Surface Transportation Innovations # 51

Topics include: Oregon's mileage fee pilot program; undercutting future SoCal HOT lanes; the"foreign investment" controversy; new PPP coalition launched; Hutchison amendment threatens HOT lanes; technology responses to road pricing; and other news.

In this issue:


Oregon Mileage Fee: Wave of the Future?

One of the main conclusions of the TRB committee that I served on for two years, investigating the long-term viability of the motor fuel tax as the primary highway funding source, is that the fuel tax is unlikely to retain that status beyond mid-century. Indeed, our report urged state DOTs to aggressively explore and implement tolling and pricing alternatives, so that this country will have plenty of information on what works and doesn't work by the time we have to make decisions on replacing fuel taxes.

One of the most promising alternatives is for all vehicles to pay electronically for each mile driven. Today's electronic tolling, using transponders and gantries, works fine for limited-access roadways, where only a finite number of access points has to be equipped with the antennas and video cameras for tolling and enforcement. The most promising approach suggested thus far for charging for the use of all roads came from David Forkenbroak and Jon Kuhl. In A New Approach to Assessing Road User Charges (2002), they proposed a system using GPS to record miles driven on different categories of roads. Vehicle owners would periodically upload a summary of that information and authorize payment from their accounts.

In November, the Oregon DOT published the results of their one-year pilot test of a version of this concept. The report is Oregon's Mileage Fee Concept and Road User Fee Pilot Program, and you can find it at: www.oregon.gov/ODOT/HWY/RUFPP/docs/RUFPP_finalreport.pdf. Everyone concerned with the future of highway funding should read this excellent report.

ODOT equipped the vehicles of 285 volunteers in the Portland area with on-board GPS units able to record and upload mileage records to gadgets attached to gas pumps at two Portland service stations. Gas stations were involved because the Oregon concept calls for a long phase-in period, during which existing vehicles would continue to pay gas taxes at the pump, and only new vehicles (with factory-installed GPS units) would pay mileage fees. Making the gas pump the collection point for all vehicles ensures that none fall between the cracks. The pilot program ran for a year, starting in April 2006.

Overall, the researchers concluded that the concept is viable, including paying the mileage fee at the pump. They judged the potential for evasion to be minimal and the cost of implementation and administration to be low.

Like Forkenbrock and Kuhl, they devoted considerable attention to the privacy issue, since reporters and poorly informed pundits have already shown a strong tendency to equate GPS with "tracking your vehicle" which equates to heavy-duty invasion of privacy. To begin with, like all other GPS receivers, these onboard units receive GPS signals; they do not send location data back to the satellites. There is no real-time "tracking." Secondly, the Oregon system was designed from the outset such that:

  • No specific vehicle point location or trip data could be stored or transmitted;
  • All device communications from the vehicle unit was short-range only (i.e., to the gas pump);
  • The only data needed to assess mileage fees were vehicle ID, zone mileage totals, and the amount of fuel purchased.

Most users would want some such data to be stored, if only to enable them to challenge an apparently incorrect billing. So there will always be some degree of trade-off between privacy and information storage; the goal is to make this trade-off in a privacy-protecting manner.

The fact that the pilot program worked does not mean ODOT (or anyone else) has all the answers about how a statewide or nationwide shift from gas taxes to mileage fees would be carried out. Given the researchers' conclusion that retrofitting this type of GPS unit to 200 million vehicles in the existing fleet is unworkable, then phased implementation is the only alternative, with existing vehicles continuing to pay the fuel tax while all new vehicles (by law or voluntary agreement) produced after a certain date come equipped with the GPS units. That means something like a 20-year transition period (since that's about how long it takes for 95% or more of the fleet to turn over), during which old and new systems must operate side-by-side.

