Category Archives: Transportation

Express Lanes as Precursors to Ubiquitous Road Pricing

express_lane_simulation

I-95 Express Lanes simulation

by James A. Bacon

After years of anticipation, 95 Express Lanes opened its Interstate 95 HOT lane system to the public Sunday. Drivers get to use the lanes for free outside of rush hour, when the lanes remain restricted to high-occupancy vehicles (HOVs). Tolls will go into effect around the end of the month.

The nearly $1 billion project converts existing HOV lanes along I-95 into tolled HOT lanes while letting HOVs continue to drive for free, and extends the lanes to Stafford County. While the project won’t do much to shorten the commute for most commuters, it will give them an option when they place a high value on their time, said Matthew Click, vice president-national director of price-managed lanes for HNTB, an engineering firm that worked with 95 Express Lanes on the project.

“We expect most people to use them sometimes, when they really need to get somewhere and they need to get there now,” said Click in an interview with Bacon’s Rebellion. Click took issue with the description of HOT lanes as “Lexus” lanes. Tolled lanes provide a valuable option for less affluent drivers, he said. Someone making $25,000 a year could use the express lanes to pick up their kid at day care to avoid the $10-per-minute late charges. Plumbers might use the lanes to squeeze in an extra call, or taxi drivers an extra fare.

That was the predictable part of the interview, entirely in line with the business case for building HOT lanes. I have written extensively on this blog in support of HOT lanes. They come as close to a “win win” arrangement politically as it’s possible to devise in the transportation realm. They conform to the principle of “user pays,” they use market mechanisms to ration scarce capacity, and no one has to use them if they don’t want to.

Traffic forecasts. The conversation got much more interesting when we veered into the topic of demand for the HOT lanes. Will the volume of traffic on the Beltway and I-95, both of which are public-private partnerships, generate sufficient revenue to pay the back the billion-dollar investments?

The revenue forecasts for express lane projects are “very sensitive” to demand, Click said. “In an express lane situation, the competition is three feet away in the general-purpose non-tolled lane,” he said. The worse the level of service in the general lanes, the greater the traffic — and revenue — in the tolled lanes. An increase in demand for the tolled lanes does two things. It increases the number of cars being tolled, and it increases the toll rates, which are dynamically priced according to demand.

Click conceded that 495 traffic volumes are lower than forecast. “You’re seeing some initial birthing pains getting up and running,” he said. “It’s taking a little longer for volumes to ramp up during peak hours. … We’re seeing the impact of the recession of 2008., the greatest downturn in the economy since the Depression.” As the economy recovers, he said, he expects traffic demand to increase. The public-private partnership has a 75-year time horizon. “It’s warranted to give a couple or few years” for traffic volumes to recover.

But there are risks over the mid- to long-term as well, Click acknowledged. Demographic pressures may dampen Vehicle Miles Driven (VMT) overall and demand for HOT lanes specifically. Members of the Millennial Generation tend to drive less than predecessor generations. The population is aging, and the elderly don’t drive as much. Also, technology and the sharing economy are scrambling long-term demand forecasts.

“Imagine a future when people don’t own a car,” Click said. “I’ve got my mobile phone. I walk up to a subscription car, and it recognizes me. The car starts driving. I see my buddy Tim two blocks over. I pick him up. He bumps his phone to mine, and we split the fare. … Destructive creativity is really coming. It’s real.” And it means that VMT will not grow in the same linear relationship with population and the economy as in the past. “I see a future where [demand] is flat.”

Transformative technology. Click sees express lanes as the “precursor” of a world in 25 years “in which all lanes are priced.” The main barrier to such a future is not technology, it’s political will, he said. “The American public has a 50-year relationship with the fuel tax and the federal Interstate program. Peoples’ reaction to tolls is, ‘I’ve already paid.’ But I say, once you’ve paid off the mortgage on your house, you still have to fix the roof. You have to maintain the roads.” As fuel taxes decline and infrastructure degrades, express lanes will look better and better.

“We will fondly look back on express lanes as the first step toward the new transportation paradigm,” Click said. Charging drivers for usage of all roads on the basis of dynamic pricing will be the greatest driver of urban transformation since the invention of the elevator. “The next generation will change everything.”

Big Energy’s Conspiracy with Attorneys General

Former Va. Atty. Gen. Miller --toady for Big Energy

Former Va. Atty. Gen. Miller –toady for Big Energy

By Peter Galuszka

What seems to be strong opposition to a host of initiatives by President Barack Obama and the U.S. Environmental Protection Agency to curtail carbon and other forms of pollution is no mere coincidence.

