In this issue:
- Will new transportation spending stimulate the economy?
- New models for city parking
- Danger signs on electric cars
- New evidence on the cost of congestion
- Upcoming Conferences
- News Notes
- Quotable Quote
What Kind of Stimulus from Infrastructure Spending?
The name of the game right now, in Washington, DC and at state DOTs around the country, is a big chunk of borrowed federal money to jump-start “ready to go” infrastructure projects, as part of the next economic stimulus bill. There are all kinds of reasons why this is a bad idea, but since it seems likely to happen anyway, trying to stop it is not my aim. But at least let’s try to think clearly about what such a measure will-and won’t-do.
To be sure, due to the recession and the credit crunch, construction of all kinds is in a slump, which means there are construction workers out of work and companies with idle capacity. I suppose it’s better for the government to pay for them to build something useful rather than paying them to dig holes and fill them in again. And we do indeed have a backlog of deferred maintenance in both highways and bridges, and the need for new capacity in various places, both to reduce congestion and to facilitate more efficient goods movement. But how much connection is there likely to be between the kinds of projects undertaken via stimulus payments and high-priority infrastructure needs?
The last time this country had a major debate over the role of infrastructure in the economy was in the late 1980s and early 1990s. One of the main voices in that debate was David Aschauer, who made the controversial claim that public capital investment was more economically productive than capital investment by the private sector (e.g., in new facilities, computers, etc.). Many scholars took issue with his thesis, and indeed the decade of the 1990s witnessed two key trends: an explosion in private-sector productivity thanks to the full integration of computers and the internet into business practice and the continued decline in the productivity of highway investment.
A paper from the end of that era was cited recently in congressional testimony by the National Association of Manufacturers. In 1996 Ishaq Nadiri and Theofanis Mamuneas did econometric modeling to assess the “Contribution of Highway Capital to Industry and National Productivity Growth,” funded by the Federal Highway Administration. Their September 1996 paper found that the level of highway capital (and especially of National Highway System capital) does contribute significantly to economic growth and productivity-but at a much smaller level than in previous studies (such as Aschauer’s). And they found that the impact of private capital investment (in industry) is about four times that of highway capital investment, again, contra Aschauer. But what I found especially interesting was their finding about the marginal benefit of highway investment. Here, they fo und that while it is positive overall, its main benefit is to manufacturing industries (and is actually negative for some service industries). Moreover, like most of the literature, they found that the net social rate of return on highway capital investment was about 35% in the 1950s and 1960s, when the Interstate system was being constructed, but declined to around 10% in the 1980s and since then (up to the mid-1990s, when they were writing this) has converged to about the long-term rate of interest.
As I’ve written elsewhere about similar findings, I don’t agree that this means there is no case for further investment in highway infrastructure. What today’s single-digit return on investment says is that much of what we spend on highways is not targeted to projects that can make a big difference-such as widening truck-clogged Interstate corridors and adding congestion-priced express lanes to gridlocked freeways. Instead, most of it funds lots of small stuff that keeps the wheels turning (and people employed) but doesn’t add much, if anything, to economic productivity.
And that is why I can’t get excited about transportation stimulus bills. Or about significantly increasing the size of the federal program in the next reauthorization bill-without fundamentally reforming how we decide to invest those funds.
New Approaches to City Parking
Market-priced parking on city streets and in parking garages will be a reality soon in four cities: Chicago, New York, San Francisco, and Washington, DC. It’s an experiment in the latter three, but will be permanent in Chicago, thanks to a different method of implementation.
The theoretical inspiration for market-based pricing comes from UCLA professor Donald Shoup, author of The High Cost of Free Parking. Shoup has pointed out numerous ways in which cities subsidize parking: arbitrarily high building code requirements for parking spaces that developers must provide, “free” parking in many places with high demand, and below-market rates for most meters and city-owned lots and garages. Shoup has documented how below-market rates lead to nearly all spaces being full, causing drivers to cruise around endlessly looking for a space, congesting the streets, wasting fuel, and polluting the air. But parking meters themselves are unpopular with motorists, and raising rates is even less popular. Consequently, rates often aren’t increased for decades at a time.
Chicago has just privatized its thousands of parking meters, leasing them for 75 years to a consortium of LAZ Parking and Morgan Stanley for $1.15 billion. The move follows the city’s leasing of its parking garages earlier this year. Current rates range from 25 cents/hour in some neighborhoods to $3/hour in the Loop downtown. Over the next five years, most of those rates will more than double, and will be adjusted thereafter by at least the rate of inflation-with congestion pricing as another possibility.
