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Thursday, 30 September 2021
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Te Hui o Te Kaunihera ā-Rohe o Heretaunga
Hastings
District Council: Council Meeting
Te
Rārangi Take
Report to Council
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Nā:
From:
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Nigel Bickle, Chief
Executive
Craig Thew, Group
Manager: Asset Management
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Te Take:
Subject:
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Three Waters Reform
- Feedback to Government
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1.0 Purpose and Summary - Te Kaupapa Me Te Whakarāpopototanga
1.1
This report updates the Council on:
· the
Government’s 30 June 2021 and 15 July 2021 three waters reform
announcements, which change the reform process previously outlined in 2020
· the specific
data and modelling Council has received to date
· the
implications of the revised three waters reform proposal for Council and
alternative service delivery options
· the
community feedback received
· next steps
(including uncertainties)
1.2 This
report does not require a decision from Council in regards to any opt in / opt
out of the governments draft proposal for three waters service delivery.
1.3 This
report does require a decision from Council to adopt its feedback to government
on the current three waters service delivery proposal, including confirming its
preferred position to advance the Hawkes Bay service delivery model option as
an alternative to the government proposal.
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2.0 Recommendations - Ngā Tūtohunga
A) That
the Council Meeting receive the report titled Three Waters Reform -
Feedback to Government dated 30 September 2021.
B) That
Council directs the Mayor and Chief Executive to prepare and deliver a
Submission Letter to The Minister and Central Government, from Hastings
District Council that confirms and communicates Councils;
· Acknowledgement
that there is a compelling case for change to ensure ongoing safe, efficient
and affordable Three Waters Services delivery,
· Premise that
water is a taonga, the lifeblood of our people and our whenua,
· Receipt of
Community feedback giving a strong message and direction to
Council that there has to be full consultation with the Community regards any
proposed structural change to Three Waters Services and more factual
information is required to inform Community Consultation, and
· Preference for a
Hawke’s Bay Three Waters Services Entity, that will deliver scale and
efficiency benefits for Hastings District, whilst producing a superior
outcome for Hastings in terms of community voice and accountability, Iwi
co-governance and management, and responsiveness to growth pressures and
community needs.
C) That
Council notes the Government’s 30 June and 15 July 2021 Three
Waters Reform announcements.
D) That
Council notes officer’s advice on the accuracy of the
information provided to Council in June and July 2021 as a result of the
Request for Information and Water Industry Commission for Scotland modelling
processes.
E) That
Council notes that a decision to formally support the Government’s
preferred three waters service delivery option may not be lawful at present
due to section 130 of the Local Government Act 2002 (LGA), which prohibits
Council from divesting its ownership or interest in a water service except to
another local government organisation.
F) That
Council notes that Council cannot make a formal decision on a regional
option for three waters service delivery without doing a Long Term Plan (LTP)
amendment and ensuring it meets the requirements of section 130 of the LGA.
G) That
Council notes that the Government intends to make further decisions
about the three waters service delivery model after 30 September 2021.
H) That
Council notes the feedback received from community from a preliminary
feedback process, and agrees that it would be desirable to gain
further understanding of the community’s views once Council has further
information from the Government on the next steps in the reform process.
I) That
Council notes that the CEO will report back to Council once he has
received further information and guidance from Government, Local Government
New Zealand and Taituarā on what the next steps in the three waters
reform process are and how these are to be managed.
J) That
Council in resolving B through to I above, agrees it has given
consideration to sections 76, 77, 78, and 79 of the Local Government Act 2002
and in its judgment considers it has complied with the decision making
process that those sections require (including, but not limited to, having
sufficient information and analysis that is proportionate to the decisions
being made).
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3.0 Executive Summary
– Te Kaupapa
Me Te Whakarāpopotanga
3.1 Over the past four years central and local government have been considering the issues and opportunities facing the system for regulating and managing the three waters (drinking
water, wastewater, and stormwater) – this
work is known as the Three Waters Reform. The background regarding this work is provided in Attachment 1 including
information on Taumata
Arowai (will become the
dedicated water services regulator
when the Water Services Bill is passed).
3.2 The
Government has concluded that the case for change[1]
to the three waters service (3W) delivery system has been made (Attachment 2)
and during June and July 2021 Government released information and made
announcements in relation to:
· the
direction and form of 3W Reform, including four proposed new Water Service
Entities (WSE), their indicative boundaries, their governance arrangements, and
a public ownership requirement.
· individual
Council data produced by the Water Industry Commission for Scotland (WICS)
based on the information supplied by Council under the Request for Information
(RFI) process.
· a
package of investment ($2.5b) for councils to invest in the future for local
government, urban development, the wellbeing of communities, and funding
support for transition, ensuring no council is worse off as a result of the
reforms.
· an
eight-week process for councils to understand the implications of the reform
announcements, ask questions and propose solutions, and for Government to work
with councils and mana whenua on key aspects of the reform (including
governance, integrated planning and community voice).
· Arrangements
for each Council – Hastings District Council has been placed in Entity C,
the better-off funding allocation from government to Council is noted as
$34.885m, and the indicative allowance for the no worse off package (stranded
costs) is an additional $5m.
3.3 While
the Government and Local Government New Zealand (LGNZ) consider that the
national case for change has been made, each Council will ultimately need to
make a decision based on its local context if the process to join one of the
four proposed entities remains voluntary (which the Government has not
confirmed).
3.4 This
report provides Council with the officer analysis of information provided to
date, and assesses the Government’s proposal and currently available
service delivery scenarios.
3.5 This
paper does not evaluate ‘options’ for consideration or decision
making, instead it provides an overview of the possible/likely service delivery
‘scenarios’ and provides Council with information on each possible
scenario so as to ensure Council is fully informed for potential future
decision making.
3.6 In
preparing this report, officers have used the LGNZ, Taituarā, and Te Tari
Taiwhenua Internal Affairs guidance[2]
to assist Council to understand the information that
has been provided to date and enable Council to prepare for future decisions
and consultation and engagement with communities.
3.7 Key
risks (considered) are documented in the report.
3.8 The
following bulleted points summarise the analysis completed by Officers:
· The
modelling of projected expenditure, future costs and possible savings through
the Government’s proposed reform package highlights that cost will
increase, Councils 2021-31 LTP also notes that costs and charges will increase.
· Officer’s
review of the information related to Council highlights a key concern at the
appropriateness/rationale of the non-growth enhancement investment identified
by the WICS modelling for Council. Without further information to clarify the
information, it is considered that the $1.9b provided for and modelled over the
next 30 years ($63.3m per annum on enhancements) is overstated.
· When
considering the sensitivity analysis and potential funding ranges it is clear
that from a pure household cost perspective that the government proposal is
almost certainly cheaper for households, followed by a Hawkes Bay regional
scenario and the Status Quo. Whilst an economic efficiency rationale supports
the larger entity it is important to note that this is only one part of the
decision making framework. Effectiveness and accountability concerns
(including local priorities, partnerships with mana whenua, achieving community
outcomes, responsiveness to growth, etc) will also require consideration.
Decisions between options will require understanding of the potential
trade-offs (cost/benefits) and the implications for the current and future
community outcomes and needs. This makes an improved confidence in the
cost ranges important. Officers regard (further communication with the
community on the differences between the options as critical. This
communication should be based on robust information.
- To
support future communication and decision making government must review and
update its forecasts at the local level, and provide information in regards to
what that investment could provide.
