Keeping public transport on the rails

Public transport in Australia is under pressure from underinvestment and increased patronage. Scaling back new projects, recycling capital and debt funding may provide the states with a solution.

The current Productivity Commission inquiry into infrastructure costs and financing is particularly timely for Australian public transport.

Public transport across Australia is under pressure from past underinvestment, recent patronage growth, and a shift in the job growth centre of gravity from car-accessible outer suburbs to denser central and inner ones.

Moreover, pre-election Coalition statements that the federal government will not contribute funding to public transport projects – should they be confirmed in next year’s budget – will add to the challenge for states and territories.

How can governments best respond?

Governments can manage the cost of new public transport infrastructure and services through careful planning. Knowing what you want before tendering to the market is important for containing costs and ensuring timely delivery.

For example, the Western Australian Public Transport Authority, which delivered the 71-kilometre Perth to Mandurah southern heavy rail line for only $2 billion in 2007, credits its comprehensive master planning process for the cost-effective financial outcome and the line’s subsequent high patronage.

Governments can scale back new projects, provided this doesn’t compromise the original purpose. For example, as an alternative to increasing central rail capacity through the Brisbane Cross-River Rail scheme developed by its predecessor, the Queensland government is now developing a shorter and less costly combined underground bus and rail tunnel option.

Also, governments need to better capture land value increases. Dedicated public transport infrastructure (heavy rail, light rail and bus rapid transit) improves accessibility, ride quality, reliability and often speed. As fixed, controlled-access infrastructure, it offers an essentially permanent improvement – particularly with rail options – which is attractive to residents, businesses, developers and banks.

While governments benefit ‘passively’ from higher resulting tax payments, active approaches – such as joint property development with the private sector or additional taxes on beneficiaries – are also possible. With either approach, hypothecated funds (as practised in the US) can potentially provide from 5-20 per cent of the funding requirement.

If additional taxation is planned, the key challenge is to identify the main beneficiaries and then to gain their acceptance of the arrangements. Accordingly, the Gold Coast City Council successfully funded its light rail project contribution through a regional transport levy of $100 applied to each rateable property.

Recycling capital should be considered. The New South Wales government has set more than $4 billion aside for infrastructure projects in net proceeds from its lease to the private sector of Port Botany. This will fund its contribution to the Sydney WestConnex motorway and other road projects. The government is also funding a Newcastle light rail line from the planned lease of the Port of Newcastle. In the same way, Western Australia’s Mandurah rail line was financed through the sale of a government-owned gas company.

Assessing the scope for public-private partnership funding is advantageous for governments. PPPs offer ‘off balance sheet’ accounting, and potentially greater innovation and speed of delivery than other procurement methods. Avoiding network ‘carve-up’, so that the PPP operation integrates into the wider network seamlessly and logically is important, as is controlling long-term operating costs.

There is a case for the debt-funding of infrastructure, as this can align the timing of repayments with the receipt of benefits. The New South Wales government’s Waratah Bond scheme is partly funding the 36-kilometre North West rail line, which will deliver a key missing Sydney high-capacity transport corridor. It is important to avoid, as New South Wales has done, any credit rating downgrade, with the risk of higher interest costs across all government activities. Along with broader fiscal policy, active capital recycling programs can assist.

In addition, if the federal government were to include public transport in its mooted debt guarantee arrangements for transport projects, this would also help manage the fiscal risk.

Reviewing operations to improve both the financial and customer performance of the public transport network is critical. As demonstrated by many cities around the world – including Perth with its successful southern railway – integrated network route planning and ticketing, enabling passengers to travel to and from anywhere in the urban area through seamless, reliable and legible transfers between different modes and services is the key to growing both patronage and revenue. Improved performance of the existing network strengthens the business case for network enhancements and extensions.

Finally, what about congestion charging, often recommended as a means both to relieve traffic congestion and help fund public transport investment?

The difficulty with congestion charging is that, to succeed, it requires sufficient available public transport capacity in the right places to absorb the commuters and others that governments seek to remove from the road. Otherwise, people will largely pay the charge and congestion will persist.

In the absence of strong metropolitan area public transport – as in the cities with congestion charging such as London, Stockholm and Singapore – implementation becomes blocked because the community rejects it as ‘just another tax’.

In the UK during the 2000s, congestion charging was considered by many regional cities, all with weaker public transport systems than London. Only Durham, with a medieval city centre and a large tourist population (like London), adopted it. Edinburgh and Manchester rejected congestion charging in referendums.

Over the longer term, better public transport along major corridors will help create the conditions in which congestion charging can be successfully implemented.

These strategies, along with rigorous project selection, will allow governments to better pursue public transport projects.

Phil Potterton is the manager of Strategy & Economics at GHD and chair of the ACT and Southern NSW Section at the Chartered Institute of Logistics and Transport.