Surface Transportation Innovations Newsletter

Surface Transportation News #134

The case for long-term concessions, Abolish the Highway Trust Fund?

In this issue:

The Case for Long-Term Concessions

Long-term contractual arrangements between a state DOT and a consortium of companies to design, build, finance, operate, and maintain a highway, bridge, or tunnel represent a major paradigm shift in how such projects are procured, operated, and maintained. So it’s not surprising that there is resistance to this dramatically different model. Frequently, resistance to a paradigm shift comes from the incumbents in the field in question, which in this case would be contractors and DOTs. But this time the strongest resistance is not from insiders but from outside groups.

I’ve written before about right-wing, populist groups that equate tolls with taxes and make all sorts of misleading or outright false claims about long-term public-private partnerships (P3s). But progressive left-wing groups that are anti-car and anti-highway have also stepped up their efforts to bad-mouth concessions. Most recently, Streetsblog USA ran a three-part series that presented the bankruptcy of the Indiana Toll Road concession company as illustrating “the dark side of privately financed highways.”

On the basis that you can’t fight “something” with “nothing,” I want to commend to you two new overviews of the case for long-term concessions. The first is “The Role of Performance-Based Infrastructure,” by my friend and colleague Bill Reinhardt, editor and publisher of Public Works Financing. It appeared as the lead article in PWF‘s November issue, and is available online at http://pwfinance.net/pwf-blog. Bill begins by illustrating how the politicization of large-scale infrastructure projects distorts resource allocation, leading not just to selecting low-value projects over those that deliver far greater value, but also leading to large-scale deferred maintenance, as politicians prefer to spend limited transportation funds on projects with to ribbon-cutting opportunities rather than ensuring adequate funding of ongoing maintenance-a policy that is far more costly in the long run.

Building on that background, he then explains how profoundly different the incentives are when the same commercial entity that designs and builds the project is also responsible for its operation and maintenance-in effect, acting as its owner/operator. (This is a point that Peter Samuel and I explained in a bit more detail in our 2011 Reason policy brief, “Transportation Megaprojects and Risk.”) Bill concludes with a table from a recent Value for Money analysis showing construction cost savings from projects done as long-term concessions, compared with the Public Sector Comparator -the estimated cost of procuring the project conventionally.

The other new report is “Toll Concession PPPs: Frequently Asked Questions,” which I wrote this fall and has just been released by Reason Foundation. (http://reason.org/studies/show/toll-concession-ppps-frequently-ask) I developed this report by analyzing arguments made against long-term P3s and tolling by an array of mostly right-wing, populist groups active in states where tolling and concessions are increasingly being used, such as Colorado, Florida, North Carolina, Texas, and Virginia. It explains why a toll is not a tax, why long-term P3s are not crony capitalism, why it is not the case that “most of the funding comes from government,” why taxpayers do not bail out the investors in case a P3 project goes bankrupt, etc. Altogether, the paper answers 17 such questions.

In my forthcoming book on 21st Century Highways, I am devoting a whole chapter to the subject of opposition to toll concessions. In that chapter, I note some striking parallels between arguments made by left-wing progressives and right-wing populists. I also discuss the more traditional resistance to this paradigm shift by incumbent players (some construction firms, some state DOTs and their unions, and even some state toll agencies). That traditional resistance seems to be decreasing, as the transportation community itself gains more experience with long-term concessions. That’s why I conclude that the much larger problem is ideological opposition by groups on both the Right and the Left.

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Abolish the Highway Trust Fund?

In a detailed 52-page report, the Eno Center for Transportation has proposed that the federal Highway Trust Fund (HTF) be abolished, with federal transportation spending henceforth coming out of the general fund, like all other “discretionary” portions of the federal budget. That prospect has alarmed much of the highway and transit community, though some anti-highway groups cheered, seeing it as the culmination of their long-standing efforts to break the link between federal highway user taxes and highway spending. “The Life and Death of the Highway Trust Fund” is online at https://www.enotrans.org/store/research-papers/the-life-and-death-of-the-highway-trust-fund.

