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Reason Foundation

Surface Transportation News #124

Per-mile tolling vs. per-gallon fuel taxes, Strategic thinking on managed lanes networks, New Starts transit funding under pressure

Robert Poole
February 13, 2014

In this issue:

Per-Mile Tolling vs. Per-Gallon Fuel Taxes

The transportation community is increasingly in agreement that fuel taxes are of declining effectiveness as the primary funding source for America's highways. But thus far the effort to build broad support for replacing per-gallon fuel taxes with mileage-based user fees (MBUFs) has not gone very well. Popular media stories have created the false ideas (a) that charging per mile requires the government to "track" not only how many miles one drives but where and when, and (b) that this will require an intrusive GPS device in every vehicle, whether we like it or not.

In fact, much of the field testing and pilot-program work under way by state DOTs and research institutes rejects both of those premises, and we are also seeing increased interest in the idea that it might make sense to charge different prices for different kinds of roadway. In the Reason Foundation "Interstate 2.0" study that I authored last year, I proposed the implementation of MBUFs in a two-part approach: a basic MBUF to cover local streets, arterials, and minor highways and a premium per-mile toll for using limited-access highways, such as freeways and Interstates. This approach would rely on simple no-tech or low-tech methods for the basic charge (e.g., annual odometer readings, or a device plugged into the car's diagnostic port to report only total miles driven). And charging for limited-access highways could easily make use of today's transponder-based all-electronic tolling (AET). Current AET is widely accepted (without privacy concerns) and will soon be inter-operable nationwide. That means you'll need only one account, no matter which states you drive in, just as you can use your mobile phone and credit cards nationwide but still receive a single bill.

There was not space within the already long "Interstate 2.0" study to fully make the case for this approach to implementing the transition to MBUFs. So my colleague Adrian Moore and I spent the last several months preparing a new Reason Policy Brief called "Ten Reasons Why Per-Mile Tolling Is a Better Highway User Fee than Fuel Taxes." It was released this week and is downloadable from http://reason.org/files/why_tolling_is_better_than-fuel_taxes.pdf. This brief focuses on the premium highways whose MBUFs would be collected via an AET system. We already know (from "Interstate 2.0") that modest per-mile toll rates on long-distance corridors, plus peak/off-peak pricing on urban freeways, can raise sufficient revenues to permit toll-financed reconstruction, modernization, and ongoing maintenance of the entire Interstate highway system, both rural and urban. But in addition to its funding adequacy, such a system would be a far better highway user charging system than per-gallon fuel taxes. The brief lays out 10 reasons why we think that is the case:

  1. Per-mile tolling is a direct, rather than indirect, user fee.
  2. Per-mile tolling is a sustainable long-term funding source for long-term infrastructure.
  3. A per-mile toll can be tailored to a highway or bridge's cost.
  4. A per-mile charging system will mean increased fairness to users.
  5. Per-mile electronic tolling would be self-limiting (to the highways being tolled).
  6. Per-mile tolling ensures proper ongoing maintenance.
  7. Per-mile tolling provides the means to expand a highway when needed.
  8. Per-mile tolling brings a shift from funding to finance.
  9. Per-mile tolling can reduce traffic congestion.
  10. Per-mile tolling would be the first big step toward replacing fuel taxes with MBUFs.

I don't have space here to explain these 10 points—that's what the policy brief is for. I encourage you to download and read this new paper, and let me have your feedback. This is the first of several follow-up papers elaborating on points touched on in the "Interstate 2.0" study from 2013.

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Thinking Strategically About Managed Lane Networks

In several different sessions at the Transportation Research Board Annual Meeting last month, it was obvious that the trend in managed lanes planning is now to move beyond individual stand-alone projects and toward the goal of region-wide managed lanes networks. Yet as I participated in these discussions, it became clear to me that various politically favored policies are being accepted in some metro areas that will make implementing such networks difficult if not impossible. That's because ML networks will be very expensive and will therefore depend critically on maximizing toll revenue. But a number of these policies work against revenue maximization in ways that I don't think are fully appreciated.

