CLOSING THE GAP: Financing The Region

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CLOSING THE GAPFinancing The Regions
Transportation Needs NYU Wagner - The Rudin
Center -June 4, 2008

• Martin Wachs, Ph.D., Director
• Transportation, Space Technology

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Ideally, Financing Strategies Should be Central
to Regional, State, and Federal Policy

• The way we price and charge for transportation
  affects demand and traffic flow (e.g. parking,
  tolls, taxes, fees)
• The most effective ways of managing
  transportation flows and environmental and energy
  impacts relate to pricing and charging
• Planning in general involves forecasting of
  demand as though flows are independent of prices
  and charges
• Debates about financing systems take place AFTER
  planning their characteristics instead of being
  integrated with capital planning this leading to
  inadequate attention to both efficiency and
  equity
• The use of tolls on major roads is good policy
  and not merely a source of revenue

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Political Reality Does Not Allow this Approach
Right Now

• Motor fuel taxes are still largest source of
  revenue for transportation capital expenses and
  operations but declining each year as a
  proportion of the total
• Viability waning because
• Opposition related to high price of fuel
• Dramatic growth sought in fuel efficiency
• Ultimate replacement of petroleum based fuels
  for GHG policy reasons
• Inherent contradiction in the governments
  reliance on motor fuel sales to finance highways
  in a greenhouse gas limited era

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Elected Officials Responses

• Do not raise motor fuel taxes in fact lower
  them!
• President Bush threatens to veto transportation
  bill if it raises gasoline tax by even one cent
  per gallon (2005)
• Secretary Peters authors minority report to
  Federal Commission (January 2008)
• Governor Schwarzenegger opposes state gasoline
  tax increase and favors long term bonded
  indebtedness bonds approved by voters in 2007
• John McCain (April 2008) suggests suspending
  gasoline tax collections from Memorial Day to
  Labor Day and Hillary Clinton (April 2008) joins
  in
• In NY City cordon tolling was defeated before it
  was developed in fine detail

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Other Sources of Funding are Growing

• Local option transportation sales taxes most
  dramatic of all alternatives, especially in CA
• Increased borrowing through bonds
• Increased use of tolls but nationally only 6 of
  transportation revenue
• Congestion pricing and HOT lanes (SR95 and I-15)
  but only a few demonstration projects
• Public Private Partnerships few cases much
  talk

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Local Option Sales Taxes

• Most popular and fastest growing
• Majority or supermajority (in CA) vote of public
  required
• Sunset date reauthorization required
• Lists of projects or categories of spending
• Implementation by local governments

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Percent Change in Self-Help Taxes Compared to
Gas Tax
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Change Is Happening Quickly

• 44 transportation finance ballot measures in U.S.
  in 2002 47 in 2007 (steady pace every year)
• Most for a single county
• A few regional in nature even fewer statewide
• 80 were sales taxes
• A few property taxes
• A few local gasoline taxes
• A few bond issues along with current taxes

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Issues Raised by LOSTs

• Move away from user fee philosophy
• Sales tax is broad based tax
• More regressive than alternatives
• Consistency with regional transportation plans
• Project delivery
• Local authority and responsibility
• Flexibility versus specificity
• Salience of issue of trust

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Growth In Borrowing For Transportation

• Like a home mortgage
• Particularly attractive in states with much
  through traffic where toll revenue is lucrative
• Must repay capital plus interest . . . roughly
  doubles the cost in dollars paid but they are
  cheaper dollars delivered earlier
• Access to capital markets

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Potential For Borrowing Limited

• Projects having positive cash flow
• Challenges of public transit
• Costs of interest and risk

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Some Major Factors Have Changed

• Revenue is falling so dramatically from
  traditional method of taxing motor fuels . . .
  need for revenue has become more important in
  practical terms than efficiency goals of pricing
• Propulsion technology is reducing the long term
  viability of fuel taxes as a surrogate for tolls
  alternative user fees needed if user fees are to
  be viable

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User-Fee Financing is Less Common but Promising

• Facility pricing in the USA vs. area pricing in
  Europe
• HOT lanes . . . SR 91, I-15 and growing
• Proving efficiency and effectiveness of
  electronic toll collection . . . also building
  public acceptance of tolls
• Prospects growing in many metro areas

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HOT (High Occupancy / Toll) Lanes

• Concept where excess HOV capacity exists, allow
  single occupancy drivers to pay tolls to use
  lanes
• Tolls vary with demand to keep lanes free-flowing
• Transit can also use
• Experience to date
• I-15, SR-91, Houston, Denver, Minneapolis
• All reduce delay, reduce uncertainty
• Optional nature reduces political resistance
  viewed as providing additional travel choices
• Implementation challenges
• Many HOV lanes at or near capacity
• Little available ROW for constructing new lanes
• Implementation strategies
• Up HOV limit from 2 to 3
• Convert existing free lanes to priced lanes

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Cordon Congestion Tolls

• Concept charge drivers a fee to enter congested
  area during peak hours
• Experience to date
• London, Singapore, Stockholm
• Uniformly effective. London example
• 33 reduction in auto trips into zone
• 15 VMT reduction within zone
• 21 increase in travel speed within zone
• 33 reduction in bus schedule delays
• 19 reduction in GHGs
• gt 125M / year net revenues
• Implementation challenges
• Not optional increased equity concerns
• Local retailer concerns
• Many American Cities are polycentric no obvious
  central charging zone
• Implementation strategies
• Focus on a few very high traffic areas
• Invest revenue in improved transit to reduce
  equity concerns

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What Does the Future Hold?

• Few North American applications for area pricing
  like in London but New York is one of them
• More applications to facilities
• Most applications will be on new capacity
• Specialized facilities HOT lanes, bridges,
  bottlenecks, truck-only lanes

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Equity is hotly debated

• Current system is regressive yet is assumed not
  to be in most debates
• Tolls are perceived to be inequitable yet prove
  not to be in many empirical analyses
• The demon you are familiar with is more tolerable
  than the unknown
• SR 91 survey results and operating experience
  shows that Lexus Lane fears were exaggerated

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Experiments in Electronic Tolling
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Already in Use for Truck Fees Throughout Europe
Trials in the USA for Passenger Vehicles

• Atlanta
• Twin Cities
• State of Oregon
• Seattle

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Political/Public Acceptance The Privacy Issue

• Fear
• With all this on-board technology, is Big Brother
  watching?
• Fueled by press misrepresentations
• LA Times quote tracking devices send a signal
  to a GPS satellite following the car

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Is It Possible to Envision Future Policy?

• Motor fuel tax losing its effectiveness after 90
  years
• Local tax measures are interim measures and
  possibly longer term for public transit
• Political preference now for substitution of
  general taxes and borrowing
• New user fees, using distance charges and GPSS on
  new highway capacity eventually to replace fuel
  tax
• User fees more technically feasible than at any
  other point in time and more equitable and
  efficient than general taxes remains to be seen
  whether they will continue to be a dominant mode
  of transportation finance

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Which Way Do We Go?
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THANK YOU!

• ITS TIME FOR YOUR QUESTIONS AND COMMENTS

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BACKUP SLIDES
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Motor Fuel Tax Lagging State Fuel Tax Changes,
1957-2007
Average of Fifty States Cents per gallon
State Fuel Tax in 1957 5.7 If adjusted for
Inflation End of 2007 42.0 Actual Current Fuel
Tax 22.0 Difference 20.0
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Projections of Highway and Transit Account
Balances Through 2012
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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2005 Revenue Used for Highways (by Collecting
Agencies) in Millions and Percent
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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Highway Revenue by Level of Government
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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Taxes Supporting the Highway Trust Fund
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
31
Federal Gasoline Tax Rates
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
32
2005 Revenues Used for Transit (by Collecting
Agencies) in Millions and Percent
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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Federal, State, Local Agency Transit Revenue,
1993-2005
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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Distribution of Transit Revenues, 1993-2005
Source Report of the National Surface
Transportation Policy and Revenue Study
Commission Transportation for Tomorrow,
December 2007, Volume II, Chapter 5
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