Economic Development

Urban Role Model

Local governments in many places run more efficiently than they used to. But there's one in New Zealand that's in a class by itself.
by | October 2001

Set dramatically at the eastern edge of the sweeping Canterbury Plain, with the South Alps mountain range in the background, the city of Christchurch looks like a New Zealand version of Boulder or Berkeley. The scenery is gorgeous, the pace is relaxed, and the center of town is sprinkled with old-fashioned pubs, ethnic restaurants, local shops and international boutiques. The laid-back quality of life seems somehow to be symbolized by the shallow, meandering Avon River, which forms a serpentine park running through the heart of downtown.

But the easy informality of Christchurch belies something very interesting and important: It is the best-run city in the world.

Some of this is obvious even to the most casual observer. Buses and trolleys go everywhere and do it frequently. The streets are litter- free. Panhandling is virtually unheard of. The law enforcement presence is so subtle as to be almost subliminal, but the crime rate is ludicrously low. Amenities abound, from museums and community theater to indoor pools and vast stretches of rugby pitch. There is a public library within walking distance of almost every neighborhood in town, and where there isn't, there are plans to build one. "All children should have access to one," says the Christchurch policy director, Jonathan Fletcher, "without coming to the central city."

But if many of the successes and efficiencies of Christchurch are visible to the naked eye, others are not. There is, for example, the highly evolved management and financial accounting system. And there is a remarkable ethos of civic involvement.

All of this has direct roots in national politics, in the sweeping reforms passed by New Zealand's Parliament in the late 1980s. These measures wiped out traditional bureaucracy at the federal level, and swept in a whole new set of business-like procedures, ranging from the elimination of civil service restrictions to the establishment of full accrual accounting for government agencies. These changes rolled down to all three of the major cities, Auckland and Wellington as well as Christchurch. But it is Christchurch that took them the most seriously.

One way to appreciate that is to peruse the city's Strategic Statement, its annual blueprint for management and operation. The Statement is a highly accessible state-of-the-city report, outlining current projects and future goals, all linked to basic economic and demographic projections. It reaches down to the specifics of sewers and street maintenance, as well as the operational philosophy of museums and libraries. But it also covers the broadest issues of housing, health and welfare, listing general financial data on how to reach goals in each category, while at the same time maintaining high levels of municipal service overall.

Thumbing through the statement, it's easy to check up on plans for a major new landfill to be "built to the highest environmental standards," or for a beefed-up recycling effort. There is a remarkably clear section on city finance, from policies on borrowing to strategies of investment.

The Christchurch Strategic Statement is built on the homegrown concept of the "triple bottom line." All policies, projects and expenditures are expected to aim for the three-pronged goal of economic development, social well-being and environmental sustainability. In most American cities, it might seem like so much rhetoric and windy speculation. In Christchurch, it comes out sounding practical. If you look under "city beautification," for example, you find an explanation of how Christchurch plans to deal with drainage issues by taking advantage of natural waterways and wetlands to handle the drainage problem, "instead of laying concrete pipe."

While the Statement sets out the objectives, a companion document, the Financial Plan and Programme, descends further into detail. Not all of it is strictly financial. The FPP will tell you the net cost of water supply for the current fiscal year: $11,285,119, including about $4.7 million in depreciation and $570,000 for "information and advice." It will tell you the exact amount budgeted for grants to a host of community organizations, from the $40,000 earmarked for Table Tennis Canterbury to the $270,000 assigned to the Christchurch Symphony Orchestra.

These expenditure numbers--particularly the ones related to depreciation--are the product of accrual-based accounting that converts them from a wish list to a practical management program. Unlike most local governments in America, Christchurch doesn't hide long-term costs. When it builds a downtown art gallery--as it is currently doing--all the expenses are figured in. The line-item for the gallery that appears in the Financial Plan is not an abstract number that will come to haunt some future set of city councilors--and restrict needed investment in other projects years down the road.

To build the new facility, Christchurch's budget will take a $1 million hit this year, whether it actually spends that amount or not. In every future year, the budget will continue to include accurate numbers for depreciation and maintenance--not numbers that conceal the ultimate cost of the project. It is a system that keeps local officeholders honest when their ambitions start getting bigger than the public purse. It virtually ensures that all new infrastructure gets the upkeep and maintenance it requires.

The remarkable civic consciousness of Christchurch, much like the innovations in finance and management, can be traced back to the late 1980s. Among the reforms enacted by New Zealand's Parliament was a law directing local governments to consolidate. They complied, and with a vengeance. When the dust settled in 1989, 800 local entities--from cities and townships to irrigation and sewer districts--had been reduced to a mere 87.

