Phil Goff and other leaders are invited to join a new national working group to find a compromise governance model for the new water authorities. Newsroom investigates the alternatives.
Under mounting pressure to delay and revisit its $185 billion programme to amalgamate the country’s water networks, the Government has agreed to consider new models that give communities greater control.
The Department of Internal Affairs has set a deadline for council feedback next week, and several big councils including Auckland and Christchurch will vote on whether to support the Three Waters reforms. Council reports express concern about losing their water assets, and echo mayors’ letters to the minister pleading for more time.
“I’m getting feedback from government now that they understand they have a problem with their governance and accountability model.”
– Phil Goff, Auckland mayor
Newsroom has investigated five alternative models put forward by mayors and councils in Northland, Auckland, Matamata, and Hawkes Bay – even including one advocated by a talkback radio host.
In the course of those investigations, the Government has confirmed it will set up a working group including local council and iwi leaders to consider ways to give communities a bigger role in governing the four new regional entities, including appointing the professional directors and making them accountable to ratepayers.
Auckland Mayor Phil Goff, who is pushing for continued council water management backed by a Government debt guarantee, says he has been invited on to the group.
“I’m getting feedback from government now that they understand they have a problem with their governance and accountability model, and that they would like me to participate in a working group to try to design a better option,” he says. “They realise that there can be improvements in the governance and accountability mechanisms they are currently proposing.”
Until now, Local Government Minister Nanaia Mahuta had backed a model that put the four new water authorities at arms length from councils, so they could borrow to upgrade drinking water, wastewater and stormwater infrastructure, without being constrained by councils’ borrowing limits.
Now, in response to questions from Newsroom, Three Waters Reform Programme executive director Allan Prangnell confirms officials are working to establish a group to progress talks on alternative governance and accountability models.
“There are possibilities that could be further explored including how representation in the governance model is determined, how board appointments are made, and how accountability can be strengthened.”
– Allan Prangnell, Internal Affairs
“The Government has indicated its willingness to consider alternatives if the current proposal can be improved on, while keeping within the reform’s bottom lines of good governance, balance sheet separation and partnership with mana whenua,” he says.
Officials had worked with a central and local government steering committee over the past 15 months to find the best designs for the proposed water services entities, but Prangnell says they are aware alternative options have been proposed, including by the Mayor of Auckland.
“There are possibilities that could be further explored including how representation in the governance model is determined, how board appointments are made, and how accountability can be strengthened.”
Prangnell acknowledges the various alternatives being discussed include a cooperative model, a modified council-controlled organisation, a smaller regional approach, and central government funding of local government infrastructure similar to how the NZ Transport Agency funds roads.
“Some of these have been tested and, along with others, are considered unlikely to meet the Government’s reform objectives,” he says.
All the options – including the Government’s preferred model – have pros and cons. From Internal Affairs’ perspective, there are four key challenges to overcome:
- the large number of small water service providers, which limits opportunities for efficiencies of scale in delivering Three Waters services;
- existing political incentives and governance structures that are not conducive to long-term management and decisions;
- the sheer affordability challenge associated with addressing billions of dollars in infrastructure deficit that has been accumulated over decades; and
- lack of effective economic regulation, and Ministry of Health quality regulation that has not been adequately enforced.
Any new governance and accountability structure would be expected to improve economic efficiency and enable faster and smarter investment in waters infrastructure, as well as being more transparent and accountable, and upholding the rights and interests of Māori.
1 / The Tanner Trial Period
Matamata-Piako’s outspoken mayor Ash Tanner admits the model he’s promoting is not so much his council’s agreed solution, as his own. He supports the new Taumata Arowai water quality regulator, which has been established and will take over water monitoring responsibility from the Ministry of Health at the end of the year. And he supports a new economic regulator that would oversee how communities are charged for their water and wastewater.
But he says that can all be achieved while retaining the water infrastructure in the direct ownership and control of the country’s 67 city and district councils (not to mention Wellington Regional Council, which also owns some bulk supply facilities like reservoirs). He argues for a trial period of up to six years, to assess whether councils can get their water services up to the standards required by the regulators.
“The idea of putting the regulator in and then reviewing the impact after, say, five to six years was more a personal option from me and not necessarily all our councillors’ opinion,” he acknowledges. “We have wasted $760 million so far to find a problem to fit a solution, in my opinion. Internal Affairs and Government are pushing this through at a rapid rate based on ideology and assumptions and if not done right, it will be an epic mess.”
Pros: This model allows time for the staged introduction of the regulators and other reforms, and to make future decisions on ownership of the water assets based on better informed and more accurate forecasts, Tanner argues.
Cons: Officials believe it’s simply delaying the inevitable. The regulation of drinking water quality and wastewater re-consents will drive significant investment, but economic regulation would be as weak and minimal as simple information disclosure, and would be much more costly to deploy across 67 entities.
2 / The Yardley Yardstick
Christchurch-based talkback radio host and newspaper columnist Mike Yardley says an emphatic number of city and district councils are rejecting the financial assumptions that underpin the Three Waters reform programme – they insist the data and the assumptions are flawed, inflated and unreliable.
