Surface Transportation Innovations #103

Surface Transportation Innovations Newsletter

Surface Transportation Innovations #103

Bingaman anti-PPP battle continues, California high-speed rail under fire again

In this issue:

Bingaman Anti-PPP Battle Continues

Despite growing opposition from state DOTs and numerous transportation groups, Sen. Jeff Bingaman (D, NM) continues to defend his trio of anti-PPP measures that are included in the Senate reauthorization bill (S. 1813). Rather than rethinking his position in the face of bipartisan opposition, the Senator repeated his ill-conceived notions in an op-ed piece in the Sunday, May 6 issue of The Washington Post, headlined “Taxpayers Paying for Roads Twice.”

Among the many rebuttable assertions in the piece are the following:

  • That much of the toll revenues from the privatized Indiana Toll Road “go straight to the company’s bottom line”-as if companies that build highways and others that maintain them aren’t also for-profit enterprises.
  • That “the state uses the upfront cash for anything it wants”-neglecting to point out Indiana’s use of the proceeds to fully fund a 10-year highway capital improvement program.
  • That drivers who have “paid for the road with 55 years’ worth of their tolls . . . now essentially have to buy it back”-as if the toll road will not need complete reconstruction, as well as widening, during the 75 years of the long-term concession.
  • That because of the lease, Indiana should lose federal maintenance funds in proportion to the 157 miles of the Toll Road-even though it was getting those dollars as a state-run toll road all along.

Surprisingly, Bingaman ends by expressing support for the private sector to play a role in “building new roads, tunnels, or lanes” such as the HOT lanes being added to the Capital Beltway. What he does not realize is that toll concessions to rebuild and modernize existing toll roads and toll concessions to build all-new capacity are essentially the same thing. Over a span of 50 or more years, major construction or re-construction will be required in both cases, and toll revenues are the best way to pay for major capital costs and ongoing operations and maintenance. So if it’s legitimate for private investors to make a profit on new toll roads, it’s equally legitimate for them to do so on modernizing existing ones.

My Reason colleague Baruch Feigenbaum has written a policy brief explaining what’s at stake on these issues as House and Senate conferees work on producing a consensus reauthorization bill. You can download “The Senate’s Assault on Transportation Public-Private Partnerships” from

A growing chorus of concerned transportation advocates is weighing in with Congress on this issue. Eight of the nine Indiana House members (including all three Democrats) sent a letter to the House leadership of both parties objecting to the Bingaman provisions. The National Governors Association sent a letter to committee chairs Sen. Barbara Boxer (D, CA) and Rep. John Mica (R, FL) in support of greater flexibility for states and against Bingaman’s anti-PPP provisions. Reason Foundation worked with the Bipartisan Policy Center and Building America’s Future on a similar letter to House and Senate transportation leadership. Others actively working these issues include AASHTO, ARTBA, ASCE, AGC, DBIA, IBTTA, the U.S. Chamber of Commerce, and the U.S. Tolling Coalition.

My guess is that Sen. Bingaman had no idea of the depth and breadth of support for transportation PPPs within the transportation and infrastructure community. He seems to have stirred up a hornet’s nest with his ill-considered assault on this critically important tool.

Update: Indiana Gov. Mitch Daniels wrote an outstanding response to Bingaman’s piece, which the Washington Post published on May 10th: “Indiana Didn’t ‘Sell’ Its Toll Road,” which I commend to your attention.

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Fresh Thinking on the Federal Role in Goods Movement

In the last six weeks, two large and very important policy studies have crossed my desk. One, from RAND Corporation, takes a fresh and much-need look at the federal role in goods movement. The second, from the National Cooperative Freight Research Program (NCFEP), looks at alternative ways to pay for a new federal freight infrastructure program. Since trucks on highways play such a major role in goods movement, the scope of both reports is limited mostly to truck freight infrastructure.

