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Effectiveness & Efficiency == Abundance?

In the last few months we’ve published several posts which have, in various ways, touched on some important issues facing local government in Auckland. In this post I seek to summarise some key concepts that have emerged in these posts, and consider some broader implications for Council policies, especially relating to transport.

For a self-confessed policy wonk it’s been heartening to see posts on seemingly arcane policy matters such as ratestransport levies, golf courses, and heritage policies attract passionate and oftentimes informed debate. This is not to say we’ve been able to reach agreement on the issues. Indeed many people disagree, for example, on whether Auckland Council should continue to own golf courses.

In the face of such disagreements should avoid posts on these topics? Should stick to puppyhood and apple pie posts about Amsterdam, which everyone can either get behind or comfortably ignore – by virtue of the fact that it doesn’t challenge anyone’s pre-existing notions? I don’t think so. To do so would be to rest lazily back in incomplete hammocks haphazardly woven from our own subjective experiences.

Rather, it is primarily through debating controversial issues that we can begin to understand our own values, and those of others. Even if we don’t start with the same values, we might reach agreement on relative priorities. This post is written in such a spirit. Or at least that’s my intention.

Of course the “DNA” of the post was born from my own incomplete hammock. For this reason I encourage you to tear it apart and splice it back together. Democracy often works best when people with different values work together to breed superior mutant hybrid policies.

Just so we’re on the same page: I define “policies” as things that local government either invests in and/or or regulates. And when I say “invest”, I am referring both to operational investment, e.g. public transport subsidies, as well as capital investment, e.g. owning golf courses. Without further ado …

Opportunity costs. The issue of opportunity costs has popped up frequently in our posts on rates and golf courses. That is, when Council decides to invest in something, then this will reduce the money available to invest in other things, i.e. investment has an opportunity cost in the short-term.

Some Council assets, such as Ports of Auckland, generate a direct income stream. Moreover, this income can be generated at a rate that is higher than Council’s “cost of capital”. Such investments actually increase Council’s ability to invest. Other assets, e.g. golf courses, do not generate (net) positive revenues. By continuing to own golf courses, Council’s has less ability to invest in other things, including public transport and walking and cycling.

Now, many people have argued Council’s investment in golf courses is worthwhile despite their (high) opportunity costs. I’m OK with this provided people are clear about the fact that maintaining investment in golf courses will reduce Council’s ability to invest in other areas. Put another way, I want the opportunity cost associated with golf courses, and all other Council investments, to be made explicit – so we can formulate some relative priorities.

As I discuss in more detail below, Council’s ability to increase rates to fund improvements in services is constrained by our democratic “willingness-to-pay”. Opportunity costs are important and they are not something we can simply sweep under the carpet.

opportunity cost

In Peter’s last post on golf courses, for example, it was suggested that the opportunity cost of Council’s investment in golf courses amounted to mere “pennies”. My quick back of the envelope calculation suggests Council ownership of golf courses amounts to an additional ~$100 in rates per household per annum (NB: This primarily reflects their capital value). This cost arose simply because Council has debt, on which it must pay interest. Hence owning golf courses increases the debt, and by extension the amount of interest that must be paid. This is the opportunity cost of owning golf courses.

Now, $100 per household per annum may not sound like much to some people, but it is worth keeping in mind that it’s approximately equivalent to the temporary transport levy that was recently adopted by Auckland Council (to howls of outrage from some quarters). Moreover, in just 3 years the revenue from this transport levy will enable Auckland to pursue a much more ambitious transport investment programme, especially for public transport and walking/cycling.

This is all just to highlight the importance of opportunity costs, and the potential gains that might follow from optimising Council’s investments. Which brings me onto the topic of …

Level of investment. It is useful, I think, to think about the “level”” of Council’s investment somewhat separately from the “mix” of investments.

In my previous post on rates I suggested that we should measure the level of Council investment in terms of $ per capita. The figure below highlights some broad possibilities in Council spending. We can either increase, maintain, or reduce government expenditure. Those are your options – and your homework for next week is to find out where your local Councillors stands on these issues.Level of investment

Notwithstanding what you hear in the media, Council is currently holding rates constant in real terms. But because the population of Auckland is growing, holding rates constant in real terms equates to less spending per person, i.e. we’re in the blue box in the above figure.

The blue box requires either 1) cutting services and/or 2) improving productivity. If Council wishes to hold services per capita constant, then productivity improvements will need to be equal to or higher than the rate of population growth. In Auckland, the latter is humming along at 3-4% p.a. That gives you a feel for the scale of the fiscal challenge Council is currently operating under.

Productivity improvements are one area where the public sector may be able to learn a bit from the private sector. For example, Air New Zealand has committed to identifying cost savings that are sufficient to offset inflation. This is discussed in the slide below (NB: Source).

