Water cycle: Taxpayers' Union hopes a new government will pick up its water reform plan. Photo / 123rf
The New Zealand Taxpayers’ Union has waded deeper into the national debate on water reform with the release of a proposal to replace the Goverment’s plan with a more decentralised alternative that it aims to turn into a completed draft bill by the October election.
The Act and National parties were informally consulted on the plan, which includes drafting instructions to produce legislation, and work-in-progress first draft.
The proposal leaves control of water assets with their council owners, however, it mandates that councils transfer their wastewater and drinking water assets (two waters) into separate council-controlled organisations (CCOs) in order to gain greater accounting and governance separation from political decisions.
Some changes to CCOs Watercare and Wellington Water would likely be required under the system, and voluntary mergers would be possible.
Improvements to water safety and necessary investment in asset maintenance and renewal would be driven by regulatory oversight (drinking water regulator Taumata Arowai would be retained with some changes).
The Auditor-General would have widened responsibilities, for example for assessing the adequacy of water utilities’ planning and reporting. The fairness of pricing and rates would likely fall under oversight from the Commerce Commission, which already monitors monopoly networks like electricity lines and gas.
The plan is not clear on the level of new borrowing required in the coming decades to improve the maintenance and renewal of the country’s water infrastructure; however, it holds that the Government’s projection of $120 billion to $185b required in the next 30 years is wrong and too high, as are the Government’s projected costs to ratepayers.
For context, all of the Crown’s gross debt totalled $133.8b in May. Those sceptical of the Government’s water reform figures say the projections are so enormous they advertise their own unreliability (they were produced by Wics, the Scottish water regulator, working as a consultant to the Government).
Proponents of the Government’s reforms say the magnitude of the investment required underscores the need for more radical and thoroughgoing change, especially to achieve greater, cheap borrowing capacity.
The Taxpayers’ Union has no formal political alignment. Its members pay a fee and it does not identify its donors.
It hasn’t estimated the effect of its plan on water rates. “There are no free lunches. In areas where there is a backlog of necessary investment, water service changes will rise,” it says in its proposal. The plan notes that long-term debt will help to spread the cost across the long life of assets.
Act’s local government spokesman Simon Court said that the work could easily supply the backbone of a National-Act water reform plan, should the parties have the opportunity to form a government. He noted, however, that Act would require some changes.
National’s local government spokesperson, Simon Watts, said he welcomed the work, but emphasised that the party would be pursuing its own water reform plan, released in February.
The Taxpayers’ Union work is considerably more detailed than National’s plan, but the broad brushstrokes are similar. Watts said National was “not involved” in producing the Taxpayers’ Union work, though it has seen it.
Both Act and National have vowed to repeal and replace the Government’s current water reforms if given the opportunity.
Callum Purves, national campaigns manager for the Taxpayers’ Union, said the group’s intention was to produce a bill, ready to put to Parliament after October, that puts “meat on the bones” of the ideas of organisations including Act, National and Communities for Local Democracy, a group of 30 councils opposed to the Government’s current water reform programme.
The Taxpayers’ Union is set to release its work to the public shortly - it supplied its plan details to the Herald.
Mired efforts at reform
The issue of water reform - what it will cost, who should pay for it, and the ordinarily humdrum matter of who controls the country’s pipes and drains - has become hotly contentious.
The Labour Government, Act and National agree that water reform is necessary, and that long-standing underinvestment by some councils has resulted in often woefully deficient water services. A waterborne disease outbreak in Havelock North in 2016, which killed four people, was a catalyst for change. However, the parties differ significantly in their solutions.
The Government’s water reforms, now partially enacted, mandate that councils aggregate Three Waters assets - storm, drinking and wastewater - into 10 new water services entities (WSEs), with provisions, including co-governance for local Māori, that heavily dilute council control of the assets.
The Government argues this reduced control is necessary, both to fulfil obligations to Māori under the Treaty of Waitangi, and also to achieve sufficient balance sheet separation between the new water services entities and their council owners to achieve a high borrowing capacity, and sufficiently high credit ratings to keep the cost of new investment as low as possible.
In April, stung by long-running criticism and fearing for its re-election chances, the Government revised its original reform plan from four to 10 new WSEs.
