Submission to: Independent Pricing and Regulatory Tribunal of NSW (IPART)

From: Action for Public Transport (NSW), PO Box K606 Haymarket NSW 1240

Subject: Review of External Benefits of Public Transport

Date: 7th October 2014

Action for Public Transport NSW (APTNSW) is a consumer advocacy organisation seeking better public transport for existing and potential passengers.

We note the following statement in the Issues Paper (p.2):

IPART thereby seeks to draw a neat line between its public transport pricing recommendations on one side, and transport planning, land use and urban development on the other. There is no such line.

Public transport patronage is a key aspect of transport planning and land use planning. Pricing is by no means the only factor impacting on patronage levels, but it is a factor. This is in fact recognised in the next sentence of the Issues Paper: We propose to assess the external benefits associated with changing fares and implications this may have for patronage.

Decisions about fares can contribute to or undermine strategic objectives, notably transport and land use objectives, but also economic objectives such as employment and productivity.

It is therefore important that IPART heeds advice from a broad range of sources, in particular those that emphasise empirical evidence. It is unwise to rely too heavily on theoretical economic modelling work, embedded in which are contestable value judgements and policy positions.

In APTNSW’s view, IPART’s current approach is much too narrow to properly inform Government decision-makers of the consequences of the decisions they are called on to make, and for which they will be accountable.

Better travel choices

The Issues Paper (p.35) considers that most people decide between driving themselves and using public transport based on the costs and benefits to them of each option, without considering the external costs and benefits each option imposes on the community. It says one way to encourage more people to make the socially efficient decision is to ensure that the costs of car travel reflect the true costs of car use, which include road congestion and air pollution.

The Issues Paper suggests that from an economic perspective, this could be done via a system of road use pricing that made the internal cost of car travel equal to both the internal and external costs it imposes. If this were the case, there would be no need to take into account the external costs of car travel (i.e. the external benefits of public transport) in setting public transport fares. This, plainly, is IPART’s preferred policy approach.

The Issues Paper acknowledges however that without such a system, lowering public transport prices is another way to encourage better travel choices that benefit everyone.

Goals of the review

The Issues Paper indicates that IPART’s main goals for this review are to ensure the approach that it uses for estimating the external benefits of public transport services:

• Incorporates all relevant external benefits
• Uses robust methodologies and correct, up-to-date underlying data to value each benefit, and
• Uses inputs and produces outputs that are consistent across all three modes of public transport (trains, buses and ferries).

Nonetheless, we are pleased that IPART has opened up discussion about the external benefits of public transport. Despite our misgivings about the methodology used by IPART, that methodology would undoubtedly be improved if it did indeed incorporate all the relevant external benefits of public transport. APTNSW has therefore attempted to provide its feedback in terms of current methodology, and to address each of the questions posed by the Issues Paper.

Executive Summary

1 Do you agree with our proposed criteria for deciding whether a benefit should be included in estimating the external benefits of public transport for fare setting purposes?

APTNSW response:

APTNSW has no difficulty with Criterion 1 or Criterion 4.

Our view is that Criterion 2 should be deleted. Using it has led IPART to deem irrelevant the benefits of improved social mobility and inclusion, including access to jobs, education and training; and the health benefits of physical activity.

We do not agree with the implication in Criterion 3 that an external benefit ceases to be relevant to the making of a decision if its value is not easy to express numerically. We do see merit in at least moving to a “reasonable range” approach; this is certainly preferable to assigning relevant benefits a “zero” value because a definite figure cannot be settled upon.

2 Do you have any concerns about our current approach to using the value of the external benefits of public transport for fare setting purposes?

APTNSW response:

The Issues Paper notes that the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society. The suggested criterion in the Issues Paper that fare subsidies should result in people undertaking more of the beneficial activity causes APTNSW no difficulty; it is aligned with the stated purpose, which we support.

The second proposed criterion (external benefits must exceed net subsidy cost) is in our view misconceived and should be deleted. Its practical outcome would be that the higher the proportion of trips made by private vehicles on an average weekday, the higher public transport fares should be. This would have obviously perverse consequences. It would spark a return to the downward spiral of the period from the 1960s to the 1980s. It is a prescription for clogging the roads and making matters worse for everyone.

IPART’s current approach also rests on mode-by-mode analysis and fare-setting. APTNSW believes that treating modes separately perpetuates the segregation of fares that exists in Sydney, creating inconvenience and dysfunction. Sydney is still the only capital where one can buy a “train ticket”, and this has not changed under Opal. Melbourne's Myki card, Brisbane’s GoCard, and the others, charge a “fare”, not a train fare or a bus fare.

3 Do you have any concerns with our use of the SSTM that would not be overcome by the modifications we have suggested? If so, are there any alternative approaches that we should consider?

APTNSW response:

APTNSW completely agrees that it is good practice to cross-check the outputs of any modelling with information from other sources, to check that the results are sensible. Cross-checking against empirical evidence is our preference.

We note that estimates of the implied elasticity of demand for public transport (that is, how responsive people are to fare changes) proved wildly wrong in the case of the Airport Rail Link.

From our point of view, what matters is the observed behavior of humans, not the theoretical behavior of the mythical species dubbed “Econs” by the behavioural economist Richard Thaler².

4 Do you support considering the external benefits of the public transport network as a whole in addition to a mode-by-mode analysis?

APTNSW response:

We are pleased to see public transport described (accurately) as a “network” in this question. We have concerns about the mode-by-mode approach, which we raise in relation to question 2. We feel unable to comment on what scenarios should be used, beyond suggesting that the best approach is the one that yields results closest to what is observed empirically.

5 Do you support separately estimating external benefits in peak and off-peak periods?

APTNSW response:

This seems to us to be overcomplicating the assessment without any obvious benefit. In APTNSW’s view these issues are best regarded as demand management issues, and left to Transport for NSW, working with operators.

6 Do you support us continuing to adopt a value of time equal to half the average wage rate? Should we differentiate between private and business travel?

