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Surface Transportation Innovations #89

Federalism and reauthorization, transportation and oil dependence, cutting GHGs via smart growth

Robert Poole
March 17, 2011

In this issue:

Federalism at Issue in Reauthorization

Last month I critiqued the Administration's overall DOT budget proposal, for being unfunded, for expanding (rather than narrowing) the program's scope, and for being overly centralizing. This month I'd like to focus more narrowly on the highway portion of the proposal. (I am drawing in part on the trenchant analysis in the March 2nd issue of Transportation Weekly.)

If you ignore the fanciful $50 billion up-front money and focus instead on the ongoing annual budget amounts, what you see is reduced support for highways, per se, and a large increase in federal control. Comparing FY 2010 with the proposed FY 2012, while the overall total is only slightly less in 2012 ($42.8 vs. $43.0 billion), the "national highway program" declines from 80.6% to 75.7%, so as to permit "livability" programs to grow from 8.8% to 9.6%, with smaller increases in safety, research, and administration. There is also a new DOT discretionary grant program that would start out spending 5.1% of the FHWA budget in FY 2012, growing to 9.2% by FY 2017. Among the examples of projects that could be funded by such grants is "incorporation of livability principles such as Complete Streets into policies, plans, programs, and budgets." In addition, TW reports that "program consolidation would have the effect of lowering the federal share of projects on the Interstate system from the 90% level set in law back in 1956 down to 80%, further de-emphasizing the uniqueness of the Interstate system."

In other words, the proposed budget would be another major step away from the principle underlying the Highway Trust Fund as created in 1956: a compact between highway users and the federal government to build and maintain a national system based on user taxes, with the feds collecting the money on behalf of the overall system and returning it to the states to deliver and manage that system. Instead of this "state-administered, federally-assisted program," the Administration wants to turn it into a federally administered, federally-directed program.

This is not a new battle. In an outstanding history of federal highway policy, "Federalism Issues in Surface Transportation Policy: Past and Present," Robert Jay Dilger of the Congressional Research Service reviews the tensions that have surrounded the federal role from the earliest days of the nation. (www.fas.org/sgp/crs/misc/R40431.pdf) The federal role was very limited, initially by constitutional concerns, until around World War II, when the federal role was expanded and the basis was laid for what would become the Interstate highway system in 1956. By the 1970s, concerns that the federal role had overstepped its bounds led to President Nixon's New Federalism proposal, which would have consolidated numerous federal programs (including many highway programs) and replaced them with special revenue sharing. President Reagan attempted a major swap, in which all non-Interstate highways would become the responsibility of the states, with the federal government taking over all of Medicaid. And during the 1990s Sen. Connie Mack and Rep. John Kasich gained the support of a number of donor-state DOTs for devolution of much of the federal highway program to the states.

That proposal was based in part on serious study by the Advisory Commission on Intergovernmental Relations, which urged Congress to devolve to the states all highway programs except the Interstates and roads on federal lands, relinquishing a proportionate share of federal fuel taxes. ACIR suggested that the principle of fiscal equivalence be used to sort out which level of government should do what, arguing that "Those who benefit from the government function should pay for it," and that jurisdictions that pay for a function have an incentive to make wise investment choices. In 1992 Alice Rivlin of the Brookings Institution proposed that the federal government divest most highway programs to the states.

Fast-forward to today, and we have last year's recommendation from the National Conference of State Legislatures that Congress should create a new vision for surface transportation focusing on "legitimate federal objectives: interstate commerce and freight mobility; interstate movement of people; national defense and homeland security; safety; environmental and air quality preservation and improvement; and research and innovation." And that Congress should heed "the Tenth Amendment and not intervene in or interfere with state-specific transportation priorities."

Hence, a valid alternative to the ever-centralizing trend of recent decades, including the Administration's proposal, would be a long-overdue sorting out of roles and functions, refocusing the federal role on interstate commerce, and devolving state and local transportation to the states. I suggested such a transformation in the Reason policy study "Restoring Trust in the Highway Trust Fund," released last August. (http://reason.org/studies/show/highway-trust-fund-reform) And my article on "Interstate 2.0" has just been published in The Weekly Standard (see News Notes, below).

Should Transportation Policy Promote "Oil Independence"?