· Scenario
1 – Government-proposed reform to a four-entity structure: The
financial capability, efficiency, affordability and technical delivery benefits
(based on information published by Government) of delivering 3W to the
community via the proposed new WSE are likely to be of significant value if
they can be realised. Our analysis suggests there should be reduced risk to
council (with respect to non-compliance with standards and processes, lower
costs for delivery, procurement). In addition, Council would not be responsible
if a non-council supplier couldn’t meet standards. There are also key
risks in the following areas that would need to be mitigated including:
- unclear
accountability to the community
- unclear
how local / community voice is provided for
- unclear
how Council and the community influence the potentially complex and
disconnected governance structures
- integration
with spatial growth and local planning and meeting growth demands in an
operational delivery sense
- coordination
of works and investments with Council activities
- transparent
prioritisation of community needs and work, including ability to be agile
- role
of the economic regulator and how it could influence funding and priorities
- integration
with wider Council activities (e.g. transport infrastructure works programmes)
- clarification
of the timing and nature of entity investments (how do these line up with
planned council investments and will they meet the needs of the community)
- understanding
the interactions and effects of the suite of reforms being progressed by
government (e.g. RMA reforms, Future for Local Government)
- households’
ability to pay, and
- Council’s
longer term financial situation.
· Scenario
2 - Continued delivery of three water services by Council: The potential
benefits of this scenario include greater Council control and more certainty
over local infrastructure integration (planning and delivery) with land use
plans, growth pressure, and council objectives. Council however faces
significant risks over the medium and longer term, including;
- likely
higher real costs, in meeting the new water standards, environmental
requirements and achieving compliance
- additional
liabilities if performance does not meet changing requirements
- ability
to maintain and develop staff resources to meet the increasing demands
- the
ability of non-Council water suppliers to meet standards and requirements which
poses a medium risk to Council and the community (if Council has to take
responsibility for these supplies).
Council is in a good position relative
to some to understand the level of current and likely future
asset/infrastructure and compliance risk in pursuing this scenario of retained
control and delivery. Through Council’s recent investment in drinking
water upgrades, latest LTP work and associated planning, Council is largely aware
of the current and future risks relating to delivery, compliance and funding.
Council has in place existing consents and has a programme for reviews and
replacement of those consents. The drivers of most of these risks are not
within Council’s direct control. This makes mitigation more difficult,
and the potential mitigation scenarios (such as greater investment, larger
costs than currently planned, lower levels of service, compliance risk) could
become unpalatable in time to the community and Council.
· Scenario
3 - Regional aggregation of 3W services in an asset owning Council
Controlled Organisation (CCO): While councils would still need to be satisfied
that the changing regulatory environment was adequately provided for, including
ensuring there was sufficient funding to meet legal and regulatory obligations
due to scale, Hawke’s Bay is well positioned to understand and evaluate
this scenario due to the large amount of collaborative work completed in
2018/19/20 on reform scenarios for and within Hawke’s Bay. This scenario
is considered to be of potential benefit to Hawke’s Bay water users and
ratepayers while addressing some of the risks and concerns identified with the
government reform proposal at a national scale. This scenario:
- Mitigates
a large part of the current risks identified with scenario A1, in particular
the area covered is a more natural fit with communities of interest, the
environment (and with one Regional Council partner), and local iwi and hapu.
- Enables
an organisation to focus on the 3W challenges and prioritise investment
decisions across the region, which should lead to better environmental and
community outcomes
- Provides
for greater strategic, management and operational capacity and capability,
workforce development and planning over scenario 2, with stronger regional
focus than could be expected from scenario 1.
- Enables
efficiencies (in planning, programming, procurement, sharing of specialist
expertise and delivery) for the region, whilst also ensuring wider benefits for
the region can be considered (e.g. career pathways for youth).
- Provides
a balance between scenarios 1 and 2. As with the government proposal additional
work is required to further develop this proposal (noted in the Hawkes Bay
three water service delivery business case[3]).
Based on current advice this scenario
would require legislative changes to enable the benefits and efficiencies to be
achieved.
3.9 Under
scenarios 2 and likely scenario 3, Council will continue to bear the risk of
meeting the new water standards, environmental requirements and compliance
obligations. There are also implications and challenges for non-Council
supplies to meet water quality requirements, with the risk that these supplies
might default to Council in the future.
3.10 Other
Government reforms (e.g. Resource Management Act, Future for Local Government)
pose opportunities and challenges for each scenario.
3.11 Managing
the transition to any new model is likely more risky and a greater challenge
for Council (and others in its grouping) than the risks associated with the
Government proposal once in operation. If the Government’s proposal were
to proceed, effective management of the transition by Council, Government and
partners will be critical.
3.12 The
law currently prohibits Councils deciding to formally opt-in to the current
proposal (given section 130 of the Local Government Act 2002 and the level of
detail known about this scenario at present). Current decision- making
requirements, including the need to take account of community views and the
strategic nature of the assets involved, would also preclude Council deciding
to formally opt-in at this time without consultation.
3.13 Similar
consultation and decision making requirements apply if the council wishes to
consider alternative arrangements that involve asset transfers, divestment,
change in ownership and/or the setting up of a CCO to deliver water services in
the future (i.e. a Hawke’s Bay model).
3.14 There
are a number of issues, concerns and uncertainties for the Government and
councils to work through before a robust Council decision (and decision-making
process) can be arrived at, including whether legislative change will enable or
require the WSE or CCO approach to be adopted. Therefore, there has been no
expectation that councils will have make a decision to opt-in (or out) or
commence community engagement or consultation over the eight-week period.
3.15 Councils
have been specifically asked to provide solutions to three outstanding issues
during the past eight weeks:
· ensuring all
communities have both a voice in the system and influence over local decisions
· providing
effective representation on the new water service entities’ oversight
boards, including preventing future privatisation
· ensuring
integration between growth planning and water services planning.
3.16 Officers
therefore request Elected Members to consider the issues that arise from the
Government’s proposal and any potential solutions so these can be raised
with Government and LGNZ before the end of September 2021.
3.17 Government
decisions on entity boundaries, governance and transition and implementation
arrangements will occur after the eight week-process ends (30 September 2021)
however there is as at the time of writing no certainty on how this will occur.
3.18 On
the assumption that some of the reform goes ahead, it is anticipated that
councils will continue to deliver water services until at least mid-2024 and
council involvement in transition will be required throughout.
4.0 Background –
Te Horopaki
Hastings District
Council context.
4.1 Hastings
District Council (Council) provides the following:
· Drinking
water to the main urban areas of Hastings City, Flaxmere, and Havelock North.
It also provides drinking water to all, or parts, of the smaller communities of
Bridge Pa, Paki Paki, Whakatu, Clive, Te Awanga, Haumoana, Omahu, Waimarama,
Waipatiki, Whiranaki and Esk, and Te Pohue. All of these supplies have, or are
in the process of having, upgrades to their treatment processes as part of the
$80m capital investment over last couple of years. The LTP and Infrastructure
Strategy signals the current and future renewal requirements, with the current
increase in household connection renewals, and in later years increases in the
renewals of AC pipes. Council is also at the start of a programme to upgrade
and extend the backflow controls and has progressed with the regional Joint
Working Group new provisions in the Draft Regional Plan change to give effect
to the source water protection zones.
· Councils
wastewater system includes a separated trade (clear) waste reticulation system
along with a domestic waste system. The 2 waste systems are treated separately
at the waste water treatment plant at East Clive, and then combined into the
long outfall. The treatment plant has joint oversight via the Tangata Whenua
Joint Waste Water committee, and operates to a current consent that expires in
2048, with a 9 year review period coming due in 2022. The domestic waste water
service provides less coverage than the drinking water service with many of the
small communities serviced via their own household effluent systems. In time a
number of these communities are likely to desire/require community based
solutions.
