Auckland rail business case fisked

So let's look at the truth behind ARTA's rail business case, what it does to cook up a positive case for pouring hundreds of millions of your money into a transport system that will always need subsidies. For starters I already said that evaluation "exiting rail" as an option was dismissed because it would cost a lot of money ($1 billion when rail is actually $1.4 billion) and would be inconsistent with the ARC and central government's strategies (strategies shouldn't be that specific anyway).

So how about the evaluation of the business case?

Discount rate

"the Rail Development Plan compares favourably as an investment if all the benefits are
considered more broadly and over a longer period reflecting the life of the assets and the ongoing generation of benefits"

Favourably? For starters, does this "investment" include the operating cost subsidies growing? However, more importantly, by taking a different discount rate for this project compared to others, you are no longer comparing like for like. ALL other projects need to be re-evaluated, which may STILL mean, it's a bad "investment" compared to building roads. More importantly, is it better than letting people spend their own money?

Value of time

"There is a strong case for using the same value of time for car users and PT users, particularly for rail users in peak times" Is there? Make it. Oh you don't. The reason PT users have a lower value of time is related to their average incomes, so earning capacity. You can play around with this of course, but it really only should apply to PT users who switched from cars. Oh you don't really talk about that do you?

Benefit-Cost ratio: Core Network upgrade

Here the business case shows it up for how lousy it is. We get ten benefit/cost ratios. Five based on NZTA evaluation procedures, five on ARTA's own evaluation procedure. Three under NZTA's procedures have costs higher than benefits. None of ARTA's do. ARTA's base upgrade one is a BCR of 1.5, not spectacular (and with no confidence range around it. Is this the top end or the mid range (it wont be bottom)). Then we have three of the scenarios are fictional "what if fuel went in price a lot", "increase value of time" and some new economic snakeoil called "Other economic benefits relate to CBD (agglomeration) benefits (increased productivity per employee) – residential intensification – wider effects of car use – environmental benefits of new rolling stock"

Now hold right here. Increased productivity per employee because of agglomeration in the CBD? That's a pretty bold assumption. It implies rental prices increase too, of course. It implies Auckland's CBD is more competitive (than where?). $0.5 billion over 40 years? Who believes this?

Residential intensification? Why is THAT a benefit? A benefit that people live together with less space?

Wider effects of car use? What about the BENEFITS of car use? No, that's right. You'll just count some unrecognised "costs".

Oh and environmental benefits of new rolling stock are already part of the evaluation, but let's count them again hey?

Other factors

Each train trip costs in subsidy today around $7. That is what each rail commuter should be paying extra, but doesn't. That is estimated to drop to $5 by 2016 after spending over a billion on upgrading the system - for 15 million trips a year. Yep you can figure that one out yourself.

"Abandoning the rail passenger system in Auckland would require construction of new busways running parallel to the existing rail lines" In many cases it wouldn't as you could rip up lines except the main trunk to the Port. That gives you busways from Britomart to West Auckland and south to Southdown, beyond that buses can operate on local streets or join motorways and use the hard shoulder as a lane.

Conclusion

ARTA/ARC have dressed up the rail business case to suit the answer they wanted, on grounds that the government's own funding agency would question. It will continue to cost taxpayers $5 per trip when electrified, it will generate very modest benefits, and most of those who benefit will be those who get their trip subsidised. It will make diddly squat difference to those using the road network, at best it might increase property values for those living nearby a station and work nearby one on the same line, or businesses who may have a catchment from those able to use the train.

At best, it needs independently appraised - not by anyone in Auckland local government - to determine if the appraisal itself is robust, the levels of confidence and optimism bias around costs and benefits, and whether a thorough appraisal of alternatives has been included.

Sadly, National has been taken for a ride, and you're being asked to pay.

Auckland rail electrification - a very bad idea

Well you KNEW I would have to comment further on this.

So first - what the government said:

Steven Joyce said "Rail is an important and growing way for Aucklanders to get to work each day". Important? Hardly. Growing? Yes, but at the expense of what? Less bus users (when you ignore the Northern Busway), less carshare riders.

He further said "The government has decided in principle that now that KiwiRail has been re-purchased by the government, it should be the owner of the new crown-funded passenger rail stock in Auckland and Wellington.

Mr Joyce says this will save costs over time and ensure the most efficient use of transport funds." I don't have a problem with the Crown owning something new, except of course that the moment the Crown holds onto it, the value of the rolling stock will drop significantly. The global market for secondhand electric multiple units on narrow gauge is not high. More importantly, the trains wont ever make a profit.

The Q&A on the press release asks

Why are you committing to Auckland rail?

The says:

"The government has decided in principle that now that KiwiRail has been re-purchased by the government, it should be the owner of the new crown-funded passenger rail stock in Auckland and Wellington. This will save costs over time and ensure the most efficient use of transport funds."

