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Netherlands to Replace Car Taxes with Distance Charges

sam.staley@reason.org (Samuel Staley) — Wed, 18 Nov 2009 16:28:00 EST

I reported yesterday that the Netherlands is proposing to replace its vehicle taxes with a distance- based charge closer to a real user fee. Today, I found an English language explanation published by the Dutch government of the new approach that is well worth a quick read. Perhaps most notable is the argument that the new fee system is intended to make driving cheaper, not more expensive. The intent appears to move toward a new funding platform for road infrastructure rather than an instrument for reducing mobility.

Key features of the proposal also appear to mirror the pilot road charging project pioneered in Portland, Oregon, including

Peak and off-peak charging
Dedicating the revenues to an infrastructure fund, not general government spending
Substitituting the distance-based charge for the other taxes to keep the proposal revenue neutral (or even reduce costs to drivers)

Unfortuantely (for the US), this is another example of where Europeans are making the investments necessary to be on the leading edge of transportation policy while American policymakers wallow in the ideas of the mid-20th century.

Dutch Move Forward on VMT Fee

sam.staley@reason.org (Samuel Staley) — Tue, 17 Nov 2009 08:00:00 EST

As our roads crumble, the U.S. continues to put transportation policy on the back burner. Meanwhile, the Dutch government is moving forward with a wholesale remake of approach to financing transportation infrastructure. The Transport Ministry has forwarded a proposal to parliament that would replace vehicle taxes with a fee based on the the distance driven, or a vehicle miles traveled (VMT) fee. They say the move will cut congestion in half and reduce carbon dioxide emissions by 10 percent.

In Holland, the fee would be equivalent to about 7 cents a mile, rising to 16 cents around 2016.

According to Wired magazine:

"The Dutch cabinet approved the legislation Friday; it must be passed by Parliament before becoming law. Finance Minister Wouter Bos calls the proposal financially irresponsible. According to Radio Netherlands / Expatia, he fears that national budget could take a big hit because people might be less inclined to drive.

"Advocates of the tax say nearly six in 10 drivers will benefit because the tax burden will be shifted to people who drive the most and at peak times. The price of a new car also would decrease significantly, because taxes comprise about 25 percent of the sticker price."

Surface Transportation Innovations #73

bob.poole@reason.org (Robert Poole) — Fri, 13 Nov 2009 11:00:00 EST

In this issue:

HOT Lane Conversions Making Steady Progress
VMT and the Economy
PPP Infrastructure Deals Still Being Financed
Next Steps on Phasing Out Fuel Taxes
Upcoming Conferences
News Notes
Quotable Quotes

HOV to HOT: a Coast-to-Coast Phenomenon

America is now in its second generation of projects that convert high-occupancy vehicle (HOV) lanes to high occupancy toll (HOT) lanes, with projects moving forward in Houston, Miami, Minneapolis, and Los Angeles—and continued support from the federal government.

In Houston, the local transit agency (Houston Metro), which developed its reversible HOV lanes originally as exclusive busways, has undertaken a project to convert all five of them to HOT lanes. As reported on Tollroadsnews.com, Metro has awarded $81 million worth of contracts, the largest of which is for installation of electronic tolling equipment at 52 tolling points and 47 access/egress points on five radial freeways: I-45 North, US 59 North, I-45 South, US 59 South, and US 290. The lanes are to be in operation by 2011. Besides these five HOT lanes, Houston also has new HOT lanes (two per direction) on the I-10 (Katy) freeway plus three toll roads: the Hardy, Sam Houston, and Westpark. Altogether, they will constitute something of a HOT Network (though not a seamless one).

Miami’s I-95 Express Lanes project came in first in the People’s Choice category of the 2009 America’s Transportation Awards. The northbound lanes (two per direction) have been in operation since last December, and the southbound lanes (which required more construction work) are set to open in January. Phase 2 of the project will extend the lanes northward to Ft. Lauderdale, with construction beginning next year. According to the Florida DOT’s 2009 Midyear UPA Evaluation Report, from December 2008 through June 2009 the lanes carried 130% of projected traffic and raised 89% of projected revenue. One reason for both numbers is the unexpectedly large number of toll-exempt trips, the majority of which are hybrids. Express bus ridership has increased by 30% over the previous year. Travel speeds during peak periods are 39 mph faster than speeds in the former HOV lanes. And the Florida Highway Patrol reports that accidents on I-95 in Miami are down 15% this year compared with 2008. A second express lanes corridor is under development for I-595 in Ft. Lauderdale, and studies of adding similar lanes to other area expressways are proceeding, which could lead to a managed lanes network.

Minnesota DOT opened its second HOT lanes facility in Minneapolis on Sept. 30th, this one on I-35W. Two sections of what will be 14 miles of HOT lane (one per direction) are operational thus far, using a combination of HOV lane conversions and shoulder conversions. Gov. Tim Pawlenty has authorized MnDOT to conduct a new study of which other corridors would benefit from the addition of “MnPass Lanes,” to be completed by September 2010. Among the possible new routes are I-94 and state highways 77 and 169.

Los Angeles continues with implementation planning for its first to HOV-to-HOT conversions, on the I-110 Transitway and the I-10 El Monte Busway. Both will be two lanes per direction and are scheduled to be in operation by December 2010.

For those transportation planners considering such projects, two FHWA resources can be useful. One is a spreadsheet tool called POET-ML - Policy Options Evaluation Tool for Managed Lanes, developed by Booz Allen Hamilton and HNTB and released in December 2008. The other is the “Federal-Aid Highway Program Guidance on High Occupancy Vehicle (HOV) Lanes,” August 2008, which helps planners navigate through applicable laws and regulations concerning both HOV lanes and HOV-to-HOT conversions. The document makes clear that decisions on occupancy and other eligibility requirements are up to each state, including the decision on converting from HOV to HOT (see p. IV-4). It also defines the federal requirements for the minimum average operating speed (p. IV-2) that HOV and HOT lanes must meet. (www.fhwa.dot.gov/operations/hovguide01.htm)

Vehicle Miles of Travel and the Economy

Earlier this year, Sens. Jay Rockefeller (D, WV) and Frank Lautenberg (D, NJ) introduced a bill called the Surface Transportation Policy & Planning Act of 2009. One of its principal goals was to “reduce per-capita motor vehicle miles traveled [VMT] on an annual basis.” Since then, a number of environmental and planning organizations have promoted VMT reduction as a key tool of transportation policy aimed at reducing greenhouse gas (GHG) emissions. A number of transportation policy people (including me) have objected to the idea of the federal government mandating that Americans drive less, but until now there has been no serious economic analysis of VMT reduction.

That gap has now been filled by economist Randall Pozdena of EcoNorthwest and QuantEcon, Inc., two Oregon-based research firms. The report is called “Driving the Economy: Automotive Travel, Economic Growth, and the Risks of Global Warming Regulations.” Pozdena first reviews the literature on the relationship between energy use and the economy, where causality seems to go in both directions. On the specific question of VMT and the economy, only one previous study (by Liddle in 2007) addressed the issue, likewise finding that GDP, fuel prices, and VMT are “cointegrated” and hard to disentangle.

But there are techniques for doing this, such as pairwise causality testing and impulse response analysis, both of which Pozdena employed. These produced evidence that “VMT is a large and statistically significant driver of GDP,” despite the fact that effects work in both directions. His tests also confirmed that VMT is not very sensitive to shocks in fuel prices alone, as recent experiences demonstrated. There’s a lot more detail to the findings in the paper, which I don’t have space to summarize here, but I urge you to download and read it.

Based on his findings, Pozdena then turns to various proposed energy and GHG policies aimed at reducing VMT. He finds that carbon-pricing schemes (cap and trade, carbon tax) would likely not be very effective in reducing VMT or producing shifts to lower-GHG vehicles. Other indirect ways of reducing VMT, such as mandating higher density land-uses, are also likely to be ineffective (and Pozdena promises another paper soon elaborating on this point). Directly regulating VMT per capita “will have a negative impact on the economy nearly in direct proportion to the VMT reduction achieved in the short run, with a longer-term effect about half that size but still large and persistent.”

He concludes that the best way forward is roadway congestion pricing. This policy would have the best results, because “its potency for affecting VMT is high but its economic footprint may be positive, rather than negative.” In contrast to higher fuel tax rates or flat-rate VMT charges, congestion pricing would distinguish between high-value and low-value trips, so that whatever reductions in VMT come about would be those that contribute least to economic vitality.

Pozdena’s paper has prompted a lively discussion on the Congestion Pricing List-Serve. I don’t have the space to summarize it here, but you may want to review it by joining this ongoing online conversation. (con-pric@lists.umn.edu)

PPP Infrastructure Deals “Drying Up”?

Just a few days after a poorly researched late-October USA Today article headlined “Privately Run Infrastructure Deals Dry Up” crossed my screen, I received the annual Public Works Financing “2009 International Major Projects Survey” which tells quite a different story. While the credit crunch has certainly affected public-private partnership financing, it has hardly killed it. PWF’s database includes 25 PPP transport projects outside the USA that were financed in the past 12 months with $22 billion in private capital, in 15 countries. Two such projects reached financial close in the United States during this period, both in Florida: the $1.7 billion I-595 project and the $900 million Port of Miami Tunnel.

Financial markets are gradually opening up again in the United States. Dealogic reported that U.S. companies raised $39 billion in new stock and convertible debt in the third quarter alone, along with selling $156 billion in bonds. And investors are once again putting money into infrastructure investment funds. InfrastructureInvestor’s “Week in Review” for October 8th reported that while only eight such funds reached their funding goal in the first six months of 2009, nine more did so in the third quarter alone. Their InfrastructureConnect database estimates that $8.9 billion has been raised by such funds between January and September. That compares with $66.4 billion in 2008, to be sure, but the trend is definitely upward. The newsletter also reported that about 60 fund managers responded to the Pension Consulting Alliance’s request for information on infrastructure funds, on behalf of U.S. pension funds interesting in moving into this area.

That’s encouraging, since a number of U.S. PPP transportation deals hope to reach financial close in 2010. PWF tallies them up as follows:

North Tarrant Express, phase 1 (TX)        $2.0 billion
North Tarrant Express, phase 2 (TX)        2.0 billion
LBJ I-635 (TX)                                        2.7 billion
Mid-Curritick Bridge (NC)                0.9 billion
Midtown Tunnel, Norfolk (VA)        2.0 billion
Jordan Bridge (VA)                    0.1 billion
Total:                                                  $9.7 billion

Two Studies Propose Next Steps on VMT Charging

Several years ago I served on the Transportation Research Board committee that produced Special Report 285, which made a pretty solid case that per-gallon fuel taxes are not a sustainable long-term funding source for transportation infrastructure. So I was pleased when the Surface Transportation Infrastructure Financing Commission early this year recommended that the nation begin the transition from fuel taxes to mileage-based road-use charges. TRB sponsored two follow-up studies this year, and both have been released in the last several months.

The first was requested by the American Association of State Highway & Transportation Officials (AASHTO) and was released by TRB as part of the National Cooperative Highway Research Program (NCHRP). Since three of the six authors are from RAND Corporation, the report is informally referred to as the RAND/AASHTO report, but officially it is NCHRP web-only Document 143, “Implementable Strategies for Shifting to Direct Usage-Based Charges for Transportation Funding.”

