• The anti-highway infrastructure plan
• New report shows U.S. lags in infrastructure finance
• U.S. also lags in P3 transportation projects
• The case against a truck VMT tax
• Will Congress enact autonomous vehicle legislation?
• Misleading critiques of revised traffic handbook
• News notes
• Quotable quotes

The Anti-Highway Elements of President Biden’s Infrastructure Plan

Some transportation groups remain optimistic about the $115 billion devoted to “roads and bridges” in President Joe Biden’s $2.3 trillion American Jobs Plan (AJP), but I am reluctantly concluding that, given the proposal’s overall price tag and priorities, this is more of an anti-highways proposal than an increase in needed investment in America’s aging highways.

Initial clues were provided in a March 18 Associated Press story, “Buttigieg: Biden Plan Will Usher in a New Transportation Era.” In the opening paragraph, Transportation Secretary Pete Buttigieg was quoted saying the plan offers a “once in a century opportunity to remake transportation in the United States, where cars and highways are no longer king.” Further on, Buttigieg noted that while we do need to fix aging roads and bridges, “there are some things that need to be reduced…sometimes roads need to go on a diet.” And Buttigieg added, “Sometimes we do need to add a road or widen one. Just as often, I think we need to subtract one.”

When the details of the Biden administration’s American Jobs Plan were subsequently released, we got some specifics on how the $115 billion for roads & bridges would be allocated:

• $50 billion for “fix it right” road modernization, to fix 20,000 miles of highways and roads. At an average of $2.5 million per mile; that would repave quite a few city and county roads but only a few miles of urban Interstates.
• $40 billion for a bridge investment program, somehow divided among the 10 most economically significant bridges needing replacement (most likely all megaprojects) plus 10,000 small bridges. Note that the major projects would lend themselves to toll-financed replacements, which will be off the table if the federal government hands out ‘free’ general-fund dollars for those projects.
• $5 billion for “community transportation block grants,” so far undefined, but potentially “complete streets” or local “road diets.”
• $5 billion for “transportation alternatives,” which means sidewalks, bike paths, etc., not roads or bridges.
• $10 billion for a new “carbon reduction bonus program,” undefined but it could well reward projects aimed at reducing vehicle miles of travel, as is being attempted in California.
• $5 billion to continue the existing Congestion Mitigation and Air Quality Improvement (CMAQ) Program grants for congestion reduction and air quality.

Hence, actual investment in better roads and bridges is really only $90 billion, just 4 percent of the overall infrastructure plan’s price tag, which is being widely marketed to taxpayers as a serious effort to fix America’s aging highways and bridges. And not a dime of that money would come from highway user payments.

And that’s not all that’s worrying. Under a separate heading of “Restore and Protect Thriving Communities,” the plan has $15 billion for “Highways to Neighborhoods.” That does not mean building highways to get to neighborhoods. Rather, as Jeff Davis explained in Eno Transportation Weekly, “From the sound of the fact sheet, this revolves around tearing down highways and restoring older neighborhoods, or possibly covering highways in some areas to allow more connectivity.”

Then there is the plan’s much larger spending on transit and passenger rail than on highways and bridges. The transit portion of the American Jobs Plan totals $110 billion and intercity passenger rail would get another $80 billion, totaling $190 billion. The plan’s rationale for this is that traveling on rails is environmentally friendly, compared with highways. For example, in Portland where toll-financed widening of parts of I-5 and I-205 is being planned, Aaron Brown of the “No More Freeways” group summed up this approach by telling a local reporter, “Public transportation isn’t cheap, but it actually will solve all our climate goals and congestion goals and our air pollution goals.”

Unfortunately, U.S. transit projects have never led to reduced roadway congestion, and the idea that highways are inevitably pollution generators is false, given the coming electrification of the vehicle fleet (a major emphasis of the Biden plan). As Eno’s Jeff Davis wrote after such claims were made at a recent high-speed rail hearing:

“There was much discussion of how high-speed rail would lower emissions by taking cars off the road for intercity trips over the next 50 years. [But] the key [unasked] question is, what assumptions were made about the average emissions per mile of cars on the road in 2030, 2040, and 2050? If the Biden Administration is successful in its quest to get most internal combustion engines off the roads, decades before anyone as recently as two years ago thought possible, doesn’t that mean those estimates of emissions reductions attributable to HSR are meaningless?”

My final point about the Biden administration’s American Jobs Plan not being a highways-friendly plan is that it completely ignores the 2019 Transportation Research Board Consensus Study Report, Renewing the National Commitment to the Interstate Highway System. This 596-page report, asked for by Congress, documented the deterioration of the underlying pavement on much of the system, its numerous bottleneck interchanges, its horribly congested urban corridors, and the lack of enough lanes for likely growth of long-distance truck traffic in some corridors. The report’s bare-bones estimate of the cost of rebuilding and modernizing our most important and valuable highway resource—the Interstate Highway System—was $1 trillion over the next two decades. Yet nowhere in the Biden administration’s $2.3 trillion infrastructure plan is there any mention of this report and the need for major investment in the Interstate system, essentially to build it back better.

Fortunately, the American Jobs Plan is only a proposal and it can still be improved by Congress and the Biden administration. As the saying goes, the president proposes and Congress disposes. Our only hope may be that either in the upcoming surface transportation reauthorization bill or in a better-focused infrastructure bill, Congress and the administration will begin to take the country’s needs to improve major highways and bridges far more seriously.

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New Reason Foundation Report Shows U.S. Lags in Infrastructure Finance

Many of us in the transportation sphere too often conflate the terms funding and finance when it comes to transportation infrastructure. Funding refers to how a project is paid for (e.g., fuel taxes or tolls), while finance refers to how to obtain the capital investment needed. When most people buy a home, they finance the deal rather than paying in cash. Typically, homebuyers put in some actual money with a down payment and borrow the rest via a mortgage.

It’s the same with infrastructure finance. In the private sector (utilities and railroads) or with public-private partnerships, investors put in equity and cover the majority of the up-front investment via debt (e.g., revenue bonds). Economists and financial analysts explain that for long-lived infrastructure, financing makes good sense. By raising the capital upfront, the project gets built now and its benefits are enjoyed by those who pay as they use it over its long life.

Alas, the United States lags most other developed countries in using long-term financing for major infrastructure projects, such as airports, highways, seaports, and other transportation facilities. Reason Foundation’s Annual Privatization Report 2021—Transportation Finance provides the details. The report, which annually reviews major infrastructure investment fund deals and trends, will be published this Wednesday, but we’re making it available today for readers of this newsletter.

Despite the COVID-19 pandemic, the global infrastructure investment fund industry had a banner year in 2020, raising $103 billion, the second-highest total ever. The report shows the 20 largest greenfield public-private partnership transportation projects financed in 2020, only one (John F. Kennedy International Airport, Terminal One) was in the United States. That’s mostly because many other countries have privatized major infrastructure and/or used long-term public-private partnerships (P3s) far more widely than the United States has.

Until recently, most of the infrastructure funds (about 35 percent of which are based in the United States) were “closed-end,” typically with a 10-year life. But the Annual Privatization Report—Transportation Finance discusses the recent rise of longer-term, open-ended funds whose growth has been a good fit for public pension funds, insurance companies, and other long-term investors who need to match their long-term liabilities with long-term, sustainable revenue streams.

The report also documents the growing trend of U.S. public-sector pension funds investing in P3 and privatized infrastructure. These pension funds seek to invest equity in alternative investments, hoping to increase the average rate of return on their investment portfolios. It’s not possible to invest equity in a public-sector airport or toll road, but the special-purpose vehicle (SPV) created by private developers of P3 toll roads and airports seek equity investors. Australian and Canadian pension funds have been investing in such infrastructure worldwide for several decades, but this is still an emerging phenomenon in the United States. The report provides specifics.

A number of tables in the report provide specifics on funds, companies, and projects that are being financed. Table 9 is a recap of U.S. public-private partnership transportation infrastructure projects, with details on how they have been financed. Overall, there have been 17 revenue-risk toll projects and nine availability-payment highway projects, contrary to the view that availability-payment (AP) projects are the wave of the future. The table shows significant differences in financing, with a much larger share of state funding (averaging 37 percent) in the AP projects compared with just 14 percent in the revenue-risk projects. And as you, therefore, might expect, the equity investment in revenue-risk projects averages 29 percent compared with only 6 percent in AP projects. Hence, revenue-risk investors have significantly more skin in the game.

Finally, a significant takeaway from the Annual Privatization Report 2021— Transportation Finance is that U.S. pension funds and insurance companies would benefit if there were a lot more U.S. public-private partnership infrastructure projects in which they could invest equity. Unfortunately, we have yet to see U.S. public pension funds speak out in favor of policy changes that would lead to more U.S. P3 projects—such as eliminating the federal cap on tax-exempt private activity bonds and overcoming political opposition to the use of tolls in state P3 legislation.

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New Report Finds the U.S. Also Lags in P3 Transportation Projects
By Baruch Feigenbaum

Much of the recent political discussion has been about the need to repair and modernize America’s transportation infrastructure. But, as with many issues, there has been significantly less discussion about how to properly procure and manage long-term infrastructure.

One available option is to increase the number of long-term public-private partnership projects, which continue to grow in other countries. As Reason Foundation’s Annual Privatization Report 2021—Surface Transportation, another section of the annual report we’re making available today for this newsletter’s subscribers, shows, the U.S. did not have any of the world’s 10 largest transportation P3 projects last year. The report examines international trends in surface transportation public-private partnerships, P3-related legislative activity at the state level across the United States, and the federal government’s impact on state governments’ ability to use P3s. It also outlines why we can optimistic that public-private partnerships can generate a lot of the investment needed to reconstruct and modernize aging Interstate highways.

In 2020, four public-private partnership projects with a value of over $1 billion reached financial close, including two of them in Germany. Seven of the 10 largest projects were availability payment public-private partnerships. And four of the largest P3s were mass transit projects.

While French Guiana (population 294,000) and Kazakhstan (population 19 million) are procuring highways through public-private partnerships, state and local governments in the United States (population 328 million) are not tapping the potential of P3s. In fact, for the 2020 fiscal year, there was not a single public-private partnership project valued at $100 million or more in the U.S. that reached financial close. While the COVID-19 pandemic and related federal stimulus funding certainly made 2020 a unique year, the fact remains that the U.S is far behind most of the rest of the world in transportation P3 activity.

In addition to a lack of projects, there was also only one major P3-focused bill introduced in the United States. And that bill, legislation in Pennsylvania that would have allowed counties and cities to procure their own P3s, failed. Further, only three states proposed long-term public-private partnership concession projects.

The Pennsylvania Department of Transportation proposed a $2.2 billion Major Bridge P3 Program to replace 11 aging Interstate bridges, partly modeled on the state’s Rapid Bridge P3 that led to the replacement of more than 500 smaller bridges. The state’s plan to use tolling to finance the reconstruction has led to opposition in the legislature.

Elsewhere, the town of Popps Ferry, Mississippi, proposed replacing an aging bridge via a public-private partnership. And Georgia has shortlisted proponents for the State Route (SR) 400 express toll lanes, the state’s first public-private partnerships, and the first of several planned P3 managed lane projects in the Atlanta suburbs.

Beyond COVID-19, I think there are four reasons why public-private partnership transportation activity is lagging in the United States. First, much of the low-hanging fruit in a few states has already been picked. States with the most workable P3 authority have entered into deals for some of their best projects. For example, Virginia has built or is building, managed lanes, most via P3s, on almost every freeway in Northern Virginia and several freeways in the Hampton Roads area. Similarly, Florida has built a number of P3-managed lane projects. These states can and will enter into more public-private partnerships, but some of the most attractive projects in states with the best public-private partnership laws may have already been completed.

Second, and a bigger factor, many states don’t have workable public-private partnership laws. While 36 states, Washington, DC, and Puerto Rico have P3 authority for transportation projects, full public-private partnerships have been implemented in only 11 states, Puerto Rico, and by the Port Authority of New York & New Jersey. It’s not that the other 25 states and D.C. don’t have multiple potential P3 projects. Instead, the existing laws give preferential treatment to government projects or contain obstacles that disincentivize the private sector. In many states, it is critical that policymakers reform state public-private partnership laws to tap the potential of these projects.

Third, the U.S. has struggled to make mass transit public-private partnership projects successful. Since mass transit projects are subsidized, they must be procured via availability payments. And that kind of P3 does not bring new revenue to the table. But using a P3 for a transit project still has benefits, including, if written properly, risk transfer and assured long-term maintenance. Given that transit projects are more likely than highway projects to be delivered late or over budget, this risk transfer is a real benefit to taxpayers and governments. Unfortunately, both of the country’s existing transit P3s have struggled.

The FasTracks Eagle project in Denver suffered from technical problems with the commuter rail lines that had nothing to do with the public-private partnership structure. Meanwhile, the Purple Line in Maryland suffered from a poorly designed contract that hamstrung both the state and private sector. Other countries have built successful mass transit P3s. In fact, public-private partnerships are how the majority of the world’s new transit projects are being developed. There is no reason why American cities and states cannot create mass transit P3s that work for taxpayers and the private sector.

Finally, federal policy limits the incentives states have to enter into P3s. Many P3s make use of Transportation Infrastructure Finance and Innovation Act (TIFIA) loans. While recent surface transportation bills have provided adequate project funding, the U.S. Department of Transportation has turned what is supposed to be a check-the-box procedure into a de-facto discretionary grant process. Given that projects eligible for TIFIA loans are required to have two investment-grade credit ratings, USDOT does not need to make project sponsors jump through bureaucratic hoops. Some sponsors have forgone loans rather than go through the process. Congress should insist TIFIA revert back to its original purpose.

For public-sector projects, the U.S. has a robust tax-exempt municipal bond market. To level the playing field, Congress authorized tax-exempt private activity bonds (PABs) for surface transportation in 2005. However, the $15 billion lifetime cap has been reached. It is critical that Congress either eliminate the cap or raise it to a minimum of $45 billion to allow eligible public-private partnership projects to use private activity bonds.

Most importantly, Congress needs to allow states to toll more of their Interstates as part of the necessary rebuilding and modernization effort. Toll concession P3s provide a funding and financing tool. Yet, these P3s are largely limited to new capacity because of a federal ban on tolling existing lanes. One current option is to rebuild bridges or tunnels using tolling as Pennsylvania has proposed. Another option is to add variable tolls on all Interstate lanes—after they’re rebuilt— to reduce traffic congestion but, realistically, this option is limited to major urban areas.

However, the most important change Congress could make is to expand the Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP), which allows only three states to use toll financing to rebuild one of their Interstates, to a program that allows all states to use tolling in the effort to rebuild all of their Interstates.

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The Case Against a VMT Tax on Heavy Trucks

With the federal Highway Trust Fund spending far more than it receives in highway user tax revenues every year, there is a growing consensus that if the users-pay/users-benefit principle is to remain the basic principle for highway funding at the federal level, the revenue must match the spending. In an effort to help reach that goal, Sen. John Cornyn (R-TX) has proposed that the federal government levy a 25 cents per mile tax on heavy trucks (over-the-road trucks, known as Class 7 and Class 8 big rigs).

Congress has shown increasing interest in eventually shifting highway funding from per-gallon fuel taxes to some kind of per-mile charge. And both the Congressional Budget Office and, more recently, the Joint Tax Committee have calculated the possible revenue yield of a tax on miles driven by heavy trucks, and at least one think tank has proposed beginning the transition to per-mile charges with trucks.

