I once read that AT&T was a billing system attached to a telephone network. The point was, the complexity of the phone network was incidental to the amount of technology and effort required to bill for the use of that network.
In contrast, road organizations often don’t have any billing system at all, and have no way interacting with their users. As they transition into road utilities, developing some form of revenue collection system from users (be it tolls or mileage fees, or indirect like fuel taxes) is essential to the operation and closing the loop so that users who benefit from the system pay for the cost of that system, and the revenue generated pays for the infrastructure users benefit from. It will become a core competency for which there will be a penalty to pay for outsourcing.
While discussion of money is often considered unseemly, if the benefits that transportation provides have economic value (and they do), users should be willing to pay for them, just as users pay for other utilities. Presently state DOTs typically have no direct revenue collection interaction with users. Turnpikes are often separate agencies, and gas taxes are similarly collected by third parties. But collecting revenue from customers is critical to transactions, and while once it was complicated to do anything other than coins or cash, today even food trucks and non-profit blogs can accept credit card transactions. (state agencies admittedly have trouble).
This is an important interaction with the consumer if done in person, or even remotely, an opportunity to manage the customer service aspects. While many utilities do this poorly (Comcast being the most obvious), it doesn’t have to be done poorly.
Initially we will think of transportation systems as charging per use. But there are many different services people may buy. For instance unlimited mileage, or unlimited off-peak mileage, or a limited number of trips per month with overage charges. All of these can be good for consumers, as it may save them money, or at least ensure the reliability of their price and travel time. It may also be useful for the organization operating the system, as they can adjust prices in advance (with fewer surprises) in order to smooth out demand. Pricing will be far more sophisticated than a simple marginal cost price charged in real-time. This implies a relationship with customers. Further, there may be value added resellers, who consumers can deal with, who each have a particular number of slots on the system, and can develop other pricing strategies.
Closing the loop between benefits and revenue has several advantages.
First it is confidence building, people will clearly see that their payments go to pay for the utility, and don’t get lost in the black hole of governmental general revenue. Even though gas taxes today are hypothecated to pay for roads at the federal and most state levels, many if not most consumers are unaware and disbelieving. Yet few doubt the electric utility keeps the money it collects monthly.
Second, it is educational to consumers, transportation users will see what transportation costs to provide at a particular level of service at a particular time of day. The resulting incentives can only reduce consumption.
Third, it is educational to the agency, the agency will see what it does that provides value, and what doesn’t. A revenue forecast will be coupled with demand forecasts. There will be a real penalty for mis-forecasting.
Fourth, it will lead to better investments, since the return on investment will be aligned directly with the agency’s decision making process.
Sean Slone at Council of State Governments writes about The Future of the Federal Role in Transportation
When the current federal surface transportation authorization bill, known as MAP-21, expires at the end of September, it likely will be replaced with a status quo plan.
Both the Obama administration and the Senate Environment and Public Works Committee recently have opted for a status quo approach to the role the federal government traditionally has played in sustaining the nation’s transportation system.
But a chorus of voices is once again advocating for a radical rethinking of those traditional federal and state roles in the transportation arena. Some see 2014 as a turning point since the federal Highway Trust Fund, which finances more than $50 billion a year in highway, bridge and transit projects, also appears past due for restructuring.
“The problem is the gas tax,” Rohit Aggarwala, an adviser to former New York City Mayor Michael Bloomberg and professor at Columbia University, wrote in a piece for Bloomberg View last year.
“(The gas tax) has declined in value drastically since it was last increased in 1993—even as the price of gas itself has tripled. As a result, both the main Highway Trust Fund and its transit account (often called the transit trust fund) are bankrupt.”
David Levinson, a professor at the University of Minnesota, also believes Congress should rethink and reprioritize what the Highway Trust Fund is used for. Levinson, another participant on this month’s webinar, co-authored a brief for the Brookings Institution’s Hamilton Project in 2011 with a title that gives a good idea of his position: “Fix It First, Expand it Second, Reward It Third: A New Strategy for America’s Highways.”
