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MnDOT launches 'Get Connected' website

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MnDOT has launched a new website, "Get Connected," to help let Minnesota citizens know how and why the agency provides state transportation projects, programs, and services.

The website includes video clips and interactive features that provide answers to commonly asked questions such as: Where does the money come from?; Where does the money go?; What are the agency’s goals?; What progress is MnDOT making toward these goals?; and How are projects selected? 

Check it out at http://www.dot.state.mn.us/getconnected/.
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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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Photo: SRF Consulting Group, Inc.

There’s broad agreement that the U.S. transportation system cannot continue to be funded with existing financing and revenue-generation methods. What’s unclear, however, is how to pay for highway projects in the future. The current transportation funding system emphasizes user fees, but there is growing interest in alternative funding strategies. One promising strategy is value capture, which aims to recover the value of benefits received by property owners and developers as a result of infrastructure improvements.

In recent years, University of Minnesota researchers have helped lead the way in value capture research with a series of reports identifying value capture strategies. In a newly published study, the research team applied their previous work to a real-world scenario, with impressive results.

The new research, sponsored by the Minnesota Department of Transportation, focused on the planned development of Trunk Highway 610 (TH 610) in Maple Grove, Minnesota—a stretch of planned state highway delayed for years by state transportation funding shortages. Researchers set out to discover how the value of the enhanced accessibility provided by the planned improvements could be predicted and captured to help fund the project’s completion.

To accomplish their goal, researchers first defined a study area of about 10 square miles surrounding the unfinished highway segment. Then, they modeled property values based on five factors using parcel-level data. This model was designed to isolate the so-called “highway premium” by controlling for other factors that affect land value including water views, open space, railroads, transit stops, and existing highway exits. Using this model, researchers found significant evidence that the completion of the highway could lead to an over $17 million increase in property value.

Researchers expect these findings to have significant benefits for the TH 610 project and beyond.

Read the full article in the March issue of Catalyst.

Fuel taxes: a competitive advantage for Minnesota's economy

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By Kevin McCarthy

Currently the topic of roads and infrastructure is being scrutinized more than ever. MnDOT has just released their 20-year Minnesota State Highway Investment Plan, known as MnSHIP. According to the Star Tribune, the plan calls for $30 billion in spending over the next 20 years, but estimates funding of only $18 billion, a shortfall of $12 billion, or about $600 million a year. While most of us think about how congestion and roads affect our daily commute, I think it’s important to also understand how they affect our competitiveness. Simply put, the more expensive it is to move product in or out of a manufacturing facility, the less competitive that facility is. When a facility is less competitive, there are fewer jobs, which can in turn reduce our growth as a state. So do we have a real need to invest in roads?

First, it may help to understand just how much of what we consume moves on roads. In 2012, according to a federal report, 73% of all goods moved by value and 70% by weight were moved by truck. This number has held relatively constant over the years and is similar to the numbers that the Council of Supply Chain Management Professionals (CSCMP) has put out in its annual state of logistics report for the last 20 years. Not only is trucking the dominant way goods are moved, but with 84.9% of all truck movements traveling less than 500 miles, road quality becomes an inherently local and regional problem. So clearly roads do and will play a significant role in the movement of goods.

How does our spending compare with the rest of the world?

The Economist reported that the U.S. spends 2.4% of GDP on transportation. This compares to Europe’s investment of 5% and China's investment of 9% of GDP. Our current level of funding for transportation infrastructure is significantly below its peak of 5% in the early 1960s. If we wish to continue to have the transportation infrastructure we need to stay competitive in a world market, we must address our inability to fund transportation infrastructure. This lack of funding is directly related to the lack of growth in user fees—most notably, the federal fuel tax, which has not changed in 20 years. In Minnesota, we have increased our user fees, but not at a rate that keeps up with inflation. But why user fees? Why not just pay for infrastructure out of the general tax base? There are several reasons:

  • Using the general tax base is likely not fair. It could force competitors of trucking companies to invest in infrastructure that would make them less competitive.
  • If you don’t use it, you don’t pay for it. Unlike a general tax, you can avoid paying a user fee by simply not using the roads.
  •  It could discourage road use. That’s right. By making road use more expensive, it gives shippers an incentive to be more efficient in their movement of goods. It could also discourage personal travel and make mass transit a more viable option.
  • It’s green. The better the mileage a vehicle gets, the less tax you pay.
  • It’s extremely efficient.
  • It’s acceptable to the business community and to the trucking community. When was the last time you heard the Chamber of Commerce suggest that increasing a tax or user fee was a good thing?

Want to learn more about how fuel taxes work? I’d suggest checking out the Institute on Taxation and Economic Policy. Want to learn more about our transportation infrastructure needs? Visit the U. S. Chamber of Commerce’s site on the transportation performance index.

Kevin McCarthy is Director of Consulting Services at C.H. Robinson, and a member of the CTS Executive Committee.

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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.

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Minnesota's transportation officials agree that counties in the state face declining resources, rising expenses, and deferred maintenance when it comes to road systems. There is often a discrepancy in the understanding of who road users are and what they want and need from their road system. The public, however, is typically unaware of these challenges—and therefore not engaged in the necessary decision-making process surrounding local road funding and service levels.

To help overcome this communication barrier, the Minnesota Local Road Research Board enlisted U of M Humphrey School of Public Affairs assistant professor Kathryn Quick to help officials develop a better understanding of knowledge gaps surrounding local transportation funding.

Quick and her research team developed a presentation to explain the complex nature of the road funding problem to a general audience. The presentation outlined the history of road funding challenges, the nature of the problem, and options for addressing budgetary issues, among others. The research team traveled to three Minnesota counties to present the findings in a series of community meetings.

According to Quick, the process generated interesting and promising results. County transportation officials gained a better understanding of what options stakeholders would and would not be willing to support. In addition, there was overwhelming agreement that doing nothing was highly undesirable.

In the future, the research team hopes to complete similar public meetings in additional Minnesota communities. For now, local road officials are looking for an immediate way to engage the public in their decision-making process by using the presentation developed by the research team.

Read the full article in the November issue of Catalyst.

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E-mail: cts@umn.edu

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