Afternoon roundup

A closing of the browser tabs

• Dave Frame batting back the usual (often older) arguments from those who don't like climate science. 
• Alice Evans on the origins of 'Dayooth'
• Ben Kepes on the Māori parallel to the Jewish experience
• Consumer NZ figures that if one of our grocers lowers its back-end costs, there could be zero passing-on of savings to consumers. Even a standard monopoly model would have a reduction in price. It would be a fun microeconomics problem set question: come up with conditions under which Jon Duffy could be right (if any), and provide an answer simple enough for him to understand. Consumer NZ just keeps getting more absurd. 
• I like that NZ's Accident Compensation Commission is hiring a Lead Advisor, Econometrics.
• Pharmac's posted its final decision about pulling 27 drugs from funding consideration, 24 of which were proposed to be pulled because there was no apparent prospect of Medsafe registration. They've decided to pull 24 drugs, 22 of which are because there's no prospect of Medsafe registration. Tafamidis and Cefuroximine might get onto Medsafe's radar. This system is so stupid. 
• But the new stadium would really put Christchurch on the map, just like Ogdenville and New Haverbrook. 
• Interesting proposal around investment in buying out IP rights to make lower-carbon tech more affordable in developing countries. Loyal readers may remember that I've long argued that NZ could do something similar as moonshot on ag biotech. If AgResearch figures out low-emission pastoral systems, GE or otherwise, with government funding, don't try to earn money on any patent. Release it globally on a royalty-free licence that simply requires that a small fraction of the resulting global emission reduction credits to NZ's account. Lowish chance it pans out, but if it did, it would have high return. 

Around the traps...

A few spots you may have caught me recently...

• Olivia Wannan asked me about some of the carbon spend in the most recent budget. It's just nuts. The biggest constraint in getting to Net Zero is maintaining public support for rising carbon prices. So the government decides to throw ETS revenues at a pile of low-value business subsidies instead of rebating it back to households as a carbon dividend. 
• I had a chat with RNZ's The Detail about subsidies for major sporting events - this time, soccer.
• My column in this week's Newsroom ($, ungates tomorrow by pulling the /pro from the URL) is on National's pulling away from support of Medium Density Residential rules. National wants to maintain ability for cities to go up, but without MDRS, while making it easier for them to also go out. Labour, at least in 2017, wanted cities to be able to go out as well as up. I have a go at trying to find what might be an intersection of the two. 

Stadium co-governance

Oliver Lewis over at BusinessDesk had a look through Treasury documents on the Christchurch Stadium.

Treasury suggested a Council-led approach, both to reduce the fiscal risks to the Crown, and to avoid the challenges of a co-governance approach with Council.

As for a co-led approach (like the city rail link project in Auckland, with the council and the crown both holding shares of City Rail Link Ltd), the Treasury recommended against it, especially if the council had a majority shareholding in the jointly held special purpose vehicle.  

The crown would be assuming risk, officials said, but may not have sufficient influence. 

"Experience working with council to date indicates that a co-governance approach is likely to continue to be challenging and could result in time delays and cost overruns,” the briefing said. 

Later in the year, following meetings between Woods and council officials, the Treasury was tasked with providing advice on two options: a collaborative approach between the council and crown delivered via an autonomous vehicle, or a locally-led option. 

In an October 2019 briefing, the Treasury again affirmed its preference for local leadership on the project and referred obliquely to potential relationship issues should ministers opt for the co-led approach.

There may be some parallels to water.

Under the Three Waters proposal, the Crown takes on enormous backstop risk. They're effectively guaranteeing debt issued by the new entities. 

Treasury warned that Crown-Council co-governance over a stadium may be fraught. 

“For this approach to succeed, crown and council would need to reach alignment on the investment objectives, prioritisation of time, cost and quality, and the best path forward for the project,” officials said. 

“This has not been achieved to date and has proved challenging.”

I'm not sure why co-governance in waters would prove simpler. 

Evening roundup

I was out on leave last week, touring around Lake Taupo with the family, hoping desperately for snow that didn't come. 

We had fun anyway. 

But the browser tabs... a week's worth of emails, and stuff saved up... egads. 

Some worthies as I try to clear six different Chrome instances...

• Wikipedians don't like research on IQ. They're even slowly memory-holing the Flynn Effect.


• Time to end the Canadian Dairy Cartel


• Neat evil DMCA hack: create a fake-dated earlier version of content you don't like, then claim the original is a copy. 


• DevPolicyBlog on reducing remittance costs in the Pacific. I hadn't known that getting money from Oz/NZ to the Islands has some of the highest remittance costs in the world. But it makes sense: NZ is overly enthusiastic about AML, and that's a fixed cost in a small place. 


• John McDermott on the case for another Saturday Night Special. When credibility is lost, getting inflation back under control is costly. The RBNZ forgot its job, and we will all bear a cost. 


• Jem Traylen tries to figure out why the government won't fast-track residence for migrant nurses. There are no good answers. 


• The Australian Therapeutic Goods Administration has approved Moderna's Covid vax for under-5s. Unclear that Medsafe has even started looking at it. 


• The McGuinness Institute maintains an archive of Government Department Strategies. There are 221 operational GDS and 327 archived ones. I did not know there were so many. 


• Frank Newman on a few problems in the government's Three Waters financial modelling. Oh - and the IT systems alone could cost half a billion. 


• I wonder how much income protection insurance premiums are going to go up because of Long Covid risks. Would be fun if cautious mask-wearers could get a discount...


