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Should State Highways Be Funded The Same Way As Local Roads?

My post yesterday it reminded me of a question that has rolled around in my head from time to time, should state highways be funded the same way as local roads. There is clearly some logic to the current set up with the NZTA being responsible for state highways which are considered the stragetic roads that connect the country together and councils are responsible for local roads which tends to be how we get around our towns and cities. This is paid for 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%.

Now my understanding of the reasoning on that last point is the thinking that local communities who will benefit the most from the improved local roads should pay for some of the costs of building them. It also acts as a way to ensure that local bodies who are calling for roading improvements are actually prepared to put some money where their mouth is and that would help to weed out some of the less viable projects.

The problem though is that in practice we use the roads as a single network and whether its a motorway or a state highway through a rural town, they are often used just as much, and if not more for local connections as they are for nationally strategic traffic. The fact that these roads are paid for in full by the NZTA gives incentives for local authorities to both funnel as much traffic as they off their networks and onto them while also leaving the NZTA more open to lobbying from local authorities to have state highway development happen in their region. This is particularly evident today with the Roads of National Significance where regions that are getting RoNS developed or who think they will benefit directly from them are fighting to keep them on the books, even if they have appallingly bad economics. At the same time other regions are now starting to push for roads or state highways in their areas to become RoNS so they can get them ‘upgraded for free’. The RoNS have in effect seen the funding process politicised to a much larger degree than it was before.

NZ State Highways

The NZ State Highway Network

So back to the original question, should state highways be funded the same way as local roads. I think there is definitely some merit in the idea as just like local road investment, it would mean state highways have a direct contribution from those that benefit the most from it while like local road projects, would help to ensure that we are getting the best projects built. Local authorities would be able to weigh up if they are better off to spend say $1b on a motorway project or instead put that money into something else like improved local roads or even public transport which may provide a better overall outcome. As an example, how keen would Waikato or Wellington be to pay for half of the RoNS they are getting. Would them paying a proportion change how the projects are perceived by residents? Would Northland be so keen on calling for Puhoi to Wellsford to be built or would they instead push for something a bit more like operation lifesaver and use some of the other money to do similar upgrades to other parts of the route?

Of course I can hear some people already wondering how much rates would have to increase for local authorities to cover their contributions but the reality is they wouldn’t have to. One option could be funding assistance ration to increase so that the rates dollars could be used on a wider variety of projects e.g. instead of being 50% it could increase to 75% (or whatever works out as a netural figure). Another option could be for all local authorities to get a share of half the amount being spent on state highways as a bulk funding amount which they can put towards any project they choose but leave the NZTA contribution at 50%.

Interestingly the approach of having local authorities pay for a share of state highways is actually how things used to be done from the 1920′s until the 1950′s when funding was centralised to a much greater level and the country went on a road building spree. I’m sure such an idea would have some negatives over the current situation but it is one I think we should perhaps consider as it would give locals a much bigger say in infrastructure that affects them. It would of course represent such a huge giving up on centralised power by any government so unfortunately I just can’t see it happening.

22 comments to Should State Highways Be Funded The Same Way As Local Roads?

  • bbc

    The reason so many American cities were destroyed by motorways is because at one point they too had a silly system whereby freeways were free for a city as they were paid for by the federal government whereas transit would only be contributed to. It’s about time NZ reformed the way funds are allocated, and stopped pretending we’re living in a 1950′s USA.

  • Luke C

    I guess the main issue here is with say SH1 in the centre of North Island. For example Rangitikei and Ruapehu are very small poor councils with only 14,000 ratepayers but have 160km of SH1 between them. Another example is the Kaikoura District Council which as a staggering 3621 residents, and 80km of SH1. I think we would enud up with very dangerous roads in rural areas if we were not careful.
    The previous government did introduce elements of this model though. Ie for Transmission Gully they promised a certain percentage of the cost (50 to 75%) but said locals had to figure out a way to find the rest, either via fuel tax, tolling etc.
    Auckland has lots of good examples where people who commute along a State Highway get big new motorways to drove along for free, while East Auckland gets nothing. This is probably a good thing somewhat but illustrates the example.
    I don’t think we need to throw the baby out with the bath water to get rid of the RONS nonsense, but could achieve things wither better co-ordination.

    • I would suggest than any shift to this kind of model would also include a calculation to ensure that the regions, particularly rural ones, can continue to maintain the roads without placing unnecesscary financial burden on them.

