Auckland Council has raided its money jar, looked under its bed of assets and sharpened its pencil to find the extra $500 million it must commit to the City Rail Link underground project.
The council needs to confirm its half of the extra $1 billion required under the latest cost estimate for the CRL by this week to allow a key contract to be confirmed and to avoid further delays.
Since being advised of the blowout before Easter, council finance officials and Auckland Transport have been in search of the $500m, knowing they do not have time to change long term rates policies or alter debt targets.
Tomorrow, Auckland councillors will be offered five options which would make money available for the CRL without sending the council over its debt to revenue ratio over the next five years.
Ominously and realistically, the council report warns there is no guarantee the CRL’s peer-reviewed $4.4 billion total cost will not go higher. The formula used to arrive at that figure was one that allowed for a 50 percent chance of the cost being higher and 50 percent change of it being lower. Another formula outlined in the council report says a total cost of $5 billion would be needed to be confident of achieving a 90 percent chance that it would be under that number.
“There is a risk that, as the opening date of the CRL is still five years away, project costs may continue to increase, as occurs with other similar infrastructure projects,” it says.
But if that were to happen, the council would have more time to revise its commitments through changes to the 10-year budgets that it will set between now and the end of the CRL construction.
When the new CRL cost was announced, Mayor Phil Goff suggested a project looking at selling several central city carparks could be used to provide some of the extra $500m required.
The officials’ report estimates that could give the council around $100m but $50m of that would need to be spent on park-and-ride facilities outside the CBD, leaving $50m for the CRL.
They identify a further $120m in savings from market interest rates being lower than originally expected in the council’s 10-year plan.
Then a review of long-term contracts such as the council’s deals with bus companies has produced a saving of around $130m, which would not have to be spent and could be switched into borrowing to fund part of the CRL $500m extra.
Auckland Council keeps $200m in cash at hand at any given time and finance officers now believe they can prudently cut that to a $100m buffer, providing $100m towards the CRL needs.
And because the Government says it is flexible about paying a little more than its half share of the CRL bills earlier in the build and having the council pay more than its half later in the project, Auckland Council can count on another $100m benefit which could be seen as part of its $500m commitment.
Officials warn that the council meeting tomorrow will need to adopt all five options or the council would likely breach its debt to revenue ratio of 265 percent in some years of its 10-year budget to 2028.
“This would be a less prudent position and would result in a reduced safety margin below our debt-to-revenue policy limit.”
An updated assessment of the CRL’s benefit-cost ratio by PwC consultants shows benefits at between $6.6b and $7b. “This means that if the total project costs are less than $6.64b, the benefit cost ratio will remain greater than one (i.e. benefits exceed costs).
At the current $4.4b projected cost, “the CRL remains a strong project for sponsors to invest in, with a benefit-cost ratio of at least 1.5”.