Bacon's Rebellion

Maintenance is consuming Virginia’s transportation budget,  and members of a Commonwealth Transportation Board subcommittee agree that the state should change should the way it does business. But urban-rural differences could make it hard to reach agreement.

By James A. Bacon

The commonwealth of Virginia spends roughly $1.4 billion per year to maintain its road system but that massive sum has yet to pay off with smoother roads and sturdier bridges. According to a 2009 report, VDOT rated 31% of the state’s 98,000 miles of secondary road as deficient, a marked deterioration over the previous decade, and tagged 9% of the state’s 19,400 bridges and culverts the same. The Old Dominion doesn’t just lack sufficient funds to expand its transportation network, it barely has enough to keep up what it’s got.

Meeting for the first time in Richmond Wednesday, a subcommittee of the Commonwealth Transportation Board began reviewing how the state allocates its maintenance dollars. Its object: Determine if the money can be more effectively spent or more equitably distributed.

Although most of the session was devoted to reviewing background material, subcommittee members raised a number of issues that will shape the agenda in a follow-up meeting next month. Urban CBT members made clear their interest in revising VDOT formulas for allocating maintenance funds, which are based on the number of lane-miles of road in the state system. They raised the possibility of distributing funds on the basis of entirely different criteria, such as need, as measured by the condition of roads and bridges, or where investments can generate the highest economic return.

In a session where all members were actively engaged in the discussion, it was W. Sheppard Miller, a Norfolk businessman appointed to the board as an urban at-large member, who most forcefully made the case for an overhaul of the allocation formulas. If he could reinvent the maintenance allocation formula from scratch, Miller asked, why would he create one anything like the one Virginia has now? The current formula, which spreads money around the state irrespective of need or economic payoff, results in a system in which roads in some parts of the state are maintained in superb condition while roads in other areas are deteriorating.

“Does it make sense from a business perspective?” he asked. “I want to invest my scarce maintenance dollars where they give me the greatest return. If I’ve got four bedrooms in my house and one room needs to be painted, I’m not going to paint one wall in each room!

Miller argued that the lane-mile count is only one among several relevant metrics for prioritizing the allocation of dollars among state highway districts, where VDOT maintains the roads, and cities, towns and two counties (Arlington and Henrico), which maintain their own roads. “What’s the cost of having a poor secondary road system?” he asked. “Is the cost greater around Dulles than Farmville? If Rt. 15 through Prince Edward County isn’t in good shape, what’s the impact on the commonwealth, as opposed to a road through Dulles [airport] or to Hampton Roads? Some lane miles are more important [economically] than others. If I’m in a hurricane and my generator goes out, I’m not so concerned about the light in my attic. I’m very concerned about my refrigerator.”

Gary Garczynski, a Woodbridge developer and at-large urban member, backed Miller’s line of thinking. Allocation formulas must be equitable, he conceded, “but you’ve got to take into account the economic impact on the commonwealth. What’s going to deliver the greatest economic impact for the good of all of the citizens?”

The two rural at-large members, James Keen from Vansant in Southwestern Virginia and Allen Louderback from Luray in the Shenandoah Valley, did not contest the point but they did offer different perspectives. “We need to look at ways to enhance revenues,” Keen said. Louderback cited the rapid growth in the number of lane-miles in fast-growth counties, which resulted in them increasing their shares of the maintenance pot while leaving smaller shares for others. Developers routinely turn over secondary roads inside their subdivisions to the state to maintain. “We can’t keep adding things. Maybe we shouldnt.”

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by James A. Bacon

As the U.S. automobile fleet shifts to higher mile-per-gallon vehicles and, eventually, to electric cars, the gasoline tax will become increasingly outmoded as a revenue source for transportation. No serious person disagrees. The question is: What do we replace it with? Another report, this one from the Center for Transportation Studies at the University of Minnesota, makes the case for MBUFs (Mileage-Based User Fees).

In “From Fuel Taxes to Mileage-Based User Fees: Rationale, Technology, and Transitional Issues,” the authors base their argument on the basis of efficiency, equity, revenue adequacy and environmental sustainability.  Their main hang-up is feasibility — how the fee should be administered. I find the arguments based on efficiency and equity to be the most persuasive and will address each.

