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August 21, 2009

Input Taxes, Output Taxes and Electric Vehicles.

From ArsTechnica Ford's plug-in hybrids will talk to electrical grid This is for charging the cars at the best time of day (night), but in theory could be extended to a means for charging cars for electricity different than regular electricity, in other words, a mechanism for replacing the gas tax with a different energy input tax.

Fuel (or electricity) taxes are input taxes. Theory suggests it would be better to tax outputs (actual miles traveled, by time of day and location). This would send a more direct signal to consumers about the costs they impose on the system and others. The difficulty is that this may be a much more difficult enterprise from a variety of points-of-view (collection costs, political acceptability, and even technology (GPS shadows etc.). As a second-best, input taxes are not too bad, it is better than a tax totally unrelated to usage, and the 20-30% reduction in collection costs may well make up for any inefficiencies.

August 11, 2009

Shrinking gas tax pot has state looking elsewhere - TwinCities.com

A confusing article on the Value Capture Study in the Pioneer Press. By "usability" I think the article means "utility".

For the actual study, see the
Full Study.

July 9, 2009

New U of M report suggests transportation revenue alternatives

The St. Paul Legal Ledger has a nice article on Value CaptureNew U of M report suggests transportation revenue alternatives

July 1, 2009

Value Capture for Transportation Finance

Our Value Capture for Transportation Finance study is now out.

Detailed reports will be placed online soon.

About the Study

Large public investments in state transportation infrastructure--such as new freeway interchanges, highways, or transit stations--can increase the value of adjacent private land, sometimes substantially. Capturing the value of this benefit through various tools is gaining interest as a finance mechanism for infrastructure investments. But many questions remain: Does "value capture" promote or hinder economic development? How high should the tax rate be? How stable is the revenue?

To answer these and other questions, the state legislature appropriated funding to CTS to study the public policy implications of value capture.

Researchers reviewed the relationship between transportation and land values, including the measurement of benefits from a transportation improvement, as well as the legal and economic frameworks for capturing the value gains. They explored the major financing techniques associated with value capture--such as joint development of infrastructure and adjacent private parcels, rezoning and reselling, impact fees, special assessment districts, and tax increment financing--and some examples of their implementation. They then evaluated several of the proposed policies and their suitability for implementation locally, based on the criteria of economic efficiency, social equity, adequacy as a revenue source, and feasibility.

June 26, 2009

Comments on Long-Range Funding Solutions Symposium

On June 24th, MnDOT held a "Long-Range Funding Solutions Symposium" to examine issues associated with the long-term funding of transportation. I was asked to be a discussant. These are my comments in extended form.

Thank you for giving me the opportunity to discuss the topics raised today.

First, MnDOT has identified $50 Billion of unfunded "needs" for additional resources of which 86% are for the purpose of "mobility" over the next 20 years. I am not clear as to how these needs were identified, but several points should be kept in mind. First, this is a slow-growing region (and outside the Metro a declining state). It has 5 million people now, and at best is growing at about 1 percent per year. Second, per-capita Vehicle Miles Traveled has been flat for almost a decade, and overall VMT growth has been flat for about half a decade. There are several reasons for this, most recently recession and high gas prices, but I think the most important is market saturation. if speeds are not growing (because we have maxed out the network given current technologies and face diminishing marginal returns to new road construction), and people have finite time, they choose not to devote additional time to travel (and thus distance). Fortunately, since the I-35W Bridge Collapse, MnDOT has adopted a "fix it first" approach, so that system preservation, operations, and maintenance get the largest share of the existing budget, and comprise the first funded element of needs.

We cannot know what "needs" for mobility are if we have an unpriced (or underpriced) transportation system. People will always over-consume if they are subsidized, and people do not presently pay for the congestion externality they impose on others. Once we have something like marginal cost pricing (or a second-best version thereof), we can determine which links generate more revenue than they cost to operate and maintain, and that will signal where capacity should be added, where the benefits of added capacity outweigh the costs.

Another way of thinking about what $50 billion means is that Minnesota is a state of 5 million people, so that amounts to $10000 of new construction for each resident of Minnesota (because this is above and beyond the funded part which takes care of preservation (we hope)). Over 20 years, $10000 per capita is $500 per year, or about $0.50 per trip. But that $0.50 per trip is not to pay for existing infrastructure, that is to pay for new infrastructure those travelers may or may not use; or if we were to charge users, we would be looking at 10 to 100 times as much per trip, as the new capacity built for $50 billion will serve only 10% to 1% of trips, most trips will continue to use pre-existing infrastructure.

We could also talk about mobility vs. accessibility, and why is it important to enhance mobility, but that is another long discussion, and the reader is referred to the Access to Destinations study for details.

Attention is a scarce resource, spending time on non-starters like $50 Billion in "mobility" needs detracts from real problems with existing infrastructure.

