This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
While the restructuring proposal talks about ‘three waters’ – fresh, waste and storm water – it is really about the massive infrastructural requirements to manage them. Another three waters – estuarine and marine water, natural water bodies (streams and lakes) and groundwater/aquifers – are not included because their management is not so dependent on huge capital assets.
The capital value of the infrastructure is thought to be about $40b but projections suggest they may eventually cost as much $185b if we get it up to the quality we want. (Statistics New Zealand thinks it is our sixth biggest industry by value of its capital stock, behind housing, real estate transport, electricity and education and above health, central government, telecommunications and mining.)
It is generally accepted, even by the managers, that the three waters are managed badly. Among the incidents cited are a gastroenteritis outbreak in Havelock North which made more than 5000 people sick, 45 hospitalised and possibly three dead, while Wellington City's ageing pipes regularly burst, spilling sewage over the streets. Not to be left out, Auckland beaches get polluted after heavy rain, while some residents of Karitane and Waikouti (north of Dunedin) were told not to drink their tap water because of its lead levels. Nationally it is thought that the drinking water of a fifth of those on town supply – 800,000 New Zealanders – is not ‘demonstrably safe’. In his recent report to Parliament on the local government sector the Auditor-General tells us that the amount councils spent renewing pipes and other plant was 74 per cent of depreciation for water supply, 64 per cent for wastewater and just 39 per cent for stormwater; these are higher rates than for earlier years. (The special case of Christchurch, which has had to spend up large post-quake, is excluded.)
It is said that, despite being local councils’ largest asset, most of the infrastructure is underground out of sight and out of mind, so its management has low priority. The government's resolution is to set up standalone agencies to manage the three waters infrastructure – to put the pipes 'above the ground'. That seems a sensible way of dealing with the invisibility.
But it is an incomplete explanation for it ignores the fact that the revenues of local councils are very dependent on local authority rates which are clumsy and difficult to raise. Strapped for cash, councils will inevitably underfund the invisible. This dimension was hardly touched designing the new water care entities (WCEs).
When she first announced the restructuring, the Minister for Local Government said it would reduce local body rates. It was a stupid thing to say because somebody is going to have to pay for the rising costs of managing the three waters, especially given the proposed expansion and quality ambition. To simplify, that payer is YOU. At the time I thought she might have had in mind that we would all pay water charges rather than the equivalent of rates to the four entities. Current indications are that the rates option is the favoured one, at least initially, so there wont be much change, although I shant be surprised if the new entities are ineluctably drawn to charging for their water. You will still be paying.
I want to set down a benchmark to assess what is going on. I don’t think it is the one the WCE designers are using but you can compare their proposal against it. The benchmark is corporatisation. Many New Zealanders will react against it because they saw it used as a means of pursuing privatisation of public assets by the Rogernomes in the 1980s. So the strengths of corporatisation get overlooked; it is not too difficult to prevent sale outside the public sector unless you have a bloody minded government.
The aim in the 1980s was that separating out various public trading activities from the mass of government activities would make them more transparent and better define their role and their efficient pursuit of that purpose, which is what the three waters restructuring is about.
The corporations were set up as commercial entities but one need not prioritise the profit objective. Rather, the objectives need to be well defined. (Not sure what the WCE designers have in mind; we need to be clear why the public may not be satisfied with the purely commercial objective of profit – which leads to privatisation.)
One is that the public gets a sense of its worth by collectively owning things. We simply note that objective here and certainly do not discount it in the way the Rogernomes did.
A second political reason is that it gives the power of patronage. You know what that means. While your party appoints people of the highest competence and integrity, the other side appoints party friends and relations and absolute dullards. Business does the same; you don’t think that all those on their boards are there for their ability? The designer’s proposals to appoint more Māori illustrates the political power of patronage.
There is also the political ability to prioritise investment, especially when there are funding constraints. The East Coast WCE may have to choose between new projects in East Cape and in Golden Bay. This would not be simply a technical decision but would involve political judgements. Who do you want to make the decision?
Similarly there is the issue of charging. There are no simple technical solutions to charging especially across many regions. Perhaps the people in Golden Bay will be charged more so the East Capers are charged less.
These are real possibilities. That is why the restructuring has a regulator placed above the WCEs (although details were only released after public consultation was closed). To this economist such a regulator is necessary, although when I see what a hash our parallel regulators have made – say, over airports, electricity and telecommunications – my heart sinks.
The issues in the previous three paragraphs arise because the supply of the three-waters infrastructure is a monopoly in each region – they are ‘natural monopolies’. Any competition – such as domestic rural supply – is marginal. That is why the WCEs will have considerable discretion of where to invest, what to charge, and the quality of the services they provide; that is why there is a need for an independent regulator to make those decisions more transparent and in line with the public benefit.
