In this issue:
- Impact of Minnesota Bridge Collapse
- How Big a Role for Tolls and PPPs?
- National Infrastructure Bank: A Bad Idea
- Time for California to Switch to HOT Lanes
- Cars vs. Transit: Packets vs. Circuits
- News Notes
- Quotable Quotes
Last week's collapse of the bridge on I-35W in Minneapolis has led to predictable finger-pointing and breast-beating about how irresponsible various politicians have been in not raising fuel taxes during the past decade or so. While I've been beating the drums about inadequate U.S. infrastructure investment for more than 20 years, I'm not ready to jump on the hike-the-gas-tax bandwagon.
The first question we should be asking, as we ponder the fact that the world's largest and most successful economy has 75,621 structurally deficient bridges and another 79,523 that are functionally obsolete, is "How come?" It is not simply a matter of not spending enough money. As I've told a number of reporters in the past week, the first thing we should be looking deeply into is how we spend the highway money we have. If the current system is seriously flawed, it makes no sense to simply pour more money into it, unreformed.
I fault the current federal highway funding system on two key points. The first is its long tradition of, and recent major uptrend in, allocating money to congress-members' pet projects--rather than to projects that yield the most bang for the buck in addressing real transportation needs. A system that spends lavishly to build bridges to nowhere, while over 75,000 bridges are in danger of collapse and another 79,000 can't handle today's demand, is a system that cries out for fundamental change.
The other basic problem is that the federal funding system, by design, shifts resources from populous, fast-growing states to low-population, low/no-growth states. You can understand why this was done originally: to make sure that Interstate links got built through rural states where there wasn't enough traffic to generate enough fuel-tax revenue to cover the cost. But that was then, and this is now. Today we have massive needs in specific locations: to expand urban expressways to alleviate congestion and to expand the capacity of key Interstate routes to keep commerce flowing. Yet the federal funding mechanism still takes funds from the states where these needs are greatest and sends them to places like Alaska and North Dakota. We couldn't have designed a more perverse approach to solving our highway investment problem if we tried.
Yet the simplistic answer of simply pumping more money into this flawed federal system is the best many pundits and analysts can do. That's pathetic.
Yes, we do need a major, sustained increase in capital investment in America's highway system. But those investments need to be targeted to critically important goods-movement and congestion-relief projects. The best way to do this is to turn to the capital markets, creating mechanisms to direct eager capital to projects that pencil out as viable investments. To their great credit, that's what DOT Secretary Mary Peters and her team have been trying to do, with their aggressive efforts to explain the merits of tolling, value pricing, and public-private partnerships. Before we rush into new federal crash programs and arbitrary fuel-tax increases, we should make a serious effort to figure out how much of the problem can be addressed with these critically important tools.
The conventional wisdom is that, yes of course, tolling and PPPs can add marginally to the billions needed for increased highway and bridge investment. But they are basically a side show. American Road & Transportation Builders Association (ARTBA) head Pete Ruane said as much in a July 9th letter to the Wall Street Journal, claiming that private capital could provide, at best, 10% of what the U.S. DOT says is needed. And the American Association of State Highway & Transportation Officials (AASHTO), in an April 2007 report, says that tolling's share of total highway funding is only 5%, and could be increased to as much as 7% with strong policy support. (www.transportation1.org/tif4report/TIF4-1.pdf)
Peter Samuel takes issue with those assessments, in a strongly worded piece at www.tollroadsnews.com/node/3024. The AASHTO report is misleading, citing $7.75 billion in 2005 toll revenues versus total highway revenues of $155 billion. But the latter number includes $17 billion in proceeds of bond issues, most of which are to fund toll projects, and $8 billion in interest on investments, again largely by toll agencies. Attributing two-thirds of those numbers to toll projects gives a revised calculation of $24B/$155B equals 15.5%, twice AASHTO's claimed fraction.
Another way to parse the AASHTO numbers is to remove from the denominator the non-highway-user portion, including $8 billion in property taxes for local streets and $22 billion in general fund appropriations. The Federal Highway Administration calculates 2005 highway user revenues at $82.6 billion in user taxes and $7.75 billion in tolls. Hence, the toll revenue as a fraction of that $90.3 billion equals 8.6%. And if you include the toll bond proceeds and interest, the result is $24B/$90B = 27% of total highway-user revenue due to tolled facilities. That's three and a half times the AASHTO figure.
