16 May, 2024

Japan planning introduce time and location based pricing on expressways nationwide

Japan's nationwide expressway network is run by a series of private businesses. In 1956, the Japan Highway Public Corporation was formed to build and operate a national highway network, using tolls and accessing private financing. At the time, only 23% of Japan's national highway network was sealed including only two-thirds of the Tokyo-Osaka highway.  Tolling was extensively used, and for sections of highway that did not gain private finance, the government guaranteed the loans. Tolling revenue was pooled to cross-subsidise parts of the network that did not generate enough toll revenue to pay for construction (details on the history of highway in Japan is available here (PDF). 

In 2005, the Japan Highway Public Corporation was split and privatised into multiple companies, including the Japan Expressway Debt Repayment Agency (to use toll revenue to repay the considerable debt that remained for the development of the network) and six regional expressway companies. They are:

  • East Nippon Expressway Company Limited;
  • Central Nippon Expressway Company Limited;
  • West Nippon Expressway Company Limited;
  • Metropolitan Expressway Public Corporation (Tokyo);
  • Hashin Expressway Public Corporation (Osaka-Kobe-Kyoto); and
  • Honshu-Shikoku Bridge Authority.
Tolls were authorised to be collected until 2050, recently extended to 2065.  The privatisation was driven by several concerns, in particular:
  • As Japan's network had essentially been completed, there was concern about public ownership enabling politicians to authorise new construction that favoured the construction industry, even if projects were not viable. 
  • The pooling of toll revenue nationwide was seen to enable this cross-subsidisation where there was no need for new infrastructure. Residents objected to paying higher tolls in their area for projects that were far away from them and of dubious economic value.
  • Interest in improving the efficiency of administration and encourage innovation in operations of the network.
  • Interest in enabling comparisons between the performance of companies so encourage more productivity and lift standards across the sector.
  • Concern about the levels of debt government was taking on for the expressway company, and privatisation was seen as a way to put discipline on costs, debt and the scale of capital spending.

Map of Japan's expressways and major highways

The national expressway network is 9050km long. Tolls in Japan are generally set to reflect distance travelled between interchanges, and vary by vehicle type. Most toll roads still have a mix of electronic and manual toll lanes.

So the announcement in the Japan Times in the past week that the Ministry of Land, Infrastructure, Transport and Tourism will be introducing the ability for expressway companies to introduce time-of-day varying tolls, based on location, to manage congestion, is a significant step for the history of expressways in Japan.  It was trialled during the 2021 Tokyo Olympics with a higher daytime charge, and discounts after midnight, but the idea is that time periods and variations in toll fees will depend upon the specific route and the conditions on it. This is NOT dynamic tolls, but rather targeted congestion pricing to enable more free flowing traffic and reduce pollution.

Also announced was the enabling of commuter passes for high frequency users of toll roads in particular areas, to encourage greater use of expressways to remove traffic from untolled parallel local roads.

07 April, 2024

This should be the last Government Policy Statement on Land Transport Funding

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;


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.

16 February, 2024

Crucial next steps for Auckland congestion pricing

I usually write about road pricing in my Road Pricing Blog, but I have placed this article here primarily because it is a wider transport policy issue around governance, and isn't just about road pricing in Auckland.

The announcement of the removal of the Auckland Regional Fuel Tax (ARFT) by the (NZ) Minister of Transport, Hon. Simeon Brown is implementation of an election promise, and is not a surprise.  The big question is what comes next, and talk of congestion pricing, given it is also part of the National/ACT party coalition agreement, is clearly something that needs to be progressed this year.  However, there are some big questions that need to be addressed.

Don’t miss the regional fuel tax

The ARFT was introduced, with the intention that it operate for a ten-year period in 2018 to enable Auckland Council to fund transport projects in the region. It had been criticised at the time for its distributional impacts, with a study by Sapere Research Group in 2018 (PDF) regarding both the ARFT and national increases in Fuel Excise Duty (FED) concluding that they will:

• give rise to significant variation across households in terms of impacts;

• be regressive in nature- (i.e. disproportionately impact on lower-income households);

• likely impact inequitably on Māori households, especially in the south of Auckland;

• produce even more inequitable impacts when fuel efficiency of vehicles is considered.

In short, the ARFT unfairly burdens those least able to afford it, not least because they are least likely to be able to afford newer vehicles (such as EVs or hybrid vehicles) that are more fuel efficient, less likely to be able to afford to live near the public transport that connects them to their employment and more likely to work shifts or at times when alternatives to driving are less feasible or attractive. 

Removal of the ARFT is notable as it is rare, anywhere in the world, to see a Government willing a scrap a tax on road use. It raises the issue as to how to pay for significant improvements to Auckland’s transport network beyond the capacity of the National Land Transport Fund (NLTF) which has its own issues of funding capacity to meet government objectives (highlighted in the NZTA Briefing to the Incoming Minister) and the political willingness of Auckland Council to increase rates.

When the previous Government held a Select Committee Inquiry into Congestion Pricing, many suggested that congestion pricing in Auckland could be used to replace the ARFT.  

Congestion pricing can’t replace the ARFT revenue in its entirety for some time

Congestion pricing clearly could generate some net revenues for transport in Auckland, but it is important to emphasise that while it can do that, for it to be effective in managing congestion, the net revenues need to be seen as secondary and not the primary objective. Designing congestion pricing to reduce congestion will mean it is designed to deliver net benefits to transport sector users, regardless of revenues generated and how they are spent.  This is how it has worked in Singapore and Stockholm, but it is not what has happened in London (certainly in the past decade or so) nor Gothenburg.

If it is to be assumed that the Government wants congestion pricing to be about reducing congestion and improving trip reliability in Auckland, it needs to be designed and implemented with that as the primary focus. If Auckland Council and Auckland Transport regard congestion pricing primarily as a tool to make up the revenue lost from not having the ARFT, it is at best going to be sub-optimal in addressing congestion at the times and locations where it is introduced, and at worst will deliver insufficient travel time savings for motorists resulting in a backlash against the concept, killing off congestion pricing in Auckland (and NZ) for many years to come.

