Surface Transportation News: Diverting Gas Taxes to Amtrak, Toll Road Traffic Recovering, Hyperloop and More
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Surface Transportation Innovations Newsletter

Surface Transportation News: Diverting Gas Taxes to Amtrak, Toll Road Traffic Recovering, Hyperloop and More

Plus: The fiscal impact of automated vehicles, a poll on gas taxes and mileage fees, a ruling on availability payments being debt, and more.

In this issue:

Hyperloop, Yet Again

The big news for hyperloop advocates was last month’s announcement by the U.S. Department of Transportation (DOT) that hyperloop is a type of railroad, and therefore it will be regulated by the Federal Railroad Administration (FRA) and will be eligible for FRA grants and loans. The rationale is apparently that maglev systems had already been accepted as railroads, and since hyperloop uses maglev suspension and propulsion, it, too, is a kind of railroad. “This is a turning point for the industry,” said Virgin Hyperloop One Vice President Ryan Kelly. “It gives confidence to stakehoelders that this is a priority. It is not a pipe dream.”

Shortly before this announcement, I received an email from Ben Cooke, a media relations person for Hyperloop Transportation Technologies (TT), responding to last month’s article on a feasibility study of the Virgin Hyperloop One proposal for a line from Chicago to Pittsburgh. Cooke provided a link to the “Great Lakes Hyperloop Feasibility Study” of Hyperloop TT’s approach for this same project. Cooke’s email suggested that their study addressed the technical feasibility concerns I highlighted last month, based on a report from Lux Research.

Let’s address the unanswered technical questions first.

  • The TT study claims that the energy needed for their hyperloop system will be very low, since maglev systems can recover most of their acceleration energy via regenerative braking at the other end of the trip. I was not aware that maglev can do this, but even if it can, there is still the ongoing energy cost of maintaining the near-vacuum in the tubes through which the pods travel. Lux considers both energy costs to be significant.
  • There is no mention in either study of the transition from the near-vacuum travel tube and each station, which must be at normal atmospheric pressure before people can enter or leave the pods. What kind of airlocks will be needed, and what are their capital and operating costs?
  • The separate express freight pods will have to exit the main line to serve existing freight terminals near airports and Interstates. Has anyone designed the equivalent of railroad switches/turnouts to allow such exits?
  • And once again, no evidence is presented that hyperloop can actually achieve speeds of 600 to 750 miles per hour since no one has built a tube anywhere near long enough for a pod to accelerate to that speed and decelerate to a stop at the other end. How many miles long would that have to be?
  • And while both the TT and Virgin studies provide estimated capital costs, how they were arrived at is not disclosed. In the TT case, it is basically “trust us.”

As with any proposal for very high-speed ground transportation, the traffic and revenue modeling are critically important. No one can finance a toll road based on its projected revenue without an investment-grade traffic & revenue (T&R) study, many of which I have perused over the years. The TT study assumes that most of its passengers will be former auto drivers in this corridor and that they will choose hyperloop because it is much faster but also because driving the Interstates between Chicago and Pittsburgh will be a lot more expensive than today and far more congested. One key assumption in this is that the price of oil will be $70 per barrel in 2020 and $114 per barrel in 2050. But Brent crude today is around $40 a barrel. Oil producer BP expects oil to average just $55 per barrel from 2021 to 2050. And a recent Economist article projects that “The world has entered an era of low [oil] prices—and no region will be more affected than the Middle East and North Africa. The other key (but unstated) assumption is that there will be no lane additions between now and 2050 on the Indiana Toll Road, the Ohio Turnpike, or the Pennsylvania Turnpike.” But those toll roads exist to provide a high level of service to their toll-paying customers, so adding lanes as necessary is quite likely.

On a positive note, I think the study’s analysis of the potential for express package service is plausible, assuming the capital and operating costs are in the ballpark the study comes up with. But their freight demand estimates also assume congested turnpikes along the Chicago to Pittsburgh corridor.

