Category Archives: Economics

Skating to where the PUC should be

A frequent reader writes

David Levinson thinks state DOTs should be run like public utilities, rather than state agencies. Public utilities are governed by Public Utility Commissions (PUCs) or Public Service Commission (PSCs). Having both a planning and stakeholder engagement background, and having been engaged in a discussion at a public utility commission for the last year (not related to transportation), I have some thoughts on how this might impact public engagement and decision-making.

  • Discussions (if you can call them that) at PUCs tends to be highly technical, bordering on nearly impenetrable to the average person.
  • The time and energy required to effectively “engage” at the PUC favors people with either tons of free time, or tons of money to pay lawyers who spend all their time at the PUC.
  • Their websites are generally bad.
  • Using the electronic docket system is even worse.
  • If you want to officially comment on something, you’re required to send a paper copy of your comments to everyone who wants them.  This can sometimes be a long list.
  • Proceedings often happen in a back-and-forth written “comment” and “reply comment” process that is resource intensive to track, and can stretch out over long time periods.  This can turn people off/wear them down.
  • All meetings are during the day.

I don’t think any of the above items are necessarily requirements that come with being a public utility commission.  They do operate in a quasi-judicial manner, which perhaps is the genesis of the more formal legal-like process.

In an ideal world, a transportation utility would need to use significantly different processes if they were seeking broad-based, meaningful engagement on transportation decisions.

I don’t disagree. If we are building a regulatory structure and governance system from scratch, we can certainly do better than the existing process. I don’t think the existing regulation of highways and transit is any less opaque – though it does attract more attention just because people care more about transportation than electricity and gas.

Further new infrastructure requires far more public involvement and outreach than maintenance and operations and their associated funding – new construction is inherently more political than technical.

Can one estimate the value of life or is it better to be dead than stuck in traffic?

In 1994 Ezra Hauer published a brilliant paper:

CAN ONE ESTIMATE THE VALUE OF LIFE OR
IS IT BETTER TO BE DEAD THAN STUCK IN TRAFFIC?

Transpn. Res.-A. Vol. 28A, No.2, pp.109-118, 1994

Abstract – In an analysis of whether to replace STOP signs by YIELD signs, the value of a life lost was pegged at $1,500,000 and the value of time at $6.71/hour. These numbers imply that when the sum of traffic delays accumulated by many drivers is equal in duration to the average lifetime lost in a fatal crash (37.3 years), the cost of such delay is higher than the cost of an average lost life. Most find this to be disturbing. If so, why is it that estimates of the value of time and life allegedly based on people’s preferences are at odds with what most prefer? A search for the root of this problem leads to Schelling’s distinction between the value of death to those who die and the value of the probability of dying to those who live. He thinks that while it is not possible to put a value on one’s own death, it is possible to put a value on changes in the probability of one’s own death. I think that this distinction does not solve the problem. If it is impossible to have preferences for consequences that would have to be experienced posthumously, it cannot help to make the event of death still more remote by a dimly perceived probability. People may be willing to express preferences and econometricians may be eager to interpret them. But, inasmuch as these preference are vacuous, they have no interpretation and attempts to do so may lead to the noted inconsistency. Consistent use of a wildly incorrect value of life in cost-benefit analyses involving risk leads to consistently incorrect conclusions. Instead of using a questionable value of life in dispassionate-looking computations, it may be better to give legitimacy to public decisions more directly by a mechanism akin to a ballot or a jury.

15 Ways to Make Streets, Roads, and Highways Financially Sustainable

I did a recent post for CityLab: How to Make Mass Transit Financially Sustainable. The Auto/Highway System deserves similar treatment.

The first toll road in the US, the Snicker’s Gap Turnpike opened in 1786, connecting Alexandria, Virginia with its hinterlands. This set off an era of toll-road building, mostly for intercity routes, in the United States which lasted through the second half of the 19th century. Toll-roads were never very profitable, but often broke even, and were sponsored in many cases by local elites as a local economic development mechanism rather than with the intent of making riches. Local landowners would capture some of the benefits of the accessibility these new routes created, and in turn, helped fund them.

Still, most roads, and most streets were untolled, and not very improved. With the advent of the Railroad (the Baltimore and Ohio broke ground in 1829) providing much better service than animal-powered transport could, long-distance turnpikes began a decline, though turnpikes feeding into railroads remained in many places through the 19th century.

