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MoT’s review of capital spending on roads, part 3

This is the second post in a series on the Ministry of Transport’s working paper on New Zealand’s capital spending on roads, which was prepared as an input to the 2015/16 Government Policy Statement (GPS) on Land Transport Funding. It was released to Matt under the Official Information Act just before Christmas. Previous posts:

In the previous post, I took a look at the MoT paper’s findings on the economic efficiency of state highway spending. MoT showed that since 2008 spending on the Roads of National Significance (RoNS) has gone up, while benefit-cost ratios have gone down. As a result, we have almost doubled our spending on state highways without achieving any more economic or social benefits from that spending.

This week, I’ll take a look at a different question: Is it possible to spend our road budget more efficiently? If we chose to build other roads instead, would we get more benefits from them?

The MoT paper examines this issue quite comprehensively, and comes up with an unambiguous “yes”. But before I get into it, it’s worth reviewing the system that the Government is currently using to assess transport investments. Projects are ranked on three criteria:

  • Strategic fit [i.e. is this project trying to do something that the Government cares about?]
  • Effectiveness [i.e. will this project actually do what it’s intended to do?]
  • Benefit and cost appraisal [i.e. will this project deliver more benefits than costs?]

In short, the BCR is only part of the picture. In practice, it’s less important than strategic fit. However, it’s still an important criteria for determining whether we are getting good value out of our transport investments, especially as many of the strategic outcomes that the Government wants are accounted for in a transport cost-benefit analysis.

With that in mind, Section 5.4 of the MoT paper compares BCRs for local road and state highway projects which have committed funding versus those that will probably receive funding or which will remain unfunded.

This analysis, summarised in the chart below, shows that BCRs for state highway projects tend to be lower than BCRs for local road projects whether or not they have committed funding or not. This might be an indication that too much money has been allocated to new state highways – effectively, there are worthy local roads that are going unfunded.

Another worrisome finding is that BCRs for “committed and approved” state highway projects are considerably lower than projects that are merely “probable” or which have not been given funding. This suggests that even within the state highway budget, funding isn’t going to the projects that offer the best returns.

MoT BCR by funding priority chart 1

However, the MoT paper notes that these figures include “significant spending on large strategic projects” – the Auckland Manukau Eastern Transport Initiative (AMETI) in  local roads and the RoNS in state highways. Is it simply the case that a few big funding calls are skewing the results?

Here’s what the chart looks like with those projects removed. As you can see, “committed and approved” state highway projects other than the RoNS also offer a lower return than the “probable and reserve” projects that may or may not get funding. What the hell is going on here?

MoT BCR by funding priority chart 2

Elsewhere in the paper, MoT sums up the situation as follows, with a nod to the idea that traffic forecasts are over-predicting growth:

MoT state highway benefits

It also compares these figures with BCRs for other transport spending, including NZTA-funded PT infrastructure and services and walking and cycling projects, and concludes that:

MoT BCR by activity class summary

In other words, the focus on big state highway projects means that the Government is passing up higher-value spending that serves other modes. Unfortunately, the paper doesn’t offer a lot of additional analysis. But it would be interesting to know how much analysis NZTA or MoT has done on the bus infrastructure projects that are needed to get good transport outcomes in Auckland, such as the Northern Busway extension, the Northwest Busway, extensions of the AMETI busway, and bus interchanges to support Auckland’s New Network.

With all that in mind, how would we be spending money if cost-benefit analysis was the key criteria?

Section 6.2 of the MoT report contains a number of colourful charts to illustrate how we could be doing things differently. Here’s the bit that stuck out for me. It classifies new state highway projects, excluding RoNS, according to their BCR (vertical axis), funding priority (horizontal axis), and total cost (size of bubble).

If BCRs were the key criteria for project funding, the black-coloured bubbles would be de-funded and the red-coloured bubbles funded in their place:

MoT de-prioritised projects 1

MoT de-prioritised projects 2

As you can see, if the Government were focused on getting the highest benefits out of its transport budget, it would have to de-fund most large state highway projects that are currently underway. Yikes.

