A 25.8 per cent water rates increase that was projected to hit Aucklanders later this year has been avoided after an agreement was struck between the Government and Auckland Council.

Aucklanders will see an increase of 7.2 per cent to water rates under a new model for Watercare that will be legislated for in a new bill introduced by Local Government Minister Simeon Brown.

Brown made the announcement at a press conference with Auckland Mayor Wayne Brown and Prime Minister Christopher Luxon at the Central Interceptor construction site in Māngere today, with Luxon hailing the agreement as an example of central and local governments working well together.

“Under the Local Water Done Well solution we have announced today, Aucklanders will avoid the 25.8 per cent water rate increases previously proposed by Watercare,” Simeon Brown said.

Local Water Done Well is the Government’s water reform plan introduced after Labour’s Three Waters reforms were scrapped.

“We have worked closely with Mayor Brown and Auckland Council and are thrilled to announce that Watercare’s more financially sustainable model will ensure water rates remain affordable both now and into the future,” Simeon Brown said.

The new model means Watercare will be able to borrow more money for long-term investment in water infrastructure and spread the borrowing over a longer period, rather than passing the cost on to ratepayers.

“The idea of water rates increasing by more than a quarter in the year ahead was unacceptable,” Wayne Brown said.

“I have always said that this was a balance sheet issue and there was a simple fix,“ said Brown, adding that Wellington did not need to create complicated new structures, merge Auckland with other councils, and have stormwater taken away from the council.

“It means those 25 per cent price hikes are off the table and Watercare can keep on spending on its capital programme for drinking water and wastewater, and things like the Central Interceptor.

“It’s a simple solution, proposed by Auckland Council, and shows that Wellington is listening to us,” Brown said.

Under the solution, Watercare will remain owned and controlled by the council, but its debt will be removed from the council’s balance sheet and the council will no longer be able to provide financial support.

The solution has been approved by credit agencies and will lead to Watercare having a lower credit rating than the council, and paying slightly higher interest rates on its debt.

Neither the council nor the Crown will be liable for a bailout if Watercare gets into financial trouble. Simeon Brown said Watercare is a successful organisation with 700,000 connections and in a strong position.

The minister, however, said a 46 per cent rise in running costs by Watercare over the past five years was “unacceptable” and the Government had agreed with the mayor for a Crown monitor to be appointed to the water business to ensure Aucklanders get value for money.

The Local Government Water Services (Transitional Provisions) Bill is expected to be introduced this month.

More details on how other councils can finance themselves appropriately and access the long-term debt required for investment in water services infrastructure without passing on the cost to ratepayers will be outlined by the Government in coming months, Simeon Brown said.

Labour local government spokesman Kieran McAnulty. Photo / Warren Buckland

Labour’s local government spokesman Kieran McAnulty said what the Government has put forward today is a solution for Auckland, but it will not work elsewhere in the country.

“Auckland was always going to be the easiest to resolve because it has the largest population,” he said.

McAnulty said water prices would only have increased by 2 per cent under Labour’s reforms because the proposed Auckland/Northland entity would have had a higher credit rating and the cost of borrowing would be less.

Watercare chairwoman Margaret Devlin said the council-owned business has been talking with the council for many years about achieving financial independence and separating its finances.

As a result of today’s announcement, water-price rises will be held at 7.2 per cent for three years without cutting much-needed projects and maintenance, but infrastructure charges will rise by 14.4 per cent over the next three years, she said.

“As a result of this change, the average water bill will only go up by $97 in the next financial year ... a great outcome for Auckland,” Devlin said.

This article was originally published on the NZ Herald here.