Eno’s case begins with the ongoing problem that federal fuel tax revenues now produce less revenue than federal spending from the HTF. Given the overall federal budget situation in coming decades, continued general fund bailouts of HTF are not sustainable. In addition to the funding shortfall, the report also objects to the division of fuel tax revenues among transportation modes by formula, and cites problems with allocating funds among the states (the donor-donee problem). It then sets forth three alternatives:

  1. Reduce spending to match revenues;
  2. Adopt a permanent hybrid approach using both general funds and fuel tax revenues; or,
  3. Eliminate the HTF and pay for surface transportation from the general fund.

The report also includes five examples of other developed countries whose national governments all tax motor fuel but derive their surface transportation funding from their overall national budgets: Australia, Canada, Germany, Japan, and the U.K. It concludes that #3 is the best alternative, based in part on the overseas models.

I’m not persuaded by the report’s arguments, for a number of reasons. To make its case, the authors have to reject the users-pay/users-benefit principle. Their discussion of this point argues that the theoretical virtues of this model-creating incentives for highway users to make better choices and for highway providers to invest wisely-are not working out well in practice. While there is definitely merit in those points in the case of today’s fuel taxes, what the authors ignore (as Peter Samuel has pointed out) is the recent growth of toll-financed highway projects and the great success of variable tolling as a congestion solution. The take-away from this is not to scrap users-pay/users-benefit but to shift to a better user fee: per-mile charging. It’s surprising that this alternative gets no attention in the report, given Eno’s prior good work on the subject of mileage-based user fees.

Second, the report far too hastily rejects Alternative 1 (reduce spending to match user-tax revenues). This is ironic, coming from a think tank that strongly favors making infrastructure spending decisions based on things like benefit/cost analysis and other good-government principles. A basic principle of good governance (and good business) is to periodically review all your spending and eliminate those programs and projects with the weakest cases. Surely in a $52 billion highway and transit budget, there is 10-20% that is either poorly justified on the merits or more appropriately done at the state or local levels of government.

Third, the report pretty much assumes that if the federal program were cut back, states and metro areas would not pick up the slack-even though the authors acknowledge that state and local governments have been far more successful in recent years in gaining voter support for increased transportation revenues and spending. Moreover, before 1956, states and localities were responsible for nearly all transportation spending, most of which is not national or federal in nature.

But my biggest problem is with the international comparisons. Three of the five peer countries are federal systems, like that of the United States, where the majority of transportation spending is done by state and local governments, not the national government. So the comparisons of “national” spending are inherently misleading-that term can easily be misinterpreted by readers as the total amount spent in each nation, rather than just the amount spent by its national government. Only Japan and the UK are centralized states, where the national government has by far the largest role.

The comparison also illustrates the peril for highway users in shifting from a users-pay/users-benefit system to one in which the national government funds transportation out of general revenues. The fuel tax does not go away-indeed, it becomes a tax on auto-mobility. In the table below, I provide figures from the Eno report’s Table 3 and the accompanying text to illustrate this point.

Country National Gas Tax Rate ($/Gal.) National Gas Tax Revenue National Government Surface Transportation Spending Ratio of Revenue to Spending
Australia $1.29 $14B $6.3B 2.22
Canada $0.37 $6.6B $6.2B 1.06
Germany $3.43 $24.5B $13.6B 1.80
Japan $2.00 $24.7B $36.7B 0.67
U.K. $3.55 $45B $15.3B 2.94

Note that the spending figures are for all surface transportation funded by the national government, including inter-city rail, urban transit, and highways. So if the ratio in the last column compared highway gas-tax revenue with just highway spending, those numbers would be much higher. As it is, at the national government level, highway users are paying far more in taxes based on their highway use than is being spent on surface transportation by the national governments, except in Japan (most of whose expressways are tolled and hence not funded directly by the national government). In effect, in those peer countries the gas tax has become a carbon tax, singling out highway users for special treatment.

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The Campaign to Make Local Roads Less Car-Friendly

Those promoting transit, bicycling, and walking as an alternative to driving are clever marketers. First, in the late 1990s, came the idea of “Safe Routes to School”-initially a local effort for more sidewalks and bike lanes but upgraded to a federal program in 2005 (your highway user taxes at work). Next came the idea of “Complete Streets,” where every street in an urbanized area should be equipped with sidewalks and bike lanes. The National Complete Streets Coalition began in 2004, and continues to push for federal mandates and funding to accomplish its goals. The more radical version of Complete Streets is “Road Diets,” in which, typically, a four-lane arterial is converted to three lanes-one each way plus a center lane for left turns, and the remaining right of way is converted into bike lanes and wider sidewalks.