The Congestion Question report, albeit now slightly dated (as the analysis was undertaken before the pandemic), indicated the likely net revenues from the short-listed congestion pricing options.  The most promising option was the “Combination” which would see introduction of a city-centre cordon scheme, along with pricing the strategic road network (motorways and parallel main arterials).  

The city-centre cordon was estimated to generate around $21m per annum in net revenues, which is far short of the around $150m per annum generated from the ARFT, so simply operating that scheme would do little for revenue, but of course it wasn’t designed to generate revenue, but to support reducing congestion entering, exiting and circulating within the city-centre.

Table 1 - The Congestion Question: Main Findings July 2020

The strategic corridor option was estimated to generate around $205m per annum, and assuming it would be introduced in combination with the city-centre cordon, there would be a combined net revenues of $223m per annum (the effect of one scheme would be to suppress some demand that would otherwise occur if only the other scheme was in operation).

The strategic corridor option cannot be implemented in full in one go.  The suggestion of pricing SH16 between Lincoln Rd and Te Atatu Rd, and SH1 between Greenlane and Ellerslie/Panmure is a feasible first step towards doing so, so it might be expected that the strategic corridor option is phased in over several years. Although these figures come from 2019, it is reasonable to take a conservative approach, as travel patterns in Auckland have changed somewhat since the pandemic. 

In short it means that the ARFT revenue cannot be quickly replaced through congestion pricing, assuming that congestion pricing is implemented with the objective to improve network performance as a primary goal, rather than revenue raising.

Key decisions

What matters now is how congestion pricing in Auckland is advanced.  There are some big decisions to be made on governance, rate setting and use of net revenues. These will have a significant impact on the likely success of pricing and importantly, public acceptability and durability of pricing as a policy. A key element is how much decision-making will be up to road controlling authorities and how much will be up to central government either politically or administratively, from which there are some big governance issues:

1. How will legislation enable congestion pricing? 

Will it be general empowerment, case-by-case scheme approval or something else?

Existing legislation around tolling essentially requires Cabinet approval on a case-by-case basis following recommendation by the Minister. This is suitable for toll roads, which are specific sections of road with rates set to contribute towards infrastructure cost, and so are unlikely to need to be varied much, except to take into account inflation. For congestion pricing, there is a need to have some variability and flexibility in implemention.  Detailed Orders-in-Council specifying precisely where pricing points are, their hours of operation and price levels are unlikely to be suitable for effective congestion pricing.

An inner-city cordon may need some minor variations in the location of pricing points, and both the hours of operation and rates set will need to vary to manage demand effectively (and avoid pricing traffic during times of low demand).  Pricing, after all, works best in all sectors when it is flexible. History tells us that when prices are heavily regulated for goods and services, especially when pricing is intended to send signals around demand and supply, that it distorts usage, whether by underpricing demand (which is the status quo) or in overpricing (and reducing economic activity in an area).

However, caution should be exercised in simply providing general empowerment for road controlling authorities to implement pricing under certain conditions. International experience indicates that congestion pricing is very difficult to implement, primarily because it is easy to quickly undermine public confidence in the concept and the details of any scheme, resulting in overwhelming resistance and pressure to cancel. This has been seen in several occasions, notably Edinburgh, Manchester, the Netherlands (multiple occasions), Helsinki, Copenhagen and London (with removal of the Western Extension of the congestion charge). 

This is not to say that Auckland Transport, Wellington City Council, Christchurch City Council and Tauranga City Council couldn’t implement congestion pricing, or indeed NZTA, but it’s also worth remembering that when congestion pricing fails, it tends to kill the idea politically for many years. Edinburgh rejected congestion charging in 2005 after five years of development, and is only now again looking at the concept. Manchester rejected it in 2008, after considerable design work over the previous two years, and has no interest in reconsidering it.  Although many trump London as a success, the London Congestion Charge was expanded once and that expansion was rolled back three years later in 2010, and even today there is only talk of more congestion charging for the city (don’t mistake the Ultra Low Emission Zone, for which 97% of vehicles are exempt from paying, for congestion charging).  Local authorities are subject to the political whims of elections every three years, and given the timeframes needed to implement pricing, there is considerable risk that pricing could become a serious political issue if not managed effectively.  Bear in mind no NZ local authority has implemented road pricing before, and only Tauranga implemented tolls (albeit some years ago).  There are a long list of implementation risks that if not managed well could undermine congestion pricing not just in the first city that tries it, but in all others. 

Note also that despite the UK having had legislation generally empowering local authorities to implement congestion charging, only one outside London has actually done so: Durham. The Durham scheme was introduced before London’s and is in effect a small charge on driving in the tiny historic centre of the city.  Empowerment of local government to introduce congestion charging in the UK has largely failed, as none have had the political courage to do it, and of those that tried, they have proven incapable of developing and communicating a pricing scheme that would obtain adequate public acceptability. Indeed, the repeated failures of Edinburgh and Manchester to implement pricing has almost inoculated most councils to implementing it. Most recently it is Cambridge that has attempted to introduce pricing and, in no small part to the design it chose, it has repeated the examples of the other cities in generating enormous opposition to congestion charging for that city. 

Although it is possible to conceive of congestion pricing concepts for Auckland and other cities that do not charge the state highways, excluding them from any scheme is likely to be sub-optimal in managing traffic in those cities. Both Auckland and Wellington could have a “first-stage” pricing scheme implemented in the form of inner city cordons without pricing of the state highways, but the “second-stage” would inevitably need to include them. It is also critical that any road pricing scheme not negatively impact the state highways. In all cities congestion pricing is likely to be more effectively managed if undertaken jointly between NZTA as the State Highway manager and the relevant territorial authority managing the local network. 

For example, in Auckland, this means ensuring SH16 to the Ports of Auckland functions well. Of course if the first scheme in Auckland is actually to price segments of SH16 and SH1 as the Mayor of Auckland proposed late last year, then it is inevitable that it be undertaken jointly, as Auckland Transport does not (and should not) have the powers to price roads it does not manage.

