Category Archives: Transportation

Threading the Needle on Long-Term Debt

Virginia_tax_supported_debt

Graph credit: Virginia Debt Capacity Advisory Committee

by James A. Bacon

Virginia has more than tripled its tax-supported debt over the last decade, according to the December 2015 report of the Debt Capacity Advisory Committee, but the state still has enough capacity to support the issuance of another $603 million per year in added debt in Fiscal years 2016 and 2017 without undermining its AAA bond rating.

Long-term debt is necessary to pay for long-lived assets such as public buildings, university facilities and transportation projects, but higher debt payments, a fixed expense, make it difficult to respond to economic downturns and address other budgetary needs. It has been Virginia’s policy to limit debt payments to 5% of blended revenues.

While other states have been somewhat constrained in their borrowing in recent years, Virginia has continued to add to its debt. Net Tax-Supported Debt (NTSD) as a percentage of personal income increased to 2.8% — higher than the national median and 19th highest among the states.

debt_comparisons

Graph credit: Virginia Debt Capacity Advisory Committee

Against this backdrop, Governor Terry McAuliffe has proposed issuing $2.43 billion in bonds for higher-ed R&D initiatives, Virginia ports, corrections, state parks and the environment. Assuming the bond issuances are staggered over four years, they would soak up the state’s projected added bond capacity over that period.

Complicating matters, McAuliffe has an appetite for even more spending that requires long-term financing. The administration’s signature transportation initiative is a $2 billion upgrade to Interstate 66, a key transportation artery in Northern Virginia. The project as currently envisioned is dependent upon highly unpopular tolls and toll-backed debt to finance the project. Unless offset by the maturation of old transportation debt, issuing bonds for the project could accentuate the crowding out of other priorities. As the committee report states:

Currently, debt service on debt paid by the TTF (Transportation Trust Fund) exceeds 5% of TTF revenues. Accordingly, to the extent the 5% measure is exceeded, capacity derived from the general fund is being utilized. This does not mean that general fund dollars are supplementing debt service payments on TTF debt; rather, it means that capacity derived from the general fund is being used to keep overall capacity for all tax-supported debt under the 5% target.

The General Assembly money committees have more than budgets to discuss this year.

Uber and Lyft Are Wonderful, but Not that Wonderful

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Click for larger image

It makes a great story: The Department of Motor Vehicles registered some 86,000 drivers under new “transportation service company” rules in 2015, Virginians are availing themselves of Uber and Lyft ridership services in record numbers, and the rate of alcohol-related automobile crashes declined markedly last year. It stands to reason, more Virginians are taking rides with Uber and Lyft instead of driving under the influence.

“While it may be too soon to say definitively that the availability of Uber and Lyft in Virginia played a major role in that, there appears to be a causal connection,” said DMV Commissioner Richard D. Holcomb in a statement reported by the Richmond Times-Dispatch.

As regular Bacon’s Rebellion readers know, I’m a big fan of Uber and Lyft. They are spearheading the greatest transportation revolution since the invention of the automobile. But let’s not get carried away. It is too soon to credit the transportation service companies with playing a “major” role in reducing drunk driving.

The chart above is taken from DMV data, with provisional 2015 numbers plugged in. It shows clearly that the steep decline in alcohol-related accidents started in 2013, two years before the surge in Uber-Lyft activity. My working hypothesis is that Virginia courts and police intensified their crackdown of drunk driving around that time (as well they should have, given the soaring numbers before then). It’s fantastic that Uber and Lyft give late-night revelers a convenient alternative to driving while intoxicated, and I’m sure they helped in 2015. But I suspect that the bulk of the credit goes to the courts and police.

— JAB

Is Virginia Ready for Car Tax Reform?

Toyota Prius. Want greener cars? Try reforming the car tax.

Toyota Prius. Want greener cars? Try reforming the car tax.

by Bill Tracy

I was encouraged last week when Sen. Chap Petersen, D-Fairfax, joined the “car tax blues” chorus.* According to the Washington Post, Petersen filed bills proposing  to eliminate the car tax through a constitutional amendment and then giving localities the option of levying a local gasoline tax to make up for the lost revenue.

Many localities given the freedom to tax cars to balance their budgets went over-board with a car “super-tax.” That’s what’s happened in Northern Virginia, where the cumulative tax levy can approach 30% of a vehicle’s original cost over the 12-year average life of a vehicle. Of course, thanks to former Governor Jim Gilmore, the state of Virginia pays much of the local car tax for most residents. Unfortunately, the effect of the state subsidy has diminished as the cost of new cars escalates faster than the capped state payments.