Chicago’s chief financial officer told the media that 70% of the meter rates have been the same for 20 years, and that “Charging market rates makes great sense in terms of making available spaces for small businesses.” A reporter asked Mayor Richard Daley, “If charging market rates makes such good sense, why didn’t the city do that itself?” His answer speaks volumes: “Well, many times, people were afraid to do it.” Critics of privatizing toll roads have disparaged this as “the outsourcing of political will,” but in my view that is one of the real strengths of such deals. A city council or state legislature needs to have political courage just once, to approve legally enforceable lease terms. And thereafter, pricing will be driven by the market.
That’s a very different model from what is being pursued in New York, San Francisco, and Washington, DC. In all three, the move to higher and more flexible parking meter rates will be pilot programs, applying only to certain neighborhoods and only for a few years (18 months in San Francisco). So if significant political backlash develops, those projects could well be terminated. All four cities will get sophisticated new parking meters as part of the deal, which can not only charge variable rates but also accept credit cards and other non-cash forms of payment.
I’m pleased to see these important moves toward market-rate city parking. And I hope the non-Chicago ones survive their initial trial periods (though I’m skeptical).
Progress and Mis-Steps on Electric Cars
I continue to be enthusiastic about the potential of plug-in hybrid cars as the most likely winner in the quest to develop a viable alternative to the petroleum-fueled internal combustion engine. But I’m also concerned that in their enthusiasm for this concept, some governments may end up doing harm.
First, let’s recap a few salient facts about the potential good fit between electric utilities and cars with efficient rechargeable batteries (such as lithium-ion appears to be). One recent study by the Electric Power Research Institute and the Natural Resources Defense Council found that 60% of all cars and light trucks (if electric powered) could be recharged with only a modest 8% increase in national electricity consumption. That change would reduce CO2 emissions by 450 million tons per year, the equivalent of taking 82 million petroleum-fueled cars off the road.
But those huge gains come about only if the cars are recharged at night, when demand for electricity is low but base-load power plants continue operating. Base-load plants have the lowest operating costs, in comparison to peaking plants (like gas turbines) that are switched on to handle the peak demands caused by afternoon air conditioning loads. Reinforcing the point is a study by the Pacific Northwest National Laboratory, which found that 73% of all light vehicles could be recharged with the existing electricity infrastructure-if the recharging took place at night.
Now for the cautionary part. Over the last few months I’ve been seeing reports of companies and government officials announcing grandiose plans to build public electric-car recharging stations all over the place. In July the mayor of San Jose announced a partnership with startup company Coulomb Technologies to install charging stations on city light poles. Last month a much bigger startup, Better Place, announced plans for a $1 billion network of recharging stations throughout the San Francisco Bay Area, plus a couple hundred centers where people could switch an old battery for a new one. And on Dec. 2nd, Hawaii Gov. Linda Lingle announced a deal with Better Place for 70-100,000 public charging stations in that state.
To be sure, if the electric utilities can get the OK of their regulators to charge premium rates for electricity dispensed at such stations during peak periods, the harm would be much less (as would the attractiveness of recharging in public, rather than overnight at home). And in any case, the whole effort by the electricity industry to move into automotive propulsion depends critically on their timely introduction of smart meters, capable of charging variable rates. Using cheap base-load electricity to recharge overnight is expected to be much cheaper than buying the comparable amount of gasoline, so the auto companies and electric utilities both have a strong incentive to maximize the extent of overnight recharging.
A major shift to electric cars that recharge during the day will require a large-scale expansion of the electricity industry, while making that shift with overnight recharging is almost a free lunch. Let’s hope the environmental community figures this out and starts opposing green-sounding plans for huge numbers of public recharging stations.
Cost of Congestion: Twice What You Thought
I have several times cited U.S. DOT Chief Economist Jack Wells’s estimate that the nationwide cost of traffic congestion is about double the commonly cited figure of $63 billion per year from the Texas Transportation Institute (TTI). The latter number estimates only the value of time people lose sitting in traffic and the excess fuel burned due to stop and go conditions. Other costs-to businesses and to regional economic productivity-are not included. So people continue to have a misleading sense of how damaging traffic congestion really is.
That is starting to change, as business groups and others fund more detailed studies of specific urban areas. The one that crossed my desk most recently was done by HDR Decision Economics for the Metropolitan Planning Council of Chicago. “Moving at the Speed of Congestion” estimates the annual cost of congestion in that region at $7.3 billion, which is nearly double the $4 billion estimate in the 2007 Urban Mobility Report from TTI.
