CASH TO ASHES: The inefficiency of fire service reforms - New Zealand Taxpayers' Union | February 2020 - cloudfront.net
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CASH TO ASHES:
The inefficiency of
fire service reforms
New Zealand Taxpayers’ Union | February 2020
FEBRUARY 2020
1
FOREWORD
Cash to Ashes raises vehicle accidents to save the
fundamental questions about car. For these reasons, most
the accountability of one of other countries don’t tax people
our most valued services, Fire who insure their property to
and Emergency New Zealand fund these services. Other
(FENZ). Although the Insurance options include general taxation,
Council has had no hand in this a levy on car registration
report, the questions it raises or through rates. If central
are ones that every person who government had a bigger role
insures their home, contents in funding FENZ instead of the
or vehicle should ask. That’s 1% it currently provides, then
because it is they who pay the more accountability would be
tax or levy that funds FENZ. demanded of how FENZ spends
its money.
An even more fundamental
question is why should those
who insure be the ones that
fund FENZ? Everyone benefits
from FENZ services, not just
those who take responsibility
to insure themselves. Ironically,
much of FENZ’s work is to save
lives, not the insured property.
Ambulances don’t attend
Tim Grafton CMInstD
Chief Executive
Insurance Council of
New Zealand
FEBRUARY 2020
3
SUMMARY
In 2017, the Government documents obtained under the One reason FENZ has been
reformed the decentralised Official Information Act indicate able to increase its budget
rural fire service and the the vast bulk of spending so substantially is that it is not
centralised NZ Fire Service increases have been devoted required to justify its wasteful
into a new national body – Fire to administrative and support spending, since it is able to
and Emergency New Zealand services. Investment spending is collect revenue through the fire
(‘FENZ’). The new centralised heavily focused on gold-plating insurance levy without having to
organisation was expected to regional infrastructure. go through Treasury like other
deliver efficiency savings while departments. Any increases
On 2 November 2018, FENZ
ensuring service provision was in revenue from the levy are
proudly announced that the
more equal around the country. therefore able to be spent with
Tinui Fire Station had received a
little accountability or impetus to
In March 2017, PWC concluded significant upgrade. Previously,
lower the levy – since FENZ is
that the 2015/16 budgeted the Tinui Station had been a
not subject to any competitive or
expenditure of $389 million was “corrugated iron shed with
commercial pressure.
appropriate for the function and a dirt floor”. Now, Tinui Fire
output responsibilities FENZ has. Station “includes a double bay As part of the Fire Services
The report stated that “Overall, shed with reinforced flooring, Reform agenda, the Government
we conclude that the existing a kitchenette, training room, was expected to introduce a
level of funding is appropriate office, shower, toilet, laundry new levy system to provide
for the scope of NZFS’s business area, mezzanine storage level, income for Fire and Emergency
as usual activities as existed in two 20,000L water tanks that New Zealand. However in March
2015/16.” will make it easier to refill trucks 2019, Minister of Internal Affairs
after training or incidents.” Tracey Martin announced the
Cabinet expected improved
implementation of the new levy
efficiency when it approved For larger cities or towns
system is on hold as she is now
the centralisation programme experiencing resource
reviewing the funding model
pushed by then-Minister of shortages, an upgrade of this
for FENZ. This is politically
Internal Affairs Hon. Peter nature would make sense.
unsurprising, given NZ First’s
Dunne, but these expectations But Tinui has a population of
strong opposition to the FENZ
have been ignored. FENZ is approximately 20 people. The
reforms when they were being
projected to spend nearly $338 opening of the new Station was
shepherded through Parliament
million more in its first three attended by FENZ’s CEO Rhys
by Minister Dunne.
years than was forecast when Jones, Chairman Paul Swain, a
Cabinet approved the merger Government Minister (Ron Mark)
in 2016. and the local MP (Alastair Scott).
The sheer quantity of human
FENZ claims that growth
and financial resources devoted
in expenditure is driven by
to building and opening a fire
increases in employee costs
service shed in a town of 20
and depreciation, which reflects
people is strongly suggests a
nation-wide investment and
growing culture of gold plating
service standardisation. In reality,
waste.
