Tag Archives: highway funding

Why Are There No Shovel-Ready Projects?

A recent Bloomberg article raises questions about the ability of the Trump Administration to execute a big infrastructure plan due to a lack of shovel-ready projects. Personally, my doubts are at a higher level: Republicans are riven by division on whether they should back an infrastructure plan at all, and Trump is destroying any chance he had to win Democratic votes by spending all his political capital on racist immigration policies that are hugely unpopular with the Democratic base.

However, perhaps it’s an interesting question why there are few shovel-ready projects. While conventional wisdom holds that environmental review prevents the US from doing big infrastructure projects, other developed nations in Europe and Asia seem to get things done, and one presumes they have established environmental laws as well. Projects can get held up for years by lawsuits on the adequacy of environmental studies, but the federal and state governments can always exempt projects from environmental review if they want to anyway.

Some more realistic causes are as follows:

  • Design takes time. A large project will be in design for over a year before construction can start. I recently worked on a moderately complex project where we were in design for 18 months before construction started, and that was rushed. You can throw more resources at design, but at some point this is to little avail, since the constraints become things like allowing the owner time to review submittals and providing adequate time for coordination between design disciplines. If you add in 6-12 months for the government to pass a funding bill, and 12 months or so for environmental review, it is pretty easy to see how you could not make it to construction before the sun sets on the political administration that came up with the infrastructure plan.
  • An obvious follow-up question is why it should matter if the political administration changes. I’m not sure how this compares with other countries, but different administrations in the US often have very different priorities. A Republican administration may cancel plans for transit projects that have not yet made it very far into construction, such as ARC in New Jersey. A Democratic administration may not be interested in continuing plans to build rural freeways that generate little economic activity. In some cases, such as some FTA funding, you’re not allowed to finish the design until you have funding identified for construction and operations, which means the design won’t be done when the infrastructure funding plan comes along.
  • It’s hard to just complete a design, put it on the shelf, and dust it off when the funding shows up. Depending on how long it’s been, the design may be out of date and no longer comply with current design standards and codes. The existing conditions in the field may have changed, necessitating new survey and redesign. The environmental permitting may expire and require a new analysis.

In other words, the political time frame is often too short to accomplish a large project. The long delay in completing the Bay Bridge East Span replacement, the example cited in the Bloomberg article, was almost entirely due to the political machinations of two mayors (Willie Brown and Jerry Brown) and two governors (Pete Wilson and Arnold Schwarzenegger). Caltrans’ original proposal, derided as a freeway on stilts, could have been completed decades sooner and at lower cost, had anyone cared to build it.

This is actually a strength of the self-help measures passed by voters in California counties, such as LA’s Measure R or Orange County’s Measure M2. These measures frequently set the agenda of projects or types of projects to be delivered, and provide a rough timeline for implementation, on a long enough horizon that there is continuity through election cycles.

All of that said, the United States has fairly well-developed existing infrastructure that needs a lot of upkeep. Routine maintenance work, such as resurfacing roads, rebuilding sidewalks, and replacing water lines, is usually exempt from environmental review and requires minimal design work. I think a lot of people in LA would appreciate a program that focused on resurfacing streets in poor condition and repairing broken sidewalks.

At a national level, it is going to continue to be a struggle to deliver large projects if the planning horizon never extends beyond the next election. But there’s a lot of basic maintenance we could be doing as well – things that are plenty shovel-ready, if you want to build them.

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Components of Highway Funding Shortfalls

I forget where, but I recently heard another story about highway funding that specifically mentioned declining vehicle miles traveled (VMT) and increasing fuel efficiency as causing reductions in gas tax revenues. The impact of inflation on the purchasing power of gas tax revenues was mentioned only in passing (to note that the federal gas tax has not been increased since 1993).

The VMT and fuel efficiency trends are real, but are they the main show? Well, we have data! So here’s a look at trying to tease out the impacts of decreasing VMT, increasing fuel efficiency, and inflation on transportation funding at the federal level.

Warning: all of the calculations here are very rough. There are many variables involved that are beyond the scope of this post. A detailed study would probably be a good project for a grad student somewhere. As it is, take the results here as indicative of the order of magnitude of impacts.

