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Reason Foundation

Surface Transportation Innovations #68

Performance-based transportation, targeting vehicle miles traveled, Obama and the Beach Boys

Robert Poole
June 11, 2009

In this issue:

Performance-Based Transportation?

“U.S. transportation policy needs to be more performance-driven, more directly linked to a set of clearly articulated goals, and more accountable for results.” It’s hard to disagree with these bold opening lines of the report from the Bipartisan Policy Center (BPC) National Transportation Policy Project, released earlier this week. “Performance Driven: A New Vision for U.S. Transportation Policy,” was released June 9th at a news conference in Washington (and is available at: www.bipartisanpolicy.org).

Much of the case it makes is unarguable—the existing federal policy has no focus, our infrastructure is inadequate, the funding is insufficient, there is little or no attempt to achieve positive returns on investment, and there is little or no accountability for results. So I agree that a better approach is called for. Only I don’t think the entire BPC package is it. Yes, I’m all for thorough streamlining of the sprawling federal program, for greater competition for funds, and for focusing on both preserving/rebuilding the existing system and adding capacity where it makes sense to do so. And I also agree that “the performance of the transportation system can be directly influenced by how users pay for it” and that we should “link revenue collection to system use and impacts.”

But a key recommendation of BPC’s package of recommendations is “mode neutrality.” Instead of highway user taxes being used just for highways, these funds would become general-purpose surface transportation money, usable for highways, freeways, urban transit, intercity passenger rail, freight rail, and even short-sea shipping (“all forms of freight transportation”). One of the two major programs would provide mode-neutral funding for urban transportation and the other for long-haul transportation. So the net result of all this is that highway users would be the ones paying the bills for federal funding of all the other modes.

The other problem with mode neutrality is that it is at odds with all BPC’s fine words about pricing and user-pays. The original federal highway program was, indeed, a true user-pays/user-benefits program. In principle, highway users could demand whatever level of highway services they were willing to pay for, via their fuel taxes—which could only be spent, by law, on highways. Thus, both the state and the federal highway programs operated somewhat like network utilities, albeit with indirect user charges rather than direct ones like electricity, gas, phone, and water bills. But once the fuel tax becomes a generalized funding source for all manner of things (as it is gradually turning into at the federal level, with only 60% of federal highway taxes actually spent on highways), the connection between use and payment becomes increasingly tenuous. Opening that pot of m oney to all forms of freight and passenger transportation would be the coup de grace for the user-pays/user-benefits system. And as a practical matter, without a massive increase in the fuel tax level, allocating the relatively fixed pot of fuel tax money among many additional claimants virtually guarantees that much less would be left to rebuild and modernize our vitally important highways.

And that is true regardless of how many clever ideas BPC and other advocates of performance-based transportation put forward—benefit/cost analysis, new performance measures, etc. In the last reauthorization, Congress passed a number of programs that were supposed to fund strategically important projects—and then promptly earmarked every single dollar in those programs to projects of their own political choosing. And how they screamed when the US DOT under Mary Peters scrounged up close to $1 billion (from 13 existing programs) for truly competitive, performance-based Urban Partnership grants!

Needless to say, I am all in favor of performance-based funding, wherever this can possibly be done. But throwing out—rather than strengthening—the user-pays/user-benefits principle is too high a price to pay. A better course would be to shame Congress into creating accountable, performance-based funding within existing modal programs.

Learning from Abroad: Highway PPPs Overseas

Some of the recent U.S. debates about public-private partnerships for highways sound as if the idea was brand new, untried, and hence inherently risky. Yet long-term concession agreements under which the private sector can design, finance, build, operate, and maintain major highways, bridges, and tunnels date back to the 1960s in Europe and the 1990s in Australia. We can learn a tremendous amount from the experiences of our counterparts overseas. At the Transportation Research Board annual meeting in January, I attended a presentation on a study tour on the overseas PPP experience, organized by AASHTO and the FHWA as part of the National Cooperative Highway Research Program. The report on this study tour, “Public-Private Partnerships for Highway Infrastructure: Capitalizing on International Experience,” was published in March 2009 (FHWA-PL-09-010).