APTNSW response: A value of $17.15 per hour seems too low, given that we calculate the average of the figures used by Transport for NSW (broken up as they are for private and business travel) as close to $61 per hour.

7 What information is available to us to update our estimates of the efficiency of vehicles and the costs associated with pollution?

APTNSW response: Others are better placed to comment.

8 How should we quantify the costs associated with carbon emissions?

APTNSW response: Others are better placed to comment.

9 Do you agree with the road user charges we have included? Should we expand the number of tolls that are included?

APTNSW response: APTNSW strongly opposes this practice, the impact of which is to increase fares. Road user charges go nowhere near capturing the external costs of car use. Opinions vary on whether they should, and there is no reasonable prospect that this policy approach will find favour. Unless and until it does, no road user charges should be included.

10 Do additional drivers impose additional accident-related costs on existing car users, or pedestrians and other victims of accidents?

APTNSW response:

Yes. Every additional accident imposes additional costs on someone. Additional VKT increases the absolute number of accidents, and greater emphasis on public transport stems VKT growth.

IPART’s preliminary view that it should recognise single vehicle accidents but not multiple vehicle accidents in its estimate of external benefits draws would complicate matters and should not be progressed unless it is clear that it does something useful

11 Are there other accident-related costs to society that are not fully internalised by drivers? If so, how could these be measured?

APTNSW response: Yes; many of the additional costs caused by traffic accidents fall on the broader society as well as those who directly suffer injury or loss. The obvious example is the cost of medical treatment and rehabilitation. Other costs of accidents that fall on the broader society are court-related and police-related.

Then there is the cost of supporting injured persons and their families unless and until they are able to return to work.

All of these costs have a dollar figure. They should be included in IPART’s costings. Even if they can only be assigned a value within a range, this is more accurate than assigning them zero value.

12 What is your view on the outlined approach for considering the external benefits and costs associated with the scale of public transport services? What are the alternatives?

APTNSW response: We welcome IPART’s intention to include consideration of scale benefits by considering the likely impact of an incremental change to fares. We suggest that Transport NSW to do some empirical testing and alert IPART to instances where there is already evidence. We have mentioned the Airport Line experience above.

13 The external benefit associated with increased mobility and social inclusion is best addressed through the Government’s targeted concession policy. Do you agree?

APTNSW response:

Emphatically, no.

The “social security” perspective IPART adopts here is much too narrow; it has a firm grasp on the wrong end of the stick.

The needs of people who are entitled to concessions do not define the limits of “mobility and social inclusion”. A key strategic aim of all Australian Governments is to bring young people, unemployed and underemployed people into training and work, to improve their life prospects and promote a healthy economy.

This means that entry-level and lower paid workers must not be deterred from taking on work or tempted to leave it, because of the cost of public transport. These groups are not a “particular and identifiable” subgroup; and they are not entitled to concession passes.

Whether workforce capacity and participation are considered as “mobility and social inclusion” or as a wider economic benefit (question 14) it is in our view unacceptable that IPART proposes to leave them out of its equation.

14 The external benefits associated with agglomeration and other wider economic benefits do not meet the criteria for inclusion. Do you agree?

APTNSW response: Infrastructure Australia’s consideration of agglomeration and other economic benefits it its analyses adds validity not just “texture”. In APTNSW’s view it serves to alert decision-makers to real consequences that would otherwise be overlooked. We believe agglomeration should be included; and that workforce participation should be included as a wider economic benefit if it is not seen as an indicator of mobility and social inclusion (question 13).

15 Should the excess burden of funding be included in the calculation of the net external benefit of public transport?

APTNSW response: No. The suggestion seems to be based on an erroneous notion that fares do not influence the use of public transport.

16 If so, what is an appropriate estimate of this excess burden? Should we use the weighted average for NSW or the marginal burden of the most efficient tax?

APTNSW response: We have no comment on this question in light of our answer to question 15.

17 Are there additional external benefits (or costs) that we have not raised that you believe would meet the criteria for inclusion?

APTNSW response: The additional external benefits we contend should be included are:

• Workplace participation and productivity
• Health impacts
• Land use impacts
• Expenditure impacts related to road expansion and additional traffic control facilities

Question 1: Do you agree with our proposed criteria for deciding whether a benefit should be included in estimating the external benefits of public transport for fare setting purposes? (page 13)

The Issues Paper suggests (2.4) that for an external benefit to be relevant for setting public transport fares:

1. It needs to be external – not a private cost or benefit that goes directly to the user, as those are already taken into account when making a decision on how to travel.

APTNSW response: APTNSW can see the merit in this criterion.

2. It should not be available only to a particular subset of people – benefits that are only available to some people (such as benefits to those who own property close to a train station) do not provide justification for lowering fares for everyone.

APTNSW response: The validity of this criterion must be questioned. Using it has led IPART to deem “irrelevant” the benefits of improved social mobility and inclusion, including access to jobs, education and training; and the health benefits of physical activity. These benefits accrue not just to individuals, nor to “subsets”. They also accrue to society, the economy, and the environment. On any realistic view these are not just relevant matters, they are pressing concerns. We address these matters in more detail in our responses to question 13 and question 17.

Criterion 2 muddies the water and has negative social, economic and environmental outcomes. It should be deleted.

3. It needs to be measurable – we need to be able to estimate the value of the benefit; it would be enough that we could determine a reasonable range.

APTNSW response: We do not agree that an external benefit ceases to be relevant to the making of a decision if its value is not easy to express numerically. An example we discuss in relation to question 13 is the value of improved social and economic inclusion in areas with low education and skill levels, and high unemployment.

Conventional cost-benefit analysis is notoriously biased against public transport investment, because it is unable properly to account for the negative externalities of road transport and the positive externalities of transit alternatives. ³ Litman observes that:

There may be alternatives to trying to reduce every relevant cost and benefit to a dollar figure. Litman notes that some evaluation techniques measure physical impacts and outcomes, such as health, longevity, education levels, crime and personal satisfaction with life, without converting them into dollar values⁵. Sadly, however, this seems to be the only way that any attention will be paid to them.