And there are all kinds of policy questions to be debated in the design of the system. Should all miles driven carry an equal charge? Or should this vary by type of road? Or by time of day and/or level of congestion? What happens to the current incentive to buy fuel-efficient vehicles if gas guzzlers and SMART cars pay the same rate per mile? What about rural drivers, who have to drive longer distances to get to the store than their urban cousins? Can privacy still be well-protected if the charging system gets more complex? What about electric cars that don't ever visit the gas pumps? There are some good discussions of points like these in the report's last chapter, but there will clearly need to be extensive debate and discussion before we can decide if and how to proceed with planning for such a momentous change in paying for highways.

I commend the Oregon legislature for authorizing this experiment, and ODOT for the superb job they've done in analyzing and reporting on it.

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Undercutting Future HOT Lanes in Southern California

The HOV lane situation in southern California gets more confused all the time. As I've reported here previously (Issue No. 46), the feds last summer found Caltrans out of compliance with its HOV performance standards, since quite a few of them are getting overloaded. Caltrans responded in September with some short-term fixes and a longer-term effort that, according to Urban Transportation Monitor, "will more closely resemble a HOV-managed lanes system." As part of this change, presumably Caltrans will be trying to end what John Wolf (Assistant Div. Chief for Transportation Planning & System Management) has called the current "schizophrenic" nature of the system, in which nearly all San Francisco Bay Area HOV lanes are open-access and rush-hour only, while those in the LA area are limited access and full-time. And the Los Angeles County Metropolitan Transporta tion Authority (Metro) is now looking seriously at converting the HOV lanes on several congested freeways to HOT lanes, as is already the declared intention of the Bay Area's Metropolitan Transportation Commission.

At the same time, however, Orange County (an integral part of the overall greater LA freeway network) is going in the opposite direction. The Orange County Transportation Authority is now running a pilot project in which the HOV lanes on SR 22 have been opened up to continuous access, which is so far very popular with drivers. OCTA has talked about doing the same on I-405, SR 57, SR 91, and SR 55—and about applying the HOV restriction only during peak hours. Talk about "schizophrenia."

OCTA's weak case has been bolstered by initial results of a study by two research centers (PATH and TSC) at UC Berkeley, which compared accident rates on northern and southern California HOV lanes and found slightly higher rates on the limited-access ones in the south. But Dave Ragland of UC Berkeley told a September meeting of TRB's HOV Systems Committee and Managed Lanes Subcommittee that "both approaches to HOV access appear safe" and that there does not appear to be a strong correlation between high crash rates and HOV access points. At the same meeting, James Pinero from Caltrans District 12 (Orange County) noted that the SR 22 pilot project has a problem with non-carpool vehicles darting in and out to pass traffic in the adjacent lane.

My overall point is the one I made back in Issue No. 42 when I first wrote about OCTA's plan to open up its HOV lanes: "If [Caltrans and others] think these [HOV] lanes should become HOT lanes in the future, they should be reinforcing in people's minds that these are limited-access managed lanes, accessible only to eligible vehicles and only at designated ingress/egress points." It will be difficult enough to convert limited-access HOV lanes to HOT lanes, without creating a larger constituency of drivers who feel themselves entitled to use these lanes at various places and times. Caltrans needs to over-rule such local foolishness.

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The Foreign Investment Issue

Last year during congressional hearings into the growing use of long-term public-private partnerships (PPPs) for toll roads, the subject of foreign "ownership" (meaning foreign investment in the consortia that win long-term concession contracts) kept coming up as something negative. Likewise in some of the debates over tolling and PPPs in Texas, and—needless to say—in Lou Dobbs' coverage of this issue. Since this issue is unlikely to go away this year, let me offer a few thoughts we should all keep in mind in these debates.

First of all, when it comes to entrusting responsibility for developing, operating, and managing a billion-dollar-scale toll road project, whom would you rather call upon—a company that has only constructed toll roads but never operated them as a business? Or one with a long track record of doing all aspects of the job—design, finance, construction, marketing, operating, maintenance, and expansion/reconstruction? Public Works Financing last October published its annual international survey of PPPs in infrastructure. In the transportation category, the top 20 firms, as measured by the number of concession projects in operation, are all domiciled overseas. Only three U.S. companies made even the top 30—Bechtel, Fluor, and Kellogg Brown & Root, with a handful of projects each.

