Transportation Finance, Congestion, and Equity: Some Policy Perspectives

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Transportation Finance, Congestion, and Equity
Some Policy Perspectives

• Adeel Z. Lari
• Michael J. Iacono
• Presentation to the Transportation Research Board
  85th Annual Meeting
• Washington, D.C.
• January 24, 2006

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Motivation for the Research

• Suspicions about the nature of traditional
  regional transportation planning/programming/finan
  cing arrangements
• Whom are they designed to benefit?
• Are they fair?
• If not, what can be done?
• Provide some evidence as to who benefits from new
  urban transportation investments, who bears the
  burden of taxation
• Stimulate further discussion on an
  underrepresented issue

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Conventional Wisdom

• Urban traffic congestion is bad and is getting
  worse
• Popular references TTI indices, census JTW data
• Something must be done
• More roads
• More transit
• More roads and transit
• Failure to act will have large, long-term effects
  on productivity, growth, quality of life, etc
• Conventional wisdom is silent on the issue of
  equity

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Defining Equity

• Emphasis on vertical equity
• The equity of a policy with respect to groups of
  users with different economic circumstances (or
  abilities to pay)

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An Assumption

• Regressive forms of taxation for transportation
  purposes are undesirable due to their negative
  redistributive effect

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Hypothesized Relationship
Investment to Serve Peak Period Users
Benefits Flow to Upper-Income Users
Congestion Relief Policy
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Previous Equity Studies

• Highway Systems
• Cost Allocation (Meyer et al. 1965) 62 percent
  of per-mile freeway use costs should be allocated
  to peak-period users. Some cross-subsidies
  between peak, non-peak users exist on high-cost,
  centrally-located facilites during periods of
  highest demand
• User Fee/Tax Incidence (Rock 1982, 1990 Dill et
  al. 1999) vehicle registration, fuel taxes
  moderately regressive, deductability and
  itemization increase regressivity

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Equity Studies (continued)

• Highway Systems (continued)
• Full Incidence (Giuliano 1994) Using NPTS, CES
  data, current incidence of direct benefits and
  costs shown to be regressive, since higher-income
  households consume more benefits with less of
  their income
• Transit Systems
• Flow of subsidy dollars to services patronized by
  non-poor users creates regressive effect (Wohl
  1970 Pucher 1981)

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Equity Studies (continued)

• Transit Systems (continued)
• Recent investments in rail transit systems
  increase flow of benefits to non-poor, while
  spreading tax burden over all citizens (Webber
  1976 Winston and Shirley 1998 Altshuler and
  Luberoff 2003)
• Devolution of finance responsibilities to local
  governments leads to greater use of regressive
  forms of taxation (Wachs 2003)

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Overview

• Measuring Incidence
• Incidence of MN highway finance
• Characteristics of facilties/investments
• Characteristics of system use
• Conclusion and Policy Options

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Transportation Finance in MN

• Measuring Incidence The S-Index
• Scale for index ranges from -1 to 1, with -1
  being the most regressive, 1 most progressive
• Calculation (for 10 deciles)

S 1 (1/5000)(1/2)Tx(yi) Tx(yi-1)(yi
yi-1) where Yi the cumulative percent of
income up to and including the ith decile x a
particular tax or combination of taxes Tx(Yi)
the cumulative percentage of tax x paid by those
with income up to and including the ith decile.
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MN Transportation Taxes 2002 and 2007
incidence (forecast)
Source Minnesota Department of Revenue (2005)
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MN Road and Transit Revenue Sources, 2003
Source Minnesota Department of Transportation
(Mn/DOT) (2004)
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Patterns of Investment 1980-2005
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Patterns of Investment 2005-2025
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Geographical Distribution of Income in the Twin
Cities, 1999
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The Demand for New Investment

• Apparent relationship between outward migration
  of upper-income households and demand for new
  highway capacity
• We assume that this new capacity is provided to
  handle peak-hour flows only
• Some evidence from recent, high-profile projects
• I-394, I-494, I-94/694 expansions, SH 312

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I-94/694 Corridor
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I-394 Corridor
394/100
394/Louisiana Ave.
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I-494 Corridor
494/35W
494/Minnetonka Blvd.
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SH 312/US 212 Corridor
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Highway Operational Characteristics

• Available data suggest that recent expansion/new
  construction projects have targeted routes with
  moderate to heavy peaking characteristics
• These costs are likely attributable to peak-hour
  commuters
• Suggested relationship to income

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Travel Behavior and Benefit Incidence

• What do we know about the use of transportation
  networks and the benefits that are derived from
  them?
• Income effects on travel behavior
• Can be measured through survey data
• Regional travel surveys
• Special purpose surveys (I-394 panel)

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Household Income and Trip Rates
Source Metropolitan Council TBI
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Household Income and Mean Work Trip Distance
Less than 30,000/year
30,000-60,000
60,000-100,000
Greater than 100,000
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Income Distribution of Morning Peak (6 to 9
a.m.) Period Travelers on I-394 and I-35W
Note N681 for the I-394 sample N231 for the
I-35W sample Source Minnesota DOT
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Conclusion

• Mounting pressure to adopt congestion relief
  policy appears to direct benefits of new spending
  toward well-off suburban commuters
• Peaking characteristics of traffic
• Income characteristics of commuters
• Incidence of taxation, benefits from use

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Levelling the Field

• Pricing Options
• Toll facilities/value pricing Link costs to use
  of facility
• Much AM peak traffic in Twin Cities is non-work
  travel, more elastic, can be rescheduled
• Shift Taxation Burden
• Transit example (MVST vs. income tax)
• Two bottom population deciles would see tax
  relief of over 3M/yr each with shift to income
  tax

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Levelling the Field

• Other Finance Options
• Value capture policies applied to urban road and
  transit networks
• Hard to accurately define beneficiaries
• Incidence effects uncertain

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Barriers to Equity

• Political and Social Arrangements
• Equity/Efficiency Tradeoff
• Well organized, well-funded interests
• Diffuse benefits, concentrated costs
• An old tax is a fair tax
• Others?

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Thank you for your attention.