Funding Policy Decisions

Local Government Act requirements

Under s102 of the LGA councils must adopt funding and financing policies, and in particular a revenue and financing policy. The revenue and financing policy must set out the council's policies for funding operational activities from all sources including fees and charges. These various policies may be included in the LTP and adopted as part of that plan.

Public and private good split

Each council must decide the revenue sources for its RMA consent processing and compliance monitoring activities. This will generally involve a split between consent charges and general income (general rates and investment income). This has traditionally been couched in terms of a private good/public good funding split.

Consent activities funded by charges should have the attributes of a 'private good', namely the activity should be ‘rival’ and ‘excludable’. A good is rival if there is a marginal cost in supplying it to someone else. A good is excludable if its receipt can be withheld from someone who refuses to pay for it.

Using s36 RMA terminology, consent applicants or holders should fund those 'private good' activities as they either:

  • occasion the work (the council needs to do the work because of the actions of consent applicants or holders); or

  • benefit directly from the work (e.g. processing and approving a consent enables development to proceed).

Activities that are not funded by consent holder charges are either 'public goods' which are non-rival and non-excludable, or 'merit goods' which the council has decided it is meritorious for the community to receive. Merit goods could be primary and secondary education for example.

Previous studies of council funding policies for consent activities have identified a wide variation in the level of funding from charges versus rates.

The consent process has a number of distinct components which have different underlying public good/private good attributes. The consent process could be broken down as indicated in Table 1 with appropriate recoveries from charges (representing the private good attributes of the activity) being as shown.

 

Table 1: Consents funding policy

Activity

Proportion recovered from

charges (%)

Responding to general consent enquiries *

0 – 25

Pre-application advice if application subsequently lodged

0 – 100

Pre-application advice if application is not subsequently lodged

0 - 100 (suggest councils seek legal advice

on the legality of any charges)

Responding to consent enquiries, where these proceed to an application

100

Receiving, processing and granting or declining consents

100

Processing s357 – 357D objections

0 - 100 (suggest councils seek legal advice

on the legality of any charges)

Responding to appeals

0

Administration – consent systems maintenance

100

Routine consent supervision, compliance monitoring, inspections and auditing

100

Routine abatement notice and environmental infringement notice proceedings **

100

Abatement notice appeals, enforcement orders and prosecutions

0


* Note that the partial costs of this activity may be recovered through charges set under s36(1)(e) which is “charges for providing information in respect of plans and resource consents”.
** Council activities involving the identification of non-compliance with consent conditions, determining the appropriate level of enforcement response, and undertaking abatement notice and environmental infringement notice actions, are all reasonable components of the monitoring and supervision of consents. However, once such matters escalate to the level of the Environment Court the council should cease directly charging the consent holder for staff time as the Court will award costs based on the submissions of all parties.

The funding splits in Table 1 are considered realistic based on both economic principles and current practice. The splits recognise:

  • the activities in the consent process are predominantly occasioned (caused) by consent applicants. In that regard, the Court has concluded that “the local authority’s actions in processing any individual consent application is a specific application of the structure from which (generally) only the applicant for the resource consent can derive a definable benefit.” Furthermore, “there is, therefore, no presumption in the section [s36(1) and s36(5)] that all, or any portion of, the costs of processing resource consent applications are to be absorbed by the council as part of its general overheads” (Redvale Lime Company Limited v Auckland Regional Council A132/2005)

  • the provision of information on the consent process is generally a merit good, however potential consent applicants will derive some benefit from that information

  • there is some uncertainty about charging for s357 – 357D objection proceedings. It is recommended that legal advice be obtained should a charging regime be considered.

  • maximum charges because infringement notices are fixed in regulations

  • enforcement order and appeal proceedings cannot be charged for, however the Courts may award costs if these are sought by the council.

If the Table 1 categories and funding splits are used for the consent activities then an overall or aggregate charge funded figure can still be derived for reporting purposes. Note that the various elements of Table 1 are discussed in more detail in following sections of this guidance note.

