6
Options for Program Finance, Governance, and Management

As indicated in Chapter 1, the central aims of this study are to

  • Determine whether there is a need for a national cooperative research program for hazardous materials transportation;

  • Examine possible ways of structuring a cooperative research program, in part by drawing on the experience of other programs in financing, governing, and managing cooperative research;

  • Identify options for program finance, governance, and management; and

  • Offer practical advice on whether and how best to pursue a cooperative research program for hazardous materials transportation.

Much of the report so far has focused on the first two aims: assessing the need for a program and examining ways of structuring a program.

Chapter 5 discussed the experiences of several long-standing cooperative research programs within and outside the transportation sector to gain insight into possible ways of structuring such a program for hazardous materials transportation. Program financing possibilities range from voluntary contributions by individual organizations to annual federal appropriations. There are likewise many possibilities for governing and managing a cooperative research program.

This chapter attempts to go a step further by examining several specific options for financing, managing, and governing a cooperative research program for hazardous materials transportation. The options presented are not comprehensive, but they cover a range of approaches. The advantages and disadvantages of each are described in light of insights gained from reviewing other cooperative research programs. The committee offers its advice on which, if any, of these approaches should be pursued in Chapter 7.



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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 6 Options for Program Finance, Governance, and Management As indicated in Chapter 1, the central aims of this study are to Determine whether there is a need for a national cooperative research program for hazardous materials transportation; Examine possible ways of structuring a cooperative research program, in part by drawing on the experience of other programs in financing, governing, and managing cooperative research; Identify options for program finance, governance, and management; and Offer practical advice on whether and how best to pursue a cooperative research program for hazardous materials transportation. Much of the report so far has focused on the first two aims: assessing the need for a program and examining ways of structuring a program. Chapter 5 discussed the experiences of several long-standing cooperative research programs within and outside the transportation sector to gain insight into possible ways of structuring such a program for hazardous materials transportation. Program financing possibilities range from voluntary contributions by individual organizations to annual federal appropriations. There are likewise many possibilities for governing and managing a cooperative research program. This chapter attempts to go a step further by examining several specific options for financing, managing, and governing a cooperative research program for hazardous materials transportation. The options presented are not comprehensive, but they cover a range of approaches. The advantages and disadvantages of each are described in light of insights gained from reviewing other cooperative research programs. The committee offers its advice on which, if any, of these approaches should be pursued in Chapter 7.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 FINANCE OPTIONS The experience of other cooperative research programs suggests that program finances should be Generally predictable from year to year, which will allow for program continuity and longer-range planning of research; Capable of supporting multiyear research projects and covering areas of interest to a broad range of stakeholders in the hazardous materials sector; Structured so that users of the research develop a sense of ownership of the program and have a stake in ensuring that the program yields useful results; and Structured to create incentives for program efficiency. Three options for program finance are reviewed below. The first two are patterned after finance approaches in other cooperative research programs. The third is more specific to the hazardous materials sector and posits the use of an existing revenue source to help finance the program. It illustrates how program financing can entail difficult and sometimes controversial choices. The three options are Federal sponsorship through annual appropriations; Voluntary pooling of funds by many organizations, including federal agencies, private companies, trade associations, and state and local governments; and Revenues raised from federally imposed and broadly based user fees, exemplified by the Hazardous Materials Registration Fee. All three of these options are presumed to be the main means of financing the program. In each case, supplemental sources of funds could be sought for particular projects of interest to individual government agencies, private companies, or other users. However, a program with excessive or exclusive reliance on project-by-project funding could become difficult to sustain and administer and subject to large fluctuations in program activity and resources. Furthermore, to ensure the credibility of the research and encourage broad participation rather than

