1. Pricing the use of transportation assets that are presently “free” liberates massive latent economic value currently trapped in those assets;
2. Latent value can be best realized through competitive bidding among a group of firms on the basis of the largest upfront lease payment to operate the asset; and
3. A portion of the realized value can be invested in perpetuity through a permanent fund that generates income for all citizen-owners of the asset. The investment income from the permanent fund helps encourage citizen-owners to accept the pricing necessary to release the asset’s latent economic value.”
I am not convinced of the value of point 2 (i.e. competitive bidding for upfront leases) vs. just having a utility manage the stream of revenue and provide an annual road dividend to users. That’s mostly a risk transfer. I can see the advantage of getting government out of the road management business, but then I look at private monopolies, and I don’t see much better performance, and so many PPPs have gone bad.
Briefing paper—2013 Minnesota cities and street improvement districts League position
The League supports HF 745 (Erhardt, DFL-Edina) and SF 607 (Carlson, DFL-Eagan), legislation that would allow cities to create street improvement districts. This authority would allow cities to collect fees from property owners within a district to fund municipal street maintenance, construction, reconstruction, and facility upgrades. If enacted, this legislation would provide cities with an additional tool to build and maintain city streets.
Sounds like a good idea to me. To be fair, there are opponents. The stated opposition seems odd. They oppose this tool because it is not voter approved, yet I don’t ever recall voting on property tax hikes, or sales taxes for stadia which are imposed on me. The real opposition is because it shifts the burden from one class of taxpayers to another, hopefully so that it is more closely aligned with benefits.
At any rate, our research on the similar Transportation Utility Fees is:
In his State of the Union address last month, US President Barack Obama proposed investing $50bn, starting right away, on the country’s transportation infrastructure.
Of that, $40bn would go toward the upgrades most urgently needed on highways, bridges, transit systems, and airports in what the White House has dubbed a “fix-it-first” policy.
“The national transportation system faces an immense backlog of state-of-good-repair projects, a reality underscored by the fact that there are nearly 70,000 structurally deficient bridges in the country today,” the White House said in a statement.
Mr Obama’s plan, which would need congressional approval, also proposes attracting private investment by pairing federal, state, and local governments with private capital, in what’s being called the “Rebuild America Partnership”.
And a third plank in the President’s infrastructure push is cutting red tape. Through a “historic modernisation of agency permitting and review regulations, procedures, and policies”, the President hopes to cut in half the duration of typical infrastructure projects.
The “fix-it-first” element of the plan received a muted welcome from Professor David M Levinson, an expert on the economics of infrastructure at the University of Minnesota.
“The priority should clearly be on repair because most of the system is built out, and we’ve had nationally declining travel over the last 10 years, so there’s not a major need for expansion nationally,” he told GCR.
The American Society of Civil Engineers (ASCE) has warned of an investment gap of $846bn in surface transportation
“The general problem is that the median age of an interstate highway link in the US is almost 50 years old now, and the expected lifespan of such links was in the order of 50 years.
“Generally most of the infrastructure that has got to be there 10 years from now is there now, and if we want it to be there ten years from now we need to fix it.”
The American Society of Civil Engineers (ASCE) has warned of an infrastructure investment gap, between now and 2020, of $846bn in surface transportation. If not addressed, says the ASCE, this shortfall will hurt the US economy.
Is $40bn enough?
“No,” Prof Levinson said. “No one really knows what’s enough. It’s about the equivalent of one year’s federal spending on roads. So it would be like adding an extra year to the decade, or 10% more over 10 years. It’s not trivial. It’s not going to solve the problem, either, but it’s a real amount of money.”
He also questioned the wisdom of infrastructure investment driven by the federal government.
“The states should be addressing this,” he said. “They can prioritise things locally, they know where the issues are, and they’re the beneficiaries.
“They know how much they need to spend locally to satisfy the local risk-reward, benefit-cost ratio. The federal government allocates things by formula and that means there’s a major inefficiency there.”
