Hazledine says Tank the Tunnel

Tim Hazledine writes:

Those numbers, multiplied by one thousand, are in fact the cost and benefit numbers of Auckland’s railway tunnel project – the City Rail Link (CRL) – which will give ten thousand commuters to the city’s central business district a somewhat faster journey to work.

Those faster journeys were estimated to be worth (on a present value basis) about $2 billion, and the construction cost was originally estimated (guessed, really) to be about $2 billion. Then, last April, with $700 million spent and not a lot to show for it, the cost envelope was revised to $4.4 billion, with no guaranteed finish date. And there was no outcry. People, especially politicians, seem to suffer from what I call ‘Big Number Blankness’: they lose their critical facilities when confronted with figures so far from their personal experience.

Last week, CRL management warned us that, because of Covid-19, costs would indeed rise, with no numbers given, but the promise – or threat – that a “red pencil” will be drawn around the budget at the end of this year. No mention of the possibility that Covid-19 will reduce the benefits of the rail link, through more people continuing to work at home rather than commute.

Adding in some substantial costs missing from the official calculations, the costs of disruption to business and citizens during the build, and the cost of the huge subsidy on the price of rail tickets, it seems sadly reasonable to predict that we now have a $5 billion+ monster on our hands. Even with more sunk costs incurred since last year, we are looking, in the best scenario, at having to fork out another $4 billion to finish a possibly $2 billion value project. How dumb is that!

The $2 billion of benefits are probably now also suspect as public transport use will be down for many years to come.

The costs of the rail tunnel are supposed to be shared 50:50 between Auckland ratepayers and NZ taxpayers. I have calculated that a person in my financial situation – for example, me – will have to cough up much more than $10,000 in rates and taxes to meet my share of the bill. I can think of heaps of better uses for my money.

This is why I think generally we should only fund projects with a BCR well in excess of 1. Because costs always end up more than originally estimated.

What I would do for transport projects is:

• BCR of 2 or higher – NZTA can automatically fund with no approval from Ministers
• BCR of 1.5 – 2 – NZTA can fund if Ministers approve
• BCR of under 1.5: Cabinet has to find wider reasons to fund such as resilience for a natural disaster