• Survey evidence of misperceptions could just be miseducated guesses. But wouldn't that predict unbiased means?


• The flu-normal sucks.


• New Zealand's defamation law is even worse than I'd thought. Its reach extends to America.


• Prof Beaglehole on Smokefree 2025.


• Three cheers for the three Christchurch councilors who voted against the stadium.


• Infometrics warns inflation expectations look unanchored. 


• Cameron Bagrie warns of a lack of expertise on the RBNZ Board. I remember Suzanne Sniveley telling us at the NZAE meetings that all is fine. 


• This is just lovely. How the world's worst golfer kept getting to play at big golf tournaments. Great fun story. 


• Pandemic-related losses in education. New Zealand did manage to get through the early period with some of the shortest periods of school closure in the developed world. But we're still showing shocking results on literacy and numeracy - though tough to tell whether it's worse than pre-Covid. 


• Russ Roberts' chat with Ran Abramitzky and Leah Boustan was great while we were on our drive back from Taupo. Just such an enormous amount of core data work in that project on immigration and outcomes. Here's Noah Smith with Boustan.

Afternoon roundup

The closing of the many tabs:

• EU trade talks with NZ are on. European consumers who worry about food security, food prices, and access to the only lamb that, to the best of my knowledge, Peter Signer has granted caveated ethical approval - they should be telling their governments to ditch the tariffs and quotas on NZ ag exports. 


• Elizabeth Rata has a blog.


• That doesn't solve the problem, Camus. Like sure, you're right - but in a trivial sense. You've just pushed the question up a level. 


• How not to build a stadium. Or, better, perhaps they shouldn't be building a stadium. 


• NZ fares poorly in the latest world competitiveness rankings.


• It's especially when you have low-quality informal institutions that competent mayors matter. I wonder what a replication of this work for NZ would look like. 


• NZ has a lot of options for drivers who want to take jobs on apps. Uber, obviously. But also Lyft, Ola and anyone else can enter the market if they want. The Employment Court is trying to decide whether Uber drivers are employees. It's an odd kind of employment if someone can have three or four different apps open at the same time, taking jobs as they come. Macfie takes a very union-sympathetic position; haven't seen other reporting on the court case.  


• A new taskforce to try to unblock building materials, with a focus on plasterboard. Looking to consenting will matter, but the overarching issue will still be getting councils out from under joint-and-several liability. 


• Radio New Zealand cheering on the creation of a new cartel, mostly because they have no clue how occupational licensing works. 


• Bad news for beer drinkers - price is going up (as it is for everything else).


• AML rules still killing remittances.


• Jenny Ruth picks up Geof Mortlock's worries about RBNZ.

Afternoon Roundup

This afternoon's worthies, as I try to free up system resources so the Zoom session I'm listening in on might work a little better:

• The Canterbury Crusaders want what is effectively hundreds of millions of dollars of subsidies for their sports franchise. It would be nice if support for their sports team could be demonstrated through a PledgeMe fundraising drive for a stadium, rather than by forcing everyone in Christchurch to pay for it. Mayor Lianne Dalziel notes that the thing didn't pass cost-benefit even before the big run-up in costs. 


• The Reserve Bank is not Tane Mahuta. But if it is, then its Governor is a Northern Rata slowly strangling a once beautiful tree. DoC wouldn't let it happen. 


• Marc Daalder keeps providing the best NZ coverage on the current Covid state of play.


• Economists (rightly) don't like laws against price gouging.


• Pfizer's Covid vax is safe and effective for under-5s. Well, duh. So when will it be available in NZ?


• I'd not caught the BBC Radio version of Flight of the Conchords, from 2005. It's very good. HT: Andrew Farrant. 


• Anti-Money Laundering laws have made money transfers to the Pacific unsafe. This whole regime is so bad. 


• ESR geneticist Mike Bunce and Siouxsie Wiles sing the praises of wastewater testing. Bit of a shame that, as of 16 June, the most recent wastewater testing results were released 2 June, for the week ended 29 May. 

Dunedin lessons for the Christchurch Stadium

Newsroom put up a superb piece last week on all of the messes that Dunedin got itself into by spending stupid amounts of money on a stadium. 

I knew it was bad but hadn't known it was this bad. It was "Let's divert money from the CCO that runs the local lines company, deferring maintenance and leading to outages" bad. 

The judgment reads: “Aurora accepts it failed to exercise the skill, diligence, prudence and foresight to be reasonably expected.”

Between 2010 and 2016, Aurora failed, “without adequate justication”, to spend $37 million of forecast expenditure replacing and renewing assets. This led to a significant proportion of network assets “being at or near the end of their lives”, the judgment said.

The timing of this scandalous neglect was no coincidence, says whistleblower Richard Healey, of Dunedin, who exposed Aurora’s potentially harmful problems in 2016.

While a backlog of dangerous power poles weren’t being replaced across Otago, Aurora and sister company Delta paid $30 million in “subvention payments” – shifts within a corporate group, between profit-making to loss-making companies, for tax reasons – to Dunedin’s stadium.

“There were other factors and decisions related to maintenance that made sure we were always going to end up in this mess,” Healey says. “The key to the whole proposition is the fact that that money, which should have been used for the rebuild of the network, was portrayed by various people within council as some magic pot of gold that could be shifted across to fund the stadium – and it wasn’t.

Go read the whole thing. 

Yay, Sportsball and blackouts. 

