LTP 2021-31 SUBMISSIONS SUBMITTER ID 709 6 APRIL Submitter ID Surname First Organisation Position Vol Page name no 709 Taiamai ki te 5 1 Takutai Moana RMU
Long Term Plan 2021-31 Submissions
Surname First name Organisati Taiamai ki te Takutai Position on Moana RMU Which Council fully transition its Housing for the Elderly units to another party or parties option do with strict requirements such as protection of existing tenant arrangements and the you think number of units is maintained or increased over time (Council's preferred option) will work best for our 147 Housing for the elderly units? Would you Balance the Books like to expand on your answer? Do you We don't become a shareholder and don't contribute any additional funds support the option to enable sustainable economic develop- ment?
Would you Due to the 27 communities all needing Infrastructure and not enough rates, coming like to in from those 27 communities to balance books? also you need to take into account expand on the Three Water national policy that is coming in the next three years... your Where the rate payer will fit the bill... answer? Do you Change the rating system agree with the changes to providing fairer and simpler rates Would you Due to the 27 communities all needing Infrastructure and not enough rates, coming like to in from those 27 communities to balance books? Also you need to take into account expand on the Three Water reform program that will take effect in the next three years... your Where the rate payer will fit that bill... answer? Is there Investing in our infrastructure - capital expenditure over 30 years any other Stormwater: $165.60m feedback Wastewater: $844.80m
Volume 6 1 Long Term Plan 2021-31 Submissions you would Drinking Water: $497.90m like to Total of $1508.30m where the payment of that will be given to the rate payer within share? the next three years. https://www.dia.govt.nz/Three-Waters-Reform-Programme.
Additional See attachments next page supporting information
Which Bay of Islands-Whangaroa (East) ward do you live in?
Receipt No 709 Date and time 06/04/2021 09:42 PM
Volume 6 2 UNCLASSIFIED
Hon Nanaia Mahuta, Minister of Local Government Proactive release of Cabinet material about investing in water infrastructure to accelerate reform and support economic recovery post COVID-19, 3 June 2020
The following documents have been proactively released:
3 June 2020, DEV-20-MIN-0099 Minute: Investing in Water Infrastructure to Accelerate Reform and Support Economic Recovery Post-COVID-19, Cabinet Office; and
3 June 2020, Cabinet Paper: Investing in water infrastructure to accelerate reform and support economic recovery post COVID-19, Office of the Minister of Local Government.
Some parts of this information would not be appropriate to release and, if requested, would be withheld under the Official Information Act 1982 (the Act). Where this is the case, the relevant sections of the Act that would apply have been identified. Where information has been withheld, no public interest has been identified that would outweigh the reasons for withholding it.
Key to Redaction Codes:
• 9(2)(f)(iv) – maintain the constitutional conventions for the time being which protect the confidentiality of advice tendered by Ministers of the Crown and officials
© Crown Copyright, Creative Commons Attribution 4.0 International (CC BY 4.0)
UNCLASSIFIED
Volume 6 3 UNCLASSIFIED DEV-20-MIN-0099 Cabinet Economic Development Committee
Minute of Decision
This document contains information for the New Zealand Cabinet. It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, bypersons with the appropriate authority.
Investing in Water Infrastructure to Accelerate Reform and Support Economic Recovery Post-COVID-19
Portfolio Local Government
On 3 June 2020, the Cabinet Economic Development Committee:
Background
1 noted that on 28 Januaiy 2020, the Cabinet Business Committee considered refo1ms to local government water se1vice delive1y ai1d funding atTai1gements, agreed to support local authorities to make volunta1y changes, and agreed to set a one-yeai· deadline for demonstrating progress [CBC-20-MIN-0006];
2 noted that since those decisions were made, COVID-1 9 has exacerbated the three waters challenges facing the local government sector and, without support:
2.1 investment will not occur to the levels required;
2.2 the condition ofinfrastrncture will continue to decline;
2.3 sector capability, capacity and funding issues will remain;
2.4 there could be negative implications for public health and envirolllllental outcomes;
3 noted that to respond to, and recover from, COVID-19, oppo1tunities for investment need to be identified, such as water infrastructme, to cushion the blow and help to kick-start the economy, ai1d the approach to restructuring water se1vices needs to be reconsidered;
4 noted that in April 2020, the Ministers of Local Government, Health, Envirolllllent, Infrastrncture, Rural Communities, Conse1vation, Climate Change, Commerce and Consumer Affairs, and Urban Development (Three Waters Ministers) discussed opportunities to support economic recove1y post COVID-1 9, and identified a dual approach Proactivelyof: released by the Minister of Local Government
4.1 stimulating investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and
4.2 fundamentally refo1ming the water se1vice delivery sector, to realise significant economic, enviromneutal, public health, and other benefits over the medium to long tenn;
Volume 6 4 1 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099 5 agreed to proceed with a three-year programme for refonning three waters service delive1y anangements, to be delivered in parallel with an economic stimulus package ofCrown investment in local authority water infrastrncture, which together could:
5.1 protect or create at least 11,000 jobs, and generate an estimated $3.9 billion in additional GDP;
5.2 ensure planned investments in water infrastrncture continue;
5.3 incentivise the local government sector to suppo1t the refo1m agenda;
6 agreed that provision of the economic stimulus is conditional on local authorities opting in to service delive1y refo1m and, specifically, the creation ofa small nmnber of multi-regional water service providers;
7 agreed that there be fmther discussions with Three Waters Ministers and local government about the exact number and boundaries of the multi-regional water service providers, and that final decisions would be based on the following factors:
7.1 achieving scale benefit, including at least one very large urban centre within each entity, to ensure the full benefits ofscale are achieved through a larger nehvork and population base;
7 .2 c01mnunities ofinterest;
7.3 relationships with other jurisdictional boundaries, including catchments;
8 agreed that the following high-level design objectives would be reflected in the new multi regional models for water service delive1y:
8.1 financial sustainability, affordability, and resilience;
8.2 effective, efficient, and reliable se1vices;
8.3 enable an effective, efficient regulat01y system;
8.4 minimise the negative impact ofrefo1m, where possible;
9 agreed that the new multi-regional models for water se1vice delive1y would include the following safeguards:
9.1 mechanisms that provide for continued public ownership of water infrastrncture, and protect against privatisation;
9.2 mechanisms that provide for community input and local se1vice delive1y;
10 agreed in principle that, subject to discussions with local government and detailed policy Proactivelydesign work, thatreleased the new multi-regional by the water Minister providers wouldof Local be: Government
10.1 statuto1y, asset-owning entities, with commercial disciplines, and a competency based board;
10.2 owned by local authorities, as shareholders, but with sufficient legal separation to ensure there are no restrictions on the entities' ability to bonow on similar lines to other utilities;
Volume 6 5 2 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099 11 noted that a number ofrelated matters would need to be explored through further policy development and design work, including:
11.1 the nature oflocal government shareholding a1rnngements;
11.2 the potential for the Crown to be a shareholder, and for other investors in the new entities;
11.3 funding and financing anangements;
11.4 mechanisms that provide for local community input and local service delive1y;
11.5 the nature and extent ofthe legislative framework that would be required to regulate the new entities, including economic regulation and mechanisms to protect consmner interests;
11.6 the scope ofthe new water entities' remit, pa1ticularly regarding the provision of stonnwater services, and drinking water and wastewater services that are ctmently the responsibility ofprivate/community suppliers;
11.7 the potential use ofiustnnnents like a government policy statement to guide/direct the new water entities;
11.8 the options for addressing the funding challenges facing Crown water infrastmcture providers within the context ofthese refo1ms;
12 noted that there will also need to be ftuther work to consider and address Treaty-related rights and interests, including in the design ofthe new water entities, and a strategy for engaging with iwi/Maori is being prepared to infonn this work;
13 invited the Minister ofLocal Government to report back in:
13.1 tv with finther advice on the matters refened to in paragraphs 7 to 12 above, and on the allocation offimding to nual drinking water suppliers as refened to in paragraph 25 below;
13.2 ( f) iv with detailed policy proposals relating to the matters refened to in paragraphs 7 to 12 above, to iufo1m the preparation oflegislation to give effect to the refonns during 2021;
14 noted that an initial work programme has been identified to implement the proposed refo1ms to water service delive1y anangements, including the following workstreams:
14.1 stakeholder engagement and c01mmmications;
14.2 policy, legislation, and guidance;
Proactively14.3 structuring released the new multi-regional by the waterMinister entities; of Local Government
14.4 establishment and implementation;
14.5 project management, reporting, and programme development;
15 noted that, subject to agreement to fimding as outlined below, the Depaitment ofInternal Affairs will lead the service delive1y refo1m work programme, working closely with other agencies including The Treasmy, Ministiy ofBusiness, Innovation and Employment, Minist1y ofHealth, and Minishy for the Environment, and with sector representative bodies;
Volume 6 6 3 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099 16 agreed that governance for the service delive1y refonn programme be provided by the group ofThree Waters Ministers, as refened to in paragraph 4 above;
Engagement with the local government sector
17 noted that, while gaining support from local government is vital, it is important to move quickly to develop agreements with the sector, shape the broad refonn agenda, and to unde1iake detailed policy design work, and that it will not be helpful to enter into protracted negotiations with the sector before this work can begin;
18 noted that officials from the Depa11ment ofInternal Affairs, The Treasmy, Local Government New Zealand, and the Society ofLocal Government Managers will f01m a joint working group, which will prepare:
18.1 an initial high-level agreement on how local government will work with govemment on the service delive1y refo1m and investment stimulus agenda, in June 2020;
18.2 a more detailed agreement (memorandum ofunderstanding) that councils across New Zealand would have the opportunity to opt in to in August 2020;
18.3 advice on the policy matters refened to in recommendations 7 to 11 above, including the suggested number and strncture ofthe new multi-regional water entities, by 1 December 2020;
19 agreed that:
19.1 initial funding from the economic stimulus package be released to those councils that agree to the memorandum oflmderstanding refe1Ted to in paragraph 18.2 above, in August 2020, provided that a sufficient number ofcouncils opt in to make relevant new se1vice delive1y entity viable;
19.2 councils that do not opt in at this point would still be able to do so at a later date, but would not receive the first amount ofstimulus investment;
20 noted that once agreement has been reached with councils, it is anticipated that Crown Infrastmcture Pru1ners would have ru1 oversight role in relation to the allocation and use of the economic stimulus, in accordance with the agreements;
21 noted that there will be continued engagement with local government, including direct engagement with councils, and an engagement strategy will be developed to guide this work;
22 invited the Minister ofLoe.al Government to repo11 back on progress with sector engagement in ~2T(mivJ
Financial implications Proactively released by the Minister of Local Government 23 noted that it will take significru1t resomces to administer and implement the complex service delive1y refo1m and investment programme described above, incentivise and enable the local government sector to suppo11 the refo1ms, address infrastmcture deficits, and provide an appropriate economic stimulus;
Volume 6 7 4 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099
26 agreed to invest $51.410 million over four years to provide ongoing funding to the new Water Services Regulator, Tamnata Arowai, the new Crown agent responsible for overseeing the drinking water regulat01y systems and the delive1y ofa small number ofcentralised wastewater and sto1mwater functions, and to cover the costs associated with monitoring this entity;
27 agreed to increase funding in Vote Internal Affairs to meet the costs associated with the three waters refonn programme, and the ongoing operations ofTaumata .Arowai;
28 noted that the funding to deliver the three waters refo1m programme will support local government recove1y from COVID-1 9 and contribute to the revitalisation ofthe economy;
Proactively released by the Minister of Local Government
Volume 6 8 5 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099 32 agreed to add the following new catego1y to the multi-categ01y appropriation 'Local GovernmentAdministration' to suppo1i the new Crown agent, TaumataArowai:
Tit.le Type Sc.ope Taumata Arowai Non-departmental Output This catego1y is limited to supp01ting T aumata Expense Arowai in meeting its statuto1y responsibilities to regulate New Zealand's water supplies.
:t{2)(f){IVJ
Proactively released by the Minister of Local Government
Volume 6 9 6 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED DEV-20-MIN-0099 1(2){f}(IV)
Janine Ha1vey Committee Secretaiy
Present: Officials present from: Hon Kelvin Davis Office ofthe Prime Minister Hon Grant Robertson (Chair) Officials Committee for DEV Hon Phil Twyford Hon David Parker HonProactively Nanaia Mahuta released by the Minister of Local Government Hon Stua1t Nash Hon Iain Lees-Galloway Hon Jenny Salesa Hon Damien O'Connor Hon Kris Faafoi Hon Shane Jones Hon Willie Jackson Hon James Shaw Hon Eugenie Sage
Volume 6 10 7 2rnfoawa2b 2020-07-01 09:38:32 UNCLASSIFIED UNCLASSIFIED
Office of the Minister of Local Government
Chair Cabinet Economic Development Committee
Investing in water infrastructure to accelerate reform and support economic recovery post COVID-19 Proposal 1. This paper proposes a three-year programme for reforming three waters service delivery arrangements, which would be delivered in parallel with an economic stimulus package of Crown investment in water infrastructure. 2. The proposed approach is designed to support economic recovery post COVID-19, and address persistent systemic issues facing the three waters, through a combination of: 2.1 stimulating investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and 2.2 fundamentally reforming the water service delivery sector, into large scale multi-regional providers, to realise significant economic, public health, environmental, and other benefits over the medium to long term. (This would be an ‘opt in’ reform programme, in which councils that choose to participate would be eligible for stimulus funding, provided there are sufficient numbers of councils to provide entity scale.) 3. The paper seeks agreement to: 3.1 the overall approach to the reform and investment programmes; 3.2 the scope, nature, timing, and key components of the service delivery reforms; 3.3 the appropriation of funding of 9(2)(f)(iv) to resource the work programme, both within the Department of Internal Affairs, and across 67 territorial authorities and supporting sector organisations; 3.4 establish a tagged operating contingency of up to 9(2)(f)(iv) over three years to provide for an economic stimulus package of Crown investment in water infrastructure, and reform programme costs, comprising: 3.4.1 an early injection of 9(2)(f)(iv) to support the local government sector to maintain planned investment and asset quality in the face of significant declines in- council revenue (the release of which would be conditional on sector support for service delivery reforms); Proactively3.4.2 releaseda second, more by scala theble Minister stimulus of up of to 9(2)(f)(iv) Localto Government support large- scale asset replacements, and the bringing forward of ‘no regrets’ investment in the latter half of the reform- period; 3.4.3 programme reform and support costs of 9(2)(f)(iv) , including funding to enable the local government sector to participate in the service delivery reform process, and to conduct the highly complex legal, accountancy, and due diligence work associated with implementing the reforms (given 67 councils would be involved).
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4. Appendix A provides a two-page overview of the proposals and reform timetable. 5. This paper also seeks agreement to investment of $51.410 million over four years to provide ongoing funding to Taumata Arowai, the new Water Services Regulator, and for the monitoring work associated with this Crown agent.
Relation to Government priorities 6. The proposals in this paper relate to the Government’s response to COVID-19. The initial phases of economic stimulus directly support Wave 2: ‘kickstarting the economy’. Later stages of the stimulus, and the service delivery reform programme, support Wave 3: ‘reset and rebuild’. Any short-term stimulus will also support local authority balance sheets, which is well aligned to Wave 1: ‘cushioning the blow’. 7. The proposals also relate to core components of the Three Waters Review: reforming water service delivery and funding. In April 2019, it was agreed that the Three Waters Review is a Government priority. In January 2020, we acknowledged that there is a strong case for change to service delivery arrangements, and agreed to support local authorities to make voluntary changes in the first instance. 8. The dual approach I am proposing in this paper is designed to address the persistent systemic issues and infrastructure deficits identified throughout the Three Waters Review. We have an opportunity to achieve transformational changes to three waters services, to deliver significant long-term benefits to consumers and the economy.
