Last week the NZ Herald ran an opinion piece by Michael Barnett, the Chief Executive of the Auckland Chamber of Commerce. It focused on options for addressing Auckland’s $4 billion funding gap. However, the article really didn’t add a lot of value and – more than anything else – seemed to highlight Barnett’s poor understanding of how the Council’s finances work.

The article generally starts okay, noting the council is near its debt-to-revenue ratio and focusing on the role of Government taking on a larger chunk of the transport funding task. We’ve argued this many times before, that the “strategic PT network” outlined in ATAP (which is pretty similar to our Congestion Free Network) should be predominantly progressed and funded by NZTA, rather than by the Council.

Most obvious, has anyone seriously looked at how Auckland Council could circumvent its debt-to-revenue ratio brake? It doesn’t seem credible that a city with $60b-plus of assets could use this constraint as an excuse for lack of investment action.

Otherwise the Crown is an obvious party to “take over” Auckland Council’s inability to fund the critical transport infrastructure Auckland (New Zealand Inc) needs, and do so on its terms.

He completely seems to miss the point that it is Council’s debt constraints which are mostly holding back its ability to spend more on transport. Staying under that debt-to-revenue ratio is important if the council wants to retain it’s currently good credit rating. If that rating dropped, the cost for the council to borrow would increase and given the way local governments raise funds, all local councils across New Zealand would be impacted. I’m sure that would go down really well outside of Auckland. However, the piece rapidly goes downhill from there:

Second, what about debt funding? Government and council annually allocate around $2b to Auckland transport. They could use this lump sum to debt-fund, say, a 10-year programme to implement all the projects they agree are required immediately. And then use subsequent annual allocations to pay the interest cost. The benefits to Auckland would be immediate – for commuters looking for action on congestion, contractors wanting construction programme certainty, investors and workers wanting assurance that Auckland is taking steps to remain an attractive city.

Uhhhh, where to start.

  1. Last year more was spent on transport in Auckland than ever before, around $1.4 billion, significantly less than the $2 billion Barnett claims.
  2. Almost half of that money goes on operational costs which aren’t the things we should be putting on the debt pile.
  3. The council’s capital expenditure is already debt funded.
  4. The limits mentioned earlier mean the Council isn’t able to even cover a half share of an extra $400 million and his suggestion is to borrow its share of an immediate $20 billion programme?
  5. Even if you did borrow all that money, How would you even build that many projects all at once?

He continues:

Another option is an Auckland transport infrastructure bond issue. Talked about for years, it would be a long overdue innovative step in the right direction. I don’t profess to have all the answers to how it would work, but other cities use this approach. I am aware that there is significant private sector interest, including among Aucklanders.

Auckland has an agreed $24b list of transport projects that government and council want to do over the next 10 years, of which $4b is unfunded. So why not raise a $4b infrastructure bond issue to immediately close this gap? Another option is to tie the bond to a specific “ready-to-go” project where there is a revenue source.

He is aware that bonds are just another form of debt right?

Then there are numerous “value capture” options that many cities use. These range from substantial revenue from multi-storey tower blocks over “park-and-ride” and train stations, apartments along rail and road corridors where council or government have surplus land, and other productivity benefit options.

Value capture in theory isn’t a bad idea. When light-rail on the isthmus is built it is bound to massively increase the value of land nearby as accessibility will be improved so much. But when we’re talking multi-billion dollar major projects then value capture is unlikely to raise anywhere near a sufficient scale of money.

Value capture could certainly be a useful tool and has been used overseas to help fund infrastructure, for example it was instrumental in London building Crossrail. But implement it is very much outside of the council’s control and like almost all of his other ideas, would require government involvement to enable.

An Auckland lottery is another idea – Brisbane in Queensland has funded a motorway corridor by a dedicated lottery.

A lottery? The 2014-15 annual report from Lotto NZ shows that it distributed in grants just under $200 million off almost $900 million in revenues. Just 22c for every dollar people spend on it. Unless we’re talking another lottery of the same scale (which you would imagine would be pretty hard to get going and do we even want to encourage more gambling) then once again this would be a completely inadequate level of extra funding.