According to a deeply reported story in Sunday’s New York Times, some state attorneys general, most of them Republicans, are part of what seems to be a covert conspiracy to oppose carbon containment rules in letters ghost-written by energy firms.

And, there’s a big Virginia connection in former Democratic Atty. Gen. Andrew P. Miller and George Mason University which have been bankrolled by conservative and Big Energy money for years.

The cabal has drawn its modus operandi from the American Legislative Exchange Council, funded by the ultra-right, oil-rich Koch Brothers of Kansas. In that case, ALEC prepares “templates” of nearly identical legislation that fits the laissez-faire market and anti-government and regulation principles held dear by the energy and other big industries. Many marquee-name corporations such as Pepsi, McDonald’s and Procter & Gamble have dropped their ALEC membership  after public outcries.

In the case of the attorneys general, big petroleum firms like Devon Energy Corporation of Oklahoma draft letters opposing proposals that might hurt their profits such as ones to regulate methane, which can be a dangerous and polluting result of hydraulic fracking for natural gas. The Times notes that Oklahoma Atty. Gen. E. Scott Pruitt then took Devon’s letter and, almost-word-for-word, submitted it in his “comments” opposing EPA’s proposed rules on regulating fracking and methane.

The secretive group involves a great deal of interplay involving the Republican Governor’s Association which, of course, helps channel big bucks campaign contribution to acceptable, pro-business attorneys general. In 2006 and 2010, Greg Abbott of Texas got more than $2.4 million from the group. Former Virginia Atty. Gen. Kenneth Cuccinelli got $174,5638 during his 2009 campaign.

One not-so-strange bedfellow is former Virginia Atty. Gen. Andrew P. Miller who was in office from 1970 to 1977 and is now 82 years-old. He’s been very business promoting energy firms. As the Times writes:

Andrew P. Miller, a former attorney general of Virginia, has in the years since he left office built a practice representing major energy companies before state attorneys general, including Southern Company and TransCanada, the entity behind the proposed Keystone XL pipeline. The New York Times collected emails Mr. Miller sent to attorneys general in several states.

“Mr. Miller approached Attorney General Scott Pruitt of Oklahoma in April 2012, with the goal of helping to encourage Mr. Pruitt, who then had been in office about 18 months, to take an even greater role in serving as a national leader of the effort to block Obama administration environmental regulations.

“Mr. Miller worked closely with Mr. Pruitt, and representatives from an industry-funded program at George Mason, to organize a summit meeting in Oklahoma City that would assemble energy industry lobbyists, lawyers and executives to have closed-door discussions with attorneys general. The companies that were invited, such as Devon Energy, were in most cases also major campaign donors to the Republican Attorneys General Association.

“Mr. Miller asked [West Virginia Attorney General Patrick Morrisey] to help push legislation opposing an Obama administration plan to regulate carbon emissions from existing coal-burning power plants. Legislation nearly identical to what Mr. Miller proposed was introduced in the West Virginia Legislature and then passed. Mr. Morrisey disputed any suggestion that he played a role.”

Not only that, but George Mason has an energy study center that is bankrolled by Big Energy and tends to produce policy studies of what the energy firms want. It also has the Mercatus Center, a right-wing think tank bankrolled by the Koch Brothers.

So, when you see what seems to be a tremendous outcry against badly needed regulations to curb carbon emissions and make sure that fracking is safe, it may not be an accident. And, it comes from attorneys general who should be protecting the interests of average residents in their states instead of being toadies for Big Energy.

Suddenly, It’s Raining Gas Projects and Tax Breaks

Anti-Pipeline By Peter Galuszka

Suddenly it seems to be raining natural gas pipelines and snowing millions of dollars in tax breaks and incentives for rich electric utilities.

Dominion Resources, the powerful and politically well-connected Richmond-based utility, apparently is getting $30 million in public money from the Virginia Tobacco Indemnification and Revitalization Commission without apparently asking for it to help build a new natural gas-fired generating plant in Brunswick County. The information was broken by the Associated Press.

Largesse for Dominion stretches to the other side of the Potomac River as well. The Washington Post reported Sunday that Calvert County Md., where Dominion has approval to convert a liquefied natural gas facility to handle natural gas exports, is going to give the utility about $560 million in tax credits.

And, back in Virginia, controversial is growing over the $5 billion natural pipeline that Virginia and three other southern utilities are planning to take natural gas drilled by hydraulic fracking methods from West Virginia to Virginia and North Carolina.

