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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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Capacity—too much of it, or too little—is a top concern in the freight industry, according to speakers at the 17th Annual Freight and Logistics Symposium in December.

In the keynote presentation, Rosalyn Wilson, senior 
business analyst with Delcan Corporation, said both ocean and air cargo have too much capacity. Throughout the recent recession, ocean carriers continued to order and float new megaships, creating problems with overcapacity and low pricing, thus raising solvency concerns and uncertainty for shippers.

On the air cargo side, 
overcapacity is due in part from
 airline passengers choosing to carry on their luggage rather than pay to have it checked. As a result, the cargo holds of passenger planes have extra space for premium air cargo— which is estimated to have about a 65 percent profit margin for passenger airlines, she noted.

On the flip side, trucking, which is the largest component of the supply chain industry, has operated at 95 to 97 percent capacity for the past three years. Wilson believes this capacity crunch will create major problems for the industry by 2016 and 2017.

Other speakers also noted capacity issues—whether a shortage of drivers or an abundance of data. Chip Smith, CEO of Bay and Bay Transportation, said a major issue is the ability to find and keep enough qualified drivers.

Jason Craig, government affairs manager with C.H. Robinson, said a particular challenge his firm faces is what to do with the massive amount of data available in the supply chain—and how to get more out of it.

Cargill’s Randy Brown, vice president of transportation and logistics, said Cargill is rolling out an improved global analytics capability to make use of its data.

Summaries of the presentations are in the symposium proceedings, available on the event web page.

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There’s no dispute that an adequate transportation system is necessary for economic development. What’s unclear, however, is how transportation innovations in fields such as technology and finance can drive growth. Gaining a better understanding of such innovations and their impacts is the purpose of the new Transportation Policy and Economic Competitiveness (TPEC) Program at the University of Minnesota.

The five-year program, managed by the State and Local Policy Program (SLPP) at the Humphrey School of Public Affairs, will seek to further define and promote the relationship between transportation and economic development in Minnesota and the region. The program was established in response to a directive from the Minnesota Legislature in its 2013 session; the Minnesota Department of Transportation (MnDOT) is providing funding.

“Minnesota needs this research to better understand how transportation contributes to economic competitiveness,” says Rep. Frank Hornstein, chair of the Minnesota House Transportation Finance Committee.

Rigorous academic research will form the backbone of the program, says Lee Munnich, director of SLPP and TPEC. Research will address three main areas:

  • Innovative transportation finance options
  • Industry clusters
  • Transportation technologies

Research results are intended to help MnDOT and 
its partners engage stakeholders, analyze investments, and approach programming.

In addition to research, the program will undertake other activities producing more rapid results. One task will be compiling data for a Minnesota Transportation Finance Database and updating it each year. Another product will be a white paper about the potential impacts of self-driving vehicle technologies on Minnesota’s economy.

The program will also provide opportunities for students to learn and gain experience. In addition, it will disseminate research results and engage practitioners, other researchers, and the public.

Read the full article in the February issue of Catalyst.

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By R. Richard Geddes and Dimitar N. Nentchev

This post originally appeared online for the American Enterprise Institute.

The United States faces major challenges related to the funding of transportation infrastructure, such as roads, bridges, and tunnels. Revenues from fossil fuel taxes are declining as vehicles become more fuel-efficient and as the purchasing power of fuel tax revenue declines with inflation. Such revenue declines are occurring at the same time that investment needs are rising because of aging infrastructure. Many states and localities are considering new and innovative models to fund and finance their transportation infrastructure. Such models almost invariably include a greater role for the private sector in the form of public-private partnerships (P3s).

Private infrastructure investment is, however, often viewed as providing an alternative financing method given a revenue stream from a transportation facility, rather than as creating new revenue or funding for the facility. This view overlooks the possibility that private investment in the form of upfront lease payments for newly priced roads can be used to enhance the public appeal of adopting that road pricing. Pricing existing roads generates substantial additional revenue from the current road network while adjusting traffic demand to meet market conditions. The approach proposed here uses the value embedded in US infrastructure, which is released through road pricing, to increase the political feasibility of that road pricing.

To accomplish this, we suggest preserving a portion of the wealth generated by road pricing in perpetuity through a permanent fund. This is one type of public trust fund. Permanent funds are currently in use in Alaska, Texas, Norway, and Alberta, Canada, to preserve natural resource wealth.

