Tuesday 30 April 2013

Auckland transport funding report promotes urban road pricing and tolls

Auckland has 1.4 million people, and its local politicians have ambitious aspirations for expanding the city's highway and public transport networks, but like many cities face a funding problem.  It can't raise enough money from existing funding sources to meet its aspirations for spending on transport. 

New Zealand has a comparatively efficient system for charging road users across the country and allocating the revenue, largely, on economically efficient grounds.  Fuel tax (notably on petrol only) of US$0.4285 a litre is all hypothecated into the National Land Transport Fund (NLTF), this is supplemented by a weight/distance charge on all diesel vehicles (and vehicles over 3.5 tonnes) which varies by vehicle tonnage, and a small ownership tax (motor vehicle registration and licensing fees).  That fund is used to fully fund state highways (the national highway network) and to part fund local roads and subsidies for urban public transport.   Local authorities submit bids for road maintenance and construction funding, and funding for public transport subsidies and capital works, and these get allocated according to a mix of benefit/cost criteria and reflection of overall government priorities (e.g. congestion reduction).  The NLTF funding provides between 40 and 75% of the cost of local authority transport activities, so local authorities usually fund the rest from rates - a tax on the value of land and properties on it. 

Local authorities have no powers to toll existing roads or raise taxes on fuel, but most do obtain some revenue from parking (there is a tiny historic tax on fuel dedicated to local authorities, which raises very little)

Tolls are in place on two roads.  One is a state highway north of Auckland (where it is being used to pay the debt of half of the construction cost of the road), another is a local road in Tauranga (which has received no NLTF funding because it had a poor benefit/cost ratio).  A third motorway under construction near Tauranga is also to be tolled to provide part of the funding for the road.  Tolling legislation means that any local authority and the NZ Transport Agency (which operates the state highways) can apply to the Executive for authorisation to toll any projects which involve new capacity only.  It provides a solid framework for more tolling within those grounds.

Auckland's problem is that the Mayor and the Council want to spend an additional NZ$400 million (US$339 million) annually over the next 30 years on transport in the city region on top of what is currently provided through that national funding system.  Given there is little need to boost spending elsewhere in the country (much of it simply needs continued road maintenance and minor improvements to networks), raising national fuel tax or road user charges appears inequitable.   

So Auckland Council set up the Alternative Transport Funding Group, which itself set up a Consensus Building Group of stakeholders to produce a report on funding options, which included representatives across business, social, motoring, public transport, cycling, construction and other sectors.  

Auckland has several times mulled over road pricing, so this report is the latest incarnation, and of course, it has sparked debate as it presents two options for the city (and central government, as legislation will be needed to allow for road pricing on existing roads).

What did it say?

The report considered many options including:
- tolls on specific roads;
- 6 "road pricing" options specified as being a single cordon, double cordon, area charging, motorway only charging, full distance charging and managed toll lanes.

I'm amused at "full distance charging", which ignores that there already is distance charging for heavy and diesel vehicles.  It would seem odd to consider layering another system on top of one that works.

"Managed toll lanes" were ruled out because they wouldn't raise enough revenue or were too expensive to administer for the revenue that could be raised.  That means they couldn't even fund additional lanes.  Curious when you consider how widespread they are in the US (although the policy goal in the US of providing a congestion free alternative does come into the fore).

Parking levies were also ruled out, which is significant as this is often seen as an alternative to congestion charging.

The options that got more consideration were:
- Fuel taxes 
- Public transport fares
- Rating-based sources
- Road pricing
- Tolls on new roads

Two packages of options were finally proposed for public consultation

1:  Increases in rates (NZ$90m US$76m additional per annum).  Increases in fuel taxes of 0.6c/l (US$0.51) nationally (regional fuel tax seen as complex as there is no diesel tax at present, and a significant proportion of diesel usage is off road, so that diesel tax would need to be refunded). Tolls on major new roads (two are listed as being eligible for tolls) and increases in public transport fares.

2. Road pricing charging motorways only, or a single cordon charge, to generate NZ$250 million a year (US$212 million) plus increases in rates and public transport fares.  

The tone of the report clearly indicates the second option is preferred, but that requires a law change the current government appears to not support.

Review of conclusions

Given the long time frame implied in this report (30 years), it seems to be a major failing, considering that it proposes changes in legislation, for it to implicitly reject distance based charging.  Especially since New Zealand already has a platform for this in its existing road user charging system.  Proposing a single cordon (an absurdly blunt tool except for a tightly confined city centre) or charging motorways (which have regular interchanges, so ample options for rat-running) is the thinking that was behind the earlier Auckland Road Pricing Evaluation Study from seven years ago.  

