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Reason Foundation

Surface Transportation Innovations # 42

Topics include: facts vs. fictions on toll road concessions; carpool lane follies in California; port emissions and congestion; fresh perspective on urban sprawl; CO2 and cars; and other news.

Robert Poole
April 1, 2007

In this issue:


Toll Road Concessions: Facts vs. Fictions

Over the past few months, the initial euphoria over multi-billion dollar private-sector investments in U.S. toll roads—whether leasing existing toll roads or developing new ones—has given way to intense debate over the merits of the idea. CNN's Lou Dobbs repeatedly trashes the idea as part of the "selling of America." Rep. Peter DeFazio, chairman of the House Highways & Transit Subcommittee, has held three hearings on PPPs thus far (at one of which I testified). Fierce debates are occurring in the New Jersey and Pennsylvania legislatures over proposed leases of their state turnpike systems. And most recently in Texas, populist opposition in both political parties has led to a pending measure to impose a two-year moratorium on concession projects for new toll roads.

In response to these concerns, my Reason colleagues and I have developed two sets of Frequently Asked Questions, one focused on the lease of existing toll roads and the other on the use of concessions for new toll roads. Both are available on-line: go to reason.org/pb58_building_new_roads.pdf and reason.org/pb60_leasing_state_toll_roads.pdf.

The FAQs are pretty self-explanatory, so I won't try to summarize them here. I think our team has done a good job of anticipating and responding to all the concerns we've heard in the various legislative debates and critical articles. Here, I'd just like to add a few points, for context.

Critics tend to portray long-term toll road concessions as some kind of radical new concept for the United States (even if they concede the decades of modern experience in Europe and Australia). But this is historically false, as anyone familiar with Prof. Daniel Klein's extensive historical documentation of U.S. 19th-century private toll roads can attest. And the same basic idea used for new toll roads has an excellent recent history in the privatization of military base housing. Dating back to the Clinton administration, scores of what amount to long-term (e.g., 50-year) concession agreements have been entered into, under which a private firm finances, builds, and maintains houses and apartments to replace dilapidated base housing. Thus far, the track record of this large and growing program has been excellent, with all parties pleased with the outcome.

Another concern is how much profit toll road companies might make under these deals. When I mention low double-digit rates of return to reporters, I can hear jaws dropping. But what non-financial people don't realize is that infrastructure investment is a global market. If companies can earn such returns on toll roads or electric transmission lines or railroads in other countries, they will only invest here if the returns are comparable. I noted the other day an item in the Wall Street Journal that Burlington Northern Santa Fe, one of Warren Buffett's recent investments, had a 19% return on equity last year. Yet nobody is accusing Buffett or BNSF of extracting egregious profits from the transportation of freight. So when investors risk billions on U.S. toll roads, they deserve the chance to earn competitive rates of return.

Finally, when people raise concerns about 50 or 75 or 99-year concession terms, my response is to look at a similar network utility: electricity. Because we all grew up with mostly investor-owned electricity companies, we take them for granted. But if you do a little digging, you will find that in most states, electric utilities operate under very long-term franchises—between 50 and 99 years. Just like with highways, nobody really knows if we will still be driving cars 100 years from now, or using electricity generated in large, distant plants (as opposed to, say, electricity generated on-site). The posibility of long-term technological change is one of the risks that toll road companies, like electric companies, take on, in exchange for their long-term franchise. There's nothing really new about that.

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California Carpool Lane Follies

California seems to have a love-hate relationship with HOV (carpool) lanes. On one hand, it has about 1,300 lane-miles of them, far more than any other state. In places where congestion is really bad, the HOV lanes are getting full (hence congested); in other places, they evince the "empty lane syndrome" and hence are quite unpopular.

Now Caltrans is poised to make a bad policy decision, in Orange County. The board of the Orange County Transportation Authority has voted to ask Caltrans to make two changes to the HOV lanes in their county: to open the lanes to all vehicles outside of peak periods and to allow continuous access (rather than having a limited number of ingress/egress zones). There are at least three reasons why this would be a move in the wrong direction.