Litman (2009)⁶ observes that non-market cost estimates are often criticized because they lack precision. He and others note however that if such impacts are likely to be significant, it would be more accurate to incorporate them imprecisely than to omit them in ways that bias results.

We do therefore see merit in at least moving to a “reasonable range” approach; this is certainly preferable to assigning relevant factors a “zero” value because a definite figure cannot be settled upon.

4. It needs to change materially in response to changes in public transport use, brought about by changes in fares – the value of the net benefits of public transport use to society (external benefits + fare revenue - the cost of providing the services) should change in response to changes in fares.

The Issues Paper comments that it is important that the benefit increases as the usage of public transport increases, because the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society.

APTNSW response: We broadly accept this criterion. In particular, APTNSW welcomes the recognition that “the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society”.

Any move towards capturing this key strategic objective in IPART’s methodology will be a significant advance. At present it sits outside the model on which primary reliance is placed, and arises as step 5 in the 5 step process discussed in relation to question 2 below.

It seems to APTNSW that this criterion is another way of expressing the first criterion suggested for assessing whether government should subsidise an activity that is beneficial to the community. We address this issue below in answer to question 2, and suggest the two criteria should be combined under this heading.

Question 2: Do you have any concerns about our current approach to using the value of the external benefits of public transport for fare setting purposes? (page 15)

IPART’s current approach has two distinct components (application of criteria for subsidy, and a five-step analysis for each mode), which we address separately.

Criteria for subsidy

The Issues Paper (at 2.1) proposes that, in general, the existence of external benefits justifies government subsidy of an activity considered to be beneficial to the community if the following criteria are met:

• The subsidy would make people undertake more of the beneficial activity than they otherwise would, and
• The external benefits society receives as a result of people undertaking more of the beneficial activity exceeds the net cost of providing the subsidy

More beneficial activity

In relation to the first criterion the Issues Paper argues that:

The Issues Paper also claims that:

APTNSW response: This criterion causes APTNSW no difficulty; it is aligned with the recognition elsewhere in the Issues Paper that the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society. It is clearly necessary to consider whether any action is effective in achieving its intended purpose (preferably on the basis of empirical evidence).

As we noted earlier, this criterion is a different way of putting the fourth of the criteria suggested for assessing whether a benefit should be included in estimating the external benefits of public transport for fare setting purposes (question 1). To avoid repetition and needless complication, it would be better to combine this criterion with the one set out above in question 1.

APTNSW does not in fact argue for the abolition of public transport fares. We agree with the Issues Paper’s conclusion that there is a range of factors that influence people when they decide how to get from A to B. Consistent with this first criterion, we favour fares being set at a level that provides as much revenue as possible to operators while still encouraging passengers to use public transport.

Provided fares remain sufficiently affordable to encourage the use of public transport, we would rather see the income they generate retained and put towards improving service levels (particularly frequency).

We must register our alarm at the suggestion that a return journey fare might double, and we hope this is not on anyone’s agenda. Before running away with the idea that this might not deter “many people” from using public transport, IPART should note the empirical evidence to the contrary gained from the Airport Rail Link (see our response to question 3). It is now beyond reasonable doubt that high fares have seriously damaged patronage on the line, limiting its potential to alleviate worsening traffic congestion in the area.

External benefit exceeds net cost

The Issues Paper proposes this second criterion (at 2.2) on the basis that:

The Issues Paper states with evident prejudice that these (rail) services are already heavily subsidised, to a level that represents a significant amount of taxpayer funding. For example, in 2011/12, the level of Government funding for transport Public Trading Enterprises was $3.7 billion, or around $25 per week from each household in NSW (no figures are given for taxpayer funding of roads and traffic facilities).

The Issues Paper says that for these reasons, “while we do agree that some Government subsidy of public transport is justified, we consider that the level of the subsidy should be linked to the value of the external benefits that public transport provides.” Specifically, the Issues Paper proposes (at 2.6) that “all other things being equal”:

• a higher estimated external benefit value would suggest that greater Government subsidy is appropriate and that fares should be lower, while
• a lower estimated external benefit value would suggest a lower level of subsidy and higher fares.

The practical outcome of IPART’s position is that the higher the proportion of trips made by private vehicles on an average weekday, the higher public transport fares should be. This would have obviously perverse consequences.

It is completely at odds with the first criterion (more beneficial activity); and with the Issues Paper’s earlier indication that the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society.

APTNSW is acutely conscious that citizens in some parts of Sydney and many parts of the State lack access to good public transport services. We consistently advocate better services in areas that were developed according to the American planning model fashionable in the 1960s. We welcome the (State) Government’s renewed interest in investment in public transport infrastructure in those areas, as the way to address this concern.

IPART’s inclination to punish people who already have access to decent public transport services will not improve the lot of people who, as yet, do not. It would spark a return to the downward spiral of the period from the 1960s to the 1980s, when services were cut, passengers were lost, farebox revenue fell, fares increased, more passengers were lost, and so on. APTNSW concludes that the second criterion is a prescription for clogging the roads and making matters worse for everyone. It adds nothing useful to the exercise – anything but - and should be deleted.

Five step analysis

The Issues Paper (3.2) sets out the approach currently used to set maximum fares for each mode, which involves:

1. Estimating the efficient costs of providing the services using a ‘building block’ model.
2. Estimating the value of the external benefits associated with these services – … and taking into account the expected use (or patronage) of those services.

   This involves estimating how much car use is avoided when people use Sydney’s train, bus or ferry services instead of driving, and then quantifying the net value of this avoided car use to the community. The method used to do this is set out below in relation to question 3.

3. Subtracting this estimated value from the efficient costs to determine the amount of revenue to be generated through fares (the ‘revenue requirement’).
4. Calculating how much fare levels need to change to generate an amount equal to the revenue requirement in the final year of the determination period (or some other target date), taking into account forecast changes in the use of the services (patronage) for this period.
5. Considering the implications of the fare changes for passengers, the Government and the environment before determining the maximum fares to apply.