“A Federal Role in Freight Planning and Finance” is the 82-page RAND report, written by Sandra Rosenbloom and Martin Wachs. ( After providing some context about the challenges facing the U.S. supply chain network, the authors carry out a thoughtful discussion of what an appropriate federal government role might be. Their starting point is to list what they see as consensus views on policy objectives for a new federal policy on freight:

  • Improve freight planning efforts (at all levels of government);
  • Provide “some” financial assistance to local and intermodal projects with sustainable revenue sources;
  • Condition federal support on specific performance measures;
  • Require supported projects to have substantial user-pay components;
  • Reform regulatory barriers;
  • Respond to situations where the market alone will not yield the best solution.

These are modest and defensible criteria, and are far less grandiose than many freight advocates have put forward recently (thus far, with no success).

Most of the report then sketches out four policy elements of a federal goods-movement strategy that is responsive to these six objectives. The first of these, to which they devote by far the most attention, is a new federal freight capital investment program. Unlike most previous proposals of this sort, theirs is premised on using a sophisticated form of benefit/cost analysis (BCA) to

  1. Determine whether the project makes sense at all (benefits exceed cost);
  2. Disaggregate the BCA to see which stakeholders incur which costs and benefits (and assign costs accordingly);
  3. Determine what portion of the benefits is national in scope; and
  4. Allocate federal funding only for that portion of the project.

They go to some lengths explaining how this might be done, and I agree that such a process makes sense, though I remain skeptical that it could be implemented in such a way as to prevent the kind of earmarking and politicization that we have seen in so many federal surface transportation programs.

Their other three components are equally valuable, but to some extent politically challenging. They are to:

  • Investigate and reform goods-movement regulations (such as bans on longer-combination vehicles and inconsistent truck size and weight standards, even on the Interstates);
  • Encourage and increase user-based pricing (such as truck-only toll lanes and truck VMT fees); and,
  • Improve freight data, information, and agency capacity.

I’m supportive of all three of these, since they would be steps toward a higher-productivity and better-funded goods movement system.

The NCFRP report is a detailed look at “New Dedicated Revenue Mechanisms for Freight Transportation Investment.” It is NCFRP Report 15, researched by a team led by freight experts Tioga Group and available from the TRB website at:

The research team screened a wide variety of possible dedicated revenue sources for highway freight infrastructure improvements, but narrowed the scope down to three: a fuel tax surcharge, a VMT fee, and an increased federal registration fee on Class 4-8 (heavy) trucks. When they got into the mechanics of how each of these could be implemented, and what the implementation and collection costs would be, things got complicated pretty fast.

For example, if you increase the diesel tax across the board and use all the revenue for highway freight infrastructure improvements, then all diesel fuel users would pay, even small trucks and the small but growing share of diesel-powered automobiles that would not benefit from the improvements. So you would need some way for operators of passenger vehicles and small trucks to get refunds. If you instead increase both diesel and gasoline taxes at the federal level, the need for refunds (and the cost of the refund system) grows immensely. There are also many trade-offs in devising a heavy-truck VMT fee system. An increased federal truck registration fee turns out to be the simplest, but fails most tests of being a user charge. Another complication is whether to include or exclude service trucks (tow trucks, cement mixers, etc.), which are not really part of the freight logistics system but pay the same diesel taxes as other heavy trucks.

When they crunched the numbers to compare variants of the three approaches at various scales, they reached some provocative conclusions. Their baseline model involves a target, in each case, of generating gross federal revenue of $5 billion per year. They first adjusted the revenue for behavioral effects, such as some trucks converting from diesel to gasoline to avoid the new tax, and some freight shifting from truck to rail. Then they estimated implementation and collection costs for each variant of each of the three revenue sources (e.g., whether it applies only to the largest trucks, Class 7 and 8, or also to Class 4 through 6, and whether it applies to all trucks, including service trucks).

Some of the findings will surprise most observers. For example, the per-vehicle implementation costs for a dedicated diesel or gas-tax with a truck ID device (to identify those charged the higher rate) is estimated at a (one-time) cost of $100 per truck. That compares with $250 to $500 per truck for an on-board unit for the VMT fee alternatives, but compared to the cost of buying a Class 8 rig, that’s pretty small. Second, the large differences in implementation and collection costs at the $5 billion annual revenue are much smaller when the program is sized to yield $20 billion per year in gross revenue. The report’s Table 61 shows that for the $20 billion/year program size, the difference between net federal revenue and industry cost is 1% for diesel tax with rebates for non-freight vehicles, 2-3% for diesel tax with truck ID units, and between 6% and 10% for the truck VMT fee alternatives. To be sure, the VMT fees cost more to collect than diesel taxes, but this is nothing like the figures the trucking industry has been using to argue against tolling (20 to 30%, based mostly on backward-looking 20th-century data that includes large fractions of old-fashioned cash collection at toll booths).