In short, the $50 Billion suggested comprises Wants not Needs. (as Jim Erkel calls it the Rolling Stones theory of transportation finance ... You can't always get what you want, but you get what you need).

Second, we need to re-examine the institutional structure of transportation funding and administration. We should consider a public utility model where a transportation authority or utility with independence from the legislation and executive branch of government determines how much is required to maintain (and as necessary expand) the transportation system, with oversight from a Public Utility Commission or similar. This would resemble how Natural Gas and Electricity and Water and Sewer in many places are currently delivered. Like those, transportation is a utility that has costs that users should bear as directly as possible. The user fee notion would be embedded into the governance structure of such a transportation authority. The British might call this a Transportation Trust. We could consider how this is organized at different levels of government (keeping state and local separate or bringing them together?)

Third, Value Capture has not been fairly characterized in the presentation made today. If we do not have road user fees, transportation creates value for land-owners. (If we do have marginal cost user fees, a closed system, and invest the revenue in transportation, making some simplifying assumptions, we would not have additional land value associated with investment (in the absence of agglomeration economies)). Since we do not have road user fees, value is created. Several of the methods proposed by the value capture study hold promise for financing transportation systematically, not just at the project level.

Fourth, in the short-term (next decade or so), gas taxes, indexed and adjusted appropriately should be used to fund transportation, as they are administratively much more efficient than road user charges. They have several advantages: foremost they are cheaper to collect than most of the proposed VMT charges. An annual odometer reading is certainly a similar alternative, but that does not have the environmental benefits of discouraging motor fuel consumption and encouraging better mileage. Ultimately as the fleet becomes electrified, the gas tax becomes a better and better incentive to move in that direction. If today 100% of the drivers use gas and pay for 100% of roads (which I recognize is not strictly the case at the state level, but is simply illustrative), and next year only 50% of drivers used gasoline, the remaining 50% would pay for all of the roads by doubling the gas tax. That provides a somewhat stronger incentive to switch to electricity. If the following year another 25% switch to electricity, than 75% use electric and 25% use fuel and pay the motor fuel tax, which is now 4 times as high. Eventually this becomes unsustainable as the last drive of a gasoline-powered car could not possibly afford 100% of the road system's costs, but in the meantime the incentive works in the right direction for the environment, and since government is always a lagging indicator, retaining the gas tax for as long as tenable should be considered the near term solution, with continuing research into road pricing, additional demonstration, and deployment of select strategies like High Occupancy Toll lanes. See Beyond the gas tax for a further discussion.


At any rate, as I have learned today, in Minnesota transit funding depends on the Motor Vehicle Sales Tax, so I will do my part to help fund transit and buy a car.

June 19, 2009

Transportation and Infrastructure Committee

Details on the Oberstar et al. Transportation Bill

June 18, 2009

Oberstar set to lay out vision for transportation

From Strib: Oberstar set to lay out vision for transportation

"The Minnesota lawmaker will propose a streamlined system for the "post-interstate era," but it's not clear how it will be funded."

October 30, 2008

Infrastructure as stimulus

From the Strib: Oberstar looks to job-creating infrastructure projects

"Last month, the House passed a $60 billion stimulus package, half of which was for transportation and infrastructure projects. It offered $12.8 billion to the states, including $208 million for Minnesota. But the measure stalled in the Senate when President Bush indicated he would veto it.

House Speaker Nancy Pelosi, D-Calif., now wants to more than double the spending to as much as $150 billion."

"A study by the Federal Highway Administration estimated that for every $1 billion spent on transportation projects, 34,799 direct and indirect jobs are created.

Minnesota currently has $218 million construction-ready projects awaiting federal funds, according to a recent survey from the American Association of State and Highway Transportation Officials. Applying the FHA's formula, that would bring 7,586 new jobs to the state, Schadl said."

(1) Minnesota does not have enough ready projects. Our population says we should get 1.67% of the national budget, but with only $218 million available to spend in Minnesota out of $30 Billion on offer, we are getting less than 0.75% of total disbursements. Minnesota did not learn the lessons of Robert Moses, the New York Power Broker who always had engineered projects queued up waiting for construction money available.

(2) Repeat three times: Jobs are a cost. Jobs are a cost. Jobs are a cost. If one company came to do a project at your house and said it would cost $100,000 and employ 10 people and another said it would cost $50,000 and employ 5 people, you would do the latter. I want the government to do that as well for my tax dollars. I want to maximize benefits per unit cost. If by doing so, we employ some people, that is a nice side-benefit; but if we deviate from that and do projects solely to employ people, we will be wasting money which in the long run will shrink the economy. Surely there are efficient ways to spend money, which will have a stimulatory effect.

