"Investing" requires a return at some point. But David Chaston can't see how Auckland's massive public transport 'investment' can ever be anything but an increasing drain on ratepayers and taxpayers. Watch out, the rest of New Zealand

Auckland’s public transport is an essential service to deal with heavy road use.

But to get riders out of their cars heavy subsidies need to be offered.

Auckland bus riders paid an average of $1.40 per trip, but the rate-payer and taxpayer subsidised this by another $2.57. Each ride they took actually cost $3.97 on average, meaning there was a 65% subsidy.

But that encouraged ridership. It grew on Auckland buses by +4.1% from the 2015/6 year to the 2016/7 year.

The situation is more dramatic for train ridership. That grew by almost +17% but the subsidies are huge to get that impact.

Each Auckland train rider paid an average fare of $2.58 per ride but “someone else” paid another $4.53 per ride. Each ride actually cost $7.11, a 64% subsidy.

For ferries, the subsidising is not as heavy. Rides cost user on average $1.36 to be zipped across the harbour. But those rides cost the system $3.07 meaning each one is subsidised $1.69.

These subsidies add up. In the year to June 2017 they cost ratepaers and taxpayers a staggering $260 mln.

Further, subsidies per ride are growing faster than ridership itself. AT has to toss in proportionately more money that the growth in ridership. It looks like we will only choose public transport if someone else pays and we ‘demand’ an increased subsidy each year. In the 2015/16 year taxpayers forked out $238 mln, but that had to rise by +10% to get a +6.7% rise in ridership.

It is easy to forecast that that in 2017/18 the operating subsidies will exceed the $300 mln level. And at this rate in less than five years they will breach $0.5 bln per year.

And the strategy seems to be even larger subsidies to extract small rises in public transport use. Bribing riders is now a core ‘business strategy’.

Here are the sector details, as supplied by Auckland Transport to interest.co.nz

  Rider Operating   Rides Rates
year to Revenues Costs (Deficit) mln subsidy
June 2017 $ mln $ mln $ mln # per ride
           
Bus 88.0 249.2 ( 161.2 ) 62.7 $2.57
Train 50.6 139.4 (   88.8 ) 19.6 $4.53
Ferry   8.3   18.7 (   10.4 ) 6.1 $1.69
Totals ……………… 146.9 407.3 ( 260.4 ) 88.4 $2.94

And this is same data from the previous year:

  Rider Operating   Rides Rates
year to Revenues Costs (Deficit) mln subsidy
June 2016 $ mln $ mln $ mln # per ride
           
Bus 21.6* 161.4* ( 139.8) 60.2 $2.32
Train 48.3 135.6 (   87.3 ) 16.8 $5.20
Ferry   6.6   17.1 (   10.5 ) 5.9 $1.78
Totals ……………… 76.5 314.1 ( 237.6) 82.9 $2.87

In some respects, the bus details here (*) are not strictly comparable between 2016 and 2017. There was a change in who received the revenues. In 2016 much of it went to the bus operators in “net contracts”, but in 2017 it mostly went to AT who then paid the operators for their services. The bus operators look like to have been the big winner. The consequences of sagging ridership growth has been avoided for the certainty of fixed profitable contracts from AT. These disadvantages have been ‘socialised’ to the taxpayer.

Meanwhile AT is incentivised “to get more people on public transport’. They are celebrating success, producing this chart …

… although we have added the operating subsidy cost detail in the right-hand column.

Auckland’s population has grown slower than these subsidies and far slower than ridership growth. Here are the Statistics NZ figures:

    % pa North West Central South
             
1995 1,005,000 +2.7% 202,000 163,900 347,000 299,000
2000 1,114,300 +1.4% 227,400 178,700 375,900 332,400
2005 1,251,000 +1.7% 256,000 198,200 414,500 382,400
2010 1,333,000 +1.2% 275,000 210,200 436,700 411,100
2011 1,351,200 +1.4% 279,500 212,800 442,300 416,700
2012 1,366,500 +1.1% 283,500 214,800 446,400 421,700
2013 1,381,800 +1.1% 288,000 217,100 450,900 425,800
2014 1,413,500 +2.3% 292,900 220,900 462,200 437,500
2015 1,453,800 +2.9% 300,000 225,700 480,100 448,100
2016 1,495,000 +2.8% 307,900 231,300 497,000 458,800

The core strategy of Auckland’s public transport system – where the money is going – is to enable more people to get to Queen Street. It is not exactly clear why this funnel-strategy is in place, but it does compound the peak-hour traffic realities.

