Publicly Speaking

01 Aug 2008

Managing Land Transport – More Twists and Turns On the Road Ahead

The planning and funding of our roads and public transport is a source of constant public debate. In that regard the Land Transport Management Act 2003 (LTMA) is the key statute that governs the way in which our land transport decisions are made. On 1 August 2008, the Land Transport Management Amendment Act 2008 (LTMAA) came into effect, bringing a number of significant changes to the LTMA. This FYI discusses and explains the key changes.

The original purpose of the LTMA was to "contribute" to the aim of achieving an "integrated, safe, responsive, and sustainable land transport system". As well as introducing the term "affordable" into this purpose, the key changes brought about by the LTMAA are:

• the merging of Transit New Zealand (Transit) and Land Transport New Zealand (LTNZ) to form a new Crown entity called the New Zealand Transport Agency (Agency);
• new requirements to "streamline" the make-up of Regional Transport Committees (Committees);
• giving Committees the function of preparing regional land transport programmes (Programmes) to access funds from the Agency for all transport activities within the region (ie territorial authorities will no longer be able to access such funding directly);
• allowing for the creation of regional fuel tax schemes to fund capital projects; and
• creating a new mandatory planning instrument, the Government Policy Statement (GPS) (issued every 3 years), to provide direction to the land transport sector.

The Agency

The new Agency will see the end of the "funder-provider split" in regard to the State highway network where currently, LTNZ controls funding and Transit provides the roading. The new Agency's functions will include:

• managing the State highway system, including planning, funding, design, supervision, construction and maintenance and operations in accordance with the "Government Roading Powers Act 1989" (formerly known as the Transit New Zealand Act 1989); and
• determining what land transport activities should be funded by the Crown.

As is the case for Transit and LTNZ now, the Agency must undertake its functions while exhibiting "a sense of social and environmental responsibility". Given that Transit already has 450 staff with a budget of over $1 billion, the merger of Transit and LTNZ will create a very large new Crown entity.

Regional Transport Committees

They exist now but under the LTMAA, Committees will have a significantly greater role in the planning and funding of the land transport system within their regions. In addition to this greater role the LTMAA provides more specificity around the membership of Committees.

All Committees will continue to prepare a Regional Land Transport Strategy (RLTS) "to provide guidance on the land transport outcomes sought by the region". With the exception of the Auckland Region, Committees will have two other functions; namely, to prepare for the approval of the regional council:

• a Programme for its region; and
• a regional fuel tax scheme (Tax Scheme).

In the Auckland Region, the Auckland Regional Transport Authority (ARTA) will prepare the Programme and the Regional Council will prepare a Tax Scheme. The Committee's only function will be to prepare the RLTS for the Auckland Region.

Regional Land Transport Programme

The Programme is the mechanism by which public land transport agencies (regional councils, Transit (now the Agency), territorial authorities etc) access government funding. Currently each agency prepares its own Programme which contains activities that, if they meet the statutory criteria, are included in the National Land Transport Programme (NLTP) and, thereby, become eligible for funding from LTNZ. Under the LTMAA, the overall process remains the same but with one significant change - only Committees (or ARTA) will be able to prepare a Programme for each region.

The Programme must include a range of matters, including:

• the activities or combination of activities proposed by the regional council, territorial authorities, the Agency etc that the Committee recommends for inclusion in the NLTP; and
• the order of priority of the activities or combination of activities in the Programme.

As an aside, it is interesting to note that the Public Transport Management Bill (PT Bill), which also deals with regional transport funding, was introduced at a similar time to the LTMAA but the release of the Select Committee report had been delayed until 4 August 2008. According to the Explanatory Note, while repealing the Transport Services Licensing Act 1989, the PT Bill will clarify and extend "the functions and powers of regional councils with respect to public transport planning and regulation". Under the PT Bill, a Public Transport Plan is required to be adopted by a regional council if the council intends to, amongst other things, “enter into a contract to pay for the supply of transport services”.

It will be important to see if and how the PT Bill is linked to the matters that must be included in a Programme as required by the LTMAA.

Returning to the LTMAA, the Committee will need to consult on the Programme in accordance with the special consultative procedure set out in the Local Government Act 2002. Before submitting a draft Programme to the regional council for its approval the Committee must:

• be satisfied that the Programme meets particular criteria and is "consistent with" the GPS and the RLTS; and
• take into account particular matters including any relevant regional policy statement or plans prepared under the RMA.

Interestingly, the regional council will not be entitled to reject a draft Programme. It can only accept or refer the Programme back to be "reconsidered" by the Committee.

Regional Fuel Tax Schemes

Perhaps the most significant of all the changes in the LTMAA is the proposal to allow Committees (or, in the case of the Auckland Region, the Regional Council) to prepare a Tax Scheme that, once approved by an Order in Council, will impose a regional fuel tax to fund "capital projects" that:

1. will result in a net benefit to the region; and
2. are a priority for the region; and
3. will not reasonably be fully funded from  sources, other than regional fuel tax, within the time frame desired by the region.

