C. ECONOMIC CRITERIA
I. COST/BENEFIT ANALYSIS
With disarming simplicity the Joint Study Report
announces the economic objective (1):
Before considering that technique it is important
to understand the role of economic appraisal in a
road inquiry. In everyday life we are constantly
confronted by alternatives. We are concerned to
know whether we are getting value for money. We
are concerned to know whether there are better ways
of solving our problems. So it is with commercial
enterprise. The entrepreneur seeks to provide the
public with goods and services at minimum cost to
himself. He seeks to ensure that he will profit,
having met the costs of producing the goods and
services. More than this, he seeks to ensure that
his profit will be maximised having regard to the
amount invested.
He chooses between alternative investments by
selecting that which yields the greatest return.
Private investment is ruthlessly judged by cash flow.
If the entrepreneur has misjudged consumer preference,
so that people do not want his goods or services, his
investment fails.
In the public sphere there is no such measure. The
provision of a service will in many cases not be
accompanied by a cash flow (for instance education,
social services, the provision of roads). Even
where there is a cash flow (such as in railways)
it may or may not be designed to recoup the invest-
ment made. The performance of the service, therefore,
cannot be judged in terms of cash. Yet obviously
public investments (as with private investments)
can be good or bad or simply worse than they might
have been. How can this be judged? Cost/benefit
analysis seeks to provide the answer. Professor
M.E. Beesley, consultant to the Inquiry, makes the
following remark (3):
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The costs measured are:-
1.4.1 The Costs Must be Accurate
1.4.2 Value of Property Already Acquired
The Commonwealth Bureau of Roads (as it was then) expressed
the principle in these words:- (6)
The same paper then specifically applied the
principle to parklands (7):
The recurring maintenance costs must be estimated
over the life of the road and included in the cost/
benefit analysis. Maintenance includes the up-keep
of the road surface as well as landscaping, lighting
and the like.
What does a motorist seek from a road? He seeks to
complete his journey in the minimum time at minimum
cost with as little risk to himself and his vehicles
as is humanly possible. The cost will depend upon
the type of vehicle being driven and such things as
petrol, oil, tyres, vehicle maintenance and so on.
The cost will vary depending upon the speed of the
vehicle. Vehicles consume more petrol when starting
off than when cruising as illustrated by the following
table:- (10)
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1.6 The Benefit of Time Savings
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It is said by some that this is manifestly absurd.
There ought to be a threshold below which time savings
are discarded as useless. The threshold can either be
the level at which people perceive a saving, or the
level at which a parcel of time is saved which can
be used for some other activity.
"Respondents (to the survey) thus would
value any transport improvement which
saved them at least 6-10 minutes (for
work trips).”
The same survey dealt with non-work trips and the result
was:-
"Transportation improvements would need
to reduce the time for these by at least
10-20 minutes to be valued by the
community."
Consultants to the Traffic Authority of New South Wales
(Stapleton Transportation Planning Pty. Limited) made a
similar observation in a slightly different context.
They were considering the possibility of raising vehicle
occupancy by providing inducements in the form of transit
lanes and other time-saving benefits. They observed:- (14)
occupancy vehicles. Travel-time savings
greater than ten minutes generally do
bring about shifts in mode, and the
greater the savings are, the greater the
shift will be. "
The arguments do appear compelling. What is said in
opposition? First, there is no doubt that people do
value their time. We have all witnessed people risking
their lives (for instance jumping onto a moving train
rather than waiting for the next) to save a few minutes.
Drivers have an uncanny knack of selecting the path
which saves them the most time, even though time
differences may not be great. Though the time savings
may be small they may be added to the travellers' usable
surplus of time to form 'usable lumps'. (15)
towards large-scale inter-urban route
improvements. More perversely, the
benefits of improving a long route in
one scheme would exceed those of improving
it in small stages over a period of time.”
Professor Beesley, thought it ‘defensible..both
pragmatically and in terms of principle' to include
small time savings (18).
The State Transport Study Group in previous work
excluded time savings less than five minutes or less than
10% of the journey time (19). In work undertaken for
the Inquiry it reversed its stand. All time savings were
included.
There is a crude procedure available (20) for dissecting the
time savings used for the cost/benefit analysis. This
was done (21) for the Cooks River and South Western
options. In each case, for both truck and non-truck
categories, the overwhelming majority of savings rwere less
than five minutes, and indeed less than two minutes.
As people grow richer they place less value on additional
money and more value on additional time. In the jargon
of economics ‘the marginal utility of money decreases
and, relatively, the marginal utility of time increases'(26).
Yet, if time is given a different value for a
'high income car commuter' from that given to a low paid
manual worker, facilities which aid the poor would be
less likely to achieve a worthwhile cost/benefit ratio
than facilities which advantage the rich. For reasons
of equity it seems to the Inquiry quite proper that
one value is used for rich and poor alike.
But are the values chosen by the Bureau of Transport
Economics appropriate? Is it appropriate in the
case of commercial vehicles and trucks to choose
something approximating the average wage rate?
Again the subject is one which lends itself to surveys.
The Stanford Research Institute in the United States
carried out one such survey (27). They found that
drivers with average salaries valued their time at only
6% of their hourly salary when they could save only two
or three minutes by using a toll road instead of a free
one. Where time savings were thirty minutes time was
valued at fully 30% of the hourly salary.
Quite apart from the value to be attached to various
classes of accidents, there are two other issues.
First, to what extent is it, appropriate to take an
average rate per vehicle kilometre? Secondly, what
evidence is there that road improvements are responsible
for reductions in the rate of accidents per vehicle
mile?
Commenting on that result in a report to the Department
of Main Roads the State Transport Study Group said:- (29)
They went on:- (30)
The construction of a road is not a short process. In
the present case it is assumed that the construction of
the Cooks River option or the South Western option would
each take seven years. In the nature of things,
therefore, it is necessary, when calculating costs and
benefits, to predict what the traffic would be like if
nothing were done (the base case) and what the traffic
would be like if the road were built, and to contrast
the two in terms of the costs and benefits described.
The traffic model which has been described elsewhere in
this Report is used for this purpose. Cost/benefit
analysis, therefore, is infected by the shortcomings of
The September, 1979 De Leuw Cather study (which became
part of the Department of Main Roads submission) took
a middle course. The STSG factors of 5.5 and 8.5 were
too high. Benefits are obtained at a lower rate during
the off-peak periods since there is less congestion and
fewer delays. By an elaborate and plausible path the
consultants concluded that the appropriate figures
were:-
What figures should be used to expand the daily benefits
to annual benefits? A range of figures have been adopted
by various studies:- (33)
Roads, forming part of the submission made by the
Department, (34) the annual expansion figure of three
hundred is used.
In a later document (September, 1979) prepared by
consultants to the Department (De Leuw Cather of
Australia Pty. Limited) and also forming part of the
Department’s submission, a hybrid approach was adopted.
The figures used were:-
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they are completed. Maintenance charges, therefore
also begin when use is made of the facility.
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Having selected the appropriate discount rate, it is
possible to compare the benefits, as discounted, with
the costs. That comparison can be expressed in a number
of ways:-
The benefit/cost ratio (BC) is calculated in the
following way:-
NPV = total discounted benefits – total discounted costs
The internal rate of return (the IRR) is defined as
‘the rate of return or discount rate which makes the
investment in question marginal' (43). In other words,
the commonly used discount rate of 10% may produce a
cost/benefit ratio of say 1.39 (which is in fact the cost/
benefit ratio of the Cooks River option according to
one calculation) (44). What discount rate would have to
be used to reduce the benefit/cost ratio to 1.0 (at which
point the project would be marginal)? When the calculation
is made, the figure is 17%. That is the internal rate of
return.
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Certainly it can be appreciated from the discussion of
each of the costs and benefits that reasonable people
may reasonably differ as to what is to be included and what
is to be excluded. It is disquieting to some that a
judgement on the economic efficiency of a project will
depend upon (to borrow a phrase from the law) 'the
length of the (planner's) foot'.
Later in the same report the following is said:- (49)
"The technique used for the best estimate
employed multiple path assignment procedures.
The benefit/cost analysis can vary
considerably depending on which path
selection technique is used."
The technical difficulty of assignment mirrors the
complexity of trying to predict what will happen if a
new road is added to a complex urban road network:- (49)
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Professor W.R. Blunden put the matter in this way:- (50)
Secondly, it is suggested that time savings simply cause
people to travel further (51). This is the concept of
a 'time budget’ which is also examined elsewhere in this
Report.
It is suggested that the analysis gives the impression
that everyone is tearing around at break-neck speed,
trying to save a minute here and a minute there; that
the inefficiency of the transport system is, relatively,
of great importance and is holding the economy back.
But is this so?
Efforts have been made to introduce a system in which
these matters are taken into account. A weighting
scale is developed for each item based upon surveys of
community preference. However, the results have been
unconvincing. They have been discarded as unsatisfactory
in the United Kingdom (the Leitch Committee) and in
Australia by the Sydney Area Transportation Study (55).
Quite apart from the assumptions underlying the
model, there are certain assumptions made by the cost/
benefit analysis technique which are challenged.
2.6 It is Inappropriate to Concentrate on Travel Speed
The South-Western Freeway, for instance, is cheek-
by-jowl with the East Hills railway line. The
effect of one upon the other was not investigated.
It should have been. The effect does not find its
way into the cost/benefit analysis even though some
of the benefits derived by the South-Western Freeway
may be at the expense of the railway (59).
2.8 Cost/Benefit Analysis is Inherently Conservative and
Favours Existing Modes
The objection is saying little more than it is
difficult to predict the future (though to say that
is to say a great deal). We cannot know what
technological advances will be made in the time the
road is being contemplated and then constructed
(perhaps 10 to 15 years). The road postulates that
motor vehicles will still be relevant at the end of
that construction period. To that extent technologically
it is conservative because that may or may not be so.
2.11 The Cost/Benefit Analysis Hides the Issue of Equity;
Who Gains and Who Loses
This Inquiry entirely agrees with that principle.
Cost/benefit analysis, if it is to be employed, must
be made comprehensible to the public so that the public
may address the issue. The mathematics and the computer
techniques are no doubt beyond the comprehension of
many. What is included, what is excluded, and the
assumptions which are made, are all capable of being
understood. They should be specified.
To admit that cost/benefit analysis has limitations, even
major limitations, is not to concede that it should be
disregarded. One must be careful not to throw out
the baby with the bath water. If it provides an insight,
however dim, into economic efficiency, in the absence
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What, then, are the merits of cost/benefit analysis?
The paper of Professor Beesley furnishes an eloquent
defence.
Now the popularity of a new road amongst motorists will
depend upon its location and orientation in relation to
the countless journeys made each day throughout the
One alternative suggested, was the related concept of
cost effectiveness (64). The concept is best explained
by illustration. A graph is reproduced below:-
Source: G.E. Herbert "Project Evaluation - The
State of the Art" September, 1979, page 18.
The Department of Main Roads in its submission makes
the following statement:- (65)
The Inquiry agrees. Economic efficiency is important.
The comparison between efficiency of different options
must be gauged. Cost/benefit analysis does have a
role to play in providing the measure. The matter
is put in the following way by professor Beesley:- (66)
"..For future inquiries..a commitment to
some form of (cost/benefit analysis) is
inevitable..Of all techniques of evaluation
it comes, warts and all, closest to
fulfilling the need to compare and weigh by
reference to external evidence. If not done
explicitly, the choice process will perform
a cost/benefit analysis of some sort
implicitly. Better to be explicit, and thus
recognise its limitations. And, as a
standard part of the analytical equipment to
evaluate roads, it can hardly be ignored anyway."
Unfortunately a number of problems were encountered in
the presentation of cost/benefit analyses to the Inquiry.
We shall not dwell on them because they are dealt with
elsewhere in this Report (67).
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We began this exposition by making an obvious (but
important) statement that it is fundamental that the
costs should be accurate.
We do not have a description of the road which was
proposed. It would appear that a six-lane freeway
standard road was contemplated (72).
"A six-lane expressway from Tancred Avenue
Kyeemagh to Hume Highway, Chullora."
Even if no ancillary works were included in the
original estimate of $32.8 million the contrast is
startling. Within the space of one year (February, 1976
to February, 1977) or perhaps eighteen months, the
estimated cost of the route almost doubled - $32.8 million
to $62 million.
If the ancillary works were included in the original
estimate (and it seems difficult to imagine they were not)
the contrast is between $32.8 million and $73 million. (78)
It is instructive to examine the cost estimates given from
time to time in respect to the widening of Canterbury
Road.
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intersections, without widening the road itself, was
estimated to cost approximately $4 or $5 million.
4.5 The Value of Businesses Affected
In respect of one unprepossessing factory in the South
Western Corridor the Department of Main Roads Study
Team estimated the cost of acquisition at $50,000 (87).
For the same property the Planning and Environment
Commission provided an estimate of $260,000.
Approximately eighteen months separates the estimates.
Making an adjustment for this period the discrepancy
remains substantial.
It appears that the valuers from the Department of
Main Roads estimated the property acquisition costs in
respect of the Cooks River Option in February, 19789 (88).
The method employed in valuing properties in the South
Western Corridor and for the Bexley Road Options is
described in the following passage:- (88)
Looking at the confidential valuations it is plain
that they are understated. We are reinforced in that
view by the value attributed to 'typical’ properties
some eighteen months later by the valuers from the
Planning and Environment Commission (89).
of open space and 14 ha. of public
recreation space. The DMR has made
provision in its financial estimates,
for replacing this land...by acquisition,
but there is no firm policy yet on this
matter. In the absence of such a policy,
and without knowing where the replacement
land would be..it is not possible to
evaluate the matter.” (93)
The construction costs do not pretend to be other than
preliminary estimates. The Department of Main Roads has
yet to undertake investigation into the suitability of
the material which will form the road base. Bore holes
will be sunk. Where the material is unsuitable it must
be scooped out and replaced by material capable of
carrying the weight of the road structure and the traffic
which will use it.
The design loadings for a commercial building (even
a single storey building such as the Southside Plaza)
are obviously greater than for a flat structure such as
a road.
As the DMR have not yet carried out any
surface testing for the road options it
is possible that when the final designs
are carried out the final construction
estimates may increase significantly
over the present estimates.”
There are two other matters which should be mentioned.
First, the cost/benefit analysis is calculated at
one point in time. It presupposes that each of the
elements (whether costs or benefits) inflate at the
same rate. It is difficult to know what the effect of
inflation will be upon the various estimates which were
provlded in ‘1978/79 dollars'. There is the suggestion
that construction costs are running ahead of the consumer
price index (3). It was said that maintenance costs
'has the highest cost rise index' of all (4). The
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escalation of property values is a matter of some
notoriety. The combinations of these factors tends to
suggest that costs are inflating rather faster than
benefits.
However, buried within the formula for calculating
benefits is the price of petrol. If the price of petrol
does outstrip the inflation rate (as people suspect) the
increased benefits may counter-balance the increase in
costs. The Inquiry is not in a position to make a
judgement one way or other.
Accordingly, with the major options (Cooks River Option
and South Western Option) $2 to $3 million would have
to be added to the construction costs.
In the economic analysis within the submission from the
Department of Main Roads the following appears:- (8)
Yet, within the same document it is said that the ‘base
year for discounting was 1979/80’ (9). The costs ought
to have been discounted back to 1978/79. If this were
done the benefit/cost ratios are likely to be less
favourable than they appear.
In calculating the benefits for both the South Western
and Cooks River Options the assumption is made that they
begin to accrue five years before the completion of
construction, and they progressively increase over the
five years (10). Benefits accrue because sections of the
road can be opened to traffic as they are completed. The
cost/benefit analysis, therefore, makes two assumptions:-
The Department of Main Roads thought the South Western
corridor combined the greatest potential growth and the
greatest potential capacity short-fall or deficiency in
the road network. It therefore felt that work in this
corridor was more important than work in the Cooks
River Valley. A number of possibilities were discussed
including:-
The Department of Main Roads (12) carried out the 3
benefit analysis incorporating the 'Picnic Point
Connection' and the works between Fairford Road and King
Georges Road. This was termed 'the extended base’. Now,
the combination of these works yielded a very high benefit/
cost ratio (13) (namely 9.6). That ratio was used as a
spring-board to artificially inflate the benefits for the
South Western Scheme, as it was termed, being a series
of roads between Tempe and Campbelltown. If each of
these works was independent of the other, they should
have been considered one by one. It is first necessary
to choose which is the best of the various possible works.
Having made the choice the issue then becomes whether
one should commit the additional expenditure required for
the next most impressive work. One by one they are
assessed on their own merits. Professor Beesley puts the
matter in this way:- (14)
I. COST/BENEFIT ANALYSIS
1. THE TECHNIQUE OF COST/BENEFIT ANALYSIS
1.1 Introduction
With disarming simplicity the Joint Study Report
announces the economic objective (1):
- Promote economic efficiency and equity
in the provision of transport services.
The criteria suggested by the same report (2)
are as follows:-
are as follows:-
- Economic efficiency as measured by the
benefit/cost ratio, net present worth
and internal rate of return
The suggested criteria are derived from a technique
of economic appraisal known as cost/benefit analysis.
of economic appraisal known as cost/benefit analysis.
Before considering that technique it is important
to understand the role of economic appraisal in a
road inquiry. In everyday life we are constantly
confronted by alternatives. We are concerned to
know whether we are getting value for money. We
are concerned to know whether there are better ways
of solving our problems. So it is with commercial
enterprise. The entrepreneur seeks to provide the
public with goods and services at minimum cost to
himself. He seeks to ensure that he will profit,
having met the costs of producing the goods and
services. More than this, he seeks to ensure that
his profit will be maximised having regard to the
amount invested.
He chooses between alternative investments by
selecting that which yields the greatest return.
1. The
Joint Study Report, page 7.
2. Ibid., page 8.
2. Ibid., page 8.
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Public investment is rooted in the same philosophy.
It seeks to give expression to 'consumer preference'
by spending public money on services which are
wanted or required. It aims at providing these
services at minimum cost. It seeks to maximise
the benefits derived from the service provided,
and to ensure the public gets value for money by
selecting the service yielding the greatest return.
It seeks to give expression to 'consumer preference'
by spending public money on services which are
wanted or required. It aims at providing these
services at minimum cost. It seeks to maximise
the benefits derived from the service provided,
and to ensure the public gets value for money by
selecting the service yielding the greatest return.
Private investment is ruthlessly judged by cash flow.
If the entrepreneur has misjudged consumer preference,
so that people do not want his goods or services, his
investment fails.
In the public sphere there is no such measure. The
provision of a service will in many cases not be
accompanied by a cash flow (for instance education,
social services, the provision of roads). Even
where there is a cash flow (such as in railways)
it may or may not be designed to recoup the invest-
ment made. The performance of the service, therefore,
cannot be judged in terms of cash. Yet obviously
public investments (as with private investments)
can be good or bad or simply worse than they might
have been. How can this be judged? Cost/benefit
analysis seeks to provide the answer. Professor
M.E. Beesley, consultant to the Inquiry, makes the
following remark (3):
"The growth of (cost/benefit
analysis)
in Governmental decision-making is
largely to be explained by dissatisfac-
tion with existing practices. These
have often been implicitly, and on
occasion embarrassingly explicitly,
inconsistent in choice of projects.
They have lacked objective means for
imputing values, have displayed limited
ability to cope with comparisons
involving other uses of Government
funds etc."
in Governmental decision-making is
largely to be explained by dissatisfac-
tion with existing practices. These
have often been implicitly, and on
occasion embarrassingly explicitly,
inconsistent in choice of projects.
They have lacked objective means for
imputing values, have displayed limited
ability to cope with comparisons
involving other uses of Government
funds etc."
3. Annexure 2; "Cost/Benefit Analysis
and the
Kyeemagh/Chullora Road Inquiry”, Professor
M.E. Beesley, paragraph 6. Page 350 of this Report.
Kyeemagh/Chullora Road Inquiry”, Professor
M.E. Beesley, paragraph 6. Page 350 of this Report.
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In the course of this chapter we shall briefly
explain the cost/benefit technique and its
limitations. We will conclude with a commentary upon
its place in a road inquiry and the use made of the
technique in the course of the present Inquiry.
explain the cost/benefit technique and its
limitations. We will conclude with a commentary upon
its place in a road inquiry and the use made of the
technique in the course of the present Inquiry.
1.2 What is Cost/Benefit Analysis?
For any parcel of money there will be a number of
competing uses. What is called for is a rational
means of choosing between alternatives. It is
hardly an answer to simply choose the least costly.
That may yield derisory benefits. Nor is it adequate
to select the scheme with the greatest benefits. They
may be delivered at prohibitive cost. What is
required is a bridge between costs, on the one hand,
and benefits in the other. Cost/benefit analysis
seeks to provide that bridge. It seeks to identify
the scheme with maximum excess of benefits over
costs. It does so by asking the following questions:
competing uses. What is called for is a rational
means of choosing between alternatives. It is
hardly an answer to simply choose the least costly.
That may yield derisory benefits. Nor is it adequate
to select the scheme with the greatest benefits. They
may be delivered at prohibitive cost. What is
required is a bridge between costs, on the one hand,
and benefits in the other. Cost/benefit analysis
seeks to provide that bridge. It seeks to identify
the scheme with maximum excess of benefits over
costs. It does so by asking the following questions:
i) What resources will be used in
delivering the solution (i.e.,
the costs)?ii) What services will be produced
once the solution is implemented
(i.e., the benefits)?iii) When the benefits are compared with
the costs, is there a surplus of
benefits?iv) Is that surplus greater or smaller
than that yielded by other projects
competing for the same money?
