Commentary

Transportation Policy in a New Fiscal Era

Donâ??t mourn Build America Bonds

On December 10th, the big four transportation groups (AASHTO, AGC, APTA, and ARTBA) sent a joint letter to Congress urging the inclusion of Build America Bonds in the year-end tax bill. But to no avail; the provision was not included.

Why these groups thought extending a temporary subsidy program for state and local governments would be continued in the new era of fiscal constraint we’ve entered is beyond me. Over the next 10 years, the $165 billion of BABs issued during the program’s two-year life will add $36 billion to the national debt. Instead of lobbying for ever-larger unsustainable federal largesse, our transportation organizations should be figuring out new policies to sustain and improve our infrastructure in an era when the size and cost of the federal government must shrink, not expand.

The evidence that we have entered a new era is all around us, if we take off the blinders worn by most of those who live and work inside the Capitol Beltway. It’s not just the November “wave” election that dramatically altered the balance of power in Congress. The underlying message of that election is that a majority of Americans see the federal government as over-extended and needing to be scaled back. One of the earliest signs that Congress is starting to get that message is the two-year ban on earmarks in the House and among Senate Republicans. While that will make life a bit harder for some people’s favorite transportation projects, my advice is “live with it,” because that’s only the tip of the iceberg.

A far more important sign of the times is the report from the president’s deficit commission. Transportation interests cheered its call for a phased-in 15 cent increase in federal fuel taxes, but had little to say about its rationale: to completely end any future general-fund bailouts of the Highway Trust Fund. This was a hugely significant recognition by the commission that the users-pay/users-benefit principle makes the Trust Fund different from nearly every other spending category-and that this uniqueness should be preserved.

Of even larger significance is the commission’s bold call (in one scenario) for ending all tax breaks, to make possible a tax system with a corporate tax rate of just 26% (compared with today’s uncompetitive 35%), while streamlining personal rates to just three brackets: 8%, 14%, and 23%. Under that proposal, there would be no more Alternative Minimum Tax, no mortgage interest deduction, and no more tax exemption for municipal bonds. (The Wall Street Journal‘s David Reilly likes the proposal, pointing out that, if anything, profligate state and local governments need less incentive to take on more debt, and noted that if they had to compete more for investors, those governments might “provide investors with better and more timely information.”) While that proposal is unlikely to be adopted any time soon, the fact that it has garnered serious discussion indicates how much the environment in which we must craft transportation policy has changed.

If you doubt that the environment has changed as much as I claim, look at what happened to the attempted Senate omnibus spending bill. Despite being stuffed with such budget-busting pre-Christmas goodies as a billion dollars more for high-speed rail, a half-billion dollar increase in highway funding, another half billion for more TIGER grants, and a quarter billion for more “livability” grants, the measure was defeated.

In remarks delivered December 9th to the National Conference of State Legislatures in Phoenix, transportation consultant Kenneth Orski reflected on what the new fiscal era means for federal transportation efforts. His predictions included the following:

· Reducing or eliminating non-core activities such as “transportation enhancements” and “livability” programs that have little or no national impact;

· Eliminating “executive earmarks” such as TIGER grants (this would be consistent with the ban on congressional earmarks);

· Compensating for the lack of new federal money by empowering states to leverage existing resources via expanded TIFIA, Private Activity Bonds, PPPs, and tolling;

· Curtailing the costly high-speed rail (HSR) program and reprogramming unspent stimulus funds away from TIGER and HSR projects.

I will add to that list a further focusing of the federal highway program on major corridors for interstate commerce-modernization of the Interstates and upgrading selected routes on the National Highway System to Interstate standards. By focusing the federal role and dollars on a more limited portion of the highway system, this change would, in effect, “devolve” responsibility for the rest of the highways to state DOTs, freed from all the costly requirements that come attached to federal aid dollars.

In addition, when crafting the reauthorization bill, Congress should resist calls for “breaking down the silos” of federal funding in the name of multi-modalism. The real agenda underlying such calls is to force highway users to pay for transit, inter-city rail, port dredging, waterway locks and dams, etc. That’s not only unfair to highway users who pay those “highway user taxes”; it would also distort the share of travel and trade using each mode and would very likely further politicize the distribution of funds. It’s also about the worst thing we could do at a time when the Highway Trust Fund cannot even keep up with legitimate highway needs!

So let’s not mourn the demise of Build America Bonds. They are a symbol of the era of fiscal incontinence that we are leaving behind as we turn the page to 2011 and a new era of fiscal restraint. Happy New Year!

Robert Poole is director of transportation studies 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.