The first congestion pricing scheme in NZ is likely to be in Auckland, so it is critical that it is designed to be effective without being punitive. It needs to have sufficient flexibility as it is introduced to make small adaptations quickly if motorists respond in unexpected ways which cause issues (such as congestion on alternative routes. There should be measurement of performance, in impacting travel times, trip reliability, net revenue collection and compliance, as well as wider economic, social and environmental impacts. London undertook such analysis for its first five years of operation. This is critical in building data on how to expand and adapt pricing and to mitigate any negative impacts.

It is far too risky to simply leave all of this up to a single Council without the necessary experience, particularly if its incentives are more around revenue collection than traffic management.

Auckland congestion pricing should be a joint NZTA/AT project. The Auckland Traffic Operations Centre is, for logical reasons, and this should follow on from that. It doesn’t matter if the first scheme in Auckland is a city-centre cordon or a strategic corridor, as the second scheme will be the other. NZTA is already expanding and renewing its tolling back-office system, which could provide the platform to deliver congestion pricing, although it will need to have a significant uplift in capacity for customer service.  

2. How is rate setting to be undertaken, and reviewed and updated over time? Is there going to be regulatory oversight to it?

To be effective in managing congestion, congestion pricing in NZ should follow the Singapore approach of setting prices to ensure a minimum throughput of average speed on priced roads, with the ability to review and revise (up or downwards) such prices on a regular basis. Singapore does it quarterly, with no regard at all as to whether it impacts net revenues positively or negatively. A similar approach would ensure traffic impacts are optimised, and public acceptability is as well. Having shoulder as well as peak rates, so that the price is not simply $0 at 0630 then $5 at 0700 will be important to avoid bunching of traffic before pricing kicks in, and to spread demand. This is not practicable if rate setting is done by Cabinet, so this needs to be devolved to a governance entity which is empowered to vary rates (with perhaps a cap applied), with some regulatory oversight over time.  In due course, multiple pricing systems in different cities ought to have an economic regulator ensuring that road controlling authorities are looking after the interests of consumers both in the prices they set and how they spend the money. 

3. Who decides what net revenues are used for?

In the UK, legislation determines that net revenues from congestion charging are used on local transport spending. In Sweden, central government decides in partnership with local government how net revenues will be used, and in Stockholm it was initially focused on funding a major highway project, and has since included funding for public transport projects. Oslo similarly has used revenue from its toll ring (which resembles a congestion pricing scheme although it is primarily designed for revenue) for various blends of road and public transport projects, but again, this was determined by central government in collaboration with local government.

If revenue is being raised from state highways, it may seem appropriate for NZTA to decide, following guidance from the Government Policy Statement. If raised from local roads, it may seem appropriate for the territorial authority to decide, albeit it would seem difficult to get public acceptability for pricing if such revenue were used for non-transport purposes or on projects or activities unrelated to those subject to pricing. There are clearly a wide range of options on how net revenues might be used such as supporting spending on capital projects or offsetting rates revenue for spending on local capital projects or local road maintenance or public transport subsidies. A more innovative solution would be to pay a dividend to Auckland householders from congestion pricing, but this seems unlikely given the pressure from the Auckland Council and Mayor to find sources of revenue to spend on transport projects (and the Government is also interested in funding some of those projects as well).

What comes first though is who makes that decision. Compared to many other issues related to road pricing, relatively little thought has been given to this.

One chance to get it right

There are other issues of a secondary nature. Clearly the question as to what the first road pricing scheme in Auckland should look like is critical, but before that there are decisions on governance that are needed that haven’t been adequately canvassed, because they are difficult and controversial.  However they are needed soon, because until they are determined, progress cannot be made on detailed design, procurement and implementation of any congestion pricing in Auckland or elsewhere. It is possible for Auckland to be ground-breaking for NZ and indeed for many other cities with high-levels of private car use relative to other modes. However it is also possible for this to go badly wrong. For the last twenty of so years politicians have erred on fearing the latter, now NZ is on the cusp of making the last crucial step, they should address the remaining key issues and advance, bringing Aucklanders, and especially Auckland motorists with them. This Government has shown, by removing the ARFT, that it doesn’t see motorists as the enemy, it has the chance to show this further by implementing pricing in a way that, overall, delivers net benefits to them, and as a result net benefits to those who ride buses, bicycles and walk, and the businesses and communities they work and live in.

Many write about the successes in congestion pricing, few write or even know about the failures. Plenty of cities have advanced studies and developed proposals, and had the legal mandate to implement them, but pulled the ideas because of public backlash, largely due to key elements having either not been decided or having been designed in a way that doesn't deliver net benefits to those who pay. Auckland should not be on the list of failures.

17 December, 2023

Farewell Let's Get Wellington Moving

The announcement today that the new National/ACT/NZ First Government has reached agreement with the Mayor of Wellington and Chair of the Greater Wellington Regional Council on terminating the Let's Get Wellington Moving (LGWM) programme is going to be welcomed by most people in Wellington, with perhaps the exception of those working on the programme.

It had increasingly looked to the public like an expensive exercise with very little delivery, primarily reflecting its emphasis being less on addressing the transport policy issues most Wellingtonians sought to have addressed, such as congestion, public transport reliability and road maintenance backlogs, but rather a focus on reductions in emissions and supporting expensive projects to encourage private investment in housing on a strip of the southern corridor.  Bear in mind the total cost, to taxpayers and ratepayers, was estimated at $7.4b over 30 years. That was an extraordinary level of funding, but the primary reason for culling the programme was not about cost, but about objectives and delivery. One would have to have been well removed from much of the Wellington public to think that LGWM was not seen by most as being somewhat of a bad joke, for better or for worse. That wasn't the fault of those who did good work on the programme, but it was the fault of the Ministers who oversaw it and encouraged it to lose focus, and didn't take the public along with them.

Original purpose was lost

LGWM had its genesis under the previous (Key/English) National Government, originating from the bringing together of the Ngauranga-Wellington Airport Corridor programme for State Highway 1 (SH1), and the Public Transport Spine Study for Wellington.  It sought to bring together an integrated programme for transport in the city, based on addressing the issues around both (the state highway and public transport (PT))  key corridors.

