FROM ISSUE NUMBER 3 ~ SPRING 2010 GO TO TABLE OF CONTENTS
Just after 6 p.m. on August 1, 2007 — at the heart of the evening rush hour — a portion of the busy I-35 bridge in Minneapolis collapsed into the Mississippi River, killing 13 people and injuring 145. The tragedy was quickly held up in the press as a symbol of America's declining transportation infrastructure, and members of Congress, state and local politicians, and various activists and experts were soon demanding a new wave of investment in our roads and bridges.
But these critics had drawn all the wrong lessons from the bridge's collapse. As it turns out, there was no broad policy failure to blame for the tragedy: The National Transportation Safety Board determined that the collapse was caused by a combination of a design flaw, extra concrete added to the road surface without regard for the bridge's design specifications, and the excess weight of construction materials stored on the bridge at the time of its demise. The national data, too, make it clear that America's bridges are not increasingly unsafe: In fact, the Federal Highway Administration's bridge-condition database lists fewer bridges in the National Highway System as being "deficient" today than it did in 1995 or 2000 — even as more bridges have been built.
This same pattern plays out across much of our transportation infrastructure. As Katherine Siggerud, the managing director of physical infrastructure issues at the Government Accountability Office, told the National Journal in 2008: "[T]he physical condition has not noticeably deteriorated in the past two decades. The condition of the most traveled roads and bridges in the United States, the interstates and the national highways, improved in quality."
The challenge confronting America's transportation infrastructure is not a matter of falling bridges and decaying roads. Rather, our transportation sector suffers from a growing lack of efficiency — in terms of how we allocate money, as well as how we manage capacity and supply. We spend many billions of taxpayer dollars on our transportation infrastructure each year, and we possess a great deal of capacity — but the wasteful use of both costs the country enormously, in time and in money. Our transportation system does cry out for reform, though not in the form of simple cash infusions from Washington. Instead, policymakers need to grasp what our transportation problem actually is — and what solutions will get America moving.
EARMARKS TO NOWHERE
The gross inefficiency of our transportation policy is perhaps best illustrated by another recent story about an infamous bridge. In 2003, as Congress was beginning the multi-year process leading up to the 2005 highway bill, no one could have predicted that a single line in that legislation would later become the focus of national attention — and even play a role in the 2008 presidential campaign.
It all began with a perfectly routine attempt by the powerful chairman of the House Transportation and Infrastructure Committee, Alaska's Don Young, to fund a project that would connect the city of Ketchikan to Gravina Island in his home state. Although the earmarks for the bridge represented just a tiny fraction of the thousands stuffed into the bill, they allocated a huge chunk of taxpayer money: $223 million. And they would have helped finance a project intended to serve a relatively small number of people — Ketchikan's population is about 8,000; Gravina's is closer to 50 — who already had a ferry service to shuttle them back and forth.
Critics of such legislative "earmarks" — projects funded by specific set-asides in legislation, without congressional debate or public scrutiny — took note of the bridge as a particularly egregious example. They branded Young's project the "Bridge to Nowhere," and began to use it as a symbol of federal spending and back-room dealing spun out of control. Eventually, Congress eliminated the specific earmark for the project and left Alaska to decide how to use the funds. But the Bridge to Nowhere remained a favorite whipping boy of 2008 Republican presidential candidate John McCain, and became an especially prominent theme after McCain chose Alaska's then-governor, Sarah Palin — who had been a supporter of the project before turning against it — to be his running mate. McCain pointed to the earmark as an example of gross corruption and abuse.
But from a transportation-policy perspective, the real story was perhaps even worse than McCain's talking point suggested. The Bridge to Nowhere was not an isolated instance of corruption, but rather a fairly routine example of the normal workings of our transportation-funding policy. The latest iteration of the federal transportation authorization bill — the "Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users" of 2005 — contained more than 6,400 "special" projects valued at a total of more than $24 billion. The earmarks were allocated to fund an assortment of road and bridge improvements, but they also paid for projects like a new museum in Michigan to honor Henry Ford and recreational snowmobile trails in Vermont. These earmarks were not distortions of the funding mechanism at the hands of crooked politicians — they are an essential part of the funding mechanism. They constitute a growing percentage of the approximately $50 billion the federal government now spends on surface-transportation projects each year, and they shape much of the legislative process.