The benefit/cost analysis bases its user benefits on value-of-time figures that come from stated preference surveys, which is seldom reliable enough for an investment-grade T&R study. There is also an assumption that the mere presence of hyperloop in the corridor will lead to huge economic growth in the Midwest region bisected by the corridor. If there is evidence of this effect from high-speed rail service in Europe or Japan, that would provide at least a bit of credibility for such benefits. I don’t know of any peer-reviewed studies documenting such development being stimulated by high-speed rail.

Overall, while this study relies on more extensive modeling than was apparent for the Virgin study reviewed last month, it fails to address a number of technical feasibility issues, whose solutions could significantly increase the required investment from the estimated $24-30 billion capital cost. Using those capital costs, and estimated revenue from what is likely a significantly exaggerated T&R estimate, the net present value of user benefits divided by the NPV of all costs is positive at a 3% discount rate but barely break-even at a more commercial 7% discount rate. Only by adding in many billions in questionable environmental and resource benefits can higher B/C ratios be achieved.

My verdict: The case is far from proven, but it may be a tempting target for heavy subsidies from anti-highway politicians, especially now that DOT has blessed the concept in principle.

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Traffic Recovery Aiding U.S. Toll Roads

A new study from Streetlight Data and Boston Consulting Group finds that vehicle miles of travel (VMT) are recovering nicely from the COVID-19 pandemic. Their late-July finding was that VMT in rural counties had recovered to pre-COVID levels, while VMT in urban counties averaged 90% of pre-pandemic levels. Of course, there are variations around the country, but these are national averages. Also positive is that federal highway user tax receipts in July were actually 5% higher than in July 2019.

That is good news for state DOTs dependent on fuel tax revenues, but it is especially important for tolled facilities that have regular debt service payments to make. A new, retrospective report from rating agency Moody’s found that the toll roads which handle mostly passenger vehicles were hardest hit, with a 41% decrease in VMT in April. By contrast, toll roads that serve major truck routes did much better.

Last month, Fitch Ratings released coronavirus stress test reports on three groups of toll facilities: large network toll roads, small network toll roads, and managed lanes. These reports cover only toll facilities whose bonds are rated by Fitch, but they still provide a good snapshot. Worst hit were the small networks, such as the Dulles Greenway and Elizabeth River Crossings in Virginia and the San Joaquin Toll Corridor in Orange County, CA. But even with the several stress tests applied by Fitch analysts, of the 23 small networks in this report, 12 retained A+ or A ratings with stable outlooks; the others were nearly all still investment-grade with BBB+ or BBB ratings, with either stable or negative outlooks; only the Dulles Greenway scored BB- with a negative outlook. Large toll road networks did even better. Of the 10 turnpikes, all but one had some form of A rating (AA, AA-, A+, or A) except the Indiana Toll Road at BBB; it was the only one with a negative outlook. And of the nine large expressway and bridge systems, the picture was similar, with mostly A category ratings and a mix of stable and negative outlooks; the lowest-ranked was the Miami-Dade Expressway Authority at BBB+ but a negative outlook likely due to ongoing political attacks on its existence.

Managed Lanes, as I expected, have mostly BBB ratings, despite the known volatility in traffic during recessions. Highest-rated, as usual, is the 91 Express Lanes in Orange County, rated A+ with a stable outlook. Of the 13 managed lane facilities analyzed, one is rated BBB+ (91 Express in Riverside County), five are BBB, and the remainder are rated BBB-. Ten of the 13 have Stable outlooks, one has a negative outlook (SH 288 near Houston), and one is still under review (Colorado HPTE). The key to these results, despite known revenue volatility, is prudent financial management. Most of these managed lane enterprises have debt service reserve accounts large enough to cover 12 months of debt service, and some have additional backstops.

In another positive sign for the toll industry, the E-470 Public Highway Authority in Colorado in June refinanced $250 million worth of revenue bonds to take advantage of today’s lower interest rates.  The new bonds were rated A by Standard & Poors and A2 by Moody’s.

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Diverting Highway Trust Fund Money to Amtrak?
By Baruch Feigenbaum

When Congress passed the National Interstate and Defense Highways Act of 1956 it created a dedicated users-pay/users benefit revenue source—the gas tax. In this system, those who use the highways pay the full cost, and the user-taxes paid are proportional to use.

