1 The Ministers of State Services, Finance and Transport asked the State Services Commission to lead a multi-agency review of the land transport sector in February 2007. The Review was one of the Government's responses to the findings in the report from the Ministerial Advisory Group on Roading Costs, 2006.
2 The Next Steps in the Land Transport Sector Review (Next Steps) Report outlines officials' analysis of the machinery of government, governance and funding arrangements for the land transport sector. It makes recommendations to the Ministers of State Service, Transport and Finance on proposed changes to the government land transport sector in terms of investment planning, funding and structure with a view to enhancing agency responsiveness, performance, capability and value for money.
3 The land transport sector is complex. There are a high number of stakeholders and the scale, cost and multifaceted nature of infrastructure projects has increased dramatically in recent years. In addition, the sector has been subject to much change and is still adjusting to a new operating environment.
4 Transport sector infrastructure is critical to the transformation of the New Zealand economy and the movement of people and goods impacts profoundly on the nation's health, lifestyle, sustainability (environmental and economic) and public safety. Government agencies must be able to respond to changing Government priorities over time as well as deliver the desired outcomes and benefits cost effectively.
5 The land transport sector has been reviewed a number of times in recent years. Many improvements have been made, but there has been an on-going concern that it is: not fully achieving value for money; not fully delivering on the New Zealand Transport Strategy (NZTS); not fully delivering on the Government's wider agenda e.g. economic transformation and sustainability; not sufficiently responsive; and creating ongoing fiscal risk for the Government.
6 The Review has identified a number of underlying causes including:
- gaps in the interpretation of the NZTS objectives;
- the Ministry has yet to acquire sufficient capability to fulfil the leadership role envisaged by the Government Transport Sector Review in 2004;
- expenditure pressures that are not being addressed strategically;
- the roles of some Government agencies remain unclear, and some functions are duplicated;
- inconsistent planning and funding policies distort incentives within the sector; and
- inefficient churn in planning and limited sector collaboration fail to align central, regional and local land transport plans.
7 This Report concludes that a lack of sector collaboration and integration underpins many of the issues present in the sector. The lack of role clarity, sector leadership, and common expectations about how the sector should engage has helped perpetuate a fragmented sector culture.
8 These concerns and issues have been endorsed consistently in stakeholder conversations during the review.
9 Consistent with the Terms of Reference, the Review has focused on current and improved machinery of government, governance and funding arrangements for the land transport sector.
10 A package of measures is recommended, which would require legislative change.
11 The Review concludes that the most urgent issues to address relate to land transport sector planning and funding. Therefore, it recommends measures to improve land transport decision-making and funding that build on the current system and previous reviews.
12 Useful improvements, in terms of sustainability and balance between transport modes, could be made through more integrated decision-making, and if the Government and government agencies provided more guidance to the sector. It is also recommended that Government should determine the appropriate balance between different classes of activities.
13 Lower compliance costs should also result if the current consultation and paperwork churn could be reduced.
14 Key points to note in the planning and funding proposals are that:
- legislative change would be required;
- statutorily independent decision-making would be retained for individual activities/projects;
- more explicit guidance on the Government's funding priorities would be provided for the land transport sector through two published documents:
- "Implementation of the New Zealand Transport Strategy" - currently under development by the Ministry and due in March 2008; and
- a Government Policy Statement with a six year outlook and a three-yearly update process;
- activity class ranges and associated Fuel Excise Duty and Road User Charge levels would be determined through clear processes as part of the Government Policy Statement settings;
- all land transport plans would be produced every three years rather than annually;
- regional councils, probably through their Regional Land Transport Committees, would become responsible for prioritisation of all land transport activities, including State highways, within their Regional Land Transport Programmes;
- separate consideration could be needed for Auckland; and
- all consultation on activities that would be funded through the National Land Transport Programme would take place at regional level. Therefore, Approved Organisations, including Transit NZ, would no longer be required to consult separately on their Land Transport Programmes. All revenue raised from Fuel Excise Duties would be directed into the National Land Transport Fund - this would usefully demonstrate to road users that road charges are being used for, or match the level of transport investments.
15 From the outset of the Review, it has been apparent that the transport agencies needed to work more collaboratively and with a common purpose. The Review notes that the many levers of Ministerial influence over the Government agencies in the land transport sector could be utilised more effectively to support this collaborative approach.
16 The report states that the proposed changes to the planning and funding system would address most of the issues facing the sector. Their implementation would require changes to the configuration of the current roles, functions and nature of the Government institutions in the sector.
17 The subsequent question addressed was whether the changes would go far enough, especially in terms of the signals sent to the sector about the required changes in expectations, behaviour and approach.
18 The Review considered a number of structural options in detail. Two viable options emerged as the most appropriate - the first would retain the existing three agency model, but with the required changes to their roles and functions, while the other would merge the two Crown entities to form one land transport agency.
19 The Review concludes that both options are viable. However, on balance it recommends the more significant structural change to disestablish Land Transport NZ and Transit NZ as separate agencies and merge their new functions into a new statutory Crown entity (which would retain the statutorily independent functions currently held by Land Transport NZ).
20 The factors considered against the merger included the possible loss of transparency, making it more difficult for the Ministry of Transport to carry out its role as the Minister's adviser, and a likely perception by some stakeholders of bias in favour of State highways in the funding allocation (despite measures to limit that possibility). In addition, a merger could be seen as coming too soon after the 2004 restructure, and therefore providing insufficient time for the more difficult, "soft wiring" behavioural changes to have become the norm.
21 The reasons for the Review's preference for a merger include the following:
- the benefits of integration would be greater than the benefits of retaining separately focused entities;
- one Crown entity would be required to consider all transport modes and activities and ensure that appropriate trade-offs are made;
- one Crown entity would be accountable to the Minister;
- one Crown entity would be required to focus on cost-effective delivery of its activities; and
- one Crown entity should facilitate more easily the transition, over time, to the fully implemented new planning and funding arrangements.
22 The report emphasises that the success of the proposed changes to roles and responsibilities across the agencies would be influenced by the membership of the Crown entity board and its operation. For example, it may be appropriate to require the establishment of one or more board sub-committees.
23 Irrespective of other outcomes, the Review considers that the Ministry must fulfil its envisaged sector leadership role and enhance its capability. In addition to the proposed changes to the land transport Crown entities, a number of key roles and responsibilities are recommended to transfer to the Ministry. To this end it would quickly need to boost its capability in key areas to negate any need for other agencies to fill a vacuum.
24 A collaborative culture needs to be embedded throughout the Government land transport sector. The proposed new planning and funding arrangements and the proposed merger of the current two Crown entities to establish new institutional arrangements would contribute to this.
25 The proposals outlined above represent the next steps for the land transport sector and will take considerable effort to implement successfully. Implementation aspects include:
- legislative changes
- roles and functional clarification and changes
- structural changes
26 Implementation arrangements will need to remain active for at least the next 18 to 24 months. It is recommended that an Implementation Steering Group, led by the Chief Executive of the Ministry of Transport and supported by a multi-agency team, drives these arrangements. Regular reports on progress are recommended to be made to the Ministers of State Services, Finance and Transport.
About the Report
27 This section outlines the Terms of Reference for the Review, how it was undertaken, and pertinent background. The following sections describe the land transport sector today, issues facing the sector, proposals for change in the sector, and what would be involved in implementing those changes. The last two sections summarise the assessment of the proposals in the context of the Terms of Reference, and detail the recommendations.
About the Review
28 The Next Steps project was required to report to the Minister of State Services, Minister of Transport and Minister of Finance by 30 April 2007, with recommendations to improve the performance of the land transport sector ("the sector") through addressing investment planning, funding and structural issues. The project considered the performance, roles and responsibilities of the Ministry of Transport ("the Ministry"), Land Transport NZ, Transit NZ and the Treasury (with regard to Rail). The interface with regional councils and territorial authorities ("TAs") was also considered. The terms of reference are attached as Appendix A.
29 The project was asked to:
- consider ways to enhance the responsiveness, performance, capability and value for money of the sector;
- review the range of funding mechanisms currently in place and consider ways to better link demand and expenditure and effect improvements consistent with accountability requirements; and
- consider the best placement of policy, planning and procurement functions to fit with the NZ Transport Strategy ("NZTS") and any new funding and planning regime.
30 The Review was required to ensure that any proposed changes are financially sustainable for the sector and would not result in a structural imbalance or bias between transport modes or communities of interest.
