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Reason Foundation

Surface Transportation Innovations # 50

Topics include: an economist's look at urban transportation policy; Miami toll truckway proposed to ease port traffic congestion; low-cost bus lines; 10th anniversary of Toronto's 407ETR; what if there were "green" cars?; last "6320" toll road going priva

Robert Poole
December 1, 2007

In this issue:


An Economist's Look at Urban Transportation Policy

Most of what we read about urban transportation is pretty gloomy. Congestion keeps getting worse, transit's mode share keeps declining, funding is increasingly hard to come by, and both highway and transit infrastructure are increasingly expensive. Yet when observed carefully through the eyes of a very knowledgeable transportation economist, there are some very positive trends. The economist I'm thinking of is Kenneth Small of the University of California, Irvine. And the discussion I commend to you is his recent working paper, "Urban Transportation Policy: A Guide and Road Map." (You can download it from www.socsci.uci.edu/~ksmall/Urban_Transp_Policy.pdf.)

Among the trends Small sees as significant is the concept of product differentiation in highway transportation—i.e., roads (or lanes) offering different qualities at different prices, giving highway users new choices. This is reinforced by the growing support for road pricing among transportation planners, commentators, and informed citizens. Even privatization gets some kind words from Prof. Small, who notes the willingness of private companies to take risks in offering new options (and pioneering value pricing, as on the 91 Express Lanes in California). He also has some provocative thoughts about modifying highway design standards for the realities of urban areas (very high land costs, unrealistically high speed limits).

This fresh thinking extends to his assessment of urban transit, as well. Product differentiation is relevant here, too. Bringing affluent suburban commuters to a downtown (or edge city) is a very different product from providing inner-city circulation to low-income people. Transit operators should specialize, Small suggests, in contrast to the trend of the last few decades in which transit agencies have become "large multi-jurisdictional conglomerates" which have "tried to offer at least rudimentary service everywhere"—the opposite of specialization. He also concludes that bus rapid transit is a lot more cost-effective than new rail transit in most metro areas.

I don't want to steal more of Small's thunder by going into much more detail. Suffice it to say that I highly recommend this paper for its many insights and thought-provoking suggestions for better urban transportation policy.

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Miami Toll Truckway Proposed to Ease Port Traffic Congestion

This month, if all goes well, the City of Miami will come through with its small share of the cost of the Miami Port Tunnel, and the long-term concession to develop this billion-dollar project (financed by availability payments over 35 years) will go forward. But as Port officials, the greater Miami business community, and shippers realize, the Port Tunnel is only step one toward solving the Port of Miami's huge access problem. That cause is Miami's hugely congested expressways and arterials, which make access to the port by trucks carrying containers increasingly costly and time-consuming.

At the end of November I addressed the transportation committee of the Greater Miami Chamber of Commerce, unveiling a Reason Foundation policy study I'd been working on most of the year (www.reason.org/ps365_miami_truckways.pdf). In it we propose an east-west toll truckway, linking the Port Tunnel to the intermodal rail yard west of Miami International Airport and the vast area of warehouses and distribution centers nearby. Data I obtained from the Port of Miami Terminal Operating Company showed that drayage operators can currently make only three round trips per day, due to the high levels of congestion on Miami roadways. But with an uncongested toll truckway, they could do at least four. And that translates into enough additional daily truck revenue to make it worthwhile to pay a hefty toll. Other trucks could also save time by using the truckway, as an alternative to five major east-west arteries.

With excellent cooperation from the Miami-Dade Expressway Authority, the Miami-Dade MPO, and the Florida DOT, I was able to come up with four possible routes the truckway could take, mostly along existing highway or rail rights of way. Much of that mileage would have to be built on elevated structures. To cross the airport, the only feasible alternative appears to be tunneling. Putting all the pieces together, the 18-19-mile truckway would cost $1.1-1.3 billion in 2007 dollars.

Based on my projections of truck traffic and estimated toll rates, I concluded that toll revenues could cover 55 to 60 percent of the truckway's cost. That's not self-supporting, but compared to the Port Tunnel (which covers none of its costs from tolls), it's a good start. And that estimate was based on conventional truck size and weight configurations only. There is real potential to use such a truckway for longer combination vehicles (LCVs)—such as two 40-foot containers on individual chassis behind a single tractor. But modeling the rate of increase in the use of such rigs over the 40-year analysis period was beyond the scope of this preliminary study.

I'm pleased to report that the study was well-received by the business and transportation leaders in attendance the Chamber luncheon, and it got good coverage in the Miami Herald. Reason Foundation has another urban toll truckway under study in a different part of the country, and I will report that study's findings here when it is completed next year.