Levinson and co-author Matthew Kahn of UCLA propose that all revenues from the existing federal gas tax and tolls be redirected away from construction of new transportation projects and go “primarily to repair, maintain, rehabilitate, reconstruct and enhance existing roads and bridges.”
But new projects wouldn’t be left entirely high and dry under their proposal. They proposed a Federal Highway Bank to provide state funding to build new and expand existing roads. Funding would be contingent on strict performance criteria, such as a cost-benefit analysis.
“States would be required to demonstrate an ability to repay the loan through direct user charges and by capturing some of the increase in land values near transportation improvements,” they wrote.
The third prong of the duo’s proposal would involve rewarding states and local governments that exceed performance standards and achieve socially desirable outcomes on transportation projects in such areas as capacity, safety, equity and environmental improvement. A newly created Highway Performance Fund would reward states with subsidized loans and performance bonuses.
MAP-21, the 2012 federal surface transportation authorization bill, is set to expire later this year. Meanwhile, the Highway Trust Fund faces an insolvency crisis due to rapidly dwindling gas tax revenues, and there appears to be little agreement in Congress on how to fund the federal transportation program. Some say that makes this year ripe for a reconsideration of the federal role in transportation and have proposed devolution of the federal program to the states. Many states continue to rely on the federal government for a significant portion of their transportation spending, however, and might be challenged to come up with revenues on their own from a limited tax base. This webinar will examine the pros and cons of devolution, the future of the federal role in transportation and what it could all mean for state and local governments.
Our society has undergone many subtle and not-so-subtle changes in the past few decades. Among those related to driving, safety, and perceived safety, I believe there have been lasting effects.
When I was growing up, and I went for a ride with my mom, I would sit in the front seat of the car. I would wear a seatbelt (a habit formed because of the seat-belt ignition interlock on our Chevy Vega preventing the engine from starting without seat belts (a one-year experiment reviled by the driving public). My children sit in the back seat because of the rise of so-called child safety seats and air bags.
When I was growing up, I would walk down the block alone in pre-school and Kindergarten, and around the neighborhood by 1st grade, and all over town by 3rd grade. I would ride the ColumBus by 4th grade with my Package Plan card (giving me free rides in on the system, a benefit which has since been removed). Today there is a movement for Free Range Kids because such freedom has diminished.
Drivers from other countries in the US are often derided as poor quality. However, keep in mind, they grew up seldom riding in a car at all if ever, and thus never learned the tacit rules of driving that many Americans are accustomed to. Perhaps the driving tests in the US are insufficiently stringent, but there are many things one can learn about driving just be riding in the front seat of a car, which immigrants, and today’s kids, fail to experience.
The net is that when you go through life as a passenger rather than a driver, your motivation for driving is lower, since you are not modeling driving yourself as you would watching through the front windshield, and your quality of driving is lower since you lack experience. These two factors presumably feed on each other, as people like doing what they are good at. I posit this as one of a number of factors that has led to a significant decline per capita travel.
Google has been secretly working on a car. We knew that they were working on autonomous vehicles, but they have also been redesigning the car for an autonomous world and came up with a pod car. The design will be familiar with those who have been following Personal Rapid Transit, though an important difference is that it is in principle trackless (or rather the entire road network has been sufficiently mapped in detail so the whole world is track, rather than bespoke track).
The promotional video is below:
The newest vehicle is designed for slow speed (25 MPH) on campuses, and is especially light. The low mass is important as it saves energy but also causes less damage when it accidentally hits something or someone. Combining the low mass with the lower likelihood of a crash at low speed will magnify its safety advantage for non-occupants in this environment compared with faster heavier vehicles (which privilege the safety of the vehicle occupants).
While I had been assuming the first market for autonomous or semi-autonomous vehicles would be the relatively controlled environment of the freeway, the relatively controlled environment of low-speed places makes sense as well. These are two different types of vehicles (high speed freeway vs. low speed neighborhood), and though they may converge, there is no guarantee they will, and perhaps today’s converged multi-purpose vehicle will instead diverge.
There has long been discussion of Neighborhood Electric Vehicles, ranging from golf carts to something larger, which are in use in some communities, particularly southwestern US retirement complexes. In Sun City, Arizona, for instance, people use the golf cart not just for golfing, but for going to the clubhouse or local stores.