31 The Review was undertaken in conjunction with the Department of the Prime Minister and Cabinet, the Treasury, and the Ministry. Each was represented on the Steering Group for the Review. Each agreed with the recommendations.
32 A number of stakeholders were invited to have input into the Review. The Review benefited from their contributions.
33 Next Steps follows the 2004 Government Transport Sector Review which identified the problems of the transport sector as: lack of leadership by the Ministry; less than ideal placement of functions; poor alignment of the enabling legislation of the safety agencies with the NZTS; lack of collaboration within the transport sector; and poor policy development resulting in advice that is often unsatisfactory.
34 The 2004 Review recommended:
- softwiring the transport sector through Ministerial mandate for collaborative action and behaviours, under the strategic leadership of the Secretary of Transport. Strategic leadership for sector policy development was assigned to the Ministry and the role of the Crown entities' boards in policy development processes was clarified;
- transferring selected functions within the transport sector to improve alignment and integration;
- amending the enabling legislation of the Civil Aviation Authority and Maritime Safety Authority to address administrative improvements, allow consideration of wider NZTS objectives and enable functions to be transferred; and
- creating a new organisation to undertake the activities that would remain in Transfund and the LTSA following functional transfers.
35 In the period since the 2004 Review expected improvements in the land transport sector from its recommendations have occurred only slowly. The sector continues to create ongoing fiscal risk for the Government, is insufficiently responsive, is not delivering adequately on the NZTS (nor the Government's wider agenda, e.g. sustainability), and is failing to achieve sufficient value for money.
36 The underlying causes of these issues are:
- gaps in the interpretation of the NZTS objectives;
- the Ministry has yet to acquire sufficient capability to fulfil the leadership role envisaged by the 2004 Review;
- expenditure pressures are not addressed strategically;
- the roles of some government agencies remain unclear, and some functions are duplicated;
- inconsistent planning and funding policies distort incentives within the sector; and
- inefficient churn in planning and limited sector collaboration which fails to align central, regional and local plans.
Land Transport Sector today
37 The land transport sector is complex. It has a wide range of stakeholders, which include Ministers, the Treasury, the Ministry of Transport, Land Transport NZ, Transit NZ, regional councils, Territorial Authorities (TAs), Auckland Regional Transport Authority (ARTA), transport operators and the wider community. There are also various components to the transport system including State highways, local roads, railways, passenger transport, walking and cycling and coastal shipping which compete for funding.
38 There is a detailed and complex decision-making framework which aims to ensure that both national, regional and local priorities are taken into account and that the wider community's views are represented. The Government's New Zealand Transport Strategy (NZTS) provides the overall vision and objectives for the sector. The Land Transport Management Act (2003), along with a raft of other legislation, sets out the framework and complex processes by which the sector must operate.
39 The key planning and funding processes are set out below. This is followed by a description of the key central Government agencies. The planning and funding processes, along with the current roles, functions and structure and institutions of the sector are described in greater detail in Appendix B.
40 The NZTS provides the overall context in which the planning and funding system operates, by setting out the Government's vision and objectives for the sector. These objectives are set at a broad overarching level. The vision and objectives are incorporated into the Land Transport Management Act 2003 (LTMA). This means that both central government agencies and regional councils and territorial authorities (TAs) must take these objectives into account when making decisions.
41 Land Transport NZ is responsible for deciding which land transport activities will receive funding. Each year Land Transport NZ prepares the National Land Transport Plan (NLTP) which sets out the list of activities it is prepared to consider for funding throughout the coming year. This is a statutorily independent function.
42 Land Transport NZ produces the NLTP by considering funding requests for specific activities submitted by Approved Organisations, such as regional councils, TAs, the ARTA and Transit NZ. These requests are set out in each Approved Organisation's Land Transport Plan (LTP). Individual requests are received from around 80 Approved Organisations. Land Transport NZ uses an extensive and detailed funding evaluation policy to prioritise these proposals. This policy is set out in a range of manuals and is complex.
43 In addition to the NZTS objectives, when preparing LTPs, Land Transport NZ and Approved Organisations must also take into account relevant Regional Land Transport Strategies (RLTSs). They are also required to consult with the community to a specified standard.
44 Activities funded include State highway construction and maintenance, local road development and maintenance, passenger transport services and infrastructure development, road policing and educational activities. State highways and road policing are fully funded by Land Transport NZ while other activities receive varying levels of funding. The remainder of the funding comes from councils, and directly from the Crown (see later).
45 Agencies are responsible for different activities. For example Transit NZ is responsible for State highways, while TAs are responsible for the local roading network. Regional councils are responsible for planning and funding passenger transport operations, while TAs are responsible for some key infrastructure aspects of passenger transport (e.g. bus lanes). Land Transport NZ is responsible for assisting regional councils and TAs to coordinate and plan across modes. Transit NZ has also taken a key role in the planning process. - both in terms of planning State highways and involvement in land-use planning.
46 The rail sector sits largely outside the LTMA framework with only urban rail passenger transport and some infrastructure expenditure for passenger transport being planned and funded under the LTMA framework. The majority of rail infrastructure is funded directly by the Crown.
47 Finally, special arrangements apply to the Auckland region. The Auckland Regional Transport Authority (ARTA) is responsible for planning, funding and developing an integrated, safe, responsive and sustainable land transport system. Unlike TAs in other regions, Auckland TAs cannot receive funding directly from Land Transport NZ. Instead funding is allocated to ARTA, which submits and coordinates an LTP covering passenger transport, local roading and local maintenance and construction.
48 The total amount of funding allocated through the NLTP is some $2.4 billion per year. Funding is traditionally sourced from road users through a portion of Fuel Excise Duty (FED), charges on diesel and heavy vehicles (Road User Charges - "RUC"), and motor vehicle registration and licensing fees. While the Crown controls the amount of money that goes into the National Land Transport Fund (NLTF) by setting the overall levels for the various user charges (FED/RUC), the amount collected depends on economic activity and changing patterns of fuel consumption. Currently, only a portion of the FED is paid into the NTLF.
49 Since 2004/05 the Crown has provided additional funding from general taxation either in the form of top-ups or appropriations for specific regional needs. In 2006/07 Crown funding of $608m makes up approximately 25% of total funding.
50 Decisions on FED and RUC levels and the amount of Crown funding to inject into the NLTF have tended to be driven by particular funding pressures. Funding is categorised into National, Regional and Crown (N, R and C) funding, each broadly targeted at different transport issues and programmes.
51 Local roads are the responsibility of TAs and are co-funded by Land Transport NZ, and TAs from rates and other revenue sources such as parking fees. Land Transport NZ's Financial Assistance rate (FAR) for maintenance varies across TAs and is approximately 50% while the FAR provided to each TA for construction varies.
52 The current roles and functions of the Treasury (as adviser on transport), the Ministry, Land Transport NZ, Transit NZ and ONTRACK (currently a State-owned enterprise, but proposed to be a Crown entity), are set out below. More detail is provided in Appendix B.
53 The Treasury is a Public Service department and central agency. Its core role is as the Government's principal adviser on economic and financial policy. It has three key specific roles in the sector:
- lead agency for the current commercial negotiations on the Rail Network Access Agreement;
- Vote Finance administration of funding for ONTRACK and certain other sector infrastructure investments; and
- adviser on Crown infrastructure investment, including rail infrastructure.
54 The Ministry is a Public Service department with four key roles in the sector:
- lead adviser to Government on the transport sector;
- provider of strategic leadership and international representation;
- agent for the Minister of Transport with regard to sector Crown entities; and
- administrator of the NTLF on behalf of the Crown.
55 Land Transport NZ is a Crown entity with three key roles:
- allocate and manage funding for land transport infrastructure and services;
- manage access to the land transport system through licensing, registry and related regulatory enforcement functions; and
- provide land transport safety and sustainability information and education.
56 Transit NZ is a Crown entity charged with building, maintaining and operating the national State highway network.
57 ONTRACK is a State-owned enterprise charged with owning, maintaining and managing the national railway infrastructure. ONTRACK is scheduled to become a Crown entity with the enactment of the Rail Network Bill.
58 As Crown entities, Land Transport NZ and Transit NZ are legally separate from the Crown and operate at arms-length from the Minister of Transport. Land Transport NZ has a number of statutorily independent functions that it carries out free from Ministerial influence, in particular approving activities in the NLTP.
59 Despite the formal separation between the entities and the Minister of Transport, there are several important avenues available to the Minister to influence the entities' performance and operations. These mechanisms are detailed in Appendix C.
