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Myth busting: Roads Don’t Need Subsidies

People who oppose public transport, whether directly or through concern trolling  are an increasingly small minority in Auckland but those that are left tend to be quite vocal. There are also plenty of people outside of the region, especially in rural areas who don’t see value in it and these people often spout all sorts of various urban myths to try and back up their claims. Well my fellow bloggers and I decided a few weeks ago that it might be a good idea to start doing some myth busting around public transport and other urban issues. We also thought it might be a good idea to try and make these posts as a bit of a resource that people can easily refer back to in the future should you ever need to. As such this is the first post in what will become a series that we will have links to at the top of the page (like the CRL links) that attempt to try and bust some myths. Further if you have some ideas for either how to improve these articles or have some myths that you want to see busted, let us know.

Myth: Public transport requires subsidies but roads are all paid for by road users.

The reality is that its simply not true to say that roads aren’t subsidised. A decent proportion of council rates are earmarked for the purposes of transport, most of which is for roads. At a high level, the way our current transport system is funded is as follows:

  • The National Land Transport Fund (NLTF) is where the money goes that comes from fuel taxes, road user charges, vehicle licencing  and the money gained though the leasing or sale of surplus state highway property. This is administered by the NZTA.
  • The development and maintenance of State highways is the responsibility of the NZTA and paid for out of the NLTF
  • The development of local roads is the responsibility of the local council (or Auckland Transport in Aucklands case).  The NZTA provides funding assistance out of the NLTF to each project differently but the intention is that the national average is 50%.
  • The NLTF is also used to subsidise public transport but more on this point later in the post.

Now it is that funding assistance that is key, whether it’s a billion dollar construction project like AMETI or just resealing the little road outside your house on average only half of it is coming from road taxes. The rest has to come from the council and that most commonly means rates. This is shown quite clearly in the Auckland councils long term plan where $5.4 billion is proposed to be spent on road operating costs along over the next decade with $3.8 billion coming from general or targeted rates to pay for it.

Further even if all of the money that comes from the NLTF and that is budgeted for use by PT was instead put onto roading, there would still not be enough money to pay for everything. This is shown in the most recent National Land Transport Programme (NLTP) which the NZTA released also showing the level of contribution from local government. Over the next three years $2.6 billion is coming being paid by local councils towards transport, yet in total only $1.7 billion is going towards public transport.

In a way I guess that only providing a certain level of funding assistance is a way of providing some checks and balances on the system to ensure that a) local authorities don’t go crazy with demands for all sorts of stupid projects b) the locals who are promoting it are actually prepared to pay for part of the benefit they will receive from it. In fact it’s probably a shame we don’t have the same system in place for the state highway network, after all would Aucklanders have been so keen on all of the motorway projects of the last decade, let alone the five before that, if they had to pay half of the costs of them through increased property rates?

Another area where there roads are subsidised is in new subdivisions. When new, mostly residential roads are built for development they are paid for by the developers. Developers then gift these roads to the council who then have the responsibility to maintain them out of budgets . But developers don’t build these roads for free and the cost of them is included into the prices that people pay for sections. In areas where roads already exist, developers often need to provide a development contribution towards future upgrades of other roads in the area to handle the additional traffic generated by the new development. Effectively the buyers of these new houses are paying for the costs of building new and upgrading existing roads.

I think we can safely say that this myth is busted but this post goes a little deeper. Not only are there the direct subsidies for roads in the form of rates, there are arguably a ton of indirect ones, mostly related to parking. Current and former councils have poured millions into car parking buildings, some of which are empty, in an effort to support the use of cars. There are also the issues of minimum parking requirements which have forced developers to include huge swathes of parking in anything they do and there is also the hordes of on street parking that is provided, mostly free throughout our cities. Finally there are probably increased road construction costs to make new streets wide enough so that there is enough space for other vehicle to easily get by in case someone parks on the side. All of this parking has the effect of making it much easier and often cheaper to drive rather than consider alternatives.

Lastly on the issue of subsides for PT, in acknowledging that they may not be ideal we also have to realise that providing them can also prevent much larger ones being needed to continually build new roading infrastructure. As an example, the $200-$300 million spent on the Northern busway along with perhaps subsidies in the tens of millions a year to run services (NEX and other bus services that use it) have probably delayed the need for a new harbour crossing by decades at least.  That’s billions that we now don’t need to spend so a huge saving for the whole nation.