They can do this because local streets are set with low speed limits, and there are special paths where they are not.
How many places already fit this bill:
Neighborhoods in master planned communities
Note that many of these places have gotten a bad rap from the current flavor of urban planning which decries non-gridded networks. However keep in mind that non-grids have the advantage of discourage through traffic. Perhaps roads are too wide or too fast in these places, but that is much easier to fix through traffic calming than a too connected network.
We will not only be able to deal with such ideal places. We will also need to do retrofits.
How many places could fit this bill:
Cities designed before the automobile, where the grid can be retrofitted to disallow high-speed traffic
Anywhere there is space to retrofit a slow network in parallel with the existing fast network
So will people buy such cars with limited speed? Many will as a second or third vehicle, as they already do with golf carts. The arguments are very similar to those about electric vehicles.
The opportunity arises with Cloud Commuting, when such cars, as they are autonomous, come to you. They will be dispatched when they are practical for the trip at hand, which may either be a short distance within a `slow space place’, or can travel along a `slow path’ between nearby places.
This slow path is of course faster than bike paths and sidewalks, but slower than Principal Arterials and freeways.
Retrofitting cities for transportation has a long history, cities and transportation co-evolve. We redesigned our cities, which had originally emerged with human and animal powered transportation, first for streetcars, and then for the automobile, and in some larger cities for subways. We have also redesigned our taller buildings for escalators and elevators.
We have already differentiated speed on links, and setting speed limits is one of the key jobs of the traffic engineer in ensuring safety. This is not only on the link in question, but important for other links as well. Travelers shifted away from freeways and onto less safe rural roads when the speed limit was set to 55 MPH in the 1970s, and back when it was raised in the 1980s, improving overall safety, though not necessarily safety on the freeways themselves (See Lave and Elias 1994).
As part of an expansive budget bill signed into law last week, state lawmakers nudged transportation officials to boost the speed limit to 60 miles per hour on lane miles where it can “reasonably and safely” be done. By 2019, traffic engineers must examine every mile of road with a 55 mph limit and determine if it is prudent to go higher.
It’s an enormous undertaking. There are 6,771 miles on two-lane/two-way state highways now covered by a 55 mph limit. Officials figure they’ll get through about one-fifth per year, starting as soon as next month. They will analyze each stretch’s crash history, design, lane width, sight lines and ditch slope.
“The fact we’re studying the roads does not mean you can jump to the conclusion that all roads will be raised to 60 miles per hour,” said Peter Buchen, assistant state traffic engineer at the Minnesota Department of Transportation.
But the agency has been moving in that direction. In 2005, the department bumped the limit to 60 mph on 791 miles of two-lane highways and added another 750 miles last year. Buchen said those were prime candidates — straight, wide-open stretches with clear sight lines and low incidence of crashes. He said limits on hillier, curvier highways probably won’t budge.
So I will posit several Axioms about transportation
Axiom 1: Some roads should be fast – The aim of transportation is connecting people with destinations. They can connect with more destinations if they can do so in less time. Ceteris paribus, faster roads will take less time.
Axiom 2: Some roads should be slow – Some roads serve neighborhoods and have traffic that is not just motor vehicles. Ceteris paribus, slower roads are more likely to ensure safety, a high quality of life, and increased interaction within the neighborhood. Without loss of generality, let’s call these roads streets.
Axiom 3: Fast roads attract traffic from slow roads – In general, people prefer to spend less time traveling, and will spend less time on faster roads. These roads will attract more people. There will be net reductions in traffic on streets that are made slower and net increases in traffic on roads that are made faster.
We thus should redesign our road hierarchy with these axioms and the possibility of slow vehicles becoming mainstream, developing a slow network so that these neighborhood vehicles cannot not only travel within neighborhoods or on campuses, but between them.
The following appeared across the email transom. The source is unknown. The forwarder stated:
One of my Internet Buddies sent it claiming it to be an Isreali invention. Who knows. Maybe it’s a joke, but none-the-less it appears to be a great idea, unless of course people swerve out of their lane and cause an accident!
Update: part of an ad campaign by Pioneer Suspension.
