One of the most frustrating things about the process the CRL has gone through is not that the government is forcing it to go though extremely rigid analysis, but that it doesn’t require other projects to do the same. Bill English was questioned on this today by Julie Anne Genter but never seemed to be able to directly answer the question. I will say one thing though, he at least wasn’t dismissive of the project.
Also in the news about politics and the RoNS. National’s Northland MP, Mike Sabin has come out yesterday extolling the virtues of Puhoi to Wellsford. Yet at the same time he has confirmed some of the voodoo economics that seems to surround this, and many of the RoNS projects. He claims:
“The Greens would scrap this project in favour of Auckland’s rail loop, because they see it has better cost benefits than the Puhoi to Wellsford project, yet NZTA estimates this RoNS will benefit Northland’s economy in order of $35-$45 million a year, giving a cost benefit ratio of 2 to 1.”
Well let’s just look at that a bit closer. $35-$45 million a year seems fairly significant but in the context of this road is nothing. Being generous let’s say that the benefits start coming in as soon as the project starts and we use the normal 30 year assessment period, ‘et’s also ignore any of the benefits being discounted. That would give us benefits in the range of $1.05 billion to $1.35 billion over a 30 year period. Yet the road is expected to cost around $1.6 billion and that was before the recent announcement that the shorter and easier Puhoi to Warkworth section will cost around $1 billion. I don’t know how on earth you can get a BCR of 2 to 1 when the benefits achieved are less than the construction costs but that is why they are called voodoo economics.
This is a guest post from Green Party MP, Julie Anne Genter
You are invited to the launch of Reconnect Auckland: a transport campaign led by the Green Party.
A smarter approach to transport and planning offers us huge opportunities to get better outcomes for everyone.
I find the posts on this blog incredibly useful and informative, particularly because of the detail of analysis and soundness of the logic.
However, as recent years have shown, information and logic is not enough to get political support for changing the status quo.
One of the reasons I am so passionate about transport is because it seems like an easy win for people, the economy, and the environment. New Zealand doesn’t have a car manufacturing industry and we export all of the oil we produce, so no one really benefits from the status quo approach that results in high car dependence. We just foolishly followed the car-oriented central planning by traffic engineers and town planners because Los Angeles and everywhere else was doing it.
But a different approach to policy and spending would still require contractors to build rail, bus and bicycle infrastructure. It would require better maintenance of our existing roads. It would create more semi-skilled jobs in operation of passenger transport services. It would be way better for those who really want or need to drive, and trucks, because it would reduce congestion and demand for car-parking.
We’ve got the facts on our side, we can persuade many that they will actually benefit from a different approach, all we need now is the political will. That is why the Green Party is running a strategic campaign on transport in Auckland – designed to engage, inform, and activate people power.
We chose Reconnect-Auckland to symbolise more than just a return to the great transport connections Auckland had in the 40s and 50s. It’s also about connecting people to the communities that have been severed or lost through car-oriented design.
Our campaign has a few dimensions. Firstly, we are have the big launch and a big phone calling operation for people to register their support for the CRL.
Secondly, I am doing a speaking tour to anyone and everyone we can line up – Rotary, Lions clubs, high schools, university lectures, business associations, you name it. The goal is to give a short presentation on smart transport, so people know exactly what the opportunities are and that public transport, walking and cycling can happen in Auckland.
Finally, we will be holding a series of mini-events around Auckland (ideas please!) to get local media attention and get volunteers active in their communities.
Gerry has clearly taken the first question very literally and his response was at least a little bit funny. Now I generally tend to be an optimist so I’m going to say at least Gerry wasn’t completely dismissing the project. What’s more he seems to have softened his stance a little bit and clearly isn’t ruling it out. He even used the non inflation adjusted price, saying it would cost $2.4 billion, which is probably the first time a minister has done that.
