The Gungahlin light rail business case was released on 31 October. Developed over many months by a team of public servants and consultants, it was the key document relied upon by the government in deciding to proceed with the next stage of the project: calling for expressions of interest from private consortiums to build, operate and finance light rail.
The headline benefit cost ratio in the business case is 1.2: $984 million in benefits divided by $823 million in costs. The benefits and costs are for three years of construction (2016-19) and 30 years of operation (2019-48) rendered into a present value by discounting (a standard procedure in cost benefit analysis).
A benefit cost ratio of 1.2 means the project is marginal. During debate in the Legislative Assembly in November 2013, Capital Metro Minister Simon Corbell, rightly set the bar higher than 1.2 when he said 'Anything over two is considered a beneficial project'. This is a poor project that will redirect community resources away from better private and public uses.
Worse still, the business case understates the likely cost and overstates the benefits. In particular, the marginal result is only achieved by including unsubstantiated and implausible claims about light rail's effects on land use and the ACT economy. These are three fifths of the claimed benefits. When these are removed, the benefit cost ratio is 0.5. Costs are double the benefits.
The table shows the present values of the benefits and costs identified in the business case.
Transport benefits are valued at $406 million. This includes improved travel times for public and private transport users; comfort and reliability of light rail; reduced road vehicle operating costs; health benefits from increased walking and cycling; fewer accidents; less noise and air pollution; lower greenhouse emissions; savings on road wear and tear; and savings on ACTION bus operations.
Dividing transport benefits by total costs of $823 million gives a benefit cost ratio of 0.5. This is consistent with the analysis conducted for the ACT Liberals by transport consultant, Bob Nairn (0.4) and the government's 2012 submission to Infrastructure Australia (0.6).
The result is likely to be worse than estimated. In a section on benchmarking, the business case argues that an undiscounted construction cost estimate of $783 million is reasonable compared with Gold Coast light rail's cost of $949 million. But Queensland budget papers in 2011 and 2012 reported that the 2009 cost estimate of $949 million had increased to $1.195 billion and then $1.296 billion. The chances of our project going the same way are high.
To get a result above the break-even point of 1, the business case relies on land use benefits and wider economic benefits.
Land use benefits of $381 million result 'from the increased job and population densities that will happen as a consequence of the introduction of light rail'. First, 'replacing existing land use with higher value use by improving quality and/or increasing density of development' is worth $168 million. Second, densification of the corridor will reduce the cost of public infrastructure and service provision such as electricity, water, health and education by $140 million. Third, densification will reduce the electricity and water use of residents, and 'deliver agglomeration and productivity gains… by encouraging firms and workers to locate in closer physical proximity'. This is valued at $72 million.
Wider economic impacts of $198 million include an agglomeration benefit ($165 million) that arises not in space (through 'closer physical proximity') but time. The business case explains: 'Improvements to transport infrastructure that reduce travel times for workers and freight have the potential to increase the density of economic activity by effectively bringing firms and workers closer to each other'. There is also additional tax revenue from increased labour supply ($31 million) and a small amount ($2 million) for 'additional economic benefits arising if output increases in sectors where competition is less than perfect'.
Land use and wider economic benefits valued at $579 million are described in a few paragraphs in the business case. The appendix provides some of the assumptions used in modelling. But there is no evidence or analysis to explain how these benefits have been estimated or how they are connected to the light rail project.
Urban densification can proceed without light rail. This has happened elsewhere in Canberra. The business case notes that revitalisation is already occurring along the transport corridor. It also makes clear that urban densification policies support light rail, not the reverse. Actions 'required by current and future Governments to ensure stated benefits are realised and maximised' include decisions on the release and redevelopment of government owned land in the corridor, the supply of land outside the corridor, planning rules, parking charges, the location of ACT government activities, and other 'complementary city transformation activities'. The business case also recommends 'deliberate actions to attract developers'.
There is a sprinkling of claims about the effects of light rail in other cities. In Dallas, 'light rail generated developments worth $4.26 billion'. In Dublin, 'homes near light rail attract a premium of 10-20 per cent'. There are no sources given to allow the reader to check these claims and no indication that the claims have been closely examined. Portland, Oregon, for example, is mentioned three times. Its light rail has been 'a magnet' for development and has increased property values. No mention is made of the fact that developers have received hundreds of millions of dollars in publicly funded subsidies and tax waivers.
Where sources are given, the picture is no better. In a table headed 'Economic benefits of increased urban density resulting from light rail', none of the four studies mentioned actually examines the effects of light rail on urban density.
The treatment of wider economic benefits is just as cursory. In little more than a page the business case asserts that such impacts exist and that the evidence on them in Australia 'is of reasonable quality'. There is an appeal to 'advanced' practice and 'the latest UK Guidelines'. The reader is assured that such benefits 'are accepted by decision makers as a legitimate and important part of the rationale for transport investments.' But there is not a single word about the effects of the Gungahlin light rail on the ACT economy.
Infrastructure Australia accepts assessments of wider economic benefits in submissions for funding but offers some sensible advice. 'Significant WEBs will only be found in initiatives with strong traditional benefits, since WEBs require high levels of behaviour change'. The light rail business case has weak 'traditional' benefits against the costs, and little behavioural change is expected. The business case says 'there will be over 3,000 additional public transport boardings each day across the network by 2031'. This equates to 1,500 return trips. Half of these will be in off-peak periods, when congestion and travel times are not a problem. To put this in perspective, at a cost of about $90 million a year under a public private partnership agreement, the project will change the commuting habits of 750 Canberrans by 2031. About 200,000 Canberrans travel to work each day.
According to the business case, replacing some buses with some trams on the road to Gungahlin will, among other things, increase economic growth, population, private investment, productivity, employment and business innovation in the ACT.
Light rail is worse than folly. It is fantasy.
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.
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