Executive summary 9. A lot has changed in the past three months. COVID-19 has exacerbated the three waters challenges already facing the local government sector. Many councils and communities will struggle to respond to these challenges. Without support, investment will not occur to the levels required, and the condition of infrastructure is expected to continue to decline as councils prioritise other areas of investment. Sector capability, capacity and funding issues will remain. Progress with voluntary service delivery reforms is unlikely to be made at the level and pace required. 10. To respond to, and recover from, COVID-19 we need to identify opportunities for investment, such as water infrastructure, to help to kick-start the economy. We also need to reconsider the approach to restructuring water services. 11. During April 2020, Three Waters Ministers1 met to discuss three waters infrastructure investment and reform opportunities, in light of the COVID-19 situation, and to agree a way forward. This paper reflects these discussions, and the consensus that emerged.
Proactively released by the Minister of Local Government
1 Three Waters Ministers include the Ministers of/for: Local Government; Health; Environment; Infrastructure; Rural Communities; Conservation; Climate Change; Commerce and Consumer Affairs; and Urban Development. The Ministers of Finance and Treaty of Waitangi Negotiations also received material relating to the meetings that were held in April 2020.
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12. I am seeking agreement to proceed with a three-year programme for reforming three waters service delivery arrangements, to be delivered in parallel with an economic stimulus package of Crown investment in water infrastructure. This investment also needs to be aligned with any investments we are considering making in local government more generally, and the parallel processes underway through the Provincial Growth Fund and Crown Infrastructure Partners regarding ‘shovel-ready’ programmes. 13. For local government water infrastructure, I propose a dual approach, which is designed to: 13.1 stimulate investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and 13.2 fundamentally reform the water service delivery sector, to realise significant economic, public health, environmental, and other benefits over the medium to long term. (This would be an ‘opt in’ reform programme, in which councils that choose to participate would be eligible for stimulus funding, provided there are sufficient numbers of councils to provide entity scale.) 14. It is estimated that the economic stimulus would protect and create at least 11,000 jobs directly, and a total of 34,000 jobs once indirect effects are taken into account. It would generate $3.9 billion in additional GDP. Targeted investment would also ensure planned investments in water infrastructure continue and three waters reform objectives are met. 15. I am proposing that provision of the economic stimulus is conditional on local authorities opting in to service delivery reform, specifically the creation of large scale multi-regional water providers. The exact numbers and boundaries would be finalised following discussions with Ministers and local government, with decisions based on factors such as scale, communities of interest, and catchments. 16. This approach would realise a number of economic and other benefits associated with large scale water providers, address many of the systemic issues and infrastructure deficits facing the three waters system, and help us to deliver our reform objectives. Creating large providers with strong balance sheets should also support the supply of housing by enabling water infrastructure to be provided to new developments, which has been a big constraint for debt-limited councils in high-growth areas. 17. The proposed economic stimulus of up to 9(2)(f)(iv) comprises three parts: 17.1 an early injection of 9(2)(f)(iv) to support the local government sector to maintain planned investment and asset quality in the face of significant declines in council revenue- – the release of which would be conditional on the sector supporting the service delivery reform programme (on an opt in basis); Proactively17.2 a second, released more scalable by stimulus the Ministerof up to 9(2)(f)(iv) of toLocal support Governmentlarge scale asset replacements and the bringing forward of ‘no regrets’ investment in the latter half of the reform period; - 17.3 programme reform and support costs of 9(2)(f)(iv) , including funding to enable the local government sector to participate in the reform process, and to conduct the highly complex legal, accountancy, taxation, and due diligence work associated with implementing the reforms (involving 67 councils).
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18. The stimulus would be released in tranches, broadly aligned with COVID-19 recovery ‘waves’, to ensure there is sustained support from local government for the service delivery reforms. Approximately 9(2)(f)(iv) of the stimulus would be set aside for rural drinking water supplies, to help to address the specific challenges these suppliers are facing in delivering safe drinking- water to consumers. 19. This paper sets out the objectives, benefits, and key features of the proposed multi- regional water providers – building on previous discussions with Three Waters Ministers, and my paper on service delivery reform in January 2020. It also confirms the Government’s bottom line that public ownership of water infrastructure must continue, and there must be protections against privatisation. 20. I am seeking agreement to specific components of the new water service delivery model, subject to discussions with local government and detailed policy work. I propose the new multi-regional water providers would be: 20.1 statutory, asset-owning entities, with commercial disciplines, and a competency-based board; 20.2 owned by local authorities, as shareholders, but with sufficient legal separation to ensure there are no restrictions on the entities’ ability to borrow. 21. A large number of other policy matters need to be explored further, including confirming the proposed multi-regional boundaries; the nature of local government shareholding arrangements; potential for Crown ownership; funding and financing arrangements; and the legislative framework that would be required to regulate the new entities (including economic regulation and mechanisms to protect consumer interests). We will need to consider and address Treaty-related rights and interests, and engage with iwi/Māori. We also need to consider options for addressing the funding challenges facing Crown water infrastructure providers within the context of these reforms. 22. I am proposing to report back with initial advice on all of these matters in 9(2)(f)(iv) followed by more detailed policy proposals in 9(2)(f)(iv) . I anticipate the legislation needed to implement the reforms would be introduced in early- 2021, and the new water entities would be ready to operate from 2022/2023. 23. It will take significant resources to administer and implement a reform programme of this magnitude and complexity, and to incentivise and enable the local government sector to support the reforms. I am seeking funding in 2020/21 to resource the first year of this large-scale transformation programme. This funding includes programme costs at a national and regional level, as well funding to ensure the transition for local authorities is well supported and other services are not compromised through the initial period of reform. Proactively24. Subject to this released funding being byagreed, the I am Minister proposing the of Department Local ofGovernment Internal Affairs (DIA) leads the service delivery reform programme – working closely with local government representative bodies. It would be supported by the agencies that have been involved in the Three Waters Review to date, including The Treasury, Ministry of Business, Innovation and Employment, Ministry of Health, and Ministry for the Environment. Programme governance would continue to be provided by the large group of Three Waters Ministers.
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25. I have already had initial conversations with representatives of the local government sector, including at the Central-Local Government Forum. It is clear that local government recognises the opportunities of reform, and the sector has expressed a willingness to work with us to design a reform programme. A joint working group will be formed between DIA, The Treasury, Local Government New Zealand, and the Society of Local Government Managers. 26. I am proposing that the joint working group would prepare an initial high-level agreement in June 2020, on how local government will work with government on the reform agenda. This group would then work to prepare a more detailed agreement (memorandum of understanding) that councils across New Zealand would have the opportunity to opt in to. 27. Initial funding from the economic stimulus package would be released to those councils that agree to the memorandum of understanding in August 2020. Councils that do not opt in at this point would still be able to do so at a later date, but would miss the first wave of stimulus investment. 28. The joint working group will also work on policy matters, with a view to providing detailed advice on these matters to Ministers by 1 December 2020. 29. Once agreement has been reached with councils, I anticipate that Crown Infrastructure Partners would have an oversight role in relation to allocation and use of the stimulus funding, in accordance with the agreements. 30. I am planning engagement with local government throughout this process. A sector engagement strategy is being developed to guide this work. I am also recommending we immediately resource councils and their representative bodies, so they are able to engage in the reform programme. 31. Finally, this paper also seeks agreement to investment of $51.410 million over four years to provide ongoing funding to Taumata Arowai, the new Water Services Regulator, and for the monitoring work associated with this Crown agent. Taumata Arowai will be responsible for regulating drinking water, and for a small number of complementary functions relating to wastewater and stormwater. This funding is needed to ensure work to establish and then operate Taumata Arowai can occur.
Background 32. Since late 2017, we have considered a series of papers relating to the system for regulating and managing the three waters, and the response to the Havelock North drinking water contamination event. These papers highlighted that, in many parts of the country, communities cannot be confident that drinking water is safe, or that good environmental outcomes are being achieved. They also raised concerns about the regulation, sustainability, capacity and capability of a system with a large number of Proactivelylocalised providers, released many of whichby the are funded Minister by relatively of smallLocal populations. Government 33. We have already made considerable progress with regulatory reform. Legislation to create Taumata Arowai is currently being considered by the Health Committee, and work to build this new Crown agent is underway. Drafting of a separate Water Services Bill is nearly completed, and will give effect to our decisions to significantly strengthen the drinking water regulatory framework.
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34. In January 2020, we considered the other main component of the Three Waters Review: reforms to service delivery and funding arrangements.2 We noted that the case for change continues to build, that there are particular objectives and bottom lines that need to be considered as part of any reforms, and that initial analysis indicates multi-regional or regional delivery models appear to perform best across these objectives and bottom lines. We agreed to continue to support local government to make voluntary changes to service delivery arrangements, and to set a one-year deadline for demonstrating progress has been made [CBC-20-MIN-0006 refers]. 35. While the fundamental, underlying reasons for service delivery reform remain, a lot has changed since those decisions were made. We are now in the midst of a global pandemic, and experiencing a ‘once in a century’ economic shock. The challenges facing the local government sector, which provides the majority of three waters services, have been compounded by this event. 36. Responding to, and recovering from, COVID-19 means we must reconsider the position we took in January 2020, and explore other approaches to three waters reform. We also need to consider how to support the local government sector, enable economic recovery, and ensure much-needed investment in three waters infrastructure occurs – at a time when many ratepayers will be experiencing financial hardship. 37. Over recent weeks, Ministers have been asked to identify immediate opportunities for investment to cushion the blow of COVID-19, and help to kick-start the economy. Investment in water infrastructure is an area with significant potential to contribute to economic stimulus in the short term. 38. We are also being asked to consider the challenges facing our sectors, now and in coming years. We need to examine the opportunities that exist to address the long- term issues the country faces, and how we can recover from the impacts of COVID-19 to transition to a productive, sustainable economy. This could include reconsidering traditional institutional structures, and asset ownership arrangements, for example. 39. During April 2020, Three Waters Ministers met to discuss three waters investment and reform opportunities in light of the COVID-19 situation. These discussions built on the significant work and prior conversations over the past two and a half years. The approach I am proposing in this paper reflects the tenor of these discussions, and the consensus reached.
Analysis
Local government three waters providers are facing significant challenges, which are being exacerbated due to COVID-19 40. Throughout the Three Waters Review, we have heard about a number of systemic Proactivelychallenges facing released the three waters by the sector Minister, including: of Local Government 40.1 significant investment requirements to address infrastructures deficits, and associated risks to public health and the environment; 40.2 capacity and capability issues relating to asset management and governance of water infrastructure, and service delivery;
2 The paper, Three waters service delivery and funding arrangements: approach to reform, was considered by the Cabinet Business Committee on 28 January 2020.
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40.3 funding and affordability issues, particularly for smaller communities, driven by matters such as: 40.3.1 community expectations and regulatory requirements relating to water quality, treatment and management; 40.3.2 the need to replace ageing infrastructure, build resilience to climate change and natural hazards, and innovate; 40.3.3 increasing demand for water infrastructure in high-growth areas; 40.3.4 delivering regional economic growth, including by sustaining local employment across distributed water networks; 40.4 the lack of alignment between the development and operation of wastewater systems and a catchment-based regulatory system; 40.5 the impact on local government of transition to new three waters service providers, particularly the reduction in operational budgets that would occur if water assets were transferred. 41. The situation caused by COVID-19 means the local government sector is facing a series of additional issues and challenges, many of which relate to the three waters. 42. Prior to COVID-19, territorial authorities were planning on spending up to $8.3 billion in capital over the next five years on water infrastructure. However, COVID-19 is likely to cause significant decreases in revenue in territorial authorities over the short term. Revenues could decline by between 10 and 25 per cent over the next financial year, and local authorities are facing increased cost pressures. As a result, borrowing will be constrained due to lower debt limits that flow from lower revenues, and opportunities to raise revenue through rates, fees and charges will be extremely limited. 43. Investment in water infrastructure has traditionally been an area where councils have constrained spending in response to financial pressures. This is because investment in water infrastructure is long term, and has a less visible impact on communities than other forms of council expenditure. The Three Waters Review has highlighted that New Zealand’s water infrastructure already carries a burden of underinvestment. This is likely to worsen in response to COVID-19. 44. Officials have estimated that, in the absence of support from the Crown, territorial authorities will face pressure to reduce planned capital investment in three waters infrastructure by approximately $1.2 billion over the next three years. 45. Three waters providers will also be facing other pressures over the next few years, as our regulatory reforms begin to take effect, and communities increasingly experience the impact of climate change. For example, there will be more emphasis on compliance with drinking water regulatory requirements, and greater transparency Proactivelyabout the environmental released performance by the of Minister wastewater and of stormwater Local Government networks. The recent drought has demonstrated the significant issues, costs, and risks to public health associated with water shortages.
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I am proposing a combination of Crown investment and fundamental service delivery reform to address these challenges, and support short- and long-term economic recovery 46. Many councils and communities will struggle to respond to these challenges. Without support, investment will not occur to the levels required, the condition of infrastructure will continue to decline, and there could be negative implications for public health and environmental outcomes. Sector capability and capacity issues will remain, and funding problems will progressively worsen. 47. The COVID-19 situation has also affected progress with voluntary service delivery reforms. Understandably, councils and communities have other priorities. It appears unlikely that we will be able to regain momentum to achieve voluntary reforms in the short/medium term, to the extent that is needed to deliver widespread improvements across the country. 48. We are presented with an opportunity to consider how to improve this situation, and to address a number of significant issues, both entrenched and new. We need to act now to respond to the immediate challenges, and to ensure current settings are not locked in for years to come, causing problems to re-emerge. 49. Following discussions with other Three Waters Ministers, I am seeking agreement to proceed with a three-year reform programme to address the issues facing the three waters sector and support economic recovery post COVID-19. My proposed approach has two, inter-related components, and is designed to: 49.1 stimulate investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and 49.2 fundamentally reform the water service delivery sector, to realise significant economic, environmental, health, and other benefits over the medium to long term. (This would be an ‘opt in’ reform programme, in which councils that choose to participate would be eligible for stimulus funding, provided there are sufficient numbers of councils to provide entity scale.) 50. This dual approach would be structured to achieve multiple objectives – both in relation to economic recovery, and delivering the multiple benefits that are associated with three waters reform. 51. To support COVID-19 recovery, we would be seeking to maximise the positive impact that any stimulus could provide to local economies and jobs, and address the impact of the change process during transition. The investment type and procurement support could be targeted at retaining local and lower skill jobs, preventing further deterioration in water infrastructure as council finances decrease, and avoiding investment in assets that may become stranded in future entities. 52. Through this proposal, we can also achieve the objectives for reforming the three Proactivelywaters system released that were outlined by thein my JanuaryMinister 2020 paper: of Local Government 52.1 significantly improving the safety and quality of drinking water services, and the environmental performance of wastewater and stormwater systems (which are crucial to good public health and wellbeing, and achieving good environmental outcomes); 52.2 ensuring all New Zealanders have equitable access to affordable three waters services;
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52.3 improving the coordination of resources and unlocking strategic opportunities to consider New Zealand's infrastructure needs at a larger scale; 52.4 increasing the resilience of three waters service provision to both short- and long-term risks and events, particularly climate change and natural hazards; 52.5 moving the supply of three waters services to a more financially sustainable footing, and addressing the affordability and capability challenges faced by small suppliers and councils; 52.6 improving transparency about, and accountability for, the delivery and costs of three waters services, including the ability to benchmark the performance of service providers [CBC-20-MIN-0006 refers].
