Wednesday, September 24, 2014

Local Governance, Amalgamation, and Productivity: Is Bigger really Better?

So much for savings from amalgamation
Burgeoning wage costs at Auckland Council are no surprise.  They are not an unexpected outcome given that consolidation of local councils generates additional organisational tiers, consequently calling for more managers and greater attention to internal coordination and bureaucratic processes.

I noted a couple of years ago that the costs of Auckland’s super city, established in 2010, were already outrunning the combined costs of the councils it replaced:
the operating budget for Auckland Council in 2012/13 is $2.8 billion compared with the collective 2008/09 operating expenditure of the eight councils identified of $1.95 billion (see Royal Commission Report Appendix B).  Spending growth of 45% (or $721m) in 2009 dollars compares with just 8% inflation between 2009 and 2012.  Transition costs alone can’t explain such a jump - the Royal Commission suggested that at most transition would cost just $60 million a year for four years.

Expansion, ossification, and eradication
The prediction that employment costs would increase was not so much insightful as stating the obvious.  Quite apart from evidence on diseconomies in over-blown municipalities, anyone watching the decline and dismemberment of New Zealand’s largest corporates in the 1980s and ‘90s could see it coming.  Some of our largest companies (Watties, Fetcher Challenge, New Zealand Forest Products, Waitaki NZ Refrigerating, and Carter Holt Harvey) went through a sequence of expansion, consolidation, and ultimately dissolution.  Different parts were downsized, sold off, or shut down and assets stripped as the quest for productivity gave way to the struggle to survive.
Councils are not immune to the conflation and ossification that come with size. But before we predict the unwinding of Auckland Council we need to ask if high costs are simply a response to growth.  

The analysis
To explore this we analyse trends in local government employment relative to population using Statistics New Zealand Census population and employment data (2000 to 2013) .
Inevitably there are limits to this analysis.  To really understand why a single council is costing Aucklanders more than those it replaced requires in-depth analysis.  It needs to account for changed practices, changes in the mix and levels of services, changes in funding practices, and so on. 
Nevertheless, the analysis might at least help to shape the questions to be asked regarding the costs and benefits of amalgamation..

City hall slimmed down?  Yeah right
There was a slump and then a jump in jobs after the new council was formed (Figure 1).  So much for trumpeting job cuts in 2010!  This proved no more than a transitional aberration.  We can see this by indexing the changes.  The growth in local government jobs outstripped population expansion in Auckland continuously to2010.  Then, after the dip associated with transition to single council, jobs took off again, vaulting way over the already worrying medium term trend.

Figure 1: Changes in Population and Local Government Jobs: Auckland and the Rest of New Zealand, 2000-2013
Benchmarking Auckland against the Rest of New Zealand
Across the rest of New Zealand, growth in local government jobs also grew faster than population.  Table 1 outlines the relevant shifts using 2010 as a benchmark date.  The Table includes changes in local government jobs per thousand residents – a general surrogate for labour productivity. 

While Auckland’s population grew by 22% between 2000 and 2010, council jobs grew by 65%.  This means it took 35% more people to administer local government relative to the population in 2010 compared with 2000, which suggests an annual average “productivity decline” of 3.5%.  And that figure increased after consolidation, by 21%, to 7% a year. 
The decline in local government productivity in the rest of New Zealand was similar to Auckland between 2000 and 2010 (32%), but diverged in 2010 and 2013 when there was almost no decline (1%). 

Table 1: Indicators of local Government Growth and Productivity
Rest NZ
Rest NZ
LG Jobs
LG Jobs/Population

While the measure of productivity may be a little crude, the growth of council employment relative to population raises the question of where the gains from amalgamation actually lie.
The productivity mix

Among sectors that can be identified as providing local government services administration experienced the biggest decline in productivity over the past three years (Figure 2).  The front-line activities of public transport and museums, the zoo, and gardens improved productivity between 2010 and 2013.  These gains may result from demand rising ahead of population and employment as well as from operational changes.  However, recent gains follow reduced productivity earlier in the decade.  And gains in public transport patronage have been on the back of plans and investments made before the 2010 reforms.
In fact, earlier gains in the water and drainage sector halted after 2010, while productivity in solid waste services has gone backwards.  Given that these are sectors with generally stable technologies and predictable demand, this outcome must be of some concern. But it is more worrying that administration, the largest part of the local government services sector, has apparently fallen behind delivery in terms of productivity. 

