6
Summary, Conclusions, and Recommendations

The Transportation Research Board’s Committee for a Study of Policy Options To Address Intermodal Freight Transportation has examined prospects for changes in government programs to improve the efficiency of freight transportation in the light of recent experience with these government programs. This chapter is a summary of the policy options the committee identified and the committee’s findings and recommendations.

INTERMODAL FREIGHT POLICY ISSUES

In the past two decades, the freight transportation industry has been transformed by technological, market, and organizational change. By one estimate, productivity gains in logistics and freight transportation have been reducing costs at the rate of $20 billion each year in U.S. business. Freight transportation is a joint enterprise of the private sector, government, and public enterprises (for example, public port authorities). Private firms pro-



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Policy Options for Intermodal Freight Transportation: Special Report 252 6 Summary, Conclusions, and Recommendations The Transportation Research Board’s Committee for a Study of Policy Options To Address Intermodal Freight Transportation has examined prospects for changes in government programs to improve the efficiency of freight transportation in the light of recent experience with these government programs. This chapter is a summary of the policy options the committee identified and the committee’s findings and recommendations. INTERMODAL FREIGHT POLICY ISSUES In the past two decades, the freight transportation industry has been transformed by technological, market, and organizational change. By one estimate, productivity gains in logistics and freight transportation have been reducing costs at the rate of $20 billion each year in U.S. business. Freight transportation is a joint enterprise of the private sector, government, and public enterprises (for example, public port authorities). Private firms pro-

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Policy Options for Intermodal Freight Transportation: Special Report 252 vide direct services to shippers, but public enterprises and government provide major components of the infrastructure. It is important to review government programs that serve freight to determine how well they are keeping up with rapid change in industry. Federal surface transportation programs enacted in 1991 and 1995 contained important steps toward a new government approach to the freight sector, including provisions to raise the priority of projects serving freight, allow more flexibility in using federal funds for freight projects, and make way for new forms of public-private ventures. Also in this period, state and local governments and public port and airport authorities have initiated a variety of freight development initiatives, often in partnership with the private sector. Intermodal freight transportation is any movement of goods that involves two or more modes of transport, including transport of goods in containers that can be moved on land by rail or truck and on water by ship or barge; bulk commodity shipments that involve transfers between modes; and air freight, which always involves truck movements to and from the airport. Improving the efficiency of intermodal freight has been a prominent public- and private-sector concern for several reasons. Intermodal freight is critical in international trade, in transport of many high value-added products, and in military supply; it has been a source of trucking industry cost savings and rail industry revenue growth; and intermodal transfers, which often require coordination of government entities and multiple private-sector firms, can be physical and organizational bottlenecks affecting the performance of the entire freight system. Intermodalism is one of the elements of the wave of technological change affecting logistics, the management of movements and inventories of materials and products in manufacturing and distribution. Redesigning logistics lowers costs in industry by reducing inventory and by allowing suppliers to respond more quickly and precisely to changes in demand and technology. Intermodalism is one more option increasing flexibility for shippers and offering opportunities for cost savings, and it is a foremost case of the value of coordination in the logistics process. The success of intermodalism depends on information technology, which has allowed carriers to manage intermodal movements through multiple handlings by several parties.

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Policy Options for Intermodal Freight Transportation: Special Report 252 The growth of intermodal freight has been a private-sector development. However, federal, state, and local governments have shown increasing interest in facilitating intermodal freight. Intermodalism is seen by the public sector as a means to ends considerably more diverse than simply improving freight transportation efficiency. Primary motivations more often are controlling highway agency costs by reducing truck traffic, reducing highway congestion, reducing pollution, and stimulating local employment through terminal developments. These motivations are legitimate responsibilities of government; however, in this study, the committee has taken the perspective that the essential criterion for judging public-sector freight transportation programs should be their effect on the efficiency of freight transportation and business logistics. Projects that enhance freight productivity will have the greatest chance of success in attaining other public goals. Such projects will be well used by carriers, will be viable for the long term, will generate the strongest stimulus for local economies, and will provide the greatest opportunities for reduction of pollution, congestion, and accidents. Policies driven by consideration of systemwide efficiency may, however, yield losers as well as winners, as less efficient facilities or firms lose business to more efficient ones, and decision makers must recognize these consequences. This study has examined public policy issues at the federal government level and issues that confront state and local governments. The committee selected topics to complement and update several past reviews of intermodal policy, including that of the National Commission on Intermodal Transportation. The committee has limited its conclusions on particular policy questions to identification of the leading alternatives for addressing perceived problems or capitalizing on opportunities. Decisions on these questions involve compromises among competing interests, and assessments depend on whether the perspective is federal, state, or local. Selecting the best option will be a matter of political debate, analysis, and experimentation. The committee has made recommendations in the more general areas of principles for government involvement, the framework for evaluating projects and programs, and research needs. Committee recommendations appear in this chapter in bold type.