The Atlantic Coast Pipeline has drawn criticism from environmentalists who fear that gas is not the cleaner panacea to coal that many think. Landowners complain that Dominion and its powerful Richmond law firm, McGuireWoods, are using strong arm methods to force their way on their land to survey possible routes.

mountain valley pipelineYet another pipeline – this one doesn’t involve Dominion – is drawing concern in southwestern Virginia. The $3.5 billion Mountain Valley Pipeline that would likewise begin in the fracked gaslands of northern West Virginia and head south west of Roanoke and then cut to the small town of Chatham.

The complaints are the same as the Atlantic Coast Pipeline – green concerns about leaking methane and the threat of bulldozing bucolic private land by companies using eminent domain.

The Mountain Valley project is being spearheaded by EQT Corp. of Pittsburgh and NextEra Energy of Florida.

So what gives? Utilities like Dominion are using more gas, namely at its new Brunswick County natural gas plant and at an older coal-fired station that’s been converted at Bremo Bluffs on the James River. But how much gas does it actually need?

In the case of Cove Point, Dominion notes that the plant has been importing LNG from places like Northern Africa and Scandinavia for decades although imports have come to a spot given the glut of cheap, domestic gas.

Dominion, which bought the facility about a decade ago, can get gas from an older pipeline that for years has linked the Chesapeake Bay area with gasfields in Pennsylvania where some of the fracking for new product is occurring. Dominion can also tap gas from the venerable Transco Pipeline that for decades has transported gas the traditional way – from the Gulf State processing stations to the northeast.

Dominion says it already has contracts to export gas – from where it comes domestically – to utilities in Japan and India. But when one looks at the spaghetti-like twirl of all of the proposed new pipelines, one wonders what the game really is.

The Atlantic Coast Pipeline has a leg that bounds over to Hampton Roads from near the North Carolina border. Dominion says that this one will help supply one of its pipeline partners with gas because it serves South Hampton Roads. Ok, fine, but it might also serve another new LNG export facility in that area that has perfect deep water conditions for such a facility.

And, as some environmentalists and property owners wonder, why couldn’t the energy companies tap rights of way near existing pipelines? Why can’t existing pipelines be expanded? Go back to the utilities and they say they don’t know exactly where the pipelines will go.

That is very curious. While they don’t know where mega-billion project projects are going to go, they seem to be getting tens, if not hundreds, of billions of dollars in public funds and tax breaks to help them proceed with the Brave New World of natural gas.

 

Freeways, New and Improved!

Freewaysby Michael Brown

Urban freeways provided unprecedented mobility for decades, and helped the United States sustain a strong economy throughout those decades.  But their success eventually became their demise.  They enabled far-flung lifestyles, which induced demand and congested them faster than we expected.  At first it was cheap and easy to convert medians and shoulders to lanes. Unfortunately that enabled even further driving from the next wave of fringe residents. Now it is getting too expensive to expand, and we know that congestion will return soon anyway.

But hey, we’re Americans! Big things are what we do!  Yes, the spirit is able, but when we think about that federal debt clock getting close to $20-trillion, a small voice inside gnaws at us, “You already spent all the money, and your children’s money too. Fort Knox is full of IOU’s to who-knows-who?  Even if you can get another loan from China – they’re figuring out that you’ll never pay them back – how can you do this in good conscience?”  And we respond, “But how can we not?  Mobility is life!  Mobility is the economy!  We can’t earn the money we need to get out of our debts if we can’t get around!”

There Are Solutions!  Before you get liquored up at the “Build-Your-Way-Out Bar & Grill” once more, READ THIS!!  Earlier articles in this series articulated the benefits of two freeway optimization strategies – congestion pricing and preventive ramp metering (sometimes called “Managed Motorways”).  Either system can optimize traffic flow (i.e., eliminate mainline congestion), but both come with negative side effects and political hurdles.  That’s why there are few examples!  HOT lanes are the baby steps we’ve been able to make because they’re politically acceptable.  But the bang-for-buck of HOT lanes is much less impressive than pricing or preventive metering.

Combining Win-Lose, Lose-Win, to Get Win-Win

Congestion drags the economy and creates frowny-faces. I believe that with congestion pricing, virtually everyone comes out a winner in some way. There are huge wins for sustainability and everyone has the option for fast travel at any time of day. But paying to access a freeway is also a visible loss to everyone, and that makes the strategy politically problematic.