60 The issues identification drew heavily on related recent reviews (EXG Review of Value for Money in the Land Transport Sector, Ministerial Advisory Group on Roading Costs, and Ministry of Transport Review of Business Processes and Work Flows) which focused on matters relevant and complementary to the scope of the Next Steps Review.
61 There is a 'strategic gap' between the vision and the broad objectives in the NZTS and their implementation through the NLTP. The NZTS objectives are too high-level, lack specificity and do not contain measurable targets. They do not provide sufficient guidance for decision-making and, in particular, how to prioritise funding decisions or activity selections across the land transport system.
62 The 'strategic gap' results in the NLTP being a collection of activity classes and projects, rather than a land transport programme with a truly strategic focus. Other agencies have stepped in to fill the 'strategic gap' (e.g. Transit NZ has taken de facto responsibility for State highway strategies) resulting in confused accountabilities and roles.
63 There is also a lack of clarity regarding the inter-relationship between the NZTS objectives and whether and how they may need to be weighted or traded-off against each other. Approved Organisations have commented that they are unclear about how they should take account of the five NZTS objectives and how they can establish whether they have chosen the 'right' projects for funding. This lack of clarity results in a weak alignment of national and regional needs and processes.
64 There is a need for national objectives to be clearer and guidance regarding how the NZTS objectives should be used in decision-making and weighted. There is a need for measurable sector targets and performance measures to be developed.
Barriers to effective regional planning and prioritisation
65 Decision-making at the regional and local levels is fragmented and there are tensions between local and regional interests that are not always managed well through current processes. This can result in a lack of effective prioritisation across regions.
66 RLTSs in their present form may not be an adequate tool to assist regional councils through Regional Land Transport Committees (RLTCs),in making tradeoffs between the priorities of TAs. RLTSs tend to be aspirational documents, and set out what a region would like achieved rather than what is possible within current funding, policy parameters and the region's rating base. As a result, RLTSs can include demands in excess of available funding. There is no requirement for RLTSs to include a list of priorities for the region.
67 The political nature and structure of RLTCs may also be hindering effective regional prioritisation. In trying to be representative some RLTCs are large and unwieldy and may not be appropriately balanced for effective decision-making. The accountabilities of RLTC members are mixed with some concerns that those who do not represent agencies that have funding responsibilities have voting rights on the recommended projects.
68 There is a need for good regional prioritisation processes and an effective body along the lines of RLTCs to undertake this role.
Balance between national and regional priorities
69 There is a lack of balance between national and regional priorities. This has been exacerbated by a lack of top-down strategic direction and as a result planning decisions are frequently driven from the bottom-up. Land Transport NZ has noted that it can only consider projects that have been submitted to it by Approved Organisations (it cannot itself direct Approved Organisations to put forward certain projects).
70 The separate consultation on the State Highway Programme also tends to create expectations and stakeholder support for State highway projects at the local level. That support is exacerbated by the funding arrangements that mean that there is no local contribution to State highway projects. This means that Land Transport NZ's ability to filter projects is constrained.
Frequency of planning
71 A planning cycle of one year does not provide sufficient certainty and is too short for the development of a NLTP, which is expected to have a strategic focus.
72 There are extensive consultation requirements on Approved Organisations with associated compliance costs on them. There is also potential duplication on consultation around State highways.
73 There is a need to rationalise and streamline the planning process.
Lack of robust evaluation including focus on value for money
74 There is no specific requirement to evaluate and report on the effectiveness of the NLTP as a whole, and therefore it is difficult to determine how effectively the NZTS objectives are being met.
75 There is insufficient consideration of factors such as:
- cost-effectiveness in the evaluation of projects;
- value for money indicators in the performance monitoring system resulting in a lack of focus on evaluating major projects and monitoring scope and cost;
- transparency in Land Transport NZ's funding allocation process; and
- emphasis on cost-efficiency in the LTMA.
Fiscal risks and system distortion
76 Recent Crown funding injections (i.e. revenue and State highway guarantee) have provided additional funding. However they have confused accountabilities and resulted in increased fiscal risks for the Crown. These risks include an expectation that cost increases will be funded by the Crown rather than from existing revenue.
77 The Crown funding injections have also resulted in:
- less integrated decision-making across modes and activity classes; and
- blurred accountabilities for Land Transport NZ.
78 There is a need for separate processes for the management of Crown funding outside of the NLTF in order to ensure greater accountability and transparency.
79 There are a number of incentives that distort the effectiveness of the planning and funding system and affect tradeoffs being made. These incentives include:
- State highway development being favoured by councils over other activities because State highways are 100% funded and require no local share;
- the Government's cost guarantee for State highways does not incentivise Transit NZ to achieve efficiencies; and
- as a large, well-resourced organisation with a single focus, Transit NZ is able to have a stronger influence in the planning processes than is appropriate for its role.
80 These incentives result in insufficient trade-offs between modes (e.g. between expenditure on State highways and passenger transport). There is a need for enhanced ability for making trade-offs across modes, and correct incentives.
Unclear roles and accountabilities
81 The roles of the Ministry, Land Transport NZ, and Transit NZ and how the agencies should engage with each other are unclear. Councils comment that they are unclear of the Ministry's role and consider the Ministry to be less visible than Transit NZ and Land Transport NZ. The EXG review reported that TAs consider the Ministry's low visibility is due to its lack of engagement with the sector and communication on key policy issues.
82 Role confusion is heightened by the role the Treasury plays in respect of rail, the tendency for Transit NZ to step in to fill the 'strategic gap', and no shared view about the degree to which Land Transport NZ should review and evaluate projects. Regional councils have commented that they are unclear which central Government agency they should engage with on funding and planning matters.
83 Working relationships between agencies are variable and inconsistent. There is a lack of information sharing and consistent engagement at an early stage on areas of common interest, and insufficient consideration given to the impacts of operational policy decisions on strategic policy (and vice versa).
84 These unclear roles result in:
- a lack of clarity between the Crown entities and the Ministry as to the inter-relationship of strategic and operational policy;
- Ministers receiving inconsistent or conflicting advice;
- multiple engagements within the sector, and overlapping/duplicated work effort;
- Crown entities focusing resources on 'backfilling' the strategic policy gap rather than their operational roles; and
- rail decisions policy not being integrated with other modes.
85 One key reason for both the confusion over roles and the lack of effective working relationships is that the Ministry is not yet fulfilling a strong policy or sector leadership role. The lack of effective monitoring and reporting on Crown entity performance by the Ministry has also perpetuated unclear roles and sector objectives.
86 There is a need for greater role clarity. There is also a need for the land transport Crown entities to focus clearly on their respective roles and for the Ministry to fulfil its role of providing of strategic policy advice, leadership and monitoring the overall land transport sector. Sector performance could also be enhanced by Ministers fully using the levers available to them (e.g. accountability documents, board appointments) to hold the land transport agencies accountable for delivering their roles, and to improve responsiveness and alignment between policy and operational actions.
87 The NZTS and the 2004 Government Transport Sector Review required the sector, particularly the Ministry, to improve and build capability in a number of new areas (e.g. sector leadership and strategic policy). The recent review of the Ministry has highlighted that, although some progress has been made, significant capability gaps have not been addressed.
88 For example, the review of the Ministry states that: "some key functions are undervalued or absent: strategic policy (integrating economic, environmental and safety, and access and social perspectives to form an overview of the transport sector, and applying this consistently to policy development to ensure alignment with sector outcomes)". The review also noted that: "Almost certainly, existing MoT staff do not have all the knowledge, skills and experience necessary to fulfil this function, and further staff development and/or targeted recruitment may be necessary". The review of the Ministry also identified capability gaps related to sector monitoring and integrated, cross-ministry approaches to wider transport policy issues.
89 The Ministry needs to ensure it addresses existing capability gaps.
Lack of sector integration and collaboration
90 Lack of sector collaboration and integration is a problem underpinning many of the issues present in the sector. The lack of role clarity, sector leadership, and common expectations about how the sector should engage has helped perpetuate a fragmented sector culture. As a result, there is mistrust and 'competition' amongst the agencies. The agencies are individualistic and act independently. A similar conclusion was reached in the 2004 Government Transport Sector Review.
91 There is need for agencies to become less individualistic and independent and act more as a 'transport team' working with a common purpose and shared outcomes under the NZTS. Importantly, there is a need to be more specific about the type of collaboration expected, (e.g. collaboration for agreement/consensus building; collaboration meaning supporting each other and being open and communicative) how this should be achieved, and for these expectations to be sanctioned in accountability documents.