Can you imagine up to $12,000 cumulative car taxes** on a $40,000 Ford F-150, America’s most popular vehicle? Even after Gilmore’s tax relief, the total tax bill still could be as high as $10,000 in NoVa. This compares unfavorably to our neighbors in Maryland and D.C. with a flat 6% excise tax ($2,400).

Parenthetically, Virginia’s car tax relief program does NOT reduce or solve the local car tax issue. It simply means that the state of Virginia, as a stop-gap corrective measure, sends a check to the locality on your behalf to help you cover your car tax bill.

Due to high local car taxes, many Virginians have learned to be modest in their new car selections, or they purchase used cars instead.  As a consequence, we are throttling new car sales.  In addition, the tax functions as a de facto green car penalty. For example, a hybrid typically costs about $4,000 more than an equivalent  non-hybrid. That price premium gets fully taxed.

Auto manufacturers believe that the Obama administration’s 54 miles-per-gallon standards for 2025 will force them to sell more electric plug-in cars to meet their regulatory quotas. California, the largest and most important U.S. car market, already mandates a substantial portion of electric car sales. Former GM executive Bob Lutz speculated that automaker were trying to recoup the cost of unprofitable plug-in sales by jacking up prices on other cars, especially trucks, SUVs and crossovers. Whatever the cause, we are seeing a trend towards more expensive conventional vehicles and more expensive green cars. As the average cost of a new car trends to $34,000 and higher, our current car tax system will prove increasingly painful to Virginia residents.

A year or so back, the McAuliffe administration invited me to submit my proposal for reforming the car tax to Transportation Secretary Aubrey Layne. The secretary nixed it on the logic that the localities, not the state, have ownership of the car tax issue.

To summarize my proposal, I said there is nothing wrong with a modest local car tax. At last count, about 18  states have some form of a local car tax.  I have studied the car tax formulas of many other states, and I strongly feel that we could devise an improved formula for Virginia.

As a fiscal “conservative” fearing another temporary, stop-gap solution, I am reluctant to totally kill off our car tax. As a possible alternative, perhaps we could move to a life-time 6% upper limit on the (tax deductible) local car tax in addition to the normal 4% Virginia state tax, for a total 10% total car tax. Perhaps give the buyer the option to pay a lump sum on the local tax.  I believe the lump sum approach is how Georgia weaned its localities from a prior “super-tax” approach.

I also agree with Petersen, and a related proposal by Sen. Frank Wagner, R-Virginia Beach, that allowing localities to charge more for local gasoline taxes at the pump might be a good idea. But, holy cow, let’s not give localities carte blanche on that.

Am I too bold to suggest that reducing the car tax would stimulate enough new car sales that localities might come out ahead? Only if we play our cards right, with good planning.

Bill Tracy is a retired engineer living in Burke, Virginia.  He owns a 2006 Prius and a 2009 Minivan (both white).


* The Virginia Car Tax Blues

(Parody song by Bill Tracy, 2013, to the tune White Christmas.)

 I’m dreamin’ of a white Prius, with every car tax check I write,
Where the hybrids pay more, and big cars pay less, 
To use, Virginia’s bumpy roads.

I’m dreamin’ of a new Prius, but I don’t think it makes sense here.
Low de-pre-ci-a-tion, high val-u-a-tion,
You pay, more car tax every year.

Now thinkin’ of a used Chevy, just like the ones Gramp used to drive.
If you think that’s crazy, you’re right!
But may all your Priuses…be White. 

** Calculations for 5% annual car tax, with and without 30% tax relief below $20,000 value, for a $40,000 vehicle at a low 15% depreciation rate. Cumulative total tax for 12-year ownership. Includes 4.15% state sales tax on cars.  Assumes no further local car tax rate increases.

Who Needs a Chauffeur When Your Favorite Driver Is a Click Away?

Matt Donlon, co-owner and Trish Fitzpatrick, VP of corporate outreach for Uzurv. Photo credit: Richmond Biz-Sense

Matt Donlon, co-owner and Trish Fitzpatrick, VP of corporate outreach for Uzurv. Photo credit: Richmond Biz-Sense

by James A. Bacon

The Uber revolution continues apace, spawning a host of competitors, imitators and add-ons. An interesting example comes out of Richmond, where four former Uber drivers are developing an app for passengers who want to reserve specific drivers at specific times.

Uzurv (pronounced YOO-zerv) is beta testing an app that lets customers reserve rides ahead of time so they aren’t limited to drivers who happen to be on the clock for immediate, on-demand rides, reports Richmond BizSense.

