Did Parliament intentionally Bankrupt Mangawhai?

This is the question now being asked by those in the know, and those of us wanting to get more in the know, as the judicial review triggered by Mangawhai Ratepayers gets closer to being heard in court. (On this, by the way, looks like a hearing has been obtained in the Whangarei High Court for August 16th 2013).

This posting explores the intentions of Parliament when it passed into law changes to the Local Government Act in 1996 which are being relied on today, by the banks, and by councils, when councils borrow money. The key piece of legislation is the wonderfully numbered Section 122ZG:

122ZG Effects of breach on third parties

[Repealed]

(1) In this section, protected transaction means—

• (a) Any deed, agreement, right or obligation constituting, relating to, or for the purpose of, any borrowing or incidental arrangement; and

• (b) Includes—
  • (i) Any charge, guarantee, or security for the payment of any amount (including any loan) payable in relation to or for the purpose of any borrowing or incidental arrangement; and
  • (ii) Any conveyance or transfer of any property, in relation to, or for the purpose of, any borrowing or incidental arrangement.

(2) Every protected transaction entered into or purportedly entered into by or on behalf of a local authority shall be valid and enforceable despite—

• (a) The local authority failing to comply with any provision of this Act in any respect; or

• (b) The protected transaction, or the entry into or performance of the protected transaction, being contrary to any provision of this Act; or

• (c) The entry into or performance of the protected transaction being outside the capacity, rights, or powers of the local authority, or being for a purpose not authorised by this Act or any other Act; or

• (d) A person held out by the local authority as being a member, employee, agent, or attorney of the local authority—
  • (i) Not having been validly appointed as such; or
  • (ii) Not having the authority to exercise any power or to do anything either which the person is held out as having or which a person appointed to such a position would customarily have; or

• (e) A document issued, or purporting to be issued, on behalf of the local authority by a person with actual or customary authority, or held out as having such authority, to issue the document, not being valid or not being genuine.

(3) A certificate signed, or purporting to be signed, by the principal administrative officer of the local authority to the effect that the local authority has complied with this Act in connection with a protected transaction shall be conclusive proof for all purposes that the local authority has so complied.

(4) Subsections (2) and (3) of this section shall apply even though a person of the kind referred to in paragraph (d) or paragraph (e) of subsection (2) of this section or in subsection (3) of this section acts fraudulently or forges a document that appears to have been signed on behalf of the local authority, unless the person dealing with the local authority or a person who had acquired property, rights, or interests from the local authority acts in bad faith.

 All looks pretty open and shut and draconian doesn't it. But things are never as they seem. It seems.

Section 122ZG was part of a large set of changes that were made to the 1974 Local Government Act by Parliament between 1996 and 1998. These changes were all collectively called Part 7B.  This new part of the Local Government Act came into force on the 1st day of July 1998. Part 7B (which comprised sections 122Y to 122ZT) was inserted, as from 1 July 1998, by section 3 Local Government Amendment Act (No 3) 1996 (1996 No 83).

That might all sound a bit boring, and it is, but what's interesting is what various MPs (Cabinet Ministers and other Government Ministers) told Parliament as these changes worked their way through Parliament. (This is important because the Section 122ZG provisions were retained in the Local Government Act 2002 - which applied to Kaipara District Council when it did what it did to Mangawhai.)

Hansard - Stage: REPORT OF SELECT COMMITTEE - 19 DEC 1995
LOCAL GOVERNMENT AMENDMENT BILL (No. 5) : Report of Internal Affairs and Local Government Committee
Main speaker - Hon. GRAEME LEE

This Bill is about the new financial management provisions, which

build on the existing accountability regime to which local

authorities are presently subject under the Local Government Act.

There is also an important balance in terms of the greater borrowing

flexibility proposed in new Part VIIB in clause 3. The predominant

objective is to require local authorities to identify explicitly the

reasons for their funding proposals. In turn, this will engender

public consultation, and will promote funding decisions that are more

clearly representative of the wishes and the values of local

communities. Funding decisions will be the responsibility of the

local authority, but the basis of those decisions will be

transparent..... 

