Tolling Auckland motorways

I know a bit about road pricing.

So I've been following the debates about tolling Auckland roads for many years, and so given the latest stories it's time for some very clear thinking about the proposals being floated by "independent advisors" to the Mayor of Auckland, because it's very easy to give a kneejerk reaction to the idea.

So here's the quick and dirty summary of what it is all about:

• Len Brown wants to spend a lot of money on (mostly public) transport projects that will lose money.  He doesn't have the money to do it.  His usual way of raising money is from ratepayers, and ratepayers don't want to pay for it.  
• The projects he proposes will never generate enough money from fares to pay for the cost of operating the trains and buses, let alone pay for the capital costs of building the infrastructure. They will lose money, because Len knows that if he confronted users with those costs, they wouldn't use the services.
• Central government isn't keen to spend national taxpayers' money on these services for the same reason, and because the net economic benefits are at best heroically optimistic.   At worst it is a transfer from taxpayers to a tiny fraction of Auckland commuters (and a few property owners who will gain increased value).

So Len has some pet projects he can't convince the users to pay for, or Auckland ratepayers to pay for, so he wants to tax road users to pay for them.

Now local authorities are permitted to toll any new road capacity they build, under certain conditions and with central government approval.  The key element being that it is new capacity, and the money raised is used to pay for the road improvements.  That's not what Len wants to do, he isn't interested in the approach of Oslo, Stockholm or Sydney, in charging road users to pay for improved roads.  He wants to charge them for improved railways.

The problem is that road users already pay to use the roads.  The roads he wants to toll, aren't his. The motorways are state highways paid for by central government, and fully funded by taxes on the use of roads.  All fuel tax, all road user charges and motor vehicle registration/licensing fees go into the National Land Transport Fund, and fully fund state highways.  Those taxes are enough to keep the motorways maintained and to fund expansion and improvements around Auckland.  They also pay half the cost of the roads Auckland Council does control (the rest comes from rates).

So Len wants Auckland motorists to pay more to use roads that aren't his responsibility, so that he can build some grand projects that will lose Auckland ratepayers money (he'd like the motorists to pay for those losses too) and wont generate net economic wealth.

Arguments that the motorists will benefit are grossly exaggerated, since very few motorists will switch from driving to using these services and Auckland Council has long given up claiming it will clear the roads - it wont, it doesn't.

The funny thing is that charging motorists directly would make sense, to reduce congestion simply by applying market pricing.  At peak times scarce road capacity should cost more, because demand exceeds supply.   If priced efficiently, traffic congestion would largely be avoided, and enough money might be raised to build more capacity.   Conversely, during off peak times it would be much much cheaper, as there is ample unused capacity and it makes sense to encourage greater use at those times to generate revenue.

That could be achieved by replacing the current flat fuel tax and RUC system with a pricing system, that would reflect demand and supply.   If the motorways were run like a business, that could happen.

Cheaper motoring off peak, less congestion at the peaks, buses could flow more freely at peak times and could expand services to meet demand from those who find driving too expensive.  More mobility, less emissions and yes more public transport, though not the kind some planners embrace, but the kind driven by what users want.

However, it wouldn't include Len's train set, and so he wont embrace that sort of solution for Auckland.

The government should tell Len quite simply no - he can't toll the motorways that are not his, to pay for his pet projects.  He might consider instead running his own roads more like a business, and lobby government to do the same for its roads, even selling the Auckland Harbour Bridge as a test case.

but I bet he wont...

Yes you can privatise the roads - says UK thinktank

The Institute of Economic Affairs (IEA) is rapidly becoming one of the highest profile think tanks in the UK, certainly it has been getting increased media exposure, including the regular appearance, on the BBC no less, of the excellent Communications Director Ruth Porter (who has links to New Zealand, having once worked for the Maxim Institute - not a reason to hold against her though).

It describes itself as "the UK's original free-market think-tank, founded in 1955. Our mission is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems".

It has become one of the foremost advocates for questioning new government interventions, preferring less government spending and regulation, and seeking solutions involving free markets and personal choice over statism.

The latest report commissioned and published by the IEA, has been written by German transport economist and President of the Institute for Free Enterprise, Dr Oliver Knipping, and IEA deputy editorial director and director of its transport unit, Dr Richard Wellings.

It advocates privatising all roads in the UK.  Yes, ALL roads.  