Policymakers knew that if highways had to compete with priorities like education and health care, securing the appropriations needed to construct the Interstate system would likely have taken twice as long. They also knew that other interests would want to tap this revenue, so they included a lockbox to ensure gas tax revenue was dedicated to the Interstate system. Yet, starting in 1968 Congress found a way to divert gas tax revenue to non-roadway purposes. Today between 20-and-30% of all federal highway user tax revenue is diverted to other purposes.

At first, these diversions funded transit, including buses, which travel on highways and are used by lower-income residents. But as the years went by, these diversions funded many types of wants: rail projects, environmental desires, economic development, transportation museums, sidewalks, and recreational trails. The justifications for diverting gas tax revenue became weaker and weaker.

Fast forward to 2020 and passenger rail advocates sensed an opening. If other non-highway users are receiving Highway Trust Fund money, why can’t Amtrak? And why ask the mostly high-income users of intercity rail transport to pay for their full Amtrak costs when lower-income drivers paying gas taxes could subsidize them?

Sen. Richard Blumenthal (D, CT) recently introduced Senate Bill 4187 titled the Intercity Passenger Rail Trust Fund. The bill would divert 50% of average general fund transfers and leaking underground storage tank (LUST) revenues to passenger rail. The bill justifies this new diversion from the Highway Trust Fund by listing eight “findings”:

  1. Predictable funding is needed;
  2. Rail is dependent on annual appropriations;
  3. Amtrak’s ridership is growing;
  4. Amtrak is effective compared to air, bus, and automobile;
  5. Passenger rail offers safety and environmental advantages;
  6. The network has capacity needs;
  7. Intercity rail will become more popular over time; and,
  8. The county needs an Amtrak trust fund.

Before any agency, Amtrak included, asks for more money, it should make sure it is operating as efficiently as possible. Former Amtrak CEO Richard Anderson tried to make needed reforms. He changed Amtrak’s policy to substitute arbitration for costly lawsuits, revamped food/beverage services, and proposed eliminating the worst-performing routes. How was he rewarded? He was forced out by unions and “passenger advocates” who didn’t want to make the changes needed for Amtrak to operate like a business, even though Amtrak is set up as a corporation. Sen. Blumenthal was one of Anderson’s biggest critics, especially on arbitration in lieu of lawsuits. So on one hand, Blumenthal wants better service from Amtrak, but on the other, he’s increased Amtrak’s costs. Increasing costs doesn’t lead to better service; it leads to service cutbacks.

Let’s assume that Amtrak is somehow able to make needed reforms to reduce costs, but more revenue is still needed; that does not make the eight “findings” valid. While predictable funding (finding #1) is helpful, Amtrak passengers should provide this stream by paying for it, as users do in every other intercity transport mode.  Roadway, intercity bus, and aviation subsidies are a rounding error compared to Amtrak’s $1.9 billion in annual subsidies.

It is true that Amtrak is dependent on annual appropriations (#2 and #8 in the findings), and a trust fund would be an improvement, but Congress could disburse all Amtrak fare revenue into a trust fund, similar to trust funds for highways and aviation.

Over the past few years, Amtrak’s ridership has been growing (#3 and #7). That occurred because Anderson ran Amtrak like a business, building on his experience as CEO of Delta Air Lines. On-time departures improved, technology was modernized, and many train interiors were modernized. Amtrak also started offering sales and promotions. It’s unclear if that will continue under new leadership. But Amtrak’s 32.5 million passengers pale in comparison to the 925 million airline passengers and the billions of intercity personal vehicle trips. And given the challenge of coronavirus-related social distancing measures needed on trains in the short-term, Amtrak ridership is likely to be significantly depressed for three years potentially.

