greater Wellington Region. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 2

6 Phase Two: the operational review phase of the project consisted of a high level analysis of a range of future service delivery options and governance options for the Wairarapa District. For each option considered in the study, the anticipated or expected opportunities, benefits and risks were identified, at the high-level. The purpose of this phase was to identify which of the options were likely to provide the best outcomes for the Wairarapa. The service delivery options considered as part of phase 2 of the study were: Enhanced status quo Services delivered by one or more CCOs Wairarapa District Council Wairarapa Unitary Authority Greater Wellington Unitary Authority Each of these options was assessed against a set of criteria developed with and agreed by the Wairarapa Governance Review Working Party. These criteria were developed taking into account the vision and objectives developed in phase one, wider considerations such as the four well-beings, the Local Government Act and the Better Local Government reform program. The high level analysis concluded that the best local government arrangements for the Wairarapa were likely to be a: Wairarapa District Council; or Wairarapa Unitary Authority At the completion of phase one and two of the project, it was concluded that there were likely to be significant benefits for the Wairarapa from the coordinated and integrated approach to local government which these options would provide. The increase in size and scale of the council organisation would, for example, allow for increased technical capacity and capability of staff, improved processes and systems and a more coordinated and consistent management of key service networks across the Wairarapa. It was suggested that this would deliver a more efficient and effective local government. It was noted that any perceived loss of democracy or representation resulting from the Wairarapa becoming a single amalgamated district or a unitary authority would need to be balanced by putting community boards in place across the whole of the Wairarapa. It was recommended that these two options should be investigated further to consider in detail the financial costs, benefits and risks of these two options. In particular, in relation to the cost implications of a Wairarapa Unitary Authority which would need to fund activities currently undertaken by Greater Wellington Regional Council in the Wairarapa and which are currently funded in part by regional rates. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 3

7 1.2 Purpose of the Current Study: Phase Three This report presents the findings of phase three of the study; an investigation into the formation of an amalgamated Wairarapa District and a Wairarapa Unitary Authority. The purpose of this phase of the study was to develop a model to investigate the likely operational revenue and expenditure requirements resulting from the formation of: 1. An amalgamated Wairarapa District For the purpose of this study it is assumed that an amalgamated Wairarapa District Council would be formed from the amalgamation of the South Wairarapa, Masterton and Carterton District Councils. The amalgamated Wairarapa District Council would exercise the responsibilities of a territorial local authority under the Local Government Act 2002 (LGA 2002) and would provide the same services and functions as those currently provided by the three Wairarapa District Councils. Under this option, all the responsibilities of a regional authority under the LGA 2002 would continue to be provided by the Greater Wellington Regional Council. 2. A Wairarapa Unitary Authority For the purpose of this study, it is assumed that a Wairarapa Unitary Authority would be created from the amalgamation of the South Wairarapa, Masterton and Carterton District Councils and that the new Wairarapa Unitary Authority would undertake the functions and responsibilities of a territorial local authority and a regional council under the LGA That is, the Wairarapa Unitary Authority would provide the local government services and functions currently provided by the three Wairarapa District Councils and the regional services and functions currently provided, in the Wairarapa, by the Greater Wellington Regional Council. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 4

8 2. THE WAIRARAPA The Wairarapa occupies the South East of the lower North Island between the Tararua and Rimutuka ranges and the ocean. The economy of the Wairarapa relies largely on agricultural activities, including sheep, beef and dairy farming, viticulture and forestry. However, there is also a significant manufacturing sector. Together these two activities are considered the backbone of the Wairarapa economy (Economic Profile for the Wairarapa, Berl, 2008) There is a significant connection between the Wairarapa and the Wellington Metropolitan area, as evidenced by the 1,400 residents who travel into Metropolitan Wellington and surrounds each day from the Wairarapa and by the 680 commuters that travel from Wellington to the Wairarapa for work (Economic interdependence between the Western Area of the Wellington Region and Wairarapa, Martin Jenkins, 2012). The Wairarapa is currently served by three district Councils; Masterton, Carterton and South Wairarapa District Council and by a Regional Council, the Greater Wellington Regional Council. As shown in Table 1 below, across these three districts, the Wairarapa is currently governed by 3 Mayors and 27 elected Councillors. The Wairarapa also has one representative elected to the Greater Wellington Regional Council to represent the interests of the Wairarapa. The South Wairarapa also has three community boards (Featherston, Greytown and Martinborough), each of which is made up of four elected community representatives plus two Councillors. Table 1 also shows the land area and population for the Greater Wellington Region and for each of the Wairarapa District Councils. The Wairarapa covers a land area of 5,924 km 2 and is home to approximately 40,620 2 residents. The land area of the three Wairarapa District Councils accounts for 73% of the total land area of the Greater Wellington Region. By comparison, the population of the Wairarapa accounts for only 8% of the population of the Greater Wellington Region. 2 Statistics New Zealand, Subnational Population Estimates, year ending June Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 5