37 comments to Myth busting: Roads Don’t Need Subsidies

  • Adam W

    Nice, I look forward to see further Myth’s busted.

  • Matthew

    A myth ain’t busted until the crash test dummy gets it, and explosions ensue.

  • Robert

    One myth I wouldn’t mind seeing busted in some way is that roads provide economic stimulation regardless. I reckon the government could spend $30b on the Roads of National Bankruptcy and people wouldn’t batter an eyelid because they think it ultimately improves the economy by having the infrastructure in place. Yerr there’s BCR’s but these don’t get through to most people born in a generation where roads were seen as saviour to all economic ills. The Puhoi highway is a case in point where people think being closer to Whangerei will solve all of Northlands problems.

  • Sacha

    Thank you. Would be interesting to estimate the additional construction and maintenance cost of all that free roadside storage (parking). Maybe just average proportion of roadway width from total local road value and opex? Someone with access to RAMM may be able to run that.

  • Hamish O

    It’s obviously been done before, but you could do the myth that Auckland’s too low density for PT. You could even just link to an old post.

  • Nick R

    The NEX is basically an unsubsidised commercial service. Thats one of the benefits of investing properly in PT planning and infrastructure, you can reduce or even eliminate subsidies.

    The irony with roads is if you try to do the same thing you’d basically need to design infrastructure to increase fuel tax revenue, i.e build roads that cause people to drive more and consume more fuel… Hmmmm.

  • Matthew

    One myth I wouldn’t mind seeing busted is that both PT and roads are cost effective on capex and opex when compared to cycle and pedestrian infrastructure. Or why the cheapest form of transport to provide continually gets neglected?

    • Hamish O

      I’ve never heard that myth before!

    • Ash

      Yes, the costs of sprawl and particularly of devotion of large areas of land to roading and parking are imposed on all citizens and felt in terms of rates and property prices. However, due to the inherent obfuscation of the process and most Kiwis’ acceptance that “there can be no other way”, the costs are not apparent to most.

      I’d agree that to some degree buses are a factor, but rail’s negative effects (at least in terms of the problems described above) on land use are fairly minimal.

  • Your myth-busting missed the third leg of the road funding triangle (the capital cost of local roads paid for by new homeowners through the section prices)

    You have highlighted the operating costs that local government’s pay for their local road upkeep, but you have missed the Capital costs of local,mainly residential streets) that are paid for by the sub-division developers (and them apportioned to the section cost).

    The Developers then gift these roads to the council at no cost- in other words the councils inherit the on going liability – the OPEX, but don’t have to fork out any CAPEX for most residential roads….

  • PBY

    Great post, going to book mark this one.

  • Ross Clark

    One other point that is worth mentioning here, is the cross-subsidy from urban to rural roads. This works in a number of ways:

    * First, rural local authorities get a higher subsidy for their roads from the NZTA than urban ones (the subsidy formula is based on the road programme relative to total land value).
    * Second, the maintenance monies for state highways are allocated with respect, more or less, to the length of road and not the revenues raised off it or volumes of traffic.

    This sort of thing happens in most infrastructural assets – the ‘trunk’ supports the ‘branches’. When I was working all those years ago for the old Transit New Zealand, it was pointed out to me that with respect to road user charges, the way that they worked, in effect, is that truck travel on the core state highway system was probably overcharged, and that on the rural roads which really aren’t built for trucks was significantly undercharged. This was an issue in terms of rail-to-road competition.

    Not one of these things which can easily be fixed …

  • swan

    I think the post title is a bit misleading. You have indeed proven that roads do in fact get subsidised in NZ, but you have not proven that roads dont require subsidies to be viable. It is my understanding that a number of countries, on net, do not subsidise road use (France and other Western European countries). So I dont think it is correct to say roads require subsidies. I am pretty confident roads would be able to stand on their own two feet if they had to. Rail on the other hand….

    • Now that we’ve built them with our taxes you mean…..?

    • JohnP

      I think this is a valid point, and maybe a better title would be “Myth busting: NZ Roads Aren’t Subsidised”. But the point of the post remains, and the fact is NZ roads are subsidised. On a related note, we’ve got more road length (in kilometres) per capita than almost any other country on earth, which I can hopefully dig out the stats for in a guest post sometime.

      • Yes and are entering an age where effort, and money, needs to concentrate on maintaining and optimising the existing resource not duplicating them.

