By Geoff Kreegher (Hamilton Ratepayer)
“Local Water Done Well” is the Coalition Government’s plan for managing water services delivery and infrastructure following the repeal of Water Services Reform legislation (Three Waters) in February 2024.
Local Water Done Well is being implemented in three stages, each with its own piece of legislation.
- Repeal of previous water services legislation
2. Establish framework and preliminary arrangements for the new water services system
3. Establish enduring settings and begin transition
Government has advised that two bills will be put forward to establish “Local Water Done Well”. The first bill will set out guidelines relating to how councils will manage water services and water costs through the transition. It will also make it easier for councils to establish council-controlled organisations (CCOs) under the Local Government Act 2002.
Local Government (Water Services Preliminary Arrangements) Bill
https://www.legislation.govt.nz/bill/government/2024/0052/latest/whole.html#LMS964380
The second bill (expected mid-2025) will provide for the long-term framework of managing water services, including required guidelines for long-term financial sustainability, a complete economic system for controlling water-related costs, and a new range of structural and financing tools, including a new type of financially independent council-controlled organisation.
Key principles of Local Water Done Well
“The Minister says key principles of the Local Water Done Well policy include:
a. introducing greater central government oversight and economic and quality regulation;
b. fit-for-purpose service delivery models and financing tools, such as improving the current council-controlled organisation (CCO) model and developing a new class of financially separate CCOs;
c. setting rules for water services and infrastructure investment; and
d. ensuring water services are financially sustainable. Financial sustainability means revenue sufficiency, balance sheet separation, ring-fencing and funding for growth.”
Page 41 of Hamilton City Council Agenda 20 February 2024- OPEN
[For more information, visit the Department of Internal Affairs’ Water Services Policy and Legislation webpage.]
Mayor Paula Southgate says developing a sustainable plan for Hamilton’s water services will be a massive task, but one which is also much needed.
“I won’t sugar-coat it. I have long said that the current way of funding and delivering water services is not sustainable. Like many councils, if we don’t make changes, we face potential risks of future failures in our networks, and huge increases to ratepayers.
Hamilton City Council Press release, Government waters direction sparks complex review process for Council, 2 August 2024
That “massive task” includes Water services delivery plans
“The Bill requires territorial authorities, either on their own or jointly, to submit water services delivery plans (WSDPs) within 12 months of the Bill’s enactment. A WSDP must include the following:
- a description of the current state of its water services, current levels of water services provided, and the areas serviced;
- compliance with regulatory requirements;
- required capital and operational expenditure;
- financial projections for the next 10 years;
- the asset management approach being used;
- any issues, risks or constraints;
- an explanation of how revenue from water services will be separated from the Council’s other functions and activities; and
- a proposal to ensure that delivery of water services will be financially sustainable by 30 June 2028.”
https://www.russellmcveagh.com/insights-news/local-water-done-well-flows-on-second-bill-introduced/
Doesn’t Council already have that information?
Mayor Paula Southgate said.
““But at the same time, we can’t properly plan for our future without all the information. This Bill streamlines the process for councils to form new organisations to deliver water services, but it’s only part of the picture…We need game-changing new tools and funding options to build new organisations, to transition our current councils, and to make sure Hamiltonians don’t pay an unfair share of any regional solution to a national issue.”
In preparation for the recent long-term plan Hamilton City Council has already done work on different versions of future Three Waters policy.
“In response to the government’s change in direction, the three waters capital programme has been reviewed and updated to include the full 10-year programme.”
Page 43 of Hamilton City Council Agenda 20 February 2024- OPEN
Definitions
Internal Affairs published an overview of the Local Water Done Well bill in May 2024 which states:
“To demonstrate financial sustainability, councils will have to show the revenue from delivering water services is adequate for long-term investment in delivering water services and that the council is financially able to meet all regulatory standards and requirements for delivering water services”
According to National Party policy, financial sustainability means:
- “Revenue sufficiency – Water services earn sufficient revenues, either directly from users or from rates, to cover maintenance and depreciation of infrastructure.”
- “Ringfencing – Water services stand on their own two feet and do not put pressure on funding for other council services.”
- “Funding for growth – Water services can access borrowing to invest in infrastructure wherever users are willing to pay the cost of services.”
Revenue meaning (not Council’s classification of revenue) is the total amount of money that is produced by selling the goods or services to the customers. Revenue is shown at the top of the income statement.
In order to comply with the direction to separate water services revenue from the Council’s other functions and activities, – implies charging for water either by:
- Water meters or
- Targeted rate for water.
The Waikato Times quoted Hamilton’s Chief Executive Lance Vervoort saying “Around 30% of Council’s costs are related to water services,”
According to the a Hamilton City Council webpage
“Waters currently accounts for 30% of the Council’s annual operating expenditure, 54% of the proposed capital expenditure over the life of the 2024-34 Long-term Plan, and 30% of the assets owned by the Council. Solving the funding challenge for waters assets is critical for the financial sustainability of the Council”
Will ratepayers receive a corresponding reduction in the General Rate?
Water Regulator
The National Party had a policy to “establish a new, independent Water Infrastructure Regulator within the Commerce Commission to work alongside the existing Water Quality Regulator (Taumata Arowai). Water services will be regulated under Part 4 of the Commerce Act, alongside other essential infrastructure such as electricity lines.”
The policy also states that the new Water Infrastructure Regulator will have three main functions:
“First, it will monitor councils to ensure they are investing adequately in maintaining pipes and upgrading their water infrastructure to accommodate growth. Where councils have allowed their assets to be run down, they will be required to restore them to meet minimum standards. Government will assist councils only where necessary.
Second, the Water Infrastructure Regulator will ensure that water pricing or charges for connection are fair – for communities and councils. Water assets should be self-funding, but communities should never be overcharged.
Third, the Water Infrastructure Regulator will set quality standards for water infrastructure – so communities receive safe, reliable services.
Will it be as effective as the electricity regulator?
The Water Services Legislation Bill has been reported back from Select Committee (Finance and Expenditure Committee) and is awaiting the 3rd reading to be passed into law.
The Minister of Local Government Simeon Brown announced in early August 2024 that Cabinet had approved the immediate provision of improved access to finance for water council-controlledorganisations (CCOs) according to a press release:
“LGFA has confirmed it can immediately begin lending to water CCOs that are financially supported by their parent council or councils. LGFA will support leverage for water CCOs up to a level equivalent to 500 percent of operating revenues – around twice that of existing councils – subject to water CCOs meeting prudent credit criteria. This will enable councils to better manage debt and make essential infrastructure investments without drastic rate hikes.”
It is doubtful that Hamilton City Council could effectively govern and monitor a CCO when it is unable to monitor or control its own expenditure. There is also a lack of direct accountability to the ratepayer for the services the CCO delivers, both from Council and the CCO.
“Some possible disadvantages of CCOs include:
- the local authority’s lack of direct accountability to the community for the services the CCO delivers;
- tensions between the objectives of pursuing profit and delivering community outcomes;
- additional ongoing costs – the costs incurred by the local authority in monitoring the performance of the CCO, and the CCO’s own costs, can increase overall service delivery costs; and
- reduced ability to manage risk – arm’s-length delivery can make managing risks to the reputation of the local authority more difficult.”
Office of the Auditor-General, Part 3: Is a council-controlled organisation the right option?, September 2015
The funding model clearly indicates the establishment of a CCO that is financially supported by Council that has the ability to raise finance up to a level equivalent to 500 percent of (water) operating revenues does not auger well for Hamilton ratepayers based on Council’s past performance.
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