Wednesday, July 18, 2012

Tunnel Vision: thin edge of the rail wedge

Digging in
There is an interesting if depressing narrative emerging in a number of independent stories about Auckland's passenger rail aspirations, city centre hopes, and spatial plans.   This posting aims to string together just some of the bits - with links.   

The recent announcement that Auckland Transport is going to acquire 210 inner Auckland properties (or is that 280?) to preserve the route for a rail tunnel with no assured funding suggests that politicians and planners in this city – and their plans – are a couple of steps removed from reality, committed to an inner city rail tunnel at almost any cost.. 

At what cost?
It’s noteable that when councillors start lambasting officials for their tunnel costing, or propose a tax on motorists to pay for the project, they say nothing about and the history of over-runs associated with Think Big projects and the contingencies – including delays – that history tells us have the capacity to double the costs of large civil engineering projects. 

And they seem fixated on a tunnel without addressing how ongoing rail operating losses after completion will be met, or the costs attendant on the ancillary road works, the parking facilities, and  other above-ground spending on existing and proposed stations necessary to get people on board.  There is also the cost of the electrification  ($500m already advanced  by taxpayers for electric units, quite apart from line costs) required simply so that we can run trains underground. 

So far, then, it has been difficult to get a picture of the  total costs of this project.  Arcane debates between politicians and officials about how to factor in the impact of inflation over a project which it is conceded will take some time to get underway, let alone completed, seem rather incidental in the bigger picture.

Why is this city – today's and tomorrow's ratepayers – going along with a high risk, low return - and somewhat opaque - gamble?  The risks are all on the downside.  For a start, incremental investment decisions based on broad  estimates are bound to escalate the costs of a project of already doubtful merit. 

The reasons, we are told, lie in the benefits of better access to and promotion of the CBD, reduced road congestion, better connectivity between the south and the west of the region.  Let's revisit those reasons.

Cross-regional connection - L
Dealing  with the last first:  journey to work figures from  2006  show that only around 1.3% of all motorised commuting trips (a total of 4,700 by bus, car, rail, or motorcycle) were between the west and south of the region. So cross-regional connectivity hardly goes any distance towards justifying the tunnel. 

In 2006, 7% of commuting trips from the west to the Inner City were by train – around 560.  Let’s say that increases 5-fold or thereabouts as a result of a more direct route (putting aside, for the moment, the time associated with  additional stops at new stations).  That’s perhaps 2,500-3,000 trips.  Again, the marginal cost of these additional trips looks pretty high.

And with recent investment in road and industrial land  developments in the west of Auckland a much more sustainable strategy would be one that fostered more investment and greater work opportunities closer to home.  This is consistent with the expectation in the business case that many of the additional workers in and around the CBD will also live there.

So cross-regional commuting hardly makes a compelling case for the rail link.

Reduced congestion L
There is an expectation that even making a marginal difference to car traffic will reduce congestion.  That ignores the experience: road capacity gained by transferring commuters from bus or car to rail is simply absorbed by the reinstatement of trips that would otherwise have been deferred by peak capacity constraints. 

More than that, we are now seeing the benefits of considerable spending on roads in the past by way of reduced congestion anyway, something that could easily undermine  rail patronage forecasts. 

 And we can look forward to even more gains on that front as more people work from home, an ageing population reduces its use of cars, and long-term increases in fuel prices lead to more rationing of car use by households.  These benefits come at virtually no public cost – and are likely to be collectively a lot more beneficial than a costly (but still limited) increase in the capacity of the passenger rail system.

All the big boys have one L
Of more immediate interest is why we would be expecting to generate greater demand for rail transport to the CBD.  Several reasons have been advanced. One is the old  Me Too chestnut.  The big cities we are familiar with – Paris, London, New York, Sydney  –  have metro rail serving the CBD using underground systems.  We want to be one of the big boys.  

