Consultation has closed on the first draft Government Policy Statement (GPS) on land transport for the National led government issued by new Transport Minister, the Hon. Simeon Brown. It represents a significant change from the draft GPS published by the previous (Labour) government (PDF).
It has four strategic priorities, compared to the draft produced by the previous government, which had six.
The new draft GPS strategic priorities are:
• Economic growth and productivity;
• Increased maintenance and resilience;
• Safety; and
• Value for money.
The previous draft had the following priorities:
• Maintaining and operating the system;
• Increasing resilience;
• Reducing emissions;
• Safety;
• Sustainable urban and regional development; and
• Integrated freight system.
Three of these priorities are similar to the new one, but others are gone, with a focus on economic growth, productivity and value for money, over reducing emissions, and sustainable development.
Notable most of all is the return of the Roads of National Significance (RoNS) programme seen before with the Key Government, albeit some were also proposed by the Hipkins Government before the election under the title “Strategic Investment Programme”, including projects such as “Warkworth to Whangarei”, “Cambridge to Piarere”, “Tauranga to Tauriko”, “second Mt Victoria Tunnel” (albeit a different one to the one likely under RoNS) and “Ashburton Bridge”. Little of the critical commentary of the draft GPS has noted this point.
The new GPS has had support from some quarters, particularly in business and the road transport sector. National Road Carriers Group said “This policy is geared towards getting the basics right” and Business Canterbury said it is “a welcome first step in recognising roading infrastructure as being key to the performance of businesses”.
However, it has seen vehement criticism from supporters of the previous government. The Greater Auckland blog claimed it is the “most ideological, unbalanced and petty transport policy the country has seen” and Green transport spokesperson Julie Anne Genter said “Simeon Brown is obsessed with forcing people into their cars”.
Of course, it is rather strange to use the term “ideological” as a pejorative when the GPS process is, by its very nature, ideological. Politics is ideological, and of course the values, priorities and objectives of the Green Party on transport policy are grounded in their own ideology, which is different from the ACT Party and National.
The 2021 GPS, approved by then Transport Minister, Hon. Michael Wood, included an indicator in its targets of reducing VKT travelled, to achieve “transforming to a low carbon transport system”. It is arguably an ideological choice that the best means to reduce emissions is to reduce total driving, rather than reduce consumption of fossil fuels (after all, electric vehicles powered by renewable energy emit no emissions). “Road to Zero” is arguably ideological, by prioritising a public policy goal of zero road deaths, rather than zero deaths from accidents at home, or zero deaths due to medical misadventure, or zero deaths of children from domestic violence.
The point is not to say “Road to Zero” is not a laudable goal, and a case can be made for it (although the cost to prevent the last road death is likely to far outstrip the cost of saving deaths in other sectors). Rather, it is naïve to think that a land transport funding system that is set up to implement political ideology and politically determined objectives is not ideological. It is ideological as to the extent to which money collected from motor vehicles is directed towards users of other transport modes.
There was a conscious decision by the Clark Government, in its last term, to return NZ to a politically-led land transport funding system (after politics had largely been stripped out of it in 1996, having been significantly curtailed in 1989), and since then the Key and Ardern/Hipkins Governments maintained that system.
It is the nature of politics and the nature of a land transport funding system that is designed to be a three-yearly political football. That is fundamentally its weakness and is a key cause of some of the ills seen today in that funding system.
So I'm not going to review the draft GPS. It has some strengths (productivity is important), and there are some questions to be asked about parts of it (e.g., there are merits in providing appropriate capacity for walking and cycling as part of major highway projects on efficiency grounds, and the current wording leaves some ambiguity as to that), but it's not that important. What's really important is having a funding framework that isn't dependent on political/bureaucratic choices to ensure one of the country's most important utilities is well maintained and operating efficiently.
What’s wrong?