Before getting into that, let me address the high cost of ML networks. Only a handful of the very large metro areas with intense freeway congestion have extensive HOV lanes already in place that can be converted to express toll lanes at modest cost, with Los Angeles and San Francisco being the exemplars. Most other metro areas that plan networks—including Atlanta, Dallas, Houston, Miami, and Washington, DC—have HOV lanes on only a small fraction of their freeway networks. That means most of the ML network will have to be new construction, at very high cost per lane-mile. Second, even in the HOV-rich metro areas, there are few freeway-to-freeway HOV lane connectors. Yet a true seamless network needs uninterrupted, uncongested flow of traffic from the ML on freeway A to the ML on intersecting freeway B. And those flyover connectors are even more expensive than plain old lane additions. It's factors like these that have led to cost estimates of $16 billion for the proposed Miami network.

One of the policies that undercuts revenue generation is giving away large fractions of ML lane capacity to nonpaying carpools, hybrids, etc. At a minimum, the policy for free passage should be HOV-3, and only for genuine, employer-sponsored car-pools. That is the policy in place on Miami's highly successful I-95 Express Lanes, and a number of other recent MLs have implemented carpool registration and mandatory transponder use. Florida is actually going a big step farther, by granting carpool and hybrid free passage only for those MLs that result from converting pre-existing HOV lanes. Thus, the all-new reversible express toll lanes that will open this spring on I-595 in Ft. Lauderdale will offer no freebies (except to express buses).

A second policy that undercuts revenue is "continuous access"—allowing vehicles to move in and out of a ML anywhere along its length, rather than at only a limited number of access points. This kind of access invites cheaters to dart into the ML despite not being qualified. But it also undercuts revenue in a second, less-appreciated way. Thanks to research done at UC Berkeley comparing HOV lane performance on northern California continuous-access HOV lanes with southern California's limited-access-point lanes, we now know that when traffic speed slows way down in the general-purpose lanes in northern California, it also slows way down in the HOV lanes. But this does not occur with southern California HOV lanes. Nor does it occur on pylon-separated express toll lanes such as SR 91 in California and I-95 in Miami. Traffic on these express lanes generally maintains high speeds despite stop-and-go conditions in the adjacent GP lanes. But how does this affect revenues?

Research at UC Irvine last decade found that express toll lane customers are paying not just for the value of time savings but also for the value of trip-time reliability. A so-called express toll lane that cannot offer reliable time savings will attract fewer paying customers than one that does offer such savings—hence the difference in revenue. Yet based on the discussions at TRB, there is a politically-driven move afoot in several states to make both HOV lanes and priced MLs continuous-access.

Two other policies that reduce revenue are part-time operation and caps on maximum toll rates. Part-time operation leaves money on the table, since experience demonstrates that some motorists will use the express toll lanes even at 2 AM. Why not collect a bit more revenue during those hours? The political argument that the extra lane capacity is needed for GP-lane users during off-peak hours is ludicrous. And a legislated maximum cap on toll rates will not only reduce revenue but will eventually hinder the purpose of variable pricing—to ensure fast and reliable trips, no matter how large the demand during peak periods. The I-95 Express Lanes in Miami last year increasingly bumped up against the $7 toll cap, and are now having to persuade the legislature to increase it. Far better to not impose any caps to begin with.

State DOTs have a big educational task ahead of them, to get legislators, editorial writers, and other opinion leaders to understand not only the benefits of region-wide ML networks but also their need for policies that—as much as possible—rely on user funding to cover the large capital costs involved. There is no Santa Claus or Tooth Fairy out there somewhere that will provide $5 billion or $10 billion to help create your congestion-relieving, express-bus-facilitating network. Serious region-wide networks will only get built if public policies that permit revenue maximization are understood and implemented.