· Councils’
stormwater service is predominantly based around the main urban area of
Hastings City, Flaxmere, and Havelock North. All urban runoff makes its way into
the Karamū Stream, via Council pipes and drains along with Hawkes Bay
Regional Council (HBRC) drains. The Havelock North area also has a number of
streams and dams that provide key flood control protections for the community,
these are currently managed by Council, with active discussions underway to
review the current agreements between the two councils. While stormwater
quality and flood capacity are recognised as key challenges that need to be
improved in the years ahead, the full scale of solutions and investment are not
well defined at this point. From a quantity (flood mitigation) perspective the
solutions will require a close working relationship between the 2 councils to
find the optimal approach. The global consent council holds for the main urban
areas is reaching the end of its term (2022), and preparation work is underway
for the new consent application.
4.2 The
total replacement value of the assets is currently valued at $1.1b, with a
current depreciated value in the order of $0.62b.
4.3 Council
current financial and investment forecasts see the cost of three water services
for households increasing from $840 in 2021 to $1530 in 2031 (including
inflation) for those receiving 3W services.
4.4 The
stormwater price per property is shared across the entire rating area 1 (as
part of the general rate), whilst the drinking water and wastewater rates are
charged to those properties connected.
4.5 Council
also included a $10m expenditure allowance (in the stormwater cost centre) for
undefined projects, as a placeholder for climate change response. This was a
placeholder amount, with investigations over the next 3-5 years to better
define the need for mitigation works and to update the scale of investment
required.
4.6 A
high level summary signalled in the 2021 LTP Infrastructure Strategy is
included below, with indicative funding direction highlighted.
4.7 Drinking
water
4.8 Stormwater
4.9 Wastewater
4.10 One
of the greatest uncertainties in forecasts are future regulatory requirements
as these risks are difficult to quantify at this point. It is clear
however that standards for both freshwater management and drinking water
compliance are increasing, meaning a likely increase in costs.
4.11 Council
is also in a position of strength in having formed close and effective working
relationships with neighbouring councils in the Hawke’s Bay region.
These relationships have been leveraged specifically to investigate potential
improvement opportunities for managing three waters assets and services across
Hawke’s Bay.
4.12 Council’s
current 3W debt position is in the order of $140m.
The Three Waters Reform
Programme
4.13 Following
the serious campylobacter outbreak in 2016 and the Government’s Inquiry
into Havelock North Drinking Water, central and local government have been
considering the issues and opportunities facing the system for regulating and
managing the three waters (drinking water, wastewater, and stormwater).
4.14
The focus has been on how to ensure safe drinking water, improve the environmental
performance and transparency of wastewater and stormwater networks and deal
with funding and affordability challenges, particularly for communities with
small rating bases or high-growth areas that have reached their prudential
borrowing limits.
4.15 The
Government’s stated direction of travel has been to introduce
publicly-owned multi-regional entities (with a preference for local authority
ownership). The Department of Internal Affairs (DIA), in partnership with the
Three Waters Steering Committee (which includes elected members and staff from
local government) commissioned specialist economic, financial, regulatory and
technical expertise to support the Three Waters Reform Programme and inform
policy advice to ministers.
4.16 The
initial stage (Tranche 1 - MOU, Funding Agreement, Delivery Plan and RFI
process) was an opt in, non-binding approach. It did not require councils to
commit to future phases of the reform programme, to transfer their assets
and/or liabilities, or establish new water entities. The 2020 indicative reform
programme and then anticipated next steps can be found in Attachment 2.
4.17 Council
completed the RFI process over Christmas and New Year 2020/21. The Government
has used this information, evidence, and modelling to make preliminary
decisions on the next stages of reform and has concluded that the case for
change has been made (Attachment 3).
4.18 In
June 2021 a suite of information was released by Government that covered
estimated potential investment requirements for New Zealand, scope for
efficiency gains from transformation of the 3W service and the potential
economic (efficiency) impacts of various aggregation scenarios.[4]
4.19 In
summary the modelling indicated:
· a likely
range for future investment in 3W infrastructure at a national level in the
order of $120 billion to $185 billion,
· an average
household cost (for 3W only) for most councils on a standalone basis to be
between $1,910 and $8,690 by 2051.
4.20 It
also estimated these average household costs could be reduced to between $800
and $1,640 per household and efficiencies in the range of 45% over 15-30 years
if the reform process went ahead.
4.21 An
additional 5,800 to 9,300 jobs and an increase in GDP of between $14b to $23b
in Net Present Value (NPV) terms over 30 years were also forecast (under this
scenario).
4.22 As
a result of this modelling, the Government has proposed to:
· establish
four statutory, publicly-owned water services entities that own and operate
three waters infrastructure on behalf of local authorities
· establish
independent, competency-based boards to govern these entities
· set a clear
national policy direction for the three waters sector, including integration
with any new spatial / resource management planning processes
· establish an
economic regulation regime
· develop an
industry transformation strategy.
4.23 The
newly established entities are designed to remain fully and purposefully in
public ownership in perpetuity and protection mechanisms have been built
through the entity design approach and through legislation to ensure this. The
proposed safeguards against privatisation can be found on page 26 of the
DIA’s summary
of the case for change
4.24 Both
DIA and LGNZ have produced two-page national overviews, available on the DIA
website[5]
and LGNZ
websites[6]
respectively. Attachment 2 contains more detail on the national context and
Attachment 3 provides the DIA/LGNZ overviews.
4.25 Council
has been placed in Water Services Entity C which includes a geographic area
covering the southern half of East Cape, down the east coast of the North
Island, across into Manawatu, through Wellington and the Wairarapa and Nelson
and Marlborough. The area would serve approximately 955,000 connected water
users although the precise boundaries are still up for discussion.
Funding for Councils.
4.26 On
15 July, in partnership with LGNZ under a Heads
of Agreement[7],
the Government announced a package of $2.5 billion to support councils to
transition to the new WGES and to invest in community wellbeing. This funding
is made up of a ‘better off’ element ($500 million will be
available from 1 July 2022 with the investment funded $1 billion from the Crown
and $1 billion from the new WGES) and ‘no council worse off’
element (available from July 2024 and funded by the WGES). The “better
off” funding can be used to support the delivery of local wellbeing outcomes
associated with climate change and resilience, housing and local place making,
and there is an expectation that councils will engage with iwi/Māori in
determining how to use their funding allocation.
4.27 Under
the proposal Council will receive a better off funding allocation of $35m, and
an indicative no worse off package of $5m (to cover stranded overheads). The
detail of the funding (including expectations around the use of reserves) and
the full list of allocations can be found in Attachment 4. Conditions
associated with the package of funding have yet to be worked through.
The Reform Process Now
4.28 In
addition to the funding announcements, the Government has committed to further
discussions with local government and iwi/Māori on:
· the
boundaries of the WGES
· how
local authorities can continue to have influence on service outcomes and other
issues of importance to their communities
· ensuring
there is appropriate integration between the needs, planning and priorities of
local authorities and those of the WGES
· how
to strengthen the accountability of the WGES to the communities that they
serve, for example through a water ombudsman
4.29 As
a result, the original timetable for implementing the reform (outlined in
Attachment 1) and for councils to consult on a decision to opt-in (or not), no
longer applies. Further advice on the difficulties and risks of making a
decision to opt-in or not is included in the scenario analysis section of this
report.
