Roading: Still Many Roadblocks

Last week the government and Transit New Zealand announced the 10 year state highway plan to 2015/16.

Apart from some criticisms from the Greens, it was well received. It reflected the 2006 Budget decision to make good the shortfall in the National Land Transport Programme due to construction cost increases and lower projected petrol tax receipts.

The additional funding mainly came from a special dividend paid to the government by Meridian Energy following its sale of its Australian operations. This was a sensible decision to exit from an activity that the government does not need to be involved in (electricity generation) and apply the proceeds to one it does (roading).

Transit's share of this funding ($425 million over five years) will enable it to reinstate projects and accelerate state highway improvements beyond August 2005 levels.

Also part of the announcement was a five-year funding commitment by the government. This will facilitate better planning by Transit and private sector consulting and construction firms. In the past, funding was allocated on a year-to-year basis with no guarantees for future years.

These developments are positive. Most freight and passenger transport, including buses, depends on roads. The share of the market that can be handled by rail or public passenger transport is small, although there is some potential for expansion.

However, it is not yet time to break out the champagne. The announcement was basically about spending more money. There is much else that needs to be fixed about roading.

Transit has said that the funding injection will lower average benefit cost ratios. In recent years, projects with BCRs of 3:1 and even 4:1 have not received funding.

Assuming the calculations are being done properly, this means that projects that would have yielded favourable returns from a national viewpoint, and thus contributed to economic growth, were not going ahead. Investment should be occurring where benefits equal or exceed costs, ie when BCRs are equal to 1:1 or more.

It is still the case that apparently justified projects (with BCRs of 1:1 or more) will not be funded. This is a concern. The public or the private sector should be funding such projects, and levels of funding should not be dependent on the size of the government's operating surplus.

Worse, Transit may also be funding unprofitable projects, ie ones where costs exceed benefits, which are therefore a poor use of capital and reduce potential living standards.

That this may be happening is evident from an email from a Transit board member to former transport minister Pete Hodgson last year which read:

"We used to roll up once a month, run down the list of projects that were ordered from the highest benefit cost ratio to the lowest, draw a line when we ran out of money, which seemed never to be far down the page, then pick our brains up at the door on the way out. Today, the job is harder, much more interesting, and more subject to eureka moments, even from me, as we explore the limits of our imagination. This transport strategy of yours ain't easy. But I think it matters. And it is a hell of a lot of fun."

Projects with BCRs less than 1:1 should seldom be accepted. Fun is not what the job of spending taxpayers' money prudently is about, and brains should be applied to things like scrutinising project analyses and maximising value for money spent on roads.

Moreover, it seems that the roading programme will still not solve Auckland's traffic problems, and may not even improve congestion by 2015.

Imagine the outcry if other utilities failed to deal with avoidable congestion problems and treated their customers to 'busy signals' on phone lines or routine electricity restrictions on water heating.

Road building will not be economic and lead to reduced congestion if roads are not priced efficiently. Here the Greens have a point - if goods or services are free or underpriced, queues are likely. The solution - not emphasised by the Greens with their exaggerated focus on public transport - is better forms of road pricing (such as electronic tolling) to replace petrol tax and other road user charges where it is economic to implement them.

Unfortunately the Ministry of Transport's recent consultation paper on congestion in Auckland ignored an approach based on standard principles of economic efficiency.

Finally, roading is likely to remain bedevilled by all these problems while it remains under direct political control. Increasingly, roads can be run on lines more akin to those of other utilities. Commercially-structured roading utilities could be expected to make more timely and efficient roading decisions and be less vulnerable to central and local government political pressures.

Road management was heading in that direction with the previous government's Better Transport Better Roads proposals. Until we revisit that approach, road users' interests will continue to be short-changed.

Roger Kerr is the executive director of the New Zealand Business Roundtable

ENDS

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