Bacon's Rebellion

Mary E. Peters, the U.S. Secretary of Transportation, has published a column in the Times-Dispatch today that displays a surprising familiarity with Virginia’s transportation-policy gridlock. Perhaps, as a federal employee, she is a resident of Virginia, which means she is affected by the actions (or non-actions) of the General Assembly. Or, perhaps her knowledge derives from the fact that Virginia is a national leader in tolling and congestion pricing — which happen to be the very remedies for the nation’s transportation woes that she advocates.

Whatever the case, Peters makes far more sense than most national politicians who pontificate about transportation policy. She’s got the big themes right. Now she needs to work on the details.

At the heart of her message, Virginia needs to change the way it funds transportation projects. She writes: “It makes little sense — and it’s certainly not sustainable — to increase our reliance on gasoline taxes at a time when we all recognize the need to decrease fuel consumption and increase the use of alternative fuel sources. … gasoline, car, property, and sales taxes have little or nothing to do with the use of highways and are ineffective at reducing highway congestion.”

Translation into Bacon-ese: Transportation funding needs to address the demand side, as well as the supply side, of the equation. There needs to be a direct connection between how much, and when, people drive and how much they pay. If drivers pay their share of the cost of building and maintaining roads and highways, they won’t “demand” as much transportation capacity as if they pay by other means.

Peters is a huge fan of variable pricing, or congestion pricing, as am I — the difference being that I recognize there is a gap between abstract economic theory and how congestion pricing is applied in the real world.

Private toll operators, Peters says rightfully, bring private capital to the able, allowing projects to get financed that Virginia otherwise could not afford. Congestion pricing, she adds, manages transportation corridors on the basis of supply and demand, allocating scarce capacity in a manner very much like long-distance phone service.

But the analogy with long-distance phone service is far from exact. There is abundant competition in phone service, with multiple players utilizing multiple technologies. Private toll operators strive to squelch competition in order to lock in their captive markets, as Virginians discovered when we got a peek at the contract between the Commonwealth of Virginia and Capital Beltway Express for operation of the Interstate 495 HOT lanes. (See “The Capital Beltway HOT Lane Deal.”) That was a deal, incidentally, that Peters’ office was intimately acquainted with, as the feds provided much of the low-interest financing to make it happen.

The Beltway HOT lane contract protects the private operator’s revenue stream by imposing significant financial penalties on the state of Virginia for making transportation improvements that would undercut toll revenues. I would humbly suggest that the solution to traffic congestion is more competition, not less. On the other hand, it is questionable whether Transurban and Fluor, the joint venture partners, would have made the investment and taken on the financial risk without some assurances, so there are no easy answers.

Still, Peters articulates the critical issues clearly when writes:

Virginia’s leaders have a clear choice. They can ask drivers to pay more at the pump, more at the store, and more at the DMV — regardless of where they live or when they drive. Or, they can put in place direct user fees that will be targeted to areas where congestion is at its worst, and will actually cut traffic, speed commutes and improve the timeliness and quality of transit bus service. …

Embracing direct pricing for road use would also have the added benefit of encouraging better decisions about land use, stimulate reductions in carbon-dioxide emissions and encourage more of the commonwealth’s commuters to try transit. In short, embracing tolling as a solution to Virginia’s transportation funding challenges would cut traffic, generate needed revenue, improve transit, and significantly benefit the environment.

Now, if we could just get Madame Secretary to start talking about “balanced communities,” we’d really be making some progress!

The special General Assembly session on transportation collapsed in a heap yesterday, with no one agreeing on much of anything. None of the three major proposals for raising revenue to fund transportation improvements managed to get any traction.

There were three major proposals on the table, one submitted by Gov. Timothy M. Kaine, one by the Democratic-controlled state Senate and one by the Republican-controlled House of Delegates. (Actually, according to press reports, the House trotted out a couple of different ideas.) All died. Predictably, Democrats blamed Republicans, Republicans blamed Democrats and editorial writers wrung their hands at the inability to achieve a consensus.

Here’s the reason that consensus is so difficult to achieve: When the debate is about raising taxes, the issue quickly focuses on who pays. While most of the constituencies involved want more money to spend, they all want someone else to pay. The real estate industry opposes grantor’s taxes. The auto dealer’s lobby oppose car titling taxes. Defenders of the poor oppose the gasoline tax. Richmonders don’t want to pay for roads in Northern Virginia.

