Recently in Financing Category

Street Improvement Fees

The League of Minnesota Cities writes:

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:

Drew Kerr has a pay-walled article at Finance & Commerce here.

I get quoted in Global Construction Review: $40bn “fix it first” plan headlines Obama’s infrastructure push

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.”

A Canadian-educated colleague, now at UIC, Sybil Derrible wrote about todays' Atlantic Cities article:

"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."

And I feel fine. I get quoted as Eric Jaffe writes a thorough piece in Atlantic Cities about The End of Federal Transportation Funding as We Know It :

"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.'"

(Via .)

Eric Jaffe at The Atlantic Cities asked via Twitter last week: Should We Replace the Term 'Congestion Pricing'? :

"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).

On the other-hand fee comes from

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.

Reihan Salam at NRO on Ending the Federal Surface-Transportation Program Might Be Crazy in a Good Way :

" So far, the most attractive realistic proposal for reforming federal highway expenditures is ‘Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways’ by Matthew Kahn and David Levinson, which calls for the following:
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.


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).

Enterprising roadsp1

Recently published:

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.

Faster Starts

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 Approach Planning 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.

Two not unrelated reports

Friday saw two reports drop:

Minnesota Transportation Finance Advisory Committee
Summary Report and Recommendations

In short, what transportation will cost


The Itasca Project's Regional Transit System: Return on Investment Assessment (Executive Summary)

What spending money on new transit infrastructure in the Metro area will get us.

[I was on the Technical Advisory Committee of the latter report, which constitutes neither endorsement nor lack thereof. The final technical report has not dropped as far as I can tell.]

Drew Kerr @ Finance & Commerce has this article up on Minnesota's new attempt at raising transportation money: Road, transit supporters hope for new revenue

Sadly the article is behind a paywall. The Transportation Finance Advisory Committee has been looking at these issues for a year. The report is due out Thursday, but obviously has been leaked. With a DFL legislature and Governor, this looks like the shape of things to come.

I am quoted:

While expansion is on the table, David Levinson, a transportation engineer with the University of Minnesota’s Center for Transportation Studies, said money should be directed first to preserving existing infrastructure.

Levinson also said officials will have to offer a lot of details on bridge repairs, road improvements and congestion relief projects if they want public support for tax increases.

According to the article the Big items:

  • 10 cent increase in fuel tax (or a bigger increase phased in)
  • 0.5 cent on Metro-area sales tax for transit
  • 10% increase in vehicle tabs
  • 30 million in sales tax revenue on leased vehicles to be dedicated to outstate transit
  • giving local governments powers to implement higher wheelage taxes, transportation improvement districts, or local option sales taxes
  • tolling new system expansion
  • expanding MnPass

This is mostly good. Too bad the Stillwater Bridge isn't being tolled. Or the Vikings Stadium.

An incomplete list of what I wish were on it:

  • Local option value capture
  • Local option congestion charging
  • Increasing the state gas tax further to help local governments pay for transportation, moving some road costs off of the property tax funding base they currently use (since a local option gas tax begets a race to the bottom). (Beyond what is currently proposed).
  • A well-capitalized state infrastructure bank to lend money to locals or private firms to provide transportation services, with loans paid back by user fees or value capture.

I would also like to see some more structural reforms:

  • A major reconsideration of who manages the network (we have three layers of road management in Minnesota (State, County, Municipal), I bet we could get by with two or one.

  • Moving MnDOT to be more like a Public Utility, with rates gaining approval from a PUC-like organization, rather than the legislature.

  • Charging the full cost of all transportation services as directly as possible, recognizing administrative costs of very precise pricing, (and providing direct subsidies to those who need it, rather than everyone)

  • Competitive tendering in transit provision

[I am not on the Committee, and have not been asked to present.]

Load Balancing


HBW 30min speeds kmh

Road pricing has been unsuccessful because it is framed wrong. I say it is unsuccessful because it is not widely adopted, despite being a policy proposal on the table for decades, despite its widespread support among transport economists. Unfortunately, it is perceived (by drivers) as punitive.

Pricing has two complementary objectives, raising funds and allocating resources. We already raise funds for roads, with gas taxes. Gas taxes are in the present (non-EV) world almost perfect as a fund raising mechanism, as they don't have much in the way of administrative costs, but they are poor at allocating resources. See Marty Wachs' paper on this.

We of course might want more funds, but I believe we cannot raise revenue and switch methods at the same time. If we want to switch methods (to better allocate roadspace) we need to be revenue neutral. If want to raise revenue, we should raise rates under whatever system is adopted. These two debates should not be conflated.

