New plan to fund rail infrastructure

Rail investments will be considered for funding in a way they haven't been before but some say that could put needed road investment at risk, DIleepa Fonseka reports

Rail will be brought into the regime that funds State Highways if a new bill passes into law.

The Land Transport (Rail) Legislation bill will see both rail and road projects considered together within the National Land Transport Fund (NLTF) and the Government expects it to become law by July 2020.  

Infrastructure NZ CEO Paul Blair said the changes would allow all transport projects to be considered under one umbrella and prevent road projects with lower cost-benefit ratios getting the go-ahead over rail projects with higher cost-benefit ratios. 

The move was hailed as “historic” by KiwiRail’s CEO Greg Miller but Road Transport Forum chief executive Nick Leggett said it would be better to fund transport infrastructure upgrades through government debt than the NLTF. Economist Brad Olsen questioned whether there was enough money in the fund to cover both road and rail infrastructure. 

“Government has an ability to source debt at a much cheaper rate than a household or a business, and we’ve got historically low interest rates now would be the time, I would have thought, to significantly invest in infrastructure.”

A potential future shortfall with the NLTF - paid for through fuel excise and road user charges - has also been highlighted by the National Party in a discussion document released on Monday. 

It forecasts declining amounts of money will be raised by the NLTF as people use less fuel and move to more fuel efficient cars. 

Borrowing would be better, Road Transport Forum CEO says

Leggett said rail funding should be a priority but large parts of the network were 100 years old and would need billions of dollars in new investment. 

He said the ideal way to fund an investment of that size was “over the lifetime of the asset” not the short-term collection of NLTF excise.

“Government has an ability to source debt at a much cheaper rate than a household or a business, and we’ve got historically low interest rates now would be the time, I would have thought, to significantly invest in infrastructure.”

Leggett questioned whether there would be enough money in NLTF to fund needed rail upgrades without taking money away from roading upgrades that were also needed. 

New Zealand has faced problems shifting freight modes from truck to rail. Photo: Lynn Grieveson

That is reflected in an impact summary for the legislation which notes: “road users are likely to raise concerns about the existing NLTF revenue further subsidising rail if they do not perceive any benefit from the expenditure.”

It suggests rail users paying a track charge was in keeping with the principles of the NLTF that those who contribute towards it get funding. 

Under the legislation, rail infrastructure programmes eligible to receive funding from the NLTF will be approved by the Minister of Transport and put into three-year Rail Network Investment Programme by KiwiRail. 

Two councils, Auckland Council and Greater Wellington Regional Council, will have input into this programme through Regional Land Transport Plans in the regions. 

Unlike roading projects, rail ones vying for NLTF funding would not need sign-off from the New Zealand Transport Agency board, only from the Minister of Transport.

How a new Rail Network Investment Program fits in with other plan and strategies. Source: Draft NZ Rail Plan

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”. 

Under the Government’s bill, while KiwiRail would be able to draw from the fund for rail projects it would also pay into the fund with track user charges. 

“The rail network in the main is 100 years old, we just don’t have the scale to support a massive transfer to rail.”

Olsen said the rail investments needed would be steep and so would the rail track user charges if the intention behind them was to fully fund rail upgrades.

But if those fees were too high they could also discourage a “mode shift” from road to rail, Olsen said.

New Zealand has struggled to shift its freight onto rail. A National Freight Demand study shows since 2012 truck freight increased by 12 percent while rail use declined 17 percent during the same period. 

Leggett said both road and rail needed investment because a complete mode shift of freight from road to rail was unlikely. 

“The rail network in the main is 100 years old, we just don’t have the scale to support a massive transfer to rail.”

“It’s not even that it’s not a good idea, it’s just not going to happen.”

Declining revenues for the NLTF

A National Party Transport policy discussion document released on Monday suggests the traditional funding base of the NLTF will not provide enough revenue to maintain road networks. 

“Over time the pay-as-you-go system of transport funding, through the NLTF, will become unsustainable.”

“Fuel use is becoming a poor estimate of road use as vehicles become more modern and fuel-efficient.”

It suggests a road user charge could be phased in over time to replace fuel taxes so those vehicles wearing down the road also pay for it. 

A National Party discussion document points to future issues with the National Land Transport Fund.  Source: National Party

Road user charges are prepaid by some road users per 1000 kilometres they are expected to travel. 

Companies like EROAD track kilometres travelled with electronic counters and NZTA fits “hubdometers” on trucks over 3.5 tonnes to keep track of that number too. 

Blair said congestion pricing - also floated in the National Party document - could be a better way of making up for a shortfall in NLTF revenue because it would reduce infrastructure load as well. 

Under a congestion pricing scheme motorists would face incentives to use other means, like public transportation, during peak times which would reduce the need to build more roading infrastructure. 

“We can’t build our way out of this problem, we’re going to have to mode shift.”

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