Figure 2: Shifts in Productivity by Local Government Activity

 Benchmarking against other centres
A comparison of productivity scores for 18 New Zealand cities ordered from largest (Auckland, 1.5m residents in 2010) to the smallest (Upper Hutt, 41,000 residents) shows that that size has little to do with productivity performance (Figure 3). 

Figure 3: Comparing Changes in Productivity Across Cities
Moreover, from having the lowest score going into 2010, Auckland's productivity index was bettered by eight councils just three years later.  These included Porirua, Gisborne, Nelson, Hastings and Whangarei, among the smallest of the country’s cities.  In fact, Auckland was the 16th worst performer between 2010 and 2013.
The productivity index used here has its limits. Population is not necessarily a robust measure of demand for different services.  Comparison may be influenced by councils' different mixes and quality of services .  If nothing else, though, the comparison raises serious questions over how far and why consolidation should be promoted elsewhere.
So what does this mean for future amalgamations in New Zealand?
In 2012 I suggested that it was too soon to tell how the Auckland experiment was going. A couple of years on I wonder how long we have to wait to see any fiscal or economic benefits.  There is no evidence that consolidation has improved productivity.  The other, less tangible benefits claimed for it - speaking with one voice being the obvious one – appear to have come at a significant cost. 
And whatever the reason for these results, the Local Government Commission should be wary of emulating the Auckland experience elsewhere, including in Wellington where there is considerable political momentum behind proposals for council consolidation.  Amalgamation may be a solution to perceived issues of local governance that in many circumstances we just cannot afford.


Thursday, August 28, 2014

The Costs of Consolidation - Watching a Slow Train Wreck

The perils of Thinking Big
Creating a single city to administer Auckland’s local affairs was always going to be an expensive exercise.  Efficiencies were possible, but by no means guaranteed, and unlikely to exceed the increase in costs.  As decision making becomes more centralised, it becomes less sensitive to the needs of those it is meant to serve.  Auckland is well down that track.  And announcements of cut-backs around the Mayor’s latest budget – and the coincidence of ever-expanding rates and debt – highlight the fallacy of chasing efficiency by creating large administrative and governance structures that become remote from the community.

Administrative efficiencies?  It doesn’t appear so
Let’s revisit that prognosis.  First, administrative efficiencies are not guaranteed by consolidating councils as the tiers of administration build up and channels of communication proliferate (along with opportunities for miscommunication) in a large council. The need for internal alignment begets managers and higher employment costs, impedes external alignment, and slows processes. Its interesting that according to Statistics New Zealand local government employment in February 2013 was 38% higher than in 2010.  So much for the much heralded reduction in jobs.

Technical efficiencies – for whom?
Second, consolidating councils suggests that technical efficiencies can be pursued by way of economies of scale from consolidating the delivery of some local services like supplying water, maintaining roads and road corridors, and looking after parks.  But not if competition diminishes, labour markets are diluted, and monopolists (council owned or otherwise) come to dominate local services and utilities.  All too often possible technical gains from consolidation in the slow-moving, predictable, and unchallenging market for local government services get captured by the suppliers in higher wages, fancier buildings, glossier PR budgets and bigger dividends, and not the public. Increasing costs suggest that something like this is happening in Auckland.

Misdirected spending?  Too right
Third, there is a risk that the consequences of inefficient resource allocation will have further reaching effects in a large council than a small one. 

A local council investing, say, $30 or $40m in what may become an under-utilised sports stadium, for example, is less damaging than a larger council spending many more millions on super projects or major infrastructure of doubtful merit.  The risks of getting it wrong and the regrets from doing so are much higher.  A council with a larger revenue base may be subject to less fiscal discipline than a council with a small one.  It may favour larger “regional” projects with lower pay-back than the same sort of resources allocated more smaller local projects.

And region-wide projects subject to greater debate as a result of their impacts on multiple local councils areas may be better scrutinised and tested than if they are conceived and delivered without the same level of debate by a large single council.  The delays and deferrals associated with contestability by constituent councils in a region may deliver better outcomes than the full-steam ahead approach of a single agency.

So is Auckland still on track?
Unfortunately, Auckland has been hit by a triple whammy. Council employment has been growing.  The costs of utilities and services have been increasing.  And we are getting ourselves into some debatable capital commitments, lifting our long-term liabilities. 

The central rail link is one of these.  And even as council costs continue to rise, it seems that this uber-project is sacrosanct.  Yet the case for it is constructed on highly debatable assumptions about where we might live and where we might work 10, 20, or 30 years hence. 

