David King and I compose a sequel to our recent post on public transit, arguing: The case for (and against) public subsidy for roads @ streets.mn:
"In recent weeks we have thought about public subsidy for transit and university subsidy for parking.But what about roads? Are roads worthy of public subsidy?"
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).
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
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 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).
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."
I got quoted last weekend in the Oregonian about peak travel: Columbia River Crossing needs $900 million from Washington and Oregon, but how to raise it remains elusive:
"David Levinson, a University of Minnesota professor who studies transportation issues, argues that the trend is long-term and is as much cultural as financial.Teens, historically the most avid drivers, are waiting longer to get their licenses and are driving less, pushed by higher costs and also tougher rules for young drivers, stronger enforcement of drunk driving laws, even technology. Another theory: smart phones and the Internet have supplanted the car as a central platform of young people's social lives.
Cars themselves have also changed. Some don't burn a drop of gas or pay a penny in gas taxes. Others use less, due in part to tougher federal mileage standards. 'It's official government policy to drive down gas tax revenue,' Levinson said. "
The 2012 proposal by David Cameron to “privatize” UK roads, by contracting out management of the roads in exchange for a stipend of taxes (but notably not tolling existing roads, only new construction) (Watt, 2012) is interesting, and promises a short-term revenue fix (and possibly better managed roads) in exchange for less funds downstream. In Great Britain, after World War II public corporations managed most utilities (electricity, gas, water, and rail) while others remained within the public sector (post and telecommunications, roads). The Thatcher administration successfully privatized British Telecom in 1984 and other public utilities in subsequent years, including bus transit and some rail transit, but not roads. The government retained the power to regulate these natural monopoly industries.
In many countries, freeways are operated by private sector firms under a franchise or concession agreement with the government, which usually retains underlying ownership of the road (Daniels and Trebilcock, 1996; Poole, 1997; Poole Jr and Fixler Jr, 1987). As of 2004, more than 37 percent of motorway length in the EU25 plus Norway and Switzerland was under concession, and 75 percent of that was privately operated (Albalate et al., 2009).
There is even limited experience in the US with contracting operation of existing roads, which has not been without controversy, the most notable examples are the long-term leases of the Indiana Turnpike and Chicago Skyway (Samuel and Poole, 2005). New toll roads built and operated by private firms are much more widespread, and include the Dulles Greenway and Pocahantas Parkway in Virginia, the Adams Avenue Turnpike in Utah. This experience applies well to toll roads, and variants such as High Occupancy/Toll (HOT) lanes (Poole et al., 1999) and Truck-only Tollways (Samuel et al., 2002). California’s SR-91 median toll lines were privately built on public right-of-way, and later bought out by a public toll agency. Presently, the MnPass HOT lanes in Minnesota manage toll collection under a concession to private organizations. A large share of the few new limited-access roads built in the US have adopted the toll model, and more could follow suit (Fields et al., 2009; Poole and Samuel, 2006; Poole and Sugimoto, 1995; Staley and Moore, 2009).
Yet, most roads, and even most freeways, in the US are not toll roads. Strategies such as mileage-based user fees or vehicle mileage taxes, which replace and improve upon existing motor fuel taxes have been vetted, and may ultimately be implemented. But allocating funds to particular roads, while technologically straight-forward, may face resistance from privacy concerns.
There are technical solutions to privacy issues, but implementing these, in the face of the desire of security agencies to be able to track individuals, will be difficult. It may turn out with cameras, mobile phones, and other devices, we lose privacy about our whereabouts well before road pricing is implemented. The solution may be as Brin (1998) suggests a Transparent Society, where everyone can watch everyone, the state does not have a monopoly on monitoring. Based on historical experience (Levinson, 2002), implementing tolls on existing untolled roads is likely to be politically difficult and unpopular. A 2007 petition in the UK to then Prime Minister Tony Blair beseeched:
“The idea of tracking every vehicle at all times is sinister and wrong. Road pricing is already here with the high level of taxation on fuel. The more you travel the more tax you pay.It will be an unfair tax on those who live apart from families and poorer people who will not be able to afford the high monthly costs.
Please Mr Blair forget about road pricing and concentrate on improving our roads to reduce congestion.”
– The petition, now closed, could previously be found at: http://petitions.number10.gov.uk/traveltax
This petition to scrap “the planned vehicle tracking and road pricing policy” was signed by more than 1.8 million UK residents by 2007, more than any other petition in history. It clearly has informed Cameron’s proposed policy.
Further the problem of rates differing by route (such as marginal cost prices, the theoretical ideal from a micro-economics perspective), would undoubtedly increase system complexity and distrust, with likely only small gains from system efficiency. Our best estimate from computer models 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 is less than 5 percent reduction in total Vehicle Hours Traveled in the Twin Cities. This suggests the “price of anarchy” (the ratio of user equilibrium to system optimal travel times) is not large on real road networks, despite externalities such as congestion, and imperfect competition among roads. Much larger gains are to be had if travelers shifted to different times of day, but that need not be route-specific.
If the rates were set by private firms in an unregulated manner, monopoly links would have higher prices and be rightly perceived as exploiting their position. In a robust network, monopoly routes are scarce, often there are many viable paths between given origins and destinations, but local monopolies remain, especially on poorly designed, or geographically constrained networks. While there are innovative economic solutions it is likely that a disjoint system of too many road operators, in addition to being complex and unpopular, may be inefficient as economies of scale and network externalities are not fully realized.