It’s not clear what conclusions MoT’s drawing from this analysis, as the final paragraphs are entirely blacked out. However, I’d be surprised if they weren’t a bit skeptical of the way that public money is being spent…

Next week: MoT’s analysis of roads spending by region. Preview: Canterbury’s getting a raw deal.

25 comments to MoT’s review of capital spending on roads, part 3

  • George D

    That last graph is absolutely shocking.

    It must be hard working in the MoT, doing your best to ensure that New Zealand has the best transport system possible. All the while, knowing that the NZTA uses its power to ensure that the projects that are funded are not the best ones. They are among the worst, in some cases. NZTA is an agency that is out of control.

    • It’s not the NZTA who pushed the RoNS, they are being forced to be the govt.

      I’m also aware it was the NZTA who helped push the Govt to agree to accept the CRL whole the ministry have been fighting it the whole way

      • Dave B (Wellington)

        “It’s not the NZTA who pushed the RoNS, they are being forced to b(y) the govt.”

        Indeed.

        NAME AND SHAME: STEVEN JOYCE

        – The “Minister of everything” who is now in damage-control over the dirty deal the govt (he) made with Sky City!

        – By all accounts he is the chief culprit for instigating and ramming through the misguided RoNS projects, in spite of the poor economic effectiveness of most of them.

        – “Strategic fit”, is a euphemism for “What Mr Joyce personally thinks should be done”, regardless of contrary advice from those more qualified than he.

        But not to let off the hook: JOHN KEY

        – Who showed no inclination to bring JOYCE and subsequent Transport Minister BROWNLEE under control, and therefore is complicit in everyting.

        What is happening is a NATIONAL DISGRACE and a RESOURCE MISALLOCATION of epic proportions, set to out-do Robt Muldoon’s much-criticised “Think Big”.

        REMEMBER, in a few years’ time, once the public euphoria wears off and the full economic disaster of this roading-binge becomes plain to see, WHO IS TO BLAME!

        And remember also, that THOSE WHO VOTED NATIONAL in the previous two elections, who could very likely have stopped this madness but for whatever reason chose not to, they also contributed to this fiasco.

  • Stephen F

    Traffic Modeling wrong, Use of their own manual wrong, Strategic Fit wrong, Professional Engineering Ethics wrong. Spending our money 180 degrees in the wrong direction…wrong, Amenity..wrong, Capacity choices….wrong, Looking at emissions, car dependency and environment wrong. The peanuts being spent on public transport, and walking and cycling are nothing short of criminal when car has had all our money and focus last 60 years and flat lined last 10 years. Shame on you. I say we give National Party, MOT, NZTA one month to approve CRL funding now so full tender can go out immediately, Adapting to North Western Busway, Extending Northern Busway and commitment on Seperated Cycling to what proven mode share can be 41%. Then full frontal attack like nothing ever seen before!!!!!

    • Stephen F

      Greg get those traffic modellers to do a 180 degree scenario, Congestion Free Network, Frequent Bus Network, Seperated Cycling like Copenhagen 41% and all intersections tuned for pedestrians and the above. Your on our side now.

      • Stephen F

        Seperated Cycling fantastic health benefits, child independence no car pick up/ drop off, mobility scooters or electric assist for elderly, proven to be a no1 mode share, 4 m width only including 1m physical protection via hedge planters can help amenity also. All this money going down the drain we this could and should be a No1 goal, and rapid transit and good pedestrian facilities. Auckland Transport Board want this why not the rest of the transport industry?????So many proven examples, Copenhagen for cycle, Our own North Shore Busway . How many examples does this transport industry need. Obviously locked in with full blinkers on time to be torpedoed before you send more of our dollars down the drain in the opposite direction of what is right.

        • Stephen F

          It’s a fantastic thing that the Strategic Fit for Auckland Transport is Rapid Transit, Top notch Cycling and Walking. Now MOT and NZTA is your strategic fit still a car??????? That looks kind of corrupt based on everything. Enough evidence on this blog to sink all battleships on this planet.

