Mon, Mar 12 2012
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

ENDS

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