In the short term, targeted fiscal stimulus would help councils to fund asset renewals, create jobs, and generate additional GDP 53. I am proposing a targeted stimulus package of up to 9(2)(f)(iv) to invest in water infrastructure and support service delivery reform. This package comprises: 9(2)(f)(iv) - 53.1 an early injection of to maintain planned investment and asset quality in the face of significant declines in council revenue; - 9(2)(f)(iv) 53.2 a second, more scalable stimulus of up to to support large scale asset replacements, and the bringing forward of ‘no regrets’ investment in the latter half of the reform period. - 54. The fiscal profile of the proposed investment is based on achievement of both stimulus and reform objectives. I propose that we progressively release funding to the local government sector, following demonstration of support for the reform programme and progress against well-defined milestones. The mechanisms for demonstrating support will be discussed with the sector shortly. 55. To provide fiscal certainty and confidence that we can achieve the reform objectives, I propose that a total funding envelope of 9(2)(f)(iv) is established to support this reform process. In this paper, I am seeking agreement to an allocation for tranche one of9(2)(f)(iv) from the 9(2)(f)(iv) allocation, with delegation to the Minister of Finance, Minister of Local Government, Minister for Infrastructure, and Minister of Internal- Affairs to release the funding to the sector, following demonstration of an agreed pathway to reform and subject to their satisfaction that the necessary conditions have been met. 56. Although this financial commitment from the Crown is substantial, this level of investment needs to be compared to the value of water assets that sit on council balance sheets. In total, councils have approximately $140 billion in total assets, of which $40 billion are three waters assets. Total depreciation expense on these three Proactivelywaters assets released is $840 million byper annum.the Minister 9(2)(f)(iv) of Local Government
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57. Commitment to proceed with subsequent tranches would be signalled to the sector as part of my engagement in the next month. 9(2)(f)(iv)
I note that the total quantum for subsequent tranches is scalable, and will need to be informed by our success with the sector in meeting milestones and the size of incentive required to secure reform. 58. Analysis indicates that this fiscal stimulus would protect and create at least 11,000 jobs directly, and a total of 34,000 jobs once indirect effects are accounted for. It would also generate an estimated $3.9 billion in additional GDP. 59. This investment would achieve: 59.1 programme-level support for major service delivery reforms across 67 territorial authorities (and water-related council-controlled organisations); 59.2 renewals to core water infrastructure, such as wastewater treatment plants and drinking water, wastewater and stormwater pipes (including depreciation), to prevent the further deterioration of assets – particularly in response to COVID-19 and declining council revenues; 59.3 the best ideas from ‘shovel worthy’ project initiatives, and new investments that emerge from combined multi-region asset management plans; 59.4 upgrades to non-compliant drinking water supplies, with an appropriate amount of funding tagged to upgrade marae-based water supplies (contributing to public health benefits associated with safe drinking water). 60. Specifically, I am proposing that approximately 9(2)(f)(iv) of the stimulus would be set aside for rural drinking water supplies, to help to address the challenges these suppliers are facing in delivering safe drinking water- to consumers. There are a range of supply arrangements in rural and remote areas, including council and private providers, and further work is needed to establish how the funding would be targeted. I will explore how best to allocate the funding with the Minister for Infrastructure, and report back with further details in 9(2)(f)(iv) 61. I have considered alternatives to targeted- investment of this kind, but there are significant challenges associated with other approaches. 62. One alternative would be to ask councils to fund further investments on their balance sheets, by utilising further borrowing. Additional borrowing of around $300 million per year was planned prior to COVID-19 to fund capital investment. However, the decrease in revenues will severely constrain councils’ ability to take on more debt, and some councils (particularly in high-growth areas) will quickly reach debt limits. Proactively63. The reduction released in revenue will by mean the most Minister councils will need of Localto curtail almostGovernment all of their borrowing programmes. It is estimated that, in aggregate, councils will only be able to borrow an additional $40 million per annum without breaching debt-to-revenue limits. This is insufficient to bridge the expected -9(2)(f)(iv) investment gap.
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64. A variation of this option would be to support council debt through issuing some form of government bond. This would provide councils with the ability to borrow at rates closer to the Crown cost of borrowing, rather than prevailing rates available to them through the Local Government Funding Agency. This option is only attractive if the differential is large and councils have a greater ability to take on debt than current circumstances allow. Overall, the likelihood of this occurring is low, and unlikely to be sufficiently attractive to the sector nor sufficient to prevent deterioration of the infrastructure. 65. Another option would be to use alternative funding or financing arrangements to support further investment in three waters assets, such as Special Purpose Vehicles (SPVs). These vehicles could seek up-front capital from sources other than the Crown. 66. There are several challenges with this approach, particularly from an immediate response perspective, and they would not incentivise structural reform. The main issue is that SPVs and similar funding mechanisms are best suited to green-field developments or new asset construction. SPVs are not well-suited to brown-field development or renewal of assets, which is what the bulk of this programme of work is looking to support in the short to medium term. 67. In addition, SPVs typically rely heavily on private or overseas equity investment to fund up-front capital costs. Due to the economic shock relating to COVID-19, it is likely that ready access to private equity and capital will be limited, and the Crown will need to step in to help fill this gap in the short term. Even in instances where private equity is available, borrowing costs are likely to escalate substantially for firms to access this form of capital.
Provision of the stimulus would be conditional on local government opting in to service delivery reforms, to create multi-regional water service providers 68. In April 2020, Three Waters Ministers were asked to consider how water investment opportunities could support reform and be used to provide for economic stimulus in the context of COVID-19. 69. Ministers were presented with several options for providing investment, ranging from investment with no conditions, to investment that is conditional on aggregation of water services. There was a strong preference for providing a financial contribution that is conditional on aggregation, and for the creation of four or five multi-regional water service providers. 70. Our rationale for four or five entities relates to evidence about the size (population and customer density) over which scale efficiencies are likely to be achieved. This analysis has been supported by assistance from the Water Industry Commission for Scotland. Scotland is considered an exemplar in water reform internationally. Proactively71. The preferred released approach recognise by thes that fMinisterundamental reform of Locals to the water Government service delivery sector are needed to address the challenges and achieve the objectives described earlier, and to ensure investment in infrastructure continues. This is an opportunity to deliver broader economic, health, environmental, and other benefits over the medium to long term, across the country.
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72. The alternative options, such as unconditional investment, or investment that is conditional on ‘best endeavours’ or on each individual council agreeing to a reform pathway, were not preferred. These options are unlikely to be effective, feasible, or have the desired level of impact. There is also a risk that unconditional investment would reduce sector interest in voluntary reform, may exacerbate regional inequities, and close the ‘window of opportunity’ for many years. 73. It is important to recognise the significant amount of Crown investment that is proposed. We need to ensure the reforms are commensurate with the investment, value for money can be demonstrated, and the impacts are felt across the country. Without consistent and widespread service delivery reform, it is likely that any infrastructure deficits will only be resolved temporarily, and entrenched structural and funding issues will remain in many places. 74. My proposal involves transformational structural reform and the creation of multi- regional, asset-owning water service providers. This would realise a number of economic and other benefits associated with large scale providers, address many of the systemic issues and infrastructure deficits facing the three waters system, and help us to deliver our reform objectives. Benefits include: 74.1 increased financial capacity and capability, with stronger, more flexible and resilient balance sheets, greater access to capital, and a more reliable investment pipeline; 74.2 opportunities to take a strategic and coordinated approach, to consider infrastructure needs at a larger scale and in the context of wider catchment outcomes; 74.3 building technical capabilities, with access to a larger, more specialist workforce, and the ability to innovate and make use of new technology; 74.4 enabling financial efficiencies and lower operating costs, by consolidating administration and overhead costs, and improving organisational capabilities; 74.5 enabling more consistent water charges, with the ability to harmonise tariffs across much larger areas. 75. Creating large scale providers with strong balance sheets should contribute positively to the supply of housing by enabling water infrastructure to be provided to new developments, which has been a big constraint for debt-limited councils in high- growth areas. The existing urban growth partnerships, and spatial planning, also provide an opportunity for integrating and coordinating large, multi-regional water providers with priority development areas and other key projects. 76. From a regulatory perspective, this approach would be beneficial in terms of operating and funding Taumata Arowai, the new Water Services Regulator. It would significantly Proactivelyreduce the number released of regulated by parties, the Ministerwhile increasing of the Local capacity andGovernment expertise within those entities. This would mean Taumata Arowai would work with four or five large scale, dedicated water entities, instead of 67 councils (some of which may need support to comply with the new drinking water regulatory system). It also makes it feasible to cover a sizeable portion of the organisation’s costs through levying the new, well-resourced water entities.
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77. The benefits should not be overstated in the short term. While some benefits, such as stronger balance sheets, will be realisable immediately, others will take time. This is illustrated in Appendix B. We will need to support sustainable change, good long-term investment decision making, and a supported transition for councils and consumers. 78. I have considered alternative options to structural reform, but these options have disadvantages, do not deliver our reform objectives, or fail to address key challenges. For example, shared services models that do not involve asset ownership have a number of shortcomings, including the inability to access scale or scope efficiencies, and split accountabilities. The recent example of Wellington Water illustrates the need for new water entities to make their own funding and investment decisions, rather than relying on individual council owners for investment.
The new service delivery model would include the safeguards and design objectives we have considered previously 79. I am proposing the creation of a small number of multi-regional water service providers. 9(2)(f)(iv) 80. There will be further discussions with Ministers and local government about the exact number of new entities, and their boundaries. I am proposing that final decisions on these matters would be based on the following factors: 80.1 scale benefits – including at least one very large urban centre within each entity, to ensure the full benefits of scale are achieved through a larger network and population base; 80.2 communities of interest; 80.3 relationships with other jurisdictional boundaries, including catchments. 81. Earlier in the Three Waters Review, we agreed that, if a new model for water service delivery is created, this must include certain high-level design objectives: 81.1 financial sustainability, affordability, and resilience; 81.2 effective, efficient, and reliable services; 81.3 enable an effective, efficient regulatory system; and 81.4 minimise the negative impact of reform, where possible. 82. We have also expressed a clear and consistent message that public ownership of water infrastructure must continue, and there must be protections against privatisation. This has always been, and will continue to be, a bottom line. There has also been an ongoing interest in mechanisms that provide for local community input and local service delivery, opportunities for iwi/Māori participation, and expectations around how new multi-regional entities could better contribute to health and environmental Proactivelyoutcomes. released by the Minister of Local Government 83. If the approach in this paper is agreed, I am proposing that these design objectives and bottom lines would be an integral part of the policy development process, and would be reflected in legislation.
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84. There are a number of options for protecting public ownership of water assets. This is already a feature of local government legislation, which prohibits the sale of water infrastructure and the divestment of ownership of water services. Similar protections would be carried into the legislation that creates new water entities. I would also expect officials to identify additional mechanisms for providing assurances about this important matter. This could be achieved through ownership arrangements, and/or forms of social outcome obligations (such as ‘kiwishare’, for example).
I am also seeking agreement to core components of the service delivery model 85. I am seeking in principle agreement to core components of the new water service delivery model, subject to detailed policy design work and discussions with local government. I am proposing that the new water entities would be: 85.1 statutory, asset-owning entities, with commercial disciplines, and a competency-based board; 85.2 owned by local authorities, as shareholders, but with sufficient legal separation to ensure there are no restrictions on the entities’ ability to borrow on similar lines to other utilities. 86. Establishing the new entities in statute is essential if we are going to create an effective, enduring ownership, governance, and service delivery model, and provide an appropriate regulatory framework (to protect the interests of consumers, for example). I do not consider existing institutional arrangements, such as council- controlled organisations, would be fit-for-purpose in these circumstances. 87. Providing for local authorities to be shareholders in the new entities is also important. This would be structured in a way that maintains and protects community ownership, but enables assets to be transferred to the new public entities. The basis for shareholding will need careful consideration and financial analysis. It could be possible to apportion shares on the basis of the condition of the assets that are transferred, to reward previous investment and good asset maintenance. There could also be potential to provide for some form of annual return to shareholders/councils. 88. If local authorities were to retain asset ownership, this would limit the new entities’ ability to borrow, as limits would be constrained by council debt limits or attitudes to debt. This could also result in sub-optional investment decisions about assets that would benefit from a multi-regional (not district) solution. 89. Professional governance arrangements are essential to create some of the capability improvements that are required. This would separate the ownership and governance roles, and bring in specialist expertise.
Further advice and decisions will follow in 9(2)(f)(iv) Proactively released by the Minister of Local Government 90. A number of highly-complex matters would need to be explored further during policy development and design work for the new service delivery model. These include: 90.1 the nature of local government shareholding arrangements; 90.2 the potential for the Crown to be a shareholder (for example, in recognition of stimulus funding), and for other investors to be party to financing (but not ownership/equity) arrangements;
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90.3 funding and financing arrangements (including the fees and charges faced by consumers); 90.4 mechanisms that provide for local community input and local service delivery; 90.5 the nature and extent of the legislative framework that would be required to regulate the new entities, including economic regulation and mechanisms to protect consumer interests; 90.6 the scope of the new water entities’ remit, particularly regarding the provision of stormwater services, and drinking water and wastewater services that are currently the responsibility of private/community suppliers; 90.7 the potential use of instruments like government policy statements to guide/direct the new water entities. 91. I am proposing to report back with initial advice on these matters by 9(2)(f)(iv) , alongside progress with reform discussions with local government, followed by more detailed proposals in 9(2)(f)(iv) . This second report back will also inform -our appetite to release the earmarked investment stimulus beyond tranche one to the sector. 92. One of the points we will need to consider is charging arrangements for water services. I am aware that councils currently use a variety of approaches, including fixed rates, volumetric charges, and general rates. It will be important to ensure consumers experience minimal disruption during the transition to, and implementation of, new multi-regional water entities. I anticipate consumers would continue to be charged on a similar basis to their existing arrangements, at least in the initial years of the entities’ operations. Volumetric charging is something that could be considered in future, but only when it makes sense to do so. I note that Scottish Water still raises its charges via local council rates notices. 93. We will also need to consider and address Treaty-related rights and interests, including in the design of the new water entities. A preliminary analysis has been undertaken, and is attached at Appendix C. I will report back with further advice in 9(2)(f)(iv) 94. This preliminary analysis has been informed by previous engagement with- iwi/Māori, in relation to proposals for the new drinking water regulatory framework and creation of Taumata Arowai. During these engagement sessions, a number of comments were made that are relevant to reforms to service delivery arrangements. 95. The potential for reform of water service providers is likely to present a different range of Treaty interests, though, which will need to be identified and explored further. An engagement strategy will be prepared to inform this work. Engagement and analysis will be informed by guidance material that has been prepared through the Te Arawhiti portfolio, and intersections with our response to WAI 262 and WAI 2358. When Proactivelyengaging with released iwi/Māori, we bywill seekthe to Ministeruse existing platforms of Local and relationsh Governmentips, such as the National Iwi Chairs Forum, to minimise the consultation fatigue iwi may be experiencing.
