Reason Foundation

Reason Foundation

Surface Transportation Innovations #70

How should highway funds be spent? Mixing transportation and greenhouse gas policies

Robert Poole
August 12, 2009

In this issue:

How Should We Spend Limited Highway Funds?

Several months ago you may have noticed a story in your favorite news source about the poor condition of highways in your state. Those stories were prompted by a study called "Rough Roads Ahead," produced jointly by the American Association of State Highway & Transportation Officials (AASHTO) and The Road Information Project (TRIP). (Go to to download a copy.) The report pointed out that one-third of the nation's highways are in poor condition, including more than one-quarter of major urban roads. More than 60% of the roads in major urban areas such as Los Angeles, San Francisco/Oakland, Honolulu, and Washington, DC are in poor condition.

Underlying much of the data on which the Rough Roads report is based is the much larger AASHTO "Bottom Line Technical Report: Highway and Public Transportation National and State Investment Needs." ( Besides documenting roadway conditions, this report also looks at highway performance, based on several measures of congestion over time. Its Table 3.9 "shows the across-the-board declines in every measure of travel performance at all metro levels of population size over the last 18 years."

The Bottom Line report tallies up the highway investment backlog, which had grown to $430 billion by 2006, with 80% of that in urban areas and 58% of the backlog representing capacity deficiencies (and the other 42% for rebuilding existing roadways). Every two years the Federal Highway Administration (FHWA) calculates the amount of investment needed to maintain current conditions and performance-i.e., to keep things from getting even worse. Since the nation never achieves that investment level, the next time it is calculated, not only is the backlog larger, but the new benchmark is the amount needed to maintain a worse level of performance!

That's what we're facing as Congress begins debating reauthorization of the federal program, especially in a political climate that has put increased fuel tax rates out of bounds. In a situation like this, it makes sense to take a hard look at where those current Highway Trust Fund dollars are going. And that was the point of a report issued last month by Sens. Tom Coburn (R, OK) and John McCain (R, AZ) called "Out of Gas." It aims to call attention to the relatively large sums that are diverted from the Highway Trust Fund for non-highway purposes. The Senators based their report on a study they requested the Government Accountability Office to conduct on this question, which GAO released on June 30th. (GAO-09-729R, "Highway Trust Fund Expenditures on Purposes Other than the Construction and Maintenance of Highways and Bridges During Fiscal Years 2004-2008."

Over that five-year period, $78 billion paid in by highway users was spent on other things (about 32% of the SAFETEA-LU total of $244 billion). More than half, $44 billion, went to the Federal Transit Administration (for the transit account of the Highway Trust Fund), and $5.5 billion covered the budgets of two transportation safety regulatory agencies, NHTSA and FMSA, dealing with auto and truck safety, respectively. The other $28 billion was FHWA money which Congress required the agency to spend on things other than highway construction and maintenance. But the "Out of Gas" report devotes nearly all its attention to just $3.75 billion of that total, which goes towards 12 categories of "Transportation Enhancements." And I agree that those are easy targets. Sidewalks and bikeways, beautification, historic transportation buildings, transportation museums, and billboard removal may be nice things to have, but they are not what motorists signed up to pay for with their highway user fuel taxes.

A good-sized portion of the $28 billion goes for equally low-priority non-highway programs, such as Safe Routes to School, Recreational Trails, Scenic Byways, and the U.S. Bicycle Route System. GAO provides no separate breakdown for these, but my estimate from the data they provide is that about $18 billion of the $28 billion goes for Enhancements and these other programs. Another $8.6 billion is for things like utility relocation, safety work, traffic management facilities and technology, etc. which are clearly highway related. And there's also $1.3 billion for transportation research, most of that also going for highway stuff.

So when you actually parse the numbers, the $78 billion over five years breaks down into $44 billion for transit (which I agree shouldn't be paid for by highway users), $5.5 billion for safety regulatory agencies (which in most other branches of the federal government are paid for by the general fund), $8.5 billion for highway-related spending, and about $18 billion for truly non-highway programs other than transit. The headline premise of the Coburn/McCain report is that if we'd played fair with highway users, we could have applied $78 billion toward the backlog of needed highway investment over five years. Even if that number were accurate, it wouldn't make much of a dent in a $430 billion backlog. And if the kind of thing the Senators spend their time attacking is the real target, those things accounted for "only" $18 billion of the $78 billion. While ending highway user support for bike paths, sidewalks, and recreational trails would make the gas tax more of a user fee, it would only cover a modest portion of the highway investment shortfall.