Passenger rail can offer safety benefits compared to traveling by car (#5 in the senator’s findings), but rail is significantly less safe than aviation. There have been several high-profile Amtrak crashes in recent years. And looking at a year like 2017, Amtrak had 117 fatalities while commercial aviation had zero. Amtrak may have environmental benefits if the trains are powered by electricity not generated by coal, the trains are full of passengers, and it is being compared to a car or plane that is an older model. But if the train is half empty and electricity is generated by coal and the car or plane it is being compared to is newer, or the car is a hybrid or electric vehicle, the potential benefits change substantially.

There are some parts of the railroad network that have capacity problems (#6), including the Northeast Corridor. But Amtrak could better serve those areas if it eliminated its money-losing, low-ridership, long-distance trains and focused on its most popular corridors. Aviation and intercity buses redeploy their assets from low-demand areas to high-demand corridors. Why can’t Amtrak do the same?

I’m not sure who determined Amtrak is effective (#4 in the report). But providing large subsidies to a mode of transportation that carries relatively few passengers is not effective from a taxpayer perspective.

The bill’s revenue diversion is high enough that all other beneficiaries of Highway Trust Fund spending (auto groups, the trucking industry, urban transit, the construction industry, etc.) would likely see less funding and are likely to fight it. The highway community has never liked diversions, but even with links between transit and Amtrak in some locations, it is difficult to see the transit industry supporting diverting money from urban transit, for example, for this. It’s unclear if Blumenthal views the bill as a serious proposal or a negotiating tactic, but since other Amtrak trust fund conversations haven’t advanced in the last 20 years, the bill faces an uphill climb.

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Availability Payments Are Debt, Rules GASB

Several months ago the Government Accounting Standards Board (GASB) issued a new policy document. GASB Statement No. 94 is titled “Public-Private Partnerships and Availability Payment Arrangements.” It makes the long-overdue judgment that availability payments are debts that should be reported as such on public agency balance sheets. The new provision goes into effect in June 2022.

Barney Allison of the Nossaman law firm (a long-time expert on public-private partnerships (P3s) told Inframation News, “Public agencies may want to consider the rule as guidance, depending on how they’ve booked availability payment (AP) deals so far,” in addition to following it for all future AP concessions. In transportation, Florida has used AP concessions for three major highway projects: the Port of Miami Tunnel, the I-595 reconstruction, and the I-4 Ultimate reconstruction in Orlando. Georgia DOT plans to use an AP concession for its forthcoming project to add express toll lanes to SR 400. And Maryland has an AP concession for its troubled Purple Line light rail project.

In a 2017 Reason Foundation policy study, I looked into the differences between Design Build Finance Operate Maintain (DBFOM) concessions funded via availability payments and those funded by user revenues. I suggested six cases where policy considerations might make an AP concession the better choice but also discussed limitations and shortcomings of this method compared with revenue-risk (RR) concessions—such as less risk transfer to the concession company, weaker safeguards against projects with low benefit/cost ratios, the lack of a customer/provider relationship and the incentives that creates for better service, and (the big one) not bringing much-needed new funding into the highway sector.

My research for that study found that the rating agencies already considered AP obligations to be debt because the government retains the payment risk and is counted on to resort to taxpayers in case of shortfalls in meeting debt service. I already knew that Texas and Virginia policy rejects using AP concessions—I presumed mainly because they have large highway improvement needs but limited resources to commit long-term to availability payments. Florida and North Carolina, I found, were already booking AP obligations as debt, and Florida has a statute that limits the annual amount of availability payments to 15% of available funding in the state’s transportation trust fund. North Carolina also considered AP obligations as debt, but as of 2017 had not entered into any AP concessions. And I reported a 2014 statement from Indiana DOT that it might not enter into any further AP concessions, which already had to be counted as debt on its balance sheet.

It’s unfortunate that some public officials have seemed to regard public-private partnerships done via availability payments as some kind of free money, especially if they could avoid counting them as debt on their balance sheets. That practice will soon be recognized as in violation of proper government accounting standards, as well it should be.

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The Fiscal Impact of Automated Vehicles: Cause for Concern or Blessing in Disguise?
By Marc Scribner

Selika Talbott, a former state and federal motor vehicle regulator and current lecturer at American University, recently wrote an article discussing potential impacts of automated vehicles (AVs) on government budgets (“The Political Economy Of Autonomous Vehicles,”, 23 June 2020). For various levels of government, Talbott writes, “It is possible that the wide-spread use of autonomous vehicles will have an impact on the amount of dollars available to replenish their highway trust fund.”

