Partnering up for transport funding
Across the Tasman, infrastructure work is needed in a range of areas. The one that provides the best opportunities for investment is transport and the preferred funding model is user pays. Maggie Macrae reports.
Stephen Selwood does not hesitate to name areas of much-needed infrastructure investment in New Zealand. The list is lengthy – from prisons to schools, emergency services radio networks, defence and government buildings, social housing, conference centres, cruise ship terminals, water systems, schools and hospitals – and the need is urgent.
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Stephen Selwood, Chief Executive, New Zealand Council for Infrastructure Development.
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However, for the country’s leading infrastructure expert, the most urgent area with the most opportunities is transport and the preferred funding model is user pays through public- private partnerships. Somewhat surprisingly, the public agrees with him on both counts.
Selwood is the chief executive of the New Zealand Council for Infrastructure Development. The council promotes best practice in national infrastructure development through research, advocacy and public and private sector collaboration. One of its main goals is to close the performance gap between New Zealand and comparable Organisation for Economic Development (OECD) countries, such as Finland, Ireland, Denmark, Norway and Sweden.
Roads, trains & automobiles
According to Selwood, the best way capital markets can take a role in developing a better New Zealand is through infrastructure funding and, from a delivery and funding point of view, transport offers the biggest and best investment opportunities at a macro level. “You only have to spend time in Auckland’s log-jammed peak-hour traffic to see the impact the lack of investment in transport infrastructure in the city has on quality of life and work productivity,” he said.
Selwood stressed New Zealand has to lift its level of investment in core services, especially transport, as it had dropped from more than 3 per cent of gross domestic product in the mid-1970s to less than 1 per cent in 1989 and down to around 0.5 per cent in 2007. “We have been living off previous investments for 30 years,” he said, adding, while investment in telecommunications and energy has moved recently, transport till lagged.
“Since 2006 New Zealand has extended its motorways about 18 kilometres in three main projects compared to Ireland, which has extended its motorway system in multiple projects by 740 kilometres. In the last 10 years, we have built about 170 kilometres of new roads nationwide, while Sydney alone has built the same amount in the same time.
“Our slow pace has had a negative impact,including delays in daily travel, which just in Auckland costs about 42 million hours or more than NZ$1.35 billion in lost productivity a year. Business consistently lists the inadequate supply of infrastructure as the most problematic factor of doing business in New Zealand.
Source: New Zealand Council for Infrastructure Development.
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“Of core services, the one that is most held back by a lack of funding is transport. Even social infrastructure, such as schools and hospitals, which has economies of scale issues, and water, which has governance issues, rate better than transport (see table).
“So transport, transport, transport is the biggest single area of opportunity and biggest single are of issue. It’s the real biggie with the real big dollars and by 2014 the need will become critical.”
Selwood said the focus is on Auckland because it has the biggest investment requirements. He explained Auckland needs about NZ$20 billion worth of transport infrastructure – up to NZ$12 billion for roads and a harbour crossing and up to NZ$8 billion for public transport (rapid bus, rail and ferry).
Selwood said pay-as-you-go funding would not be enough as the central government is already overcommitted. “Its budget for public transport nationally, for example, is only NZ$500 million or NZ$50 million a year for the next 10 years from 2010,” he said.
“Most of the national transport budget is for its Roads of National Significance program. For this program, most of its new capital spend – from available funding and funding from tolls – is expected to move into deficit from about 2012. The budget for improvements at the provincial level looks like it will run out by 2015.”
Selwood said some funding shortfalls could come from the partial sell-off of stateowned enterprises. “This could raise about NZ$7 billion, while Auckland City Council could also sell-off some of its assets, such as the port, which could raise about another NZ$1 billion,” he revealed, adding this was still not enough.
User pays support
Selwood said public-private partnerships, as well as infrastructure bonds or such conceptual funding models as tax increment financing, are better options.
The public agrees, as research conducted by GA Research and strategic communications firm Kreab Gavin Anderson found. It involved focus groups in urban and regional New Zealand and a quantitative telephone survey of 500 people from across the country.