New Part VIIB in clause 3, which deals with borrowing and

security, gives local authorities more flexible borrowing powers, and

access to a wider range of financial instruments than those currently

prescribed in the Local Authorities Loans Act. Reform of borrowing

powers was seen as the most urgent and most widely accepted element

of local government finance during the 1987-90 local government

reform exercise. The provisions in the Bill have been developed from

proposals initiated at that time, and have been subject to extensive

consultation with local authorities.

Section 122ZD in new Part VIIB prohibits local authorities from

borrowing in foreign currency, to protect ratepayers from the risks

involved in exchange rate fluctuations, and to protect the credit

reputation of the New Zealand Government in overseas markets, which

may not appreciate the distinction between national and local 

government in this country. This matter was very strongly contested

by local government, but that is the decision of the committee.

In view of the requirement for local authorities to adopt

comprehensive borrowing management policies, which will be published

in the annual plan---on which the public, of course, is able to make

submissions---the committee, in discussing the question of loan

polls, has unanimously agreed to omit the loan poll provisions from

the Bill. This will be well received by local government.

You will see here mention of the idea of a loan poll. This was intended to be a bit like what they have in US local government. If a council wants to borrow money for a project or activity, it has to go to the public with a poll or bond issue poll, where ratepayaers vote yes or no to the project and the loan. You will see that the Minister told Parliament that - in view of the requirement that borrowing policies be published in the annual plan - there was no need for a loan poll.....

And later, when Parliament further considered the matter, we see what the then Minister of Local Government (John Banks) told Parliament....

Hansard - Stage: SECOND READING - 27 MAR 1996
LOCAL GOVERNMENT AMENDMENT BILL (No. 5) : Second Reading
Main speaker - Hon. JOHN BANKS

Hon. JOHN BANKS (Minister of Local Government): I move, That the

Local Government Amendment Bill (No. 5) be now read a second time.

The debate on the policies and the objectives of this Bill is very

important. It is important to clarify the intentions and purposes of

the Government in this legislation. It is important for the local

authority members and officers who will have responsibility for

implementing it. It is of even greater importance for the residents,

ratepayers, and other stakeholders in the local government area for

whose benefit this legislation is being enacted.

   There are two components of this Bill: a new financial management

regime for local government and a new borrowing power to replace the

outdated Local Authorities Loans Act. I will first discuss the new

financial management provisions. Under this Bill local authorities

will be required to prepare a framework for financial management

strategies and policies to govern all financial decisions, not just

borrowing proposals. That framework will be subject to extensive

consultation requirements and will provide a clear basis upon which

specific expenditure, investment, rating, and borrowing proposals can

be understood.

   These new financial management provisions have a clear and simple

objective: enhanced transparency and accountability---enhanced

transparency and accountability in local authority financial

decisions. They are designed to provide greater flexibility and

autonomy to local authorities while, at the same time, ensuring that

the policies and priorities adopted by those councils reflect those

of the community they serve.

While these concepts are new to local government legislation,

there is nothing in them that is not based on existing best practice

in the local government sector. Long-term strategic planning is a

case in point. New section 122K will require each council to prepare

a long-term financial strategy covering a period of at least 10

years. The strategy must outline the proposed activities and

programmes of the local authority over this period, the reasons for

them, and how the financial requirements and consequences of them are

to be managed.

   The long-term financial strategies must go through the special

consultative procedures at least every 3 years. This will be a

significant opportunity for public participation in establishing

long-term plans and priorities for the local authority.

   The local authority will also be required to adopt an investment

policy and a borrowing management policy. These are more technical

financial management documents that will set the overall parameters

for managing financial assets and debt and should avoid the dangers

of short-term, ad hoc decisions.....

The public will be in a much better position to make submissions

supporting or opposing those proposals. Better focused submissions

should lead to decisions that more accurately reflect the values and

priorities of residents and ratepayers. That is what local government

is all about---meeting the needs, the wishes, and the interests of

local communities....

Another change made by the select committee is the removal from

the Bill of the loan poll provision. When I introduced the Bill I

invited submissions on this issue. I recognised on the one hand that

the concept of a loan poll was inconsistent with a modern and

flexible approach to borrowing, but I was also aware that many people

continued to feel it was an important check against irresponsible and

extravagant expenditure proposals by local authorities. After

considering submissions for and against, the select committee has

recommended---and I agree---the abolition of loan polls, and I, for

one, think that this was one of the great decisions taken by this

select committee of Parliament....

