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Marc Scribner
        Land-use and Transportation Policy Analyst
                  Competitive Enterprise Institute
                              mscribner@cei.org




National Taxpayers Conference: August 21, 2012
• Problems Facing Current Road
  Funding/Financing Mechanisms
• Potential Solutions
• Massachusetts Case Study
• Conclusion




                         National Taxpayers Conference: August 21, 2012
• Much of the Interstate Highway System is nearing 50 years in
  age
• A sizable portion will need to be completely reconstructed
  from the roadbed up
• Existing transport infrastructure funding mechanisms (e.g., fuel
  taxes) are inadequate
    • Federal fuel tax rates unchanged since 1993
    • Construction costs have increased
    • Highway VMT are no longer increasing at past rates
    • The vehicle fleet is expected to become significantly more
        fuel efficient in coming decades
    • Mission creep


                                     National Taxpayers Conference: August 21, 2012
• About 90 percent of Highway Trust Fund revenue is generated
  through federal excise taxes on motor fuel that have not been
  raised since 1993
    • 18.4 cents per gallon of gasoline
    • 24.4 cents per gallon of diesel




                                   National Taxpayers Conference: August 21, 2012
• As the economy recovers, construction costs are expected to
  increase as public infrastructure spending must compete more
  with the private sector for materials and labor
• PB Highway Construction Cost Index outpaces CPI




                                    National Taxpayers Conference: August 21, 2012
• National Vehicle Miles Traveled (VMT) peaked in 2004
• Rural-to-urban population sorting, along with weak economy,
  have made the downward VMT trend even stronger




                                    National Taxpayers Conference: August 21, 2012
• Vehicle fleet is becoming more fuel efficient, and is likely to
  become significantly more so in the coming decades




                                        National Taxpayers Conference: August 21, 2012
• Since 1983, a portion of federal Highway Trust Fund revenues
  are explicitly dedicated to mass transit
• While total FHWA authorizations from HTF account for 80.34%,
  after subtracting Transportation Enhancements and other non-
  construction and maintenance spending, core functions are
  only receiving 68.85% of HTF revenue (FY 2004-2008)




                                    National Taxpayers Conference: August 21, 2012
• The “user-pays/user-benefits” funding principle should guide
  decisions on revenue collection
• It offers several advantages over “taxpayer pays” funding:
     • Fairness: Highway users benefit from the improvements
        their user taxes or fees generate
     • Proportionality: Users who drive more pay more. Users
        who impose disproportionate costs, such as heavy trucks,
        are charged more
     • Funding Predictability: Highway use and therefore
        highway user revenues do not fluctuate wildly in the
        short-run
     • Signaling Investment: Revenue roughly tracks use, which
        provides policy makers with an important signal as to how
        much infrastructure investment is needed
                                      National Taxpayers Conference: August 21, 2012
• Advantages to expanded all-electronic tolling
    • More direct user-charges and interoperability (E-ZPass)
    • No toll plazas—no queuing like manual tolls, lower capital
       and labor costs, more future construction flexibility
    • Capture revenue from more fuel-efficient vehicles
    • Easily track and segregate revenue within facilities
    • Can implement congestion pricing
• Disadvantages to expanded all-electronic tolling
    • Up-front transponder cost
    • Toll lane use depends on current price elasticities of travel
       demand and general purpose lane conditions
    • Administrative costs far greater than those of fuel taxes
    • Political opposition from powerful trucking interests
                                       National Taxpayers Conference: August 21, 2012
• Advantages to mileage-based fees (VMT fees)
    • Most direct link between user and payment
    • Can charge variable rates across entire road networks, not
       merely facilities
    • Capture revenue from more fuel-efficient vehicles
    • Easiest to implement comprehensive equity adjustments
• Disadvantages to mileage-based fees (VMT fees)
    • High up-front costs
    • High administrative costs
    • Privacy concerns
    • Potentially reduces appeal of P3 options
    • Potential for “double taxation” (not phasing-out fuel tax)