It briefly evaluated nine VMT-fee mechanisms which the authors considered potentially feasible to be implemented in the near-term. After subjecting them to five screening criteria, they ended up with three that they considered the most promising:

Mileage metering based on fuel consumption, with a transponder-type device on each vehicle and an estimating procedure to convert fuel consumed into miles driven.
An on-board unit (OBU) plugged into an existing (since 1996) vehicle port that can record mileage and the use of cell towers to determine vehicle location. (I wrote about this idea, proposed by Max Donath of the University of Minnesota, in Issue No. 69, July 2009).
On-board GPS unit with “coarse” resolution, an approach with accuracy, cost, and (exaggerated) privacy concerns.

This report has come under criticism from some advocates of other approaches, and lead author Paul Sorensen of RAND defended it in an online discussion group as having been produced under considerable time pressure.

The other report, commissioned by the TRB Executive Committee more than a year ago, looks to me to be more comprehensive and more policy-focused. It was researched and written by Jim Whitty and John Svadlenak of the Oregon DOT, both of whom were heavily involved in that state’s pioneering demonstration project of a pay-at-the-pump version of a VMT charging system. It’s called “Discerning the Pathway to Implementation of a National Mileage-Based Charging System,” with an October 2009 release date.

This report is less focused on technology options and more focused on a next-reauthorization research program aimed at working out a lot more of the policy and governance issues needed to devise a transition from fuel taxes to VMT charges. I think they ask all the right questions, and they go on from there to propose a sensible six-year program to both define what a nationally interoperable system should do and how it should operate, and (very importantly) engage the public during the process in hopes of developing something of a national consensus on the best way forward.

Both reports have decent executive summaries, and if they whet your appetite for more detail, it’s easy to download the remaining hundred or so pages of each.

Upcoming Conferences

Note: I don’t have space to list all the transportation conferences going on; below are only those that I or a Reason colleague are speaking at.

Council of State Governments Annual Meeting, Palm Springs, CA, Nov. 12-15, 2009. Details at: www.csg.org/meetings/conferencecalendar.aspx.

The Future for Interurban Passenger Transport, Madrid, Nov. 16-18, 2009, Joint OECD/International Transport Forum conference, Palacio de Congressos. Details at http://istep2009.cedex.es.

IBTTA Transportation Policy & Finance Summit, Washington, DC, Dec. 13-15, 2009, Grand Hyatt Hotel. Details at: www.ibtta.org/Events/eventdetail.cfm?ItemNumber=3855.

Transportation Research Board Annual Meeting, Washington, DC, Jan. 10-13, 2010, several hotels. Details at: www.trb.org/AnnualMeeting2010/Public/AnnualMeeting2010.aspx.

News Notes

TRB on Research Needed re Transportation and Climate Change
A special committee has produced an excellent report on research that’s needed in order that we can make sensible decisions about both mitigating and adapting to climate change. The executive summary notes that by 2030, total transportation greenhouse gas (GHG) emissions will not increase despite large increases in population, economic growth, and travel—thanks to energy-efficiency improvements already under way. It reminds us that transportation “contributes to economic and social sell-being” in addition to producing GHGs, so we need to figure out the effectiveness, costs, feasibility, and acceptability of various policy alternatives in order to avoid doing harm. We also need a lot more work on possible ways of adapting the transportation system to possible effects of climate change. The whole report is well worth reading. “A Transportation Research Program for Mitigating and Adapting to Climate Change and Conserving Energy,” TRB Special Report 299. (http://onlinepubs.trb.org/onlinepubs/sr/sr299.pdf)

Stop Subsidizing Fossil Fuel Use, Says IEA
The old ethical principle of “First, do no harm” needs to be applied to energy conservation, especially in developing countries which are objecting to measures such as carbon taxes. A study by the International Energy Agency estimates that non-OECD countries subsidize energy use to the tune of $310 billion a year—compared with $20-30 billion a year in OECD countries. The IEA estimates that simply eliminating those subsidies (which go mostly to oil, gas, and coal use) would cut global GHG emissions 10% by 2050.
--“Fossilized Policy,” The Economist, Oct. 3, 2009, p. 74.

Healthier Babies, Thanks to Electronic Toll Collection
A research paper by Janet Currie and Reed Walker for the National Bureau of Economic Research looked into whether the introduction of electronic open-road tolling at toll plazas led to significant reductions in harm due to vehicular air pollution. They analyzed data on the health of infants born to mothers living close to toll plazas and others close to heavy traffic but far from toll plazas, controlling for other variables. They found significantly lower incidence of prematurity and low birth weight among those near toll plazas where congestion had been largely alleviated thanks to E-ZPass. (http://papers.nber.org/papers/w15413)

Subsidyscope on Amtrak Subsidies
Fresh from a study of subsidies to small-town airports, the Pew Charitable Trusts’ Subsidyscope project in late October released a new report on Amtrak subsidies. Across its entire system, federal taxpayers spend $32/passenger trip. That number is about four times what Amtrak itself estimates, because Subsidyscope used generally accepted accounting principles to define costs and therefore included depreciation. Needless to say, the per-passenger subsidy varies greatly depending on the route, from the largest subsidy of $462/passenger (Sunset Limited, Los Angeles to San Antonio) to Acela Express (which generates a net of $41/passenger). (www.subsidyscope.com/transportation/amtrak)

Self-Healing Concrete?
A story in the Nov. 2, 2009 issue of Forbes profiles civil engineer Victor Li of the University of Michigan. Li has spent 15 years developing first bendable and now “self-healing” concrete. In August, the University of Michigan received a U.S. patent for the material, which cracks only in narrow hairlines which, when exposed to moisture, absorb enough of it to “grow” new concrete that fills in the cracks. Li estimates that bridges built from the material would have 50% lower life-cycle costs. The university is currently in licensing talks with several companies, according to Forbes. (www.engin.umich.edu/newscenter/feature/selfhealconcrete)

FHWA Final Rule on Interoperability in Electronic Toll Collection
As required by the SAFETEA-LU legislation, the Federal Highway Administration in October published its final rule on interoperability requirements for automated toll collection. It applies only to toll facilities whose toll authority is granted under Sec. 1604 of the legislation: the Value Pricing Pilot Program, the Express Lanes Demonstration Program, and the Interstate Construction Pilot Program. (http://ops.fhwa.dot.gov/resources/news/news_detail.asp?ID=584)

Quotable Quotes

“Why such [opposition to London’s congestion pricing]? . . . First, people may not be appreciating their time savings. . . . Second, there are admitted distributional concerns. Pricing detractors are right to suppose that this policy will disproportionately benefit the well-off. This is due to the smaller burden the tolls place on the wealthy’s finances and the higher monetary value of their time. . . . For these reasons, it may be premature to think about tolling entire downtowns or freeways. A better plan is to concede that we won’t get the most economically efficient, toll-everything outcome. Instead, we should settle for tolling only portions of facilities while leaving the remainder of them au natural. Were, say, two lanes of a four-lane freeway tolled and flowing, the other lanes free but congested, the time savings your money buys you would be very visible to drivers. Equity concerns would be blunted since the poor have a free option. In fact, low-income folks would be better off than before, thanks to the chance to use the toll lanes when really necessary, express bus service in the toll lanes, and increased throughput there.”
--Eric A. Morris, “Cordon Blues?” New York Times, Oct. 13, 2009.

“Governors urge the development of flexible, innovative, accountable, and alternative financing mechanisms that support the mobility goals of the states, and oppose any federal restrictions on states’ ability to pursue public-private partnership agreements to address their own infrastructure needs. Governors support the removal of federal restrictions on states’ authority to toll federally-aided highways. State and local authorities, as the owners and operators of the surface transportation system, must determine the appropriate level of private sector participation in their surface transportation programs. Governors oppose any efforts to condition federal financial investment in state surface transportation programs to any mandate for a particular level of private sector participation.”
--“Policy Statement on Surface Transportation,” National Governors Association, July 20, 2009.

“Why do politicians love trains? Because they can tell where the tracks go. They know where everybody’s going. It’s all about control. It is all about power. Politics itself is nothing but an attempt to achieve power and prestige without merit. That is the definition of politics. Politicians hate cars. They have always hated cars, because cars make people free. Not only free in the sense that they can go anywhere they want, which bugs politicians in the first place, but they can move out of the political district that the politician represents.”
--P. J. O’Rourke, “Driven Crazy,” Reason, November 2009, p. 15.

“More power plants burning coal to produce cheap electricity can also mean less natural gas used to generate electricity--and less used for industrial, commercial, and residential heating, welding, and chemical processing, as these users switch to electrically powered alternatives. The gas that’s freed up in this way can then substitute for diesel fuel in heavy trucks, delivery vehicles, and buses. And coal-fired electricity will eventually begin displacing gasoline, too, as soon as plug-in hybrid cars start recharging their batteries directly from the grid. To top it all, using electricity generated in large part by coal to power our passenger cars would lower carbon emissions—even in Indiana, which generates 75% of its electricity with coal. Big power plants are so much more efficient than the gasoline engines in our cars that a plug-in hybrid car running on electricity supplied by Indiana’s current grid still ends up more carbon-frugal than comparable cars burning gasoline in a conventional engine under the hood. Old-guard energy types have been saying this for decades. In a major report released last March, the World Wildlife Fund finally concluded that they were right all along.”
--Peter J. Huber, “Bound to Burn,” City Journal, Spring 2009.

Privatization News Roundup, Nov. 13, 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 13 Nov 2009 08:12:00 EST

Some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

"White House push to reduce contractors is at odds with expanding role of agencies," Government Executive
"Former Defense acquisition chief warns against 'global war on contractors'," Government Executive
"Federal procurement nominee outlines agenda," Washington Technology
"Balfour Beatty bases new division here," Nashville Post

STATE & LOCAL:

"State's risk agency looks at privatization," The Advocate
"Group divided on worker's comp privatization," The Associated Press
"Governor to submit plan to reduce prison crowding," Los Angeles Times
"Closing time for Virginia's ABC stores," Washington Post
"Conservative group calls for privatization of Iowa prisons," Iowa Independent
"Commission to submit fiscal-fix measures to Colorado Legislature," Denver Business Journal
"Public/private partnership deserves a second look," Belleville Times
"DOT: Atlanta Toll Lanes Top Priority for Privately Funded Program," Georgia Public Broadcasting
"Charlotte urban loop to be built with private funds," WRAL.com
"Team ends its bid to build, operate RTD line to airport," Denver Post
"Town officials tour prison, evaluate impact on town," Wickenburg Sun
"Possible State Prison Brings Hope to Jenkins County," Georgia Public Broadcasting
"ECU exploring partnerships for housing," Greenville Daily Reflector
"Bay City starts preliminary talks with company to take over water and sewer operations," Bay City Times
"County supervisors vote against privatization of Planning Department," Green Bay Press Gazette

INTERNATIONAL:

"The Coming Privatization Boom," MotleyFool.com
"Canadian pensions pounce on Aus toll road firm," Financial Standard
"Sweden Selects Bids From Local Groups in Pharmacy Privatization," Bloomberg.com
"Public-private partnership system in British Columbia keeps evolving," Journal of Commerce
"Saint John courthouse won't have private partner," CBCNews
"Lessons from India's port privatization," Livemint.com
"China Plans to Build, Manage Toll Road in Ugandan Capital," Bloomberg.com
"Parliament approves Privatisation of SLPA," Awoko
"Lebanese economic shake-up to focus on privatization," Daily Star
"Syria Pursuing partnership with private sector," Global Arab Network
"Peru port workers start strike over privatization," Reuters

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Mary Peters on McDonnell's Transportation Agenda

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 09 Nov 2009 15:27:00 EST

In a new National Review column, former U.S. Transportation Secretary Mary Peters reflects on the role that transportation policy played in Virginia Governor-Elect Bob McDonnell's election victory last week:

Much has been written about the "pragmatic" platform of Virginia governor-elect Bob McDonnell. The common wisdom is true as far as it goes — McDonnell ran on "kitchen table" issues that were of special concern to suburban voters — but the media has paid too little attention to one of the election's most important topics: transportation. [...]