Of course, we start well  behind the eight ball.  Cities with "successful" metro rail transit also have populations many times that of Auckland. 

Even so,  metropolitan rail in large cities still runs at a loss despite long-sunk capital costs, higher population densities, and vastly more employees in the central city. Take New York’s Metropolitan Transport Authority, for example. 43% of revenue comes from taxes and subsidies, another 12% from tolls; and just 43% from fares. Railcorp, responsible for passenger rail transport in New South Wales, including Sydney’s CityRail, lost $2.5bn prior to state government contributions in 2010-11.   Travel for London reported an improvement as a result of increasing trips numbers: to 1.2bn from a loss of £626mn in 2010 to £100mn in 2011/12, or close to £3.60- for each of its estimated 28milion passengers on the London rail and underground. And on top of these losses are substantial ongoing capital costs. 

It’s hard to understand why we should emulate these systems.

Boosting the CBD L
The Auckland Plan makes much of the CBD as  the key to Auckland's international standing.  The new rail loop is seen as a critical part of that.  

This is based in part on the expectation that many more people would live and work in and around a series of new stations to  be built on the proposed inner link. As I have suggested previously, there is very little we might see in the development of future labour markets or even housing preferences that suggests that the inner city will hold a lot of appeal or achieve the sort of growth proposed in the Auckland Spatial Plan. The business case for the rail (and the spatial plan) presents outcomes underpinned by implausible drivers.

Laying Waste
In the meantime, let’s think about the impact of acquiring 210 to 280 properties on the possibility that they are  required for tunnel construction. We know how the acquisition of land for motorway construction in the 1950s and 1960s laid waste to swathes of inner-city land for decades, here and overseas. We can look forward to that on a putative rail corridor from Britomart to Mt Eden for who knows how long.

Proposed Inner City Rail Link - Planned Corridor
      Source: Auckland Transport

And the disruption this will cause goes beyond the cost and inconvenience to current owners who have invested in inner-city businesses and inner-city living.  This will be no doubt lead to a long and contested consultation programme

But what will happen when  this land  is acquired?  One possibility might  be a range of quirky, interesting, temporary activities occupying low rental ageing properties. But that's not likely when we are dealing with a corridor.

Another - more likely - is that it simply goes to waste, becoming a  ribbon of vacant, deteriorating buildings cutting through the inner city.   Already Aucklanders are wringing their hands over the booze-ridden late night culture, and “a deluge of rubbish” hitting inner city streets. Creating a corridor of waste land will not help.    

The real and immediate problem faced by Auckland's  inner city is not one of enhancing access. It is a problem of credibility; of maintaining the quality in a place where its appeal as a place to visit (at least after dark) and live is already under threat.  Locking the city into the rail tunnel is not the way to tackle the long-term prosperity of the CBD and surrounds.  This is a much bigger issue – and not one that should be obscured by desperate defence of a flawed project.

... to be continued ..   

Sunday, July 15, 2012

Local government restructuring – putting the cart before the horse?

The Quest
In March 2012 central government launched a multifaceted reform programme, Better Local Government. The aim is to “refocus” local councils in the interests of improving governance, efficiency, and management. It identified eight areas for action:
  1.  refocus the purpose of local government;
  2.   introduce additional fiscal responsibility requirements;
  3.   strengthen governance provisions;
  4.   streamline reorganisation procedures;
  5.    establish a local government efficiency task force;
  6.     develop a framework for central/local government regulatory roles;
  7.      investigate the efficiency of local government infrastructure provision;
  8.      review the use of development contributions.
This is a longer posting than usual.  In it I touch on the key components of the proposed reform and raise a question or two around why and how we are going about it.

Better Local Governance?
The programme is reductionist – breaking reform down into separate parts as if they can be acted on independently. The risk is that the sum of the various initiatives adds up to something less than a satisfactory whole.

For a start, none of the seven subsequent objectives can be considered independently of the first.

