Auckland City Council struggles with rail transport funding model

Originally published
November 15, 2014 Andrew Sheldon Civics, Economics, Finance, Governance, Markets, New Zealand, Politics 

It should come as no surprise that any decision by government is destined to be ‘political’. By ‘political’ we mean that decisions are destined to convey extorted influence rather than any commercial or analytical consideration of costs, benefits or impacts, with still less any real or effect accountability. What sustains political debates over city planning is ‘fear of environmental catastrophe’. What suspends or defers any debate on the issue is a ‘fear of exaggerated influence by vested interests’, and what inevitably gives a city constituents reason for cynicism is the realisation of the uncertain costs, or the open-endedness of those costs, which few people understandably don’t want to bare. The reality is that it does make sense for a city to have a rail network – but only in certain cases with conditions dictate that it is a prudent commercial decision. It likewise makes sense for a city to have a plan, to develop a rail system in a cost-effective manner so that costs of living can be contained, and that any such planning conveys ‘integrated interconnection of services in the best interests of all constituents, and not simply the indulgent hopes of vested interests, real or exaggerated.

Until now Auckland has been defined by a ‘city centre’, namely Auckland City CBD. The reality however is that such ‘city centres’ defined by zoning restrictions are very costly. It makes far more sense to have a multitude of city centres connected by efficient transport connections. The best evidence of such efficiency is the costs of pre-existing ‘connectors’, and the corresponding costs of not having them. It does not mean you don’t have central hubs ‘like a city centre’, it means that you expand the city so that it has multiple hubs which are well-integrated.

The appeal of course is that a ‘centralised city’ with a single core tends to compel everyone to live in a small area, which results in a number of problems:

1. Congestion – There is a need for a large portion of the city population to travel a long distance to reach a focal point, whilst a ‘satellite city model’ allows people to live in a broader range of places, and to consider rail transport as a ‘best option’. There is actually considerable opportunity for people to travel across city in previously impossible directions, ensuring a better balance in traffic flow, ensuring that there is less ‘entrenched polarity’ in traffic flows.
2. Uncompetitiveness – When a city is geared towards the pre-eminence of one location then compelling structural barriers arise preserving or embedding the ‘structural’ position of that centre. That allows some people to profit at the expense of others simply because they have political pull others don’t, or because they have been allowed to preserve the pull they historically had. An extortion-based political system is destined to do that, and the costs and burdens arising are the reason to break down not just the rules that permit it, but to radically reform the political system that makes such political patronage or privilege possible.
3. Cost disparities – It is far cheaper to rent city apartments or office space under a ‘distributed urban model’ and to commute to other offices for appointments. A centralised city model would likely require an expensive taxi trip compared to a ‘distributed city model’, which will likely see a commuter walk 5 minutes to a train station, wait 3-5 minutes for a train, and then take a further 5 minutes to reach a location. In contrast, getting a taxi can take 2-20 minutes, and you can wait in traffic queues delaying arrival at a destination for 20-30 minutes. This explains why few Japanese people get taxis, and why they are so expensive. Another way of looking at the problem is to consider comparative rents. Rent can be expected to be 30% cheaper for a satellite CBD (saving say $400 per month, or $12 a day). The differences in parking are less apparent if a city ‘enforces’ strong provisions for underground parking. Auckland has yet to do this I suspect, or perhaps this is merely a legacy of the old system. The cost of travel is relatively comparable under either model. The system captures more customers, but it requires more infrastructure.

This model of a ‘super-city’ is best illustrated by Tokyo City. Tokyo City comprises 23 inner wards. These inner wards are effectively integrated by a single ‘efficient’ rail loop line called the Yaminote Line. Trains on thin line come every 3 minutes, and they will take you to the most substantial satellite CBD’s in Tokyo (all 20 of them) in a matter of 25 minutes. This central line gives great connection to any number of ‘spoke’ lines that run off into the suburbs and outer satellite cities, to the various airports, port districts, inter-city rail connectors and so forth. These ‘spoke lines’ also provide access to the core of the city. There is often 1-2 ways to get to any place in the city, so you need to work out where to change to get there in the most optimal time. The trains are so frequent that you don’t really need to fuss over which is the best way.

