AucklAnd needs to find An extra $400 million A year for transport. the question is, who pays And how? we have been Asked to consider where that money

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2 AucklAnd needs to find An extra $400 million A year for transport. the question is, who pays And how? we have been Asked to consider where that money should come from -- this document Asks for your feedback on our initial proposals And will help shape our recommendations to AucklAnd council.

3 contents 04 EXECUTIVE SUMMARY 05 Our analysis 06 Potential funding solutions 07 Our proposals 08 SECTION 1: Introduction 10 Introduction 11 The membership 12 Our scope 14 SECTION 2: Meeting the challenges of Auckland s growth 16 Auckland s growth story 18 Doing nothing is not an option 20 The Auckland Plan 21 Planned transport improvements 23 Observations 24 SECTION 3: The funding gap 26 The $12 billion funding gap 27 The costs of projects 28 Cost breakdown 29 The available funding 30 Calculating the funding gap 31 Making 30-year projections 32 SECTION 4: Our decision-making process 34 Preliminary screening criteria 36 Sequencing and timing of additional funding sources 37 Governance 38 Funding sources considered 40 Sources we dismissed 41 The sources remaining 42 SECTION 5: Our findings 44 Key findings 45 A package of funding sources 46 Decisions by Now until Options by SECTION 6: The decision 52 Option 1 53 Option 2 54 Option assessment 58 Conclusion 60 SECTION 7: Next steps 62 Further considerations 64 SECTION 8: Your feedback 66 The beginning of a longer conversation 67 Questions for feedback

4 executive summary Auckland s population is predicted to grow at double the rate of the rest of New Zealand over the next 30 years. Two-thirds of this growth is expected from our birth rate and internal migration, not through migration from other countries. The result will be transport congestion that is excessive, disruptive and costly unless we act now. In order to cope, Auckland s transport system must undergo change across all modes roads, public transport, walking and cycling. A quality, responsive transport system designed to support the growth of New Zealand s largest city will not occur overnight in fact, some improvements are at risk of not happening at all. Why? Current sources of funding simply aren t enough to pay for the transport programme laid out in the 30-year Auckland Plan, and even if we can achieve a significant increase in investment, the forecast performance of key parts of the transport system will be worse from 2031 than it is today. The challenges facing transport in Auckland are considerable, but our biggest failure would be to do nothing. 4 section 1

5 our AnAlysis What happens if we do nothing? Without changes to our transport system we can expect our future travel experiences to get progressively worse. Auckland Council s vision is for Auckland to become the world s most liveable city, but unless we act, significant congestion will be experienced across most of Auckland. The obvious impact of this would be longer travel times and the frustration of being stuck in traffic. We could also expect higher carbon emissions and poorer air quality. We would not reach the liveability target. This is not just Auckland s problem. The economic impact of our congestion will have implications for all of New Zealand. Time spent idling in traffic is unproductive it s costly for everyone. Taking action Doing nothing is not an option. Auckland s rapid population growth is forcing us to act. The Auckland Plan contains the council s transport strategy to respond to Auckland s projected growth and confirms that there is insufficient funding to implement it. As the first step, Auckland Council has tasked the Consensus Building Group ( the CBG ) with coming to an agreement on our preferred way to meet the shortfall. We will present our findings to Auckland Council in July The funding gap Our job was not to evaluate the merits of individual transport projects, nor to question the Auckland Plan. To prevent Auckland s congestion reaching unacceptable levels, the funding gap that needs to be filled will be at least $12 billion (financial projections throughout this document are presented in 2012 dollars). This averages $400 million annually for the next 30 years. To raise that much additional money, widespread public support is essential. section 1 5

6 potential funding solutions The CBG has considered a range of potential solutions from traditional funding sources to solutions that would be new for Auckland. They included increases to rates, petrol tax and road user charges for diesel vehicles (referred to throughout this document collectively as fuel taxes ), public transport fares, development contributions and departure taxes; introducing road pricing, tax increment financing, regional lotteries, sales and payroll taxes and a visitor bed tax. In total we considered more than 20 possible funding sources. We used a range of criteria to set aside those potential sources with significant flaws. The criteria included their capability to raise the funding required. They also reflected the importance of who pays and who benefits; how simple, efficient and effective they would be to administer; and how acceptable they might be. 6 section 1

