Chapter 3 Transportation Regulation and Public Policy Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning Chapter 3 Transportation Regulation and Public Policy © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction Currently many forms of government influence in private sector business activities Establishment of legal foundation for conduct of business activities and relationships Economic, safety, environmental regulations Promotion through policies and funding Public ownership and/or operation Anti-trust law development and enforcement © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Introduction Chapter purpose Examine the principal roles of government in transportation Examine rationale for government involvement in transport Examine changing roles and rationale for government involvement over time Examination begins with role of government as a regulator of economic activities © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Nature of Regulation Why does government become involved in the activities of private sector companies? To protect the public interest when market forces alone produce undesirable outcomes Several approaches to protecting public interest Maintain or enforce competition via anti-trust laws Use economic regulation to create more competitive conditions Assume ownership and direct control of operations © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Nature of Regulation All 3 approaches are used, but economic regulation has been most prevalent Regulation seeks to balance concerns for the public interest within a competitive framework driven by private enterprise What is the legal basis for economically regulating private sector enterprise? Answer begins with common law principles © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Common Law Law based on judicial precedent, e.g., principles of law developed from prior court decisions Form of law found in English-speaking nations Changes and evolves as conditions or circumstances in society change Provides principles guiding development of statutory laws for regulating transport © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Common Law Provides initial basis for economic regulation of transport Common law principle: “Businesses affected with the public interest” Foundation for Granger Laws and economic regulations developed in mid-western states Supreme Court decisions – late 1800s Upholds rights of states to regulate businesses affected with public interest Establishes new regulatory precedent at Federal level © 2011Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Common Law Statutory or civil law In English-speaking countries, tends to evolve from common law principles Statutes (acts) enacted by legislative bodies Constitute principal regulatory authority in transport Statutes tend to be written in general terms Thus, statutes subject to interpretation by administrative agencies charged with implementing regulations Also must be interpreted by courts in legal disputes © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Independent Regulatory Commissions Administrative agencies in executive branch Created to administer federal econ. regulations Interstate Commerce Commission (ICC) Replaced by Surface Trans. Board in 1995 Civil Aeronautics Board (CAB) Federal Maritime Commission (FMC) Federal Energy Regulatory Commission (FERC) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Role of the Courts Reg. agency rulings subject to judicial review Courts are authority for final rulings on Constitutionality of regulatory statutes Interpretation of regulatory statutes Reg. agencies are experts and authorities on matters of fact. Courts are a check on Arbitrary or capricious agency actions Actions not conforming to regulatory stds/authority Unfair procedure or insubstantial evidence © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Safety Regulation Controls operations, personnel qualifications, condition of equipment Agencies with jurisdiction include: Federal Aviation Adm., Federal Railroad Adm. Federal Motor Carrier Safety Adm., Coast Guard National Highway Traffic Safety Adm. National Transportation Safety Board Pipeline and Hazardous Materials Safety Adm. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Safety Regulation State safety regulations and police powers Principally concerned with safe operation of vehicles Speed limits, vehicle size, operating licensing State and federal regulations often conflict National speed limits Truck size and weight standards © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation Safety Regulation National security Jurisdiction of U.S. Department of Transportation Department of Homeland Security Aviation and Transportation Security Act (2001) Creates Transportation Security Agency (TSA) Maritime Transportation Security Act (2002) Homeland Security Act of 2002 © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Regulation of Transportation State Economic Regulation Generally patterned on federal regulations Power to regulate given to states by Commerce Clause of U.S. Constitution Cannot be stricter than federal regulations Limited to intrastate commerce Cargo must have origin and destination within one state Many gray areas © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Development of Regulation Economic regulation began at the state level in 1860s and at federal level in 1887 Initially driven by desire to control monopolistic practices of railroad industry Regulation enabled government to control: Entry and exit from the industry Entry and exit from markets Rates charged © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Development of Regulation Principal periods or eras of regulation: Era of initiation: 1887-1920 Focused on railroads Era of positive regulation: 1920-1935 Oriented toward promotion of transportation Era of intermodal regulation: 1935-1975 Expands regulation to other modes Era of economic deregulation: 1976-present Old rationale for regulation no longer as relevant Era also saw strengthening of safety and security regs. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Current Economic Regulations Deregulation begins with 4R Act in 1976 Airline Deregulation Act (1977) Motor Carrier Act and Staggers Rail Act (1980) Major deregulation acts, focused on rate deregulation ICC Termination Act of 1995 (ICCTA) Further deregulates transport, eliminates most economic regulations for trucking Replaces ICC with Surface Transportation Board (STB) housed within U.S. DOT. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Current Economic Regulations STB has jurisdiction for all surface mode regulation but, most remaining regulations pertain to railroads Railroads subject to common carrier obligations 20 day advance notice of rate change Rail tariff filing no longer required Rail contract filing no longer required except for agricultural products © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Current Economic Regulations Other modes Air carrier industry is deregulated Water carriers largely deregulated Pipelines regulated by FERC Except for railroads, anti-trust laws are principal approach used to protect public interest Common approach used in most industries Some regulation remains for railroads due to conditions fostering monopoly powers in some markets © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Antitrust Laws in Transportation Begins with Sherman Antitrust Act (1890) Makes restraint of trade and monopolistic practices illegal Outlaws price fixing among competitors Outlaws business practices that foster monopolies Outlaws attempts to prevent sales to certain firms Clayton Act (1914) Strengthens Sherman Act by specifically prohibiting Exclusive dealing arrangements Tying contracts © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Antitrust Laws in Transportation Federal Trade Commission Established in 1914 to administer anti-trust activities Robinson-Patman Act of 1936 Prohibits price discrimination among buyers unless Justified by differences in cost Necessary to meet competition Necessary to adjust to changing market conditions Not specific to transport, thus courts will decide if provisions apply to carrier pricing and contracts © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Antitrust Laws in Transportation Two types of antitrust violation: Per se violation – illegal regardless of whether economic harm occurs. Examples include: Price fixing, tying contracts, division of markets, boycotts Rule of reason violation – economic harm to competitors or other parties must be shown. Exclusive deals, requirements contracts, joint bargaining, joint action among affiliates Applications in transport are evolving © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transportation Policy In addition to regulation and anti-trust activities, federal government sets national transportation policies Composite of laws, regulations, funding programs No single federal transport policy statement Institutional framework that develops federal trans. policy includes The Executive and Congressional branches Office of the President and over 60 federal agencies 30 Congressional committees Independent regulatory agencies © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Why Do We Need a Transport Policy? Significance of transportation Physical connection fosters social unity Transport is fundamental to economic and national defense Capital requirements are very large Public ownership sometimes necessary Policy: sets framework for allocating resources Guides the many federal agencies involved © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Policy Interpretations ICCTA contains declaration of federal policy for STB regulation of modes (except air) Principal policy provisions include: Recognize and preserve inherent advantage of each mode Safe, adequate, economical, and efficient service Fostering sound economic conditions among the carriers © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Policy Interpretations Policy provisions continued Restatement of common carrier obligations Reasonable charges, unjust discrimination, undue preference, unfair competitive practice Encouraging fair wages and working conditions Meet needs of commerce, U.S. Postal Service, and national defense Provides more specific policy direction to STB for rail and motor transport © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Who Establishes Policy? Executive Branch Office of the President U.S. Department of Transportation Focus is domestic transport (Maritime Adm. is exception) Department of State Focus is international air and water transport Department of Energy Army Corps of Engineers © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Who Establishes Policy? Congress and congressional committees Principal Senate committees involved in transport Committee on Commerce, Science and Transportation Committee on Environment and Public Works Principal House of Representatives committees Transportation and Infrastructure Committee Energy and Commerce Committee In both houses, appropriations and finance committees also have great influence © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Who Establishes Policy? Regulatory agencies influence policy via Interpretation of laws Decisions on regulatory proceedings Enforcement of decisions Judicial system Interprets laws Reconciles conflicts © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Declaration of National Transport Policy Who Establishes Policy? Industry associations lobby in the interest of member firms and thereby influence policy Association of American Railroads (AAR) American Trucking Associations (ATA) Air Transport Association National Industrial Trans. League (NITL) National Shippers Strategic Trans. Council (NASSTRAC) Other influencers of transport policy © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion In addition to setting policy, federal government promotes development and growth of transport Promotion used when Private sector alone supplies too