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Public trust funds could pay for infrastructure, dividend checks

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Funding the nation’s transportation system using a per-gallon fuel tax worked well for decades. Now, however, the system is under severe strain, says Cornell University's Rick Geddes. Policies encourage motorists to drive more efficient vehicles, and people seem to be driving less. The fuel tax is not indexed to inflation, and its purchasing power has declined by about a third. Combined, these factors spell decreasing revenues just as investment needs are rising for our aging infrastructure.

Economists widely agree that switching to a system that charges per unit used—similar to how heat and electricity are paid for—is the best solution. The problem, Geddes says, is that a mileage-based user fee system "currently is a political non-starter." Geddes, a professor of policy analysis, developed a new approach for road pricing that he believes will make it more appealing: an investment public-private partnership (IP3) feeding a public trust fund. Geddes described the approach at the February 12 CTS Winter Luncheon in Minneapolis.

The IP3 generates large, upfront concession payments that monetize asset value through public-private leases. All or part of the concession fee would be paid into a permanent fund—a type of public trust fund—to capitalize it. "If invested wisely, the fund generates a dividend forever to all citizen-owners of the transportation facility," he said. The remainder of the fund could be used to develop road projects and alternatives such as transit.

U.S. interstates have enormous value, and the country's well-known system of property rights and contracting enforcement make the U.S. market extremely appealing for investors.

Geddes said that moving from theory to implementation would involve addressing a number of issues, such as subsidizing less marketable rural roads, sharing revenues across jurisdictions, and determining eligibility for dividends.

Read the full article in the March issue of Catalyst.

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