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Catch-up Money

Tom Belford01 April 2018

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Money – specifically, ratepayer money – is the hot topic of the day as the region’s five councils each conduct public consultation on their long term plans (LTPs).

LTPs are the vehicles that attach funding to councils’ programme priorities, with particular attention to the first three years of each ten-year cycle. This year, the key period is FY2018/19 through FY20/21. All LTPs must be formally adopted by 30 June 2018.

Generally, councils are loathe to increase rates beyond the rate of inflation. But in this cycle, it appears a new spirit of political candour has taken over, as our councils face up to the reality that throughout the region we have under-invested in critical infrastructure.

All of our territorial authorities (TAs) are marked by woeful neglect with respect to infrastructure issues. And that’s why our infrastructure sucks across the region. And I’m zeroing in here especially on the ‘three waters’ as our councils refer to them – drinking water, stormwater, and domestic and industrial wastewater.

As a ratepayer, you might think that ensuring these delivery and removal systems are in dependable working order – keeping the nasties from flowing into our stomachs, streets, waterways, estuaries and Bay – was a main function of your territorial authorities.

For years council staffs have reassured us that robust ‘asset management’ plans are in place, with requisite funding, ensuring that all the pipes and pumps and treatments are fit for purpose and replaced when they need to be.

But what a joke that has been proven to be.

Leader in CHB

The CHB District Council, under its new, politically brave leader, Mayor Alex Walker, is most forthright in terms of ‘speaking the truth’ to its ratepayers. CHB’s LTP contemplates $30 million of capital investment in water treatment and delivery infrastructure over the next ten years. And that’s the local body with the smallest rating base in Hawke’s Bay.

To help kick-start the investment, CHBDC is testing two options – an earmarked rate adding $49 to every ratepayer’s charge in 2018/19, rising to $57 in Year 3; or a bolder ask of $73, rising to $85 in the third year.

Recently, Mayor Walker penned a remarkable Talking Point – ‘Infrastructure needs to be priority’ – in Hawke’s Bay Today. Remarkable for its honest assessment of CHB’s situation. She wrote …

“I am proud to say that our council is aiming to take a pro-active stance to the plight of ageing water infrastructure that is plaguing all councils and communities … These are the issues we need to invest in today to ensure that our children and grandchildren are not dealing with even bigger problems left by us.

“The sad truth is that adequate renewal and investment in core infrastructure for most smaller councils, like CHB, has never been possible due to affordability constraints. And our small district is facing the consequences of that.”

After detailing the infirmities of CHB’s water systems, she observes …

“None of this is good enough. And we can’t keep our heads in the sand. For our district to thrive, and even to survive, we have to take this seriously.”

Amen!

Hastings scrambles

In Hastings, water infrastructure is also getting overdue attention. But it’s hard to credit local political leadership here; HDC was shaken out of its doldrums by a Water Inquiry led from above.

The Hastings Council will spend $10 million on one project alone – building a new water main from Hastings (Heretaunga East and Sylvan Road) to Havelock North (Napier Road and Karanema Drive).

This will complement an existing water main to bring adequate drinking water to Havelock, replacing the ill-fated Brookvale bores that caused the gastro crisis. A move the Yule regime resisted for years, despite the bores being implicated in a similar 1998 water contamination event.

But that’s not the full extent of HDC’s projected water investments, which will reach $38 million, including UV treatment and chlorination of all ten HDC water supplies and investigation of new water sources, on top of $12 million on improvements spent thus far. Initiatives to date include the UV plant for Brookvale 3 bore ($800,000) and the purchase of $1.5 million on pipes for the first new connection between Hastings and Havelock North. Eight new staff are now employed in the water team.

For residents connected to the Hastings water system, the LTP proposes a targeted water rate of $100 per household per year for two years, and $50 in year three.

And this overdue attention to water needs sits alongside other major civic investments, such as the Opera House and Plaza refurbishment, bridge strengthening and investing in “central city vibrancy”.

Third World Napier 

Here’s a city mainly below sea level, 75% of whose storm and wastewater must be pumped into the Bay or Ahuriri Estuary on a good day. But bring a bad rain and this wastewater comes up through the manholes.

As Napier’s council has found more and more baubles to build, its infrastructure has descended to Third World status.

What else can be said about an urban water system that offers no choice but to flush its raw wastewater into one of the most ecologically important estuaries in the nation?! This is precisely what happened last April – 2.5 million litres of raw wastewater pumped into the Ahuriri Estuary.

Says the manager in charge, “mitigating risks to human health will always take priority over the condition of the estuary environment”.

Is relief in sight? Not anytime soon. One of the problems is that the outfall from Napier’s sewage treatment plant, which dumps ‘treated’ water into the Bay, only works at 80% of capacity. NCC has spent about $650,000, so far unsuccessfully, to fix the outfall, with plans to spend another similar amount.

Ironically, a tradewaste pipeline that also feeds directly into the outfall and would compound its inadequacy is currently out of commission because it’s blocked with fats! So where does that tradewaste go … into the main wastewater network.