Afternoon roundup

 The afternoon's closing of the browser tabs brings the following worthies:

• Superb news! The police have taken an operational decision not to waste resource sending helicopters out looking for cannabis plants. Or at least National Headquarters isn't going to resource it any longer. Lots of things are illegal; police (rightly) have limited budgets and so have to make decisions about where to focus their efforts. Flying around in helicopters on gardening operations makes far less sense than putting resource into preventing crimes that actually have victims. 


• Audrey Young on the slow pace of getting the vaccine out.


• In any other circumstance, I'd be a bit nervous about Otago Public Health recommendations around smoking policy. But I'm in complete agreement with Baker/Wilson on this one. Shared spaces in MIQ seem crazy risky, and especially so with more contagious forms of the virus coming through. I'm also with them, sadly, on the desirability of reducing intake from risky places - at least until we can get to far more frequent testing of everyone in the border system. It totally can be done. Daily testing of all border staff, through daily saliva-based PCR tests, would mean any infection of MIQ staff would be almost certainly caught before it could turn into community spread. Oh, and Michael Baker also wants rapid testing at the airport pre-departure. It's been feasible for a long time. We could still do it. The Abbot rapid antigen tests are cheap and could be rolled out for use at the departure gate. The government could buy thousands of them, send them out with every outbound flight so that they can be used at the gate pre-departure at every gate departing to New Zealand. Or pick a different test if Baker prefers a different one. At least now that Labour has signaled support for pre-departure testing, folks can talk about it without being attacked by a pile of Labour twitter partisans. 


• Luke Malpass thinks we can still be aiming for a broader travel bubble, and has this encouraging news about Auckland airport.

  Once the Australian bubble is opened, it is understood that the international terminal will basically become green lane only, while “red lane” flights will land at a separate building and passengers will be bussed to be processed for quarantine, or to a separate area if transferring to another flight. The airport will need two weeks’ notice to get this working.
  
  The other big issue, which Covid-19 Response Minister Chris Hipkins has repeatedly raised in public, is how to manage repatriation of both New Zealanders and Australians in the case of a big lockdown. Here, Australia’s federal system should make things easier.
  
  Should there be an outbreak in a certain part of Australia, say Queensland, the other states would likely close their borders to Queensland. Meanwhile, the bubble could continue in the other states. In addition to this, one option being batted about is getting travellers to Australia to sign a form on departure acknowledging that, in the event of an outbreak, they may have to hunker down where they are for 14 days, should exit flights not be able to be arranged. Vice versa for Australians on these shores. 

  All of this has been entirely obvious as the way forward, for months. Government moves slow.


• This is fun. SocialBubble provides you with typical twitter feeds as seen by people of various ideological persuasions. You can look at Twitter as though you were a socialist, leftist, progressive, liberal, centrist, moderate, conservative, right-winger, or alt-right person. FWIW, my twitter feed looks closest to the one they identify as centrist. Or at least I recognise the folks in that feed, and a lot of them are the ones I also follow: Neoliberal, Noah Smith, Conrad Hackett, for example. I recognise a lot of the feeds in Socialist too, like Sanders and Jacobin and Existential Comics, but choose not to follow them. I had followed Existential Comics because the comics are often superb, but the twitter feed is just too tedious. 


• Eden Park will be allowed to operate as a stadium. This is good, not least because it reduces the prospects of anybody throwing money at a new downtown waterfront stadium. 


• Tyler Cowen asks that you start from your estimates of labour demand elasticities and be consistent about things.

Ports and Portability

Alas, Bernard didn't keep the headline I'd picked for this week's Newsroom column. 

It's about whether it makes sense to move Auckland's Port. I don't know whether it makes sense to move it or not, but I do think that the first step is figuring out just how much value could be unlocked by turning 55 hectares of waterfront real estate over to other uses, whether residential, commercial, or anything else other than a stadium.

So: Ports and Portability.

Bernard went with "Hard numbers needed before 'blue sky' Port talk".

Ah well. I still like Ports and Portability. He's the expert though.

A snippet:

Moving Auckland’s port might make sense – someday.

But I do wonder about some of the talk of moving Auckland’s port to put in a waterfront stadium, or museum, or other large, iconic, and expensive facility.

Stadium maths are almost invariably bad. Rather than revitalising cities, stadiums more typically become white elephants needing ongoing financial support. Putting one on some of the city’s most valuable property would not only ensure it could never cover its own real costs, but would also forgo far better uses for prime commercial and residential land.

If you owned a quarter-acre section in Epsom, with a sprawling ramshackle workshop and shed in the back yard, rising property prices might eventually convince you to make some changes. Clearing the workshop out could be a bit expensive – and especially if you needed to find some other facilities for your projects. But subdividing could let you clear the mortgage and pay off a few other bills.

Unless you had money to burn, deciding to take on all the expense of clearing out the shed and finding another place to work might be a bit silly if you decided instead to put in a swimming pool. It could be nice on a warm evening, but it certainly would not help with the problem of covering the mortgage. And the bank might have something to say about it.

As downtown property values rise, eventually the Council-owned Port’s fifty-five hectares of land and wharves will be valuable enough in other uses to cover the cost of clearing the land and building new facilities elsewhere. Those costs will not be small, with consultancy reports battling over just how close to $10 billion the bill might wind up being. But the value of the underlying property will not be small either.

I worry that where the government wants to decide on whether to move the port before deciding on what to do with the waterfront land, we could too easily wind up with a waterfront stadium.