I don’t have space to go into more of this fascinating report, but I commend both reports to your attention as first-rate pieces of work.

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California High-Speed Rail Plan Under Fire Again

Two new reports from very credible sources have raised serious questions about the new, scaled-back business plan adopted by the California High Speed Rail Authority (HSRA) on April 12th. It significantly down-sizes the project, lopping off the costly and controversial urban sections in the San Francisco Bay Area and greater Los Angeles area, by putting the HSR trains onto upgraded existing commuter rail tracks (at lower speeds) rather than on all-new right of way. That reduces the HSRA’s budget for Phase 1 from the previous $98 billion to “just” $68 billion. The downsized Phase 1 would permit the first trains to operate all the way from Los Angeles to San Francisco by 2028.

The Legislative Analyst’s Office (LAO) came out strongly against the plan, recommending that the Legislature not approve an initial bond issue. The LAO report criticized the proposed funding plan (which assumes greatly increased federal funding, plus investments by local governments and the private sector) as almost entirely speculative. But California cannot make use of its current allocation of $3.3 billion in federal money unless it issues an initial $2.6 billion of the $9 billion in state HSR bonds authorized by the voters in 2008.

A second blow to the HSRA’s credibility came several weeks later, when the Community Coalition on High Speed Rail released the latest in a series of critical reports authored by Stanford University management professor Alain Enthoven and former World Bank official William Grindley. They looked into the HSRA’s projected operating cost (a key factor in the business plan’s alleged operating profit) and found it grossly understated. The plan assumes operating costs of about 10 cents per passenger mile, less than one-fourth as much as the 40 to 50 cents per passenger mile of HSR systems in Europe and Asia. Those costs ranged from a low of 34¢/pass.-mi. in Italy to 50¢/pass.-mi. in Germany and Japan. Grindley told the Los Angeles Times that it appeared that the HSRA’s consultant developed a bottom-up estimate of operating costs, summing as many as 30 components, to reach the 10¢/pass.-mi. figure. But given the real-world costs reported by HSR systems today, that figure lacks credibility.

In response to the poor quality of analysis underlying the current generation of proposed U.S. HSR systems, the U.S. DOT’s Office of Inspector General released an audit report on March 28, 2012: “FRA Needs to Expand Its Guidance on High Speed Rail Project Viability Assessments.” (CR-2012-083) The report points out that the Federal Railroad Administration “has established only minimal requirements and guidance on the information [that] grant applicants must provide to FRA on project viability.” It goes on to discuss the factors most critical to an assessment of economic viability and offers numerous suggestions on how to conduct such assessments in a more rigorous manner. FRA says they fully concur with the recommendations and will produce such guidelines by March of next year. At the very least, FRA should hold off decisions about any new HSR funding until the guidelines are in place and are being followed by applicants for funding.

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Revisiting Housing + Transportation Costs

In recent years, it’s become conventional wisdom among many planners that suburbia has become less affordable than living in more-compact, transit-accessible urban cores. One of the main sources for this idea is periodic reports from the Center for Neighborhood Technology (CNT), which provide data on their index that combines housing and transportation costs. A Washington Examiner headline in March, “Life in the Suburbs: No Longer a Bargain,” was based on the latest of these reports. Despite generally higher housing costs in cities, when CNT combined housing and transportation costs, they found that it was less-costly to live in the city than in suburbia.