The group, representing FHWA and four state DOTs, visited Australia, Portugal, Spain, and the United Kingdom in the summer of 2008. These countries have been doing PPPs long enough that the team was able to learn about second-generation and even a few third-generation projects. Their general findings include the following:

Highway PPPs are used not simply for financial reasons but are selected on a value-for-money feasibility analysis basis.
PPPs are a critically important and growing percentage of national highway networks.
Highway PPPs do not necessarily require tolls; some are based on shadow tolls and/or availability payments.
The public sector mindset and skills for PPPs differ substantially from those needed for conventional project delivery. A successful long-term PPP agreement must balance technical, commercial, and legal considerations. Public agencies recognize that a PPP arrangement is, in fact, a long-term partnership with the private sector founded on a contract.

The descriptions alone of how these four countries have adapted general PPP principles to their circumstances are worth the price of admission. But the report goes on to report numerous useful findings about methodology in selecting, negotiating, and managing long-term PPP arrangements. I should add, because this point is much-argued about in the United States, that the report’s statement that the longest concession term they observed was 50 years, with most running 30 to 40 years, is true of the countries they visited. France, which they did not visit, has a number of bridge and tunnel mega-projects with terms of 70 or more years.

This very brief article cannot begin to do the report justice. If you are involved in any way with policy relating to highway PPPs, this report is must-reading.

The Virtual Exclusive Busway—Not Quite

In April an ambitious Managed Lanes facility opened in the median of the Katy Freeway in Houston. Instead of the previous single-lane reversible HOT lane (under which HOV-3s went free and only HOV-2s were allowed in as paying customers), the newly rebuilt Katy Freeway sports two full MLs in each direction. Single-occupant vehicles pay a variable toll, starting at between 60 cents and $1.60 during peak periods and just 30 to 40 cents off-peak. HOV-2s go free during peak periods, but pay the toll like everyone else off-peak. (Yes, I know that seems backwards, but that’s the policy they’ve adopted.)

Even with these limitations, the Katy MLs represent a net improvement for Houston commuters—yet this project was intended to be more than that. When the Harris County Toll Road Authority (HCTRA) and Houston Metro signed the original Memorandum of Understanding with Texas DOT in 2002, the Katy Managed Lanes were going to be America’s first such facility to use both occupancy levels and variable pricing to ensure uncongested mobility for both transit buses and motorists. The agencies agreed that the Managed Lanes would be operated at Level of Service C (high-volume but uncongested flow). Metro would be guaranteed up to 25% of the facility’s capacity for buses HOV-3s and buses; all other vehicles would pay the variable toll. And to maintain LOS C conditions in the future, Metro and HCTRA each agreed to do its part. If level of service started to decline because Metr o’s users were exceeding 25%, it would increase HOV occupancy requirements. And if LOS declined due to too many paying vehicles, HCTRA would increase the toll rate. I was so impressed by this approach that I described it in detail in a Reason Foundation policy study, dubbing the Katy MLs America’s first “virtual exclusive busway.” (www.reason.org/news/show/127674.html)

Well, between 2002 and 2009 when the lanes were built and ready to begin charging tolls, a long series of public meetings and debates took place. Earlier on, all vehicles were going to be required to have transponders, but eligible HOVs would be charged zero tolls during peak periods. But by January of this year, that provision was dropped. And HCTRA itself—looking at all that new lane capacity—decided that it could at least start off with HOV-2s going free during peak periods. And that’s the form in which the Katy MLs opened to paying customers in April.

With all these changes taking place, I presumed that the original MOU must have been modified. My request for a copy produced instead the “Katy Toll Facility Operating Plan,” dated March 3, 2009. It is duly signed off by all three agencies that agreed to the original MOU. Under “Level of Service,” it spells out HCTRA’s obligation to vary the tolls, per the original MOU provisions. But it is silent on any possible future changes to occupancy requirements, or on any guarantee of 25% of capacity for Metro’s buses and carpools.

So while I congratulate TxDOT, Metro, and HCTRA on the successful completion and start-up operation of an important new Managed Lanes project, I’m disappointed that it did not end up being the virtual exclusive busway breakthrough that I’d been looking forward to.