The primary objective of any new road pricing strategy should be to better balance loads, i.e. manage the use of a scarce resource, roadspace, during the peak hours. Basically we want to move some drivers from the peak to the shoulders of the peak or the off-peak to reduce congestion.

Because it is costlier to provide extra capacity to support travel in the peak, and because of congestion externalities, travelers in the peak should pay more than travelers in the off-peak to satisfy both equity and efficiency arguments. Currently most federal and state road funding is from a gas tax that is proportional to fuel consumed, more or less proportional to miles traveled, but almost entirely independent of when that travel takes place (more fuel may be consumed per mile in the peak than the off-peak because of additional braking events in stop-and-go traffic, but this is too small to affect people's behavior).

Temporal variations

The critical aspect of urban travel is its peak by time of day. We have morning and evening rush hours, corresponding to when most people go to and from work. However, there is a lot of non-work travel in these periods as well, people going shopping, to the gym, or eating out, which may have more sensitivity to price than work travel. We can see peaking in the attached figures. Demand for work travel peaks in the morning and evening (non-work trips are flatter, but not flat). Speeds drop in the morning and afternoon peaks. If we balanced the load more evenly, average speeds would rise in the peak and drop in the off-peak. But the net should be an overall gain, since there is excess off-peak capacity.

Figures from Parthasarathi, Pavithra, Anupam Srivastava, Nikolas Geroliminis, and David Levinson (2011) The Importance of Being Early. Transportation 38(2) pp. 227-247

Spatial variations

Just as we want to balance trips across time of day, we might want to balance trips across the network. While during the peak, some links are congested, others have spare capacity. Perhaps we can move travelers around?

Work in our labs with computer models of the Twin Cities road networks is that moving from a user equilibrium solution, where each driver selfishly chooses his or her own route, to a system optimal solution where each driver chooses a route that is best for society, reduces total Vehicle Hours Traveled by less than 5 percent. This suggests there is not much to gain for all of the complexity involved in getting travelers to switch routes, but keep their time of day.

A strategy that respects privacy.

A concern that arises with most road pricing proposals is government tracking. While I am personally of the belief we don't really have privacy anymore, I can understand the desire to at least make it more difficult to track you. Installing devices in vehicles as a government mandate is not reassuring to anyone, tin-foil hat wearing or not. To be adopted, policy has to respect that.

Suppose we increase the gas tax to the desired peak hour rate. [This is the politically difficult part.] We then offer a discount for off-peak travel. This discount requires voluntarily installing in your vehicle a device which tracks when your car is in operation, and the odometer reading. (Not where, just when). For each hour of travel during the peak, you have already paid the peak rate. For each hour of travel in the off-peak, you get an off-peak discount.

So for instance, let's assume you consume 500 gallons of fuel per year (@20 MPG, this would be 10000 miles). Let's assume half of your time is in the peak and half is in the off peak, as measured by the clock. Assume previously, the gas tax was 35 cents a gallon, all the time. You would have paid $175 a year.

Now the "peak" gas tax is 50 cents a gallon, so you paid $250. The off-peak gas tax is 20 cents a gallon. If you install the device, you would get an annual off-peak travel rebate of $250-$175 = $75 (500 gallons * 50% of time * $0.50/gallon peak + 500 gallons * 50% of time * $0.20/gallon off-peak = $175). If you wanted to keep your privacy, you would not install the device. Privacy is not costless.

The device of course makes the system somewhat more complicated than existing, but is hopefully inexpensive in large numbers (my insurance company issues one to me, it can't be that expensive), and the rates make the system slightly more complicated. Altogether, that is unavoidable if you want to add a time dimension to the prices charged to travelers.

As the saying goes YMMV (Your Mileage May Vary), so while this example was revenue neutral in a world of static demand, it might lose money if everyone installed the device and people respond to incentives and change behavior. Based on experience with changes in gas prices, we expect those changes are relatively small (the elasticity of demand with respect to gas price changes is pretty low). Further, not everyone will install the device. But changes don't have to be large to have an effect, and we don't want them to be too large (otherwise the peak is uncongested and the off-peak is congested). We could come up with schedules that would be appropriate, and might have different rates at different times (e.g. peak of the peak, shoulder, mid-day, and off-peak).

Another objection is out-of-state travel. Here, we are simply computing when you travel and assuming all fuel is purchased in the home state. If every state has such a system, this probably has very small boundary effects. If one small state adopts this, and its neighbors don't some residents might travel out of state to purchase fuel (leading them to not adopt this). Again, I suspect the losses will be small, though they may be measurable. There could either be a federal mandate for such a system (which I would not like), or agreement among the various states to coordinate the pricing mechanism. If the rates differences (peak vs. off-peak) are small, they will not distort behavior much, and that might be the best way to implement, and then the differences can be increased over time (peak prices increasing, off-peak decreasing, until the desired load balance was achieved).