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 specialization, the core funding should be insulated from special interests to the extent possible. Option 1: Federal Appropriation In this option, Congress is assumed to authorize the creation of a cooperative research program and to finance it through annual appropriations administered through one or more federal agencies. It is modeled after the funding approach used for the Transit Cooperative Research Program (TCRP) and administered through the Federal Transit Administration. Federal funding in this way could be justified on the grounds that ensuring the safety and security of hazardous materials transportation is in the national interest. On the basis of TCRP experience, the following are advantages of this approach: Deriving funds from a single source (i.e., Congress) limits the administrative burden of collecting funds, especially in comparison with funding by multiple sources. Federal funding may sustain a core program and prove helpful in attracting supplemental funding by others. Federal funding may be perceived as ensuring program objectivity and broader coverage of research needs within the hazardous materials sector, including the needs of those with limited means of financing the program, such as local public safety agencies. The following are disadvantages of this approach: It is subject to the year-to-year uncertainties associated with the federal budget process and the changing priorities of federal decision makers. The earmarking of funds to specific projects could dilute both the funding total and the integrity of the research selection process. Federal agencies may view the program as competing for scarce research funds. Those charged with administering the funds may seek to control the program agenda.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 In not paying for the program directly, prospective users of the research may have limited incentive to commit time and energy to the program, which could weaken stakeholder involvement. Option 2: Voluntary Pooling of Funds In this option, the likely users of the research are assumed to finance a program through the pooling of funds on a voluntary basis. The sponsors may be federal agencies with direct responsibility for hazardous materials safety and security, including the Research and Special Programs Administration, the other operating agencies of the Department of Transportation (DOT), and the U.S. Coast Guard and other agencies of the Department of Homeland Security. Core sponsors from the private sector might include large shippers and carriers of hazardous materials and their industry associations, such as the Association of American Railroads, the American Trucking Associations, and the American Chemistry Council. Other potential sponsors from government might include state and local agencies responsible for enforcement and emergency planning and response. Models for such a voluntary approach for pooling program funds include the National Cooperative Highway Research Program (NCHRP), the Construction Industry Institute (CII), the Health Effects Institute (HEI), and the Electric Power Research Institute (EPRI). The following are among the advantages of this approach: Ownership of the program by end users will ensure that they take a strong interest in the efficiency of the program, its responsiveness to real problems and needs, and the dissemination of results. Funding by multiple contributors will help ensure a varied research agenda with problems framed and addressed from multiple perspectives. No single entity will be able to exert disproportionate influence on the program. Year-to-year fluctuations in the contributions of any one sponsor or subset of sponsors may not threaten the financial viability of the program if there is a large base of voluntary contributors. Among the disadvantages of this approach are The potential for significant administrative costs associated with seeking and collecting contributions from multiple sources, especially if the funding base is broad;

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 Limits on the legal or financial ability of some organizations to contribute, including federal agencies, which may require congressional authorization to make regular contributions; and The real-world problem of “free riders”—those who are capable of contributing to the program but who will not do so if their access to the research results is unrestricted. Option 3: Broad-Based Financing by a User Fee This option is a derivative of Option 1, under which Congress authorizes a program and appropriates funds. In this case, it is assumed that the funds are derived from revenues tied directly to the hazardous materials transportation sector. In Option 1, no specific source of funds is identified, and the choices that would need to be made in funding priorities are therefore neglected. Option 3 goes a step further by identifying a source of funds to illustrate the choices required in federal financing. The Hazardous Materials Registration Fee Program is discussed briefly in Chapter 2. Congress requires most shippers and carriers of hazardous materials and wastes to file an annual registration statement with DOT. By law, DOT is allowed to set a registration fee of between $250 and $5,000 per year. It has elected to do so by using a two-tier formula that distinguishes between large and small businesses. Of the approximately 40,000 companies that register each year, about 85 percent are defined as small businesses and subject to a lower registration fee. The registration fee is currently $300 per year for small businesses and $2,000 per year for others. The fee generates about $13 million per year. The funds generated from the fee are used for various purposes; the main use, as required by Congress, is to fund the Hazardous Materials Emergency Preparedness (HMEP) Grant Program. States and localities apply for these grants to enhance emergency planning and training activities. Consideration is given here to using these registration revenues to fund a cooperative research program by either using a portion of the revenue generated from existing registration fees or raising the fee to yield supplemental revenue to help pay for the program. In either instance, congressional action would be required to allow this alternative use of registration fee revenues. The Hazardous Materials Registration Fee Program offers a way to approximate the user fee needed to pay for a cooperative research program