Second, populist critics like Lou Dobbs have for years been decrying U.S. companies that outsource work overseas, shifting millions or (in aggregate) billions of dollars in investment and jobs to other countries. Yet when his researcher interviewed me on toll road PPPs, and I made the point that enticing foreign firms and investors to put billions of dollars into immovable infrastructure on U.S. soil for very long periods of time should be seen--even by Lou Dobbs—as "in-sourcing" and good for America, those words were left on the cutting-room floor. But it is good for America, as long as the concession agreement protects the public interest, as it should do, regardless of the nationality of the companies involved.

Third, as I predicted about two years ago, the composition of the investment capital going into these projects is becoming more American, as various equity funds get created by the likes of Goldman Sachs, Carlyle Group, and many others. Macquarie Infrastructure Group, one of the oldest such funds, now has 20% U.S. investors, including CalPERS, Fidelity, Putnam, and Blackrock. The newer Macquarie Infrastructure Partners has 47% U.S. investors, including Metropolitan Life Insurance, Northwestern Mutual Life Insurance, the Mid-Atlantic Carpenters Pension Fund, and the Midwest Operating Engineers Pension Fund. Carlyle would not name names, but tells me the investors in their fund are "primarily U.S. public pension funds and also include union pension funds."

Fourth, we are increasingly seeing joint proposals by U.S. and overseas companies, such as the northern Virginia Beltway HOT Lanes project financed last month by a joint venture of Fluor and Transurban, and the stretch of SH 130 in Texas between Austin and San Antonio being developed by a joint venture of Cintra and Zachry Construction.

My hope is that within the next five years, there will be such a large degree of U.S.-based investment and widespread use of joint ventures that the "foreign company" issue will fade away. But I suppose demagogues will keep using it as long as they can.

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New PPP Coalition Launched

This week saw the unveiling of America Moving Forward, a nonprofit coalition in support of public-private partnerships in transportation infrastructure. AMF plans a nationwide education and advocacy campaign to explain the case for such PPPs and to counteract the evident lack of understanding of what these new (to America) mechanisms are all about.

Underwriting this effort is a considerable number of finance, engineering, construction, and legal firms, as well as trade associations. The principal founders, who constitute the group's steering committee, are heavy hitters Cintra, Goldman Sachs, Macquarie, and Transurban. The executive director is my old friend Peter Loughlin, formerly with Koch Performance Roads.

This educational endeavor is much-needed—and long overdue. As I wrote in my December column in Public Works Financing, long-term concessions represent a major paradigm shift from the way we did limited-access highways and bridges in 20th-century America. And paradigm shifts are never easy: they are always resisted by those who are comfortable with and benefit from the status quo (such as stodgy, patronage-dispensing toll agencies; powerful state DOT engineers' unions; and members of Congress used to calling the shots on highway funding). Paradigm-change-resisters usually understand the new paradigm—that's why they resist it. But they rely on the genuine fears of others, based on their lack of knowledge. Filling that knowledge gap and counteracting misinformation from those threatened by the new paradigm is America Moving Forward's market niche. You can read mor e at their new website: www.americamovingforward.org.

Note: If you'd like to read my December 2007 PWF column ("PPPs: A Look Back and a Look Ahead"), it's posted on the reason.org website. Better still, you should subscribe to this outstanding newsletter. Go to www.pwfinance.net and at least obtain the free sample copy offered there, to see how useful and comprehensive this newsletter is.

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Hutchison Amendment Threatens HOV to HOT Conversions

The Omnibus Appropriations Bill signed by President Bush just before Christmas contained what appeared to be an innocuous little provision from Sen. Kay Bailey Hutchison (R, TX). It imposes a one-year ban on putting tolls on existing federal highways in Texas. Since it's almost impossible to toll currently free highways under federal law, and since doing so requires a local referendum in Texas, this measure appeared to be purely symbolic—a nice feel-good response to the populist anti-toll movement in the Lone Star State.

