CLOSING THE GAP: Financing The Region’s Transportation Needs NYU Wagner - The Rudin Center -June 4, 2008 Martin Wachs, Ph.D., Director Transportation, Space & Technology

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

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 government’s reliance on motor fuel sales to finance highways in a greenhouse gas limited era

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

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

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

Percent Change in Self-Help Taxes Compared to Gas Tax

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 Change Is Happening Quickly

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” Issues Raised by LOSTs

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

Potential For Borrowing Limited Projects having positive cash flow Challenges of public transit Costs of interest and risk

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 Some Major Factors Have Changed

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

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

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 > €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

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

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

Experiments in Electronic Tolling

Already in Use for Truck Fees Throughout Europe; Trials in the USA for Passenger Vehicles Atlanta Twin Cities State of Oregon Seattle

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”

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

Which Way Do We Go?

THANK YOU! ITS TIME FOR YOUR QUESTIONS AND COMMENTS

BACKUP SLIDES

State Fuel Tax in 1957:5.7 If adjusted for Inflation; End of 2007:42.0 Actual Current Fuel Tax:22.0 Difference20.0 Motor Fuel Tax Lagging: State Fuel Tax Changes, Average of Fifty States Cents per gallon

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

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

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

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

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

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

Federal, State, Local Agency Transit Revenue, Source: Report of the National Surface Transportation Policy and Revenue Study Commission – Transportation for Tomorrow, December 2007, Volume II, Chapter 5

Distribution of Transit Revenues, Source: Report of the National Surface Transportation Policy and Revenue Study Commission – Transportation for Tomorrow, December 2007, Volume II, Chapter 5