Govt silly to reject Regional Fuel Tax

Last Thursday Finance Minister Steven Joyce announced that the government was “ruling out” using a regional fuel tax as one way to fill the $4 billion transport funding gap that was identified by ATAP. He noted a few reasons for this decision:

And second, I stress that we are not interested in introducing a regional fuel tax. I have reiterated to Mayor Goff this morning that we do not see regional fuel taxes as part of the Government’s mix for transport in Auckland because they are administratively difficult, prone to leakage and cost-spreading, and blur the accountabilities between central and local government.

In some respects it wasn’t particularly surprising that the government made this decision. They have long had a somewhat bizarre hatred of regional fuel taxes, not only cancelling Auckland’s proposed fuel tax in 2009 that was going to pay for the electric trains (a decision that probably delayed electrification for a year or two) but then also changing the Land Transport Management Act in 2013 to remove the possibility of Councils even applying to the government for such a tax.

Many of these “concerns” were addressed in a report (page 15 onwards) that the Council commissioned in 2012 to inform their submission on the LTMA changes. Looking first at the issue of cost-spreading (which basically means the risk that petrol companies will raise prices around NZ rather than just in Auckland to pay for the regional fuel tax):

With the level of scrutiny in this sector it seems pretty unlikely that we would see this happening. Furthermore it seems like there are good checks and balances that could be put in place to ensure it doesn’t happen. So, not really a valid excuse.

Now for “leakage”, which is the likelihood of people travelling outside Auckland to “fuel up” and therefore avoiding the regional tax:

Once again it seems like these issues are marginal and can be easily addressed. This led the commissioned report to conclude that concerns that were raised in relation to a regional fuel tax at the time (which seem very similar to those mentioned by Joyce last week) can be easily addressed.

Of course Joyce’s final point – about accountabilities between central and local government, is probably the real reason for the opposition. Essentially government doesn’t want to give up the power it has through collecting fuel taxes. But this seems a bit petty and I’m sure in relation to such a high profile issue in Auckland (the funding of transport) and the broad agreement between Council and Government on what the priority investments are, there would be clear accountability with the public.

This rejection of the regional fuel tax now puts the ball back in the government’s court to come up with some other ideas for addressing the funding gap. They’d better hurry up as the clock is ticking to get this sorted in time for the 2018 transport funding plans.

Keeping the option of a regional fuel tax

A number of changes (most of them really bad) are proposed to the Land Transport Management Act, with the LTMA Amendment Bill open for submissions until October 26th before a select committee then hears the submissions and thinks about making changes to the Bill.  One particularly bizarre change proposed is the removal of the ability for regions to apply to the Minister of Transport to have a regional fuel tax. If that sentence sounded a bit complicated and confusing, that’s because it is. Let’s outline the current situation in a bit more detail:

  1. If a region feels that it needs to raise more revenue for transport projects in a different way to traditional rates, it can go through a public consultation process and then propose to apply a regional fuel tax. This tax would only apply within the boundaries of the particular region.
  2. The Minister of Transport can then decide whether they agree with the region’s proposition. In 2008 Labour agreed to the Auckland Regional Council’s proposed regional fuel tax to pay for the electric trains (now being paid for out of nationwide fuel tax and Auckland’s rates).
  3. At any time, the Minister of Transport can revoke the ability to place a regional fuel tax – just as was done in 2009 (leading to a delay of probably at least a year or two in the delivery of Auckland’s electric trains).

Now that’s the current situation. Seems a fairly reasonable process that still leaves quite a lot of power in the hands of Central Government. What the Bill currently before parliament to amend the LTMA will do is remove the ability for regions to even apply for putting in place a regional petrol tax. So even though the government already has the power to say “no” and already has the power to stop a scheme, for some bizarre reason they want to remove the ability for the regions to even propose such a scheme in the first place.

Looking through the explanatory statement of the Amendment Bill, the only reference to why this change is proposed is as follows:

This will avoid the likely costs of such a tax in a single region being spread across all regions within our nationwide fuel market, and will ensure that the additional costs of a refund system for non-transport fuel use are not imposed on productive areas of the economy.