First, as one OCTA board member pointed out, "it's very hard to tell the difference between peak and non-peak hours" on some Orange County freeways (and that phenomenon will spread to others, as growth continues). And at truly non-peak times (e.g. between 10 PM and 4 AM), the regular lanes are not congested, so the extra capacity that would be provided by opening up the HOV lanes to non-carpools isn't needed. Opening the HOV lanes during "shoulder" periods would most likely just clog them up to the point that they perform no better than the congested regular lanes.

Second, allowing people to dart in and out, willy-nilly, between supposedly faster-flowing HOV lanes and congested general-purpose lanes is a recipe for accidents. A study last year by the Texas Transportation Institute found a significant increase in accidents on several Dallas-area freeways after HOV lanes were added, due precisely to the speed differential between HOV and regular lanes, and cars moving back and forth between them.

Third, and most critical in my view, is that if the longer-term destiny of HOV lanes is to be converted to HOT or express-toll lanes—which it should be, since the HOV model is not sustainable long-term—policy changes that open up HOV lanes in more ways will make the future transition to HOT that much harder. If we think these lanes should become HOT lanes in the future, then we should be reinforcing in people's minds that they are limited-access Managed Lanes, accessible only to eligible vehicles and only at designated ingress/egress points.

And if anyone should appreciate the merits of HOT lanes, it's the board of OCTA. They are, after all, the body that owns and operates the highly successful 91 Express Lanes. This was the nation's first value-priced toll facility, the first to go all-electronic, and the first all-new HOT lane to be fully self-supporting (capital costs, operating & maintenance costs, policing costs, etc.) out of toll revenues. It's a huge success story—and it's one that OCTA should be replicating on other congested freeways. Instead, their ill-considered proposal (if accepted by Caltrans) will create new political opposition to such conversions, by all those newly authorized to drive at least some of the time in the open-access HOV lanes.

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Making Ports Better Neighbors

By now, just about everyone knows that the Ports of Long Beach and Los Angeles account for over 40% of all container traffic entering the United States. If you live anywhere in the USA, you most likely benefit from the plethora of high-quality, reasonably priced goods from Asia that come in via these ports. But if you live in Los Angeles, especially near the I-710 or SR 60 freeways, you bear the burdens of massive congestion and medically harmful diesel emissions. Addressing those problems is critical to planned expansion of the ports' capacity, to handle projected growth in trade over the next several decades.

Some progress has already been made on congestion. Over the past two years, a new program called OffPeak has provided economic incentives to shift trucks out of peak travel times and into brand-new evening and weekend shifts. Run by the nonprofit PierPASS organization (jointly created by the two ports' terminal operators), OffPeak charges $50 per TEU (20' of standard container) for each truckload using the port during the normal eight-hour day shift; there is no fee for the off-peak times. Over the past 21 months, that program has shifted 36% of gate traffic to the off-peak hours. Truckers (most of whom are independent owner-drivers, making short-haul drayage runs to distribution centers in nearby Riverside County) have embraced the program, finding that they can make more trips per shift and encounter less traffic congestion by taking advantage of the off-peak hours. The fee revenue (about $130 million/year) helps cover the terminal o perators' costs of operating the additional shifts.

The Southern California Association of Governments has big plans to further address the congestion problem. Their long-range transportation plan includes a $12 billion toll truck lanes project, that would get most trucks out of congested freeway lanes, bypassing congestion. It would also allow multi-container rigs to be used, thereby greatly increasing payload per trip and trips per shift—hence making it worthwhile to pay tolls. But major capacity additions on these corridors are being held up by concerns over the health impacts of diesel emissions, especially the carcinogenic particulates. And while the new generation of diesel engines (standard on new trucks since the first of this year) will have a significant long-term impact as the fleet turns over, communities near the ports don't want to wait 20 years.

