Twyford goes to the private sector (and Kiwibuild buyers) for cash
By Richard Harman (author)
Transport Minister Phil Twyford is more or less relying on the private sector to finance --- and profit from --- the big developments he is planning in Auckland and in the future, other cities.
But he says the huge reliance he will be placing on the private sector is not because of the Government's Budget Responsibility Rules' borrowing limits.
Instead, he says the need for funding is so great that even if it wanted to the Government wouldn’t be able to borrow enough.
Furthermore, he believes that those who benefit from the developments should pay for them.
Hence purchasers of his proposed 10,000-home Mangere Kiwibuild re-development will find themselves hit with higher rates as part of the financing of the City-to-the-Airport light rail project which will run through the redevelopment.
Twyford says the Mangere re-development announced last week would increase the stock of state housing and provider a huge number of affordable houses for young families.
He is proposing that two-thirds of the houses in the development be for sale to private buyers either as affordable homes or sold on the open market.
But buyers might be in for a shock.
The good news will be that the development, which straddles Bader Drive, will be adjacent to the light rail to the airport.
The bad news will be that that location makes the development a prime target for value capture and therefore higher rates.
“That is possible,” Twyford told POLITIK.
“We are looking at that now.
“We are investigating.
“It’s very important to me that we fully investigate land value capture as one way we can generate revenue sources to support the infrastructure for urban growth.
“That is the big challenge we have got.
“High growth cities like Auckland but also other cities have got to be ablet o raise revenue to invest in growth.
“They can’t rely on the taxpayer or the ratepayer to provide it all.
“Value capture is one of a number of different things that we are exploring to be able to do that.”
Whether the Government opts for value capture or another vehicle such as infrastructure bonds or public-private partnerships, Twyford is emphatic that projects like light rail cannot be wholly funded from Government borrowing.
He even goes as far as to use a phrase more often associated with free-market neo-liberals.
“It’s like a user pays principle.
“It’s very important that the cost of the investment and the debt is carried by the developments that are going to benefit from the infrastructure.”
He dismisses the argument that the Government should relax its debt limits and borrow more to fund infrastructure.
“The need for investment in infrastructure and urban growth is so great that even if we got rid of the Budget Responsibility Rules tomorrow, we could still never meet the need for capital off the Crown’s balance sheet.
“Nor would you want to because I think there is a very strong and persuasive argument that when you raise money for infrastructure you need to raise revenue from the community, that benefits from that investment.”
It is abundantly clear from what Twyford says that value capture from targeted rates will be a critical source of revenue for the infrastructure investments.
He said he and Finance Minister Grant Robertson and Infrastructure Minister Shane Jones were working on a proposal for bond financing for infrastructure.
The bonds would be supported by value capture rates.
“We would provide access to cheap long-term debt for developers who are willing to take the commercial risk and that debt is serviced by revenue sources like a targeted rate or an infrastructure levy on the properties in that development.
“That is the big project that we are working on at the moment.
“Treasury are leading that work, and I am hopeful it is going to bear fruit in the next few months.
Twyford said that the current Housing Infrastructure Fund meant that the Government was being asked to write cheques every few months.
“that is not a way to do this kind of stuff.
“If we can out this bond financing in place then it will turn on the tap for long-term infrastructure finance for developments and developers who are willing to take the commercial risk.
“Therefore you are not asking the ratepayer and the taxpayer to subsidise what you are doing.”
(Except of course those people who are paying targeted rates because of value capture.)
The other vehicle being considered by the Government is public, private partnerships.
There is already a proposal which Twyford repeatedly assures was “unsolicited” from the NZ Super Fund to fund, build and operate the light rail.
“We welcome the Super Fund unsolicited proposal and their interest in the project but we are committed to running an open and competitive procurement process, and we welcome the full range of private financing options.
“We are also going to look at whether NZTA could just borrow.
“But we are very open to looking at private financing arrangements.’
And those could include Kiwsaver funds; perhaps not for the light rail but certainly for other infrastructure projects.
"We would love it if KiwiSaver funds were interested in investing in infrastructure.
"There is a huge need for investment for infrastructure for our cities, and there is a whole world of cash out there both in New Zealand and internationally that would love to invest in infrastructure, but we simply don't make it easy for that to happen, and that's what Grant and I are doing really; looking at ways that we can allow that investment to take place.”
Twyford has been consistent on his desire to have private investment play a big part in infrastructure development since his days in opposition.
The reality is that with both the Budget responsibility Rules cramping him in from one direction and from the other, the huge scale of what will be needed over the next few years, he has little choice.