Back in August a report was presented to the Council’s transport committee which basically concluded that there’s absolutely no merit in either of these criticisms of regional fuel taxes. Here are the key conclusions: I’ve never quite figured out why this government dislikes regional fuel taxes so much. Ultimately they are put in place by local councils and therefore it is the local council taking the political risk by imposing such a tax. Secondly, regional fuel taxes have always seemed to me like quite a fair and sensible way of providing councils with funding for transport infrastructure – as it’s typically road users who benefit from Council spending on transport and building roads out of rates is really just another way in which roads are subsidised.

I tend to think that the government dislikes regional fuel taxes so much because they give Councils a bit more autonomy when it comes to transport spending. The government realises that its transport policies are increasingly out of step with those of pretty much every local council in the country (particularly in the big cities) and it’s desperately trying to reduce the power and influence of the Councils so it can ram through its own agenda. At the end of the day that’s a pretty pathetic approach, regional fuel taxes should at least remain ‘on the table’ as a transport funding option and this part of the LTMA Amendment Bill should be deleted.

There are a few other parts of the Bill which deserve some mention and I’ll get onto those in the next few days.

Council investigation into fuel tax

There was quite a bit of discussion about two weeks ago when discussion of alternative funding options was raised again by the council. They had identified a number of options to investigate further, despite Gerry Brownlee shooting them down straight away. Well it seems that the council must have been working on some of the options already (or have worked really really fast) as a report to the transport committee tomorrow looks at some of the issues with a regional fuel tax a bit closer. It is important to note that the report doesn’t actually consider the actual implementation of a fuel tax or just how much it would collect.

This report provides the results of an investigation into regional fuel tax and supports a regional fuel tax remaining a potentially effective mechanism for funding transport in Auckland.

The Ministry of Transport has identified two key concerns with a regional fuel tax as the basis for a proposed amendment to the Land Transport Management Act 2003 to remove regional fuel taxes:

1. The potential for spreading a regional fuel tax to other regions or areas; and
2. The costs to administer the tax and for purchasers (such as farmers and forestry businesses) to apply for refunds where the fuel is not used on roads.

Ascari and BERL Economics carried out an investigation into these concerns and based on their analysis made the following findings:

  • The imposition of a regional fuel tax now would be much less likely to result in price spreading to other regions.
  • There are ways to address spreading such as penalties and a targeted monitoring programme.
  • Avoidance of a regional fuel tax by consumers is likely to be a minor issue.
  • Administration of a regional fuel tax at the wholesale level would be straightforward.
  • If a regional fuel tax is imposed at the retail level, the administration costs are likely to be significantly lower than previously identified.
  • The costs to commercial operators seeking a refund are estimated to be between $25 and $50 per firm and could be minimised further.
  • The the spatial form and vehicle travel patterns in Auckland are both well matched to the requirements of an effective regional fuel tax.

The findings are proposed to be used as part of the investigation into alternative transport funding mechanisms and in feedback to the Government regarding the proposed amendment to the Land Transport Management Act 2003.

There is quite a bit of information contained within the report and I haven’t had a chance to go though it all but it does seem that at least the key concerns raised by the MOT have been addressed. Just how much money such a tax would raise is obviously quite a different matter and I suspect we will see further investigation of this and the other options identified in the year to come. Whether the government will actually accept what is contained within these reports is a different matter.

Interestingly the report says that fuel use, both petrol and diesel, peaked in 2007 at 1.6 billion litres but that it has fallen to about 1.53 billion litres. This is similar to what we have seen happen with traffic levels. The graph that accompanies it indicates that petrol makes up somewhere between 1 and 1.1 billion litres of this so at 1b litres, a 5c per litre petrol tax would raise about $50m per year.

Note: The fuel tax referred to is a local authority tax levied on wholesalers

How to cover Auckland’s (supposed) transport funding gap?

The Council issued a press release today highlighting that it’s shifting to the next phase of analysing ways in which to bridge the $10-15 billion funding gap between the projects that are (supposedly) required over the next 30 years and the amount of money available under traditional funding schemes. Here are the details:

Alternative options for funding critical transport projects such as the additional Waitemata Harbour Crossing, City Rail Link, Penlink, rail to the Airport and the East-West Link will be considered by Auckland Council on Thursday.

“If and when these projects proceed, Auckland will be required to fund part of the cost alongside government contributions.”

“Auckland Council is considering a number of funding options which can be used instead of loading all the burden on to Aucklanders’ rates bill,” says Len Brown.