        We failed to maintain our rail inheritance and continue to throw it away by only measuring short term financial results and not understanding economic value, lets not do that again with roads.

    • The very start of the post talks about urban myths and refers to Auckland. I think it is pretty clear that we are referring to things in an NZ context so it doesn’t matter what happens overseas. Further there are overseas rail systems that also aren’t subsidised but just as equally, that doesn’t apply in NZ.
      Could roads in NZ be self sustainable, yes now they probably could be as we’ve invested billions in them to make them attractive and easy to use. What would change is we would have to dramatically cut back the new road expansion and would probably be largely stuck to general maintenance and renewals. That means things like no RoNS or really any other major state highway project.

      • Swan

        The point is there is a difference between requiring subsidies and getting subsidies. Roads can exist (and almost do exist) quite happily without subsidy. Rail on the other hand has to be subsidised extensively. This is just another example of muddying the waters: “everything gets subsidies so its all the same, no need to dwell on it”. This is just hiding the reality that a lot of people don’t seem to want to deal with (most people aren’t truth seekers it turns out).

        • Luke C

          the big difference you’re missing is that Kiwirail require a commercial return on any investments made, this require huge capital. Truckies don’t need to put any money forward, and roads operate on Pay as You go scheme, no interest/investment costs for them. Also note (freight) rail was not subsidized at all during 90′s.
          And roading often got top ups from general crown revenue throughout recent history, so thats blatantly a subsidy, if you’re totally ignoring the rest of the post.

          • Not to mention that rail has been dismembered and hollowed out. Remember Brownlee’s speech about how roads are networks and you have to invest in the whole thing, well bingo the same goes for rail. Closing one line because it doesn’t pay for itself won’t bring the rail service closer to profit it will just weaken the whole network. If we closed every road that didn’t carry enough traffic to pay for itself through direct taxation we’ed be left with a rump of a road system too.

          • The ghost of Dr Beeching stirs…

          • Luke C

            certainly no rural roads would be left, or at least none left that would be able to carry trucks.

  • George D

    What drives their projected jump in “Activity user charges and fees” from 2 million in the 2012 year to 10 million in the 2013 year?

  • Luke C

    The biggest subsidies are actually for new roads. For example the Waterview Connection costing $1.2 billion, and each driver will use less than litre of petrol, with tax of 61c per litre. The forecast for AADT is 70,000 for 2016 and 83,000 for 2026. At an 8% rate of return each vehicle trip on Watervew will cost $3.75.
    This of course is excluding the $600 million widening of SH16, largely required because of Waterview.
    Of course when you get to Transmssion Gully with same cost but a quarter of the traffic, and a rip-off PPP contract is just gets really ridiculous, heading up north $10 per trip.

  • Feijoa

    How about the explicit subsidies – didn’t Mr Joyce write a cheque from us for the Victoria Park Tunnel in the name of economic stimulus? Correct me if I am wrong, but AFAIK there are no interest payments made back to the crown for this.

    There is also the cost on neighbours to busy roads. We’ve seen the recent stories around Kapiti, but all along Auckland’s motorways and arterials the private and public land is significantly lowered in value by this. I guess this is in the externalities bucket, but it’s a fairly sizeable capital cost.

    • Oh it goes on and on when we get to externalities, especial for the health sector. An auto-dependent place is also a more obese, diabetic, and heart disease prone one. Basically every car park and traffic lane means more tax spent at hospitals. Then there’s death and injury etc…….

  • Peter Olorenshaw

    I’d also make the point here that most (all?) of the city council money spent on roading is for maintenance and renewals (rebuilding & resurfacing) – not for new roads. And why is it necessary to constantly repair and rebuild roads? Mainly because of road damage by vehicles – which vehicles? Well its not like Trucks do most of the road damage, they do all of the damage – ie the damage done with your grannies shopping basket (car) might be more than a bicycle, but is infinitesimally insignificant compared to what trucks do. So this 50% of repair and rebuilding of non state highways paid for by ratepayers should actually be paid for by the trucking industry (and they say that we are subsidising railways!).
    Also on this basis cyclists pay for all the road damage they cause (pay none, cause none), unlike the trucking industry which only pays for half (through Road User Charges).
    (Note that all State Highway repair and rebuilding is from RUC & FED (Road User Charges and Fuel Excise Duties) – here I am talking about all those other non state highway roads trucks use.

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