Exclusive: Water done well reshapes councils' finances & plans

When it comes to water infrastructure, you could be forgiven for becoming an apologist for democracy, as a more famous Winston said in 1947, being the worst form of government except for all those other forms that have been tried.

Dealing with the three waters and more than a century of neglect, how then can we keep the faith as the country embarks, in an election year, on the latest long-term solution to decades of duck-shoving by New Zealand central and local governments of all persuasions?

Light at the end of the tunnel

The good news is that we can have faith -- both principal political parties appear to be genuinely committed to wear a common cloak for non-partisan, long-term infrastructure in all its forms, including the three waters – storm water, drinking water and wastewater. 

If only because we are out of choices, a cynic might say. It has taken since the late 1800s for successive governments to get their act together – a fleeting moment in time if you adopt a Chinese philosophy or are an archaeologist. 

The fact is, no matter the reason, that centre parties are coming together on issues of long-term national importance rather than being forced into accepting policies from coalition partners which they may regard as overdone or over the top. 

Given the election rhetoric silence on the issue so far, it appears there is little chance of further major change being planned, whichever coalition is formed. 

Except, that is, where it comes to co-governance -- as opposed to major changes in the implementation of capital and balance sheet controls.

Lessons from the past

If nothing else, an era of Covid wakened both sides up to the need to work together on problems where the country was in danger of imminent collapse.

The world has officially transitioned from a temporary water crisis into an irreversible era of "global water bankruptcy", according to the United Nations.

The importance of which had gone largely unnoticed in New Zealand for years in the throes of partisan election politics catering to nimby priorities -- and an abundance of the commodity generating pollution-free electricity for us all. 

Let's hear from the grown ups

A sign of maturity in the last 10-15 years is the priority now given to new funding for water infrastructure or repair and a surge in making it available.

Both long-term strategies promulgated in recent years, -- Three Waters and Water Done Well -- are sound, with doable policies for funding under amended guidance introduced to the Local Government Funding Agency (LGFA).

The two plans broadly share the same objectives and ideals, except when it comes to co-governance. Both were well thought out, subjected to widespread scrutiny and peer reviewed.

Both are doable with government support and oversight and address at last an essential part of New Zealand's future.

Reshaping council finances

New Zealand's Water Done Well regulations are reshaping council finances by ring-fencing water revenues.

Water revenue cannot subsidise other council projects and money collected via water rates must fund water infrastructure.

Borrowing limits are expanded through specialised Council-Controlled Organisations (CCO) although both individual councils and CCO (usually made up by grouping a number of councils together) will have to shoulder direct administration and compliance costs.

There are mandatory compliance obligations with Taumata Arowai (Water Services Authority) water quality rules.

The Commerce Commission is providing oversight and will enforce consumer protection and fair pricing standards. 

Councils also will front up the fees needed for the role.

Good progress

Five new CCO began operating on 1 July, with another 13 expected within 12 months. 

This includes four multi-council organisations, Waikato's IAWAI and Waikato Waters, Wellington's Tiaki Wai, and the Kaikōura–Hurunui joint organisation, alongside the single-council organisation Selwyn Water.

Every mainland council in New Zealand now has an approved water services delivery plan, following a bit of government push in Waitaki, according to Local Government Minister Simon Watts.

Continuity innovation 

Auckland's water utility, Watercare, has its own AA+ rating and has launched a $15.2 billion, 10-year capital programme (the FLOW 2026 initiative) to upgrade old plant and fix systemic leaks. 

The programme is Watercare's largest-ever fund raiser and includes around $4 billion of new and accelerated investment. 

The balance will provide continuing investment in the existing capital programme, including renewals and major infrastructure projects to support growth and resilience in the Queen City. 

In total, the programme includes more than 1000 projects across nine major infrastructure programmes, including the Waikato Water co-governance arrangements.

It marks a significant shift in the way Watercare plans and delivers infrastructure – from managing individual projects to delivering coordinated programmes of work.

No robbing Peter to pay Paul

Over the upcoming decade, councils are planning to spend close to $50 billion on their water network upgrades and up to $180 billion will be required over 30 years, according to the National Infrastructure Commission.

"It is likely this level of investment will face affordability concerns from residents and businesses and could crowd out other local infrastructure priorities," the Commission warns. 

"Significant efforts are needed to improve the affordability of water infrastructure, including water metering and volumetric charging to manage demand, and pursuing lower-cost and non-built solutions on the supply side." 