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New Starts Transit Grants Face New Pressures

Since 1991, the Federal Transit Administration has been allocated general-fund money by Congress to pay for capital grants for new fixed-guideway transit lines (i.e., heavy rail, light rail, streetcars, and dedicated busways). The original program was called New Starts, but subsequent legislation added smaller grants (including for new bus service) called Small Starts, and MAP-21 created a new program within New Starts called Core Capacity. These factors have all come together recently to create what many consider a crisis in rail transit funding.

As reported by FTA at a December House hearing, FTA's rail funding commitments now exceed available funding. The agency has signed Full Funding Grant Agreements worth $14 billion to fund 17 New Starts projects, as well as Small Starts Grant Agreements worth $94 million for two projects. On top of these commitments, FTA has another 12 New Starts projects in the project development and engineering phase seeking another $8.7 billion and 14 Small Starts projects seeking $680 million. But the annual budget for these programs is about $2 billion a year, with little hope for any increase over the next decade. So it's crunch time for FTA and its rail grant seekers.

Complicating the picture is the new Core Capacity program. It taps the same pot of money not for new lines but for significant capacity increases on existing lines, which tend to be in the older traditional central business district (CBD) cities such as New York and Chicago. The first such funding request is from Chicago, to add capacity to its key red line. Chicago Transit Authority President Forest Claypool told Congress at the hearing that the agency itself had funded a capacity-increase modernization of its Brown Line that led to large increases in ridership. Similar capacity increases for the Red Line, he predicted, would add 130,000 more riders each weekday, and "That would compare favorably with any New Start project around the country," he added, correctly. New York is also expected to request Core Capacity funding to increase ridership on its E line by 50,000 per day, a figure which would also far exceed the new ridership on any New Starts project in the pipeline.

Needless to say, this situation has the New Starts applicants in something of a tizzy. But it raises a legitimate point. With a limited pot of money for rail transit grants, does it make sense to keep building light rail lines in auto-oriented, multi-centric metro areas that carry 10,000 or 20,000 per day? Wouldn't that grant money produce far more benefits in metro areas where transit carries a large share of commuters and other travelers due to the geographic and demographic of characteristics of traditional-CBD metro areas?

FTA Administrator Peter Rogoff created quite a stir in 2010 when he gave a speech suggesting that bus rapid transit would be a better fit than rail for a large number of non-traditional-CBD metro areas—and would be a lot less costly to build and operate. In his testimony at the December hearing, the Cato Institute's Randal O'Toole pointed out how federal capital grants appear to have led to increasingly costly light rail projects—from $12 million per mile for San Diego's first (non-federally funded) line

to today's average New Starts-funded light rail line's $50 million per mile, with some far higher (Portland at $204 million/mile and Seattle's planned light rail subway at $628 million per mile). He recommended that Congress abolish New Starts, using that money instead for a formula fund based on increasing transit ridership and fare revenue. In effect, that would likely mean projects like those now starting to be funded by Core Capacity grants would win out over many current light rail projects.

Even without such a legislated change, that outcome may well evolve as the core transit systems come up with proposals for dramatically increasing ridership on existing lines. And while I still don't think funding transit is a proper responsibility for the federal government, such a change would produce significantly more bang for the transit buck.

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Some Good News on Autos and Greenhouse Gases

A January 2nd article at New Geography used information from the Energy Department to track the progress being made on reducing CO2 emissions from light vehicles (autos, SUVs, and other personal vehicles). The Energy Information Agency's Annual Energy Outlook for 2014 is the source of both historical data and projections on CO2 emissions for the light vehicle fleet from 2000 through 2040.

One such measure is light vehicle CO2 emissions per capita. Those emissions peaked at about 3.6 tons in 2003. But EIA projects this number to decrease 51% by 2040. The projections are based on the current requirements for the new-vehicle fleet to achieve a corporate average fuel economy level of 54.5 mpg by 2025. And because it is impossible to know if more stringent CAFE standards will be enacted for years after that, the projection assumes no further changes, just the older cars being phased out of the fleet and new cars compliant with the standards replacing them over time.