The new NCC infrastructure manager, who has inherited a shambles, promises, “At the present time our water specialists are prioritizing urgent upgrades to our drinking water network. Wastewater is on the radar, of course, and we will continue to work towards coming up with a successful long-term solution for our network.”

First up over the next four years will be $16.4 million to upgrade the current water treatment system, build two new treatment plants in Taradale and Awatoto, replace four below-ground bores, make improvements to Napier’s reservoirs, and improve flow to them.

Over the next 30 years, NCC now projects spending $77.4 million on improving its water supply systems, and another $86.8 million on stormwater improvements.

Meantime, here’s a solution: why not a moratorium on new home building consents in Napier until the wastewater system can handle those already flushing.

As regional councillor Rick Barker commented, “We’ve had all these huge capital investments considered which are salutes to the greatness of  the current officeholders but do nothing for the treatment of sewage into the estuary when there is a moderate amount of rain. Something needs to change here.”

One prod for change he cheekily suggested … if sewage indeed flooded the streets of Taradale, perhaps politicians would mobilise!

More recently than the April episode, human sewage contaminating mussels, with serious illnesses resulting in August and September. Mystery E.coli in the drinking water. Surprise water restrictions.

So let’s build a $45 million aquarium! At least it’s water related.

Natural infrastructure

The infrastructure the Regional Council deals with is only partly ‘engineering’ and ‘hard structures’ (stopbanks, port); the focus of its stewardship role is aquifers and fresh water, soil, air, biodiversity and the near-shore marine environment.

But just as with the water mains, municipal bores, pumping stations and treatment plants for which our TAs are responsible, our natural infrastructure has been neglected too long as well. There is heaps of catch-up work to be done.

Recognising this, the Regional Council’s LTP proposes a 19% rate increase in its first year, with 6% increases in the two following years. One-fifth of the increase reflects HBRC’s agreement to take over from the TAs the total funding of civil defence for the region (your TAs should be showing a corresponding savings in their rates). The other four-fifths funds a major strengthening of our commitment to the environment.

As HBRC chairman Rex Graham has written, “Many of our rivers, streams, lakes and estuaries are a mess. It’s clear to us that fixing the issues in our environment needs a step-change approach. Our community is impatient for change …”

In fairness, the percentages by themselves are misleading, as they apply to a rather small existing base revenue, as indicated by the following chart. Across the region, the TA rates ‘take’ is 7 to 9 times that of the Regional Council, whose responsibilities are no less demanding.

Council rates comparison

Thus, for the average ratepayer, the first-year HBRC rate increase amounts to about $50 dollars … or $1 per week. By comparison, a 3% increase for Hastings or Napier Councils would be roughly $67 and $60 respectively. Moreover, as noted above for CHB and Hastings, other councils will use additional targeted rates to finance their water infrastructure costs – $49 (or $73) per ratepayer for CHB, $100 for HDC.

Last year, more than 2,000 residents responded to an HBRC poll regarding the ‘step-change’ in environmental investment the new council was proposing in its Annual Plan, intended to give a ‘kick-start’ to a more ambitious environmental programme – 69% supported spending more on waterways and aquifers, 45% supported spending more on protecting our marine environment, and 41% on enhancing native species and fighting pests.

Numerous national surveys clearly indicate that the ratepayers of Hawke’s Bay are in synch with the rest of New Zealand. For example, a recent Colmar-Brunton survey reports that two of the top five goals important to Kiwis are climate action and clean water and sanitation.

The bottomline is that if our community wants …

• Clean, safe freshwater

• Clean, safe and sustainable aquifers

• Protection of at-risk native species

• Pro-active response to climate change

• More riparian planting and afforestation

• Accurate monitoring of environmental health

• Vigorous enforcement of environmental rules

Then we need to get serious about committing the required resources.

Take just one example of HBRC’s ‘infrastructure’ challenge – soil loss. Around 7.6 million tonnes of soil are lost from Hawke’s Bay land every year, mainly through waterways. The loss of this ‘natural capital’ is bad enough in its own right in terms of productivity, but the accumulation of the resulting silt is deadly (that’s not an over-statement) to every water habitat – to our rivers and streams, our coastal estuaries, and ultimately Hawke Bay itself.

Arguably there is no single investment that would benefit our environment more than retaining soil … and the answer to that is planting trees on both public and private lands. Moreover, planting trees of all varieties at scale would vastly diminish our region’s carbon footprint (as the trees, and healthier soil, sequester carbon), increase water retention, and restore biodiversity-enhancing habitat. And if we’re clever enough, we might even be able to put wood waste from logging to smarter clean energy and fertiliser use as well.

Can you think of a better win, win, win, win scenario?

That’s why the HBRC’s LTP is proposing to borrow $30 million over ten years to fund riparian planting and maintenance of planted areas on a shared cost basis (75% public, 25% private).

