MoT’s review of capital spending on roads, part 2

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:

As I said last week, MoT’s paper suggests that there are big issues with the land transport budget. Current road spending does not seem to represent good value for money. To their credit, MoT appear to be acknowledging this. However, it doesn’t seem to have percolated up into the investment decisions being made by the Government.

This week, I want to look at what NZTA’s money (the National Land Transport Fund, or NLTF) is being spent on, and how economically efficient that expenditure has been.

Section 4 of the MoT report contains a lot of useful data on past and future spending on roads. Here’s what’s happened to the roads budget over the last 15 years, and what’s expected to happen over the next decade:

MoT spending on new roads 1997-2022 chart

Basically, about a decade ago we started spending a lot more on new or improved roads. A lion’s share of new spending went to state highways, in spite of the fact that local roads carry more traffic. As we have previously discussed at length, this spend-up coincided with a flattening of growth in vehicle kilometres travelled. (It also coincided with an acceleration in price inflation for civil construction.)

In other words, we’ve spent a decade spending increasing amounts of money on roads for which demand is not increasing. And the last three Government Policy Statements plan for state highway spending to increase further.

In order to pay for state highway spending, it’s been necessary to divert money from other activities – local roads, maintenance, PT, and walking and cycling have all taken a hit. The Government has also raised petrol taxes several times. The MoT report offers some analysis of how spending priorities changed between the 2008 GPS and the 2012 GPS.

The following chart compares projected spending ranges for new and improved state highways (the darker uppermost bands) and new and improved local roads (the thinner, lower bands). It shows that funding for state highways – the Roads of National Significance – was raised by around half a billion dollars a year, while local road funding was cut back.

MoT GPS 08 12 road spending comparison

One would hope that the Government’s decision to allocate vast amounts of funds to state highway projects was based on a sound economic rationale. Unfortunately, there is no hard evidence of this in the MoT paper. Section 5 of the MoT paper analyses benefit-cost ratios (BCRs) for road spending. It notes some caveats with the data – BCRs for some projects had to be inferred from “efficiency scores” – but there is enough data to paint a picture.

Here is MoT’s picture. It is not a pretty one:

MoT state highway BCRs 2005-2012

Essentially, MoT finds that average benefit cost ratios for state highway projects declined significantly in 2008/09 and have stayed low ever since. An eyeballing of the graph suggests that BCRs prior to 2008 averaged a bit over 3.5 – meaning that state highway projects were expected to return $3.5 in social benefits for every dollar invested. Since 2008, they have averaged a bit over 2 – meaning that state highway projects now only return $2 in social benefits for every dollar invested.

MoT’s analysis of this graph is entirely blacked out in the released document. Nonetheless, the implications are simple: we have almost doubled our spending on state highways without achieving any more benefits from that spending. BCRs aren’t everything, but it’s really, really hard to understand why the Government would want to spend money so ineffectively.

The answer is that they feel that the Roads of National Significance offer a better “strategic fit” with their overall objectives for the land transport budget. I’m not necessarily opposed to this evaluation approach. In my experience, cost-benefit analysis invariably has some blind spots. Using qualitative “strategic fit” criteria can allow policymakers to take account of broader goals that aren’t well covered in NZTA’s Economic Evaluation Manual.

However, I don’t think that strategic fit should override all other analysis. If you think that a project is important for supporting a productive economy, that’s fair enough. But if an evaluation of the project’s impact on freight costs and agglomeration effects in urban areas results in a low BCR, you should question your prior assumptions about its economic benefits. It’s foolish to think that four-lane divided highways are magical devices for creating economic growth. Economics simply doesn’t work that way.

Next week: Do we have better options for spending the transport budget?

Sign up to increase cycling funding

In June the Draft Government Policy Statement (GPS) on transport was released by the Ministry of Transport. The GPS outlines where transport funding will go over the next 3 years. Sadly it considered the business as usual of focussing on the handful of Roads of National Significance projects, with everything else left to pick up the leftovers. Cycling funding was miserable with funding at set at between $15 and 33 million, and rising at $1 million per year. The midpoint of this figure is a miserable 0.7% of the total annual budget.