“While the proposal does not rule out other funding mechanisms such as tolls or fare charges, it does identify three options that need additional work, as a result of public feedback. The proposal is for council to consider doing further work around regional fuel taxes, congestion and network charging and additional car parking charges.”

“I remain open-minded to a number of funding options. What is certain, however, is that Council must consider new ways to fund these major transport projects in a way which is affordable and fair for Aucklanders.”

The report follows a discussion document released earlier this year entitled “Getting Auckland Moving”. Eighty-five per cent of submitters felt additional funding was required to address the region’s transport infrastructure challenges.

“Alternative funding options are required because we face a $10-15 billion funding gap between Auckland’s future transport needs and what rates and taxes can cover. Auckland’s congestion will significantly worsen as the region’s population continues to surge. Auckland and the government need to invest in a mix of road and rail projects to provide the region with a transport system which will cope with a population of two million plus.”

The five most popular options were tolling on new roads, regional fuel taxes, congestion charging, development contributions and additional car parking charges. As tolling of new roads and development contributions are permissible under existing legislation, it was felt they did not require the same level of investigation.

The report proposes that further investigation of the three funding mechanisms take place with the aim of taking a funding proposal to government in 12 months recommending relevant legislation be changed. A consultative working group comprising council, government, community organisations, business and transport groups will be set up to consider and develop the proposals.

“The citizens of Auckland will be given the chance to have their say before any final decisions are made. It is important that we develop fair and affordable funding options for further consideration,” says the Mayor.

Further detail is in a report going to the Council on Thursday, which includes quite a lot of information around the feedback received on the discussion document.

This will be an interesting discussion to be had – particularly around the issue of regional fuel taxes and congestion/network charging – where Central Government has made it quite clear they’re not a fan of either way to raise additional revenue for transport projects. A few months back I highlighted that I think tolling existing motorway onramps (generally known as network charging, although it’s debatable whether that’s the appropriate phrase) was a dumb idea because it would shift traffic from motorways onto local roads. A regional fuel tax was almost introduced in 2008 before the incoming National government canned it, and the idea of road pricing & congestion charging seems to raise almost everyone’s heckles. It seems like additional parking charges might be the easy one out of the lot, although it won’t necessarily raise much cash.

However, I disagree with Mayor (and it seems around 85% of submitters) in that I’m not convinced whether significant additional funding is required to sort out Auckland’s transport woes. While many of the expensive projects on the Council’s wishlist are justified (like the CRL), a large number quite possibly aren’t, plus I think we shouldn’t necessarily consider all these large projects as over and above “business as usual” funding. Much of “business as usual” might not end up being particularly high quality spending (like building heaps of new roads to service growing urban sprawl) plus there should be ways to improve the efficiency of much of our operational spending – like getting better bang for our buck around how we operate public transport – to generate savings that can be reinvested.

Of course that doesn’t necessarily mean that congestion charging, parking charges, tolling new roads or a regional fuel tax aren’t justifiable – or aren’t good ideas. In fact I think all of them might have some merit – though generally through their ability to promote behavioural change and modeshift. But maybe we don’t need to squeeze as much money out of them as previously thought if we’re tougher about which projects make the cut, or perhaps we can offset the money raised through lowering rates as a way of getting public support to implement something like congestion charging.

The regional fuel tax

One aspect of the government’s proposed changes to the Land Transport Management Act (LTMA) is the repeal of a provision which allows regional councils to introduce regional fuel taxes. Already the process to create a regional fuel tax seems quite complex, as the government was able to unilaterally cancel the Auckland scheme back in March 2009, delaying projects like electrification, Penlink and integrated ticketing – which had been banking on that money. However, it seems that transport minister Steven Joyce isn’t content with his power to remove schemes, he wants to also banish the ability of council to even propose them.

An article in today’s NZ Herald highlights that Joyce’s determination to rid the legislation of regional fuel taxes runs against advice from Treasury:

“Despite his perception of Treasury support for the overall purpose of the amendments, Mr Joyce acknowledged it would have preferred a more thorough legislative review…

…He said the Treasury had concerns about removing the existing legislation’s regional fuel tax provision without replacing it with an alternative funding mechanism.

Although the Treasury appreciated regional fuel taxes had some practical limitations, it believed retaining legislative provision for them “would send an important signal to the regions about being accountable for funding their transport decisions”.

But Mr Joyce said that would result in much higher prices and hand authority to local councils to spend Government taxation.”

