Our Commentary on the Department of Transportation's Reform Proposal

In case you missed it, last week we released a commentary on the DOT's reform proposal. If you are interested in reading it, the document can be found here.

The Financial Crisis on ALL Streets

One of the biggest worries about the current financial crisis on Wall Street is that it will spill over and affect “Main Street”. Yet Main Street is not the only street we should be worrying about, ALL streets could be affected. In other words, this economic emergency will surely impact the next transportation bill in a variety of ways.

To begin with, the large increase in transportation spending that many in Congress are calling for may not be possible given the massive amounts of debt the government will soon take on if it finances a bailout. The current transportation revenue mechanism, the Highway Trust Fund, is already faltering, unable to raise enough money to keep up with authorized spending. Forget about increased spending, even spending at our present level in the future is impossible unless either new transportation fees are levied or money from the general fund is appropriated. Given that the general fund is already maxed out, something has got to give: either more national debt or higher transportation charges for users.

It is highly unlikely, but conceivable, that spending on transportation would decrease, but that would be a huge mistake. An efficient transportation system is fundamental to economic growth, and while underinvestment in infrastructure may not cause pain today, it surely will down the road. But, as we have mentioned in various other places, there are at least two things that can be done to improve transportation without increasing spending: more effectively invest what we already have, and better price the existing system to increase its efficiency.

We cannot expect to improve the transportation system simply by throwing more money at it; that was tried with the last transportation bill and it has failed. What is needed is smarter investment, investment that is prioritized on national goals and on performance outcomes. As obvious as that sounds, it would be a sea-change in how things are done today.

In addition to performance based investment, better pricing of the current system would improve efficiency overnight. For example, a free, bumper-to-bumper lane on the highway carries many fewer cars per hour than a priced lane that has free flowing cars.

These are simple ideas, but recent transportation bills have not addressed them directly. Perhaps the financial crisis will necessitate a back to basics approach in the next go-around, which would help the transportation system without costing a dime.

-Daniel Lewis

The Highway Trust Fund: Passing the ($8 Billion) Buck

Yesterday the House approved legislation transferring $8.017 billion from the general treasury into the near-bankrupt Highway Trust Fund.  President Bush is expected to sign it quickly and thus temporarily fix what could have been a crisis in highway funding nationwide.

Although Congress has justified the transfer based on the fact that interest was owed to the highway trust fund from years past, the reality is that we probably need to accept two things about this turn of events:  1) This solution is terrible and 2) This solution was better than the alternative.

The solution is terrible because it fundamentally destroys whatever was left of the user pay principle in highway funding.  Sure, the fuel tax is a poor substitute for a user fee as it fails to take into account key externalities.  But general fund revenue is way worse, as it leaves almost no connection between who pays and who benefits, thus worsening the continued perception among the driving public that roads are “free.”  Moreover, given the lack of any actual general fund surplus, this “transfer” is really just increasing the national debt at a precarious time.

The solution is better than the alternative because without it, states would have begun to receive less than anticipated highway funding, causing project delays across the country.  These delays would have a substantial economic consequence that is probably much worse than an increased debt or people paying for roads through their income taxes.

In the end this lesser of two evils stems from an inability amongst leadership of both Congress and the Executive to convince Americans that they should pay explicitly for their transportation infrastructure.  There is a reason why no increase in trust fund revenue has been proposed despite this long-anticipated shortfall – a complete lack of vision for transportation policy.  Rather than confront this problem, federal leadership has chosen to pass the buck for the past six years.  This buck-passing will keep going into the next administration for sure, but at some point it will become unsustainable.  We can only hope that perhaps then a new vision will be welcomed and spearheaded by the leaders we need so desperately to do so.

-Joshua Schank

What Are The Candidates Saying About Transportation?

Not much, is the correct answer. (You can bet that they're not whispering about transportation in that photo). At the Democratic convention last week, and at the Republican convention this week, the topic of transportation policy and infrastructure has been absent. Now, maybe some have been talking about it, perhaps minor speakers at non prime-time hours, but of the major voices? Very few. There has been a great amount of focus on clean, renewable energy, and that ties in with transportation in a serious way – but it is separate from the policy and infrastructure issue of roads, rails, and transit.

For example, at the Democratic convention, both Bill and Hillary Clinton mentioned energy, but not transportation. Same story with Joe Biden and John Kerry. Michelle Obama spoke of neither. Transportation made one brief appearance in Barack Obama’s speech when he called for government to “invest in new schools and new roads.”

From major Republicans in Minneapolis there has also been no talk of transportation. President Bush, Rudy Giuliani and Sarah Palin all mentioned energy but not transportation, and Fred Thompson and Joe Lieberman mentioned neither. Perhaps John McCain will throw in a one-line reference like Obama.

