Reforming surface transportation funding and financing

Marc ScribnerLand-use and Transportation Policy Analyst

Competitive Enterprise [email protected]

Reforming Surface Transportation Funding and Financing

National Taxpayers Conference: August 21, 2012

Overview

• Problems Facing Current Road Funding/Financing Mechanisms

• Potential Solutions• Massachusetts Case Study• Conclusion

Problems Facing Current Road Financing/Funding• Much of the Interstate Highway System is nearing 50 years in

age• A sizable portion will need to be completely reconstructed

from the roadbed up• Existing transport infrastructure funding mechanisms (e.g., fuel

taxes) are inadequate• Federal fuel tax rates unchanged since 1993• Construction costs have increased• Highway VMT are no longer increasing at past rates• The vehicle fleet is expected to become significantly more

fuel efficient in coming decades• Mission creep

Highway Funding Trends - 1

• About 90 percent of Highway Trust Fund revenue is generated through federal excise taxes on motor fuel that have not been raised since 1993• 18.4 cents per gallon of gasoline• 24.4 cents per gallon of diesel


• As the economy recovers, construction costs are expected to increase as public infrastructure spending must compete more with the private sector for materials and labor

• PB Highway Construction Cost Index outpaces CPI


• National Vehicle Miles Traveled (VMT) peaked in 2004• Rural-to-urban population sorting, along with weak economy,

have made the downward VMT trend even stronger


• Vehicle fleet is becoming more fuel efficient, and is likely to become significantly more so in the coming decades


• Since 1983, a portion of federal Highway Trust Fund revenues are explicitly dedicated to mass transit

• While total FHWA authorizations from HTF account for 80.34%, after subtracting Transportation Enhancements and other non-construction and maintenance spending, core functions are only receiving 68.85% of HTF revenue (FY 2004-2008)

Innovative Revenue Collection – Restore User-Pays• The “user-pays/user-benefits” funding principle should guide

decisions on revenue collection• It offers several advantages over “taxpayer pays” funding:

• Fairness: Highway users benefit from the improvements their user taxes or fees generate

• Proportionality: Users who drive more pay more. Users who impose disproportionate costs, such as heavy trucks, are charged more

• Funding Predictability: Highway use and therefore highway user revenues do not fluctuate wildly in the short-run

• Signaling Investment: Revenue roughly tracks use, which provides policy makers with an important signal as to how much infrastructure investment is needed

Innovative Revenue Collection – All-Electronic Tolling• Advantages to expanded all-electronic tolling

• More direct user-charges and interoperability (E-ZPass)• No toll plazas—no queuing like manual tolls, lower capital

and labor costs, more future construction flexibility• Capture revenue from more fuel-efficient vehicles• Easily track and segregate revenue within facilities• Can implement congestion pricing

• Disadvantages to expanded all-electronic tolling• Up-front transponder cost • Toll lane use depends on current price elasticities of travel

demand and general purpose lane conditions • Administrative costs far greater than those of fuel taxes• Political opposition from powerful trucking interests

Innovative Revenue Collection – Mileage-Based Fees• Advantages to mileage-based fees (VMT fees)

• Most direct link between user and payment• Can charge variable rates across entire road networks, not

merely facilities• Capture revenue from more fuel-efficient vehicles• Easiest to implement comprehensive equity adjustments

• Disadvantages to mileage-based fees (VMT fees)• High up-front costs• High administrative costs• Privacy concerns• Potentially reduces appeal of P3 options• Potential for “double taxation” (not phasing-out fuel tax)

Innovative Facilities Management – P3s• Advantages of the public-private partnership (P3) model

• Avoid new bonding (preserve bond ratings)• Build new capacity with low initial public investment• Reduce general taxpayer burden by charging users

directly• Shift operating/revenue risk from government to private

sector (hedge against future economic, fiscal, and workforce conditions)

• Shift financing risk from government to private sector (hedge against capital market performance, existing state/local debt loads)

• Increase speed of project delivery (avoid budgeting and procurement battles—Allows for concurrent design, right-of-way acquisition, and construction activities)

Massachusetts: A Case Study - 1

• Ranks 29th for highest fuel taxes in the nation (23.5₵, G&D)• Less than half of highway revenue is collected from users• INRIX 2011 Traffic Scorecard: I-93 Northbound in Boston metro

ranks as 15th most congested corridor in the U.S.• INRIX/TTI 2011 Urban Mobility Report ranks Boston metro 9th

most congested urban area in the U.S., costing each peak travel auto commuter $980 a year in wasted fuel and time• Total area commuting congestion cost estimated at $2.2

billion—excludes costs to freight/business trips, which may be another $2 billion

• According to a 2007 survey of toll road “cost-takes,” the Massachusetts Turnpike ranked last in the nation at 79% (Public national average: 42.6%; Private global average: 27.6%)


• Driving and vehicle registration trends will likely worsen existing problems• VMT per capita and per driver has plateaued• The vehicle fleet composition is shifting away from

personal auto and toward heavy trucks


• What to do?• Expand existing FAST LANE electronic tolling network• Convert I-93 HOV lanes to HOT lanes and integrate with

FAST LANE• Northbound HOV lanes suffer from underutilization

(comparing GP and HOV lane throughput)

2009 2010 201162

64

66

68

70

72

E-Tolling in Massachusetts

% Transac-tions% Revenue


• What to do? (cont.)• Authorize transportation P3s. Currently, 33 states have

authorized P3s in some form or another.• Use Virginia’s 1995 Public-Private Transportation Act

as a model• More capacity can be added for less and cost-take

figures can improve dramatically.• 2009 MassDOT consolidation has not improved outcomes

• Strengthening “user-pays” is imperative• Relying on non-user streams is dangerous—need

tolls and increased transit fare box collection• The dedicated sales tax revenue expected by MBTA’s

2000 Forward Funding Financial Plan grew at 1/3 the rate projected

Conclusion

• Federal system is broken—entering a period of de facto devolution

• Adopting innovative revenue collection mechanisms is a must• Reforming institutions sooner rather than later will save time

and money• Relying on non-user revenue increases fiscal risks and

therefore increases inefficient facilities deployment and management• Consolidation/streamlining may not be effective if it

increases potential for cross-subsidization across facilities and modes

Marc ScribnerLand-use and Transportation Policy Analyst

Competitive Enterprise [email protected]

Reforming Surface Transportation Funding and Financing

National Taxpayers Conference: August 21, 2012

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Reforming surface transportation funding and financing