Paying for water services: Funding for water must flow from reservoir of general taxation

Niamh, Óisín and Cillian Reilly at St Mary's School Water Collection point in Drogheda when water was cut off during the summer.

With water charges a thing of the past, Caroline O’Doherty asks how we will finance Irish Water and essential infrastructural works.

THE decision to withdraw the criminal prosecution against the remaining Jobstown water protesters last week represented another shovelful of earth on the coffin of water charges.

It followed on from the acquittal of six of the protesters, including Solidarity TD Paul Murphy, after a lengthy trial during the summer. It comes as the Water Services Bill 2017 has started making its way through the Oireachtas where approval will “discontinue and extinguish liabilities in respect of charges imposed by Irish Water for the provision of water services to a dwelling”.

It happens in advance of the promised refunding of €179m in water charges to householders who already paid up. The debate appears over, the argument is lost, water charges are dead.

But it’s far from the end of the matter because the question of how to fund water services is very much alive.

Even if there had been a flow of revenue from domestic water charges, there would have been a shortfall compared with the amount of money needed for investment in the water services network. The shortfall figure is now just a larger one.

So at a time when just about every form of national infrastructure is underfunded, when the Government is torn between paying off debt and borrowing further for investment, when even the wildly overdue new national children’s hospital relies on a financial kick-start from the windfall proceeds from the sale of the National Lottery, how is water to get the attention, and money, it needs?

Misery

The misery that flows from a burst water mains was amply illustrated during the summer months.

Empty taps, flooded homes, torn up roads, business closures and endless trips to tankers for refills brought frustration spilling out on to large parts of Louth and Meath while neighbourhoods in Kerry, Mayo, Limerick, Galway, Monaghan and many other counties had their own less dramatic but inconvenient outages.

Irish Water managed to avoid a “told you so” tone in its commentary on the situation but even if the embattled utility had rubbed its corporate hands in glee at the appearance of evidence for its grim assessments of the dilapidated state of the water network, forgiveness would be in order.

It has told us so. Many times. In fact, it has told us worse. For not only is half of our expensively treated drinking water disappearing through leaky lead, asbestos and Victorian pipes that are on the verge of implosion, explosion or general disintegration, but 70% of our sewer network is also leaking.

Being flooded with drinking water is one form of misery. Being swamped with sewage is a horror on a different scale.

You could already be swimming in sewage, in fact, because one in three waste treatment plants can’t handle the amount of wastewater coming into them and so they pump some of it out into the sea untreated at 44 locations around the country.

Then there are the frequent, unplanned disasters. Kilkee in Co Clare may be synonymous with watersports but it has been plagued by spoilsports — most recently at the height of the last tourist season — when elevated bacteria levels prompted a ban on bathing that was observed faster than a shark warning on Amity Island.

Warnings

Irish Water’s customer care Twitter account daily sends out dozens of messages about burst mains, leak repairs and various other supply disruptions — many of them unscheduled.

Jerry Grant, the utility’s managing director, said in the last fortnight the number of burst pipes was running at 300 a month.

A notice that appears occasionally is a general message to all water users, delivered — apart from the use of social media language — in the style of a wartime public information notice. It says: “#DYK (did you know) by storing fresh water in easy-to-use containers, you can prepare for any unplanned water supply disruptions.”

Most likely we do know; we just wouldn’t have thought it necessary to stockpile water in the event that the taps run dry in a rain-soaked first world country in the year 2017.

Yet, despite every signpost pointing to the need for urgent and massive investment in water infrastructure, raising revenue by water charges is no longer an option.

So what happens now? Funding is secured up to the end of next year but where will the money come from after that? One answer — that it will come from general taxation as it always did prior to the failed attempt at imposing water charges — is simplistic because, for decades, even the financially buoyant ones, not enough has come from general taxation to do anything more than patch-up jobs that have left the network creaking.

Spending

According to Irish Water, before the utility came into being, spending on water averaged €423m per year over the period 2004 to 2009 and fell to €382m annually over the recession period 2010 to 2013.

It said at the outset of its operation in 2014 that it needed to spend on average €689m every year up to 2021 — 60%-80% more than in the previous decade.

