U.S. DOT Advances ‘New Era' Transportation Agenda: Economic Criteria Pricing

The U.S. DOT is advocating for a new national transportation policy based on "economically based criteria." What does that mean?

Los Angeles is probably the best example-maybe in the world, but certainly in the U.S.-of the chronic imbalance between supply of highways and the demand to use those highways. When we have such an imbalance in all other sectors of the economy, prices adjust to align supply and demand. In the United States, for the last 100 years, and aggressively for the last 50 years, we have pursued a policy of un-priced highways paid for through indirect taxes on gasoline, sales, and property.

The problem with that methodology is that it does not send the signal to the user about the true cost of using an urban highway, like the 10 or the 110, particularly during peak periods. Studies show that true cost is in the range of $0.50-1.00 a mile; that includes the cost of congestion, wear and tear, and environmental impacts. The gas tax nationwide, when coupled with state gas taxes, is in the 2-3 cents a mile range.

We are not correctly charging people for the true costs of driving during peak periods. As a result, we have what's called a classic tragedy of the commons: rampant overuse of these facilities, everyone demanding to use the exact same asset at the exact same time.

There are two ways to deal with that: one is to allow the corresponding line to clear itself over time, which is highly inefficient because the most valued users of that space during peak periods don't get to use it. So, we have a collapse of the system at the time of the day that we need it the most.

The other response is to price these facilities directly and spread traffic flows across the entire time period of the day to allow more efficient utilization. Studies show that that not only improves traffic flows, but it actually increases the capacity of the highway itself. Most people think that pricing a road directly is designed to keep people off the highway during peak periods; what it really does is spread traffic flows efficiently, sends the right signal to users about the true cost of use, and allows the facility to handle more traffic.

Here in Southern California, State Route 91 is the most powerful demonstration in the world of this concept: the two lanes that are priced during peak periods handle the same volume of traffic during that period as the four un-priced, "free" lanes.

Efficient utilization means more cars per lane per hour than we're getting today. In our view, the only way you can do that is to send a price signal, and technology has changed our ability to do that. Economists were talking about this 50 years ago, but were technologically unable to implement the idea. Today, it's an off-the-shelf technology and it's getting increasingly sophisticated in its ability to dynamically price.

The bottom line is, technology to support pricing is going to break open urban highway systems on the demand side, and it will supply revenues to reinvest in the system on the supply side, exactly where we need it. Secretary of Transportation Mary Peters has made this one of her top priorities, in both surface and in aviation. We don't think there's a sustainable solution to transportation that does not involve some form of pricing.

The integration of highway pricing with transit unleashes many other opportunities. If you can create flow conditions that are conducive to buses, you will see an increase in ridership that will increase the revenues to those bus systems, which will decrease the need for additional public subsidies.

What led to the U.S. DOT's decision to award a grant of $215 million in discretionary federal incentive funds to Los Angeles? What are the department's hopes and goals for the use of that money?

We've run two nationwide competitions-including one in which Los Angeles was not selected last year-called the Urban Partnership Competition. L.A. submitted an application that did not include any form of road pricing, but did include good technology and transit proposals. When dollars became free several months ago after New York City did not get legislative approval to do an area-wide cordoned pricing system, we reallocated about 65 percent of New York's funds to Los Angeles to pursue a HOT lane demonstration on up to three interstates: the I-10, the I-210, and the I-110.

In Phase 1, we provided $215 million to fund the initial conversion of any two of the I-10, the I-110, and the 210. The idea is basically that the HOV lanes that exist today, which are getting increasingly congested, will be converted from an HOV-2 to an HOV-3, allowing transit buses and vanpools to ride free and allowing single occupants to pay based on dynamic pricing technology. Off-peak charges would be extremely low; peak period charges would rise based on how highly demanded the facility is. Obviously, if the facility is not high demand, the price will be cheap. If the facility is high demand, the price will go up.

L.A., as a national demonstration, is as important as it gets. This is the most congested region in the country. There is good evidence that this is the most important part of the U.S. interstate transportation system, given all the international trade that comes through the region.

Focusing on metro areas with federal incentive funds is a really good idea. It's propelling this great political debate that needs to take place. This debate has been too far below the radar for many years, and there is now an opportunity to have a great public debate about it.

The Reason Foundation's Robert Poole has been a frequent contributor to MIR, pressing the case for congestion pricing. Interestingly, regarding the demonstration project now being discussed in Southern California, Bob is battling with Republican legislators in Sacramento to gain political support for this project. Why don't the politics of congestion pricing conform to common partisan models?

I characterize it has having bipartisan support and bipartisan opposition. Each region is unique. On the Republican side, there is a largely held misconception that roads are free and have already been paid for, when these are obviously depreciating assets that need to be reconstructed. The gas tax dollars that have been used previously to pay for these roads do nothing to solve the congestion problem. We think the double taxation argument of conservative constituencies is largely incorrect; the underlying economics do not bear that argument out.

