We continue our 12 questions about Three Waters. The Opportunities Party argues water infrastructure should be managed by a grand central Ministry of Water Works, and paid for through 30-year government bonds. What are the pros and cons?
The Government says removing the deadweight of water infrastructure from council books is a “bottom line” – but the leader of The Opportunities Party, Raf Manji, has rejected balance-sheet separation as risky and unnecessary.
Instead, he highlights the centralisation of Kāinga Ora borrowing under the Treasury’s Debt Management Office as an example of what could and should be done for Three Waters.
“Cabinet has finally realised that it’s cheaper to fund core public expenditure from the Crown balance sheet, and that doing so provides more certainty around what Kāinga Ora can deliver in the future,” he says. “The Government should apply the same thinking to funding water infrastructure.”
WHO PAYS FOR THREE WATERS?
1/ Paying for Three Waters: the local pūkeko v the imported partridge
2/ Who would actually manage the borrowing for Three Waters infrastructure?
3/ Three Waters’ magical kete with room to borrow more and more
4/ On the 4th day of Christmas, what’s so good about four water companies?
5/ Achieving the gold standard of balance sheet separation
6/ Driving through water reforms in new special purpose vehicles
7/ Govt sticks to ‘bottom line’ of balance sheet separation – but why?
8/ If councils retain Three Waters, how much will they have to raise rates?
9/ The silly Ministry of Water Works – and its serious side
10/ On the 10th day of Christmas, should Three Waters become two?
11/ Too big to fail – calls for Govt to guarantee Three Waters debts
12/ Paying for Three Waters: ‘It’s always gonna come back to you in the end’
That’s not the only thing counter-intuitive about his proposal: he is suggesting a new Ministry of Water Works to commission and oversee the infrastructure upgrades required. When much of the opposition is to regionalising Three Waters management, he wants to go even further and centralise it, holus bolus.
And seemingly arbitrarily, it would all be funded through 30-year bonds.
Newsroom has gone to ratings agencies S&P, Fitch and Moody’s and to three top independent experts to discuss the impact on ratepayers, taxpayers, and on those consumers whose water charges will pay for the highly leveraged borrowing of the four new water corporations. They are Simpson Grierson law partner Josh Cairns investment advisor Bevan Wallace and infrastructure consultant Amelia East, head of HKA New Zealand.
“It involves a shifting of the funding burden – from the ratepayers that benefit from the local infrastructure, to the general taxpayer.”
– Josh Cairns, Simpson Grierson
There are pros and cons to Manji’s proposal.
A benefit is that debt costs would be lower by borrowing through central government’s Debt Management Office, Cairns says. “That’s likely to be cheaper than what local authorities or water services entities could access by themselves.”
But it would add to the Government’s own debt, which may end up putting downward pressure on its credit rating.
The disadvantage of just one water entity is no benchmarking of performance. Having at least four entities would enable metrics such as compliance with water standards and pricing to be compared.
Then there is perhaps the biggest con: having one water entity would result in a loss of localism, entirely.
“It involves a shifting of the funding burden – from the ratepayers that benefit from the local infrastructure to the general taxpayer,” Cairns says.
“It would also add to the core Crown debt and therefore impact on how much the Government could borrow for other things.”
“Individual communities are better placed to specify and meet their own demands and where economies of scale exist collaborate with neighbouring regions to achieve these.”
– Bevan Wallace, Morgan Wallace Ltd
Wallace suggests this is precisely the wrong way to de-escalate tensions around Three Waters.
“As a general rule one size does not fit all and, as such, individual communities are better placed to specify and meet their own demands and where economies of scale exist collaborate with neighbouring regions to achieve these.”
East cites Scotland as an example of a country that is happy for its government to do the borrowing on behalf of its water utilities, in a manner like that proposed by Manji.
“However, there are always trade-offs,” she says.
“And there can be times when the need to increase water borrowing or capital to meet investment demand is not met because of other borrowing priorities or debt limits. We see this regularly with state-owned enterprises in New Zealand.”