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Summit examines emerging transportation funding tools

Federal expert commends I-394 MnPASS program for managing congestion

Highway financing must take a new turn to steer the U.S. away from terminal gridlock. That was the message presented by several transportation financing experts at a “Road Pricing Summit” hosted by the Citizens League in February at the Metropolitan Council.

“Road pricing — looking at freeway capacity as a commodity that has value to people — is an important added tool in the toolbox to deal with the very real livability issue of congestion,” said Metropolitan Council Chair Peter Bell in his welcome to the participants. “We need to push the envelope in all directions.”

The projected revenue shortfall for highway improvements nationwide over the next 10 years is more than $1 trillion, said Ed Regan of Wilbur Smith Associates, an international transportation consulting firm. And the current transportation financing system is unlikely to raise the necessary revenue to meet the needs. “The days of fuel taxes may be numbered,” Regan said.

Many states and regions are testing financing alternatives. Advances in technology are creating innovations like congestion (road) pricing and mileage-based taxes.

The challenge for Minnesota

In Minnesota, the gas tax has not been raised since 1988. While Minnesota approved a phased-in dedication of all motor vehicle sales tax (MVST) revenues to highways and transit in November 2006, MVST revenues have been volatile. The state’s most recent revenue forecasts predicted a drop in total MVST revenues in both 2007 and 2008. The forecast showed MVST revenue not reaching 2006 levels again until 2010.

“Passage of the MVST transportation amendment shows that the public is prepared to spend more money on transportation in Minnesota,” said Lee Munnich, of the University of Minnesota’s Humphrey Institute. “But we know [MVST] is not going to be enough to finance our transportation needs. It also won’t be enough to manage congestion.”

Munnich said that policymakers have to grapple with three separate but related questions:

• Should Minnesota expand the use of congestion pricing (e.g., the MnPASS express lanes on I-394) to other Twin Cities highways?
• Should the state use tolling to pay for needed transportation investments?
• Should the state replace the gas tax with a mileage-based fee?

The need for increased revenues is not the only problem. According to a 2005 Citizens League study, 70 percent of the public cost of roads is hidden in state aid to local governments, local property taxes and motor vehicle registration taxes. A transparent funding system, the report says, would make the costs more visible and would ensure that the beneficiaries of transportation spending are bearing the costs.

Historically, user fees have been the most efficient way of funding transportation, said Tyler Duvall, policy and planning undersecretary for the U.S. Department of Transportation. “We’ve been drifting away from that. The cost of congestion is not internalized by drivers,” he added. Congestion isn’t an annoyance only to commuters. Truckers are delayed by congestion, and “freight doesn’t have the option to move on to rail to get through a city,” said John Hausladen, president of the Minnesota Trucking Association.

“Maybe it’s time to do a benefit allocation study,” Hausladen suggested. While trucks are often blamed for wear and tear on highways, they move “40,000 to 50,000 lbs. of freight at one time — and that’s a tremendous public good.”

“The threat to the U.S. supply chain caused by congestion is a serious economic problem,” Duvall said. He enumerated a variety of taxes paid by the freight industry that create revenue for highways improvements. “We can’t continue to heap costs [on the industry] without delivering better performance of the system,” he said.

Nationwide, big declines in revenue

Over the past four decades, vehicles on average have become more fuel efficient, explained Regan. As the nation drove more miles per gallon of fuel, fuel tax revenues failed to increase in proportion to the growth in travel. Inflation compounded the effects, especially when coupled with tax-increase-leery lawmakers.

The nation’s fuel taxes currently average 21.6 cents per gallon compared with 7.5 cents per gallon in 1963, Regan said. However, adjustments for inflation and efficiency show a dramatic drop in revenues. In 1963 dollars, today’s fuel taxes equal 4.8 cents per gallon. When further adjusted for miles driven per gallon, the net revenue drops to just 2.4 cents per gallon compared with 1963 dollars — one-third of the amount collected from drivers four decades ago.

The U.S. is facing predicted transportation funding shortfalls of $109 billion per year for the next 10 years and must make the transition to a new fee system, said Regan. “To raise this kind of money, we’ll need ‘use-based’ fees for miles traveled, plus ‘demand fees’ for managing demand in congested areas,” he said.

MnPASS called a “tremendous achievement”

Known across the country by various names, such as “sane lanes” and “diamond lanes,” HOT (high-occupancy vehicle) systems successfully collect demand fees in several cities in the U.S. and abroad. Duvall called the I-394 MnPASS facility here in the Twin Cities “the most sophisticated in the world” and a “tremendous achievement.”

HOT lanes provide free access for carpools and transit vehicles. They manage congestion by allowing single-occupant vehicles — equipped with an onboard tracking device — to use the lanes for a fee. As more cars enter the lanes, the fee to use them rises. As the cost continues to rise, the demand lessens. The goal is to ensure that traffic flows smoothly in the HOT lanes.

Surveys have shown wide acceptance of the MnPASS lanes by both users and nonusers in the corridor. But communicating the nuances of how it works and its benefits in a corridor that hasn’t experienced it yet is a challenge, said Rep. Bernie Leider, a longtime member of the Minnesota Legislature and advocate for alternatives of the gas tax.

Nationally, the majority of new highway projects in the federal funding pipeline involve some kind of tolls or variable pricing, Duvall said. A new federal program, the Urban Partnership Agreement, will provide qualified states and regions with grants, regulatory relief and other tools if they commit to using a combination of strategies to reduce congestion. These strategies include:

• Congestion pricing
• Expanded transit services
• Employer commitments to expand telecommuting and/or flexible scheduling options
• A greater focus on reducing the impact of incidents, like crashing, on causing traffic tie-ups.

Read more about the Urban Partnership Agreement program.

Governor’s budget proposes study of mileage fees

Another funding approach is user-based fees, such as the mileage fee. True to its name, this fee operates by charging people for how many miles they drive instead of how much gasoline they consume. An Oregon pilot study of this method will conclude this spring. Gov. Pawlenty’s proposed 2008-2009 budget includes $5 million to study mileage-fee technologies.

Regan suggested requiring odometer-like devices — installed on global positioning (GPS) systems — in all personal vehicles. “I prefer a system based on ‘smart vehicles’ as opposed to one based on ‘smart highways,’” he said. “It would not be practical to equip every local street and highway segment with roadside electronic readers.

“The technology is here today — the main issue yet to be resolved is privacy . . . some people will claim the government is tracking their every move.” To counter those fears, Regan advocates allowing drivers to pay fees anonymously.

“We are beyond the technology obstacles,” agreed Duvall. “It’s a policy and political-will issue at this point.”

Public ahead of the politicians

“The public is ahead of the politicians on this issue,” Munnich said. “Our studies show they are ready for this.”

State Representative Michael Beard agreed. “These concepts are not as foreign as we might think,” he explained. “Aviation regulations already require transponders in every airplane, and many trucking companies use the devices to track data such as vehicle location, mileage and oil use.

“People are willing to pay for convenience, and they’re used to giving up a little privacy to get a predictable commute time,” Beard said. “But are we actually going to put a transponder in every vehicle — even in my grandmother’s ’68 Buick?” he quipped.