The recently issued Local Government Act 2002 Amendment Bill pursues their integration by introducing a new purpose statement. This seems a reasonable approach (whether or not the purpose statement is reasonable).  The purpose should shape local government  funding needs, governance, and management ; determine how it allocates and manages its resources; and influence what it regulates, and how. 

Promoting the Bill as the first step in the reform process also seems to take care of the first four objectives.  It offers the prospect of containing and streamlining what local government does, informed about how it might best do those things by the four reviews promised in the second four objectives.

Or More Central Direction?
The bill will change the  purpose of the Act from providing for :

local authorities to play a broad role in promoting the social, economic, environmental, and cultural well-being of their communities, taking a sustainable development approach (Part 1, 3 (d)).


local authorities to play a broad role in meeting the current and future needs of their communities
for good-quality local infrastructure, local public services, and performance of regulatory functions

Reintroducing statutory limits to curb council (and community) discretion  at the outset of the reform process risks pre-empting what might emerge from those reviews.  The  Bill requires local government to focus on functions that only it can perform. This return to basics means that councils might only act where markets fail or where they can demonstrate collective benefits sufficient to justify local public action . This is a step back from accountability -- because council hands are tied -- and consequently from community democracy. It moves us closer to the strait-jacket 1974 Act that the 2002 Act was intended to unbind. . 

The inference is that since the 2002 Act councils have acted too broadly.  With only a small number of exceptions (the larger councils stand out in this respect), this is highly debatable.

Other provisions of the current Bill further reassert central over local authority. These include scope for setting prudential standards or benchmarks by Order in Council and much strengthened powers for the Minister to intervene in the affairs of councils considered to be “struggling”. 

Ironically, the provision also introduced in the Bill  for elected councillors to dictate staffing and remuneration policy increases the likelihood that councils will “struggle”, confusing roles and reducing executive accountability.  And allowing mayors more power in running their councils – which may be a worthwhile measure in its own right  –  is unlikely to offset the increased exposure to governance failure. In practice, tinkering with mayoral powers while limiting what councils might do may simply lift the tendency evident in our largest authorities towards divided councils and sectional alliances.

Is this the thin edge of the amalgamation wedge?
Perhaps the biggest concern for me is the much greater weight given by the Bill to restructuring. Unlike the reforms of 1989, which were geared towards increasing the effectiveness of local government by doing away with the redundancy, duplication, inefficiency, and excessive overheads of a fragmented, hide-bound system, the objective of these measures is not clear.  Lurking behind them, I suspect, is a commitment to further amalgamations, encouraged by provision for applications for restructuring rather than proposals

A preoccupation with amalgamation again raises the spectre of a solution looking for a problem. The evidence that better governance or enhanced efficiencies are delivered by larger units of local government is decidedly mixed. Internationally research suggests that efficiencies may be increased by moving from very small to medium-sized units of local government. But there is little evidence that moving from medium to large units will deliver the goods. 

Certainly I have seen no evidence to support such an approach across the board in New Zealand.  It doesn’t exist in the Department of Internal Affairs Regulatory Impact Assessment for the current Bill, which acknowledges an aim to facilitate more interests and more communities moving on the “union or abolition of councils or the creation of unitary authorities” (Paragraph 158).

Technical efficiencies may be available from merging, sharing, or jointly purchasing particular functions or services across jurisdictions.  That hardly requires amalgamations.  And  there is scant evidence of administrative efficiencies.  Mergers that lead to multiple tiers of management simply pile up the challenges of internal and cultural alignment within enlarged bureaucracies  already struggling to engage with their communities.

The Auckland Experiment – too soon to tell?
In New Zealand’s case we should at least wait to see if the Auckland Experiment works.  The Local Government Auckland Council Act (2009) sought to create a bigger, more influential, and more effective council from the eight that went before. 