The apparent source of ARTBA's 10%-of-needed-investment claim is an important report by PBConsult for the U.S. DOT, "Current Toll Road Activity in the U.S.: A Survey and Analysis" (www.fhwa.dot.gov/ppp/toll_survey_0906.pdf), about which I wrote in Issue No. 31 last year. It finds that under current policies, new toll projects in the pipeline are likely to represent $4-6 billion per year, which is 30-35% of all new capacity in limited-access highways. And out of a potential $80 billion of potential toll projects, about 44% are either planned as or are candidates to be developed as public-private partnerships. Thus, where it really counts—adding much-needed new capacity—tolling and PPPs are vastly more significant than the 10% figure cited by ARTBA.
And note well that the estimates in this report, by colleagues Steve Lockwood and Ben Perez, are not any kind of upper limit. The report was published in 2006, based on data assembled in 2005. Thus, it missed most or all of the recent changes in toll-rate policies for toll roads in Florida, Indiana, Pennsylvania, and Texas that will index nearly all toll rates to some kind of inflation index—a dramatic change from 20th-century tolling (see my Public Works Financing column on this subject at: www.reason.org/commentaries/poole_20070600.shtml). So toll revenue will be going up at much faster than historical rates of increase. The PB report also does not include the ongoing wave of new toll projects in Florida, Georgia, Texas, and elsewhere, by toll authorities and concession companies.
Coming up with a more realistic estimate of the potential of tolling and PPPs to add to U.S. highway capacity ought to be a priority for the National Surface Transportation Infrastructure Financing Commission, now finally under way. We can't have a realistic debate about increasing federal or state fuel-tax rates until we know what these powerful market-based tools can really do.
By apparent coincidence, the same day as the Minnesota bridge collapse, Sens. Chris Dodd (D, CT) and Chuck Hagel (R, NE) introduced S.1926, the National Infrastructure Bank Act of 2007. A companion measure, HR.3401, was introduced in the House. The new federal institution would be authorized to provide subsidies, loan guarantees, and tax-credit bonds for mass transit, roads, bridges, public housing, water systems, and wastewater systems. The "full faith and credit" of the federal government would support this financial assistance, which would be over and above what's provided by "existing formula grants and earmarks."
This is a terrible idea, in response to the very real problems of inadequate and ineffective infrastructure investment. It was developed by a centrist think tank, the Center for Strategic & International Studies, whose board is studded with names like Richard Armitage, William Brock, Zbigniew Brzezinski, Carla Hills, Henry Kissinger, and Felix Rohatyn. Three years ago CSIS sponsored a study effort, led by Rohatyn and former Sen. Warren Rudman. That effort's "Guiding Principles for Strengthening America's Infrastructure" correctly identified the twin problems of underinvestment in key infrastructure assets and wasteful spending due to earmarks and politicization. It also concluded that "users should pay a greater portion of infrastructure costs," and that "the extent to which users are prepared to pay for services they use is ultimately the best test of project viability." It even endorsed greater use of public-private partnerships.
Unfortunately, the proposed National Infrastructure Bank goes directly counter to those principles. It would put the federal government further in debt using general-fund tax money. It would further undercut the user-pays principle by funding out of the same pot water and wastewater systems, mass transit, highways, bridges, and public housing. What a strange mix: public housing and public transit are in no sense commercial entities that can be paid for by user fees—that's why they are in the public sector. But large-scale, strategic investments in highways, bridges, water and wastewater systems are all precisely the kinds of thing that the capital markets are well-equipped to fund. There is no need to expand the role of the federal government, or further increase the national debt, to substitute for what dozens of new infrastructure investment funds are willing, able, and eager to do.
Unfortunately, the American Society of Civil Engineers has already gone on record endorsing this ill-conceived idea. I'm sure many of those who worked with CSIS on the Guiding Principles had the best of intentions. But after decades of failed efforts to centrally plan investment (from the Reconstruction Finance Corporation in the 1930s to the Synfuels Corporation in the '70s and '80s) you'd think people would have learned something about how centralized pools of other people's money end up getting used. Or maybe each generation has to learn that lesson the hard way.
In June the Federal Highway Administration told Caltrans that many of the state's HOV lanes don't meet minimum federal standards requiring average peak-period speed of at least 45 mph. Some Southern California HOV lanes are doing 10 mph at rush hour, and similar problems are appearing in the Bay Area.
