Rates Rises (a perennial favourite)

The Taxpayers Union and the Ratepayers Alliance have done their annual roundup of council rates and, predictably, have complained about the higher-than-inflation council rates rises. Like most people these groups seem to hope that they can get a fabulous basket of public goods for a lower and lower price. Ratepayers do get a chance every year to say what they would like cut from the budget but very few ever offer a suggestion. So, general complaining about the level of rates rises is common but it is rare to hear a suggestion that the community tolerate bumpier roads or longer grass on playing fields in return for lower rates. (To be fair councils make it next to impossible for the public to understand what their choices actually are).

The easiest way to get costs (and possibly rates) down is to stop providing services. Councils would save a fortune if they closed their libraries. Disclaimer: I personally would fight against closing libraries but it is an example of the hard choices that need to be made if you are serious about rates.

The hope of many critics is that councils are somehow wasteful in their expenditure and that they could produce the same basket of goods with less inputs. The most common criticism I hear is that councils are over-staffed. While that's probably true in the same way that all large, complex organisations end up overstaffed, consider that a 5% cut in a council salary bill would only lop off about 0.5% from the rates bill. Odd though that seems, most councils only spend about 20% of their expenditure on staff salaries and the remaining 80% on purchases. While being appropriately staffed is a good discipline it's not really where the money is in territorial authorities.

Council purchases include energy, insurance, office supplies and IT, communications, advertising etc. So, the normal purchases any business would have. But the vast bulk of the purchased items is contracted construction and maintenance of roads, water infrastructure, buildings, parks and reserves, and sports grounds. Most households are familiar with what feels like astronomical rises in energy and insurance costs but what about civil construction costs? Statistics NZ helpfully track input costs like civil construction so it is possible to put together a chart like the following:

For ten years after the reorganisation of local government rates and construction/maintenance costs seem to have moved in line with CPI. Since about 2000 they have diverged significantly. What is probably a council's largest input cost has more than doubled compared to CPI in the last 18 years. Consumer price levels generally set the ratepayers expectations about what the rates rise ought to be but the civil construction price levels dictate what it actually costs a council to provide the infrastructure and related services.

I have no explanation for why this has happened. I note that it has occurred since it became commonplace for councils to divest themselves of their works departments and put all outside work out to tender. And tendering is not as competitive as you might think since public sector tendering rules tend to lock many smaller players out.

Whatever the reason, it's no surprise that people are grumbling about rates. An inquiry into why civil construction prices have risen so significantly would be useful. Until then it's hard choices like close the libraries if you want lower rates.

Are 1-in-5 really at risk?

One likely reason that will be given for taking responsibility for water services off councils is that they are not doing a good enough job at supplying safe drinking water. The sound bite goes something like "1 in 5 New Zealanders are at risk from their drinking water". This claim will play well in the media spreading a bit of fear, uncertainty and doubt but it is beyond inaccurate, it is meaningless.

Think about it. If that claim is true it's inverse must also hold: "4 in 5 New Zealanders are at no risk from their drinking water". And, if that strikes you as too good to be true you are right. The reality is that there are always possible threats to human health from water supplies. So, all New Zealand residents (and visitors to the country) are at some risk from drinking water; it's just a question of where on the risk spectrum they lie.

So how do we hold these threats at bay? Until 1995 it was entirely up to individual suppliers. From 2008 onwards water suppliers have had to register with the local DHB and meet compulsory performance standards. In between was a voluntary registration scheme.

Water Supply

An estimated 82% of people in the country get their drinking water from a registered water supplier. Almost all the registered suppliers are councils but there are some registered schemes run by the government (schools, defence forces and DOC), private operators and communal operators. There is no particular reason why councils are the main water supplier other than it has always been that way. Anyone can set up a commercial water supply if they want.

Those who cannot or do not want to get water from a registered supplier self-supply. So the remaining 18% of New Zealanders get their water from an unregulated supply (i.e. their own bore or the roof). But anyone might access an unregulated supply at any time (at work or visiting friends etc). With diseases like giardia present in some of our back-country streams anyone could get gastroenteritis simply by scooping up a drink while tramping.


Compliance with Drinking Water Standards

The main commitment registered water suppliers make is to take all practical steps to comply with Drinking Water Standards. Compliance involves a whole bunch of things. Mainly it's based on the results of continuous water testing. The water tests get divided into three main categories: bacterial, protozoal and chemical. If a scheme fails in just one category it is still deemed to be overall non-compliant. Note that a scheme can also be non-compliant for a few process reasons. For example, a scheme will be classed as non-compliant if the operator hasn't tested the water frequently enough. The "1-in-5" stat is estimated from the number of registered schemes that have officially failed to comply with every single standard.