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Low-Cost Bus Lines: Shaking Up Inter-City Travel

One of the justifications offered for U.S. taxpayers to subsidize Amtrak is the idea that lower-income people (students, immigrants, the retired, etc.) need an affordable alternative to using the airlines for inter-city travel. That's always rung hollow with me, since we've had nationwide Greyhound bus service since long before Amtrak. But Greyhound has been losing money for a number of years, and its annual passenger count has been declining since 2000—in part due to the growth of low-cost airlines.

But this decade has also witnessed a proliferation of new inter-city bus companies. So far, none is of national scope, but their niche markets are growing. And they seem to be following in the footsteps of low-cost air carriers, by thinking outside the box to cut costs dramatically.

The largest such company is Megabus, a subsidiary of the U.K.'s Stagecoach Group plc, which cut its teeth in Britain's deregulated bus market. Megabus offers a few seats on every bus for a $1 fare, and uses pricing similar to that of the airlines, with low fares if purchased well in advance, and higher fares near the departure date (www.megabus.com). All booking is done online, minimizing staff costs, and the company has no stations, picking up customers at known curbside locations. Thus far, the company is offering inter-city service in 10 states, three in the west and seven in the Midwest. There are 23 cities in the network, but so far you can only travel within—not between—the regions.

In the northeast, several companies offer bus service between Chinatowns in various cities. The largest of these seems to be Chinatown Bus (Chinatown-bus.com), connecting Boston, New York, Philadelphia, Baltimore, and Washington. Fares vary, with "typical" one-way fares ranging from $12 New York-Philadelphia to $20 New York-DC. Another bus company, Vamoose, offers express service between Manhattan and two DC suburbs—Bethesda, MD and Arlington, VA for $25.

Private companies are even moving into urban markets. Spanish Transportation Corporation of Paterson, NJ now runs 130 commuter buses into Manhattan each day, on three different routes. The company has grown from a van service with 14 vans in 1993 to a sizeable enterprise today. The buses are branded Express Service. And Las Vegas now boasts a new door-to-door service among hotels and casinos on the Strip—at just $2.50 per ride. Called Arrow, it is offered by Vegas.com, a travel and booking company. Also offered is a $10 daily pass offering unlimited use of Arrow and the private Las Vegas monorail. Arrow competes with the regional transportation authority's double-decker Deuce buses.

I'm encouraged to see these entrepreneurial ventures, starting up and growing despite taxpayer-subsidized competition. As with low-cost airlines that sprang up after deregulation, their very existence debunks the idea that airlines or intercity surface transportation or local transit is some kind of natural monopoly that must be controlled by the government. Consumers generally win when competition can flourish, and these examples show that competition still exists in these areas.

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10th Anniversary of Toronto's 407ETR

October was the 10th anniversary of the world's first all-electronic (no cash) toll road, Highway 407 ETR (Electronic Toll Road). It's a landmark project in several ways, including its sophisticated tolling system. On a typical weekday, 407,000 trips are made on the 407, of which 80% pay by transponder and the other 20% (generally infrequent users) pay via video license-plate billing. Comparable no-cash toll roads now exist in Melbourne, Australia; Santiago, Chile; and Israel. And of course the various U.S. HOT lanes are transponder-only. But the 407 truly pioneered the idea and showed that it would work, not just technically but in a business sense.

Indeed, on Oct. 5, 2007 the toll road handled a record 445,822 trips, underscoring its commercial viability. The east-west 407 provides the only real alternative to the heavily congested Highway 401 which runs through the heart of downtown Toronto. Despite costing over a billion dollars to construct (for its initial 68 km.), the toll road is covering its costs. After its privatization in 1999 (another first, predating the lease of the Chicago Skyway by five years), the concession company (407 International, Inc.) lengthened the toll road to its present 108 km. (67 miles). More recently, they have widened its central section, adding another 100 lane-km. at a cost of $175 million.

Like other toll road concessions, the 407's 99-year agreement includes numerous provisions to protect the public interest. The company is required to maintain uncongested travel conditions, but cannot simply raise prices to sky-high levels, since it must avoid diverting significant amounts of traffic onto parallel routes. That means it must do prudent widening, at its own expense.

With 41 interchanges in 67 miles, and each on-ramp and off-ramp equipped with electronic tolling gantries, the 407 is a capital-intensive roadway. So tolls are not cheap. The average rate of toll is 35 cents/mile, and the average trip is 12.7 miles. But pretty obviously, people are saving meaningful amounts of time by choosing to pay to use the 407. Toll finance and technology have provided Toronto motorists with a welcome congestion-relief alternative.