Albalate et al. (2009) describe recent toll road privatizations as indicating a change in government intervention which sees “transitions from internal control on processes and inputs to external control on performance outputs.” Toll privatization results in an increase in price regulation. In Europe, privatization entails transfer of management and operation (through concessions) for a time period, while underlying asset ownership is retained by the government. It is widely observed in the public management literature that found that more agency autonomy is accompanied by an increase in external controls. Still focusing on the outputs (the performance measures) rather than on how those measures are achieved should, by decentralizing decision-making, produce a more efficient outcome.
Economic solutions to the monopoly problem include auctions for the privilege for operating routes which would allow the public to recover these monopoly profits, or reverse auctions where firms would bid to charge the lowest rate to operate the route. Future franchising such as Present-Value of Revenue (PVR) auctions may entice government agencies to reconsider the toll finance mechanism. The PVR auctions are similar to the so called Demsetz auctions (used in the Build-Operate-Transfer (BOT) approach) with the exception that private firms compete through bidding for the present value of toll revenue they want to obtain from the project. In this way, the consequences of these auction are: no renegotiations (franchise terms are lengthened or shortened to meet bid PVR); no special clauses such as competition (the governments may build additional competing infrastructure projects because of previous consequence); incorporated buyout option (private firms receive their PVR bid, and governments acquire the infrastructure without bargaining behavior); and others. However, disadvantages of PVR auctions include: no incentives to increase demand (if demand increases it shortens the franchise term), and thus projects that require higher service quality may not be appropriate for PVR auctions (Engel et al., 2006).
A model that has been insufficiently explored in the US is that of public utilities. Many utilities share with transportation systems the characteristic of having a networked structure. Most, if not all, of these utilities are operated on the basis of a payment-for-use system. Utility pricing varies regionally, some locales vary prices by time of day, and users often have the option of choosing different rate plans. These models are never strict marginal cost pricing, but they may improve upon average cost pricing. There are strong parallels between public utilities and transportation services, though some differences exist in the nature of the services consumed, the role of technology, and the structure of institutions and decision making (Hillsman, 1995).
Water faces similar difficulties to transportation in the ambiguity of appropriate property rights. Institutional reforms began in the 20th century to better allocate water resources and to improve the efficiency of water use. The perspective of water changed from being perceived as a free good to a scarce economic good took place around the world (Saleth and Dinar, 2004). Institutional reforms differ by political setting and social environment (Saleth and Dinar, 1999), who observed that decentralization (from central to state and municipal governments) took place in Mexico, Brazil, while corporatization and privatization occurred in Chile, Brazil, France, United Kingdom, Australia, and New Zealand, among others.
Hillsman (1995) suggests four categories in which utilities have developed to manage demand:
Transportation agencies have considered all of these, but implemented them weakly. In reverse order: Prices are largely invariant, technological (modal substitutions) are not viable for most passenger or freight users, bundling and packaging of services is not considered when looking at pricing, and infrastructure is hidebound to engineering standards, and difficult to modify. One could easily imagine more creativity on the part of road providers in all of these aspects. The constraints on the application of creativity are due to the engineering culture in a public agency, where risk-taking is discouraged if not punished, and certainly never rewarded.
With some modification, it seems possible to transfer the utility model of governance to road transportation. This model separates the organization delivering the service from the client, is subject to rate regulation, and implements a more direct, user-pays system of financing. This model could depoliticize management of the existing transportation system. Whether rate regulation is in fact economically necessary is the subject of debate; for instance Stigler and Friedland (1962) argue there is no difference in prices in the electrical sector due to regulation, because electricity is competitive with other energy sources in the long run. One expects from experience with other utilities, toll roads, and road concessions in other countries that it would be politically necessary to have some public guarantee of an upper bound on the rates a road utility could charge, as provided by a regulatory agency. The risk is that an upper bound on revenue would be too tight, resulting in financial losses (and one of the causes of municipal takeover), as occurred in the then private mass transit sector throughout in the US in the early to mid 20th century.
Such a system would transform but not replace public highway or transportation authorities as the party responsible for providing and maintaining roads. One example of a transportation system that has transitioned to more of a utility-based model is the road authority in New Zealand (Starkie, 1988). This system was designed to be self-financing, with what was originally called the National Roads Board allocating charges among users on the basis of costs incurred. Three types of costs were identified: load-related costs, capacity-related costs, and driver-related costs (covering signing and other costs not related directly to road use).
There are other elements of costs not included, such as access costs (the cost of accessing the network from land and the cost of a connected network, which can be separated from capacity costs (related to the width of the roadway), and load costs (related to the thickness of the roadway), and environmental costs (both how the system deteriorates due to weathering independent of use, and how the environment is degraded due to use).
Vehicles are split into two classes on the basis of weight, with vehicles less than 3.5 tonnes paying a charge in the form of a fuel tax. In the US, Oregon has a weight-mile tax for heavy trucks. Heavier vehicles pay a distance license fee, which is essentially a form of weight-distance tax. Such a system is relatively straightforward and requires minimal new technology, leading to low collection costs compared with most proposed road pricing systems. (Newbery and Santos, 1999) have also estimated the costs and relevant charges for a similar, though hypothetical, system of user charges for the UK.
