Another Middle Class City Vision

Roads or cafes? That is not the question.

Dr Joel Cayford says that we are throwing away money when we invest in roads but creating value when we invest in downtown infrastructure (New Zealand Herald, 17 September 2012).  It’s a mistake to think state highways are not a critical part of our urban infrastructure, a mistake too many central road planners make – failing to appreciate that the highway's main role in and around Auckland is in the provision of urban arterials, the roads that keep the city itself connected and working.

And while I share Dr Cayford’s concern over the shaky rationale behind some current over-the-top  inter-city road projects, I cannot accept the idea that throwing a lot public money into the CBD is a rational alternative.  Nor do I accept that we should persist in a cargo cult mentality, demonstrated in his suggestion that the taxpayer should deliver more central city goodies to Aucklanders.

Creating a central city sink

Dr Cayford’s vision is one of even more public spending in an area already at risk from over-investment in public amenities.  This simply means that the city’s ratepayers will have to cough up even more because of over-optimistic – or plain misleading - extrapolations of demand and dollars and a contrived vision of what a central city might be.  Except that he would also have the taxpayers help pay for the party.  

At least he is in good company: Auckland’s spatial plan promotes the CBD as a sink for the city’s rates.

Even the occupants of the latest flagship quarter, the Wynyard Wharf, are said to require further rental subsidies from the city.   And while it was great to have Wynyard set up  for the Rugby World Cup – and we were lucky enough to have fair weather most of the time – it is more often echoing and empty than thriving and buzzing. 

The CBD is doing fine

Dr Cayford suggests that the problem is that the city centre is not a great place to visit.  I disagree, and I doubt that never-ending spending on me-too inner city infrastructure will drag more tourists down to New Zealand as he suggests. Incomes and exchange rates drive tourist numbers, as years of analysis for the tourism sector have demonstrated, topped up a little by awareness campaigns and airfare promotions. Having a city that bears a vague resemblance to the Mediterranean won't make any difference.

(He is right to diss a new convention centre, though: there is good reason not to gamble too many public dollars on a sunset industry).

Anyway, things  already look pretty good.  To quote Dr Cayford, :

Go down and sit at a table outside the old netshed on North Wharf about 5pm on a balmy, sunny afternoon, Saturday, Sunday, Friday - whenever - and watch the promenading that's happening here in Auckland. You could be on the Mediterranean. Kiwis have style and they like to show it, given an opportunity.

One problem is that the promenaders that Joel likes to watch are spread ever more thinly spread through fashionable quarters, and therein lies the risk. 

There has been a string of such initiatives, local nodes promoted by public investment in the built environment.  And they are all great places to be on their day, but they are also struggling to retain tenants and stay that way.   Princess Wharf, Queens Wharf, High Street and Vulcan Lane, the Chancery Quarter, Britomart, the Vector Centre, the University precinct, the Viaduct Basin: they are all worthy destinations, great spots to kick back in on a sunny day.

They are  nodes that, as long as they  retain some vibrancy, create the frame of a great CBD. Individually and collectively they contribute to a city centre that’s well worth a visit.  But we need to be thinking strategically now about how much more we can sustain, and how we are going to keep what we already have buoyant.

Time for fine-tuning and coming out

For a start, when it’s wet and blustery, winter or spring, the Mediterranean idyll goes out the window. 

There are things we can do to reduce dependence on our uncooperative  elements, and they needn’t cost a lot.  Wellington has created sheltered pedestrian ways in a climate  less comfortable (if somewhat drier) than Auckland’s.  We certainly do not need new tracts of paving, new collections of cafes, and over-capitalising infrastructure to get our CBD working better.  The new rail loop that Joel cites, for example, might make it easier for a few more residents from outer suburbs to visit the CBD, but it won’t do anything for the ambience and quality of places within it.  

Much current thinking seems simply to pander to the café set and an image of our climate that is only true some of the time.  Queen Street appears to have bucked the trendy trend, though.  It caters increasingly to the take-away crowd and night owls.  While this perhaps reflect some of our much-touted diversity it seems to be a source of middle class angst.

