Simon Wilson: How Auckland Council found half a billion dollars without cutting costs

The council's extra $500 million will help pay for the grey C3 section. Photo / Jason Oxenham

COMMENT:

Auckland Council officials conjured up a whopping $500 million from their budget yesterday, and they didn't do it by cutting spending on parks, libraries, potholes or any other services. That's a formidable achievement, although it also begs the question: how come it was so easy?

The money will be used to pay the council's half share of the billion-dollar blowout in costs at the City Rail Link (CRL).

None of the councillors was happy about it. That CRL is a hole in the ground they're pouring money into: $2.2 billion, including the new $500m, and who knows if there'll be more to come. That's the council's half share in the full $4.4b the project is now expected to cost. The Government picks up the rest.

But as councillor Christine Fletcher said, "I think we all agree this is the most important project before council at the moment."

Were councillors delighted their officials had found them a pain-free way to spend the extra money?

It was hard to see. Only councillor Richard Hills said as much. Instead, they spent the day – the whole damn day – wrangling about side issues and procedural motions, doubting the analysis of their officials and speechifying for little apparent purpose. It is, after all, council election year.

The $500m doesn't come from the annual budget, but will be spent over the whole life of the construction project, which is expected to last until 2024. How did they find all that money?

As every club treasurer and high-paid finance executive knows, it's important to hide something away in your budget for a rainy day. So $100m will come from "a reduction in cash holdings from improved cash management" and another $130m will come from "re-assessment of the valuation of operating commitments which impact on council's debt policy limits". Both of them code for "rainy day funds".

Then there's a $120m windfall because the council will pay lower interest rates on its loans than earlier thought. Also, the Government will let them stagger the CRL payments, paying less now and more later, with a net saving of $100m.

That's $450m: just $50m to go.

The officials originally proposed this last amount might come from selling the council's carpark buildings. That caused an outcry, led by the central city business group Heart of the City.

Parking buildings are valuable assets, not just because they provide a service and not just because they can be used to influence the cost of parking charged by private operators.

They're also important to the future of the city. Auckland is steadily reducing the number of on-street parks, even as the residential and working populations are both growing fast. Private motor vehicle access to the city centre could soon be very restricted.

Parking buildings on the periphery will be in demand for parking and will probably gain other functions, such as charging stations for electric vehicles.

Heart of the City CEO Viv Beck made an impassioned address to the council, arguing the strategic options for the buildings should be considered before any rushed decision to sell them.

The council was ahead of her: the motion in front of it was not to sell the carparks but to "progress a strategy to assess future off-street parking requirements", including what to do with the buildings. Options were listed as the status quo, outright sale, "partnering with developers" and "concession arrangements".

Just last month, SkyCity sold a concession to operate its car parks to Macquarie Principal Finance Group for $220m, and many councillors are keen on doing the same thing.

But that wasn't good enough for councillor Cathy Casey. She argued none of the councillors wanted to sell the buildings, so why was it even listed as an option?

Mayor Phil Goff spoke twice against her on that, but then received advice the council could easily raise the money it needed, perhaps from selling a concession, or from selling the airspace above the buildings, and he decided to support her. So did everyone else.

The aim is to secure $100m from the carpark buildings, half for the CRL and the other half to fund more park-and-ride facilities in the outer suburbs.

It was such a scratchy debate. Councillor Mike Lee wanted Goff to make a formal approach to the Government asking it to pick up more than a half share in the CRL costs. As he, Goff and others noted, no other local authority has to pay anything for its rail infrastructure: the Government has always picked up the whole tab.

Goff said he'd tried already. "I can tell you I got a very blunt answer," he said. "The minister of transport said to me, 'Your council negotiated this deal with the last government and we are not going to renegotiate it now.' "

But then he decided Lee's motion didn't mean a delay to the process of approving the spending, and said he would support it. That left Lee outmanoeuvred, because he'd been trying to delay the motion on the spending.

A delay, cautioned CRL and council officials, would be very problematic. CRL boss Sean Sweeney said the successful tenderers would not send us their best people; others said they might even walk away completely.

Why did the blowout even exist? Goff said about half of it was due to a lack of proper contingency planning and the rest simply recognised the rising cost of construction.

Much of this goes back to the murky days of Fletcher Building, one of the two original "preferred bidders" in the tender process to build the tunnels and stations of the CRL. Fletchers withdrew early in 2018, having tendered so low on other big projects it just lost too much money.

The Fletchers withdrawal had a whole series of consequences. The CEO of the CRL company retired early, the tender and cost evaluation processes were started again and have been much more rigorously audited, and there have been substantial delays.

It's all costing more now, but it's really going to happen this time.

Councillor Josephine Bartley had an interesting take on it all. She said she'd been listening to the radio station Flava, where someone had commented that if any other outfit faced a sudden billion-dollar blowout in costs, heads would roll. She was curious why that hadn't happened here.

In fact, it wasn't council negligence that caused the blowout. You can point the blame at the previous government's culture around big construction projects, which demanded low-cost contracts with so little flexibility some of the contractors suffered badly.

And heads have indeed rolled: the former government is gone and there have been key changes at both the CRL and Fletchers.

Councillor Greg Sayers voted against the decision, as did Lee. Sayers later said, "The CRL is sucking money away from desperately needed projects outside of the CBD and these outer communities are effectively subsidising the CRL."

In reality, the CRL will double the capacity of the rail network and the principal beneficiaries of that will be people living along the rail lines in the suburbs. Rail lines are not for the people who already live and work at the destination end, they're for the people who want to get to that end. Is it really so hard to understand?