The Cabinet has officially approved the financing scheme to be enacted for funding local provision of drinking water, stormwater and wastewater services.
Before you get too excited, local ratepayers will still be paying the tab.
The Government – fleshing out its ‘Local Water Done Well’ plan – is simply confirming a model where local councils will create a separate Council-Controlled Organisation (CCO) empowered to borrow to fund water infrastructure.
This will give our local councils more headroom to themselves borrow more to fund other council priorities and projects.
The new CCOs – our four territorial councils have been advocating this path for HB – will borrow from the existing NZ Local Government Funding Agency, an entity that councils now use for borrowing at slightly below private market rates.
Says Local Government Minister Simeon Brown: “LGFA has confirmed it can immediately begin lending to water CCOs that are financially supported by their parent council or councils. (Editor: emphasis added) LGFA will support leverage for water CCOs up to a level equivalent to 500 percent of operating revenues – around twice that of existing councils – subject to water CCOs meeting prudent credit criteria. This will enable councils to better manage debt and make essential infrastructure investments without drastic rate hikes.”
Basically that means the new entities can borrow up to five times their revenue, which will come from water users — irrigators, businesses, you and me.
International credit rating agency S&P has commented: “The stand-alone credit profiles of water CCOs are likelyto be weaker than the average council rating of roughly ‘AA’.” And observed that LFGA’s own loan asset quality could weaken if it began to issue loans to high-debt water CCOs.
Obviously, funding water infrastructure whose asset life can stretch to 80 years via borrowing is the prudent way to distribute the costs of these assets across generations of ratepayers.
So yes, current ratepayers will pay less now than if all these costs were immediately loaded onto today’s rates. But this is the way all councils’ capital investments are normally funded. Nothing new here.
What is new is facilitating the creation of these new entities – the water CCOs – to do the borrowing … and levying the rates to pay for the borrowing. So again, yes, you will be paying an additional rate for your water services, most likely to a new HB regional entity.
Labour’s local government spokesperson Kieran McAnulty had this reaction: “The minister’s language is crystal clear. The Government’s intention is to push costs and all responsibility back onto councils. They’re washing their hands of this issue and setting councils up to take all blame on the inevitable increase in rates.”
Rules will be established to both ensure that the water CCO borrowing is strictly ring-fenced for water services and to provide full transparency for the financial costs and ratepayer burdens imposed by the CCOs.
“The economic regulation regime will provide ratepayers with peace of mind that revenue collected by local government water services providers, through rates or water charges, is spent on water infrastructure,” Commerce Minister Andrew Bayly says.
“These changes will ensure water revenues are ring fenced for water services and aren’t siphoned off for other council priorities or pet projects, with little transparency for the ratepayer.”
That said, with our councils given more headroom to borrow for their (non-water) projects, we’ll need to watch carefully how that ability is used. Maybe less peace of mind on that score.
The legislation to create the new scheme will be introduced in December and passed by mid-2025.
Meantime, as BayBuzz reported here last week, our HB Regional Recovery Agency has been delegated the task of shaping HB’s version of a water CCO that would potentially integrate the provision and funding of water services across the region.
While a regional approach seems a no-brainer, it’s not a foregone conclusion.
Hastings Mayor, Sandra Hazlehurst, says whilst it’s heartening to know we are on the right path undertaking this joint work, it is important to reinforce that no commitment has been made to adopt a regional solution. “We will need to carefully consider all viable options as we progress this important mahi.” Mayor Craig Little adds: “We absolutely want our communities to have a say on whether a regional water services model will best serve their needs.”
Yay! More taxes! I guess this is the way the Government is able to keep their promise of no more new taxes – this way it’s the local Councils charging everybody – nothing to do with the Government?
This way the councils are still politically liable for decisions
Under 3 Waters nobody was
The amount ratepayers pay will probably be similar to the sums they paid under 3 Waters.
This way we have control
Keep rates lower and a separate charge for water. Smoke and Mirrors is not an adequate description of this proposal
i’m surprised you missed what to me is the most important part of Brown’s announcement: that water standards may be varied (ie, lowered) to suit circumstances. so if you’re too small to be important, yet face multi-million costs you can’t afford, your citizens will be “allowed” to drink dirty water. wonderful!
this is classic neoliberal stealth: set councils up to fail whilst spinning out a distinct entity, then sell off said entities as a “last resort” – leaving the customers to pay even more for it. welcome to privatisation of “our” water.