Auckland's light rail, an economic tragedy decades in the making

Wednesday, 23 October 2019

EXPLAINER: The story of light rail doesn't really begin in Auckland at all.

In fact, much to the chagrin of Aucklanders, the story of light rail begins in a trio of dour, brutalist and in one case asbestos-filled buildings that surround a T-junction in Wellington.

The first of these buildings, the Reserve Bank tower, houses the people who control how much money costs. When the economy looks like it's running too hot, they jack up interest rates, encouraging people to spend less and save more, by making borrowing more expensive.

Renders of what the Super Fund's vision of light rail in Auckland will look like, including raised tracks and a tunnel under Queen St.

When things are looking bad, they cut interest rates so that money becomes cheap. People borrow and spend and the economy, in theory, gets better.

* Manawatū Gorge to get $620m replacement motorway

National Party leader Simon Bridges will axe NZ Infra's light rail plan if elected.

* NZTA backs down from light rail**

In 2008, when the bottom fell out of the economy, Reserve Bank governor Allan Bollard followed the script, dramatically cutting the official cash rate from 8.25 per cent in June 2008, to just 2.5 less than a year later.

Money was cheap, and eventually people started spending. But the economy never really fully recovered. The other part of the cycle did not kick in. The OCR is at now at 1 per cent and expected to drop lower.

It's dreadful for savers and terrifying for large pension funds which struggle to find something to invest in that's safe while also generating decent income.

Funds like the NZ Super Fund, our largest, are forced to look for yield in the most unlikely places. The Super Fund even invested $125 million in things called catastrophe bonds – a financial product that's essentially Wall Street insurance against natural disaster. They're a bit risky, but pay decent yield. Unfortunately for the Super Fund, it had to pay out after Hurricane Harvey in Texas triggered some of its bonds.

Ruth Richardson ushered in an era of low public debt.

The other two buildings sit opposite the Reserve Bank: the tower of the Treasury, and, across the road, the home of its political masters: the Beehive.

Treasury is the home of the Public Finance Act. A much-loved and much-hated piece of law that tells the government how to manage its books. Reformed by Ruth Richardson in the 1990s, it means the Treasury has a bias to low debt and fiscal surpluses. People who love it point to the fact that it's forced governments to keep debt extraordinarily low – even after the Christchurch earthquakes and the GFC, we had debt levels far lower than most other developed countries.

And there's been persistent political pressure for governments to keep debt low too. The current Government's Budget Responsibility rules have been roundly criticised as a 'straitjacket' for forcing it to keep levels of debt so low that it chokes off important investment.

But critics say that has stopped much-needed investment in infrastructure by the people who occupy the third building: the Beehive. At the same time as the last government opened the door to unprecedented levels of new migration, it also cut its investment in infrastructure. The amount of new capital spending for each 1000 additional people in the country fell from $142m in 2011-12 to just $37m in 2016-17, according to an ANZ report.

All of that means that by the time Auckland Transport started looking at light rail in the city in 2014 all the pieces of this story were well and truly at play: you have a city with a burgeoning population, which should have had light rail built decades ago, but also faces infrastructure deficits in other areas, including roads; a government with a powerful institutional and political bias against spending; and a powerful investment fund, charged with the solemn duty of paying for our retirement, desperate to find safe, profitable investments.

The political side of this question is fairly simple: what comes first, road or rail? Then-transport minister Simon Bridges prioritised Auckland's road network, while leaving a route protected for light rail in the future.

The light rail saga has put the heat on Phil Twyford.

Labour prioritised light rail, promising to have the first part of the central city to airport line finished by 2021, followed by a line heading to the airport. After it won the election, Transport Minister Phil Twyford took light rail out of Auckland Transport's hands, giving it to the NZ Transport Agency, or NZTA.

The troubled agency has been at the centre of many storms, and while it was certainly good at building roads, it didn't have experience with light rail. Then again, what organisation did? Someone had to build it, and NZTA didn't seem like a bad choice.

The agency got to work planning the network. At this stage, Twyford wanted light rail to not just be about getting to the airport, but about reducing congestion and allowing the area along Dominion Rd to densify. Lots of this land is public housing, owned by the state. Last October the Government announced a plan to redevelop that land into dense housing, including 2400 KiwiBuild homes.

But more density meant light rail would need many stops down Dominion Rd to encourage people to use the network to get to work. Too few and the distance between the stops becomes too great. More stops and greater coverage were prioritised over speed.