      • Luke C

        Maybe a measure of local traffic vs through traffic. Though I think you’ll find Auckland motorways carry 90% local traffic, so should only receive 10% funding from NZTA!
        Another issue is that rural local roads are of a much lower standard than rural state highways that carry the same amount of traffic. Even rural local roads that act as regional through routes, but haven’t been made state highways. Often this is because of changing transport patterns so is only recently they have become major through routes.
        Safety throws up another thorn. To save lives is it not better to eliminate the worst blackspots on a nationwide level, rather than each region doing it on their own?
        I think State Highway network should be kept, but its investment bias removed a little by putting local roads (also Public Transport & freight rail) on same footing, and giving higher funding to local roads that fufill certain criteria. Again the last govt made some moves in this area. They were going to build a Kapiti Link road (local road, not state highway) for $90 million, give them 80% funding, with 20% local, and this would take local traffic of State Highway, and avoid need for $600 million motorway!

  • erentz

    Yes. Another option for increasing local government coffers is to send them back a portion of the GST raised from their territory. E.g. take 2.5 pp, the amount of the recent increase, and return it to the city from which it came quarterly or otherwise. This creates a sales-tax like model for extra funding as they have in the US but without any of the added complexities of every city having their own tax, or having to have a new system to gather that tax and so on. This would give about $7-8 billion back to local govt for all kinds of things.

  • obi

    The problem with your proposal is that the benefits from a national network often fall outside the locations that the network transits. Why should people in Kaikoura have to fund a route that joins Christchurch (and most of the rest of the South Island) up to the ferry system? Why should the residents of the north Waikato have to fund a road suitable for connecting NZ’s biggest city to the rest of the country, just because it runs through the north Waikato? What if the Waikato councils decide that they’re not interested in funding that road, or any road… do they have the right to dig up SH1 south of the Bombay Hills?

    The same national network principle extends to other national infrastructure, such as the electric grid, the intercity rail network, and the telecommunications system.

    • Of course they should have a right not to invest in it if they don’t think there are the benefits for them. At the moment though the Waikato region is pushing extremely hard to get the expressway built as they think it will benefit their region. As mentioned above I think that if something like this were to go ahead, then at certain level of funding should be provided to maintain the existing roads so that rural councils aren’t unfairly burdened.

      The problem we have at the moment is that regions are seeing that there isn’t any downside to pushing a case for their local state highways to be upgraded because they know they don’t have to pay directly for it.

  • Hamish O

    I agree with obi that this will cause problems. Instead I would let the NZTA/MOT decide on a case by case basis what % prepared to pay for a project and what % should be paid by the local council. Something like extending SH16 or the CRL would be funded at around 50%, where as SH1 in north Waikato, as you mention, would be closer to 100%.

    • obi

      One of the options would have to be centrally funding 0% of a project, and letting the local council build it with 100% local funding if they want it. That’s a natural corollary of Matt L’s post.

      • SteveC

        Auckland City Council initially funded bus lane development within the city 100% without (then) Transit assistance, so this scenario is a present reality

  • The whole point of state highways is to provide consistency on strategically important routes. The problem with letting local authorities in on this is that their priorities are different, and they are far more prone to be affected by the 3-yearly political cycle, which for major projects will simply mean constant procrastination or projects seizing up when they are on the cusp of progressing (or vice versa). There is, in fact, a far stronger case for taking local roads out of local authority control and putting them in the hands of arms length companies which form direct relationships with road users and adjoining property owners, with limits on how much they can charge both.

    After all, the same argument might be made about rail (beyond the PT context), in which case it would be interesting to see what ratepayers would want spent on rail infrastructure especially for freight.

    • Stu Donovan

      Very interesting idea Liberty – would you be interested in writing a guest post on how you see that working? The balance between users and property owners is an interesting one. I initially wondered if the groups of people should be broadened somewhat to include residents/tenants, although then realised that if the owners don’t act in the interests of their residents/tenants then they will lose out – so there’s a clear incentive for property owners to consider the broader needs of the population, i.e. their market!

    • How would that address the issue of regions calling for mega roading projects that are primarily about benefiting their region because they know they won’t have to pay for them. Surely truly strategically important connections would still come out highly on an economic analysis. But even so, that is also why I suggested still having a body like the NZTA who would be there to really push for those roads that are important on a national level. The other thing to consider is that we are not longer in period where we are building new state highways to serve new areas but are upgrading/duplicating what we already have to deal with the issues created by local populations.

