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Reason Foundation

Surface Transportation Innovations #27

Topics include: telecommuting's cost-effectiveness; congestion and regional economies; PPPs for transport infrastructure; guidelines for state PPP legislation; and other news.

Robert Poole
November 1, 2005

In this issue:

Telecommuting's Cost-Effectiveness

What mode of commuting gained the most market share nationwide between 1990 and 2000? It's not mass transit (which declined from 5.27% to 4.73%—a 10% decrease), and it's not car-pooling (which dropped from 13.4% to 11.2%—a 16% decrease). No, the new champ is telecommuting, which increased by 10% (from 3.0% to 3.3%) during that decade. My Reason colleague Ted Balaker provides a fascinating exploration of the implications of telecommuting for urban transportation planning in "The Quiet Success: Telecommuting's Impact on Transportation and Beyond." It's being published this week, and should be available within the next day or two at www.reason.org/ps338.pdf.

One of Ted's most surprising findings is that telecommuters outnumber transit commuters in 27 out of the 50 largest metro areas—including places like Dallas, Phoenix, and San Diego that have built costly new light rail lines. Telecommuting is twice as common as transit commuting in places like Nashville, Raleigh-Durham, and Tampa-St. Petersburg, and in Oklahoma City telecommuters outnumber transit commuters by nearly five to one. These results should not be surprising, given that as urban areas have continued to decentralize (making transit, especially rail transit, ever less feasible for most commuters), the technology enabling telecommuting has continued to improve and to decrease in price.

Transportation planners have generally missed the boat on this issue. They continue to look for hundreds of millions or billions of dollars to expand transit systems and build more car-pool lanes in the name of reducing congestion by shifting people out of drive-alone cars. But even wildly successful efforts to do this, at the high end of the cost scale, would increase the mode share of transit or car-pooling by a couple of percentage points. More likely, such efforts as they can actually afford to implement will be doing well to keep transit's and car-pooling's mode share from declining further.

But promoting telecommuting requires no capital expenditures, no massive federal grants, and no contentious battles over rights of way. Besides spending modest sums to promote the idea, what governments should focus on, Ted writes, is removing barriers to telecommuting�things like restrictive zoning ordinances, tax conflicts (where telecommuters live in a different state from their employer), and the threat of future government efforts to regulate at-home workplaces. Increasing telecommuting's mode share to 5% by 2010 would cost just about nothing, but would reduce congestion just as much as putting billions more into carpool lanes and rail transit.


Congestion and Regional Economies

Back in issue #22 I noted that the much-cited Texas Transportation Institute annual congestion cost figures tell only part of the story. They estimate the annual cost of being stuck in traffic to individual motorists—in terms of lost time and wasted fuel. Even though that number is large ($63 billion in the most recent year analyzed), it's hardly the total cost of traffic congestion. In that issue I spotlighted a report from the National Cooperative Highway Research Program that did some pioneering work to estimate how much congestion costs businesses in urban areas, in terms of things like increased inventory costs and employer/employee skills mis-matching. (It's NCHRP Report 463, in case you missed that issue.)

Now I'm pleased to tell you about another effort to estimate the cost of congestion to an urban area's economy, this one from Europe. Remy Prud'homme and Chang-Woon Lee's November 1998 paper is "Size, Sprawl, Speed and the Efficiency of Cities." Their basic idea is to look at the effective size of an urban area's labor market—i.e., what fraction of the total job possibilities can a worker access in a reasonable commuting time? Although larger metro areas have more total jobs, the bigger the city (geographically), the harder it is for workers to get to them, especially if the transport system is inadequate. Thus, in a small metro area, the effective size of the labor market is nearly the entire market, but that may decline to as little as half in a large, congested one like Seoul.

In the paper, after a preliminary look at Korean cities, Prud'homme and Lee used data from 22 French cities to calculate their effective labor market sizes, from the standpoint of both employers and employees. Using data on labor productivity from each one, they find a robust relationship between the two�i.e., a larger effective labor market leads to (or at least is correlated with) higher productivity. Their average estimate is an elasticity of 0.18. In English, that means when the effective labor market size increases by 10%, productivity (and hence output) increases by 1.8%.

The effective size of the labor market is negatively affected by sprawl and positively affected by speed of travel, a relationship which they tested with the 22-city data. For the speed variable, they concluded that a 10% increase in average speed leads to a 15-18% increase in labor market size, other things being equal.