Democratise the CBD

We need to consolidate what we have and to do so within a budget that reflects our means.  We should ideally aim to make the CBD relevant to citizens other than just the coffee set.

Maybe we could pursue initiatives that will democratise it: improve pedestrian links among existing nodes; open up  hidden spaces (St Patricks Square, Myers Park come to mind); create more places for kids to play; promote more informal gardens and greening; provide capacity for people to perform and not simply promenade in public places; provide for street art, street theatre, and street life; and  promote places where our local cultures can inject new life, all the time recognising the need for sheltered places and paths. 

These are the sorts of things that might put a little flesh on the CBD bones without relying on the begging bowl or  pandering to middle class conceits.  And they just might turn it into an asset for more Aucklanders.

No more LBF

If we need to do more, let’s do it within our means and in a way that is relevant to our citizens. Focus on what we’ve got and who we are.  And get off the me-too middle class spending bandwagon that seems to be driving Auckland’s civic leaders and planners, and amounts to little more than rates (and taxes?) being treated as some sort of central city Landlords’ Benevolent Fund. 

The Answer Is Urban Consolidation – What Was The Question?

Perpetuating the Myth

The Green Party is perpetuating the claim that development beyond Auckland’s “city limits” imposes a high cost on ratepayers.  A spokesperson claims that the current Auckland plan which allows for some new development outside the current urban area, “will cost ratepayers $42b billion to 2042, an annual levy of $200 per ratepayer”  according to a report in the New Zealand Herald.   

But is just so happens that  study on which these calculations are based is a flawed commissioned report  rather than a peer reviewed academic study (Roman Trubka, Peter Newman and Darren Bilsborough (2008) Assessing the Costs of Alternative Development Paths in Australian Cities, Curtin University Sustainability Policy Institute, Fremantle, Report commissioned by Parsons Brinckerhoff Australia). 

Oops – Contradictory Claims

The authors of the Curtin report acknowledged at the outset that

"The challenge ...  is that infrastructure costs are so heavily dependent on area-specific values.  For instance, road costs among different prospective development areas may vary based on the necessity for major arterial roads, costs for sewerage and water infrastructure could vary immensely depending on terrain and trenching conditions, and many infrastructure components will differ depending on the level and degree of excess capacity” (p.4)

So why did they try to develop a generic tool for estimating the cost of urban development in Australian cities based on a mishmash of evidence from different cities and suburbs in Australia and the United States?  And why would anyone even contemplate applying such “findings” to Auckland with its distinctive physical geography, so different from its Australian counterparts? 

A Quick Critique

The Productivity Commission actually considered the study, among others, in a brief review of housing costs and urban form (Appendix B of the final report).  It noted substantive differences in the physical and social settings  behind the data assembled to support the  study’s claim to some sort of universal cost relationship between development and distance from the city centre.

And there are glaring methodological deficiencies:

“An obvious one is mixing discount rates (zero for infrastructure capital costs, 7% for transport-related costs, and 3% for health and emission costs), and omitting operating costs for some items (non-transport infrastructure) and not others (pp. 295-296)

To these flaws can be added the assumption of a cost of Aus$170/tonne for carbon emissions when the carbon floor price set by the Australian government (of $15) has since been rescinded and figures at or below $10.00 may be more appropriate based on today’s European prices.  So the environmental argument is seriously overstated.

And the analysis fails to deal with the costs of expanding the capacity of ageing infrastructure in long-established urban areas, of remediating services designed for far lower loadings than they are now expected to sustain, of the health impacts of apartment living in an increasingly brown – not green – environment, and of reductions in the physical and socialresilience of high density and often congested urban areas in the face of possible natural disasters or infrastructure failures.

Penalising the Household - is that Socially Sustainable, or Politically Justified? 

Even if it can be proven that the balance of public benefits favours medium or high density living, is there any evidence that such savings will not be offset by the better affordability of traditional suburban housing and the benefits residents derive from living into it?

