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Papers released last month revealed Cabinet had agreed in June to pursue an "all-in legislated" reform strategy, knowing that achieving the benefit of reforms would, in practice, require eliminating the possibility of opting out.
The papers showed although the strategy had been agreed, a final confirmation would be delayed "following a short period of socialising the policy proposals and final support package with the local government sector".
Mahuta told RNZ today it had been a long process, but she stood by the way she handled councils and consultation.
"I believe I have acted in good faith... this is a four-year conversation with the sector, at the very beginning we knew very little about the extent of the challenge and as we worked our way through gaining greater visibility over the extent of the challenge, gaining greater visibility over what solutions could look like and taking on board views from the sector.
"We've moved from an opt-in, opt-out scenario to actually 'the case for change is compelling' and the sector knows that. This challenge has been around for at least 20 years so I do believe I have acted in good faith in terms of working with the sector towards a solution."
Whangārei District mayor Sheryl Mai said a mandatory approach had been signalled as a possibility, but councils had been told the opt-in approach would be at least maintained until the Water Services Bill was put to Cabinet.
An Ashburton councillor described the proposals as a farce after the Cabinet paper's release, a view echoed by district mayor Neil Brown "if found to be true".
Mahuta maintained the decision had not already been made when consultation was carried out.
"That is not the case... what ended up happening - and this has been the case all the way through - is that I have remained very closely aligned to conversations with Local Government New Zealand (LGNZ) as well as our steering group, which involved councils, to say 'as we're working through these options - and scale and aggregation was always on the table - that in order for that to work we needed to ensure that all councils would participate in the reform programme'.
"So I think it's a little bit disingenuous for some councils to say they never knew, because I know that my engagement with Local Government New Zealand and our steering group had always contemplated a level of aggregation."
The agreement with LGNZ included a clause requiring the group not to actively oppose such a decision, though individual mayors could do so.
LGNZ and the Government also signed a non-disclosure agreement about some details.
Councils' response to the proposed reforms during the consultation period was largely opposed.
Mahuta said the working group set up after the consultation period was working on the aspects of the reform the sector had concerns with.
Later, under questioning in the House, she repeated her assertions.
"The option to have a legislated all-in approach was signalled as early as December 2020 following a Cabinet decision that was publicly released... I can also confirm that to ensure the success of the three waters reform and that it will benefit every community and all ratepayers, an all-in approach was always an option and factored into an aggregated model of water services delivery.
"Furthermore the government didn't make a final decision to progress with the reform on a legislated all-in basis until the 18th of October, 2021, following the local government conference and the eight-week engagement period to ensure feedback from the sector," she said.
Draft legislation has been released, and its introduction has been delayed to February.
Some 23 mayors have formed a group to further voice their opposition to the reforms.
Mahuta said she would continue to engage with the sector in good faith.
"I have and I continue to. And no matter how difficult the challenge is, it's my strong view that engagement with the local government sector is a critical part of trying to find a solution to a really difficult challenge. I will not close my doors to engagement."
She said National had no plan to resolve the challenge of three waters, and finished her speech with a Christmas song.
"This government wants to ensure that we reach a point where on the first day of Christmas, all communities and all ratepayers get 'clean drinking water, world-class water infrastructure, affordable water rates, professional governance entities, beaches we can swim in, debt off council books, and a pūkeko in a ponga tree'."