The Press

A lifeline for New Zealand’s failing infrastruc­ture

A new plan for our country’s detoriorat­ing water network undoes bad legislatio­n and points us in the right direction,

Councils across New Zealand are grappling with serious problems in maintainin­g and investing in water infrastruc­ture. The system of funding pipe works needs a comprehens­ive overhaul to address these challenges effectivel­y.

Decades of poor asset management, combined with the tendency of councils to raid money intended for things people can’t see, like pipes, to fund the politicall­y expedient things people can see, like convention centres and town halls, have led to the situation we find ourselves in today.

Some councils, like Wellington, bet everything on Labour’s proposed Three Waters reforms.

However, when these reforms fell through, they were caught without a plan.

Yesterday’s announceme­nt from the Government is a lifeline for New Zealand’s water infrastruc­ture. It incorporat­es many of the proposals from the Taxpayers’ Union’s technical advisory group.

I was part of that group. Joined by a team of experience­d experts in infrastruc­ture, local government, and economics, we set out to develop comprehens­ive legislativ­e drafting instructio­ns for a future Government to pick up.

Our solutions to the nation’s water woes focused on tackling the core issues rather than using the reforms as a Trojan horse for pushing ideologica­l changes – namely, expanding co-governance and centralisi­ng control, as the previous government did.

The first component is allowing councils to establish, either individual­ly or jointly with other local authoritie­s, council-controlled organisati­ons (CCOs). A major developmen­t in this space is that the Local Government Funding Agency (LGFA) has confirmed it can immediatel­y begin lending to CCOs, allowing them to access debt finance at similar rates to the Crown. With this lending tied to the CCOs’ operating revenues, the LGFA has agreed they can fund up to a level twice that of local councils.

This fixes the issue Labour argued could only be solved by creating balanceshe­et separation through a co-governance model.

The LGFA funding will mean CCOs can borrow for long-term investment in core infrastruc­ture with that cost more fairly shared across all users across the infrastruc­ture’s lifetime, rather than lumped on the ratepayers of today – or worse, not undertaken at all.

Regulation of drinking water safety and environmen­tal performanc­e of the drinking, waste and stormwater networks through the Water Services Authority, formerly Taumata Arowai, remains. This is good.

The Havelock North water crisis, which served as the catalyst to system-wide Three Waters reform, was largely a failure in regulation. The creation of this new regulator had relatively broad support as it went to the crux of the issue it was trying to solve.

There are two important changes to the water regulator that prevent the expensive gold-plating that delivers, at best, marginal benefits to consumers. The first is the exemption of small shared domestic water schemes from the regulation.

Without this change, a farmer with a shepherd’s house on the same water connection would be required to comply with the same level of red tape as Auckland or Wellington. That is simply not affordable nor necessary.

The second is the requiremen­t of the regulator to consider the costs imposed on suppliers before imposing ineffectiv­e or impractica­l regulation where the cost far exceeds the benefits.

This will likely mean it may be decided that things like aesthetic qualities of water, unrelated to safety, are simply not worth the cost if it comes at a cost of thousands of dollars per ratepayer.

Another important aspect of our proposal that the Government has picked up on is economic regulation.

The new economic regulation requires CCOs to publicly produce economic, service performanc­e and management data covering prices, profits, and the way they are managing their assets and future investment.

The Commerce Commission will oversee this regulation and have powers to intervene and take corrective action if a CCO is not performing, similar to the regime used to regulate gas pipeline networks and electricit­y lines companies.

This regulation means councils will no longer be able to fudge water costs and use water charges as disguised rates increases to fund activities unrelated to water. It will effectivel­y ring-fence waterrelat­ed revenue to ensure it goes where the council is saying it goes.

Our proposal, which the Government has now embraced, solves the issues plaguing not just Wellington but the entire country, while also being more costeffect­ive for ratepayers than any other proposal to date.

While councils across the country were complainin­g about the need for reform, at times using system-wide issues as a scapegoat for their own poor decision-making, we developed a viable solution that the Government has picked up and run with.

Voters rejected Three Waters. They now have an alternativ­e that ensures New Zealand’s water infrastruc­ture is managed sustainabl­y and responsibl­y for future generation­s.