APTNSW Response:

Mode-by-mode approach
APTNSW believes that the mode-by-mode approach has negative consequences. The public transport system is just that – a system. Treating modes separately is that it perpetuates the segregation of fares that exists in Sydney, creating inconvenience and dysfunction. Sydney is still the only capital where one can buy a “train ticket”, and this has not changed under Opal. Melbourne's Myki card, Brisbane’s GoCard, and the others, charge a “fare”, not a train fare or a bus fare.

This issue is raised more directly by the Issues Paper in question 4.

Efficient costs (Step 1)
In relation to the first step, we recognise that it is perfectly proper for the government to expect its agencies to achieve a given level of service as efficiently as possible. The level of service itself is a matter for communities and government.

Implications of fare changes for passengers, government, environment (Step 5)
It is certainly true that large fare increases have sharper impacts than more gradual changes. There is more to the question though. APTNSW is puzzled to see impact on passengers (and the environment) come in as number 5 in IPART’s methodology, with attention paid only to timing. This is reasonable if and only if the earlier steps capture all external benefits, which is not yet the case.

Question 3: Do you have any concerns with our use of the SSTM (Sydney Strategic Travel Model) that would not be overcome by the modifications we have suggested? If so, are there any alternative approaches that we should consider? (page 21)

The Issues Paper (p.16, 3.2) explains that the current approach to estimating the value of external benefits (step 2 in the 5-step process above) is synonymous with estimating how much car use is avoided. This involves, in turn, three main steps:

1. Estimating how much car use is avoided when people use a particular mode of public transport, and the implications of this for traffic speed (and hence time spent driving by existing drivers), and total distances travelled by car on Sydney roads;
2. Based on these estimates, quantifying the external benefits associated with this avoided car use – including avoided road congestion (the value of time saved for existing drivers) and reduced pollution and greenhouse gases (the value of the emissions avoided when less distance is travelled by car). “We then add these values together to give the total value of the external benefits.”
3. Estimating the adjustment required to account for the road user charges drivers pay. “We then subtract this amount from the result of Step 2 to give the net value of the external benefits”.

• how many people currently using that mode of transport would choose to drive if they didn’t use that mode (i.e., the number for whom driving is the next best transport alternative)
• what impact this number of additional drivers would have on the travel times of existing drivers
• what impact this number of additional drivers would have on the total kilometres driven.

APTNSW response:

APTNSW completely agrees that it is good practice to cross-check the outputs of any modelling with information from other sources, to check that the results are sensible. Cross-checking against empirical evidence is our preference.

From our point of view, what matters is the observed behavior of humans, not the theoretical behavior of the mythical species dubbed “Econs” by the behavioural economist Richard Thaler⁷. We note that estimates of the implied elasticity of demand for public transport (that is, how responsive people are to fare changes) proved wildly wrong in the case of the Airport Rail Link.

It was reportedly expected (using conventional analyses) that removal of the $2.60 “station access fee” for passengers using Mascot and Green Square would increase patronage by around 15-17%. Instead, these stations reportedly saw patronage jump 70% in a year in response to cheaper fares (“Ticket sales rocket on airport line as prices plunge” SMH June 9, 2011). We repeat, seventy percent.

Even allowing for the underlying increase in patronage (around 20% in the estimation of the Airport Link company) this is a stunning turnaround. It is now perfectly clear that high fares (due to station access fees) have artificially, and savagely, suppressed patronage on the airport line.

This experience should serve as a warning against an approach to fares that focuses on a priori cost recovery targets and treats the impact on passengers as an afterthought.

Question 4: Do you support considering the external benefits of the public transport network as a whole in addition to a mode-by-mode analysis? (page 22)

The Issues Paper notes that the amount of avoided car use associated with each mode of transport is currently estimated individually. The Issues Paper points out that this means that in areas serviced by more than one mode – e.g. buses and trains, or buses and ferries – the SSTM generally predicts that a lot of people will move to trains when bus services are reduced or made more expensive, and vice versa. This, it says, results in a smaller overall estimate of the external benefits than it would if all areas were serviced by only one mode of transport.

IPART is considering taking into account the estimated external benefits for the public transport network as a whole in forming its estimates of how much car use is avoided when people use public transport.

The Issues Paper states that IPART does not intend to consider modelling what would happen if all of the existing modes of public transport in Sydney were ‘switched off’ at once. It is however considering whether it can inform its analysis by modelling what would happen to travel patterns if a smaller, more realistic change were made to all the existing modes at once, such as a moderate fare increase.

It expects that the external benefit value per public transport passenger obtained from this analysis would provide an upper value in the reasonable range for the total external benefits, as this approach focuses on the change in relative prices between public transport and its alternatives, rather than between different modes of public transport.

APTNSW response: We are pleased to see public transport described (accurately) as a “network” in this question. We are also pleased to see that one of IPART’s arguments against modelling what would happen if all of the existing modes of public transport in Sydney were ‘switched off’ at once includes its recognition that:

We expressed our concern about the mode-by-mode approach in relation to question 2. We feel unable to comment on what scenarios should be used, beyond suggesting that the best approach is the one that yields results closest to what is observed empirically.

Question 5: Do you support separately estimating external benefits in peak and off-peak periods? (page 23)

IPART is considering taking into account the estimated external benefits at different times of day, in forming its estimates of how much car use is avoided when people use public transport (p.23).

APTNSW Response: This seems to us to be overcomplicating the assessment without any obvious benefit. The use of different fares and tolls at different times of day as a demand management measure is already common. Opal has five peak or off-peak periods for train fares during a normal day. We suspect that the buses will follow suit when “Opalisation” is complete.

If the variation in fares is intended to encourage changes in travel habits, then the operator must ensure that sufficient services are provided in the off peak periods. Ferry and bus services, particularly, are drastically reduced in “off peak” times, notwithstanding that the “peak” and “off-peak” periods are far less distinct than they once were. The peak time varies with the location. APTNSW understands that the peak time for congestion on Sydney’s roads is around eleven o'clock on Saturday mornings.

