Straitjacket In FrustrationAn editorial

When central government in NZ disagrees with local government on transport projects (be it cycleways or rail links or something else) one of their typical comments tends to be: “Well, if you like it so much, why don’t you fund it yourself?”

Sounds logical, eh?

Yet when our system ensures that roughly 2/3rds of New Zealand’s transport funding is controlled by central government taxes, and only 1/3rd is raised by local rates, then that starts to become a lot more dubious advice. When you then realise that transport co-funding rules actually make it worse, it starts to sound like outright mockery.

Because co-funding is a “carrot & stick” game that central government plays with local government – and it can feel a lot like an authoritarian father who “knows” his children can’t be trusted to spend money wisely.

By setting co-funding rates, central government defines that when a project meets their criteria, local councils can apply from a funding pot for that activity for additional funding. Say we want to build a cycleway worth $100,000. The co-funding rate (the FAR) for that is 53%. That means that $47,000 has to be paid by local government, and the rest, $53,000, is topped up by central government. IF there’s any money left in the pot.

But the “walking and cycling” pot is so small (only ~ 0.7% of all transport money), it is often oversubscribed almost immediately, because Councils all over the country want that money for the many projects they have on the back-burner.

So often, the answer is – “Actually, the pot is already empty. Your project sounds GREAT, but we can’t put in that $53,000 for you. Why don’t you raise it from rates, if you like it so much?

So lets say local government tries. They reshuffle their budgets, to find the money to cover the $53k. But the actual impact is potentially even larger than that. Because since they can’t just raise higher rates, that 53k has to come from some other transport project.

Lets say Council is enlightened, and decides to cut back on a road widening project instead. By getting 53k from the reduced road widening, it is now actually missing out on a further 59k of co-funding it would have gotten for that other project if it had spent the 53k there – because the “road widening pot” is NOT nearly as small as the over-subscribed “walking & cycling” pot.

So suddenly, the actual cost for building that cycleway on their own is 47k original share, 53k subsidy share and 59k lost subsidy elsewhere – for a whopping $159,000 effective cost to local government (more than triple their theoretical amount).

And its all coming out of your pockets (taxes, rates) either way – there’s no savings anywhere. Because central government will simply give the 59k to another Council which DOES decide to do a road widening project. The relative merits of spending on road widening vs. cycleways are never even considered. Carrot – and a lot of stick.

Neither can money saved in one pot be moved into another. Even if they wanted to, Auckland can’t move the 30-40 million recently saved by downgrading the Dominion Road project into, say, funding the SkyPath walk & cycleway over the AHB. Our funding system specifically prohibits moving funding from one activity class to another.

So that’s part of why your local Council is so often tempted to build more roads, when better walking and cycling regularly scores highly in the wishes of their residents. Because the Minister of Transport in Wellington decides how large the pots are, that the pots may never be shared, and that walking & cycling is just dandy at ~0.7% of NZ’s transport investment.

After all, “Aucklanders want to drive, so we should provide for that…” – or somesuch similar claims that we WANT more roads. As opposed to the reality that we USE more roads when they are the only thing given to us.

You want some more stick with that rigged game?

Auckland Council Funding General News Infrastructure National government
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17 responses to “The straitjacket sits tight

  1. The reduction in funding for Dominion Road is not a victory for cycling, since it reduces the width of the shared bus/cycle lane. There’s an alternative cycle lane, but of course many people will use Dominion Road. Another ‘road spending’ loss is increased width of the Carrington Road bridge, which would have improved bus services and cycle lanes.

  2. No to mention that motorways meanwhile get funded 100% from central government, making the road bias even more extreme.

    1. Correct – in fact, the 1/3rd, 2/3rds referenced in the article is essentially (very roughly) that way:

      1 third – rates money direct to/from local government
      1 third – co-funding money from central government to local government
      1 third – state highway 100% direct money from central government

      Its not exactly like that, but I understand that’s a good rough guide.

