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City Rail Link costs escalate as councillors feared

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Fuseworks Media
Fuseworks Media

Confirmation by Auckland Transport that the cost of the City Rail Link will undoubtedly rise to over $3 billion does not surprise three Auckland councillors who recently wrote to the Auditor-General outlining their concerns about the project and urging the Office of the Auditor-General to ensure a close oversight. The trio now wonder what the ‘no go’ point is with the CRL.

"This latest half a billion dollar cost escalation is exactly what we feared and hence why we wrote to the Auditor-General last month. We all know the original budget, but no one has any idea still of the full costs and risks and where both will fall. This is unprecedented given the sheer size of the project and the fact that construction has already begun. Our concerns lie with Auckland ratepayers - present and future," says Auckland Councillor for Orakei Cameron Brewer.

Councillor for North Shore George Wood says councillors need to be given the full facts as to what is really known about the costs of this massive project. "The CFO of Auckland Transport promised councillors up-to-date figures by June and we’re still waiting. We’ve been kept in the dark for far too long. I believe it’s time to stand back and assess the Central Rail Link project and consider if Auckland can really afford to go into such a project where the costs are not finalised," says Mr Wood.

Councillor for Howick Dick Quax says just three weeks ago a senior council official assured him that a cost blow-out on the City Rail Link was unlikely. "I have been warning of the very real possibility of a cost blow-out on the City Rail Link for some years now. Overseas experience has shown that urban rail projects almost always under estimate costs and over-estimate patronage. Sadly, it seems Auckland will be no exception to this rule," says Mr Quax.

The three councillors said they were disappointed by the Auditor-General’s relatively dismissive response to their concerns and hope she will take heed of this latest development.

Below: The Auckland councillors’ letter to the Auditor-General - 21 June 2016.

Office of the Auditor-General

100 Molesworth St

Thorndon

Wellington 6011

21 June 2016

Dear Ms Provost,

Re: City Rail Link Project

As Auckland councillors, we would like to take this opportunity to raise with you some outstanding concerns we have with the City Rail Link project and invite you to respond.

We appreciate that in 2014 you called for more information around the costs and certainty of the project. The council responded with an amendment to its assumptions. In good faith you then effectively signed off the 2015 - 2025 Long Term Plan, satisfied with the supplied forecasts, information, and greater certainty around Central Government funding.

However, we remain concerned that no formal funding agreement for this massive project between Auckland Council and the Government is in place, yet the physical construction has begun. We believe that a number of red-flags remain for Auckland ratepayers.

We appreciate that a business case and funding agreement is now being worked up by officials representing both parties. At this point the funding split sits around 40/60: Government/Auckland Council. The Council’s 2015 - 2025 budget forecasts assume that the Government will commit $1.039b and that the council will fund $1.490b - taking the total capital expenditure cost to $2.529b. This is largely because the Government is yet to give any commitment to fund the three -year enabling works now underway.

Ms Provost, we invite the Office of the Auditor-General to take an active interest in this pending joint funding agreement currently being negotiated. Present and future Auckland ratepayers deserve the assurance that the eventual funding agreement protects their best interests, and only your Office can offer a truly independent view and present any necessary safeguards.

As you well know, never in the history of New Zealand has a Local Territorial Authority ever shouldered so much - not only the capital cost, but potentially the additional provision of the operational subsidy it will require.

Auckland Council’s own long-term operational budget forecasts show that, based on current assumptions, the City Rail Link will require an operational subsidy of over $100m each and every year once it has been built - and that is after receiving NZTA subsidies and passenger farebox revenue.

The joint funding agreement must not only ensure the capital cost is fairly shared across the entire project (enabling works and main works), but also that ratepayers are not left to shoulder an unfair quantum of the operational subsidy (currently equivalent to about a seven per cent average in residential rates increases).

Yes, there is a precedent to OPEX funding split for rail, but again this is a project on an unprecedented scale and needs to be treated accordingly. Furthermore, which parties carry what risks and how much those parties carry respectively, should be something of acute interest to your Office. Suburban ratepayers should not be left to shoulder cost blow-outs on a project of a national scale.

Given Auckland Council’s already concerning debt-to-revenue ratio, and the fact that alternative funding instruments (i.e. a motorway network toll) remain some years away, we invite you to also concern yourself with how Council is actually going to fund any significant operational shortfall going forward. Cost containment, both CAPEX and OPEX, will be the biggest challenge for the City Rail Link project, with ratepayers (not taxpayers) being the most exposed, given that the project remains council-led.

Back in the 2012 Long Term Plan your Audit Opinion raised a number of issues around the "significant level of uncertainty" with the Government's half share of the cost and locking down "alternative funding sources". Your letter stated that "The main risks to the city rail loop project are that Central Government will not agree to provide direct funding nor enable the Council to access alternative funding sources."

While we accept that the Government will come to the party on the former, the latter remains outstanding. Like other aforementioned issues, ratepayers cannot wait until Auckland Council’s 2018 Long Term Plan for certainty around alternative funding. That certainty needs to form part of the pending funding agreement. And again this is another reason why your Office needs to involve itself.

Ms Provost, as "rank and file" councillors we have real concerns, when the Chief Financial Officer of Auckland Transport told us last month, that the final costs of the CRL are still be worked on by quantity surveyors. To date we have still not heard the final overall costs of the project. Only this week the Prime Minister publicly predicted that the project will "almost certainly cost more than they thought."

We ask that your Office actively takes the necessary steps to scrutinise the processes, in order to ensure that all members of the Governing Body are kept abreast of how the project is being funded.

It would be helpful to know that your Office is overseeing the issues we are raising.

Yours sincerely

Cameron Brewer - Auckland Councillor for Orakei

Dick Quax - Auckland Councillor for Howick

George Wood - Auckland Councillor for North Shore

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