Two of the only events we know about that focused on transportation were roundtable discussions held by the Rockefeller foundation at each convention. In fact, National Transportation Policy Project Members participated in Denver and Minneapolis, Jane Garvey and Senator Slade Gorton respectively. Other big names attended, like Pennsylvania Governor Ed Rendell, but so far as we know the forums were not televised.

It is tempting to write that transportation has been conspicuously absent from these conventions, but that’s not exactly fair to the phrase. Transportation would had to have been a common topic beforehand for it to go conspicuously absent; but no politician, going back as far as the early presidential primaries, has made it a key campaign focus.

In many ways this is shocking. For most Americans, transportation - alongside public schools and taxes -is their most frequent interaction with government. Driving their car, taking a bus, these activities are on infrastructure paid for by government. And everyone knows how poor that infrastructure is these days. Congested commutes, potholed roads, infrequent trains, these are problems that when fixed earn deep gratitude from the public. This is not to mention high gas prices, the Minnesota bridge collapse, and recently renewed discussion about the Bridge to Nowhere earmark. Why aren’t politicians talking transportation?

Perhaps most people don’t consider the situation as troubling as I do. That goes against my personal experience, and the experience of almost everyone I’ve talked to regarding the subject, but it’s possible. The more likely cause might be that people have become accustomed to mediocre infrastructure, and just enough is being done to stifle complete road rage. Politicians can get by spreading out projects here and there rather than tackling the larger and tougher choices about how to fund, prioritize and invest in transportation. Given all the talk about leadership at the conventions you would think there is plenty to go around, but transportation is one area that is still crying out for it.

-Daniel Lewis

 

How Much Does It Cost To Get There/Anywhere?

About 5 hours from now I will clamor onto a bus in Washington, DC and four hours later emerge in New York City. 12 hours after that I will board a plane at JFK airport and get off 16 hours later in Hong Kong. Soon after that I will climb aboard another jet and 5 hours and one layover later I will emerge on the tarmac in Penang, Malaysia, the merciful end to my journey at least for a few days. Surprisingly, every mile of that trip will cost roughly the same amount, whether it is traversed 37,000 feet above the North Pole at 600 miles an hour or at 55mph on the Jersey Turnpike. The cost per mile, based on a back of the envelope calculation, is somewhere between 9 and 13 cents.

Here are the calculations (all distances are as the crow flies, more important than the actual route):
· DC to New York: 205 miles, Bus $19 = 09 cents/mile
· New York to Penang: 9230 miles, $1200 (Cathay Pacific) = 13 cents/mile
· Bonus calculation: Penang to Kuching, Malaysia on Malaysia Air: 948 miles, $100 = 10 cents/mile

The similarity between the per mile bus fare and the per mile airplane fare is striking, and perhaps coincidental. But it raises some interesting thoughts about whether there is a rough baseline cost to travel across modes, something of a “natural level” as economists might like to call it. Are the most competitive fares per mile about equal across modes? In reality, at 9-13 cents per mile this trip to Asia falls somewhere between the cost of other trips and modes. For example, my daily metro ride into downtown DC costs about 51 cents per mile. Driving around in my car costs 34 to 38 cents per mile. When I sometimes fly home to San Francisco on a cheap ticket it can cost as little as 6 cents per mile. Looking at this wide variance, the similarity noticed in the Asia trip seems to become mere coincidence.

The calculations:
· Metro ride Van Ness to Metro Center: 3.6 miles, $1.85 rush hour fare = 51 cents/mile
· Mazda 3: 7500 miles a year, 25-35 mpg, $4.20/gallon gas, $1700 annual insurance = 34-38 cents/mile
· DC to San Francisco on Virgin America: 2437 miles, $150= 06 cents/mile

Taking a step back, what can account for these differences? When it comes to transportation, you are really paying for three things: convenience (i.e. proximity to where you begin you trip and end it), quality (like space, service, and privacy), and speed - plus the provider’s overhead costs of labor, capital, fuel, etc. Obviously there are significant differences in all of these categories between cars, trains, subways, buses, and planes; logically they should be priced very differently.

Yet there remains that surprising price similarity between the bus and two different airlines on this upcoming trip. What does it mean? It’s still unclear to me. But I will have plenty of time to think about it during my upcoming flights, so hopefully I will have an answer two weeks from now.

-Daniel Lewis

Paying More and Getting Less - How $8 Billion for Transportation Could be Better Funded

Just this week the US House of Representatives overwhelmingly passed a bill to provide the Highway Trust Fund with $8 billion from general revenue. The fund is expected to have a multi-billion dollar shortfall in 2009 because it is not bringing in enough revenue from the gas tax to cover all of the projects for which it is supposed to pay. This shortfall is a result of two things, and although the House bill postpones an inevitable reckoning it does not address the problematic lack of vision in the 2005 transportation bill. That 2005 bill predestined the current shortfall by authorizing more spending than the gas tax could fund (because it did not raise the gas tax), and it doomed the fund to shortfall when oil prices rose and driving declined (thus depressing gas tax revenue, which is fixed and not tied to the price of gas). The White House has threatened to veto the bill, saying it is a gimmick and shifts costs away from users to taxpayers in general. They recommend moving money from the mass transit account to the highway fund. This is also an inadequate response.

