fuel tax

Infrastructure Yes, But Not Just Any Infrastructure

Posted on by j.giglio

The American public is routinely bombarded with messages about the need to spend vast sums of money on infrastructure, drumming the subject into the public consciousness, promoting an often rehearsed-sounding catalog of new capital projects. The need is indeed great, but so is the importance of spending wisely. That means emphasizing the lifecycle management of infrastructure assets.

President-elect Trump says his plan to spend $1 trillion on infrastructure projects over 10 years would be paid for by leveraging public-private partnerships and encouraging private investment through tax incentives. Infrastructure spending is a priority Trump shares with congressional Democrats, who have said they believe they can work with him on the Augean task of renewing America’s infrastructure.

What is often overlooked is that infrastructure spending is not just about new construction, but the maintenance of existing assets. Timely lifecycle management and maintenance is needed to extend the service lives of infrastructure assets in a state of good repair and significantly reduce overall costs. The rationale is to avoid the high cost of reconstruction and replacement that results from deferred maintenance.

Political leaders frequently say that stewardship of infrastructure assets is essential for economic growth. But the evidence suggests that many of them don’t believe it. They are predisposed to defer maintenance because their concept of the future extends no further than the next election cycle, and initial timeframe for infrastructure assets to show the effects of irreversible deferred maintenance is much longer than their likely terms in office.

Consider, for example, that large sections of the Washington D.C. transit system are out of service because maintenance has been shortchanged over decades. Service quality declines substantially when maintenance is deferred. Here in Boston, MBTA maintenance has been underfunded for so long that it will take years to eliminate a $7.3 billion maintenance backlog even though the T plans to devote $870 million to the cause this year.

Also, public officials all too frequently understate the true costs of infrastructure projects by focusing on what they cost to build and ignoring operation and maintenance.

Another factor contributing to the failure to maintain infrastructure assets is that highway funding arrangements, for example, traditionally favored capital expenditures for new construction. As originally established by Congress, the Federal-Aid Highway Funding Program specified that Federal Trust Fund grants would cover up to 80 percent of the cost of new construction and subsequent reconstruction or replacement.

But state and local governments had to bear operating and maintenance costs. When highway links inevitably wore out before their time, state and local governments only had to worry about coming up with 20 percent of the total sum from their capital budgets since federal construction grants covered the rest, so maintenance was not a priority.

All but forgotten in this dubious calculus were costs incurred by motorists who had to struggle with increasingly decrepit highways, as well as plenty of congestion when highway lanes were closed for restoration; an inconvenience, any driver knows, that always last much longer than advertised.

Although later reauthorization bills made federal funds available for rehabilitation, renewal, and reconstruction at levels comparable to new construction, the damage had already been done. Today the advanced deterioration of the nation’s highway system is testament to the consequences of deferred maintenance.

The price tag for renewing America’s infrastructure is astronomical, and comes at a time when a federal funding regime dependent on insufficient fuel tax revenues is least able to afford escalating construction and maintenance costs.

Going forward with a big infrastructure package and setting aside, for the moment, the issue of finding the cash to do it, there needs to be an emphasis on the lifecycle management of infrastructure assets. The health care industry understands that it is far less expensive to keep a patient well than to treat them once they become sick; the same is true for our nation’s infrastructure.

Originally Published: December 10, 2016

The Highway Trust Fund is crumbling; maybe it should

Posted on by j.giglio

The federal Highway Trust Fund, which provides transportation funding to the states, is projected to run dry in August. But with a technology-driven revolution underway in the way Americans use surface transportation, applying yesterday’s solution and simply replenishing the fund won’t solve the problem.

According to the Obama administration, if the fund is exhausted, states will be forced to put off 112,000 highway construction and 5,600 transit projects, resulting in the loss of 700,000 jobs. When dealing with the government, there are always plenty of zeroes to go around.

The traditional source of revenue for the trust fund is the federal fuel tax of 18.4 cents per gallon, which has not been increased in over two decades. Given that it’s an election year, an increase is not only dead but already decomposing.

One reason the federal fuel tax doesn’t generate enough revenue is more fuel-efficient cars. But that isn’t the whole story. Surface transportation is in the midst of a quiet but profound transformation because technology is fundamentally improving urban mobility.

Technology advances make it easier for people to navigate public bus and rail transportation. Personal ride-booking and car-sharing services are available in nearly every major city, resulting in an interactive transportation network that generates fewer vehicle miles traveled.

As is always the case, technology is outpacing traditional institutions’ ability to adapt. Customers and markets have embraced the digital revolution. The country is witnessing the emergence of an integrated surface transportation network where each transportation mode no longer operates as if it exists in a separate universe.

Technology is in place that allows cities to operate roadway, rail and water transportation modes that complement each other. This gestalt shift represents a fundamental challenge to the traditional approach of the road gang pouring more and more concrete. This is all happening in the name of market solutions, the kind that would make Adam Smith smile.