Putting aside  flawed data and methodology for the moment, the results indicate that 70% of the differences in costs between decentralised and central locations is attributable to travel and transport.  Over half of these comprise travel costs and  time carried  by households.  If we take these private costs out of the equation the authors' estimate of the difference  between centralised and decentralised development falls by 40%.  

The resulting "present cost" for the average household (whatever that might be) of A$22,000 is easily  justified by savings on land and housing in “outer” areas, the benefits households get  from  additional space, greater choice over housing style, and the security and community benefits of suburban environments.

So who pays if we deny people the choice of living in medium to low density housing?  Mainly new households through exclusion from household ownership, or commitment to punitive mortgages, or through the insidious extension of housing poverty through ever higher income brackets. 

So what about the Auckland case: where does the evidence really lie?

Surprisingly-- given the obstinacy of the planners and politicians pushing the consolidation barrow --   no-one has actually done the analysis required to determine the relative economic benefits of different urban development paths for Auckland.  

A technical analysis of the gaps in the Auckland Regional Growth Strategy made the point that the planning  model that informed it was hardly up to the task.  The principal conclusion that came from using the Regional Council's land use and transport  model was that there is “little [identified] economic difference between growth options”.(McDermott Fairgray Ltd (1999) Gap Analysis, Review and Recommendations: Auckland Regional Growth Strategy, Technical Report, Auckland Regional Growth Forum )

The failure of the model to demonstrate economic differences between alternative urban forms was used to suggest that intensification imposes no additional costs than traditional  decentralised development.  Of course, the converse is true – although it has been conveniently ignored: there were no demonstrable economic benefits from consolidation or net cost penalties to decentralisation.  This suggests that it would make most sense to let the market prevail, subject  to broad environmental standards and fiscal constraints.   

The  conclusion  that consolidation was the best option for Auckland ignores other shortcomings  in the  model that could  tip the balance  in favour of strategic decentralisation:

• The failure to actually define realistic alternatives that would  clearly demonstrate economic differences;
• A failure to evaluate the marginal rather than average impacts of differences in urban form;
• The failure to identify the costs of implementation.
• Ambiguous measurement (both omissions and double counting);

To this list we can add underestimation of the high infrastructure and development costs associated with brownfield development and urban consolidation.  These are turning up today in high financial and development contributions for inner city projects.

Calling for  Consolidation – a Case of Artificial Intelligence

So why is the Auckland Spatial Plan so fixated on consolidation –despite the begrudging lip service the final version pays to decentralisation (a small concession to market reality that appears to have  upset  the Green spokesperson)?

I can only think it is "artificial intelligence": if enough people say the same thing, it must be right.  Consensus becomes an excuse for lack of evidence, critical analysis, or even common sense.  Groupthink prevails,: a phenomenon defined by psychologist Irving Janis as:

A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members' strivings for unanimity override their motivation to realistically appraise alternative courses of action (Janis, I L (1972). Victims of Groupthink Houghton Mifflin p. 9)

Contrary evidence is dismissed while reports favouring an emerging consensus, such as the Curtin one, obtain a degree of currency which, while unjustified,  plays into the hands of policy makers looking for easy (or ideologically comfortable) answers to difficult problems.

And so we blunder on, potentially building our cities on myth and misconception and reinforcing the gap betwen generations as we do it.

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Irresponsible inner city behaviour

The latest in urban design - new public spaces for the dispossessed

In my last blog I raised the question of whether purchasing land for a possible rail link through the city would reduce the attractiveness of the inner city living by laying waste to a corridor cutting through it – shades of the motorway madness of the 1950s and 60s.  I suggested that this will increase the anti-social behaviour after dark that so worries CBD residents and visitors.