1.3 What Benefits and Costs are Included in the Analysis?
The comparison is between monetary costs and
monetary benefits. If either the costs or the
benefits cannot be measured or cannot be valued in
money, they are excluded.
monetary benefits. If either the costs or the
benefits cannot be measured or cannot be valued in
money, they are excluded.
The costs measured are:-
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- the capital costs of the project
(property acquisition and construction);
- the annual road maintenance during the
assumed life of the project.
The benefits measured, which are contrasted with
the costs, are:-
the costs, are:-
- vehicle operating cost savings;
- journey time savings
- accident cost savings
Each of these items will be considered in turn. Costs
and benefits are both expressed according to the dollar
value of a particular financial year. The financial
year 1978-1979 was selected for this Inquiry. Both
costs and benefits are subject to inflation. So long
as they each inflate at the same rate, the result of
the analysis will remain true even though the project
may be postponed.
and benefits are both expressed according to the dollar
value of a particular financial year. The financial
year 1978-1979 was selected for this Inquiry. Both
costs and benefits are subject to inflation. So long
as they each inflate at the same rate, the result of
the analysis will remain true even though the project
may be postponed.
1.4 Property Acquisition and Construction Costs
1.4.1 The Costs Must be Accurate
In the United Kingdom the Leitch Committee (4)
examined
the accuracy of the cost assessment made by the Road
Building Authority (equivalent of the DMR). It
concluded that its cost estimates were satisfactory.
There has been no equivalent examination in New South
Wales. It was not possible, nor appropriate, for the
present Inquiry to embark upon such an examination.
Certain cost material placed before the Inquiry (which
will be examined shortly) gave rise to feelings of
some disquiet. The cost estimates of a project are
the bed-rock upon which the edifice of cost/benefit analysis
is erected. It is important that they should be
accurate.
the accuracy of the cost assessment made by the Road
Building Authority (equivalent of the DMR). It
concluded that its cost estimates were satisfactory.
There has been no equivalent examination in New South
Wales. It was not possible, nor appropriate, for the
present Inquiry to embark upon such an examination.
Certain cost material placed before the Inquiry (which
will be examined shortly) gave rise to feelings of
some disquiet. The cost estimates of a project are
the bed-rock upon which the edifice of cost/benefit analysis
is erected. It is important that they should be
accurate.
4. Report
of the Advisory Committee on Trunk Road
Assessment, October, 1977, page 77.
Assessment, October, 1977, page 77.
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1.4.2 Value of Property Already Acquired
It sometimes happens that the Department of Main Roads
acquires a property within a road corridor before
it is ready to construct the road. When assessing
the value of property to be acquired in order to build
the road, the market value of all property, including
that already owned by the Department of Main Roads,
must be used. It is not appropriate to use the cost
at which the property was acquired. This principle was
appreciated by the Department of Main Roads and the
property was so valued.
acquires a property within a road corridor before
it is ready to construct the road. When assessing
the value of property to be acquired in order to build
the road, the market value of all property, including
that already owned by the Department of Main Roads,
must be used. It is not appropriate to use the cost
at which the property was acquired. This principle was
appreciated by the Department of Main Roads and the
property was so valued.
1.4.3 Value of Open Space Resumed
What was not appreciated, apparently, was the principle
to be applied in valuing the open space used for the
purposes of constructing the road. Professor Beesley
encapsulates the principle (and his comments upon the
material placed before the Inquiry) in the following
way:- (5)
to be applied in valuing the open space used for the
purposes of constructing the road. Professor Beesley
encapsulates the principle (and his comments upon the
material placed before the Inquiry) in the following
way:- (5)
"The cost/benefit ratios
should include
the present value of future alternative
uses of the reserved land. One may
seriously doubt whether the Department
of Main Roads in fact did so.”
the present value of future alternative
uses of the reserved land. One may
seriously doubt whether the Department
of Main Roads in fact did so.”
The Commonwealth Bureau of Roads (as it was then) expressed
the principle in these words:- (6)
"The relevant cost for use in
economic
evaluations is the physical resources
foregone by using land for roads rather
than for some other use. This true or
real cost of land used in road works is
land in the best alternative use. This
is the value that should be included in
economic evaluation."
evaluations is the physical resources
foregone by using land for roads rather
than for some other use. This true or
real cost of land used in road works is
land in the best alternative use. This
is the value that should be included in
economic evaluation."
5. M.E.
Beesley supra paragraph 28. Page 366 of this Report.
6. Report on the Australian Roads System, Volume II,
Paper No. 20 "Economic Evaluation of Road
Improvements – Principles and Procedures”, page 12.
6. Report on the Australian Roads System, Volume II,
Paper No. 20 "Economic Evaluation of Road
Improvements – Principles and Procedures”, page 12.
-265-
The same paper then specifically applied the
principle to parklands (7):
"In urban areas, where
parklands are
often used for road construction, the
relevant economic value of the parkland
is the valuation it would have if it
were made available for other activities,
such as manufacturing or residential."
often used for road construction, the
relevant economic value of the parkland
is the valuation it would have if it
were made available for other activities,
such as manufacturing or residential."
In the chapter on open space (8) the concept of
‘compensatory open space’ is examined. The concept
suggests that open space, taken for the purposes of
a road facility, should be replaced by an equivalent
area either adjacent to the road or elsewhere within
the same community. If this were done, further
property acquisition would be required and the cost
would become a road cost, and hence part of the
cost/benefit analysis. Whether or not this policy
is adopted, in point of principle, the cost of
open space resumed must be included (9).
‘compensatory open space’ is examined. The concept
suggests that open space, taken for the purposes of
a road facility, should be replaced by an equivalent
area either adjacent to the road or elsewhere within
the same community. If this were done, further
property acquisition would be required and the cost
would become a road cost, and hence part of the
cost/benefit analysis. Whether or not this policy
is adopted, in point of principle, the cost of
open space resumed must be included (9).
Whether that value is precisely the same as the
replacement cost, or whether some discount should be
made because of the difficulty of developing certain
areas (such as the Wolli Creek Valley at Turrella)
is open to argument. The Inquiry is inclined to the
view that the replacement value is the best guide.
replacement cost, or whether some discount should be
made because of the difficulty of developing certain
areas (such as the Wolli Creek Valley at Turrella)
is open to argument. The Inquiry is inclined to the
view that the replacement value is the best guide.
1.4.4 Maintenance Costs
The recurring maintenance costs must be estimated
over the life of the road and included in the cost/
benefit analysis. Maintenance includes the up-keep
of the road surface as well as landscaping, lighting
and the like.
1.5 The Benefit of Operating Costs Savings
What does a motorist seek from a road? He seeks to
complete his journey in the minimum time at minimum
7. Report
on the Australian Roads System, Volume II,
Paper No. 20 "Economic Evaluation of Road Improve-
ments – Principles and Procedures”, page 12.
8. The Environmental Criteria supra, (Volume III).
9. See SATS Volume 2, Chapter V, page 18; Central Area
Industrial Study, Appendix 6, page 7, Canberra Short
Term Transport Planning Study by P.G. Pak-Poy and
Associates Pty. Limited (1977), page 9.
Paper No. 20 "Economic Evaluation of Road Improve-
ments – Principles and Procedures”, page 12.
8. The Environmental Criteria supra, (Volume III).
9. See SATS Volume 2, Chapter V, page 18; Central Area
Industrial Study, Appendix 6, page 7, Canberra Short
Term Transport Planning Study by P.G. Pak-Poy and
Associates Pty. Limited (1977), page 9.
-266-
cost with as little risk to himself and his vehicles
as is humanly possible. The cost will depend upon
the type of vehicle being driven and such things as
petrol, oil, tyres, vehicle maintenance and so on.
The cost will vary depending upon the speed of the
vehicle. Vehicles consume more petrol when starting
off than when cruising as illustrated by the following
table:- (10)
TABLE 25.
VEHICLE
OPERATING COSTS
(CENTS/KILOMETRE)
K.P.H
|
PRIVATE CAR
|
LIGHT
COMMERCIAL
|
HEAVY
COMMERCIAL
|
5
|
10.50
|
103.00
|
118.12
|
20
|
4.38
|
27.76
|
33.07
|
40
|
3.36
|
15.22
|
18.90
|
60
|
3.02
|
11.04
|
14.17
|
The Bureau of Transport Economics has estimated the
operating costs of various classes of vehicle. For
the purpose of the economic analysis carried out for
the Inquiry, certain classes of vehicle were
consolidated. There were two equations and they were
expressed in miles/hour. They were:- (11)
operating costs of various classes of vehicle. For
the purpose of the economic analysis carried out for
the Inquiry, certain classes of vehicle were
consolidated. There were two equations and they were
expressed in miles/hour. They were:- (11)
Car operating costs (in cents/mile) =6.80 + 74.58/speed (mph)
Truck operating costs (in cents/mile) =13.60 + 339.08/speed (mph)
For the purpose of making the calculation of operating
costs, the truck formula was applied to light commercial
vehicles.
costs, the truck formula was applied to light commercial
vehicles.
10. Central
Industrial Area Study, Appendix 6, ibid.,
page 19.
11. DMR Transport and Economic Analysis page 30.
page 19.
11. DMR Transport and Economic Analysis page 30.
-267-
1.6 The Benefit of Time Savings
1.6.1 The Issues which must be Considered
A new road may save people time. If they are able
to use the new road in getting from one place to
another their journey time may be less than if the
road were not available. Even where they are not
using the new road, their journey times may be
shorter because the new road draws traffic away from
other congested areas so that traffic flows more
freely.
to use the new road in getting from one place to
another their journey time may be less than if the
road were not available. Even where they are not
using the new road, their journey times may be
shorter because the new road draws traffic away from
other congested areas so that traffic flows more
freely.
Three questions arise:-
- How much time is saved by the introduction of
a new road? - Is that saving of any value to the
community? - If so, what value is to be placed upon it?
The computer modelling procedure already described (12)
is used to calculate time savings. The
modelling procedure distributes traffic throughout
the entire Metropolitan Area including the new road.
Certain relationships between traffic volume and
speed are developed for different classifications of
road. From these relationships the computer can
calculate the time it takes to complete the myriad
journeys made by people each morning.
is used to calculate time savings. The
modelling procedure distributes traffic throughout
the entire Metropolitan Area including the new road.
Certain relationships between traffic volume and
speed are developed for different classifications of
road. From these relationships the computer can
calculate the time it takes to complete the myriad
journeys made by people each morning.
1.6.2 Small Time Savings
Should time savings, no matter how small, be
characterised as a 'benefit' and thus included in
the cost/benefit analysis? The question has generated
a great deal of controversy. Should the same value
be ascribed to saving one person one hour, or sixty
people one minute, or three thousand six hundred
people one second?
characterised as a 'benefit' and thus included in
the cost/benefit analysis? The question has generated
a great deal of controversy. Should the same value
be ascribed to saving one person one hour, or sixty
people one minute, or three thousand six hundred
people one second?
12. Chapter
VII of this Report, Transport Criteria
page 125.
page 125.
-268-
It is said by some that this is manifestly absurd.
There ought to be a threshold below which time savings
are discarded as useless. The threshold can either be
the level at which people perceive a saving, or the
level at which a parcel of time is saved which can
be used for some other activity.
The subject is one which lends itself to survey. A
great many have been carried out. There are some of
local interest. Planning Workshops Pty. Limited,
consultants to the Department of Main Roads, reported as
follows:- (13)
great many have been carried out. There are some of
local interest. Planning Workshops Pty. Limited,
consultants to the Department of Main Roads, reported as
follows:- (13)
"Respondents (to the survey) thus would
value any transport improvement which
saved them at least 6-10 minutes (for
work trips).”
The same survey dealt with non-work trips and the result
was:-
"Transportation improvements would need
to reduce the time for these by at least
10-20 minutes to be valued by the
community."
Consultants to the Traffic Authority of New South Wales
(Stapleton Transportation Planning Pty. Limited) made a
similar observation in a slightly different context.
They were considering the possibility of raising vehicle
occupancy by providing inducements in the form of transit
lanes and other time-saving benefits. They observed:- (14)
"The accumulated evidence
shows that travel-
time savings of less than five minutes are
barely perceivable and thus generally have
little effect in inducing shifts from low
time savings of less than five minutes are
barely perceivable and thus generally have
little effect in inducing shifts from low
13. Planning
Workshops Pty. Ltd. “The Social Impact
of Freeways” cited in the submission of the
Total Environment Centre & Friends of the Earth
(S.K/C 1287), page 37.
14. Transport System Management Stapleton Transportation
Planning Pty. Limited., June 1978, page 4-1.
of Freeways” cited in the submission of the
Total Environment Centre & Friends of the Earth
(S.K/C 1287), page 37.
14. Transport System Management Stapleton Transportation
Planning Pty. Limited., June 1978, page 4-1.
-269-
occupancy vehicles. Travel-time savings
greater than ten minutes generally do
bring about shifts in mode, and the
greater the savings are, the greater the
shift will be. "
A sample of residents from Naremburn was questioned by
Ms. Judith Waugh in a survey undertaken in connection
with an investigation of the effect of the Warringah
Freeway upon those residents. She says, commenting
upon the result of the survey:- (15)
Ms. Judith Waugh in a survey undertaken in connection
with an investigation of the effect of the Warringah
Freeway upon those residents. She says, commenting
upon the result of the survey:- (15)
"For all time intervals less
than five
minutes the majority of respondents
place little value on them."
minutes the majority of respondents
place little value on them."
The arguments do appear compelling. What is said in
opposition? First, there is no doubt that people do
value their time. We have all witnessed people risking
their lives (for instance jumping onto a moving train
rather than waiting for the next) to save a few minutes.
Drivers have an uncanny knack of selecting the path
which saves them the most time, even though time
differences may not be great. Though the time savings
may be small they may be added to the travellers' usable
surplus of time to form 'usable lumps'. (15)
The most persuasive reason for including small time
savings is that it may distort the result if such
savings are excluded. The Leitch Committee said
this:- (17)
savings is that it may distort the result if such
savings are excluded. The Leitch Committee said
this:- (17)
"It is interesting to consider
the implications
of devaluing small savings. Observed time
values contains averages of small and large
savings, and so the valuation of large savings
would increase. Hence there would be a shift
in the road programmes away from small schemes,
such as by-passes to relieve small towns, and
of devaluing small savings. Observed time
values contains averages of small and large
savings, and so the valuation of large savings
would increase. Hence there would be a shift
in the road programmes away from small schemes,
such as by-passes to relieve small towns, and
15. Judith
Waugh "The Impact of a Freeway on Local
Movement Patterns: A Case Study of Naremburn",
Unpublished thesis, page 58.
16. Judith Waugh ibid., page 57.
17. Report of the Advisory Committee on Trunk Road
Assessment, page 103.
Movement Patterns: A Case Study of Naremburn",
Unpublished thesis, page 58.
16. Judith Waugh ibid., page 57.
17. Report of the Advisory Committee on Trunk Road
Assessment, page 103.
-270-
towards large-scale inter-urban route
improvements. More perversely, the
benefits of improving a long route in
one scheme would exceed those of improving
it in small stages over a period of time.”
Professor Beesley, thought it ‘defensible..both
pragmatically and in terms of principle' to include
small time savings (18).
The State Transport Study Group in previous work
excluded time savings less than five minutes or less than
10% of the journey time (19). In work undertaken for
the Inquiry it reversed its stand. All time savings were
included.
There is a crude procedure available (20) for dissecting the
time savings used for the cost/benefit analysis. This
was done (21) for the Cooks River and South Western
options. In each case, for both truck and non-truck
categories, the overwhelming majority of savings rwere less
than five minutes, and indeed less than two minutes.
1.6.3 The Value of Time
Leaving the controversy to one side for the time being,
what value should be attached to time savings? The
Bureau of Transport Economics has established a standard
which was followed in this Inquiry. The standard assumes
a vehicle occupancy of 1.6 persons per car. Making an
adjustment for inflation the figures were:-
what value should be attached to time savings? The
Bureau of Transport Economics has established a standard
which was followed in this Inquiry. The standard assumes
a vehicle occupancy of 1.6 persons per car. Making an
adjustment for inflation the figures were:-
- private car $1.15 per hour (or $0.72
per hour per person)
- $6.26 per hour for commercial vehicles
and trucks.
The valuation of time has not escaped criticism. The
Total Environment Centre points out in its submission
Total Environment Centre points out in its submission
18. M.E.
Beesley supra paragraph 27.
19. Central Area Industrial Study, Appendix 6, page 17.
20. Transcript State Transport Study Group, 12.12.79,
(Mr. Peterson), page 88.
21. Exhibit 85.
19. Central Area Industrial Study, Appendix 6, page 17.
20. Transcript State Transport Study Group, 12.12.79,
(Mr. Peterson), page 88.
21. Exhibit 85.
-271-
that a recent review of the literature dealing with
the practice followed by various authorities using
cost/benefit analysis showed that the values differed
by over 500% (22). Time benefits are an important ingredient
in the computation. The Leitch Committee (23) found
that on average time savings accounted for 8O% of the
quantified benefits from a road scheme. In the
calculations made in the present Inquiry they account
for over half of the total benefits (24).
the practice followed by various authorities using
cost/benefit analysis showed that the values differed
by over 500% (22). Time benefits are an important ingredient
in the computation. The Leitch Committee (23) found
that on average time savings accounted for 8O% of the
quantified benefits from a road scheme. In the
calculations made in the present Inquiry they account
for over half of the total benefits (24).
Even if one can agree upon a value, should it be the
same value for everyone? The Leitch Committee had this
to say:- (25)
same value for everyone? The Leitch Committee had this
to say:- (25)
"It seems absurd to us that
high income
car commuters, say on the M4 into London
or in the neighbourhood of Birmingham,
should be attributed the same time saving
values as holiday-makers in the country."
car commuters, say on the M4 into London
or in the neighbourhood of Birmingham,
should be attributed the same time saving
values as holiday-makers in the country."
As people grow richer they place less value on additional
money and more value on additional time. In the jargon
of economics ‘the marginal utility of money decreases
and, relatively, the marginal utility of time increases'(26).
Yet, if time is given a different value for a
'high income car commuter' from that given to a low paid
manual worker, facilities which aid the poor would be
less likely to achieve a worthwhile cost/benefit ratio
than facilities which advantage the rich. For reasons
of equity it seems to the Inquiry quite proper that
one value is used for rich and poor alike.
But are the values chosen by the Bureau of Transport
Economics appropriate? Is it appropriate in the
case of commercial vehicles and trucks to choose
22. Total
Environment Centre S.K/C 1287, page 37.
23. ibid., page 18.
24. See DMR "Transport and Economic Analysis" Table 7.2
25. Leitch Committee ibid., page 102.
26. Canberra Short-term Transport Planning Study ibid. ,
page 14.
23. ibid., page 18.
24. See DMR "Transport and Economic Analysis" Table 7.2
25. Leitch Committee ibid., page 102.
26. Canberra Short-term Transport Planning Study ibid. ,
page 14.
-272-
something approximating the average wage rate?
Again the subject is one which lends itself to surveys.
The Stanford Research Institute in the United States
carried out one such survey (27). They found that
drivers with average salaries valued their time at only
6% of their hourly salary when they could save only two
or three minutes by using a toll road instead of a free
one. Where time savings were thirty minutes time was
valued at fully 30% of the hourly salary.
1.7 The Benefit of Accident Savings
The road network is divided into roads of various
classes. Each class has a specific accident rate per
million vehicle miles. The rates were developed in 1971
in connection with the Sydney Area Transportation Study.
The accidents themselves are classified according to
the following values which are recommended by the Bureau
of Transport Economics:-
classes. Each class has a specific accident rate per
million vehicle miles. The rates were developed in 1971
in connection with the Sydney Area Transportation Study.
The accidents themselves are classified according to
the following values which are recommended by the Bureau
of Transport Economics:-
$127,950 for each fatality accident$ 5,170 for each casualty accident$ 1,000 for each accident only involving
property damage.
These figures were not indexed to take account of
inflation. They give the impression of a very precise
calculation. They are not. They are based upon one
assessment of the likely cost to the community of each
class of accident. Since the ingredients in the
calculation include such imponderables as an allowance
for 'pain and suffering’ opinions may differ widely. (28)
inflation. They give the impression of a very precise
calculation. They are not. They are based upon one
assessment of the likely cost to the community of each
class of accident. Since the ingredients in the
calculation include such imponderables as an allowance
for 'pain and suffering’ opinions may differ widely. (28)
27. Cited
in "Roads in the Urban Environment" OECD
1974, page 19.
28. See the Leitch Committee, ibid., page 104,
giving the European Practice: See also Volume
IV of the Report of the Enquiry into the New
South Wales Road Freight Industry, pages 5/16 -5/18
and annexure 9.0 “The Cost of Accidents” in Volume
V of the Report of the Enquiry into the New South
Wales Road Freight Industry.
1974, page 19.
28. See the Leitch Committee, ibid., page 104,
giving the European Practice: See also Volume
IV of the Report of the Enquiry into the New
South Wales Road Freight Industry, pages 5/16 -5/18
and annexure 9.0 “The Cost of Accidents” in Volume
V of the Report of the Enquiry into the New South
Wales Road Freight Industry.
-273-
Quite apart from the value to be attached to various
classes of accidents, there are two other issues.
First, to what extent is it, appropriate to take an
average rate per vehicle kilometre? Secondly, what
evidence is there that road improvements are responsible
for reductions in the rate of accidents per vehicle
mile?
In the present Inquiry the options, when analysed,
demonstrated there would be more accidents, and hence
greater community loss, if the options were built than
if they were not.
demonstrated there would be more accidents, and hence
greater community loss, if the options were built than
if they were not.
Commenting on that result in a report to the Department
of Main Roads the State Transport Study Group said:- (29)
"The calculation of accident
costs is
based on a simplistic model which assumes
that a specific accident rate per million
vehicle miles and for various types of
road will be maintained.. The model may
be criticised as being too simplistic.