Total CO2 emissions from light vehicles will also decline, but not as dramatically as emissions per capita, because there will be more people in the driving age population  between now and 2040. Even so, EIA projects gross 2040 CO2 emissions from light vehicles will be 28% less than in 2003.  And this projection is far more optimistic than what EIA was projecting a decade ago. In its 2002 Annual Energy Outlook, it projected a 46% increase in gross CO2 emissions from light vehicles by 2020. But the new report, taking into account changes in the fleet and driving since 2002, projects a 9% decrease by 2020. Details: www.newgeography.com/content/004116-energy-and-transportation-planning-for-people.

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New Proposal for More-Productive Trucks

The truck size and weight issue is a perennial arena for controversy. In the run-up to what became the MAP-21 reauthorization, the trucking industry lobbied unsuccessfully for an increase in the current federal 80,000 lb. gross weight limit. In addition to the usual opponents (railroads, highway safety groups), a number of state DOTs were concerned about the impact of higher gross weights on many of their bridges.

Nevertheless, there are real productivity gains to be had if one driver and one tractor can haul more cargo, such as via pulling double trailers—but many states prohibited such rigs. In the 1982 reauthorization (the Surface Transportation Assistance Act—STAA) Congress overrode state objections, legalizing twin 28-foot rigs on all federal-aid highways. They have been widely accepted by the trucking industry. But longer rigs, such as the considerably longer turnpike doubles, are allowed only on selected toll roads and in some mountain states out west; they were grandfathered in by the legislation that authorized STAA doubles.

But it turns out that many STAA doubles in current freight service "cube out before they gross out"—i.e., they fill up all their volume well below the maximum allowed 80,000 lb. gross weight. So Con-Way and Fedex, two major trucking firms, have put together a freight industry coalition proposing that Congress authorize 33-ft. doubles within the current gross weight limit. Their coalition makes the usual productivity and environmental arguments, which are quite plausible: 102 million gallons of fuel saved per year, over a million tons per year less CO2 emissions, 3.3 million fewer truck trips, and 456 fewer crashes.

The safety numbers come from a comparative analysis of 28-ft and 33-ft. double-trailer rigs, done by Woodrooffe Dynamics LLC in 2011. That study reviewed the literature, including a 2010 National Cooperative Highway Research Program analysis of Canada's safety experience with longer combination vehicles (NCHRP Report 671) as well as overseas studies from the OECD and several Canadian provinces. Using safety performance measures developed in these studies, Woodrooffe simulated the dynamic behavior of twin-33s compared with twin-28s. Factors included the static rollover threshold, something called rearward amplification (exaggerated motion of the trailers due to rapid steering), the load transfer ratio (a factor in potential rollovers), and three types of "offtracking" (in which the trailers follow a slightly different track than the tractor during turns). The 33-ft. rig scored the same or better on four of the six performance measures, but slightly worse on two of the offtracking measures (as expected, due to the longer trailer lengths).

Overall, the safety and performance measures make twin-33s a winner in my book. I suspect this proposal will have a better chance in Congress than the previous attempt to increase the weight limit.

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Upcoming Conferences

Note: I don't have space to list all transportation conferences that might be of interest. Below are those that I or a Reason Foundation colleague are taking part in.

Network Growth and Credit Risk Analysis for Managed Lanes (Webinar), March 4 (Robert Poole presenting). Details from sheri.lynch@atkinsglobal.com

11th Annual Road User Charging Conference, March 5, Brussels, Belgium (Adrian Moore speaking). Details athttp://roaduserchargingconference.co.uk

Road User Fees: Is There Really Another Option for Achieving Financial Sustainability? March 12, Pew Charitable Trusts DC Conference Center, Washington, DC (Adrian Moore speaking). Details from: info@mbufa.org

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News Notes

New Study Highlights Managed Lanes/Bus Rapid Transit Synergies. My Reason Foundation colleague Baruch Feigenbaum has written an important new policy study explaining what a good fit there is between variably priced (and hence uncongested) managed lanes on freeways and longer-distance express bus service that can use such lanes as virtually exclusive busways. Basically, for the cost of just buying and operating the buses, a transit agency can gain purpose-built infrastructure on which those buses can operate at high speed and with reliable travel times. Go to: http://reason.org/studies/show/bus-rapid-transit-and-managed-lanes.