These types of road user charging schemes contrast with user charges based on a mileage tax concept utilizing GPS systems (Forkenbrock, 2008). There are a variety of potential technologies for assessing mileage taxes, most use GPS (or an equivalent such as cellphone triangulation) to identify location, since one of the advantages of these types of systems is the ability to charge different rates for different locations (city vs. country, freeway vs. local street, congested vs. uncongested road). GPS receivers do not normally transmit information. GPS-equipped vehicles can log the vehicle location internal to the vehicle. Some additional communication technology, which might report a reduced form of information (e.g. total amount owed) would be used to complete the transaction. For instance, a pilot study in Oregon (Zhang et al., 2009) had a chip in the vehicle log distance traveled by zone (an aggregated version of location) and time of day, without storing the precise location. The chip only reported to the external source the total charge owed, calculated by an onboard algorithm. So no detailed tracking information was shared. Simpler technologies such as a mileage based user fee would simply record the odometer reading, but this would not allow differentiation by time of day or location.
While the road user charging concept remains an attractive prospect, its application may still be many years away due to a combination of privacy concerns, implementation and transaction cost issues (Levinson and Odlyzko, 2008), and technological development issues. Some of these concerns might be obviated under a different governance structure, where it was neither the legislative nor executive branch of government making these decisions. Public utilities have a “mean level of trust” of 42%, (Jenkins-Smith and Herron, 2004), which is much higher than the trust in the federal government, which hovers in the 20% range (Pew Research Center for the People and the Press, 2010). Dynamic pricing, as suggested for toll roads, significantly reduces consumer’s trust in an organization (Garbarino and Lee, 2003), as prices are no longer predictable and feelings of price gouging take place. Other US surveys suggest that the public feels dedicating the gas tax to transportation (hypothecation in the British jargon) would be a good idea. Of course this already occurs in most states and at the federal level, the public just does not realize it, and the political debate does not help. Hypothecation does not occur in localities, where roads are in fact funded out of general revenue, typically property taxes.
The discussions of road pricing for financing and congestion management in the US are still largely under the guise of existing institutions doing the pricing. To date, this has essentially been a non-starter. Perhaps with institutional reforms, reconfiguring state and local DOTs as public utilities rather than departments of state and local government, the logic the public applies to roads will change, from one of a public service paid by the pot of general revenue to a fee-for-service proposition paid for by direct user charges.
References
Albalate, D., Bel, G., and Fageda, X. (2009). Privatization and regulatory reform of toll motorways in Europe. Governance, 22(2):295–318.
Brin, D. (1998). The transparent society: will technology force us to choose between privacy and freedom? Basic Books.
Daniels, R. and Trebilcock, M. (1996). Private provision of public infrastructure: An organizational analysis of the next privatization frontier. University of Toronto Law Journal, 46(3):375–426.
Engel, E., Fischer, R., and Galetovic, A. (2006). Privatizing highways in the united states. Review of Industrial Organization, 29(1):27–53.
Fields, G., Hartgen, D., Moore, A., and Poole, R. (2009). Relieving congestion by adding road capacity and tolling. International Journal of Sustainable Transportation, 3(5):360–372.
Forkenbrock, D. (2008). Policy Options for Varying Mileage-Based Road User Charges. Transportation Research Record: Journal of the Transportation Research Board, 2079(-1):29–36.
Garbarino, E. and Lee, O. (2003). Dynamic pricing in internet retail: effects on consumer trust. Psychology and Marketing, 20(6):495–513.
Hillsman, E. (1995). Transportation DSM: building on electric utility experience. Utilities Policy, 5(3-4):237–249.
Jenkins-Smith, H. and Herron, K. (2004). A Decade of Trends in Public Views on Security: U.S. National Security Surveys 1993-2003.
Levinson, D. (2002). Financing transportation networks. Edward Elgar.
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Poole, R. (1997). Privatization: A new transportation paradigm. Annals of the American Academy of Political and Social Science, 553:94–105.
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Watt, N. (2012). David Cameron unveils plan to sell off the roads: Sovereign wealth funds to be allowed to lease motorways in England, says prime minister. The Guardian Newspaper, Sunday 18 March 2012.
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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.”"
A new report is out from Institute on Taxation and Economic Policy Building a Better Gas Tax: How to Fix One of State Government’s Least Sustainable Revenue Sources.
I like the report and generally agree that increasing the gas tax, and building a better one, is appropriate as a short-term fix (until vehicle electrification and better fuel economy overtake it), so long as the funds are not spent on system expansion until the existing system is properly maintained (or abandoned where appropriate). I have some quibbles:
"As Figure 4 indicates, even a twenty cent per gallon tax increase would cost the average driver under $9.00 per month, and at least some of that cost would undoubtedly be offset through lower vehicle repair costs and less wasted gasoline burnt while stuck in traffic." - If raising the gas tax is a socially good thing, all of it should be offset by private gains on average. The average driver should save time and money (or achieve value and avoid losses) which exceeds the additional tax (over the long term). If they don't, why should they support such a thing?
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.
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".
I noted yesterday in Linklist that "A bill was recently introduced by Senate Republicans that would allow states to opt out of the federal highway program."
So what happens. Let's assume half the states are donor states and half are donee states.
Day 1: All (25) the donor states opt out.
There are now 25 states in the gas tax pool. Half the states are donor states, half are donee. The funds had to be recalibrated based on the smaller pool.
Day 2: All (say 13) the donor states opt out.
There are now (let's say 12) states left in the pool. Half the states are donor states, half are donee. The HTF allocation again had to be recalibrated based on the smaller pool.
Day 3: All (6) the donor states opt out.
There are now 6 states left in the pool. Rinse and repeat.
Day 4: All (3) the donor states opt out.