Talbott is right that AVs are likely to present challenges to traditional revenue streams if government officials do not adjust. The good news is governments seeking stable revenue have a very strong incentive to reexamine taxes and fees that may not be compatible with an AV future. They also have plenty of time to experiment with a variety of potential revenue sources.

For example, Talbott points to Texas’ motor vehicle registration fee revenue and its importance to infrastructure funding, which may decrease if taxi-style AVs become popular and residents forgo possession of personal automobiles. This may not occur, but if it does, it likely will not create serious long-run fiscal problems.

According to the latest annual financial report from the Texas Department of Transportation (TxDOT), it received $1.7 billion during the previous year in vehicle registration fees and certificate of title fees. Interestingly, it received approximately the same amount of revenue from taxes on oil and gas production, which could cause similar fiscal anxieties as the transition away from fossil fuels unfolds.

But this just scratches the surface. These two major Texas transportation revenue sources combined are outweighed by a variety of other revenue sources, the largest other two being from fuel taxes and sales and use taxes that raised $2.7 billion and $4.1 billion, respectively, for TxDOT in Fiscal Year 2019.

The current revenue picture of TxDOT also reflects very recent voter-approved changes to transportation funding in the state, suggesting that government tax and fee collection is adaptable to AVs, electric vehicles, and other transformative technologies and trends that may be heading our way.

In 2014, 80% of Texas voters supported Proposition 1, a constitutional amendment to direct up to half of the state’s oil and gas production revenue previously destined for its Economic Stabilization Fund to highways instead. A year later, 83% of voters supported Proposition 7, another constitutional amendment to transfer billions of dollars in sales and use tax revenue to the State Highway Fund each year. These may not be ideal transportation revenue sources given their dubious connection to the use of public-purpose transportation networks, but they were without a doubt very large shifts in funding supported by supermajorities of Texas voters.

Talbott also highlights parking tax revenue in Illinois and traffic enforcement revenue in Washington, D.C., as other areas of potential concern. What happens when AVs don’t park as frequently—or park where they frequent—or disobey traffic laws?

On the former, AVs may not park the way conventional personal cars do today, but they will still park when demand for their services is low. AVs when used in a taxi-style service also offer promise for road pricing and curb pricing, fees for currently unpriced infrastructure services that could be bundled into full fares in a manner that will likely be more palatable to consumers who would today face separate and more complicated transactions.

On the latter, excessive reliance on revenue from traffic infraction fines can create perverse incentives for law enforcement to engage in predatory and sometimes discriminatory behavior. Talbott in a subsequent piece highlights the potential of AVs to reduce socioeconomic discrimination and disparities in transportation access, but ignores the negative impact that rapacious speed-trap cities, such as Ferguson, Missouri, have had on the lives of low-income and minority residents. Viewing traffic fines as a revenue source to maximize rather than as deterrents to minimize traffic violations is a pervasive problem in America that should be addressed, not a system that should be preserved.

The fiscal impact of automated vehicles does present some challenges in the long-run, but it also presents opportunities to improve inefficiencies and inequities that have long existed in transportation finance. AVs offer the potential to move toward direct user charging for infrastructure services and away from the traditional revenue collection methods that often entail disparate socio-economic impacts.

Government officials have many revenue tools at their disposable and should make careful decisions based on empirical evidence as it materializes. Fortunately, given the current pace of automated vehicle development and deployment, they appear to have plenty of time to get it right.

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Survey Disadvantages Mileage-Based User Fees
By Baruch Feigenbaum

In June, the Mineta Transportation Institute conducted a survey to determine taxpayers’ preferences for various possible federal transportation revenue sources.  Officially titled “What Do Americans Think About Federal Tax Options to Support Transportation?” it is available here. Researchers Asha Weinstein Agrawahl and Hilary Nixon have been conducting a similar survey for the past 11 years.

