Amid a war of words between the Government and mayors, Newsroom has analysed data from all 67 councils to compare who the biggest winners are from the Government’s $120b-plus water reforms.

Councils say they are carrying $7.7 billion in debt on their water infrastructure that they expect the Government’s four big new regional water entities to pick up liability for.

The figure comes from a Newsroom analysis of council-by-council data collected by the Department of Internal Affairs.

The question now is how much the Government will agree to pay. Local Government Minister Nanaia Mahuta is to go to Cabinet again, likely next week, to seek agreement on the terms on which the country’s water assets are expropriated – and whether to make it mandatory for all 67 councils.

A spokesperson for Three Waters Reform at the Department of Internal Affairs confirmed councils' expectations: that the four new regional water authorities will pick up all the debt.

"Debt associated with the water infrastructure will effectively transfer to the new entities," he said. "The process to determine assets, debt and revenue will be subject to due diligence."

In other words, the Department is not taking councils' word for how much of the debt on their books is attributable to building drinking water, wastewater and stormwater assets. They will spend some time scrutinising council books.

"Our proposal requires the Crown to guarantee Watercare’s debt.... I understand that the Government might be concerned about a transfer of risk from council to the Crown. My proposal mitigates some of this risk by allowing the Crown to have appropriate influence over the entity."
– Phil Goff, Auckland mayor

Government officials will seek to hold the line in negotiations with each council: there are nine councils who say they have no debt on their water infrastructure, and so their ratepayers should be compensated for handing over the assets. The Minister has told Newsroom that while her officials will enter talks with open minds, cash payments are not on the table.

One debt-free council is Whangārei, which has voted to opt out of the reforms. Another is Kawerau – but its council plans to borrow $12m to rebuild 48km of old drinking water pipes over the next six years. "With a long-term loan of 90 years, this will ensure those who benefit from the asset now and into the future will contribute," says mayor Malcolm Campbell.

By contrast, there are some councils that are carrying massive debts on their water infrastructure, and are looking to be rid of that debt.

Foremost among them is Auckland Council, which says it has $3.2b debt on its water plants and pipes. With borrowing maxxed out, council-owned company Watercare is proposing to double water rates to pay for ongoing maintenance.

Mayor Phil Goff wrote to Mahuta last month, suggesting an alternative to handing over Watercare and its assets. 

He said the council and its group of companies were constrained for the next few years, while they completed the City Rail Link ($2.3b), the Eastern Busway and the central interceptor wastewater tunnel ($1.2b).

He wants the Government to guarantee Watercare's debt, so that ratings agency S&P will "look through" that debt when assessing Auckland Council's credit rating. He argued this would give the council and Watercare greater headspace to keep borrowing, instead of having to raise rates.

"I understand that the Government might be concerned about a transfer of risk from council to the Crown," he wrote. "My proposal mitigates some of this risk by allowing the Crown to have appropriate influence over the entity."

Other councils carrying heavy debt on their water infrastructure include Christchurch with nearly $1b debt from rebuilding after the earthquake, Tauranga ($473m) and Hamilton (370m). Coming in at No 5 is Hastings ($140m), which is a much smaller council that is still paying the price for replacing the rundown water infrastructure behind the tragic campylobacteriosis outbreak in Havelock North in 2016.

"I do not believe that the current model for water services delivery in Auckland provides strong accountability.... The current arrangements have, among other things, overseen the delivery of a failure to anticipate and plan adequately for the 2019/20 drought [and] persistent under-investment in asset maintenance and renewals."
– Nanaia Mahuta, Local Government Minister

More than 5500 of the town’s 14,000 residents were estimated to have become ill from drinking the infected town water; some 45 were subsequently hospitalised, an official report found, and four died.

That outbreak highlighted small councils' lack of expertise and scale to manage complex water infrastructure – and was the genesis of the Government's big water reforms that are now coming to fruition.

Mahuta has now written back to Phil Goff, in a somewhat scathing letter that will be closely read by the country's 66 mayors (and one commissioner, after the resignation of Tauranga mayor Tenby Powell). She says Aucklanders are paying too much, for a water company that's failing to deliver good and reliable water and wastewater services. Under Watercare, average annual household charges will increase from $1,330 to $2,180 in 2031 – but with the Government's reforms they should reduce to $1,700.

