Let's Get Wellington Moving artist impression of light rail outside the main Wellington train station in central Wellington. Photo / LGWM
Transport officials discussing the funding of light rail projects floated using funding mechanisms like green bonds, or revenue from the emissions trading scheme to cover their costs, correspondence reveals.
The paper also shows one transport official warning petrol taxes will need to go up to cover the cost of these projects - only for another official to request that warning be scrubbed from the final Cabinet paper because fuel taxes were set to go up anyway, although not before the next election.
As it happens, both comments are possibly redundant as officials are currently looking at ways of replacing the fuel tax and road user charge revenue system as it comes under increasing strain as costs rise and fewer people drive.
The correspondence was in relation to Wellington's Mass Rapid Transit, but as the Herald has previously revealed, the Government is now doing work on funding methods for all its large scale projects.
It was released under the Official Information Act between Transport Officials putting together a Cabinet Paper on Wellington's Let's Get Wellington Moving transport package.
The centrepiece of the $7.4 billion programme is a Mass Rapid Transit scheme, revealed earlier this year to be light rail between the railway station and Island Bay.
The catch is that the original 2019 Cabinet Paper on Let's Get Wellington Moving did not work out a funding model for the mass rapid transit project, leaving that for later.
Officials drawing up the Cabinet Paper for moving forward with a rapid transit option had to consider how it would be paid for.
In May, officials set out a checklist of ideas and concerns to address in the future Cabinet paper. One, was whether it was necessary to reconfirm the 60-40 split of who would be paying for the programme - 40 per cent was to be paid by the Wellington City and Regional Councils and the Crown would cover the rest.
Another noted there were "feasibility risks" to the urban development parts of the Let's Get Wellington Moving Programme, which seeks to pave the way for more dense housing along the light rail corridor.
In another email, a Ministry of Transport official laid out their views on things the paper might need to address.
The first was that costs were too high for councils to fund mass rapid transit on their own, and that Cabinet should support councils to fund these projects by enabling value capture - which is when councils were able to earn revenue from the increased values of property along key infrastructure corridors.
The paper also suggested reasons why the Crown, and not councils, should carry a significant part of the cost burden of these projects.
The first is that urban development is a significant "national" and "non-transport" benefit of rapid transit. The paper suggested the funding should reflect that this benefit would accrue to central government rather than local government.
Another national benefit to the project is emissions reduction as more people give up driving and take public transport. Again, because emissions reduction is mainly the responsibility of central government, the official suggested that central government should pay for it.
In light of rapid transit's role in emissions reduction, the email suggested funding arrangements like "green bonds", which are the Government issuing bonds tagged to "green" investment, or investing revenue from the Emissions Trading Scheme.
The Government has decided to hypothecate all Emissions Trading Scheme revenue into climate change response policies.
The paper noted Waka Kotahi-NZTA could not fund its contribution to rapid transit using fuel taxes and road user charges - its existing funding tools.
The 2019 Let's Get Wellington Moving Paper acknowledged these taxes would go up in future, in line with inflation, although the Government has committed to not increasing them this term, beyond resetting them to their levels before the emergency 25c cut earlier this year.
The same paper suggested the National Land Transport Fund could be used to make payments to whatever mechanism was used to fund rapid transit. Paper suggested the costs of rapid transit be spread over a 50-year timeframe.
"Financing repayments could be made from the NLTF but the fund is under pressure," the official warned, noting increases in both fuel tax and road user charges would be needed to fund payments.
Another official responded with feedback to those proposals.
The feedback pushed back significantly on the idea that the Crown should wear more of the cost.
They disputed the idea that councils could not fund a significant portion of rapid transit themselves, noting they "haven't seen evidence to prove this yet".
They also said that alternative tools like infrastructure financing could be used to help them.
The official also disputed the idea the Crown should wear greater cost because it enjoyed the benefits of light rail.
"[T]he direction of travel is for a beneficiary pays model, which does not presume that the Crown should fund a significant portion of the costs," the official said.
The official suggested different wording, which stressed the risks to the Crown rather than the benefits.
"[T]here is a significant risk that the Crown may have to fund a large proportion of the costs if local authorities or alternative funding tools such as value capture and IFF [Infrastructure Funding and Financing] are not used," they said.
The official also suggested removing entirely the idea that fuel taxes would need to rise to fund the cost of these projects.
"[T]here's very few worlds where FED and RUC don't need to increase," the official said.
Treasury officials weighed in with their own advice.
They said that questions over funding and revenue would be resolved elsewhere, including two pieces of policy work: one on transport revenue and the other on the funding of "Mega Projects".
The Government has commissioned a "Revenue Review" to look at options for replacing fuel tax and road user charges, the current way most transport projects are funded.
Findings are due next year. One of the early results of the review is a separate work programme on "Mega Projects", led by Treasury.
In the context of these projects, the reviews could look at things like congestion pricing and value capture and the way the revenue from those tools is split between local government and central government to fund large projects.
This work programme will look at how large-scale projects like rapid transit in Auckland, Wellington and Christchurch and the future tunnel under the Waitematā harbour, will be funded.