“I don’t know much about transportation funding, but funnily, one thing the City of Toronto (and my colleagues) kept complaining about is the fact the Canadian federal government can’t fund any urban projects directly. Any money must go to the provincial government. This in fact partly explains why Canada is supposedly the only OECD (or G8) country without a national transit strategy. The only revenue stream for Canadian cities is real estate taxes. As a result, many people were blaming the current system for the fact nothing is getting built (while envying the US system and its Big Dig). In this article, if I understand correctly, I see that some people seem to be advocating for the Canadian system.
Just odd how the grass is always greener on the other side.”
“David Levinson, transport scholar at the University of Minnesota, has proposed a number of new governance models. One popular plan, drafted with Matthew Kahn and published by Brookings in 2011, outlines a three-step federal model of first fixing existing roads with the gas tax, then expanding them with competitive funding, then rewarding strong projects with subsidies. At his Transportationist blog, Levinson has also suggested limiting the federal role to research and regulation.
The best system, he says, might reduce central authority and reconfigure state departments of transportation as public utilities. In this ‘enterprising’ model, as Levinson called it in a January report [PDF], a new transport utility would work with a local oversight commission to establish fair usage rates and maintain service quality. Australia operates with this type of system, as does the multi-modal TransLink agency in Vancouver, as do water and sewage and electric companies in the United States.
If infrastructure governance were a bit more decentralized, says Levinson, you’d expect innovative concepts like enterprising transport to reach the fore. (‘It’s the ‘laboratories of democracy’ idea,’ he says.) Then again, given the complexity of the situation, not to mention the general intransigence of the federal government in recent times, it seems quite possible that lawmakers will respond to the urgent need for transport funding reform with no reform at all.
‘My sense is it’s more likely to fade away than it is be reversed in terms of a great new federal role or be eliminated entirely,’ says Levinson.’ The status quo policy is to leave the gas tax where it is, and it will slowly diminish over time until it becomes almost an irrelevancy. If I had to predict what I think will happen over the next 20 years, I think that’s the most likely outcome.'”
“Two favorites in my mind come from transport scholar David Levinson, who suggests road fees for general road pricing (and peak road fees for road pricing aimed at heavy congestion), and urban planner Laurence Lui, who recommends road fares. What’s nice about road fare is that it parallels mass transit, has an intuitive purpose, and offers flexibility. You can alter it to suit a specific situation — peak road fare, midtown road fare, etc. — without obscuring the basic meaning.”
The term “fare” definitely has a public transit connotation, its definition is: “The price of conveyance or passage in a bus, train, airplane, or other vehicle.”
The etymology is more general though:
fare (n.)
Old English fær “journey, road, passage, expedition,” strong neuter of faran “to journey” (see fare (v.)); merged with faru “journey, expedition, companions, baggage,” strong fem. of faran. Original sense is obsolete, except in compounds (wayfarer, sea-faring, etc.) Meaning “food provided” is c.1200; that of “conveyance” appears in Scottish early 15c. and led to sense of “payment for passage” (1510s).
fee (n.)
late 13c., from Old French fieu, fief “fief, possession, holding, domain; feudal duties, payment,” from Medieval Latin feodum “land or other property whose use is granted in return for service,” widely said to be from Frankish *fehu-od “payment-estate,” or a similar Germanic compound, in which the first element is cognate with Old English feoh “money, movable property, cattle” (also German Vieh “cattle,” Gothic faihu “money, fortune”), from PIE *peku- “cattle” (cf. Sanskrit pasu, Lithuanian pekus “cattle;” Latin pecu “cattle,” pecunia “money, property”); second element similar to Old English ead “wealth.”
OED rejects this, and suggests a simple adaptation of Germanic fehu, leaving the Medieval Latin -d- unexplained. Sense of “payment for services” first recorded late 14c. Fee-simple is “absolute ownership,” as opposed to fee-tail “entailed ownership,” inheritance limited to some particular class of heirs (second element from Old French taillir “to cut, to limit”).