The turn of the 20th century saw the emergence of the automobile, and coupled with the Good Roads Movement (originated by the booming bicyclist community in the late 1800s), redefined surface transportation. Roads would naturally be more expensive if they had to be smooth, strong, and straight for cars, buses, and trucks. Local roads continued to be funded mainly out of general revenue (which is the property tax in most places). More important roads would be supported by state governments.

Since 1919, when Oregon first adopted the gas tax as a means of funding roads, the user pays principle has been an important foundation of transportation funding. We in the US have never had 100% user funding, local roads have generally been not user-funded particularly since the 20th century and the end of turnpikes. State and federal funding sources are mostly gas tax based now, with some other funding sources, but the share of gas tax has been dropping.

1956 Federal gas tax raised for the Interstate from 1 to 3c and established the Highway Trust Fund, which was essentially a Pay as you go funding mechanism for the Interstate Highway System. Later a Mass Transit Account was added which siphoned off road user funds to pay for transit projects.

Gas taxes were raised periodically (though not at the federal level since 1993 – though in 1998 funds were reverted from deficit reduction back to the trust fund), and the Highway Trust Fund has in recent years see spending in excess of revenue. This is not because the system is not possible to be financially self-sustainable, it is because politicians, don’t want to raise taxes, because everyone else – their constituents - (rationally) wants a free ride. The economic value created by roads is far in excess of the cost to maintain and operate them. Financial sustainability for roads is much easier than for public transit.

Problems:

We have a set of funding problems.

  1. Wants exceed readily available resources.
  2. Wants (new projects) are preferred to needs (maintenance and operations of existing facilities, recapitalizing existing roads). This is referred to as “the Ribbon Cutting problem”.
  3. Needs are not met (especially on local roads which continue to deteriorate in many places).
  4. Revenues from traditional user fees are dropping (due to a combination of peak travel, better fuel economy, and slow electrification of the fleet).
  5. There is congestion because of an unwillingness to implement real traffic demand management (pricing), making the problem appear larger than it is.
  6. Then there is a longer term “problem”, which is a problem if you are in the industry, not for everyone else. Capacity needs are dropping (due to peak travel, automation (higher throughput, narrower lanes), car sharing, ride sharing, new vehicle types, substitution of telecommunications for transportation).

15 solutions:

Below are 15 solutions, 7 of which are revenue-based, 8 of which are cost-based.

Revenue:

  1. Raise and Index the Gas Tax in the short-term to establish a baseline of user-based revenue that coincides with expenditures.
  2. Pay for local roads with Highway User Fees. Currently local road funding is dominated by general revenue (property tax). There is no reason these roads cannot be paid for with a state-level gas tax returned to local governments.
  3. Phase in the Vehicle Mileage Tax in lieu of the gas tax. Start with Electric Vehicles (EVs), which don’t pay gas taxes. EVs still few in number, still disproportionately owned by the rich. One day they will be commonplace and the gas tax revenue will really go to zero.
  4. Phase in time-of-day pricing, initially as an opt-in discount. This has the merit of both raising funds from the users who place the greatest stress on the system, and lowering demand during peak times.
  5. Implement a weight-distance tax for trucks. This both raises funds and encourages truckers to more efficiently manage their fleet considering infrastructure costs they impose.
  6. Depoliticize road financing decisions by taking them out of the hands of the Legislative Branch and are instead made by a more objective, less political public utility commission, so that decisions are made on technical rather than political grounds.
  7. Use a combination of tolls and various types of value capture to pay for the large capital costs associated with any new infrastructure. If the project cannot be financed from either users or direct non-user beneficiaries, it cannot be justified on economic grounds.