Next Steps for the Land Transport Sector
92 The proposed planning and funding system outlined below aims to address the issues identified in this Review by establishing a new strategic framework for the land transport sector:
- providing clear direction on the Government's funding priorities over a three year period - this substantive guidance to Land Transport NZ and Approved Organisations will guide decision-making, and contribute to the achievement of the longer-term goals of the NZTS;
- enabling national and regional interests and priorities to be managed and integrated within a coherent framework;
- clarifying and improving accountability for decision-making at all levels;
- improving the linkage between those who pay and those who benefit from and cause the expenditure; and
- reducing the fiscal risk to government.
93 The proposal includes some immediate measures to be taken to improve land transport decision-making and funding. It builds on the current system and previous reviews. The proposal is also largely consistent with and builds on measures that the Government has already put in place (such as the funding update process).
94 These measures are envisaged as part of an on-going process of refining and improving how the land transport planning and funding system works. In addition to this Review's core proposals, some topics for further work are suggested.
95 The key changes that are proposed to the current system are:
- more explicit guidance on the Government's funding priorities for land transport over the medium and longer term. This guidance will be provided through two documents:
- "Implementation of New Zealand's Transport Strategy" (INZTS) currently being developed by the Ministry; and
- a Government Policy Statement (GPS) with a six year outlook and a three-yearly update process;
- the NLTP will be developed on a three-yearly, rather than an annual basis;
- all land transport funding proposals (from councils and the State highway agency) must first be prioritised at the regional level (through RLTCs or similar bodies) and included in a Regional Land Transport Programme (RLTP), in order to be considered for funding;
- consultation will no longer be required on the State Highway Forecast: this will be incorporated into the consultation process undertaken on RLTPs;
- the Ministry's role will be enhanced to include advice to the Minister on the Land Transport Agency's (see later) evaluation process and monitoring of specific activities;
- FED and RUC will be fully hypothecated to the NLTF ; and
- because the NLTF will only include revenue from user charges (FED and RUC), any Crown funding used to fund land transport activities, will require a separate process to provide clear accountability to Ministers for the use of this funding.
Government policy statement
96 As noted in both the EXG and MAG reviews, greater guidance is needed for the decision makers in the land transport system on the NZTS and how the high-level objectives contained in the NZTS can be achieved. The INZTS, which is being prepared by the Ministry, will provide greater guidance to the sector with a medium-long term focus. In addition, it is proposed that there be a new statutory document to establish the Government's short term funding priorities, funding levels, and FED and RUC levels. This would be in the form of a Government Policy Statement (GPS) revised every three years.
97 As part of the process for developing the GPS, every three years land transport funding would be reviewed to:
- determine whether funding and the balance between activity classes and short-term priorities are sufficient to achieve the objectives outlined in the NZTS and INZTS; and
- provide an opportunity for the Government to highlight any particular land transport priorities it wishes to focus on for the next few years.
98 This three-yearly review would build on the process developed for updating the NLTP revenue guarantee and State Highway Plan cost guarantee. The key difference is that the three-yearly review would result in a formal GPS which would provide concrete guidance to the sector.
99 An Issues, Trends, and Options Report would be developed by the Ministry in consultation with the Land Transport Agency for Cabinet consideration.
100 Following Cabinet's consideration of the Issues, Trends, and Options Report, the Ministry would develop the GPS for Cabinet sign-off. The GPS would outline:
- Government's funding priorities;
- the proposed range within which each activity class would set; and
- FED/RUC levels for the next three years.
101 It is proposed that the document be statutory and published. Central Government land transport agencies would be required to give effect to the GPS, and regional councils and TAs to act consistent with it. Further work is required on the precise legislative nature of the GPS.
102 The GPS would cover a period of up to six years and would be reviewed every three years, or at the Government's discretion.
National Land Transport Programme
103 It is proposed that the NLTP be retained. The NLTP would outline the activities that will be funded within expected funding levels and that are considered to best contribute towards achievement of the desired outcomes. It is proposed that the Government remain separate from any decision-making on individual activities. Therefore, the NLTP would continue to be developed at arms-length from core Government.
104 Further, it is proposed that the NLTP be produced every three years rather than annually and be required to outline how the proposed set of activities will help achieve the priorities in the GPS. This will help provide certainty on what activities are likely to be funded over the next three years and reduce the constant churn of consultation and document development that currently exists.
105 New Zealand's land transport funding system was established as predominately a road user funded system. The recent Crown injections have weakened the link between those who benefit from and cause the expenditure and those who pay. The mixed funding sources have also caused accountability difficulties. It is proposed that the funding of land transport activities return to being more tightly linked to road use. This proposal would be consistent with an eventual move towards more sophisticated road user charges should the Government decided to move in this direction.
106 Whether rail funding should be part of this system requires further consideration. Rail passenger transport, as with road passenger transport, is currently part of the system as it is considered to benefit road users. Other aspects of rail funding, such as infrastructure investment, are currently under review.
Full hypothecation of Fuel Excise Duty
107 In order to reinforce the linkages between those who cause or benefit from the expenditure and those who pay, it is proposed all FED be spent on land transport.
108 Further work is required on how this change would be implemented. Officials propose to report back on:
- fiscal implications;
- grand-parenting the existing Crown appropriations to the NLTF;
- the retention of 2007/08 - 2008/09 funding levels; and
- implications for the relativities between FED and RUC.
109 As outlined above, Cabinet agreement would be sought to the proposed FED and RUC levels for each of the next three years. These levels would then be established in legislation (most likely Budget legislation).
110 There may need to be slight adjustments to these levels if the assumptions (expected cost movement and economic growth) on which forecasts were based proved to be inaccurate. There will need to be a mechanism to make such adjustments.
111 Further work is required on exactly how changes to setting FED and RUC levels would be implemented. For example, this work would consider what legislative change would be needed, the constitutional implications of any changes, and how to achieve consistency between the mechanisms for setting FED and RUC.
112 This proposal for adjusting FED and RUC, along with the development of a GPS, is designed to provide certainty on overall funding levels and activity class levels for the next three years. We consider that there would no longer be a need for the Government to provide a revenue guarantee for the NLTF and a funding guarantee for State highway construction projects. These changes will also remove Crown fiscal risk associated with the current guarantees.
National Land Transport Fund
113 It is proposed that the NLTF include only revenue raised from road users. That is FED, RUC and MVR. This proposal does not stop the Government from appropriating funding for priority activities that might not be appropriately funded from FED and RUC. However, decisions and accountability for these appropriations would be separate from the NLTF and would not necessarily go through the NLTP process. Arms-length distance would be retained for activities funded by FED and RUC, but Ministers would have direct control over the funding that they appropriate for specific purposes.
114 The NLTF would be allowed to go into deficit/surplus in any one year if unforecast changes in revenue or costs occurred, but not over time. The ability to find out expenditure over time should also be considered for other purposes, such as speeding up activities and building up surpluses to pay for "lumpy" capital activities.
Approval of evaluation policy
115 Evaluation policy determines how projects are assessed in terms of their contribution towards the achievement of the desired outcomes (relative to their costs), and is an important element in achieving these outcomes. It is proposed that the Minister of Transport approve the evaluation policy (i.e. the funding methodologies) prepared and applied by the Land Transport Agency. The Ministry would play a greater role by providing advice to the Minister on whether the evaluation policy should be approved.
116 It is also proposed that officials provide advice on whether, and if so how, the Land Transport Management Act be amended to give greater emphasis to cost-effectiveness.
Use of design standards
117 The way that higher level design standards (for example intersection spacing, design speed) are applied to State highways can have a major effect on the operation of the transport network, on the communities the highways pass through and on important considerations such as urban form. They can also be one of the factors that significantly affect costs. While the default position is that the road controlling authority (Transit NZ and councils) will set such standards, the Minister should have reserve powers to direct the application of certain standards, on the advice of the Ministry, to ensure the preferred balance between the factors.
Regional planning and prioritisation
118 As well as providing better guidance at central Government level, there is also a need to achieve better integration of national with regional and local processes.