  3. Yes it’s a sad fact of life that when the National Government came to power they effectively edited the Government Policy Statement (GPS)on Land Transport Funding by replacing “sustainability” with “efficiency”. So PT, rail, walking and cycling were cut, while RONS and big roading projects were boosted. We’re probably not going to see any change in this position unless there’s a Labour/Greens coalition voted in to power, or grassroots Aucklanders start flexing their political muscle to demand changes in the Government’s approach. We and transport planners know we can’t build our way out of congestion – but how to get the message across to those who hold the purse strings?

  4. No sorry this doesn’t make any sense.. whilst the central Government rules are no doubt dysfunctional and “bad” as portrayed here, nevertheless the rules are the rules. The council’s response to the rules he is equally dysfunctional and here’s why. You are looking only at the costs (actually investments not expenses, made on behalf of ratepayers / taxpayers) not the benefits.. which for many infrastructure projects that increase cycling are often very significantly higher than reading projects. Benefit to Cost Ratios of 20:1 for cycling are not uncommon.. accruing largely from the improved health outcomes gained from encouraging those who otherwise would not choose or be able to use an active mode of commuting, but also from time savings for those continuing to use the existing roads (which include private car drivers and PT users of course). Whereas you may well find that road widening project has a BCR of 2:1 or 3:1 at best.. and quite likely it is close to 1:1 or even, in some cases less than break even. Yet amazingly plenty of these still get funded. Bear in mind here that the road projects’ absolute costs are also several orders of magnitude greater than the cycling ones (they are collectively the 0.7%)!

    So take our example.. Let’s say the original $ 100 k had a BCR of 20:1, so the benefits are $ 2 m. If the $ 112 k ($ 53 k + $ 59 k) road widening project BCR is 2:1, then its benefit is $ 224 k. Really in this example there is no comparison.. even taking 10:1 we get cycle way $ 1 m v road widening $ 224 k.

    Now to rank the relative priority of doing either / or (if indeed we are capitals constrained and we cannot do part or all of both etc etc) then we should still see that it makes sense to do the cycle way project.. *even if we add to its costs the net deferred benefits of not doing the road widening project*..

    Sticking with BCRs of 10:1 and 2:1..

    Cycle way cost + net deferred benefits of road widening = $ 100 k + $ 224 k = $ 324 k. Benefit is still $ 1 m, so adjusted BCR is actually $ 1 m / $ 324 k = 3.1:1

    Whereas road widening project alone has to wear the $ 1 m deferred benefit of not doing the cycle project so is doomed never to break even. Even if we conveniently ignore the lost cycle way benefit totally, the road widening BCR is still only 2:1.

    Sure these are made up examples. But they are not untypical. What I’m saying here is that even with the funding rules and imbalances, it is not *only* big bad central Government that forces councils to over invest in roads at the expense of cycle ways. It is also ingrained narrow minded thinking at councils. We should not apologise for that! Or are they not able to accrue health benefits locally or is there another problem?

    The numbers don’t stack up.

    1. I don’t quite see why you consider this as “excusing” Council for anything. This article highlights one (a rather important one) of the factors that make Councils road-biased.

      Its a bit like, say, being given bad examples by your parents. Of course you still make the choice as you grow up whether you follow them in their behaviours.

      But that doesn’t mean their bad influence doesn’t massively influence you. Same here.

      Or to state it even more directly – this isn’t a blog about local government.

      1. I’m not convinced with that analogy Max.. the council aren’t children, not of the government or anyone. They are a body of elected representatives and professionals.

        “Wot We Want” is more cycling infrastructure.. for us, our children, everyone.. not a debate about why it’s difficult to achieve. Of course it is difficult, otherwise it would have happened? My point is that it’s not either / or central government / local council or National / Labour etc.. It’s far wider than that, and seems to include plenty of our of date thinking on infrastructure applied by whoever, wherever.

        How about more of “how we can” and less of “why we can'”?!

        1. Tim, this article was written about something that most people aren’t even aware of, that has a massive influence on what happens and what doesn’t happen. We stand behind it.