The twisted nature of this funding apparatus results, in part, from the fact that responsibility for America's surface-transportation system is a complicated mix. Most of the system is governed by federal regulation, and approximately 40% of the system's capital costs are funded by the federal government. This money comes from gas, diesel, and other transportation-related taxes, and increasingly from general funds (due to the depletion of the federal highway trust fund); the funds are allocated in accordance with politically negotiated federal programs and earmarks. But our transportation system's underlying infrastructure is primarily owned and operated by state and local governments, whose own goals are often inconsistent with federal spending and regulatory objectives. Project earmarking, politically motivated spending, and this misalignment of interests all end up warping our transportation system — both its financing and its functioning — in several ways.
First, an earmark appropriated for a project often represents less than 20% of that project's total anticipated costs. This is because earmarks are often distributed as matching funds, or are specifically directed to fund one particular component of a larger project, leaving state and local funding to make up the rest. Of course, sometimes the state and local funding doesn't come through, or the money required to leverage the earmark's matching funds never materializes.
Then the project managers face an unpleasant choice: either siphon money from another project, or table the earmark until more money can be obtained. A surprising number of earmark recipients choose the latter option, and leave the money on the table. As of last year, more than $11 billion in unobligated earmarks — built up cumulatively over recent years — remained on the books at the Department of Transportation. These are funds that have been authorized and appropriated, but not spent. There is no legal provision to return them to the Treasury, or to free them up for mayors and governors to spend on other priorities.
Second, the quest for earmarks is itself highly wasteful and disruptive. Consider that every dollar appropriated in a given year represents just a tiny portion of the amount that is actually sought; most states and localities that go through the elaborate process of seeking earmarks only end up being frustrated in their efforts. But while their wheedling is still ongoing, project proponents and contractors are often told to wait and see if federal assistance can be obtained. This uncertainty — and, in many cases, false hope — stretches project-delivery timeframes and precludes the development of alternative (and more efficient) financing mechanisms.
Finally, the mechanism for selecting projects to fund is now grossly politicized. In Congress, the constant need to bring home pork means that lawmakers often push pell-mell to get funding for projects back in their districts, regardless of their merits. This one-off approach, however, hinders legislators from stepping back to formulate any broader transportation policy — one with objective goals, guided by principles of efficiency, and determined by the actual needs of our transportation infrastructure (not to mention the need for careful stewardship of taxpayer dollars). As long as a congressman can claim a big-dollar score from the most recent highway bill before the next campaign cycle, pretty much any other transportation concern falls by the wayside. And even if lawmakers did want to place greater emphasis on coherent transportation-policy goals, the politics of earmarking would make it quite difficult. A lawmaker who, during the appropriations process, burns through his political capital to score projects for his district has little left to make a principled stand for bigger policy aims.
These problems do not just occur at the federal level. Indeed, many members of Congress respond to criticism about federal earmarks by arguing that they are not substantively different from state and local earmarks. But far from explaining away the problem, this reply only highlights its urgency. Political influence and other non-economic assessments are now the primary mechanisms for allocating transportation funding at all levels of government.
One way to grasp the profound inefficiency of this approach is to contrast it with the project-selection and evaluation processes used by capital-intensive businesses. In the private sector, decisions regarding major projects generally begin with an assessment of what economists call the "present value of expected net benefits." Put simply, a business starts by asking the question: "What will the project achieve for us?" The company then compares the expected return on the project's investment with other potential uses of capital — treating the company's available funds as fungible across a wide array of investment opportunities, and estimating the benefits of alternative projects in order to ensure the best use of a limited budget. Once a project is undertaken, a post-investment assessment is conducted to determine whether it was a success, and whether the returns on investment met the company's expectations. The results of the review then shape decisions about future investments. The private-sector approach is hardly rocket science: It requires simply prioritizing needs, investing in the projects that will yield the most benefit and value, and keeping track of what works and what doesn't.
But the process for spending public dollars on transportation projects involves essentially none of these steps. The "present value of expected net benefits" rarely factors into decisions about which projects merit investment. And after projects have been completed, public entities at the federal, state, and local levels do not systematically calculate the actual return on invested capital. They typically do not even bother to find out whether their projects achieved the promised results.