As might be expected, consolidation wasn't a popular concept in all localities. David Close, who has been on the Christchurch City Council since 1977, remembers the moment well. He recalls that the initial plan for consolidation in Christchurch, put together by a commission of local officials, was essentially a blueprint for the status quo. "It was going to perpetuate divisions and perpetuate inequality," says Close. "It would have left the old inner-city areas impoverished and it would have left the wealthy parts of the metropolitan area with a nice big tax base and nothing to spend the money on."

So Close and a few allies set to work drafting an alternative plan designed to connect the whole Christchurch metropolitan area but still preserve local identities. And this is the one that eventually became law.

Under its terms, Christchurch was--and is--divided into six sectors, each with its own city-funded community board. Each sector contains two wards, and each ward sends two members to the city council. All the financial reports are broken down by sector and ward. Flip open the city's capital works budget, and you quickly learn of plans to spend $16,000 on plantings in a neighborhood park in Wigram Ward, and $66,000 for street lights on Bridge St. in Ferrymead Ward. The distribution of resources among different areas of the city is presented much more openly than it would be in most American cities of comparable size, and it is clearly aimed at illustrating for all residents the diffusion of spending citywide.

Technically, Christchurch has a "strong manager/weak mayor" form of government, but the truth is that managers and politicians quietly line up together on most of the fundamentals of governing. "Expecting a hard policy and management split is unrealistic," says Jonathan Fletcher. "If that pothole outside that leading constituent's house spends three weeks unfilled, in the end it's not management on whom that constituent's frustration is going to be taken out, it's the local council member in the next election. And that goes for rubbish collection and any other service."

As with almost all of the successes of Christchurch government, it's crucial to understand the national reforms that helped generate them. In the late 1980s, while the rest of the world was taking slow and tentative steps toward reinventing government, New Zealand was doing it virtually overnight.

A small core of U.S.-trained free-market economists holding sway in the Treasury Department decided to overhaul what they considered an expensive, unresponsive and flabby governmental system. The reformers were convinced that New Zealanders had come to view government at all levels as the solution to any problem and the employer of first--not last--resort. They had numbers to back up their argument: As of the late 1980s, spending on government represented more than 40 percent of the nation's Gross Domestic Product. And they considered national stagnation to be the inevitable result.

And so, in the State Sector Act of 1988 and the Public Finance Act of 1989, the reformers set out to replace the old system with an enterprise that looked as much as possible like a successful private corporation. Departments wouldn't be run by political appointees anymore but by professional "chief executives," hired for five-year performance-based contracts and subject to termination if they failed to deliver. Budgets would be based on specific sets of "outputs," purchased from the departments by Parliament in order to meet a department's clearly stated strategic objectives.

But for all the tight prescriptions on performance--financial and otherwise--the reforms granted quite a bit of new flexibility. New Zealand's infamous jobs mill--its civil service system--was completely dismantled, and CEs were cut loose to do their own hiring and firing, purchasing and contracting. The New Zealand reforms were--and still are--the most thoroughgoing experiment in market-based bureaucratic reform attempted anywhere in the world.

At the national level, where the ideas were conceived and the need for change was viewed as greatest, the results have been ambiguous, to say the least.

Several of the most important national agencies showed no noticeable improvement in the 1990s under the market-driven system. New Zealand's health care continued to suffer from long waiting lists and accusations of shoddy treatment. On the higher education side, there was one stretch of five years during which professors failed to receive any pay raises at all.

The corporate-style management system has not grafted easily onto the public sector. Critics say it bogs down in measurement of tangible but trivial elements of performance. The Department of Environmental Conservation sought for a while to gauge the success of its reforestation programs by measuring the number of possums missed by possum-reduction efforts, on the theory that the live ones were still out there eating valuable brush and forest seedlings. Social service agencies have found themselves keeping track of minute increments of service rather than tailoring efforts to the specific needs of individuals and families.

Conflicts arose virtually everywhere between CEs and budget analysts. The analysts had been mandated to ride herd on outputs purchased, not to encourage flexible or results-based spending schemes. The CEs considered that a foolish way to go about figuring the cost of hoped- for results. Meanwhile, the entire goal of the new approach--to somehow tie dollars to deeds and results--was subverted by year after year of fiscal squeezing. "It wasn't about performance," says Sue Newberry, a public accounting professor at the University of Canterbury. "It was about `Did you live within your budget?'"