And for the avoidance of doubt about Parliament's intent about the relationship between consultation and borrowing I include a couple more bits of Hansard....

Hansard - Stage: IN COMMITTEE - 18 JUL 1996
LOCAL GOVERNMENT AMENDMENT BILL (No. 5) : In Committee
Main speaker - Hon. GRAEME LEE

.....But an issue is unanswered, and I want to answer it for the

benefit of the Committee. Steve Maharey and Judith Tizard raised the

question of borrowing. Let me answer that question. First, the

abolition of loan polls was agreed upon by everyone. It was a thing

of the past and a growing anachronism. In due time local government

will not be hindered by that poll requirement, which has caused a

great deal of local government progress to be stymied.

   The reason that overseas borrowing is not supportable is that

local government has had no difficulties in raising major capital. I

am aware of some major capital projects in the near future, but I am

not aware that any territorial authority views its ability to raise

money in the manner of the past as being a problem in the future.

Territorial authorities---probably the smaller councils---could

potentially find themselves in some difficulty in terms of overseas

borrowing mechanisms, and that would be unfortunate and unnecessary.

Overseas lenders who were dealing with local government, in turn,

might expect central government to backstop these issues. It would

not be an unreasonable expectation but it would be a totally wrong

expectation, and it could lead to complications that we do not need.

Hansard - Stage: IN COMMITTEE - 18 JUL 1996
LOCAL GOVERNMENT AMENDMENT BILL (No. 5) : In Committee
Main speaker - RICHARD NORTHEY

   RICHARD NORTHEY (Onehunga): We note in the particular schedules

the following points. First of all, it is proposed to delete the

first schedule. That was recommended by the select committee. The

first schedule contains the detailed procedures for loan polls.

Labour members, Government members, and members of the other parties

were happy to see the abolition of loan polls on the basis that the

consultation and forward planning provisions for revenue raising and

borrowing, in particular, that are provided in this Bill provide a

fairer accountability and a level playing field in terms of revenue

raising for local government. So we are happy to suggest, and the

Government readily agreed to, the deletion of the first schedule,

which enables loan polls to occur.

So there you have it. In black and white - and yellow highlighting.

Parliament intended for bank borrowings to be protected transactions all right - but ONLY after the public consultation had occurred.

There has been no change in Parliament's intent from when these laws were passed, and when they were in place during the time of Kaipara District Council's appalling track-record of decisions. The problem was - and is - that the Audit Office did not do the simple and decent thing and CHECK that the Council had indeed consulted before going ahead and doing the borrowings.

Between the years 2005 and 2007 KDC made decisions and borrowed money. Because ratepayers were not consulted no-one knew how big these loans were. In fact between the years 2007 and 2011 the KDC issued no rate demands relating to the loans. It appears that any interest that was owed, was paid, capitalised, and simply added back to the loans which did not appear on Council accounts, but would have been visible to the Audit Office had it done its job. The loans finally went public in 2012. KDC proposed a Long Term Plan (2012-2022) with huge rate increases to make loan payments. This resulted in widespread protest action and to Government intervention last year - when commissioners were appointed (to fix up the mess).....

Government failed Mangawhai - not Parliament.

Man oh man.

Endangered Public Spaces on Auckland's Waterfront

I took this photo on Wednesday 26th June 2013. It is of an iconic structure at the base of Princes Wharf on Quay Street. The Hilton Hotel development is behind. This building was constructed by the Auckland Harbour Board to house its offices and activities.

It was the first stage of Auckland Harbour Board plans to redevelop the part of Auckland's waterfront which was becoming redundant as containerisation changed the face of the shipping industry and ports.

Auckland Harbour Board planning at the time was conscious of the objective of turning the waterfront into a people place. Public spaces were to the forefront of the original planning.

I've photoshopped the above photo a bit to show how the Auckland Harbour Board (AHB) envisaged their HQ building would look on Princes Wharf next to Quay Street. My work is not that good (sorry about losing the red heritage iron posts, and the ground level access is actually at the centre of the building - not off Quay Street as this picture suggests), but gives a fairly good impression of the AHB design. This had a central set of lifts at the base of the building - but with substantial paved areas all the way underneath the building offering open access onto the base of Princes Wharf from Quay Street.

This image is from a newspaper photo of a model of the proposed Hilton Hotel and Passenger terminal development. It shows the AHB HQ building as it had been constructed.