7 our proposals While many of the options fulfilled the primary requirement of being able to raise enough revenue, we also looked at which ones gave added, tangible benefits to the transport system. It became clear that we need to find ways to manage demand for vehicle use if we want to actively improve the performance of our transport system. Early improvements, particularly in public transport, are needed to provide a wider range of travel choices. A lot of this investment needs to take place in the next decade. Decisions by 2015 Our evaluation showed that the most acceptable solution is a package of funding sources that, in combination, can raise the required revenue. A decision on the package is needed urgently, by 2015 at the latest. Certainty is required to allow the investment to begin and to provide a stable platform for economic growth. From now until 2021 The need for immediate transport investment means increasing revenue as soon as possible from the sources we already have available to us rates and fuel taxes, small increases for public transport users, as well as a contribution from government. Auckland Council and the government could help bridge the funding gap by reprioritising their existing expenditure. Options by 2021 By 2021, we have concluded that there are two options for funding Auckland s transport improvements. We should be implementing one of the following two packages: Option 1 Which involves significant increases to rates and fuel taxes; tolls on major new roads; further government contributions and small fare increases for public transport users. This option does not require new legislation, is comparatively easier to implement, and spreads the costs widely across Aucklanders. Or; Option 2 Which involves the introduction of road pricing, supplemented by smaller increases to rates and fuel taxes; further government contributions and small fare increases for public transport users. This option would require legislation, and is comparatively more expensive to implement, but offers significant additional benefits through greater ability to assist with managing travel demand. The two road pricing schemes which we consider worthy of further investigation for this option are: motorway network charging; and one or more single cordons The CBG does not have a preferred option at this stage. We have concluded, however, that unless Aucklanders are prepared to accept significant increases to rates and fuel taxes, introducing some form of road pricing will be required by This document is just the beginning of a longer conversation. We invite your initial feedback by responding to a series of questions. We will take your feedback into account when shaping our recommendations to Auckland Council. section 1 7

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10 introduction No matter where we live in Auckland, transport is critical to our enjoyment of living and working here. For too long, Auckland s daily reality has been traffic congestion, inadequate public transport and safety issues for cyclists, pedestrians and other road users. Without action the problem is going to get much worse. One new Aucklander is being added to our city every 20 minutes, giving us a predicted population of between 2.1 and 2.5 million by 2041, compared to 1.5 million today. In the next 18 years alone, there will be another 500,000 people living here. Two-thirds of this growth is being driven by our birth rate and internal migration, with a third being immigration from other countries. If we do nothing, moving around Auckland will be even more frustrating than it is today. The time to act is now. The first step is to identify the best funding sources to enable critical transport projects. The second is to ensure that these funding sources will be in place to raise the funds as and when they are needed. Auckland Council and government must have confidence in their ability to fund new investments. Aucklanders also want certainty. Creating a stable platform for economic investment in our city relies on a shared understanding of what will be built, and by when. This certainty cannot be achieved without first securing the funding. Auckland Council identified a range of key transport improvements in the Auckland Plan and a shortfall of funding. It started discussions about how Auckland intends to fund the programme of improvements. That process has brought together an independent group of stakeholders with the shared objective of identifying the best way forward. Whatever funding sources are chosen, a broad base of public support is needed. After all, access to transport affects everyone. Every Aucklander will be affected by increasing congestion and will benefit from the transport investments. We will all need to be part of any funding solution. Robust agreement by Aucklanders is a fundamental building block for working with central government to put in place an acceptable solution. That s why an Auckland consensus is needed and why your feedback on this draft document is so important. 10 section 1

11 the membership The Alternative Transport Funding Project s aim is to build a robust consensus. Within this project, the Consensus Building Group of stakeholders ( the CBG ) was tasked with recommending to the Auckland Council which revenue sources are worth pursuing further. Our members are: Stewart Milne CBG Chairman Andy Smith Walk Auckland Cameron Pitches Campaign for Better Transport Donna Wynd Child Poverty Action Group Gary Taylor Environmental Defence Society James Brown Tournament Parking Ltd Kim Campbell Auckland Business Forum Paul Shortland Cycle Action Auckland Phil Eaton New Zealand Property Council - Auckland Branch Richard Llewellyn Auckland International Airport Ltd Robert Reid New Zealand Council of Trade Unions Shaun Awatere Landcare Research Simon Lambourne New Zealand Automobile Association Simon Wallace Tourism Industry Association of New Zealand Steven Grant New Zealand Automobile Association Stephen Selwood New Zealand Council for Infrastructure Development Tony Garnier Auckland Business Forum The CBG operates independently of council, and has come together from diverse backgrounds. We have worked together for six months, testing alternatives and developing a shared understanding about what Auckland s transport funding requirement is, and how it should be met. Despite our different perspectives we have reached a consensus. This report represents that consensus position, and sets out our findings and draft proposals for your feedback. We will use your feedback to inform our final recommendations to Auckland Council. section 1 11