In the Hitchhiker’s Guide to the Galaxy, Douglas Adams wrote of how numbers written on restaurant bills within the confines of restaurants do not follow normal the laws of normal mathematics but instead follow Bistromathics. He imagined spaceships powered by this new math. Numbers used in economic impact assessments of stadiums are even stranger than bistromaths. To put the academic economic consensus simply, public investments in stadiums do not deliver the promised benefits.

A waterfront stadium the size of Eden Park would sit on about $600 million dollars’ worth of property, if that waterfront land winds up being worth about $10,000 per square metre; construction and running costs of a stadium would be additional. If the stadium had zero running cost and zero construction cost, it would still need to generate revenues of almost $50 million per year to cover the capital cost of the land alone.

And Eden Park’s total operating income last year was just short of $16 million. A stadium might not be the best possible use of waterfront land. It is just too easy to imagine combined governments spending billions of dollars to move the port based on business cases involving selling the port’s land, only to then spend easily over a billion dollars on a new stadium for the site instead.

Stadium logic

Here's James Dann and Barnaby Bennett on the mess around the Christchurch stadium.

Sporting events would create around 20 big occasions with any of the options. The covered stadium options enable many smaller events: music, conferences, other community events. These are forecast to produce small 'profits', as opposed to the uncovered option that would generate small 'losses'. A massive caveat is that when the 25-year life cycle of ALL of the options is considered, (big venues need substantial reviews every 25 years or so), all of them lose about $7-8m a year.

Hence the report favours the bigger spend, arguing it would create more activity, and lose about the same amount of money over the long term. It is worth stressing this again; even with the most optimistic predictions for stadium use in the report, the best-case scenario still forecasts it costing us $7-8m year; on top of the $474m construction cost.

They also hit all the points that should be hit around the difference between creating new events and shifting events from one place to another.

Stadium follies

If you're going to build a stadium, don't do it in hopes of boosting GDP.

Sam Richardson ably surveys the international literature before weighing up the effects of stadium construction in New Zealand.

He finds:

• There's a short term boost to construction activity during the stadium build. He reckons Wellington had 56 more full-time-equivalent construction jobs during its build. 
• But, there's no effect on regional GDP, even during construction, barring some effect from arena builds as compared to stadiums.

He concludes:

The results from this analysis suggest that predictions of substantial economic impacts of sports facilities have generally not materialised. Optimistic predictions need to be tempered, with particular attention paid to the existing facility landscape. There are several reasons why economic impacts fail to materialise, many of which have been mentioned in the literature review section of this paper. A short-term increase in construction sector employment for certain facility types appears to exist during construction; however the effects largely disappear post-construction. Real GDP is generally unaffected during the construction of facilities and during the post-construction period. If the intention of local government funding in such projects is to stimulate employment or GDP, projects that generally do not deliver anything more than short-term sector-specific impacts would not appear to be appropriate. 

Local policy-makers should also be mindful of other potential impacts, in particular the opportunity cost of subsidising facilities. It has been noted elsewhere in the literature that a change in employment composition resulting from subsidising facility projects could potentially bring about a worsening in economic development. If a facility project results in the creation of low-skill employment at the expense of high-skill employment, the host area may well experience a deterioration in economic development relative to other areas (Baade & Dye, 1990).

If you want to spend a pile of money throwing a party, or building a place for such things, justify it on those grounds - not on potential effects on GDP.

I wonder if Sam will turn his eye to convention centres....

Hooton on Sports Econ 101

Matthew Hooton nails this one, with some help from Andrew Zimbalist:

I do know that the Cricket World Cup has been an outstanding success: Christchurch’s return as an international venue; the destruction of England at Wellington; the Auckland nail-biter against Australia; Ireland’s triumph over the West Indies at Nelson; Martin Guptill topping the batting with his 237 not out and Tim Southee the bowling with 7/33. The International Cricket Council must be bonkers to stick to its plan to cut the number of teams from 14 to 10 for 2019.

I also know we will soon be inundated with “studies” that the tournament has delivered a huge boost to the economy. The Ministry of Business, Innovation and Employment will be at the forefront. But what has been obvious anecdotally for a long while has been confirmed more systematically by Professor Andrew Zimbalist in his new book Circus Maximus, reviewed in the Economist a couple of weeks ago: it’s all crap.

He shows that perhaps the one thing economists have proven beyond any doubt over the past hundred years is that major events never deliver any but the most fleeting economic benefits, if any at all. The overwhelming majority of events are a drain on GDP. The same is true of sports teams and new stadiums: none has ever delivered an improvement to employment or GDP. It would be remarkable were it any different for concerts, arts exhibitions, sculpture walks and the rest.

Oh, yes, there are plenty of analyses that show otherwise: those commissioned by the sports or arts associations who want the honour of hosting the event, the politicians and bureaucrats who want the front-row seats and tourism lobbyists who perceive they will gain financially, but even they’re usually wrong too.

Hooton later echoes a line I've often heard from Seamus Hogan, but that I'm not sure he's blogged [Update: here]: if you're going to run these things, justify them on the basis of their being a fun party and nothing more. Maybe the party is worthwhile; maybe it isn't. But don't pretend that it has big economic benefits.

Stadium exam questions

We still don't know whether Christchurch will get a big covered stadium.

Meanwhile, in Dunedin:

The idea of mothballing Dunedin's Forsyth Barr Stadium might raise eyebrows, but it is officially on the table for the Dunedin City Council.

The move was confirmed by council staff yesterday, even as Mayor Dave Cull said it was not a ''particularly constructive'' idea and was unlikely to solve the council's stadium-sized financial headache.