Car & Driver Touts MBUFs. In a sharp departure from the mostly snarky, negative commentary that has appeared in most auto-enthusiast publications, the February 2014 issue of Car & Driver carries an intelligent one-pager on the subject. "The Taxman Driveth," by John Pearley Huffman, explains the need to replace the decreasingly sufficient fuel tax system with a more direct highway user fee. And it presents favorably Oregon's pioneering work on MBUFs, including quotes from ODOT's Jim Whitty. Let's hope this article is the start of a trend.

Managed Lanes Open in El Paso. Last month saw the opening of the Cesar Chavez Express Toll Lanes on SR 375, the Cesar Chavez Highway in El Paso. The $85 million project includes one lane in each direction. Users may pay either via a toll tag (transponder) or opt to be billed based on video imaging of their license plate. With these lanes in operation, El Paso joins Dallas/Ft. Worth and Houston as Texas metro areas with managed lanes. Another project is under way on Austin's MoPac expressway, due to open in 2015.

Paraguay to Auction Waterway Concessions. According to an article in The Economist (Dec. 21, 2013), the new reformist government of President Victor Bogado is gearing up to sell concessions to operate and improve the country's numerous commercial waterways this year. Also in the works are plans for highway concessions, along with a law providing for international arbitration of disputes between concession companies and the government.

North Carolina Begins EV Road Use Fees. As of January North Carolina became the third state that is charging an annual road-use fee to electric vehicles. Under a law passed last year, EVs such as the Nissan Leaf and Tesla Model S will pay an annual $100 road-use charge. A measure that would have charged hybrid owners $50 a year failed to gain the legislature's assent. Last year Washington State began charging a $100 per year fee to EV owners, and Virginia instituted a $64/year green-vehicle road use charge. At present, these fees bring in only very small amounts of revenue, because EVs constitute such a small share of the personal vehicle fleet. But the fees establish the important principle that all vehicles should pay their share of the cost of building, maintaining, and improving the country's roadways.

Tolls Will Finance Ohio-Kentucky Bridge. The $2.5 billion Brent Spence Bridge linking Cincinnati and northern Kentucky will be financed "primarily" via tolls, the Kentucky Transportation Cabinet and the Ohio DOT have agreed. Their initial financial plan for this mega-project was submitted to FHWA in January. Whether the bridge will be developed as a toll-concession P3 project is still up in the air; Ohio has P3 enabling legislation but Kentucky does not.

Transportation as a Utility Considered in Washington State. In its 2013 Toll Division Operational Review, released last November, Washington State DOT devoted a page to the future possibility of creating a different governance model for the state's major highways. The discussion draws on David Levinson's 2013 Reason Foundation policy study, "Enterprising Roads," which explained the similarity of highways to other network utilities and described reforms along these lines in Australia and New Zealand. Levinson's study is available at http://reason.org/files/enterprising_roads.pdf.

Investors and the Infrastructure Finance Gap. In a new report, Standard & Poor's Rating Service says that pension funds, insurance companies, and other institutional investors could play a significant role in shrinking what it estimates to be a $500 billion/year worldwide funding gap in infrastructure. S&P estimates that up to $200 billion/year between now and 2030 could come from such investors—if governments create a favorable environment for such investment. The report was released on Jan. 16, 2014.

Florida May Get Taxpayer-Paid Bike Trail. Despite Florida DOT having told me several months ago they had no plans to spend tax dollars building any inter-city bicycle routes, now that the state has a budget surplus, there is a movement in the legislature to spend $50 million to fill in missing links in existing bicycle trails to make a Coast-to-Coast Connection linking the Tampa Bay area to the Cape Canaveral area. It would apparently be the first such taxpayer-funded inter-city bicycle route in the nation.

