Australasian Transport Research Forum 2013 Proceedings 2 - 4 October 2013, Brisbane, Australia Publication website: http://www.patrec.org/atrf.aspx The financial cost of transport in Adelaide: estimation and interpretation Dr David Bray1 1Adjunct Associate Professor, University of Queensland Email for correspondence: [email protected] Abstract An estimate is made of the total financial cost of transport in Adelaide in around 2007 based on the value of depreciable transport assets at the time and taking account of their economic lives, the cost of capital and annual operating and maintenance costs. Costs are identified separately for each public transport mode, various classes of public roads, traffic policing and various categories of road vehicle. The results show that private investment in road vehicles is three times the value of depreciable public assets. Private expenditure on owning and operating vehicles accounts for an even greater 85% share of the total average annual $7.0 billion financial cost (in December 2006 prices) of sustaining road and public transport in Adelaide. Nonetheless, the total financial cost to the government of providing public transport and road assets and services was substantial, at $0.43 billion and $0.63 billion respectively per annum. An associated indicative analysis estimates the cost of providing public transport in Australian capital cities to be around $10 billion per annum. A little over half of this cost is for capital related costs and the remainder for operations. Average annual investment of $1.5 billion is needed to replace life expired public transport assets. 1. Introduction Considerable assets are involved in the provision of urban transport. Public assets are costly for governments to provide and operate1. Given the magnitude of investments by governments in urban transport, it is unsurprising that they attract considerable attention. However, the value of private investment in urban transport assets and the cost of operating them are also considerable. This is important for two reasons. Firstly, while the benefits of urban transport projects in economic evaluations are dominated by savings in personal travel time, this may reflect the under-estimation of savings in vehicle related costs that result from the projects rather than such savings being small. The second matter is that motorists do not take account of even the full financial cost of their travel when they make their travel decisions and thus make sub-optimal travel decisions (Bray and Tisato, 1997). This paper reports on an attempt to establish the total financial cost of transport in Adelaide to provide a broad understanding of, for example, the relative scale of capital and recurrent costs, of government and private costs and of the cost of public and private transport. Given the scope of the infrastructure covered and some methodological issues that are discussed, the cost should be taken as indicative rather than being precise. In considering only financial costs, it recognizes that both private and public transport produce negative externalities such as noise and air pollution and also positive externalities in facilitating business and social activities. While important, these are not the focus of the current analysis. The financial cost of other infrastructure such as off-street car parking and crash costs that are not compensated through insurance are also acknowledged, but not estimated in the current analysis. 1 In this paper, “operate” is taken to include maintenance as well as other ongoing recurrent costs. It includes both routine and periodic maintenance, but does not include replacement of existing assets at the end of their economic lives. 1 2. Review of Past Work There appears to have been little work undertaken to identify the total cost of transport in urban areas in Australia. Several areas of work are evident. Hutubarat et al (1999) identified a range of cost indicators (e.g. the provision of bus and train services, road expenditure and car operating costs) and examined the relative scale of each indicator for 14 areas in Sydney, though they did not establish the total cost of transport infrastructure and services. Diesendorf (2002) provides a more complete analysis of transport costs in Sydney, with an estimate of the annualised total cost of road, rail and bus transport in 1996 of $21.6 billion using a discount rate of 7%. The total cost comprised $8.0 billion for land, $3.2 billion for infrastructure, $3.0 billion for the vehicle fleet and $7.4 billion for operating costs. By mode, the annualised cost was estimated at $19.4 billion for car transport, $1.5 billion for rail and $0.7 billion for bus. This estimate includes financial costs and the cost of land, but excludes the cost of freight transport and ferries. It was based on lifetimes for land, infrastructure, bus fleet and train fleet of 25, 25, 20 and 35 years respectively. More information on the methodology used is presented in Diesendorf et al (1999). For example, the value of land was based on an average market value of all land. While it was acknowledged that the value of land was affected by accessibility, the implication of the methodology is that land retains its value independent of accessibility and that withdrawal of a road or train line would allow the land to be sold at the average market value of all land. The use of a 25 year life for land as indicated in Diesendorf (2002) further increases the cost of land in the analysis. The other area of work has been estimates of the cost of congestion in Australian cities. This work has to varying degrees considered the value of added travel time, increased vehicle avoidable social cost of congestion in Australian capital cities in 2005 to be $9.4 billion, with around three-quarters of this being travel time. The current analysis most closely follows that of Diesendorf (2002), though differs in several significant respects, as discussed in following sections. 3. Deriving the Financial Cost of Transport in Adelaide 3.1 General Approach The focus of the current analysis is the financial cost of all modes of transport in the Adelaide metropolitan area. It considers the transport system as a continuing concern, taking account of neither expansion of the system nor any diminution of it over time. The latter is a distinguishing feature from the approach by Diesendorf. The underpinning logic for the approach is that dismantling of even a part of an urban transport system is rare and, where it occurs, some assets from the former system cannot be used or sold for some other purpose. Land and ‘sunk’ assets are examples of such assets. As examples, the only significant instances in Adelaide where transport infrastructure has been removed in the last half century are the closure of most of the suburban tram system in the 1950s and closure of some sections of the suburban rail system in the 1970s and 1980s. In both cases, relatively little of the land freed was sold for some other purpose. Indeed, it is still possible to see the land in aerial photographs, for example the Northfield train line. Likewise, assets that once implemented do not need replacement over time are of no further consequence for the ongoing cost of the current transport system. Examples of such sunk assets are the cost of design and supervision, earthworks and service relocation. Accordingly, the current analysis only considers the cost of depreciable assets, i.e. assets that deteriorate over time through weathering and use and hence need periodic replacement. While governments may not borrow explicitly to finance these assets, government borrowing in general means that, at the margin, these assets involve an opportunity cost of capital. 2 Features of the methodology used are: • the analysis reflects the quantity of road infrastructure at the end of June 2007, motor vehicles at the end of March 2007 and public transport infrastructure at the end of June 2008 – as the quantity of public transport infrastructure does not change substantially over short periods, the analysis may be considered to reflect, on balance, a situation for 2006/07; • costs are expressed in 2006/07 prices, which can be taken to be end-2006 prices; • where price units need to be adjusted to take account of inflation, the consumer price index has been used; • the cost of capital is taken to be 7%; • the analysis is for the Adelaide metropolitan area, covering the MetroTicket region with regard to public transport and the statistical division for road transport; • the source of information on the quantity of public transport assets in Adelaide is the then Passenger Transport Board, with public transport operating costs and patronage taken from the 2006/07 Annual Report of the SA Department of Transport, Energy and Infrastructure; • the unit value of public transport assets has been derived based on an analysis of data for all Australian capital cities - this is discussed in Section 3.2; • the costs for public transport reflect the former tram line, i.e. prior to an upgrading and extension that was opened in April 2007, but with operating costs for 2006/07 including 3 months of operating costs for the revised line; • the quantity of road assets, the value of roads and annual operating and maintenance costs were provided by the then South Australian Department of Transport, Energy and Infrastructure; • the cost of traffic enforcement and road safety was derived from the 2006/07 Annual Report of the South Australian Police; • the number of registered vehicles in South Australia and the share of vehicle-kilometres of travel undertaken in Adelaide were taken from the Survey of Motor Vehicle Use (ABS Cat. No. 9208.0) and Motor Vehicle Census (ABS Cat. No.