Why Local Government Should Be Able To Create Money — Op Ed

Deirdre Kent says a KCDC workshop has convinced her that a radical ‘two currency’ plan is the solution to local government’s chronic shortage of finance to tackle climate catastrophe.

KCDC Treasury in the future?

She says: ‘We simply must come to terms with the fact that if
sovereign governments can create money, so should local governments.

‘Recently I spent two hours at a council meeting of Kapiti Coast District Council where the topic was a
workshop focussing on creating a district-wide plan for climate mitigation and adaption.

Apocalyptic events hit home
It seems the apocalyptic climate events of the past two weeks in Auckland, Tairawhiti and Hawkes
Bay has had a noticeable effect on our own councillors. I

It was heartening to see them enthusiastically stepping up aspirations on climate action. But when it came to implementation there was something to be faced.

A reality check was needed. I was left in no doubt at the end that councils simply haven’t got the resources, the money, the staff to do any accurate
assessment of the districtwide emissions. Nor have they the resources to implement what is

As the climate warms, scientists agree that extreme weather events – including flooding and cyclones
– will happen more frequently, and with greater intensity.

Ann Gibson’s view
Seasoned Herald reporter Ann Gibson wrote that there may be $13b worth of damage from CycloneGabrielle, Reuters put it at “over $ 8 billion”. Gisborne’s key water pipeline was crippled by seven major breaks, leaving some areas without any water at all. The city now relies on a backuptreatment plant that can only provide a third of what is needed.

A nationwide problem
The problem is nationwide. Local authorities are already behind in fixing their three waters.
Wellington City Council has announced a 12.3% rates rise to catch up with their stormwater infrastructure after decades of underinvestment.

After a Dept of Internal Affairs report in March 2021 the NZ Herald’s Thomas Coughlan wrote, “The cost of fixing New Zealand’s beleaguered water systems could amount to $110 billion over the next 30 to 40 years, according to the Department of Internal Affairs.

That leaves an enormous hole for councils to fill.

According to research by the department, councils have been spending just $1.5b a year
on water pipes, or $45b over the next 30 years.”

1 News reported on 24 Feb 2023, “Gisborne’s key water pipeline has been crippled by seven major breaks, leaving some areas without any water at all. The city now relies on a backup treatment
plant that can only provide a third of what is needed.”
KCDC calculations

KCDC’s calculations of district-wide emissions included emissions from transport, agriculture, waste industry and stationary energy. Yet it is clear from other data that emissions from aviation, clothing, cruise ships and food were omitted.

I guess it is normal, given our culture, to turn a blind
eye to how we eat. That wasn’t unexpected. It’s not just the farming practices – the consumer has responsibilities too. Farmers wouldn’t grow beef if there was no market for it.

The consumer has plenty to answer for when it comes to agricultural emissions. Maybe it’s time to ask if we are eating in a climate friendly way.
Retirees pushing up emissions

But they left out emissions from aviation? Of course, they haven’t got the staff or the money to findaccurate figures.

Kapiti is an area where there are many retired people taking flights to see friends and family or to simply have holidays and working people within the district are flying as a
course of their work.

More and more of these involve overseas travel.

Likewise, it would have been challenging for the KCDC staff to find out how many locals are taking high-emitting cruise ships.

So how big is a council funding compared with government? I looked at the 2021-22 annual report.

In our case, (KCDC is a small council), we had $97.9 million expenses for the year and total revenueof $105 million. Total assets are $1.96 billion. We find most of the asset value was in infrastructure, roads and bridges.

Second came ‘three waters.’
According to a Productivity Commission report in 2021, compared with the expenditure of central government, local government funding is only about 4-5%.

And to top up rates revenue, local government often has to apply to central government or elsewhere for grants or add fees and user charges.

ocal Government NZ clearly wants revenue to be shared fairly. They want to adopt a revenue-sharing model under which local government receives an automatic share of national taxation.
The possibilities

This could be in the form of an annual general grant, based on each district or region’s
population, need and unique circumstances.

But sharing the national revenue is really no solution. Just as there is resistance to rates rises, there is opposition to new or increased taxes. And we will be still using a single national currency.
A single currency is a monoculture and monocultures are not resilient.
Three years ago I wrote a blogpost advocating that councils should be allowed a new
superpower – the power to create rates vouchers.

Two currencies can then be used. Imported goods need to be bought with national currency, but locally-produced goods can be exchanged using local money.
It has happened before successfully.

Guernsey could point the way

Take the case of Guernsey Island, which had used British
pounds as currency exclusively, but, by a quirk of history had actually been granted the right to issue its own currency in 1690.

In 1916 its infrastructure was falling apart. The sea was
encroaching on the land due to the bad state of its dykes. The roads were narrow and unsealed.
It had a low income, high debt and they struggled to pay the interest on the debt.

After a year’s deliberation they decided to issue their own notes and spend them into existence.

With it they built a thriving market near the port. Despite opposition from commercial banks over the years the Guernsey pound is still used today in conjunction with the British pound. Taxes are low and so is unemployment.

According to a 2017 study of a Hungarian PhD student, “Whereas money
supply in most countries consists primarily of privately issued bank-debt money (about 95%),
Guernsey (States of Guernsey) finance its public spending via quasi state issued money since 1817.”

And Worgl in Austria
And in 1932 at the height of the Great Depression, the small town of Wörgl in Austria spent its own currency into existence to supplement that national currency.

Because it had built in a circulation incentive into the design, it circulated fast reducing unemployment dramatically.

They built roads, bridges and a ski jump with this money. Or rather they paid employees in local currency. The local businesses accepted them for payment because they knew they were good for paying rates.

Radical solutions are needed

All this sounds radical I know. But in a climate emergency. We are
going to witness more and more climate-induced catastrophic scenes like those in Hawkes Bay and Auckland in late February 2023.

We simply must come to terms with the fact that if
sovereign governments can create money, so should local governments.

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