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Policy Options for Intermodal Freight Transportation: Special Report 252 The committee’s conclusions are in four areas: Principles for government involvement, Federal surface transportation programs and freight, Regulatory and operations issues, and Public financing of intermodal freight projects. Identified research needs are grouped at the end of this chapter. PRINCIPLES FOR GOVERNMENT INVOLVEMENT Government builds and operates parts of the infrastructure for freight transportation, collects user fees and general tax revenues to finance public facilities, and imposes social and economic regulation on the freight industries. Governments today are reexamining the scope of their involvement in freight transportation. They are investing in facilities not traditionally provided by the public sector (for example, intermodal freight terminals) and entering into new kinds of arrangements with the private sector in the finance, construction, and operation of facilities. At the same time, governments are considering proposals for transferring some traditionally public transportation facilities and functions to private-sector operation. The committee has made recommendations on three issues related to the government’s role: criteria for government involvement, deciding whether government involvement should include a subsidy, and analysis tools and methods. Government investment decisions concerning freight-related facilities are complex and involve a balance of competing economic and political interests. Local government decisions give economic development considerations great weight and often hinge on the availability of external funds. National decision making encompasses a broader set of concerns for economic efficiency and equity. No step-by-step procedure or technique of rational analysis can be used mechanically to prescribe the correct course of action in every case. Nonetheless, clear guidelines and systematically developed information will be of value in the political process of reaching decisions.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Deciding on Government Involvement Government officials responsible for infrastructure ought to define a list of criteria for involvement as general rules or principles to follow. Specifications concerning how the government will quantitatively test whether a proposal meets each of the criteria should accompany the statement of principles. To evaluate a possible public investment or an incentive or subsidy to encourage a private-sector investment, the government should First, determine that the investment would be worthwhile (i.e., that its benefits probably would exceed the costs and that it would have a higher payoff than alternative investments), and Second, determine that the private sector would not undertake the investment on its own. What kind of freight infrastructure project will yield benefits and yet cannot attract sufficient private-sector support? Such a project, in addition to fulfilling a private-sector demand, must meet one or more of the following five criteria: The project will reduce external costs of transportation. An external cost is a cost imposed on others through a mechanism other than a market price, for example, air pollution. The project will yield external economic development benefits: transportation infrastructure improvements may, in special circumstances, yield efficiencies beyond those recognized by individual private-sector participants. The project or program is an intervention to redress the market imbalance caused by subsidies to some category of carrier. The project fulfills a government responsibility for defense or public safety. The project falls within the established government responsibility for major parts of the transportation infrastructure. If government involvement cannot be justified on one of these grounds, the project belongs in the private sector.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Subsidized Versus Unsubsidized Participation Government participation in a freight project does not necessarily mean subsidy of the project. A critical part of the decision on public involvement is deciding between subsidized and unsubsidized participation. To justify a wholly or partially subsidized project, the government should demonstrate a clear welfare gain (usually from correcting a market failure) as grounds for intervention. Most commonly in the case of intermodal projects, the alleged market failure is the potential for external benefits of the kinds given in the preceding list (or avoidance of external costs). The justification ought to be supported by quantitative estimates of the value of external benefits. A critical approach by public officials to proposals for public-private developments in which the public sector carries a major cost burden or risk is essential if public-private partnerships are to remain viable means of infrastructure finance for the long term. Projects that fail to live up to their promises will undermine public and private willingness to support future partnerships. Subsidized freight intermodal projects have risks that ought to be taken into account in their evaluation: Projections of external benefits are highly uncertain, and experts differ on methods and definitions. The willingness of users to pay for an unsubsidized project proves that benefits exceed costs; therefore the risk that resources are being used inefficiently is greater if the project is subsidized. The subsidy is a transfer from nonusers to users of the subsidized facility that may be inequitable. Government-imposed solutions to intermodal freight problems may supersede preferable solutions that the private sector would reach without intervention. If a publicly backed project becomes obsolete or turns out to have been a poor decision, it may prove politically difficult for the parties to cut their losses. Programs intended to be targeted incentives have a tendency to become routine over time and so lose their effect. The rationale for government involvement in a project that pays its own way depends on the established responsibilities and special compe-

