Some rather concerning news has hit the headlines over the past day or two, about how Auckland Council is having to cover transport subsidies that NZTA would normally pay for – on the basis that NZTA will ‘pay the money back’ at some point in the next few years. This is elaborated further in this article:
The council will contribute $100 million extra to transport projects over the next two years as the NZ Transport Agency does not have the funds to cover it.
In return, the Transport Agency will increase its subsidy for Auckland projects in the 2013/14 and 2014/15 financial years.
Auckland Transport was approached about the loan mid-year and the council shortly after.
In a statement issued today, the council said it was “frontloading its share of funding to maintain momentum on key transport projects in Auckland”.
I first highlighted NZTA’s significant struggle to ‘pay their bills’ quite a number of months ago – based on NZTA board papers that I had acquired under the Official Information Act. This is what the NZTA was saying in July about their cashflow issues:
Somewhat disturbingly, it also seems that some accounting errors by the Ministry of Transport may have also contributed to NZTA’s financial position becoming so bad in recent times (from this July Board Paper):
Ultimately though, the reason NZTA are having financial problems is quite simple: people are driving less. If people drive less than expected, they buy less petrol than expected (or use less road-user charges), and therefore pay less petrol tax and road user charge. This means less money available for NZTA to spend on their projects. Delaying an increase to the fuel tax levy earlier this year most probably just added to these problems.
Reducing transport revenue will, I suspect, become a huge problem over the next few years for our transport plans – ultimately until we can transition towards some other form of transport funding mechanisms. As vehicles become more fuel efficient we’ll obviously need to shift more to a vehicle-distance based system, but if we continue to drive less then that won’t help either. (Fortunately, if we’re driving less then we shouldn’t need to expand our road network – although that logic seems beyond our government.)
I just hope NZTA is able to repay the money in the next few years. It’s not like Auckland Council really has hundreds of millions of dollars it can just give away.
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A couple of questions:
1. Could NLTF not have borrowed from the Crown, as it has done previously?
2. What interest rate is Auckland charging NZTA?
On 2. It appears the payback is through an increased assistance rate in the future so instead of the NZTA contributing 50% towards local projects they will contribute 60% (don’t know the exact figures). In a radionz interview I heard last night Stephen Town said the only other council that had the financial ability to do a similar deal was Christchurch but they obviously have a lot of other needs for that money. For all other regions they have effectively had to put projects on hold for a few years.
That’s great news!
So they can pay 60% of the CRL cost rather than just 50%.
I think we just saved a couple hundred million?
@Geoff
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… And it is so easy to overlook spending $180m like the MOT. I do it all the time.
Who borrows money at a higher rate- the Crown or Auckland Council? If it is the council you’d have to say its a dumb financial decision.
The Council, of course. As a rule, the smaller you are the more you pay to borrow the same sum of money. The Government has the whole country as “collateral”, whereas Auckland Council only has its own assets.
It’s an exceptionally dumb decision, and it’s even worse if the Council isn’t charging the Government a commercial rate of interest.
Were there questions in parliament from Labour on this? These are huge errors and someone has to be responsible. Auckland is going to be paying a price, probably in more expensive bus and train tickets. Fuckuppery as big as this shouldn’t go unnoticed or uncommented on.
Really the RoNS projects should be scaled back rather than sticking it to Auckland.
Parliament’s first day was yesterday. I’d be very surprised if they get to this before the end of the year.
“Were there questions in parliament from Labour on this?”
Phil Twyford is already asking the question, but apparently not yet in Parliament as such.
In a way we should look at the bright side. NZTA / MOT looks humbled by this bloody deal (unless Auckland Council let them get away without interest). Maybe that will damp down their arrogance a bit.
To be honest I don’t think it is the NZTA that are being arrogant but the MOT and the government. I get the impression that the NZTA largely understand the issues and agree on the solutions but are hamstrung to a large degree by things like the government policy statement.
Also they won’t really be paying interest, at least not in the traditional sense, they will be paying it back through increased assistance rates in the future. The only risk I see with this is that government changes the rules on assistance rates so I hope the council has got the contract screwed down very tightly
Next time I run short of money, maybe I could ask AC to lend me a bit? When most people need to money they borrow from the bank- obviously NZTA don’t want to do that.
The NZTA legislation limits the amount NZTA can borrow. They went up to that limit to fund the accelerated start of some big projects to stimulate the economy a few years back expecting tax increases to deliver enough money to pay down the debt. Cock-up at Cabinet level. Yet again Joyce has sacrificed local roads on the RoNS altar.
My understanding is that Auckland Council is not really lending NZTA actual money, but rather saying that it’s OK if NZTA delay payment of aspects of their subsidy.
This is better than NZTA simply saying they can’t afford to subsidise the projects which would mean council would end up paying 100% for them.
Of course because of the Ministry’s ideological blinkers they could never anticipate driving declining… how could they?, they are geniuses at not seeing what they don’t want to. Expect more of this: ie things that the Business As Usual crowd ‘could never have foreseen’: Oil price rises and/or wild fluctuations in oil price, increased transport poverty, inaccessible property losing its value [ie private car dependent], petrol dependent business failures, declining petrol tax take, increased fuel theft, increased inequality……
Further to the above:
“What gets us into trouble is not what we don’t know, it’s what we know for sure that just ain’t so.”
—Mark Twain
But of course this is Joyce at work, the NatPat election strategist:
1. He delayed the scheduled 1.5c petrol tax increase because of the election
2. He accelerated completion of various motorway projects in order to be cutting ribbons in time for the election
Bingo, hole in NZTA’s current account.
Nothing to be read into something that started in August seemingly been agreed to after the election and just days from the traditional ‘bad news’ release day.
How can $180m in cashflow not be tracked? If this happened in a listed company the finance director would be resigning in disgrace. Are there different standards of accounting in the public sector?
Yes of course there are. It’s a three-stage process. First you do nothing, then you demote or fire the finance director, and if it really blows up in your face, you fire the minister. Of course Joyce left the specific post already, so he’s safe unless we find out later he stole the $180 million and squirreled it away in a Bahamas account 😉
Wonder how much money the MOT spent developing that financial software? $180M error. MYOB?