  • Para 125 says PT Infrastructure has lower BCRs than highways. How are they calculated?

    • Peter Nunns

      It’s a bit difficult to say without knowing which PT infrastructure projects were assessed. However, the procedures should be comparable to road assessments – i.e. focusing on changes in journey time and cost for travellers, plus a few other things such as greenhouse gas emissions.

      However, modelling the behavioural response to new PT infrastructure is quite hard. Our forecasting models seem to be held captive to recently observed outcomes on our PT network. In effect, it’s difficult to tell how many people will use new PT infrastructure when there are relatively few local precedents.

      The result seems to be that we systematically under-predict demand for PT projects (e.g. Britomart, Northern Busway), which will tend to reduce estimates of the benefits.

  • Ak-Sam

    Wow- that last graphic is a bombshell! If projects are being funded based almost entirely on “Strategic Fit” then why bother with all the modelling and reporting? Someone in a beehive boardroom may as well just say “I reckon we need another expressway” and we’d get the same result.

    It is shocking that so much money is being wasted in this way. What % of our taxes are going to motorways and how would the average (national) voter feel if they knew how little benefit they were getting? And where the hell are the opposition?!? Winston Peters please stand up! It seems people are too busy watching the cricket/rugby/america’s cup and worrying about Isis.

    Regarding CBR for PT projects vs Roads & motorways, I would love to know how we compare with other countries (in methodology etc)….how do Denmark or Canada model PT benefits what weighting do they use in prioritising transport improvements? (has that been a post topic before?)

    • George D

      Someone in a beehive boardroom may as well just say “I reckon we need another expressway” and we’d get the same result.

      I believe that is what happens.

      • David B.

        And this at heart is why New Zealanders have been getting poorer and poorer over the last forty years. Poorly thought-out, under-performing investment on a massive scale.

        And it’s not just Wellington – our Council planning for a vast car-park on our waterfront is another example.

  • stevenz

    I’m sure the redacted paragraphs are the recommendations that the higher B/C ratio be moved forward, and recognition that highway spending is not the most efficient use of T resources. They would not allow that info to become public, at least to the extent they can control it.

    Per Ak-Sam, there are so many ways to establish benefit – monetize – of a transportation project that they can come up with whatever numbers they want to justify the ministers’ favourite projects. However, it seems that a clean analysis isn’t leading toward the politically-attractive projects. Quel dommage.

  • What are about taking account to future need and projected growth to build something future proof?

    For example reserving some extra space around main roads in new development area so that in the future they can put a light rail or bus line.

    Also sometimes building something good enough for now cost $1. But in the next 10 years will be out of capacity and will spend extra $1 (total $2) to upgrade.

    However if we spend let say $1.5 now. We will get future proof for 10 years because it is always cheaper to build everything together once.

    Our cost benefit analysis are often very short sighted.

    • Peter Nunns

      To its credit, NZTA is starting to recognise this point. Back in 2013 it moved to a longer evaluation period (40 years vs 30 years) and a lower discount rate (6% rather than 8%). This would tend to raise its willingness to think ahead a bit longer.

      In practice, it does already seem to be common practice to build roads larger than current requirements in order to serve future growth.

      • Greg N

        But only roads and only roads used by cars and trucks.

        Roads used for busways, BRT or buslanes on motorways and other “PT” infra. is never future (demand) proofed. It either gets the go ahead on current BCRs or it never goes ahead.

  • Patrick R

    Strategic Fit = ministerial whim.

    This period will be looked back on as a time of massive misalocation of resources with an enormous opportunity cost: we could be building for this century not the last one.

    Well enjoy this motorway building as it will come to a screaming halt once a more rational transport policy is chosen. Either by a less Joyce controlled Nat led gov or one from the other side of the house.

    • Stu Donovan

      I agree with you in general.