I could go either way, but I think “fee” is better established and more likely to be adopted.
First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.
But now Rohit Aggarwala of Bloomberg Philanthropies has called for a more radical approach, which might garner bipartisan support while forcing believers in competitive federalism to ‘put up or shut up.’ The proposal closely resembles an idea floated by Christopher Papagianis, my erstwhile Economics 21 colleague. Aggarwalla calls for abolition of the federal gasonline tax and the devolution of responsibility over surface transportation to state governments:
Getting rid of the tax would force a serious discussion in each state about how, and how much, to fund roads and transit. States could choose to reimpose the same tax, or they could set a different rate based on their desired level of transportation spending. They could choose to raise other kinds of revenue to pay for roads and transit — such as sales taxes, property taxes, local taxes or tolls. Or they could simply reduce their transportation spending. “
I have been thinking about this for a while.
In the wake of MAP-21, it is worth reflecting on “Why is there a federal role?” In short the argument against are that the system exists, most is traffic local, and the states are perfectly capable of managing and preserving the system, since they already do. All they need to do is raise their gas tax by the amount the federal tax is reduced, and they are no worse off (assuming all federal transportation funds come from the Highway Trust Fund, which is less true than it used to be.
The federal role could be reduced to research (which might look self-serving as I am a researcher, but I support a federal role for this outside my field as well, since research is a public good with positive externalities), and safety regulations.
One argument against the Aggarwala position is that it is needlessly cumbersome to to fight 50 gas tax fights in 50 states, there is a strong convenience of existing revenue source, and this greatly reduces political transaction costs, since it is the status quo.
A second argument against is that we essentially need to rebuild the Interstate in place, and this recapitalization is a national need, just as the initial construction was, justifying a national funding source. We would not want one state to let its existing Interstates devolve to rubble due to poverty, even if it mostly hurt them. I don’t think that would happen (at least not at a large scale), but clearly different states would have different investment levels without the federal minimum funds.
I suggested in Enterprising Roads that state DOTs be transformed to be more like public utility than a branch of government.
Norton (in Fighting Traffic) defines ” a public utility was not just an enterprise ‘of real public importance,’ but also one in which competition was unfeasible.” That seems to be an accurate representation of most roads in the US. We could argue about long distance roads being competitive, but there are large network economies at the local level, and while we could think about what might happen with atomistic competition (a really neat idea), it is not practical implementability in the short run.
We don’t have or need federal funding of the backbone public utility electric grid (though there is regulation, and I am sure some subsidies somewhere), and seem to do ok, surely roads are similar. However, in the absence of that public utility transformation and movement to fuller understanding of direct user fees as the best funding source, avoiding 50 political battles and relying on the status quo funding (which is also an indirect user fee) for a few more years, and directing that existing funding, seems to me a good second-best solution, better than immediate complete devolution. Of course, one could argue that devolution might help force the transformation, so this is not obvious.
Looking for rationales for the highway program I stumbled on the following. In part this falls under the category: We have learned nothing in 30 (60) ((90)) years. The following paper could easily have been written today.
Gomez-Ibañez, Jose, (1985) Chapter 7 “The Federal Role in Urban Transportation” in
Quigley, John M., and Daniel L. Rubinfeld, editors American Domestic Priorities: An Economic Appraisal. Berkeley: University of California Press.
The Rationale for Federal Aid
Whatever the appropriate level of urban highway investment, one key issue is why the federal government should be so heavily involved. Since 70 percent of the United States population lives in urban areas, the majority of the country clearly has a strong interest in urban highways. At least in theory, however, our federal system reserves powers and responsibilities to state and local governments unless some compelling and distinct national interest is involved. This devolution of responsibilities is based both on democratic ideals and the pragmatic argument that those who are closest to a problem often know best how to solve it.