As described above, it is unlikely that any council can or should seek to realistically fund 100 per cent of its consent activity wholly from charges although some purport to do so in their annual plans.

When establishing funding policies for consent activities, the level of sub-activity detail disclosed in the annual plan, and in the LCP revenue and financing policy, should be in the order of that shown in Table 1.

Some councils may prefer a figure for consent processing that is in the range of 80-90 per cent, given that processing costs can be increased as a result of vexatious submitters, or submissions that are more about disputes between neighbours and the like. Such realities are recognised. However, they should be dealt with on a case-by-case basis through a documented remissions process, rather than through a distortion of the funding policy. For example, a council could stipulate that it will charge between 60 per cent and 100 per cent of hearing costs to applicants, with the actual amount charged being set after taking into account the nature of the hearing as assessed against a range of established criteria.

This approach is supported by the Court who concluded that a hearing of any length and at any cost could not be properly charged under s36, as it was not occasioned by the resource consent application in terms of s36AAA(3)(b). This is because it would not be a reasonable cost in terms of (5) and s36AAA(2). Councils should, therefore, always consider the reasonableness of charging 100 per cent of hearing costs to an applicant, particularly for unusually lengthy or costly hearings.

Budget setting

There are basically two approaches to setting the consent activity operating budget.

The top-down approach involves determining an operating budget based on existing staff numbers and fixed overhead costs.

The bottom-up or cost recovery approach involves making an estimate of the number of consents likely to be received and monitored during the year and the resources required to undertake those tasks. This determines the consent activity operating budget for annual plan purposes.

The bottom-up approach more closely aligns with the requirements of s36AAA and should preferably be used.

The bottom-up approach can have practical difficulties if the council's human resource inputs are not flexible. This is particularly relevant in the context of the Resource Management (Discount on Administrative Charges) Regulations 2010 (Discount Regulations) which require councils to give a discount for late consent processing. Where there is a high workload and processing officers are unable to meet processing time frames, the operating budget may effectively be reduced through discounted charges on individual consents.

The use of external contractors can greatly increase that flexibility and is recommended where the workload within an activity is relatively unpredictable or can vary at short notice. Permanent staff can undertake predictable base load tasks, with peaks in workload being met by contractors.

It is acknowledged that in practice many councils will have relatively fixed input costs for the consents activity, mainly comprising permanent staff salaries and fixed asset costs. If there are not enough chargeable hours accrued to generate the necessary annual revenue from charges then a funding shortfall will arise that must be funded from rates. This will distort the funding policy decisions of the council. Funding policies may also be distorted by the Discount Regulations.

For this reason, councils should accurately record the actual time spent on various consent activities, consents staff should accurately fill in time sheets, and councils should record the number of consents received, monitored and processed, and the associated statutory time frames taken to process applications. This is also important for the purposes of the Discount Regulations, reporting responsibilities under ss35 and 35A RMA, and to improve the efficiency of internal processes.

Accurate recording of time spent and consent time frames will enable consent activity operating budgets to be more accurately determined from year to year. This will also allow funding policies to be adhered to when using the recommended bottom-up approach to setting the operating budget.

Administering the plan

There has been debate about whether or not there is any public benefit in administering a district or regional plan. Clearly the development of planning instruments is a public good or perhaps even a merit good and therefore plan development should be funded from general revenue (e.g. rates).

In terms of administering the plan, it is important to define exactly what the term 'administering' means. It can include answering inquiries on consent requirements, processing consent applications, and monitoring consents that are granted. The public/private good attributes of those functions where a potential applicant may benefit have been discussed above.

Other plan administration activities might include policy or technical research to underpin plan reviews, collating complaints, or identifying issues that point to plan deficiencies that might be rectified through plan changes or variations. These activities would generally be public goods funded from general revenue unless, for example, the research was targeted at a specific activity or group of consent holders. In that latter case, it might be appropriate to recover some costs through annual s36AAA(3)(c) charges.