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Spend $2.5billion, for benefits of $3billion?

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It was on Tuesday that we first received new improved statistics about Wellington’s northern corridor roads of national significance. But the information didn’t come from the Transport Agency. It was released by the Agency’s always-supportive Council for Infrastructure Development.

The enthusiasm from the Infrastructure Council included a prediction that when all seven parts of the northern corridor (including Transmission Gully) are completed sometime in the 2020s, we’ll be able to drive from Levin to the Wellington CBD in only forty minutes. (Will speed limits be increased?) Another claim (how do they make such precise estimates?) is that the new roads will create 865 permanent jobs.

The Council released its enthusiasm one day after Gareth Morgan had attacked the northern roading corridor. In an article in the DomPost, he wrote (with researcher Geoff Simmons) that

An urgent review of roading policy is needed to prevent Wellington going up a blind alley … Of the seven projects that make up Wellington’s roads of national significance, five – the airport to Mt Victoria, the Mt Victoria tunnel, Peka Peka to Otaki, Transmission Gully and MacKays Crossing to Peka Peka – fail that test, with a BCR of less than 1. Only two (the Basin Reserve and the Aotea Quay to Ngauranga upgrade) create more value than they cost. How did so many of Wellington’s RONS projects end up being of such dubious benefit?

He had a go at explaining why the roads have been given government support:

The Government sticks by the Wellington RONS because, as a package, the seven projects have a combined benefit cost ratio of a squeak over 1 (and that is only if they add in some assumptions about wider economic benefits that will accrue only if the complete package of roads is finished). In the past, such a low return on investment wouldn’t have made the grade.

Today the Transport Agency responded to his criticism by repeating the new improved figures which were first released on Tuesday. The DomPost reports its claim that

Its major roading project between Wellington Airport and Levin will return $3 billion in benefits for a $2.5b spend.

But that’s not the complete story. In the Infrastructure Council’s release four days ago, we learnt that the benefits are calculated over a forty year period. And the figures are somewhat different:

Updated project information … released today by the Transport Agency indicates that the Wellington Airport to Levin route upgrade will deliver some $3 billion in benefits to the region over 40 years, providing $1.60 back for each dollar invested.

They’re spending $2.5 billion for benefits of $3 billion? They’re spending a dollar and getting benefits of $1.60 … What do you believe? Perhaps the explanation comes in this sentence of today’s report: The new (improved) figures stem from the Agency having done more detailed analysis but also from a change in the way it calculates costs and benefits.

After we received the Infrastructure Council’s press release on Tuesday, we went to the Transport Agency’s website, but couldn’t find any of the information that was being quoted. Perhaps the Agency had decided to give it only to the Council, knowing they could get the DomPost to repeat everything today?

There’s even more optimism in an article – headlined “massive gains down the road” – from the Transport Agency’s Jenny Chetwynd, in today’s DomPost. She denies the allegations by Gareth Morgan and Geoff Simmons and says the benefits … “really add up.” She claims a benefit-cost ratio of 1.7 (it’s somehow risen since Tuesday), which she says is “within a range of 1.4 to 2.3 depending on the discount rate (how we value the future stream of benefits).” Her flexibility also extends to the predictions of the jobs which will somehow be created by the bigger wider roads: “Our economic analysis shows the road improvements will lead to new employment for between 865 and 3700 people.” That’s a pretty wide margin of error.

She’s more persuasive when she writes in more general terms – “SH1 has a poor safety record and … for much of its length provides only one lane in each direction and no alternative route.” And she goes on:

As Albert Einstein said, not everything that counts can be counted. Value is about more than aggregated monetised costs and benefits. It’s about giving life to recognised strategies by creating real-world benefits that fix real-world problems for people.

These are indeed real issues for the residents of Mt Victoria and Kapiti and Waikanae. Do they feel they’re getting real-world benefits from the huge new structures that are to be built in their neighbourhoods?

2 comments:

  1. Ellie, 25. October 2013, 19:56

    What real world problem ? The need for RONs has not been proved, but seriously hyped up. Destroying communities and heritage is not ‘a real world benefit for real world people.’ ‘The benefits really add up’ … a saleswoman as good at math as I am.
    ‘Aggregated monetized costs’ is pure snake oil.

     
  2. Elaine E, 29. October 2013, 22:38

    Gee, how exciting that NZ is encouraging long distance commutes. Most places in the world found that this is the result. http://well.blogs.nytimes.com/2013/10/28/commutings-hidden-cost/?ref=health?src=dayp