Fixing Both Highway and Transit Funding

It’s been widely reported that, just like last year, the Federal Highway Trust Fund is going to run out of money before the end of the federal fiscal year. The fix being talked about, like last year, is an emergency infusion from the general fund, thereby adding another $5-7 billion to the federal budget deficit.

The cause of this shortfall is no great mystery. If you’ll recall the last reauthorization debate, the transportation committees in Congress (especially in the House) were determined to greatly increase the size of the program, but the White House had promised to veto any fuel tax increases. So Congress compromised, pushing the promised funding level as high as they possibly could, by making “rosy scenario” assumptions about fuel prices, driving, and the state of the economy. Whoops! Last year’s high oil prices caused people to cut back on driving, meaning fewer gallons were sold than had been projected, and the subsequent recession caused people to economize on driving for a different reason. Both factors translated into lower fuel tax receipts. Meanwhile, the backlog of highway maintenance and repair, let alone long-needed expansions, continues to increase. And the Obama administration has “taken a gas tax increase off the table.”

Meanwhile, transit systems nationwide are making a big push for increased funding, based partly on last year’s ridership increases (which the recession seems to be reversing) and decades of deferred maintenance. With no fuel tax increase in sight, and both highway and transit groups proposing increased funding, how can this circle be squared?

My friend and colleague Alan Pisarski last week proposed what I think is a very promising—if radical—idea. “If we are going to need an infusion from the general fund, and we also need more total funding, why not ‘resolve’ the question of share by avoiding the question? Transfer the transit program 100% to the general fund and use all the Highway Trust Fund for highways. It might be a win-win.”

A few years ago this idea might have been dismissed out of hand, primarily because it would have been considered too risky for the transit community. After all, it took until 1964 to get even general fund money for transit, and it was considered a great breakthrough for transit when a transit account was created as part of the Highway Trust Fund (HTF) in 1982. That permitted highway user-tax money, for the first time, to be spent on transit. Because funding highways was popular, any expansion of the HTF would mean an increase for transit, too. And back then, highways were considered far more popular than transit.

That was then, this is now. In the age of energy insecurity and fear of global warming, transit is the cause du jour for many elected officials. It’s quite possible that transit would fare better if it did not have to fight with highway interests for its portion of HTF funding. A Congress eager to showcase its green credentials might want to re-position transit as an energy/environment/housing program, funded (like those programs) out of general revenues. Currently transit gets about 20% of HTF dollars or around $8 billion. Shifting that amount to highways would more than cover the current shortfall. Yet replacing that $8 billion for transit would be a rounding error in the federal general fund.

Making this change would restore the original user-pays/user-benefits principle to the Highway Trust Fund. And if highway users could be assured that all of their fuel-tax dollars would actually be spent to maintain and improve the highway system, they just might be more comfortable with increasing the fuel tax rate. And by restoring the integrity of the highway fund, this change could help pave the way for eventual transition to a highway VMT fee as the fuel tax’s replacement.

Targeting VMT: A Terrible Idea

One of the most troubling ideas gaining a head of steam as we approach reauthorization is that a key transportation performance measure should be reducing vehicle miles of travel (VMT)—either in toto or per capita. The logic behind this idea is that using petroleum fuel is bad, and emitting CO2 is bad, so transportation funding and programs should deliberately aim to reduce VMT, in order to advance those other goals.

This idea has been percolating at the Brookings Institution and among any number of environmental groups, and it’s also being heavily promoted by the America 2050 project (backed by the Rockefeller Foundation, the Regional Plan Association, and the Lincoln Institute of Land Policy, among others). But what really caused alarm among transportation people was the release last month by Sens. Jay Rockefeller (D, WV) and Frank Lautenberg (D, NJ) of their Federal Surface Transportation Policy and Planning Act of 2009 (S.1036). The first of its major goals for federal transportation policy is “Reduce national per capita vehicle miles traveled on an annual basis.” It also calls for government-set targets for shifting freight from road to rail.

Putting these idea into legislative language has started to arouse transportation interest groups, as well it should. First out of the box was the American Highway Users Alliance, which sent a strong letter of opposition to every member of the Commerce Committt, including Chairman Rockefeller. I’m expecting AAA, ATA, ARTBA, AASHTO, and others to join in the opposition, once they realize the implications of this proposal.

