Friday, May 25, 2007

Removing accountability for highway funding

What do you do when a Crown Entity isn’t performing? Do you fire the Board, do you require its funding body (which is meant to be at arms length and independent from the other entity) to hold it to account? Do you stop telling it what to do, which overrides its usual processes for determining how best to perform its tasks? No – if it wastes money, you merge it with its funding body – so that it doesn’t even need to justify to another entity what funding it needs – it can fund itself!
That is the main announcement by the Minister of Transport with the “Next Steps in the Land Transport Sector review”. It wont result in more efficient outcomes, it will result in the abolition of a structure that has been touted around the world as being a leader – what it will mean is that Transit will no longer need to bid for funding for its projects – it will simply ask itself, and local authorities will need to ask Transit. Transit Chief Executive Rik van Barneveld must feel burnt perhaps as much as former Land Transport Safety Authority Director David Wright, when LTSA was abolished, largely because of ongoing political disenchantment with its performance. Now Transit is in the gun, and while not blameless, it is more the fault of Ministers who would not let the system do what it is meant to do – Minister much prefer to meddle and interfere. Van Barneveld must wonder what he could have done, as he has been adept in responding to Minister's calls, and he is far removed from David Wright, who had little understanding of how much the LTSA was hated by the public, and how much Ministers were concerned about this.
The announcement today that the government wishes to merge Transit New Zealand (which is responsible for operating the state highway network) with Land Transport New Zealand (which allocates funding to Transit and all local authorities for land transport) will be a disaster. You see, Transit and Land Transport NZ WERE the same entity until 1996 – it is the reason Transit has the name “Transit” which everywhere else in the world means “commuting”, because Transit used to run the state highways and allocate funding to, well, itself and local authorities.
The problem before was that, as is unsurprising, if you are a funder and a provider, you’ll fund your own activities first, and treat the bids for funding from the 85 local authorities as secondary. So Transit was split, and Transfund was set up as a specialist independent funding body. Transfund has since been merged with the Land Transport Safety Authority to become Land Transport New Zealand. However, in recent years Land Transport New Zealand/Transfund has been less than proficient at holding Transit to account for its spending decisions. Why?
Firstly, contrary to official advice, Labour has refused to remove common board members between Transit and Transfund/Land Transport New Zealand. Jan Wright and David Stubbs were until recently, Chairs of Land Transport and Transit respectively, but also sat on each others Boards. Garry Moore incredibly, as Mayor of one of the local authorities that bids for funding from Land Transport New Zealand, is on the Board of Land Transport New Zealand AND the Board of Transit. Now this isn’t intended to cast aspersions on any of these people, but how can you expect Land Transport New Zealand to hold Transit to account, when it has common board members.
Furthermore, the ability to hold Transit to account has been severely compromised by Ministers telling Transit what they want. Transit isn’t simply sitting back and evaluating what projects need building, it is getting political direction that Ministers expect certain projects to proceed because Ministers think they are a good idea. Of course when there are political expectations, costs go up and when contractors understand that there are political expectations, they ask for whatever they want from Transit – then Transit asks Land Transport New Zealand, and it is also expected to fund what Ministers want (even though legislation is meant to ensure Land Transport NZ is statutorily independent from Ministers).
One of the criticisms of Transit has been that costs have got out of control, when in fact, this is the fault of a combination of:

