Rethinking the Federal Surface Transportation Program by Robert W. Poole, Jr. Director of Transportation Policy, Reason Foundation

Overview of presentation Need for increased highway investment Near-term outlook for reauthorization Shortcomings of current proposals Need for a Plan B What a Plan B might consist of

The need for increased highway investment is well-documented. Major highways and bridges are wearing out and must be replaced. Cost of reconstructing Interstates has not been included in most estimates of “needs.” Locations of people and business are very different from when the Interstates were being planned. Many highways and bridges are under-sized for current—and projected—traffic.

How large is the highway funding shortfall? Estimates from AASHTO, Policy & Revenue Commission, Financing Commission, and FHWA C&P Report. Federal, state, and local capital investment FHWA C&P report (all roads)*: “Sustain” scenario: $27B/year short “Improve” scenario: $59B/year short *Using B/C>1.5; no tolling/pricing

Reauthorization prospects Timing: Most observers say Spring 2011 Slight chance of “lame-duck” attempt If not next Spring, may be after 2012 presidential election. Funding increase: chances close to zero Hence, need for a Plan B

The Oberstar bill Further centralizes control in DC, not states. Empowers MPOs at expense of state DOTs. Makes most highway funding “flexible.” Expands “livability” programs. Heavily regulates tolling and PPPs.

DOT’s Draft Strategic Plan Also highly centralized and pro- ”livability.” Aims to force people out of cars and freight from trucks to trains. Spend highway money on repair, not capacity expansion. Seeks “transportation revenue” usable for all modes, discarding users- pay/users-benefit principle.

What is “livability”? Attempt to reshape cities and infrastructure to let people live and work without cars. Shift ever-larger sums from HTF to transit, bike paths, sidewalks, etc. Aim is large mode-shift away from auto use. FTA now evaluating “New Starts” based on community development, not transportation. MPOs to be required to develop “smart- growth” land-use plans, to get federal transportation funds.

Problems with livability agenda Doubling density leads to only 4 to 5% reduction in VMT. Hence, smart growth is very costly way to reduce GHGs (e.g., $4,000/ton). Higher density leads to worse traffic congestion. Higher-density cities have more costly housing. Transit today typically handles 1.5% of urban travel; doubling it (at huge cost) would still leave over 95% of trips by car.

Problems with inter-city mode shifting Goods movement will double by Most studies predict rail will retain or slightly expand mode share (in ton-miles). Truck volume will double; hence, large highway capacity expansion needed. Most HSR plans involve shared use of freight rail ROW; serious conflicts likely. Inter-city bus (coach) provides unsubsidized alternative to massively subsidized HSR.

A digression on federal subsidies Net federal subsidies, by mode, Passenger rail:$186/thousand pass-mi Urban transit:$118/thousand pass-mi Airlines:$ 6/thousand pass-mi Highways: $ -2/thousand pass-mi Source: “Federal Subsidies to Passenger Transportation,” USDOT Bureau of Transportation Statistics, Dec. 2004

The need for a Plan B Oberstar and DOT plans are bad for highways, drivers, and trucking. You can’t fight “something” with “nothing.” High likelihood of change in Congress. Opportunity to rethink entire federal program.

The users-pay/users-benefit principle is sound—but at risk Fairness: those who pay benefit. Proportionality: use more; pay more. Self-limiting: unlike Europe’s gas taxes Predictable: annual revenue stream. Investment signal: at least in the form of tolling.

But diversion of Trust Fund monies is destroying this principle. 1956: Interstates only 1970: other highways, bus facilities 1973: rail facilities 1982: Mass Transit Account 1991: “flexible” STP and CMAQ can fund bikeways, sidewalks, trails, etc and 2005: even more flexibility Today, 25% of Highway Trust Fund monies are used for non-highway purposes. Oberstar and DOT would make nearly all HTF “flexible,” no programs for new capacity.

Outline of a possible Plan B Restore the users-pay/users-benefit principle to the Highway Trust Fund. Refocus the federal program on Interstate reconstruction and modernization. Devolve other highways, transit, etc. to states—or fund non-highway modes out of general revenues, not HTF. Empower states to toll Interstates, both urban and rural. Don’t regulate state use of PPPs; instead, assist via expanded TIFIA and Private Activity Bonds.

Budgetary impact of refocused federal program (1) Programs no longer funded by Highway Trust Fund: Urban transit:$8.0B/year Enhancements/misc. 1.8B/year Safety regulation: 1.1B/year Total:$10.9B/year

Budgetary impact (2): Interstate 2.0 Rebuild 233 interchange bottlenecks: $128B Add HOT networks in 19 most- congested metro areas:$98B Reconstruct and modernize long-haul Interstates, starting with key truck routes: ??? Net federal $10B/yr would be $200B over 20 years.

Political feasibility (1): Highway community Increased funding for the most important highways, urban and rural. Addresses loss of trust in Trust Fund. Restores users-pay/users-benefit principle. But major break from 30-year status quo.

Political feasibility (2): Non-highway programs “Social infrastructure” should be paid for out of general taxes. General fund: 2008 and 2009 bailouts of Trust Fund equal current Transit Account budget (≈$8B/yr). Plus $19.5B in State/local support is already 70-80% of transit funding.

Political feasibility (3): state highway budgets Assumptions: Feds replace transit funds States don’t replicate all former highway programs. State $ worth more than federal $ Increased use of tolling and PPPs Use of B/C screen of 1.2 or states shortfall of only 4-11 cents/gallon; only 4 & DC greater.

Next steps: Plan for changed make-up of next Congress. Work with new leadership on Plan B legislation. WPRI/Reason Foundation study on tolling Wisconsin’s Interstates. Fight hard against any lame-duck reauthorization bill.

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