Needless to say, Sen. Cornyn’s proposal has led to fierce opposition from the two national trucking organizations: fleets, represented by the American Trucking Associations (ATA), and truck owner-drivers, represented by the Owner-Operator Independent Drivers Association (OOIDA). The two groups sent a joint letter on May 25 to Senate Finance Committee Chairman Sen. Ron Wyden (D-OR) and Ranking Member Sen. Mike Crapo, arguing strongly against the proposed trucks-only vehicle miles tax.

I agree that Cornyn’s proposal is a bad idea, while strongly supporting shifting the way we fund our highway system, over time, from per-gallon gas taxes to per-mile charges (generally known as mileage-based user fees—MBUFs).

The trucking industry has long been leery of being taxed per mile driven, likening this to a few states levying weight-distance taxes on heavy trucks. But the industry has been slowly coming around to the idea of replacing fuel taxes with per-mile charges. Trucking companies have been taking part in some of the federally-funded MBUF pilot projects in various states, and more recently in a multi-state pilot managed by The Eastern Transportation Coalition (formerly the I-95 Corridor Coalition). As I reported here last year, one outgrowth of this project was the creation of a motor carrier working group to advise the Mileage-Based User Fee Alliance.

It’s critically important that transportation policymakers continue to involve commercial trucking in these pilot projects, to learn about the unique aspects of commercial trucking and the institutions connected with it that may help or hinder an eventual transition to mileage-based user fees. But forcing one portion of commercial trucking to serve as the guinea pig, when there is no consensus on methods of charging, the best institutional arrangements to carry out the charging, enforcement and accountability measures, etc., is misconceived and unworkable. And if such legislation were actually enacted, it would set back progress toward the eventual transition that we all know is needed.

In particular, a basic premise of Mileage-Based User Fee Alliance and the growing number of pilot projects is that the per-mile charge should replace the fuel tax, whether at the state or the federal level. But Sen. Cornyn’s proposal would violate this by adding the new mileage tax on top of existing federal gas taxes on trucking. No one who wants to see the needed transition from gas taxes to mileage-based user fees actually happen should support adding these fees on top of gas taxes or singling out commercial trucking in this manner.

That said, the ATA/OOIDA letter goes somewhat overboard in making its case. While it presents some figures only for the Class 7 and 8 trucks in Cornyn’s proposal, many of its other claims are based on the entire commercial trucking industry. Second, the letter repeats the old canard that trucks don’t really do significant damage to pavement and bridges, debunking the 1962 AASHO Road Test as flawed and obsolete. In fact, there has been a lot of additional research on the relationship between truck axle weight and pavement and bridge strength and durability. See, for example, the research summarized in chapter two of the 1989 Brookings volume Road Work, by Small, Winston, and Evans. Nearly every civil engineering student learns about pavement strength and durability and learns formulas for the likely performance of both rigid (concrete) and flexible (asphalt) pavement.

The ATA/OOIDA letter states clearly that the industry is willing to pay more so that highways can be better funded, and this is clearly in the industry’s interest. And in my previous work a decade ago, I found that trucking companies willingly pay about four times as much per mile as cars do on U.S. long-distance toll roads, which shows that they understand the need to pay considerably more than cars to use our highways.

Sen. Cornyn and Congress should dump this divisive, trucks-only tax idea before it does irreparable harm to the needed transition from paying for highways per gallon to paying for them per mile.

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Prospects for Federal Automated Vehicle Legislation in the 117^th Congress
By Marc Scribner

On May 18, the Consumer Protection and Commerce Subcommittee of the House Energy and Commerce Committee held a hearing titled, “Promises and Perils: The Potential of Automobile Technologies.” Several automotive safety technologies were discussed, but the primary focus was on automated driving systems (ADS) that hold the potential to relieve humans of driving responsibilities. This hearing came a week after another failed effort in the Senate to move forward federal ADS legislation as part of the Endless Frontier Act, with Sen. John Thune (R-SD) blaming opposition from “the trial lawyers and the Teamsters” as the reason why he lacked the votes to attach his amendment. Given that Democrats currently have tenuous control of both the House and the Senate, and that trial lawyers and unions are among the key Democratic constituencies, federal automated driving systems legislation in the 117^th Congress faces strong headwinds.

One witness in the May 18 House hearing, AFL-CIO Transportation Trades Department President Greg Regan, indicated his member unions would oppose efforts to integrate highly automated vehicles into the federal automotive safety regulatory regime unless Congress and regulators mandated redundant human drivers to preserve unionized driver jobs. Such a move would contradict long-run automotive safety goals and longstanding safety policy.

Human error and misbehavior are responsible for nearly all crashes, and federal law does not allow speculative economic matters to override safety considerations. Requiring redundant human drivers during all ADS operation in perpetuity would also significantly undermine—if not eliminate entirely—the business case for ADS-equipped vehicles, where most companies investing in these technologies are seeking to eliminate human driver responsibilities and even, in some cases, human driving capabilities with purpose-built vehicles that lack conventional manual controls.

On the Senate side, the American Association for Justice (AAJ), formerly the Association of Trial Lawyers of America, has made shifting demands over the last few years, to the confusion and frustration of lawmakers and ADS developers. Most recently, AAJ has demanded a special rifle-shot exemption from the Federal Arbitration Act of 1925 that would prohibit arbitration clauses in future contracts between ADS-equipped vehicle providers and customers. The current draft bill is silent on—not supportive of—arbitration and the customer contracts at issue likely won’t exist for at least several years as the ADS technologies are developed to enable future commercial services.

The source of AAJ’s ADS arbitration fixation appears to be a major loss suffered by the plaintiffs’ bar in the Supreme Court’s Epic Systems decision in May 2018, which held that class-action waivers in employment arbitration agreements are enforceable under federal law. Prior to the ruling, AAJ had been at most a bit player in ADS policy discussions and its main output on the subject was a 2017 report of theoretical musings around future liability regimes for ADS-equipped vehicles. But even if Congress acquiesced to AAJ’s demand, it is unclear whether the plaintiffs’ bar would support the bill. When bipartisan, bicameral negotiators in December 2018 agreed to ban hypothetical arbitration clauses at the behest of AAJ, the group repaid the favor by publicly urging the bill’s defeat on different grounds that its lobbyists had not previously raised.

The next opportunity for ADS legislation in the 117^th Congress is likely the safety title of the forthcoming surface transportation reauthorization. The current extension of the 2015 Fixing America’s Surface Transportation Act (FAST Act) authorization expires at the end of September, so Congress will need to come up with a full surface transportation reauthorization or another extension in the next four months. However, there is no indication that lawmakers are willing to break from special interests, especially as both major political parties seek to amass their campaign war chests heading into the 2022 midterm elections that will determine control of the House and Senate. For transportation policy, this is another disappointing turn of events and an example of unnecessarily partisan and special-interest–driven politics. Readers may recall that the House passed its similar ADS bill, the SELF DRIVE Act, by unanimous voice vote in 2017 but it did not advance in the then Republican-controlled Senate.

If Congress fails to include it in a surface transportation reauthorization this year, prospects for ADS legislation in the 117^th Congress will be dim. While regulators at the National Highway Traffic Safety Administration can continue their slow work of modernizing Federal Motor Vehicle Safety Standards without congressional action, ADS developers will likely need to wait until at least 2023 for Congress to make the regulatory reforms they are seeking. The patchwork of state ADS policies driven by impatience with Congress’s failure to adopt uniform national ADS policy is likely to grow. And American developers may increasingly set their sights on more welcoming places abroad.

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Misplaced Critique of Revised Traffic Control Devices Handbook

An informal coalition of city, pedestrian, and bicycle organizations has been campaigning against the latest revision of the engineering document that sets standards and guidelines for traffic control devices. They claim the latest edition of the Manual on Uniform Traffic Control Devices (MUTCD) is biased against pedestrians and cyclists and should be replaced or significantly rewritten.

The very first pavement striping, stop signs, and electric traffic signals were developed ad-hoc between 1911 and 1920 in the early days of the automobile. In the 1920s, auto clubs and fledgling state highway departments recognized the need for uniform standards, and the American Association of State Highway Officials published the first manual on standard road marking signs and signals in 1927, but it applied only to rural roads. Further efforts by a Joint Committee on Uniform Traffic Control Devices led to the first national MUTCD appearing in 1935. Over the years subsequent editions, under the auspices of the Institute of Transportation Engineers (ITE), have responded to changing technologies and ongoing empirical research findings.

Today, while ITE still plays a major role, each new edition is reviewed and approved by FHWA and put out for public comment prior to being finalized. That accounted for the flurry of commentary on the draft of the latest edition, including a May 5 Bloomberg City Lab commentary by new urbanist Angie Schmitt, “Let’s Throw Away These Rules of the Road,” and a June 1 Wired piece by Aarian Marshall, “This Arcane Manual Could Pave the Way to More Human-Friendly Cities.”

Among critics’ claims in the articles were that, “The Manual consistently prioritizes operational efficiency for motor vehicles over safety,” and that “It lets engineers avoid installing Walk signals,” Schmitt quoted the National Association of City Transportation Officials as commenting. And, “It lets speeding drivers determine the speed limit,” a subheading in Schmitt’s commentary said.

A traffic engineer friend and colleague, who asked to remain anonymous, was dismayed by these critiques. First, far from ignoring pedestrians and cyclists, he noted that the word “pedestrian” appears 1,133 times in the new edition of the manual, “bicycle” appears 293 times, and “bicyclist” is mentioned 115 times. Regarding Walk signals, he explains that careful analysis is needed to determine where to place traffic signals in the first place and whether there is enough pedestrian traffic to include ‘walk’ signals (which in many cases increase the signal time to permit pedestrians enough time to cross). There are nine warrants that are to be followed in analyzing such decisions. Two of these nine are specifically based on pedestrian needs, and no warrant subordinates pedestrian safety.

And the much-criticized 85^th percentile rule for speed limits is there in order to reduce large variations in speed among vehicles using a road, which are known to increase accidents.

The point is that traffic engineering invariably involves making trade-offs, which, unfortunately, does not seem to occur to some of the critics who bombarded FHWA with identical form letters that asserted defects and presented wishes not based on engineering analysis.

The comment period closed on May 14, so the decisions on any changes to the draft 11^th Edition are now up to FHWA. I hope data-based engineering judgement prevails over feel-good critiques.

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News Notes

Benefits of Priced Managed Lanes Top Other Lane Additions
A highly detailed study comparing the social and economic impacts of four highway alternatives found that adding a priced managed lane produced better results than adding a regular lane or an HOV lane or tolling all the lanes of an existing freeway. The paper was presented at the 2020 Transportation Research Board Annual Meeting and has now been published in the Journal of Transportation Engineering, Part A: Systems. “Social Impact Analysis of Various Road Capacity Expansion Options: A Case of Managed Highway Lanes,” by Wooseok Do, et al., is available here.

“Are Electric Cars Better for the Environment?”
That was the headline on a March 25, 2021 article in the Wall Street Journal. The short answer is yes, but not as much as you may think. Drawing on researchers at the University of Toronto, the article compared life-cycle CO2 emissions of gasoline and electric vehicles, including construction, producing the energy source, and operation for up to 200,000 miles for a Toyota RAV4 and a Tesla Model 3. Over a 200,000-mile lifetime, the emissions of the Toyota are 78 tons, compared with 36 tons for the Tesla. Net savings from the Tesla begin at the 20,600-mile point. In addition, the Tesla also comes out slightly ahead in total cost of ownership, according to Consumer Reports.

Alabama Truckers Question Legality of Trucks-Only Toll Bridge
The Alabama Trucking Association sent a letter to the two metropolitan planning organizations (MPOs) on either side of the Mobile River questioning the constitutionality of building the replacement I-10 bridge over the Mobile River as a trucks-only toll bridge. Besides questioning the potential impact on the congested Wallace Tunnel, the trucking group questions the constitutionality of doing so, implying that it might litigate against the plan if it goes forward.

Pennsylvania’s Toll-Financed Bridge Replacements Still in Play
In late April, the Pennsylvania Senate voted to prohibit PennDOT from proceeding with its plans to toll-finance the replacement of nine aging Interstate highway bridges. The Republican Senate members also passed changes to the state’s P3 law that would require legislative approval before PennDOT could proceed with any highway P3 that involved tolling. With passage not assured in the lower house, PennDOT has announced plans to release its request for proposals for the project this month, with the RFP scheduled for December. The project would be done as design/build/finance/maintain with the private partner compensated by availability payments supported by the new toll revenues to be paid to the state.

In Search of Transportation Equity
On May 11, a former USDOT official presented testimony on this emerging topic to the Senate Environment & Public Works Committee (EPW). It is one of the most thoughtful presentations to a congressional committee I have ever read. Steve Polzin discusses the many trade-offs inherent in siting any transportation facility. He also reminds readers that roadways function as parts of a transportation network and must not be analyzed in isolation. And he also points out that removing 50-year-old roadways will inevitably result in shifts of traffic (and its externalities) to other parts of the network. A brief paragraph cannot possibly convey the depth and seriousness of this discussion, which should be required reading for everyone interested in transportation equity.

Parkersburg to Privatize Its Memorial Bridge
Last month, the city council of Parkersburg, WV, gave final (unanimous) approval to selling the aging Memorial Bridge to United Bridge Partners. The company has committed to invest $50 million to rehabilitate the toll bridge and replace cash tolls with modern electronic toll collection. UBP will pay the city $4 million for the bridge, and the city will save at least $15 million in near-term operating and maintenance costs. In recent years, UBP has replaced aging bridges in Virginia and Indiana under long-term P3 agreements and has more recently signed a contract to do likewise in Bay City, MI.

Moody’s Cautious on American Jobs Plan’s Transportation Elements
In a report released April 7, Moody’s Investors Service pointed out that the traditional infrastructure funding in the $2.3 trillion package would only “modestly” address roads, bridges, and highway funding needs over an eight-year period, and would not provide a long-term stable funding solution. The report also notes that the large funding increases for urban transit and Amtrak will face what may be permanently suppressed ridership post-pandemic. The report, “White House Plan Provides Boost for Core Infrastructure Assets, But Not Transformative,” requires registration.

Inflated Job-Creation Numbers for California High-Speed Rail
Intrepid Los Angeles Times reporter Ralph Vartabedian once again delved into the California high-speed rail project, this time finding the project’s job-creation claims are grossly exaggerated. Despite a banner at one of the high-speed rail construction sites reading “5,000 jobs and counting,” the actual number of construction workers employed at any one time has seldom exceeded 1,000. The 5,000 number comes from records of people dispatched to job sites from union halls. “Each time a worker is sent to a job site, whether for one day or hundreds of days, it counts as a job for the purpose of the banners,” Vartabedian reports. He also discovered that of the $6.1 billion spent on the rail project thus far, only $265 million has been spent on construction labor.

Turnpike Service Plaza Company Gets New Owner
HMS Host, which operates service plazas on toll roads including the turnpikes of Delaware, Indiana, and New Jersey, is being acquired by a consortium of Blackstone Infrastructure Partners, Applegreen LTD, and B&J Holdings LTD. Applegreen itself operates 161 service areas in the United States, while Host also operates restaurants and shops in many U.S. airports. The consortium is paying $375 million for HMS Host, and will be its successor in current long-term service plaza P3s with the Delaware, Indiana, and New Jersey toll road providers.

