Special Debates — Local Government

Madam Chair, I appreciate the call and acknowledge the Minister of Local Government, who is about to assume the seat, and as spokesperson for local government for National, I’ve got a number of questions in regards to this debate involving three waters, surprisingly, Minister, but we’ll get into a little bit of that soon. Obviously, this reform is the most significant reform of drinking, waste, and stormwater services: the megamerger of 67 local authorities into four separate entities. It’s also not only one of the largest elements of reform planned by this Government it is also the most widely opposed reform by the majority—

💬 Kieran McAnulty: Point of order, Madam Chair. Thank you, Madam Chair. I apologise to the speaker for interrupting. However, it’s convention for the chair of the select committee to introduce the discussion of this, not the spokesperson for the Opposition.

CHAIRPERSON (Hon Jacqui Dean): Thank you very much for that. I’m entitled to place the call where I see it being sought and I did just that.

💬 Kieran McAnulty: I realise that, but where’s Ian McKelvie—he’s sitting right there.

CHAIRPERSON (Hon Jacqui Dean): The member will not argue.

💬 Kieran McAnulty: I’m not.

CHAIRPERSON (Hon Jacqui Dean): The member will not argue with the Chair’s ruling.

Madam Chair, thank you very much for the opportunity. As I was saying—I just got the attention of the Minister; looking forward to some good questions.

I just wanted to say, as I was saying before we were interrupted, this is also one of the most widely opposed elements of legislation, but I’ve got a number of questions in regards to this in three key areas and one is around the compensation paid to councils. So the question for the Minister is: what compensation will be provided to councils for the value of their water assets? The second question I’ve got is in regards to the process you’ve used to estimate the value of those council assets and, specifically, did the Water Industry Commission for Scotland use national averages in order to value these assets or did they use actual replacement value? Why I think that is important is because the use of national averages potentially overstates that number.

The other area of questioning, Minister, that I want to get into is around the profit-making of these new entities. So my question is: will water be metered under the new water services entities, particularly in areas that aren’t metered at the moment? The other question is around: will water entities be operated as State-owned enterprises and expected to make a profit, which is required under the State-Owned Enterprises Act?

The last tranche of questions, Minister, is in regards to probably what has been said on public record by yourself and by many members or your officials as regards to the whole basis of this reform being around economies of scale and the benefits related to that. My questions around that are: do you stand by the reform benefits being modelled on Scotland as a point of comparison for New Zealand, acknowledging that with the exception of population between New Zealand and Scotland there isn’t too much more in similarity between our two countries? The second question is, in order to achieve those cost efficiencies, it has been stated that the only way to achieve that is through the amalgamation of those 67 local entities into those four separate entities—my question is around the counterfactuals. So what assessment have you undertaken in regards to, I guess, what you’d refer to as the “business as usual” or the “do-nothing” scenario—so councils or the local authorities continuing their programme of asset replacement and investment in the future versus this model around amalgamation and what was the differential in regards to that?

And, lastly, the amalgamation in terms of the benefit modelling that’s being quoted refers to the fact that the amalgamation of these entities will achieve a 50 percent capital expenditure efficiency improvement and that will be delivered through the consolidation of water networks in order to achieve that benefit. That assumption is fundamental and significant in terms of the underlying benefit case for this proposed reform and I want to understand, Minister, in terms of: how did you came to that number of 50 percent? What were the considerations in regards to other mechanisms in which you could achieve benefit and did you actually consider other counterfactuals around that, and, in terms of deriving that capital efficiency benefit, what other considerations did you put thought to?

So those are the three areas of questions, and I’d really appreciate the Minister’s contribution in terms of that.

Thank you, Madam Chair. Thank you, Minister, for taking the opportunity to be in the chair and to potentially answer some questions. I’m going to ask, Minister, will some debt have to stay on council books when the Crown transfers control of drinking-water, waste-water, and stormwater infrastructure from 62 councils to four new independent entities?

I note that $500 million has been allocated for a no-worse-off component of a three waters reform package to ensure that no local authority is financially worse off as a direct result of the reform. However, in just one example of the Christchurch District council, their three waters assets are expected to be worth $6.9 billion at the time of the proposed transfer in July 2024, but the debt of the council for those assets will sit at $1.1 billion. Concerns have been raised that the council will be left holding the debt with no revenue stream and the council would have to pay millions of dollars of interest while the debt is repaid. I note that a Department of Internal Affairs spokesperson is on record saying that in some cases the debt could be transferred to the new entities but it might not be feasible in all cases.

Most cases manage their borrowing on a portfolio basis rather than borrowing individually for a specific asset. For example, the Christchurch District council predominantly borrows from the Local Government Funding Agency of which it is a member. I also have a question about: will the proposed new water entities have access to membership of the Local Government Funding Agency and be able to hold loans?