In a study on mobility options for Atlanta published last year, Wendell Cox and Alan Pisarski applied the Prud'homme and Lee analysis to look at the economic productivity differences among several alternative transportation scenarios over the 2005-2030 period. The "maintain congestion" scenario (which would invest enough to keep congestion, and hence travel speeds, from getting worse) would lead to a 2.4% increase in gross personal income in the Atlanta area, compared with the �present plan� scenario. The "50% congestion reduction" scenario would lead to a 3.5% increase in gross personal income and the "70% congestion reduction� scenario would produce a 4.5% gain in personal income. Translated into increased per-capita income in 2030, those three scenarios would lead to increases of $2,450, $3,560, and $4,620, respectively. That's not chicken feed.

The Prud'homme & Lee study does not compare the relative costs and benefits of reducing sprawl versus increasing travel speed. That's a worthy subject for further research. And they also do not assess the relative cost-effectiveness of investments in transit versus highways for increasing travel speed. In both of these areas, the results will surely differ from metro area to metro area. But my guess for most of America's low-density metro areas is that reducing sprawl would be very difficult and costly, and that expanding highway capacity will generally be more cost-effective than expanding rail transit. But we should all be open to letting the numbers tell us more about these issues.


PPPs for Roads, Bridges & Tunnels Proliferate

Although the past year has seen a proliferation of U.S. private-sector proposals to develop HOT lanes, build new toll roads, and buy existing ones, the perception remains that long-term public-private partnerships (PPPs) in the highway field are some kind of oddity. Yet the reality is that this kind of arrangement�primarily either build-operate-transfer (BOT) or long-term concession�has a robust recent history all over the world. For nearly two decades such PPPs have been quietly chronicled by the excellent newsletter, Public Works Financing (for which I write a column). The database maintained by editor Bill Reinhardt contains 656 highway PPP projects worldwide since 1985, totaling $325 billion. Half of these had been completed by October 2004.

Details about the global use of such PPPs in the highway sector will soon become more widely known, thanks to a report prepared for the Federal Highway Administration by AECOM. Dated August 30, 2005, its title is "Synthesis of Public-Private Partnership Projects for Roads, Bridges & Tunnels from Around the World�1985-2004." Its principal author is Daniel L. Dornan.

Besides providing a useful glossary of types of PPPs used in the highway sector, the report offers a wealth of detail on where in the world these different methods are being used. Europe is the largest area, with the most projects and the largest dollar value, with Asia coming in second. On a global basis, the predominant forms of PPPs for highway projects are the Concession and BOT/BTO, though these are just now starting to come into wider use in the United States (where Design-Build and Management Contract have been the predominant forms of PPP in the highway sector).

State DOT officials, legislators, and commentators who are trying to make sense out of the raft of recent toll highway privatization proposals should consult this report for context. These "new" ideas and methods aren't really that new. There's a wealth of global experience to draw from as the USA begins to take advantage of techniques our allies and competitors have been using for decades.


How to Draft a State PPP Law that Works

With PPP toll road proposals proliferating in Georgia, Texas, and Virginia — all with effective PPP laws — more state legislatures will be looking to draft such enabling laws, to avoid being cut off from the private capital that is starting to flow for such projects.

But there are enabling laws and enabling laws. The latest tally in Public Works Financing lists 21 states with such measures—but frankly, most aren't worth the paper they are printed on. There's a reason most of the action is in a handful of states: those are the ones that have figured out workable provisions.

Last month I came across a useful guide for what to include (and not to include) in such enabling legislation for PPP highway projects. It was produced by Karen Hedlund and Brian Chase of Nossaman, Guthner, Knox & Elliott, a law firm that has advised a growing number of state DOTs on these issues. (Karen and Brian have both worked on policy studies for Reason Foundation.) It's prepared in the form of a table in Q&A form. There are 28 issues, stated in the form of questions. For each one, the table provides a brief paragraph explaining the importance of that issue, and then a paragraph summarizing what a sample provision for dealing with that issue might cover. On several issues where some legislatures have produced counterproductive provisions (e.g., requiring that each specific PPP project receive a vote of approval in the legislature before going forward), the table discreetly says "No model language proposed," where they could have said "If you do this, don't be surprised if nobody makes any project proposals in your state."

This guide was prepared under the auspices of the Federal Highway Administration, and should soon be available on www.fhwa.dot.gov.


