Three waters reforms: Working group urges government financial backing

Councils should have shares in three waters entities - with the government on the hook financially, a working group of mayors and Māori representatives says.

Auckland mayor Phil Goff - a member of the group - has refused to support its proposals, saying they still fail to live up to the needs of the supercity.

The Governance and Accountability working group was tasked with advising Local Government Minister Nanaia Mahuta on how to address concerns over the government's proposal to have drinking, waste and storm water management handed to four regional bodies, and formally reported back yesterday.

Led by public sector advisor Doug Martin and made up of nine mayors, nine Māori representatives and the chair of the reforms steering committee, the group made 47 recommendations.

It urged the government to give councils a shareholding interest in the four waters entities based on population - one share per 50,000 people - partly in an effort to address concerns over loss of ownership and the risk of privatisation.

Western Bay of Plenty mayor Gary Webber, who was on the working group, told Morning Report that would protect against the water service entities or their assets - such as dams or sewerage plants - from being sold or privatised.

"The recommendation is that up to 100 percent of the councillors - or if they went out to a poll of the population - would have to approve the sale of that share, buyt that would also have to have the unanimous approval of all the other councils in the entity.

It would not mean the water service entities paying a dividend, he said.

"What we have said is these are services to the communities and the aim is not to make a profit, it is to run them basically at zero base profit, recovering the full costs of the operation."

The government's proposed law included some protections against privatisation of assets or the entity itself, but the group wanted more - including a requirement for 75 percent of MPs to back any kind of ownership proposal.

A government suggestion of expanding the Regional Representation Group (RRG) membership numbers - up to double the number of councils covered by the entity - was rejected in favour of having 12 to 14 members, with a special setup for the Northland/Auckland entity.

These groups should be led by co-chairs - one from councils and one from iwi / hapū, the group said - to ensure co-governance, and could decide themselves how membership would be apportioned. Smaller sub-groups of the RRGs should also be provided for in the law, the group suggested, to ensure feedback from local areas were not lost.

Debt guarantees

One of the bottom-line requirements for the working group was that it ensure balance sheet separation - a financial term for the separation of ownership and control over assets being borrowed against, which would enable the water service entities (WSEs) to borrow larger sums for repairing and improving water infrastructure.

That was a tricky ask - considering the government's latest proposal appeared to fail to achieve this.

The solution: that the government take on the debt risk, with a recommendation "the Crown confirms that it will provide sufficient financial support to the WSEs to ensure 'balance sheet separation' from councils, that the WSEs have sufficient borrowing capacity to invest in the required infrastructure".

It also said the government should continue to talk with global ratings agency Standard and Poor's - which prepared the initial advice on benefits of different reform models - to ensure balance sheet separation could be achieved under whatever model the minister arrived at, something Internal Affairs has already committed to.

It would not mean the debt going on the government's books or the councils books - just that the debt was guaranteed.

Hutt Mayor Campbell Barry was also on the group, and told Nine to Noon the government needed to look hard at who would play that guarantor role - and councils were clearly not in a position to do that.

"I think that's really important that if government is choosing to go through this reform programme and set up new entities, that ultimately that should not fall back on councils if things were to fail in their operation," he said.

"We're also saying maybe there is a place for government to step into the fold there given their proposals and the reform that they're wanting to take."

He said he hoped the recommendation would be the chance for a reset of the reforms, and more councils may get on board if the group's recommendations were accepted.

"There needs to be an acknowledgement from government that councils have played a key role in maintaining and building these assets up. So there actually needs to be a little bit of humble pie eaten and an acknowledgement given."

The group was also tasked with ensuring the reforms live up to the aspirations of Mana o te Wai - a mātauranga Māori approach to water which focuses first on the health and wellbeing of water and water systems, secondly on the health of people, and third on social, economic and cultural wellbeing.

These principles should be embedded at every level of the water service entities, the working group said, including by the government and the minister.

The overall system should be reviewed after five years, the group said.

Webber said he expected the moves would go some way towards easing the concerns of the three waters reform critics.