''My personal view is you can mothball the stadium but you can't mothball the debt, so you may as well have the stadium,'' Mr Cull told the Otago Daily Times.

His comments came after council chief executive Dr Sue Bidrose said mothballing the venue was one option among many being considered as part of the stadium review.

The review, which aimed to address $3.79 million of losses forecast by Dunedin Venues Management Ltd over the next three years, was announced in January and due to be completed by early August.

I really don't know whether mothballing helps: it depends what portion of the ongoing losses are sunk for the Council and what part are operational losses that could be stemmed by shutting down.

I do expect that Dunedin stadium's financial prospects are worsened if Christchurch gets a big new stadium that would draw acts that might otherwise go to Dunedin, though there aren't many going there now.

I also expect that somebody in the Otago Econ department could set a fun intro micro exam question hitting the usual firm shut-down point problem using Forsyth Barr as set-up. If I were setting it up, I'd specify that I was using made-up numbers, and set the solution such that the stadium is worth keeping open, but only because the main debt costs are sunk. In part (b) I'd then ask whether the next city up State Highway 1 should build an even bigger stadium that would have similar finances. Ideally, the students would recognize that it's better to avoid sinking the costs in the first place.

Is it May already? Asset sales edition

It must be May. The Christchurch Press is reporting that Council is considering selling some assets to pay for the quake.

May 2, 2011: The Press wondered the same thing. I put up the general conditions under which Council should sell assets.

May 21, 2012: Another round of speculation about Council asset sales. Labour was outraged by that the City might contemplate selling dividend-paying assets. I pointed out that, unless there are really serious problems in asset markets, dividend flows get capitalised into asset prices. I'd written:

Cosgrove can only be right where the asset is more efficiently owned by local council, or where there are serious problems in IPO markets, or where the Council has a particular kind of stupidity.

If the asset is best owned by government, then the selling price will be less than the discounted value of the dividend flow. Otherwise, local Councils can do better by selling off the asset and taking the cash.

If there are serious problems in IPO markets, then things sell for less than fundamental value at IPO. But there's no particular evidence of this.

The last one might be more of a worry. Imagine a guy who has a trust fund that pays him a modest annual income. He generally is foolish in how he spends it, but he's always able to pay his bills. If he is given the investment as a lump sum, he blows it all on pop rocks and bungee jumping and has no income flow for the next year. That guy is probably better off not being able to sell off the dividend-paying asset. Is Christchurch Council that guy? Hopefully not. But post-quake, unless they're dumb enough to blow it all on stadiums, there are tons of productive ways they could be spending the money - roads, sewers, turning Red Zone into useful parks.

And, if Council is dumb enough to blow any divestiture returns on pop rocks and stadiums, are they smart enough to handle the asset properly if they own it in the first place? Note that an asset like the Lyttelton Port of Christchurch isn't like a hands-off trust fund; it requires annual decisions about asset maintenance versus dividends. Cosgrove talks about how the revenue stream from assets helped kept rate rises in check; what reports I'd heard on maintenance standards at the Port as of a few years ago suggested that Council was putting a fair bit more weight on current dividend flow than on maintaining the assets. Divestiture may be a bad idea if Council is prudent enough to manage the asset properly while they own it, but profligate if they're handed a lump sum of cash; under the current circumstances, with plenty of really pressing financial needs, I'm less worried about this one.

And here we are, May 2013. In today's Press:

A Christchurch city councillor says the city could offload non-core assets, including its own offices, to help pay its share of big-ticket rebuild projects.

Cr Tim Carter said last night that less important assets were expendable if it helped ease the council's debt burden in funding anchor projects such as the new convention centre and roofed sports stadium.

...He was against selling strategic, money-earning assets such as Christchurch International Airport, Lyttelton Port, Orion, and Enable, which is installing ultra-fast broadband in Christchurch.

His comments come as Prime Minister John Key yesterday weighed into the council asset sales debate.

Key told Firstline it was up to the council to ask whether the people of Christchurch wanted "the nice-to-haves".

"Then they'll ask how are you going to pay? That could be through rates or asset sales," he said.

The case against selling the airport isn't that it's a money-earner. A money-earning airport will sell for a LOT of money at IPO. Rather, the case is that the local monopoly airport would be tempted to set fees to maximise its own profits without considering that reduced traffic into town might have some broader costs. It might even do things like charge really high fees to taxicab companies for the right to operate from the airport, increasing the costs of Christchurch as a travel or conference destination.

I still think that Council should fully divest assets that are managed at least as well by the private sector and don't have the kind of problem that the airport could have, partially divest other assets, and use the money for roads, sewerage, overbridges, and for topping up the costs of rebuilding and repairing Council facilities. But if John Key wants Council to sell off the Port to fund a big covered stadium or a huge convention centre, well, I discussed that case last year.

SkyCity revisited

Auckland is to get a large new convention centre, to be built and run by Sky City, Auckland's casino.

I chatted with Radio New Zealand's panel about the plan this afternoon.

Really, not a lot has changed from when this was first proposed a while back.

We should think of this as two separate deals.

First, the government is auctioning off some gambling concessions. SkyCity has bought the right to have an additional 230 pokie machines, 40 gaming tables, assorted other gambling concessions, and, possibly most importantly, a guarantee that if some future government reneges on the deal by banning gambling or otherwise eroding the benefits provided to SkyCity under the deal, they'll be compensated. Now suppose that we opened that whole thing up to a general auction. People would then bid for those rights; the highest bid would approximate the expected flow of profits from having the concession.