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What If There Were "Green" Cars? A Litmus Test for Planners

Over the last several decades, reducing vehicle miles of travel (VMT) has become a core goal of many transportation planners. The original rationale was cleaner air, since in much of the country, tailpipe emissions were the largest contributor to smog. But that problem is nearly resolved, as newer generations of very clean cars (and now diesel trucks) enter the fleet and older generations are retired. Today, the rationale for VMT reduction is to reduce greenhouse gas emissions. I wrote in issue 47 about the draconian California bill to link state transportation funding to high-density land-use plans, aimed at reducing VMT. And my files are full of examples of transportation programs justified as VMT-reducers. A recent environmental summit in France even endorsed the idea of banning the construction of any more airports or highways.

But let me pose a question to advocates of VMT reduction. Suppose technology gave us a truly "green" automobile that produced little or no greenhouse gases (GHGs). Would they still support VMT reduction? After all, travel expands personal and economic choices—whether of jobs, recreation, entertainment, or dating. The huge cost of today's urban traffic congestion should be measured not merely in time and fuel wasted stuck in congestion but also in terms of personal and economic opportunities foregone.

So let's take a closer look at actual GHG production by various modes of transport. Wendell Cox has crunched the numbers, making what appear to me to be reasonable assumptions and reliable sources of GHG emissions per passenger mile for urban travel, by mode (www.demographia.com/db-ghg-carstr.pdf). These figures include the costs of electricity generation and transmission for those modes using electric power and refining and distribution costs for modes using petroleum-based fuels.

For urban transport, as in many other comparisons, the way the New York metro area is treated makes a big difference. Transit has such off-the-charts mode share there, compared to anywhere else in the USA, that it's entirely a special case. So comparing GHG emissions per passenger mile for personal vehicles with the average for New York transit is no contest—except for hybrid cars, New York transit is less than half as GHG-intensive. But when you compare transit everywhere else (aka, the real world), the picture is dramatically different. Transit elsewhere averages 310 grams per passenger mile, compared with 307 for the average 2006 model car and 328 for the overall car fleet in 2006. Personal trucks and SUVs, of course, are higher—at 374 for 2006 models and 416 for the whole truck/SUV fleet in 2006.

But what's on the horizon are dramatically lower personal vehicle emissions. The 2007 Toyota Prius hybrid clocks in at just 147, and a 2008 Peugeot hybrid diesel (so far offered only in Europe) at 101. The latter is better than the oaerage of New York metro area transit (140). And that is just what exists today. Technology is moving toward more efficient and less-GHG-intensive vehicles, and new government GHG standards are not far off. So the idea that we should be restricting mobility by VMT reduction mandates in order to "save the planet" from global warming strikes me as truly wrong-headed.

Incidentally, Demographia also has numbers for inter-city trips, comparing airline, rail (Amtrak), inter-city bus, and autos. Here the measurements are for CO2 trip emissions per passenger, by mode. The Peugeot diesel hybrid was best for short-haul trips, but a pretty close second was inter-city bus. Amtrak finished last or next to last, with numbers fairly close to SUVs. Airlines did better than Amtrak for trips of all lengths.

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And Then There Were None—Last "6320" Toll Road Going Private

Back in the 1990s, there was a flurry of interest in a form of public-private partnership based on creating a nonprofit corporation to finance and then manage new toll roads. It was a variant on the long-term toll concession. The rationale seemed to be that because the federal tax code did not allow private (for-profit) toll road companies to issue tax-exempt toll revenue bonds (it does now), such projects would be at a financial disadvantage compared with state toll authorities, which do issue tax-exempt bonds. So the idea was that companies interested in building such toll roads would "partner" with a state DOT to do the development work, and together they would create a special-purpose not-for-profit entity, allowed to issue tax-exempt bonds under IRS revenue ruling 6320, and then operate the toll road. But IRS rules required such an entity to be at arm's length from both the state DOT and t he construction companies. So they were generally created with a board recruited from local notables, who may or may not have had much serious knowledge of toll road financing or operations.

To the best of my knowledge, despite endless conference presentations on the concept, only two such toll roads were developed this way: the Pocahontas Parkway in Richmond, VA and the Southern Connector in Greenville, SC. Both have been financial failures, with traffic running at less than half of what was forecast. Last year, the former was rescued by a private concession company, Transurban, which restructured the debt and will build a much-needed extension to the Richmond airport, in exchange for a 99-year concession. Now the Southern Connector is on the block as well. Qualifications from interested companies were due November 14th, and bids are tentatively due next March 15th.