Air New Zealand savings

It’s key to note that Air New Zealand are, in general, looking to realise these savings not through one-off “slash and burn” type changes, but instead through sustained, incremental improvements that are made across all areas of their business, i.e. they seek to leave “no stone unturned”.

I think Council needs a similar approach. It’s better to identify efficiencies consistently, rather than wait until major cuts are required. In this context, I think it’s reasonable for people, like Peter, to identify areas where savings might be made, such as golf courses. Other people may disagree. That’s fine, provided they have alternative ideas on how to either 1) find savings and/or  2) increase revenues.

Finally, I should say that I place “user charges” under the general rubric of “cutting services”. This is because if something was previously provided free, and we change it such that people now have to pay, then this is effectively a cut in service. This is *not to suggest* that user charges are necessarily a bad thing. I support, for example, user charges for things like wasterwater, parking, and development where they encourage the right kind of efficiencies. Which brings us nicely to the next topic …

Effectiveness and efficiency. This is an important distinction, which I think is frequently conflated – probably because the concepts are not always easy to separate.

From a public policy perspective I think of “effectiveness” as a question about whether a policy contributes to wider strategic objectives, including consideration of (potentially unintended) consequences. Efficiency, on the other hand, considers whether policies are well implemented. It may be, for example, that a particular policy supports strategic objectives, i.e. is effective, but nonetheless is implemented in an inefficient manner, such that the benefits are not as high as they could be.

While I tend to despise wish-wash diagram spam, I do think the following figure illustrates the distinction between effectiveness and efficiency quite nicely for y’all.

veranderen-eff-vs-eff-en-515px

Let’s say, for example, that Aucklanders collectively decided that Council ownership of golf courses was an “effective” policy, insofar as it contributed to wider strategic objectives. The next question people like Peter and I would ask is whether Council was delivering golf courses in the most efficient manner?

We might then put forward questions such as:

  • Do we own the right number of golf courses and are they in the right location?
  • Are Council golf courses priced/sized appropriately? E.g.:
    • Should we increase green fees so that the users covered not just operating costs but also some of the opportunity costs?
    • Should we convert 18 hole golf courses to 9 hole golf courses? And If so then should we create public parks and/or residential/commercial development?

So even if we conclude that continued Council investment in things like golf courses is effective, we might still want to consider ways to make that investment more efficient. And that latter in turn would realise savings to invest in other Council services, and/or lower rates …

Focus on public transport. How might these concepts relate to public transport? Most Aucklanders, myself included, appear to be of the view that public transport is “effective”, i.e. our aspirations for the city see a larger role for PT.

But is Auckland’s public transport system efficient? Well, no not really. Or at least not yet.

It is true that sustained capital investment in public transport has started to flow through to “the bottom line” in terms of higher farebox recovery. For the uninitiated, farebox recovery measures the percentage of operating costs which are covered by fare revenues. Recent trends in Auckland’s farebox recovery over time are illustrated below.

2015-09 - Statement of Intent result

You can see that in the last year or so it’s increased from ~46% to ~48%. This is heading in a positive direction, but is still quite low in comparison to many high performing cities overseas (with the notable exclusion of Australia – which is something of an outlier in terms of its operating costs, mainly for rail). Amsterdam, for example, achieves 75%, while Edinburgh, London, and several German cities achieve closer to 100%. The implication? All other factors being equal, these cities will have more money available for other things.

So how might we improve the efficiency of public transport in Auckland?

Well, the first thing I think we should do is to remove subsidies for cars where it is effective/efficient to do so. Cars are currently subsidised in terms of the parking they use, as well as the externalities they generate, such as congestion, noise, and air pollution. By charging people more to use cars, we would increase demand for public transport and hence generate increased revenue from the existing system. Such actions are, however, relatively slow to bear fruit, so we need to also look elsewhere.

In terms of the public transport system itself, we know AT is currently working on a range of things like growing HOP uptake, implementing PTOM (i.e. new bus contracts), rolling out bus lanes, reducing rail dwell times (and possibly staffing), the New Network, and the CRL. I am optimistic about these changes and their collective potential to improve the efficiency of our PT system. For those who are interested, my colleague Jarrett Walker has written some interesting stuff about making PT more efficient.

As mentioned above, improving the efficiency of PT is a means to an end, not necessarily an end in itself. More specifically, reducing PT operating subsidies frees up money within the existing PT budget to invest in efficiency-enhancing infrastructure, such as more bus lanes. In this way, improving the efficiency of our PT system gives us the opportunity to reinvest in the system, and thereby make it more useful and more abundant.