The principal rationale for federal highway aid programs has been the national interest in an intercity transportation system that serves long-distance or interstate as well as local traffic. When federal highway aid began in 1916, the road system was largely unpaved and road construction and maintenance were the responsibility of county governments. The counties were notorious for their failure to cooperate in improving roads that served more than one county, perhaps because their dependence on property tax revenues made it difficult to finance improvements that served more than local needs. An interconnected road system would benefit all, it was argued, by promoting interstate commerce and reducing the social and political isolation of rural communities. The federal government gave highway aid directly to state governments, on the theory that states would have more interest than counties in promoting an intercity highway system.[18]
While federal intervention may have been needed to promote an interconnected highway system seventy years ago, it may be unnecessary today. Thanks in part to early federal aid, each state now finances and administers its own system of trunk highways, leaving county and city governments responsible mainly for local or secondary roads. Federal aid may not be necessary even to induce states to build a coordinated interstate highway system. In the decade before the Interstate System was funded,
for example, many Eastern and Central states cooperated in the construction of an interconnected system of limited-access toll expressways that allowed motorists to travel between New York and Chicago or Boston and Albany without ever having to stop for an intersection or traffic light. Toll financing had eliminated the problem of using local taxes to support interstate travel and by 1956, when Interstate funding ended the boom, around 12,000 miles of toll expressways had been built, started, authorized, or projected.[19]
To the extent that there is a distinct national interest in the highway system, it applies more clearly to roads that primarily serve long-distance and interstate rather than local travelers. Although Interstate System planners rationalized the inclusion of urban segments on the grounds that interstate traffic often originates or terminates in urban areas, urban expressways probably have a limited claim to federal aid, since their design is largely dictated by peak-hour local commuting traffic.
Perhaps the strongest argument for a federal role is in the areas of highway research and demonstration projects. Research on pavement durability, highway planning techniques, and highway safety measures is of potential benefit to all states. Since no single state captures all the benefits, there is little incentive for a state to fund research alone. The federal government, however, can consider the benefits to all states in designing its research program.
He also wrote a section on Mass Transit
The Federal Rationale
The rationale for federal involvement in urban mass transit shares many of the weaknesses of the rationale for federal aid to urban highways. The argument most often cited in the early 1960s debates over the initial federal capital grant program was the need to counterbalance federal highway aid. The federal and state highway trust funds, all financed with dedicated gasoline taxes, were thought to have induced state and local governments to channel too much capital spending into highways and too little into mass transit. Transit had declined because of undercapitalization, the argument continued, and federal transit aid was needed to correct the imbalance.[47]
The failure of the transit investments of the 1970s to increase ridership significantly suggests that undercapitalization was probably not a major cause of the decline of mass transit patronage. Rising real household incomes, suburbanization of jobs and residences, and other demographic trends probably played more important roles in the postwar patronage losses. Even if local governments had seriously over-invested in highways and underinvested in transit, a massive new transit aid program may not have been the correct answer. By subsidizing both the highway and transit modes the federal government might reduce the balance between transit and highways only at the risk of overcapitalizing transportation in general. Reducing or eliminating the federal highway aid program might have encouraged more balanced spending on all forms of transportation.
Notes
18. Gifford, “The Federal Role in Roads”; Burch, Highway Revenue and Expenditure continue
Policy ; and John B. Rae, The Car and the Road in American Life (Cambridge, Mass.: MIT, 1972).
19. Rae, The Car and the Road , pp. 173-82.
47. For examples of this argument see Lyle C. Fitch and Associates, Transportation and Public Policy (San Francisco, Calif.: Chandler, 1964); Thomas E. Lisco, “Mass Transportation: Cinderella in Our Cities,” The Public Interest no. 18 (1970): 52-74. The contrast between the overcapitalization and the demographic hypotheses was shown most clearly in George W. Hilton, “The Urban Mass Transportation Assistance Program,” pp. 131-44 in Perspectives on Federal Transportation Policy , ed. James C. Miller, III (Washington, D.C.: American Enterprise Institute, 1975); and George W. Hilton, Federal Transit Subsidies (Washington, D.C.: American Enterprise Institute, 1974).
