A mayor confronts the ‘ungodly’ price of three waters reform

Saturday, 23 August 2025

In the debate over water reform, communities demanded local control. But as the brutal maths becomes clear, many are discovering that the price of going it alone may be financial ruin. Charlie Mitchell reports.

When Bryan Cadogan traded the shearing shed for local politics, he made a simple promise. He would cap annual rate increases at 4%.

It was a pledge forged from watching his mother struggle with her council bills. It resonated with voters in the Clutha district, who have elected him mayor five consecutive times.

And he delivered. For more than a decade, rates were held to that 4% cap, and Clutha became a model of fiscal prudence. By 2019, it boasted zero debt, $28 million in the bank, and one of the country’s lowest rates burdens. Nearly every dollar of public spending went to core services.

Now, just two months from the end of his final term, Cadogan reflects on the legacy of his cornerstone policy. It was the right thing to do at the time, he says, but it carried hidden costs that have since come into sharp focus.

“It was my vision — and then it was my ignorance — that held [the cap] for 12 years,” he said this week.

“I miscalculated. I thought that I was still doing the right thing by holding a 4% rate cap … but then came the unavoidable bill.”

That bill was three waters. In just a few years, Clutha’s debt has surged from zero to $146m. Urban households faced rates increases of about 24% last year alone. Virtually all of it can be attributed to water.

Across New Zealand, a crisis decades in the making is finally arriving. For a generation, councils collectively spent less on renewing their water infrastructure than the rate at which those assets depreciated.

The resulting deficit is staggering: an estimated $120 billion to $185b, a sum roughly a third the size of New Zealand’s economy. Between 2013 and 2023, councils underfunded water renewals by more than $7b, the Office of the Auditor-General found.

“Water infrastructure has been out of sight and out of mind,” says Gillian Blythe, chief executive of Water New Zealand.

“You don’t see the water assets, and because they have a long life, it’s easy for councils to put off the renewals.”

That is starting to change. Councils are under significant pressure to spend more on water. They are together expecting to spend nearly $100b over the next decade, a large portion of which is for renewals.

But the true cost isn’t measured in dollars alone. It was paid by the pensioners who fell ill from contaminated water in Havelock North, and by children in rural areas who can’t drink water straight from the tap. It was borne by aquatic life choking in rivers polluted by failing wastewater plants, and the families who lost their homes in flooding made worse by inadequate stormwater systems.

“We’ve got more awareness of the fact that we need to invest in water,” Blythe says.

“We’ve lifted scrutiny in terms of the regulators that will be looking at it. And that’s important.”

But now, those rising national standards are colliding with a tsunami of deferred renewals, plunging many councils into crisis. Unable to continue business as usual, they face a brutal combination of massive rates increases and skyrocketing debt.

It has already engulfed Clutha. Due to its geography and historical patterns of infrastructure investment, it is slightly ahead of other councils in facing a pipeline of expensive resource consent renewals that threaten to wipe out its annual plans for years to come.

Those renewals need to meet government standards, with the council left to pay the bill, pulling the only two levers it has available: Rates hikes and debt. When the district had a rates cap, the only lever was debt. Now approaching its debt ceiling, and with the rates cap gone, it can only pull the rates lever, which has led to unsustainable increases. “We’re stuck in a pincer movement,” Cadogan says.

He often thinks of the average pensioner in his district. That person currently gives one in every $8.30 of their income to the council. In seven years, that will be closer to one in every $3.50. They are skimping on food, on clothing, on heat.

It is that person, Cadogan says, who pays the price for central government demands.

“They’ve loaded up and loaded up and loaded up councils… Three waters isn’t the straw that's going to break the camel’s back. It’s the bloody tree.”

The political tide

The political response began with poisoned water. In 2016, the Havelock North contamination crisis sickened thousands and laid bare a truth some had long known: New Zealand's water infrastructure was cracking under decades of neglect.

The last Labour-led government’s solution was ambitious — a consolidation programme called Three Waters that would have stripped councils of their water assets and placed them into specialised regional entities. Councils would become shareholders rather than operators, freed from crushing costs while the new bodies used their scale to tackle the deficit.

The backlash was fierce. Communities feared losing assets they had built, ceding control to centralised bodies. A minor co-governance aspect, often distorted by critics, became a cultural flashpoint. A new coalition government, elected partly on a promise to kill Three Waters, followed through with its own solution: Local Water Done Well.

The policy, which became law this week, is a compromise. Instead of forced amalgamation, councils are given options: Run water services in-house, create a council-controlled water company, or team up with neighbouring councils.

But there’s a catch. Government officials will review every plan, and if they don’t financially stack up, intervention will follow. This could be a “facilitator” — a person to nudge the council in the right direction — or it could be a “specialist” who can seize control of a council’s water operations, wielding vast powers that include forced amalgamation of water services.

The Government’s preference is clear: it wants smaller councils to join together. Initially, it hoped the 67 councils would consolidate into around 15 entities. That ambition now looks remote. With the deadline to submit a plan less than two weeks away, about 40 separate entities remain in play.

In the South Island, only eight of the 27 councils have banded together. Clutha, Gore, and Central Otago have formed Southern Water Done Well (SWDW); the West Coast’s three councils joined forces, as did Hurunui and Kaikōura.

It leaves 19 councils going it alone, at least for now. Some are trapped between irreconcilable pressures: A high bar for fiscal sustainability on one hand, and voters demanding local control on the other. These decisions are being made quickly and in the midst of local body elections.