That ISN'T an answer why. It DOESN'T say why rail is good for Auckland. The answer is not "because ARC said so", because this is public policy and economic snakeoil.

I've talked about rail electrification before, so let me just summarise yet again why it is a very bad idea, starting with the claims of the enthusiasts - or indeed the heroic and shoddy assumptions in the "rail business plan":

1. It will make an imperceptible difference to traffic congestion, less than 1km/h faster trips on the motorways parallel to the track;

2. It conceivably can only provide an option for a maximum of 6% of all commuters in Auckland (less than half those commuting to the CBD), of whom perhaps a third will use it. Most Aucklanders don't live or work within a cooee of a railway station - so said Helen Clark once;

3. Outside peak times it will be grossly underutilised, around two thirds of the trains will be used for only 6 hours a day, the rest of the time lying idle. Same with track capacity;

4. It will render even more commercial (unsubsidised) bus services unprofitable. Already the proportion of bus services in Auckland that are unsubsidised has dropped significantly since money was poured into rail;

5. Most of the users are people who would otherwise have caught the bus or rideshare with a car commuter - in other words, the majority are not former car users. Maybe at best 1 in 4 would have driven a car. Why are you subsidising the other three? It is a sheer lie to claim the people who would use rail would otherwise have travelled by car.

6. It will make an imperceptible difference to pollution levels in Auckland or CO2 emissions, as the trains running around all day are going to be carrying the equivalent of busloads of people.
7. It will never make a return on capital and never make a operating profit. In other words it commits central and local government to subsidise trips for people travelling to downtown Auckland on a mode of their choice - the part of Auckland with some of the highest value employment. The low income workers in Manukau City wont be getting the train to work, but their rates and fuel taxes will subsidise suits travelling from Tamaki to Britomart.
8. It doesn't matter how many people ride it, unless the majority would have driven and it makes a measurable difference to congestion. However, neither of these claims are true. High growth is just subsidising people's choices of home and employment.

9. Nowhere in the New World (North America/Australia) has a new rail transport system made any measurable difference to road congestion levels. The cities have too low a density, too diverse travel patterns, and there are not corridors with anywhere near the consistent density of trips to make rail superior in economics to high quality bus routes.
10. The claimed capacity of heavy rail over a motorway is true, but Auckland rail will NEVER be carrying 25,000 people per hour. It is like buying a Boeing 747 to fly Wellington to Auckland.
11. The plan is predicated on no changes in commuting patterns over time, like peak spreading and telecommuting, both of which are encouraged by congestion and properly pricing peak road capacity. It subsidises old patterns of behaviour.
12. Auckland’s rail corridors are an irreplaceable asset. Yet it is a grossly underutilised one and will continue to be so. Trains every 5 minutes at peak times is quite a period without another vehicle using the corridor. Find any arterial road in Auckland and count the vehicles passing every 5 minutes.
13. 28% of Auckland's population will NOT live within 800m of a rail station by 2016. This is a highly "optimistic" forecast based on more people wanting to live in medium and high density housing adjacent to a station. Do you want to do that? Do you want to walk 800m four times a day (remember the other end) to get to a mode of transport?

My solution is not libertarian, but more economic rationalist. Let the current contract run its course, and then -while the government underprices peak demand for road space - use some existing road tax revenue to subsidise peak rail fares only to follow second best pricing principles. In other words, pay for the benefits road users get for those switching from car to rail. That wont be enough to justify electrification or new trains. As existing trains need replacement, cut services and remap the Auckland rail network for what it should be:
1. A freight line from the main trunk to Southdown and via Tamaki to the Port (the Overlander can use this if it is viable);
2. Dedicated tolled commercial vehicle corridors along the abandoned North Auckland line (the rail network north of Auckland is not worth saving). The stations can be adapted for buses (including Britomart for low emissions buses). Yes, you'll have to manage the Public Works Act and Treaty of Waitangi implications of changing rail land to another use - but that is about having a will to change legislation.

Then rail in Auckland can get on and do what it does best - long haul freight.

You see - I want to know why the government thinks Aucklanders want this. Because they are too lazy to vote for an ARC that wont pursue pet projects like this? I want someone to robustly critique the claim in the "rail business plan" that "The “Exit Rail” option was eliminated early in the process when it became clear that it would involve considerable additional expense estimated at greater than $1 billion and would increase traffic congestion. Also, the “Exit Rail” option is inconsistent with the Regional Land Transport Strategy and Government strategies and so was not pursued." Why considerable additional expense, when the rail electrification plan will cost a fortune anyway? What increase in traffic congestion? Who gives a damn if the strategies are wrong?

Electrification of rail in Auckland is fundamentally wrong, the business case is grossly optimistic on a cost and benefit basis, it neglects to properly evaluate a cheaper alternative because the ARC is ideologically wedded to this project (and the last government was as well). You can see this in the statement that "It has become clear that applying Land Transport NZ’s standard project evaluation methodology to a major Passenger Transport investment such as this is too restrictive in its nature and does not allow for the full benefits to be realised."

