My Position on Government 3-Waters Reforms

Updated: Mar 31

Victor Luca


2-Mar-22


What follows is the full transcript relating to remarks made by me to Whakatāne District Council in response to a Notice of Motion to Join the Communities 4 Local Democracy (C4LD) group of councils assembled by the Mayor Dan Gordon of Waimakariri District Council.


Notice of Motion:

1. THAT the Whakatāne District Council join with Mayor Dan Gordon and the C4LD group of councils seeking to encourage central government to consider alternative models being offered before finalising the proposed Three Waters Reform; 2. THAT the Whakatāne District Council support this group both morally and financially; and 3. THAT the amount of financial support be $15,000.00



Preamble


I would like to thank Councilor Pullar for bringing the motion. I note that while the motion is to address participation in the Councils 4 Local Democracy (C4LD) group, my posture is determined by my attitude to the reforms.


Councilor Tanczos has indicated that there existed some sort of agreement within council NOT to join the Councils 4 Local Democracy (C4LD) group. This is not the case. I recall no such agreement.


I would like to have joined this group from the outset. Maybe it went over the top of my head but I don’t remember ever voting NOT to join this group or even really being consulted. If councilor Tanczos can provide any evidence that there was an agreement, then it would appreciated because it totally escapes me.


After much careful listening, analyzing and deliberating, I have to declare that I’ve got no confidence in the proposed central government reforms of our 3-waters system. Although this reform is all about 3-waters, I have heard nothing of the 4th water, which arguably is the most important of all. Perhaps this will be the subject of another reform.


Although I have already made my main objections to these reforms known via an article I published in the The Beacon of Friday, 5-Nov-21, ‘Expropriation of 3-Waters by Hook or by Crook’, it is still worth emphasizing and expanding on my reasons for objections.


I have lots of reservations in different categories.


The Process: I do not believe that the process has been well conducted. In my opinion, there has not been adequate genuine consultation with local government, but especially with the communities we purport represent.


Rather, central government has been happy to throw local democracy out the window and run rough-shod over communities. We in local government have effectively been thrown under the bus. I perceive there to be overwhelming community opposition to these reforms, and as an elected member, I am obligated to listen and act accordingly. After all, isn’t democracy supposed to be about ‘government of the people, by the people for the people’?


The option to ‘opt-in’ or ‘opt-out’ of these reforms was dangled in front of local authorities at the start of 2020. But by mid 2021 this option was already being subtly withdrawn. Why did this play out in this way you might ask? It is hard to believe that the proponents of these reforms could have so dramatically miscalculated the stance of many councils to opt-out. That leaves me to an alternative conclusion that the original choice between opt-in or opt-out was never genuine. It was Hobson’s choice!


Moreover, nothing in the discussions we have been having over the year has substantially changed anything, as far as I can tell, despite protestation and the airing of concerns by many councils. Our council has voiced its concerns delicately and politely and yet the reform model has remained essentially unchanged? This is not good enough! The C4LD group now numbering 29 councils has taken a much stronger stance and is in the processing of putting up alternative/s.


Justifications: The government justifies reforms principally on the basis of the Havelock North event of 2016 and the well-publicized Wellington waste water problems. On the basis of principally these two issues Government identified systemic failures of the 3-waters system. Yet these are virtually the only incidents they have ever been cited by government during the process. Note that Wellington is the territory in which our parliament is located. i.e. screw-ups have happened under their noses.


The root cause of the Havelock North event was not what the Government has identified. The root cause was that after heavy rains, sheep effluent was allowed to enter the source water abstraction zone located a mere 90 m from the grazing area. This seems to have been played down. i.e. the problem was the source water. A similar cause was ascribed to a much less well known incident in Darfield (S. Island, 2012), the only other similar documented incident I could find in the academic literature. Again, the root cause was sheep effluent making its way into the source water intake. Thus, the root causes of these two incidents were a failure to protect the source water, the 4th water. The solution is simple. Keep animals well away from source water intakes.


The DIA Three Waters Regulatory Impact Assessment - Strategic RIA (May 2021) mentions that in NZ there are approximately 35,000 cases of acute gastrointestinal illness (AGI) contracted from networked drinking water due to non-compliance with the Standards (page 30). This is another justification that has occasionally been trotted out during the reform discussions. However, these estimates of AGI are likely extremely exaggerated due to difficulty in establishing causal relationships. The number could be out by orders of magnitude.


In our district there are about 9 major drinking water schemes and many small private schemes (we don’t know how many). The Whakatāne Valley Road Plant is by far the largest of these schemes since it supplies potable water to more than 2/3 of the district population. This plant is relatively resilient in the sense that it can continue to provide water well into the future, even making allowances for growth. The scheme would benefit from an additional new storage tank costing about $3M. The scheme would also benefit from the addition of an alternative water source to build in resilience. Bringing in a 400-600 mm diameter pipe from the Paul Road scheme would do this at cost about $30M. Council has been talking about this for decades.


The Whakatāne scheme is presently largely compliant, as are all the other council operated schemes, except perhaps Murupara. Under the new regulator, Murupara is probably not going to achieve compliance if drinking water is not chlorinated. Occasionally, there are turbidity spikes (Ruatoki) and flow issues (Matata). The Braemar scheme suffers from excessive levels of arsenic, an issue already being addressed at considerable cost. All compliance issues are diligently taken care of as they arise. Hat off to the folk that deal with the day-t-day issues.


So my assessment is that major council water schemes in our district are in quite reasonable shape. Relatively minor direct government funding would make them more resilient and future proof.


