Reforms to the way water infrastructure and services are funded, unveiled today, will reduce pressure on council finances, says Local Government New Zealand.
The government’s Local Water Done Well programme establishes council controlled organisations (CCOs) that can borrow more than currently from the NZ Local Government Funding Agency (LGFA) for investing in water services.
“LGFA has confirmed it can immediately begin lending to water CCOs that are financially supported by their parent council or councils,” said Local Government Minister Simeon Brown.
“LGFA will support leverage for water CCOs up to a level equivalent to 500% of operating revenues – around twice that of existing councils – subject to water CCOs meeting prudent credit criteria.”
Brown said by using debt to spread the costs of long-term assets, councils can invest for long-term growth and pay back their debts across the lifetime of new assets.
It also means the costs of those assets are paid for by those who use them, rather than pushing costs onto current ratepayers
Brown wants councils to work together to achieve greater efficiency and access those borrowing channels.
“Our expectation is that councils will now use this certainty and the additional borrowing capacity to reduce pressure on ratepayers while being able to invest in the critical water infrastructure NZ needs.”
Local Government New Zealand (LGNZ) vice-president Campbell Barry said the news would be welcomed by councils that are financially constrained.
“Without reform, the pressure on council finances and on our essential infrastructure would continue to be completely unsustainable.”
However, even with these changes, CCOs will still be constrained by consumers’ ability to pay for water services, he said.
Commerce and Consumer Affairs Minister Andrew Bayly said the structure ring-fences water revenue for water services, preventing councils from siphoning those funds for other priorities or pet projects.
He said the Commerce Commission will oversee the regulations and be given regulatory tools, including mandatory information disclosure.
An LGNZ-commissioned report by Infometrics in March found that sewage systems are 30% more expensive to build and water supply system are 27% more expensive to build than they were three years ago.
