Opinion: Controlling the flow – other issues to consider with the Three Waters reform

Opinion by Wayne Maxwell, Kāpiti Coast District Council Chief Executive

The Government’s Three Waters Reform proposal is a complex beast and there are a range of considerations. These include the financial model underpinning the case for change, and the time and effort to transition to the proposed four water service entity (WSE) model, which warrant further discussion.

Need more time

Many councils are calling for more time to assess the proposal, to inform and gather feedback from their communities, and to work through the implications of change. We’ve heard the Minister of Local Government say this conversation has been on the table for four years. While at one level this is true, it’s not accurate for most of the country.

The Government, through the Department of Internal Affairs, has been examining the three waters issue for four years, and for the last two of those it’s worked with a steering group made up of local government representatives to work through issues, options, and solutions on behalf of us all. While good in theory, this approach has effectively denied most councils the opportunity to look at all the options, and work through a process of narrowing them down.

We’ve been given just eight weeks to do this, but without an understanding of or access to all the details that have helped shape the current proposal. The window we’ve been afforded to evaluate and provide feedback on the proposed WSE model is at odds with the normal statutorily prescribed consultation processes that councils and their communities are used to.

Information shared to date leaves many unanswered questions, including next steps. There is no clarity about the intended process for community consultation or if the Government will support 67 councils around the country to do this well. It is important the Government fronts, and funds, their proposal if it proceeds. An earlier commitment to provide guidance about community consultation hasn’t been fulfilled, which leads some to the conclusion the reform will be made mandatory.

A related concern is the proposed timeframe for another piece of work looking at the future for local government. This work could result in a fundamental reshaping of the role local government plays in our communities, and most people believe this work should precede any decisions about the three waters – it’s a bit like putting the cart before the horse.

Governance structure

A professional competency-based board is proposed to govern each WSE. This acknowledges the increasing complexity of managing the three waters, particularly in large-scale operations. Watercare and Wellington Water already have similar governing boards.

The unwieldy parts of the governance design stem from the desire to retain councils and mana whenua involvement, but without the powers to control. If councils were to retain effective control, for example they were appointed to WSE governing boards, then balance sheet separation would not occur. This would prevent WSEs from overcoming the debt restrictions that exist with many councils, and would undermine one of the reform’s key objectives.

So, the proposal sees councils and mana whenua nominate members for a Regional Representative Group who will then appoint an Independent Selection Panel to appoint and monitor the board.

It is hard to see this working effectively, and if it fails it would beg the question of who appoints the boards? Who has effective control?

Ownership

Another curious element to the proposal is the assertion that councils will continue to own the assets, even though they are to be removed from council balance sheets and transferred to WSEs. The primary purpose for this appears to be as a form of reassurance that the WSEs will not be privatised. As owners, councils would resist any move to privatise the three waters.

If water assets are transferred at the deeply discounted rate currently proposed (that is, paying an estimated $7.7 billion for $54 billion worth of assets), then WSEs would be highly attractive targets for privatisation due to this low gearing.

This Government has repeatedly assured local government that privatisation is off the agenda, but it remains theoretically possible. In the same way that the current proposal could be mandated by Government, it’s not difficult for a future government to change the rules in a similar fashion to the energy reforms of the late 1990s.

Regardless, the ‘ownership’ interest of councils will not in any sense be real. Councils will not have any control of the assets or the expenditure on them.

Iwi involvement

There is an overwhelming consensus around the country that iwi have not been afforded sufficient opportunities to effectively participate in the proposed reform. Councils would prefer to be working alongside their local iwi to evaluate the proposal, not separately.

There are unfortunate misconceptions about the role of mana whenua in the proposed WSEs. A lot of debate has centred around mana whenua ‘ownership’, but this is not what is being proposed. As far as we are aware, iwi involvement will be limited to the ability to make appointments to the Regional Representative Group – the same role as councils will have.

Councils currently work with their local iwi in slightly different ways across the country. In Kāpiti, our three iwi – Ngāti Toa Rangatira, Te Ātiawa ki Whakarongotai and Ngā Hapū o Ōtaki – are involved in our planning and delivery as partners. Our aspirations, and our roles as kaitiaki, are completely aligned, and there is much that we gain from sharing our knowledge. Mana whenua need to be involved in the new entities, but will have the same concerns as councils, that only a subset of each region’s iwi would be appointed to the Regional Representative Group.

Local voice

One of the key issues in the three waters debate is the need to retain our ‘local voice’. There is a long-standing principle of “no taxation without representation”, and this reform would break that link. Elected representatives currently have the challenge of making balanced decisions across all a council’s competing needs – for example, water, roads, libraries, and parks. The community has direct access to their mayor and councillors and can express their views on how well those decisions are being made.

There are two things to consider when thinking about local voice: strategic prioritisation, and service response.

All councils want assurance that their priority investments, such as infrastructure to enable growth, will be delivered. There is concern that a WSE, when faced with the competing demands of 22 councils, will prioritise work in ways that will hold back some districts. We’ve already seen this play out with some Regional Land Transport Committee decisions, where smaller councils feel their voice is lost at times.

For Kāpiti, the way in which WSEs prioritise investment is a very real concern as we could find ourselves in a situation where, as a result of doing a good job in maintaining our assets over the years, we are pushed well down the pecking order so others can effectively ‘catch up’ at the expense of our ratepayers.

In response to this, the Government suggests the WSE would be a direction-taking entity, not direction-making – the question is how this works in practice.

At the other end of the spectrum is concern that local service levels could deteriorate to an entity ‘average’. As an example, in the 2019/20 year, the average resolution time for urgent water faults in Kāpiti was 1 hour, but for a nearby council it was 5 hours. Our non-urgent average resolution time was 22 hours, for the nearby council it was seven days. It’s unlikely that WSEs will look favourably at differing levels of service, as this would have an impact on cost efficiency.

Delivery

There are a range of positives when considering operational delivery. The new WSEs would have deeper resources, but can still be expected to ensure local suppliers are involved in water services.

As an example, our Council does not carry in-house expertise for maintaining large diameter pipes, largely because we have so few of them. A larger entity would carry those skills.

The Government has committed to retaining all current jobs, in the same locations. They’ve stated the extra investment required over time is expected to create up to 9,000 new jobs, which will be spread across the country. The water sector needs to ramp up recruitment and training and this should be easier to achieve through the proposal, along with more career path options.

Conclusions

Provision of three waters is a complex business, and in evaluating the Government’s proposal we’ve found flaws in the financial modelling that underpins the reform, and identified several areas that warrant further discussion/consideration, notwithstanding the need to consult with our community.

Currently the Government is not asking councils to make any decisions on opting in or out. Instead, we’ve been asked to provide suggestions for improving the proposal, and on Thursday councillors will meet to formalise their feedback.