Stuff had an interesting piece looking at rates, taxes and local infrastructure “Rates are much lower than you think, and they’re responsible for miserable growth in cities“. Pretty much everything in that was correct – they just missed out one crucial factor. What was said was.
But in recent decades, there has be a further blockage. The prevalence of the political blockage caused by Private Public Partnerships (PPP) advocates is a pervasive and insidious political stoppage point.
The basic premise of all PPP projects is that they will reduce the upfront costs by putting up the capital and relieving the rate payers of the financing cost. This is usually couched in terms of keeping rates down.
Central government tends to support this because it means that they don’t have to help finance immense difficult infrastructure projects like the City Rail Link. Which is why that required transport hub hasn’t been built in the last half century. It was simply too big for Auckland City (as it was) and too large for the Auckland super city to finance, but offers immense direct and indirect benefits to the transport structure inside the whole of the Auckland region.
The problem is that PPP invariably offers nothing to the local bodies apart from no benefit to the ratepayers and results in unowned assets that can’t be directed towards the betterment of the city.
That is the track record of just about every single PPP project that I have looked at so far. Investors in such projects are interested in taking as little risk as possible, so there are invariably parts of the contract that revert most risks back to the local bodies. Generally such parts of the contracts are marked as being commercial confidential – rater payers only find out about then decades later when the nasty expensive bits get exercised.
But the primary reason for it is that the commercial partners are going to be more expensive. The reason is obvious. Investors will be raising capital themselves, some their own, but mostly from purchasing debt at higher rates than the councils could raise debt.
The usual reason given by advocates is that private enterprises is more efficient at running such enterprises. Which would be a surprise to just about everyone who has taken basic economics – to one degree or another every PPP project is in a monopoly or semi-monopoly position. This could be because they hold a economic position with few alternatives, or it could be what the local bodies are obligated to do in those commercial-in-confidence documents. Things like blocking off free public roads if the compete too strongly with the PPP roads. This is efficient for the PPP investors – not so efficient for the rater payers.
But there is also the question of time scale when it comes to business efficiency. Personally I’ve always worked in private enterprise in everything from startups to corporates. They’re fun compared to public enterprises (which I have only had brief liaisons with) because they change a lot.
Virtually no private enterprise business knows what in the hell it is really going to be doing in 5 years. In my experience few can even plan for 18 months. There is always a new broom sweeping through, a change in strategy, a merger, a buyout or a business failure. Staff turnover at a rapid rate. Private industry is efficient in an economic sense because they are flexible – they seek and fill in gaps in the markets rapidly and often efficiently.
They are essentially useless at the kind of long-term planning that is required to build and operate the infrastructure that all businesses operate on top of.
Which leads me to the PPP political blockage that wasn’t in the Stuff article. Businesses wanting to do PPP style investments are prepared to put up money for the promotion of their interests, like suckering politicians into signing away their ratepayer’s futures. The usual way that they do this is by raising the spectre of rate rises and the short-term thinking ratepayers groups against them, then suggesting that the way to get the crucial infrastructure is to PPP.
This inevitably raises the counter-action by anyone who has had the sense to read about the history of PPPs to start working against the proposals. Small business owners, retirees, environmental groups, local NIMBYs, and just about every other group jumps in with their own interests – including the central government.
It seems to invariably deadlock the early and invariably less expensive start to infrastructure in the debades before it is needed.
Personally, to reduce the confusion, I’d suggest that PPPs are simply taken off the table and legislated against. That would clear a major distraction.
And incidentally, the Stuff article looked to me to be a classic PPP PR play – to frame the debate by offering a ‘new and exciting’ (and very tired PR framing) way to unblock the local vs central government blockage over infrastructure.
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