What next:

Public-private partnership options with big potential include KiwiSaver, ACC (already investing in motorway projects), and multiple international firms keen to invest here.

To be honest I’m surprised it took him this long to get to PPPs. There are many reasons why these are a bad idea and we’ve devoted entire posts to it before. So for the purpose of this, let’s just note that they’re another form of debt to fit within that debt-to-revenue ratio.

He ends with

The funding options I have put up don’t need a prolonged debate. Most are proven. What’s needed is action – now.

Actually, Michael they do need debate, especially if they’re going to impact the council’s credit rating. Of course, the debt limit is not about how much we debt we have but about it’s ratio to the council’s income, if the council raises more income (from higher rates or other sources), then we can take on more debt. I look forward to seeing him leading the charge for higher rates.

Is this really the best contribution our business lobbies can come up with?

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57 comments

  1. Auckland city has a huge amount of secondary roads in the suburbs and only used by the locals each day. They should have been built narrower and/or one way. New suburbs now have more intensive building and narrower roads and so will be cheaper to maintain in the future. But possibly AT might reduce its resurfacing and other maintenance expenditure now to put money aside for the big projects.

    1. Failing to maintain roads results in pavements deteriorating to a point where they cannot be repaired/rehabilitated and must be fully rebuilt at a much higher cost. This would save money in the short term and result in massive increases in the long term.

      1. I think Russell was suggesting that we reduce the amount of pavement we do maintenance on, not to reduce the amount of maintenance we do on pavement.

        1. I’ll leave it to Russell to confirm one way or the other what his intentions were in the statement, I read it differently.
          Assuming Sailor Boys’ interpretation then it would involve reducing the maintenance to something like say a centre strip of 3m to 4m width, which would mean the pavement outside of these areas would fail over time resulting in them eventually becoming an unsealed pavement (ie gravel). This is probably fine for the remaining pavement as long as the water that is shed from the pavement is adequately controlled. It should be noted that reversing such a decision in the future would come at massive costs. The question then comes one of whether most Aucklanders would be accepting of gravel along most of the secondary suburban roads. The alternative for reducing the footprint of existing secondary roads by rebuilding them to reduce maintenance would be massively expensive, and I assume that is not what is being suggested.
          I definitely agree that new subdivisions should have narrower roads, the cost of secondary road maintenance is already far more than can be afforded.

          1. Actually the secondary streets in Westport have been given exactly this treatment so there is now a grass strip between the tars ealing and the gutters, which probably stops most of the road contamination entering waterways…it rains rather a lot in Westport so this cost saving technique doesn’t compromise the effectiveness of the storm water system.

          2. Kevyn, this would require that as the outside pavement fails that it is changed to grass. If it is being used for vehicle parking then it would probably need some form of permeable paver. These can be great solutions (Seaside, Florida has done this really well). This would allow for a short term saving in maintenance, but the question then becomes whether the modifications from an existing failed pavement to a new planted one (with permeable paving stones or similar) would cost more or less than maintaining the existing roads.

          3. Given that we rebuild kerbs every ten years already, we could always just move the kerbs in and replace the grass then. You know, like competent asset managers?

          4. Yes, as I recall (from my local government engineering days), these grass strips are called “swales” (in Australia anyway) and are considered by local government asset managers and environmentalists as a good solution.

          5. Kerbs typically have a much longer life span than 10 years, in some cases they can be over 50 years.
            A swale is a drainage feature and would assume that there is no on-street parking, I don’t think that would be an acceptable solution for most of the city. You need to install something that allows for vehicles to be parked year round, hence the suggestion for a permeable paver. Otherwise you end up with a huge mess.

        2. The cost of building a km of 2 lane urban road is about $2 million per km. So a average property, 20 m wide has about $100000 worth of road in front of their house. Auckland city must try and cut costs to build more PT projects.

