Global Perspectives on New Zealand’s Infrastructure Challenges

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. 1

Prepared by Alan Mitchell, Executive Director, Cities Center of ExcellenceMarch 2018

Global Perspectives on New Zealand’s Infrastructure Challenges


Global Perspectives on New Zealand’s Infrastructure Challenges

AGENDA Page

■ Challenges Facing Cities in New Zealand 3

■ Challenges Facing Cities around the Globe 6

■ You are not alone … so what’s at the root cause of theproblem? 14

■ Infrastructure Challenges also face City Services as well! 13

■ What are other jurisdictions doing to overcome thesechallenges?

16

■ What other Challenges might you face? 24

■ Islands of Good 27

■ KPMG’s City Benchmarking Study 30


New Zealand’s Infrastructure Challenge


New Zealand cities are facing the following challenges: Long-Term Financial Sustainability is becoming elusive – rate increases in cities exceed the ability

of households to afford such increases in the future. However rate increases were necessary tomaintain existing service levels and for the longest time rate increases had fallen short of cost ofliving increases. Making up for lost time will pay a price!

Cities are reaching their Debt Limit and by definition their Growth Potential – debt is a keyfunding mechanism to support investment in inter-generational infrastructure. Limits on access tocredit will hamper further investment in assets that support, for example, housing expansion.Limiting debt will limit growth!

Local authorities are struggling to: finance infrastructure for housing, tourism and regional development; provide safe drinking water and meet New Zealanders’ aspirations for clean rivers and lakes; and provide infrastructure that is resilient to climate change and natural hazards.

Ability to pay, ageing population and declining cities challenge financial sustainability – lowincome communities and areas with declining and ageing populations struggle with the highoperating and replacement costs of water services and other infrastructure.

Challenges Facing New Zealand Cities


New Zealand cities are facing the following challenges: Tourism is a double edged sword – on the one hand tourism brings in revenue for businesses, but

on the other hand tourism taxes our services which in turn puts pressure on maintaining andreplacing infrastructure

Increasing demand for more resilient cities – puts a greater cost of local government to build suchresilience into all services, particularly those services that are dependent on infrastructure

Land Use Planning needs to be Reformed – planning system is limiting urban development andcontributing to poor outcomes for the natural environment. It is not agile enough to respond tothe challenges and opportunities from growth and urban change, competing demands for naturalresources, and the effects of climate change.

Goal for Cities / Minister of Local Government in New Zealand is to:

Create strong and resilient communities through responsive local leadership andparticipatory democracy, sustainable financial models, infrastructure, services andregulation

Challenges Facing New Zealand Cities


Challenges facing Cities around the Globe


City Issues from KPMG Regional Network Forums

0 2 4 6 8 10 12 14

Catching up with the rest of the world after years of corruption

Changing employment needs not addressed by central…

Crime

Declining rural economies / Urban areas attracting talent

Fear of partnerships with the private sector

Local issues are not addressed by central government

Pollution of waterways

Urban intensification / densification

Disaster recovery / Resilience

Procurement challenges

Resource capability / capacity

Jurisidictional reform of local government

Economic development / attractiveness

Lacking critical review of service efficiency / effectiveness

Increased pressure on health care, finances, social services

Poor basic utility services

Aging Infrastructure

Servicing slums / refugee camps / human settlements / homeless

Urban mobility - congestion, public transit, affordability

Budgetary constraints

Smart cities / ICT Innovation

Ranking of City Issues by Categories


Challenges Facing Cities around the Globe

One Canadian City came to the following conclusion:

… the City’s finances are ‘good’ only because property tax revenues increased sufficiently over the past five years to cover the increased expenditures. The problem is the City’s current spending pattern is not sustainable. If this pattern continues while tax revenues increase at a slower pace or stall (a strong possibility in the present economic downturn), the City may soon face serious challenges.

City of Moncton September 21, 2009


Infrastructure Challenges in Canada


Infrastructure Challenges in United States


Infrastructure Challenges in United Kingdom


Infrastructure Challenges in Australia


Infrastructure Challenges in Germany


You are not alone … so what’s at the root cause of the problem?Why have we not been investing in our public infrastructure?

• Are we worried about where the money will come from to fund the infrastructure investments?

• Are we waiting for an infusion of capital from the central government?

• Are elected officials fearful of the public reaction to rate increases to fund the infrastructureinvestments?

• Do the elected officials know all the facts regarding the cost to bring the infrastructure to a stateof good repair?

• Do cities know the risks associated with infrastructure failure?

• Clearly we cannot fund all of the infrastructure requirements, so do we have a prioritized list ofcapital projects?

• Supposing we have all the funding / financing necessary to fulfill the infrastructure backlog, are weready to fill it?