“Bigger population councils are concerned that a likely result of merging their assets into mega-regional entities, with smaller neighbouring councils, will unfairly lumber their residents with higher water services charges, as a result of cross-subsidisation,” he says. “I can equally appreciate that smaller population councils resent the loss of local control of their assets.”
Yardley acknowledges some amalgamation of water services may be a plausible solution to cover a clutch of small population council areas, but says the better solutions for most councils is cold, hard cash.
He proposes 50-50 co-funding water networks in the same way that the transport agency Waka Kotahi co-funds local roading and cycleway projects. “Such a co-funding arrangement would offset the need for councils with a small ratepayer base to jack up rates to unaffordable levels, while also ensuring councils have the means to comply with the imminent strengthening of water-related environmental standards.
“I’m not convinced that metro councils like Auckland or Christchurch would necessarily require to be incorporated into such a co-funding model, given their substantially larger ratepayer bases and multi-billion dollar balance sheets.”
Pros: It’s simple, and ensures continued direct ownership and control of the water assets by the communities that financed and built them.
Cons: Government funding would increase investment, but effectively represents a transfer from general taxpayers to local ratepayers, without addressing underlying concerns about inefficient service delivery, poor asset management maturity, poor investment prioritisation and more. Yardley, too, acknowledges it could be misused to exert pressure on councils to expedite infrastructure improvements at a faster pace than the council deems reasonable or realistic, by shoe-horning them into a co-funding arrangement of “use it or lose it”.
3 / The Goff Guarantee
In council reports this week, Auckland Mayor Phil Goff details his proposal to retain council-controlled organisation Watercare’s ownership and management of the city’s water assets – but for the Government to guarantee ratepayers’ water debt, providing Watercare with sufficient headroom to continue investing in the infrastructure. (As things stand, Watercare intends to double water rates for Auckland households and businesses).
“I say it bluntly in my recommendations,” Goff says, “we do not support the Government’s proposed ownership and governance arrangements, which remove democratic accountability, and the loss of direct control by councils over water services entities.”
The Crown guarantee is a proposal Goff first sketched out in a letter to Mahuta in June. He explains this week that the water services entities should have the same accountability mechanisms as provided for under the Local Government Act for council-controlled organisations: the ability for the council to approve and modify the water entity’s statement of intent, and to directly appoint and remove directors.
“The credit ratings agencies are worried that if we control the board, we would stand in the way of any price adjustment needed to pay for infrastructure. What I would say is that the board … actually gets independently to set the cost of water.”
– Phil Goff, Auckland mayor
Under his proposal, the council would continue to have “real ownership” of the water infrastructure, and the water services entity would have to give effect to the relevant aspects of the council’s long term plan and growth strategies.
He is asking councillors to agree that the governance arrangements of any water services entity that includes Auckland should reflect the proportionate investment in assets made by the people of Auckland, and the proportionate size of Auckland’s population, resulting in Aucklanders (through their elected councillors) maintaining majority control of their assets.
But in response to feedback that it disregards the needs of Auckland’s smaller neighbours, he tells Newsroom he will open the doors to the Northland councils (Far North, Whangārei and Kaipara) if they wish to consolidate their assets under Watercare’s management – as long as Auckland’s 1.7 million residents retain control. He acknowledges, that’s not an offer the Northland councils are likely to embrace.
With the debt guaranteed by the Government, that would enable the council to borrow more without adversely influencing its debt-to-revenue ratio or losing its current AA credit rating.
“The credit ratings agencies are worried that if we control the board, we would stand in the way of any price adjustment needed to pay for infrastructure. What I would say is that the board, as it is with Watercare at the moment, actually gets independently to set the cost of water, subject of course to the economic regulator.”
Pros: It’s workable for a city the size of Auckland, with big and relatively functional Three Waters networks, and it retains local governance. Watercare would remain answerable to ratepayers and have to set rates within the parameters of the city’s long-term plan.
Cons: It doesn’t provide the efficiencies of scale necessary to manage costs and quality in smaller cities and districts. And it would not achieve balance sheet separation without an explicit Crown guarantee, as Auckland Council would effectively control the entity. Credit rating agencies would see the entity’s debt as Auckland Council group debt, officials believe, meaning lenders would not extend any further credit to the debt-strapped council.
Without separating the water debts from the council balance sheet, the council would be constrained from borrowing for other purposes like roads, parks and libraries. And officials believe it does not satisfy the Government’s bottom line for partnership with mana whenua.
4 / The Wellington Water-Spout
To be clear, this is an alternative model that is operating now but, with sewage geysers in the streets of Wellington, few are arguing for its continuation.
Wellington Water Ltd manages water assets and services on behalf of its six shareholder councils, Wellington, Hutt, Porirua, Upper Hutt, South Wairarapa and Greater Wellington Regional Council. But the councils still own the infrastructure.
The chair is Campbell Barry, the mayor of Hutt City. He says Wellington Water can’t direct its shareholders what to do, but the organisation has the opportunity to lead the region as it holds the most relevant institutional knowledge.
