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Indepth: Water budget blowout

South Wairarapa councillors have voted to use the government’s Three Waters stimulus funding to manage a $1.1 million overspend in its operational budget for water.

Without the ability to use the funding, ratepayers would have borne the brunt of the blowout.

Effectively, the council will shift stimulus-funded projects into its capital expenditure programme and cover its operational expenses using the stimulus funding.

It means the overspend is in its capital programme, which can be loan and reserve funded.

If the overspend had been left in the operational programme, it would have needed to be ratepayer-funded.

A report on the overspend, which councillors criticised as “lacking in detail”, stated the reasons for the blowout included unplanned maintenance to repair networks, inflation, and workforce complexities.

South Wairarapa Mayor Alex Beijen said he was disappointed Wellington Water [WW], which manages the council’s water services, had cited inflation among other things for the overspend.

“We were very clear to the Wellington Water CEO when he came to talk to us that we worked on an annual budget, and variations are destructive to our rating system,” Beijen said.

“He promised us he had it under control and had the money he required to see us through the year.

“While we are reacting to this and considering this as we must, going forward, we need to really settle this with WW if we are going to continue this relationship.”

About half of the overspend was due to significant emergency works, such as the Tauherenikau pipeline repair and damage due to severe weather events.

South Wairarapa District Council’s partnerships and operations manager Stefan Corbett said much of the rest of the overspend could be attributed to increased faults in the network.

“What’s happening is those crews are getting in and making repairs, and they are more extensive than they thought,” Corbett said.

“Often, they are putting in additional valves and piping to prevent it from happening again.

“That, and the costs in labour, means these jobs are just costing more, and there are more of them.

“It’s the sum total of all those things which has led us to this situation we are in with this overspend.”

A September report by Wellington Water made early indications that the funding allocated to South Wairarapa’s three waters programme was insufficient.

“The final draft capex delivery programme for 2021-22 financial year has been issued to SWDC for review and approval.

“The initial draft programme based on asset condition and risk to service delivery exceeded the Long-Term Plan [LTP] funding by $3m. Wellington Water has reviewed the initial programme based on risk and prioritised the programme to meet available LTP funding.

While we are reacting to this and considering this as we must, going forward, we need to really settle this with WW if we are going to continue this relationship.
– South Wairarapa Mayor
Alex Beijen

“The risk remains around the remaining projects which will be reprioritised in Year 2 of the LTP.”

Councillor Leigh Hay said: “At some point, we do have to say, we just can’t afford this, and with continued budget blowouts, there has to be a better way to manage it.”

Councilor Brenda West abstained from the vote on using stimulus funding to manage the blowout. All other councillors voted in favour.

A water tanker in Featherston after the boil water notice for the town is extended.

Bandaid on a problem

While some councillors were quick to blame Wellington Water [WW] for the budget blowout at Wednesday’s meeting, councillor Rebecca Fox was pragmatic in her comments.

“There’s no argument that our asset is in a really bad condition … and this problem isn’t going away.

“When the [WW] team is doing the work, they are finding the scale of the work is more than what they have anticipated.

“We have to find a way to fund the work that has already been done, but alongside this, what I really need to see to have confidence that we can maintain public health standards and our supply for people, is that we actually have a full understanding of the asset condition scores and a very clear indicator of what the potential things are that will go bang in the night.”

She said South Wairarapa’s three waters network was “vulnerable” and, in doing routine repairs, crews were finding bigger problems, running up the bill.

“I feel we are actually trying to put a bandaid on a problem right now,” Fox said.

“The horse has already bolted, and we have the blowout, but my major concern is the fact that we may say yes to this, but what are we going to say yes to next?

“We still have a major network issue, and I don’t have confidence that we have the information to look at this longer-term.”

Wellington Water network development and delivery manager Tonia Haskell said the district’s ageing infrastructure required maintenance.

“In the past year, there have been two significant emergencies, as well as incidences where we’ve gone to repair an issue, and it’s been more complicated than initially thought,” Haskell said.

“In addition to this, we’re also in a difficult economic environment.

“The cost of resources to do these repairs have increased over the last year, and covid-19 has put pressure on our workforce.

“We are dedicated to working with South Wairarapa District Council on how we communicate these challenges in the future and what this looks like for Year 2 of their Long-Term Plan.”

 

Councillors critical of lack of detail

Wellington Water crew working to get new water pipe in for Featherston water supply. PHOTO/SUPPLIED

Most councillors, including Colin Olds and Brenda West were critical of the lack of detail in the report.

At the end of the report, there was a table provided by Wellington Water that showed which projects had been funded through the government’s stimulus funding.

None had any associated costs.

“I feel like we are being cornered into making a decision without being given the complete details,” West said.

