Trump Infrastructure Plan Needs A Better Funding Source

President Trump has a plan to pay for $1 trillion in infrastructure improvements over the next 10 years through various pseudo privatization schemes. There are still a lot of unknowns but the basic gist is; a private corporation is given rights to build and maintain some bit of infrastructure (or given existing infrastructure to care for) such as a road or bridge and in return they get tax credits and, likely, the right to earn a return on their investment through tolls.

Sounds good? Or a Terrible, Horrible, No good, Very Bad Deal for America?

Perhaps a bit of both.

Paying for needed improvements to our infrastructure has always been a bit of a sticky wicket. Lots of people screaming for repair and improvements to our roads, bridges, ports and other infrastructure but nobody wants to pay for it. And I don’t blame them. I like free stuff too.

A bit over half of road funding today comes from general funds like property taxes and a bit less than half from user fees like gas taxes. (I could make an argument that the gas tax is a pollution tax and so 100% of road funding comes from general funds, but that’s another discussion that I’m not sure I agree with myself on.)

One big problem — The costs and spending are disassociated from our usage decisions.

Costs And Decisions

If I get to use something useful and beneficial for free then I have no concern about how much of it I use, or waste. I have no incentive to make decisions to become more efficient with my use.

A key bit of my former career was cost management. When marketing wanted us to develop a new product I had to provide accurate cost estimates so that we could decide if it would be salable. I also had to continuously find ways to do things more cost effectively. Our competition was doing this and if we didn’t we’d go out of business.

If my use of roads is free, or even just a flat fee each year, then I don’t care how much I drive on them, how heavy of a load my trucks carry, how big they are, or how long they park and block traffic. Do I care how much they pollute, how noisy they are, or what impact they have on the safety of people walking or riding bicycles? I’ve got a business to run and I’m barely making it as is!

Aside from basic ethics, if it doesn’t impact my bottom line then I don’t care.

If I can use a $5 item (like a road) seemingly or largely for free and save myself $1 then that’s exactly what I will do. My responsibility isn’t the world but my singular budget.

Altruism is expensive and few people are in that business (or can afford to be).

If, on the other hand, I have to pay $5 for that $5 item (and my competition does as well) then I might find that by spending $1 elsewhere and becoming more efficient then I might need only $2 of that $5 item. $3 in costs ($1 + $2 = $3) is much better than $5.

If I have to pay the actual cost of transporting stuff by truck I may decide to utilize rail more often, or build 5 regional manufacturing facilities instead of one large one, or use smaller packaging, or invest in Hyperloop goods delivery. But since the government is taxing people so that they can subsidize roads for me then I don’t need to be more efficient.

This is why we don’t have enough money to maintain our road system — the users aren’t paying for what they use. (And on the other side of the equation Chuck Marohn writes about problems on the cost side).

This isn’t efficient use of this road. The truck on the left took 13 minutes to pass the one on the right creating a long line of cars. The trucking industry touts that trucks pay 35 times as much in taxes as private automobiles. The problem is that a 40,000 pound truck causes roughly 10,000 times as much wear & tear damage to roads as a 3,500 pound car. Are trucks paying fairly for what they use?

Similarly, as an automobile driver, the costs of driving are hidden from me — in our tax and spend system. How many drivers have even the slightest idea how much it costs, in road wear & tear, maintenance, law enforcement, and other bits, to drive their car one mile? Most don’t even have a clue how much it costs them in gas, tires, oil, and other maintenance of their own car, how are they to know other more complicated costs?

Side Note: There’s a correlation with healthcare costs. Spending $1 billion to make walking and bicycling for transportation safe and comfortable (E.G., build to CROW standards) will likely save well over $5 billion, per year every year, in healthcare costs. The problem is that the people who need to spend the $1 aren’t the same one’s who will benefit from the $5 savings so they’ll not spend the $1 and we’ll not get the $5 benefit. These are out of alignment. We need to introduce the right hand to the left hand.

Trumps Privatization Plan ?

On the surface Trump’s system looks good and should better align costs with usage decisions. In reality it gets farther and farther from that each day we learn more about it. As congress tries to find funding for it, as people realize that this will only work for infrastructure that can pay for itself through tolls (very little), and as other inefficiencies in it rear their heads.

“Now we have to go about figuring out how to, in a fiscally responsible way, get that going,” Ryan said. “We have to cut spending elsewhere to pay for infrastructure.”