There are now 3 states left in the pool. One more time.
Day 5: All (1) the donor states opt out.
There are now 2 states left in the pool. One last time.
Day 6: All (1) donor states opt out.
There is only 1 state left in the pool. The federal government eliminates the gas tax program.
Opt-out of cross-subsidies leads inevitably to elimination of cross-subsidies.
Jarrett Walker makes a brilliant point about US transportation financing prospects. Human Transit: transit and a shrinking u.s. government:
"In other words, US urban policy would become more like that of Canada, a country where the Federal role in most urban matters is much smaller than in the US, but where cities, regional governments, and provinces are correspondingly freer to chart their own way, and pay for it.It's easy to imagine that more conservative states would just let their cities die through underfunding, but that's certainly not happening in Alberta. Canada's most conservative province, a natural resource powerhouse that draws comparison to Texas in its boom times, has remarkably good inner-city transit policy and a continuous stream of provincial investment. Calgary's downtown commuter parking cost is about the same as San Francisco's and the result is extremely strong ridership on its bus and light rail system, at least for commutes, and support for a dense core.
The transition to a more Canada-like Federal role would be hell. Everyone involved is understandably horrified by the prospect, including me much of the time. But if the Federal budget-slashers win, US cities and states will be on that course whether they like it or not. Are we sure the eventual outcome would be a disaster?"
Having just returned from Vancouver, I suspect Canada does better than the US on many infrastructure investment questions (collapsing concrete in Quebec aside). In the end, both the "left" and the "right" should welcome this outcome. Local governments, weened from Washington will make decisions that better fit local needs. Transit investment will increase in places where it should (and not where it shouldn't). There will remain intra-metropolitan investment mismatches, but a lack of federal dollars may also disempower the MPO. At any rate, metropolitan mismatches are less odious than federal investment mismatches.
When the established interests start saying their "ohs noes" about the shrinkage of federal funds, think about our neighbor to the north. They somehow muddle through.
Matt Yglesias writes: Will The Federal Gasoline Tax Be Grover Norquist’s Next Hostage?
With the debt ceiling controversy all but resolved, and hostage-taking once again proven to be an effective strategy for achieving conservative policy goals, Washington is wondering what the next fight will be. Byron Tau and Ben Smith in Politico plausibly speculate that the scheduled September 30 sunset of the federal gasoline tax may be the culprit. The gas tax, in addition to serving important environmental goals, is the means by which the federal government finances investments in transportation infrastructure. Traditionally, reauthorizing the tax for that purpose has been uncontroversial (though the idea of raising it to finance needed infrastructure upgrades hasn’t been) but in this day and age everything could be on the table and Tau & Smith report that Grover Norquist seems to be at least considering the idea
“In general, ATR has always supported the idea of ending the federal tax on gas and having states pay for their own roads,” Norquist told POLITICO, but he declined to say whether he or his group plans to pressure congressional Republicans to let the excise tax expire.
“ATR would love to help begin such a dialogue,” he said.
“We’re monitoring the situation. I think that everyone on the Hill and most outside groups are pretty focused on the nation’s debt crisis,” said Barney Keller, spokesman for the conservative Club For Growth, who also wouldn’t say whether his group wants the tax to expire.
There’s no denying that the gas tax is a tax, so in that sense it’s difficult to see why anti-tax groups wouldn’t argue against its reauthorization. More broadly, the traditional reason reauthorization has been uncontroversial is that neither Republicans nor Democrats wanted to see infrastructure spending fall to $0 so nobody was willing to use the gas tax as leverage for concessions. But by the same token, the traditional reason the debt ceiling hasn’t been used as leverage for concessions is that neither Republicans nor Democrats wanted to see the country default. This summer, however, the world has learned that Republican leaders can simultaneously agree that the debt ceiling needed to be raised while also demanding major policy concessions in exchange for agreeing to raise it. Transportation Committee Chairman John Mica (R-FL) is already pushing a transportation bill that will starve the country’s infrastructure and devastate job creation in both the short- and long-term. If the gas tax becomes a new hostage, the situation will only get worse.
It is important to remember that most travel is local, so there is a not beyond-the-pale argument for returning the responsibility to the states. Especially since the completion of the interstate system, the federal role has been drifting. There needs to be a strong rationale for federal involvement. This includes:
However the gas tax should better be viewed (and legally restructured) as a user fee, so we can avoid this needless politicization.
The NY Times reports New Mileage Rules Debated by Carmakers and White House: "
The administration is proposing regulations that will require new American cars and trucks to attain an average of as much as 56.2 miles per gallon by 2025, roughly double the current level. That would require increases in fuel efficiency of nearly 5 percent a year from 2017 to 2025.The standard would put domestic vehicle fuel efficiency on a par with that in Europe, China and Japan, saving consumers billions of dollars at the pump and creating for the first time a truly global automobile market.
The automakers say the standard is technically achievable. But they warn that it will cost billions of dollars to develop the vehicles, and they express doubt that consumers will accept the smaller, lighter — and in some cases, more expensive — cars that result."
Consumers will accept it if that is what is offered, i.e. if all automakers have to produce this at a price to move (i.e. hiking the price of poor fuel economy vehicles to shift the demand curve), the CAFE standards will have achieved their end. Why we can't just raise the gas tax to achieve the same ends and be done with it remains something I cannot fathom (yes I know politicians don't like to raise taxes, but this is implicitly a tax, and surely people complain about regulation with the same frequency they complain about taxes - you could return the money to taxpayers somehow and bill it as a credit). Anyway the article suggests this will result in a 50% Hybrid fleet, which seems perfectly plausible, especially since we are talking 14 years from now. Until the recent downtick in hybrid sales, we were well on our way to that mark.
