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.
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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.

Fix Old Roads, Instead of Constructing New Ones, Report Urges – NYTimes.com

Our new Brookings report (available tomorrow) makes the Economix blog of the New York Times:
Fix Old Roads, Instead of Constructing New Ones, Report Urges – NYTimes.com

February 24, 2011, 3:50 PM
Fix It and They Will Come
By DAVID LEONHARDT
On Friday morning, the Hamilton Project will release a few new proposals for helping fiscally struggling state and local governments keep their roads, bridges and other infrastructure in decent shape. One of the proposals fits a theme I’ve been writing about recently: making government programs less wasteful.
This proposal comes from Matthew Kahn of the University of California, Los Angeles, and David Levinson of the University of Minnesota. The title summarizes it: “Fix It First, Expand It Second, Reward It Third.”
Mr. Kahn and Mr. Levinson call on the federal government to devote its current funding for highways to repair, rather than to the construction of new highways. As they note, the reverse happens all too often:

The way the federal government allocates money for transportation infrastructure investments is one reason why the United States is experiencing a maintenance shortfall and falling returns on new investment. Federal highway infrastructure spending is allocated based on a series of subjective criteria that typically do not require any stringent analysis of expected benefits versus costs. Because there is often public pressure to build new projects using scarce funds, adding capacity often comes at the expense of supporting and enhancing existing infrastructure.

We build roads we don’t need instead of fixing aging roads that we do need. The Kahn-Levinson solution would force state and local governments to spend their federal dollars on repair and to raise money from investors for new construction.
New roads would have to be able to pay for themselves — “through direct user charges and by capturing some of the increase in land values near transportation improvements” — or investors wouldn’t finance them. A newly created Federal Highway Bank would serve as an intermediary between the investors and the state and local governments.
Finally, roads that exceeded expectations — were completed ahead of schedule, for instance, or reduced traffic more than expected — would be eligible for a federal interest-rate subsidy, through the highway bank.
The idea strikes me as promising. The big question, it seems, is how Congress can be persuaded to get out of the business of shiny new roads and concentrate instead on the unglamorous repair work.
The Hamilton Project — which is a branch of the Brookings Institution and tends to be filled with once and future Democratic policy makers — will host an event on Friday to discuss its new proposals.

State Roads to Economic Recovery: Policies, Pavements, and Partnerships – Brookings Institution

Brookings Institution will be hosting an event on State Roads to Economic Recovery: Policies, Pavements, and Partnerships – Brookings Institution.
Event Information
When Friday, February 25, 2011 9:00 AM to 1:00 PM
Where Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

As the U.S. economy begins a slow climb to recovery, state and local governments are still reeling from the impact of the Great Recession. Revenues have plunged while the demand for key state and local services has soared. Meanwhile, unemployment remains stubbornly high.
On Friday, February 25, The Hamilton Project and the Metropolitan Policy Program at Brookings will host a forum on state strategies that can help close budget deficits while also growing state economies and creating much-needed jobs. Brookings Vice President Bruce Katz will moderate a panel of policy experts and state leaders, including former Pennsylvania Governor Ed Rendell, now a senior fellow at Brookings, and Michael Finney, CEO of the Michigan Economic Development Corporation. The panel will discuss a range of fiscally responsible policy ideas to build the foundation for the next economy.
A second panel of economic experts, moderated by Hamilton Project Director Michael Greenstone, will discuss three new policy proposals to help state and local governments invest more efficiently in infrastructure to promote their long-term economic competitiveness. These papers provide a new approach to arranging public private partnerships to create greater public value and reduce risks; a reorganization of our national highway infrastructure priorities; and the establishment of a not-for-profit, independent advisory firm that would help reduce borrowing costs for municipalities and increase returns for investors. Former Under Secretary for the U.S. Department of Transportation Tyler Duvall will serve as a discussant for the proposals.

I will not be at the event in person, though I will be there in spirit and online, while Matt Kahn presents our joint paper, which is almost ready to be released.
(This is probably the most important work ever to be written on highway finance by two authors who walk to work).