I have somewhat struggled to understand why Joyce is so opposed to regional fuel taxes. They are obviously something that regional councils (including Auckland Council) would impose, so if they were wildly unpopular people could simply vote in a future local government election for people who proposed to get rid of the scheme. Furthermore, when the ARC implemented the old fuel tax scheme it went through a highly complex and detailed public consultation process – and was actually (and amazingly) quite popular!

I can only surmise that Joyce doesn’t like the ability of regional fuel taxes to give local councils more independence in how they fund transport projects and how they raise funds. Similar to his opposition to road pricing schemes, the only logical way to make sense out of how Joyce can both want local government to fund a greater proportion of public transport projects and simultaneously take away their ability to do so, is that actually he’s not particularly interested in seeing those PT projects proceed. Even if central government doesn’t have to pay for them.

I have noted in the past that I think central government has far too much power, compared to local government, when it comes to transport funding matters. People simply don’t vote, in national elections, on transport matters (I may be an exception to this rule) whereas they very much do have transport in the top of their mind when voting in local government election. A regional fuel tax would recognise the greater connection between local government and transport policy, giving them the ability to fund additional transport projects through a scheme that they take the political risk over.

Sure, regional fuel taxes have some issues in terms of whether particular petrol stations fall one side of the region’s border or the other, but I suspect the fuel tax would need to be set incredibly high for people to bother travelling many kilometres out of their way in order to avoid the tax. Furthermore, if all the regions took it up then the border issue would go away. In the USA there are a million different local taxes and they seem to survive.

So all up, removing the ability of local councils to put in place a regional fuel tax is an incredibly anti-democratic move whose only justification seems to be a desire to see transport decisions become even more centralised.

Can transport be an election issue?

Auckland’s poor transport outcomes over the years are probably the result of one over-riding factor: that while we vote on transport matters in local elections, local governments don’t have much money, central government holds the purse strings. Yet when it comes to national elections, we tend to have much bigger issues on our mind (taxes, health, crime, education, the economy etc.) than transport when casting our vote. Looking back into the past, we see many excellent transport schemes being floated by the local governments of the day, but ultimately they couldn’t find central government support – so all we got were motorways.

Transport is inherently seen as a local issue – and quite rightly so. The transport issues of Auckland are quite different to those in most parts of the rest of the country. When Aucklanders vote in local government elections, it would seem that they have transport matters quite high in their minds. John Banks lost the 2004 Auckland City mayoral election over pretty much a single issue: the Eastern Motorway. Ironically, he had also won the 2001 election on the basis of promising to fast-track a pile of motorways. Most obviously, it seems that Len Brown’s transport plans played a critical role in his election victory in October last year.

But the vast majority of transport funding comes from central government – because they control how all petrol taxes and road-user charges are spent. Through the Government Policy Statement, each Transport Minister of the day has an enormous say over which projects do and don’t happen. I doubt much of National’s vote at the last election came about because of their promises to throw $11 billion at building motorways over the next 10 years – in fact I can’t even remember hearing much about their transport plans before the election (aside from Maurice Williamson compulsively talking about tolling which eventually got him the sack as transport spokesperson).

This is an uneasy mismatch: the level of government that really gives a damn about transport and has been voted there because of their transport policies can’t do much because they don’t have the money; the level of government with all the money generally has transport policies developed largely insulated from public opinion. There seem to be two main ways of resolving this fundamental problem: either to give local government much more ability to make their transport decisions or to somehow make transport a bigger issue in national elections.

The Regional Fuel Tax enacted by the previous government, and cancelled by this one, is an example of the first option – as the regions take on the political risks for applying the tax, but then have another revenue stream to fund their transport priorities. The proposed changes to the Land Transport Management Act that will abolish the ability of any future regional fuel taxes to be enacted gives us a pretty strong signal about what the government thinks of the possibility of providing local government with greater autonomy to make its own transport decisions.

The other option is to somehow make transport an election issue. While I will probably end up choosing my party vote based on the quality of transport policies – I think it’s a pretty big call to expect many more people beyond transport nerds to do the same. Quite simply, there are bigger issues out there – something that even I can accept. Of course that doesn’t mean opposition parties shouldn’t have better transport policies (not like it’s difficult), but rather that they need to ‘tie in’ the messages of their transport policies to broader matters.

