Tauranga Mayor Mahé Drysdale is calling the Government’s new plan for water services a significant step forward.

On Thursday, Local Government Minister Simeon Brown announced council-controlled organisations (CCOs) will immediately be able to borrow for water infrastructure through the Local Government Funding Agency.

It comes after the Government scrapped the previous Labour Government’s Three Waters reform.

The replacement policy, Local Water Done Well, is expected to pass into law in Parliament this month.

Brown says water CCOs would be able to borrow up to five times what they took in through water rates – about twice what they could borrow on their own – subject to “prudent credit criteria”.

Drysdale says it is a significant step forward for local government infrastructure financing.

It will substantially increase councils’ ability to invest in infrastructure while ensuring costs were paid for by those benefiting over the lifetime of the assets, he says.

Tauranga City Council has invested significantly in waters infrastructure, which means the debt for this makes up a large portion of its current debt-to-revenue limit, says Drysdale.

By setting up a CCO to deliver the city’s water services, the city could invest in water infrastructure, while also providing more capacity for the council to invest in other infrastructure, such as roads and community facilities, he says.

Local Government New Zealand vice-president Campbell Barry. Photo / Georgina Campbell.

Local Government New Zealand vice-president Campbell Barry says it is welcome news.

“The announcement gives councils a greater ability to borrow for essential infrastructure investment.

“Without reform, the pressure on council finances and on our essential infrastructure would continue to be completely unsustainable,” he says.

“LGNZ has been advocating for stronger local voice in water services reform for a long time.”

Water infrastructure and services made up a large amount of council investment, Barry says.

“Ultimately, even with these changes, CCOs will still be constrained by consumers’ ability to pay for water services.”

Once the first water services legislation has passed, councils will have a year to provide plans for the funding they need and how they will ensure financial sustainability for water services into the future – including through CCOs and joint-council arrangements.

The funding collected through water rates would only be able to be used on water services and be supported by borrowing from the Local Government Funding Agency (LGFA).

The LGFA, also a CCO, was developed to enable councils to borrow at cheaper rates than they could otherwise.

The Tauranga City Council is one of its 31 shareholders, alongside 29 other councils and the Government.

Local Government Minister Simeon Brown says the changes would enable councils to better manage debt. Photo / Mark Mitchell.

Brown says the Government and the funding agency are also looking at increasing debt limits, potentially up to 350% of revenue, for high-growth councils, and allowing lending to CCOs not supported by parent councils.

“This will enable councils to better manage debt and make essential infrastructure investments without drastic rate hikes,” Brown says.

“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 New Zealand needs.”

Drysdale says the current debt limits were arbitrary and didn’t take account of the infrastructure investment requirements of our fastest-growing cities.

“While it will always be essential to ensure that council borrowing is prudent and will not impose unsustainable costs on ratepayers, it does not make sense to constrain our ability to invest in the infrastructure required to meet the needs of today’s and tomorrow’s city residents.”

The new policy would create the flexibility to invest in Tauranga’s infrastructure, he says.

“As a shareholder of LGFA, Tauranga City Council will be advocating for a sensible review of its current debt limits so that we can maintain the investment required to make ours the best city in New Zealand.”

LDR is local body journalism co-funded by RNZ and NZ On Air.