“Because of this, Wellington Water Ltd doesn’t distance itself from the stakeholder councils, but works with them to achieve customer outcomes related to water,” he says. “These outcomes, and Wellington Water’s strategy to achieve them, must be agreed across all our owners.”
That means compromise. Wellington Water’s regional approach, to provide the greatest value to the community as a whole, won’t necessarily be what individual stakeholder councils want to hear. “We’ve seen this over the past few decades, where chronic underinvestment has occurred due to councils not wanting to front up the cash,” Barry says.
“We need to make it an unacceptable risk of people getting sick from drinking water, and reduce the amount of wastewater ending up in our streams, rivers and ocean.”
– Campbell Barry, Wellington Water
The Wellington Mayoral Taskforce has concluded their model is not working, and most of the region’s councils have expressed support for the Government reforms – and few other councils propose anything similar. The closest would be the three councils of Northland, who are set to “opt out” of the Government reforms and pursuing their own model. Whangārei mayor Sheryl Mai says that might be an infrastructure entity for Northland, with ownership and governance continuing with local government.
Pros: Barry says the model enhances regional procurement, capability, efficiency, and cost savings ,while still maintaining its transparency and accountability to the communities that own the assets. That’s because the Water Committee, made up of board members including councillors and mana whenua representatives, can act as the link between the community and the organisation, making decisions that impact the future of the region’s water infrastructure like the water operator’s 30-year plan.
Cons: This is asset managing, not asset owning – and so it’s fundamentally different from the Government’s reform model. Funding decisions remain at the discretion of underlying councils. Wellington Water has been underfunded and its performance is not subject to strong external scrutiny, as it would be under economic regulation.
Barry says funding can get complicated under this model, as it requires funding from the council providing it to work in that council’s territory. Because councils still individually own the pipes, investment choices may not be considered across the network as a whole, and debt will still sit on councils’ balance sheets. It also means that if funding is inadequate, critical work can get left out.
5 / The Hawkes Bay Happy Medium
The people of Hawkes Bay recognise the driving imperative for change better than most: it was there, in Havelock North in 2016, that a campylobacter outbreak carried through drinking water supply caused four deaths and 40-plus hospitalisations.
“That was the primary driver,” says Napier mayor Kirsten Wise.
The region’s councils began working together on a new solution to deliver their water services three years ago, before the Government turned up on the scene. “We are able to ensure each of our communities is represented at the governance table.”
“A chlorine-free network for our community will require additional investment,” Wise says. “I fail to see how that would be possible in one of the Government’s multi-regional entities – it wouldn’t be prioritised.”
– Kirsten Wise, Napier mayor
The five city, district and regional councils of the Hawkes Bay propose a regional water entity that is a step-change removed from Wellington Water. The difference is, their proposed Hawkes Bay regional water authority would take over ownership of all the councils’ water assets and operate them together. Napier City Council has published a paper this week, that Wise will put to a vote next week.
But the councils would all be represented on the authority’s governing body, alongside mana whenua, and would require that the water entity’s rates and investments follow the councils’ long term plans. Though the mayors of Napier, Hastings, Wairoa and Central Hawkes Bay are all championing this proposal, it’s not yet clear whether they all have their councils’ backing.
So this is distinct from the Government’s model in that the councils have more direct governance, including appointing directors or perhaps the chief executive, and they would merge a far smaller number of water authorities and water catchments – four territorial authorities rather than 21 councils in the Government’s proposed Entity C.
Pros: This retains a close connection between ratepayers, mana whenua and the water that flows through their region. As agreed in Hawkes Bay, it would allow tailor-made solutions for individual communities, like Napier ratepayers’ insistence on not having their aquifer water supply treated with chlorine or other additives. “A chlorine-free network for our community will require additional investment,” Wise says. “I fail to see how that would be possible in one of the Government’s multi-regional entities – it wouldn’t be prioritised, it would be pushed to the bottom of the list.”
Cons: It is understood that parts of the country that have explored this, such as the West Coast and Otago/Southland, have concluded that regional approach is still too small to provide the necessary efficiencies of scale. Officials believe a regionalised model would lead to large variation in service standards and costs – that it doesn’t work as a national solution and would likely result in a need for further, subsequent consolidation.
And, the Government model…
At the Three Waters Reform Programme, executive director Prangnell says they have worked in collaboration with the central and local government steering committee for 15 months, to arrive at “optimal designs” for the proposed water services entities. But he acknowledged there were pros and cons to any model.
Barry’s experience as Mayor of Hutt City, and as chair of Wellington Water, has made him a champion of the Government model. He believes the smaller scale models don’t work.
“While I don’t believe there is a perfect answer to how we change the way we make decisions about our water infrastructure, what I do believe is that things need to change,” he argues.
“We need to make it an unacceptable risk of people getting sick from drinking water, and reduce the amount of wastewater ending up in our streams, rivers and ocean. Stormwater networks need to be able to handle what will be more extreme weather events due to the impact of climate change.
“We can reduce risk by making our systems more efficient and making it cheaper for our communities to fund our water infrastructure.”