          As to the “how we can” – mate, CAA is active on that pretty much 24/7. Why don’t you come along to one of our committee meetings? Or simply read through something like this to get an idea:

  5. Awesome piece, well explained. I agree with SteveX that the GPS seems extraordinarily weak on sustainability– and cycling. It even looks like a policy of restraint. The full walking/cycling section from the GPS:

    Investing in walking and cycling
    39. Investment in walking and cycling is also expected to make a contribution to economic growth and productivity
    . To achieve this, funding should be directed to reducing congestion and/or improving pedestrian and cyclist safety. Consideration should be given to concentrating the
    investment in fewer more targeted activities, for example in model communities, rather than spreading the funding across a greater number of activities with a lower overall level of return.

    40. There are opportunities to support the New Zealand Cycle Trails’ Network Expansion Project. Roading programmes could, where appropriate, include provision for treatments that improve cycling safety on roads that are part of the cycle trails

  6. The accounting shown in this editorial is puzzling. Why is the hypothetical $59k roading subsidy from Government counted as general revenue for the council? The $59k sum is clearly conditional and not even a mandatory expense, so the price cannot be naively added as an opportunity cost of the cycling project.

    By analogy, imagine you are shopping for shoes and you find two pairs you like the look of, for $100 each — one red and one blue. Happily, the store offers you a discount of $50, but only on the blue pair. Sadly, it’s three sizes too large for you. Yes, you will “save” $50 if you buy the large blue shoes, but that would be useless. So the “effective cost” of paying $100 for the red pair that actually fits you is just $100 — not $150, being the sum of what you pay and the “lost” discount.

    Furthermore, depending on what expenses are ultimately cut as a result of re-allocating funds, it could even be considered a net positive outcome for the council. Given that not all transport projects are made equal, avoiding a bad investment can be dodging a fiscal bullet. Nothing wrong with a council trimming its budget and — to borrow a phrase — finding efficiencies.

    Meanwhile, Government might well re-allocate their offer to another private motor-oriented project, partnering with a different local authority. At worst, that only hurts the taxpayer through the Government account, and does not affect the “enlightened” council’s ambit. Within that local frame of reference, it may still be a net improvement.

    However, again, a roading project ‘over there’ (red shoes) is not the same as a roading project ‘over here’ (blue shoes). It could turn out to be less bad to spend $59k to maintain or upgrade, say, a deteriorating rural road — in a place where it may be acceptable to commit towards private motor vehicle usage — instead of widening Dominion Rd for cars.

    So we can have a kind of comparative advantage in prioritising transport expenses better — it isn’t necessarily zero-sum. Tim raises a valid point regarding benefits using the same principle, but even just focusing on costs, we can see that councils ought to be free of road bias under these circumstances. If this post is only about central government, then I trust that an equally candid post on local government is due soon!

    Of course, Government has massively failed to invest in better transport, making it difficult to access their funds for walking, cycling, and even PT projects. And statutory limits on raising local revenues alternatively pose a tough barrier. I appreciate the editorial critique here. But there is still plenty of room for improvement within the local (especially Auckland) budget envelopes too, independently of Government.

    1. We had a transport planner working on Auckland’s network’s future check this post for correctness before it going out.

      And this post, as noted above, doesn’t excuse anyone in local government, nor disagree that they could do a lot more. But those aspects weren’t the focus of this article. Not every article has to cover 360 degrees. ‘Nuff said on that.

  7. Call me an idealist if you will but I will not be satisfied until we have real Dutch style infrastructure with large 30 km/h zones linked by off-road cycle paths (not shared paths). The level of investment to achieve this will be substantial, especially compared to current investment toward cycling and walking. Of course this will also entail no riding on roads where there are paths but I’m really ok with that. I believe the current mix of on / off road shared paths and lanes is adding to the tension between motorists and people on bikes.

