One gets the feeling that the transport “powers to be” in Wellington are a bit grumpy with things. Their plans to shift transport policy towards greater roads-centrism haven’t exactly gone done well in Auckland, with the Regional Council releasing a draft Regional Land Transport Strategy that is the most balanced transport strategy Auckland has seen in 60 years. With great concerns that Auckland’s isn’t exactly “doing what it should”, in following their lines, there seems to be a new strategy to ensure that Auckland can’t get on with transforming its transportation system from one that is roads-centric, into one that is balanced with public transport more. That policy is to starve its funds. A very handy part of starving Auckland’s public transport from the funding it needs is NZTA’s new draft “Farebox Recovery Policy“, which is currently out for consultation until November 30th.

“Farebox recovery” is the technical term for “the proportion of the operating costs of public transport that are paid for through fares”. If no public transport subsidies would be required, the farebox recovery would be 100%, while if public transport were free, the farebox recovery would be 0%. This is further explained in the Policy document:

The primary source of revenue to fund public transport services is the amount paid by the users in the form of fares for the journey, the ‘farebox revenue’. Where the farebox revenue covers the costs, the service is recognised as a ‘commercial service’. In cases where the farebox revenue does not cover the costs, but the regional council or ARTA considers the service necessary, it will contract an operator to provide that service (a ‘contracted service’). The shortfall between the total cost of providing the service and the farebox revenue is made up by payments from the regional council or ARTA.

The NZTA assists the regional councils and ARTA with these payments for contracted services by providing a subsidy of approximately half of the amount of the payments through the National Land Transport Fund. If farebox revenue is covering 40 percent of the total cost of providing the services, a subsidy of 60 percent must be provided. Since the subsidy is split roughly 50 percent regional authority and 50 percent NZTA, the regional authority would have to contribute 30 percent of the total cost of providing the services, and the NZTA, 30 percent. This three-way (user–ratepayer–government) contribution is an important funding principle for public transport services in New Zealand. All three contributions may be required to provide an adequate level of service, but it is preferable that users make the greatest contribution through fares, and if possible that contribution should be grown as a proportion over time.

Most of the above is fully understandable, although the very last sentence is quite interesting – that it’s preferably for users to make the greatest contribution, and that contribution should be grown over time. That’s an interesting position for the document to take – rather than working out what the wider benefits of public transport are, working out the level of subsidies provided to private car users, and then examining whether current levels of “farebox recovery” are appropriate, this document has jumped straight to the assumption that farebox recovery levels are too low, that people should pay more for public transport and that over time people should continue to pay a greater proportion of the operating costs of the service.

The current farebox recovery ratios of the different regions of NZ are included in the table below:current-ratios Now for a start I must say that I don’t disagree with the need to ensure that there is “value for money” in transport expenditure (not just public transport expenditure, all transport expenditure). As I pointed out a few posts ago, the growth in subsidies to public transport providers over the past decade in Auckland has not had the results that one would have hoped for (250% increase in subsidies for a 44% increase in patronage isn’t great). I think the obvious solution for this is greater co-ordination of services so that we can eliminate much of the “duplication” which the current system seems to encourage. The Public Transport Management Act was specifically passed to allow for greater co-ordination of services, as can be seen in the draft Regional Public Transport Plan. So, much of the cause of this “problem” is already being tackled.

Two options are being looked at for the Draft Farebox Recovery Policy. The first of the options is:

Option 1: Formalised status quo – regional authorities set their own farebox recovery ratio target based on the NZTA’s objectives and principles for farebox recovery policies

This option requires all regional authorities to set a farebox recovery ratio target for their region based on the NZTA’s objectives and principles for farebox recovery policies. Not all regional authorities have a formal published farebox recovery ratio target. It is thought that formalising and publishing this target (in the regional public transport plan), and checking performance after three years, will encourage measures designed to improve farebox recovery ratios, and therefore arrest the decline of farebox recovery ratios. This option provides regional authorities with greater flexibility over, and ownership of, the farebox recovery ratio target for their region.

This option seems fairly reasonable, in that it understands the need for flexibility in farebox recovery ratios. I think flexibility is key, in that there are so many different variables that need to be taken into account – such as Wellington’s electric trains having much lower maintenance requirements than Auckand’s diesel trains, but how this will change over time as Auckland gets its electric trains. Flexibility is also required to reflect the Regional Land Transport Strategy focuses for different regions – with Auckland’s specifically having a goal of providing public transport supply ahead of demand, so that people can be ‘pulled’ towards using public transport. Over time, such a strategy will get more people on public transport, but obviously in the shorter term the farebox recovery might be lower than expected. So I think flexibility is key.

