The following is excerpted from my 2013 report Enterprising Roads.

It is 2020 and a new road enterprise, Minnesota Mobility (M2), which was spun out of the old state Department of Transportation (MnDOT), has recently taken over the operations and maintenance of the state’s main roads. This new organization emerged from the local culture of Minnesota and has quickly become a popular institution, responsive to the needs of its citizens, who now see clear value for their transportation-related payments.

A. Revenue

M2 has the authority to raise revenues from road users via fees assessed at the fuel pump (for older vehicles), or by using special, in-vehicle equipment that charges according to mileage and axle weight (for newer ones). In both instances, fees are subject to regulatory approval by the state’s Public Utility Commission (PUC).

In urban areas there is a peak period congestion surcharge on all roads. This has reduced congestion, but has not eliminated it. For those who require reliable transportation and guaranteed travel times, there is a complete network of MnPass managed lanes throughout the Twin Cities. These also contribute revenue to M2. All trucks pay a new weight-distance charge that varies by axle loadings and the route used. Automatic Vehicle Identification has improved considerably, dramatically reducing collection costs, and all in-state cars have an account with M2 for their vehicle license. For those that don’t drive in the peak period, don’t use MnPass, and don’t pay at the fuel pump, a monthly bill is issued. Out-of-state drivers are billed too, thanks to a cooperative agreement among all the state road enterprises, and the few remaining DOTs in states still using the old model.

In addition to conducting normal road operations, M2 exports services related to ramp meter control and snowplow technology, where it has expertise. This gives it an additional source of income. It manages traffic data collection and freeway management from a multi-state traffic management center in the suburb of Roseville, using the most advanced technology available. Neighboring state transportation organizations, as well as counties within the state of Minnesota, contract with M2 to manage their traffic using ramp meters. They find this less expensive and more effective than doing it themselves.

M2 clears snow from major local roads (under contract to counties and cities) and from freeways in adjoining states. They do this using advanced technologies such as largely autonomous snowplows, which through advanced GPS technologies can traverse and clear snow-covered roads despite the absence of visible road markings. With recent improvements in weather forecasting, M2 is able to pre-deploy snowplows along corridors likely to be hit hard and make better use of its expensive capital-intensive equipment.

B. Regulation

“The Minnesota Public Utility Commission’s mission is to create and maintain a regulatory environment that ensures safe, reliable and efficient utility services at fair and reasonable rates.”

The PUC has an important role. By regulating rates, it in effect determines the quality of service on the roads. M2’s natural instinct is to push for higher revenues and to produce a higher quality service, for instance by resurfacing roads more frequently, making lane markings more visible, or clearing snow-covered roads more quickly. The PUC’s job is to compare the rates and quality of output in Minnesota with other states and to determine whether its residents are getting value for money. M2’s board of directors plays an important oversight role, but its main responsibility is to the road enterprise and its shareholders. The PUC, by contrast, explicitly serves the interest of service users. While M2’s users and shareholders are similar groups, they are not necessarily identical.

C. Responsibilities

M2 provides a number of services related to infrastructure, traffic, seasonal operations and licensing. The major categories are listed below.

Infrastructure Services:

• Pavement maintenance, repair and reconstruction;
• Bridge maintenance, repair and reconstruction;
• Sidewalk maintenance, repair and reconstruction.

Traffic Operations:

• Traffic enforcement (police services);
• Parking enforcement;
• Traffic control (signs, signals and markings), including monitoring.

Seasonal Operations:

• Snow removal;
• Street sweeping.

Licensing:

• Driver Licenses;
• Vehicle Licenses;
• Revenue collection.

D. Differences

Unlike MnDOT, but like some other state DOTs and the Australian road enterprises, M2 has the authority to license vehicles to use roads, and to license drivers. It has a special safety and security service that enforces its rules on road use. As a result, it also incorporates what used to be the Department of Driver and Vehicle Services and the Minnesota State Patrol (once part of the Department of Public Safety). M2 can also develop land adjacent to existing state roads, generating additional revenue by capitalizing on the accessibility benefits it creates. M2 has not yet done very much of this, but there is potential.