McDonnell did this, in part, by explaining his policies to voters in one of the most comprehensive transportation documents ever compiled for a statewide race. Whereas most transportation discussions concentrate on the need for new revenues and the completion of specific projects, McDonnell's plan laid out a fundamental policy shift. McDonnell presented "four primary pillars": 1) making investments based on projects' value to taxpayers, not political influence; 2) reducing the time it takes to deliver projects without sacrificing environmental protection; 3) advancing a new strategy to operate and maintain existing infrastructure (and reduce congestion) that relies more extensively on technology and private-sector partnerships; and 4) transitioning toward a funding model that reduces congestion and establishes a stable revenue stream.

The dirty little secret behind transportation funding is that the best projects are not always those that get funded. Often, political influence, the need for geographical balance in road building, and the desire to bring economic development to disadvantaged areas trump more meritorious criteria such as congestion reduction and highway safety. McDonnell's plan advanced the notion that transportation funds should be allocated to projects on a cost-benefit basis, using consistent metrics and focusing on the most acute challenges.

Read the whole thing here.

More Bad News for Pennsylvania Turnpike Commission, Part 2

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 29 Oct 2009 13:31:00 EDT

Following up on my post yesterday, the "he said-she said" discussion is over. Remember that yesterday, Pennsylvania Turnpike Commission representatives—including executive director Joseph Brimmeier—issued strong statements denying that the FBI had visited their offices and seized computer equipment and records. Here's what Brimmeier said yesterday afternoon (emphasis mine):

Turnpike CEO Joe Brimmeier today told the Pittsburgh Post-Gazette that "It never happened. The FBI did not visit any turnpike offices or confiscate any equipment belonging to the turnpike. (Toll Roads News) has a long history of sloppy or inaccurate reporting that reflects their efforts to malign the Pennsylvania Turnpike and its over 2,200 employees. Today they crossed the line between sloppy and reckless. The posting is false."

Just a few hours later though, the PTC changed their tune significantly. Per John Micek at The Morning Call:

In a brief telephone interview, [Turnpike] commission spokesman Bill Capone told us that the FBI is, indeed, investigating goings-on at the Valley Forge interchange. But that's because the Commission voluntarily called in the Feds after its own Office of Inspector General determined that the matter was too big for them to tackle on their own.

"These irregularities were to us first, and we, the Pennsylvania Turnpike Commission, contacted the FBI and asked them to get involved in it," Capone said this evening."

Capone said the Turnpike's OIG was put onto the matter after the agency "got a tip that something was going on with the Valley Forge widening project."

From a basic PR standpoint, wouldn't that have been a better statement to release right off the bat? Instead PTC played the deny-then-confirm game, which tends to make people question the details of the confirmation. When the director says, "The FBI did not visit any turnpike offices..." and then a few hours later the spokesman says that indeed the FBI did visit (for whatever reason), it starts to smell even fishier. With a flip-flop like that, how much faith is one supposed to have about the veracity of any statements that follow? Even if this all turns out to be all smoke and no fire, the sheer hubris of the PTC is stunning. I'd say they owe Peter Samuel an apology for trying to throw him completely under the bus, but I wouldn't hold my breath waiting. On a related note, Brad Bumsted at the Pittsburgh Tribune-Review confirms today that rumors of a state grand jury investigation of the PTC (for corruption, patronage, shady contracting, etc.; fairly stock stuff for the PTC) are indeed true:

A statewide grand jury based in Pittsburgh is investigating patronage and contracts at the Pennsylvania Turnpike Commission.

The involvement of Attorney General Tom Corbett's office surfaced Wednesday after reports that the FBI has been investigating matters at the agency. [...]

"It's an investigation we launched internally ourselves," [PTC spokesman Bill] Capone said. "It's an ongoing investigation."

Asked about the statewide grand jury investigation by Corbett, Capone said: "I have heard that unofficially. Officially, I have not been made aware of it."

Officials say the state investigation is looking at alleged "pay-to-play" contracts involving campaign contributions given by contractors or solicited from them.

I know that the scandalous aspects of this will be the primary media focus, but to me the larger issue at play is that the entire future of Pennsylvania's transportation system is now effectively in the hands of the PTC, thanks to the ill-conceived Act 44 a few years ago. This means Pennsylvanians are forced to trust that the corrupt PTC will act in citizens' best interests. Good luck on that. As I said yesterday, the $12.8 billion privatization offer last year would have taken the candy away from the bad guys, but state legislators had their blinders on. In retrospect, given today's markets that would have likely been the smartest move they could have made. I'd bet that some wish they could have a mulligan on that now.

More Bad News for Pennsylvania Turnpike Commission

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 28 Oct 2009 15:52:00 EDT

Corruption at the Pennsylvania Turnpike Commission is a well-known and unfortunate reality, and the scandals continue to mount. Already this year we've seen the conviction of former State Senator Vincent Fumo (the Turnpike's leading legislative patron during his tenure in office) and Ruth Arnao (wife of fired PTC chair Mitchell Rubin) on a combined 182 counts in a federal corruption case. Gov. Ed Rendell subsequently canned Rubin, who is now the target of a federal corruption investigation. Last week former PTC staffer Michael Palermo pleaded guilty to receiving $290,000 in state funds through bogus work contracts arranged with Fumo. And this summer a state grand jury began to investigate corruption at the Turnpike. As if that all wasn't bad enough, Peter Samuel at TollRoadsNews.com reports today in two separate posts (here and here) that the FBI showed up unannounced at the PTC offices last week, confiscating hard drives and documents as part of a criminal investigation:

A number of Pennsylvania Turnpike officers have lost computer hard drives to the Federal Bureau of Investigation. Last Thursday morning Oct 22, FBI officers showed up unexpectedly at the Turnpike offices in Harrisburg and apparently presented their authority (subpoena) to impound, examine and confiscate equipment and records as part of a criminal investigation. The agents returned and spent most of Friday at the Turnpike also. Nothing has been announced by either the FBI or the Turnpike.

Hypothetically speaking, if Abertis' $12.8 billion bid for a Turnpike lease was still on the table today, would the PTC still have the political clout to convince a majority of legislators to reject it? Rather than put the PTC out of business through a Turnpike lease (as I've argued should have been done), somehow a majority of legislators convinced themselves that a better option was to expand the PTC's power and role in state transportation funding. Smart move, eh?

For all state senators and reps who stood in the way of the lease I have one simple question—how's that decision working out for you?

For the USDOT folks currently evaluating the PTC's proposal to toll I-80—a critical lynchpin of the deal enshrining PTC's continued transportation monopoly, which was already rejected twice before by the Bush-era USDOT—I'd simply ask, can you ignore this? The Obama administration could certainly end up with no small degree of egg on its face if one agency (USDOT) were to approve the PTC's I-80 tolling plan while another agency (FBI) was investigating the PTC for corruption.

UPDATE: In fairness, PTC executive director Joseph Brimmeier is denying that an FBI raid ever occurred. Peter Samuel responded with a source on the record claiming that it did indeed occur:

Bob Dietz, 55 of Lancaster PA, construction supervisor for a Turnpike widening project near Valley Forge says we can quote him as saying the FBI were at the Turnpike's head offices in Harrisburg Thursday afternoon and that they went away with computers and other materials.

Dietz says he has been providing the FBI with details of corruption in connection with a $170m six lane widening in the Valley Forge area. The job was originally bid at $90m, Dietz says. (We're checking this out - editor)

So it's "he said-she said" at this point. More to come as this story develops.

UPDATE 2: Nathan Benfield at the Commonwealth Foundation offers a similar take (with a dose of sarcasm) here:

But hey, it's not your father's Turnpike Commission (despite the number of patronage hires). Rampant corruption is no reason not to give the Turnpike Commission greater authority and control over I-80.

UPDATE 3: In my original post, I mistakenly wrote that Mitchell Rubin was "up on federal corruption charges," when in fact he is currently the target of a federal corruption investigation. I corrected this in the text above. My apologies for this error on my part, and many thanks to the reader who pointed it out.

Florida High-Occupancy Toll (HOT) Lanes Win 2009 Award

shirley.ybarra@reason.org (Shirley Ybarra) — Mon, 26 Oct 2009 10:43:00 EDT

From the American Association of State Highway and Transportation Officials (AASHTO) annual meeting:

“The American Association of State Highway and Transportation Officials (AASHTO), AAA, and the U.S. Chamber of Commerce are proud to announce that the I-35W Bridge in Minneapolis, Minnesota has been selected as the 2009 America's Transportation Awards Grand Prize winner. Florida DOT's 95 Express Miami Project won the People's Choice Award.”. (emphasis added)

The competition recognizes outstanding transportation projects in three categories: "On Time," "On Budget," and "Innovative Management." The ten projects that scored the highest during four regional contests competed for both the Grand Prize and the People's Choice Award.

It is understandable why the reconstruction of the Minneapolis Bridge won the award.

“In the aftermath of the catastrophic, August 1, 2007 collapse the Minnesota Department of Transportation implemented a plan to detour 140,000 vehicles, address public concerns, and begin immediate construction of the new $234 million, I35W Bridge. The massive design-build project, which included 10 lanes for traffic, several local side streets, and interchanges, was completed in 13 and half months; three months ahead of schedule.”

The People's Choice Award winner is the Florida Department of Transportation’s High-Occupancy (HOT) lanes project know as 95 Express Miami Project. A $62.9 million High Occupancy Toll (HOT) lanes project was the award winner after over 200,000 votes were cast.

This is a project that we at Reason have been following and written about here and a history of HOT lanes is here.

HOT lanes are being implemented in many states such as California, Texas, Washington state, Minnesota and Virginia. These are the wave of the future and it is great that the “People’s Choice Award” recognizes the importance of better efficiency in our transportation system.

No Toll Czar: States, Not Feds, Should Protect the Public Interest in Public-Private Partnership Deals

bob.poole@reason.org (Robert Poole) — Mon, 26 Oct 2009 06:45:00 EDT

At the National Journal Transportation Experts blog, Lisa Caruso writes:

Supporters of public-private partnerships, from conservative former Transportation Secretary Mary Peters to Democratic Pennsylvania Gov. Edward Rendell, insist that the next surface transportation bill make it significantly easier for the private sector to invest in infrastructure projects. At the other end of the spectrum, House Transportation and Infrastructure Chairman James Oberstar, D-Minn., wants to create an Office of Public Benefit and tough new requirements for tolling and public-private partnerships involving federal roads to make sure that the public interest is protected in deals with private investors.