12 our scope Our task was to identify alternative sources of funding for transport in Auckland that are worthy of detailed exploration, and to make recommendations to Auckland Council. In developing a long list of potential funding sources, we deliberately cast the net wide, looking not only at ones that have traditionally been used in New Zealand. We also drew from international experience. In all we explored over 20 different approaches. We considered increases to fuel taxes, rates, public transport fares and development contributions. From overseas, we examined funding sources such as road pricing and tax increment financing (also known as betterment levies). We also considered less conventional solutions, such as a regional lottery, visitor ( bed ) tax, and a departure tax (airport and seaport). Our brief does not extend to designing detailed funding schemes. That will occur once the council, government and the people of Auckland have decided which funding options will be pursued. We have put forward some proposals about the broad funding options that could be used. The Auckland Plan transport improvements were the starting point for our deliberations. As individuals, all members of the CBG have personal views on different projects within the Auckland Plan. Our job was not to re-evaluate the merits of the Auckland Plan. Auckland Council has made decisions on Auckland s future transport system following a detailed political and public consultation process. We also note that individual projects in the Auckland Plan will still go through their own evaluation and review process. While not judging the Auckland Plan s transport programme, we did review the expected future performance of the transport system. Having done this, we are convinced that even more investment than is provided in the Auckland Plan will be necessary. Even with all of its transport projects in place, the forecast performance of the transport system will deteriorate. 12 section 1

13 section highlights The Consensus Building Group ( the CBG ) with broad membership was established to recommend to Auckland Council which funding tools could be used to fund transport infrastructure and services. The CBG has focused on how to fund the Auckland Plan, not on the merits of individual projects. This report is the consensus position of the CBG. section 1 13

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16 AucklAnd s growth story Auckland s population is projected to be well over two million by Statistics New Zealand s medium growth scenario forecasts a population of 2.1 million. If history is anything to go by, Auckland s population tends to expand faster than estimated. If a high growth eventuated, our population could exceed 2.4 million by This would equate to accommodating the population of Wellington in Auckland between 2011 and Figure 1 shows Auckland s projected growth in comparison to other New Zealand cities if a medium growth scenario eventuates. One-third of our new residents will be international migrants who are largely filling specific shortages in our labour market; the other two-thirds will come from other parts of New Zealand or from births in Auckland. That means we have limited control over how fast the population is growing. Our projected population growth will place enormous pressure on infrastructure such as housing, water, sewerage, other utilities and services. All of these compete with transport for a share of public funding. Internationally, other cities are struggling with this issue and are putting in place a range of solutions that we can learn from. 16 section 2

17 FIGURE 1: HISTORIC AND FORECAST POPULATION ESTIMATES BY REGION 2,000,000 1,800,000 1,600,000 POPULATION 1,400,000 1,200,000 1,000, , , , , Source: Statistics New Zealand Auckland Wellington Otago Canterbury Waikato section 2 17

18 doing nothing is not An option The implications for transport mean it s time for positive action because, even with the significant investment proposed in the Auckland Plan, key transport performance indicators deteriorate. Doing nothing to close the funding gap is no longer an option. Many Aucklanders already know the frustrations of sitting in traffic, waiting for buses and of travelling in congested conditions. Many of us also accept that, to some extent, this is part of living in a big city. But if the current situation deteriorates much further, it will have an unacceptable impact on our daily lives and on the way that our city and economy function. Our analysis shows that unless we make substantial investments in Auckland s transport system, congestion will be much worse than today. Large areas will be operating at capacity, causing traffic jams and overcrowding, making it even harder to move around Auckland. Transport has an enormous impact on our daily lives and our ability to easily access jobs, education, social, recreational and essential services. A congested transport system decreases our connections with each other. It also contributes to carbon emissions and poorer air quality because vehicles are sitting in traffic for longer. There are also some serious implications for all of New Zealand. Although people living outside of Auckland do not generally face the prospect of spending large amounts of time on Auckland s congested roads, their prosperity is indirectly affected because Auckland is so important to New Zealand s overall economic development and productivity. Auckland generates 38 per cent of national GDP, while 46 per cent of the country s exports/imports (by value) pass through Auckland Airport and Ports of Auckland. Time that Aucklanders spend sitting in traffic is time that cannot be spent more productively elsewhere. Time which trucks spend sitting in traffic is costly for importers and exporters who need to move goods through Auckland Airport and the Ports of Auckland. International research shows that major cities determine overall national economic success. This is not only because they are large domestic markets for goods and services but they also improve productivity. This is a direct result of the benefits that firms and people can access by being located close to one another. These benefits rely on ensuring that our most densely populated areas (for example, Auckland s city centre) are connected and easily accessible to employers, employees and customers. 18 section 2