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96. Finally, I am aware that several government agencies are facing significant costs to upgrade their water infrastructure. 9(2)(f)(iv)
DOC has a significant number of sites around the country, many of which will require water infrastructure upgrades. These sites are generally small and spread out. 97. 9(2)(f)(iv)
98. The stimulus package in this paper is targeted at local government water infrastructure. I do not want to diminish the amount of investment that would be directed at improving local infrastructure and incentivising sector support for service delivery reform. This could happen if Crown-owned water infrastructure was included in this stimulus package. 99. However, I recognise the challenges that DOC and other Crown water service providers, such as the Department of Corrections and New Zealand Defence Force, are facing and the implications this may have. Officials from the relevant agencies will do further work to explore the options for addressing these challenges. This could include the potential for the water investment stimulus package to be broadened, and options for Crown water supplies to be included within the scope of the new multi-regional entities. I am advised that some agencies have expressed an interest in transferring responsibility for some of their water assets to the new water entities, if this was a possibility. I will report back with further advice in 9(2)(f)(iv) I am proposing a three-year reform programme and three- tranches of investment – but the substantive work would begin immediately 100. Maintaining momentum is critical. If my proposed approach is agreed, we will need to move quickly to develop and agree detailed policy proposals, engage with key stakeholders, and begin releasing the stimulus package. 101. With this in mind, I intend to seek policy decisions in 9(2)(f)(iv) , with a view to legislation being introduced in early 2021. 102. Overall, I consider that a three-year programme is needed to design and implement the reforms effectively. This approach reflects that it will take time to: 102.1 engage meaningfully with local authorities, and for them to understand and Proactivelycome released on board with theby reforms, the Minister and adapt their of organisations Local Government; 102.2 engage meaningfully with iwi/Māori, and consider Treaty of Waitangi rights and interests; 102.3 communicate and socialise the reforms with the public; 102.4 develop and enact the legislation needed to establish new water entities, and the associated regulatory framework;
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102.5 work through the complex transactional issues related to the aggregation of water services and assets from 67 individual entities into a small number of multi-regional entities, particularly as information about assets and revenue is poor. 103. I am proposing that investment is released in three tranches, broadly aligned with the investment ‘waves’ of COVID-19 recovery. This investment is a vital tool to incentivise buy-in from the local government sector, and ensure support is maintained. A single tranche of funding, of a size that is able to be immediately deployed, is unlikely to achieve the desired structural reforms. 104. The diagram at Appendix A provides a high-level indicative timeframe for the proposed three-year programme. 105. My officials have also been developing the work programme needed to develop and implement the service delivery reforms. An initial programme structure includes the following workstreams: 105.1 Stakeholder engagement and communications; 105.2 Policy, legislation, and sector guidance; 105.3 Structuring the new entities; 105.4 Establishment and implementation; 105.5 Project management, reporting, and programme development. 106. The workstreams and structure are being designed to ensure that the programme can move at pace, is responsive (particularly to any further potential changes in the environment as a result of ongoing COVID-19 impact), connected to the stimulus and regulatory reform activities, and suitably resourced. Commencing the front-end work as soon as possible, to enable negotiations with local authorities and development of policy positions, will be key to enabling programme acceleration. 107. It will take significant resources to administer and implement a reform programme of this magnitude and complexity. The financial implications section of this paper sets out the funding being sought to resource the programme. 108. Subject to this funding being agreed, I am proposing the Department of Internal Affairs (DIA) leads the service delivery reform programme. The Department is the agency responsible for, and has primary relationship with, local government, and has been leading the Three Waters Review for the past three years. Officials would work closely with other key agencies, including The Treasury, Ministry of Business, Innovation and Employment, Ministry of Health, and Ministry for the Environment, as they have been throughout the Review. Proactively109. I am proposing released that programme by governance the Minister would continue of Local to be provided Government by the group of Three Waters Ministers. These Ministers will meet regularly to guide the direction of this work, discuss policy options, and ensure momentum is being maintained and all aspects of the programme are on track. 110. The reform programme will have a close relationship with the oversight and release of the wider economic stimulus package. The detail of this work will need to be included in advice from The Treasury, Crown Infrastructure Partners, and the Department of Internal Affairs, in the context of other stimulus approaches.
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111. My officials would be involved in designing the stimulus package and deciding how it would be spent, given this relates to the local government sector and our water service reform objectives. Once agreement has been reached with local government about the specific reform and funding package that councils would be opting in to, I anticipate Crown Infrastructure Partners would have oversight of the allocation and use of the three waters stimulus funding – in accordance with the agreements.
It is important to get support from local government, but there would be a deadline and agreed mechanisms for demonstrating that support 112. Support from local government is vital if we are to deliver the proposals in this paper, and achieve our short- and long-term goals. However, there is a need to move quickly to develop agreements with the sector, shape the broad reform agenda, and undertake detailed policy design work. It will not be helpful to our reform objectives, or community interests, to enter into protracted negotiations before the policy reform work can begin. 113. I have already had initial conversations with the Local Government New Zealand (LGNZ) National Council, and the Central-Local Government Forum. It is clear that local government recognises the opportunities of service delivery reform, and benefits of infrastructure investment. The sector has expressed a willingness to work with us to design a reform programme, on a high-trust and ‘opt in’ basis. To achieve this, a joint working group will be formed between DIA, The Treasury, LGNZ and SOLGM. 114. I am proposing that the joint working group will prepare an initial high-level agreement in June 2020, on how local government will work with government on the reform agenda. This group would then work to prepare a more detailed agreement (a memorandum of understanding) that councils across New Zealand would have the opportunity to opt in to. 115. Initial funding from the economic stimulus package would be released to those councils that agree to the memorandum of understanding in August 2020. Councils that do not opt in at this point would still be able to do so at a later date, but would miss the first wave of stimulus investment. 116. In parallel, the joint working group will also explore the detailed policy reform matters referred to earlier in this paper, with a view to providing advice on these matters to Ministers by 1 December 2020. 117. I am planning further engagement with local government, both in this early, strategic phase, and on an ongoing basis as the reforms are developed and implemented. My approach to engagement will involve a combination of discussions with sector representative bodies and direct engagement with councils. 118. Officials will also engage with representative bodies and councils – building on existing Proactivelyrelationships released between the Department by the ofMinister Internal Affairs of and Local the sector, Government through the Central/Local Government Partnerships team and Three Waters Review. A sector engagement strategy is being developed to guide this work. To support this process, I recommend that we immediately resource councils and their representative bodies, so they are able to engage in the reform programme.
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119. As noted, I am recommending we use tranches of investment, released at key milestones, to achieve our multiple goals of ensuring sector support for the reform agenda is sustained, the stimulus has the desired impact, and our reform objectives are progressed. 120. It will be important that each council has a good indication of what the stimulus will mean for its community, and how much funding they are likely to receive if they opt in to the reform programme. 121. A detailed approach to allocation would be worked through with the local government sector. However, I anticipate the allocation could be based on a combination of geographical size, population, and asset information, and would be consistent with the proposed Framework for aligning stimulus spending with the transition to a clean, green and carbon neutral New Zealand, once adopted by Cabinet. 122. I also expect conditions will be attached to the funding. These conditions are still being developed, but are likely to include factors such as: 122.1 the funding must be spent on three waters investment – though councils would be best placed to decide how to prioritise this investment in their districts; 122.2 avoiding ‘white elephant’ infrastructure projects; 122.3 investing in a way that is cognisant of climate change impacts; and 122.4 prioritising job intensive activities (including creating local jobs). 123. I will report back on progress with sector engagement, the memorandum of understanding, and funding allocation criteria and conditions, in 9(2)(f)(iv) . Funding for Taumata Arowai - 124. In September 2019, Cabinet agreed to establish a new Waters Services Regulator, ‘Taumata Arowai’, as a Crown agent. Taumata Arowai will become responsible for regulating our drinking water system, and for a small number of complementary functions relating to wastewater and stormwater. 125. Legislation to establish Taumata Arowai is due to be reported back by the Health Committee by 17 June 2020. Work to establish Taumata Arowai within the Department of Internal Affairs is also progressing well. This work is now paused, though, pending a decision on future funding. The establishment team currently has only $3 million in 2020/21. 126. Further funding is required to progress establishment, and then operate Taumata Arowai, including moving to a permanent staffing structure. I note that it is expected that Taumata Arowai will include a significant regional footprint, through its frontline staff. Proactively127. I am seeking releasedagreement to investment by the of Minister $51.410 million of over Local four years Government to provide ongoing funding for Taumata Arowai, and the work associated with monitoring this Crown agent. 128. 9(2)(f)(iv)
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Implementation of the service delivery reform programme 129. I propose that the workstreams outlined earlier in this paper will be delivered over a three-year period, split into the following three consecutive phases: 129.1 Phase 1 (June – December 2020) – Programme initiation, preparation of memoranda of understanding, policy development, and initial entity structuring work. 129.2 Phase 2 (2021) – Legislative process; detailed due diligence work and entity structuring work. 129.3 Phase 3 (2022) – Entity establishment and implementation. 130. Key milestones are as follows: 130.1 9(2)(f)(iv)
130.2 August 2020: Local government agreement to memorandum of understanding, linked to release of initial stimulus funding. 130.3 9(2)(f)(iv) 130.4 Early-mid 2021: Legislative drafting process, and Bill introduced. 130.5 Early 2022: Legislation enacted. 130.6 Early 2023: New entities legally established and transfer of assets and liabilities complete. 130.7 1 July 2023: Full operations of new entities from the beginning of the financial year. 131. As proposed above, a programme team led by the Department of Internal Affairs will provide the resource for the project management, local government engagement (leveraging the Central/Local Government Partnership team), policy design, legislative phase, iwi/Māori engagement, and stakeholder engagement. This team will work with representatives from LGNZ and SOLGM, through a joint working group. 132. The complexity of the programme, and speed at which it must progress, will result in the need to source external advice to support policy development. This advice is likely to consist of legal, commercial, financial, taxation, and governance advice, as required. This will be most intensive during the first 12 to 18 months of the programme, as structural considerations and policy and legislative developments peak. 133. To ensure continued local authority engagement in the process, I anticipate that some of the work required to inform the structuring and financial considerations will be undertaken by local authorities directly. Officials will provide local authorities with Proactivelyclear guidance released on these activities by tothe ensure Minister efficiency and of consistency. Local Government A portion of the outlined funding allocation will be to fund these activities. 134. Programme monitoring and governance arrangements are being developed. These will include mechanisms for monitoring local spending decisions, to ensure these align with the parameters and intentions of the economic stimulus package, and for tracking progress with projects. Three Waters Ministers will receive regular updates, to provide assurances about how the Crown’s investment is being spent.
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Financial implications 9(2)(f)(iv)
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143. This paper also seeks funding to support the establishment and operation of Taumata Arowai, the new Water Services Regulator, an associated monitoring costs, as per the table below:
Table 2: Taumata Arowai and associated monitoring costs
$million 2020/21 2021/22 2022/23 2023/24 & outyears ProactivelyTaumata Arowai released13.940 by the Minister 10.650 of 9.290Local Government11.630 Department of Internal - 1.500 1.500 1.500 Affairs monitoring costs Total operating 13.940 12.150 10.790 13.130 Total capital 1.400 - - -
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144. 9(2)(f)(iv)
Legislative implications 145. This paper does not have any immediate legislative implications. However, if the proposed approach is agreed to, it will result in the development of policy proposals that require legislation to implement. I anticipate that policy decisions resulting in drafting instructions would be made in December 2020, and Parliamentary Counsel Office would be asked to begin drafting the Bill in early 2021.
Impact analysis
Regulatory Impact Statement 146. The Treasury has asked that the following statement is included in this paper: 147. “No Regulatory Impact Analysis has been provided with this proposal. The Department of Internal Affairs has requested the Regulatory Impact Assessment (RIA) requirement is suspended, but the Treasury does not consider this proposal to be a direct response to COVID-19. The RIA needs to be prepared. While under normal situations we would recommend a supplementary analysis for the overall program, in this case the RIA can be provided at a later stage when individual proposals from the Three Waters package are submitted to the Cabinet. Delaying the RIA is consistent with the integration of this proposal to the Wave 2 and 3 recovery program that responds to COVID-19. 148. The Department has provided a reduced form of RIA (Appendix D), which covers problem definition and objectives, identifies a range of options to address the key issues, and explains clearly how the preferred option has emerged. At the same time, the timeline of investments remains unclear and the proposal does not discuss potential alternatives, such as increasing the borrowing thresholds of local authorities that can be more flexible during the economic recovery. There is also a lot of uncertainty about the decreased revenue due to COVID-19, which is a crucial parameter for determining immediate funding needs.”
Climate Implications of Policy Assessment 149. None.
Population implications 150. None. Proactively released by the Minister of Local Government Human Rights 151. None.
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Consultation 152. Ministry for the Environment, Ministry of Health, Ministry of Business, Innovation and Employment; The Treasury; New Zealand Transport Agency; Ministry for Primary Industries; Ministry of Civil Defence and Emergency Management; Ministry of Housing and Urban Development; Department of the Prime Minister and Cabinet; Te Puni Kōkiri; and Te Arawhiti have been consulted on this Cabinet paper. 153. The Department of Conservation, Ministry of Education, New Zealand Defence Force, and Department of Corrections have operational responsibility for three waters services and have been consulted on this Cabinet paper in this capacity.
Communications 154. A plan for communicating the decisions in this paper is being prepared, and will be discussed with the Prime Minister and appropriate Ministers.
Proactive Release 155. I intend to proactively release this paper, subject to any redactions, upon the conclusion of discussions with local government and when a decision is reached on reform.
Recommendations 156. The Minister of Local Government recommends that Cabinet Economic Development Committee: 1. note that, in January 2020, we considered reforms to local government water service delivery and funding arrangements, agreed to support local authorities to make voluntary changes, and set a one-year deadline for demonstrating progress [CBC-20-MIN-0006 refers]; 2. note that since those decisions were made, COVID-19 has exacerbated the three waters challenges facing the local government sector and, without support, investment will not occur to the levels required, the condition of infrastructure will continue to decline, sector capability, capacity and funding issues will remain, and there could be negative implications for public health and environmental outcomes; 3. note that to respond to, and recover from, COVID-19 we need to identify opportunities for investment, such as water infrastructure, to cushion the blow and help to kick-start the economy, and need to reconsider the approach to restructuring water services; 4. note that in April 2020, the Ministers of/for Local Government, Health, Environment, Infrastructure, Rural Communities, Conservation, Climate Change, ProactivelyCommerce released and Consumer by Affairs the, andMinister Urban Development of Local (“Three Government Waters Ministers”) discussed opportunities to support economic recovery post COVID- 19, and identified a dual approach of: 4.1 stimulating investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and
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4.2 fundamentally reforming the water service delivery sector, to realise significant economic, environmental, public health, and other benefits over the medium to long term; 5. agree to proceed with a three-year programme for reforming three waters service delivery arrangements, to be delivered in parallel with an economic stimulus package of Crown investment in local authority water infrastructure, which together could: 5.1 protect or create at least 11,000 jobs, and generate an estimated $3.9 billion in additional GDP; 5.2 ensure planned investments in water infrastructure continue; 5.3 incentivise the local government sector to support the reform agenda; 6. agree that provision of the economic stimulus is conditional on local authorities opting in to service delivery reform and, specifically, the creation of a small number of multi-regional water service providers; 7. agree there will be further discussions with Three Waters Ministers and local government about the exact number and boundaries of the multi-regional water service providers, and final decisions would be based on the following factors: 7.1 achieving scale benefits – including at least one very large urban centre within each entity, to ensure the full benefits of scale are achieved through a larger network and population base; 7.2 communities of interest; 7.3 relationships with other jurisdictional boundaries, including catchments; 8. agree that the following high-level design objectives would be reflected in the new multi-regional models for water service delivery: 8.1 financial sustainability, affordability, and resilience; 8.2 effective, efficient, and reliable services; 8.3 enable an effective, efficient regulatory system; 8.4 minimise the negative impact of reform, where possible; 9. agree that the new multi-regional models for water service delivery would include the following safeguards: 9.1 mechanisms that provide for continued public ownership of water infrastructure, and protect against privatisation; 9.2 mechanisms that provide for community input and local service delivery; 10. agree in principle that, subject to discussions with local government and detailed policy design work, the new multi-regional water providers would be: Proactively10.1 releasedstatutory, asset -byowning the entities, Minister with commercial of Local disciplines, Government and a competency-based board; 10.2 owned by local authorities, as shareholders, but with sufficient legal separation to ensure there are no restrictions on the entities’ ability to borrow on similar lines to other utilities; 11. note that a number of related matters would need to be explored through further policy development and design work, including: 11.1 the nature of local government shareholding arrangements;
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11.2 the potential for the Crown to be a shareholder, and for other investors in the new entities; 11.3 funding and financing arrangements; 11.4 mechanisms that provide for local community input and local service delivery; 11.5 the nature and extent of the legislative framework that would be required to regulate the new entities, including economic regulation and mechanisms to protect consumer interests; 11.6 the scope of the new water entities’ remit, particularly regarding the provision of stormwater services, and drinking water and wastewater services that are currently the responsibility of private/community suppliers; 11.7 the potential use of instruments like a government policy statement to guide/direct the new water entities; 11.8 the options for addressing the funding challenges facing Crown water infrastructure providers within the context of these reforms; 12. note that there will also need to be further work to consider and address Treaty- related rights and interests, including in the design of the new water entities, and a strategy for engaging with iwi/Māori is being prepared to inform this work; 13. invite the Minister of Local Government to report back in: 13.1 9(2)(f)(iv) , with further advice on the matters in recommendations 7 to 12 above, and on the allocation of funding to rural drinking water suppliers -as referred to in recommendation 25 below; and 13.2 9(2)(f)(iv) , with detailed policy proposals relating to the matters in recommendations 7 to 12, to inform the preparation of legislation to give effect to the reforms during 2021; 14. note that an initial work programme has been identified to implement the proposed reforms to water service delivery arrangements, including the following workstreams: 14.1 stakeholder engagement and communications; 14.2 policy, legislation, and guidance; 14.3 structuring the new multi-regional water entities; 14.4 establishment and implementation; 14.5 project management, reporting, and programme development; 15. note that, subject to agreement to funding in the financial recommendations below, the Department of Internal Affairs will lead the service delivery reform Proactivelywork programme, released working by closelythe withMinister other agencies of Local including GovernmentThe Treasury, Ministry of Business, Innovation and Employment, Ministry of Health, and Ministry for the Environment, and with sector representative bodies; 16. agree that governance for the service delivery reform programme will be provided by the group of Three Waters Ministers, as referred to in recommendation 4;
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Engagement with the local government sector 17. note that, while gaining support from local government is vital, it is important to move quickly to develop agreements with the sector, shape the broad reform agenda, and to undertake detailed policy design work, and it will not be helpful to enter into protracted negotiations with the sector before this work can begin; 18. note that officials from the Department of Internal Affairs (DIA), The Treasury, Local Government New Zealand (LGNZ), and the Society of Local Government Managers (SOLGM) will form a joint working group, which will prepare: 18.1 an initial high-level agreement on how local government will work with government on the service delivery reform and investment stimulus agenda, in June 2020; 18.2 a more detailed agreement (memorandum of understanding) that councils across New Zealand would have the opportunity to opt in to in August 2020; and 18.3 advice on the policy matters referred to in recommendations 7 to 11 above, including the suggested number and structure of the new multi- regional water entities, by 1 December 2020; 19. agree that: 19.1 initial funding from the economic stimulus package would be released to those councils that agree to the memorandum of understanding referred to in recommendation 18.2, in August 2020, provided that a sufficient number of councils opt in to make relevant new service delivery entity viable; and 19.2 councils that do not opt in at this point would still be able to do so at a later date, but would not receive the first amount of stimulus investment; 20. note that once agreement has been reached with councils, it is anticipated that Crown Infrastructure Partners would have an oversight role in relation to the allocation and use of the economic stimulus, in accordance with the agreements; 21. note that there will be continued engagement with local government, including direct engagement with councils, and an engagement strategy will be developed to guide this work; 22. invite the Minister of Local Government to report back on progress with sector engagement in 9(2)(f)(iv) ; Financial implications - 23. note that it will take significant resources to administer and implement the complex service delivery reform and investment programme described above, Proactivelyincentivise released and enable theby local the government Minister sector of to Localsupport the Government reforms, address infrastructure deficits, and provide an appropriate economic stimulus; 9(2)(f)(iv)
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26. agree to invest $51.410 million over four years to provide ongoing funding to the new Water Services Regulator, Taumata Arowai, the new Crown agent responsible for overseeing the drinking water regulatory systems and the delivery of a small number of centralised wastewater and stormwater functions; and cover the costs associated with monitoring this entity; 27. agree to increase funding in Vote Internal Affairs to meet the costs associated with the three waters reform programme, and the ongoing operations of Taumata Arowai; 28. note that the funding to deliver the three waters reform programme will support local government recovery from COVID-19 and contribute to the revitalisation of the economy; 9(2)(f)(iv)
Proactively released by the Minister of Local Government
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32. agree to add the following new category to the multi-category appropriate “Local Government Administration” to support the new Crown agent, Taumata Arowai:
Title Type Scope Taumata Arowai Non-departmental This category is limited to supporting Taumata Output Expense Arowai in meeting its statutory responsibilities to regulate New Zealand’s water supplies.