Most Urban Counties Are Shrinking, Per Latest Census Report
Economist Jed Kolko explained in The New York Times Upshot on May 4 that the latest population estimates from the Census Bureau show that most urban areas lost population in 2020 for the second year in a row, while lower-density suburbs grew the fastest in 2020. Most of these changes stem from domestic migration, rather than births or immigration. Among the 10 fastest-growing metro areas last year were Austin, Boise, Cape Coral (FL), and Phoenix. The 10 metro areas that shrank the most include Jackson (MS), Honolulu, San Jose/Sunnyvale, San Francisco/Oakland, Los Angeles/Orange County, and metro Chicago. There are many implications here for transportation planning.

Florida Turnpike Joins E-ZPass
At last, Florida is becoming a full-fledged member of the 19-state E-ZPass consortium. A May 28 announcement by the Florida Turnpike Enterprise informed motorists that they can obtain a SunPass Pro transponder that will work at all 35 member toll agencies of E-ZPass, and can be obtained for $14.95. The Central Florida Expressway Authority joined E-ZPass in 2017.

Kansas May Develop Express Toll Lanes on Congested Highway
The Kansas Department of Transportation and local Overland Park transportation officials are considering the addition of express toll lanes to the congested 69 Highway. Overland Park is located south of Kansas City and has been growing rapidly. The estimated cost of the project is $300 million, with projected toll revenues likely to be sufficient to finance the project.

New Report on Performance of Starlink Broadband Service
A company called Ookla last month released a report on the performance of the SpaceX satellite broadband service, now undergoing beta testing with a large group of customers. With the initial fleet of Starlink satellites (a small fraction of the planned constellation), service is better in the United States than in Canada, and its speeds depend considerably on location. The report says service meets FCC Rural Development criteria and “could be a cost-effective solution that dramatically improves rural broadband access without having to lay thousands of miles of fiber.”

Opposition Mounts to DC-Baltimore Maglev
Two organizations spoke out forcefully last month against plans to spend $14-17 billion in taxpayers’ money to build a maglev train that would make the trip between the two downtowns in 15 minutes. NIMBY opposition is coming from Prince George’s County council members, who are sending a letter against the project to the Maryland congressional delegation, the Maryland DOT, and the Federal Railroad Administration. They say the draft environmental impact statement (EIS) did not reflect negative impacts on their communities, such as land value decreases from a maintenance yard and an electricity substation. The 40-mile route would be partly underground and would have only one intermediate stop (at BWI Airport) between Washington, DC, and Baltimore. And in congressional testimony last month, Amtrak CEO William Flynn argued that tax money would be better spent on improving commuter MARC rail service and replacing Amtrak’s ancient tunnel near Baltimore. If the maglev project experienced a typical cost overrun of 40 percent, its cost per mile would be around $542 million.

New Report Details Post-Construction P3 Performance Measures
Most studies on long-term highway design build finance operate maintain (DBFOM) P3s have focused on the procurement process and the construction phase, but few have dealt with longer-term performance and end-of-concession hand-back provisions. The National Cooperative Highway Research Program has released a new study to fill that gap: “Performance Metrics for Public-Private Partnerships.” The researchers reviewed metrics and the handback criteria for 18 P3 projects in nine states, as well as a survey of 26 state transportation departments. My one concern is that only two of the six case studies were revenue-risk P3s, both of which failed due to overly aggressive traffic and revenue projections. There have been 17 revenue-risk highway P3s thus far, so it’s unfortunate that successful examples like I-495 in Virginia and I-635 in Dallas were not selected.

Commentary Clarifies Types of Private Activity Bonds (PABs)
The public-private partnership community has made extensive and productive use of tax-exempt private activity bonds as part of the financing of nearly two-dozen DBFOM transportation projects, using up the entire $15 billion authorized years ago by Congress. My colleague Marc Scribner discovered in discussing an increase or abolition of that cap that some members of Congress were opposed, thinking these were the kinds of PABs used to finance sports stadiums and other boondoggles. To set the record straight, Marc has written a commentary, on the subject, explaining the different kinds of PABs.

Honolulu Heavy Rail Project’s Ongoing Woes
What can you say about a 20-mile elevated heavy rail transit project that was supposed to cost $5.1 billion and open by January 2020 but is only half-built and is now estimated to cost $12.4 billion and begin service by 2031? My Reason colleague Marc Joffe reviews this project as a cautionary tale of not achieving value for money.

Vehicle Autonomy Is Far Harder than Many Thought
In a recent piece at The Verge, Andrew Hawkins explains recent divestitures and mergers in the automated vehicle world. He assigns blame for this to three hard truths. First, true vehicle automation will take a lot longer to reach mass scale than previously thought. Second, it’s going to be a lot more expensive. Third, going it alone is no longer a viable option. This is a well-informed dose of skepticism about a field noted for relentless hype.

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Quotable Quotes

“Biden warned that U.S. infrastructure is ‘ranked 13^th in the world,’ as if that were shameful to outscore about 90 percent of the 141 economies analyzed in 2019 by the World Economic Forum. In fact, 13^th place represents an upward shift of about 10 spots since the 2011-2012 WEF survey. . . . Among the 10 geographically largest countries, including Canada, Australia, China, and Russia, the United States places first, based on WEF criteria. The United States is also top among the 10 most populous countries. . . . The ASCE’s 2021 report card gave the United States a C-. But that was the best grade in 20 years. ‘Five category grades—aviation, drinking water, energy, inland waterways, and ports—went up, while just one category—bridges—went down,’ relative to ASCE’s 2017 report card, the organization acknowledged.”
—Charles Lane, “Opinion: No, America’s Infrastructure Is Not ‘Crumbling,’” The Washington Post, April 6, 2021

“In Chandler (AZ), [first best] is your car parked in your garage. You don’t even have to go outside in all that heat. Waymo’s got to be really good to beat that! Waymo might end up getting close to that good, but in the beginning its chances are slim-to-none. Not that the car in the garage doesn’t have an enormous amount of ‘excess baggage.’ . . . ‘Your go-to mobility is your car. Your car allowed you to consider the Chandlers of the world as a place where you want to live. That’s a challenging marketplace for Waymo. A better place for Waymo [and other AV producers] to start is a market where they can easily deliver better service—concentrations of households that have zero or only one car—. . . . which, once they can use Waymo, would substantially improve their lives. . . . The census identifies many communities and inner suburbs that have substantial densities and zero or one-car households. For example, Trenton, New Jersey. Numerous Trenton residents would readily perceive Waymo as the Google in their trip mode-choice.”
—Alain Kornhauser, “Why Hasn’t Waymo Expanded Its Driverless Service?” Smart Driving Cars, May 8, 2021

“For ship [port] calls greater than 6,000 TEU—i.e., most mega-ship calls—it takes 24 seconds on average to load or unload a container at Yangshan, Qingdao, and Yantian, versus 48 seconds at Los Angeles, double the time, according to IHS Markit Port Performance data. In remarks to the JOC’s virtual TPM21 conference, Ocean Network Express CEO Jeremy Nixon noted that ports in Asia operate vessel berths and terminal gates 24/7, or 168 total hours per week, compared with only 112 hours per week for berths and 88 hours per week for truck gates at LA-Long Beach.”
—Peter Tirschwell, “Freight Policy’s ‘Third Rail’,” The Journal of Commerce, April 26, 2021

“Climate court cases are not last-ditch efforts to compel democracies to ensure a livable planet. Instead, they simply shortcut the pesky democratic process to ensure the spending preferences for a subgroup that couldn’t get a majority vote for their proposals. This undermines democracy. Society is about navigating collective wants much larger than the available resources, and voting is how we square that difficult circle. Well-meaning activists shortcutting those trade-offs is essentially a way to force climate action at the expense of all other worthy goals. And for well-meaning judges across the rich world to play along is opening a Pandora’s box for all sorts of litigation. Why shouldn’t thousands of other special interests bypass democracy and appeal directly to the courts to deliver their preferred outcome, from pot-hole-free roads to abundant teachers for children and access to even the most expensive cancer drugs?”
—Bjorn Lomborg, “The Courts Are No Place to Combat Climate Change,” New York Daily News, May 18, 2021

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The post Surface Transportation News: President Biden’s Jobs Plan, New Transportation Finance and Public-Private Partnership Reports appeared first on Reason Foundation.

“Today we are going big, proposing the largest surface transportation reauthorization package in history,” said Senator [Kevin] Cramer (R-ND)…

The Surface Transportation Reauthorization Act of 2021 sets a new baseline funding level at a historic high of $303.5 billion for Department of Transportation programs for highways, roads, and bridges. This marks an increase of more than 34 percent from the last reauthorization to pass Congress, the FAST Act, in 2015.

The prior authorization for surface transportation programs expired in 2020; Congress passed a one-year extension that will expire on September 30, 2021.

Alas, the plan does not contain an agreed-on way to pay for the “largest surface transportation reauthorization package in history,” let alone covering the existing shortfall in the Highway Trust Fund’s revenue—even if spending is not increased above the 2015 Fast Act’s levels. 

Federal gasoline and diesel taxes dedicated to highways were first authorized in 1956 to pay for building the Interstate Highway System. The money would all be accounted for in a new Highway Trust Fund and all would be spent to build these new highways. The principle was the users-pay, users-benefit. It’s the same principle all 48 states followed when they first enacted their own state per-gallon gas taxes between 1919 and 1929.

Many infrastructure groups have called for biting the bullet on the Highway Trust Fund’s “insolvency” by supporting an increase in federal fuel tax rates. But President Joe Biden has ruled that out, based on his pledge to not raise taxes on Americans making less than $400,000 per year.

Notice what has happened here. To the president, the gas tax has become “just another tax,” rather than the dedicated user fee it began as.

Congress must share the blame for this, since over the last 40 years it has again and again diverted highway user tax revenues to an expanding array of non-highway uses. Gas taxes are now diverted to fund urban mass transit, ferryboats, bike trails, even sidewalks (“Safe Routes to School”). This evolution has seriously undermined the users-pay/users-benefit principle the gas tax was based on, which has undercut public trust in the Highway Trust Fund.  This has led a large fraction of the public to oppose needed increases in highway investment, arguing (like President Biden) that they’re against an increase in taxes. 

But in fact, the amounts being raised by federal and state fuel taxes are far less than what is needed to deal with huge amounts of deferred maintenance on roads and highways, let alone the estimated $1 trillion cost of rebuilding and modernizing the aging Interstate system’s highways and bridges.

Public misunderstanding about the real infrastructure needs cities and states are facing shows itself in a variety of ways, including populist opposition to toll-financed projects, such as rebuilding much of I-35 through downtown Austin ($7.5 billion), replacing nine aging bridges on Interstate routes in Pennsylvania ($2.2 billion), and replacing the inadequate I-10 bridge across the Mobile River in Alabama ($725 million).

The Republican-controlled Texas legislature this spring has once again refused to authorize any new toll-financed public-private partnership projects. Similarly, the Republican-held Pennsylvania State Senate has voted to prohibit the Pennsylvania Department of Transportation’s toll-financed P3 bridge replacements. And in Alabama, the local metropolitan planning organizations in Mobile are now promoting tolls, but only for trucks, which would not raise enough money to replace the bridge there and would grossly unfair.

For toll-financed public-private partnerships to play a significant role in addressing America’s under-funded highway system, the revenue question must be dealt with.

At the federal level, this should mean pushing hard for the return of users-pay/users- benefit principle as the best way to fund highway infrastructure. Drivers should know gas tax money will be used on the roads they drive on.

Since an increase in federal fuel taxes has been ruled out by both political parties, I suggested, in my EPW testimony last month, a short-term fix for the Highway Trust Fund. The Congressional Research Service has shown that the revenue from federal highway user taxes is very close to the amount of federal highway spending. Thus, devoting all that Highway Trust Fund revenue exclusively to highways—and funding other programs via the general fund—would be more transparent to taxpayers and would help restore the users-pay/users-benefit principle for highways. And if federal fuel taxes were to become pure user taxes (as they were in 1956), there’s a decent chance that federal gas taxes could then be indexed to inflation, as many state fuel taxes have been in recent years, to ensure drivers are paying the costs of using and maintaining those roads. 

That change could get us through the current five-year surface transportation reauthorization bill timeline. But what happens after that, as increasing vehicle fuel economy and the growing market share of electric vehicles reduce the annual gallons of gasoline sold in the United States?

Environment and Public Works Committee members seemed very interested in moving toward replacing federal per-gallon fuel taxes with some kind of federal mileage-based user fee. While I fully support mileage-based user fees (MBUF) as the future, I, and another witness, told committee members the country is nowhere near public consensus on making this shift or on figuring out the institutional and technology questions that would enable viable state and federal MBUF systems.

But this Congress could do something besides continuing to fund multi-state pilot projects to test various MBUF methods and technologies to make progress. Congress could encourage states to begin converting their aging Interstates to per-mile electronic charges, with the new revenues replacing state fuel taxes on the rebuilt and newly-tolled bridges and corridors.

To build public support for the mileage charge being the replacement for the fuel tax, participating states would need to provide rebates of the state highway user taxes for the miles driven on the tolled replacements. This is available today for trucks on both the Massachusetts Turnpike and the New York Thruway. Trucking service company Bestpass offers multi-state transponders and a single toll account for each subscribing truck fleet, and one of the services offered is automating the refunds of those state taxes.

Congress could encourage this via two changes in current law. First, expand the current Interstate System Reconstruction and Rehabilitation Pilot Program from three states to all 50 states and allow participating states to use per-mile charges to finance reconstruction/modernization of all (instead of just one) Interstate corridors. Half a dozen states have studied, or are studying, toll-financed Interstate reconstruction, so there would be states ready to apply if this option were offered.

The second change would be two revisions of the tax-exempt surface transportation private activity bond (PAB) program. First, remove the $15 billion federal cap (which is all used up), or at least triple it. Second, modify the language in the statute to make it clear that private activity bonds can be used not just to finance greenfield projects but also brownfield projects to rebuild and modernize aging highway infrastructure.

This is entirely consistent with recent calls to “fix it first” and to “build back better.” The Interstates handle 25% of all vehicle miles of travel on just 2.5% of the nation’s lane miles. If several larger states began financing their reconstruction using per-mile electronic tolls, this would give those state transportation departments some budgetary relief, since they would no longer have to devote diminishing fuel-tax revenues to rebuilding and maintaining Interstates. And because these projects would avoid “double taxation,” they would demonstrate to highway users that per-mile charges really would be instead of, not in addition to, fuel taxes. That would help build support for mileage-based user fees consistent with the users-pay/users-benefit principle.

A version of this column first appeared in Public Works Financing.

The post Examining the Senate’s Bipartisan Surface Transportation Bill appeared first on Reason Foundation.

What follows is a brief explanation of private activity bonds and a discussion of the specific issues facing private activity bonds when used in highway projects.

Under the federal tax code, bonds issued by state and local governments are broadly categorized as either governmental bonds or private activity bonds (PABs). Interest income on governmental bonds, like municipal bonds, is not subject to taxation. In contrast, interest income on private activity bonds, as with commercial bonds, is generally taxed.