The report is available here, and makes a compelling case that damns the existing system for producing inefficient outcomes (congestion, poor maintenance standards, inadequate supply of capacity in some areas and overbuilding in others) and suggests that the government simply get out of the way, by selling some roads and giving others away perhaps to co-operatives of road users and property owners to decide for themselves how to make money from them.

The authors propose that all roads, motorways, major highways, rural roads and urban streets could be privatised. Just selling the major highways is estimated to generate £150 billion for the government, which could be used to repay public debt, saving several billion a year in interest.  That would still leave local roads to be privatised by transfers to co-operatives of businesses and residential properties.

The new owners could choose to toll, issue access permits or leave the roads free when and where they saw fit, using whatever technologies they decided.

In exchange, the authors suggested abolishing vehicle excise duty (the equivalent of motor vehicle registration), and cutting fuel tax by at least 75% (noting that the UK, unlike NZ and the USA, does not legally dedicate any fuel tax to government spending on roads - but the existing fuel tax takes four times as much tax revenue as is spent on the roads), with the remainder being a sop to environmentalists by reflecting a carbon tax and tax on emissions.  This would reduce the price of fuel in the UK by a whopping 53p/l (though they neglect to note that EU law sets a minimum tax rate for energy that is about 29p/l).

Wouldn't the new road owners rip everyone off?  Well the authors say no. They have several ideas to avoid this.

They argue that the way privatisation is carried out should be done to promote competition between road owners.  For example, major highways could be sold to different companies, so that the M6/M1 and the M40 would have different owners offering different prices for driving between London and Birmingham.  Yes, there will be many cases where competition isn't feasible, but having some competition is more than exists now.  They see breaking up the road network so it doesn't resemble the patchwork of central and local government controlled routes now, would promote competition and innovative approaches to pricing.

By allowing road owners to price flexibly, it would mean prices at off peak times would likely be lower than at peaks, because underutilised assets are better off with customers willing to pay to use them, especially cars as they inflict relatively little damage to road surfaces compared to trucks.   As such, it may be much cheaper to drive outside commuter and holiday peaks than today.

Local roads owned by businesses seeking customers are more likely to discount access or offer it for free, especially if it attracts retail customers.  They may see this as important as offering free parking, so that the incentives are wider than just paying for the roads.

There remains competition  from other modes for certain trips, such as railways, airlines and canals.  In addition, telecommunications technology makes it increasingly attractive to use phones, Skype and other forms of teleconferencing instead of travelling.  Road owners will not be insensitive to these options.

Indeed, the question about being "ripped off" becomes more moot, if road owners are seeking to attract users by having well maintained, well signposted roads, which are priced to avoid congestion by spreading demand, and a planning system that does not prevent new capacity being built except by road owners needing to consider private property rights.  The likelihood is that the motoring experience will improve.

Finally, it's worth noting (though they did not appear to do so in the report), that with government in the UK already recovering four times as much in motoring taxes from road users (fuel tax and vehicle excise duty) than it spends on roads, that motorists are already being ripped off, by the government.

The UK government is today considering how to get more private sector involvement in financing and building roads, this report shows how far it could really go, and is one of the few studies I've seen which actually breaks apart the "consensus" of state owned and operated roads, and shows how it might be different, and better with privatisation.

Northern Gateway should be sold

The news that the New Zealand Transport Agency (NZTA), which if you haven't been keeping up is the result of Labour merging Transit NZ with its funder  Land Transport NZ (because the then government was tired of one government agency holding another accountable), has not prosecuted a single toll evader on the Northern Gateway toll road is not surprising.

Quite simply NZTA has not a smidgeon of experience in running toll roads as there have been no state highway toll roads (the Tauranga ones have been council owned) since the Auckland Harbour Bridge.   On top of that, the decision to toll a road once called ALPURT B2 and before that the Orewa Bypass, was very political, as Transit NZ wanted to prove it was competent as a tolling authority under the Land Transport Management Act - a child of the Labour, United Future and the Greens during the last government's second term.

The rate of evasion at 4% of trips is good by international standards, but reports such as those in the NZ Herald today undermine this significantly.   I know about good practice with toll roads, I have designed business rules for them, and one of those is to pursue repeat recividist non-payers with prosecution.  You see, in effect, non payment is trespass.

