ARC hammers NZTA farebox recovery policy

As I mentioned a couple of weeks back when I drafted up my submission on NZTA’s draft farebox recovery ratio, I mentioned that the Auckland Regional Council (ARC) had come out strongly opposed to the policy, and considered that it was fundamentally flawed. The extent to which the ARC opposes the policy, or at least parts of it, has been highlighted in the most recent agenda for the ARC’s Transport and Urban Development Committee. Here’s one of the more interesting parts:

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.

It needs to be recognised that as a major funder the NZTA has a legitimate interest in improving the cost effectiveness of public transport and that the farebox recovery ratio is an important and useful efficiency (but not effectiveness) indicator. The range of farebox ratios around the country and between modes, and decreasing ratios over time, suggest that there are issues which the NZTA needs to explore. It is considered however that a farebox recovery ratio target, set in isolation of effectiveness measures, is a particularly blunt and unhelpful measure. It would be more effective if the NZTA were to work with regional councils in developing strategies (including consideration of financial implications), provide guidelines for setting fares, and use the farebox recovery ratio as a monitoring tool rather than a financial management tool.

This might not sound especially strong-worded, but for a public agency such as the ARC to criticise the NZTA’s work they’ve done in putting together this policy so directly seems quite unusual. There are other interesting parts too:

The farebox recovery ratio is only indirectly connection with effectiveness (as defined by the purpose and objectives of the LTMA) and there is no discussion in the document as to what constitutes “fairness”. Nor is “affordability” included in the objectives, in spite of this being a requirement of the LTMA.

and

The matter of how to assess the benefits to users and non users, and how to allocate costs between users, ratepayers and other road users is not addressed by this paper. This is a vexed question which has exercised the Ministry of Transport and the NZTAs predecessors for a number of years without resolution. It now appears to be left for individual regional councils to propose, for approval by NZTA.

Translating the jargon, it appears as though the ARC is basically saying to NZTA that the proposal is stupid, too narrowly focused, doesn’t really get to the bottom of working out what the real fair share of funding between users, ratepayers and NZTA should be, or anything of that matter. This is a pretty damning criticism of the draft policy. But it doesn’t end there:

Strategic fit
The consultation document focuses on the efficiency of public transport with no discussion of how public transport fits within the wider policy context. There is no reference to the purpose or the objectives of the LTMA – the LTMA is mentioned only in the context of regional councils being required to address LTMA objectives (and the GPS). The document does not recognise wider government objectives such as the support in the GPS for public transport in major cities, the acknowledgement in the National Infrastructure Plan discussion document of the importance of urban form and the “shaping” role played by transport in delivering this, or the requirements in the National Energy Efficiency and Conservation Strategy for improvements in public transport in order to reduce energy use. There is no recognition of the expectation that the Government will adopt greenhouse gas reduction targets within a matter of months, and that improved public transport will play a part in delivering these targets. There is certainly no recognition of the Auckland transport strategy of deliberately moving away from road improvements in favour of improving the public transport system.

All these factors suggest increasing investment in public transport services and potentially accepting a reduction in the farebox recovery ratio in order to achieve wider benefits.

Narrow focus
Initial assessment by ARTA suggests that to raise fares sufficiently to achieve a 50% farebox recovery ratio would involve pushing a number of current passengers into cars, and that the consequent increase in congestion would be an economic cost to the region in the order of double the increased fare revenue. In addition, the switch to car use would result in additional air and water pollution, community impacts, greenhouse gas emissions, and in due course additional expenditure on increased road capacity.

The paper notes that the way public transport modes currently operate means that comparisons between modes and between regions is unfair. For example, farebox recovery ratios for bus includes the cost of vehicles, whereas rail farebox recovery ratios do not. Comparison of regions with a different balance between bus and rail is therefore not appropriate. Nevertheless, the paper does make this comparison.

Lack of research/benchmarking
The paper references no research or international benchmarking of farebox recovery ratios. No examples are given as to other jurisdictions setting farebox recovery ratio targets and the effectiveness of these measures, and no examples are given of overseas farebox recovery ratios. Research commissioned by the ARC in 2005 suggested major Australian cities have farebox recovery ratios less than 30%.

The discussion paper notes that NZTA plans to undertake research to establish optimal fare and subsidy settings for public transport systems in NZ. In spite of acknowledging the need for this research, NZTA proposes to introduce farebox recovery policies prior to carrying it out. It is considered that the research should be strongly supported, and that further information should be gathered on farebox recovery ratios in NZ, but that introduction of this policy should be deferred until the research is available.

Rail farebox recovery
Particular care needs to be taken in interpreting farebox recovery ratios for rail. For rail there is a very strong relationship between operating costs (which are included in the farebox recovery ratio) and investment in infrastructure (which is not). Operating cost is very much related to the age and type of rolling stock. New electric rolling stock will have considerably lower operating costs (and therefore higher farebox recovery ratio) than old, diesel rolling stock. In Auckland, lower operating costs will not be fully gained until the electrification project is completed, and the increase in patronage (the “farebox” side of the ratio), will continue for some time after that. A farebox recovery ratio target for rail would therefore need to be staged over time to account for the impacts of capital investment. Any target with an arbitrary lower limit that did not take account of the investment timeline would be quite misleading. A exclusive focus on farebox recovery is likely to obscure the more important issue of the balance between capital expenditure and operating expenditure that optimises whole of life costs

Gap in logic
Perhaps the most worrying aspect of the discussion paper is the proposal (option 2) that the farebox recovery ratio for Auckland, Wellington and Christchurch should be set at a minimum of 50%. No evidence or rationale is produced for this number, other than it is not too different to the current ratios. Adopting this option could have a dramatic negative impact on the development of Auckland public transport system (and on the Auckland transport system generally). Given the absence of any evidence to support this number, it is considered that this option should be strongly opposed.

I just have to say “wow”. The ARC have just completely and utterly destroyed the logic (if there ever was any) behind the farebox recovery policy. It seems clear that the farebox recovery policy was probably specifically developed to “have a go” at the amount of money being spent by councils and NZTA on public transport in Auckland – particularly on the rail network.

I have heard that the level of rail subsidy per passenger in Auckland remains quite high, and it about double that of Wellington.However, the reasons for this are clear. Auckland has crappy old diesel trains. While Wellington’s trains are also old, they’re electric which means they have much lower operating costs, plus the network is more mature which means higher patronage for each service – so a more efficient and effective system. The whole damn entire point of the major public transport projects underway in Auckland at the moment, such as rail electrification, integrated ticketing and so forth is to improve the effectiveness and efficiency of the public transport network – so that we can get better value for money. I am glad that the ARC has clearly pointed out how this fact seemed to have flown a mile above the heads of anyone at NZTA.

It will certainly be interesting to see of the Farebox Recovery Policy goes anywhere following this damning indictment.

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