In just the last six weeks, four policy reports have crossed my desk arguing that reducing U.S. dependence on oil, especially imported oil, should be an explicit goal of U.S. transportation policy. The most strident of these is the February report, "Transportation Policies for America's Future," from a group called the Energy Security Leadership Council, co-chaired by retired Marine Corps Gen. P.X. Kelley and Fred Smith, Chairman and CEO of Fedex Corporation. The group's Statement of Purpose says that because "hostile state actors, insurgents, and terrorists" aim to "use oil as a strategic weapon against the United States," we must do something. Moreover, "excessive reliance on oil also constrains the totality of U.S. foreign policy and burdens a U.S. military that stands constantly ready as the protector of last resort for the vital arteries of the global oil economy."

These points are repeated, in slightly less hysterical words, in a new RAND Corporation paper called "The Option of an Oil Tax to Fund Transportation and Infrastructure." I view these arguments as economically illiterate and therefore not worth taking seriously in making transportation policy. Here are the main alleged problems, and an economic assessment of each.

A deliberate reduction in oil supply aimed at disrupting the U.S. economy: Since oil trades in a world market, any reduction in supply leads to an increase in the world price of oil; it does not and cannot single out our economy. The oil price goes up and down anyway, and the world has learned to live with that.

Harm to the U.S. economy due to paying more to producing countries: To be sure, if we have to pay more for oil, we have less money available for other things, but that argument could apply to anything we import (e.g., TVs from China). For the most part, we are far wealthier thanks to global trade than if we adopted protectionist measures.

More oil earnings by rogue countries can enable them to do more bad things, like support terrorists: True, but terrorists can cause plenty of harm at very low cost, as the RAND report admits.

Our defense budget is much higher because one of its major missions is to defend oil producers and oil trade routes: One of the U.S. Navy's jobs, inherited from the Royal Navy, is to keep the sea lanes open. But that applies to all trade, not just oil. The vast majority of U.S. imports and exports go by ship, and until and unless other nations start sharing seriously in sea-lanes protection, this mission is not going to go away, regardless of how much or how little oil we import.

So contrary to the Energy Security Leadership Council, I do not think the surface transportation reauthorization bill should establish "reducing oil consumption as a principal performance metric" for transportation projects. The case for doing that has not been made in any credible way by these reports.

But that's not to say that all their recommendations are wrong-headed. Both of those discussed above, as well as two from the Pew Center on Climate Change, endorse greater use of transportation pricing, efficiency-enhancing projects such as traffic signal synchronization, etc. And since burning petroleum as transportation fuel is an important source of greenhouse gases, whatever economy-wide policies are adopted to increase the price of carbon emissions will have an impact on transportation. As I've said in other contexts, the purpose of transportation policy is to provide cost-effective transportation that meets the needs of individuals and companies. Saving energy, reducing conventional pollutants, and reducing GHGs areconstraints on transportation, not objectives, just as the objective of a steel company is to produce the best steel it can, subject to constraints such as not polluting the atmosphere.

Government clearly has a role to play in curbing harmful emissions from transportation and other activities. But let's not make the tail wag the dog. We face enormous challenges figuring out how best to produce and pay for better transportation infrastructure. That's what transportation policy should be focusing on.

The Decline of Carpooling

The latest commuting data from the Census Bureau's 2009 American Community Survey show a continuation of the decline that has been under way since carpooling peaked in 1980. From 19.7% in that year, the rate dropped sharply to 13.4% in 1990, decreased further to 12.2% in 2000, and has reached a new low of 10.0% in the 2009 ACS. The continued decrease prompted a feature article in the New York Times (January 28th), headlined: "Once Popular, Car Pools Go the Way of Hitchhiking." That may be an exaggeration, but the trend is unmistakable.

What we've had is two opposing trends. On one hand, we had DOTs and MPOs doing everything they could think of to encourage carpools. While freeway expansion slowed dramatically during the past three decades, when new lanes did get added they were mostly carpool lanes. But during this same three decades, two-earner households became the dominant trend, and those jobs were typically in two different suburban directions. Car ownership grew twice as fast as population during this period-population up by about a third, car ownership up nearly 60%. And the ongoing suburbanization of jobs has made arranging and sustaining carpools increasingly problematic.