There is a Ph.D thesis that can be written as to the weaknesses of the current land transport funding system, but here are some of them:
• Poor incentives for cost-efficiencies, as savings in maintenance and operations are not seen as translating into additional funds for construction and upgrades, and politically driven projects are seen by contractors as “guaranteed” of funding regardless of price;
• Difficulties in securing long-term pipelines of construction projects, especially by geography and type of construction (e.g. bridges, tunnelling) as capital funding is tied to three-year NLTPs, based mostly on cashflow, ad-hoc Crown funding and political imperatives (which are fickle – see the Melling Interchange which was under development for many years, then deferred in 2019, then funded with Crown funding in 2020). This inflates their costs;
• Territorial authorities are limited in their capacity to finance and fund capital works on local roads, due to competing demands and the need to raise, on average 40-50% of the cost of such projects from rates (or borrowing supported by rates)
• Mixed and non-transparent relationship between rates charged by local government and the cost or benefits of local road or public transport funding supplied by such funding;
• Low use of debt to finance new capex, to spread the cost of major projects across future users, than cashflow from road users unable to use projects still under construction. This limits capacity for new capex, but also is arguably unfair from an intergenerational equity perspective, and means the opportunity cost of capital in new projects is not fully reflected in the cost of construction;
• Ad-hoc, inconsistent and non-transparent measurement of performance and accountability to road users by road controlling authorities and largely dependent on political imperatives over issues as they get traction in media;
• Little link between the pricing of road use (through RUC/FED/MVR) and the delivery of road infrastructure, and next to no incentives to use more direct pricing either to fund new capital or to enable better use of the network;
• Little reflection of “willingness to pay” as a criteria for funding of activities;
• Ad-hoc and inconsistent co-ordination between road controlling authorities;
• Little input from road users on preferences regarding the construction and operations of roads, including trade-offs around maintenance, renewals, capacity, speeds, safety;
• Inefficiencies from having over 60 road controlling authorities contracting independently;
• Use of economic evaluation to rank and moderate spending is heavily compromised by political imperatives to make projects “stack up” (whether road, rail or public transport) leading to highly inconsistent benefit/cost appraisals;
• Poor incentives to commercialise the use of transport corridor land, whether roads or railway stations;
• Kiwirail’s main source of infrastructure funding (for maintaining most of its network outside Auckland and Wellington) is not its users but the state highway manager/land transport funder/regulator following decisions by Ministers;
• Lack of transparency and subsequent justification around cross-subsidies by users, modes or geography; and
• Limited and inconsistent post-project evaluation of the impacts of projects on reducing congestion, improving safety, achieving modal shift or reducing demand for emissions.
What should the land transport funding system be doing?
This speech by Hon. Chris Bishop, Minister for Infrastructure, at the Infrastructure Funding & Financing Conference on 26 March in Wellington gives some good indications as to what the system should do.
In his view, there are five things that are needed to be done to close the infrastructure deficit:
1. First, we have to do a better job of maintaining existing assets. That means funding both the up-front cost and ongoing maintenance of infrastructure over the life of the asset.
2. Second, we need a credible pipeline of infrastructure projects to attract the capital and talent we need to get building.
3. Third, we need to reduce barriers that are holding back infrastructure delivery and growth. RMA reforms are already underway to get nationally and regionally significant projects fast-tracked.
4. Fourth, we must improve value for money. Reducing the cost for each metre roads or rail will help close the deficit, improve resilience, and lift productivity.
5. Fifth and finally we need new ways to fund and finance infrastructure. Investment must be financially sustainable, which means each asset can wash its own face over its economic life, directly or indirectly, rather than depend on generous cross-subsidies.
Setting aside the third point (which is about planning law), the GPS process has proven to be far from satisfactory in addressing the first, second, fourth and fifth points. Indeed, this shouldn’t be a surprise, because a system that almost entirely ignores what users want, which determines supply based predominantly on political determined priorities and which is dependent on cashflow for most capital spending, not debt, is not going to be well set up to maintain and develop infrastructure on a sustainable or efficient basis. In recent years the main way the land transport funding framework has “found” new ways to fund infrastructure, is having the Minister of Finance approve new Crown funded “funds” for specific groups of projects. The previous Government’s draft GPS listed 21 separate sources of Crown funding for its NLTP, albeit it was looking to cull that down to 14 for 2025/2026 and 10 for the following year. Even politically driven NLTF funding has seen the rise of direct politically determined Crown funding, but done none in a co-ordinated, strategic way, but in ad-hoc reaction to events. That is not a sustainable basis to operate an entire economic sector (which is what road infrastructure is).
This is why the Government should take the opportunity to reform the land transport funding and governance system. For failing to do so will risk a turnaround in priorities again, whether after a change in Minister or more importantly, a change in Government, adds cost to road controlling authorities, public transport authorities, contractors, but most importantly road users and taxpayers, as unnecessary costs are imposed on the system due to uncertainty and ad-hoc decision making, and a lack of clear accountability for delivery of the levels of service that users should expect.
What about other networks?
Electricity, gas, telecommunications, airport and port infrastructure get maintained without the Ministers of Energy, Communications or Transport proclaiming objectives for the funds those sectors raise from their users. Indeed, the idea that somehow the money collected from your electricity, gas, mobile phone or broadband bills should be distributed by what a Minister decides, maybe or maybe not following official advice, smacks of another age or quite simply, a planned economy. Some (such as natural monopolies like Transpower, local lines companies and Chorus) are subject to regulatory oversight, others (such as ports and airports) are more driven by market imperatives. Users with regulatory oversight, drive maintenance in infrastructure sectors almost entirely funded by fees charged to users.
Capital spending is long-term, because the infrastructure suppliers develop long-term plans, based on forecast demand, looking at depreciation profiles of major assets, assessing risk around resilience, and using debt for renewals, supported by long term funding from user fees. Again, it is not up to the whims of Ministers, it is not capital spending by cashflow, and projects don’t appear and disappear because of perceived political benefit, or ideological bias in favour or against certain major projects. There is regulatory oversight, for example when airport companies seek to develop terminals and expect their customers (airlines) to pay for it.