Fix It First, Expand It Second, Reward It Third: A New Strategy for America's Highways - Brookings Institution by Matthew E. Kahn, Professor of Economics, UCLA Institute of the Environment and Sustainability and
David M. Levinson, RP Braun/CTS Chair in Transportation, University of Minnesota
Abstract: The roads and bridges that make up our nation's highway infrastructure are in disrepair as a result of insufficient maintenance--a maintenance deficit that increases travel times, damages vehicles, and can lead to accidents that cause injuries or even fatalities. This deficit is in part due to a prioritization of new projects over care for existing infrastructure and contributes to a higher-cost, lower-return system of investment. This paper proposes a reorganization of our national highway infrastructure priorities to "Fix It First, Expand It Second, and Reward It Third." 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.
Maryland's Blue Ribbon Commission on Transportation Funding issued its report (pdf) last week. It was chaired by my former boss Gus Bauman.
Maryland's highly-regarded transportation network is the lifeblood of the State, directly affecting every citizen and the essential viability of our economy. Yet the State's transportation system finds itself on the verge of financial collapse unless action is taken now to change course for a new, more secure, heading.We must put the trust back in the Transportation Trust Fund. And we must replenish the depleted coffers of the Trust Fund. We cannot accomplish the latter without also accomplishing the former. They are inextricably linked -- without re-establishing public trust in the inviolability of the Trust Fund, there will be little faith by the public that raising revenues for its transportation needs will correspondingly address those needs as promised.
I think this is critical for the future of transportation in the US. Trust funds comprised of user fees need to be dedicated to transportation. Transportation, like other public utilities, should be funded by those who benefit. If it is publicly operated, those user fees are sometimes called taxes (motor fuel taxes) or tolls, but they are no different in function than the water bill, electric bill, or natural gas bill, which charge according to use. It would be a mistake to conflate transportation funding with other aspects of government, which are also important, but whose benefits are distributed across the whole population and cannot be associated with users or direct beneficiaries. It would probably be helpful in this regard if DOTs were instead called Transportation Utilities or Road Authorities, and considered separate from the general budget.
Taxing gasoline is often seen as a nice revenue source for governments, especially in other countries. From a fund-raising perspective, gasoline consumption has some nice properties, it is especially inelastic to changes in price, demand drops only a little when prices rise a lot, and the transaction costs of collection are very low (you only need to check the refineries not each gas pump).
I don't object to using gasoline taxes as a way of internalizing the air pollution externality, (and discouraging pollution), as it is a convenient tax with low collection costs, whose use is roughly proportional to pollution and carbon emissions. So long as this pollution and carbon tax is dedicated to reversing the pollution and health damages caused by burning fuels, this is just another user fee, in this case paying for the use of clean air and good health that are inputs to transportation. The amount of this tax is debatable, in the US it is surely too low now (about 0, since the existing taxes largely go to infrastructure), while in some European countries it might be too high (considering the amount of gas tax above and beyond what is spent on highway infrastructure may more than pay for the environmental and health effects). Carbon taxes have not yet been an easy sell in the US, but perhaps as part of a more general reform, where the funds from the tax are coupled with many other changes, this has possibilities, and if it can be shown these taxes are dedicated to some necessary service (paying for the related costs of environmental cleanup e.g.)
Further, gasoline should not be exempted from general sales or value added taxes, otherwise you have a cross-subsidy to motorists from the general population, lowering the general cost of consuming auto travel relative to other types of consumption.
But for general revenue, it is unreasonable to have a special tax on transportation fuels (after the pollution/health tax). The logic is sometimes put that gasoline taxes can operate as a 'sin' tax (like those on tobacco or alcohol). But if the pollution and health tax is accounted for and the money just goes to general revenue (or has sometimes been proposed, social security), you are asking for a subset of the population to pay extra for services they do not receive extra of.
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I should also note, in Maryland's report there is a shout out to Value Capture, on which I and colleagues Adeel Lari and Jerry Zhao gave some advice to the state last summer:
4. Value Capture. Value capture refers to a funding mechanism in which increases in private land values generated by a new public investment, such as a transportation system investment, are at least partially "captured" through a land related tax or special assessment. The Commission will seek to better understand the ability to implement value capture approaches in Maryland and their funding potential.
Our new Brookings report (available tomorrow) makes the Economix blog of the New York Times:
Fix Old Roads, Instead of Constructing New Ones, Report Urges - NYTimes.com
February 24, 2011, 3:50 PM
Fix It and They Will Come
By DAVID LEONHARDT
On Friday morning, the Hamilton Project will release a few new proposals for helping fiscally struggling state and local governments keep their roads, bridges and other infrastructure in decent shape. One of the proposals fits a theme I've been writing about recently: making government programs less wasteful.This proposal comes from Matthew Kahn of the University of California, Los Angeles, and David Levinson of the University of Minnesota. The title summarizes it: "Fix It First, Expand It Second, Reward It Third."
Mr. Kahn and Mr. Levinson call on the federal government to devote its current funding for highways to repair, rather than to the construction of new highways. As they note, the reverse happens all too often:
The way the federal government allocates money for transportation infrastructure investments is one reason why the United States is experiencing a maintenance shortfall and falling returns on new investment. Federal highway infrastructure spending is allocated based on a series of subjective criteria that typically do not require any stringent analysis of expected benefits versus costs. Because there is often public pressure to build new projects using scarce funds, adding capacity often comes at the expense of supporting and enhancing existing infrastructure.