It may be argued that accident rates are
more a function of traffic conditions at
particular locations rather than vehicle
miles per se."
based on a simplistic model which assumes
that a specific accident rate per million
vehicle miles and for various types of
road will be maintained.. The model may
be criticised as being too simplistic.
It may be argued that accident rates are
more a function of traffic conditions at
particular locations rather than vehicle
miles per se."
They went on:- (30)
"The use of this model has led
to the perverse
result that every option tested has increased
the total accidents costs by diverting traffic
onto roads with a higher accident rate. While
this might in fact prove to be the case, the
result appears counter-intuitive."
result that every option tested has increased
the total accidents costs by diverting traffic
onto roads with a higher accident rate. While
this might in fact prove to be the case, the
result appears counter-intuitive."
The accident rates used were those appropriate for 1971.
No more recent rates have been developed. Yet the accident
rate has fallen considerably in the last decade (31).
What effect that fall would have upon the analysis is a
matter upon which we can only speculate.
No more recent rates have been developed. Yet the accident
rate has fallen considerably in the last decade (31).
What effect that fall would have upon the analysis is a
matter upon which we can only speculate.
29. Exhibit
57 UTSG "Economic Evaluation of Optional Routes
between Kyeemagh & Chullora” (September 1979), page 8.
30. Exhibit 57 UTSG "Economic Evaluation of Optional Routes between Kyeemagh & Chullora” (September 1979), page 8.
31. See the Chapter of this Report dealing with Accidents
supra Volume III. (Social Criteria)
between Kyeemagh & Chullora” (September 1979), page 8.
30. Exhibit 57 UTSG "Economic Evaluation of Optional Routes between Kyeemagh & Chullora” (September 1979), page 8.
31. See the Chapter of this Report dealing with Accidents
supra Volume III. (Social Criteria)
-274-
There remains the questions of causation. To what
extent are variations in the accident rate the result
of road improvements? Roads obviously play a part,
and perhaps a large part, in accident causation. It is
difficult to prove that a specific road improvement will
bring about an equally specific decrease in the number
of road accidents. The Bureau of Transport Economics,
for instance, does not take the credit for reduction in
the casualty rate since 1972 (a decrease of 24%). It
says:- (32)
extent are variations in the accident rate the result
of road improvements? Roads obviously play a part,
and perhaps a large part, in accident causation. It is
difficult to prove that a specific road improvement will
bring about an equally specific decrease in the number
of road accidents. The Bureau of Transport Economics,
for instance, does not take the credit for reduction in
the casualty rate since 1972 (a decrease of 24%). It
says:- (32)
"It is not possible with
present knowledge
and data sources to accurately attribute
the proportion of this decline (24%) to
improvements in roads resulting from road
expenditures over the period, as distinct
from other likely causative factors such
as:-
and data sources to accurately attribute
the proportion of this decline (24%) to
improvements in roads resulting from road
expenditures over the period, as distinct
from other likely causative factors such
as:-
- introduction of compulsory wearing of
seat belts;- driver training and education programmes;
- traffic regulation and enforcement; and
- increased driver awareness and levels of
skills.”
1.8 How are Costs and Benefits Calculated?
The construction of a road is not a short process. In
the present case it is assumed that the construction of
the Cooks River option or the South Western option would
each take seven years. In the nature of things,
therefore, it is necessary, when calculating costs and
benefits, to predict what the traffic would be like if
nothing were done (the base case) and what the traffic
would be like if the road were built, and to contrast
the two in terms of the costs and benefits described.
The traffic model which has been described elsewhere in
this Report is used for this purpose. Cost/benefit
analysis, therefore, is infected by the shortcomings of
32. Bureau
of Transport Economics "An Assessment of the
Australian Road System', 1979 Part 1, May, 1979,
page 70.
Australian Road System', 1979 Part 1, May, 1979,
page 70.
-275-
the model and the deficiencies, if any, in the
assumptions which have been made in constructing the
model.
assumptions which have been made in constructing the
model.
The model predicts the traffic volumes across the
entire road network for a particular year, in this
case 1991. It does this for various classes of
vehicle. With this basic information it is then a
simple matter (for the computer) to add up the following
for each option:-
entire road network for a particular year, in this
case 1991. It does this for various classes of
vehicle. With this basic information it is then a
simple matter (for the computer) to add up the following
for each option:-
- the total vehicle kilometres
- the total vehicle hours of travel
With this basic information it is then possible to
calculate the 'benefits' which may be derived from each
option, employing the formulae to which we have
referred. The following calculations are made:-
calculate the 'benefits' which may be derived from each
option, employing the formulae to which we have
referred. The following calculations are made:-
- the total operating costs in dollars
are calculated for each option - the total accident costs (employing
the accident rates and values to
which we have referred) are then
calculated for each option - the total time costs are calculated
for each option differentiating
between journeys by car and business
journeys (i.e., commercial vehicles)
1.9 Expansion Factors
1.9.1 What is an Expansion Factor?
It is then necessary to convert these figures (which
are a.m. 2-hour peak figures) to annual benefits.
This is done by what are called 'expansion factors'.
Expansion factors are critical to the calculation of
benefits. First, the 2-hour a.m. peak is expanded to
a 24-hour figure and further expanded to an annual figure.
Roads are not used with the same intensity all day long,
all year round. It is therefore not possible to simply
multiply the a.m. 2-hour peak benefits by 12 to get a
24-hour figure and then by 365 to get the yearly figure.
What reductions should be made is a matter of some
are a.m. 2-hour peak figures) to annual benefits.
This is done by what are called 'expansion factors'.
Expansion factors are critical to the calculation of
benefits. First, the 2-hour a.m. peak is expanded to
a 24-hour figure and further expanded to an annual figure.
Roads are not used with the same intensity all day long,
all year round. It is therefore not possible to simply
multiply the a.m. 2-hour peak benefits by 12 to get a
24-hour figure and then by 365 to get the yearly figure.
What reductions should be made is a matter of some
-276-
controversy. If an unrealistically high expansion
factor is chosen, the benefits are artificially pumped
up and projects which are wasteful may be thought
economically worthwhile. Conversely, if an expansion
factor is selected which is too low, the community
may be denied a project which is economically worthwhile
according to this criterion.
factor is chosen, the benefits are artificially pumped
up and projects which are wasteful may be thought
economically worthwhile. Conversely, if an expansion
factor is selected which is too low, the community
may be denied a project which is economically worthwhile
according to this criterion.
1.9.2 Conversion of Peak Benefits to Daily Benefits
There is no universal practice either for expanding a.m.
peak figures to daily figures or for expanding daily
figures to annual figures. In the conversion of a.m. peak
figures to daily benefits, three possibilities were
suggested:-
peak figures to daily figures or for expanding daily
figures to annual figures. In the conversion of a.m. peak
figures to daily benefits, three possibilities were
suggested:-
- the approach of the State Transport Study
Group (STSG) and the Department of Main
Roads in the document "Transport and
Economic Analysis"; - the approach adopted by consultants to the
Department of Main Roads, De Leuw Cather of
Australia Pty. Limited, in a study of the
South Western Freeway which they concluded.
in September, 1978; - that used by the same consultants in a
further study undertaken on behalf of the
DMR (dated September, 1979) which became
the final volume in the Department’s
submission to this Inquiry.
The figures used by the State Transport Study Group and
the DMR were:-
the DMR were:-
- 5.5 in the case of motor cars
- 8.5 in the case of commercial vehicles
and trucks
In other words, having calculated, by means of a
computer, the a.m. peak benefits for cars, the benefits
are multiplied by 5.5 (and by 8.5 in the case of trucks).
The result is the 24-hour benefits. What is the
rationale? The proportion of trips made in the 2-hour
a.m. peak by private cars is 18% of the total daily trips.
The factor was therefore derived in the following way:-
computer, the a.m. peak benefits for cars, the benefits
are multiplied by 5.5 (and by 8.5 in the case of trucks).
The result is the 24-hour benefits. What is the
rationale? The proportion of trips made in the 2-hour
a.m. peak by private cars is 18% of the total daily trips.
The factor was therefore derived in the following way:-
- motor cars
100
18 = 5.5
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In the case of trucks and commercial vehicles the
proportion of trips made in the 2-hour a.m. peak
was 12% of the total daily trips. The calculation was
as follows: -
proportion of trips made in the 2-hour a.m. peak
was 12% of the total daily trips. The calculation was
as follows: -
- trucks and commercial vehicles
100
12 = 8.5
The De Leuw Cather September, 1978 study took a more
conservative view. It selected an expansion factor of
3.3 for both cars and trucks.
conservative view. It selected an expansion factor of
3.3 for both cars and trucks.
The September, 1979 De Leuw Cather study (which became
part of the Department of Main Roads submission) took
a middle course. The STSG factors of 5.5 and 8.5 were
too high. Benefits are obtained at a lower rate during
the off-peak periods since there is less congestion and
fewer delays. By an elaborate and plausible path the
consultants concluded that the appropriate figures
were:-
- 3.8 for cars
- 4.8 for trucks
1.9.3 Expansion of 24-hour Benefits to Annual Benefits
What figures should be used to expand the daily benefits
to annual benefits? A range of figures have been adopted
by various studies:- (33)
- The Geelong Transportation Plan: 361
- Geelong Transportation Study: 310
- The Outer Ring Study (Melbourne): 300
- The Gardners Creek Valley Study
(Melbourne): 300 - The Urban Transport Study Group: 300
- The Canberra Short Term Transportation
Study: 270
Again, there are a variety of expansion factors to choose
from. In the Economic Analysis undertaken by the State
Transport Study Group on behalf of the Department of Main
from. In the Economic Analysis undertaken by the State
Transport Study Group on behalf of the Department of Main
33. Exhibit
84.
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Roads, forming part of the submission made by the
Department, (34) the annual expansion figure of three
hundred is used.
In a later document (September, 1979) prepared by
consultants to the Department (De Leuw Cather of
Australia Pty. Limited) and also forming part of the
Department’s submission, a hybrid approach was adopted.
The figures used were:-
- 250 in the case of commercial vehicles
- 335 in the case of private vehicles
The figure of 250 was selected for commercial vehicles
because commercial vehicles usually only work on
weekdays i.e., 250 days a year. It was suggested that
this was a conservative figure because some vehicles
work on the weekend. On the other hand, public
holidays and annual holidays may effectively counter
balance any weekend work. In the Inquiry's view a
factor of 250 for commercial vehicles is appropriate.
because commercial vehicles usually only work on
weekdays i.e., 250 days a year. It was suggested that
this was a conservative figure because some vehicles
work on the weekend. On the other hand, public
holidays and annual holidays may effectively counter
balance any weekend work. In the Inquiry's view a
factor of 250 for commercial vehicles is appropriate.
The position in respect of private vehicles is
confusing. The following statement appears in the
consultant’s report submitted by the Department
Roads to the Inquiry:- (35)
confusing. The following statement appears in the
consultant’s report submitted by the Department
Roads to the Inquiry:- (35)
"It has been assumed that the
use of private
vehicles during non-working days is between
25% and 50% of that during working days.
For this analysis a median value of 35% a
non-working day private vehicle travel
has been adopted."
vehicles during non-working days is between
25% and 50% of that during working days.
For this analysis a median value of 35% a
non-working day private vehicle travel
has been adopted."
The Report then suggests that 335 is the appropriate
expansion factor to derive annual benefits for
private vehicles.
expansion factor to derive annual benefits for
private vehicles.
34. S.K/C 340
Transport and Economic Analysis
35. Report September, 1979 ibid., page 62.
35. Report September, 1979 ibid., page 62.
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The matter was explored in the public hearings. It
appeared to the Inquiry there had been an error (35).
Subsequently the Inquiry received a further
elaboration upon the methodology employed to derive
the figure of 335 (37). Though the methodology is
ingenious, the Inquiry finds the reasoning
unconvincing. It seems to the Inquiry that an expansion
factor of 335 for private vehicles is unduly high. In
the weekends trucks are mainly absent from the roads.
Traffic may flow more freely except at odd hours and
in odd places. People have a far greater flexibility
about when they make their journey. In these
circumstances it is appropriate to assume benefits at
the weekend will be approximately 35% of the benefits
obtained by private cars on a weekday. There are 115
weekend days each year. Now, 35% of that number is
40. The appropriate expansion factor for private
vehicle trips is, therefore, 290 or say 300.
appeared to the Inquiry there had been an error (35).
Subsequently the Inquiry received a further
elaboration upon the methodology employed to derive
the figure of 335 (37). Though the methodology is
ingenious, the Inquiry finds the reasoning
unconvincing. It seems to the Inquiry that an expansion
factor of 335 for private vehicles is unduly high. In
the weekends trucks are mainly absent from the roads.
Traffic may flow more freely except at odd hours and
in odd places. People have a far greater flexibility
about when they make their journey. In these
circumstances it is appropriate to assume benefits at
the weekend will be approximately 35% of the benefits
obtained by private cars on a weekday. There are 115
weekend days each year. Now, 35% of that number is
40. The appropriate expansion factor for private
vehicle trips is, therefore, 290 or say 300.
Accordingly, it is the Inquiry's view that the cost/
benefit figures overstate the benefits for private
time savings. If the ratios are marginal that may be
important. If they are not then it may be a matter
of indifference.
benefit figures overstate the benefits for private
time savings. If the ratios are marginal that may be
important. If they are not then it may be a matter
of indifference.
1.10 The Discount Rate
By this means the benefits which will arise in the
year 1991 for each option are calculated. But to
gain those benefits it is necessary to make an
investment now. It is necessary to spend money
spread over a number of years and to maintain the
investment pending its completion. To add to the
complexity of the calculation, benefits often accrue
before completion. Individual stages can be used as
year 1991 for each option are calculated. But to
gain those benefits it is necessary to make an
investment now. It is necessary to spend money
spread over a number of years and to maintain the
investment pending its completion. To add to the
complexity of the calculation, benefits often accrue
before completion. Individual stages can be used as
36.
Transcript 30.1.80, pages 6-8.
37. Letter from the DMR from its consultants Rendels
Economics dated 4.2.80.
37. Letter from the DMR from its consultants Rendels
Economics dated 4.2.80.
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they are completed. Maintenance charges, therefore
also begin when use is made of the facility.
In the present Inquiry the following assumptions were
made:-
made:-
- the capital costs for the Cooks River
option and the South Western option
will be distributed equally over a
7-year construction period commencing
in 1984-1985; - the full benefits will accrue upon
completion of the project in 1991-1992; - the maintenance costs and part of the
benefits will begin to accrue in 1987-
1988 at the rate of 20% of the final
amount; - the maintenance and benefits will increase
by 20% per year thereafter until full
benefits have accrued; - the assumed life of the road is 20 years
(which is a conservative assumption) and
the benefits should be calculated over
that period at the 1991 rate.
It is not possible to simply compare the costs incurred
in building and maintaining the facility, with the
benefits which will arise upon its completion. The
money which must be outlaid now to produce benefits in
the future cannot be used for other things in the mean-
time. Yet full benefits do not begin to accrue until
1991. It is necessary, therefore, to discount the
benefits. The principle is put in this way in the
Sydney Area Transportation Study:- (38)
in building and maintaining the facility, with the
benefits which will arise upon its completion. The
money which must be outlaid now to produce benefits in
the future cannot be used for other things in the mean-
time. Yet full benefits do not begin to accrue until
1991. It is necessary, therefore, to discount the
benefits. The principle is put in this way in the
Sydney Area Transportation Study:- (38)
"It is an axiom of economics
that a dollar
is worth more at the present time than it
will be at any time in the future. Since
costs and benefits do not usually accrue at
the same time, the time lag must be accounted
for by a discounting process.”
is worth more at the present time than it
will be at any time in the future. Since
costs and benefits do not usually accrue at
the same time, the time lag must be accounted
for by a discounting process.”
38. SATS
Volume 2, Chapter V, page 14.
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A good deal of controversy surrounds the appropriate
discount rate (39). The discount rate chosen by
the Department of Main Roads in the present Inquiry
was 10%. It was the figure used by the State Transport
Study Group in their earlier studies (40). It was the
figure recommended by the Commonwealth Bureau of Roads
(as it then was) in 1969 in the paper to which we
earlier referred (41). It is the figure used by the
successor to that Department, the Bureau of Transport
Economics, in its assessment of the Australian Road
System 1979 (42). It is the figure used in the United
Kingdom. It seems to the Inquiry that 10% is the
appropriate discount rate.
discount rate (39). The discount rate chosen by
the Department of Main Roads in the present Inquiry
was 10%. It was the figure used by the State Transport
Study Group in their earlier studies (40). It was the
figure recommended by the Commonwealth Bureau of Roads
(as it then was) in 1969 in the paper to which we
earlier referred (41). It is the figure used by the
successor to that Department, the Bureau of Transport
Economics, in its assessment of the Australian Road
System 1979 (42). It is the figure used in the United
Kingdom. It seems to the Inquiry that 10% is the
appropriate discount rate.
Having selected the appropriate discount rate, it is
possible to compare the benefits, as discounted, with
the costs. That comparison can be expressed in a number
of ways:-
- the benefit/cost ratio (B/C)
- the nett present value (NPV)
- the internal rate of return (IRR)
1.11 The Benefit/Cost Ratio and other Related Concepts
The benefit/cost ratio (BC) is calculated in the
following way:-
total
discounted benefits
total discounted costs
total discounted costs
If the ratio is greater than 1, the total benefits
exceed the total costs. Theoretically (according to
this yardstick of economic appraisal) the project is
economically 'worthwhile'.
exceed the total costs. Theoretically (according to
this yardstick of economic appraisal) the project is
economically 'worthwhile'.
The nett present value (NPV) is calculated in the
following way:-
following way:-
39. See for
instance the very helpful exposition by
the Canterbury Municipal Council (S.K/C 341), page 26.
40. Appendix 6, pages 35 and 40.
41. Report on the Australian Road System, Volume II
Paper No. 20, page 11.
42. ibid., pages 3 and 137.
the Canterbury Municipal Council (S.K/C 341), page 26.
40. Appendix 6, pages 35 and 40.
41. Report on the Australian Road System, Volume II
Paper No. 20, page 11.
42. ibid., pages 3 and 137.
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NPV = total discounted benefits – total discounted costs
If the nett present value is positive, the benefits
exceed the costs and the project is economically
acceptable according to this criterion. The nett present
value does have the merit of demonstrating the magnitude
of the benefits. That is of interest where options
involve a different capital outlay.
exceed the costs and the project is economically
acceptable according to this criterion. The nett present
value does have the merit of demonstrating the magnitude
of the benefits. That is of interest where options
involve a different capital outlay.
The internal rate of return (the IRR) is defined as
‘the rate of return or discount rate which makes the
investment in question marginal' (43). In other words,
the commonly used discount rate of 10% may produce a
cost/benefit ratio of say 1.39 (which is in fact the cost/
benefit ratio of the Cooks River option according to
one calculation) (44). What discount rate would have to
be used to reduce the benefit/cost ratio to 1.0 (at which
point the project would be marginal)? When the calculation
is made, the figure is 17%. That is the internal rate of
return.
Professor Beesley in his paper (45) explains the way
in which these concepts can be used in the economic
appraisal of a road project. He says:-
in which these concepts can be used in the economic
appraisal of a road project. He says:-
"In fact the NPV is used where
there is no
constraint on the total amount available
to be devoted to investment at the going
rate, in this case assumed to be 10% in
real terms for the central calculations.
If there is a budget constraint - that is,
if the total funds available are not enough
to exhaust all the 'good' projects at 10%
i.e., all those with positive NPV at 10%
then some form of recognition of the need
to ration has to occur. In this, B/C and/
or IRR calculations become relevant. The
argument about using the different measures
is therefore essentially about the likely
scale and state of the road budget (in New
South Wales or Sydney).”
constraint on the total amount available
to be devoted to investment at the going
rate, in this case assumed to be 10% in
real terms for the central calculations.
If there is a budget constraint - that is,
if the total funds available are not enough
to exhaust all the 'good' projects at 10%
i.e., all those with positive NPV at 10%
then some form of recognition of the need
to ration has to occur. In this, B/C and/
or IRR calculations become relevant. The
argument about using the different measures
is therefore essentially about the likely
scale and state of the road budget (in New
South Wales or Sydney).”
43. SATS
Volume 2, Chapter V, page 20.
44. Table 7.3 Transport and Economic Analysis, DMR
45. M.E. Beesley supra paragraph 26, page 364 of this
Report.
44. Table 7.3 Transport and Economic Analysis, DMR
45. M.E. Beesley supra paragraph 26, page 364 of this
Report.
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1.12 Sensitivity Tests
Because of the fragility of various assumptions
made in the course of cost/benefit analysis, it is
usual to carry out a battery of 'sensitivity tests’.
This was done in the present Inquiry. The assumptions
were varied along the following lines:-
made in the course of cost/benefit analysis, it is
usual to carry out a battery of 'sensitivity tests’.
This was done in the present Inquiry. The assumptions
were varied along the following lines:-
- discount rates of 7% and 15% were selected
- the effect of eliminating all benefits
derived from the off-peak was tested - the effect of eliminating all time benefits
was tested as well as the effect of taking
account only of half time benefits - the effect of adopting the high expansion
factor used by UTSG was tested or the low
expansion factor used by the original De
Leuw Cather September, 1978 study - the effect of applying the 1976 traffic
(being the base year) to the 1991 network
was also tested.
Each of these tests is designed to provide an insight
into the nature of the option being examined. Those
making the assumptions which underpin the traffic
model may be doing their best. They may be rather
more nervous about some assumptions than others. It
would be hard, for instance, in the present climate
to be anything but nervous about the future of energy.
