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Reason Foundation

Surface Transportation Innovations #88

A dissent on the transportation budget proposal, Pew report on GHG reductions, further thoughts on high-speed rail, do more jobs justify infrastructure investment?

Robert Poole
February 22, 2011

In this issue:

The Transportation Budget Proposal: A Dissenting View

My mother always told me to emphasize the positive, so let me start this commentary on the President's transportation budget proposal with what is good about it. It recognizes that this country needs to invest more in transportation infrastructure. It would abolish more than 50 existing highway programs enacted during previous reauthorizations, many of them exercises in micro-management and special-interest pandering. And it provides much-needed additional funding for the valuable TIFIA program to help finance revenue-supported projects. On the other hand, it appears to be silent on the future of tolling and public-private partnerships, where liberalization of existing tolling and pricing pilot programs, and a much higher cap on tax-exempt private activity bonds, are much-needed tools to help state DOTs do more with less.

But my main concern is that the proposed radical overhaul of surface transportation programs poses a mortal threat to the users-pay/users-benefit principle on which highway funding has relied for nearly a century. That may not be evident at first glance; after all, the proposal would increase FHWA's annual budget by 44% between FY2010 and FY 2017, and promises not to divert existing highway user tax revenue from its current function of supporting FHWA and most of Federal Transit Administration (FTA). But bear with me as I walk you through my thinking on this.

The heart of the proposal is to create a Transportation Trust Fund, into which current and new user-tax revenues would be deposited. Within it, there would be four sub-funds: highways, transit, passenger rail, and a new national infrastructure bank. Assuming that-somehow-an additional $231 billion in revenue can be found from some unspecified sources for the next six years, by 2017 spending on highways would be 44% more than in FY2010. Transit spending, by contrast, would increase by 126%, and passenger rail by 127%, and there would also be $5 billion per year for the infrastructure bank. In this fantasy world, every constituency would be happy with its increase, even though some get much larger increases than others.

But back in the real world, it's virtually certain that the six-year reauthorization bill actually enacted by Congress will include no increase in the federal gasoline and diesel taxes, or any other tax increase. Nevertheless, should enthusiasts for the proposed restructuring of the program prevail, we could easily end up with a program in which highways get a far smaller share of the existing pie, while transit and passenger rail gain access to major new chunks of highway-user revenues. To illustrate the magnitudes involved, here is a comparison of budget numbers for the four programs that would constitute the Transportation Trust Fund, comparing what the Administration proposes for their relative shares in FY2017 with their actual funding in FY2010:

Program                        FY2010 Actual   Share            FY2017 Proposed   Share

FHWA                           $40.482B          73%             $58.416B              60%

FTA                              $10.733B          19%             $24.281B               25%

FRA                              $4.378B            8%              $9.930B                 10%

NIB                                    --              --                $  5.000B                5%

Totals:                             $55.693         100%            $97.627B              100%           

So if the percentages from the President's budget proposal were applied to a no-growth (FY2010) budget total for the four entities, highways would get just $33.4 billion, transit would get nearly $13.9 billion, passenger rail would garner $5.6 billion, and the NIB $2.8 billion. And all the non-highway sums would clearly be diversions from highway user revenues that, under users-pay/users-benefit, should be used to reconstruct and modernize our ailing federal highway system. That is the danger in adopting the proposed program restructuring, in hopes of future revenue increases.

And speaking of diversions, the amounts nominally going to highways are far less than it would appear from looking at the FHWA totals. Over the six-year period, $27.5 billion of the federal highway money would go to a new "Livable Communities Program," and another $17 billion would be available only to the winners of a new competitive program called "Transportation Leadership Awards." Those numbers would be smaller under the fiscally constrained funding scenario, but they would still be diversions from the $33 billion in nominal annual highway funding under the new structure.

Another reason not to create the four-part Transportation Trust Fund is that it would move transit, passenger rail, and the infrastructure bank from the "discretionary" side of the budget to the "mandatory" side. That is how the Administration is able to pull off the neat trick (at least on paper) of claiming to support reductions in discretionary spending while protecting its favored transit and high-speed rail programs from such reductions.