Key message? Operating PT efficiently allows us to provide it more abundantly. And abundant PT is what many of us want. For this reason, if you’re keen for PT to become more widely available and/or more widely-used, then you should also support initiatives that seek to make it more efficient. These measures may make trade-offs that involve cutting services in some areas, simply because the “opportunity cost” attached to those services is too high. I don’t think we should shy away from such decisions; we can’t make a great PT omelete without throwing away some bad PT eggs.

In short, if we can improve the effectiveness and efficiency of Council spending across all areas, then we can all look forward to more abundant public goods and services. This applies to golf courses, public transport, libraries, and indeed everything else that Council invests in.

Now I think I’ve said enough and it’s time to hear what others have to say …

49 comments to Effectiveness & Efficiency == Abundance?

  • RB

    Flawed thinking. ‘Value’ is relative. If you want to hide in spreadsheets rather than looking to the future then lets sell every green space in Auckland. I am SO bored with Peter and now your obsession over golf courses. NOONE will have any gratitude towards your shallow thinking down the track when Auckland is a mess of low quality dense housing with no green spaces left. I humbly suggest that Cornwall Park should be sold (based on your logic) as just like any major city peaks sections there would generate zillions – but only ONCE. When sold it is gone forever. Again, I am not a golfer – never will be, but I do appreciate all green spaces. Hey lets just sell all of Auckland’s green spaces, might as well. You won’t be happy until all the activities you and Peter envy are shut down.

    • Ari

      I think you miss the point RB. Don’t get me wrong, I totally agree with you. Taken to the extreme we could just sell all the public spaces in Auckland and build lots of houses. But it’s not flawed thinking in the sense that the point of post is not about golf courses, but about all council activities. My problem is that I don’t agree on what council wastes all it’s money on if it did sell golf courses. Maybe having so many staff is a waste of money, maybe PT is a big waste of public money and we should let the market deal with transport solutions. Same with public car parks, swimming pools, white-water rafting complexes and importing sand for beaches in wealthy suburbs. All these activities cost money with arguable benefit.

      I don’t actually think council spends public money efficiently or effectively, thus the less money they spend, the better. Selling golf courses to fuel council spending on the latest flavour-of-the-month money-pit scheme is a recipe for disaster.

      • Stu Donovan

        Thanks on one level Ari.

        But where you say “taken to the extreme …” sounds awfully like the slippery slope fallacy.

        To quote a website that specialises in these things and therefore must right about everything (http://www.theskepticsguide.org/resources/logical-fallacies): “This logical fallacy is the argument that a position is not consistent or tenable because accepting the position means that the extreme of the position must also be accepted. But moderate positions do not necessarily lead down the slippery slope to the extreme.”

        Amen.

    • Stu Donovan

      Hi RB,

      First, your comment is very close to violating our user guidelines, specifically rule #4 (http://transportblog.co.nz/about/user-guidelines/). Please take a moment to read these guidelines. If you have feedback on the blog please put it in an email.

      Second, I understand Cornwall Park is a privately held trust, i.e. it’s not “owned” by the Council even if there is public access. So that’s not a relevant example. The Domain also has its own legislation, so rest assured it’s also safe. For now …

      Third, as an aside, this post is not about golf courses. This post *is* about maximising the effectiveness of local government in Auckland. That might include demolishing your house for a golf course.

      Fourth, I’m suggesting the provision of green space needs to be balanced against other objectives. So when I see green space being used inefficiently, and/or not contributing to other outcomes (e.g. ecological values), then I ask myself if there’s opportunities to use it better. You seem to be suggesting we’re managing everything optimally now, so everyone should just calm the fudge down?

      P.s. Yes, envy is exactly what motivates me; you know me so well. Did you know that Peter recently bought shares in Fletcher Building and Infratil? I wouldn’t say he’s an envious person per se, but more just interested in securing a personal profit from selling golf courses. I think it’s important that if you’re going to generalise about the motivations of people you don’t know, then you should at least have some juicy misinformation on which to base your accusations.

      • Peter Nunns

        Just in case Stu’s sarcasm wasn’t obvious: I don’t own any shares in property development companies, except possibly indirectly through Kiwisaver.

        • Stu Donovan

          Oh shit me too! But I also own property in Auckland, which gives me an incentive to support policies that push up house prices. But I’m also a hiker and an environmentalist who appreciates and supports the provision of public green space.

          Maybe we should just trust RB when he asserts that I’m motivated by envy, as opposed to money or personal preference? Understanding my own true motivations is just too confusing.

        • mfwic

          Peter I find it is more fun to let people react angrily before pointing out they don’t understand. In rugby they call it letting the game breathe.

      • Bruce

        Yes, someone comments about a post that is off-topic (golf courses are NOT transport related in the slightest) and disagree’s with your stance so you throw your toys out of the sandpit and threaten them? Not very mature, constructive, or helpful to the purposes of discussing and encouraging public transport or transport related issues. Grow up.