little of desired transport facilities or services Required capital investment may be extraordinarily large May be difficult or inefficient to exclude non-payers from using the facility or service There are significant environmental or social externalities associated with the supply of a transport facility or service Promotion is the encouragement or funding for policies, programs, or planning designed to develop transport system facilities or services © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Transport Planning and the Public Sector Public promotion requires public sector planning Planning determines current performance levels and future transportation needs and develops policies and program options to achieve goals Different metrics than private sector planning Weighs benefits and costs to society rather than just private financial costs and returns e.g. Costs of traffic congestion, costs of pollution, land value benefits of subway station © 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion An Approach to Public Project Planning Analysis Benefit/cost ratio: a planning tool for evaluating alternative public projects Sum of initial project costs If B/C > 1, then project produces “profit” Issues Time value of benefits and costs, discount rate Quantification, time horizon for counting benefits Net benefits over project lifetime © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Air Transport Air traffic control system (ATC) Operating subsidies, no government ownership U. S. Postal Service support Air terminal development and construction Safety-related promotion Military-related research and development Home-flag airline designation Airport and Airway Trust Fund and user charges © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Motor and Highway Nearly all roads provided by public agencies Most roads owned by state and local governments Federal government owns national park and military base roads Federal Highway Adm. (FHWA) in U.S. DOT Administers federal highway programs Most federal highway aid directed to 160,000 mile National Highway System (includes Interstates) Conducts/sponsors highway-related research © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Motor and Highway National Highway Traffic Safety Adm. Responsible for highway and auto safety Federal Motor Carrier Safety Adm. Responsible for motor carrier vehicle safety User charges Federal and much of state funding for highways comes from a system of user charges and fees Federal Highway Trust Fund © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Rail Transport Freight railroads occasionally receive public financial aid provided through legislation Most such aid has been for capital improvements Some limited operating assistance Federal Railroad Adm. (FRA) in U.S. DOT Created to provide railroad technology and safety research and development Passenger railroad assistance Amtrak (not federally owned) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Domestic Waterway Operations Two major forms of federal promotion U.S. Army Corps of Engineers Construction, maintenance, and operation U.S. Coast Guard Navigational aids and systems System of user charges implemented to cover portion of federal aid © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion International Water Carriage Maritime Administration (MARAD) Direct financial assistance to U.S. flag carriers Ship construction and operating subsidies MARAD aid program and decision-making control is unique in U.S. transport Aid justified by need to maintain U.S. owned fleet and ship-building capacity Indirect forms of promotion Cabotage laws Cargo preference laws Planning and facilitating (e.g., promo. export sales) © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion International Water Carriage Shipping Acts of 1984 and 1998 Designed to reduce economic regulation and create a more competitive and market-driven international shipping industry St. Lawrence Seaway Development Corp. Charged with operating and providing funding aid for operating Seaway and Great Lakes systems Role of port authorities © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Public Promotion Pipelines and Other Promotion Right of eminent domain, no other financial aid Other promotional activities Planning and research U.S. DOT, Transportation Research Board, National Science Foundation U.S. Dept. of Agriculture E.g., handling, packaging, and transport of food U.S. Department of Defense © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transport Promotion in Perspective User charges Reasons for user charges Different forms Existence charge (1st tier) Unit charge (2nd tier) Relative use (3rd tier) Nationalization Rare form of public promotion in U.S. Purpose, advantages and disadvantages © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transportation Safety Federal role is to ensure safety of traveling and general public Accomplished through safety regulations, enforcement, and research Heightened concerns in econ. deregulation era Objective of safety regulations: set minimum level of safety for providers to maintain Providers typically exceed minimums © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transportation Safety Safety regulations cover Labor and training standards e.g., minimum qualifications for operating personnel Equipment standards e.g., aircraft design specs, auto safety equipment Hazardous materials and waste transportation Covered in Code of Fed. Regulations, Titles 40 and 49 Loading/unloading, routing, packaging, ID, documents. Environmental safety e.g., auto emissions, tanker loading/unloading © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Transportation Safety Transportation Security Department of Homeland Security (DHS) Mission and responsibilities Transport-related responsibilities adm. through Coast Guard (CG) Customs Service (CS) Transportation Security Adm. (TSA) Impacts on transport system, commercial carriers, and transport users © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.