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Reason Foundation

Surface Transportation Innovations #10

Topics include: replacing the gas tax, megaproject megaflops, highways and growth, and making new tolls permanent.

Robert Poole
July 1, 2003

In this issue:

A Good Start on Replacing the Gas Tax

One of the major transportation policy challenges of this decade will be to figure out and start phasing in a replacement for fuel taxes as the principal source of highway funding. Most elected officials are not yet aware of the need to do so, but the situation is already dire and will get a lot worse over the next decade. The more than doubling of auto fuel economy over the past 20 years, combined with our growing affluence, means we are driving a lot more and paying a lot less per mile driven. The real value of fuel-tax receipts per mile driven has dropped to about one-third the level of the 1960s when America built most of its freeways and Interstates. And with alternative fuel sources coming down the pike, it's highly unlikely that per-gallon taxes on gasoline and diesel fuel will produce viable sums 20 years from now.

Fortunately, some far-thinking people in the transportation community are hard at work looking at the alternatives. Last fall, a major report was released by David Forkenbrock and Jon Kuhl of the University of Iowa's Public Policy Center. Called A New Approach to Assessing Road User Charges, it was funded by the Federal Highway Administration and the DOTs of 15 cooperating states. As the authors note in their preface, the eventual alternatives boiled down to either "smart roads and dumb vehicles or smart vehicles and dumb roads." In other words, to systems (like EZPass and FasTrak) that mostly instrument the highways or systems that rely on sophisticated units built into every vehicle. Forkenbrock & Kuhl opted for the latter, proposing a GPS-based system to assess mileage-based fees that could vary by jurisdiction and type of road. By using a smart card to download aggregated trip data, the system could be designed to protect user privacy against fears of a Big Brother approach that would keep track of one's driving locations.

All in all, it's a very thoughtful and plausible scheme. It raises many questions, but it's a powerful first step in a national debate that needs to take place this decade, so that a new approach can start being phased in. The Transportation Research Board will launch a related study this fall. Some are urging Congress to mandate further research along these lines in the forthcoming surface transportation reauthorization bill.

Oregon is doing pioneering work, actually developing prototype devices, thanks to creation of a long-term Road User Fee Task Force in 2001. It will develop and test prototypes of both odometer-based and GPS-based systems. Alas, despite the high priority being given to privacy in the system's design, it has already come under attack on that score. An analyst at the Cato Institute called the use of GPS for this purpose "nutty," in a widely quoted CNSNews.com article in January. And a much longer piece in Wired last month, headlined "Driving While Intaxicated," was full of alarums from the Electronic Privacy Information Center and its compatriots. Obviously, privacy must be protected in such systems, but judging by Oregon's trial balloon, it's going to be an uphill battle convincing people that a GPS-based approach will do so.

(You can read a summary of the Forkenbrock-Kuhl report here.)


Megaproject Failures - and What to Do About Them

We all know at least some of the projects: the Channel Tunnel, Boston's Big Dig, Japan's Kansai Airport. These and many other mega-projects (costing over $1 billion) all too often cost 50-100% more than initially estimated. And their usage is often less than half as much as forecast. These are not necessarily boondoggles-I happen to think there was a good case for all three of the above-but there's a very real question of whether they, and other megaprojects, would have gotten built at all had the true cost and usage been known beforehand.

Two important new books take a searching look at megaprojects and attempt to answer one key question: why is there such a gap between forecast and reality? Megaprojects and Risk: An Anatomy of Ambition, by Bent Flyvbjerg (Cambridge University Press, 2003) and Mega-projects: The Changing Politics of Urban Investment, by Alan Altshuler and David Luberoff (Brookings Institution Press) reach broadly similar conclusions. Both conclude, to quote Ken Orski's review, that flawed forecasts "are not the result of technical errors or innocent mistakes-they are deliberate attempts at shaving the truth in order to gain public support and federal approval." This hypothesis is strengthened by the repeated pattern of this happening, nationwide and worldwide, as documented in both books.