9 Table 1: Key Statistics for the Wairarapa District Councils and the Greater Wellington Region South Wairarapa District Council Carterton District Council Masterton District Council Greater Wellington Regional Council Population 9,430 7,650 23, ,780 Land Area (km 2 ) 2,295 1,145 2,484 8,142 Number of Councillors 9 (+ Mayor) 8 (+ Mayor) 10 (+Mayor) 13 (including the Chair) 3. METHODOLOGY District councils and regional councils have different responsibilities and provide different services. Currently in the Wairarapa, each of the three District councils is responsible for the provision of local activities and services, such as: District Planning and resource consenting Roads and footpaths Water - drinking water, wastewater, water races and stormwater Parks, swimming pools, community centres, libraries, cemeteries Rubbish collection Regulation Dog control, liquor licences and food premises. Visitor attractions such as museums Supporting events, tourism promotion and economic development In the Wairarapa the Greater Wellington Regional Council is responsible for the provision of regional activities and services, such as: Regulating use of natural resources air, land and water Funding and managing Wairarapa s rail and bus service Pest and plant control Building and maintaining flood protection works The purpose of the modelling undertaken for this study is to investigate the operational revenue and expenditure requirements resulting from the formation of an amalgamated Wairarapa District and a Wairarapa Unitary Authority. The modelling was undertaken in two component parts: Component One: Local Activities This component of the modelling was based on the local activities currently undertaken by the three Wairarapa District Councils. These local activities would need to be undertaken by either an amalgamated Wairarapa District Council or by a Wairarapa Unitary Authority. Component Two: Regional Activities This component of the modelling was based on the regional activities that are currently undertaken by the Greater Wellington Regional Council, within the territorial area governed by the three Wairarapa District Councils. These regional activities would also need to be Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 6

10 provided by a Wairarapa Unitary Authority. The regional components also include provision for debt repayment costs as these form part of the current regional rating requirement. These component parts make up the two options; with the model results of component one constituting the amalgamated Wairarapa District Council and the model results of component one and two constituting the Wairarapa Unitary Authority. 3.1 Amalgamated Wairarapa District For the purpose of this study, it is assumed that an amalgamated Wairarapa District Council would be formed from the amalgamation of the South Wairarapa, Masterton and Carterton District Councils. The study also assumes that the amalgamated Wairarapa District council would provide the same local activities and levels of service as those currently provided by the three Wairarapa District Councils. It is assumed that under this option, all the responsibilities of a regional authority under the LGA 2002 would continue to be provided by the Greater Wellington Regional Council. The revenue and expenditure for the Amalgamated Wairarapa District, as reported in this study, is based on component one of the financial model. Component one of the model aggregates the functions of the existing three district councils. To develop component one of the financial model, the budgeted revenue and costs for year one (2012/13) of the Wairarapa District Councils Long-Term Plans (LTP) have been collected and combined in a financial model based on the following functional groupings Corporate\Governance Roading Stormwater Wastewater Water Supply Waste Management Community Facilities Parks & Sports Regulatory and Planning The costs have been summarised into the main income and expense types and consolidated to show indicative costs for a new amalgamated Wairarapa District. The way in which the three district councils group their activities for the purpose of long-term planning varies. This means that there may be some differences in the way in which revenue and expenditure for specific activities, across the three councils, has been incorporated into the functional groupings above. However, the information provides an accurate picture of the operational costs for both the existing and an amalgamated district council. When interpreting any financial data contained in this study, the focus should be on the total cost of delivering council activities, in the Wairarapa, rather than the composition of input costs. In addition, differences between the service delivery mode or approach means that the composition of input costs differs between the existing councils. An example of different modes of service delivery is that both Masterton and South Wairarapa contract out all maintenance of parks and underground infrastructure Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 7