Footnote: Have you read the hype about how the House's "Surface Transportation Authorization Act of 2009" would consolidate most highway funding into four core categories and give states much greater flexibility? Well, if you take a closer look, you find that all those non-highway programs are retained and protected, by name. The newly created "Office of Livability" within FHWA would be required to take over and run Transportation Enhancements, Recreational Trails, Safe Routes to School, Scenic Byways, and the U.S. Bicycle Route System. Some flexibility!  

The Case Against Build America Bonds

Yes, I know the argument for Build America Bonds. The credit markets in general are still reeling, and by having the feds subsidize the interest rate on taxable infrastructure bonds, hard-pressed states, cities, and other infrastructure providers can get back into the capital markets, issuing taxable bonds that cost them less in debt service than they'd have to pay on tax-exempt bonds today. Since the program was launched in April (as part of the stimulus bill), at least four toll road authorities have issued BABs: $1.3 billion for the New Jersey Turnpike, $500 million for the Illinois Tollway, $790 million for the North Texas Tollway Authority, and $352 million for the North Carolina Turnpike Authority.

So why do I think this is a bad idea? For two reasons. In terms of transportation policy, having 35% of the debt service on these bonds come from the federal government's general fund is a major departure from the user-pays principle. Until now, toll roads were the purest example of true user-pay finance in U.S. infrastructure. Growing amounts of general tax support have been creeping into state and county highway budgets in recent years (e.g., California's $20 billion general obligation transportation bond issue a few years back, local transportation sales tax measures across the landscape, etc.). So even though BABs are currently only authorized for issuance this year and next (like the rest of the stimulus), they set a terrible precedent (and there is already talk about making BABs permanent).

Second, even if BAB issuance is limited to just these two years, the hit to federal budget deficits will still be enormous. These are typically 30-year bonds, meaning they will be draining the federal general fund through 2040. Municipal Market Advisors estimates that if $30 billion in BABs is issued this year and again next year, the feds will be on the hook for $25.3 billion over the life of the bonds. Former Comptroller General David M. Walker, who is devoting the rest of his career to raising the alarm about the insolvency of the federal government as CEO of the Peter G. Peterson Foundation, must be tearing his hair out.

The least-bad outcome, as far as I'm concerned, is for the program to die a quiet death at the end of 2010.

"Moving Cooler"Not So Cool

Late in July, the Urban Land Institute released with great fanfare a large report called "Moving Cooler." ( Its basic message is that the United States can cut greenhouse gas (GHG) emissions from transportation in half by 2050-with the right set of policies. It was quickly endorsed by an array of environmental and transit groups-but disavowed by the American Association of State Highway & Transportation Officials (ASHTO), which I'm told had been one of the original co-sponsors of the project.

The basic thrust of the report is that the best "bundle" of transportation/GHG policies is a combination of very aggressive pricing and all-out implementation of the smart-growth/transit/VMT-reduction model that has been the pet cause of transit and environmental groups since long before GHG-reduction became the cause-du-jour in America. This approach is seriously flawed, in numerous ways. Let me summarize some of the major problems.

First, the report implicitly assumes that transportation must make the same percentage reduction in GHG emissions as every other sector, regardless of the relative cost/ton involved. That's economically illiterate, as a 2006 report from the European Conference of Ministers of Transport pointed out: "Cost-effectiveness (cost per ton of CO2 abated) is the fundamental determinant of which abatement policies to adopt and how much the transport sector should contribute . . . . Costs are minimized when the cost of saving an extra ton of CO2 is more or less equal in all sectors. Some of the potential measures for the transport sector have relatively low costs, others very high costs at the margin. . . . By far the largest relatively low cost emission reductions are expected to be achieved in power and heat production. Transport and most other sectors are therefore expected to contribute correspondingly less to overall emissions reductions strategies." ("Review of CO2 Abatement Policies for the Transport Sector," CEMT/CM(2006)4/FINAL, June 1, 2006)