Value for money is delivered by having infrastructure providers that are required to operate commercially, generate a return from capital and pay dividends/reinvest net profits in their networks.
They obtain funding and financing from user fees almost exclusively. This sets up a tight, direct relationship between users and providers, and means users drive what is built, and how the utilities operate. There is some of this now in the land transport sector, but the dominant relationship is for service providers to respond to bureaucratic and political imperatives, not user imperatives. Far too often user imperatives get filtered through politicians, which is neither efficient nor fair, especially on users too busy or not sufficiently well organised or connected to get heard.
So what should happen?
Land transport funding needs to be reformed, and the basics that everyone seems to say they agree with, should be placed outside the political cycle, as they are for so much of the infrastructure sector. The good news is that land transport is better managed and funded than water, overall, because there is some direct user charging across the country, which provides a steady source of revenue. There are some standards applied and some disciplines on spending.
So how should the objectives set out by Bishop be implemented?
Here are a few headlines:
• Directly hypothecate most maintenance and renewal funding to road controlling authorities, under specific conditions. The first call on fees collected from road users should always be to maintain and renew the current network. This should be outside politics.
• Enable road controlling authorities to borrow for major projects using forecast cashflow from RUC/FED, and possible toll revenue (and where relevant, revenue from property owners that capture value from specific projects).
• Require road controlling authorities to develop corridor and capital investment plans over ten years specifically to meet the needs of their users, informed by what users want. Such plans should reflect forecast revenues, with plans beyond that timeframe included so that no-regrets preparatory measures (purchase of land, projects that are complementary) can be undertaken.
• Move state highway management into a separate state-owned enterprise, out of NZTA, to manage and operate the network as a professional organisation, which also manages standards for the entire road network, and is expected to operate as a business for its customers.
• Return revenue from track user charges to Kiwirail Infrastructure directly (take it out of the NLTP), and more transparently separate infrastructure and operating businesses. Subject track user charge rate setting to economic regulatory oversight, and render transparent any Crown subsidies to the maintenance, renewal and upgrades to the Kiwirail network. End NLTP funding of Kiwirail outside that needed for PT infrastructure projects.
• Review the funding and structures around local road controlling authorities to make them more transparent, more accountable to road users and property owners dependent on them for access, and to enable them to borrow against revenue streams, and to encourage efficient consolidation of local road controlling authorities for economies of scale and capacity to undertake large scale projects. The role of rates (a largely non-transparent and blunt instrument) should be reviewed.
• Concentrate NLTP funding on public transport and active modes to operations and capital that improve the productivity of the land transport network and significantly reduce negative externalities. Funding of public transport for primarily social or public health purposes should come from Crown funding, rather than from other users of the network.
• Review the funding and structures around public transport regulation and contracting to make the more accountable to users and property owners that benefit from the provision of such services. Review the ownership models for major public transport infrastructure, in particular the incentives for development around corridors and stations.
What would be the Minister’s role?
Under a future funding framework the Minister would still have a role around the setting of fees for nationally collected road user fees, such as RUC/FED/MVR and in approving tolling (and congestion pricing) schemes. The Minister would also scrutinise the performance of Kiwirail (along with the Finance Minister, but the Transport Minister would care about outcomes for users, not just rate of return on capital), the State Highway Manager and the remaining functions of NZTA around regulation and funding. The Minister could also seek and obtain Cabinet funding for major projects beyond the capacity of the NLTF to fund (and also for Kiwirail), so that there would still be scope to go beyond that which is collected from road users, but the Minister could not raid the NLTF for special projects (whether a motorway or a rail project),or take away maintenance funding. Indeed the NLTF would be largely ring-fenced as significant parts of it would be dedicated to ten-year maintenance and capital programmes, with much capital borrowed and needing servicing over future years.
Further steps in reform, especially if all vehicles are on RUC, and some RUC is collected electronically with reference to location, then road controlling authorities could set their own regulated rates for using the roads and be guaranteed that funding with appropriate regulatory oversight. Never again would maintenance and renewals be underfunded, and capital spending would be within the capacity of road users’ willingness to pay, topped up by political decisions to add Crown funding on top of that. A government heavily interested in road spending could choose either to enable more increases in RUC or add Crown funding for specific projects. A government uninterested in road spending could not cut spending below what was needed for maintenance, renewals, a steady level of spending on small to medium sized projects, and already committed large projects funded from user fees (but it could cut Crown funding completely). This would give a lot of certainty to the sector, with flexibility only existing where additional funding competes with other sectors.
Furthermore, it would mean that, like most of the economy, the provision of a key service (roads) would be linked to the demand for it by users and their willingness to pay. Those that maintain and operate them would be incentivised to do so efficiently, and in a way that is optimal to their customers, and what people pay for them reflects the cost of providing them, and just perhaps it would see the erosion of a culture that means that, by and large, the sector looks after itself. It would be nice for the system to not be subject to perpetual culture wars by those who think the system should exist to reflect not what people want, but what some planners and politicians think is what they should have.
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