The Green Party has traditionally been quite good at this. They link transport policies into concerns about the environment and into concern about the profligate wasted spending on the various RoNS projects, and the contribution of that to our massive deficit. Labour seem to have struggled with this – and to an extent continue to do so. While they may have good transport ideas, they tend to both not say anything about them and also struggle to connect it in with their broader messages. Providing more transport choices when petrol prices area rising should be a core Labour “cost of living” issue. Similarly, constructing ‘lead infrastructure’ such as the City Rail Link to encourage broad economic benefits and support their environmental concerns.

One huge opportunity that I think both Labour and the Greens have is to play on an issue I’ve discussed recently: that of central government really not understanding Auckland when it comes to transport (and perhaps urban development) matters. It is interesting to note that while National consistently polls around 20% ahead of Labour, last year Auckland elected Len Brown (Labour Party member) as mayor; or that while Auckland Central has a National MP, Mike Lee managed to easily win his seat on the Council in the Waitemata Ward (which is arguably slightly more right-leaning than Auckland Central as it includes Parnell).

Even without trying, it seems that Labour are polling much higher in Auckland than in the rest of the country – at least according to this recent poll:

The gap between the two main parties is now 15.1 percentage points, down from 20.7 points in last month’s poll just after the Budget.

Labour’s support rose 2.4 points to 36.1 per cent and National’s fell by 3.2 to 51.2 per cent of decided voters…

…A breakdown of the party vote suggests Labour’s support has improved among Auckland voters and younger voters compared to the Herald-DigiPoll survey.

Support for Labour in Auckland at 40.5 per cent is higher than its overall party-vote support.

And its support in the 18 to 39 age group is at 42.3 per cent, again a lot higher than its overall party-vote total.

I do think that a “Vote for Auckland, Vote for Labour” style campaign could be quite productive. The formation of Auckland Council was largely designed to avoid the age old problem of nothing happening because all the old councils were too busy fighting each other. Yet now we find ourselves in a situation where there’s still a big fight going on about what should happen in Auckland – but now we are seeing Auckland Council on one side and central government on the other. In effect, we potentially have the same problem – and it appears reasonably unlikely that the ‘step-change’ investment that Auckland requires will eventuate as long as the big difference in opinion over Auckland’s vision for the city and the government’s vision remains.

Not only could Labour sell themselves as the party that will “work with, not against” Auckland Council, they could also play off the very real situation that it seems the government really doesn’t understand Auckland as a big city has very different needs to the rest of the country. In its spatial plan vision the government still sees Auckland as an overgrown town, rather than a real city. In its transport vision you could argue the same thing – more motorways works for smaller areas, so they think the same thing can endlessly work in Auckland. Traditionally I’m not sure the extent to which Labour has “got Auckland” either, but they seem to have a number of younger MPs coming through who seems a bit more ‘urban’ in their outlook and think of Auckland being a big city as a good thing, not a bad thing.

Overall, I think the trick to making transport an election issue is through associating it with bigger picture issues. How transport policy links to “smarter spending”, “being on Auckland’s side” or “giving choices at petrol prices rise” will be the key issue. I’m yet to see much evidence from Labour that they’ll be able to meet this challenge, though they still have a bit of time up their sleeves to do so.

Shedding some light on this $30 million “funding gap”

My previous post, which commented on an NZ Herald article relating to operating costs of Auckland’s rail system, noted the somewhat bizarre emergence of a $30 million funding gap. While my previous post asked the question of “where the heck did this funding gap come from?” it is fair to say that Joyce has mentioned it a few times now – most recently in his interview on the TV3 programme “The Nation” a few weeks back.

But a bit of digging through the archives of my blog indicates that this matter has been brewing for a while now – as I noted in a post back in May entitled “The electrification battle is not over“. In that particular post I noted how the government’s final funding arrangement for Auckland’s electric trains – which was effectively a loan to KiwiRail – could mean that Auckland’s ratepayers end up funding those trains after all as KiwiRail is now looking to recoup that money from Auckland Transport (and NZTA). Now this is quite confusing, so I’ll run through a bit of history on the rail electrification project to show how we’ve ended up where we are now:

  • Back in the 2007 budget the then Labour government set aside $500 million to be spent on paying for the infrastructure side of the rail electrification project. However, they felt they couldn’t afford to also stump up with another $500 million for the electric trains themselves.
  • Auckland’s local government agencies confirmed that there was not really a hope in hell that they’d be able to stump up with $500 million for the new electric trains either.
  • In this situation, the parties looked at other options for raising the funding – and eventually settled upon applying a 10c a litre Regional Fuel Tax. The money raised from this fuel tax would effectively pay back the $500 million loan for the electric trains and also pay for a pile of other important transport projects.
  • In March 2009 the current National government decided they didn’t like the Regional Fuel Tax, so they got rid of it. However, at the same time they confirmed that rail electrification would still proceed and took on the financial responsibility for making that happen.
  • In November 2009 Cabinet gave its approval of a $500 million loan to KiwiRail to purchase the electric trains. How exactly KiwiRail would pay back that loan was left somewhat undecided.

A very interesting ARC report from May this year outlines that the financial implications of KiwiRail passing on the responsibility for paying back the $500 million loan for electric trains would be significant:

Further insight into the Government’s expectations in respect of the recovery of costs from metropolitan passenger rail is provided in the Minister of Transport’s paper to Cabinet in November 2009 seeking approval for funding for the purchase of the EMUs.2 The paper, released to the ARC in April 2010 following a request under the Official Information Act, contains estimates of the cost of repayment of a loan of $500 million over 30 years. At an interest rate of 6%, the annual cost of repaying the loan would be $35.973 million.

The Cabinet paper notes that such repayments “could not be recovered from current funding sources based on farebox revenue maximisation and NZTA and ARC subsidy assumptions.” It also raises the option of “a transparent Crown subsidy to the region on the understanding that the region increases its contribution to annual operating costs and that a funding glide path is agreed that eliminates or significantly reduces the Crown’s annual operating subsidy over time.” The Minister states that he favours this option.

Taken together, an increase in track access charges and a requirement for the region to repay the costs associated with the purchase of EMUs by KiwiRail could result in a very significant increase in the requirement for rail operating subsidy. The ARC and ARTA have paid track access fees since 2003 at an average rate of $5 million per annum, 60% of which is paid from NZTA subsidy. While it is not yet clear to what extent fees might increase, a threefold increase for example would increase the net cost to the region from approximately $2 million to $6 million per annum. If the region were also to be expected to pick up 40% of the cost of repaying the loan to purchase the EMUs, the annual cost would be approximately $14.4 million. The ARC has allocated $25.364 million in operating funding to ARTA for passenger rail services in the 2009/10 financial year. Adding potential increases in track access and EMU loan repayment costs could add a further $20 million per annum to this amount.

No provision has been made within the ARC’s 2009-19 LTCCP for such an increase, nor does NZTA have additional funding to meet its 60% share of any additional costs.

While KiwiRail’s proposed increase in the track-access fee from $5 million to $16 million shows us where $11 million of this “funding gap” is, it seems to me that the bulk of the rest of the gap arises from the costs of the new electric trains being passed on to Auckland Transport and NZTA. To make matters worse, because NZTA doesn’t have any money for rail (because it’s all dedicated to uneconomic motorways) it seems that the expectation is that Auckland will simply pick up the tab if it has any hopes of advancing its rail aspirations like the CBD Rail Tunnel.

So in effect we have three reasons for the funding gap existing:

  1. KiwiRail’s increased track access fee. This is probably justified to an extent given the improvements made to the tracks over the past few years. However, I do note that if a track access fee is meant to cover maintenance issues then there should be far less need for maintenance of the rail network over the next few years, especially once electrification is completed, as basically most things will be brand spanking new.
  2. The shifting of funding of the electric trains from central government back on to Auckland. I find this element particularly disgraceful as the deal was Auckland didn’t apply the regional fuel tax because central government was willing to fund the trains themselves. For the government to now go back on that deal is pretty dodgy I think.
  3. Finally, because NZTA is required to spend pretty much all its money on uneconomic motorways, it apparently won’t be able to contribute the 60% funding to rail operating costs that it would normally do (even though road users benefit hugely from the rail system – I don’t think I need to post the table with the $17 per trip benefit for the 372950327590th time). This means that Auckland is once again seemingly left to pick up the tab.

What’s interesting is that none of these three matters leading to the funding gap emerging are the fault of any ARTA, the ARC or any other Auckland-based agency. All three matters have arisen from central government decisions. It seems pretty rich to now lump the problem on Auckland and say “no more projects until you fix this problem we made for you”.