Instead, funds are carved up by federal, state, and local legislative mandates and pre-set formulas designed to support specific types of projects or programs. For example, between 2005 and 2009, the federal government set aside by statute a total of more than $250 million for ferry boats and ferry terminals. It then required that Alaska, Washington, and New Jersey receive a combined $20 million a year of such funding. Regardless of one's general view of ferry-boat funding, it should be worrisome that these seemingly arbitrary investment decisions were made without any rigorous comparative investment analysis.
This is far more than a matter of pork-barrel waste. The undisciplined nature of the transportation-funding process in Washington, as well as in state capitals and at the local level, has produced growing dysfunction on the ground — on highways, in rail yards, and at airports across the nation. Our transportation system itself — not just our way of paying for it — is becoming increasingly disordered and inefficient.
STUCK IN PLACE
For most of the past three decades, transportation policy was a back-burner issue, unlikely to stir debate or make national headlines. Drivers in highly populated areas had cause to complain about traffic, of course, and policy insiders clamored for attention and resources. But transportation was not on anyone's short list of national priorities, and in fact seemed to be in good shape following the deregulation of freight rail, air travel, trucking, and much of the rest of the sector in the late 1970s and early '80s.
That deregulation was a response to the last explosion of inefficiency in American transportation. Under a system of regulation reaching back to the late 19th century, the federal government sat at the center of a complex arrangement of barriers to entry, price controls, and limits on competition in transportation. The system's goal was to ensure that America's transportation sector was not too chaotic, and could be relied upon in times of national emergency. But by the 1970s, this regulation had come to be an enormous obstacle to innovation and efficiency. Only a small number of large and politically connected companies could operate; prices were unnecessarily high; transport companies were unresponsive to customer needs; and the whole sector failed to keep up with technology — all of which stifled not only transportation but the larger economy as well. Through a series of measures intended to make transportation a little more like the rest of the American economy — in which new companies could compete with the old and thus compel innovation and efficiency — Congress gradually de-regulated the sector between 1976 and 1982, loosening the reins on railways, air travel, trucking, and passenger buses.
The goal in each case was to allow competitors the freedom to set prices, offer services, and arrange their own operations as they chose, so that the market could better serve the needs of consumers and producers. In many respects, deregulation worked even better than expected. Consumers had a growing abundance of transportation choices, which they could take advantage of at relatively cheap prices. The cost of flying was going down; the number of Americans traveling by air was quickly increasing; and the aviation system seemed well equipped to support fast-growing demand. In the trucking industry, competition expanded and productivity improved, driving down supply-chain costs and enabling just-in-time manufacturing — in which producers save money by relying on speedy delivery rather than maintaining large inventories of their own — to blossom throughout the economy. The interstate highway system had been completed, and large amounts of spare traffic capacity were (and are still) available in many parts of the country. Fatality rates on America's roads were in steady decline thanks to improvements in infrastructure, technology, and driver behavior. And all the while, federal transportation spending was growing — particularly in the wake of gasoline-tax increases in 1985 and 1994 — leaving the impression that infrastructure maintenance and development were at least well funded. The period from 1980 to the early 2000s was something of a golden age for American transportation.
But in the past five years, the sense of relative calm has been shattered. Problems with America's transportation system have become front-page news and have fueled high-profile political controversies. From unprecedented aviation delays in the northeast and massive congestion at the Port of Los Angeles, to Mayor Michael Bloomberg's failed attempt to implement congestion pricing in New York and Mayor Richard Daley's lease of an existing toll road in Chicago, the state of America's transportation system seems suddenly to be on everyone's mind.
The common theme of almost all of these stories is congestion: too much demand at one time, and too little capacity to meet it. Between 1998 and 2005, direct congestion costs on America's highways — measured in wasted time and fuel — increased by more than 50% to roughly $20 0 billion a year, according to the Department of Transportation. Airport delays increased almost as fast.