The promise of greater transportation spending than was supportable by existing revenue sources was what bamboozled many transportation groups into backing the irresponsible SAFETEA-LU reauthorization. I hope transportation groups this time will resolve: "We won't get fooled again."

Reject the "Jobs" Justification for Transportation Projects

"Bike lanes create twice as many jobs as road repair," blared a headline on the blog called "The Infrastructurist" recently. And we increasingly hear the labor-intensiveness of an infrastructure project touted as an advantage. Yet if you ask an economist about this, he or she will tell you that the key factor in the productivity of a nation's economy is doing more with less-i.e., moving from more labor-intensive production to less. One of my favorite Milton Friedman stories concerns one of his trips to China. On a tour, government officials took him to a major construction site (it may have been for the Three Gorges dam), where Dr. Friedman expressed surprise at seeing legions of workers digging away with shovels. When his host responded that a major purpose of the project was to create jobs, Friedman replied that if that was the case, they should equip the workers with spoons instead of shovels.

That point was underscored in a report issued last month by the Bipartisan Policy Center. "Strengthening Connections Between Transportation Investments and Economic Growth" was written by economist Douglas Holtz-Eakin and (economically literate) civil engineering and urban planning expert Martin Wachs. Instead of focusing on short-term construction job-creation, the authors argue for a focus on long-term returns from infrastructure investment. "Over the long-term, higher productivity-the ability to generate more output and income from each dollar of capital or hour of work-is the key to higher labor earnings and improved standards of living," they write. Hence, infrastructure policy should select projects that do the most to enhance long-term productivity-as did the creation of the Interstate Highway System, which dramatically lowered the cost of personal and freight transportation, leading to the world's most productive logistics system.

By contrast, a transportation policy driven by non-economic criteria will "divert resources to projects that are less productive relative to other investment opportunities...These projects also attract labor toward the affected sector and away from alternative private investments. Jobs are still created, but others are lost or foregone. In general, the economy as a whole loses when capital and labor shift to less productive economic uses."

Holz-Eakin and Wachs also point to important research on the productivity of European cities, which is related to their transportation infrastructure. Remy Prud'homme and Chang-Woon Lee found that the productivity of an urban area is a function of the effective size of its labor market, and that a 10% improvement in access to labor (via faster and more reliable work trips) increases productivity, and hence output, by 2.4%. Thus, investments that actually reduce U.S. traffic congestion are likely to be economically productive.

Finally, the authors point out that "estimates or assumptions about how many jobs will be created by a given increment of transportation spending too often serve to mask and distort the many factors that must be understood to make a meaningful comparative assessment of different investment opportunities. Not all transportation projects are equally deserving of scarce taxpayer dollars." (www.bipartisanpolicy.org/library/research/transportation-investments)

Pew Report Quantifies Possible CO2 Reductions in Transportation

A very good quantitative overview of what reductions in U.S. transportation greenhouse gas (GHG) emissions might be possible by 2050 is provided in a report released last month by the Pew Center on Global Climate Change. "Reducing Greenhouse Gas Emissions from U.S. Transportation" was written by David L. Greene (Howard Baker Center for Public Policy) and Steven E. Plotkin (Argonne National Laboratory). It was funded by the National Cooperative Highway Research Program of the Transportation Research Board, and peer-reviewed by a TRB expert panel. (www.pewclimate.org/publications/reducing-ghg-emissions-from-transportation)

Greene and Plotkin begin with the best available estimates of GHG emissions by mode of U.S. transportation. They then create three scenarios (low, middle, and high) in which increasingly stringent (and costly) policy and technology measures are assumed. These include fuel economy and GHG-emission standards, renewable and low-carbon fuels standards, transportation pricing, and vehicle and fuel transition policies. The three scenarios are compared with a base case (the Energy Information Administration's 2010 AEO Reference Case projection for 2035, extrapolated to 2050). The base case has GHG transportation emissions increasing by 23.6% by 2050, due mostly to continued population and economic growth. By contrast, the low scenario yields a 17.2% reduction in U.S. transportation GHGs by 2050, the middle case 40.1%, and the high case a 65.9% reduction. These totals are broken down for the seven principal modes.