Before asking about respondents’ preferences on federal gas taxes and mileage-based user fees (MBUFs), the study asked respondents about their top transportation priorities. The 15-item list included new roadway construction, new transit construction, new sidewalks, new cycling lanes, maintenance of existing systems, safety, electric vehicle incentives, and transportation technology. By far the top two categories, cited by 37% and 33% of respondents, respectively, were maintaining local streets and roadways as well as maintaining highways. The third most popular option (24%) was using technology to reduce congestion. At the bottom of the list were building/improving bike lanes (11%) and more charging stations for EVs (8%). Policymakers should note that while the electric vehicle and cycling communities are strong lobbyists, most Americans do not think those “wants” are priorities.

The survey also asked about the quality of roadways. Similar to the findings of Reason’s Annual Highway Report, 75% of respondents rated Interstate and freeway quality as either somewhat or very good. Other infrastructure including local streets and roads, bicycle and pedestrian facilities, and public transit were rated somewhat or very good by 63%, 58%, and 55% of respondents respectively.

According to the survey, support for raising the gas tax exists for all six reasons presented. Seventy-five percent supported raising the gas tax. But I think some of this might be due to the way the survey was framed and choices were offered. Even for folks who are willing to pay more in taxes, in the real world, they must choose between education, recreation, transportation, and more. In this type of survey, respondents were focused on transportation—without real-world tradeoffs—so they are likely more inclined to support funding increases. But when confronted with trade-offs and increases to their own taxes, people tend to choose priorities other than transportation and vote against tax increases, which is part of the reason the federal gas tax has not been increased in 27 years.

Not surprisingly survey respondents who drove the least, supported raising the gas tax the most. Support for increasing gas taxes in the survey is also highest among Democrats.

Only 45% of respondents supported replacing the gas tax with a mileage-based user feee, although more than 50% supported an MBUF for trucks and other commercial vehicles. Respondents preferred a monthly or quarterly MBUF invoice rather than an annual payment. Some preferred to pay an MBUF at the gasoline pump, but with an increasing number of electric vehicles, that may not be a realistic option.

The biggest problem with the survey is that it does not provide an apples-to-apples comparison between the gas tax and MBUFs. Respondents were given a choice of a 10-cent gas tax increase leading to a 28.4-cent total gas tax (the 18.4-cent tax and a 10-cents increase) or converting from the current federal gas tax to an MBUF of one cent per mile. But a one-cent per mile MBUF is equivalent to a 19.0-cent gas tax. So drivers would, on average, pay almost 50 percent more under the increased gas tax than a mileage-based user fee. Perhaps study authors are not counting pickup trucks, or are using California’s fuel efficiency instead of the nation’s average efficiency, but a better comparison would be comparing the one-cent MBUF to today’s 18.4-cent gas tax.

On the other hand, while the survey asks about six different gas tax purposes (including the base case, maintaining streets/roads/highways, reducing accidents/improving safety, reducing congestion, reducing the transportation effects of climate change, and reducing transportation-related greenhouse gas emissions), it includes only two MBUF options. With the six gas tax options, there’s something for every group to like. Swing voters would be more inclined to support an increase. But with MBUFs, there are only two options in the survey, a rate that varies with greenhouse gas emissions and a flat one-cent per mile fee, making swing voters less likely to support an MBUF.

Further, the survey suggests that all MBUF options involve using GPS in peoples’ cars, which may put people off. Yet most of the MBUF state pilots and Oregon’s permanent MBUF provide one or two low-cost, low-tech options. Some states offer the option of an annual odometer reading while others allow drivers to pay a flat fee, equivalent to what they would pay in the gas tax if they drove 20,000 miles per year. The end goal of some MBUF advocates may be a GPS system, but the first step is getting drivers familiar with a non-gas tax option. Overall, I’d suggest the design of the survey questions likely underestimated public support for MBUFs.