Carpool lanes themselves have been controversial in many quarters. In highly congested metro areas, many HOV lanes are so crowded that they offer far less time savings than they did initially. Much of that crowding is due to a very high percentage of "fam-pools"-people in the same family who would be traveling together anyway, as opposed to two employees sharing a ride to work (and hence leaving one car at home). And because enforcement is very labor-intensive, many HOV lanes have high violation rates. But in less-congested cities, HOV lanes are often under-utilized, and the "empty lane syndrome" leads to anger by motorists unable to legally use that extra space when they are stuck in congested general-purpose lanes. Clearly, those lanes are candidates for converting to HOT lanes, to make better use of their now-wasted capacity.

The most vibrant car-pooling seems to exist in the suburbs of Washington, DC, in parts of the San Francisco Bay Area, and in Houston. All three metro areas are home to casual carpooling, in which strangers queue up to share rides in what would otherwise be single-occupant vehicles, so as to qualify them to use the HOV lane. Interestingly, this phenomenon seems to exist only where the carpool policy is (or has been) HOV-3, rather than the nearly ubiquitous HOV-2. I suspect this is because with HOV-3, the HOV lanes still have some speed advantage over the regular lanes, which attracts more people to carpooling.

Many congested HOV-2 lanes are out of compliance with federal standards that "require" such lanes, as a condition of having used federal funds, to maintain an average of 45 mph or better during peak periods. Yet without active federal enforcement of this standard, local transportation agencies generally bow to political pressures not to go to HOV-3, which would restore HOV-lane performance. I think Congress should include enforcement of this performance standard in its reauthorization measure. It would make it much easier for state/local officials to do what they should be doing (raising the occupancy requirement), since they could tell those who complain that "The feds made us do it." This modest reform is long overdue.

Yet Again, Do Roads Pay for Themselves?

The Public Interest Research Group released a report in January called "Do Roads Pay for Themselves? Setting the Record Straight on Transportation Funding." (www.uspirg.org) As you might expect from this generally anti-highway group, their answer is not just no but "hell, no." This is an old debate, but PIRG hopes to further undermine the users-pay/users-benefit principle by showing that all modes are subsidized, so the debate should really be about which mode should get more subsidy.

Transportation economist David Levinson pointed out some major flaws with the PIRG report in a posting on the University of Minnesota blog, The Transportationist (Jan. 11th). First, he notes that PIRG is very slippery with its terminology, shifting back and forth between "roads" and "highways" as suits its purposes. As Levinson notes, it is well known that "roads"-meaning every paved surface including neighborhood streets-are not fully paid for by user taxes. Indeed, most local streets and roads are legitimately paid for out of local property taxes, given that paved-road-access makes a property far more valuable than one without, even for those lacking cars. (How else could Fedex, UPS, and the pizza delivery guy get to your door?) So the more relevant question to ask is whether highways are fully supported from user taxes.

PIRG also argues that fuel taxes are not really user charges because at some points in time portions of the federal gas tax, for example, were used for deficit reduction, and since the Reagan administration a dedicated portion of those receipts is devoted to mass transit. But the relevant measure is not how much of the user-tax revenue is being diverted (often at the urging of groups like PIRG) to sidewalks, bike paths, recreational trails, and transit, but rather how much motorists pay in user taxes versus how much governments spend on highways.

The most recent assessment of that question was done about a year ago by transportation consultant Thomas Rubin, CPA. "Are the Full Costs of Roads Paid for by Road Users?" was commissioned by the American Dream Coalition and is available on their website (http://americandreamcoalition.org/highways/congestioninfo.html#3) In this carefully done assessment, Rubin uses data for 2007, drawn primarily from the FHWA's Highway Statistics series (especially Table HF-10). Selecting this year for detailed analysis is important, because it is prior to the huge distortion introduced in the last few years by the injection of tens of billions of dollars in general-fund "stimulus" money into the Highway Trust Fund, but it is recent enough to reflect ongoing trends.

