2008 Oberstar Forum - Transformation of National Transportation Policy for the 21st Century

Remarks by U.S. Rep. James L. Oberstar, April 7, 2008

Introduction

Over the last 115 years, there have been four transformational moments in the history and evolution of surface transportation policy in America.

The first came in 1894, when a group of bicyclists gathered 150,000 signatures and presented them to Congress, asking for $10,000 dedicated to a study of a system of paved roads. Cyclists were concerned that the new horseless carriages were creating ruts and doing other damage to bicycle trails, creating hazards for cyclists.

Congress complied, and the study led to the second transformational moment, the establishment of the Bureau of Road Inquiry within the U.S. Department of Agriculture, which became the Bureau of Public Roads in 1916.

The third moment occurred in 1956, with the establishment of the National System of Interstate and Defense Highways. Along with the Interstate system came the Highway Trust Fund, with a dedicated revenue stream to sustain the construction of this extraordinary asset.

The fourth transformational moment came in 1991, at the end of the Interstate era. That year the Intermodal Surface Transportation Efficiency Act (ISTEA) was enacted. This was the first legislation to take a truly intermodal look at our transportation network, and to recognize the necessity of a strong, multi-modal surface transportation system.

I believe that we are now on the cusp of another transformational moment in the evolution of our surface transportation program. We face challenges in determining what the shape of our system should be and how best to finance it.

This next transformational era of transportation will challenge our imagination, our political will, and the tendency of all user groups to hunker down, think and act in insular ways—in self interest, rather than in the common interest. Beginning now, and carrying into next year, the transportation community must rise above differences, find common ground in policies and funding that will best serve the nation’s passenger and freight mobility needs in the 21st Century.

While the U.S. transportation network remains the envy of the world, we are losing ground. Without a renewed commitment to providing the vision and leadership needed to rebuild and expand this network:

  • Congestion will worsen,
  • Goods will move more slowly,
  • People will spend more frustrating hours idling in traffic,
  • Air quality will continue to deteriorate,
  • The number of roadway fatalities and injuries will continue to stagnate, or grow, and
  • Our quality of life will be diminished.

It will be up to Congress and the next Presidential Administration to summon the political will necessary to create a surface transportation system that will serve as an engine of sustainable growth, underpinning and enhancing the greatest economy in the world.

National Surface Transportation Policy and Revenue Study Commission Report

To assist Congress in establishing long-term goals regarding the transformation of the nation’s surface transportation program, we established the National Surface Transportation Policy and Revenue Study Commission (“Commission”) in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU”).

Congress charged the Commission with projecting the surface transportation system necessary to support our economy 50 years in the future, and formulate short-, medium-, and long-term strategies to achieve these objectives, as well as mechanisms to finance the investments necessary to meet these goals.

The Commission report, which was issued earlier this year, contained a number of bold, innovative solutions to the complex problems and challenges we face. The release of this report has opened a debate over the development of legislation to reauthorize the surface transportation program that meets the future accessibility needs of the nation.

I share the Commission’s view that the nation’s surface transportation system is “at a crossroads,” and that “significant, decisive action” is necessary. This report has begun a dialog over a national strategy to address the nation’s future surface transportation needs.

This report lays out a clear, broad consensus among the Commissioners around a number of critical issues, such as:

  • The importance of the surface transportation system to our nation’s economic competitiveness and quality of life;
  • The need for a continued strong Federal role in addressing our freight and passenger accessibility needs;
  • The current significant underinvestment across all modes of surface transportation, and the need for increased investment from all levels of government and the private sector;
  • A commitment to more effective use of tax dollars;
  • Federal funding that is conditioned on performance measures and cost effectiveness; and
  • Program reforms to eliminate waste and delays in project delivery.

It also provides a thorough assessment of the needs, an analysis of possible solutions and options, and recommendations to achieve these investment and policy objectives. It frames the choices confronting Congress as we begin the process of developing legislation to authorize the surface transportation program.

The Commission’s report is the first step in the process of determining the programmatic structure necessary to meet future surface transportation needs, and analyzing the various revenue measures available to support that structure. The Subcommittee on Highways and Transit has undertaken a series of hearings starting last year, and is continuing this year to examine the policy choices and set the framework, conceptually at least, for legislation to build the future multimodal surface transportation system.