M2 differs from MnDOT in several other significant ways. For example, it is not responsible for the construction of new roads. This responsibility now lies with land developers, newly chartered turnpikes, and local governments. After construction, some of these new roads are turned over to M2 for operation, management, maintenance and reconstruction. However, many remain as private turnpikes or toll roads, integrated into the network through individually negotiated interoperability agreements, which enable M2 to handle billing.

While it does have a voice on state and local transportation planning, M2 is not responsible for this. It plans for its own future, and makes decisions about the capacity required on its existing roads, but for the most part broader strategic planning takes a back seat to management.

Like MnDOT, M2 is not responsible for the operation of transit services, which the state has separately contracted out through the use of Public Private Partnerships. Aid to local governments for roads and transit is distributed directly by the Department of Finance. However, such funding has been considerably reduced, leading to ongoing discussion about the role of local vs. state government in the management of roads and other transportation services.

E. Ownership

Minnesota Mobility was chartered to provide road services to the people of Minnesota, and as such, the citizens of Minnesota are, collectively, its owner. Its board of directors is composed of members nominated by the state governor and approved by the state legislature. They serve staggered terms, which helps prevent M2 being overly swayed by the political process and ensures a degree of continuity in management. There have been suggestions that M2’s board should be directly elected, but so far Minnesotans have been content to let their democratic representatives attend to personnel details. The board of directors selects a chief executive officer and has approval rights over the CEO’s other ‘C-level’ officials. The board sets the CEO’s salary through a compensation committee. It also approves M2’s annual budget, revenue requests and major expenditures. Unlike MnDOT, M2’s budget does not have to be approved by the legislature. Nor is the legislature responsible for the rates it charges.

F. Employees

The employees of M2 no longer work for the state of Minnesota, and therefore are not subject to the vagaries of state politics and the occasional state shutdown. Roads have become a public utility and they must be kept operating. When M2 was formed, MnDOT employees were allowed to apply for positions in the new organization, but they were not guaranteed jobs. About 10% did not apply (many choosing to retire) and about 15% were not rehired. The old unions did not carry over and, so far, employees have not chosen to form any new unions. The state absorbed the pension system of the old MnDOT, giving M2 a clean slate.

G. Reporting

Every year M2 publishes an annual report identifying revenue from users, from services and from other sources, as well as expenses. It also publishes an important time series of performance indicators demonstrating the quality of pavements, roads, lane markings, snow clearance, traffic congestion and so on. The organization has set goals for performance in each area, and budgets enough funding to achieve these goals. Nonetheless, every year, after it has invested funds and ensured sufficient capital for present operations and contingencies, M2 runs a small surplus. This comes in large part from the congestion surcharge, which earns money by charging more in the peak periods.

H. Dividends

Even after making deposits to a reserve fund, which helps smooth financial flows and ensures that long-term maintenance and reconstruction is properly financed, M2 is able to put part of its annual surplus toward paying a dividend to its owners—the people of Minnesota. M2 could probably run a larger surplus by raising user fees to “what the market will bear,” but that would be politically contentious and not in line with its public service mission (nor would it be approved by PUC, its regulator). As it is, there is no more chatter about how state roads are subsidized by taxes: the argument has moved on and everyone acknowledges that roads are paid for by their users (and then some). The annual road dividend warms the heart of local taxpayers, coming as it does every April 15.

I. Future

There has been talk of M2 fully taking over the road and highway departments of counties and cities in Minnesota. Doing so would relieve the local governments of a major expense that must be paid out of property tax revenues, as local governments are unable to assess gas taxes under current law. Furthermore, just as phone companies and electric utilities own both “the last mile” and “the linehaul,” there is now a debate about whether there should be vertical integration in roads. Some argue that the economies of scale this would allow, and the professional management and specialization it would entail, could reduce costs and improve quality significantly. There is even discussion of M2 merging with road enterprises in neighboring states in order to achieve additional economies, but these have not yet advanced very far. A few states have even begun to sell shares in their road enterprises on the stock market, in an effort to raise additional capital and introduce private-sector efficiencies. However, most states, Minnesota among them, have resisted investor-ownership so far.

Clearly, some legal changes were needed to implement a dynamic, politically independent system like this. But they were neither unimaginable nor unfamiliar, as aspects of this approach were already in place on some U.S. highways and turnpikes. Once some states started down the path toward road enterprises, others quickly followed.