Costs

  1. Build and expand fewer roads. Demands are dropping already with peak travel, and will do more so once congestion pricing is implemented. Most roads are underused most of the time, so load balancing is better strategy than new construction. Make those roads smaller when they are built.
  2. Reduce the size of the network (gravelization, freeway abandonments, reallocation of road space to transit and bike lanes where appropriate, etc.)
  3. Maintain adequately the network that remains (Fix-it-first), thereby reducing longer term replacement costs.
  4. Reduce the number of layers of government: Treat road services as end-to-end systems managed by a single organization that can attain and exploit economies of scale.
  5. Reduce operating costs by replacing active management with passive or self-managing systems. For instance, we can replace traffic lights with roundabouts in many locations (though not everywhere, such as over-saturated intersections or where there are space constraints), and used shared spaces more often.
  6. Depoliticize road management decisions by taking road operations out of the hands of the Executive Branch so that decisions are made on technical rather than political grounds.
  7. Internalize the costs of various environmental externalities so that roads are not being implicitly subsidized by everyone who experiences the externalities they cause. Charge roads (and their users) directly for Noise, Air Pollution, Water Pollution, and Carbon Emissions, and any other measurable effect on which we can objectively place a price tag. This does not generate revenue for roads, but does lower demand and thus infrastructure costs.
  8. Charge the general sales tax on gasoline and other transportation inputs, on top of road user fees, for general revenue. This will put roads and cars on a more even basis  with other goods, and avoid hidden subsidies. Similarly, charge roads for the land that they use, and charge annual property tax on that land. Again, this does not raise funds for roads, but by making road users pay their share, decreases demand.

Phasing in Road Pricing One Electric Vehicle at a Time

The traffic congestion you face is caused by other people. Those people did not think about the delay they imposed on you when they chose to travel. They didn’t even know about you, since they were already on the road before you were. They are ahead of you in the traffic stream.

Similarly as a driver, you, completely oblivious, impose congestion on those who follow. You never met them. You have no opportunity to stop and apologize, or even say excuse me, since that would cause even more congestion.

Congestion is a collective action problem.

Economists have long had a solution to this problem. It is called road pricing. Almost all economists support this in principal. Yet, it is implemented almost nowhere (Singapore is the best example, followed by Stockholm and London, but London does not vary prices by time of day except that it is on during the day and not at night), indicating there must be some problems with the way it has been presented, or the cure (road pricing) is perceived as worse than the disease (congestion).

Problem 1: The collection of revenue. Historically this was at tollbooths, which were sources of delay rather than source of delay reduction, so people would naturally be skeptical that putting tollbooths everywhere would be an improvement. Technology now permits toll collection at full speed, using in-vehicle transponders or license plate recognition.

Problem 2: Administrative costs. Putting a toll collection gantry out on a single facility is one thing. It’s not especially cheap, and must be more expensive than gas taxes.  Putting them everywhere is expensive. Using current electronic toll collection technologies that depend on readers and facility-based collection points does not scale to the system as a whole. Localized toll collection cannot in general solve the widespread congestion problem.

Problem 3 : Privacy and tracking. Surely the government will be monitoring whatever transponder or GPS device they put in the car. I have seen Law and Order as much as the next person, and I know what the police and prosecutors already do with EZ-Pass. Even if there are technical solutions (using a pre-paid unregistered cash card rather than a credit card) no-one will believe that the authorities aren’t tracking. The entire NSA scandal just makes people suspicious. While in my view privacy is mostly dead (and of your own doing so long as you carry a communications device with you or pay with credit cards), it is even deader on public roads, even without road pricing (since we have cameras, police have cameras, traffic managers have cameras, and sousveillance is everywhere). But people are still nervous, and we need to recognize that.

Problem 4: Implementability. Rolling this out and turning on the switch is a big shock to the system. Transportation is inherently a conservative field, people are comfortable with slow change. So deploying 200 million transponder devices and millions of readers across the network before turning them on was at best a foreboding task, and in all likelihood terribly unwise. What if it didn’t work properly?

Problem 5: Fairness. Tolling people is often perceived as unfair (which usually does not take in to account the distributional inequities in the existing road financing system). Everyone has the same amount of time, but rich people have more money. There are lots of solutions to this problem, but in the end, the fear is at least some individuals would be better off without the change.

 

Opportunity 1: Electric Vehicles are coming. In some sense they are already here. While their market share of hybrids is still low (still less than 3% of all new sales) and Battery and Plug-in EVs (still less than 1% of new sales), the latter category is growing rapidly.

 

US Electric Vehicle Market Shares
US Electric Vehicle Market Shares

Now extrapolation is dangerous, but we do have claims from some of those in the EV industry, namely Elon Musk of Tesla about achieving market share of about 13% by 2020. Further we have the history of technologies which show an S-shaped life-cycle dynamic. The tricky part is determining the ultimate market share (which I will assume to be 100%), and the rate of growth. Existing data allows us to estimate the rate of growth. Combining Hybrids and EVs, Figure 2 shows the best fit logistic (life-cycle) curve. A market share of 50% of new vehicles sold is achieved in 2022 or so. This is 8 years away. Eight years is a long time. Eight years ago there were no iPhones or Androids.

