This paper reports on an innovative policy for central government funding to local passenger
transport services in New Zealand, that ties funding directly to performance.
The new policy, known as Patronage Funding, was developed and implemented by Transfund
New Zealand, with assistance from consultants. Under the policy, government funding to the
regions for public transport services is based directly on the patronage generated. This leaves
responsibility for service planning with regional government, but encourages them to improve
services in such a way as to generate additional patronage. The payment rates are based on
estimates of both the user benefits and externality benefits of improving services and hence
attracting additional passengers. The externality component comprises benefits associated with
reduced road congestion, safety and environmental benefits. Hence, the payment rates vary by
city, time period (peak/off-peak) and distance travelled.
The paper describes the economic theory and the analyses underlying the new policy, key aspects
of its implementation, and experience in the first six months since its introduction in November