In the spirit of this idea, I have roughly sketched out a possible system that outlines a staged rail development that would integrate rail & ferry terminals. The implication is that there could be opportunities for people to commute by ferries to work as well. Of course in future, more ‘ring or loop lines’ could be added, as has been the case with the extensive Sydney network. In comparison, the Japanese system does not function as ‘ring lines’, but rather as ‘spoke’ and ‘branch’ lines extending off the main ring line. The Yaminote ‘ring line’ serving the central core of Tokyo City is functionally the most important line in the system. It is also connected to several low-traffic loop lines servicing Hanada Airport and the port district.

This ‘mock network’ does not attempt to ‘build upon’ the existing Auckland rail network. It matters little how the network is shaped since the network itself will transform the way people live. What is important is:

1. The regulatory regime that shapes people’s decisions
2. The barriers to rail and commercial development which determine the cost structure and commercial returns possible, as well as determining the level of competition.

Political obstructions defer rail developments

In contrast to Japan, where rail development was made by quasi public-private corporations, which were comprehensively integrated with commercial developments from the start; in Auckland, the government decides. This means that there is a lot of ‘vested interests’ who are ‘legally enabled’ or ‘politically enabled’ to jump in and cause legal obstructions, as well as mobilising support bases to extort some concession, so that commercial efficiency is no longer ‘attainable’.

When the rail development model is directed by governments, it is destined to be a quagmire where sub-optimal decisions are made. Any vested interest is able to  elicit ‘self-serving’ standards (as a form of economic rent) upon expensive projects, even though these interest groups have no direct equity interest. Their arrogance arises from the fact that:

1. They have the decadent right to self-expression
2. They have the unreasonable right to impose their ideas on others under our political system

Notwithstanding their influence over others and their lack of direct involvement with the project, they are still able to influence or ‘scare’ others into submission, by using fear or misrepresentations (i.e. misuse of valid data or use of unsubstantiated data) to achieve a disproportionate influence over a state project. They achieve this influence because they are able to forge ‘special privileged relationships’ with political leaders, and because most of the people don’t have that influence, or because they are ambivalent about what their political leaders are doing under a sanction they bestowed upon them by voting for them. Voting is the ultimate threat since it represents the people giving power of attorney to a ‘stranger’ to do as they please. Notwithstanding their influence, these powerful partners also have some influence, and that is to impart their own threats upon decision-makers. The fact that these ‘decision-makers’ are pursuing ‘self-interested’ projects or are intimidated into submitting to powerful interests in the name of some  ‘public spirited’ endeavour really never comes under any scrutiny, because there will be no expectation or monitoring to ensure that these projects are even profitable.

This has proven the case with the Auckland rail system; except the paranoia has been instilled on both sides of the political divide because there are:

1. Liberals who want to build environmental projects
2. Conservatives who don’t want to spend on services they don’t personally use

For this reason, councillors have withdrawn their immediate support for a rail development. Auckland Mayor Len Brown has secured $2.2 billion of funding for rail in the latest 10-year budget. The first priority is a 3.5km underground rail link to commence construction in 2016 for completed in late 2020.[i] It remains to be seen whether he can bring all the councillors onside. The concerns of councillors are:

1. The cost to be borne by the toll payers – some want the national or City government to carry some of the burden
2. Against the possible impact of city government debt on future rates

For this reason it is possible the rail development will be deferred until 2020.

The libertarian perspective

The problem with the prospect of a government-driven rail project is that the project is destined to be poorly executed. The best solution is for the project to be funded by:

1. A private developer which is able to develop a funding model based upon:
   • Commercial development sub-contractor provisioning
   • Fixed price commitments for the rail services provided – at least until such a time that there is competition in the market place
2. A government that sets certain ‘reasonable’ parameters within the ‘rail corridor’ zones as well as development zones, so that prospective private sector developers can investigate the merits of those options. These parameters will include:
   • Provisions for open spaces and car spaces
   • Provisions for noise reduction and limits on route corridors
   • Provisions to facilitate transport system connectivity
3. Any prospective private operator can establish commercial commitments with owners of properties so that they are able to finance the development, whilst undertaking preliminary contingency studies at their own cost for engineering, commercial due diligence, etc.