The reservation service will not replace Uber, Lyft or like services, but will complement them. Co-owner Matt Donlon says that Uzerv will do for ride-hailing services what OpenTable, an online reservation network, does for restaurants. “Uber is a great engine,” Donlon said. “What we’re doing is a service that builds off that engine.”

Explains Bizsense:

The drivers will have personal profiles, and users can browse potential drivers and sort by preferences like the driver’s gender and whether the car is pet-friendly or look for their favorite drivers. Users can also pay extra to entice drivers to respond to their request.

On their side, drivers can review requests and determine the value of a potential ride. When drivers see a reservation they would be willing to fill, they submit a request to get the reservation, which then sends a notice to the rider. When the rider chooses a driver, a chat session is opened between the two parties.

Once the rider is in the driver’s car, both are prompted to open the app of Uber, Lyft and the like to complete the rest of the transaction.

In Richmond, fees for riders and drivers will run between $2 and $3 per transaction. Uzurv is testing the app with 17 Uber drivers in the Richmond area, and will commence beta testing in markets in Virginia, North Carolina and California.

Bacon’s bottom line: It remains to be seen whether passengers will be willing to pay that premium. I expect that there will be some market for the service, although I would not hazard a guess as to whether demand will be sufficient to support the enterprise.

My last Uber driver decked out his car with twinkling Christmas lights on New Years Eve. I appreciated the extra effort, and I would happily patronize him again. Would I care enough to pay a small transaction fee? Maybe, but I’m not rushing out to download the app. But I know other Uber riders whom, I suspect, would like to develop a friendly relationship with their driver.

Succeed or fail, Uzurv is example of the entrepreneurial innovation that is roiling surface transportation. The app rewards drivers for exemplary service, and provides more choices for passengers. The application of IT and smart phones to transportation will spur more innovation and transform the way we travel. The big question: Who will innovate faster, the giant auto companies moving into the Mobility As a Service market (See “Mobility As a Service Is Coming Soon“) or scrappy entrepreneurs like Donlon and his partners? The spectacle will be fun to watch. VDOT, are you paying attention?

Mobility-As-a-Service Is Coming Soon

Ford Motor Co. CEO Mark Fields -- now pushing mobility as a service.

Ford Motor Co. CEO Mark Fields — now pushing mobility as a service.

by James A. Bacon

In the world of surface transportation, self-driving cars are generating a tremendous amount of excitement. While such vehicles undoubtedly will transform the driving experience, I question whether they will alter the underlying economics of transportation. Yes, they will be safer, and they even may allow a passenger to stream Netflix or answer emails instead of keeping his eyes on the road. But there is little in the nature of autonomous cars that will alter an individual’s calculation whether to drive solo, carpool, walk, bike or take mass transit to work.

What could change the underlying calculus of transportation decisions is the concept of Mobility As a Service. I highlighted one of the world’s first experiments a year-and-a-half ago in “Car-Lite Burbs,” describing a project by Daimler AG (owner of Mercedes Benz) that bundled access to scooters, cars, circulator buses, destination shuttles and Car2Share carpooling in a monthly subscription service for residents of the Rancho Mission Viejo development in California.

Now comes news that Ford Motor Co. and General Motors Co. also are thinking beyond the sale of automobiles to individuals and in terms of providing mobility as a service. This trend, if it takes off, could result in people purchasing fewer cars and riding more vans and buses, thus cannibalizing automobile sales. But the big auto companies see growth opportunities in the transportation market outside cars.

At the Consumer Electronics Show Monday, Ford CEO Mark Fields said the company plans to diversity into “transportation services” beginning in 2016. The transportation services sector, which includes buses, cabs and passenger rail, is a $5.4 trillion market, reports the Wall Street Journal. (I presume that is the global market, not the U.S. market.) “Ford and all industry competitors receive virtually no revenue today” from that sector, he said.

Ford has experimented with mobility services, such as ride-sharing and pay-by-mile rental vehicles but has yet to launch a full-scale effort. Apparently, that will change in 2016. When asked if Ford might form a new subsidiary to make a strategic investment in ride-sharing, Fields said “We are open to all possibilities.”

The previous day, General Motors announced a $500 million investment in Lyft, Inc., the ride-sharing competitor to Uber Technologies. “We see the future of personal mobility as connected, seamless and autonomous,” said GM President Dan Ammann in a statement. “With GM and Lyft working together, we believe we can successfully implement this vision more rapidly.”

