In Transit May 1994

In Transit No.52 May 1994 Pg.1

In Transit No.52 May 1994 Pg.2

In Transit No.52 May 1994 Pg.3

In Transit No.52 May 1994 Pg.4

Funding

The most historically interesting point in this issue is the publishing of Transit New Zealand's budget request for the National Land Transport Programme (NLTP) 1994/1995. At the time the policy around land transport funding had some key elements that differ from today:

• Transit New Zealand would seek its final budget from the Minister of Finance as part of the standard annual budget process (with the Minister of Transport expected to be the advocate for Transit New Zealand in Cabinet).  There was no effective hypothecated National Land Transport Fund which automatically funded the agency.
• National Land Transport Programmes are annual, but previously approved projects would be considered "commitments" once they are contracted.
• An "interim" NLTP is automatically approved at 97% of the budget of the previous year, this is to give Transit New Zealand (and local authorities) certainty that they would have enough funding to progress road maintenance, sustain public transport subsidies and undertake contractual commitments for capital works. This had changed somewhat from only two years before when the budget was cut substantially along with many other areas of funding, as the Government sought to address a ballooning budget deficit.  This had caused difficulties in managing road maintenance, so the 97% guarantee gave certainty to contractors that most routine activities would continue.  The previous year's NLTP notes "deferred maintenance" funding which resulted from cutbacks in maintenance that required greater spending to fix, a classic "false economy". 
• The 97% budget was not a 97% budget for each work category, but was decided by the Board to balance out how best to spend that level of funding. As seen it tended to fully fund maintenance, commitments and public transport subsidies, with new construction, pavement rehabilitation and property purchases for future works deferred.
• Most new work funding was subject to crossing a benefit/cost ratio threshold, which in the 1993/1994 was 5.5. The proposal for 1994/1995 was a threshold of 4.0-5.0, and also for 1995/1996, with the goal for 1996/1997 being to lower it to between 3.0 and 4.0. 
• Outputs/work categories are define by inputs and by the board, not by a political process. There is a great deal of transparency and comparability between work categories.

Transit New Zealand's view of the appropriate total level of funding was that required to meet a threshold of BCRs of 2.0, but notably it did not seek that funding because:

• A large programme of new works for the contacting sector would be inefficient, as it had scaled down over recent years. The proposed increases in funding were expected to be at a scale to enable the sector to expand without overly inflating costs.
• Local government would be unable to meet its local share of costs of its projects
• The Resource Management Act requires considerable planning and consultation for such projects.

It's worth remembering that this is a budget request, the formal automatic hypothecation of funding had not been introduced at this point.  The previous year budget exc. GST was $635.81m.

Some points of comparison in funding to today.

The recommended 1994/1995 NLTP was a total of $675.8m exc. GST, in 2022 values that is around $1.266b.

The 2021/2024 NLTP covers three years, and does not have an easy to read table like in this document, but to compare. The total spending is $24.3b, but that includes funding from local authorities (which is not in the 1995 NLTP proposal).  Without local authority shares it is $19.5b and then divided by three it is around $6.5b per annum. This indicates that in real terms, there is now five times the spending on land transport by central government in 2023 than in 1995. 

Competitive tendering

The other notable article in this leaflet is that by 1997 there is intended to be full competitive tendering for all activities funded by the agency for local government, having already implemented it for major works. It notes that local authority business units have become significantly more efficient in recent years due to competitive tendering.  One local authority (not identified) noted savings of 47.5% through contracting minor and ancillary work to the private sector.  It was also noted that no local authorities wanted to revert to the pre-1991 system which enabled local authorities to supply services directly without tendering.