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Reason Foundation

Surface Transportation Innovations # 54

Topics include: robust public support for tolling; HOT lanes for the U.K.; Pennsylvania Turnpike lease; gasoline prices and driver behavior; rethinking the federal surface transportation program; food and transportation; and other news.

Robert Poole
April 1, 2008

In this issue:


Public Prefers Tolling to New Taxes, Study Finds

There's a wealth of survey data suggesting that the public would rather pay tolls for new highway capacity than have their gas taxes increased. That's a principal finding of an important new synthesis report from the National Cooperative Highway Research Program of the Transportation Research Board. The report (NCHRP Project 20-05, Synthesis Topic 38-03) is due out later this month (or early next month) and should be downloadable soon from the TRB website (www.trb.org). You can get a preview from an article by co-author Johanna Zmud in the Winter 2008 issue of Tollways, the quarterly from the International Bridge, Tunnel & Turnpike Association (www.ibtta.org/files/PDFs/win08_Zmud.pdf).

The research project examined 110 U.S. public opinion studies on some aspect of tolling or road pricing carried out over the past 10 years. Most of the surveys had large enough sample sizes to be useful and were carried out in a scientific manner. Some very interesting results emerged. For example, if respondent pool consisted of "potential users," support for tolling or pricing trounced opposition by 74% to 15%. Using "registered voters" as the sample, tolling support was almost the same: 71% vs. 24% opposed. But if the survey targeted the "general public," the pro and anti-toll position tied at 42% each. Another strong finding was that surveys based on a specific project showed far higher support for tolling than surveys posing a general question about tolling or pricing-62% support if project-specific versus 38% if a general question.

In the Tollways article, Zmud identifies eight themes in the public opinion findings:

I served on the TRB advisory committee which oversaw this study, so I can attest to the rigor with which it was carried out. Download the whole synthesis report once it's available, but meanwhile read Zmud's excellent overview article.

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HOT Lanes Reach the U.K.

Road pricing has been on the policy agenda in Britain for the past half-dozen years, with various plans and proposals announced and later withdrawn. But withdrawal of the Labor government's latest proposal for nationwide road pricing was accompanied by an alternative: HOT lanes, to be added to up to 500 miles of the most congested motorways.

The latest plan to charge per mile to use all U.K. highways, via either GPS or a transponder system, was scrapped in March, following last fall's online petition campaign, which led to two million drivers signing the anti-pricing petition on the government's website. In its place, Transport Secretary Ruth Kelly announced a pair of measures. On certain congested roadways, the existing hard shoulders will be opened to traffic during peak periods. And in many cases, a fourth lane in each direction will be added, to be operated as a U.S.-type HOT lane-no charge to carpools but priced for solo drivers.

Kelly told The Guardian, "If you are thinking of an existing three-lane [per direction] motorway, and you open a fourth lane, one of those lanes might be a reserved lane, and by doing that, people can put a premium on reliability . . . . The touchstone here is giving people real choice on the motorway network, so where people value reliability, they have the option to pay for it. Everyone else would have the choice of remaining in the existing three lanes. It is a win-win situation."

If Kelly's plan proceeds, the U.K. will essentially skip the step of first building HOV lanes and then converting them to HOT lanes. At present, the country has just a single 1.7-mile HOV lane (near Bradford and Leeds), with a second one on the M1 near St. Albans on hold. It will be far simpler to develop HOT lanes from the first, avoiding potential of opposition to conversion from established carpool users. Edmund King, president of the Royal Automotive Club, praised the Kelly proposal, saying the RAC "would support the tolling of extra capacity lanes where they offer a premium service and a choice for motorists."

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Dueling Studies on Leasing the Pennsylvania Turnpike

At the beginning of March I received a note from Pennsylvania Turnpike vice chairman Tim Carson pointing me to a just-released report commissioned by the PA House Democratic Caucus. "The report provides authoritative conformation [that] the proposed privatization [lease] of the Pennsylvania Turnpike is bad finance and bad public policy!" he wrote (italics in original). If the report actually did that, I needed to know about it, so I downloaded and read it (www.tollroadsnews.com/sites/default/files/DemCaucPPk.pdf). What I found so appalled me that, along with Peter Samuel, I spent the better part of the next few weeks researching and writing a response. You will find it at: www.reason.org/pb70.pdf.

