Local Government Magazine
3 Waters

Long Road Ahead

Shaping future water and roads services

Local authorities need to manage the challenges of delivering future water and roads services, says the OAG’s Bruce Robertson.

Figure 1. Forecast annual renewals expenditure as a percentage of the depreciation expense, 2013 to 2022.
Figure 1. Forecast annual renewals expenditure as a percentage of the depreciation expense, 2013 to 2022.

I’ve been heartened by the reaction that we’ve had to our report Water and roads: Funding and management challenges. As you’ll know if you’ve seen the report, the Auditor-General has a strong message for local government – step up. There are challenges ahead and they need to be met. Most importantly, the time to be thinking and preparing is now.

These comments don’t relate to the past work of local authorities but to the challenges that local authorities’ own data suggest lie ahead. There’s also supporting evidence in our two graphs (below) which show a downward trend in forecast annual expenditure and the widening gap between depreciation and renewals.

When combined with the helpful historical perspective from the New Zealand Institute of Economic Research about renewal “echoes” and the dynamics of regional economies and population, you get the picture.

The challenge is about continuing to manage service delivery to your communities in the future.

We see the “step up” necessary in three aspects:

  • developing and protecting reliable data on which modelling the future can be based;
  • integrating the key asset management planning disciplines with financial management − the two are “joined at the hip”; and
  • enhancing the management capability within councils to plan ahead for these challenges − asset management requires good long-term thinkers as well as smart operators of today’s asset systems.

We’ve talked a lot to the sector while we prepared the report and after its release, and we’re keen to continue the conversation.

Figure 2. Forecast accumulated renewals expenditure and depreciation.
Figure 2. Forecast accumulated renewals expenditure and depreciation.

We called on a panel of experts – drawn from within the sector, the consulting community, central government and academia – to discuss the matters highlighted in our then draft report. Their opinion was that they could see three renewal “echoes” looming:

  • Roading assets are now approaching their second and third renewal cycles.
  • Bridges are next approaching a renewal cycle in 2025.
  • Although more difficult to predict because of some of the maintenance and renewal strategies being used, the next major renewal phase is likely to take place during 2040 to 2060.

And, of course, there’s the overlay of regional demographics, our economy and environmental standards.

Figure 3. Aspects of asset management that contribute to good infrastructure strategy.
Figure 3. Aspects of asset management that contribute to good infrastructure strategy.

Should we be alarmed? Probably not, but it is time to start (if you haven’t) and continue (if you have) focusing on how your local authority will deal with its specific challenges of managing service delivery to your communities into the future. Without doubt, all local authorities face these challenges.

As an aside, I note that the findings of our report are almost completely consistent with Local Government New Zealand’s recently published paper Exploring the issues facing New Zealand’s water, wastewater and stormwater sector.

This highlights the value of the current long-term planning around and the introduction of 30-year infrastructure strategies. Those 30-year strategies will be for 2015 to 2045 – a period when our expert panel suggests that major renewal cycles will, or could, kick in.

How you approach this now is critical.

We had a go at showing how we see asset management and financial strategy interacting to contribute to good infrastructure strategy (see figure 3).

The approach shown in the diagram emphasises the importance of quality data to feed into scenarios, consequences and prioritising of options in the infrastructure strategy. It also shows the pivotal input of (external) contextual matters and the financial strategy.

If you’re an accountant, look closely at the bottom line – and note the need to join deterioration (or, if you like, renewal profiles) with your estimate of depreciation.

Of course, the challenge for water and road planners goes way beyond the immediate 30-year (2015-45) infrastructure strategy – it lasts a lifetime.

We welcome how our report has been received and the discussion that it has encouraged. We hope that the debate continues and focuses on the key matters.

We welcome further comment and look forward to working with you as you meet the challenge of delivering service to your communities through your water and road networks.

    Bruce Robertson is assistant auditor-general, local government and heads the Office of the Auditor-General’s local government group.

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