Jeez, I am absolutely looking forward to the Minister’s contribution in terms of some of these questions, but in the intervening period while we’re waiting for that, I’ve got a few more to add to that list. I’m interested around what is the proposed “highly transparent accountability framework” that her proposed four water service entities will need to operate within, and if she could provide a little bit of clarity in terms of what that framework is. Ideally, some detail would be appreciated.

Just going back to my colleague’s questions around the intention for the debt and other liabilities in terms of the funding of that from the water services entities balance sheets, I’m interested particularly around how ultimately that’s going to be funded, and whether that is going to flow back in terms of ratepayers in terms of their water rates in order to fund that liability. If that’s the case, then if ratepayers are going to have to pay for the use of those assets, then do they still own them in terms of that model?

I’m looking at the Minister to see whether she might be ready to come in. She’s given me a head nod, so I’ll let her do that.

Can I thank members for the questions that they’ve asked in the House in relation to three waters, and just remind everybody that the reason for the reform is that we cannot have communities around New Zealand who on a daily basis get boil-water notices—and that’s just for drinking water—and where they have no-swim notices at their beaches or local rivers where there are burst pipes and a real systemic kind of damage of their water infrastructure system. What we also know is that people are getting sick, and we cannot afford in a country like New Zealand to have a water network where people are getting sick simply from drinking water. That’s why we’re going down the reform path that we are pursuing.

Can I just in response to some of the questions highlight some of the challenges of the status quo in relation to the questions that have been asked. What we know now is that if we do nothing, 43 of the 67 councils do not have the revenue to cover their water services’ operating expenditure. That is as things stand right now. Do we want that to be the case going forward into the future? No. Can it be better? Yes. What is the solution? Well, the Government is putting a solution on the table because for 20 years, there has been systemic under-investment of the water infrastructure network. What are some of the alternative models—because I hear the questions that the members have been asking? Sure, the New Zealand Transport Authority (NZTA) model was raised, but the whole challenge for the NZTA model is that it would require the introduction of a whole new water levy, and members on that side of the House don’t want any new taxes. We’re very sensitive to the challenge of introducing a new water levy on mainly ratepayers around water.

On the regional model: now, we tested this, especially in the Hawke’s Bay, and the challenge for the regional model is that there will be huge variances in costs to ratepayers throughout the country if you go down the regional pathway. So we had to continue to look to comparative models overseas and say: what is going to deliver the fairest outcome for every community, no matter whether they’re a city, a large city, metro, provincial, or rural community, so that everybody gets the fairness of an outcome? What is going to be the model that is going to assure people that they can meet the drinking-water standards—which are much higher—they meet the World Health Organization standard, but also the new freshwater standards?

The other component of the reform is to be very bespoke towards New Zealand. We value our fresh water. We value the things that make us feel good about caring for our environment. That’s why we’ve pursued a model that looks to get the benefits of aggregation, to ensure the fairness to all communities large and small, to ensure that ratepayers over the long term aren’t paying more, they are paying less, and to ensure that there is a financially sustainable pathway for investing in water infrastructure. That is the reform programme that we are pursuing.

Now, the member asked a question around compensation. Well, actually, what’s happening here—and it’s the wrong characterisation of the opportunity for local government, because the opportunity for local government is to remove debt and liability off councils’ books into the water service entities, and councils will still retain a level of governance oversight and the ability to direct water service entities in the way in which they operate. That is why aggregation alone is not the full sum benefit, but it will ensure that small communities—actually, big and small communities will gain the benefits from the reforms that we are pursuing.

Thank you, Minister. Before I call Simon Court, can I just remind you that the ACT Party has 16 seconds left.

We can do it—we’re efficient. Thank you, Madam Chair. Two questions: will Government meet with Communities 4 Local Democracy tomorrow about their concerns about three waters reforms; if not, why not? And will the Government release the exposure draft for the Water Services Entities Bill and hold an inquiry in the same way as they held an inquiry into the exposure draft of the Natural and Built Environments Act? Thank you, Minister.

I’ve continued to acknowledge—

CHAIRPERSON (Hon Jenny Salesa): I’m sorry, Minister, but the time for the Labour Party is now expired. If the National Party, who is the only party with time left, would like to gift some of that time for the Minister to answer questions, you’re welcome to.

I seek leave to take the National Party’s time. I seek leave—Madam Chair, point of order. I seek leave to take the National Party’s time in order to answer the member’s question.

CHAIRPERSON (Hon Jenny Salesa): Is there any objection to that motion? No objections.

