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Out of Control Policy Blog Archives: 1.6.13–1.12.13

Parks 2.0: Operating State Parks through Public-Private Partnerships

Yesterday we had the privilege of having our new policy study—“Parks 2.0: Operating State Parks through Public-Private Partnerships” (Parks 2.0) —published by the Conservation Leadership Council (CLC). Our paper is one of six commissioned by CLC on a range of environmental topics intended to offer a set of actionable recommendations that focus on private sector and market-based policy initiatives reflecting the CLC’s principles of limited government, community leadership and public-private partnerships.

The papers were launched yesterday at an event hosted by CLC in Washington, D.C. that included Gale Norton, former U.S. Interior Secretary and former Colorado Attorney General; Ed Schafer, former U.S. Agriculture Secretary and former North Dakota Governor; and Lynn Scarlett, former Deputy Secretary of the Interior (and former Reason Foundation president). The event was recorded by C-SPAN and is available online here.

Parks 2.0 acknowledges that the ongoing fiscal challenges facing state governments are creating an existential crisis for state parks. With budgets stretched increasingly thin, state parks must compete for limited funds with other (usually higher) policy priorities like education, health care, public pensions and public safety. These budget pressures have prompted policy makers in California, New York, Florida, Arizona, Georgia, Massachusetts and other states to close or significantly reduce services in hundreds of state parks, or at minimum reduce parks budgets, nationwide. In other states, like Washington and South Carolina, governors and legislatures have recently launched efforts to require parks to become self-sufficient to wean them off state appropriations, in seeming recognition that parks funding will increasingly be crowded out by other spending priorities.

Yet state parks remain popular while their maintenance needs continue to worsen; according to America’s State Parks Foundation, state parks received 725 million visitors at over 6,000 sites around the country in 2010 alone. Can this popularity be turned from a cost into a benefit? One way to keep state parks open without imposing additional burdens on the taxpayer is to utilize public-private partnerships (PPPs). 

Many states already successfully use private concessionaires to provide piecemeal services within parks—including food, retail, lodging, marinas, and other commercial activities—so a shift to more extensive involvement can build on that. Such a whole park operation PPP would transfer the responsibility of maintaining the park to a private operator, while enabling that operator to raise revenue through entrance and other fees. The U.S. Forest Service has used this PPP model for over 25 years to operate thousands of its developed recreation areas nationwide, and in 2012 California began the first state to turn over the operation of state parks to private recreation management companies to avoid closure.

Parks 2.0 seeks to describe such a PPP model and explain how it can best be applied to the operation of state parks. Reason Foundation has been on the forefront of this issue for years, both by conducting research and engaging in policy implementation. For example, last year we outlined the state of California’s decision to issue a request for proposals (RFP) for private operation of five state parks. Our Annual Privatization Report 2011: State Government Privatization detailed steps taken towards partnering with for-profit and nonprofit operators for state parks operation across the U.S. And a 2010 ReasonTV video suggested that PPPs, not a proposed new tax on car registration, offered a more sustainable solution to the state’s park funding challenges. Watch the full ReasonTV video below:

To learn more about the Conservation Leadership Council visit their website and watch the CSPAN event here. To learn more about Parks 2.0, read our study “Parks 2.0: Operating State Parks through Public-Private Partnerships,” available online here and visit Reason Foundation’s Parks and Recreation Research Archive here


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How to Reform and Get More Value From Federal Transportation Programs

As Congress grapples with impending budget cuts, we need to do a fundamental rethink of how the federal government assists with much-needed transportation infrastructure. The reality going forward is that there will be no such thing as “general revenue” funding for much of anything beyond entitlements, defense, and interest on the national debt. As long as the federal budget remains grossly unbalanced, general-fund investments in infrastructure are essentially borrowed from China—an unsustainable situation.

Three key principles are necessary for a sustainable federal role in infrastructure:

  1. Users should pay for the infrastructure they use;
  2. Large capital projects should be financed, via revenue bonds and other mechanisms; and,
  3. The federal role should be narrowed to do only things that are truly interstate in nature, which means shifting more responsibility to the states, metro areas, and the private sector.