The sensitivity tests should tell the economists
whether the option is robust to variations in matters
which may be open to doubt. A good example is
provided by the application of the 1976 traffic to
the 1991 predicted base network. This is a useful
exercise. It is one which ought to be performed on
each and every occasion. It demonstrates at a glance
the extent to which the options are dependent, for
their benefits, upon traffic growth as opposed to
traffic which is already using the street system.
into the nature of the option being examined. Those
making the assumptions which underpin the traffic
model may be doing their best. They may be rather
more nervous about some assumptions than others. It
would be hard, for instance, in the present climate
to be anything but nervous about the future of energy.
The sensitivity tests should tell the economists
whether the option is robust to variations in matters
which may be open to doubt. A good example is
provided by the application of the 1976 traffic to
the 1991 predicted base network. This is a useful
exercise. It is one which ought to be performed on
each and every occasion. It demonstrates at a glance
the extent to which the options are dependent, for
their benefits, upon traffic growth as opposed to
traffic which is already using the street system.
The Sydney Area Transportation Study, in the context
of sensitivity tests, made the following observation (46):-
of sensitivity tests, made the following observation (46):-
46. SATS
Volume 2, Chapter V, page 21.
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"When variations in one or
more of the
inputs are tested the marginal benefit/
cost ratio (may become) unfavourable.
This might suggest to those making
policy decisions that the alternative
is only desirable if, and only if, the
best estimates were correct in every
case. The sensitivity of the alternative
to these changes in the input estimates
might make it a risky and therefore an
undesirable choice."
inputs are tested the marginal benefit/
cost ratio (may become) unfavourable.
This might suggest to those making
policy decisions that the alternative
is only desirable if, and only if, the
best estimates were correct in every
case. The sensitivity of the alternative
to these changes in the input estimates
might make it a risky and therefore an
undesirable choice."
2. LIMITATIONS OF COST/BENEFIT ANALYSIS
2.1 Introduction
Cost benefit analysis seeks to discriminate between
the economically efficient and the economically
inefficient. The aim is applauded even by its
critics. Further, it seeks to base its discrimination
upon consumer preferences. Again its critics would
not disagree.
the economically efficient and the economically
inefficient. The aim is applauded even by its
critics. Further, it seeks to base its discrimination
upon consumer preferences. Again its critics would
not disagree.
The disagreement concerns the methodology. It purports
to imitate the method of private enterprise. But it
is like an elephant imitating a gazelle. The one,
private enterprise, is finely attuned to judging the
height of economic barriers and leaping them. The other
is differently oriented. Though barriers can be placed
in its path, which it may be helped over by making certain
concessions, its mimicry of a gazelle is bound to be
awkward.
to imitate the method of private enterprise. But it
is like an elephant imitating a gazelle. The one,
private enterprise, is finely attuned to judging the
height of economic barriers and leaping them. The other
is differently oriented. Though barriers can be placed
in its path, which it may be helped over by making certain
concessions, its mimicry of a gazelle is bound to be
awkward.
Certainly it can be appreciated from the discussion of
each of the costs and benefits that reasonable people
may reasonably differ as to what is to be included and what
is to be excluded. It is disquieting to some that a
judgement on the economic efficiency of a project will
depend upon (to borrow a phrase from the law) 'the
length of the (planner's) foot'.
We will briefly consider some of the specific criticisms
of the cost/benefit technique not already canvassed.
We will then examine its role in a road inquiry.
of the cost/benefit technique not already canvassed.
We will then examine its role in a road inquiry.
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2.2 The Technique is Dependent upon an Ability to Predict
Traffic Flows on Sydney Streets in 10-15 Years’ Time
Traffic Flows on Sydney Streets in 10-15 Years’ Time
‘The track record', of such predictions in the past
has not been good. It is a shaky foundation,
therefore, upon which to build an analysis which itself
involves a number of further assumptions and a degree
of artificiality
has not been good. It is a shaky foundation,
therefore, upon which to build an analysis which itself
involves a number of further assumptions and a degree
of artificiality
It is disturbing that the modelling procedure is itself
capable of manipulation to produce one result rather
than another. The State Transport Study Group in a
paper specifically devoted to the cost/benefit
technique made this observation:- (47)
capable of manipulation to produce one result rather
than another. The State Transport Study Group in a
paper specifically devoted to the cost/benefit
technique made this observation:- (47)
"It should be noted that the
benefits,
as reported, are based on the computerised
traffic simulation techniques used by the
Study. It has been observed that the
results of the analysis are extremely
sensitive to alterations in these
simulation techniques."
as reported, are based on the computerised
traffic simulation techniques used by the
Study. It has been observed that the
results of the analysis are extremely
sensitive to alterations in these
simulation techniques."
Later in the same report the following is said:- (49)
"The technique used for the best estimate
employed multiple path assignment procedures.
The benefit/cost analysis can vary
considerably depending on which path
selection technique is used."
The technical difficulty of assignment mirrors the
complexity of trying to predict what will happen if a
new road is added to a complex urban road network:- (49)
"The difficulty was the
complexity of
the ripple effects which follow when
a new route is inserted into an already
elaborate urban network which diminished
the scope for confident assignment of
traffic between the new and old road
space.”
the ripple effects which follow when
a new route is inserted into an already
elaborate urban network which diminished
the scope for confident assignment of
traffic between the new and old road
space.”
(emphasis added)
47. Central
Industrial Area Study Appendix 6, page 3
and see also pages 30 and 31.
48. ibid., page 41.
49. Report of the Urban Motorways Project Team 1973,
page 200.
and see also pages 30 and 31.
48. ibid., page 41.
49. Report of the Urban Motorways Project Team 1973,
page 200.
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Professor W.R. Blunden put the matter in this way:- (50)
"Merely taking account of road
user benefits
in an urban situation where a road project
interacts so strongly with other roads,
other transport, land use activity and
the socio-economic environment generally
is not meaningful. In the rural context
(e.g., the M1 Motorway in Britain) or in
certain urban situations where the project
is more 'self contained' e.g. an airport,
the eastern suburbs railway, a major bridge,
the results may be more meaningful."
in an urban situation where a road project
interacts so strongly with other roads,
other transport, land use activity and
the socio-economic environment generally
is not meaningful. In the rural context
(e.g., the M1 Motorway in Britain) or in
certain urban situations where the project
is more 'self contained' e.g. an airport,
the eastern suburbs railway, a major bridge,
the results may be more meaningful."
(emphasis added)
The controversy does not end there. Certain other
assumptions made by the modelling technique are
challenged. First, it is assumed by the model, and
hence by the cost/benefit analysis, that the number of
trips will be precisely the same whether or not the
facility is built. It is suggested by others (and the
suggestion is examined in this Report in the Transport
Criteria) that congestion inhibits traffic so that its
removal or reduction by the provision of a new facility
will simply operate to encourage more traffic to use the
network. If this is right, then the assumption made by
the model is wrong. It underlines, so it is said, the
artificiality of the analysis and the unreliability of
the results.
assumptions made by the modelling technique are
challenged. First, it is assumed by the model, and
hence by the cost/benefit analysis, that the number of
trips will be precisely the same whether or not the
facility is built. It is suggested by others (and the
suggestion is examined in this Report in the Transport
Criteria) that congestion inhibits traffic so that its
removal or reduction by the provision of a new facility
will simply operate to encourage more traffic to use the
network. If this is right, then the assumption made by
the model is wrong. It underlines, so it is said, the
artificiality of the analysis and the unreliability of
the results.
Secondly, it is suggested that time savings simply cause
people to travel further (51). This is the concept of
a 'time budget’ which is also examined elsewhere in this
Report.
2.3 Criticism of What it Includes
We will not repeat the controversy concerning small
time savings or accident rates. The opponents of
cost/benefit analysis suggest the technique is
time savings or accident rates. The opponents of
cost/benefit analysis suggest the technique is
50.
Annexure 3 "On the Economic Analysis of Highway
Improvements", page 378 of this Report.
51. Leitch Committee Report ibid., page 55.
Improvements", page 378 of this Report.
51. Leitch Committee Report ibid., page 55.
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deficient in many other respects. They say the
consideration of benefits is unbalanced and one-sided.
The additional time it takes pedestrians to walk to
the overhead bridge to get across the freeway is
ignored. For some mysterious reason the time of
drivers, who effortlessly sit behind the wheel, is of
great importance and should be measured and valued even
where the time saving is a matter of a minute or two.
consideration of benefits is unbalanced and one-sided.
The additional time it takes pedestrians to walk to
the overhead bridge to get across the freeway is
ignored. For some mysterious reason the time of
drivers, who effortlessly sit behind the wheel, is of
great importance and should be measured and valued even
where the time saving is a matter of a minute or two.
It is suggested that the analysis gives the impression
that everyone is tearing around at break-neck speed,
trying to save a minute here and a minute there; that
the inefficiency of the transport system is, relatively,
of great importance and is holding the economy back.
But is this so?
One study (52) sought to determine, first, what
propor-
tion of a truck driver's time is spent on the road as
opposed to other activities including unloading,
attending the depot, attending to administrative work
and so on. Secondly, what proportion of the time spent
on the road could be actually saved if the transport
system were more efficient and delays were eliminated?
tion of a truck driver's time is spent on the road as
opposed to other activities including unloading,
attending the depot, attending to administrative work
and so on. Secondly, what proportion of the time spent
on the road could be actually saved if the transport
system were more efficient and delays were eliminated?
One is dealing with a percentage of a percentage. The
survey suggested (53) that traffic delay accounted for
only 5-8% of the total operational time.
survey suggested (53) that traffic delay accounted for
only 5-8% of the total operational time.
Those who advocate the road may counter that 5-8% is not
to be sneezed at. Yet no one suggests that delays can be
totally eliminated, more especially by one road facility.
So again the introduction of a road facility may reduce
the five or eight percent by a further percentage. That,
it is suggested, is the issue. Cost/benefit analysis
camouflages that issue by giving undue emphasis to very
to be sneezed at. Yet no one suggests that delays can be
totally eliminated, more especially by one road facility.
So again the introduction of a road facility may reduce
the five or eight percent by a further percentage. That,
it is suggested, is the issue. Cost/benefit analysis
camouflages that issue by giving undue emphasis to very
52. J.M.
Owens "Economics of Truck Operations In Urban
Areas" l964, page 34: See also Ogden K.W. “Issues
in Urban Goods Movement Planning" Proceedings 7th
AARB Conference 1975 & Alan M. Voorhees & Partners
"Feasibility Study into Preferential Treatment of
Commercial Vehicles”, page 4.
53. ibid., page 45.
Areas" l964, page 34: See also Ogden K.W. “Issues
in Urban Goods Movement Planning" Proceedings 7th
AARB Conference 1975 & Alan M. Voorhees & Partners
"Feasibility Study into Preferential Treatment of
Commercial Vehicles”, page 4.
53. ibid., page 45.
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small savings which may be made in one area only.
The Inquiry received a submission from a Mr. C.R.
Barlow of Beverly Hills (54) which made the point.
He said in part:-
Barlow of Beverly Hills (54) which made the point.
He said in part:-
"It cannot be argued that road
transport
is more efficient or speedier because
the experience of many businesses is
that constant delays occur in depots
which nullify any benefits gained by
speedier transport from place to place."
is more efficient or speedier because
the experience of many businesses is
that constant delays occur in depots
which nullify any benefits gained by
speedier transport from place to place."
2.4 Criticism of what the Analysis Excludes
Cost/benefit analysis does not pretend to be anything
more than a partial analysis. It does not include
environmental factors such as noise pollution, the
destruction of open space or visual intrusion. It
cannot take account of social disruption, the effect of
resuming people's homes and severing communities.
more than a partial analysis. It does not include
environmental factors such as noise pollution, the
destruction of open space or visual intrusion. It
cannot take account of social disruption, the effect of
resuming people's homes and severing communities.
Efforts have been made to introduce a system in which
these matters are taken into account. A weighting
scale is developed for each item based upon surveys of
community preference. However, the results have been
unconvincing. They have been discarded as unsatisfactory
in the United Kingdom (the Leitch Committee) and in
Australia by the Sydney Area Transportation Study (55).
The Inquiry agrees. A weighting scale is more likely
to conceal the real issues than illuminate them.
Values change over time, and community preferences
expressed at one point in time are not likely to be
valid at another. It is better that cost/benefit
analysis, if it has a role, should be confined to
those things that can be readily measured.
to conceal the real issues than illuminate them.
Values change over time, and community preferences
expressed at one point in time are not likely to be
valid at another. It is better that cost/benefit
analysis, if it has a role, should be confined to
those things that can be readily measured.
54. S.K/C 1298.
55. SATS Volume 2, Chapter IV, page 23.
55. SATS Volume 2, Chapter IV, page 23.
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Granted that cost/benefit analysis is not able to
include environmental and social considerations, can
it even be said that it adequately measures economic
efficiency? Professor W.R. Blunden (56) suggests that
cost/benefit analysis leaves out of account the
important impacts which a road facility may have upon
land use. Economically, these impacts can be of the
utmost importance. They may be desirable or
undesirable. They are not measured.
include environmental and social considerations, can
it even be said that it adequately measures economic
efficiency? Professor W.R. Blunden (56) suggests that
cost/benefit analysis leaves out of account the
important impacts which a road facility may have upon
land use. Economically, these impacts can be of the
utmost importance. They may be desirable or
undesirable. They are not measured.
2.5 Criticism of the Assumptions: The Inclusion of Certain
Benefits
Benefits
We have referred already to the assumptions which
must be made for the model to predict the traffic flow
in 1991. The accuracy of the model depends upon the
validity of the assumptions.
must be made for the model to predict the traffic flow
in 1991. The accuracy of the model depends upon the
validity of the assumptions.
Quite apart from the assumptions underlying the
model, there are certain assumptions made by the cost/
benefit analysis technique which are challenged.
Any time savings for commercial vehicles or trucks are
included at the full wage rate. But is this appropriate?
It would only be appropriate, it is argued, if that time
may be put to good account in the production of
resources. It assumes that as soon as the truck driver
finishes one delivery there is another waiting for him;
that there is, in other words, an unlimited economic
cake. In reality the truck driver, if he saves a
minute or two, may finish work a little earlier or have
a cigarette. It further assumes that all travel on the
employer's business is carried out in working time, or
at least all savings in such time accrue to the employer
rather than the employee. It assumes that all employees
in travelling act in their employee's interest.
included at the full wage rate. But is this appropriate?
It would only be appropriate, it is argued, if that time
may be put to good account in the production of
resources. It assumes that as soon as the truck driver
finishes one delivery there is another waiting for him;
that there is, in other words, an unlimited economic
cake. In reality the truck driver, if he saves a
minute or two, may finish work a little earlier or have
a cigarette. It further assumes that all travel on the
employer's business is carried out in working time, or
at least all savings in such time accrue to the employer
rather than the employee. It assumes that all employees
in travelling act in their employee's interest.
56.
Annexure 3 "Discussion Paper on the Economic
Analysis of Highway Improvements”
Analysis of Highway Improvements”
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2.6 It is Inappropriate to Concentrate on Travel Speed
Benefits are defined in terms of time savings.
Time savings arise through increases in travel speed.
It is suggested (57) that the emphasis is lop-sided.
Greater emphasis should be given to the smooth flow
of traffic and hence to constancy of speed rather
than increases in speed.
Time savings arise through increases in travel speed.
It is suggested (57) that the emphasis is lop-sided.
Greater emphasis should be given to the smooth flow
of traffic and hence to constancy of speed rather
than increases in speed.
2.7 The Effect on Public Transport is Ignored
New roads attract motorists through reducing travelling
time. They may attract them away from public
transport. Public transport must still be provided
at more or less the same cost even though the
patronage may fall. The Commonwealth Bureau of Roads
(as it then was) made the following comment:- (58)
time. They may attract them away from public
transport. Public transport must still be provided
at more or less the same cost even though the
patronage may fall. The Commonwealth Bureau of Roads
(as it then was) made the following comment:- (58)
"Although road authorities
have a prime
responsibility to provide the facilities
for road transport, their task is only one
contribution towards meeting the community's
whole transportation objectives. The impact
of roads on other transport modes therefore
should not be ignored. If a new freeway
substantially diverts traffic from a
suburban rail line there could in some cases,
be some concomitant costs of reduced
efficiency of the rail operations that are
a relevant charge against the freeway."
responsibility to provide the facilities
for road transport, their task is only one
contribution towards meeting the community's
whole transportation objectives. The impact
of roads on other transport modes therefore
should not be ignored. If a new freeway
substantially diverts traffic from a
suburban rail line there could in some cases,
be some concomitant costs of reduced
efficiency of the rail operations that are
a relevant charge against the freeway."
The South-Western Freeway, for instance, is cheek-
by-jowl with the East Hills railway line. The
effect of one upon the other was not investigated.
It should have been. The effect does not find its
way into the cost/benefit analysis even though some
of the benefits derived by the South-Western Freeway
may be at the expense of the railway (59).
57. D.A.
Hensher "Formulating and Urban Passenger
Transport Policy” (June, 1979).
58. Australian Road Systems Volume II, Paper No. 20,
ibid., page 12.
59. See Annexure 3: Paper W.R. Blunden ibid.,
pages 372 to 379 of this Report.
Transport Policy” (June, 1979).
58. Australian Road Systems Volume II, Paper No. 20,
ibid., page 12.
59. See Annexure 3: Paper W.R. Blunden ibid.,
pages 372 to 379 of this Report.
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2.8 Cost/Benefit Analysis is Inherently Conservative and
Favours Existing Modes
The objection is saying little more than it is
difficult to predict the future (though to say that
is to say a great deal). We cannot know what
technological advances will be made in the time the
road is being contemplated and then constructed
(perhaps 10 to 15 years). The road postulates that
motor vehicles will still be relevant at the end of
that construction period. To that extent technologically
it is conservative because that may or may not be so.
2.9 The Danger that the Analysis will be Given Undue Weight
because it Produces a Number
because it Produces a Number
In the nature of things a great deal of uncertainty
and subjectivity surround many criteria to be applied in
evaluating a road. Amongst all this uncertainty a
number, which is the end product of a complicated
mathematical procedure, may shine like a beacon offering
something which has the appearance of scientific
precision and objectivity.
and subjectivity surround many criteria to be applied in
evaluating a road. Amongst all this uncertainty a
number, which is the end product of a complicated
mathematical procedure, may shine like a beacon offering
something which has the appearance of scientific
precision and objectivity.
There is this danger, and it cannot be ignored. If the
procedure has merit the danger must simply be borne in
mind by those who evaluate each option. They must remind
themselves constantly that it is but one criterion
amongst many.
procedure has merit the danger must simply be borne in
mind by those who evaluate each option. They must remind
themselves constantly that it is but one criterion
amongst many.
2.10 The Analysis Disguises Choices Arrived at by Other Means
There are so many factors which can be manipulated at
any stage in the analysis that there is the temptation to
work towards the result which one wants to achieve. Even
if those responsible for carrying out the analysis have no
ulterior motives, is it not reasonable to expect of any
methodology that it should be beyond manipulation, and
should be seen to be beyond manipulation by the public?
With other criteria the person making the evaluation is
forced to state his or her subjective responses to each
situation. With cost/benefit analysis the subjective
elements may be buried beneath a welter of mathematics.
any stage in the analysis that there is the temptation to
work towards the result which one wants to achieve. Even
if those responsible for carrying out the analysis have no
ulterior motives, is it not reasonable to expect of any
methodology that it should be beyond manipulation, and
should be seen to be beyond manipulation by the public?
With other criteria the person making the evaluation is
forced to state his or her subjective responses to each
situation. With cost/benefit analysis the subjective
elements may be buried beneath a welter of mathematics.
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2.11 The Cost/Benefit Analysis Hides the Issue of Equity;
Who Gains and Who Loses
Equity is not addressed by cost/benefit analysis.
The assumption is made that society as a whole will
benefit if 'benefits' of the type identified, accrue.
The analysis does not ask the question; who gains
and who loses.
The assumption is made that society as a whole will
benefit if 'benefits' of the type identified, accrue.
The analysis does not ask the question; who gains
and who loses.
Because of the assumption that society benefits from
the accumulation of individual benefits, there is
the temptation to leave issues of equity to one side.
Equity was neglected in the present Inquiry. One
suspects it was for this reason. The analysis of
equity must be carried out independently of the
cost/benefit analysis.
the accumulation of individual benefits, there is
the temptation to leave issues of equity to one side.
Equity was neglected in the present Inquiry. One
suspects it was for this reason. The analysis of
equity must be carried out independently of the
cost/benefit analysis.
The concept of equity is something of which the public
is acutely aware. It was suggested to the Inquiry
that small communities were being asked to sacrifice
valuable community assets (such as parks) to 'line
the pockets' of transport operators, since benefits
arising from the highway would accrue to truck drivers
and their employers, and not the community. Now, that
may not be a fair or valid way of viewing the proposals.
It is nonetheless a viewpoint held by many, and
evident in a great many submissions to the Inquiry.
If it is wrong, it should be demonstrated to be wrong
by a thorough-going analysis of the issue of equity.
Cost/benefit analysis certainly does not deal with
the issue.
is acutely aware. It was suggested to the Inquiry
that small communities were being asked to sacrifice
valuable community assets (such as parks) to 'line
the pockets' of transport operators, since benefits
arising from the highway would accrue to truck drivers
and their employers, and not the community. Now, that
may not be a fair or valid way of viewing the proposals.
It is nonetheless a viewpoint held by many, and
evident in a great many submissions to the Inquiry.
If it is wrong, it should be demonstrated to be wrong
by a thorough-going analysis of the issue of equity.
Cost/benefit analysis certainly does not deal with
the issue.