Thus far, all that Caltrans seems to be considering is tinkering—limiting the number of hybrids in the lanes, extending the hours of "diamond lane" operation, standardizing (rather than diversifying) the policy on where drivers can enter and exit HOV lanes, etc. There is some talk about upping the requirement from HOV-2 to HOV-3. But so far not a word about the sensible solution: converting these lanes to HOT lanes.
That's especially ironic, in that America's very first HOT lanes were developed in Southern California, on SR 91 in Orange County and I-15 in San Diego. Thanks to strong support from FHWA's Value Pricing office, those two are probably the best-studied HOT lanes in the world, and their many successes have been presented at transportation conferences far and wide, and are being replicated all over the country. So why doesn't Caltrans take advantage of this opportunity?
They could explain to the public, first of all, that as traffic keeps increasing much faster than lane-miles, two-person carpool lanes are all going to fill up and become congested. Upping the occupancy to HOV-3 would solve the problem for awhile, but eventually it would re-emerge: carpool lanes are simply not a sustainable solution. Besides, we now know that upwards of 80% of those riding in HOV lanes are actually people who would be traveling together anyway ("fam-pools"), so giving preferential treatment to these vehicles does not reduce the number of cars on the road at rush hour—which was the original point.
As I suggested in my latest Public Works Financing column, the best way to solve both the sustainability problem and the fam-pool problem is to convert to a form of HOT lanes in which only pre-registered, employer-certified carpools of three or more get free passage—and only during peak periods (see www.reason.org/poole_20070800.shtml). In addition to its other advantages, this approach would also solve the thus-far intractable enforcement problem with HOT lanes. Instead of relying on officers in patrol cars peering through tinted glass, on the fly, trying to determine if there is either a transponder or three heads visible, all HOT lanes enforcement would be electronic. Employer-certified carpools would have a transponder like all other HOT lane customers, but their accounts would be coded for a toll of zero during peak periods. So every vehicle in the HOT lane would be enforced the same way: valid transponder or not, sufficient account balance to pay the toll or not.
Despite the silence from Caltrans, a Los Angeles Times editorial has called Reason's proposal along these lines "a notion worthy of study, especially considering the success of the 91 Express toll lanes in the median of the Riverside Freeway." And the Los Angeles Metro has launched a study of how best to apply congestion pricing in Los Angeles. If Metro comes to appreciate the huge benefits for express bus/BRT services using a network of uncongested HOT lanes, perhaps they will push Caltrans to take this beneficial step.
For months I've been meaning to write about an impressive paper from the Kennedy School of Government, "The Impacts of Commuter Rail in Greater Boston." It's based on a longer paper by Eric Beaton that was awarded the Howard T. Fischer Prize in Geographical Information Science, for the best use of GIS by a Harvard graduate student. In his research Beaton used GIS to analyze the relationship between rail transit station location and transit use. He found that "In the late 19th and early 20th centuries, commuter rail service played a major role in shaping the land uses in the communities it served. But that does not seem to be the case today. . . . Looking to the future, this means that providing new commuter rail facilities is not likely to produce significant changes in travel and land use patterns." (www.ksg.harvard.edu/rappaport/downloads/policybriefs/commuter_rail.pdf)
I held off writing about this paper because I despaired of its being able to persuade those not already convinced that rail transit has only very limited potential. So many elected officials, in particular, seem to have concluded that getting people out of their cars is (only) possible with snazzy new rail transit, so we must forge ahead, despite the enormous cost and very modest results in most cases. This seems to have become more of a belief than a reasoned conclusion. And against a belief system, what good is evidence?
But last week I read a commentary that provided one of those "Aha!" moments. Stephen Fleming, chief commercialization officer at Georgia Tech, wrote it for the Georgia Public Policy Foundation. Fleming uses the power of analogy, explaining the historic development of telecommunications on the basis of switched circuits. In "legacy" telecom systems, all the way through the failed ISDN of a decade ago, a voice or data message required its own, exclusive pair of copper wires, from origin to destination, with numerous switching steps along the way. But then a few pioneers invented packet switching, in which a voice or data message is broken up into individual data packets, with each one routed independently to its destination, making use (simultaneously with zillions of others' packets) of the entire network of possible connecting paths. Packet switching is what made the Internet possible: it's faster, more flexible, and ultimately much cheaper than circuit switching, though it requires lots of processing power.