So it was interesting to see in the New Zealand Herald today the concern over the use of vacant city sites as places of refuge for people deemed anti-social and particularly as sites for binge drinking.  These are, of course, informal public spaces, simply being used as such.  And with the purchase of 280 properties in the central city for construction works or sites for rail-related development in support of our “sometime-maybe-never?” underground rail link, we are creating more of the same.  This will no doubt make inner Auckland more liveable for the homeless, dispossessed, impoverished, and underemployed.  Paradoxically, we could claim from this that laying waste to inner city sites contributes to the vision of increasing inner city living.

Getting rail up and overrunning

By the way, the $240 million set aside for acquisition of 280 properties sounds just a little light.  I haven’t searched the records, but I suspect few of those properties would be valued at under $1million.  And what about the compensation for relocation and loss of revenue and goodwill among the  many businesses that currently occupy them, and of course the relocation costs of displaced households?  

To me it looks suspiciously like we have taken the first step down the budget blow-out track.  But then, that tends to be the way of big civic projects utilising public funds, which are almost inevitably subject to optimism bias and waste, partly resulting from confused accountability.

(On accountability, it is not quite clear whether the train driver is the Council, the Mayor, or Auckland Transport.  And any expectation that the Government should shoulder much of the cost or should legislate to tax motorists points to further potential confusion in accountability, in this case between central and local government.  This is particularly significant for a project destined to make  a big a hole in public finances).

Of course, many of the properties to be acquired will be sold once the link is completed.  But assuming that the holding costs are based on $240m expenditure, any over-run will boost them.

So will delays to the project as a result of unresolved funding problems, continuing economic uncertainty, and likely fiscal constraints.  These are likely outcomes: a Benefit Cost Ratio of 0.4 doesn’t justify going ahead, and the strategic benefits remain decidedly unclear. But that’s another story. 

Suffice to observe that like alcohol bingeing among people with too much time on their hands, it seems that playing the train game is a difficult habit for politicians and other enthusiasts to break.

Passing the bucks

Even if  we do get to spend all this hard earned (or borrowed) money down the track, over-optimistic passenger and revenue projections and pie in the sky proposals for station-based office and residential developments will mean under-recovery of capital and operating costs.  A BCR of 0.4 looks a bit optimistic. 

Of course, we can continue  to behave badly by excessive, wasteful spending  and leave someone else to clean up the mess.  In this case another generation will be left to foot the bill while today’s decision-makers slip – or slope -- off into retirement (most likely in suburbia or their coastal retreats).  How responsible is that?

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 ..   

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)).


to:

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.

At Least Five More Reasons not to build the Central City Rail Link

Second Thoughts

So some Auckland councillors think that the Inner City Rail Link is unaffordable without central funding.  Perhaps they will do away with the latter qualification once they have heard  the budget later this week – at this time and place, it’s just unaffordable regardless of whether we throw ratepayer or taxpayer funds at it. 

Not only that – it doesn’t make a lot of sense.  Here are some reasons. (There are others - I have dealt with demand issues elsewhere).

1.       Its inflexible

Rail corridors are fixed, inflexible, and vulnerable.  Even with an Inner City Link Auckland rail will have minimal redundancy built into it.  Any service disruption will have widespread impacts – even when the cause lies elsewhere.  

Rail is vulnerable to severe weather, floods, or geotechnical disruption – washouts, landslides, earthquakes, events that usually occur when transport corridors become most critical.  How useful would rail have been in the Christchurch earthquake? That’s hypothetical, of course.  But think of Wellington’s rail system and the potentially devastating impact of an earthquake on that.  And think of the impact of extreme weather on rail in downtown Auckland or on the eastern corridor.

2.       Stations have limited accessibility and will generate congestion

Rail is difficult to access for the majority of the city’s residents who live or work more than a kilometre from a station.  Park and ride, integrated PT ticketing, and dedicated cycleways serving the stations might improve accessibility. But there comes a point when the additional time and costs discourage commuters.