2.12 It is Unintelligible to a Layperson
The participation of the public in the evaluation
process is of the utmost importance. The worth of
that participation has been amply demonstrated by
this Inquiry. The Inquiry is, in consequence,
better informed on the many issues which must be
the subject of deliberation in making decisions one
way or the other.
process is of the utmost importance. The worth of
that participation has been amply demonstrated by
this Inquiry. The Inquiry is, in consequence,
better informed on the many issues which must be
the subject of deliberation in making decisions one
way or the other.
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It is basic to one's sense of fairness that people
ought to be allowed to address an issue which is
considered important in the evaluation procedure.
If a test is applied which is so complex that the public
is bamboozled into silence, there is the danger that
they may not participate at all, or the impression may
be created that their contribution really only goes
so far and no further. In either event, the Inquiry
would be the poorer.
ought to be allowed to address an issue which is
considered important in the evaluation procedure.
If a test is applied which is so complex that the public
is bamboozled into silence, there is the danger that
they may not participate at all, or the impression may
be created that their contribution really only goes
so far and no further. In either event, the Inquiry
would be the poorer.
It is for this reason that the Leitch Committee
established a number of criteria for any method of
appraisal. The first criterion was in the following
terms:- (60)
established a number of criteria for any method of
appraisal. The first criterion was in the following
terms:- (60)
"(The assessment) should be
generally
comprehensible to the public and should
command their respect."
comprehensible to the public and should
command their respect."
This Inquiry entirely agrees with that principle.
Cost/benefit analysis, if it is to be employed, must
be made comprehensible to the public so that the public
may address the issue. The mathematics and the computer
techniques are no doubt beyond the comprehension of
many. What is included, what is excluded, and the
assumptions which are made, are all capable of being
understood. They should be specified.
3. THE ROLE OF COST/BENEFIT ANALYSIS IN ENVIRONMENTAL
INQUIRIES
3.1 The Merits of the Technique
To admit that cost/benefit analysis has limitations, even
major limitations, is not to concede that it should be
disregarded. One must be careful not to throw out
the baby with the bath water. If it provides an insight,
however dim, into economic efficiency, in the absence
60. Leitch
Committee ibid., page 91.
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of something better perhaps it should be retained.
Professor Beesley (61) put it this way:-
Professor Beesley (61) put it this way:-
"In the heat of the
controversy about
the nature of evidence used in (cost/
benefit analysis), it is however,
frequently forgotten that justification
of values implicit in alternative ways
of making choices is far more flimsy,
if present at all.”
the nature of evidence used in (cost/
benefit analysis), it is however,
frequently forgotten that justification
of values implicit in alternative ways
of making choices is far more flimsy,
if present at all.”
What, then, are the merits of cost/benefit analysis?
The paper of Professor Beesley furnishes an eloquent
defence.
First, (62) it forces greater precision of thinking
the definition of projects and the comparisons to be
made. Secondly, it treats a variety of options in a
consistent way. It is a technique designed to highlight
differences between options. The differences, once
identified, can then be analysed for their significance.
It is for this reason a valuable springboard for
discussion (63).
the definition of projects and the comparisons to be
made. Secondly, it treats a variety of options in a
consistent way. It is a technique designed to highlight
differences between options. The differences, once
identified, can then be analysed for their significance.
It is for this reason a valuable springboard for
discussion (63).
More than that, it is in some ways, despite its many
limitations, a convenient index of efficiency. Trucks
make the greater impact upon the road system and
upon the public consciousness. The cost/benefit technique
gives a weighting in favour of trucks although its
reason for doing so is less than convincing.
Whatever the rationale, it is important when measuring
efficiency of a transport facility that there should be
a weighting in favour of trucks.
limitations, a convenient index of efficiency. Trucks
make the greater impact upon the road system and
upon the public consciousness. The cost/benefit technique
gives a weighting in favour of trucks although its
reason for doing so is less than convincing.
Whatever the rationale, it is important when measuring
efficiency of a transport facility that there should be
a weighting in favour of trucks.
Now the popularity of a new road amongst motorists will
depend upon its location and orientation in relation to
the countless journeys made each day throughout the
61. M.E.
Beesley ibid., page 351 of this Report.
62. M.E. Beesley ibid., page 351 of this Report.
63. M.E. Beesley pages 348-371 and also Professor W.R.
Blunden Paper Annexure 3, pages 372-379 of this
Report.
62. M.E. Beesley ibid., page 351 of this Report.
63. M.E. Beesley pages 348-371 and also Professor W.R.
Blunden Paper Annexure 3, pages 372-379 of this
Report.
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network. Built into the cost/benefit index is an
indication of that popularity, though again the
rationale for its inclusion (time savings and operating
cost) is less than convincing. Finally, in terms of
value for money, the facility ought not to be
disproportionately expensive compared to the numbers
who will use it. All these matters come together in a
cost/benefit analysis. Something has been invented to
measure efficiency, which works quite well in practice,
even if the theory upon which it rests is less than
satisfying.
indication of that popularity, though again the
rationale for its inclusion (time savings and operating
cost) is less than convincing. Finally, in terms of
value for money, the facility ought not to be
disproportionately expensive compared to the numbers
who will use it. All these matters come together in a
cost/benefit analysis. Something has been invented to
measure efficiency, which works quite well in practice,
even if the theory upon which it rests is less than
satisfying.
3.2 The Role of Cost Effectiveness
One alternative suggested, was the related concept of
cost effectiveness (64). The concept is best explained
by illustration. A graph is reproduced below:-
FIGURE 15.
COST EFFECTIVENESS GRAPH.
COST EFFECTIVENESS GRAPH.
Source: G.E. Herbert "Project Evaluation - The
State of the Art" September, 1979, page 18.
On one axis of the graph benefits are defined. On
the other there is the cost in millions of dollars.
To obtain the 'level of benefit A' (i.e., level 10)
the other there is the cost in millions of dollars.
To obtain the 'level of benefit A' (i.e., level 10)
64. D.M.R.
Submission S.K/C 340 Transport and Economic
Analysis, September, 1979, p 29.
Analysis, September, 1979, p 29.
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it is necessary to expend almost three million
dollars. Yet by spending less than a million extra
dollars it is possible to move to point B and obtain
benefits at level 50. To go from benefits level 50 to
benefits level 60, however, effectively means almost
doubling the cost.
dollars. Yet by spending less than a million extra
dollars it is possible to move to point B and obtain
benefits at level 50. To go from benefits level 50 to
benefits level 60, however, effectively means almost
doubling the cost.
It is possible to set realistic standards and to
decide whether it is worth spending the additional money
in effecting an improvement. In the case of noise,
for instance, it may be possible to reduce noise,
to say 65 decibels at a certain cost but attempts to
reduce it further to say 60 decibels may double or
treble the cost even though the improvement may be
relatively slight. In these circumstances the technique
is obviously useful in questions of that sort, and in
design questions. It is less adept in comparing one
option with another where they each satisfy a multitude
of criteria in different ways and to different degrees.
decide whether it is worth spending the additional money
in effecting an improvement. In the case of noise,
for instance, it may be possible to reduce noise,
to say 65 decibels at a certain cost but attempts to
reduce it further to say 60 decibels may double or
treble the cost even though the improvement may be
relatively slight. In these circumstances the technique
is obviously useful in questions of that sort, and in
design questions. It is less adept in comparing one
option with another where they each satisfy a multitude
of criteria in different ways and to different degrees.
3.3 Cost/Benefit Analysis One of Many Factors
The Department of Main Roads in its submission makes
the following statement:- (65)
"In using the economic indices
developed,
it needs to be borne in mind that they
do not reflect total community costs and
they are only one of many criteria on
which the options should be judged. In
no way should the economic criteria be
considered the overriding criteria."
it needs to be borne in mind that they
do not reflect total community costs and
they are only one of many criteria on
which the options should be judged. In
no way should the economic criteria be
considered the overriding criteria."
The Inquiry agrees. Economic efficiency is important.
The comparison between efficiency of different options
must be gauged. Cost/benefit analysis does have a
role to play in providing the measure. The matter
is put in the following way by professor Beesley:- (66)
65.
Department of Main Roads submission S.K/C 340.
66. Professor M.E. Beesley, ibid., page 367 of this
Report. (Paragraph 32.)
66. Professor M.E. Beesley, ibid., page 367 of this
Report. (Paragraph 32.)
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"..For future inquiries..a commitment to
some form of (cost/benefit analysis) is
inevitable..Of all techniques of evaluation
it comes, warts and all, closest to
fulfilling the need to compare and weigh by
reference to external evidence. If not done
explicitly, the choice process will perform
a cost/benefit analysis of some sort
implicitly. Better to be explicit, and thus
recognise its limitations. And, as a
standard part of the analytical equipment to
evaluate roads, it can hardly be ignored anyway."
The Inquiry repeats in this context its observation
that those presenting cost/benefit analyses should
explicitly acknowledge the assumptions made, as well
as what is included and what is excluded.
that those presenting cost/benefit analyses should
explicitly acknowledge the assumptions made, as well
as what is included and what is excluded.
4. THE APPLICATION OF COST/BENEFIT ANALYSIS IN THE PRESENT
INQUIRY
INQUIRY
4.1 Problems with the Modelling Procedure
Unfortunately a number of problems were encountered in
the presentation of cost/benefit analyses to the Inquiry.
We shall not dwell on them because they are dealt with
elsewhere in this Report (67).
Two things should, nonetheless, be said. First, the
complications which arose in the modelling procedure
spilled over into the cost/benefit analyses so that
some of them are based upon Trip Table C (as it was
termed) and others upon Trip Table D. What was already a
complicated exercise out of the reach of most, became
that much more obscure and inaccessible.
complications which arose in the modelling procedure
spilled over into the cost/benefit analyses so that
some of them are based upon Trip Table C (as it was
termed) and others upon Trip Table D. What was already a
complicated exercise out of the reach of most, became
that much more obscure and inaccessible.
The confusion was confounded by a decision to incorporate
into later analyses (68) what was termed the "extended
base". Whereas the analyses based upon Trip Table C did
not incorporate any works in the South Western corridor
west of Ring Road 3, the analyses based upon Trip Table
D assumed those works had been completed.
into later analyses (68) what was termed the "extended
base". Whereas the analyses based upon Trip Table C did
not incorporate any works in the South Western corridor
west of Ring Road 3, the analyses based upon Trip Table
D assumed those works had been completed.
67. See
page 200.
68. Department of Main Roads submission S.K/C 340
September, 1979, De Leuw Cather Australia Pty. Limited.
68. Department of Main Roads submission S.K/C 340
September, 1979, De Leuw Cather Australia Pty. Limited.
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4.2 The Cost Estimates used in the Analyses
We began this exposition by making an obvious (but
important) statement that it is fundamental that the
costs should be accurate.
We are not convinced that the cost estimates were
accurate. Accordingly, the cost/benefit figures are
suspect. It is our view that the benefit/cost ratios
are likely to be rather less favourable than the
analyses suggest because the cost figures are understated.
The way in which they are understated will emerge from
the following analysis.
accurate. Accordingly, the cost/benefit figures are
suspect. It is our view that the benefit/cost ratios
are likely to be rather less favourable than the
analyses suggest because the cost figures are understated.
The way in which they are understated will emerge from
the following analysis.
4.3 The Cost of the Cooks River Option
In February, 1976 the Urban Transport Advisory Committee
(URTAC) (69) published a report (70). The report
reviewed the transport requirements of Sydney. It
suggested the Cooks River Option should be constructed.
Construction was to begin in the financial year 1979/
1980. The project was to be completed by 1985/1986.
A cost estimate was provided although it was subject to
the following proviso:- (71)
(URTAC) (69) published a report (70). The report
reviewed the transport requirements of Sydney. It
suggested the Cooks River Option should be constructed.
Construction was to begin in the financial year 1979/
1980. The project was to be completed by 1985/1986.
A cost estimate was provided although it was subject to
the following proviso:- (71)
"While the projects themselves
can be
considered as firm, the finer details
of timing and costs must be accepted
as notional."
considered as firm, the finer details
of timing and costs must be accepted
as notional."
The cost estimate was for $32.8 million.
We do not have a description of the road which was
proposed. It would appear that a six-lane freeway
standard road was contemplated (72).
69. Now
known as the TRANSAC.
70. Report to the Minister for Transport and Highways
and the Minister for Planning and Environment.
71. Appendix III, page 71 and see also page 28.
72. Report ibid., page 33.
70. Report to the Minister for Transport and Highways
and the Minister for Planning and Environment.
71. Appendix III, page 71 and see also page 28.
72. Report ibid., page 33.
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One year later (February, 1977) the Urban Transport
Study Group (73) prepared a paper entitled "Analysis
of the Chullora-Kyeemagh and Johnston’s Creek Road"
as part of the 'Central Industrial Area Study' (74).
The report refers to the URTAC report of the preceding
year (75). It would appear that precisely the same
standard of road, is contemplated. We do, on this
occasion, have a description of the proposed route:- (76)
Study Group (73) prepared a paper entitled "Analysis
of the Chullora-Kyeemagh and Johnston’s Creek Road"
as part of the 'Central Industrial Area Study' (74).
The report refers to the URTAC report of the preceding
year (75). It would appear that precisely the same
standard of road, is contemplated. We do, on this
occasion, have a description of the proposed route:- (76)
"A six-lane expressway from Tancred Avenue
Kyeemagh to Hume Highway, Chullora."
The cost however is very different. The total cost is
$88 million which can be broken down as follows:-
$88 million which can be broken down as follows:-
- $62 million for the construction of
the road - $11 million replacement of open
space taken by the road - $15 million ancillary work
We do not know whether the original estimate of $32.8
million included any ancillary work. It should
not be thought that the ancillary works were mere icing
on the cake and that the cake might be consumed without
them. They were an important part of the project
without which it would not function efficiently. UTS
made the following observation:- (77)
million included any ancillary work. It should
not be thought that the ancillary works were mere icing
on the cake and that the cake might be consumed without
them. They were an important part of the project
without which it would not function efficiently. UTS
made the following observation:- (77)
"Chullora-Kyeemagh also has
significant
construction costs associated with
ancillary road improvement projects. They
(are) improvements to adjacent roads which
would otherwise experience severe
congestion as a result of constructing the
route."
construction costs associated with
ancillary road improvement projects. They
(are) improvements to adjacent roads which
would otherwise experience severe
congestion as a result of constructing the
route."
73. Now known
as the State Transport Study Group.
74. Report No. 15.
75. UTS Report "Analysis of the Chullora-Kyeemagh and
Johnston's Creek Road”, page 2.
76. UTS Report ibid., Table 2.
77. Appendix 6, Central Industrial Area Study, page 4.
74. Report No. 15.
75. UTS Report "Analysis of the Chullora-Kyeemagh and
Johnston's Creek Road”, page 2.
76. UTS Report ibid., Table 2.
77. Appendix 6, Central Industrial Area Study, page 4.
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Even if no ancillary works were included in the
original estimate of $32.8 million the contrast is
startling. Within the space of one year (February, 1976
to February, 1977) or perhaps eighteen months, the
estimated cost of the route almost doubled - $32.8 million
to $62 million.
If the ancillary works were included in the original
estimate (and it seems difficult to imagine they were not)
the contrast is between $32.8 million and $73 million. (78)
4.4 The Cost of Widening Canterbury Road
It is instructive to examine the cost estimates given from
time to time in respect to the widening of Canterbury
Road.
One of the ancillary works proposed in connection with the
Kyeemagh-Chullora Road (the Cooks River Option) as
originally conceived (February, 1977) was the widening of
Canterbury Road between the Cooks River and King Georges
Road. An estimate of the cost of this and other works
was provided to the Urban Transport Study Group to enable
a comparison between the economic merits of the Kyeemagh-Chullora proposal and the Johnston’s Creek Route (79).
The cost of widening Canterbury Road is not stated in
terms. The combined cost of all ancillary works was given
as $15 million. The works included:-
Kyeemagh-Chullora Road (the Cooks River Option) as
originally conceived (February, 1977) was the widening of
Canterbury Road between the Cooks River and King Georges
Road. An estimate of the cost of this and other works
was provided to the Urban Transport Study Group to enable
a comparison between the economic merits of the Kyeemagh-Chullora proposal and the Johnston’s Creek Route (79).
The cost of widening Canterbury Road is not stated in
terms. The combined cost of all ancillary works was given
as $15 million. The works included:-
- Widen Punchbowl Road from King Georges Road
to Cooks River. (from 4 to 6 lanes) - Widen Canterbury Road from King Georges Road
to Cooks River. (from 4 to 6 lanes) - Widen Wardell Road at Cooks River and
Dulwich Hill Station. - Widen Illawarra Road from Marrickville
railway station to Marrickville Road.
78. It
seems plain from the Central Industrial Area Study,
Chapter IV, page 78 and from Appendix 6 to that Study
page 15, that the high cost is not brought about by
any design change and the contrast is $32.8 million
in February, 1976, and $73 million (if not $88 million)
in February 1977.
79. UTS “Central Industrial Area Study” Appendix 6 and
‘Analysis of Chullora-Kyeemagh and Johnston’s Creek
Roads’, February, 1977, Table 2.
Chapter IV, page 78 and from Appendix 6 to that Study
page 15, that the high cost is not brought about by
any design change and the contrast is $32.8 million
in February, 1976, and $73 million (if not $88 million)
in February 1977.
79. UTS “Central Industrial Area Study” Appendix 6 and
‘Analysis of Chullora-Kyeemagh and Johnston’s Creek
Roads’, February, 1977, Table 2.
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- Widen Bayview Avenue at Unwins Bridge.
A second estimate was provided in connection with the
options being considered by this Inquiry. One option
is referred to as the 'Cooks River/Campsie by-pass
Option'. It is a hybrid option incorporating the
following:-
options being considered by this Inquiry. One option
is referred to as the 'Cooks River/Campsie by-pass
Option'. It is a hybrid option incorporating the
following:-
- Part of the Cooks River Option between
General Holmes Drive and Riverview Road,
Earlwood - Certain streets between Riverview Road
and Canterbury Road - Portion of Canterbury Road between the
Cooks River and Orissa Street, Campsie - The Campsie By-pass
In respect of the Canterbury Road section of the route
the following work would be carried out:- (80)
the following work would be carried out:- (80)
"Canterbury Road will be
widened at Fore
Street, Wonga Street, Bexley Road/
Beamish Street and Viking Street/Orissa
Street to provide right-turn storage."
Street, Wonga Street, Bexley Road/
Beamish Street and Viking Street/Orissa
Street to provide right-turn storage."
We were not provided with the costs of these works
alone. The cost estimates given by the Department (91)
estimate the total costs for the section from Riverview
Road to Orissa street (which incorporates the Canterbury
Road improvement) at $5.51 million (1978/1979 dollars).
alone. The cost estimates given by the Department (91)
estimate the total costs for the section from Riverview
Road to Orissa street (which incorporates the Canterbury
Road improvement) at $5.51 million (1978/1979 dollars).
Before moving to the third estimate we should draw
attention to a number of matters. First, under the
ancillary works originally contemplated Canterbury Road
was to be widened for approximately 4.6 kilometres.
Several dozen intersections would have been involved.
Yet this and many other works were to be undertaken for
$15 million. Some two years later the widening of four
attention to a number of matters. First, under the
ancillary works originally contemplated Canterbury Road
was to be widened for approximately 4.6 kilometres.
Several dozen intersections would have been involved.
Yet this and many other works were to be undertaken for
$15 million. Some two years later the widening of four
80.
Department of Main Roads submission S.K/C 340,
Transport and Economic Analysis, page 19.
81. Exhibit 95.
Transport and Economic Analysis, page 19.
81. Exhibit 95.
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intersections, without widening the road itself, was
estimated to cost approximately $4 or $5 million.
The third estimate was provided by the Department when
giving evidence (82). In the section of road between
the Cooks River and King Georges Road the cost of
widening to six lanes (with a median and right-turn
storage at major intersections) was estimated to be:-
giving evidence (82). In the section of road between
the Cooks River and King Georges Road the cost of
widening to six lanes (with a median and right-turn
storage at major intersections) was estimated to be:-
- minimum $52 million
- maximum $83 million
These high sums are to be contrasted with $15 million for
a much more substantial road programme. The addiction of
a median and right-turn storage at major intersections
was not contemplated (so far as we can tell) by the
ancillary works originally proposed. These works would
obviously not account for the marked difference in cost.
a much more substantial road programme. The addiction of
a median and right-turn storage at major intersections
was not contemplated (so far as we can tell) by the
ancillary works originally proposed. These works would
obviously not account for the marked difference in cost.
A fourth estimate was provided (83). The estimates
prepared for two schemes as follows:-
prepared for two schemes as follows:-
- ‘A’ - 28 metre reserve allowing for
six lanes plus a 1 metre median but
no right-turn storage lanes. - 'B' - reserve varying between 28
metres and 32 metres allowing for
six lanes and a 1 metre median plus
right-turn storage lanes at twelve
major intersections.
The cost estimates were:-
- ‘A’ - $55 million
- ‘B’ - $57 million
Scheme 'B' is directly comparable to the third estimate
where the range is stated to be $52 million to $83 million.
where the range is stated to be $52 million to $83 million.
82.
Transcript of Department of Main Roads, 25/10/79,
page 4.
83. Exhibit 94, Department of Main Roads.
page 4.
83. Exhibit 94, Department of Main Roads.
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4.5 The Value of Businesses Affected
A number of businesses are affected by each option.
The cost estimates are less than adequate for a
number of reasons. The proprietor of the business
is entitled to compensation in respect of the
following:- (84)
The cost estimates are less than adequate for a
number of reasons. The proprietor of the business
is entitled to compensation in respect of the
following:- (84)
- The value of the business property to
him - Removal costs in transferring plant and
machinery - Losses sustained as a result of disturbing
the business - Loss of profits during re-establishment
It is difficult to imagine how a reliable estimate
could be made in the absence of some rudimentary
survey. Yet it is apparent that no such survey was
carried out (85).
could be made in the absence of some rudimentary
survey. Yet it is apparent that no such survey was
carried out (85).