4.30 Next
steps are expected to be announced after 30 September 2021, which would include
the timeframes and responsibilities for any community or public consultation.
4.31 It
is also important to note that the Government has not ruled out legislating for
an “all-in” approach to reform to realise the national interest benefits
of the reform.
4.32 In
the interim the DIA continues to engage with councils on transition matters in
preparation should the reform proceed. These discussions do not pre-empt any
decisions about whether to progress the reforms or whether any individual
council will transition.
4.33 On
the assumption that the reform goes ahead, it is anticipated that councils will
continue to deliver water services until at least mid-2024 and council
involvement in transition will be required throughout.
Council specific information and analysis
4.34 While the Government and LGNZ consider
that the national case for change has been made, currently each council who chooses to engage in the process in any form must make its own assessment of the pros,
cons and risks of reform
based on its own unique local context.
4.35 Councils do not have a national
interest test for their decision
making. Councils
are required to act in the interests of their
communities and the community’s wellbeing (now and into the future), provide
opportunities for Māori to contribute to their decision-making processes, ensure prudent
stewardship and the efficient and effective
use of its resources in the interests
of the district or region (including
planning effectively for the future management of its assets) and take a sustainable development approach[8].
4.36 Council currently
delivers three waters through a mix of in-house
and contracted-out resources. These teams have built an understanding of Council’s asset base, service
delivery challenges and opportunities and its community needs and expectations over an extended
period of time. In many cases this understanding is tacit, but it is also leveraged highly through formal asset management practices.
4.37 The Government case for change is largely
premised on the outcomes of economic
modelling completed by DIA and WICS. This modelling considered the current and future investment needs of Councils to deliver services and compared these to expected
costs under a reformed model. The outputs of this modelling/analysis are presented
concisely in publicly available dashboards that can be found
on the DIA website. The dashboard for Council[9] looks like this:
4.38 Council’s
analysis of the DIA projections raise some issues as to the accuracy of
assumptions and models. The key aspects Council should note are detailed below.
4.39 Average
cost of per household
· the DIA
(based on several assumptions) models it at $810; Councils own information,
based on the 2021/22 Plan, currently would charge households in Rating Area 1
$841.
· the DIA
projection out to 2031 (again based on assumptions) is $3,583 (inflation
removed, and $4,530 by 2051) and our council is $1,400 (inflation removed,
based on year 10 of the LTP 2021-31).
· the
DIA’s projection for reform (Entity C) is $1,260 by 2051 (currently
officers are uncertain as to the price path up to 2051).
4.40 Debt
4.41 Government
has provided an indicative funding impact tool to review the current and potential
future debt position (if the proposal proceeded)
4.42 The
transfer of assets and the associated three waters debt is estimated to reduce
Council debt from a forecasted level of $253m to $85m, whilst also reducing
revenues by $38m. If this transfer occurred it would increase Councils debt
headroom by over $100m, which would increase its ability to respond to
unplanned events (i.e. earthquakes) or other issues and opportunities. Noting
also that Council’s responsibilities to which it is required to respond
to will also be reduced without the 3 waters.
4.43 In
reviewing the information from DIA, officers also believe that the household
costs are artificially high due to an incorrect use of the 250% debt to revenue
limit. Rather than use councils total debt to revenue the DIA modelling is only
using 3W debt and 3W revenue which is in the order of 576%. The outcome of this
for council is that household cost forecasts are higher than necessary (as the
model is paying down debt to get to the 250% threshold). This is estimated to
have an effect of around $800 per household in 2051 (correcting this is
estimated to reduce the 2051 forecast from $4,910 to $4,127).
4.44 A
further potential difference in modelled scenarios is the timing of capital
investment. It is officers understanding that the Entity C model has a
different timing of investment increases (delayed until around year 10 as
efficiencies are realised) vs the Council model which spreads the capital
investment evenly. We have not completed any analysis of the effect of this,
but it does highlight a need to confirm when Entity C would actually deliver
the forecasted increased spend across the District. Any actual delay in
investment might have negative impacts in terms of growth responsiveness or the
meeting of community need.
4.45 Council’s
debt is currently sourced 100% through the Local Government Funding Agency
(LGFA) with varying maturity dates. Assuming that any maturing debt between now
and mid-2024 and any new debt required was borrowed at short term maturities,
Council would still have approximately $138m of debt at 30 June 2024 with
maturity dates out to 2029. It is currently unknown if any of this debt can be
transferred to the new WSE or if Council will be required to hold funds
received to clear debt on deposit until such time as it matures and can be
repaid.
4.46 Council
will also be in a position of holding $69m of financial instruments in the form
of interest rate swaps as at 30 June 2024 at an average interest rate of 3.8%.
In addition to this Council has $30m of fixed rate bonds with the LGFA with
maturity dates in 2028 and 2029. The process of Council extracting itself from
these fixed interest rate positions is complex and will come at a cost if it is
possible. Council could be left with more expensive longer term fixed debt and
consideration would be required under the “no worse off” criteria.
4.47 There
is also likely to be operational debt held in the wastewater and water supply
targeted rates accounts at June 2024 with Council using these reserves as a
mechanism to smooth rate increases over time.
4.48 Capital
Expenditure Forecast
4.49 Over
the next 10 years the DIA are forecasting $256m in renewals and $633m in
enhancements for Council. The DIA renewal amount is based on fully funding depreciation,
which is using different assumptions to current practice and for an increasing
asset base. The increased asset base comes from the $63m per annum that DIA are
modelling for Council, every year for the next 30years. Therefore by 2051 the
DIA modelling is estimating that $1.9b will be invested in new assets to
deliver the 3W services. The model is made up of Councils growth figures
(supplied in the RFI) plus the output of an economic model that the WICS
provided. It is understood that this model uses a number of inputs, such as
population, density, and land area to calculate an expected investment value.
4.50 Councils
LTP includes allowance for ratepayer investment of $139m in renewals and $104m
in enhancements and growth over the next 10 years. These amounts exclude carry
forwards for works that are underway. The Infrastructure Strategy highlights
that there will be further investment increases required, in both renewals and
enhancements. Currently Council is not renewing assets at the rate of depreciation
across all three water asset areas (as this can lead to wasted asset life), but
the future investment plan includes increases where this gap will close (i.e.
the stormwater network is only just getting to replacement age, with most
investment in stormwater focused on service improvement at this stage).
4.51 The
difference in capital investment forecasts are significant and contribute to
the material difference in household costs that government is forecasting. To
provide some context of value, the drinking water upgrades the community has
invested in over the last few years is expected to cost $80m. This investment
will have added new treatment plants to all Council drinking water supplies,
drilled a number of new public water supply bores, doubled the available
potable water storage, and created a duplicate pipe connection between Hastings
and Havelock North.
4.52 Officers
have considered what other items could potentially be added to existing
programmes to close the gap between Councils plan and the DIA figures. Officers
considering current information and taking an unconstrained view (no restraint
on funding, deliverability, consents, and land approvals) identified $250-300m
of investment over the next 10 years. This did not fully consider climate
change effects (as it is understood the DIA figures also did not include this).
A significant investment item could be the replacement of the wastewater
treatment plant if the current treatment approach was made non-conforming by
future standards and rules. This could potentially cost in the order of
$600-800m depending on the standard required.
4.53 Officers
also looked to make comparison with our closet neighbour (Napier City Council),
who has a similar population, size of urban form environment and source water.
They do not have the same number of small communities, largely due to covering
a smaller land area (primarily urban with coastal and small rural fringe, vs
city and coastal with a large rural area and a number of village communities).
