Three Waters: Watercare is held back by Auckland Council borrowing limits

National's local government spokesman Simon Watts says the party's water management proposal would give Watercare additional funding tools to get around its present debt constraints. Photo / Supplied

Auckland’s Watercare says it is constrained from borrowing additional money to invest in water because of Auckland Council’s debt requirements.

The admission buoyed Labour’s Three Waters reforms, which would carve Watercare off Auckland Council and merge it into a massive regional water entity, which could borrow more for water services.

National’s alternative proposal would allow Watercare to remain on its own. Local government spokesman Simon Watts said the proposal would also give Watercare additional funding tools to get around its present debt constraints.

During a select committee interrogation of the most recent Three Waters legislation, Watercare chief executive Dave Chambers was asked by Act’s Simon Court, what was stopping Watercare “from borrowing more money and spending it on infrastructure projects that our community is desperate for?”

Chambers said that while Watercare was distinct from Auckland Council, it was constrained by the council’s borrowing limits.

“We’re a CCO [Council Controlled Organisation]. We’re part of Auckland Council. We come under Auckland Council’s debt headroom requirements and that does place limits on our ability to borrow and leverage our own balance sheet to do works we would otherwise do,” Chambers said.

Court asked, “So if Auckland Council wanted to borrow more money to spend on infra it could?”

Chambers said that was a question for Auckland Council.

“We do have our own balance sheet but our ability to leverage our balance sheet has been constrained by the total group’s borrowing,” Chambers said, noting that Watercare itself was “quite under-leveraged” on its own balance sheet.

National’s Andrew Bayly asked why Watercare did not leverage its assets more to borrow and invest in new water assets if it was so under-leveraged.

Chambers said it was because Watercare was “part of the council’s debt headroom”.

This would appear to be welcome news for Labour’s Three Waters proposal, which aims to carve water assets off council balance sheets to allow them to borrow more money to invest in water infrastructure.

But Watts did not see it like this.

He said there would be “a number of ways you can address that challenge” - the challenge of borrowing.

“The key issue [is] we know that Watercare needs the ability to borrow more to match long-term funding and long-term assets,” Watts said.

“The expectation would be on Auckland [Council] to come back with a plan that is financially sustainable and through that we would identify the gaps in the investment long-term,” he said.

Watts said there would be a number of ways one could address Watercare’s borrowing challenges.

“We are going to get the council to submit what they think are the options around that,” he said.

He suggested finance options like a Special Purpose Vehicle that allows Watercare to borrow debt that sits outside its balance sheet, or a “specific finance facility that you could put in place”.

As a last resort, Crown cash could also be used.

Court had a different concern, which was that the new water entities would be so indebted they would be borrowing at very high interest rates.

He proposed using revenue tools like revenue bonds.

Auckland Council was meant to submit on the legislation this week, but pulled out without explanation.