Just make it easy to delist buildings

My column in the weekend papers:

There is one other alternative. It is an alternative Wellington officials downplayed. But it is one that the council should take or that central government could progress instead.

Why not make it easy to remove buildings from the district plan?

A council needing legislation to address a local issue can propose a local bill. The Parliamentary Counsel Office can assist in drafting. An MP, who need not necessarily support the bill, puts their name to it. The bill is introduced and has its first reading on the third sitting day after introduction.

Wellington City Council could propose a local bill enabling the council to remove buildings from the district plan, or to pre-empt their listing, by a simple majority vote. The bill would make delisting nonjusticiable, with no opportunity for appeals or challenge. It would deem the delisted building to have no special value for any other consenting process.

Officials worried this option could take years, but local bills can be very fast. If an incoming government is a bit frustrated by a council that seems able to find hundreds of millions of dollars for everything other than its water network and is not too annoyed by shenanigans around Let’s Get Wellington Moving, it could well shepherd this bill quickly through committee.

The Michael Fowler Centre and the Opera House were listed as earthquake-prone in August. The Opera House is listed on the district plan. The Fowler Centre is covered by the Civic Centre Heritage Area. Heritage New Zealand has also received a nomination for Fowler’s inclusion on the New Zealand Heritage List.

Wellington’s officials are still exploring local bill options, championed by councillor Ben McNulty and a 9-7 vote in favour, with councillors John Apanowicz, Tim Brown, Ray Chung, Sarah Free, Iona Pannett, Tamatha Paul and Nicola Young opposed.

If the council proposes this kind of local bill, a newly formed government should let Wellington get on with the job.

Or it could find time to add a government bill to the agenda. How many towns and cities face similar problems, where cost-effective approaches to mandatory strengthening are just too hard?

A National-led government might also support increased accountability the option would bring. If a council chose not to delist a building, it could not blame others for the cost.

Easy delisting doesn't solve the underlying problem. The underlying problem is a heritage preservation system that foists incredible cost onto the owners of heritage buildings, particularly if they are in need of earthquake remediation, while providing little support. A comprehensive fix would flip the system - abolishing the regulatory restrictions and instead providing annual payments for provision of the public good. 

But easier delisting would ease some of the worst pressures in the interim. 

Real ESG

If you care about corporate social impact, start measuring consumer surplus. 

From the NBER:

An Economic View of Corporate Social Impact

Hunt Allcott, Giovanni Montanari, Bora Ozaltun & Brandon Tan

WORKING PAPER 31803

ISSUE DATE October 2023

The growing discussions of impact investing and stakeholder capitalism have increased interest in measuring companies' social impact. We conceptualize corporate social impact as the welfare loss that would be caused by a firm's exit. To illustrate, we quantify the social impacts of 74 firms in 12 industries using a new survey measuring consumer and worker substitution patterns combined with models of product and labor markets. We find that consumer surplus is the primary component of social impact (dwarfing profits, worker surplus, and externalities), suggesting that consumer impacts deserve more attention from impact investors. Existing ESG and social impact ratings are essentially unrelated to our economically grounded measures.

Meanwhile, the Financial Times provides an excellent synopsis of the other version of corporate ESG.

Born in sanctimony, nurtured with hypocrisy and sold with sophistry, ESG grew unchallenged for a decade, but it is now facing a mountain of troubles, almost all of them of its own making.

The problems of investing with an environmental, social and governance framework start with assessing what it measures, which has changed over time and reflects its revisionist history.

ESG started as a measure of goodness, built around a UN document enunciating the principles for responsible investing, with significant establishment buy-in. As the selling of ESG to investors ramped up, its salespeople recognised that goodness had limited selling power. So they switched gears, arguing that ESG was an instrument for delivering higher returns without concurrent risk.

That case worked well through much of the last decade, mostly because of ESG investors’ abhorrence of fossil fuels and embrace of technology firms, but the Russian invasion of Ukraine changed the calculus. As sector funds underperformed, advocates moved on to claim that higher ESG scores lead to less risk and lower costs of capital. Perhaps because both risk claims are questionable, they now contend that ESG’s primary purpose is disclosure about material issues.

It serves ESG advocates to keep the definition amorphous, since, like the socialists of the 20th century whose response to every socialist failure was that their ideas had never been properly implemented, the defence against every ESG critique is that it is incorrectly defined or implemented. The truth is that ESG scores today measure everything — consequently, they measure nothing.

