Otaki Expressway strays from economic rigour

COMMENT

It was both unsurprising and interesting to open the paper this week to see the proposed Otaki Expressway in the headlines again.

Unsurprising because the NZ Transport Agency (NZTA) is having its resource consent heard for the proposed road; interesting because of the way the NZTA lawyers are pitching the project.

Quoting from the Dominion Post, the gist of NZTA’s position was: “What good is a $3 billion road of national significance if you are going to hit a 13km hole when you get to the Kapiti Coast?”

If the road is built, they argue the region’s economy will benefit from the faster movement of freight, a reduction in congestion and fewer crashes.

It’s a just a pity that the NZTA’s own figures don’t stack up.

According to the excellent article by economist Michael Pickford in Policy Quarterly, NZTA’s own figures show the Peka Peka to Otaki stretch of the road has a benefit cost ratio (BCR) of just 0.5, down from 0.8 in 2009 when the project was proposed.

What that means is for every dollar sunk into that stretch of road, the broad economic return will be 50c.

The government and Transport Minister Gerry Brownlee are okay with this, arguing that the sum of the BCRs on the entire Wellington Northern Corridor project stack up economically.

But again the project and its seven components have a weighted average BCR of 0.8 according to Pickford’s analysis.

Admittedly, BCRs are a bit of economic chicanery that can deliver widely varying results, but they are the best tools we have when it comes to trying to make informed decisions on major infrastructure spending.

Pickford’s research shows that changes to the way NZTA calculates BCRs, which were introduced in 2003 and 2008, have skewed the bias on these tools with the introduction of the Social Cost Benefit Analysis.

This new methodology considers strategic fit and effectiveness as well as the traditional BCR analysis – but the problem is that these two factors are already counted in the BCR, effectively giving them a double weighting.

You can read Pickford’s article for yourself here. That said, take note of the full disclosure portion at the end.

Jason Krupp is a research fellow at New Zealand Initiatve.