Hive News Wednesday: Council eyes targeted rates and Port separation for longer term

Given the dearth of news out of Wellington this week with Parliament in recess and John Key on tour in India with Brendon McCullum, I've looked in more depth at what's going on in Auckland after the election.

Yesterday I hosted a panel discussion at an Auckland Council symposium for new board members and councillors, and have also interviewed CEO Stephen Town about the outlook for the city's funding arrangements ahead of tens of billions of dollars worth of infrastructure and construction work in the years to come.

The election of Phil Goff and the appointment of his committee chairs has reset the landscape for the debate about funding Auckland’s insatiable infrastructure needs in the longer term, and they’re set to consider some longer term funding tools over the months and years ahead.

Town signalled in my interview that the Council would propose to Goff and the Governing body it look at targeted rates for the next Long Term Plan as a way to maximise the use of the Government’s Housing Infrastructure Fund and contain overall rates increases.

He also said the Council could look at the potential for selling a long term lease on the Port of Auckland’s land to a separate Port Operating Company, similar to a A$9.7 billion deal just done by the Victorian Government to sell a 50 year lease for the Port of Melbourne. Such a deal would allow Auckland’s ratepayers to retain control over how the Port’s land and reclamation plans are developed, but free up capital for reinvestment to cope with an extra 600,000 people over the next 25 years.

The Council is up against its borrowing limits and Goff has committed to rates increases of no more than 2.5% a year, which means the Council needs to find other ways to help fund the massive infrastructure requirements needed for the roads and pipes to support up to 400,000 new homes over the next 30 years.

The Council is also pushing ahead with plans for a congestion charging proposal it could put before Aucklanders and the Government within two to three years, rather than the decade-long timeframe talked about in Wellington. A regional fuel tax could be an interim step between the current interim transport levy paid by all ratepayers.

Any proposals would not be for the imminent new annual plan, which is for the third year of the current three-year cycle. They would be for the next long term plan.

“The long term plan is where the new Mayor gets to make their splash and create the beginning of a legacy,” Town said.

“If we are going to keep pace with growth and you’re not going to put rates up by more than a small margin, you’ve got to be prepared to do some other things that have not yet been contemplated or talked about,” he said.

Town pointed to last year’s EY/Cameron and Partners report on alternative sources of financing, which suggested raising funds from asset sales to invest in infrastructure for growth.

Goff has ruled out selling the Council’s 22.4% stake in Auckland International Airport, but he has been more open about the Port's future. A Council-led study released in July suggested the separation of the land from the port operating company, and the sale of a long-term lease over the land. See page 20 of the 28 page report.

“That’s the model that’s been deployed with selling operating leases in the Australian port scene at the moment,” Town said.

“Create an operating company and give it a long term lease, and then see who’d like to buy that opportunity. It’s the land ownership and control of reclamation and wharf extensions that Aucklanders clearly get agitated about,” he said.

Targeted rates

Town said the other area where the Council could consider new tools is around targeted rates, particularly as the discussion around maximising the use of the Government’s NZ$1 billion Housing Infrastructure Fund became more concrete over the next year.

“The targeted rate conversation is going to become much more serious around the Housing Infrastructure Fund and a targeted rate in New Zealand applied to an area of benefit where there’s value uplift is effectively tapping into that value uplift concept,” he said.

Treasury referred to the potential for ‘value uplift capture’ tools in its official advice on the Fund.

“It avoids the situation where you’re trying to do blanket rates (increases) like an interim transport levy across all ratepayers. You’re identifying the area of benefit,” Town said.

“You’re saying: ‘We’re servicing this area faster than others through the Housing Infrastructure Fund and the Council’s own resources, therefore rather than collect all of the development costs via development contributions, we might collect some of that through targeted rates,” he said.

Targeted rates would provide an immediate financial incentive for developers to build and sell houses.

“We will take that policy conversation up to the Council in due course,” Town said of the targeted rates concept.

Housing Infrastructure

Elsewhere, Town also said one possibility for surmounting Auckland’s rating and debt limits was for the Government to own the infrastructure in new housing developments for a period before it was vested or sold back to the Council.

He referred to the Crown Fibre Holdings model used to fund the broadband rollout.

“What is potentially possible is that the NZ$1 billion is used to fund new public assets, but it’s held in a Crown Owned company – think of the Crown Fibre Holding model,” he said.

“What could happen is the Government would have a real asset that they had funded and eventually they might sell or vest those assets into the Council.”

However, the Council would need to avoid creating a formal financial obligation that the ratings agencies and the Local Government Funding Agency had to factor into the Council’s debt limits.

“It could own in a particular locality the local roads and the water and wastewater infrastructure that’s needed,” he said.

“They could then ask the Council to collect rates on that and they could have that revenue stream in the mean time and eventually sell or vest those assets to the Council.”

Town said the Auckland Council would send its proposals for projects for the Fund to the Government by early next year with a view to formal and final commitments by the middle of next year.

He was hopeful that if the model was successful, the Government would expand it at a later date to NZ$2-3 billion a year, particularly if it wanted to encourage the creation or arrival from overseas of very large housing developers who wanted to commit to New Zealand for 10-20 years.

“That would give quite a lot of certainty to the bigger housing suppliers. They know that NZ$1 billion is not going to go far,” Town said.

“If the Government was to signal an annual amount of NZ$2-3 billion they could create an accelerated and more certain pipeline.”

Congestion charging

Meanwhile, Town said officials were working on smart transport pricing for congestion charging and disruptive technology such as driverless cars.

“We’ve still got to get the cabinet of the day across the line, and probably the opposition parties as well,” he said.

“The key to doing that is that Aucklanders understand the proposition and generally support it. That’s where the effort will go.”

The Government has said it was not something that motorists would see for up to a decade, but Town was hopeful of quicker action.

“It’s the next two or three years to get something up as a proposition that could convince Government it’s the right thing to do because Aucklanders support it,” he said.

“If Aucklanders get behind that programme of moving to smarter transport pricing it’s them that will carry the day with Government. “

That's it for today.

Have a great day.

cheers

Bernard