In-house Delivery

This option would see Napier City Council continuing to manage and deliver Napier’s water services but under a different set of regulations. This can be described as the ‘new status quo’ because of the various additional challenges to navigate for this model to meet Government requirements under Local Water Done Well. This option is financially difficult to achieve for a number of reasons, largely due to the new financial sustainability requirements.

Councils are legally required to demonstrate this model as a baseline. It is more likely that Government considers in-house delivery is less able to meet legislative requirements for financial sustainability over the longer term.

Under the Local Water Done Well legislation, we will be required to ‘ringfence’ all money collected and spent on water services. Essentially we will have to separate all water-related revenue and costs from our other council services and set up a new business unit within the Council for water delivery. This ensures the community understands the true cost of their water services.

Currently, we operate in a way that allows some council-delivered services to indirectly help fund others. For water services in particular, we rely on revenue from other areas to meet the legal requirements for borrowing money for large construction projects. By needing to ringfence this money in the future, we will have no choice other than to significantly increase the cost to community for water to fund the required level of water services.

If we continue with an in-house water services delivery model, under the new legislation we will have less capacity to borrow any additional money for water projects. We would have to work within our existing borrowing restrictions, which will be tough when there will be new regulatory requirements to meet. For council-controlled organisations, the legislation allows water borrowing to be separated from council borrowing, essentially creating higher borrowing limits to maintain and upgrade water infrastructure.

There are strict new and existing rules and regulations around water services delivery, and our water infrastructure needs to be upgraded in a timely manner to ensure we continue to meet those. Therefore, despite the limited borrowing cap, council would need to keep investing in water projects, meaning higher water rates than under the Regional CCO option for delivering the same amount of investment. It is also very likely that this could mean we wouldn’t have enough money to meet our community’s expectations in maintaining and investing in other areas such as transport, waste management, housing, parks and libraries, and be limited in our ability to respond to emergencies. In the short term, continuing to deliver water services in-house may seem affordable as Council wouldn’t need to factor in transition costs. An in-house model, however, will place significant pressure on other Council services and may affect service levels for other activities as increased water investment is required.

As a council we would need to spend time considering different ways of reducing spending and get your feedback if these things were to change service levels on a significant scale. Importantly, this option is less likely to be considered by Government to meet its new legal requirements for water services. 

Another requirement under Local Water Done Well is that we will need to prove financial sustainability for the future, over the long term. This option is not affordable for our council nor our residents. Our community would face major financial and, potentially, social impacts because of changing service levels and reduced investment in other council areas.

We’d also risk not meeting legal requirements for other council services if we reduced investment in other key infrastructure areas. Lastly, the Government has indicated a preference for councils to work collaboratively to share costs, resources and efficiencies. By working regionally we can better achieve benefits of scale for our community, and meet the objectives set out by central government.

Our modelling shows this is not the most affordable way to deliver water services for our communities in the future. By 2034 residents could expect to pay $300 more per year for water services delivery compared to a multi-council CCO model, and very similar compared to a single-council CCO model.

Despite water being its own business unit in Council, all water-related debt remains with Council. This means water debt will contribute to all-of-council debt and be measured by LGFA against the current LGFA net debt-revenue limit of 175%. Modelling suggests under an in-house delivery option, net debt/revenue will breach our covenant level by 2031 putting future investment at risk.