But the most dramatic display of the problem — and, perhaps, of the path to a solution as well — actually involved the nation's seaports. In 2004, the ports of Los Angeles and Long Beach, the two largest in the United States, experienced a near-meltdown. With the American economy enjoying a period of strong growth, demand for the facilities far outpaced their ability to handle arriving cargo. The result was a system collapse: In the peak season for cargo transport (late summer and fall), massive container ships carrying valuable cargo sat idling off the California coast for a week or longer. Others had to be diverted to less congested locations at an enormous cost to all involved. In its community newsletter, the Port of Long Beach even likened the sight of "dozens of vessels waiting for open berths at the ports" to scenes from the Normandy invasion of World War II.
The severity of the congestion, and the high costs it exacted, provided an impetus for real reform. And so 2005 brought one of the most important transportation-policy breakthroughs of the last 50 years: The management of the two ports, major shippers, labor organizations, and other interested parties agreed to experiment with differential pricing. Under the agreement, shippers would be charged differently for moving cargo during peak and off-peak hours; a so-called "Traffic Mitigation Fee" was instituted for the first time on July 23, 2005, in advance of peak shipping season. Cargo movements between 3 a.m. and 6 p.m. on weekdays carried an extra fee of $40 per standard-sized container, while shippers were charged no additional fee for moving cargo during off-peak hours.
The results were astonishing. Within two months, the program had achieved the target it had hoped to reach in two years. Between 30 and 35% of shipping traffic was shifted to off-peak periods. And it quickly became clear that shippers and carriers who used the port facilities were far more sensitive to pricing — and far more willing to adjust longstanding practices — than anyone had anticipated.
The success of the California ports shows what might be achieved by applying "congestion pricing" across our transportation infrastructure. The basic logic behind the policy is straightforward: Congestion happens when demand exceeds capacity at a given time; it can therefore be solved not only by increasing capacity, but also by moderating demand. This does not necessarily require restricting access to our transportation infrastructure: All it requires is encouraging the use of that infrastructure at different times of day, or incentivizing the use of transportation alternatives.
What is needed, in other words, is not necessarily more infrastructure, but rather a mechanism to make better use of the infrastructure we have. A price mechanism offers the most efficient solution. It compels potential users to ask themselves just how badly they really need to, say, use the highway during rush hour (instead of an hour earlier or later), or whether they really have to fly on Monday morning rather than Tuesday afternoon. Some will decide they do need to travel at peak times, and will pay a modest price for doing so. Others, however, will conclude that they can adjust their schedules or routes — and so will relieve some of the strain.
Recent years have seen a few prominent experiments with congestion pricing in urban centers overseas. The most notable case has been London — where, since 2003, motorists have paid a fee equivalent to about $14 for driving in the city center between 7 a.m. and 6 p.m. on weekdays. The system appears to have reduced the number of vehicles in the covered eight-square-mile area by about 20% — from just over 250,000 cars to about 200,000 each day — and eased congestion considerably. The zone was extended into parts of West London with comparable results in 2007. A similar system (though with far cheaper fees) has been in effect in Stockholm, Sweden, since 2006; that program has reduced peak-time traffic volume by almost 25%.
Impressed by these figures and the success of the West Coast ports experiment, the U.S. Department of Transportation (where I was then a senior official) climbed aboard the congestion-pricing bandwagon — and in May 2006, Transportation Secretary Norman Mineta unveiled a "National Strategy to Reduce Congestion on America's Transportation Network." The core of Mineta's effort was the Urban Partnership program, which made a pot of money available to those metropolitan areas willing to experiment with congestion pricing and related approaches to moderating peak-time demand (including real-time traffic information, improved traffic signaling, and telecommuting support).
Tellingly, Mineta selected the National Retail Federation as the location to roll out his plan, and his remarks cited the growing costs that congestion imposes on the American economy. But as urgent as Mineta's challenge was, the twisted nature of transportation funding meant that the department did not initially have serious resources to devote to the effort. Indeed, the funding allocated for the Urban Partnership program was a paltry $130 million — close to half the amount earmarked for the Bridge to Nowhere.
But 2007 brought an unusual opportunity. When the Democrats took over Congress following a wave of earmark-related corruption scandals, they announced a "freeze" on earmarks until some kind of lobbying reform could be enacted. But understanding that a reform bill could take a while, and in order to avoid holding up funding, they passed a 2007 spending bill that simply extended the previous year's budget — minus all the earmarks for special projects. The Department of Transportation thus found itself with the same level of funding, but without the requirement to funnel huge amounts of it to pet projects in lawmakers' districts. This gave the Bush administration much greater say over how transportation funds could be used. And one result was that the $130 million Urban Partnership fund grew to more than $1 billion.