11 whereas Carterton uses internal staff to provide these services. Another example is that both Masterton and South Wairarapa have in house professional services units whereas Carterton uses external consultants for this service. The financial modelling undertaken for this study required that a series of assumptions be made, the main model assumptions are set out in Table 2 below. For example, the model assumes that, at least in the short-term, an amalgamated Wairarapa District would deliver activities and services at the same level of service currently delivered by the existing Wairarapa District Councils. The model also assumes, given the relatively small size of the existing District Council organisations 3, that much the same level of staffing would be required to deliver current levels of service. However, the model does make adjustments for a reduction in the number of total managers required at the tier one (chief executive) and tier two (director / group manager) level. As described in the table below, the cost of tier one and two managers from each of the three councils was identified and removed from the model. Tier one and two positions and revised salaries for the new amalgamated council were determined and incorporated into the model. Salary costs for the revised tier one and two management positions were informed by industry benchmarks for similar roles. 3.2 Wairarapa Unitary Authority Wairarapa Unitary Authority: for the purpose of this study, it is assumed that a Wairarapa Unitary Authority would be formed from the amalgamation of the South Wairarapa, Masterton and Carterton District Councils. The new Wairarapa Unitary Authority would provide the local services currently provided by the three Wairarapa District Councils and the regional services currently provided, in the Wairarapa, by the Greater Wellington Regional Council. The model assumes that, at least in the short-term, a Wairarapa Unitary Authority would deliver local services at the same level of service currently delivered by the existing Wairarapa District Councils and would deliver regional services at the same level of service currently delivered by the Greater Wellington Regional Council. The revenue and expenditure for the Wairarapa Unitary Authority, as reported in this study, is based on components one and two of the financial model. This involved the aggregation of the functions of the existing district councils and the addition of regional data, as supplied by the Greater Wellington Regional Council. The revenue and expenditure for component one (local activities) were collected and modelled as described above for the amalgamated Wairarapa District Council. To develop component two (regional activities) of the financial model data was collected on the revenue and expenditure of the Greater Wellington Regional Council, within the Wairarapa District. As the Greater Wellington Regional Council do not specifically record expenditure for the Wairarapa the total costs of the regional functions have been apportioned by the Greater Wellington Regional Council staff as a percentage of the total Greater Wellington Regional Council expenditure as budgeted for in year one (2012/13) of the Greater Wellington Regional Councils LTP. 3 Particularly in relation to the overall size of the corporate components of the council organisations. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 8

12 The information has been supplied by the Greater Wellington Regional Council and combined in a financial model based on the following activity groupings: Regional Leadership Regulatory and Planning Public Transport Environment Flood Protection and Control As for component one, the financial modelling for component two (regional activities) requires that a series of assumptions are made and these are set out in Table 2 below. For example, as component one of the model makes provision for the costs of tier one and two management structures, these are not modelled as part of component two. This assumption is based on the premise that no additional tier two managers will be needed to effectively manage a Wairarapa Unitary Authority, over and above those required to effectively manage an amalgamated Wairarapa District Council. 3.3 Model Assumptions In developing the model a number of assumptions were made in agreement with the Wairarapa Governance Review Working Party. Overarching Assumptions The modelling undertaken for this study was based on year one (2012/13 financial year) LTP budgets and assumes that the revenue forecast by the district councils and by the regional council will be realised (e.g. number of resource consents used to estimate revenue). The study does not model the transitional, establishment, or amalgamation costs that would be incurred in the formation of either an amalgamated Wairarapa District Council or Wairarapa Unitary Authority. The modelling has been undertaken based on groups of activities, not organisational structure. The modelling assumes that the current level of staffing across the three Wairarapa District Councils will be maintained with the exception that there will be fewer tier one (chief executives) and tier two (directors/group managers) managers. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 9

13 Table 2: Modelling Assumptions Assumption Local Activities Regional Activities Levels of Service Operating Approach Revenue (all sources) Staffing levels In determining the cost of delivering local activities the model assumes that services will continue to be delivered as per the existing Service Levels of each of the three Wairarapa District Councils The model assumes that local activities will continue to be delivered as per the existing operating approaches of each of the three Wairarapa District Councils (e.g. internal resource, contracted out) Modelled revenue for local activities is based on the LTP financial policies and 2012/13 budgets for each the three Wairarapa District Councils (e.g. existing rating system for each council, existing fees and charges for each council) Management (tiers one and two) Costs of current tier one and two management identified and removed from model. Tier one and two positions and salaries for the new amalgamated council and were determined and incorporated into model Governance and Corporate Services Assume existing staffing levels across the three councils but review and consider whether staffing levels are sufficient given the size and total staffing level of an amalgamated Wairarapa District Council In determining the cost of delivering regional activities, the mode assumes that regional services will be delivered as per existing Service Levels for the Greater Wellington Regional Council The model assumes that regional activities will continue to be delivered as per the existing operating approach of the Greater Wellington Regional Council (e.g. internal resource, contracted out) Modelled revenue for regional activities is based on the financial policies and 2012/13 budgets (for the Wairarapa) as set out in the Greater Wellington Regional Councils LTP, where possible Otherwise, apportionment of LTP budgets where budgets not available for Wairarapa Management (tiers one and two) Modelled for local activities, not modelled separately for regional activities This assumption is based on the premise that no additional tier two managers will be needed to effectively manage a Wairarapa Unitary Authority than would be needed to effectively manage an amalgamated Wairarapa District Council Governance and Corporate Services Modelled for local activities, not modelled separately for regional activities, but Review and consider if additional corporate services staff are required given the size and total staffing level of a Wairarapa Unitary Authority Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 10

