Question: What is the government’s "Local Water Done Well" plan and why is it significant?
Answer: The LDLW plan is the coalition government's answer to the contentious and troubled Three Waters reform of the previous Labour government.
Question: What’s the gist of it?
Answer: The idea is to keep drinking water, stormwater and wastewater systems under local control while imposing strict water quality standards. Councils will be required to invest in maintaining and upgrading infrastructure, with stronger government oversight ensuring these standards are met.
Question: How does LWDW differ from 3W?
Answer: There are significant differences:
Where LWDW keeps water assets under council control, 3W would have transferred control to a smaller number of regional entities with mandatory co-governance.
The 3W entities would operate under mandatory co-governance mechanisms. This is not mandatory under LWDW.
LWDW requires councils to ringfence funds specifically for water infrastructure, to be raised through user-payment mechanisms or rates. 3W would have transferred the costs to the 3W entities.
Where LWDW introduces stronger central oversight to enforce strict water quality and investment standards, 3W would have centralised control in the 3W entities with several layers of insulation from community input.
Unlike 3W, LWDW solutions won't be uniform across the country. The idea is that each council will have the flexibility to address its unique water infrastructure challenges provided they must meet standards set in Wellington.
Question: What are the drawbacks of this approach?
Answer: LWDW does not create the economies of scale that 3W was claimed to deliver. The idea was that the 3W entities would be large enough to access debt funding at lower interest rates than those to which smaller entities typically have access.
Furthermore, it is a commonly held belief on the left that larger bureaucracies reduce wasteful duplication, so a smaller number of entities managing a larger portfolio is believed by 3W proponents to be more efficient.
Question: What happened with Auckland over the weekend?
Answer: The government and Auckland Council have agreed a new water management model under LWDW. The plan is to enable Auckland’s Watercare to borrow more money for long-term investment in water infrastructure while spreading borrowing over a longer period. The plan was endorsed unanimously by Auckland Council, I should add.
Anyway the upshot is that a projected 25.8% water rate increase has been reduced to 7.2% as a result.
Question: Wasn't 3W going to result in an even lower rates increase for Auckland of 2%?
Answer: Kind of. On paper anyway. However, the framing here is misleading. While 3W was designed to result in lower increases in the near term, it was actually spreading a larger total cost across a longer term.
But also, it’s important to remember that 3W costings remained hypothetical at the time it was cancelled. 2% was an early, optimistic estimate designed to sell 3W rather than a guaranteed outcome. And the track record of New Zealand government’s delivering things on time, at the estimated cost and with the promised benefit is… somewhat spotty.
And if you doubt it, I’ve got an Auckland cycle bridge to sell you. Meet me at the airport and we’ll take the light rail system to get there.
Question: Right. So how does this work?
Answer: Watercare hasn’t been able to borrow like it needs to because its debts are also considered to also be debts of Auckland Council (which owns Watercare). That means that when Watercare borrows money, it impacts the council’s credit rating and borrowing limits. This makes it harder for Auckland Council to access credit for its own commitments.
The new model solves this by treating Watercare’s borrowing as separate from the council. This has been recognised by international credit rating agency S&P Global Ratings, which enables Watercare to access more funding for long-term infrastructure investment without affecting Auckland Council’s credit rating or debt ratios.
Question: What?
Answer: Imagine the Auckland family, living in a big, old house that desperately needs repairs and upgrades. Mr. Watercare, wants to take out a loan to fix up the bad plumbing of the house. So he and his wife, Mrs. Council, make joint application for a loan with a finance company.
However, Mrs. Council has lots of other debts and commitments and applying for more borrowing will negatively impact her credit score. What they agree is to untangle their family finances so Mr. Watercare and Mrs. Council have separate bank accounts and responsibilities for bills in their own name.
This allows Mr. Watercare to apply for and be granted a loan in his own name without impacting Mrs. Council’s obligations or credit score.
Question: Will the Auckland fix work for every council in New Zealand?
Answer: No. While this looks set to work well for Auckland and Watercare, implementing similar models across all councils in New Zealand is unlikely to work (at least in the same way) due to local differences and challenges, which are not uniform across the country. Customised solutions may be necessary for smaller councils, and support from central government could be crucial in ensuring successful implementation.
Question: So is this a win for the government or not?
Answer: Yes. Securing balance sheet separation for Watercare is low-hanging fruit, However, we are talking about water services for 1.7 million people here. Getting this across the line was important.
Despite being the easiest reform to deliver, Simeon Brown's success in achieving it well inside a single year is a humiliation for Labour, which dithered for years without making anything like the same progress.
Debt cap issues were most acute for Auckland and once Brown & Co. got stuck in, the fix was relatively simple. That stands in stark contrast to the previous government’s $1.2 billion goose chase despite the availability of a cheap and fast solution for a third of the country.
Question: So what’s not to like?
Answer: The name. Local Water Done Well is a clunky name. Since “Three Waters” always had a sinister sound to it, this feels like an overcorrection. The six word name simply lacks a smooth, rhythmic flow that makes a name catchy and memorable. It's a bit awkward to say aloud and just lacks punchiness in my opinion.
Question: Okay well what would you call it?
Answer: Thanks for asking. I’d suggest anything like:
Supported Community Control;
Results First Regulation; or
Performance-Based Standards.
Question: Aren’t those also terrible?
Answer: Yeah, well, that's just like, your opinion, man.
Love the close - a nice light hearted end to the day’s serious reading hour 🙂
"And if you doubt it, I’ve got an Auckland cycle bridge to sell you. Meet me at the airport and we’ll take the light rail system to get there" I can feel the heat from that burn.