Here is another newspaper photo - this time of the actual AHB HQ building. You can see the sense of spaces and openness that was intended when the building was established.

You can also see the central access point, and the footprint it took up.

And now we are looking up Princes Wharf. This image is from documentation used in the resource consent process managed by Auckland Regional Council in 1997 when it permitted the development of the Princes Wharf Hilton Hotel, Passenger Terminal and Apartment complex that is there now.

The artist's impression commissioned by the developer and applicant for consent gives the impression of popular public spaces and places, and a sense of the views and public access that would be afforded around the development, and between it and the AHB HQ building which was already in place.

I took this photo montage on the 26th June 2013. It is taken from about the same point as the artist's impression. You can see that the reality is very different from impression. And not just because the artist has left out the AHB HQ....

The good scale public spaces and access do not exist because the space below the AHB building has been infilled. It also does not exist because priority has been given to cars and taken away from pedestrians.

While the former AHB HQ building was controversial at the time of construction - it was built with care and attention for the public domain and public spaces where it was established.

However since that time a careless approach to development and infill has allowed commercial objectives to erode the public domain, and to create a situation on this very significant part of Quay Street and Auckland's waterfront that now needs drastic corrective action.

Do we need a public I Sight and a Mini Market on this site. If there is serious intent behind the objective of opening up the harbour edge stitch, then a good start would be to buy back this ground floor infill development - and repair the urban vandalism that has been allowed to incrementally occur.

And while you're at it - do we really need the ANZ logo writ so large here?

Affordable Housing Conference - Malaysia

Attended this conference last week. Was invited to give a presentation about affordable housing in New Zealand (chose Auckland as the case study), and to chair one of the streams.

Most delegates were there from developing countries - like Malaysia, Philippines, Zambia, Zimbabwe, Nigeria - but there were a number there from Australia also.

I had heaps to talk about from New Zealand. What with the Affordable Housing Commission, the Auckland Unitary Plan, leaky buildings, our experiments with apartment buildings....

It was interesting how much New Zealand could learn from developing country experiences. And it was interesting to me, to learn from developing country delegates, what they picked up from my presentation.

Initially I thought we would not be comparing apples with apples.... 

This presentation was exemplary. To give you a bit of background on Malaysia's  SPNB. From its website:

"We aim to deliver the development of quality affordable homes that are sustainable and meet customer satisfaction through a culture of excellence and to become a caring and responsible developer mindful of social responsibility.

Syarikat Perumahan Negara Berhad (SPNB) was established on 21 August 1997 as a wholly owned subsidiary of the Minister Of Finance Incorporated (MOf Inc.) with the objective of providing quality affordable homes for every family in Malaysia in accordance with the National Housing Objective. SPNB is responsible in implementing Rumah Mampu Milik Programme and the Rumah Mesra Rakyat Programme to ensure those in low income group are able to affordably own comfortable homes, an agency for Rehabilitation of Abandoned Housing Projects, Government Quarters Programme in Klang Valley via SPNB-LTAT Sdn. Bhd. (USL) for various agency and government bodies and Special Project Programme such as for Program Perumahan Rakyat (PPR), housing programmes for Tsunami victims in Malaysia and Acheh, Indonesia as well as resettlement for flood risk area as per instructed by the Ministry of Finance. Apart from these main responsibilities, SPNB is also dedicated in providing housing for the less fortunate and poverty stricken families in Malaysia by contributing some amount of the company’s annual profits towards welfare works such as repairing or reconstructing dilapidated houses under Special Housing Projects via the Amal Jariah Scheme.

This slide was typical of many of the presentations. The problem of supply not meeting demand is experienced across many of the incomes demographics. Not confined to social (low) or middle income buyers. 1st time buyers are experiencing major issues with buying in Malaysia - especially in or around Kuala Lumpur.

SPNB's activities are distributed across many sectors of the housing economy. You can get a flavour of that from this slide. 

In all of the presentations there was explicit recognition of the cost of living for people - and that housing (being a verb - not just a noun - for commodification) had to be paid for alongside all of the other living expenses. Typically a Malaysian person takes out a loan for both house AND car. A key point made was that the cost of living is growing a greater rate than incomes - adding to the problem of housing affordability.

This slide summarises different Government housing funding, subsidy and construction initiatives. 