Government-issued bonds are subject to two private business tests (26 U.S.C. § 141(b)). If both conditions are met, the bond interest income is generally taxable.

However, Congress has provided tax exemptions for some uses of private activity bonds. These are called qualified PABs. Most relevant to the infrastructure discussion are a subset of qualified PABs called exempt facility bonds. Section 142 of the Internal Revenue Code provides for 15 types of exempt facility bonds:

1. Airports;
2. Docks and wharves;
3. Mass commuting facilities;
4. Facilities for the furnishing of water;
5. Sewage facilities;
6. Solid waste disposal facilities;
7. Qualified residential rental projects;
8. Facilities for the local furnishing of electric energy or gas;
9. Local district heating or cooling facilities;
10. Qualified hazardous waste facilities;
11. High-speed intercity rail facilities;
12. Environmental enhancements of hydroelectric generating facilities;
13. Qualified public educational facilities;
14. Qualified green building and sustainable design projects; and
15. Qualified highway or surface freight transfer facilities.

Of these 15 uses, nine could be (depending on government or private ownership) subject to an annual state volume cap: mass commuting facilities, water furnishing facilities, sewage facilities, solid waste disposal facilities if privately owned, qualified residential rental projects, facilities for the local furnishing of electric energy or gas, local district heating or cooling facilities, qualified hazardous waste facilities, and high-speed intercity rail facilities if privately owned (but only 25% of the bond issue is counted against the cap).

This qualified private activity bond volume cap is subject to annual cost-of-living adjustments (26 U.S.C. § 146(d)). For 2021, each state’s cap is determined by the greater of $110 per capita or $324,995,000 (IRS Rev. Proc. 2020-45).

In addition, three more exempt facility uses are subject to separate caps. Qualified public educational facilities are subject to an annual state volume cap determined by the greater of $10 per capita or $5 million (26 U.S.C. § 142(k)(5)(A)). Qualified green building and sustainable design projects are subject to a $2 billion lifetime national volume cap (26 U.S.C. § 142(l)(7)(B)). And qualified highway or surface freight transfer facilities are subject to a $15 billion lifetime national volume cap (26 U.S.C. § 142(m)(2)(A)).

Since they were established for highway uses by the SAFETEA-LU surface transportation reauthorization of 2005 (the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users), qualified private activity bonds have been very important in highway public-private partnerships.

As my Reason Foundation colleague Baruch Feigenbaum recently noted:

In most cases PABs provide financing for 20-30% of the project’s total cost. For megaprojects, $12 billion in private activity bonds led to $45 billion in project activity over the past 15 years. Without PABs many of these projects would not have been feasible.

Unfortunately, the $15 billion lifetime national volume cap on qualified private activity bonds for highway uses has been reached. As of May 24, 2021, the Department of Transportation’s Build America Bureau reports that all but $10.4 million (or 0.07%) of that $15 billion maximum has been issued or allocated. If Congress wishes to keep highway public-private partnerships (P3s) as a viable option for project delivery—and one that can save taxpayers many billions of dollars—it will need to increase or eliminate the cap on highway exempt facility qualified PABs.  

Finally, it is important to note that raising or eliminating the cap on Section 142(m) highway and surface freight transfer uses would not impact any other type of qualified PAB or qualified PAB cap, so past or ongoing controversies with the use of PABs in sports stadia or low-income housing are not germane to this discussion.

But if lawmakers really wish to promote more private investment in public-purpose surface transportation infrastructure—including rebuilding the aging Interstate Highway System—Reason Foundation’s Robert Poole has proposed a series of reforms that are needed for governments to harness the potential of private capital and project management expertise.

Discussion drafts of legislation to reform both exempt facility bonds and the Interstate System Reconstruction and Rehabilitation Pilot Program are available here.

Private Activity Bond and Interstate System Reconstruction and Rehabilitation Pilot Program Reform Legislation Proposal 

The post Private Activity Bonds Can Spur Infrastructure Investment appeared first on Reason Foundation.

Chairman Neal, Ranking Member Brady, and members of the Committee,

Thank you for the opportunity to testify before you today.

I am Dr. Adrian Moore, vice president of Reason Foundation. I am a transportation economist with over 25 years of experience working on transportation funding policies, including being appointed by Congress to the National Surface Transportation Infrastructure Financing Commission in 2007.

Today I will speak briefly about a key tool for leveraging infrastructure investment that has been used on a bipartisan basis in the United States and even more widely overseas—public-private partnerships (P3s).

Since 1990, there have been 1,207 total public-private partnership road projects globally. These projects have garnered a total of $356 billion in private investment and the vast majority have been initiated since 2005.

To date, the United States has been a small player in this story. While governments in Europe and Asia have embraced private-sector involvement in helping to build and operate transportation projects, the United States has remained politically reluctant to do so.

Thirty-seven states, the District of Columbia, and Puerto Rico have enacted P3 authorities, but actual projects have been concentrated in only 11 states, the Port Authority of New York and New Jersey, and Puerto Rico. Nevertheless, that provides a track record by which we can judge their success at helping to get infrastructure projects done in an efficient manner.

Importantly, P3s provide a structure to allow private investors to help finance new infrastructure, which is then paid back with toll revenue or traditional revenue sources over a specified period. It is not new revenue, but a way to bring forward future revenue to pay for a project to be built.

These contracts truly are partnerships and involve a number of investors. A typical toll-financed P3 uses state funds for 14% of costs, private equity for 29%, a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan for 27%, private activity bonds (PABs) for 23%, and bank financing and capitalized interest for 7%.

Public-private partnerships have several major advantages over traditional project delivery, including:

1. Delivering needed infrastructure sooner. P3s can offer a way to finance major highway and infrastructure projects that otherwise might be built years later—or not at all—due to a lack of funding.
2. Offering the ability to raise large private sources of capital for toll projects. Rebuilding and modernizing our freeways and Interstates will be very costly. The long-term P3 model can raise significant investment capital for new and reconstructed transportation infrastructure because it is attractive to many different types of investors, including public pension funds and insurance companies.
3. Shifting financial risk from taxpayers to private investors. P3s parcel out duties and risks to the parties best able to handle them. The state remains responsible for items like public rights-of-way and environmental permitting. Private companies typically assume the risks associated with construction cost overruns and any possible traffic and revenue shortfalls.
4. Providing a more business-like approach. Compared with government highway providers, toll road companies tend to be more customer service–oriented and are quicker to adopt cost-saving technologies.
5. Helping enable major innovations. The incentive for private partners to innovate, solve difficult problems, and improve service can be a powerful tool. For example, the use of variable-priced tolls to mitigate traffic congestion was pioneered by a private highway operator on State Route 91 in California.
6. Saving time on project delivery. On average, new P3 construction is finished ahead of schedule. Compare that to design-build projects, which take 4% longer than scheduled, and traditional design-bid-builds, which take 11% longer than scheduled.
7. Saving money on project delivery. P3s can shield government sponsors from cost-overrun risks. Compare that to design-build projects, which on average face 5% cost overruns, and design-bid-builds, which on average face 13% cost overruns.

One example of a successful P3 worth considering is the Capital Beltway high-occupancy toll (HOT) lanes P3 project in Virginia. Virginia needed to add capacity to the Capital Beltway (I-495) due to growing population and traffic congestion. The Virginia Department of Transportation’s (VDOT) cheapest option to widen the roadway would have cost $2.5 billion and displaced hundreds of residences. A private company offered an unsolicited proposal to design, build, finance, operate, and maintain (DBFOM) two HOT lanes in each direction at a total cost of $1.9 billion.

In a competitive bidding process, Fluor partnered with Transurban (creating an entity called Capital Beltway Express) to win a 75-year lease. The project financing is structured as follows: 1) $589 million in PABs, 2) a $589 million TIFIA loan, 3) a $409 million grant from VDOT, 4) $348 million in private equity, and 5) $47 million in interest income.

Not only did the project save the state hundreds of millions in costs but it also reduced taxpayers’ financial risks.  Because the HOT Lanes project opened during the Great Recession the roadway experienced traffic volumes and toll revenue below projections. Because the project was a P3, the private sector took a haircut in revenue but taxpayers were not responsible for those losses.

The Virginia P3 will also provide better-maintained roads. During the life of the contract, Capital Beltway Express must keep the lanes well maintained (smooth pavement quality, prompt snow removal, etc.). At the end of the 75-year lease, the project must be handed back to VDOT in a state of good repair – which is much more than can be said about many interstates and highways across the nation.

The project uses dynamically priced tolls to help manage congestion. Tolls rise and fall based on demand and ensure a congestion-free travel option adjacent to the regularly congested general-purpose lanes. And the P3 is also helping to improve public transit. Lanes provide a virtual busway for transit. Local transit agencies operate high-quality, reliable service in the HOT lanes.

The federal share of transportation spending on infrastructure would get more “bang for the buck” if federal tax and transportation funding policies removed barriers to and encouraged P3s where feasible:

• Currently, surface transportation private activity bonds (PABs) have a lifetime $15 billion volume cap, and nearly all of that $15 billion has been issued or allocated ($14.7 billion). These are projects where the vast majority of the benefits accrue to the users, and as PABs are part of so many P3 transportation projects, that cap should be raised to at least $30 billion.
• Congress intended TIFIA to be a check-the-box process, and as long as applicants met certain standards they were eligible. Unfortunately, the U.S. Department of Transportation (USDOT) under multiple administrations has treated TIFIA more like a discretionary loan program. Since TIFIA applicants must have two investment-grade credit ratings, all applicants have the ability to repay funds. Congress should insist USDOT treat TIFIA as a check-the-box process, subject to funding availability.
• Give some priority of federal funding to infrastructure projects that include private participation in a P3 structure.

The post Testimony: Public-Private Partnerships Can Leverage Infrastructure Investment appeared first on Reason Foundation.

U.S. Secretary of Transportation Pete Buttigieg recently highlighted the potential of mileage-based user fees (MBUFs) to provide a replacement for fuel taxes. But Buttigieg received massive blowback from both sides of the political aisle.

Yet, by treating roadways like a utility, similar to power or water, we would be strengthening the users-pay principle. As Buttigieg noted, just as power or water bills are mostly based on the rate of use of those services, paying for roads should follow utility charging principles: “If we believe in that so-called user-pays principle, the idea that part of how we pay for roads is you pay based on how much you drive.”

While the Biden administration’s $2.3 trillion American Jobs Plan will wisely not include any provisions for mileage-based user fees since the nation isn’t quite ready for a national program, more state governments should consider implementing pilot programs to trial MBUFs as a replacement for fuel taxes.

Even as somes states increase their gas taxes to try to make up some of the growing shortfalls, federal fuel tax rates have not changed since 1993. The increased use of electric and fuel-efficient vehicles, while reducing greenhouse gas emissions, makes funding highways and roads via gas taxes more difficult. As with raising fuel tax rates, assessing special fees on electric and alternative-fuel vehicle owners varying fees to compensate for not paying fuel taxes serve as an ad hoc, clunky substitute for what is obvious and easier to do for other utilities: charging the people that use them relative to direct user charges. 

Of all the objections to mileage-based user fees, two complaints appear the most often: the “double taxation” effect of MBUFS if they were added to existing fuel taxes, rather than replacing fuel taxes, and potential personal privacy issues related to charging by miles driven.

While opponents, and even some proponents, of MBUFs see them as an addition to existing fuel taxes, the MBUF pilot programs that have been tested, as well as the trade group Mileage-Based User Fee Alliance (MBUFA), all recommend using mileage-based user fees to replace fuel taxes, not complement them. Reason Foundation’s Adrian Moore outlined five principles that should guide mileage-based user fee programs as they’re developed, starting with, “Road usage charges should replace fuel taxes, not supplement them.”

Taxes are meant to cover compulsory government services that have limited means to collect revenue. But MBUF revenues are tied directly to the use of the road assets that they fund. Administrative fees that exist on some utility bills are often more accurately referred to as taxes, few (if any) would argue that paying a water use rate is a “tax” since the bulk of that payment is tied directly to the use of water itself, just as MBUFs would rely on revenues from direct road use.

On privacy, Moore notes, “Road use charges must provide for user privacy and, in the event of shared data, must ensure that users’ data are protected.”

One way to address privacy concerns is to provide road users with a variety of collection options, which was made possible in Oregon’s test MBUF program, OReGO, where participants pay 1.8 cents for each mile they drive. To address privacy issues, Oregon tapped into private-sector expertise to deliver privacy options to drivers.

Private vendors participating in the pilot developed and delivered several options for assessing mileage-based user fees. Options range from more manual-based approaches using car odometers to value-added diagnostic services that rely on GPS receivers that prevent the access of drivers’ location data— as opposed to transmitters or transceivers that do provide that capability—while providing the company the ability to monitor vehicle telemetry and health in ways usually not available to motorists without obtaining expensive equipment.

Existing technologies used to monitor road use for MBUF programs have maintained privacy and security by keeping all data stored inside the vehicle, and while only reporting the most basic information back to the state’s program vendors: road type and distance.

Also noteworthy is the information transfer only works in one direction: Cars report their mileage information to the vendors, but the vendors cannot tap into the vehicles themselves. Pilot programs like OReGO have shown great promise and available technologies exist to make MBUFs effective and secure. 

Keeping mileage-based user fees out of the proposed Biden infrastructure bill was likely the right choice. The next federal surface transportation reauthorization bill is likely to continue funding state mileage-based user fee pilot programs and may get started on a national pilot, which needs to be well-designed and supported by stakeholders. 

Transportation Secretary Buttigieg was correct to suggest mileage-based user fees as a long-term strategy for preserving and strengthening the users-pay funding approach to roads. Gas taxes aren’t a sustainable way to fund today’s roads and highways. While still in the early stages of testing and implementation, mileage-based user fees should be embraced as a means to make road funding more predictable, sustainable, equitable, as well as by keeping funding in the hands of users.

The post Mileage-Based User Fees Are a Sustainable Way to Fund Roads, Replace Gas Taxes appeared first on Reason Foundation.

Why Use Mileage-Based User Fees?

User fees are the best way to fund transportation infrastructure. The advantages of user fees include: 

• Fairness. Those who benefit from the infrastructure help pay for it, and both what they pay and what they get is relatively transparent. 
• Choice. Users have more agency over what, when, and how often they pay. They can make adjustments to their lifestyle, location, and other choices to increase their benefits from transportation. 
• Flexibility. User fees allow departments of transportation the ability to adjust revenues and expenditures as the economy, travel demand, and technology change. 
• Better incentives. User fees create incentives for users to think seriously about the costs of transportation infrastructure. And they create better information and incentives for departments of transportation to strive for efficiency and quality that keep customers—and revenues—flowing in.
• Constraint. If users’ costs don’t change based on how much they use the system, they have no reason not to over-consume it. Misconceptions about “free” roads are a classic example of this and congestion, pollution, and lost time are the costs paid. 

User fees improve the utilization, capacity, and operational efficiency of transportation facilities and services. They are also popular with users who experience the value transaction and allow for the reality of variation in preferences.

In contrast, general revenue funding for transportation infrastructure treats all users as identical and provides none of the operational benefits.

For several decades, the fuel tax was a successful user fee even though it is indirect and has been opaque to most payers. But its days are numbered. For an increasing number of vehicles, the connection between road use and fuel use is breaking down due to the rising fuel economy of new vehicles and the increasing number of hybrid and electric vehicles that consume little to no gasoline. Taking those trends into account, forecasts by state transportation agencies show rapidly declining gas tax revenues per mile of road use (Figure 1).

