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Reason Foundation

Surface Transportation Innovations #64

Topics include:Bridges to Somewhere; The "Foreign Companies" Issue; Infrastructure Report Card; Sidewalks and Bikeways; Truck Toll Lanes;

Robert Poole
February 1, 2009

In this issue:

Bridges to Somewhere

The phrase “bridge to nowhere” several years ago became the symbol of out-of-control earmarking of highway and transit projects by members of Congress. One of my ongoing themes is that an excellent way to bypass this kind of wasteful spending is to use the “filter” of toll financing (and better yet, long-term toll concessions). The point is to substitute economic criteria, like return on investment, for the political criteria often used in selecting projects. In order to develop a toll road or toll bridge, the proponents need to demonstrate to those providing the funds that the project is so useful that its customers will pay enough, over time, to recover its cost of construction and operation.

Four new toll bridge projects have caught my attention recently, each illustrating the kind of real value that such projects can deliver. The most dramatic is a replacement of the obsolete Jordan Bridge in Chesapeake, VA. This 80-year-old two-lane bridge was taken out of service last November, after being limited to vehicles of 3 tons or less. The next month the city received an unsolicited proposal from Figg Bridge and Britton Hill Partners (BHP). They proposed to spend $100 million of their own money to replace the old drawbridge with a modern high-level span, in exchange for a perpetual franchise and the obligation to add a second span, when traffic levels warrant two lanes in each direction. The project will be paid for entirely with cashless toll revenues (E-ZPass transponders plus video tolling via license plate number). Thanks to Figg's expertise with pre-cast , segmental construction, the bridge can be built in just 18 months. BHP told Tollroadsnews.com that they can finance the entire cost with equity from pension and endowment funds, thereby avoiding the troubled debt markets for the time being. The City Council voted unanimously on Jan. 27, 2009 to accept the Figg/BHP proposal.

A larger toll concession project is being considered by the Port Authority of New York and New Jersey to rebuild or replace the three 80-year-old Staten Island bridges (Bayonne, Goethals, and Outerbridge), at an estimated cost of $2 billion. None of these projects is currently funded in the PA's 2009 budget. A PA source told Public Works Financing that “We're looking at everything right now. Our capital budgets are pushed to the wall.” The PA is not constrained by the procurement laws of New York or New Jersey, which do not currently authorize long-term concessions. In recent years the PA has used a long-term concession to develop the new international Terminal 4 at JFK Airport and a design-build-operate-maintain (DBOM) contract for the Airtrain at JFK.

Another much-needed bridge replacement is the SR 520 floating bridge across Lake Washington, linking Seattle and Bellevue. Over the last several years, considerable public support has emerged for using toll finance to fund a replacement of this ailing bridge. Washington State DOT won an Urban Partnership Agreement grant conditional upon legislative approval to employ tolling. In response, the legislature created a 520 Tolling Implementation Committee, whose draft report was released Jan. 8, 2009. It found strong public support for using toll finance to replace the (non-tolled) existing bridge. Somewhat surprisingly, large numbers of people appreciated that there would be huge problems in tolling only the 520 bridge and not the parallel I-90 span. Tolling both would raise up to $2 billion, and a scenario that also added lanes on 520 would have the additional benefit o f keeping traffic well-balanced between the two bridges. The next step will be for the legislature to approve going forward in this manner.

Finally, from Alaska comes news on the other bridge that made news along with the “bridge to nowhere.” The Knick Arm Crossing would connect Anchorage with the borough of Matanuska-Susitna (Mat-Su). It is being proposed as a toll concession project; therefore, an investment-grade traffic and revenue study has been carried out by Wilbur Smith Associates. First-year motorist cost savings (time and fuel) would range from $82 million to $94 million, depending on the price of gasoline. For trucks taking cargo from the Anchorage port and airport to points north, the new bridge would cut 20 miles off the trip. Two pre-qualified teams are preparing proposals, and the project has received federal approval to issue $600 million in tax-exempt private activity bonds. Last fall, critics raised questions about the bridge's cost, which is fine, but only relevant if neither of the potential developer/operators can do the project on a self-supporting basis. This is exactly the kind of scrutiny such projects should-but usually do not-receive.

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The “Foreign Companies” Issue, Again

When reporters or public officials ask me why foreign companies are so prominent in U.S. toll concession projects, I give them the straightforward answer. Because the United States has not had a private-sector toll road industry during the past hundred years, nearly all the expertise and track record exists in what might more accurately be called global infrastructure companies. A table in the November 2008 issue of Public Works Financing listed the top 11 transport infrastructure developer/operators (by total invested in such projects), as follows:

Ferrovial-Cintra: $68.2 billion
Macquarie: $47.1 billion
ACS/Iridium: $33.0 billion
Vinci-Cofiroute: $24.1 billion
Hochtief: $22.3 billion
Sacyr/Itinere: $19.8 billion
Abertis: $19.1 billion
Bouygues: $13.5 billion
OHL: $13.1 billion
Global Via: $12.6 billion
Bilfinger Berger: $9.7 billion

Together, these 11 firms have invested $282.5 billion in some 357 concession projects.

You will note, of course, that none of these global companies is headquartered in the United States. To be sure, we have seen joint ventures between global companies and U.S. infrastructure firms (such as Fluor, Kiewit, and Zachry), and in some cases (such as Zachry American Infrastructure), we are starting to see domestic-only bids. That's to be expected, as U.S. companies learn from their global partners and a U.S. toll road industry begins to emerge.

Recently, a group called America 2050 put out a report aimed at cutting foreign companies-or at least foreign financiers-out of the U.S. toll road market. “Not the Macquarie Model: Using U.S. Sovereign Wealth to Renew America's Civil Infrastructure” endorses expanded use of toll-based project finance. But the equity would come from U.S.-based pension funds and private equity investment funds, and the debt would come from the Social Security Trust Funds. (www.america2050.org/2009/01/not-the-macquarie-model-using-us-sovereign-wealth-to-renew-americas-civil-infrastructure.html).

The report's author is Richard G. Little, director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California-and a reliable advocate for PPP infrastructure. And in general, the report supports the needed (in my view) shift of major infrastructure “from tax-supported public services to revenue-supported enterprise systems.” It also explains and supports “project finance” as a sound approach, and agrees that “the private equity PPP model has generally performed well for investors and the states in which it has been employed.”

But the report goes off the rails when it takes far too seriously “concerns” about foreign investment and “financial decisions made a continent or half a world away.” It fails to address the main reason why global firms thus far predominate in the U.S. toll concession marketplace-namely their decades of experience designing, building, and operating toll roads, airports, and other infrastructure.

I'm happy to see efforts to broaden the base of capital for investment in U.S. transportation infrastructure. And Little's paper may well help in that regard. But I am dismayed by America 2050's pandering to anti-foreign thinking on this issue. Global capital and expertise played a major role in the 19th century in building America's world- class railroad system. It built the Panama Canal and the Suez Canal. It would be very foolish to exclude these tremendous resources as we embark on expanding and modernizing America's transportation infrastructure.

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Infrastructure Report Card: A Caution

I've been beating the drums for more (but smarter) investment in America's infrastructure ever since the multi-volume report of the National Council on Public Works Improvement back in 1988. So it may seem odd for me to suggest that you take with a grain of salt the latest “report card” on the subject, released last month by the American Society of Civil Engineers. This is their fifth such effort, with previous ones appearing 1998, 2001, 2003 and 2005. Compared with 2005, aviation, roads, and transit have all been slightly downgraded in the 2009 version, either from D+ to D (aviation) or from D to D- (roads and transit), while bridges remained stable at grade of C. Only energy (the power grid) got a slight upgrade in the 2009 edition.

My concern is less with the letter grade than with the accompanying spending recommendations. But the changes in the letter grades in surface transportation are a bit curious. Over the past decade, we have seen a steady reduction in the percentage of deficient bridges, yet that improvement is not reflected in the unchanged C grade from 2001 through 2009. Likewise, there have been fairly steady decreases in rough or pot-holed pavements since 1998, yet the highway grade has declined from D+ in 2001 to D- in 2009. To be sure, highway performance includes congestion, not just pavement condition, and congestion has gotten steadily worse, at least until 2008's combination of high fuel prices and recession reduced national vehicle miles of travel.

But as I said, it's ASCE's spending recommendations (really the point of the report card, after all) that I find the most troubling. In the highway field, it cites current capital spending of $70.3 billion per year as inadequate-and I agree. But the most objective source of how much would make sense to spend is the Federal Highway Administration's periodic “Conditions and Performance” report. The most recent edition, from which the $70.3 billion current figure comes, finds that to maintain current performance the nation should be investing $78.8 billion in highways and bridges (an increase of $8.5 billion/year). And to improve performance, the total should be $131.7 billion. That number comes from a FHWA model that estimates the benefit/cost ratio of numerous proposed highway and bridge improvements and includes only those whose ratio is at least 1. 0. That's well under what it would take to attract private-sector investment, so the FHWA list probably includes a lot of projects that are not really economically justified. In any case, I take it as an upper bound on what might make sense. But ASCE offers a “need” for $186 billion per year-some $54 billion more, with no justification.

