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Reason Foundation

Surface Transportation Innovations #26

Topics include: Reason's new Virtual Exclusive Busways study; Hudson's disappointing surface transportation report; design-build success stories; truck congestion pricing in L.A.; and other news.

Robert Poole
September 1, 2005

In this issue:

New Reason Study Proposes "Virtual Exclusive Busways" (VEBs)

In a new policy study being released today, my Reason colleague Ted Balaker and I propose the next stage in the evolution of value pricing—a way to expand and improve urban transit in addition to offering congestion relief to motorists.

The idea of the study is to build on what we've learned about the power of value pricing to manage traffic flow during peak-period conditions, keeping them free-flowing and offering higher vehicle throughput than congested regular lanes. Value-priced lanes can therefore provide a transit agency with the virtual equivalent of an exclusive busway. The idea is to contractually reserve a portion of the managed lane's capacity for transit vehicles (e.g., buses and vanpools) while the remaining capacity is sold to motorists at market prices.

A Virtual Exclusive Busway is vastly more cost-effective than building a conventional exclusive busway. In every metro area but New York , it would be very difficult in any corridor to fill enough buses to operate on 60-second headways (i.e., one per minute or 60 per hour). So a physical exclusive busway is an enormous waste of expensive concrete and right of way, since the vast majority of its capacity goes unused. But if that guideway is shared with paying customers, there is room for perhaps 1600 such cars per hour without in any way degrading the high-speed, free-flow characteristics of the traffic, thanks to value pricing.

And 1,600 customers per hour, paying market-based tolls, can generate a lot of revenue. In some cases (though not all) it will even be enough revenue to pay for the entire capital cost of building the VEB lanes; where it's not, the balance will come from conventional highway funds. So think about the implications for the transit agency. It gets the functional equivalent of an exclusive busway, without having to pay for the cost of its construction. Transit capital funds would still be needed to buy the buses, build bus-only on/off ramps, and add adjacent stations and park & ride lots. But still, what a great deal for the transit agency!

Ted and I conclude that this approach is a far better use of costly new highway lanes than giving away their capacity to two-person carpools, which has been U.S. policy for the past 20 years. The report reviews what we now know about HOV lanes and carpooling (which it turns out is pretty heavily weighted toward fam-pooling), and we conclude that continuing to promote carpools and build HOV lanes has little to recommend it. But we can make lemonade out of this lemon by converting existing and planned HOV lanes to super-HOT lanes and dedicating a portion of their capacity to express bus/BRT service.

And the good news is that America's first VEB is already under construction, in Houston. As part of the major reconstruction of the Katy Freeway (I-10), Houston is adding four value-priced managed lanes in the median. Thanks to a three-party agreement (Texas DOT, Houston METRO, and the Harris County Toll Road Authority), 25% of the managed lanes' capacity is being reserved for Houston METRO's use. HOV-3s will initially be allowed no-charge use, but METRO has committed to increasing occupancy levels as needed to make sure there is room for its buses. And the Toll Road Authority has, in turn, committed to keeping the toll rates high enough to limit car traffic to what is compatible with uncongested conditions.

We judge this project to be a win-win proposition and are urging other metro areas to go and do likewise.


The Hudson Report—a Big Disappointment

For about two years, I'd been hearing about a major forthcoming report from Hudson Institute on the future of U.S. surface transportation. Many very good people were involved, quite a few of whom I know either personally or professionally. I had high hopes for this to be a very important document, helping all of us make the case for a more robust and market-based approach to vitally important transportation infrastructure. Therefore, I'm dismayed to have to report that this book-length study, which finally appeared in August, about a year late (though still dated 2004), is a big disappointment.

Originally intended to look at transportation needs and policy reforms through 2040, the book deals primarily with the next 20 years. 2010 and Beyond: A Vision of America's Transportation Future is based on five technical papers commissioned by Hudson and somewhat awkwardly stitched together as Parts I through V. The first part, done by Cambridge Systematics, is the most valuable contribution, quantifying a number of alternative ways of closing the gap between several definitions of needed capital investment in highways and transit and the amount that current tax sources will produce between now and 2025. In the near-term, it recommends things like indexing current fuel taxes for inflation and making greater use of tolling and HOT lanes. Longer term, it proposes replacing fuel taxes with per-mile fees (tolls) that will keep pace with demand. I have a few quibbles, but this is the kind of research we need as we debate how best to develop a 21st-century highway system.