For SH1 it mainly came out of the failed attempts to fix the Basin Reserve with the Basin Bridge, which would have linked Mt. Victoria Tunnel to the Arras Tunnel, and addressed much of the congestion at that site. It failed because of Mt. Victoria NIMBYism combined with the remainder of the Green Party led opposition to the Wellington Inner City Bypass (in its various forms). Some simply didn't want a solution to the problem, which is the need to grade-separate traffic in both directions at a busy and iconic location.

The Public Transport Spine Study (PDF full report) concluded that Bus Rapid Transit (BRT) was the preferred modal option and that the Golden Mile should be the primary public transport corridor. It recommended that implementation of BRT coincide with the necessary improvements to SH1, being specifically grade-separation at the Basin Reserve and a duplicate Mt. Victoria Tunnel and 4-laning to Cobham Drive. Indeed that study indicated that compared with simple bus priority or light rail, the highest benefit/cost ratio would come from BRT. 

LGWM emerged from all of that, and reopened the analysis and arguments, and was predicated on developing an integrated approach to improving PT through the city and SH1, and was changed radically following the 2017 General Election, under the influence of the Labour led coalition government with the Greens and NZ First. The significant influence of the Greens in this reprioritising of outcomes was instrumental in refocusing LGWM away from transport network outcomes, towards wider environmental and city shaping outcomes. 

The objectives reflected significant influence from then Associate Minister of Transport, Julie Anne Genter by prioritising emissions reduction and mode shift, followed by "enhancing urban amenity" and "enabling urban development outcomes" (more housing).

Let's Get Wellington post 2018 objectives

Efficient and reliable transport outcomes (which arguably are what many Wellingtonians sought) had the second-equal lowest weighting. Reducing carbon (not noxious) emissions as the top priority could not be achieved without a concurrent reduction in ETS units.. Arguably the goal of increasing mode shift (separate from the net impacts of this) is a focus on an input, not an output. The effect of this is to encourage policies to make car travel less convenient, slower and more expensive.  Mode shift is good if it reduces costs for users and taxpayers (financial and travel time) and/or reduces negative externalities (emissions, congestion), more than it increases costs. However, it was treated as a positive end in itself by LGWM.  In most cases, users are best placed to know what mode is best for the trip they undertake (or for goods they ship), LGWM was by design heavily weighted towards a more centrally planned approach to how people move.  This is what has been rejected by the new government.

Even safety had a relatively low weighting, which may be a surprise to some given the emphasis on safety oriented projects (e.g. Cobham Drive pedestrian crossing). However Wellington City, compared to other parts of the country is relatively safe in terms of fatal and serious-injury crashes, so that seemed appropriate, although there was a strong emphasis on improving perceptions of safety for cyclists in particular.

In short, LGWM became mostly a project about the environment and about encouraging housing (in a small part of Wellington), and not so much about improving mobility, let alone "Wellington moving". 

The effect of this reorientation was that it was no longer an objective to relieve congestion on SH1 (or other corridors) for general traffic. Relieving congestion would benefit car traffic, and cars were to be discouraged, and so their trips had to be slower and less competitive, relative to other modes.  Freight, including deliveries and commercial traffic was not important, as it was assumed that making driving harder and other modes easier would see modal shift, and the roads would be "freed up" for what were seen as legitimate uses of the network.  In any case, mobility of freight was not an objective.

Nowhere else in the world has such modal shift by enhancing other modes, relieved congestion without road pricing, and work on advancing congestion pricing in Wellington was stopped under previous Minister Phil Twyford, and little progress was made subsequently. 

State Highway 1 would have remained congested

Proposed work on SH1 was limited to a second Mt Victoria Tunnel to replace, not add to, the existing Mt Victoria Tunnel. The existing Mt Victoria Tunnel was to be converted to a cycling/walking tunnel (which while nice was overkill for the purpose), and the new tunnel would still have two-lanes for general traffic and two new bus lanes.  The new tunnel would be expensive given its proposed width, and it would mean no improvement to congestion for general traffic (but would have been an improvement to bus priority).

LGWM second Mt Victoria Tunnel proposal

The Basin Reserve upgrade was focused on enhancing PT between Kent/Cambridge Tce and Adelaide Rd.

LGWM Basin Reserve proposal

The Basin Reserve upgrade proposal was to continue constraining capacity to one lane each way from the Hospital/Southern Suburbs to SH1, but it has more significant shortcomings:

  1. It makes no provision for shifting SH1 south/east bound from Vivian St to a duplicated Arras Tunnel which would need to be grade-separated at Kent Terrace/Dufferin St to efficiently use the capacity from a duplicated Mt Victoria Tunnel. Wellington won't have an efficient bypass long term without a grade-separated bypass from the Terrace Tunnel to Mt Victoria Tunnel. Of course the LGWM objectives would mean reducing congestion on this corridor is not a key objective.
  2. West/northbound SH1 traffic would have the same number of traffic light controlled intersections as it does at present - the difference is the phases would be shorter and the route shorter.
  3. Traffic from Kent Terrace to Adelaide Road would have to travel WEST along part of Vivian Street to then turn left towards an extended Sussex St, further constraining the eastbound Vivian/Kent/Cambridge Tce intersection.  This would slow general traffic further.
Compared to the original emphasis of the Ngauranga-Wellington Airport Corridor Programme, there would remain major shortcomings. The Terrace Tunnel would remain a major bottleneck, particularly southbound.  Vivian Street in particular, but also Karo Drive would remain highly congested corridors for much of the day, and SH1 would continue to bifurcate Te Aro, with major intersections carrying high volumes of SH traffic, including heavy vehicles, at Willis, Victoria, Cuba, Taranaki and (eastbound only) Tory Streets, but also along Kent Terrace. LGWM would do nothing to fix the blight of what was meant to only be a "medium term" bypass, across Te Aro.

Finally, the Basin Reserve may have worked more efficiently for PT to and from the southern and eastern suburbs, but general traffic would still have suffered considerable congestion. The new Mt Victoria Tunnel would queue back to Vivian Street and beyond, and traffic from Adelaide Rd to and from Cambridge/Kent Terrace would see low to nil travel time savings.  