But then the people at TxDOT and FHWA started reading the fine print. They figured out that not only does this measure reverse—for one year, and just for Texas—provisions that have been in place since the 1991 ISTEA reauthorization (such as using tolls to rebuild ailing non-tolled bridges and tunnels on the Interstate system), but it also apparently forbids the conversion of existing HOV lanes to HOT lanes. And a number of such projects are in the planning or implementation process in Texas (as in other states).

Back in 2004-2005, I spent more days than I wanted to in Washington, DC, walking the halls of Congress and meeting with various transportation groups, as debate raged over the specifics of tolling and pricing measures to be included in what became SAFETEA-LU. Although there was lots of disagreement over tolling of existing general-purpose lanes, everybody involved in those debates agreed that converting HOV lanes to HOT lanes was an option all states should have—i.e., that by now there was ample evidence that HOT lanes are a good idea, and states should no longer have to get special permission (and a Value Pricing Pilot Program grant) in order to do such conversions. The idea was that the time had come to "mainstream" such conversions. And that's how SAFETEA-LU left things.

Whether it meant to or not, the Hutchison amendment has now thrown a monkey wrench into efforts already under way to convert HOV lanes to HOT lanes, such as the PPP project on I-635 (LBJ Freeway) in Dallas, and potentially the I-30 express toll lanes (under construction) which are planned to initially open as HOV lanes, with tolling phased in later.

These appear to be unintended consequences of the way the measure was drafted. I hope Sen. Hutchison will support a technical correction to make it clear that her measure applies to not tolling general-purpose lanes, leaving HOV-to-HOT conversions free to proceed, as Congress intended. (Note: for more details on the provision, see Peter Samuel's commentary at www.tollroadsnews.com/node/3338)

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Technology Responses to Road Pricing

All forms of 21st-century road pricing depend on technology. And since there are always people who try to get something for nothing (i.e., to steal service), it's no surprise that there are already technologies being offered to facilitate this quest.

London's congestion charging program, which New York's Mayor Bloomberg hopes to replicate in Manhattan, has spawned what appears to be a thriving business in cloned license plates. The charging system uses about 1,500 license plate cameras to record the plate numbers of vehicles driving within the congestion charge zone of central London. WCBS-TV in New York reported (Nov. 29, 2007) that Londoners can go online, enter someone else's license plate number, and for about $40 receive a counterfeit license plate. When the camera picks up that plate within the charging zone, the system sends the bill to the registered owner of the real plate—and the thief drives for free. WCBS reported that Parliament Roads Minister Robert Goodwill copied down Prime Minister Gordon Brown's license plate number and easily obtained a counterfeit plate bearing that number, to demonstrate how easy it is.

More elaborate plans for nationwide road pricing in the U.K. and elsewhere would rely on GPS, along the lines of the Oregon Pilot Program (see previous article in this issue). Auto Express News in the U.K. last summer reported the existence of a portable GPS jammer being sold under the counter in Europe. The tiny unit plugs into the car's cigar lighter; it jams both the GPS signal and the mobile phone signal used to upload mileage data. Apparently, operating in the black market is costly, since the device carries a GBP700 ($1,400) price tag.

There is also a new device aimed at helping people cope, legally, with London congestion charging. The KenBuster is a small gadget that uses GPS to detect when your car crosses the boundary into the congestion charge zone. At that point, it automatically pays the congestion charge, using financial details you have previously stored with the company (www.kenbuster.co.uk). The point is to avoid the whopping fines levied on those who don't pay promptly or at all. About 4,500 people are fined per day, generating about 31% of the Transport for London's total revenue from the congestion charging system. The KenBuster costs either $100 plus $16/month subscription fee (12 months minimum) or $400 outright, with no additional fees.