Here's the context. Last year Gov. Ed Rendell proposed a long-term lease of the Turnpike, with the proceeds to be received in a lump-sum, up-front payment and invested like an endowment to provide a permanent new source of annual funding for other highway and transit projects statewide. The Turnpike Commission, to stave off this threat, proposed what became Act 44: a measure that would impose inflation-adjusted tolls on the parallel I-80 while increasing and inflation-adjusting the Turnpike tolls as well. But tolling I-80 can only be done under a federal pilot program whose purpose is to permit toll finance to be used to rebuild that particular Interstate-not to turn tolls into a statewide funding source. Given the great uncertainty about whether Act 44 can succeed, Gov. Rendell has revived his plan to ask the private sector for bids to lease the Turnpike.

Hence, the Caucus report set out to trash the lease idea and reinforce support for Act 44. In brief, what Peter and I found was that the Caucus report fails to make its case and is highly misleading. It presents a large amount of information about bond financing, discount rates, cost of capital, etc., including a comparison of the same revenue stream discounted to present value using three different weighted average cost of capital (WACC) numbers-as if that exercise in arithmetic had anything to do with which alternative the state should pursue. The report never makes an apples-vs.-apples comparison of leasing the Turnpike and Act 44, using the same assumptions about toll rates, traffic growth, and other key variables.

Nor does it do a proper comparison of the net present value (NPV) of the alternatives. The NPV of an up-front payment-say $15 billion-is its face value. You have it in hand today; there is no need to discount anything. But the NPV of a speculative revenue stream over 50 years can only be calculated by using a properly risk-adjusted discount rate. If Act 44 tolling is allowed by the feds, and all goes well, the NPV could be the $26.4 billion the Caucus report presents. But if tolling I-80 as a cash cow is not permitted, the NPV of just the Turnpike toll payments would be in the $7-9 billion range.

We also took the Caucus report to task for assuming away key differences between toll agencies and toll road companies. Peter assembled a database of 35 large toll road systems, mostly U.S. public-sector agencies but also including seven privatized overseas ones. Using official financial data, and adjusting to make sure we compared apples to apples, we found the Pennsylvania Turnpike to be the third-most costly (as measured by the ratio of operating & maintenance costs to toll revenue). If the Turnpike were only as efficient as the Illinois Tollway, its operating costs would be 41% lower. If it were operated as efficiently as the average private-sector toll road in the sample, its costs would be 62% less. So the Caucus report's assumption of no change in operating costs if the Turnpike were leased is unjustified. That's just one example; I don't have space here for others.

Since our report was released last week, there have been two significant events. First, the Turnpike Commission quibbled with our cost numbers, despite the fact that they came right from their own financial statements. They ignored all the other points raised in our report, which suggests to me that they don't have answers to them. Second, Fitch Ratings downgraded their rating on the Turnpike, citing its transformation (via Act 44) "from a self-supporting entity to one subsidizing state-wide functions," pointing out that this could lead to capital projects being deferred so as to meet Act 44 obligations, and suggesting that under some reasonable scenarios, "planned toll increases may be insufficient to meet the annual obligations under Act 44," as we'd noted.

Two developments to keep your eyes on: 1) the Federal Highway Administration's decision on whether or not the I-80 tolling plan can proceed and 2) the bids that come in once the governor issues a formal request. Meanwhile, download these dueling reports and see for yourself who has the better case.

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What Impact Will High Gas Prices Have on Automobility?

We're now living with higher (real) gasoline prices than at any time in living memory. The media love to provide anecdotes about how specific people are coping, with the implication that surely these sky-high prices will reduce Americans' "love affair with their cars." Don't be too sure. For one thing, Europeans have been living with much higher gas prices (due to much higher taxes) than ours for decades, yet as those countries have become more affluent, their use of automobiles has become more and more like ours.

