How best to invest in infrastructure!

Public transport is a key infrastructure requirement for Redland City

Public transport is a key infrastructure requirement for Redland City

The community spends an awful lot of money on infrastructure. But does it get spent wisely? And what could we do to ensure that we get better value for taxpayers and ratepayers.

Infrastructure is normally defined as facilities, shared by a community, that are necessary preconditions for economic activity.

Commonly there are three forms of infrastructure:

  • “hard” or “economic” infrastructure such as roads and ports – mostly entrenching consumption of fossil fuels;
  • “soft” infrastructure such as scientific research, information systems and education;
  • “green” infrastructure such as stocks of the natural resources on which all economic activity ultimately depends.

Soft and green infrastructure are important too

Public debate commonly uses the term to refer just to the “hard” infrastructure of roads and railways, ports and airports, pipes, poles and wires. However economic activity also requires “soft infrastructure – social institutions such as research, education, libraries, governance, human capital; and “green infrastructure – reliable sources of natural resources such as fuel, minerals, food, oxygen and water.

Why is it then that governments consistently confine the term “infrastructure” to concrete forms – roads and ports and wires – and ignore the contribution of the soft and green forms?  Almost all public commentary tends to confine the term to hard infrastructure.  Perhaps because by building things politicians can point to tangible results for public expenditures.

But where should scarce public funding be allocated?

Benefit-cost ratio

Benefit-cost ratio (BCR) is often used to help justify transport infrastructure projects. If BCR is greater than 1.0 it is claimed that the project creates economic value.  But if the policy makers only consider hard infrastructure options, does the best value for money follow?

Examples of BCR for hard infrastructure projects are:

  • the benefits of upgrading the Pacific Highway from Newcastle to the Queensland border; where the benefits are estimated to outweigh costs (benefit-cost ratio BCR) by a factor of 1.2 or BCR 1.2  Cost – $5.6 billion.
  • the benefit-cost of the failed Airport Link Tunnel – estimated in 2006 at just 1.1 even using traffic projections. The final BCR was more like 0.35, making the expected benefit wrong by a factor of more than three.
  • Brisbane Gateway Motorway upgrade $1 bn – BCR 4.9
  • West Connex Sydney $1.5 bn – BCR 1.5
  • East West Link in Melbourne – $3 bn – BCR nudged up to 1.4 but later revealed to be only 0.45

Some examples of soft infrastructure and the BCR estimated to flow from the investment dollar:

  • The Productivity Commission reviewed >100 case studies of publicly funded research and development grants (2007) – average BCR 40 (that is $1 spent on research returns $40 in benefit to the public).
  • SGS Economics estimate of value of health libraries (2014) noting the time saved by medical practitioners hunting down latest research – BCR 9.
  • Queensland Dept NRM (2005) found coordinated land mapping had BCR at least 50, up to 150 (avoids developing unsuitable land and saves developers the costs of project-by-project environmental assessment).

Rationale for a fresh vision of infrastructure

Isn’t it time to expand contemporary public debate about the need for new public infrastructure.  Issues of concern include:

  • the need for a transparent process, independent of political campaigns, by which project proposals are conceived, aligned with planning objectives and assessed transparently;
  • the need to include sustainability and energy security considerations in benefit-cost analyses for infrastructure projects;
  • the need to evaluate competing demands on public funds objectively so that the broader foundations of economic activity – infrastructure defined broadly – are adequately resourced.

Opportunity costs

Opportunity costs are the loss of other alternatives when one alternative is chosen. For example:

  • 1% of the cost of the proposed Brisbane Cross River Tunnel would allow the Government to engage 400 scientists, to improve policy in mining, energy, health and environment – and low-carbon transport;
  • A life-changing week-long science camp for every Year 12 student (49,000) in Queensland could be funded by delaying the tunnel by one week.
Infrastructure investment

An example of “hard” infrastructure is the Langlands Park busway station. Photo by Reubot

The proposed Eastern Busway would benefit Redlands residents, but we need to see the BCR and understand the opportunity costs involved.

Taxpayers and communities understand that public funding is limited and we all want to see the best value for money!

What it means to Redlands?

Provision of infrastructure for major urban developments like Toondah Harbour PDA, Weinam Creek PDA and the proposed Shoreline township involve significant public expenditure.  There is a need for the obvious forms of hard infrastructure like roads, water and sewerage, electricity and tele-communications.   But there will also need to be hospitals, schools, ambulance, police and fire stations, libraries etc.  to support these projects.  The developer meets only a small proportion of the  hard infrastructure costs and not much of the soft infrastructure costs.

As taxpayers and ratepayers are required to meet a significant proportion of the cost of urban infrastructure, the community should be allowed to understand the BCR of proposed investments.  This would inform Councillors and the community of not only the BCR but allow an examination of the opportunity costs.

To date, these investments are based on a range of social and community policy decisions yet the dollar amounts are largely hidden from both the taxpayer and the ratepayer.  Governments have challenged long established mechanisms for investment in health, education and even industry assistance in recent years. So why not examine the investment in residential infrastructure?  Economic rationalists should insist the same rules apply by asking our political leaders, at all levels:

  • What are the opportunity costs for investment in residential infrastructure?
  • What else could the community usefully spend its money on?
  • Is public investment in infrastructure for urban development the best use of the public’s money?

In the case of major urban development projects being fostered by the Redland City Council, why doesn’t Council publish its assessment of an economically rational approach including a BCR, before it commits ratepayers funds to these massive and very expensive projects?