Parts II, III, and IV on freight, technology, and transportation management are workmanlike and useful as well. But it is Part V that lays the basis for the report's most disastrous and wrong-headed recommendation. Mistitled "The Future of Transportation," it is mostly about the future of urban mass transit. In sharp contrast to the strongly fact and data-driven previous chapters (especially Part I), these chapters are full of assertions and visions, but very little that can help us make choices between cost-effective investments and "wouldn't it be nice" pipedreams.

But it is Part V that sets us up for the book's overall big policy recommendation: "to convert what is now a disconnected group of surface transportation modes into a fully integrated 'system.'" And how to pay for this? "The key for accomplishing this goal is to have the national, user-fee-supported highway network become a major funding source for all surface transportation activity, not just for roadways." That's right folks: let's have a 50 cents/gallon gas tax increase and plow the money into subways in Savannah, doubling of Amtrak's system, and subsidizing investor-owned freight railroads. That's the expansive "vision" this book ends up promoting. If there was ever a way to ensure under-investment in highways and massive "investments" in projects no one would otherwise touch, this is it.

To their credit, some of the contributors obviously have reservations, and some of those even got into the book. Both Parts I and II stress the importance of user fees as a means toward greater economic efficiency, and Part II even urges "avoidance of subsidy" as a guiding principle, noting that "Once subsidy programs are in place, it can be extremely difficult to terminate them, regardless of their actual effects in economic terms."

Overall, it's sad to see an organization that's been known as a free-market think tank produce something like this: an endorsement of massive cross-subsidies and the destruction of the user-fee principle at the heart of U.S. highway funding.


More Evidence for Design-Build Procurement

Typically, when the public sector needs something built, from an office building to a highway, it uses a two-stage process called design-bid-build (DBB). First, it designs the project, either in house or using an outside firm. Then it calls for competitive bids from construction firms. By contrast, when the private sector needs something built, it increasingly uses a streamlined technique called design-build (DB). With the latter, a single team is hired, based on a preliminary design, and given full responsibility to do the detailed design and construction. Under DB, construction typically overlaps the later stages of design, and the design is more constructible, since a single team is working together.

DB is still controversial in parts of the public sector. One reason is that selection of the bidder needs to be based partly on experience and skill, not just on the lowest bid. That can open the door to favoritism. But assuming a transparent selection process, the advantages of DB are the potential for significant time savings and much stronger cost control, since DB contracts typically involve a fixed-price contract, often with performance penalties. Because of these two advantages, it has become routine for DB to be used for toll road projects. These days, it's difficult to finance a toll project unless there is a DB contract in hand, offering a guaranteed date of completion (when toll revenues begin to flow) and a firm fixed price.

A majority of states now permit DB to be used for at least some types of public-sector construction projects. In the highway field, one of the biggest hold-outs has been California , where the opposition has been spearheaded by the Caltrans engineers' union, which wants to keep all design work in-house. Over the past decade, laws have allowed DB to be used on a pilot basis for a few California highway and transit projects, and Gov. Arnold Schwarzenegger has made DB one of the core components of his GoCalifornia legislative package.

That's why I cheered when I saw a new report at the beginning of summer, done by Tom Warne and Tom Schmitt. Warne is the former executive director of Utah DOT and Schmitt is former chief engineer of Arizona DOT. Both have decades of transportation experience. Their report, "Design-Build Contracting for Highway Projects" (available at www.agc-ca.org), reviews the outcomes of 21 highway projects carried out using the DB method. They ranged in size from $83 million to $1.3 billion and were done in nine states (Arizona, California, Colorado, Florida, Minnesota, South Carolina, Texas, Utah, and Virginia).