This led the cycling advocacy community around the country to get together to campaign for cycling to get a fairer share for cycling. They have launched a website called “On Yer Bike” making it really easy to make a submission on the Draft GPS. This has the support of at least 17 cycling advocacy groups across the country, so the aim is to get tens of thousands of submissions as a real show of force.

On-Yer-Bike

The petition is calling for the cycling budget to be at least tripled to somewhere between $45 and $90 million per year, with the wording as follows.

Dear Minister Brownlee,

I would like to see the walking and cycling budget in the 2015 Government Policy Statement on land transport increased from $15-30 million per year to $45-90 million per year for the next 3 years with progressive increases after that. This is a small increase relative to the total budget of $3.5 billion per year, but would start to make a real difference for cycling. The NZ Transport Agency should take an active leadership role in improving cycling, and should help kickstart local councils by funding more than the usual amount for cycling-specific projects.

 More and more people are taking up cycling despite the risk, and surveys conducted in Auckland, Dunedin, and by the Automobile Association all say the same thing: more than 60% of Kiwis would cycle around town if it were safe. Recent investment in the New Zealand Cycle Trails has been great, but people like me also want to be able to cycle safely around the cities and towns in which they live.

Cycle networks and safe infrastructure like protected cycle lanes are being proposed around the country. These have the potential to give people a viable choice about cycling and are the way of the future, but we’ll never get there without some real investment. Despite the clear demand, the draft Government Policy Statement proposes to spend well under 1% of the budget on walking and cycling. Please triple the cycling budget for all New Zealand.

Note that if you have more time please consider writing a fuller written submission, which can be emailed to GPS.2015@transport.govt.nz. We outlined some of the other issues with the GPS when it was released if you are looking for hints.

Is the government trying to take over Auckland Transport?

In his column this morning, Brian Rudman covers an area we haven’t been paying enough attention to, how the changes to the Land Transport Management Act will affect the governance of transport in Auckland. Rudman starts out by explaining the situation:

By sheer weight of numbers, elections are won and lost in Auckland, so it would seem suicidal for a government to declare war on a third of the population. But that seems to be exactly what the Key Government is doing.

Of course it’s not the first government to see Auckland as “the enemy”. Labour’s finance spokesman, Michael Cullen, once infamously quipped to a Taranaki election audience that “Auckland now sits atop the nation like a great crushing weight”.

But National’s current behaviour has a pattern to it that goes beyond pre-election hyperbole. Having created the Super City less than three years ago, it is acting as though it was all a big mistake and the aim is now to emasculate the monster it created.

In recent times, the mortars have been lobbed across the Bombay Hills from Wellington in a near-continuous barrage. Last week, at a post-Budget meeting with Wellington businessmen, Finance Minister Bill English warned: “We cannot let 20 planners sitting in the Auckland Council offices make decisions that will wreck the macro economy. We cannot let that happen, and we won’t let that happen.”

This was hot on the heels of the charade of the Auckland Housing Accord. This was supposed to signal the working-out of a mutually agreed solution to the city’s housing shortages. Yet a few days later, Housing Minister Nick Smith was threatening to “intervene by establishing special housing areas and issuing consents for developers”.

The idea that the government is lobbing verbal and policy mortars over the bombays seems like quite an apt description. I suspect that there are much more than 20 planners sitting in the council offices, although perhaps Bill is just referring to the senior staff. Rudman continues:

Sailing below the radar is the most concrete example of the Government’s efforts to sabotage Auckland’s local democracy. The tool being used is the boring-sounding Land Transport Management Amendment Bill, which will become law early next month. It will usher in a significant transfer of power in the area of transport planning, from the Auckland Council to the Government.

The new law strips Auckland councillors of their power to decide how the $459.5 million of ratepayers’ money – 33 per cent of total rates income – spent on transport each year is targeted. Instead, the final arbiter will be the unelected board of Auckland Transport, which will have to follow the Government policy statement (GPS) on land transport. The only sanction the Auckland Council will have to control the board of Auckland Transport – a council-controlled organisation – if it goes feral is to sack it. But the new law insists the board’s first loyalty in setting transport priorities must be to the government GPS, so what would a replacement board do differently?