“The $2.4 billion City Rail Link could be deferred until 2020 because of mounting concerns by councillors about its impact on rates, debt and big cuts to community services”.[ii]

There is actually no reason for the government to put in any money. There is no reason for city residents to put money into the project directly unless they are using the project. The best approach to the development of such rail corridors is for:

1. Objective standards of value to be established as fundamental criteria, i.e. noise levels, building heights, minimum public space requirements, tunnel design & safety (i.e. ventilation) requirements, car parking provisioning. These standards can be common law standards or standards established in the same manner.
2. Private rail system developers to determine best route, appropriate commercial terms with commuters and commercial sub-developers who will profit from land developments in the precinct of the rail stations.
3. Private rail system developers to determine quantify whether the project can proceed on the basis of objective standards of compensation. The private operator pays the cost of any ‘excess’ or ‘non-compliant noise’ or safety breaches.

There is a great opportunity for Auckland to have an efficient rail system without anyone paying for a government ‘white elephant’. The problem with government-sponsored projects is that there is no limit to the money that they can throw at them – without account or consequence – to give you the “experience you expect”, at whatever cost you will endure. In contrast, a commercial operator acting under a framework of objective law, is required to meet your “reasonable expectations” at a cost accepted by the ‘discretionary’ user of their services. Those costs would be borne through:

1. Direct payment of train fares
2. Indirect payment by paying for goods, where the merchant has paid for the opportunity to gain access to customers through such a ‘transport hub’. He passes some of his costs on to customers (who are in a competitive market place) so that he can make a profit.

In contrast, the reason why ‘big business’ often likes politicians like Len Brown is because the business community is ‘subsidised’ by allowing them to profit from the establishment of such hubs, and for you the taxpayer, to pay the cost of the hub, whilst they profit from:

1. Their good fortune to have ‘lobbied’ government to have a station established near their land holdings
2. Their ‘good fortune’ to have ‘lobbied’ the government to place the burden of transport systems placed upon the taxpayer, as if they should be the sole beneficiary of those services, because they create jobs (i.e. they lobby).

Working “village city” communities

There will be those people who will object to the development transformations to take place, but in fact ‘small cities’ make very liveable spaces, and again Japan shows the way. On a recent visit to Japan I took some pictures of how Japan has created very liveable communities with ‘modern commercial precincts’, ‘old-fashioned’ entertainment precincts with narrow roadways lined with restaurants, bars and craft shops in places like Hibarigaoka. There are roads with ample provision for bicycles in places like Iruma City. In fact, most Japanese people rely on rail and bicycles to meet their transport needs. Cars tend to be used by parents (with kids) and everyone on weekends. Even then it will be rare that Japanese people will go further than their local sporting grounds, restaurants or bars. Most shopping is done locally at these ‘city villages’. Of course many will use a car to go skiing or hiking. But again, many people will use public transport. It is probable however that most of the councillors in Auckland have not bothered to investigate the approaches that other nations have taken to meet their transport needs.

“[On the 5^th Nov 2014] all 20 councillors and the mayor will debate the budget and make decisions on the rail project for public consultation”. [iii]

Will they be well-informed or will their decisions simply be a reaction to the narrow expectations of mobilised ‘lobbyists’ who don’t really analyse the broader ramifications of public transport.

“The Government has agreed to fund half the project, but will not make a financial commitment until 2020, unless the council meets rail patronage and downtown employment targets”. [iv]

Observe that there is no requirement to meet any commercial criteria. The implication is that the government is not being terrible considerate of customer patronage, and that is evident enough from the fact that the government is prepared to force upon the community ‘another tax’.

Financing rail transport under government

The huge cost of the rail link would cause a $12 billion transport funding gap over the next 30 years unless alternate funding is secured – namely:

1. Motorway tolls and regional petrol taxes
2. Cut from community projects, parks and local works
3. Increases local government taxation

“The options are for an overall rates rise of 2.5% in 2015 and 3.5% for the next 9 years, or a 3.5% rate rise every year plus a $3000 charge upon new houses”.[v]

This is not the best approach to providing services to the poor, or users, or even achieving some level of ‘commercial discipline’ in our urban areas. Our cities are the most important economic systems in the country. If they are not based upon commercial discipline or ‘realities’ or price constraints, then taxpayers are destined to experience a blow-out in costs, on top of the costs that the mayor and councillors have previously imposed upon rate payers. There is actually no reason why residents of Auckland need to pay more. They should only pay more if they get benefits. The only motivation for government officials to embark on such policies is if:

1. They are so beholden to public pressure that they convey no personal integrity
2. They are positioning themselves for a litany of kickbacks from business who are destined to be subsidised by such developments, and who will be reliant upon government as ‘gatekeepers’ presiding over these developments.
3. They get the opportunity to act like Santa Claus, identified as the crusaders for development, without a corresponding requirement to be accountable for their flagrant spending.