– House Speaker Paul Ryan.

Rather than our current tax and spend system, Trump’s plan hides the costs of infrastructure in ‘privatization’. On the plus side, it does do it in a way that those costs will eventually be aligned with usage decisions through tolls. That’s good, but tolls are a complicated, sporadic, and very limited system. It will only work with roads used enough to be effectively tolled, it won’t eliminate rat runs through non-tolled bits (cities, neighborhoods and quiet backroads) to avoid toll charges, and makes planning difficult for businesses who won’t know when and where tolls will or won’t be. It’s a 1960’s solution.

Also, investors have traditionally steered clear of infrastructure deals. The risks, partially due to the uncertainty of politics, are not worth the low returns. I assume Trump knows something here that I don’t. Or will he allow tax credits and tolls enough to overcome this and so large that they dwarf the losses common to government inefficiency?

There is also a question of the extent to which we may be giving up control over some of our infrastructure. Private investors will want as much control for as long as possible as they can get.

In the end, similar to raising the gas tax, this is a kludge that still doesn’t do a good job of aligning costs with usage decisions nor of paying for what we need.  We’ll still end up with most or all of the costs of our infrastructure non-aligned with use and budget shortfalls to not pay for it. And that’s not a good thing for our country or its future.

Tolls and Gas Taxes and Registrations Taxes Oh My!

Here’s a problem. None of these comes close to aligning costs with usage decisions.

Wheelage Fee First, Privatization Second

We need a predictable pay per use system for using and funding our roads, all of them, and that properly aligns costs with usage decisions. Immediately for commercial and public vehicles and eventually for all vehicles.

Road construction and maintenance costs are a factor of speed, weight, and size for each mile a vehicle travels. Higher speed, more weight, and greater size all increase the cost. This then is how vehicles should pay.

The technology to do this already exists, is accurate, and not expensive. Most fleet trucks already have it installed. The data collection can be done by competitive private companies who are certified to do so. This will help drive improvements to the technology, lower the acquisition costs, and provide end-users with a good layer of privacy from government intrusion. This technology didn’t exist in the 1960’s but is quite prevalent today.

The fees can be varied based on road and time-of-day — a more granular and effective congestion charge. A large heavy semi-truck may pay a much higher fee to use a local retail street than a nearby motorway, and a bit lower fee to clog that street during the middle of the night than mid-day.

For those concerned about the costs. Just consider how high the tolls on private infrastructure will have to be to attract investors and the uncertainty of where tolls will and won’t be in the future. For businesses, predictability is often more important than actual costs.

Once implemented, a wheelage fee system like this can more easily and effectively allow the privatization that Trump supports and that could indeed be a good thing. Investors will have a better idea how much of what kinds of traffic a bit of infrastructure will have and how much revenue it can generate. This will lower the risks for investors and so the costs to end users. A private enterprise may determine that they can operate a bit of motorway more efficiently than government and adjust pricing to reflect this.

A More Efficient System

Cities outside of the U.S. are already seeing benefits from various congestion charge schemes. For instance, delivery companies will join together for a common local distribution system as they are doing in ‘s-Hertogenbosch NL. They each deliver to a common distribution warehouse and then items are consolidated for the last mile local delivery. This is a significant benefit to local communities and for little or no cost to the delivery companies.

ALMERE, NL – DHL’s new Cubecycle. Photo: Diederik Van Der Laan.

DHL are testing a new cubicycle system of standardized containers that are delivered to meet points in a city with the last mile (or few) completed by e-bike or other smaller and less impacting vehicles.

What’s really great is that the cost to the commercial providers is often little, zero or cost saving. A city may get $5 of benefit for that company’s $1 spend. But the company won’t spend that $1 unless they feel that $5 cost. Some are altruistic and do good things anyway and others may do it for PR value, but we’ll not make America great again by depending on that.

Do Not Plan For The Present

Tolls and gas taxes were good when that was the best we could do. Fortunately this isn’t the 1960’s anymore.

Autonomous vehicles will largely eliminate the costs of drivers for trucks, delivery vehicles, buses, and taxi’s. That represents a 25-40% cost reduction for each. This will make these much more cost effective and lead to increases in their use. Actually, taxi’s will disappear as the only difference in a taxi and carshare is the driver — who is no longer present.

