Tuesday, September 28, 2021

Frank Newman: Three Waters - reality check

Here are four realities about Three Waters that have been ignored by Minister Mahuta and the mainstream media.

Reality check one

The Water Industry Commission for Scotland (WICS) report assumes the four new water entities will significantly reduce operating costs, and deliver lower-cost capital spending. They assume there is "an efficiency gap" (by that they really mean inefficiency) that will be closed within 10 years and will result in a 53% saving in annual operating costs from year 10. This, they say, is based on evidence of water reform in the United Kingdom (UK).

They qualify this by saying;

"The scope for cost reduction will, however, require a commitment to a full package of reform: investment; financial freedoms, clarity in objective setting, empowered regulation and incentivised management." (Page 32, Powerpoint presentation, Entity A: the use and analysis of the RFI information and other benchmarks.)

Reality check: New Zealand is not the UK and UK water services do not have an indigenous 50:50 "partnership" co-management model that is the foundation stone of our Three Waters reform. Rather than having incentivised management which is required to achieve efficiencies, management of the four entities is more likely to be disincentivised by having to meet the unknown costs of the cultural and spiritual considerations embedded within the governance and management structures.

We know from other co-governance arrangements that iwi act in the best interests of iwi (like the debacle involving the DoC funded visitor information centre at Punakaiki, see HERE >>>).

Reality would suggest the entities will be burdened with additional costs that have not been factored into the WICS model. How much those additional costs will be is impossible to quantify as no other country has passed control of essential water infrastructure to a monopoly controlled by a vested interest group representing 16.7% of the population.


Reality check two

When comparing the status quo with an amalgamation model, WICS assumes new capital spending on water infrastructure would be fully recovered from rate increases, once councils reach a debt to revenue ratio of 2.5 times.  However, the new water entities are assumed to have a debt capacity of 6.25x revenue. This significantly tilts the figures in favour of the WICS model because it can borrow substantially more before raising water charges to property owners! That "advantage" will disappear once the 6.25x debt level is reached, but until then the true cost to ratepayers is under-stated. 

For example, the Whangarei District Council collects $40 million a year from water services. According to the WICS model, it could borrow $100 million against that income stream to fund new infrastructure, but they assume the new entities could borrow $250 million. That's a difference of $150 million that according to their model did not need to be collected from ratepayers! No wonder the WICS figures look good.  


Reality check three

The WICS modelling also assumes council spending on water assets will be in addition to other spending, without any reduction in spending on other capital projects. My experience as an elected member of the Whangarei District Council is otherwise. I cannot speak for other councils but when setting rates, we had regard to affordability - the ability of property owners to pay. This was a particular concern because Whangarei had, and still has, a high proportion of ratepayers on low or fixed incomes (retired folk and beneficiaries).

That influenced our capital spending because we worked back from what we felt ratepayers could reasonably afford, to arrive at a surplus available for capital spending (which was boosted with prudent debt funding). It was that residual figure that determined how far we could go down the capital projects priority list. From memory, there were around 150 items on that list and our money would run out somewhere around 25 or 30.

Essential infrastructure was always top of the list. Of lower priority were the nice things to have (the wants rather than the needs): new library, new council office buildings(!), new sports fields, reserves, playgrounds, staff cars (!), etc.

I recall one year we had to find an extra $10m to improve water treatment to meet World Health Organisation standards. We "found" the money by deferring other capital projects. We did NOT increase rates by $10m which is what the WICS model assumes.

Capital budgets are flexible and councils are sensitive to issues like affordability. That is completely ignored in the WICS model.


Reality check four

Under the government proposal, the new water agencies will be charging you for water services and your local council will continue to collect rates and charge fees to fund their other services.

Minister Mahuta has said nothing about how the Three Waters reform will affect councils and the rates they will charge. Will your council be able to reduce their rates to fully offset the bills households will receive from the new water entities?

Here's the reality. Councils will be giving up a significant income stream to the new water entities. In Whangarei for example the district council collects a quarter of its total revenue from water services.

$5 million of that revenue is a contribution to council overheads: The salaries and wages of administration staff and councillors, office space, power, vehicles, cultural training courses, etc.

Will overheads fall by $5m after the water assets have been transferred?

Will councillors take a pay cut? No.

Will council CEOs take pay cuts? No.

Will councils downsize their office space? Maybe, if they can. The Whangarei District Council can't because it is building a new council office building designed with surplus space to allow for growth in staff numbers!

The reality is some of the council overhead that is currently being recovered from water charges, will have to be recovered from an increase in general rates or fees for other council services: Building inspections, dog registration fees, resource consent fees and the like. Minister Mahuta says nothing of this.