19 THE RESULTS OF DOING NOTHING Journeys in AucklAnd would become slower travel times within AucklAnd would become less predictable As breakdowns in the flow of traffic would become more common And use of some roads would exceed capacity bus, train And ferry trips would become more crowded By 2041, journeys on the motorway network during morning peak traffic will be 23 kilometres per hour (km/h) slower than they were in Off the motorway, the average speed that you would travel would be, on average, just under 6km/h slower than it is today. In 2011, only 9.7 per cent of the vehicle kilometres travelled in Auckland during the evening peak were affected by severe traffic jams. By 2041, this would increase to 22.6 per cent. On the motorways the figure would be worse. In 2011, 6.9 per cent of vehicle kilometres travelled on the motorway during the evening peak were affected by severe traffic jams. By 2041, this would rise to 28.5 per cent. Without investment in public transport, bus, train and ferry trips will progressively become more crowded, and the opportunity to fully take advantage of the region s public transport network will be lost. The public transport trips most affected would be those into central Auckland. Even though this is one of the main destinations for public transport users, our ability to move buses and trains in and out of this area will become physically constrained by the limitations of Britomart and key roads into the city. section 2 19

20 the AucklAnd plan the AucklAnd plan The Auckland Plan was adopted by the Auckland Council in 2012 after extensive consultation. It maps out a strategy to respond to regional growth. Along with a high-level development strategy, the plan covers housing needs, the economy, environment, arts and culture, Maori, sport, social, heritage and infrastructure. A chapter dedicated to transport recognises the critical role transport plays in shaping Auckland, and sets out a 30- year strategy. A key piece of work is the development of a Unitary Plan for the region, which is currently being consulted on. This will set out what can be built and where, and will shape the way our region grows. It will have major implications for transport investment, because Auckland s ability to physically accommodate growth will depend on having both the right rules and the right infrastructure (including transport infrastructure) in place. Auckland Council and its organisations have also been working on a range of initiatives that will make the Auckland Plan a reality. These include the 30-year Integrated Transport Programme, the Regional Land Transport Programme, the Southern Initiative, City Centre and Waterfront masterplans, the Tamaki transformation project and a housing action plan. 20 section 2

21 the AucklAnd proposals plan planned transport improvements The Auckland Plan gives first priority to key transport initiatives already under way, to complete the state highway network and to upgrade and improve the efficiency of public transport. Examples of these projects are the Waterview motorway connection and electrifying the rail network. In addition the Auckland Plan identifies three critical projects: The City Rail Link The Auckland-Manukau Eastern Transport Initiative (AMETI) and the East-West link An additional Waitemata Harbour crossing The council s rationale for these projects is to improve the network and to move more people and freight faster and more reliably. The City Rail Link would connect Britomart Station with the Western line at Mt Eden rail station. The council anticipates that this would support the growth in the city centre, and help to realise the potential of the existing rail network. The Auckland-Manukau Eastern Transport Initiative (AMETI) and the East-West Link are a series of projects serving the eastern suburbs aimed at improving public transport, roading, freight movement and walking and cycling. An additional Waitemata Harbour crossing would provide increased capacity over the harbour, supporting a growing population and the movement of freight. It would also include the potential for rail to the North Shore in the future. The Auckland Plan identifies a range of other projects for implementation: Public transport infrastructure and service improvements Improvements to the regional arterial road network and selected state highways City centre transport improvements Puhoi Wellsford road upgrade. This is identified as a road of national significance in the New Zealand transport strategy Cycle and walk improvements Rail freight third track Route protection of major projects section 2 21

22 the AucklAnd plan AUCKLAND S PRIORITY TRANSPORT PROJECTS ( ) 6 5 Warkworth Pukekohe Ha u r a k i G u l f Albany Takapuna Westgate / Massey North 4 4 Wa i t em a t a Ha rb o u r City Centre Henderson 4 Newmarket 4 9 Existing Network Rapid Transit Network (RTN) Ferry Rail network Strategic road network New Lynn Regional arterial roads/ Quality Transit Network (QTN) Network Improvements Rapid transit Quality transit Strategic road Regional arterial road Sea port M a n u k a u Ha r b o u r Sylvia Park Manukau 5 4 Botany 5 International airport Priority Transport Projects 1. City Rail Link 2. Auckland Manukau Eastern Transport Initiative (AMETI) and East-West Link 3. Additional Waitemata Harbour Crossing 4. Public transport infrastructure and services improvements 5. Improvements to the regional arterial road network and selected state highway improvements 6. Route protection of major projects 7. City centre transport improvements 8. Cycle and walk improvements 9. Rail freight third track 4 Papakura Km 22 section 2