That sounds plausible, but several scholars have recently taken a closer look at the data. Commuting expert Alan Pisarski drew on data from the Bureau of Labor Statistics Consumer Expenditure Survey, an authoritative source relied on by economists and demographers. As he put it in a follow-up op-ed in the Washington Examiner, “The BLS survey shows that CNT is just wrong about the sums of housing and transportation costs.” Whereas CNT’s model shows transportation spending averaging 26% of household expenditure, the most recent BLS data (for 2010) put this at 16%–a rather sizeable difference. Here is Pisarski’s summary of household averages for cities compared with suburbs:

City Dwellers Suburb Dwellers
Annual housing cost: $16,000 $17,500
Annual transportation cost: 6,700 8,200
Subtotal: 22,700 25,700
Total household expenditure 44,400 51,000
Percent on housing + transport 51% 50%

Pisarski, who tracks these kinds of numbers over decades, as the author of once-a-decade books called Commuting in America, says the average cost of housing plus transportation has remained stable for a long time at around 50-51% of total household expenditures. He points out that one reason for lower housing expenditure in cities is that only about half of city households are owned (rather than rented), versus 71% owned in the suburbs.

Also weighing in on this subject is Steve Polzin of the Center for Urban Transportation Research at the University of South Florida. In his April 30th Planetizen post, “The True Cost of Driving and Travel Behavior,” he provides some insight into the CNT’s modeling of transportation costs. He contrasts CNT’s estimates of annual household transportation costs–in the $10,000 to $15,000 range–with the BLS numbers, which are under $8,000 for most groups. Using data from household travel surveys plus the BLS numbers, Polzin estimates that the 2010 average per-mile vehicle ownership and operating cost is about 36¢/mi., and based on average overall vehicle occupancy of 1.67, that results in about 22¢/passenger-mile.

How did CNT come up with much higher driving cost numbers? One clue comes from the annual “Your Driving Costs” information from AAA. Their procedure assumes each vehicle is driven 15,000 miles a year, and kept for five years. That leads to an annual cost of $8,946 or 59.6¢/mi., which is 65% greater than what Polzin has calculated, based on the BLS data. So in his post, he digs deeper into how people are actually using automobiles. As he points out, “much of America isn’t driving new cars with high depreciation levels.” Average vehicle retention is up to 71 months (just under six years, not five), and the average age of vehicles in the personally owned fleet is at a record high of 10.8 years. So “Middle America has managed to control personal vehicle expenditure costs, making personal mobility surprisingly inexpensive.”

Polzin goes on to question CNT’s estimate of savings that people would realize by ditching the suburbs, moving to the city, and giving up one of their household vehicles in favor of walking, biking, and riding transit. Most likely, he suggests, a household doing this would give up their oldest, least-valuable vehicle-meaning they would end up shifting a larger fraction of the miles they drive to a more costly vehicle. Moreover, many of those likely to consider such a shift are in low to moderate income categories, whose transportation spending is already below average. These factors would reduce the amount of savings actually realized from such a relocation and change in travel behavior.

As is often the case when you rely on models (as CNT does), the conclusions you reach depend on the assumptions you make. And the more good data you bring to bear, the less you need to rely on questionable assumptions.

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Natural Gas Trucks? Maybe

For the past year, independent oil-man T. Boone Pickens has lobbied for Congress to pass what he dubbed the Nat Gas Act to promote the conversion of trucks from diesel to natural gas. The measure called for tax credits of from $7,500 to $65,000 to convert up to 150,000 trucks (from pickups to 18-wheelers) to natural gas. In addition, the bill would continue a 50¢/gallon alternative fuels tax credit for five more years, plus another tax credit of up to $100,000 apiece for gas stations to install natural gas fueling systems. The bill came to a showdown vote in the Senate in mid-March. After a sponsor dropped the 50¢/gallon fuel tax credit (given that natural gas now costs half as much as diesel), the amended bill failed to garner the needed 60 votes in the Senate. As an opponent of federal energy/industrial policy, I welcomed its defeat.

