Bryce Edwards: The Democratic and equity deficits in the Three Waters reforms

The Government has begun a $3.5m advertising campaign to convince New Zealanders of the need for radical reform of our drinking, storm and wastewater. A consensus appears to be building on the need for change, but there are arguments against the Government’s “Three Waters” reforms. Have they come up with the right answer, or will the reforms make matters worse?

Equity problems in the Government proposals
 
There is an equity issue at the heart of the criticisms of the Three Waters proposal. This is because the reforms would effectively strip local government of their drinking, storm and wastewater roles and assets, transferring these to four regional mega-entities. The 67 local councils currently have very different levels of assets and debts that they are being asked to hand over.

 
To some, this appears incredibly unfair. Many communities that have diligently invested millions or billions of dollars over time, and paid off their debts, will be disadvantaged, while councils that have prioritised lower rates and expenditure on vanity projects instead will benefit from everyone’s water infrastructure being thrown into the melting pot. So debt-laden councils will be relieved to lose their debts, and asset-rich communities are being punished for their forward-thinking and sacrifice.
 
Environmental economist Julia Talbot-Jones of Victoria University of Wellington put it like this on the Newsroom website this week: “The problem is the degree of system collapse is not uniformly distributed across the country. While some cities, like Wellington, have failed to upgrade their infrastructure, others, like Auckland and the Kāpiti Coast, have spent billions proactively upgrading their services” – see: Govt must pay to ‘buy back’ water networks from locals.
 
She argues that central government should actually be buying the current water assets off local government: “If the Government wishes to create an equitable playing field, it should compensate councils for their water infrastructure investment – essentially ‘buy back’ the infrastructure and services from local authorities. This approach would have precedent under the Public Works Act 1981, which gives the Crown the power to acquire land for public works with due compensation given to affected private landowners. For councils, compensation payments under the three waters reforms could reflect the level of recent investment in water infrastructure upgrades.”
 
The likely uneven results of the proposals for councils are explored by Jonathan Milne in his article: Rates of change: Charting NZ’s winners and losers in Three Waters reforms. According to this analysis, the councils with the most to gain are those with the biggest debts: Auckland ($3.2b), Christchurch (nearly $1b), Tauranga ($473m), Hamilton ($370m) and Hastings ($140m). In contrast, there are nine debt-free councils who would appear to be the losers – such as Whangārei and Kawerau.
 
Newspaper editorials have also emphasised this problem with the reforms. The Herald wrote this week that these concerns are “more than parochialism at play”, pointing out that each council “has individual circumstances of assets built by locals through targeted rates, major projects in the pipeline, and even surpluses of funds stockpiled for specific purposes” – see: Undercurrents of concern with Three Waters reforms (paywalled).
 
The newspaper quotes National’s Simon Bridges: “Ratepayers face losing local control of the assets they've paid for over generations, while being asked to foot the bill for poorer-performing neighbours.” And it gives the case study of Whangārei, in which “the council is concerned about what it would mean for the local assets ratepayers had paid for, and the risk Northland would come second to Auckland.”
 
For more on this, see Mayor Sheryl Mai’s argument: Why Whangārei opted out of government's Three Waters Reform.
 
Unsurprisingly, given that there will be big winners and losers, the reforms are starting to pit council against council, with local politicians speaking out against other districts for their stances – see, for example, Felix Desmarais’ Three Waters reform: Some councils have ‘head in the sand’ – Rotorua councillor.
 
In this article, the mayor of Kāpiti District Council, K Gurunathan is reported as believing the reform is aiming for outcomes his council has “already achieved”, and “he believed the changes would result in some councils ‘subsidising’ others with poorer assets.”
 
This is explored in further detail by Georgina Campbell, who reports Gurunathan’s view: “He doesn't want his constituents being deprioritised and paying for the likes of Wellington City's crumbling water infrastructure just because Kāpiti has proactively invested in its water services” – see: ‘Three waters’ battle between council and Government explained (paywalled).
 
In contrast, Campbell paints a picture of councils like Wellington having neglected basic infrastructure in favour of fashionable and vanity projects: “Cycleways, new stadiums, and rainbow crossings could be seen as far better ribbon-cutting ceremonies than a new wastewater pipe.”
 
