Release of the third report under LGNZ’s Water 2050 project

26 Jun 2018

An update from LGNZ on their Water 2050 project and outlines the release of their third piece of work.

There are five key workstreams to the Water 2050 project: allocation, water quality, infrastructure, cost and funding, and governance. To date, the following papers have been released:

Today, LGNZ has released its third paper in our work programme to members, Water 2050: Cost and funding – Meeting the costs of water infrastructure; a stocktake and analysis of actual and potential funding options for local authorities . This discussion paper considers funding – that is, who ultimately pays for the infrastructure. It outlines and analyses a range of existing funding options and also comments on attributes that future funding options will need to consider.

These reports and our future work have been undertaken in order to inform discussion between LGNZ members and with central government on water and, in particular, to feed into the Government’s current review of the delivery of three waters services. Funding is one of the four workstreams in the Government’s work.

Water 2050: Funding options

In determining which options to use to fund infrastructure to meet rising standards, climate change impacts and population changes, as well as essential maintenance and renewal, this report identifies several considerations:

  1. Cost. For many districts and cities, the cost of investing in three waters infrastructure, including any additional costs resulting from higher standards and new regulation, will be significant. Central and local government policy development must consider both existing and new funding options to ensure every community can successfully balance its investment principles to achieve outcomes that benefit their communities and the country.
  2. Economic equity. If economic equity is considered – where charges reflect the costs of providing services – as a high priority, then those options where users pay based on the extent to which they benefit, and where charges reflect the cost of provision, will be preferred.
  3. Social equity. Social equity addresses affordability to residents and is based on the premise that no one is priced out of the market. Importantly, improving social equity is not only a local issue, but a national one. In the context of water use, local government should not be expected to carry the full cost of contribution for national benefit, particularly where there may be measurable improvements. Central government should work closely with local governments to determine the fair and appropriate sharing of costs for improvement and expansion, and to also share in better outcomes.
  4. Simplicity and implementation. For a successful funding programme to be supported, it must be easily explained and understood by all levels of governance, management, stakeholders and the public.
  5. Conditions and context. While user-charging and local targeted rates are often considered suitable for urban areas, in rural areas these approaches can result in per-person funding requirements that are considered unaffordable. There may be merit, for example, from a wider public good perspective, in spreading the costs of rural infrastructure beyond the relevant local council, while at the same time applying more economically efficient approaches in urban centres.
  6. Time. Infrastructure costs can be recovered over different periods, depending on the funding option adopted. Recovering costs over relatively short time periods reduces funding risk and minimises overall debt requirements, but it pushes greater funding requirements onto the early users of long-lived infrastructure.

Next steps

We intend for this report to feed into policy development on the funding workstream under the Three Water Review. It will be followed next month by a report that quantifies water infrastructure costs, including an estimation of the costs to upgrade and renew infrastructure across New Zealand’s councils under various scenarios, allowing for increased capacity for resilience.

We look forward to keeping you updated on LGNZ’s policy work on water under its Water 2050 project.