With the end of January nearing, it is time to look back at the top ten transportation stories of 2013. Let this be the latest and definitely the last list summarizing 2013. I have also compiled the most important stories of 2012 and 2011. Most of these stories are national; if they are local they have national implications. So without further ado:
1) Departure of LaHood, Porcari and Trottenberg: As President Obama’s 2nd term began changes in department leadership were expected. Ray LaHood was the first to announce he was leaving. Anthony Foxx’s first day on the job was July 2nd. While LaHood may have gotten a lot of popular praise for his distracted driving campaign, he was completely out of his league as leader of DOT. The New York Times interview he gave early in 2009 was a depressing reminder of Mr. LaHood’s lack of qualifications. It is too early to judge Mr. Foxx, but so far he has been a solid leader who seeks consensus before taking action. Mr. Foxx is different from LaHood in two major ways. First, he admits he is not the smartest guy in the room. Second, he actually studies a subject before he announces his opinion to the world. I do not think Mr. Foxx is a transportation expert, but his approach has been a pleasant surprise.
Less expected were the departures last month of Deputy Secretary John Porcari and Under Secretary for Policy, Polly Trottenberg. Porcari, who had been number two at DOT since 2009 and ran DOTs day-to-day operations was succeeded by Federal Highway Administrator Victor Mendez. The transition to Mendez who has worked at USDOT since 2009 and AZDOT before that should be smooth. Trottenberg had a key role in shaping policy. As a liberal, with a clear preference for transit and non-motorized transit, Trottenberg was open-minded and receptive to different ideas. Trottenberg’s most famous creation was the TIGER Grants process. Federal Transit Administrator Peter Rogoff brings a similar skillset to the table.
2) States Take Action on Transportation Funding: With Washington D.C.’s inaction on transportation funding, many states created their own innovative transportation funding solutions. Vermont and Wyoming increased their gas taxes. Massachusetts passed an $800 million transportation finance bill by increasing the gas tax three cents, increasing cigarettes by $1 and adding a new tax on computer software services. But most interesting were the changes in Maryland, Pennsylvania and Virginia. Maryland added a new sales tax of three percent imposed at the wholesale level. But if Maryland is unable to tax internet purchases to pay for transportation, the state will an additional 2% sales tax on gasoline. Virginia adopted a similar law that replaces the 17.5 cents-per-gallon tax on gasoline with a new 3.5 percent wholesale tax on motor fuels. The sales tax increased from 5 to 5.3 percent; more of its revenue will be used for transportation. Northern Virginia and the Hampton Roads region will have a 6 percent sales tax; all of the 0.7 extra cents will be spent on transportation. Pennsylvania lifted the Oil Company Franchise Tax that will result in a gas tax increase of between 25 cents and 28 cents by 2017. This would make Pennsylvania’s gas tax the highest in the country. Pennsylvania can be credited with keeping a user-pay user-benefit fee structure, but the size of the increase is excessive. The state should have reformed its prevailing wage legislation and combined an uncorking of the Oil Company Franchise Tax with a reduction in the base rate.
Before raising taxes each of these states should have analyzed whether they can more efficiently use existing revenue. Assuming there was a legitimate justification for raising taxes, the Pennsylvania, Vermont and Wyoming bills keep the strongest user-pay user-benefit principle. Each of the others suffers from a weakening of the user-pay/user-benefit principal. The Massachusetts tax on cigarettes and computer services has nothing to do with transportation. The computer services tax could do real harm to the economy. Maryland and Virginia’s proposal to tax internet sales to pay for transportation is baffling. And Virginia’s plan is so convoluted that it is challenging to predict exactly how much revenue it will bring in. Worse, none of the states seriously examined transitioning to a new payment mechanism to replace the dying gas tax. All the states are simply buying time.