As Fleming goes on to write, "The analogy is obvious: Mass transit systems are circuits. Automobiles are packets. Packet switching always beats circuit switching." He goes on to explain that mass transit means capital-intensive routes with minimal flexibility. But with automobiles, every "packet" goes into a large network to be routed direct to its destination. Especially when those destinations are door-to-door-to-door-to-door, as in so many people's trip-chaining commutes. (You can read Fleming's complete commentary at www.gppf.org.)
On second thought, perhaps this analogy is too abstract for non-techie elected officials. But it should be persuasive to the business leaders who end up on task forces devoted to solving urban transportation problems. Just remember: packets beat circuits.
Federal Toll Database—a Work in Progress. As part of its efforts to increase awareness and understanding of the role that tolling and PPPs can play, the FHWA's Congestion Management and Pricing Team has unveiled a new database on public and private toll facilities in the United States. Alas, as Peter Samuel points out on Tollroadsnews.com, the database omits numerous well-known facilities—including Denver's E-470, New York's major toll bridges and tunnels, the Indiana Toll Road, the Illinois Tollway system, the Massachusetts Turnpike, and the new Tacoma Narrows Bridge. The database is at: www.ops.fhwa.dot.gov/tolling_pricing/resources/toll_facilities_info/search.cfm. More to the point, if the toll road nearest and dearest to you is not listed, please send its specifics to email@example.com.
Electronic Tolling in Avis Rental Cars. Last month when I got an update to the terms and conditions of my Avis Preferred membership, I was pleased to see the following announcement:
"As you may have heard, we have begun equipping our cars with Avis e-Toll at select U.S. locations. Should you choose to take advantage of e-toll, this automated toll payment option allows you to bypass cash toll lanes, saving time at the booth, while making your travel smoother and stress-free."
This is another welcome step toward the phase-out of 20th-century toll booths and toll plazas.
New PPP Resources On-line. The FHWA has added three new reports, prepared by AECOM Consult, to its PPP website. They are:
- "User Guidebook on Implementing Public-Private Partnerships for Transportation Infrastructure Projects in the United States";
- "Case Studies of Transportation Public-Private Partnerships in the United States";
- "Case Studies of Transportation Public-Private Partnerships Around the World".
You can find them at www.fhwa.gov/ppp/index.htm, listed under the Featured Resources section.
"The gradual deterioration of mobility has lulled us into making subconscious accommodations to congestion. We slowly shrink our opportunity circles. We pare back the list of things we might do if it were easier to get around. More of us mentally cross out more of our potential lives. The widespread surrender dulls individual lives, and it also dulls entire cities. As opportunity circles shrink, dynamism filters out of the city. If it were infused with the energy and talent of all its denizens, a city could grow into a grand metropolis. Sadly, urban life isn't as vibrant as it could be because too many neighborhoods function as their own little hamlets, increasingly isolated from other parts of the city."
--Ted Balaker, "Why Mobility Matters to Personal Life," Reason Policy Brief No. 62, July 2007 (www.reason.org/pb62.pdf)
"In light of [the Chicago Skyway and Indiana Toll Road] transactions, many governments have realized that the combination of steady annual cash flow that tolls produce, combined with the ability to depreciate the asset for tax purposes, is of immense value to private operators. . . . Debt markets, which have historically funded public toll roads, rely primarily on historical growth to determine acceptable borrowing levels. However, because they are not as risk-averse as the tax-exempt debt market, equity investors in PPP projects are willing to take a more entrepreneurial view of the future performance and value of established revenue-producing assets."
--former California Treasurer Kathleen Brown, "Are Public-Private Transactions the Future of Infrastructure Finance?" Public Works Management & Policy, Vol. 12, No. 1, July 2007.
"The additional scrutiny now being placed upon PPPs is forcing providers and policy makers to focus on both the good and bad sides of these proposals rather than blindly following the previous mantra that PPPs are the best solution to financing all infrastructure projects. PPPs continue to offer great promise as an alternative financing method that can help deal with the nation's critical infrastructure projects, but closer scrutiny will ultimately result in better policy decisions affecting our national highway system."
--C. Randal Mullett, Vice President, Government Relations, Con-Way