Hi Dr. Levinson, I searched for the message that was written on the road in the pictures and came up with this:
This topic is very interesting. Our electric utility systems fail temporarily and rarely, and we are so shocked that there are political investigations when it happens. (Why did it take so long to restore service? Why did the disruption occur to begin with?) A few decades ago there was serious discussion of lifeline concepts to provide some base access to water or electricity, at low rates for everyone, but much higher marginal rates for usage above the base amount, so. One could introduce progressivity, and feedback against excessive use fairly efficiently.
Our transportation systems fail persistently to provide even basic service to the entire jurisdiction, and are dominated by history, ( let us do tomorrow what we did yesterday for a cost not too much higher than the rate of inflation, and we will be considered a success). Political control of gas taxes and transit fares heve led rates to rise much slower than inflation, with substantial lags between catastrophic failures, and severely constrained quality and quantity of service as a result, generally reducing accessibility in very uneven ways. It seems extremely worthwhile to explore in a serious and detailed way the possibility of treating transportation as a utility.
An earlier post introduced the MUCH Framework. The idea is that depending on the nature of good, it might be a M-type (Market), U-type (Utility), C-type (City) or H-type (Hub). That alone doesn’t imply whether the pubic or private sector should provide the good, though it does make some suggestions about whether the good requires public oversight to maximize welfare.
M-type goods, if they are excludable, are considered private goods. If they are not-excludable they are congesting or common pool goods.
U-type goods when excludable are club goods, but when they are not, they are considered public goods.
C-type and H-type goods are not only not rivalrous, more users make them more valuable. As discussed in a previous post, this situation has been called anti-rival. Thus the traditional classification used below may be inadequate.
The economic definitions of goods discussed in a previous post, depending on excludability and rivalry are important because the case of transportation is quite complex and does not lend itself to an obvious answer of how it should be organized. Roads can be public (rural highways), private (limited access toll roads), club (the local streets in your subdivision), or congesting goods (urban arterials).
By the same token, transit may also be functionally public (a fare free transit system), private (a commuter bus service), club (a school bus), or congesting goods (a crowded campus shuttle).
(One could argue that any of these are potentially excludable if the service provider wanted to, but there are costs to charging, not simply in counting the fares, but also in the delays that charging imposes on travelers, especially when it is done on-board.)
This classification needs to correlated with the notion of natural monopoly – a service for which there are large economies of scale so that competition results in higher rather than lower costs. In that case, the fixed costs of providing the service dominate the variable costs, and so it makes sense for there to be one provider, so that the high fixed costs of infrastructure aren’t duplicated. The incumbent firm in a sector with high fixed costs rarely sees direct rivals. No second company will lay wires to compete with the incumbent electric utility or phone company. That is not to say there aren’t indirect rivals. Home solar and natural gas compete to some extent against the power company. Cable TV and satellite also compete.
Some monopolies are excludable and rivalrous. Electricity distribution comes to mind. An unregulated electric company could decide not to serve me unless I paid, and certainly any electrons flowing through my appliances will not flow simultaneously through someone else’s. Some monopolies are neither excludable nor rivalrous – national defense comes to mind. Some are rivalrous but not excludable (storm sewers). The rivalry though is often time limited, and off-peak there may be plenty of capacity (in fact, there must be, otherwise the excess storm water at the peak could not flow through the system). Some are excludable but essentially not rivalrous (cable TV).
In general roads have some aspect of natural monopoly, some more so than others. (Our agent based model of autonomous roads shows the complexity of the situation.) While city streets may be close parallel routes for travelers, there are usually a limited number of bridges over, or tunnels under, a body of water, creating a natural bottleneck. Expensive transit facilities (subways) also have strong monopoly characteristics.
Other services have monopoly by dint of regulation (I am not legally allowed to open up a new bus company (or dollar van), even if I wanted to, in most of the US.) These monopoly-preserving regulations have the nominal purpose of serving the public interest. And certainly there is an economy of scale to some extent, and advantages in ensuring that bus frequencies are maximally spread out across the hour, rather than clustered tightly at a single point, which might happen if there were two bus services under separate ownership on the same route.