  2. I read and re-read his article because I couldn’t really see where he was going. But I think a clue to what he was really thinking was that tempting pot of gold, $60 billion in assets.

    All that low hanging fruit just begging to be sold off in the official name of revenue raising but unofficially and in reality in the name of personal enrichment for those few with the money, at the right place at the right time.

    Ever since Auckland Council was devised that fact has been foremost on the mind on short term profit takers, just like the boom times of the late 80’s/early 90’s. And I would argue, on the minds of our current government.

    Michael, ratepayer assets are not about the me, me generation to get fat on. Grow a brain and either try harder or bugger off!

  3. Yes. It’s the fallacious fantasy of the right (and, it appears, Auckland Transport senior management) that government is best run as a business, preferably by ‘successful’ businessmen, like, let’s see, Donald J Trump. It comes as no surprise that the realities of public administration have a tendency to be ignored by the like of ideologues such as Michael Barnett in their trumpeting the cause of private profit.

  4. In some Brisbane suburbs council saves by not installing wide expensive footpaths on both sides of the road. I notice that here many footpaths are rarely used. A narrow path is OK in many places.

    1. most footpaths (in new subdivisions anyway) are paid for and installed by the developer. Maintenance then falls to the council, please do not suggest less footpaths, Brisbane is not really a role model city I wish auckland to follow

    2. The roads in a number of suburbs don’t get a lot of use either, we could probably just get rid of them and instead put in a parking lot at the edge of the suburb and people could walk home from there.

      1. Good with that! Yip big parking building per suburb with heavy rail connecting them all! Free community bikes kept in same building for last 1 km home! Brilliant! No roads to thier house just grass and fruit trees! Like a common! Its up to the suburb to maintain any access solutions they want from carpark to thier door! Ie council will now not take care of local roads and only maintain main roads! Genious love it!

      2. Not at the same scale, but the townhouse I lived in, in Hatfield, Hertfordshire, UK didn’t have a street – but grass out the front instead. There was space it was just never built for some reason.
        It was very strange but I got to love it. Just parked on the nearby street and carried the shopping and such to the row of about 8 houses with no road.
        Only time I have seen it, it was built in the 60’s so not that old or anything

        1. Lol close to where I was. It’s really like a big hotel campground they do that now. Start with all dead end roads pay some higher road tax also.

      3. Hm I like that suggestion, and I think I’ve seen townhouse developments with an approach to parking like that.

        What you also learn from those developments is that local streets really don’t need to be wide. 4 or 5 metres, in total. No markings, no footpaths, and not a lot of grassy berms. It’s possible to drive a car there, but you’re expected to do so carefully and slowly.

          1. Lower standards are intelligent thing to do with roads and all transport if you really think!

    3. Fine if you’re fully able, not pushing a pram, walking with someone side by side, walking the dog and no one has parked their car on it. I say this as someone who lives on a narrow road with narrow pavement on one side only.

  5. I’m with the cynics here. The hard line on Auckland from the government is in reality the Treasury hard line on Auckland, and because Treasury is a bastion of the followers of Hayak and Rand, when they look at Auckland they don’t see a funding gap at all – they see sixty billion in assets that can be sold via the old and white land grabbers and swindlers of Remuera. They in turn want to get their hands on the privatised assets of the Auckland city council, facilitate the sell off, clip the ticket, and hey presto – lots of ex-public money in profits and fees for the connected and the great and the good, and no one has to raise so much as a sweat.

        1. Think I gave up on Atlas Shrugged after the first chapter. The only other book I have done that with is James Joyce’s Ulysses.

  6. I read the article and thought exactly the same thing. I expected more as he normally seems quite reasoned and intelligent.

  7. 1 idea: All cars with a digital tracking device which pays road charges based on a distance / road / time and computational values gets a lower road tax than cars which do have them.