All aboard?
We are assured, though, that planned stations will double the number of people with access to the rail. Let’s look at that.  For a start, these stations are planned mainly in inner city areas already well served by bus and with relatively high public transport patronage. 
However, let’s assume that passenger numbers do double as a result of better connections.  In 2013 that would have lifted rail commuters by 9,500 to 19,000.  According to Census figures this would be equivalent to just 4% of private transport users in 2013 (a gain of 2%) and less than 60% of the 33,000 bus users. 

Because the rail is ultimately focused on the CBD even this is dreaming.  Why? Because according to the Census one third of commuters to the CBD already use public transport and in 2013 another 13% walked or biked to work.  That’s a pretty good penetration rate of non-car modes.  Spending $2-3bn is not going to lift it significantly.
All at what cost???
And I’m not sure that the bill for the rail link will stop at $3bn.  Large, complex projects have a habit of running over time and budget.  The estimates for this one keep changing, highlighting the uncertainty and consequent fiscal risks around it. 

Given an uneconomic investment to start with, we are faced with raising funds elsewhere.  The taxpayer has already been lobbied, and now we are looking at alternative taxes (or tolls) simply because we know that charging users for the true cost of services is a fast track to running on empty. 

As well as additional charges on ratepayers and commuters (whether on public transport or in cars) we will further ramp up city debt.  Alongside the resulting interest commitments will be a raft of recurring costs – operations, maintenance, and depreciation – which we know will never be met by users.  This is a very real threat to a sustainable Auckland.

The CBD: going for bust
On top of all that, the rail connection is justified primarily as a service to the CBD, where much of the Council’s planned capital spending is already concentrated. But only 2% of the city’s population actually lives there, and 12% of its workforce is employed there.  The residents tend to be young, often immigrants, and transient.  The employees tend to be better paid and potentially more mobile than many of their counterparts in the suburbs. 

This vision of a city defined by its CBD raises major resource allocation questions for Auckland.  The CBD is the geographical choke point of the Isthmus, itself a regional bottleneck.  It is an area of ageing infrastructure, reclaimed land, and high building densities served by arterial roads that are increasingly congested, with critical roads subject to occasional inundation. 

I note that the driver of this singular vision, the Mayor, was elected into office by only 24% of eligible voters, or 17% of the population.  That, I would expect, should lead to a more measured approach than one that seeks a place on the world stage with a strategy that calls for sacrifices from the many to pander to the gratification of a few.  The CBD is already a great place to visit, but how much more must we mortgage as a community to pursue this particular vision. 

The risks grow 
To sustain the vision of a city defined by its CBD we are cutting back on the quantum and quality of works and services that have a more direct impact on the majority of Aucklanders. Deferral of drainage works for example, reduction of maintenance of our suburban corridors, a failure to expedite completion of critical roads not focused on the CBD, or a lower level of care of suburban parks and reserves are the things most likely to impact on the most Aucklanders on a daily basis. 

Can a strategy of spending, growing indebtedness, and increasing rates to finance the nice-to-have, me-too adornments (and liabilities) of much bigger cities really offset the reduction in the liveability that will come from cutting back on the basics while boosting the long-term cost of living in Auckland?



Saturday, June 14, 2014

Planning on a Wing and a Prayer

Shaken beliefs
The Minister for the Environment’s submission on Auckland’s proposed unitary plan is only a surprise insofar as it was a long time coming.  The development gap resulting from relying heavily on residential intensification to cater for growth, the contradictory nature of the heritage provisions, the equity issues raised by backing off intensification in more desirable middle class suburbs, and the procedural challenges raised by over-complicated overlays all point to a plan that will make Auckland a lot less liveable for many more people.

And a history of artificially driving up the price of land for employment by rationing it in the hope that demand can be met by higher densities looks like being compounded by unrealistic rules that will further boost the cost of investment in Auckland, prejudicing output and productivity.

These are just a couple of examples that reflect the increasing unease expressed from various quarters over the proposed plan.

The historical record
The problem is not so much that the unitary plan is deficient in one or two areas and can be patched up by an amendment here and there.  The two deficiencies cited are critical in their likely impact on Auckland’s development (or un-development as the case may be). The more fundamental problem is the expectation that one plan will miraculously resolve Auckland’s development issues.  How did we reach this station?
It’s a belief that goes back in time, and has spread throughout the land.  It was first articulated about 15 years ago with business lobby Competitive Auckland suggesting that development was impeded and competitiveness undermined by having seven territorial councils, and seven different district plans.  Worse, these councils were regularly at loggerheads with a regional council which intruded on their land use mandate as a means of fulfilling its environmental responsibilities, with development mired in an unwieldy and litigious planning process as a result.

