Money to build stuff: new infrastructure funding approach

“Don’t tell me what you value; show me your budget and I’ll tell you what you value”. Are we now starting to value rail?

The Big Kahuna of transport funding in NZ is the National Land Transport Fund. It’s what the NZTA gives out to councils, and spends itself, to pay for all transport type stuff. (see Read More below on the ins and outs).

The NLTF is a mixture of general taxes and money from the fuel levy. It’s hypothecated: ringfenced for only spending on transport.

And it’s mostly, overwhelmingly, it’s been going on roads: the other big-ticket freight- and people-moving mode, rail, has been barred from this funding. It’s had to subsist on a much, much smaller pot of dedicated rail funding which has been the poor cousin to roads (for freight and for people-moving).

That’s hopefully changing, as Newsroom’s Dileepa Fonsecka points out in this good piece on the draft NZ Rail Plan (PDF below). The gist: rail projects can now be considered for NLTF money.

Draft NZ Rail Plan diagram of how the new fund fits with other mechanisms

Road Transport Forum chief Nick Leggett points out that rail might end up taking money from “needed” roading projects. But Infrastructure NZ CEO Paul Blair points out that road projects with lower benefit-cost ratios have been getting funded ahead of rail projects with higher cost-benefit ratios (BCRs). (While BCRs are a pretty poor measure of value to NZ for our investment (see below), they’re a pretty useful indicator that right now some dogs and lemons of roading projects are getting funded ahead of more valuable Everything Else projects, partly perhaps because of the separated funding).

So this change, to bring rail into the NLTF, would at least put rail projects on a more level playing-field.

Infrastructure CEO Paul Blair said ideally long-term infrastructure spending would be matched with long-term revenue but the NLTF funding model was “what we’ve got today”. 

Leggett is right on a key point: we should be borrowing more right now to fund infrastructure. Rail and water infrastructure were notably poor cousins in the recent Upgrade announcement, with – again! – some relatively low-value roading projects getting the cash.

So while a better funding arrangement for rail is needed, and this step is in a good direction, we still need to stop pulling low-return roading projects to the top of fundkng lists just cos they’re popular with (some) voters and the construction industry (and cos we just need to build something before the election).

Transport funding by merit?! Huzzah!

More on money:

Banner image credit: Maarten Holl, Stuff

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