Subsidy city…airport, airlines and the Council

Earlier this week it emerged that the Wellington City Council’s decision to subsidise flights between Wellington and Canberra (and on to Singapore), details of which are still unknown to ratepayers, had been made on the basis of almost no supporting documentation.   There were, so the Ombudsman found, no emails, no cost-benefit analyses, in fact almost nothing at all.    As Stuff reported it:

Documents released by the Wellington City Council show that apart from a presentation made to councillors after the decision was made, the council generated a single two page document, which refers to the subsidy only in passing.

This subsidy could be as much as $8 million over 10 years.

Outrageous as the lack of documentation is, in a way it isn’t really surprising.  This is the Wellington City Council –  and the cabal at the top of the organization –  we are dealing with.  They aren’t exactly known for rigorous and robust policy and analysis processes.

In any half-decent public sector agency, proposing to use public money,  there would have been a proper substantive piece of policy analysis, reviewing the arguments and evidence,  critiquing the reasoning and evidence advanced by the private parties pursuing such a subsidy and, typically, an attempt at a properly quantified cost-benefit analysis.  Not all cost-benefit analyses are very robust, but if officials are forced to write down their reasoning and assumptions at least it opens things up to subsequent scrutiny and questions, based on numbers, not just the hunches or preferences of councillors.

But Wellington City Council doesn’t do things that way.

After refusing comment for several days, the Council’s CEO –  a temporary blow-in from the UK with no obvious expertise in evaluating industry subsidies or airlines – dug his own hole deeper today.

Lavery initially claimed that he had received a six-page report on the funding request written by “my staff”, before acknowledging that the report was actually written by Wellington Airport which had “different interests” to the council.

That looks a lot like a deliberate attempt by the Council to mislead the public.

The council commissioned no work of its own to review the airport’s claims, but could have, Lavery said.

“We could have done that, if we’d felt uncomfortable with it. But we didn’t, so we didn’t. And that’s not uncommon.”

So  he acknowledges that analysis done by the airport company will have been done primarily serving the interests of the airport company  (as it should) but nonetheless saw no reason to commission any analysis of its own, as regards the interests of the Council and the citizens and ratepayers of Wellington.  He didn’t feel “uncomfortable” with the airport company’s short paper.  And why would he?  I’m sure it was written persuasively and Lavery has no known background in aviation matters.  But that is precisely why he (and his bosses) should have commissioned some independent analysis.  Not to have done so might serve his “can do” mentality, but it looks and feels much more closer to dereliction of duty to the citizens of Wellington.

Lavery goes further

“The “paper trail” is the contract itself,” Lavery said.

Later he claimed government agencies often signed contracts without other documentation.

“That’s the way any contract goes. You get in rooms and have discussions. Then you write it up, that’s the way it works.”

Yes, I’m sure all the contractural terms are in the contract itself –  a contract so secret that not even councillors have access to its terms – but that simply isn’t the point.  What matters here is the disciplined process and analysis leading up to the decision to negotiate the contract at all.  And on that, in Lavery’s own words, there was all but nothing.

Of course, it is easy to focus on Lavery.  No doubt he likes the power the leading cabal of Council have entrusted to him .  He even argues that

The amount at issue was a “relatively modest delegation” Lavery said, adding that he had the power to allocate much larger amounts on sewerage schemes.

One is a core ongoing operational function of the Council, the other is a new industry subsidy, in a sector where councils don’t have a great track record.

But in fact the real responsibility here surely rests with the Council itself, and even more so on this particular occasion with the leading cabal –  the outgoing Greens mayor Celia Wade-Brown, the Labour Party Deputy Mayor Justin Lester, and councillor Jo Coughlan.  Lester was apparently a key figure in the discussion over this new subsidy, and Coughlan has chaired the Economic Growth and Arts Committee which seems to deal with such matters.

I suspect that what actually happened is that the airport company –  always keen to attract new flights – was negotiating with Singapore Airlines, who wouldn’t fly to Wellington (making a normal return on capital) without some sort of subsidy. So the airport company approached the senior “booster” councillors, and Lavery, with the idea of a subsidy scheme, all backed up (we are told)  by a six page paper from the airport company.  Lavery won’t really have been acting alone here –  even if he signed the contract –  but giving effect, with no supporting documentation, to the preferences of these key councillors, perhaps especially Justin Lester who will have been looking to the new flights starting around local body election time.

A lot of people attack this subsidy as corporate welfare.  I’m less sure about that. I doubt Singapore Airlines is benefiting much – the deal probably just makes it barely economic for them to trial this odd route.  Probably Wellington Airport, and its shareholders, are directly benefiting, since they make their money from people and planes passing through Wellington Airport.  But the biggest intended gainers really look like the Mayor (then still toying with re-election) and councillors Lester and Coughlan, wanting to be able to sell voters a line that “Wellington was prospering, new connections were growing etc”, all with ratepayers’ money as secret subsidies.   It was certainly convenient timing that the flights started almost to the week when the voting papers went out.