Second, the government took bids for the right to build and operate a big convention centre. The high bidder, or rather the company willing to do it at the lowest subsidy, gets to build and run the convention centre.

In this case, SkyCity has to reckon that losses (if any) from building and running a convention centre are less than the gains from the gambling concession [NBR subscription, sorry]. And it isn't crazy to think that the bundle provides added value: convention centres near casinos tend to lose less money than those not so-situated; there are reasonable complementarities between the kind of facilities attractive to conventioneers and those that are in place in casinos.

Conditional on the government wishing that there be a big fancy convention centre in Auckland, this is likely the least bad way of doing it. I haven't gone through the accounting on it in any depth, but the bottom line has to be that SkyCity reckons it can make a go of it, since they're bearing the risk if they can't operate it profitably. And it isn't crazy to think that there could be some economic benefits from increased tourist traffic if we host more conventions. But whether those benefits are larger than the amount SkyCity might otherwise have bid in an open auction for the gambling concessions, where the revenues went into the general fund rather than into a big convention centre, that's rather less clear. It's possible, but it's far from certain.

Commenters at The Panel worried about social costs of gambling associated with the expansion. A lot there depends on how Auckland proceeds with gambling regulation. The cities that existed prior to amalgamation had a mix of gambling policies, with some imposing a "sinking lid" on the total number of pokie machines allowed. If Auckland as a whole continues with that policy, then much of the concession offered to SkyCity comes at the expense of the corner pubs who will see their licences killed more quickly than they otherwise would. That's really rather bad for those pubs. Whether that increases or decreases social costs depends on your view about which is better positioned to identify and exclude problem gamblers; I'm agnostic. But I'm not agnostic about that most of the measures of gambling social cost assume away the enjoyment that gamblers get from gambling. If we're happy to assume that every dollar spent on gambling by heavy gamblers is a total loss except where it results in a win, it's pretty easy to generate large estimates of gambling's social costs.

You could even make the case that the whole deal could, on the whole, be strongly anti-gambling. Here's the case. Given the SkyCity concession AND that SkyCity has bought itself immunity from other gambling regulations, what happens to political pressure against anti-gambling regs? The immunity clause means that it's in SkyCity's interest that we have much tighter regulations against gambling in other parts of Auckland; it strengthens their position. If you think that gambling is a bad, which I don't, then this deal makes SkyCity closer to a monopoly than it was previously, and makes every future regulation on gambling a pro-SkyCity regulation. If you hate gambling, you want it provided by a monopolist so that there's less of it.

The anti-gambling folks should give their heads a shake and think about the opportunities now available to them if SkyCity can be exempted from their wildest anti-gambling fantasies. I'm glad they haven't, as I don't like monopolies and I think it's ok for people to go and enjoy a flutter at the machines or at the tables. They should consider pushing hard on sinking lids such that SkyCity winds up being the only place left with them. SkyCity will be on their side in that fight. I don't like that outcome, but that's just me.

Stadium plans

Sam Richardson points out some problems with the proposed stadium-plus-office-towers combo for Christchurch:

It is not clear yet where exactly the funding for Christchurch's stadium plans is coming from, but it is fair to say that it will be largely funded by taxpayers - locally, regionally and nationally to some degree. As such, if my taxpayers money is going into funding a stadium, I would like to see some evidence that this amenity is going to be at least self-sustaining, and should not be detrimental to the local area. The idea that office buildings will make the stadium profitable is missing the point. If the office blocks are the profit-making parts of the venture, why not just build the office blocks? If they must be built as part of a stadium plan, we have to acknowledge that the rents earned by stadium offices will simply be transferred from other office spaces elsewhere within the city. It may well be the case that office space is at a premium in Christchurch, in which case the stadium offices may be beneficial to the city of Christchurch in that clients who were previously unable to obtain office space may now be able to do so. If, however, the offices are simply populated by clients who relocated from the suburbs, then this isn't making money (nor necessarily welfare enhancing either) at all - it is merely redistributing the rents on office space from the suburbs back into the CBD.

It is exactly the same argument as the claim that stadiums generate conference revenues too - which is only beneficial if the conferences wouldn't have been held in the city in the first place without the stadium conference spaces.

If people are willing to pay more for office space overlooking a rugby field than for office space elsewhere, then that can make a case for the stadium/office combination. And I can believe that there are plenty of tenants who would be willing to pay more for stadium office space than for regular office space - it isn't implausible that the project is feasible. But if that complementarity comes from tenants expecting to watch games from their offices for which they'd otherwise have to pay, then it's a trade-off against ticket revenues for the stadium's tenants - sports clubs would then be willing to pay less for use of the facility.

Lunchtime discussion in the economics staff room wondered whether we mightn't instead have hotel towers and a stadium including conference facilities. But that does start getting awfully close to Danyl's proposal from last year:

Christchurch Mayor Bob Parker and Earthquake Recovery Minister Gerry Brownlee provided more details of the rebuild blueprints for the earthquake-devastated city today, including plans to build a second sports stadium inside the new convention center to be constructed on Cathedral square.

‘The sports stadium will be a core attraction for visitors to the convention center,’ said Brownlee. It will be fully covered, provide seating for up to 2000 spectators, and will also contain a state-of the art convention center.

The sports stadium inside the convention center will complement the services provided by the main convention center. It will include business hotels, retail outlets and a covered sports stadium with natural fixed turf, which will also contain a convention center to attract business tourists who want to attend sports events during their stay.