But more seriously, what do we know about the relationship between higher gas prices and Americans' driving behavior? And also about their choice of vehicle? The Congressional Budget Office released a pretty good study on these questions in January. Their findings are worth pondering. (www.cbo.gov/ftpdocs/88xx/doc8893/01-14-GasolinePrices.pdf).

The study used data from 2003 to 2006, during which time real U.S. gasoline prices doubled. And because Caltrans has detailed data on trips and speeds on Southern California freeways, CBO used their data to measure changes in driving behavior. What they found was a surprisingly small impact on that behavior. Over the period in which gas prices doubled, motorists on some freeways made slightly fewer trips and drove slightly less fast (at times when the freeway was uncongested). Specifically, on those freeways where there was a parallel commuter rail line (as is the case with several in the database), for every 50-cent increase in the price of gas, the number of freeway trips decreased by 0.7%. No such decrease was seen on the rest of the freeways. And for every 50-cent increase, the median speed on uncongested freeways dropped by 0.75 mph. This latter result is pr edictably small, since there is little change in gallons used per mile within the speed range of 30 mph to 60 mph, and the value of fuel savings is very small compared with the value of most people's time.

How generalizable are these results? First, most freeways in most metro areas don't have parallel rail lines, so the likely trip-reduction effect (based on these findings) is zero. And the speed reduction of less than 1 mph applies only on uncongested freeways, a declining portion of the total freeway system most places. So it's pretty unlikely that gasoline price increases in the range we've seen recently will have much impact on driving behavior.

However, the second part of the CBO research looks at what is likely to be a longer-term impact: choice of vehicle. And even though we have only three years of data, there are signs that price changes of the magnitude we've seen are affecting what people buy. First, the market share of cars relative to light trucks (pickups, SUVs, and minivans)-which had been declining steadily since the early 1980s-turned upward in 2005 and has remained above its 2004 low-point since then. The biggest single change is from vans and minivans to large passenger cars. Second, overall new-vehicle fuel economy is finally starting to rise again, after having been in a shallow decline since 1987. Third, the prices of used cars reflect the increased importance of fuel economy, with large SUVs and luxury cars declining in price, while full-size and mid-size cars show slight increases-pre sumably reflecting changes in demand.

These results reinforce the idea that automobility is highly valued in America, and hence that people will adjust to higher fuel costs primarily by seeking out more fuel-efficient vehicles rather than curtailing their driving.

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Restructuring the Federal Surface Transportation Program

As we all focus more attention on the 2009 reauthorization of the federal surface transportation program, I want to call your attention to an important new report from the Government Accountability Office. "Surface Transportation: Restructured Federal Approach Needed for More Focused, Performance-Based, and Sustainable Programs" is hard-hitting and says many things that need to be said (GAO-08-400, March 2008).

Let me begin by quoting from its conclusion:

"The current federal approach to addressing the nation's surface transportation problems is not working well. Despite large increases in expenditures in real terms for transportation, the investment has not resulted in a commensurate improvement in the performance . . . as congestion continues to grow, and looming problems from the anticipated growth in travel demand are not being adequately addressed. The current collection of flexible but disparate programs . . . is the result of a patchwork evolution of programs over time, not a result of a specific rationale or plan. This argues for a fundamental reexamination of the federal approach to surface transportation problems. In cases where there is a significant national interest, maintaining strong federal financial support . . . may be needed. In other cases, functions may best be carried out by other levels of g overnment or not at all. . . ."

The body of the report fleshes out these concerns, noting that "Most highway funds are distributed through formulas that have only an indirect relationship to needs and no relationship to performance or outcomes." Moreover, these programs "often do not employ the best tools and approaches to ensure effective investment decisions," and the federal government "does not possess adequate data to assess outcomes or implement performance measures." For those functions that are truly federal or national in scope, "the next step is to ensure accountability for results by incorporating performance objectives, grant incentive or penalty provisions, or more use of competitive selection in awarding grants"-as in DOT's 2007 Urban Partnership Agreement competition. And in assessing investment decisions, "more emphasis could be placed on return on investment and benefit-c ost analysis as criteria for comparing alternatives and directing funds."

