There appears to be an implicit bias in favor of implementing new surface transportation projects that are either tax supported or funded/controlled by the government (federal, state, local) versus projects that involve tolling, pricing, or public-private partnerships.
Are tolled projects subjected to a higher level of scrutiny than government controlled or funded projects? If so, why? If all surface transportation projects -- whether tolled or non-tolled -- were subjected to the same evaluation framework, would we see more tolled projects proceed than we do now? What criteria should be included in the evaluation of surface transportation projects to remove the apparent bias in favor of government controlled projects?
Sunday, March 28, 2010
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Posted by Phil Hayward, New Zealand (Part 1 of 2)
ReplyDeleteMy beliefs in the potential of a fully private roading system were severely shaken when reading, for the first time, an argument as well framed as that of Colin Clark in "Regional and Urban Location" (1982), in terms of "Positive Externalities.”
He begins by restating the self-evident reality that "Defence" and "Law and Order" are areas where private provision would be an open invitation to mass "free-loading." It is simply impossible to withhold the full range of benefits from those who refuse to contribute. Even if, for example, people could refuse to contribute to any private police force, and take their own chances with their own properties and persons, they would still benefit from the overall reduction in crime, and increases in social stability, ease of doing business, and prosperity, brought about by all those who did contribute.
Roading is another area where there are abundant "positive externalities" even for those who do not use a particular road, or even for those who do not use roads at all (if this is possible). It is simply not possible to be part of a modern society and not to benefit from the existence of roads. Therefore, there is a strong case for at least partial public funding, as a separate issue to that of the efficiency gains to be had through user-pays.
Colin Clark's discussion of externalities dismissed "negative externalities" in one or two sentences; saying that positive externalities were so much greater, that the focus of government should be on those. Rather than attempt to remedy "negative externalities" of roads and vehicle transport, government should intervene in the free market to ensure that the efficiencies of the free market's allocation of resources were not undermined by "free loading." A purely free market in roads would actually provide less roads than their external BENEFITS would justify, because under a free market these benefits would not be captured or costed in by anyone.
This is now the most important battle to be fought. Transport, roads foremost, is so important an ingredient in economic efficiency that it is far more important to have roads and freeway lanes, and have enough of them, than to try to work out the best ownership and funding of them.
Posted by Phil Hayward, New Zealand (Part 2 of 2)
ReplyDeleteIt is problematic to expect toll roads to prove themselves as a viable concept when nearly every single toll road is obliged to compete with "free" alternative routes. Some specific situations might work, and PPP's might be able to be worked out on some other fairer basis in future, but it is hard to envisage a roading network developing with increasing Private input as long as the most of the network remains "Public."
My proposed "ideal" framework would now be a simple modification of the "all private" free market roading framework. All this needs, to address the matter of positive externalities and free loading, is a clearly defined public subsidy to all roading providers, the framework of the subsidy being such as to keep it free from political tampering.
The work of evaluation of potential surface transportation projects could be simply left to the private sector; all the arguments in favor of this remaining valid regardless of the existence of a subsidy, as long as that subsidy remains just as "blind" as the famous statue of "Lady Justice." Earlier objections to tolling and data collection have been answered by the advances of technology.
I still feel that some role for congestion pricing remains, as the negative externality of congestion is so obvious. The whole point of it would be to ensure the most efficient use of the resource at the times when it is "scarce" relative to demand. But the calculation and collection of these charges opens a whole lot more questions. For example, "public" calculation and collection of congestion charges to avoid negative incentives to the road provider would have to be carefully shielded from political exploitation.
Maurizio Rotondo
ReplyDeletetoll projects must be thoroughly checked and cross checked because someone is putting his money in, toll-free projects are sometimes started on weaker basis because....resources will come.
The core of the discussion should not be government vs private though.
Governments can, and should, do the planning, according to the way they decide, in their rights, to serve the citizens; some of the components of the planning can be privately financed (because they are "bankable") some of them might not, because traffic would not be enough or because the social environment is not ready etc.
The real core is, why not to let the "bankable" projects go on with tolls, thus letting the scarce public resources going to less fortunate projects?
Here the opposition to tolls comes, and the opponents do not understand that the tolls will not only make THAT project possible, but will also indirectly make other projects possibile.
This concept is difficult to describe though, and economics maths do not help very much.
A fair analysis, based on common parameters of toll and toll-free projects, could help. the problem is who will set the parameters?
Maurizio
I believe tolled projects; as opposed to projects otherwise funded receive more scrutiny because they need to be self-supported. Some projects that support the regions where they are planned do offer a significant level of public service value, yet cannot stand on their own financially and that financial burden should be firmly placed on a governmental entity. That said there are plenty of instances in the U.S. where a planned facility could be a PPP project and the notion is not entertained. I’d attribute this to the fact that we are at the forefront of a long learning curve and it will take time before governments understand the value of PPP for road building.
ReplyDeleteIf the performance criteria placed on tolled projects by credit rating agencies were to be placed on a subset of government-supported projects, i.e. those proven feasible for funding with revenue bonds, it would certainly facilitate the straightening of this learning curve. I don’t see this happening without some external factors providing the needed push. With more and more governments facing the fact that they are indeed without transportation funding, the market is seeing some of this being born out with new legislation to support PPP projects.
Tom Bamonte, Illinois Tollway (Pt. I)
ReplyDeleteThe post raises two key questions: first, whether there is an implicit bias in favor of untolled, publicly controlled roads and, second, what should be the "proper evaluation framework" for surface transportation projects and whether there would be more toll roads if the proper framework were used.