14 Assumption Local Activities Regional Activities Salary costs Overhead costs Other Operational Costs Staff of all other groups of activities Assume existing staffing levels across the three councils Management (tiers one and two) Salary costs for revised tier one and two management positions informed by industry benchmarks for similar roles All other staff Based on existing salaries as budgeted for in year one of the Wairarapa District Councils LTPs Based on overhead costs as budgeted for in year one of the Wairarapa District Councils LTPs Based on costs as budgeted for in year one of the Wairarapa District Councils LTP Staff of all other groups of activities Staffing levels for regional activities determined based on GWRC apportionment of existing salary costs as budgeted for in year one of the GWRC LTP Management (tiers one and two) Not modelled separately for regional activities Assumes the same number of tier one and tier two managers for an amalgamated Wairarapa District and a Wairarapa Unitary Authority All other staff Staffing costs for regional activities determined based on GWRC apportionment of existing salary costs as budgeted for in year one of the GWRC LTP Based on an apportionment of GWRC department overheads (net of corporate overhead), as budgeted for in year one of the GWRC LTP Based on costs budgeted (for Wairarapa) in year one of the Greater Wellington Regional Council LTP where possible Otherwise, apportionment of year one LTP budgets where budgets are not available for Wairarapa Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 11

15 3.4 Benchmarking A benchmark is a standard or reference that allows comparisons to be made. Benchmarks are typically developed to allow an organisation to make relative comparisons against other organisations in the same sector. A benchmark may indicate that there is a difference between two organisations in relation to a particular measure, but it does not explain the underlying reason for the difference. In the case of council expenditure on an activity a comparative difference in expenditure may be attributable to a range of factors, such as, geography, demographics, service levels, operational approach, funding policies, community priorities and or strategic direction. It is acknowledged there will be differences in the underlying levels of service and in the specific functions and services provided by each of the comparator councils. However, the primary purpose is to enable a relative comparison to be made of the cost to deliver the selected groups of activities across the councils. For the current study benchmarking has been completed based on groups of activities for a selected regional council and selected unitary councils. Total costs and revenues have been compared based on the cost per person (population), per rateable property and per hectare (HA). This provides an indication of whether expenditure, overall and in relation to regional activities and services appear to be comparable to those of similar councils or authorities. Benchmarks have been prepared based on two sources of data: 1. Data sourced directly from Gisborne and Marlborough Unitary Authorities and from the Hawkes Bay Regional Council. This benchmarking data is based on the 2012/13 budgets. The Hawkes Bay Region was selected for benchmarking in discussion with the Wairarapa Governance Review Working Party due to similarities to the Wairarapa (e.g. economic activity, land type). 2. Data from the local authority financial statistics data collected and published by Statistics New Zealand for the year ending 30 June This data is based on the Statistics NZ functional areas of Planning and Regulation, Environment (including Flood Protection). A difference in a benchmark does not indicate that a reduction in expenditure is either possible or necessary in relation to a particular group of activities. As noted above, differences in expenditure may be attributable to a range of factors, such as, geography, service levels, operational approach, funding policies or community priorities. Rather, a difference in a benchmark may indicate that further investigation of what is driving the cost differential is reasonable. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 12

16 4. AMALGAMATED WAIRARAPA DISTRICT COUNCIL The amalgamated Wairarapa District Council would exercise the responsibilities and functions of a territorial local authority under the LGA Total Operating Revenue and Expenditure The graph below (Figure 1) shows the consolidated revenue and operating expenditure for an amalgamated Wairarapa District. The operating revenue of the new Wairarapa District would be approximately $64.5 million and the operating expenditure would be approximately $62.9 million. The financial position of the combined district councils shows an operating surplus of just under $645,000 per annum based on the 2012/13 budgets and before any consolidation adjustments (e.g. to adjust for the new tier one and two costs of an amalgamated Wairarapa District Council) are made in the model. Adjusting expenditure to account for the revised tier one and tier two management costs results in an operating surplus of about $1.66 million for the amalgamated Wairarapa District. Figure 1: Total Operating Revenue and Expenditure of the Amalgamated Wairarapa District Figure 2 shows the total operating revenue of the amalgamated Wairarapa District Council by source. Just under half (45%) of all revenue would come from general rates with targeted rates accounting for a further 22% of revenue collected. User fees and charges would make up 17% of total operating revenue and subsidies, grants and contributions would account for a further 14% of all revenue collected. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 13

17 Figure 2: Total operating revenue of the amalgamated Wairarapa District Council by source Figure 3 shows the operating expenditure of the amalgamated Wairarapa District by type. Materials and contracts would account for just under half (46%) of operating expenditure with depreciation and amortization accounting for a further 27% of operating expenditure. Employee costs account for 16% of total operating expenditure, finance costs (e.g. loans) account for 7% and other expenses (e.g. insurance) account for a further 4% of operating costs. Figure 3: Total operating expenditure of the amalgamated Wairarapa District by type Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 14