What can be done about this? In my view, it's naive to rely-as Altshuler and Luberoff recommend-on local champions of "fiscal sobriety" to look out for the public interest. The underlying problem is that neither the contractors nor public officials bear significant risks from the failure of megaprojects to turn out as forecast. So we need to look at changing the incentives involved. And here is where a certain kind of public-private partnership comes in. If the right to develop and operate the project is bid out to a consortium that must finance, build, operate, and maintain it over a long-term period, then the risks of over-optimistic forecasts are shifted from taxpayers to investors-i.e., from involuntary assumers of risk to voluntary assumers of risk.

That does not mean the forecasts will be perfect. But compare what's happened with two high-profile megaprojects. The Big Dig, done by traditional procurement methods in which the government pays, the private sector builds, and the government operates and maintains, all the incentives work toward cost increases. And the cost went from an initial $3.1 billion in 1987, when Congress first approved funding, to $14.6 billion at last count-all of it borne by taxpayers. By contrast, look at the Channel Tunnel, financed entirely privately under a 99-year Build-Operate-Transfer (BOT) concession. To be sure, the cost ballooned from $7 billion to $16 billion, and passengers are running at less than 50% of forecast as of 2001. But who has taken the hit? Not the taxpayers of the U.K. or France-just poor shareholders like me who have been essentially wiped out, and to a lesser extent, the lenders. But we took on the risks voluntarily. And even though we must take a haircut, the project still got built and is providing valuable transportation services.

(To read Ken Orski's lively review of these two books, go to www.innobriefs.com and look for the July/August 2003 issue of Innovation Briefs, his excellent newsletter.)


Which Comes First: Highways or Growth?

Across the country, the folks at the Surface Transportation Policy Project (STPP) and other advocates of "smart growth" oppose major roadway projects as sprawl-inducers. Their implicit premise is that if the transportation infrastructure is not built, the growth will not occur.

This premise has been subjected to a detailed econometric analysis in Ohio. University of North Carolina-Charlotte researcher David Hartgen headed a project team that looked at residential growth in all 20 of Ohio's urbanized areas between 1990 and 2000. They used a geographic information system (GIS) database of census tracts, urbanized areas, and counties to organize information for a variety of regression analyses. In particular, they wanted to see if there was a statistically significant relationship between "major road improvements" (added Interstate or freeway lane-miles, new or widened major arterials, new freeway exits, etc.). What they found was that the main determinant of growth is prior growth-i.e., growth goes where there is room for it. In a few urban areas, there was some correlation of growth and major transportation improvements. But most of the growth took place in places without such projects. Only 10% of the tracts had road improvements during the 1990s, but growth in the no-improvement tracts was more than twice as much as in the ones with road projects.

Like any such empirical work, this study does not answer every question. But it's a detailed piece of work, with its methodology clearly laid out. Those who proclaim that preventing highway improvements will stop growth need to grapple with such research instead of just asserting their premise. (You can download the complete 62-page study from its sponsoring organization, the Buckeye Institute.)


Should New Toll Lanes Have Temporary or Permanent Tolls?

It's the question that's taking Washington, DC by storm (well, at least a little corner of DC): should tolls authorized to support new congestion-relief lanes (such as HOT lanes or Rep. Mark Kennedy's FAST Lanes) be temporary or permanent? The Joint Economic Committee held a briefing session for congressional staffers on this question last month (June 27) and I was one of three panelists. I made the case that such tolls should be seen as a long-term, permanent measure, both for replacement and expansion of the lanes and to preserve the powerful benefits of market pricing for congestion management. My remarks were based on a recent column I wrote on this issue for Public Works Financing, the excellent monthly newsletter edited by Bill Reinhardt (pwfinance@aol.com). I'm attaching a copy of that article with this newsletter.

Incidentally, JEC seems to be taking these arguments to heart. It's July 7, 2003 policy brief, "New Possibilities for Financing Roads," commends tolled lane additions and notes the powerful benefits of market-priced tolls in managing traffic. You can download it here.


Postscript

Last issue I wrote about an important new study that modeled HOT lanes for the Washington, DC metro area, by researchers at Resources for the Future. The URL for the study reached me too late to include last time, so here it is here.


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


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