Internal Affairs projections show Auckland and Northland water charges reducing further to $800 a year in 2051.

"I do not believe that the current model for water services delivery in Auckland provides strong accountability, or that it is capable (even with the modifications you propose) of delivering the best possible outcomes for Auckland," she says.

Auckland Council and Watercare failed to anticipate and plan adequately for the 2019/20 drought, persistently under-invested in asset maintenance and renewals relative to economic depreciation, and has infrastructure so old that it would not be considered appropriate in Australia or the UK, she says.

It is still delaying key network upgrades like the Huia Water Treatment Plant, Western Isthmus wastewater and stormwater enhancements, Hunua 1 Watermain Upgrade, Waikato A Water Treatment Plant,  Warkworth and Wellsford wastewater treatment plants (consents will not be met), and leakage detection investment – all postponed three years.

Despite all this. the water charges paid by Auckland households are "significantly higher than necessary" and materially impact on the wellbeing of Aucklanders.

Under the council's longterm plan, drinking water, wastewater and stormwater charges will increase from $1,330 to $2,180, she says. By comparison, the Water Industry Commission for Scotland estimates that the average bill under the Government's water reforms should be around $1,700 by 2031 – about a third lower than the Council is planning.

Ashburton | Auckland | Buller | Carterton | Central Hawke's Bay | 
Central Otago | Chatham Islands | Christchurch | Clutha | Dunedin | 
Far North | Gisborne | Gore | Grey | Hamilton | Hastings | Hauraki | 
Horowhenua | Hurunui | Hutt | Invercargill | Kaikōura | Kaipara | 
Kāpiti Coast | Kawerau | Mackenzie | Manawatū | Marlborough | 
Masterton | Matamata-Piako | Napier | Nelson | New Plymouth | 
Ōpōtiki | Otorohanga | Palmerston North | Porirua | 
Queenstown Lakes | Rangitikei | Rotorua | Ruapehu | Selwyn | 
South Taranaki | South Waikato | South Wairarapa | Southland |
Stratford | Tararua | Tasman | Taupō | Tauranga | Thames-Coromandel | 
Timaru | Upper Hutt | Waikato | Waimakariri | Waimate | Waipā | 
Wairoa | Waitaki | Waitomo | Wellington | Western Bay of Plenty |
Westland | Whakatāne | Whanganui | Whangārei

"I am not convinced that the provision of a Crown guarantee without corresponding changes to the current governance model would achieve the desired balance sheet treatment and credit rating outcome. Based on our previous rating agency engagement, we believe it is unlikely that Standard & Poor’s would ‘look through’ Watercare’s debt on a long-term basis when assessing Auckland Council’s credit rating," she says.

"Further, the provision of a guarantee, without a commitment to the wider Reform, would result in the transfer of significant risk from local government to the Crown and would weaken incentives on Watercare to operate efficiently."

There is a significant risk that other councils would demand similar arrangements, she says, which would expose taxpayers to even more significant financial risk.

In interviews with Newsroom, many mayors talked about their concerns about their debt levels, and how those constrained their ability to invest in infrastructure.

Ruapehu mayor Don Cameron was worried that meeting new government water compliance requirements would see the ratepayer debt balloon to over $100m. The council couldn't afford that.

"While our ratepayers have supported Council undertaking an accelerated capital works program to meet these new standards within five years they are very uncomfortable with the debt implications."

Porirua City Council chief executive Wendy Walker wanted the reforms made mandatory. "We are constrained by a small ratepayer base and constraints on debt and yet we have significant residential growth and pipes that haven’t lasted the distance."

In the north, only one in four Kaipara households is connected to treated drinking water, and ratepayers are still paying off $60m debt incurred in part for the construction of a trouble-plagued wastewater plant. Mayor Jason Smith says he wants to scrutinise the data carefully, but at first blanch it indicates the water reforms would let Kaipara clear all its debts. That's as long as neighbours like Whangārei aren't allowed to opt out.

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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