Amalgamation and Streamlining City Governance: the Auckland Experiment So Far

The performance of the Super City – so far, so so

Previous posts indicate that amalgamating local government in Auckland has not yielded efficiencies. Catch-up spending may account for some of the costs, which have run well ahead of population growth, and the consolidated Council may be doing more things than its predecessors.

However, a failure to deliver on expectations suggests that performance is still a problem. This blog looks at the governance structures underpinning Auckland Council’s decision-making, concluding that amalgamation has simply changed governance problems, not resolved them.

Governance: councillors acting with authority

Authority for governing locally comes from the democratic process. Elected politicians are expected to represent the preferences of constituents in decision-making (which does not reduce the imperative to act within the law, consider sound technical advice, and evaluate the costs, benefits, and risks of alternative courses of action).

Implementing decisions falls to a chief executive appointed by and accountable to the Council. The CEO in turn appoints subordinate managers to implement policies. While the executive team is also required to advise on the decisions the Council takes, staff are not the Council. The Council is an elected body that ultimately speaks and acts collectively.[1]

Boards and managers

Council and staff roles have a parallel in corporate boards of directors and company executives.  Despite different conventions, similar principles apply. For example:

·        Effective engagement is required between council and constituents so that decisions take account of residents’ and ratepayers’ interests;

·        Accountability comes from clarity and openness so that the grounds, costs, and expected outcomes of decisions can be understood by constituents;

·        Clarity of communication and accountability between Mayor and CEO is critical to turning policy decisions into executive actions.

How many around the table?

The effectiveness of governing bodies in the private, not-for-profit, and public organisations is influenced by the size of the governance group. While this is a matter of ongoing professional and academic debate and  deliberation, it is generally agreed that 10 members should be sufficient to bring the necessary breadth of views and skills to the table while avoiding the distractions associated with larger boards.  Councils may have more than ten members, however, or use outside advisors to ensure that the full range of community views are brought to individual issues.[2]

Managing complexity: committees and council-controlled organisations

Councils work in diverse task environments. Traditionally complexity is managed through specialised committees reporting to the full council, which makes decisions based on their recommendations.

Using Council Controlled Organisations to deliver selected public goods and services is another way to deal with complexity. CCOs are governed by appointees, often with business experience, rather than elected representatives.  While operating to a charter framed by the council, they can act outside the confines of the public service.

Auckland’s CCOs – a mixed blessing?

An earlier post suggested that higher costs may be associated with Auckland Council’s reliance on CCOs. Table 1 lists them, including statements of purpose (from annual reports). These indicate changing roles, raising questions around mission creep and how and why council-mandated charters may be altered. 

For example, ATEED positions itself as multi-functional, moving closer to the Council’s environmental management and infrastructure responsibilities, while committing to a whole-of-labour market quality focus.

The Auckland Transport statement suggests a shift from supporting changing land use through transport investment and public transport operations to urban planning (“shaping Auckland”) and shaping transport behaviour.

Table 1: Auckland City’s Council Controlled Organisations

Tails wagging the dog?
It may be inevitable that CCO roles evolve as demographic and economic conditions change. It is also important that those changes reflect rather than lead council policy. (However, CCO directors and officers do have a role to play in advising the Council in their respective areas of expertise.)

Auckland City is now running into hard questions over the CCO model. In the spotlight at the moment, for example,  is the Regional Facilities Agency and the initiatives it is pursuing to “rationalise” long-established sporting venues. 

Another example is the failure of Panuku Development to align development planning with council plans.  It’s also problematic when a subsidiary pursues commercial objectives contrary to the wishes of the community, as when Ports of Auckland published expansion plans into the Waitemata Harbour. Similarly,  the subsidiary’s “out-of-scope” commercially-founded plans for a hotel and car park clash with Council’s plans for the waterfront.

Issues of autonomy, accountability, and conflict can reduce the value of CCOs and subsidiaries as they are directed by boards a step removed from democratic responsibilities and managed by executives not directly accountable to the Auckland Council CEO.

Local boards: compensating for a reduction in representation?
Local democracy depends on local representation. Amalgamation was in large part about reducing the number of councillors, from around 117 across eight councils in 2009 to 21 today (Table 2). This saw one council member for every 14,500 people in 2009 fall to one for every 64,600 in 2018, a 78% reduction in representation.