Maybe it’s too early to judge the success or otherwise of this  experiment. However, there are sufficient  disquieting signs to suggest that the Government should make haste somewhat more slowly elsewhere. 

For example, 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 in costs - the Royal Commission suggested that at most transition would cost  just $60 million a year for four years.

So much for operating and administrative efficiencies from amalgamation. What about capital expenditure? 

I have not compared collective capital expenditure by the prior councils with the plans of the new council. However, I have already raised doubts grounded in the evidence for Auckland over the Council’s planned capital programme. This is marked by an over-emphasis on the CBD and the $2-3billion it is throwing at an underground rail connection, the benefits from which are both constrained and uncertain.  That central government does not accept the arguments put forward by Auckland Council to justify this investment (despite the $500m already committed to the electrification necessary for under-grounding) is evident in its reluctance to support the proposed rail connection financially. 

The Risks of Amalgamations
These question-marks over Auckland’s capital programme highlight serious questions over the allocative efficiency of larger councils (and, as we often see in the private sector, of large corporations generally).

The creation of oversized municipalities does away with the sorts of checks and balances associated with medium-sized councils.  It raises the spectre of single minded spending of larger budgets on ever more ambitious – and unrealistic  –  pet projects.  Bigger councils with bigger budgets but the same old thinking risk serious misallocation of finite public funds.  And allocative inefficiency is  a greater threat to aggregate productivity with more far reaching consequences than any operating inefficiencies that might be associated with smaller organisations.

A more  cautious approach to restructuring, an approach which encourages modest reform and puts barriers in the way of building large,  bureaucracies  remote from their task environments may be called for.  I suspect that the Auckland Experiment will demonstrate sooner rather than later that restructuring is not the silver bullet that will  put an end to run-away council costs – or run away councils. 

Seeking out Efficiencies
Better Local Government also sets the stage for an expert group to advise the Government on how best to deliver good quality infrastructure at an economic cost.  We need this advice on how to achieve better allocative efficiency before going too far down the track on local government reform generally.  

This call for best practice in policy analysis and the decisions that sit behind infrastructure investment regardless of council size.  Improvements in allocative decisions may well be available before committing to the costs and uncertainties inherent in council amalgamations.

Operating efficiencies might be gleaned from improved process, procedures, training, investment, and, ultimately, purchasing. Administrative efficiencies might be husbanded through moderating the size of councils. But don't expect to make big gains in this area, especially if, in doing so, we further weaken the local government labour market

It’s early days yet, but it seems that the advice that emerges from any expert investigation should inform any local government reforms, suggesting that the Bill is premature within the wider programme.

Similarly, it seems premature to promote restructuring while the Local Government Efficiency Taskforce is only now looking at how to streamline consultation, planning, and financial reporting. Equally, the New Zealand Productivity Commission has only just commenced its inquiry into what regulations are best developed and administered at local government level.

Resource Management Review
Something else that bothers me about the Local Government Act 2002 Amendment Bill and how it is clearing the way for amalgamation is what happens to the environment under unitary councils? 

Again we have some experience here, and I would expect to see it brought to bear in the reform process. 

Prior to the 1989 reform of local government and the 1991 Resource Management Act it was all too easy for the environmental gamekeeper to also be the environmental poacher. We need to be aware of the risks of this happening again.  How far, I wonder, is the Technical Advisory Group exploring options for streamlining the RMA (convened by the Minister for the Environment) able to do so in the face of parallel initiatives likely to change both the shape and practice of local government in New Zealand?

Make haste slowly
There may well be merit in the wider programme of reforms the government has instituted, especially in the context of its economic development mandate.  But it seems important that multiple programmes and initiatives do not lead to conflicting outcomes.  An enthusiasm to reform – and restructure  –  local government should not pre-empt the efficiencies that might be achieved by simply boosting the quality of decision-making. Only when we have examined how infrastructure, regulation, and resource management might be delivered most effectively will we really know what sort of reforms might be needed in local (and central) government.