NZTA pushing for PT fare hikes and service cuts

How does an up to 70 percent hike in public transport fares sound, or maybe a lower increase but a big cut to services? That could be the reality of a new policy from Waka Kotahi outlined in a discussion document last week to public transport authorities (PTAs) like Auckland Transport.

The government made a lot of noise earlier this year that it was making record investments towards public transport services. However, this discussion document shows that behind the scenes they’re pushing to kill it by bringing back a modified version of the last National government’s old Farebox Recovery Policy, that will likely require a combination of hiking fares and cutting services to achieve.

Here’s what they said about PT services in June. PT services is the operation of buses, trains and ferries and is separate from investments in public transport infrastructure.

The Government has announced a record 41 per cent increase in indicative funding for public transport services and operations, and confirmed the rollout of the National Ticketing Solution (NTS) that will enable contactless debit and credit card payments starting this year in Auckland, Transport Minister Simeon Brown says.

“This Government is committed to supporting public transport to provide more travel choices for New Zealanders. The NZ Transport Agency (NZTA) Board has confirmed indicative funding from the National Land Transport Fund for public transport services and operations will increase by 41 per cent compared to funding allocated between 2021 and 2024,” Mr Brown says.

“This is a record investment in public transport services and operations to deliver reliable services to commuters across the country.

…..

“Our Government is committed to investing in reliable public transport services and technology so that local councils can deliver the services New Zealanders need,” Mr Brown says.

The discussion document is dated 18 November and focuses on increasing the “private share” of funding – this is just a new term for the farebox recovery ratio.

Private share is a measure of cost recovery and represents the proportion of public transport operating expenditure funded from private revenue sources. Government aims to increase private share to support increased levels of public transport expenditure and reduce pressure on ratepayers and taxpayers. The policy framework for private share is broader than the previous farebox policy, with a more tailored regional approach and some important differences in how cost recovery is measured.

Private share is calculated as revenue divided by operating expenditure. Private share revenue includes passenger fares, private fare substitutes and commercial revenue. Operating expenditure includes the management and operation of passenger services and the maintenance and operation of public transport facilities and infrastructure. Operating expenditure does not include capital renewals or infrastructure improvement projects.

The document notes how the private share of funding has fallen since 2018/19 with the national average dropping from 33.2% to as low as 11.6% before recovering to 20.5% last financial year.

It’s not just COVID that has impacted things either, for example:

• The government funding half-price fares is counted against this and they say 2022/23 would have been near 25% without it
• Following the removal of general half-price fares, the introduction of half price fares for those under 25 or with a Community Services Card and free fares for those aged under 13 kept the result lower and they estimate it would have been near 27% without this. The government removed this from July this year.
• Costs have also increased though things like raising bus driver wages

The private share differs greatly by region and Auckland has recovered the best with the rate at 71% of what it was pre-COVID.

I note that when AT revealed earlier this month that it was increasing fares by 5.2% in February, they said it would result in farebox recovery increasing by 1.15%, from 33.64% to 34.79%. They also said the size of the increase would reduce ridership by around 1.4%, or around 1 million fewer journeys.

Those AT figures look good compared to what things were above in 2018/19, however, it is not directly comparable to the new private share metric as Waka Kotahi also plan to exclude things the SuperGold fare substitute from the calculation.

Through the SuperGold scheme, the government requires public transport to be provided for free for over 65’s during off-peak times. For this travel they give PTAs the funding equivalent to what that trip was worth. For example, there were 7.44 million SuperGold boardings in Auckland during 2023/24 and the government paid Auckland Transport $20.2 million to cover that. It is counted towards the farebox recovery ratio AT uses above. Going forward that won’t be able to be counted and that doesn’t seem fair at all as its not like they can opt out of SuperGold and so puts even greater burden on everyone else to meet the targets.

One other change from the old Farebox Recovery Policy is that instead of a single national target, each region will have its own target. This is potentially good for Auckland as we make up around 55% of all PT boardings in NZ and combined with Wellington account for around 80%, meaning these two regions had to do most of the heavy lifting to achieve that target. They won’t yet say what those individual targets are though but this suggests it will be close to 40% within a few years. It also appears the targets will start for the financial year we’re nearly half-way though.