Most roads in the United States are owned and managed directly by government, with funding for construction and maintenance derived primarily from taxes on gas. For many decades, this system worked well enough, despite widespread problems with congestion and road quality. Recently, however, rising maintenance costs and falling fuel tax receipts have begun to call into question the sustainability of this model.
At their current levels, gas taxes will not provide the revenue needed to maintain America’s roads satisfactorily, let alone to rejuvenate and extend the network where necessary. Yet, direct political management hinders the development of new revenue streams, leads to operational inefficiencies and hampers innovation. Put simply, the organizations that built the U.S. highway networks are no longer suited to running them.
A better approach is urgently needed. Ideally, the organizations that manage roads should be able to finance road construction and maintenance through the sale of bonds, without requiring direct consent from higher political authorities. And they should be able to cover the costs of those bonds by charging for road use. More generally, they need to be capable, energetic, ingenious and ready to act. And for all those reasons, they need greater autonomy.
This paper argues that roads should be managed by independent enterprises, with a clear mission of providing service to customers. One way to achieve this, while maintaining overarching political control—and thereby prevent abuses of monopoly power—is to convert existing government operated road management organizations (such as the state Departments of Transportation) into regulated public utilities.
Within such a framework, a wide variety of ownership structures are possible, ranging from municipal- or state-ownership to mutual- and investor-ownership. Each structure has its own set of advantages and disadvantages, but all are superior to the existing system in one crucial respect: they clearly orient the road enterprise away from day-to-day politics and toward providing value to their users.
The regulated public utility model is already well-established in other important sectors in the U.S., including water, energy and telecommunications. Indeed, around 10% of wastewater utilities, 20% of water utilities, most pipelines, electric utilities, natural gas utilities, and virtually all telecom and cable utilities are investor-owned.
Internationally, the regulated public utility model is already operating successfully in transportation. The New Zealand Transport Agency, for example, has an independent board of directors who appoint the CEO, and works in accordance with a performance agreement negotiated with the New Zealand Ministry of Transport. Management is separated from governance, and service delivery is separated from policy. New Zealand’s approach has delivered large efficiency gains without compromising service levels.
Australia’s state road enterprises, meanwhile, demonstrate the benefits commercialization could bring to state Departments of Transportation in the U.S. By contrast with their American equivalents, Australian road enterprises—like New South Wales’s Roads and Traffic Authority or Victoria’s VicRoads—are innovative and highly business-like.
The United States should follow Australia and New Zealand’s lead, and transform its state Departments of Transportation (or the highways divisions thereof) into separate, publicly regulated, self-financing corporate entities. Full-cost accounting—as already performed by Arizona’s Department of Transportation—constitutes a necessary first step in this direction. In making the transition, policymakers should strive to impose regulation only where absolutely necessary, to minimize the anti-competitive effects of any such regulation, and to leave social objectives to the government, thereby freeing road enterprises to focus on economic ones. Accordingly, road enterprises should be permitted to pursue cost-effective contracting and public private-partnerships as they see fit.
The new road enterprises should also be given latitude to make greater use of user fees—as opposed to general revenue—for funding their activities. Such charges are not just more efficient and equitable than traditional funding sources; if properly designed and implemented, they are also better suited to reducing congestion through effective pricing. Vehicle-miles-traveled charges, weight-distance charges and electronic tolling are all options that road enterprises should be free to pursue.
There is no single formula for success. Road enterprises will learn by doing, and by trialing alternate strategies. The U.S. has 50 separate laboratories of democracy in which road enterprises and state authorities can experiment to find out what works and what doesn’t. There will be successes and failures along the way: successes will be replicated; failures will be eradicated. It is only by establishing a learning process like this that innovative progress in surface transportation can be made.