The output of the DIA model for enhancements for Napier is $0.7b, as compared
to the $1.9b forecasted for Hastings. It would be expected that there would be
some difference but the magnitude of difference is difficult to reconcile. The
current assumption is that this particular model is influenced by land area as
that is the main difference between the councils. Most of the land area
of Hastings District does not require 3W servicing.
4.54 Council
investment in stormwater is one of the more uncertain areas with the full
requirements in response to the National Environment Standards for Freshwater
and the TANK plan change yet to be fully understood. There is also the
possibility of new national standards in regards to the level of service
minimum standards.
4.55 Council’s
operations and maintenance budgets have increased over time, and are forecasted
to increase further as the scale and complexity of the assets, control systems,
consenting, and compliance environment increase.
4.56 The
future response to climate change and the coastal hazard strategy will in years
to come create additional servicing challenges. The approach, scale and timing
of required changes in this area will be dependent on national, regional and
local decisions in the years to come – in particular how/if and
where managed retreat is implemented.
4.57 Overall,
it is difficult to reconcile the $1.9b in investment signalled in the DIA
modelling with the asset management-based forecasts and assumptions made by
Council.
Private Drinking Water
Supplies
4.58 The
current Water Services Bill sets the new legislative environment for three
waters, particularly for drinking water. Once passed, this will see Taumata
Arowai take over from the Ministry of Health as the Drinking water regulator.
Taumata Arowai then commence the formal release and consultation on proposed
drinking water standards and acceptable solutions. Within the Water Service
Bill are provisions that propose to extend drinking water oversight and
requirements into significantly more private water supplies than required by
the current Health Act 1956.
4.59 Hastings
District has a small number of known private water supply schemes across the
District. There are also likely to be a significant number that Council is not
aware of that will likely fit within the proposed criteria for being covered by
the new regulatory regime. While this reform proposal focusses on Council
supplies, changing drinking water legislation and compliance standards will
place an additional burden on these private supplies in the near future. There
is potential for Council to have to work with and potentially take over these
supplies if they are unable to meet quality standards and regulatory
requirements. If Council had to assist these supplies this would create an
additional burden on resources and potentially require additional funding.
Under the reform proposal this obligation would transfer to the proposed
entity.
5.0 Community feedback
engagement
5.1 Although
the Government’s proposal is not owned by Council, Council has sought to
gather the views of the community to help inform its submission to Government,
particularly given its potential impact on the community.
5.2 Communication
and engagement was undertaken during the first half of September and sought to
provide information to the community on the current proposal, and on
Council’s participation in a regional review of three-waters, present
Councils current views on the proposal, and provide an opportunity for the
community to provide feedback to ensure Council’s response would cover
the key themes from the community.
5.3 Communications
including establishment of a web page on the HDC website, media releases to
print and radio, advertising feature in the HB Today (Saturday) paper, social
media activity including promotion (paid promotional post) of and hosting of a
Facebook Live Q&A session (Sept 16, 7pm) hosted by the Mayor, Chief
Executive and GM Asset Management. As at 24 September the recording has reached
2,033 people, had 544 engagements, 4 shares and 75 comments (reviewed and/or
answered during the hosted session).
5.4 Council
also encouraged the community to share its views to assist with Councils
feedback via an online survey. This survey collated just over 800 community
responses, the wider results of the feedback are included as an Attachment 5 to
this report, and will also be made available on the HDC Three Waters web page.
5.5 There
were a number of key themes from this feedback:
· Almost 90% of
respondents noted that it was Very Important for government’s
final proposal to be fully consulted on with the community.
· The top ranked
priorities the community valued were Affordability, Security and Safety of
Supply, Local Service Delivery, and Local Ownership. These items may
be in conflict with each other and highlight the need for government to clearly
communicate on how its proposals address these priorities. Working through the
apparent tensions between these priorities will also be for Council if it is
faced with a subsequent three waters reform.
· When asked what
aspects of the proposal the community wished to have more information from
Government on, the top responses were Costs to Individual Rate Payers, Governance
Arrangements and How Local Voices Would Be Effectively Heard.
· Based on current
information 72% of respondents were Very Uncomfortable with the current
government proposal.
6.0 Discussion – Te Matapakitanga
6.1 While
prepared at the national level, the government modelling has been peer reviewed
by Farrierswier and Beca to ensure that both the modelling and underlying
assumptions are reasonable in the New Zealand context. The modelling provided
by Morrison Low (ML) for the regional scenario is directionally consistent, but
different in the scale of the enhancement investment. The ML review has also
highlighted differences in approach between the local specific analysis and the
national/entity level analysis. Officers are uncertain as to whether the
reviews of Farrierswier and Beca extended to reviewing the modelling at an
individual council level, which we hypothesise as likely to have unders and
overs across the country.
6.2 At
this stage it is not possible to properly test the projections as the potential
environmental and drinking water standards for Aoteraoa/New Zealand out to 2051
are not known. However it is reasonable to assume that there will be greater
community and mana whenua expectations around environmental performance and
quality, tougher standards to meet for water quality (drinking and receiving
environment) and that levels of monitoring, compliance and enforcement will be
greater than they are now. This affects both operational and capital
expenditure (costs will go up), including the number of staff (or contractors)
that will be needed to ensure required outcomes for water and community and
legal requirements are met.
6.3 There
is always a level of uncertainty and therefore risk around assumptions and
forecasts, whether prepared by Council staff for LTPs or by others such as
Government to facilitate policy decisions, such as the current Three Waters
Reform process.
6.4 The
uncertainty in the financials is demonstrated by the diagram below. This
illustrates the potential range(s) of future costs for the different levels of
service delivery. What is certain is that costs will increase for households
and businesses, regardless of the option chosen. It is also likely that the
larger the entity the less sensitive it is to future investment uncertainty.
6.5 At
a Council specific level there is high uncertainty and low confidence in the
DIA forecasted enhancement investment modelled for Council. Also, as previously
mentioned the DIA modelling incorrectly applies the debt to revenue limit to
just 3W revenue and debt rather than total Council revenue and debt.
6.6 Currently,
it is the view of officer’s that without very significant changes in
standards and service requirements the full DIA modelled enhancement investment
for Council is unlikely to be required. However it is clear that costs will
increase and that the future state is uncertain. It would therefore be unwise
and lacking in robustness to not consider the implications of some increases
beyond that already included in Councils planning and regional modelling to
date.
6.7 Officers
consider that it would not be a good use of Council’s limited resources
to spend further time and money on a further detailed review of the assumptions
and modelling. This should be a responsibility for Government as they are
leading the reform agenda and should be leading the conversation with communities.
6.8 The
analysis described only briefly above, along with knowledge of Council’s
own existing plans, as well as further specific work to understand the
opportunities for a Hawke’s Bay model have enabled officers to present
the scenarios considered below.
6.9 To
assess whether the proposed ‘better off’ and ‘no worse
off’ funding to Council is sufficient, Council needs further information
on the conditions that will be associated with that funding. For the purposes
of the following scenarios analysis and commentary, it is assumed that the
funding would provide Council with an opportunity to address a range of issues
and opportunities to improve community wellbeing in partnership with mana
whenua and the communities that Council serves.
7.0 Scenarios Available
to Council for Three Waters Service Delivery
7.1 This
section provides an overview of the scenarios available to Council and is
followed by an analysis of the Council’s reasonably practicable
scenarios. In line with section 77 of the LGA, the following section presents
other ‘reasonably practicable’ scenarios for 3W service delivery in
order to assess the advantages and disadvantages of each scenario. Note though
that Council is not being asked to decide on an alternative scenario to the
government proposal at this point in time.