119 It is proposed that regional councils working through RLTCs (or similar bodies) be responsible for prioritising all regional and local land transport funding proposals through new Regional Land Transport Programmes (RLTPs) prepared on a three yearly basis. The RLTPs would also outline how the proposed activities contribute towards the national objectives and any particular regional objectives. The RLTPs could be part of the Regional Land Transport Strategies (RLTSs) or a separate document. With the RLTP on a three-yearly cycle, it may be appropriate for RLTSs to move to six yearly-cycles, and with a horizon extended beyond the current 10 years to align with the INZTS and to reflect their more strategic role.
120 The RLTP would include all State highway activities. This would mean that there would be no separate consultation on proposed State highway activities. Some strategic State highway improvements would be identified in the INZTS, and/or the GPS, and would ensure that national priorities would proceed.
121 Only activities prioritised in RLTPs would be eligible for funding from the NLTF. The Land Transport Agency would still make the final decision on what activities to include in the NLTP and in what priority category.
122 Further work is required on the proposed regional prioritisation process. Officials propose to report back on:
- alignment of timeframes between the GPS, NLTP, RLTS and RLTPs;
- the regional structures for developing the RLTPs;
- whether activities because of their nature should be excluded from the regional prioritisation process;
- whether the introduction of the proposed system should be phased in; and
- implications for the Auckland region.
123 Officials consider that this new system would lead to a closer partnership between central, regional and local government in developing solutions to regional and national transport problems.
124 It is proposed that the key consultation process for land transport projects would be through the development of the RLTP. This will streamline existing consultation processes. The NLTP would, as currently, not be consulted on.
125 There is an issue about whether NZ Police road safety enforcement activities (under the Authorities Land Transport Programme) should be consulted on as part of the regional prioritisation process. These are currently approved by the Minister of Transport. Officials propose to report back on the precise mechanisms for consulting on and approving this activity class along with whether the Minister should also approve the operational funding of the Land Transport Agency. There will also be a need to consider if there are other activities that need to be exempted from the regional consultation process e.g. emergency works.
Impact on the State Highway Forecast
126 These proposals mean that there would no longer be a need for, or consultation on, a national State highway programme (known as the State Highway Forecast). The proposed approach to planning would also mean that a guaranteed State Highway Construction Plan would not be necessary although the Government may require a plan for accountability reasons.
127 The GPS would set the activity class ranges for the next three to six years. This would provide some surety to the industry on how much funding would be available in the roading construction area (and not simply in the State highway construction area). Likely State highway construction activities for the next three years would be documented in both the RLTP and the NLTP and the medium term outlook of likely corridors for upgrading in the INZTS and RLTSs.
Implication for Rail
128 Ultimately it is envisaged that rail policy and funding would be more integrated with the rest of the land transport system than it is currently. The Ministry has historically been responsible for rail policy and funding, but the waters have been muddied recently with the Treasury's involvement on funding. This has caused confusion over relative roles and responsibilities.
129 It is proposed that the Ministry be mandated to be the lead agency on rail policy. The Ministry should eventually take the lead on rail funding issues. However, as the current commercial negotiations with Toll NZ Ltd are being progressed, it is proposed that Treasury's current rail funding functions (in terms of commercial negotiations) remain with the Treasury until they are completed. Following the completion of these rail funding decisions, consideration of how rail funding would be best integrated into the overall land transport planning and funding system should be undertaken.
Review and Monitoring
130 An important element of any system is the review and monitoring of how the system overall is performing and how the various agencies within the system are performing. It is proposed that the Ministry develop a more effective performance monitoring system. As part of this monitoring role, the Ministry, on behalf of the Minister, would be given the power to monitor and review a selection of activities funded under the NLTP at any stage pre, post and during an activity's life cycle, and the processes undertaken by the Land Transport Agency.
131 The following issues need to be considered in more detail and any changes made to legislation, structures or systems to enable these issues to be discussed and resolved:
- how the proposed funding and planning arrangements may be further improved to address the lack of incentive for TAs and local communities to consider cost-effectiveness for State highway proposals in their areas;
- how to move towards more sophisticated road user charges;
- the incentives/measures (over and above what is currently proposed) required to achieve better integration between planning and funding; and
- how to achieve better integration between modes in key areas such as Auckland, Wellington and Christchurch.
132 The planning and funding changes recommended above would have a substantial impact on the roles and functions of the Ministry, Land Transport NZ, and Transit NZ.
133 As a consequence of the changes recommended above, the Ministry would be endorsed as:
- the Government's principal adviser on all transport modes and matters;
- the leader of strategic developments within the land transport sector, including priorities and targets and providing guidance on how to meet strategic objectives;
- the Minister's agent in:
- assisting land transport Crown entities to carry out their roles, and monitoring and evaluating their performance;
- monitoring and evaluating land transport performance at activity class level; and
- monitoring and reviewing selected land transport activities.
134 Depending on which structural option is chosen (see below) for the possible placement of the current Crown entities' roles and functions, the impact of change for the Ministry could be significant for the monitoring and review functions. The Ministry would be charged with monitoring and reviewing:
- selected activities funded through the NLTP;
- all activities funded by the Crown;
- land transport Crown entities, as part of the 'standard/regular' Crown entity monitoring that Ministry conducts as the Minister's agent; and
- particular aspects of Crown entity performance, such as the processes for approving and funding land transport activities.
135 To perform these roles, the Ministry must develop and maintain a capacity and capability to:
- set strategic directions and provide advice and guidance to central and local government institutions, and others, on how to interpret and implement the sector's strategic documents. Primary in this is the preparation of the INZTS and GPS;
- advise Government on each transport mode and inter-modal matters, including endorsing the Ministry as the lead adviser for rail policy;
- advise on appropriations for activities to be funded by the Crown;
- monitor and review activity class performance, some specific activities, and Crown entity performance This includes:
- advising the Minister on the methodologies used for approving activity level funding;
- determining the performance information required;
- quality assuring and monitoring major projects;
- conducting pre, post and during evaluations of selected activities;
- gathering and analysing performance information (above activity level) for the sector;
- monitoring any activities funded by the Crown;
- advising the Minister on the application of certain roading design standards;
- managing the sector's capital assets (according to guidelines being developed by the Treasury); and
- monitoring the Crown entities, including advising on and negotiating their accountability documents.
136 It is not proposed to alter the Treasury's role as the lead agency for the current commercial negotiations on the Rail Network Access Agreement. This role should be confirmed alongside the clarification that the Ministry is the lead agency on rail policy.
137 The proposals in this paper do not impact on the Treasury's responsibilities for the administration of Vote Finance, including funding for ONTRACK and certain other sector infrastructure investments, or for providing second-opinion advice on any proposals for Crown funding.
138 As noted above, ONTRACK would change from a State-owned enterprise to a Crown entity if the Rail Network Bill is enacted as reported back to the House by the Government Administration Committee in June 2006.
139 While ONTRACK is outside the scope of the proposals of this Review pending passage of the Bill and the conclusion of related commercial negotiations, Ministers may wish to consider how the Next Steps proposals might extend to ONTRACK in the future.
140 The changes to the planning and funding system would focus Land Transport NZ's role on activity-level functions and provide the linkage between the national and regional levels. The primary function of developing the NLTP would continue, with a heightened emphasis on linking individual funding allocation decisions to the directions set out in the GPS. Associated functions include:
- assisting the Ministry with the preparation of the three-yearly issues trends and options report for Cabinet consideration;
- providing advice on the high level mix of activities most likely to achieve Government's objectives;
- developing an annual budget within the three-year levels approved by Ministers, and recommending any changes that might be required to FED and RUC levels in the interim years;
- assisting regional and local bodies in the development of RLTSs and plans that link demonstrably to Government's objectives;
- assessing three-year funding requests;
- approving activity funding;
- auditing the use of NLTF funds by Approved Organisations; and
- reporting against the NLTP, including activity level performance information.
141 It is not proposed to alter arrangements in the sector for the licensing activities and regulatory implementation and enforcement, primarily because:
- these functions are low risk and do not require direct Ministerial oversight or control;
- decision making about particular persons or activities is maintained at arms-length from Ministerial influence; and
- a governance board can add value to land transport licensing and regulatory implementation and enforcement regimes.
142 The Motor Vehicle Registry and Revenue Management output class is subject currently to a separate review under the responsibility of the Chief Executive of the Ministry of Transport.
143 The lack of clarity with respect to roles, and the absence of guidance from the Ministry, has created a number of instances of duplication of effort e.g. advice on travel demand management coming from the Ministry, Land Transport NZ, and Transit NZ. The nature and scope of activities needs to be much more tightly defined and aligned e.g. through Statement of Intents and/or letters of expectation from Ministers.