This is all orthodox economics – if you are not a neoliberal. Making the comparison between the proposed three waters restructuring and corporatisation suggests that the proposals are just badly designed and could be improved (although this one is more thoughtful about regulation). However that does not explain the local body outrage; that is for the next column.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
33 Comments
Excellent commentary, but I would disagree that all local councils are cash-strapped. Nelson council has been able to raise rates enormously (my property well over 300% in 13 years) due to a compliant electorate, but much of the money has been wasted on glamorous projects that are not essential, while much of the infrastructure was deliberately neglected. The funds for replacing infrastructure were constantly raided by council. When concerned people went to the Auditor General about such activity which contravened the Local Government Act, his staff did not want to know.
And therein lies the whole reason 3 waters has come about.
Agreed. Councils were spending their depreciation on glamour projects or just to keep rates down by raiding depreciation. Not just me saying so, the Productivity Commission for all its faults also said so.
I agree, but bear in mind that it is only comparatively recently that councils were required to include depreciation (replacement fund) in their accounts.
Only if you think central control will do a better job, I am not convinced.
The problem is that fundamental infrastructure does not get you voted in. It is invisible.
What is visible in New Plymouth is a wonderfully empty gallery in the middle of town, and a fantastic airport with almost no pax present.
They are nothing but Mausoleums to long gone council members.
I'm always amused by the need for fancy rather than functional airports. Noone visits someone where because the airport is nice (might be a few major international route exceptions) and choosing where to fly out within nz of is mostly the cost of the flight vs convenience and driving. Meanwhile every airport management thinks what we need to be fancy. I'm sure there will be a bunch of PR statements about first impressions and so on.
As a NPonian I think the new airport capex was not financed by NP ratepayers but opex is funded by aircraft/passengers. ie no ratepayer subsidy.
Also the same for GB art gallery (Govett Brewster to the non NPonians). As far as I'm aware the capex was funded in part by fund raising and central govt. contribution. A limited amount spent by NPDC ratepayers during the investigation stage. I believe opex is subsided by the ratepayer, not withstanding some councillors saying it would pay for itself which I'm pretty certain it hasn't.
I fail to see how this proposal can be workable if you take the regional council's as an example look at what happened to e_can the government changed the rules to allow more pollution by force as they weren't getting the outcome they wanted and how can any body govern water quality dictated by others that control quality of supply ie nitrate pollutants in ground water . The quality issues start at the source , with sewerage you need to have the power to implement housing policy otherwise you cannot plan let alone fix existing issues .
"However that does not explain the local body outrage; that is for the next column."
Can't wait for that. Does the explanation centre on them not wanting to show just how badly run and maintained by they are or is it that some are real money makers covering other poor areas of council.
The councils collectively own assets worth $40billion and they are being offered $4billion by the government.
Assets they can't sell, and which make bad collateral
also are they really assets, more like liabilities we have to pay for upkeep and replacement all the time on
the only advantage of calling them assets is for the councils to borrow against which would be fine if the money was spent on those assets and not used for other "projects"
Well, if I understand this correctly, this is our chance to get this right. But still it conveniently overlooks the fact that 80% of our water infrastructure is okay. In Tauranga, they are currently replacing the old sewerage pipes from under the main road. The commute suffers but the water infrastructure is being upgraded, as it is in other regions I understand. For the 20% that fail to do this, perhaps we could do some regional trials to see if there's not a better way to achieve ''better water'' without tearing the country to pieces?
So the strengths of corporatisation get overlooked; it is not too difficult to prevent sale outside the public sector unless you have a bloody minded government.
Our next government is likely to be 60% National : 40% ACT and gain power during an inflationary spiral. Good luck with that.
I tend to agree that local authorities do not have the skills or management capability to deal with these issues to the required level. I disagree on the no natural competition though - it is possible to run a household on tank water and even septic tanks for sewerage. With large underground tanks it is more than viable to be self-sufficient.
Te Kooti - there are environmental issues now apparent from non maintained septic tanks. Self sufficiency in sewerage can be a double edged sword for the wider community.
Agreed, but there are also issues with the current sewerage infrastructure. My point is that there are alternatives and it's not a pure monopoly.
The alternative would seem to be to require every new stand alone house built to have a composting toilet.
How many brand new suburbs have popped up over the last ten years where we could have saved millions upon millions.
A water tank and solar panels would have also been great.
in auckland new builds on existing properties have to have grey water tanks to restrict the outflows during heavy rain events,
I don't often agree with Brian, but on this occasion, he seems to be right on target.
Just one point he makes,...."there are no simple technical solutions to charging, especially across regions. Perhaps...Golden Bay .. will be charged more so that East Coasters will pay less" (ditto prioritising projects)...absolutely!
We see this type of problem with respect to Development Contributions...ie somebody buying into a new subdivision pays substantial dollars to meet the costs of consequent demand for all manner of services,...provision of libraries, swimming pools, or even upgrades to adjacent access roads. But in the real world the purchaser can wait decades for these items that he/she has prepaid,...while the contributions are used in distant communities according to council priorities of the moment.