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE FEBRUARY 2020
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THE PURPOSE OF REFORM:
GOALS AND EXPECTATIONS
Prior to the urban and rural fire Timaru is located between to attract, retain, and support Additionally, volunteer and for FENZ. One of the major • better management of health
centralisation in July 2017, urban Ashburton and Oamaru, but volunteers. Ageing vehicles and career stations were largely justifications for fire service and safety risks across the
fire services operated under the Timaru’s fire services costs stations without electricity or meeting (or close to meeting) the centralisation was the delivery of sector;
New Zealand Fire Service and are more than three times the running water are common.” performance standards of the efficiencies, to ensure taxpayers
• improved use of capital;
were funded by a fire levy on costs of either Ashburton and New Zealand Fire Service, as received better value for money
The intention Dunne had to
building insurance, while rural Oamaru. This is representative outlined in Table 1 below (taken while still enjoying the benefits • improved strategic thinking
significantly increase investment
areas were funded from rates of the network of fire services from the 2016 New Zealand Fire of a well-functioning national fire that informs planning and
in rural fire services is clear from
and operated with a local level across New Zealand prior to Service Annual Report). service. service delivery; and
his comments. The purpose of
of governance model. Naturally reform: different communities
reform was clearly to ensure • improved systems and
this caused some degree with different cost profiles and
an ironing out of operational processes.
of variation in cost profiles, service offerings. In the mind
differences across the country
equipment and performance of former Minister of Internal
– even though some rural These efficiency expectations
across the country – reflecting Affairs Peter Dunne, this needed
areas might require reduced were clearly signaled by the
the different needs of to change. In a 25 April 2017
or different services to dense Minister responsible for the
communities. This decentralised newspaper column, Dunne
urban areas. reforms, Peter Dunne, who
rural fire structure did however argued:
commented in April 2017 that
generally keep costs to a However, putting the varied
“The reforms will enhance, while “[there] will be additional
respectable level for forest and needs of communities aside,
but not essentially change, costs … these will not be in
rural stakeholders. fire services were performing
the approach to firefighting perpetuity” and that “[the]
strongly prior to centralisation. Government’s expectation is
From an urban fire service and fire management in our
Figure 2 – taken from the that after this transitional period
perspective cost profiles today communities. We recognise the
FENZ 2017/18 Annual Report – operating costs will reduce.”
remains extremely high for some success of existing structures
demonstrates the steady decline In short, improved efficiency
urban communities. Similarly in managing risk and reducing
in fire incidents over five years was an essential justification for
sized towns in similar locations unwanted fire. However, we
despite a growing population. advancing with the reform of
experienced significant variation also know that some rural
in cost. Figure 1 demonstrates communities have not seen fire services.
Table 1: Performance Standards More specifically, Cabinet
this variation: the investment in local services for 2015/16 – NZ Fire Service supported the reforms on the
they need. Some are struggling Annual Report 2016 basis that FENZ would deliver
$47.7 million in efficiencies by
2021/22, achieved by:
While some standards were not
met, performance was generally • matching investment in
very high. It would be difficult to people, resources, and
extrapolate from these results services with community risks
that the New Zealand Fire and needs;
Service required hundreds of
• a new flexible service model
millions of dollars in additional
– not a rigid ‘one-size fits all’
spending.
approach;
Cabinet clearly agreed with
• fire reduction activities
that appraisal when approving
leading to reduced fires;
Figure 1 Figure 2 the centralisation programme
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE FEBRUARY 2020
6 7
EFFICIENCY ABANDONED:
THE FINANCIAL COST OF REFORM
Despite the Government’s through Treasury, allowing them spending, and value-for-money. NZD. It’s unclear why expanding There is no explanation in either increase in expenditure being
expectations, FENZ’s to collect revenue and spend In 2018, FENZ announced the fire service capability in of FENZ’s recent Statements of allocated to front-line operations.
expenditure is expected to taxpayers’ money with very little upgrades to two career fire rural New Zealand e.g., Lake Performance Expectations as to
Alongside these significant
explode in coming years. While accountability. stations: Wigram, and Woolston. Okareka, should be significantly why FENZ requires a $43 million
increases in expenditure is the
Cabinet forecast expenditure The station upgrades at Wigram more costly than similar forms of investment in ICT equipment,
Strangely, this means individuals expectation of Cabinet when
to eventually fall to $439 million and Woolston (both Christchurch spending in Australia. or why that spend delivers
and organisations which approving centralisation that
in the 2021/22 financial year, locations) cost $7.4m and $6.9m significantly improved services.
choose to self-insure receive FENZ achieve $47.7 million in
from $486 million in 2020/21, respectively. For example, if the roadmap
the latest forecasts show
a tax advantage and are able It appears that FENZ of reform was to standardise
efficiency savings by 2021/2022.