PR1MA was established under the PR1MA Act 2012 to plan, develop, construct and maintain affordable lifestyle housing for middle-income households in key urban centres.

Middle-income is defined as a monthly household (husband and wife) income of between RM2,500 – RM7,500. (To compare - about 2RM = $1NZ). The Prime Minister is fully aware of the financial pressures faced by the urban, middle-income population due to Malaysia’s rapid urbanisation. His vision is to rebalance assistance to the rakyat in both rural as well as urban areas. PR1MA is one of various initiatives implemented to help the rakyat manage costs of living in urban areas. PR1MA will be the first that exclusively targets this middle segment with homes ranging from RM100,000 to RM400,000 in a sustainable community. (ie $50,000NZ to $200,000NZ)

This slide resonates with the New Zealand situation. It looks at the challenges of providing affordable housing. But it provides other ways of looking at it - for example how much land is required for infrastructure - when it is used for housing. It also raises the matter of credit-worthiness - the ability of new home owners to actually buy into housing.

This slide reports on the performance of SPNB in building new homes for the low income range. The left pie chart reports on the number of housing units built, while the right pie reports on the cost in Ringaats. The cost of production is around $50,000/unit equivalent in NZ dollars.

This is a sample of the housing units referred to.

And the floor plan.What is interesting about all of this is that I am aware from talking to a number of housing providers in Auckland is that there is a growing demand - often from women - for houses decribed as "Corollas" - ie well built, go well, last well, but don't cost an arm and a leg. This can be an analogy for low cost. but it can also be an analogy for Asian mass produced industrially manufactured housing. This is exploding in developing countries in Asia. Made me feel that we are behind the 8 ball when it comes to housing supply in New Zealand.

Take a look at this Youtube clip. It's about the IBS- industrial building system in Malaysia. The travelogue format shows the basic usage and types of IBS systems. it can also be called as a prefab system. The types of houses and construction methods are quite eye-opening....

Are Council Bank Transactions Ultra Vires?

This posting explores the question of protected transactions that is arising within the legal challenge Mangawhai residents have initiated in the High Court over Kaipara District Council bank borrowings and infrastructure spending decisions.

I have sought information from Department of Internal Affairs about the relevant provisions of the Local Government Act....

"...The information I require relates to decisions that led to the development of the Section 117 (Protected Transactions) provisions of the Local Government Act 2002. I require DIA reports, copies of any relevant submissions, Cabinet papers and minutes prepared in 2002, that relate to the matter of Protected Transactions. (For the avoidance of doubt, I note that the Local Government Bill which was introduced into Parliament 18 December 2001 addressed similar matters in Section 236. Following submissions and policy review work and cabinet decisions these matters came to be addressed in Section 95A in the Local Government Bill at its Second Reading in Parliament towards the end of 2002.)..."

Relevant official information has since been provided to me.

I felt the need to seek this information after exploring Hansard and Cabinet papers that are readily available and that relate to debates around the Local Government Bill while it was being considered by Parliament before it was passed into law in December 2002.

The Local Government Bill was introduced into Parliament on the 18th December 2001. It had its second reading on the 18th December 2002, and its final reading just before Christmas on the 20th December 2002.

There is a DIA report containing changes between when the Local Government Bill was introduced, and as it was reported back from the Select Committee.


This shows that the Bill, as introduced, contained a section 236 titled: “Dealings between local authority and other persons”. This no longer exists in the Bill as reported. Instead a new set of sections 95A – D have been added, respectively entitled: Protected transactions; Certificate of compliance; Good faith in relation to protected transactions; Saving provision in respect of power of court.

In fact these new Sections 95A were renumbered s.117 in the final Act that we have today.

