Wellington Mayor Tory Whanau will soon have to contend with a Crown observer on the city council. Photo / Mark Mitchell
Local Government Minister Simeon Brown has been forced to defend his decision to appoint an observer to Wellington City Council after critics accused him of setting such a low bar for intervention that it would capture several councils.
On Tuesday, Brown announced the government planned to intervene at the council after receiving advice from the Department of Internal Affairs (DIA).
Brown highlighted three key problems at the council: an amendment to the city’s Long Term Plan (LTP) just four months after it was agreed, a series of public disagreements between councillors and council staff, and poor management of the council’s balance sheet, mainly because the LTP stipulated water investment would be funded almost entirely by rates rather than debt, which Brown said would cause Wellington ratepayers to be overcharged $700 million over the next 10 years.
The Herald has followed up with Government and council officials to see how Wellington compared.
According to Brown, DIA’s advice found the council’s net borrowings for water infrastructure over the next 10 years of the LTP would be 94% funded by rates and just 6% funded by debt, despite government policy changes to encourage more debt funding for long-term investment.
DIA confirmed to the Herald these figures differed sharply from other councils. For councils with completed LTPs, DIA said 34% of water capital investment was proposed to be debt-funded over the 10-year plan period, nearly six times the rate of Wellington.
On top of this, 13% is planned to be funded by capital revenues and 53% of water services capital investment is proposed to be funded by operating revenues such as rates, a little more than half the proportion Wellington had proposed.
Brown told the Herald he was not aware of any other councils that had funded their water investment with a similar split between rates and debt.
“The amount of debt capacity is actually growing under [Wellington’s] LTP and instead of funding that water investment through financing it and spreading that cost they are choosing to use ratepayers’ money,” Brown said.
When asked whether he was aware of the average across all councils, Brown did not directly respond.
“There’s a range across councils,” Brown said, saying Wellington’s proportion of debt funding was “a lot lower” than other councils.
Peter McKinlay, of McKinlay Douglas, who consults in areas of policy and governance told the Herald he thought it was “interesting” to see DIA hit out at Wellington City Council’s financial management, given its chief financial officer Andrea Reeves was “highly regarded” and spent seven years as assistant Auditor-General, focusing on local government.
“There’s presumably a certain amount of in-house capability in the city council about understanding balance sheet management,” he said.
McKinlay said the council believed its water assets would be placed into a multi-council council-controlled organisation under the Government’s Local Water Done Well reforms.
He said the split between rate funding and debt funding likely reflected the fact the council expected the water assets to be taken off its balance sheet during the LTP period.
McKinlay said the plan was “prepared under somewhat artificial circumstances” because the council recognised it had a “statutory obligation” to detail how it would fund investment and look after the assets over a decade, despite knowing it would almost certainly shift its water assets off the balance sheet in the next few years.
Wellington City Council spokesman Richard MacLean said it would not be appropriate for council staff to comment on statements made by the minister.
“We will seek an opportunity to discuss the advice the minister has received with DIA officials”, MacLean said.
He noted the recent LTP received an unqualified opinion meaning the auditor considered the plan to be a reasonable basis for long-term decision-making and co-ordination of council resources.
“The audit included an ‘emphasis of matter’ noting the uncertainty over the three waters forecast capital works and renewals, as did other shareholding councils of Wellington Water.”
Councillor Ben McNulty said on social media platform X that officials were reaching out to DIA about their advice, “as on the surface level it’s baffling”.
Lower Hutt Mayor Campbell Barry said Wellington City Council has looked to fund water pipes within the broken system in which local government operated.
“What I don’t understand is why the Government would use, at least in part, that example as a reason for intervention.”
Campbell pointed out the Government only announced changes to allow new council-owned water companies to access more cheap borrowing from the Local Government Funding Agency in August.
This was after the council signed off its LTP in June, he said.
Barry said it didn’t add up and the minister and DIA officials needed to explain.
“The best thing I think they could do is to release that advice so other councils who actually have been forced to fund their water infrastructure in a similar way can understand it better.”
Asked what the split was between rates and debt funding for water infrastructure at his own council, Barry said he didn’t have those numbers to hand.
“You could probably point to a number of councils who look to take a range of different approaches similar to this around the country.
“A lot of that has been driven by the challenging position councils are in generally and not having the financial means or tools to be able to do it any different.”
Wellington Mayor Tory Whanau has said she does not accept there has been financial mismanagement at the council regarding water infrastructure investment.
“We fund water the same as every other council across Aotearoa and that’s through rates funding as well as use of debt funding but we’re also committed to the regional model with the rest of the Wellington region just like the minister would like,” she said.
“I’d also add that we have put in a further $1.8 billion in our LTP for water infrastructure – we don’t intend on changing that but I look forward to working constructively with the minister to work that through.”
Victoria University law professor Dean Knight told the Herald the grounds identified by Brown did not seem to justify an observer.
“For me... it looks like the ministers are glueing together potential problems to try to reverse engineer a problem of the level of significance that might hit the constitutional threshold,” Knight said.
He said the way water funding was paid for was a “policy question on which reasonable people will differ”.
Whether the council was making the right or wrong financial decision in terms of how it paid for water investment was ultimately its choice to make.
“It’s a policy or ideological problem, it’s not a dysfunctional matter of governance,” Knight said.
Knight said the intervention seemed “political”.
A Crown observer has two main functions, gathering information from the council for the Government, and offering advice and guidance to the council.
Knight said the terms of reference for the Wellington City Council observer place “heavy emphasis on advice and guidance”.
“They’re quite muscular,” Knight said.
Knight said there was good reason to believe the council’s problems could be worked through without an observer and inserting one on the council risked “the ideology of the Government being given disproportionate weight in discussions and deliberation, especially because it looks like that the quibbles with what’s going on are actually more about ideology and and a particular view about how balance sheets will be managed rather than fundamental questions of governance”.