This is the second post in a series on the Ministry of Transport’s working paper on New Zealand’s capital spending on roads, which was prepared as an input to the 2015/16 Government Policy Statement (GPS) on Land Transport Funding. It was released to Matt under the Official Information Act just before Christmas. Previous posts:
In the previous post, I took a look at the MoT paper’s findings on the economic efficiency of state highway spending. MoT showed that since 2008 spending on the Roads of National Significance (RoNS) has gone up, while benefit-cost ratios have gone down. As a result, we have almost doubled our spending on state highways without achieving any more economic or social benefits from that spending.
This week, I’ll take a look at a different question: Is it possible to spend our road budget more efficiently? If we chose to build other roads instead, would we get more benefits from them?
The MoT paper examines this issue quite comprehensively, and comes up with an unambiguous “yes”. But before I get into it, it’s worth reviewing the system that the Government is currently using to assess transport investments. Projects are ranked on three criteria:
- Strategic fit [i.e. is this project trying to do something that the Government cares about?]
- Effectiveness [i.e. will this project actually do what it’s intended to do?]
- Benefit and cost appraisal [i.e. will this project deliver more benefits than costs?]
In short, the BCR is only part of the picture. In practice, it’s less important than strategic fit. However, it’s still an important criteria for determining whether we are getting good value out of our transport investments, especially as many of the strategic outcomes that the Government wants are accounted for in a transport cost-benefit analysis.
With that in mind, Section 5.4 of the MoT paper compares BCRs for local road and state highway projects which have committed funding versus those that will probably receive funding or which will remain unfunded.
This analysis, summarised in the chart below, shows that BCRs for state highway projects tend to be lower than BCRs for local road projects whether or not they have committed funding or not. This might be an indication that too much money has been allocated to new state highways – effectively, there are worthy local roads that are going unfunded.
Another worrisome finding is that BCRs for “committed and approved” state highway projects are considerably lower than projects that are merely “probable” or which have not been given funding. This suggests that even within the state highway budget, funding isn’t going to the projects that offer the best returns.
However, the MoT paper notes that these figures include “significant spending on large strategic projects” – the Auckland Manukau Eastern Transport Initiative (AMETI) in local roads and the RoNS in state highways. Is it simply the case that a few big funding calls are skewing the results?
Here’s what the chart looks like with those projects removed. As you can see, “committed and approved” state highway projects other than the RoNS also offer a lower return than the “probable and reserve” projects that may or may not get funding. What the hell is going on here?
Elsewhere in the paper, MoT sums up the situation as follows, with a nod to the idea that traffic forecasts are over-predicting growth:
It also compares these figures with BCRs for other transport spending, including NZTA-funded PT infrastructure and services and walking and cycling projects, and concludes that:
In other words, the focus on big state highway projects means that the Government is passing up higher-value spending that serves other modes. Unfortunately, the paper doesn’t offer a lot of additional analysis. But it would be interesting to know how much analysis NZTA or MoT has done on the bus infrastructure projects that are needed to get good transport outcomes in Auckland, such as the Northern Busway extension, the Northwest Busway, extensions of the AMETI busway, and bus interchanges to support Auckland’s New Network.
With all that in mind, how would we be spending money if cost-benefit analysis was the key criteria?
Section 6.2 of the MoT report contains a number of colourful charts to illustrate how we could be doing things differently. Here’s the bit that stuck out for me. It classifies new state highway projects, excluding RoNS, according to their BCR (vertical axis), funding priority (horizontal axis), and total cost (size of bubble).
If BCRs were the key criteria for project funding, the black-coloured bubbles would be de-funded and the red-coloured bubbles funded in their place:
As you can see, if the Government were focused on getting the highest benefits out of its transport budget, it would have to de-fund most large state highway projects that are currently underway. Yikes.
It’s not clear what conclusions MoT’s drawing from this analysis, as the final paragraphs are entirely blacked out. However, I’d be surprised if they weren’t a bit skeptical of the way that public money is being spent…
Next week: MoT’s analysis of roads spending by region. Preview: Canterbury’s getting a raw deal.