Detailed methodology is explained at the bottom of the post.

The federal gas tax was last raised in 1993, to 18.4 cents per gallon. Since that time, inflation has eroded the purchasing power of the gas tax (i.e. the same amount of money now buys less roads). In addition, in recent years there has been a notable increase in fuel efficiency, and a stagnation of VMT. Because people are driving more fuel efficient vehicles, and driving them fewer miles, the amount of gas used is going down, and so are fuel revenues.

To figure out the impact of each factor, we need to look at data trends over the last 20 years and pose some reasonable counterfactuals. For data, I pulled VMT from the St Louis Fed’s FRED service, inflation from the BLS Inflation Calculator, and fuel efficiency from the EPA’s Fuel Economy Trends Report. For counterfactuals, I looked at the following scenarios:

  • VMT growing at a constant 2.33%/year, the approximate rate at which it grew from 1993 to 2005.
  • Gas tax being adjusted annually to account for inflation.
  • Vehicle fuel efficiency held constant at 1993 level.
  • Combination of all three factors.

Trends since 1993 are shown in the following graph:

yearly revenue loss

Logically, the loss of purchasing power due to inflation has an immediate and increasing effect, tempered by slower inflation in recent years. The emergence of VMT and fuel efficiency as significant factors in revenue losses is relatively recent, within the last 5 years.

The next graph shows cumulative losses to transportation funding since 1993:

cumulative revenue loss

The reason to look at cumulative losses is that transportation funding is usually authorized as multi-year bills, and surpluses (or deficits) to the highway trust fund roll over from year to year. The loss of purchasing power due to inflation dominates; change in VMT trends only recently emerges as a relatively minor factor. Changes in fuel efficiency have had basically zero effect on the long-term solvency of the fund, as recent gains in fuel efficiency have just barely offset losses in fuel efficiency in the late 1990s and early 2000s.

While these are only order of magnitude results, they show pretty clearly that inflation has been the most important factor. It is beyond the scope of this post to argue if additional federal transportation funding is needed, but if it is, raising the gas tax is the easiest and most effective way to do it. (Note that theoretically, declining revenues due to declining VMT isn’t even a problem in the first place, since less driving means less roads are needed. And due to climate change, trends that result in higher fuel efficiency and lower VMT are net positives for society.)

So why so much talk about declining VMT and fuel efficiency? Wild guesses: first, it’s a convenient narrative if you want to replace the gas tax with a VMT tax and/or tolls. Second, it makes the problem seem more complicated, which creates the opportunity for Serious People™ to opine. And lastly, it provides a scrap of cover to incompetent politicians who would look like dunces if everyone realized that the problem could be solved by a 25-word piece of legislation raising the tax and indexing it to inflation.

Methodology

A detailed assessment of the impact of inflation, VMT, and fuel efficiency trends on gas tax revenues is beyond the scope of this post, which is intended to determine orders of magnitude. Data was processed as follows.

VMT data was pulled from the St Louis Federal Reserve Bank’s FRED service. I used the January data point for the moving 12-month average for each year from 1993 to 2014. VMT trends started changing in 2005, so I calculated the annual rate of change from 1993 to 2005 as about 2.33%, then projected a VMT trend from 1993 to 2014 at that rate. The impact of VMT trends was calculated as a function of the difference between actual VMT and “implied VMT” calculated at 2.33% growth per year.

Inflation data was pulled from the BLS’s CPI calculator. I calculated the tax rate for each year from 1994 to 2014 that would yield the same purchasing power as 18.4 cents in 1993. The impact of inflation was calculated as the difference between revenue that would have been collected if the tax had been adjusted for inflation every year and revenue that was collected at 18.4 cents per gallon. This methodology probably systematically underestimates the impact of inflation, since costs of construction materials increased more quickly than general CPI between 2000 and 2007.

Fuel efficiency data was pulled from the EPA’s Fuel Economy Trends Report. This data provides fuel efficiency for vehicles by model year, not for the actual composition of the US vehicle fleet. Therefore, it can’t be used directly because that would overestimate the impact – model year 2014 cars are more efficient, but most cars on the road are older. I generated a crude fleet MPG by summing the product of model year fuel efficiencies and an approximation of vehicle fleet composition by age.

