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What Is the Future of Surface Transportation Finance and Governance?

That is the question I sought to address at a meeting of Utah’s Transportation Governance and Funding Task Force earlier this week. My written testimony is here.

The fuel tax is becoming an increasingly unstable source of dedicated user revenue. Even when the proceeds that fuel taxes collect are dedicated to surface transportation infrastructure, which is often not the case, the vehicle fleet has become more fuel efficient and will become even more so in the coming decades. This is why states are now looking at replacing fuel taxes with alternative user-based revenue mechanisms, namely mileage-based user fees (MBUFs).

But just as highway tolling in much of the country has faced strong political opposition, so too will MBUFs as long as the public overwhelmingly sees the act of driving as more of a right than a service. Future technological developments may upset this dynamic.

We don’t know when automated vehicles—often called driverless or self-driving cars—will be deployed, but they almost certainly will be deployed in some manner in the coming decades. One potential application of vehicle automation technology is in shared mobility services—think taxis.

If people can hail an automated taxi much as they can from Lyft or Uber today, but without the driver, they may wind up forgoing private auto ownership altogether if they live in a dense metropolitan area. This has implications not only for land-use and public infrastructure investments, but of public perception of automobility in general. The common public perception that driving is a right and shouldn’t face direct charges may fall away as consumers get used to paying a specific fare for a specific service. If that becomes reality, it may become much more politically palatable to charge not only for the services provided by the automated taxi, but by the roadway network it relies upon. In this case, the “full fare” charged to users could include an infrastructure charge without stirring up the passions currently associated with tolling and MBUFs.

If consumers begin to see highways as a mobility service rather than a public good subject to stricter rights considerations, this may also result in the current opposition to private provision of highway infrastructure to fall as well. Right now, there are few truly private highway facilities in the U.S. However, the majority of states currently authorize public-private partnerships (P3s) for transportation infrastructure. These projects could serve as a bridge to ultimate privatization of our highway network.

Unfortunately, barriers exist to increasing private-sector involvement in the provision of highway infrastructure. Government can borrow with tax-free municipal bonds, but the private sector generally cannot (private activity bonds are designed to level this playing field, but their use is severely constrained relative to government-only muni bonds). But the biggest impediment may be a lack of incentive to investigate these arrangements: disinterest. Even though P3s provide direct benefits to taxpayers by shifting construction and financing risks to private investors, governments may not see major upsides over the status quo, wrong as that may be.

Enter “asset recycling.” Asset recycling was pioneered several years ago in Australia and harnesses the P3 framework, but adds an additional incentive for government to engage in these long-term leases with private companies. The process starts by developing a detailed life-cycle inventory of existing government assets. Potentially profitable assets are then leased to the private sector and the proceeds are pooled in a dedicated infrastructure fund. Those proceeds can then be used to finance new infrastructure, particularly what is known as “social infrastructure”—schools, government office buildings, etc.—that may lack a viable revenue stream and are thus unattractive to private investors. Adopting a similar framework in the U.S. could result in more rapid delivery of public-purpose infrastructure while shielding taxpayers from higher taxes and public debt.

I emphasized in my testimony that predictions about the deployment timeline—let alone the broader social implications—of automated vehicles are highly speculative. Few if any long-term planning decisions can be made under this great uncertainty. But I did identify one: cease investment in surface rail transit projects.

Light rail and streetcars have become popular civic boondoggles in recent decades. Both are much more costly than alternative bus service and provide few if any benefits to riders over cheaper buses. Indeed, surface rail boosters often tout alleged secondary economic development benefits rather than mobility benefits, a strange stance given that the primary purpose of any transportation system is to move someone or something from point A to point B. When boosters retreat to the “co-benefits” argument, start asking questions about the benefits. As it turns out, there is little evidence that surface rail transit increases overall economic development, as opposed to just relocating development that would have taken place elsewhere in the metropolitan area—and without generous public subsidies.

Outside of very dense urban cores like Manhattan, door-to-door automated taxi services or smaller scale automated shuttles have the potential to completely replace high-capacity, fixed-guideway mass transit vehicle service in the coming decades. The problem is that these systems have life-cycles typically ranging around 30 to 40 years. That means if new surface rail transit is brought online in 2025, we are basically stuck with it into the second half of the century. If automated vehicles are deployed in, say, 2030, that will make transit decision-making that currently is unsupported by the best available evidence to look downright disastrous in the coming decades.

In sum, cities and states need to think about surface transportation investment from a life-cycle perspective. Massive technological disruption is on the way and doubling-down of the failures of the present will only end up harming those who live and work there.

Read my whole testimony here.