Councils need help with sea level rise, intense rain events: Productivity Commission
New methods, possibly including central government funding, are needed to help councils adapt to climate change, provide infrastructure for rapid urban growth, and cope with the growth of tourism, the Productivity Commission says.
Future sea-level rise and increased flood risk from climate change directly threatened local government infrastructure, the commission said in a draft report into council funding and financing, published on Thursday.
It recommended the role of the NZ Transport Agency in co-funding local roads should be extended to include help to councils facing significant threats to the viability of local roads and bridges from climate change.
A climate-resilience agency and associated fund should also be created to help at-risk councils re-design, and possibly relocate and rebuild, wastewater, stormwater and flood-protection infrastructure.
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Councils were also responsible for planning and regulating development on at-risk land, the commission said. To help them prepare for the impacts of climate change, central government should take the lead providing high quality and consistent science and data, standard setting, and legal and decision-making guidance.
Commenting on the report, Professor Ilan Noy - chair in the economics of disasters at Victoria University of Wellington - agreed with the commission that insurance was not part of the solution to dealing with climate change.
"At this point, there appear to be expectations that insurance will protect homeowners in at-risk locations indefinitely," Noy said.
"As such, these expectations exacerbate the problem as the risk remains 'hidden' until the insurance companies themselves choose to retreat from providing coverage."
That gap in expectations might create pressure on the government to socialise the risk, for example by extending EQC coverage to all natural hazards, he said. "This is bound to create even more moral hazard, so these expectations need to be managed now, rather than later."
The commission report also said the failure of high-growth councils to supply enough infrastructure to support housing development had led to serious social and economic problems.
It recommended a new funding stream from central government to local authorities be considered, based on new building work put in place within an authority's boundary.
"This can be justified because of the strong national interest in an adequate supply of infrastructure-serviced land and new houses," the commission said. It also asked for submissions on whether a tax on vacant land would be a useful mechanism to improve the supply of land for housing.
A value capture funding tool was another way councils might be able to raise funds. It would require property owners who enjoyed windfall gains from nearby publicly-funded infrastructure investment to pay a portion of that gain, the commission said.
To help pay for infrastructure under pressure from the growth in tourism, the Government should enable councils in tourist centres to impose an accommodation levy. Councils should also introduce more user-pays, and small councils should receive funding from the international visitor levy.
Another cause of pressure on local government was the continued accumulation of tasks and responsibilities passed from central government, without adequate funding, the commission said.
It wants central and local government to work together to co-design and jointly implement appropriately-funded regulatory regimes.
Overall, the commission found the funding and financing framework for local government was broadly sound. "The current system, based on rating properties, is simple and economically efficient, compared to alternatives, such as local income taxes," it said.
"Wholesale change to a radically different model would be expensive, disruptive and uncertain."
There was little or no evidence rates had generally become less affordable over time, the commission said. But law changes were needed to make the system more equitable and transparent.
That included changing rating powers to give more prominence to the "benefit principle". Under that approach those who benefited from a service, or caused the need for it, should pay the cost.
While councils might use "ability to pay" as a consideration, they should take into account central government's primary role in income distribution, the commission said.
The current rates rebate scheme was neither equitable nor effective and should be phased out, it said. A national rates postponement scheme should be introduced.