Whether or not the Cobham Drive pedestrian crossing was a good idea or not is moot, but it was telling that a programme that should have been about strategic level transport improvements for Wellington, was delivering minor projects that had little impact at low cost. If the crossing had merit, NZTA should have included it within the NLTP as a state highway project. It should not have been part of LGWM, even if it was thought to contribute to its outcomes.  The contrast with ATAP - the Auckland Transport Alignment Project - which brought central and local government focus on strategic transport funding together, was notable. Where LGWM ended and responsibility at WCC, NZTA and GWRC levels started was becoming blurred.

Gold plated PT without net benefits

By far the most significant element of PT for LGWM was light rail between the Railway Station and Island Bay.  This project offered no net economic benefits in transport economic terms and was dependent on heroic assumptions of intensification of land use to get a BCR of greater than 1.0.  The spine study was damning of light rail from an economic point of view.

In short, a single tram line, with bespoke infrastructure (electricity supply, catenary and tracks) has such an enormous capital cost (and the CO2 produced in building it), it simply isn't worth it at a NPV cost of $2.4b.  Although light rail would be on its own corridor from Courtenay Place to Rintoul Street, south of there it would be travelling with general traffic, and be no faster than buses are today.  Furthermore, light rail is not faster than buses at grade, and although it can be higher capacity, it is not worth the higher marginal capacity.  Bus priority with potential for BRT would deliver nearly the same capacity, with more flexibility because buses on multiple routes can use bus lanes or BRT corridors, providing better PT for a wider range of locations and users. 

Quite simple, for $2.4b all of Wellington could get effective bus priority where it addresses bottlenecks and capacity problems, and more likely for less.  Furthermore, it seemed unlikely Wellington would have a single light rail line in itself.  Was LGWM seriously suggesting a single line be all that is built in 30 years, or would it extend to Karori or Miramar as well?  Bus priority or BRT would support much more of the city having enhanced PT, with greater frequency and improved travel times. It is difficult to see how spending the same money on a single light rail route would achieve better net outcomes.

Beyond the light rail line is the question of improving PT priority through the city matters, but the Golden Mile project has been criticised for doing relatively little to improve bus service, because of the reduction in bus stops and the lack of locations for buses to pass one another.  However, that project as a whole has wider criticism around cost and impacts.

What is Wellington?

A wider critique was that LGWM was not about Wellington as a whole, which is true.  LGWM offered next to nothing for the region and would make little difference to improving travel from the region to major regional facilities such as Wellington Airport and Wellington Hospital.  As much as some may think otherwise, few travel by train then bus from Upper Hutt or Kapiti to the Hospital or Airport.

However, even in Wellington City as a whole, LGWM had limited presence. Its work on Ngauranga Gorge emphasised walking and cycling, which while it has a role, is not ever going to be the key modes of travel from the Northern Suburbs to the city and beyond.  Karori and the Western Suburbs have had little focus, when the Karori Tunnel is an obvious and ongoing bottleneck, not just for general traffic but buses and for cycling.  

What about the "new deal"?

The key components of "post-LGWM" deserve some scrutiny:
  • Central Government will fund and build a 2nd Mt Victoria Tunnel and Basin Reserve upgrade
  • Golden Mile upgrade will be delivered by WCC, which will need to improve cost efficiencies, "better bus routes", pedestrian access and closer engagement with local business
  • Accelerate bus priority along North-South, East-West and Harbour Quay corridors
  • Begin conversations on a city/region deal.
The second Mt Victoria Tunnel should be a parallel tunnel to the existing one (with cycling/walking facilities) enabling two lanes in each direction, along with 4-laning Ruahine St and Wellington Rd. It has to be built with grade-separation of the Basin Reserve, but it should not be the LGWM proposal.  

NZTA should review the Basin Reserve options quickly, and consider what options would best work by being future-proofed for a cut and cover bypass from the Basin Reserve to the Terrace Tunnel. That bypass need not be built yet, but it will be absolutely essential if there are proposals to take a lane each way off of the waterfront route.  It would also be important in providing a reliable route around the city if congestion pricing is to be introduced.  In short, the Basin Reserve is going to need SH1 going under and/or over Sussex and Dufferin Streets, whether by going deeper (which has significant geological issues) or by building an artificial hill to the north of the Basin Reserve under which a tunnel and bridge are placed through it and over Kent Terrace/Dufferin Street).  

NZTA should be planning for a second Terrace Tunnel and a cut-and-cover Te Aro Bypass after the Basin Reserve upgrade.

The Golden Mile upgrade ought to be staged, starting with Courtenay Place, and should proceed on the basis of it improving both mobility through the city and enhancing businesses in the CBD. If it makes sense to retain some car parking and more general traffic access, it should enable it. The improvements should be performance based, but what matters the most is that it should be cost effective and have net benefits to the city.  

Enhancing bus corridors should be welcome, but it should also be performance based. It should deliver net benefits across all network users. The Harbour Quay corridor (which simply doesn't exist yet) is a surprise, as it is only needed once the Golden Mile route reaches capacity, but more importantly it cannot be implemented without significantly reducing traffic along that route (by around 20-30%). 

To do that would require some combination of congestion pricing and fixing SH1 between the motorway and Mt Victoria Tunnel to take through traffic off of the waterfront. That means a second Terrace Tunnel, as well as a second Mt Victoria Tunnel and a grade-separated cut-and-cover Te Aro bypass.  To implement such a bus corridor along the waterfront before fixing that route, would reduce access between the region and the airport/hospital.

More widely, the latest version of LGWM bus priority was less focused on benefit/cost than on identifying locations where bus priority could be implemented.  It should be first focused on addressing bottlenecks for buses on congested routes and then on what is needed to improve capacity meaningfully.  

What should happen now?