Preventive metering also has positive economic effects — new efficiency means things will move!  But traditional activity centers may continue to lose out to the fringe because the preventive metering of Managed Motorways tends to reward long trips.  That could accelerate sprawl and increase Vehicle Miles Traveled, making its positive effects more temporary than pricing. More on that momentarily…

This article articulates a way to combine these separate ideas to get the benefits of pricing and metering without the negatives, resulting in an “advanced new formula” for freeways that can potentially support 30-50% more peak-period traffic without any new lanes!  This advanced formula could guarantee high speeds, but also counteract the sprawl caused by high speeds. This idea requires very little construction to implement on existing freeways, and in contrast to congestion pricing, which requires 100% of people to pay for a 5 p.m. drive, this hybrid system can be free to many and maybe most users at 5 p.m., making it more politically practical.

But wait! There’s more!  The first region to implement this new concept will become billionaires! Not only will they free themselves from billions in “Big Dig” construction debt, but they will also gain a major competitive advantage over other states worth billions in higher Gross Regional Product.  As mentioned in Who Wants to Be a Billionaire, we used the EDRG’s Transportation Economic Development Impact System, or TREDIS, to test this concept for Salt Lake. That effort suggests that the 30-year accumulated societal value of time saved could be over $50-billion, and the value of more and better paying jobs could be around $12-billion.  But before introducing this new concept, first consider its cousins which have many positives, but also many negatives.

Cousin #1:  HOT Lanes.

Freeways2Earlier in this series, I pointed out that when freeways are overwhelmed, they will lose 30-50% of their throughput – dropping from 2,200 vehicles per hour per lane (their maximum potential) down to 1,500 vphpl or less in actual measured flow.  That was the case with SR-191 in Riverside, California, which reported average speeds of 15 mph, and average throughput of only 800 vphpl prior to adding HOT lanes.  Afterwards, the HOT lanes achieved 65 mph speeds and throughput of 1,600 vphpl, a tremendous improvement!  Eighty percent of low-income residents had a positive opinion of the project, since they did pay for the fast lanes sometimes and were grateful for the option.

But the Riverside example has several problems, which are observable from the photos below and their own data. While an improvement from 800 to 1,600 vphpl is very impressive, why didn’t they get to 2,000 or 2,100, given that the opportunity is about 2,200?  There won’t be much elbow room at 2,100, but a freeway lane can carry that much without breaking down.  In the photo, you can see the free lanes are clearly overwhelmed, while the priced lanes are relatively empty (presumably not higher than 1,600, but visually this looks to be even less than that).  This suggests that they are not trying to maximize throughput, but may instead be trying to maximize revenue to pay for HOT lane construction.  Or maybe they are trying to guarantee great service – “elbow room” to those who pay the high fare.  When facing imminent failure, the system cannot remain free without failing.  But if your goal is maximum throughput, then you also cannot charge too much or the lanes end up with low flow because few will pay the excessively high price.  With high prices, you create Lexus Lanes that don’t need as much elbow room as you are creating. Continue reading

Virginia’s Very Own Keystone XL

acl pipeline map By Peter Galuszka

The rise of natural gas keeps raising more questions about the proper future of Virginia’s and the nation’s energy policies. What just a little while ago seemed a benign source of energy has gushed into a mass of controversy and advantage.

One focus of the conflict – good and bad – is the $5 billion Atlantic Coast Pipeline that Dominion Transmission and three other southern utilities want to build from the booming natural gas fracklands of northern West Virginia, across sensitive Appalachian terrain and on through Virginia and North Carolina.

The pipeline is unusual since it doesn’t follow the usual post World War II path – Gulf States to the industrial northeast — but it shows just how the U.S. energy picture is being turned on its head.

People in West Virginia have faced the raw end of energy issues for a century and a half, but it is a new matter for the bucolic areas of Nelson County and some of Virginia’s most pristine and appealing mountain country.

Here is a story I wrote for Style Weekly on the promises and problems of Virginia’s very own Keystone XL.

The Airport that Rent Seeking Built

washington_dulles

Passengers at Washington Dulles International. Photo credit: Washington Post.

by James A. Bacon

The Washington Post has taken notice of the fact that Washington Dulles International Airport, widely regarded as an economic engine of Northern Virginia, is in trouble. Sometime next year, notes Lori Aratani, more passengers will be traveling through Reagan National Airport in Arlington, than through Dulles, an airport with fourteen times the land mass.

