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.

Supersize my City: Super for Some

Is it the growth we want?

I have been thinking about the increasing cost of Auckland Council.  Is it simply a sign of growth, or is it something to do with the nature of the large councils (or large organisations in general)? And if it is all about growth, it raises other questions that remain unanswered, questions of physical and social capacity. Is it about coping with something that seems inevitable? Or is it something that the community wants and can embrace?  And if so, what will happen when that growth slows?

And how does the growth we are experiencing align with the much-touted ambition to be the world’s most liveable city?  (And what precisely does that mean?) There is a risk that we have leapt to the answers without quite understanding the questions. 

Another question

There’s another elephant on the Isthmus, one I turn to here. Can we sustain the costs of a super-sized council created to combat the supposed inadequacies of smaller councils? As the Council seeks out new sources of revenue, will they be enough to head off the fiscal headwinds that the Council may encounter, especially as the costs of living in Auckland increase?

If, as was hoped, a single city was to be more streamlined and efficient, this should be evident in its employment performance. I concentrate on council employment and its costs in this post. To do so I returned first to an analysis I have undertaken before (in 2014 and 2016).  Now that the super city has been with us for eight years the numbers should be more settled.

Employment growth: onward and upward

The amalgamation of six separate territorial authorities and a regional council (including the Auckland Regional Transport Authority and Watercare Services) was aimed at savings through integration and economies of scale.

Gains on the employment front from amalgamation were short-lived, however.  Stats NZ showed employment figures soon back above trend as indexed growth in Auckland moved ahead of the rest of the country (Figure 1). 

Figure 1: Local Government Employment Growth, Auckland and the Rest of New Zealand, 2000-2017

Source: Business Demographics, Statistics NZ

It gets worse when we look at the annual June reports for the Council since 2012.  They show significantly more employees when the subsidiaries – the CCOs – are accounted for:

Figures from:	2012	2013	2014	2015	2016	2017
Auckland council (June Reports)	6,789	7,008	7,051	7,123	7,184	7,220
Statistics NZ (as at February)	5,000	6,600	6,800	7,400	7,600	6,400
Difference (rounded)	1,790	410	250	-280	-420	820

 Source: Auckland Council Annual Reports; Stats NZ Business Demographics

Interestingly, the dip in 2016 in Statistics NZ figures does not show up in the Council’s data. This is preumably influenced by the fact that some of the Council's service delivery functions (water and waste, for example) turn up in other sectors. 

However, it turns out that employment growth has taken place primarily in Council's subsidiaries. Consider the staff figures for the period 2012 to 2017:

	2012	2013	2014	2015	2016	2017	Gain 2012-17	Share of Gain
Core Council Staff	6,789	7,008	7,051	7,123	7,184	7,220	431	6%
CCOs' Staff	3,368	3,608	4,071	4,257	4,407	4,673	1,305	39%
Total Group	10,157	10,616	11,122	11,380	11,591	11,893	1,736	17%
CCOs' Share	33%	34%	37%	37%	38%	39%	75%

Source: Auckland Council Annual Reports

While growth within the “core Council” has trailed population growth (6.3% compared with the Stats NZ estimate of a 7.2% population gain), the CCOs have grown much faster.  They accounted for 75% of employment growth in the Group, reaching almost 40% of the total. The result: overall council employment increased at more than twice the rate of population growth.  It was also well ahead of 5% inflation since 2012.  

On employment grounds council growth is easily outstripping the growth of the city.

The cost of council employment

Even if wages and salaries stayed constant, the prospect of savings in employment costs from combining councils was astray. Annual reports show growth in the cost of council employment (“Employee Benefits” including contributions to superannuation, provisions for redundancy, and the like) increased 24% from 2012 to 2017 across the Group. The subsidiaries, the CCOs, grew employment costs by 45%; the core Council by a more modest 12%, although this was still twice the rate of growth in Auckland's employment.

Figure 2: Employment Costs, Auckland Council and CCOs, 2012-2017

  Source: Income and Expenditure tables, Auckland Council Annual Reports

Across the Group, employment costs were $853m in 2017, $163m up on 2012.  So much for $66m in staff savings ($74m in 2017 dollars) touted in 2010 as justifying the super city.  . 

Super city, super salaries

If the workforce growth that took place had been at stable incomes, the cost of employment would have been $481m for the Council and $330m for the subsidiaries, $811m.  This leaves an additional $42m attributable to wage creep after inflation ($27m in the core Council and $15m in the CCOs).

How did this happen? Well, Bernard Orsman in an article in the New Zealand Herald last year put his finger on it:

“One in five staff at Auckland Council is earning more than $100,000 as the wages bill for the Super City blows out for the third year in a row.

“…  the number of executives earning more than $200,000 has increased by 25 per cent in the past year, from 155 to 194, according to figures in the council's 2016-2017 annual report”.

and

“The council and its six council-controlled organisations (CCOs) employ 11,893 staff, of whom 2,322 earn more than $100,000”.

Changes in these figures since 2012 reveal some interesting developments (Figure 3).

Figure 3: Shares of Salaries $100,00: Auckland Council 2012-2017

 Source: Auckland Council and CCO Annual Reports

First, growth in the core Council occurred entirely in the $100,000-plus bracket, rising from under 10% to 16% of employees while those earning less than $100,000 declined. This means that all growth in employees earning under $100,000 a year took place in the CCOs. Is this a sign that the core Council is already suffering organisational ossification (entrenching people, systems, and values as the outside world continues to change)?

Second, while 1,500 people in the core Council earned between $100,000 and $200,000 a year in 2017and 70 over $200,000, a disproportionate share of high salary growth took place in the CCOs.  By 2017 there were around 1,100 people earning $100,000-$200,000 in CCOs, up 48% since 2012, and 120 earning over $200,000, up 62%.

Not only has absolute employment growth focused on the CCOs, but they have provided fertile grounds for supersizing salaries, leading to significantly higher average wages compared with the core Council by 2017.  This is despite growth in the latter taking place entirely at the higher end of the salary scale.

It seems that both the council and its subsidiaries have been busy uploading salaries as well as people

Even more questions

While council reports are full of measures of progress and performance, there are still some outstanding questions.   

For example: 

• Can we justify this growth in employment costs by increased productivity?  
• Maybe we need to look at the bigger income and expenditure question?
• Did we simply replace territorial fragmentation with functional fragmentation?
• And where are the governance and efficiency gains for local democracy in that?