Minneapolis and other cities have been putting up pay stations so that people can pay for parking via credit card. It seems to me those same technologies could be used to have pre-boarding payment for buses. If the meters could read a GoTo Card or accept payment for transit, they could be easily used along major bus routes and speed boarding. The same meters could be used where there is also on-street pay parking, but at least the same technology could be used elsewhere if not the same device, which should have synergy.

Is there any example of parking payment systems accepting transit payment (like GoTo Cards)?

I doubt it because of the institutional issues, and the general lack of coordination between parking and transit agencies, but it seems a simple opportunity for transit pre-boarding payment to piggyback on an infrastructure for collecting and transmitting money, rather than constructing their own.


Image from Bob Ingrassia

Asha Weinstein Agrawal: What Do Americans Think About Federal Tax Options to Support Public Transit, Highways, and Local Streets and Roads? Results from Year 3 of a National Survey :

"The survey results show that a majority of Americans would support higher taxes for transportation—under certain conditions. For example, a gas tax increase of 10¢ per gallon to improve road maintenance was supported by 58 percent of respondents, whereas support levels dropped to just 20 percent if the revenues were to be used more generally to maintain and improve the transportation system. For tax options where the revenues were to be spent for undefined transportation purposes, support levels varied considerably by what kind of tax would be imposed, with a sales tax much more popular than either a gas tax increase or a new mileage tax.

Cross-subsidies |

Now at Cross-subsidies:

"We subsidize transit to spur development. We subsidize development to spur transit ridership."

Conrad deFiebre @ MinnPost: Rough road ahead for Minnesota drivers:

"'Misaligned funding incentives' The authors, Matthew Kahn of UCLA and tough-minded transportation engineer David Levinson of the University of Minnesota, fault the feds for 'misaligned funding incentives,' a lack of cost-benefit analysis and 'mispricing of use.' Their solution: radically reform federal highway progams to direct all current fuel taxes away from new construction and instead use them to 'repair, maintain, rehabilitate, reconstruct and enhance existing roads and bridges.' They call that step 'Fix It First.'

But what about growing areas that really need new roads? The next part of Kahn and Levinson's plan, 'Expand It Second,' calls for a Federal Highway Bank that would offer states construction loans 'contingent on meeting strict performance criteria and demonstration of an ability to repay the loan through direct user charges [read: tolls] and capture some of the increase in land values near the transportation improvement.'

Those would be tough pills to swallow, sure to be loudly opposed by any driver or landowner asked to pay more for the direct benefits of new public investment. The hit could be softened, however, by Kahn-Levinson's final proposal, 'Reward It Third.' If a new construction project met or exceeded performance targets such as on-time completion or environmental improvement, the bank would collect a reduced interest rate on the loan, resulting in lower tolls or less value capture from adjacent properties.

There's plenty of sense in these ideas to correct the incentives and pricing around highways, even if a few oxen get gored. While the current federal highway program encourages new infrastructure at the expense of maintaining what we have, the rate of return on these greenfield projects has been declining for decades. That's because the most economically efficient facilities have already been built, even if they're often left to crumble. Furthermore, some studies have shown that road repairs produce more jobs and economic bang for the buck than new construction.

Congress is currently negotiating new a federal surface transportation bill, nearly three years after the last one expired. We've had nine temporary extensions since then, with no change in policy. The prospects for reforming the program along Kahn-Levinson's lines range from slim to none this time. But eventually we'll have to come to grips with the accelerating disintegration of the world's greatest highway system and its negative effects on our economy, our job and cultural opportunities and even our pocketbooks.

Conrad deFiebre is a Transportation Fellow at Minnesota 2020, a nonpartisan, progressive think tank based in St. Paul. This article first appeared on its website."

I was interviewed by Dan Haugen of Midwest Energy News:

Who should pay for roads, transit projects? :

"It’s true that local property taxes, not gas taxes, pay for building and maintaining most roads, says David Levinson, an associate professor of civil engineering at the University of Minnesota, but whether or not that’s a subsidy for drivers is debatable.

“There isn’t a person in the United States who doesn’t get some use out of the roads,” says Levinson, who also writes the Transportationist blog. Even people who don’t drive still benefit from things like fire protection, ambulance services, and mail delivery — all of which depend on roads. “I suppose you could be Ted Kaczynski, but even he had to use the U.S. Postal Service to mail his bombs.”"

Linklist: March 12, 2012

| 1 Comment

Modeled Behavior: Smart Speed Limits :

"Variable speed limits, in contrast, present a more flexible, even Hayekian, way of setting the speed limit. One example is Interestate 80 in Wyoming, where sensors detect driver speeds, which are then used in an algorithm, along with weather conditions and other factors, to set speed limits that vary. An interesting article, via Radley Balko, provides more information on this road"

Av Stop: Airline Passenger Travel To Nearly Double In Two Decades:

"FAA Aerospace Forecast Fiscal Years 2012-2032 projects RPMs will nearly double over the next two decades, from 815 billion in 2011 to 1.57 trillion in 2032, with an average increase of 3.2 percent per year. The number of commercial operations at FAA and contract towers is expected to increase by more than 45 percent from current levels."

[Is this with or without High-speed rail? Oh, that's right, it doesn't matter. Anyway, for some really interesting analysis of Airline data, see this presentation by Prof. R. John Hansman.]

Smithsonian: The Great New York-to-Paris Auto Race of 1908

Hennepin County Library on Tumbler (via AO) Twin City Lines Ad, March 1967 :

"Who knew that they would be headed for public ownership in less than 4 years?  The Fares vs. Wages chart looks especially unsustainable."

Brookings Institution: Transformative Investments in Infrastructure, Chicago Style:

"The CIT hits on most of the important elements of past infrastructure bank proposals. It’s a market-oriented institution that attracts private capital interested in steady returns and makes investment decisions based on merit and evidence rather than politics. Like California’s I-Bank it cuts across different types of infrastructure such as transportation and telecommunications, and like Connecticut’s Green Bank it emphasizes the generation, transmission, and adoption of alternative energy. The CIT also embraces advanced technologies to support next generation place-making by wiring low-income neighborhoods with broadband and developing high-tech research campuses."

Eric Jaffe at Atlantic Cities writes: Should the Public Pay for Unprofitable Transit Routes? - Commute (responding to my previous posts).

I am not sure he frames the argument right. In my view is as much about separating the transit agency from the welfare function as about whether unprofitable routes should be dropped. That is, transit agencies don't do well as dual purpose agencies. Organizations, like products perform better with clear missions (Shimmer is a floor wax and a dessert topping) .

It would be much cleaner to give them a single mission: provide these routes and make money/break even. They would make money from customers on profitable routes, and from society at large on welfare routes that society explicitly chooses to subsidize despite their inability to make money. The operating agency should not be making welfare decisions, that is better done through an explicit public policy process.

Some worry about the explicitness, feeling (and I am not disputing) that if the money-losing routes could not be hidden, they are more likely to be cut.

Jaffe notes the public good argument. But 'public goods' are both non-rivalrous and non-excludable. Clearly transit is excludable, you pay a fare to use it. If it is congested, it is also rivalrous. Thus transit is actually a fairly clean form of 'private good' in the economic sense. There is obviously a social service aspect to this, I am suggesting to separate that out.

Jaffe also notes that streets, roads, and highways are subsidized. I don't disagree there is some amount of cross-subsidy in the system (urban interstate travel subsidizes rural roads), but the user fee (i.e. the gas tax now, or even more precisely in the future, a mileage fee) pays for major roads, and could easily be extended to pay for all roads collectively (some might still not generate enough revenue (i.e. VMT) to be worth supporting). This involves raising the gas tax, which is somehow politically difficult in the US (although would be less so if coupled with a decline in the property tax and other taxes that also pay for roads). However were it raised, there would be sufficient funds to pay for the system collectively. That said, roads have benefits beyond auto drivers, everyone uses roads, including transit users, so it is specious to make this comparison. Property taxes are a second best solution, but is loosely associated with non-user benefits of road use given the user fees are too low on local streets.

I suspect no transit fare increase would be enough to pay for the entire fixed route transit system as we know it in the US, i.e. the demand would diminish sufficiently so as to keep the maximum revenue collected below what is necessary for the full transit system. This is why I suggest separating it out. There is a profitable core. We should try to figure out what it is.

Brad Cooper at the Kansas City Star reports on their Transportation Utility Fee: Mission exempts churches from 'driveway tax' :

Mission is giving in a little on an innovative, but heavily criticized way to fund road work.

The city this week agreed to exempt churches and some non-profit groups from a transportation fee that was intended to collect money for roads based on properties that generate the most traffic.