The Department of Transportation had never had the authority to allocate this kind of money before. Suddenly, the Urban Partnership — which had first looked like a symbolic gesture — began to attract real attention. It drew the interest of some of the country's most influential state and local leaders, at the exact moment when those leaders were under immense pressure to address the growing problems of congestion. More than 25 major cities applied for funds in 2007, including the most heavily congested cities in America.
The most ambitious proposal came from the nation's largest city: New York. Mayor Bloomberg's administration was awarded a conditional $354 million federal grant to implement a congestion-pricing plan that would have charged every car entering Manhattan between 6 a.m. and 6 p.m. on weekdays a fee of $8 (every commercial truck would have been charged $21). It was the first time any American city had proposed to directly charge for the use of existing highway capacity that had previously been un-tolled.
Of course, the idea was not without its critics. One was state assembly speaker Sheldon Silver, who argued that the plan would amount to a regressive tax on commuters. He and others also feared that the program would turn the areas immediately adjoining the congestion-pricing zone into parking lots, as commuters would drive as close as they could to the tolled area without entering it. A host of other concerns — including whether any of the plan's revenue would go toward a transportation project in Silver's district — intervened as well. The assembly ultimately rejected the mayor's idea, forfeiting the federal grant.
But the availability of significant federal funds — and the publicity surrounding New York's bold proposal — awakened local politicians and business constituencies around the country to the potential of congestion pricing. Other large cities submitted their own plans. And places like Seattle, Miami, Minneapolis, and San Francisco were awarded funding for congestion-relief experiments involving market-based pricing of roads and parking facilities. Today, drivers on one of the most congested stretches of highway in America, I-95 in Miami, experience rush-hour speeds over 55 m.p.h. every day of the week — compared to their previous level of 20 m.p.h. — thanks to the creation of two electronic toll lanes whose charges vary based on congestion levels. And with the recent opening of similar dynamically priced lanes on I-35W, Minneapolis has become the first American city to operate an entire network of such lanes — including the first priced shoulder lane in the world.
Meanwhile, just as seaport and highway congestion were making national headlines, the nation's aviation system began to suffer a severe congestion crisis of its own. Here again, New York was front and center: Because about 100 million passengers a year — an eighth of all air travelers in America — pass through the New York-area airports, any problems there mean massive cascading delays throughout the country.
In the summer of 2007, after several years of growth in the number of passengers and airlines it served, John F. Kennedy International Airport experienced a huge spike in flight delays. On-time departures fell to just 50% — a 15% drop from the previous year — and planes often waited in line for take-off for an hour or more. These waits compounded the chronic delays at the region's primarily domestic airport, LaGuardia, where average flight delays that summer ran to 70 minutes. And spillover from both airports led to massive problems at nearby Newark International Airport in New Jersey, another busy hub. This explosion of delays illustrated a pattern common in transportation, in which gradual increases in demand build up not to gradual increases in congestion, but to sudden bottlenecks.
Consumer groups, the news media, and elected officials blamed the airlines, the federal government, the airports, and every other imaginable scapegoat as stories of stranded and frustrated passengers spread. And the problem was by no means limited to the New York area: Major airline hubs in Chicago, San Francisco, Boston, and Dallas experienced similar problems, all of which built on one another to make each city's problems even worse.
As with highways and seaports, most economists believe that the current pricing mechanism for aviation discourages the efficient use of available infrastructure. The two most significant government-imposed price signals are aircraft charges by weight — which are determined and collected by the airport authorities — and federal passenger taxes based on the price of a ticket. Of course, neither of these charges bears any relation to the balance of demand against airport capacity or air-traffic resources (physical resources like gates and runways, human resources like staff and crew, and the sheer ability of the air-traffic control system and the available airspace to handle the planes). In fact, the weight-based landing charges actually provide a perverse incentive for airlines to use smaller planes — thereby reducing total passenger throughput for a given number of planes.