Perhaps the most interesting aspect of the exchange was when Julie tabled the document showing that over the last decade, the number of vehicles entering the city centre had dropped by 20%. This is something that Mr Anderson has pointed out before although it actually seems more like a 15% drop. The point went straight over Gerry’s head though as he started talking about what would happen in 2021, not realising that a shift has been happening already.
Yesterday in Parliament Julie Anne Genter asked Bill English about the PPP that is going to be used for Transmission Gully. I think the thing I am most concerned about from the answers is just how little he appears to know about the deal, something you would think he would have a good understanding of due to being the minister of finance.
From time to time I like to check on the written questions asked by MPs to ministers, these questions are important as the ministers are required to answer them and the results are stored on record so they can be a great way of finding out information. One of the things that the online tool allows you to do is filter the questions by portfolio so is fairly easy to find all the questions asked to the transport minister. It is probably worth pointing out to anyone who wants to use it themselves that for some reason the thing is incredibly slow in searching and changing pages so don’t be surprised if it takes a little while. Anyway going through some of the recent questions I came across a series from Green transport spokesperson Julie Anne Genter about the time savings on a number of the Roads of National Significance projects and the answers highlight just how shonky some of the numbers for them are.
First up Puhoi to Wellsford where we get some absolutely astounding figures, here is the current situation:
7287 (2012). Julie Anne Genter to the Minister of Transport (06 Sep 2012): What is the approximate distance in kilometres of the current route that will be replaced by the Puhoi to Wellsford Road of National Significance? Hon Gerry Brownlee (Minister of Transport) replied: I am advised that approximately 42 kilometres of the current route will be replaced by the Puhoi to Wellsford Road of National Significance.
7288 (2012). Julie Anne Genter to the Minister of Transport (06 Sep 2012): What is the current travel time estimated by NZTA for the route that will be replaced by the Puhoi to Wellsford Road of National Significance? Hon Gerry Brownlee (Minister of Transport) replied: I am advised that between Johnson Hill Tunnels and South of Te Hana the current travel time is approximately 35 minutes during the southbound afternoon peak and 34 minutes during the northbound afternoon peak.
So this seems to be roughly about right, it means that the average speed along the entire route is just over 70kph and the time given by Google for the same distance in normal conditions is listed as 32 minutes. But here is where things start getting odd:
7286 (2012). Julie Anne Genter to the Minister of Transport (06 Sep 2012): What will be the approximate distance in kilometres of the completed Puhoi to Wellsford Road of National Significance? Hon Gerry Brownlee (Minister of Transport) replied: I am advised that the completed Puhoi to Wellsford Road of National Significance will be approximately 38 kilometres.
After 3-4 years of investigating the project, the NZTA have yet to be able to announce a route from Warkworth to Wellsford due to the extremely difficult geography and geology of the area. Without knowing where the new road will go, how can we know how long it is going to be? Even putting that aside, here is were the real craziness begins:
7289 (2012). Julie Anne Genter to the Minister of Transport (06 Sep 2012): What will be the average time saved per trip by the proposed Puhoi to Wellsford Road of National Significance? Hon Gerry Brownlee (Minister of Transport) replied: I am advised that travel times between Johnson Hill Tunnels and south of Te Hana will be reduced by 26 minutes during the southbound afternoon peak and 15 minutes northbound during the afternoon peak.
Those time savings are just ridiculous, are they really suggesting that you will be able to drive the 38 kilometres southbound in just 9 minutes, perhaps the plan is to buy everyone a supercar and remove the speed limits as it works out to an average speed of over 250kph. The northbound route is a little better but still would see average speeds well above our current limits vehicles would have to average 120kph to get 15 minutes of savings, even on the shorter route. In fact my calculation is that even with the shorter route and an average speed of 100kph, the time savings all the way from Wellsford to Puhoi would only be about 12 minutes. I would go further and suggest that half of the 12 minutes of savings that would likely just come from bypassing Warkworth and perhaps some work to the area south of the Pohoehoe viaduct.
Travel time savings often make up quite a large chunk of the economic benefits associated with transport projects, if they are so blatantly wrong as in this case then it really makes you question what is going on. Even at 12 minutes, is that kind of time saving really going to make a difference to the Northland economy, I don’t think so.