We build roads we don't need instead of fixing aging roads that we do need. The Kahn-Levinson solution would force state and local governments to spend their federal dollars on repair and to raise money from investors for new construction.
New roads would have to be able to pay for themselves -- "through direct user charges and by capturing some of the increase in land values near transportation improvements" -- or investors wouldn't finance them. A newly created Federal Highway Bank would serve as an intermediary between the investors and the state and local governments.
Finally, roads that exceeded expectations -- were completed ahead of schedule, for instance, or reduced traffic more than expected -- would be eligible for a federal interest-rate subsidy, through the highway bank.
The idea strikes me as promising. The big question, it seems, is how Congress can be persuaded to get out of the business of shiny new roads and concentrate instead on the unglamorous repair work.
The Hamilton Project -- which is a branch of the Brookings Institution and tends to be filled with once and future Democratic policy makers -- will host an event on Friday to discuss its new proposals.
Brookings Institution will be hosting an event on State Roads to Economic Recovery: Policies, Pavements, and Partnerships - Brookings Institution.
Event Information
When Friday, February 25, 2011 9:00 AM to 1:00 PM
Where Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC
As the U.S. economy begins a slow climb to recovery, state and local governments are still reeling from the impact of the Great Recession. Revenues have plunged while the demand for key state and local services has soared. Meanwhile, unemployment remains stubbornly high.On Friday, February 25, The Hamilton Project and the Metropolitan Policy Program at Brookings will host a forum on state strategies that can help close budget deficits while also growing state economies and creating much-needed jobs. Brookings Vice President Bruce Katz will moderate a panel of policy experts and state leaders, including former Pennsylvania Governor Ed Rendell, now a senior fellow at Brookings, and Michael Finney, CEO of the Michigan Economic Development Corporation. The panel will discuss a range of fiscally responsible policy ideas to build the foundation for the next economy.
A second panel of economic experts, moderated by Hamilton Project Director Michael Greenstone, will discuss three new policy proposals to help state and local governments invest more efficiently in infrastructure to promote their long-term economic competitiveness. These papers provide a new approach to arranging public private partnerships to create greater public value and reduce risks; a reorganization of our national highway infrastructure priorities; and the establishment of a not-for-profit, independent advisory firm that would help reduce borrowing costs for municipalities and increase returns for investors. Former Under Secretary for the U.S. Department of Transportation Tyler Duvall will serve as a discussant for the proposals.
I will not be at the event in person, though I will be there in spirit and online, while Matt Kahn presents our joint paper, which is almost ready to be released.
(This is probably the most important work ever to be written on highway finance by two authors who walk to work).
US PIRG has a new report, asking Do Roads Pay For Themselves? (and answering: "Setting the Record Straight on Transportation Funding")
As with most advocacy work, most of the facts are correct, the issue is in the spin. It is well known that "roads" do not pay for themselves, most local streets and roads are paid for from general taxes (esp. property taxes) and most roads are local (and most travel is local). The question is really 'do "highways" pay for themselves?', which the answer is much more difficult. Unfortunately the authors loosely interchange the terms "highways" and "roads" to suit convenience. They are different, they serve different purposes, and they are funded differently. If cars suddenly vanished, we would still need roads, just as we had roads before the advent of the automobile. They might be narrower, there might not be highways, but there will always be roads.
The authors have a heterodox history of the gas tax (but seem to emphasize the federal over the state, which is a common fallacy in all national transportation discussions, promoted by those based in Washington. If the federal government's role in transportation funding disappeared, it would take years to really notice out here in the country, since DC funds new projects, which would just stop being built, resulting in no change to existing infrastructure.)
The authors have an interesting take on the term 'user fee', suggesting that gas taxes aren't really user fees because (a) they were sometimes used for deficit reduction, (b) they are shared with other surface transportation (transit), and (c) they don't correspond with use. While I don't like either diversion, that doesn't mean that gas taxes aren't user fees, just that Congress can't avoid meddling. Just because gas taxes imperfectly measure use (i.e. it is proportionate to gasoline consumption instead of miles, it is assessed on travel on all facilities, not just highways), doesn't mean it is not highly correlated. It is a surrogate, as are most fees. They are charged only to users of motor vehicles (admittedly only those users who use fuel, but that is approximately all users at this stage of technology). It would be better if user fees (preferably tolls if transactions costs could be reduced, but gas taxes in the interim) covered all costs of operating and maintaining existing streets, roads and highways, so we could depoliticize the issue, and treat it like the public utility it is. It would be better if the charge could vary by location and time of day, it will eventually do so.
User fees as the primarily source of funding is certainly economically feasible (i.e. we could raise the gas tax and cover all the costs if we so chose in the US), but politically we are not there yet, as politicians still have a fear of being unelected.
Financing new roads and highways is a separate problem from maintaining the existing. They should not be conflated.
What we need is a schoolhouse rock for transportation funding.
The public does not know where the money for roads comes from or goes to. It does not understand trust funds. It has no clue the magnitude of the gas tax or other transportation funding sources.
I could say the same about policy-makers.
Transportation funding is becoming a shell-game promulgated by Washington because of fear that elected officials have of being unelected by the mathematically illiterate.
