As I noted in a post recently, NZTA have released a “National Farebox Recovery Policy“, which in some respects makes sense: to create some sort of mechanism that can help ensure we get value for money from our public transport investment. As Auckland’s ratepayer/NZTA contribution to public transport funding has increased hugely over the past decade, while patronage has barely kept up with population growth, clearly something doesn’t add up and steps should be taken to ensure we can get better value for money out of public transport – the very reason why we needed the Public Transport Management Act.

Most of the National Farebox Recovery Policy is actually quite fine. It talks about the need to consider a wide range of factors when setting the recovery ratio, the need to recognise the wider benefits public transport provides, the need to recognise the social benefits of public transport and so on. However, amidst all this fairly reasonable talk is the clanger: a requirement that the farebox recovery ratio averages 50% across the whole country in “the medium term”. There’s something truly strange about this requirement as it doesn’t fit in with pretty much everything else that is said in the farebox recovery policy, but because of its potential impact it actually drowns out everything else in the policy. It is the policy, and potentially it will become the public transport policy throughout New Zealand, possibly leading to high fares, services cuts and the “death spiral” for public transport that I described a few days back.

Being somewhat curious about this “mis-match” between the 50% figure and the rest of the policy, I was pretty happy when a recent Official Information Act request I put to NZTA for some of their board papers ended up capturing a lot of the work NZTA has done to inform the final farebox recovery policy. And there’s some really interesting stuff in there. Of particular interest is what NZTA say about the 50% idea for Auckland, Wellington and Christchurch (which was one of the options in the proposed policy, what we’ve actually ended up with was quite outrageously not even one of the two options consulted on). I find this bit particularly insightful. Basically, what this means is that while raising the farebox recovery level to 50% in Auckland would save around $8.4 million of public subsidies per year, the loss of patronage that would result from the increased fares would result in a $64 million negative outcome. Effectively for each dollar “saved”, we lose $8 in wider economic costs as people get back in their cars and clog up the roads.

Of course that is stupid. NZTA know it’s stupid and have said so. So why on earth are they proceeding with this crazy policy? What this table shows is that we should actually be looking the other way, to reduce the farebox recovery ratio because it seems to pay back extremely well in terms of economic benefits if patronage is increased: for example in Wellington it would cost $4.3 million extra to lower the farebox recovery down to 50%, but that would “pay off” with $22.14 million of benefits – a cost-benefit ratio of $5.14 returned for every dollar invested (translation: extremely high.)

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39 comments

  1. “What this table shows is that we should actually be looking the other way, to reduce the farebox recovery ratio because it seems to pay back extremely well in terms of economic benefits if patronage is increased”

    Actually I would say even better is to raise the cost of travelling by car to truly reflect its economic cost. Making all transport users (public and private) face the full economic costs will result in better outcomes than just subsidising both sets the same amount. If you subsidise both sets you are subsidising travelling vs not-travelling, which incentivises travel and therefore sprawl.

  2. It would be interesting to see what the result of making each mode pay for itself would be. It would also be interesting to work out how you’d do it efficiently and effectively (for roads in particular given hidden subsidies like “free” parking).

    For example, NZTA’s economic evaluation manual shows that each new rail trip in Auckland benefits the city as a whole (including benefits to the person themselves and to non-users) by around $30. This well offsets rail subsidies.

  3. I’m hoping this is them ruling out big fare increases as a option for meeting the ratio… I may be wrong, but I think the system is on the verge of becoming way more efficient:

    1)We are currently in a transition when it comes to energy efficiency of PT; the new buses being introduced are super fuel efficient I’ve read, and the electric trains should be a lot cheaper to run. Not sure what the cost ratio is of wages : energy, but if its not too bad this should make a big difference.
    2)With integrated ticketing, Veolia may cut excess train managers.
    3)I think we are getting quite close to the point where many services are frequent enough that they are convenient to use without planning your day around them- which means future frequency increases will more and more resulting from capacity issues, rather than running enough services so that the route is convenient for people to use- this should hopefully make a big difference too.

    Hopefully these will increase our ratio quite a bit, or did I read that they define the ‘medium term’ as 2012?

  4. Yes Sam you’re right that we are on the verge of big increases in efficiency, but wouldn’t we rather that money saved to go into improving frequencies, extending bus lanes, building better bus stops etc – as opposed to “money we don’t need to spend on public transport”?