The results are striking. First, the average "cost growth" on these projects ranged from 0 to 4%. That's pretty amazing in itself in these days of regular cost over-runs on public-sector projects. In the authors' experience, cost growth on highway projects done via DBB is typically 5 to 10%. Far more dramatic was the schedule performance, measured in two ways. First, how close did the project come to meeting its defined schedule? For 13 of the 17 projects that were completed at the time of the study, the completion date was on or before the scheduled date, sometimes by a considerable amount. And when officials responsible for each project were asked how long it would have taken if done using DBB, the average estimated time was 142% longer. And project officials judged the quality of work to be as good as, or better than, a DBB approach would have delivered.

A few months before this report came out, the well-respected California Legislative Analyst's Office issued a report called, "Design-Build: An Alternative Construction System" (www.lao.ca.gov/2005/design_build/design_build_020305.pdf).

Far more cautious, it presents an "on the one hand; on the other hand" approach to the subject. Still, it concludes that DB has a lot going for it, and recommends passage of a uniform DB statute to replace the current patchwork—but for buildings only, alas.

Meanwhile, although the GoCalifornia legislative package was kept from reaching the floor in either house of the Legislature this year, the Governor's office and Caltrans are gearing up an expanded effort to build support for GoCalifornia, with workshops around the state next month. The legislative package, now aimed at next year, includes statutes to permit DB to be used in highway construction and to enable tolling and public-private partnerships.


Congestion Pricing for Trucks—Live from California

Los Angeles has a huge problem, thanks to the economic powerhouses of the Ports of Long Beach and Los Angeles . Both send massive numbers of big trucks back and forth on the Long Beach Freeway (I-710) and on the east-west freeways (especially SR 60) connecting LA with the Inland Empire, which is chock full of warehouses and distribution centers. This truck traffic threatens to bring these and several other freeways to a halt during weekday working hours, as port traffic continues to increase at a hectic pace.

Amazingly, although ships load and unload on a 24/7 basis, shipment of containers in and out of the ports has been confined to "normal" business hours on weekdays. This puts truck traffic on the freeways precisely when they are at their busiest. Yet the local trucking companies involved in these drayage operations maintained that they had to limit themselves to those hours, because those on the other end of the trip kept the same hours.

Well, not necessarily. After considerable planning and negotiating, a program to encourage some of these operations to shift to evenings and weekends finally got off the ground this summer. PierPass is the new nonprofit operating company created by the marine terminal operators at the ports to implement the program. To create an incentive to use the new evening and Saturday loading shifts, the program charges $40 per TEU (a standard cargo container measure) for every operation carried out during traditional weekday hours. No fee is charged for the evening and weekend hours.

The initial results are promising. During the first two weeks, off-peak shifts handled 30% of daily cargo traffic, easily surpassing the first-year goal of 15 to 20%. Who says congestion pricing won't work for trucks?


Speaking Engagements

I'm on the road a lot this fall, with a number of upcoming speaking engagements dealing with managed lanes, road pricing, toll financing, and related topics. Here's the current list.


Notable and Quotable

TRB Discussion on Public-Private Partnerships. One of the best sessions at the 2005 annual meeting of the Transportation Research Board was titled "Let's Make a Deal." Ably chaired by then-FHWA Administrator Mary Peters, the panel featured Allan Rutter, D. J. Gribbin, Bob Prieto, Geoff Yarema, and James Taylor. It's finally been edited and posted online, where you will find it at:
www.fhwa.dot.gov/ppp/lmd050110.htm.

Making the Case for Toll Roads. How do you persuade people to pay tolls for urban expressways? One way is by explaining to them the difference between taxes and tolls. Miami Herald transportation reporter Larry Lebowitz did just that in a thought-provoking column last July 4th. He added up all the gas taxes Miamians pay each time they fill up´┐Żlocal, state, and federal. And he explained about Florida being a donor state and there being no necessary relationship between what you pay in fuel taxes and getting your local transportation problems fixed. But with the local toll agency (Miami-Dade Expressway Authority), "The tolls you pay here stay here." It's a point well worth remembering when the subject comes up.


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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