18 4.2 Operating Revenue and Expenditure by Groups of Activity The following series of graphs show operating revenue and expenditure for the amalgamated Wairarapa District Council by groups of activity. Figure 4 shows the relative distribution of operating expenditure, for the amalgamated Wairarapa District Council, across groups of activities. Expenditure on roading (30%), community facilities and services (17%) and wastewater (14%) would account for approximately 60% of all operational expenditure for an amalgamated Wairarapa District. Figure 4: Total operating expenditure by groups of activity The following graphs, Figures 5 and 6, give a breakdown of operating revenue and expenditure for groups of activity by source of revenue and type of expenditure. This shows how activities are funded, e.g. rates, user fees and charges. Sections to of the report describe the activities provided under each group of local activities, comment on revenue and expenditure for each group of local activities and consider whether there would be potential efficiency opportunities (e.g. opportunities to reduce duplication of resource and or expenditure, reduced procurement costs resulting from economies of scale) resulting from an amalgamated Wairarapa District. Figure 5: Operating revenue, by source, for the amalgamated Wairarapa District by groups of activity Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 15

19 Figure 6: Operating expenditure, by type, for the amalgamated Wairarapa District by groups of activity Corporate/Governance The Corporate/Governance activity includes the council, committees and other democratic processes, and the public communication, consultation and provision of information. It incorporates the respective councils advocating on behalf of their communities on the Wellington Regional Growth Strategy, working collaboratively on the joint committee of the Wairarapa Councils in administrating the Wairarapa Combined District Plan and participating in shared services in the interests of achieving possible cost savings. This activity also includes the Engineering Professional Services Units for Masterton and South Wairarapa. Figure 6 shows a negative expenditure for Corporate/Governance. This negative expenditure is costs for activities such as corporate support, executive management and the professional services units being reflected here. This means that the input costs for employee costs, materials and contracts appear here as costs and then the internal charge to other activities such as roading appears as a credit (negative expenditure). Recording this item as a credit in Corporate/Governance means that when the information is summarised for the whole of the council the internal costs net off to show the correct cost for the organisation. It is important that these costs are allocated to show the true cost of delivering services to the community. The total expenditure for the Corporate/Governance activity is $4.1 million and this would account for 7% of the total expenditure of an Amalgamated Wairarapa. Potential efficiency opportunities resulting from amalgamation The opportunity for savings in Corporate/Governance from amalgamation would depend on the governance structure adopted including the number of elected members and the number of community boards established. The responsibility for setting remuneration for elected members rests with an independent statutory body, the Remuneration Authority. In determining remuneration, the Remuneration Authority takes into account factors such as population, operating expenditure and statutory functions and responsibilities to be exercised. Given that a new governance structure Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 16

20 would have to be agreed and the role of the Remuneration Authority in determining remuneration, it is difficult to estimate a revised cost for elected member remuneration. However, the Wairarapa Governance Review Working Party has undertaken some initial work (not part of this study and not reported here) to identify a governance model for the Wairarapa which provides some indication of the number of councillors and community board members that might be elected in the Wairarapa. While there would be an overall reduction in the total number of elected representatives, in general, remuneration for elected members of larger councils and or of unitary authorities tends to be higher. Based on the indicative governance model and on remuneration arrangements for similar councils we estimate potential savings of around $220,000. Larger councils tend to have more staff dedicated to supporting the Mayoral office, elected members, administration and consultation processes. However, the amalgamation of the existing districts may provide for some efficiency particularly in respect to strategic planning and LTP processes, which would likely offset these additional costs. It is unlikely that there would be further savings for the balance of Corporate/Governance activities Roading This activity includes the management and operation of a safe and efficient roading network that serves the needs of the Wairarapa. The network comprises roads, bridges, wharves, footpaths, street lighting, road signs and all on-street and off-street parking. The total expenditure for the Roading activity is $18.2 million and this would account for 30% of the total expenditure of an amalgamated Wairarapa District Council. Revenue for this activity is from a combination of rates income (50%), grants, subsidies & contributions (45%) and user fees & charges (5%). The New Zealand Transport Agency (NZTA) subsidy rates for the existing District councils range between 49% and 54% for maintenance activities. NZTA have advised that the subsidy rate for a combined district is likely to be the average of 52.5% and that they do not envisage that the 100% subsidy for the special purpose road is expected would change, at least in the short-term. The NZTA have, however, signalled that they will be undertaking a full review of subsidy rates over the next two years with any changes being brought in to the 2015/18 National Land Transport Plan. The following table shows the existing NZTA subsidy rates. Table 3: Current and estimated NZTA subsidy rates Description Masterton District Council Carterton District Council South Wairarapa District Council Wairarapa District Maintenance 54% 53% 49% 52.5% Construction 64% 63% 59% 62.5% Special Purpose Road 100% 100.0% Potential efficiency opportunities resulting from amalgamation Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 17

