Public Sector

Has COVID-19 Turned Annual Plan Process on its Head?

When times are filled with uncertainty, planning becomes both more critical and more difficult.  We should spare a thought for those who are charged with guiding local authorities through the current planning round from their home offices.

As I write the rubbish is being collected from the apartment complex where I live by a truck parked outside my bedroom/office.  It is a safe bet that refuse collection and disposal will remain a necessity in the 2020/2021 financial year, and hopefully the cost will not differ greatly from that allowed for in the 2018/2028 Long-term Plans (LTPs).  But other predictions and estimates will need to be re-visited, and the availability of additional Government funding (see our previous article, Find the Silver Lining – Opportunities for Capital Projects here will mean significant new projects can be undertaken.  Parliament has authorised the Government to spend an additional $52 billion dollars in the current financial year, but those funds will translate into capital projects that extend into the 2020/2021 year and potentially beyond.  It is worthwhile examining the degree of flexibility available under the planning provisions set out in Part 6 of the Local Government Act 2002 (LGA), particularly as milestones for the adoption of 2020/2021 Annual Plans (APs) loom large. 

Expenditure and changes in the current year

Local authorities are not absolutely bound by the provisions of either the LTP or the AP.  Section 96 LGA is quite clear on this point.  The LTP and AP provide a formal and public statement of a local authority’s intentions in relation to the matters covered by the plan.  The adoption of an LTP or AP does not constitute a decision to act on any specific matter included in the plan.  But of critical importance in terms of the ability to act outside of an LTP or AP, a local authority may make decisions that are inconsistent with the contents of any LTP or AP.

That ability to act outside a plan is not unlimited.  It does not apply to decisions to significantly alter the intended level of service provision for any significant activity, or to transfer the ownership or control of a strategic asset : section 97 LGA applies.  In addition, the procedural requirements for identifying an ‘inconsistent decision’ set out in the Act must be complied with.  But changes can be made to both operational and capital expenditure within the current financial year to take account of both limitations imposed by the COVID-19 regime, and the opportunities afforded by new sources of Government funding.

2020/2021 Annual Plan

This is where things may get a little more difficult.  Local authorities are already well down the track in the drafting of these documents that must be adopted no later than 30 June 2020. Some may already have begun the consultation process.  Before adopting an AP, a local authority must consult in a manner that gives effect to the principles of consultation in section 82 LGA, but only if the proposed AP includes significant or material differences from the content of the LTP for the subject year.  It is very frequently the case that there are such material differences, and even more likely in the changed circumstances arising from responses to the COVID-19 pandemic.

Where local authorities are required to consult, they must first adopt a consultation document that complies with section 95A LGA.  The consultation document is required to explain any identified differences between the LTP and the proposed AP.  It must include:

  • an explanation of any significant or material variations or departures from the financial statements or the funding impact statement; and
  • a description of significant new spending proposals, the costs associated with those proposals, and how these costs will be met; and
  • an explanation of any proposal to substantially delay, or not proceed with, a significant project, and the financial and service delivery implications of the proposal.

In addition, it must outline the expected consequences of proceeding with any such matters, including the implications for the financial strategy.  Clearly the timeframe for adopting and consulting upon new AP provisions that take account of the current circumstances is very tight, and compliance is still more difficult because of the uncertainty around what the coming months will bring in terms of the regulation of community and business operations.  It will be still more difficult for those local authorities that foresee changes that trigger section 97 LGA, and thus require a contemporaneous amendment to the LTP with its more rigorous requirement for a consultation document, the use of the special consultative procedure, and the audit requirement in section 94 LGA.  We note that in respect of the latter, the Office of the Auditor-General put out a statement on 25 March 2020   Auditing in the context of COVID-19 noting the likelihood of many audits being completed late and affecting the accountability obligations of public entities, but without offering any solution or view as to the consequences of this situation.

It is also likely that some local authorities will find themselves in the situation of having already adopted consultation documents that might no longer reflect the new limitations and opportunities arising from the very different priorities the new economic situation will impose.  In some cases, consultation may already have begun.  While the Government moved quickly to address some of the complications imposed on local authorities by the lock-down (see our previous article, New Rules for Holding Meetings During Lock-down  here), it has not altered the requirements of Part 6 LGA relating to these critical planning documents.

Like the Auditor-General, we can point out the problems, but do not have ready solutions.  We are inclined to the view that local authorities must proceed within the statutory requirements for adoption of their APs as best they are able to within the limits of the information available to them and the timeframe imposed by the looming end of the current financial year.  The result may in some, perhaps many, cases be an ‘imperfect’ AP that does not reflect all of the operational and capital adjustments that will arise as a response to the COVID-19 pandemic.  But as long as the actions taken are consistent with the purpose of promoting the social, economic, environmental, and cultural well-being of its communities, local authorities can take comfort from the flexibility of decision-making provided in section 96 LGA discussed above.

Rating impact

Many Council’s, concerned at the economic impact on their communities, are giving consideration to the impact of rates on residential and/or business ratepayers.  Again, there are two relevant timeframes, namely what can be done in the current financial year, and what changes there could be to rates in the 2020/2021 financial year?

Since we are in the last quarter of the current financial year, there is no opportunity to change the rates already set.  There may, however, be a possibility of remitting or postponing all or part of the rates payable on some rating units if the Council has in place rates remission or postponement policies made under sections 109 and 110 LGA.  Such policies set out the specific circumstances pursuant to which an application for remission or postponement may be granted, and any ratepayer seeking relief would have to establish to the local authority’s satisfaction that the relevant criteria applied.

Although the current circumstances will not have been envisaged by most local authorities at the time such policies were adopted, some contain rather broad provisions relating to economic hardship that may be applicable.  Local authorities may want to look at their rates remission and postponement policies, including those applicable to Maori freehold land, to determine whether they provide some means of rates relief to those struggling to pay rates due to loss of income during the lock-down period and subsequently.  Although each application for relief would need to be addressed separately, there is no reason why a local authority should not facilitate such applications by providing, for example, information about the process and pre-printed application forms.  It might also be appropriate to put in place delegated authority to determine that the criteria have been met and to allow or disallow applications.

There is more that can be done in the next financial year, but any changes to rates remission or postponement policies to enlarge the areas of entitlement would be subject to consultation in a manner that gives effect to the consultation principles in section 82 LGA.  This consultation could be run in conjunction with the Annual Plan round, or separately, as time allows.   In some areas the possibility of reducing planned rate increases, or having a 0% increase, has been raised.  This is again a matter that would require consultation, particularly in terms of the activities or services that would need to be cut or reduced to allow for the reduced income from rates.  It also raises issues of fairness and equity, in the sense that while rating relief may ease extreme financial pressures for some ratepayers, for others who are not greatly impacted by the financial impact of the COVID-19 pandemic, it may simply come as a windfall.  Whereas remission and postponement can be targeted to those in need, a general lowering of rates will apply across the board.  Having said that a limited degree of targeting to those ratepayers most in need could be achieved by judicious consideration of the rates to which reductions might be made.  In any case, local authorities would need to pay careful attention to the considerations in section 101(3) LGA that apply to funding sources. 

© Brookfields Lawyers 2020 – All Rights Reserved


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