It has to be cheaper to teach people math than to suffer through inadequate transportation funding out of general revenue because a general sales tax seems cheaper (at e.g. 1/2 percent) than a gas tax (at e.g. 20 cents / gallon) since 1/2 < 20.
Is existing infrastructure in good shape? [Yes or No]
Should existing infrastructure be in good shape? [Yes or No]
The answers to these questions should dictate an answer to the question of whether infrastructure requires more funding.
The first question is empirical (depending on what standard you apply to "good shape"). E.g., there are an empirical way to assess road quality, one is the roughness index (assessed by running a vehicle with a trailing wheel, the cumulative vertical movement of the trailing wheel per unit distance is a measure of roughness). Clearly some roads are smoother than others. New roads tend to be smoother than older roads. Roads before snow plowing are smoother than roads after snow plowing.
You may believe infrastructure is in good shape, or you may not.
The second question is normative, should infrastructure be in good shape (relative to its existing state). I have seen advocates for non-auto modes of transportation argues that the worse roads are, the more people will switch modes. I have also seen neighborhood activists argue against smooth roads as a way of discouraging traffic (a natural form of traffic calming). Underfunding of buses has been used to support rail transit. Most advocates do not argue this, but there are people who do.
So combining the answers to these two questions we have the following, (with the natural policy prescription regarding funding in parentheses, assuming money is required to maintain or rebuild infrastructure)
(1) Infrastructure is in good shape and should be in good shape (do nothing different)
(2) Infrastructure is in good shape and should be in bad shape (cut funding)
(3) Infrastructure is in bad shape and should be in good shape (raise funding)
(4) Infrastructure is in bad shape and should be in bad shape (do nothing or cut funding).
Given that the number of people who actually believe infrastructure should be in bad shape is small, the main debate is between (1) and (3). Given not many people would say infrastructure is in good shape in most urban areas,(ASCE rates roads a D-, tied for the lowest of all infrastructure, though any reports cards like this are suspect) raising funds for infrastructure, should be as they say, a no-brainer.
So what is the problem?
People do not believe the money will be well-spent or they believe infrastructure will heal itself. I believe we should look into technologies that can do the latter (self-annealing roads would be great), but the more fundamental problem is the lack of confidence about spending.
This distrust is general, but especially emerges when decisions are politicized. Bridges to Nowhere, while a small-part of actual transportation funding, garner most of the attention. Pothole fillers not doing their job get media, those actually filling potholes do not. Because these are public sector investments, they get much more attention than private sector utilities. I am sure some telco employee has loafed at some point in their career, without making the news.
This leads me to the conclusion, the problem with raising funds is the public and political nature of transportation funding (which prior to the latest downturn, I used to call the last bastion of socialism in the US).
Can transportation funding be isolated and depoliticized, like a public utility, where users pay charges that are dedicated (and more importantly are believed to be dedicated) to provide services for the users? Every month, households get a natural gas bill, a water bill, an electric bill, a cable bill, a phone bill. Households may grumble, but they pay the bill. Rates go up periodically as needed, with public oversight for most of these utilities. Where is the road bill?
We have federal and state highway trust funds, supported largely by a tax on gasoline, while local funds tend to come from general revenue sources, all of which no-one in the public understands. But we still have political intervention in decision-making that is highly visible, usually unproductive, biased toward new capital expenditures rather than operations and maintenance, and generally confidence-destroying.
Major facilities still need oversight, just as high-voltage lines or any other infrastructure. But these should be professional decision determined by organizational mission rather than political decisions to help ensure re-election by bringing home bacon.
An independent transportation infrastructure utility (and a separate independent transit services utility) which is governed independently from the legislative and executive branches is needed to enable us to achieve new funds for old infrastructure.
From MPR Money for motorized recreation too much, some Minnesotans say | Minnesota Public Radio NewsQ
Minnesota's gas tax raised $745 million last year.The state constitution says the tax dollars collected on gas that goes into vehicles using public roads must go to the highway fund. But the legislature has interpreted that as meaning the tax on gas going into boats can go towards boat landings; taxes for gas in [All Terrain Vehicles] can go to ATV trails.
...
ATV owner and chair of the Senate Tax Committee, DFLer Tom Bakk of Cook, says the system is fine.
"It's based on the number of machines and the average number of gallons of gasoline consumed, or it's based on some survey," Bakk said. "You have to base it on something. And it just plugs into a formula, and I think it's pretty fair."
I have now placed a copy of my presentation Transport, Land Use, and Value from April 30 at the UTRC based at CCNY online.
A PDF of the presentation is available at:
Transport, Land Use, and Value
The movies themselves can be downloaded here:
Movies
The webcast (including a Q&A session) is available here:
City College of New York University Transportation Research Center April 30, 2010 [webcast (Flash, 98 minutes)]
Thank you to UTRC for inviting me to New York, I enjoyed giving the talk and meeting everyone there.
Let me know if you have any questions about the presentation.
Ryan Avent at The Bellows argues in his post No Choice
"The bottom line is this: we can no longer afford to not tax important negative externalities. We can no longer afford to not do the stuff we really ought to have been doing in the first place. The options we have are to ratchet up current taxes with bad incentive effects and diminishing returns, or to cut spending on important priorities, or both. But cutting back on education spending and infrastructure investment while increasing taxes on income will squeeze growth, making the task of closing these financial holes harder.