Asked to choose no more than two preferred ways for government and local councils to pay for new infrastructure such as roads, public transport, ports and utilities, around 40 per cent of those surveyed selected userpays models, such as tolls on motorways, while 35 per cent opted for public-private partnership projects.
Eighteen per cent chose partial sales of publicly owned assets such as power companies, ports or airports, 10 per cent supported further public borrowing and just 8 per cent supported higher taxes to pay for infrastructure.
The research also explored community reaction to a range of funding options proposed for new infrastructure for public transport and roads. These options include road tolls, petrol taxes and increased council rates.
Asked about these options, 57 per cent preferred a NZ$2 toll on specific motorways and highways. Only 9 per cent favoured a regional petrol tax and just 4 per cent supported a 20 per cent increase in council rates.
In addition, the survey found that a significant number of people (24 per cent) believed government should be wary of proceeding with projects for which it did not have the money.
Kreab Gavin Anderson Partner and infrastructure specialist, Jodie Brough, said the focus groups revealed more about the reasons for community attitudes, with concerns about debt, the rising cost of living and the lingering effects of the global financial crisis featuring in respondents’ comments about infrastructure funding.
“People’s minds are very much on the basics at the moment, but there is still an appetite for better infrastructure – around one in three respondents said existing roads, rail and other infrastructure across the country was only meeting the needs of some people,” Brough said.
“This suggests that as confidence in the economy improves, demand for funding solutions will increase. The research indicates that user pays and public-private partnerships remain firmly preferred to broad-based taxes and charges unless powerful arguments can be mounted to persuade the community otherwise.”
Selwood said public-private partnerships were one means of extending payment over time. He said they also enabled private sector debt to be put into the market and allowed a greater stretch for the public dollar. However, he stressed repaying the debt was a big challenge.
“One way to do this for Auckland’s motorway projects, for example, would be to charge the 915,000 or so cars that use the motorway system each day an average of NZ$1 a day toll per car, which would bring provide a network price regime of NZ$915,000 a day or NZ$33 million per annum,” he suggested.
“Over 30 years at, say, 6 per cent this would raise about NZ$4.5 billion, while at NZ$2 a day, the amount raised would be NZ$9 billion. That would be much more publicly acceptable than a 50 per cent rise in rates or a 60-cent a litre rise in the petrol price – or the NZ$6 to NZ$8 per car per crossing proposed for the new harbour crossing.”
Reform shortfall
Selwood was hopeful that proposals to simplify and streamline the Land Transport Management Act would not only reduce red tape and compliance costs, but also address long-term funding constraints that inhibit transport investment. Unfortunately, he said, the government’s recent announcement about the proposed legislative amendments fall short of expectations.
“Positive aspects of the proposed legislation include the clearer statutory purpose of the act, rationalisation of planning and consultation processes, improved flexibility in the use of borrowing to support land transport investment and improvements to the provisions for tolling and public private partnerships to reduce barriers to their use,” Selwood explained.
“However, the concerning aspect of this proposed legislation is that it fails to provide new and expanded ways to generate revenue to fund the significant investment in transport infrastructure that is required.
“Tolls on existing roads are prohibited under the current legislation and the proposed … reforms fail to address this fundamental issue. Inevitably this means that tolling will only be able to fund new roads … and potentially very expensive tolls on a new Auckland Harbour crossing.”
He added, not only does this constrain the level of toll revenue available, it denies the opportunity to use tolling and road pricing as a means to generate significant new funding, manage traffic demand more effectively and encourage a shift to other transport forms such as public transport.
“Refusal to allow tolls on existing roads is neither effective, efficient or safe [and these are] the very objectives proposed under the reforms,” Selwood said, adding it would be far better to allow new forms of revenue raising to be available than to continue to restrict uch needed investment in road and transport infrastructure.
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- New Zealand
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- Maggie Macrae, mmacrae@financialpublications.com.au
- Article Posted:
- July 15, 2011
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