Water services plan 'doesn't solve the fundamental problem' - Labour

Labour says the government's approach to water reform will only continue pushing up rates.

Local Government Minister Simeon Brown and Consumer Affairs Minister Andrew Bayly on Thursday announced new details for the coalition's replacement for the Three Waters reforms.

It would see the Local Government Funding Agency enabled to provide cheaper borrowing to council-controlled organisations (CCOs) for water infrastructure.

These CCOs would be able to borrow up to five times what they took in through water rates - about twice what they could borrow on their own - subject to "prudent credit criteria".

Brown said the new approach would provide local government with the certainty it needed to deliver water services, "while minimising costs on ratepayers".

But Labour local government spokesperson Kieran McAnulty said the announcement on Thursday was a political solution, and Labour had not gone down that route because it would not achieve the savings needed.

He said he was disappointed by the plan.

"Just disappointed, because I know that this is going to lead to ongoing rates increases, and I know that households can't afford that, and it's the only option available to councils, whether they work together under a CCO or not.

"There's a clear reason why this wasn't pursued. It's because the credit rating agencies made it very clear that unless there was balance sheet separation, the savings that are required wouldn't be found."

He said it was telling that the minister did not have a clear answer on what credit rating agencies thought about the plan, and was downplaying the $185b which had been estimated as the figure required to bring water infrastructure - like pipes, treatment plants and dams - up to standard.

"It's quite clear that they are deliberately underestimating or [under]stating the cost that will be required over the next 30 years, and they're ignoring the fact that that assessment, that cost, came from councils' own figures. It wasn't magicked up."

He said there was no guarantee the LGFA would be providing enough funding for councils to make the infrastructure upgrades they needed to.

"[It's] based on a false assumption that they don't need to spend that much money," he said. "They stated that it was a commercial decision, so there's no guarantee that they will absolutely provide the borrowing."

Councils were having to start over again, he said.

"Let's not forget that things were set up, that the entities were underway, that all the work had been done and the money had been invested, and the government decided to scrap it.

"All that work, and the $1.2 billion that have been invested in this was wasted, and now councils have to start again with no additional revenue."

McAnulty pointed to South Wairarapa councils which were already under a CCO and could not afford to invest in a wastewater plant.

"Greytown and Martinborough, there's no more new buildings coming, no more consents being issued, because they cannot afford to upgrade their wastewater plants.

"Borrowing more is the solution to that according to the minister - but if you can't afford to service the level of debt you've got at the moment - that has been taken up through the LGFA - taking on more debt is not the solution when you can't service the debt you've already got."

Green Party spokesperson Ricardo Menéndez March also said putting councils in more debt would not result in an affordable solution.

"And this is a government that took away Māori voices from water reforms, so we're really concerned that this is not a viable long-term solution for councils.

"We were quite critical of the reforms in Three Waters, and we thought there were changes we would have liked to see including protection to avoid privatising of water services, but this is not the solution either."

He said as well as those anti-privatisation protections, councils needed to be directly resourced by the government to enable them to sustainably build infrastructure.

Councils welcome progress on water reform

In a statement, Local Government New Zealand vice president Campbell Barry said the announcement was welcome news, because it would give councils a greater ability to borrow.

"Without reform, the pressure on council finances and on our essential infrastructure would continue to be completely unsustainable," he said.

"LGNZ has been advocating for stronger local voice in water services reform for a long time. Water infrastructure and services make up a large amount of council investment in 2024 and that will continue for years to come. Ultimately, even with these changes, CCOs will still be constrained by consumers' ability to pay for water services."

A group of 10 councils were looking at setting up a new Wellington Region water grouping.

Porirua Mayor Anita Baker - who had supported the previous government's reforms - said the borrowing plan was a great first step.

"I haven't done all the reading, but I'm happy that we've got something to come forward with. It's a great start and now we've got to get on with next steps.

"It's a matter of getting that entity going so we can start the funding."

She said Porirua was already spending more than half its rates on water.

"They've been working on it, we've been working on our water entity. It's a slow process - you know, we went all that way and then we had a government change so we had to start again.

"So that's what we're doing. I just want more relief for my ratepayers because we're all maxed out.

"We're up to our eyeballs. We're spending 55 percent of our rates already on Three Waters and that's just the minimum. We need to be doing renewals, we're doing band-aids at the moment. We've just had a 17.5 percent rate increase to cover it.

"Sewerage tank over here, went from $46m to $97m - that's a storage tank, that's not a renewal of a pipe. So we're maxed out, our ratepayers as I said can't take any more."

LGFA 'very excited' by 'simple and elegant' solution

LGFA chairperson Craig Stobo told RNZ the agency already provided low-cost finance to all New Zealand's councils apart from the Chatham Islands, totalling about $20bn.

"We're cheaper than that banking route, we're triple-A rated from Standard and Poor's, which is the same as the New Zealand government ... we're the sixth-largest lender in New Zealand, after the four Australian-owned banks and KiwiBank."

Member councils who borrow more than $20m are also required to become guarantors. Stobo said councils would have to prove their water CCOs were financially sound before they could access the funding - and the decision to lend would be made on a commercial basis.

"We're interested in things like the security of water charges if we're going to lend to these entities, we're interested in their eventual credit rating standing ... the quality of their governance, commercial directors that will look after the company on behalf of the shareholder," he said.

"We expect them to have a good-quality capital expenditure plan with an understanding of the existing infrastructure, and the quality of that infrastructure, and then a rolling program of either replacement - or, in some councils' cases - growth of those infrastructure networks."

He said large unexpected costs - like widespread pipe breakages - would likely mean water rates rises, but could also be covered by insurance.

"In the unforeseen circumstances that they don't budget properly, and they're required to pay to borrow more, or are forced to borrow more because of the situation ... they'll perhaps have higher interest costs which need to be covered by water charges. But associated with that, we're very interested in insurance programmes.

"They'll need to think about it or have a capacity in their debt programme to be able to borrow at short notice to be able to replace those pipes, for example, so a range of mechanisms.

"It doesn't always go to insurance, you can self-insure - having cash availability and having capacity in your borrowing programme."

He said it might not be necessary for councils to band together, but doing so would mean more and cheaper borrowing - without also affecting the council balance sheet.

Councils that could not convince their neighbours to join with them would need to accept a potential credit rating downgrade, he said.

"Banks might have a different view but, you know, a credit rating change from AA to AA- is not going to substantially change our view of the credit worthiness of a council."

He said they were excited to get to work on the new approach.

"I think it's a solution for ratepayers and taxpayers that's simple, it's elegant, it's commercially focused, gives choices to councils around whether they want to do this or not - and so what we're saying is finance is not the roadblock now to water services reform."