What is significant is that there was no mention of protected transactions in the Local Government Bill as introduced. Section 236 of the Local Govt Bill as introduced was quite draconian in its own peculiar way. The following are extracts:

236 Dealings between local authority and other persons
(1) A local authority may not assert against a person dealing with that local authority, or with a person who has acquired property, rights, or interests from that local authority, that—
(a) this Act was not complied with or that the local authority’s action was contrary to this Act; or
(b) the local authority’s action was outside its capacity, rights, or powers, or was for a purpose not authorised by this Act or any other Act; or
(c) a person held out by the local authority as a member, employee, or agent of that local authority—
(i) was not validly appointed; or
(ii) was not expressly or impliedly authorised; or
(d) a document issued (or purporting to be issued) on behalf of the local authority by a person with actual or usual authority (or who held out as having that authority) to issue the document is not valid or genuine. (
2) _ _ applies even though a person referred to in _ __ acts fraudulently or forges a document that appears to have been signed on behalf of the local authority unless the person dealing with the local authority, or with a person who has acquired property, rights, or interests from the local authority, has actual knowledge of the fraud or forgery.
(3) _ _  does not apply if the person dealing with the local authority has, or ought to have (by virtue of that person’s position with, or relationship to, the local authority), knowledge of the matters referred to in _ _

Compare: 1974 No 66 s 122ZG

The relevance of this last little note will become apparent later on in this post. It turns out that S122ZG from the 1974 Act was quite important to banks.

Interestingly, the DIA comment with the change (where S236 was deleted and replaced with S95A - which became S117) is: “New clauses to continue provision for protected transactions (from former clause 236)”.

Official Information Request

Various items were provided. Of interest is the extract from a submission to the Bill from Palmerston North Residents Association Incorporated dated 22 February.

This submission was about Section 236 (quoted above) and states:

"...The purpose of this clause appears to be to protect innocent people. Together with the wide general powers given to local government in this Act, however, it appears to almost totally demolish the doctrine of ultra vires in relation to the actions of local government. As such it could have been expected that there would be considerable publicity and a detailed legal explanation of the DIA's legal advice which supported the insertion of such a clause.

Not only does it mean that any "person who has acquired property, rights, or interests" need not worry about whether the council or its employees are acting within their powers, it also means that "any person dealing with a local authority" need not worry.

Under subsection (2) - (see above in s.236) it does not matter even if a council employee or agent acts fraudulently or forges a document, the rights of those dealing with the local authority are protected.

This may be very well for the innocent, but this section could, and possibly will have very important effects upon the working practices of local authorities. If nothing is illegal, documents selling local authority assets can be signed, consents given, actions taken without authorisation from the council itself and a myriad of other actions, without fear that legal action will be taken against the local authority for acting beyond its powers..."

Ultra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is characterised in law as intra vires (literally "within the powers"; standard legal translation and substitute, "within power"). If it is done without such authority, it is ultra vires. Acts that are intra vires may equivalently be termed "valid" and those that are ultra vires "invalid"....

Another key item provided to me under the OIA is an extract from a submission to the Local Government and Select Committee prepared by Simpson Grierson on behalf of submitters, and dated 19 February 2002.

The submitters are named as: The Society of Local Government Managers, Auckland City Council, Porirua City Council, Western Bay of Plenty District Council, Tauranga District Council, Masterton District Council, Hamilton City Council and Hutt City Council and relates to clause 236 of the LG Bill.

This submission noted that the Local Government Bill would replace Section 122ZG(3) of the old Local Government Act, with clause 236. It notes that Section 122ZG(3) said this:

"a certificate signed... by the principal administrative officers of the local authority to the effect that the local authority has complied with the Act in connection with a protected transaction shall be conclusive proof for all purposes that the local authority has so complied..."

The submission from all of these local authorities notes that this certificate provision: "is extensively relied on by lenders..."

The submission goes on to describe the issues of concern:

....the reason for the inclusion of section 122ZG in the LGA 1996 was to provide a level of comfort to those entering into financial transactions with local authorities that if a certificate is provided there would be no question of a local authority being released from its obligations because it had not properly entered into the transaction. In other words, a local authority could not back out of a transaction because it had acted ultra vires....

The section 122ZG(3) mechanism has proved very successful and has avoided a significant level of borrowing costs for local authorities.

We note that it is clear under section 122ZG(3) that if a certificate is granted under that section it is "conclusive proof for all purposes that a local authority has so complied" and that no person can question the validity of the local authority's action in entering and performing the transaction. It appears that clause 236 is seeking to provide comfort to those contracting with a local authority in similar terms as section 122ZG however the wording of clause 236 is not as wide. We are concerned that the wording of the clause leaves open room for doubt as to what would happen if a third party (such as a ratepayer) challenged the local authority's power and capacity to enter into a transaction and a court found that the local authority had acted ultra vires. In terms of clause 236, it is not clear whether the local authority would still be obliged to perform its obligations in the transaction.

