Surface Transportation Innovations # 47

Topics include: FTA embraces HOT/BRT lanes; Indiana Toll Road one year later; thinking through long-term PPPs; cars vs. transit for the job-seeking poor; greenhouse policy run amok; and other news.

In this issue:


FTA Embraces HOT/BRT Lanes

In our 2003 policy paper introducing the concept of HOT Networks, Ken Orski and I proposed that since such networks would serve the dual purpose of being uncongested bus rapid transit guideways as well as congestion-relief routes for car drivers, they should be supported by both highway (FHWA) and transit (FTA) funding. (The study is on the Reason website at www.reason.org/ps305.pdf). The FHWA has been promoting HOT lanes for nearly a decade, via its Value Pricing program. But although the FTA has been willing to permit the conversion of FTA-funded HOV lanes into HOT lanes, the agency has never really embraced HOT lanes as a "fixed guideway" for transit. That term (and the accompanying funding) has been reserved for transit-only guideways, such as a rail line or an exclusive busway.

But that looks like it's about to change. In a Notice of Proposed Rule Making published in the Federal Register on August 3rd, the FTA proposes redefining "fixed guideway" to include priced lanes that ensure free-flow conditions for transit buses. If the revised definition is accepted, then FTA New Starts and Small Starts funding would be available to help metro areas develop new HOT lanes and HOT networks where bus rapid transit (BRT) is an integral part of the concept. If transit constitutes, say, 10% of a HOT lane's planned usage, up to 10% of its costs would be eligible for New Starts funding.

For those of us who have been pointing out the natural synergy between priced lanes and BRT, this is an important step forward. It should help to make HOT/BRT lanes (which I have elsewhere referred to as "virtual exclusive busways") a more viable transit option, when metro areas are figuring out how to make their limited transportation dollars produce as much real value as possible.

The docket on this rule change is open for comment until November 1st. To make a comment, go to http://dms.dot.gov and follow the instructions. The docket number is FTA-2006-25737 and its title is Major Capital Investment Projects. You need not comment on the entire set of issues presented; the change discussed here is on p. 43329 of the Federal Register (August 3, 2007) under "II. Response to Comments." It's the first question under the subheading "Eligibility."

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Indiana's Privatized Toll Road at Year One

To critics of long-term toll concessions, the lease of the Indiana Toll Road in June 2006 is a prime example of what not to do. When I testified before Rep. Peter DeFazio's Highways & Transit Subcommittee last February, he seemed willing to concede that there might be some public benefit from using such deals to develop new highway capacity, but to let private companies make money by operating an existing toll road—that seemed to be simply beyond the pale. Likewise, when American Trucking Associations president Bill Graves has written and spoken about the issue, his opposition has always seemed to focus on leases of existing toll roads.

So it seems appropriate, now that the Indiana deal has passed its first anniversary, to take a look at the Hoosier state and see how things are going in transportation. First, on the toll road itself, a long overdue (after 20 years!) toll increase has gone into effect, and electronic toll collection (also long overdue) is being installed. Plans are under way to add a third lane in each direction to relieve congestion on the Toll Road's western end, near Chicago. Inflation-indexed toll rates—much criticized when the private sector introduced them on this toll road and on the Chicago Skyway—have now been institutionalized for public-sector toll roads in Florida, Pennsylvania, and Texas, so perhaps that issue will no longer be held up as evidence of the private sector's perfidy.

What about the rest of the state? Critics tend to say little or nothing about the $3.8 billion that Indiana received when it opted to take the full 75 years worth of lease payments as a lump-sum payment. That money is 100% dedicated to Gov. Mitch Daniels' 10-year highway modernization program, Major Moves. As a result, Indiana is the only state in the country with a fully funded transportation investment program. By 2015 Indiana expects to spend $11.9 billion on road construction—reconstructing worn-out roads, adding much-needed new lanes, and developing new routes like I-69 south of Indianapolis.

That money can't all be spent at once, so in the interim, the state is earning interest on the balance at the rate of over $500,000 per day. In fact, Gov. Daniels recently told reporters, while cutting the ribbon on a new project on U.S. 31, that the Treasurer had reported that in just the one year since depositing the $3.8 billion check, Indiana had earned more money than the Toll Road itself had generated in 50 years. (Those earnings, too, are being dedicated to transportation investment.)

Committing itself to first-rate transportation infrastructure seems to be paying off for Indiana. Four months after the passage of Major Moves, Honda announced that its newest plant would locate in Greensburg, Indiana, employing 4,000 people. Honda cited the state's commitment to infrastructure as one of its decision factors. Many supplier firms are expected to site new facilities near the plant.

Indiana is winning praise in the transportation logistics press, too. An article on Midwest logistics hubs in Traffic World (June 4, 2007) quoted industry leaders praising Indianapolis; it also pointed to the state's commitment to highway modernization via Major Moves.