I then calculated assumed revenue amounts for each year as follows (where T = tax rate):

  • Actual revenue for each year: R = T(VMT/MPG).
  • Implied revenue assuming VMT continued to grow at 2.33%, and the gas tax was adjusted yearly for inflation, and no gains in fuel efficiency: S =T’ (VMT’/MPG’).
  • Implied revenue assuming actual VMT trends, but gas tax adjusted yearly for inflation and no gains in fuel efficiency: W = T’(VMT/MPG’)
  • Implied revenue assuming the actual gas tax (i.e. unchanged), but VMT continued to grow at 2.33% and no gains in fuel efficiency: X = T(VMT’/MPG’)
  • Implied revenue assuming actual gains in fuel efficiency, but VMT continued to grow at 2.33% and gas tax adjusted yearly for inflation: Y = T’(VMT’/MPG)

As a point of reference, the world’s finest information source says that the federal gas tax raised $25b in 2006. The methodology here generates an estimate of $27.4b. Good enough.

The revenue losses due to each factor were then calculated as the difference between the theoretical revenue with all historic trends (S) and the theoretical revenue with actual trends for each factor (W, X, Y):

  • Total revenue loss = S – R
  • Revenue loss from VMT trends = S – W
  • Revenue loss from inflation = S – X
  • Revenue loss from fuel efficiency = S – Y

Note that the total revenue loss does not equal the sum of the components, i.e. (S-R) ≠(S-W) + (S-X) + (S-Y). This is because the factors are not independent. For example, if fuel efficiency goes up, the revenue lost from a decline in VMT will go down, because the missing VMT represents a smaller amount of gas. This is why the three factor lines on the graphs do not sum to the total.

Should We Worry About Highway Subsidies?

I touched on this issue way back when I wrote about the gas tax, but I’d like to expand the thought.

One of the most common criticisms of auto infrastructure from transit and smart growth activists is that drivers don’t pay the full cost of roads – the gas tax and other associated fees have not been increased enough to keep pace with spending new construction and backlogged maintenance. Much of the money spent on highways comes from property taxes, which you pay regardless of if or how much you drive. Counter to this, you have folks like Randal O’Toole, who note that no transit agency in the country covers even its operating costs with fare revenues, let alone capital costs. Transit agencies don’t pay property taxes, but they run buses over roads paid for by those taxes. In addition, the federal government and many states have dedicated part of their gas tax revenues to transit, meaning that drivers subsidize transit.

Still Not User Fees

As I said in my post on the gas tax, I don’t see how transit activists can win under the “user fee” framework. Some, like Cap’n Transit, claim that transit would make money if drivers were forced to pay the full cost of driving. However, given typical farebox recovery ratios on US transit systems (about 25%-50%), I don’t see how that could happen. Assuming farebox recovery is currently 50%, an agency would have to either double the number of people on each vehicle, double the amount of money extracted from each rider, cut unit operating costs in half, or some combination of the three. (Note that just doubling ridership doesn’t cut it if you have to run additional vehicles, since that costs money.)

Realistically, it seems to me that a scenario in which a transit agency has 100% farebox recovery is a scenario in which low ridership routes are eliminated, low ridership stops are eliminated, off-peak service is reduced, and peak service fares are higher. Now, maybe you’re fine with that scenario, but you should back up, read your Jarrett Walker, and ask yourself what you’re actually trying to do with your transit service. Are you ok balancing the transit agency’s books by raising fares on people too poor to afford cars? Are you ok with stranding people who live on low volume routes? Are you ok telling your city’s late-night crowd to suck it up and pay for a cab?

Generally, though, the agency is being asked to provide some minimal level of service to all parts of the region, for some minimum span of service, regardless of profitability. In that context, it’s not consistent to expect the agency to be profitable. There are also many benefits that accrue to society as a whole that the agency can’t capture – for example, if someone chooses to ride transit instead of driving, there are benefits to air quality from less congestion. In that sense, we aren’t “subsidizing” transit, we’re making an investment in the public domain that ought to produce future public benefits exceeding the cost.