  5. I’m not saying I support the farebox recovery scheme in its current form, just that it may not be quite the premature end of Aucklands PT renaissance as people think. I completely agree with you on the above (as with most things I’ve read on your excellent blog).

  6. Just another reason we need transport decisions at both a national and local level made by people who aren’t encumbered by political interference

  7. You are right Sam, there is most probably a reasonable chance that Auckland could have a 50% farebox recovery ratio in 2018 and public transport not be completely rooted. However, the arguments against an arbitrary farebox level seem immense, I mean maybe the target should be whatever maximises the economic return – even if that means it’s 25%?

    That seems more logical to me than anything NZTA have come up with so far.

  8. The other thing is it doesn’t have to be 50% in every region but just 50% on average across the country. Being completely selfish there is no reason why wellington couldn’t keep theirs at the same level to help bring ours up.

  9. The problem with the 50% national average is that many of the smaller regions have extremely low ratios, which we’ll need to compensate for. 90% of PT is in the three big cities, but it still seems stupid that our farebox recovery will in some way depend on what Invercargill does.

  10. Hopefully someday we will have people in power who do look at the big picture, rather that just their slice of the pie (public transport), and its own balance sheet. It seems at least a bit of that logic is seeping into NZTA somewhere, or else we wouldn’t be looking at the above table. I mean, somebody consciously put that there because they know that ruining public transport to save a few million will cost EVERYONE dearly.

  11. Yes… Invercargill especially… ALL off peak bus trips are free there- why should my expensive lunchtime bus fare at the other end of the country subsidise that?? Surely there will be different requirements (that average to 50%) for each region, or can the smaller regions (like Invercargill) do what they like knowing that big brother Auckland will make the hard decisions pull all the load??

  12. Sam, you’re right that there are some good people at NZTA and the need to do more than just “build heaps of roads” appears to be slowly filtering through their organisation. I’m pretty damn sure the 50% across the board requirement wasn’t their idea ;).

  13. Are bus systems all centered on larger urban areas, or are their local buses in places like Gore and Turangi and Kaitaia? I really have no idea what goes on out in the sticks.

    I think it is reasonable for intercity buses, air travel, and inter island ferrys to be unsubsidised. I think intercity train travel is a rubbish idea and should be scrapped, just by the way. SO… If the public transport that you’d want to subsidise (local buses and rail in Auckland and Wellington) is all specific to particular large urban areas then why isn’t the subsidy a matter for the local city council, rather than the national government? If Invercargill want to pay for their buses out of rates and make them free to ride, then they can vote for it and do what ever they like.

  14. Obi, NZTA’s involvement in public transport funding is because they distribute “road user” money (ie. petrol taxes). As road users benefit hugely from more people using public transport (because there are less people on the road congesting things) it makes good sense for road users to help pay for public transport.

  15. Admin… So why doesn’t NZTA keep whatever money it needs to pay for national roads and distribute the remainder to councils to use as they wish. Maintaining local roads, subsidising public transport, or building swimming pools if that is what they want. I’m sure some formula could be found for dividing up the money, whether on the basis of population or on the amount of petrol tax raised in each region.
    I think national transport (state highways, airlines, interisland ferrys, etc) should be centrally funded and coordinated. Even if for no better reason than, say, ensuring that the residents of Kaikoura don’t have to pay for the road between the North Island and Christchurch. But I think that local councils elected by local people are more than able to decide on local priorities without being directed by Wellington-based politicians and public servants.

    1. I think NZTA want to be very involved in how money they consider “theirs” is spent. Not necessarily saying that’s the right thing, but it’s certainly what they do.

  16. Oh, and I can’t believe that an increase in average fare from $1.90 to $2.26 is going to lead to a large decrease in patronage. The fare is still lower than in Wellington and public transport is well used there. 36c is nothing, the fares would be tiny compared to those in cities like London, and I think people take public transport for lots of reasons (not owning a car, not wanting to sit behind a steering wheel in nose to tail traffic, ability to read a book while commuting, etc) that aren’t sensitive to price. I don’t see anyone transferring from bus to car to save 36c. I can see a few short trips abandoned in favour of walking, but although these would lead to a loss of revenue they wouldn’t increase road congestion which is where I suspect most of the enormous economic benefits come from.
    I’m not arguing in favour of any particular subsidy ratio here, because I don’t have a strong view on the matter. I just think the quoted figures look dodgy. The model that generated them doesn’t match the real world that I see.