Gerry Brownlee made some quite remarkable statements in parliament recently (this video is worth watching; Lockwood’s response to Julie’s point of order about halfway through was a moment of quite some mirth in my flat). To summarise Julie’s questions and Gerry’s answers (NB: I have quoted Gerry verbatim in some places, hence some of it is incoherent):
Are the RoNs an appropriate use of money? While fuel prices “fluctuate”, supermarket’s offer fuel discount vouchers, so “it’s clearly evident then that the pump price is an extremely irrational input into the consideration of strategic transport policy.”
Should the RoNs be reconsidered in light of stagnant traffic volumes? By alleviating congestion you will reduce time and distance spent travelling, which is very good for the environment.
Is the risk of high petrol prices a risk to the RoNs? “There are a number of studies that suggest that the relative price of petrol to the decisions that people make about transport modes is inelastic.”
What specific evidence suggests the RoNs are the best way to improve NZ’s economic productivity? Less congestion leads to economic benefit, and National won the last election so NZers agree.
Does the minister expect the economic impact of borrowing for the RonS will be similar to Greece? No, because Greece spent most of their money on monolithic rail projects.
Questions numbered 1 and 3 are, I think, the most interesting, so let’s unpack what’s going on here in a little more detail.
In response to question #1, Brownlee suggests that fuel prices are an “irrational input” into the consideration of strategic transport policy because fuel prices fluctuate, and supermarkets offer fuel discount vouchers. Now, what Gerry terms “fluctuations” is more accurately described as a long term (since 1998) upwards trend in fuel prices, with various ebbs and flows along the way. Yes, the GFC was one giant ebb – but prices have since recovered and now sit at levels similar to what they were pre-GFC (which is surprising given the economic meltdown in Europe).
Quite how supermarket fuel vouchers are relevant to the debate I’m not sure. Mainly because the lower prices one person pays has to be offset (in terms of the fuel price margins) by someone else paying more (probably those schmucks like me who don’t have fuel vouchers). And I find it quite humorous that Brownlee suggests New Zealanders should avoid higher fuel prices by spending $400 per week on groceries. That level of spending may be achieved in the Brownlee household, but it certainly does not happen in mine ($50-$100 per week on groceries is all I spend).
And while fuel prices are certainly volatile, it’s a stretch to suggest they are an “irrational input” into strategic transport policy. Indeed, Brownlee will find that most of the transport models on which the business cases for the RoNs are based actually incorporate fuel prices as an input into the generalised cost functions that they use to determine mode split. Stated differently, the fuel prices that Brownlee criticises as an “irrational input into … strategic transport policy” are actually part of the highly rational equation that determining expected traffic volumes on the RoNS. Therefore to call them “irrational” would seem to be directly undermine the validity of the models on which the RoNs’ are based. That’s an own goal Brownlee …
And now question #3. Julie’s asks whether high fuel prices would be a threat to the RoNs programme. Brownlee suggests that they are not, because the demand for travel is “inelastic.” Hmm … that actually sounds somewhat informed. But before we decide that Brownlee has awoken from his transport coma let’s first review what the word “inelastic” actually means. WikiAnswers defines it as follows:
Inelastic demand is when the quantity demanded of a good doesn’t respond strongly to changes in price. The percentage change in quantity demanded is less than the percentage change in price (% change in Qd < % change in P).
This basically means that if the price of fuel were to increase by 100% then the demand for travel would reduce by less than 100%. Brownlee’s correct to observe that the elasticity of demand for vehicle travel with respect to fuel prices is less than 100%. It’s typically around -30% in the long run, which means that a 100% increase in fuel prices would on average cause a 30% reduction in demand. That definitely fits the technical definition of “inelastic”. But does this confirm that the risk of sustained high fuel prices is no reason to reconsider the RoNs?
