Though partially council-owned, the Airport funds its own operations out of its own revenues and makes its own decisions. The structure imposes a commercial discipline and provides better outcomes.
It provides a sharp contrast to the city’s water system.
The problem is not that Council punted the decision to a consultation process. The problem rather is that Wellington Water must plead for funding when it should be able to make commercial decisions.
This column was filed before Friday’s coalition announcement. But it seems a very safe bet that no bailouts for council water systems are coming and that Wellingtoneans and Huttites are going to have to reap that which their elected councils have sown. If voters in council elections prioritise shiny above-ground things while neglecting the pipes for long enough, eventually a nasty bill comes due for ratepayers.
Wellington’s councils can still get themselves out of this mess.
Currently, Wellington Water is just a water management company. It manages the pipes on behalf of councils, with whatever funding those councils might wish to drip-feed.
Water rates and water investment are then politicised decisions. The consequences of underfunding water maintenance and renewals is a problem for some later council – until a council finds itself surprised that the water system will be ending each year with a backlog of a thousand more unfixed leaks than were present at the start of the year.
Getting different outcomes requires changing the game.
Wellington Water should be restructured along the model used by Watercare in Auckland. It should own the pipes, set its own water levies (overseen by the Commerce Commission), and decide on its own investment priorities.
If there will be a backlog of 3500 known leaks by the end of the year, whether the next hire at Wellington Water should fix leaks or install water meters ought to be a commercial decision for Wellington Water.
The scale and pace of meter installations should depend on what makes the most sense for the long-term sustainability of the water network, where revenues from the water system must cover all the bills.
It should not depend on whether there is room left in Council’s long-term plan after however many hundreds of millions of dollars are poured into the Town Hall’s basement.
The current process does not encourage good commercial decision-making.
A restructured Wellington Water should also be able to issue its own debt for capital expenditures, backed by revenues from the water system. Some oversight would be needed at the outset lest councils attempt to load Wellington Water with debt taken on for Town Hall, or the Convention Centre, or the Library.
Labour’s soon-to-be-scrapped water reforms were designed, in part, to achieve balance-sheet separation between water entites and councils. If amalgamated water systems were sufficiently removed from their council quasi-owners, through complex governance structures, perhaps councils would be seen as being less inclined to bail out a distressed water service entity. Water debt might then not count toward council debt limits.
But water system debt might not be considered separate from Council’s main balance sheet, even if Wellington Water were operationally independent and able to set its own levies.
If it is not, and if separability is important, legislation severely penalising councils if they bail out independent council-owned water companies could help.
But even without separability, remember that debt limits are not set as a dollar value. They are a ratio of debt to revenue.
If Wellington Water were set with the same debt limit as council, it could take on more debt by increasing water charges. Double the collected water levies and you’ve doubled the entity’s allowed debt: the ratio would remain the same.
Currently, a million-dollar residential property in Wellington pays $930 per year in water charges. Less than $20 per week. For the cost of a long black at Raglan Roast every workday, as much water as you like. Until the taps run dry.
It’s ultimately the same households that pay water levies and rates. Household budgets are not infinite. A more disciplined approach to other council spending will still be needed to make room for fixing the water system.
But paying a bit more for a functioning water system, to an independent water provider, with no risk that councils would just siphon the money away for some new obscene boondoggle, seems like a rather good deal.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE