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Reason Foundation

Surface Transportation Innovations #67

Topics include: bills to curtail toll road PPPs; caution on economic impact studies; carbon caps; tunnels to somewhere; buses vs. inter-city rail; and other news.

Robert Poole
May 15, 2009

In this issue:



New Congressional Attack on PPP Toll Roads

At the behest of the trucking industry (which sent out a news release before the bills had even been introduced), two U.S. senators have introduced a pair of measures aimed at making the lease of existing toll roads less attractive to states and the private sector. But they would also have consequences for new-capacity toll projects such as HOT lanes.

Sens. Jeff Bingaman (D, NM) and Chuck Grassley (R, IA) filed the two bills on April 24th, claiming they would "eliminate subsidies" for privatized highways. S. 885 would "provide special depreciation and amortization rules for highway and related property subject to long-term leases." And S. 884 would remove privatized highway miles from the formula used to apportion federal highway funds among the 50 states. The American Trucking Associations' news release thanked the senators for introducing their bills before they had actually been filed, with ATA President Bill Graves claiming that "Privatization is dismantling the nation's highway network if key segments are leased to the highest bidder."

The depreciation bill would do two things. First, it would forbid companies that lease toll roads from using 15-year accelerated depreciation that's widely available to other industries and instead mandate straight-line depreciation over 45 years. Second, it would require intangible assets, such as the right to collect tolls, to be written off over the term of the lease, again despite Congress creating a general rule in 1993 that intangible assets be amortized over 15 years. This is blatant, outright discrimination against one very narrowly defined industry.

But while intended to apply only to the lease of existing toll roads, S. 885 would likely affect HOT lanes and additions of new toll lanes to existing highways. If HOV lanes are converted to HOT lanes via a long-term PPP (as is planned for I-95/395 in northern Virginia), that represents the lease of property which was "placed in service before the date of such lease." And one legal assessment notes that "Because the text of the bill specifically refers to ‘improvements,' it is possible that ‘greenfield' projects could be affected as well as ‘brownfield' projects."

The bill to exclude privatized miles from federal funding formulas would apply to both leases of existing toll roads and all manner of new toll projects. Hence, it would have the perverse impact of penalizing forward-thinking states that employ PPPs to supplement the inadequate levels of federal and state fuel tax monies otherwise available for highway investment. In addition, it would apply only to toll concession projects—not to other forms of PPPs such as availability payment concessions or 63-20 nonprofit projects, thereby narrowly discriminating against only one form of innovative PPP method. Moreover, when it comes to new capacity, the reality is that few new toll projects will be 100% financeable via toll revenues alone. Since many such projects will need a sort of down payment from conventional (fuel-tax) funding sources, it's really stupid public policy to make it much harder for states to leverage limited fuel-tax monies in this way.

I fully sympathize with my friends in the trucking industry about proposals that would do nothing more than "erect toll booths on the Interstates"—i.e., simply charge more to use roadways that already exist, without providing better service (such as heavy-duty truck lanes, no congestion, increased safety, etc.). And when it comes to the Interstate highway system, I've said many times that there is justification for some kind of federal role to ensure that this vital infrastructure remains a seamless corridor for commerce among the states. But short-sighted attacks like these bills are not the way to accomplish that.

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Economic Impact Studies: Yes, But . . .

In the last two weeks, two new studies of the economic impact of certain types of transportation spending came across my screen. One, by Stephen Fuller of George Mason University, assessed "The Impact of Construction Outlays for the Capital Beltway HOT Lanes" in northern Virginia. The other, by the Economic Development Research Group in Boston, is a white paper for the American Public Transportation Association on "Job Impacts of Spending on Public Transportation: An Update." Both use econometric analysis to estimate direct, indirect, and induced economic activity and jobs. Similar studies are commonly done for all kinds of infrastructure projects, ranging from airports to convention centers to sports stadiums. All rely for their estimation of "induced" jobs on multipliers from the Department of Commerce's Bureau of Economic Analysis.

For example, the Beltway HOT lanes study estimates that the direct spending of $1.54 billion on construction in northern Virginia will generate $2.33 billion of economic activity in Fairfax County, VA; $2.67 billion in the Washington, DC metro area; and $3.46 billion to the Virginia economy. In addition, says the study, as money from the construction is spent and re-spent in the three jurisdictions, it will induce additional personal earnings of $452 million in Fairfax, $821 million in DC, and $934 million in Virginia.

The transit impact study focuses on job creation and support, finding that each billion dollars spent on transit in 2007 (a weighted average of capital and operations) generated 36,108 jobs. Of that total, 17,450 are direct (i.e., employed by a transit agency or working to construct facilities and equipment), 4,367 are indirect (jobs at suppliers of parts and services), and 14,291 are induced (jobs supported by workers re-spending their wages). In other words, about 40% of the total jobs were of the "induced" variety.

These are both competent studies, done using mainstream methods. As someone not formally trained in economics, however, I've always been troubled by this methodology. Last month, at an aviation conference, I heard a presentation by an economist about the economic impact of civil aviation. It was carried out using the same econometric techniques, also relying on multipliers from the Bureau of Economic Analysis. Overall, for 2007, it showed that civil aviation accounted for 5.2% of the U.S. GDP—but only 1.2% of GDP was the direct effects. All the rest was derived from multipliers.

When the presentation was over, I raised my hand and asked the following question: If you did the same kind of analysis for every sector of the U.S. economy and added up the totals, would your result be total U.S. GDP? She smiled and said oh, no—that total would be way more than the total U.S. GDP. Which is what I've suspected all along.

What does this imply for assessing such econometric studies? Be suspicious of claimed economic impacts based on multipliers. You can be pretty sure that a large infrastructure construction project will have significant direct effects on a local economy, as measured by wages paid to those who construct and operate the project in the local area—especially if most of the funding comes from outside the area (e.g., federal taxpayers or the global capital markets). But the indirect and especially the "induced" impacts are likely to be economic activities that would have gone on anyway (at least under conditions close to what economists define as "full employment").

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Cap & Trade or Carbon Tax?

I apologize in advance for covering this topic, but since transportation policy in 2009 will almost certainly be shaped in part by what Congress (and some states) choose to do about greenhouse gas (GHG) reduction, I think everyone in transportation needs to get up to speed on these issues. Two important new reports can help you to do that.

Before reviewing them, let me explain that I think the best (or least-bad) way of dealing with GHG reduction is by means of economy-wide measures that simply make it more costly use carbon-intense energy sources. If we had such a policy in place at the national level, we could (and should) dispense with industry-specific and mode-specific policies such as requiring electric utilities to obtain a certain fraction of their energy from "renewable" sources by a target date, letting hybrids into HOV or HOT lanes without meeting the normal requirements, or making transportation plans contingent on smart-growth land-use measures aimed at reducing vehicle miles traveled (VMT). With a carbon price that increased over time, households and industries would figure out how best to meet their needs based on changes in the relative prices of all sorts of things. There would be no n eed for countless micromanaged plans and regulations.

Most economists are agreed that either a carbon tax or a cap & trade system could do this job. And although there is a lot of political momentum for the latter at this point, I think the evidence increasingly supports a carbon tax as less bad. An excellent overview of the pros and cons of a carbon tax is a report from the Congressional Research Service dated Feb. 23, 2009. "Carbon Tax and Greenhouse Gas Control: Options and Considerations for Congress," by Jonathan Ramseur and Larry Parker. The potential advantages of a carbon tax are economic efficiency, price stability (making it easier for companies to plan investments), many options for use of the revenue, and implementation advantages such as greater transparency. Against those advantages, the potential disadvantages (less certainty of the amount of GHG reduction, political feasibility since it's called a "tax," and coordination with international efforts) pale in comparison, in my view. The study also provides numbers showing that imposing the tax "upstream" would mean that 80% of GHG emissions could be addressed by taxing less than 3,000 mines, refineries, etc.

The other report is an econometric study from the Tax Foundation, "Who Pays for Climate Policy? New Estimates of the Household Burden and Economic Impact of a U.S. Cap-and-Trade System," by Andrew Chamberlain, March 2009. After demonstrating the equivalence, in principle, of a carbon tax and cap & trade, Chamberlain models the distributional impact of a cap & trade system aimed at reducing GHG emissions 15% below 2006 levels, which a Congressional Budget Office study estimates requires an allowance price of $100/metric ton. One analysis shows the distributional consequence of giving away the allowances to companies would be windfall profits, resulting in windfall tax revenues to governments and windfalls to shareholders. Thanks to higher energy prices, the net incidence would be highly regressive, with the lowest quintile households losing $528 apiece while the highest quintile gains $1,904 each (thanks to the shareholder gains). If the allowances are auctioned instead, the annual burden increases with household income level, but as a percentage it costs the lowest quintile 6.2% of its income, compared with 1.4% for the highest quintile.

Both reports look at how these burdens on households could be eased by redistributing the revenues. Table 4 in the CRS report shows that a lump-sum distribution (every household getting the same amount of the carbon tax revenue) would actually leave six out of 10 income groups slightly better off, while the four highest-income groups would only be out 0.1 to 0.2% of their household income. Yet a lump-sum rebate would not be costless to the economy. Chamberlain cites CBO work from 2002 estimating that a cap & trade system with per-household rebates would reduce annual GDP by 0.34% (or about $49 billion in 2008 dollars).

All in all, a fully revenue-neutral carbon tax instead of a whole array of mandates that attempt to micro-manage transportation, land-use, energy, and industry is by far the least-bad option. And it would let transportation policy be based on transportation concerns, rather than becoming dominated by energy and environmental micromanagement.

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Tunnels to Somewhere

A few months ago I reported on several large-scale bridge projects that are good candidates for toll finance and PPPs. This month I want to call your attention to several innovative highway tunnel projects that offer new tools for reducing urban traffic congestion. For context, you should be aware that large urban road tunnels are under construction or in operation overseas—in Sydney and Brisbane, Kuala Lumpur, Madrid, Paris, and quite a few in China. Huge tunnel boring machines ranging from 35 feet to 50 feet in diameter are excavating most of these mega-tunnels, and many are being financed with tolls and developed as PPPs.

Two such projects are on the leading edge in the United States right now: the Port of Miami Tunnel and the tunnel replacement for the Alaskan Way Viaduct in Seattle. The former is being done as a 35-year concession based on availability payments; the latter will be financed partly with tolls and possibly done as a PPP concession. In Miami, the Port is on Dodge Island, adjacent to downtown Miami. It's a container port (plus cruise ships), and the only access is over a short bridge that sends the container drayage trucks winding through the Miami streets on their way to a freeway on-ramp. The tunnel will provide an alternative route, directly to I-395, keeping all those trucks out of downtown. Because officials did not want to mandate that trucks and tour buses pay tolls, they decided early on against paying for the tunnel based on toll revenues. But since they recognize the risks involved in mega-projects, Florida DOT decided that the risk-transfer benefits of a long-term concession made that the way to go. After a competition in 2007, a winning consortium was selected and negotiated a concession agreement for the $1 billion project in 2008. FDOT is providing 59% of the funding, Miami-Dade Cou nty 36%, and the City of Miami the remaining 5%. Unfortunately, the deal nearly fell apart due to the late 2008 credit crunch and the near-collapse of consortium member Babcock & Brown. FDOT came close to cancelling the agreement, but in April decided to give the consortium until October 1st to replace B&B and achieve financial closing.

The Seattle tunnel is much larger, with a cost put at $2.8 billion by proponents but estimated to be as much as $4.3 billion. The legislature approved the project in its session that ended on April 26th. The current concept is for a single 54-foot diameter tube, nearly two miles long, with double-deck lanes (northbound on one level, southbound on the other), similar to (but larger than) the $2 billion A86Duplex tunnel set to open in June near Versailles in the Paris metro area. As of now, the plan calls for two 12-foot lanes plus 12 feet of shoulders on each level; most tunnels do not have shoulders, so a tunnel of this size could accommodate three lanes on each level. The six-lane Viaduct was damaged in the 2001 Nisqually earthquake, and definitely needs to be replaced. The tunnel alternative would permit much of Seattle's waterfront to be reclaimed, improving views while increasing property values and tax revenue. The legislation limits the state's contribution to $2.4 billion and authorizes a measly $400 million based on toll revenue financing; it also says that any costs in excess of $2.8 billion "shall be borne by property owners in the Seattle area who benefit from replacement of the existing viaduct with the deep-bore tunnel" (which actually makes some sense, though shouldn't be open-ended).

Three other tunnel mega-projects are in various stages of feasibility study in the greater Los Angeles area. Furthest along is a 4.5-mile tunnel to complete the missing link on I-710 beneath (rather than through) South Pasadena. More ambitious and more speculative are tunnel projects that would (1) provide a direct connection between Glendale and Palmdale, cutting the driving distance by 40% and making Palmdale International Airport a viable alternative for LA residents, and (2) provide a second limited-access route between coastal Orange County and inland Riverside County, to relieve congestion on SR 91. A feasibility study on the latter is due to be completed by this fall. It is looking at twin 50-foot tunnels nearly 12 miles long beneath the mountains that separate the two counties.

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Inter-City Rail? Why Not Take the Bus?

As I've said many times before, I am a life-long rail fan who has ridden trains on four continents. As a transportation professional, however, it's incumbent on me to advocate meeting transportation needs in cost-effective ways. Before we spent tens of billions of taxpayer dollars on inter-city passenger rail, I think it behooves us to take a closer look at the potential of inter-city bus travel.

Let's start with a report from Nathan Associates, "The Economic Impacts and Social Benefits of the U.S. Motorcoach Industry," by Robert Damuth, December 2008. (www.buses.org/files/report08.pdf) While commissioned by the bus industry, it relies on reputable data sources. From this report you will find that scheduled intercity bus service is available from 3,046 locations across the nation, compared with just 505 Amtrak stations. The demographics of inter-city bus passengers are quite different from Amtrak, too: 54% of bus passengers make $25,000 or less, compared with 23% of Amtrak passengers. And while 49% of Amtrak passengers make more than $50,000, that's true of just 19% of inter-city bus passengers. So if the justification for spending large amounts of taxpayers' money on inter-city rail is to serve people who don't have air service and couldn't afford it anyway, inter-city bus is far better targeted to do that than Amtrak.

What about emissions, especially of greenhouse gases? GHGs are proportional to energy use (BTUs per passenger mile), and Table 6-1 in the Nathan report shows that motorcoaches average 668 BTU/pass.-mi. compared with 2,061 for Amtrak trains. You might be skeptical that these are industry-massaged numbers, so check out a very different source: the Union of Concerned Scientists' recent "Getting There Greener" report.(www.ucsusa.org) While it touts Amtrak over driving, its chapter on inter-city bus simply gushes. And its Table 4 compares five modes for vacation trips: motorcoach, train, car, SUV, and airplane. Measured by pounds of CO2 per trip, the humble inter-city bus beats the train by a huge margin, for every distance from 100 miles to 2,500 miles, and for trips by one, two, or four travelers. (Example: two people going 500 miles would have a carbon footprint of 170 lbs. by bus but 430 lbs. by train.)

Today's inter-city bus industry has changed dramatically over the past 10 years. Greyhound was acquired by U.K.'s First Group (which also now owns Ryder and Laidlaw's vast school bus business). Coach USA (now owned by U.K.'s Stagecoach) has developed Megabus, appealing to thrifty young professionals. Greyhound recently launched BoltBus to compete for that market niche. Last fall a team of railroad and bus entrepreneurs launched Steel City Flyer, offering luxury bus service twice daily between Pittsburgh and Harrisburg, replacing now-cancelled USAirways service. There is even a website to enable you to find (and compare prices and services on) the premium bus line that's best suited to your planned trip. It's called BusJunction.com, and it styles itself as an Expedia or Orbitz for bus travelers.

Besides considerably lower fares than Amtrak, much wider geographic coverage, and a much smaller carbon footprint, inter-city bus service has something else going for it: negligible cost to taxpayers. The Nathan study puts the federal subsidy per passenger mile (averaged over the 10 years from 1996 to 2005) at 0.1 cents. Amtrak's figure is 19.2 cents. Those numbers are consistent with federal subsidy figures in the 2005 U.S. DOT Bureau of Transportation Statistics report "Federal Subsidies to Passenger Transportation."

I rest my case.

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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. As you can see, we'll be busy!

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News Notes

Express Lanes Demonstration Program. As part of SAFETEA-LU, Congress created the Express Lanes Demonstration Program, which provides for exemptions from the general federal ban on tolling on federal-aid highways. It authorizes up to 15 projects to add express toll lanes to such highways. Texas has just become the first state to make use of this program, for two PPP toll projects, the North Tarrant Express project and the I-635 (LBJ Freeway) Managed Lanes Project. Together, these two projects will add 53 miles of managed lanes to the Dallas/Ft. Worth freeway system. There are still 13 slots in the program, but unless extended by Congress, it expires when SAFETEA-LU expires on Sept. 30, 2009.

Ending Exemptions for Green Vehicles. A number of states have passed legislation to permit hybrids and other "green" vehicles to use HOV and HOT lanes, potentially overloading these special-purpose lanes. But the tide may be starting to turn on this mix of transportation policy with environmental policy. The Swedish Transport Agency in January 2009 ended the exemption for new green vehicles from Stockholm's highly successful congestion charge system. Older green cars get three more years of exemption.

Transportation Finance Information Clearinghouse. The Mineta Transportation Institute at San Jose State University has created a clearinghouse of information on transportation finance, aimed at assisting transportation researchers, policymakers, and the public. It includes links to newsletters, listserves, websites, and library resources. Go to: http://transweb.sjsu.edu/MTIportal/finance/FinanceInformationClearinghouse.html.

Cheap Tolls and Traffic Jams in Japan. Japan's economic stimulus package includes huge discounts on tolls for weekend and holiday travel on the country's extensive tollway system. The maximum charge for a trip of any distance is the equivalent of $10, for trips which might otherwise cost as much as $240 in tolls. Needless to say, the measure is causing huge weekend and holiday traffic jams. The Japan Times reported (April 30, 2009) that West Nippon Expressway Co. would be handing out "disposable car toilets" at rest stations on the Chugoku Expressway during the early-May Golden Week holiday, for those who get stuck in major jams. The government has set aside $5 billion to reimburse toll road operators for the lost revenue.

FHWA Report on Freeway Productivity. A new study used 2007 data on Chicago and Los Angeles freeways to measure the productivity of the freeway systems on a holiday (Columbus Day) compared with a typical Monday. The results showed that the modest decrease in travel demand on the holiday produced significantly better traffic flow and hence freeway system productivity. The implication is that demand management techniques, such as peak-period pricing, could have similar effects. The report is "Roadway Network Productivity Assessment: System-Wide Analysis Under Variant Travel Demand," by Soojung Jung and Karl Wunderlich, FHWA-HOP-09-019, and is available at www.ops.fhwa.dot.gov.

Correction re Amtrak Speeds. In my article on inter-city high-speed rail in Issue No. 66 (March 2009) and other recent writings, I wrote that the maximum speed of Amtrak trains other than the Acela (in the Northeast Corridor) is 79 mph. Colleague and fellow rail-fan Randal O'Toole sent me a useful correction, which I'm glad to share. First, he said that non-Acela trains in the Boston-New York-Washington corridor exceed 79 mph on portions of that route. Also, Amtrak trains on portions of the route between Chicago and Detroit and between Philadelphia and Harrisburg reach 110 mph. And the San Diego-Los Angeles corridor has 90 mph trains. He notes that this information can be found in Appendix II of the GAO report on high speed rail that I cited in a recent column (GAO-09-317, March 2009). I'm happy to set the record straight.

