Some councils are positive about the government’s way forward and the decisions made.
Unlike Labour’s Three Waters and its modified "Affordable Water Reforms", "Local Water Done Well" maintains significant council connections. While a fundamental rationale for Three Waters — balance sheet separation to allow for extensive borrowing and to keep down debt interest rates — will not be achieved, an alternative is planned.
Councils will be able to borrow through the Local Government Funding Agency, likely at lower rates than they could on their own. The Agency is 80% owned by 30 councils and 20% by the government. There is an expectation government involvement would mean it would come to the rescue in the worst cases.
Three Waters borrowing, mostly likely through councils, Council Controlled Organisations (CCOs) and potentially via community trusts, will be allowed for up to five times annual operating revenue. That’s about twice what is permitted for most councils now. They are running against debt ceilings.
In common with other New Zealand infrastructure deficits, needs threaten to overwhelm the ability to pay, especially for some small councils. Clutha Mayor Bryan Cadogan spelt it out starkly when he outlined the many tens of millions required across the small Clutha communities for water, sewage and stormwater costs.
Central to the solution, letting councils or CCOs borrow more money was about as much use, he said, as giving a drowning person a glass of water.
Massive debts required would generate huge interest bills, even if loans are spread over the allowable 50 years. The capacity of residents to pay would be overwhelmed.
Who will fund much of this if Clutha residents across the small towns cannot? Sharing with other councils, as proposed, might reduce some overheads and could boost expertise. The biggest costs, though, are on the ground — the work on pipes and sewage plants and such like.
If the government subsidises costs, how, practically, is that calculated? Would communities that have underinvested the most, like Wellington, gain much more than districts consistently paying their dues? In any event, it is all still public money, whether through taxes, rates or direct water charges.
Parts of the changes have the potential to ameliorate the burden somewhat. The demands of the water regulator, Water Services Authority Taumata Arowai, are being modified to include "a proportionate, cost-effective and efficient approach".
The balance could be problematic. Will the environment and health be sufficiently protected?
Overall, it makes sense for solutions to be closer to home. Water, sewage and stormwater are related to council planning and other council roles, including roading.
Councils are being encouraged, and can potentially be forced to, work together. Christchurch has said it wants to stand alone. North Canterbury councils are looking at co-operating.
Waitaki, which estimates $500 million worth of work is due in the next decade, is hedging between neighbouring councils south or more likely north. But who might want to join with, say, Clutha, if a joint Council Controlled Organisation ends up subsiding Clutha communities at its own expense?
The head of the Local Government Funding Agency has said Three Waters’ debts could cause interest rates to rise a little but not much. Rating agency S&P, though, has warned the change could impact on its assessment of the agency’s creditworthiness.
S&P also said economic resolutions (code for higher water charges) and professional management could lead to higher water revenue than when Three Waters was managed by elected councillors.
Safeguards will include the Commerce Commission’s ability to stipulate maximum prices and mandate specific infrastructure construction.
The issues again highlight the necessity to bolster local government funding because of its obligations. At the very least, GST should not be charged on rates (a tax on a tax) and government land and buildings should be rateable.