21 This is by far the largest activity for an amalgamated Wairarapa and offers the opportunity to identify efficiencies and increased effectiveness in the delivery of operations, road maintenance and renewals. The Government established the Road Maintenance Task Force in 2011 to identify opportunities to increase the effectiveness of road maintenance in New Zealand. As reported in their report entitled Review of Road Maintenance Regime May 2012, the Task Force has estimated that joining up through collaboration and clustering may yield efficiency gains of between 2% and 20% depending on the model chosen. Further they point out that where such one network approaches are taken there is likely to be further benefits, such as greater network optimisation. Almost $8.0 million is budgeted to be spent on Materials and Contracts in the 2012/13 financial year and based on the Task Force findings and experiences elsewhere around the country there is the potential to reduce costs of between $160,000 and $1.6 million and enhance effectiveness. Through amalgamation it is considered that the combined resourcing and expertise will improve Asset Management practices and enable the improvement of planning and delivery that will enable greater efficiency and effectiveness, and better address risk. This will require the alignment of service levels and the valuation of different parts of the network with regard to maintenance, renewals and operational expenditure. In the medium-term you would expect some efficiency gains as a direct consequence of improved asset information for the roading activity Stormwater The Stormwater activity provides for a stormwater system to provide for the effective collection and disposal of surface water within the urban areas of Carterton and Masterton Districts includes managing the urban stormwater system and identified flood prone areas. The stormwater system incorporates street kerb collection, and piped and open drains. Due to the low density of development and the soil type, the South Wairarapa District has a policy that all stormwater from buildings is disposed of onsite through soak pits rather than through a reticulated Stormwater system. The total expenditure for the Stormwater activity is $0.9 million and this would account for 1% of the total expenditure of an Amalgamated Wairarapa. The revenue for this activity is achieved from a combination of general rates (79%) and targeted rates (21%). Carterton is the only district with a targeted rate for Stormwater Wastewater The Wastewater activity includes the management of the urban reticulated sewerage systems, pumping stations, sewage treatment plants, sewage disposal services and the management of the impact of any discharge into the environment. There are also schemes at Tinui, Castlepoint, Riversdale and Lake Ferry. The total expenditure for the Wastewater activity is $8.5 million and this would account for 14% of the total expenditure of an Amalgamated Wairarapa. Each of the Wairarapa councils funds the wastewater activity differently. Based on current rating policies, revenue for this activity is a combination of general rates (1%), targeted rates (89%) and user fees & charges (10%). Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 18

22 4.2.5 Water Supply The Water Supply activity comprises the management of urban water reticulation and treatment facilities to Carterton, Masterton, Greytown, Featherston and Martinborough as well as some smaller schemes. Water supply assets comprises of the water collection and storage system (including groundwater bores), filtration and treatment system and reticulation systems. In addition there is the provision and management of the water races across the region for stock use, non-potable domestic and industrial use, and for the purpose of rural fire fighting and stormwater control. The total expenditure for the Water Supply activity is $7.1 million and this would account for 11% of the total expenditure of an Amalgamated Wairarapa. Each of the Wairarapa councils funds the water supply activity differently. Based on current rating policies, revenue for this activity is a combination of general rates (2%) and targeted rates (85%), and user fees & charges (12%). Three Waters: Potential efficiency opportunities resulting from amalgamation The savings opportunities for the three waters, Stormwater, Water Supply and Wastewater through amalgamation would be relatively small in the Wairarapa due to the distance between the respective urban areas across the Wairarapa. In relation to the three waters, there may be some efficiency opportunities resulting from amalgamation, including: Improved infrastructure planning and asset information and district wide optimisation of service Increased resource capacity and capability resulting from the increased scale and capacity of the council organisation Economies of scale and improved purchasing power with respect to materials and contracts Solid Waste Management The Solid Waste Management activity includes the provision of kerbside refuse and recycling collection, the collection of refuse from street and public spaces refuse bins and the promotion of waste minimisation and recycling. The three Wairarapa councils have a single waste management contract in place to achieve a more efficient service for residents and better environmental outcomes. The combined contract is for transportation and disposal of waste at Bonny Glenn landfill. The councils also operate a number of transfer stations across the region. The total expenditure for the Waste Management activity is $5.4 million and this would account for 9% of the total expenditure of an Amalgamated Wairarapa. Waste management revenue is a combination of general rates (33%), targeted rates (18%) and user fees & charges (49%). Potential efficiency opportunities resulting from amalgamation It is considered that there will be no efficiencies for Solid Waste Management from amalgamation as there is already a single waste contract in place for the Wairarapa. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 19