The section on inland waterways talks about the need to replace 122 locks that are more than 60 years old, at a cost of $125 billion. Would that be a good use of $125 billion? How about the proposed expansion of mass transit capital spending to $21.6 billion per year? Or the proposed $200 billion investment between now and 2035 in freight and passenger rail?

Trying to get a better understanding of how ASCE reached their numbers, I spent about 20 minutes on their website. But nowhere could I find a link to an actual report that explains the underlying analysis. There's a lot of hype and calls to action, but neither the current report nor any of the previous ones report appears to be a public document, open to scrutiny by transportation researchers. Needless to say, this leads me to worry that rather than being a serious attempt to quantify real “investment” needs, this is primarily an exercise in advocacy of more tax dollars committed to infrastructure spending, whether it makes sense in benefit/cost terms or not.

I expected better of a professional engineering organization.

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Sidewalks and Bikeways to Save the Planet?

I was intrigued by a headline in the Nov. 3, 2008 issue of Traffic World: “Funding on Two Wheels.” The story concerned the release of a 44-page study by Rails-to-Trails called “Active Transportation for America.” Its premise is that the benefits of walking and bicycling are so large as to justify a big increase in federal funding from the Highway Trust Fund, in the 2009 reauthorization.

So I went online and downloaded the report, which makes for interesting reading. (www.railstotrails.org/atfa) The basic thesis is that “active transportation” (i.e., the kind that makes you huff and puff) reduces car trips, which reduces fuel use and CO2 emissions, while also giving people needed exercise. It makes some assumptions and runs some numbers in an effort to quantify these benefits. But nowhere does it lay out a specific program of proposed numbers of bike lanes or sidewalks, or show how those specific measures would increase walking and biking by X amount-or make any attempt to estimate what those measures would cost. So even if the benefit numbers are legitimate (they estimate $10.4 billion in benefits from their Modest scenario in which biking and walking increase from 9.6% of all trips today to 13% of all trips), there are no costs against w hich to compare those benefits (hence no benefit/cost ratio), nor does the report give any clue as to how much physical improvements it would take to achieve that increase in mode share.

And alas, even some of their math is wrong. I tried to verify a few of the calculations in their table on reduced miles driven. I picked trips of less than one mile, of which they report 31% are now done via bike or walk, which equates to 15 billion avoided car miles. Their Modest scenario hypothesizes increasing that 31% to 40% of under-one-mile trips. But instead of the correct 19.35 billion miles avoided, their table somehow reports 28 billion. I checked the “Substantial” scenario and found another such error, at which point I stopped.

Further on, while still avoiding making any kind of overall cost estimate, the report states that bike/pedestrian infrastructure is inexpensive, claiming that “a single mile of four-lane urban highway costs at least $20 to $80 million.” The citation for this statement is a table from the Federal Highway Administration that I've used a lot recently. First, since the FHWA table uses lane-miles, we need to divide these numbers by four; hence $5-$20 million per lane-mile is what they claim such a road costs. What does the table show? If it's a major rural (non-Interstate) highway, on a new alignment, the table gives a range of $1.7 to $5.3 million per lane-mile. If we're looking at a major urban arterial, on a new alignment, the table gives a range of from $2.6 million (small urban) to $9 million (major urban area) per lane-mile. Whether rural or urban, that's far less than what the bikers' report calls the minimum cost range.

The point of all this advocacy is that Rails to Trails is asking for “at least” $9 billion of highway user tax money in the 2009 reauthorization bill (in addition to whatever they can get in the stimulus bill). In the pre-ISTEA (i.e., pre-1991) era, about $40 million (with an “m”) in gas tax money was allocated for bicycle and pedestrian projects, but from ISTEA onward, those sums have grown to $4.5 billion-which we're now being asked to double. When critics ask why the reported productivity of U.S. highway investment has declined to the low single digits, this is one of the reasons; increasing fractions of “highway” money are being diverted to non-highway purposes.

Let me hasten to add that I have nothing against bicycles (and I have close relatives who are avid cyclists and Rails to Trails supporters). What I object to is diverting “highway user fee” monies to pay for non-highway stuff. If a city or county wants to have a set of “greenways” for walking and biking, fine with me-but spend parks & recreation money on it, not highway user fee revenue.