In APTNSW’s view these issues are best regarded as demand management issues, and left to Transport for NSW, working with operators.

Question 6: Do you support us continuing to adopt a value of time equal to half the average wage rate? Should we differentiate between private and business travel? (page 25)

The Issues Paper notes (3.4.1) that IPART has to date adopted a value of time that represented half the average adult wage rate. Using ABS’s most recent figure for May 2012, its estimate would be $17.15 per hour. The Issues Paper suggests that 50% is “broadly in line with international studies” although it notes that “sometimes the value of travel time is split into working time and non-working time”.

According to the Issues Paper, the US Department of Transport recommends 35% to 60% of wages for personal travel and 80% to 120% of wages for business travel. Transport for NSW used a value of time of $14.51 for private travel and $46.45 for business travel for urban areas, to evaluate infrastructure projects in 2012/13. The Issues Paper says that Transport for NSW guidelines have higher values for walking and waiting time, which lessens the difference between IPART’s calculated value of $17.15 per hour for all components of travel and the Transport for NSW value of $14.51 for in-vehicle time.

APTNSW Response: A value of $17.15 per hour seems too low, given that we calculate the average of the figures used by Transport for NSW (broken up as they are for private and business travel) as close to $61 per hour.

Question 7: What information is available to us to update our estimates of the efficiency of vehicles and the costs associated with pollution? (page 27)

APTNSW Response: Others are better placed to comment.

Question 8: How should we quantify the costs associated with carbon emissions? (page 27)

APTNSW Response: Others are better placed to comment.

Question 9: Do you agree with the road user charges we have included? Should we expand the number of tolls that are included? (page 29)

The Issues Paper (2.3.3) wistfully remarks that, if the internal cost of car travel was equal to both the internal and external costs it imposes, there would be no need for it to consider the external benefits of avoided car travel in setting public transport fares.

It notes that while this is not currently the case, there are road user charges that are directly proportional to a person’s car or road usage, such as the fuel excise and road tolls. The Issues Paper argues that these road user charges increase the internal cost of a person’s car travel, and hence lower the Government subsidy required to improve the relativity between the internal cost of car travel and the internal cost of public transport. In setting fares, IPART subtracts the estimated value of these charges from the value of the ‘positive external benefits’ (i.e., lower road congestion and lower air pollution and emissions).

APTNSW Response: APTNSW strongly opposes this practice. The “base case” relativity is heavily biased against public transport. Road user charges go nowhere near capturing the external costs of car use, and there is no reasonable prospect that they will do so anytime soon.

Unless and until all the external benefits of public transport are properly brought within IPART’s fare-setting methodology (or, conversely, road user charges capture all the external costs of car travel) it is entirely premature to artificially dampen the external benefits of public transport in this fashion.

Question 10: Do additional drivers impose additional accident-related costs on existing car users, or pedestrians and other victims of accidents? (page 32)

The Issues Paper notes (4.1) that to date, IPART has not included a value for the external benefits associated with fewer road accidents in its estimates of the external benefits of public transport use.

It indicates (p.32) that IPART’s preliminary view is that it should recognise single vehicle accidents but not multiple vehicle accidents in its estimate of external benefits (See also question 11).

APTNSW Response: Every additional accident imposes additional costs. Additional VKT increases the absolute number of accidents, and greater emphasis on public transport stems VKT growth. The arcane distinction made between single and multiple-vehicle accidents complicates matters and should not be progressed unless it is clear that it does something useful.

Question 11: Are there other accident-related costs to society that are not fully internalised by drivers? If so, how could these be measured? (page 32)

IPART currently does not attribute any value to avoided accident costs to the community, on the basis of a prior conclusion that they were too small to warrant including in its estimate of the external benefits for fare setting purposes, (2.3.2 p.11) but it is considering its position on this.

IPART’s preliminary view is that it should recognise single vehicle accidents but not multiple vehicle accidents in its estimate of external benefits (p.32) (See also question 10).

APTNSW Response: Many of the additional costs caused by traffic accidents fall on the broader society as well as those who directly suffer injury or loss. The obvious example is the cost of medical treatment and rehabilitation. Australia’s public health system ensures that no-one is excluded from treatment on the basis of their ability to pay. Costs are not allocated by a private contractual arrangement between patients and insurers, and no-one is bankrupted by medical expenses. US work may be misleading in this context.

Litman (2009) classifies “crash costs” like emergency and medical/hospital costs as “system” costs⁸, not personal costs borne by the injured driver nor external costs imposed on “other road users”.

Other costs of accidents that fall on the broader society are court-related and police-related, when there is some offence connected with an accident. Then there is the cost of supporting injured persons and their families unless and until they are able to return to work.

All of these costs have a dollar figure. They should be included in IPART’s costings. Even if they can only be assigned a value within a range, this is more accurate than assigning them zero value.

Question 12: What is your view on the outlined approach for considering the external benefits and costs associated with the scale of public transport services? What are the alternatives? (page 35)

The Issues Paper notes (2.3) that in measuring the external benefits associated with using public transport instead of car travel, IPART has:

incorporated only the external benefits that arise when people use public transport instead of travelling by car (avoided car travel)

included the value of two such external benefits: lower road congestion, and lower air pollution and greenhouse gas emissions

adjusted this value to account for the fact that people already face some of the external costs of driving through various tolls, levies and other road user charges.

It explains that IPART’s focus on the benefits associated with avoided car travel reflects its view that when people use public transport instead of walking or cycling, no material external benefits arise, since these alternative modes do not impose significant costs on the community (2.3.1).

The Issues Paper notes (p.30) that its preliminary view is that any additional external benefit (or cost) should meet the criteria set out in Chapter 2 of the Issues Paper (question 1 above) before IPART would consider including it.

The Issues Paper discusses the following possible external benefits:

• Benefits from fewer road accidents

  As noted in relation to questions 10 and 11, IPART’s preliminary view (p.32) is that it should recognise single vehicle accidents but not multiple vehicle accidents in our estimate of external benefits.

