Auckland City Centre Rail Link Business Case Review: questions and answers

What is the Auckland City Centre Rail Link Business Case and why was it reviewed?

The proposed Auckland City Centre Rail Link is a 3.5 km double track underground rail line running beneath the central business district from Britomart to the Western (North Auckland) Line near the existing Mount Eden Station, with underground stations proposed at Symonds Street/Khyber Pass Road, Karangahape Road/Pitt Street and on Albert Street between Victoria and Wellesley Streets.

The Business Case was prepared for the former Auckland Regional Transport Authority and KiwiRail.

The government requested officials formally review the business case in order to help determine if, how and when to progress with the project.

View the Transport Minister’s media statement on the Beehive website.

What is the agreed cost of the project?

All agencies agreed initial capital costs at $2.4 billion for construction of the project including additional rolling stock and network infrastructure.

What were the findings and recommendations of the review?

The review concluded that:

• The benefits of building the City Centre Rail Link are much less than expected costs.
• The case for the City Centre Rail Link does not justify further consideration for central government funding at this time because the project does not currently represent an economically effective investment.
• Auckland Council could undertake a range of actions to provide greater confidence about the growth projections needed to make the project viable.
• There is a strategic case for lodging a Notice of Requirement and it would make sense for Auckland Council to proceed with this if it is prepared to meet the costs.
• Significant patronage growth is still needed before the capacity provided by new rolling stock under electrification will be exceeded and the project is consequently not urgent.
• The City Centre Rail Link will cater for around 19 percent of extra journeys expected into the CBD in the 2041 morning peak. The majority of this increase in travel is expected to be met through bus trips and so a wider set of solutions is needed to deal with the whole of the transport demand faced by the CBD over the next 20 to 40 years.
• The Business Case did not properly consider potential alternatives to the project and key aspects of the methodology used do not meet the Treasury or NZ Transport Agency criteria for central government funding (as set out in the NZ Transport Agency’s Economic Evaluation Manual and Treasury’s Better Business Cases for Capital Proposals guidelines).

What changes in travel patterns are expected as a result of the project?

The City Centre Rail Link is forecast to result in an additional 6,000 rail trips into the CBD during the 2041 morning peak. This is 19 percent of the additional 31,800 car person and public transport trips forecast into the CBD (or six percent of the 98,800 total car person and passenger transport trips) during the morning peak in 2041.

The City Centre Rail Link will result in an increase of 9,551 rail trips in on the wider rail network in the 2041 morning peak. This compares to a forecast of 840,000 car person and passenger transport trips on the entire Auckland transport network.

The project is expected to remove a maximum of 3,800 car person trips from the entire transport network.

How was the review carried out?

The Ministry of Transport led a review of the Business Case with the Treasury and the NZ Transport Agency. The Ministry of Transport convened a working group comprising the Treasury, the NZ Transport Agency (NZTA), KiwiRail, Auckland Council and Auckland Transport.

The report sets out where findings have been agreed between all organisations involved in the working group and identifies the alternative views of Auckland Council and Auckland Transport.

What growth forecasts did the review team use to understand future transport demand?

The review team assessed the project using Auckland Council’s land use and transport models and the region’s forecasts for employment, population and transport trends included in the 2010 Auckland Regional Land Transport Strategy. This strategy includes the City Centre Rail Link.

How does the Auckland Council/Auckland Transport policy case fit in to the review?

At a late stage in the assessment of the Business Case, Auckland Council put forward a revised approach to managing the public transport network that would direct more trips onto the rail network (the policy case.)

While an in-depth analysis has not been possible, it is clear that some of the interventions in the policy case – particularly the additional park and ride and reconfiguration of bus routes – could be used to increase the benefits from the current rail investment as well as the City Centre Rail Link project. This issue would need to be explored and clarified in any future Business Case.

Why does protecting the route make sense?

The project is a strategic priority for Auckland Council and protecting the route now would provide clarity for landowners along the route.

Actions by Auckland Council as a result of its new Auckland Plan and other policy initiatives could change the nature of the risks and the expected benefits of the project in the future. Evidence of the success of electrification and the current $1.6 billion rail investment in leading change will also increase confidence.

Who will need to meet the costs of route protection?

All costs associated with route protection would need to be funded by Auckland Council, if it decides to proceed with this step.

What are the next steps?

Auckland Council needs to decide if it wishes to exercise and fund protecting the route. This is a two to three year process and involves lodging a Notice of Requirement to protect the route and working with KiwiRail as the designating authority.

Will the government consider a further business case?

There are a range of actions that could be undertaken or facilitated by Auckland Council and Auckland Transport which would improve confidence in the outcomes expected from the City Centre Rail Link:

• Auckland Council finalising and implementing its spatial plan and City Centre Masterplan to help clarify the project’s role in the CBD and wider Auckland.
• Demonstrating commitment to resolving current and emerging CBD access issues, for example by improving bus operations and addressing capacity issues.
• Development of a robust and achievable multi-modal programme for transport in the CBD, which considers a thorough analysis of alternatives and identifies the optimal mix of modes to meet demand.
• Beginning implementation of large scale residential developments along the rail corridor.
• Implementation of additional park and ride sites, and changes to bus feeder services where appropriate.

The implementation of these measures, combined with rail patronage above forecasts and a robust economic case, would provide a strong signal that the conditions are in place to drive the necessary benefits from the project and therefore to reconsider the business case for the project.

What is the Benefit Cost Ratio (BCR) and what does that mean?