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Quotable Quotes

"[T]he brownfield PPP pipeline is actually growing. See, for example, assets coming to market in Detroit, Los Angeles, Pittsburgh, and Milwaukee. [The collapse of the lease deal for] Midway Airport only suggests that assets support less debt than they did during the salad days of abundant credit (when the Midway deal was signed). Having just returned from Europe to visit with infrastructure investors, I can report that the U.S. remains the preferred destination of global infrastructure capital—for both ‘greenfield' and ‘brownfield' investments. The credit crunch means lower prices for infrastructure assets, but it is not a ‘serious setback' for the concept or the market."
--David B. Horner, Allen & Overy LLP, Congestion Pricing Forum (con-pric@lists.umn.edu), April 26, 2009

"A concern that has been expressed about toll concessions is that our transportation system would become ‘balkanized' if various private concessionaires were allowed to enter. This concern is unjustified. . . . One way the revenues at a facility can be increased is by interconnecting with as many other facilities as possible. The last thing a private concessionaire would seek to do is to cut its facility off from other nearby facilities. Moreover, it is inaccurate to view the current system as a seamless network of perfectly coordinated units. The Interstate Highway System, for example, currently has 50 owners, in the form of individual states. . . . Many state turnpikes lack interchanges with major Interstates long after their bridging has been completed. Moreover, state departments of transportation may not want to encourage truck traffic, for example, because of p otential harm to their roads from out-of-state truckers who don't have a political voice in that state. . . . Because it seeks traffic and revenue, a private concessionaire would also be more likely to coordinate across jurisdictional lines . . . because it makes solid business sense to do so. Indeed, through such cooperation, increased use of the toll concession model has the potential to actually help de-balkanize the current system."
--Rick Geddes, Cornell University, "The Future of Surface Transportation Funding in America," Tollways, Autumn 2008. (www.ibtta.org/Tollways/Issue.cfm?ItemNumber=3692)

"The court granted the American Trucking Associations' motion to enjoin provisions of the [Ports of Los Angeles and Long Beach] programs dealing specifically with driver employment, including one that would regulate away independent drivers by requiring truckers working at the Port of Los Angeles to be employed by companies holding concession agreements. . . . The provisions plainly violate the Motor Carrier Act of 1980, the federal law that deregulated interstate trucking along with, for good measure, the Commerce Clause of the U.S. Constitution. . . . [T]he ports are doing a disservice to their communities, to the transportation world, and to their customers by continuing to take part in this regulatory charade. Two courts have spoken as clearly as courts can, and public officials say the programs are working [to reduce diesel emissions] without having to violate interstate commerce law. It's time the ports dropped the court challenge and let the plans work just the way they say they are."
--Paul Page, "Cleaning Truck Programs," Editor's Letter, Journal of Commerce, May 11, 2009.

"A mode of transportation makes me nervous when we only get as much of it as the government is willing to provide. So it is with intercity rail, low or high speed. People come back from Europe and invariably ask "Why can't we have such great trains?" One answer is that we decided to use the tracks for freight while the Europeans let freight shift to trucks, and we have the best freight rail system in the world. . . . [M]ost European cities are more downtown oriented than ours and are far closer together, so something that runs from city center to city center in a few hours can make some sense. We have few such situations. Back in the ‘80s, the Japanese system almost bankrupted the country. The OECD published GDP statistics with and without the railroad. Its debt was a significant part of the national debt. The costs per mile in subsidy are colossal; we could buy all the riders a Prius and be ahead of the game."
--Alan Pisarski, www.npr.org/templates/story/story.php?storyId=102068196, March 20, 2009.

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


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