One final note on this subject comes from San Francisco, via a Wall Street Journal story from Aug. 20, 2008. Bike lanes there mostly mean taking space away from cars, and that has at least some citizens upset. Though the city already has some 200 miles of bike lanes, it was moving forward with a large-scale expansion plan, until stopped by a legal challenge. Local activist Rob Anderson prevailed in court in November 2006 in his contention that the city could not implement the plan unless it does a formal environmental review-which the city is now doing but doesn't expect to complete until sometime this summer. Anderson contends that giving more street space to bike lanes will cause more traffic jams, leading to more idling and hence more CO2 and other emissions. I have no idea of the trade-offs here, but I'm glad to see a requirement that this lar ge-scale bike lane expansion should actually be studied, rather than simply assumed to be a good thing.

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Truck Toll Lanes Gaining Traction?

A few months ago, I was pleasantly surprised to read the following in the October 2008 issue of Better Roads magazine:

“One component in a less-constrained transportation system is larger and heavier trucks. Doubling the weight of a truck reduces transportation cost per ton-mile, but is not likely to happen today because of public outcry about safety. However, it will happen in the future when reconstructed Interstate highways provide separate lanes for cars and trucks. The Interstate highway system is more than 50 years old. Traffic volumes are far greater than designers had envisioned. And, predictions of freight movements in 2035 indicate that truck traffic will double. Many are recommending that a network of reconfigured highways be built, first on routes with the highest truck traffic. The truck lanes would carry heavier, larger trucks with a gross vehicle weight of [up to] 200,000 lbs.”

We already know how to design pavements that can take such gross weights and somewhat heavier axle loadings. But it would not be cost-effective to rebuild all lanes of the Interstate system with such pavement, when it is only needed by heavy trucks. Separate heavy-duty truck lanes are a core component of ARTBA's much-publicized Critical Commerce Corridors proposal for the 2009 reauthorization. And I was also pleased to see Clayton Boyce of the American Trucking Associations (ATA) tell Traffic World (Jan. 12, 2009) that “We agree with adding truck-only lanes and new truck-only corridors.”

So we're finally getting some consensus on the need for separate truck-only lanes. And I think the trucking industry is beginning to grasp that despite its near-term efforts to increase federal weight limits from 80,000 lbs. to 97,000 lbs., the politics of that move are still against them, as long as those heavier trucks would be in mixed-traffic lanes. I urge the trucking industry to link its gross weight proposal to separate truck-only lanes and the Critical Commerce Corridors proposal.

But then comes the really tough question: how to pay for the new truck lanes. In urban settings, where the cost of adding truck-only lanes would be much higher than elsewhere, bypassing congestion could be worth big bucks to shippers and truckers. The American Transportation Research Institute, an affiliate of ATA, reported last summer that truck drivers lost 243 million hours due to traffic congestion in 2004-the equivalent of 88,000 full-time drivers, at a time of chronic driver shortages. The study of proposed Los Angeles ports-to-distribution-centers toll truck lanes that I reported on in Issue No. 61 estimated that truckers and shippers would save so much time bypassing LA's freeway congestion as to come out way ahead after paying a toll of 86 cents/mile. The estimated “return on investment” to truckers and shippers was between $5 and $11 for every $1 of toll cost.

That urban truckway research did not include the added productivity gains from longer and heavier rigs, but that is what is being studied for the potential four-state I-70 toll truck lanes corridor, one of several Corridors of the Future studies being carried out with FHWA funding support. And the Transportation Research Board has drafted two Research Problem Statements that are now under consideration by the American Association of State Highway & Transportation Officials (AASHTO) for funding. One, under the National Cooperative Highway Research Program, would look specifically at “Managed Lanes and Heavy-Duty Vehicles” (#2010-G-13). The other will be done under the National Cooperative Freight Research Program (as Project 19) covering “Truck Tolling: The Role of Freight Markets and Industry Characteristics in Decision Making.” The latter would, among other thin gs, look into who actually pays tolls charged to trucks, who makes the decisions on routing and whether to use a toll road, etc. in various segments of the logistics industry.

If funded this year, the results of the two research projects would be available by 2011, the second year of the six-year surface transportation reauthorization law. The I-70 feasibility results should be in before then. Thus, it would be very timely for the reauthorization bill to include at least a pilot program for truck-only toll lanes along Interstate corridors, preferably including both urban (like LA) and rural (like I-70) slots.

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Upcoming Conferences

I don't have space to list all possible transportation conferences of interest; those listed here are only ones that a Reason colleague or I will be speaking at.

