The Next Transportation Crisis

Virginia may have raised taxes and fees for transportation, and enabled its two most populated regions to raise even more, but we have not seen the end of travails for the state’s outmoded transportation financing model. In “The Next Transportation Crisis,” I outline how two developments will conspire to shrink federal transportation revenues paid to Virginia in coming years.

First, beginning in 2010, the federal highway trust fund won’t have as much money to give to the states. Congress goosed spending during the current six-year authorization period by telling the Department of Transportation to draw down the cash balance in the highway trust fund ($13 billion in 2004). That provides billions of dollars a year extra to spread around, but when the money runs out, it runs out. Worse, when there’s no cash balance in the till, DOT won’t be able to smooth out payments to the states — it will be forced to a pay-as-you-go system for dispursing funds, which could cause cash-management issues.

That brings us to the second problem: Federal receipts from the gasoline tax, which increased at 2.7 percent annual clip for more than two decades, actually showed a year-to-year decline in the early months of 2007. People are driving less. The downturn in vehicle miles driven may be temporary, but a case can be made that driving is entering a slower growth curve.

Meanwhile, a primary thrust of both the Bush adminstration and the Congress — one of the few things they can agree upon — is the necessity of cutting gasoline consumption. Over the long run, we will see motorists shift to vehicles that use less gasoline, or none at all. This, too, will cut into gasoline tax receipts.

The Virginia Department of Transportation is well aware of the impending downturn in aid from the federal government, so we shouldn’t be caught flat-footed when it happens. Even so, VDOT’s six-year transportation plan is built upon the assumption that gasoline receipts will continue to rise at the modest rate of one percent annually. That assumption is looking increasingly precarious.

It’s only a matter of time before Virginia’s pols come back wanting more money. Once again, we are reminded of the necessity to put our transportation system on a user-pays system relying upon congestion fees and a road-maintenance fee based on vehicle miles driven.

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15 responses to “The Next Transportation Crisis”

  1. Larry Gross Avatar
    Larry Gross

    Part of the article can leave one with the impression that there is currently an unused pile of money being spent quickly (perhaps too quickly) and that because of that – the fund will be ehausted fairly soon and then there will be a shortage of road money.

    That’s true but holding the money is not the implied answer.

    The reality is that when it comes to roads – money saved – is money lost.

    Every proposed road has an estimated cost. That cost goes up every year. So you can be saving up money every year – and actually be falling behind if the annual allocation is less than annual inflation and/or increased costs of road construction materials (which go up faster than inflation).

    so the reality is that unless you spend the money – as it comes in – that you lose that money.

    The only way to fix this would be to put that money in an interest bearing account – which the private sector could do and the Feds apparently cannot.

    So.. the private sector would not put their hands on money .. UNTIL they need it whereas the Feds would be sitting on it.. while it essentially melts.

    And this is the reason why when you see a WalMart started that it does not take 3 years to build… whereas .. our road building buddies tell us that 3 years for a new road is QUICK (but what they don’t tell you is that most roads that take a while to build can easily cost twice their original estimates).

    In Va, VDOT even has a rule that prevents them from buying right of way until they have a certain amount of funding so they are forced to stand by helplessly watching right-of-way costs escalate because they do not have all the money they need.

    And again, the private sector would move much more quickly to get that right-of-way… and save the higher costs that would occur if they waited.

    Our current methods of financing road construction is antiquated compared to how private sector financing is done…

    US DOT basically is acknowledging that holding on to that money is a losing proposition…

  2. Anonymous Avatar

    Wal-mart pretty much puts up the same building, time after time. Roads get special purpose designed.

    That said, road building still seems to take too long and cost too much.

  3. Anonymous Avatar

    “This, too, will cut into gasoline tax receipts”

    Change the word “gas” to “fuel” and then change the definition of fuel in the laws to include anything that powers cars, trucks, planes, boats, etc.

    I am not a lawyer so I will leave the legalese up to the (gulp) lawyers.

    This ain’t that hard folks.

  4. Ray Hyde Avatar
    Ray Hyde

    “VDOT even has a rule that prevents them from buying right of way until they have a certain amount of funding …”

    I have a rule that prevents me from buying anything until I have a certain amount of funding. What’s so different about VDOT?

    One result of this rule is that a right of way is announced and property values plummet. Would be eminent domain takings are put on hold until funding arrives, and the landowner is in limbo, sometimes for decades. Just another example about what needs to be fixed concerning eminent domain.

  5. Larry Gross Avatar
    Larry Gross

    re: right-of-way, processes, ED, Walmarts, et al

    What’s different with VDOT?

    Well. .they don’t operate like Walmart – as and a result – a property owner can be – as you stated – placed in a suspended state – for decades.

    Have you ever heard of Walmart “negotiating” for years or decades for a piece of property or worse buying the parcel and then not building on it for years while they “wait” for funding?

    Only when they are ready, do they go to the capital markets and their goal is the shortest timeframe between when they use that money – and a completed store is bringing in money.

    That’s the problem with VDOT and most roadbuilding. Since they’re using tax money – they have to “wait” for it and so by the time they get “enough” – they’ve put the landowner into limbo.. because there are so many roads on the “awaiting funding” list that they don’t even know when they will have enough funding.

    Go take a look at VDOT’s 6yr plan and you’ll see that many, many roads show annual allocations and a final column entitled “remaining funding needed” which means .. they simply do not know when all of the funding will be available.

    So.. now take one of those roads .. and it’s got several miles of r/w in an area that is growing fast… but VDOT truly doesn’t know when they’ll have the money to buy that r/w. In the meantime, the price goes up every year -adding to the “additional funding required”.

    Imagine Walmart using this process to expand it’s store network.

    You’d have a sign out front saying WalMart – Coming Soon – with fine print that would say (in 10-20 years).

    We could argue about how ED should be done – but there is absolutely no doubt in my mind that the current gasoline (or fuel) tax funding is not the right process.

    The whole scheme drives a “wait for funding” … “let’s make a wish list” approach..

    It’s actually too bad.. that we don’t do schools and water/sewer this way.

    We could just tell developers.. “we don’t have the funding” so you can’t build new homes..


  6. Ray Hyde Avatar
    Ray Hyde

    “they go to the capital markets “

    WalMart is willing to take a risk and bet on the future, secure in the knowledge that if they offer convenience and low price, then those that benefit will bring them the revenue they need to cover their bet.

    But if VDOT does that then they are subsidizing all those venal developers.

    If WalMar borrows too much they suffer risk and expense, if they borrow too little they miss out on oppportunity, growth, and revenue.

    If the state taxes too much, they miss out on opportunity, growth, and revenue, and if they tax too little they suffer risk and expense.

    As for the developers why not say “We don’t have the funding, this is how much we need, if you have the funding, you can build.”

    We can argue about how ED should be done, but surely the right process isn’t to start with “no”, followed by 45 months of begging.


    If we look at it as a gas or fuel tax, we are taking too short a view. There is only one source of money, and that is cash flow. buying fuel is a transaction like any other, and it should be taxed the same. Perversely, one thing that slows cash flow is taxes, so we need to be careful, as pointed out above.

    But we should encourage cash flow, because the more there is, the smaller percentage we have to take to get the same revenue. But as environmental economists we also want to do that without encouraging outright waste.


    Speaking of WalMart, their view is that the market wants convenience, lots of locations, and low price. Contrast that with EMR’s view that high prices show what the market wants. Which is more successful at marketing their wares, WalMart or EMR?

  7. Larry Gross Avatar
    Larry Gross

    re: developers and infrastructure

    There is a huge development proposal in Chesterfield County.

    some details:

    4,998 residential units and commercial and recreational uses on about 1,614 acres

    two shopping centers and office uses.

