Infrastructure

MBTA financial plan is Band-Aid, not a solution

Posted on by j.giglio

Massachusetts transportation managers seemed to pull another rabbit out of the hat when the most recent chapter in the ongoing drama of MBTA budget woes ended with relatively minor service cuts and fare hikes that aren’t as steep as had been contemplated. But with $8.6 billion in debt and a $3 billion maintenance backlog, those managers are the first to say that the T will be right back in the budget soup again next year.

And the MBTA is just the latest piece of the Massachusetts transportation system to face financial meltdown. Before that there was an emergency program to address the deteriorating condition of our bridges. It is a trend that will continue until we adopt a sensible means of allocating and pricing transportation capacity.

Several transportation professionals have compared our transportation network to Garrett Hardin’s common pasture. It’s a worthwhile analogy.

In Hardin’s pasture, local farmers graze their cows for free. Not surprisingly, each grazes as many cows as s/he can on the pasture because it results in increased milk production at no additional feeding cost.

All is well until the number of cows exceeds the pasture’s feeding capacity. Because the cows get less nourishment, their milk production declines. Yet the farmers’ response is to add even more cows to the now barren pasture.

And so it is with our transportation system. Fuel taxes don’t nearly cover the cost of building new roads and maintaining the ones we have. Other than fuel taxes, the vast majority of roads are free.

Riders pay to use the MBTA and other transit services. But unfunded expansion has left the T owing so much that fares barely cover what it pays in interest on its debt. Yet the clamor is to build more roads and transit lines. When we do, we too often budget based only on the cost of construction, without taking operating and maintenance costs into account.

Pricing is the key to a functioning and sustainable transportation network. Revenue is needed to operate and maintain the system, and also to build new assets when needed. Fares and tolls also help regulate demand, avoiding the consequences of overuse that rendered Hardin’s pasture barren. The goal should be to price each transportation asset based on the value it provides to customers. Doing that effectively is the essence of good management.

A logical pricing system also provides the framework for debates about whether to expand capacity. If toll revenue in a particular area is robust, perhaps new capacity should be considered. If it’s determined that expansion is the best option, toll revenue offers a rational way – as opposed to just borrowing more, like we now do – to pay for it.

And paying for expansion doesn’t just mean the cost of building a new road or transit line; it means covering the cost to build, operate and maintain the asset over the course of its useful life.

Nobody wants to pay more, as Gov. Deval Patrick learned when his proposed a gas tax hike was largely ignored in 2009. But as the MBTA teaches us, the commonwealth’s current transportation system­ which is in shambles due to an unwillingness to face up to actual construction, operation and maintenance costs – simply isn’t sustainable.

Stopgap measures like those being employed to keep the MBTA afloat don’t solve our transportation problems. In fact, they make the problems worse. Next year, the T’s budget crunch is likely to be even more severe.

Perhaps by then voters will see that a rational pricing system is far less painful than dealing with the fallout from massive debt and maintenance backlogs. If they don’t come to that realization soon, inexorable decline will produce a transportation network that looks eerily like Garrett Hardin’s common pasture. 

originally published: April 26, 2012

Transportation fiefdoms a roadblock to shared goal

Posted on by j.giglio

The MBTA faces a $161 million shortfall for the coming year. As hard as closing that gap is, doing it the right way is an even more difficult task, because it requires understanding the impact of fare hikes and service cuts on the overall transportation system, not just the T.

Roadways, transit systems and railroads each have their own unique technologies and operating traditions. As a result, transportation officials generally view each as its own functional enterprise. According to their catechism, it is only logical that each mode should have its own funding, planning and construction programs.

But transportation customers don’t care about the physical distinctions between modes. They care about moving themselves and their goods door-to-door in the fastest, most efficient manner. If a particular trip requires using more than one mode, so be it.

Customers are also unlikely to care if integrating all modes into a single, seamless system of regional transportation requires using revenue generated by one mode to help support another. It’s the results that count.