As I’ve noted before, politics is all about getting someone else to pay for what you want. With the terms of debate framed the way they are, a consensus is unachievable. The tax hikes are a zero sum game. If someone comes out ahead, someone else loses. When there is no electoral groundswell for higher taxes and the agitation comes overwhelmingly from business interests , the debate inevitably pits one set of business constituencies and regional interests against another — a recipe for gridlock.

The only way to create a political solution is to craft legislation based on user pays principles: If you pay higher taxes or tolls, in return you get improvements to infrastructure that you use. Voters aren’t willing to raise a bunch of money and hand it over to the government — either at the state level or the regional level — where it disappears into a black box where only the special interests can influence how it is spent. Citizens want ironclad guarantees that they get something in return for their money.

As I’ve preached over and over, the first place to start is with the gas tax. The problem with the Saslaw bill is that it would raise a whole lot of money and distribute it via the same arcane and opaque funding formulas and project-selection processes, subject to manipulation by the special interests, that exist today. To win voter trust, we need to set the gas tax not at some arbitrary level but at whatever level it takes to do two things: (a) maintain state roads and bridges, and (b) provide state matching moneys for federally funded projects. And nothing else.

In the short run, such a measure would actually provide citizens a tax cut. That would make it easier to sell politically. Over the longer haul, as maintenance costs escalate, the gas tax eventually would float higher than the 17.5 cents per gallon charged today, bringing more money into the system than we have now. But citizens would be willing to accept those increases because they know that their tax money was paying for their share of road maintenance, not funding boondoggles.

How, then, do we pay for new roads? I’ve explained it all before. Toll roads, whether operated by the state or by public-private partnerships. Congestion pricing corridors. Impact fees. Community Development Authorities. If road projects can’t support themselves in the open marketplace, there is no economic justification for them and they shouldn’t be built. Virginians would soon learn that the transportation “crisis” isn’t a crisis for anyone but the rent seekers who feed at the government trough.

TheNewspaper.com, a blog that bills itself as a journal of the politics of driving, has made quite a scoop: It has obtained a copy of nine pages excerpted from the “Comprehensive Agreement Relating to the Route 495 HOT Lanes in Virginia Project,” dated Dec. 19, 2007, between the Virginia Department of Transportation and the Capital Beltway Express LLC.

The blog summary of the contracts seems to confirm many of the worst fears of those who harbor doubts and suspicions about the HOT lane agreement — and I, a staunch advocate of HOT lanes, may well be forced to eat humble pie. In the end, I base my opinions on what the facts are, not what I wish them to be, so I bring this information to the attention of Bacon’s Rebellion readers to dissect and ruminate upon.

While the agreement asserts VDOT’s “unfettered right” to make transportation improvements, in the interpretation of theNewspaper.com it contains measures that would, in fact, curtail VDOT’s latitude to make improvements to the I-495 Beltway and other projects that might threaten HOT lane toll revenue. Writes the blog:

If [VDOT] determines that additional traffic lanes on the Capital Beltway Corridor are in the state’s best interests, the department shall consult with the concessionaire [Capital Beltway Express, a joint venture of Transurban and Fluor] as to an appropriate strategy to implement such additional traffic lanes. At the department’s sole discretion [it shall] permit the construction of additional lanes as part of the project with a view to minimizing any detrimental impact on the project or its ability to generate revenues…”

As theNewspaper.com boils down the meaning of that last phrase, the agreement is structured “to ensure the area remains sufficiently congested so that motorists will have an incentive to pay to use the toll lanes.”

The contract considers any improvement to the Beltway to be a “Department Project Enhancement,” which could trigger a “compensation event.” In such an event, Virginia taxpayers could be required to pay Transurban/Fluor compensation for lost toll revenue. Observes theNewspaper.com: “Given VDOT’s stated lack of funding, adding an extra monetary premium to the cost of any improvements effectively gives the foreign company the ability to prevent such projects from happening.”

Compensation events are not limited to Beltway improvements. They extend to improved connections between the Beltway’s general purpose lanes and Interstate 66, and the Dulles Toll Road, says theNewspaper.com. In such an event, an “independent engineer” would conduct a traffic impact study and determine the compensation due the concessionaire.

(I’m not sure that I read the agreement that way. From my perusal of page 69, the agreement specifically permits VDOT to make the improvements mentioned above, at its own expense, provided that… blah, blah, woof, woof… a bunch of impenetrable legalese follows. Readers better versed in reading contracts than I are invited to weigh in.)

