Councils will be “in for a rocky road in terms of risk” under the government’s new policy for the management of water assets, according to the independent audit and risk chair of two Wairarapa councils.
With the repeal of the previous government’s Three Waters reforms, Wairarapa councils have signed a Memorandum of Understanding regarding a Water Services Delivery Plan for the Wellington region.
Councils will be required to develop their new water plan by around mid-2025 under the Government changes.
It is understood the plan will need to include provisions for increased regulation and financial sustainability.
And while a new model for Auckland’s council-controlled organisation [CCO] Watercare will slash expected rises in water bills for ratepayers there, a similarly set up CCO in the Wellington region currently would not be able to mirror the same success, according to Philip Jones, chair of Carterton District Council’s [CDC] Risk and Assurance Committee.
Jones told elected members last week that a standalone council-controlled organisation owned and managed water assets for the Wellington region would be considered “small” and would likely have a BB credit rating “at best”.
He said market interest rates with a BB rating would be between eight and nine per cent, compared to the six per cent rate councils can currently borrow at under the Local Government Funding Agency [LGFA].
The BB rating amounts to “just about junk”, according to CDC chief executive Geoff Hamilton.
“So you’re talking potentially a 50 per cent increase in interest expense unless the Department of Internal Affairs can come up with a smart way of [guaranteeing loans],” Jones said.
“To me, that is the elephant in the room, in terms of standalone CCOs.”
Under the new model for Auckland’s Watercare, the CCO will be able to borrow more money for long-term investment in water infrastructure and spread the borrowing over a longer period, thereby reducing the impact on ratepayers in the short term.
Earlier this month, the government announced water rates in Auckland would increase by 7.2 per cent this year as a result of the Local Water Done Well policy, instead of the previously projected 25.8 per cent increase.
It comes as the government works on two bills for the new water policy, with the first expected to be passed by mid-2024.
It aims to allow councils to shift the delivery of water services into more financially sustainable configurations, should they wish to do so.
The second bill will contain provisions relating to a new type of financially independent CCO. It is expected to be introduced in December 2024 and passed by mid-2025.
CDC corporate services manager Karon Ashforth said three options are being looked at by Carterton District Councill: a joint Wellington regional plan, a combined Wairarapa plan, or a Carterton-only plan.
“Each option has its risks and challenges and at the moment we are working on some of those options,” she said.
Hamilton said if he were “to pick one [model] which is currently in the lead”, the Wellington model tends to “solve more challenges and meet the legislation for Wairarapa”.
He said Wairarapa is unable to mirror Auckland’s CCO Watercare model, and is interested in what solutions may be proposed in the incoming legislation.
Watercare, which is owned by Auckland City Council and owns the council’s water assets, has its own credit rating and issues its own debt into the market, he said.
“The Wellington region’s councils use LGFA to borrow from, and LGFA has a requirement when it lends to councils that the council must guarantee any debt for a CCO in the event that CCO fails.
“So that guarantee is the current sticking point because the government is attempting to financially separate water assets and water revenues and water debt from the council.
“If you are using LGFA to borrow from, you are unable to financially separate the two.”
Hamilton said Carterton would be considered “an attractive partner” in a regional water services model.
“I’m not convinced we would have the same conversation across the entire Wairarapa and that does lead to challenges.
“I think the conversation then becomes one of scale.”
Carterton councillor Robyn Cherry-Campbell said intensive resources will be needed to meet the new legislative guidelines.
“Those intensive resources for us as a very small council are predominantly our staff time,” she said.
“It’s yet again another thing that has been shoved down our throats by central government that we have no control over.”
-NZLDR
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