(3) Are these projects really beneficial or are they like the famous Japanese make-work projects with 5 supervisors for every worker? One of my favorite pictures is that of the Boonsboro Pike, the first Macadam Road in the US, with five workers lounging for the three actually doing work:

Boonsboro Pike

October 14, 2008

U.S. Is Investing $250 Billion in Banks

From the NY Times: U.S. Is Investing $250 Billion in Banks

“These measures are not intended to take over the free market,? he said, but to safeguard it.

Eerily mimics the famous line from Vietnam: "We had to destroy Ben Tre in order to save it".

Question: Does this increase or decrease the likelihood of infrastructure privatization?

1) Decrease: the Borg must assimilate all private assets

2) Increase: the Borg must sell off infrastructure/land/other assets to pay for its banks. The "golden share" strategy will grease the wheel of privatization.

September 23, 2008

International Transport Economics Conference, June 15-16, 2009

International Transport Economics Conference
Incorporating the International Conference on Funding Transport
Infrastructure

The International Transport Economics Conference (ITrEC) brings
together researchers, practitioners, and policymakers interested in
questions of transport economics. Topics include economic questions
relating to revenue and finance; congestion, pricing, and investment;
production function and cost estimation; transport demand; energy and
environment; safety; institutions and industrial organization; and
transport and land use. The conference is designed to appeal to
participants from varied backgrounds, including economists and
transport professionals in particular.

The conference has previously been held in Banff, Canada(2006);
Leuven, Belgium (2007); and Paris, France (2008).

Submission of Abstracts

Abstracts will be categorized and ranked by peer reviewers.
Theoretical, empirical, case-study, and policy-oriented contributions
are welcome. Abstracts of up to 1,000 words must be submitted
electronically atwww.transporteconomics.org by November 21, 2008 for
consideration.


Key Dates

Abstracts Due: November 21, 2008
Abstracts Selected and Submitters Notified: January 2009
Final Papers Due (subject to acceptance): April 3, 2009
Early Registration Deadline: May 15, 2009
Conference: June 15-16, 2009
More Information

David Levinson
RP Braun/CTS Chair in Transportation
University of Minnesota
dlevinson@umn.edu

Sara Van Essendelft
Conference Coordinator
University of Minnesota
612-624-3708
cceconf5@umn.edu

The conference is hosted by the Center for Transportation Studies at
the University of Minnesota.

August 27, 2008

The Privatization of Public Infrastructure

Article in NYT: Running Out of Money, Cities Are Debating the Privatization of Public Infrastructure

"Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest — much of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas."

This is like what This American Life called "The Giant Pool of Money" which was chasing mortgages a few years ago (and dotcoms before that).

Will we see a similar bubble in infrastructure financing deals gone bad in 5 or 10 years? Was the London Underground Metronet PPP collapse a harbinger of the future?

Unfortunately the ever-growing Giant Pool of Money seeking steady reward does not have foresight, it just finds a short run equilibrium without being able to see the consequences downstream.

Whether these are governed and regulated as public utilities, or unfettered monopolists will make a large difference on their political success as well.

Infrastructure is slow to build and slower to change, it is important to get the investments right. The private sector will want to offload risk and guarantee profit, which is at odds with the public good. The experience with private ownership of infrastructure is mixed, which does not mean it should not be pursued, but that it should be pursued intelligently learning from experience, especially international experience, where private roads, airports, ports, post offices, passenger rail, and transit systems, along with water and sewer, are far more common than in that bastion of market capitalism the United States.

July 22, 2008

House to Consider $8 Billion Highway Trust Fund Shortfall Remedy

From AASHTO Journal: House to Consider $8 Billion Highway Trust Fund Shortfall Remedy

"The House of Representatives is reportedly prepared to consider legislation Wednesday to transfer $8.017 billion to the Highway Trust Fund to offset a projected shortfall in Fiscal Year 2009.

Sources indicate that the House leadership plans to expedite the bill, introduced last Thursday, to a floor vote using a procedure known as suspension of the rules. Under such a maneuver, the bill can bypass a committee hearing and gain House passage if at least two-thirds of representatives vote "yes." The procedure is commonly used in the House to pass noncontroversial legislation."

July 10, 2008

UK imposes higher vehicle excise duty on polluting cars

From BBC: Road tax increase 'will hit 9.4m'

In the UK, where they are serious about carbon and taxing cars, "An estimated 9.4 million motorists will have to pay more road tax under reforms aimed at punishing "gas-guzzling" vehicles, the government has admitted."

Whether this will be retained after Labour is voted out is unclear.

June 17, 2008

ICFTI 3

UPDATED August 27, 2009.

I am leaving today for Paris, where I will be presenting a paper at The 3rd International Conference on Funding Transport Infrastructure. We hope to have the 4th conference in Minnesota next summer.