Hence, the ports have committed to a Clean Air Action Plan, aimed at making major reductions in emissions from ships, locomotives, and trucks over the next five years. Unveiled this month were the details of a plan, modeled somewhat after OffPeak, to provide incentives for replacing all 16,000 high-emission trucks over the next five years. The plan would charge a new Truck Impact Fee of $34 to $54 each time a truck enters a gate—unless its company has signed a concession agreement. Those that sign up would be exempt from the fee, but would have to comply with new emission requirements, and would be eligible for a subsidy to help them replace their old diesel trucks within the five-year period. The Teamsters' union is backing the plan, because companies eligible to sign up would have to employ the drivers—no more owner/operators. But neither the American Trucking Associations nor the National Retail Federation is supportive at this point.

I share some of their concerns, but I'm also convinced that something dramatic needs to be done about diesel emissions related to the ports. According to local air quality officials, the ports' activities produce 12% of all particulates in the LA basin, and 9% of the NOx. Not only is that bad for residents' health; until it is fixed, we are not likely to be able to move forward on the much-needed toll truckway system.

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Fresh Thinking on Urban Sprawl

Low-density suburban settlement patterns are not everyone's cup of tea. But somehow, over the last decade or so, America's opinion-makers have concluded that "urban sprawl" is a blot on the landscape, a historical mistake of epic proportions, created by foolish federal policies (such as urban Interstates and federal mortgage subsidies). And I can't tell you how many discussions and debates I've been in on transportation policy when the accusation that building more roads will lead to more sprawl is presented as if it's the ultimate trump card.

We are long overdue for a more careful look at the pros and cons of suburbia. And that fresh look is ably carried out by Robert Bruegmann in his book, Sprawl: A Compact History (University of Chicago Press, 2005). Sometimes it takes an outsider to look at something with a fresh pair of eyes (and report, "The emperor has no clothes.") And that's what we have here. Bruegmann, though a professor of architecture and urban planning, is also a professor of art history. So he writes as both a planner and a historian, thus giving the book a more sweeping perspective.

And that's all to the good. Part 1 shows that sprawl has been with us as long as we've had cities. Bruegmann provides an eye-opening history of the phenomenon, seeing it as part of the natural evolution of settlement patterns (though taking somewhat different forms in different settings). And streetcars, of course, enabled the growth of far-flung suburbs, including those of the hugely spread-out greater Los Angeles area. The phenomenon of streetcar suburbs predates the post-World War II suburbanization by 60 to 70 years. Part 2 describes anti-sprawl campaigns of the 20th century, which have come and gone, in both Europe and America. The arguments raised in Britain in the 1920s foreshadowed the arguments that would be used in two waves of anti-sprawl activism in this country, the second of which we are still living through. Bruegemann carefully points out the variety of interests that benefit from such campaigns, and the sometimes odd pol itical alliances thereby created.

Part 3, analyzing anti-sprawl remedies (urban growth boundaries, smart growth & mass transit, etc.) is the briefest, and for me provided the least new information and perspectives. But this is ground many others have plowed in recent years, including Wendell Cox, Peter Gordon and Harry Richardson, Joel Kotkin, and Randal O'Toole.

For some long-overdue perspective on sprawl and its implications for urban transportation, in a highly readable form, by all means get and read this book.

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CO2 and Cars: Sense and Nonsense

Whatever you may think about the extent to which human activity is generating greenhouse gases that are warming the earth, the political reality is that curbs on carbon emissions are coming. The question before us in transportation is how to deal with this challenge in the most cost-effective ways.

One of the worst things we could do is to single out transportation as the villain of the piece, focusing controls disproportionately on this sector that is so vital to economic activity. That's the perspective of ridiculous books like last year's Lives per Gallon, which attributes most of the world's evils to the use of petroleum products as transportation fuel. Petroleum fuels are still critically important, since we don't yet have anything with the same energy density, a crucial component for a vehicle that must carry its energy source around with it (especially aircraft, where weight-minimization is essential). Petroleum accounts for 42% of total US energy usage, and two-thirds of that is used for transportation. Thus, we use 28% of our energy on transportation.