“There’s no money attached. There’s a lovely little [table] that has lovely colours in it, but there are no financial details in there.

“Where are the financial details?”

Beijen said the detail was in previous documents from council committees.

“That’s all very nice, but this is a public document,” West said.

“It is very nice,” Beijen quipped.

“This is a public document, and as a ratepayer, when I’m looking at this [appendix], I don’t know what I’m looking at,” West said.

“Should I automatically know – oh yes, Assets and Services Committee, let’s go to that meeting and have a look at those notes – oh yes, that was discussed at another meeting.”

Beijen said: “Your sarcasm is noted; however, you should be abreast of this because you have access to all of the information.”

West said: “There is information our public is not afforded to. And sarcasm? Hmm… You haven’t heard it yet.

“Again, I am completely frustrated, and I love the way you do that, Alex; it looks really professional.

“I have no confidence, and I am really frustrated when I am brought into a meeting to make a knee-jerk reaction being cornered. I don’t like it. I don’t like it at all.”

Later in the meeting, councillor Pip Maynard asked for a full breakdown of money that had been spent by Wellington Water from the Three Waters stimulus programme and the overspend.

This was agreed upon by council officers and supported by Beijen.

SWDC and WW upgrades to Papawai wastewater network

Blowout shocks councillors

“At what point was Wellington Water going to update councillors as to these [cost] escalations?” Beijen asked at Wednesday’s extraordinary council meeting.

“Were we going to get informed of this, or does it have to come through council officers at the last minute?”

Councillors were taken aback at the apparently sudden budget blowout of $1.1 million, of which about half was not due to substantial unbudgeted emergency projects, such as the repair of the Tauherenikau pipeline and damage from severe weather events.

But the overspend should not have come as a complete shock to members of the council’s Finance Audit and Risk Committee.

At the committee’s February meeting, they were presented with a report for the first six months of the financial year.

In the financial report, it was stated that the council’s operating expenditure was unfavourable by $1.38m.

In the three waters space, the operating expenditure was unfavourable by $1.087m.

Water supply was $506k over budget, wastewater was $473k over budget, and stormwater was $108k over budget.

Notes in the report stated the blowouts were “partly offset by stimulus funding income; however, unforeseen breakages in the network is putting pressure on budgets”.

This was at the halfway mark for the 2021-22 year.

Capital expenditure projects were tracking below budget.

What’s next?

Now that South Wairarapa District Council has decided to use the stimulus funding and shift projects around to ensure the overspend is in the capital programme, the council will need to decide how that overspend is managed.

There are two options for funding capital expenditure: through reserves or a loan.

SWDC chief financial officer Katrina Neems said there would be $4.2m in the water component of the council’s depreciation reserve at the end of this financial year.

“If we chose to fund from the depreciation reserve, it would decrease by $1.1m.”

Alternatively, the council could take out a loan to fund the overspend over 20 years, which would result in a 0.4 per cent rates increase, Neems said.

Councillor Alistair Plimmer said taking “25 per cent” from reserve to fund operations was “not smart business”.

“The reserves are for replacement of assets, not repair. As difficult as it is, we need to backfill that hole.

“We keep blaming Wellington Water for this. Wellington Water did not create the problem we’ve got.

“They are actually trying to repair the problem to the best of their ability.

“Let’s be frank; they did not create this problem. We have inherited a damaged, broken network.”

It is not known when the council will make the decision on how to fund the overspend.

Work to create an asset management plan was delayed by covid, but councillors stressed this must take priority to inform future spending.

Where Three Waters Reform comes in

Department of Internal Affairs deputy chief executive for local government Michael Lovett said the challenges faced by South Wairarapa District Council were “all too common across New Zealand”.

The government’s Three Waters Reform plans were designed to address many of the challenges facing communities in South Wairarapa and elsewhere, he said.

“Many communities are facing sizeable bills to fix drinking water, wastewater, and stormwater networks which are failing, due to under-investment over many years.

“This is a problem that has been highlighted by independent public watchdog the Auditor General in recent years.

“Analysis of data provided by South Wairarapa District Council suggests the council has been investing less than three-quarters of the money required to maintain its Three Waters network over the last five years.

“What’s more, the Auditor General has also highlighted the fact that many councils simply don’t have an adequate understanding of the condition of their Three Waters networks to enable them to manage these vital assets in a timely and cost-effective way.”

He said reform would provide additional resources, funding, and capability to address the under-investment of recent years, bring Three Waters networks up to modern standards, and ensure they are capable of supporting growing communities.

“A key feature of reform plans is improved asset management plans across all communities, ensuring that networks are maintained and repaired in a timely way.

“It is far more cost-effective and better for everybody if we repair or replace these assets before they fail rather than afterwards.”

 

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