The paper is:

Levinson, David and Andrew Odlyzko (2008) Too Expensive to Meter: The influence of transaction costs in transportation and communication. Philosophical Transactions of the Royal Society A: Mathematical Physical and Engineering Sciences 366(1872) pp 2033-2046 [doi]



Abstract. Technology appears to be making fine-scale charging (as in tolls on roads that depend on time of day or even on current and anticipated levels of congestion) increasingly feasible. And such charging appears to be increasingly desirable, as traffic on roads continues to grow, and costs and public opposition limit new construction. Similar incentives towards fine-scale charging also appear to be operating in communications and other areas, such as electricity usage. Standard economic theory supports such measures, and technology is being developed and deployed to implement them. But their spread is not very rapid, and prospects for the future are uncertain. This paper presents a collection of sketches, some from ancient history, some from current developments, that illustrate the costs that charging imposes. Some of those costs are explicit (in terms of the monetary costs to users, and the costs of implementing the charging mechanisms). Others are implicit, such as the time or the mental processing costs of users. These argue that the case for fine-scale charging is not unambiguous, and that in many cases may be inappropriate.

June 15, 2008

Memo to the Next President of the United States on Transportation Policy

I have drafted a Memo to the Next President of the United States on Transportation Policy.

The memo outlines ten visions, which are summarized here, for fuller discussion, see the full memo:

  1. Within eight years more cars sold in the United States will be powered primarily by electricity and bio-fuels than by fossil fuels. All buses and passenger trains will use electricity or bio-fuels.
  2. Within eight years Americans will be able to ride autonomous smart cars that drive themselves in mixed traffic.
  3. Within a year, an independent federally-funded Bridge Inspection Service will begin to inspect and publicly report on the quality of all bridges on the National Highway System.
  4. After thorough evaluation, within eight years, bridges and pavements on the US Interstate Highway System will be upgraded to handle trucks carrying up to 100,000 pounds, increasing the efficiency of the trucking industry and by reducing the number of vehicle trips, increasing safety for other road users. These improvements will be paid for by the trucking industry, which directly benefits from the improved system. In heavily traveled corridors, a system of truck-only toll lanes will be constructed.
  5. Within eight years American travelers can choose to travel congestion-free by car or bus through America's largest metropolitan areas.
  6. Within four years American travelers will enter airports and transit, and train stations and cross borders, passing both security and immigration controls without delay while ensuring security.
  7. Within eight years a new source of transportation revenue based on time and place of use will be deployed, replacing the federal and state gas tax. This funding will support highway and transit networks.
  8. Returning to the vision of Democratic President Andrew Jackson, items in federal transportation legislation that do not serve a national purpose will be vetoed.
  9. Extending the bipartisan efforts of transportation deregulation in the late 1970s and early 1980s, within four years, highway and transit services and infrastructure will begin to be competitively provided by independent (public, private, or non-profit) organizations under appropriate local or federal oversight. Infrastructure will be provided under a public utility model, ensuring quality of service in exchange for earning a rate of return.
  10. Within one year, the United States federal government will establish separate capital and operating budgets. This will be coupled with a federal program to guarantee loans and bonds for highway and transit infrastructure projects.

  11. Full memo after the jump

    Continue reading "Memo to the Next President of the United States on Transportation Policy" »

June 7, 2008

Getting the Transportation Infrastructure We Need

Nice post on Planetizen by Robert Goodspeed on some of the upcoming policy proposals on US infrastructure finance Getting the Transportation Infrastructure We Need

The last line is a vote for federalism: "Maybe the feds should just worry about big stuff like airports and intercity passenger rail, and leave the rest up to states and cities to worry about."

May 4, 2008

Citizen's League Mind Opener

I am talking (assuming my laryngitis disappears) tomorrow morning at the Citizen's League. My job is to open minds:
Upcoming Events > Mind Opener & Policy Forum: Transparent Funding Options for Meaningful Transportation Choices. My presentation will be posted online soon after.

March 24, 2008

Too much compliance

From Freakonomics: Your City Needs You to Blow Through Red Lights

Apparently too much enforcement induces too much compliance, so there is not enough revenue to pay for the enforcement. There must be an equilibrium between revenue and compliance.

March 17, 2008

Letting the Market Drive Transportation

From the Washington Post: Letting the Market Drive Transportation, an article about the Bush administration's support for toll roads and road privatization, and the internal politics at the top level of USDOT.

February 19, 2008

Legislative Auditor Report on MnDOT

The Legislative Auditor report on Minnesota's State Highways and Bridges report summary makes for interesting reading. (Full report here

"MnDOT is spending more—and a greater percentage of its resources—on trunk highway road and bridge construction than it did ten years ago.

