Perhaps the most significant news in transport policy out of the Government in the past few weeks has been the rescheduling of the Roads of National Significance (RoNS) programme, largely because the sheer scale of the proposed projects is neither affordable nor even practical to start building within the next three to five years at the very least.
The funding part was highlighted already by the Infrastructure Commission, in that to cover that spending, fuel tax and road user charges would have to increase by 70% (and then keep pace with inflation). The odds that any government could expect to be re-elected after increasing petrol tax by nearly 57c/l (including GST) aren't good, so something needed to give.
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| Deficit between user fees and planned land transport spending |
The bigger problem is that even if road users (across the country) were forced to pay more to drive, there isn't the construction capacity to embark on multiple large highway projects in a handful of regions all at the same time. Historically, one or at most two large road projects would be underway in the most populous regions from the late 1970s through the 1990s. For example, in the late 1990s the biggest project in Auckland region was extending the Northern Motorway from Albany (Greville Rd) through to Silverdale/Orewa. Maintaining that steady flow of construction ensured that capacity, in both skilled people and equipment, were kept reasonably busy, helping to manage costs. In the late 1990s as spending was ramped up, it was carefully managed so that it didn't unreasonably exceed the capacity of the sector to hire people and obtain equipment. A bit of a far-cry from the start-stop political cycle of today.
This capacity issue is also more regional and more specialised that simply the numbers of professionals and construction equipment/materials nationwide. There needs to be a base level of capacity spread across regions, primarily for maintenance and renewals, but also emergency work to clear slips and rebuild damaged infrastructure. For larger projects, it makes sense to sequence projects to follow one another to minimise costs. Another element is specialised equipment and skills. Tunnelling is sufficiently rare in NZ that if there is to be construction of a series of major tunnels, then such projects should be in sequence so that some of the same equipment and certainly the same technical skills can be kept occupied and new people trained. At the moment, the biggest tunnelling project is the City Rail Link in Auckland, although those tunnels are essentially completed now. The next one seems likely to be the Warkworth to Te Hana motorway's Dome Valley tunnel at 850m long. That will the largest road tunnel project since the Waterview Tunnel, and it may be reasonable to assume that no other large tunnels would commence construction, at least in the upper North Island, until it is nearly complete.
So given the lack of money and lack of capacity, what has been done?
The RoNS of the Luxon Government have been rescheduled. Wisely it has decided that raising fuel tax and RUC nationally so people in Southland pay for roads in Auckland and Wellington isn't exactly fair nor efficient. Tolling can tickle the sides of some of the projects, but in almost no cases can it ever recover more than 10-15% of the construction costs. Useful, but nowhere near enough to pay for these projects, plus tolling tends to divert a portion of traffic away from the new road to the previous route, meaning some of the benefits of the projects are diluted.
The infographic shows the results. The first page shows the projects that are either under construction (including Roads of Regional Significance and some other projects):
There is quite a range of projects here in Northland, Auckland, Waikato, Bay of Plenty, Hawke's Bay, Manawatu, Wellington, Canterbury and Otago. These are the ones we KNOW will proceed, with Warkworth to Te Hana SH1 being by far the largest. That project alone covers 26% of the distance from Warkworth to Whangarei.
The remainder are unfunded at present. These include the extension north of the Christchurch Northern Motorway, the Hope Bypass near Nelson, the upgrades to SH1 in Wellington and notably the remainder of the expressway to Northland, including bypassing the Brynderwyn hills (although that element is in the pre-implementation stage so may be likely to follow Warkworth to Te Hana).
All of this is a function of excessive political ambition, budgetary incontinence (outside land transport) that still hasn't been overcome, and a system of funding that puts inadequate discipline on costs and scope.
It might be too much to hope that the politics around this might dissipate if there is a change in government, not least because there is little concern from the other side of politics about cost blowouts for City Rail Link (I suspect Greater Auckland blog and the Greens couldn't care less about that, because railways are "good"), or the $1b earmarked for a railway branch line to the Port of Marsden Point. The latter is a boondoggle easily worse than any of the RoNS projects. Its Benefit/Cost Ratio has been massaged to a "happy ending" under the Ardern Government based on wild assumptions of a massive transfer of freight to rail, which needs another $1.3b spent on the North Auckland line to make it even credible. That took a BCR of 0.32 to 1.19 in an exercise of what some might say is economic assumption alchemy (also known as a government commissioned business case). However, that's Winston Peters that set up the circumstances calling for that, and is one of the "costs" of that coalition (to taxpayers of course). There is a good reason to debate
However, what is the point of the RoNS in the first place, and what should be done about them?