144 Subject to decisions on subsequent structural change, Transit NZ would continue to be responsible for building, maintaining and operating the national State highway network, but the proposed changes would impact significantly on its role with regard to planning in the sector. That role would change both with respect to planning the development of the State highway system and with respect to input into land use planning.
145 Regional bodies would be responsible for prioritising the State highway activities alongside other proposals for their region. Transit NZ would assist by providing technical advice on potential State highway activities. This regime would replace the current preparation and consultation on an annual State highway programme.
146 The Terms of Reference requested that the Review consider structural issues. Noting that the changes described above should address most of the issuesof concern the Review turned its attention to structural questions. Specifically, the Review considered what structures would best support the proposed planning and funding processes.
147 The following potential options for the structure of central Government agencies in the sector were identified and assessed as to whether they would materially add to the benefits offered by the proposed changes outlined above.
148 Three options were considered for using departmental form:
- merging Land Transport NZ and Transit NZ as a single department, with the Ministry remaining separate;
- merging the Ministry, Land Transport NZ and Transit NZ as one large department; and
- subject to the completion of commercial negotiations and ONTRACK becoming a Crown agent, including ONTRACK in either merger above.
149 All three options were rejected on the basis that current arrangements are based on the Minister of Transport being at arms-length from decision making to approve and fund individual land transport activities. Instead, the board of Land Transport NZ is responsible for this as a statutorily independent function. The Minister may issue a policy direction to the board, but such directions may not be given in relation to a statutorily independent function, or to bring about a result in respect of a particular person or persons.
150 This arrangement protects the Minister of Transport from lobbying to show favour or disfavour for any particular land transport activity, and from accusations of interference or influence for political gain or other benefit.
151 While it is possible to 'ring fence' decision making functions in a department (as a statutorily independent function, or as the responsibility of a statutory officer within the department), the appearance of Ministerial separation from decision making is as important as the reality. The Minister has extensive powers of direction and influence over a department's activities and there is a high risk that the appearance of separation from Ministerial influence would disappear.
152 Second-order reasons for not supporting any of the departmental options include the:
- risks to the arms-length separation from Ministerial influence over regulatory decisions (e.g. a decision to revoke a transport operator's licence);
- loss of board member knowledge, skills and experience in land transport licensing and regulations, infrastructure maintenance and management; and
- risks of bias towards land transport activities prepared in-house, and a loss of transparency over related funding decisions.
- options were identified but not advanced because they were out of scope of the Terms of Reference.
153 It is proposed that Ministers consider two main options for the placement and scope of functions (depicted in the table on page 34):
- enhancing the Ministry and retaining two Crown entities but altering the allocation of functions, with sub-options (Options A and B) concerning the scope of functions currently carried out by Transit NZ; and
- enhancing the Ministry and merging the remainder of Land Transport NZ and Transit NZ (Option C).
154 Options are viable. They both have advantages and disadvantages in relation to each other. The preferred option represents a balance of judgment, as discussed in the following paragraphs.
155 Under option A, the existing agencies in the sector would continue to operate as stand alone agencies, separate from each other.
- There would be no major structural changes i.e. disestablishments, mergers or the establishment of any new agency:
- the Ministry and the Treasury would continue as Public Service departments; and
- Land Transport NZ and Transit NZ (but renamed "Land Transport Agency" and "State Highways NZ" to better reflect their focus and the change from the current situation) continue as stand alone statutory Crown entities, specifically as Crown agents i.e. they must give effect to Government policy when directed by the responsible Minister.
- The emphasis would be on clarifying and reinforcing the existing agencies' roles and responsibilities, and enhancing capability where needed:
- The Treasury would be endorsed as the lead agency for the current commercial negotiations on the Rail Network Access Agreement, while it would be clarified that rail policy is part of the Ministry's role;
- the Ministry would have a substantially increased role in monitoring and reviewing, as discussed above, in addition to its high level funding and other strategic functions;
- the Land Transport Agency's planning and funding role would be focused on activity level functions. It would prepare the NLTP and approve activities for funding, but some high level planning and funding functions would transfer to the Ministry. The Land Transport Agency would become the primary point of discussion for councils with regard to the development and prioritisation of State highway activities;
- State Highways NZ would build, maintain and operate the national State highway network. There would be a substantial reduction in planning functions from Transit NZ. It would provide technical advice to councils for the purposes of their development and prioritisation of State highway activities.
- There would be continued reliance on the effective use of the levers of Ministerial influence to address any remaining issues not resolved through the changes to planning and funding, and through enhanced capability.
156 Option B is a variation of Option A and would further narrow State Highways NZ's functions. It would focus specifically on the procurement of value for money, State highway building, maintenance and operations. Its planning role would be further reduced, with the Land Transport Agency in conjunction with regions being actively involved in State highway activity planning.
157 Under this option:
- the Ministry would have the enhanced role and responsibilities as described above, supported by improved capability. Its capability to review specific activities would be greater than in Option A;
- Land Transport NZ and Transit NZ would merge into a single Crown entity (called here the Land Transport Agency, combining the reduced planning and funding functions described above for the separate entities. The Land Transport Agency would be a Crown agent, required to give effect to Government policy in accordance with the Crown Entities Act;
- Land Transport NZ's statutorily independent functions would be vested in the Land Transport Agency under the authority of the board;
- the separate statutorily independent functions currently held by the Director of Land Transport could be vested in the board of the Land Transport Agency (recommended) or continue to be vested in a statutory officer in the Land Transport Agency. The board would normally have authority over all the entity's functions and powers, and ensure they are carried out under appropriate delegations;
- the Land Transport Agency could be structured as either:
- a 'standard' Crown agent with several business units accountable to a chief executive appointed by, and accountable to, the board; or
- a 'special purpose' entity that contains a statutory unit responsible specifically for State highway maintenance and management. Under this arrangement the chief executive would be responsible for the statutory State highway unit, and would appoint a general manager to oversee day to day activities. Alternatively, the statutory State highway unit could be headed by a general manager appointed by the board (similar to the Aviation Security Service).
158 The table in Appendix D provides some details on the considerations underpinning the recommendations in this report. Those considerations do not lead to a clear-cut preference between Options A, B, and C.
159 The recommendations present a judgment around multiple and overlapping factors, including:
- the effectiveness of solutions to date, including the changes that followed the 2004 Government Transport Sector Review and the availability of the levers of Ministerial influence over the central Government agencies;
- the likely impact of the proposed changes to the planning and funding regime in terms of better achieving value for money in the sector as well as the other objectives of this next steps exercise;
- the costs of change involved in each option, in relation both to the other options and to the overall gains in better achieving value for money in the sector;
- the benefits and risks in each option, including:
- Options A and B both have risks that the Crown entities would redevelop their functions over time;
- Option B could have the benefit of a board with commercial expertise, focused on value for money procurement; a risk is that the board could lose focus both on being a Crown agent, directly accountable to the Minister of Transport, and on the inter-modal and sector wide objectives and the Government's sustainability objectives; and
- Option C could have the risk that a multiple-function entity requires a multiple-focus board that could be detrimental to achieving value for money; alternatively, such a board could be well placed to make inter-modal decisions and trade-offs, especially in the context of the broader objectives around sustainability.
160 On balance, this report recommends Option C based on the following considerations.
- the department's (Ministry's) and the entity's (Land Transport Agency's) respective roles would be clarified, duplication of functions would be minimised, and councils would have a single point of contact with central Government for regional planning;
- a single Crown entity, governed by a single board, would be responsible to the Minister of Transport. The State highway entity (currently Transit NZ) would no longer have to provide similar information to separate agencies (the Ministry and Land Transport NZ) for similar purposes;
- the Land Transport Agency would be positioned to make the inter-modal decisions required to meet the range of Government's transport and sustainability objectives;
- the risk of a multi-focused board not focusing sufficiently on value for money would be substantially mitigated by the range of the Land Transport Agency's various functions, and if:
- the need for activities to be cost effective is reinforced; and
- the board appoints one or more committees to advise on the various aspects of the Land Transport Agency's business. In accordance with clause 14 in schedule 5 of the Crown Entities Act 2004:
- such committees could advise the board on any matters relating to the entity's functions and powers that are referred to the committee by the board; or
- the board could appoint such committees to perform or exercise any of the entity's functions and powers that are delegated to the committee (as long as the committee includes at least one member of the board and any other person(s) that the board thinks fit);
- the Ministry's capability would be boosted, and the Land Transport Agency's expertise would cover all aspects of land transport activity planning and delivery, to produce a sector capable of being responsive to Government and implementing policy.