His bottom line conclusion is that "road user revenues" at all levels of government in 2007 totaled $198.3 billion compared with $171.8 billion in spending on roads by all levels of government. I have one serious disagreement with what is included in the revenues and that is sales tax revenues on vehicles and parts. To be sure, if autos did not exist, governments would be short by that amount of revenue ($52.8 billion in 2007), but nowhere that I know of is that sales tax considered a highway user tax, in contrast to every other revenue item in Rubin's table. So if we subtract that from the revenue total, the result is that road user revenues covered 84.7% of all road spending in 2007.

But to be consistent with the reality that local streets and roads are not funded by user-tax revenues, we should really subtract from the spending side the $64.5 billion in local roads spending. That gives a revised "highway" spending total of $107.3 billion, which is far more than covered by the adjusted highway user revenue (after deducting auto sales tax proceeds) total of $145.5 billion. On that basis, highway user-tax revenue yields 136% of highway spending. So yes, highways are self-supporting.

It's ironic that PIRG and its allies lambaste the current funding system for not making highways self-supporting. After all, it is they and their allies that have systematically expanded the diversions of federal and state highway trust fund monies to non-highway uses, always coming up with clever names such as "Safe Routes to School" and more recently "Complete Streets," as well as seeking to make ever-larger fractions of highway money "flexible"-i.e., divertible to non-highway uses. The new Congress has a great opportunity to end this nonsense, redirecting the limited amounts of highway user revenues to their original purpose.

Cutting GHGs via Smart Growth: A California Update

Several years ago I reported rather skeptically about California legislation that aimed to bring about significant reductions in transportation-related greenhouse gas (GHG) emissions by integrating transportation, housing, and land-use planning. AB 375, passed in 2008, requires MPOs to set GHG emission reduction targets for the four major metro areas (in which 87% of the population lives). Each MPO must develop a Sustainable Communities Strategy (SCS) as part of its fiscally constrained long-range transportation plan and demonstrate that it can meet the emission reduction target. If it cannot do that, it must develop an alternative plan showing how it could meet the target if funding were not at issue.

Transportation/air quality consultant Sarah Siwek wrote an informative article about this process in AASHTO's Weekly Climate Change Brief, published January 6, 2011. My eye was immediately drawn to a colorful pie chart, depicting how much this whole transportation smart growth effort (i.e., what SB 375 mandates) will contribute to California's GHG emission reduction goal. If it accomplishes what is intended, SB 375's measures would contribute only 1.7% to the statewide 2020 GHG reduction target. Other transportation-related measures, such as increased fuel-efficiency for both light and heavy vehicles, and the low carbon fuel standard, dwarf the smart-growth impacts.

But is it realistic to think that the smart-growth measures can achieve even that? Siwek points out several problems. First, the adopted SCSs all rely mainly on infill development. But land and housing costs are generally much lower in the outer suburbs, raising the question of whether there will be a market for enough of the costly infill housing. But to make it "affordable" would require subsidies of some sort (tax abatements, grants, etc.) for which funding is far from certain. Second, she points out that local governments in California rely heavily on sales tax revenues, so if suburbs are discouraged from expanding, their revenues will not grow as projected. So those governments may not choose to curtail their own growth. Third, there is no funding provided by SB 375, and nearly all projected transportation money in the adopted long-range transportation plans is needed to maintain and operate the existing transportation system, with only modest scope for expansions. Finally, California is still recovering from the collapse of the housing market, and with "an abundance of existing housing inventory," it's not clear how much scope there is for a strategy that depends on shaping new-housing development.

Siwek closes with a sentence worth quoting: "If our history in reducing criteria pollutants is a guide, the technology-related measures to reduce transportation-related GHG emissions are the best and only real hope of achieving meaningful GHG reductions from the transportation sector."

Note: further information on this subject is provided in a webinar from last October: go tohttp://climatechange.transportation.org/pdf/webinars/gcc_slides_webinar_7_mpos_11_04_10.pdf.