Dulles suffers from the perception that it is a hassle to use. Indeed it is, compared to National, which is located in the metropolitan core. But, then, Dulles, located on the metropolitan fringe, has always been a hassle to use. When growing up in Washington, D.C., in the 1960s, I once went on a joy ride (no alcoholic beverages consumed) to Dulles and I remember driving through miles and miles of empty countryside. Since then, the dairy farms along the Dulles Access Road have been transformed into one of the nation’s leading technology corridors. The center of gravity of development in Northern Virginia has migrated steadily closer to Dulles over the years, so it’s hard to imagine that getting to Dulles is more of a hassle today than it always has been.

No, something else is responsible for Dulles’ woes. Officials with the Metropolitan Washington Airports Authority, which runs both Dulles and National airports, blame Congress for tinkering with the decades-old rule that limit the number of takeoffs and landings at National. Restrictions at National effectively capped passenger traffic there, pushing traffic out to Dulles. Since 2000, Congress has weakened those restrictions. Between 2011 and 2013, Dulles lost nearly 200,000 seats to National. Sequestration also has clobbered the Washington economy, especially among government contractors along the Dulles Corridor who are most likely to choose to fly out of Dulles. United Airlines, which accounts for about 65% of the flights at Dulles, says it lost 10% of its traffic due to sequestration.

MWAA’s response, according to Aratani’s story, has been to staunch the flow of passengers to National. A new agreement with airlines would require airlines to compensate MWAA, she writes, if Congress opens the door to more long-distance flights out of National. In other words, MWAA’s strategy for Dulles is to restrict National’s competitive advantage in the marketplace and restrict the choices of Washington-area travelers.

Aratani neglects to mention the recent Bloomberg survey indicating that Dulles scores third highest among all major U.S. and Canadian airports for traveler frustration on metrics that include security, restrooms and shopping. Apparently, MWAA has acted on the latter concern by adding high-end shopping and dining options, including Montblanc and the District Chophouse, but there is no indication in Aratani’s story that the board even acknowledges the other problems.

Also, MWAA been a major driver behind the building of the Silver Line extension from Washington’s Metro system. The second phase , expected to be completed in 2018, will include an airport station. MWAA will pay for only a tiny sliver of the capital construction costs of the multibillion-dollar project, the financing of which represents a massive wealth transfer from commuters on the Dulles Toll Road and general taxpayers to the riders of the rail line. Rail passengers to Dulles will pay a fraction of the fare to travel the same distance as the toll road commuters who are actually paying for the rail.

MWAA and its allies in the air cargo business also have lobbied for hundreds of millions of dollars worth of road and highway improvements, including, most notoriously, the controversial Bi-County Parkway designed to facilitate air cargo traffic.

It strikes me that MWAA has focused its attention overwhelmingly on building Dulles through rent seeking — restricting flights from National, building the Rail-to-Dulles project at others’ expense, and dunning Virginia taxpayers to subsidize a highly speculative air cargo boom — rather than tending to the nuts and bolts of creating an airport that passengers want to use. Maybe the board needs to spend more time thinking about enhancing the visitor experience through such mundane things as tighter security, cleaner bathrooms and more dining options.

Update: I am reminded by Reed Fawell’s comment on this post of the catastrophic over-expansion of Dulles in the 2000s, leaving the airport saddled with enormous debt and high costs. In that high-stakes gamble, Dulles built “perhaps the world’s largest useless vestibule” as well as “a ridiculously expensive underground transport system,” both of which were compounded “by a long history of duplicate work, horrendous  cost overruns, and throttling of customer demand.” Reed has documented some of these disastrous decisions on this blog, but the full story has never been written.

A question that Ms. Aratani — or others — might ask is how those high embedded costs are reflected in ticket charges to passengers and terminal charges to airlines.

Dulles Gets High Scores in at Least One Metric — Frustration

Washington Dulles International -- the wow factor ends with the architecture

Washington Dulles International — the wow factor ends with the architecture

by James A. Bacon

Washington Dulles International Airport is the Brazil of U.S. airports — it’s the airport of the future… and always will be. Unfortunately, that future is looking further and further off as both passenger and freight traffic decline precipitously. Peaking at 27 million in 2005, the number of passengers declined to 22 million last year. Peaking at 767 million pounds in 2007, air freight dove to 524 million in 2013, according to airport statistics.

It is dogma in Virginia’s political class that Dulles, along with the ports of Virginia in Hampton Roads, is one of the economic development “crown jewels” of the Old Dominion, and that whatever is good for Dulles is good for Virginia. Hence, proposals are working their way through the state’s transportation funding system to invest hundreds of millions of dollars in highway projects to make Dulles freight cargo more economically competitive — and that’s on top of more than $7 billion to extend the Washington Metro system to Tysons, Reston and Dulles.