to free-ride on others: the Given their urban location, the That’s a significant saving,
expenditure at $617 million in is gold-plating its service delivery across regional
levy disincentivises taking out Christchurch upgrades could be likely requiring work across
2020/21. In total, taxpayers property portfolio, and volunteer stations (in
formal insurance coverage. justified, but the Tinui two bay the organisation in the lead
are worse off by $338 million line with urban stations), how
Additionally, the financial penalty upgrade does not represent rather than investing up to 2021/2022. In an Official
( just over the period 2018/19 does ICT specifically improve
through 2020/21) compared
disproportionately affects value for money for ratepayers. in desperately needed capability? More explanation is
Information Act Request, we
commercial organisations, since Tinui is an extremely small asked FENZ for any reports,
to forecasts when Cabinet
while residential property is town – it has a population of
infrastructure. needed.
documents or advice they
approved the centralisation
subject to a levy cap of $106, approximately 20 people – External consultants are also had received on the value
reforms: approximately $143
commercial property faces a in the Wairarapa. Yet, it has There is plenty of generally putting upward pressure on of efficiencies found since
more per household in fire
potentially unlimited levy rate. received “a double bay shed wasteful spending taking place expenditure at FENZ. In 2017/18, centralisation. FENZ’s response
services spending. It’s also
with reinforced flooring, a at FENZ as well. $69.3 million FENZ spent $9.9 million on was brief:
disturbing to see, even when fire FENZ argues in its 2019
kitchenette, training room, office, of the $261.3 million increase external consultants. FENZ has
levy income has exceeded what Statement of Performance “Cabinet has asked Fire
shower, toilet, laundry area, (‘other expenditure’) in spending budgeted $11 million and $6.5
was approved by Government in Expectations that the significant and Emergency to ensure
mezzanine storage level, [and] is neither additional staff costs or million for external consultants
2016, that the FENZ Board has spending growth is the result efficiencies from 2021/2022.”
two 20,000L water tanks that depreciation. in 2018/19 and 2019/20
unrelentingly continued to draw of growth in depreciation
will make it easier to refill trucks respectively. Again, FENZ has In other words, FENZ has no
down on a $112 million capital and staff costs due to service
after training or incidents.” not explained the value of reports, documents or advice
injection Government loan to standardisation across the
assist in funding the transition
The most important spending millions of dollars on on the value of any efficiencies
country, reflecting the goal Lake Okareka and Wanaka
costs of the urban/rural merger of equal capability and volunteer firefighters have
component of the external consultants specific to within the organisation. This can
the justifications for reform.
over the first four years. performance across the country also recently received new fire increase in ‘other only be interpreted to mean that
FENZ has not only found zero
How taxpayers are impacted
central to the process of reform. stations and equipment. Lake expenditure’ is the Perhaps most importantly, the
efficiency savings, but has also
is damaging, but complicated.
On the surface, that makes Okareka – a township of 600 increase in spending vast majority of expenditure
identified no possible future
sense: higher depreciation costs people – is receiving a new increases ($163.3 million of
Instead of receiving funding on ‘communications efficiency savings. This is clear
simply reflect large amounts of fire station estimated to cost $205.3 million) between the
from the general consolidated
capital expenditure, so the $48 $1.9 million, while Wanaka – a and computers’ – 17/18 and 18/19 Statements of
in the latest FENZ Statement
fund, like most departments and
million increase in depreciation small resort town – has a new approximately $43 Performance Expectations is not
of Performance Expectations
ministries, FENZ collects its own which forecasts revenue and
revenue through a levy which
over the forecast period reflects fire station estimated to cost $4 million over three allocated to any urban area or
expenditure for 2021/22: none
massive upgrades to the FENZ million. In contrast, a new two- years. region, but to ‘Support Services’.
applies to insurance premiums of the $47.7 million of efficiencies
property portfolio. bay shed (with a training area) In other words, back-office
on products which insure have been earmarked for the
is estimated by the Country Fire bureaucracy is being heavily
against fire. This means FENZ However, the nature of capital 2021/22 Financial Year.
Authority in the Victoria, Australia supported by the change –
does not have to go through expenditure raises serious
to cost approximately $600,000 with only a small share of the
a formal budget bid process questions over need, quality of
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE FEBRUARY 2020
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CASE STUDY: COSTS OF THE PIGEON VALLEY FIRE
SUGGESTS DRAMATIC REDUCTION IN EFFICIENCY
In addition to general increases Nelson. According to Drought improvements in the majority
in wasteful spending and gold- Code and Build Up Index, which of the technology used to
plating of the FENZ property measures moisture content and fight fires that would explain
portfolio, the response of FENZ fuel conditions in the area, the the increase in costs – trained
to the Pigeon Valley forest fire natural environment on the 5th forest firefighters, bulldozers,
last summer suggests a dramatic of February was approximately shovels, fire hoses, pumps, and
reduction in efficiency. the same in 1981 and 2019. helicopters were all used in both
1981 and 2019. One important
On 5 February 1981, a However, the response of Fire
advance, however in 2019,
remarkably similar fire to Pigeon and Emergency New Zealand
has been the availability to fire
Valley started next to the urban was markedly different in 2019
controllers of real-time weather
area of Nelson in the Hira forest, compared to 1981. For example,
data from automated weather
requiring significant investment while the use of aircraft can be
stations along with much
in manpower and resources to effective in combatting the early
improved fire behaviour models
limit its spread. In total, the NZ stages of a fire, they become
for various vegetation types.