Scenario 1 - Government
proposed reform to a four-entity structure:
7.2 Under
this scenario, Council is placed in WSE, a publicly owned water services entity
that owns and operates three waters infrastructure on behalf of councils, mana
whenua and communities.
7.3 The
greater financial capability, efficiency, affordability and technical delivery
benefits (based on information published by Government) of delivering three
waters to the community by the proposed new WSE are likely to be of significant
value if they can be realised. Our analysis suggests there should be reduced
risk to council (non-compliance with standards and processes).
7.4 The
ownership and governance model is a bespoke model, with councils listed in
legislation as owners, without shareholdings or financial interests, but an
advocacy role on behalf of their communities. Iwi/Māori rights and
interests are also recognised and representatives of local government and mana
whenua will sit on the Regional Representative Group, issue a Statement of
Strategic and Performance Expectations and receive a Statement of Intent from
the WSE. Entities must also consult on their strategic direction, investment
plans and prices / charges.
7.5 The
law currently prohibits Council formally deciding to opt-in to the current
proposal (given section 130 of the LGA, which prevents councils from divesting
their ownership or interest in a water service except to another local
government organisation such as a CCO. Given what we know about this scenario
at present, there also appears to be insufficient information on which to base
a decision.
Scenario 2 - Continued
delivery of three water services by Council
7.6 The
potential benefits of this scenario include greater Council control and more
certainty over local infrastructure integration (planning and delivery) with
land use plans, growth pressures, and council objectives. Council however faces
significant risks over the medium to long term under this scenario, including
potentially higher costs, in meeting the new drinking water and other
standards, environmental requirements and achieving compliance. The ability of
non- Council water supplies to meet standards and requirements, and the
possible need for Council to assist, also poses a medium risk to Council and
the community.
7.7 Council
is in a good position relative to some others to understand the level of
current and future asset/infrastructure investment required and the compliance
risk associated with pursuing this scenario of retained control and delivery.
Council also needs to be aware that workforce challenges exist and that these
are forecast to get worse as Council and the wider industry lose valuable
people and their knowledge due to retirements and staff seeking other opportunities.
7.8 Through
Council’s latest 2021 LTP work and associated planning, Council is
largely aware of the current and future risks associated with delivery,
compliance and funding. The causes of most of these risks are not within
Council’s control. This makes mitigation difficult. In addition, many
potential mitigation scenarios (such as greater investment, larger costs than
currently planned, lower levels of service, compliance risk) may not be
palatable to Council or the community.
Scenario 3 – Regional aggregation
of three waters services in an asset owning CCO
7.9 Council,
as part of a regional working group working collaboratively since 2018 has
formally and comprehensively investigated and assessed the opportunity to
create an aggregated entity to deliver three waters services for Hawke’s
Bay via an asset owning CCO. Although both a management CCO and an asset owning
CCO have benefits, the detailed analysis in the Hawkes Bay report demonstrates
that a regional asset owning CCO is a more effective service delivery model
than the management CCO and best meets the investment objectives and principles
set by the participants in that review. This scenario has therefore been
developed assuming that assets are owned by a CCO.
7.10 There
are existing examples of CCOs, WaterCare (water and wastewater services) and
Wellington Water (who don’t own but do manage all three waters on behalf
of their owners) and studies such as the Hawkes Bay study that have considered
this scenario.
7.11 Please
note that both the Auckland Council and the owners of Wellington Water are
affected by the Government’s proposal and are assessing their scenarios
(e.g. for Wellington Water to become an asset owning company).
8.0 Scenario Analysis
8.1 The
analysis in the following section will provide some of the required information
to enable Council to make future decisions and will inform feedback/questions
to government.
8.2 Officers
have used the Local Government New Zealand, Taituarā, and Te Tari
Taiwhenua Internal Affairs guidance[10]
and our own analysis to understand the potential impact of reform and other
practicable scenarios (both today and in the future) in terms of service,
finance and funding, economic development and growth, workforce, delivery and
capability and social, cultural and environmental wellbeing.
8.3 A
significant aspect of the government reform agenda is focused on the important
aspect of household costs (Economic Efficiency). It is highly unlikely that
Council could deliver services at household cost lower than Entity C. The
performance of the regional model will similarly have higher levels of
household cost than Entity C, but be less sensitive to uncertainties than
Council going alone. However economic efficiency is only one part of the
considerations, as the service needs to be effective, and this will require
interaction with local government to ensure communities are well served.
Catering to growth, in particular, is an area that will require focus.
8.4 
Council will also need to understand the effects of dis-aggregation
of the current Council business approach from the current state where the three
waters team is an integrated part of the wider delivery of growth planning and
investment; consents processing and approval; physical works planning, coordination
and integration; and community responsiveness and accountability arrangements.
8.5 The
LGNZ guidance provides a simplified impact matrix. Council officers have
considered this along with the risk assessment completed for different
scenarios. The following diagram illustrates pictorially the relative
differences between the different scenarios, noting the areas of reward and
areas of potential risk
8.6 It
is important to note that Council is not at a decision making point on whether
to opt in to the Government reform proposal, nor is the information available
significantly robust to support such a significant decision. What is important
at this time is to seek information and provide feedback in order to reduce
uncertainties and seek modifications in regards to the risks noted by Council.
8.7 The
community feedback noted a key aspect to them is household affordability.
Based on the available information that would support Scenario 1. However the
feedback also highlighted a strong theme around local accountability and local
ownership. This would support Scenario 2. Scenario 3 has the benefit that
it sits between these 2 points of tension, having increased scale to improve
affordability and sensitivity to additional demands whilst still having strong local
and regional connection.
8.8 Each
scenario has its rewards and risks, a brief summary by scenario is provided
below:
8.9 Scenario
1- Government proposed reform to a four-entity structure
· 
It provides greater financial capability, efficiency and affordability,
and the community/water benefits (published by Government) of delivering three
waters to the community are likely to be of significant value if they can be
realised.
· The key
opportunities our analysis identifies include reducing the Council’s
current risk profile including reduced liability and compliance risk and
increased ability to improve outcomes and manage workforce risks. The
separation of 3 waters debt from the Council balance sheet will improve the
financial position of Council. The proposed reform programme also presents
opportunity for a potentially more meaningful role for iwi/Maori in decision
making.
· Our analysis
suggests that the critical risk theme for this scenario is the loss of direct
local accountability, reduction in community proximity and input views into
decision making and prioritisation, and a related reduction in responsiveness
to the community.
· Critical
elements that are of concern and require mitigation include integration with
spatial and local planning, responsiveness to growth and how community
priorities will be reflected in prioritisation. There also remains a risk to
households’ ability to pay.
8.10 Scenario
2- Continued delivery of three water services by Council
· 
This scenario keeps local accountability directly in
Council’s lap. Council will continue to be able (within the restrictions
of legislation) to direct and prioritise investment and priorities. Council has
some headroom within its existing financial strategy to absorb some additional requirements
that may be placed on it from potential new regulations, it also has the
ability to reduce its input into other areas of investment once this headroom
is removed. However the ability of its ratepayers to pay could be severely
threatened if significant changes were required, particularly at the level of
enhancement forecasted by DIA (even 50% of the enhancement investment could be
challenging). Councils debt limits would likely become a constraint which would
limit Council’s ability to deliver on other community objectives.
· If costs
increase very significantly then it may become difficult to attract businesses
and create jobs, as well as the risk of some of the large existing businesses
choosing to relocate to other areas, creating loss of local employment.