Figure 1: The Projected Impacts of Rising Fuel Economy on Fuel Tax Revenue

Source: Author’s calculations from state reports in Washington, Utah, and Oregon. 

What Is Being Done With Mileage-Based User Fees?

Replacing fuel taxes with distance-based user fees is being tested and tried in the U.S. and overseas.

New Zealand and Germany have a distance-based fee for trucks, and Australia and several European countries are testing their application to passenger vehicles.

In the U.S., states have been testing mileage-based user fees for over a decade. And six years ago, the FAST Act created the Surface Transportation System Funding Alternatives (STSFA) Program, which has given federal grants to states to accelerate testing of mileage-based fees. Since then:

• Fourteen states have received grants for 37 MBUF projects;
• Two large regional pilots have been carried out, one by the Eastern Transportation Coalition and involving seven states and the District of Columbia, and the other by the Western Road Usage Charge Consortium (RUC West), which includes British Columbia, testing multi-state and international issues;
• Two states, Oregon and Utah, established actual MBUF programs with a slow and long-term rollout across their fleets. A third state, Virginia, is planning to launch one in the next year.

The pilot projects have begun building an extensive base of knowledge about mileage-based fees and what it would take to implement them. This ranges from technical viability to interoperability and public acceptance, but also equity and privacy concerns, among many others.

The Main Issues With MBUFs

There are several key issues that the state pilot programs testing mileage-based user fees are grappling with.

It’s a new user fee. Pilot programs are testing mileage-based fees as a replacement for the fuel tax, not as a new additional charge to drivers. This is important and alleviates understandable concerns about double-taxation. 

Privacy: The top concern drivers have about mileage-based fees is privacy. The systems being tested and proposed address privacy concerns in several ways:

• Users can choose to pay a calculated fee so no data is collected on their road use.
• Users who choose an option with a technology that measures their road use can pick an option where they own and control the data and what is shared, and the states use private vendors on data collection to prevent private information from going to the state government unless users explicitly agree to share it.
• Programs continue to test new privacy and data protection policies, and new data security policies.

Technology is capable and changing fast and states must adapt. A number of technologies are capable of measuring road use accurately and assessing road usage charges. The technology, however, is changing and improving rapidly, so these mileage-based user fee systems need to accommodate technological changes, especially as vehicle manufacturers build them into care as original equipment. 

Costs need to be lowered. Currently, the cost to collect mileage-based user fees is appreciably higher than for collecting fuel taxes, but the cost does appear to come down with increased scale. Pilot projects are increasingly exploring how to reduce the collection costs. 

Equity for lower-income users. All user fees are levied according to use, not according to income or wealth, so they tend to be regressive. A mileage fee is no more regressive than a fuel tax, so the shift in user fees will not reduce, or increase, the regressive nature of the main transportation user fee. Given the many advantages that user fees have over general taxes, the best way to address this problem is to provide appropriate assistance, as we do with food via food stamps and with water and phone services with lifeline rates, which help low-income families and individuals pay the costs of basic services. In addition, mileage-based fee systems need to be designed in ways to make it easy for lower-income drivers to pay, which means they should not require credit cards or large lump-sum payments.

Fairness for rural drivers. Contrary to the concerns of rural communities, mileage-based user fees are better for rural drivers. Rural residents are often without public transportation options and make long commutes and trips so they already pay more user fees than urban residents in the form of fuel taxes because it takes more fuel to travel further. This is amplified if drivers have vehicles with below-average fuel economy, as is the case for many rural residents. Shifting to a mileage-based fee would change that by taking away the rural penalty from their less fuel-efficient vehicles. Indeed, research by RAND Corporation and by the states of Oregon, Washington, and North Carolina, found that rural drivers benefit from a shift to mileage-based fees and would pay slightly less compared to traditional fuel taxes. This is appropriate because rural roads also tend to be less expensive to build and maintain than urban ones.

Credit and Source: ITS International, 2017.

MBUFs don’t discourage the purchase of electric vehicles. Individuals buying electric cars will avoid paying (right now) $2.90 per gallon for gas, of which, on average, $0.35 is fuel taxes. So asking electric car drivers to pay a fee for the roads they use is both reasonable and a very small portion of the financial impact of their switch to electric propulsion. States that have imposed road usage charges on electric vehicles report no discernable changes in trends of electric vehicle adoption. 

Next Steps for Mileage-Based User Fees

In the short run, mileage-based fees do not address transportation funding needs. Investing in road usage charge pilot programs is an investment in developing a necessary long-term replacement for fuel taxes. It is important to continue state pilot programs, to look to expand their scale and scope, and start to address the tougher transition issues.

At the same time, Congress is currently discussing a possible national mileage-based user fee pilot program as part of the next surface transportation reauthorization bill. That could be helpful if it is well designed and executed because it would allow for larger scale and more extensive testing. A national pilot program should build on the experience of the states, the lessons they have learned, and include those currently undertaking state pilot programs.

Mileage-Based User Fee Principles

We recommend that any mileage-based user fee program be based on the following principles: 

1. Road usage charges should replace fuel taxes, not supplement them.
2. Road usage charges should be structured as a user fee, not a tax, on the principle of users-pay/users-benefit.
3. Road usage charges should focus on paying for road infrastructure and any attempts to deal with other issues such as congestion, emissions or noise should be separate. 
4. Road usage charges must provide protections for user privacy and ensure that users’ data are protected from misuse.
5. Road usage charge systems should provide users with better information about their travel costs and choices, and, when data are voluntarily shared, provide road owners with better information about the use of their infrastructure.

The post Examining Mileage-Based User Fees As a Replacement for Gas Taxes appeared first on Reason Foundation.

There are five major advantages to user mileage-based user fees:

• Fairness. Mileage-based user fees (MBUF) ensure that those who pay the user fees are the ones who receive the benefits.
• Choice. MBUFs give users more control of what, when, and how often they pay.
• Flexibility. MBUFs give state departments of transportation (DOTs) the ability to adjust revenues and expenditures, as economic conditions, consumer demand, and technology change.
• Better incentives. Mileage-based user fees create incentives for drivers and DOTs to think seriously about the efficiency, quality, and costs of transportation. 
• Constraint. MBUFs can help prevent overconsumption and negative externalities, such as traffic congestion and air pollution.

The fuel tax has been a very successful user fee but its days are numbered. For an increasing number of vehicles, the connection between road use and fuel use is breaking down due to rising fuel economy standards and the increasing number of hybrid and electric vehicles. 

Mileage-based user fees are currently being tested in pilot projects and used in limited cases until the technology, system designs, and costs issues are resolved.

New Zealand and Germany have a distance-based fee for trucks. Australia and several European countries are doing pilot projects on applying the fees to passenger vehicles.

In the U.S., states have been testing mileage-based user fees for over a decade. And six years ago the Fixing America’s Surface Transportation (FAST) Act created the Surface Transportation System Funding Alternatives Program (STSFA) which has given grants to states to accelerate testing of mileage-based fees. 

Some motorists have raised concerns about mileage-based user fees. There is some concern that they would be an additional user fee on top of today’s taxes. However, the pilot programs are testing mileage-based fees as a replacement for fuel taxes, not as a new additional charge to drivers.

The top concern many have about mileage-based fees is privacy, which can be addressed by having users choose to pay a calculated fee with no data collected on their actual road use. Alternatively, users who choose an option with a technology that measures their road use can choose to own their data, determine what data to share, and use private vendors to ensure that their data is not shared with the state government unless the user agrees to share it.

The costs of collection are another concern for policymakers. Currently, the cost to collect mileage-based fees is higher than for fuel taxes collected at the gas pump. But the costs of collection for MBUFs do appear to come down with scale. Pilot projects are increasingly exploring how to reduce those costs.

Equity is another concern. All user fees are levied according to use, not according to income or wealth, so they tend to be regressive. A mileage fee is no more regressive than is the fuel tax, so the shift in user fees will not reduce, or increase, the regressivity of the main transportation user fee.  

Many rural residents are concerned mileage-based user fees would be unfair to them. But mileage-based fees are better for rural drivers, who already pay more in fuel taxes because they travel further using more fuel and typically have less fuel-efficient vehicles. Research by the RAND Corporation and by the states of Oregon, Washington, and North Carolina, found that rural drivers benefit from a shift to mileage-based fees and would pay slightly less than they pay in gas taxes.  This is appropriate because rural roads also tend to be less expensive to build and maintain than urban ones.

Some environmental groups are worried that mileage-based user fees will discourage the purchase of electric vehicles. Currently, electric car drivers avoid paying fuel taxes. Asking them to pay a fee for the roads they use is reasonable and fair to all drivers. States that have imposed road use charges on electric vehicles report no change in the trends in electric vehicle adoption. 

Mileage-based user fees are a long-term replacement for the gas tax. In the meantime, it is important to continue state pilot programs, expanding their scale and scope and starting to address the transition issues. A national MBUF pilot program could be helpful—if it is well designed and executed, allowing for larger scale and more extensive testing. A national MBUF pilot should learn from and build on the experience of the states. 

We recommend that any mileage-based user fee program adopt the following principles:

1. Road usage charges should replace fuel taxes, not supplement them.
2. Road use charges are not a tax, but a user fee.
3. Road use charges should focus on paying for use of that infrastructure and attempts to deal with issues such as congestion, emissions, or noise should be separate.
4. Road use charges must provide for user privacy and, in the event of shared data, must ensure that users’ data are protected.
5. Road-use charge systems should provide users with better information about their travel costs and choices, and when data is voluntarily shared, it should provide road owners with better information about the use of their infrastructure.

The post An Overview of Mileage-Based User Fees: A Potential Replacement for the Fuel Tax appeared first on Reason Foundation.

President Joe Biden’s American Jobs Plan would invest $2 trillion in what the administration labels as infrastructure projects but would devote only $115 billion over eight years to roads and bridges. That’s not nearly enough, according to a national commission appointed by Congress that estimated reconstructing the aging pavement and bridges on the Interstate Highway System would cost at least $1 trillion over the next 20 years.

How are public pension systems relevant to the need to rebuild highways?

One example is the Indiana Toll Road (I-80/I-90), which in 2005 was long-term leased for 75 years via a public-private partnership (P3). The owners of that long-term public-private partnership are dozens of U.S. public pension funds, organized by IFM Investors, which specializes in finding long-term infrastructure investments for pension systems to invest in.

Another example is the Chicago Skyway, whose long-term P3 lease is held by three of the largest Canadian public pension systems.

In these kinds of long-term public-private partnerships, the winning bidder is responsible for operating, maintaining, upgrading, and rebuilding the infrastructure, as needed. It is subject to oversight by its government partner, usually the state department of transportation. On the Indiana Toll Road, for example, the P3 company has repaved most of the highway, revamped and modernized its service plazas, added truck parking facilities, and is now adding electric vehicle charging facilities.

America’s public pension systems are increasingly seeking reliable long-term investments in revenue-generating infrastructure, such as airports, seaports, and tolled roads and bridges. Most of the pension systems’ transportation infrastructure investments are outside the United States, however. That’s because the pension systems want to invest equity—but government-owned airports, seaports, and toll roads are entirely financed by debt. Overseas, large numbers of airports, seaports, and toll roads have been long-term leased to investors, so that is where most U.S. pension equity investments in transportation infrastructure are going.

Federal law permits government airport owners to enter into long-term public-private partnership leases, and Puerto Rico has transformed the San Juan airport via this kind of P3. But in the highway field, 95 percent of the aging Interstate system is non-tolled, so it would be of no interest to pension systems unless the P3 lease included the ability to charge tolls, which would create a bondable revenue stream and the potential of earning a return on equity.

Congress could address this situation by expanding the current three-state pilot program on toll-financed Interstate reconstruction to include all 50 states and allowing any participating state to rebuild all of its aging Interstates via toll financing, instead of only one.

One other action for Congress would be to expand the current authorization for tax-exempt private activity bonds (PABs), removing the $15 billion cap (which has all been used up) and clarifying the law to ensure that PABs can be used to finance the reconstruction and modernization of existing infrastructure, not just to build new facilities.

These two changes—public-private partnership toll projects on Interstates and private activity bonds expansion—would open the door for significant public pension fund investment in upgrading and reconstructing America’s aging Interstate highways. Fixing highways and bridges, while also helping produce public pension system returns on equity, would be a winning combination.

The post How to Increase Public Pension Fund Investment in U.S. Infrastructure appeared first on Reason Foundation.

The price tag for this? About $1 trillion over the next 20 years.

Congress has shown little interest in addressing the need to modernize America’s most important highways (which handle 25 percent of all miles driven even though they represent just 2.5 percent of all lane-miles).

President Joe Biden’s proposed $2.3 trillion American Jobs Plan allocates only $115 billion for highways and bridges over eight years, none of it focused on Interstate modernization.

American motorists, businesses, and trucking companies deserve better.

A growing number of states (which actually own the Interstates and are responsible for their upkeep) have been doing studies on how they might self-finance the reconstruction of these vital arteries. Connecticut, Indiana, Michigan, and Wisconsin have funded studies on how the revenues from all-electronic tolling could be used to finance rebuilding their Interstates. Alabama, Louisiana, and several other states are also considering toll-financed replacement of major Interstate bridges.

If Congress is unwilling to fund Interstate modernization, the least it could do is to make tools available to any state willing to bite the bullet on self-financing such projects. Over the past 20 years, Congress has chipped away at the 1956 ban on using tolls on the Interstates. For instance, the Interstate System Reconstruction and Rehabilitation Pilot Program (ISRRPP) offered three states the option of using toll revenues to finance rebuilding one of its Interstates.

This turned out to be political poison because people living near the selected corridor complained about being singled out to pay tolls, unlike fellow citizens living near the state’s other Interstates. What responsible states want to do is enact a long-term plan to rebuild and modernize all of their Interstates, in priority order.

What Congress could do, therefore, is to liberalize the Interstate System Reconstruction and Rehabilitation Pilot Program in three ways. First, open it up to all 50 states. Second, allow each participating state to use toll finance to rebuild all its aging Interstates. And third, adopt customer-friendly tolling principles to ensure that these new tolls are pure user fees that cannot be turned into cash cows for the state government to divert to non-Interstate projects.

More than half of the states already have a toll agency that would be a candidate to undertake these projects. For those that don’t, such projects would be a good fit for long-term public-private partnerships like those now running the Indiana Toll Road and the Chicago Skyway. Public pension funds have invested in both of these partnerships and would love to have more opportunities to invest in “building back better.” But when the private sector finances toll projects, it must issue taxable bonds, unlike state toll agencies. Years ago Congress authorized tax-exempt private activity bonds for such projects, but the limited amount it approved has all been committed. So the other move Congress could take would be to greatly increase or simply remove the $15 billion cap on the amount of such bonds. Bipartisan legislation has been proposed to double the cap to $30 billion, but, unfortunately, that is still far short of what will be needed if more than a few states embark on Interstate modernization.

America needs a second-generation Interstate system. If Congress declines to fund it, the least it can do is give willing states the tools they need to start getting the job done themselves. 

The post How to Pay for Rebuilding and Modernizing America’s Aging Interstates appeared first on Reason Foundation.