        “Third, as an aside, this post is not about golf courses. This post *is* about maximising the effectiveness of local government in Auckland. That might include demolishing your house for a golf course.” Funny because I counted FIFTEEN mentions of “golf” specifically along with further references to it without naming it. That accounts for more than half of the sentences in that post.

        THAT SAID…. the 2nd half of your post was quite good reading and interesting (and RELEVANT) so thank you for that. I’m not trying to say that this blog should be only about transport, but it should be mostly about transport. Lately there have been just as many posts about things other than transport. Might I suggest that for topics that aren’t transport related at all are posted in a separate page? (still part of TB but just not on the main page). I think that would go some way to avoid some of the clashes that are popping up on this blog and keep it focused on its purpose of Transport “doing the right things right” 🙂

        • Peter Nunns

          Transportblog’s _always_ been interested in urban issues in general, not just transport. Most posts are about transport, of course, but there’s also been lively discussion of issues like urban planning (including Matt’s analysis of and submissions on the Unitary Plan), housing affordability, apartment development (e.g. John’s development tracker), new public spaces (e.g. shared spaces, Wynyard Quarter), and local government funding (e.g. Matt’s coverage of the transport funding work last year).

          Generally speaking, readers seem to have appreciated and responded positively to the broader focus on urban issues.

          • I am in fact *only* interested in transport in as much as what it achieves for the city and its people. Transport is, quite literally, a means to an end. I came to studying transport because I came to understand it really is the key to fixing the sub-optimal quality of the built environment in many cities and in Auckland in particular. I look forward to the day that it doesn’t require so much focus, and while the direction of change now is encouraging we are a long way from that point. These posts of Peter’s and Stu’s are particularly valuable because they set this important part of the city problem within its wider context.

            Excellent work.

          • Bruce

            “housing affordability, apartment development (e.g. John’s development tracker), new public spaces (e.g. shared spaces, Wynyard Quarter), and local government funding (e.g. Matt’s coverage of the transport funding work last year). ”
            Agreed that most of those are fine as they do relate to transport to a point (housing density in the right areas works in tandem with PT for example). Public spaces can encourage walking, cycling, PT in general, as does development in the city (Wynyard) as the more the city centre develops the more people will want to go there and that of course involves improving transport.

            What I and it seems many people don’t want to read the 50 millionth post is about how evil golf courses are and how we should just sell them to be concreted over (despite transport related comments about how much space is wasted by…concrete and tarseal).

            I don’t use these golf courses and am neutral about them in that regard, my argument (besides that we shouldn’t even be going over it on a transport blog) is that if we sell off this land for development it is gone forever from that point. If we convert it to a proper park/sports fields then we will a) receive no rates money at all from it, b) it will add to council expenses in maintenance costs. Sure a golf course doesn’t pay the amount of rates that the value of the land would otherwise dictate but they are doing their own maintenance and paying some rates…so in other words they are making a positive contribution. In the meantime the council is effectively landbanking so that in future when our city is over 2 million+ people (which won’t take long at current rates) we will have land that can be used most effectively at that time.

            The argument that it is adding $100 per household is a crock. The land has been owned by the council for such a long time and not on borrowed money. If the council now has high levels of debt that is due to poor management and wastage etc along the way from other things and not from owning a golf course/s!

          • Peter Nunns

            Pro tip: It’s easy for you to avoid reading posts on topics that you’re not interested in. Simply stop reading as soon as you see the word “golf” and come back the following day. This is much more effective than whinging about editorial policy.

          • Nik

            @Bruce: If we don’t start thinking about the arguments for and against the retention or re-purposing of current green space, when it comes time to have the discussion do you expect the arguments put forward to be any more thought through than a sound bite?

          • Max

            “What I and it seems many people don’t want to read the 50 millionth post is about how evil golf courses are and how we should just sell them to be concreted over (despite transport related comments about how much space is wasted by…concrete and tarseal).”

            Missing the point TWICE. This isn’t what the posts suggested, and you’re not forced to read any of this.

            I love this (and the previous other) posts. It’s great to have these issues highlighted in what I consider is a very reasonable manner.

            The defensiveness/agressiveness of some only shows that Peter and Stu have touched on some sacred cows. And I think that politics should not have any sacred cows. Everything is up for debate, and discussion. This is how democracy works.

        • Stu Donovan

          Ah Bruce. I feel the need to score a couple of immature, but nonetheless, important points:

          1) I responded sarcastically to RB’s comment because he claimed that Peter and I were motivated by “envy”. That claim is formally know as “ad hominem poppycock”, which *doth butter no parsnips* in this honourable kitchen. So RB’s comment was subsequently dispatched over the bowler’s head and into the stands for six, i.e. Where. That. Shit. Belongs.