And did your community participate Sept. 19th in Park(ing) Day, a “one-day global event where [on-street] public parking spaces turn into pop-up parks”? Both Fort Lauderdale and Hollywood, FL did so, with trendy retailers giving up a parking space to fill it with seats and potted plants. As Dave Barry would say, I’m not making this up! Actually, in nearby Pompano Beach, merchants on a downtown street have rebelled against a recent Complete Streets effort that reduced on-street parking from 100 to 25 spaces, replacing them with wider sidewalks, landscaping, and parallel parking (replacing the former angled parking). Dentists, doctors, and retailers have complained that these enhancements have driven away part of their customer base, who can no longer find a convenient place to park.

One premise behind these efforts is that focusing road spending primarily on motor vehicles is unfair to those who bike and walk instead of driving. I’d have more sympathy for that perspective if there were numbers to back it up. But the 2013 American Community Survey data on commuting found that 82.6% of commuters in major metro areas use cars, and (my guess) at least half of the 8.1% of transit commuters go by bus, which totals close to 87% making use of roadway travel lanes. By comparison, just 0.7% bike to work and 2.8% walk. Numbers for non-motorized commuting in the rest of the country are even lower.

But those facts aren’t stopping the momentum. In September, the US DOT announced that it plans to create a guide to Road Diets that it will distribute nationwide. DOT Secretary Anthony Foxx is picking up where former Secretary Ray LaHood left off in trying to focus more attention on biking and walking, as opposed to driving. At a recent “Pro Walk/Pro Bike/Pro Place” conference in Pittsburgh, Foxx related being hit by a car when he was out jogging, when he was mayor of Charlotte, NC.

Foxx has picked up on a key argument being used to justify more spending on bikeways and sidewalks at the expense of traffic lanes: safety. Even though cyclist and pedestrian deaths both declined over the past decade, state DOTs are being lobbied aggressively to “end the carnage” by adding bike lanes and sidewalks, and implementing Road Diets. A sensationalist piece by city planner Jeff Speck appeared Oct. 6th on CityLab, headlined “Why 12-Foot Traffic Lanes Are Disastrous for Safety and Must Be Replaced Now.” In the piece Speck clarified that his target is not local streets but major arterials-the routes that in many states are designated with state highway numbers and are a critically important part of the overall metro area transportation network-for buses as well as for cars. The basic idea is that collisions between cars and bikes/pedestrians are more serious the higher the car’s speed, and that people tend to drive slower if the lanes are only 10 feet wide–which is true.

But a Road Diet is not the only way to accomplish that objective. A combination of enforcing lower speed limits and appropriate signal timing (whereby drivers obeying the speed limit benefit from rolling greens) can accomplish the same thing without dramatically cutting the capacity of the major arterial. And pedestrian safety can be increased by ensuring that the duration of walk lights is consistent with how much time it actually takes to walk across an arterial of a given number of lanes.

In the wake of Florida being designated by a Smart Growth America report (“Dangerous by Design”) as the least safe in the nation for pedestrians, Florida DOT in September adopted a Complete Streets policy. Exactly what this will mean remains to be seen, but it would seem to me incumbent on a state DOT to ensure that the basic traffic flow capacities of those state highways that are urban arterials are not undermined by this new policy.

Finally, I’m pleased to report that one mayor and city council have fought back against urban planners and reversed a Road Diet decision. Back in December 2013 they had voted to convert, on a trial basis, 3.3 miles of N.W. 8th Avenue in Gainesville, FL from four lanes to two, in order to add protected bike lanes, which was done earlier this year. But Mayor Ed Braddy subsequently questioned planners’ analysis that claimed to show almost no negative impacts on motorists-an increased traffic delay of just 7 seconds. But instead of using actual measurement of vehicle flow during the trial period with just two lanes, the “study” was just a calculation of how long it would take a car traveling at the speed limit to go the length of that stretch of roadway. That ignored the actual bottleneck effect created by trying to accommodate four lanes of traffic in just two lanes. After learning this news, the council voted 4-3 to convert the roadway back to four lanes, but with wider sidewalks, divided between pedestrian and bicycle lanes.