Touted as an alternative way to pay for roads short of raising property taxes, the fee set off a firestorm of complaints last year from critics who labeled it a "driveway tax."

It prompted two churches -- First Baptist Church of Mission and St. Pius X Catholic Church in Mission - to bring a lawsuit to halt the fee. The churches were represented by the Alliance Defense Fund, an Arizona legal organization that advocates for religious freedom.

The churches accused the city of violating state law by imposing a tax dressed up as a fee. Their lawyer equated the fee to taxing churchgoers.

City Administrator Mike Scanlon said today that the council agreed to exempt the churches if the Alliance Defense Fund dropped the lawsuit. The ordinance approved by the City Council takes effect Oct. 11. Scanlon declined to comment on the lawsuit.

Last year, Mission became the first city in Kansas -- and possibly in the Midwest -- to impose what is called a transportation utility fee on property owners to help pay for roads.

The fee is based on how much traffic each property produces. It shifts the burden for financing roadwork away from single-family homes that may not generate a lot of traffic, to properties such as box stores and government offices, which generate more traffic.

Homeowners will pay $72 a year in fees while the local Target store will pay about $46,000. According to the suit, First Baptist has been assessed $970.77 and St. Pius $1,685.19.

The fee generates about $830,000 a year. The decision to exempt the churches and some non-profits such as charities will cost the city about $70,000, Scanlon said today. Other non-profits, like government buildings, would still have to pay the fee.

The fee is intended to help the city bankroll a 10-year, $30 million plan for improving city roads. The city also plans to ask voters this fall to extend a quarter cent sales tax to contribute to the road plan.

The transportation fee coupled with the sales tax could bring the city about $15 million. Mission will count on other sources, like the state and federal governments, to help pay for the rest of the road plan,"

See our paper: Junge, Jason and David Levinson (2010) Economic and equity effects of transportation utility fees. Presented at 89th Transportation Research Board Conference, January 2010, Washington , DC. Journal of Transport and Land Use (in press).

Disclosure: I did a very very small amount of consulting for Mission KS appearing via Skype at a workshop on this fee about a year ago.

Yonah Freemark at The Transport Politic writes A Note on Transportation Subsidies :

Why bring up these issues? Because Levinson describes a situation in which everyone has the option to pay the true cost of transportation services, but in fact many do not. A more efficient approach to ensure that people make the most cost-effective decisions might be one in which everyone got a reasonable amount of money to begin with, but we do not live in a particularly redistribution-inclined society.

So we are left with alternatives along the sidelines. We can crusade for the elimination of transportation services that cannot pay for themselves and in the process eliminate essential mobility for people who need to get around now, all the while hoping that the poor will at some point be handed adequate funds to make economically sound decisions. Or we can recognize reality and admit that transit services are at their core not just transportation organizations but also welfare providers.

This may be a disappointing conclusion, since it provides no insight as to how the state of funding for transit could be improved, but it does suggest that there is no way of getting around the fact that subsidies will continue to be needed in the running of public transportation unless some future technological advance reduces operations costs dramatically. There are plenty of ways to improve the performance and cost effectiveness of transit systems, but we cannot ignore the fact that transit plays an important redistributionist role.

Yonah is basically describing the problem of the first best and second best. He is arguing that because there are poor people, and society won't give them enough money directly, we should subsidize services for them. Clearly that is what we do. But what should we do for the poor?

In my order of preference.

1. Give them money (a la Milton Friedman's Negative Income Tax). It is a clean elegant solution that avoids distortions. Hence politicians don't like it.

2. If you don't trust the poor with money (and this seems to be society's attitude, since we don't actually give them money directly), give them transportation vouchers (e.g. top up their per use transit pass with $X per week, or give them a monthly pass, or some other mechanism). This can be discreet, so no one else would know who received vouchers, everyone would use the same pay-as-you-go card. It accomplishes the appropriate ends, without burdening the transit system with this welfare function. It also allows freedom to be spent on taxi or rental car as needed (if in cash-equivalent form), rather than just fixed-route transit. Just because some people are poor does not mean they don't have other transportation needs.

3. Only as a last resort should we distort an entire transportation mode and drive it into perpetual "crisis" mode for the sake of subsidizing a subset of users.

I realize I am idealizing things a bit, but if we don't idealize, we will never improve.

Just as roads are underfunded and we see congestion, because they are not priced properly and spending is too focused on expansion rather than preservation, a point that has been made numerous times on this blog, transit is underfunded and we see both crowding in some places and literally, (yes literally) empty buses in others, both of which are the consequence of severe misallocation of resources to achieve the what Jarrett Walker calls "coverage" aims.