There was a slight increase in local board members (25% up compared with community boards in 2009), but given boards' limited responsiblities, the overall reduction in representation and consolidation of regional rather than local governance suggests a significant decline in democratic accountability. The increase in appointed directors of regional-scale CCOs[3] can be seen as contributing further to  the centralisation of decision-making.

Table 2: Local Government Representation, Auckland 209 and 2018

Insofar as participation in elections reflects it, consolidating Auckland did little for elector engagement. Residential turnout for council elections in 2016 was 38%, exactly the same as in 2007.

Local Boards, Local Representation?
It is unlikely that the powers delegated to local boards are sufficient to offset the loss of representation. Although the numbers of elected members of the individual boards lie within a reasonable range for organisational effectiveness (Figure 2, below), the spread of representation (defined as residents per councillor) varies substantially among them, well above the +/- 10% considered appropriate for electoral equity. 

Putting aside the exceptions of Waiheke and Great Barrier islands with their small populations, the highest level of representation is 7,400 persons per board member, well ahead of the lowest at 17,000 (the average being 10,800).

Figure 1: Representation on Local Boards 

And the Council?

Given its size, Auckland Council has the potential to be compromised by unwieldy numbers and the cross-currents and mixed agendas that attend a crowded governance table. The committee structure is unlikely to offset this because, in a rather strange arangement, all councillors are members of the three main committees (Table 3).  Over-sizing committees reduces the advantages of having small groups specialise in key areas before deliberation on policy options by the full Council.

Table 3: Auckland Council Committees

     IMSB: Independent Māori Statutory Committee

Time to review Auckland’s governance arrangements?
The outline of governance here suggests that the Auckland Council has the potential for cumbersome decision-making despite any streamlining intended from consolidation of powers.

For example:

·        The Council operates in a top-heavy manner, if only because its key decision-making functions are subject to deliberation by committees of 22;

·        The relationships among the governors (councillors, CCO directors and board members) and managers are potentially complex and communications constrained across boundaries;

·        Representation within the council is based on low elector turnout, while representation across local boards is uneven.

Given the evidence of rapidly rising costs in Auckland Council’s first eight years, the picture of consolidated power at the centre without obvious democracy, decision-making, or performance benefits suggests that it is time to again review Auckland’s governance arrangements.

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[1]            Note to reporters: it is important for clarity to use a singular verb when reporting on the Council. The Council are not to blame for getting it right or wrong: the Council is.

[2]           The Independent Māori  Statutory Board pays an important role in this respect in Auckland.

[3]            The Royal Commission on Auckland Governance (2009) claimed “over 40” CCOs associated with local councils in 2009 (Final report, p.13). This implies a trade-off through amalgamation between many small organisations operating locally and a few large ones operating regionally.

Local Governance, Amalgamation, and Productivity: Is Bigger really Better?

So much for savings from amalgamation
Burgeoning wage costs at Auckland Council are no surprise. They are not an unexpected outcome given that consolidation of local councils generates additional organisational tiers, calls for more managers, and demands greater attention to internal coordination and bureaucratic processes.

I noted a couple of years ago that the costs of Auckland's super city, established in 2010, were already outrunning the combined costs of the eight councils it replaced: 

the operating budget for Auckland Council in 2012/13 is $2.8 billion compared with the collective 2008/09 operating expenditure of the eight councils identified of $1.95 billion (see Royal Commission Report Appendix B). Spending growth of 45% (or $721m) in 2009 dollars compares with just 8% inflation between 2009 and 2012. Transition costs alone can’t explain such a jump - the Royal Commission suggested that at most transition would cost just $60 million a year for four years.

Expansion, ossification, and eradication 

The prediction that employment costs would increase was not so much insightful as stating the obvious. Quite apart from the evidence of diseconomies in over-blown municipalities, anyone who watched the decline and dismembering of New Zealand’s largest corporates in the 1980s and ‘90s could see it coming. Some of our largest companies (Watties, Fetcher Challenge, New Zealand Forest Products, Waitaki NZ Refrigerating, and Carter Holt Harvey) went through a sequence of slow growth, consolidation, and ultimately dissolution. Different parts were downsized, sold off, or shut down and assets stripped as the quest for productivity gave way to the struggle to survive.

Councils are not immune to the conflation and ossification that come with size. But before we predict the unwinding of Auckland Council we need to ask if high costs are simply a response to growth. 