The short answer is no, and here’s why: While travel demands are inelastic with respect to fuel prices, they are not immutable – i.e. they still reduce when fuel prices rise, as you would expect (that is after all what economists refer to as the “universal law of demand”). And as most traffic engineers will tell you a small reduction in vehicle demands can have a major impact on travel delays, because congestion is a upwards sloping non-linear function of demand.
If you’re not one to revel in obscure mathematical jargon, then the figure below may help – it shows the type of travel delay functions likely to have been used in the transport models on which the RoNs business cases were based (source). And you can see that they ramp-up quite considerably.
In this graph the x-axis is the volume (demand) to capacity ratio (v/c), while the y-axis measures vehicle delays. So if you’re up around 90% v/c (x-axis) then a reduction in demand in the order of 15% might shift you quite a long way down the curve to the left, i.e. towards less delay. The non-linear relationship between vehicle demands and delays is, incidentally, the primary reason why the roads are generally so clear during school holiday periods – because the small reduction in travel demands caused by parents not dropping their children at school results in much less congestion.
So the takeaway message is this: While travel demands are inelastic with respect to fuel prices, that is not a valid reason to suggest that the economic merits of the RoNS would not be affected by a period of sustained high fuel prices. The truth is that sustained high fuel prices would reduce travel demands sufficiently that the (already tenuous) economic benefits of the RoNs would vapourise. That’s what Julie was getting at and that is what Brownlee does not seem to understand.
At some point I hope it becomes untenable for Brownlee (or anyone else for that matter) to suggest that fuel prices do not impact on the RoNs business cases. One might even think that point is approaching relatively fast; after all we’re now halfway through 2012, state highway traffic volumes have been broadly flat this year thus far, and fuel prices have now increased quite substantially in recent weeks. Of course, I hope that fuel prices plummet tomorrow and NZ’s economic growth surges – in which case most of the RoNS might be a worthwhile investment.
But that’s not something I’d be prepared to bet $14 billion on. That’s actually what National are doing: They’ve gone out and bought a $14 billion transport lotto ticket. When you put it in those blunt terms Bill English’s cries of “prudent fiscal management” start to sound quite hollow, but that’s getting off topic …
It’s been quite sad watching some of the recent exchanges in parliament.
The Minister of Transport Gerry Brownlee, and the Associate Minister Simon Bridges, have been swimming furiously against the arguments put forward by Julie Anne Genter from the Green Party. Julie has suggested that the RoNs programme is a poor way to spend billions of dollars, given that many of the RoNs are projected to deliver economic benefits that are less than their costs, i.e. NZ is likely to be poorer because of these projects. If one was interested in improving New Zealand’s economic performance, as National claim to be, then you’d think that they would avoid spending billions on projects that will make us poorer …
Recently, however, the National Government has tried a new strategy. They have argued that when considered as a ”total package” the RoNs deliver a net economic benefit. Stated differently, if you add up all the benefits for all the individual RoNs, then you find that they exceed the costs: Ergo they are worthwhile investments.
Is the RoNs as a package line reasonable? Absolutely not, and here’s why:
They have included the economic benefits associated with the Victoria Park Tunnel (VPT). The issue with this is that VPT is already built and its benefits will be realised irrespective of whether we build the other RoNs. So the benefits associated with VPT should not influence investment decisions on the other RoNs; they must instead stand (or more likely fall) on their own individual economic merits. What’s more, VPT has the largest net benefits of any of the RoNs – so once you remove it from the “package” then things start to look very flakey indeed. This is an absolutely blindingly obvious case of National cooking the books; and
The highways themselves are spread far and wide across the country, such that their benefits are independent . Suggesting that the RoNs is a “package” implies that Puhoi-Wellsford and Transmission Gully are interdependent – that we can’t have one of the projects without the other, or at the very least that the benefits of one project depends on the other. I think most people can intuitively appreciate that the RoNs are individual projects that should be considered on their individual merits; they cannot and should not be lumped together.