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The Backlash Against Streetcars

When an anti-streetcar candidate was elected to the Arlington County, VA board of supervisors last month, it changed the balance on that body from pro-streetcar to anti-streetcar. And just two weeks later, the two planned streetcar lines, along Columbia Pike and in Crystal City, were cancelled. The two projects would have cost a total of $550 million. As I pointed out to The Washington Post reporter who interviewed me about the situation, that $550 million in transit money could have done a lot more good-i.e., provided a lot more transportation value-by improving the local bus system.

Just two days before, The Post had editorialized against the planned streetcar lines in the District of Columbia, with the headline “D.C. Should Hit the Brakes on Any Streetcar Expansion.” It cited the many start-up problems experienced by the initial 2.2-mile line on H Street, for which the track is in place and testing has begun, noting that the line overlaps well-used Metrobus routes and will also impede travel by buses as well as cars. If the two additional lines currently planned are built, the cost of the three short lines would exceed a billion dollars. Making the same point about opportunity costs that I made to the Post reporter, the editorial asked “whether the District should take on a money-losing operation, given the investments that will be needed in the Metro system.” The city’s new mayor, elected Nov. 4th, has promised to reevaluate the streetcars project.

It isn’t just rail transit critics who are troubled by the recent fad for “modern streetcars.” Urban planner Yonah Freemark has pointed out that most of the streetcar lines opened since 2000 (e.g., Dallas, Portland, Salt Lake City, Seattle, Tampa) don’t even meet the bare minimum of four trips per hour during AM and PM peak times (i.e., once every 15 minutes). As Eric Jaffe noted in a Sept. 3rd piece on CityLab, good public transportation requires frequencies of every 10 or 12 minutes. None of the “modern” ones come close to the historic St. Charles line in New Orleans that runs every 9 minutes during the AM peak, every 8 minutes at midday, and every 10 minutes in the evening.

There is also the question of speed. As Matt Yglesias and Randal O’Toole have both pointed out, since streetcars run in mixed traffic on busy downtown streets, and generally only for a few miles with numerous stops, “many potential riders could sooner reach their destination on foot,” as Jaffe notes.

Streetcar advocates increasingly argue for them based on their alleged economic development benefits. There is very little evidence that streetcars alone can jumpstart economic development of an area, but to the extent that they do provide such benefits, streetcars should be funded not out of transportation budgets but from economic development budgets. For the same $500 million or $1 billion that it takes just to build a handful of short, slow streetcar lines, a city could make major improvements to its bus system: increasing frequencies on popular routes, adding limited-stop express buses, adding more bus pull-outs, equipping more bus stops with shelters, and providing real-time next-bus information at bus stops.

Resources-such as transit budgets-will always be limited. Therefore, it is incumbent on transit planners to get the most transit benefits out of every dollar they spend. “Modern Streetcars” do not do that.

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Upcoming Conference

Transportation Research Board 93rd Annual Meeting, January 11-15, Walter Washington Conference Center, Washington, DC. (Adrian Moore speaking) Details at: www.trb.org/AnnualMeeting2015/annualmeeting2015.aspx

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News Notes

Oregon Seeking 5,000 Volunteers for MBUF Pilot Program. After completing a statewide listening tour about the program, Oregon DOT is in the final stages of preparing for a statewide test of mileage-based user fees. Starting July 1st, individuals who volunteer will be able to choose among several options (including a no-tech one) to have their mileage recorded and billed at 1.5 cents per mile. Participants will receive rebates on their state gas taxes, since the MBUF is intended as a replacement for the state’s gasoline tax.

Transurban to Expand Melbourne CityLink. Australian toll concession company Transurban has signed an agreement with the Victoria government to upgrade and widen the CityLink tollway, which it designed, financed, built, and operates under a long-term concession agreement. The company will finance the $764 million project based on future toll revenues.

