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Bumpy ride makes it a terrible year for NZTA

Thomas Coughlan
Wellington, July 5, 2019

(Image by Lynn Grieveson)

It has been less than a year since the sky fell on the New Zealand Transport Agency (NZTA). 

On October 15 last year, Transport Minister Phil Twyford, flanked by the NZTA Chair and Chief Executive, summoned reporters into his office to deliver an embarrassing press conference.

The Agency, which spends anything up to $3 billion a year on building transport infrastructure and looks after everything from state highway speed limits, licensing, to building the Waterview tunnel, was in crisis.

Phil Twyford (Photo: Lynn Grieveson)

Neglect as Regulator

NZTA was found to have neglected its role as regulator.

As many as 850 cases involving (Warrant of Fitness (WoF) issuers, driver licensers, and other transport firms were flagged for being potentially suspect. As many as 20,000 vehicles could have been on the roads when they perhaps shouldn’t have.

Later in the year, we would learn that one motorist was even killed as the result of driving a vehicle that was given a WoF even though it had a deeply faulty seatbelt.

The story might have set the agenda for the day, but just hours later at 1254 pm, MP Jami-Lee Ross unexpectedly started tweeting, saying that his then-leader Simon Bridges would blame him for another kind of transport crisis — the leaking of Bridges’ Crown limousine expenses. Reporters quickly filed their NZTA stories and moved on to the Ross affair, which burnt its way through the rest of the week. 

Appearing before a Select Committee last year, Michael Stiassny predicted more exits from NZTA (Photo by Lynn Grieveson)

‘Open Compliance Files’

The NZTA crisis rumbled on too. The 850 “open compliance files” were examined by law firm Meredith Connell, leading to scores of businesses being struck off as WoF issuers.

By November, the Agency was forced to come clean that motorist William Ball had been killed in preventable circumstances relating to the non-compliance scandal.

Heads eventually rolled, from the bottom up. 

In the interim, Mr Twyford announced that the Ministry of Transport would review NZTA’s regulatory function to see what went wrong, a move that was itself criticised as the Ministry of Transport’s responsibilities over NZTA meant that it was equally likely to be at fault. 

And the safety problems are just the start.

Other troubles

There have been troubles with NZTA’s function as the funder and builder of roads too. Councils complain that long-signalled projects like the Melling interchange have been kicked back by a decade. Other projects like the extension of the Roads of National Significance programme, which would have built further large high-capacity highways on key routes close to urban centres, were effectively cancelled. 

NZTA’s quarterly reports show that it is struggling to get money out the door.

In the last financial year, funding disbursed by the National Land Transport Fund (NLTF) was between 7% and 9% under budget most quarters, largely due to underspending on budgeted projects.

That was a significant departure from the last years of the National Government where the NLTF booked slim surpluses or large deficits. Regional projects have been particularly hard to get off the ground. In the last quarter, disbursements from projects funded by the Provincial Growth Fund were $72.9 million – 90% below budget.

The Troubled Agency

At first glance, the tight-knit network of agencies, central and local, that govern New Zealand’s transport system appear to make no sense.

The overlaid and interlocking responsibilities appear almost medieval — a road is a road, after all. 

Well, not quite. Depending on where that road is it might be funded by NZTA, others may be funded by NZTA and a local council. Likewise, two near-identical roads might have their speed limits set by local politicians or bureaucrats in Wellington depending on their classification. 

The process seems overly complex and arcane — but it’s the result of an evolution in some several government agencies beginning in the last 1980s and continuing right up until the dying days of the last Labour Government, when NZTA was formed just three months before the election that propelled the last National Government to power. 

The thorny issue

Transport is a thorny issue for democracies.

It is one of the parts of government that people interact with most. Sure, at some points in your life you will rely on the health service, or public education, but for most people, the relationship with transport is both daily, and lifelong. Whether you drive, bus, walk, or cycle, a substantial portion of each day is spent interacting with transport.

In some countries, elections make this complicated. In competitive seats, candidates can promise to deliver popular roading projects, regardless of whether or not they make sense — or promise to make unpopular projects go somewhere else. A culture of pork-barrelling prevails in which competitive electorates dine out on the largesse of governments, while uncompetitive electorates starve. 

One of the functions of NZTA is to take the politics out of deciding who gets what from transport spending. Every three years, governments can set the direction of transport — more rail, fewer highways, for example, but they can rarely dictate precisely where roads will go, though that doesn’t stop some from trying. 

Three-Year Policy

NZTA takes the temptation away from governments. Every three years, the Transport Minister delivers a Government Policy Statement on Transport, outlining roughly how they would like transport money to be spent, which the NZTA responds to with its own National Land Transport Programme.

The Agency then works with local governments to build projects that fit into what the government wants. NZTA guards the purse strings. The road user charges and fuel taxes that fund transport work go into its coffers, rather than those of the core crown account, and it uses its own modelling to try to allocate funding to the worthiest projects. It uses things like Benefit-Cost Ratios (BCRs) to decide which roads should be built and how high up the list of priorities they should be.