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 of varying size. Each $1 million that would be used to pay for a cooperative research program would be equivalent to 1/13th, or about 7.7 percent, of the funds now raised through the Hazardous Materials Registration Fee Program. This percentage is equivalent to $23 of the $300 registration fee paid by small businesses and $154 of the $2,000 registration fee paid by others. Hence, raising the fee by about 8 percent, or $25 for small businesses and $150 for others, would generate about $1 million in annual revenues for cooperative research without reducing funds available for hazardous materials planning grants. Increases in the fee could be weighted toward larger businesses to avoid burdening small businesses. Among the advantages of a user fee approach to program financing are The potential for year-to-year reliability in program funding, especially if the fees are placed in a trust fund for use in research; A strong sense of ownership of the program by a cross section of the hazardous materials transportation community that contribute fees; Spreading of the cost burden of the program, especially if the fee covers carriers, shippers, container manufacturers, and others in the hazardous materials industry that would benefit from the research; and The establishment of a connection between those who create societal risks by causing the transport of hazardous materials and the contribution to research aimed at reducing these risks. The following are among the disadvantages of this approach: Collecting the user fee could be administratively burdensome unless an existing fee structure and program are used. Those required to pay the fee are likely to raise objections to it unless they are assured that the revenues generated will indeed be used to meet practical research needs and that the fee will not become onerous. State and local emergency planners can be expected to object to use of the Hazardous Materials Registration Fee for funding if this approach threatens funding levels for the HMEP Grant Program. GOVERNANCE OPTIONS Most research programs are guided by a well-articulated mission. It may be to find practical solutions to pressing problems or to further the understanding and knowledge needed for longer-term problem-solving