MnDOT has increased the proportion of trunk highway spending dedicated to system construction, and decreased the proportion spent on operations, research, and support. In the 2002-03 biennium, about 63 percent of department spending was for road and bridge construction. Between 2003 and 2004, MnDOT reallocated over $36 million from its operating budget to fund highway construction. By the fiscal year 2006-07 biennium, spending on trunk highway road and bridge construction had increased to 71 percent of total spending."

later the report says:

"Overall, trunk highway project investments have not aligned with the department’s stated policy of "preservation first."

Between fiscal years 2002 and 2007, over half of MnDOT’s spending on construction contracts for trunk highway pavements was allocated to system expansion rather than preservation. In contrast, in fiscal year 2001, only 25 percent of pavement contract spending was allocated to expansion projects."

Of course ribbon cuttings are better politics than resurfacing, and I guess this whole debate depends on what is defined as spending, what is preservation, and operations and maintenance and what is new construction.

The Minnesota Department of Transportation. Metro Division Transportation System Plan. Technical report, MnDOT, 2001.

which I cited in Forecasting and Evaluating Network Growth implies that 21% of the total budget is spent on construction and 79% is spent on maintenance. Now there are differences (that was metro rather than statewide among them), but it should be clearer as to what spending is for capital expansion and what for capital maintenance.

As the system matures, maintenance takes an increasing share of resources (as there is more network to maintain), and new construction gets more expensive (the most cost effective projects have already been done), so one would expect more on maintenance and less on capital expansion.

That said, ride quality, which is said to be decreasing, needs to be quantified in terms of its economic value. Wearing down roads without rebuilding or properly maintaining is spending future capital (presumably it is more expensive to repair the more damaged it is), but the economic cost of the poor ride itself (a slightly bumpier ride) does not *seem* like it should matter so much, there is no evidence people go slower or waste time due to a somewhat rougher service (assuming we are talking Minnesota conditions, rather than truly decrepit roads).


January 31, 2008

Untangling Transportation

I stumbled on this: Untangling Transportation - TIME

From 1975, i.e. the Ford Administration.

Transportation has been mature for a long time.

September 15, 2007

Political Economy at Any Speed: What Determines Traffic Citations?

Via Peter Gordon, from New York Times: Welcome, Stranger. Here's a Speeding Ticket.

... " Michael D. Makowsky, a doctoral student in economics, and Thomas Stratmann, an economics professor, both at George Mason University, studied the issue in a recent paper, ''Political Economy at Any Speed: What Determines Traffic Citations?''

They examined every warning and citation written by police officers in all of Massachusetts, excluding Boston, during a two-month period in 2001 -- over 60,000 in all. Their conclusion wasn't shocking to an economist: money matters, even in traffic violations. They found a statistical link between a town's finances and the likelihood that its police officers would issue a speeding ticket. The details are a little sticky, but they show that tickets were issued more often in places that were short on cash, and that out-of-towners received tickets more often than drivers with local addresses." ...

(original paper by Makowsky and Stratmann available here)

So this paper provides some more evidence of tax exporting in transportation finance, a favorite topic of mine since my dissertation "On Whom The Toll Falls", extended in the book Financing Transportation Networks

More importantly, it is one less paper I have to write, it has on been my 'to do' list since my dissertation, but I never had the time to get together the data.

One could extend this work by looking at the location of "speed traps", where the hypothesis would be these are at the edge of town, and thus more likely to nab out-of-town drivers than in the middle of town (assuming imports=exports, and no through trips, 50% of all travelers at the edge of town are from out-of-town, a smaller percentage of travelers inside town are out-of-town; if there are through trips, then more than 50% of travelers at the edge are non-resident, while again a smaller number of internal trips are non-resident).

June 7, 2007

KOSHER Transportation Funding

We need KOSHER Transportation Funding, Transportation legislation that prohibits pork. This New York Times article:
Campaign Funds for Alaskan; Road Aid to Florida describes the problem.

Local officials in Florida are receiving funds for a road they do not want, and are being blackmailed to accepting it with the threat they won't get other funding. The reason, a local property developer contributed to Congressman Young's campaign.

And the really strange thing is in the whole scheme of things, they did not give that much ... something like $200,000 for Republicans in exchange for $91 million in
local road projects.

KOSHER: Keep Our State Highway Expenditures Rational.

Article reprinted below:

Campaign Funds for Alaskan; Road Aid to Florida

By DAVID D. KIRKPATRICK
WASHINGTON, June 6 — It is no secret that campaign contributions sometimes lead to lucrative official favors. Rarely, though, are the tradeoffs quite as obvious as in the twisted case of Coconut Road.

The road, a stretch of pavement near Fort Myers, Fla., that touches five golf clubs on its way to the Gulf of Mexico, is the target of a $10 million earmark that appeared mysteriously in a 2006 transportation bill written by Representative Don Young, Republican of Alaska.