The basic problem in funding our transportation system today is that there is little public or political recognition of three truths:

1. Good infrastructure costs money.
2. People are not currently paying the full cost of their transportation, whether it is by vehicle or transit.
3. The best projects are not being funded because no prioritization process exists.

Of most importance in this current blog is truth number two. This is the situation, in very broad strokes: Drivers are not paying the full cost of driving. They create external costs in terms of environmental damage, congestion, injuries, and the national security harm of oil dependence. Transit users also don’t pay the full cost of their movements, and transit systems are generally quite subsidized, yet they create external benefits in that they are often more environmentally friendly, ease road congestion by diverting travelers, and can boost real estate value around subway stops, etc. Both have additional costs that are not mentioned, and both provide other benefits. The key though is that transit’s additional benefits outweigh its externalities, whereas highway’s do not. Funding these systems should stem from that context.

If there was no Highway Trust Fund then obviously there would be a public value in paying for transportation from the general fund. But that’s not the most efficient way to run the system. Charging users an accurate, true-cost price for their driving and transit not only helps maximize the use of already built infrastructure but ensures that enough funding exists for new infrastructure, both roads and transit. Getting the prices right holds a lot of promise for improving the system.

But getting the prices right also means people need to come to terms with the true cost of transportation. In short, it probably means paying more. If they don’t want to directly pay the full cost of moving about, then the system needs to be subsidized, and that means money must be diverted from uses like education, healthcare, and defense. A good transportation system is not free. But funding the system from the general tax fund does not get the same bang for the buck as when users pay directly for their use, either through vehicle-miles-travelled charges, gas tax, pay as you drive insurance, congestion pricing, or combinations of those charges and others. If users pay more directly for their transportation, they really do end up paying less for better system performance in the long run.

-Daniel Lewis

The Future of Cars

In earlier posts we have commented on how high gas prices appear to have a densifying effect, encouraging people to live closer to where they work and play so that they can avoid the cost of driving. Transit ridership is up. Home prices in urban centers appear to be holding their value better than those in the suburbs. Yet while these trends may develop permanence, it is also important to note that the high gas prices driving this shift are having an equally potent impact on vehicle technology. As technology improves vehicle fuel efficiency, it would make sense that the densifying power of gas prices will be moderated to some extent.

Most people have heard that more hybrid and several new plug-in electric vehicles are coming to auto showrooms in the next few years, signifying a step change in car technology. But there are also significant developments occurring in conventional cars that run on gasoline. And most experts agree that gas will still be an important source of fuel for years to come. It will likely take both innovations to conventional engines and the increasing use of electric cars to wean the country off of oil. Importantly, for vehicles running on gasoline, reductions in fuel consumption translate directly to greenhouse gas reductions: each gallon of gas avoided prevents the emission of about 20-25 pounds of carbon dioxide.

To improve efficiency car makers are focusing on all aspects of a vehicle: its engine, transmission, weight, drag, and rolling resistance. Surprisingly, only a fraction of the energy stored in a gallon of gasoline ever makes its way into the actual powering of a vehicle’s wheels. In fact, more than two thirds of the energy in gasoline is lost by the engine to heat, friction, and idling. More still is lost to the transmission. Automakers are turning to a host of new technologies to fight these losses.

Similar to how the airplane technologies developed for fighters and bombers in World War II led to the first jet-powered passenger aircraft, high gas prices are driving innovations in vehicles that only a few years ago were unimagined or seemed futuristic. Automakers are in some ways facing their own war time situation. Locked in struggle with their competitors, a weak economy, and producing a portfolio of cars that don’t meet consumer’s fuel efficiency needs, it literally is a battle for survival for companies like General Motors. The only way to stay afloat is to innovate and create cars that consumers want – that is, cars that can get more miles per gallon. Whether produced by Ford, Honda, Toyota or GM, it is likely that better cars will emerge from these tough times.

So while transit is alive and healthy, it is also possible cars may emerge from this mess looking better than ever. Which brings up interesting policy questions – assuming we reduce or eliminate the negative environmental externalities associated with automobiles, what should their role be in our future transportation network? How will growth patterns continue to change? Would we seek to infinitely expand roadway capacity? Or would a multimodal approach still be necessary? We’re a long way from needing to answer these questions, but they are worth pondering.

-Daniel Lewis