And nodes will be further compromised by congestion associated with creating high density development around stations to try to boost patronage.  Even for those living close to a station, the majority of trips –shopping, entertainment, socialising, personal business, education, and recreation - are taken by a mode other than rail.  So travel demand by many more local residents combined with park and ride or feeder bus systems will require major investment in roads and around stations to maintain their accessibility.  Is this budgeted into the rapid rail dream?

3.    An irrational option in the face of peak oil?

If (who knows when?) peak oil really bites by pushing fuel prices to prohibitive levels or through an outright shortage travel behaviour will change.  Two responses seem plausible. 

First, many more people will come to rely on public transport.  But the majority will not be able to access a rail-based system without personal transport.  And if that problem can be solved, and quite apart from issues of inflexibility and vulnerability, rail is inevitably capacity-capped. It just won't be up to the job.

Second, people will travel less.  Part of that may be more ride sharing and more multi-purpose trips, more patronage of local services, more  local employment, more localised village life.  How will a fixed line, long-haul passenger system help with that?

In any case there is a solution to the threat of peak oil in place already: a road network on which public transport can operate to every corner of the region.  When people start leaving their cars at home, it will have plenty of capacity for efficient, fast, and  flexible public transport.

And the mode – who knows?  Probably buses of various configurations capable of moving people quickly throughout the region.  Quite possibly light rail will play a part, perhaps even automated personal transport networks.

4.     It’s the geography, stupid

Auckland is on an isthmus – within which sits another densely occupied isthmus. The result is a stretched out city with a big heart – all confined by hill and water. 

This distinctive physical geography shapes a city already lauded as one of the most liveable in the world.  We have a network of corridors by way of state highways and motorways which reflect this geography, and a regional and local road system tuned to it. 

Auckland - city on an isthmus

And we have inherited a heavy railway that responds to our geography with links to cities to the north and south.  What our rail system might be able to do is make dispersal a greater reality, supporting satellites north (and north west) and south of the city.  Transforming it into a version of the London Tube, the Paris Metro, or the Singapore MRT, though, is a stretch too far.

London - City on a plain

5.    Keeping Auckland Liveable

Rhetoric about transforming Auckland into the world’s most liveable city has its place.  Given that it’s already considered highly liveable, it’s interesting that this is not stopping the outflow of New Zealanders to Sydney, Brisbane, and beyond, though.

So let’s try something different.  How about being a smart city?  Or at least a city that makes smart decisions.  We could start by addressing the risks to our current liveability.

The failure to provide sufficient greenfield capacity for growth is an obvious one. Desperate intensification threatening the green and blue spaces that give character to the city is another.  The ageing of existing infrastructure highlighted by the increasing vulnerability of our underground services is yet another,one which Think Big rail plans threaten to deprive of funding .   

Oh, yes, a sixth reason

Right now the gathering fiscal clouds are perhaps the greatest threat to a liveable Auckland.  It is no doubt this that is unsettling councillors.  It will unsettle residents, too, if foolhardy spending is translated into ongoing increases in property rates and charges for services – like public transport - that fail to address the needs of the majority of resident or business ratepayers in the city (or taxpayers outside it) compromise liveablity, and limit choices in the future. 

Expanding Horizon: Rethinking Auckland’s Port Plan

Far-reaching plans

In my last blog I suggested that it’s time for a rethink of Ports of Auckland Ltd’s (POAL) plans for expansion. The current plan cements in a commitment to a critical downtown location by continuing to promote stepped investment, including substantial further reclamation.  The analysis of demand behind the plan seems too slight in content and too inflated in expectations to justify this costly long term commitment and the prospect of a four-fold increase in port related rail and road traffic. 

Today

 Source: Port Development Plan, Ports of Auckland Ltd, 2008

Tomorrow?

Source: Port Development Concept Plan, Ports of Auckland Ltd, 2008

Debatable assumptions

We are facing a period of unprecedented post-war change to the economies of New Zealand and our trading partners.  Who knows what the configuration of goods crossing our ports will be in 20, 30, or 40 years’ time?  Or the sorts of demands that might be made on some of the city’s most valuable real estate - currently occupied by a transport operator?   Obviously an efficient port is critical to New Zealand’s trading future, but that might just be why it is also important to consider radical alternatives: to achieve the efficiencies and flexibility that uncertain and challenging times demand.

