Ways to pay for big infrastructure: mass transit edition

We’re used to paying for roads, prisons, rail, schools. Now Auckland and the government are figuring out how best to pay for the mass transit the city needs. Take note, Wellington! This is us too.

Infrastructure costs a lot; it’s typically big-numbers, low-margins work for companies with quite a lot of risk on all sides including the client (typically us).

Who bears what proportion of the risk? What profit is legitimate? What kind of cost increases are palatable? (Noting that cost increases happen on every project since the dawn of time, sparking lots of variably informed debate (e.g. Auckland’s City Rail Link.))

We’re used to paying for big roads with PPPS (public-private partnerships), and increasingly they’re being used to pay for other infrastructure like prisons and schools. Check out an excellent cheat sheet on PPPs by Alex Brae.

You need to be a pretty great contract negotiator and manager to make PPPs work well (plus have other success factors, outlined in this PhD).

We probably don’t have many of those success factors yet… see for example the SkyCity convention centre cost blowout that landed on the taxpayer, and some really interesting insights on the context and principles of public-good infrastructure by Max Rashbrooke (illustrated by government’s negotiating tactics in commercial contracts around Wiri prison).

This matters because governments are always casting around to find ways to engage the capital of the private sector in public good infrastructure creation.

Mass transit: how to fund

Now in Auckland, to pay for for their crucial mass transit infrastructure, the NZ Super Fund has come in as a possible source of capital after lots of frustrating faffing around. It’s got a bit weird though, with some pretty strange-sounding suggestions from the Fund about the engineering and route of the mass transit. And all this means more delay for them.

Wellington, take note: we’ll have this sort of debate (hopefully better) in not too long, given mass transit’s gamechanging role in making Wellington city work properly.

What have you read or heard recently that’s enlightening on how to fund big important infrastructure well? Tell us in the comments!

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