The proliferation of innovative mobility tools has major implications for traditional approaches to planning, funding, and delivering surface transportation. Recent lifestyle changes, especially among the millennia! generation, are transforming the surface transportation marketplace. It is hard to resist the temptation to conclude that it is time to deliver the eulogy for traditional surface transportation planning and funding.

History- specifically the Japanese Navy’s strategic failure at Pearl Harbor- can teach us something about not letting business as usual blind us when it comes to the need to overhaul surface transportation in the U.S. The Japanese Navy’s officially sanctioned model for everything it did was the British Royal Navy. Standard histories of the Royal Navy emphasize its victories in spectacular naval battles like Trafalgar during which Royal Navy warships attacked and destroyed opposing warships.

Thus, Japanese naval thinking focused on attacking the U.S. Pacific Fleet’s battleships while they were moored at Pearl Harbor. Lost in the shuffle was any serious consideration of trying to cripple Pearl Harbor’s ability to function as a forward naval base. The Japanese were intellectual prisoners of a past that they believed would shape the future.

So it was that, in a brilliant display of tactical management, six aircraft carriers furtively approached the Hawaiian Islands just before dawn that fateful Sunday, launched their planes into the rising sun, caught the U.S. Pacific Fleet with its pants down and wrought havoc in spectacular fashion. On paper at least, this rivaled the triumph at Trafalgar, the Japanese Navy’s benchmark of success.

But as the sun set on Dec. 7, Pearl Harbor’s all-important fuel storage and ship repair facilities remained untouched by Japanese bombs, allowing it to continue serving as a forward base for American naval power in the Pacific. In reality, Japan’s tradition-bound naval leaders chose the wrong targets at Pearl Harbor.

Tradition is often the worst guide when it comes to doing anything really important. Things that have survived long enough to be venerated are often obsolete. American surface transportation is beset by a host of traditions that have helped produce the problems we face today. We must free ourselves of them if we’re to come up with a truly effective vision for what transportation should look like in the future.

originally published: July 12, 2014

We need to think of our roads as cows

Posted on by j.giglio

Academics have filled volumes on the differences between what they call public and private goods. Too often the distinction seems to come down to ownership: If something is owned by society as a whole, it is a common good. If owned by one or more individuals, it is a private good.

Common goods are things like public schools, parks or roads that are owned by all of society. The responsibility for operating and maintaining them is (usually) assigned to government and supported by tax revenues.

This is the standard pattern for metropolitan roadway systems in the United States. They are built and maintained by a mixture of municipal, county and state governments that fund most of the cost from general tax revenues. They are often supplemented by “user taxes” levied on the purchase of motor­ vehicle fuel, which implies that motorists pay based on how much they use the roadways.

But even when a roadway network is supported by fuel taxes, there remains a disconnect in the minds of motorists between the act of driving on roadways and paying for them. This is quite different from commodities distributed through the marketplace, where a consumer must buy and pay for some quantity of a commodity before being able to consume it.

The result is an instinctive sense among motorists that roadways are free.

A useful metaphor popularized by biologist Garret Hardin in 1968 illustrates the basic problem. Imagine a community that has a publicly owned pasture where local farmers can graze their dairy cows without having to pay any user charges. Under these circumstances, each farmer seeks to graze as many cows as possible in the pasture because each additional cow will increase milk production but not feeding cost.

This only works so long as the number of grazing cows remains within the pasture’s feeding capacity. Once the farmers exceed this limit, the pasture’s viability begins to break down. The cows consume its grass faster than it can replenish itself with fresh growth, resulting in less nourishment for each cow.

When farmers are faced with cows that are producing less milk to sell, their logical response is to add still more cows to the overused pasture. When all the farmers do this, the result can only be an increasingly dysfunctional pasture and declining milk production for everyone.

In Hardin’s words: “Therein is the tragedy. 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 commons.”

Severe traffic congestion is a modern example of the tragedy of the commons. Hardin’s metaphor illuminates a broad range of socioeconomic questions about why congestion afflicts so many metropolitan areas.

It illustrates the inevitable tendency to overuse common goods that are perceived to be free. It explains why this tendency leads to a condition in which supply never catches up with the demand. It describes how the widespread availability of free public goods can significantly influence the underlying economics of many private activities that come to depend on them. And it demonstrates the relative ease with which an entire society can be locked into counterproductive behaviors.

The most sensible solution to the tragedy of the commons may be to charge farmers grazing fees. This immediately confronts them with a series of critical business judgments about how to maximize their milk revenues, such as how much to spend feeding pasture grass to their cows or whether to feed them corn or other grains instead.

When all forms of cattle feed are distributed at prices that reflect supply and demand, the business of milk production becomes more rational. Perhaps the same is true for metropolitan roadway systems: directly charge motorists for roadway use and the economics of building, operating and maintaining roadways change rapidly- and for the better.

originally published: March 4, 2014