Policy Study

The Emerging Paradigm: Financing and Managing Pennsylvania’s Transportation Infrastructure and Mass Transit

In November 2006, Governor Ed Rendell’s Pennsylvania Transportation Funding and Reform Commission identified a $1.7 billion annual shortfall in funding for the Commonwealth’s transportation infrastructure and mass transit services. The Commission suggested an additional $900 million for state highways and bridges, $65 million for local highways and bridges, and $700 million for mass transit is needed on an annual basis to sufficiently meet Pennsylvania’s transportation funding needs.

In order to fill this funding gap, the Commission recommended multiple tax increases, including increases in the gas (Oil Company Franchise) tax, higher license and vehicle fees, and an increase of the Realty Transfer Tax. The Commission also proposed increases in local taxes for mass transit funding, including a higher local sales tax, a higher local Earned Income Tax, or a higher local realty transfer tax.

In addition, the Commission identified $180 million in savings by improving efficiencies ($120 million in highways, $60 million in transit) and recommended the utilization of Public- Private Partnerships (P3s) in both road and transit services. P3s are a means of leveraging private capital and expertise to provide a public service.

Governor Ed Rendell delivered his fiscal year 2007-08 budget proposal to the General Assembly in February 2007 in which he proposed a new 6.17% Oil Company Gross Profits Tax (to generate $760 million in new revenue) to fund mass transit in Pennsylvania, and a possible lease of the Pennsylvania Turnpike to a private contractor to generate $965 million per annum for roads and bridges.

The decision to explore the potential lease of the Pennsylvania Turnpike represents the emergence of a new funding paradigm in transportation. Instead of relying solely on traditional revenue sources-gas and vehicle taxes-state and local transportation agencies are increasingly looking to supplement those sources with private investment through Public-Private Partnerships (P3s). P3s can build new infrastructure, maintain existing infrastructure, and operate existing services, particularly mass transit.

The Emerging Paradigm explores these options for funding and managing Pennsylvania’s transportation infrastructure and mass transit services by considering the P3 experiences of other states and cities. For example, in 2005, leases of two toll roads-the 99-year lease of the 7.8-mile Chicago Skyway and the 75-year lease of the 157-mile Indiana Toll Road-garnered the City of

Chicago nearly $2 billion and the State of Indiana more than $3.8 billion. The upfront payment to Indiana is generating more than $500,000 in interest per day to fund its transportation needs without raising taxes or fees.

Pennsylvania could also utilize P3s in mass transit through “competitive contracting.” Pennsylvania’s two major public transit agencies-the Philadelphia-based Southeastern Pennsylvania Transportation Authority (SEPTA) and the Pittsburgh-based Port Authority Transit (PAT)-are facing a financial crisis. However, the crises at SEPTA and PAT are cost, not revenue-driven. Despite the fact that only 1% of all travel in Pennsylvania is done via mass transit, it receives 25% of all transportation subsidies.

American cities like San Diego, Denver, Los Angeles, San Francisco and Boston, as well as foreign cities such as London, Copenhagen, Stockholm, Melbourne and Tokyo, have successfully embraced “competitive contracting” of transit services whereby private contractors take over the operation of transit services through a contract with the government entity. The City of London has reduced bus costs by approximately 50% since 1985, and Stockholm has reduced bus, subway, and commuter rail costs approximately 20% since the early 1990s.

The experience of the City of San Diego-which has contracted out its bus system-compared to PAT is revealing. If SEPTA would have controlled costs as well as the San Diego Transit Bus System, the 2002 operating costs would have been 57.8% lower ($432.5 million less). And if PAT would have controlled costs as well as the San Diego Transit Bus System, the 2002 operating costs would have been 62% lower ($167.9 million less).

The Emerging Paradigm also explores additional opportunities for P3 utilization in transportation. The report concludes with a discussion about the benefits of P3s and addresses the common concerns about Public-Private Partnerships.

Attachments

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets. Moore leads Reason's policy implementation efforts and conducts his own research on topics such as privatization, government and regulatory reform, air quality, transportation and urban growth, prisons and utilities.

Moore, who has testified before Congress on several occasions, regularly advises federal, state and local officials on ways to streamline government and reduce costs.

In 2008 and 2009, Moore served on Congress' National Surface Transportation Infrastructure Financing Commission. The commission offered "specific recommendations for increasing investment in transportation infrastructure while at the same time moving the Federal Government away from reliance on motor fuel taxes toward more direct fees charged to transportation infrastructure users." Since 2009 he has served on California's Public Infrastructure Advisory Commission.

Mr. Moore is co-author of the book Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry said, "Speaking from our experiences in Texas, Sam Staley and Adrian Moore get it right in Mobility First." World Bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

Moore is also co-author of Curb Rights: A Foundation for Free Enterprise in Urban Transit, published in 1997 by the Brookings Institution Press, as well as dozens of policy studies. His work has been published in the Wall Street Journal, Los Angeles Times, Boston Globe, Houston Chronicle, Atlanta Journal-Constitution, Orange County Register, as well as in, Public Policy and Management, Transportation Research Part A, Urban Affairs Review, Economic Affairs, and numerous other publications.

In 2002, Moore was awarded a World Outsourcing Achievement Award by PricewaterhouseCoopers and Michael F. Corbett & Associates Ltd. for his work showing governments how to use public-private partnerships and the private sector to save taxpayer money and improve the efficiency of their agencies.

Prior to joining Reason, Moore served 10 years in the Army on active duty and reserves. As an noncommissioned officer he was accepted to Officers Candidate School and commissioned as an Infantry officer. He served in posts in the United States and Germany and left the military as a Captain after commanding a Heavy Material Supply company.

Mr. Moore earned a Ph.D. in Economics from the University of California, Irvine. He holds a Master's in Economics from the University of California, Irvine and a Master's in History from California State University, Chico.

Geoffrey Segal is the director of privatization and government reform at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He is also editor of Reason's Privatization Watch.

Segal recently served as an advisor to Florida Gov. Jeb Bush's Center for Efficient Government. In addition, his counsel has recently been sought out by Gov. Mark Sanford and Indiana Gov. Mitch Daniels, where he is working with the Government Efficiency and Financial Planning group inside the Office of Management and Budget. Segal is also an advisor to the Cost Cutting Caucus in the Virginia House of Delegates.

Segal is a highly skilled policy analyst with a strong, diversified background in policy research and project analysis focusing on public-private partnerships, competition, government efficiency, government spending and waste, transparency, accountability, and government performance.

Segal has worked closely with legislators in California, New York, Florida, Indiana, Virginia, Pennsylvania, Georgia, Illinois, Oregon, Kentucky, Ohio, Washington D.C., Colorado, Minnesota, Maryland, Maine, North and South Carolina, Hawaii, Arizona, and Texas in efforts to reduce government spending, improve government performance, and enhance accountability in government programs.

Segal has testified to the United States Senate and numerous state legislatures and agencies. He has written dozens of articles for leading publications including Investor's Business Daily, Atlanta Journal-Constitution, Indianapolis Star, Orange County Register, Los Angeles Daily News, and New York Sun. Segal is also a contributing editor to Budget & Tax News. A frequent guest on television and radio, he has appeared on Fox News Channel's "Your World with Neil Cavuto" as well as CNBC's "Closing Bell w/Maria Bartiromo" and "Power Lunch."

Segal earned a B.A. in Political Science at Arizona State University and a Master of Public Policy from Pepperdine University.