This post provides a few more numbers to suggest why the POAL view of the future may be a little narrow .  It also proposes an alternative – no doubt just one of several that might be considered to promote the evolution of the nation’s long-term trade.

Changing production patterns erode Auckland’s primacy

New Zealand cargo figures from 1989 to 2011 (sourced from Statistics New Zealand 1) reveal interesting shifts. First, growth in cargo handled was slower at Auckland's port than elsewhere:

% Growth in Cargo, 1989-2011

That means its share of national trade has fallen.  I saw no analysis of the reasons for this in the port plan.  

Auckland Port’s Share of National Cargo, 1989 and 2011

In fact, if we think about it, its not  necessarily bad news.  For a start, Auckland’s sea trade is of a higher  value than elsewhere; between 1989 and 2011the unit value of its exports grew by 29% (in nominal dollars) compared with just 8% elsewhere, to reach $3,800/tonne (compared with $1,300/tonne). A  regional focus on higher value exports was reinforced  by the growing freight role of the Auckland International Airport which today accounts for 12% of New Zealand exports by value, and 21% of imports.

Also, Auckland seaport still takes a large share of national  imports reflecting the region's twin roles as centre of consumption in New Zealand and as a trans-shipment point for imports to other parts of the country.

Nevertheless, if more trade is being channeled elsewhere it suggests that there may be other options for growth which are less likely to adversely impact on Auckland's valued harbourside.

Looking to the wider region

Take a look at what is happening elsewhere in the northern North Island.  The ports at Tauranga and Whangarei have grown faster than Auckland, and today jointly account for a larger share of exports by value and tonnage.  Whangarei is, of course, a special case given the role of shipments to the oil refinery.

           Growth, 1989-2011                                                       Share of New Zealand, 2011

Responding to structural change?
These figures hint at an emerging specialisation.  Over the past thirty years, the primary processing industries on which Auckland’s export trade was built have moved out.  Consequently, the downtown port is a bit of an anomaly.  The migration of export trade to Tauranga simply reflects an adjustment in traffic to the changing geography of production.  As higher fuel prices bite, and the overheads of overloading Auckland's transport system increase, there may be good reason to act to sustain that trend.


Manufacturing has changed, too. The import-substitution industry which grew so strongly in Auckland between the 1940s and 1970s has been dismantled by a lowering of trade barriers and by the impact of the new manufacturing culture of North and Southeast Asia.

Today Auckland has a smaller number of specialised, hopefully more sustainable manufacturers.  Some of these do, however, rely for expansion on efficient channels to international markets.  Its is incumbent on the POAL to make sure it responds to their hopefully growing needs.

Is more specialisation an answer?

Of course, our analysis needs to delve deeper before we can be confident about the possible effects of ongoing structural change on the composition and volume of future trade.  But even the crude figures here suggest that there is an opportunity for greater specialisation and consequently more intensive and productive use of the assets of the three northern ports. 

For a start, a strong focus on value-based trade through Auckland seaport would enable the company to do more with less.  At the same time, fully exploiting its inland port sites as consolidation and break-down points for these and other more traditional trades should ensure that they too play a full role in integrating and streamlining internal and international transport.

Tauranga has boomed as a result of a booming rural sector – both by importing inputs and exporting products.  As a gateway to New Zealand’s most productive hinterland – the Waikato, Bay of Plenty and central North Island – we can expect this role to grow.  And if New Zealand’s trade future really is just “more of the same” as implied by the exponential growth on which the POAL port plan is based, then Tauranga  is an  obvious choice for  investing in the capacity to service the primary sectors and associated processing industries as these sectors expand, diversify, and intensify their output.

Whangarei’s long-term role is more speculative, but it possesses an underutilised port which can readily adopt and develop best practice commodity handling, as it has done for forestry.  There may also be real value in shifting lower value and bulk trades from Auckland’s downtown to Whangarei’s Northport as a means of extracting the greatest value out of both.  

