Commentary

The Future of Transportation Funding

Four performance-based principles to improve infrastructure funding

A common theme has emerged in discussions of reauthorizing the federal surface transportation program. Besides the much-discussed problem of insufficient infrastructure investment, we also face the serious problem of misdirected investment. This point was made eloquently by JayEtta Hecker of the Bipartisan Policy Center in recent testimony before the Senate EPW Committee (March 11, 2010). This has also been a key theme of the Policy & Revenue Commission (2007), the Mary Peters DOT report on reauthorization (2008), and a number of GAO reports.

In a nutshell, federal highway and transit funding is almost entirely formula-based, with little accountability for results (i.e., projects that actually achieve meaningful performance measures). Moreover, Congress earmarks increasingly large shares of both highway and transit funds for their pet projects, which often rank low on state and local priority lists. The solution put forward by all of the above is to replace some or all formula funding with (1) a performance-based approach, in which (2) mode-neutral funding is focused on (3) truly federal needs. That sounds great on paper, but my purpose here is to take a careful look at this formulation, to see if it would really address the problem.

Let’s look first at the idea of a “performance-based” approach to funding. Despite the dreams of some planners, we are not going to have a national board of wise and disinterested transportation wizards who define a top-down national transportation infrastructure plan and hand out funds only for projects that score highest on some set of performance metrics. I say this after watching a number of developments over the last several years.

SAFETEA-LU created a discretionary grant program called “Projects of National and Regional Significance (PNRS),” which many viewed as a prototype for the performance-based approach. Every single project under PNRS was earmarked by Congress. And when the Mary Peters Department of Transportation created the Urban Partnership Agreement competition, using funding from a number of discretionary programs, outraged members of Congress from cities that did not win insisted on a Government Accountability Office (GAO) investigation and denounced the program in speech after speech.

More recently we have three examples from the Obama administration. The TIGER grants have been lauded by some as examples of “merit-based” selection. But if you look at the announced selection criteria, they are so vague and general that just about any kind of project could and did get selected-multi-modal goods movement, bike paths, streetcars, you name it. There was not a single quantitative transportation performance measure in TIGER. Then there is the Obama administration’s policy change within the Federal Transit Administration (FTA), eliminating a previously required cost-effectiveness hurdle for New Starts funding. This was clearly aimed at permitting locally desired streetcar projects that have, if anything, a negative impact on traffic congestion, to qualify for FTA funding. And there is also the Administration’s all-out support for large federal funding of high-speed rail projects based on no analysis, no outcome measures, and no benefit/cost requirements.

Examples like that make me very anxious about the idea of “mode-neutral funding”-the second plank in this reform agenda. In surface transportation, the only mode that currently generates net user-tax revenues is highways. So proposals for mode-neutral funding mean, in practice, that auto drivers and truckers will be tapped to pay for any number of projects that will not benefit them at all. Hecker was honest enough to acknowledge that this is a problem: “Adopting a mode-neutral approach to new investments will remain extremely difficult in practice as long as most of the funding is coming from one mode.” But she went on to advocate doing so anyway.

This issue raises the question: Whose money is this? For the most part, state DOTs and governors consider the federal highway user tax revenues as theirs, to be returned to their states to help them meet their surface transportation needs. Highway users, understandably, consider these funds as held in trust for their benefit by the Highway Trust Fund. But over the last several decades, the executive and legislative branches of the federal government have come to regard these monies as their own, to dispense as they see fit. While almost everyone still gives lip service to the idea that users-pay/users-benefit is a sound principle for infrastructure funding, that principle is directly at odds with “mode-neutral” funding.

What about creating user taxes for the other modes? How about a 10% transit-user tax and a 10% high-speed rail user tax, with the proceeds used to fund the federal share of those projects? You only need to spend a few minutes playing with real numbers on capital and operating costs to appreciate that such taxes would be a drop in the bucket for those modes. On the other hand, for creating intermodal connections for goods movement (ports, rail, trucking), it would be quite feasible to implement new port and freight-rail user taxes, along with the additional truck user tax that industry is supporting (on condition that all revenues go for goods-movement infrastructure investments).

The third element of the reform agenda is one I support: refocusing the federal program on what is truly federal, rather than state or local. In a forthcoming Reason policy paper, I make the case that interstate commerce and international trade are truly federal purposes, justifying continued federal investment in the Interstate highway system and other national goods-movement infrastructure, on a users-pay/users-benefit basis. If intercity high-speed passenger rail made any kind of economic sense, it, too, would be an appropriate federal purpose. But state highways, local streets and roads, urban transit, sidewalks, bikeways, etc. are decidedly not federal. Yet those calling for sweeping reform have been unwilling to say this, just when we need exactly that kind of line-drawing.

So where does all this lead us? While spelling out a complete revamp of the federal program is beyond the scope of this column, here are several guidelines.

First, we must refocus and narrow the scope of the federal program to truly federal purposes. Second, we should strengthen-rather than undermining further-the very sound users-pay/users-benefit principle. Third, where federal funding does continue, we should insist that all such projects demonstrate a benefit/cost ratio of at least 1.5. And obviously, we should remove rather than increase federal obstacles to tolling, pricing, and public-private partnerships.

A new federal program based on those four principles would be performance-based in fact, not just in rhetoric.

Robert Poole is director of transportation at Reason Foundation. This column first appeared in Public Works Financing.

Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.