Finance Minister Grant Robertson had earlier promised to focus the Covid-19 Response and Recovery Fund (CRRF) funds specifically on meeting the direct costs of responding to Covid-19 and the economic recovery from it. Photo / Mark Mitchell
The Government has tapped some $70m of Covid Response and Recovery money to bolster the dwindling coffers of its Three Waters Reform Programme, including the purchase of ongoing policy and communications work, much of it done by consultants.
Cabinet redirected the unspent Covid-related funds in April this year, Cabinet documents show, despite an earlier promise by Finance Minister Grant Robertson to focus the Covid-19 Response and Recovery Fund (CRRF) funds specifically on meeting the direct costs of responding to Covid-19 and the economic recovery from it.
The Government created the CRRF - which ultimately topped $61b - in 2020 to pay for its response to Covid-19. The fund indicated what the Government was willing to spending on its pandemic response; it was closed at Budget 2022, when $4b was returned to it from underspends.
Future Covid-related costs are expected to be managed within the standard budget process.
Despite the CRRF’s Covid specificity, it has been used to cover a wide range of unrelated expenses including free school lunches and cameras on fishing boats.
The repurposed three waters funds were originally part of a $710m envelope of CRRF money - Three Waters Infrastructure Investment and Service Delivery Reform Programme - announced by Prime Minister Jacinda Ardern and Minister for Local Government Nanaia Mahuta in July 2020.
The money was billed as “stimulus funding” to help local councils invest in stormwater, wastewater and drinking water infrastructure.
The purpose of the funding agreed by the Cabinet at the time was: “to support local government to maintain planned investment and asset quality; and support large scale asset replacements and the bringing forward of ‘no regrets’ investment in the latter part of the reform programme”.
The funds were to be paid to local government bodies as grants and the work overseen by Crown Infrastructure Partners.
Department of Internal Affairs (DIA) officials estimated that the investment package (only $8m of which was earmarked for departmental funding to meet the associated costs of implementation) could protect and create up to 2,451 jobs and generate $857m in additional GDP over the 12 to 18 month investment period.
However in April this year, some $84.7m of the original Covid fund envelope remained unallocated and unspent.
Of that, Cabinet agreed to drawdown and redirect $72.3m to help cover considerable unfunded DIA Three Waters work including $21m for policy and communications work; $14.6m to increase iwi/Māori understanding of the changes and their capacity to contribute to them and $32.8m to cover councils’ costs in working with the “transition unit”, situated within DIA, to hand their assets over to create the proposed four new Water Services Entities.
$3.6m was redirected to other DIA local government work.
The drawdown was enabled by a change to the parameters of the original funding made by the new Cabinet formed after the 2020 election.
Documents show that on December 14, 2020, the Government quietly rescinded the original restrictions on the uses for the envelope of money, and extended the scope for spending to include more general costs, including Three Waters departmental programme costs and public information.
It also extended the expiry date of any unallocated funding in the envelope from 2021 to 2022.
The December 2020 change was not announced to the public, but it quietly served to pave the way for Cabinet’s April decision this year to use the CRRF funds to address the mounting cost of the Three Waters programme between 2022 and 2024.
The December 2020 change to the funding parameters also allowed for the additional repurposing of $9m of the Covid-19 funding, which was spent by the DIA in 2021, in part to pay for a public information campaign.
The paid advertising component of the latter was described as “propaganda” by many mayors and councillors and prompted warnings from the Public Service Commission.
Asked about the repurposing of the Covid fund money, Finance Minister Grant Robertson said: “the $710 million that was available in the Covid-19 Response and Recovery Fund (CRRF) was to invest in the delivery of the Three Waters reforms to fix our critical water infrastructure and help rebuild the economy”.
He said much of the money was used for “significant work” at “the local level”, the details of which are on the Crown Infrastructure Partners’ website.
A special unit within DIA is leading a controversial and expensive Government plan to combine council-owned water infrastructure - including stormwater, drinking water and wastewater assets - into just four regional bodies.
The Government says its plan will ensure that investment in water assets - required on a very large scale in the coming decades - is made. It is also committed to giving Māori a co-governance role in controlling the assets.