  8. But I think the point they’re making, non-motorist, is that most councils have more transport costs than they can afford to pay for just out of rates. The best way for them to get the maximum sum of money available, is to use their full funding allocation for each transport mode in the National Land Transport Fund. So in your analogy, it’s not like you’re being given a discount. It’s more like you need to buy 5 pairs of shoes but you only have $150. If you buy three pairs of high heels (worth $100 each), your boss will give you $50 towards each pair – so you spend $150 in total and you get $150 from your boss (total spend $300). But if you buy flat heeled shoes for $100, you have to pay for them yourself. Plus, you miss out on the chance to get $50 towards a pair of high heels. so with your budget of $150 you can only afford to buy one pair of high heels and the flat heeled shoes. So your spend is still $150 but you only get two pairs of shoes. Your boss donates $50 to the high heels and the total spend is $200.

    And you don’t save the rate payer or taxpayer anything, because you still spent $150 AND the $150 from the government still gets spent – just not necessarily on your shoes. instead somebody else gets three pairs of high heels.

    As you say, that might be fine if the other local government authority really needed to spend heaps on local roads or motorways (or high heels :). But the chances are that they don’t either – they are just building roads because that is what the system incentivises them to do because it gives them maximum financial return. And there is no mechanism in the FAR system to ensure that roading funds will be spent in areas where they do give a high financial return – instead the pot is just set at an arbitrary level by the government.

    1. Lucy, I agree that is partly the point they are making, but at the risk of repeating myself: they are wrong.

      Your analogy supposes that heels are as good as flats for the overarching mandate of buying five shoes, and that buying more shoes is better. Clearly, this property does not hold for transport: three car-oriented projects is not necessarily better than one car-oriented project plus a reasonable cycling project.

      Put another way, spending more money on all the wrong things is worse than spending less money, but on all the right things. Quality, not just quantity.

      There is plenty of fat in (Auckland’s) council transport budget that can be trimmed — even if it means losing co-funding and spending less overall — in favour of “better walking and cycling [which] regularly scores highly in the wishes of their residents”.

      Even so, you are right that councils will have more transport costs than they can afford to pay out of rates. But the question remains of how they prioritise what they do spend rates on. I’d like to see Auckland get its local budget envelope sorted properly before Wellington gets involved.

      (And before anyone brings it up: for a big ticket item like the CRL, we know a priori that it would extend beyond Council’s remit, so it is appropriate to rely on Government.)

      Now, once FAR is invoked, the question of what the final expense means to the taxpayer/ratepayer can be examined. Again, in your version of the analogy, the three pairs of high heels easily transfer to someone else. But in a transport context, it does not necessarily hold: I think my previous example of rescuing a rural road instead of widening an urban arterial still stands.

      It is a geometric fact that walking and cycling investment is likely to have greater relevance in a city than in the country; so it may be better to default more of the conditional NLTP roading funds to rural localities instead of Auckland and other cities.

      Actually, nevermind if it even has a financial return elsewhere — Government could spend it on pork pies for Picton if it wanted to; just don’t let the Auckland spend it on a bad transport investment here (i.e. one that contradicts the mandate), entangling itself with a 47% FAR obligation.

      Yes, it is a tragedy that Government is direly missing the point in transport investment. All kinds of change needs to happen there. But this is no reason for councils to make the same mistake. Max’s Freudian psychoanalysis is the closest thing to an explanation of this outcome that I’ve seen in this discussion, but hardly an acceptable situation if true. (Still looking forward to that critique of local government!)

  9. Hi. Obviously I would agree that investing in walking and cycling (or flat shoes) is better than heels (or state highways). Not sure if there’s much point in saying more as I think we’re talking about slightly different things.

    If you are interested in learning more about how FARs work and making a submission to change them you can do so here.

    If you would like to write about local government spending on transport in NZ then I am sure that Cycling in Auckland would happily publish a guest post.

    Certainly a lot of food for thought in this

    1. This from the discussion document doesn’t fill me with any great hope.

      What the review won’t
      The review won’t result in any change to
      the overall amount of money available from
      the National Land Transport Fund for land
      transport activities. Nor will it change:
      • How much of the National Land Transport
      Fund revenue can be spent on different
      types of land transport activities (the
      funding ranges for different types of
      land transport activities are set by the
      Government Policy Statement on Land
      Transport Funding)

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