23 observations Some significant improvements to the transport system are critical and urgent. Many of the initial improvements identified in the Auckland Plan are essential for Auckland to cope with population growth. The sooner we complete these projects, the better. It will never be cheaper to build these major projects than it is now. To keep Auckland s transport system moving in the future, we will need to do even more than what is contemplated in the Auckland Plan. Our analysis showed that the Auckland Plan projects will make a difference to Auckland s transport system, but even with these improvements, we still face greater congestion in the future than we do today. If Auckland wants to improve the performance of its transport system, then it will need to go further than the Auckland Plan does. We need to build more capacity on all modes of transport so Aucklanders have realistic choices about how they travel, but there are limits to our ability to build new roads and increase the capacity of existing roads. We will also need to better manage demands on the transport system. section highlights Auckland s population will grow from 1.5 million to more than two million by Major transport improvements will be required to cope with growth, otherwise congestion will worsen and journeys will be slower. Improvements outlined in the Auckland Plan won t prevent deterioration of our transport system, but they remain far better than doing nothing. If we want to improve the performance of our transport system we will need to manage transport demand. section 2 23

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26 the $12 billion funding gap Despite the uncertainties that inevitably surround 30-year projections, it is clear that the transport programme in the Auckland Plan cannot be delivered without additional funding beyond what is currently available. The Auckland Plan put the shortfall at $10 - $15 billion. Based on current policies, we are confident that there is actually a funding gap of at least $12 billion, with $3 billion falling in the first decade. Filling this gap would require additional funding averaging around $400 million each year for the next 30 years. Our starting point for quantifying Auckland s transport funding gap was to identify the existing sources of funding for the transport system as a whole. We did not make distinctions about whether particular streams of funding are tagged for specific types of transport expenditure. We identified the following existing sources of funding for Auckland: New Zealand Transport Agency s (NZTA) State Highway construction and maintenance programme is funded from fuel taxes Public transport infrastructure and improvements to local roads and footpaths are funded from development contributions, NZTA subsidies (derived from fuel taxes), and debt funding from Auckland Council Road maintenance, public transport services and other operating costs are funded from rates, NZTA subsidies and public transport fares throughout this analysis, the net public transport subsidy is used, after public transport fares are deducted Before seeking additional sources of funding we expect that existing revenue will be used in the most effective way, and that wherever possible, new transport expenditure will be accommodated from existing budgets. Aucklanders can reasonably expect the council and government to closely examine their budgets to find savings that help fund new transport expenditure before being asked for more money. However, the scale of funding required is so large that reprioritisation alone cannot yield sufficient savings to cover the gap. 26 section 3

27 the costs of projects Between now and 2042 the total transport expenditure in Auckland is projected to be $68 billion. Capital expenditure on transport is projected at around $45 billion. Figure 2 shows the profile of the capital programme, and some of the priority projects by decade. We note that expenditure is lower in the third decade due in part to the difficulty of identifying and costing specific transport projects so far into the future. We have used the best estimates of project costs currently available, but they are only initial estimates (particularly for those projects identified after 2031). Experience tells us that initial estimates tend to understate the actual costs of projects. FIGURE 2: PROJECTED CAPITAL COSTS ,500 2,000 $ MILLION 1,500 1, CRL / Regional Arterials / AMETI East-West link / Puhoi-Warkworth Additional harbour crossing Airport link / Warkworth-Wellsford Transport to greenfields areas Avondale-Southdown rail link Note: 1. The capital expenditure projections are sourced from Auckland Council, Auckland Transport and NZTA. Source: Statistics New Zealand section 3 27

28 cost breakdown The funding gap results from both the capital costs of providing new infrastructure, and the significant ongoing operating costs of the transport system. To 2042, operating costs together with depreciation and interest are estimated at around $42 billion. Public transport subsidies (net of recovery through fares) Maintaining local roads and footpaths Maintaining state highways Offset by parking and enforcement revenue $15.5 billion $4.5 billion $2 billion ($1 billion) Interest and funded depreciation $21 billion Total Operating Costs to be funded $42 billion Auckland Council s policy is to fund its new capital expenditure partly from debt. The interest and depreciation from those assets are funded from rates and other sources, thus spreading the costs of those investments across generations. NZTA s current policy is to fund new assets on a pay-as-you-go basis. Based on these respective policies, of the $45 billion capital expenditure around $26 billion would need to be funded upfront, with the remaining $19 billion initially funded by council. Capital costs Offset by Auckland Council funding Total Capital costs to be funded TOTAL FUNDING REQUIREMENT $45 billion ($19 billion) $26 billion $68 billion 28 section 3

29 the AvAilAble funding Based on current policies, we estimate that the funding available from existing sources until 2042 will be somewhere between $52 and $60 billion. We have kept our estimates as a range to take account of uncertainties that may affect these numbers. Rates and development contributions for transport in 2013 are projected at around $460 million. We have assumed that rates revenue will grow as the region s population grows. The council s long-term plan provides that the proportion of that revenue dedicated to transport increases through the first decade; beyond this it is assumed constant. Rates revenue for transport Development contributions $ $23.5 billion $2.5 billion Funding for Auckland from fuel taxes in 2013 is projected at around $1 billion, and is projected to remain constant in real terms over the 30-year period, once the government s recently announced increase of three cents each year for three years has been implemented. The projection of constant revenue from fuel taxes reflects the offsetting impacts of increased population and vehicle numbers against the increased fuel efficiency of vehicles. Auckland s share of the revenue from fuel taxes is projected to remain constant. These assumptions would result in rates contributing a progressively larger share of total transport revenue, up from 32 per cent today to around 52 per cent by Fuel taxes TOTAL FUNDING AVAILABLE $28 - $34 billion $52 - $60 billion section 3 29