The result of such a doubt arising in respect of financial transactions such as those which were specifically protected under section 122ZG will be either that lenders will not wish to lend to local authorities, or more likely will charge higher interest rates for the perceived additional risk or require the local authority to pay for legal advice as to enforceability.

The submissions go on to request that the old provisions of section 122ZG be retained and incorporated into the new Local Government Act.

Another interesting and helpful submission came from Kenneth Palmer, Associate Professor of Law, University of  Auckland. He submitted in regard to clause 236:

...this clause expands the existing LGA Section 122ZG, which is limited to dealing with validity of a "protected transaction". Clause 236 is of a general application and complements the proposal to abolish ultra vires rule and confer a power general competence.

This is a useful summary account of what was going on in the Local Government Act. Previously local authorities were permitted to undertake specific activities, anything else was "ultra vires". However the idea of "general competence" did away with that regime. This is where Palmer's submission gets interesting...

...further, clause 236(2) gives wide protection to a person dealing with a local authority where the transaction is implemented by fraudulent action...  this provision is similar to the legal position relating to land transactions but not necessarily identical. For example it could appear to allow a fraudulent person to forge a transfer of a local authority reserve, and the purchaser would acquire the property unless a knowing party to the forgery...

Palmer goes on to submit that a new clause should be added: "..this section is subject to provisions of the Land Transfer Act 1952 and the Reserves Act 1977...", so that the outcomes relating to fraudulent dealing with land to be consistent with the legal position applying to land dealings generally.

It turns out that DIA Officials took on board what the Councils and Professor Palmer wanted. They report that in oral submissions mention was made that interest rates could increase by as much as 1.5% if such protection provisions were not continued in the Local Government Act. Financial transactions would be protected as they had been under Section 122ZG.

Much of the thrust of clause 236 was dropped. Protections proposed for others sorts of transactions were dropped. I note - in passing  - that the sentiment of Professor Palmer's comments about land transactions could have also been applied to financial transactions. There needed to be sanctions or penalties or compensations when the loan transaction risked natural justice - ie something along the lines that parties to bank loans are all named (including ratepayers buying into it by virtue of being consulted - like the US local authority Bond Issue vote equivalent) and have rights of redress when things turn to custard. But they were not. 

And to entertain yourself, read here what Judith Collins et al had to say about clause 95A this Bill when it was debated in Parliament in December 2002.

What does it all mean?

This is the $64,000 question.

It is likely that when section 122ZG was adopted way back in 1974 nobody was talking about powers of general competence. And at the time Councils had very low debt levels. Most activities were funded out of rates revenues. The rare need for borrowings must have generated the prudential provision for s 122ZG. At the time nobody could have foreseen the scale and amount of bank borrowing that local authorities would resort to - to fund infrastructure and to defer the need to raise rates.

I well remember as Councillor the gleeful look that would appear in councillor's eyes when they saw they could have their pet projects funded in their term of office by loans - without raising rates....

What does it all mean in the case of Kaipara District Council, and its bank borrowings to fund EcoCare sewage scheme, and whether they were lawful or not, and whether it is lawful or not for KDC to try and rate ratepayers to pay back a loan ratepayers were never consulted about...?

Setting aside the irritating question of why the Audit Office gave KDC a clean bill of health, year after year, despite detailed warning letters from ratepayers, what will the High Court make of it all?

Well, looked at simply, there seem to be two possible outcomes. The Court could decide, after hearing all the evidence and the background to what the Local Government Act means and what its purpose is (democratic decision-making and transparency), that the law, as it stands, means that a Council can raise a bank loan for a project without consultation and force ratepayers to pay consequent bank charges.

If that is what the Court finds, then clearly the law must be changed. Because it gives local authorities the power to act in ways which are self-evidently not democratic and not transparent. It gives councils the power to avoid the purpose and principles of the Local Government Act. Such an internal contradiction cannot be tolerated in a rational society.

The other outcome is for the Court to find that KDC is acting illegally, and that it cannot rate ratepayers for illegally transacted loans. If that is what the Court finds, then banks will take fright, and again the law must be changed to sort out the problem.

Either way the law is an ass and it needs to be fixed.

This is a test case. Mangawhai Ratepayers should not be having to carry the can for it.

