NZTA is funded from petrol tax and road user charges, which obviously comes from cars, trucks, vans and buses using fuel (or travelling kilometres) along our roading network. The theory is that this creates a relatively ‘user pays’ situation, with money raised from road users being spent on projects that benefit road users (including public transport, walking and cycling, which obviously reduce the number of cars that would otherwise be on the road).

There are two types of roads in New Zealand, state highways and local roads. State highways are owned and 100% funded by NZTA – building them, renewing them and maintaining them. Local Roads are owned by local councils (there’s a rather weird legal situation in Auckland where I think the council own the road but Auckland Transport manage it on their behalf) and are funded roughly by way of a 50/50 split between NZTA and council (generally rates) funding. So already we clearly have a situation where roads are subsidised by ratepayers as part of councils’ 50% share in funding their construction, renewal and maintenance. But let’s leave that aside for a minute.

What’s interesting in this situation is that you effectively have Central Government charging (by way of fuel tax and road-user charge) road users for using a piece of infrastructure that’s owned, maintained and renewed by local government. In essence, it’s a somewhat strange situation – an analogy might be that I own a theatre: I built it, I maintain it and I look after it. But people using my theatre actually pay someone else for the privilege: not me. Obviously, the unfairness of the situation is largely resolved by NZTA part-funding local roads – in our analogy giving me back about half of what it costs to renew and maintain my theatre.

A good way of measuring whether local councils are getting their “fair share” of NZTA’s money is to look at the split of actual travel (and therefore technically revenue) which happens on local roads versus state highways and then compare that with the split of spending on local roads and state highways. We already saw that in Auckland the split in travel is approximately two-thirds on the local road network and one-third on the state highway network: If we were to take a fairly strict “user pays” approach to road spending in Auckland, there’d be an argument for roughly a two-thirds/one-third split for local roads and state highways. With public transport largely on the local road network, arguably the split could be even higher.

Where I’m getting with this relates to an amusing document released under the Official Information Act to Green Party transport spokesperson Julie-Anne Genter, which she has passed onto bloggers on this site. It relates to a Ministry of Transport response to Steven Joyce last year, when he was seeking some technical justification for shifting even more money into state highways at the cost of money that would usually go to local councils. You can see this point outlined in the paragraph below: 
Unfortunately for the Minister, the actual figures tell the complete opposite story. We learn that the local road share of travel is increasing (very slightly), but bizarrely we see that the state highways share of expenditure is increasing – a huge mismatch: 
The table clearly highlights that over the past decade there has been an enormous increase in state highways spending and a much slower increase in local road funding, even though the share of VKT between the two has stayed relatively constant. Back in the early years of last decade we can see that there was a reasonably match-up between VKT and expenditure, but since around 2005/2006 that has changed enormously due to the huge ‘spend-up’ on state highways.

In effect, what we see is local councils now pretty much subsidising state highway projects, in particular the big budget items of the Roads of National Significance. Meanwhile the amount of money available for local roading projects is getting squeezed harder and harder, with less spent in the 2011/12 year on local roads than was spent in the 2006/07 year. With the 2012 Government Policy Statement proposing a further big increase to state highway spending, while putting the squeeze on local road spending, it really does become obvious that our local roads are getting screwed over.

P.S. the Ministry (wisely) suggested that such a table not go in the cabinet paper!

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27 comments

  1. It’s very interesting (at least to me) that the Ministry of Health in that MOT report, does not view that the funding split allows for adequate funding of walking and cycling.

    Hear, hear. (Or is it Here, here?)

    1. Cameron’s point is a good one; this is this government’s Modus operandi. Like the way the hole that the tax cuts for the better off made in the current account is being used as a pretext to slash expenditure elsewhere. This financial pressure placed on local authorities is now being used to justify placing them under further control for ‘wasteful’ spending, reducing local government independence and furthering this government’s clear determination to stifle investment in anything other than their chosen ‘deserving’ groups, like road freight and holiday drivers.

      How else can you read it? Ok maybe it’s more a happy accident in this case; a win-win if you like. But the outcome is the same. Who gets the blame for under performing public transport and sub standard local roads? In Auckland that’s AT and the Council.

  2. Your analysis is simplistic and assumes that 1 VKT on local roads generates the same benefit as 1 VKT on state highways. If benefits per VKT are higher on state highways then it’s justifiable to spend disproportionately more on them.

      1. Yes I do quite enjoy my holidays thanks. I don’t know what the ratio is (do you?) but the point is you can’t just compare VKT to figure out the efficient funding allocation.

        1. I can’t think of a better way of working out how to reasonably choose between classes for investment purposes, can you?. The MoT and gov in their GPS repeat again and again that investing in statehighways increases the nation’s economic performance. Nowhere to they show how they come to this conclusion, it’s just an assumption. Work here by economist Stu Donovan concludes that this simply isn’t the case:

          http://greaterakl.wpengine.com/2012/04/02/14-year-old-newsflash-kiwi-economy-waves-good-bye-to-state-highways/

          If there was an area, let’s call it Northland, with a productive or service sector that was separated from a potential market, let’s call that Auckland, for want of a road, or rail line, or shipping route, then it is pretty clear that putting in that road and bringing those previously cut off goods to market is likely to have a positive economic impact. But to claim that spending 2billion dollars to merely slightly speed up an already not overloaded or even islolated route will have any kind of positive impact is clearly bonkers. In fact such spending will clearly have a negative outcome in the vast opportunity cost of such a low to negative return project.