Centralisation could lead to a loss of democratic input
 
The current Labour Government clearly has a determination to solve national problems by centralising the management of services, reducing the devolved authority of local entities in terms of district health boards and polytechs. The water proposals are a continuation and escalation of this approach. And although there is great merit in such amalgamation, it does come at the expense of local democratic input from communities.
 
In last week’s Sunday Star Times editorial on the water reforms, Warwick Rasmussen worries that the Labour Government is becoming dogmatically over-reliant on the centralisation approach, warning that it’s not a cost-free fix: “People at a community or regional level, no matter the organisation, want to be seen, heard, and understood, otherwise even the best-laid plans to subtract power can cause division and resentment” – see: Centralisation a blunt political tool that should be used sparingly.
 
Rasmussen believes that amalgamating the water systems might come with some important negatives: “centralising to this level and attempting to untangle our water woes is aspirational at best. Greater central control instantly means loss of local control and, by connection, loss of local knowledge. This is the kind of knowledge that’s been built up over decades, where people know the challenges and fixes distinct to their own communities.”
 
Writing in The Press, Steven Walton reports on why local councilors are unconvinced by the reforms, including the worry about reduced local input: “Christchurch deputy mayor Andrew Turner said the reforms undermined local control and influence”, and “Councillor Sam MacDonald said he felt the Government was taking away local influence and the new entity would not be responsive to the particular needs of Christchurch” – see: Worry over lack of local influence under government water reforms.
 
Housing commentator Ashley Church says the water reforms will have a big impact on local lives and, despite not being a fan of the status quo, thinks the reduced local control of water could make things worse – see: Why water matters more than efforts to control house prices.
 
Here’s Church’s main point about the weakness of the proposals: “Namely, a loss of local democratic control, unwieldy and illogical boundaries and, most alarmingly, the likely creation of huge, bloated, faceless bureaucracies which will almost certainly be less efficient than the bodies they replace. It’s also important to note that water is not the same as a utility like electricity where scale provides cost and delivery efficiencies. Water issues are usually quite specific to local communities and require localised solutions based on geography and a unique mix of lifestyle, commercial activity and rural production.”
 
Representation and governance concerns
 
Alongside concerns about reduced local input, is a fear by some that the new water entities are being designed so that local councils, and thereby citizens, will have little control and influence over decision-making.
 
In the article by Steven Walton, above, it is pointed out that for the South Island the all-powerful Regional Representative Group, which will effectively control the main water entity, will have only six representatives from the 21 councils. Christchurch Deputy Mayor Andrew Turner complains: “It is unclear how the elected council will actually be able to influence investment decisions and priorities.” However, in this case, Ngāi Tahu, has expressed satisfaction with the arrangements, given that the other half on the board will be mana whenua appointees.
 
Similarly, the Auckland council is unhappy about how much control the city will have over the local water entity, with Mayor Phil Goff complaining that they “could have less than 40 per cent representation in the governance of a new entity, despite 92 per cent of the entity's assets being from Auckland” – see Georgina Campbell’s Wellington mayor on the fence about water reform: 'We can get on top of this ourselves'. Likewise, in Wellington, Mayor Andy Foster says “The model which is proposed has no local control at all. It basically says we are owners in name only.”
 
For some local authorities, the boundaries of the four proposed mega-entities are unsatisfactory. Some are surprised that the Wellington-dominated entity will also comprise locations as far away as Gisbourne, Blenheim, and Motueka. Meanwhile, only part of Marlborough will be part of this entity. This is apparently “to align with iwi boundaries” – see Chloe Ranford’s Three (Waters) into two won't go, or will it?
 
Thomas Coughlan explains this is part of the Government’s answer to Treaty obligations: “The convoluted structure seems designed to ensure the Government follows through on its commitments to Māori co-governance at some level, without committing the entities to having co-governance on the entities boards – a bit of a political fudge” – see: Nanaia Mahuta prepares for showdown with councils over water reforms.
 