This is quite concerning, the GPS effectively sets out governments funding priorities and ranges. At the moment they have focused almost entirely on the building of new roads and specifically the Roads of National Significance at the expense of other state highway improvements, local roads and of course public transport. Being fair, the current government didn’t set up the GPS as it was brought in by the previous government. This also shows one major flaw when complaining about it, it can be changed by a future government. A change in government could see funding priorities for which we may be thankful should we ever have an anti PT council.

Its also funny how Bill English complains about a handful of planners sitting in Auckland making decisions that could wreck the economy but doesn’t object to probably a similar number sitting in the MoT offices in Wellington making decisions that will wreck the cities future transport network and economy. But it gets worse:

The new act also ignores another statutory document, the Auckland (Spatial) Plan, which sets out Auckland’s direction and policy, including the integrating of land-use with transport.

Speaking to the select committee on behalf of the Auckland Council, transport committee chairman Mike Lee complained of the impending loss of democratic accountability to Auckland ratepayers, pointing out that Auckland would be the only part of New Zealand where elected representatives would not set the local land transport plan.

He said that by law, the principal objective of a council-controlled organisation such as Auckland Transport was to “achieve the objectives of its shareholders, both commercial and non-commercial”. He said the situation “would in effect be creating two local governments in Auckland”.

It was “appropriate in terms of its statutory responsibilities and as owner, major funder and sole shareholder of Auckland Transport, that the Auckland Council continues to set the long-term direction for transport”.

The select committee did the reverse, noting that it had gone out of its way to recommend changes “to ensure that Auckland Transport may not delegate its responsibilities for regional land transport plans and passenger transport plans to the Auckland Council”.

It did this by repealing the Local Government (Auckland Council) Act 2009 clause that says the governing body of Auckland Council is responsible and democratically accountable for setting transport objectives for Auckland.

So not only are we being forced to have to follow the governments transport agenda but our elected representatives won’t even have the chance to set the high level strategy any more. This is effectively taxation without representation and is shameful. To me it also suggests that the government are scared of the amount of power the council has. They were expecting a different result 3 years ago but it backfired so now they are trying to back pedal as much as possible to regain control of the city.

In saying all of this, while it is a concern that the council is being shut out of the process for setting policy, I know that there are many very good people at Auckland Transport who are not about to quickly jump on the more roads agenda. Hopefully they will be able to keep things going in the right direction until such time as a future government can resolve this – although it is very rare for a government to give up acquired power so we will just have to wait and see.

If we did start to see some really bad projects being progressed ahead of much needed ones – well more than they are already – I wonder what ability the council will have to withdraw funding for them? If they say that they won’t provide any rates funding unless the projects proposed meet the councils goals then we could end up in a very public power struggle.

Government Misleads on Public Transport Spending In Auckland

A Herald article last month highlighted strong support for more Government spending on public transport improvements in Auckland. It included the following quote:

But a spokesman for Transport Minister Gerry Brownlee said that with $890 million budgeted for public transport in Auckland over three years “it would be grossly unfair to suggest the Government hasn’t given this mode of transport the priority it deserves”.

The story was analysed in a bit more detail in this post, but the question of where the $890m figure came from remained unresolved.

It is a figure that is repeated on the NZTA fact sheet, and in a press release from Transport Minister Gerry Brownlee’s office in relation to the opening of the Newmarket viaduct replacement:

A total of $3.4 billion is being invested in the Auckland region’s transport system between 2012/15 through the National Land Transport Programme alone, including $1.6 billion for state highways, $968 million for local roads and $890 million for public transport.

In the above context it looks like NZTA is investing $890m in public transport in Auckland, funded through fuel excise and road user charges. I sought clarification from Gerry Brownlee’s office on how the $890m figure was arrived at.  My request was referred to the NZTA, who responded earlier this week:

NZTAOIA890

So almost half of the $890m figure actually comes from Auckland Council ratepayers, and the remainder also includes public transport service operating costs as well. (From memory I think the transport services figure includes repayment of the EMU loan). Very few people would know that the National Land Transport Programme includes local council contributions.

This leaves an actual public transport infrastructure spend of $39m from fuel taxes and road user charges over the next three years in Auckland.  This really is a pitiful amount compared to the hundreds of millions being spent on new roading projects. It would seem more than fair to suggest that central Government hasn’t given public transport the priority it deserves.

Edit: Sacha suggested a simple column graph would add some clarity.  Here it is:

PTSpend