And here’s the thing: many of the same arguments apply to roads.

For example, implementing tolls or increasing the gas tax is only progressive at the crudest level of analysis. In general, transit riders are poorer than drivers, but there is huge variability within drivers. Within the driving population, these taxes might be regressive, since wealthier drivers can afford to live closer to work. Like low volume transit routes, it is expensive per capita to provide arterial roadways to rural areas, but we’ve decided that in our society everyone deserves some base services. We also expect roads to produce benefits to society that aren’t directly captured by the government agency in charge of roads – for example, when rubber-tire internal-combustion trucks became available, there was a large reduction in the amount of horse poop lying in city streets. (The memories have faded, so we don’t often think of the horse poop benefits of trucks nowadays.)

Public Services Framework

In fact, both roads and transit could be considered public services like police and public schools, and we certainly don’t expect the police department or elementary schools to fund themselves entirely from user fees.

In that case, why charge drivers anything for road use (or why charge patrons anything to ride transit)? There are two reasons to charge for public goods:

  • Negative externalities (in this case, mostly air pollution and GHG emissions)
  • Overuse (in this case, congestion)

With this framework, the gas tax serves both purposes: it imposes a base usage fee that discourages people from driving for no reason, and it taxes people in proportion to the amount of pollution they create. The gas tax should probably be increased nationally because of the high costs of air pollution and GHG emissions. Some states or metro areas might consider a further increase as a base congestion charge. Managed toll lanes, like exist on the 91 and the 110, should be implemented on a larger scale to help deal with congestion during peak periods.

Another nice feature of this framework is that it’s perfectly logical to charge drivers more than it costs to maintain the road if demand is very high. The surplus can be used to fund other parts of the transportation system. For example, New York charges very high tolls on the Hudson River bridges and dedicates the surplus to transit operations. It’s also reasonable under this system to charge wealthy Acela patrons more than it costs to run those trains, and subsidize other services.

It always seems like a pretty cynical argument to me when I hear transit activists argue that “drivers should pay the full cost of roads”. Under a counterfactual where highway user fees generated more than enough money to cover maintenance of existing roads, would they be arguing that the rest of the fees should be used on roadway expansion capital projects? Of course not. Taking roads and transit to be public services results in a more consistent argument.

What About Overbuilding?

Part of the argument is that if drivers had to pay the full cost of roads, we’d build less roads. True, and valid if your preexisting goal is building less roads. By the same token, if transit riders had to pay the full cost of transit, we’d be building fewer trophy streetcars and suburban LRT lines.

Overinvestment and misallocation of resources is a classic problem of public services. Cities with useless streetcars are no different than rural towns whose police equip themselves with tanks or cities that say they’re going to supply every student with an iPad. In other words, there is no substitute for good governance. While you certainly could curtail some of the abuses by going to a user-fee system, remember the compromises that go with that. Other countries have shown that competent public governance is possible.

However, the more I think about it, the more I’m in favor of getting the federal government out of the capital projects side of things. Our mainline freeway and rail networks are complete, and the federal government seems to make a lot of poor investment choices now that most of the good capital projects are complete. There’s definitely an equity case for some federal involvement in helping out poor states and cities with operating costs and vehicle procurement, and the federal government should help states and cities out by using its low interest rate to borrow, but should the feds be involving themselves in things like Portland’s streetcar extension or the 69 freeway? Probably not.

Are Roads a Public Good?

You could make an internally consistent argument that drivers should pay the full cost of roads if you think that roads are not public goods.

I’m not buying that argument for arterials and neighborhood streets, since having two competing road networks in a city would be a huge waste of land, like having competing gas or electric companies. If arterials and streets were privately owned, they’d have to be regulated like a utility, and you’re right back to the issue of competent governance.

The argument is believable in the case of limited access tollways, where it’s easy to control access at onramps and offramps, and easy to manage demand through variable tolls. If public arterials are available, no one needs to use the freeway. However, I think there are practical limits to that model as well, which I’ll address in a separate post.