I expect that the places that would see service dropped once you went to an appropriate funding model are not the poor inner-city areas, which are (or ought to be with appropriate management/regulation/etc.) profitable given the relatively high densities, but instead the suburban routes. In fact, the current model is largely a cross-subsidy from the poorer areas to the middle-class areas.

See Brian Taylor (1991) Unjust equity. Taylor's abstract says:

Federal subsidies of public transit, particularly transit operations, are declining and the responsibility for supporting transit is falling increasingly on states and localities. In California, the Transportation Development Act (TDA) has become the state's principal source of transit operating subsidies. It is found that the strict per capita allocation formulas of the TDA strongly favor lightly patronized suburban transit service over more heavily patronized service in the central cities. Transit riders in San Francisco, for example, receive a TDA subsidy of $0.13 per trip, whereas the TDA subsidy to transit patrons in suburban Livermore is over $5.00 per trip. The built-in suburban bias of the TDA is the result of partisan compromises made to secure passage of the Act in 1971--compromises to assuage a Republican governor opposed to new taxes--and to include the interests of rural and suburban counties. The result has been a proliferation in California of new, well-funded, and expanding suburban transit operators that attract few riders whereas older, heavily patronized central city transit operators are forced to cut service because of funding shortfalls. This paper concludes by proposing a more efficient and equitable method for allocating TDA funds than the current formula, which, in the name of equity, provides all Californians with a "fair share" of public transit whether or not they use it. [Emphasis added]

While the numbers have changed in 20 years, the basic observation stands.

I seemed to have a stirred a hornet's net recently.

Jarrett Walker responds to (and deconstructs) my post at Human Transit Should transit agencies "retrench" to become "profitable"?:

I agree with almost all that Jarrett said. In short, we cannot be afraid of accounting.

I didn't think equity, welfare and redistribution were derisive terms, though I am sure there are more politically correct terms of art to talk about these things to avoid bruising egos (The term "coverage routes" which Jarrett prefers is just trying to ensure spatial equity, redistributing funds from areas where transit is profitable to those where it is not, a form of financial aid from the government, or "welfare payment" we might say.) Many coverage routes are just "suburban welfare". Admittedly the term welfare has become politicized in the US ("welfare queens", "corporate welfare"), but providing for the general welfare is a primary function of the US government and is in the Constitution. Welfare economics is a major branch of that field.

The point is not that transit should be profitable (though that would be nice), but that if it is useful, it should break-even (i.e. be financially sustainable without depending on others). If people are not willing to pay for the service, it is insufficiently useful. I think the public utility model is valid (and historically how transit had been organized in the first place).

Overall, I am neither of the anti-transit right nor the anti-transit left nor the pro-transit right nor the pro-transit left, not anti-road right nor anti-road left nor the pro-road right nor the pro-road left. I don't subscribe to modal warfare. I walk to work, live in a 5 person household with one car, two strollers, a trike, and a scooter, (and which would have a bicycle were it not stolen), have a GoTo Card in my wallet and use transit when necessary.

To this extent I am Hayekian (and small "l" libertarian), I cannot know what you want better than you can, there is an inherent data problem (Hayek's Fatal Conceit). Maybe you want transit, but maybe you would rather have the cash I am spending to provide you subsidized transit service so you can do something else with it. The only way to know what the best allocation of resources is, is to charge for things what they cost (at least to the extent we can figure it out, and the collection costs of charging are not too great - which are not trivial problems).

Cars need not fail for transit to succeed. Each mode has its use, the problem comes in deploying it where it doesn't fit (e.g. urban freeways, cars on campus, low volume fixed route transit). If we don't acknowledge the misfit, we will waste scarce resources (time and money) that could be better spent elsewhere. And let's not kid ourselves, these resources are scarce. If we don't acknowledge the subsidies and the cross-subsidies in the system, people will continue to behave inefficiently. The argument that because there are subsidies in other modes, we should have subsidies in our mode is wrong. Two wrongs don't make a right. A bad subsidy does not justify more of the same, it justifies removal.

Mass transit systems in the United States are collectively losing money hand over fist. Yet many individual routes (including bus routes) earn enough to pay their own operating (and even capital costs). But like bad mortgages contaminating the good, money-losing transit routes are bogging down the system.

We can divide individual systems into three sets of routes:

1. Those routes break-even or profit financially (at a given fare). This is the "core".

2. Those lines which are necessary for the core routes to break-even, and collectively help the set of routes break-even. These are the "feeders".

3. Those lines which lose money, and whose absence would not eliminate profitability on other routes. These money-losers are a welfare program. We might politely call them "equity" routes.