As Brian points out the 3 Waters proposal is loaded with fond hope's, great potential for unforeseen consequences, and the naive sales message that we can achieve better outcomes via better technology, using more bureaucrats, and all this will be achieved at less cost to rate/taxpayers!
How many times have we heard this before from our snake oil salesmen?
"What is the Three Waters restructuring actually about?"
Simple. It's about implementing He PuaPua's racist separatism.
Graham Adams: Jacinda Ardern and the Ghost of David Lange – Democracy Project
Yes, yes,yes kiwikidsnz!! Three Waters has NOTHING to do with domestic water quality, everything to do with giving total control of water to Maori!
Blatant racist separatism at it's very worst!
All the blah, blah blah from Mahuta and co. is unadulterated BULLSHIT! The great majority of drinking water is perfectly fine in NZ. Most countries would be green with envy if they had even our worst drinking water! Anyone on this site who has travelled will know how awful the tap water is in most other countries.
To this economist such a regulator is necessary, although when I see what a hash our parallel regulators have made – say, over airports, electricity and telecommunications – my heart sinks.
So the idea is to nationalise water assets is by giving it to the incompetent; so its not about managing the infrastructure, it's about using it to control the population.
the part of this plan i find the strangest is the areas , why are napier and nelson one area that does not make sense, i understand it is for loans to be taken out but you would have thought they would have split the south island into two areas with top containing Christchurch and the bottom with dunedin and invercargill
Essential read along with this, is Brendon Harre's piece, which points to the sheer nuttiness inherent in lumping Stormwater in with the other two waters. Stormwater management involves urban buildings, street design, drains, ponding areas, consents to discharge, levees, groynes, culverts, bridge design, and much more. The notion that it is all in nicely defined pipes is the source of the madness....
Thanks Waymad nice summary of my piece. Readers can check it out here
https://www.interest.co.nz/public-policy/113085/brendon-harr%C3%A9-look…
I'm not convinced the governments approach is right.
Personally I'd prefer:
a) Amalgamation of local government into economically viable unitary authorities. Many TLAs are currently too small and we don't need so many for 5m
b) Legislated requirements for all unitary government spending to go through cost benefit assessment with the results included in the annual plans for public submission. Probably including requirements that the B/C has to be greater than 1 for the spending to even be considered.
c) Legislated requirements for unitary authorities to spend on their core business first (transport, water, community facilities)
d) Either new legislation or enforced legislation to ensure unitary authorities meet drinking water standards.
d) NZTA to become a policy agency not operator. State highways within unitary authority areas to be planned and managed by the unitary authorities
Preparation for privatisation really, isn't it? To be honest I wouldn't mind a slice, just have to wait until the next right wing government cones along.
Folks - how about the bigger picture?
The energy going into the system is decreasing, so we know less will be done. The poor will be hit first, rich last, so Local Government will be hit before Central Government.
We also know that there is too much infrastructure (all of fossil fuel made, fossil fuel delivered, fossil fuel maintained) ALREADY to maintain; we will be triaging from here on (whether Mr Harre likes it or not).
And as society sinks below maintainable level, governments will call-in 'wealth' to stay last-standing. They have no option, and have all the power; it can be no other way. There isn't the energy left to 'build' to dreamed-of, and it won't happen. The question is what can we maintain, where?
And the answering has to be done locally, by locals.
This, then, like stadiums the world over, is a last step by an obsolete (growth-based anything always becomes obsolete within a Bounded System) regime.
The irony is all the money in the world to pay for infrastructure upgrades, build better quality homes with have water-saving devices, etc. is right there in front of us.
BUT the Govt. chose, through poor land policy use, to give it directly to landowners by allowing them to increase the price of land, in effect rentier monopoly price gouging.
The price is you paid for your property is at least 1/3 more than what it needs to be. This amount can equate to 50% of your mortgage costs.
If even half of that money was used for improving infrastructure and housing, most of our housing water issue, let alone warmer drier houses, would be solved.
Now the Govt's solution for a problem they created, is for us to hand to them the assets to fix something they broke?
I suspect Three Waters is just a backdoor way of providing Maori with some element of control, if not return, from the nation's usable water resources. We shall see but it would be consistent with this government's hidden agenda approach to a lot of things.
Good piece by Brian. His comments on who pays; I suggest the minister made her statement because the intent was that the bodies created to manage the assets would be empowered to levy the users for water charges. this would mean that rates COULD reduce. It by no means, means they will reduce. But make no mistake, as Brian says, you the user will be paying, and as some have indicated likely considerably more than currently. so the end effect will by this is going to cost us all a lot more.
Brian doesn't answer a question I have wondered about. There is much law in place that drives how local Governments function and operate, so why hasn't the Government simply enacted some law that drives the requirement for them the manage the water infrastructure in their area of responsibility? They would also need to establish, if they don't already exist, a set of auditable standards on the infrastructure and set a minimum required standard. This would be a lot cheaper to everyone, hold local Government to account, and look a lot less like a power grab.
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