With LGWM winding down, NZTA should develop a corridor strategy for SH1 through Wellington, which includes but is not limited to the Mt Victoria Tunnel and Basin Reserve. It should also, in consultation with WCC, develop an approach for congestion pricing for Wellington, albeit the timing of this should not be in advance of completion of the Mt Victoria Tunnel and Basin Reserve upgrades as a bare minimum. 

GWRC with WCC and NZTA should develop a bus priority strategy within the year, and WCC should rescope the Golden Mile improvements to be sequenced and to trial traffic changes before implementing the landscaping/amenity works that accompany them, to ensure impacts on buses and businesses are positive.

Longer term it is worth considering whether governance for transport across the region should be revisited.  Funding for improvements should be based on delivering net benefits for users, major corridors in Wellington that are NOT state highways should have strategies to address congestion and safety issues, and to enable more capacity that may be needed for more housing. This is particularly relevant towards the northern and western suburbs.

So it is farewell to LGWM. A lot of analysis has been done, much of it will be valuable in the coming years, but the programme as a whole won't be missed by most.  The biggest mistakes for the programme were in politicians letting its scope grow and changing its objectives, so it no longer was focused on what it was meant to achieve originally.  That loss of focus was what went wrong.  There was insufficient discipline on cost vs. benefit, and the growth of scope and change of objectives saw delivery lost, except on minor projects of little consequence.

That, as a whole, should be the lesson to government more generally about control on scope and objectives.

07 September, 2023

How far New Zealand's land transport funding system has fallen. Part 3: What could fix it?

To establish how to fix the land transport funding system you first need to define the objectives of the system, and what outcomes are sought.  At present the system largely leaves this to the Minister of the day, but should funding for maintenance of the road network be politicised? It is in multiple jurisdictions, such as virtually all US states and the UK (and effectively now, NZ), and it is a disaster. Indeed look at other infrastructure sectors and what role do Ministers have in deciding where capital investments are made?

For airports and ports, this is left pretty much entirely up to the Boards of the respective airport and port companies to decide, representing their shareholders (which for airports are typically a mix of private and public owners, and for ports are almost entirely regional council owned).  In both cases as well, airport and port companies finance capital investment from borrowing, and recover the costs of that investment from usage fees of their customers (airlines, shipping companies, but also for airports, retail concessionaires, car park users and other users).  It wasn't always that way.  Ports used to be Harbour Boards which were elected. Major airports as authorities couldn't raise capital readily, hence why Wellington Airport had a reconfigured De Havilland aircraft factory as its major airport terminal from 1959 until 2000, as central government and Wellington City Council pointed to each other as being to blame for not funding a new terminal.

For other sectors, such as electricity, again generation, transmission, distribution and retail is all commercialised, with pricing a mix of market driven for competitive sectors (generation and retail) and regulatory oversight (for transmission and distribution) as natural monopoly sectors. Once more, it is expected that consumers will pay for capital investment which is paid for by debt.  Again, this has served consumers well, balancing out the risk of gold-plating capital investments with the risk of underinvestment in maintenance and renewals.

Water is quite different. With the exception of Watercare Services (and that is for fresh and wastewater not stormwater), the sector is characterised by a great deal of underinvestment in maintenance and renewals, because territorial authorities are responsible. While some water services are corporatised within the bounds of territorial authority ownership, they are limited in their capacity to borrow, and although they may price use, most do not.  With direct political control of investment, as has been the case for many decades, New Zealand is reaping an enormous backlog of renewals, and the effects are seen with raw sewage emerging on some streets or unsafe drinking water.  Leaving aside the merits or otherwise of the Three Waters proposals, behind them is abject failure of having political direction in capital investment and renewals in water, and ever moreso, a lack of link between how water is paid for (which more often than not is through rates, not user charges) and the use of revenue raised for this.  

So political direction over day-to-day, core spending on the road network is unlikely to deliver and sustain the levels of maintenance and renewals needed that should be utterly uncontroversial. In fact, the system should encourage optimising the amount of spending on maintenance and renewals over the long term, so funding is available for capital improvements.  This is exactly why the system was reformed in 1993, because as Finance Minister, Ruth Richardson's first budget in 1991 slashed funding to Transit New Zealand, as the land transport funding agency, which saw maintenance spending cut significantly (and capital spending cut almost to nothing).  The effect of this was to generate a maintenance deficit that took several years to reverse, so from 1993 Transit New Zealand was guaranteed 97% of the funding it received the previous year, to acknowledge that most spending was, at the time, maintenance (and there was no hypothecation of road user taxes at the time).

Beyond maintenance and renewals, the system should enable efficient investments in improvements to the network that represent clear benefits to those paying for them, which ought to reflect not just benefits monetised in travel time savings and reduced fatalities and serious injury accidents, but also user preferences overall.  For example, in the 1990s it was very clear that road users wanted more passing lanes on rural highways, because one of the biggest issues was having journey times frustrated by significantly slower vehicles (and the risks a few motorists would take to overtake where it was not safe, risking not only them, but innocent people travelling the opposite way). The system should reflect those preferences and should seek to lower the costs of using the network, costs seen in travel times, fuel used and most importantly, from accidents, which don't only hurt those directly involved, but affect the resilience of the network due to closures.

As long as the funding system is dependent on what are essentially taxes on distance travelled, fuel used and vehicle ownership (RUC, FED and MVR) to raise revenue, and with such charges set nationally, then it is understandable that there will be an appetite for Ministerial direction as to overall strategy.  However, if that is likely to result in undermining efficient spending on the network (much of the useful spending is on small to medium scale projects costing <$50 million), it is preferable that funding to expand or enhance the network beyond what users are prepared to pay, comes directly and transparently from general taxation funding.  This would be subsidising capital expansion of the network, but it is worth noting that almost all capital spending on Kiwirail is exactly of this nature. Kiwirail is basically unable to raise revenue from its customers to the extent needed to significantly upgrade most of its network. If Ministers wish to use general tax money to subsidise enhancing the rail network, then it is reasonable to expect them to do it to the road network, although there ought to be a high standard of transparency as to the net benefit of such spending, to ensure taxpayers are not having their money shredded on poor quality spending, which they may prefer spent on other sectors, or simply returned to them in tax cuts.