Under the National Traffic and Motor Vehicle Safety Act of 1966, the National Highway Traffic Safety Administration (NHTSA) issues and enforces Federal Motor Vehicle Safety Standards (FMVSS). These regulations dictate safety and performance requirements for new domestically manufactured and imported motor vehicles, and currently number 73. 

Federal policy enacted as part of the National Technology Transfer and Advancement Act of 1995 strongly encourages regulatory agencies, including NHTSA, to incorporate voluntary consensus standards developed by expert technical standards bodies in lieu of crafting government-unique standards. The existing 73 FMVSS incorporate 255 nongovernmental voluntary consensus technical standards developed by expert organizations such as SAE International (formerly the Society of Automotive Engineers). 

Given the novelty of AVs, few ADS-specific technical standards exist and even fewer are ripe for regulatory incorporation. NHTSA’s experience with past rulemakings suggests ADS-related FMVSS modernization may take years even after relevant voluntary consensus technical standards are published. ADS developers wishing to bring their technologies to market prior to the promulgation of new or amended safety regulations will likely need to seek temporary FMVSS exemptions.

Under current law, FMVSS exemptions limit developers of ADS-equipped vehicles with novel designs to 2,500 vehicles per year for two years, with an opportunity to renew the exemption for another two years. For comparison, established parcel carriers operate hundreds of thousands of delivery vehicles, and ride-hailing firms have more than a million drivers in the U.S. A recent report commissioned by Nuro estimates that a quarter-million to two million ADS-equipped delivery vehicles will be needed to meet U.S. customer demand by 2030. Ten thousand exempt vehicles over four years per manufacturer is not nearly enough to allow providers of ADS-enabled services such as taxis and last-mile delivery to scale nationwide.

Both the SELF DRIVE and AV START Acts considered during the 115th Congress in 2017 and 2018 would have substantially increased the annual FMVSS exemption cap for ADS-equipped vehicles from 2,500 to 100,000 and at least 80,000, respectively. Both would have also increased the length of the exemption period from two years to four years, with the potential for renewing the exemption for an additional four years.

Raising the annual FMVSS exemption cap is the most important action Congress could take to support safe deployment in the near term while technical standards and FMVSS remain under development. Requiring developers to demonstrate an equivalent level of safety or better prior to granting an exemption—a condition long required under most conventional exemption categories—should be maintained for noncompliant ADS-equipped vehicles. Coupled with this mandated safety assurance, Congress should increase the annual FMVSS exemption cap for ADS-equipped vehicles to at least 100,000 to ensure that the public is not denied safer and more efficient transportation options prior to the promulgation of ADS-specific FMVSS.

The post Congress Should Modernize Regulatory Authorities to Support Automated Vehicle Development appeared first on Reason Foundation.

To kick off the International Bridge Tunnel & Turnpike Association’s  (IBTTA) 2021Transportation Finance Summit, I did a fireside chat—on Zoom—with DJ Gribbin, who served as President Donald Trump’s special assistant for infrastructure, where he developed the administration’s comprehensive infrastructure plan. Throughout Gribbin’s career—he was also general counsel for the Federal Highway Administration (FHWA) and then the U.S. Department of Transportation under President George W. Bush—he has specialized in infrastructure financing, business, and policy. He has always been a creative thinker and driven interesting conversations on transportation-related issues.

In the conversation, Gribbin talks about the challenges of turning a large infrastructure vision into the kind of concrete plan that can actually be implemented, how to overcome these challenges, and other aspects of what we can expect to see in the coming months as President Biden tries to move his ambitious American Jobs Plan from its current form through Congress to become law of the land.

We also discuss the current political climate surrounding transportation policy, both at the federal and state level, as governments struggle to prioritize and fund infrastructure projects. Gribbin offers insight into the problems plaguing transportation funding in recent years and we can overcome them.

The Transportation Finance Summit was a joint effort of the International Bridge, Tunnel and Turnpike Association, the Transportation Research Board of the National Academy of Sciences, and the American Association of State Highway and Transportation Officials.

Gribbin is also the founder of Madrus, a consulting firm dedicated to developing critical infrastructure, and now works as a senior operating partner at Stonepeak Infrastructure Partners and as a senior fellow at the Brookings Institution.

I hope you will enjoy the wide-ranging conversation on transportation, government spending and earmarks, and more, including what it’s like to be the inspiration for a definition in the Urban Dictionary.

The post The Challenges and Opportunities Ahead For U.S. Infrastructure appeared first on Reason Foundation.

According to the Federal Highway Administration, using life-cycle cost analysis and multifactorial scoring systems are critical to making decisions on whether to fund a transportation project. States should also consider the role of emissions and freight. If Congress is looking for a national metric, one could be modeled after two of the states—North Carolina and Virginia—that are considered to have the most effective, objective selection processes. 

The North Carolina 2013 Strategic Transportation Investments Act, for example, allocates transportation project funding on the basis of how the projects will perform on three key criteria:

• The needs of the state’s 14 transportation divisions (30 percent);
• Regional impact (30 percent); and
• Statewide impact (40 percent). 

Since implementing this process, North Carolina has been able to dedicate more resources to capital and bridge spending, while maintaining top 25 rankings in pavement condition. 

Similarly, in 2014, Virginia adopted the Prioritization Process for Project Selection, which instituted a method for quantitatively scoring the state’s proposed transportation projects before they are then reviewed by the Commonwealth Transportation Board (CTB). Virginia House Bill 2 created ‘Smart Scale,’ which uses 10 criteria to measure project effectiveness. The criteria are weighted as follows: 

• The reduction of congestion (35 percent);
• Project readiness (25 percent);
• Service deficiencies (5 percent);
• Reduction in vehicle-miles traveled (5 percent);
• Improvements in transportation safety (5 percent);
• Increased connections between activity centers (5 percent);
• Increased regional and modal integration (5 percent);
• Improved bicycle and pedestrian travel options (5 percent);
• Improved management of existing operations (5 percent); and
• Cost-sharing with other entities (5 percent).

Since implementing this scoring process, Virginia has been able to maintain high-quality pavement conditions and improve additional highways. 

The next surface transportation bill should include a federal system that uses a similar process to evaluate the costs and benefits of proposed projects. Such a system might compare the costs of reducing the number of congestion hours for a roadway or achieving a reduction in greenhouse gas emissions. Typically, state departments of transportation build projects and then get reimbursed by the U.S. Department of Transportation. In reimbursements, states could be incentivized with a 20 percent bonus to complete projects with strong benefit/cost ratios and penalized 20 percent for moving ahead with projects with poor cost/benefit ratios. 

The post Improve Efficiency in Transportation Funding By Using a Metric-Driven Process appeared first on Reason Foundation.

Public-private partnerships (P3s) for complex multi-billion dollar highway projects have been used for half a century in Europe and for the last two decades in Australia, Latin America, and Canada. Over the past 20 years, nearly two-dozen long-term transportation P3s have been financed in the United States and P3 toll projects are under construction or already in operation in many states, including California, Colorado, Florida, Texas, and Virginia. 

States are increasingly using public-private partnerships to deliver new transportation capacity, thereby improving mobility without unduly burdening taxpayers. P3s come in many forms and can be used in the development of new infrastructure as well as the maintenance and improvement of existing infrastructure. 

Public-private partnerships offer governments a way to help address problems such as aging infrastructure, increasing demand, and constrained budgets. P3s should be written to provide safeguards against the kinds of cost overruns and delays that plague conventional megaprojects. 

In general, public-private partnership projects have five significant advantages over when used to fund transportation infrastructure:

1. Delivery of needed additional transportation infrastructure sooner. P3s offer a way to finance major highway and infrastructure projects that otherwise might be built years later—or not at all. Many state governments are facing growing demand for road transportation capacity at the same time they’re experiencing declining funding from conventional sources, such as gas taxes. As a result, the maintenance and renovation of existing highways often use up available financial resources while urban traffic congestion worsens. Public-private partnerships offer governments a way to fund projects they don’t have the money for right now. 
2. P3s offer the ability to raise large, new sources of capital for toll projects. Rebuilding and modernizing our freeways and Interstates is very costly. The long-term P3 model can raise significant investment capital for new and reconstructed transportation infrastructure because it is attractive to many different types of infrastructure investors, including public pension funds and insurance companies. 
3. P3s shift financial risk from taxpayers to private investors. Public-private partnerships parcel out duties and risks to the parties best able to handle them. The state remains responsible for public rights-of-way and environmental permitting. Private companies typically assume the risks associated with construction cost overruns and any possible traffic and revenue shortfalls. Shifting these risks to private parties that have strong financial incentives to contain costs increases the likelihood that the infrastructure project will be completed on time and on budget. 
4. P3s provide a more business-like approach. Compared with government highway providers, toll road companies are less susceptible to political pressure from narrow political interests and tend to be more customer-service oriented. They are quicker to adopt cost-saving and customer-service-oriented technologies, products, and services. 
5. P3s can help enable major innovations. The motivation for private partners to innovate, solve difficult problems, and improve service can be a powerful tool. For example, the concept of using variable-priced tolls to eliminate traffic congestion was pioneered by a private highway operator on SR 91 in California. Today, most P3 projects have adopted the variable pricing model for their managed lane projects. 

Full public-private partnerships with design, build, finance, operate and maintain (DBFOM) steps come in three forms:

1. Toll concessions
2. Availability payments
3. Hybrid model

While all three forms transfer some risk, toll concessions are preferable because the tolls serve as a revenue source for the project.

With availability payments, the revenue must come from gas taxes, sales taxes, or some other general revenue source.

A third option is a hybrid model that involves tolling where the public partner collects the toll.

Both availability payments and the hybrid model have two drawbacks: there is no relationship between the company building the toll road and its users, and the state retains the revenue risk (leaving taxpayers on the hook if the project fails to generate less revenue than expected or costs more to build than expected). 

Many P3 projects use Transportation Infrastructure Finance and Innovation Act (TIFIA) loans and private activity bonds (PABs) as part of their financing. A typical toll-financed P3 uses a state investment for 14 percent of project costs, private equity for 29 percent of the costs, a TIFIA loan for 27 percent, PABs for 23 percent, and bank financing and capitalized interest for 7 percent. 

The post An Overview of Using Public-Private Partnerships to Build or Modernize Highways appeared first on Reason Foundation.

The program aims to provide ‘gap’ funding to worthwhile transportation infrastructure projects that have dedicated funding sources (such as tolls), but which governments might not be able to fully finance without federal assistance in closing the funding gap.

TIFIA provides subordinated loans, which can account for no more than 50 percent of a project’s funding (although the TIFIA office typically limits loan amounts to 33 percent of a project’s funding). The senior debt (e.g., toll revenue bonds) must attain an investment-grade rating in order for the project to obtain TIFIA support. 

TIFIA is considered an important tool for project finance and a growing number of infrastructure projects have made use of TIFIA loans in recent years, including the Elizabeth River Tunnels in the Tidewater area of Virginia, the I-77 Express Lanes in North Carolina, and Transform 66 in Virginia. If TIFIA loans were not an option, many of these types of large transportation projects might struggle to find funding. 

When individuals finance a large capital expenditure such as a car or a house, they typically make a down payment and arrange for one or more loans to pay the balance of the initial cost.  It is a long-lived asset that is being paid for over a time period in which the individual can use it and enjoy its benefits. Large-scale transportation infrastructure projects are likewise long-lived assets, whose benefits extend over their entire useful lives and can be funded over time. 

In the Moving Ahead for Progress in the 21st Century Act (MAP-21) of 2012, TIFIA funding was increased to $1 billion per year. However, In the subsequent Fixing America’s Surface Transportation (FAST) Act of 2015, TIFIA funding was decreased to $275 million.

The purported reason for this change was not enough projects being financed. However, the bigger problem was that the U.S. Department of Transportation (USDOT) treated TIFIA as a discretionary program, similar to Infrastructure for Rebuilding America (INFRA) grants. Treating the program this way leads to delays in the USDOT review process, which leads some project proponents to avoid or seek alternatives to TIFIA. While these process delays have decreased significantly under the FAST Act they can still be an impediment.

When Congress reformed TIFIA in 2012’s MAP-21, it intended for the program to become a check-the-box process. Any project that met TIFIA’s rigorous criteria, including being rated as an investment-grade project by at least two rating agencies and having a dedicated revenue stream, was supposed to be deemed a safe investment for TIFIA’s taxpayer credit assistance. 

TIFIA funding is very different from INFRA funding, which supports projects that may not have investment-grade ratings. It makes sense for USDOT to use rigorous metrics to evaluate INFRA grants that score as an outlay compared to TIFIA that scores as a loan. 

Both Democratic and Republican administrations have, in many ways, treated TIFIA as a discretionary program. Yet, this was not the intent of the original program. Congress should direct USDOT to follow the mandate laid out in TEA-21. Subject to the availability of TIFIA funds, the Department of Transportation should approve all projects that meet TIFIA criteria.

The post Streamline the TIFIA Process to Fund Key Infrastructure Projects appeared first on Reason Foundation.

Chairman Brown, Ranking Member Toomey, and fellow Members:

My name is Baruch Feigenbaum. I am the senior managing director for transportation policy at Reason Foundation, a nonprofit think tank. For more than four decades, Reason’s transportation experts have been advising federal, state, and local policymakers on market-based approaches to transportation.

My Credentials on Today’s Topic

I am a graduate of the Georgia Institute of Technology with degrees in Public Policy and Transportation Planning with a concentration in Engineering. With Reason, I have authored studies on mobility, highway congestion, transit options, funding alternatives, and innovative financing. I have worked with the states of California, Colorado, Georgia, Michigan, New Jersey, North Carolina, and Pennsylvania as well as numerous counties to implement transportation policy and funding reform. I currently serve on two National Academy of Sciences Transportation Research Board committees: Bus Transit Systems, where I serve as Secretary and Conference Planning Chair, and Intelligent Transportation Systems. Further, I assist the committees on Transportation Revenue and Financing and Metropolitan Planning. My testimony today draws on these experiences.

Overview of Environment

COVID-19 has obviously dramatically changed many aspects of life. While all aspects of transportation have been impacted, no mode has been affected more than mass transit. Ridership on rail transit has decreased 70-90 percent during the pandemic, while ridership on bus transit has decreased a more modest 40-60 percent. Even when COVID-19 subsides, a majority of experts expect mass transit to recover 90 percent of its riders at most, with some expecting a recovery rate of only 70 percent.

Transit use was on a multi-year decline even before COVID-19, with only 5 percent of Americans commuting by transit. Yet, according to the Bureau of Transportation Statistics, the U.S. spends $70 billion per year on transit. Transit policy was in need of reform even before COVID-19, but now a rethinking of transit is critical.

Many commuters in our current environment have substituted working at home for transit. In 2020, 35 percent of all Americans worked from home. In a PricewaterhouseCoopers survey, 83 percent of employers and 71 percent of employees say remote work has been a success. Once COVID subsides, many predict the work at home share will be 20-25 percent.

Due to a combination of COVID-19 and longer-term changes among transit riders, I have the following six recommendations:

1. Prioritize service for transit-dependent riders,
2. Prioritize maintenance and operations over capital expenditures,
3. Adjust quantitative metrics in project evaluation,
4. Fund bus rapid transit from the Capital Investments Grants program,
5. Fund transit from the general fund, and
6. Unlock the private market and transit innovation.