The programme has been dogged by high costs, especially fees paid to contractors and consultants, and the April revisions blew out the reforms’ establishment costs by an additional $1b, and delayed implementation for nine of the 10 WSEs by two years.
Malcolm Alexander is a former head of Local Government New Zealand (LGNZ) and has worked with Communities for Local Democracy. He chairs the Taxpayers’ Union Technical Advisory Group for its water plan.
“Beyond doubt, in my view, it is a far superior model [to the Government’s] both in terms of principle but also in terms of understanding an appropriate response to the scale of the problem,” Alexander told the Herald.
He said a crucial starting point of the reforms, both for him personally and for the councils he’s worked with, is “the principle of property rights”.
“This [water infrastructure] is not Crown property, it never has been. This is property owned by councils on behalf of their communities who have paid for it over many generations. It is their property, local authorities as a matter of law are not part of the Crown.”
Borrowing
The Taxpayers’ Union plan anticipates various means of borrowing. The Local Government Funding Agency (LGFA), which already allows councils to band together and issue bonds through its treasury function, would be one route.
Other options include “targeted revenue bonds”, backed by the asset revenue from specific infrastructure, and “implicit” Crown fiscal support (these are commonly used by local governments overseas).
Auckland Mayor Wayne Brown, who has been critical of the Government’s Three Waters plan, is pushing for an explicit guarantee of water debt by the Crown, or, indeed, direct Crown funding.
Brown told the Herald that the Taxpayers’ Union plan, which was shared with him, has failed to address the city’s “simple balance sheet problem”, though he supports its “principle of local control”.
Auckland Council-controlled Watercare, the country’s largest water utility, has struggled to borrow and invest sufficiently because of limited debt headroom; its borrowing is constrained through its ties to the Auckland Council. Rapid growth in the region makes the problem especially acute.
Brown proposed that the Government “guarantee the debt councils must incur to pay for the upgrade of our drinking water, stormwater, and wastewater infrastructure. Or they could consider a Government-backed finance scheme such as what I proposed in October”.
Last year Brown and Christchurch Mayor Phil Mauger outlined their own water reform proposal which included a new water infrastructure fund, to be established by Crown Infrastructure Partners, a Crown-owned company.
The Taxpayers’ Union does not appear to prevent such a course; it gives the Crown discretion in lending to water utilities, so long as it is in the public interest (this is also provided for in the Government’s plan).
Mauger and Wellington Mayor Tory Whanau declined to comment on the Taxpayers’ Union plan before it is made public.
A spokesperson for Local Government New Zealand, a body that represents most local councils, said it has not worked on the plan.
The Taxpayers’ Union’s technical advisory group included Eric Crampton, chief economist at the New Zealand Initiative, David Hawkins, chief corporate affairs officer at Watercare until 2021, and Christchurch City Councillor Sam McDonald.
Law firm Franks Ogilvie is working on the draft legislation; director Stephen Franks is a former Act MP and has been a vocal critic of the Government’s water reforms.
Co-governance
The Taxpayers’ Union (as well as Act and National) hold that the Government’s plan offends basic democratic principles by awarding a share of governance of water services assets, owned by ratepayers through their local councils, to unelected Māori representatives.
The plan notes that “meaningful consultation with mana whenua and other Māori representatives” is expected, consistent with the local government sector’s usual practice.
Alexander said that it is his personal view that Māori “do have rights and interests in water” under the Treaty of Waitangi, and “it’s about time someone defined what those were”.
However, he drew a distinction between water and water infrastructure: “this reform is about infrastructure: how it’s managed and operated; how it’s invested in; how it meets health and other required standards...”
The LGFA
The LGFA currently caps borrowing at 2.8 times revenue for its member councils in order to maintain a stellar credit rating.
This cap helps the agency to achieve very favourable credit ratings, and so to borrow at rates similar to the Crown.
Another powerful factor is that creditors to local governments have powerful rights to raise special levies on ratepayers and sell properties in default situations.
It’s unclear by what order of magnitude borrowing through the LGFA could rise without considerably denting the very high credit ratings it achieves.
Crown help is also anticipated for councils which “genuinely struggle” to finance water upgrades and services; the scale is not estimated.
There is provision for failing water utilities to be placed under the management of another water utility (on the initiation of the regulator and subject to court confirmation).
Matt Nippert and Cécile Meier both won business journalism awards.