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.
- Last year more was spent on transport in Auckland than ever before, around $1.4 billion, significantly less than the $2 billion Barnett claims.
- Almost half of that money goes on operational costs which aren’t the things we should be putting on the debt pile.
- The council’s capital expenditure is already debt funded.
- 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?
- Even if you did borrow all that money, How would you even build that many projects all at once?
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.
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?