Economic regulation of drinking and wastewater services is an opportunity for the sector to ensure full cost recovery, efficient investment programmes, and good asset management," the Commission said.

It is also an opportunity to increase transparency on asset conditions and delivery performance."

Local Government Funding Agency 

The $50 billion upgrading and renewal of aging water networks over the next decade is a sum equal to New Zealand's total water spending over the entire 125-year period between 1885 and 2012.

Most of that will come via the LGFA, a local council-controlled organisation, around 80 percent owned by the councils and CCO themselves with 20 percent in government hands.

Its function is to provide lower interest rates, longer-term borrowing options and reliable access to diversified debt markets for local councils and CCO.

It issues bonds on the NZX Debt Market and on-lends that capital to local councils and CCO at more favourable rates than they could get individually.

It is rated AAA for domestic currency debt by Standard & Poors Global Ratings and AA+ for foreign currency. 

Clever politics

It definitely is clever politics, continuing a time-honoured political tradition of kicking the three waters can of worms far enough down the road to fade into the mists of public concern, while staunchly blaming previous administrations for current woes.

Today, there's nothing fashionable and nothing to be gained by either of the major parties in campaigning on raw sewerage, waste-water pollution and poisoned drinking water.

Water Done Well buries in a shallow grave local and national government racism measured against the need for concessions to coalition partners.

Reality check

Sadly, for any coalition, after 130 years of "No 8 wire" solutions even the best-built infrastructure comes under pressure, despite politicians' fervent hope that it won't happen on their watch. 

The reality of contaminated fresh water or raw sewerage running down the streets from overflowing drains or being pumped into our harbours or onto our beaches is not a pretty thought.

The back-handed gift

Ironically, it was local governments' collective outrage at losing its operational autonomy in the Three Waters offering that allowed a tease from the then-opposition to gain traction and got them their wish.

Albeit not in the form they expected of a gigantic government financial commitment with local government in unfettered control.

Be careful what you wish for

The clever politics of the latest government efforts to revive and rebrand the corpses of maintenance fund diversion and lack of forward planning (government historians call it a period of "under investment") is to hand the problem back to local government with rule changes.

The gift to local government comes with demands for guaranteed deliverables and accountability. 

It promises autonomy, enhanced central support and funding initiatives but with controls over fund diversions. 

And for good measure, it makes sure central government retains oversight without political responsibility. 

It handcuffed local government with a rates cap to retain voter allegiance –- offering them alternatives to excessive rates rises through LGFA.

Same game, different name?

Hang on, isn't this just a twist on the opposition's much maligned and subsequently dumped Three Waters which called also for amalgamation of councils' water responsibilities from 67 local councils to four semi-autonomous regional entities. 

Ownership of the water assets also would have remained with the councils under that plan and Water Done Well too has encouraged council amalgamations to gain economies of scale. 

The single difference of substance is that Three Waters was planned to include co-governance with tangata whenua (indigenous people) under the Treaty of Waitangi.

Water is a taonga [highly valued and culturally significant] and is explicitly recognised in the Treaty. 

Then senior writer at the NZ Herald, Simon Wilson, in February 2023 accused Christopher Luxon in the Explainer of "dog whistling" when Luxon told Radio NZ he supported the arrangements [Attorney General Christopher] Finlayson had negotiated but opposed "co-governance" when it involved "government services".

During his tenure as Attorney-General, King's Counsel Finlayson officially commissioned the first stage of the Havelock North Drinking-Water Inquiry following a severe campylobacter outbreak in 2017 that sickened more than 5000 residents. 

The systemic issues and infrastructure deficits exposed by the inquiry were the primary catalyst for the following Labour Party's Three Waters reform proposals.

As attorney general, Finlayson had defended the constitutional necessity of partnering with mana whenua on water management, calling it "an unresolved reality that any sitting government must face."

The Herald's Wilson agreed and wrote at the time that Luxon was "pandering to the 'sour right' presumably because he knows Act and NZ First are doing the same thing" in an election campaign.

"The full absurdity of this whole debate [Three Waters]," Wilson wrote at the time, "is revealed in the Waikato River arrangement. 

"It controls much of the water for Auckland and for dairying in the Waikato, among many other things, which makes it incredibly important to the country. 

"And it's co-governance, it's been in place for 10 years, it works really well, and everyone agrees about that.

"And it's about water. The very thing some people are so antsy about with Three Waters. 

"How is it not just plain racism?" he wrote.