30 calculating the funding gap In the Auckland Plan, the council estimated the funding gap to be in the range of $10-$15 billion. Our analysis suggests the gap is between $8-$16 billion. Because the level of investment needed in the second and third decades is likely to be understated, we consider the funding gap to be at least $12 billion. Figure 3 shows the profile of the expenditure, alongside the available revenue. By 2022, the funding gap reaches around $3 billion. By 2032, it increases to around $10 billion, and by 2042 it reaches $12 billion. More will be required if Auckland is to attempt to halt the decline in performance that occurs after the investment in the Auckland Plan. TOTAL FUNDING GAP $12 billion FIGURE 3: TOTAL FUNDING GAP 3,500 3,000 2,500 $ MILLION 2,000 1,500 1, Source: Statistics New Zealand Available funding from rates, NZTA and development contributions Total expenditure to be funded 30 section 3

31 making 30-yeAr projections Clearly there are areas of uncertainty in these 30-year projections, and it is worth recognising some of those that have a major impact on the financial projections. The investment programme anticipated by the Auckland Plan, in the first 10 years in particular, is ambitious and would require a considerable effort to implement in the timeframes specified in the Auckland Plan Public transport subsidies assume a significant increase in patronage which may not be achieved It is difficult to accurately forecast and provide costs for projects that are well into the future, and in some cases have not been fully scoped Rates revenue projections are based on assumptions of high growth in Auckland Projections of revenue from fuel taxes, and the share of that revenue allocated to Auckland, are uncertain The forecasts have been prepared on the basis of current policies, including the government s approach of fully funding state highway improvements. An alternative approach to funding, such as a public private partnership for the additional Waitemata Harbour crossing, may not reduce the funding requirement, but would change its timing. The Auckland Plan s investment programme is expected to go through some development and refinement. The ability to deliver such a comprehensive programme and the availability of funding will require careful sequencing and timing of the investment and regular review of the programme. We are confident that, on average, an additional $400 million each year over the 30 years is needed to meet the expectations set out in the Auckland Plan (the actual annual figure may be slightly above or below this number). section highlights There is a funding gap of at least $12 billion to deliver the transport programme in the Auckland Plan. An additional $400 million will be required each year, on average, to meet this funding gap. Funding certainty will be required by 2015 so that Auckland Council and the government can implement Auckland s transport programme. Under the current funding assumptions, rates and development contributions provide a progressively larger share of total transport revenue, up from 32 per cent today to around 52 per cent by section 3 31

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34 preliminary screening criteria As discussed at the beginning of this document, we have looked widely for potential sources of revenue to fund Auckland s transport system. We have compared the relative merit of different funding sources against screening criteria. A high-level assessment enabled us to set aside funding sources with significant flaws or disadvantages (see Dismissed Funding Sources later in this section). As the list of potential sources became more manageable, our assessment became more detailed. We used the council s strategic transport model to forecast future travel demands and system performance. Our indicative economic assessment followed NZTA s economic evaluation framework. International experience shows that there are limits to the transport capacity that can be built. As Auckland approaches those limits, we will need to more actively manage the demands placed on our network. A range of non-priced demand management initiatives could make significant contributions (for example, more bus lanes, walking school buses, carpooling, working from home initiatives). Improved public transport services will also play a role in encouraging the use of buses, trains and ferries. In addition, price demand management initiatives could deliver transport benefits, for example faster and more reliable travel times. Our priority has been to assess the funding sources on their ability to raise revenue, and their performance against other screening criteria. However, we also looked beyond the revenue-generating potential of funding arrangements, and considered their potential to help improve the way that our transport system works. 34 section 4

35 SCREENING CRITERIA strategic Alignment revenue potential AdministrAtive simplicity efficiency fairness AcceptAnce ISSUES CONSIDERED Contribution to Auckland Plan transport and urban form priorities Contribution to government transport strategy outcomes Impact on planned expenditure Revenue sufficiency Revenue sustainability Implementation costs Compliance costs Operating costs Scheme complexity Level of risk Economic efficiency Evasion/compliance Fit with existing funding tools Equal treatment of like payers (horizontal equity) Distribution of burden/benefit between groups (vertical equity) Affordability Mitigation of negative impacts Transparency Public acceptance Political feasibility section 4 35

