Infrastructure

How ‘run to failure’ failed in Wellington

A prediction that councils have systematically under-invested in pipes by $6-7b is coming true in Wellington. Decades of choosing lower rates increases above investment is coming home to roost.

Mayor Andy Foster was talking to the Indian cricket team this week when he was told about another water leak in Wellington city.

Not at Island Bay, the site of a community uproar over water leaks. This one was at his house.

“I got a call from a neighbour saying ‘you’ve got a leak’ and there’s water going down the road,” Foster told Newsroom in an interview.

When the Wellington Water (WWL) contractor turned up he told the mayor that he had never seen this many leaks and pipe failures in his 30 years on the job. 

Foster, elected Mayor in October after 27 years on council, is now dealing with the political fallout from a litany of leaks that stretches well beyond his Karori property. 

As reported by Newsroom Pro some of his councillors have turned their sights on the region’s water CCO (council controlled organisation), Wellington Water, after a summer of sewerage failures. 

Foster’s situation isn’t unique. He is one of three newly elected mayors in the Wellington region to be hit with the prospect of a major unbudgeted-for infrastructure spend. 

Porirua Mayor Anita Baker’s council was presented with a $1.8b bill, over 20 years - six times the $300m originally forecast.

Hutt City Mayor Campbell Barry got off easy by comparison. WWL told him his council would need to spend an extra $270m over the next 10 years just to renew its existing network. That’s double what the city was last forecast to spend and doesn’t account for additional infrastructure for population growth. That estimate will come later. 

On the “run to failure”

The Wellington region’s water woes were predicted by an Office of the Auditor-General report in 2014 titled “Water and roads: Funding and management challenges” that covered the whole of the country.

"That approach of trying to fit long-term investment in infrastructure into an envelope, rather than saying 'hey, what is the issue we're trying to solve here', has meant that the right advice wasn't being received."

The Auditor-General said local councils saw infrastructure spending as a “nice to have” and had adopted a “run to failure” approach on infrastructure assets to keep rates down.

“[That] meant waiting until a component stopped working before replacing it, rather than replacing a component before it failed,” Lyn Provost, auditor-general at the time, wrote.

Barry put it another way. In the past Hutt City Council turned up to its CCO with a “funding envelope”, money they could afford to set aside for water infrastructure. WWL then had to work their asset investment plans around that. 

Water infrastructure planning had operated that way for years, he said.

"That approach of trying to fit long-term investment in infrastructure into an envelope, rather than saying 'hey, what is the issue we're trying to solve here', has meant that the right advice wasn't being received."

The $6-7 billion dollar hole

Provost wrote in 2014 that there was a “downward trend in asset reinvestment” in council budgets. She tracked the budgeted for gap between projected asset depreciation and asset reinvestment, and found a multi-billion dollar hole. 

No council in the major metropolitan areas of Auckland, Christchurch, Dunedin, or Hamilton had reinvested the full amount that they lost in asset depreciation ...

“If actual spending trends continue to match those forecast, we estimate that, by 2022, the gap between asset renewals expenditure and depreciation for the local government sector could be between $6 billion and $7 billion,” she wrote.

Water NZ tracked the same statistic in 2017 and 2018 across every council in New Zealand. No council in the major metropolitan areas of Auckland, Christchurch, Dunedin, or Hamilton had reinvested the full amount that they lost in asset depreciation during those years.

Councils are already set to spend more on infrastructure over the next decade than the last. 

Infometrics economist Brad Olsen said between 2009 and 2018 councils invested $10.7b in water assets. According to their long-term plans they planned to spend over $17b in the next decade. 

‘We’ll finally have to bite the bullet’

Baker has resigned herself to borrowing more and raising rates. She was presented with an estimate that rates would have to rise by almost double what she proposed at the election. 

"It could go back three or four mayors ago, they've all been going '100 years for the pipes'," Baker said.

"They haven't turned out to be fit for 100 years so I guess people weren't looking."

Foster disputed Water NZ data that showed Wellington had underspent every other metropolitan city in New Zealand on capital investment in its water networks. Other cities had big spends on reservoirs while Wellington didn't because it paid Greater Wellington Regional Council for its water.

"All I'm saying is, don't treat those numbers as gospel," Foster said.

He doesn't think it's a given that the city will have to budget for much more investment in water infrastructure than it already has.

However, he adds a caveat to that: population growth. 

During the 1990s and early 2000s Wellington had been able to grow its population while people reduced their water usage, he said. That wouldn't happen with the next batch of growth expected unless water metering was in place, and he foresaw a debate on that in the city's future.

"If you said we're expecting 50,000 to 80,000 people in the next 30 years, could our infrastructure cope with that? Of course it couldn't."

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