Recommendation No 1. Prioritize Service for Transit-Dependent Riders

The increase in the number of employees working at home during the pandemic has reduced transit ridership. There are two types of riders: transit-dependent riders who do not have easy access to a vehicle and transit-choice riders who do have easy access to a vehicle. Transit-choice riders in fields such as engineering or law have jobs that lend themselves to working at home. Transit-dependent riders in fields such as nursing or technical support have jobs that require being at a specific physical location. Today, since most transit ridership is by dependent and not choice riders, U.S. transit policy should focus on serving transit-dependent riders. And since these riders are more likely to use buses than rail, U.S. policymakers should focus more resources on bus transit. Over the last 20 years, the largest 30 metro areas have added miles of rail lines, but most of those same metro areas have cut bus service. Yet during the pandemic, bus ridership has recovered far faster than rail ridership.

One component of serving transit-dependent customers is building grid-based networks. Pre-World War II employment was mostly located downtown. As a result, transit networks were designed to feed employees to downtown job centers. However, since World War II, job locations have become more and more suburbanized. As a result, more than 80 percent of metro area jobs are now located outside of central business districts.

Unfortunately, many transit systems are still designed to funnel employees to the central business district. Grid-like networks more effectively transport employees from suburban residences to suburban job centers. Transit systems with grid-like patterns tend to have more than twice as many boardings per hour as legacy radial systems. Operating expenses with grid patterns are substantially lower while load factors are substantially higher.

The federal government should require transit agencies to show that they are meeting the needs of transit-dependent riders before they expend resources on transit-choice riders.

Recommendation No. 2: Prioritize Maintenance and Operations Over Capital Expenditures

Most departments of transportation (DOTs) have adopted a fix-it-first approach for their highways, but many transit agencies are focused on expansion. The local transit agency for the D.C. metro area, the Washington Metropolitan Area Transit Authority (WMATA), is one example.

Rather than focus on rebuilding the existing system, WMATA decided to expand the system, contracting with the Metro Washington Airport Authority to build the Silver Line. Meanwhile, the condition of the existing system deteriorated rapidly. Over the course of three months in 2016, the system experienced 73 fires. Currently, trains need to be offloaded regularly because they break down. At any given time, several of the system’s elevators and numerous escalators are out of service.

And WMATA is not alone; transit agencies in New York City, San Francisco, and Atlanta suffer from similar problems. More troubling, there are approximately 20 light-rail systems that will need major reconstruction in the next 10 years, and these systems have not set aside the resources needed for reconstruction.

The state of good repair metrics, which transit agencies must meet to receive funding for new capital projects, need to be strengthened by Congress. I recommend that a minimum of 95 percent of a system is in a state of good repair and that Federal Transit Administration (FTA) audits the findings for accuracy in order for a system to receive new capital funding.

Federal policy also encourages system expansion over operations. New capital projects can receive an 80 percent federal share while the share of operating costs is matched at a maximum of 50 percent. This can lead to some perverse incentives. The costs of building the Dallas Area Rapid Transit (DART) and Houston Metro were so high that those agencies were forced to cut bus service. As a result, fewer people took transit after the light-rail lines opened than before they opened. Policymakers should reverse the funding percentage so operations receive up to an 80 percent match and capital costs up to a 50 percent match.

Recommendation No. 3 Adjust the Quantitative Metrics in Project Evaluation

Currently, projects are rated 50 percent on project justification and 50 percent on local financial commitment. The project justification rankings are Mobility Improvements, Environmental Benefits, Congestion Relief, Cost-Effectiveness, Economic Development, and Land Use. Each receives a weighting of 16.66 percent. The local financial commitment ratings are Current Conditions and Commitment of Funds, with each of these receiving 25 percent of the weighting, and Reliability/Capacity receiving 50 percent.

Since cost-effectiveness is so critical to a project’s success, it should be weighted at 25 percent of the project justification total. Since mobility improvements are the purpose of transit, that category should be weighted at 25 percent as well. The remaining categories would each be weighted at 12.5 percent.

Today, projects are rated high, medium-high, medium, medium-low, or low in both the engineering and full funding grant agreement phases. Projects are required to be ranked medium or better to receive federal funding. Unfortunately, this has led several projects with funding or ridership limitations to still receive federal funding. I recommend the minimum project standard for federal funding be raised to medium-high.

Recommendation No. 4 Fund BRT from the Capital Investment Grants Program

The Capital Investment Grants program is the largest capital funding program. This includes New Starts, Small Starts, and Core Capacity projects. The program funds heavy rail, light rail, commuter rail, streetcars, and fixed-route bus rapid transit (BRT), also known as BRT heavy, in which the bus has a dedicated running way. However, it does not fund freeway BRT, where the bus travels in the freeway, or BRT lite, where the bus shares a lane of traffic with cars. Most BRT projects in this country are freeway BRT or BRT lite, since finding space dedicated for BRT running ways is challenging. In its current form, the law encourages project sponsors to choose a more expensive option (BRT heavy) instead of a more cost-effective option (BRT lite or freeway BRT).

Recommendation No. 5 Fund Transit with General Fund Revenue

When Congress passed the prior surface transportation reauthorization bill, the Fixing America’s Surface Transportation Act, or FAST Act, it transferred $83.6 billion from the general fund to the Highway Trust Fund. Given the political challenges of increasing the gas tax and the reality that a mileage-based user fee is still being tested, the transfer of additional general funds is likely. And given that funding transit out of the Highway Trust Fund violates the users-pay/users-benefit principle, and the large amount of general fund revenue needed for the surface transportation reauthorization, transit should be funded with general fund revenue while highways are funded with highway user tax revenue

Recommendation No. 6 Unlock the Private Market and Transit Innovation

Ten years ago if I had predicted the average American would jump into a car with a stranger, I would have been laughed out of this room. But that is exactly what happened with ride-hailing services such as Uber and Lyft. While ride-hailing caused disruption to the taxi industry, the innovation was good for customers. The transit market could benefit from this sort of disruption.

Unfortunately, there are several policies that prevent innovation. The first is the fact that many transit systems are monopolies, which the surface transportation reauthorization should prevent for all systems that receive federal funding. The second is that many transit agencies are hesitant to contract out services. The federal government should encourage transit contracting by requiring agencies that receive federal funding to receive bids from the private sector. The transit agencies would not be required to contract with the private sector, but they would be required to test the waters to determine if contracting would be a good policy.

Finally, Congress should encourage mass transit agencies to experiment with smaller vehicles and automation by continuing grant programs for both of these technologies.

Thank you for the opportunity to testify today on transit funding and policy. I would be happy to answer any and all questions.

The post Congressional Testimony: How Federal Transit Policy Needs to Change appeared first on Reason Foundation.

Many of the mass transit systems across the country are in poor shape, in part because they direct money to costly new capital projects rather than needed maintenance. When Congress writes and passes the next surface transportation reauthorization bill it should incentivize maintenance projects by raising the maximum federal share for maintenance and lowering the maximum federal share for capital projects. 

State highway systems are in generally good condition. Reason Foundation’s most recent Annual Highway Report found the of the nine categories focused on performance, the country made incremental progress in seven of them. 

Meanwhile, many rail transit systems are increasingly in poor condition. Major mass transit agencies, such as the Washington (DC) Metro Area Transportation Authority (WMATA), are using federal funding for new capital projects that should not be priorities due to the major backlogs in maintenance and other system needs. 

For example, WMATA is extending its Silver Line out to low-density exurban Virginia at a huge cost while its existing rail network has been plagued by collisions, derailments, fires, and other safety hazards in recent years. The Metropolitan Transit Authority (MTA) of New York has had a series of service breakdowns. And many other major transit systems are encountering similar problems. 

Unfortunately, many transit departments prioritize capital projects over ongoing maintenance needs. Part of this problem is structural. Most of the mass transit agency boards across the United States are composed of political appointees, who often favor big new projects that allow for ribbon cuttings, photo opportunities, and credit to be taken.  As a result, there is often a built-in bias towards building new rail projects over improving and adding existing transit services. 

That’s one reason there have been more than 20 new light-rail lines added over the last 20 years, despite many of the rail projects failing to increase transit ridership or meet forecasts.

Additionally, new rail expansions can sometimes mean cuts in bus service. When the Dallas Area Rapid Transit (DART) Authority and Houston Metro added new light-rail service, for example, they cut existing bus service, resulting in fewer riders using the system—after adding the rail service at great cost. 

With reduced transit ridership due to the COVID-19 pandemic, this is a particularly poor time to add costly new capacity. Transit ridership is down 60-80 percent, with rail ridership experiencing the biggest decrease. Most transportation experts do not expect mass transit ridership to fully recover. In the months and years ahead, many experts expect there to be lingering pandemic-related travel behavior changes—like permanent shifts to working at home. Long-term trends in ride-hailing apps and the future availability of automated vehicles are also likely to hit transit ridership.

Given these circumstances, Congress should cap federal funding of transit capital projects at a 50 percent share. And preference should be given to regions that provide a higher local match share.

Federal funding for transit maintenance and operations should be moved from the current 50 percent cap to an 80 percent cap, with priority given to systems that keep their infrastructure in better overall condition.

When it comes to travel, work, and commuting patterns, there is a lot of uncertainty. In the next few years, mass transit systems should be especially careful. They need to seriously consider realistic ridership forecasts and the costs and benefits of any proposed system expansion. Maintaining and repairing existing transit systems, not adding new capacity, should be the top priority.

The post How to Refocus the Federal Share of Transit Funding So Maintenance Is Prioritized appeared first on Reason Foundation.

My name is Robert Poole, director of transportation policy at Reason Foundation. I have been researching and writing about transportation policy for the past three decades. I’m an emeritus member of the Transportation Research Board’s (TRB’s) Congestion Pricing Committee and its Managed Lane Committee. I have advised the U.S. Department of Transportation, FHWA, FTA, and nearly a dozen state DOTs over the years. My latest book is Rethinking America’s Highways, published by the University of Chicago Press in 2018.

On the subject of the Highway Trust Fund, I served as a member of TRB Special Committee 285 in 2005. We produced “The Fuel Tax and Alternatives for Transportation Funding,” which was the first national study to suggest that per-gallon fuel taxes were not sustainable for the 21^st century [1].

Three years later my Reason Foundation colleague Adrian Moore was a member of the National Surface Transportation Infrastructure Financing Commission (created via the SAFETEA-LU reauthorization), which built on the TRB report, assessed many alternatives, and concluded that per-mile charges would be the best long-term replacement for per-gallon fuel taxes [2]. Reason Foundation was one of the founding members of the Mileage-Based User Fee Alliance (MBUFA).

In my testimony I will present four suggestions:

1. A short-term fix for the Highway Trust Fund, that would be compatible with President Joe Biden’s infrastructure and jobs proposal;
2. The role that private capital from public pension funds, insurance companies, and infrastructure funds could play in financing some of the needed rebuilding and modernization of U.S. infrastructure, and policy changes that could open the door for such investment;
3. Needed next steps toward getting mileage-based user fees ready for prime time; and,
4. Some thoughts on highways and climate change.

Fixing the Highway Trust Fund This Year

Over the past 13 years, Congress has allocated $157 billion of general fund money to close the gaps between the Highway Trust Fund’s user-tax revenue and the amounts Congress decided to spend on transportation from the Trust Fund. Increasing the federal highway user tax rates has become radioactive to both Democratic and Republican White Houses and members of Congress. President Biden himself rejected an increase in fuel taxes because of his pledge not to increase taxes on people making less than $400,000. To him, as to most American motorists and taxpayers, the federal gas tax is now ‘just another tax.’

How did we get to this place?

When Congress created the current federal fuel taxes and the Highway Trust Fund in 1956, it made a promise to motorists and truckers: these funds—unlike the smaller previous federal gas tax—would be held in trust to pay for building the new Interstate Highway System. They were pure user taxes, on the principle of users-pay/users-benefit. Once the Interstate system was largely completed, however, Congress began expanding the scope of what the Trust Fund could be used for. Eventually, it evolved into a general transportation trust fund, paying even for sidewalks and bike paths, as well as urban transit [3]. About 25% of the spending no longer goes for highways. I think that is a primary reason why federal fuel taxes are no longer seen as user fees but simply as yet another tax.

There is a simple way to fix this in the upcoming surface transportation reauthorization bill. In a recent report, the Congressional Research Service points out that nearly all the gap between Trust Fund revenue and Trust Fund spending is due to the non-highway programs [4]. For FY 2022, it would take just $2.2 billion more in highway user revenues to cover all likely highway spending from the Trust Fund. Transit, Amtrak, and other worthwhile programs could be paid for out of general revenues, as the president is proposing on a large scale. My expectation is that restoring the users-pay/users-benefit nature of the Highway Trust Fund would lead to a greater willingness by highway users to consider paying more for highways if they were clearly getting more in return. This approach has won the support of a number of think tanks and at least two former secretaries of transportation [5].

Tapping Private Capital for Infrastructure Improvements Beyond the Trust Fund

Public pension funds and insurance companies have long-term obligations to their beneficiaries, so they are increasingly seeking long-term investments that generate revenue. Some kinds of infrastructure generate their own revenues—such as airports, seaports, toll roads, and utilities. Nearly all these (except electric and gas utilities) are owned by state or local governments. It is not possible to invest equity in them. On the other hand, if their long-term stewardship is transferred to investor-owned companies, pension funds and others can invest equity in those companies.

What I’m referring to here is long-term public-private partnerships (P3s) for major infrastructure. These can be used to finance, build, and operate brand-new infrastructure like the express toll lanes in northern Virginia or to refurbish and modernize existing infrastructure such as the Indiana Toll Road and the San Juan International Airport. About 50 U.S. public pension funds own the long-term P3 company that is managing and improving the Indiana Toll Road.

Most pension funds don’t invest in individual projects, due to the risks of putting all their eggs in one basket. (As an individual investor, I am likewise risk-averse and invest almost entirely in conservative mutual funds.) Hence, most pension funds that invest in infrastructure allocate sums of money to one or several of the hundred or more infrastructure investment funds, which build portfolios that include both new and existing infrastructure.

The majority of U.S. public pension funds have significant unfunded liabilities. They are seeking conservative investments that can help to increase the overall rate of return on their assets, so as to reduce their unfunded liabilities. They would like to invest more in the United States, but the large majority of P3 projects are in Europe, Asia, and Latin America. In the transportation field, my database finds only six rebuild/modernization P3s and 32 new-capacity P3s in the USA since 1995 [6].

The pace has picked up in the past 15 years, but there is still a dearth of U.S. projects in which our pension funds can invest equity.

Nearly all the transportation infrastructure we’re talking about, including highways and bridges, is owned by state and local governments, and a growing number have public-private partnership laws. But Congress could open the door to many more actual P3 projects by making modest changes in two federal policies.

In SAFETEA-LU, Congress authorized $15 billion in tax-exempt Private Activity Bonds (PABs) primarily to facilitate P3s in surface transportation. As of the start of this year, 98% of that $15 billion has been used [7]. That cap should at least be doubled, if not done away with; there is no federal cap on tax-exempt municipal bonds. But the language of the law should also be clarified to ensure that PABs can be used to finance the rebuilding and modernization of existing transportation assets, consistent with Build Back Better, rather than just to build new capacity.