Autonomous vehicles may also allow deliveries to be done in ways that are less negatively impacting on our communities such as multiple smaller vehicles or at 2 am instead of 2 pm. But this will only happen if the costs are properly aligned.

A system of tunnels, mini-hyperloops, may become cost effective for deliveries if using roads costs what they actually cost. Think about a slightly larger version of the tube system used by drive-thru’s at banks and pharmacies. So long as politicians use our tax dollars to subsidize road use and make it effectively free we will not see much innovation.

School systems may determine that it is more cost effective to invest in safe and comfortable bikeways for children to ride to school rather than pay for what it costs to have heavy school buses driving around. How many have made this decision based on improved health and academic performance of schoolchildren? Now, how many will make it based on budgets and cost savings?

Our cities will undergo some significant changes in the upcoming few years. Companies and other road users need to feel the actual costs to make good decisions that benefit all of us.

 

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14 Responses to Trump Infrastructure Plan Needs A Better Funding Source

  1. Walker Angell
    Walker Angell July 5, 2017 at 11:01 am #

    Saw this from Nelson Nygaard this morning. Same concept.

  2. Alex Cecchini
    Alex Cecchini July 5, 2017 at 1:05 pm #

    Nice post, Walker. Some overly nitpicky responses to an otherwise good post:

    Discussions around pricing public infrastructure in a way to reveal more market-responses tend to gloss over how markets price things. I’m as big a supporter of tolls as anyone (and could be convinced to push more for time/place/weight-based fees). But one thing that bothers me about this message is that it’s not how many private markets (or even existing public services) would even work. A few examples.. parking garages charge long-term tenants a monthly rate that’s much lower per-visit (or hour) than daily or hourly customers. Most transit systems (and bike shares) have subscriptions or monthly passes that are drastically cheaper per ride than individual fares. Netflix makes watching shows and movies $10/mo while other streaming services (Apple, Google, Amazon, etc) charge to rent movies. Some companies like Amazon offer a flat fee that allows free shipping orders regardless of how many you make. Some restaurants offer buffets. The list goes on. Point being, we could very well have a private (or public!) system for road pricing that offers people a flat fee for unlimited use – and while I think pricing roads and parking is good, I don’t think it’s necessarily the only path private operators would take. And I’m not sure the values apply to city streets, which are far more complex than interstates and highways. And in any case, most urban highways in this country do in fact cover their maintenance/replacement costs through the proper share of users’ gas tax/vehicle sales tax/registration fees.

    I also think the urbanist community focuses more on the trucking industry than is necessary for a couple reasons. First, trucks are a very small share of total VMT, and an even smnaller share of VMT in urban areas. You make passing references to trucks “clogging streets,” but it’s really the other way around (private vehicle use slowing commercial traffic down). Second, I disagree with the framing of the widely-publicized stat that big trucks do 10,000x the damage to roads of small cars. It doesn’t cost 10,000x more to build a road that lasts as long as a less-beefy road for only 3,500lb vehicles. We’re talking a couple percent cost adder (pavement depth is really a fairly small component of a road’s construction costs). And third, just in general – it’s hard to make a strong case that trucking alone has been the cause for negative urban design for cities. We found all sorts of reasons to justify wide lanes and turning radii (and as referenced above, multi-lane arterials are built to handle auto traffic not truck AADT).

    • Walker Angell
      Walker Angell July 6, 2017 at 8:38 am #

      Great points. Nitpicky is good. I perhaps erred in talking so much about trucks. I do think that this needs to apply to all vehicles.

      All of the research reports I’ve found on wear & tear come to about the same exponential conclusion. Perhaps there is a lot of bias in these reports or a massive lack of rigor in both accuracy and practical applicability (including myself)? My guess is that reality varies a lot based on weather, geography, geology, road type, and other bits. Is the difference in a car and semi less in MN where everything has to be built to handle freeze/thaw cycles than in AL where that is not so necessary? Will a county road in Shoreview have a much greater cost differential than I-94? A wheelage fee system might drive better research in to these factors and perhaps also result in lowering the overall costs of roads? Whatever the reality I think we’d still get the same result of people becoming much more cautious about their use of roads, for business or personal?

      This is not a pure market. Thinking out loud… There are three pricing elements I can think of; Construction & Maintenance, Space, and Environmental Impact. Construction & maintenance costs along with a portion of space would likely be nearly a pure market — usage costs would be reflective of production costs. The operator, private or public, would know what their costs are for different types of vehicles and charge accordingly for these bits. Like other utilities they would likely be allowed some bit of profit. (BTW, this scares the daylights out of the Libertarian in me but I can’t think of a better solution as these are costs imposed on society/communities/people.)