Option 2 is quite different:

Option 2: The adopted farebox recovery policies set farebox recovery ratio targets of 50 percent for Auckland, Wellington and Canterbury, with the ability to seek funding approval from the NZTA for the activities on the basis of an alternative target (if satisfactory justification is provided). All other regional authorities set their own targets.

This option requires ARTA, Greater Wellington Regional Council and Environment Canterbury to adopt policies that set a farebox recovery ratio of no less than 50 percent. All other regional authorities set their own farebox recovery ratio target according to the NZTA’s objectives and principles for farebox recovery policies. ARTA, Greater Wellington Regional Council and Environment Canterbury can apply for funding for activities based on an alternative farebox recovery ratio target. These applications will be considered on a case-by-case basis.

Applicants (ie ARTA, Greater Wellington Regional Council or Environment Canterbury) for an alternative farebox recovery ratio target should supply evidence justifying why an alternative is necessary. The NZTA will consider all or some of the following matters:
• evidence that the efficiency of operating costs has been maximised
• evidence that further improvement to ridership numbers is unlikely
• evidence that increasing fare prices will make the service or services unaffordable, significantly impact ridership or lead to significantly reduced levels of service
• an assessment of the impact that higher fares or reduced services are likely to have on the transport disadvantaged
• any other information considered relevant to the NZTA’s funding approval decision.

The NZTA considers that setting a target for the larger regions is justified and reasonable for the following reasons:
• It sets out clear expectations from the NZTA on the total levels of subsidy appropriate for the larger regions (25 percent of the total operating costs, unless significant wider benefits can be demonstrated).
• It is similar to the targets already set by these regions.
• It is reasonably close to the ratios ARTA, Greater Wellington Regional Council and Environment Canterbury are already achieving, but still constitutes a stretch target or a reasonable and challenging target to continue to achieve.
• It places emphasis on regions where the biggest gains in terms of operational efficiencies and patronage growth can be made.
• The larger regions can apply for approval of services based on an alternative farebox recovery ratio.

Auckland, Wellington and Canterbury receive approximately 90 percent of the NZTA’s expenditure for public transport services and operations, and account for 91 percent of the patronage.

This option enables all other regional authorities to set their own target based on the NZTA’s objectives and principles for farebox recovery policies. Services in these regions tend to be provided primarily for social rather than economic reasons (eg congestion relief), although in some cases it may be a mixture of social and economic reasons. It may be harder to achieve operational efficiencies and significant levels of patronage in these regions because of factors such as the supplier market, population densities, the number of services, plentiful and cheap parking, and staff resources.

Both options allow for an extension of time to be sought to achieve the target in circumstances where patronage growth from significant service changes may take time to build up. In the future, the NZTA may require that farebox recovery ratio targets are set by mode as well as by region.

This option would be incredibly stupid. There’s no justification for the “50 per cent”, other than a broad assumption that what works in Wellington would work in Auckland, or Christchurch for that matter. It ignores the need for flexibility that I outlined above and completely ignores the regional priorities outlined in the draft RLTS. This option would lead to significantly higher fares, potential service cutbacks and force people back into their cars. While that’s possibly what NZTA are hoping to achieve, it certainly runs against what basically everyone in Auckland is saying.

Fortunately, the Auckland Regional Council are onto this, and a report in the latest Regional Transport Committee meeting agenda outlines their concerns. Here’s a good extract from that:

It is considered that the consultation document is a simplistic approach to management of public transport. It appears to be driven by a desire to manage NZTA costs with no recognition of the contribution made by public transport to wider issues such as more sustainable urban form, reducing congestion, reducing emissions (including greenhouse gases), supporting economic productivity (through getting commuters to work), providing greater resilience against system shocks such as increasing oil prices, and social inclusion.

The discussion does not recognise that the farebox recovery ratio is the outcome of the combination of the pattern of transport demand and the services offered. For a given transport demand, setting a farebox recovery ratio will determine the funding available for services, which will in turn determine the set of services that will deliver that target. The farebox recovery ratio target will effectively be the public transport policy for the region.

I could not agree more. Submissions are open until November 30th – and you can either write up your own or fill in NZTA’s feedback form and send your outrage off to [email protected] .

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3 comments

  1. Option 1 looks alright to me, keeping a good eye on these ratios should show what the profitable routes are and increase pressure to keep quality up… Option 2 could be a disaster and lead to descending ridership with higher and higher fares to recover 50%…

  2. Once we have eliminated all hidden subsidies for road users (funding via rates, unpaid environmental, social and economic externalities, costs of providing parking, CO2 emissions, etc. etc. etc.) then I think we can worry about the level of subsidies provided to public transport.

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