Consumer surplus is more reliable. 

Charting a course

My column in Newsroom this week makes a few guesses about where NZ local water policy may be headed. 

Labour forced the amalgamation of water services into new entities that National promised to throttle before they can get going. What happens next?

No election platform survives contact with post-election coalition negotiations.

But one outcome seems rather obvious – the Labour government’s Three Waters reforms will be repealed. In its place will be a model based on the Castalia model commissioned by the set of councils that objected to Labour’s reforms – Communities 4 Local Democracy.

The change could come reasonably quickly. The parties likely to be in coalition agree, at least at a high level, on a reform agenda. And an incoming government will have a head start on the necessary policy work and legal drafting.

...

Normally, this kind of policy reform work can take years. The set of officials who were strong advocates for Labour’s policy reforms may not be likely to deliver workable replacement legislation in any kind of hurry.

For the better part of this year, the New Zealand Taxpayers’ Union has been coordinating policy work to flesh out the Communities 4 Local Democracy/Castalia model – including drafting instructions and drafting for a replacement Local Water Infrastructure Bill.

Malcolm Alexander, former Chief Executive of Local Government New Zealand and with a background in electricity reform, chairs the Technical Advisory Group for the bill. I have assisted on the group, along with David Hawkins, formerly of Watercare and former Mayor of Papakura; Christchurch Councillor Sam McDonald, and NZ Taxpayers' Union economist Ray Deacon – who formerly served on the Major Electricity Users Group..

The proposed reforms would shift drinking water and wastewater assets into Council-Controlled Organisations (CCOs) – for councils where water is not set as a CCO. Stormwater is fundamentally different – with assets plausibly including parks, recreation areas, ditches and roads – and is left out of the proposed structure.

A CCO can be owned by a single council, or by a set of councils. If councils find it more effective to deliver water services through a shared service model, they retain ownership of the shared entity.

But unlike Wellington Water, council water CCOs in the proposed structure would own the water assets and earn revenue through water charges, rather than be stuck like Wellington Water in attempting to manage the underlying councils’ water assets on whatever funding the underlying councils might wish to provide.

It’s a far sounder model. And, at the outset, they could be required to satisfy the minister that they are appropriately capitalised and that councils have not loaded them with non-water debt.

Water CCOs would prepare and publish their own asset management plans and be accountable for outcomes.

They would also be subject to commercial regulation by the Commerce Commission ensuring that the Council-owned monopoly water providers were setting appropriate water rates..

Councils like Wellington have slowly stripped their water infrastructure assets by failing to maintain and renew the network, allowing Wellington Council to fund all manner of showy above-ground projects while not increasing rates proportionately.

The proposed CCO structure would mean water would stop cross-subsidising other council activities. Water utilities would be able to charge what is needed to bring their networks up to standard and to keep it at standard.

It would also mean that other councils, or taxpayers more generally, would not be on the hook for some councils’ long-term negligence.

An incoming coalition government that broadly supports the Communities 4 Local Democracy proposal can then have a running start. Much of the legal drafting for a potential replacement bill has already been completed, along with drafting instructions for sections requiring technical detail held within government.

That running start will be needed. National has committed to repeal Labour’s Three Waters legislation in its first 100 days, but legislation for a replacement regime will be needed quickly. Councils will need to know the regime within which their water services will operate if Labour’s Water Service Entities are abolished.

Post-election coalition negotiations usually make it hard to predict just what will come of parties’ campaign promises. But, in this area, the waters are reasonably charted.

Afternoon Wellington roundup

It's gorgeous days like today (well, the walk in this morning was grand) that help explain how Wellington can be so abysmally governed. If it weren't for days like this, who'd stay?

A closing of some tabs.