Code for - the project is a bad investment when compared to all the other ways that road taxes could be spent, so we had to come up with a methodology to give the answer we wanted.

Want to know more? Well let's have a look...

Farewell regional fuel tax?

So National may scrap the appalling regional fuel tax before it happens.

Good.

I opposed it before. The regional fuel tax was backed by United Future as well, so be interesting to see how Peter Dunne responds to this.

The arguments against regional fuel tax are very clear:
1. The geographic regions are largely based on water catchment areas, so have no basis in difference in cost or demand for transport projects. Ask why motorists in Pukekohe, Helensville or Warkworth should pay for electrifying Auckland's rail network which extends only to Waitakere and Papakura? In Wellington, why should motorists in Carterton pay for a rail upgrade in Kapiti, or in Canterbury motorists in Temuka paying for a road in Christchurch?
2. Regional fuel taxes severely disadvantage service stations inside the regional boundary because they are at a price disadvantage compared to those on the other side.
3. The fuel tax also taxes diesel, which means that half of all of that tax needs to be refunded as much diesel is used on farms, on private roads and in boats. One reason road user charges exist is because of this.
4. The tax was used to raise money for regional councils to use to pay for projects with no objective criteria of appraisal, like economic efficiency, to decide how best to pay for the project. It was a tax to pay for regionally decided pork.

All this makes most of the arguments of Idiot Savant complete nonsense:
- He claims it is a de facto environmental policy, but gets two out of three of the projects listed wrong. Upgrading the Johnsonville line and new trains for Wellington is being paid already from money dedicated from the last government's Wellington transport package (indirectly from nationally collected fuel tax).
- He says it is a de facto carbon tax, which of course it isn't as it only applies to regions wanting extra funding for transport projects, so Taranaki, Southland and Nelson are unlikely to ever pay it. In addition, with refunds for off road fuel use, it is a tax on road transport only.
- He claimed it would be fair, except that he ignores the boundary issues I mentioned above, ignores the new burden on farmers and other off road diesel users to apply for refunds, ignores that most of what the money would be spent on wont benefit those paying and ignores that there is no objective criteria being used to decide on how to spend the money.
- There is NO local accountability for a tax when a reasonable number of those paying are NOT local.

He is worried councils have committed to spending money that hasn't been collected yet, which of course is nonsense, just pure posturing. In short, he doesn't know what he is talking about.

However, the government has since announced it will be using your money to buy new electric trains for Auckland. Presumably the ARC will need to rate Auckland property owners to pay for the electrification of the infrastructure, because electric trains can't run on non-electrified track. Taxpayers in Nelson, Taupo and Kaitaia, none of which have a railway or ever will get one, might ask what they get from this.

That's money down the drain, and also a lost opportunity to make Auckland councils think about a user driven transport strategy instead of the failed "Smart Growth" rail fetish that has done nothing to relieve congestion in US cities.

David Farrar thinks it should mean that roads are funded down a specific cost benefit ratio, but he's wrong - that approach to allocating funding from the National Land Transport Programme has largely slipped by the wayside with Labour. National should move substantially back to such an approach, because it would be far more transparent than Ministers casually talking to Land Transport Agency board members about projects that are important to the government - without actually breaking the law about directing them.

I'd like to see some renewed evaluation of large projects that the Land Transport Agency hasn't yet approved, that ranks them by cost/benefit ratio. In other words, lets figure out if all existing fuel taxes are being spent well, and delay or drop projects that are poor value. Drop sea freight funding for example, and tighten up on public transport funding, much of which is very poor value. Drop gold plated projects and seriously review Transmission Gully when the design work is finished.

I am NOT convinced that the government spends its transport funds as well as it could - it would be timely to spend a good 6 months doing some decent appraisal of that.

So Steven Joyce, here is one thing to request. Ask the Land Transport Agency to produce a long list of cost benefit ratios for ALL major road projects. Ask for some independently auditing to be sure, and for confidence ratings for the BCRs. Ask for the optimism bias for the project costs, and if you get a blank look, tell your officials to look at what the UK government does.

Then consider whether you want more spending on transport, knowing that to get it you either have to raise taxes on motorists, use direct tolling or just let the private sector go for it.

Off to the Middle East

So I am disappearing at the crack of dawn to the Arab world- so blogging may be a bit light for a while. It's work, but I'm hoping to keep this going, as long as Blogger isn't blocked by local proxy servers.

Standard delivers good news

Cuts to the Ministry of the Environment. Which from my experience has a handful of very clever people and a lot of died in the wool statists who get very excited about planning other people's lives, and not too excited about benefit/cost analysis and justifying what they propose with evidence.

To think it didn't even exist before 1985. Now think about how we could return to those days by leaving the environment to private property rights.