23 4.2.7 Community Development & Facilities Community development includes the provision of information, advice and advocacy services to a wide range of people and community groups. The activity also incorporates the provision and operation of community facilities including swimming pools, libraries, events centres, halls, pensioner housing, public toilets, cemeteries and holiday parks across the region. The total expenditure for the Community Facilities activity is $10.5 million and this would account for 17% of the total expenditure of an Amalgamated Wairarapa. Operating revenue for this activity is general rates (79%) and user fees & charges (21%). Potential efficiency opportunities resulting from amalgamation There are possible opportunities for savings through amalgamation of Community Development & Facilities in the back office administration of these facilities. The actual number of community facilities including events centres, pools, libraries and halls is unlikely to change in the short term as it is always politically difficult to reduce these and accordingly no savings are likely through a reduction in community facilities. There are a number of examples where council controlled organisations (CCOs) have been established to deliver recreation and leisure services. The benefits of delivering recreation and leisure services through a CCO have included efficiency gains, increased commercial focus and revenue gain, economies of scale at an and administrative level and consistency of approach. The recreation and leisure services industry is a rapidly changing market for both public and private services and operators need to be alert to and in a position to lead and address change. The type of response required does not always fit well with the approach or ethos of local government and is an ideal activity area for council to consider delivering through a CCO structure. Currently the way in which community facilities are operated across the Wairarapa is a mixed model of in house versus contracted out. An opportunity exists to investigate the operation of these facilities and determine whether there is an operational model that would be more efficient. Further opportunities exist to plan for community facilities on a Wairarapa-wide basis rather than by district which would alleviate the duplication of services, particularly in terms of planned new facilities Parks & Sports The Parks & Sports activity includes the acquisition, development and ongoing maintenance of both urban and rural recreation parks and reserves and sports fields. These include sports grounds, gardens, neighbourhood parks, natural bush, beachfront esplanades and civic spaces. These parks are managed and maintained under reserves management plans. Forests are also included under this activity including Carterton s Kaipaitangata Forest. The total expenditure for the Parks & Sports activity is $3.2 million and this would account for 5% of the total expenditure of an Amalgamated Wairarapa. The revenue for Parks & Sports is generated from general rates (44%), targeted rates (50%) and user fees & charges (6%). Masterton is the only district that has targeted rates for this activity. Potential efficiency opportunities resulting from amalgamation Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 20

24 Materials and contracts account for approximately $2.2 million of this activity s operational expenditure and through amalgamation it would be expected that there would be some opportunities for efficiency, including: Improved network planning and asset management across the parks activity Investigation of a uniform delivery approach for parks Increased resource capacity and capability resulting from the increased scale and capacity of the council organisation Economies of scale and improved purchasing power with respect to materials and contracts Regulatory & Planning The regulatory and planning group of activities benefits all who reside in the Wairarapa by promoting sustainable development, whilst encouraging development to occur in a way that benefits the district and region. The Wairarapa Combined District Plan became operative in 2010/11 and provides for greater consistency across the Wairarapa in relation to resource consent requirements and decisions. The Regulatory & Planning activity includes the administration responsibilities imposed on the Councils by the Resource Management Act, with the primary focus being the management of the effects of the effects of activities on the environment according to the rules set out in the District Plan. Also incorporated under this activity are the regulatory services of environmental health, liquor licensing, civil defence and emergency management, animal and dog control, building control and rural fire control. The total expenditure for the Regulatory & Planning activity is $6.4 million and this would account for 10% of the total expenditure of an Amalgamated Wairarapa. Operating revenue for Regulatory & Planning is general rates (49%), targeted rates (5%), user fees & charges (45%) and grants, subsidies & contributions (1%). Potential efficiency opportunities resulting from amalgamation The opportunities in respect to Regulatory & Planning are considered to be efficiencies relating to administration, resourcing, District Plan reviews and other policy development. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 21