Mass (or public) transit agencies are transportation organizations first, not welfare organizations. They should be considered public utilities rather than departments of government, which provide a useful service for a price to their users.

My thesis is that the local transit systems should identify and propose to retrench to the financially sustainable system, and present local politicians with a choice.

If local politicians want additional "equity" services, they should be presented with a cost of subsidy per line, and then can collectively choose which lines to finance out of general revenue, as this is primarily a welfare rather than an transportation function. In other words, public transit organizations would present the public with a bill for these money-losing services (the subsidy required in order to at least break even on operating them (i.e. the difference between their revenue and their cost), and not be expected to pay for them out of operating revenue.

If the cost of those lines is deemed too expensive (i.e. the politicians are unwilling to pay for them with general revenue tax dollars), they should be canceled. Transit agencies would no longer be losing money, they would now be break-even or slightly profitable. They might even pay a dividend to their owners (the general public).

General revenue (the treasury) would of course now be losing money, we didn't pull money from thin air, but since this is a social welfare/redistribution function, that is perfectly appropriate. This would entirely change public and political perception of transit services. It might also result in fewer bad routes being funded, since it would be crystal clear where the subsidies lay.

The which routes to fund decision should be revisited periodically (e.g. biannually).

Transit fares should be set at a sufficient level to at least break-even on the above system (plus a small positive rate of return).

If these fares are too high, politicians should give poor people money directly. It makes more sense to do that than to subsidize people who are perfectly capable of paying so that some group doesn't face a full cost they cannot pay. If they don't want to give poor people money (e.g. because they don't true poor people with cash, or fear they would use the money for something other than transit (like, say food, or housing, or heat)), they should top-up their transit smartcard (e.g. by adding funds weekly). These funds would come from a separate government agency (let's call it the "Transportation Opportunities Office") which is completely separate from the transit organization. The poor people would use the same smartcard as everyone else, so no public stigma is attached to using the card. Moving towards smartcard systems is efficient all around, saving boarding times and reducing transit run times.

Finally, these public transit utilities should have the freedom to contract with other organizations to provide services, much as London contracts out its routes.

Common Ground USA


Common Ground USA sends along the following announcement, which might of interest to value capture fans.

Help start a Twin Cities chapter of Common Ground USA, a nation-wide 501c3 group advocating "value capture" in public finance. To start a local chapter, 5 MN residents would need to pay the $36 annual Common Ground USA dues, but the chapter then is entitled to a $12/per member rebate. Chapters also get funding for start-up costs and $50 each year for holding an annual meeting. If you are interested in learning more, contact Rich Nymoen at RNymoen [at]

[I did not even know there was an advocacy group for value capture, which sounds great.]

On the Jobs Speech - By Reihan Salam

Reihan Salam On the Jobs Speech : "I don’t oppose the idea of an infrastructure bank, but the crucial question concerns how we structure an infrastructure bank. The best version of the proposal I’ve seen thus far is in “Fix It First, Expand It Second, Reward It Third,” by Matthew Kahn, one of my favorite economists, and David Levinson, a transportation scholar at the University of Minnesota. I draw heavily on their proposal in a forthcoming project. "

The Tappan Zee Bridge

A Big Bridge In The Wrong Place and The Tappan Zee Bridge on why the Tappan Zee bridge is mis-located. It has to do with toll revenues.

Planet money writes:

So I wanted to answer a simple question: Why did they build the Tappan Zee where they did, rather than building it a few miles south?

I started digging through newspaper clippings from the 1940s and 1950s. It turns out, the bridge was part of a much larger project: The New York State Thruway, one of the first modern highway systems.

The clippings also reveal something suspicious. There was an alternate proposal for a bridge at a narrower spot nearby. The proposal was put forward by top engineers at the Port Authority of New York and New Jersey.

But that proposal was killed by New York governor Thomas E. Dewey. The New York Thruway was his baby; in a 1954 speech he proclaimed that it would be "the world's greatest highway."

I called historians, and libraries and historical societies. No one seemed to know for sure why Governor Dewey did what he did. Then I found Jim Doig, a professor emeritus at Princeton.

Doig interviewed some of the key government officials involved in the project, and knew the answer.

The Port Authority — the body that proposed putting the bridge further south — had a monopoly over all bridges built in a 25-mile radius around the Statue of Liberty.

If the bridge had been built just a bit south of its current location — that is, if it had been built across a narrower stretch of the river — it would have been in the territory that belonged to the Port Authority.