A Tax Scheme must be directly linked to (and required to fund) "capital projects" which are not defined in the Act. The Tax Scheme must, amongst other matters:

1. identify and describe each capital project that is included in the proposed scheme; and
2. state the anticipated timing and costs of each of these capital projects; and
3. state how each of those capital projects is to be funded, including -
   1. the expenditure to be funded from regional fuel tax; and
   2. the expenditure to be funded from sources other than regional fuel tax.

Preparation of a Tax Scheme will require wide consultation, in accordance with the special consultative procedure. The fuel tax for any region is capped at 10 cents per litre of fuel. In Auckland this is separated into 5 cents for projects specified by the Regional Council and 5 cents for projects specified by the Ministers of Transport and Finance. In all cases, no more than a maximum of 5 cents may be used for carriageways for general traffic and the total rate of any regional fund tax scheme may not exceed 2 cents per litre of fuel in 2009 and 5 cents per litre of fuel in 2010.

Before lodging a Tax Scheme with the regional council, the Committee must be satisfied that certain matters have been taken into account, including the GPS and the RLTS, and that:

• the proposed Tax Scheme would contribute to an affordable, integrated, safe, responsive, and sustainable land transport system and will result in a net benefit to the region;
• the capital projects included in the proposed scheme are consistent with the region's priorities for land transport expenditure;
• full funding for those capital projects from any other source will not reasonably be available within the timeframe desired by the Committee; and
• adequate consideration has been given to phasing the proposed regional fuel tax to mitigate the financial impact of the proposed Tax Scheme on people resident in the region.

Therefore, it appears that a Tax Scheme must be the funding option of "last resort" once all other orthodox options (for example rates or development contributions) have been considered. Following its approval of a Tax Scheme, the regional council may lodge it with the Ministers of Transport and Finance who may recommend to the Governor-General that an Order in Council be made to approve the scheme, subject to a range of criteria including the impact of the Tax Scheme on the NLTP.

Government Policy Statement

Under the LTMAA, the Minister of Transport will be responsible for issuing the GPS, a document that will set out how "land transport funding is intended to improve the land transport sector in the context of land transport policy." 

The GPS will contain outcomes and objectives for the Agency, as well as information on (among other matters) the classes of activity to be funded by the Crown; an expenditure target for the NLTP for each of the first 3 years; the overall investment likely to be made in the land transport sector over a period of 10 financial years (and the likely or proposed funding sources); and a statement of the Minister’s expectations on how the Agency will give effect to the GPS (the GPS cannot require the Agency to approve or decline funding for a particular activity). Further, as noted above, any Programme must also be consistent with the GPS.

Concluding comments

The changes proposed in the LTMAA are significant. They exhibit a strong policy direction to give regional councils (and Committees) far greater influence over the planning and funding of land transport. To that extent, the LTMAA can be seen as a "roll out" of the Auckland model where ARTA already prepares the Programme for the region.

From a strategic point of view, focusing on regional councils may make sense as the region is often an appropriate scale for managing the transport networks. However, there will be concern amongst territorial authorities (who, as road controlling authorities, are responsible for a significant part of the transport network) that their ability to fund their assets will be compromised by the Committee processes, including the need for final approval by the regional council. A key theme in the LTMAA is the need for regions to prioritise projects with those projects at the top of the list most likely to receive funding whether from the Agency or through a Tax Scheme. Again, this highlights the importance of the Committee process and need for representatives to strongly advocate for their projects.

There is no doubt that regional fuel taxes offer a potentially valuable funding tool. However, the prospect of such taxes raises a number of issues, including the extent to which the Agency will, by refusing to include projects in the NLTP, be able to compel regions to rely on fuel taxes to reduce pressure on the Government's resources. The option to impose regional fuel taxes provides an opportunity to shift the responsibility and accountability for funding projects onto regions. The process by which the taxes are created is tortuous, involving decisions by the Committee, the regional council, Ministers and the Governor-General. As with the tolling and concession agreement provisions under the LTMA, there will be no guarantee that this series of decisions will result in a successful or timely outcome. These uncertainties create difficulties for territorial authorities when planning alternative funding mechanisms (eg development contributions) and hinder the development of land transport projects.

The legislation introduces a raft of new statutory tests, criteria and relevant matters which will heighten the exposure of decision-makers to the spectre of judicial review. These risks will be particularly high in relation to the regional fuel tax provisions. It will be interesting to watch how the new structures and processes will "bed down", and whether it will improve the development and operation of the land transport network.

Authors

Bill Loutit

Partner - Public Sector

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Padraig McNamara

Partner - Public Sector

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Jonathan Salter

Partner - Public Sector

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James Winchester

Partner - Public Sector

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Gerald Lanning

Partner - Public Sector

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