9(2)(f)(iv)
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9(2)(f)(iv)
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Publicity 42. note that the Minister of Local Government intends to proactively release this paper, subject to any redactions, upon the conclusion of discussions with local government and when a decision is reached on reform.
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Authorised for lodgement
Hon Nanaia Mahuta
Minister of Local Government
Proactively released by the Minister of Local Government
Appendix A redacted under section 9(2)(f)(iv)
Volume 6 Page 31 of 4131 APPENDIX B - Indicative benefits of large scale, multi-regional water providers over time
Benefit Current state description Strategic shift Short term M edium term Long term 3-5 years S-10years 10-20years
Improved financing Most councils finance water-related investments Aggregated entities would have greater capacity from a mix of rates and borrowing. to borrow against assets. arrangements -Realised (i) Sustained Sustained Improved Current performance information is limited, leading Introduction of performance measures related to to poor quality investment decisions by both current asset performance, consumer choices and performance Realised (ii) Sustained Sustained suppliers and consumers. efficiency (including losses). Technology may information - have a role in supporting improved performance.
Improved funding Mixed understanding among consumers about the A greater range of funding instruments would be cost of water service provision, and a lack of introduced through time, including the potential and pricing Realised (iii) transparency. A range offunding instruments are to consider use of volumetric charges (e.g. for Un realised Sustained arrangements - use d with inconsistent application of good funding industrial users). It is important to differentiate principles (e.g. efficiency, equity and fairness). chargesfor waterversus charges to recover costs There are incentives biases toward shortterm for waterservices. decision making.
Improved expertise Levels of capability generally correlate with scale. Increased levels of specialisation and expertise as Many councils have relatively limited capacity, a result of aggregation. Improved opportunities and capability Realised Sustained Sustained expertise, technology and systems. to innovate and use new technology. - Improved other Poor information about levels of general operating Greater focus on scale efficiencies will result. efficiency, although we are aware that there are operating Unrealised some examples ofcross subsidy between water Unrealised Realised- (iv) efficiencies services and other services.
Improved asset Poor information about the overall state of assets Increased scale is expected to result in improved management across the country, including the likely investment asset managementthrough longer term and requirements. larger scale investment choices - including across Unrealised Unrealised Sustained catchments. Particularly the case for water treatment investment and use of alternative technologies.
Improved Absence of scale effi ciencies means procurement Scale efficiencies in contracting practices. benefit is not realised. Many councils have realised procurement Realised (v) Sustained Sustained economies of scope with contracted services for - practice t reatmentand distribution, but providers have significant leverage.
Improved safety, Government has taken steps to improve regulatory Structural aggregation will support a functional practice related to water quality. A further separation of regulatory and ownership interests quality and Unrealised Realised (vi) Sustained distancing ofprovision from regulatory function may in addition to increased scale and specialisation - environmental also improve practice with respect to environmental in good regulatory compliance within individual outcomes outcomes (including consenting). entities.
(i) Potential for extra borrowing capacity between $SOM -$100M per year, starting in year 3 if entity increases gearing ratio to 20% against net asset value. (iij Improved asset performance could leadProactively to better capital allocation, reduc releaseding capital plan costs by $SOOM by - $1the.08 across Minister LT P forecast period for invesoftment Local in infrastructure, Government with a per year reduction of approximately $75M starting in year 3. (iii) Potential for additional borrowing capacity and increases in revenue that is allocated to new entities, butdifficult to quantify at this point. Volume 6 (iv) other operating efficiency improvement are difficult to estimate and may be modest in the short term particularly jf a transition is supported for territorial authorities. 42 2rnfoawa2b 2020-07-01 09:46:02 (v) Improved procurement practise could lead t o bettercapital allocation, reducing capital plan costs by $6S0M - $1.2B across the LTP forecast period for investment in 3 Waters, with a per year reduction ofapproximat ely $100M starting in year 3. 1 (vi) The range of benefits is difficult to estimate at this stage. APPENDIX C – Preliminary analysis of Treaty of Waitangi considerations
Rights Considerations Preliminary interest analysis Commentary (informed by prior engagement about three waters reforms and creation of Taumata Arowai) Article two – • Are there options for Māori to • Introduction of new governance Further work is required on the impact of Rangatiratanga exercise rangatiratanga while arrangements will give rise to the potential of asset transfer and Treaty Māori will have the right to recognising the right of the interests in co-governance issues. make decisions over Crown (including through local opportunities. Co-governance can occur in several areas resources and taonga which government) to govern? • Iwi have expressed an appetite outside of those related to continued they wish to retain. • What role is there for Māori in to have a role in water service public ownership to better reflect local design and implementation? delivery. and iwi interests. • Does the reform offer an • Iwi/Māori have expressed Opportunities will exist to materially opportunity to enhance Māori dissatisfaction with the Treaty improve the connection between wellbeing or build Māori partnership approach and iwi/Māori rights and interests in the capability and capacity? cultural responsiveness of application of mātauranga and in better current territorial authority application of regulatory instruments service delivery. This includes related to water quality and RMA understanding and application obligations to support kaitiakitanga. This of mātauranga Māori will align with the statutory objective of frameworks. Taumata Arowai to give effect to Te Mana o te Wai. Article three – Rights as • What are the implications for • Iwi/Māori raised the importance Consumer protections will need to ensure Citizens equitable outcomes? of ensuring that water services issues of equity, particularly as it applies to Implicit assurance that • What considerations should are affordable for all and rural and remote communities, are rights will be enjoyed support legal values including equitably provide for safe adequately addressed. equally by Māori with all natural justice, due process, drinking water that contributes Fiscal stimulus should be designed to New Zealanders. This may fairness and equity including to improved health outcomes. encourage maximum local job creation warrant special measures to through regulatory processes? • Iwi organisations have raised the and support mechanisms such as social
attain that equal enjoyment • What does a tikanga lens bring potential for Māori to more procurement and skills matching services. of benefits. to consideration of the issues? directly benefit from alternative Issues related to how multi-regional delivery mechanisms (e.g. jobs, entities are able access funding including social enterprise). equity partners/investment sources. • Iwi organisations have also expressed a desire to invest in Proactively released by the theMinister water infrastructure of Local sector. Government Volume 6 43 2rnfoawa2b 2020-07-01 09:46:02 UNCLASSIFIED
“Investing in water infrastructure to accelerate reform and support economic recovery post COVID-19” Supplementary information – context and options analysis
Overview of proposed approach 1. The proposal involves the development and implementation of a three-year programme for reforming three waters service delivery arrangements, which would be delivered in parallel with a 9(2)(f)(iv) economic stimulus package of Crown investment in water infrastructure. - 2. The proposed approach is designed to achieve dual goals: supporting economic recovery post COVID-19, and addressing persistent systemic issues facing three waters infrastructure and services. This would be done through a combination of: 2.1 stimulating investment, to assist economic recovery through job creation, and maintain investment in water infrastructure renewals and maintenance; and 2.2 fundamentally reforming the water service delivery sector, into a small number of multi-regional providers, to realise significant economic, environmental, and other benefits over the medium to long term. 3. Regarding the service delivery reforms, the proposed approach involves: 3.1 the creation of a small number of multi-regional, asset-owning water providers, which would be statutory entities; 3.2 protecting public ownership within the new service delivery models, and developing ownership arrangements that involve local government. 4. This supplementary information paper provides the context for these proposals, and explains the alternative options that have been considered. It is informed by the work and stakeholder engagement undertaken to date in the Three Waters Review, and previous decisions taken by Cabinet. 5. If the overall approach is agreed to, a large number of related matters would need to be explored further during policy development and design work. These matters would be the subject of further advice and report backs, following detailed options identification and analysis, and stakeholder engagement. They are not considered in this document.
Proactively released by the Minister of Local Government
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Context 6. Over the past two and a half years, the Minister of Local Government has been leading a cross-government review of the system for regulating and managing drinking water, wastewater and stormwater (the Three Waters Review). A group of Three Waters Ministers1 has met regularly to discuss and provide input into this work. A large group of agencies, led and coordinated by the Department of Internal Affairs, have provided advice to these Ministers. 7. Cabinet has considered, and made a series of decisions on, a series of papers relating to the Three Waters Review: 7.1 Review of three waters infrastructure: key findings and next steps (April 2018). 7.2 Future state of the three waters system: regulation and service delivery (November 2018). 7.3 A Plan for Three Waters Reform (July 2019). 7.4 Strengthening the regulation of drinking water, wastewater and stormwater (July 2019) – supported by a Regulatory Impact Assessment. 7.5 Institutional arrangements for a drinking water regulator (September 2019) – supported by a Regulatory Impact Assessment and business case. 7.6 Three waters service delivery and funding arrangements: approach to reform (January 2020). 8. The current paper, Investing in water infrastructure to accelerate reform and support economic recovery post COVID-19 (May 2020), builds on and is informed by previous decisions made by Cabinet, as well as discussions with Three Waters Ministers about service delivery reform and infrastructure investment, and stakeholder engagement. The key decisions that are relevant to the current paper are outlined in this document. There has been no indication that these decisions need to be reconsidered.
Problem definition 9. The problem definition is well established in previous Cabinet papers, regulatory impact analyses, and briefing material. Several of the Cabinet papers explored the problems and challenges facing the three waters system in considerable detail. The Regulatory Impact Assessment, Strengthening the regulation of drinking water, wastewater and stormwater (July 2019), also included an overview of the key problems. 10. Some of these problems are already being addressed through significant legislative changes to the drinking water regulatory framework, and the creation of a new Water Services Regulator – Taumata Arowai. The proposed programme of reforms to the Proactivelyservice delivery released system is intended by the to address Minister many of theof otherLocal problems, Government as well as supporting the long-term effectiveness and efficiency of Taumata Arowai and the new drinking water regulatory framework.
1 Three Waters Ministers include the Ministers of/for: Local Government; Health; Environment; Infrastructure; Rural Communities; Conservation; Climate Change; Commerce and Consumer Affairs; and Urban Development. Department of Internal Affairs – Supplementary information Page 2 of 14 Volume 6 45 2rnfoawa2b 2020-07-01 09:46:49 UNCLASSIFIED
11. In summary, previous papers highlighted that, in many parts of the country, communities cannot be confident that their drinking water is safe, or that good environmental outcomes are being achieved from wastewater and stormwater systems. They also raised concerns about the regulation, sustainability, capacity and capability of a system with a large number of localised providers, many of which are funded by relatively small populations. 12. The papers noted that hard data on the extent of the problem is variable and, in some cases, limited, which is in itself evidence of a wider systemic issue. However, overall, the following problems affect all of the three waters: 12.1 Weaknesses across the regulatory system. Both drinking water and environmental regulation exhibit, in differing degrees, inadequate stewardship, leadership, and compliance, monitoring and enforcement practices. 12.2 Funding and financing challenges. Three waters providers face a range of affordability issues and financial pressures. Many councils are struggling to fund plant and pipe infrastructure to the level required to meet standards and community aspirations, keep pace with population growth, and build resilience against natural events. Affordability challenges are particularly acute for smaller communities, rural and provincial councils, non-council drinking water suppliers, and marae. These communities are finding it difficult to afford quality infrastructure and services, especially within current structures and funding arrangements. 12.3 Capability and capacity challenges. Good capability is the key to meeting regulatory requirements, designing, procuring, delivering and managing three waters services, and undertaking complex public health and environmental risk assessments. However, it is often difficult for service providers to develop the capabilities required, and to access and retain people with specialist skills. These challenges tend to be greater for smaller rural and provincial councils, and non-council drinking water suppliers (such as small private and community schemes, and marae).2 13. The Government Inquiry into Havelock North Drinking Water (Havelock North Inquiry) provided considerable evidence for reform. The Inquiry concluded that the problems in Havelock North are not confined to that area, and there is a widespread systemic failure of water suppliers to meet the high standards required to ensure the safe supply of drinking water to the public. If action is not taken, there are risks of similar incidents occurring elsewhere, with potentially serious consequences. 14. The events that led to the Havelock North contamination event in 2016, along with the findings of the subsequent Inquiry, have demonstrated that the existing system does not adequately safeguard against the risk of catastrophic contamination incidents, or Proactivelydrive improved released compliance with by the the drinking Minister water standards. of Local Government
2 The Department of Internal Affairs commissioned two reports to explore capability and capacity issues facing local government three waters providers – Castalia Ltd: Three waters asset management maturity in New Zealand (October 2017); and MartinJenkins: Three Waters Review – interface between asset management and council governance (December 2017). Department of Internal Affairs – Supplementary information Page 3 of 14 Volume 6 46 2rnfoawa2b 2020-07-01 09:46:49 UNCLASSIFIED
15. The Inquiry also observed there is little understanding among the New Zealand public about the large numbers of people who consume unsafe drinking water. Every year, around 34,000 people become ill from their drinking water, and many more must boil their water to drink it safely. This has significant implications from a public health, economic, and cost perspective. (For example, the economic costs of the Havelock North waterborne disease outbreak were estimated at approximately $21 million.3) 16. Nationally, the estimated capital costs of upgrading networked drinking water treatment plants to meet drinking water standards is between $309 million and $574 million, with an additional annual operating cost of $11 million to $21 million.4 17. Council wastewater systems are also facing widespread challenges. Discharges from wastewater plants are affecting freshwater and coastal water quality, and sewage overflows are occurring at a frequency that is no longer acceptable for communities, including Māori. A high number of wastewater treatment plants are legally operating on expired consents for long periods of time. In many regions, regional councils do not (and are not required to) publish sufficient information to provide assurance about the impact of wastewater services on the environment. 18. Councils will face challenges to upgrade wastewater infrastructure. Research into the costs of upgrading wastewater treatment systems to meet potential national standards for freshwater and coastal discharges identified that the indicative costs of upgrading all wastewater treatment systems over the coming years falls within a range of $3.0 billion to $4.3 billion, with an additional annual operating cost of $126 million to $193 million.5 19. A significant portion of the costs to upgrade wastewater treatment systems will fall over the next decade. Just over 150 wastewater discharges from wastewater treatment plants will need new resource consents over the next 10 years.6 Upgrades to treatment plants are likely to be required to meet new consent requirements. The potential costs of those upgrades could be up to $2 billion7, with the costs of reconsenting estimated to be in the order of $100 million. 20. Many rural councils and their communities are struggling to meet the costs of upgrading wastewater treatment plants. The relative costs of wastewater upgrades for metro, provincial and rural councils create an affordability challenge for small, mostly rural councils. This affordability challenge is highlighted in the chart below.
