Wednesday, 16 September 2009

Trams - and why not?

So there was I, being me, looking in wonder at the state of the tram finances - Edinburgh Council is £29.9 million short of what it needs to hit the old total construction figure (it has £15.1 million out of a committed £45 million):
though in the long term the anticipated levels of contributions are expected to be realised

I did like some of the answers given by Phil Wheeler:
Until the key issues are resolved through the current contractual and legal process the estimated cost cannot be confirmed.

That's going to be a while then.
The Council have undertaken two separate external review’s of its funding proposals, once in December 2007 and again in August 2009. Both of these reviews have reported that the Council’s funding strategy is sound.

How can the Council undertake an external review of its own funding proposals? Since the same answer indicates that the funding strategy is coming up short by two thirds of the initial level of funding required (i.e. before the increases that are piling on), how can the funding strategy be described as being sound? The rogue apostrophe is in the original, by the way, I didn't insert it.
Given the current issues with the BSC consortium and the contractual and legal process tie Ltd are now engaged in, a revised estimated outturn cost cannot be provided at this point

So how can the funding strategy be sound?

There's a shortfall, how to bridge that gap -
the Council will look at the possibly of a controlled amount of prudential borrowing with debt repayments being funded through Transport Edinburgh Limited (TEL) profits. The recent review of the TEL business plan indicated a long term growth in profits for the integrated tram and bus business that could support a controlled level of borrowing.

Few problems here, firstly that would burst the Prudential Indicators for Edinburgh Council. Leaving aside the questions about why Edinburgh's Capital Financing requirement exceeds £1 billion every year, how the councils financing costs are nearly 10% of income (how many decades has this council been mismanaged?), and why City Development is grinding more capital provision than education year after year, prudential borrowing for capital expenditure on the tram would require the Council to lay out how much they need (which they don't know) and how quickly it will be paid off (which they don't know). Or, as CIPFA puts it:
Where a local authority invests, or plans to invest, for periods longer than 364 days, the local authority will set an upper limit for each forward financial year period for which the authority projects the maturing of such investments. These prudential indicators will be referred to as prudential limits for principal sums invested for periods longer than 364 days and shall be calculated as follows:
Total principal sum invested to final maturities beyond the period end
Projected average cash balances in the period.

Additionally, CIPFA rules prohibit councils 'round-tripping' - borrowing for the purposes of investment or on-lending. Edinburgh Council cannot, legally, borrow to fund the tram. If borrowing for tram capital projects is required it will have to be done by TEL (Transport Edinburgh Limited) - and since private investment for the tram couldn't be found at the outset when everything looked much rosier than it does now, I doubt whether any banks or financiers are likely to offer attractive interest rates. Then, of course, there's the flawed business case, the already admitted years of losses for tram (and Lothian Buses) that are coming, and the fact that the design still isn't finalised.

Additionally, as COSLA noted, prudential borrowing should have an identified income stream (page 4) - and there will be no income stream from tram for years - if ever. Additionally, also as noted, Treasury rules mean that overall public debt cannot be skewed (they excuse London by making it a debt belonging to the whole country instead of just London), the Scottish Government would have a responsibility to step in and cap Edinburgh's borrowing if it was out of kilter with other areas - the Treasury would do it if the Scottish Government didn't.

Phil Wheeler has an answer:
TEL is wholly owned by the Council. It is therefore open to the Council to use any available profits to assist the Council in achieving its transport aims.

That is absolutely wrong. He might have meant to say that the Council can borrow using its 100% shareholding in TEL as collateral to borrow and then grant this to TEL - but it would be a grant, it wouldn't be tended by future tram income, and the risk would lie with Edinburgh's council tax payers. Further, and Mr Wheeler should know this as a former banker, it isn't open to the owner of a company simply to raid the profits of that company for their own purposes, so it is not "open to the Council to use any available profits", especially when the company is a publicly-owned company.

In the midst of all that, my kind and considerate colleagues sent me a link to the sad news of another tram crash in Dublin where 21 people were injured, three seriously, and the Luas driver had to be cut from the wreckage. The myth that tram is a safe way to travel is wearing very thin - how many people have been injured on Lothian Buses in the past few years?

Mind how you go!


Malc said...

Did you see what happened in Dublin today?

subrosa said...

Excellent update Calum, thanks.

These trams don't affect me as I'm sure you know, but I was not for this idea at all, especially when Edinburgh had/has such an excellent bus service.

balancedview said...

Yeah...but surely you should concede that the Dublin tram - which has a fixed and presumably well-known route - crashed into THE SIDE OF A BUS!

Furthermore, one of the injured was reportedly knocked down BY THE BUS!

Let's hope they're all up and walking around soon!

I LIKE trams but I have to agree that there are many cases where electification of the bus fleet would be a better and more environmentally sound solution.

Tram lines are also a definite hazard for bicyclists...