Whangārei needs to upgrade its old asbestos water pipes, but isn’t allowed to include the upgrades in its longterm planning. Hutt City can’t afford to renew water network assets, 30 percent of which are already at or beyond their nominal end-of-life.
Getting the Far North ‘s 24 water and wastewater treatment plants up to new safety standards is costed at $660 million – an eye-watering sum for one of the country’s poorest districts.
If responsibility for the water assets was moved to one of the previous government’s 10 new water entities, Far North ratepayers would still be looking at a 21 percent rates rise; with the water assets still on their books, the mayor says the increase will be “astronomical”.
It’s pressing problems like these that have forced councils (whose leaders disagree on many aspects of water reforms) to come together on one demand: the incoming cabinet must make a decision on three waters infrastructure at its first meeting.
It’s questionable whether even a cabinet decision would be enough to get councils off the legal hook: constitutional law experts say they must comply with the law as it is, not as it will be in the future.
Most councils are required to complete their draft 10-year long-term plans before Christmas, to get them to the auditors. But they are being forced to complete them without knowing whether they will still be responsible for more than $70 billion of water assets – the revenue, the renewal costs and the associated debt.
They can’t budget for building and maintaining critical infrastructure that typically makes up a third to half of their balance sheets; they can’t plan their borrowing and debt servicing and, of course, they can’t set rates.
The problem is, the Three Waters reforms that were passed into law just before the election say they’ll no longer be responsible for the water assets – but incoming prime minister Christopher Luxon has promised to repeal those laws in his first 100 days.
Local Government NZ chief executive Susan Freeman-Greene says the current legislation requires councils to develop and adopt longterm plans that won’t be aligned with the new government’s direction on water services.
“Local government urgently needs certainty around water reforms,” she says.
The interregnum between this year’s law and next year’s law creates very significant practical implications for the development and adoption of the 2024-34 longterm plans.
“Local Government NZ is calling for Cabinet, in its first meeting, to make a decision that clarifies what the government’s position is on water services in longterm plans for the next 10 years,” Freeman-Greene tells Newsroom.
“Longterm plans are key documents, consulted on with each community, that set the direction for each council for the next decade. Longterm plans need to provide for key areas, like water, so it is important that information included in the consultation documents reflects these areas.
“If decisions aren’t taken promptly by the Government, it could result in, at the extreme end, delays in adopting longterm plans which impact on councils’ ability to set rates.”
The Office of the Auditor-General is required to oversee audits of every council’s longterm plans.
In response to questions from Newsroom, Auditor-General John Ryan issues his own call for certainty.
“It is difficult for councils to be confident in their planning assumptions until a new government is in place and any decisions on the current legislative settings are made,” he says. “This is challenging for councils and auditors alike.
“Longterm plans need to be based on the best available assumptions. What those assumptions are will depend on the circumstances when the plans are developed. There are current assumptions that can be included based on the legislative settings that exist now. However, should the government change these settings, then this would mean that plans would need to be redone if they affect the matters being consulted on.”
Initially, Newsroom understands councils had discussed seeking an extended deadline for getting longterm plans to the auditors by three months, to give the new government time to enact its promised repeal.
Then, on discussion, they considered a 12-month extension to provide clarity around rating periods.
But as coalition talks have dragged on, councils say they’ve now passed the point of no return. They must now draft their longterm plans; they must now set their proposed rate increases. They need to know now whether they can plan on retaining their water assets as Luxon and the National Party intend, or whether they would be breaking the law.
S&P Global Ratings partner Martin Foo flags up the conundrum in a report this week on the impact of changes to the Three Waters reforms.
“The next few months could be arduous for council officers,” the report says. “Many will need to draft their 2024-2034 longterm plans based on existing legislation passed by the former Labour government, while potentially preparing a second set of shadow plans to roll out in the event of repeal.
“It’s possible that the new government pushes back the repeal date, extends the statutory deadline for the triennial longterm plans beyond June 30, 2024, or later requires councils to publish a longterm plan variation.”
Foo tells Newsroom there’s some precedent for extending deadlines. The Severe Weather Emergency Recovery Legislation Bill has already extended the deadline for some councils’ annual plans – but that required legislation. Right now, there’s no government to introduce legislation, and no Parliament to introduce it to.
“It takes legislation to repeal legislation,” says Foo. “There is not much time for the incoming government to enact new water-related legislation before councils are due to start consulting on their draft LTPs in early 2024, especially as coalition talks drag on and the Christmas/New Year break looms.”
Manawatū mayor Helen Worboys says it’s too late to extend the deadline now. “Given we did not get support for an extension to our longterm plan process in our early talks with government, all councils are well down the track with longterm plans.”
She says the new government needs to sort out sustainable funding for local government – the “number one issue” facing every community in New Zealand. “Increased costs of depreciation, interest rates, insurance and set audit fees are crippling councils before we even add any ongoing levels of service and anything new.”
In Whangārei, the council needs to budget up to $30m next year to replace old asbestos water pipes; Internal Affairs officials think it will cost as much as $120m.
“But we’re not allowed to go there in our longterm plan, because the law says we won’t be responsible for the waters from next year,” says mayor Vince Cocurullo. “It makes it really hard.”
Hutt City mayor Campbell Barry says his council is progressing through its draft longterm plan decision-making processes ahead of public consultation. If the reforms are repealed and Hutt City remains responsible for water services, he expects rates rises of at least 10 percent per annum for the 10 years of the plan and higher increases in the earlier years of the plan.
And that doesn’t even address the backlog in necessary investment.
Far North mayor Moko Tepania says his council has been forced to work on two longterm plans in parallel: there’s one excluding the water assets from next year, as the law requires. That would entail a rates rise of 21 percent.
And there’s one including the assets, as National proposes. The rates rise in that scenario is too big to put a number on yet. “It’s astronomical,” he says.
“We’re the third largest geographic district in the North Island serving a population of 75,000 people who are split over 40 settlements. We have 16 wastewater treatment plants and eight water treatment plants. With the socioeconomic makeup of our population, it’s already a massive struggle to fund.”
Hamilton mayor Paula Southgate says councils need “urgent clarity” from the new government as to what they’re proposing for water.
“At the moment the law says we are not in the waters business after 1 July 2026,” she adds. “Accordingly we are developing our financial planning based on this.
“If we continue to be in the waters business we will address this at that time. However indications are we – and likely all councils – will need financial support from the government if we are to afford what is required to achieve the new water quality standards.”