Equity of Evolving Transportation Finance Mechanisms

TRB Special Report 303: Equity of Evolving Transportation Finance Mechanisms addresses the equity of alternatives to current transportation finance mechanisms, notably mechanisms based on tolling and road use metering (i.e., road pricing). The committee that developed the report concluded that broad generalizations about the fairness of high-occupancy toll lanes, cordon tolls, and other evolving mechanisms oversimplify the reality and are misleading. The fairness of a given type of finance mechanism depends on how it is structured, what transportation alternatives are offered to users, and which aspects of equity are deemed most important.

The committee identified the various dimensions of equity important for public policy debates about evolving finance mechanisms, proposed specific issues for policy makers to consider when evolving mechanisms are proposed, and identified areas where future research is needed for a better understanding of the equity implications of such mechanisms.

To move beyond superficial analysis, the report calls on policy makers to insist on well-designed studies of transportation finance that yield reliable information about the likely distribution of burdens and benefits, and that facilitate comparison of a given finance strategy with alternatives. In addition, public policy makers who wish to promote equity should engage their constituents and other stakeholders early and often when considering the use of new or unfamiliar transportation finance mechanisms.

The report calls on researchers to explore further how people modify their use of the transportation system in response to changes in prices and services and the consequences of these responses. It also recommends the development of a handbook for state and local governments describing procedures for conducting equity analyses of transportation finance policies.

To inform the development of its report, the committee commissioned four papers. Links to the papers are below:
• The Incidence of Public Finance Schemes
• The Empirical Research on the Social Equity of Gas Taxes, Emissions Fees, and Congestion Charges
• Remediating Inequity in Transportation Finance
• Equity, Pricing, and Surface Transportation Politics

I served on the committee that helped TRB draft the report and learned a lot from colleagues and those who presented to us. Online now is the pre-publication version of the report.

The Undeath of Distance

Remember all that talk about the "Death of Distance". Well it turns out even in the supposedly distance-free internet wholesale market, distance still matters and is being suggested as a price differentiator. Connected Planet writes about: The return of distance-based pricing (for wholesale ISPs)? :

"Using just three or four service tiers could improve a wholesale ISP’s profit substantially, the researchers argue in a paper to be presented at the SIGCOMM conference in Toronto today.

The paper titled “How Many Tiers? Pricing in the Internet Transit Market” is based on data collected using a model developed by the research team. The researchers say their creation is the first economic model that takes real traffic data as an input to understand the impact of tiered, destination-based pricing on an ISP’s profit."

Obviously market differentiation and stratification is important, with more differentiators allowing producers to capture more value (and consumers less). And obviously the number of links that are traversed is associated with the underlying cost of infrastructure. The only question is whether the increased transaction costs outweigh the profits.

Value Capture

The analyst Horace Dediu writes in Harvard Business Review: Google's Strategic Mistakes Drove Motorola Buy:

It's an innovative, if not convoluted, business model: Building and giving away the plumbing so that homes are granted unhindered access to free Google utility services (whose meter readings are sold to the highest bidder). But it comes with more complications. … Instead, with Motorola, Google got a hold of the vehicle through which it can create and sell integrated products. The company is thus no longer just a plumber but also a house builder and real estate developer. It can now build showcases that demonstrate the value of its services. The challenge then is how it will sell plumbing to contractors while it also competes with them by building houses. Android's big bet has yet to pay off and Google just doubled down.

This is a really interesting metaphor. Replace plumbing with roads, Google with transportation agencies, and Motorola with land development, and you have the model of Land Value Capture we have been talking about. Like Google giving away the OS plumbing and make it back in advertising, states give away roads and transit lines to users, hoping to make it back (somehow) in tax revenue (maybe?). Google, following Apple's lead, has decided it needs to internalize the value chain to avoid the convolutedness of the market model they had created, which gave them large share, but few profits in mobile. We need to come to the same realization in transportation, in favor of more direct vertical integration of transportation and land use.

Donor-Donee States


GAO: : "HIGHWAY TRUST FUND Nearly All States Received More Funding Than They Contributed in Highway Taxes Since 2005"

This seems improbable. It is because non HTF funds are being redistributed to the states from the Treasury. That is, the money comes from general revenue. That is, it comes from the people and the states. Figure 6 (shown to the right) is probably a more accurate portrayal than the headline quote. The States rich in Senators per capita get an "equity bonus".

David Levinson

Network Reliability in Practice

Evolving Transportation Networks

Place and Plexus

The Transportation Experience

Access to Destinations

Assessing the Benefits and Costs of Intelligent Transportation Systems

Financing Transportation Networks

View David Levinson's profile on LinkedIn

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