I imagine there are many governors and DOT directors who wished they had a fully-funded 10-year transportation program. It would be tragic if Congress or a state's own populist legislators made it impossible for others to do what Mitch Daniels has accomplished in Indiana.

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Contrasting Approaches to Long-Term PPPs

If you'd like to get a deeper understanding of the issues at stake in what is shaping up as a major conflict over the role of long-term concessions, let me commend to you two recent publications. One is a position paper released on June 4th by Reps. James Oberstar (D, MN) and Peter DeFazio (D, OR) titled "Public Interest Concerns of Public-Private Partnerships." It raises most of the issues now being debated around the country—how long should concession terms be, should there be non-compete provisions, what role is there for unsolicited proposals, etc. And while it is less completely hostile to PPPs than the congressmen's May 10th letter to all 50 governors, it is rather hasty in drawing poorly justified conclusions.

For example, it says that PPP agreements should not extend beyond the design life of facilities, so as to "ensure the flexibility needed by future governments." It says states should refuse to allow unsolicited proposals, on grounds that this subverts competition and good planning. It argues against concession agreements that allow for annual inflation adjustment (apparently unaware that states themselves are shifting to this aspect of 21st-century tolling). And it says non-compete clauses "should not be included," period.

A far more nuanced discussion of these and many other issues involved in long-term PPPs is provided in a recent paper from the USC Keston Institute for Public Finance and Infrastructure Policy. Titled "Protecting the Public Interest: the Role of Long-Term Concession Agreements for Providing Transportation Infrastructure," it was written by Jeff Buxbaum and Iris Ortiz of Cambridge Systematics, transportation professionals with extensive knowledge of toll finance and PPPs. You can download it from: (www.usc.edu/schools/sppd/keston/research/index.html.)

Buxbaum and Ortiz appreciate that most of these issues involve trade-offs, and many of answers will depend on the specifics of the project. There are no easy one-size-fits-all answers to the kinds of questions Oberstar and DeFazio raise. Sure, you can limit concession agreements to 30 years—but that may mean the project is not 100% toll-financeable, or in another case that there can be no up-front payment. Sure, you can say absolutely no limits on free-road competition, but that may reduce the number of bidders, or require some degree of public-sector financial support, etc. The word "trade-off" does not seem to exist in the congressmembers' vocabulary.

The last thing we need is federal mandates that forbid states from making trade-offs in coming up with PPP deal structures that fit the specifics of all sorts of different projects.

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Getting the Poor to Work

It's not a new debate, but I've recently read several more contributions to it, so I thought I'd share some thoughts with you. The question is this: If we want to improve the job prospects of low-income people, by enabling them to reach more potential jobs, is it more effective to spend resources on expanded transit service or on helping them obtain a used car?

Several years ago I came across papers by UCLA researchers, one by Paul Ong and another by Evy Blumenberg (both in 2002), that looked at how employment prospects of welfare recipients could be improved via programs to help them obtain cars. I'd overlooked, until recently, a slightly earlier paper by Steven Raphael of UC Berkeley and Michael Stoll of UCLA that I just read and found fascinating. Using 1990 census data, they found "strong evidence that having access to a car is particularly important for black and Latino workers," because low-income members of those groups tend to live in segregated areas that are not exactly full of job opportunities. There is good evidence that "car owners search greater geographic areas and ultimately travel greater distances to work than do searchers using public transit or alternative means of transportation." One striking finding from their data analysis is that "raising minority car-ownership rates to the white car ownership rate would eliminate 45 percent of the black-white employment rate differential." The paper is titled "Can Boosting Minority Car-Ownership Rates Narrow Inter-Racial Employment Gaps?" (I could not find it online, but it was published in the Brookings-Wharton Papers on Urban Affairs, 2001.)

Welfare rules are a problem for low-income people acquiring a car, since some programs will cut off assistance if the recipient owns a car worth more than $4,650. But for the working poor, that is usually not a problem. They make up the clientele of an impressive private-sector program called Ways to Work (www.waystowork.com). For more than 20 years it has been helping low-income people get affordable auto loans, in partnership with local banks. Ways to Work, now headquartered in Milwaukee, was launched in Minneapolis in 1984 with backing from the McKnight Foundation. Ways to Work guarantees the loans and helps participating banks work out programs like the one profiled by a Washington Post article (Jan. 11, 2007) run by Virginia Commerce Bank. It makes auto loans of up to $4,000, with interest rates of no more than 8%, to enable people to buy used cars. Ways to Work cites a study by the OMG Center for Collaborative Learning in Philadelphia, which found that participants in the program increased their take-home pay by an average of 41%.