Now comes the Airport Frustration Index published by Bloomberg, which ranks Dulles as the third most frustrating of 36 major North America airports, trailing only LaGuardia and Newark.  What are the factors that go into compiling the frustration index?

One is the length of the commute to get to the airport. The rush hour drive time, at 67 minutes, is the seventh worst in the country.

Another factor is the passenger experience at the terminal. Based on survey scores, Dulles scored 5.6 on a one-to-ten scale for security, the worst of any airport but Miami. Its restrooms, with a 6.3 score, ranked seventh worst. Shopping, at 5.1, also ranked seventh worst. Interestingly, competing Ronald Reagan Washington National and Baltimore Washington Thurgood Marshall outscored Dulles in all of these passenger-amenity ratings by wide margins.

Finally, Dulles scored 9th worst in on-time flights (tied with three other airports); only 75% of its flights took off on time.

Bacon’s bottom line: When the Silver Line service opens at Dulles in several years, its airport commute time may improve. (For $7 billion, it had darn better improve!) But the Bloomberg survey suggests that there are some fundamental management issues at work here. What excuse is there for poor security or dirty bathrooms? What excuse is there for a second-rate shopping experience?

Dulles is a tremendous economic development asset for Virginia, at least potentially. But if the Dulles airport lobby wants to soak Virginia taxpayers for hundreds of millions of transportation dollars in subsidies to make its air cargo business more competitive, I’d have a lot more confidence that the money would be invested effectively if I saw evidence that the airport was being run really well. But if airport management can’t keep the restrooms clean, how can it be trusted to build a world-class air freight business?

Arlington Scraps Streetcar Projects

Rendering of a Columbia Pike streetcar.

Rendering of a Columbia Pike streetcar.

by James A. Bacon

Arlington County’s surprise decision yesterday to cancel proposed streetcar projects for Columbia Pike and Crystal City should not be seen as a rejection of the concept of streetcars but a rejection of the funding mechanism chosen by the board that asked taxpayers to bear the fiscal risks while property owners enjoyed the benefits.

Arlingtonians, who voted John Vihstadt to the County Board earlier this month in an election that had become a referendum on the streetcar projects, questioned whether the $550 million price tag justified the purported economic development benefits. Board Chair Jay Fisette cited the decisive election results in canceling the project for which he and other board members had spent 15 years shepherding through the planning and fund-raising process.

One big problem for streetcar backers was defending the Columbia Pike project in the face of escalating cost estimates. The $358 million price tag was up $48 million from a federal cost estimate last year and up $100 million from a previous county estimate. County officials, with years of planning invested in the project, maintained that the benefits still outweighed the costs. A substantial majority of citizens were skeptical, and they said the county’s transportation needs could be met more cost-effectively with improved bus service.

Streetcar advocates said that the investment in fixed streetcar assets would encourage property owners along Columbia Pike to invest in upgrades and infill along the route. In theory, rising property tax revenues would more than offset the county’s $170 million share of the capital costs as well as ongoing operating costs. Moreover, the county’s share of the funds would come from a special commercial real estate tax dedicated to transportation projects.

That is not an unreasonable argument to make, although the forecast of rising property values does require a leap of faith. In effect, county officials were willing to to invest local funds for both streetcar lines in the belief that the revenue from increased property values ultimately would exceed the costs. In effect, they were saying, “Trust us. Build it and the development will come.” It became harder to maintain that the project would be a net fiscal benefit when the estimated cost jumped $100 million.

County officials could have changed the political dynamic if they’d embraced the logic espoused here on Bacon’s Rebellion – moving to a system in which users and beneficiaries pay for the project. In previous columns, I advocated funding the project through a special tax district on property owners along Columbia and a separate district in Crystal City.

If the Columbia Pike streetcar will do as much to stimulate increased property values as claimed, the property owners along the route will be the main beneficiaries. Why should property owners enjoy a massive windfall without contributing anything directly toward the project? (The special commercial tax that would pay for the project comes from all over Arlington, not just the area affected.) If property owners believe that the value created would exceed the projected cost, they should be willing to bear that cost themselves. The county could add sweeteners in the form of increased density allowances, as needed. Using special tax districts to finance the streetcar projects would place the burden and the risk where it belongs: on the property owners who collectively stand to gain hundreds of millions, if not billions, of dollars in economic value, not the general taxpayers.