    2. Toll motorways

    3. Congestion charges

    4. Reduce local road spend to narrow bear bones standard. Reduce speed limit local roads to 40.

    5. Remove need for bike helmets for adults in city..

    6. Put bike racks on bikes

    8. Remove traffic lights replace with cost effective roundabouts

    9. Increase road charges for commercial vechicles

    10. Put up bus and train fares

    11. Get better deal for council out of transport contractors maybe get more little companies running bus services rather than the same operators we often get with computer helping to keep the ndetwork running as a whole.

    1. Generally you seem to have some interesting ideas, but these two stick out from the rest.

      “Remove traffic lights replace with cost effective roundabouts”
      Roundabouts need more land, in most cases have lower capacity than signals, and are lethal to anyone not in a motorised box. This is the opposite of cost effective.

      “Get better deal for council out of transport contractors maybe get more little companies running bus services rather than the same operators we often get”

      We just completely re-tendered the entire bus network and you think we settled for deals that are less than ideal?

      “with computer helping to keep the network running as a whole.”

      We have already done this.

      1. Sailor person, my personal experience lends me to feel roundabouts move vast amounts of traffic? Huh?

        Also I mean ‘dutch roundabouts’ with cycle lanes and all the bopple withy them.

        tell bus companies we want money from them for building bus lanes…

          1. Argh yes oh deah. That why we use them where possible… Argh and lights where they cannot work.

        1. Come try out the roundabout corner dominion and denbigh. Doesn’t work for anyone – cars, pedestrians or cyclists. There is always broken glass everywhere and car horns going. This is the type of roundabout you get unless you take huge amounts of land which auckland doesn’t have spare. I say the opposite: get rid of all roundabouts and replace with signals and houses.

          1. I like that round about. But that the wrong place for a roundabout most agree as its not a fair intersection. Try round about in Albany shopping mall as a good example..

          2. You mean the Mercari Avenue one that is being changed to a signalised intersection to increase the capacity?

        2. “Sailor person, my personal experience lends me to feel roundabouts move vast amounts of traffic? ”

          Yes, anecdotally most people believe this. It’s wrong. It depends on the flows on each turn but it is very rare that a RAB will have a higher total capacity than signals.

          1. Stil sounds wrong. So dont believe you. Roundabouts are best. Lights only work in USA. Our ones are incorrectly organised.

          2. I’m literally looking at the modelling software as we speak, but sure, have your anecdotes.

          3. freedom – it’s simple dynamic flow. During heavy traffic, every vehicle in a queue at a roundabout has to start from 0kmh (or close to it) when they leave the give way sign.

            At a signalised intersection the first car starts at 0kmh, but the rest pass through the intersection at a progressively quicker speed, meaning more vehicles can get through in the same amount of time.

          4. I like roundabouts, ill write to your software developers. Mathematical models are our tools we are not a slave to the model. Either way sure there are some place for a combination but a round about has a place and creates a smoother ride for many, and if we do lights then lets improve the technology.

            they dont need to physically exist on polls, smart phones and in car nav systems can create virtual traffic lights

            great scales of time rather than three colours. Give a rating of saftey and priority like a sliding scale to the driver. With a clear stop at one end.

            bikes get prefernce as do mutli passengers vechicles. Lets update the flow algorithm to take in more variables and we could have a digital traffic light system much better than stop go.

          5. “Mathematical models are our tools we are not a slave to the model.”

            Yes, and the tools are based on empirical evidence which proved you wrong. Please do some searching about this on scholar.google.com

    2. Freedom, some interesting ideas, but:

      6 doesn’t make sense to me (I thought a bike rack was like a car park for bikes, not an accessory to carry on a bike), and

      10 doesn’t make sense to me either: if we want to encourage PT and reduce the huge “externality” costs to society of SOV congestion, then to me it would make sense to reduce PT fares to encourage its use (even to the point of making it free to users, or even paying people to use it, if it saves more costs overall to do so, e.g., less road accidents, less lung disease, less oil import and refining costs, less waste of valuable land use (and rates) potential, etc.).

