Fix It First

In our recent report, we used the term “Fix It First”. As Picasso reportedly says, “Great Artists Steal”, the term has been in circulation for a few years. I do not know the first reference, (here it is at least 2002) but it has taken off since Aug 1, 2007:

Shifting Gears to Ease Congestion: Improving Travel and Travel Choices in the Twin Cities Area

The local policy shop Growth and Justice has a well-informed policy brief: Shifting Gears to Ease Congestion: Improving Travel and Travel Choices in the Twin Cities Area
There are a few key points: despite congestion, the Twin Cities has shorter than average commute durations; money should be spent on repair and preservation more than new capacity; support managed lanes to give travelers reliable choices; and allow development to build more densely; accelerate transit investments.
The long version of the report is here.

Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways – Brookings Institution

Fix It First, Expand It Second, Reward It Third: A New Strategy for America’s Highways – Brookings Institution by Matthew E. Kahn, Professor of Economics, UCLA Institute of the Environment and Sustainability and
David M. Levinson, RP Braun/CTS Chair in Transportation, University of Minnesota

Abstract: The roads and bridges that make up our nation’s highway infrastructure are in disrepair as a result of insufficient maintenance–a maintenance deficit that increases travel times, damages vehicles, and can lead to accidents that cause injuries or even fatalities. This deficit is in part due to a prioritization of new projects over care for existing infrastructure and contributes to a higher-cost, lower-return system of investment. This paper proposes a reorganization of our national highway infrastructure priorities to “Fix It First, Expand It Second, and Reward It Third.” First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.

Read the full discussion paper
Read the brief

Tim Lee on congestion prices

Tim Lee on congestion prices

This is a useful perspective, though not quite right, for a variety of reasons; among them the idea that roads only are paid for once, forgetting maintenance and reconstruction costs.

He also uses supermarket lines as the metaphor, but forgets time of day pricing in movies, restaurants, transit, and other transportation services.

He is right about about public skepticism though.

Blue Ribbon Transportation

Maryland’s Blue Ribbon Commission on Transportation Funding issued its report (pdf) last week. It was chaired by my former boss Gus Bauman.

Maryland’s highly-regarded transportation network is the lifeblood of the State, directly affecting every citizen and the essential viability of our economy. Yet the State’s transportation system finds itself on the verge of financial collapse unless action is taken now to change course for a new, more secure, heading.
We must put the trust back in the Transportation Trust Fund. And we must replenish the depleted coffers of the Trust Fund. We cannot accomplish the latter without also accomplishing the former. They are inextricably linked — without re-establishing public trust in the inviolability of the Trust Fund, there will be little faith by the public that raising revenues for its transportation needs will correspondingly address those needs as promised.

I think this is critical for the future of transportation in the US. Trust funds comprised of user fees need to be dedicated to transportation. Transportation, like other public utilities, should be funded by those who benefit. If it is publicly operated, those user fees are sometimes called taxes (motor fuel taxes) or tolls, but they are no different in function than the water bill, electric bill, or natural gas bill, which charge according to use. It would be a mistake to conflate transportation funding with other aspects of government, which are also important, but whose benefits are distributed across the whole population and cannot be associated with users or direct beneficiaries. It would probably be helpful in this regard if DOTs were instead called Transportation Utilities or Road Authorities, and considered separate from the general budget.
Taxing gasoline is often seen as a nice revenue source for governments, especially in other countries. From a fund-raising perspective, gasoline consumption has some nice properties, it is especially inelastic to changes in price, demand drops only a little when prices rise a lot, and the transaction costs of collection are very low (you only need to check the refineries not each gas pump).
I don’t object to using gasoline taxes as a way of internalizing the air pollution externality, (and discouraging pollution), as it is a convenient tax with low collection costs, whose use is roughly proportional to pollution and carbon emissions. So long as this pollution and carbon tax is dedicated to reversing the pollution and health damages caused by burning fuels, this is just another user fee, in this case paying for the use of clean air and good health that are inputs to transportation. The amount of this tax is debatable, in the US it is surely too low now (about 0, since the existing taxes largely go to infrastructure), while in some European countries it might be too high (considering the amount of gas tax above and beyond what is spent on highway infrastructure may more than pay for the environmental and health effects). Carbon taxes have not yet been an easy sell in the US, but perhaps as part of a more general reform, where the funds from the tax are coupled with many other changes, this has possibilities, and if it can be shown these taxes are dedicated to some necessary service (paying for the related costs of environmental cleanup e.g.)
Further, gasoline should not be exempted from general sales or value added taxes, otherwise you have a cross-subsidy to motorists from the general population, lowering the general cost of consuming auto travel relative to other types of consumption.
But for general revenue, it is unreasonable to have a special tax on transportation fuels (after the pollution/health tax). The logic is sometimes put that gasoline taxes can operate as a ‘sin’ tax (like those on tobacco or alcohol). But if the pollution and health tax is accounted for and the money just goes to general revenue (or has sometimes been proposed, social security), you are asking for a subset of the population to pay extra for services they do not receive extra of.
===
I should also note, in Maryland’s report there is a shout out to Value Capture, on which I and colleagues Adeel Lari and Jerry Zhao gave some advice to the state last summer:

4. Value Capture. Value capture refers to a funding mechanism in which increases in private land values generated by a new public investment, such as a transportation system investment, are at least partially “captured” through a land related tax or special assessment. The Commission will seek to better understand the ability to implement value capture approaches in Maryland and their funding potential.