· Council has
got on with improvements to its drinking water treatment infrastructure and has
increased the capacity and capability of its three waters team over recent
years. This team utilises its relationships and networks to look for shared
opportunities. Under this scenario it would beneficial, if not essential,
to enhance this fraternal approach to increase the sharing of procurement,
planning, policy, and solution design with partners regionally and nationally
where possible.
· The ability
to achieve the rewards noted above will be subject to the ability to fund and
resource required work.
· Council is
likely to find it increasingly difficult to attract and maintain adequate
resources to effectively manage and maintain the required services. Currently
there are significant vacancies nationwide, with a significant retirement phase
likely over the next 10-15 years. This will make competing for staff difficult
in an environment that is likely to become increasingly complex. If Council was
to stay stand-alone and others joined up into larger entities then this
difficulty is likely to increase.
· Moving
forward, compliance will become increasingly difficult with likely increases in
standards. There is also likely to be a change in approach, more akin to Health
and Safety obligations and risk mitigation. It will be a responsibility for
governors and senior managers to continuously review and mitigate any risks.
· The ability
of non-Council water supplies to meet standards and requirements also poses a risk
to Council and the community. It is likely that this could add further demands
on resources, both staff and funds.
· It is also
unclear whether the economic regulator (ER) may exist regardless of changes to
service delivery. If an ER existed in this scenario then council will need to
meet their reporting and information requirements and may have limited ability
to change three water investment, depending on the powers of an ER.
· There may
also be wider implications in terms of relationships with iwi/ Māori,
Central government and key stakeholders.
8.11 Scenario
3 – Regional aggregation of three waters services in an asset owning CCO
· 
Council is well-positioned to compare the scenario of a
regional entity with other scenarios given the work completed by the collective
Hawke’s Bay Councils in 2018/19/20. This work found similar themes to
those being identified by government - such as that affordability and delivery
challenges will grow without reform and that aggregation can support the
achievement of desired outcomes. An asset owning CCO model for the 4
Hawke’s Bay councils was identified as the most beneficial approach based
on this work.
· Under this
scenario the entity and councils would still need to be satisfied that the
changing regulatory environment was adequately provided for, including ensuring
there was sufficient funding to meet legal and regulatory obligations.
· However, due
to scale, this scenario (better) addresses the risk that the size of investment
required to meet new standards and community expectations is greater than
forecast by individual councils;
· it
enables an organisation to focus on the group’s three water challenges
and prioritise investment decisions across the region, which should lead to
better environmental and community outcomes
· it
provides for greater strategic, management and operational capacity and
capability, workforce development and planning
· it
enables efficiencies (in planning, programming, procurement and delivery) and
should as a result reduce household costs and increase affordability.
· As with the
above scenarios, should one or more non-Council water supplies default to the
CCO then this would need to be funded from the group or consumers.
· There are
some integration risks with spatial and local planning, growth and ensuring
transparent prioritisation, the achievement of Council objectives and ensuring
there is sufficient funding and that costs are affordable.
· Council
oversight and input considerations remain to be fully understood via the
development of an agreed governance structure however the challenges identified
with governance, local voice and community influence are considered less
significant under this scenario than under Scenario 1.
· Typically, a
statement of intent would be prepared by the CCO (and it would be best practice
for the councils to prepare a letter of expectation to guide this) and
half-yearly and annual reports would be prepared. Councils would need to
monitor the performance of the CCO.
· As per
scenario 1 it will be important for the CCO to appoint professional directors
to provide focused and appropriate oversight of a HB regional three waters
entity.
· The Hawkes
Bay review included a Cultural case, significantly this highlighted the need to
understand what co-governance / co management with iwi/Māori could look
like. This work will be key to direct and inform potential governance
arrangements, including iwi involvement in both decision making and governance,
and how council, community and mana whenua aspirations and needs will be met.
· This
scenario is still constrained in its ability to raise debt as the connection to
Council balance sheets remains under the available funding models. Changing
this would require legislative change which would require the support of
government.
· There would
also need to be agreement from all councils and each would need to undertake
public consultation, which would take time and create uncertainty about the
outcome.
· If a new CCO
is to be set up this will require council(s) to use the Special Consultative
Procedure (section 83 of the LGA) and arrangements (and a policy) for the
appointment of directors or trustees will need to be developed (as the councils
appoint the “board”). Transition arrangements (including
workforce transition), prioritisation of investment and arrangements for
integration with planning at the regional and local level would also need to be
developed.
· Councils
would need to adequately resource the establishment or transition process (if
they are changing to an asset owning arrangement). The existing business case
highlights a considerable work plan that Council, along with its regional
peers, would need to commit to. It also provides a risk assessment for any
transition process.
· The
Government has stated that it is “not clear if sector-led reform under
existing legislation would deliver the kind of transformation required to
address the root causes of the challenges the sector is facing”.
Based on this statement, it cannot be assumed that the Government would be
willing to financially support councils to transition to this model or change
the law to enable different funding setting.
9.0 Transition
9.1 A
high-level overview of what we know of the transition process is contained in
Attachment 6, and Officers have previous presented an initial risk assessment
of the transition scenario, this is included as part of Attachment 7.
9.2 The
Risk Appetite Assessment summary notes that:
· The risk in
transition is much greater than the risk profile for operation once Water
Agencies are established and operating. In addition, many of the causes for the
transition risks are outside Council’s control, so minimal mitigation is
possible.
· Therefore,
as the inherent exposure is well outside Council’s normal risk appetite,
focus should be put on effective management of the transition. In particular,
Council will need to:
· Work proactively
with the Government in the development of the framework,
· Ensure forward
planning caters for any possible delays in transition, and
· Adapt quickly and efficiently
to handle new obligations that might arise.
9.3 It
will also be critical to manage business as usual (BAU) services, including
meeting other community commitments and legislative requirements (such as
growth pressures and operating to health and environmental requirements).
9.4 Transitioning
away from the status quo to any other option carries inherent risks. There are
potential mitigations to reduce both impact and likelihood. These may have cost
or effectiveness impacts. However residual risk in sticking with the status quo
may not be sustainable in the medium to long term.
9.5 The
early Hawkes Bay review work noted that a change from the status quo was likely
a better option to the status quo. Similarly though the regional model approach
also has similar risks. Whilst there are less parties involved the HB
approach this transition could potentially be without government support, and
potentially without the legislative changes and funding to assist. The assessed
transition risks from the Hawkes Bay business case can be found on table 49 of
the management
case[11]).
10.0 Council decision making and
consultation
10.1 Part
6 of the LGA, sections 76 to 90, provide the requirements for decision making
and consultation, including the principles of consultation and information that
needs to be provided. These requirements include the reasons for the proposal
and the reasonably practicable options.
10.2 In
particular, section 76 requires that in making a significant decision, which a
decision on the future management and or ownership of three waters assets will
be, councils must comply with the decision-making provisions. This is a
‘higher bar’ than the “promote compliance with” requirement
that applies for ordinary decisions.
10.3 Section
77 states that councils must seek to identify all reasonably practicable
options and then assess the advantages and disadvantages of each option.
10.4 Section
78 requires that in the course of making a decision a Council must consider
community views but section 78(3) explicitly says that consideration of
community views does not require consultation, which is reinforced by case law.
10.5 Section
79 gives Council discretion to decide how the above Part 6 requirements are met
including the extent of analysis done, etc. Therefore, while a decision could
be challenged, a judicial review is unlikely to be successful unless the
decision made by council was manifestly unreasonable, the process was flawed or
the decision was beyond its powers (as given in law, i.e. the council did not
act within the law).