In continuing with this warped pricing apparatus, the aviation system has neglected one very promising option for both reducing congestion and increasing airport revenues. Since only one plane can take off or land from a given runway at a given time (and since take-offs and landings must also be spaced out to avoid collisions), airport authorities have to allocate the use of their runways over the course of each day. They generally do this on a first-come, first-served basis, rather than by charging airlines directly for take-offs and landings (since the airlines already pay for space, overhead, the standard weight-based charge, and other costs). But if airports instead divided each day into take-off and landing "slots" (each being the amount of time a plane would require to depart or arrive), and charged the airlines for using the most coveted peak-time slots, they might be able to both manage demand and raise funds that could then be used to increase capacity and improve infrastructure.
In 2008, the Department of Tr ansportation tried to enact a regulation that would have allowed up to 10% of the take-off and landing slots at JFK, LaGuardia, and Newark to be priced through an auction mechanism. The concept is a form of congestion pricing: The auctioning means that the price airlines pay for a take-off or landing slot reflects demand; a peak-hour slot, therefore, will sell for a higher price than an off-peak slot. The aim is to give airlines an incentive to offer more flights at "off" hours or to increase the size of peak-hour planes. This would allow for a more efficient distribution of flights throughout the day, as well as increase total passenger throughput.
Unfortunately, the idea was strongly opposed by both the Port Authority of New York and New Jersey (the owner and operator of the three airports) and the carriers that serve the airports. The Port Authority was especially concerned about disrupting its arrangements with the airlines and losing control of the airports to the federal government, arguing that the Department of Transportation does not own the slots, and so cannot sell them. The airlines, of course, did not want to see their operating costs increase. Both pushed instead for technological upgrades to the air-traffic control system to expand capacity, as well as for the construction of more runways — basically more funding and an extension of our existing infrastructure policies. But the government contended that the plan's supply-side price signals could both help modulate demand to reduce peak-time use and raise funds that could be used to upgrade airport capacity.
Clearly, congestion pricing and similar market mechanisms are not without their political drawbacks. No one wants to pay a toll on a highway that is now "free." And some ways of implementing pricing mechanisms can create unintended problems — like the "parking lot" scenario that helped bring down New York City's traffic proposal. But of course congestion often exacts a significantly higher (if implicit) toll of its own — in the form of travel delays, declining reliability, higher emissions, distortions of real-estate markets, and so on. The question for policymakers and voters is whether that cost is high enough to justify experiments with congestion pricing. Increasingly, it seems they are deciding that it is.
But it has been difficult to get the federal government squarely on the side of such experiments, because the process of allocating transportation funding is exceedingly ill-suited to support them. It takes a case of legislative happenstance (as in 2007), or of grassroots creativity (as with the West Coast ports in 2005), to even allow experiments to emerge. And no wholesale reform in the direction of market mechanisms seems possible as long as a thoroughly politicized resource-allocation system remains the norm. The inefficiency of our funding mechanisms and the inefficiency of the transportation system itself are very closely connected.
A PRIVATE MARKET FOR PUBLIC INFRASTRUCTURE
In some parts of the country, the logjam has led state and local officials to seek ways around the failure of traditional transportation-funding mechanisms — most notably by entering into long-term contracts with the private sector. Under these arrangements — called public-private partnerships, or "P3s" — the private sector agrees to design, build, operate, maintain, and finance a transportation asset (like a highway or an airport) in exchange for some revenue stream tied directly to the project (like tolls) or pledged by the contracting government entity. Such arrangements have been quite common in other countries for years; in fact, in Australia and Britain, P3s have become the preferred mechanism for developing large-scale transportation projects ranging from airports to toll roads to mass-transit systems.
In the last ten years, a number of states — most recently California, Arizona, and Massachusetts — and many localities have enacted legislation giving their transportation departments broader authority to enter into partnerships with the private sector. The trend has been driven by the view that private companies are likely to capitalize and manage transportation assets more efficiently; by a desire to transfer project risks to the private sector in order to reduce taxpayer exposure; and, in some cases, by the appeal of getting a large up-front payment from the company managing the asset — an enticement that has grown only more attractive during this time of extremely tight state and local budgets.