This belief that eight fiefdoms was seven too many was codified through the deliberations of the regional council-sponsored Metropolitan Auckland Project in 2006.  An international panel was invited to work through the plethora of documents assembled for that project, and explored the cross currents behind it by talking with key figures.
The panel decreed that One Plan for Auckland should pave the path ahead, over-riding differences in development within the region, in its physical and human geography, and in the contrasting and often conflicting ethnic and cultural values as these influenced local plans and practices. 

The reformation
The government then summonsed a Royal Commission to enquire into options for Auckland’s supposedly fractured governance.  As a result of its deliberations the Commission delivered an intelligent design for the super city, declaring that the only way to the fulfilment of one plan was with the one true council, a council that must be directly responsible for the fulfilment of its edicts across the land.
This was endorsed in a more grounded fashion by central government, in an act that effectively reversed the logic behind the 1989 local government reforms.  These had been based on the principle that transparency is served by separating responsibility for regulation from responsibility for operations, and the crafting of environmental rules from the practice of development.

The same reforms promoted modest amalgamation as the basis for administrative efficiencies, carefully avoiding the diseconomies and loss of local democracy associated with super-sized councils.  Operational efficiencies could be sought through the provenance of quasi-commercial council controlled organisations for service delivery.
The 1989 model did not set out to suppress the controversy and debate that naturally surrounds contentious development.  Indeed, in the seeds of administrative competence it sowed the capacity to articulate and debate differences and potentially moderate outcomes improved, potentially lifting the quality of decisions.  

The Conceit of Goliath
Internalising conflict in ever-bigger, centralised organisations like Auckland's super city does not resolve it.  Rather, it hides it, and allows dissonance to grow – as many now defunct corporations have found out.  Large organisations become uncoordinated, slow witted, and slow moving.  They are vulnerable to manipulation, even corruption.  They drive dissatisfaction onto the streets (or the social media), favouring the activists, the articulate, and the well-heeled in the battle for favour.

And that seems to be what’s happening in Auckland. Why stop there?  The ultimate in effective government if we believe bigger is better is one government, with power concentrated among the political and executive elite of a single central regime – or party – increasingly remote from its citizens.  Autocracy as government, however, must eventually fail. 

The Book of Rules
Let’s set that grim vision aside and return to the immediate issue. This is the belief that we can assemble a comprehensive set of rules that will in some way anticipate, regulate, and manage all forms of land use activity and development in what is, in fact, a diverse and constrained physical environment settled by diverse peoples in divergent circumstances and holding to a variety of values and beliefs.
Our planners and politicians as scribes are over-ambitious not just in what they seek to achieve, but in what they think they can achieve in the face of human multiplicity.  The proposed unitary plan looks increasingly like a sub-national canonical treatise – a set of laws that take us well beyond those mandated or intended by the state.  The irony is that in its sprawling complexity, this plan will be dissected, debated, and litigated by believers and non-believers for years to come.  And all the while the promised land will remain an illusion.

Wednesday, December 11, 2013

Do density and transport resolve congestion?

(First Published January 2013)

The compact city/transit answer to the urban sustainability question

Expensive – and usually loss-making – public transit is enjoying a resurgence in the face of uncertainty over the supply and price of oil, concerns about the proliferation of private vehicles and greenhouse gas emissions, and  questions over the sustainability of our cities.

Transit is generally promoted as part of a programme to increase city densities.  In Auckland, for example, the plan is to recreate a compact city in order to get people out of cars.  A commitment to increasing the capacity of rail-based public transport is intended to support residential densities and justify concentrating public investment in the CBD.
I have addressed some of the issues this raises in earlier blogs.   (E.g., Rethink the Link, Five More Reasons, Thin Edge of the Tunnel Wedge, Derailing Auckland)

Exploring the relationship – the data
Using the Tom Tom international congestion index it is possible to explore the association between congestion and city density.  I analysed Q2/2012 morning congestion figures for 25 North American and 51 European cities covered by the index.  The index is based on the real time experience of drivers in areas of high usage of Tom Tom car navigation systems.  Congestion is measured as the deviation in travel time on individual routes at peak times compared with when they are flowing freely (generally at night).  The higher the deviation, the greater the congestion.