      Also, I’ve done a NZ Traffic Engineering course and traffic lights are definitely considered to have a higher capacity than roundabouts, and I think traffic lights cost more, so (being NZ) they would definitely want to say that a cheaper intersection treatment had a higher or same capacity if they could get away with it, but they didn’t say that, so they must’ve found that they couldn’t get away with it.

  8. Even as a relative conservative it has seemed to me that Michael Barnett is well past his use-by date and should gracefully retire……………… Unfortunately the media frequently seem to turn to him for comment on one thing or another. Maybe they see it as an escape from having to do their own rational analysis!

  9. “The funding options I have put up don’t need a prolonged debate. Most are proven.”

    I think I’ve heard this before… “My argument is so powerful that it’s not necessary to talk about it”.

  10. Matt,
    Agree with everything you say except for NZTA funding more of the rail system. The only real funding solution in Auckland is congestion charging. The Government needs to stop delaying the issue and implement it.

  11. Intlligence is probably our closest friend and tool to have when deciding costing charging paying for transport projects. I would suggest we could even hire the use of some sexy super computers to help once we have a few mathematical models. Charging taxing all needs some intelligent thought, at the end of it all we all want a happier quality of life for Auckland residents while caring for those we need to as a civil society and respecting culturral and ecological issues.

    Charging can be turned into a bonus even for the payer if we are intelligent with the system so letd really have a full and rad debate on this.

  12. Barnett’s PPP’s are not only another form of (potentially expensive) debt but are inherently costly due to their additional transaction costs (eg: legal, indemnities, insurance, management fees, etc.) and their reliance on outsourced fixed price quotes to cover the maintenance costs over the 25+ year life of the PPP.

    1. +1, IIRC a UK study found that PFIs (which is what they call PPPs in the UK) cost on average 3.5 times more than normal public funding, i.e., it’s a finical disaster for the public and a gravy train for the corporates, consultants, banks, lawyers, contractors, etc.

  13. How about the government requires a reasonable return on its transport infrastructure (like they do any with almost any other asset). Say 5% profit per annum. That would raise plenty of money, it would force better land use decisions (is a road really the best use of the millions of dollars of land under fanshaw street for example), and it would allow public transport to compete without subsidy. The government don’t run power companies at ‘cost’, why roads?

    1. I like the logic of the free-market and user pays for roads and notions such as profit. But if we go down that route lets get our understanding of the full and big picture and not use profit models when it suites some and not in other areas. Roads currently are public so it is unfair in anyway to transition them to profit driven projects as no one can make that decision as no one owns them.

    2. Power companies were previously run at cost. The power was distributed via democratically elected boards also at cost. This resulted in much lower power prices which benefited the community as a whole. Likewise buses were in most cases run by local transport boards or councils at cost. The subsidy is required because routes are contracted to private companies running a subset of total routes who receive a subsidy to make the route profitable or at least break even. Previously councils would simply spread the cost over all of the routes and did not need to allow for a profit component. This is why privatization advocates use the term crowding out because public entities are seen as unfairly completing with private companies who need to make a profit. This also applied to electricity where the price was the average across all generating sources rather than being a spot market price or the maximum bid on that day. An inquiry has already established that Nzers have been changed tens of billions more as a result of this restructuring. It is likely the same price inflation has occurred where local bodies have outsourced their services also. Privatization has its place but not in monopoly or essential services.

      1. + infinity. I know an ex-NZED guy (who is otherwise a hard-right-winger), and he told me NZ had the most efficient electricity generation and distribution system possible in the NZED days, before it was split-up and either fully- or partially privatised.

        (I heard on the radio from one of her non-fan biographers that Ayn Rand thought every road and footpath should be privately owned, but I can’t see how that could work.)

  14. What I dislike more than the silly lottery idea is Mr Barnett’s belief that we should mortgage the future generations for an accelerated spending spree now.

    Under his proposed plan, he, and many other aging politicians, will be long-dead while we would still be spending all our transport tax revenue paying the interest on his debt-based plan. Worse still, we’d likely have less to even show for it due to the inflationary pressure of trying to rush the whole thing through.

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