3rd Annual National Conference on Toll Roads, Washington, DC, Feb. 26-27, 2009, Washington Marriott. Details at www.worldrg.com/tollroads.

5th Annual Public Private Partnerships USA Summit, Washington, DC, March 11-13, 2009, Ronald Reagan Building/International Trade Center. Details at: www.cityandfinancial.com/pfiam5.

7th Annual Preserving the American Dream Conference, Seattle-Bellevue, WA, April 17-19, 2009, Hyatt Regency Bellevue. Details at: http://americandreamcoalition.org/seattleregistrationform.php.

International Transport Forum's Forum 2009, Leipzig, Germany, May 26-29, 2009, Leipzig Conference Center. Details at: www.internationaltransportforum.org/2009/forum2009.html.

2nd International Symposium on Freeway and Tollway Operations, Honolulu, HI, June 20-24, 2009, Hyatt Regency Waikiki. Details at: http://2isfo.eng.hawaii.edu/registration.html.

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News Notes

Economists and Congestion Pricing
A very long but informative article, “Do Economists Reach a Conclusion on Road Pricing?” appeared several years ago in the online journal, Econ Journal Watch. I finally got around to reading it on a long plane flight and found it very informative. Go to www.econjournalwatch.org/main/index.php?issues_id=8.

Poole on Infrastructure and Stimulus
While in Washington last month for the 2009 TRB Annual Meeting, I taped a short interview for Reason.TV. Several transportation colleagues have said nice things about it, so you may want to take a look: http://reason.tv/video/show/659.html.

Good Primer on Tolling and PPPs
The Kansas Turnpike Authority and Kansas DOT have released an excellent overview report on the state of the art of tolling and the role it can play in helping states cope with the gap between need and conventional highway funding. It was prepared by Spock Solutions, Inc. and Jacobs. You can download it from: http://ksturnpike.com/tollsastools/fullreport.pdf.

Where Congestion Pricing Exists in America
Peter Samuel has compiled a spreadsheet of all known (so far) U.S. examples of tolling that varies in proportion to the level of traffic. This includes HOT lanes and peak/off-peak toll schedules on all lanes of toll roads and bridges. You will find it at: www.tollroadsnews.com/node/3975.

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Quotable Quotes

“On the spending side, the main point is that we should not be considering massive public-works programs that do not pass muster from the perspective of cost-benefit analysis. Just as in the 1980s, when extreme supply-side views on tax cuts were unjustified, it is wrong now to think that added government spending is free.”

--Robert Barro, Harvard University, “Government Spending Is No Free Lunch,” Wall Street Journal, Jan. 22, 2009.

“We're going to reauthorize the transportation bill this year. And there's not going to be enough money to do all the things that all of us want to do. So I think we have to think outside the box. And part of thinking outside the box is . . . in trying to build lanes or add lanes or build additional roadways, is the idea of having tolling pay for part of that. . . . If you want to add an additional lane to a road and you want to toll it, if you want to build a bridge which costs an enormous amount of money, I think people ought to think about tolls on the bridge as a way to pay for it-and as a way to maintain it, also.”

--DOT Secretary nominee Ray LaHood, confirmation hearing, Senate Commerce, Science, and Transportation Committee, Jan. 21, 2009.

“Traditional solutions will not suffice. The old trains and buses of half a century ago will not solve energy and climate problems, at least in affluent nations. With their low ridership, transit buses in the United States are actually less energy-efficient than car travel on a passenger-mile basis. Conventional rail transit is somewhat more energy-efficient but is not well-suited to the suburban development patterns prevalent in the United States and therefore is unlikely to account for much more than one percent of passenger travel in the future.”

--Daniel Sperling and Deborah Gordon, “Two Billion Cars: Transforming a Culture,” TR News, November-December 2008.

“We have to recognize that DOT has the most discretionary dollars of all agencies save for Defense-it represents an immense cookie jar. One of the risks here is the tendency of those outside the Department to see transportation only in terms of its negatives-the costs, the resources consumed, the lives lost, the pollution generated-to the point where our current goals for transportation can be met best by everyone's just staying home. We have highly articulated goals for what transportation should stop doing; none for what we want it to achieve! . . . Transportation's goals should be all about speed, cost, and reliability. . . . A very big part of [the challenge facing the new Secretary] will be getting people to take transportation seriously-to recognize that the cost is not the benefit, and it is what happens after you build the road or the airport or transit syste m that matters to our future economic productivity and national well-being.”

--Alan Pisarski, presentation at 2009 TRB Annual Meeting (AGB50), Jan. 12, 2009.

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


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