Thursday 30^th September 2004

This paper examines how much land is devoted to roads and railways, and what that land is worth.

The land invested in transport corridors - roads and railways - represents a substantial public asset. Despite the size of this asset, it is rarely "managed" so that it provides the best return for society. For this to occur, the land under roads and railways would have to be accurately measured and valued. As this paper shows, this simply is not done at present in any comprehensive way.

This paper records what the author has so far been able to find out about the value of this asset in New South Wales. Research has not been exhaustive, so the paper should be regarded as a work in progress, rather than a definitive statement of the current position. Anyone with additional information is invited to submit it for inclusion in a later edition of this paper. Where available, values as at 30th June 2003 are stated.

Length of Transport Corridors

The length of roads is estimated in NSW Budget Estimates Paper No. 3, 2003-2004, at page 17-3:

"The road system comprises:

• approximately 17,600km of RTA managed major arterial roads, known as State Roads, which includes approximately 3,100 km of Commonwealth funded National Highways; approximately
• 18,400km of local council managed minor arterials, known as Regional Roads, funded primarily by the RTA; approximately
• 142,800km of local council managed access roads, funded by local rate-payers and Federal road assistance grants; and road and bridge infrastructure in the unincorporated area of New South Wales, managed by the RTA."

No figure is given for "lane kilometres", which is the length in kilometres multiplied by the number of lanes in each road.

The same budget paper does not give a figure for the length of railway track. However, page 15 of the Annual Report of the Rail Infrastructure Corporation for 2002-2003 states that:

• "The Metropolitan Network, which extends from Newcastle in the north, to Bowenfels in the West, Glenlee in the south and Kiama on the south coast, covers 1,760km of electrified track.
• The Country Network is 6,940km long.

Area of Transport Corridors

There appears to be no official record of the area of land occupied by roads and railways, as opposed to their length. Studies which attempt to work out the value of land under roads frequently derive an area for roads based on assumptions about their width.

Value of Land under Transport Corridors

Value of Land under State Roads:

The Financial Statement of the Roads and Traffic Authority of NSW published as part of its Annual Report for 2003 divides its non-current assets into Land and Buildings, Plant and Equipment, and Infrastructure Systems. Land under roads is part of "Infrastructure Systems", the other components of that category being roads, bridges, traffic lights and control systems. (See pp.89, 95).

As at 30th June 2003, land under Roads and within Road Reserves was valued at $27,471.006 million: see p.106, Note 11(c). The valuation policy is stated at p.96 as follows:

"In respect of land under roads and within road reserves, valuations are assessed according to the average rateable value per hectare of urban and rural areas within each Local Government Area. Such valuations, which are undertaken annually by the RTA's registered valuers, are based upon the data provided by the Local Government Grants Commission and the Valuer General."

Land is not depreciated in the RTA's accounts.

The roads themselves are valued separately from the land under them, and depreciated in the RTA's accounts:

• Roads, bridges and traffic lights are valued at their written down replacement cost.
• Roads are depreciated over their estimated useful life, which is:
• 100 years for earthworks,
• 15 years for unsealed roads,
• 20-50 years for flush seal / ashphalt,
• 25-50 years for asphalt / concrete, and
• 40-50 years for concrete.

(See p. 96.)

Value of Land Under Local Roads:

At present, local councils are not required to value the land under the local roads they own. The accounting standard with which councils must comply, AAS27A, "Financial Reporting by Local Governments", states as follows:

Land under roads

108 From the beginning of the reporting period to which this Standard is first applied, until the end of the first reporting period ending on or after 31 December 2002, transitional provisions shall apply. Under those provisions, local governments, while encouraged to apply the full provisions of this Standard, may elect instead not to recognise land under roads as an asset in the statement of financial position.

109 During the transitional period, where a local government elects not to recognise land under roads as an asset in the statement of financial position, it shall disclose that policy in the summary of accounting policies.

110 Where land under roads is first recognised in the statement of financial position, or its recognition is discontinued, during the transitional period specified in paragraph 108, the net amount of the resultant adjustments shall be adjusted against accumulated surplus/deficiency in the reporting periods in which the assets are first recognised or their recognition is discontinued. If, subsequently, the recognised amounts of land under roads are revised during the transitional period specified in paragraph 108 to reflect a reassessment of the factors used to determine those recognised amounts, the net amount of the resultant adjustments shall be adjusted against accumulated surplus/deficiency in the reporting periods in which the recognised amounts are revised.

111 A number of local government practitioners and members of the valuation profession have expressed concerns that a reliable measure of a carrying amount for land under roads controlled by local governments can seldom be determined, because of the unique features of land under roads. Because of these concerns, which are unlikely to be resolved in the short term, this Standard provides transitional provisions for the recognition of land under roads as an asset. Land under roads is defined in paragraph 12.

112 The transitional provisions set out in paragraph 108 allow local governments to choose whether to recognise land under roads as an asset during the transitional period. Their interested parties can address whether and, if so, how concerns about reliable measurement of land under roads can be overcome.

113 Local governments are encouraged to recognise land under roads as an asset wherever it can be measured reliably (for example, where land under roads has been acquired at a cost of acquisition)."

3.3.1 The amendments to the paragraphs referred to in paragraph 3.3 of this Standard extend the transitional provisions for the recognition of land under roads until the end of the first reporting period ending on or after 31 December 2002. The superseded transitional provision in AAS 27 ran to the end of the first reporting period ending on or after 30 June 2000."

Note: AASB 1045 altered the expiry date of the above transitional provisions from 31/12/2002 to 31/12/2006, so the land under local roads will not be valued until 2007 at the earliest.

Value of Land under Railways:

The Rail Infrastructure Corporation Annual Report and Financial Report for 2002-2003 records at p.43, note 9 to the financial report, that land under track is valued at $1,301,506,000, or roughly $1.3bn. The valuation is on a "fair value" basis, in accordance with Treasury Policy Paper 03-02, Guidelines for the Valuation of Physical Non-Current Assets at Fair Value. Appendix B, section 3, of TPP 03-02, states that land under railways is to be valued by reference to surrounding land uses. e.g., if a railway passes through a rural area, it is valued by reference to the value of rural land in that area; if it passes through a city and is big enough to allow redevelopment, it may be valued on the basis of surrounding values of commercial or retail land. This makes it clear that fair value is a market value concept. Land is not depreciated in the Rail Infrastructure accounts. Other track related assets are depreciated. Item 1(vii) in the Notes to and Forming part of the Financial Report on page 38 of the Rail Infrastructure Corporation's 2002-2003 Annual Report sets out its approach to depreciation as follows:

(vii) Depreciation

Depreciation of non-current assets (except land and capital work in progress which are not depreciated) is calculated on a straight line basis over their estimated useful life commencing when the asset is first put into use or held ready for use.

The expected useful lives are as follows:

• Buildings 33 years
• Trackwork and Infrastructure, comprising:
•  Track 8-63 years
• Turnouts 2-40 years
• Bridges and Tunnels 1-100 years
• Electrical Overhead Wiring and Structures 2-52 years
• Substations 2-50 years
• Signalling Equipment 1-32 years
• Railway Sidings 20 years
• Fences 2-50 years
• Plant, Machinery and Office Equipment 2–15 years
• Rolling Stock 25 years
• Motor Vehicles (including heavy vehicles) 2–8 years
• Quarries: Based on estimated production life of quarry
• Leasehold Improvements: Based on the shorter of useful life (all capitalised) or the period of the lease.

Written by Philip Howell for the Rail Now Campaign Inc.
howell@bigpond.net.au