So the “RoNs as a package line” fails because it a) counts the benefits of projects that have already been built and b) adds together benefits and costs for what are completely independent projects. What the National Government is doing is akin to taking New Zealand’s economic growth and adding it to Australia’s – and then subsequently concluding that NZ’s economy is growing fast. Instead, what National should instead be doing is analysing the economic merits of the RoNs individually and then funding the ones that deliver net economic benefits (and some of them do – at least when implemented in a staged and timely way).
Personally I’m amazed that the NZ media has not yet cottoned on to the economic smoke and mirrors being pumped out about the RoNs by the Government’s spin machine – we’re talking about $10 billion potentially being spent on highways that appear to have dubious economic merit. Let me say that number again: $10 billion – that’s some serious moolah. It’s hard not to conclude that the RoNs are looking increasingly like this National Government’s “think big,” i.e. large and expensive infrastructure projects that future generations will look back on and regret. I hope that I’m wrong; I hope that the RoNs are useful highway projects that generate widespread economic benefits. But you have to admit that this likelihood is slim; most of the evidence stacks up to the contrary.
Anyway, aside from peddling voodoo economics in order to justify the RoNs, the National Government has recently pulled out a new weapon in the war against Julie: Character assassination. This comprises of not-so-subtle efforts to discredit Julie’s credibility on transport issues. And that saddens me – not only because I know Julie personally and can attest to the fact that she is an extremely thoughtful and knowledgeable transport planner – but because it demonstrates that Brownlee and Co cannot bring themselves to acknowledge that maybe, just maybe, a few of the RoNs are not a good investment. Very few of us are suggesting “drop them all”; we’re more suggesting that they should not be an absolute priority – that there are a range of other transport improvements that are more valuable.
I can’t work out whether its political interests or political pride that keeps the RoNs bandwagon rolling along – but either way I really hope someone in the mainsteam media starts asking harder questions of NZ’s self-anointed and omniscient “Roads Scholar.”
A media release by the Green Party today noted that upcoming changes to the Land Transport Management Act (the bill was tabled in parliament today by the sound of it) will allow NZTA to borrow much more money than they have previously been able to:
Having repeatedly insisted that there is no transport budget crisis, Gerry Brownlee is now seeking the power to borrow to build uneconomic motorways, Green Party transport spokesperson Julie Anne Genter said today.
Transport Minister Brownlee today tabled a Bill before the House that would give the New Zealand Transport Agency the power to borrow large amounts to fund projects, whereas previously it could only undertake limited cashflow borrowing. It also seeks to fund roading projects through Public-Private Partnerships (PPPs).
“National is clearly planning to borrow to pay for its uneconomic motorways,” said Ms Genter. “The cost of the National Government’s extravagant motorway building is blowing out. The cost of the Wellington Northern Corridor project alone has risen by $300 million in the past three years. “The Government has been facing a growing funding gap between stagnant road tax revenue due to declining road use and the rising costs of its uneconomic motorway programme.
“After cutting or freezing funding for everything but their new pet motorways, National is now turning to putting the cost on the nation’s credit card.
“The Government is seeking to borrow more and use PPPs as a form of backdoor borrowing. That means that uneconomic projects will go ahead, and New Zealanders will be shackled with the interest payments. That is reckless.
The Bill itself has this to say about the borrowing issue:
The Bill will also enable borrowing to be used by the New Zealand Transport Agency to fund future land transport projects, subject to the agreement of the Minister of Transport and the Minister of Finance. Currently, borrowing can only be used to manage the cash flow of the national land transport programme.
There’s always been an argument around why should NZTA have to pay for assets that will last for decades from the money they raise in the particular year of expenditure. This may be a valid point. But on the other hand I think these changes could be considered a further politicisation of the transport spending process and could lead to us ending up in a massive pile of debt due to the RoNS projects of dubious economic value. At least under the current/old system NZTA’s ability to waste money on the RoNS was limited by the amount of revenue they generate in any particular year.
What do you think? Should NZTA be allowed to borrow for capital expenditure or does this just open a giant can of worms?