Prime Minister Jacinda Ardern looks likely to judge the proposal from the Auckland and Christchurch Mayors to replace Three Waters on what it might mean for ratepayers.
Since it rejects the fundamental propositions behind the Government’s proposals which have been forecast to save 30 – 40 per cent on current costs, Mayors Wayne Brown and Phil Mauger may find they have a hard job convincing her.
The proposal appears to borrow from a National Party policy from the last election for an Infrastructure Bank.
The statement announcing the proposal said it would establish a Water Infrastructure Fund, which would be modelled on Crown Infrastructure Partners (CIP), which was set up to allocate over $1.7 billion of taxpayers’ funds to pay for the broadband rollout.
“The Fund will work to match the long-term nature of the asset finance required, with the large superannuation and liability funds that are looking for long-term investments,” the Mayors’ proposal said.
“It can manage these relationships at a better level and improve asset finance arrangements in the sector.”
Ironically that is the same logic behind the Three Waters proposal for four regional entities.
But under the Mayors’ proposal, Councils would be free to determine the composition of each water entity and would be required only to consult with Manu Whenua about Maori representation, unlike the Government proposal, which mandates that half of a Regional Water Organisation’s board be Maori.
Though that co-governance issues have featured prominently in the campaign against the Government’s proposal, the real issues that will determine the future of the proposals are financial.
In July, the Auditor General, John Ryan, reviewing all of New Zealand’s local government long-term plans, said that $77.2 billion was already being forecast by the sector for what it would need to spend over the next ten years on the infrastructure of which $28 billion would be spent on Three Waters assets.
Ryan was sceptical that the Councils were up to the task.
We remain concerned that councils are not delivering on their capital expenditure programmes,” he said.
“There are risks of capital expenditure not being completed as planned, such as providing new services to those needing them or even maintaining existing services to the community.”
The two Mayors’ proposal emphasises that large water entities, like Watercare, would remain on the Council’s balance sheet.
That will be attractive to smaller local bodies who fear a dramatic shrinkage in their balance sheets if they lose their three waters assets.
A briefing paper prepared for the Kaipara District Council in August said 28 per cent of its business (its revenue) came from Three Waters.
If the Three Waters assets had to be handed over to another entity to run, the Council would lose both revenue and borrowing power.
“There is a risk that Council does not have the capacity or capability to manage remaining infrastructure, specifically Parks & Open Spaces and Land Drainage,” the paper said.
“The loss of the 3Waters business from Council, and potentially business relating to Resource Management, will mean costs have to be trimmed to be sustainable to our ratepayers.
“Overheads would be stranded as there would be fewer services for these to be spread over.”
But the price of maintaining the status quo may be high. Scottish Water, which consulted on the Three Waters proposal, estimated that it could lead to efficiencies over 30 years of 30 – 40 per cent.
Even large, efficiently managed Three Waters entities like Auckland’s Watercare are expected to raise their charges to users.
Under Auckland’s current Long-Term Plan, water charges will increase by 7% in 2022, followed by a 9.5% increase each year up to 2029.
Prime Minister Jacinda Ardern yesterday emphasised the financial dimension of the proposed reforms.
“Our bottom line is we don’t want to change those matters which are focused on keeping the cost of living in check,” she said.
“Without reform, ratepayers will see increases in their water bills.
“So we don’t want to change the fundamentals of these reforms that are designed to make sure we don’t see exponential increases.”
In a lengthy analysis in May of the impact of the proposals on the finances of Auckland City, the credit rating agency S&P concluded that with the Auckland Council no longer receiving water-related revenues or being liable for water-related expenditures, assets and liabilities, its credit rating would rise from A-1+ to A++.
The agency said this resulted from Auckland’s after-capital account deficits reducing to 4.3% of total revenues between 2020 and 2024 compared with the current forecast of 9.6%.
Ardern was careful in her response to Mayor Brown’s proposal to emphasise the cost to ratepayers.
She said she wanted to talk to him directly.
“So long as, at its heart, we’re all focused on making sure ratepayers don’t experience those large projected increases, then we have common ground,” she said.
The Auckland proposal would allow Councils to determine the boundaries of their water entities, called Regional Water Entities (RWOs), rather than have the Government define four “super entities”, and it would abolish the two boards contained in the Three Waters proposal.
Instead, The RWOs will be owned and governed by the councils “that built and own the assets”, the proposal documents say.
“There will not be a representation committee getting between the Board of an RWO and local government oversight and governance.
“Local accountability will be immeasurably strengthened.”
But it has been local governance of many water entities which has seen investment in replacing infrastructure fall below depreciation rates.
The Water Industry Commission for Scotland, in its role as a consultant to the Government on the reforms with an analysis based on information provided by local authorities, indicated there had been systematic underfunding of economic depreciation by local authorities in New Zealand.
This ranged from funding only 46 per cent of depreciation by major urban councils through to a larger 65 per cent by rural councils.
That larger depreciation spend by rural councils might explain the louder protest against the Government proposals coming from rural areas.
National is promising to repeal and replace the Three Waters legislation though it has not so far said what it would replace it with.
But their spokesperson, Simon Watts, yesterday welcomed the Mayors’ proposals.
“Councils should retain ownership of their water assets, and the Government should not impose co-governance on delivery of these public services,” he said.
“These have always been bottom lines for National.”
Both the Prime Minister and the Minister in charge of the legislation to establish the Three Waters entities have indicated they are open to the Finance and Expenditure Select Committee making changes to the Bill.
“The select committee is in good faith listening to the range of views coming through the submission process; they have not yet finished the task,” Ardern said yesterday.
“We have already foreshadowed as a government where there are improvements to the legislation to improve the workability of the legislation and be responsive in key areas that don’t upset the overall balance of objectives for water reform. We’re very open to receiving those recommendations, and we look forward to the report.”