Following the Alaskan approach, we propose that investment income from the fund be used to provide an annual dividend payment to all households within the newly priced region. We refer to this approach as an investment public-private partnership, or IP3. The IP3 has numerous advantages relative to current proposals to increase citizens’ support for road pricing. It creates a contractual structure to ensure that roads are properly maintained. It ameliorates the agency problem between citizens and their elected representatives that is exacerbated by the free cash flows that road pricing often generates. It also creates direct citizen stakeholdership in transportation infrastructure. Alaska’s experience suggests that this approach can also reduce income inequality, create higher personal income, and mitigate the effects of recessions.

We estimate potential dividends generated by an IP3 approach using data from the Columbus, Ohio, metropolitan area. Assuming full pricing of the Columbus road network, we find that the IP3 approach would generate household dividends similar to those offered by the Alaska Permanent Fund.

This study offers three key insights: 

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.

 

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R. Richard Geddes is an associate professor in the Department of Policy Analysis and Management at Cornell University. His research focuses on public policies surrounding private infrastructure investment. Geddes will be the featured speaker at the 2014 CTS Winter Luncheon on Wednesday, February 12, 2014.

Uncovering manufacturers’ perspectives on the transportation system

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manufacturing.jpgIt’s no secret that manufacturing plays a key role in driving economic growth, or that transportation is essential for the success of any manufacturing operation.

While the relationships among manufacturing, transportation, and economic growth have been studied on a large scale, there is often little dialogue between transportation organizations and the manufacturers themselves.

A recently completed pilot study conducted jointly by the Minnesota Department of Transportation (MnDOT), the University of Minnesota Humphrey School of Public Affairs, and University of Minnesota Extension aims to address this communication gap.

The pilot project focused on 12 counties in southwest Minnesota. The research team began by identifying key industry clusters within the region; industry clusters are driving economic forces that sell outside the local, state, and national market—bringing money into the region and creating jobs in other economically dependent industries such as retail and food service.

Ultimately, more than 172 regional businesses were contacted for participation in this project, and 75 in-person interviews were completed with manufacturers, shippers, and carriers. During the interviews, participants were encouraged to focus their comments on high-value, low-cost improvements that MnDOT can address in the short term without over-promising projects that currently cannot be funded.

Participants identified the need for smooth pavements and wide shoulders, the value of advance warning lights at intersections with traffic signals, the importance of highway safety, and the challenges of maneuvering oversized vehicles through roundabouts, among others.

The research team is compiling the pilot study’s findings into a final report. In the meantime, MnDOT is working to address a number of the challenges and suggestions uncovered through the pilot program.

Read the full article in the December issue of Catalyst.
synthesis_cover_large.jpgLandmark regional investments such as the transit expansion underway in the greater Minneapolis-Saint Paul metropolitan area have the potential to significantly change long-term land-use patterns and travel behavior. They also raise important questions for policymakers and elected officials regarding the potential return on investment.

A new synthesis report from the Transitway Impacts Research Program (TIRP) pulls together seven years of research conducted by University of Minnesota researchers to help answer these questions. The report summarizes the actual and projected impacts of transitways on the Twin Cities region, offering lessons learned to help guide the build-out of the rest of the network most effectively. It concludes with a set of implications for policymakers.

The Twin Cities metro region is in the midst of a transit build-out. The Metro Blue Line (formerly known as Hiawatha), Red Line (Cedar Avenue Bus Rapid Transit), and Northstar Commuter Rail are in operation, and the Green Line (Central Corridor) opens next year. All are part of an expanding regional transit network.

Under the TIRP program, which was launched in 2006, University of Minnesota researchers provide an objective analysis of data, public perceptions, and complex impacts resulting from transitway investments. Their research is unique in its breadth, scope, and ability to provide real-time analysis of the changes experienced when a region introduces high-quality transit service.

"This body of research and objective analysis confirm the many positive ways that expanding our transit network supports economic competitiveness, greater accessibility to jobs, opportunities for populations with low incomes, and enhanced livability for our whole region," says Kate Wolford, president of The McKnight Foundation, the synthesis sponsor. "This report undergirds why the accelerated build-out of our transit system is so important for the future prosperity of our region and its residents."

More information about the synthesis and key findings

Swimming against the congestion current

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By Jason Craig

This blog post originally appeared on the Connect Blog by TMC, a division of C.H. Robinson.

Idling trucks in traffic goes against fuel efficiencies

If we could eavesdrop on the freight industry’s water cooler conversations the chances are that we’d hear a lot about traffic congestion. Transportation managers deal with it and talk about it all the time, yet there is one vital aspect of this topic that they tend to overlook: how trucks idled by traffic snarls work against the fuel efficiencies that the industry is working hard to achieve.

More awareness of this conflict and the associated costs might help to persuade the industry to address infrastructure investment needs that are at the root of these delays.