How can policymakers strike the best balance between ensuring that the public gets a fair deal and making investment in infrastructure projects attractive to private capital? And how much funding for transportation projects is it realistic to expect from the private sector?

While I am largely in agreement with both Mary Peters and Greg Cohen on the importance of public-private partnerships and protecting the public interest, neither adequately addressed the key question as we move into debating surface transportation reauthorization: What is the appropriate role of the federal government on this question?

Chairman Oberstar’s bill, with its creation of an Office of Public Benefit, would greatly expand the federal government’s role, not only in public-private partnerships (PPPs) but also in tolling, by creating what amounts to a tolling-and-PPP czar at US DOT. This position would have to approve any and all toll agreements and PPP agreements anywhere on the federal-aid highway system. Not only would this be a major expansion of federal control over what would normally be state-level decisions; it would also turn back the clock to the pre-ISTEA days when federal law banned the use of tolling anywhere on the federal-aid system.

ISTEA began the process of liberalization, keeping federal limits on tolling solely on the Interstate system. Subsequent reauthorizations further liberalized the federal role, by permitting exemptions for various kinds of toll pilot projects on Interstates: high-occupancy toll (HOT) lanes, express toll lanes, rebuilding three Interstates with toll finance, and constructing up to three new Interstates with toll finance. Oberstar's bill would scrap all these pilot programs in the name of streamlining and consolidation—but at the price of greatly expanded federal control.

Creating a federal toll czar is the wrong way to go. Micro-managing tolling and PPP agreements that need to be tailored to the specifics of each project would create impediments to the timely and cost-effective use of these important tools by state DOTs. And if states were required to submit negotiated PPP agreements to the federal czar for a yes-or-no decision, the uncertainty created by that requirement would very likely kill the private sector’s interest in spending millions of dollars preparing proposals and negotiating complex deals that could be killed by the stroke of a pen at the 11th hour. We’ve seen the equivalent occur in those states whose PPP enabling acts required legislative approval of negotiated deals: no such deals were ever proposed.

In February the National Surface Transportation Infrastructure Financing Commission released its report. Chapter 7 of this report addresses protection of the public interest in PPP deals. One of its principal recommendations is that “Congress should generally support the states’ primary role in overseeing private-sector arrangements and, to this end, should encourage the development of appropriate technical assistance and dissemination of best practices information.” I agree with that recommendation, and so does the National Governors Association, based on recent statements.

A consensus is emerging on best practices for protecting the public interest in public-private partnership agreements. The Finance Commission report includes a summary in its Box 7-7. The Transportation Research Board has also released an excellent synthesis report, NCHRP synthesis 391, “Public Sector Decision Making for Public-Private Partnerships.” Recent toll concession agreements are generally in line with these recommendations.

All fast-growing states are woefully short of transportation funding, measured against the need for rebuilding and expanding our highway system to keep pace with growth and improve its often-dismal performance. Tolling and PPPs are essential tools for their toolboxes. Heavy-handed federal regulation could, de-facto, remove these tools at the very time when states need them more than ever.

Originally posted at National Journal.

Chicago's Budget and the Prospects for Future Asset Leases

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 23 Oct 2009 20:01:00 EDT

A Chicago Sun-Times editorial yesterday commented on Chicago Mayor Richard Daley's new 2010 budget, which would draw down the reserve funds created by the city's recent asset leases faster than anyone (including the Mayor) had originally anticipated:

Cities across America are struggling with similar deficits, with many turning to tax and fee increases and major service cuts.

But Daley says he won't go there -- and we're with him on that.

Instead, the mayor said Wednesday, he proposes spending $495 million from big reserve funds created by leasing the Chicago Skyway and the city's parking meters. He also is calling for 24 furloughs days for non-union employees, spending cuts, layoffs, elimination of vacant jobs and refinancing and restructuring of city debt.

Mostly, Daley is going after the parking meter fund, grabbing $420 million, while wisely not touching a $500 million long-term Skyway reserve fund. Preservation of the Skyway fund is essential to the city's long-term financial health and has led to an upgrading of the city's bond rating in 2006.

Still, Moody's Investors Service tells us there are risks in raiding the parking meter fund, potentially making it more expensive for the city to borrow money. The mayor and his financial team acknowledged that risk in a meeting with the Sun-Times Editorial Board on Wednesday, but played it down, emphasizing that the proposed budget still leaves the city with a $730 million reserve fund.

And, the mayor said -- and we agree -- he has no better options.

The decision certainly involves important potential risks and trade offs. But on a practical level, there's absolutely no political will for tax and fee hikes right now in the city council, and the process of determining round after round of budget cuts—which is absolutely necessary given the shortfalls Chicago is facing—is by its very nature slow, tedious and politically perilous. So while tapping reserves is suboptimal from a fiscal perspective, it's still the best of some bad options in the final analysis.

[Sidebar comment: scanning the coverage of this issue, it's ironic that the conversation has suddenly shifted from how supposedly "bad" the parking meter deal was (a bogus claim, I argue) to a recognition of how valuable the proceeds are to city finances. Hmmm.]

However, as Fran Spielman at the Sun-Times reports today, the administration may also be considering other privatization opportunities:

Daley could privatize the water system or just the sewer portion. He could revive the $2.5 billion Midway Airport deal that collapsed for lack of financing and lay the groundwork to do the same at O'Hare.

If he wants to reduce operating expenses without generating up-front cash, he could privatize garbage collection or recycling. Water billing and other revenue collections are also possibilities.

Read the whole article for more details on each idea. If any of these initiatives do materialize, they'll likely get significant public scrutiny given current local political sensibilities, but it's absolutely worth exploring all of these and more given the value that the previous asset leases brought to the city.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Noteworthy PPPs in 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 22 Oct 2009 16:16:00 EDT

A reporter recently asked me about noteworthy public-private partnership (PPP) infrastructure projects that have advanced in 2009. Since this is a question that there's probably a lot of interest in, I thought I'd share my response. There are certainly several to choose from across a variety of sectors (water, prisons, courthouses, etc.), but I focused my response on transportation since there are a few noteworthy megaprojects that really jump out (and should be emulated by cash-strapped states and cities):

I-635 managed lanes project (Metroplex area, Texas): This blockbuster, $4 billion, 52 year concession project will deliver a technically complex mix of new "free" (untolled) lanes and managed express toll lanes. The state is contributing $445 million in public funds, while the concessionaire will bring the remainder of the financing to the table. The project reached commercial close earlier this year, and financial close is anticipated before summer 2010. Interestingly, the Dallas Police & Fire Pension System is on the investor team, making them the first public pension fund to be direct equity investors in toll road projects in the U.S.

North Tarrant Express (Metroplex area, Texas): This $2 billion, 52-year concession project, also in the Metroplex area, involves a combination of dynamically priced managed lanes & untolled lanes. The state is contributing $570 million in public funds; the concessionaire will bring the remainder of the financing. Interestingly, the Dallas Police & Fire Pension System is one of the investors, making them the first pension fund to be direct equity investors in toll road projects in the U.S. The project reached commercial close earlier this year, and financial close is anticipated by early 2010. Like the I-635 managed lanes project, the Dallas Police & Fire Pension System is one of the equity investors.

I-595 Express Lanes project (Fort Lauderdale area, Florida): This $1.6 billion project to add express toll lanes to I-595 reached both commercial and financial close in 2009. This is an example of an "availability payment" concession in which the the concessionaire will finance, design, build, operate and maintain the lanes and will be repaid over 35 years through "availability payments" (or payments from the state based on delivering the lanes and keeping them "available" for users). In contrast to the Texas projects, in the I-595 case the state—not the concessionaire—will actually collect the tolls in this project, which effectively means that the state takes on the revenue risk of the project. Counterbalancing that is that these types of arrangements require less upfront equity invested, so they may be easier to finance in today's market, relative to full concessions.

Also of note, the two Dallas-area projects will ultimately total about $6 billion in infrastructure investment to eliminate some of the most congested bottlenecks in the region (and state), and the state will only be contributing roughly $1 billion of that. So the state essentially pays for a can and gets a six-pack. Adding in the state's other toll concession—State Highway 130 segments 5 & 6, where the private sector is delivering all of the financing for the $1.3 billion project—the state is paying about $1 billion to get over $7 billion in investment. By contrast, Texas received less than half of that (about $2.5 billion) for highway improvements from the so-called "stimulus."

Along similar lines to something I've written before, if you really want to see a stimulus, unleash the billions in private capital sitting out there looking for projects like these to invest in.

» Reason Foundation's Transportation Research and Commentary

New Zealand's Guidance for Public Private Partnerships

shirley.ybarra@reason.org (Shirley Ybarra) — Tue, 20 Oct 2009 11:17:00 EDT

The National Infrastructure Unit of the Treasury of New Zealand has published a new report entitled “Guidance for Public Private Partnerships (PPPs) in New Zealand”. This is a report that can provide significant insights to the PPP market not only in New Zealand for those working and thinking about the next steps for the PPP market in the United States.

The purpose of this guide is to outline for government agencies, potential bidders and the public the general direction and principles that will be adopted, the processes that are to be followed and the rationale for them. It also provides a framework for assessing whether a PPP is to be preferred over other forms of procurement in any given situation.

As noted in the report for New Zealand:

Public Private Partnerships (PPPs) can refer to many different kinds of relationships between the government and the private sector, but these guidelines use the term to refer to long-term contracts for the delivery of a service, where the provision of the service requires the construction of a facility or asset, or the enhancement of an existing facility.
The private sector partner finances and builds the facility, operates it to provide the service and usually transfers control of it to the public sector at the end of the contract. These contracts are sometimes also referred to as concession agreements.
The long-term nature of PPP contracts, the fact that these contracts are usually used for large and often complex projects which individual government agencies will engage in only infrequently, the importance of financing arrangements and the typically large bidding and contracting costs make it desirable to develop specialist expertise to support departments and agencies in the development of PPPs. In New Zealand, this role is played by the National Infrastructure Unit of the Treasury.

The guide looks at the well developed Australian guidance, but recognizes that New Zealand’s circumstances are different and therefore looks at what can be followed and what needs to be changed. The report looks at when/why a PPP should be considered, risk assessment, project management structure, project delivery structure, the bidding process, project negotiation, financial impacts and project review upon final negotiation.

Most importantly, the report states, “Finally, readers should note that these guidelines should not be substituted for common sense, judgement and experience. Expert advice should therefore be sought wherever appropriate.”

PPP’s are complex and there are no cookie cutters available to any country or any state in the USA. This report is well worth a review.

(Preliminary) National Rail Plan from Federal Railroad Administration

shirley.ybarra@reason.org (Shirley Ybarra) — Tue, 20 Oct 2009 10:15:00 EDT

Last Friday, the Federal Railroad Administration released a preliminary National Rail Plan as reported by Progressive Railroading.