Maryland’s First Express Toll Lanes Open This Month. The Maryland Transportation Authority has opened seven miles of recently completed express toll lanes on I-95. No tolls were charged during the first week, to enable drivers to try out the new lanes. They were constructed as part of a $1.1 billion reconstruction of the stretch of I-95 from the I-895 interchange to north of Route 43 in White Marsh. With these lanes opening to traffic, I-95 will have express lanes in operation in Miami (and soon Fort Lauderdale), in northern Virginia south of the Capitol Beltway, and in Maryland near Baltimore. Connecticut DOT is considering express toll lanes for the busiest stretch of I-95 in southern Connecticut, as well.

Indiana Bankruptcy Won’t Hurt P3 Finance, Says Fitch. Fitch Ratings issued a news release last month giving its assessment of the bankruptcy filing of the Indiana Toll Road. In a word, the factors that led to the filing-overly optimistic traffic projections and overly aggressive financing-are not generalizable to highway public-private partnerships (P3s) generally. “Fitch believes the factors that led to Indiana Toll Road’s bankruptcy should not color the prospects for PPPs. PPPs must be carefully crafted to address all stakeholder concerns. When structured well, their use can effectively balance the responsibilities and risk among all parties and maximize public benefits.”

All-Electronic Tolling Coming to New York City. New York’s Metropolitan Transportation Authority in October announced the award, to TransCore, of a contract to replace the tolling system on its Henry Hudson Bridge with all-electronic tolling (AET). The agency operates seven toll bridges and two toll tunnels within New York City; these facilities were developed by the former Triborough Bridge & Tunnel Authority, which was merged into the MTA in 1968.

EPA Backing Off on Ethanol Mandate. Under a program called the Renewable Fuel Standard, the Environmental Protection Agency has promulgated a schedule of annual increases in the amount of non-petroleum fuel that must be sold for use in motor vehicles. But this schedule has run up against two serious limitations: there is very little alternative fuel production other than ethanol, and increasing ethanol above the current 10% limit for gasoline risks damage to motor vehicle propulsion systems. The EPA recently announced a rollback of the RFS, but is coming under pressure from some elected officials and from alternative fuel companies.

Chinese Investors to Help Finance Turnpike/I-95 Link. The Pennsylvania Turnpike has a project moving forward to fill in a long-needed missing link: a direct connection between the Turnpike and I-95. Under an existing federal program, foreign individuals seeking permanent residency in the United States can obtain that, if they invest $500,000 or more in this country. The Turnpike is seeking such investors among wealthy Chinese, hoping to sell them bonds totaling $200 million to pay for nearly half of the $420 million project budget. The Turnpike hopes the lure of permanent residency will enable them to sell the bonds with only a 2% interest rate.

Glow-in-the Dark Pavement Striping in Netherlands. The first roadway illuminated not by overhead lighting but by glow-in-the-dark pavement striping opened in the Netherlands in October. It’s a section of “N329 Road of the Future” near the city of Oss. The striping is done with paint containing a “photo-luminizing” powder, which is activated by sunlight and can then provide illumination for up to 10 hours at night. This initial roadway project is a pilot, but the Minister of Infrastructure has already asked the developer to retrofit other highways with this new pavement striping.

Atlanta HOT Lanes Increasingly Popular. Three years after they opened with considerable negative publicity, the HOT lanes on I-85 in Atlanta are doing a booming business. In its first months, the one-lane-per direction project was averaging only 7,500 trips per day. But the daily average is now around 23,000. In order to prevent congestion, the variable tolls have been increased at some of the busiest times of day.

Union Challenges Croatia Toll Roads Concession. The government’s planned sale of a long-term concession for Croatian Motorways has aroused opposition from the toll collectors’ union. It circulated petitions which appear to have enough valid signatures to require a referendum on the plan. As reported here last issue, the government hopes to raise $3 to $4 billion from the concession.

Waterway User Tax Increase OK’d by House. In a little-noticed vote on Dec. 3rd, HR 647-a bill allowing disabled veterans to create tax-free savings accounts-included a 9-cent/gallon increase in the diesel tax paid by barge operators on the Inland Waterways system. Under current budget rules, the bill had to include “pay-fors” to offset the estimated $2 billion 10-year cost of the bill. The diesel tax increase (to generate $260 million over 10 years) was one of seven sources of increased revenues. Ironically, since the proceeds of the waterways fuel tax are dedicated to the Inland Waterways Trust Fund (and can only be spent on waterways projects), they do not actually offset any general-fund revenue losses.