Upcoming Conferences

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

IBTTA Legislative Conference, March 7-8, Washington, DC, Holiday Inn Capitol. Details at:www.ibtta.org/Events/eventdetail3.cfm?ItemNumber=4789. (Robert Poole and Sam Staley speaking)

U.S. P3 Transport Finance Investors Forum, March 24, New York, NY, Bridgewaters. Details at:http://tfinews@eventbrite.com (Shirley Ybarra speaking)

Infrastructure Investment World-Americas 2011, April 11-14, 2011, New York, NY, Bridgewaters. Details at:www.terrapin.com/2011/iiwa/index.stm. (Shirley Ybarra speaking)

2011 Transportation Policy Conference, May 10, 2011, Bellevue, WA. Details at:www.washingtonpolicy.org/events/details/2011-transportation-conference. (Robert Poole speaking)

News Notes

Poole Article on Interstate 2.0

During TRB week in January, I had lunch with Fred Barnes, executive editor of The Weekly Standard, to discuss transportation policy issues. An outgrowth of that meeting was his invitation for me to write a feature article making the case for refocusing the federal highway program on a 21st-century Interstate system. The article has just been published, in the issue dated March 7th. If you are not a subscriber, you can read it online: www.weeklystandard.com/articles/interstate-20_552551.html.

New Estimate of California HSR Cost

Californians Advocating Responsible Rail Design, described as a volunteer organization, issued a news release last month presenting what appears to be a careful re-analysis of the cost of this mega-project. From an official (California High Speed Rail Authority) 2008 Business Plan figure of $33.6 billion and an 2009 Business Plan figure of $42.6 billion, CARRD uses revised cost/mile figures for each segment (from San Francisco to Anaheim) to arrive at an estimate of $65.4 billion. (www.calhsr.com). As a point of comparison (not made by CARRD), on CNBC's Squawk Box program March 2nd, Warren Buffet mentioned buying the entire BNSF railroad for $34 billion.

Performance-Based Transportation Bill Killed

A bill by Del. Jim LeMunyon that passed the Virginia House would have required Virginia DOT to allocate transportation funds for congestion-wracked northern Virginia based on which projects would produce the most congestion-reduction per dollar spent. It was backed by the Northern Virginia Transportation Alliance. But after lobbying by the Coalition for Smarter Growth and other pro-transit organizations, the bill was killed in the state Senate. Their argument was that using this cost-effectiveness standard would "disproportionately favor widening highways over developing transit-oriented projects." (Washington Examiner, Feb. 21, 2011)

Automating HOT Lanes Enforcement

An updated version of my Transportation Research Board paper for the 2009 Annual Meeting has been published by the Reason Foundation. It reviews both roadside and in-vehicle technology proposals for occupancy enforcement, and finds serious problems with all the leading candidates. As an alternative, it proposes a policy change-carpool registration-which would shift enforcement off-line, to be handled by commuter ride-sharing agencies. Go to: http://reason.org/news/show/automating-hot-lanes-enforcement.

Overview of Surface Transport Funding Options

The Congressional Research Service released an excellent overview of important funding options that could be considered in this year's reauthorization of the federal surface transportation program, including VMT charges, tolling, PPPs, and TIFIA. It includes a table from AASHTO that summarizes the funding impact of a long list of possible increased revenue sources. "Surface Transportation Funding and Finance," by John Fischer, Robert Kirk, and William Mallet, Nov. 10, 2010, CRS 7-5700. (http://transportation-reports.blogspot.com/2010/11/surface-transportation-funding-and.html)

Primer on Federal Surface Transportation

For those relatively new to the federal program, the Pew Center has produced a useful "Primer on Federal Surface Transportation Authorization and the Highway Trust Fund," by Cindy Burbank and Nick Nigro, February 2011. (www.pewclimate.org/docUploads/Reauthorization-and-HTF-Primer.pdf)

Immigration and Transit Ridership

Although transit ridership has increased over the last three decades, its share of all trips and of commuter trips has declined in most metro areas. Recent UCLA research by Evelyn Blumenberg and Alexandra Norton has found that in California, immigration "has been responsible for almost all ridership growth since the 1980s; without immigration, transit use in the state would have declined [in absolute numbers]." That is the case despite the fact that in 2006-08, almost 90% of California immigrants got to work via private vehicles, while 8% used transit. But that transit rate is double that of native-born commuters. And immigrants' propensity to use transit decreased over the time period in question; it was 11% in 1980. Thus, recent and projected reductions in immigration suggest transit's overall mode share may continue to decline in California-the opposite of most transportation planners' intentions. The authors suggest that transit agencies focus more on retaining existing riders rather than attracting new choice riders. "Falling Immigration Rates Mean Falling Transit Ridership," appeared in the Fall 2010 issue of Access. (www.uctc.net/access/37/access37_immigration_and_transit.shtml)