• Scale benefits The Issues Paper describes scale benefits as the benefits or costs associated with higher or lower public transport patronage and the resulting change in either the frequency of public transport services or crowding on existing services.

  The Issues Paper says that the extent of scale benefits depends on the interactions between fares, patronage, service frequency and cost. IPART’s preliminary view is that it should attempt to take these benefits into account in fare setting by considering the likely impact of an incremental change to fares.

• Benefits from improved social mobility and inclusion This is the subject of question 13. Issues Paper p.35 says that IPART does not intend to include these benefits.
• Benefits from agglomeration and other wider economic benefits This is the subject of question 14; IPART does not intend to include this benefit.
• Costs of raising funds to subsidise public transport. This is the subject of question 15. The Issues Paper is not clear about IPART’s intended approach; it seems that will depend on whether or not it concludes that the demand for public transport is elastic.

APTNSW agrees with IPART’s focus on the benefits associated with avoided car travel; we agree that when people use public transport instead of walking or cycling, no material external benefits arise.

We welcome IPART’s intention to include consideration of scale benefits by considering the likely impact of an incremental change to fares. This is something we see as part of step 5 above. We suggest that Transport NSW do some empirical testing and alert IPART to instances where there is already evidence. We have mentioned the Airport Line experience above.

Question 13: The external benefit associated with increased mobility and social inclusion is best addressed through the Government’s targeted concession policy. Do you agree? (page 36)

The Issues Paper (4.3) observes that people with low incomes tend to live further away from jobs and may have fewer transport options. It notes that reducing transport costs improves accessibility to jobs, as well as services and options for leisure and entertainment.

The Issues Paper agrees that public transport provides a benefit to society by improving access to transport for those who are less mobile and have lower incomes, and consider that this benefit may be significant. However, it regards this benefit as “largely restricted to particular and identifiable groups within society, such as people with a disability, pensioners and the unemployed. Therefore, it concludes that this benefit does not meet the second of its proposed criteria (see question 1).

It suggests that the benefit of improved social mobility and inclusion justifies the provision of concessional fares only – not greater subsidisation of the full fares paid by passengers outside these groups.

APTNSW Response:

The “social security” perspective IPART adopts here is much too narrow; it has a firm grasp on the wrong end of the stick.

The needs of people who are entitled to concessions do not define the limits of “mobility and social inclusion”. A key strategic aim of all Australian Governments is to bring young people, unemployed and underemployed people into training and work, to improve their life prospects and to promote a healthy economy.

This means that entry-level and lower paid workers must not be deterred from taking on work or tempted to leave it, because of the cost of public transport. Unfortunately, these groups are not a “particular and identifiable” subgroup; and they are not entitled to concession passes.

To the extent that some people in higher paid positions also benefit if fares remain affordable for those in lower paid positions, APTNSW regards this as a purely theoretical problem. It pales into insignificance beside the real problems that develop in areas marked by high unemployment, low skills and low education levels. If more is to be expected of higher income earners, a progressive tax system is the appropriate mechanism.

Workforce capacity and participation could of course equally (perhaps preferably) be discussed under the next heading, in terms of the economic benefits of workplace participation. In relation to its discussion of agglomeration and other wider economic benefits, the Issues Paper notes that transport costs influence “where and even whether to work”. We address it here because it is under this heading that the Issues Paper first mentions that reducing transport costs improves accessibility to jobs, as well as services and options for leisure and entertainment.

In whichever way the external benefit is classified, workforce capacity and participation are vitally important to the health and functioning of our cities, our society and the economy. It is in our view unacceptable that IPART proposes to leave them out of its equation.

Question 14: The external benefits associated with agglomeration and other wider economic benefits do not meet the criteria for inclusion. Do you agree? (page 39)

Agglomeration

The Issues Paper notes (4.4.1) that the term “agglomeration” refers to the benefits associated with people locating near each other:

Agglomeration benefits are not currently considered by IPART in setting fares.

The Issues Paper canvasses what it sees as the main argument for including agglomeration benefits when setting fares: that subsidising public transport facilitates travel to job clusters by reducing transportation costs. This promotes improved productivity and leads to economic growth – that is, higher profits, land values and wages, the benefits of which accrue to society in general.

It notes that current NSW guidelines on economic appraisal do not include agglomeration in cost-benefit analysis. Infrastructure Australia economic appraisal guidelines on the other hand state that it concentrates on the direct costs and benefits identified in State guidelines, but also considers agglomeration and other wider economic benefits to “add texture to the decision making process”.

The Issues Paper agrees that agglomeration provides a private or internal benefit to firms, but says that on balance, IPART found that external benefits to society “are not readily quantifiable and the role of public transport services in attaining agglomeration benefits is not established”. It also concludes that if there is a broader external benefit from agglomeration and this is affected by public transport costs, this is an argument that would apply to both car travel and public transport. Its preliminary view is that agglomeration benefits should not be included in its estimate of external benefits.

Other economic benefits

The Issues Paper notes (4.4.2) that there are a number of wider economic benefits associated with improved and/or lower cost transport. They include:

• Output changes from lower prices.

  Reduced road congestion provides a cost saving to business, which is then passed on to consumers through lower prices. The lower prices stimulate demand in the economy and this creates a consumer surplus that is not fully reflected by the initial saving in cost.

• Tax revenue from labour supply impacts.

  For those looking for a job, transport costs influence where and even whether to work as people weigh travel costs against the wages available. Lower travel costs open up more jobs to jobseekers. Increasing the level of employment in the economy has benefits for everyone, including through higher income tax receipts and lower welfare payments.

• Improved productivity from competition among service providers.

  Better and cheaper transport frees up access to services by improving mobility between areas (for example, more accessible transport gives people the ability to use a doctor from another district). Freeing up access to services encourages greater specialisation, which leads to productivity gains that benefit everyone. It may also create economies of scale where greater number of people can access a single site, for example a large shopping mall.

