Christchurch rebuild: How much will we pay?

JOHN MCCRONE
Last updated 13:00 23/02/2013
hi vis
WHO PAYS WHAT?: Bob Parker and Gerry Brownlee.

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During the past couple of years, Christchurch Mayor Bob Parker and Earthquake Recovery Minister Gerry Brownlee have had more than a few, what they both would term, "robust" encounters.

So at a Friday luncheon to create some positive messaging around the central city rebuild, the assembled audience of property owners, corporate bosses and community leaders might have been forgiven for looking closely for signs of fresh damage. A bruised lip, a cuffed ear.

It had been another big week in local politics with hastily arranged private meetings between the city council and central government.

Those "in the know" had been speculating about grim blowouts in Christchurch's recovery costs, the council being leant on to foot more than its fair share of the bill, even the threat of commissioners if mayor and councillors did not play ball.

Yet by the week's end, Brownlee and Parker were there sharing a makeshift podium on the site of a half-rebuilt private clinic in Kilmore St, giving rah rah speeches about how the demolition cranes are now being replaced by construction cranes.

The pair were all smiles. And it seemed genuine.

There may have been the odd veiled reference, but the critical relationship between central and local government appeared to have been repaired by an agreement to have serious talks about how to divide the recovery costs - the possible $4 billion in road and sewer repairs and further $1.8b for replacing broken civic buildings.

Still, some had had the distinct impression of hearing muffled thumps and bangs coming from behind the closed doors at the civic offices over the previous few days. So what had it all been about, even if Parker and Brownlee were now officially best mates once again?

***

At its heart, the issue is simple. Christchurch's earthquake recovery is going to be fantastically expensive, so the question is how should the final tab be split between the city and the nation?

Or more pointedly, given the extraordinary administrative powers granted to Brownlee under the Canterbury Earthquake Recovery (CER) Act, how is Christchurch City Council, and hence ultimately the Christchurch ratepayer, going to avoid getting dumped on unfairly?

The "who pays?" question has been creating tension right from the beginning. Remember February 2012 when Parker nearly resigned after Brownlee called him a clown?

Brownlee was reacting to a Parker comment that the CER Act meant the Government could take control of the council's finances if it wanted to, installing commissioners, flogging off council assets like the Port of Lyttleton, and hiking rates to whatever level was required to cover the rebuild.

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As Parker revealed in his recent autobiography, Ripped Apart, Treasury was climbing all over the council's books at the time, checking on how it was proposing to fund the recovery, and a commissioner takeover seemed definitely on the cards.

That episode was defused - passed off as a media-fuelled miscommunication. But as Parker then tells, there was another big moment just before the announcement of the central city Blueprint in July. This time, out of public sight.

Five days before Prime Minister John Key was scheduled to unveil the Blueprint live on the six o'clock news, Brownlee summoned the council table to a meeting at the Canterbury Club.

Brownlee wanted to warn councillors that the price tags of the central city anchor projects, like the rugby stadium, new library, convention centre, cultural precinct, performing arts complex and metro sports facility, had blown out spectacularly.

It was all good, said Brownlee. The Blueprint was going to be far more ambitious than anyone had imagined. Christchurch would have the perfect small city centre layout, framed by new green spaces.

But it meant about another $1b would have to be found on top of the close to $1b the council had already scrapped up through promised insurance payouts on the existing buildings, a 1.8 per cent rate rise, and the shuffling around of its long term debt and spending plans.

Councillors were incredulous at Brownlee's high-handed announcement. Decisions on the scale of the city's civic facilities were being dropped in their laps without debate or consultation.

"These were super-sized projects," splutters normally mild-mannered councillor Barry Corbett, who had what has since become known as "Barry's explosion".

Perhaps carried away by the blithe daring of his Blueprint, Brownlee appeared to expect councillors to be happy to pay for this unexpected feast. But Corbett was the first to jump up and tell him to think again.

"When someone who has always been pretty much down the middle stood up and let fly at him, he got the surprise of his life I think," says Corbett.

Brownlee managed to smooth things over sufficiently for it to be all smiles, standing shoulder to shoulder, in time for the Blueprint launch.

He did not backtrack, but vague promises were made to work things out. Much of the extra cost could be funded by partnerships with private investors, suggested Brownlee.

The metro sports centre for example might be largely built and run by a fitness chain. It could be a money spinner if it became something of a sports mall with physio clinics, cafes, creches and sports gear shops as tenants.

Through these sorts of creative arrangements, a lot of the city's big rebuild projects could be turned into attractive business propositions, argued Brownlee and his advisers.