Background
I understand why the Key Government set up the Roads of National Significance (RoNS) programme, largely because for the previous twenty years or so there had been little capacity in the land transport funding system to fund large transformative road projects.
That’s because New Zealand has predominantly funded roads and land transport infrastructure on a very different basis compared to energy, telecommunications, aviation and port infrastructure (since the 1990s), by relying on cashflow of taxes on motorists, rather than borrowing against revenue from the provision of those services to end users. With a handful of exceptions (mostly the old generation toll roads, like the Auckland Harbour Bridge and Lyttelton Tunnel), the system is funded from PaYGO (Pay As You Go), meaning new capital is paid for from existing users, whether or not they ever use the new infrastructure. Future actual users of that infrastructure pay the same as others, but the money they contribute goes to build more new capital and to maintain the existing network. PaYGO is fine for maintenance and renewals but is far from ideal to fund large capital projects, mainly because the capacity to pay for such projects depends on cashflow during the project’s lifecycle. Unless there is enough cashflow over the several years of building the project, it is difficult to pay for.
There has been an increasing use of borrowing against that cashflow, whether to support PPP or Crown borrowing, but it remains the exception rather than the rule. That’s because roads are not run as a business, but a government operating function with some business characteristics.
RoNS was a way to direct significant amounts of that cashflow to big projects, sidestepping a funding system that was very well suited at funding maintenance, renewal and high value small to medium sized projects (those with capital costs <$100m all up), with large projects only proceeding if they had exceptional net benefits. Such exceptional projects included most of Auckland’s SH20 and SH18, the extension of SH1 from Albany to Puhoi, and much of the Waikato Expressway.
Listing specific mega-projects saw the National Land Transport Programme directed towards funding those projects alongside other activities. However, that isn't without risk.
Leaving aside the obvious risk that a political selection of projects may see poor quality projects advanced, there were two bigger issues:
• RoNS projects displacing more valuable lower profile projects that, collectively, would benefit road users more than the RoNS (for example, the Melling Interchange should have been built 10-15 years ago);
• RoNS projects facing higher cost escalation because they were politically inspired, and both official and contractors were much less concerned about managing commercial risk that the project would be cancelled, or scope managed downwards due to cost.
Few would argue today that Transmission Gully shouldn't have been built, although Greater Auckland blog campaigned heavily against what it childishly called the "Holiday Highway" from Puhoi to Warkworth, few would say it wasn't worthwhile now. Likewise, finishing the Waikato Expressway has saved lives and significantly improved access from the Waikato to Auckland, and from the Bay of Plenty.
Of course RoNS would never have happened had the Clark Government not removed two key elements of the land transport funding system set up under the reforms of the previous National and Labour Governments.
Why did it go wrong?
From 1996, Transfund was a Crown Agency set up as an independent funding agency. It was solely responsible for managing the hypothecated fund paid for out of the motoring taxes and spending it in a way that essentially maximised benefit to those who had paid. It was a user pays system by proxy. The Transfund Board was meant to use funds to pursue a safe and efficient roading system, so of course it prioritised maintenance, renewals and resilience, and then improvements of high value.
It was not the “end-point” of reforms, but a stage towards a system of full user-pays. Transfund was limited primarily by Parliament’s (essentially the Government’s) decisions on the rates for motoring taxes, and it would advise Ministers as to what could be paid for with what levels of taxation. When set up, the levels of motoring taxes enabled funding of maintenance and renewals, and new capital projects with a minimum benefit-cost ratio (BCR) of 4:1. That was a pretty high threshold for new work, but at the time there was no shortage of worthwhile projects at that level.
