Councils under threat
By Richard Harman (author)
Parochial councils backed by the National Party may object, but it looks highly likely that the only way New Zealand will be able to afford to clean up its urban water supplies will be to amalgamate water providers.
And in the process that could have a dramatic impact on the whole local government sector possibly even leading to more local body amalgamations and questions about the ongoing viability of some smaller councils.
The need for higher standards on drinking water was dramatised last year by the Havelock North poisoning case.
And the upcoming National Freshwater Standard will impact on how councils deal with both wastewater and stormwater.
(Drinking water, stormwater and wastewater are known as the “three waters”.)
Launching a "conversation" yesterday with local government about how to manage the cleanup, Local Government Minister, Nanaia Mahuta, was adamant that because rates would not be sufficient to foot the bill, Councils would need to look to aggregation both to cut costs and to develop vehicles which could raise additional funding.
But cleaning up drinking water is the cheap part of the equation.
She said it was estimated to cost $500 million to improve drinking water to what will be a new post-Havelock North standard. And a recent report suggests that the bill for only part of the wastewater cleanup could be $2 billion.
The cleanup will begin in earnest next June.
Then, the Ministers of Local Government, Health, and Environment will report back to Cabinet with detailed policy proposals for regulation of the three waters, to enable drafting of legislation to begin.
Those reports will deal with a system-wide reform of the regulation of drinking water and targeted changes to the environmental regulation of wastewater.
They will also consider the regulatory bodies that could give effect to the reforms, and oversight and stewardship arrangements for drinking water and environmental regulation.
That may go as far as one central regulatory body for the whole country.
But the big issue will be how to configure local government to implement what will almost certainly be more demanding environmental standards for the water.
Mahuta at the media launch at an Auckland Watercare facility yesterday repeatedly talked about “aggregation.”
“I acknowledge some of the anxieties in the local government sector around service delivery and aggregation,” she said.
“But we have got models in New Zealand that demonstrate that from a service delivery position where we aggregate service delivery, the advantages to the consumer are huge.”
She particularly cited Wellington Water and Auckland’s Watercare as examples of aggregated local body water service delivery bodies “which many ratepayers have seen the advantages of.”
“It’s no secret that in order to take this conversation forward we only need to look further afield at other comparative models in other countries as well as drawing on the experience of the two models we have here in New Zealand that a level of service delivery aggregation makes sense.”
But that aggregation could be dramatic, particularly for small district councils.
The Director of Central and Local Government Partnerships at the Department of Internal Affairs, Richard Ward, told the Infrastructure New Zealand conference in August that one aggregation model being worked on would divide the country up into five regions similar to super rugby team boundaries.
National's Local Government spokesperson, Jacqui Dean, objects and has been backing the smaller councils who oppose aggregation.
“Compulsory aggregated services is still on the table despite the uproar from Councils across the country,” she said yesterday.
“ It’s becoming clear that this is the option the Minister is leaning towards as actual decisions won’t be made until the end of 2019.”
But the challenge facing both the Government and the Councils is that the improvements to water infrastructure will be costly and well beyond the ability of ratepayers in many areas to fund them.
The example of the Kaipara District Council is evidence of what can happen when things go wrong.
In 2011 the Council increased its total borrowings from around $20 million to $82.9 million to fund a cost blow out in a sewerage scheme at Mangawhai Heads; it ended up having to increase rates by 31% to pay for the loans and faced an ongoing ratepayers’ revolt and litigation as well as an Auditor General’s Inquiry.
“In an aggregated approach it is clear that the model will have to look at how through aggregation the financing of infrastructure investment can be achieved,” said Mahuta.
“There has been a concern that reliance on rates alone in the current state is not going to achieve the type of investment that is required.”
That raises the question as to whether private sector finance could be involved.
Mahuta is adamant that before this is discussed, it is understood that the three waters will all remain in public ownership.
But she said that looking at the way private finance might be involved was a part of the modelling the Government was doing.
“At the heart of this will we have a model which will put public ownership and interests at the core of our considerations because that is where local government are really anxious.”
But local government’s biggest anxiety will be the implications of aggregating water, stormwater and wastewater. Along with roading and administering the Resource Management Act, the three waters is a core function --- and revenue source --- for most smaller local authorities.
There is a fear within the sector that aggregating the three waters could quickly lead on to aggregating the councils themselves.
That possibility was hinted at in comments yesterday from Infrastructure New Zealand CEO, Stephen Selwood.
“Long overdue reform of the water sector has created the opportunity for a first principles discussion of what local government can and should do and with what resources, so it is very pleasing to see the Government kick-starting this process,” he said.
“Operating infrastructure networks is a technical activity demanding flexible use of capital and strong asset management capability.
“When networks cut across political, environmental or regulatory boundaries challenges are compounded.
“This is not the comparative strength of local government.
“Under the current model we have allowed council financing constraints to undermine investment in clean water, political constraints to underfund growth services and technical constraints to under-deliver capital work programmes.
“This is not a good outcome and the Government's announcement that it will start the conversation with councils about what local government is really for should be fully endorsed across the political spectrum.”
There was other support for Mahuta’s proposals.
The Auckland Employers’ and Manufacturers’ Association (EMA) which has strong links with the National Party supported her proposals.
Its CEO, Kim Campbell, said current estimates were that $2 billion in new infrastructure was required across the country, just to bring water provision up to required standards.
“All those councils objecting to a new way of doing things should just look at their own ability to pay for that new infrastructure to keep their ratepayers safe,” he said.
"While the result of discussions among Government and local councils can’t be known, we think one outcome will be fewer councils running water authorities."
And that is where the great three-water debate looks to be headed --- to a debate about the structure of local government.