          It is certainly arguable that 2billion spent on improving local Northland roads could result in a better outcome. Not that I’m arguing for that, but it’s a not un-useful thought experiment.

      1. I honestly don’t know if benefits per VKT are higher on local roads or state highways, but saying local roads are getting “screwed over” is a bit dramatic without more substantial analysis. Travel speed is one factor – if speeds are higher on highways then I can travel 1 km in less time and that would be a reason why benefits per VKT could be higher on highways than local roads. But also it depends on the types of trips that people take on different types of roads and the value of these trips. There’s a lot more to it than VKT, that’s all I’m saying.

        1. AS,
          Matts headline on the post is 100% accurate, those OIA sourced figures show that local roads funding IS getting screwed over – no matter what set of comparisons you use, the conclusion is clear. The only argument is to the degree of “being screwed over” that is at play.

          If you have evidence to show that State Road VKTs are at least twice as beneficial as Local Road VKT’s then please do show us that analysis.

          Otherwise, we can all accept I think that the “screwed over” statement is without a doubt valid and true claim.

          If you do not accept that claim as valid , but can’t propduce evidence to show that, then your claim that is is not, is just as empty, emotive and argumentative as you claim Matt L’s post is.

          I’d also point out the RUC and Petrol taxes paid by road users don’t distinguish whether a VKT is on local or state roads, therefore you have to assume that there isn’t a marked benefit difference or the MOT or NZTA et al would have found a way to tax it according to benefit.

    1. There are only a handful of homes or businesses in the Auckland region that are based on a state highway, the rest have to use local road to get to the state highway. I would be surprised if state highways would deliver more benefits than a local road.

    2. Well, here’s a counter-factual to tackle that: at the time when the split was roughly 50:50, or better, the economy was booming. Shortly after the split started moving out in favour of state highways, the economy began to tank. I’m not suggesting any causality, because I know there’s not, but if state highways deliver more benefits per VKT than do local roads the economy should be going gang-busters with all of those benefits that’re accruing because of the huge increase in state highway expenditure.

      The reality is that although state highways tend to see more revenue-generating trips than do local roads, because of their status as carriers of inter-regional commerce (which is why they’re wards of the state, after all), without the local roads to supply the businesses that create the commerce and the homes that consume the commerce and produce the workers, the state highways would be worth nowt. As observed by Matt L, there are precious few consumers or producers of commercial activity that’re located on state highways rather than local roads. The vast, vast majority of Auckland, the largest economy in the country, is supported and supplied by local roads not state highways.

      1. It’s certainly a complicated issue and deserves more detailed analysis …

        One other point – economic activity isn’t the only benefit that transport creates. Going to visit grandma gives her and me a benefit that isn’t captured in GDP.

        1. Like going on holiday maybe?

          And that is the source of the frustration here. Everyone knows the value of a good holiday once in a while, but to build a highway specifically for that purpose? Hmm, not so sure.

          Folks suspect the only “meaningful” things measured are GDP related activities for the purposes of calculating local road benefits contribution to GDP.

          However it seems to a lot of folks that a different set of (non-GDP) benefit measures applies when its a state highway and the cost benefit ratio is being calculated or funding allocated according to these “hidden” perceived benefits.

          How else can you explain the disparity between the local and state highway funding figures in the original post?

        2. Hi AS,

          You raise some good points. Higher speeds not only equate to time savings, but also higher fuel consumption = higher fuel taxes = more willingness-to-pay for 1 VKT on highways compared to local road.

          But I also think Patrick is right to suggest that there is likely to be a diminishing marginal utility to long trips, i.e. a 150km trip is not valued at twice a 75km trip – simply because within 75km you’re likely to have access to almost all the things you want to access. The same holds the further you travel.

          Just note, however, that the government is arguing is that increased investment in highways is warranted because they are supposedly good for “economic productivity and growth”. Historical data, however, shows that GDP growth and highway travel have been decoupling (at a fairly constant rate) since around 1998.

          This means that every unit of GDP that NZ produces now results in less and less highway VKT travel over time. Which in turn means that, at the margin, the NZ economy is developing in ways that do not depend on (or seem to cause) growth in highway travel.

          Yes more detailed analyses are always welcome. But in the meantime it would seem strange to dispute data that shows (fairly unequivocally) how the relative importance of state highways to NZ’s economy has declined over time. And that is directly at odds with the views put forward out by this government.

          Interested to know what you think about this?

          1. Hi Stu, that’s interesting about the relationship between GDP and highway VKT, thanks for injecting some facts into the debate 🙂

            Personally I am interested in how we might go beyond VKT as a measure of transport output – person-km and tonne-km are probably more relevant, to take account of changes in vehicle load factors.