                                     National Taxpayers Conference: August 21, 2012
• Advantages of the public-private partnership (P3) model
   • Avoid new bonding (preserve bond ratings)
   • Build new capacity with low initial public investment
   • Reduce general taxpayer burden by charging users
      directly
   • Shift operating/revenue risk from government to private
      sector (hedge against future economic, fiscal, and
      workforce conditions)
   • Shift financing risk from government to private sector
      (hedge against capital market performance, existing
      state/local debt loads)
   • Increase speed of project delivery (avoid budgeting and
      procurement battles—Allows for concurrent design, right-
      of-way acquisition, and construction activities)
                                    National Taxpayers Conference: August 21, 2012
• Ranks 29th for highest fuel taxes in the nation (23.5₵, G&D)
• Less than half of highway revenue is collected from users
• INRIX 2011 Traffic Scorecard: I-93 Northbound in Boston metro
  ranks as 15th most congested corridor in the U.S.
• INRIX/TTI 2011 Urban Mobility Report ranks Boston metro 9th
  most congested urban area in the U.S., costing each peak
  travel auto commuter $980 a year in wasted fuel and time
    • Total area commuting congestion cost estimated at $2.2
       billion—excludes costs to freight/business trips, which
       may be another $2 billion
• According to a 2007 survey of toll road “cost-takes,” the
  Massachusetts Turnpike ranked last in the nation at 79%
  (Public national average: 42.6%; Private global average: 27.6%)
                                      National Taxpayers Conference: August 21, 2012
• Driving and vehicle registration trends will likely worsen
  existing problems
    • VMT per capita and per driver has plateaued
    • The vehicle fleet composition is shifting away from
        personal auto and toward heavy trucks




                                       National Taxpayers Conference: August 21, 2012
• What to do?
   • Expand existing FAST LANE electronic tolling network
   • Convert I-93 HOV lanes to HOT lanes and integrate with
     FAST LANE
        • Northbound HOV lanes suffer from underutilization
           (comparing GP and HOV lane throughput)
                      E-Tolling in Massachusetts

                72
                70
                68                              % Transactions
                66
                64                              % Revenue
                62
                     2009   2010   2011

                                          National Taxpayers Conference: August 21, 2012
• What to do? (cont.)
   • Authorize transportation P3s. Currently, 33 states have
     authorized P3s in some form or another.
        • Use Virginia’s 1995 Public-Private Transportation Act
           as a model
        • More capacity can be added for less and cost-take
           figures can improve dramatically.
   • 2009 MassDOT consolidation has not improved outcomes
        • Strengthening “user-pays” is imperative
        • Relying on non-user streams is dangerous—need
           tolls and increased transit fare box collection
        • The dedicated sales tax revenue expected by MBTA’s
           2000 Forward Funding Financial Plan grew at 1/3 the
           rate projected
                                     National Taxpayers Conference: August 21, 2012
• Federal system is broken—entering a period of de facto
  devolution
• Adopting innovative revenue collection mechanisms is a must
• Reforming institutions sooner rather than later will save time
  and money
• Relying on non-user revenue increases fiscal risks and
  therefore increases inefficient facilities deployment and
  management
    • Consolidation/streamlining may not be effective if it
       increases potential for cross-subsidization across facilities
       and modes



                                        National Taxpayers Conference: August 21, 2012
Marc Scribner
        Land-use and Transportation Policy Analyst
                  Competitive Enterprise Institute
                              mscribner@cei.org




National Taxpayers Conference: August 21, 2012

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Reforming surface transportation funding and financing

