Comment

Why the Gungahlin tram line is 'flawed' and the claimed benefits don't stack up

Many of the claimed benefits of a light rail line from Gungahlin to Civic are illusory.

The ACT government's 2012 submission to Infrastructure Australia is the only publicly available official estimate of the costs and benefits of the Gungahlin light rail project.

An artist's impression of tram lines in the centre of Gungahlin.
An artist's impression of tram lines in the centre of Gungahlin. Photo: Supplied

The table summarises the key results in the submission. Reading from the left, the first column of figures are the benefit-cost ratios used by the government: 2.34 for light rail and 4.78 for a busway (indicating benefits outweigh costs by 2.34 to 1 for light rail). These numbers reflect not only the costs and benefits of light rail and bus, but the effects of higher-density development along the corridor and increased parking fees across Canberra.

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The higher-density scenario assumes the population of the transit corridor will increase from 50,400 in 2011 to 102,600 in 2031. This is 28,500 more than under the business as usual scenario. Employment growth in the corridor is assumed to be 15,900 higher than under the business as usual scenario. Higher population and employment along the corridor are achieved by less development elsewhere.

By concentrating more people in the corridor, public transport passenger numbers increase, car trips decrease, and public transport and car trips are shorter. For the light rail project, the estimated value of time saved over 30 years by road and public transport users is increased from $627 million under the business as usual scenario for land use, to $2.795 billion under the higher density scenario.

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The submission says the higher density scenario "may arise through a market response to transport investment" but it clearly puts its faith in land policies. These include the sale of government properties such as the motor registry and public housing, and the rezoning of "underdeveloped sites including parts of EPIC and Canberra Racecourse". The government could also use leasehold arrangements "to effect changes in land use patterns", and "manage the spatial distribution of demand for housing by constraining supply outside the Project Corridor".

The higher-density scenario is not the result of light rail or a busway attracting people to the corridor. Rather, policies such as rezoning the racecourse attract people to the corridor, and policies such as restricting greenfields development force people into the corridor. These changes can be implemented without light rail or a busway.

The submission concludes that the return on light rail investment alone, without the land-use changes, is likely to be marginal. This is shown in the table by a benefit-cost ratio of only 1.02 (costs and benefits about even). It should be remembered that the business as usual land use scenario still envisages a further 23,700 people living in the transit corridor by 2031.

All four options in the submission include a further policy: a near doubling of parking fees in the city and town centres by 2021. These increases are in addition to the normal fee increases that are expected to occur. Higher parking fees are intended to discourage car use, encourage public transport use and "provide an additional funding source for the project". The additional revenue is more than $700 million in all four options, making it the most important 'benefit' in the analysis after time savings.

This revenue should not be included in the cost benefit analysis on two grounds. First, like the effects of higher density, it does not arise from light rail or a busway but from a separate policy that could be implemented without either public transport project. Second, more parking revenue is not a benefit to society but a transfer of money from one part of society (people who park) to another part (the government). It is the standard approach in cost benefit analysis not to include such transfers.

The table's bottom row shows the results for the two transport projects when parking revenue and the effects of land-use changes are removed from the equation: 0.64 for light rail and 1.18 for a busway. The costs of light rail exceed its benefits; the busway is marginal. About three-quarters of the benefits in the headline figures of 2.34 and 4.78 are the result of higher-density policies and parking fee increases.

A report for the Liberals in June 2014 by Bob Nairn, a well-known transport consultant, estimated a benefit cost ratio for light rail of 0.43, broadly similar to the government's result. Mr Nairn's analysis did not include parking revenue or the effects of land use policies. In a report by the Centre for International Economics to the Legislative Assembly's estimates committee in July 2014, parking revenue was excluded and attributing the benefits of corridor development to Capital Metro, rather than land use policies, was questioned.

Two further asserted benefits of light rail are equally illusory: increased land values and increased employment.

Some government statements have presented higher land values along the rail line as an additional benefit to those included in cost benefit analysis. Increases in land values largely reflect benefits such as travel time savings, which are already incorporated in the government's cost benefit analysis. To include them again is double counting. Further, increases in land values along the route may simply come at the expense of land values elsewhere in Canberra.

The Capital Metro Minister Simon Corbell claims more than 3500 jobs will be "supported" during construction, and about 50,000 jobs will be "supported" over 30 years of operation. These numbers are based on a government report on the "likely job creation" for 2016 to 2037 arising from expenditure on the construction and operation of light rail, and from expenditure on commercial property developments in the corridor and on the commercial activities that then occur in those developments. The report cautions against using the gross figures cited by the minister. It assumes 10 per cent of the gross figure is additional ACT employment, the rest being jobs relocated from elsewhere in the territory. No explanation is given for this figure and the most obvious assumption for additional jobs created is nil.

Public expenditure on light rail diverts money from other government programs or requires increased taxes and charges which reduce private activity. Private expenditure on commercial activity, such as building and using retail space in the corridor, diverts activity from elsewhere in the ACT. Jobs are not created; they are redistributed.

The Capital Metro website says that "light rail is not just a form of transport". But actually, that's all it is. Despite all of the claims of creating jobs, 'unlocking' Northbourne Avenue and "catalysing urban renewal", we are replacing some buses with some trams. There are two key questions. How much will it cost? How many more passengers will it attract?

The latest construction cost estimate is $610 million-$783 million. The annual operating cost estimate in 2012 was $7 million. Experience suggests these figures can only go up. The construction cost of the 13-kilometre Gold Coast light rail has increased from $950 million in 2009, when procurement began, to $1.3 billion.

Like the Gold Coast, we will buy our light rail through a "public private partnership". A private consortium will contract with the government to build and finance the project, and then operate and maintain it for up to 30 years. In return the government will make payments to the consortium over the life of the contract. Based on the limited information available this annual payment will be $80-$100 million. The cost of ACTION buses across Canberra was $145 million in 2013-14.

The current patronage estimate is 13,700 boardings each week day in 2021. From recent information provided by ministers, this is about 25 per cent higher than current bus patronage in the transport corridor. This is broadly in line with projected population growth in the corridor over the next seven years. It is this, plus significant employment growth in the corridor, bolstered by government land use and other policies, which will drive any increase in boardings. This demand can be met by buses. Indeed, until light rail begins operation in 2019, demand will be met by buses. If achieved, additional boardings of 700,000 a year would be a 4 per cent increase in ACT boardings of 18 million.

The Gungahlin tram will greatly increase the cost of public transport but make little difference to patronage or, therefore, to anything else. It is folly.

David Hughes, an economist and former academic, was manager of major project analysis for ACT Treasury and director of the economics branch from 2002-2005. Before that, he worked in the Audit Office, where he investigated the Bruce Stadium project. Mr Hughes has been a political adviser on both sides of politics, including to Tony Abbott and other federal Liberals in Opposition (2008-2011), and has been a consultant under governments of both persuasions. He is not a member of any political party.