      For a portion of space and all of environmental impact we’d not have a pure market. These costs would be more regulatory in nature such as congestion charges or environmental impact charges like perhaps $0.005/mile for a small quiet electric car that produces no localized air pollution or $0.05/mile for a large loud ICE truck that produces considerable localized air pollution and creates an uncomfortable or even dangerous blow-by when passing people walking or riding bicycles?

      OTOH, if a roadway has zero negative externalities (it’s in the middle of nowhere) then should a private operator then be able to encourage all of the use they want?

  3. James Warden
    James Warden July 5, 2017 at 2:49 pm #

    Good article, and I agree with your general theme. But I’m not a big fan of the granular wheelage fee you propose due to privacy concerns. There have been numerous database hacks. Law enforcement agencies have periodically sought sweeping warrants of personal data (see here: http://www.startribune.com/search-warrant-issued-to-edina-police-raises-privacy-concerns-of-internet-users/416442113/). And sometimes government employees just search personal information for the heck of it (see: http://www.startribune.com/feb-21-audit-finds-common-misuse-of-minnesota-driver-data/192090631/).

    So there are some huge issues with a system that would essentially track everywhere someone drove. I realize things like MnPASS have these vulnerabilities, as well. But there’s a big difference between a system that tracks all drivers everywhere and one that allows people to opt out — either by choosing to use non-tolled roads or non-tolled lanes on tolled roads.

    A compromise could be a transponder that less regularly sends in the vehicle’s mileage for the period and then bills the driver, much the same way a modern water meter works. You’d still get good enough data to connect the price a person pays to their driving habits, but it wouldn’t be so granular that you could map out where they’d been.

    • Walker Angell
      Walker Angell July 6, 2017 at 10:46 am #

      I completely agree with you about privacy and data security. I think these can be dealt with and that is also the primary reason why I specified that data collection should be by private enterprise.

      This telemetry data is already collected for almost all fleet operations from trucking and delivery companies to taxi’s and app based ride services. It is also increasingly collected by vehicle manufacturers. Tesla knows everywhere that every Tesla goes, how fast, how long waiting at each traffic light, etc. I believe Nissan, GM, Ford, and others now collect this data as well.

      Government agencies and private enterprises are also already capturing Vehicle Present Here information with both fixed and mobile (typically police cars) cameras (ALPR or Automated License Plate Readers) that tally license plate information. More: https://www.eff.org/sls/tech/automated-license-plate-readers/faq

      The privacy and security issues already exist.

      • James Warden
        James Warden July 6, 2017 at 11:16 am #

        Fleet operations are different than private vehicles. The law already recognizes a differences. Truckers can be more-easily drug tested, for example. Private companies are also welcome to do what they want because consumers can always opt out. Don’t want Facebook to have access to your personal data? Don’t use Facebook. Don’t want Tesla to track your whereabouts? Buy a Kia. The barrier should be much, much higher for government services that are intended to be open to everyone. And ALPRs have caused huge problems right here in Minneapolis. Saying that we already have privacy and security issues should not be an argument in favor of exacerbating. It should be an argument in favor of tackling those issues. A simple mileage reader would get us 90 percent of where you want to go without any of the privacy issues, which seems like a good balance to me.

        • Walker Angell
          Walker Angell July 10, 2017 at 10:52 am #

          So, I’ve been thinking about this for a few days.

          For personal vehicles a simple mileage meter might work. It wouldn’t give us anything in the way of congestion control but there are other things we can use to help out there a bit (like https://streets.mn/2014/02/04/st-paul-ripe-for-ruin/).

          I think for commercial vehicles (and personal over 5,000 lbs?) we need the granularity. I think here it’s important to be able to have road (and time?) specific rates.

          It may well cost much less in wear & tear (and impact on people and businesses) to have a truck go a slightly longer route on motorways than a more direct route up Snelling so we’d charge appropriately less for the motorway route. If they need to make a delivery on Snelling or a street off of it then they choose the route that costs them less and which would also the the least impacting to others.