10.6 However,
despite section 79 of the LGA, a decision to transfer the ownership or control
of a strategic asset from the council (or to it) must explicitly be provided
for in the council’s Long-Term Plan (and have been consulted on
specifically in its consultation document).
10.7 Council’s
existing LTP and the consultation information and process used to develop it
will not suffice to meet this test, as Council did not itself have adequate
information on the options and the implications earlier this year when it
consulted on the LTP. An LTP amendment and commensurate consultation
process on the ownership and governance arrangements and asset transfers
proposed would be necessary.
10.8 There
are also provisions in the LGA that relate to unlawful decisions to sell or
dispose of assets, which can be investigated by the
Auditor-General.
10.9 A
decision to opt-out would also be affected by the consultation and
decision-making requirements set out in this report, including the need to
follow a robust process that could survive a judicial review, as well as make a
final decision that was not manifestly unreasonable in the circumstances.
10.10 Given
the Government’s 8 week period of engagement with mana whenua and
councils, including;
· it’s
commitment to explore issues such as council and community influence of service
outcomes, integration with other reform proposals, spatial and local planning
· it’s
request for councils to give feedback on the proposal, identify issues and
solutions
· and
the uncertainty around next steps, including whether the reform may become
mandatory or legislative change will remove legal barriers to opting in
it would be premature to make a
decision to opt out of the reform process which may expose the Council to
litigation risk.
10.11 A
Government Bill to progress the reforms could address the issues raised above,
for example removing the section 130 requirements has explicitly been raised.
10.12 At this
stage, no decision is required on future delivery arrangements. Based on
the analysis in this report, Council should wait until it has further
information before consulting on and/or making a decision on the
Government’s proposal.
10.13 It is
recommended that the Council therefore notes the options canvassed in this
report, the [high-level] analysis of them and the information and decisions
that are yet to be made.
10.14 If
reform is not made mandatory, to ensure sufficient information is available to
meet the requirements in Council decision-making, staff will further develop
the analysis of options (based on further information from the Government,
advice on next steps, and regional discussions) prior to Council decision making
and consultation on future water services delivery. Whether this is ultimately
required will be dependent on where the Government gets to with the reform
process and the decisions it makes after 30 September 2021 (for instance a
legislative mandate form reform measures).
10.15 Information
that the Council requires or potential solutions to outstanding issues that it
would like to convey to Government and LGNZ
10.16 Officers
recommend that a submission be prepared on behalf of Council on the following
Position principles, namely:
· Acknowledgement
that there is a compelling case for change to ensure ongoing safe, efficient
and affordable Three Waters Services delivery,
· Premise that water
is a taonga, the lifeblood of our people and our whenua,
· Receipt of
Community feedback giving a strong message and direction to Council
that there has to be full consultation with the Community regards any proposed
structural change to Three Waters Services and more factual information is
required to inform Community Consultation, and
· Preference for a
Hawke’s Bay Three Waters Services Entity that will deliver scale and
efficiency benefits for Hastings District, whilst producing a superior outcome
for Hastings in terms of community voice and accountability, Iwi co-governance
and management, and responsiveness to growth pressures and community needs.
Officers further recommend the
Council submission traverses the following themes, namely:
· Community
involvement in decision-making re: 3W reform
· Governance over and
ownership of 3W assets
· Delivery on LTP
and Key Council Strategies
· Financial
Forecasts and Budgets
· Commercial and
business community interests
· Prioritisation of
communities and integration with Council planning
· Transition to new
entities
· Engagement with
Iwi and Hapū
· Growth
implications
· Protections
against privatisation
11.0 Conclusions
11.1 While
there is uncertainty about the future steps in the Government’s reform
proposal, and current legislative impediments to it, Council has the opportunity
to understand the information it has received (and will continue to receive)
from the RFI and modelling processes, to understand its potential scenarios,
including the financial, workforce and sustainability impacts for Council and
the wider economic, social and cultural implications of each scenario. There is
also an opportunity to engage in discussions with other councils in its entity
grouping, share information and ask questions and propose solutions to the
issues it sees to Government and LGNZ.
11.2 All
of this information will be useful to inform future decision making by both
Council and Government, as well as consultation and engagement with mana whenua
and communities.
Attachments:
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1⇨
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Attachment 1 2020 Background Three Waters Reform Programme
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ADM-01-6-7-21-371
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Under Separate Cover
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2⇨
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Attachment 2 Government's conclusion that the case for
change has been made
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ADM-01-6-7-21-372
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Under Separate Cover
|
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3⇨
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Attachment 3 DIA and LGNZ summaries
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ADM-01-6-7-21-373
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Under Separate Cover
|
|
4⇨
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Attachment 4 Funding to invest in the future of local
government and community wellbeing
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ADM-01-6-7-21-374
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Under Separate Cover
|
|
5⇨
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Attachment 5 Summary of Community Feedback
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ADM-01-6-7-21-377
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Under Separate Cover
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6⇨
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Attachment 6 Transition process summary
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ADM-01-6-7-21-379
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Under Separate Cover
|
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7⇨
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Attachment 7 Summary of Risk Analysis of Government
Proposal and Transition phase
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ADM-01-6-7-21-375
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Under Separate Cover
|
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Summary of
Considerations - He Whakarāpopoto Whakaarohanga
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Fit
with purpose of Local Government - E noho hāngai pū ai ki te
Rangatōpū-ā-Rohe
The Council is required to give effect to the purpose of
local government as set out in section 10 of the Local Government Act 2002.
That purpose is to enable democratic local decision-making and action by (and
on behalf of) communities, and to promote the social, economic,
environmental, and cultural wellbeing of communities in the present and for
the future.
Link to the Council’s
Community Outcomes –
Ngā Hononga ki Ngā Putanga ā-Hapori
This proposal promotes the health,
environmental and economic wellbeing of communities in the present and for
the future.
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Māori
Impact Statement -
Te Tauākī Kaupapa Māori
It is officers understanding that direct
conversations are occurring between iwi leaders and government at this time.
The current stage is not a decision point for Council, however in future if
council is required to make decisions then detail and in depth discussions
will be required to prior to any decisions could be taken.
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Sustainability
- Te
Toitūtanga
This current decision relates to the
provision of feedback so will have no material effect on sustainability
outcomes.
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Financial
considerations -
Ngā Whakaarohanga Ahumoni
At this stage there are no direct
financial considerations as government is asking for feedback, and the
feedback is not locking council into any position.
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|
Significance
and Engagement -
Te Hiranga me te Tūhonotanga
This decision has been assessed under the Council's
Significance and Engagement Policy as being of low significance
for the provision of feedback. The topic and intent of the government
proposal would be of high significance come any decision making process that
may be placed on Councils.
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Consultation
– internal and/or external - Whakawhiti Whakaaro-ā-roto / ā-waho
To help inform the councils feedback
various communication and engagement channels have been used, whilst these were
not a formal requirement it was important to improve Councils understanding
of the communities views.
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Risks
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Rural
Community Board –
Te Poari Tuawhenua-ā-Hapori
The community board has been provided
with an overview of the government’s 3 water reform agenda, they have
not been directly involved in the formation of the feedback.
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Te Hui o Te Kaunihera ā-Rohe o Heretaunga
Feedback from the 172 who submitted to a Council survey
showed 98% support for the purchase of Lot 1 as an additional reserve space
with the overwhelming support for upgrading the playground in the Te Awanga
Domain. 