Second, the report does not reveal the full costs of its transit/smart-growth strategies, and it counts some costs as benefits. For example, as Alan Pisarski pointed out in a next-day commentary:

• “Travel times don’t get counted—so shifting from a 15-minute car trip to an hour on transit or walking has no penalty.
• “Transit subsidies don’t get counted—so doubling subsidies to increase ridership has only benefits.
• “Every possible pricing strategy is invoked—congestion pricing, cordon pricing, on-street parking fees, extreme fuel prices—in order to get people out of their cars, and then the loss of their cars is counted as a benefit.”

Third, by deliberately focusing on behavioral rather than technological solutions, "It understates the prospect of gaining the full potential of greater energy efficiency from the vehicle fleet . . . In fact, if the vehicle/fuel assumptions had been as comparably optimistic as the land use assumptions, with a robust and honest assessment of fuel and vehicle technological development opportunities, one wonders whether this report would be worth doing at all," writes Pisarski.

Pisarski's assessment is paralleled by that of the European transport ministers and also by a paper on transportation GHG research needs commissioned by the Transportation Research Board. The latter calls for using cost/ton both "for determining how much of the overall GHG reduction responsibility to assign to transportation" and to select the low-hanging fruit among transportation policy measures. ("Recommended Research and Evaluation program: Greenhouse Gas (GHG) and Energy Mitigation for the Transportation Sector," Cynthia J. Burbank, Commissioned paper for the Transportation Research Board, April 3, 2009)

Since Congress is likely to impose GHG-reduction measures in the surface transportation reauthorization bill, it's crucially important that we sort out what sort of measures will cost-effectively save energy and reduce CO2. Drastically changing how and where people live, work, and travel does not appear to be a cost-effective approach-and if this report is the best its advocates can do, their case is very seriously flawed.

An Overview of Highway PPPs

Every year since 1987, the Reason Foundation has published an Annual Privatization Report, which aims to provide a broad overview of federal, state, and local government activity in privatization and public-private partnerships (PPPs). I'm responsible for the section on Surface Transportation, so if you're looking for a pretty comprehensive overview of this field, you might want to read pages 54-75 of this year's report. (

The chapter includes an overview of toll road finance as of the first half of 2009, with tables on large equity funds and institutional investors currently active in this space. I also provide a league table of the top 30 PPP infrastructure transportation companies in 2008, based on the great database of global projects maintained by Bill Reinhardt at Public Works Financing (note: only three US firms make the top 30 list).You will also find my take on a number of national reports released during the past year on PPP toll roads, some of which has already appeared in this newsletter.

What you will not have seen before is a fairly detailed overview of new PPP toll road projects around the country, the status of efforts to lease existing toll roads, and an update on various HOT and Managed Lane projects. And for context, there are also eight pages on toll concession projects in other parts of the world (including a section on China, by my Reason colleague Sam Staley, recently returned from another working trip there).

Dynamic Lanes Project for Los Angeles Freeway

One of the hottest topic at transportation conferences I've been to recently is "active traffic management." As pioneered in Europe and now moving into U.S. transportation planning, the concept involves things like lane-specific speed controls, peak-period use of shoulders as extra travel lanes, greatly expanded uses for variable message signs, etc.

One aspect that I heard about a couple of years ago but dismissed as likely to be too costly is to embed lighted lane-markers in the pavement, such that lane-widths could be changed dynamically-i.e., during peak periods when speeds are low anyway, electronically "restripe" the lanes from the usual 12 feet to 10 or 11 feet, gaining a temporary extra lane (assuming the freeway is wide enough to make the math work).

It turns out that a small-scale version of this idea will go live on a Los Angeles freeway in November. The application is a connector from the northbound 110 freeway to the northbound I-5, north of downtown LA. The connector is now a single lane, and during peak periods it becomes a real bottleneck. Because there is a reservoir on one side and a cliff on the other, there isn't room to add another full lane to the connector. But a second lane can be squeezed out via lighted lane-markings, for use during those slower-speed times.