Besides asking hard question about what actually constitutes the federal interest in transportation (interstate freight mobility? urban congestion?), the report includes as Appendix III a serious look at the implications of "turning back" various surface transportation responsibilities and revenues to the states. It points out that decisions would have to be made about (1) which functions should remain federal and how federal agencies would be restructured to deal with those, (2) what would happen to a whole range of federal mandates (drinking age 21, metropolitan planning requirements, etc.), (3) state and local decisions on replacement revenue sources and programs. Included in the Appendix is a table for all 50 states, showing what level of fuel taxes would be needed to replace federal funds under one possible turnback scenario; in this particular example, 27 s tates would be able to do this with a lower total fuel tax than exists today, while 23 states and the District of Columbia would require higher total fuel taxes. Interestingly, only nine of those states and DC would need increases greater than 8.7 cents per gallon.

Another take on "turnback" was provided last fall by Ron Utt, in a Heritage Foundation Backgrounder. "Restoring Equity to the Federal Highway Trust Fund" compares payments into the federal highway program by each state and funds received by each, for FY 2005 and for the entire period from 1956 through 2005 (www.heritage.org/Research/SmartGrowth/bg2074.cfm). The biggest "losers"-i.e., long-term donor states-are Texas, Oklahoma, South Carolina, Michigan, Georgia, Ohio, and Florida. Those getting the largest windfall returns over the program's history are Alaska, DC, Hawaii, Montana, Rhode Island, South Dakota, and North Dakota. While mentioning "turnback" of most of the program to the states, Utt also suggests the alternative of "opting out," under which individual states that agree to repl ace the federal fuel tax with their own equivalent levies, as well as meeting performance standards for their portion of the Interstate system, would be free to do so.

Early this month, Sens. Jim DeMint (R, SC) and Jim Inhofe (R, OK) introduced a turnback bill, the Transportation Empowerment Act. It would convert nearly all federal transportation funding to block grants starting in 2010, and would phase down the federal gas tax from 18.3 cents to 3.7 cents by 2013 to fund a greatly scaled-back federal program. Given the strong attachment of most members of Congress to highway and transit grants, I'd be surprised if this measure gains much traction. But I'm glad to see the prospect of a serious debate on what the federal role should be.

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Food and Transportation

We're all going to be hearing a lot of nonsense in the name of reducing greenhouse gases (GHGs) in the years ahead. One of the trendiest ideas in Britain is the concept of "food miles"-the distance a food product must travel before you consume it. Leading-edge U.K. supermarkets like Tesco are now labeling all their products with "carbon labels," based on calculations by the Carbon Trust. People increasingly assume that they should be "eating local to save the planet," since transporting food over great distances must lead to greater GHG production.

But, as George Gershwin wrote in the last century, "It ain't necessarily so." A recent article in The New Yorker ("Big Foot," by Michael Specter, Feb. 25, 2008) was quite eye-opening. Specter interviewed agricultural researchers in Europe and the United States and came up with some surprising findings. For example, it is more "green" for New Yorkers to drink wine from Bordeaux (shipped by sea) than from Napa (shipped by truck). The GHG impact of importing apples from New Zealand to Northern Europe is less than if the apples came from 50 miles away. Why? Adrian Williams of Cranfield University explained to Specter that the yield of NZ apples far exceeds the yield of apples grown in northern climates, so the latter use far more energy per apple, offsetting the energy used in transportation. The same applies to NZ lamb, versus British lamb. Even some produc ts shipped by air end up having lower GHG impact than locally produced ones in Europe. For example, a Cranfield study compared roses for Valentine's Day shipped to Britain from Holland (grown in heated greenhouses) with those shipped by air from Kenya. The carbon footprint of the Dutch roses was six times that of Kenyan roses.