Auckland's unique position

Goff took an alternative view, publishing a minority report along with the group's findings.

He said the proposals would leave Auckland as a minority voice despite contributing the overwhelming majority of assets in Entity A, and called for the Watercare model to remain.

There was insufficient evidence that the government's model would achieve the gains it promised, he said, and the inclusion of stormwater had not been adequately considered.

Barry acknowledged that Auckland's position in the reforms was unique, but said it still had the challenge of the assets being on council own books, and the council's ability to borrow was impacted.

"It's something the government's going to need to grapple with and understand that there is a unique situation in that Entity A area."

"Their borrowing is still limited and we know even in Auckland there is a need to increase investment."

Next steps

Mahuta has refused to commit to enacting the group's recommendations, but is expected to consider them as the government works towards introducing legislation in mid-2022.

"Cabinet will carefully consider the recommendations in today's report from the Working Group on before finalising reform plans and introducing legislation. We know it is important to get this reform right for every New Zealander," Mahuta said in a statement.

"We are committed to ensuring local councils continue to have a vital three waters role by representing the interests of their communities at the highest level of each new water services entity alongside mana whenua, and by owning these entities on behalf of their communities."

She said next steps were aimed at ensuring local expertise would transfer over to the new entities, and ensuring they would be accountable and responsive to communities.

Mahuta said she would provide an update once Cabinet had time to consider the report.

Barry said the government needed to listen and admit it had got things wrong, including the multimillion dollar TV ad campaign which offended councils.

"It needs to acknowledge the genuine concerns of councils and the public. And I say the genuine concerns because I would say not all of them were particularly genuine.

It would also need to adopt most if not all the recommendations to "hit the reset button and move forward" with hopes of getting councils and the public on board.

The group's recommendations:

legislation (including in issuing the government policy statement and in monitoring, review and intervention powers.

