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).
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.
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.