        3. I agree but this extreme policy called RoNS is predicated on unstudied and unsupported claims of causality between building them and positive economic outcomes. There is no such proof, nor even the slightest attempt to find any. Merely the idea constantly repeated by the gov, especially Joyce, and the MoT and NZTA. It’s a big fat lie, or, more likely, a big fat self deception:

          “There is nothing as deceptive as an obvious fact” -Sir Arthur Conan Doyle

  3. I don’t think BTW anyone would argue that that the COST of building a state highway is probably much higher than a local road,
    so the COST (i.e. the money NZTA/MoT need to spend) per-VKT are probably a lot higher as a result, in part this is probably because major state highway project can “deliver” many millions of VKT traffic.

    But regardless, unless the benefits measured for that state highway spending is at least equally as high as the costs for those state highway generated VKTs, then under almost any cost benefit analysis system of any reputable merit, local roads will win the day in terms of delivering of benefit per VKT for the COST (i.e. money spent).

    And I guess that is the real underlying argument here, the figures are showing the costs of the state highway VKTs is getting more and more out of alignment with the known benefits so therefore, the local roads are getting screwed over to at a degree.

    The only argument that could be entertained is what the degree of screwed-over-ness taking place is.

  4. But wait…there’s more.

    When so called “high productivity vehicle” legislation was being debated the the issue of increased costs that these vehicles would (will!) impose on local roads was raised with Joyce. His response was to “explain” that since local communities will enjoy the benefits of this increase in productivity they should be prepared to pay for it via their rates. Incredible! (literally).

    1. So is he actually insane, as some who have dealt with claim, and he really believes this crap, or is it just that he thinks this will sound convincing enough to fool enough people?…. Local communities will only experience dis-benefits; more violent road deaths, more noise and and fear from these huge machines, the loss of business going to our rail network and the subsequent loss of that collective value and then, of course, having to pay much more to repair the damage they do to our roads… the benefits will all accrue to his mates in big trucking. Spinner or spin doctor? You decide.

  5. “the COST of building a state highway is probably much higher than a local road”

    No, not automatically, especially when you exclude motorways. Possibly slightly higher on average, but in reality, State Highways are strategic designations – many of our “local roads” in Auckland carry massively more traffic than low-use state highways in rural areas or other parts of the country. High-volume roads are usually wider – more lanes (increasing the cost of stormwater and construction and land cost) and have more costly features (such as more traffic signals). They also have footpaths, street furniture etc… which many state highways have not. The other major determinant, speed is also a factor (higher-speed roads, all other things being equal, are more costly) – but our rural “local roads” are also 100 km/h, while many of the state highways in urban areas are only 50 km/h. So I don’t think we can make a simple “state highways are more costly” argument. The difference is likely to be more over the map, and smaller than you expect.

  6. The other consideration is that the ‘cheap’ state highway improvements have already been made so what is left is the expensive improvements. Most of the local road costs are maintenance (new local roads are generally paid for by the subdivider) so the cost will not expand much.
    I made a similar comment on the an other post about how the return on investment goes down as the road improvements become more expensive (for the same benefits). This biases upgrades to the plains which could result in dirt tracks in the hills.

    This can be seen in the western ring motorway around Auckland. The ‘cheap’ parts were done first and the most expensive bit (waterview) was left to the end.

  7. How about using real words not these obscure (to me and I guess lots of other readers) acronyms such as VKT and NLTF.

    Thanks

    1. In terms of improving this blogs readership I would agree with Andrew R. I think It would be best to not to use any acronyms (except perhaps really well known ones such as GST and EFTPOS) unless they are defined in that post.

      That way somebody who stumbles across a post out of context from a Google search will have a greater chance of making sense of it.

      BTW Thank you to the authors of this blog for the hours they put into it and the interesting content that results.

  8. I think VKT doesn’t suffice as the only measure. The other thing that isn’t considered here is the pure amount of local roads compared to State Highways. Take Auckland as an example there is only 200 odd km of State highway where there are tens of thousands of kilometres of local roads. Sure a motorway carriers more traffic but a simple cul de sac or rural road which only carries 50 vpd still requires alot of maintainance.

    Auckland is an extreme example but over the country there are still far more kilometres of local roads than state highways and regardless of how many vehicle they carry all have to be maintained.

  9. a couple of issues with local roads,

    first, to a degree, the imbalance between state and local road building comes about because councils need to find their share of the money and we all know (I hope) the pressure that has been on councils for decades to keep rate increases down, whereas NZTA gets all its money given to it on a plate, sure, it has to make a case to Treasury for its budgets, but the people paying are one step removed and are largely unaware of the taxes they’r paying at the pump, unlike ratepayers

    second, most council transport spend goes on maintenance and renewals, most (not all) new roads are built by developers and then vested in the council as a condition of the subdivision or development consent

    as to valuing a state highway vs. a local road, if the commodity is access rather than just movement, you could argue that a local road provides greater access to a wider variey of activities than does a state highway which often is deliberatly low access to protect the through function

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