“The Passenger Rail Investment and Improvement Act of 2008 (PRIIA) directed the Administrator of the Federal Railroad Administration (FRA) to develop a Preliminary National Rail Plan (PNRP or Preliminary Plan) to address the rail needs of the Nation. The PRIIA also directed FRA to provide assistance to States in developing their State rail plans in order to ensure that the Federal long-range National Rail Plan is consistent with approved State rail plans. Subsequent to PRIIA, the American Reinvestment and Recovery Act of 2009 (Recovery Act) sets the framework for the development of true high-speed rail in the United States. This Preliminary Plan is, therefore, an important first step in an ongoing process.”

The entire report from FRA is here.

For those following the discussion of rail, high(er) speed rail etc, this is a report worth taking a look at.

It is important to note that the report states:

“The role of public-private partnerships for these endeavors should also be explored. In this regard, FRA stands ready to work with all stakeholders who want to contribute to a comprehensive national rail plan that incorporates the needs of the States, the traveling public, the freight railroads and their customers, and promotes the National goal of a safe, efficient, and sustainable transportation system. Together, we can improve safety, foster livable communities, and improve the economic competitiveness of the United States.”

Foreign Investment Creates Domestic Opportunity

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 18 Oct 2009 14:18:00 EDT

Protectionism is a personal pet peeve. I've written before about the folly of viewing direct foreign investment in America as a "them vs. us" issue, arguing instead that we should welcome international companies interested in creating job opportunities and investing billions of dollars in the United States. This is the reverse of outsourcing - it's "insourcing" - and it's good for the economy.

New York Times reporter Micheline Maynard has a new book coming out this week—The Selling of the American Economy: How Foreign Companies Are Remaking the American Dream—that examines foreign investment in the context of the American economy and politics, and the NYT ran an article today adapted from the book that's well worth a read:

Foreign companies may touch a nerve in American society and may still be an object of fear and distrust among many, who view foreign investment as a threat to the American worker and way of life. But foreign investment isn’t simply about helping workers earn a weekly paycheck. Foreign companies that invest in the United States are having a significant — and largely positive — impact on not only the lives of workers, but also the health of the American economy and society as a whole.

When foreign companies open a factory or buy a business in a region they also stimulate local commerce and create a demand for more homes, shops, schools and restaurants. They contribute money to schools, parks and towns, and lure consultants and technicians who then provide more jobs. This ripple effect explains why governors, mayors and economic development officials are so eager for foreign investors.

Without foreign investment, says Mitch Daniels, the Republican governor of Indiana, "we’d be a Dust Bowl."

Read the whole thing. One stat that popped out to me—which I haven't verified but which is noteworthy if accurate (and I have no reason to doubt it): Maynard writes that if these so-called "foreign" jobs did not exist, the unemployment rate would exceed 13 percent.

Puerto Rico's New Infrastructure Public-Private Partnership Law

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 15 Oct 2009 18:49:00 EDT

The law firm Allen & Overy offers a useful summary of Puerto Rico's new public-private partnership (PPP) law here, and it's well worth a read. Some of the quick highlights:

The enabling legislation, SB 469, centralized PPP procurement and implementation authority in the new Public-Private Partnership Authority, a public corporation and affiliate of Puerto Rico's Government Development Bank.
It facilitates a broad range of PPPs—really, any contract that separates or combines project design, building, financing, operation or maintenance in some form or fashion.
Most state PPP enabling legislation covers only transportation facilities (Virginia being a notable exception). Puerto Rico's legislation goes much further, authorizing PPP procurements in ten classes of infrastructure, including energy, transportation, telecom, IT and water. Policymakers also have discretion to expand the menu to include any other priority projects. Hence, it's broad-ranging.
The legislation exempts PPPs from property taxes and caps the income tax rate on corporate income derived from PPP projects at 10 percent (not for alien and non-resident individuals or corporations, though).
The legislation does not require legislative approval of contracts and caps contract terms to no more than 50 years.

To see how Puerto Rico's new PPP law compare with those adopted this year in Arizona and Massachusetts, see here.

» Reason Foundation's Transportation Research and Commentary

Complimenting Chicago's Parking Meters

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 15 Oct 2009 16:38:00 EDT

Columnist Mary Schmidt at the Chicago Tribune offers a contrarian—and in my view, sensible—take on Chicago's parking meter lease:

[I]'m sorry, I like the new parking boxes. [...]

It's easier to find a spot to park. It's easier to pay.

Remember back in ye olde parking days -- just a few months ago -- when you reached your destination only to discover in a panic that you had no quarters? I once found myself kneeling on the greasy pavement, groping under the car for the precious coin that got away.

Remember circling block after block looking for an empty spot? Remember all the broken meters? Remember the parade of eyesores?

It's true -- this is a common complaint -- that now you have to walk up the block to get to the box and then walk back.

Fellow citizens, please. Chicago prides itself on being tough. We can't handle a 10-second walk?

It's also true that parking costs more now. That hurts. But cheap parking isn't all good. It encourages people to drive and so discourages them from taking public transportation.

And now, if you pay by credit card, you can track your parking expenses on your monthly statement. Nothing like coming face to face with that number to get you on the bus or "L" or on your bike.

Around town, a few old parking meters still stand, wearing little notices: "Meter Remains as a Courtesy to Cyclists." They're the new hitching posts, and already they look like the strange artifacts of a parking era to which it's time to say good riddance.

For more on Chicago parking meters, see my recent article here.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

New at Reason: IT Controversy Shouldn't Spoil Public-Private Partnerships in Virginia

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 14 Oct 2009 15:18:00 EDT

In my latest column, I write that the controversy over the Virginia Information Technology Authority's handling of its ten year, $2.3 billion IT contract with Northrup Grumman should not curb Virginia's desire to engage in public-private partnerships (PPPs). Commonwealth policymakers should recognize that challenges occur and focus on fixing problems, not politicizing them. Here's an excerpt:

...Virginia's had a long history with successful PPPs and is widely recognized as a state leader. State officials recognize by now that PPPs come in all shapes and sizes. An IT modernization project is a lot different than a toll road partnership, which is in turn a lot different from a partnership to modernize a state psychiatric hospital. Virginia's undertaken these and many other types of PPPs over the last two decades.

Commonwealth policymakers should have a sophisticated enough understanding by now of the nuances and varieties of PPPs, recognizing that there is no cookie-cutter template. Each PPP is a unique vehicle structured to achieve a set of specific goals, and each type of contract has to be carefully constructed and monitored to ensure that both the state and their private sector partners deliver on their commitments. And if you run into a situation where one party or the other fails to deliver, then you remember that it's a partnership, where the parties work to resolve implementation issues.

Read on for a look at how other states have handled similar controversies. The key for policymakers is to tune out the politics and stay focused on understanding and resolving the implementation challenges.

For more on Virginia's IT contract, see here and here.

IT Controversy Shouldn't Spoil Public-Private Partnerships in Virginia

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 14 Oct 2009 03:14:00 EDT

Bacon's Rebellion

Could the high-profile kerfuffle over the state's contract to consolidate and manage the state's information technology (IT) infrastructure diminish the state's appetite for outsourcing and public-private partnerships (PPPs)?

That's a question suggested in a recent Richmond Times-Dispatch article on the simmering controversy over the Virginia Information Technology Authority (VITA)'s handling of its ten year, $2.3 billion IT contract with Northrup Grumman.

The answer is, it shouldn't. Virginia's had a long history with successful PPPs and is widely recognized as a state leader. State officials recognize by now that PPPs come in all shapes and sizes. An IT modernization project is a lot different than a toll road partnership, which is in turn a lot different from a partnership to modernize a state psychiatric hospital. Virginia's undertaken these and many other types of PPPs over the last two decades.

Commonwealth policymakers should have a sophisticated enough understanding by now of the nuances and varieties of PPPs, recognizing that there is no cookie-cutter template. Each PPP is a unique vehicle structured to achieve a set of specific goals, and each type of contract has to be carefully constructed and monitored to ensure that both the state and their private sector partners deliver on their commitments. And if you run into a situation where one party or the other fails to deliver, then you remember that it's a partnership, where the parties work to resolve implementation issues.

Resolving challenges can take a variety of forms. It may necessitate, as in the case of Indiana's troubled welfare eligibility modernization project, requiring the contractor to implement a corrective action plan and allowing sufficient time to evaluate the results before considering a cancellation of the contract.

Similarly, when Florida ran into similar challenges with three major IT outsourcing initiatives a few years ago, they had to adjust contracts and project timelines when the projects bogged down in implementation. One of the main reasons was that end users-primarily state agencies-weren't ready to ditch the antiquated systems they had gotten accustomed to and inundated the contractors with hundreds of customization requests, which complicated the implementation significantly. However, as Florida's Council on Efficient Government detailed in an excellent post-implementation review of these projects, the state and its private partners ultimately were able to navigate the challenges and deliver on the projects.

With any large-scale privatization initiative, especially those involving complex system overhauls like an IT modernization, you have to expect upfront that there will be obstacles. This would also be the case if government was doing the exact same work in-house-large-scale projects are inherently tricky. It's all about how you deal with the inevitable challenges.

Unfortunately, as we're seeing in Virginia, some policymakers and officials have a tendency to turn expected implementation challenges into political footballs. It was no different in Indiana and Florida, but administration officials wisely tuned out the politics and focused on keeping their PPP projects moving forward.

We haven't seen that in Virginia with the IT initiative. Instead we've seen state officials fired, fingers pointed and a general lack of focus on getting the project back on track, as Reason Foundation colleague Steven Titch details here.

If there are legitimate implementation issues that have arisen thus far, the proper response for the state would be to sit down with its private partner, understand the challenges, and develop a plan to address them. The contractor doesn't want to lose the contract and the state doesn't want to stop a major overhaul midstream, so the incentives are aligned to work things out. And the state needs to perform the due diligence of closely monitoring the contractor's performance every step of the way-holding their feet to the fire with penalties if appropriate-while also ensuring that agency staff aren't presenting internal obstacles to successful implementation.

Virginia knows how to do PPPs well. The problem is that officials are simply not living up to their own standards in their handling of the IT contract and should quickly adjust course. And allowing what are likely resolvable outsourcing challenges to become heavily politicized unnecessarily exacerbates the situation.

Despite Virginia's reputation in the PPP industry as a state with broad-ranging experience, political flare-ups like the one we're seeing today can begin to change that perception. If contractors believe that their projects might be thrown to the political wolves, they may think twice about bidding on contracts in Virginia. Or at the very least they may factor political risk into their pricing, driving up costs.

Policymakers should see the forest through the trees and remember that PPPs have had a long and successful track record in Virginia and are a proven tool for doing more with less in state government.

With revenue shortfalls continuing to drive state fiscal woes for the next several years, Virginia officials will need to do more PPPs, not less. It's time for officials to turn down the politics and focus squarely on righting the IT project. In the long-run, fixing it will be much more productive than politicizing it.

Leonard Gilroy is Director of Government Reform at Reason Foundation and Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy. This column was originally published at Bacon's Rebellion

Surface Transportation Innovations #72

bob.poole@reason.org (Robert Poole) — Tue, 13 Oct 2009 00:00:00 EDT

In this issue:

Fund Transit as Social Infrastructure?
The Case Against a Federal Toll Czar
Residential Density and VMT Reduction
Jobs-Housing Balance vs. Retail/Housing Mix
Truck-Only Lanes Moving Forward
Upcoming Conferences
News Notes
Quotable Quotes

Fund Transit as Social Infrastructure?