We are not convinced that any allowance has been made
for the cost of relocation and loss of profits to
businesses displaced in the South Western Freeway
Corridor. We are convinced (see below) that the land
occupied by businesses was not valued according to
the correct principles.
for the cost of relocation and loss of profits to
businesses displaced in the South Western Freeway
Corridor. We are convinced (see below) that the land
occupied by businesses was not valued according to
the correct principles.
One illustration will suffice. The Department of Main
Roads and the Planning and Environment Commission
placed certain cost material before the Inquiry (86).
They asked that it remain confidential. The reasons are
obvious. The Inquiry would not be breaching that
confidence, in its view, if it, were to discuss in a very
general way some of the cost estimates.
Roads and the Planning and Environment Commission
placed certain cost material before the Inquiry (86).
They asked that it remain confidential. The reasons are
obvious. The Inquiry would not be breaching that
confidence, in its view, if it, were to discuss in a very
general way some of the cost estimates.
84. See
Social Criteria Volume III.
85. See Appendix 6.6 of the Joint Study Report page A11
and see also Transcript of Department of Main Roads
25/10/79 pages 45 and 46 and 14/10/79 page 2.
86. Exhibit 62 and annexure to letter of 8/11/80 from
the Department of Main Roads; Letter from the
Planning and Environment Commission dated 27/2/80.
85. See Appendix 6.6 of the Joint Study Report page A11
and see also Transcript of Department of Main Roads
25/10/79 pages 45 and 46 and 14/10/79 page 2.
86. Exhibit 62 and annexure to letter of 8/11/80 from
the Department of Main Roads; Letter from the
Planning and Environment Commission dated 27/2/80.
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In respect of one unprepossessing factory in the South
Western Corridor the Department of Main Roads Study
Team estimated the cost of acquisition at $50,000 (87).
For the same property the Planning and Environment
Commission provided an estimate of $260,000.
Approximately eighteen months separates the estimates.
Making an adjustment for this period the discrepancy
remains substantial.
4.6 The Valuation of Properties in the South Western Corridor
It appears that the valuers from the Department of
Main Roads estimated the property acquisition costs in
respect of the Cooks River Option in February, 19789 (88).
The method employed in valuing properties in the South
Western Corridor and for the Bexley Road Options is
described in the following passage:- (88)
"For the South Western and,
Bexley Road
Options, the project team itself
estimated property values by comparing
similar properties on those routes with
properties on the Cooks River Route which
had been valued in detail by the Department’s
Valuers..."
Options, the project team itself
estimated property values by comparing
similar properties on those routes with
properties on the Cooks River Route which
had been valued in detail by the Department’s
Valuers..."
The approach taken by the Department is wrong in principle.
A property in the Cooks River Corridor is geographically
remote from properties within the South Western Corridor. In assessing the value of a property within the South
Western Corridor it is necessary to take into account 'comparable sales’. Lawyers argue endlessly as to what
is and what is not a comparable sale. One can say with
some confidence, however, that a property several
kilometres away in a different suburb cannot under any
circumstances be considered comparable. It is not
legitimate to transpose valuations from one corridor to
another simply because the properties physically resemble
each other.
A property in the Cooks River Corridor is geographically
remote from properties within the South Western Corridor. In assessing the value of a property within the South
Western Corridor it is necessary to take into account 'comparable sales’. Lawyers argue endlessly as to what
is and what is not a comparable sale. One can say with
some confidence, however, that a property several
kilometres away in a different suburb cannot under any
circumstances be considered comparable. It is not
legitimate to transpose valuations from one corridor to
another simply because the properties physically resemble
each other.
87. Confidential
Letter Department of Main Roads,
8/4/80.
88. Transcript Department of Main Roads 13/12/79,
page 19.
8/4/80.
88. Transcript Department of Main Roads 13/12/79,
page 19.
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Looking at the confidential valuations it is plain
that they are understated. We are reinforced in that
view by the value attributed to 'typical’ properties
some eighteen months later by the valuers from the
Planning and Environment Commission (89).
4.7 The Valuation of Open Space
Is there a difference in approach between the Commonwealth
Bureau of Transport Economics and the State Transport
Study Group of New South Wales on the question of open
space? We repeat the principle suggested by the
Commonwealth Body (then the Commonwealth Bureau of Roads) (90):-
Bureau of Transport Economics and the State Transport
Study Group of New South Wales on the question of open
space? We repeat the principle suggested by the
Commonwealth Body (then the Commonwealth Bureau of Roads) (90):-
"In urban areas where
parklands are often
used for road construction, the relevant
economic value of the parkland is the
valuation it would have if it were made
available for other activities, such as
manufacturing or residential.”
used for road construction, the relevant
economic value of the parkland is the
valuation it would have if it were made
available for other activities, such as
manufacturing or residential.”
(emphasis added)
When considering the issue in the context of the Cooks
River Option the State Transport Study Group seems to
be saying the same thing in the following passage:- (91)
River Option the State Transport Study Group seems to
be saying the same thing in the following passage:- (91)
"The value of land as used in
the social cost/
benefit analysis is the opportunity value
at the time it is used rather than the price
paid at the time it was purchased...A cost
was assumed for this land (i.e., open space,
park and reserve land.) equivalent to the
cost of replacement in the immediate environs.”
benefit analysis is the opportunity value
at the time it is used rather than the price
paid at the time it was purchased...A cost
was assumed for this land (i.e., open space,
park and reserve land.) equivalent to the
cost of replacement in the immediate environs.”
Is there any retreat from this principle when the Group
makes the following comment? (92)
makes the following comment? (92)
"(Alienation of open space) is
highly
significant in assessing the Chullora-
Kyeemagh Route, which would take 6.6 ha.
significant in assessing the Chullora-
Kyeemagh Route, which would take 6.6 ha.
89. S.K/C
947 Letter 27/2/80 (Confidential).
90. Report on the Australian Road System Volume II,
Paper No. 20 "Economic Evaluation or Road Improvements -
Principles and Procedures”.
91. Central Industrial Area Study, Appendix 6, pages 13-14.
92. UTS (now STSG) "Analysis of Chullora-Kyeemagh and
Johnston's Creek Roads”, February, 1977, page 9.
90. Report on the Australian Road System Volume II,
Paper No. 20 "Economic Evaluation or Road Improvements -
Principles and Procedures”.
91. Central Industrial Area Study, Appendix 6, pages 13-14.
92. UTS (now STSG) "Analysis of Chullora-Kyeemagh and
Johnston's Creek Roads”, February, 1977, page 9.
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of open space and 14 ha. of public
recreation space. The DMR has made
provision in its financial estimates,
for replacing this land...by acquisition,
but there is no firm policy yet on this
matter. In the absence of such a policy,
and without knowing where the replacement
land would be..it is not possible to
evaluate the matter.” (93)
The Group in this passage seems to us to be commenting
upon the principle of replacing open space rather than
upon its inclusion in a cost/benefit analysis. It does
seem clear that the opportunity costs of open space
should be included in the analysis whether it is replaced
or not (94).
upon the principle of replacing open space rather than
upon its inclusion in a cost/benefit analysis. It does
seem clear that the opportunity costs of open space
should be included in the analysis whether it is replaced
or not (94).
What happened in the present Inquiry? Plainly the
acquisition cost and not the opportunity cost (i.e., the
cost if the land were used in some other way such as
residential, industrial, parkland etc) has been used. In
respect of the Cooks River Corridor the facts are these:-
acquisition cost and not the opportunity cost (i.e., the
cost if the land were used in some other way such as
residential, industrial, parkland etc) has been used. In
respect of the Cooks River Corridor the facts are these:-
- The proposal examined by the Study Group in
February, 1977 involved the acquisition of
20 ha. of open space (see above) - The opportunity costs were said to be $11 million
- The cost per hectare (to take a rudimentary guide)
was assessed at $550,000
In the Cooks River Option being considered by this Inquiry
the comparable statistics are:-
the comparable statistics are:-
- 6.6 hectares of open space would be resumed
(maximum open space option) - The total value attributed to this land and
the cost estimates is $717,550 (95) - The value per hectare has reduced to approximately
$109,000 even though the valuation was made 18
months later
93. See
also Central Industrial Area Study, June, 1977,
Chapter IV, page 78.
94. M.E. Beesley ibid., page 365 of this Report (para. 28).
95. Exhibit 62. Contrast open space held privately in
Randwick. 4½ ha. was valued in 1978 at $M3.5
(approximately $777,800 per ha.). This is, of course,
only a very general guide. The discrepancy is still
marked. (The Glebe Gully, Randwick).
Chapter IV, page 78.
94. M.E. Beesley ibid., page 365 of this Report (para. 28).
95. Exhibit 62. Contrast open space held privately in
Randwick. 4½ ha. was valued in 1978 at $M3.5
(approximately $777,800 per ha.). This is, of course,
only a very general guide. The discrepancy is still
marked. (The Glebe Gully, Randwick).
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The contrast in the case of the South Western Option
is even more stark. The facts are:-
is even more stark. The facts are:-
- 36 hectares of open space would be resumed
- The total value of this land is $3,349,700
- The cost per hectare for this land is
approximately $93,000
No doubt the value of some of the land between Bexley
Road and Turrella would have to be discounted because it
is steep or swampy and unsuitable for development.
Making that allowance, the discrepancy is still enormous-
It must adversely affect the cost/benefit analysis.
Road and Turrella would have to be discounted because it
is steep or swampy and unsuitable for development.
Making that allowance, the discrepancy is still enormous-
It must adversely affect the cost/benefit analysis.
4.8 Construction Costs not Supported by Investigation
The construction costs do not pretend to be other than
preliminary estimates. The Department of Main Roads has
yet to undertake investigation into the suitability of
the material which will form the road base. Bore holes
will be sunk. Where the material is unsuitable it must
be scooped out and replaced by material capable of
carrying the weight of the road structure and the traffic
which will use it.
The problems may be greater than ordinarily encountered
in road works. The following evidence was given by
Mr. Peter Shaw a Director of the company responsible for
erecting a shopping centre (known as the Southside Plaza,
Rockdale):- (96)
in road works. The following evidence was given by
Mr. Peter Shaw a Director of the company responsible for
erecting a shopping centre (known as the Southside Plaza,
Rockdale):- (96)
"SHAW: And this land, that
additional
store we built - $500,000 might not
sound expensive - but we went down I
think fifty feet and could not find any
ground.. It used to be a old market
garden and it's all friction pile -
there's some eighty or ninety piles
over that side...once we got into this
thing, it is a terribly expensive
construction..”
store we built - $500,000 might not
sound expensive - but we went down I
think fifty feet and could not find any
ground.. It used to be a old market
garden and it's all friction pile -
there's some eighty or ninety piles
over that side...once we got into this
thing, it is a terribly expensive
construction..”
96.
Transcript Shopping Centres Pty. Limited 29/10/79,
page 15.
page 15.
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The design loadings for a commercial building (even
a single storey building such as the Southside Plaza)
are obviously greater than for a flat structure such as
a road.
There are certain tennis courts at Campsie adjacent to
the Cooks River. The proprietor Mr. Arthur Smith made
the following written submission:- (97)
the Cooks River. The proprietor Mr. Arthur Smith made
the following written submission:- (97)
"This road is proposed to be
built over
what is described as an alluvial flood
plain which, in actual fact, was and
still is an alluvial flood swamp plain,
built up by numerable tips, operated by
suburban councils over many years.
This was added to by depositing the
soil from the river bed during dredging
operations by the Main Roads Department
and the Water, Sewerage and Drainage Board..
My own allotment was filled up to ten
feet. When I applied for the sewage
plan I was informed that the sewer head
was three feet down. It was actually nine
feet below ground level before we started
filling. It is now twelve feet below this
point."
what is described as an alluvial flood
plain which, in actual fact, was and
still is an alluvial flood swamp plain,
built up by numerable tips, operated by
suburban councils over many years.
This was added to by depositing the
soil from the river bed during dredging
operations by the Main Roads Department
and the Water, Sewerage and Drainage Board..
My own allotment was filled up to ten
feet. When I applied for the sewage
plan I was informed that the sewer head
was three feet down. It was actually nine
feet below ground level before we started
filling. It is now twelve feet below this
point."
The likely difficulties are highlighted by the Canterbury
Council:- (98)
Council:- (98)
"The estimates are based on
preliminary
designs at this stage and may not take
into account poor foundation conditions
along much of the Cooks River and part
of the South Western Freeway route. For
example Canterbury Council has carried
out some subsurface testing at
Waterworth Park, Undercliffe which is an
area affected by both of these routes.
Laboratory testing by consultant
geotechnical Engineers of samples indicates
there is up to 25m of highly compressible
estuarine sediments at the site and the
construction of any sort of surface structure
could prove extremely costly. There are
other areas particularly along the Cooks
River which were used in the past for
garbage dumps.
designs at this stage and may not take
into account poor foundation conditions
along much of the Cooks River and part
of the South Western Freeway route. For
example Canterbury Council has carried
out some subsurface testing at
Waterworth Park, Undercliffe which is an
area affected by both of these routes.
Laboratory testing by consultant
geotechnical Engineers of samples indicates
there is up to 25m of highly compressible
estuarine sediments at the site and the
construction of any sort of surface structure
could prove extremely costly. There are
other areas particularly along the Cooks
River which were used in the past for
garbage dumps.
97. S.K/C
786 Mr. Arthur Smith, 19/7/79.
98. S.K/C 341 Submission Canterbury Council, page 25.
98. S.K/C 341 Submission Canterbury Council, page 25.
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As the DMR have not yet carried out any
surface testing for the road options it
is possible that when the final designs
are carried out the final construction
estimates may increase significantly
over the present estimates.”
4.9 Other Minor Blemishes Upon the Cost Estimates
The Cooks River Option (and the Bexley Road Options)
deviate from the Kyeemagh-Chullora Road Corridor at
the Western end. Instead of following the Cooks River
from Punchbowl Road to the Hume Highway, the existing
road system (The Boulevarde, and Hill Street,
Strathfield) is used. That deviation is the subject of
comment elsewhere in this Report (99). The Inquiry
agrees with the view of the Strathfield, Burwood and
Bankstown Councils that the road (if it were built)
should follow the corridor through to the Hume Highway.
deviate from the Kyeemagh-Chullora Road Corridor at
the Western end. Instead of following the Cooks River
from Punchbowl Road to the Hume Highway, the existing
road system (The Boulevarde, and Hill Street,
Strathfield) is used. That deviation is the subject of
comment elsewhere in this Report (99). The Inquiry
agrees with the view of the Strathfield, Burwood and
Bankstown Councils that the road (if it were built)
should follow the corridor through to the Hume Highway.
However, looking at the matter in terms of the option
presented (and the economic analysis) it is clear that
the cost of certain widening works in Hume Highway has
been overlooked. The Department said in evidence:- (100)
presented (and the economic analysis) it is clear that
the cost of certain widening works in Hume Highway has
been overlooked. The Department said in evidence:- (100)
"SHEPHERD: ..It appears that
in the
list on Appendix 6.6 (of the Joint
Study Report) Schedule 3, the shops
at the intersection of Homebush Avenue
and Hume Highway do not appear to be
listed, and therefore one would have
to add to the appropriate figures for..
a small number of shops which would
need to be totally acquired. "
list on Appendix 6.6 (of the Joint
Study Report) Schedule 3, the shops
at the intersection of Homebush Avenue
and Hume Highway do not appear to be
listed, and therefore one would have
to add to the appropriate figures for..
a small number of shops which would
need to be totally acquired. "
Further, it will be noticed that the costs are expressed
in 1978/1979 dollars. The construction costs were
calculated according to the mid-point of the financial
year i.e., the end of December, 1978. Yet the property
valuation was made for all options nine months earlier
(February, 1978). It was not indexed to December, 1978 (1).
in 1978/1979 dollars. The construction costs were
calculated according to the mid-point of the financial
year i.e., the end of December, 1978. Yet the property
valuation was made for all options nine months earlier
(February, 1978). It was not indexed to December, 1978 (1).
99. See evaluation of the Cooks River Option
100. Transcript of Department of Main Roads 26/10/79,
page 47.
1. Transcript of Department of Main Roads 26/10/79,
pages 48-49.
100. Transcript of Department of Main Roads 26/10/79,
page 47.
1. Transcript of Department of Main Roads 26/10/79,
pages 48-49.
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The Department made the following suggestion in respect
to that period:- (2)
to that period:- (2)
"SHEPHERD: ..The values would
have
to be expected to be a little low
compared to, for example, December,
1978 property values, but perhaps
an appropriate index figure maybe
of the order of 10%.”
to be expected to be a little low
compared to, for example, December,
1978 property values, but perhaps
an appropriate index figure maybe
of the order of 10%.”
Now the property acquisition costs in respect to the
various options are:-
various options are:-
- $11.42 million Cooks River Option
- $10.74 million South Western Option
-
$3.17 million Bexley Road Option (via
Harrow Road)
- $5.09 million Bexley Road Option (via
Bestic Street)
- $5.50 million Cooks River/Campsie By-
Pass Option
In short, in respect to the major options, the property
acquisition costs are understated by approximately
$1 million by reason of this fact alone.
acquisition costs are understated by approximately
$1 million by reason of this fact alone.
4.10 Other Matters Affecting Cost Estimates
There are two other matters which should be mentioned.
First, the cost/benefit analysis is calculated at
one point in time. It presupposes that each of the
elements (whether costs or benefits) inflate at the
same rate. It is difficult to know what the effect of
inflation will be upon the various estimates which were
provlded in ‘1978/79 dollars'. There is the suggestion
that construction costs are running ahead of the consumer
price index (3). It was said that maintenance costs
'has the highest cost rise index' of all (4). The
2. Transcript
of Department of Main Roads 13/12/79,
page 20.
3. Department of Main Roads Transcript 25/10/79,
page 14. See Exhibit
4. Department of Main Roads Transcript 14/1/80, page 15.
page 20.
3. Department of Main Roads Transcript 25/10/79,
page 14. See Exhibit
4. Department of Main Roads Transcript 14/1/80, page 15.
-311-
escalation of property values is a matter of some
notoriety. The combinations of these factors tends to
suggest that costs are inflating rather faster than
benefits.
However, buried within the formula for calculating
benefits is the price of petrol. If the price of petrol
does outstrip the inflation rate (as people suspect) the
increased benefits may counter-balance the increase in
costs. The Inquiry is not in a position to make a
judgement one way or other.
Secondly, the basis upon which property values are
assessed has been altered since the estimates were made.
Section 116 of the Environmental Planning and Assessment
Act 1980 adds a new element of compensation where a
person’s place of residence is being resumed - a ‘solatium’.
A solatium is additional compensation which the courts
may award to cushion the blow of having to relocate one’s
residence.
assessed has been altered since the estimates were made.
Section 116 of the Environmental Planning and Assessment
Act 1980 adds a new element of compensation where a
person’s place of residence is being resumed - a ‘solatium’.
A solatium is additional compensation which the courts
may award to cushion the blow of having to relocate one’s
residence.
What is a solatium likely to add to the costs? The
State Transport Study Group make the following comment:- (5)
State Transport Study Group make the following comment:- (5)
"Research carried out for the
Commonwealth
Bureau of Roads (Report on Roads in
Australia 1973) indicated that a figure
equal to 15–25% of the residential
land acquisition costs (market value)
should be added to the market value to
account for these additional disruption
costs (i.e., what are termed ‘householders
surplus’ and 'solatium').”
Bureau of Roads (Report on Roads in
Australia 1973) indicated that a figure
equal to 15–25% of the residential
land acquisition costs (market value)
should be added to the market value to
account for these additional disruption
costs (i.e., what are termed ‘householders
surplus’ and 'solatium').”
The submission from the Department of Main Roads states (6)
a "sensitivity" test was made of increasing the land
acquisition costs by 20% to approximate the costs of
solatium.
a "sensitivity" test was made of increasing the land
acquisition costs by 20% to approximate the costs of
solatium.
5. UTS (now
STSG) Central Industrial Area Study
Appendix 6, page 14.
6. S.K/C 340 Department of Main Roads Report, September,
1979 (De Leuw Cather) page 64.
Appendix 6, page 14.
6. S.K/C 340 Department of Main Roads Report, September,
1979 (De Leuw Cather) page 64.
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Accordingly, with the major options (Cooks River Option
and South Western Option) $2 to $3 million would have
to be added to the construction costs.
Further changes to the resumption and compensation laws
are in the wind (7). The Westlake Committee in New
South Wales and the Australian Law Reform Commission
have each recommended that persons injuriously affected
by a highway facility should be compensated even where
no property is resumed. These measures are presently
being considered by the New South Wales and Commonwealth
Parliaments respectively.
are in the wind (7). The Westlake Committee in New
South Wales and the Australian Law Reform Commission
have each recommended that persons injuriously affected
by a highway facility should be compensated even where
no property is resumed. These measures are presently
being considered by the New South Wales and Commonwealth
Parliaments respectively.
4.11 The Discount Year
In the economic analysis within the submission from the
Department of Main Roads the following appears:- (8)
"All costs are expressed in
constant
dollar rates at the 1978/79 level."
dollar rates at the 1978/79 level."
Yet, within the same document it is said that the ‘base
year for discounting was 1979/80’ (9). The costs ought
to have been discounted back to 1978/79. If this were
done the benefit/cost ratios are likely to be less
favourable than they appear.
4.12 The Benefits for the South Western Option
In calculating the benefits for both the South Western
and Cooks River Options the assumption is made that they
begin to accrue five years before the completion of
construction, and they progressively increase over the
five years (10). Benefits accrue because sections of the
road can be opened to traffic as they are completed. The
cost/benefit analysis, therefore, makes two assumptions:-
7. See Social Criteria; Displacement of People
and
Property, (Volume III).
