Nationalising water, sewer and stormwater services (update)

Things have moved on a little since I last posted on this issue. Minister Mahuta has not been coy about the possibility of transferring the three water services out of council hands into some new entity. Call it an open secret that this is going to happen. Although we don't yet know what kind of entity it will be, the most likely is some kind of Crown-owned structure like an SOE.*

And what will happen is that the government will announce that it is transferring all the assets and liabilities related to water, sewer and stormwater out of council books and into the new entities. The tricky part for the government is not that the average person will be particularly outraged at some loss of local autonomy. More likely they will be confused, possibly outraged, that the government will not be paying for these assets.

Let's be clear there is no legal or financial reason why the government should buy the assets. But there is always this lingering idea that somehow the locals "paid for" these assets and should be compensated for their removal. It is a mistaken but deep-seated view that will be hard to handle politically.

There are some really good reasons for the restructure and there are some really bad ones. The two main good reasons are:

(i) the SOE's should be way more nimble in extending infrastructure to support urban growth. In turn this will contribute to making housing more affordable. I think it is now widely accepted that one of the reasons for under-building is simply that there is no infrastructure to attach new properties to; and

(ii) the SOE's will be in a better position to upgrade stormwater systems to cope with the expected increase in severe rainfall events. Councils have known for years that they need to invest heavily in upgrading stormwater but the difficulty of finding funds to do it has held them back.

So when it comes time to announce the restructure the government will have to deliver the unpalatable message to the public that 'their' water schemes are being taken from them and the only compensation will be higher water charges and a decrease in house value. Ugh! They will try to sell the idea that consolidation will deliver efficiencies but I don't think anyone will buy that these days.

The one pathway through this political nightmare requires demonising the councils. The message will become one of having to remove these services for the good of the public (putting water into fostercare?). The government won't have any problem with this one. Local Government New Zealand research has already revealed the low level of trust the public have in their local council. The audience is already primed to hear any negative message about council performance. So far the government have said little but the framing has already started in the media with some support from lobbyists.

What we are hearing is that 1 in 5 New Zealanders are "at risk" from their water supply and that we have a looming problem with ageing infrastructure and no plan to replace it. Neither is even remotely true but both charges will stick fast. The charges are plausible enough to induce major media outlets to report the announcement uncritically and to muffle any public outcry.

I will be sad to see water pass into other hands. During the heroic age of local government in the 19th Century councils transformed the lives of urban dwellers as they constructed water and sewer networks. On the other hand this is the 21st Century and we have other problems now.

My problem with this process is that we are now locked into proving that some other structure will be better than councils at sustainably delivering effective water services especially safe drinking water. But to a certain extent that is solving the wrong problem. The main reason councils don't roll out infrastructure more quickly and why they don't beef up their drainage is just good old-fashioned money. I have no problem with restructuring the sector but I sure wish the current effort was focused on the best way to finance infrastructure. Not what a terrible job councils are doing.


* It is very unlikely to be some kind of management company with councils retaining ownership of the assets. The main benefit of the restructuring is to get water services debt right out of council books. Any hint that councils remain ultimately liable for debts over water assets (i.e. because they own the assets) would prevent that possibility from the start.