Electrification – a solution

Auckland’s rail electrification project has had a torrid history. For years the previous government put it off, put it off, refused to stump up any money, put it off some more… and then finally came up with a solution where Aucklanders would pay for the project via a regional fuel tax. This was even though Wellington was getting its nice new trains fully paid for by the government.

And then in March this year the regional fuel tax was removed, and the funding for electrification shifting back onto central government. There was much angst as to whether it would proceed at all, but as time went on it seemed like everything was slowly falling into place, with contracts signed about signalling upgrades and other contracts put out to tender for the works as a whole.

Then, a couple of months ago we found out that the money previously set aside for electrification probably wasn’t going to be enough. Due to increases in the scope of works needed to actually properly operate trains at 10 minute frequencies during peak times while not totally destroying the opportunity for the network to run freight trains, it was worked out that some extra money would need to be spent on upgrade works for the tracks. At the same time, it was also discovered that the price of each train had been slightly under-estimated (although this was largely due to exchange rate fluctuations, which by now have probably shifted significantly again). In the end, it appears as though either roughly another $100 million needs to be found to ensure that electrification can proceed as per the original plans, and with the original number of trains, or that we need to compromise in some manner to make it fit the budget.

Now I fully understand that $100 million is a lot of money, and I must say it’s pretty disappointing that the previous investigations and costing of electrification didn’t include the upgrades to the track-work that are now considered necessary. It’s pretty unlikely that the government will be able to dig around in its coffers to stump up that kind of money for this railway project from the “crown grants” that rail is funded from. The Minister has repeatedly noted this. So, either the solution is going to be to find the “least bad” compromise to make things work within the previous funding envelope, or to find that extra money from somewhere else.

As I have noted previously, I do not think that it is feasible to not undertake the extra track work required to run 10 minute train frequencies. It would, quite simply, be daft to lump a whole pile of trains onto a network that couldn’t handle them. So the first priority for the money, in my opinion, should be on getting the infrastructure right. However, the problem with focusing the money here is that you end up having rather little left to spend on the actual trains themselves – only enough for 75 rather than the original 140 apparently. So that’s a pretty unacceptable outcome too in my opinion – particularly as $1.6 billion is being spent to modernize Auckland’s rail system it would be a bit odd to not finish the final bit off so that we have enough modern trains to run on it.

Which means that we’re left in the situation of finding some other way to fill this $100 million funding gap.

Now, this isn’t the first time we’ve seen an unexpected funding gap emerge for public transport this year. Back when the regional petrol tax was cancelled, it was immediately announced that the government would pick up the tab for ensuring Auckland’s rail electrification project went ahead. However, that wasn’t the only project to be funded out of the regional petrol tax. Other projects that had their funding stream removed at that time included the New Lynn train station, the Newmarket train station, the stations on the Onehunga Line and integrated ticketing. There was also the Penlink road that had its funding cut, but I’ll set that aside as I’m specifically talking about public transport projects here.

So when all this happened there was a lot of worry about these other, smaller, projects. But – and it’s a critical point to make – they have been sorted out. We are still getting integrated ticketing, the Newmarket Station is being fully finished, the same with New Lynn and the Onehunga Line stations. Some extra money came from the Regional Council, but the bulk of the extra funds came from NZTA. Even though theoretically rail capital works projects aren’t supposed to be funded by NZTA anymore, it was realised in these particular situations that the projects had to happen, the money had to be found from somewhere, and NZTA was the most logical agency to step in and fill that gap.

Why not do the same for electrification? There’s a clear funding gap of around $100 million between now and 2013 that needs to be filled. I accept that general government funds probably can’t fill this gap, I accept that perhaps the Super City could chip something in but wouldn’t be able to cover too much. So why not NZTA? There’s a clear precedent for NZTA funding rail projects – as they have done so for Onehunga, New Lynn and Newmarket.

So, does NZTA have $100 million available over the next three years? Hey, that’s right – that’s what the investigations and land-purchasing for the Puhoi-Wellsford road are estimated to cost. Bingo!

Where is the funding for our electric trains?

