By Andrew Bydder, Hamilton City Councillor
Council Maths is… different.
Figures for Hamilton City Council.
A speed bump has a material cost of $5,000 worth of asphalt and $500 for paint. There is an installation cost of $10,000 including delivery, labour, equipment hire and profit margin. On top of that is $50,000 for traffic management and $100,000 for consultants for a standard design, matched by internal council costs of $100,000. A contingency of 20% of $53,000 is added to the budget in case of problems.
The total of $318,500 gets rounded up to $400,000 for budget approval. As this is under the $500,000 limit for delegated authority, council staff sign it off without councillors ever seeing it. Then at the end of the project, the contingency and rounding disappear into hidden slush funds.
Under Labour’s Waka Kotahi, (reverted to The New Zealand Transport Agency) Council received a 50% subsidy ($200,000) which is why there was such an explosion of speed bumps. The subsidy is recorded by The Council as income. Thankfully the National Coalition has stopped this.
The Council borrows against this income, even though it is a one-off event, and the money has already been spent. The borrowing is through the Local Government Funding Agency which allows a ratio of 280% debt to income, so The Council gets $560,000 to spend on other projects. The fact that this needs to be paid back is ignored. There is no debt reduction planned in the next 10 years, all while daily interest payments rise from $150,000 to $300,000. The next generation is screwed.
The speed bump gets recorded as a Council asset with a book value of $400,000. In your personal finances, an asset is worth what you could sell it for. The Council cannot sell the speed bump or the road it is on. In business finance, an asset is something that earns money. The speed bump has an associated on-going maintenance cost – it is a liability.
The Council staff appear to be doing well. They completed a major $400,000 project on budget, gained $200,000 income and $560,000 in capital. According to the consultant reports, the new speed bump will reduce congestion by forcing people out of cars, thus saving the planet from carbon dioxide, and save lives by reducing accidents. What a great success!
However, as real data gets collected, the numbers show, congestion has increased with a resultant increase in fuel consumption and accidents resulting in injury across the city have increased by 66%.
This is why rates are doubling in 5 years and city debt is projected to go from $1 billion to $2.5 billion in 10 years.
It doesn’t have to be this way.
Firstly, there must be an end to the WEF anti-car ideology. I am pro-cycling, but not at the expense of cars. I don’t see elderly people doing their supermarket shopping on bikes. I don’t see tradies carrying building supplies by bus.
New Zealand has the highest infrastructure cost in the world, four times the OECD average. It is not due to geography or population because we are twice the cost of comparable countries like Sweden. If we halve the costs, it is still double the average, but, it will save councils from inevitable collapse.
For real projects, consultant costs and internal costs could easily be halved. I have been a consultant to councils. I doubled my fees, not to fleece the public purse, but because there were so many extra meetings, pointless paperwork and delays that I didn’t make any profit. Cut the bureaucratic crap and let the experts make the decisions like any private project. After all time is money.
The problem is that staff are scared of taking responsibility which is bizarre because there is never any accountability. I suspect the fear is precisely because of the lack of accountable measures. In business, dollars are a good measure for decision making. If the dollars work, then it is easy to take responsibility. By giving staff a good measure, they can get on with the project without wasting time.
Traffic Management is out of control. There is no need for international best practice. There is only a need for fit-for-purpose solutions. The cost must at least be halved.
Project Management needs to be taken away from council staff. They simply don’t have the professional experience and skills for the job. Tighter project management will reduce contract fees, save contingencies and rounding, and lead to better financial management.
Competent project managers work with contractors to establish the most efficient construction methods leading to reduced contract prices and reduced overhead costs.
Finally, if projects don’t stack up with a real return on investment, don’t do them. A subsidy is not income if it is already spent on a project nobody needs. Borrowing against liabilities is not prudent financial management it is insanity. Let’s change the way our Council does maths.
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