Urban Form: Ponsonby and Takapuna

One of the most damaging features of the Draft Unitary Plan is its proposal that it should be possible to subdivide existing residential lots down to 300 square metres. The main reason given is to allow developers or land-owners the ability to provide for an affordable home on their title. But the controls in place to ensure that the second unit, or minor unit, or secondary dwelling will be in keeping with the neighbourhood are very limited.....

This map shows about how much of Auckland was urbanised by 1915. The green line shown is today's (or yesterday's) Metropolitan Urban Limit.

This aerial is of a section of old Ponsonby. Sometimes known as "the worker's cottages". Now part of Auckland City's heritage....

This is a typical street view. Narrow streets. Limited on street parking. Low fence lines. Great family neighbourhood. Close to shops and schools and CBD and frequent bus services. Interestingly - you can see a two story home - built to replace one of the old cottages....

Built in the time of tram public transport, and very few cars.

Now let's do a bit of analysis of how the land is actually used. I've gone in closer here. You can still see that 2 storey place - built on a diagonal (so contrary those Ponsonby types) - across the street from the parked red car. I look at the space taken up by 10 houses - pretty much chosen at random...

The Council GIS system allows you to measure the land taken up by these 10 residential lots. So, for 10 homes, land required is 3,819 square metres....

The footprint of the 10 homes on those 10 residential lots can also be measured. They add up to 1,265 sq metres.

This table shows the simple calculation of the average lot and home footprint size in the sample area of 10 homes. About a third of the lots is taken up by the home, and the rest is garden or driveway etc. The key thing here is that the average roof area is 126 square metres (which means the average floor area is a bit smaller - allowing for the width of gutters). And the average lot area is 380 square metres.

Jumping forward in time, this map shows how much of Auckland was taken up by urban development by 1975.

This aerial shows a section of "old" Takapuna. It would have been planned and developed under the jurisdiction of the old Takapuna Borough Council. The streets shown here include sections of Jutland and Norman Roads.

Here is the streetview. Typical of the land use in the area. Much wider street than in Ponsonby. Built in the era of the motorcar. Very little public transport. Everyone had a car. Could park it off the street....

Doing the same exercise as with Ponsonby, I have chosen an area with 13 typical properties. You can see here the total area for the 13 original residential properties - as subdivided when the area was first developed.  

This image shows the original homes that were built on the 13 original lots, and calculates the footprint area of those homes... I will come to the other buildings a bit further down this posting...

This table shows the calculation of average lot size and house area for the 13 lots. If you compare with Ponsonby, you will see that these Takapuna residential homes are on average almost twice the size of the Ponsonby cottages, and that the lots they are built on are almost 3x the size of the Ponsonby lots.

The new North Shore City Council was established around 1989 (after amalgamation). And then in 1991 the Resource Management Act became law, and NSCC adopted a new District Plan. This enabled complying minor units to be built on sections that were big enough, and also enabled lots to be subdivided down to 450 square metres. This marked the beginning of the age of Takapuna infill. The purple shaded buildings shown in this image, have been built since the new plan enabled them.

So, based on this small sample, 7 new home units were built on these 13 lots. Two of the lots have been formally subdivided. Thus most of the minor units are still incorporated into one single land title. It would be fair to say that the low hanging fruit offered by minor units for affordable housing in Takapuna has been plucked. Whether these are used as granny flats, or for older children, or students living at home, or members of the family who can't afford anywhere else to live - is unknown.

The Ministry of Business, Innovation and Employment has recently prepared a very useful assessment of what land there is in Auckland for affordable housing. This slide is drawn from it. In summary it declares that "Infill has a more limited dwelling capacity than redevelopment" - and defines redevelopment is what happens when you demolish and start again.

For a variety of reasons infill is a problematic way to solve the problem of affordable housing supply. Much of the minor unit accommodation that has infilled residential property on the North Shore is already in place, and has replaced trees and outdoor space, and in many cases provided homes that are not of a high standard in terms of insulation, energy efficiency and other aspects of household amenity.

The Unitary Plan provisions which drop the 450 square metre limit down to 300 square metres will likely unleash another round of slap-dash minor unit construction and slum-lords. It is a short-term short-cut. What Auckland needs now is a more concerted look at urban areas that are crying out for redevelopment, rather than the ad hoc piecemeal approach of infill.