Council’s Assessment should clarify:

  1. Which urban developments Council should invest in? and
  2. What alternative investments should Council consider?  (for example accelerating or improving broadband in the City).

Where to next?

A starting point for how to answer these questions is the Infrastructure Symposium being conducted by  Engineers Australia (Qld) and The Royal Society (Qld). The Infrastructure Symposium is being held at QUT (see flier) on 24 June 2015.

 

Opinion: Redlands2030 – 6 June 2015

Please note: Offensive or off-topic comments will be deleted. If offended by any published comment please email thereporter@redlands2030.net

8 thoughts on “How best to invest in infrastructure!

  1. how is that we now pay more rates and have a more “professional” Council and we get less infrastructure and less parks and less local economic opportunity. This Council seems to think the ONLY way to get infratructure is to go through a shonky process of side blocking the community interests and chucking up totally inappraportiate development in the wrong places. And then holding up its hands and saying, well nothing is going to happen unless the private sector does it. I remember when one of Council’s main jobs was building infrastructure. Now it appears to be in paying Councillors and consultants to tell us it’s all a bit grim

  2. All major projects are based on any number of un-verifiable assumptions – one of the least reliable being projected cost/schedule time. Which then of course throws out the BCR considerably. However, as Len quite rightly points out below, we have let the economic rationalists run riot at the expense of significant nation building opportunities. It is vision, not strategic plans (more often than not done by consultants SWOT analysis and corporate templates) that will sustain our communities. Just ask retired QG planners about the impotency of the Beattie & Bligh governments in the area of regional planning and implementation over more than 20 years.

  3. A proper BCR of the day probably did accompany the bridges.

    What happens nowadays is some idea gets a head of steam …too often these are no more than hyped-up examples of the “edifice complex”.

    Hold the hype and do the sums on things like Toondah Harbour, Weinam Creek and even Shoreline..is that too much to ask of those “rationalists” advocating we build a future rather than plan a future

    Remember Wyaralong Dam, desalination plants, Olympic stadiums, dam (always a good one remember the Ord) and those failed tunnels like the Clem7.

    We need governments who have vision and can plan for the long term. They also need to hold off simple solutions to complex problems and work through the issues.

  4. I wonder what the BCR for the Sydney Harbour Bridge, the Storey Bridge would have been. Infrastructure like the BAT and the Eastern Busway would be serving the community for decades and the benefit immeasurable.

    The trains could, in the future, be using electricity from renewal sources and the buses, as they run on a dedicated busway, be also electrically powered.

    We need governments who have a vision and can plan long-term for the benifit of the community as a whole, not ones who pander to particular interest groups.

  5. The argument outlined in the article above ought to be advocated to the Queensland Government. Today’s Sunday Mail heaps scorn upon the Queensland Government for failing to embark on some transport mega-projects, with the federal government weighing in with some bully tactics. The Queensland Government ought to be given support from the community as well as the planning and engineering professions to take a more measured and strategically planned approach to building the kinds of infrastructure that are really in the public interest.

    Whose interests are the federal government and News Ltd advancing? This turning of what ought to be a serious and reasoned debate into an occasion for driving partisan wedges in the community is a recent and highly regressive feature of Australia’s public discourse. There is a challenge here that goes way beyond Redlands.

  6. Well, that is sure a refreshing new way to look at “infrastructure”. And some interesting questions for Redlands Council to consider. Let’s hope that Council considers the questions posed and attendance at the Symposium.

    • Fred ongoing development needs things more than roads and bridges, more parks and playground equipment in areas of high density and new development. In the southern suburbs there are thousands of people, many children keen to play sport but there are no new playing fields to suit, footie, cricket etc. Schools, due to large increase in numbers have needed more buildings which have been built on their ovals so community cant access that open space, which was once used in the past. Community halls and walking and cycling paths all need to be built for families, more bus shelters
      More people will need better public transport, more wards in hospitals, more primary and high schools, and areas set aside for employment, residential land should not be the only opportunity for developers , whilst it might be quick bucks, fast turnover and great profit there is a real need for industrial land. Whilst it was very proactive to build the Industrial estate on German Church Road, there needs to be areas set aside in other parts of the city also. Maybe the exisiing land in South Street Thornlands and Smith Street Capalaba could increase their density and height to accommodate a variety of commercial uses.

      • Yes, Toni

        The relative need for these different forms of infrastructure can be evaluated according to economic criteria (quantitative, notably benefit cost analysis) or land use planning criteria (qualitative, multidisciplinary).

        Distortions happen when glamorous transport media-projects are assessed according to benefit cost, ignoring strategic transport planning, but proposals for other forms of infrastructure such as parks and environmental reserves are evaluated according to land-use criteria but are ignored because no economic benefit is seen to be attached.

        Under-supply of industrial land will happen if the Council is unwilling to withstand pressure from developers to rezone land to the most profitable use, which is usually residential. The planning scheme needs to evaluate the need for different forms of development honestly and consultatively; then the local government must stick to it.

        It is in the public interest to have a strong planning scheme. Planning schemes are portrayed by the media and governments and the development industry as a burden or restriction on private property rights, but in fact they secure private property rights – against those who would benefit at the expense of other landholders.

        The economic benefit of town planning is usually downplayed in the media. A strong planning scheme is ultimately to the economic benefit of the entire community, even if it trims the sails of some individual developers.

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