Done correctly, the results of integration would include lower costs from each mode being used for the trips it’s best suited for; less congestion; better mobility for those with fewer transportation choices like poor, elderly and disabled customers; and cleaner air.

Every transportation mode has the same overall goal: to maximize mobility for people and goods. As such, each should operate under a single institutional framework for funding, planning, construction and maintenance. Professional managers view surface transportation through the customer’s eyes and understand that the system’s common purpose transcends technical or operating differences.

It is scarcely a secret that the silo approach to transportation remains far more common, but it is becoming increasingly apparent that the management professional’s approach better serves the public.

While there may currently be some cross-subsidizing of public transportation, continued fragmentation prevents existing capacity from being used as efficiently as possible. The challenge is to weave together the various modes in a manner that provides customers with reliable and timely service at a price that makes economic sense to both the customer and the provider.

Achieving that goal will require Massachusetts leaders to ask whether the proposed MBTA fare hike is consistent with the strategic objectives of the commonwealth’s 2009 transportation reform legislation, which merged transportation agencies and promised savings on the order of $6.5 billion over 20 years from the resulting operating efficiencies.

Just as important as the savings, reform was designed to improve customer service through the integrated management of surface transportation. Put another way, the commonwealth can now price the entire transportation portfolio rather than simply pricing each individual mode.

As they target the MBTA’s budget gap, state leaders should not lose sight of how their decisions will affect the larger transportation network. That requires asking questions like how the proposed fare increase would impact system goals, how it could help provide customers with better value and whether it would lay the foundation for better pricing and strategic decisions going forward.

Getting to the balance that will best serve all the regional transportation networks might require transportation policy makers to compare the impact of increasing the commonwealth’s fuel tax, which has not been raised since 1991, against hiking MBTA fares and cutting transit service.

With the implementation of reform, state transportation managers oversee a portfolio of transportation assets. The MBTA’s budget gap must be closed, but wise stewardship requires that those managers do so with an eye toward the impact on the larger system as they make decisions about fare hikes and service cuts.

originally published: March 31, 2012

Rhetoric a major roadblock to transportation policy

Posted on by j.giglio

In his annual set piece State of the Union address last week the president acquitted himself admirably – well, except for neglecting to engage on the issues of deficits, debt and the changing demographics of America.

Barack Obama did use his State of the Union address to renew his call for increased infrastructure spending. In the speech, the president proposed increasing infrastructure spending and paying for it with half of the savings from the troop draw-downs in Iraq and Afghanistan. This proposal will add about $500 billion to infrastructure spending over the next 10 years, based on estimates included in the president’s fall deficit-reduction plan. (Of course, the president did not explain his claim that reprogramming future borrowed funds once designated to finance the wars could be counted as “savings”). According to the Congressional Budget office, that much spending could, thanks to the multiplier effect, spur the economy by more than a trillion dollars, while giving the nation’s workforce a helping hand.

The American Society of Civil Engineers has estimated that an investment of $1.7 trillion is needed between now and 2020 to rebuild roads, bridges, water lines, sewage systems and dams that are reaching the end of their planned life cycles. In fact, in its most recent report card for America’s infrastructure, ASCE gave the nation’s infrastructure a grade of D.

Obviously, this crowd is not impressed by grade inflation!

Many of these infrastructure funding issues can be addressed if Congress, with aggressive presidential leadership, enacts the multi-year, surface transportation reauthorization legislation. This measure has been extended eight times since the law expired on Sept. 30, 2009. The current extension expires March 31. Establishing certainty for long-term funding is critical to highway and transit planners in developing, financing and constructing long-term capital projects.

Currently, the House of Representatives and the Senate are working to complete the legislative language for their reauthorization plan. The House Transportation and Infrastructure Committee released its transportation bill this week. This legislation will fund transit and highway programs at $52 billion annually, or $260 billion over five years. Additionally, the House committee will provide vital flexibility to the states in developing and financing their own transportation needs and to encourage the use of public-private partnerships.