Even so, the temptation is never wholly gone. Steven Joyce was able to get his fleet of Roads of National Significance built despite chronically low BCRs, while the current Government tried to reform the system to meet its own priorities. Benefits accruing from supposedly shorter journey times shift down the priority list, while benefits accruing from densification are bumped up.  

NZTA beginnings

The Agency was created by former Transport Minister Annette King, who merged Land Transport New Zealand (which looked after things like road safety and licensing drivers) with Transit New Zealand, which planned and funded the state highway network. There were some big projects in the works — the Waterview Tunnel in particular, and it was thought that merging LTNZ with Transit would help to deliver the projects well.

Problems began early.

Labour stacked the board with friendly voices, including Mike Williams, Former President of the Labour Party. By December 2008, Williams had been forced to resign after John Key indicated he expected appointees of a “political flavour” to step aside. 

National changed the focus. Labour launched the Agency with a plan that, on the face of it, was not totally dissimilar from the current Government’s priorities: climate change mitigation, public transport, and more freight travelling by sea and rail.

After less than one year in office, National reversed the focus and restored funding to the state highway projects by reallocating money Labour had stripped away. Labour had wanted to drop state highway funding to 22%-24% of the transport budget; Joyce reversed this, upping the budget to 33%-34% of the total. 

Problems emerge

It was in National’s first term that problems began to emerge with NZTA’s regulatory function. LTNZ, as a standalone regulator, had managed to make inroads into the road toll, cutting road deaths by close to 15%, and deaths per capita by almost 20%.

NZTA had some success in this area too, and the road toll continued to fall when the Agency was created, but sources have said it was obvious that road safety, and the Agency’s role as regulator was no longer central to its organisation.

In 2011, the first complaints were laid against Dargaville Diesel Specialists, the WoF issuer that passed the vehicle which killed William Ball. Repeated complaints were laid until DDS was finally stripped of its right to issue warrants in 2018. 

Other Issues

There were other issues at the Agency too. A 2017 survey of NZTA employees obtained by Newsroom found a “relatively low” perception of the organisation, particularly on issues of communication, culture and leadership. Ironically, the senior leadership team rated itself “significantly higher” than the rest of the organisation. Even more alarmingly, the survey identified the agency needed to do better for employees to feel “safe to speak the truth,” and address a bullying culture. 

When NZTA came clean, it said it had taken an “education” rather than “enforcement” approach to regulatory compliance, but this now appears generous. The multitudes of WoF issuers struck off since the scandal broke have been for problems as diverse as passing vehicles with rust, damaged fuel lines and poor seat belts. 

NZTA noted that several issuers had been passing a suspicious number of vehicles with just one vehicle inspector, implying that vehicles were passed by people who were unqualified, or the vehicles were not inspected properly.

It was fairly obvious that the problem was not education, but enforcement. Less than a year later, action has been taken against 40 certifiers, with tens of thousands of vehicles affected. 

The issue appears not to have been high on NZTA’s agenda, until Mr Twyford appointed Michael Stiassny Chair of NZTA Board in April 2018.

The insolvency specialist was known as one of New Zealand’s premier corporate undertakers, and had already enjoyed a slew of high-profile board appointments.

He had a reputation for being disruptive, bolshy and difficult — but capable of turning organisations around. 

Limited Focus

It is unclear why Mr Twyford, a Minister already with a lot on his plate, appointed a man of Stiassny’s disruptive reputation to the board. Board minutes before Stiassny’s arrival show a limited focus on regulatory compliance. 

Sources say that the issue had been raised at the agency before Stiassny was appointed, but only at low level. Stiassny himself later said that he happened upon the issue whilst reading Board papers. 

“I was supplied with papers to read, to get to know the business and among these papers were significant papers around regulatory compliance matters,” Stiassny told a Parliamentary select committee last year. 

On October 5, then-NZTA boss Fergus Gammie formally notified the Board of the regulatory compliance failure, and law firm Meredith Connell was engaged to look through open compliance files.

At the same meeting, the Board was told the Agency was looking into problems regarding conflicts of interest in vehicle imports. Vehicle importers had already been flouting lax rules intended to manage conflicts of interest that could occur when a certifier was tasked with inspecting an imported vehicle owned by another part of the same company. 

The current rules stipulated conflicts had to be declared and managed, but when a large importer revealed it had previously hidden the fact it was certifying its own cars, NZTA took no punitive action and continued to look the other way.

Conflict of Interest scandal

In the interim, Newsroom published a story on the conflict of interest scandal, paving the way for the rule changes to be formally announced shortly after. The board, apparently driven by Stiassny, wanted to change the rules to outlaw conflicts of interest altogether.  They initially wanted to have new rules published and consulted on before the end of the year, an unusually brief period of time. Finally, they responded to an appeal from the firm at the centre of the importing scandal to extend the consolation period for a year.