Let us also not forget that this reform involves subsidization of councils that have their 3-water systems in poor order by those that have managed 3-water systems well (such as us).


Economics: I have often expressed my lack of confidence in economic analyses and projections of any kind beyond very short time frames. That is the nature of economics. Economic theories are simply not adequate for reliable long-term predictions/projections. For instance, the predictions of house price movements and inflation even in the short to medium term are invariably incorrect. Economic projections decades into the future, such as what we are dealing with here, are therefore fraught with uncertainty. They are essentially guesses. Economists are generally all over the map on such things.


We have been told that the amount that we need to spend to bring 3-waters infrastructure up to spec is somewhere between $120B and $180B. This large range is a reflection of the lack of confidence government really has in the numbers.


The down-selection of a limited set of financing models has been superficial and arbitrary and the chosen model seems to me to be more a matter of convenience and predilection than anything else.


The chosen model involves merging the 3-water assets and some of the income of 67 local authorities into four large entities and then to use these assets and income to increase the borrowing power of the entities. The problem is that the assets and income council’s transfer to these entities disappear from council balance sheets and therefore diminish the borrowing capacity of councils. Isn’t this a zero sum game?

It has to be appreciated that all new money in our contemporary monetary system is created from thin air by governments and therefore governments can choose what they fund and when. Governments are not households or district councils. Our government has in fact printed copious amounts of NZD since the GFC and this money printing (quantitative easing) has accelerated greatly over the COVID years. Yet Government chooses not to directly fund 3-water infrastructure off its balance sheet but rather burden communities with national and international debt through the issue of LGFA bonds (a fancy IOU).


Water is a critical resource that no one can live without. Period! Government does lip service to the vital importance of water. However, when it comes time to dip into its coffers, the attitude seems to be ‘Not on our balance sheet’, which incidentally is the largest in the land by far.


We in councils subsist on a shoe string while government has the purse strings.


I would set up a Crown Infrastructure Agency whose job it is to distribute crown funds to councils on the basis of need so that they can continue to do what most have been doing well so far and also to make improvements in resilience. i.e. a direct appropriations model. Most government institutions get their funds this way. I have worked for several such agencies myself.


Instead government want communities to fund 3-water infrastructure shortfall that they themselves have caused by issuing debt on national and international capital markets. No thanks!


Loss of Localism: This for me is another bugbear of the proposed reforms. Our district is unique, our water sources are distinct from those of other places and our socio-economic circumstances and demographics are not the same. The proposed model involves WDC water provision being absorbed into another larger decision-making entity along with 22 other councils. It is logical that our voice will diluted despite government protestations to the contrary. In fact small communities might have no voice at all. Maori are by their very nature local and our iwi and hapu will have to compete with many others.


Water Quality: A stated aim of these reforms is to improve water quality (Mana o te Wai’). Yet the Maximum Allowed Values (MAVs) for drinking water are not substantially changing under the new regulator. In fact only six determinands have changed and these have been relaxed not made more stringent. That means that a given water scheme that meets compliance today will also meet the new standards of tomorrow and will not produce any higher quality water than at present. The new regulatory framework will mean that more schemes are brought under the regulatory umbrella in terms of monitoring and enforcement of compliance. This in itself is a good thing, but water quality standard will remain exactly where it is! We always should have had a national regulator. What took government so long. In the nuclear area there are always independent national regulators which I have had to work with.


The 9 or so main council-operated drinking water schemes in our district are today compliant and considerable effort goes into maintaining them this way. In my estimation, we are in quite good shape and any shortfalls could be fixed spending only a few multiples of what we are currently spending on refurbishing the council building.


Ownership: Government says councils would continue to own assets. However, ownership without control is meaningless. If I told you that you owned your car but weren’t allowed to drive it, you would laugh at me. Government assurances that privatization will not occur do not put me at ease. And I am resolutely opposed to the privatization of a critical resource such as water. Nor do I believe that prices will not rise. When the Aussies reformed to their 3-waters system, price rises continued. Of course they do! Water is a scarce resource and as populations rise so does demand.


Competency of Boards: In the new proposed reform much depends on the competency of the boards of the four entities. Among the competencies I have never heard mentioned are the technical competencies of hydrological and chemical engineering, chemisty, environmental science etc. Provision of drinking water to large communities is a highly technical issue and we will need more technology going forward not less. Matauranga is highly relevant to the 4th water but has less relevance when it comes to delivering water to large communities.


Accountability: There will be none when all this passes into history. It will be like the health system and health authorities that cannot prove the economic efficiency mantra they have been trotting out for decades.


What even has been the economic cost of this reform process so far? That should be easy to figure out. Shouldn’t it?


Why Join Communities 4 Local Democracies (C4LD)?


Joining C4LD is a way of putting real pressure on government to actually listen, not just pretend to listen.

Politely expressing concern as we have done is for me not enough, it is about serious push back.


My analysis leads me to believe that there are major flaws in what is being proposed, especially in the area of financing. There are many assumptions, assertions and lots of conjecturing going on to get us where we are.


C4LD are applying real pressure on Government to consider other financing models which is something of paramount importance to me. I would like to see more rigor and consideration of more options.


Given what’s at stake, it is important to our communities to get this right and I see no downside in joining the group and being better informed. We should not be rushing to ram the present reforms through just to meet a government political agenda and timetable.


As for the costs, we spend millions on consulting, the cost of this participation is a drop in the bucket.


I emphatically vote YES to the resolution.

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