The analysis

To explore this we analyse trends in local government employment relative to population using Statistics New Zealand Census population and employment data (2000 to 2013).

There are limits to this analysis. To really understand why a single council is costing Aucklanders more than those it replaced requires in-depth analysis. It needs to account for changed practices, changes in the mix and levels of services, changes in funding practices, and so on. Nevertheless, the analysis below helps raises serious questions regarding the costs and benefits of amalgamation.

City hall slimmed down? Yeah right
There was a slump and then a jump in local government jobs in Auckland after the new council was formed (Figure 1). So much for trumpeting job cuts in 2010! This was simply a transitional aberration. This is even more obvious when we compare shifts in jobs with shifts in the population local government serves. Local government employment grew ahead of population in Auckland continuously to 2010. Then, after the dip associated with transition to single council, jobs took off again, vaulting way above the already worrying medium term trend.

 

Figure 1: Changes in Population and Local Government Jobs: Auckland, 2000-2013

Benchmarking Auckland against the Rest of New Zealand
Growth in local government employment also grew faster than population across the rest of New Zealand . Table 1 shows this using 2010 as a benchmark date. It also shows includes changes in jobs per thousand residents – a surrogate for labour productivity: the higher the ratio the less productive local government employment is.

While Auckland’s population grew by 22% between 2000 and 2010, council jobs grew by 65%. This means it took 35% more people to administer local government relative to the population in 2010 compared with 2000, which suggests an annual average “productivity decline” of 3.5%. And that figure increased after consolidation, by 21%, to 7% a year. 

 

Table 1: Indicators of local Government Growth and Productivity

 

Local government productivity in Auckland declined by 35% (as measured here) between 2000 and 2010, but by only 21% across the rest of New Zealand.  This divergence increased between 2010 and 2013 when Auckland's productivity fell by 38% over just three years, while it fell by only 1% in the rest of New Zealand. 

While the measure of productivity is crude, the growth of council employment relative to population raises a fundamental question: where do the gains from amalgamation actually lie?

The productivity mix
Among sectors that can be identified from the statistics as providing local government services administration apparently experienced the biggest decline in productivity over the past three years (Figure 2). Front-line activities like public transport, museums, the zoo, and gardens actually lifted their productivity between 2010 and 2013. These gains may reflect demand rising ahead of population and employment as well as from operating improvements. However, recent gains follow falling productivity earlier in the decade. And gains in public transport have been on the back of plans and investments made before the 2010 reforms.

In fact, earlier gains in the water and drainage sector halted after 2010, while productivity in solid waste services has gone backwards. Given that these are sectors with generally stable technologies and predictable demand, this outcome is of some concern. But it is more worrying that local government administration, has apparently fallen behind the delivery of local services.

Figure 2: Shifts in Productivity by Local Government Activity

Benchmarking against other centres

A comparison of productivity scores for 18 New Zealand cities ordered from largest (Auckland, 1.5m residents in 2010) to the smallest (Upper Hutt, 41,000 residents) shows that size has little to do with performance (Figure 3). 

 

Figure 3: Comparing Changes in Productivity Across Cities

Moreover, from having the lowest score going into 2010, Auckland's index was bettered by eight councils just three years later. These included Porirua, Gisborne, Nelson, Hastings and Whangarei, among the smallest of the country’s cities. In fact, Auckland was the 16th worst performer between 2010 and 2013.

The index used here has its limits. Population is not necessarily the best measure of demand for different services. Comparison may be influenced by the different mix and quality of services offered by different councils. If nothing else, though, the comparison raises questions over how far and why consolidation should be promoted elsewhere.

So what does this mean for future amalgamations in New Zealand?
In 2012 I suggested that it was too soon to tell how the

Auckland experiment was going. A couple of years on I wonder how long we have to wait to see any fiscal or economic benefits. There is no evidence that consolidation has improved productivity. The other, less tangible benefits claimed for it - speaking with one voice being the obvious one – appear to have come at a significant cost.  This is being reflected in charges to ratepayers and the rate of increase in indebtedness.

Whatever the reason for these results, the Local Government Commission should be wary of emulating the Auckland experiment elsewhere.  This includes Wellington where there is considerable political momentum behind proposals for council consolidation. Amalgamation is a perceived solution to issues of local governance that may be more imaginary than real, a solution that we may not be able to afford.  It appears that Aucklanders are already paying the price.