Mr. Young, who last year steered more than $200 million to a so-called bridge to nowhere reaching 80 people on Gravina Island, Alaska, has no constituents in Florida.

The Republican congressman whose district does include Coconut Road says he did not seek the money. County authorities have twice voted not to use it, until Mr. Young and the district congressman wrote letters warning that a refusal could jeopardize future federal money for the county.

The Coconut Road money is a boon, however, to Daniel J. Aronoff, a real estate developer who helped raise $40,000 for Mr. Young at the nearby Hyatt Coconut Point hotel days before he introduced the measure.

Mr. Aronoff owns as much as 4,000 acres along Coconut Road. The $10 million in federal money would pay for the first steps to connect the road to Interstate 75, multiplying the value of Mr. Aronoff’s land.

He did not return phone calls seeking comment. A consultant who helped push for the project spelled out why its supporters held the fund-raiser.

“We were looking for a lot of money,? said the consultant, Joe Mazurkiewicz. “We evidently made a very good impression on Congressman Young, and thanks to a lot of great work from Congressman Young, we got $81 million to expand Interstate 75 and $10 million for the Coconut Road interchange.?

Mr. Young’s role, first reported by The Naples Daily News, has escalated objections to the project. Environmentalists say the interchange would threaten wetlands. And a Republican commissioner of Lee County, Ray Judah, is campaigning against the interchange, calling it an example of Congressional corruption that is “a cancer on the federal government.?

“It would appear that Don Young was doing a favor for a major contributor,? Mr. Judah said.

The turmoil occurs at an awkward time for Mr. Young. A corruption scandal involving an Alaskan oil company has rattled the Republican Party in Alaska, and Mr. Young is among the biggest recipients of the company’s campaign donations.

One of his former top aides, Mark Zachares, has pleaded guilty to separate bribery charges involving the lobbyist Jack Abramoff.

House Republicans, meanwhile, are in a public relations battle with Democrats for the high ground on reforming “earmarks,? the pet projects that lawmakers tuck into spending bills behind closed doors.

As they have exploded in number for the last 12 years — the 2006 transportation bill included more than 6,300 projects worth more than $24 billion, the nonpartisan Taxpayers For Common Sense says — earmarks have proven ripe for cronyism, corruption and abuse. Though the House recently passed a rule requiring the disclosure of earmark sponsors, the flow does not appear to have slowed.

Until Democrats took control of Congress in January, Mr. Young was chairman of the Transportation Committee, and he and his staff distributed transportation earmarks to lawmakers seeking projects. Mr. Young may have first learned of Coconut Road on Feb. 17, 2005. That is when he flew to the region on a plane owned by Corporate Flight, a Waterford, Mich., charter company that is associated with the Aronoff family, which is based in nearby Bloomfield Hills, Mich. The Aronoffs are among the company’s biggest clients, said its general manager, Tom Hector.

Mr. Young’s re-election campaign reimbursed the company $3,422 for the flight, his campaign filings show.

At the invitation of the congressman from the district, Connie Mack, Mr. Young visited Florida Gulf Coast University for a meeting on the Interstate and other transportation questions. Afterward, Mr. Young went directly to the fund-raiser at the Hyatt Coconut Point.

His campaign records show that he received more than $40,000 in contributions on one day around that time, mostly from southwestern Florida developers and builders. Mr. Aronoff gave $500 to Mr. Young’s campaign and later gave $2,500 to Mr. Young’s Midnight Sun political action committee.

The invitations to the event listed as hosts Mr. Mack, a business group called the Southwest Florida Transportation Initiative that includes Mr. Aronoff’s company and two executives of other Florida developers.

Asked in a telephone interview who had organized the fund-raiser, Mr. Mazurkiewicz, the consultant, said he was then at another fund-raiser with a member of Mr. Mack’s staff who would know.

“Aronoff,? the staff member told Mr. Mazurkiewicz, within earshot of his mobile phone.

“Just some local businessmen,? Mr. Mazurkiewicz said into the phone. When pressed, he confirmed that the staff member had named Mr. Aronoff. Later, Mr. Mazurkiewicz called again to list the names on the invitation.

The Aronoffs, major Republican donors, gave more than $200,000 to Republican candidates and political committees in the 2006 election. Their business, the Landon Companies, is best known for building mobile-home parks. But it also operates a real estate development business in Florida.

Daniel Aronoff has taken over active management of the company from his father, Arnold Y. Aronoff, who had a checkered career in Florida real estate. In 1979, Arnold Aronoff was sentenced to two years in prison after pleading guilty to mail fraud in a scheme to sell Florida swampland at an inflated price.

When he was approached near the House floor by a reporter, Mr. Young responded with an obscene gesture.