Central government officials assessed the benefit cost ratio (BCR) for the City Centre Rail Link at 0.4 (or 0.3 if considering the same types of benefits assessed for other transport projects, including the Roads of National Significance). This is a calculation of the ratio of benefits over the costs of the project. A 0.4 BCR means that for every $1 invested in the project (i.e. the cost); there will be a return of benefits that are worth 40 cents.

A BCR calculation compares transport benefits, and wider economic benefits with capital and operating costs.

The review included some wider economic benefits that are not currently included in project assessments by the NZ Transport Agency.

What is the difference between direct transport benefits and wider economic benefits?

Transport benefits mainly reflect the direct impacts of a transport project, such as time savings, vehicle operating cost reductions and safety improvements.

Wider economic benefits reflect the indirect impacts of a transport project on the economy, including effects such as productivity improvements from increases in employment density and changes in job location, as well as benefits from growth in labour supply and increased output.

What are the key reasons for the differences in transport benefits and wider economic benefits between the Business Case and the review?

The review identified a number of methodological issues with the Business Case assessment of the transport benefits from the project. Correcting these issues, and applying a more robust approach to calculating the decongestion benefits from the project, resulted in a substantial reduction in transport benefits.

The Business Case estimated $3.3 billion in urban regeneration benefits (a form of wider economic benefit based on increased productivity which results from jobs locating in the CBD instead of elsewhere in the region). The Business Case estimated that an additional 22,000 jobs would locate in the CBD as a result of the project.

Following an international peer review, the review found that the Business Case estimate had not allowed for a number of factors such as types of businesses, workforce skills and capital investment that contribute to the higher productivity of CBD jobs. The Business Case had also not allowed for the fact that only a proportion of the productivity gains, equal to the tax on the increased productivity, would be additional to the direct transport benefits. After correcting these issues, and based on a lower number of jobs locating into the CBD as a result of the project, the review estimated job relocation benefits at $148 million.

The review estimate for Wider Economic Benefits included benefits from agglomeration, job relocation, increased labour supply and increased output. This resulted in total wider economic benefits of $305 million.

What about employment growth?

A key element in the calculation of the wider economic benefits hinges on the scale of employment benefits that have been forecast by central government and regional officials. This centres on the extra number of jobs and firms that would be enabled to be located in the Auckland CBD by the rail link. Estimating additional employment directly attributable to transport infrastructure projects is difficult as this is an emerging field and there is limited Auckland specific data.

Auckland officers estimate a range of 5,000 to 20,000 new jobs over and above current job growth forecasts. These numbers are reflected as low and high growth scenarios in the alternative policy case recently proposed by Auckland Council and Auckland Transport. Achieving these growth scenarios requires an average annual growth rate of 2-2.3 percent, compared with an annual rate of 1.7 percent in 1990-2006.

The Auckland officers’ view is based not just on the rail service that the link would provide, but on a general lift in the attractiveness of the CBD triggered by the rail link.

Central government officials estimate a maximum of 5,000 additional CBD employees as a result of the rail link, and that this number is within the region’s current overall forecast of 58,000 additional jobs by 2041.

Central government estimates are broadly in line with the review’s forecast growth in morning peak rail passengers as a result of service and capacity improvements from the City Centre Rail Link. Although some change seems likely, the evidential basis for claiming large job location effects as a direct result of a project is weak.

What are the other key areas of difference between regional and central government officials?

Transport benefits

Auckland Council and Auckland Transport note that the Review has identified and corrected issues with the way that the transport benefits were estimated in the Business Case. However, they consider that, combined with a number of other initiatives not included in the Business Case, the benefits would be significantly greater than the Review concludes.

At a late stage in the assessment of the Business Case, Auckland Council and Auckland Transport presented a new policy case which estimates transport benefits between $1.2 and $1.4 billion. This compares to a Review figure of $387 million.

While an in-depth analysis of the policy case has not been possible, it is clear that some of the interventions in the policy case – particularly the additional park and ride and reconfiguration of bus routes – could be used to increase the benefits from the current rail investment as well as the City Centre Rail Link project. This issue would need to be explored and clarified in any future business case.

Wider economic benefits

The NZ Transport Agency has undertaken an extensive research programme to develop a robust, international best practice methodology for assessing wider economic benefits beyond agglomeration. While this methodology has yet to be formally approved, all parties agreed to use it to calculate wider economic benefits.

Applying the draft methodology resulted in total wider economic benefits of $305 million. This comprises agglomeration (productivity) benefits arising from the project of $128 million plus additional wider economic benefits from imperfect competition, increased labour supply and job relocation of $177 million.

Auckland Council officers believe that the business case and subsequent work has only partially captured the potential wider economic benefits of the project. Specifically the review has not assessed any increase in the size of the regional economy arising from the project. Council officers believe this represents a significant share of the economic benefits from major transport infrastructure investment and that consequently the wider economic effects are likely to be understated by central government.

Urgency

The urgency issue centres on when the electrified rail system in Auckland (complete in 2013) will reach capacity in the morning peak period.

The Business Case assumed that all passenger growth on the rail network would cease in 2024, largely as a result of the Britomart bottleneck and the limited walking catchment around Britomart.

Auckland Council/Auckland Transport believe that the network will be operating at its maximum capacity once electrification is completed, which when combined with patronage growth, will lead to service delays across the network.

KiwiRail has advised that operational risks will not be fully mitigated by the current upgrade and electrification. These problems would be exacerbated by the proposed addition of a station at Parnell.

Analysis by central government officials indicates that some patronage loss will occur as Auckland’s rail system gets more passengers and more crowded at peak times. However, the emerging constraints are not as significant as set out in the Business Case, and there will be significant peak period rail patronage growth beyond 2024.