          2) More generally, if someone who doesn’t know me makes ad hominem attacks on my character, or the character of someone who I love, then *they are dead to me* (NB: Insert scary image from The Exorcist movie here). Ipso facto it doesn’t matter whether RB said anything else that was worthwhile; only years in purgatory can save his soul now. RIP RB. As you may or may not know, hell hath no fury like a strawberry blonde scorned.

          3) Wikihow (http://www.wikihow.com/Know-when-You-Are-Grown-Up) lists 6 criteria one must meet to qualify as “grown up” and apparently I fulfill all 6! YAY!!! P.s. I believe telling someone to “grow up” is rude. Stop it or I’ll tell the teacher.

          4) When it comes to TransportBlog, my role is to invest my free time writing about things that I think are mildly interesting, or which keep me away from the vodka on these cold and lonely winter nights.

          5) I’m glad you enjoyed some of the post, and look forward to engaging constructively (on issues that we will determine) in the future.

          P.s. You may feel like I am being harsh, but if you take the time to look at our user guidelines then you’ll find that – in the last rotation of the beautiful fragile Earth – you’ve managed to break most of the guidelines that are listed. Hell hath no fury! Go well.

      • RB

        Stu, the obsession about golf courses is obvious in Peter and your posts. Just pointing it out. It is getting quite boring. I humbly suggest that although golf course LAND is worth a fortune (isn’t any dirt in Auckland?) that golf courses actually do not cost you and I (ratepayers) any real money. And yes Cornwall Park was entrusted to the Council – still wriggle room to sell it though under various pretexts (pretences) of there being a real need for the city. My point is clear. No-one going forward will thank anyone for flogging off green spaces, whatever their current or future use is.

        • Stu Donovan

          “Obsession”: This is the first time I’ve commented on the issue in a post, and it’s not even the main point of this particular post. I note that Peter only wrote 3 posts because 1) there was too much material for 1 post so he wanted to split it up and 2) there was so much interest, i.e. people found the topic interesting and controversial. We’ve written many more posts on other issues,e.g. HOP, for the same reason: It’s controversial and interesting. Moreover, it’s not like there was no support for his position: If you go back and read the comment threads you’ll find people split about 50:50. In fact, they were some of our most read posts from the last year. So some people obviously found the topic interesting even if you didn’t.

          “Boring”: Do you go to someone else’s party and complain to their face that it’s boring? No, you suck it up or you quietly excuse yourself. Same deal here. It’s our party and we’ll cry if we want to. I repeat Peter’s advice from above: If you are bored by a particular post, then *stop reading it*. Don’t comment here that you find it boring. That is a violation of our user guidelines; if you have feedback on the blog, then put it in an email. You can find contact details under the “about us” section.

          “Real money”: All assets cost “real money”. That money is the foregone cost of using the capital to pay down debt, i.e. “the opportunity cost”. Think of it this way: If you own a house, with a mortgage that costs you 5%, and you have $50,000 in your current account that is doing and earning diddly squat, then you’d be a mug for not paying down your mortgage by $50k. Same deal here, it’s no different. So don’t pretend it’s not “real money”, it’s as real as any fiat currency anywhere.

          • Phil

            This is a complication that will be missed by your interlocutor, but even if you don’t have debt an asset that does not earn a commercial return costs you money – it has an opportunity cost. Example: you have $1m tied up in a golf course, but you have no debt. The golf course earns $10k in green fees a year, or 1% of asset value. If you sold the golf course and put it in the share market you might make $50k a year. Holding the capital in the golf course costs you $40k a year.

  • Lord Maths

    In traditional public sector terms, efficiency refers to the ratio between inputs and outputs; it doesn’t speak at all to the benefits or lack thereof of the particular action. Effectiveness refers to the ratio between outputs and outcomes.

    Cost:benefit combines both efficiency and effectiveness.

    Personally, I believe efficiency is a red herring until we’ve actually looked at local government effectiveness. What would help would be a greater focus on the quantiy and quality of services provided – consents approvals, dog seizures, library quality etc. You can’t determine an adequate level of funding (or an excessive one) until you know what you are trying to achieve, which is effectiveness.

    In PT terms, effectiveness would be some sort of ratio between time savings and the number of services provided. Efficiency would simply be the cost to provide the services. So an “efficiency focus” might lead to perverse behaviour of running all buses in blocks, disregarding commuter patterns, to maximise the number of services provided per dollar

    • Stu Donovan

      Thanks – those definitions of effectiveness and efficiency sound useful.

      Just to be clear: I don’t think the efficiency of PT is defined solely by cost recovery. I would say this is a measure of financial efficiency. Other aspects of efficiency could be measured via other indicators.