Much of the buzz focuses on the move of Ford and GM into driverless cars. Just imagine how much less it would cost to provide Uber- or Lyft-style service if there weren’t a driver to compensate. But the looming transportation revolution is much bigger. While the top 20% or 30% income earners might choose to stick with solo cars (whether self-driving or not), a far larger share of the market is looking for affordable transportation services, and that could include riding on vans, jitneys, buses or mass transit as well as access to a car as needed. The really big play is integrating these transportation modes and bundling them into a unified mobility service.

Bacon’s bottom line: Policy makers in Virginia need to understand that the future of transportation demand will not be a straight-line projection of past trends. The shape of the transportation future in 2035, twenty years from now, will look nothing like transportation today. Yes, driverless cars are likely to be part of the mix. But that’s only part of the equation. There is a good chance, in the major metros at least, that hundreds of thousands of Virginians will be subscribing to mobility-as-a-service packages.

How will that affect the demand for new roads and mass transit services? I have no earthly idea. But I think it would be prudent to begin thinking about these things before plowing billions of dollars more into transportation infrastructure that very well could become obsolete in a couple of decades.

And how will private-sector mobility-as-a-service competition affect entities like the Washington metro, plagued as it is by poor governance, poor finances, poor management, union featherbedding, huge maintenance backlogs, declining ridership and other ills too numerous to describe? Or smaller bus-and-rail services in smaller metros, for that matter? It could well put them out of their misery.

Another Reminder of the Impending WMATA Disaster

Photo credit: Washingtonian Magazine

Photo credit: Washingtonian Magazine

by James A. Bacon

The Washington Metropolitan Area Transit Authority (WMATA) is a slow-motion train wreck unfolding before our very eyes. An article  in the December 2015 issue of Washingtonian Magazine, The Infuriating History of How Metro Got So Bad,” provides a timely reminder of just how dysfunctional the commuter rail system has become. One glaring example:

The [Rail-Operations Control Center] was sorely understaffed—according to the FTA, of 52 controller positions this past spring, 18, or about a third, were unfilled. Because of the shortage, controllers could significantly augment their salaries with overtime; the FTA found that some worked 12-hour shifts as many as seven days a week. “You’d have people in there making almost double their salary in overtime,” [former control center trainee Ray] Scarbrough says. According to the trainees, the parking lot reserved for ROCC staff was filled with Mercedes and BMWs. “It looks like a CEO’s parking lot,” [former trainee Kenneth] Colvin says.

That’s what you get when you combine a strong union and weak management, and it goes a long way to explaining why workforce accounts for nearly 75% of WMATA’s 2015 operating budget. But labor unions aren’t the metro’s only problem. So are unrealistic demands for improved service pushed by WMATA board members. According to the article:

Board reps began to press for longer service hours—another way to score points with constituents. In 2003, Metrorail pushed back its closing hours to 12 am on weeknights and 3 am on Fridays and Saturdays. That was good news for riders, businesses, and the environment. But it accelerated the infrastructure’s deterioration. The new schedule left less time when Metro was closed and maintenance crews could access the tracks. On weeknights, “you’re talking about three hours of actual work time,” says Aaron Wiggins, a maintenance manager who retired in August after 27 years. “Ain’t a lot you’re going to get done in three hours on a nightly basis. It’s impossible.”

The scaled-back hours make it all but impossible to perform proper track maintenance. In turn, maintenance backlogs create delays and safety issues, which turns off riders. Even as the region’s population has grown, concerns about Metro’s reliability contributed to a 5% ridership decline between 2010 and 2015.

Yet another problem: Despite the fact that the operation faces a $2 billion funding gap by 2015, two Washington board members have threatened to veto any proposal to increase fares.

Conclude authors Luke Mullins and Michael Gaynor:

After a lifetime of shortsighted decisions, Metro is now trapped in a cycle of dysfunction that threatens its existence. Neglect has led to delays so frustrating that commuters are abandoning the system and therefore putting its main source of revenue at risk. Former GM Richard White predicted as much back in 2004. “We’re talking about a systemic service meltdown condition as early as three years from now,” he warned. “It’s reliability falling, ridership loss, road congestion increasing and air quality decreasing. It’s a death spiral.”

Washington wanted a world-class subway, one accessible late at night and on weekends. But after years of extending service while neglecting repairs, we might now have to live with longer waits. Officials say there simply isn’t enough time in off-hours to handle all the repairs required. The only option, they say, is for crews to do this work during the day. Trains will have to continue single-tracking through work zones. And this won’t be a short-term slowdown. The disruptions are likely to increase in the future, as the region grows and the infrastructure gets even older.

