My previous post, which commented on an NZ Herald article relating to operating costs of Auckland’s rail system, noted the somewhat bizarre emergence of a $30 million funding gap. While my previous post asked the question of “where the heck did this funding gap come from?” it is fair to say that Joyce has mentioned it a few times now – most recently in his interview on the TV3 programme “The Nation” a few weeks back.
But a bit of digging through the archives of my blog indicates that this matter has been brewing for a while now – as I noted in a post back in May entitled “The electrification battle is not over“. In that particular post I noted how the government’s final funding arrangement for Auckland’s electric trains – which was effectively a loan to KiwiRail – could mean that Auckland’s ratepayers end up funding those trains after all as KiwiRail is now looking to recoup that money from Auckland Transport (and NZTA). Now this is quite confusing, so I’ll run through a bit of history on the rail electrification project to show how we’ve ended up where we are now:
- Back in the 2007 budget the then Labour government set aside $500 million to be spent on paying for the infrastructure side of the rail electrification project. However, they felt they couldn’t afford to also stump up with another $500 million for the electric trains themselves.
- Auckland’s local government agencies confirmed that there was not really a hope in hell that they’d be able to stump up with $500 million for the new electric trains either.
- In this situation, the parties looked at other options for raising the funding – and eventually settled upon applying a 10c a litre Regional Fuel Tax. The money raised from this fuel tax would effectively pay back the $500 million loan for the electric trains and also pay for a pile of other important transport projects.
- In March 2009 the current National government decided they didn’t like the Regional Fuel Tax, so they got rid of it. However, at the same time they confirmed that rail electrification would still proceed and took on the financial responsibility for making that happen.
- In November 2009 Cabinet gave its approval of a $500 million loan to KiwiRail to purchase the electric trains. How exactly KiwiRail would pay back that loan was left somewhat undecided.
A very interesting ARC report from May this year outlines that the financial implications of KiwiRail passing on the responsibility for paying back the $500 million loan for electric trains would be significant:
Further insight into the Government’s expectations in respect of the recovery of costs from metropolitan passenger rail is provided in the Minister of Transport’s paper to Cabinet in November 2009 seeking approval for funding for the purchase of the EMUs.2 The paper, released to the ARC in April 2010 following a request under the Official Information Act, contains estimates of the cost of repayment of a loan of $500 million over 30 years. At an interest rate of 6%, the annual cost of repaying the loan would be $35.973 million.
The Cabinet paper notes that such repayments “could not be recovered from current funding sources based on farebox revenue maximisation and NZTA and ARC subsidy assumptions.” It also raises the option of “a transparent Crown subsidy to the region on the understanding that the region increases its contribution to annual operating costs and that a funding glide path is agreed that eliminates or significantly reduces the Crown’s annual operating subsidy over time.” The Minister states that he favours this option.
Taken together, an increase in track access charges and a requirement for the region to repay the costs associated with the purchase of EMUs by KiwiRail could result in a very significant increase in the requirement for rail operating subsidy. The ARC and ARTA have paid track access fees since 2003 at an average rate of $5 million per annum, 60% of which is paid from NZTA subsidy. While it is not yet clear to what extent fees might increase, a threefold increase for example would increase the net cost to the region from approximately $2 million to $6 million per annum. If the region were also to be expected to pick up 40% of the cost of repaying the loan to purchase the EMUs, the annual cost would be approximately $14.4 million. The ARC has allocated $25.364 million in operating funding to ARTA for passenger rail services in the 2009/10 financial year. Adding potential increases in track access and EMU loan repayment costs could add a further $20 million per annum to this amount.
No provision has been made within the ARC’s 2009-19 LTCCP for such an increase, nor does NZTA have additional funding to meet its 60% share of any additional costs.
While KiwiRail’s proposed increase in the track-access fee from $5 million to $16 million shows us where $11 million of this “funding gap” is, it seems to me that the bulk of the rest of the gap arises from the costs of the new electric trains being passed on to Auckland Transport and NZTA. To make matters worse, because NZTA doesn’t have any money for rail (because it’s all dedicated to uneconomic motorways) it seems that the expectation is that Auckland will simply pick up the tab if it has any hopes of advancing its rail aspirations like the CBD Rail Tunnel.
So in effect we have three reasons for the funding gap existing:
- KiwiRail’s increased track access fee. This is probably justified to an extent given the improvements made to the tracks over the past few years. However, I do note that if a track access fee is meant to cover maintenance issues then there should be far less need for maintenance of the rail network over the next few years, especially once electrification is completed, as basically most things will be brand spanking new.
- The shifting of funding of the electric trains from central government back on to Auckland. I find this element particularly disgraceful as the deal was Auckland didn’t apply the regional fuel tax because central government was willing to fund the trains themselves. For the government to now go back on that deal is pretty dodgy I think.
- Finally, because NZTA is required to spend pretty much all its money on uneconomic motorways, it apparently won’t be able to contribute the 60% funding to rail operating costs that it would normally do (even though road users benefit hugely from the rail system – I don’t think I need to post the table with the $17 per trip benefit for the 372950327590th time). This means that Auckland is once again seemingly left to pick up the tab.
What’s interesting is that none of these three matters leading to the funding gap emerging are the fault of any ARTA, the ARC or any other Auckland-based agency. All three matters have arisen from central government decisions. It seems pretty rich to now lump the problem on Auckland and say “no more projects until you fix this problem we made for you”.