36 sequencing And timing of AdditionAl funding sources Achieving certainty about when additional funding streams will be in place is critical. Without certainty, it will be difficult to progress with construction of key transport components of the Auckland Plan. In addition to assessing potential funding sources against our screening criteria, we have also spent considerable time working through the most appropriate timing of any additional funding streams and how quickly they can be put in place. There is some urgency. The longer we wait, the more costly it becomes and the worse the problem gets. There will never be a cheaper time to build the infrastructure we need. Obtaining additional funding from some sources could be achieved more quickly than others. For example, increases to rates and existing fuel taxes could be in place ahead of a road pricing scheme or a regional fuel tax, both of which would require new legislation. Our proposals therefore focus on providing short-term funding certainty for the immediate investments, as well as providing long-term confidence. 36 section 4

37 governance Our process has not considered who should administer new funding sources. We have assumed that any new revenue would be used where it is needed. Careful stewardship of any new funding mechanism is vital to retaining public support and trust. The best stewardship arrangements will depend upon the nature of the funding source and the package chosen. However, we believe that the following principles should apply to any funding package. No taxation without representation Taxes must be used for the purpose for which they were raised Financial decision-making should align with financial responsibility and ability to manage risk Financial decisions should align with relevant policy Transparency and accountability should be maintained High standards of integrity and risk assurance should be maintained, including independent audits Governance arrangements should be cost effective and simple Clarity of roles is essential Integrated or joined up funding decisions are critical section 4 37

38 funding sources considered We considered the following funding sources. They are a mixture of funding sources already in use in New Zealand and some that would be new. Departure tax A departure tax (typically a fixed charge) could be levied on people departing Auckland International Airport and possibly Ports of Auckland. Development Contributions These are contributions sought from developers towards the capital cost of providing infrastructure, facilities and reserves that meet the demands generated by their development. Dividends and interest from, or sale of, council-owned assets The council could increase funding available for transport through its ownership of assets, either through their sale or the dividends it receives. Auckland Council Group currently owns and receives dividends from Ports of Auckland Ltd and Auckland International Airport Ltd and has some involvement in property and some smaller commercial activities. Fuel taxes The national fuel tax, the Petroleum Excise Duty (PED) is levied on all petrol sales, on a cent per litre basis. It is a component of the retail price of petrol paid at the pump by motorists ( cents per litre). Road User Charges (RUC) is a distance-based charge on the road use of diesel vehicles, set to maintain relativity with the PED. Both PED and RUC is paid to the National Land Transport Fund. The Local Authority Petroleum Tax (LAPT) is a fuel tax levied on petrol and diesel under the Local Government Act 1974 at 0.66 cents per litre (and paid directly to local authorities). Options for additional revenue include an increase in existing fuel taxes and/or a new regional fuel tax. Levy on vehicles registered in Auckland Vehicles used on New Zealand roads must be registered, requiring payment of Motor Vehicle Registration (MVR) fees. An additional charge could be added to existing fees, for vehicles registered in Auckland. Parking levies These could be in the form of increased charges for Auckland Transport s current on, and off-street parking. Alternatively they might be a levy on all parking spaces in a defined area, including all public and private car parking spaces in residential and commercial buildings and on the street. Public transport fares Public transport fares contribute to the cost of providing bus, ferry and rail services, but do not currently cover the full cost of services. Government and Auckland Transport are working to increase the contribution of public transport passengers. Fares could increase further to reflect the benefits that public transport users would receive from Auckland Plan projects. If fares increase too much, it could have the adverse effect of reducing public transport patronage. Rating-based sources Rates Rates are a form of property tax. Auckland s rates are levied annually on the capital value of properties. Councils determine their financial requirements and set their rates annually. The rates bill people receive can be made up of the general rate and other components such as a uniform annual general charge and targeted rates. Targeted rates A targeted rate is levied by the council for an activity or group of activities. A targeted rate may be set for particular areas or activities. For example, a targeted rate could be set across those parts of the Auckland region receiving public transport services. Tax increment financing and betterment Tax increment financing (TIF) and betterment taxes are examples of value capture mechanisms. They seek a portion of the increase in the value of land resulting from public investment (in infrastructure or improvements) or the granting of development rights (enabling higher value land use). These mechanisms 38 section 4