Finally, a recent issue of Transportation Research Record (Issue No. 1986) included a study by Chang Yi of the University of Texas at Austin, "Impact of Public Transit on Employment Status." It was limited to Houston where, the author admits, "It is difficult to obtain enough samples with no access to vehicles." While the author finds both auto ownership and transit to be important for employment-related mobility, he also states that "household car ownership and the possession of a driver's license may be more effective to help unemployed individuals find meaningful job opportunities than the provision of convenient access to public transit at the neighborhood level."

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Global Warming vs. Local Transportation Plans

Back in May in Issue No. 43, I criticized the proposed tightening of federal motor vehicle fuel economy standards as the wrong approach to dealing with greenhouse gases. If we go down the road of having government target specific "bads" like low miles per gallon and subsidize specific "goods" like E85 gas pumps, every special interest under the sun will be invited to pursue its pet likes and dislikes, via legislation. We will end up with what Reason magazine science correspondent Ron Bailey calls "the equivalent of an inefficient energy tax." Far better, Ron writes—and I agree—to make the release of carbon via energy use more expensive, fairly and across the board. The most straightforward and efficient way to do this would be a carbon tax.

Instead of illustrating the folly of the targeting approach with choice examples from the energy bills pending in Congress, let me direct your attention to the huge threat to local transportation plans now playing out in California. As you probably know, last winter the legislature passed Gov Schwarzenegger's bill under which the state aims to reduce greenhouse gases by 25% by 2020. The state Air Resources Board has been given the multi-year task of trying to figure out how to go about implementing that law.

That's not fast enough for many environmental groups—or new Attorney General Jerry Brown. In April, two enviro groups sued fast-growing San Bernardino County on grounds that its just-adopted general plan did not analyze the impact of projected growth on greenhouse gases. Two days later, the Attorney General joined the suit. And in the months since then, Brown has challenged (thus far only by letter) the transportation plans of half a dozen fast-growing counties in the state's Central Valley. The counties, backed by the California Chamber of Commerce and various labor unions, argue that they can't be held accountable for complying with non-existent greenhouse gas regulations, which appear to be several years away.

As if anticipating that argument, Sen. Darrell Steinberg introduced SB 375, informally known as the "VMT (vehicle miles traveled) bill." It would change the law on transportation planning to preferentially fund transportation plans that are based on a "preferred growth scenario", which among other things, would mandate that new housing be developed at a minimum density of 10 units to the acre. Steinberg simplistically believes that "the more miles cars travel, the more carbon there is in the air," so that "the more we incentivize and promote development that reduces vehicle miles traveled, the better chance we will have" to meet greenhouse gas reduction goals. SB375 passed the California Senate on June 7, 2007.

There you have it, folks: VMT is bad, so we're going to force you to live in cluster housing without your own yard. We are in for a lot more of this kind of central planning, as interest groups enact their preferred likes and dislikes into law, unless we simply raise the price of emitting carbon across the board.

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News Notes

FHWA Toll Roads Database. Last issue I critiqued as woefully incomplete a new database on U.S. toll roads and bridges that had been posted on the Federal Highway Administration's website. It turns out there was a far more comprehensive database elsewhere on the site, which you can find at www.fhwa.dot.gov/ppp/sort_state.pdf. Thanks to Michael Saunders at U.S. DOT for pointing this out. And apparently, the incomplete database is now gone, replaced by a link to this comprehensive one.

Corrected Link to My HOT Lanes Column. Last month I left out a portion of the URL for my recent Public Works Financing column on how to get both high person throughput and large revenue from a HOT lane. It is, indeed, on the Reason Foundation website, but at: www.reason.org/commentaries/poole_20070800.shtml.

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Quotable Quote

"The problem with America's infrastructure is not that drivers are in danger of being pitched into rivers. Dramatic events may dominate the news, but the nation's roads and bridges are less perilous than inefficient and decrepit. Enormous sums are being spent just to keep them in a mediocre state, and even more will have to be spent in future. Partly as a result, the new infrastructure needed for a rapidly growing population is not being built fast enough."
--"A Bridge Too Far Gone," The Economist, Aug. 11, 2007

"There's probably $100 billion in domestic capital alone that's being raised to invest in these transactions, and when that's leveraged with debt, you're probably looking at up to $400 billion in money that's ready to go to work."
--Dana Levinson, Royal Bank of Scotland, quoted in Steven Malanga's article, "The New Privatization," City Journal, Summer 2007.

"The biggest problem with the Interstate Highway System today is not connecting one city to the next; it's accommodating suburbanites forced to commute in bumper-to-bumper traffic. Hence, PPPs have become an attractive alternative for financing new capacity projects, and that's what's worrying Mr. Oberstar. If this continues, he knows PPPs will make his committee less relevant in the transportation debate. . . . If local policy makers can involve the private sector in paying for highway projects, there's less incentive to raise taxes to fund new roads. No wonder Mr. Oberstar is against PPPs."
--Editorial, Wall Street Journal, June 26, 2007.

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





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