  • Lord Maths

    The classic “efficiency” paradox comes from the Soviet Union

    Factories had quotas to meet – the tonnage of nails produced, including the tonnage produced compared to raw steel consumed

    What’s the most efficient solution? Of course: a single 10-tonne nail

  • Greg N

    Opportunity Costs are notional concepts, and are only crystalised into reality if all those opportunities “forgone” are real and would in fact be enacted as envisaged.

    Few trust that their council will for instance, actually pay down ALL that debt of $100 per-capita if all the golf-course were sold. And even fewer would trust that if the current council did, a future council would merely rack up even higher debt buying back all or some of the golf courses at a future date for green spaces. So any savings like this tend to be illusory and short term.

    Doesn’t mean we shouldn’t rationalise the golf courses, but lets do it properly and with short, medium and long term thinking working in agreement for once.

    Case in point, Auckland City Council selling of half its Airport shares “to reduce debt” [as advised by Bill Birch to do so], the opportunity cost of doing so was ignored (via the ongoing dividend stream income).
    And in fact, the pittance in interest costs saved by selling off those shares at an inopportune time/reduced price missed out on dividend income from those shares well in excess of the interest avoided.
    No one can point to one council service made better by that early debt retirement, but a lot of people can sure see the downsides of that opportunity forever lost.

    • Peter Nunns

      Yes, agreed. Those are some good points. I don’t think there’s a prima facie case for any and all asset sales – it’s important to be able to point to specific evidence showing how they would lead to better outcomes in the affected markets. Like you, I’m generally leery of the argument that assets should be sold solely to pay down debt, as it’s not obvious that avoided interest repayments will outweigh foregone dividends.

      • Stu Donovan

        yeah, I think discussions of selling some assets and buying others has been fertile ground for “slippery slope” type arguments.

        I think this is partly an attribution error: People associate talk of assets with political ideology, which is probably fair based on New Zealand’s historical experience. This doesn’t mean, however, that everyone who talks about investment priorities is coming from the same ideological perspective.

    • Stu Donovan

      Good call Greg – and I agree. Hence my example of Ports of Auckland potentially generating an ongoing revenue stream that supports future investment.

      And of course it’s not all about revenue stream, but actually about effectiveness of outcomes. But there’s no doubt that if we make decisions now about locking up Council capital in this and that, then we have less flexibility in the future.

      Just one comment of yours made me raise my (usually bushy but currently nicely trimmed) eyebrows: “Few trust that their council will for instance, actually pay down ALL that debt of $100 per-capita if all the golf-course were sold. And even fewer would trust that if the current council did, a future council would merely rack up even higher debt buying back all or some of the golf courses at a future date for green spaces. So any savings like this tend to be illusory and short term.”

      I tend to disagree with this statement on several levels. One is that if Council finds savings somewhere, then it either has to 1) pay down debt and/or 2) spend the money on something. In terms of #2, this could involve increased spending on other activities and/or reduced rates.

      #2 is a democratic decision: We get to decide what happens to the money. So it’s our responsibility to take that long term perspective when we’re voting. And if we don’t, then we only have ourselves to blame.

  • *** This comment has been edited for violating our user guidelines, specifically rule #4 ***

    Your notion of Opportunity cost is too narrow and only looks at the monetary value for Council and wider Auckland.

    Try this:
    Opportunity cost of golf course land flipped over into residential and commercial development on physical and human environmental grounds.

    Sure council gets more rates and we might get more amenity and services from this but at what cost to us and the physical environment. As we are meant to intensify our Centres and existing residential areas around those Centres those green spaces the public golf courses provides become more apparent.

    Apparent in the following ways:
    1) urban lungs to absorb increased CO2 and NO2 waste from our intensification
    2) Water filtration from storm water run off if we modify these courses and our storm water network to allow more filtration ponds
    3) Green highways for our funa
    4) Green reserves for our under pressure flora

    These are the true opportunity costs we actually face from council divestment of the golf courses into what authors here have been promoting – urban development.

    Again if Council were to divest then flipping the courses into urban forests and parks would be of more BENEFIT to us as a City than hocking off for urban development on the false premise that this divestment then reinvestment could say better fund public transport (it wouldnt and wont).

    • Peter Nunns

      Hi Ben

      If you read carefully, Stu’s not really talking about golf courses. He’s talking about the efficiency and financial discipline of local government, which is an important consideration for all Aucklanders.

      That being said, I see your point about there being some benefits of open space that I didn’t quantify. My estimate is that ecosystem service benefits are too small in magnitude to affect the result. However, I have an open mind on the subject, so I suggest that you put some numbers to those benefits and show me how I came to the wrong conclusion.

