Hamilton City Council says it is facing significant changes because incorporating water services costs back into its budgets could massively affect potential rates.

In 2023, the previous Government passed Three Waters legislation to remove the costs and responsibility for water services delivery from councils and transfer them to new organisations in stages.

The council was to join a new entity in 2025, and legislation prevented it from including the costs of water services delivery beyond Year 2 of the draft long-term plan.

This meant that in November when the council set its long-term draft budgets, it excluded all water service costs from rates bills from 2025 to 2026.

In December, the new Government said it would repeal the reform legislation and instructed councils to include water service delivery in its Long-Term Plans, pending repeal legislation expected later this month.

Hamilton City Council said returning the costs of water services changes the figures to four consecutive years of 14.1pc rates rises. Photo / Hamilton City Council

This has added hundreds of millions of dollars in costs, and an urgent revision, to the previous draft budgets, the council said.

At a briefing this week, council staff provided detailed financial models that showed bringing those costs into the draft budget, with no other changes, would mean sharp increases in projected rates in years 2 to 5 in the plan.

The original rates increases proposed last year from Years 2 to 5 were 12.9 and 8.7 per cent, and then two years at 6.3 per cent.

Returning the costs of water services changed the figures to four consecutive years of 14.1 per cent rises.

Both sets of figures predicted a 25.5 per cent increase in Year 1.

Hamilton mayor Paula Southgate said the impact was massive for the council’s budgets.

She said water services made up around 30 per cent of their operating costs and capital investment.

“Including water service delivery in our Long-Term Plan beyond year 2 significantly changes our financial projections, placing further cost pressure on the council.

“I’ve said for some time that the funding model for councils, for the huge infrastructure challenges we face, is fundamentally broken and unsustainable. Adding the cost of water services back into councils’ Long-Term Plans brings this collective challenge front and centre. Waters infrastructure is expensive, especially for a fast-growing city.”

The key contributor for the rates projections was that the council was required to maintain a debt-to-revenue ratio, which was set by the Local Government Funding Agency.

The council can borrow more to fund the infrastructure investment needed, but needed to increase revenue, largely from rates, to remain within the limits set by the agency.

“We need new ways of working between Local and Central Government to support large-scale investment, drive economic development and growth, and better meet the needs of the community,” Southgate said.

“I will continue to raise this with the Minister for Local Government. In the meantime, my focus is finding the right solution for Hamilton.

“This means finding a balance between affordability and providing sustainable and resilient water infrastructure for our rapidly growing city. But most importantly, we need to have honest conversations with our communities.”

Hamilton City Council would now reconsider its Long-Term Plan and the consequential impacts on rates.

The council will be asked to adopt an updated draft Long-Term Plan at the council meeting on February 20, ahead of community consultation in March and April.