12 Feb 2024

Government sets up advisory group ahead of Three Waters repeal

7:02 pm on 12 February 2024
National MP Simeon Brown

Local Government Minister Simeon Brown Photo: RNZ / Angus Dreaver

The government plans to repeal Labour's Three Waters laws by the end of next week, and is setting up an advisory group ahead of passing two replacement pieces of legislation.

The repeal will disestablish the water entities, keeping water assets in councils' hands.

Local Government Minister Simeon Brown also plans to examine drinking water regulator Taumata Arowai, "to ensure its regulatory role is proportionate and takes into account cost and economic impacts".

Councils will also have an extra three months - if they need it - for settling on their long-term plans.

One of the new bills would be passed by the middle of the year, setting out "provisions relating to council service delivery plans and transitional economic regulation" and enabling councils to "start shifting the delivery of water services into more financially sustainable configurations should they wish to do so".

The second bill - to be introduced in December and passed by the middle of next year - would set out long-term financial sustainability requirements, establish a range of "structural and financing tools, including a new type of financially independent council-controlled organisation".

It would also include regulatory backstop powers, allowing the government to intervene if the entities got into trouble financially.

"We envisage there'd be something similar to that in terms of whether or not councils take their responsibilities and put forward those plans as part of these reforms," Brown said.

"We're still working through what those policy options would look like."

The legislation would also set up an economic regulation regime, but it was unclear how the economic regulation regime would differ from the one Labour's legislation overseen by the Commerce Commission last year.

Brown said the repeal of Labour's Three Waters legislation would "restore continued local council ownership and control of water services, and responsibility for service delivery".

"We want to enable councils and communities to determine what works best for them while establishing clear expectations and bottom lines," he told media at the weekly post-Cabinet briefing.

Brown said councils' biggest expense was transport, which had also seen significant cost increases.

"I recognise that some councils are under considerable financial pressure due to a range of factors including inflation, supply chain and labour market costs."

"It is important to recognise that these are longstanding water infrastructure issues that have been decades in the making and which will take time to address."

"We're a government that delivers on our promises that we made to the New Zealand public."

While Labour's system proposed to allow large-scale borrowing by requiring councils to combine assets into independently managed entities, Brown said the new system would require them to put forward financially sustainable plans with water infrastructure funding ringfenced.

"If you've got a properly balance-sheet-separated CCO, they will be able to take on debt and borrowings separate from the council and ratepayers," he said.

"Money that consumers pay for, for their water, is going back into investing in that water infrastructure, and then being able to efficiently invest over a long period of time by accessing long-term funding and financing," he said.

Brown said a new class of council controlled organisations will allow them to invest in the most cost-effective manner. He said Wellington Water, which is a Council Controlled Organisation, did not have ringfencing of revenue or requirements around cash sufficiency.

Prime Minister Christopher Luxon, asked how they could guarantee ratepayers would not end up paying more, said: "what I can guarantee is that this model is the most efficient way than creating 10 mega-co-governed entities with massive bureaucracy around it.

"This is the most efficient way in which we can make sure we're managing those assets incredibly well, investing with them consistently, and making sure we've got good water standards."

Asked if he had sought assurances from ratings agencies this model would allow the borrowing required, Luxon said district councils had already had conversations with ratings agencies and "we're well aware that model meets their needs as well".

Some councils have previously expressed concerns the groupings, if formed voluntarily, could leave them out on their own.

No guarantee of assets or extra funding for councils

Luxon also confirmed councils would be ultimately responsible for the CCOs and their finances if they did not work out.

Questioned about the risk of huge rates rises if the government does not guarantee the debt - as Auckland mayor Wayne Brown had warned of - Minister Brown said the government was working with Auckland Council to look at other options.

"We're working through those options quickly with Watercare and with Auckland Council ... we're not intending to guarantee debt for these CCOs."

Brown said he did not expect the government would bear the costs of setting up the Council Controlled Organisations, and some were already ready to go.

However, with about $150m left over in "Better Off" funding from the previous government's scheme, he would work to make sure it was spent on water infrastructure, rather than allowing it to be spent on other things, he said.

He acknowledged there were contractors as part of the transition unit and some who were assigned to the IT project who would still need to be paid, but said the government expected to recoup about $340m of the funding assigned to those projects.

"We are obviously shutting it down as quickly as possible and as cheaply as possible."

Technical Advisory Group

Brown said the government would be passing all the relevant legislation by mid-2025, ahead of the local government elections in October that year.

He said he had set up a technical advisory group (TAG) of experts in finance, infrastructure and local government to contribute specialist and technical expertise.

"The TAG will be focussed on providing advice and assurance on policy and legislative settings that will enable local councils to appropriately recover costs and access the long-term debt needed to fund the required investment in water infrastructure."

Having been critical about the previous government setting up working groups, and now having set up at least three in their first 100 days, Brown said they needed the technical expertise to help get the legislation developed.

"It's a small group of expert individuals," he said.

Luxon said the previous Labour government had showed up without a plan and set up "230 working groups plus, in a very short period of time. We ain't doing that".

"What we are doing is where there's good outside challenge and expertise ... contested advice and actually expert advice that we need."

Brown said they would be paid through the Cabinet fees framework.

The group will be headed by Andreas Heuser, the managing director at Castalia which carried out the research relied on by the Communities 4 Local Democracy group, casting doubt on Labour's calculations of the ultimate cost to ratepayers of failing to carry out its reforms.

Castalia also performed analysis of National's fiscal plan in the lead-up to the election.

Other members of the group include Infrastructure Commission director Raveen Jaduram, Porirua City Council chief executive Wendy Walker, Chapman Tripp partner Mark Reese, and Whangārei District Council chief executive Simon Weston.