In November, the cost of the scandal was laid bare when NZTA conceded William Ball had been killed as a result of a vehicle that should never have been on the roads. His seatbelt, which had passed a WoF just months before, was dangerously frayed and failed to protect him in a car accident. 

Growing tensions

Behind the scenes, tension between Gammie and Stiassny over the regulatory compliance scandal was reaching breaking point. Stiassny brought a “tumultuous” style to the agency. He was known to jump into email chains and text senior leadership – mudding the distinction between the managerial roles undertaken by the board, and its oversight functions. On December 10, Gammie resigned. A new chief executive has yet to be appointed. 

The money…

While NZTA soul searched for its long-lost regulatory function, the side that had traditionally performed well,  spending money on roads, had begun to get lost as well. 

In April, the coalition Transport Ministers put out their draft Government Policy Statement on Transport. The document guides how the money raised by fuel taxes and road user charges is spent. Being a new Government, the GPS was somewhat different to what had come before.

It brought in the concept of “mode neutrality” meaning it would be agnostic towards road, rail, and public transport and look at the transport system as a linked-up whole.

It also prioritised road safety, but encouraged the retrofitting of existing roads with safety enhancements. Put simply, big new highways were bumped down the pecking order, while public transport, rail, and retrofitting old roads were bumped up. 

NZTA’s role as one of, if not the, leading infrastructure provider in New Zealand is often forgotten. The Agency can spend up to $3 billion a year on infrastructure investment.

By comparison, all of New Zealand’s local councils together spent just $5 billion on infrastructure last year.

This rippling effect

NZTA alone spends almost a third as much money on capital projects as the entire rest of central Government, which has pledged to spend $42 billion over the next five years, roughly $8.4 billion each year. When spending from NZTA starts to dry up, the rest of the country can feel it.

The rest of government, and particularly local government, has gotten used to NZTA building “leading” infrastructure. The Agency will invest in a road, creating new demand in an area, and the rest of government, including local government, will then build around the project. In these projects NZTA comes first. Problems arise when these projects don’t go ahead. The Melling interchange, north of Wellington, is one such example, with the Hutt City Council planning to leverage a new roading project into other new urban developments that would eventually open up the focus of Hutt City to the Hutt River. 

With the Project now canned for at least the next decade the council is left with the unenviable choice of jumping the gun, and building for a project that may never exist, or torn up in 10 years anyway. This story is repeated up and down the county, causing no end of frustration for cash-strapped councils which have already poured money into planning for developments that may never arrive. 

Adapting to changes

Meanwhile, NZTA is understandably taking its time to adjust to a new way of working. It’s having to upskill in areas like light rail, and change thinking about the merits of densification. These projects may be valid, but the substantial stand-down period between winding down pet projects of the previous government and breaking ground on the new Government’s priorities has many frustrated. But defenders argue that this happened in the first three years of the last government too. 

Change takes time, but once NZTA hits its stride, projects like Auckland and Wellington’s light rail will be much easier to fulfil. The lag, however, is problematic and fits a whole-of-Government pattern for not being able to get money out the door fast enough. The issue has serious downstream consequences as it means an economy crying out for stimulus isn’t getting the investment cash it craves. 

In April, Stiassny exited NZTA having served just one year of a three-year contract. He has not responded to repeated requests for an in-person interview since his departure. Stiassny said he’d managed to achieve what he set out to do, but other sources have said the circumstances around the departure were more complex. Just a few months earlier, Stiassny had appeared before a Parliamentary committee expecting further exits and more turmoil. 

“I would think it is more than likely that a number of people will decide to leave,” Stiassny said, predicting more of the senior leadership team would depart.

True to form, Martin McMullan, a senior manager understood to be close to Gammie, resigned in March when it was found he failed to disclose serious conflicts of interest.

The way forward

The Agency is keen to consolidate and move.

Its new Chair, Sir Brian Roche, is experienced, having chaired the organisation before. It appears from Roche’s appointment that whatever Twyford wanted to achieve with Stiassny, he is quite content not to have it happen again.

Insiders say things are finally calming down, although they wait expectantly for what will likely be a damning review of the regulatory compliance failures.

While no one has the time or patience to mount any radical change like, say, stripping the regulatory function out of NZTA, it remains to be seen whether the agency continues to pay attention to the issue with Stiassny gone.

Also unclear is how successful NZTA will be at embracing the shift to mode neutrality and whether it will be able to spend infrastructure money as fast as the country needs. Here, it finds itself in an awkward position, sandwiched between councils like Auckland and Wellington, who are keen to jump on board the public transport revolution, and those like Tauranga, who drag their feet. 

Those Councils also have a choice to make whether to embrace the new way of doing things and plan accordingly, or bank on things returning to the status quo after a change of government, which may not be that far away.

Despite the best of bureaucratic intentions, when it comes to transport, the meddling fingers of electoral democracy are really never far way. 

Thomas Coughlan is a Reporter at Newsroom based in Wellington reporting on Policy and Economics. The above article, which appeared on Newsroom website has been reproduced under a Special Arrangement.

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