This is an enormous spend for a city. It should not fall upon ill-disciplined councillors who have little experience to handle the affairs of such an immense project, and given a blank cheque to meet any indulgent expectation of lobbyists, who ultimately keep these councillors in power. Many councillors are sensitive to the ‘cost backlash’ of such policies. i.e. Labour councillor Ross Clow has called for the project to be deferred until 2020. These is however no reason to defer. The only necessity is for the project to be carried by those people who can afford the luxury of wanting it to risk investing in it. There will be a ready market of people who should pay, who will want to benefit, whether they are:

1. Residents who want to live in inner-city apartments close to transport and ‘village cities’. Another example is Chatswood in Northern Sydney.
2. Commercial businesses who want to profit, who are prepared to pay more for property and high rents in order to get access to that greater street traffic that arises from ‘denser living’.
3. Finally rail system developers who want to develop a long term ‘cash cow’ by offering prospective residents a ‘village community’ and cheaper and faster access to jobs than is currently offered by cars on tollways. Residents in these places will save on bus fares or car parking fares in the city, as well as securing more options and great accessibility to services in other communities.

Labour councillor Ross Clow argues that the budget was gutting suburban areas such as Avondale, which had been waiting 30 years for a new town centre, in favour of “pet projects” like the City Rail Link. [vi] There is really no reason for people to wait if a road upgrade makes sense, but it ought not to ‘make sense’ because it benefits a councillor to say so. There needs to be objective criteria.

Taking the transport funding burden off cities

There is really no reason why people have to wait for a centralised, inefficient, politicised ‘poorly skilled’ bureaucratic culture to act as ‘gatekeeper’ for the provision of basic services. It is a false economy that has proven not to work. In Tokyo, people on the fringes of Tokyo pay property rates as low as $300 a year because they only buy the land they need for a house. A 1-hour commute to the city centre costs just $4. There is no concession for a return trip like in Sydney. Most commuters going daily to the city will instead decide to rent in an inner city, low-rise 40m2 apartment complex for $700/month. They will pay just Y200 ($US2) each way. In most cases, workers commuting costs are borne by the company (up to a certain amount). The prospect of paying $2500/month in Auckland, a far smaller city, and an additional $200/month for parking because the city transport system is so bad, is simply ridiculous cost impositions arising because of political mismanagement of basic infrastructure. Communities won’t miss out on infrastructure if the government is not the centre for funding and decision-making. Autocratic regimes inevitably collapse. We are witnessing the collapse of Auckland City Council as a ‘decision-making hub’. It needs to become a far smaller centre for setting objective standards for universal & fundamental conduct, whether it be noise limits, or safety measures. They should not have the arbitrary capacity to impose any standard upon people, and they should not be a gatekeeper for decision-making. They are only arresting the development and prosperity of Auckland, and the same folly is being mirrored in other regions around NZ, as well as other countries. The council is responsible for the excesses in property prices. New Zealanders are paying as much for property – in a city with just 1.5 million residents – as they are in Tokyo – a city with 22 million residents. This is because NZ councils are able to restrict land development to artificially raise council rates.

It is precisely the spectre of huge planned budgeted costs like $20 million to widen Whangaparaoa Road, which is why these decisions need to be made in a broader context than the government can handle. There are simply too many long-range decisions to be made, and the risks of waste are enormous; which is why those risks and costs should be carried privately by developers, and not by the taxpayer who is oblivious to the real cost of what they are funding. Why can’t Aucklanders enjoy the same low rates as the Japanese – at least as an option. I’m sure the low-income earners of Auckland would love such consideration and discretion. You therefore have to wonder whether Len Brown and his colleagues are really the ‘liberals’ they profess to be, or whether they are serving their own interests.

References to quotes

[i] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.

[ii] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.

[iii] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.

[iv] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.

[v] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.

[vi] “City Rail Link faces delay until 2020”, Bernard Orsman, NZ Herald, website, 3^rd Nov 2014.