Justin Lester in particular seems to now be feeling some heat.

Lester believed the decision to subsidise the route was a good one, but called on Lavery to release further information.

“I haven’t seen enough information yet” to be satisfied the process had been robust. “I think there should have been more paperwork.”

Easy to say now as people are filling in their postal votes having read the Dominion-Post’s coverage.   But there is no evidence that the Deputy Mayor sought that sort of documentation and scrutiny back when he, and the rest of the cabal, were doing the deal.  Lavery has already told us about the documentation: there wasn’t any, and it is hard to believe that Lester was not aware of that all along.  As I say, Lavery won’t have been acting without political cover.

It is disgraceful all round.  And good reason to be very uneasy about how the Wellington Council will go about evaluating a proposal to contribute to the runway extension (on top of the considerable money already spent).  No doubt they will assure us that for a much bigger commitment there would be much more scrutiny, and much more transparency.  But how much confidence should voters have in such assurances?  Very lirtle, I’d suggest.

A couple of weeks ago, Treasury put out a link to a rather good few pages on a Policy Quality Framework, developed I gather in the Department of Prime Minister and Cabinet.  I can only commend it to the incoming Wellington City Council, and their employee Mr Lavery, as a starting point for evaluating policy proposals.  It is easy to read and digest, but would involve a sea change at the Council.  Evidence, rigour, and documentation have a great deal to commend them.  It is, after all, public money not that of Mr Lester or Mr Lavery..

To end, I’m reproducing a mock Council discussion sent to me the other day by an irate reader, and reproduced with his permission:

Today’s Dom Post on SQ flights left me more than outraged – quite ruined my breakfast
I can imagine the discussion at the Council table:
Councillor A: “ I have an idea – why don’t we increase the rates on struggling widows in Tawa and use the funds to subsidise shareholders in Singapore Airlines”
Councillor B: “Shouldn’t we call for tenders first as other airlines might be interested. After all Air NZ will lose traffic from Auckland?”
Councillor C: “ No we can’t do that – it is commercially sensitive?”
Councillor D: “ Hang on a minute – since when is a subsidy a commercial activity?”
Councillor E: “ Good point – perhaps we should rename it as market development and then the CEO can authorise it without bothering us”
Councillor A: “The taxpayers’ money will bring added business to Wellington – drawn from Christchurch and Auckland. And what is more, these flights will save Wellington business people 40 minutes compared to going via CHC to get the SQ flight from there. That is a big saving”
Councillor B: (the lone slightly more rational member): “ If business folks and others are enjoying a benefit that must be worth something to them – so why don’t we recoup the costs of the subsidy by a surcharge on the tickets for SQ flights?. Actually, come to think of it, the ratepayers are already subsidising all other flights out of Wellington through our involvement in the WIA so we could charge an extra fee on those too”

Councillor A: “ You all seem to be overlooking the multiplier effect; our own analysis (based on data supplied by the WIA and Singapore Airlines) shows a significant net economic benefit to Wellington”

Councillor B: “ But perhaps we should get a slightly more independent, disinterested party to review the business plan?

Councillor C: “No, no  – we can’t do that– remember all this is highly commercial sensitive

But, as I noted sadly to my correspondent, it was, of course, even worse than that. There was no such discussion around the Council table before the deal was signed –  just the inner cabal and Mr Lavery.  Even after the deal was done, councillors –  elected members –  are only allowed access to the terms if they pledge subsequent secrecy.  It is no way to run a government, but sadly it seems all too common in local government.  Wellington might well be no worse than most, but its failings are quite egregious enough.

UPDATE: When I wrote this post I hadn’t read the Herald story, from which this comes

“I think the current debacle in the press illustrates perfectly why it’s not appropriate to have it in the political domain. It gets politicised, and I think a lot of organisations wouldn’t touch us with a barge pole if that happened.”

The Dominion Post has reported the 10-year subsidy is worth up to $800,000 a year, but Lavery would not reveal the agreement, citing commercial sensitivity.

“We don’t want to lose out to competitor cities that would love to have the deal we have with Singapore Airlines,” he told Radio New Zealand.

Two thoughts:

  1.  “politicized” = voters/citizens concerned about how the city council they elect spends their money?    It simply isn’t the business of Councils to be subsidizing flights…..or election campaigns.
  2. “competitor cities”.  Those would be…..?  SQ already fly to Auckland and Christchurch, so was Lavery (and Lester) concerned about somehow “losing out” to flights from, say, Palmerston North to Canberra?