Is bigger better for local councils?

That's the question facing the Wellington region with the Local Government Commission releasing it's proposal for a "Super City" stretching from the Wairarapa to the Cook Strait.

A TDB Advisory report, commissioned last year by the Hutt City Council, reviewed the international literature on the relationship between size and cost-effectiveness of local government. It examined the expenditure data from New Zealand territorial authorities to assess the relationship between size and cost-effectiveness. The report found that efficiencies are generally gained up until a local council area covers 50,000 inhabitants. Once councils reach around 200,000 in population it appears that diseconomies of scale kick-in and that larger councils tend to cost more on a per ratepayer basis.*

There are other problems with the model chosen by the Commission:

• It doesn't offer value for ratepayers - that's not just our view, the Commission's own analysis ranks the chosen model fifth in terms of net benefits of the eight options presented. Projected efficiency gains of $30 million per year at 3% of operating expenditure are derisory given the risks of adverse efficiency changes described from other local government agglomerations.
• A move to capital valuations for rates will hurt the CBD the most - as Aucklanders well know, capital valuations shift the rates burden onto inner suburbs. The Commission does not hide its intention to cross-subsidise. Wairarapa, for example is warned that it will lose $11m of subsidy if it goes it alone. We see Wairarapa’s determination to be self-reliant as creditworthy. Judging from the relative performance of Christchurch and its neighbouring small councils, Wairarapa will have every prospect of showing the Commission to be dead wrong.
• The goal of 'regional coordination' is fudged - the proposal is obscure about the relationship between local boards and regional coordination matters such as economic development and transport.
• It won't make the boat go faster or promote 'a single voice' - despite the recent efforts to address economic development at a regional level, the proposal gives economic development to local boards. Even if the scheme resulted in a 'single-voice' democracy we've not been able to track down evidence of advantages stemming from such a system. If anything, ‘single voice’ democracies in seem better positioned to squeeze central government for pork barrel politics courtesy of the taxpayer.

The Commission's draft proposal is available on this page. Submissions close on 2 March 2015.