Local councils — not just in Hawke’s Bay, but throughout NZ it appears — can’t calculate.

Or more precisely, they’re hopelessly inept at doing the cost-benefit analysis on their major infrastructure projects. And as a result, ratepayers are always left holding the bag.

The latest evidence comes from Hamilton, where, as the Herald reported today, a new $72 million events centre is facing an operating deficit of $1.42 million in the current year. When interest, depreciation and maintenance is added, the facility is costing ratepayers $10 million per year … and will for many years to come. For Hamilton, this follows Waikato Stadium, which costs $3 million to keep open, and the V8 racing debacle.

Here in Hawke’s Bay, we seem to have no end to the infrastructure wish list, even as current facilities lose money regularly.

Splash Planet. Marineland. The Opera House. HB Museum & Art Gallery. Pettigrew-Green Arena. The Sports Park. All with operating deficits requiring ratepayer funding.

This is not to say that one or another of these facilities isn’t meeting a genuine community need and isn’t worthy of ratepayer support. However, experience has shown that the extent of required ratepayer funding has always been under-stated, while the ‘economic benefits’ have always been over-stated.

The net result: ratepayers holding a bigger bag than they were told to expect.

Not long ago, HB Opera House chairman John Buck informed the Hastings Council that ratepayers would need to be asked to put an extra $1.5 million into the facility over the next seven years. As reported by the DomPost, Mr Buck stated that: “…when the board took over its operation in January 2009, it did so ‘without fully realising the paucity of financial and operating information available to it’ … Forecasts had been based on a ‘best-guess basis’ and ‘to put this in simplistic terms, we did not know what it cost us to open the doors’.”

That’s a remarkably candid comment — one you’ll never hear an elected councillor make — from a savvy businessman. But even John Buck drank the Kool-Aid … what can we expect from financially-impaired councillors?

They just keep adding to the infrastructure wish list — television-ready hockey field, aquatics centre, Marine Parade and Civic Square redevelopments, Te Mata Peak Visitor Centre, a business park or two … to say nothing of a dam that would cost hundreds of millions, all in.

Recently I heard a presentation to the Regional Council on behalf of a television-ready hockey facility for the Sports Park by Mayor Yule, Park chief executive Jock Macintosh and entrepreneur Bruce Mactaggert. Super-booster Mactaggert was especially enthusiastic about the economic benefits he foresaw from the proposed facility.

Deja vu … I couldn’t help being reminded of the original predictions made by then-consultant-on-high Murray McCaw (or was it Sam Kelt) about the vast money-making potential of the sports park if it only had a gym sport facility (or was it a velodrome)?

Again, no doubt one or another of these projects might prove entirely worthy.

But as we enter the season of adopting councils’ Long Terms Plans, a healthy dose of skepticism is warranted when listening to the sales pitches of the various applicants … especially when councils are touting their own projects and promising a pot of gold at the end of the rainbow.

Be assured:

Costs will be under-estimated. Financial benefits will be over-projected.

It’s the council way. Why? Because they never need to absorb losses … they just pass them along to you.

Tom Belford

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4 Comments

  1. I agree with you Tom. I'm always sceptical of the 'economic benefits' touted by the supporters of these projects and events. How much did the Hawkes Bay benefit from the Americas Cup?

    Whilst I don't expect community facilities to be profit making centres I do expect councils to be realistic.

  2. Now that's a comment I do agree with! But Tom could perhaps have pointed out the per-head debt run up by all the various Hawke's Bay councils, over the last 30 years, pales in comparision to the per-head debt run up by the current Government over just 3 years. So who would you trust to fix things?

  3. I'm having a bad day as we have a client who has had a great business employs 4 great guys and is throwing in the towel – shutting shop, calling it a day! And lets be real we all know of so many businesses that are in the same boat but it's not positive to talk about? Down here on the ground where most of us live things are tough?

    So thanks for the reality check Tom – as governments, countries and rugby provinces teeter on the brink of collapse it seems HB Councils are still continuing to build "luxuries" and give us the PR Rainbow Fairytale. Whether to take out a fountain in the middle of Hastings comes to mind?

    It would be great if our Councils went back to the drawing board and ensured the infrastructure was there for business to just get on with stuff. Maybe they could do something different and do the absolute basics for the next five years and slash the rates / compliance costs. As you say when they get it wrong they just whip the peasants more but I am not sure how the peasants are going to continue to pay?

    Councils need to get back to the basics like every other smart business in the country / world!!

    Does driving a truck in Australia really pay $150K a year or is that a myth?

  4. Tom, a good but incomplete synopsis of the totally irresponsible spending by our employees–the totally inept members of council–in particular the NCC. The worst example by far is the aquarium which was casgated by independent consultants prior to a council vote on it's proceeding as a huge loss making commercial gamble. The then mayor, Alan Dick belittled the report –which he had instigated, and literally produced his own ''financial study'' on the back of an envelope 10 minutes before the meeting to get it rammed through with the support of his compliant and economically illiterte councillors. The current mayor being one of the projects most vociferous supporters along with her deputy. Cr Herbert, myself and 4 others were out numbered, so today we have an economic disaster costing all Napier ratepayers the thick end of $10,000 per week in loses, depreciation, deferred maintanence etc. Another more recent example is the $1,500,000 spent on two buses to cart people from Napier CBD to West Quay–in direct competition to a bus already providing this service and funded by the HBRC. Iam unaware of any financial study being undertaken on this commercial venture. Surfice to say no private enterprise would contemplate such expenditure as the whole project is another example of an economic basket case, which, the long suffering ratepayers will be funding decades to come. Never mind, at least 3 councillors may directly benefit with their buisnesses being in the area affected by the largess paid for by the people they were elected to represent.

    The question has to be asked as to where is the independent study that would be required to back such an ''investment'' and what is the quantum of losses projected to be to sustain this service. This is of impotance to Napier ratepayers in particular, as, they are already subsidising a competing service through their HBRC rates.

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