If the County Board had structured the deal this way, taxpayers would have had no cause to bellyache. The projects never would have been politicized in the way they were.

Of course, structuring the projects around special tax districts would create a political risk that property owners would not support them. But if the chief beneficiaries refused to support the project, what signal would that send? It would send the signal that the projects won’t have the wealth-creating effects claimed for it, that the projects cannot be economically justified, and that the projects shouldn’t be built.

Instead of giving up,  the Arlington Board should restructure the deal as a special tax district in which the local funding share is paid for by property owners affected by the project (rather than commercial property owners throughout the county). If the property owners bite, they’ll have a project. If the property owners balk, then it’s time to acknowledge that the putative benefits aren’t there.

Optimism Bias and Risk in Public Private Partnerships

The tolling technology is better than ever -- but traffic forecasts are a disaster.

The tolling technology is better than ever — but traffic forecasts are a disaster.

by James A. Bacon

Randy Salzman, a free-lance Charlottesville writer, has spent the last couple of years trying to understand how Public Private Partnerships (P3s) work in Virginia. If the private sector is supposed to be so much more efficient than government, he asks, how  come so many big P3 transportation projects in Virginia and across the nation have gone bankrupt? Why do private sector companies continue investing in similar projects despite the obvious risk? And what exposure do taxpayers when deals go bad? He doesn’t have any definitive answers, but he lays out a lot of good questions in the latest issue of Style Weekly.

Salz, an occasional contributor to Bacon’s Rebellion, gets closest to the truth when he mentions the “optimism bias” in traffic forecasts. In project after project across the country, private P3 companies and  their government partners have over-estimated traffic volumes on the roads they build. Writes Salz:

One study found that the projections tended to be 109 percent more than actual traffic — or more than double — and that nowhere in completed American P3s have actual traffic and toll income come close to projections.

Here in Virginia, flawed traffic forecasts were at the root of the Pocahontas Parkway debacle in eastern Henrico County and, if I’m not mistaken, the Dulles Greenway bankruptcy in Loudoun County (although that was not a P3 project). And there’s a very good chance that the Capital Beltway Express’s Northern Virginia HOT lanes project will experience a similar fate.

I think there are two things going on here. First, the private sector’s flawed traffic project models paralleled flawed public sector models. Everybody in the transportation business extrapolated the growth trends of the ’60s, 70s, ’80s and ’90s indefinitely into the future. I warned a decade ago that that was folly, but not many people listened. Reality set in in the mid-2000s when growth rates started tapering off and during the 2007-2008 recession, when traffic volume actually declined. The reasons are many and complex, as I have enumerated ad nauseum on this blog, but they are fundamental and lasting, not just a blip. We will not in our lifetimes return to the traffic-volume growth rates experienced during the post-World War II era.

The forecasts of traffic volume and associated toll revenues for the P3 projects were predicated on the assumption, now revealed to have been astonishingly naive, that traffic volume would increase on the same trajectory pretty much forever. That’s why the bankruptcies ensued, and why there will be more to come.

If experience tells us anything, the private sector will figure that out before the public sector does. As Salz quotes Lane Construction as saying in regard to proposed Interstate 66 toll lanes near Washington: Traffic projections have an “optimism bias.” Which brings us to the second reason for the wave of bad deals. Once someone, whether a private investor or a government agency, invests hundreds or thousands of man hours in analyzing a project, they get personally invested. No one likes to pull the plug. They want to see the project move forward. They tend to adopt assumptions that will make the project look more viable in order to obtain the financing needed to move it from paper to reality. This bias is so endemic in all types of projects that we can almost call it a part of human nature.

The private sector has built-in bullshit detectors. They’re called investors and bond holders. Investors want to generate a positive risk-adjusted return on investment. Bond-holders want to get their money back, plus interest. They may rely upon flawed traffic projects that no one questions, but they don’t suffer from the optimism bias of the project sponsors. They are naturally skeptical and have an interest in asking tough questions. Now, these investors and bond holders aren’t infallible by any means. They make bad investments, too. But they demand a higher standard of certainty than, say, politicians who want the glory of building a road but won’t be around to take the blame if the project falls apart.

Every toll-backed P3 project sells bonds to investors. How, then, did so many go wrong? The key is to look at how the public partner biased the outcome through subsidies and loan guarantees. Every big P3 project applies for financing from the federal Transportation Infrastructure Finance and Innovation Act (TIFIA). These federally guaranteed loans create a tranche of subordinated debt that creates a layer of protection for private bond holders. In other words, if Project A experiences a revenue shortfall, what revenues it does produce will go to bond holders first. Here’s how the Federal Highway Administration describes it: “The TIFIA lien on project revenues may be subordinated to those of senior lenders except in the case of bankruptcy, insolvency, or liquidation of the obligor.”