Correction re TIFIA Losses. Last month’s story on whether federal taxpayers have suffered any losses on TIFIA loans included incorrect information regarding the loan to the Pocahontas Parkway. In the financial workout of that project, FHWA’s TIFIA office ended up accepting the best offer they could get for the TIFIA loan, selling it to an investment fund at 41.5% of its face value. That represented a loss of $85 million, the first (and so far only) loss the TIFIA program has experienced. Nine TIFIA loans have thus far been repaid, and 39 are active. The Pocahontas loss represents 1.1% of its total loan portfolio of $7.474 billion.

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Quotable Quotes

“Congressional reluctance to boost discretionary spending, combined with continued opposition to increasing the federal gas tax, will likely doom the hopes of enacting a multi-year reauthorization bill next year. A six-year reauthorization is considered by transportation advocates as necessary to support long term infrastructure commitments, but its estimated [general fund] price tag of one hundred billion dollars has made even the most convinced among them skeptical about its political and practical feasibility. In the longer term, less dependence on federal aid will also mean a diminished federal role in transportation, with federal aid likely to be focused on preserving and modernizing the Interstate Highway System. For states, greater fiscal independence will mean more flexibility to set their own spending priorities and greater freedom to do away with burdensome federal mandates. It’s a change in the state-federal relationship that advocates of federalism have welcomed as long overdue.”
-Ken Orski, “States Are Assuming More Responsibility for Funding Local Transportation,” Innovation NewsBriefs, Vol. 25, No. 16, Dec. 2, 2014

“It’s difficult, when talking about autonomous cars, to avoid slipping into a sort of techie-utopia: Millions of cars off the road, traffic accidents nearly vanquished, shared cars picking people up and dropping them off, finding a parking spot-a huge source of emissions and wasted time (and brain cells)-largely a thing of the past. This vision relies on what the National Highway Traffic Safety Administration calls ‘level 4’ vehicles: fully autonomous cars that don’t require a driver. Once those are widely available and affordable, we can start to restructure the relationship between humans and automobiles, with more shared vehicles and adjustments to infrastructure that take advantage of automation. ‘Automation could be the catalyst that brings together personal mobility and public transportation,’ said Sven Beiker of the Center for Automotive Research at Stanford. For the more foreseeable future, however, our cars will generally still require an attentive (if not always active) human driver.”
-Owen Poindexter, “Taking Driverless Cars to the Next Level,” GovTech.com, Nov 25, 2014 (www.govtech.com/Transportation/GT-Taking-Driverless-Cars-to-the-Next-Level.html)

“The last decennial census showed, if anything, that suburban growth accounted for something close to 90% of all metropolitan population increases, a number considerably higher than in the ’90s. Although core cities (urban areas within two miles of downtown) did gain more than 250,000 net residents during the first decade of the new century, surrounding inner ring suburbs actually lost 272,000 residents across the country. In contrast, areas 10 to 20 miles away from city hall gained roughly 15 million net residents. The big problem here is this: the progressives’ war on suburbia is essentially an assault on the preferences of the middle class. Despite the hopes at HUD, the vast majority of Americans-even in most cities and particularly away from the coasts-actually live in single-family homes in low-to-mid-density neighborhoods, and overwhelmingly commute by car. If we measure people by how they actually live, notes demographer Wendell Cox, more than 80% of those in metropolitan areas have what most would consider a suburban life style.”
-Joel Kotkin, “The Progressives’ War on Suburbia,” NewGeography.com, Nov. 17, 2014

“The [EU] emissions trading scheme, which covers 12,000 industrial polluters and half of Europe’s total carbon emissions, is at the heart of the EU’s plans-and it is a farce. The market is massively oversupplied with permits, which now trade for little more than €6 ($7.60) a tonne, meaning there is little incentive to ditch dirty fuels. Europe is actually burning more coal than ever.”
-Charlemagne, “The Environmental Union,” The Economist, Nov. 1, 2014

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Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.