Bacon’s bottom line: This is just one more warning that WMATA is heading for a system crash. Unfortunately, the governance system, which gives representatives from Maryland, Virginia and Washington, D.C., effective veto power over necessary but unpopular reforms, may make the transit system unreformable. If WMATA can’t scale back service, can’t raise fares, and can’t tackle labor featherbedding, there’s only one option left: pass around the tin cup. One thing we can count on, WMATA will dun the Commonwealth of Virginia and the municipal jurisdictions it serves for mo’ money.

Virginia can’t let the system fail — the Northern Virginia economy would gridlock without it. But the state can’t continue subsidizing a dysfunctional status quo either. If Virginia taxpayers are going to fork out over the next decade a billion dollars or so in increased financial support — over and above what they’re already paying — they should insist upon real reforms that put WMATA on a path to fiscal sustainability.

(Hat tip: Rob Whitfield)

What Virginia Millennials Are Looking For

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Source: Wason Center for Public Policy. Click for legible image.

by James A. Bacon

Three out of four Virginia Millennials (belonging to the 18- to 36-year-old age cohort) are largely satisfied with the quality of life in their communities. But local quality-of-life indicators often fall short of what Millennials are looking for, and many are open to moving to other parts  of Virginia or even to other states. So finds a new survey of 2,000 young adults in “Virginia Millennials Come of Age” by the Wason Center for Public Policy at Christopher Newport University.

The survey covered a wide range of topics, including political involvement, civic engagement, personal financial outlook and news sources. But of particular interest to this blog are the questions relating to quality of life. Given that creative and educated young adults contribute disproportionately to a region’s innovation and vibrancy, community leaders need to understand the factors that attract and drive them away.

Judging by the metrics selected, Millennials in Northern Virginia are most satisfied with the quality of life in their communities (despite the traffic!), followed by Hampton Roads. They are less satisfied in the Richmond region, and least satisfied in South/Southwest Virginia.

The metrics include: access to public transportation, walkability, proximity to work and/or school, proximity to parks and shopping, a mix of housing, good public schools, safe neighborhoods, proximity to family, a diverse population, and having enough people of their own age. (Those are all reasonable metrics, but I would argue that the list is incomplete and, therefore, gives an incomplete picture. How about the cost of living? Or the quality of the food scene? Or proximity to arts and culture? Or opportunities to engage in the community — a factor rated highly by Millennials, according to the survey?)

The survey asked respondents to evaluate how important these quality-of-life indicators are when thinking about moving somewhere new, and how well each one describes their present community. The "gap" represents the difference between the two.

The survey asked respondents to evaluate how important these quality-of-life indicators are when thinking about moving somewhere new, and how well each one describes their present community. The “gap” represents the difference between the two. (Click for larger image.)

Wason didn’t analyze the data this way, but I find it interesting that proximity to amenities — work, schools, shopping, entertainment, parks and recreation — all ranked in the top half of the list. The desire for compact communities is reinforced by the identification of “walkable areas” as a priority. It stands to reason that neighborhoods in which amenities are “close” are also more walkable.

Virginia policy makers should pay close attention to this finding as they think about transportation and land use priorities.

The desire for proximity and walkability does not translate into a wholesale endorsement of the Smart Growth agenda, however. The desire for a “range of transportation options” — which presumably includes mass transit — was second lowest on the list. The perceived gap between the ideal and reality was negligible.

Likewise, the desire for a “mix of types and values of housing” was only middling. However, I’m not sure that most respondents had a clear idea of what the question meant. Did they think it referred to communities in which housing was integrated with offices, retail and other amenities — the Smart Growth desiderata? Or were respondents focusing on the importance of “affordable” housing? Two very different things A follow-up survey might delve deeper.

Also interesting is the fact that a “diversity of people in the area” ranked lowest on the list. That may not be a topic that preoccupies the average Millennial as much as it does the academic community.

The old-fashioned values of safe neighborhoods and good public schools also rank high. (It would be interesting to see how Millennials without children compared to Millennials with children in evaluating the importance of public schools. I would be willing to wager that parents consider school quality a lot more than singles do.)

All things considered, the survey results suggest that Virginia lawmakers and civic leaders have cause for concern if they want the state to remain an attractive location for young people. Virginia Millennials are highly mobile, with 65% saying they are thinking about moving within the next five years. Of those, 38% say they would consider moving to somewhere else in Virginia, and 27% somewhere outside of Virginia. Within Virginia, Northern Virginia is by far the most popular destination. Regions in the rest of the state have their work cut out for them.