Electricity is one of the other major uses of energy, with the largest sources being coal and natural gas, not oil. So any sensible policy for reducing carbon emissions has to look carefully at all energy use, not just transportation. Coal is by far the largest source of carbon emissions, and there are ready substitutes for coal as powerplant fuel. An article on coal mining, in the Wall Street Journal this week, noted the worldwide problem of uncontrolled fires in coal mines. According to the article, " . . . more than 100 million tons of coal are consumed by fires annually in China, contributing as much to worldwide carbon dioxide emissions as all the cars and light trucks in the U.S." If that number is valid, it may well be more cost-effective to go after that problem (sheer waste) before taking draconian measures to curtail vehicle fuel use.

I expect we'll be seeing CO2 emissions coming up more frequently in debates about transportation alternatives. In that regard, I was intrigued by a recent paper from Breakthrough Technologies Institute that compared three modal alternatives for handling a medium-size city's growth in work trips:

1) A no-build approach, relying on existing cars and diesel buses;
2) Addition of a light rail transit (LRT) line; and
3) Addition of a bus rapid transit (BRT) system using low-emission buses.

As is always true of such paper studies, the authors had to make a lot of assumptions about how many trips of what type would switch modes, but those look defensible to me. Their bottom-line conclusion is that, compared with the no-build option, while LRT would save a modest amount of CO2 over a 20-year period, the three different BRT options would save two to three times as much. That's primarily because the electric power for the LRT was assumed to come from the national average mix of energy sources (dominated by fossil fuels). The BRT options relied on diesel hybrid or CNG propulsion, which produce only 30 to 50% as much CO2 per passenger mile as conventional buses.

This study did not compare costs, so it's not a full-fledged guide to decision-making. But if we had an economy-wide carbon tax or emissions trading system, the relevant cost could easily be attached to the CO2 savings, for comparison with the capital and operating costs of each option.

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News Notes

California Outsourcing Finally Green-Lighted. As I interact with state DOTs around the country, observing productive relationships between staffs and outside engineering contractors, Caltrans has stood out more and more as the only large DOT that does virtually everything in-house. That has just been ended by a unanimous vote the California Supreme Court. Over the years, the union of Caltrans engineers repeatedly sought and won court decisions that twisted the civil service provisions of the state constitution to say that if civil servants perform a function, none of it can ever be outsourced. Thanks to a well-run campaign by private-sector architects and engineers in 2000, the voters approved a constitutional amendment to legalize the outsourcing of such services in California. But it has taken more than six years of further litigation to get this clear-cut ruling that, yes, the voters really meant to legalize this kind of outsourcing. Caltrans finally has a green light.

GAO Says Transport Funding System Is "High Risk". For a number of years, the Government Accountability Office has been alerting Congress to areas of high risk within the federal government. A few have subsequently been removed, and progress has been made on others. But this January GAO added three new ones. Of concern to readers of this newsletter is the first: federal transportation funding. "Revenues to support federal transportation trust funds are eroding at a time when investment is needed to expand capacity to address congestion," GAO concluded. You can read more at: gao.gov/new.items/d07310.pdf.

Another Study on Toll Roads and Land Values. Several readers responded to my piece last issue on this subject by pointing out a 2006 study commissioned by the North Texas Tollway Authority, by Bernard Weinstein and Terry Clower of the University of North Texas. "The Economic, Fiscal and Developmental Impacts of the North Texas Tollway Authority: a 40-Year Perspective," estimates that property within a mile of either side of NTTA toll roads is worth $28 billion. Unlike the studies I covered last issue, this one does not attempt to estimate how much of that value is due to the presence of the toll roads (the accessibility premium).

New Reports of Possible Interest. Several new policy papers have come to my attention in recent weeks. I have not read any of these, but pass along their existence in case they may be of interest.

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


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