Council 14 March 2018, Order Paper - 2018 Annual Fare Review

Report 2018.71
Date 07 March 2018
File CCAB-8-1467

Committee Council
Author Paul Kos, Manager Public Transport Planning

2018 Annual Fare Review

1. Purpose
To report on compliance with farebox policy and to report back on the
appropriateness of the LTP budget provision ($5.5m) proposed to
accommodate fare initiatives as part of the 2017 Better Metlink Fares Review.

2. Background
The Regional Public Transport Plan (PT Plan) requires that fares set by the
Council be reviewed annually. Fare reviews consider compliance with farebox
policy and review of public transport fare levels.

The context for undertaking this fare review differs from previous reviews due
to:

• The review of fare levels being incorporated into the 2017 Better
Metlink Fares Review.

A review of fares levels was required late last year to provide certainty
and ensure a fare increase could be implemented in mid-July 2018,
along with the fare initiatives. As part of the fares package, a general
3% fare increase was endorsed by Council in October 20171. For
budget purposes, the Council at that time also requested a check
against budget figures at draft LTP stage once costs for public
transport were better known - this is reported below.

• The review taking place in a time of significant change and transition

for public transport. Changes include new bus PTOM contracts, new
fleet, new ticketing arrangements, and major network changes to the
Wellington City bus network.

1 The general 3% fare increase may result in some fares (for example cash fares for zones 1 and 2) being adjusted by more or less than 3%.

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Under PTOM bus contracts, responsibility for fare revenue moves

from bus operators to GWRC, which changes the makeup of our
baseline budgets for public transport. The way we report on fare box
recovery (under the PT Plan) and user charges (under the LTP)
requires a re-think as a result of these changes.

3. Comment
3.1 Regional Public Transport Plan 2014
The general policy approach for reviewing fares is set out in Policy 3.d of the
Regional Public Transport Plan (PT Plan), which requires Council to:

Review fare levels annually to achieve farebox recovery

targets with a preference for small, regular adjustments
rather than large, infrequent ones:

- Forecast and review fares and operating costs

annually through the Long Term Plan/Annual Plan
process to determine the extent of any fare
adjustments

- Implement an annual fare adjustment on 1 November.

Detailed guidance on the farebox recovery is provided in the farebox recovery

policy in Appendix 5 of the PT Plan. Developed in accordance with the NZ
Transport Agency’s National Farebox Recovery Policy, the PT Plan farebox
recovery policy sets the farebox recovery targets and provides detail on how to
measure performance against the targets.

In summary, performance is measured by comparing total fare revenue to total

direct operating costs. Under the NZ Transport Agency formula, total costs
include only operating payments. Capital costs, such as those associated with
real-time and passenger information, are not included in the calculations.

The farebox recovery targets set out in the PT Plan are:

• 55-60% for the public transport network as a whole

• 55-60% for buses and rail

• 80-90% for ferries.

The PT Plan signals an expectation that farebox recovery targets would

decrease to 50% over the longer term as the fare structure is reviewed and
major projects, such as Integrated Fares Ticketing, come on-line.

It is important to note that due to the changing regional context (in particular
the move to PTOM) and changing national context (upcoming Government
Policy Statement changes), the current formula for NZTA farebox recovery is
becoming less relevant for budget purposes. Farebox recovery policy and
targets will be reviewed as part of the PT Plan review proposed to begin in the
2018/19 financial year.

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3.2 Public transport costs and LTP budget assumptions

Most public transport services (bus, rail, and ferry) in this region are provided
under contract to this Council.

The gross operating cost of providing these services for the 2018/19 financial
year is expected to be $233m2. Passenger fares fund about 40% of these costs,
with the remainder shared between the NZ Transport Agency and regional
ratepayers.

The review of fare levels also needs to consider LTP budget assumptions and
Council’s Revenue and Finance Policy. This year, being a LTP review year in
which a new Revenue and Finance Policy is being proposed, makes this more
complex as both the existing and proposed LTPs need to be considered:

• The existing LTP is used for looking back - compliance of actual user
contribution for 2016/17 (see table 1 below).

• The proposed LTP is used for looking forward – projected user

contribution for 2018/19 (see table 2 below).

To this effect, the Council’s supporting information to the consultation

document for the LTP 2018-28 includes the following revised budget
assumptions for public transport:

Fare revenue
• A 3% fare increase is proposed for 2018/19. For each subsequent year
fare revenue will increase with inflation.

Bus and rail contract costs

• Bus and rail contracts are indexed annually and will increase at the
same rate as inflation.

User contributions policy

• GWRC aims to collect 35-50% of its total revenue for public transport
from user charges. The balance is funded from national contributions
and rates.

The LTP user contribution calculation has been adjusted this year to include all
PT activity costs. In the past, it only included operational costs and interest. It
now incorporates these costs plus overheads, system and customer service
delivery related costs.