The very readable summary report is nicely produced and easy to digest. It summarizes the main findings in everyday language, but also provides details for us policy wonks on how the various numbers were derived. Included in the $7.3 billion, for example, is $1 billion per year in freight costs, which reflects only the impact of reduced speeds during travel. Another related cost is $160 million in added logistics costs, due to less-efficient strategies such as larger inventories and the need to include buffer time in scheduling and equipment decisions. (See www.metroplanning.org/cmadocs/MPCreport_movingatthespeedofcongestion.pdf)
The study also provides a lot of interesting detail on where congestion happens in the region, both by county and by type of roadway. It turns out that congestion there is about as bad on arterials as it is on expressways (except within the City of Chicago).
Having a realistic assessment of the annual cost of congestion provides something of a benchmark for how much it might be worth spending on meaningful solutions. As the conclusion notes, “Even if we spend $1 billion [per year] today to solve regional congestion, we’ll still be ahead by $6.3 billion.”
Business and civic leaders in other congested metro areas should be funding studies like this one. People won’t support large-scale efforts to seriously reduce congestion unless (1) they understand how much it’s really costing, and (2) they come to see it as a solvable problem, not something obnoxious like bad weather that we must simply learn to live with.
I don’t have space to list all possible transportation conferences of interest; those listed here are only ones that a Reason colleague or I will be speaking at.
IBTTA Transportation Finance Summit, Washington, DC, Dec. 7-9, 2008, Fairmont Hotel. Details at www.ibtta.org/Events/eventdetail.cfm?ItemNumber=2889.
Transportation Research Board Annual Meeting, Washington, DC, Jan. 11-14, 2009, three hotels. Details at www.trb.org/meeting/2009/default.asp.
3rd Annual National Conference on Toll Roads, Washington, DC, Feb. 26-27, 2009, Washington Marriott. Details at www.worldrg.com/tollroads.
Traffic Congestion Hits Trucking, Too. The trucking industry’s research arm, American Transportation Research Institute, estimates that in 2004 truck drivers lost 243 million hours due to traffic congestion. That equates to over 88,000 full-time drivers, each doing 2,750 driving hours per year. As congestion worsens in coming years, by 2014 it will cost the industry an additional 77 million lost hours, and the equivalent of another 28,000 full-time drivers. (Source: Traffic World, Aug. 25, 2008, p. 6)
Portugal Moving to Electronic License Plates. At the end of summer, the Portuguese parliament approved legislation to require a transponder chip to be included on all auto license plates starting by mid-2009. In addition to electronically encoding the information seen visually on the plate, the device will also be usable for electronic toll collection. It is part of the government’s plan to start charging tolls on those motorways which until now have not had tolls, the SCUTs. These are motorways developed with “shadow tolls,” which the government can no longer afford to pay.
Another Source of Truck Pollution. According to the Environmental Protection Agency’s SmartWay program (a partnership with shippers and truckers), the average tractor-trailer rig idles for about eight hours per day for at least 300 days per year. At about 0.8 gallons per hour, that uses 1,900 gallons of diesel fuel per truck per year. SmartWay is promoting the use of auxiliary power units (APUs), as on airliners, to keep vital systems (like air conditioning at truck stops) running with much less fuel use than required when the truck’s diesel engine is running.
Michigan Looks at PPPs. Michigan’s Transportation Funding Task Force, created via 2007 legislation, issued its report last month. After documenting the huge funding gap facing the state, its menu of options includes public-private partnerships for “toll-financed reconstruction, expansion, or new construction of freeways.” PPPs scored quite high on such factors as long-run sustainability, relationship between paying and receiving benefits, funds remaining in the transportation system, and ability to leverage other funds.
Updates and Corrections from Last Month’s Issue. Alert readers pointed out a couple of glitches from Issue No. 61. In the article on energy and emissions across modes, I erred in reporting that the Toyota Prius scored best in terms of carbon emissions per passenger mile, at 0.26. Heavy rail actually did slightly better, at 0.25. Another reader noted that I used the term “fast-drying” in reference to the concrete used in the Caltrans rapid-repair projects. In fact, he tells me, “concrete doesn’t ‘dry’ when it gains strength; it ‘sets’ or ‘hydrates’.” I’m happy to set the record straight, for all you other pavement geeks out there.
“Deregulation in transportation was the spark that made supply chain management and hyper-logistics management really possible. It made the ground fertile. Suddenly there was this tremendous freedom for the service buyers to line up all of the elements that they needed. While that was going on the United States became enormously more dependent on the rest of the world for buying and selling. I don’t think we could have gotten there without deregulation.”
–Bruce J. Carlton, President, National Industrial Transportation League, Traffic World, Nov. 10, 2008.