Government threats and compulsion
 
The above article by Thomas Coughlan focuses on the Government’s problem that many councils are unconvinced by the proposals, with some indicating that they won’t voluntarily hand over their water assets, debts and responsibilities. Coughlan suggests this unwillingness is hardly surprising: “Water is one of the main things councils actually do, forcing them to give it up to four faceless entities is, for many councils, effectively stripping them of what their organisations exist to do: local services.”
 
He predicts a war between central and local government is looming over the issue, and it’s not yet clear what local government minister Nanaia Mahuta will do if they refuse: “The Government started the water reforms promising they would be voluntary; councils could choose to be in or out. But in recent months, Mahuta’s language has hardened. She’s talking about having a “conversation” with councils, but she’s very explicitly not ruled out forcing them into the reforms if they won’t come of their own volition. She might need to do so. In Parliament, she acknowledged that a patchwork of councils in and out of the water reforms wouldn’t work. It’s all (or at least most) councils, or none at all.”
 
An Otago Daily Times editorial this week commented on this aspect, but believes that there “is an air of inevitability” about the proposals regardless of any local government refuseniks, and Mahuta may “have to wave a big stick and make participation mandatory. It is clear the efficiencies sought would be difficult to achieve if some big players opt out” – see: Water reform progress. But the possibility of some carrots, or “preferential treatment” for the likes of Christchurch, might be offered to ensure their involvement.
 
A Stuff newspaper editorial points out that the proposals are “voluntary with a very small v” and predicts that councils will be pushed one way or another into the scheme – see: Unfamiliar waters need careful scrutiny. Here’s the main point: “Those councils that don’t opt in will find the new, necessarily stricter, standards and penalties for water delivery increasingly hard to live with. Any sense that splendid isolation will empower an extension of the status quo is almost certainly illusory.”
 
Both the National and Green parties believe it is inevitable the Government will make the proposals compulsory for local government – RNZ reports on this here: Three Waters too big to fail? National, Greens predict councils will be forced to join.
 
The comments of Government minister James Shaw are particularly pertinent: “There is a risk with the opt-out model that you end up with entities that have holes in them and then you start to lose the benefits of scale and of combining them, and so I think that there are some merits to simply the government going with that mandated structure.”
 
Concerns about the Government’s reform process
 
Regardless of what needs to happen to the water sector in New Zealand, is the Government’s reform process a good one? The criticisms are starting to mount. Of particular note are the criticisms of economist Julia Talbot-Jones – in the article above – who questions whether a good outcome can come from such a bad reform process.
 
She is particularly critical of the Government’s $3.5m advertising campaign, which is aimed at convincing the public that local councils are mismanaging water. Although such a campaign is intended to “nudge voters towards pressurising their local representatives to adopt the new framework, the campaign risks leading to a loss of trust in central government on the part of some local authorities and a further rescinding of voluntary engagement in the reform process. This approach to advancing the water reform agenda is surprising from a local government minister. Nanaia Mahuta should know trust in local government is already low, and destabilising local processes does little to recalibrate the balance.”
 
Former minister Peter Dunne is also critical of the water reform process, suggesting the majority Labour Government, as with the 1980s Rogernomics administration, is just bulldozing through with a “political blitzkrieg” that risks getting things wrong and creating poor implementation – see: Govt should slow down on health, education and water or hit the skids.
 
Here’s Dunne’s main point: “with many Mayors, including the former Labour MP Mayors of Auckland and Christchurch, already speaking out against aspects of the reform proposal, the government is unlikely to find it easy to implement its plans over the next couple of years. This government’s reputation is already of one that talks a big game, but whose policy implementation constantly falls well short of that. Therefore, the last thing that it should want now is a drawn-out battle with local government over water reform”.
 
Similarly, Herald business journalist Fran O'Sullivan complains this major reorganisation of the state and the Constitution is occurring without enough debate and analysis, calling this “a radical reinvention of the State's role in New Zealand” – see: Labour takes revolutionary road towards State control (paywalled). O'Sullivan takes particular issue with the creation of entities such as the Regional Representative Groups that will control the water entities and be half appointed by mana whenua. She argues such constitutional changes require a more thorough and transparent reform process than the Government is allowing.
 
Finally, for a strident criticism of the latest “puerile” newspaper and television ads promoting the water reforms, see Karl du Fresne’s Funding our own indoctrination.