The project was always going to be expensive, and it carried a large amount of political risk. Any politician to take it on was brave.

Winston Peters foresees a budget blowout with the Auckland light rail scheme.

It's no wonder Twyford proudly announced in May 2018 that one of the best brands in business not only backed the idea, but wanted to have a go at building and running it. The NZ Super Fund, alongside CDPQ, another Canadian fund with rail experience, had put in a bid to take light rail off the Government's hands. That NZ Infra bid was a massive vote of confidence in the project, but it put the Government in an uncertain position: should it progress with its own plan, or accept the bid from the Super Fund?

The Super Fund of course had its own ambitions. All around the world funds of its kind are looking for public-private partnerships. They're safe investments. Governments wear a lot of the risk, while the fund reaps steady returns.

Twyford had his cake and ate it too. In a Cabinet minute, he advises NZTA to 'lead development' of light rail, but also to work out how to assess other proposals like the one from the Super Fund.

It's not clear why NZTA was asked to start work on a project that could eventually be shafted by a proposal from some agency like the NZ Super Fund. In any event, a leaked letter from the former interim chair of NZTA rubbished the Super Fund bid as little more than six PowerPoint slides. The agency got to work on its own proposal, and seemed to pay very little heed to the NZ Infra bid. It 'assessed' the bid, as per Twyford's wishes, and found it wanting.

But the Government had other ideas. By December, the Super Fund had come back with a radical proposal: a grade-separated, automated train. Grade separation means that the rail doesn't share space with other forms of transport. This makes it much faster, but also much more expensive: the NZ Infra plan is to tunnel under Queen St and erect massive raised tracks for the train to travel across.

Critics argue the Super Fund has every reason to twist the Government's arm over cost: if the project is more costly, it can demand a better return. They also argue the plan looks flat-out unfeasible. Consenting alone will be a challenge. Dominion Rd's development-shy residents scuppered a modest low-rise apartment building in part because, in the words of resident Peter Lange (brother to former prime minister David Lange), it would spoil the pleasure of 'sunsets across the silhouetted parapets of the Edwardian shop fronts'.

Imagine what he'll think of 6ft-tall concrete pylons running down the length of the road.

NZTA went to market encouraging engineers to get ready to bid for work on its light rail scheme. Thinking NZTA the only game in town, many firms hired expensive engineers with experience in light rail, gearing up for this mammoth project.

Meanwhile, the relationship between NZTA and NZ Infra began to fray. NZ Infra needed information to work on its project: things like traffic flows, maps, information about topography. NZTA played dumb, refusing to co-operate.

Eventually, the minister was forced to intervene. The assessment would no longer be done by NZTA. Instead, the Ministry of Transport would be looking at all alternative bids.

NZTA chief executive Mark Ratcliffe was forced to tell bidding firms to push pause on their plans for a project they thought was a sure bet. Those engineers have subsequently said the decision cost them millions in preparing for a project that may never happen.

Meanwhile, the former NZTA board began to get restless. It took issue with Twyford, arguing it was his decision from May 2018 to pursue both the NZTA option and the NZ Infra option that delayed the project.

By August, the ministry said it would make an assessment of the NZTA and NZ Infra bids, ready to recommend one by early 2020. In the meantime, what the Government wanted from light rail seems to have changed.

It issued new 'requirements' for the project. Though these remain secret, it's believed urban development has dropped down the priority list. Speed from town to the airport seems to be the greatest aim.

Twyford had his way eventually. In September, the entire board – minus the chair Twyford appointed earlier in the year – was out and a new board was appointed.

The delays have been costly. By early next year, when light rail should have been nearing completion, Dominion Rd will look much the same, just a bit more congested perhaps.

But millions of dollars will have been lost by construction firms. The delay has also meant the Government has had to shift money it would have spent on light rail elsewhere. It shifted $313m to other projects, mainly towards building an already-planned motorway in Manawatū.

Meanwhile, there's mounting political pressure to kill the expensive project altogether. National says it will walk if there isn't a contract signed at the next election, and NZ First has been making rumblings about axing it as well.

What was once a public transport solution for the climate change era – getting people out of cars and into public transport – now looks unlikely to be completed before the serious effects of climate change take hold.

Perhaps we shouldn't be asking whether it tunnels under Queen St or flies over Mt Roskill – it might be better to ask whether it can float.