Currently an estimated 20% of the people who get their drinking water from a registered scheme get it from a scheme that has failed at least one of the standards. This is actually 16.5% of the total population. And if you are going to be completely truthful about the number of people drinking water that has not met the standards then you have to add in the self-supply group. A more accurate statement about those "at risk" would be: 34% of the population regularly drink water that has not been proven to come up to standard. If you were worried about "1-in-5" then how worried are you about "1-in-3"?

The Review of Three Waters is unlikely to recommend any action that would apply to anyone other than councils. The self-suppliers will continue to be unregulated and the government can continue to operate its non-compliant supplies in Waiouru, Linton and Ohakea. Whatever the government chooses to do with council supplies, about 1-in-5 of the population will continue to drink water that does not meet the Drinking Water Standards. Which I think is where we came in.

Safe Water and Water Testing

So you are safe if you are on a compliant water supply? The existence of Drinking Water Standards and the 'name-and-shame' tables published by the Ministry of Health provide false comfort. Just because a water scheme meets the Drinking Water Standards does not mean that no-one will ever get sick from drinking its water. The Havelock North supply was passing all the tests with flying colours right up till the day 5,000 people got sick.

Water that complies with the standards is not pure water, it is safe enough water. All drinking water is allowed to contain low levels of contaminants. The bulk of the Drinking Water Standards specifies what those maximum allowable values (MAV's) for contaminants are. Interestingly the standards also specify how often a scheme is allowed to breach those MAV's during a year, by how much and for what length of time. As long as a water supplier doesn't breach the safety standards too badly they won't lose their compliance status.

The tests, themselves, are practical but not as precise as you might think. You can get sick from water that tests clear and you may be in no danger from water that fails a test. In the bacterial and protozoal categories the regular tests only look for indicators. In particular the practical daily tests for protozoal contamination can't tell the difference between the dangerous and the safe strains of those organisms. Operators and regulators take the cautious approach (as you would hope) of assuming that a positive indication does mean the presence of harmful contamination. But when those failed tests lead to name-and-shame or very important policy decisions they need to be treated with appropriate caution. On the other hand it seems there is no way of screening out the country's most virulent infectious disease, norovirus, from a water supply in the extremely unlikely event of it getting in there. So there is no test or standard for it.

The biggest hole in the testing regime is that in most schemes by the time you find out about a dangerous contamination it's too late. There is a clear preference in New Zealand for suppliers to get drinking water from a naturally safe source and to distribute it untreated. Generally that works well. But Havelock North showed us that it is possible in unusual circumstances for a supposedly safe source to get contaminated. In that specific case the effects of contamination were obvious in the community long before the test results indicated a problem.

Risk

One thing missing from all public discussion of drinking water safety is how many people actually do get sick from their drinking water. After all the whole point of regulating water supply is to reduce the incidence of water-borne illness. Accurate statistics relating specifically to regulated water supplies are not published. The Ministry of Health makes no attempt in its Annual Review of Drinking Water Quality to link the data it has on disease notification back to the performance of the water supply sector. The Ministry does publish an annual surveillance report that analyses the outbreaks of disease. Unfortunately the report sheds no specific light on regulated water supply as a source of disease so we have to infer what we can. Note also that this data only relates to outbreaks where more than one person gets sick because of a single cause. Also the reporting rate is probably below 20% for water-borne disease for the very good reason that the majority of the people who contract a water-borne disease don't get sick enough for them to need to see a doctor.

Looking at the 2015 surveillance report (2016, the most recent report, is skewed badly by the Havelock North outbreak) we find that there were 89 reported cases of water-borne illness. 26 of these 89 cases were contracted during a school trip to Nepal. So maybe 63 cases were domestic (no guarantee). These were all situations, all circumstances, whether water was the primary source or just helped disease along later. So, the chance that you contracted a water-borne illness in New Zealand bad enough to warrant a trip to the doctor in 2015 was about 1 in 70,000. The probability that you got that illness from a council-run water supply was probably much lower.