      As for your suggestion about local roads being in arms length companies, isn’t that to a degree what Auckland Transport is. The bit of the equation that is really missing from what you suggest is the ability to raise funds themselves.

      • I’d split NZTA into a Highways company and Transfund again, so the latter can be prudent about spending revenue collected from motorists. The State Highway company would push for strategically important national projects. However, the local road companies do need to be on a similar basis, and I wager that the 70 odd there would be initially would be incentivised to merge over time. Auckland Transport is partway down that model, but it needs to be a separate road function from PT. However, yes it should be able to toll new capacity as of right, and raise revenue from a property access charge, but also contract directly with motorists with Transfund authority – in exchange for refunds of FED/RUC.

        • Having the road and PT and road functions separate would likely lead to duplication of resources, to much silo like thinking and an overall worse outcome. Thinking back to the ARTA and council days, you had ARTA being toothless while the councils did what they liked. The risk is you end up with the roading company solely focused on the road without looking at ensuring the best overall outcome from the resources available i.e. a roading focused company may say, Fanshawe St is 6 lanes wide, if you want PT on there then you have to build a duplicate route as we don’t want to offend our customers where as an integrated agency can say “we have 65% of passengers on this route on a bus so we should make one of the three lanes each way a bus lane.”

        • I agree with splitting off the funder.

          • Luke C

            Once these governmental mergers or splits have occurred under one government its usually not worth undoing the whole exercise as it usually creates too much trouble. This Government would have built the RONS no matter what process or departments were set-up, and they would have changed the law to do so if they had to. Now we’ve got NZTA we should reform the funding priorities, change the GPS to reflect the new priorities, and institute higher variables of NZTA vs local funding so projects are put on a level playing field.
            If there does turn out to be serious institutional inertia (i.e. too many road lovers populating senior levels) then that could be good reason to change in future, potentially beefing up the Ministry of Transport at expense of NZTA.
            Here is the original release from 2007 that merged Transit with LTNZ (formerly transfund and LTSA).

  • SteveC

    the reality of funding the transport network over the last couple of decades is that local authroities have not been able to raise the funds for their share of the local roads, leaving more in the pot for NZTA to spend, remember how they snaffled up all the walking and cycling funding because the TLAs gave it low priority?

    the only possible benefit I see in this suggestion is that TLAs are way more accountable to their communities than NZTA, if a mayor tried to run roughshod over good advice the way Brownlee does they’d get pilloried by their constituents

  • Adam W

    I am not sure why areas like the Waikato would want the State Highways for its own residents.
    The RoNS for the Waikato expressway means all the traffic is now missing the town’s which I would have a negative effect on the local business like when Pokeno was bypassed.
    The main benefit would I would have guessed is that all the through traffic is now out of the way on the 2 lane expressway with the local roads free for the locals. e.g. in the future Huntley, Hamilton etc.
    Having the local roads free is the whole point of the current structure and the through traffic being paid for with the NZTA on State Highway 1.

  • Kevyn

    The one really bad aspect of returning to the old funding system is that councils that can’t afford to match the NZTA contribution will see their districts petrol taxes spent in a wealthier part of the country. The introduction of State Highways in the 1930s was mainly to eliminate that problem. The really big change in the 1950s was to allow State Highways to be declared in Municipalities. That had not been considered desirable in the 1920s because municipailities have extremely high number of ratepayers per road km so they didn’t need help to pay to improve main roads and the towns money should go to the counties because all the main road damage was being caused by joy-riding city slickers. Once the roads were tarsealed that last point ceased to be relevant.

  • Annie's

    Sadly much of NZ transport planning is underpinned my myths for which there is increasing evidence that this does not work. This transport era is possibly the most politicised ever… One need look no further than the rise and rise of the GPS – which will now replace the words – national strategy in the ltma. The GPS is a short to medium term plan (not strategy) that reflects the government beliefs of the day. The IRS then spells out how the nzta will give favour to the activities that are most aligned to what government wants. Benefit coat is relegated to being the third component in the profile of three things. What is needed is apolitical and independent governance to develop well grounded strategy that prioritises projects based on their ability to deliver upon multicriteria. The planning of projects to deliver at a regional level should then ba based on a one system/ no work category approach that doesn’t favour a mode but favours projects that deliver sharp outcomes

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