The last decade has therefore seen several prominent projects following this pattern, most notably in Illinois and Indiana. In 2004, Chicago mayor Richard Daley entered into a $1.85 billion, 99-year lease agreement with a consortium of investors and operators from Spain and Australia for the 7.8-mile Chicago Skyway. Two years later, Governor Mitch Daniels of Indiana followed Daley's lead and leased the underperforming 157-mile Indiana Toll Road to the same investors for 75 years — netting an even more staggering $3.8 billion.
In subsequent years, a variety of other complex P3 projects were undertaken in Texas, Virginia, Florida, and California, among other places. This wave of activity coincided with growing interest from long-term investors who were attracted by the medium-risk, medium-return profile of a broad array of infrastructure assets. A commonly held view at the time was that such assets are counter-cyclical, and so resistant to economic downturns.
But this expectation has not quite panned out. Both 2008 and 2009 saw a dramatic decline in such partnerships, as the collapse of the credit markets dealt a blow to private investors no less than to governments, and state and local officials found themselves pressed by other priorities. It is unlikely we will see an imminent return to the types of highly leveraged transactions that were characteristic of the mid-2000s (including some of these transportation projects). Nonetheless, the basic appeal of public-private partnerships — and the efficiency they can yield — will certainly lead them to play an important role in the long-term evolution of American transportation policy.
THE ROAD TO REFORM
Growing congestion problems, some federal support for pricing experiments, and state and local efforts to attract private investors have combined to produce a flurry of interest in national transportation policy. Business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers, and major environmental advocacy groups like the Natural Resources Defense Council, have begun to rank transportation infrastructure among their highest priorities. And many members of Congress have begun to acknowledge that continuing to emphasize spending over performance is seriously counterproductive. In recent years, several bipartisan national commissions and a variety of state-level commissions have come to appreciate the need for a fundamentally different model of transportation policy: one that will reverse many of the obvious failures perpetuated by the warped politics of transportation funding.
The major piece of federal transportation-policy legislation — the "Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users" — is up for reauthorization in the coming year. This offers a chance for some reforms of the funding process, though the momentum in Washington always pushes against such changes, and the talk now (as ever) is of "building on the legacy" of prior transportation policy. Indeed, to see how little actual reform such opportunities often yield, one need only look at last year's stimulus bill. The legislation provided more than $48 billion to the Department of Transportation, but the vast majority of that money simply flowed through existing programmatic channels and backfilled against projected state and local cuts in spending. It was in no way a "game changer" in transportation policy.
Still, the intensifying problem of congestion — combined with exceptional public hostility to federal spending and earmarks, and ongoing (if modest) experiments with congestion pricing and privatization — could end up forcing a meaningful change.
What might such reform look like? To have any chance at improving our transportation system, it would first need to involve a marked change in our approach to transportation funding. Money should no longer be handed out through simple grants, with a focus on preserving some sacrosanct funding "process." Rather, the focus should be on performance and results. Money should be allocated based on whether projects will achieve specific, useful goals — such as relieving congestion, improving safety, upgrading the quality of pavement, and so on. And of course the allocation of funding should rely on earmarks and other highly politicized approaches as little as possible.
Second, the federal government's role should shift — to more clearly support "national" projects of broad significance to our transportation system, rather than a series of small, local projects important to individual members of Congress. Third, there should be a systematic means of quantifying costs and benefits, modeled on private-sector project funding. We simply cannot persist in channeling money through rigid sub-categories, formulas, and policy silos that bear little relation to the real needs of our transportation system (and the people who use it).
But perhaps more important than any particular change in federal legislation is the evolving role of state and local governments and private-sector businesses — which are increasingly at the forefront of transportation reform. Today, more than 15 American cities have implemented, or are in the final planning phases of, projects that use variable pricing mechanisms to manage peak traffic demand, improve transit service (especially on commuter bus lines), and generate revenues that can be invested in upgrades to transportation infrastructure. And for the first time, several states are establishing real performance targets to drive their infrastructure investments.
These innovations will chart the path of American transportation policy in the coming years. The question now is whether the federal government will help or stand in the way. Policymakers must understand just how much is at stake as they consider whether to persist in a policy of aimless earmarks, or to empower market forces so that America can make the most of its existing infrastructure — and enjoy a transportation system befitting a global power in the 21st century.
Tyler Duvall, an infrastructure-strategy consultant, served as acting under secretary for policy at the U.S. Department of Transportation during the administration of President George W. Bush.