The new Raetihi Water Treatment Plant came online in August 2018 at the cost of $2.5 million. Ruapehu District Council took on debt for this and other Three Waters projects on the understanding that the debt would transfer off its books from July 2024. Photo: Supplied via LDR
A rural council that hit its debt ceiling while expecting relief from Three Waters cash is warning that the cost of water services is about to balloon.
Ruapehu mayor Weston Kirton said communities like his face massive bills to improve drinking-water quality and renew wastewater treatment and stormwater networks.
"There will be no free lunch for delivering water services in the future," Kirton said.
"The quality will be good but the amount the ratepayer has to pay is likely to increase. It will be ugly."
Under the previous government's Affordable Water Reform (earlier called Three Waters), Ruapehu District Council "significantly" increased borrowing to upgrade water infrastructure on the understanding that the debt would be transferred to a new multi-regional entity from July this year.
The legislation was scrapped by the new government under urgency in mid-February, leaving the Ruapehu council with a debt problem.
Kirton said the repeal and new approach to sector reform had "significantly impacted" planning and introduced fresh uncertainty.
When commitments made by the previous government were unwound, the council's debt-funded infrastructure decisions were affected, he said.
"The new model keeps water debt and responsibility for water services with councils, meaning we have had to include them in the long-term plan.
"People have been misled over the last five years thinking that in 2024 the government would repay debt taken out to fund Three Waters. Compliance [requirements] have increased, the bar's been raised in terms of quality and performance, and that's added to the costs of upgrades."
Over the past three years, the Ruapehu council increased debt by borrowing between $16 million and $20m to upgrade water and wastewater at its six plants. The council invested in improving wastewater treatment quality and reducing the impact of overflows.
"We needed to do that to achieve compliance, but it was done on the basis that debt would be repaid on 1 July 2024 by the government through the water reforms."
Kirton said the council needed to know when it would get water debt off its books.
Ruapehu District Council recently opted to raise its self-imposed debt ceiling, increasing total debt limit from "less than" to "no more than" twice its annual rates revenue.
It expects debt to rise from $60m to $87.6m by the end of its new 10-year plan if Three Waters upgrades are included without Government assistance.
It also raised its self-imposed rate increase limit from the Local Government Cost Index (LGCI) plus 2 percent to LGCI plus 3 percent. The adjustment was made to allow a balanced budget, gradual debt repayment and to help the council keep to its two-times-rates-income debt limit.
"Our story is echoed around the country," Kirton said. "Some other councils have reached their max in terms of borrowing. The story is the same - they need billions of dollars spent on water and are waiting for the government to show their hand."
He had no answer as to how best to protect ratepayers from "extraordinary charges".
"What is the water charge going to be in five years' time? I have no idea. It could be anything from double to triple."
Affordability was the key strategic challenge facing the council, according to its recently adopted long-term plan (LTP) financial strategy.
"There has been a significant increase in costs since the last LTP and this has further constrained the amount of work that is able to be done with existing levels of funding," the strategy states.
"Council will need to maintain a prudent approach to debt and rates to ensure affordability for current and future generations."
Kirton said the council had to "squeeze the last dollar out of the ratepayer" to keep annual rates increases for each of the next three years to 9 percent.
"That lifts revenue up to match our ability to pay debt. We can't go lower than that. We have no ability.
"There is no ability to do anything else apart from the essential. Our debt would be over our self-imposed levels.
"We'll manage, but it will be a juggle to get over the next three years."
Local Government Minister Simeon Brown said the government's Local Water Done Well policy was progressing well and at pace.
"We have already delivered a financially sustainable model for Watercare in Auckland and will ensure that other communities have individual solutions that best suit their needs," Brown told Local Democracy Reporting.
"Shortly I'll be providing key details of Local Water Done Well's enduring settings. This will include new water services delivery models that provide councils with further options and flexibility to determine their future delivery arrangements."
Brown said Labour's Three Waters regime was expensive and bureaucratic, and would have stripped local communities of their water assets.
LDR is local body journalism co-funded by RNZ and NZ On Air.