The other change concerns tolling. A growing number of state departments of transportation have recognized that their Interstate highways are wearing out, and many of its major bridges and interchanges need replacing. The Transportation Research Board in a 2018 report commissioned by Congress, estimated the cost of this reconstruction and modernization as approximately $1 trillion over several decades. A detailed Reason Foundation study found that the large majority of states have enough Interstate traffic to make toll-financed reconstruction feasible [8]. This could be done by state toll agencies and investor-financed companies under long-term P3 agreements.

In 1998’s TEA-21 reauthorization, Congress created a pilot program under which three states could each rebuild one Interstate financed by tolls. But politically, no state wants to single out just one Interstate to be rebuilt and charge tolls. What a growing number of states (including Indiana, Michigan, and Wisconsin) have been studying is a long-term strategy of rebuilding their entire aging Interstate system using toll finance—but that is not currently permitted by federal law. What is needed is the option for every state to use this approach, if it adopts a modest set of customer-friendly tolling policies. Reason Foundation has suggested what those policies might be.

Beginning the Transition from Per-Gallon Taxes to Per-Mile Charges

It is becoming obvious that per-gallon gasoline and diesel taxes are not a viable highway funding source for the future. Ed Regan, a distinguished traffic and revenue expert at CDM Smith, has just completed a set of three scenarios on how rapidly the revenue from gasoline and diesel taxes may decline between now and 2050 [9]. Depending on how stringent future federal fuel economy standards are and how fast electric vehicles enter the fleet, federal gas tax revenues could be down 50% by 2050, with similar decreases for state fuel taxes. I think those may be underestimates if the Biden administration’s aggressive electric vehicle efforts are fully implemented.

Congress has had the foresight over the past decade to help fund a growing number of state and regional pilot projects to test mileage-based user fees (MBUFs); these are generally called road user charges (RUCs) on the West Coast.

The transportation community has learned a great deal from these pilot projects. They have found that motorists welcome a choice of ways to record and report their miles of travel. Motorists are also very protective of their privacy, so they want strong safeguards in any permanent MBUF program. While most of the public does not see the need to transition from per-gallon taxes to per-mile charges, those who take part in pilot projects are generally more supportive.

The pilot projects have all stressed one key principle that helps gain customer acceptance: that per-mile charges will replace, rather than supplement, gas taxes. There is a great deal of concern and suspicion that MBUFs will actually be imposed in addition to gas taxes, becoming “yet another tax.”

The trucking industry has participated in several state pilot projects and at least one multi-state project carried out by the Eastern Transportation Coalition. These trucking pilots have demonstrated that trucking is more complicated than personal vehicles, but also that there are one or more organizational arrangements serving trucking that could also play a role in handling per-mile truck charges. Officially, the main national trucking organization is still skeptical about the need for, and the potential cost of, switching from per-gallon taxes to per-mile charges [10]. So in my view, it would be a mistake, politically, to start the conversion process with the trucking industry.

A key question still being debated is whether the transition should be bottom-up (starting with first-mover states) or top-down (starting with the federal government).

Given the current array of unknowns about methods, and the lack of currently available technologies at very low unit costs, it would be premature at either the state or federal level—in the next few years—to replace either a state gas tax or the federal gas tax with a per-mile charge. We do not yet know how to do this on a very large scale at an affordable cost. And we do not yet have a level of public (and industry) support that this is what we need to do. For most states and the national program, there is still much to be learned via trials to devise the best way forward.

My recommendations for Congress on this are as follows.

First, continue to support pilot projects, especially multi-state and regional projects and projects with the trucking industry.

Second, focus research on the role that existing organizations could play in regional and national MBUF systems, including state departments of motor vehicles (DMVs) and the International Fuel Tax Agreement (IFTA) for trucking.

And third, in envisioning a future federal mileage-based user fee to replace federal fuel taxes, consider making it a true highway user fee, on the users-pay/users-benefit principle I discussed above as a short-term fix for the Highway Trust Fund.

In the meantime, increased use of tolling and public-private partnerships for major projects such as replacing billion-dollar bridges and interchanges and rebuilding corridors on the Interstate system can take some of the load off the Highway Trust Fund.

The False Conflict Between Highways and Climate Policy

There is a growing consensus that because cars and trucks emit CO2, highways should not be expanded, and public policy should aim at reducing vehicle miles of travel (VMT). In a static world, this would make sense. But what does a long-term view suggest?

By 2050, when we might have completed the reconstruction and modernization of the Interstate highways, more than half of the vehicle fleet (cars and trucks both) could well be zero-emission electric vehicles [11]. And Level 4 autonomous vehicles will be mainstreamed for both cars and trucks. So CO2 emissions will be on a sharply downward track.

At the same time, vehicle autonomy will make truck platoons feasible, with (at most) one driver for several trucks, making trucks more competitive with railroads. Likewise, autonomous personal vehicles will take market share from airlines for short and medium-haul routes [12]. Other things equal, these changes will likely require more highway capacity than current projections suggest. But this will be okay because vehicular CO2 emissions will be well on their way to being a thing of the past.

Rather than seeking to reduce future VMT, we would be well-advised to plan for it, assuming that public policy continues major efforts to electrify transportation.

This concludes my testimony. I would be happy to answer questions, both now and any follow-up questions by email.

Footnotes: 

The post Congressional Testimony: The Long-Term Solvency of the Highway Trust Fund appeared first on Reason Foundation.

COVID-19 led to dramatic changes in travel behavior. By April 2020, when much of the country was under stay-at-home orders, road traffic fell 40%, mass transit ridership fell 95%, and air travel fell by 96%. Since then, road travel has largely recovered, with vehicle-miles traveled back to within 10% of the pre-pandemic baseline.

However, travel by shared transportation modes, such as commercial aviation and mass transit, was still down by approximately two-thirds year-over-year by the end of 2020, according to data collected by the Bureau of Transportation Statistics. 

Travel is expected to continue its rebound as the number of people vaccinated grows and the pandemic wanes, but changes in travel behavior driven by factors such as the rise of remote work are likely to persist. To what degree pandemic-spurred changes in travel demand are permanent is unknown at this time, and this uncertainty has rendered pre-pandemic infrastructure planning and investment models nearly useless as accurate guides to the future.

While the drop in transportation demand and the fixed nature of transportation infrastructure supply has significantly reduced the productivity of existing transportation infrastructure, some are calling for large new investments by claiming that the nation’s infrastructure networks are crumbling. However, a review of the available evidence suggests a different and more complicated picture of infrastructure asset quality. 

For example, Reason Foundation’s most recent Annual Highway Report found, “Of the Annual Highway Report’s nine categories focused on performance, including structurally deficient bridges and traffic congestion, the country made incremental progress in seven of them.” 

Similarly, a June 2020 National Bureau of Economic Research (NBER) working paper on transportation infrastructure concluded, “Not only is this infrastructure, for the most part, not deteriorating, much of it is in good condition or improving.”

However, Reason’s Annual Highway Report shows large variation across states and the NBER analysis is limited in that it fails to account for transit infrastructure beyond rolling stock. Rail guideway assets such as tracks and signals have deteriorated in many cities. To be sure, there are sizeable transportation infrastructure needs in the United States.  Reconstructing the Interstate Highway System alone has been estimated by the National Academy of Sciences to cost at least $1 trillion over two decades and mass transit’s maintenance backlog likely exceeds $100 billion.

Given all we know about existing transportation infrastructure needs and the uncertainty surrounding future travel activity, Congress should adopt a risk-minimizing “fix it first” strategy to restore our existing transportation assets to a durable state of good repair. This approach has been endorsed by organizations and think tanks across the political spectrum, from the progressive Transportation for America to the free market Competitive Enterprise Institute. 

Building new infrastructure that will last three to five decades based on pre-pandemic travel modeling is fundamentally imprudent at this time. Physical capacity expansions such as highway widening and new rail lines should at the very least face heightened scrutiny from policymakers until there is more confidence in post-pandemic travel behavior that can be used in transportation infrastructure planning and investment decisions.

The post Right Now, Infrastructure Policy Should Focus on Fixing and Maintaining What We Have appeared first on Reason Foundation.

Private activity bonds for highway and intermodal projects were first authorized by the Safe, Accountable, Flexible, Efficient, Transportation, Equity Act: A Legacy for Users (SAFETEA-LU). PABs are issued by or on behalf of a government for the purpose of financing projects developed under long-term public-private partnership (P3) agreements. These bonds increase private-sector involvement by enabling private developers/operators to access the same kind of tax-exempt financing available to public-sector projects. This lowers the cost of capital and levels the playing field, allowing P3 projects to be more competitive than would otherwise be the case. 

PABs have financed a wide variety of surface transportation projects including Virginia’s I-495 high-occupancy toll (HOT) lanes, the North Tarrant Expressway HOT lanes in Texas, the Goethals Bridge reconstruction in New York-New Jersey, the Pennsylvania Rapid Bridge Replacement Program, and the Portsmouth bypass in Ohio.

In most cases PABs provide financing for 20-30% of the project’s total cost. For megaprojects, $12 billion in private activity bonds led to $45 billion in project activity over the past 15 years. Without PABs many of these projects would not have been feasible. 

As part of a compromise when the federal bill including PABs was first authored, the total amount that could be issued was capped at $15 billion. Thanks to recent approvals of $503 million for Georgia’s SR 400 Express Lanes project and $296 million for a Fargo-Moorhead project, the federal cap has been reached.

In the next five years, a Maryland express toll lanes project and Interstate bridge replacements in Alabama, Kentucky, Louisiana, and Oregon could require $5-6 billion in new PABs authorization alone. This doesn’t include any other potential toll-financed Interstate corridor reconstruction or bridge replacement projects. There is clearly a need and the cap should be increased to at least $30 billion. 

The biggest impediment to increasing the cap at the momment is the Joint Committee on Taxation (JCT) in Congress.  When the committee scored earlier proposals for a $4 billion increase in the cap, it assumed a revenue loss of $25 to $28 million a year. Under long-established scoring rules, the committee makes assumptions on the issuance of the resulting bonds over the following 10 years, and also assumes that many of the projects so financed would otherwise have been completed via taxable bonds. Therefore, the use of PABs would deprive the Treasury of the income taxes paid on those hypothetical taxable bonds. However, if PABs did not exist, megaprojects would likely be financed via tax-exempt municipal bonds, which would lead to the same revenue loss, or not built at all. 

Adding $15 billion to the existing private activity bonds cap would be the simplest approach to help spur infrastructure projects. In the context of what could be a $400 billion surface transportation reauthorization bill, which will likely be scored over the bill’s potential five-year life, a JCT score for the first five years might be in the vicinity of $450 million. In some ways given the realities of the massive federal budget, $450 million is a relatively small piece of a a $400 billion surface transportation reauthorization bill. Given that an additional $15 billion in private activity bonds could help fund and leverage $56 billion in new infrastructure investment in much-needed surface transportation projects, raising the cap on private activity bonds should be a congressional priority.

The post Why Congress Should Expand the Use of Private Activity Bonds For Infrastructure appeared first on Reason Foundation.

Motorists and truckers who drive long distances on America’s most important highways—the 49,000 miles of Interstates—experience a startling difference between the 5 percent of them that were built originally with toll-revenue finance and the other 95 percent that were built with 90 percent funding from federal highway user taxes. On the tolled corridors (such as the New York Thruway, the Ohio Turnpike, and the Indiana Toll Road), large commercial service plazas are spaced at intervals along the roadway, offering various combinations of vehicle refueling, food and beverage service (both eat-in and take-out), miscellaneous minor shopping, and parking for both cars and trucks.

But on the fuel-tax-funded Interstates, motorists and truckers can find only “rest areas” which offer restrooms, vending machines, and a modest amount of parking. If they want any commercial services, Interstate users must exit the highway and look for gas stations, restaurants, and other services, which range from being located close to the off-ramp to being several miles away. Longer distances are often involved to reach full-service truck stops, which offer overnight truck parking, restrooms with showers, and restaurant services.

A major 2018 study of the future of the Interstate Highway System, authorized by Congress and carried out by an expert committee of the Transportation Research Board, concluded that most of the Interstate system is nearing the end of its useful life and needs to be reconstructed and modernized for the 21st century. While that report focused mostly on pavement and bridge conditions, traffic congestion, and potential widening of some corridors, it did not call attention to the inadequate “rest areas,” especially on long stretches of rural Interstates.

This policy brief suggests that a 21st-century Interstate system should have state-of-the-art service plazas in addition to new pavement, improved bridges, and redesigned and rebuilt interchanges in many urban areas.

Three factors may lead to support for reconsideration of the no-commercial-services rule for Interstate rest areas. One is the large and growing shortage of safe overnight parking for long-distance trucking. A second factor is the trend of state transportation departments to close some of their rest areas, due to budget cuts. And the third is the coming need to charge electric passenger vehicles and trucks and to refuel those powered by non-traditional fuels such as liquified natural gas (LNG) and hydrogen.

The ban on commercial services at Interstate rest areas dates back to the late 1950s and early 1960s when the first long-distance Interstates were being built. In most rural areas, the new Interstate would bypass many smaller towns and cities, whose gas stations and eating establishments depended on long-distance travelers for a significant part of their business (e.g., on historic U.S. Route 66). Lobbying from those interests persuaded Congress to help out by banning toll-road style commercial service plazas, giving local merchants the opportunity to set up shop at or near off-ramps on the new Interstates to recoup lost business. This new law in 1960 amended the 1956 law authorizing federal funding for Interstate construction. It remains in effect today, strongly supported by existing truckstop operators and franchise operators of food and fuel businesses at or near off-ramps.

The ban is in Section 111 of Title 23 of the U.S. Code. It provides that any construction project on an Interstate highway receiving federal aid “shall contain a clause providing that the State will not add any points of access to, or exit from the project in addition to those [originally] approved by the Secretary [of Transportation] in the plans for such project, without the prior approval of the Secretary.” The clause must also say that “the State will not permit automotive service stations or other commercial establishments for serving motor vehicle users to be constructed or located on the rights-of-way of the Interstate System and will not change the boundary of any right-of-way on the Interstate System to accommodate the construction of, or afford access to, an automotive service station or other commercial establishment.” But Section 111 excludes any commercial establishment that was in existence before January 1, 1960. Note that this language prohibits not only gas stations and eating establishments at rest areas on the Interstate but also any new development such as a service plaza that would have direct access (entry and exit) to the Interstate right-of-way.

To be clear on terminology, in this policy brief the term “rest area” means a place on an Interstate highway with no commercial services, such as eating establishments or fuel services. A “service plaza” means a place on an Interstate that offers an array of commercial services, which is currently legal only on toll roads that were not developed with federal funding and had service plazas in existence prior to 1960.

The decades-old ban on commercial services at Interstate rest areas was dubious at the outset, but in the post-petroleum-fueled era that is ahead of us, it is clearly past its expiration date. As part of either the 2021 reauthorization of the FAST Act or an overall infrastructure bill, repeal of this anachronistic law should be a priority. Commercialized rest areas will expand much-needed truck parking capacity and will provide ideal locations for EV charging stations as part of the expanding national network. They will also offer motorists additional refueling and meal options on their highway trips, as is appropriate in a free-market economy.

For most of the 60 years since the commercial services ban was enacted, there was not a critical mass of support for its repeal. As of 2021, that critical mass may finally emerge to support this long-overdue change.

Full Policy Brief: Rethinking Interstate Rest Areas

The post Rethinking Interstate Rest Areas appeared first on Reason Foundation.