“Lower prices are just the beginning; that’s our policy”

But this is just the start.

Operating subsidies only account for the day-to-day costs of operating the system. But these costs do not involve any cost of capital employed or the cost of any borrowed money.

Nor do they include the new Capital Expenditure1 being poured into this system:

year to June 2015/16 2016/17 % rise
  $ mln $ mln  
Bus 29.3 43.9 +49.8%
Train 131.0 165.0 +26.0%
Ferry 1.6 1.7 +6.3%
Totals ……………… 161.9 210.6 +30.1%

The goal is obviously to increase ridership even further. But when operating costs are rising faster than fare or other related revenue sources, this is certainly going to increase the subsidly levels at an even faster rate.

And surely “capital investment” is usually made with the prospect of a future return? That seems absent here. Perhaps the ‘future return’ is expected to be less vehicles on the road? making it easier for those who want to drive.

A public drain

What is actually being built here is a public drain.

Ridership is growing modestly (+6.6% pa) while operating subsidies are expanding fast (+18% pa) and capital investment is exploding, up more than +30% in the past year. All up in the 2016/17 year, we spent $618 mln on public transport (operating costs plus new ‘investment’) and recovered just $147 mln at the farebox. 

There seems to be no plan to have this trajectory change. Money is being poured into an endless pit. It seems that you can never spend too much, and never stop spending increasing amounts.

The new Government in Wellington is in the thrall of public transport advocates. The track of spending and subsidising will only grow. The multi-billion dollar ‘light-rail to the airport’ is the next project to be added to the system. Riders will pay even less for this that the actual cost of the ride.

Everyone is far too scared to ask riders to pay a fairer share. The problem may be that riders don’t really value the service to the degree that AT claims. Any fall-off in ridership is feared more than spending more money propping the system up, spending even more ‘modernising’ it. AT just won’t test meaningful fare increases to stem the losses.

And signals from Wellington don’t help. Politcians there play pork-barrel politics, pricing rides by seniors at $0, and now offering student riders a similar $0 deal. No wonder paying riders would feel offended by any fare rise. There are even lobby groups campaigning for cheaper fares. No-one is saying this emperor is partly disrobed even if it is plainly obvious. The game of subsidies is in full flight, without check.

There seems no way out of this endless subsidising. It will overwhelm Auckland who has borrowed to build a system that can never pay for itself. The ability to tax is the only thing that keeps Auckalnd Council with an investment grade credit rating. No private enterprise could ever get away with such a bankrupt commercial idea.

In the end, Auckland ratepayers will be trapped. Auckland Council is borrowing to pay operating expenses (even if it calls many public trasnport costs “capital infrastructure”). And that trap (a credit rating downgrade) will inevitably draw the national taxpayer into the extending the socialising of the ongoing cost liabilities. The rest of New Zealand needs to watch this growing risk.

TINA, Margaret Thatcher’s alter ego, is alive and well in Auckland Council, even if it has switched sides.


Declaration: David Chaston lives in Auckland and either walks to work, or takes the bus. He does not drive. However, for seven years he did, with a daily driving commute from Ponsonby/Herne Bay to East Tamaki. It wasn’t always easy, but it was far easier than commutes he has done in the five other cities he has lived in (two of which he regularly used public transport). Public transport options for such cross city commutes are completely unrealistic unless you have lots of time to waste.


1. It would be interesting to know the basis AT’s auditor (Audit New Zealand) allows them to carry these “capital asset” investments at cost in their financial statements. Rail assets (rolling stock and train stations) are currently valued at over $1 bln in their accounts. Bus stations and shelters at $80 mln. Audit NZ says “The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to Auckland Transport and the cost of the item can be measured reliably.” I only see an increasing drain. Perhaps the answer is AT is confident the ratepayer and taxpayer will keep fronting for these subsidies. In that case, the basis is tenuous and the audit signoff dubious. We will ask them. If normal accounting standards are ever applied to these assets, the writedown will be eyewatering.