8. D.M.R. Submission S.K/C 340, September, 1979, page 58.
9. Ibid., page 63.
10. Department of Main Roads Submission S.K/C 340,
September, 1979, page 63.
Property, (Volume III).
8. D.M.R. Submission S.K/C 340, September, 1979, page 58.
9. Ibid., page 63.
10. Department of Main Roads Submission S.K/C 340,
September, 1979, page 63.
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- Both the Cooks River and the South Western
Option can be completed in independent and
usable stages - That the capacity of one in this respect is
the same as the other
Yet this manifestly is not so. One need not go beyond
the summary of the Joint Study Report for evidence to
the contrary. In respect to the Cooks River Option under
the heading 'Early Economic Benefits' the following is
said:- (11)
the summary of the Joint Study Report for evidence to
the contrary. In respect to the Cooks River Option under
the heading 'Early Economic Benefits' the following is
said:- (11)
"Possible to construct
independent
and usable stages."
and usable stages."
For the South Western Option the following appears:- (11)
"Limited opportunity to
construct
independent and usable stages.”
independent and usable stages.”
It is likely that the South Western Option could only
be opened to traffic once the entire length between King
Georges Road and Turrella has been completed. If this
is right the cost/benefit figures for the South Western
Option are higher than they should be.
be opened to traffic once the entire length between King
Georges Road and Turrella has been completed. If this
is right the cost/benefit figures for the South Western
Option are higher than they should be.
4.13 Marginal Cost/Benefit Analysis
The Department of Main Roads thought the South Western
corridor combined the greatest potential growth and the
greatest potential capacity short-fall or deficiency in
the road network. It therefore felt that work in this
corridor was more important than work in the Cooks
River Valley. A number of possibilities were discussed
including:-
- The completion of the South Western Freeway
to Campbelltown. This possibility was ruled
out because of the astronomical cost.
11. Joint
Study Report Summary page ii.
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- A short term expedient known as the
'Picnic Point Connection' in which a bridge
would be constructed across the Georges
River at Picnic Point and roads between
Campbelltown and King Georges Road would be
upgraded. - There is a further possibility of completing
works in the South Western Corridor between
Fairford Road and King Georges Road. - There was, in addition, the possibility of
constructing the South Western Option (as
it was termed in this Inquiry) i.e., the
road east of King Georges Road (between
Beverly Hills and Tempe).
The Department of Main Roads (12) carried out the 3
benefit analysis incorporating the 'Picnic Point
Connection' and the works between Fairford Road and King
Georges Road. This was termed 'the extended base’. Now,
the combination of these works yielded a very high benefit/
cost ratio (13) (namely 9.6). That ratio was used as a
spring-board to artificially inflate the benefits for the
South Western Scheme, as it was termed, being a series
of roads between Tempe and Campbelltown. If each of
these works was independent of the other, they should
have been considered one by one. It is first necessary
to choose which is the best of the various possible works.
Having made the choice the issue then becomes whether
one should commit the additional expenditure required for
the next most impressive work. One by one they are
assessed on their own merits. Professor Beesley puts the
matter in this way:- (14)
"..Options can be sub-divided,
or
‘staged’. This produces, in effect,
another base line - one invests in the
best "bit', or “stage" first, and then
the next. The relevant computation becomes
the change from the new base. Failure to
distinguish separable options in this
sense will mislead; the results for the
less favourable option may be unsatisfactory
where it is distinguished. This becomes
‘staged’. This produces, in effect,
another base line - one invests in the
best "bit', or “stage" first, and then
the next. The relevant computation becomes
the change from the new base. Failure to
distinguish separable options in this
sense will mislead; the results for the
less favourable option may be unsatisfactory
where it is distinguished. This becomes
12. S.K/C
340 Department of Main Roads Submission De Leuw
Cather, September, 1979, page 58 and following.
13. Table 5.8 page 72.
14. Annexure 2, M.E. Beesley supra, page 356 of this
Report (paragraph 16).
Cather, September, 1979, page 58 and following.
13. Table 5.8 page 72.
14. Annexure 2, M.E. Beesley supra, page 356 of this
Report (paragraph 16).
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important in discussion of the
‘extended base' case. Once the
feasibility of separating the eastern
parts of this had been established,
the relevant calculations become what
are termed the 'marginal' calculations,
having considerably less impressive
(positive) results than the results for
the eastern options plus the works
further west, viewed as joint projects.
This was true of both the major options
considered at that point, namely the
Cooks River and the South Western
Freeway."
‘extended base' case. Once the
feasibility of separating the eastern
parts of this had been established,
the relevant calculations become what
are termed the 'marginal' calculations,
having considerably less impressive
(positive) results than the results for
the eastern options plus the works
further west, viewed as joint projects.
This was true of both the major options
considered at that point, namely the
Cooks River and the South Western
Freeway."
The application of this principle is of the utmost
importance as the following figures reveal:- (15)
importance as the following figures reveal:- (15)
- The cost/benefit ratio for the extended base
(i.e., the Picnic Point Connection and a
road between Fairford Road and King Georges
Road) is 9.6 - If the South Western Option (i.e., work between
Kyeemagh and King Georges Road) is added to the
extended base, and an assessment made of the
overall scheme, the ratio drops to 4.9. That
is still a high ratio - If the South Western Option is looked at in
isolation (i.e., without the spring-board
which the very high 9.6 ratio provides) the
cost/benefit figure is 1.7. That is the
marginal benefit. It is the way in which the
matter should be viewed.
15. Submission
S.K/C 340 Department of Main Roads De Leuw
Cather, September, 1979, page 72.
Cather, September, 1979, page 72.
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II EQUITY
1. THE CONCEPT OF EQUITY
1.1 The Meaning of the Term
Equity means fairness. A road is equitable if
it fairly distributes cost and benefits throughout
the community so that one group is not called
upon to shoulder a disproportionate burden for
the benefit of another.
It is a new concept. It was not considered in
the Sydney Area Transportation Study completed in
1974. It does not find its way into the Glossary
of Transportation Planning Terms prepared by the
State Transport Study Group (16).
That is not to say that transportation planners
in the past were oblivious to the impact which a
particular facility would have upon a particular
community. There was, however, a broad mandate to
build roads, and, though people may have been
disgruntled by a particular decision it was not
questioned by those people or the planners themselves
that the decision was made ‘for the public good’.
But that era has passed. It is now recognised
that the rationale of the 'public good' is far too
crude. The point is put in this way by the O.E.C.D.
publication "Roads and the Urban Environment” (17)
16. Report
No. 72 “Glossary of Transportation
Planning Term". Nor, incidentally, does it
find its way into the Glossary of Urban
Transportation Terms 1978 (Special Report
179: National Academy of Science, USA).
17. O.E.C.D. 1974, page 144.
Planning Term". Nor, incidentally, does it
find its way into the Glossary of Urban
Transportation Terms 1978 (Special Report
179: National Academy of Science, USA).
17. O.E.C.D. 1974, page 144.
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"..The bureaucratic concept of
'public interest' (is) too
ill defined, and (is) at worst,
a mask for the ruthless
destruction of one group's
environment for the benefit of
another."
In an earlier O.E.C.D. publication (18) the rationale
for considering issues of equity is put in this
way:-
"Which public are to pay and
which
are to profit from a government’s
action is ultimately a political
decision. To make a socially
enlightened and politically
sensitive decision, we must
explicitly recognise there is a
multiplicity of competing
communities of interest, each with
its own set of values, preferences,
and ideas as how the benefits should
be paid for and distributed."
are to profit from a government’s
action is ultimately a political
decision. To make a socially
enlightened and politically
sensitive decision, we must
explicitly recognise there is a
multiplicity of competing
communities of interest, each with
its own set of values, preferences,
and ideas as how the benefits should
be paid for and distributed."
1.2 The Importance of Equity to the Evaluation Process.
In the course of this Report a number of specific
criteria are discussed. It is obvious that some
options meet some of those criteria and not others.
No one option is likely to meet every criteria.
The process of evaluation, therefore, is the process
of clarifying precisely what choices have to be made.
Is this option, which achieves this objective and which
advantages this group and disadvantages that group, better
than another option which does something else? In
the jargon of transport planning, evaluation identifies
the 'critical trade-offs' which can or should be made.
The concept of equity enables the person making the
evaluation to know exactly who is receiving benefits;
the extent to which benefits and disadvantages can be
made to coincide; and insofar as they do not coincide,
the extent to which any group disadvantaged is
18.
O.E.C.D. "The Urban Transportation Planning
Process” 1971, page 10.
Process” 1971, page 10.
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compensated in some adequate way for the
disadvantage suffered.
disadvantage suffered.
1.3 Submissions to the Inquiry.
From early childhood when punishments are administered,
or rewards distributed, people are imbued with a
sense of fairness and justice. The concept of equity,
therefore, is not something which transport planners
have, as it were, 'dreamed up’ in order to make their
lives more exciting or difficult. It is a concept
which is firmly rooted in the consciousness of people
affected by a government decision. It is apparent
from the submissions made to this Inquiry that people
are acutely aware of unfairness where they sense
that it has been perpetrated.
In the course of the evaluation of each option,
the concept of equity will be examined. Without
expressing a view at this stage on the merits of each
submission, it can be said that the following submission
(from a resident of Earlwood) (19) is typical:-
the concept of equity will be examined. Without
expressing a view at this stage on the merits of each
submission, it can be said that the following submission
(from a resident of Earlwood) (19) is typical:-
"I protest at the ruling
powers apparent disregard for
the quality of life in the inner-
western suburbs. I refer
particularly to the proposed
expressway from Chullora to
Kyeemagh.
powers apparent disregard for
the quality of life in the inner-
western suburbs. I refer
particularly to the proposed
expressway from Chullora to
Kyeemagh.
This expressway will benefit
a very small minority of people
most of whom don't even live
in the inner-suburban area.
Indeed the expressway will mean
whole destruction of houses
and parklands and directly it will
affect hundreds of people and
indirectly thousand of others
all to their detriment."
19. S.K/C 034,
Mr. George Carter.
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The Community Resources Centre at Bardwell Park
both in its submission (20) and in its oral
presentation (21) emphasised the concept of equity.
A number of ‘information bulletins’ were distributed
to the community discussing various issues raised
by the Inquiry. Each information bulletin was
headed with the following words:
both in its submission (20) and in its oral
presentation (21) emphasised the concept of equity.
A number of ‘information bulletins’ were distributed
to the community discussing various issues raised
by the Inquiry. Each information bulletin was
headed with the following words:
“WHO BENEFITS? WHO PAYS?”
In the Information Bulletin No. 7 the following
words appear:
words appear:
"Because the benefits and
costs of
road construction are not equally
distributed to everyone, it is
wrong to suggest as the D.M.R.
does, that benefits go to the whole
community.
road construction are not equally
distributed to everyone, it is
wrong to suggest as the D.M.R.
does, that benefits go to the whole
community.
Unless a study looks at all the
social costs outlined above and
considers who is to benefit and
who is to pay, a fair examination
of the new road will not have been
made."
social costs outlined above and
considers who is to benefit and
who is to pay, a fair examination
of the new road will not have been
made."
This Inquiry endorses the suggestion that it is
essential to examine the distribution (or
'incidence' as it is sometimes called) of benefits
and costs associated with each option.
essential to examine the distribution (or
'incidence' as it is sometimes called) of benefits
and costs associated with each option.
1.4 The Issue Not Adequately Addressed by Government
Departments in the Inquiry
Departments in the Inquiry
In the Joint Study Report (22) the following economic
objective is stated:
objective is stated:
- Promote economic efficiency
and equity in the provision
of transport services.
20. S.K/C 950.
21. Transcript 25th September, 1979.
22. Joint Study Report, page 7.
21. Transcript 25th September, 1979.
22. Joint Study Report, page 7.
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In the economic criteria (23) the following criterion
is suggested:-
- Equity as measured by the incidence
of costs and benefits.
When one turns to the evaluation of each option
(pages 26-42) the issue of equity is not addressed.
It should have been. In the very helpful summary
which appears at the very front of the Joint Study
Report the following ominous words appear under the
column dealing with each option:-
(pages 26-42) the issue of equity is not addressed.
It should have been. In the very helpful summary
which appears at the very front of the Joint Study
Report the following ominous words appear under the
column dealing with each option:-
"Equity of costs and benefit;
not
yet assessed."
yet assessed."
Nor is the issue addressed, in terms, by the
submissions made by either the Department of Main
Roads or the Planning and Environment Commission.
It should have been. It was not addressed in the
public hearings. Again, it should have been.
submissions made by either the Department of Main
Roads or the Planning and Environment Commission.
It should have been. It was not addressed in the
public hearings. Again, it should have been.
There was an elaborate cost benefit analysis
undertaken. However such an analysis simply states
the total benefits and not the distribution of those
benefits. It does not identify the extent to which
those who benefit are co-extensive with those who
lose and if, as one assumes, they are not, the extent
to which adequate compensatory measures have been
built into the various options to ameliorate the
adverse effects. (24)
undertaken. However such an analysis simply states
the total benefits and not the distribution of those
benefits. It does not identify the extent to which
those who benefit are co-extensive with those who
lose and if, as one assumes, they are not, the extent
to which adequate compensatory measures have been
built into the various options to ameliorate the
adverse effects. (24)
In other studies examined by the Inquiry an attempt
has been made to examine the question of equity.
In the comparison made by the State Transport Study
Group between ‘Kyeemagh/Chullora Freeway’ and
‘Johnston's Creek Route' (25) there was an attempt
has been made to examine the question of equity.
In the comparison made by the State Transport Study
Group between ‘Kyeemagh/Chullora Freeway’ and
‘Johnston's Creek Route' (25) there was an attempt
23. ibid
page 8.
24. Report of the Advisory Committee on Trunk Road
Assessment (Leitch Committee) page 101.
25. The Urban Transport Study Group. (part CIA Study)
24. Report of the Advisory Committee on Trunk Road
Assessment (Leitch Committee) page 101.
25. The Urban Transport Study Group. (part CIA Study)
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(not always convincing) to relate the road
benefits to particular areas. At least the
attempt was made. In the publication prepared
for the Traffic Authority of New South Wales
entitled “Transport System Management” (June,
1978) the so-called 'gainers' and ‘losers’ are
identified for each option put forward to
solve a particular problem (26). The Committee
studying the Major Airport Needs of Sydney
(MANS) undertook an elaborate investigation of
the incidence of costs and benefits associated
with either expanding Kingsford-Smith Airport
or locating a second airport somewhere on the
periphery of Sydney. The incidence analysis
(as it is termed) falls short, in the Inquiry’s
view, of the sort of analysis which should be
undertaken. The questions which should be
addressed will be outlined in the following
section of this Report. However, the MANS
Committee, to some extent, tied its own hands by
confining its focus upon the material which
emerged from a cost/benefit analysis. A cost/
benefit analysis, as we have already seen, does
not necessarily embrace all the issues or even
the most important issues. It is not
essential to undertake elaborate computer
analyses of costs and benefits in order to
adequately address this issue. Indeed, in many
cases (of which MANS is one in the Inquiry’s
view) an elaborate computer programme will not
be as helpful as a painstaking examination of
each proposal, feature by feature, and section by
section.
benefits to particular areas. At least the
attempt was made. In the publication prepared
for the Traffic Authority of New South Wales
entitled “Transport System Management” (June,
1978) the so-called 'gainers' and ‘losers’ are
identified for each option put forward to
solve a particular problem (26). The Committee
studying the Major Airport Needs of Sydney
(MANS) undertook an elaborate investigation of
the incidence of costs and benefits associated
with either expanding Kingsford-Smith Airport
or locating a second airport somewhere on the
periphery of Sydney. The incidence analysis
(as it is termed) falls short, in the Inquiry’s
view, of the sort of analysis which should be
undertaken. The questions which should be
addressed will be outlined in the following
section of this Report. However, the MANS
Committee, to some extent, tied its own hands by
confining its focus upon the material which
emerged from a cost/benefit analysis. A cost/
benefit analysis, as we have already seen, does
not necessarily embrace all the issues or even
the most important issues. It is not
essential to undertake elaborate computer
analyses of costs and benefits in order to
adequately address this issue. Indeed, in many
cases (of which MANS is one in the Inquiry’s
view) an elaborate computer programme will not
be as helpful as a painstaking examination of
each proposal, feature by feature, and section by
section.
26. For
instance Transport System Management
pages 1-12, pages 1-21 etc.
pages 1-12, pages 1-21 etc.
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2. THE QUESTIONS RELEVANT TO JUDGING EQUITY.
2.1 What are the Benefits?
There will be benefits from building a facility
and from not building a facility. The benefits
must be identified. They must be identified in
terms of the ‘environment' both local and
regional. The meaning of the term 'environmental’
is examined later in this Report. It means much
more than simply parks and trees although they
are an important element of the environment. It
includes residential streets, shopping centres and
the entire ‘urban fabric'.
and from not building a facility. The benefits
must be identified. They must be identified in
terms of the ‘environment' both local and
regional. The meaning of the term 'environmental’
is examined later in this Report. It means much
more than simply parks and trees although they
are an important element of the environment. It
includes residential streets, shopping centres and
the entire ‘urban fabric'.
The benefits to be derived from building a facility
are examined in the chapter dealing with transport
criteria. For each Local Government Area a number
of benefits may be derived. First, there may be
improved accessibility for its residents. A number
of people from that Local Government Area may use
the facility for certain trips. Secondly, the
facility may improve the amenity of the area by
drawing traffic away from residential areas and
away from shopping centres. The accident rate over
the entire area may be reduced in consequence.
are examined in the chapter dealing with transport
criteria. For each Local Government Area a number
of benefits may be derived. First, there may be
improved accessibility for its residents. A number
of people from that Local Government Area may use
the facility for certain trips. Secondly, the
facility may improve the amenity of the area by
drawing traffic away from residential areas and
away from shopping centres. The accident rate over
the entire area may be reduced in consequence.
As part of the transport criteria (as already
outlined) it will be important to consider a
number of issues. First whether the benefits arise
where they are needed. If a facility simply
reduces traffic on a road which already has spare
capacity, the reduction may be welcome but rather
less efficient than a facility which successfully
tackles the 'sore spots'. Secondly, questions arise
whether the traffic benefits will be noticed by
the local community who are supposedly the recipients? In
the section dealing with traffic we have already
mentioned the concept of ‘saturation'. The
difference between traffic flowing at saturation
level and something less than saturation level may
be readily perceived.
outlined) it will be important to consider a
number of issues. First whether the benefits arise
where they are needed. If a facility simply
reduces traffic on a road which already has spare
capacity, the reduction may be welcome but rather
less efficient than a facility which successfully
tackles the 'sore spots'. Secondly, questions arise
whether the traffic benefits will be noticed by
the local community who are supposedly the recipients? In
the section dealing with traffic we have already
mentioned the concept of ‘saturation'. The
difference between traffic flowing at saturation
level and something less than saturation level may
be readily perceived.
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One is flowing and the other is stopping and
starting. But the difference between traffic flow
at something less than saturation level, which is
reduced just a little further (say by a further
10%), may be difficult to perceive even to the trained
eye. That is not to say the benefit is not welcome
when it can be obtained, but the community can be
forgiven for thinking the benefit rather less than
a quid pro quo where its sacrifice has been in terms
of valuable parks.
Perhaps a better example is noise. In the chapter
dealing with noise, it is suggested by some authorities
that the traffic flow must halve before there is a
perceptible reduction in noise (a reduction of
3dB(A)). Rarely will a facility bring about a
reduction of this order. The community may, in other
words, lose its parks and obtain no perceptible
improvement in noise in return.
dealing with noise, it is suggested by some authorities
that the traffic flow must halve before there is a
perceptible reduction in noise (a reduction of
3dB(A)). Rarely will a facility bring about a
reduction of this order. The community may, in other
words, lose its parks and obtain no perceptible
improvement in noise in return.
Thirdly, it is necessary to question whether traffic
benefits which are derived from the building of a
facility will soon be lost because the facility (or
the presence of spare capacity in the network), will
itself encourage further travel. If this is so,
the community is soon no better off in terms of traffic,
though far worse off in terms of parks.
benefits which are derived from the building of a
facility will soon be lost because the facility (or
the presence of spare capacity in the network), will
itself encourage further travel. If this is so,
the community is soon no better off in terms of traffic,
though far worse off in terms of parks.
2.2 Who Receives the Benefits?
There are two issues to be faced in deciding who
receives the benefits. First, there is a question of
who benefits geographically; secondly there is a
question of when the benefits are received.
receives the benefits. First, there is a question of
who benefits geographically; secondly there is a
question of when the benefits are received.
Dealing first with the geographical spread of benefits,
the question arises whether a major road which passes
through a number of local government areas can ever
be other than inequitable? Can it ever hope to do more
than favour regional needs over local needs? Does equity
demand that regional needs should never be addressed?
It seems to this Inquiry it certainly cannot mean that.
There are regional needs which can be identified and
which must be addressed. Equity demands that insofar
the question arises whether a major road which passes
through a number of local government areas can ever
be other than inequitable? Can it ever hope to do more
than favour regional needs over local needs? Does equity
demand that regional needs should never be addressed?
It seems to this Inquiry it certainly cannot mean that.
There are regional needs which can be identified and
which must be addressed. Equity demands that insofar
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as a facility does unashamedly address itself to
regional needs, and call upon local areas to make a
sacrifice ‘in the public good’, then a package should
be devised (see below) whereby those local areas
are compensated for the sacrifice which they make.
regional needs, and call upon local areas to make a
sacrifice ‘in the public good’, then a package should
be devised (see below) whereby those local areas
are compensated for the sacrifice which they make.
