Dealing with transport infrastructure backlogs by John Stanley

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Many countries around the world are currently facing a transport infrastructure backlog of substantial proportions – it is rare to find a city, for example, that does not find itself in this situation, for roads, public transport or both. Public Private Partnerships (PPP) are a common response for roads, with tolling opportunities to remove or reduce the impact on a government’s balance sheet. However, PPP opportunities usually entail some loss of network control and are limited in potential scope.

In developed countries, the backlog is not simply because of a shortage of finance. Superannuation and pension funds, for example, are accumulating substantial capacities to engage with transport (and other) opportunities, provided there is a satisfactory return on offer. A problem they face is often one of the lack of a pipeline of good projects that have come through the testing process of an integrated land use/transport strategy.  This reflects a disconnection between the apparent backlog and planning processes that identify effective solutions to tackle the backlog.

Frequent community resistance to infrastructure projects, which raises the risk profile and discourages investors, reflects poor community consultation and a lack of community involvement in project selection.  Poor project planning (e.g. ‘optimism bias’) and delivery, which sometimes sees revenue streams fall short of expectations and/or costs exceed estimates, discourages investors (e.g. some well known toll roads).  A key element in creating the right risk-return profile is transparency: the processes underpinning infrastructure planning, project selection, project tendering, project execution and on-going reporting must create confidence for all stakeholders in infrastructure, including the wider community.

The main problem in dealing with an infrastructure backlog is on the funding side. If finance can be found, how will the repayment obligations be met over time? The sources are, in essence, government taxation, user charges or value capture.

Introduction to Transport Policy

Introduction to Transport Policy

The notion that those who benefit from infrastructure should pay for that infrastructure, in some way related to the benefits they gain, is an idea that accords with notions of fairness. Funding approaches that levy those who are expected to benefit from infrastructure (users and landowners) should be used to pay for infrastructure before resort is made to government funding. ‘User pays’ funding, for example, encourages efficient use of infrastructure, while ‘value capture’ seeks to recover part of the ‘unearned’ land value increase created by infrastructure. That prioritisation of funding sources (beneficiary pays before government funding) enables government funding to be reserved for infrastructure projects/programs that generate sufficient total net benefits but do not generate sufficient benefits that are readily monetised. The latter includes (for example) projects and programs that should be seen as meeting community service obligations and/or projects and programs that generate benefits that are too difficult to claw back from beneficiaries (e.g. because the beneficiaries are too diverse and/or too hard to identify).

User pays funding is common now in many public utility areas (e.g. water, electricity) but roads are a notable exception.  While fuel excise is usually levied, this is not generally seen as an explicit charge for road use and, if it is seen that way, would often not be sufficient to recover all the costs caused by road users’ travel choices (for example, in countries such as the US and Australia). These costs include: road damage, congestion, greenhouse gas emissions, air pollution, accident costs, and such like. However, there are few live examples of comprehensive user charging schemes, largely because of the political difficulties of implementation. Well known examples include congestion charging schemes in London, Stockholm and Singapore, with equally well-known failures in cities like New York and Manchester.

Extensive community consultation is a pre-condition for successfully changing the way road use is charged. This consultation needs to cover such issues as:

  • why road pricing needs to change
  • the options for change
  • how these options will impact on various stakeholders (where scenarios would be useful in describing expected outcomes)
  • what will happen to revenue raised from the charges
  • what measures might be implemented to mitigate particular adverse impacts
  • how privacy will be protected.

There is a danger that road pricing might be restricted to individual projects that can readily levy user charges. A major benefit of a systemic pricing tool, like distance-based charging with mass and location-based elements, is that it generates a revenue stream that is grounded network wide, not at project level. This can then provide a crucial consistent revenue stream for a transport or roads fund, which can be used for large or small works across modes and areas, to meet financing costs.

Users are not the only beneficiaries of much infrastructure spending.  For example, transport improvements which improve accessibility to employment will often increase property prices. Value capture mechanisms can be used to take back part of this increment in land prices, to help fund the initiative that underpinned creation of the value increase. There are a number of value capture mechanisms that are potentially useful as ways of funding transportation (and some other) infrastructure, such as Tax Increment Financing or metropolitan-wide levies on land value. These are increasingly being used to help fund infrastructure, usually on a project-specific basis but more city-wide under the UK City Deals. Chapter 12 of Introduction to Transport Policy, which I co-authored with Peter Stopher, discusses value capture mechanisms and user charging.[1]

Overcoming transport infrastructure backlogs holds the promise of significant benefits, if projects are well-chosen. Political courage and leadership, to open up improved funding opportunities, stands as the crucial variable for success.

John StanleyJohn joined the Institute of Transport and Logistics Studies at University of Sydney in July 2008 as Adjunct Professor and Bus Industry Confederation Senior Research Fellow in Sustainable Land Transport. Prior to taking on this role, he had nine years as Executive Director of Bus Association Victoria, after eight years as Deputy Chairman of the National Road Transport Commission. He has been a member of the Vicurban Board, the Urban Renewal Authority Victoria Board, the Victorian Alpine Resorts Coordinating Council and is now a board member of Road Safety Inspections and Chair of ADC Forum, an Australian leadership development group. In 2012-13 he was a member of the Ministerial Advisory Committee advising Victoria’s Minister for Planning on Melbourne’s new Metropolitan Planning Strategy. John is also Chair of the Advisory Committee for the Monash University Institute of Transport Studies. He was awarded a Centenary Medal for services to public transport and conservation.

[1]Stopher, P. and J. Stanley (2014), Introduction to Transport Policy: A Public Policy View, Cheltenham UK: Edward Elgar.

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