On the other side of the aisle, you have concerns about distributional impacts on low-income people and a desire to focus on alternative strategies for dealing with highways-accepting the fact that highways are congested and trying to invest in competing systems. As to the distributional impacts, our view is that the data does not bear that out. In fact, the impacts are either net-neutral or, in many cases, net-positive for low-income people. Even to the extent that they're not-and each region needs to study its own impact-we can mitigate those through other subsidies targeted toward low-income people. The price of dealing with low-income mobility should not be a meltdown of all urban highway systems. We can solve urban highway congestion and low-income mobility simultaneously.

We do need to invest in competing modes. But given the dominance of highway travel in the United States (in some cities it's 95 percent, and no city in the United States other than New York City experiences a mode share for transit that is above 25 percent), you've got to deal with the highway system.

Integrating transit solutions into that reality is critical, and that's why this integration of dedicated bus lanes, bus corridors, transit, and highway pricing is a very powerful idea.

Elaborate on the array of new transportation policies and signals that the U.S. DOT would advance to wean the public from reliance on highways in urban areas.

The objective is not necessarily to get people off of highways. Highway travel can be a highly efficient form of travel. The objective is basically to send a signal to the users about what the true cost of that travel is-using an urban highway in rush hour is an extremely expensive thing to do. You will see significant continued use of highways after people know what the true cost of travel is, but it will be efficient, free-flow condition highways, which will reduce the environmental impacts of the stop-and-start traffic. We'll provide reliability to business users that does not exist today.

The other important point is that transit investments made in a vacuum have historically not recognized the dominance of highway travel or the flexibility of commuting trends. The fastest-growing commuting trend in the U.S. is not suburb-to-city center; it's suburb-to-suburb. The mobility model should adjust and adapt to changing commuting patterns.

There is a misconception that you just build a system and everyone works around it. The reality is that development patterns have been somewhat unpredictable.

We should be mode neutral. The federal government is going to be investing $50 billion a year in highways and transit systems, and we should be investing in the right projects. In some cities, they're going to be transit projects, and in other cities, they're going to be highway projects. But we should have objective criteria to make those investment decisions on a mode neutral basis. Too often, the approach is, "We need more of this project, we need more of that project." The truth is, we need the right projects in the right regions.

What are some of the objective criteria that Secretary Peters would want?

Performance data, the quality of infrastructure, the reliability of the conditions on that infrastructure, and the pace of technology. There are all kinds of benefits associated with these investments that you need to add up and weigh against competing investments, because we don't have unlimited resources. Every time we invest over $200 million in a bridge to nowhere, we're not investing $200 million in suburban Los Angeles facilities that could move hundreds of thousands of people.

We need to be able to objectively measure the benefits of those investments. We know the costs; those are easy to determine. But we need to agree on the benefits.

You have been participating in a series of exchanges with Congressman Earl Blumenauer (D-Oregon) on National Public Radio regarding ideas for rebuilding and renewing America through infrastructure investment policy. What is your position in these exchanges?

It's safe to say that there isn't widespread agreement in any circle as to the best way to proceed. Secretary Peters has said, first and foremost, that we need to define why the federal government is investing in the surface system in the first place. Unfortunately, the program has become "all things to all people," which really means that it's nothing to anyone. We need to focus federal investments, and one of the two main areas Secretary Peters is focused on is metropolitan areas where huge economic flows, congestion, and pollution issues take place.

But then we also need to look at the national system. We have an interstate system that carries a huge amount of interstate traffic. The federal government today has no role in driving interstate investments. Frankly, we'd like the federal government to recapture some of its ability to drive dollars to nationally significant projects. There was a 100-percent-earmarked program in the previous bill called "Projects of National and Regional Significance." While the earmarking was bad, the idea of a national program that pushes nationally significant projects, many of which would be in metro areas and some of which would be along major interstate corridors, should be the reform of the programmatic structure. Today, it's basically formula funds going out to the states with a lot of process questions asked, but no outcome orientation whatsoever. At the end of the day, the federal government is basically indifferent as to what kind of returns those investments are generating.

There isn't necessarily disagreement from Congress about that, but they obviously have the power of the purse, and they have very strong views about their ability and willingness to direct funds to the projects that benefit their constituencies.

Congressman Blumenauer and Speaker Pelosi have advanced plans for a third Centennial meeting of national and regional infrastructure leaders to chart a 21st Century plan for U.S. investment in renewing and rebuilding America. Is this aspiration something you and Secretary Peters support?

Absolutely. There is growing consensus that we need major reform, and that we have entered a new era. That is an important step that we've taken in terms of consensus. Obviously, there is not yet policy agreement. Unfortunately, we don't have substantive agreement on what would constitute infrastructure renewal (I'm not talking about Congressman Blumenauer). Some are still taking a one-size-fits-all approach: that we need to spend a lot of money on infrastructure without recognizing that the current underpinning of that spending policy will produce very minimal results.

What we want, first and foremost, is to base federal investments on objective criteria. If you don't use quantitative, objective criteria, the other approach would be political or qualitative criteria. We've seen how that works.