The consequences of a misstep are enormous. Councils risk signing their ratepayers up to unaffordable costs. Some may lose control of their water services altogether; an ironic consequence of appeasing public demand for more local control.

The brutal maths

The stakes became crystal clear last month when councillors in the Waitaki district made a decision that stunned observers.

Despite planning to join the SWDW regional partnership, the Oamaru-headquartered council bowed to public pressure and voted to go it alone. Days later, the economic consequences were laid bare.

Water charges on residents would more than double over the next decade. Rates would spike by at least 25% in 2027 alone. Debt would balloon from $4000 per ratepayer to $20,000. The budget would be so tight for the next decade that if infrastructure broke, it would stay broken.

Even this forecast relied on heroic financial assumptions.

“If we’re going to be brutally honest,” one councillor told his colleagues, “virtually nothing else will happen in the next 10 years.”

Government officials had already warned Waitaki that a regional partnership was likely its only viable option, but the advice was ignored. After reviewing the new go-it-alone plan, officials again deemed it unworkable. As of writing, Waitaki still has no viable path forward.

It is not the only one. At least five other councils have received letters of caution from Minister for Local Government Simon Watts, and the true number of questionable plans is likely higher.

Even those plans that do meet the Government’s bar come with costs that will be difficult for communities to swallow.

Watts said in 2023 that Local Water Done Well would not increase rates “in comparison to Labour’s Three Waters model and the status quo”. This week, Watts declined to say whether that remained the case.

When asked to comment on whether Local Water Done Well would still be effective, given the lack of amalgamation so far, Watts’ office did not provide a response before deadline.

In recent weeks, councils have been publishing the water plans they will submit, revealing for the first time just how steep the burden of three waters reform will be.

Nearly every proposal shows water charges — as a share of median household income— rising over the next decade. While the Government has set an informal affordability target of water being 2.5% of income, current estimates show nearly a third of councils will blow past it.

Some of the figures are astronomical. In the Southland district, average annual water charges are expected to climb from $1769 to $4391 by 2034, consuming nearly 5% of an average household’s income. In Whakatāne, the average charge will rise from $2041 to $4411.

In Marlborough, water costs would rise nearly 50% in three years, and debt would almost double to nearly $200m over the same period. Wellington’s joint-entity estimates water charges rising from $2100 to between $4800 and $5700.

An unnecessary, ungodly cost

Bryan Cadogan has watched this unfold with something approaching despair. A former co-chair of the South Island councils, he has an intimate view of their finances and has been bewildered by some of his colleagues’ choices.

“Some councils have quite likely gone into their bunker, and other councils have made some bloody awful decisions,” he says. “I am astounded that council after council have voted to pursue a stand-alone organisation, knowing that their chances of putting a viable plan together are delicate, to say the least.”

In his mind, Clutha had no choice. The district operates the third-longest pipe network in New Zealand, spread across 27 separate water systems in sparsely populated communities. Like others, it has struggled to keep pace with rising standards, bolting upgrade after upgrade onto ageing infrastructure.

“We got to the point where we had put just about every cling-on you could conceivably put on our infrastructure, and then they just chucked the standards up again,” Cadogan says. “It’s like trying to turn a car into an aeroplane. We basically had to start again.”

The costs are staggering. In Waihola, a community of 188 ratepayers southwest of Dunedin, a required upgrade to water infrastructure is costing around $20m. It works out to more than $100,000 each. Similar projects loom across the district’s scattered communities, with an upcoming renewal in the main town of Balclutha set to “hit like a sledgehammer”.

Previously, the council had been able to justify failing to meet standards by citing economic reasons. That defence was taken away in 2017. When Clutha was caught dragging its feet on maintenance soon afterwards, it was taken to court and fined nearly $500,000. Non-compliance is not an option.

With 91% of Clutha’s budget devoted to core services, rates rising unsustainably, and debt nearing its ceiling, the arithmetic was inescapable. Amalgamation was the only viable choice.

So, despite overwhelming public submissions favouring an in-house model, the council voted to partner with its neighbours. The partnership will still mean painful rates hikes, but they will not be existential.

Cadogan had supported the previous government’s Three Waters reform, which was unusual for a rural mayor. He remains convinced that forced amalgamation was the only way.

“What the new government said was, we will go back to the 67 mayors of New Zealand and get them to negotiate amongst all their buddies, and it will all come out tickety-boo,” he says. “We couldn't agree on how to tie up our shoes. How the hell were we ever going to agree on this?”

It has been a bitter coda to his career. He entered politics to protect the vulnerable and lift communities up. “Three waters has obliterated that,” he says. “I’ve seen my beautiful council and the things that I love become absolutely stuffed.”

A self-described political groupie, Cadogan spends his free time attending candidate forums, listening to fresh-faced hopefuls make promises they can’t possibly keep.

He concedes that might have been him, once. Now, he wonders how they will feel when they first walk into the council chamber and realise how little control they have over their community’s destiny.

With his time as mayor ending, he makes one prediction: councils will eventually be forced to amalgamate, either by the government or by simple necessity.

“By the time the poor ratepayers are loaded up on costs to the point that they cannot sustain it any more, all the councils will come together,” he says.

“But by God, there’s going to be a cost along the way. It will be an unnecessary, ungodly cost. That is the price of three waters.”