Peter Samuel, of Tollroadsnews.com, offered some reflections on this model's shortcomings, in his Reason paper, "The Role of Tolls in Financing 21st Century Highways" (www.reason.org/ps359.pdf).

"A fundamental weakness in the concept is that the project is developed based on two key interests: that of the state in getting a roadway it might not otherwise be able to afford and that of the developer-builder in getting a large design-build contract. The developers get their fee out of the proceeds of the bond financing when the project opens, and have no further interest in whether it is viable. . . . [N]ot-for-profit corporations have no equity and no shareholders . . . . And although the bondholders are concerned that the revenues should be sufficient to service the debt, they have no concern for the overall return on investment. There is no one who can be held accountable for the project turning out to be a financial failure. . . . With this unsound structuring of responsibilities and rewards, it is little surprise that the not-for-profit model has a 100% failure rate."

Institutions matter a lot more than good intentions. Roads need owners who have both the means and the incentive to look after them, making sure they serve their customers properly. Fortunately, well-run toll agencies and well-structured long-term concessions both provide for that kind of stewardship.

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Speaking Engagements

I have a full round of conferences over the next several months, so our paths may cross at one or more of them.

I will have more details on these next month.

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News Notes

2007 International Survey of PPPs. The 17th annual edition of Public Works Financing's survey of PPP infrastructure projects worldwide was unveiled in October. This is the most comprehensive database I know of on toll roads, rail projects, water projects, and public buildings developed as PPPs. It is available in an easily searchable format on a CD, so that you can zero in on any of 10 different project types in six regions in 124 countries. There are also handy league tables showing how firms rank in different areas of infrastructure. As far as I know, the database is available only to subscribers—and if you're not a subscriber, you should be. Go to www.pwfinance.net or email the editor at pwfinance@aol.com.

"Investigating" DOT's Urban Partnership Agreements. Most of us cheered when the U.S. DOT announced in May 2006 that its major focus would be on reducing congestion in air and surface transportation. And we cheered again when they announced the national competition for Urban Partnership Agreements, under which up to five metro areas could get funding to implement some form of road pricing (along with other transportation improvements). But some members of Congress—who weren't consulted on this project—have called for the Comptroller General (i.e., the GAO) to investigate the program's implementation: "methodology, outreach, use of funds, and selection criteria." This nit-picky requirement is included in the pending transportation appropriations bill. Can't these guys stick to serious business—like out-of-control entitlement spending?

Reports that May Be of Interest. I have not read either of these, but if I had more time this month, I would check them out:
"Active Traffic Management—The Next Step in Congestion Management," reports on the experience of six European countries in implementing such strategies. (http://international.fhwa.dot.gov/pubs/pl07012/atm_eu07.pdf)

"Audit Stewardship and Oversight of large and Innovatively Funded Projects in Europe" is an international scanning team report on best practices in five European countries on PPPs and other innovatively financed projects. (http://international.fhwa.dot.gov/pubs/pl07001/pl07001.pdf)

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News Notes

"I'm not sure our highways in major cities haven't become modern-day breadlines—and we haven't complained about it. People will probably be willing to come in and pay a toll or pay a higher toll if they see their commutes are reduced, if they get the mobility back that they once had."
--Patrick E. Quinn, co-chairman U.S.Xpress and member of the National Surface Transportation Policy and Revenue Study Commission, quoted in Traffic World, Nov. 26, 2007.

"We definitely need more funds. We see the need every day when you travel to a city like Dallas, Houston, or Atlanta. The congestion is out of sight. It's delaying shipments to our customers, and that's costing us dollars; it's costing our customers dollars as well. It's costing us time and putting more trucks on the road. . . . If the infrastructure were improved, a lot of things would be better in this country. The use of tax money for things other than highways when it is meant to go to highways needs to stop."
--Wayne Johnson, Director of Logistics, American Gypsum, in "Building Freight's Future," Traffic World, Nov. 12, 2007

"[A] private road operator, even one with a monopoly, will choose to differentiate prices by time of day in a manner very similar to that called for by standard congestion pricing recommendations. This is because the private operator can charge higher tolls if it can provide a high level of service by keeping congestion down. In fact, the pricing structure that provides the greatest revenue is basically the same as the structure that maximizes public benefits as normally defined, although the level of prices may be substantially higher in the former case. For this reason, as private operators propose, bid on, or negotiate franchise agreements, they will tend to encourage public authorities to consider differentiated toll schemes that might otherwise be ruled out for simplicity, but that in fact can both increase revenue and help manage congestion."
--Kenneth Small, in "Urban Transportation Policy: A Guide and a Road Map" (www.socsci.uci.edu/~ksmall/Urban_Transp_Policy.pdf)

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


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