In the Senate, the Environment and Public Works Committee announced that it will hold mark up sessions this week on its version of the legislation. The Senate bill is for two years and for $109 billion.

Neither bill addresses a fundamental issue: the highway trust fund is now in deficit and dependent on general revenue because of reduced growth in federal fuel tax revenues. Of course, Congress and the president have no appetite to raise the federal fuel tax of 18.3 cents per gallon that was last increased in 1993.

We all know that greater fuel efficiency results in lower gas-tax proceeds and, therefore, a shrinking trust fund. Ironically , the president’s secretary of transportation , Ray LaHood , has said he does not expect the debate on a multi-year transportation bill to be resolved this year because it is an election year and the differences between the Senate and House bills are too large to be resolved.

Even as both the House and the Senate bills are far smaller than what is needed just to maintain current levels of inflation-adjusted spending, we need to have a transportation bill to minimize the uncertainty that is stalling our economic recovery. The president cannot continue to just make easy lay-up speeches on the need for greater infrastructure spending and post up against the congressional leaders to get a bill passed before March 31. It’s time to match up his rhetoric one-on-one with reality and take the point on getting this badly needed legislation passed.

originally published: February 21, 2012

Infrastructure bank provides invaluable resources

Posted on by j.giglio

President Obama is proposing to create a national infrastructure bank to encourage and promote investment in America’s infrastructure and create jobs. With monotony, we have been told that our nation’s economic well-being depends on a strong infrastructure foundation. Yet despite its fundamental importance, the gap between what we have and the infrastructure we need continues to grow.

Public funds are generally used to provide the initial capital for an infrastructure bank. That money is used to support infrastructure projects. Upon repayment, the funds are then lent out again to support additional projects.

The initial capitalization and continuing revenue can be used in a number of ways. The infrastructure bank can lend directly to selected revenue producing projects. It may leverage its initial capitalization by providing loan assistance to infrastructure projects, use loan repayments as dedicated revenue to support bond issuance and provide additional loan assistance with the bond proceeds. The bank can also use its capital to guarantee bond issues by other entities such as local government or public-private partnerships.

With this in mind, the president has proposed the creation of a national infrastructure bank to encourage increased investment infrastructure as a new initiative. Actually the concept is not new.

Under the 2005 Federal Highway Authorization bill, known as SAFETEA-LU, all states were given the authority to establish state and even regional infrastructure banks. This followed a period during the 1990s when at different times anywhere from 10 to 39 states were allowed to experiment with these banks under a series of federal pilot programs.

A state infrastructure bank (SIB) offers several major benefits. First, it allows a state to leverage existing scarce resources. States can build more projects with fewer dollars and accelerate construction,  especially for projects whose economic benefits can be identified and captured. This approach ameliorates the impact of inflation on construction costs and allows benefits like job creation, private sector income and tax revenue to be realized sooner than they would be using traditional infrastructure investment.

Second, by offering an array of financing tools such as low-interest loans, refinancing and construction financing, an SIB can increase flexibility by tailoring financing packages to meet specific project needs. Closely related, infrastructure banks can facilitate projects that are financially tenuous by providing lines of credit or insurance.

Equally important, the availability of a menu of financing tools coupled with the ability to have other debt paid before the infrastructure bank loan is paid back can attract private capital and local government funding, further enhancing a state’s ability to husband scarce infrastructure funding resources.

A third benefit to creating an SIB is the opportunity for states to develop a self-renewable, insulated source of future capital. Simply put, an SIB recycles resources by re-loaning funds as they are repaid. The repaid funds effectively become state resources. In addition to increased leverage and additional flexibility, this allows states to develop and control their own source of capital.

Finally, for states that can work past their deep and abiding distrust of bankers, a SIB can gain greater leverage and make even more funds available for infrastructure investment by issuing debt against its own equity capital. This accelerates the recycling of loan repayments, increases the magnitude of available infrastructure resources and provides for a larger financial canvas with which to work.