The case for efficiency is strong. The authors, who hail from the university’s Department of Applied Economics, display impeccable economic logic when they write:

For a tax to encourage efficient user behavior, it should send the right price signals to drivers so that only those drivers who value the use of the road above the cost they impose will use it. … Fuel taxes send weak price signals to drivers and thus lead to inefficient overuse of the highways. This is the result of users underpaying for system use, and users being unaware of what they do pay in fuel taxes. Overuse, in turn, leads to high levels of congestion, emissions, and may result in less-optimal modal use in term of efficiency. In addition to sending weak price signals, fuel taxes fail to provide proper price signals to public officials and investors and thus may direct investment away from the more economically worthwhile projects. Finally, fuel taxes have little connection to land use, and fail to discourage urban sprawl or support livability principles.

Excessive congestion… Over-investment in roads and highways… Misallocation of capital to economically unjustifiable projects… In sum, a funding arrangement that only politicians could love!

The study also argues that MBUFs are more equitable. When originally implemented a half century ago, the federal gasoline tax was an effective user fee. But the tax will meet the user-pays-and-benefits principle less equitably than in the past  “as those with newer cars pay increasingly less in fuel taxes per mile traveled than drivers with similar, but older and less fuel-efficient vehicles, even if both types of vehicle owners travel the same distance and impose the same cost on the highway system.” All-electric vehicles, which pay no gasoline tax, will be getting a totally free ride. In a related note, the authors argues that the gas tax is regressive, hurting lower-income Americans harder, because affluent Americans are more likely to shift to hybrids and fuel-efficient vehicles that consume less fuel and pay less in the gasoline tax.

The authors also contend that the motor fuels tax is failing on grounds of fiscal adequacy and environmental sustainability, but I find their arguments less plausible. The problems they cite are not inherent in the nature of the tax but in the fact that politicians have been unwilling to increase the tax as its value is eroded by inflation and increased fuel economy. If politicians are unwilling to increase the gasoline tax to a level sufficient to cover costs, what assurance is there that they would set a mileage-based user fee at a level sufficient to cover costs? None at all.

The main advantage of the fuel tax over an MBUF system  is ease and expense of administration. But those savings are measured in the hundreds of millions of dollars while the loss of economic efficiency is measured in the billions of dollars. Virginia should start laying the groundwork for a transition to MBUFs immediately. It will take years of debate to choose the right technologies and hash out the inevitable privacy issues. We cannot wait until the gasoline tax collapses to begin that process. There is no time like now.

by James A. Bacon

If anything can possibly save the United States from looming fiscal, economic and environmental calamity it is the human species’ remarkable capacity for innovation. Innovation has been sparse in the transportation arena, one of the major subjects of study here on Bacon’s Rebellion, but not entirely absent. Today’s post focuses on two innovations — one, the concept of urban light transport, which combines elements of autonomous vehicles with mass transit, and the other, the concept of “neighbor-to-neighbor” car sharing.

The Urban Light Transport (ULTra) system consists of small, lightweight, computer-driven electric vehicles running on slender, special-purpose guideways. Passengers board four-seat vehicles that can go anywhere on the system at any time, providing far more flexibility than mass transit. Working as circulator for office parks, airports, universities, and other major activity centers, ULTra makes carpooling, Metro, and bus more effective, by solving the “last mile problem.”

ULTra PRT, a Bristol, U.K.-based designer of the systems, has installed one at London’s Heathrow Airport with 2.4 miles of guideway, three stations and 21 cars. The company  is engaged in detailed planning for another system in the Golden Temple tourist center in Northern India, and has entered into a feasibility study with Kane Realty Corporation for application in the North Hills mixed-use project in Raleigh, N.C.

The idea has even been examined as an alternative to circulating bus systems in Tysons Corner. (Click on map for more legible image.) The proposed system purports to be faster than cars or buses. A Personal Rapid Transit between the Freddie Mac headquarters and the proposed Metro Stop #2 would take three minutes (including a 20-second wait time). Driving would take 7 minutes, while a circulator bus would take 15 minutes.

The big question, of course, is how much would it cost? Building a system capable of serving most of Tysons would cost many millions. Would Tyson’s well-heeled corporate citizens be willing to pay sufficient fares for the benefit of convenience? I have no idea, but it’s worth looking into. (The ULTra PRT website refers to a 2009 Virginia legislative study, “Viability of PRT for Virginia.”) Ed Risse is a big fan of PRT – indeed, he pointed me to the ULTra PRT website. Perhaps he can expound on the bare details I have provided here.