Another interesting example was reported by John Tierney in the New York Times (Feb. 25, 2008). Drawing on a book by environmentalist Chris Goodall (How to Live a Low-Carbon Life), Tierney asks whether it makes "green" sense to substitute walking for short local car trips. Goodall notes that "Walking is not zero emission because we need food energy to move ourselves from place to place. Food production creates carbon emissions." To walk 1.5 miles and replace those calories by drinking a glass of milk, Tierney summarizes, means GHG emissions "just about equal to the emissions from a typical car making the same trip. And if there were two of you making the trip, then the car would definitely be the more planet-friendly way to go."

I don't mean any of this to be definitive. My point is that we must not let transportation policy be hijacked by simplistic notions that driving or long-distance goods-movement are always and inherently more GHG-intensive than the real-world alternatives.

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Upcoming Conferences

(Please note: I've received several requests to list any number of conferences in this newsletter, but because there are far too many, I will list only those which a Reason transportation colleague or I am involved with.)

For Whom the Road Should Toll: The Future of Toll Roads and Road Pricing in California, May 2, 2008, Hilton Ontario Airport, Ontario, CA
Keynote speakers include Alan Pisarski and Martin Wachs. (http://leonard.csusb.edu/news/May22008TransportationForum.htm)

Dow Jones Infrastructure Summit 2008, May 13, 2008, The Yale Club, New York, NY
Includes interviews with Rep. John Mica and The Carlyle Group's Robert Dove. (866-291-1800 or http://infrastructure.dowjones.com)

Opportunities in Transportation Infrastructure, May 14-16, 2008, The Almas Temple, Washington, DC
Featured speakers include David Crane and Pete Ruane. (www.infocastinc.com/transinf)

Freeway and Tollway Operations Conference, June 15-19, Hyatt Regency Bonaventure, Ft. Lauderdale, FL
Sponsored by the TRB Freeway Operations Committee and the International Bridge, Tunnel & Turnpike Association. (www.2008FTOC.com)

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News Notes

Urban Planner Takes on Hybrids in HOV Lanes. I especially enjoyed reading planning guru Bill Fulton's March 10th blog post, "The $300 Million Congestion Pricing Error." He contrasts the give-away of valuable space in HOV lanes to drivers of hybrids (such as himself) with the successful sale of such space to willing drivers on the HOT lanes on I-15 and SR 91. His research indicates that a hybrid with one of the 85,000 carpool access stickers is worth $4,000 more than one without one. And the state foolishly gave that value away-about $300 million-instead of selling it to willing buyers. And in the process, helped to fill up HOV lanes to the point where many of them no longer save people any time. Take a look at www.cp-dr.com/node/1956.

Express Lanes Demonstration Program. The Federal Highway Administration in February released a Federal Register notice launching the Express Lanes Demonstration Program, the last of six tolling and pricing programs authorized by SAFETEA-LU. It will permit up to 15 projects to add electronically tolled lanes to Interstate or non-Interstate highways to relieve congestion. Also allowed is conversion of HOV lanes to HOT or express toll lanes. For more information, go to www.ops.fhwa.dot.gov/tolling_pricing/programs/express_lanes.htm.

Pocket Guide to Transportation 2008. A quick-reference guide to transportation, from DOT's Bureau of Transportation Statistics, is now available in a new online version. Go to: www.bts.gov/publications/pocket_guide_to_transportation/2008/pdf/entire.pdf

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Quotable Quote

"As the baby boom generation retires, entitlement programs will grow and require increasing shares of federal spending. Absent significant changes to tax and spending programs and policies, we face a future of unsustainable deficits and debt that threaten to cripple our economy and quality of life. . . . [We need] a fundamental reexamination of government programs and commitments by reviewing their results and testing their continued relevance and relative priority for the 21st century . . . [so as to] address emerging needs by eliminating outdated or ineffective programs, more sharply defining the federal role in relation to state and local roles, and modernizing those programs and policies that remain relevant. The nation's surface transportation programs are particularly ready for reexamination. For example, the Highway Trust Fund (HTF) was created in 19 56 to finance the construction of the Interstate Highway System . . . . That system is now complete. However, the federal highway program's financing and delivery mechanisms have not substantially changed and their continued relevance in the 21st century is unclear."
--Introduction to GAO-08-400, March 2008

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


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