2 Operating costs include all costs related to operating public transport, including service contract payments, debt servicing costs, infrastructure
maintenance costs, system wide costs (such as the Metlink information systems and real-time) and administration costs, but exclude capital costs
(such as rail maintenance and up-grades, park-and-ride costs, bus shelters etc),

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These assumptions (along with other assumptions for public transport) are
considered each year as part of the process to consider whether increases are
required to offset the costs of providing services.

3.3 Compliance with farebox recovery targets

The farebox policy compliance review measures actual performance against
the farebox recovery targets for the previous year. This is a requirement of the
NZ Transport Agency. The then forecasted amounts are also provided for
comparison.

The outcome of the review for 2016/17 is set out in Table 1. This shows that
overall farebox recovery under the PT Plan and the LTP user charges approach
were both within target for 2016/17.

Table 1 Farebox recovery and user contributions for 2016/17

Indicator Target Forecast Actual

2016/17 2016/17

A. Long-Term Plan – User Contribution (existing)3

User contribution 45-50% 47.5% 48.4%

B. Regional Public Transport Plan – Farebox Recovery Policy

Overall farebox recovery 55-60% 57.2% 57.3%
Farebox recovery by mode
Rail 55-60% 55.7% 56.4%
Bus 55-60% 57.3% 56.6%
Ferry 80-90% 82.6% 82.9%

3.4 Better Metlink Fares

On 31 October 2017, Council approved Variation 3 to the PT Plan and agreed
the Better Metlink Fares package. Combined the variation and fares package
comprise the following aspects:

• A new concessions policy and a new policy to encourage off-peak

travel, greater use of public transport and greater use of electronic
ticketing.

• A new fare schedule incorporating a general 3% fare increase and

setting out the standard Metlink Fares to come into effect in July
2018.

• A series of fare initiatives, including: free bus transfers; a 25% off-

peak discount; a 25% tertiary discount; a 50% discount for eligible

3 The current LTP user contribution approach includes operator payments plus debt servicing costs associated with capital expenditure.

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people with disabilities and free travel for carers; a standard 50%
discount for school children; a standard 25% premium for all cash
fares; free bus connections to trains when using a rail monthly pass; a
change to the Porirua zone boundary; changes to ferry fares; a new
Metlink Explorer day pass; and retention of the Wellington and
Eastbourne 30-day bus passes.

The cost of the package (loss of fare revenue) is estimated to be approximately

$7.5m per annum, with the 3% fare increase off-setting this amount by just
over $2m per annum. Based on known existing budget costs at that time and
using the NZTA formula, farebox recovery was projected at that time to be
54.2% for 2018/19 and 2019/20 years, which is just below the target level in
the PT Plan.

Taking account of the outcomes of the Better Metlink Fares Review, the
Council endorsed the following recommendations:

7. Recommends to the Council that it includes a budget provision of

$5.5m for the fares package in the Long Term Plan, noting that this
amount includes a subsidy component from the NZ Transport Agency
and that the package includes a 3% fare increase to come into effect
with the new bus network in mid-2018.

8. Notes that the final budget will be confirmed through the Long
Term Plan process and will take account of farebox recovery,
operational costs, and the rate share of public transport funding. If a
different budget provision is required, fares could be adjusted
accordingly

3.5 Budget provision re-check

This section responds to Council’s recommendation to determine if a different
budget provision for fare revenue is required, and as a result, whether fares
need to be further adjusted.

Table 2 below provides an assessment of the fares package (with the general
3% fare increase) using latest operating costs for the year 2018/19. The figures
report against the new user contribution target set out in the draft 2018/28 Long
Term Plan and the farebox recovery targets set out in the PT Plan.

Table 2 Farebox revenue with 3% increase for 2018/19

Indicator Target Projected 2018/19

A. draft Long-Term Plan – User Contribution (revised)4

User contribution 35-50% 40.4%

4 The proposed revised approach to user contributions includes operational costs with debt servicing costs associated with capital expenditure (as

per past approach) plus overheads, system and customer service delivery related costs.

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B. Regional Public Transport Plan – Farebox Recovery Policy

Overall farebox recovery 55-60% 55.1%
Farebox recovery by mode
Rail 55-60% 49.9%
Bus 55-60% 59.6%
Ferry 80-90% 81.5%

The table shows that with latest costs applied to the NZTA formula5, overall
farebox recovery changes slightly from the October 2017 estimate (54.2%) to
55.1%, which is just within the PT Plan target range of 55-60%.

By mode, the figures show quite a divergence from the 2016/17 actual figures
– with rail well below past actuals and bus above past actuals. This can be
explained by:

• the move to gross-based contracts for bus (no net contracts)

• the changes to commercial services (some commercial services will be
contracted and some will be exempt)
• significant increase in forecast rail expenditure, including: network
track access charges, passenger service fee, network renewals
• savings from new bus contracts.

