Deconstructing the New Zealand Transport Agency Economic Evaluation Manual: Bringing the best research on transportation and its economic benefit into the applied New Zealand context. 2.01—1 MAPP575 – Dissertation Final Draft Due December 2013 Handed in September 2013 Thomas S. Pettit Master of Public Policy Candidate Student ID – 300274621 Supervisor – Toby Daglish 2.01—2 Abstract This paper explores the New Zealand Transport Agency Economic Evaluation Manual from the perspective of best practices in international literature. Drawing upon research from the international community and policy-focused bodies like the OECD, the paper seeks to improve the NZTA EEM’s quality by employing hedonic and revealed- preference methods to create a more accurate tool to derive the value of certain transport investments. The paper finds that the value of time in New Zealand is far too low, the discount regime improperly reflects the nature of such investments, cycling benefits are undervalued, and property values are not accounted for as well as they could be. The paper then applies these findings to the recently-completed Public Transport Spine Study in Wellington, New Zealand to illustrate the importance of accurate economic evaluation of transport investments. Acknowledgements: My deepest thanks to Toby and Claudia for their advice, and Nadine for her support. 2.01—3 Table Of Contents Table Of Contents.......................................................................2.01—4 Index of Tables, Equations and Figures .........................................2.01—5 Chapter I. Introduction ................................................................. I—6 Chapter II. Existing New Zealand Context, Recent Research, and Optimal CBA Methods ................................................................................ II—7 Section 2.01 The Discount Rate ........................................................................................2.01—7 Section 2.02 The Value of Time......................................................................................2.02—12 Section 2.03 Treatment of Cycling Benefits.....................................................................2.03—16 Section 2.04 Patterns of Development and Transport-Inspired Value............................2.04—18 Section 2.05 Automobile Ownership Costs......................................................................2.05—20 Section 2.06 The Community Severance (Barrier) Effect................................................2.06—21 Section 2.07 Summary .....................................................................................................2.07—23 Chapter III. Spine Study Input Analysis....................................... III—23 Section 3.01 The Travel Times........................................................................................3.01—23 Section 3.02 The Ridership..............................................................................................3.02—26 Section 3.03 Properties Receiving Value Uplift...............................................................3.03—28 Section 3.04 Difference in Car Kilometers Travelled......................................................3.04—29 Chapter IV. Methodology ...........................................................IV—31 Section 4.01 Congestion Times........................................................................................4.01—31 Section 4.02 Travel Time Savings ...................................................................................4.02—33 Section 4.03 Automobile Ownership Costs......................................................................4.03—34 Section 4.04 Community Severance ................................................................................4.04—35 Chapter V. Aggregate Results....................................................... V—36 Section 5.01 Corrected Travel Times and International Costs .......................................5.01—36 Value of Property Uplift (in Millions of Dollars) .........................................................................5.01—36 Section 5.02 Corrected Travel Times and Current NZTA Costs ...................................5.02—37 Value of Property Uplift (in Millions of Dollars) .........................................................................5.02—37 Section 5.03 Spine Study Travel Times and International Costs....................................5.03—39 Value of Property Uplift (in Millions of Dollars) .........................................................................5.03—39 Section 5.04 Existing Analysis..........................................................................................5.04—39 Value of Property Uplift (in Millions of Dollars) .........................................................................5.04—40 Chapter VI. Discussion ..............................................................VI—41 Section 6.01 The Discount Rate ......................................................................................6.01—41 Section 6.02 The Value of Time......................................................................................6.02—42 Section 6.03 Automobile Ownership Costs......................................................................6.03—42 Section 6.04 Community Severance Effect......................................................................6.04—43 Section 6.05 Property Value Uplift ..................................................................................6.05—43 Section 6.06 Ridership and Congestion Times................................................................6.06—44 Chapter VII. Conclusions ..........................................................VII—44 International Implications............................................................................................................VII—46 Bibliography ..............................................................................VII—48 APPENDIX ................................................................................VII—58 2.01—4 Appendix A – Congestion Times..........................................................................................VII—58 Appendix B – Congestion Times without Flyover & 2nd Tunnel .........................................VII—59 Appendix C – Costs and Benefits with No SH1 Improvements...........................................VII—61 Appendix D – Perturbation Analysis....................................................................................VII—61 Appendix E – Cost Structure When Discounted..................................................................VII—65 Appendix F – Financial Recovery ........................................................................................VII—65 Appendix G - Realistic Cost Structures................................................................................VII—67 Appendix H - Benefit-Cost Ratios........................................................................................VII—67 Index of Tables, Equations and Figures Table II-1 Existing International & Proposed NZ Discounting Schemes ____________________________2.01—10 Table II-2 Proposed Changes to Cycling Benefits ____________________________________________2.03—18 Table III-1 Congestion Times Through the Basin Reserve_______________________________________3.01—24 Table V-1 Costs and Benefits (in Millions) with Corrected Data and Values _________________________5.01—36 Table V-2 Value of Property Uplift - Expected ______________________________________________5.01—36 Table V-3 Costs and Benefits (in Millions) with Corrected Data and Current Values ____________________5.02—37 Table V-4 Value of Property Uplift - Expected _____________________________________________5.02—37 Table V-5 Costs and Benefits (in Millions) with Current Data and Corrected Values____________________5.03—39 Table V-6 Value of Property Uplift - Expected ______________________________________________5.03—39 Table V-7 Costs and Benefits (in Millions) with Current Data and Values __________________________5.04—40 Table V-8 Value of Property Uplift - Possible_______________________________________________5.04—40 Table A-0-1 Congestion Times without a Flyover or 2nd Tunnel ___________________________________VII—59 Table A0-2 Costs and Benefits (in Millions) with Corrected Data/Values – No SH1 Improvements___________VII—61 Table A-0-3 Costs and Benefits (in Millions) - Perturbed Value of Time_____________________________VII—61 Table A-0-4 Costs and Benefits (in Millions) - Perturbed Congestion _______________________________VII—62 Table A-0-5 Costs and Benefits (in Millions) - Perturbed Ridership Growth __________________________VII—63 Table A-0-6 10 Year Bond Cost Structure – Interest + Social Discounting Applied ______________________VII—65 Table A-0-7 Financial Recoveries and Costs ________________________________________________VII—66 Equation 1 – Use Ratio _____________________________________________________________4.01—32 Equation 2 – Congestion Parameters _____________________________________________________4.01—32 Equation 3 – Total Time Savings_______________________________________________________4.02—33 Equation 4 – Time Savings Per Rider ____________________________________________________4.02—33 Equation 5 – Net Travel Time Savings ___________________________________________________4.02—34 Equation 6 - Auto Ownership Savings ___________________________________________________4.03—34 Equation 7 – Community Severance Costs(or Benefits)