A spokeswoman for Mr. Young, Meredith Kenny, initially said that Mr. Mack had requested the Coconut Road money. A spokesman for Mr. Mack, however, said he did not ask for the money. His chief of staff, Jeff Cohen, said Mr. Mack was surprised to find the project in the bill long after it had passed. “At the end of the day this thing got stuck in there unbeknownst to us and having nothing to do with us, other than it is our district,? Mr. Cohen said.

The plans for the earmark and the Aronoff land hit a roadblock when the Lee County Metropolitan Planning Organization voted twice last year to block a preliminary study for the interchange, mainly on environmental grounds. Studies by the Army Corps of Engineers, the Environmental Protection Agency, the Fish and Wildlife Service and the Federal Highway Administration have all warned that the proposed interchange could threaten wetlands.

But Mr. Young was evidently determined to see the interchange move forward. In a Jan. 23, 2006, letter to the chairman of the planning agency, Mr. Young warned that his committee would draft another bill taking away the $10 million if it was not used for the interchange.

On Jan. 31, Mr. Mack followed up with a letter warning that the rejection would “make it difficult for Southwest Florida to have future success in securing federal resources for other important projects.?

The planning organization subsequently reversed itself and approved an initial study of the proposed interchange. But the last election put more environmentalists on the county commission. Next month, county planners will again take up the question of what to do about Coconut Road.

May 19, 2007

FasTracks are Expensive Tracks

According to this article : Transportation project more than a billion dollars over budget The FasTracks project in Denver will cost $6.1 Billion instead of $4.7 Billion, or 30% over the budget promised to voters as recently as November 2004.

Are officials constitutionally incapable of making accurate cost estimates, or was the misestimate intentional?

March 14, 2007

Too Expensive to Meter

Mr recent paper with Andrew Odlyzko, Too expensive to meter: The influence of transaction costs on commuications has obtained some external notice:

January 31, 2007

Chelsea Tractors must pay to park in Richmond

Another London transport topic that has made its way across the Atlantic, The Canadian Press (via Breitbart) reports: London suburb to charge drivers parking fees based on emissions. Richmond upon Thames, a Borough of London, wants to charge £300 for cars to park in front of their houses if the cars are of models that are classified as big polluters (the local term: Chelsea Tractors).

The irony is that they are charging the cars when they are not polluting (i.e. when they are parked) rather than when they are.

Again, the technology could relatively easily be assembled to charge cars based on how much they pollute, that would be in the long run both more fair and more efficient. Robert Harley was doing tests on the measurements of this more than 10 years ago at Berkeley, see this paper for an example. That would just need to be tied to transponders or license plate matches (a la electronic toll collection or the London Congestion Charging scheme) and a price developed.

The continued use of second (or third) best solutions when much better ones are available is unnecessary.

September 26, 2006

A Tax on Gore: Truth and Carbon Taxes,

A Tax on Gore: Truth and Carbon Taxes, some thoughts

Al Gore, in a recent speech at New York University about the appropriate response to global climate change said
“For the last fourteen years, I have advocated the elimination of all payroll taxes - including those for social security and unemployment compensation - and the replacement of that revenue in the form of pollution taxes - principally on CO2. The overall level of taxation would remain exactly the same. It would be, in other words, a revenue neutral tax swap. But, instead of discouraging businesses from hiring more employees, it would discourage business from producing more pollution.

Global warming pollution, indeed all pollution, is now described by economists as an ‘externality.’ This absurd label means, in essence: we don’t to keep track of this stuff so let’s pretend it doesn’t exist.?

It sounds like a neat trick, killing two birds with one stone. Certainly, I am open to taxing externalities based on the difference between their social and private costs. In contrast to Mr. Gore’s aspersion on economists, the word “externality? doesn’t mean we should pretend it doesn’t exist, it means the relevant actors (the polluters) pretend it doesn’t exist, which is a problem because it does.

Economists suggest several alternatives. Nobel Prize winner Ronald Coase suggests establishing legally enforceable property rights. The reason we have air pollution is because nobody owns the air. The reason we have less land pollution (e.g. dumping) hither and yon is because people do own the land.

The problem of course is (a) establishing ownership of the air and (b) tracking air pollution back to its source so that polluters can be legally charged.

The second solution is regulatory. With regards to traditional “criteria? pollutants in the US (ozone, carbon monoxide, oxides of nitrogen, sulfur dioxide, lead, and particulates), tailpipe pollution is regulated by the Environmental Protection Agency, and cities have to ensure their transportation plans don’t pollute beyond a certain threshold. Currently, CO2 is not a criteria pollutant because it does not have health effects, at least not in the same way. This is a quantity-based strategy. Mr. Gore advocates this when he suggests “freezing? carbon emissions.