Each council should quantify the net effect Three Waters will have on rates and let ratepayers know how much their rates bill will reduce should Three Waters go ahead. Ratepayers need to know the full story.

Frank Newman is a  political commentator and investment analyst, and a former local body councillor.


Janine said...

Frank, I am signing anti-Three Waters petitions that arrive in my email box, right, left and centre. I am sure most on this website are doing the same. Thank goodness we have a few intellegent people left in this country. Unfortunately, here in Tauranga, a true blue seat, I think Three Waters might be a fait accompli. We are being run by Mahuta syncophants drawn from all over the political spectrum.

What we now need is for a political party to categorically state they will overturn this whole debacle if elected.

How does a little country like ours support all these troughers? It's a real mystery really.

DeeM said...

I would hope that every council ay least makes the same analysis that Frank has. My correspondence with the Mayor of Hamilton, who is on record as being broadly in favour of 3 Waters, leaves me far from certain. She directed me to a council document which quotes the supposed cost savings based on the WICS report.
I urged her to be extremely cautious about taking these at face value and referred her to Frank's NZCPR article on the LGNZ Castalia reports and the Farrier Swire review. I also sent the same info to a councillor who appears to oppose the 3 Waters Plan.
Anyway, it will be decided on Thursday one way or the other.

John Hurley said...

I was talking to a friend today and got on to that subject. He was a tourbus driver (over 10 years ago). He was parked in Victoria Square and Mark Solomon parked his big flash car on the bus stops. "You can't park there those are bus stops"; "I can park where I like, we own the whole South Island".
I would be skeptical of that story but my friend isn't the sort to make stories up.

Ray S said...

Thanks for the summary on three water Frank.
I thought I might escape the effects of three waters being rural and on tank water. But the other costs that will result, rates changes etc.etc. will probably offset any advantages being on tanks.

To my knowledge, any country who has centralised all services has failed spectacularly.
We have a bad habit of reinventing the wheel here in NZ.

Terry Morrissey said...

Yesterday, in The House, Mahuta wouldn't answer the question wheher she would mandate on Three Waters and the gutless Speaker lets her get away with it? What a waste of time trying to hold the government to account.

Brian A said...

Totally agree Frank, but Mahuta has already said she has no interest in council's opinions or what the people and ratepayers think, she will legislate and impose 'Three Waters" regardless. A taste i'm afraid of what is to come under "Tribal Rule" and this government. Mahuta and her cohorts loyalties only lie with her people and the tribal elite, they only use democracy to forward their own agenda (He Puapua). They have no interest in the rest of us New Zealanders except to keep paying our taxes to support their agenda. There can be no 50/50 governance as tribal rule and democracy are totally different things, tribal rule does what's good and best for the tribes, democracy tries to do what's good for everyone. Wake up New Zealand it's time to stand up and be counted "silence is compliance".

Hone said...

You use an oft quoted figure for Maori, I have seen 13% up to your 16.7%. This implies that 16.7% of the population fit into the them, in them and us. I can tell you that this is completely wrong. Many of those who get lumped in that figure are kiwi with minority ancestry of Maori ;don't identify as Maori ;don't belong to an iwi ;don't believe in tribalism ;and don't get any benefit from the huge handouts to "Maori". 26 in my family fall into this category. Latest example :my 98 years ago mother in law died recently and I filled out the form for her death certificate. She did not identify as Maori ;hated tribalism. Yet I had to state that she was a Maori, and that is what will go in the statistics. We badly need an unbiased survey that establishes the actual % that identify as Maori. My guess is that it will be less than 10% tail wagging the dog

DeeM said...

I believe the 16.7% figure is the number of people identifying as Maori (or part Maori) at the last census in 2018. I believe the 13% figure is the % over 18 and eligible to vote.
Considering the very low vote that the Maori Party typically get of 1-2%, your comments around tribalism are certainly backed up and most Maori exercise their vote accordingly.
Unfortunately, Labour (and the Greens) are now heading down the same route with their He Puapua agenda and I suspect that many Maori vote for them but not necessarily for those reasons.
The strongest voices against the separatist and divisive policies that are now being enacted by this government will likely come from the group that is supposed to benefit.
It's hard to speak out, as we all know. The best most of us can do is change our vote at the next election, encourage our friends towards websites like this, and enter submissions against national and local government policy we disagree with.

Frank Newman said...

Thanks for the comments Hone and DeeM. Another telling % is 1.2% of people voted for the Maori Party. Assuming only those who identify as Maori voted for the Maori Party (which will not be true) then fewer than 1 in 10 Maori (using the 13% figure) support the Maori Party. It does not represent Maori.

Anonymous said...

I would ask that someone clearly states that the ToW does or does not include any concept of pertnership and provides a breif summary of what it does include. With thanks