‘We have one or two exciting ideas for what to include in that last convention center, but I don’t want to give too much away,’ Brownlee told reporters. ‘Let’s just say Crusaders fans will be very excited.’ City Council insiders suggest the convention center’s sports stadium’s convention center might house a sports stadium.

I still wonder whether it might be best to let the Crusaders own the stadium and to gift them the insurance payout for the AMI stadium. Tell them to make the best go of it that they can while writing legislation that the Mayor, Council, City Manager, and both the General Manager and Coach of the Crusaders will be shot in the face have something very bad happen to them if Council ever provides any other subsidy ever to the stadium or its tenants.

Long-term financing

The Christchurch Press tells us that the Canterbury Crusaders have paid half of their last year's profits to the Christchurch Stadium Trust.

It's great to see a sporting franchise willing to help fund its stadium.

The temporary AMI Stadium at Addington cost $30 million.

The Government has proposed building a much larger and more expensive permanent stadium as part of the Christchurch rebuild; nobody quite knows what that will cost. $400 million is the number currently cited. Here's John McCrone:

Time to sober up? With the proposed new convention centre and covered rugby stadium, the mutterings are that Christchurch has got rather carried away with its central-city rebuild plans.

"Why are we talking about a $300 million convention centre and $400m stadium at a time when we're broke? It's a nonsense," remarks one insider with a prominent role in the city's events industry.

"I can understand that we are trying to seize the opportunity of a blank canvas here," he continues, "but we're a very small city, only 350,000 people - in many ways just a large farming village. So with these kinds of facilities, it's hard to see how we can afford them, how they will be viable."

Another informed source - again speaking off the record, as now is not a time to be sticking your head above the parapet, he says - points out that the Government is only just now hiring someone to write the business case for the convention centre, even though it has already begun compiling a shortlist of the developers and contractors to build and run it.

"That tells you nobody's done a proper feasibility study yet," he says. It is all seat-of-the-pants, back-of-an-envelope thinking so far.

Now the Crusaders put $87,147 towards the Christchurch Stadium Trust this year in addition to the amount they paid in rent. I'm not sure what the Crusaders pay in rent or whether the figure is publicly available. But I'm pretty sure that the government fronted all of the capital costs for the temporary stadium and that the Trust is only covering operating expenses. A larger stadium would generate greater ticket revenues but would also have larger operating expenses.

Let's suppose that the Crusaders could earn a million dollars per year in profit that could be used towards a stadium above rental charges that cover operating expenditures but not depreciation. And suppose that they promised to give somebody that million dollars per year for the next 30 years if that somebody would give them cash today for building a stadium - a bond issue. If they marketed the bonds to Crusaders fans and thereby got away with paying only 5%, they'd get a bit over $15 million for the flow of future profits. We could maybe imagine, since we're only playing very rough ballpark figures anyway, that that plus other events at the stadium could hit a $30 million replacement cost target.*

The proposed stadium is on the order of $400,000,000. You're not going to get anywhere near that on a $1,000,000 stream but you could do it on a $26 million stream, if you could get people to accept a 5% interest rate.

But I am encouraged to see the $87,147 contribution. Perhaps we could have a few bake sales to help.

* I'm using this as a ballpark measure of whether the government's investment could be construed as having made sense. If the Crusaders were saving now to replace the $30m stadium in 30-year's time, and if the real costs of construction didn't change over the period, and if the Crusaders could get a 5% real return on investment, then it would take them about 19 years of putting $1 million aside to earn the $30m. It would take over 60 years to get to $400 million.

Rugby Boosterism

Breathtaking. The Ministry of Business, Innovation & Employment produced a report, "The Stadium of Four Million", on the 2011 Rugby World Cup.

The first sections of the report are pretty unabashed boosterism, lauding the successes of the event. It's a bit surprising that they talk about the benefits of enhanced stadium infrastructure in Dunedin with nary a mention of, well, this:

The stadium was pushed as a multi-purpose venue. An appendix to the "CST Feasibility Masterplan Report" of 2007 said it was important it was "perceived at a community level to be multi-purpose and cater for more than rugby". Since it opened last August, only two major non-rugby events have been held: a gig by Elton John, and the 150th birthday celebrations for Otago Daily Times publishers Allied Press. Neither paid a stadium hire fee. In June 2008, two major concert promoters had told the D-Scene newspaper what should have been self-evident: Dunedin was too small, remote and student-oriented to provide the sales base to attract big-name acts. In February this year, council-owned stadium management company Dunedin Venues Management Limited's (DVML) chief executive David Davies said concert bookings for the stadium would be "thin" in 2012. "What's thinner than one?" asks Garbutt. Cull says the council has to leverage the advantage of having a roof, guaranteeing events won't be rained off. Farry, who wanted to run the stadium for its first two years, is disappointed the council hasn't attracted more concerts.

The council envisaged DVML would return a substantial annual dividend to help defray loan repayments. Incredibly, DVML were told to borrow money, if they had to, to ensure a return. "There is no way a company could be milked like this without blowing apart at the seams," says University of Otago academic Rob Hamlin. DVML duly baulked, the board was sacked and replaced by new directors, Denham Shale and Bill Baylis, both former South Canterbury Finance board members. "A 100 per cent commonality of board membership with a company described as the biggest corporate fraud ever in this country takes real genius," laughs Hamlin. DVML predicts a $2.4m loss this year, saying it cannot cover the cost of debt-servicing on the stadium loans, and Davies cried at a press conference to announce his resignation. Cull says it was "completely unrealistic" to expect the stadium to service its own debt (it was originally predicted to make an annual profit of around $100,000); instead he's instigated a review to find the best operating model and how it can run at the lowest possible cost. Farry, meanwhile, reckons the trust would have run the stadium at a modest surplus. Pro-stadium councillor Syd Brown also says the stadium can be profitable: "It will work, it is an asset."