Proactively released by the Minister of Local Government 3 The Economic cost of the Havelock North August 2016 waterborne disease outbreak, by David Moore et. al. (August 2017), published on the Ministry of Health website. 4 Beca: Cost estimates for upgrading water treatment plants to meet potential changes to the New Zealand Drinking Water Standards, March 2018. 5 GHD, Boffa Miskell. Cost estimates for upgrading Wastewater Treatment Plants to meet Objectives of the NPS Freshwater –2019; GHD, Boffa Miskell. Cost Estimates for upgrading Wastewater Treatment Plants that discharge into the Ocean. November 2019. 6 GHD, Boffa Miskell. National stocktake (regulation) of Municipal Wastewater Treatment Plants, November 2019. 7 An estimate based on costs estimates developed by GHD, Boffa Miskell in reports referred to above. Department of Internal Affairs – Supplementary information Page 4 of 14 Volume 6 47 2rnfoawa2b 2020-07-01 09:46:49 UNCLASSIFIED
Cost per rateable property for upgrades to wastewater r plants that discharge to coastal and freshwater
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000 $2,000 _1 $- - - .I I Auckland M etro Provincial Rural I Average Highest
21. Collectively, the problems outlined above contribute to the current weaknesses in the three waters regulatory and service delivery system. Taken together, they mean that we cannot always be confident that drinking water will be safe to drink, and that acceptable environmental outcomes are being achieved. 22. In addition, there will be broader national and local implications if performance improvements are not delivered across the three waters system, including: 22.1 housing infrastructure supply being unable to meet demand in high-growth areas; 22.2 failure to meet national and local environmental objectives for freshwater and the marine environment; 22.3 a constrained ability to plan and fund robust systems that can cope with climate change, emergencies, and natural hazards; 22.4 limitations on developing the regions, particularly for areas with declining rating bases, or small tourism centres with high seasonal demand.
Additional challenges due to COVID-19 23. The situation caused by COVID-19 means the local government sector is facing a series of additional issues and challenges, many of which relate to three waters services and infrastructure. COVID-19 will have significant impacts on local government finances, with consequences for council service delivery and infrastructure investment. Proactively24. The Department released of Internal Affairs by the has worked Minister with Local of G overnmentLocal Government New Zealand, the Society of Local Government Managers, the New Zealand Local Government Funding Agency, and the Treasury to understand the impacts of COVID-19 on local government finances, and the potential implications of this for infrastructure investment and council services.
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25. While the impacts will be felt unevenly across New Zealand, it is already clear that all councils will experience deterioration in their revenue and, in some cases, this will be significant. An initial report has been prepared to provide an early analysis of these impacts, which has been published on the Department’s website.8 26. Prior to COVID-19, territorial authorities were planning on spending up to $8.3 billion in capital over the next five years on water infrastructure. However, COVID-19 is likely to cause significant decreases in revenue in territorial authorities over the short term. Revenues could decline by between 10 per cent and 25 per cent over the next financial year, and local authorities are facing increased cost pressures. As a result, borrowing will be constrained due to lower debt limits that flow from lower revenues, and opportunities to raise revenue through rates, fees and charges will be extremely limited. 27. Previous behaviour indicates that investment in water infrastructure is an area where councils have constrained spending in response to financial pressures. Investment in water infrastructure is long term, and has a less visible impact on communities than other forms of council expenditure. 28. The Three Waters Review has highlighted that New Zealand’s water infrastructure already carries a burden of underinvestment. This is likely to worsen in response to COVID-19, and could have serious consequences for the condition of water infrastructure. We estimate that, in the absence of support from the Crown, territorial authorities will face pressure to reduce planned capital investment in three waters infrastructure by approximately $1.2 billion over the next three years. 29. A lack of investment in, and deterioration of, water infrastructure will perpetuate some of the systemic problems identified above. This could also jeopardise the effectiveness of the three waters regulatory reforms – if councils are unable to afford to carry out the upgrades necessary to comply with drinking water regulatory requirements, for example.
Reform objectives 30. The proposed objectives for reforming the three waters system have been prepared to align and be consistent with previous objectives, including those in the recent Cabinet paper, Three waters service delivery and funding arrangements: approach to reform (January 2020). The objectives are: 30.1 significantly improving the safety and quality of drinking water services, and the environmental performance of wastewater and stormwater systems (to deliver widespread public health and environmental benefits); 30.2 ensuring all New Zealanders have equitable access to affordable three waters Proactivelyservices; released by the Minister of Local Government 30.3 improving the coordination of resources and unlocking strategic opportunities to consider New Zealand's infrastructure needs at a larger scale;
8 https://www.dia.govt.nz/diawebsite.nsf/Files/LG-Response-unit/$file/Local-Government-Sector-COVID-19- Financial-Implications-Report-1-Initial-Analysis.pdf Department of Internal Affairs – Supplementary information Page 6 of 14 Volume 6 49 2rnfoawa2b 2020-07-01 09:46:49 UNCLASSIFIED
30.4 increasing the resilience of three waters service provision to both short- and long-term risks and events, particularly climate change and natural hazards; 30.5 moving the supply of three waters services to a more financially sustainable footing, and addressing the affordability and capability challenges faced by small suppliers and councils; and 30.6 improving transparency about, and accountability for, the delivery and costs of three waters services, including the ability to benchmark the performance of service providers [CBC-20-MIN-0006 refers]. 31. In January 2020, the Cabinet Business Committee noted that these objectives would be important considerations for the development of new service delivery arrangements. It also noted that, in addition to the specific objectives for reform, there are some bottom lines that any changes to service delivery arrangements must meet, including: 31.1 protecting public investment in three waters assets; 31.2 providing a customer voice; 31.3 accepting that change will have an impact on local government, but limiting the impact as much as possible. 32. In addition, objectives have been developed that relate to COVID-19 recovery – that is, to maximise the positive impact of the stimulus on local economies and jobs, and address the impact of the change process during transition. The Cabinet paper notes that the investment type and procurement support could be targeted at retaining local and lower skill jobs, preventing further deterioration in water infrastructure as council finances decrease, and avoiding investment in assets that may become stranded in future entities.
Options identification and analysis 33. Three Waters Ministers have been considering the potential for service delivery reforms for some time, and there have been prior Cabinet decisions on this topic. The latest paper proposes certain core components of the new service delivery model, thereby setting the basic direction for further policy development work and discussions with local government. 34. The proposed approach involves: 34.1 the creation of multi-regional, asset-owning water providers, which would be statutory entities; 34.2 protecting public ownership within new service delivery models and legislation, and developing ownership arrangements that involve local government. 35. The rationale for these proposals, and other alternatives that have been considered, is Proactivelydiscussed below. released This is based by on theadvice Minister that has been ofdeveloped Local throughout Government the Three Waters Review. 36. As noted in the Cabinet paper, a large number of related matters would need to be explored further during policy development and design work, including: 36.1 shareholding arrangements; 36.2 funding and financing arrangements (including the fees and charges faced by consumers);
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36.3 mechanisms that provide for local community input and local service delivery; 36.4 the nature and extent of the legislative framework that would be required to regulate the new entities, including economic regulation and mechanisms to protect consumer interests; 36.5 the scope of the new water entities’ remit, particularly regarding the provision of stormwater services, and drinking water and wastewater services that are currently the responsibility of private/community suppliers; 36.6 the potential use of instruments like government policy statements to guide/direct the new water entities. 37. These matters would be the subject of further advice and report backs, following detailed options identification and analysis, and stakeholder engagement. They are not considered in this document.
Approaches to service delivery reform 38. Previous Cabinet papers identified three potential approaches to service delivery reform: 38.1 voluntary, sector-led reforms to service delivery arrangements; 38.2 establishment of a three waters fund to support voluntary service delivery improvements; and 38.3 creation (in legislation) of an aggregated system of dedicated, publicly-owned drinking water and wastewater providers. 39. In January 2020, Cabinet Business Committee noted that the case for change to the current structural arrangements for the delivery of three waters services continues to build, and that changes to how New Zealand delivers three waters services are required. 40. At that time, it was agreed that central government would continue to support local government to make voluntary changes to service delivery arrangements, but set a one-year deadline for the sector to demonstrate progress. Work would also be undertaken in parallel to explore the other options identified above. 41. Since those decisions were made, the COVID-19 response and recovery work has led to a reconsideration of this process. The preferred approach is to move ahead with service delivery reform – through the creation of multi-regional, asset-owning water entities – coupled with Crown investment in water infrastructure. This is considered to be the most effective mechanism for achieving the dual goals and multiple objectives referred to earlier in this document. Proactively42. Alternatives releasedto the proposed byapproach the were Minister identified. of For Localexample, alternativesGovernment to the economic stimulus could include: 42.1 asking councils to fund further investments on their balance sheets, by utilising further borrowing; 42.2 supporting council debt through issuing some form of government bond; 42.3 using alternative funding or financing arrangements to support further investment in three waters assets, such as Special Purpose Vehicles (SPVs).
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43. We also considered whether economic stimulus could accompany voluntary service delivery reform, or could be unconditional. 44. These options were assessed in terms of their feasibility and effectiveness in meeting the dual goals and objectives. Considerations included the likelihood the goals/objectives will be met, the nature and extent of the effect/impact, timeliness, and certainty of outcome. 45. None of the alternative approaches were considered to be as effective as the proposed approach. In summary: 45.1 Asking councils to fund further investments on their balance sheets, by utilising further borrowing, is unlikely to be effective and would not bridge the expected investment gaps. The decrease in revenues will severely constrain councils’ ability to take on more debt, and mean most councils will need to curtail almost all of their borrowing programmes. We estimated that, in aggregate, councils will only be able to borrow an additional $40 million per annum without breaching debt-to-revenue limits. This is insufficient to bridge the expected $3 billion investment gap. 45.2 Supporting council debt through issuing some form of government bond is only an attractive option if the differential is large and councils have a greater ability to take on debt than current circumstances allow. Overall, the likelihood of this occurring is low, and unlikely to be sufficiently attractive to the sector nor sufficient to prevent deterioration of the infrastructure. 45.3 There are several challenges with using SPVs, particularly from an immediate response perspective, and they would not incentivise structural reform. SPVs are not well-suited to brown-field development or renewal of assets, which is what the bulk of this programme of work is looking to support in the short to medium term. SPVs also typically rely heavily on private or overseas equity investment to fund up-front capital costs. Due to the economic shock relating to COVID-19, it is likely that ready access to private equity and capital will be limited, and the Crown will need to step in to help fill this gap in the short term. Even in instances where private equity is available, borrowing costs are likely to escalate substantially for firms to access this form of capital. 45.4 Evidence to date suggests that the political and economic barriers to voluntary reforms are high. Proceeding with a voluntary approach to service delivery reform, or unconditional investment, would not guarantee that reform will occur or be achieved in a way that meets the objectives. This would not represent a sound investment approach or good use of public money.
Number of entities Proactively46. The preferred released approach involves by thethe creation Minister of a small of number Local of multi Government-regional water service providers, which would be asset-owning. 47. It is anticipated that this would realise a number of economic and other benefits associated with large scale providers, address the many of the systemic issues and infrastructure deficits facing the three waters system, and help to deliver the reform objectives. Benefits include:
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47.1 increased financial capacity and capability, with stronger, more flexible and resilient balance sheets, greater access to capital, and a more reliable investment pipeline; 47.2 opportunities to take a strategic and coordinated approach, to consider infrastructure needs at a larger scale and in the context of wider catchment outcomes; 47.3 building technical capabilities, with access to a larger, more specialist workforce, and the ability to innovate and make use of new technology; 47.4 enabling financial efficiencies and lower operating costs, by consolidating administration and overhead costs, and improving organisational capabilities; 47.5 enabling more consistent water charges, with the ability to harmonise tariffs across much larger areas. 48. Many of these benefits are only realised (fully or partially) if the new entities are asset- owning. Shared services models that do not involve asset ownership have a number of shortcomings, including the inability to access scale or scope efficiencies, and split accountabilities. 49. Wellington Water is a current example of a shared-service council-controlled organisation that manages and operates drinking water and wastewater assets and services for its council owners. However, each of the councils continue to own water assets and raise revenue (on advice from Wellington Water) for the operation, maintenance and, where necessary, the upgrade of those assets. Wellington Water has no ability to make trade-offs between operating and capital expenditure, nor can it cross-subsidise between owners or ratepayers in different districts. 50. How many multi-regional water providers would be created, and their boundaries, is a matter for discussion between Ministers and local government. However, it is proposed that final decisions on these matters would be based on the following factors: 50.1 scale benefits – including at least one very large urban centre within each entity, to ensure the full benefits of scale are achieved through a larger network and population base; 50.2 communities of interest; 50.3 relationships with other jurisdictional boundaries, including catchments. 51. The table below presents a summary of previous analysis on options for the approximate number of entities, and the strengths and weaknesses of different approaches. Proactively released by the Minister of Local Government
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16 regional, publicly- Small number of multi- 1 national, publicly owned water providers regional, publicly-owned owned water provider water providers (e.g. 3-5) (PREFERRED)
Strengt hs • Alignment with • Large scale operations • Largest scale catchments and population operations and • Regional identity coverage - big urban concentration of base in each area expertise • Continued territorial authority • Bigger balance sheets - • Biggest population ownership is all areas could be self- coverage and balance possible funding/sustainable; sheet leverage greater debt • Could leverage • Several similar greater debt (though providers - enables not significantly more benchmarking than larger-scale • Continued territorial multi-regional authority ownership is providers) possible Weaknesses • Relatively small- • Harder to reflect local • Requires more scale operations identity (if appropriate) onerous regulation and balance sheets - though service • Benchmarking is not in many regions delivery could still have possible (so we will • Very different a local presence not know how well it population sizes and • May be less desirable is performing) resources - to local government • May need to be consistency and than a regional Crown owned; harder benchmarking approach to provide for council difficult ownership • Some regions will • Hard to reflect local continue to struggle identity- though with funding and service delivery could infrastructure still have a local challenges (e.g. if presence they are small, Unlikely to be spread out, and/or • supported by local have no large urban government base)
52. As the table indicates, there are concerns about the feasibility and viability of a purely Proactively'regional' model released (that is, 16 providers by the within Minister current regional of Local council/ Government unitary authority boundaries). The reference to 'scale benefits' in the assessment factors listed above is intended to address this point.