I looked for relationships between morning peak hour congestion and city size, population, and density using the Demographia July 2012 compendium of world urban areas data.   

Here are some summary figures for the second quarter, 2012:
Source: Tom Tom, 2012; Demographia, 2012
Congestion is additional peak hour travel time compared with free flow travel over the same routes.
(Out of interest, the comparable density figures for Auckland, Hamilton, Wellington and Christchurch are 2,400. 2,200, 1,900, and 2,000 respectively). 

Note the greater range of congestion figures among European compared with North American cities, and their significantly higher high and median figures.
The North American evidence:  higher density = more congestion?
I undertook simple and multiple regressions in each case to establish how far differences in congestion depend on the physical size of cities, how far on their populations, and how far on residential densities.
Among the North American cities only population density was statistically significant, explaining 52% of the differences in morning congestion among cities.  By and large, as densities increase, so does congestion (Figure 1).  The inference is that transport efficiency is no better among more compact cities, and may be worse.

Figure 1: The relationship between density and congestion, North American Cities

Does transit help?
It would take more comprehensive evaluation to establish how far transit systems might modify this relationship between density and congestion. The US News website provides a ranking of the top ten US transit systems based on ridership, safety, and government spending.  Only five are in the Tom Tom sample. 

Figure 2 orders the cities from worst to best performing on the ground of the difference between congestion that would be expected on density grounds alone (as predicted by the regression equation in Figure 1) and the actual congestion recorded.  Hence, Boston has higher levels of congestion (48%) than predicted (27%) on the basis of its density (just 800 persons per square km). And like poorly performing Seattle, it has one of the top ten transit systems as ranked by US News (4th and 9th respectively).  

Figure 2: Congestion performance, North American cities

The other poor performers based on this analysis include both high density Montreal, Ottawa, and Vancouver, and low density Atlanta. 
This is not a definitive analysis.  Rather, it suggests propositions for further consideration.  Among these, higher densities do not necessarily mean less congestion – more likely the opposite.  And leading edge transit does not necessarily fix the problem. 

The European Evidence: there is no evidence
The results for European cities were completely different, adding weight to the argument that context matters: what works in one setting will not necessarily work in another.  Across the 52 cities there is no relationship between density and congestion.  (There is, however, a weak relationship with cities’ physical size, r2=0.25). 

Figure 3 plots morning congestion as a deviation from the median for the 51 cities and includes a plot of densities.  It isn’t easy to read. In summary, the poor performers are Warsaw (density 3,100), Marseilles (1,300), Istanbul (9,700), Toulouse (1,100), Rome (3,400) and Brussels (2,600).  The better performers include the smaller cities of Malmo (density 3,600), Zagreb (5,700), Valencia (3,000), Seville (5,600) and Bern (2,300).

Figure 3: Congestion Performance, European cities

Does transit help?
A listing of the world’s top ten transit systems in 2011 included only four from the European sample (and only the New York subway from North America).  The London Underground comes in third, but London Metro Area comes in at a low 39th on the European congestion rankings.  The Paris Metro is rated fifth , but Paris sits at 46th among the 51 European cities for congestion.  The Berlin U-Bahn sits at 9th place and the city's congestion 21st in Europe.  Copenhagen is 10th in the world transit stakes and 16th in congestion ranking.

While the results are quite different from the North American analysis, the European evidence also offers no grounds for suggesting that density is a prerequisite either to better commuting conditions or that congestion reflects the quality of transit systems.

(A contrarian might argue, of course, that transit creates a commitment to a land use pattern that promotes congestion, delaying or distorting the decentralisation of employment that might otherwise occur in a well-connected city). 

Pursuing poorly performing precedents
If nothing else, the analysis raises issues which deserve much closer analysis, especially in Auckland where they do not support plans for a high cost transit system to support a compact city.

While planning – and planners – in Auckland have a tendency to cite overseas precedent to support expanded rail-based transit and higher residential densities, the variability of overseas experience suggests that this is a highly risky strategy.  Context really does matter – not only here but also among the precedent cities our planners love to cite. This is especially the case when poor performers on the congestion scale like Vancouver and Seattle in North America and London and Paris in Europe are touted as paragons of integrated land use and transport planning. 

So why do our planners and politicians continue to gamble the city's fiscal future on an economically flawed project which overseas data suggests has limited prospect of meeting its objectives?