Finally, some demographic groups were over-represented in the sample while others were under-represented, and this may have skewed some results. Northeastern residents, whites, people with a college education, and 35-to-44-year-olds were over-represented. The large oversampling of people with college degrees (29% college degree, 16% graduate degree — 45% of people in the survey) compared to Census numbers showing that number should be around 35% probably partially explains the openness to higher taxes. Respondents with less than a college degree are less likely to support new/increased taxes, so this survey may have overstated support for new taxes.

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News Notes

Correction re Traffic Apocalypse Article
Last month’s article on a computer model estimating changes in road traffic after the COVID-19 pandemic brought a response from co-author Dan Work of Vanderbilt University. He explained two aspects of the online calculator that I had misinterpreted. First, setting the slider for telecommuters at 10% does not increase the fraction of telecommuters by 10% (which would be from a current 5% of all commutes to 5.5%) but rather “pulls 10% of the SOVs and carpoolers off the road to telecommute (a large number of people).” Second, the travel times on the vertical axis are the one-way travel times, rather than the change in travel times. He assured me that the descriptions of how the calculator works would be revised to make these points clear.

Maryland Managed Lanes Project’s New Milestones
Last month Maryland DOT announced the four teams shortlisted for Phase 1 of its $9 billion plan to add priced express lanes to the I-495 Beltway and I-270. The teams are led by Itinera Infrastructure, Transurban/Macquarie, Cintra/Meridiam, and ACS. MDOT also released the Draft Environmental Impact Study, a 350-page report with 18,000 pages of appendices. The normal comment period is 90 days, but various groups have requested this be increased to 120 days, given the length of the documents.

Infrastructure Funds Raised $56.8 Billion in First Half 2020
Infrastructure Investor reported that infrastructure investment funds raised a record $56.8 billion in the first half of this year. These funds raise money from limited partners, including insurance companies and public pension funds, to invest as equity in revenue-producing infrastructure. Many such funds have a 10-year life, but others are open-ended and focused more on long-term investment. The total raised by such funds in 2019 was $97.3 billion.

Privately Financed Tunnel Rehab in Canada
A consortium of Vinci and Pomerlau has won a design/build/finance concession to rehabilitate the 1.5 km Louis Hippolyte Lafontaine Tunnel under the St. Lawrence River in Montreal. The estimated investment is $852 million. The project includes widening the A20 motorway which leads to the tunnel plus upgrading an interchange and 25 kilometers of pavement along A20 and A25. The project is financed via equity and bank loans.

FHWA Awards Truck Platooning Research Contract to PATH
California Partners for Advanced Transportation Technology (PATH) of the University of California—Berkeley is the winner of FHWA’s Phase 2 study of commercial vehicle platooning. The research questions to be addressed include human factors impact on truck drivers in long-haul platoons, the behavior of personal vehicle drivers on roads with truck platooning, quantifying the impacts of different gap distances in platoons, and quantifying the benefits of platooning to fleet owners.

More Tunnels Requested by Las Vegas Casinos
Elon Musk’s Boring Company has finished boring the two tunnels it was contracted to build at the Las Vegas Convention Center. Before they are even ready for testing, casino owners Wynn Resorts and Resorts World have filed applications for permits with the county government for their own Boring Company tunnels. The new ones would charge passengers for their use, a two-minute ride compared with a one-mile walk. The convention center tunnels were paid for by that organization and will not charge users.

New York State Announces $750 Million EV Charging Stations Plan
New York Gov. Andrew Cuomo last month announced a plan under which 50,000 electric vehicle charging stations will be built, mostly by electric utilities in the state. About $49 million of the $750 million total will come from the 2017 settlement with Volkswagen (over its diesel emissions scandal). The rest will come from the utilities, which will benefit by charging for the electricity they sell to EV owners. A new study from Boston Consulting Group estimates that EVs will account for one-third of global new-vehicle sales by 2025, up from about 8% today globally, and just 2% last year in the United States. BCG’s projection includes hybrids as well as fully electric vehicles.