53. The January 2020 Cabinet paper noted that regions with low density or no large urban base and a relatively small ratepayer base would continue to face affordability challenges. This was illustrated in the chart below, which identifies the costs per ratepayer in each region for the capital costs of wastewater upgrades.
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Average upgrade cost per rateable property for wastewater plants that discharge to coastal and freshwater
$10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $- I I I I I I I
54. There is a risk that rural regional water service providers with smaller populations will struggle financially and continue to underinvest in three waters infrastructure. Smaller regions are also less likely to be able to take advantage of new technologies, or meet goals such as carbon neutrality. 55. The significant difference in the size and scale of different regional water service providers would make benchmarking difficult. There are also likely to be higher regulatory costs due to the significant number of providers and the large variation between them. 56. The alternative option of one, national water provider is also not a preferred option. This has a number of weaknesses, relative to the preferred multi-regional provider model. In January 2020, Cabinet Business Committee agreed that further work with local government on the design of new service arrangements would focus on multi- regional and regional models for service delivery. This effectively ruled out a single provider as an option.
Statutory entities 57. The preferred approach is that the new multi-regional water providers would be statutory entities. This would require legislation. 58. Statutory entities have boards, but are not companies. Each statutory entity usually has its own establishing legislation that contains entity-specific objectives that could Proactivelybe a mix of social, released cultural, public by policy,the Ministeror commercial. of Statutory Local entities Government can have non-commercial functions or commercial imperatives. 59. The main alternative to this approach would be for the new multi-regional providers to be council-controlled organisations (CCOs). This is an organisational form that is provided for in the Local Government Act 2002, and which is used regularly by local authorities.
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60. However, we consider that this option has a number of disadvantages and drawbacks, and would not be effective in achieving the benefits sought from multi-regional models. For example: 60.1 Current provisions in the Local Government Act are not fit for this purpose, and present barriers to reform. It is likely to take as long to redesign and amend the existing legislative provisions, as it would to create bespoke provisions in new legislation (including some form of economic regulation). 60.2 Establishing CCOs requires the agreement of all councils, each of which would need to undertake public consultation. This would take time and creates uncertainty about the outcome. 60.3 If the new entities were CCOs, this is likely to have implications for financing arrangements. They may not be sufficiently separate from local government to borrow at similar rates as other utilities, for example.
Public ownership 61. Throughout the Three Waters Review, there has been a clear and explicit ‘bottom line’ about public ownership. 62. On 5 November 2018, Cabinet agreed that the outcome of three waters reforms would include that “existing three waters assets and services must remain in public ownership, and the system will incorporate safeguards to protect public ownership of this essential infrastructure, both now and in the future” [CAB-18-MIN-0545 refers]. 63. This decision is supported by the noting recommendation in January 2020 referenced earlier in this document, and recent discussions with Three Waters Ministers. 64. The Department strongly agrees with this position, and has not identified or assessed alternative options. There are significant disadvantages and risks associated with privatisation, and no clear benefits. There would be extensive public and local government opposition to privatisation. 65. Evidence from overseas indicates that most of the similar jurisdictions that have successfully reformed their water service delivery arrangements have created publicly- owned entities. For example, Scottish Water is owned by the Scottish Government, while Tasmania Water (TasWater) is owned by local authorities and the Tasmanian Government. 66. There would be various ways of structuring a public ownership model. The proposed approach involves local government collective ownership of the new service delivery entities, through local authority shareholders. This is the preferred approach, given local government currently owns the water assets that would be transferred to the new entities. This would enable local authorities to continue to have a strategic Proactivelyoversight role released in relation water by services, the Ministerand maintain aof link Localwith other Government council responsibilities and local communities. 67. The basis for shareholding will need careful consideration and financial analysis. It could be possible to apportion shares on the basis of the condition of the assets that are transferred, to reward previous investment and good asset maintenance. There could also be potential to provide for some form of annual return to shareholders/councils.
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68. There are also opportunities to consider other shareholding and investment arrangements. Further policy development work would examine the potential for: 68.1 the Crown to be a shareholder (for example, in recognition of stimulus funding); 68.2 other investors to be party to financing (but not ownership/equity) arrangements. 69. There would be further advice to Three Waters Ministers on these matters, and proposals would be in later Cabinet papers. 70. We note that the possibility for third party equity arrangements – such as ACC and New Zealand Super – was ruled out by Three Waters Ministers earlier in the Three Waters Review. This was because these kinds of organisations need to be able to maximise the return on their investment, and may need to release the equity at any time. This was considered to be undesirable, and incompatible with Cabinet decisions that water services must remain in public ownership. Wider (private) equity arrangements have been ruled out on the same basis. 71. The potential for iwi investment was left as a possibility, though, and will be explored further in future advice.
Department of Internal Affairs May 2020
Proactively released by the Minister of Local Government
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Three Waters Reform Programme Supporting Information
What is economic regulation?
Webpage: www.dia.govt.nz/Three-Waters-Reform-Programme Email: [email protected] or [email protected] 58 Three Waters Reform objectives Volume
•6 Significantly improving safety and quality of drinking water services, and the environmental performance of wastewater and stormwater systems. • Ensuring all New Zealanders have equitable access to affordable three waters services. • Improving the coordination of resources and unlocking strategic opportunities to consider New Zealand’s infrastructure needs at a larger scale. • Increasing the resilience of three waters service provision to both short and long term risks and events, particularly climate change and natural hazards. • Moving the supply of three waters services to a more financially sustainable footing, and addressing the affordability and capability challenges faced across the sector and particularly by some small suppliers and councils. • Improving transparency and accountability for the delivery and costs of three waters services, including the ability to benchmark the performance of service suppliers. 59 Session overview Volume
•6 What is economic regulation? • How is economic regulation used in other infrastructure sectors in NZ and internationally? • What tools does economic regulation employ? • What might an economic regulation regime for the three waters sector in NZ look like? • Why can’t we confirm the economic regulation regime now? • Further questions? 60 What is economic regulation? Volume
•6 At the broadest level, economic regulation refers to the use of regulation to modify the incentives of economic actors • The more common/narrower definition refers to the regulation of natural monopolies to protect the long term interests of consumers • Natural monopolies occur in sectors where it is not economically efficient for more than one supplier to deliver goods or services to consumers • The absence of competition can result in sub-optimal outcomes including: • Poor service quality • Significant under or over investment • Significant inefficiency in the provision of goods and services • Lack of innovation • Excessive prices/returns i.e. monopoly pricing 61 How is economic regulation used in NZ and internationally?Volume 6 • Economic regulation is used in sectors of the economy with strong natural monopoly characteristics to drive good long term outcomes for consumers including: Efficient pricing, procurement + Incentives to invest + Services delivered at a quality and asset management and innovate that reflects consumer demand
• Internationally, economic regulation is commonly used in the telecommunications, airports, electricity gas, rail, ports and water sectors. • In New Zealand, the airports, electricity, gas and telecommunications sectors are subject to economic regulation. Aspects of Fonterra’s milk price setting and the liquid fuel sector are also subject to forms of economic regulation. • While the NZ water sector has strong natural monopoly characteristics, it has not been subject to economic regulation to date. Public ownership and the large number of suppliers
62 largely explain its absence. What tools does economic regulation employ?Volume
•6 Economic regulation typically employs one or a combination of the following tools: • Price/quality regulation – puts a cap on the maximum price or revenue of a supplier alongside minimum service quality requirements: CAPEX Operating Expenses Weighted + Maximum Regulatory Average Cost x = Return on Capital = Allowable Asset Base of Capital Revenue (WACC) + Depreciation • Negotiation/arbitration – uses regulation to arrive at a negotiated settlement between a supplier and consumers • Information disclosure – requires the provision of information to allow interested parties to compare and benchmark performance (example on next slide)
63 • Access regulation – mandates efficient access to bottleneck infrastructure An example of what information disclosure looks like Volume 6 64 What might an economic regulation regime forVolume the three waters sector in NZ look like? 6 • Ministers have agreed in principle that an economic regulation regime will apply to a substantively reformed three waters sector • While final decisions are yet to be taken due to the need for sector and public consultation, the regime is likely to involve: • Individualised price quality paths plus information disclosure for the proposed new Water Service Entities • A form of information disclosure for Councils that opt out of the proposed Water Service Entities. It is also possible that opt out councils will be subject to minimum service quality standards (in addition to the standards set by Taumata Arowai) • The appointment of an independent and credible economic regulator (e.g. the Commerce Commission) to administer the regime 65 Why can’t we confirm the economic regulation regimeVolume now? •6 The design of the economic regulation regime will be a function of: • The nature of the issues that the three waters sectors is facing • Governance arrangements of the Water Service Entities (including consumer voice arrangements) • Sector structure (particularly the number of suppliers and their scale) • Transitional considerations (how much change can the sector digest in a given period?) • Most of these considerations are still being worked through. • MBIE anticipates issuing a public consultation document early in 2022 on the design of the economic regulation regime once decisions on the core elements of the reform programme have been taken, particularly the number of suppliers and their governance arrangements. 66 Further questions? Volume
•6 You can find out more information on the reform programme at www.dia.govt.nz/Three-Waters-Reform- Programme • If you have specific questions on economic regulation, you can send these to [email protected] 67 Reprint as at 1 March 2021
Taumata Arowai–the Water Services Regulator Act 2020
Public Act 2020 No 52 Date of assent 6 August 2020 Commencement see section 2
Contents Page 1 Title 2 2 Commencement 2 Part 1 Preliminary provisions 3 Purpose 3 4 Interpretation 3 5 Māori interests 5 6 Transitional, savings, and related provisions 6 7 Act binds the Crown 6 Part 2 Establishment of Taumata Arowai–the Water Services Regulator, board, and Māori Advisory Group Subpart 1—Establishment, objectives, and functions of Taumata Arowai 8 Taumata Arowai–the Water Services Regulator established 6 9 Taumata Arowai is Crown entity 6 10 Objectives of Taumata Arowai 6
Note Changes authorised by subpart 2 of Part 2 of the Legislation Act 2012 have been made in this official reprint. Note 4 at the end of this reprint provides a list of the amendments incorporated. This Act is administered by the Department of Internal Affairs.
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11 Functions of Taumata Arowai 7 Subpart 2—Board of Taumata Arowai, and Māori Advisory Group Board 12 Board 8 13 Board’s power to delegate 9 Māori Advisory Group 14 Māori Advisory Group established 9 15 Appointment of members of Māori Advisory Group 9 16 Further provisions relating to Māori Advisory Group 9 17 Role of Māori Advisory Group 10 Subpart 3—Operations of Taumata Arowai 18 Operating principles 11 19 Additional collective duties of board 11 20 Taumata Arowai may establish technical advisory group 12 Part 3 Miscellaneous provisions 21 Consequential amendments 12 Schedule 1 13 Transitional, savings, and related provisions Schedule 2 16 Consequential amendments to other enactments
The Parliament of New Zealand enacts as follows:
1 Title This Act is the Taumata Arowai–the Water Services Regulator Act 2020. 2 Commencement (1) This Act comes into force on the earlier of— (a) a date appointed by the Governor-General by Order in Council; and (b) the 15-month anniversary of the date of Royal assent. (2) One or more Orders in Council may be made appointing different dates for dif- ferent provisions. Section 2: this Act (except sections 10(b) and 11(e)) brought into force, on 1 March 2021, by clause 2 of the Taumata Arowai–the Water Services Regulator Act Commencement Order 2021 (LI 2021/23).
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Part 1 Preliminary provisions
3 Purpose The purpose of this Act is to establish Taumata Arowai–the Water Services Regulator and provide for its objectives, functions, and governance arrange- ments. 4 Interpretation In this Act, unless the context otherwise requires,— board means the board of Taumata Arowai–the Water Services Regulator council-controlled organisation has the meaning given to it by section 6 of the Local Government Act 2002 domestic dwelling— (a) means premises, the principal use of which is as residential premises; and (b) includes residential premises that are tenanted on a long- or short-term basis; and (c) includes residential premises that are occupied permanently or tempor- arily (for example, a holiday home) domestic self-supplier means a stand-alone or single domestic dwelling that has its own supply of water
Examples A single property, with tenants on a lease, that is supplied by a rainwater tank is a domestic self-supplier. A single holiday house that is supplied by a rainwater tank and is rented to tourists on a short-term basis is a domestic self-supplier. A multi-dwelling building (for example, multiple separate apartments contained in a single building) that has its own bore water supply is not a domestic self-supplier. A marae wharekai (dining hall) or community hall that has its own river water sup- ply is not a domestic self-supplier. A café building supplied by a rainwater tank is not a domestic self-supplier. drinking water— (a) means water that is available to consumers from a point of supply, and used, for— (i) human consumption; or (ii) oral hygiene; or (iii) the preparation of food, drink, or other products for human con- sumption; or
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(iv) washing utensils that are used for eating and drinking, or for pre- paring, serving, or storing food or drink for human consumption; but (b) does not include bottled water that is prepared or manufactured by a food business and is regulated under the Food Act 2014 drinking water supplier— (a) means a person who supplies drinking water to consumers through a drinking water supply; and (b) includes a person who ought reasonably to know they are supplying drinking water to consumers; and (c) includes the owner and the operator of a drinking water supply; and (d) includes a drinking water supplier who supplies drinking water to another drinking water supplier; but (e) does not include a domestic self-supplier Māori Advisory Group means the Māori Advisory Group established by sec- tion 14 premises and residential premises have the meanings given in section 2 of the Residential Tenancies Act 1986 responsible Minister means the Minister of the Crown who, under the author- ity of any warrant or with the authority of the Prime Minister, is responsible for the administration of this Act stormwater network means the infrastructure and processes that are used to collect, treat, drain, and discharge stormwater from a built area or transport cor- ridor in an urban area stormwater network operator means each of the following, to the extent that they operate a stormwater network: (a) a local authority, council-controlled organisation, or subsidiary of a council-controlled organisation: (b) a department named in Part 1 of Schedule 2 of the Public Service Act 2020: (c) the New Zealand Defence Force Taumata Arowai means Taumata Arowai–the Water Services Regulator estab- lished by section 8 Te Mana o te Wai has the meaning set out in the National Policy Statement for Freshwater Management issued in 2014 (the 2014 statement) under section 52 of the Resource Management Act 1991 and any statement issued under that section that amends or replaces the 2014 statement
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urban area— (a) means an area identified in a district plan or proposed district plan as being primarily zoned for residential, industrial, or commercial activ- ities, together with adjoining special-purpose and open-space zones, however described; but (b) does not include an area zoned primarily for rural or rural-residential activities, however described wastewater network means the infrastructure and processes that are used to collect, transmit through reticulation, treat, and discharge wastewater wastewater network operator means each of the following, to the extent that they operate a wastewater network: (a) a local authority, council-controlled organisation, or subsidiary of a council-controlled organisation that operates a wastewater network: (b) a department named in Part 1 of Schedule 2 of the Public Service Act 2020: (c) the New Zealand Defence Force. 5 Māori interests In order to recognise and respect the Crown’s responsibility to consider and provide for Māori interests,— (a) section 10 provides that it is an objective of Taumata Arowai to give effect to Te Mana o te Wai, to the extent that Te Mana o te Wai applies to the functions and duties of Taumata Arowai: (b) section 12 provides that the board must include members who, collect- ively, have knowledge and experience of, and capability in,— (i) the Treaty of Waitangi (Te Tiriti o Waitangi) and its principles; and (ii) perspectives of Māori and tikanga Māori: (c) section 14 establishes the Māori Advisory Group: (d) section 17(1) and (2) provides that the role of the Māori Advisory Group is to advise on Māori interests and knowledge, which includes— (i) developing and maintaining a framework on how to interpret and give effect to Te Mana o te Wai; and (ii) providing advice on how to enable mātauranga Māori, tikanga Māori, and kaitiakitanga to be exercised: (e) section 17(3) requires the board to— (i) have regard to the advice of the Māori Advisory Group; and (ii) demonstrate in its annual report how it has had regard to this advice:
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(f) section 18 provides that the operating principles of Taumata Arowai include— (i) building and maintaining credibility and integrity, so that Taumata Arowai is trusted by Māori (among others); and (ii) partnering and engaging early and meaningfully with Māori, including to inform how Taumata Arowai can— (A) give effect to Te Mana o te Wai; and (B) understand, support, and enable the exercise of mātauranga Māori and tikanga Māori and kaitiakitanga: (g) section 19 requires the board to maintain systems and processes to ensure that, for the purposes of carrying out its functions under this Act, Taumata Arowai has the capability and capacity— (i) to uphold the Treaty of Waitangi (Te Tiriti o Waitangi) and its principles; and (ii) to engage with Māori and to understand perspectives of Māori. 6 Transitional, savings, and related provisions The transitional, savings, and related provisions set out in Schedule 1 have effect according to their terms. 7 Act binds the Crown This Act binds the Crown.