- while full implementation of the planning and funding changes would take several years (4-6) to be realised, more rapid and endurable gains would be achieved in a shorter timeframe, e.g. the capacity to provide joined-up communications and advice to the Minister; the need to operate, and to be seen to operate, as an instrument of central Government.
161 The success of Option C would rely on having effective governance arrangements, including a high quality board. Officials propose to report back on how to reinforce the necessary maintaining of focus on value for money, including board membership and board composition, and the possible use of board committees.
162 The role of boards in providing governance over Crown entities is one of the key planks in New Zealand's public management system. Section 25 of the Crown Entities Act defines the board's role in the following terms:
(1) The board is the governing body of a statutory entity, with the authority, in the entity's name, to exercise the powers and perform the functions of the entity.
(2) All decisions relating to the operation of a statutory entity must be made by, or under the authority of, the board in accordance with this Act and the entity's Act.
163 A Crown entity board must have a good understanding of the delegations through which it can carry out its responsibilities. The Crown Entities Act sets out the board's powers to delegate and the effects of delegating (including that the board remains responsible for the actions of any delegate acting under delegation).
164 In addition to the role of the board, the collective duties of the board as well as the individual duties of members are described in the relevant provisions in the Crown Entities Act 2004. Key elements of the board's role include:
- setting strategic policy and direction consistent with the statutory and policy frameworks within which the entity operates;
- appointing a chief executive;
- monitoring the performance of the entity and its chief executive;
- ensuring compliance with the law and with key accountability documents applying to the entity;
- reinforcing expectations of the behaviour of the chief executive and entity that are appropriate to a public body;
- maintaining relationships with the Minister, Parliament and the public; and
- complying with good employer requirements.
165 The requirement that all decisions relating to the operation of a statutory Crown entity must be made by, or under the authority of, the board goes to the heart of the board's importance 1 . This requirement is the reason why:
- a corporation sole is appropriate in a small number of specific instances; and
- a multi-member board is preferable in the vast majority of cases.
166 High quality decision making relies on the appropriate knowledge, skills and experience to assist the entity to achieve its objectives and perform its functions. The range of knowledge, skills and experience should cover:
- the nature of the entity as a central Government agency and the implications, including a clear understanding of the role of the Minister and monitoring department;
- the entity that the board governs, including a clear understanding of relevant legislation and the entity's role, functions and powers; and
- the strategic and operating context (e.g. commercial context; range of stakeholders; impacts of decision making).
167 Section 29 of the Act adds a fourth quality to the composition of the board of a statutory Crown entity. Ministers are charged with appointing persons who have the appropriate knowledge, skills and experience, and - subject to that requirement - they must also take into account the desirability of promoting diversity in the membership of Crown entities.
Statutorily independent functions
168 The requirement that all decisions relating to the operation of a statutory Crown entity must be made by, or under the authority of, the board explains why an entity's functions and powers are vested in the board as the governing body. It would be incongruous for an entity to have functions and powers that do not come under the authority of the board.
169 It is recommended that the statutorily independent functions carried out by Land Transport NZ should continue to be statutorily independent functions of the Land Transport Agency. Under s.69(2) of the Land Transport Management Act 2003:
"The Authority's statutorily independent functions are-
- to determine whether particular activities should be included in a national land transport programme; and
- approving activities; and
- approving procurement procedures."
170 Under s.197(4) of the same Act, the Director of Land Transport currently has some statutorily independent functions that are exercised under statutory authority independently from the Minister of Transport and the board (these are in addition to Land Transport NZ's statutorily independent functions, listed immediately above):
"In performing or exercising any functions or powers in relation to-
(a) The issue, endorsement, alteration, replacement, renewal, suspension, or revocation of any land transport document or other authorisation under any enactment; or
(b) The granting of exemptions under any enactment; or
(c) The enforcement of the provisions of any enactment conferring functions or duties on the Director,-
in respect of a particular case, the Director must act independently and is not responsible to the Minister or the Authority for the performance or exercise of such functions and powers."
171 It is recommended that the functions cited in the previous paragraph become statutorily independent functions of the Land Transport Agency. This would place them under the authority of the Agency's board, to be exercised in accordance with any delegations determined by the board.
172 This change would place land transport in a different situation to maritime and air transport, where the Directors of the respective Crown entities have statutorily independent functions. However, this Review provides an opportunity to place land transport on a consistent basis with the rest of the Crown entity sector.
1 It is possible for statutory officers within entities to have statutorily independent decision making functions, for which they are not answerable to the board. The Director of Land Transport currently has several such functions.
173 The recommendations in this report represent the next steps for the land transport sector. They would take considerable effort to implement successfully. Arrangements would need to be set in place to manage the process and ensure that the recommendations are adopted successfully.
174 It is proposed that the process be overseen by an Implementation Steering Group chaired by the Chief Executive of the Ministry of Transport, and consisting of the Ministry, the Treasury, Department of the Prime Minister and Cabinet and the State Services Commission.
175 The Implementation Steering Group would be responsible for developing a detailed implementation plan to deliver the high-level actions.
176 It is proposed that the Implementation Steering Group report to the Ministers of Transport, State Services, and Finance. It should report on progress regularly against an implementation plan, including milestones and should put in place an evaluation strategy to determine the effectiveness of the package of changes after a suitable time.
177 The following paragraphs highlight some of the major/high-level areas of work necessary to implement the Review's proposals.
178 The proposed changes to the planning and funding arrangements, Government agency structure and a number of their respective functions would require legislative amendments. A key first step would be to identify, agree and draft legislative changes to give effect to the proposals (legislative changes would be required to at least the Land Transport Act and the Land Transport Management Act).
179 Key messages about the proposed changes would need to be developed and communicated to the sector, including local government, which would be an important part of the implementation process. A communications process should be developed promptly.
180 New roles for different agencies and revisions to existing roles are proposed (e.g. the Ministry of Transport would have new roles in the funding and planning process). Further work would be required to expand on the key elements of new and revised roles and how they would work in practice. New and revised roles would need to be integrated into organisational structures, and SOIs and other accountability documents would require alignment.
181 Prior to the implementation of changes in agency function, decisions would need to be made regarding boundaries and transitional arrangements to enable, where possible, some transfers to occur in advance of legislative changes.
182 Any structural reforms would require legislative changes and have overlaps with the 'staff' work-stream.
183 The proposals regarding structural and functional change would have implications for a number of staff at each Government agency. A first step would be to identify staff who may be affected by Review proposals and engage with unions, staff representatives and staff.
184 The recommendations require a consideration of resource implications including:
- transitional costs associated with implementing the proposed changes;
- on-going costs associated with additional roles or functions; and
- costs associated with disestablishment and establishment of agencies, and funding a new entity.
185 The proposals have capability implications, particularly for the Ministry. First steps would be to:
- actively address capability gaps to improve the Ministry's capability to undertake its sector leadership, sector monitoring, and strategic policy advice functions effectively; and
- assess the capacity and capability needed for the Ministry to fulfil the additional roles and functions conferred on it by this Review and put in place a plan to address gaps.
186 Full implementation would take a number of years and transition measures would be required while legislative details and arrangements were finalised.
187 The Review's Terms of Reference stated that the purpose of the Review was: to undertake a review of the machinery of government, governance and funding arrangements for the land transport sector, and make recommendations to Ministers on what changes to investment planning, funding and structure may be needed to enhance agency responsiveness, performance, capability and value for money.
188 The Next Steps report has focussed on issues and concerns in the Government land transport sector. It is important, however, to record that substantial performance improvements have been achieved by the Ministry, Land Transport NZ and Transit NZ. These improvements have endured through a period of sustained growth in terms of complex urban road construction projects.
189 The report recommends a package of proposed changes, which would address the key concerns as follows:
- agency responsiveness would be improved through: additional guidance from Government in terms of its priorities via the GPS; better defined roles and responsibilities for the central Government agencies resulting in improved communication and information sharing; and a longer planning cycle to reduce churn within the system;
- performance would be improved across the land transport sector as roles and responsibilities would be clearer, the Ministry would be stronger, duplication would be minimised and collaboration and cooperation would be the norm among the 'transport team.' Priorities and the necessary trade offs would be clearer, the planning and funding cycle would be longer, and the current churn in the system would be reduced;
- capability is an area that each agency would need to build to fulfil the clearly identified roles and functions. Key areas where capability needs to be boosted include strategic policy development, evaluation and monitoring; and
- value for money would be a more prominent consideration in the establishment of the NLTP and its delivery. Priorities and the necessary trade offs would be clearer in an overarching context of cost-effectiveness. The aim would be to deliver the NLTP for each three year period in keeping with the Government's stated priorities (GPS) and within the NLTF. The Government's revenue and cost guarantees would be superseded, as these proposals are designed to achieve certainty while retaining incentives on the land transport agencies to achieve value for money.