It is no revelation that trucks sitting in traffic burn diesel needlessly and inflate fuel bills. But the problem goes deeper than that. The industry is rightly proud of the innovative programs being developed to improve fuel efficiency. However, as we take a step forward with leaner vehicles, better load plans, and other fuel saving strategies, traffic congestion tugs us back a step by reducing the number of miles per gallon traveled. In effect, infrastructure deficiencies are driving this zero sum game.

Still unconvinced? Let’s take a look at some figures.

A hypothetical shipper has an annual freight spend of $ 10 million (see below). The company’s fuel costs amount to an estimated 30% of this expenditure or $ 3 million. Diesel is priced at $ 3.90 per gallon, so the organization consumes just over 769,000 gallons of fuel annually. Assuming that the average fuel consumption of a truck is 6 miles per gallon, the shipper clocks 4, 615, 385 miles each year. If we reduce the miles per gallon rate by just one percentage point to account for idle time in traffic, the adjusted mpg is 5.94. The change increases the amount of diesel consumed to slightly over 777,000 gallons, and adds $ 30,303 to Shipper A’s fuel bill.

These figures are for demonstration purposes only, but the fact that a mere one percentage point fall in fuel efficiency translates into a $30,000 cost should ring alarm bells. Fuel is a pass-through cost and represents approximately 30% of total costs (for more on this see Leveling the Surcharge Playing Field post), so real money is disappearing from the bottom line. The charge becomes even more of an eye opener when the same reasoning is applied to a bigger freight operation where traffic-related delays are longer. Moreover, this calculation underestimates the actual cost since items such as the time spent dealing with late shipments and building extra safety stock are not included. Also keep in mind that despite today’s sagging economy, freight volumes are expected to increase over the next decade or so, potentially introducing more congestion on the roads.

We need across-the-board investments in infrastructure to counter this trend, and allow the fuel economies now being introduced to take full effect. But first we need to raise awareness levels, and that requires the industry to come together and communicate to legislators just how urgent the need is for infrastructure investments.

How can we do this?

Transportation practitioners could be more diligent about bringing congestion issues - and particularly the cost of congestion - to the attention of their government affairs professionals. These people may or may not be aware of the implications; they are often more concerned with other matters such as environmental regulation, tax issues, and labor rules. To some extent this is a function of the way freight management has evolved over recent years. As operations are outsourced to third-party providers, there tends to be less internal focus on transportation, particularly in other departments such as government affairs. If you’d like to learn about ways to participate and have your voice heard in Washington, check out C.H. Robinson’s recent blog post, How to Advocate for Your Interests in Washington.

In addition, the freight industry needs to become more engaged in the debate. C. H. Robinson Worldwide is a founding sponsor of the U.S. Chamber of Commerce’s Transportation Performance Index, for example. The index correlates the way infrastructure performs to economic growth.

If the nation’s transportation infrastructure continues to deteriorate, traffic congestion will worsen and supply chain costs will rise further - even as our equipment and supply chain processes becomes more fuel efficient. Stationary trucks is not the only problem; even slowing traffic down racks up additional expense. As Kevin McCarthy argues in his post Why Slow Driving is Not a Viable Route to Lower Fuel Bills, reducing the speed of trucks adds cost in several ways, for instance by reducing vehicle utilization rates.

Let’s emphasize that these costs are not theoretical; companies pay every time a truck becomes ensnared in traffic, and our efforts to improve fuel economy are undermined.

So the next time you are at the water cooler take the traffic congestion conversation to unfamiliar ground and make people aware of the true costs.

- Manager, Government Affairs 

Jason Craig is Manager, Government Affairs, at C.H. Robinson. Jason will be a panelist at CTS' 17th Annual Freight and Logistics Symposium December 6, 2013.


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Imagine replacing the derivatives of crude oil needed to produce conventional asphalt with renewable, cost-competitive, regionally produced, and high-performing materials derived from non-food biomass such as switchgrass, hybrid poplar, or cornstover. The idea portends a whole new world of possibilities and likely could stand the traditional petroleum-based economy on its head.

Researchers at Iowa State University are doing just that, producing bio-oil and bio-char through a process called fast pyrolysis. New bio-oil fractionation technologies also developed at ISU separate the bio-oil into different fractions—some of which appear to be ideal materials for asphalt.

In addition to developing thermoplastic elastomers (polymers) from vegetable oils—which offer many transportation-related applications—ISU researchers are examining and exploring the "bioeconomy," from all phases of the production process to product development and diversification opportunities.