• Officials failed to tell councillors about the latest round of cost overruns at Town Hall for more than six months. 
• Now they're figuring they might need to demolish the Fowler Centre, given the experience with Town Hall. Fun Fact: Fowler Centre was built as replacement for Town Hall [really great history in that piece by McManus]. But then the heritage people did heritage people stuff. 
• On Town Hall, "the papers in front of councillors suggested a high degree of project mismanagement."
• No need to consult the public about Town Hall. Ratepayers footing the bill could have submitted in a consultation process back when the cost was only $90m. Great timeline on this piece too.
• Meanwhile, NZSO, which will never ever cover the cost of this facility, says it's all 'visionary'. If Town Hall had sold out shows ten times a week for the next 30 years and set a $19 surcharge on tickets to cover the cost of strengthening works, it would cover the cost of the repairs. [I'd mentioned the number on RNZ yesterday, I think I also mention it in tomorrow's piece for the Dom.] NZSO charges less than $40 for a ticket currently and does not put on ten sell-out shows per week. 
• It'll be fun to see what horrors await in the next Long Term Plan. 
• I wonder whether council will re-think the crazy food waste collection scheme.
• Remember that the costs of all of this are going to load up on top of either a hefty rates increase or a large water charge increase to cover the cost of fixing the darned pipes. Wellington will not get a bailout; Three-Waters is likely to be scrapped. 
• Trying to fix heritage buildings in Wellington is "like walking over broken glass". It is easier, and almost certainly optimal given the constraints, to leave them and hope for an arsonist to help. 
• Median rent here is now $640/week for a house. 
• Activists are trying to kill any amount of nightlife. 

Councillor McNulty at least tried his best on some of this. I've been imagining him in lieu of the other McNulty, recreating that scene from The Wire, walking around the Town Hall site, pointing at things, and just repeating one word. 

Oh: rain's now shown up. 

How do you unbreak an egg?

I absolutely do not envy whoever in an incoming government gets stuck trying to fix the mess Chris Hipkins caused in the polytechs. 

The polytechs had issues before the merger. Some might well have fallen over. That isn't the end of the world. There are other polytechs. The stronger ones would have picked up more students. 

Now they're all mushed together in a dysfunctional centralised structure that possibly can't be unpicked without immediately causing some to implode, making all of it politically fun.  

Consequences of course go beyond the polytechs. The country's going to need trained tradespeople. 

I have no solutions here. But I wish the best of luck to the incoming Minister receiving this hospital pass. 

Morning roundup

The morning's worthies.

• Medsafe allows low-dose CBD over-the-counter. +1 for Medsafe. Unfortunately, no CBD products are here approved and we don't just automatically approve medicines that have been approved by trusted overseas agencies. -50 for NZ.
• Danyl McLauchlan's alt-centrist manifesto, or at least steps toward one. 
• A presidential succession horror story
• A post-mortem on the Gino case. I keep remembering back to my time at Canterbury, and how the administrator appointed as Pro-Vice Chancellor, and the leftists in Accounting, wanted Econ to catch up with the times and start teaching all the "people aren't rational" stuff that's since fallen apart in replication or was downright fraud. 
• Wellington has more than enough problems of its own without central government funded busibodies trying to close all the bars. 
• Take a bow, Australia, Canada, Willie Jackson - and compatriots. Y'all have made news too much of a hassle to be worth the trivial amounts of revenue associated with linking to news. 
• Will be interesting to see what the next Wellington LTP looks like. Council could avoid the scenario that Castalia has put up, or at least some of it. If they're spending hundreds of millions on Town Hall, they could decide from day one just to demolish the opera house and the Fowler Centre.

There Is No Alternative - Wellington Council edition

It looks like Wellington Council officials are providing councilors with an offer they're not supposed to refuse.

Earlier this week, Council heard a presentation from officials on options around the Town Hall. 

As presented, there seemed no reasonable alternative to spending another $70 million to $147 million to finish strengthening works. 

Stopping works and closing the building off would only save $60 million relative to finishing. Demolishing it would cost $20m less than finishing it. And delaying would just escalate costs. 

If you look at it that way, why wouldn't you finish the thing? Sunk costs are sunk, and the choice before Council is whether to spend a small bit more to finish the project rather than aim for demolition. 

And especially when officials put a lot of time pressure on the thing, wanting a decision by next Wednesday.

But there are a few oddities in there. 

Closing up the building would have a year's worth of work finishing the basement to prevent flooding, completing critical structural works, reinstating heritage fabric and the like. Safety and other works like that are $33.42 million. 

Demolition would add $39.35m on top of close-up costs: Environment Court applications, demolition planning and works, professional fees and contingencies. 

But why would you complete critical structural works or finish the basement if you were going to bowl the thing? If they netted those costs out somewhere, it sure isn't mentioned. The only reason to finish the basement rather than fill it is if you were planning to sell the site for someone else to build on, and you'd only do that if the value added by finishing were more than the cost right?

Delisting the building from the District Plan (heritage buildings are protected because they're there listed) would open up a lot of options. 

But officials caution that if a delisting process started now, it could be in the courts until December 2027. And Council could easily lose. There is insanity in the rules around this stuff, but the rules are the rules. 