While there are likely to be many options to reform the system, there are some characteristics of a better system that ought to be elements of any reform. Reform should reflect where the revenue comes from, how funding is allocated and how infrastructure is managed, so my thoughts are categorised along those lines.


Perhaps the biggest limitation of the current system is it doesn't enable pricing to vary in ways that can manage congestion, encourage more efficient vehicle use of the network and equally as importantly, send signals about whether future spending should be directed, based on demand.  No country has implemented a nationwide road pricing scheme that does this (although Singapore's Electronic Road Pricing system operates an excellent congestion pricing scheme that effectively manages congestion on the routes it operates on).

While New Zealand's existing Road User Charge (RUC) system is much more sophisticated than most road charging systems around the world (including Australia, the UK and most US states), half the vehicle fleet will still be on Fuel Excise Duty (FED) for some time. While together they form a useful system for user pays in the National Land Transport Fund (NLTF), the funding system should evolve towards pricing, set not by politicians, but by road managers, with suitable regulatory oversight. A system that requires Cabinet decisions on pricing is completely incapable of being responsive to changes in behaviour, and local conditions. Most other pricing elements in transport are not subject to such centralised control, so a goal should be to move towards better pricing over the next decade or so.

In the short term this should mean enabling more tolling and congestion pricing for major cities and reform of RUC to better accommodate a significant growth in the number of light vehicles. This should be led by an agency dedicated to charging road users and spending their funds on their behalf, with an interest both in efficient revenue collection and sending appropriate price signals. Longer term the system should accommodate road manager setting prices directly, and offering a range of options to motorists as to how they want to pay for road use. This has to mean pricing varying by location, whether by region, road type or demand, and time of day. 

Related to this is the role of ratepayer funding of local roads, including cycleways and footpaths. The Shipley Government proposed replacing ratepayer funding with full funding from RUC and FED, so that motorised road users paid for all roads (although not footpaths). Another option would be to replace general rates funding with fees charged for connecting private property to local roads (whether garages, driveways or car parks) and footpaths, supplemented by revenue from parking or leasing out road space for other purposes (e.g. outdoor restaurant or properties bought for future road expansion).  In any case, the current system limits the scale and scope of local road improvements, and should be reviewed.

Track User Charges charged by Kiwirail for use of its infrastructure should not go to the National Land Transport Fund, only to be returned to Kiwirail. These should be subjected to appropriate regulatory oversight and transparency, if only to ensure Kiwirail doesn't discriminate against potential rail-based competitors, but there is no reason to blend rail and road user revenues.  If Government wants to subsidise rail, it should do so much more transparently and directly.  Kiwirail should set Track User Charges with regulatory oversight, and if it is not structurally separated between infrastructure and service provider, it should be subject to robust information disclosure requirements supervised by either the funding agency or the Commerce Commission (as is done for airports).

Finally, given current political commitments to several large road and public transport capital projects, Crown funding for projects that are not able to be supported or financed from the NLTF (after maintenance and spending on higher net benefit capital projects) should be entirely separate.  The funding system should prioritise maintenance, operations and the highest value capital projects first, which might include some politically identified projects anyway, but if not, then the funding system should clearly identify how much money has to come from general taxation to support politically determined projects.  There is alway the risk that such projects get cancelled after changes in Government policy, but this should not undermine maintenance or other capital spending supported by road user revenue.

Related to pricing of road users, is pricing of public transport users.  There should be a clear basis for the proportions of cost recovery expected from public transport users through fares, the proportion to be supported by road users (because public transport can benefit road users in specific circumstances), the proportion to be supported by local ratepayers (recognising that property owners may benefit from public transport services) and any funding from general taxpayers (for social based policies, like concessionary fares). Road users should pay for road user benefits. Passengers should pay for private benefits, and anything else should be transparently paying for either social policy (targeted subsidies) or advancing urban form and property development (rates).


Long term the funding system should mean road managers charging customers directly and maintaining and developing road networks by being responsive to the needs of users. This also includes maintaining and developing alternatives to roads, in the form of efficient public transport, cycling and walking infrastructure and freight alternatives such as rail and sea freight, with the emphasis being on efficiency.  Maintaining and developing such projects should be based on a robust appraisal of the likelihood to attract traffic from the roads, reducing congestion and other externalities. 

This means applying principles of economic efficiency to reducing travel times, improving trip reliability, improving access and reducing negative externalities (particularly reducing fatal and serious injury accidents, but also reducing environmental impacts). By applying economic efficiency it means that revenue from road users is directed first to activities that mean the network is efficiently maintained, and improvements have net benefits to users and society as a whole. Until road pricing enables road managers to be funded directly from customers, the funding system should buy road services on behalf of motorists based on proposals from road managers. 

To enable this, the funder should be separate from road managers, so that the funder can manage the NLTF prudently and audit the performance of road managers in managing maintenance. This should also include funding, as appropriate, large scale renewals and long-term performance-based maintenance contracts if they minimise life-cycle costs and optimise performance for road users (minimising potholes and maintenance requirements).  This should be outside any political direction or interference. Similarly, the system should allocate remaining NLTF funds on the basis of economic appraisal that values what road users value, being travel time savings, reducing fatal and serious crashes, improved trip reliability and lower vehicle operating costs.  This should be driven by road managers seeking to enhance their networks for their customers.  Output classes defined by the funding agency for road maintenance and capital improvements, and then funding of alternatives to roads for public transport, cycling, walking and other modes if they generate net savings for those paying into the NLTF.

A long standing flaw in the current funding system is the insufficient use of debt financing to spread the cost of capital projects across their depreciated life. While PAYGO is a suitable tool for funding maintenance and operating subsidies, finance should be the tool for most capital investment. To enable this either the funding agency should be empowered to borrow against future road user revenue, or road managers should be structured to enable them to do so (which would require the funder to guarantee a flow of revenue to the road manager). For Crown funded projects, this will mean the Crown providing the cashflow for such projects.