Back in March when the government cancelled the Regional Fuel Tax that was going to pay for Auckland’s rail electrification, Steven Joyce affirmed the government’s commitment to paying for electrification in other ways. Initially it seemed like the whole country was going to pick up the bill via a 6c a litre tax, although subsequently we’ve realised that this tax will be going to Steven Joyce’s pet roads of National significance, rather than being spent on rail. This left a big question as to how electrification would be funded.

In May, half of this question was answered, with $663 million set aside in the budget for “the renewal, upgrade and electrification of the Auckland metropolitan rail network”, to be spent between 2009 and 2013. So this covered the “below-track” works that were previously to be funded by the government’s share of the Regional Fuel Tax.

However, that still left in question how the trains themselves were to be funded. Under the Regional Fuel Tax scheme, the ARC was to borrow around $500 million to purchase the electric trains – and would repay that debt over the course of about 30 years through their half-share of the Regional Fuel Tax. With the tax scrapped, and the ARC certainly not having $500 million up their sleeve, the government announced that they would pay for the trains, while at the same time taking on responsibility for the rail network, which at the moment is shared between them and the regional council.

Just before the budget, Steven Joyce went on a trip to Sydney to look at possible ways of funding the electric trains, and started talking about private-public-partnerships (PPPs) as one way the government could still acquire the trains, but avoid lumping another $500 million onto their books. On May 27th, he stated that PPPs were a “possibility”.  He also said the following:

“I have asked Ministry of Transport officials to look into how this might work in the New Zealand context and expect their initial report in a few weeks.

“I do not want this investigation to delay the electrification project.

Mr Joyce says, after double tracking, electrification is the important next stage in the development of Auckland’s rail network.

“There are a number of options for funding the purchase of electric trains, including:

  • The Crown increases investment in KiwiRail, enabling it to purchase the trains.
  • KiwiRail borrows the money and the Crown provides an additional direct passenger subsidy until patronage increases.
  • Some form of PPP, most likely on an ‘availability’ basis.

    “The government is committed to electrification. We must ensure it goes ahead in a way that both meets the needs of Aucklanders and ensures the most efficient use of government funds.

    That was the end of May, it is now August and we still haven’t heard any further news on this matter. I’m not a fan of the PPP option, because it seems to have repeatedly failed overseas and ended up costing the tax-payer a crap load of money, but at the moment I just want to hear something. I can’t see how this delay can’t affect the electrification project.

    So Steven Joyce, where is the funding for our electric trains?

    Electrification: the beginning, not the end

    It has been an interesting year so far for Auckland’s public transport – probably a good year to start writing a blog on the topic actually, considering all the goings on that have happened. Probably the biggest story of the year so far was the cancellation of the Regional Petrol Tax back in March, which put most of the public transport improvements that we can expect in the next few years, into doubt.

    In the months since then it seems like everything has been about “cleaning up the mess” that Steven Joyce created in March through his transport announcements. Fortunately, most of the mess has now been cleaned up: with a decision on integrated ticketing being made last week, NZTA coming to the party and funding upgrades to Onehunga and New Lynn, the Manukau rail link going ahead, and funding for the below track part of electrification being outlined in the May budget. All we are really waiting for now is NZTA to confirm that they will provide the necessary funding subsidy for integrated ticketing (to be finalised in September I think) and for the funding of Auckland’s electric trains to be announced. Goodness knows when that will happen, although rumours suggest it might be this week.

    So, we’re almost back to where we were a few months ago then. The question I wish to ask is “where to next?” It seems like the government is convinced that the money they’re going to spend on finishing ProjectDART (upgrades to the rail system  that have been ongoing for the last few years) and electrification, that’s it. Auckland’s transport planning documents suggest that this is the case as well, with funding for public transport infrastructure after electrification is complete almost disappearing. As a public transport advocate I think it’s important for me to state that I believe we’re only at the beginning of this process to truly create a top-class public transport system for Auckland. Electrification and ProjectDART cannot be seen as endpoints, but rather the first step of a process. We must develop a vision for how we want Auckland’s public transport system to look like in 30-40 years time, and work out how we’re going to get there. With higher fuel prices a certainty in the future, combined with the need to reduce CO2 emissions from our transport sector, I think that it’s critical that we back up the “talk” of quantum shifts with a real plan. And we fix our broken funding system to ensure that the money’s available to do it.

    Unfortunately, I doubt the current government has the vision or desire to do anything more than the bare minimum when it comes to public transport. Maybe a future Super-City Council will be just what we need to push the need for better public transport?