The economic case of the Government's Three Waters reforms, particularly the justification for stripping control of assets, doesn't stack up, according to the economic modeller hired by councils that have banded together against the reforms.
It has proposed an alternative that gives more power to councils and has Māori input at the community level, which would walk back the Government's co-governance proposal.
The main finding is that councils can fund the same amount of investment as the Government's Three Waters reforms plan, for the next 20 years without needing to compulsorily merge water services, impose water charges or change councils' debt caps.
It is widely believed that the four new water entities, which will absorb the fresh, waste, and stormwater services of 67 councils, will eventually fund their activities with water charges on households.
The proposal comes in a select committee submission from Castalia, a consultancy that does economic modelling on behalf of Communities 4 Local Democracy, the group of councils opposed to Three Waters reforms. The group counts 31 of the 67 councils affected by three waters as members.
The system relies on setting strong regulations for water quality, but allows councils significant freedom to meet those regulated standards, without the need to force councils to amalgamate their infrastructure and lose control.
Councils could choose to keep their own independent water services, like Auckland's council-controlled organisation, Watercare, or they could merge the provision of water services under a single umbrella. It is likely smaller councils would merge water services.
The model would mainly use Taumata Arowai, the new water regulator created by the Government. It would also require economic regulation to ensure charges are fair, given water services are effectively monopolies. The Government had also said it would create an economic regulator.
Castalia reckons that if existing water rates and charges were increased by 0.6 per cent a year, below the rate of inflation, it would be possible to fund the $97 billion price tag of the Government's water reforms.
Castalia also proposed relaxing debt caps for water-related investment. This would allow councils to borrow more to finance investment in water. It also proposed revenue bonds, which would be a debt instrument directly tied to water revenue.
Another part of the model is a "results-based water financing facility" or WFF. This will be a Crown-owned entity, funded by central government, which would make investments in water infrastructure based on need. This body could work along the lines of road funding, which central government sometimes funded based on relative levels of deprivation. Castalia suggested the Government fund the WFF using the $2.5b of Crown funding already committed to Three Waters.
Māori involvement would happen at the level of the community and the council, as it does with other parts of local government.
The submission noted that not every community would want the same level of service from its water entity.
"Customers in high-income areas may wish to use more water for gardens and be willing to pay to avoid sprinkler bans. In contrast, customers in low-income areas may be happy with simply safe, available drinking water. Some consumers may value friendly customer service and prompt attention to faults," it said.
A bill which will create the four new mega water entities which will take water services delivery from councils is currently before select committee. Submissions on the reforms recently closed with groups like the Taxpayers' Union and the National Party collecting at least 78,000 submissions have been submitted in opposition to the reforms.
While most large interest groups agree water reform is necessary, there is strong disagreement over the Government's proposal, which would implement a form of co-governance between councils and Māori, and over the level of council control over the four new water entities. They will be owned by councils but they will have very little ability to control them.
The Government's proposal would have councils and mana whenua represented on a regional representative group, they would jointly appoint an independent selection panel, who would appoint the entity board.
It is this structure that has caused the most controversy. It means the four entities are co-governed because mana whenua have an equal stake with councils as the group the entities are ultimately responsible to; it also means local councils have almost no day-to-day control over their water services like they do now.