25 Table 4: Relative comparison between the current district councils and an amalgamated Wairarapa District Residential Properties Commercial & Non-residential Urban Properties Masterton District Council Carterton District Council South Wairarapa District Council Amalgamated Wairarapa District Council 7,663 2,168 3,948 13, ,120 Rural Properties 3,785 1,989 2,402 8,176 Total Rateable properties Percentage Residential/Urban 12,006 4,384 6,685 23,075 64% 49% 59% 60% Gross Land Value 2,403,410,000 1,139,701,500 2,100,060, ,643,171,500 Gross Capital Value 4,408,650,000 1,926,561,100 3,280,275,000 9,615,486,100 Average Land Value Average Capital Value 200, , , , , , , ,706 Average Rates per 5 1,014 1,113 1,857 1, capita Average rates per rateable property 1,988 1,942 1,696 1, Amalgamated Wairarapa District Council: Summary This study has identified some savings that are likely to result from the formation of an amalgamated Wairarapa District Council. A potential cost reduction was identified in relation to the purchasing of materials and contracts for the roading activity ($160,000 - $1.6 million). Similar efficiencies may be possible for other activities. Our estimates suggest that it may be possible to achieve savings of approximately 2% ($327,000) in relation to the purchase of materials and contracts across all activities, excluding Roading and Solid Waste. Savings of this nature could be realised in the medium to long-term as service levels and contracts are aligned and renewed. There may also be some savings resulting from administrative matters such as, going from three LTP s requiring audit to a single LTP requiring audit. However, much of the real benefit of an amalgamation would result from increased capacity and capability of the council organisation and improved management, co-ordination and integration of networks and services across the Wairarapa. The 4 As at 1/09/ The population base used for this calculation is the Statistics New Zealand population estimate for the year ending June The average rate is based on the total rates revenue (general and targeted) collected by the three Wairarapa Councils. Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 22

26 increased size and scale of the council organisation would allow for increased technical capacity and capability. An amalgamated Wairarapa District would also benefit from strong leadership and integrated decision-making. Key benefits would include: Elected representatives have wider mandate and greater responsibilities that can result in more strategic decisions, Strategic planning for the Wairarapa would be considered by a single council, resulting in integrated and streamlined decision-making, Standardisation of policy, bylaws, standards across the Wairarapa, resulting in reduced cost to businesses, particularly those operating in multiple locations, Greater political weight when lobbying government and other organisations, Activities would be planned for across the Wairarapa in an integrated manner, Reduction of management duplication (e.g. tiers one and two management), Larger administrative organisation that can attract a wider and deeper range of staff skills and retain highly specialised staff, reducing the need to utilise or contract-in external resource, Services are managed and delivered across the whole of the Wairarapa in an integrated manner, and Removal of competition between local authorities to attract business to the Wairarapa. In theory an amalgamated Council is a lower cost management model through efficiencies of scale. However, research suggests that any savings generated by efficiency gains in amalgamated Councils are usually delivered to the community by increased services and depth of services (Consolidation in Local Government: A Fresh Look, Aulich et al, May 2011). Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 23

27 5. WAIRARAPA UNITARY AUTHORITY A Wairarapa Unitary Authority would undertake the responsibilities and functions of a territorial local authority and regional council under the LGA Total Operating Revenue and Expenditure The data provided by Greater Wellington Regional Council indicates that there is a current funding gap (between regional costs and regional revenues collected) for the Wairarapa of just under $10.9 million per annum. Currently the rates collected from the Wairarapa for regional functions are $5.77 million, based on the data supplied by Greater Wellington Regional Council. Whereas, the indicative cost to deliver regional activities in the Wairarapa, to be funded by rates, is about $16.66 million. The graph below (Figure 7) shows the consolidated operating revenue and expenditure for a Wairarapa Unitary Authority. The operating revenue of the new Wairarapa Unitary Authority (based on revenue for the 2012/13 financial year) would be approximately $73.9 million and the operating expenditure (based on budgeted expenditure for the 2012/13 year) required to deliver services at the current level would be $82.5 million. Taking into account the small operating surplus of the amalgamated Wairarapa District Council ($1.66 million), a Wairarapa Unitary Authority would have an operating deficit of approximately $8.6 million, based on current expenditure. In section of this report we identified potential savings (approximately $220,000) as a result of an overall reduction in the number of elected members. While the overall number of elected representatives might be the same for an amalgamated Wairarapa District and a Wairarapa Unitary, in general remuneration for elected members of unitary authorities tends to be higher than for local authorities of a similar size and nature. Based on the indicative governance model and on remuneration arrangements for similar unitary councils we estimate potential savings of around $140,000. Figure 7: Total Operating Revenue and Expenditure of the Wairarapa Unitary Authority Figure 8 shows a breakdown of the total operating revenue of the Wairarapa Unitary Authority by source. Just under half of (43%) of all revenue would come from general rates with targeted rates accounting for a further 24% of revenue collected. User fees Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 24

28 and charges would make up 20% of revenue and subsidies, grants and contributions would account for a further 12% of all revenue collected. Figure 8: Total operating revenue, by source, for the Wairarapa Unitary Authority Figure 9 shows a breakdown of the operating expenditure of the Wairarapa Unitary Authority by type of expenditure. Materials and contracts account for just over forty percent (41%) of operating expenditure with depreciation and amortizations accounting for a further 21% of all operating expenditure. Employee costs account for 19% of total operating expenditure, finance costs (e.g. loans) account for 7% and other expenses (e.g. insurance) account for a further 10% of operating costs. Figure 9: Total operating expenditure, by type, for the Wairarapa Unitary Ref: 1901 Investigation into Future Governance Options, Report for Wairarapa Councils 25