“Smarter” PT Funding Ahead

in Bus Featured General Motorways Top Debate by Jon C — August 16, 2011 at 7:00 am | 13 comments

The Government wants to be a “smart investor” when it comes to funding public transport in the future.

Does that mean it will be even harder to get justification for public transport projects?

We’ve already seen the difficulty in getting the Government to buy into the Business Case for the CBD Rail Link of National Significance.

Times may get ever harder.

Tenders advertised by NZTA today give an insight into the agency’s continuing desire to come up with new models of ways to justify funding for public transport - and say that “there will be major changes in the way public transport services are appraised in future funding decisions.”

It calls for the development of “the new outcomes based funding framework for public transport services, which is under development.”

The document says:” The government has signalled a much greater role for economic efficiency and benefit-cost ratios in funding decisions and the NZTA is developing a new funding framework based on the concept of a ‘smart investor’.

At it says that in general “there will be a much greater emphasis on economic analysis and an evidence based approach in future (public transport) funding decisions.”

“Rather than responding to our business needs with a series of ad hoc modelling projects, we are looking for an economic model that can serve as an ongoing platform for supporting PT investment decisions. A comparison can be made with other government policy agencies (e.g. Treasury, RBNZ, IRD) which each have their own model of various aspects of the New Zealand economy that are relevant to their department.”

As has been noted here many times, the same obsessiveness about funding public transport as if it’s on a par with welfare benefits does not seem to be at the same level for motorway projects on the basis that motorists have a God-given right to expect new roading.

In the tender documentation,  NZTA says it’s s seeking to develop a robust economic model of public transport  services that can be used as an input to the funding decisions of both the NZTA and its regional partners.

In the first instance it is required to inform the development of the new outcomes based funding framework for public transport services, which is under development. This would be complete in time for the 2015/18 NLTP.

The outcome from this research will be a modeling tool that NZTA will be able to use to assist it in making investment decisions.

“This is very likely to be under the new outcomes-based investment framework. As it will apply to both individual regions and the aggregation of all regions nationally, it will assist in investment decisions both within a single region, and across regions nationally. The tool will simultaneously assist with measuring the efficiency of regional transport networks and the extent to which proposed investments deliver wider strategic objectives.

The project will be undertaken in two stages.

Stage 1:

• provide insight into what kinds of robust economic appraisal systems could be feasibly developed in the short term,
• build a robust first stage theoretical model of the costs and benefits that can be used to appraise specific funding scenarios, and a model that is sufficiently flexible so that it is capable of being continuously improved or adapted to meet the needs of future policy projects
• test and verify the model with data from one pilot region such that the model can be easily applied to other regions.

“We wish the tool to be valuable to both individual regions, and to NZTA.”

The purpose of Stage 2 is to:

• apply the model template to other New Zealand regions
• develop a national PT funding model based on an aggregation of the regional models’ outputs.

Stage 2 will be let as a separate contract, and the researchers will need to develop a framework for aggregating the outputs of the set of regional economic models into a single national funding model. This is likely to be along similar lines to the specific requirements outlined here for Stage 1 with a way of storing the results for each modelled region which will then be displayed and compared graphically in an appropriate reporting function.

The three main strategic drivers for this project are: listed as being:

• The NZTA’s system for funding PT services is currently being reviewed and an ‘outcomes’ based approach is being sought, with economic outcomes being the primary but not the sole consideration.
• We need to have funding analysis tools with sufficient detail that our regional partners can use to develop their programmes, and which NZTA staff can use in assessing programme submissions.
• The NZTA’s new farebox policy requires regional partners to take a more evidence based approach including quantifying the benefits of public transport and their distribution between PT users and other groups. This is to be included in the next development of their regional public transport plans.
• In general there will be a much greater emphasis on economic analysis and an evidence based approach in future funding decisions.

The document says that major regional councils also have models of their transport networks for planning purposes. These models can analyze scenarios such as a proposed fare schedule, or a change in the frequency of services. However the NZTA requires a model that is fit for the purpose of providing economic analysis to support funding decisions.

“We do wish to work in partnership with the regional councils. The approach we wish to take is:

• Begin with building a template for a simple cost and benefit model that can be used to model incremental changes to regional PT services.
• Test the template on one major region initially, probably Environment Waikato. This would be with existing data sources only. Original estimation of model parameters is excluded from the scope of this project, although we would like to identify priorities for such additional research.

“The regional economic model would be able to report the economic costs and benefits of changes to funding decisions for each PT mode, i.e. it would have a marginal cost function for each mode, ‘externality’ functions that capture the economic values of congestion reduction, pollution reduction, safety impacts etc and demand functions based on best available estimates of relevant elasticity factors.”

NZTA says it wants the model to be able to provide “reasonably robust answers” to questions such as:

• If we were to increase the frequency of Region X’s peak time rail services by 10% what would be the predicted outcome?
• If average rail fares in Region X were raised 10% in the off-peak what would be the predicted outcome?
• The model would simultaneously calculate the new patronage levels of each mode (with a peak/off-peak split), and provide an economic appraisal of the scenario’s outcome, including a benefit cost ratio (BCR), change in funding costs and a breakdown of benefits among PT users and other groups.

Proposed specific requirements for the regional economic model: i. All three modes: bus, rail and private car. ii. Simultaneously analyse up to 6 ‘modes’ i.e. car, bus, rail, differentiated between peak and off-peak times. ”Initially we are suggesting that a zero cross-elasticity between PT modes be assumed for simplicity;”

The recent CBD Rail Link business case is listed as “a recent example of applying a benefit cost methodology to a proposed regional metropolitan transport initiative particularly focusing on the economic impact on the metropolitan CBD.”

And a second NZTA tender invites companies to bid to conduct public transport research.

It states: “Currently there is a lack of understanding about what public transport services improvements are most important to customers, and how much they are willing to pay for improved services.”

That document describes the purpose of the research as being: To apply an investment analysis to assess the willingness of customers to pay for service improvements to public transport.

“This research will look at different services improvements, including network improvements (e.g. increased frequency, longer hours of operation) and quality improvements (e.g. wifi, increased seat widths) to determine what improvements customers are most willing to pay for, and how much they are willing to pay.
“The research will compare differences in preferred service improvements and willingness to pay of different demographic groups.  This information will then be used to develop pricing strategies that can be applied to incentivise the types of improvements that customers are most willing to pay for.”

The successful researcher will:

• assess which public transport demand elasticity factors are the most critical for modelling purposes
• undertake a gap analysis, for all modes and a good mix of regions, regarding the availability of empirical estimates of these factors;  review published elasticity values, from New Zealand and international sources
• calculate updated elasticity values, based on the most recent and existing available datasets
• synthesise all the available information to come to overall updated general conclusions.

Tags: farebox recovery NZTA