Such collaborative opportunities involving transportation and the bioeconomy were featured during a half-day TERRA Innovation Series event in August at Iowa State University in Ames, Iowa.

A bioeconomy makes use of biorenewable resources, including biomass, for the production of chemicals, fuels, materials, and energy to sustain economic growth and prosperity. Iowa State's bioeconomy research is cross-disciplinary and includes research groups from the areas of agriculture, plant sciences, agricultural engineering, agricultural economics, mechanical engineering, chemical and biological engineering, civil engineering, and numerous others.

Read the full article in the October issue of TERRA E-News.

17-jet.jpgMore than 70 airport staff and others who work with airports across Minnesota attended the annual AirTAP Fall Forum on September 26 and 27. This year’s event, held at the Metropolitan Airports Commission (MAC) offices in Richfield, gave attendees an inside look at the MAC’s operations at Minneapolis-St. Paul International Airport with tours of various airport facilities and a drive around its perimeter.

MSP International is the 13th busiest airfield in North America and operates much like a small city.

 “We’re essentially a public works department,” said Paul Sichko, assistant director for MSP maintenance and airside operations. Sichko led the tour group inside the 16 miles of security fence—reinforced since 9/11 to prevent vehicles from crashing through.

Along the route, the group got a look at how the airport will handle the snow and ice once it arrives: massive snow blowers, numerous deicing pads, and three in-ground snow melters that can liquefy 120 tons of snow per hour, Sichko noted.          

Inside the MAC’s Trades Building, attendees toured the carpentry, signage, painting, electrical, and plumbing operations. On hand were staff who create signage for all seven MAC airports, make and monitor keys for every lock, and paint markings on all airport pavement—including 20 runways and more than 21,000 parking stalls.

A stop at one of the airport’s two fire stations highlighted the vehicles and equipment capable of suppressing aviation jet fuel fires—and occasionally, an oil fire at a local refinery. Most calls for fire department personnel, however, are to the terminal buildings, where they’ve saved numerous passengers, Sichko said.

Back at the MAC administrative facilities, Jeff Hamiel, executive director of the MAC, discussed findings from a recently completely economic impact study of MSP airport conducted by InterVISTAS Consulting. The study found that MSP supports more than 76,000 jobs, $10.1 billion in business revenue, $3 billion in personal income, $1.9 billion in local purchases, and $611 million in state and local taxes, Hamiel noted.          

“The bottom line is we’re contributing to the overall economic stability of the region and the state.”

In 2012, MSP served 33 million passengers and accommodated 425,332 landings and takeoffs, making it 16th in North America for the number of travelers served. The 3.8 million annual domestic visitors spend $1.9 billion when they’re here. “People come to the Twin Cities, they stay in hotels, they buy food, they buy gifts, they spend their dollars, then they go back home again.”

MSP International is ninth among U.S. cities in number of nonstop markets overall; when ranked per capita, it’s fifth, Hamiel said—which is attributable in part to the market’s “phenomenal air service.”          

Hamiel said the findings are relevant beyond MSP International; the state’s smaller airports and the communities they serve thrive “because in part there’s an aviation system that supports the connectivity of the customers and consultants and businesses and so forth—it’s all important to all of us.”

Other conference sessions covered airport emergency planning, minimum operating standards, and MnDOT Aeronautics’ new Capital Improvement Program web interface.

See photos and presentations from the event.

17th annual Freight and Logistics Symposium: The Gravity of Logistics

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Photo courtesy Dave Gonzalez, MnDOT

December 6, 2013
7:30 a.m. - noon
Ramada Plaza, Minneapolis, MN

Join us at the 17th annual Freight and Logistics Symposium to learn about the "gravity" of logistics—the seamless and uninhibited flow of goods from manufacturers and markets toward demand—and how it depends on infrastructure that can support and sustain economic growth.

The event will include a keynote presentation by Rosalyn Wilson, senior business analyst at Delcan Corporation and author of the 24th annual State of Logistics Report® presented by Penske Logistics and published by the Council of Supply Chain Management Professionals. This annual report is widely used by supply chain management professionals as the premier benchmark for logistics activity in the United States.

In addition, public, private, and academic professionals will discuss strategies to maintain the existing transportation infrastructure in Minnesota and the region. They also will discuss private- and public-sector perspectives on successes and challenges to the current supply chain.

To register, please visit the CTS website.


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Center for Transportation Studies

University of Minnesota

200 Transportation & Safety Building

511 Washington Ave SE

Minneapolis, MN 55455

Phone: 612-626-1077

Fax: 612-625-6381

E-mail: cts@umn.edu

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