Similarly, it is quite an assumption that fuel taxes will continue to be able to be raised to keep on top of ever increasing fuel efficiency of the petrol driven fleet, and that an alternative revenue raising instrument wont be needed on a national scale.  At the moment, New Zealand raises fuel taxes roughly according to inflation on a regular basis.  It will need more than that over the longer term, which raises all the same issues seen in other jurisdictions, not least the distributional question as to why those who can afford brand new fuel efficient cars should have their road use cross subsidised by those who cannot.

Increases in rates funding (a tax on land) and public transport fares (especially since much of the proposed spending is for public transport) are likely to make some sense.  Tolls where feasible for new roads, likewise.

However, the big debate is whether to increase taxes on fuel or introduce road pricing (although some are arguing that the scale of spending proposed is excessive, so should be looked at first).

In a world where fuel taxes are being reconsidered because of changes to how vehicles are being powered, it seems rather bizarre to talk of using such taxes as a long term option (although in truth, that option is really a choice between raising more money nationally, not regionally).

The ARPES study was useful to get a strategic overview of what road pricing in Auckland could achieve, but  it is now out of date, and discussion around road pricing in Auckland is hamstrung by the simple point over objectives.

This most recent exercise is purportedly about raising money to pay for transport projects.  That raises more specific questions about having principles underpinning how you do that.

Some of these projects are incapable of being funded by the users, not because it isn't practical to do so, but because the users are not willing to pay for them.  In that case, presumably if there are net benefits, those who benefit the most should be charged for those benefits (these could be property owners or users of other modes) proportionately.  If that doesn't actually work, then the projects might need to be reconsidered or should be funded through general taxation (if there is no specific reason to target any one group to pay for them).

Some projects will be self funding, obviously those that be tolled or charged directly, but there will be few of those.  More widely, it can be argued that some road projects are self funding from a "network" perspective, in that if all motorists are charged across a network, then it generates a surplus to pay for targeted upgrades (much like the national funding system).

So the question becomes whether Auckland should have a separate road pricing system, to raise revenue for its transport network, from the national distance/fuel based charging system.

I'd argue that the case for that is not strong in itself.  For to just raise revenue all motorists could be charged the same, either for owning a car, parking a car or using fuel or tyres or driving by distance.

However, raising revenue involves applying prices, and it would seem to be a waste to just charge all motorists the same, when only a small number at certain times at certain places impose major costs on the mobility of others, through congestion.

So the issue comes as to whether the introduction of better pricing can both reduce these inefficiencies, and raise additional revenue.

Clearly it can.  Yet the options considered in this report are poor indeed.  

A single cordon in Auckland around the CBD would probably involve the least distortions, but would raise relatively low amounts of revenue and have a modest effect on congestion (unless it also including charging the motorways that pass through it, which risks encouraging some rather horrendous rat running).  Although, it would probably be the least worst option in my view, but would certainly encourage a shift of some businesses out of the CBD.

A single cordon as proposed in the ARPES report would create major distortions by pushing a cordon out into the suburbs.  That would demand a residents' discount scheme and negatively affect businesses just inside the cordon.  

The "motorway only" charge creates a different risk.  The ARPES report indicated it would generate more congestion as much traffic would shift off of the motorways and onto parallel local roads (which in many cases are both quite good and somewhat congested already).  Advocates of this option think if it is "cheap enough" it will work, which means having a one-off charge to access the motorway network, regardless of how far one drives.  Barely better pricing.  Having a distance based charge on the motorways might make more sense, but the consequences for use of the local road network are considerable.

More work needs to be done.  

One option could be an Auckland "vignette" whereby anyone driving on Auckland roads has to buy access through a pass that may last from one day to one year.  That option hasn't even been considered.

Another could be to transition the existing mix of electronic and paper based distance road user charging systems into a mandatory electronic system, such as by making electronic systems mandatory for all newly registered diesel/heavy vehicles, and an option for petrol vehicles to receive a refund in fuel tax in return.  Such a system involves radical changes to the national charging system, that are unlikely to be embraced by central government unless it can sell a fuel tax refund to a public not yet convinced that an alternative could be better.

What is likely to happen? Nothing.  Central government doesn't support some of the spending goals, and local government doesn't have the powers to introduce road pricing on existing roads (it doesn't control the motorways).  Furthermore, I doubt the opposition Labour Party would want to support pricing existing roads as it needs to win votes in Auckland to win the general election in 2014.

Bizarrely, the Green Party is opposing road pricing, even though it would deliver demonstrable reductions in emissions and support public transport, preferring a populist line of simply arguing against the road building elements of the transport package and saying that there would be enough money if money spent on road improvements was redirected to public transport.  Remarkably narrow minded thinking which isn't exactly outcomes focused.

So, in conclusion, Auckland talks more about road pricing, but unless there is consensus about a need for more revenue, and that other alternatives are less palatable or fair, I doubt if much will happen in the short term.

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