But the natural gas glut and its resulting low price does seem to be stimulating some degree of truck usage of the fuel. The Journal of Commerce last month reported plans by Clean Energy Fuels to build 150 natural gas refueling stations along major truck routes. The firm already has some refueling stations in Florida and Georgia, and Lakeland, Florida-based Saddle Creek Transportation already has 40 compressed natural gas (CNG) trucks in operation and another 40 on order. In March both Chrysler and GM announced modest programs under which both will produce bi-fuel (CNG and gasoline) heavy-duty pickup trucks. The Chrysler product, a large Ram pickup, will include both two CNG tanks and an eight-gallon gasoline tank; the former allow the pickup to go 255 miles, while the gas tank permits another 112 miles. A major drawback, based on the illustration in the Wall Street Journal article (March 5, 2012) is that the CNG tanks take up what appears to be about 40% of the cubic feet in the cargo bed. That’s because the energy density of CNG (BTUs per cubic foot) is significantly less than that of gasoline. That may be less of a drawback on a Class 8 tractor (for an 18-wheel big rig), but it is a significant drawback for a pickup truck.

Whatever; I’m happy to let the market sort these things out.

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Upcoming Conferences

Note: I don’t have space to list all the transportation conferences going on; below are those that I am (or a Reason colleague is) participating in.

The Future of Federal Highway Finance: Diversions, Deficits, or Devolution?, May 17, Cato Institute, Washington, DC. (Adrian Moore speaking) Details at:

ITS America 22nd Annual Meeting, May 21-22, Gaylord National Convention Center, National Harbor, MD. (Shirley Ybarra speaking) Details at:

14th International HOV, HOT, and Managed Lanes Conference, May 22-24, Marriott Hotel, Oakland, CA. (Bob Poole presenting) Details at:

Getting Georgia Going Leadership Breakfast, May 23, The Georgian Club, Atlanta, GA. (Baruch Feigenbaum speaking) Details at:

OMW: Market, Communication and Policy Trends in Tolling, June 17-19, Fairmont Hotel, San Francisco, CA. (Bob Poole speaking) Details at:

ITE/TRB Urban Street Symposium, June 24-27, Holiday Inn Chicago Mart Plaza, Chicago, IL. (Sam Staley speaking) Details at:

FBT/TEAMFL Transportation Summit, July 12-13, Renaissance Orlando at Seaworld, Orlando, FL. (Bob Poole speaking) Details at:

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News Notes

Reason Foundation Update on Highway PPPs. Each year, my Reason Foundation colleagues and I produce an Annual Privatization Report, covering how privatization and public-private partnerships are being used across an array of government functions. Most of the report is U.S.-focused, but my chapter on surface transportation also includes a global overview, including infrastructure funds, leases of existing toll roads, new-capacity PPP projects, and updates on Managed Lanes. That chapter can be downloaded from:

Are Streetcars a Transportation Mode? Samuel Scheib has written a thoughtful assessment of the recent revival of downtown streetcars in 14 U.S. cities (with many more in the planning stages). He makes a good case that-given their very low speed, low capacity, and conflicts with other uses of the street-they cannot be taken seriously as transportation projects, but should be considered (and assessed as) potential contributors to economic development. (

80 mph Speed Limits on Two Texas Toll Roads. reports that the Texas Transportation Commission last month approved an increase to 80 mph in the speed limit on 54 miles of Austin-area toll roads-SH 130 and SH 45SE. Texas law permits speeds of up to 85 mph on a case-by-case basis, but these appear to be the highest actual speed limits in place in the state. I-35 north of the Austin metro area has a 75 mph limit, compared with 65 or 55 mph within the metro area. The 80 mph limit on the toll roads should enable them to offer time savings as a bypass of often-congested I-35 through the metro area, despite the longer distance (54 miles vs. 43 miles). (

CFR Backs Tolling and PPPs. The Council on Foreign Relations has posted Policy Innovation Memorandum No. 17, “Encouraging U.S. Infrastructure Investment,” by Scott Thomasson. After explaining the worsening status of the nation’s major infrastructure, the author makes the case for PPPs and user fees as a winning combination. Among the near-term recommendations are to give states greater tolling flexibility (especially for Interstate highway reconstruction), to remove the current $15 billion cap on tax-exempt private activity bonds (and permanently exempt them from the Alternative Minimum Tax), to expand the TIFIA program, and to eliminate duplicative federal reviews “by merging them into single-track proceedings.” (