Last month at the ARTBA Public-Private Ventures conference, a long-time transportation colleague whose work has shifted from public-private partnership (P3) toll roads to transit P3s had an interesting idea. Instead of thinking of highways and transit as the same kind of thing, he said, we really should think of transit (and he seemed to be thinking mostly of rail transit) as social infrastructure. The fact that it generates some revenues isn't that relevant; it's something people want, and it needs to be paid for (mostly) by general taxes, not user fees.

He made a good point, and this links directly to an idea that commuting expert Alan Pisarski put forth several months ago. Recalling that Congress has several times recently used general fund money to bail out the federal Highway Trust Fund (and that this is likely to continue, if Congress does not significantly increase federal fuel taxes), why not have Congress fix the Trust Fund by shifting federal transit funding to the general fund? That would free up considerable Highway Trust Fund monies for highways, which was that fund's original purpose, after all.

I expect the immediate reaction of transit advocates, state DOTs, and Metropolitan Planning Organizations will be opposition to such a major change from the status quo. But every national commission and think tank has called for this reauthorization of the federal program to be a time of thinking outside the box, so I hope you will think through with me the potential advantages of this change.

First, transit is more popular today with elected officials than at any time I can remember. So the natural fear of transit people that losing access to dwindling federal fuel tax revenues would mean a reduction in transit funding seems fanciful to me. The Administration and Congress are, after all, putting $14 billion of new general fund money into inter-city passenger rail. It's inconceivable to me that they would reduce, rather than increase, the amount of federal support for transit, whatever its source. And transit advocates might figure out that instead of always having to fight for a larger share of Highway Trust Fund money, they might do better making the case for larger general fund support.

Second, every credible study of highway funding-the FHWA's Conditions & Performance reports, the AASHTO Bottom Line reports, the Infrastructure Finance Commission's report-finds that this country has a large backlog of deferred highway maintenance, a still-large (though slowly declining) number of deficient bridges, and a huge unmet backlog of capacity additions and bottleneck removals that would pass a benefit-cost test. Yet it seems highly likely that Congress will not increase federal gas and diesel taxes this go-round, so those problems are likely to get even worse during the six-year reauthorization period. Thus, refocusing the Trust Fund on its original highways-only purpose would facilitate much-needed highway investment despite the lack of a gas-tax increase.

Third, making this change would reverse the two-decade trend of gradually converting the fuel tax from a user fee into a general public-works tax. Ample survey research shows that as of now, large fractions of the public won't support increased fuel taxes because they (correctly) expect they will get little or no direct benefit from paying more at the pump. They know all about bridges to nowhere, and the more knowledgeable ones have begun to realize that the Highway Trust Fund has increasingly become a politicians' plaything rather than a means of giving them better highways in exchange for their "user tax" payments. But shifting those revenues back to being 100% for highways could go a long way towards putting trust back in the Trust Fund.

How much could federal highway investment be increased if this change were made? The recent GAO study requested by Sens. McCain and Coburn (GAO-09-729R) found that during fiscal years 2004-2008, $78 billion in Highway Trust Fund monies (out of a total of $244 billion) were spent on transit and other non-highway purposes. In round numbers, that is 32%. When you actually get into the details, it's a bit more complicated, since the question posed to GAO was very narrow (spending on anything other than the construction and maintenance of highways-so the 32% includes highway-related research and planning, operating funds for FHWA, NHTSA, and FMCSA, etc.). Adjusting for some of those things would reduce that 32%. But the GAO calculation appears not to have taken into account the extent to which state DOTs "flexed" some of their highway funds to non-highway projects, as allowed under SAFETEA-LU. Correcting for that would increase the percentage. However the final number works out, it's a pretty sizeable amount of dollars.

I hope this idea gets serious consideration as we rethink the federal role in surface transportation.

We Don't Need a Federal Toll Czar

Assuming the House reauthorization bill moves forward as drafted by Chairman Oberstar and his staff, one of the battles will be over its proposal to centralize decisions over nearly all U.S. toll roads and tolled P3 projects in a new "Office of Public Benefit" in the Federal Highway Administration. You have to sort through several different sections of the bill to understand the full impact: Sec. 1204 on the OPB itself, Sec. 1301 on federal veto power over toll agreements, and Sec. 1504 on P3 agreements.

The first thing to understand is that while proponents claim that the bill "consolidates" a number of current pilot programs on tolling and P3s, what it actually does is to significantly expand federal control. First, it turns back the clock to the days before the 1991 ISTEA legislation (which began to relax what had been a nearly complete ban on tolling on federal-aid highways). Since ISTEA, the only restrictions have been limited to the Interstate system, but the House bill reverts to the bad old days, and would apply to anything on the entire federal-aid highway system.

Second, the tolling section requires that all tolling agreements (which allow some use of tolling on a federal-aid highway) must be approved-or not-by the Office of Public Benefit. This includes the "tolling schedule," which seems to ignore the increasingly common dynamic pricing as used on Managed Lanes and on some recent and planned toll roads. And any "substantial changes" in the toll schedule are also subject to the OPB czar's veto. Public comment would be required before any such tolling went into effect. And-get this-anyone who objected would have 90 days to bring a lawsuit. States would also be required to use any excess toll revenues for transit (including operating costs). And states would be required to mitigate the impact of toll facilities on low-income travelers and others diverted from the roadway due to tolling.

Third, the measure would create new obstacles for P3 projects. Besides spelling out certain provisions that must be included in such agreements, the measure requires negotiated agreements between a state DOT and the competitively selected private partner to be submitted to the federal OPB czar for approval-or not. As former DOT chief counsel D. J. Gribbin wrote in Public Works Financing , "[R]equiring all tolling and P3 agreements to be approved by the Office would severely limit the attractiveness of P3s to both states and the private sector." By creating considerable uncertainty over whether such approval would be granted, "P3 proponents would be at risk of the OPB denying a P3 project after millions of dollars and years of effort were spend to develop it. This puts P3 proponents in a catch-22. OPB will only approve projects [that are] well developed but no one will spend funds to advance a project to that stage unless the project has OPB approval."

Pennsylvania Gov. Ed Rendell cheered P3 proponents at last month's ARTBA Public- Private Ventures conference and again at the Infrastructure Investor: New York conference by asking his audiences to "Help me kill the Office of Public Benefit." In July, the National Governors Association called on Congress to remove federal restrictions on states' authority to toll federally-aided highways and to make decisions about "the appropriate level of private sector participation in their surface transportation programs." I hope AASHTO, the state DOTs'organization, does likewise at their upcoming annual meeting later this month.

Increasing Density and Reduced Driving

Last month I reviewed the important Transportation Research Board report "Driving and the Built Environment" which summarized serious research on key issues in this area. One of its findings is as follows: "The literature suggests that doubling residential density across a metropolitan area might lower household VMT [vehicle miles of travel] by about 5 to 12 percent." It noted that many studies that claim higher impacts "are subject to a number of shortcomings," including the possibility of self-selection-the tendency of people who like urban lifestyles to locate in high-density areas; hence, the findings from those areas are probably not generalizable to the larger metro area population.

This month I'd like to call your attention to an interesting quantitative exercise on this subject carried out by Randal O'Toole of the Cato Institute. He reproduces a Sierra Club graph and data on daily trips per person as a function of density (people per square mile), based on the VMT reduction being 10% for doubled density--consistent with the TRB study. Then he looks at the impact on an area that is shifted to higher density. Using the Sierra Club's figures for auto trips/capita at each density, he calculates and then adds to the graph the total daily auto trips that result from the higher density (lots more people/square mile times a slightly lower trips/person means a lot more trips/square mile). Assuming that congestion increases proportionally to trips/square mile, O'Toole's calculations show that congestion increases by a factor of 10 as per-capita trips are being cut in half, as densities are being increased to a level beyond that of New York City.

This is a nuance that the TRB researchers appear to have missed, and unless there is some basic flaw in what O'Toole has done, this congestion impact is very important. Not only would it impose costly time-wasting on those in the densified areas. It would also increase greenhouse gas emissions from that area. (Go to www.debunkingportland.com/smart/densitycongestion.htm)

Jobs-Housing Balance versus Retail-Housing Mix

Two different urban planning objectives have been promoted as ways of reducing auto travel. One calls for serious efforts to have jobs spread more evenly throughout an urban region, rather than the once-traditional pattern of the jobs being located mostly in a central business district while the suburbs consist largely of bedroom communities. This is called increasing the jobs-housing balance. The other idea, which is more closely linked with smart-growth and new-urbanist planners, calls for mixed-use zoning in residential areas: providing a significant mix of retail and residential uses. The first idea is intended to reduce the length of average commute trips; the second to reduce the use of cars for shopping trips.

Thanks to recent research by Robert Cervero and Michael Duncan of the University of California Transportation Center in Berkeley, we have some solid data on these two approaches' impact on VMT (vehicle miles of travel). (www.uctc.net/papers/825.pdf)

Cervero and Duncan relied on household travel diary data from the year 2000 in the San Francisco Bay Area. Overall, they found that a 10% increase in the number of jobs in the relevant occupational category within four miles of one's residence is associated with a 3.3% lower daily work VMT, and a somewhat larger impact on vehicle hours of travel (VHT) for work trips. For shopping and services trips, the impact of having retail and services close to home was much smaller (which makes sense, because most people need to drive to reach their preferred stores and service providers). Overall, the researchers concluded that jobs-housing balance reduces VMT 72.5% more than mixed-use (housing and retail) development, and reduces VHT by 88% more. They note that these results are consistent with a recent national study that analyzed the influence of seven land-use variables in 1990 on changes in commute time in 2000, for 50 large urban areas. The only one related significantly to lower commute time was jobs-housing proximity.

There is also some evidence that jobs, over time, follow residents to the suburbs, as office and industrial parks get built closer to where many employees (and executives) prefer to live. Cervero and Duncan cite previous research on this from both the Los Angeles and Washington, DC metro areas. The latter is where the term "edge city" was coined, to describe one aspect of this phenomenon, which is now seen nationwide.

Truck-Only Lanes Gain Some Traction

Last month the Federal Highway Administration approved Missouri DOT's request to rebuild its portion of I-70, between Kansas City and St. Louis, with truck-only lanes. The idea was studied as part of a four-state "Corridors of the Future" project, for which study funding was awarded under that FHWA program about two years ago. Four states-Missouri, Illinois, Indiana, and Ohio-took part in that study, one of whose aims was to assess the feasibility of rebuilding and modernizing I-70 in that 800-mile corridor with the added lanes being designed as truck-only lanes. Missouri has gone further towards implementation thus far, perhaps because its need for widening and rebuilding is more urgent than that of the other three states. It plans to seek $200 million in federal stimulus money to build an initial 30 miles of I-70 truck lanes in two counties.

As conceptually designed, the project would add two truck-only lanes in each direction across Missouri. The lanes would be in the center of the right of way, with eastbound and westbound truck lanes separated by a concrete Jersey barrier. The truck lanes would be separated from the general purpose lanes in most places by a grass median. Direct-access ramps would be used to access the truck lanes in high-traffic areas, with slip ramps between the truck lanes and the GP lanes elsewhere. The price tag is estimated at $4 billion, which Missouri DOT does not have. But if the truck lanes offer significant time-saving, safety, and productivity gains (e.g., by permitting turnpike-double rigs), truck tolls could provide at least part of the funding.