    “We’re able to plan a significant piece of geography at one time,” Wilson said. The development would probably take up to 20 years to complete, he said, and would meet much of the expected increased demand for housing in eastern Chesterfield as Fort Lee expands and the county-owned Meadowville Technology Park grows.
    159 acres set aside for two schools and recreational parks, and $72 million to build roads on and around the property.

    a north-south road that will link to Chester Road as an access point to state Route 288;

    an east-west road that will connect Lewis Road and Happy Hill Road; and

    construction of the final leg of the long-proposed Powhite Parkway extension to connect to Interstate 95.

    Building those roads would cost Chesterfield as much as $128 million, according to an estimate in county records.

    Asked about the discrepancy between the county’s road-cost figure and the developer’s plan calling for $72 million, Theobald said, “Our obligation is not capped. We’ve got to pay whatever it cost to build those roads.”

    The size of the project makes it economically feasible to pay for those roads and donate land for schools and parks, he added.

    “We can create a road system to not only accommodate our traffic, but solve some of the road problems now and in the future in that area,” Theobald said, adding the road projects are “absolutely committed and phased along with the pace of development.”

    What that means is that conditions in the proposal call for road improvements to be completed before the final homes are built.

    The Powhite Parkway extension piece, for example, would have to be completed before about half of the homes are fully built.

    I don’t know have EMR feels about this type of development – but I generally support it.

    And one of the reasons why is because is it Master Planned as opposed to piecemeal by dozens of developers each after their own interests.

    So I ask – isn’t this the claimed goal of Zoning Regs? … to produce large scale development done piecemeal but integrated and coordinated?

    Some counties/cities now have very flexible zoning if the project is big enough, provides true (balanced?) mixed use – and provides major new road (and other) infrastructure up front.

    I had said earlier that if a large developer brought a proposal to a jurisdiction that was essentially stand-alone and paid for most of the required infrastructure – there would be no reason to turn it down.

    When I see a huge project like this – I wonder… if turning it down and having it done piecemeal is a better path.

    and my verdict is that it is not.

    better to have the huge master-plan.


  8. Larry Gross Avatar
    Larry Gross

    while the subject is “Transportation Crisis” , consider this New Jersey Proposal for TOll Roads…

    “….a major financial group offering to raise around $30 billion from the New Jersey Turnpike (and its subsidiary Garden State Parkway) based on the state retaining the business, and being in full control. It would install a private sector management company to run Turnpike operations, and it would raise $30 billion for the state in an upfront fee by “securitizing” the future toll revenues.”

    The proposal begins with a criticism of the concession model as employed on the Chicago Skyway and Indiana Toll Road. Echoing critics it says a concession “effectively represents a sale of an existing asset to a private group.” They say the Turnpike is too central to the economy and life of the state to justify loss of planning flexibility. A concession will also be too difficult to “sell” politically.

    Their MC/S proposal would put operations of the Turnpike “under private management by an experienced toll road operator” for a term initially of 15 years. Private operation is the key to a “market-based tolling protocol,” and managing the turnpike efficiently and profitably enough to realize its “full value” of approximately $30b, the proposal says.

    “The operator would be given the responsibility to develop and recommend toll rates for the turnpike and the parkway with the flexibility to implement:

    – highspeed tolling
    – time of day tolling, and
    – dynamic pricing (varying toll rates based on real time traffic conditions”

    Basically what this is – is a proposal for a private sector company to operate the state-owned asset.

    VDOT will hold public info sessions in the next couple of weeks for the HOT lane proposals.

    I wonder how they would receive feeback advocating an approach similiar to the New Jersey approach?

    We keep batting the ball back and forth of private sector provisioning of water/sewer… how about private sector provisioning of roads?

  9. Ray Hyde Avatar
    Ray Hyde

    I think EMR is right. There are some things that are the rightful job of government.

    This sounds like a plan to raise and create new tolls without any explanation of how it will be better for the people of New Jersey or Turnpike users.

    I can’t beleieve that private toll takers will be so much more efficient that they can reduce the overall costs of using and maintaining the highway. And, it will still be patrolled by state troopers.

    I think the recent Silver Spring situation is indicative of what will happen whn we allow or force developers to build our infrastructure: they will think they own it, strangely enough.

  10. Larry Gross Avatar
    Larry Gross

    Ray – aren’t you the same guy that argues that government-built and operated transit is a terrible money loser?

    By your logic… with regard to toll roads – if we apply that to transit – we’d not have the private sector involved at all because – “some things are better done by government”.

    I don’t think you can have it both ways…

    If private enterprise can operate and maintain toll roads with NO Taxpayer dollars at all – why is that a bad thing?

    and the idea that State Trooper would need to be taxpayer paid is wrong too.. You just set the TOLL to INCLUDE the troopers also.

    I find it interesting that you want developers to be able to build/operate water/sewer but that roads are better left to governments.

    So.. you’d have the developers put whatever development they wanted whereever they wanted and have taxpayers pick up the road costs?

    Right… now I understand. DOH!

  11. Ray Hyde Avatar
    Ray Hyde

    “…that government-built and operated transit is a terrible money loser?”

    It is a terrible money loser. That does not mean we shouldn’t do it. All I have said is that we ought to analyze it according to what it costs and what it REALLY provides and not on a bunch of crap that isn’t true. THEN we decide if we want to invest public funds based on an actual ROI (of whatever sort.)

    All I’ve said is that IF we have a blanket user pays all costs philosophy with respect to cars, we should have the same with respect to transit.

    OR if we are willing to concede that transit is a “better good” that deserves public support (even by those who don’t use it), then we should apply a similar criteria to roads.

    I don’t know how to allocate road costs, but I don’t think that the idea that the big bad venal developer should pay all is to our advantage. None of us.

    I don’t know how to allocate transit costs, either. Like Deena said, it’s hard to figure who benefits from what. But, at some level of granularity the idea that each user of everything should pay for each item he gets is counterproductive and stupid. At some point you have to accept the black box.

    We’ve been the toll road route before, and it failed. The greenway is still a money loser, and several other proposed toll road projects have been rejected by private enterprise. What part of cherry picking is it that you don’t understand? They’ll take all the good spots and leave us paying for underused roads in farmville, with the gas tax we pay while driving on the toll roads.

    Whatever happend to user pays then? Pick a policy and then be consistent, is all. I don’t care whether whether government or private builds roads or sewers, as long as the requirements are met. But I don’t think the government should a) say you can’t do this because we don’t have the infrastructure and we have no intention of raising the money for the infrastructure, or b)having built infrastructure at public expense then give it away for private profit.

    Unless, you have some analysis, and a contractual guarantee that say this is going to work better and cost less.

    My argument is’nt that we should not do transit because it is a money loser. My argument is that we are not analyzing it as a system, and we are analyzing it politically instead of logically. When we enlarge the boundaries enough to really identify who all the winners and losers are, then we can either arrrange for the beneficiaries to pay the losers sufficiently (user pays), or we can decide the water is just too muddy and resort to a balck box which we assume (and can now show) benefits all.

  12. Anonymous Avatar

    The other issue is that we analyze in a vacum

    Its too much roads vs transit and not looking at them both working together and making the best decision

    Classic Example

    HOT lanes are coming to I-495 did anybody look at building a circular metro

    Metro is going to Dulles did anybody look at adding two more lanes on the Dulles Toll Road and/or Route 7 instead?


  13. Larry Gross Avatar
    Larry Gross

    NoVa with their new TA does have an opportunity to better meld METRO with the surface roads and interstates.

    It’ll be interesting to see where they head… especially with the entire Congress looking on…

  14. Ray Hyde Avatar
    Ray Hyde

    “Its too much roads vs transit and not looking at them both working together and making the best decision.”


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