Forest Service spent $174,317 much less effective following the
This adds no cost to managing a
(1981 NZD) broken down into: initial attack phase. Instead, 25
fire but properly used it enables
helicopters and two fixed wing
(a) NZ Forest Service rural fire managers to better
aircraft were used at Pigeon
Salaries - $33,577 predict fire behaviour and better
Valley in the first ten days to
match tactics to the situation.
(b) NZ Forest Service combat the forest fire. In addition
Wages - $31,020 a large cost was incurred in We suggest the decrease in
establishing large tracts of fire efficiency is a result of the
(c) NZ Forest Service breaking external to the forest lack of financial accountability
Vehicle & Plant - $11,814 boundary. on FENZ: spending is not
assessed by Treasury and
(d) Aircraft - $67,587
The result: fighting FENZ is not required to justify
(e) Other external costs - the Pigeon Valley future spending bids to Treasury
$30,317 fire cost $17 million officials. Instead, FENZ is able to
spend its levy income as
Additionally, Murray Dudfield – more than 17 times
it desires.
– a former National Rural Fire the cost of fighting the
Officer – estimates the cost to very similar Hira fires
Nelson City Council for the Hira
in 1981, even after
forest fire was approximately
$31,831 – giving a total cost of accounting
approximately $206,000 – or for inflation.
$912,000 in 2019 NZD.
There have been no dramatic
On 5 February 2019, 38 years to
the day of the Hira forest fire, the
Pigeon Valley fire broke out near
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE FEBRUARY 2020
10 11
CONCLUSION
Fire services are often raised by first step would be to require generally combatted within
taxpayers as a classic example that FENZ cannot collect its the organisation, reforming
of a service where government own revenue through the levy the culture of waste within the
should be involved to manage regime and instead require organisation would be difficult
externalities and public goods that levy revenue pass through without outside rigour.
problems. However, that does the general consolidated fund.
More immediately, it may
not mean that FENZ should Requiring FENZ to make Budget
be valuable for the Minister LAKE OKARAKA RURAL FIRE FORCE TO IL4. FLOOR AREA 348 SQM. COST $1.9 MILLION 2019
enjoy a blank cheque or be bids and go through the usual
responsible for FENZ, Hon.
immune from criticism and scrutiny and rigour of public
Tracey Martin, to put pressure
reform. The sheer scale of sector spending decisions may
on FENZ to meet the efficiency
FENZ as an organisation and improve the quality of spending
expectations outlined by
its immunity from Treasury and put downward pressure
Cabinet when centralisation was
revenue guidance means it has on the levy, if the revenue
approved. Given New Zealand
become a largely financially is implicitly ring-fenced and
First’s historic opposition to the
unaccountable organisation – large potential surpluses are
reforms, it could be politically
with taxpayers forced to pick up identified. It may be beneficial
useful for the Minister to
the bill via insurance costs. to abolish the levy altogether
pressure the Opposition on their
and simply collect the revenue
With the FENZ levy regime recent support of the reforms
through general taxation,
now under review, there is an and demonstrate to the public
given the disincentives that
opportunity to reform some parts that centre-left governments can
apply to insurance coverage
of the organisation in order to reform and be efficient when
stemming from the levy regime.
deliver better value for money required.
While waste needs to be
for taxpayers. A good initial
WANAKA URBAN VOLUNTEER FIRE STATION BUILD. FLOOR AREA 585 SQM. COST $3.96 MILLION – 2017
LYTTELTON URBAN VOLUNTEER FIRE STATION BUILD. FLOOR AREA 497 SQM. COST $3.85 MILLION – 2017
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE FEBRUARY 2020
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KEY SOURCE DOCUMENTS
Cabinet paper with original expenditure forecast: Fire Services Review: NEW FUNDING ARRANGMENTS (p 20)
Actual expenditure in 2018/19: Annual Report 2018/19 (p 61)
Latest expenditure forecast: Statement of Performance Expectations 2019/20 (p 32)
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE
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Lower taxes, Less Waste, More Transparency
www.taxpayers.org.nz
BILLION DOLLAR BLOWOUT PROJECTED IN FIRE SERVICE EXPENDITURE
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