A more recent estimate puts the scale of capital investment needed up to the end of 2021 at €5.5bn and €13bn over 20 years— as an absolute minimum.

And all that is quite apart from the €770m it takes to run the everyday services each year, a figure that is expected to increase annually for the next few years until the efficiencies of newer and better plant and equipment kick in. It will still remain a substantial sum, however, swallowing up most of the income Irish Water has from commercial water charges.

Up to now, the utility has been funded by a combination of state subventions, commercial water charges, domestic water charges (fleetingly) and loans from both commercial banks and the Ireland Strategic Investment Fund, what was formerly the National Pensions Reserve Fund.

The loans are short term and will be taken over by the State. Irish Water had expected to be able to avail of longer-term borrowings and more diverse sources of private finance once its revenue stream, ie, domestic water charges, was firmly established.

Borrowing

That was a major plank of its raison d’etre. Its business plan stated that one of the key benefits of its establishment as a standalone utility was: “Ability to borrow from international banking and capital markets, based on an economic regulatory model [i.e., charges] that is well known to investors.” It warned: “This is critical for the water sector to secure the necessary capital to invest in water infrastructure.”

In its presentation to the Oireachtas committee on the future funding of domestic water services early this year, Irish Water stressed that long-term certainty of funding was vital.

While it acknowledged that, in theory, the State should be able to borrow at more attractive interest rates than a semi-state — and so it would make more sense for the Government to borrow and pass on funding to Irish Water rather than for Irish Water to borrow directly — the projected savings on repayments (€13m per year) were most significant on short-term loans and diminished (to about €5m per year) over longer-term borrowing periods.

Irish Water’s concern was that even if the State borrowed long-term, it would make short-term decisions through the annual budget on how to distribute those borrowings.

“Many of the projects planned by Irish Water have multi-year planning and construction periods. Consequently, Irish Water will need to commit to capital expenditure on certain projects for periods of up to 10 years,” it said.

“Funding based on annual budget cycles would not meet the long-term funding needs of the business and would increase the risk of funds not be available to deliver the investment plans.

“There is undoubtedly increased risk to the funding of Irish Water if the majority of the overall funding requirements, both the revenue funding and the debt funding, was to come from the State, given the inevitable competition for funds from other State activities.”

Taoiseach Leo Varadkar said much the same during the summer: “Because Irish Water is now a state agency, it’s part of the State, it’s on the balance sheet. When Irish Water is looking for infrastructure, it has to go up against schools, up against hospitals, up against roads, and it’s much harder to get money in those circumstances.”

The expert commission on the funding of domestic public water services in Ireland which preceded the Oireachtas committee hearings was vague on how funding for Irish Water could be ring-fenced in those circumstances, concluding that while funding should come directly from the State: “Additional mechanisms should be considered to ensure that the necessary finance is guaranteed.”

The Oireachtas committee report was not much more enlightening: “The Committee recommends that following a review of feasible options including the Water Services Act 2007 and new legislation, if required, the Government must: a. Introduce measures to provide funding certainty for the water utility over a long-term multi-annual budgetary cycle dedicated from within existing general taxation.”

Detail

Measures, mechanisms and feasible options — all sound worthy but lack detail.

Then there’s the Water Services Bill 2017, working its way through the Oireachtas. It states little more than that Irish Water must submit to the relevant minister a “strategic funding plan” that “shall specify Irish Water’s opinion” on its estimated operating costs, capital expenditure and income.

The Government has been working on a 10-year capital plan for all forms of infrastructure due for publication by the end of the year which may contain some ideas about how the pot of investment money is to be sourced and split

In the meantime, Irish Water, referred questions about its future funding to the Department of Housing, Community and Local Government. Housing Minister Eoghan Murphy, in reply to a parliamentary question in the last fortnight, said only that the future funding of Irish Water would come from general taxation channelled through his department and a capital contribution from central funds.

None of which explains how the funding model for the future will be any different to that which has so disastrously failed to deliver on water infrastructure for decades.

The last drop of rancour may have been wrung out of the water charges debate, but when it comes to future funding, we’re only getting started.

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