Reason Assessment of TIGER Grants. A critical assessment of the federal TIGER grants program was released by the Reason Foundation last month. Transportation analyst Baruch Feigenbaum found numerous problems with the program including non-quantitative metrics used to evaluate proposals, a seriously flawed evaluation process that often picked lower-ranked projects over higher-ranked ones, and evidence of serious politicization of grant awards. “Evaluating and Improving TIGER Grants” is available at:

Removing Fuel Subsidies Worldwide. Economists know that if government artificially reduces the price of fuel, consumers will use more of it. Yet that is what numerous governments, primarily in developing countries, are doing. The governments, of course, must pay market prices to obtain petroleum-based fuel, and the difference between what they pay and what they sell it for constitutes the subsidy. A footnote in a recent UN Conference on Sustainable Development report says the total worldwide fuel subsidy cost was $409 billion in 2010, citing the International Energy Agency. The Economist, citing the same IEA, puts the amount at only $192 billion for 2010, and says the OPEC countries accounted for $121 billion of that total. Ending those subsidies would be one way to reduce the carbon-intensity of transportation, by providing strong incentives to economize on motor fuel use.

I-85 Toll Lanes Going Strong. Atlanta’s first managed lanes, on I-85, continue to experience high daily usage and continued revenue growth, as of April. Figures from the Georgia State Road & Tollway Authority showed weekday trips now averaging 16,800, 2.3 times the volume of last October, the first full month of operations. The average toll is $1.20 per trip, with higher rates during peak periods. estimates that this is generating about $5 million per year. (

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Quotable Quotes

“One of America’s last hopes to revitalize its crumbling transportation infrastructure is attracting additional private investment. Leasing existing toll roads, known as brownfield public-private partnerships, is one example of innovative financing of infrastructure partnerships. This brings in fresh investment by contractually requiring the private partner-chosen through competitive bidding-to renovate a road, bridge, or tunnel, and to maintain and operate it according to clear performance standards. In return, the private partners gets the toll revenues-just as investor-owned electric utilities are compensated by bill payments in return for maintaining and operating the electricity system.”
-Rick Geddes, “Private Investment for Infrastructure,” Politico, April 5, 2012

“There is a Washington mentality-which I have experienced first-hand-that cannot bear the thought that any highway funds might flow without its ring being kissed first. But territoriality should not block progress. Instead of castigating a state that has vigorously addressed its share of this national problem, senators should encourage innovation and more partnerships with the private sector, where tens of billions of dollars stand ready to be invested, ensuring our nation the strongest possible economic backbone.”
-Gov. Mitchell E. Daniels, Jr., “Indiana Didn’t ‘Sell’ its Toll Road,” The Washington Post, May 10, 2012

“Business plans in the private sector are produced by men and women who have invested, and will invest, their time, intellectual capital, and normally a tremendous amount of their personal financial capital into making the future venture a success. For private enterprises that have outside shareholders, there is also a group of committed investors who press to maximize efficiency and opportunity for the business. Unfortunately, for an enterprise like High Speed Rail that aspires to be treated like a business but run by the public sector, what is missing is a strong personal financial stake in turning a profit. Because of this difference, financial commitments become promises; forecasts become guesses; and statements of facts become estimates. This is due to consultants and managers having ‘no skin in the game.’ Given this tremendous difference, elected officials need to take what is told to them, or provided to them in a Business Plan, with a large grain of salt-and to think through . . . the consequences to the State if the [CHSRA] goes ahead but does not meet its proponents’ financial assertions and expectations.”
-Alain Enthoven, William Grindley, et al., California High-Speed Rail Authority’s 2012 Draft Business Plan Assessment: Still Not Investment Grade, January 27, 2012, p. 62

“A second category for the extractive elite category is the public sector. In some countries, such as Greece, there has been a clear policy of ‘clientelism’ in which the political parties have rewarded their supporters with jobs and benefits that have been funded by the general taxpayer. In the Anglo-Saxon world, public-sector employees now have more-generous pension rights than the majority of private-sector workers. . . . Just as a ship’s hull attracts barnacles, a generous government naturally attracts all kinds of supplicants and subsidy-seekers. If such behavior is unchecked, then eventually the system may grind to a halt.”
-Buttonwood, “The Question of Extractive Elites,” The Economist, April 14, 2012, p. 82

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