39 rely on the ability to fairly assess the value and cause of changes in property values. Where this is not possible a targeted rate is preferable. Regional GST/sales tax Sales taxes are collected on individual transactions at point of sale by the seller. The ideas considered involved an allocation of the government s GST revenue to Auckland based on a share of retail sales, or the introduction of an additional regional sales tax. Regional lottery An Auckland regional lottery would collect revenue from gambling with the earnings applied to funding transport initiatives. Regional payroll tax A payroll tax is levied on businesses, as a percentage of their total payroll over a specified threshold. Road pricing A road pricing scheme is a direct charge levied for the use of roads across part or all of a network. It can be used to raise revenue and can also influence the level of transport demand (for example to reduce peak hour traffic). For each scheme it is possible to vary charges according to the distance travelled, time of day, level of congestion, and to cap the maximum amount charged. There are a number of potential schemes that could be applied in Auckland. They are: Area charging Area charging schemes charge motorists when they pass through a cordon into or out of a defined area and when they drive around within that area. One of the better known international examples is the London congestion charge. Single cordon Under this form of road pricing, motorists are charged for passing through a cordon, travelling into or out of one or more specified areas. There is no charge for moving around within the cordoned area. Double cordon A double cordon is a form of road pricing where two cordons an inner cordon and an outer cordon would be established. Motorists would be charged each time they cross a cordon. Motorway network This would charge motorists for entering or exiting the motorway system. The level of charge could vary, depending on the time of day or level of congestion. Full distance charging This would charge motorists for the distance travelled. It would be reliant on GPS and other new technology. Charges could be altered by the time of day, route travelled, level of congestion and type of vehicle. Managed toll lanes Managed toll lanes are designated motorway lanes with access limited to those motorists who pay a charge. They can be delineated by barriers, grade separation or signage. The charge can vary according to the level of congestion or by time of day. Tolls A toll is a charge on motorists who cross a fixed point along a roadway. Tolls generally relate to an individual road or stretch of road, like the Northern Gateway. The charge can be set at a fixed rate per trip or at a variable rate, to reflect the time of day or level of congestion on the tolled road. Tolling is currently authorised on new roads where an alternative toll free route is available. Visitor bed tax A bed tax is a charge levied on providers of commercial accommodation within an area, based on the number of guests they have. They are usually charged on a per visitor, per night basis. Other potential sources We explored the potential for more innovative and longer-term funding sources. Over the next 30 years it is possible that the leasing and sale of air-space over roads, and even the ability to generate electricity from roads, could provide revenue. In addition, debt financing significant parts of the transport programme could be enhanced through the use of tax preferred infrastructure bonds. These may warrant further attention in the medium to long-term. section 4 39

40 sources we dismissed Having assessed the potential funding sources, we concluded that many were not credible or appropriate mechanisms for closing the funding gap. We recommend that these sources should not be considered further: Regional lottery Regional payroll tax Regional GST/sales tax Visitor bed tax Departure tax A levy on vehicles registered in Auckland Parking levies Managed toll lanes Tax increment funding/ betterment These sources were assessed against the criteria and dismissed for one or more of these reasons: Raised too little revenue Targeted an activity that was only marginally associated with the transport system Had significant issues of fairness We considered the potential application of funds from dividends and interest from, or sale of, council assets. The council s revenue forecasts anticipate the expected future dividends from council assets. Selling the assets would broadly realise the same total value of contribution as the forecast future earnings. Accordingly, asset sales would not reduce the funding gap beyond our current estimates. We also considered the possibility of full distance charging. However, international experience tells us that this would be difficult to implement because of the technical challenges that it poses. We would not rule this out as a viable option in the long term, and consider that our proposals could eventually evolve into a more comprehensive scheme, as technology allows. Were too complex to implement or physically impossible Cost too much to administer for the level of revenue that could be raised 40 section 4

41 the sources remaining The following sources remained part of our more detailed examination: Fuel taxes Public transport fares Rating-based sources Road pricing Tolls on new roads Our consensus is that these sources offer the most practical way of addressing the funding gap. section highlights We have assessed a wide range of funding sources and dismissed those with significant flaws or disadvantages. Our priority was to consider funding sources based on their revenue potential. Those that provide additional transport benefits will be needed in future. Governance of additional funding must be in accordance with agreed principles. Fuel taxes, public transport fares, rating-based sources, road pricing and tolls on new roads offer the most practical way of addressing the funding gap. section 4 41

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44 proposals key findings The ability to generate sufficient revenue to fund the Auckland Plan transport improvements was the primary consideration in our decision-making process. Given the continuing pressure on Auckland s transport system, our focus turned to whether some funding sources could provide additional transport benefits (such as reducing congestion). If Aucklanders are to pay for improvements to their transport system, they will expect additional benefits in return. Using this approach, we arrived at four key findings which form the basis of our proposals: A package of funding sources is required A decision on how and when the funding gap will be filled is needed by 2015 at the latest In the short term, the funding gap will need to be filled primarily by rates and fuel taxes A long-term solution should be operational by section 5

45 proposals A package of funding sources To implement the Auckland Plan transport programme, a package of funding sources is the best approach. Raising the revenue through one funding source alone would make the level of charge or tax excessive. Using a package of funding sources, the burden of charges can be spread, reducing the financial impact on particular groups. This approach also ensures that those who benefit will contribute to the cost of funding, rather than one group paying while others enjoy the benefits. section 5 45