To help put things in perspective, they also provide this chart looking at cost recovery in NZ vs Australian cities.

As part of this they say

New Zealand and Sydney track a similar trend, with the only divergence bring the faster recovery out of covid-19. This is likely due primarily to the extended lockdown period in Auckland.

This doesn’t ring true to me. Ridership recovery rates have been almost identical between Sydney and Auckland and of all the cities I’ve been tracking, they are the two that are the closest. Sydney’s sooner ride in cost recovery is likely due to some other policy setting.

Options for increasing private share

The discussion document makes a number of suggestions for how the private share ratio can be increased. These include:

• Raising Fares
• Increasing demand by:
  • Improving service performance
  • customer experience
  • Network improvements
  • More/better marketing and promotion etc
• Lowering operating costs, by:
  • Better procurement
  • Optimising networks
  • Reducing service levels
• Increasing third-party revenue, such as with:
  • Increase advertising
  • Increase sponsorship
  • Corporate fare schemes
  • Develop rental income
  • Operator access fees
  • Business/commercial opportunities.

They also say that fines from enforcement of passengers for things such as not paying fares can count towards the private share figures but that fines from enforcing bus lanes or parking can’t be counted towards it. It’s not entirely clear but it seems to suggest any revenue from charging for Park and Ride also wouldn’t be allowed to be counted.

The target table above would suggest they want Auckland to be at around 40% in a few years compared with around 27% now (adjusted for the removal of the half-priced/free fares in July). To achieve that, the sentence below would suggest we would need to see around a 50% increase in fares for Auckland and close to a 70% increase in Wellington.

For context, a 0.5 percentage point increase in private share would require approximately a 2% increase in private revenue or a 2% reduction of operating expenditure, or some combination thereof.

Talk of increasing fares by that amount would be catastrophic for PT use, especially as they’re already higher in Auckland than elsewhere in the country.

The Hypocrisy

The big problem with this focus on private share or farebox recovery is that it doesn’t take into account the impact the public subsidy has. Even post-COVID, Auckland regularly sees more than 300,000 public transport boardings on weekdays. That’s hundreds of thousands of car trips avoided, preventing congestion from being worse along with many other of the negative externalities that come from having more cars on the road, such as more emissions, reduced safety and many other issues.

We should treat PT funding the same we do for any other transport investment, which is to fund it based on the economic impact it has on our cities by addressing some of the things noted in the paragraph above.

There would probably be less objection if that were done but there’d also be far less hypocrisy. Behind all this they say:

Private share is part of a broader focus on embedding a more commercially oriented approach and improving national and regional oversight of public transport.

How about also taking that “more commercially oriented approach” to other areas of transport investment.

For example, Waka Kotahi recently released their most recent cost estimates for the government’s Roads of National Significance and they’re astronomical, many of which replace roads that move fewer people than some of our bus corridors. In total this new batch of RoNS would cost $22 to $32 billion if all built and this is based on costs to last year. They also note that as these projects progress though the business case and design process it’s likely they’ll increase further. Some of the projects, like between Point Marsden and Wellsford, aren’t even on here so the actual costs will be even higher. It makes me wonder if part of the reason behind this private share push is so they can put a bit more money towards these projects.

Earlier this year I took a look at what kind of tolls might be needed to pay for these projects (when the costs were lower) if we paid for them the same way the government want rail projects paid for.

With these new costs I’ve looked at this again with a lens of what kind of ‘private share‘ revenue we’ll get from the vehicles that will use these roads compared to the cost of maintaining them and paying for the debt needed to build them. By private share for vehicles I mean the amount of money vehicles will pay through fuel taxes or road user charges as they travel over the road. I wasn’t able to find current or predicted traffic volumes for some of them but for the ones I was able to, the recovery rates make the current PT rates look heroic.

At just 3.4% overall, perhaps Waka Kotahi should focus more on making these projects more commercially viable first.

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