The agreement also contains provisions to discourage any increase in the number of motorists sharing rides, says theNewspaper.com. Quoting the agreement, “The department agrees to pay the concessionaire, subject to Section 20.18, amounts equal to 70% of the average toll applicable to vehicles paying tolls for the number of High Occupancy Vehicles exceeding a threshhold of 24% of the total flow of all permitted vehicles…”

Bottom line: If escalating gasoline prices revives the popularity of carpooling, taxpayers could wind up making multimillion-dollar payments to Capital Beltway Express.

The blogger casts this contract, which he regards as highly beneficial to Capital Beltway Express, in the light of recent revelations that Transurban, an Australian company, had mistakenly made $172,000 in contributions to various PACs of both parties. Recognizing that foreign contributions are illegal, the company has asked for its money back. See “Bring Your Own Checkbook” for details.

(See also a discussion of how the firm benefited from federal financing in “Federal Subsidies for HOT lanes,” and the revelation that Capital Beltway Express will be required to maintain minimum HOT lane speeds of only 45 mph in “HOT Lanes at 45 MPH Not So Hot.”)

I have contacted the Kaine administration press office asking for a response. With the General Assembly convening for the transportation special session, the spokesman I talked to said he could not promise to get back to me immediately, but would do his best. I will post the response as soon as I get it.

(Hat tip: Jim Wamsley.)

We’ve been preaching energy-efficient growth and development for years now, and we’ve remained stuck on the margins of public opinion. But now, with gasoline prices zooming past $4 per gallon, people are waking up. Oh, yes. Oh, yes, they are. When the Wall Street Journal runs a story on the front page, “With Gas Over $4, Cities Explore, Whether It’s Smart to Be Dense,” highlighting San Diego’s move to smart growth, you know the idea has gone mainstream. (Hat tips: Gay Leahy and Gregory Pimentel.)

So, whatta you going to do? Read a Johnny Come Lately like the Journal and think you’ve got it all figured out? Or read the latest edition of Bacon’s Rebellion, where we’ve been wrestling with these issues in a Virginia context, practically since the first cave men decided that cave life was too confining, camped in the plains, and got eaten by a saber-tooth tiger?

Here’s what we have to offer in the July 7, 2008, edition:

The City of Squares
The historical core of Savannah, Ga., is one of the great urban places in the United States. Modern-day Virginia could learn a few lessons from James Ogilthorpe’s unique experiment.
by James A. Bacon

The Wealth Gap
Sooner or later, an economy built on wildly unequal incomes, cheap energy and debt-fueled mass over-consumption will collapse. Mass denial will not change this reality.
by EM Risse

Let the People Decide
It’s time to fish or cut bait on the gas tax. Either pass a tax increase to pay for transportation projects or take it off the table so we can pursue other options.
by Michael Thompson

Bread and Circuses
Governments dispense money for ends that the Constitution never envisioned. One way or another, we’re all on the dole now.
by Norman Leahy

Bubba Believes in Religion
(and other true facts)
by Barnie Day

Nice & Curious Questions
Running in Virginia: Triathlons, Duathlons, Adventure Races and More
by Edwin S. Clay III and Patricia Bangs

Two hundred and thirty-two years ago, our forefathers declared independence from a distant monarch and parliament to preserve their liberty.

Jeff Schapiro, the Times-Dispatch‘s preeminent political reporter, has expanded his repertoire from print and PBS radio to video commentary. It’s good to see that the T-D is making progress in melding the resources of its old media newsroom with the new media capabilities of inrich.com.

The subject of Schapiro’s commentary is a favorite theme of Bacon’s Rebellion: the money nexus between business and governance. But Schapiro’s spin is a little different this time. Instead of emphasizing how big donors manipulate the political process for business advantage, he highlights how politicians from the Elephant Clan and Donkey Clan shake down businesses — manipulating business, if you will, for political advantage.

Speaking of the role of money in politics, it appears that Transurban USA, the American subsidiary of an Australian company that leases the Pocahontas Parkway and is building HOT lanes on the Capital Beltway in Northern Virginia, mistakenly made $172,000 in illegal contributions to Virginia politicians.

Oops.

Transurban USA asked that the money be returned so it can donate the money to a Virginia-based charity, the Court Appointed Special Advocate Program for children, reports Tyler Whitley with the Times-Dispatch. Michael Kulper, executive vice president for North America operations, began notifying the politicians yesterday of its apparently illegal activity.