3) Air Traffic Control System Funding Challenges: The Air Traffic Control funding system is becoming so problematic that even the air traffic controllers union NATCA and pilots union ALPA agree the current system needs to be replaced to eliminate politics. The sequester which included mandatory furloughs and the near shutdown of 150 small towers finally woke up the industry to the problems. My colleague Bob Poole who has written for years about Air Traffic Control reform explains that such a system could be created in three steps. First, de-politicize the funding of the ATC system by taking it out of the federal budget. Second, stop trying to pay for major modernizations (like NextGen) out of annual cash flow, and instead finance these capital expenditures (just as airports, toll roads, and electric utilities do). That requires a bondable revenue stream, which direct user payments for ATC services would provide. Third, focus the reformed ATC provider on meeting the needs of its aviation customers, rather than responding to congressional mandates, OMB directives and endless critiques by the GAO and the DOT inspector general. The three recommendations above are features of Nav Canada, NATS (UK), DFS (Germany), AirServices Australia and about 50 other reformed ATC providers worldwide. A new project encompassing these steps will be detailed later this year.
4) New Water Bills: The House and Senate both passed new water bills which set policy for ports and inland waterways. While there was some needed reform of environmental review and the creation of a new public-private partnership program, the bills fail to solve the funding issue. The harbor maintenance tax may be the best example of an ineffective funding mechanism. In order to keep ports at a certain depth, all ports pay a harbor maintenance tax which funds routine dredgings. However, the Army Corps is in charge of distributing the funds and the Corps has been allocating only half of the total amount. Worse, west coast ports are naturally deep and do not need maintenance dredging. Their payments are a transfer of wealth to East and Gulf coast ports. Further, there is no dedicated source for permanent port deepening. Many east coast and gulf coast ports want to permanently deepen their harbors to allow bigger ships using the now deepened Panama Canal access. The only way to obtain funds to permanently deepen the harbor is through a congressional earmark. While some ports received small earmarks in 2013, others received no funding. More importantly, not every port needs to be deepened. Deepening half of the ports would suffice. Inland ports are even more of a disaster, which I will detail later this month.
5) Transit Inefficiency: Many U.S. transit systems continue to be some of the most inefficient in the world. For example, it should never cost $1 billion to build one heavy rail station, as it did for New York’s Second Avenue Subway. It is the farebox recovery rate of 25% or less. In some cases it's the high wages such as the average BART worker salary of $83,000. But most of the time it is that the system both uses the wrong technology and is poorly run. Many U.S. systems are building rail where bus would be a better choice. For example, Charlotte, North Carolina wants to extend its Blue Line northeast from downtown when the original line is substantially below ridership projections. (The blue line’s ridership has declined by 5,000 folks over 5 years.) Another issue is transit system management. The transit industry needs to offer additional guidance on route development, further training of technology and enhanced business practices. APTA offers some of this training but it is not enough. Operating transit is not easy but its not rocket science either.
6) Federal Transportation Funding: While some states are taking steps to solve their funding challenges, the same cannot be said for the federal government. President Obama famously rebuked Ray LaHood for even mentioning a mileage based user-fee concept. Instead of offering new solutions the White House continues to promote its infrastructure bank which is really a grant-making operation in loan-making clothing. With the White House lacking a vision, the best ideas are coming from Congress. John Delaney has proposed an infrastructure bank using repatriated funds. Earl Blumenauer has introduced a bill to expand mileage-based-user fees. Previously introduced bills from the 112th Congress examine allowing states to toll interstates for reconstruction, enhancing public private partnerships and protecting transportation funds from diversion. Congress is supposed to pass a new surface transportation bill later this year, but the legislative bodies typically need 1-2 years after the previous surface transportation bill has expired to write a new bill. With little innovative thinking on funding and financing, I would not bet on a new bill in 2014 or even 2015.
7) American Airlines-U.S. Airways Merger: After the Justice Department made a very strange decision by suing to stop the American and US Airways Merger, the DOJ realized its case was weak and allowed the merger to go through. In exchange the airlines were required to relinquish some gate slots mostly in DC. DOJ could have gotten this exaction without suing so the lawsuit was bizarre. DOJ had previously given its blessing to the Delta-Northwest merger, the United-Continental merger and most egregiously the Southwest-Air Tran mergers. It would have been unfair to prevent the American US Air merger and would have put these two carriers at a competitive disadvantage over the three larger carriers. In the past, airlines operated with too much capacity and often received government bailouts to keep flying. This is no way to run a professional business. While mergers may result in slightly higher fares, they will also create a much healthier airline industry. In the last few months, some airlines have made some modest capacity expansions as the recession has faded.