All of the net toll revenue is used to service and repay debt used to pay half the cost of the road (the rest has been funded through fuel tax and road user charges, so motorists effectively half pay for the road without the toll).  If there was a private owner, you can be sure that it would pursue prosecution and seek court costs from motorists who continue to not pay.  

Moreover, a private owner would likely run the tolling operation more efficiently than the government.  The reported NZ$0.75 transaction cost is rather high by international standards, it should be around a third less.   Why is it high?  For starters it is being run by a long established government bureaucracy called the Transport  Registry Centre.  Sure it does the best job it can, but it is not commercially driven, so is unlikely to be able to be as efficient as foreign counterparts.  Secondly, the sheer volume of transactions is pitifully low.  Thirdly, without the experience it is unable to adopt best practice easily or automatically.  Finally, unless it goes offshore it cannot get decent professional advice on these things, given the lack of experience in the country at all.   

So why not sell the Northern Gateway?  There is an alternative route after all, the original highway through Orewa (and even SH16 off to the west).  It would showcase how no one should fear privately owned highways.  Given many French and most Japanese motorways are privately owned, it shouldn't be a big deal, but the New Zealand left is rabidly irrational about such things.

Indeed, selling it ought to pay off the debt and some and it might mean the Tauranga Eastern Motorway is run better (that should be privately funded as well).   It might also mean the NZ Herald writes no more editorials that have involved the complete absence of research or journalism on the topic.   Given the NZ Herald somehow links this to regional fuel tax, when Labour approved tolls on the road in the first place, shows once again how incredibly shallow and nearly useless the media can be.  

Bush administration goes forward - on roads anyway

Whilst many pundits decry the Bush Administration as a “disaster” as if it were self evident, it is clear to me that in the field of transport, it is light years ahead of past administrations of both colours.

The current Transportation Secretary Mary Peters (and her last significant predecessor, Norm Mineta) have both made the very clear and blunt points – the status quo doesn’t work. Environmentalists may be surprised that the Bush administration is strongly supportive of road pricing, instead of ongoing politically driven funding of roads and public transport.

Some of the best points she made at a recent meeting of Governors at the White House were:

“in the era of a government mandated monopoly in telecommunications and price controls you'd get a recording: "I'm sorry all circuits are busy. Please try again later." "Your call couldn’t go through the system for the same reason your car can’t get through rush hour – poor pricing," Peters said.”

That's the fundamental point. People put up with chronic traffic congestion roads, but wouldn't with other infrastructure - and it is due to lack of pricing and poor quality investment - those are both due to government's running roads in the same old Soviet era way. She also points out that throwing taxpayer money at the problem hasn't worked:

"The failings of federal tax and earmark programs she said are highlighted by the 300% increase in traffic congestion in the past 25 years while spending on roads and transit is doubling every ten years."

Think also about healthcare, how throwing money at that simply isn't working either. None of this should be a surprise.

"There is no greater symptom of failure than the fact that Americans simply don’t support putting more money into this broken system. Poll after poll shows strong opposition to traditional fuel taxes. The public ranks gas taxes as among the least fair taxes at the federal, state and local levels. And they are rightfully suspicious that higher taxes will (not) translate into more efficient transportation systems."

Quite right too. Fuel taxes are charges for buying fuel, not buying road use. While New Zealand has only just moved to spend all central government fuel taxes on transport (note this includes public transport, walking and cycling infrastructure), the temptation during hard times will always be to use it for general revenue.

"More and more people are seeing that direct charges offer a better deal for taxpayers than increasing dependence on dysfunctional sources like federal gasoline taxes. This simple but powerful technology unlocks enormous new opportunities for communities BOTH to attract new investment capital AND to manage congestion through variable prices."

So let the private sector in and the market mechanism of price in. Letting them both do it removes the political albatross that doing either wont work well. London's congestion charge is severely hamstrung by the political agenda of Ken Livingstone which gives a significant portion of London traffic a discount or exemption, but also earmarks the money for a lot of buses, many of which carry few people.

Hopefully her initiatives to set free private capital for investment in highways at the federal and state levels, set free the price mechanism for charging for highway use, ending "earmarked" pork barrel funding for roads and getting better results from what federal spending that remains will not be jeopardised by the games of Obama, McCain and Clinton. I am not optimistic, but these baby steps are all in the right direction, and are worth watching. It also shows there is a bit of free market thinking in the Bush administration after all.