Yesterday I a piece on Radio NZ caught my attention about Labour wanting to change how public transport is tendered.
A much-criticised way of choosing companies to run bus or train services look set to be axed. Unions argue the competition pushes down wages and conditions and the new Minister of Transport Phil Twyford agrees. He’s asked officials to come up with a better way.
This is potentially quite concerning, not because we don’t want to see bus drivers get fair wages – on the contrary, but because changing the tendering system risks throwing the baby out with the bathwater. It could be a case of treating the symptoms while not addressing the underlying cause of funding constraints.
Before getting into the details, I think it’s useful to take a few steps up in altitude.
Thankfully, PT is no longer seen as the transport option of last resort, something used only for those who can’t drive. As such there now is broad agreement that Auckland needs a good quality public transport system and achieving this is increasingly important as the city continues to grow. While it’s most pressing here, other cities need to see improvements too and the pubic want to see more spent on PT.
The good thing is we know what is needed to deliver a quality, successful PT system. Auckland is no different to any other city and a mix of frequency, reliability and legibility are critical drivers of increased PT use. We’ve already been seeing it working here on selected routes, such as the Northern Express, for some time and Auckland Transport’s New Network takes that concept and city sizes it. The New Network that’s being rolled out is just the beginning though, a minimum viable network if you will. Future enhancements are likely to include upgrading more services to ‘frequent’ status (minimum of every 15 minutes, 7am-7pm, 7 days a week) and increasing frequents above the minimum specs.
All of this costs money though and most of the attention tends to go to big flashy infrastructure projects like Light Rail rather than the day to day operational challenges. So, at a high level, here’s how PT operations are funded, or at least how they’re meant to be based on government policies.
- Fares – The NZTA’s Farebox Recovery Policy (FRP) seeks to have half of all operating costs paid for by PT users from fares.
- Subsidies – The operating costs not covered by fares are paid for by a combination of money from Council and the NZTA through the National Land Transport Fund. The NZTA’s share is determined by their Funding Assistance Rate (FAR) which is the percentage of costs they’ll cover. This is usually 50%.
The outcome is meant to look something like this.
One of the key challenges is that to roll out the New Network, it requires a substantial increase in service. Thankfully most of that comes from using existing buses much more efficiently but it still does require some additional funding for the rest. There are three general ways this extra funding could be achieved.
Increased fare revenue
There are a couple of ways we could increase fare revenue, with different impacts. We could:
- potentially get more money by increasing the cost of fares. However, this would have a negative impact on ridership, especially given fares could need to rise substantially.
- get more people catching PT. At a high level that sounds great, but more people would likely result in needing more services and therefore cost. The best solution to that is to roll out the new network but the extra money is needed for that roll out to occur.
Increase subsidies evenly
If the farebox policy wasn’t an issue we could look at increasing the share of funding from both the council and the NZTA. However, the FAR means that the NZTA will only match what council invests, and the council already has plenty of funding constraints.
Increase NZTA funding
Like above this would see fare revenue stay at the same level. The council already has funding constraints that makes it difficult for them to increase their share. Instead, the NZTA could increase their FAR to cover the extra costs.
A brief history
In the early 90’s, the then National government changed PT, bringing in a true privatise the profits and socialise the loses setup. Bus companies would run the profitable services they wanted and then councils could contract out provide other services, such as for coverage purposes. Those contracted services were provided on a net basis, so the bus company would collect the fares and then tell the council how much extra money was needed to break even.
In the 2000’s as PT use started to grow again, it lead to a huge increase in costs, in part due to some operators actively rorting the system. That, along with a range of other issues led the last Labour government to introduce the Public Transport Management Act (PTMA) in 2008. That would hand control of the planning of the system to councils and allow for gross contracting – where the council pays the full cost of running services but also gets all the revenue. However, shortly after the last National government came to power, PT operators beat a path to Steven Joyce’s office and he promised to repeal the legislation.
Thankfully, sanity ultimately prevailed and the Public Transport Operating Model (PTOM) was born. PTOM is a bit of a hybrid system, still allowing for routes to be run commercially but only if an operator runs all required services throughout the day, so no cherry picking of just the profitable ones. It also allowed for some legacy commercial routes, such as SkyBus and the Devonport and Waiheke ferry routes to remain. For everything else we gross contracting. However, it took till 2013 for the new legislation pass and even longer for all the intricate details, like contracts.
How PTOM fits in all of this
The New Network represents a wholesale change to how PT works in Auckland and it’s being rolled out alongside PTOM. It’s PTOM that allows AT to require a unified bus livery, minimum bus standards and a range of other improvements. But just because PTOM is rolled out at the same time, it doesn’t automatically mean that it’s at fault.
Impacts of ‘axing’ the tendering process
AT are still working through contracting for some areas of the new network. Axing PTOM now to come up with an alternative tendering solution puts the new network at risk. Labour have spoken well about the need for better PT, particularly in Auckland but without the New Network that can’t be achieved.
The blame that is getting heaped on the tendering process, or sometimes AT, for driving wages down is misplaced. PTOM is just a tool and doesn’t inherently require wages to be driven down. As for AT, they’re clearly responding to the circumstances placed in front of them. The New Network is essential for the future of PT in Auckland but they can’t just roll it out if they can’t afford to pay for it. They’ve clearly made a decision to push to get as much of the network rolled out as possible.
The real culprit in this whole situation is the squeeze that’s been put on PT funding over the last nine years and that has helped force these tradeoffs. Farebox and Funding Assistance policies are stated as being about trying to improve efficiency but have resulted in restrictive outcomes. They’re hard barriers that take no regard for what levels of funding would deliver the best outcomes. If that funding isn’t sorted then the only other outcome is that either we don’t make improvements or we have to scale the ones we do have.