The report makes clear that confronting the challenges facing the national transportation network will require a clear vision and a willingness of all levels of government to provide the resources and the tools to finance and develop the upgrades necessary to address current and future accessibility needs. It will also require a larger role for the private sector. All financing options must be examined in this process, and should be utilized where most appropriate.

Unfortunately, a minority of the Commissioners––led by Secretary of Transportation Peters––recommends a very different approach by advocating privatization, to rationing as the only solutions to our nation’s transportation crisis. They fail to recognize the magnitude of the crisis we are facing, and ignore the difficult choices required to address this situation.

Let me be clear, there is no “one-size-fits-all” answer to this situation. Infrastructure is expensive–and getting more expensive. Addressing our needs requires a comprehensive solution, and some difficult choices. As the Commission’s report acknowledges: “there is no free lunch.” The ideological approach presented by the minority fails to heed the lessons of the past and will lead to further balkanization of this system.

As we begin our efforts to craft a bold new mission for the nation’s surface transportation program, and develop a consensus on generating the revenues necessary to carry out this next era of surface transportation, we must examine the changes that have occurred in the demands on the network.

Surface Transportation Crisis

Much has changed since the Interstate map was developed.

  • Between 1950 and 2007, the U.S. population has doubled from 150 million to 300 million, and our GDP has exploded from 345 billion to 13 trillion.
  • Land use and economic development patterns have changed significantly, as have migration patterns, all leading to an increased dependence on our transportation infrastructure, particularly highways.
  • The use of highways has become the primary mode of choice for most Americans. The 2001 National Household Survey (the last survey completed by U.S. DOT) found that 87 percent of daily trips involved the use of personal vehicles.
  • In 2005, there were more than 3 trillion vehicles miles traveled, 5 times the level experienced in 1955.
  • Imports to the United States have tripled and exports have doubled since 1970.

The impacts of these changes and the failure to provide sufficient investment levels and to adapt surface transportation programs to address these challenges are staggering.

  • The Texas Transportation Institute’s 2007 Urban Mobility Report found that in 2005 wasted fuel and time translated into a total congestion cost of $78.2 billion in 2005—$5.1 billion higher than a year earlier––and that in 2005 drivers in 28 metropolitan areas experienced 40 or more hours of delay per year. In 1982, only Los Angeles experienced that level of congestion and delays.
  • This congestion is also increasing logistics costs. According to the Council of Supply Chain Management Professionals, between 2004 and 2005, after 17 years of decline, total logistics costs for U.S. companies increased by $156 billion.
  • Total logistics costs accounted for 9.5 percent of the Gross Domestic Product in 2005, up from 8.8 percent in 2004.
  • UPS estimates that if each of their package delivery drivers incurred 5 minutes of delay due to congestion, it would cost the company $100 million.
  • The recently released Minnesota 2020 report, entitled “Moving Forward: The Benefits of Transportation Investment to Minnesota’s Economy”, found that General Mills, which spends close to $650 million a year trucking hundreds of millions of cases of food to market, estimates that every one mile per hour reduction in average speed of its shipments below posted limits adds $2 million in higher annual costs.

In order for our nation’s intermodal transportation network to continue as the backbone of our economic vitality and our quality of life, the system and the programs that support this network must evolve to meet the changing demands of our society and economy.

With our nation’s population expected to grow to 420 million by 2050 and freight volumes expected to grow by 70 percent by 2020, future demands on the intermodal surface transportation network will require a bold new vision and approach to addressing these challenges. That is what the Commission has recommended.

Developing a Programmatic Structure to Meet Our Future Challenges

Last October, we discussed – in this forum – the significant progress the nation has made in developing and expanding its intermodal transportation network has been achieved through a strong Federal-state partnership. Addressing the challenges of the future will require a commitment to strengthening this partnership. As Chairman of the Committee on Transportation and Infrastructure, I am committed to providing the leadership and vision necessary to achieve the changes and reforms necessary to meet these challenges.

The Commission lays out a very interesting programmatic structure, and proposes a fundamental change to the way the current program works by shifting the focus to outcomes and performance based investments. These recommendations seek to build accountability into the program and deserve serious consideration.

To address the concern over the lack of a national vision, the Commission recommends condensing the numerous existing Federal surface transportation programs down to ten areas of Federal interests. These ten focus areas are based on a desired outcome, rather than the current modal organization of the surface transportation system.