Reason Foundation’s new policy brief, “Funding Transportation Infrastructure in a Fiscally Constrained Environment,” explains why the model used for federal transportation programs—user taxes feeding centralized trust funds that make annual grants for cash-based investments, increasingly subsidized by general-fund money—needs replacing:

  • Because these user taxes are seen as taxes, Congress seldom increases them, even when their real value declines due to inflation and other factors.
  • Each transportation program involves large cross-subsidies, in which some users pay for other users’ projects, often for projects of low real value.
  • Federal money comes with costly strings attached, such as Davis-Bacon and Buy America requirements, needlessly raising the cost of federally aided projects.
  • Federal programs over-emphasize new capacity, leading to large amounts of deferred maintenance on existing infrastructure.
  • Most federal programs encourage state and local governments to fund large capital projects out of annual cash flow, rather than financing them over time, as businesses (and home-buyers) do.

The report sets out a comprehensive set of organizational, tax policy, and regulatory changes that would implement the above principles, thereby ensuring needed, cost-effective investment in airports, air traffic control, highways and bridges, ports and waterways, transit, and passenger rail.

Airports already make use of much of the proposed approach, and the report recommends that airports be liberated from federal grant funding by being allowed to self-fund their runway and terminal expansion projects. The only thing Congress would have to do is to remove the federal cap on individual airports’ passenger facility charges, which would enable airports to expand their revenue bonding abilities for such projects. Eliminating airport grants for passenger airports would save $2 billion a year.

The air traffic control system could easily be self-supporting from fees and charges, as are the air traffic control systems in Western Europe, Australia, Canada, and even South Africa. A decade ago Congress reorganized the Federal Aviation Administration, creating the Air Traffic Organization (ATO) within it. The ATO should be separated from FAA as a government or nonprofit corporation, funded and governed by its users and regulated for safety by the FAA.

The Highway Trust Fund (HTF) should be refocused on interstate commerce, rather than trying to do surface transportation at all levels of government, from sidewalks and bike paths to urban transit to recreational trails. Its revised focus should be the Interstates and others that make up just the National Highway System. Thus refocused, the HTF would no longer need the large general fund subsidies provided since 2007. To help states accommodate their enlarged responsibilities, the remaining federal barriers to states use of tolling should be abolished, and a larger share of federal aid should be in the form of loans via the TIFIA program, rather than grants.

The Harbor Maintenance Trust Fund is broken, but not only because Congress spends only half the money generated by the Harbor Maintenance Tax each year. It is also broken because it takes money from ports that don’t need significant dredging and spends it on ports that do. But since all ports are in competition with one another, that policy makes no sense. Each port should self-fund whatever dredging it needs, with the cost being borne by that port’s users.

Federal waterways policy is even less sustainable, since the diesel tax paid by commercial carriers covers only eight percent of federal spending on channel dredging and lock-and-dam capital and operating costs. Waterways interests are calling for large increases in federal general fund support, but even the research arm of the Army Corps of Engineers has suggested the alternative of self-funded waterways, with larger user fees making possible revenue bond financing of needed improvements.

Passenger rail is problematic, because airlines and bus lines provide basically unsubsidized service to the vast majority of inter-city passengers. Where niche markets for passenger rail exist (e.g., the Northeast corridor), passenger fares and related real-estate value-added should become the means of support. The private sector may have a role to play in such service, especially if Congress deregulates post-Amtrak rail labor.

Urban transit, while playing an important role, is quintessentially the responsibility of specific urban regions, which derive all the benefits from such service. Federal funding has biased many transit investment decisions away from cost-effective bus and bus rapid transit projects to very costly and not very effective rail projects. Subways and commuter rail have a key role to play in very dense urban areas with large traditional central business districts, but that description applies to only a handful of America’s largest urban areas.

In short, federal transportation infrastructure programs are in dire need of major reform. This is not simply because the federal government is running out of discretionary funding. It is also because all of these programs misallocate resources. What this country cannot afford is to continue putting tens of billions of dollars into programs that waste resources by favoring low-value projects over high-value projects. A large-scale shift to users-pay/users-benefit, revenue bond financing, and devolving some federal responsibilities to state, metro-area, and private-sector parties will revitalize U.S. transportation infrastructure, allocating investment dollars where they will be most productive.

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The Top Transportation Issues to Watch in 2013

After detailing the 12 biggest transportation stories of 2012, it is time to detail the transportation issues to watch in 2013. 