The key technology is called SmartStud; it consists of lights embedded in the pavement, powered by a single central cable that creates a magnetic field which each stud converts to electricity. For the dual-lane connector ramp marking, about 650 studs will be used, embedded four inches into the pavement. Since the studs are not electrically connected, when one goes bad, it's easy to replace.

New Zealand-based SmartStud has a larger installation already in operation. It's the five-mile Rennsteig Tunnel in Germany, with four lines of lights. Similar studs already exist in the McClure Tunnel in Santa Monica, but just to illuminate the center divider.

The new LA project has a reported cost of $3.2 million; not cheap, but less than it would have cost to somehow build a conventional lane addition in that location.

Transit Ridership Goes Back Down

"First quarter transit ridership exceeds expectations," was the optimistic spin on the June 15th news release from the American Public Transportation Association. Actually, once you read beyond that headline, you learned that transit ridership dropped in the first quarter by 1.2%, compared with first-quarter 2008. Commuter rail was down 3.03%, heavy rail down 1.77%, and bus down 1.22%; only light rail and trolley bus showed single-digit percentage increases.

And worse news may be coming. Data for April from the National Transit Database tally of unlinked passenger trips shows April 2009 down 10.26% from April 2008.

This matters because the media hugely over-hyped the transit ridership increases of 2008, routinely presenting the data in ways that made it look as if comparable numbers of people had stopped driving to work and switched to transit. Uncritical (and/or innumerate) reporters equated percentage decreases in vehicle miles of travel (VMT) with comparable percentage increases in transit ridership-ignoring the huge difference in the base against which each percentage change was figured.

To save you the trouble of doing the math, Wendell Cox has done it for you. By comparing the change in roadway passenger miles and the change in transit passenger miles for all of 2008, he finds that only 2.1% of the decline in roadway passenger miles was captured by public transit. ( The rest apparently is accounted for by trip-chaining and elimination of low-priority trips.

I point this out not to bad-mouth transit, but simply to remind those who think it would be easy to shift large numbers of people from cars to transit that this would be a lot harder than they make it seem.

Upcoming Conferences

Note: I don't have space to list all the transportation conferences going on; below are only those that I or a Reason colleague are speaking at.

TRB HOV, HOT, and Managed Lanes Committee Midyear Meeting, Woods Hole, MA, Sept. 1-2, 2009, Jonsson Woods Hole Center. Details at

77th Annual IBTTA Meeting & Exhibition, Chicago, IL, Sept. 13-16, 2009, The Hyatt Regency. Details at

David R. Goode National Transportation Policy Conference, Charlottesville, VA , Sept. 9-11, 2009, University of Virginia Miller Center on Public Affairs. Details at:

ARTBA Public-Private Ventures Conference, Washington, DC, Sept. 24-25, 2009, Loew's L'Enfant Plaza Hotel. Details at

News Notes

Gomez-Ibanez on PPP Highways
"The Infrastructure Crisis and Private Highways" is a provocative lecture given March 12, 2009 at USC by Jose (Tony) Gomez-Ibanez, the Derek C. Bok Professor of Urban Planning and Public Policy at the Kennedy School of Government at Harvard. Tony is the author of many important works on transportation, including the book Going Private: The International Experience with Transport Privatization (with John R. Meyer), Brookings, 1993. (

Revisionism on the "Portland Model"
Portland is clearly the model for many who advocate smart growth and transit as the best way forward for surface transportation and "livability." A provocative challenge to the Portland model comes from Wendell Cox, in "Portland: A Model for National Policy?" Cox uses data 27 years of data on commuting and other issues to question whether Portland itself has done what its boosters claim it has. (

Mexico Prepares for Nationwide ETC reported in June that Mexican motor vehicle authorities plan to install sticker-tag electronic toll collection transponders in every vehicle in the country. Late last year Neology, Inc. won a $40 million contract from motor vehicle registry REPUVE to provide an initial batch of 10 million sticker tags. Government toll authority CAPUFE does not currently use sticker tags, but has approved a new multi-protocol toll reader that can interface with its existing hard-case transponders and the new sticker tags. Once nationwide deployment of the sticker tags is complete, CAPUFE can phase out its transponders. (

Athens Toll Road Wins Excellence Award
The Attica Tollway Operations Authority (Attikes Diadromes S.A.) has won the 2009 IBTTA Toll Excellence Award in the category of administration. Attiki Odos (Attica Tollway) is the 65 km toll ring road for the Athens metro area in Greece, developed and operated under a long-term toll concession. The award is given each year by the International Bridge, Tunnel & Turnpike Association, and will be presented at the 77th annual meeting taking place in Chicago next month. The award is for a comprehensive project monitoring the tollway's performance and level of service.