    • mfwic

      Taking your four points in turn:
      1/ It makes no difference to CO2 or NO2 levels whether green areas are located in prime real estate areas or on the edge of town, or for that matter 400km away. Housing on golf courses means less housing needed at the edge and very likely higher intensity housing which means more space is availble for greenery.
      2/ Ponds don’t work. We are not supposed to build them now in residential areas as all they do is heat up the water. You filter stormwater or you dont.
      3/ Birds might use the golf courses to commute but they can also use street trees and public squares and parks. No one is saying dont build small parks. Better to use the golf courses for housing and build proper greenways at the edge of town rather than keep golf courses and add to suburbia at the edge. That is the choice.
      4/ How do the exotic trees planted in golf courses and the imported lawn grasses that need high levels of feriliser and pesticide support native flora?

  • Ben

    When a new dwelling is constructed and new residents move in, does their rates income get added to the council ‘pot’, with all other rates income staying constant (so there is a net increase in council rates revenues, and rates per capita hold constant)? Or do all other dwellings in the city get their rates adjusted ever so slightly downward so that the total council rates revenue remains constant (and rates per capita decreases slightly)?

    • Stu Donovan

      I am not an expert on these matters, but my understanding is that the total rates collected stays more or less constant (as specified in the annual plan adopted by Council) and everyone else has their rates adjusted downwards.

      Although bear in mind that part of the annual plan and rates setting process will involve making predictions about growth. So it’s really about whether growth in the number of businesses and/or dwellings is higher or lower than forecast. If it’s higher than forecast, then you can expect rates to be lower and vice versa.

      Important to note that this is “holding other factors constant”. So if more growth happens in areas that are costly for council to service, then this may change the equation.

      • Ben

        This is quite important in the context of the points you make in your post regarding level of investment:

        “Notwithstanding what you hear in the media, Council is currently holding rates constant in real terms. But because the population of Auckland is growing, holding rates constant in real terms equates to less spending per person, i.e. we’re in the blue box in the above figure.”

        If rates naturally increase as the population increases (via rates charges on new dwellings) then the above does not hold true?

        • Stu Donovan

          Hmmm … I’m confused why you’re confused. Rates don’t increase as population increases.

          I’ll try and outline things again – hope this helps:
          1. Auckland Council, namely Len Brown, has committed to holding the increase in *total* rates collected (from business and residential sources) at/or below the level of inflation, i.e. constant in real terms.
          2. Because Auckland’s population is growing, then this implies Council’s *per capita* rates will decline. I think that #2 i a numerical truism that follows from #1?
          3. In general, however, the total rates collected by a council in any particular year is set via annual plan process made on the basis of expenditure and growth forecasts etc.

          • Ben

            The part where I’m confused is how a rates increase is actually levied on Auckland’s ratepayers (I’ve been trying to find information to clarify but had no luck!). If Len Brown and the Council approve a 3.5% rates increase, does this mean that they a). increase their total rates revenues by %3.5, or b). that every dwelling in Auckland has its’ rates increase by %3.5?

            This isn’t semantics, because option A means that the rates increase is independent of population growth, so existing residents will not bear a 3.5% increase – part of the increase in revenues will simply come from new income from dwellings. Option B means that existing residents will bear the 3.5% increase, and the total change in council rates revenue will be (3.5% on existing dwellings) + (new rates income from new dwellings)

            This confusion of mine stems from the last post you made on AC’s rates collection (which was excellent!). In that post you presented a graph showing that total Auckland rates income has more or less held constant since 2009. I’m trying to reconcile this data with the fact that the council has approved rates increases of 2.5-3.5% every year. Can you help?

          • Council sets a budget for how much rates revenue they need. This gets divided across all properties based on their value. The value of your property determines your proportion of what council has worked out it needs.

            A 3.5% increase will be an average across the whole city, i.e. a 3.5% increase in the budget. How that gets divided up depends on how relative property values have changed. Some will go up, some down, some the same.

          • Ben

            Thanks Nick. So for the removal of doubt: If council pursues a strategy of increasing rates at the rate of inflation, then we will actually go backwards in per-capita (or per-dwelling, I suppose) spending if the rate of population growth exceeds the rate of inflation? As total rates will be held constant in real terms while being spread thinner amongst the growing population base?

          • Stu Donovan

            yes! The way I think about it:
            1. If Council holds rates constant in real terms (equivalent to increasing at rate of inflation in nominal terms), and
            2. The population grows by any amount, then
            3. Real rates collected per capita must decline.

            I talked about trends in rates per capita (using data)) in more detail in this post if that helps: http://transportblog.co.nz/2015/10/26/is-the-auckland-super-city-out-of-control-computer-says-no/

            I’m also planning a follow-up post to cover off some issues raised in that post, as well as some further information that has subsequently come to light.

          • Ben

            Thanks for bearing with me. It’s frustrating reading news headlines and editorials about council inefficiencies and financial mismanagement (evidenced by large rate increases), propagated by the likes of Cameron Brewer and the Herald. It’s good to confirm my suspicions that most rates increases are simply to cater for population growth.