PT I: The "Bias" Against Tolled Facilities
The answer to the first question is both yes and no. Yes, there is a bias in favor of public "free" roads and, no, the bias is explicit and not implicit. Despite several decades where the public sector has been under assault as being inefficient and "socialistic" the public still retains a sense that roads are too important to be left to the private sector. Who wants to entrust one's regional economy to the Enron or Lehman Bros. of PPP concessionaires? Sometimes a slow moving bureaucracy managed by people who can be held accountable at the ballot box is a rational choice over private sector alternatives.
Tolled facilities are held in relative disfavor because charging hundreds of thousands of citizens--voters--each day for using a kind of facility that is typically offered free of charge is not a pleasant prospect for public officials.
In a related vein, unless a toll facility can open up a new market or substantially improve the movement of people and goods in a region, a region may fear that increasing the number of tolled facilities and hence the cost of transportation in that region will make their region less competitive economically compared to regions without toll facilities.
Tolling is also at a disadvantage over untolled transportation facilities because the cost of collection is much higher than the cost of collecting a gas tax. Does anyone think that the toll collection industry can match the cost of collecting the gas tax any time soon. Why entrust your transportation system to enterprises that will eat up a substantial percentage of revenue on toll collection activities that do not add long-term value to the regional economy.
In sum, there is no "implicit bias" against tolled facilities; rather, there are decent political and practical reasons why untolled transportation facilities are generally preferred over tolled facilities.
Tom Bamonte, Illinois Tollway (Pt. II)
ReplyDeletePT II: The Evaluation Framework for Transportation Facilities
As someone who gets to work at a highway toll authority by commuter rail and bike it is no surprise that I bring an intermodal perspective to the question how transportation projects should be evaluated. Isn't intermodalism, after all, just another way of prioritizing what works best under the circumstances.
The questions I think should be asked when contemplating transportation investments include the following:
1. Does the proposed investment strengthen the existing transportation network or divert resources from that network?
2. Does the proposed investment expand job market opportunities accessible to the populace and facilitate the shipment of goods through and within the region?
3. Does the proposed investment make good environmental sense from a land-use/emissions perspective?
4. Is there a funding stream available that will provide for the continued maintenance of the proposed facility in a state of good repair?
If the answers to these questions are yes, then the following three questions should be asked:
5. Are there one or more alternatives to the proposed project that will deliver the benefits of the proposed project for the region at lower financial or environmental cost?
6. Is there sufficient regional consensus, reflected in an approved regional plan, in favor of proceeding with the proposed project at this time?
7. Who in the public or private sector is best situated to develop and operate the facility while ensuring sufficient public control over the overall regional transportation system?
Under these evaluation criteria tolled facilities should do reasonably well. Tolled facilities will have an inherent advantage over untolled facilities because tolled facilities can deliver a funding stream to keep the facility in a state of good repair. Tolled HOT lanes with complementary bus transit service may allow highways to move more people and goods more effectively than simply adding untolled lanes.
On the other hand, greenfield tolled facilities may not prevail over projects that strengthen the existing network of free highways and public transit systems that serve the urban core. Bike facilities may prove attractive under these evaluation criteria because the public pays the cost of the vehicles and capital investments are relatively cheap.
These evaluation criteria are designed to be neutral as between the private and public sectors. Sufficient public control over the overall regional transportation system can be maintained via well crafted PPP agreements and doesn't require the extension of public monopolies. Private sector representatives just need a fair opportunity to make their case, something the next federal transportation bill can facilitate.
In conclusion, there is an understandable skepticism about the expansion of tolled facilities and the wisdom of turning over control of major transportation facilities to enterprises that may turn out to have the ethics and staying power of an Enron. Such skepticism is not the same as unthinking bias and it can be overcome.
(Views are those of author alone.)
I'll try to respond to each of Pat's questions:
ReplyDeleteAre tolled projects subjected to a higher level of scrutiny than government controlled or funded projects?
Depends whether private money is at risk. If it is, a higher level of scrutiny is likely.
If so, why?
Because most of us are more interested in safeguarding our own investments than in safeguarding those of others.
If all surface transportation projects -- whether tolled or non-tolled -- were subjected to the same evaluation framework, would we see more tolled projects proceed than we do now?
If ALL transportation projects were subject to the evaluation framework of the market economy, which is profitability, and if there were no significant obstructions to private investment in transportation projects, we would indeed expect to see more tolled projects. This is because private investors are generally more interested than governments to meet the demands of customers — the transportation users.
What criteria should be included in the evaluation of surface transportation projects to remove the apparent bias in favor of government controlled projects?
In my 1996 book "Roads in the Market Economy" I argued that profitability is the appropriate criterion for investment in surface transportation, and that other criteria are generally not needed. I beg to disagree with Phil Hayward who seeks to justify the expansion of road networks on the basis of "externality" criteria. These are more likely to be used by modern governments to kill projects than to justify them.
I also disagree with Tom Balmonte's insights that governments are more likely than profit seekers to identify the public good. For example, profit seekers place high priority in maintaining their profit-making projects while governments generally prefer to neglect maintenance and invest in new projectss. This illustrates the proposition that transportation is much too important to be left to the vicissitudes of politics.
Profitability is, of course, the ideal criterion for those seeking inter-modalism, as it can, in practice, be apply the same yardstick to different mode (such as road and rail) and can therefore be used to compare projects in different modes with one another.