1) New Ports/Waterways Bill: Ports, inland waterways, and the freight they move are often overlooked in transportation. Currently, the federal government collects a harbor maintenance tax for maintenance dredgings. However, the Army Corps maintains the trust fund and decides to whom and how to distribute that funding. Tax money from ports, such as Los Angeles, that have naturally deep harbors support ports such as Charleston that do not. And other port users such as ships do not pay anything to maintain the harbor. The Army Corps typically spends less than half of that funding on dredging and keeps the remainder in an account. Inland Waterways have a separate trust fund supported by a $0.20 per gallon tax on barge fuels. But $0.20 raises very little funding; it is not a sustainable, robust funding source for waterways. Meanwhile, East Coast ports are seeking earmarks to permanently deepen their harbors ahead of the Panama Canal. However, with the earmark ban in the house, it is not clear how they will obtain any funding. Senators Graham and Lindsey introduced a bill last October and will likely introduce a similar version in the 113th Congress. But whether there is sufficient motivation for a bill is unclear. 

2) Sustainable Funding Source for Transportation: While Congress recently approved a new 2-year surface transportation bill, 2 years passes very quickly. As a result, the transportation committees in Congress will be hard at work on a new bill. The top issue to address is funding. For the past 50 years, Congress has been able to rely on the gas tax as the major source of transportation funding. As the federal government has funded ever more transportation projects, Congress has started tapping the general fund. Due to inflation and more fuel-efficient vehicles the gas tax has lost more than 50% of its buying power since it was last increased in 1994. For MAP-21 rather than increasing taxes or cutting bloated unnecessary programs, Congress created an accounting gimmick that uses 10 years of transportation revenue to create a 2-year program. While the gas tax will continue to play a role in the future, Congress will need a new funding source. More general funding is possible; but this further exacerbates the debt and has no users-pay users-benefit link. A national sales tax is another option but it also suffers from the users-pay problem. TIFIA and bonding are excellent ways to leverage funding but require a base amount of money and are not appropriate for every project. Value Capture works well for some but not all transit projects. A combination of mileage-based-user fees and tolling are most experts top choice. But an MBUF system is several years from a national rollout. And both MBUF and tolling are opposed by short-sighted politicians. States are likely to take a larger role in funding transportation because the funding challenge for the next bill will be major. 

3) Ray LaHood: President Obama asked Secretary LaHood to stay on temporarily past the election to provide stability in his cabinet. It is not clear if LaHood will stay on for another term. LaHood announced he was leaving after one term but then walked the decision back last fall. Transportation types are hoping Mr. LaHood goes. LaHood, with no professional transportation knowledge of any kind has not been a forceful advocate for transportation and many industry types hold LaHood and Obama responsible for not enacting a new 6-year transportation bill in 2009. A new transportation secretary could explain the importance of transportation to both the President and the American people. He or she could bring analytics back to the DOT and make substantial changes to policy. The three most likely candidates are Ed Rendell, Antonio Villaraigosa, and Steve LaTourette. Of those three, Rendell is the strongest choice. He has been a mayor, and a governor and has worked in policy. He helped set up Building America’s Future to address infrastructure challenges. And as a moderate Democrat from a swing state he could be politically useful to the administration. Villaraigosa has shown a passion for infrastructure. And the President would like to add a Hispanic to his cabinet. But Villaraigosa has no statewide experience. He is not as much a national figure as Rendell. And he is more of a cheerleader for transportation than an analyst. The next Secretary of Transportation should be part cheerleader, but he also needs to understand transportation and be able to balance facts objectively. LaTourette is the weakest choice of the 3. LaTourette abandoned transportation in the House to serve on Appropriations. He announced in early 2012 he wanted to reclaim his seniority on the Transportation and Infrastructure committee and run for Chair. And, the House steering committee's decision to give the gavel to somebody actually on the T & I committee played a promiment part in LaTourette's decision to retire from the House. LaTourette may not have the best personality for a cabinet position as he has a bit of a temper. 

4) Changes to TSA: The organization set up by Republicans in the wake of 9/11 has proven to be an enormous mess. And fixing the problem is a challenge. Last year Congress required TSA Administrator Pistole to start approving contracted screening at interested airports. Pistole stopped TSA contracting in 2011 because he concluded that there were no cost-savings from contracting. (The facts said otherwise.) But even with the program restarted only 16 airports have opted out in the 11 years the program has been in existence. The TSA has failed to improve security because it concentrates on screening passengers at the front of the airport but leaves the back door wide open. There is no protection from intruders entering the secure side of an airport through a fence or waterway as happened earlier this year at Kennedy International Airport. In Newark a knife-wielding intruder got onto the tarmac by scaling an eight-foot fence. In Dallas a group bypassed all security and posted a video of themselves on YouTube. These problems could be remedied if airports and not TSA oversaw screening on their property. Currently, TSA has dual purposes—conducting the screening and overseeing the screening process. Having airports run security screening and allowing TSA to focus on overseeing screening would end this conflict. But this would require interim legislation. With John Mica in charge of the oversight committee and TSA disapproval from both Democrats and Republicans, Congress could pass a bill to make small but significant changes to TSA. But real change may have to wait until the next aviation bill and a new president. 

