Special Purpose Vehicles - How Tauranga is (partially) solving its transport infrastructure funding problem
Special Purpose Vehicles - How Tauranga is (partially) solving its transport infrastructure funding problem
I have previously covered the tension between housing supply and infrastructure funding that exists in Aotearoa. This is visible across many cities, including Tauranga which has been consistently one of the fastest growing urban areas in Aotearoa over the past two decades. While Tauranga has faced many challenges, some real progress appears to be getting made on infrastructure, transport and housing reforms.
In late 2022, a Special Purpose Vehicle (SPV) was announced under the Infrastructure Funding and Financing Act 2020 (IFFA) to fund a number of projects in the city. The SPV, called TSP Finance LP, was established by Crown Infrastructure Partners, following a proposal submitted by Tauranga City Council to the Ministry of Housing and Urban Development. Its purpose is to raise capital through borrowing to fund transport infrastructure projects in Tauranga. By using an SPV, Tauranga City Council can access funds for transport projects without adding debt to the Council's balance sheet. The SPV has raised approximately $175 million, which will support building 13 transport projects across Tauranga including roading improvements, better cycling facilities and improved public transport infrastructure.
Unlike the use of SPVs in greenfield developments elsewhere, like Milldale in Auckland, Tauranga is using the SPV to build infrastructure within the existing urban area to the benefit of the wider community. This means the targeted levy to cover repayments, applies to all properties in Tauranga. This investment is critical for supporting growth in Tauranga, particularly with the urban intensification that can be expected when Plan Change 33 is made operative at the end of 2023.
The challenges of using SPVs to fund infrastructure
So, this all sounds great, providing councils with the ability to borrow for desperately needed infrastructure and keeping it of local balance sheets, while charging the properties who stand to gain value from the investment is good. However, the legislation enabling this was passed in 2020, and there have been limited use cases since. So why has it not had greater uptake? What are the limitations?
One issue cited is the challenge is alignment of funding when a project has multiple funding sources. It is not uncommon to see this delay projects which have a split in local and central government funding. I’ve concern that borrowing through SPVs, while still be reliant on other sources of funding for the remaining share of a project which could fall through, leaving the cost of the borrowing on ratepayers while failing to deliver the project.
This raises the obvious question as to why not charge 100% of the project cost through a Special Purpose Vehicle? The primary challenge here is a question of political willingness to place 100% of the cost on ratepayers and how this balances user pays versus those who gain from owning property within the benefit area.
Further applications
While it may have limitations and not be a silver bullet for infrastructure funding, it’s worth considering how SPVs can be used. It's clear that the application is easier in greenfield contexts, like Milldale, where the beneficiaries of the infrastructure can be clearly defined as those within new subdivisions. However, with the majority of new housing in Auckland and many other parts of the country within existing urban areas, it is clear this is where the vast majority of infrastructure investment needs to go and where we need to find new mechanisms to fund it.
Correction: This article previously stated that SPV was established through a partnership with Tauranga City Council, Bay of Plenty Regional Council, and Waka Kotahi. This was incorrect, it was established by Crown Infrastructure Partners, following a proposal submitted by Tauranga City Council to the Ministry of Housing and Urban Development.
You stated "charging the properties who stand to gain value from the investment". That is the issue here. Many Tauranga residents do not want such rapid growth, they don't want some of these proposed projects (and have never been consulted on them), and while their homes may well increase in value, they will do so anyway - whether or not these projects proceed!
In fact, past experience indicates a pattern:
Councils and central government say they need to invest in transport infrastructure "to enable growth"... Which leads to faster-than-otherwise growth and higher carbon emissions... Which leads to demands for more workers to come to Tauranga... Which leads to higher house prices and higher carbon emissions... Which leads to councils and government saying they need to invest in infrastructure to enable more affordable housing and to reduce emissions... Which leads to councils and central government saying they need to invest in transport infrastructure "to enable growth and reduce emissions"... Which leads to faster-than-otherwise growth and higher carbon emissions... Which leads to higher house prices and higher carbon emissions... and on it goes...