My assessment is that even what the report calls its "low" scenario is fairly aggressive, in real-world terms, requiring federal regulations that go far beyond current CAFÉ standards, as you can imagine from the list of types of measures in the previous paragraph. The scenarios all assume the implementation of some form of carbon tax, either direct or indirect (via a cap-and-trade system), which may or may not be politically feasible. And there is no estimate of the cost of implementing all the measures assumed in the scenarios, making it difficult to assess the cost-effectiveness in terms commonly used, such as cost per ton of GHGs eliminated. Still, as one of the few quantitative studies of what might be possible, the report is a valuable reference point.

Because it considers and largely rejects various smart growth and transit measures as having too little impact, the report has come under fire from advocates of those policies. A January 20th posting on streetsblog.org, for example, criticized the report for "major omissions and dubious assumptions," and tried to suggest that because it was funded by NCHRP, it is somehow tainted. Yet the Pew researchers relied on a previous TRB study, "Driving and the Built Environment: Effects of Compact Development on Motorized Travel, Energy Use, and CO2 Emissions," whose similar findings were supported by a set of background papers by reputable academics. So I can't take this sort of criticism seriously.

Further Thoughts on High-Speed Rail

While the President proposes to spend $53 billion more on high-speed rail over the next six years, House Republicans plan to zero out the program. Their FY2011 Continuing Resolution would eliminate a proposed $2.5 billion this fiscal year while rescinding $2.475 billion not yet spent from FY2010 and another $3.7 billion from FY2009 stimulus funding. So we have a major collision in public policy regarding HSR.

Elite opinion seems to be shifting against HSR, with two recent negative editorials in the Washington Post, the latest (Feb 17th) headlined "A Lost Cause: the High Speed Rail Race," and a news article in the New York Times (Jan. 11th) focusing on the weakness of the case for Florida's Tampa to Orlando route, cancelled this week by Gov. Rick Scott. DOT Secretary Ray LaHood was so upset about the first Washington Post editorial that he devoted his Jan. 13th blog (FastLane) to responding to it.

As a life-long railfan, I eagerly read the Secretary's response, hoping-finally-for some real numbers demonstrating the cost-effectiveness of HSR for this country. Alas, all he provided were assertions: it's analogous to the Interstate highway system, it will reach 80% of Americans, it will "keep us competitive with other leading nations," and of course, it will "create green, high-wage jobs." You might argue that a blog aimed at average Americans is no place for serious numbers, but no such numbers were forthcoming from DOT officials at January's annual meeting of the Transportation Research Board, either.

In my previous writings on HSR, I have cited overview reports from the Congressional Research Service, the GAO, the OECD's International Transport Forum, and other European studies, including the well-respected Eddington Transport Study from the U.K. These studies all find that shifting people from other modes to HSR has very small impact on emissions and oil use, does not do much to stimulate economic development, and can only be said to work well in very select circumstances.

An especially useful report has crossed some people's screens in recent weeks. "High-Speed Rail: Lessons for Policy-Makers from Experiences Abroad" was written by Daniel Albalate of the University of Barcelona and Germa Bel of the Barcelona Graduate School of Economics. They review the experiences with HSR of Japan, France, Germany, Spain, and Italy and seek to draw lessons for the United States. Their country profiles point out the different policy objectives in each case, leading to somewhat different implementation strategies (e.g., some doing all new rights of way but others upgrading existing rail lines). (http://www.ub.edu/irea/working_papers/2010/201003.pdf)

Among the lessons learned are the following:

These are sobering lessons, and they should be factored into serious quantitative assessments of whether any proposed HSR project is a sound transportation investment.