Or we can bite the bullet, suck it up, and start charging an appropriate amount for valuable public infrastructure. We can stop giving away space on roads and parking spots for free, costing everyone a lot of wasted time. We can stop letting companies foul the air and slow-cook the earth with no negative impact to their bottom line. And then we just might have enough dough to keep critical infrastructure running. We might even be able to invest in a new and better infrastructure capacity."
Similarly, the blog Grush Hour argues No more RUC [Road User Charge] trial please, suggesting we know enough and the time for action is now.
While any claims I have to working in transportation economics would be revoked if I did not support road pricing, there are several issues that keep getting ignored in the progressive blogosphere when endorsing quick implementation of road pricing.
(1) Gas taxes send the right signal about general use, and encourage conversion from gasoline to electric powered vehicles if set appropriately, though does not send a useful signal for time and place A Dozen Reasons for Raising Gas Taxes
(2) Gas taxes are administratively efficient, road pricing loses on the order of 20-30% of revenue to administration and collection costs. See: Too Expensive to Meter
(3) Imposing a new mileage based user fee/road user charge/vehicle mileage tax on existing vehicles is going to be unpopular, probably less popular than simply raising gas taxes. See: Road pricing killed off by Transport Secretary
Everyone now recognizes gas taxes will cease to be effective as user charge as hybrid and EV adoption rises (unless the gas tax rises with MPG, and even then 100% EVs will get off the hook). If we rely only on gas taxes, we eventually will have to tax 100% of the cost of roads on the last gasoline powered vehicle. The system will break down long before then. See Beyond the Gas Tax.
This suggests an obvious transition point. Use gas taxes to collect revenue from the "old fleet" powered by gasoline or diesel, use a Vehicle Mileage Tax to collect revenue from the "new fleet" powered at least in part by electricity. It can be easily communicated that the new fleet does not consume gasoline (or as much) and this is about fairness. The relative gas and electricity charges can still be skewed to adjust for environmental externalities associated with gasoline, but other than that, should be equalized to reflect costs imposed and benefits received. A standing, independent "Highway User Fee Commission" can set federal rates to ensure full funding of the Highway Trust Fund (and secondarily manage traffic by time and place). States could piggy-back on the apparatus.
Each new electric or quasi-electric car can have an on-board device to compute tolls specific to the vehicle (based on MPG, and therefore discounting for the gas tax already paid) and for time (hour of day, day of week) and general place (in the city, on the freeway, vs. in the country, on local roads, etc.). Since this would apply only to new cars, no older EVs would be harmed (it is a small price to pay for political harmony).
Trucks are another story, since the fleet is smaller and more centrally (though not centrally) managed. They can be converted sooner.
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.
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.
From the Guardian, Budget 2009: car industry welcomes scrappage scheme
So in the UK (and apparently elsewhere in Europe similar policies are being put in place) ... from the article
"Motorists will receive £2,000 if they sell their old car and buy a new model, after the chancellor bowed to pressure from the automotive sector and announced a car scrappage scheme this afternoon.Car and van owners whose vehicle was bought more than 10 years ago will be given £2,000 towards a brand new vehicle. The scheme will expire in March next year and follows similar moves by major European countries, including France and Germany.
But the car industry will have to contribute £1,000 to the grant and it will not be restricted to greener vehicles. The "cash for clunkers" programme will also be markedly smaller than Germany's, which is investing €5bn (£4.49bn) and has boosted sales by 40%. By contrast, the UK version will cost £600m (£300m from the government) and will end earlier than expected if the money runs out before March."
This is being paid for with an increase in fuel duty to 71%.
So UK is increasing marginal cost of traveling (higher gas tax), and lowering the upfront cost of newer (and presumably more fuel efficient and environmentally sound and safer) vehicles while stimulating the domestic (and international) auto sector.
It seems more productive to stimulate the auto sector in this way than nationalize it as the US has.
From Christian Science Monitor As road fund dries up, drivers must pay up ... the highway trust fund is about to be broke again, CSM endorses a gas tax increase.
As we have mentioned before, the gas tax will eventually come to an end. The following graphic illustrates the issue.
Imagine all gasoline vehicle users pay for all transportation costs. Imagine total expenses are $100,000,000 and the total number of users are 1,000,000, and all gasoline powered cars get 30 MPG. In that case, if all vehicles are gasoline powered, the gas tax will be $0.30/gallon, in line with current costs. Now imagine, only half of all cars pay the gas tax, the tax jumps to $0.60 to cover costs, still quite tolerable, but as the gas tax rises, the number of gasoline powered cars should be expected to fall. The following image shows the expected gas tax based on the above assumptions with a varying number of gasoline powered cars on the road. Note especially this is a log-log scale. At 50,000 cars with gasoline engines (95% non-gasoline powered), the tax jumps to $6.00 per gallon (above European levels), but the last car has to pay $300,000 per gallon. The move away from the gas tax is a positive feedback system that will accelerate. A replacement is required.
The possibility most vetted is some form of mileage tax using GPS technology. The following article from the Albany Democrat describes
Oregon's proposal, which as the comments on the article indicates, will not come without some political struggle.
The longer version of the report is
Oregon's Mileage Fee Concept and Road User Fee Pilot Program
along with a report by Starr McMullen and Lei Zhang on
TECHNIQUES FOR ASSESSING THE SOCIO-ECONOMIC
EFFECTS OF VEHICLE MILEAGE FEES
From the Strib: Gas tax no longer hot issue
"None of the websites of south-metro Republicans challenging the most vulnerable Democratic officeholders -- those still in their first term in office -- trumpets the gas tax as an issue. And candidates on both sides agree that it has faded."