Moreover, the economic benefits of tree planting are so great (including carbon credits) that HBRC plans to progress a scheme for massive afforestation throughout Hawke’s Bay … in this case co-funded through an HBRC investment vehicle, iwi, and central government (target: $200 million). The goal here is to reap environmental benefits as well as a strong commercial return that can provide stable future funding for the Council’s environmental work.

Other components of the HBRC proposed LTP provide for better farm planning and resilience, marine research, extending predator control (e.g., feral cats), addressing biodiversity hotspots, adding regulatory/enforcement staff, and a ‘Sustainable Homes’ loan programme to help homeowners make investments in solar, domestic water storage and modern septic systems (100% cost recoverable, just as we presently do with clean heat and insulation investments).

Then there’s the Port

Complicating the Regional Council’s long-term funding strategy and capacity is its wholly-owned Napier Port – the Regional Council’s most obvious infrastructure investment. Currently, yearly dividends from the Port fund around 22% of HBRC’s operating costs.

However, the Port is at a financial crossroads, where maintaining the status quo is simply not an option.

The key issues to address are: 1) future-proofing the Port’s own infrastructure so that it remains competitive in the NZ and global sea transportation system; 2) de-risking the HBRC’s investment in the Port (think earthquake, portfolio concentration), while preserving a funding resource; and 3) guaranteeing local control of the Port as the strategic asset that provides the essential gateway for our region’s export economy.

To simplify: Secure capital. Maintain control. De-risk and wean HBRC.

A capital review committee (including external advisors) has examined the situation from all angles and in December issued a draft report outlining the issues and options.

The fundamentals seem clear:

• The Port requires a sizable capital infusion – estimated up to $275 million over the next ten years – if it and the region’s exporters are to grow together; but the scale required precludes borrowing (certainly not the totality).

• External capital is available through various options that diminish 100% HBRC ownership, but do not give away control.

• Prudence suggests that over time HBRC should reduce its reliance on Port dividends for operating funds (instead earmarking any dividends for long-term strategic investments, like afforestation).

So far HBRC has resolved to:

• Not to provide further capital to meet Napier Port’s growth needs;

• Not to increase debt to imprudent levels on Napier Port’s balance sheet;

• To maintain dividend income from Napier Port; and,

• Not to sell strategic assets to fund business as usual operating costs.

That leaves these options are on the table:

1. The Port increases its prices or introduces a levy on Port users to fund Port developments;

2. Council charges ratepayers a special levy to fund Port developments;

3. Introduce a minority investment partner to the Port;

4. The Port is listed on the NZX, with Council retaining a majority ownership;

5. The Port is leased to another party, with Council maintaining ownership of Port assets.

Where does this leave the Regional Council’s draft LTP? It basically ‘straight-lines’ the current Port dividend at around $10 million for the first three years.

All of these issues are discussed in the Financial Strategy section of the Regional Council’s LTP and I urge you to digest and comment. That said, because the Port is deemed a ‘strategic asset’ of the Council, any final proposal to alter ownership structure would be subject to its own public consultation process at a later date.

Gut check time

No council or individual councillor lightly goes to their electorate asking for a rate increase … let alone the first-year increase of 14% (plus 5% for region-wide civil defence) proposed by HBRC.

However, I think it’s gut check time, for each of our councils and their ratepayers.

Collectively, we have let too much slide for too long. Yes … opera house restoration, museums, CBD projects, tourism, swimming pools, sport facilities and other ‘big ticket’ items might have their place in the funding pie. And submitters to the various LTPs should speak their minds on these subjects.

But, I submit, we have left our vital infrastructure – especially our water systems and our natural capital – decay far too long. Frankly any councillor who has served more than ten years should be embarrassed for allowing this state of affairs. For too often previous councils have chosen to fund the bauble or the monument, instead of the core fundamentals.

That cannot continue. It’s beginning to bite us in the butt. Napier’s ‘put it in the street or put in the estuary’ conundrum is perhaps the most striking example, but not the only one … every council in Hawke’s Bay (and probably NZ) has one. And these are not failures of know-how, they’ve been failures of political priority.

‘Infrastructure’ – whether hard engineering or natural capital – is the legacy we will leave our children and grandchildren. We have a moral obligation to do better. Right now we’re leaving, as Rex Graham says, “a mess”.

Beyond the moral challenge we have, happily, a very immediate practical – and fortunate – opportunity.

That is, a government that intends to spend $1 billion on regional economic development … precisely in areas like afforestation and other infrastructure. So now is the time for Hawke’s Bay ratepayers to show our readiness to play our part with ambitious but realistic initiatives that win some of that co-investment, as Stuart Nash urges in his column in this BayBuzz.

The co-investment opportunity makes this set of LTPs more urgent than ever. Whatever your nervousness about rate increases might be – whether 1%, 5% or 15% – I urge you to look closely at what infrastructure investment you see planned in your council’s LTP, and demand assurance that it’s adequate to meet manifest need.

If you’ve never weighed in on council LTPs before, now’s the time! And here’s the schedule. Check you council’s website for details of the plans themselves, scheduled public forums, online submission forms and other ways to get involved.

Tom Belford01 April 2018

BB40

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