 

 

US Electric Vehicle Market Shares Extrapolated
US Electric Vehicle Market Shares Extrapolated

 

The main constraints have been limited consumer demand due to range anxiety and issues of charging location and speed. So we need to assume (1) The cars will get better over time, (2) Batteries will get better over time, (3) Electricity will get cheaper over time.

I believe all three of these are certain, the only question is the speed with which these things occur, and the degree to which batteries get better.

The cars will become better. Already Tesla produces the best car (Model S) in the US according to Consumers Reports. It is of course pricey. On the other hand, you need to discount the price some because you will not need gas ($3/gallon at 15000 miles per year at 30 mpg, which is about $1500, or $15000 over the life of the car). The price will also drop with true mass production.

You can’t beat free: Many have understood for a while (see this 2007 post e.g., and this from earlier in 2014) the solar cost curve is bending and will become cheaper than alternative sources of energy soon.

Soon is basically here. My dad in Arizona has solar panels. There is a house on my commute with solar panels.

Solar production is growing at about 41% per year.  As demand increases, even more resources to improve the technology and drive the cost downward in a magic bullet fashion will arrive.

Solar energy panels do have a fixed cost, but the variable cost per unit of electricity drops to approximately zero. This means you are replacing the cost of gasoline with about nothing, if you have solar panels on your roof generating more electricity than you would otherwise use. There is the alternative of selling the excess back to the grid, but one imagines once everyone starts doing this, the grid isn’t going to pay much, if anything for excess power. We have heard “Too Cheap to Meter” before, about Nuclear. Unfortunately we did not implement that successfully. Solar is a much more grassroots rather than top-down process, and more likely to succeed.

The difficulty is energy storage. Batteries are getting better, doubling energy density about every 10 years (or 20) – which is of course a big difference. So even if solar is cheaper than the grid, the sun isn’t always on (you know, the rotation of the earth etc.), so batteries are required at home as well in the car.

But we don’t need batteries to store a year’s worth of energy, we need them to store enough to be competitive with cars, i.e. to be good enough and cheaper, so that they can either be charged fast or swapped out fast. MP3s don’t have the fidelity of analog music, but they were good enough. Cell phones don’t have the sound quality of land lines, but they were good enough.

 

From a transportation funding perspective, the most important implication is that EVs don’t pay gas taxes. If they become widespread, there will be a not just  the slow decline of gas tax revenue we see already due to peak travel and better fuel economy, but an actual crash.

 

Opportunity 2: Congestion remains a problem

Question: If pizza were free, how much pizza would be available at dinner time in the dorm?

Answer: None.

Question: So when roads appear free, how much surplus road space do you have during rush hour?

Answer: None.

Congestion should not be a surprise, it is what you get when you underprice a good. While it is not getting especially worse in most of the US, it is not getting especially better either. Time is still money, and this problem will remain until we actively do something about.

Opportunity 3: Still roads require some funding.

Roads don’t plow themselves. Roads and bridges don’t repair themselves. Roads don’t repave themselves. Bridges don’t erect themselves. The money for these things must come from somewhere, and people (and their machines) must be paid to do these things. The best source for these funds are the people who directly benefit from the existence of these public works – the users themselves. Our system in the US is a combination of funding from users directly, and non-user beneficiaries, as well as the general public (which usually fall into the first two categories).

Opportunity 4: Traffic is self-organizing.

While the theoretically perfect, first best, solution would charge a unique price for each link for each time of day, that is far more detail than we actually need to have an effective system. We trade-off between the additional efficiency from more time and place specificity against the additional administrative complexity and decrease consumer acceptance from such a fine-grained system. Most priced systems are much simpler than the ideal because of these practical concerns.

Fortunately, to a first-order approximation, we don’t really need to know which road people are traveling on, just the time.  Wardrop’s Principle of User Equilibrium (not strictly true, but good enough for the moment) says all used routes have the same travel time. Which is to say, when traveling between A and B at a given time, if there are multiple routes you might use, their travel times are equal, and if one is higher, you won’t use it. And this holds for everyone. Traffic spreads out in a regular way to exploit available routes. So while there might be some advantages to tolling one route more than another (because their marginal costs differ), that introduces a lot of complexity for a relatively small system-wide gain. My estimates of the spatial Price of Anarchy on the Twin Cities network is that there is only a small loss (less than 2%) due to letting people route themselves rather than the Central Planner allocation. In short, the main problem is temporal (peaking) rather than spatial (routing).