End Fuel Subsidies, Says International Energy Agency. Numerous developing countries spend small fortunes subsidizing the price of gasoline and other fossil fuels, to curry favor with voters eager for low fuel prices. The International Energy Agency puts the annual cost at $544 billion in 2012. After the cost of fuels subsidies reached 4.5% of GDP in Malaysia, its government last year cut back those subsidies, following the lead of Indonesia. The Economist reports that Egypt and India are considering similar measures, to reduce their budget deficits. Eliminating such subsidies would be an important step toward reducing greenhouse gas emissions, in addition to balancing national budgets.

Arizona DOT Launches First Tollway P3. A Request for Information was released early this month by the Arizona DOT for the long-planned South Mountain Freeway. Initial responses from potential bidders for this P3 project are due by Feb 25 to ADOT's Office of P3 Initiatives. The RFI was issued in response to an unsolicited proposal from Kiewit/Sundt/Parsons to build this bypass of downtown Phoenix for through-travelers on I-10.

FDOT Secretary a Top 2013 Newsmaker. Ananth Prasad, Florida's Secretary of Transportation, was named by Engineering News-Record as one of its Top 25 Newsmakers of 2013. Prasad is a strong proponent of managed lanes, toll finance, and public-private partnerships.

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Quotable Quotes

"Tolling will take over. In November, we discussed a recent Reason Foundation study that proposed opening the entire Interstate Highway system to tolling as a way to create revenues for its reconstruction. Unless mid-term elections usher in a Congress willing to raise the fuel tax, this seems inevitable and the only rational solution to a mounting crisis in U.S. surface transportation. One of the hallmarks of nationwide tolling will be a standardization of automatic tolling systems so that motorists can pay their tolls without stopping, no matter what state they're in. With the cost of replacing bridges ranging from the tens of millions of dollars for small ones to hundreds of millions of dollars for big ones, bridge tolling is going to be the rule, not the exception. It may be that the next generation of motorists will never cross a major river without paying a toll."
—Kirk Landers, "Solutions for a Bankrupt Trust Fund," Better Roads, January 2014

"I don't think it is at all surprising that increased transit use does not relieve traffic congestion. Alan Altshuler demonstrated this over 40 years ago, and I am sure it is still true today. The value of transit is not that it reduces congestion for road users, but rather that it provides a convenient and affordable method of transportation that has huge economic benefits in places like New York, Chicago, and DC. Also, congestion pricing will not be able to work, politically or practically, without the existence of viable transit alternatives. So even though transit does not reduce congestion, it is a necessary prerequisite for doing so in the absence of additional highway capacity."
—Joshua Schank, President, Eno Center for Transportation, email to Robert Poole, Jan. 9, 2014 (used with permission)

"I've never been a big believer that the Panama Canal is going to create a significant shift in freight. What will create a significant shift, in my opinion, is going to be a cost or service equation. So if we continue to slow-steam, or if you move to larger vessels and possibly use the Panama Canal as a transfer point to split freight off between the U.S. East Coast and possibly South America, that can probably do nothing but slow freight down. In terms of cost, there should be some cost efficiencies. Whether the carriers pass those cost efficiencies on to the shippers can be a different question. Unless they do—and I'm suspecting that they won't—I do not see a significant shift in freight patterns when the canal opens in 2015."
—Richard Smith, Sears Holdings, in "2014 Shippers Roundtable," The Journal of Commerce, Jan. 6, 2014

"It is becoming increasingly obvious that the Obama Administration's original vision for high-speed rail died on August 2, 2011, the day that the President signed the Budget Control Act into law. The BCA's statutory caps on discretionary spending made it effectively impossible to create new billion-plus-dollar-per-year programs out of the discretionary appropriations budget during the nine-year FY 2012-2021 period. It has just taken the Administration a couple of years to come to terms with this fact."
—Jeff Davis, "Is the Obama Administration Giving Up on High-Speed Rail?" Transportation Weekly, Feb. 7, 2014

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


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