The projected LTP user contribution figure (40.4%) is significantly less than
previous projections under the old formula. However, to be more useful for
budgeting purposes, this has been adjusted this year to include all PT activity
costs. In the past, it only included operational costs and interest. It now
incorporates these costs plus overheads, system and customer service delivery
related costs.

Taking account of the new information on costs for public transport and
changing context for public transport, it is not considered necessary or
appropriate to change the budget provision for fare revenue in the draft Long
Term Plan, or make a further adjustment to fares.

Notwithstanding this, the new fare initiatives represent the most significant
change since 2006. While detailed modelling helps to understand likely
impacts on patronage and revenue, only time will tell the real impact of the
changes. Fortunately with PTOM bus and the extension of Snapper, GWRC
will have access to better and more timely data on fares. This will enable more
agile responses to be considered, as currently is the case in Auckland.

5 Note this does not include the farebox revenue from exempt services (i.e. commercial services that are not contracted)

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3.6 Consultation with transport operators

Transport operators have been fully engaged throughout the Better Metlink
Fares review. All are aware and supportive of the fares package (including the
3% fare increase).

Under PTOM contracts, fare revenue comes directly to Greater Wellington

Regional Council, so the implications for PTOM operators are less direct than
was previously the case.

East by West Ferry (currently a non-PTOM contract) has indicated support for
the fares package. Officers are working with the ferry operator to bring in the
fares changes for ferry operations in mid-July (the same time as bus and rail).

4. Communication
Communication on the 3% fare increase is occurring as part of the current
warm-up communications campaign for the public transport transformation
programme.

Further and more detailed communications on the fares changes (including the
3% fare increase) will occur closer to the time of implementation in mid-July
2018.

A wider communication and engagement process on budget components will

be carried out via consultation on the draft Long Term Plan 2018/28.

5. Consideration of Climate Change

The matters requiring decision in this report have been considered by officers
in accordance with the process set out in the GWRC Climate Change
Consideration Guide.

5.1 Mitigation assessment

Mitigation assessments are concerned with the effect of the matter on the
climate (i.e. the greenhouse gas emissions generated or removed from the
atmosphere as a consequence of the matter) and the actions taken to reduce,
neutralise or enhance that effect.
Fare initiatives are designed to increase public transport patronage which can
contribute to an overall reduction in gross regional greenhouse gas emissions
by reducing the number of trips made in private vehicles.

5.2 Adaptation assessment

Adaptation assessments relate to the impacts of climate change (e.g. sea level
rise or an increase in extreme weather events), and the actions taken to
address or avoid those impacts.

Officers recommend that climate change impacts have no direct relevance to

the matters addressed by this paper.

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6. The decision-making process and significance

Officers recognise that the matters referenced in this report may have a high
degree of importance to affected or interested parties.

The matter requiring decision in this report has been considered by officers
against the requirements of Part 6 of the Act. Part 6 sets out the obligations of
local authorities in relation to the making of decisions.

6.1 Significance of the decision

Part 6 requires GWRC to consider the significance of the decision. The term
‘significance’ has a statutory definition set out in the Act.

Officers have considered the significance of the matter, taking the Council's
significance and engagement policy and decision-making guidelines into
account. Officers recommend that the matter be considered to have low
significance.

Officers do not consider that a formal record outlining consideration of the

decision-making process is required in this instance.

6.2 Engagement
Engagement on the matters contained in this report aligns with the level of
significance assessed. In accordance with the significance and engagement
policy, no engagement on the matters for decision is required.

A wider communication and engagement process on budget components will

be carried out via consultation on the draft Long Term Plan 2018/28.

7. Recommendations
That the Council:

1. Receives the report.

2. Notes the content of the report

3. Notes that the supporting information to the consultation document for the
Long Term Plan 2018-28 includes a 3% fare increase for 2018/19 to offset
the shortfall in fare revenue as a result of the new fares package agreed by
Council on 31 October 2017.

4. Notes that the supporting information to the consultation document for the
Long Term Plan 2018-28 includes a revised approach to user
contributions, reflecting the need to more accurately represent the
complete operating costs of public transport.

5. Notes that the current PT Plan fare box recovery policy and targets
require review and that this will occur as next review of the PT Plan,
proposed to begin in the 2018/19 financial year.

6. Agrees that the current budget provision of $5.5m for the fares package in
the draft 2018/28 Long Term Plan remains appropriate.

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7. Notes that taking account of the new information on costs and changing
context for public transport, it is not considered necessary to change the
budget provision for fare revenue in the draft Long Term Plan.

8. Notes that fare levels will continue to be reviewed annually, with

adjustments proposed as necessary via the Annual Plan/LTP process.

Report prepared by: Report approved by: Report approved by:

Paul Kos Wayne Hastie Dave Humm
Manager, Public Transport General Manager, Public General Manager, Corporate
Planning Transport Services/Chief Financial
Officer

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