- the Land Transport Management Act (blame Labour, Greens and United Future) for encouraging expensive “green plating” of road projects;
- Land Transport New Zealand for not being pro-active in disciplining Transit as to how much project scope creep should be limited;
- Ministers who wanted projects progressed with little regard for cost;
- Transit itself, when statements were made that projects should be progressed “regardless of cost” (in reference to Transmission Gully), in addition if Transit was unhappy with either Land Transport NZ or the Ministry of Transport’s monitoring, it would meet with Ministers directly. Indeed, government appointed board members would always have direct access to Ministers, overriding the independent advice of officials.
- the Clark Labour Government attitude to official advice that went contrary to policy, which tends to suppress the “free and frank” expression of views that officials are meant to be able to share. In this environment, telling Ministers that the people they have appointed (e.g. the President of the Labour Party) are not doing their job properly would have been a CLM (career limiting move). The introduction of a regional fuel tax is a classic example, it failed miserably in the past, but Ministers did not want to hear advice on this.
By contrast, what should happen is that Transit is entrusted to manage the state highway network, identify problems (congestion, safety, inefficient routes) and prepare a programme of works, evaluated on the basis of cost and benefit, and present these to Land Transport NZ for funding. Land Transport NZ should, when looking at Transit’s programme and the programmes of the 85 local authorities, prioritise spending across them all – with reference to the government’s strategic transport objectives.
In the past, when economic efficiency was the primary measure of spending on roads, in most cases the best projects, for the money, were implemented. There was a tendency to be risk averse and not advance more expensive, high risk urban road projects, prioritising rural realignments and the like. However, by and large, the system did ensure high value for money, and kept control of costs. It was helped by any increases in funding being rather discreet and progressive.
Today, economic efficiency is only one factor in deciding what roads to build, and Labour has increased funding for roads many many times over, at a rate which has been inflationary. In short, Labour has so dramatically increased funding that Transit has been stretched to get things going – and that stretching has meant more staff, more contractors and the contracting industry demanding more and more to meet demand. You don’t go from having only two large road projects under construction in Auckland at any one time to eight without the cost going up. ^
In addition, as Labour has demanded that certain projects “must” proceed, then contractors understand the market when the government isn’t going to say no. In the past, plenty of projects were delayed because detailed investigations saw the costs skyrocket, putting discipline on those costs and seeing funding go elsewhere for more worthwhile projects – now everything is going to get built.
The only bright side of the announcement is that all fuel tax revenue will be dedicated to the National Land Transport Fund. This should be welcomed, and in fact is simply applying 2005 National Party policy. The other point to note is that National Spokesman Maurice Williamson has it dead right – which also should be welcomed. Maurice should know what he is talking about, he was the Minister who split Transit up in the first place! Kudos for Maurice for taking a responsible stand on this.
The Greens will like this, because they don’t really believe in financial accountability and economic efficiency and will hope that Transit’s road engineer culture will get watered down – when they should be considered that the new entity will prioritise state highways over everything else. The Greens have long hoped they could dramatically change transport policy, they have, as well as presided over the biggest road building programme New Zealand has seen since the 1960s. I suspect that Peter Dunne wont care as long as Transmission Gully gets funded (since it is his own pet piece of prime pork), and neither will Winston care as Harbour Link (Tauranga's second harbour bridge) has already been funded (Winston's pork).
Personally I like the idea that Transit be made into a state owned enterprise and its gets funding from Land Transport NZ based on a per km payment for all the traffic on its network (based on fuel tax/road user charges) and then spends the money on its network. Then motorists can contract separately with Transit (opting out of road taxes) to use its network.


Anonymous said...

It was the first Labour government that implemented 100% user funding for State Highways. Every subsequent Labour government has refused to do the same for local authority roads, in fact the rate of subsidy has been stuck at dollar-for-dollar since the second Labour govt despite the dramatic increase in traffic volumes.
It doesn't matter what organisation controls the fund, they have no legal authority to treat Transit the same as other roading authorities, nor can they set their own prices for road use, since parliament regulates those.
The other main reason for cost increases is Labour's use of its performance agreements with Transit and Transfund to circumvent the independence of these organisations in order to shift funding priorities from rural safety improvements to urban congestion projects, hence pushing up costs per km of work. Raw material costs and OSH costs seem to be the main culprits for the increase in maintenance costs per km.
Note that the performance agreements are are covered by schedules to the TNZ Act and they can include "negotiated" minimum or maximum funds for various output classes or even specific projects acn be exempted from normal BCR requirements. Cabinet appoints the Board members then negotiates the performance agreement with them. Pretty easy for Cabinet to get what Cabinet wants.

Libertyscott said...

Well, the cost of the urban congestion projects increased many times over, and that is a combination of:
- Scope creep under the LTMA, encouraged by Transit;
- Cost of materials and skilled labour (massive overexpansion of road building beyond ability of industry to respond efficiently);
- Ministerial insistence that certain projects proceed regardless (sending a signal to industry that there was no funding cutoff);
- The end of BCR as the primary funding rationing appraisal tool because of the decrease in the status of economic efficiency in the LTMA as a funding criterion.

In short, government stuffed up by increasing funding for roads at an excessive rate, and removing cost disciplines, and reducing the means for LTNZ/Transfund to hold Transit to account. Now it will be worse.