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 or technological advancement. Keeping a program focused on its core mission can be challenging and is often the responsibility of a governing board. Much like the board of directors of a corporation, this body’s role is to establish the policies and strategic direction of the research program so that it can best achieve its mission. The governing body of a research program typically has the following overarching responsibilities: Establish the program’s strategic goals and monitor the program’s progress toward those goals. Ensure that processes are in place to produce sound research. Articulate expectations about research products and their dissemination. Engage with other research and development programs that have complementary functions. Setting up such a governing board would require many decisions concerning who will appoint the members, the size and composition of the membership, and board voting and decision-making procedures. Such organizational details are not fully explored here, but they are nevertheless important. Whatever form the board takes, its composition must reflect the program’s core mission; if the mission is to produce solutions to pressing problems in the field, then having a significant number of board members drawn from industry and other users of the research results is desirable. A key responsibility of the governing board is to ensure ample involvement of the users of research in all phases of the program. Hence, the participation of users on the governing board will be crucial if the program is to produce results that will be widely accepted and applied. The cooperative research programs reviewed in this report offer various models of governing boards. Each is structured differently, but all have many of the same basic roles and responsibilities. The following options are considered here: Governance exclusively by those sponsoring the program, Governance by a broad base of users of the research, and Governance by a third party acting in a stewardship capacity. While many forms of governance are possible, these three are helpful in illustrating a wide array of pros and cons associated with various options.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 A comparison of them indicates the importance of carefully structuring governance to reflect program aims. Option 1: Governance Exclusively by Program Sponsors NCHRP provides a model of a governing board made up exclusively of organizations contributing program funds. Some other cooperative research programs are governed in a similar manner, including CII and the Pipeline Research Council International. This model confers the strong sense of ownership that is desirable in engaging the user community and ensuring that the program remains focused on meeting user needs. In effect, those who sponsor the program are also responsible for ensuring its success. A disadvantage of this approach is that the helpful views and expertise of nonsponsors may be neglected. For example, a cooperative research program sponsored and governed exclusively by industry or federal agencies might sacrifice the insights and expertise of state and local emergency response agencies that do not have the means to help sponsor the program. Option 2: Governance by a Broad Base of Users of the Research The governing board of TCRP is composed mostly of transit system operators, but it is supplemented by many other public transportation interests, including federal agency officials, transit suppliers, and university researchers. Because Congress appropriates all of the funds for the program, none of the members of the TCRP governing board can be described as a direct financial sponsor of the program. The stakeholders’ sense of ownership is therefore instilled through TCRP’s inclusive form of governance, which has other advantages as well. In particular, the participation on the governing board of university researchers and federal agencies, in addition to transit operators, provides an avenue for additional perspectives and expertise, enlarges the scope of ideas for research, and broadens support for the program. A disadvantage of such an open form of governance is that the program’s research focus could become diluted over time and drift away from seeking solutions to the practical problems of transit agencies. This has not proved to be a problem for TCRP, where transit operators constitute a slight majority of the governing board’s members.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 Option 3: Governance by a Third Party Acting in a Stewardship Capacity Perhaps the model that differs the most from the two user-oriented models described above is third-party governance. HEI offers such a model. It is guided by a governing board of distinguished individuals drawn from outside the industry and field of research. HEI board members are not direct users of the research. They serve in a stewardship capacity. Their main role is to ensure the objectivity and credibility of the research program, since the results are intended to influence public policy. This method of governance runs a risk that the program will become remote to the needs of users of research. To overcome this potential drawback, EPRI has instituted what might be described as a hybrid form of governance. One governing board consisting exclusively of program sponsors proposes the research agenda, while a second advisory board consisting of public interest groups and other nonsponsors reviews the proposed agenda and offers additional views on research needs. An advantage of this mixed approach is that it expands the perspective on problems needing research. A disadvantage is that multiple boards run the risk of becoming unwieldy, slow to make decisions, and costly to organize and administer. MANAGEMENT OPTIONS Depending on the structure, size, and mission of the program, the entity charged with managing it will have many responsibilities such as processing contracts and research agreements, supporting and arranging meetings of the governing board and any technical panels formed for individual projects, administering program funds, and disseminating the results of research. How well the program is managed will affect user confidence in the objectivity and soundness of the research. The choice of a host organization to fulfill these management responsibilities will involve a number of considerations. Among them are the following: Can the management organization coordinate the involvement of many stakeholders while being perceived as fair and not having an inherent bias toward one group or industry segment?

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 Is the conduct of research an important mission of the management organization and thus likely to be accorded priority, or is research a side activity that may be viewed as a distraction from the organization’s main mission? Can the organization bring administrative and technical expertise to bear from a range of disciplines that will be needed to define, oversee, and ensure quality control for research projects covering many problem areas? Can the organization disseminate research results through a wide variety of means that will be accessible to users? Numerous other issues would have to be considered in selecting an organization to manage the program. For instance, the organization may need legal authority to accept and administer federal funds. If a new organization is to be established to manage the program, consideration must be given to the start-up expenses and time associated with creating it and to the challenges associated with building trust within the research and user communities. Another consideration is whether the program is best managed in a centralized way by a single entity or under a more decentralized format, such as a consortium of research institutions. The cooperative research programs examined in this study are managed in a number of ways. Each offers a model for hosting and managing a hazardous materials transportation cooperative research program. The three organizational options considered here are management by A research management organization; A nonprofit trade, educational, or professional society; and A university or university consortium. Option 1: Research Management Organization Both NCHRP and TCRP are managed by the Transportation Research Board (TRB) of the National Academies, an independent, nonprofit research organization widely recognized as impartial by the research community and government. Because TRB’s core mission is to facilitate the conduct of research and the dissemination of results, it has a staff of research managers and an extensive publication and dissemination capacity. It has developed a wide constituency in the research and prac-