The same concept President Obama is proposing on the federal level can be used to provide capital funds to support the improvement of a state and region’s infrastructure network. Given the commonwealth’s pressing needs, we should look seriously at creating a state infrastructure bank to help fill the infrastructure financing gap.

originally published: November 30, 2011

Fees for using roads could foster economic growth

Posted on by j.giglio

There is again talk of raising the state gas tax to address the dramatic under- funding of transportation infrastructure. But even when a road network is fully supported by the fuel tax, there is still a disconnect in most motorists’ minds between what they pay and the act of driving.

Common goods like public schools or parks are collectively owned by society rather than by its individual members. They are normally supported by tax revenues and responsibility for operating and maintaining them is (usually) assigned to government.

This is the standard pattern for metropolitan road systems in the United States.

They are built and maintained by a combination of state and local governments that fund most of their costs out of general tax revenues, often supplemented by user taxes on motor vehicle fuel.

The result is an instinctive sense among motorists that roads are free. This mistaken view further complicates already difficult issues around how much road capacity we need and how it should be managed.

The basic problem is illustrated by Garret Hardin’s metaphor of a community that has a publicly owned pasture where local farmers can graze their cows without paying user charges. The farmers seek to graze as many cows as possible in the pasture, because each will increase the farmer’s milk production with no additional feeding cost.

But it only works so long as the total number of cows remains within the pasture’s feeding capacity. Once the farmers exceed this limit, the pasture begins to break down as the cows consume grass faster than the pasture can replenish itself. As a result, the pasture produces less nourishment for each cow.

Since each farmer’s cows are producing less milk for him to sell, his response is to buy still more cows and add them to the overused pasture.

When all the farmers do this, the result can only be declining milk production for everyone.

In Hardin’ words: “Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination towards which all men rush, each pursuing his own best interest in a society that believes in the freedom of the common.”

When the commons in question is the nation’s roads, especially congested ones in metropolitan areas, some believe their livelihoods depend on free use of the roadways and propose expanding them to support more vehicles.

They believe the purpose of the commons should keep pace with economic growth.

And since, like the pasture, roads are publicly owned, the cost of expanding them should be paid out of general tax revenues so its users can continue to obtain benefits without having to pay for them directly.

Others insist the real problem is not too little supply, but too much demand.

They argue that the time has come to “think green” about the future of public commons.

Then there are those who suggest the time has come to begin charging motorists per-mile user fees. In this way, each will pay more directly for the benefits received .

By using a sensible pricing system to allocate the use of scarce resources, each motorist will be  motivated to make the most efficient use of them, making discretionary trips at times when roadways are less congested and, depending on the pricing system, cheaper. When it becomes necessary to expand the public commons, income from user fees – not new taxes or more debt – can cover expansion costs.

The most sensible solution to the pasture problem is to charge the farmers grazing fees.

The same is true when it comes to roads, especially in metropolitan areas where traffic congestion is afflicting residents and choking off economic growth.

originally published: October 12, 2011

2020 Vision

Posted on by j.giglio

BOSTON, July 2020: Back in 2000, few could have imagined that America could go so completely down the drain in less than 20 years. But from today’s vantage point in the summer of 2020, the evidence is unmistakable.

Real GDP has fallen by roughly half since 2010. The unemployment rate is estimated to be around 20 percent, but estimates are all we have since Washington stopped releasing numbers following a 2014 scandal about the published rate’s integrity.

Large segments of the Interstate Highway System have been mothballed for lack of money to fix worn­ out bridges, tripling travel times for most commuters and quadrupling them for freight. Transportation costs have skyrocketed.

Consumers are screaming about endless inflation. Most have been forced to dramatically cut back on purchases, which has led to bankruptcy for even more companies. Their laid-off employees – regular family wage earners- have been added to the ranks of the jobless.