The question of me was: am I prepared to meet with the mayors who are coming here tomorrow in relation to their concerns around three waters. This evening, I have invited those mayors to come and meet with me. Whether or not they take up that invitation, the invitation sits on the table. What I can also say is that throughout this whole process, over four years, I’ve continued to engage with councils and Local Government New Zealand around these very challenging issues that have been around for around about 20 years. This Government is putting a solution on the table; there is no alternative, and I would invite every council to engage in an alternative that looks for a financially sustainable pathway so that every community big and small—more importantly, their ratepayers—gets the benefits of reform.

Yeah, and I thank the Minister for that additional context. She noted as part of her basis for these reforms around the issues that New Zealand has faced in regards to drinking water issues—and we are familiar with the Havelock North example. But I am interested in the Minister’s comments in regards to Yale University’s global benchmarking survey in which New Zealand sits in the top 30—actually, 29th out of 180 countries—in regards to quality of drinking water and water infrastructure. We sit in a peer group of Canada, the US, Singapore, Israel, and while no one acknowledges that there isn’t some room for improvement, we are not in the bottom 20, and we aren’t facing catastrophic failure of the scale which is referred to.

I think why that is important is for the whole case for change. What’s the burning platform here? What’s the big driver in terms of the need for us to act, when the Minister refers to the point that, actually, you know, we’ve got some significant issues here? When you do a horizon scan in terms of where we sit globally, we are not a significant outlier—actually, quite the opposite. We’re sitting in the upper quartile of peer group.

So the scale of reform being tabled and the speed at which this process has been tabled, and I guess what you’d refer to as the lack of consultation—and those are not necessarily my words; those are words from the majority of local authorities around this country. Why are we not using the opportunity to take on board the feedback and look at the different counterfactual models? Because as my questions asked before, what were some of those counterfactual models that we have considered other than what is seen as sort of the silver bullet, which is amalgamation of the 67 local entities into four entities? That just seems like that’s the only option that’s available, and the feedback loud and clear from around this country is that there are other options in order to deal with our challenges. I’m wanting to try and understand around the appetite of the Minister—why are we not giving that due consideration?

We’ve only got two minutes and 42 seconds left.

💬 Simon Watts: Oh, she’s got no time.

CHAIRPERSON (Hon Jenny Salesa): Well, you had gifted time to the Minister before, so if you would like the Minister to answer—

💬 Simon Watts: I’m happy to. I’d like the Minister to answer using my time.

I thank the member for ceding his time to me to be able to answer the questions. Firstly, in terms of the question around the counterfactual model—it’s a very good question. Can I say that the model that we have landed on delivers the full range of benefits that I’ve spoken to and is fair. It delivers benefits to ratepayers; it ensures that there’s a financially sustainable pathway to be able to invest in infrastructure for the long term, which is a huge challenge for councils; and it ensures that by removing debt and liability off the council’s books and the Crown’s books, we have these water service entities that have sufficient scale to be able to self-invest within this network.

But let me come back to the counterfactual, because it’s a very good question. We did test 30 models—that is on the Department of Internal Affairs website. It has got a strong and robust analysis against the Government’s bottom lines as to why we didn’t end up pursuing certain models. It does give some background to those who have been interested in this approach as to why we are where we are. Can I say that the other element of the counterfactual has been to ensure that we are transparent in the way that we present this information to be able to undertake our regulatory impact analysis and our way of going forward.

Can I also say—and, again, it is a point that was highlighted at the very beginning of this debate, which is the case for change. Now that we have established a dedicated waters regulator who will be able to, in a more uniform way, assess and monitor all councils in meeting drinking water standards—compliance, monitoring, and enforcement of those standards, as well as fresh water standards—that will certainly lift the bar. That is going to put a lot of pressure on several councils who have had variable rates of performance. That was known right at the beginning; it’s no secret amongst any of the councils. But most importantly, what it will show is that there are a number of challenges for councils, especially in waste water, to be able to invest in waste-water treatment plant upgrades, because they are currently now not meeting the standard. With Taumata Arowai, they will have to meet the standard. There is a deficit in their ability to finance that. That is why we’re pursuing the reforms that we’re pursuing.

We have 20 seconds left.

I was wondering if the Minister could answer my question around the averages in terms of the asset values, whether it’s replacement value or averages. Happy to use my time.

To be assured of an accurate answer—there’s so much variability amongst the councils—I’m actually happy to respond by written question to that particular question because that will be more beneficial to the member.

Members, the time for this debate has expired. The question is that the current issues and priorities be noted.

Motion agreed to.

House resumed.

Madam Speaker, the committee has noted current issues and priorities in a special debate. I move, That the report be adopted.

Motion agreed to.

Report adopted.