The end result should be that (leaving aside how the local share, if any, of local projects is funded) road managers, and public transport authorities are funded from the NLTF for activities that deliver the greatest benefits to road users.  For activities beyond the capacity of the NLTF to fund, the Crown can step in to inject funding for specific categories of projects, which would not push aside the priorities of the system more generally. The Minister could not defer or cancel road or public transport projects or maintenance to redirect funds to a pet capital project, but could only seek funding for a pet project from the standard budgetary process. That keeps funding transparently separate from the core land transport funding system. It means that network maintenance cannot be neglected, nor can long-planned for, high-value capital projects be deferred out of political whim (though they may be deferred due to cost-escalation or if changing demands reduce the net benefit of such a project). 

If National or Labour are elected and want to build project A or B, and these are not already provided for in the NLTF, the choices would be to either check with the funder as to whether increases in existing motoring taxes would make such a project fundable (along with many others), or to simply grant general taxpayer funding for such an activity (taking advice from the funder and the relevant infrastructure manager as to its impacts on other projects). Of course a similar option is available to local authorities who want to fund projects outside the NLTF altogether, with ratepayers' funds.

In short, it partially returns the system back to where it was pre-2008, but with clarity and transiency between what is Crown funded and what is not.  Ministers may choose to fund more, but they could do cancel projects that the road manager wants, that is assessed as being efficient and a good use of NLTF funds by the funding agency. 

Finally, Kiwirail should be taken out of the NLTF land transport funding system, as an infrastructure provider. Although there should be transparency and oversight of Track User Charges, there is no clear public policy reason why Kiwirail should be paying Track User Charges into the NLTF and then receive funding back from it. Where Kiwirail should be, is where road manager ought to be in the medium to longer term. It sets charges for users of its infrastructure, with regulatory oversight, and receives revenue from them to maintain and develop its network.  If Ministers want to fund greater levels of capital investment, or to subsidise maintenance, it should come directly from general taxation, and be an explicit subsidy. It may be preferable to simply subsidise services and include the full cost of infrastructure maintenance and upgrades through such subsidies, so Kiwirail could not submit proposals for capital projects without assessing the expected revenue from customers to pay off debt accrued for such projects.  The NLTF funder could have a role as economic regulator of Kiwirail, or such a function could go to the Commerce Commission.

What about funding of public transport, cycling and walking infrastructure?  This could be split into three sources (on top of fare revenue):

  • NLTF funding for projects and activities that deliver net benefits to motorised road users, shared with local authorities according to the proportion of such benefits attributable to road users;
  • Separate Crown funding for projects that deliver net benefits to the community at large (such as encouraging housing development, or the health benefits of active modes), which may be shared with local authorities depending on the type of project and objective;
  • Local authority funding for projects to be funded from ratepayer and other local authority resources for purely local purposes.

Implied in these suggestions is some significant structural reform of the sector. Waka Kotahi/NZTA's existing functions may be divided between two or more entities. Certainly State Highway management should be separated, into a corporate structure as seen in England and Austria.  The funding and regulatory activities may be split or retained in a single entity.

Road (and rail) infrastructure managers should be statutorily required to maintain, plan and develop their networks to be user responsive, economically efficient and to reduce negative externalities within the bounds of the first two principles. They should be encouraged to be innovative in maintenance, design, contracting and operations, and to use technology to improve productivity, efficiency and safety.  For local road managers especially, the system should encourage consolidation of road managers, to achieve not just economies of scale, but a critical mass of capacity, capability and experience in management and contracting.  There should be fewer road managers, but they should be more efficient and dynamic, and the funding system should either incentivise or require establishment of structures that reflect this.  Local government could be encouraged to develop proposals to consolidate road management across regions, to deliver efficiency savings in maintenance and better standards of performance, and enable entities with capacity to borrow against future revenues.  If local government cannot come up with appropriate options within a couple of years, central government should develop them for it.  

As for public transport authorities (mostly regional councils plus Auckland Transport), a major focus should be on planning and contracting the delivery of services to customers. Consideration might be given as to whether regional councils are the right entities to plan and contract for public transport, when many of the less metropolitan ones are primarily water-catchment and rural environmental management agencies.  There needs to be more accountability for performance, more responsiveness to users and better capabilities in contracting, and where relevant, asset management. For example, shouldn't Greater Wellington Regional Council be developing the land over suburban railway stations? If not, should the assets be transferred back to Kiwirail to do this, or to a separate infrastructure management entity? 

Other options?

The old Transfund, Transit model had some major limitations. In particular, it couldn't debt finance major capital projects, it did not incentivise better pricing, and was constrained in its capacity to fund larger projects, but it did ensure greater scrutiny on spending and was less amenable to political redirection of funding away from maintenance.

The Better Transport Better Roads proposal from the late 1990s would have transformed the road sector, by corporatising road management and enabled road companies to contract out of nationally collected motoring taxes. However, it did had significant pushback from local government, and did not have a sufficient strategic vision for how public transport would fit into a future before road pricing was widely introduced.  It was clear that public transport in Auckland and Wellington needed significant capex and it did not sufficiently enable it.  However, it would be entirely possible to reform road funding and management, and maintain public transport funding as part of a separate system.

What isn't a good option is to retain the status quo. Whatever the next government does, it shouldn't simply amend the GPS, it should rather develop a revenue, funding and management structure for roads, and for public transport, that is economically sustainable, and delivers better outcomes for users.  The only economic infrastructure that appears to be worse managed is the water sector, largely because it has for so long been left to local government to do largely what it wanted, with accountability solely vested in local politicians.  

The time for tinkering is over.  New Zealand has had 15 years of highly politically driven land transport funding, and the results have been mixed, and the end state today is a system that is less efficient, less dynamic and financially overstretched.  It's time to take its core (the NLTF) out of the hands of political horse trading, let politicians choose to add funding from general taxes if they so wish, transparently and accountably, and let the system be built primarily by what users pay and want, and only topped up by what politicians get a mandate to add.

Perhaps a National/ACT Government would see a few more major state highways built, or a Labour/Greens Government a few more railways and some light rail, but in neither case should it be at the expense of road maintenance and a long-term programme of efficient capital improvements to the road network, based on road managers developing comprehensive corridor strategies.