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 titioner communities. These are advantages that using an existing independent research management organization can bring in administering the program. A disadvantage of this approach is that maintaining a professional staff and publications capacity can be expensive. A related option is to create a new stand-alone organization to manage the research program. The overall structure and management processes of such an organization could be tailored to fit the specific needs of the cooperative research program. New organizations, unencumbered by past associations, have the opportunity to build confidence and trust within the user community. A disadvantage is that creating such a new organization can entail significant start-up time and costs. Gaining name recognition, establishing ties within the stakeholder communities, and building user confidence in the research processes and products will take even more time. Option 2: Nonprofit Industry, Professional, or Educational Association The cooperative research program could be managed by an existing nonprofit industry, professional, or educational organization. Examples of the first are the Association of American Railroads and the American Chemistry Council. Examples of the second and third are the International Association of Fire Chiefs and the Dangerous Goods Advisory Council, both of which provide training and education on hazardous materials. Organizations such as these,1 with established ties to important parts of the hazardous materials community, can use their connections to ensure stakeholder participation in the research and to disseminate research results through their ongoing training programs, conferences, and publications. The widespread recognition and participation among stakeholders that such industry organizations enjoy are advantages of this management option. However, most of these organizations lack a core research mission and an accompanying management structure that would support a significant research program. Each would need to make a substantial investment in research management staff and quality control methods. 1 See Chapter 2 for a description of several organizations with prominent roles in the hazardous materials transportation sector.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 Perhaps more important, the missions and constituencies of professional, educational, and industry associations are often narrow. Some have advocacy missions, and their study methodologies and results may be perceived as being biased toward association positions. A cooperative research program must engender the confidence and attract the participation of individuals and organizations from a range of stakeholder groups. Management by an organization associated with a narrow set of interests could prove problematic in achieving this outcome. Option 3: University Management The nation’s universities present another option for managing a cooperative research program. The research program could be administered by a single university research institute or by a consortium of institutes with some centralization of management. Universities manage everything from small research programs to national laboratories. This option has the advantage that research is a core mission of universities, and the results of university research are generally viewed as sound and objective. However, close ties to the stakeholder communities, which are essential for an applied research program, are not normally associated with the university setting. Another possible drawback is that university researchers are themselves likely candidates to perform much of the research. Conducting research, rather than managing and disseminating it, tends to be the strength of universities. The mixing of these roles may prove counterproductive to ensuring that the best-qualified researchers are available to the program. SUMMARY Finance, governance, and management stand out as important features of existing cooperative research programs. Whatever financing approach is used in a future hazardous materials cooperative research program must yield fairly predictable streams of revenue at levels that can sustain a program covering a wide array of research topics of interest to a broad base of users. If users of the research help pay for the program, they are more likely to develop a sense of program ownership that prompts an interest in and commitment to the program.

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Cooperative Research for Hazardous Materials Transportation: Defining the Need, Converging on Solutions - Special Report 283 How a program is governed will be determined in large part by how it is financed. Program finance and governance cannot be viewed separately. Those paying for the program are likely to demand a prominent role in governing it. The governance of the program should ensure that the program produces high-quality research and that the research results meet the needs of users and are disseminated to them. The program must receive strong guidance from those who understand the problems needing research and who are in a position to use the research results. Achieving this outcome may require a role in program governance by those users of research who cannot contribute finances to the program but can offer important perspectives on research needs and can implement the results. Effective management is essential to the success of the program. The organization managing the program will need to be capable of coordinating the involvement of many stakeholders and should be perceived as fair and as lacking a bias toward one group or industry segment. It will need to be able to bring to bear administrative and technical expertise from a range of disciplines to define, oversee, and ensure quality control for research projects covering many problem areas. It will need the capability to disseminate research results through a wide variety of means accessible to a diverse body of users.