And then there are network externalities – anti-rival goods where the value increases the more people on the same network. Transit is more valuable if more people use transit (frequencies and spatial coverage increases). This does not require common ownership or management of buses at some level, but does require some organization and similarity in the customer facing aspect. In London, buses are privately managed under public franchise agreements.
Roads as Utility
Roads are mostly a U-type good, with scale economies (except when it is congested – but not most of the time on most roads) but network diseconomies (once the network is mostly built out). In the US their anti-excludable aspects, which may have been important when cars were new in the early 20th century, are probably not relevant today.
This implies roads are a utility, which is a natural monopoly (no one will go and build a competing road network in most places. In places lacking access or where congestion is a major feature, a competing road may work, but again, this is the exception rather than the rule).
This also implies that rates should be regulated somehow. However to be self-sustaining, rates should be higher than the cost of provision. For roads in the US, the rates have been assessed as motor fuel taxes since 1919 in Oregon, as well as tolls on turnpikes. These rates have been sufficient to cover the direct costs of operating and maintaining the backbone network, but have not been applied to the local or last mile networks. This is largely because of government ownership and access to general tax revenue. It is important to recognize that states vary in the nature of their DOTs. Some states manage local roads, others devolve that to counties. The last mile in other utilities is funded much the same as the backbone, with direct charges on users.
Examples in the US include electricity, natural gas, water and sewer, wireline telephone service, cable TV service. Some have better reputations than others. They are in general profitable and outages are scarce. They are also not terribly innovative.
In the post Minnesota Mobility, the idea of how a Roads Utility might work was illustrated. Rick Geddes has another idea of how private capital might be involved in maintaining roads, with private investment paying dividends to the public (and gaining revenue from road users).
Integration from last mile is an important operational question. Drivers don’t know who owns the road they are on, yet how they are funded varies (typically: local roads – property tax, state roads – gas tax). The advantage in principle of local control is that local officials know better local needs. The disadvantage is they lose economies of scale and efficient funding mechanisms. Counties are not usually enabled to implement user fees on roads, and if they did there with current technologies would be a major problem since gas taxes as user fees can be avoided by traveling somewhere else to fill up the tank, leading to a race to the bottom.
My water is metered, my wastewater is not, yet I get a bill from the local (government-owned) water and sewer utility telling me how much I owe for each service. If I consume less water I get billed less. If I produce less wastewater, bully on me, but I receive no discount. Instead of relying on a wastewater meter, they first assume what comes in, must go out. Second, they measure my land area, as a surrogate for storm-water runoff. Credits are available for environmentally good behavior such as rain gardens.
Transportation utility fees are a financing mechanism for transportation that treats the network as a utility and bills properties in proportion to their use, rather than their value as with the property tax. This connects the costs of maintaining the infrastructure more directly to the benefits received from mobility and access to the system. The fees are based on trips generated and vary with land use.
Transit as Utility
Does transit fit the utility model? Fixed route services on exclusive rights-of-way, like rail or busways may. Services that ride on non-exclusive rights-of-way are not necessarily natural monopolies. They do posses anti-rivalry and anti-excludability in thin markets (relatively low demand). While there is some desirable regulation of stops and stations to avoid poaching dynamics (see Curb Rights), there can also be competitive transit services, especially in thick markets – where demand is strong. The London model shows how private provision under public supervision can provide superior service while driving down costs and increasing ridership. Other examples are less sanguine.
There have been attempts to vertically dis-integrate railroads (e.g. The UK Network Rail, London Underground, Sweden). These attempts have been less successful (to various degrees, the degree varying in part by the author), because rail technologies are much more integrated than vehicles on roads.
Cars and trucks, we hope, have intelligence with the driver. Trains have intelligence in the tracks. Smart cars on dumb roads work. Dumb trains on smart tracks work. Dumb cars on dumb tracks do not. Smart cars on smart tracks can work, but seems to require a lot more coordination.
So the issues are complex, and there is not a universal answer (The Market! The State!). Each institution, along with other mixed structures (The Public Utility! The Trust! The QUANGO! The Regulatory Board!) have value as ways of managing publicly used infrastructure. Sadly our political discourse is not compatible with complexity.