Americans largely ceased relying on the federal government after its pervasive klutziness and inability to agree on a deal to raise the national debt ceiling triggered a series of major defaults in 2011.

After Congress foolishly insisted on linking the purely technical issue of raising the debt limit to unimaginably complex policy issues about what programs to cut and whose taxes to raise, they couldn’t come to an agreement with then-President Obama. The Treasury was forced to stop making debt payments, which crippled the nation’s borrowing capability.

The feds had to slash spending to levels that could be covered by current revenues, which continued to decline since less federal spending meant less economic activity. This death spiral necessitated even more cuts.

Thanks to its incompetence, the federal government lost functional control over the states, which began to fragment and soon ceased to be united in any meaningful way.

Some jurisdictions have been able to exploit national fragmentation. California and New York City, for example, have won U.N. recognition as “Independent Sovereign Political Entities” where no foreign governments (including the one in Washington) are allowed to collect taxes. These jurisdictions  are free to move aggressively around the world doing profitable business with nations whose citizens still live prosperous lives.

As Rhett Butler told Scarlett O’Hara in “Gone with the Wind”: “There are as many fortunes to be made from the decline of a society as from the rise of one.”

Could it have been different? It’s certainly tempting to think about the long list of might have beens that could have saved the America we once enjoyed and believed in.

The one feasible way to restore American prosperity by dealing with deficit and debt problems would have been for the federal government to take measures to grow the economy, like making huge capital investments in transportation and other infrastructure assets that produce large economic bangs for the buck.

In 2009, for example, President Obama began talking up a federal program to give America the kind of high-speed inter-city rail network Europe already had and China was building to boost competitiveness by speeding people, jobs and goods to markets less expensively.

But Washington’s knee-jerk assumption was that such a program could only gain the necessary political support by allocating its capital spending as widely as possible. Rather than concentrating it in a few key corridors that generate most of the nation’s economic activity, they tried to give a little to everybody .  The economy unraveled before any of it was completed.

Obama’s subsequent program amounted to a series of glitzy PowerPoint presentations that made audiences yawn. And the waves of economic activity that could have washed over the nation as a result of upgrading transportation infrastructure in those key urban corridors never materialized.

Instead, America withdrew into its self-flagellating austerity kick and watched its economy shrink and jobs disappear. The citizens of a once-proud nation lost all faith in it, and that was the point of no return.

originally published: July 27, 2011

Drive time redefined

Posted on by j.giglio

An otherwise typical California town we’ll call Santa Rosita is horne to one of the nation’s most unusual movie theaters. Until a few years ago, the Bijou was no different from any other small-town theater. It was trying to survive on modest ticket sales as the area’s last outpost of a vaguely Art Deco Hollywood culture that has largely disappeared.

But things changed when the elderly owner died and his widow announced she was going to sell out to a local real estate developer who planned to convert the Bijou into a combination private gym and office building.

That was before the prospect of losing its only traditional movie theater created a groundswell of dismay throughout town. It reached the point that the municipal government was pressured into buying the Bijou from the widow to keep it open.

In a burst of civic enthusiasm, the town government proceeded to eliminate admission charges. Henceforth, the mayor proclaimed, the Bijou would be free to everyone “just like a city park or swimming pool.” Needless to say, this free movie policy led to a considerable change in the Bijou’s attendance patterns. Virtually no one goes to the movies on weekday afternoons anymore. Even on weekday evenings, it rarely has more than a handful of customers.

But on weekends when local schools and most businesses are closed, things change dramatically. The Bijou is full of people, with many more lining up outside.

When the Bijou shows an especially popular film, the line begins forming well in advance of the noontime opening. Santa Rosita’s police department even has to assign several of its all-too-few police officers to control the crowds.

This seems like a ridiculous way to operate a movie theater. Theaters everywhere else charge admission. To maximize box office revenue, they even charge higher prices when demand is highest. This tends to spread out demand by encouraging some moviegoers to attend on weekdays, when tickets are cheaper.