Proposal

Taxi-Meter: We want to keep the structure as simple as possible. Imagine an in-vehicle taxi-meter, with a per-minute charge. We can have as many different rates as we want, but we should start with a few (more than zero, otherwise it is not going to affect time of day people travel at all, more than one  if you want to avoid too much boundary effect of people not leaving until the rate changes. I suggest three different prices for starters. Once people get used to the idea, the rates can be adjusted. It is much easier to go from 3 rates to 4 or 6 than to go from zero rates to 1 or 2.

Rate Structure: For instance, imagine a price structure like this:

  • Peak 6 hours per day (~50% of current traffic) each traveler pays  [T]
  • Shoulder of peak discount (~25% of traffic) (50% discount) each travelers pays  [0.5T]
  • Offpeak discount (~25% of traffic) (90% discount) each traveler pays [0.1T]

Second, we establish the base rate for the peak times, and everything else is a discount (think about movie theaters and restaurants, which have the matinee and early bird special) rather than having an unwelcome “surge” pricing phenomenon. This is I think a more positive framing. Also since the non-peak rates are lower, the fraction can remain fixed, and there is only one base toll rate for policy to regularly adjust, and then a fraction of that rate associated with day-parts, which is adjusted less frequently.

Note, we are only tracking when you travel, not where you travel, and perhaps your residence (since rates will vary by jurisdiction of residence).

System Members: We want this to be as fair as possible. Fairness means lots of things to lots of people. However having rich people pay more rather than poor people pay more is a fairer way to start. At this stage of history, early adopters like people buying brand new EVs undoubtedly have above average incomes (though I don’t have actual statistics to verify this). Making everyone pay for roads, instead of just people with gasoline powered cars, is also fairer.

We want to phase this in to avoid a big-bang implementation disaster (like the botched roll-out of Obamacare). Fortunately for this system, most people don’t have EVs now. Also fortunately, we anticipate many people will in the coming decades.

So I suggest the membership in this system should be automatic (starting the model year after next)  for all new EVs, Hybrid EVs, other Alternative Fuel Vehicles sold. All such vehicles would get rebate on general tolls, local property taxes, other general revenue sources of road funding, as well as any gas tax paid as well (such as for Hybrids). This gives the automakers more than a year to implement the device into a small fraction of their cars. It ensure bugs and difficulties are discovered early and inconvenience only a small portion of the population. It gives the federal government a year to set up a revenue collection system that can ramp up over time to a larger share of the fleet, and one imagines, eventually to the entire fleet, either as EVs and other Alternative Fuel Vehicles come to dominate, or as it is imposed at some point on all new cars.

As more and more vehicles become non-gas powered, this system membership grows and it becomes more and more effective.

Opt-ins: Gasoline powered cars can voluntarily opt-in to this system, which for many travelers would be a cost savings and provide incentives that might be easily exploited to the betterment of all. We could further allow an opt-in location tracking, which would give a discount in exchange for rates which varied locally.

Surplus: If there is a surplus at the end of the year, above  the members’ share for the cost of roads and rebating for other taxes, every member of the system gets a dividend. A check in the mail, that they can use for whatever they want.

An Illustration

Currently 1 hour of travel at 30 mpg and 30 mph uses 1 gallon of gas, which is about $0.50 of state+federal gas tax [depending on where you are].

Note: This should be about $1.00 to $1.50 to cover the cost of all road infrastructure (not including externalities), depending on how you count. Other taxes cover a large share of road expenses, including property taxes, vehicle sales taxes, and so on.

T  = $2.50/hour (= $0.0417/minute)

[cf Cost per minute]

Assuming share of travel did not change by daypart, average revenue per vehicle hour would be about:

0.50*$2.50+0.25*$1.25+0.25*$0.25=$1.62

We would expect that share of travel would change by daypart, so that the average revenue per vehicle would be lower, and more in-line with system costs. Actual elasticity of demand with respect to the toll rates is an empirical question that can only be firmly established with experience, though we can make some estimates.

 


This extends the idea from my post: Road Pricing When? Old Fleet, New Fleet.