Some councillors felt it rather "pie in the sky". However, they had to at least give central government a chance to see if the Blueprint would attract this type of investor interest. Meanwhile, the council had done something itself which Brownlee found rather too crafty for his liking.

Ahead of the Blueprint, the council had gone out and publicly consulted on the proposed scale of the anchor projects as part of its annual long term plan budget-setting process.

In effect, admits Corbett, the council had drawn its line in the sand by asking ratepayers how big something like the new rugby stadium ought to be. And the public had agreed a 30,000 seat stadium, without a roof, where the old one was, would be fine.

So when the Blueprint came out with a roofed 35,000 seat stadium shifted into the heart of the city, taking over expensive land and surrounded by extras like a fan zone park, it was a case of, well, who ordered the crayfish and champagne when we all said we were happy with fish 'n' chips?

It was a manoeuvre that pitted the Government against the voters of Christchurch, making it clear who needed to stump up for any cost over- runs. Or at least that was how the move was construed.

So the "who pays?" question was becoming increasingly tense, heading for some kind of crunch.

Then in October, there was another flare-up that became fleetingly public.

Finance Minister Bill English had a sudden go at the council for not being sufficiently transparent about its financial position. Indeed, English went so far as to hint darkly that the council was trading recklessly, saying if it were a business, it would be in danger of receivership.

What the remarks were about were not widely understood at the time. English refused to elaborate and a lid was hastily placed on further publicity. However, Parker has since confirmed that Treasury once more appears to have been promoting doubts about the council's capacity to pay.

This time it was not about the anchor projects but the steeply rising bill for the horizontal infrastructure rebuild - the cost of replacing Christchurch's munted roads, sewers, waste water pipes and other underground services.

Early estimates had been that these repairs would come in at around $2.2b. However, after digging up some roads and discovering things were turning out considerably worse, by about October alarm bells were ringing that the total cost might even double.

Treasury was asking how much of this increased bill was going to be covered by Christchurch ratepayers? And could the council actually find this much extra cash?

The infrastructure bill was always going to be divided between the council and Government. The Department of Transport normally covers 80 per cent of road network costs anyway. And then the council had been operating on the understanding that the bill for the underground services would be split 60-40, with the Government accepting the lion's share.

The basis for this belief was a few lines in a rather obscure Cabinet minute from the late 1980s. But at least it spelt out how infrastructure costs should be apportioned in the event of a national disaster like the Canterbury earthquakes.

Yet when the infrastructure bill started jumping to nearer the $4b mark potentially, Parker and others noticed the ground beginning to shift.

"There were noises made from the Treasury, the government's side of the equation, that would suggest this wasn't a final figure, it wasn't tied down, and we shouldn't make those assumptions," Parker says.

Some believe other agendas may also have come into play. Speaking in confidence, several councillors point to National's flagship promise to get New Zealand back into surplus by the time it seeks re-election in 2014.

It is of course in the Government's interest to get Christchurch to pay for as much of its own recovery as it can possibly afford. But even just having tight control over the timing of any announcements of commitment - being able to delay putting certain major project costs on the books until 2015, say - might be terribly convenient.

So in this context, English's comments sounded rather like advanced notice of a possible takeover bid. A financially-floundering council was about to be taken firmly in hand. Casting doubt on the 60-40 split was another big stick in case the council did not fall quickly into line with central government desires.

As it turns out, the council was able to head off Treasury's challenge. And Parker credits his chief executive, Tony Marryatt, for being a step ahead of the game.

Parker says what the Government did not realise was that a 30 per cent contingency had been built into the council's original infrastructure cost estimate. So even though the council's 40 per cent share of the bill had risen from $1b to around $1.3b to $1.4b, this had been factored into the budget.

"We understand infrastructure because as a local body, it's what we do all the time," Parker says. Council officers knew to allow for that much extra. Parker says it is now highly unlikely the cost can blow out much further as enough roads have been dug up to get a firm view of the extent of the earthquake damage.

All of which pretty much brings events up to last Christmas. During the holiday season, officials on both sides were busy tallying their figures. What was the final number on infrastructure? How many private investors would actually come forward to share the cost of upscaled central city facilities?

The council wanted to nail down its share of the recovery bill using its long term plan (LTP) budgeting process.

Get all the numbers into a publicly circulated document. Let the ratepayers have their say. After that, it would be hard for the Government to shift the council from an agreed position without considerable political risk.

The Government on the other hand has an interest in avoiding becoming tied down in this fashion. Possibly because of its "getting NZ back in surplus" promise as some rumour. But also because the final bill for the recovery does in fact remain riddled with unknowns.

