Government puts new plan for water reforms to councils

Thursday, 8 August 2024

Councils have little more than 12 months to produce plans to amalgamate their water services, as the Government reveals how reforms will be funded.

Local Government Minister Simeon Brown and Commerce Minister Andrew Bayly announced the fine print of the Government’s water reforms plans on Thursday morning, including how new council-owned water providers will be created, increased debt financing will be obtained, and water standards tweaked to reduce compliance cost.

The replacement for Labour’s scrapped Three Waters scheme was praised by Brown as a cheaper reform package that allowed councils to keep control of water assets. But it also came with a quiet threat: councils must amalgamate services to achieve scale and cost efficiency, or the Government will make them.

“My message to councils is clear. Get on board with these changes quickly,” Brown said.

“Rates rises the last few years have been unacceptable … These changes provide a pathway to reduce costs and pass on savings to ratepayers, and to make the significant investments needed for our water infrastructure.”

But Labour immediately questioned Brown’s assertion the water reform package would be cheaper for taxpayers and ratepayers than its model, which would have created 10 public water entities. The party’s local government spokesperson, Kieran McAnulty, said the Government’s plan would be pushing debt onto councils, with a “blind eye” to their credit ratings.

“They’re washing their hands of this issue and setting councils up to take all the blame on the inevitable increase in rates.”

Under the Government’s plan, councils are being asked to put forward plans for financially sustainable water providers, likely requiring they amalgamate with neighbours to achieve efficiencies and scale.

One of a series of laws to erect the new regime will be passed later this month, from which point councils have 12 months to deliver their plans.

Built into the legislation is a “backstop” that could be used to compel councils to amalgamate and create new entities the Government approves of. But Brown refused to “speculate” on what might force the Government to step in.

“We want councils to work together. That is the point of our policy, to have councils working together to find local solutions.”

The new council-owned water providers would be financially separated from councils, with separate revenue “ringfenced” by law to be spent on water assets.

The Local Government Funding Agency (LGFA), of which 30 councils and the Government are shareholders, will be the lender to the new water providers.

After discussion with credit rating agencies, it has determined it will be able to fund the water providers to a greater debt-to-revenue ratio than councils currently receive, up to 500%, at interest rates cheaper than commercial rates.

“I met with a council yesterday which is up against its current debt cap and is looking to get lending from commercial markets … They're looking at 2% higher interest rates on lending from commercial markets than what the LGFA is able to provide,” Brown said.

The providers would gather revenue through charging for water – meaning greater use of water meters across the country could be expected.

The agency’s chairperson, Craig Stobo, said the debt cost to each provider would differ, depending on their credit rating.

He was confident the funding agency could maintain its AAA credit rating while providing debt to the new water providers.

Christchurch acting mayor Pauline Cotter said there were no real surprises for the city in the announcement, but it did give the council clarity on the options and models it could explore.

She said the council had already started looking at three models - the status quo, creating a single-entity council-controlled organisation (CCO), and creating a CCO with other partners.

“The status quo for Christchurch is working really well. I’m very proud of the way we deliver our three waters.”

Cotter said while the council was fine with the status quo, it was too early to say if it would stick with that model long term.

But she said there was no real benefit for the council to partner with other councils like Selwyn or Waimakariri.

“We’ve got our house in order really well.”

Waimakariri mayor Dan Gordon said having some clarity on funding mechanisms was welcome and he looked forward to learning more about the flexibility and tools on offer as the legislation was tabled.

Gordon co-chaired the action group Communities 4 Local Democracy, which a number of councils joined to fight the previous Government’s three water reforms.

Waimakariri announced this week it was joining with Hurunui and Kaikōura councils to put together a plan to deliver water services.

Selwyn deputy mayor Malcolm Lyall said the announcement was helpful in providing additional information and options for the council to consider in its ongoing discussions with neighbours.

“As a council we are supportive of a regional approach to work with our neighbours including exploring the option of CCOs. We welcome any options that would reduce costs to our ratepayers.”

Aside from the council-owned water provider model, the Government was also looking at accommodating different arrangements, including water providers owned by individual councils and more complex models akin to that Labour was proposing, involving professional boards appointed by councils, ownership by consumer trusts, and debt financing from the commercial market.

There will also be changes to water standards to ease the compliance burden, including insisting on a “single standard for waste water across the country, as opposed to a “minimum” standard which allowed councils to impose higher standards in different places across the country.

Lower risk supplies for 25 or fewer consumers, such as where a farm supply provides for neighbouring properties, will be excluded from registering with the regulator and meeting other requirements.

Water regulator Taumata Arowai will also have to consider “cost of compliance on suppliers” when taking regulatory action for poor water quality.

Brown insisted the Government was not reducing water quality standards. “There's still going to be significant regulation around wastewater standards.”

Taumata Arowai’s name will also be changed by law to Water Services Authority - Taumata Arowai, part of a wider Government effort to change the names of government organisations to put English before te reo Māori.