Merge funder and provider
This was all scrapped in two stages. First by merging Transfund with the Land Transport Safety Authority – which had been mainly responsible for running the motor vehicle and driving license registers, commercial vehicle operator licensing and managing land transport safety promotional programmes.
Secondly by merging that new body (Land Transport New Zealand) with the state highway manager Transit New Zealand. NZTA was born, as a land transport funder that was also its biggest recipient, as well as a safety regulator and administrator of major systems associated with that. “Chinese Walls” were set up to protect the independence of funding decisions, but it is difficult not to see that an agency with a board and chief executive tasked to both manage and build state highways, but also fund land transport more generally, would prefer funding itself over others.
I recall that in the late mid-late 1990s, then Transport Minister Maurice Williamson said he was “glad” when people lobbied for a road to be built that he could say “it’s not up to me, it’s up to Transfund to decide how best to spend money on the roads”. Arguing that it’s much better to take a professional approach to buy the best outcomes for road users, rather than pick winners that have a high public profile.
Enabling political direction of funding
Perhaps the more damaging policy was the introduction of GPSs. Leaving aside how poorly judged it was to use a widely understood existing acronym for Government Policy Statements (it could have been Ministerial Funding Policy Statements), what the Clark Government did was throw away the full funding independence of Transfund, in favour of the Minister directing spending. The Minister has full freedom to define spending categories, the levels of funding for those categories and leaving NZTA to manage the implementation of this. This means, of course, that it can include RoNS.
The result has been less than impressive. Governments of all stripes directed funds to big projects they wanted to build, and maintenance and smaller high value capital projects suffered. Under National it meant big motorways, under Labour it mean rail, public transport and cycleways (although increasingly large amounts of money were spent on years of investigation and design, on projects such as Auckland Light Rail and Let’s Get Wellington Moving).
Politicians aren't very good at picking winners. Decisions on airport terminals were taken out of their hands in the 1990s, and Wellington finally got an airport terminal that wasn't a leaky 1920s throwback. You can't imagine politicians having views on where mobile phone transmitters should be located, but the trend towards political meddling in infrastructure decisions has been returning in recent years. The debacle over replacement Cook Strait rail ferries is a prime example, whereby a commercial decision has not been allowed to be made, because politicians wanted ferries that users are unwilling to pay for (otherwise it wouldn't need taxpayer funding).
So what should happen?
Whereas a larger scale reform is needed, a useful interim approach would be to get back some transparency about the merits of specific projects to inform reprioritisation. The highest net value projects should get advanced based on merit, and additional Crown money from general taxes may be directed to whatever other projects Ministers thing would be worth advancing once NLTF funds are exhausted.
While the next GPS (2027-2030) should be the last, it should be directed to fund an efficient, productive and safer land transport system, with specifics on improving network productivity, reducing congestion, improving trip reliability (including network resilience) and reducing serious deaths and injuries from crashes. RoNS above that should be funded by Crown grants or loans taken out for those projects. Some, like the Hawke’s Bay Expressway upgrade, are relatively good value projects.
NZTA (and its successor state highway manager) should establish corridor plans for all State Highways and all local road controlling authorities should do so for major arterial corridors. These should identify issues on those corridors, whether they be safety, capacity or resilience issues, and develop a plan for what projects should be implemented to address these in short, medium and longer term timeframes. Longer term projects would justify buying land, obtaining permits and planning for their eventual construction, if needed. Shorter term ones can be advanced quickly to obtain benefits to users. This could provide more certainty of a pipeline of capital works, and help manage costs of such projects. Some corridors would need little planning other than maintenance and renewals, others would need a lot of work planned.
For example, SH1 from Auckland through Northland would sequence upgrades to Whangarei based on how best to improve that corridor and address the most serious issues. The answer might not be an expressway all the way, but some more targeted improvements. What it would do is have investments based on user demand and performance. If the Government of the day wanted to top up that spending to accelerate large scale upgrades, it could do so transparently, but it would not undermine spending on everything else. It could also provide a profile for future spending, borrowing and compare revenue generated from the network with spending on that network.
Wouldn't that be more transparent, provide a steadier flow of construction activity for the sector, ensure users get the benefits of a continuous programme of renewal and upgrades, and enable a closer link to consumers and the provision of roads?