But the Bijou has no tickets. Access to its seats is free, in the sense of not charging an admission fee. But it’s not free if you factor in the hours moviegoers have to wait for seats on weekends when everyone wants to see free movies.

Ridiculous as this sounds, it is exactly how most American highways operate. Access is free to motorists regardless of time of day or day of the week, despite the fact that we pay for access to every other transportation mode.

Free, that is, in the sense of not charging motorists for each mile they travel. Like the Bijou, it’s hardly free if you factor in the time motorists spend traveling that mile during periods when bumper-to-bumper traffic reduces average speeds to about 10 mph.

Until fairly recently, the logistical problems of charging motorists directly for highway use made the idea impractical. Fortunately, new technology is eliminating that excuse.

Vehicles can now be equipped with simple electronic gizmos that respond to radio signals from roadside transceivers. This enables the road’s central computer to identify the vehicle, measure the distance it travels and charge the owner’s computerized account appropriately according to whatever per-mile rate  is in effect when the trip is made.

The rate can vary depending on the type of vehicle (more for heavy trucks that wear out pavement faster, less for compact cars), time of day, (more during rush hours, less when demand is low), the amount of pollution each vehicle generates, or even actual demand at the time of travel.

Thanks to the miracle of modern technology, we can now price access to highways just like we price access to movie seats (except at the Bijou). At the same time, this technology might just provide a fair, user-funded way to pay for much-needed upgrades to tired transportation infrastructure that limits the nation’s economic growth. 

originally published: July 9, 2011

Moving too slowly

Posted on by j.giglio

Clearly, we have some serious huffing and puffing to do if we are going to pull ourselves out of the current economic crisis. But it must be the right kind of huffing and puffing; the kind that grows our economy fast enough to produce the millions of steady jobs needed to put Americans back to work.

That means emphasizing major capital investment programs that are proven growth generators for an economy stuck in low gear; programs that create new jobs by the thousands and ensure America’s place as a 21st century economic leader, not a declining giant.

In short, we must focus on infrastructure programs that transform and modernize America’s obsolete capability to produce goods and services efficiently and get them to market with dispatch. That means upgrading the rickety transportation infrastructure that currently undermines the country’s growth potential.

We are at a crossroads. I guess the federal government could move aggressively to shrink the economy to a level where our mobility needs can be met by existing transportation capacity. Sometimes it seems like that’s exactly what they’re doing now.

Maybe we could convert our top 100 metropolitan areas into true 24-hour societies; improve the efficiency of existing transportation capacity by spreading out demand more evenly. It’s a winner for those of you who harbor a secret ambition to work the graveyard shift.

More realistically, we could forget about investing huge sums to build the new transportation capacity our economy needs and instead learn to live with what we’ve got. Stop bellyaching about bottlenecks that diminish our mobility. Leave earlier in the morning to accommodate a more time-consuming commute. Have dinner an hour or two later after the kids are in bed. At least we’ll be able to keep more income in our own pockets, instead of paying it to support transportation projects.

The last option is to do the unthinkable and move aggressively to build the new transportation capacity we need. Marshal the best talents of government and private enterprise to get it done in a sensible way. Face up to the costs and figure out clever new ways to cover them. Act like grown-ups for a change. As some pundits might say, this is the worst option – except for all the others.

For years, the federal government has told us “We can’t build our way out of congestion.” Of course we can. And we must, if we expect our children to live better than we do.

If we don’t man up and do it, we are looking into an abyss of lost dreams. The time for idle speculation over cold beers on warm summer afternoons is over; we have to start now. We need a new Moses to lead us out of the wilderness. This one will be wearing boots and a hard hat, with building plans rolled up under his or her arm.

If we do it right, we won’t just get some temporary construction jobs; we’ll have the foundation for generations of prosperity.

originally published: June 21, 2011