Donations included:

• $5,000 to Moving Virginia Forward, the political committee of Gov. Timothy M. Kaine
• $12,500 to the Dominion Leadership Trust, the leadership PAC of House Speaker William J. Howell, R-Stafford;
• $12,000 to the Virginia Republican Senate Leadership Trust
• $10,500 to the Commonwealth Victory Fund, a Democratic Party of Virginia committee

All told, Democratic organizations and legislators received $73,000, and Republican legislators and organizations received $97,000 between 2005 and 2008.

Virginia does do a few things right. One of them is helping welfare recipients get back to work.

The U.S. Department of Health and Human Services has ranked Virginia highest in the nation for job entry rates for Temporary Assistance for Needy Families (TANF) recipients in 2005 and 2006, Gov. Timothy M. Kaine has announced.”

“Virginia leads the nation in helping people transition away from public assistance and into the workforce because of our innovative programs and the dedication of our staff,” Kaine said yesterday. “We’re training TANF recipients for jobs in fields with growing workforce needs, helping secure job placement and retention, while meeting a crucial need in for the Commonwealth’s health care system.”

One example: Through a program launched in 2007, TANF recipients are trained to become certified nursing assistants, filling the growing need for long-term care and direct-care health professionals. In the last two years, 446 recipients have graduated from the programs, and today, nearly 100 are enrolled.

Now, if we could just make some progress on corporate welfare…

You know it’s a slow summer news day when Scott Leake’s Virginia State Republican Caucus “News Clips” newsletter contains only five stories — and one of those is an editorial in the Bristol Herald Courier calling for tougher laws against negligent dog owners.

With my usual wells of ignorance and foolishness running dry, I am compelled to address a subject of a serious nature. This story was reported a couple of weeks ago in the Mainstream Media, and I never gave it the attention it deserved. But better late than never.

According to numbers in a June 18 financial report by VDOT’s CFO Rita Busher, the Virginia Department of Transportation budget is in bad shape and getting worse. Here are the highlights:

Revenues. In its Six Year Financial Plan, VDOT expects to see little more revenue in 2014 than it collects in 2009. “Total revenues and other financing sources” are expected to yield $4.74 billion, about 1.4 percent more than in 2009 — considerably less than anyone’s reasonable estimate of inflation. Here’s the really scary part: That forecast actually might be optimistic. It assumes a 1.5 percent annual growth in transportation revenues while rising gasoline prices could conceivably reduce gasoline consumption and gas tax revenues.

Maintenance first. In Virginia, highway maintenance and operations get first claim on state tax dollars. Thanks to inflation, Busher forecasts that maintenance expenditures will increase from $1.69 billion next year to $2.01 billion in 2014 — an 18.9 percent increase.

For the most part, toll revenues are already spoken for: Debt service is projected to increase to $413.6 billion in six years. That leaves less for everything else (although it’s worth noting that “earmarks and special financing,” whatever that refers to, also shows healthy growth over the next six years.)

Construction last: As a result, dollars allocated to highway construction are shrinking — to $984.1 million next year and then to $730.2 million in 2014. I believe that includes Virginia’s share of federal transportation spending. If we factor in inflation, that $730 million could look more like $600 million or less in real dollars.

Yes, Virginia, the transportation funding crisis is real. But it’s only one side of the equation.

Here’s what we don’t know: What’s happening to Vehicle Miles Driven? If people are driving less, they’re not clogging the highways. If that’s the case, then traffic congestion may not be getting worse — it may be getting better. If traffic congestion is getting better, then the $100 billion+ funding shortfall for road and highway projects anticipated over the next 20 years is likewise inflated and out of date.

Not only should the rising cost of gasoline whittle down the projected “need” for highway projects, it will change the priorities of those projects that have been identified. We have already discussed on this blog the outsized decline of property values on the metropolitan fringe, indicating that many households want to move closer to the urban core. If that’s the case, highway construction dollars likewise may need to move from the fringe to the core.

General Assembly Republicans have called for an audit of VDOT. That can’t hurt, but I don’t see VDOT performance as the real problem. The problem is that higher gas prices have rendered obsolete Virginia forecasts of travel demand and road/highway capital spending. What we need to audit is the list of highway projects and see how well they match up with evolving travel patterns in an energy-constrained era.