Congestion Still Huge, but Not Quite As Bad

The "2010 Urban Mobility Report" from the Texas Transportation Institute was released last month, with the usual round of news stories, played up especially in the largest and most-congested urban areas. This year, as promised, TTI's methodology incorporates traffic speed data from INRIX, in addition to the traffic volume data from state DOTs. This has led to several new measures, and has also resulted in some changes in the rankings among the largest metro areas. (http://tti.tamu.edu/documents/mobility_report_2010.pdf)

The overall data are still very sobering. The estimated nationwide cost of traffic congestion in 2009 (wasted time, fuel, and operating costs) was $115 billion, $33 billion of it incurred by large trucks. The average urban resident wastes 34 hours of travel time and 28 gallons of fuel per year stuck in congestion, at an average cost of $808 per commuter. These numbers are not all-time highs, thanks to reduced travel due to the recession. Congestion cost per commuter peaked at $919 in 2007, which also saw the average travel time index reach 1.36 (meaning it takes 36% longer to make a trip from A to B during congested peak periods than at uncongested times), compared with 1.29 in 2009. Nevertheless, several of the 2009 numbers are higher than in 2008, including annual delay hours per commuter, total delay, total fuel wasted, and total cost-indicating that as the economy starts to recover, congestion is resuming its upward climb.

The report's national congestion tables offer some surprises. Although Los Angeles, always number one on just about every congestion indicator in previous reports, is still the highest in travel time index (at 1.38), total delay hours (515 million), and total congestion cost ($12 billion), it is number two in truck congestion cost and number three in delay per auto commuter (after Chicago and Washington, DC, which are tied for first). LA is also third in congestion cost per auto commuter and fourth in excess fuel per auto consumer. I suspect these changes in rank are due to the addition of traffic speed data, rather than a more-fundamental change in commuter behavior.

As one who believes adding roadway capacity (along with pricing) is critically important for congestion relief, I was pleased to see the report's graph on that subject (Exhibit 12). There are now 14 metro areas which have kept highway capacity growth within 10% of the growth in travel demand, compared with 47 metros that expanded capacity only to within 30% of demand growth and another 40 that did even less than that. The differences in congestion growth are striking, as that graph makes clear. The 14 that did best on capacity additions have 2009 congestion only about 25% worse than in 1982, whereas the 40 that did the least have had about a 140% increase during that time period.

Upcoming Conferences

Note: I don't have space to list all the transportation conferences going on; below are those that I or a Reason colleague am participating in.

IBTTA Legislative Conference, March 7-8, Washington, DC, Holiday Inn Capitol. Details at: www.ibtta.org/Events/eventdetail3.cfm?ItemNumber=4789. (Robert Poole and Sam Staley speaking)

U.S. P3 Transport Finance Investors Forum, March 24, New York, NY, Bridgewaters. Details at: http://tfinews@eventbrite.com.  (Shirley Ybarra speaking)

News Notes

How to Reduce Risk in Transportation Megaprojects

The publication of Bent Flyvbjerg's 2003 book Megaprojects and Risk (Cambridge University Press) documented how large and how common are cost overruns and over-optimistic traffic forecasts in transportation megaprojects. Although the book pointed out the benefits of long-term concessions in reducing such risks, that point has not been well-understood in transportation circles. So I am pleased to announce a policy brief, written by Peter Samuel and me, called "Transportation Mega-Projects and Risk." Using the notorious Big Dig project as a starting point, it explains how profoundly the long-term toll concession model changes the incentives of the players, in ways that reduce the risks of construction cost overruns, late completion, and over-optimistic traffic and revenue forecasts. It also addresses how risk remains transferred even in the event the concession entity goes bankrupt. (http://reason.org/studies/show/transportation-mega-projects-risk)

DOT Allows TIFIA Loans for Managed Lanes Projects

The last round of TIFIA loans supported only four projects, none of which involved toll financing. Among those turned down was the first major managed lanes project in Atlanta (I-75/575). Many toll and managed-lanes project planners were despairing that DOT's recently adopted "sustainability" criteria would rule out highway projects that add priced capacity. But FHWA's Jan. 25 Notice of Funding Availability, for the next TIFIA round, redefined "sustainability" to include "the use of tolling or pricing strategies to reduce or manage high levels of congestion on highway facilities." Applications for this round are due March 1st.