I’ve written about VMT restrictions at greater length in my May column for Public Works Financing (posted at www.reason.org/news/show/1007715.html). Suffice it to say that if the goal is to reduce CO2 or petroleum use, Congress should target those things directly. The idea that reducing Americans’ mobility is a sensible or cost-effective way to reduce greenhouse gases has no empirical support. Indeed, I challenge any proponent of the idea to come up with evidence that it would cost less than the $50/ton of CO2 removed ceiling suggested by McKinsey and many others as a benchmark for “affordable” greenhouse gas reduction measures. (My guess is that it would cost thousands of dollars per ton.)

Mobility is the purpose of transportation. Its benefits, both for individual well-being and the health of the economy, are enormous. Let me once again recommend to you the excellent book, Mobility First, by my Reason colleagues Sam Staley and Adrian Moore (Rowman & Littlefield, 2009), which explores this idea in some detail. As we head into reauthorization, our watchword should be: “Reduce CO2, not mobility.”

“Obama vs. the Beach Boys,” Revisited

As a long-time Beach Boys fan, and as still a bit of a car buff, I was intrigued by this headline on Daniel Henninger’s Wall Street Journal column of May 28, 2009. Basically, the column was a lament for what Henninger sees as the passing of America’s car culture, as most recently epitomized by the idea that the Obama administration’s new 39 mpg CAFÉ standard is an “everybody wins” policy.

Henninger’s reasoning is that the advent of 39 mpg cars means the end of enthusiasm for cars as glamorous, high-performance vehicles—not simply a mundane means of getting from A to B. That car culture was, of course, exemplified by numerous songs, not only by the Beach Boys but by Chuck Berry, Bruce Springsteen, The Who, Deep Purple, and many others.

But are things as bad as all that? I still pick up Car & Driver from time to time, and there is certainly no shortage of exciting, high-performance cars today. Not only expensive Corvettes and BMWs but also sporty roadsters like the Mazda Miata and the new Hyundai Genesis. To be sure, the market for those cars might be reduced once the new CAFÉ standards are fully implemented, but I also question Henninger’s assumption that glamour and performance are inextricably linked with the internal combustion engine.

Way back when, I took a test drive in the ill-fated GM EV-1. Yes, its lead-acid battery pack was ridiculously inadequate for a serious production car. But the high-torque electric motor really peeled out! And take a look at the June 8, 2009 issue of Forbes, with its cover story on forthcoming electric cars, including the stunning high-performance Fisker (on the cover) and Tesla. These entrepreneurs aren’t aiming to build nerdy little econo-boxes; if they live up to their builders’ claims, these will be stylish, high-performance drivers’ cars. (And I can hardly wait till the prices get down to my range!)

I think Henninger greatly underestimates the appeal not only of personal mobility but also of driving a superbly performing vehicle. The internal combustion engine is no longer the be-all and end-all of auto-mobility. But cars—really good cars—will be with us for a long, long time.

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.

The Future of Tolling: ORT and the Path to Interoperability, Tampa, FL, June 14-16, 2009, Grand Hyatt Tampa Bay. Details at: www.ibtta.org/Events/eventdetail.cfm?ItemNumber=3616.

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.

4th U.S. Infrastructure Investment Summit, New York, NY, June 24-25, 2009, Millenium Hotel. Details at: www.iqpc.com/us/infrastructure.

American Legislative Exchange Council (ALEC) Annual Meeting, Atlanta, GA, July 15-18, 2009, Hyatt Regency Atlanta. Details at www.alec.org.

2009 Transportation Research Board Joint Summer Conference, Seattle, WA, July 19-22, 2009, Seattle Sheraton. Details at: www.trb.org/calendar.

News Notes

Correction Re Bingaman-Grassley Bills
I led off last month’s article on the anti-privatization bills filed by Sens. Bingaman and Grassley with the words that they had been introduced “at the behest of the trucking industry.” This brought a sharp retort from an old friend at ATA, who pointed out that the bills stemmed from a Senate Finance Committee hearing on tax aspects of highway privatization held last summer, at which ATA had not even testified. And while ATA is supporting the bills, he denied any involvement in drafting them. I should not have jumped to the conclusion that ATA’s support meant they were the driving force. Moreover, ATA is on record supporting PPPs for new highway capacity, as long as various public-interest protections are included in the long-term concession agreements.