Drew Kerr of Finance and Commerce describes the new changes that are occurring in the Federal Transit Funding process in his article Funding changes may speed transit projects, which is found, unfortunately, behind a paywall. I get quoted:
David Levinson, a transportation engineer with the University of Minnesota’s Center for Transportation Studies, said studying alternatives is valuable but that preferred outcomes aren’t typically impacted by such studies.
“If you already know what you’re going to do, than the analysis is needless and there really is no point in doing it,” he said.
I am not integrally involved this process (fortunately), I only know what I read in the papers (and on blogs)). A key point to me seemed to be that they made it optional to consider alternative modes (e.g. LRT vs. BRT). Benefit/Cost Analysis is not required (nor was it before).
Travel time improvements would still be considered in that time savings would drive the number of passengers using the line. Similarly for quality improvements in principle.
Some debate on this is at the Wall Street Journal and Reconnecting America.
The rule itself is quite long, the press release is readable. The key points below, my comments in italics.
FTA is adopting a simpler, more straightforward approach for measuring a proposed project’s cost-effectiveness. FTA will no longer require communities to compare a proposed project’s travel time savings against a hypothetical alternative project. Instead, FTA will look at the estimated cost to construct the project communities intend to build compared against a rigorously analyzed estimate for the number of passengers the project will serve. It looks like they are using cost-per-trip as their metric, but of course, not all trips are equal, and this new rule would seem to favor projects serving more short trips rather than fewer long trips (not necessarily a bad thing, but a thing).
FTA is expanding the range of environmental benefits used to evaluate proposed projects. In addition to taking into account the Environmental Protection Agency’s regional air quality designations, FTA will also look at the dollar value of the anticipated benefits to human health, energy use, air quality (such as changes in total greenhouse gas emissions and other pollutants) and safety (such as reductions in accidents and fatalities). This seems a good thing
FTA is adding new economic development factors to its ratings process. FTA currently looks at local plans and policies already in place to encourage economic development and how well they’re working in a given area. Going forward, a broader set of economic impacts will be included, such as whether local plans and policies maintain or increase affordable housing. I am in general skeptical of our ability to accurately measure, much less forecast, economic development benefits . I do not understand why the decisions of non-transportation agencies (like affordable housing programs) have any bearing on whether to construct a mobility improvement whose main effect if any will be to locally increase the price of land (as accessibility benefits are captured by real estate). I am sure this has to do with the administration’s Livability Initiative. However the point should be riders.
FTA is streamlining the project evaluation process by reducing regulations and red tape. FTA will allow project sponsors to forgo a detailed analysis of benefits that are unnecessary to justify a project. For example, projects that receive a sufficient rating on benefits calculations will not be required to do an analysis to forecast benefits out to some future year. Similarly, FTA is developing methods that can be used to estimate benefits using simple approaches. Reducing regulations that were designed to mimic an idealized rational planning process but in the end were just make-work for agency staff and consultants in politically driven processes will save money, but is a defeat for rationalism.
The rule appears to weight all objectives equally, so cost-effectiveness is only one of several criteria here. Another point, assuming FTA objectively applies its rules (i.e. there is no political interference), then this ranking may produce different outcomes than the old ranking system. Projects “on the bubble” before, might not make it here, and near misses before might make it with this system.
Nevertheless, the whole system is still affected by federal subsidies for capital (not operating) costs, pushing local governments to capital intensive projects. See Chen, Wenling (2007) Analysis of Rail Transit Project Selection Bias With an Incentive ApproachPlanning Theory March 2007 vol. 6 no. 1 69-94.
There is also not a good rationale for federal funding in the first place, since the projects are each individually locally geared (there won’t be much interstate travel on the Central Corridor LRT, e.g.), but federalism is a much larger topic, and given the game, the policy change is probably an improvement.
David Levinson, Transportist 
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