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Solutions For Funding Trains

6 August 2002

Funding For Region’s Rail Tracks, Stations And Signals

- Solutions For Funding Trains

Statement made by John Robertson, Chairman, Infrastructure Auckland

Infrastructure Auckland is looking to fund a significant chunk of Auckland’s Regional Rail Project.

IA has notionally allocated $213 million towards rail infrastructure and is gearing up to put funds towards tracks, stations and signals, which are aspects that will deliver enduring benefits for Aucklanders.

The Auckland Regional Council (ARC) is looking to IA to fund the entire project, including trains. IA supports the project, wants to fund it and wants to see it happen as soon as possible, but cannot be the sole funder.

The ARC has so far put the cost of the project at $222 million with the trains at another $166 million.

If IA makes a grant towards trains (rolling stock) other key regional rail projects will miss out. It would be a poor way to use the community’s limited funds and it is not consistent with current practice applied to other forms of passenger transport such as buses, ferries and taxis. There are better cheaper options. IA has been clear and consistent in its policy of funding set infrastructure of which the benefits will endure over time.

IA has put a four-point plan to the ARC that we believe could see rapid progress made on the rail project. This plan entails:

- The ARC completing a fully reasoned business plan for the system. This plan should state in clear terms what the public will end up with, what infrastructure and trains are needed, accurate costs and where the money to pay for the total system will come from.

- ARTNL (the public entity that will own and operate the network) making early applications to IA for funding to develop fixed infrastructure requirements within the system.

- Acceptance of the offer we have put on the table to explore options to fund trains for the interim, short-term basis.

- The region’s local authorities reaching agreement as to who will own and finance the trains for the long-term.

The public, nor those appointed to monitor our activities, would accept IA committing funds to projects for which accurate, detailed and scrutinised costs, revenues and subsidies have not been completed.

The Auckland Regional Rail Project is a high risk public expenditure initiative. As such it is beholding on all the public agencies involved to ensure to the public, that the foundations of its decisions, which we will have to live with for 40 to 50 years, are based on granite and not quicksands.

If IA should pay for trains first and infrastructure second, the next question is who will pay for the balance of the infrastructure projects high on the region’s list of priorities that will miss out because IA’s monies have been given away to pay for trains?

We appreciate the need to assist in resolving an immediate need and are doing everything we can to ensure rapid resolution and responsible funding for the project.

Ends.

BACKGROUND PAPER

6 August 2002

IA and Funding Rolling Stock

The Auckland Regional Council has lodged an expression of interest with Infrastructure Auckland seeking a grant to cover the purchase of rolling stock for the region’s rail network.

In this background paper, Infrastructure Auckland reviews its policy of giving priority to funding fixed infrastructure and the implications of changing its policy.

IA’s Position

- IA has the potential to fund only two thirds of the passenger transport infrastructure needs of the region through to 2006.

- If IA makes a grant towards rolling stock other key projects will miss out on IA funding.

- The ARC’s aim of achieving the rolling stock for “free” could turn out to be a gift with an expensive $60 million price tag.

IA’s Limited Funds

In its long-term plan, IA has made a notional allocation of $410 million to be made available for passenger transport grants through to the year 2006.

To date, it has approved grants totaling $117 million - $45 million to Britomart, $40 million to the Northern Bus Rapid Transit System and $32 million to the region’s Ferries. This leaves IA with a balance of $293 million to apply to passenger transport grants.

The ARC’s draft passenger transport expression of interest is for $388 million and covers $222 million for fixed infrastructure and $166 million for rolling stock.

If IA was to apply all the funds remaining from the notional allocation set aside for passenger transport to the rail network project, the Region would still be faced with a funding gap of some $100 million.

Also, it would mean other major projects within the region’s passenger transport plans, would miss out on IA funding.

Public Policy On Funding Passenger Infrastructure

IA’s policy of giving priority to funding fixed infrastructure is consistent with established policy in relation to funding passenger transport. Public policy has long held to two key principles. These are

- access to passenger transport infrastructure must be open to all

- it is the role of passenger transport operators to fund the capital cost of passenger transport vehicles.

Examples of the “open to all” approach in Auckland can be seen in the right of all bus operators to use bus stops and the policy adopted in relation to the old Britomart bus station, that allowed access rights to all bus operators.

In not funding passenger transport vehicles, public policy has sought to avoid setting precedents which might open up requests from operators whether they are involved with rail, bus or ferry services.

Financial Considerations

While the attraction of getting “free” rolling stock may be appealing, it could in fact become a gift with an expensive price tag of some $60 million.

A study undertaken by IA demonstrates that savings on rates of this order could be achieved through the ARC taking advantage of the leasing terms offered by the vendors of rolling stock, leaving the $166 million to be used to apply to other infrastructure needs.

Factors contributing to this are

- Borrowers understand that costs associated with borrowing money depends on the purpose to which the money will be put. For example, it costs members of the public less to borrow to buy a house than it does when borrowing to buy a car.

This principle holds true with public sector borrowing.

Traditionally, vendors of rolling stock (whether buses, trains or ferries) offer advantageous financing options to facilitate an agreement. These are invariably at better terms than those associated with borrowing to pay for roads or rail tracks.

By applying the available $166 million to that infrastructure which it would cost most to finance, the region’s ratepayers will make a saving

- Accounting policies will require the ARC to provide for depreciation on the rolling stock even though it was purchased through a grant. This will be a cash item the ARC must find. With leasing, there is no depreciation requirement on the ARC.

The combined effect on rates of these two influences is in the region of $60 million.

Intergenerational Equity

Intergenerational equity as a concept can be expressed in various forms, but the underlining principle is that each generation should pay its own way.

Some of the ways the concept is explained are

- In the same way we use assets past generations paid for, we should contribute to assets that will benefit future generations ( For example, past ratepayers may have paid for a swimming pool while this generation might fund an entertainment centre )

- The cost of using a service should have built into it funding to allow for adequate maintenance to sustain the service over the life of its infrastructure.

- Funds made available from the sale of public assets should be applied to projects that will also benefit future generations.

In the case of infrastructure for transport corridors and stormwater, the issue is normally quite clear. This form of infrastructure has a life that comfortably straddles many generations, and the community has fulfilled its obligation to protect the rights of future generations.

Intergenerational equity is a concept IA seeks to apply to its funding grants. It is a concept that is gaining greater acceptance and a framework for its support exists in law (1996 amendment to the Local Government Act and the Fiscal Responsibility Act).


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