5) Bill Shuster in charge of the House Transportation and Infrastructure Committee: Shuster formerly headed the Railroads, Pipelines, and Hazardous Materials Subcommittee but with former chair John Mica term-limited, and now on the House Oversight and Government Reform committee, Shuster takes the Chairman’s gavel. Nobody knows how Shuster will differ from Mica. But most transpo types believe he will be less partisan and have better working relations with the Senate. Shuster’s priorities include a new water resources bill, a railroad reauthorization and groundwork for the 2014 surface transportation bill. Shuster believes that high-speed rail can work in the northeast but not the rest of the country and wants to privatize Amtrak. Shuster is as much if not more of a transportation wonk than Mica and has an ability to explain complex transportation terms in simple language. While Shuster’s dad, Bud, ran the T & I committee with an iron fist from 1995-2001, and earmarked numerous pointless projects for his Pennsylvania district, Shuster Jr. will be more likely to seek consensus. 

6) New Amtrak Bill: With Amtrak up for reauthorization in 2013, this could be a critical year for the government corporation. Amtrak has never made a profit; only its higher speed Acela service makes money. All other lines require large annual subsidies from the government. Republicans want to end subsidies and privatize the successful Acela service. There is some precedent as other countries such as Japan have privatized some of their high-speed rail lines. Much has changed in the 163 years since the B & O railroad reached the Ohio River. Passenger service was initially profitable for railroads but with new more cost-effective forms of transport such as cars, buses and planes and faced with bankruptcy, Class I railroads offloaded their passenger service to the federal government in 1970. With the exception of the northeast corridor, passenger rail service has continued to lose money over the last 43 years. With planes offering the speed advantage, buses offering the price advantage, and cars offering the customization advantage, passenger-rail has no advantage over the other transport modes. However, politics are powerful and with jobs at stake Amtrak will most likely continue to receive enough support to survive although not enough to create a robust system. 

7) HSR in California: High-speed-rail in California moves onward. CA HSR is similar to the latest big movie flop. It is completely unbelievable but the producer (CA governor Jerry Brown) and the director (Chairperson Dan Richard) want a legacy. That the legacy will be the state drowning in debt is less important than that they will be remembered. Only in this story, federal taxpayers, not the studio head, will be on the hook. And unlike the studio head who could kill this mess, taxpayers seem powerless to derail this project. Republicans from California tried. But since Democrats now have a supermajority in Congress, even with many Democrats trying to kill the project it may live on. What are the facts? To reduce costs the latest version of the CA HSR business plan proposes for commuter and high-speed-rail trains to share tracks around Los Angeles and San Francisco. While this cuts $30 million from the costs, it makes the system less than high-speed. Further, it makes impossible one of the explicit reasons for building the system—to provide a 2 hour and 30 minute trip between Los Angeles and San Francisco. The slower speed will make it more challenging for the service to attract passengers. Most other high-speed-rail lines have attracted primarily airline passengers. Drivers are unlikely to use rail because they value the flexibility to stop for food or stretch their legs or need the car at the other end of their destination. The funding plan relies on money from a cap and trade pollution system intended for environmental purposes and private investors who want to lose money. The circuitous route through the mountains further increases the costs. As a result the GAO estimates the project needs $42 billion from U.S. taxpayers, most of who live far from California. It was time to pull the plug two years ago and concentrate on HSR in the Northeast Corridor. But the politics says this project limps on. 

8) Space Travel: With the end of NASA’s space shuttle, privatized space travel is likely to take off over the next five years. While NASA can pay the Russians to get people and cargo to the international space station, Russia-U.S. relations may not make that realistic. Four private companies are competing to provide a vehicle for the Commercial Crew Integrated Capability program. SpaceX, the farthest along, has already carried people and cargo to the space station. Blue Origin, Boeing, and Sierra Nevada are also in the running. NASA has unfunded agreements to collaborate on tourism efforts with United Launch Alliance, Alliant Technsystems/ATK, and Excalibur Almaz. Another company, Golden Spike, plans to charge $1.5 billion for a round-trip expedition to the moon. NASA would like additional federal funding to speed-up development of its craft. But in a time of high budget deficits, it is hard to argue space travel is needed. What is more likely is that a private company such as SpaceX develops a system for tourists and NASA forges a partnership with the company to use its vehicles for its missions as well.

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