      Although I think it’s important to acknowledge that the last Labour Government were responsible for 1) introducing the “strategic fit” category alongside BCRs and 2) disestablishing TransFund and thereby allowing NZ Transport Agency’s tarmac junkies to get their hands well and truly stuck in the transport cookie jar.

      Some of those junkies have been running around widening roads and chopping down Pohutukawas ever since … and well before National came to power.

      So I like to think of the last 10 years of transport funding in NZ as a situation where a naieve Labour Government opened the door (just before they were unelected) for the crony-cossack socialist National Party, led by Joyce, to waltz on through in their blue skirts and red socks (I’m guessing their underwear is green)..These socialists were well armed with detailed policy developed by Reg from Petone and Suzy from Waipukarau, which went something along the lines of “uhhh … we like highways.” National’s transport policy is like a tax-payer version of “It’s in the bag” …

      I also think it’s interesting that the MSM, e.g. Fran O;’Sullivan, think Joyce is competent, when evidence and experience suggests that he has made a balls-up of most things he’s touched. History suggests that successful business people do not necessarily make effective politicians, and Joyce has just increased the size of this sample. I’d much rather he went back to running radio stations rather than wasting billions of dollars in taxpayers money on RoNS and arranging for the extension and expansion of a monopolistic casino …

      Wonder which highway is next on Reg and Suzy’s list? The mind boggles to think …

      • mfwic

        Got it in one Stu. Once any government opens the door to the we do what we like method then you have to accept the next government might like something else. Doesn’t really worry me though as so long as it is politicians deciding then we can throw them out. The problems occur when it gets delegated to staff and we get what they want.

      • Agree with analysis Stu, but remember if last Labour gov hadn’t funded both the Northern Busway and Project Dart, the rail upgrade that made electrification all but unavoidable, we would have absolutely no Rapid Transit services at all at the moment. And none likely ever to be built as we wouldn’t have their huge success to point to and build on. These have completely disproven the always silly but firmly held idea of our difference from all other city dwellers around the world in our supposed DNA level aversion to using high quality Transit, when available.

        Labour’s naivety was in thinking that were going to win the election! As Strategic Fit was their way of getting the then Tarmac obsessed ministry and agency to do its bidding. And yes it played perfectly into Joyce’s hands, he announced the RoNS after the election, never campaigned on it. Without he would have no doubt changed the law to something similar anyway.

        And from here? Well it’s still a good idea even when we disagree with the current strategy, I want the government to have a strategy, it’s a shame they don’t have a ports one too, or a real Climate Change one. And mfwic is right, we get our say every three years, unfortunately few vote on transport issues, and too many buy the nonsense that their spending is good for the economy.

    • Peter Nunns

      I should disclaim that I’m not intrinsically opposed to the use of qualitative “strategic fit” criteria in transport evaluation. I’ve done enough work with the NZTA’s Economic Evaluation Manual to be aware that it has some blind spots, especially around issues such as induced land use change, impacts of transport infrastructure on place amenity, and the value that people place on having a choice of multiple modes.

      In principle, a good set of strategic fit criteria could help overcome these shortcomings. However, in order for that to be the case, those criteria would have to focus on issues that are not well captured in the EEM.

      That doesn’t seem to currently be the case. The strategic fit criteria focus on things like congestion, road safety, the efficiency of freight movement, and productivity effects that _are_ already accounted for in EEM procedures.

  • Stephen F

    I think we could be looking at the biggest damages case in NZ history. This is going to make the Bain case look like a drop in the ocean!!! How could the transport sector get so rotten when there should be so many checks and balances, also professional ethics are supposed to overide things even if government wants to go in opposite direction!!! Mono mode supply when so many examples overseas, our own busway, rail always with a 10 lane capacity but now fully green also, Denmark cycling even New York getting stuck in. Great to see and hear Auckland Transport Board doing a full 180 now rest of NZ!!!!

  • Brendon Harre

    Peter I look forward to next weeks: MoT’s analysis of roads spending by region. Preview: Canterbury’s getting a raw deal.

    Excellent job this week. Ignorant authoritarianism has been a feature of this administration.

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