Beyond the horizon: the logic behind Northport

Playing to and building on port specialisations would exploit existing investment in inland port operations and boost the productivity of any new investment across the entire transport chain.  It would probably require the rail link between Auckland and Whangarei to be upgraded and the Oakleigh extension to Northport at Marsden Point to be built.  This can probably be justified  anyway for the additional capacity it will provide on the  highway between Auckland and Whangarei by removing bulk traffic.  And by providing a sound alternative to  Auckland for high volume, low value trade  it will avoid  costly reclamation there, and help sustain the quality of Auckland's waterfront. 

The potential development of a new nearby Marsden City and the solid industrial base associated with the oil refinery mean that more trade and investment at Northport could play  a major role to play in  freeing some of Auckland's  harbour edge  for higher value uses.

Radical change calls for lateral thinking, and integrated action
This is just one option.  But looking at it – and others -  seriously might begin to meet former POAL board member Rob Campbell’s concerns about the narrow thinking that promotes incremental change at a legacy port as a way to cater for apparently undifferentiated volume growth - regardless of the wider costs.

Of course, any such suggestions may call for more than rethinking where and how different goods are shipped in New Zealand.  Perhaps the existing owners and operators cannot work together to extract the best out of their investment (for shippers or shareholders).  Perhaps current governance and ownership structures make that too big an ask, as suggested  by the Productivity Commission.

An important  part of the answer may lie in the emergence in New Zealand of an organisation -- or organisations -- capable of integrating and managing the flows across all modes to the advantage of individual trades, regardless of the ownership and management of individual components of the transport infrastructure. Actually, integration in response to globalisation is  not so radical, even if the notion of working together may be anathema  for some of  today's port players.

---

[1]               Value measured as nominal $CIF for imports and $FOB for exports.

All at Sea – Port Plan for Auckland

Critical Infrastructure at a critical location

Ports of Auckland Ltd (POAL) operates a substantial general cargo port and container terminal on the edge of Auckland’s CBD.   It occupies a critical site adjacent to  commercial, recreational, and residential zones.  Its future development will have a major impact on the city centre by way of land use options, traffic flows, harbour and harbour-side-based recreation and tourism, and the quality of central city life.

Rob Campbell’s concerns

It was disturbing, then, to read recently resigned Board member Rob Campbell’s view of the port’s future on Bob Dey’s Property Report website, especially in light of controversies about  port operations and plans.

As I read it, Campbell is saying that corporate plans for the port are really about more of the same – a harbour edge transport operation which does little to recognise the value of the site or consider how the company might increase efficiencies and returns by greater specialisation.  He calls for radical change: incremental gains in productivity are not enough.

He argues that POAL is not pursuing the gains that might come from exploring the use of surplus or lower cost capacity elsewhere.   This would take a quantum shift in thinking, though, including a willingness to cooperate with other northern ports (Tauranga and Northland).

The sector is due for a major shakeup in New Zealand if for no other reason than the uncertainty that  substantial long term increase in fuel prices create around future trade and shipping arrangements.  Our ports have to be able to respond.  Not only  that; our economy and the economies of our trading partners are undergoing transformations which are bound to impact on trade flows in ways that are difficult to predict.

The Productivity Commission’s focus: governance issues

Against this background of uncertainty the Productivity Commission in its International Freight Services Inquiry highlighted the difficulties in port management and development arising from current governance arrangements.  Local council control confuses purpose and direction, and prejudices governance in a commercial environment through the presence and expectations of elected representatives.  

This effect has been seen in Auckland where a prolonged industrial dispute has seen councillors taking partisan stands and where one of the most contentious issues in the Auckland Council’s Draft Spatial Plan was the proposed inclusion of a planned a 250m extension of reclamation by the port, since removed.