This layer of protection significantly reduces the risk for senior bond holders, who then demand fewer assurances than they would otherwise before purchasing the bonds. In Virginia, the commonwealth has reduced project risk by making significant cash contributions as well. Most of the P3 projects set up in Virginia in recent years have used some combination of TIFIA funding and public subsidies to make the projects work. Without these contributions, the perceived risk would have been far higher, and the chances of getting pure private financing would have been much diminished. It’s fair to say that many, if not most, of the deals never would have happened.

Combine these three factors — highly flawed long-term traffic projections embraced by the public and private sectors both, the optimism bias for specific projects, and the diminution of risk through TIFIA financing and public subsidies — and we can explain a lot of went wrong. That’s not an exhaustive list of explanations but it accounts for a lot. Continue reading

The Statewide Implications of the Vihstadt Election

Vihstadt interacts with supporters. Photo credit: ARL Now

Vihstadt interacts with supporters. Photo credit: ARL Now

by James A. Bacon

The election of John Vihstadt to the Arlington County Board in the general election last week, which has gotten very little play downstate, is rocking the Democratic political establishment in Virginia’s most liberal jurisdiction. Electorally speaking, Arlington is bluer than the sky on a clear October day — Obama won 69% of the vote in 2012, Romney 29% — yet citizens have had it up to their eyeballs with gold-plated spending schemes.

Arlington has done a superb job in managing transportation and land use, with the result that it enjoys the best of both worlds: a relatively low tax rate and a bountiful flow of tax dollars into the treasury. The county’s liberal Democratic majority deserve credit for having stuck consistently to their Smart Growth development strategy for decades and for doing an excellent job on execution.

But liberal Democrats do love to spend money, and a series of controversies over $1 million bus stops, an $80 million aquatics center, a $1.6 million dog park and a $350 million streetcar project has a lot of citizens up in arms.

Vihstadt, a Republican-turned-independent, won a special election in April, campaigning against the streetcar project as his signature issue. He won re-election last week with nearly 56% of the vote, making him the first non-Democrat to win a general election since 1983. It’s not as if the Dems didn’t turn out for the election — Arlington voters backed Senator Mark Warner with more than 70% of the vote.

County Board member Libby Garvey, a Democrat, has joined Vihstadt in opposing the controversial project in the five-person board. Now some observers are saying that the three pro-streetcar board members, two of whom stand for re-election next year, are on the hot spot.

The punditocracy has devoted considerable ink to the divining the extent to which the 2014 elections were a genuine Republican “wave” or a reflection of the fact that core Democratic constituencies don’t turn out in off-year elections. Vihstadt’s victory is indicative that something deeper than voter turnout or a new-found love of Republicans lies at the root of the election results. Democratic turnout was not an issue in Arlington’s local election — almost everyone’s a Democrat to begin with. But it seems clear that even some Democrats are uneasy with what is perceived to be runaway spending.

Not everyone sees it the way I do. Robert Parry, a former investigative reporter for the Associated Press and Newsweek, sees the vote as a triumph of the liberals’ all-purpose bogeyman — racism! As Parry observes in a recent column, white Arlingtonians don’t think of themselves as racist. But how else does one explain voter rejection of a streetcar that would provide transportation services to the county’s black community, which has been victimized by slavery… Jim Crow… residential discrimination… income disparities, etc., etc.

“Tea Party-style politicians have learned that — whatever the reality — they can exploit the Old Confederacy’s subterranean racial divisions for political gain,” writes Parry. “As we’ve seen in Arlington County, the strategy works not only in the rural Deep South but in relatively sophisticated communities in Northern Virginia.”

Talk about denial — Arlingtonians may be the most affluent, educated and liberal electorate in Virginia but they are closet racists who were duped by the Tea Party!

Sometimes opposition to big spending is simply… opposition to big spending. Republicans and independents may be greed-heads who selfishly want to spend their own money themselves rather than handing it over to politicians to spend it for them. But even some idealistic Democrats realize that if the United States is to preserve the welfare state, the country, the state and the county can’t afford to run out of money because they frittered it away on wasteful projects.

Other politicians with big spending plans should pay heed. Republican Virginia Beach Mayor Will Sessoms — are you paying attention? Democratic Richmond Mayor Dwight Jones — how about you?