New Value Pricing Grants Announced
The Federal Highway Administration’s Value Pricing Pilot Program last month announced its first grants of 2009. They include support for studies of priced lanes on two more Minnesota highways (I-94 and TH 77), implementation of managed lanes on SR 237 in Silicon Valley, a study of GPS-based truck pricing in the Buffalo, NY area, and a $1.3 million study of a system of express toll lanes in the greater Seattle metro area.

New Book on Traffic & Revenue Forecasting
Former Standard & Poors analyst Robert Bain has produced a very useful short book on the pitfalls in doing (and using) traffic and revenue studies for toll projects. It explains the methods used and the kinds of things that can lead to the forecasts going off-track. Though based on considerable expertise, it’s accessible to the intelligent non-specialist and is not full of equations. Since tolling is an increasingly important force in transportation, this book is recommended for transportation planners as well as financiers. Toll Road Traffic & Revenue Forecasts: An Interpreter’s Guide, by Robert Bain, priced at €29.95. Details at: info@robbain.com.

Equity and Congestion Pricing
As part of its new Congestion Pricing Primer series, the FHWA has released “Income-Based Equity Impacts of Congestion Pricing.” It’s an excellent overview of what we have learned about this issue, from the academic literature as well as the results of projects implemented under FHWA’s Value Pricing Pilot Program, Urban Partnership Agreements, and Congestion Reduction Demonstration Program.
(www.ops.fhwa.dot.gov/publications/fhwahop08040/cp_prim5_00.html)

Updated Federal Subsidy Data
I have several times referred to a landmark Bureau of Transportation Statistics report, “Federal Subsidies to Passenger Transportation,” released by the US DOT in December 2004. It calculated net federal subsidies per thousand passenger miles for automobiles, inter-city buses, airlines, general aviation, urban transit, and Amtrak. Unfortunately, BTS has not updated those numbers. But a new report from the Heritage Foundation does just that, while correcting a methodological error in the original that exaggerated the modest subsidy for inter-city bus. The report is “Federal Transportation Programs Shortchange Motorists: Update of a USDOT Study,” by Wendell Cox and Ronald D. Utt, June 8, 2009, and is available at:
www.heritage.org/Research/SmartGrowth/bg2283.pdf.

Quotable Quotes

“The whole idea of a highway system as a user-financed system gets turned on its head [if highway funds are used for freight rail projects]. We shouldn’t be fighting over that pot of money because they don’t pay into that pot of money. There’s no rail tax that goes into the Highway Trust Fund, so there shouldn’t be a fight about money. We’ve been fairly open about our willingness to be paying additional tax to support the program, but we want to make sure that those revenues are going to addressing highway freight bottlenecks.”
--Timothy Lynch, Senior VP, American Trucking Associations, quoted in “Untangling the Chicago Knot,” The Journal of Commerce, April 20, 2009.

“It must be agreed that the target is fuel use and related emissions, not the existence of transportation services, per se. Therefore, [passenger miles traveled] and ton miles of travel should not be the surrogate targets for reductions. . . . Perhaps transportation, being a means to other ends, makes it easier to be more casual about reductions without a real sense of what is being lost. It may be reflective of other agendas at work. Many of the state pronouncements on GHG targets, specifically VMT, can be seen as mostly aspirational, often with little or no foundation or understanding of the social or economic implications of their actions. It is clear that transportation expertise and experience were not engaged in these expressions of sentiments. The chairman of the President’s Council on Environmental Quality had it right when he stated: ‘There is a stunning degree of innumeracy when it comes to the numbers surrounding climate change legislation.’ An important role for transportation professionals is to replace that innumeracy with something more substantive.”
--Alan Pisarski, “The Nexus of Energy, Environment, and the Economy: A Win, Win, Win Opportunity,” ITE Journal, January 2009.

“At one of our dinners, Milton [Friedman] recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained, ‘You don’t understand. This is a jobs program.’ To which Milton replied, ‘Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.’ But in the energy industry today, we are trading in shovels for spoons.”
--Stephen Moore, “Missing Milton: Who Will Speak for Free Markets?” Wall Street Journal, May 29, 2009.


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


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