Diesel Truck Emissions Drop Dramatically
Federal emissions standards required all truck diesel engines sold starting in 2007 to meet stringent new clean-diesel standards. A new study by the Coordinating Research Council and the Health Effects Institute (and sponsored by the U.S. Energy Department, EPA, the California Air Resources Board, and the Engine Manufacturers Association) found that the new engines have reduced emissions 90% from 2004 models and exceed the requirements of the 2007 regulations. They produce 98% less CO than the 2007 regulations require, 10% less NOx, 95% less non-methane hydrocarbons, and 89% less particulates than the 2007 standards. More stringent standards come into effect in 2010, that will reduce NOx by another 50%. (

Cash for Clunkers Study
Last month I reported on the very cost-effective vehicle scrappage program (SCRAP) operated by Unocal in Los Angeles in the 1990s. There is a solid technical report describing the program. It is Elizabeth Deysher and Don H. Pickrell, "Emission Reductions from Vehicle Scrappage Programs," Transportation Research Record, No. 1587, 1997, pp. 121-127.

Correction re FHWA's Pricing Primer
The report that I mentioned last issue, "Technologies to Complement Congestion Pricing," gave an incorrect URL. The correct one is the following:

FDOT Seeking Finance Executive
The Florida DOT is seeking applicants for Assistant Secretary for Finance & Administration. Details available at

Quotable Quotes

"We rich people can't stop the world's 5 billion poor people from burning the couple of trillion tons of cheap carbon that they have within easy reach. We can't even make any durable dent in global emissions-because emissions from the developing world are growing too fast, because the other 80% of humanity desperately needs cheap energy, and because we and they are now part of the same global economy. What we can do, if we're foolish enough, is let carbon worries send our jobs and industries to their shores, making them grow even faster, and their carbon emissions faster still. We don't control the supply of carbon."
--Peter W. Huber, "Bound to Burn," City Journal (Manhattan Institute), Spring 2009. [Note: a thought-provoking and disturbing article; well worth reading.]

"In high profile, big-ticket transactions when lending is based on a single-asset, demand-driven cash flows alone-not balance sheet strength-infrastructure investment becomes a high-stakes game with powerful incentives at play. The forecasting process, imperfect from the start, is seldom insulated from these incentives. Investors need to be asking the right questions of their technical advisors, and having an understanding of the forecasting process is an important prerequisite in that regard. This is as true for toll roads as it is for other transportation projects when limited-recourse lenders are exposed to market risk."
--Robert Bain, author of Toll Road Traffic & Revenue Forecasts: An Interpreter's Guide, May 2009.

"Good intentions and high morals are not enough to ensure good policies. Responsible public administrators and policy analysts have an ethical obligation to critically examine the assumptions behind their preferred programs, to continually and carefully consider the arguments and data that are raised by the program's critics, and to be ready to use their expertise to revise or replace such programs when the facts warrant it. In developing policies to reduce the negative externalities of the automobile in democratic nations with widespread auto ownership, they should consider the principle that mechanical engineering is almost always easier and more cost-effective than social engineering. In other words, it is easier to take the pollution out of automobiles than to take the people out of automobiles."
--James A. Dunn, Jr., "Mobility Contested: Ethical Challenges for Planners, Administrators, and Policy Analysts," presented at the Conference on Ethics and Integrity of Governance, Leuven, Belgium, June 2005.

"Those who see the solution of so many of our present ills to be cramming people into ever-higher densities miss the point. Residential density is one of the most fundamental choices households make. Changing residential densities to make transit work better is the smallest tail wagging the biggest dog I can think of. It puts planning dogma ahead of the most basic human needs and rights."
-Alan Pisarski, "ULI Moving Cooler Report: Greenhouse Gases, Exaggerations, and Misdirections,", July 29, 2009.

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

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