Tony Sage: Auckland's basic services are suffering

Aucklanders unhappy about rates increasing by more than the rate of inflation should realise that things will get worse.

Central government's policy for local authorities for more than 30 years, as expressed concisely in the Local Government Act 2002, has been that they should promote the social, economic, environmental and cultural wellbeing of communities.

Such an open-ended mandate from Wellington has been an invitation to head for the wide blue yonder.

There is no end to the flow of mission statements and visions for Auckland. It is to be a place with a soul, New Zealand's first city of commerce and culture, and above all a fun city.

Coming from the entertainment or tourist industries there would be no harm in such inanity. Unfortunately, the city council is a victim of its own hyperbole.

It now projects as an extravagant 1960s-style economic development agency with a three-pronged brief to promote entertainment, tourism and the city's growth.

Auckland is the country's largest city and its commercial capital. It attracts people because of job opportunities, the climate and beaches.

Business decisions on the location of enterprises are based on tax rates, proximity to markets and availability of labour, other services and materials.

Council promotion of Auckland is hardly a factor. Even if it were, every other council in the country is beating its own drum. To the extent their efforts mean anything, they cancel each other out.

The city is promoted as if its council were a private-sector company and Auckland a brand. This has meant a disastrous loss of focus on certain basic responsibilities.

The V8 street races, for example, were promoted as a fun event and a big win for Auckland. As usual, the most extravagant and unsustainable claims were made about the economic benefits.

City council sponsors of the races were livid about Auckland's loss resulting from inability to get resource consent.

Their response is to put even more money on the table to attract other events and water down resource consent requirements.

City Scene, the self-promotional council giveaway, has made the patently absurd statement that major events deliver an estimated economic return of between $11 and $250 for each dollar invested.

The $250 was based on a council estimate of the $10 million worth of export orders that would result from a $40,000 subsidy for a strictly commercial 2002 Fashion Week promotion.
For all the blather about economic growth, the emphasis in council publicity is usually on intangible social and cultural benefits. Some layers of council senior management show no sign of ever having been exposed to conventional cost/benefit analysis.

Auckland's grandly named Britomart transport centre serves only a few parts of the city. Accordingly, it must have the lowest user count for any station of equivalent cost anywhere in the world.

The terms of the contractual arrangements with the Australian operators of the Quay St Arena being built on leasehold land owned by Ngati Whatua are secret.

While they are being lauded in council PR as highly advantageous to ratepayers, one thing is clear: the low priority given by council to conventional financial analysis.

The arena's contract price is around $80 million, of which the council is contributing $69 million. The operators hold the title so can presumably borrow for their capital contribution of $11 million and for working capital.

Their lender's security would be the arena asset paid for mainly by the ratepayers' $69 million.

Because the council has also borne substantial planning, preliminary, and infrastructure expenses its total costs approach $90 million.

A charge for rates is being foregone and the royalty of 20 cents for each occupied seat will produce derisory annual income. Only after 40 years will the council get title. Ngati Whatua will remain owners and lessors of the land.

Even before charges for depreciation and interest, the return on investment is negative. Auckland cannot afford many more such exercises in financial innovation.

With parks and reserves and many other responsibilities, the council continues to perform satisfactorily. The work to improve the eastern beaches and adjacent reserves, for instance, reflects great credit on those responsible.

On the other hand, despite the ballyhoo about strategic plan milestones and meeting targets for environmental infrastructure, work to reduce sewage inflows into waterways and the Waitemata Harbour proceeds painfully slowly.

That is no reflection on council and Metrowater engineers. The council just has other spending priorities. PR spin substitutes for adequate results.

Council's most disgraceful dereliction of duty as a result of its loss of focus on essentials has involved the complete collapse of its building consent, inspection and certification procedures.

As a result, thousands of home-owners are saddled with leaky buildings and ratepayers face claims for up to $500 million. Blocks of low-budget apartments that would blight any city have been built to Third-World standards.

The chickens are coming home to roost in fun city. Aucklanders' rates will continue to increase in real terms, by more than the rate of inflation. There will also be little things like toll roads.

It is only a matter of time before local authorities, with Auckland leading the charge, secure approval from central government for regional sales taxes, a GST impost or similar sources of additional revenue.

* Tony Sage is an Auckland chartered accountant.