Critics, however, including many in local government, say the imposed co-governance structure is both cumbersome and unfair, and that in light of the massive debt the Government anticipates for the new water entities, it makes the likelihood of messy situations such as debt restructuring greater and more risky for taxpayers.
The programme is also contentious because DIA has spent heavily on outside consultants.
Earlier this year, the department confirmed it had spent $21m on consultants and contractors for the Three Waters Reform Programme in the 20 months to the end of February 2022.
But further contracts published, in the interim, through the government procurement system GETS indicate that the consultant and contractor spending has risen considerably since then.
Indeed, the redirected CRRF funds appear to have fuelled a flurry of intense spending between April 1 and June 30 this year, as the Government raced to introduce its first piece of Three Waters legislation.
The GETS system, which provides an estimated spend rather than an actual one, shows that DIA estimated it would spend some $9.2m in that three-month period on just four contracts.
The system shows that DIA anticipated paying Ernst & Young $5.26m in the three-month period, for Three Waters “support”.
The total spending since September 2020 was an estimated $11.4m.
The department anticipated spending $2.21m in the three-month period on Minter Ellison Rudd Watts for Three Waters-related “legal services”.
It anticipated spending $611,506 in the three-month period on Martin Jenkins for “policy advice”.
The total spend since September 2020 for Minter Ellison Rudd Watts was an estimated $4.99m and an estimated $3.766m on Martin Jenkins for the same period.
As well, spending of $1.16m on Mafic Partners Ltd was anticipated in the same period.
The total spend since September 2020 was an estimated $3.16m.
Auckland-based Mafic has provided DIA with investment banking advice and support for its Three Waters plans.
Robertson said that the “reallocated” $72m would be spent across a number of areas to help address cost pressures and “spending on consulting services will only be part of the overall $72m”.
However, Simon Watts, the National Party’s Local Government spokesman, said it was time Labour called a stop to the “wasteful spending” and went “back to the drawing board on Three Waters”.
The size of the Martin Jenkins bill is among the most contentious since it entails the purchase of policy work, ordinarily considered the speciality of government departments.
Embedded at DIA and working at the heart of the Three Waters reforms are two of the firm’s directors Michael Mills and Nick Davis, both have DIA titles. Mills is “strategic adviser” to the programme and Davis is “chief strategic adviser” to the programme.
Work by communications consultancy SenateSHJ has also been extensive. As of the end of February, the agency had been paid $616,000 for public relations work on the Three Waters programme, and their work since then has been considerable, though it has not appeared in GETS system.
An OIA response to the Herald noted that since June 2021 four Senate employees have been seconded to DIA to provide “day-to-day” communications support for the Three Waters programme. The secondment periods range in length. One employee was at DIA from June 2021 to August 2022. A second secondment began in September 2021 and, as of last month, remained ongoing. Two further Senate secondments to provide “additional support” ran from February to April 2022.
In addition, Senate founding partner Neil Green and managing partner Raphael Hilbron have been heavily involved in managing the communications of the Three Waters programme for over a year, documents released to the Herald show.
Also of note is DIA’s considerable funding provided to Local Government New Zealand (LGNZ) which is set up to represent the interests of local government.
LGNZ’s 21/22 Annual Report notes that some $2.2m of the organisation’s $9.9m in income for the year was derived from DIA for Three Waters-related work. LGNZ signed an agreement with the Crown last year, and agreed to support, endorse and promote the Three Waters Reform Programme. Some councils have viewed this co-operation with suspicion.
LGNZ chief executive Susan Freeman-Greene said the funding has enabled LGNZ to provide the “[local government] sector with independent expert technical advice to help understand and interrogate the [Three Waters] proposal and the potential impacts on their communities”.
However, dozens of local councils have rejected critical aspects of the Government’s water reforms. The latest iteration of council dissension was announced by the newly elected mayors of Auckland and Christchurch, Wayne Brown and Phil Mauger, this week.
The pair released an alternative to the Three Waters plan, which, though thin on details, centres on the provision of three waters services by council-controlled entities.
Despite considerable opposition, the Government’s current timeline anticipates that a second piece of Three Waters legislation will be introduced in Parliament before Christmas.
Update: DIA has corrected some of its GETS entries in December 2022. This story has been updated with the new figures.
Economists expect the recovery continued during the first quarter of the year.