Even the critics are careful to say that the reforms have had some positive effects. Contracting and purchasing are done more rationally and more efficiently than they were in the old days. And there's no doubt that New Zealand's old approach to public employment would have been difficult to sustain in a competitive global economy.

On the other hand, even the most zealous of the original reformers concede that the results of the experiment have fallen considerably short of what they hoped for in 1989. They feel that way in spite of a second round of reforms in the mid-1990s aimed at pushing management and budgeting more toward bottom-line results. Currently, New Zealand is embarking on yet another round of reforms, again aimed at getting back to the original idea of tracking outcomes, and away from the questionable output-based management and budgeting practices that became common over the past decade.

The great irony of all this, however, is that while the reforms were failing to live up to their promise at the national level, they were quietly generating real achievement at the grassroots. The symbol of that is Christchurch.

Some of the city's good fortune has been simply a matter of good leadership. Indeed, if you press David Close about the importance of government reforms, you get a very candid answer: "I'm a bit of a cynic in regards to something like strategic planning," says Close. "I'm not saying you don't need a framework for decision making, but a strategic plan tells me that I should advance the welfare of the people of Christchurch socially, culturally and environmentally. That's great stuff. But it doesn't tell me whether I should spend $100,000 on this park or half a million on this road or a couple of hundred thousand on health care. That really comes out of the political process, from a perception of what politicians and staff think is needed and is affordable and what the people are saying they want."

What the national reforms did, however, was offer Christchurch and other localities the chance to redesign their systems and their rules, and the incentive to do so. Not all of what the national government mandated was embraced; some of the business-based notions about government that flowed down from Wellington were rejected outright. That was a good thing.

At one point, the market-infatuated national administration tried to mandate that local governments provide every service to citizens on a direct fee-for-service basis, whether it was a library book, a visit to an art gallery or a glass of tap water. Christchurch refused. "If citizens decide they want to pay for those things out of general revenues," says Close, "who is the national government to say they can't?"

For example, the national reformers told localities to charge for water by imposing a meter fee on all residential use; Christchurch chose to stick with a flat fee that allows each home as much water as it wants. The meter-based charge might have economized on usage and offset the cost of infrastructure improvements. On the other hand, local residents seem perfectly comfortable paying for water and sewer- related expenses out of general revenues. And the tap water that comes out of the pipes happens to be the cleanest in the world.

For all its successes, Christchurch is facing some difficult issues over the next few years, issues that will test not only its financial and management capacity but its now-entrenched ethic of citizen participation.

The most immediate one is air pollution. In the winter, Christchurch suffers Los Angeles-style temperature inversions that trap the city in some of the world's worst smog, seriously exacerbated by the fact that most homes are heated with wood. This year, the city council voted to deal with the problem by phasing out wood-burning stoves. But Environment Canterbury, the governmental body charged with handling pollution problems on a regional basis, disagreed with that decision. ECan chose to exert its higher authority in the matter by pushing a go-slow, let's-study-the-issue approach. Even in a place where elected officials pride themselves on the ability to achieve consensus, turf conflicts are inevitable. This one will not be easy to solve.

Meanwhile, sprawl is arriving--later than in much of the world, as with many things--but with increasing momentum. Christchurch is oozing beyond the confines of downtown and into suburban subdivisions, complete with broad swaths of asphalt full of speeding SUVs. Even the lovely Port Hills, which frame the city to the south and help fuel local tourism because of their natural beauty--are developing a bad case of overdevelopment. Partially as a result of this, the city's downtown core, for all its tangible vibrancy and beauty, is beginning to look a little frayed around the edges. The city's economy remains heavily dependent on the uncertain and low-wage tourism industry, as the most transient population in the world rolls in and out, making photo processing and souvenir shops some of the more prominent downtown business fixtures.

This economic development problem may be the toughest of all: Even the most innovative and efficient local government can't wave a wand and create a balanced and thriving local economy.

If history is any indication, though, Christchurch will rise to these challenges. It will do that in part because of the new ways of conducting local affairs mandated by the national government reforms of more than a decade ago. Even more, perhaps, it will do so thanks to the changes in those reforms that the local council successfully fought for in the intervening years.

But the city has an equally important advantage that is much less tangible. Beyond the management and budgeting schemes, beyond the improvements in administration and personnel management, beyond the benefits of contracting out, Christchurch has developed a strength that the vast majority of governments all over the world still lack: leadership that understands how to read citizens' wishes, and then accede to them or buck them, depending on the greater good. It's in handling that balancing act that Christchurch has time and again proved just how well-run a place it really is.

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