To get a sense of perspective and a sense of the trends the following graph takes the data from all the available surveillance reports and normalises the data for changes in population:

Although there is a clear growth in the incidence of notifiable diseases in New Zealand between 2001 and 2016, water-borne illness is not contributing to that growth. In fact what is noticeable is that all the high profile interventions by the government have made no difference at all. In 2001 water supply was unregulated and compliance with the Drinking Water Standards was voluntary. By 2015 the Ministry of Health was regulating water supply and compliance with the standards was mandatory for the majority of supplies. Yet, between those two dates there does not appear to be any significant change in public health outcomes.

A more accurate risk assessment

We can do better than "1-in-5 New Zealanders are at risk from their drinking water". The phrase "at risk" has no meaning at all. We are all "at risk" from being hit by a meteorite, so what? The data suggests that the difference in risk from drinking water from a compliant water supply versus a non-compliant supply is not yet measurable. Specifically the probability that anyone will contract an illness from their drinking water is very low and, even if they do contract an illness the probability of of that illness causing severe problems is also low. It's doubtful whether bringing all the currently non-compliant water supplies to compliance levels would make any practical difference to our risk levels.

Of course it matters whether water suppliers are careful about the quality of water they supply.  The point is that the suppliers were already doing an adequate job before the government interventions of 2008. And, yes, they could do still better. The question is whether a mandatory set of upgrades of water supply schemes would be the best use of public funds today. I can't see any significant problem that would justify diverting funding in this direction.

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.

The Nationalisation of Council Water Services

In June 2017 the National-led government launched a process that could lead to the nationalisation of the water, sewer and drainage services currently owned and operated by local councils. Nationalisation would be an extreme and draconian outcome so why would the government even consider it? It's hard to say because the "case for review" is thin; populated by untruths, half-truths and crucial omissions.

For instance the paper complains (para 16) that the sector has "minimal central oversight to provide transparency, address challenges, and actively encourage service improvements". This is simply untrue. The real problem is that central government is not organised enough to collate all the public information that is already available. For a start the provision of potable water is totally regulated by central government and their agencies. Any member of the public can go to the Ministry of Health's website and read reports on the performance of councils and other water suppliers with respect to the Drinking Water Standards devised and published by the Ministry of Health. The same Ministry of Health via District Health Boards is the absolute gatekeeper of whether a council is a registered water supplier. It is true that the rules about what sewer and drainage systems are allowed to discharge to land or water is set by regional councils during the consenting process but those rules are based on standards set by the Ministry for the Environment and the Ministry of Health. Those discharges are monitored and data kept by the regional councils. So, central government already sets the standards councils must meet through their water systems and the data already exists on how those standards are being met. Central government just needs to get its act together and collate the data if it wants re-assurance that its own rules are being complied with.

The Havelock North gastro outbreak gets a mention (as you would expect). It is worth bearing in mind that the Inquiry into the outbreak concluded that the most likely cause was a highly improbable combination of factors and that all players had followed central government rules to the letter. As for the Mangawhai Heads Sewer debacle at Kaipara District, it was simply a failure of governance; it could just as easily have been a library project as a sewer project. I wouldn't count either event as an indicator of problems in the provision of water services.

Unbelievably, rocketing house prices in Auckland are blamed on the inability of citizens to know what is going on in their water systems!

It will also be news to the Auditor-General that there is "little consistent, reliable information on the state and performance of three waters systems" (para 19). Since 2006 the A-G has required councils to base their Ten Year Plans on properly constructed asset management plans. These are assessments of the current state and performance records of all assets including the three waters. They include a pro-forma work-plan for anything up to thirty years for extending, replacing and upgrading assets. So this year's TYP round will be based on the fifth revision of council asset management plans.

There's more but, all in all, I found the case for the review entirely unconvincing and, in places, bordering on the incoherent.

The worst aspect of it is a significant omission: public health outcomes. If we had a current or emerging problem in water supply and to a lesser extent in sewer we would see it in the incidence of communicable disease outbreaks. Fortunately the Ministry of Health has been publishing a surveillance report on disease outbreaks for some years. The graph below shows the total number of cases of communicable disease each year normalised for population growth. Then broken out are the figures for water-borne and food-borne disease:

I have included the cases where water transmission is implicated in an outbreak but was not the primary mode of transmission. Had I only included the cases where water was the primary mode of transmission the numbers would barely have ticked above zero. By the way these figures include the Havelock North gastro outbreak which was the worst single outbreak of communicable disease since these reports began. Yes, it's that uptick in 2016.

The graph tells the story. Water just doesn't look like a problem either trending or relative to other public health issues. Any desire to fix the system, therefore, has to be based on fear of what might change one day.