NY State Comptroller Cautiously Backs Transportation P3s

The prospects for making use of PPPs for transportation infrastructure in New York State seem to be improving. Last month State Comptroller Thomas DiNapoli released a 15-page report, "Controlling Risk without Gimmicks: New York's Infrastructure Crisis and Public-Private Partnerships." It correctly concludes that "P3 arrangements can provide alternative ways to finance needed improvements." But it also identifies "four primary financial risks" that policymakers must guard against: (1) failing to identify the full value of public property, (2) unfavorable pricing mechanisms, (3) unrealistic expectations and poorly drafted agreements, and (4) budget gimmickry. The subsequent discussion of these points is sometimes exaggerated or off-target, but since there are good answers to all of the Comptroller's concerns, I see this report as a mostly positive sign that the debate on this issue in New York has moved into new territory.

Important New Book on Transportation Infrastructure

The Road to Renewal: Private Investment in U.S. Transportation Infrastructure, by Rick Geddes of Cornell University, was released early this month by AEI Press (American Enterprise Institute). As I said in my dust-jacket endorsement, "This is the best and most insightful book yet on the role that private investment can and should play in transportation infrastructure." That comment was based on my review of the book in manuscript form. Despite the mountains of material I've read on this topic over the past two decades, I've never before seen such an economically literate treatment of transportation infrastructure. Prof. Geddes previously served on the National Surface Transportation Policy & Revenue Study Commission, if his name sounds familiar to you.

Case Studies on Implementing Road Pricing

The FHWA has released an informative report offering case studies on implementing several forms of road pricing. The four cases are: (1) toll roads and PPP managed lanes in the Dallas/Ft. Worth metro area, (2) the development of a long-range vision for pricing in the Seattle metro area (and the first steps in implementing it), (3) the implementation of two innovative HOV to HOT conversions in Minneapolis/St. Paul, and (4) planning a region-wide HOT network in the San Francisco Bay Area. The objective of the study was to examine how road pricing has come to be incorporated into the transportation planning process of these four quite different metro areas. The team of Cambridge Systematics and KT Analytics did a fine job, both in documenting what each region did and in showing how various local issues and priorities have shaped their respective approaches to road pricing. "Integrating Pricing into the Metropolitan Transportation Planning Process: Four Case Studies" is FHWA-HOP-11-002, available on the FHWA website.

China's Interstate System

According to a recent article at Newgeography.com, in 2011 the intercity expressway system in China will for the first time exceed the route-miles of the U.S. Interstate system. At the end of 2010, the China Ministry of Transport reported 46,000 miles of such expressways, and at the recent growth rate of 5,500 miles per year, the Chinese system should exceed ours sometime this year. Author Wendell Cox notes that these figures do not include expressways (many of them toll roads) administered by provincial governments, such as the extensive urban systems in Beijing, the Hong Kong region, and Shanghai, for which no comprehensive figures are available. The article also includes a map of the national system. (www.newgeography.com/content/002003-china-expressway-system-exceed-us-interstates)

Anniversary of First U.S. Electronic Toll System

Richard Ridings of HNTB has reminded me that on December 31, 1990, the Oklahoma Transportation Authority turned on PikePass, the country's first high-speed electronic toll collection system, on I-44 between Tulsa and Oklahoma City. So what we refer to as 21st-century tolling is now two decades old.

Annual Privatization Report Offers Update on PPP Tolling

The Reason Foundation's 2010 Annual Privatization Report was released last week. As usual, I wrote the chapter on surface transportation, including a discussion of the financing of such projects and recaps of recent activity overseas and in the United States. Go to: http://reason.org/news/show/annual-privatization-2010-transport.

Quotable Quotes

"The Administration's reauthorization proposal for a $556 billion program-more than doubling the current authorization-cannot be considered as a serious invitation to 'work with Congress on a bipartisan basis'-knowing as they must the powerful sentiment in Congress and throughout the land to rein in federal spending and start on the road to seriously reducing the budget deficit and national debt. Nor is a $53 billion proposal to give 80 percent of Americans access to high-speed rail a realistic vision, given the skeptical posture of many governors, whose agreement and cooperation would be necessary to implement this proposal. The absence of any indication as to where the money would come from (a shortfall of $326 billion, if you assume CBO estimates of trust fund revenue) only strengthens the view that this is not a serious policy proposal but essentially a political statement designed to portray the President as a visionary leader putting the need to 'invest' in the nation's future above the petty political concerns of the day."