  4. Monte Castleman
    Monte Castleman July 6, 2017 at 9:08 am #

    I realize this is the reality of our funding situation but it seems backwards that the government would provide things that are good for society- roads, drinking water, transit, state parks. And then discourage people from actually using them by charging fees, fees that hurt the poor a lot more than a rich like all fees and sales taxes.

    • James Warden
      James Warden July 6, 2017 at 9:45 am #

      Really, you have cause and effect backwards there: It’s not that we should do this because of our poor funding situation; it’s that we have a poor funding situation because we didn’t do this.

      No good or service is valuable at any price, regardless of whether it’s provided by government or a business. Aligning price with cost simply encourages people to make economically rational decisions. If driving (or using water, or using transit or visiting a state park) is worth the cost, than they’re welcome to keep doing it. If not, they can scale back or switch to an alternative. Right now, we have no way of determining how much value we get for our investment other than a bunch of theoretical analyses that come to wildly different conclusions.

      If the goal is to help the poor, we should simply help the poor. Give them money or a tax rebate and let them decide where they want to spend the money. If they want a cheaper house but longer commute, that’s fine. If they want a closer-in apartment with better access to transit, that’s fine, too. But broad subsidies are about the most inefficient way to help the poor because you wind up spending limited resources on those who aren’t poor — and in the case of roads, arguably help the better off even more since they’re more likely to own a car. (FWIW, this is the same reason why I’m against free college tuition for everyone or mass student loan forgiveness.)

    • Walker Angell
      Walker Angell July 6, 2017 at 10:52 am #

      Should gas and electricity be free and provided by the government? Or provided for only a fixed monthly fee? What incentive then would there be for people to conserve their use of these? Imagine if we needed 2 or 4 times as much of each to meet unlimited demand? How would we get all of it?

      • Monte Castleman
        Monte Castleman July 6, 2017 at 11:39 am #

        If the government provided them, then yes, but the government does not. Instead business, which is in it to make a profit rather than provide a public service does. Similarly I’d have no problem with pricing streets and roads if private enterprise provided them rather than the government.

        If we want the government to charge for everything that they’ve determined it’s in society’s best interest to provide, where does it stop. Do we collect credit card numbers if someone calls 911 before sending the police? Do we charge tolls for bicycle trails (which Wisconsin actually does and it’s annoying to find a place to buy a pass before using them).

        • James Warden
          James Warden July 6, 2017 at 11:59 am #

          There are literally thousands of user fees charged by government. You think we should do away with all of them? Barges pay a fee that goes toward maintaining river locks. Should that be paid by general taxpayers? What about airline carrier fees that are passed down to flyers? Should we all bear that burden equally or should we use fees that mostly affect those who fly? For that matter, should we not charge bus or LRT fares or gas taxes? Government services cost money to provide. Someone has to pay that cost. Instead of hanging on to some taxation philosophy at all cost, wouldn’t it be more reasonable to choose the cost recovery method that makes the most sense? We have a menu of options. Let’s use the full menu. General taxation measures may be efficient and fair for some cases and not for others.

        • Alex Cecchini
          Alex Cecchini July 6, 2017 at 12:41 pm #

          One way to think about this that might be helpful is to separate different services the government provides into the matrix defined by a good/service’ being rivalrous/non-rivalrous & excludable/non-excludable.

          Something can be rivalrous, excludable, AND provided by the government. Parking spaces on publicly-built/maintained streets are a good example. Public transit and roads are non-rivalrous during off-peak hours, but creep into rivalrous territory at points during the day.

          Minneapolis provides my drinking water and charges a rate per gallon used. If the city just baked total water delivery costs into our property taxes (which, it somewhat does with any general obligation debt for capital projects) aside from my conscience, I would have no disincentive to watering my lawn 8 hours a day. When you have a city or region of thousands to millions of people, this lack of pricing manifests itself in too much (or too little) infrastructure.

          The government may not always be the best arbiter of what’s good or bad, what the “right” price is, etc. I’d say that many writers/commenters here believe the government has made “bad” choices about how much transportation options cost, or how they’re designed. But to the extent that society recognizes external costs – congestion, pollution, safety, equity, etc – pricing can play a role in mitigating those. And sometimes it might seem hypocritical for people to suggest pricing one thing (toll roads) and not another (tolled bicycle lanes), but the underlying reasons are a combination of cost-effectiveness (cost to charge vs revenue collected), equity (who do the prices impact the most, are there other levels of taxes that could do the job better), and desired outcomes (yes, sometimes social engineering is at play!).

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