Now, for another example of innovation — one that requires virtually nothing in the way of capital investment. Relay Rides, based in Boston, improves on the idea of the Zip Car, which allows people to rent automobiles by the hour on those rare occasions in which they need them. I’ll just let Relay Rides tell its own story:

It was a dark and stormy night… also known as “Winter” in Boston. Our Founder Shelby Clark was biking through what seemed like miles and miles of a horrible blizzard: wind blowing every which way, snow seemingly being blown upside-down, nasty stuff! All this just to get to the nearest “shared car” while thousands of other cars sat idle? Why couldn’t those cars, some clearly sitting parked for days, be available to borrow? Eureka! From that snow-driven delirium, RelayRides was born…

Today, RelayRides connects people who need a car with vehicle owners whose rides would otherwise just be sitting idle. Just need to run a few errands? Why deal with car ownership or the hassle of traditional carsharing when RelayRides lets you borrow your neighbors’ cars from as low as $5/hr? Or if you own a car, don’t just let it sit around when you could be making up to $7,000/year loaning it out safely and securely.

Brilliant! The average cost of car ownership runs around $715 monthly; the average cost to Relay Ride members runs around $100. As a bonus, the company contends, the average shared car takes 14 other cars off the road. Does Relay Rides have a sustainable business model? I don’t know, but it is only one of several enterprises — WhipCar (in the U.K.), Spride Share and Getaround that offer essentially the same service. Obviously, someone thinks it holds promise.

If the idea proves feasible in the long run, it will do two great things: (1) save people from the enormous expensive of owning a car they need only occasionally, and (2) take cars off roads and parking spaces, relieving congestion for everyone else. The idea will pay really big dividends when developers and urban planners begin designing communities that integrate neighbor-to-neighbor car sharing from the beginning. (Hat tip to Ray Hyde.)

by James A. Bacon

“The U.S. highway trust fund is broke,” declares a new report, “Road to Recovery,” published by the Carnegie Endowment for International Peace. If you include deferred maintenance, the U.S. surface transportation system added between $103 billion and $175 billion annually to the national deficit in recent years.

The United States is one of only a  few countries in the world where revenues raised to support the federal transportation system do not cover costs. Revenues represent only 62% of surface transportation expenditures — compared to 100% or more among all other members of the Organization for Economic Cooperation and Development. And that doesn’t even take into account the U.S.’s bad habit of deferring maintenance, which can increase upkeep to as much as $800,000 per lane-mile over the life of the road.

The report makes another important point: “The rate of economic return from investment in highway infrastructure in the United States has been approaching the long-term interest rate (cost of capital) since the 1990s. Once the rate of economic return meets the long-term interest rate, it becomes equally beneficial to keep invested capital in the private sector, a clear signal that those investments could be without merit. At that point, the system no longer delivers the benefits necessary to justify public funds.” (Click on graph below for more legible image.)

Put in the starkest of terms, the U.S. is spending too much on new road/highway construction and too little on maintenance. The Carnegie report doesn’t put the point quite this baldly, but it’s entirely possible that the federal government’s transportation policies could represent a net destroyer of national wealth!

Such madness should come as no surprise. As the report also says, “While the country suffers the effects of an increasingly degraded and under-performing transportation system, investment decisions on the nation’s transportation system have  become increasingly unfocused, short-term and highly politicized.” In 1987, President Ronald Reagan vetoed a transportation funding bill because it contained 100 earmarks. In 2005, President George W. Bush signed a funding bill containing 6,229 earmarks.

How, then, do we fix this broken-down system? The authors advocate assessing a 5% ad valorem tax on oil  production and imports when the world oil price is rising and a tax on retail gasoline sales when the world oil price is falling. The idea has some merits, although I’m not entirely persuaded. What fascinates me most is the report’s discussion of the true cost of federal transportation policy.

The authors tote up the following when calculating how much the U.S. is underfunding its transportation system (figures are from the “high” scenario): $85 million in deferred maintenance, $20 billion in federal General Fundsubsidies, $40 billion in hidden budgetary costs paid by agencies other than the U.S. Department of Transportation, a $29 billion productivity loss from sub-optimal investment, and interest payments on debt from General Fund expenditures.

What concerns me most — because it is a problem that Virginia shares — is deferred maintenance. States the report:

Studies have found that spending $5 million on preventive maintenance can save $100 million to $500 million in rehabilitation and reconstruction costs. Although postponing maintenance may appear inescapable given the current shortfall of transportation funds, this deferred maintenance will cost America dearly; projections place its cost at a staggering $5 trillion by 2035 (in 2010 dollars). It is estimated that it would cost three times the transportation system’s $1.4 trillion present asset value to replace it if it were not kept in a state of good repair.

In case you missed it, I refer you to my recent discussion of life cycle budgeting, which encompasses both the up-front capital costs of transportation projects and long-term maintenance costs. The Commonwealth Transportation Board is scheduled to discuss “local maintenance programs” in its upcoming meeting this Wednesday. I will be interested to see how presenters frame the issue.