--Ken Orski, Publisher, Innovation NewsBriefs, email discussion, Feb. 17, 2011.

"Given that California's system has attracted zero private capital and has been unable to guarantee any source-governmental or private-for almost half the cost of completion, the obvious risk is that the federal taxpayer will be on the hook for billions of dollars worth of railroad track that may never serve its intended high-speed purpose. . . . We have our doubts about the ultimate feasibility of [the President's high-speed rail] vision, in part because in much of the country passenger rail can't compete with car travel by Interstate highways. It's unclear that the public benefits attributed to high-speed rail-reduced carbon emissions and less airport congestion-would outweigh the inevitable operating subsidies, as Amtrak's experience suggests. If federal high-speed rail investment makes sense at all, it's probably in the densely populated Northeast Corridor, where demand for passenger trains is highest. At the very least, California should have to fill in its project's economic and logistical blanks before any more money-from state taxpayers or the rest of us-is spent. Unfortunately, the rule right now seems to be to spend first, answer questions later."

--Editorial, "Hit the Brakes on California's High-Speed Rail Experiment," The Washington Post, Jan. 11, 2011.

"The only quantifiable goal for infrastructure cited by the President in his address was to ensure that 80 percent of the U.S. population have access to high-speed passenger rail within 25 years. This is a very tricky statement. It does not necessarily mean that we need to build rail lines to the areas where 80 percent of the people live today. It could also mean convincing, or coercing, tens of millions of people to pack up and move closer to a high-speed train station in the next 25 years. So people might want to look at both the demographic and geographic assumptions of this promise before fully evaluating it. To say nothing of the financial assumptions behind this promise."

--Jeff Davis, "Obama Promises Increased Infrastructure Spending," Transportation Weekly, Jan. 31, 2011.

"[T]he ACS numbers indicate that, overall, college migrants choose less dense places. In the two years we covered, the growth rate in urban areas with lower densities (2,500 per square mile) boasted a 5% increase in college-educated residents, compared with roughly 3.5% for areas twice as dense. This can be seen in the pattern of migration toward relatively low-density metropolitan areas like Nashville, Columbus, Raleigh, or Kansas City as opposed to more packed regions like New York, Los Angeles, or San Francisco. And wherever these college graduates migrate, they are at least as likely to settle outside the urban core. Another overlooked fact: Most places with the highest percentages of college-educated people are in suburbs. Only two of the 20 most-educated counties in the country are located in the urban core: New York (Manhattan) and San Francisco. Virtually all the rest are suburban."

--Joel Kotkin, "America's Brain Magnets," Newgeography.com, Feb. 10, 2011 (www.newgeography.com/content/002044-americas-biggest-brain-magnets)

"These many diversions [from the Highway Trust Fund] come at the expense of existing road repair and capacity expansion to accommodate a growing population. With future federal budgets certain to limit trust fund spending to trust fund revenues derived from user fees and excise taxes levied on motorists and truckers, the funders of the system should certainly be the ones who benefit from it, and the needed budget cuts represent a great opportunity to cull low-valued 'transportation' programs from the system."

--Ronald D. Utt, "Setting Priorities for Transportation Spending in FY 2011 and FY 2010," Web memo No. 3141, Heritage Foundation, Feb. 9, 2011 (http://report.heritage.org/wm3141)

"The report [NCHRP 20-24(69)] highlighted several promising approaches, but it also observed that the substantial public policy issues and uncertainties associated with VMT fees would make it difficult to design a cost-effective and politically acceptable system at this time. Examples of such issues and uncertainties include the policy goals that a system of VMT fees should be able to support, the appropriate institutional configuration for collecting and apportioning VMT fees among jurisdictions, the likely cost of enabling technologies produced at scale, and the public acceptance of alternative fee-collection methods. The report then outlined a set of activities that might be funded, perhaps in the next surface transportation bill, to resolve such questions and prepare for possible implementation in the 2015 to 2020 timeframe."

--Paul Sorenson, "System Trials to Demonstrate Mileage-Based Road User Charges: Executive Summary," RAND Corporation, NCHRP Web-Only Document 161, October 2010.


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


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