Part 2 Establishment of Taumata Arowai–the Water Services Regulator, board, and Māori Advisory Group
Subpart 1—Establishment, objectives, and functions of Taumata Arowai 8 Taumata Arowai–the Water Services Regulator established This section establishes Taumata Arowai–the Water Services Regulator. 9 Taumata Arowai is Crown entity (1) Taumata Arowai is a Crown entity for the purposes of section 7 of the Crown Entities Act 2004. (2) The Crown Entities Act 2004 applies to Taumata Arowai except to the extent that this Act expressly provides otherwise. 10 Objectives of Taumata Arowai Taumata Arowai’s objectives are to—
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(a) protect and promote drinking water safety and related public health out- comes; and (b) effectively administer the drinking water regulatory system; and (c) build and maintain capability among drinking water suppliers and across the wider industry; and (d) give effect to Te Mana o te Wai, to the extent that Te Mana o te Wai applies to the functions and duties of Taumata Arowai; and (e) provide oversight of, and advice on, the regulation, management, and environmental performance of wastewater and stormwater networks; and (f) promote public understanding of the environmental performance of wastewater and stormwater networks. 11 Functions of Taumata Arowai Taumata Arowai’s general functions are to— (a) provide national-level oversight, leadership, communication, and co- ordination in relation to— (i) drinking water safety and regulation, including the management of risks to sources of drinking water; and (ii) the environmental performance, management, and regulation of wastewater and stormwater networks; and (b) identify and monitor matters that affect the safety of drinking water, and the environmental performance of wastewater and stormwater networks, including current and emerging contaminants; and (c) develop and consult on draft standards and compliance rules that relate to drinking water composition and develop other regulatory require- ments and measures necessary to fulfil its responsibilities under this or any other enactment; and (d) provide oversight of, and information to central and local government in relation to,— (i) the development, operation, and effectiveness of standards, regu- lations, and other statutory requirements for wastewater and stormwater; and (ii) compliance with, monitoring of, and enforcement of standards, regulations, and other statutory requirements affecting wastewater networks, stormwater networks, wastewater network operators, and stormwater network operators; and (e) monitor and enforce compliance with relevant drinking water legislation and standards, and other regulatory requirements for which Taumata Arowai has responsibility; and
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(f) facilitate, promote, or support research, education, and training, to sup- port drinking water safety and regulation, the management of risks to sources of drinking water, and the environmental performance, manage- ment, and regulation of wastewater and stormwater networks; and (g) build and maintain the capability of drinking water suppliers to fulfil their regulatory responsibilities; and (h) provide guidance, advice, or information on matters that relate to drink- ing water safety and regulation, the management of risks to sources of drinking water, and the environmental performance, management, and regulation of wastewater and stormwater networks; and (i) identify, prepare, or promote national guidelines and good practices that relate to— (i) drinking water; and (ii) wastewater networks, stormwater networks, wastewater network operators, and stormwater network operators; and (j) perform or exercise the functions, duties, and powers conferred or imposed on it by this Act or any other enactment; and (k) perform any other functions or activities that are consistent with its objectives and that Taumata Arowai considers are necessary or desirable to enable the achievement of those objectives, except functions or activ- ities performed by any central government agency or another regulator; and (l) perform any other functions relevant to its objectives that the responsible Minister directs in accordance with section 112 of the Crown Entities Act 2004. Subpart 2—Board of Taumata Arowai, and Māori Advisory Group Board
12 Board (1) The board consists of not fewer than 5, and not more than 7, members. (2) The responsible Minister must appoint members to the board who, collectively, have knowledge and experience of, and capability in,— (a) the compliance, monitoring, and enforcement activities of regulatory agencies; and (b) public health, particularly in relation to the objectives and functions of Taumata Arowai; and (c) the Treaty of Waitangi (Te Tiriti o Waitangi) and its principles; and (d) perspectives of Māori and tikanga Māori; and (e) performance monitoring and governance.
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13 Board’s power to delegate The board may delegate any of its functions or powers in accordance with sec- tion 73 of the Crown Entities Act 2004, except the power to appoint or remove the chief executive. Māori Advisory Group
14 Māori Advisory Group established (1) This section establishes the Māori Advisory Group. (2) The Māori Advisory Group consists of not fewer than 5, and not more than 7, members. 15 Appointment of members of Māori Advisory Group (1) The responsible Minister must appoint members to the Māori Advisory Group. (2) The responsible Minister must consult the Ministers with portfolio responsibil- ities that relate to Māori Development and Māori Crown Relations before mak- ing any appointments. (3) The responsible Minister must appoint 1 of the members as chairperson of the Māori Advisory Group. (4) The responsible Minister must appoint only persons who, in the responsible Minister’s opinion, have the appropriate knowledge, skills, and experience to assist the Māori Advisory Group to perform its role (see section 17). 16 Further provisions relating to Māori Advisory Group (1) The following provisions of the Crown Entities Act 2004 apply to members of the Māori Advisory Group as if they were members of the board of a Crown agent: (a) section 28 (method of appointment of members): (b) section 30 (qualifications of members): (c) section 31 (requirements before appointment): (d) section 32 (term of office of members): (e) section 35 (validity of appointments): (f) section 36 (removal of members of Crown agents): (g) section 41 (process for removal): (h) section 43 (no compensation for loss of office): (i) section 44 (resignation of members): (j) section 45 (members ceasing to hold office). (2) The members are entitled to— (a) receive remuneration, in accordance with the fees framework; and
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(b) be reimbursed for actual and reasonable travelling expenses incurred in carrying out their roles as members. 17 Role of Māori Advisory Group (1) The role of the Māori Advisory Group is to advise the board and Taumata Aro- wai on Māori interests and knowledge, as they relate to the objectives, func- tions, and operating principles of Taumata Arowai and the collective duties of the board. (2) That role includes— (a) developing and maintaining a framework that provides advice and guid- ance for Taumata Arowai on how to interpret and give effect to Te Mana o te Wai; and (b) providing advice on how to enable mātauranga Māori, tikanga Māori, and kaitiakitanga to be exercised; and (c) any other matters requested by the board. (3) The board must— (a) have regard to the advice of the Māori Advisory Group; and (b) demonstrate how it has had regard to that advice in Taumata Arowai’s annual report (prepared under section 150 of the Crown Entities Act 2004), which must include— (i) information on the situations in which it did not act on the advice; and (ii) the reasons for that; and (iii) the alternative actions that were taken, if any; and (c) provide the Māori Advisory Group with an opportunity to include com- mentary in Taumata Arowai’s annual report on the Māori Advisory Group’s role and the advice it provided to Taumata Arowai over the period covered by the annual report. (4) The board and the Māori Advisory Group, acting jointly, must— (a) prepare a memorandum of understanding, setting out how they will work together; and (b) prepare and agree the terms of reference for the Māori Advisory Group. (5) Taumata Arowai must publish the memorandum of understanding and the terms of reference on Taumata Arowai’s website. (6) The board and the Māori Advisory Group, acting jointly, must review both the memorandum of understanding and the terms of reference at intervals of not more than 3 years.
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Subpart 3—Operations of Taumata Arowai 18 Operating principles (1) Taumata Arowai must ensure that its performance and delivery of its object- ives, functions, and duties are guided and informed by the operating principles set out in subsection (2). (2) The operating principles are— (a) building and maintaining credibility and integrity, so that Taumata Aro- wai is trusted by consumers, drinking water suppliers, wastewater net- work operators, stormwater network operators, Māori, and government: (b) ensuring that Taumata Arowai has suitable expertise to build and main- tain confidence in its capability as a regulator: (c) developing sector capability, by promoting collaboration, education, and training: (d) partnering and engaging meaningfully with other people and organisa- tions: (e) partnering and engaging early and meaningfully with Māori, including to inform how Taumata Arowai can— (i) give effect to Te Mana o te Wai; and (ii) understand, support, and enable the exercise of mātauranga Māori and tikanga Māori and kaitiakitanga. 19 Additional collective duties of board (1) The board must ensure that Taumata Arowai— (a) acts in a manner consistent with the operating principles in section 18; and (b) maintains systems and processes to ensure that, for the purposes of carrying out its functions under this Act, Taumata Arowai has the cap- ability and capacity— (i) to uphold the Treaty of Waitangi (Te Tiriti o Waitangi) and its principles; and (ii) to engage with Māori and to understand perspectives of Māori. (2) The duties in subsection (1)— (a) apply in addition to the duties of the board in sections 49 to 52 of the Crown Entities Act 2004; and (b) are collective duties owed to the responsible Minister for the purposes of section 58 of the Crown Entities Act 2004.
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20 Taumata Arowai may establish technical advisory group (1) Taumata Arowai may establish 1 or more technical advisory groups to provide independent advice to Taumata Arowai on any matters relating to its objectives or the performance or exercise of its functions, duties, and powers. (2) The members of a technical advisory group must be appointed by Taumata Arowai, on terms and conditions that Taumata Arowai determines, by written notice to each member. (3) A person must not be appointed as a member of a technical advisory group unless, before appointment, the person discloses to Taumata Arowai the nature and extent (including monetary value, if quantifiable) of all interests that the person has at that time, or is likely to have, in matters relating to the group. (4) A technical advisory group must comply with any terms of reference given by Taumata Arowai. (5) A technical advisory group may determine its own procedures. (6) Taumata Arowai must have regard to the advice it receives from a technical advisory group. (7) In this section, interests has the meaning given to it by section 62(2) and (3) of the Crown Entities Act 2004.
Part 3 Miscellaneous provisions
21 Consequential amendments Amend the Acts specified in Schedule 2 as set out in that schedule.
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Schedule 1 Transitional, savings, and related provisions s 6
Part 1 Provisions relating to this Act as enacted
Transfer of contracts
1 Transfer of contracts to Taumata Arowai (1) This clause applies to a contract (other than an employment agreement) that— (a) was made between the Department of Internal Affairs (the DIA) and another person before the commencement of this clause; and (b) is identified by the DIA as relating principally or solely to the operation of Taumata Arowai, or to a matter for which Taumata Arowai assumes responsibility, on the commencement of this clause. (2) On and after the commencement of this clause,— (a) the contract must be treated as if Taumata Arowai were the party to the contract instead of the DIA; and (b) unless the context otherwise requires, every reference in the contract to the DIA must be read as a reference to Taumata Arowai. 2 Consequences of transfer of contracts to Taumata Arowai (1) This clause applies only in relation to a contract transferred to Taumata Arowai under clause 1. (2) On and from the commencement of clause 1,— (a) all rights, liabilities, and entitlements of the DIA under the contract become the rights, liabilities, and entitlements of Taumata Arowai; and (b) anything done, or omitted to be done, or that is to be done, by, or in rela- tion to, the DIA is to be treated as having been done, or omitted to be done, or to be done, by, or in relation to, Taumata Arowai; and (c) the commencement, continuation, or enforcement of proceedings by or against the DIA may instead be carried out by or against Taumata Aro- wai without amendment to the proceedings. Transfer of employment
3 Transfer of employment from DIA to Taumata Arowai (1) This clause applies to a person— (a) who is employed by the Department of Internal Affairs (the DIA) imme- diately before the commencement of this clause; and
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(b) whose position is identified by the DIA as relating principally or solely to the operation of Taumata Arowai, or to a matter for which Taumata Arowai assumes responsibility, on the commencement of this clause. (2) Each person this clause applies to becomes an employee of Taumata Arowai on the same terms and conditions as applied immediately before they became an employee of Taumata Arowai. 4 Terms of transfer of employment (1) This clause applies to a person who becomes an employee of Taumata Arowai under clause 3 (a transferred employee). (2) The terms and conditions of employment of a transferred employee immedi- ately before the commencement of this clause continue to apply in relation to that employee until— (a) those terms and conditions are varied by agreement between the transfer- red employee and Taumata Arowai; or (b) the transferred employee accepts a subsequent appointment with Tau- mata Arowai. (3) For the purposes of every enactment, law, determination, contract, and agree- ment relating to the employment of a transferred employee,— (a) the employment agreement of that employee is to be treated as unbroken; and (b) the employee’s period of service with the DIA, and every other period of service of that employee that is recognised by the DIA as continuous ser- vice, is to be treated as a period of service with Taumata Arowai. (4) To avoid doubt, the employment of a transferred employee by Taumata Arowai does not constitute new employment for the purposes of the Holidays Act 2003 or the KiwiSaver Act 2006. (5) A transferred employee is not entitled to receive any payment or benefit from the DIA or Taumata Arowai on the grounds that the person’s position in the DIA has ceased to exist or the person has ceased to be an employee of the DIA as a result of the transfer to Taumata Arowai. (6) This clause overrides Part 6A of the Employment Relations Act 2000. Sharing or transfer of information
5 Sharing or transfer of information relating to Part 2A of Health Act 1956 (1) Despite anything in any other Act, a transferor may, at any time on or after the commencement of this clause, share with, or transfer to, Taumata Arowai any information held by the transferor immediately before the commencement of this clause that relates to the performance or exercise of functions, duties, or powers under Part 2A of the Health Act 1956.
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(2) Sharing, or a transfer of, information under subclause (1) is not an action that is an interference with the privacy of an individual under section 66 of the Pri- vacy Act 1993. (3) In this clause, transferor means— (a) the Ministry of Health: (b) the Director-General of Health: (c) designated officers (as defined in section 69G of the Health Act 1956): (d) drinking-water assessors appointed under section 69ZK of the Health Act 1956: (e) employers of designated officers and drinking-water assessors.
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Schedule 2 Consequential amendments to other enactments s 21
Crown Entities Act 2004 (2004 No 115) In Schedule 1, Part 1, insert in its appropriate alphabetical order: Exemption from acquisition of Exemption from section financial products, borrowing, 165 (net surplus payable Name guarantee, and derivative rules to Crown) s 161 s 162 s 163 s 164 Taumata Arowai–the Water Services Regulator
Ombudsmen Act 1975 (1975 No 9) In Schedule 1, Part 2, insert in its appropriate alphabetical order: Taumata Arowai–the Water Services Regulator
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Reprints notes
1 General This is a reprint of the Taumata Arowai–the Water Services Regulator Act 2020 that incorporates all the amendments to that Act as at the date of the last amendment to it. 2 Legal status Reprints are presumed to correctly state, as at the date of the reprint, the law enacted by the principal enactment and by any amendments to that enactment. Section 18 of the Legislation Act 2012 provides that this reprint, published in electronic form, has the status of an official version under section 17 of that Act. A printed version of the reprint produced directly from this official elec- tronic version also has official status. 3 Editorial and format changes Editorial and format changes to reprints are made using the powers under sec- tions 24 to 26 of the Legislation Act 2012. See also http://www.pco.parlia- ment.govt.nz/editorial-conventions/. 4 Amendments incorporated in this reprint Taumata Arowai–the Water Services Regulator Act Commencement Order 2021 (LI 2021/23)
Wellington, New Zealand: Published under the authority of the New Zealand Government—2021
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