Revolutionary change – saving sectors

I have been involved in two sectors that underwent revolutionary changes to stay above water.  Both involved new players moving the ground from under conservative (and dominant) incumbents.

The New Zealand slaughtering and meat processing industry had to experience plant closures and company collapses to move from being a highly seasonal, over-capitalised, and non-viable industry to one that could compete internationally.  Long-standing work practises, fixed management thinking, and remote ownership prejudiced its ability to respond  to the trade upheavals that followed Britain’s move into the EEC in the 1970s.  It took new entrants with new ways of doing things to save it from crippling rigidities built on past success and current complacency.

In aviation, the beliefs of major western airlines that they were as streamlined and integrated as they could be and of  airlines in emerging nations that they could compete using the same management model but paying lower wages were turned over by a new breed of low cost carriers. Southwest pioneered the model in the US in the 1970s but it was not until the last 15 years that the LCC has really taken off. RyanAir and easyJet led the way in Europe in the 1990s. Air Asia has changed thinking about how airlines should operate in the developing world since then.  

These and their emulators re-invented the operational, management, and capital structures of aviation, forcing change on those traditional carriers that survived.  They have changed the way the public travels and have managed to restore a semblance of profitability to a sector in which that has been all too rare.

The Ports of Auckland Plan: back to the future?

The port industry in New Zealand may need a similar revolution.   I  looked for signs of revolutionary thinking in the POAL 2009 Development Plan.  All I could see is a commitment to more of the same.

The  analysis of future demand is central to any understanding of what the port expects to be doing, and how it might be doing it in the future. But there is no such analysis.  Instead, there is an extrapolation of TEU (20 foot container equivalent units) throughput and a conversion of this projection into capacity requirement.  A compounding 8% growth rate in TEUs handled from 1989 to 2007 was adjusted down to 5% as “a slightly more conservative long term growth rate” and used to project demand from 2008 to 2040.

This is anything but conservative   

When I looked at tonnage growth using the Statistics NZ Infoshare cargo figures from 1989 to 2010 I actually got a 4% growth rate, which raises a question over which figures to use.  However, anomalies in the historical figures fade into the background when we consider the impact of 5% compounding growth over thirty years: a four to five fold gain in container throughput. 

This raw projection begs a lot of questions about New Zealand’s changing trade profile.  That’s not the immediate subject of this blog.  Suffice to say, few commentators or policy makers are likely to see a fulfilling future as one built on exponential growth in trade volumes.

Ports of Auckland Vision for its Future

So why such a conservative response?

POAL does acknowledge uncertainty around the projections which inform its assessment of expansion options.  But none of the options canvassed (see pages 11 -13 in the Plan) envisage relocation of component trades or operations, although inland ports will no doubt play a significant role in the streamlining envisaged.  Instead a combination of progressive reclamation and new stacking operations is proposed.  The need to deal with larger vessels is also acknowledged in new berth design parameters and a channel deepening programme.  

No doubt efficiencies can be imposed at the margins through investment in new equipment and changing working conditions.  But what will this achieve in the long-term?  And how relevant will it be to New Zealand’s – and Auckland’s – economy in 2030 or 2040?

POAL is proposing to cement in a development plan  which imposes a singular and historical view of its place in New Zealand trade, and in the central Auckland cityscape.  If we are to go with Rob Campbell’s analysis, productivity will be diminished because a relatively low cost activity will be expanded over high cost (reclaimed) land. 

Its  hard to understand  how such a conservative approach to development can be founded on such a bullish vision of the future. Unless we actually suspend our belief in the projection, which seems like a sensible idea.

Time for a rethink

I’m not sure that this path is one that the country or the city can afford, at least not on such an apparently thin analysis of future demand. 

So it’s a wise move by the Council to omit the planned reclamation from Auckland’s Spatial Plan.  This is something that we need to think long and hard about.  We need to expand our thinking about the physical options facing trade in the northern North Island, for a start, rethink the role of the port in downtown Auckland, and perhaps heed the Productivity Commission’s advice regarding ownership and governance of the port industry.