Challenges facing Cities Today: Changes in strategic directions brought on by new leadership – Cities are challenged to change

their transformation agenda when commitments and progress under the old leadership come to ahalt!

Budget shortfalls due to increased service costs – Cities are seeking ways of circumventingunilateral budget cuts across all departments!

Increasing demands for improved service delivery – improved efficiency, effectiveness and quality! Increasing labour costs as a result of collective agreements that continue to support increasing

costs … not just in terms of labour rates but also benefits and pensions! Changes in legislation that tend to increase service costs – new accounting requirements, greening

environment, reducing carbon footprint! Increasing demands for greater public accountability – improved performance reporting Growing demands to pay for the unfunded liability associated with our ageing infrastructure Increasing demands for new, innovative technology solutions – web sites, social networking

solutions, e-Government, mobile computing …!

Infrastructure Challenges also Face City Services as well!

Overcoming these Challenges


What are other jurisdictions doing to overcome these challenges?Many municipalities are revisiting

their approach to infrastructure asset management to better understand, plan for, and address similar challenges and opportunities.

Target limited resources

Adapt to changing realities

Enhance transparency and defensibility

■ Link assets and investments to the services they support■ Quantify and evaluate LOS, risk and value-for-money■ Plan-for and prioritize needs and opportunities

■ Accommodate growth without compromising existing assets■ Incorporate social considerations into plans and decisions■ Improve resiliency and adaptability to internal and external change

■ Communicate the business case behind spending decisions■ Justify new or increased investment based on ROI■ Demonstrate responsibility, stewardship and due diligence


Common threads in almost every study: Improving our Services – can we improve efficiency, effectiveness and quality? Back to Service Basics – what Services do we provide, are they core to our business, what value are

they offering, do we offer the right Services? Clearly stating our Service Levels – who decided what Service Level we currently offer, how much

would it cost to improve the Service Level, is the public prepared to pay for the current Level ofService or should it be reduced?

Clarifying Service Accountability – who is accountable for what Services, is the allocation corrector does it need to be adjusted?

Exploring Alternate Service Delivery – can we outsource, in-source, privatize, contract out all or aportion of our Services?

Collaborating with Other Levels of Government – can we share the cost, provide added value andserve our customers better?

Investigating Service delivery options – how do we deliver a service, are there better ways, can welearn from others?

Solutions for Services are Solutions for Infrastructure


A Balance between Cutting Service Costs and Increasing Service Value


Link Assets and Investments to City ServicesWe need to step back from the infrastructure challenges for a moment and examine the services that the infrastructure supports!

Can you answer the following questions for your City?

Target limited resources

• What Services does your City provide? Do you have a formal inventory?

• Do you know how much each Service costs, including both operating andcapital costs?

• Do you know what Service Level your City is delivering each Service?

• Do you know how sensitive the Service Level is to cost variances? Forexample, if we changed the Service Level for Roads up / down, what would bethe implications on cost?

• For those Services that require Infrastructure / Assets, what implicationswould there be should we change the Service Level? For example, whatwould be the impact on road infrastructure of improving the “road conditionrating”? How much would this cost?


Improve resiliency and adaptability to internal and external changeRegarding resilience, we need to change our thinking!

Adapt to changing realities

Resilience is the ability of a system to absorb shock and carry onperforming the function that it was designed to do. Resilience is aresponse to the realisation that we have designed our world towork well, so long as nothing changes very much. Our trains rununless there is bad weather, our energy supplies are secure unlessthere is an earthquake and our communities hang together untilthere is cause to riot.

Resilience thinking is different because it anticipates change andunderstands that major shocks are inevitable in a world that isfacing huge challenges like climate change, resource scarcity,biodiversity loss, economic instability and social unrest. Resilience isnot about predicting what shocks we will face, or when they willoccur, but it is about ensuring that we are prepared for them whenthey do.

(Source: Get Resilient in an unstable world , http://www.getresilient.com/whatisresilience)


Communicate the business case behind spending decisions A structured business case framework provides an

effective platform for evaluating project options and defining scope, budget, schedule and lifecycle management requirements.

Enhance transparency and defensibility

Establishes the case for change and clearly defines the need for the investment.

Business Needs & Desired Outcomes

Identification, analysis, and screening of a comprehensive list of options to demonstrate due diligence in the selection of choices.

Preliminary Options Screening

Full comparison of each viable option against the evaluation criteria identified in the preliminary analysis

Viable Options Analysis

Recommendation of a preferred option based on the net advantages of the viable option over all others.

Justification & Recommendation

Strategic considerations for how the investment will be managed and supported.

