What can NZ learn from the US approach to infrastructure?

April 19, 2018

RCP Director Fraser Robertson shares his thoughts following his recent attendance on the Infrastructure NZ delegation to the US.

Critical enablers of infrastructure in the US – what can NZ learn?

We live in a time where local and central government are under immense pressure to deliver key infrastructure projects to enable sustained economic growth and improve home affordability.  The public want the projects but may not have the appetite for the traditional add-on taxes required to pay for them.  The recent Infrastructure NZ delegation to the United States demonstrated that, even with the backdrop of ever-reducing funding from the Federal government, the US is not afraid to use alternative and creative models to deliver key infrastructure projects.  It begs the question, what can we learn from their approach and apply to how we plan, fund and finance projects in NZ?

Infrastructure Planning

The US develops a clear long-term vision and plan for their cities and the infrastructure needed to support it, however most importantly they communicate this to the public to garner support and then stick to the plan. Critically, they invest ahead of the demand curve and for the long-term (20+ years) recognising the strong correlation between rapid transit solutions, economic growth and home prices. This demonstrates the need for NZ to be proactive and forward-thinking in our infrastructure planning, to not only solve today’s problems, but also those of the future.

Partnerships and Cooperation

Collaboration between State and county/municipality is a strong driver of infrastructure progress in the US, grounded in transparency and cooperation to align objectives, share information and work together towards common goals. There is clear alignment of central and local government, and a lack of interference at the central government level.  The benefits from greater partnership between public and private sectors is also evident.  Through partnerships such as PPP’s (P3) or the establishment of special tax districts (e.g. TIFs) expensive one-off infrastructure projects can be delivered, unlocking sustained local economic growth.

The NZ environment is largely affected by our 3-year election cycles and the priorities of new governments when they come to power. As a result, we see significant swings in the infrastructure investment pendulum and multiple perspectives on what types of infrastructure is needed.  The US experience reinforces the benefits of infrastructure planning being agreed in the absence of party politics.

Financing and Funding Structures

A common theme to US infrastructure initiatives is value-capture models such as Tax Increment Financing (TIFs) and alternative structures such as Municipal Utility Districts (MUDs).   The US tax system supports these initiatives by allowing states and local counties to establish their own tax frameworks with the purpose to reinvest in the area from which the tax was taken.  In addition, there is also tax exemption for bonds raised in support of public infrastructure, which attracts private investment and helps facilitate easier project financing.

In NZ, tax is predominantly collected by central government and directed to wherever politicians deem most appropriate.  There are smaller local taxes generated through property rates, but due to the limitations on how much these can be increased annually and debt limitations on local authorities, significant investment through these tax revenues is limited.

The US enables projects by creating district tax streams, set-up for a limited period (i.e. 20-30 years) to support a specific project.  The initiative, including its objective and intended outcomes are clearly communicated to the public and as a result, the public understand the reasoning and support the project.  This is aided by having limited timeframes and focused outcomes.

Urban regeneration to support the Kiwibuild programme and large transport projects such as Auckland’s Rapid Transit could be some of NZ’s first major infrastructure projects delivered either in part or fully through a value capture model. Through strong public support and the desire to see alternative and more equitable delivery models, there is an opportunity to reshape these projects around much broader issues and deliver a fantastic outcome for all of NZ at reduced cost to the public.