The second issue relates to the time at which
benefits accrue. Are the benefits aimed at
existing problems identified within the existing
community? Or are they dependent upon certain
problems which it is thought will arise if certain
forecasts come true? In this context the O.E.C.D.
had the following to say:- (27)
benefits accrue. Are the benefits aimed at
existing problems identified within the existing
community? Or are they dependent upon certain
problems which it is thought will arise if certain
forecasts come true? In this context the O.E.C.D.
had the following to say:- (27)
"The measurement of who gains
and
who loses must include distribution
over time. There has been a tendency
to down-play many costs as temporary
or as transient disturbances to be
made up when the project is 'mature'.
But time, as it passes, is
irretrievable for every individual,
and lost urban heritage is
irretrievable for all time.
Environmental costs, rationalised
for some future demand, have too often
been far out of balance with the
environmental rights of people presently
using the environment."
who loses must include distribution
over time. There has been a tendency
to down-play many costs as temporary
or as transient disturbances to be
made up when the project is 'mature'.
But time, as it passes, is
irretrievable for every individual,
and lost urban heritage is
irretrievable for all time.
Environmental costs, rationalised
for some future demand, have too often
been far out of balance with the
environmental rights of people presently
using the environment."
The publication proceeds with the following comment:-(27)
"Equity and road planning and
design
will be better served when we
restrain our present tendencies to
sacrifice the environment of present
people to the mobility of forecast
population. And sacrifice the
interest of smaller groups and
individuals to an ill defined 'general'
interest or popular demand.."
will be better served when we
restrain our present tendencies to
sacrifice the environment of present
people to the mobility of forecast
population. And sacrifice the
interest of smaller groups and
individuals to an ill defined 'general'
interest or popular demand.."
27.
O.E.C.D. "Roads in the Urban Environment"
1974, page 144-145.
1974, page 144-145.
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2.3 Who is Disadvantaged and What is the Nature of the
Disadvantage?
In this context there are both quantitative and
qualitative assessments to be made. It is not
necessary to elaborate upon the nature and
quality of the disadvantages which may be suffered.
They have been identified in the body of this
Report.
Two matters do require elaboration. First, the
evaluation must take account of the vulnerability
of the community which is called upon to make the
sacrifice. The Community Resources Centre at
Bardwell Park put the matter in this way:- (28)
evaluation must take account of the vulnerability
of the community which is called upon to make the
sacrifice. The Community Resources Centre at
Bardwell Park put the matter in this way:- (28)
"Extensive research..has shown
the region which will be
adversely affected, is already
highly stressed and lacking in
social and environmental
resources."
the region which will be
adversely affected, is already
highly stressed and lacking in
social and environmental
resources."
The extent to which this is so will be examined
when each option is considered. The publication
by the Planning and Environment Commission entitled
"Social Indicators” (1978) will assist in that
evaluation as will the book "The Quick and The
Dead - i.e., Biomedical Atlas of Sydney" by
Gibson and Johansen. (29)
when each option is considered. The publication
by the Planning and Environment Commission entitled
"Social Indicators” (1978) will assist in that
evaluation as will the book "The Quick and The
Dead - i.e., Biomedical Atlas of Sydney" by
Gibson and Johansen. (29)
Secondly, it is necessary to ask whether the
community making the sacrifice is rich in the
currency with which it is called upon to pay.
The open space at the disposal of Marrickville or
South Sydney is substantially less than that
available to Kuring-Gai and Sutherland. If
Kuring-Gai or Sutherland were called upon to
community making the sacrifice is rich in the
currency with which it is called upon to pay.
The open space at the disposal of Marrickville or
South Sydney is substantially less than that
available to Kuring-Gai and Sutherland. If
Kuring-Gai or Sutherland were called upon to
28. S.K/C 950
Attachment 'A' page 3.
29. Tendered by the Earlwood Branch of the Australian
Labor Party (Attachment 'F') Transcript 15th
October, 1979.
29. Tendered by the Earlwood Branch of the Australian
Labor Party (Attachment 'F') Transcript 15th
October, 1979.
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sacrifice open space for the greater good of
the community, it would be a different thing
to asking Marrickville or South Sydney to make
the same sacrifice. That is not to say by
any means that Kuring-Gai and Sutherland can
afford to squander their open space. Clearly
they cannot. A facility may, even in those
suburbs, spoil that which remains or may take
something which is unique leaving what is,
in relative terms, the dross.
2.4 To what Extent do those Deriving Benefits and those
Suffering Disadvantages Collide?
Suffering Disadvantages Collide?
It is probably inevitable, especially with a
facility which aims to satisfy regional needs, that
there will be an imbalance between those who benefit
and those who are called upon to make sacrifices.
The extent of the imbalance must be examined. Some
options may bring about a greater imbalance than
others.
In this respect it is essential that a broad range
of alternatives is available for consideration.
The matter is put in the following way by the
Commonwealth Bureau of Roads in its Report on Roads
in Australia in 1975:- (30)
of alternatives is available for consideration.
The matter is put in the following way by the
Commonwealth Bureau of Roads in its Report on Roads
in Australia in 1975:- (30)
"A range of alternative
solutions
are possible to most transport
problems. The following generally
need to be considered:-
are possible to most transport
problems. The following generally
need to be considered:-
a) Alternative scales of
improvement;b) Alternative rates of
improvement;c) Alternative combinations
of mode;d) Regularity and licensing
alternative;e) Land use changes;f) Combinations of the above;g) No improvements at all."
30. Page 88
Paragraph 6.32.
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That range of alternatives is simply not available
to this Inquiry. Whether, if it were available, some
options would be demonstrably less inequitable than
others is something about which we can only speculate.
To summarize, a range of alternatives must be
considered and the extent to which each alternative
lends itself to modification so as to diminish the
imbalance between costs and benefits, must also be
examined.
considered and the extent to which each alternative
lends itself to modification so as to diminish the
imbalance between costs and benefits, must also be
examined.
In the present Inquiry a number of
options have been
presented. In some ways they are very different, and
are aimed at the satisfaction of different needs.
Essentially, however, they are all road options and
even though the Bexley Road options cost substantially
less than the other two major options (Cooks River option
and South Western option) they are still very similar
in concept. The material, therefore, was deficient
in at least two respects. First, an option ought to
have been available in which a number of specific
road improvements were effected to the existing network
at particular places which were perceived to be the
'trouble spots'. Could the problem be solved in that
way?
presented. In some ways they are very different, and
are aimed at the satisfaction of different needs.
Essentially, however, they are all road options and
even though the Bexley Road options cost substantially
less than the other two major options (Cooks River option
and South Western option) they are still very similar
in concept. The material, therefore, was deficient
in at least two respects. First, an option ought to
have been available in which a number of specific
road improvements were effected to the existing network
at particular places which were perceived to be the
'trouble spots'. Could the problem be solved in that
way?
Secondly, the submissions obviously indicate a craving
for an option which adequately deals with the
possibility of public transport satisfying such needs
as were seen to exist. A grave short-coming of the
Joint Study Report (to which we will draw attention
in another context) was the failure of the public
Transport Commission (as it then was) to participate
in the preparation of that document, so that the facts
concerning public transport could be placed before
the community when it made its choice and made
submissions to this Inquiry. (31)
for an option which adequately deals with the
possibility of public transport satisfying such needs
as were seen to exist. A grave short-coming of the
Joint Study Report (to which we will draw attention
in another context) was the failure of the public
Transport Commission (as it then was) to participate
in the preparation of that document, so that the facts
concerning public transport could be placed before
the community when it made its choice and made
submissions to this Inquiry. (31)
31. When
the Joint Study Report was commissioned the
Public Transport Commission (now S.R.A.) was not
invited to participate.
Public Transport Commission (now S.R.A.) was not
invited to participate.
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2.5 What Measures are Proposed to Ameliorate Disadvantages
Suffered?
It is reasonable to suppose that no matter what
the range of alternatives, and whatever
modifications are made to the design of each
alternative, or the preferred alternative, those
reaping the benefits from a facility will not be
precisely the same as those paying the price.
Hopefully the two groups will be substantially
co-extensive.
the range of alternatives, and whatever
modifications are made to the design of each
alternative, or the preferred alternative, those
reaping the benefits from a facility will not be
precisely the same as those paying the price.
Hopefully the two groups will be substantially
co-extensive.
What happens when they are not, and, they cannot
be made to coincide? The principle of equity is
stated in the following way:- (32)
be made to coincide? The principle of equity is
stated in the following way:- (32)
"If there are groups which
bear costs
in order that other interests may
benefit by the provision of an improved
transportation facility, then those
adversely affected groups should be
compensated either directly or indirectly.”
in order that other interests may
benefit by the provision of an improved
transportation facility, then those
adversely affected groups should be
compensated either directly or indirectly.”
In the evaluation of options we will examine whether
this principle has been applied in practice. Is it
the case, on the other hand, that particular options
are inequitable in that they call upon particular
communities to suffer adverse effects, without
either corresponding benefits or compensation?
this principle has been applied in practice. Is it
the case, on the other hand, that particular options
are inequitable in that they call upon particular
communities to suffer adverse effects, without
either corresponding benefits or compensation?
In other chapters of this Report we look at the
possible ways in which compensation or
amelioration of adverse effects can be affected.
In the case of noise, for instance, it is possible
to erect barriers or earth-berms.
possible ways in which compensation or
amelioration of adverse effects can be affected.
In the case of noise, for instance, it is possible
to erect barriers or earth-berms.
32. Manheim
et al "Community and Environmental
Factors in Transportation Planning” quoted
in “Project Evaluation; The State of the Art”,
page 4.
Factors in Transportation Planning” quoted
in “Project Evaluation; The State of the Art”,
page 4.
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Where that is not feasible or appropriate it
is possible to provide insulation. In the case of
open space, it is possible to adopt a policy of
compensating a community whose open space is taken
by providing an equivalent amount somewhere else.
Ecological effects, the transformation of a landscape
its vegetation and soils may be irreparable. It
may nonetheless be possible for the road building
authority to introduce substantial improvements in
other areas. The creek, for example, may be contained
within an unattractive concrete storm-water
channel or between sheet-piling. It may be possible
for the road building authority, as part of the
package, to landscape the area and restore something
resembling the natural bank of the river.
Finally, in the case of an area severed from another
area by means of a road facility, it is possible for
the road making authority to repair that severance
to some extent, by over-head bridges or underpasses.
It will be relevant to examine the extent to which
that is proposed.
area by means of a road facility, it is possible for
the road making authority to repair that severance
to some extent, by over-head bridges or underpasses.
It will be relevant to examine the extent to which
that is proposed.
There are many other examples in the various chapters
dealing with the adverse effects arising from a highway
facility. If there is a group which suffers adverse
effects and does not derive benefits or receive compensation,
the option is inequitable to that extent.
dealing with the adverse effects arising from a highway
facility. If there is a group which suffers adverse
effects and does not derive benefits or receive compensation,
the option is inequitable to that extent.
2.6 Consideration of those without Cars and of Public
Transport.
Transport.
Approximately 21% of households in Australia do not
own a car (33). This is a sizeable minority which
cannot be overlooked. In fact, the number of people
who are likely to be dependent upon pedestrian or
public transport will be far greater.
own a car (33). This is a sizeable minority which
cannot be overlooked. In fact, the number of people
who are likely to be dependent upon pedestrian or
public transport will be far greater.
33.
Hamilton 1978 sited in 5th ATRF Forum Papers,
page 482.
page 482.
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The size of the group can be appreciated from
the following statistics:-
- 18% of the population is too
young to drive a car. (34) - 10% of the population is of
an age where they are less
likely to drive a car. - Within those households which
do have access to a car, there
will be a large number of
members (especially housewives)
who do not have access to the
family car during the day
because another member of the
family is using it.
A new facility may make pedestrian travel more
difficult. This aspect is examined in a section of
this Report dealing with severance, and examples are
given. The South Western Option, for instance,
provides a limited number of crossings for the Wolli
Creek, so that people will be forced to detour where
they are now able to walk directly across small
bridges.
difficult. This aspect is examined in a section of
this Report dealing with severance, and examples are
given. The South Western Option, for instance,
provides a limited number of crossings for the Wolli
Creek, so that people will be forced to detour where
they are now able to walk directly across small
bridges.
Highway facilities, and especially a network of
facilities (such as that proposed by the Sydney Area
Transportation Study in 1974) may affect public
transport and, therefore, may affect those who are
obliged to use public transport (the young, the
elderly, the poor, the handicapped and the carless).
A highway facility may, for instance, alter bus
routes. More to the point, a facility and especially,
a network of facilities, may threaten the viability of
public transport services already provided. People
may be attracted away from public transport in order
to use the new facility so that there is the
temptation on the part of the government to either
reduce the frequency of public transport or the quality
of the service provided, or to increase fares.
facilities (such as that proposed by the Sydney Area
Transportation Study in 1974) may affect public
transport and, therefore, may affect those who are
obliged to use public transport (the young, the
elderly, the poor, the handicapped and the carless).
A highway facility may, for instance, alter bus
routes. More to the point, a facility and especially,
a network of facilities, may threaten the viability of
public transport services already provided. People
may be attracted away from public transport in order
to use the new facility so that there is the
temptation on the part of the government to either
reduce the frequency of public transport or the quality
of the service provided, or to increase fares.
34. Fifth
ATRF Forum papers, page 665.
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Any of these actions, if they take place,
fall most harshly upon the elderly, the poor,
the young and the carless.
The impact of a facility upon the carless is
not necessarily bad. A new facility may, for
instance, provide an opportunity for a new express
bus route or a transport inter-change where
people may conveniently change from one mode to
another.
not necessarily bad. A new facility may, for
instance, provide an opportunity for a new express
bus route or a transport inter-change where
people may conveniently change from one mode to
another.
3. TECHNIQUES FOR CONSIDERING ISSUES OF EQUITY.
3.1 The Planning Balance Sheet Technique.
The Advisory committee on Trunk Road Assessment
in the United Kingdom (the Leitch Committee) has
suggested (35) that any method of assessment of
a road option should satisfy a number of criteria
including: -
(i) It should be generally
comprehensible to the public
and command their respect.
(ii) It should indicate how
different groups would be
affected by the scheme.
(iii) It should be comprehensive
in terms of the different
kinds of effects of the road
scheme.
(iv) It should not be expensive
to use.
(v) It should balance costs and
benefits (however described)
in a rational manner.
comprehensible to the public
and command their respect.
(ii) It should indicate how
different groups would be
affected by the scheme.
(iii) It should be comprehensive
in terms of the different
kinds of effects of the road
scheme.
(iv) It should not be expensive
to use.
(v) It should balance costs and
benefits (however described)
in a rational manner.
It will be seen, therefore, that Item (ii)
specifically enjoins a consideration of matters of
equity. The Committee felt that all relevant
factors, and their effects, should be summarised
from the viewpoint of five separate groups:-
35. Report
ibid. 1977 page 9.
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(i) Road users directly affected
by the proposal.
(ii) Non-road users directly
affected by the proposal.
(iii) Those concerned with the
intrinsic value of the area
through which the proposal
passes.
(iv) Those directly affected by
the proposal.
(v) The financing authority.
A balance sheet, known as a planning balance sheet,
is drawn up in which each effect is examined in turn
and, where relevant, examined from the point of view of
the five separate groups identified. In this way the
person responsible for the evaluation must apply his
or her mind to the way in which an impact will affect
different groups differently so that elements of
unfairness caused by the disparity between benefits and
costs can readily be seen. The technique has much to
commend it. The summary which appeared in the front
of the Joint Study Report (36) is a beginning in the
application of that technique, but it does not go far
enough.
is drawn up in which each effect is examined in turn
and, where relevant, examined from the point of view of
the five separate groups identified. In this way the
person responsible for the evaluation must apply his
or her mind to the way in which an impact will affect
different groups differently so that elements of
unfairness caused by the disparity between benefits and
costs can readily be seen. The technique has much to
commend it. The summary which appeared in the front
of the Joint Study Report (36) is a beginning in the
application of that technique, but it does not go far
enough.
3.2 Viewing each Alternative from the Perspective of Different
Groups.
Groups.
Another technique, which is really saying the same thing
in a slightly different way (37), suggests that various
groups within the community can be identified as being
affected by highway facility. They may be affected
adversely or they may derive benefits. A wide range of
options should be considered and each option should be
viewed systematically from the perspective of each group.
The question is asked whether the option can be made
acceptable by incorporating particular features.
in a slightly different way (37), suggests that various
groups within the community can be identified as being
affected by highway facility. They may be affected
adversely or they may derive benefits. A wide range of
options should be considered and each option should be
viewed systematically from the perspective of each group.
The question is asked whether the option can be made
acceptable by incorporating particular features.
36. Pages
(i) (ii) and (iv).
37. Transport Decision Making - A Guide to Social and
Environmental Consideration (Report No. 156)
U.S.A. National Co-operative Highway Research
Programme, Especially pages 39 to 69.
37. Transport Decision Making - A Guide to Social and
Environmental Consideration (Report No. 156)
U.S.A. National Co-operative Highway Research
Programme, Especially pages 39 to 69.
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By pushing and pulling the options in various
directions, by introducing modifications to
accommodate a particular need, and, by examining
the options from a local and from a regional
perspective, an equitable solution can be
hammered out.
4. THE CONCEPT OF ACCOUNTABILITY.
4.1 The Concept Explained.
An explanation for this concept emerges from the
submission of the Community Resources Centre,
Bardwell park. They say:- (38)
"The concept of accountability
assumes that the proponents
of the road will take full
account of the expressed. needs
and wishes of the community
likely to be affected. It assumes
that, in one form or another, the
public will be consulted at
various stages of the planning
process and that the road proposals
will reflect their preferences.”
assumes that the proponents
of the road will take full
account of the expressed. needs
and wishes of the community
likely to be affected. It assumes
that, in one form or another, the
public will be consulted at
various stages of the planning
process and that the road proposals
will reflect their preferences.”
The same submission is, in this respect, highly
critical of the Joint Study Report. It said:- (38)
critical of the Joint Study Report. It said:- (38)
"It is clear that the D.M.R./
P.E.C. Route Study does not
establish the need for a road
as an expression of public
preferences. Nor does it make
reference to any studies under-
taken to determine what these
preferences may be, not only in
regard to transport but also
social and environmental goals.
Transport needs are assumed to
be paramount."
P.E.C. Route Study does not
establish the need for a road
as an expression of public
preferences. Nor does it make
reference to any studies under-
taken to determine what these
preferences may be, not only in
regard to transport but also
social and environmental goals.
Transport needs are assumed to
be paramount."
Whilst the Inquiry agrees that it is important to
know, by one means or another, what the public
wants, it does seem that the criticism of the Joint
know, by one means or another, what the public
wants, it does seem that the criticism of the Joint
38. S.K/C 950
Attachment 'A' page 11.
-334-
Study Report is largely unfounded. First, the
Planning and Environment Commission did undertake
an extensive survey of the Botany Sub-Region in
1978. A wide range of issues was examined in brochures
distributed throughout the community and by survey.
The publication "Planning Report 1978 – What You Said"
gives the results for the region as a whole, and for
each local government area. Within the central
industrial area, for instance, traffic was an
important issue identified by a significant section of
the community (39). Likewise in Canterbury (40)
traffic was thought to be an important issue by almost
58% of the people who responded to the survey, and
by almost 39% of people who responded to the brochure.
Planning and Environment Commission did undertake
an extensive survey of the Botany Sub-Region in
1978. A wide range of issues was examined in brochures
distributed throughout the community and by survey.
The publication "Planning Report 1978 – What You Said"
gives the results for the region as a whole, and for
each local government area. Within the central
industrial area, for instance, traffic was an
important issue identified by a significant section of
the community (39). Likewise in Canterbury (40)
traffic was thought to be an important issue by almost
58% of the people who responded to the survey, and
by almost 39% of people who responded to the brochure.
Secondly, the Joint Study Report
did not set out to
'establish the need for a road as an expression of
public preference'. It set out to state the options
so that this Inquiry could investigate that issue by
a programme aimed at involving the public and eliciting
its preference. It also aimed at identifying the
important issues. Where the Joint Study Report was
deficient, was in the range of options which were
placed before the Inquiry, and before the public.
The Report ought to have included the facts concerning
a public transport option, and ought to have provided
a wider range of road options, including small projects
directed at particular traffic problems.
'establish the need for a road as an expression of
public preference'. It set out to state the options
so that this Inquiry could investigate that issue by
a programme aimed at involving the public and eliciting
its preference. It also aimed at identifying the
important issues. Where the Joint Study Report was
deficient, was in the range of options which were
placed before the Inquiry, and before the public.
The Report ought to have included the facts concerning
a public transport option, and ought to have provided
a wider range of road options, including small projects
directed at particular traffic problems.
4.2 Do Expressions of Public Preference Determine the
Result?
Result?
It is not suggested that the concept of
accountability, in the sense of community preferences,
should determine whether or not a facility is
provided. Occasions will arise where the wider
interests of the region , or the metropolitan area,
or the state, or the country, will demand that a
accountability, in the sense of community preferences,
should determine whether or not a facility is
provided. Occasions will arise where the wider
interests of the region , or the metropolitan area,
or the state, or the country, will demand that a
39. Ibid.,
page 57.
40. Table 8 ibid., page 58.
40. Table 8 ibid., page 58.
-335-
particular facility be provided even though the
community which is subjected to that facility
may itself be against its provision. Expressions
of community preference are most important, and
are not lightly put to one side, but they cannot,
in every case, determine the result. It is a
question of judgement in each case.
community which is subjected to that facility
may itself be against its provision. Expressions
of community preference are most important, and
are not lightly put to one side, but they cannot,
in every case, determine the result. It is a
question of judgement in each case.