Officials noted that a Local Bill might allow faster delisting - but wind up warning against that too. 

It's pretty easy to imagine what an enabling Local Bill would look like. 

It would enable council to delist buildings by simple majority vote, without right of appeal. A delisted building would be deemed to have no special value, heritage, cultural or otherwise, when considering building or demolition consents.

With an enabling local bill in place, council could weigh up different options. 

A local bill enabling delisting could do a lot of derisking. If it turns out that preserving one bit that nobody would ever notice would add $20 million to the cost, they could just save the $20 million. They could weigh things up on a case by case basis without worrying about being sued. 

The council document notes that council carries the majority of the geotech and heritage risks. The geotech side is largely now understood, but paragraph 24 still has "heritage restoration costs and requirements" as one of the remaining risks council faces. At para 26 they note that heritage risk replaces ground risk when restoration work starts. 

But officials also suggest the local bill path is impracticable:

Pathway 3: Local Bill

95. Aside from a successful plan change, the only other path to demolition is to seek to

pass a Local Bill specifically for this purpose. This would then override the District Plan

and general RMA provisions.

96. A Council decision to demolish the building under an enabling Act could still be subject to judicial review challenging the lawfulness of demolition. Any Bill would need to be drafted in such a way as to leave no room for ambiguity in interpretation on this point.

As with the other pathways discussed, the Council would need to consider the significant precedent effects in pursuing this option, including that, in practice, a Local Bill is an option available to the Council but, unlike a resource consent, not necessarily one that could be pursued by other building owners.

97. Pursuing a Local Bill would be subject to similarly high levels of uncertainty as a resource consent and/or plan change process. The local MP would be required to manage the Bill through Parliament and Council would be required to draft the Bill and meet all associated legal costs. The Bill would need support from a majority of MPs to be passed and it may take several years from introduction of the Bill before it is passed into law. It would also be subject to public debate through that process. As an example, the Girl Guides Association (New Zealand Branch) Incorporation Bill is a private bill that was introduced in February 2021, and has still not had its second reading two-and-a-half years later.

This still feels like There Is No Alternative framing. 

Local Bills are fast. Rotorua's local bill was at Select Committee within two weeks of being introduced; it was there shot down. The Girl Guides bill is a private bill.

If an incoming government has had a gutsful of Wellington spending piles of money on things that aren't the water pipes, it may well be inclined to ensure speedy treatment of the Bill, so it gets through the Committee stages reasonably quickly. 

Worst for an incoming government would be Wellington Council being able to credibly say, 

"Look, we tried our best not to have to spend another hundred million dollars on this damned building, and likely another half billion yet to come on Opera House and Fowler Centre. And who knows what down the track. 

But we are entirely tied up by central government legislation. 

Priority buildings in Wellington have to have works or demolition completed within 7.5 years of being notified. 

Our officials tell us that if we started today to try to delist the Town Hall, we might have a decision out of Environment Court by December 2026 and up to another year for High Court appeal. That's four years of legal process. 

And the clock is already ticking on Fowler and Town Hall. If we started normal legal processes this year to delist the buildings and untie our hands, we'd have less than four years* to actually do the works on them afterwards.

We asked a red-tape-hating government to let us make the choices that were right for our community, and they forced us to waste hundreds of millions of dollars instead."

* If those are priority buildings as well; it's 15 years all-up if they are not. I have no clue which buildings get a priority label. If it's based on risk to others, Opera House seems riskier than Fowler. 

It would seem more surprising if central government knocked this back rather than supporting it, really. 

A few bottom lines then:

• Wellington Council likes to pretend that it has no choice but to spend an extra hundred million or so on this building, and who knows how much more on buildings yet to come. But there is a potential choice. Wellington Council could support a Local Bill that would enable council to delist buildings and proceed on more rational basis. 
• Regardless of whether they think an incoming government would support a local bill, Wellington Council should put one up. If central government says no, Wellington Council could more plausibly ask for help in dealing with the cost consequences of loopy central government regulations. 
• Central government is in a caretaker mode now, but when it starts up again, it should say yes to a local bill while starting to think about entirely redoing how heritage amenities are supported. The current regulatory framework is utterly unfit for purpose. It imposes massive cost on owners of buildings but little financial support. It just doesn't work. Flipping the system to ditch the regulatory restrictions while providing payments to the owners of buildings for continued provision of heritage amenities would allow greater real support for a smaller number of valuable buildings worth supporting.