Many have raised concerns over the number of highway and transit categorical programs. Each of these programs was designed to address specific problems and challenges facing communities across the country. The growth in number of programs may well be the by-product of the lack of resources to meet our needs, and we must get out of this zero-sum cycle of fighting over the scraps––where success is measured by equity and earmarks.

While we are just beginning to look at how best to restructure the current programs to build a surface transportation program that meets the needs of the 21st Century, the Commission’s call for a streamlined, performance based program is something the Committee will examine closely.

Financing Our Needs

The Commission report also identifies a significant surface transportation investment gap, and calls for an annual investment level of between $225 and $340 billion––by all levels of government and the private sector––over the next 50 years to upgrade all modes of surface transportation (highways, bridges, public transit, freight rail and intercity passenger rail) to a state of good repair. The current the annual capital investment from all sources in all modes of transportation is $85 billion.

Generating the resources necessary to reach this investment level will require multiple sources, and consideration of new methods of financing our investment needs. But the Highway Trust Fund must remain the foundation of our surface transportation financing.

The unique financing mechanisms we have in our country to support transportation infrastructure investment are one of the primary reasons for the success of this network.

Unlike other countries that levy fuel taxes or user fees and deposit the proceeds in the general treasury for all governmental functions, we have our fuel tax revenues credited to the federal Highway Trust Fund for the exclusive use of surface transportation programs.

Budgetary firewalls guarantee that monies in the Highway Trust Fund are not diverted to other uses. Transportation programs, with their dedicated funding source, do not compete against other governmental programs such as education, housing, and health care.

Another budgetary rule—the Revenue Aligned Budget Authority (RABA)—further assures that expenditures for transportation investments track current receipts of the Highway Trust Fund.

In addition to receiving annual funding from the federal government for their highway and transit projects, states and localities can issue federal income tax-exempt bonds to augment their financial capacity for transportation investments. That approach was extended to private entities in SAFETEA-LU through private activity bonds.

The policy decision to create the Highway Trust Fund, which came in 1956 with the enactment of the Federal-Aid Highway Act after nearly two decades of debate and deliberation, was not to push the financial burden of funding our highways onto future generations through tolls or bonds, but to rely on fuel taxes to build our roads on a pay-as-you-go basis. That was the vision and wisdom of President Eisenhower, Congressman Fallon, Congressman Blatnik, Senator Gore, and others.

That policy decision has been refined from time to time by programmatic means, such as the establishment of federal credit instruments under the Transportation Infrastructure Finance and Innovation Act (TIFIA) and state infrastructure banks. But these instruments were intended to supplement—not to supplant or replace—the primary financing mechanism of federal fuel tax and the Highway Trust Fund.

It is projected that the Highway Trust Fund will run short of cash in the near future. But the root cause is that the current federal fuel excise tax rates have not been adjusted since 1993, not the increased use of alternative fuels as some have argued.

In fact, the CBO has recently determined that incentives for alternative fuel and biofuel production included in the “Energy Act” enacted last year will result in an increase in revenues to the Highway Trust Fund of $1.68 billion over 10 years.

Since 1993, inflation, as measured by the consumer price index (CPI), has eroded the real value of fuel tax revenues by 30 percent. As other countries, especially China, India, and those in the European Union, pursued their very ambitious infrastructure investments, construction material costs have skyrocketed. The construction costs index has gone up more than 10 percent each year in 2003 through 2006, about three times the rate of the CPI.

After 15 years with no adjustment to the motor fuel excise rates while enduring debilitating construction cost hikes, there is simply not enough money in the Highway Trust Fund to support critical transportation infrastructure investments.

The situation with the Highway Trust Fund presents a unique challenge as we head into the next authorization. In developing previous bills, we have always started with a surplus in the Trust Fund. In fact, for both TEA–21 and SAFETEA–LU, the surplus allowed us to put off making difficult decisions regarding revenue enhancements. Well the chickens have come to roost­. We can no longer delay making these difficult choices and we must consider raising the gas tax.

While the fuel excise tax has proved the most effective means of financing our surface transportation needs, I do recognize that we need to consider other transportation financing mechanisms over the long term, such as one where users pay based on vehicle miles traveled. The state of Oregon is experimenting with this idea and a number of technical, legal, and privacy concerns relating to a mileage-based user fee. These issues cannot be taken lightly, and must be fully addressed before any such system is put in place.