    1. In my opinion the most interesting thing that comes out of that table isn’t necessarily that a 19% fare rise would lead to a 7% drop in patronage, as I guess that’s a bit of guesswork. What is most interesting is that a 7% drop in patronage results in $68 million of economic costs.

  17. Jarbury, I don’t know how you find the time to read all this stuff, but its good for us, we get the “summary version” 😛

  18. This is a smoking gun, well done! Question to the Minister please! Love the way it has “Released Under Official Information Act” so that SJ knows it wasn’t leaked when he sees it!

  19. So why doesn’t NZTA keep whatever money it needs to pay for national roads and distribute the remainder to councils to use as they wish. Maintaining local roads, subsidising public transport, or building swimming pools if that is what they want. I’m sure some formula could be found for dividing up the money, whether on the basis of population or on the amount of petrol tax raised in each region.

    Well, this is what the regional fuel tax would have achieved, but it got nobbled by National, and replaced with a loan for rolling stock that Auckland ratepayers have to pay back.

  20. This amounts to little more than vandalisim or sabotage dressed up as econmic pragmatisim.

    SJ does not and never will see the value in Government investing in developing public transport for Auckland or any other city. All he’s concerned with are the short term costs, and getting as much of them as possible off the government’s books, so he can concentrate on the things that really matter like builidng a motorway to Wellsford.

  21. “Oh, and I can’t believe that an increase in average fare from $1.90 to $2.26 is going to lead to a large decrease in patronage.”

    Eh, Obi, you are phrasing it the way the minister would do it: “It’s only 30 cents, surely everyone has 30 cents extra”… – but you aren’t paying 30 cents. You are in fact paying 30 cents on a lot of fares throughout the month, so playing it down that way is ridiculous. I mean, let’s just look back at what 6 (!) cents increase did in the past – when it was 6 cents extra in regional fuel tax. Small numbers add up!

    And yeah, admin – this is a very powerful scoop. This government is willing to ignore economic sense just to push through their policies (one of which IS “economic sense”). Why am I not surprised.

  22. Maybe this shouldn’t just be a question to SJ in house, but should go to the media as part of the questioning of either his competency and/or his motives and his smug attitude.

  23. I guess one of the problems is that it’s a pretty complicated issue, and not necessarily that easy to simplify into something that would make a good media story. This issue has a while to run yet though 😉

      1. Wasn’t as good as this one, the basic part of it was that as a result of the new policy either patronage will need to increase, costs (services) be cut or fares rise.

  24. I agree about the 30 cent increase thing. I remember being a student (i.e., one of the main public transport using groups in Auckland) and how the cost of public transport fares really impacted on my budget. $2 per trip may not seem like much but if you take 2 trips/day it really adds up over the month ($80). When I switched to using my bike it made a huge difference to my finances.

  25. Good, frequent service is something people will pay for.
    Conversely, nobody will catch public transport if the service is not frequent (and by ‘frequent’ I mean at almost ANY time of the day or night).

    Public Transport really can’t compete on price I think, but it can compete on quality of service.

    Brisbane has found that by putting on high frequency buses, and I mean buses that run a minimum of 15 minutes all day from 6am – 11.30 pm all day every day including weekends, sundays and public holidays NO exceptions whatsoever (some routes run every 5 minutes during peak hour) there has been a truly unimaginable jump of huge proportions in patronage and I suspect that the fares collected from that offset the initial investment. The buses just keep filling up! And Brisbane is one of the lowest density cities in the World, well below that of Auckland! (~900 persons/km2 or so, Demographia)

    Truly spectacular increases were observed in very short time frames- most over 100% (see here: http://www.thredbo-conference-series.org/downloads/thredbo10_papers/thredbo10-themeA-Warren.pdf)

    There doesn’t seem to be any reason why this can’t also be done on rail networks with trains running every 15 minutes all day with buses feeding into the network.

    This link shows some farebox ratios around the world.
    http://en.wikipedia.org/wiki/Farebox_recovery_ratio

    Toronto Transit Commission (TTC) farebox recovery is about 66%. If you put services on, people will pay for them. If you design a network really efficiently (buses feeding rail) maybe it is possible to get a very good farebox ratio after all.

    1. We could vastly improve our farebox recovery ratio if it weren’t for the convoluted way in which we operate public transport in New Zealand. The bus operators rip the public off blindly.

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