Truck-only lanes are being studied as part of a tolling study on rebuilding I-80 in Wyoming, and Florida is moving forward with a project called the I-4/Crosstown Connector that will provide truck-only lanes from the Port of Tampa to I-4, alleviating extensive truck traffic through a local neighborhood called Ybor City. And the greater Los Angeles area continues to pursue a set of truck toll lanes to link the ports of Los Angeles and Long Beach with the distribution centers in the Inland Empire of Riverside County. This project is in the region's long-range transportation plan.

Upcoming Conferences

Note: I don't have space to list all the transportation conferences going on; below are only those that I or a Reason colleague are speaking at.

AASHTO Annual Meeting, Palm Desert, CA, Oct. 22-27, 2009. Details at: www.transportation.org/meetings/181.aspx.

2009 AMPO Annual Conference, Savannah, GA, Oct. 27-30, 2009. Details at: www.ampo.org/content/index.php?pid=200.

Council of State Governments Annual Meeting, Palm Springs, CA, Nov. 12-15, 2009. Details at: www.csg.org/meetings/conferencecalendar.aspx.

The Future for Interurban Passenger Transport, Madrid, Nov. 16-18, 2009, Joint OECD/International Transport Forum conference, Palacio de Congressos. Details at http://istep2009.cedex.es.

IBTTA Transportation Policy & Finance Summit, Washington, DC, Dec. 13-15, 2009, Grand Hyatt Hotel. Details at: www.ibtta.org/Events/eventdetail.cfm?ItemNumber=3855.

News Notes

New Interstate Route: Phoenix to Las Vegas
In discussing highway policy, it's long been taken for granted that "the Interstate system was completed years ago." To be sure, the original map adopted by Congress in 1956 when the program began has been built out. However, that map reflected U.S. population and land use as of the 1940s, when the system was being planned. The country is vastly different today, with Phoenix and Las Vegas having grown from small cow towns in the 1940s to major metropolitan areas today. Yet there is no Interstate route connecting them. Consequently, I was pleased to see an AP story (Sept. 15, 2009) reporting that the Arizona DOT will soon begin an environmental study of the proposed 225-mile I-11 from Phoenix to Las Vegas. Another proposed missing link is the completion of I-69 from its current southern terminus at Indianapolis to southeastern Texas. The idea that a 1940s-era map is sufficient for 21st century highways has long been overdue for rethinking, and it appears that such rethinking has begun.

Status Report on Electric Vehicles
For an excellent three-page overview of where industry has gotten with battery-powered vehicles, read "The Electric-Fuel-Trade Acid Test," pp 75-77, in the Sept. 5, 2009 issue of The Economist. (www.economist.com/displaystory.cfm?story_id=14362092)

"Hobbit Homes" for America?
The idea that government should force high-density residential patterns, beyond what people would freely choose, has been standard practice in the U.K. since the Town and Country Planning Act of 1947. Comparable policies have been followed in a number of other European countries. It occurred to economist Ron Utt to see if that constraint on housing supply could be quantified. (Restricting land available for housing would be expected to lead to smaller units on more-expensive land.) Using data from the BBC on new housing produced from 2004 through 2008 in eight countries, Utt found that the average size of a new U.K. housing unit is now only 818 square feet-compared with 1,022 in Japan, 1,474 in Denmark, 2,116 in Australia, and 2,303 in the United States. U.K. housing is also the most expensive in the English-speaking world. London Mayor Boris Johnson has referred to the tiny British houses as "hobbit homes," and has promised moves to change this trend. (www.heritage.org/research/smartgrowth/wm2601.cfm)

Can Government Effectively Address Global Warming?
In a disturbing Sept. 14, 2009 op-ed piece in the Wall Street Journal, science writer Ronald Bailey (Reason magazine) asks the question: "Is Government Action Worse than Global Warming?" Check it out at: http://online.wsj.com/article/SB10001424052970203917304574413231076020844.html

New CAFÉ Standards' Impact on Highway Trust Fund
In September the EPA and NHTSA (National Highway Traffic Safety Administration) announced the Administration's new CAFÉ (Corporate Average Fuel Economy) standards, aimed at increasing energy efficiency and reducing greenhouse gas emissions from motor vehicles. Under the standards, the combined passenger car/light truck fuel economy of new vehicles will increase from 27.3 mpg for model year 2011 to 34.1 mpg for model year 2016. Transportation Weekly (Sept. 23, 2009) estimates that over the lifetime of vehicles sold from model years 2012 through 2016, the reduced fuel use will cost the federal Highway Trust Fund $11.3 billion-and there would be comparable impacts on state fuel tax revenues, as well.

More Congestion Pricing Primers from Federal Highway Administration
FHWA's excellent series of primers on aspects of congestion pricing continues, with the most recent one being "Transit and Congestion Pricing" (FHWA-HOP-09-015). Other recent additions include "Technologies that Enable Congestion Pricing" and "Economics: Pricing, Demand, and Economic Efficiency." You can peruse an entire library of related documents by going to http://ops.fhwa.dot.gov/publications and paging down to the section called Tolling and Pricing Program.

Quotable Quotes

"[W]e seem to be witnessing a series of disjointed, inconsistent, and dare I say, hypocritical and perhaps demagogic decisions and positions:

Increasing the federal fuel tax is taboo but cap and trade is critical.
Transportation resource allocation should be performance-based across modes, but billions are earmarked for high-speed (and probably not-so-high-speed) rail.
Investments should be very efficient-but create lots of jobs.
We want to reduce vehicle miles of travel, but not lose any jobs in the auto and related industries; we take credit for jobs created by investments in one mode without debating the losses in competing modes.
We are eager to claim credit for economic development near transportation investments but not to debit the foregone development at locations where we didn't choose to invest."

--Steven Polzin, Center for Urban Transportation Research, "Speaking of Clunkers," Planetizen, Aug. 12, 2009 (www.planetizen.com/node/40125)

"Power is at the root of this issue. Congress generally disfavors the use of public-private partnerships because they reduce the 'federal' share of the pie and diminish earmarking capability, thereby reducing the power and influence of the federal legislative branch. In other words, P3s substitute for large public funding by injecting private-sector investment into the system which sometimes supplants the 'power of the purse' from Congress. Many in Congress don't want to see any reduction in their power to control the purse strings because they want to determine which projects are advanced, rather than having the private sector, in consultation with local and state governments, make those decisions."
--Marcus J. Lemon (former chief counsel, Federal Highway Administration), "Reauthorization: A Missed Opportunity for Transportation Funding Reform," Tollroadsnews.com, June 6, 2009. (www.tollroadsnews.com/node/4223)

"One of the biggest killers of all is that states insist on allocating federal transportation funds through a politically devised formula. The result? Smooth, well-paved rural highways and worn-out urban roadways that are paved with a layer of asphalt too thin to withstand heavy use and are therefore in need of excessive, costly maintenance. . . . All of this wouldn't be so bad if even inflated costs brought back large returns. In co-authored, peer-reviewed research . . . I found that over the past decade we have reaped a mere 1% return on our highway investment. And what's more, for every $1 the government has spent trying to reduce roadway congestion, motorists have saved a mere three cents in travel time and other costs."
--Clifford Winston, Brookings Institution, "Stimulus Doesn't Have to Mean Pork," Wall Street Journal, Dec. 29, 2008.

"For the last 50 years, we have relied almost entirely on government to build and operate our highway system. This, in a capitalist country whose citizens are often highly critical of government-run programs. . . . The funny thing is, government-run roads are a relatively new phenomenon in the United States. Prior to the 20th century, almost all roads, bridges, canals, and railroads were build [and operated] by private companies. . . . Today, in the face of stiff opposition to higher taxes, we are faced with a dilemma. We need a modern transportation system to compete in the global marketplace, but we've been unable to reach political agreement on how to fund the improvements. . . . In most industrialized countries, private sector investment has been the preferred option. Here, that idea has been met with significant opposition. . . . As the head of a government transportation agency, it would be easy for me to oppose private investment. But I care too much about Central Texas to put my own [political] interest first. . . . As citizens, we need to face up to the fact that roads are not free, and that unless we want our infrastructure to devolve into resembling a third-world country, we are going to have to increase our investment in transportation infrastructure. Where that investment comes from is ultimately up to how well our political and policy leaders inform the public."
--Mike Heiligenstein, Central Texas Regional Mobility Authority, Sept. 1, 2009 (www.mobilityauthority.com/index.php?option=com_content&view=article&id=165&Itemid=257.)

"Greenhouse gas reduction is the hardest possible case: an effective program would require very large changes in private behavior; it appears that only an ineffective program is politically feasible for the time being; and the prospect that technological change will ameliorate the problem independently (e.g., through development of low-cost, non-carbon energy generation) remains highly uncertain."
--Christopher DeMuth, "Unintended Consequences and Intended Non-Consequences," Bradley Lecture delivered at American Enterprise Institute, June 8, 2009.

Through Privatization, Indy Seeks Funds for Infrastructure Program

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 11 Oct 2009 19:49:00 EDT

Francesca Jarosz at the Indianapolis Star takes a deeper look at Indy's current large-scale privatization initiatives today in an interesting article. In addition to tapping privatization to modernize its water & wastewater systems and parking operations (discussed here, here and here), the city is also conducting an inventory of city property to identify divestiture opportunities and considering long-term contracts to upgrade golf courses.

One of the more interesting aspects is that, given Indy's long history as a privatization pioneer, one of the recurring themes in the current batch of initiatives is that they're taking services or assets that already utilize some form of privatization and extending the model further (e.g., longer terms, more responsibilities, etc.):

Privatization experts say long-term contracts like the ones Indianapolis is seeking for its already privatized operations can be beneficial in a couple of ways. A longer term allows companies to make capital improvements and can increase trust between the city and the private operator, said Sergio Fernandez, an assistant professor at Indiana University's School of Public and Environmental Affairs who studies privatization.

But, the long-term deals also can bring risks. For instance, the lease of Chicago's meters could be an unwise move because after the initial payment, the city loses out on the revenue. Evan McKenzie, an associate professor of political science at the University of Illinois-Chicago who has written on privatization since the 1980s, equates it to "having a garage sale to pay your mortgage."

Indianapolis leaders say the difference in their efforts is that the revenues would go toward long-term infrastructure improvements, rather than operating costs. They also say they'll vigilantly monitor contracts to avoid another possible risk of long-term privatization: neglect on the private company's part.

"Monitoring is very important," Fernandez said. "One of the ironies about privatization is that it takes good government to make it work."

Investing in long-term infrastructure improvements would be a fiscally responsible use of the revenues from privatization, as I write here.

And indeed, it does take good government to make privatization work, or at least a government that knows how to manage contracts well. That's the key determinant of a successful privatization initiative. Government doesn't just walk away once the contract is signed. By definition, there are two parties to the contract, and it outlines the expectations and responsibilities of both over the term of the relationship. Hence, the relationship between client and contractor is an active one. Once the contract is signed the public sector's role shifts to contract management and oversight. Hence, governments interested in privatization need to be cognizant of the need to have good procurement specialists to build a solid base of expertise to ensure that goals are achieved and that the contractor delivers.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Governor Rendell (PA) says "Help Me Kill the Office of Public Benefit"

shirley.ybarra@reason.org (Shirley Ybarra) — Sun, 04 Oct 2009 00:09:00 EDT

Cezary Podkul reports here about Pennsylvania Governor Ed Rendell’s speech at an Infrastructure Investor Conference last Thursday in New York City
.
Governor Rendell urged investors to oppose the creation of an Office of Public Benefit to oversee public-private partnerships (PPP) which is included in Chairman Oberstar’s proposed $500 billion 6-year transportation authorization bill.