It is recommended that Ministers direct officials to prepare a Cabinet paper containing the following recommendations:
190 agree that a new strategic framework be established for the land transport sector ("the sector") which integrates the NZ Transport Strategy, medium to long term guidance to the sector, and a Government Policy Statement on land transport;
191 agree that planning and funding arrangements for the sector be redesigned to support this framework;
192 agree that central Government institutions in the sector be realigned to support this framework;
193 note that these changes would require changes to legislation;
194 note that the 'Implementing the New Zealand Transport Strategy' (INZTS) document, currently being developed by the Ministry of Transport (the Ministry), will provide medium to long term guidance to the sector and for the preparation of the proposed Government Policy Statement (GPS);
195 agree that a GPS be issued by the Minister of Transport (the Minister), on a three-yearly basis, which would include:
- the Government's funding priorities including priorities of national strategic importance;
- the funding range within which each activity class is to be set for the following three years with estimates for the next three years;
- Fuel Excise Duty/Road User Charges (FED/RUC) levels for the following three years;
196 agree that the GPS may also include other strategic or policy matters, such as funding evaluation and Financial Assistance Rate (FAR) policy;
197 agree that the Ministry lead the three yearly GPS process;
198 agree that officials report back on the nature of the GPS and how it is to be given effect in legislation;
199 agree that the National Land Transport Programme (NLTP) become a three yearly document and include:
- all activity classes and activities that the Land Transport Agency (see below) anticipates it will consider for approval over the following three years or has approved;
- an expenditure estimate for each activity class for a further seven years;
- a clear rationale, including how the NLTP gives effect to the GPS;
200 agree that the National Land Transport Fund (NLTF) may go into surplus or deficit within any one year, but any unplanned deficit must be recovered in the following year;
201 agree that regional councils through arrangements such as Regional Land Transport Committees (RLTCs) be responsible for prioritising all regional and local land transport funding proposals, including State highway activities, in Regional Land Transport Programmes (RLTPs);
202 agree that the RLTPs:
- be prepared on a 3 yearly cycle;
- include the list of prioritised activities that the region proposes be considered for inclusion in the NLTP;
- include an expenditure estimate for each activity class for a further seven years;
203 agree that only activities included in a RLTP be eligible for funding through the NLTF. This excludes nationally-led expenditure and other central expenditure such as funding for the Land Transport Agency's own administrative costs;
204 agree that Regional Land Transport Strategies (RLTSs) and RLTPs must be consistent with the GPS;
205 agree that all consultation on activities funded from the NTLF take place at the regional level through preparation of the RLTPs;
206 agree that Approved Organisations not be required to undertake additional consultation on activities proposed for funding by the Land Transport Agency as a prerequisite for approval in the NLTP;
207 direct officials to report back on:
- the merits of a phased introduction to the regional prioritisation as set out in recommendations (12) to (17) across regions;
- alignment of timeframes between the GPS, the NLTP, RLTSs and RLTPs;
- the implications of recommendations (12) to (17) for the Auckland region;
- the implications of recommendations (8) to (14) for the Authority's Land Transport Programme (Land Transport New Zealand's Road Safety Programme) and whether this method of prioritisation is appropriate for this expenditure;
- the appropriate arrangements necessary to undertake the role in (12) and this include consideration of RLTCs and their composition;
- the implications of recommendation (15) and the exact nature of the activities that would be excluded from the regional prioritisation process as set out in recommendations (12) to (17);
208 agree that all FED and RUC be directed to the National Land Transport Fund (NLTF);
209 agree that the existing revenue and cost guarantees be replaced by the new processes including the introduction of the GPS, subject to appropriate grand-parenting provisions relating to funding for the next two years and projects in the current State highway forecast;
210 direct officials to report back on the implementation of (20) and (21) including whether the processes for setting FED and RUC can be improved;
211 agree that, in the event that Crown funding is used to fund land transport activities, a separate, transparent process be put in place to provide for clear accountability to Ministers for the use of this Crown funding;
212 direct officials to report back on the implementation of (22);
213 agree that approval of individual activities continue to be carried out on a statutorily independent basis by the Land Transport Agency;
214 agree that the Minister, advised by the Ministry, would approve the funding evaluation procedures prepared and applied by the Land Transport Agency;
215 direct officials to report back on whether, and if so how, the Land Transport Management Act (2003) should be amended to reinforce the need for activities to be cost effective;
216 agree that, while each road controlling authority is responsible for setting the design standards for roading activities under its jurisdiction, the Minister, as advised by the Ministry, would have the reserve power to direct a road controlling authority to apply certain standards;
217 agree that the Ministry, on behalf of the Minister, have a new function to monitor and review a selection of activities funded through the NLTP at any stage pre, post and during an activity's life-cycle;
218 endorse the Ministry developing a strategic approach to the development of accountability documents and the use of accountability processes which will:
- align the Ministry and Crown agencies accountability documents where feasible to ensure shared outcomes and measurement;
- ensure a clear focus on the Crown's purchase and ownership interests;
- highlight the expectation of improving collaboration across the sector;
219 endorse the Ministry as the lead agency on rail policy;
220 endorse the Treasury as the lead agency for the current commercial negotiations on the Rail Network Access Agreement;
221 direct officials to report back on the implications for planning and funding of rail once the current commercial negotiations are complete;
222 agree that there are two viable options for the structure of the central Government agencies to carry out the roles and functions recommended in this report:
Option 1: (referred to in the body of the report as Option A): Enhanced Ministry of Transport (to carry out the policy, high level planning, high level funding, and certain monitoring and review functions) and two separate statutory Crown entities, provisionally called the "Land Transport Agency" (to carry out activity level planning and funding, including consultation with regional councils and territorial authorities for regional prioritisation, and some monitoring and review) and "State Highways New Zealand" (to focus on State highway design, procurement, maintenance and operations);
Option 2: (referred to in the body of the report as Option C): Enhanced Ministry of Transport (to carry out the functions in option 1 and additional monitoring of all the Land Transport Agency's activities) and a single statutory Crown entity (to carry out the combined functions of the Land Transport Agency and State Highways New Zealand as described in option 1);
223 agree that, on balance, option 2 is preferred on the basis that the benefits of integration would be greater than the benefits of retaining separately focused entities;
224 agree that, if option 2 is chosen, the Land Transport Agency be established as a Crown agent, in accordance with the relevant provisions in the Crown Entities Act 2004;
225 agree that, if option 2 is chosen, the Land Transport Agency continue to have the same statutorily independent functions currently held by Land Transport NZ;
226 agree that, if option 2 is chosen, the statutorily independent functions currently held by the Director of Land Transport come under the authority of the board of the Land Transport Agency rather than being vested in the chief executive or another officer in the entity;
227 agree that the implementation process identify the specific functions and capability that should transfer from Land Transport NZ and Transit NZ to the Ministry of Transport in order to enable the Ministry of Transport to carry out the enhanced role detailed in this report;
228 direct officials to report back on ways to ensure that the Land Transport Agency maintain focus on value for money, including:
- board membership in terms of desirable knowledge, skills, experience and diversity; and
- board composition, including the possible use of one or more committees, either to advise the board or to act under delegation from the board, and how such committees might be assured;
229 agree that the implementation process be overseen by an Implementation Steering Group, chaired by the Chief Executive of the Ministry of Transport, and consisting of the Ministry, Treasury, Department of the Prime Minister and Cabinet, and the State Services Commission;
230 direct the Implementation Steering Group to report to the Ministers of Transport, State Services, and Finance with an implementation plan including milestones;
231 direct the Ministry to report back on the capacity and capability needed to fulfil any additional roles and functions conferred on it by this Review;
232 direct the Steering Group to put in place an evaluation strategy to determine the effectiveness of the package of changes after a suitable time period.
A Terms of Reference
B Land Transport Sector Today: Detail
C Ministerial Influence over Statutory Crown Entities (Crown Agents)
D Comparison between Options for Placement of Roles and Functions
E Glossary of Terms and Acronyms