 

AGI Critical Issues Forum: America’s Increasing Reliance on Natural Gas: Benefits and Risks of a Methane Economy

I will be at
AGI Critical Issues Forum: America’s Increasing Reliance on Natural Gas:
Benefits and Risks of a Methane Economy

November 19-20, 2014
Fort Worth Club, 306 W. 7th Street, Fort Worth, TX 76102

I am in a session on November 19

1:15-2:45 – Session 2: Forecasts of natural gas demand
Kenneth Medlock, Rice University
David Levinson, University of Minnesota
Jesse Ausubel, Rockefeller University (Moderator)

 

Futures of Energy for Transportation
Abstract:
Vehicles powered by electricity or other non-oil-based energy sources will eventually become a mainstay of the American garage. As the market adjusts and early adopters experiment with new vehicles, each energy source, be it electricity, fuel cells, biofuels, natural gas, or something else, may come to temporarily dominate a market niche. But in the end, economies of scale suggest that one technology will win out for a long time. And so the battle for the automobile now looks much like it did at the beginning of the twentieth century.

Complementary Modes Should Be a Primary Local Planning Goal

In earlier posts I highlighted the breadth of complementary transit systems that exist along with primary ones in New York City, and in another I proposed that transport project evaluation should account for pricing and zoning policies in place before new investment is made. Here what I argue is that the complementary aspects to any primary transport system are nearly always local concerns, and too little is known about how complementary local policies can make or break successful primary systems.*

One way to think about urban transport networks is that there are primary systems complemented by secondary systems. The primary systems are the highest capacity networks, spatially fixed and designed to broadly serve the population of the region. Freeway networks, rail transit and bus rapid transit are examples of primary systems in this way. Secondary systems are those that serve smaller, sometime niche, populations and act as complements to the primary systems. These secondary systems are critical to the overall success of the transport networks as primary systems are very good at serving predictable travel such as rush hours but less adept at serving lots of different types of trips to lots of different places.

One reason automobility is so pervasive is that the primary systems (freeways and other large roads) are nicely complemented with hosts of local policies that make driving really easy. Parking requirements, street design, signal timing and other aspects all come together to create a seamless driving experience in most US cities. No other travel mode has such an advantage and transit, taxis, cycling and walking are too often left to cobble together whatever kind of system they can. Rarely are these “alternative” modes granted the luxury of integrated primary and secondary systems, and even more rare are integrated transportation providers that manage all primary and secondary transportation. Transport for London is an example of an integrated approach.

Consider the U.S. investment made in transit over the past few decades. Transit now accounts for close to 20 percent of total Highway Trust Fund spending, yet the share of travelers using transit has barely moved nationally. This is not an indictment of transit as a worthy mode, just suggestive that we can spend that money more wisely. New York City is a true success story for transit ridership yet has received very little new investment for system expansion relative to maintenance costs (mostly through state of good repair programs) and broadly supportive complementary systems of taxis, liveries, jitneys and 24-hour service. Parking is also very expensive in New York and often not required for new construction and adaptive reuse. Road tolls—which account for about 25 percent of all road tolls collected in the country—have increased dramatically over the past few years. Over the past decade transit fares have been followed by increased rail ridership, though fares have largely kept pace with inflation since 2003. This does mean that New York’s relatively high farebox recovery rates —for the U.S.— have remained an important source of operating revenues. Taken together New York is doing lots of different things that support robust transit services that have little to do with the built environment and density, though these obviously help, but lots to do with complements to the primary systems.

Other cities certainly do a lot to support transit investment, but none support alternatives to the auto to the same degree that autos benefit from complementary policies. One challenge for cities is that the available complementary systems are not very well understood. As one example, current policy debates about taxi services and app-based ridesharing companies often minimize the complementary role of taxi services for transit-oriented cities. Even car sharing studies have largely viewed car sharing as a replacement for auto ownership (e.g. “how many cars does a shared car replace”) rather than an extension of transit policy (“how can shared cars extend access for transit users?”**). Obviously there are nuanced analyses of these complementary systems and the researchers involved know this. The point is that many systems that are sometimes considered substitutes (car sharing or taxi services) are more accurately considered complements, and necessary but not sufficient systems to support primary transit and road networks.

