Owning pipes and disowning constitutions

Dr Eric Crampton
NZ Herald
15 December, 2022

Bad constitutional processes are necessarily worse than bad policy processes.

Constitutions, whether written or unwritten, are our basic rules about how we make laws and elect representatives. Constitutional change deserves extensive deliberation and widespread consensus.

Sneaking through a constitutional change, under urgency, on a Supplementary Order Paper, with barely a mention, is its own unique kind of bad. It disowned important parts of our constitutional heritage.

But the constitutional issue was not the only problem. Section 116 of the Three Waters legislation, which Minister Mahuta sought to entrench, will still cause problems. It apparently prohibits water services entities from divesting ownership, even for stranded or obsolete assets, and devolving control of water service infrastructure to firms with greater expertise.

Today’s councils and tomorrow’s water service entities can have good reasons for divesting parts of their networks or for handing over control to experts in service delivery.

Section 166 even seems to prohibit a promising option for councils responding to sea level rise and other risks like river flooding. This aspect provides a nice case study of what can go wrong with prohibitions like those in Section 166 of the government’s Bill.

Global warming lifts sea levels, though it’s hard to tell how quickly and to what extent.

Even if you are convinced that an area will be underwater in 50 years, building there could still be worthwhile. It’s enough time for today’s teenagers to play with their eventual grandchildren at a family bach by the sea, before having to move the house.

If people wanted to build on their own land by the sea at their own expense, and bear their own risk, it should be nobody’s business but their own.

But sea level rise means hard-to-quantify risk for councils. And risk makes councils say no.

If developers propose new sea-side buildings, councils risk being stuck with enormous cost in a few decades’ time. Owners then could demand expensive flood-protection works. And the cost of providing water and roading services could skyrocket.

So councils have been making it harder for people to build near the sea. They have also been thinking about how to make people move away from places where services are likely to get expensive.

There is a better way.

Councils could designate areas where they would stop providing infrastructure services if flooding events became too frequent. Ownership of and responsibility for the pipes and roads could shift from the council to a body corporate of the serviced properties. Councils would abate rates in those areas to reflect diminished service provision.

That kind of managed retreat would let owners of vulnerable property decide whether they wished to stay there, at their own cost, or to leave.

Councils could then be a lot less worried about letting people build and live in places that might be underwater by 2050, 2100, or later. The cost would not wind up falling on councils. People could make their own bets about the pace of sea-level rise, their own assessments of the value they get from beachside living, and take their own risks at their own expense.

Section 166 of the Act prohibits it.

Section 116 (2)(b) prevents water service entities from divesting ownership and interest in water services in an area. And 2(c) says they’re not allowed to lose control or otherwise dispose of infrastructure necessary for providing water services.

This kind of divestiture otherwise is fairly common. Councils have formal processes for abandoning roads if, for example, population decline means that a rural road has effectively become a very long driveway. Responsibility for the road then shifts to its main user. The new Act prohibits the same path for water.

Blocking valuable options is a bad idea.

Councils sometimes maintain ownership of an asset while outsourcing management. Veolia operates the retail water and wastewater infrastructure in Papakura under a franchise agreement with Watercare Services. The legislation might prohibit those kinds of arrangements.

Other times, councils will bring in partners who provide capital as well as expertise. Wellington Airport is partially owned by Infratil. Vector, the Auckland lines company, is mostly privately owned; councils have a minority interest. Port of Tauranga is arguably New Zealand’s most successful port and is only 54% owned by Bay of Plenty Regional Council. Wellington’s electricity network has been privately owned for decades.

In all of these kinds of cases, private owners bring valuable expertise and capital. And Commerce Commission oversight curbs monopoly pricing. Rate of return regulation on profit-seeking owners provides reasonable incentive to build infrastructure. That same regulation on the water service entities, required to not seek profits, may not have the same laudable result.

Minister Mahuta did violence to our constitutional traditions while attempting to entrench Section 116. It was the most important problem with that section. But it was not the only problem.

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