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Upcoming Conferences

4th Annual Public Private Partnerships USA Summit, February 4-6, Washington, DC
This event takes place at the Ronald Reagan Building/International Trade Center. Numerous speakers from public and private sectors; I am on the program on Feb. 5th, and Reason Foundation is a conference co-sponsor. Conference hotel is the Willard Intercontinental, across the street from the Reagan Building. To register: www.cityandfinancial.com/pfiam4.

Toll Roads 2008: Successful Strategies for Financing Toll Road Infrastructure Through Public Private Partnerships, Feb. 26-27, Arlington, VA
This event is focused solely on toll roads, and includes many leading experts. I am giving a keynote presentation on the 2nd day. This is World Research Group's 2nd annual toll roads conference. Venue is the Hotel Palomar Arlington. Register online at www.worldrg.com or call 800-647-7600 (or 781-939-2438 if outside the USA).

Workshop on Lessons Learned from Public Private Partnerships for Infrastructure, March 28-29, Los Angeles, CA
This event is cosponsored by the Keston Institute for Public Finance and Infrastructure Policy at USC and the journal Public Works Management & Policy. Papers presented at the workshop will be published in a special issue of PWMP. The workshop will be held on the USC campus in Los Angeles. Details from Richard G. Little of the Keston Institute: rglittle@usc.edu.

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News Notes

Former Virginia Transportation Secretary Joins Reason Foundation. Last month Shirley Ybarra, former Secretary of Transportation in Virginia, joined the Reason Foundation's Washington, DC office as senior transportation policy analyst. Shirley has a distinguished background in transportation, having served as a senior policy advisor to U.S. Secretary of Transportation Elizabeth Dole during the Reagan years and as Deputy Secretary of Transportation in Virginia for four years prior to becoming Secretary. With a background in both aviation and surface transportation, Shirley will be a great addition to the Reason transportation team.

China Further Opens Up to Infrastructure Investment. There is apparently no Lou Dobbs in China, objecting to foreign investment to build up the nation's vital infrastructure. In addition to previous policy that has encouraged private investment in airports and toll roads, the Chinese government announced in December that foreign investors can now invest in the country's electric power grid, ending a monopoly by state-owned companies. The International Energy Agency estimates that China needs to invest $1.5 trillion in its power grid between now and 2030.

Swedish Study Finds Benefits in PPPs. Swedish research institute VTI has released a 60-page report, commissioned by Parliament's Standing Committee on Transport and Communications, assessing long-term PPPs for infrastructure, a subject Parliament will address this spring. According to an English-language summary, it finds that such PPPs have the potential to improve schedule performance and reduce cost overruns. Because the study apparently assumed availability payments by the government (rather than direct payments by users), it concluded that PPPs would not add to infrastructure investment, except during the transition period from today's pay-as-you-go model. (ISSN 0347-6030, in Swedish)

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Quotable Quotes

"When capital comes to the state, we all win, because that means more jobs with good wages and good benefits for the people of Texas. . . . So if someone is willing to come from Chicago or some foreign country and bring capital to the state, we should be greeting them at the border with open arms. The Legislature failed to do this in the last session, and I think that's a mistake that will hurt us long-term in our efforts to attract capital to this state and help build rods that will end the congestion."

--Bill Hammond, CEO of Texas Association of Business, speaking at the 2007 Texas Transportation Forum

"[T]he federal government's role in support of U.S. transportation systems should evolve in coming years. Working with Congress, DOT needs to more clearly define the nature of federal responsibilities. Federal programs supported primarily by gasoline and diesel taxes provide almost half of the highway system capital investments in the U.S., but there are very few national transportation priorities emphasized in these investments. Conversely, a project that utilizes even a small amount of federal funding must satisfy the same federal procedural and regulatory requirements as the most vital national investment. It will be increasingly important in coming years to provide a better focus to the federal government's role, so that overall system performance and safety are improved while simultaneously providing flexibility to state and local governments to achieve their own specific objectives."

--Tyler Duvall, Assistant Secretary for Transportation Policy, U.S. Department of Transportation, interview in TransLaw, Winter 2007.

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




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