Tax credit bonds, infrastructure banks, public private partnerships, and tolls have also been proposed as alternatives and/or supplements to the current financing system.

But let’s be clear, while all financing mechanisms and revenue sources must be considered and examined––and may well be part of the solution––the Highway Trust Fund must remain the cornerstone of our future financing regime.

Bond Financing

There are a number of proposals to utilize tax-credit bond financing as an alternative or supplemental financing mechanism for transportation programs. Such proposals would allow for the capitalization of bond corporations or leveraging of additional revenues by means of bonds.

While dedicating a portion of the sale of Treasury bonds, or capitalizing a bond corporation or infrastructure bank could fill gaps in current transportation investment––such as high cost mega projects––a recent Congressional Budget Office (CBO) analysis of the revenue-raising capacity of Federal fuel excise tax demonstrates the pros and cons of such a mechanism. CBO’s analysis found that:

  • A $.01 per gallon increase in the federal fuel excise tax would generate $18.2 billion over 10 years. This money would be available in annual installments for transportation improvements. The disadvantage of this approach is that the funds would be available on an annual installment basis so that on average only $1.82 billion would be available each year.
  • CBO estimates that a $.01 per gallon increase in the federal fuel excise tax for 10 years could be used to back a bond issue totaling $13.3 billion. In the hypothetical analysis, this entire sum would be available in year 1 (2008), and the bonds would be retired in 10 years. The advantage of this approach is that much more money ($13.3 billion) would become available as a lump sum on the front end of the 10-year period. But, the 10-year total under this scenario is smaller than that under pay-as-you-go because of the finance cost—totaling almost $5 billion.

Private Investment, Tolling, and Pricing

In recent years, there has been a significant increase in private sector investments in our nation’s infrastructure. While private sector resources can play an important role in addressing the underinvestment in our nation’s surface transportation network, its role is limited.

The need to maintain the integrity of our world-class surface transportation system and to protect the public interest requires that surface transportation facilities be viewed as public goods. When public-private partnerships are used to finance, design and build roads, bridges and transit facilities, we must safeguard the public interests.

We need to be very careful when privatizing public assets. Private businesses have objectives and motivations that may not align with the public interest. The public partner has a duty to ensure that the public interest is best served under any agreements it enters into.

One of the solutions being proposed to address congestion is variable or congestion pricing. Congestion pricing—like all pricing—is a rationing device to clear the road so that those able to pay to use the facility can move swiftly toward their destinations.

Proponents of this approach argue that the surface transportation system for the 21st Century will require a more “economic mind set.” Economics requires a balance between supply and demand. Congestion pricing by itself does not add a single mile to our highway network, and focuses solely on rationing the use of existing roadways. This narrow view will not develop the surface transportation network that addresses our nation’s passenger and freight mobility and access needs.

By its nature, congestion pricing is also discriminatory—on the basis of ability to pay. The argument that price will signal and encourage people to alter their travel plans may sound good in theory. But many people, especially those on the lower rungs of the economic ladder, do not have the ability to modify their work schedules. It is unacceptable to me if congestion pricing is implemented without simultaneously providing for a viable and comparable transit option.

The private sector has a role to play in building and expanding our intermodal surface transportation system. I supported the pilot program to reconstruct and rehabilitate Interstate highways included in TEA–21 because private capital would be deployed where no state funds were available to address a critical problem.

But the private sector’s role, realistically, is a limited one. Toll revenues today make up about 5 percent of the total transportation-related revenues. Even if we allow an ambitious scheme to expand the use of tolls, including congestion pricing, so that the share is doubled to 10 percent, it will remain a small part of the overall picture.

Conclusion

If we are going to address the current crisis and ensure that the U.S. economy does not lose ground because of our failure to keep pace with our infrastructure needs, we must be intellectually honest with ourselves and develop a new comprehensive vision and commitment to financing those needs. This will require us to look at demand management strategies, but it will also require us to look at significantly increasing the capacity of our roadway and transit systems.

Our international competitors are rapidly upgrading their transportation networks to meet the needs of the global economy. We must answer this challenge, and develop a new intermodal vision and commitment to providing the resources and tools to meet the needs of all modes of transportation. This vision will be critical to maintaining and strengthening the nation’s economic competitiveness.

Rep. Oberstar delivered these remarks April 7, 2008, at the seventh James L. Oberstar Forum, hosted by the Center for Transportation Studies and held at the University of Minnesota.