Sharply Contrasting Street Treatments

In short news articles on facing pages, the February 2011 issue of Better Roads presents diametrically opposing concepts for making urban streets work better. On page 8 is a description of "superstreets"-where left turns onto the street from side streets are re-routed as right-hand turns, followed by a U-turn at the next signalized intersection. New research from North Carolina State University finds both a 20% reduction in overall traffic time and reduced accidents-46% fewer auto collisions. Directly opposite on page 9 is a piece about the Institute of Transportation Engineers' "Road Diet Handbook," which explains how to convert a four-lane undivided road into a road with only two through lanes, a two-way left turn lane in the middle, and the remaining lane space used for bike lanes or wider sidewalks.

VMT and Congestion Both Increasing

The FHWA has released its Urban Congestion Report for the fourth quarter of 2010, finding that the average weekday duration of congested conditions was 22 minutes longer than in the previous year, the travel time index increased from 1.22 to 1.24, and the planning time index increased from 1.53 to 1.56. The agency's latest "Traffic Volume Trends" finds that vehicle miles of travel (VMT) in November 2010 was 1.1% higher than that month in 2009 (with the greatest increase occurring in the South Atlantic region). These trends are consistent with the rebound in congestion reported in the latest Texas Transportation Institute Urban Mobility Report, as discussed in last month's issue.

Quotable Quotes

"Applying these principles to a re-examination and reform of surface transportation programs would potentially result in a more clearly defined federal role in relation to other levels of government and thus a more targeted federal role focused around evident national interests. Where national interests are less evident-for example, where the economic benefits are more locally focused or there are varying regional preferences-other stakeholders could assume more responsibility, and some functions could potentially be assumed by the states or other levels of government. . . . From the standpoint of state and local governments, re-examination and reform of the federal approach could reduce the administrative expenses states face complying with myriad federal statutory and regulatory requirements."

--Government Accountability Office, "Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue," GAO-11-318SP, March 2011.

"I see no compelling reason for Congress to vote on whether a channel at Savannah, GA, a regional South Atlantic port, should be deepened. The main players in this marketplace-port authorities and global port operators-have access to vast financial resources, and can finance their own facilities. . . . I propose that our government role in financing channels and other port infrastructure should focus mainly on regulatory matters, while leaving port financing to function according to highly competitive market forces. This would amount to deregulation of port channels, shifting the financial responsibility for channels to regional port authorities, including the right to deepen them and collect fees to recover the cost of deepening. This would allow ports to respond quickly to changing market conditions, if economically warranted. And it would allow ports to employ more market-oriented channel fees, based on benefits derived by their direct users, the shipping lines."

--Asaf Ashar, National Ports & Waterways Institute, "It's Time to Change U.S. Dredging Policy," The Journal of Commerce, Feb. 21, 2011

"For much of the past decade, there has been a constant media drumbeat about the 'return to the cities.' Urban real estate interests, environmentalists, and planners have widely promoted this idea, and it has been central to the ideology of the Obama administration, the most big-city-dominated in at least half a century. . . . [HUD Secretary] Donovan and others cite such things as the energy price spike in the mid-aughts as well as the mortgage crisis as contributing to the 'back to the city' trend. Yet in reality, the actual numbers suggest that Donovan and his cronies may need a serious reality check. The Census reveals that, contrary to the 'back to the city' rhetoric, suburban growth continues to dominate in most regions of the country, constituting between 80% and 100% of all growth in all but three of the 16 metropolitan areas reporting. This includes sprawling regions like Houston, 'smart growth' areas like Seattle and Portland (where suburbs accounted for more than 80% of all growth over the decade), and Midwestern regions like St. Louis, which like Chicago saw a sharp decline in urban population. The only exceptions have been Oklahoma City, Austin, or San Antonio, with vast expanses still allowing much of new development to take place within city limits."

--Joel Kotkin, "What the Census Tells Us About America's Future," Feb. 25, 2011. (www.newgeography.com/content/002080-what-the-census-tells-us-about-americas-future/)


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


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