And the DOC seemed to bungle another aspect of the merger. Southwest which is expected to win most of the slot pairs gained the most from the merger, despite the fact that the Southwest-AirTran merger has proven the worst for consumers. While the larger Delta and United mergers have resulted in some service cuts, Southwest has cut a far higher percentage of its service since its merger with AirTran closed. Southwest now serves 91 cities rather than 108—this is a cut of 16%. The airline has reduced its service significantly at countless more cities. Yet since Southwest no longer serves many small markets, it is not likely to add new direct connections out of DC. It will simply fly to the same large cities as American/US Air. Worse, American has announced that it will cut service to small cities such as Fayetteville, NC and Omaha, NE since these cities are the most unprofitable. So DOJ’s decision to award the slots to Southwest increased competition to major cities that do need it and eliminated service to smaller cities.
8) Virginia Survives P3 Challenge: In a lawsuit several Virginia residents argued that tolls on the Downtown and Midtown Norfolk bridges were taxes since these bridges were the only way to move about the region. The argument was bizarre since the tolls are actually a user fee going to a specific purpose and not a tax going into the general fund. There are also several other bridges in the region. Surprisingly, the circuit judge agreed with the residents putting Virginia’s P3 law into jeopardy. Fortunately, the Virginia Supreme Court disagreed unanimously with the lower court ruling. The justices ruled tolls are user fees since drivers directly benefit from an improved transportation network and reasonable alternative routes exist in the area including two non-tolled bridges.
P3s are a critical transportation resource. They are an important source of funding in megaprojects. The lower court went against 40 years of tolling precedent making its ruling shocking indeed.
9) Ohio River Bridge P3s Press Forward: It has been slow going for two bridges connecting Indiana with Kentucky in the Louisville area. But in 2012, the bridges finally reached financial close and are now being built. The East End crossing being built by Indiana is a 35 year availability pay DBFOM. It is being overseen by Walsh/Vinci/Bilfinger and includes $78 million in equity, $677 million in debt and uses private activity bonds overseen by Bank of America—Merrill Lynch. The Indiana Finance Authority will pay $392 million in milestone payments. The Downtown Crossing is a traditional design-build project built by the state of Kentucky. The project adds a new 6-lane span to the existing 6-lane span to create 6 lanes in each direction. A public transportation infrastructure authority is issuing toll revenue bonds to help cover construction costs.
Construction of the two bridges has faced some opposition. A group called the Coalition for the Advancement of Regional Transportation (CART) is appealing a federal judge’s dismissal of its lawsuit claiming that Indiana and Kentucky broke civil rights laws, federal funding regulations and environmental law. The CART group wants a smaller bridge project in downtown and a freeway to be transitioned into a boulevard. However, the project has continued to move forward. Drivers who pay with transponders will be charged $1 per trip if they use the bridge regularly, $2 if they do not use it regularly; box trucks will pay $5 and tractor trailers, $10. The toll rates are expected to rise 2.5 percent a year to keep pace with inflation.
10) Tunneling Moves Forward: One of the worst legacies of the Interstate program in the U.S. was its decision to build freeways through urban neighborhoods, often forcibly removing minorities. Our approach to building freeways has changed; Planners are increasingly considering building tunnels under urban areas. While tunnels have been built under Versailles in France and giant sewer tunnels lie under most major metro areas, many U.S. residents have a strong negative reaction to highway tunnels. Thankfully, several U.S. projects currently proceeding should help neutralize these anti-tunneling feelings. The most prominent is the replacement of the seismically deficient SR 99 viaduct in Seattle with a tunnel. The two-mile long project near Seattle’s waterfront will run from CenturyLink field downtown to the Space Needle. Once it is completed the freeway will be demolished. (Drillers are currently having trouble with the tunnel-boring machine named Big Bertha but the problem is expected to be resolved over the next month.) This is one of those rare win-wins in that drivers get a new, better freeway and neighbors get a reconnected neighborhood with better east-west access.
South of San Francisco, Caltrans is building a tunnel to fix a section of SR 1 with erosion and landslide issues. Los Angeles is examining the completion of I-710 with a tunnel and metro communities from coast to coast are viewing tunnels as a more context-friendly solution to surface highways.
Next week we will examine the potential transportation stories of 2014.