  • 1. Marc Scribner Land-use and Transportation Policy Analyst Competitive Enterprise Institute mscribner@cei.org National Taxpayers Conference: August 21, 2012
  • 2. • Problems Facing Current Road Funding/Financing Mechanisms • Potential Solutions • Massachusetts Case Study • Conclusion National Taxpayers Conference: August 21, 2012
  • 3. • Much of the Interstate Highway System is nearing 50 years in age • A sizable portion will need to be completely reconstructed from the roadbed up • Existing transport infrastructure funding mechanisms (e.g., fuel taxes) are inadequate • Federal fuel tax rates unchanged since 1993 • Construction costs have increased • Highway VMT are no longer increasing at past rates • The vehicle fleet is expected to become significantly more fuel efficient in coming decades • Mission creep National Taxpayers Conference: August 21, 2012
  • 4. • About 90 percent of Highway Trust Fund revenue is generated through federal excise taxes on motor fuel that have not been raised since 1993 • 18.4 cents per gallon of gasoline • 24.4 cents per gallon of diesel National Taxpayers Conference: August 21, 2012
  • 5. • As the economy recovers, construction costs are expected to increase as public infrastructure spending must compete more with the private sector for materials and labor • PB Highway Construction Cost Index outpaces CPI National Taxpayers Conference: August 21, 2012
  • 6. • National Vehicle Miles Traveled (VMT) peaked in 2004 • Rural-to-urban population sorting, along with weak economy, have made the downward VMT trend even stronger National Taxpayers Conference: August 21, 2012
  • 7. • Vehicle fleet is becoming more fuel efficient, and is likely to become significantly more so in the coming decades National Taxpayers Conference: August 21, 2012
  • 8. • Since 1983, a portion of federal Highway Trust Fund revenues are explicitly dedicated to mass transit • While total FHWA authorizations from HTF account for 80.34%, after subtracting Transportation Enhancements and other non- construction and maintenance spending, core functions are only receiving 68.85% of HTF revenue (FY 2004-2008) National Taxpayers Conference: August 21, 2012
  • 9. • The “user-pays/user-benefits” funding principle should guide decisions on revenue collection • It offers several advantages over “taxpayer pays” funding: • Fairness: Highway users benefit from the improvements their user taxes or fees generate • Proportionality: Users who drive more pay more. Users who impose disproportionate costs, such as heavy trucks, are charged more • Funding Predictability: Highway use and therefore highway user revenues do not fluctuate wildly in the short-run • Signaling Investment: Revenue roughly tracks use, which provides policy makers with an important signal as to how much infrastructure investment is needed National Taxpayers Conference: August 21, 2012
  • 10. • Advantages to expanded all-electronic tolling • More direct user-charges and interoperability (E-ZPass) • No toll plazas—no queuing like manual tolls, lower capital and labor costs, more future construction flexibility • Capture revenue from more fuel-efficient vehicles • Easily track and segregate revenue within facilities • Can implement congestion pricing • Disadvantages to expanded all-electronic tolling • Up-front transponder cost • Toll lane use depends on current price elasticities of travel demand and general purpose lane conditions • Administrative costs far greater than those of fuel taxes • Political opposition from powerful trucking interests National Taxpayers Conference: August 21, 2012
  • 11. • Advantages to mileage-based fees (VMT fees) • Most direct link between user and payment • Can charge variable rates across entire road networks, not merely facilities • Capture revenue from more fuel-efficient vehicles • Easiest to implement comprehensive equity adjustments • Disadvantages to mileage-based fees (VMT fees) • High up-front costs • High administrative costs • Privacy concerns • Potentially reduces appeal of P3 options • Potential for “double taxation” (not phasing-out fuel tax) National Taxpayers Conference: August 21, 2012
  • 12. • Advantages of the public-private partnership (P3) model • Avoid new bonding (preserve bond ratings) • Build new capacity with low initial public investment • Reduce general taxpayer burden by charging users directly • Shift operating/revenue risk from government to private sector (hedge against future economic, fiscal, and workforce conditions) • Shift financing risk from government to private sector (hedge against capital market performance, existing state/local debt loads) • Increase speed of project delivery (avoid budgeting and procurement battles—Allows for concurrent design, right- of-way acquisition, and construction activities) National Taxpayers Conference: August 21, 2012
  • 13. • Ranks 29th for highest fuel taxes in the nation (23.5₵, G&D) • Less than half of highway revenue is collected from users • INRIX 2011 Traffic Scorecard: I-93 Northbound in Boston metro ranks as 15th most congested corridor in the U.S. • INRIX/TTI 2011 Urban Mobility Report ranks Boston metro 9th most congested urban area in the U.S., costing each peak travel auto commuter $980 a year in wasted fuel and time • Total area commuting congestion cost estimated at $2.2 billion—excludes costs to freight/business trips, which may be another $2 billion • According to a 2007 survey of toll road “cost-takes,” the Massachusetts Turnpike ranked last in the nation at 79% (Public national average: 42.6%; Private global average: 27.6%) National Taxpayers Conference: August 21, 2012
  • 14. • Driving and vehicle registration trends will likely worsen existing problems • VMT per capita and per driver has plateaued • The vehicle fleet composition is shifting away from personal auto and toward heavy trucks National Taxpayers Conference: August 21, 2012
  • 15. • What to do? • Expand existing FAST LANE electronic tolling network • Convert I-93 HOV lanes to HOT lanes and integrate with FAST LANE • Northbound HOV lanes suffer from underutilization (comparing GP and HOV lane throughput) E-Tolling in Massachusetts 72 70 68 % Transactions 66 64 % Revenue 62 2009 2010 2011 National Taxpayers Conference: August 21, 2012
  • 16. • What to do? (cont.) • Authorize transportation P3s. Currently, 33 states have authorized P3s in some form or another. • Use Virginia’s 1995 Public-Private Transportation Act as a model • More capacity can be added for less and cost-take figures can improve dramatically. • 2009 MassDOT consolidation has not improved outcomes • Strengthening “user-pays” is imperative • Relying on non-user streams is dangerous—need tolls and increased transit fare box collection • The dedicated sales tax revenue expected by MBTA’s 2000 Forward Funding Financial Plan grew at 1/3 the rate projected National Taxpayers Conference: August 21, 2012
  • 17. • Federal system is broken—entering a period of de facto devolution • Adopting innovative revenue collection mechanisms is a must • Reforming institutions sooner rather than later will save time and money • Relying on non-user revenue increases fiscal risks and therefore increases inefficient facilities deployment and management • Consolidation/streamlining may not be effective if it increases potential for cross-subsidization across facilities and modes National Taxpayers Conference: August 21, 2012
  • 18. Marc Scribner Land-use and Transportation Policy Analyst Competitive Enterprise Institute mscribner@cei.org National Taxpayers Conference: August 21, 2012