Hamlin argues it may never be viable: if it cost $200m in loans, that means raising $500,000 a week to cover the interest. "Every person from the child born yesterday to the octogenarian blowing bubbles down the old folks' home would have to go to that stadium once a week, without fail," he says. Garbutt believes it would be most sensible to mothball the stadium.

Some benefit. This matters more because the report does not provide any kind of Cost-Benefit Analysis. Rather, it's all economic impact and effects on GDP. They assume that all of the stadium upgrades happened because of the RWC (not that implausible); increased construction expenditure in the CGE model will turn into larger GDP. Except Dunedin could yet go bankrupt over it.

Roger Procter, MED Chief Economist, notes at pages 94-95 of the report some of the report's rather strong limitations. He writes that while CGE modelling can be an important input to a cost-benefit assessment, we still need that cost-benefit assessment to assess any net economic benefit. And as best I can tell, there's no cost-benefit analysis in this report. Maybe it'll be in a subsequent report.

Further, a lot of the benefits tallied depend on the counterfactual that's used. At page 15, they talk about overseas visitor spending being 16.2% higher in September and December 2011 compared with September and December 2010, and retail trade being up 5.7% over the same interval. But the world economy strengthened considerably from 2009 to 2010 and continued strengthening through 2011. The CGE modelling should account for that, but they are taking the increase in visitor numbers as an input. And the graph presented at p. 43 makes it look as though they're estimating excess visitor numbers in 2011 based only on actual numbers from 2010: the "But for the RWC" 2011 figures coincide with realised 2010 visitors for the period of the RWC. If we would have expected numbers to have gone up with continued American and Australian economic recovery, then this may overestimate the RWC's effect. And, again, the estimated RWC-visitor-bump is an input into the CGE model.

A final bit of fun. The boosterish early part of the report talks about the potential gains from increased international business contacts as foreigners travel to New Zealand to see rugby. And that is indeed a plausible but hard-to-quantify benefit. But the notes for the CGE modelling say that much domestic NZ RWC attendance was not displacement from other domestic tourism activities but rather displacement from international travel. That lets that domesticly diverted attendance count as a gain in the CGE modelling. But it also attenuates the benefits of "international connectedness". That bit doesn't get noted in the early boosterism.

For a future honours project, it would be rather fun to have a student check whether countries represented in the RWC, as compared to comparable matched non-RWC countries, had enhanced longer term tourist flows. The report makes a lot of surveys of visitors happily reporting that they'd recommend New Zealand to friends. If that's true and substantial, it should show up in aggregate tourist flows by country sometime over the next few years. It would also be neat to compare these effects with per capita LOTR and Hobbit box office revenues by country.

I chatted with Radio New Zealand's Eric Frykberg about some of these issues late this morning.

Stadium subsidies - a new hypothesis?

Football is for Republicans, baseball for Democrats? 

StubHub is the secondary market for sports and concert tickets in the States. Their data analyst has been playing with the numbers and finds that states that have a lot more trade in football tickets than in baseball tickets break GOP while those with a higher proportion of baseball tickets like the Democrats.

Here's the infographic from StubHub:

They also put up some evidence showing that changes in the BFR correlate with changes in polling data in the swing states in the leadup to the 2008 election. 

So do baseball or football sales really cause states to move politically? No, not really. Just because the two are correlated doesn’t mean that one action caused the other. But it shows that sports and politics may have a deeper connection than previously thought. Political pundits sometimes say “As Ohio goes, so goes the nation”. I don’t think they’ll ever say “As BFR rankings go, so goes the nation”, but they’d be right if they did.

If the culture wars are a long game, it would be fun to check whether Republican governors/mayors are more likely to throw money at football stadiums while Democrats fund baseball stadiums. We'd then expect periods of unified state/local government to coincide with greater sports stadium subsidies and divided government to hinder it. You'd have to run the latter kinds of checks because if a Democrat state were also a baseball state, it would be no surprise if Democrat governors put money into baseball stadiums. Focus on swing states and on unified vs divided government.

Economists tend to say that stadiums are an incredibly wasteful public investment; do Republicans cite economists against baseball stadiums proposed by Democrats and vice versa?

It is the time of year when I have to start thinking of honours projects to propose for next year....

The Dismal Science: Stadiums edition

The rather strong consensus of the academic literature shows that government subsidies to sports stadiums fail to deliver promised economic benefits. 

Massey's Sam Richardson, and co-blogger at The Dismal Science, has done the academic heavy lifting in New Zealand; most of the other bloggers syndicated at The Dismal Science have chimed in from time to time with our takes on things.

Close-Up highlighted some of Sam's work on stadiums; I popped up a bit but the serious work on this issue is Sam's. When Mark Sainsbury asked what Earthquake Recovery Minister Gerry Brownlee thought about the economic case for stadium subsidies, Gerry replied: 

"They say that economics is the Dismal Science. And you've found some really good exponents of that."

Indeed, Gerry. Indeed. 

I will be hitting some of the highlights of our collective prior efforts on stadium subsidies at The Dismal Science feed at SciBlogs. Enjoy the mini symposium!