          • Ted F

            Thank you for the interesting blog

            This may be off topic but:
            There is another factor in the rates since the amalgamation which seems to be ignored by the media commentators; there has been a balancing of the rating model as well, first there is the adjustment of lower rates from commercial properties values and then the balancing of the rates over the whole of the Auckland area for the residential sectors. This led to initial rates rises per $ for those in council areas where the rates were lower/$value and those areas where they were paying less and had borrowed more. This led in the last 2 years for some of those in the “Richer” areas to complain about tremendous increases when in fact the actual rates struck for the city were lower.

  • Peter Nunns

    Great post Stu. It’s a really nice application/generalisation of Jarrett Walker’s argument about how we can deliver abundant access in PT systems.

  • mfwic

    The Takapuna golf course only exists because a group of Takapuna businessmen managed to take over the Council to act in their own self interest. The land was supposed to be a regional centre which is part of the reason the motorway took that alignment. But the Takapuna business people led by Fred Thomas didn’t want to lose trade so they stood and got elected and killed the centre. It is now AF Thomas Park. So let’s not pretend the golf course exists because of any altruistic actions or a need for golf facilities. If the centre had been built then the North Shore would have a regional centre close to both the motorway and the busway. Instead we have a golf course and Takapuna which will always be poorly located.

    • Ari

      That’s quite interesting about Takapuna GC. I never knew that. I suspect it is only a matter of time before that land becomes housing anyway.

      I also laugh how Stu suggests council makes democratic decisions. People get elected and then do their own thing. Not even the mayor has a lot of say in what does/doesn’t get done. Most decisions in the Super City seem like they are ultimately made by unelected bureaucrats.

      • Max

        “I also laugh how Stu suggests council makes democratic decisions. People get elected and then do their own thing. Not even the mayor has a lot of say in what does/doesn’t get done. Most decisions in the Super City seem like they are ultimately made by unelected bureaucrats.”

        Uhm, that’s how representative democracy works? You elect somebody to vote for you as in “in your stead”. If his/her track record does not please you, you don’t vote for him/her again. Simple, and for democratic reasons, I consider it very important that they CAN vote how their brain strikes them on a particular issue, even if they have said different things in the past. Accountability is at the election polls, not at the latest petition, herald opinion article or angry nimby in Council chambers.

        As for bureaucrats having a lot of power – that, like representative democracy, is a result of large organisations of civilisation, such as those needed when we outgrow the small village stage. Again, an effective politician controls bureaucracy effectively (though I admit that sometimes OTHER politicians – I am thinking of people like John Key and Rodney Hide here for the Super City) set up restrictions on that. That only means we need to vote differently on the national level.

        Compared to 90% of the rest of the planet, we’re bloody efficiently managed & democratically ruled here in Auckland. Not a reason to not seek improvement, but also sometimes needs to be said.

    • Is that “North Shore events centre” part of that plan? I always thought the location of that centre is weird. There’s nothing else to see nearby. It would be close to Smales Farm if there would be a pedestrian bridge over the motorway.

    • Peter Nunns

      This is a fascinating little history. There are many weird things happening in that tiny corner between Wairau and the beach, and more than a few silly decisions. (I’ve always lamented the lack of a reserve / walking track around Lake Pupuke – bad planning that.)

      In any case, the centre of gravity in the area seems to be shifting away from Takapuna towards Smales Farm (for offices) and Wairau Road (for retail). I suspect that over the long run Takapuna will probably transition to be more like St Heliers – beachfront, apartments, restaurants – with a sprinkling of office work around. Probably an okay outcome for everyone.

      • Sailor Boy

        Would be great to see a strip of 8-12 storey mixed use develop from Taka right through to Smales Farm along Tahoroto Road with a big cluster of buildings at both ends. Sadly the zoning here was nowhere near ambitious enough.

  • kelvin

    The issue with government bureaucrats is the lack of motivation. Without survival and competition like in the private sectors, there is no incentive to do more than the minimum. Bureaucrats can set whatever KPI they like, regardless of whether that kpi is too low or not.

    Democracy in theory elect politicans who made best decisions, however politicans who made best decision hardly win, due to the fact the best decision are not always the most popular, when emotions and preceptions are involved.

  • Rex Gould

    This whole golf course debate opens up a very large can of worms if fairness for all prevails. I have no problem with user pays, “market” rates and land rents on one condition – the same conditions shall apply to every sporting and leisure activity across the region. If cyclists want to use the roads they should pay for it. if rugby, football, cricket, athletics etc clubs occupy Council land then they too should pay “market” rates and land rents…and maintain the grounds themselves. Not all golf courses in Auckland are council owned, some occupy Crown land.The reason Manukau GC is moving was not for the the greater good of the Auckland people – affordable housing you’d have to be joking!

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