Highway Community: Get Serious About Pork

In issue #20 I wrote about transportation elder statesman Tom Downs' pathbreaking speech in which he suggested that the current federal transportation reauthorization bill might be the last one, since the program has lost its rationale and become a national public works/pork program. My colleague Ken Orski is one of a number of thinkers who have taken up the Downs challenge, writing a useful commentary on this subject, "A New Transportation Vision for the 21st Century" in the latest (Nov/Dec 2005) issue of his Innovation Briefs newsletter (www.innobriefs.com).

Ken starts his piece lamenting the outrageous $24 billion worth of congressional earmarks in SAFETEA-LU, including the $223 million "bridge to nowhere" in Alaska. As he points out, although 85% of the highway funding in the bill is still devoted to core highway programs, the rising tide of earmarks and other diversions (a wilderness trail corridor in Virginia, a historic warehouse renovation in New York, etc.) leave the entire federal program open to the criticism that it has outlived its usefulness.

What I find particularly galling is the response of most of the transportation community to recent proposals to give up the highway bill's earmarks to help pay for Gulf Coast reconstruction. At a time when public esteem for the federal transportation program is probably at an all-time low, here was a chance for enlightened leadership to make a break with the politicization of our vital infrastructure. So what did we get? To its credit, the American Association of State Highway & Transportation Officials (AASHTO) did pass a resolution in September expressing concern about excessive earmarking. But the American Road & Transportation Builders Association rushed to defend the pork spending, also arguing that due to complexities in the funding allocation formula, the net savings from wiping out all the earmarks would be a mere $1.2 billion. (Obviously, if Congress were serious about using the $24 billion for Gulf Coast reconstruction, they could change that formula!)

Using that $24 billion for Katrina reconstruction is not a crazy right-wing idea. Besides being pushed by the 100-member Republican Study Committee in the House and seven GOP Senators (including John McCain), the idea has been endorsed by Rep.Nancy Pelosi (D, Calif.) and Iowa Gov. Tom Vilsack, chairman of the Democratic Leadership Council. My favorite news magazine, The Economist, has also endorsed it.

But the only transportation leader I've seen endorse the idea is Paul Page, editor of Traffic World. In a pair of editorials in September, he upbraided the highway lobby and the majority in both houses of Congress for failing to take this step.

Four years from now, when ARTBA, AASHTO et al. are gearing up for the next reauthorization bill, and arguing for a large increase in federal gas taxes, the response from taxpayers will very likely be negative. Those who defend today's pork may not see the connection, but some of us will be around to say "I told you so."


Speaking Engagements

Next up on my busy fall/winter speaking agenda is the International Bridge, Tunnel & Turnpike Association's Transportation Finance Summit in Washington, DC, Nov. 16-17. This is a conference I would be attending even if I weren't on the agenda as a speaker. You can still register online at: www.ibtta.org/Events/eventdetail.cfm?ItemNumber=1309.

Upcoming later on are the following:

Nov. 29: speaking and chairing a panel on the U.S. tolling revolution at the annual conference of the Canadian Council for Public-Private Partnerships, in Toronto. (www.ppcouncil.ca)

Dec. 6: on a panel on public-private partnerships at the PPP Americas Summit in Washington, DC (www.cityandfinancial.com).

Jan. 3: speaking on sale/lease of state toll roads at the TEAMFlorida meeting in Orlando.

Jan. 20: speaking on sale/lease of state toll roads for the Municipal Analysts Group of New York, at the Yale Club.

Jan. 23-25: chairing one panel and speaking on another at the Transportation Research Board annual meeting in Washington, DC.


Quotable

At the ARTBA Public-Private Ventures conference in Washington last month, the most inspiring presentation I heard was by Rep. Mike Krusee, the Texas legislature who sponsored the sweeping 2003 legislation to enable much greater use of tolling in that state. Here is an excerpt, on the subject of traffic congestion.

"Americans do not tolerate shortages. Breadlines are for communist countries. Breadlines in the Soviet Union were caused by the absence of a market mechanism to match supply with demand. The genius of the free-market American system is that for everything we produce, public or private, demand is anticipated, and capital is raised to build the infrastructure to meet the demand. In the USSR, you could not raise capital. But here, we calculate how much people will pay and how many they will buy. Whether it is widgets or computer chips or water or electricity or college tuition. We borrow against that anticipated revenue and build our factories, our water treatment plants, our pipelines, our universities.

That is why America never has permanent shortages. Oh, except in one thing: transportation. And until we make the shift to a free-market mechanism of finance � tolls � we will continue to have shortages, in the form of congestion. Many Americans think congestion is inevitable; it is not. It is a breadline, it is un-American, and we should not tolerate it."

—Rep. Mike Krusee


Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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