A third solution, as Mr. Gore also suggests, is taxing pollution. In its pure form, we would allow anyone to pollute as much as they want, so long as they pay the carbon tax, which if properly set, would constrain the amount of pollution produced by providing the correct incentives. That tax (say X$/ton) would equal the social effect of the pollution. Establishing that social cost is not simple, nor is it uncontroversial. About 10 years ago I read a book about this by William Nordhaus, (the updated version is Warming the World: Economic Models of Global Warming by William D. Nordhaus and Joseph Boyer). The tax per ton would rise over time (as presumably would the impact of climate change, and our ability to pay for it). This is a price-based solution. The recent emergence of emissions trading combines quantity and price-based solutions.

Figuring out the proper level of the tax is no simple matter either. We can think about it in terms of damages: if the pollution went unprevented, what would it cost to fix. Or we can think about it in terms of prevention: how much would it cost to avoid the damage. If the cost of damage exceeds the cost of prevention, we should prevent, if the cost of damage is less than the cost of prevention, we should accept the damages. In practice we may prevent some damage and accept some damage.

Another point is that an externality requires two actors: the polluter and the pollutee. If I pollute, but no one is damaged, no harm is done. Think about noise: As the old koan goes, If a tree falls in the woods and no one is there to hear it, does it make a noise? No, the noise externality is only present if someone hears it and is harmed. By moving into the way of the harm, you are imposing costs on the polluter. Another example is the conflict that occurs with suburbanization into agricultural areas. As much as our politicians romanticize the family farm, farms smell. This isn’t a problem so long as only cows and farmers live there, but when suburbanites move in, this becomes a problem. Should the farmer pay, after all it is his farm producing the externality? Or should the suburbanites bear the cost, since without their presence, no externality would exist?

With climate change, because of its global nature, we might think consider the polluter clearly at fault. But what about people who move into low-lying, flood-prone areas? If no one lived below sea level in New Orleans, the economic and social damage of Hurricane Katrina would have been much less. Who should pay, the polluters (worldwide), who changed the climate and according to Mr. Gore, made the hurricane more likely, or those who moved into a vulnerable position? If you say some combination of both (which is of course the right answer), what is the combination?


So even if we have achieved consensus that we are spewing CO2 into the atmosphere, and are in agreement about the direction of that effect (it will make things warmer rather than colder in general), we are still in disagreement about the magnitudes of the climate effects resulting from that CO2, and in even greater disagreement about the economic cost that the climate effects imposes. I have worked with enough large-scale models to conclude that a plethora of assumptions founded on inadequate evidence must produce huge uncertainty.

Into this environment, Mr. Gore proposes a multi-part acronym-filled scheme that would make a Washington policy wonk swoon. Which leads us back to the carbon tax, which, if set correctly, is perhaps the most effective strategy. Mr. Gore proposes eliminating the Social Security payroll tax and replacing it with a carbon tax, ensuring the policy is “revenue neutral?. This reminds me a lot of 1980 presidential candidate John Anderson’s proposal for a 50 cent tax on a gallon of gasoline in exchange for dropping the Social Security tax. So the idea is at least 26 years old.

The payroll tax has elements of unfairness. However Social Security has nothing to do with climate change (except, I guess, that old people pollute). This is an illogical linkage, and will produce a perverse result. If the carbon tax is successful, we lose our funding base for Social Security, which as popular polls suggest, already fails to engender much faith in its fiscal health.

Two more Nobel Prize winning economists have suggested some rules about managing economic policy:

1) Jan Tinbergen's rule: Achieving a multiple number of independent policy targets requires an equal number of policy instruments.
2) Robert Mundell's rule: Each policy instrument should be assigned to a policy target on which it has greatest relative effect.

source

In other words, these economists posit one policy target per policy instrument (or one stone per bird). Trying to solve two problems requires two policy instruments, and so on.

If we levy a carbon tax, the revenue should be used to fix the damage global climate change causes or to prevent that damage in the first place. The amount of money that should be charged in a carbon tax is independent of the amount of money required for the payroll tax. By making the plan “revenue neutral? we are either raising too much money (and wasting money by reducing more carbon than would economically efficient) or not enough money (and wasting the opportunity to provide incentives to invest in more carbon-reducing strategies).

That said, Social Security should be financed appropriately as well, but that bird deserves another stone. I believe that there should be one policy analyzed per policy essay.

June 28, 2006

Thought experiment: Financing public education

The overall quality of a public school is largely derived from two characteristics: the quality of the education provided (which depends in large part on teachers and facilities) and the quality of the learning (which depends on students). Hedonic models of house price indicate that the quality of public schools is capitalized in the value of land. Such matters are important. First, schools are a major determinant of property values and thus residential sorting by income, where the rich can isolate themselves from the poor. This introduces inequity into the system. Second, an analogy can be drawn to how roads should be paid for and whether users should pay or they should be capitalized into property taxes.

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