Managing the Investment

Lifecycle summary of benefits and costs associated with implementing the recommended investment.Lifecycle SummaryLi

fecy

cle

Busin

ess C

ase

Fram

ewor

k


A Comprehensive Asset Management Dashboard

Overall Condition: Good to Fair c

Legend: Condition

Very Goo

d

Good Fair Poo

r

Very Poo

r

Parks & RecreationReplacement: $27,529,398Rep. Cost/Population: $314Condition: GoodDeficit: $

Wastewater TreatmentReplacement: $53,,261,693Rep. Cost/Population: $607Condition: Very PoorDeficit: $

FleetReplacement: $28,150,354Rep. Cost/Population: $321Condition: FairDeficit: $

MobilityReplacement: $1,098,016,332 Rep. Cost/Population: $12,516Condition: GoodDeficit: $

Water TreatmentReplacement: $353,743,501Rep. Cost/Population: $4,032Condition: Very GoodDeficit: $

Information TechnologyReplacement: $9,155,546Rep. Cost/Population: $104Condition: FairDeficit: $

Drainage/Storm Water ManagementReplacement: $371,484,287Rep. Cost/Population: $4,234Condition: FairDeficit: $

Wastewater CollectionReplacement: $556,023,235 Rep. Cost/Population: $6,338Condition: GoodDeficit: $

FacilitiesReplacement: $82,840,438Rep. Cost/Population: $944Condition: FairDeficit: $

Water DistributionReplacement: $502,132,872Rep. Cost/Population:$5,724Condition: GoodDeficit: $

AviationReplacement: $208,485,960Rep. Cost/Population: $2,376Condition: PoorDeficit: $


What other Challenges might you face?


…And what about Other Challenges …

• Sustainability

• Disruptive Technology

• Smart Cities

• Single Purpose Facilities

• …


Consider the impact on your business for three technology disruptors:

Autonomous Vehicles – at first this seems to be nothing more than another vehicle choice but consider for amoment if a City had Autonomous Vehicles available on demand, then: Why would you need parking? Why would you need to own a car? What would happen to the taxi industry? What spin off employment impacts will this have?

Internet of Things (IoT) – linking everything to everything seems weird but now I can control my homethermostat, my refrigerator, my home security system from my mobile phone, so what is next?

Drone Technology – a colleague in Germany asked me what I thought about Amazon’s idea to deliverpackages in Germany using drones – at first I waved it off, then I stopped and started to realize a whole newset of City services: Regulations governing what can be shipped by drones and with what weight restrictions? Three-dimensional drone routes designed and controlled by the Transport Department? Building design guidelines to deal with drone shipments …

Regarding Disruptive Technology?


Consider for a moment the concept of ‘Islands of Good’

Challenge Facing Cities:1. Cities have traditionally delivered their services in “silos” where the Fire Department had

separate Fire Stations from Police Stations, Hospitals, Child Care Facilities, Long-Term CareFacilities, etc.

2. Rising costs of services require Departments to find cost savings to maintain their level ofservice – typical reaction is not to put money into facility management but rather intorising labour costs

3. Meanwhile, Hospital Emergency Rooms are experiencing long wait times

4. Meanwhile, access to different government buildings for public service delivery is achallenge for low income families and seniors

Opportunity for “Island of Good”:1. Combine multiple facilities into one facility that might contain: hospital clinic, long-term

care facility, integrated service delivery office, fire station, library, etc.

2. Locate the multiple use facility near convenient transit station

3. Bringing the multi-disciplinary teams within KPMG Advisory together to broker the dealsand oversee the project development


Islands of Good –Single Purpose Facilities in Toronto


Islands of Good –Single Purpose Facilities in Toronto –Zooming In to Find Candidate Multi-Purpose Site Near Transit

1


KPMG’s City Benchmarking Study


KPMG’s City Benchmarking StudyNow you are ready to compare your Services with other jurisdictions around the world!

Imagine discovering new techniques for delivering services more efficiently and/or effectively!

Dare to compare!


Summary of Findings


What did we find?For the road (access) service:— 16 cities provided road access service cost performance indicators, 13 road condition indicators and

16 provided number of vehicle accidents.— The average city spends approximately US$15,400 per lane km of road. — The median city boasts 73 percent of roads in good condition. — Vehicle accident rates vary across the world but are exponentially higher in large cities. — Different approaches to allocating capital costs significantly impact unit costs per lane km.

Operating and capital cost per lane km of road (000 US$) Percent of roads in good condition

Adjusted mean = Average of indicators excluding lowest and highest values


© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Thank you

© 2016 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

kpmg.ca

Detail

Heading

Detail

Heading

Detail

Heading

Detail

Heading

Alan MitchellExecutive Director, Cities Global Center of ExcellenceKPMG LLPBay Adelaide Centre, 333 Bay Street, Toronto, CanadaTelephone: +1 (416) 777-3811eMail: [email protected]

http://kpmg.com/socialmedia

mailto:[email protected]

Documents

Global Perspectives on New Zealand’s Infrastructure Challenges