A Tale of Two Turnpikes
The Pennsylvania Turnpike is going all-electronic (i.e., cashless) as a way to increase vehicle throughput, avoid bottlenecks at toll plazas, and reduce the cost of collecting tolls. And last month it announced another smart move: increasing the rate charged to non-E-ZPass drivers because it costs far more to collect tolls billed to drivers based on license-plate imaging. Those drivers will now pay a 45% surcharge on the basic transponder toll rate. By contrast, the Ohio Turnpike proudly announced that it is retaining cash and credit card transactions, which account for 35% of its total transactions. Believe it or not, a spokesman for the agency called retaining the costly non-electronic options a benefit: “The bonus is that also, toll collectors will continue to have work at the Ohio Turnpike.”

A Source of Racial Disparity in COVID-19 Deaths: Transit
In a new working paper from the National Bureau of Economic Research, economist John McLaren of the University of Virginia reports on an empirical study of factors linked to significantly higher COVID-19 death rates among various ethnic groups. Using county-level data from 3,140 U.S. counties, he finds: “For all minorities, the minority’s population share is strongly correlated with total COVID-19 deaths. For Hispanic/Latino and Asian minorities those correlations are fragile, and largely disappear when we control for education, occupation, and commuting patterns. For African Americans and First Nations populations, the correlations are very robust. Surprisingly, for these two groups the racial disparity does not seem to be due to differences in income, poverty rates, education, occupational mix, or even access to healthcare insurance. A significant portion of the disparity can, however, be sourced to the use of public transit.”

California-Nevada Higher-Speed Train Wins Additional Bonding
At a July 24 meeting, the Nevada Board of Finance approved $200 million worth of tax-exempt Private Activity Bonds (PABs) for the Xpress West rail project between Victorville, CA and Las Vegas. Virgin Trains USA also has $850 million of PABs authorized by the US DOT and $2.54 billion authorized by the California Infrastructure and Economic Development Bank for the project, whose estimated cost is $4.8 billion.

Texas Central Designated as a Railroad by Surface Transportation Board
The company celebrated a decision by the Surface Transportation Board (STB) that it qualifies as a railroad under federal jurisdiction, even though it is purely intrastate (Dallas to Houston). The justification was that the company has arranged a joint ticketing arrangement with Amtrak. Being legally a railroad enables it to use eminent domain to acquire properties for its right of way. But it also means the company must go through a detailed STB review of its finances.

Dutch Study Finds P3 Benefits
An empirical study by the Dutch infrastructure ministry (Rijkswaterstaat) compared the cost and timely completion data for 65 infrastructure projects, of which 56 were procured traditionally and nine were procured as design/build/finance/maintain P3s. As Eoin Reeves reports in the July issue of Public Works Financing, the P3 projects had an average cost overrun of 9% while the traditional ones averaged 24%. On timely completion, the P3 projects averaged 12% less time than scheduled, compared with about 1% of delay for the traditional projects—but on this metric the differences were not statistically significant. The paper presenting the results is Verweij, S. and van Meerkerk, I. (2020), “Do Public-Private Partnerships Achieve Better Time and Cost Performance than Regular Contracts?” Public Money & Management, DOI: 10.1080/09540962.2020.1752022.

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Quotable Quotes

“The baleful interaction between pandemic fiscal policy and the political economy of central banking will impose an enormous hidden cost on our economy for years. Ultralow interest rates aren’t a free lunch. They stimulate wasteful government spending and fruitless private investment at the expense of genuine investment and innovation to boost productivity. After a point—which we probably crossed some time ago—low rates weigh on growth rather than encourage it.”
–Joseph C. Stromberg, “The COVID Fiscal Crisis Is About Debt and Taxes,” The Wall Street Journal, July 15, 2020

“The gig is up! Yes, most of the [P3] industry is likely in agreement that accounting for [availability payments] as anything other than a long-term obligation never made very much sense. Every ratings agency has passed them through to the balance sheet in some fashion for years. It is generally unfortunate when elected leaders begin considering an AP P3 because of accounting rules rather than risk management and incentive alignment. Like most other accounting gimmicks, reality eventually catches up, and the fact is that APs are, subject to contractor performance, a long-term commitment.”
–Michael Bennon, “GASB 94 Revelation—P3s Not Free Money,” Public Works Financing, June 2020

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