“We must stop the Office of Public Benefit from being created,” as it will have a “chilling effect on private investment in infrastructure”. Rendell said the powers of this office would essentially amount to a veto power over PPP’s on the nation’s highways, posing a hurdle to private investment just at the time when the US needs it most.

My colleague Bob Poole wrote about the proposal's flaws here in June. He also looked at the Office of Public Benefit saying ” there is the glaring contradiction in the bill claiming to favor sensible use of tolling and public-private partnerships but creating new federal regulation of same” and “the proposed powers of the new Office of Public Benefit, Tolling Requirements, and Public-Private Partnership Requirements goes far beyond that. “

We would all agree with the Governor, "We have got to unleash the power of private investment in every way possible.”

Fitch on Using One-Time Proceeds from Asset Sales & Leases

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 02 Oct 2009 17:12:00 EDT

My latest commentary makes the point that the revenue derived from sales or long-term leases of government assets should be primarily (or mostly, in the pinch of a fiscal crisis) used for long-term economic benefit, such as paying down public debt, shoring up underfunded pensions, investing in long-lived infrastructure and the like. Similarly, ongoing (recurring) spending should rely on recurring revenues from taxes, fees and the like.

Confusing the two situations—spending proceeds from the divestiture of long-lived assets on recurring spending—is a recipe for long-term structural budget deficits. After all, a one-time influx of revenues is by definition temporary, and the expiration of those revenues will inevitably produce a hole in the budget.

That said, as I wrote in the commentary, we don't live in a perfect world. Hence, it's reasonable to spend a limited portion of one-time revenues on near-term budget relief in the middle of a fiscal crisis as a means of avoiding tax hikes or more bonded debt, both of which would dig the hole deeper in one way or another.

In revising its outlook on various Chicago tax revenue, general obligation and fuel tax revenue bonds, ratings agency Fitch amplifies this idea:

Fitch has long noted the city's use of non-recurring funding sources, primarily a portion of proceeds from fixed asset sales and long-term leases, for near and intermediate-term budget relief. Fitch will monitor management's ability to fund its largely inflexible spending requirements once sizable non-recurring funding sources are exhausted. Currently, the city maintains $900 million in long-term reserves, boosting its available resources. Although the city's corporate fund balance is effectively nil, reserves equaled about 20% of spending including medium- and long-term reserves for fiscal 2008. In 2009, the parking meter lease proceeds bolstered the city's financial position as long-term reserves climbed to over $1.5 billion when available long- and mid-term funds are included. While Fitch views negatively any use of proceeds derived from long-term asset leases for near-term budget relief, the planned spending of these sources through 2012 provides the city with time to develop long-term budget measures to better match recurring spending with revenue.

In other words, if you're against the wall and in a position where you need to use one-time proceeds to backfill current spending, then at least use it to buy some time to make the more difficult spending cuts.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Agency Seeks PPP Proposals for Denver FasTracks Rail Expansion

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 01 Oct 2009 15:26:00 EDT

The Denver Business Journal reports the latest on the procurement for a public-private partnership (PPP) to expand the FasTracks rail system with a new $2.3 billion line from downtown Denver to the DIA airport and other extensions. The regional transit authority has issued a request for proposals to three bidding teams, and the winning bidder will finance, design, build, operate and maintain the new lines and will need to deliver up to $1 billion of private financing to the table to supplement federal and state funds:

The three teams are Mile High Transit, which includes Englewood’s CH2M Hill Cos. Ltd. and Longmont’s Flatiron Corp.; Denver Transit Partners, which includes the internationally known Fluor Corp. engineering firm and the Australian Macquarie bank; and Mountain Air Transit Partners, which has companies ranging from the Denver office of Peter Kiewit and Sons to London-based HSBC bank.

The contract is for construction of rail lines from downtown to Denver International Airport and Arvada, plus a section of a third line into Westminster and a maintenance facility. [...]

The three teams are expected to submit bids for the project in March 2010, with an award and contract due in the summer of 2010 and groundbreaking on the line from downtown to DIA expected a year from now, RTD officials have said.

The project calls for a public-private partnership, dubbed the "Eagle P3," to design, build, operate, maintain and finance the lines for RTD. The agency's board voted Sept. 22 to send the contract out to bid.

Whoever wins the contract is expected to bring nearly $1 billion of the team's own money to the project, and be repaid by RTD over 40 years. RTD also expects federal grant money will help pay for the project. [...]

Each team is expected to spend between $10 million and $20 million on preparing its bid. RTD will pay the teams $2.5 million for their trouble, a standard practice for large, design-build contracts such as FasTracks or T-REX.

As I wrote here back in 2007, transit PPPs are in many ways conceptually and structurally similar to a PPP toll road concession. The key difference is that transit PPPs are premised upon subsidy minimization—public-sector rail systems don't capture enough revenue to cover their full operating, maintenance, debt service and other costs—as opposed to revenue (or asset value) maximization, as is generally the case with PPP toll road concessions.

» Reason Foundation's Transportation Research and Commentary

Michigan Lege Passes Budget, Advances PPP Concession for New Int'l Toll Bridge

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 01 Oct 2009 13:11:00 EDT

The Detroit Free Press reports today that Michigan legislators have passed the bulk of a Fiscal Year 2010 budget and a temporary budget to fund the state for 30 days. Governor Jennifer Granholm has already hinted that some spending cuts may not survive the veto pen, which effectively means that citizens could expect to be hundreds of millions of dollars in deficit as soon as the budget bills are signed. The same story played out in Arizona this summer, when Gov. Jan Brewer line-item vetoed spending cuts in education, health care and other services before signing the package of budget bills and today the state remains somewhere between $1-1.5 billion in the red, according to various revenue estimates.

Much of the story has yet to be written in Michigan though, as lawmakers are still debating various tax increase proposals, reductions in local aid, accelerating some stimulus spending and a range of other issues that will have significant fiscal impacts.

Over at TollRoadsNews.com, Peter Samuel points out one interesting feature embedded in the budget on the infrastructure front:

Michigan legislators have passed language in their budget for next fiscal year to prepare the way for concessioning a third toll crossing to Canada from Detroit. The budget contains $2.5m for the Michigan DOT to continue to advance preliminary legal, financial, engineering and environmental permitting to prepare for seeking a private sector toll concessionaire to finance, build, and operate the bridge. Ambassador Bridge lobbyists had worked to cut off the funding. The $2.5m will attract 80% federal matching funds, making a total $12.5m available. The project is often known as Detroit River International Crossing (DRIC).

The budget legislation specifically requires an investment grade traffic and revenue (T&R) study for submission by Michigan DOT to the legislature by May 1 next year. The budget language says the legislature intends to pass enabling legislation for a P3 concession, or establish a public toll authority in conjunction with the Canadians by June 1, 2010 if the project is a goer.

Existing fixed crossings are the Ambassador Bridge and the Detroit-Windsor Tunnel (and there is a truck ferry that handles hazmat and large loads). Site for the third fixed crossing has been selected after some years of alternatives selection and environmental permitting. Difficult approaches on the Canadian side are designed in some detail, permitted, and funded.

The bridge is to be about 3km (2 miles) downstream of the Ambassador Bridge. The route makes for a more direct connection between I-75 south of Detroit and the Canadian Highway 401, avoiding congested roadways on the downtown Detroit end and commercial Huron Church Road, a procession of traffic signals, on the Windsor side.

This is consistent with the emerging policies from Gov. Granholm's administration establishing policy guidance and an implementation program for infrastructure public-private partnerships (PPPs). As discussed in Reason Foundation's Annual Privatization Report 2009, Michigan has joined California and New York in being the first states to create centralized authorities to drive infrastructure PPP development:

Michigan is also making a clear push toward PPPs. Having undertaken a scoping project to determine that suitable PPP opportunities exist to justify a detailed, enterprise-wide approach, Governor Jennifer Granholm's administration took the first big step in 2008 by establishing a new Office for Public Private Partnerships within the state Treasury Department. The office is responsible for coordinating, facilitating and providing financial standardization and accountability for state PPP projects across a variety of sectors, including transportation, educational facilities, energy water/wastewater, corrections, public safety and information technology.

The office moved quickly to build expertise, signing a three-year, $3.2 million contract with KPMG for privatization advisory services in January 2009. The firm will provide the state with 12 PPP proposals each year, with a handful likely to be implemented. KPMG's fees are expected to be paid out of PPP transaction proceeds.

At an April 2009 conference of the National Council for Public-Private Partnerships, office Director Joe Pavona told attendees Michigan is considering a wide range of PPP procurement options, including full concessions (asset leases), shadow tolling, availability payments, design-build, design-build-operate-maintain and design-build-finance.

In her executive budget proposal, Granholm called for the creation of a PPP investment fund within the Treasury Department to invest in financing and developing infrastructure and energy PPPs, capital-asset improvements and other types of projects as determined by the state treasurer and the state budget director.

This is consistent with best PPP practices around the world. Partnerships UK (United Kingdom), Partnerships BC (Canada), Partnerships Victoria (Australia), PPP Québec (Canada) and Infrastructure Ontario (Canada) are examples of authorities established to serve as government's central procurement body for PPP project development and implementation. They fulfill a number of valuable functions, including project evaluation and selection, process and contract standardization, value-for-money/public sector comparator analyses, contract monitoring and program auditing, and the dissemination of best practices and lessons learned in PPP project development across agencies.

These are very positive steps for Michigan and, if done well, will provide a critical building block for future economic development in a state that could really use it.

» Reason Foundation's Transportation PPP Research and Commentary

The Origin of Managed Lanes

sam.staley@reason.org (Samuel Staley) — Tue, 29 Sep 2009 15:37:00 EDT

My colleague Bob Poole recently provided an excellent thumbnail summary of the origin of managed lanes on a list serve. Since the institutional history of these innovations is often lost, I thought it would be useful to reprint the explanation here:

"What we now refer to as “managed lanes” began as transitways, but experience soon showed that in all but one US corridor (the Lincoln Tunnel busway in NJ) there was far too little demand to fill an exclusive bus lane, even during peak periods. To make better use of this expensive pavement, they were gradually opened to vanpools and then carpools. After electronic toll collection made variable pricing feasible, they started being opened up to paying customers—and the private sector began offering to build and operate express toll lanes focused mostly or entirely on toll-paying customers. From the standpoint of sound transportation policy, a good case can be made that a combination of high person throughput, significant congestion relief, and much-needed revenue can be generated via an express-toll-lane policy that lets only super-HOV (bus and vanpool) vehicles use the lanes at no charge."

Bob introduced the concept of what are now called managed lanes to the transportation policy community as part of his early work on modern tollways. The first policy study was "Private Tollways," released in 1988 and another one in 1992, but the study that really got the ball rolling was "How to Enable Private Toll Road Development," published in 1993.