APTNSW Response:

Infrastructure Australia’s consideration of agglomeration and other economic benefits adds validity not just “texture”. In APTNSW’s view it serves to alert decision-makers to real consequences that would otherwise be overlooked.

Agglomeration

Appendix A to this submission reproduces an article that well expresses the reasons agglomeration should be regarded as an external benefit of public transport in particular, not transport in general.

Another useful resource is the abstract for a coming paper by Rob Tyson of Pricewaterhouse Coopers in the Institute of Transport and Logistics Studies (ITLS) series. The paper reports on an 18-month study focused on understanding the economic characteristics and performance of 2,214 locations covering Australia since FY01 to FY13.

The case studies demonstrates an 'on-the-ground' productivity dividend associated with public transport infrastructure investment, increasing the density of high value-add jobs, re-shaping the characteristics of the corridor and delivering returns to employee wages, business profits and government tax revenue. The potential for ex-post analysis using this data provides a vehicle to validate current appraisal techniques and specify new value capture mechanisms.

Other economic benefits
Our comments in relation to question 13 are relevant to this question – workforce participation brings important economic benefits as well as personal benefits, and public transport improves access to employment. Another factor worth highlighting is productivity. A good example is the cost of chauffeuring⁹ – that is, the cost of a second person driving the primary passenger to a destination (and back again) where the driver has no reason for making the trip apart from transporting the primary passenger. The corollary benefit if the passenger instead uses public transport would be the removal of the driver and car from the roads, freeing the chauffeur to do something more productive, as well as easing congestion.

Question 15: Should the excess burden of funding be included in the calculation of the net external benefit of public transport? (page 41)

The Issues Paper states (4.5) that there is a cost associated with raising funds to subsidise public transport. It says that taxation leads to distortions in the decisions of individuals and firms and these distortions lead to an economic loss. The extent to which a tax reduces consumer welfare is referred to as the excess burden of taxation.

The Issues Paper suggests that the external cost of taxation depends in part on the effectiveness of the subsidy in motivating people to use public transport. If demand for public transport is quite inelastic, then it says the subsidy will have only limited impact on demand. If demand for public transport is highly inelastic, it says the marginal social cost of subsidising public transport could even exceed the marginal external benefit. It appears that IPART’s approach will turn on this question of elasticity.

APTNSW Response: No. APTNSW can assure IPART that the price of public transport does affect its use – the demand for public transport is elastic. A graphic example we have raised above is the response to fare reductions on part of the Airport Rail Link. Care needs to be taken to ensure that fare rises are set at a level that does not damage patronage.

It is important when considering the elasticity of demand to recognise that public transport passengers and car drivers are not mutually exclusive groups. Travel “blending” is common. The same person may be a public transport passenger, a driver, a cyclist or a pedestrian, at different times and for different trips.

Fares may therefore be compared with the cost of using a car a passenger already owns, and for which fixed costs like registration have already been paid. Increased fares would in that case have a more pronounced effect than it would have for public transport users who lack ready alternatives. Their alternative might be to stay at home unless someone else can give them a lift.

Question 16: If so, what is an appropriate estimate of this excess burden? Should we use the weighted average for NSW or the marginal burden of the most efficient tax? (page 41)

APTNSW Response: We have no comment on this question in light of our answer to question 15.

Question 17: Are there additional external benefits (or costs) that we have not raised that you believe would meet the criteria for inclusion? (page 42)

The Issues Paper sets out a number of other potential external benefits that have been raised with IPART in previous reviews that it has decided do not justify inclusion in its external benefits calculation:

• Reduction in noise pollution
• Health benefits of public transport related to greater exercise
• Changes in car parking
• Iconic value of Sydney Ferries.

APTNSW Response:

This is a very disturbing attitude. Decision-makers need to understand the possible consequences of the decisions they make, and for which they, not IPART, will be held to account.

The external benefits we contend should be included are:

• Workplace participation and productivity
• Health impacts
• Land use impacts
• Expenditure impacts related to road expansion and additional traffic control facilities

This critical external benefit has been discussed in relation to questions 12 and 13.

Health impacts

Stanley (2010) includes “safety and health” among six major external costs that can be reduced by the operation of an effective urban bus (public transport) service¹⁰.

Chronic diseases such as obesity, diabetes, heart disease and strokes account for 80% of deaths worldwide (WHO, 2011). All of these become more common with decreased physical activity. Adverse health outcomes go hand-in-hand with adverse employment outcomes and rising health and welfare costs for the whole community.

Stanley 2010 notes that the prevalence of obesity in Australia has more than doubled in the last 20 years: 52% of women, 67% of men, and 25% of children are overweight or obese. The percentage of people in Western Sydney Local Health District (LGAs of Auburn, Blacktown, The Hills Shire, Holroyd, Parramatta) who are either overweight or obese is trending up (44.7% in 2002 to 49.7% in 2013), well above the Sydney Local Health District (LGAs of Sydney, Leichhardt, Marrickville, Ashfield, Burwood, Strathfield, Canada Bay and Canterbury) which has risen from 36.3% in 2002 to 37.1% in 2013¹¹.

Litman (2009) refers to research by Wener and Evans, which found that train commuters walked an average of 30% more steps per day, reported having walked for a period of 10 minutes or more while travelling significantly more often, and were 4 times more likely to walk 10,000 steps during a day than car commuters.

Litman (2009) also cites reported research showing that “Vehicle-miles travelled had a stronger correlation with obesity than any other factor.”¹²

Noise pollution could be considered here as it too has health impacts.

Land use impacts

Stanley (2010) notes that it could be argued that urban sprawl is less likely in cities with strong public transport networks, as demonstrated (for example), by Bento et al. (2005. He concluded that the quantification of this aspect of land use/transport interaction more generally was not sufficiently well developed for Melbourne to be included in that paper.

Litman¹³ has however developed ways to evaluate the land use impacts of transportation decisions. Among those impacts are the cost of land required to accommodate vehicles (including parking); and more dispersed land use patterns. Increased pavement and more dispersed land use development patterns impose various economic, social and environmental costs on society that are often not recognized in conventional transportation planning.