• 1. The Crown acknowledges the contribution of councils and begins a communications campaign to explain the 'need for change' the nation.
• 2. The Resource Management Act reforms are kept consistent with the three waters reforms.
• 3. That councils be given shares - one per 50,000 people represented, rounded up - in each of the four water entities. Councils will be needed to vote on any proposal for sale, privatisation, merger or other proposal to change ownership. This vote must be unanimous.
• 4. Alongside other privatisation protections, a majority of 75 percent of MPs in Parliament would be required to repeal or amend provisions of the Bill concerning privatisation of water entities.
• 5. Councils are prohibited from providing financial support to, or for the benefit of, water entities - including by way of guarantee, indemnity or security, or the lending of money or provision of credit or capital.
• 6. The Crown should further clarify what constitutes a "major transaction" to be raised to the RRG for consideration.
• 7. Instead of one chair of the RRG, there are co-chairs, with one from councils and one from mana whenua.
• 8. RRG decisions are to be made by consensus. When time runs short, a 75 percent majority vote can be taken as agreed by co-chairs.
• 9. Water entities should fund the RRG's administrative costs.
• 10 and 11: The RRG puts together a Statement of Strategic and Performance Expectations (SSPE), which includes alignment with the Government Policy Statement (GPS), direction from regulators, local community priorities within the region from council strategies, Te Mana o te Wai statements, and alignment with RMA. It should receive all the information it needs to do this, and be able to seek further information as needed. The SSPE, issued annually, covers a period of three years.
• 12: RRGs be given the power to approve water entities' Statement of Intent (SOI).
• 13: RRGs be given powers to comment on water entities' operational direction in the Asset Management Plan and other key documents.
• 14: The SSPE scope be clarified in legislation. It would not extend to directing entity projects, investment or management.
• 15: Water entities should provide minimum six-monthly reports to their RRG on performance against the SSPE and SOI, with individual entity constitutions able to specify more requirements.
• 16: RRGs can provide additional requirements for water entity board apointees.
• 17: Conflict of interest requirements for RRG and WSE board appointments should to be stated in the bill.
• 18: The Bill should include twice-yearly entity board performance reviews, with an option for additional reviews in individual WSE constitutions.
• 19: RRG size should between 12 and 14 members. (Not between six and double the number of councils, as the exposure draft bill suggests) with composition and appointment left to individual water entities and outlined in their constitution. Government should further consult with the working group on this.
• 20: RRGs should be required to include a mix of urban, provincial, and rural council representatives.
• 21: Iwi representatives should be appointed on a tikanga basis, reflecting whakapapa affiliations through waka groupings. Entity D (Ngāi Tahu) reflects hapū groupings.
• 22: Entity A's RRG has a bespoke arrangement: 14 members with 50:50 Council and iwi / hapū composition. There should be four Auckland Council representatives, four Tāmaki Makaurau iwi / hapū representatives, one representative from each Northland Council and three iwi / hapū representatives from Te Tai Tokerau. However, a minority of members of the working group expressed concerns that keeping majority voting of 75 percent would mean Auckland Council could not be outvoted, leading to an imbalance of power.
• 23: The Crown provides financial support to councils to allow them to fulfil their RRG roles.
• 24: A competency requirement for RRG members, with details left to individual WSE constitutions.
• 25: Regional sub-RRGs are provided for in legislation. Other than 50/50 co-governance between council and iwi / hapū, composition and number of advisory groups (sub-RRGs) will be left to individual WSE constitutions.
• 26: Each WSE and its RRG is governed by a single constitution, with modifications requiring co-governance RRG consensus agreement.
• 27: The Crown consults the Working Group as they draft the default constitutions.
• 28: RRGs given authority to comment on investment prioritisation through consultation with the WSE.
• 29: WSEs can engage with councils on the development of the WSE Asset Management Plan, and respond to council comments.
• 30: A national Water Services Ombudsman is established, with a tikanga-based dispute resolution process.
• 31: The Crown and Minister are required to give effect to Te Tiriti and its principles when exercising powers and functions  under the legislation (including in issuing the government policy statement and in monitoring, review and intervention powers. 
• 32: The Crown, in developing its policy statement, should engage with its Te Tiriti partner, separate from any public consultation.
• 33: A guarantee in legislation that nothing creates or transfers proprietary interests in water, or limits, extinguishes, or otherwise adversely affects or constrains iwi or hapū authority over, or rights and interests in, water.
• 34: Treaty settlement mechanisms related to current legal provisions such as in the Resource Management Act and Local Government Act are carried across in the reform legislation.
• 35: The Crown provides equitable resourcing to enable the full and effective participation of iwi and hapū in the three waters.
• 36, 37 and 38: Te Mana o te Wai is an overarching objective guiding decision making, planning, governance, accountability, and service delivery. This should be defined in the Bill to ensure that Te Mana o te Wai encompasses the interconnection with, and the health and well-being of, all water bodies affected by three waters. It should be given effect to at all levels of the framework, including by the Minister in developing the GPS; by the RRG in the development of the SSPE and SOI; in asset management plans and infrastructure strategies.
• 39: The Crown furthers work to design inclusive communications and processes to support the embedding of Te Mana o te Wai in the community.
• 40: Because strategic direction for entities comes from so many places, legislation should include "strengthened provisions around the content of the government policy statement, and consultation requirements", to mitigate the risk of disconnected priorities.
• 41: The Crown should consult with the RRGs in developing the GPS, and follow the standard consultation process including with communities.
• 42: The Bill includes provision for a non-voting Crown liaison to the RRG.
• 43: The Crown will provide sufficient financial support to the entities to ensure 'balance sheet separation' from councils.
• 44: The Crown confirms to iwi and councils the size of investment required to address historic degradation of waterways and inequalities in water service provision, along with a plan on how fixing this will be funded.
• 45: The Crown should have an ongoing role to support and invest in water services.
• 46: A review of the three waters structure is undertaken five years after water service entities begin operating.
• 47: The Crown should formally test the recommendations outlined in this report with S&P to ensure balance sheet separation.