"There is nothing manipulative or cynical about it," protests Brownlee. Staying flexible is important because adjustments will continue to need to be made on both sides. It would be bad for Christchurch for positions to be prematurely locked down, he says.

"You could have the auditor-general saying, 'well, you're sailing pretty close to the wind here guys. How's all this going to work?' So we just have to approach things in sensible fashion."

And thus the scene was set for the events of this month.

***

Accounts vary, and those directly involved are only prepared to speak about it in a roundabout way, but it seems that shortly after Cabinet met again for the first time in late January, Brownlee rang Parker with an "offer" to suspend the Local Government Act requirement for the council to produce an LTP this year.

Under his CER Act powers, Brownlee can wave this kind of magic wand. By using an Order in Council, regular planning processes can be set aside for the sake of the recovery.

Not surprisingly, the council became immediately jumpy. Was this it, were the commissioners on their way? Take away a city's right to set its own budgets and what is really left of local democracy?

At short notice, a series of urgent meetings were organised. Yet while councillors filed in apprehensively, they came out mostly pleased by the outcome.

Councillor Peter Beck says the spirit of the meetings was collegiate and productive - the sense of trepidation something of a media beat-up. Councillor Tim Carter says there were no threats, no brow beating. The needs of both parties were met through mutual agreement. Corbett says the council and central government have no choice but to work their differences through together.

What was agreed was a compromise. The council will do a three-year LTP that takes it up to 2015, not the original full 10-year review that it intended.

But even there says Parker, there is a promise that the scope of post-2015 anchor projects like the rugby stadium will be agreed. So major future costs won't be left floating off into the distance as unknowns.

That LTP process has now started with councillors meeting next week to vote on a draft produced by council officers.

Council and government officials will also be sitting down to hammer out a general payment formula. The intention is to get this sorted by the end of April.

Marryatt says how to split the bill had always been a tremendously complicated question as in practice almost every project needs to be considered individually.

For example, he says, a new bridge is being built across the Heathcote River in Ferrymead. A 60-40 sharing of the cost might be fair to put the bridge back to what it was, but what if the council wants more spent to improve it?

"Pipes run across it and we might decide to put in bigger pipes to allow for future growth in housing on the Sumner side. If there is going to be betterment, then we should pay for that."

Marryatt says with the anchor projects, some are straightforwardly within the council's traditional funding responsibilities, like the libraries and sports centres. But others, like the convention centre and rugby stadium, represent a balance of local and national economic interest. Where to draw the line will have to be the subject of joint discussion.

Marryatt says the two sides have now agreed to a strict timetable to decide what is fair. And yes, while at times during the past couple of years there may have been some short tempers and bruised egos, at the end of each bout, the council and central government have managed to come together for the good of the city.

"You've seen us end up standing together, all on the same side."

Of course, it would be naive though to expect plain sailing from here. Things could get nasty if money really does get tight.

From early on, the Government has been pressuring the council to sell its assets. If it cashed in its holdings on the airport, the port and its electricity lines monopoly Orion, that could soon raise $1b towards the recovery bill.

But the council's answer is that this is just a way of the Government forcing through a rate rise without looking like the bad guys.

The loss of dividends would mean the council having to soon enough vote on an even bigger rate increase.

Another fear being voiced is that the CER Act allows Brownlee still to intervene in council finances if he does not like how things are going. Parker confirms his advice is that it is within the minister's power to redirect funds away from existing projects.

So the council might agree to something like its new $16m visitor centre for the Botanic Gardens only to be told no, that funding has to go into something the Government deems more critical to the recovery.

There are mutterings even about the value of the LTP. Councillor Yani Johanson, a solitary vote against agreeing to cut it back to a three-year budget, says check the fine print and this Christchurch City Three Year Plan (CCTYP) is to be an unaudited draft.

"It seems pretty fundamental that the cost assumptions being made and what people are being told is independently audited so that people can have confidence they're not being led up the garden path," he says.

Even next week, with the draft LTP being made public, the story could twist off in some new direction.

However, Parker and Brownlee are both keen to stress that despite the relationship being repeatedly tested, the council and central government have managed to keep talking, keep moving.

In his speech before city leaders, all collected in their hard hats and hi-vis vests, Parker was effusive in his praise of Brownlee. "Gerry, I want to thank you for the unstoppable energy you've put into this for us, for the city."

Brownlee likewise admitted that this "relationship stuff" can be difficult, "but what gets reported is not always the discussion that's actually going on".

Then they stood shoulder to shoulder as the photographer ducked in to snap his shot. Or at least hopefully near enough to create the positive message that a city's recovery remains in two pairs of safe hands.

- © Fairfax NZ News

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