Road expansion and road-associated costs

Litman notes that increased urban roadway capacity is likely to stimulate low-density, urban-fringe, automobile dependent development patterns, while other types of transport improvements usually results in more infill and clustered land use, and can increase travel options for non-drivers¹⁴.

The reverse also holds true. The more that land use patterns and poor or expensive transit options favour car use, the more pressure there will be to increase urban roadway capacity. The Issues Paper mentions the specific case of the Manly Ferry, where a reduction in services or a doubling of fares would have catastrophic repercussions on the traffic in Military Road, not to mention the shops and cafes on The Corso. This would undoubtedly redouble pressure to increase the capacity of the road system in the affected areas. Capacity expansion may provide initial relief from congestion, but this evaporates as additional traffic is generated. This costly and in the end counter-productive exercise can be minimised by encouraging public transport use.

Roads also require expenditure on traffic control facilities, including the Traffic Control Centre and RMS traffic alerts, and a proportion of police time and court time. The avoidance or reduction of these costs is part of this external benefit of public transport.

Conclusion

APTNSW welcomes IPART’s recognition that “the purpose of subsidising fares is to increase the use of public transport by lowering its price (relative to not having a subsidy) in order to realise greater benefits for society”. We urge IPART to ensure that this review will produce a methodology focused on that purpose.

Thank you for the opportunity to comment.

1 Public Transit Is Worth Way More to a City Than You Might Think

A new report finds a hidden economic value of anywhere from $1.5 million to $1.8 billion a year.

Planning scholar Daniel Chatman of the University of California at Berkeley has been thinking a lot lately about "agglomeration." Don't let the technical word throw you. All it really means is more people in the same place. As more people collect in a city center, more jobs cluster there too, boosting both wages and economic productivity over time. And the key to it all, he believes, may be public transportation.

"To me it's fascinating," says Chatman. "It's all about how people interact with each other. This is what could be happening by virtue of this densification near transit stops, which could happen from investments that draw people to use transit."

In a new paper set for publication in Urban Studies, Chatman and fellow planner Robert Noland of Rutgers University use concrete numbers to make the case that transit produces agglomeration. They report that this hidden economic value of transit could be worth anywhere from $1.5 million to $1.8 billion a year, depending on the size of the city. And the bigger the city, they find, the bigger the agglomeration benefit of expanding transit.

The hidden economic value of transit could be worth anywhere from $1.5 million to $1.8 billion a year

Simply put, city officials now have a much stronger argument for using taxpayer money to improve their public transportation service.

"These results could be dropped directly into a cost-benefit analysis," says Chatman. "It would show a higher benefits-cost ratio for rail investments, particularly rail investments in large cities with existing transit networks."

Let's step back a moment and look at agglomeration more closely. One of the potential benefits of having more people in an area is that you have a wider labor force. That, in turn, means a better chance of matching the needs of a job with the skills of a worker — and, of course, making this match more quickly. Another benefit could be information exchange. As casual encounters among skilled laborers increase, say in the shops and on the sidewalks that crop up near transit hubs, so too does innovation,

Any transportation mode that brings people to a certain place could promote agglomeration, but public transit makes it especially possible because it moves so many people within such a confined space. If workers can only get to a budding job center by car, for instance, eventually traffic will become so bad as to hinder growth. But if transit is also established in the same job center, then far more people will be able to access the area, and clustering there can advance accordingly.

"Whatever does happen in response to a transit investment is going to be concentrated," says Chatman. "You're going to have a different kind of urban form that springs up due to transit than due to the auto."

But with so many variables in play — from job density to population growth to transit development — studying agglomeration has been extremely difficult. So Chatman and Noland ran a number of statistical models that took into account all these factors, as well as economic productivity measures like average wage, for more than 300 metropolitan areas across the United States. ("It really is a new kind of thing we did here," says Chatman.) The numbers were so complex that many of the models failed to pass statistical muster.

Those that did revealed a pretty clear line from transit expansion to economic growth via agglomeration.

Every time a metro area added about 4 seats to rails and buses per 1,000 residents, the central city ended up with 320 more employees per square mile — an increase of 19 percent. Adding 85 rail miles delivered a 7 percent increase. A 10 percent expansion in transit service (by adding either rail and bus seats or rail miles) produced a wage increase between $53 and $194 per worker per year in the city center. The gross metropolitan product rose between 1 and 2 percent, too.

On average, across all the metro areas in the study, expanding transit service produced an economic benefit via agglomeration of roughly $45 million a year — with that figure ranging between $1.5 million and $1.8 billion based on the size of the city. Big cities stand to benefit more simply because they have more people sharing the transit infrastructure. They also tend to have more of the traffic that cripples agglomeration in the absence of transit.

"As to how big it is," says Chatman of this hidden economic benefit, "it's most likely to be large in places that have congested road conditions, transit networks that are at capacity — those kinds of places — and probably less in smaller cities without very much road congestion."

Chatman stresses that because his method is so new, the results must be replicated before they're accepted. He also knows that some people will question the causality of the data: How can the researchers know, for instance, that transit alone is responsible for agglomeration? In response, Chatman points to the controls he and Noland installed in their statistical models — and to the fact that he's been critical of rail as an economic investment strategy in the past.

"Put it this way: I'm a skeptic on this stuff, and I was surprised to see these results so robust," he says.

If the findings do hold true, they mean that cities and transit agencies are underestimating the true benefits of public transportation. From there it's reasonable to expect all cities — though especially big ones — to base future requests for transit funding on the idea that agglomeration leads to economic productivity. If showing that system expansion leads to more riders and less congestion is good, and showing that it reduces pollution and improves public safety is great, then showing in big numbers how much economic growth will occur should be gold.

"This is the first U.S. work, so we'll see what happens, but I imagine you're going to see this coming up in people's [grant] applications, from the big cities," says Chatman. "It's in those big cities that you'd see benefits, and that those would potentially make it more likely that you'd make a decision to make an investment there."