Another challenge for complementary systems is that autos are sufficiently utilitarian that once a city is designed for cars then all trips can be made with one vehicle. Auto drivers are unimodal, whereas transit riders, walkers and cyclists tend to use many more modes through the courses of their lives. This means that complementary systems for non-auto uses require many different types of investment, many of which will have small obvious payoffs. Less obvious payoffs may be large, however, which is a large reason we should study complementary modes more. For instance, based on work by Dan Hara in San Francisco we know that people are much more likely to take transit to work if they know they can get home by taxi if they have to work late. This holds even though most never use the taxi option. In New York it is common for office workers to get a guaranteed taxi ride home if they work past a certain hour (9pm in many cases). This program leverages the availability of complementary travel modes to reinforce the primary transit modes.

By focusing on complementary secondary transport systems cities can lay the groundwork that supports investment in primary systems. Investment in primary systems alone will not produce modal shifts. What if Interstate freeways had been built without minimum parking requirements as part of the zoning code, or a hierarchy of road networks designed to funnel drivers onto ever-faster roads? US cities would look and function very differently. The policy shifts toward automobility was comprehensive and included federal, state and local policies all working together to complement each other. Such voluntary coordination simply does not exist for any other mode.


*A search for “complementary transportation” returns pages of results that misspell “complimentary”.

**Many car share studies and advocacy pieces do mention access to cars for those who don’t have one as a benefit, but most research examines how car share can reduce the need to drive by car owners.

Highways’ Hidden Subsidies

Highway users of course pay a user fee to pay for the cost of highways. Federal gas taxes are dedicated to the federal Highway Trust Fund, and many states, including Minnesota, have similar rules at the state level. So far, so good. The trust fund has in recent years fallen short of the amount that politicians want to spend on roads, but that is in principle easily corrected with an increase in the user fee or a decrease in spending. Most local roads (municipal and county) are paid for via local general revenue. This is also well known in the community, if not the general public. The hidden subsidy is in states which have general sales taxes, but don’t apply them to gasoline. Thus, in Minnesota, I pay a sales tax on prepared food, but not gasoline (or clothing, or random other things). Thus relatively, spending is encouraged in those untaxed areas, which are 6.875% less taxed than other goods. This lack of a tax is not a subsidy in a state which doesn’t tax sales, and instead taxes income or property. But where sales are taxed, but gasoline is exempted, other goods are implicitly taxed more so gasoline can be explicitly taxed less. Note this is not universal across the US. In California, there has long been both a sales and use tax. However the value of the sales tax on gasoline is now lower the sales tax on general goods, though for many years it was close or the same. There is argument about the fact that the sales tax is levied on both the gasoline and the user fee associated with the gasoline. In short, the general principal is that gasoline cannot be simultaneously be taxed with the funds dedicated to highways (thus acting as a user fee) and exempted from sales taxes without there being a subsidy that at least partially offsets the user fee. At a $3.00/gallon price of gas, a 6.875% tax raises $0.20625 per gallon. To compare, the state  gas tax is $0.286 per gallon. Thus, in Minnesota  the net state user fee is only about $0.08 per gallon, not the $0.286 per gallon widely advertised. The federal gas tax is $0.184 per gallon. This is more truly a user fee. Also since there is no federal sales tax, gasoline is not disproportionately favored.  The tax in Minnesota is higher in some localities to pay for other things. We could similarly look at the motor vehicle sales tax (MVST), which is dedicated to transportation in Minnesota. It is 6.5%. Nothing wrong with dedicating the funds, but as a result, they cannot be counted as user fees, since sales tax revenue would otherwise go to general revenue. Based on this document, since 2011, 60% of the MVST goes to the Highway User Tax Distribution Fund, and 40% goes to the Transit Fund. The general sales tax should apply to all goods equally to minimize distortions. Better, a value added tax should be used. Special taxes on beneficiaries should be used where they can be, but not in lieu of general taxes. There is sufficient economic capacity in the highway system for users to pay for the whole thing (the evidence being how much people have paid for gasoline per gallon in the past here, and how much they pay in other countries), it’s a shame we don’t take advantage of that. After paying for roads, and their externalities, and their share of the general tax burden, road users will be paying about their fair share. Taxes are needlessly complicated by special interests in the United States. This allows all sorts-of hidden subsidies. Let’s expose them to the sunlight, and then make objective decisions about whether we should lower the general sales tax on all other goods, and impose that tax rate on fuel.


Updated: Ben Ross made a similar point in Maryland transportation “lockbox” has a big hole.