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Policy Options for Intermodal Freight Transportation: Special Report 252 tencies of government. A project may be entirely self-supporting from user fees and private-sector participant contributions, yet government involvement might be necessary to broker a cooperative solution, to solve problems of dealing with multiple jurisdictions, because use of eminent domain is justified, or because existing public facilities are involved. Analysis Tools Governments should apply standard methods for evaluating infrastructure investment proposals. The methods might be analogous to financial accounting standards. Methods are needed that would allow governments to evaluate forecasts of demand, modal diversion, and effects on congestion and pollution. Of equal importance, the financial and economic performance of completed projects should be systematically evaluated according to established guidelines. With honest evaluation of past projects, the public sector can learn from experience and improve the performance of its infrastructure investments. State and local governments often have not applied a systematic benefit-cost framework to evaluating intermodal freight public-private partnerships. Their evaluations reveal uncertainty about how to assess novel kinds of projects according to diverse goals and criteria. The effects on employment and government finances, which are central to conventional state and local government evaluations, are relevant to government decisions and should be estimated. However, evaluation of a transportation improvement ought to start with assessment of transportation benefits. The appropriate framework for evaluating intermodal freight project proposals is to concentrate on quantifying and valuing their direct effects as transportation projects: changes in shipper total logistics costs, changes in external costs such as pollution and congestion, and effects on the location of economic activity. This evaluation does not require government collection of proprietary cost data. Rather, the necessary analysis is a market forecast, that is, a forecast of demand for the new facility at various levels of service and user charges. The primary utility of standardized evaluation procedures is to provide a structure for rational analysis and a factual basis for public discussion of government decisions rather than a single bottom-line evaluation of net benefits or costs.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Guidelines for Determining the Scope of Public-Sector Participation The guidelines proposed here synthesize consideration of the key issues into a checklist for organizing the information needed to evaluate public-sector and public-private proposals for intermodal freight infrastructure projects. They are suggested as a starting point for local jurisdictions to develop their own guidelines. Any such formal evaluation procedure would complement the essentially political process of public debate and discussion that is the basis of major public works investment decisions. The seven steps of the procedure are as follows. Each is explained in Chapter 2. Step 1. Ask questions about the market for the proposed intermodal freight facility. Step 2. Determine the existence of external benefits generated by the facility. Step 3. Estimate economic development benefits. Step 4. Compare the project with the payoff from alternative uses of the public resources and with alternative means of attaining the intended benefits. Step 5. Examine who would receive benefits and bear costs. Step 6. Determine whether a subsidy is necessary, which level of government ought to provide the subsidy, and the mechanism of finance. Step 7. Follow up. Compare the actual results of projects with the projections. FEDERAL SURFACE TRANSPORTATION PROGRAMS AND FREIGHT The federal surface transportation program governed for the past 6 years by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) affects the performance and development of intermodal freight transportation in the United States. The program distributes funds to the states for highway construction and other transportation purposes. The committee examined how this program has served the needs of freight and considered options for provisions of federal programs aimed at improving intermodal freight efficiency.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Use of Highway Trust Fund Revenues for Nonhighway Freight Projects ISTEA strictly limited the kinds of projects that could receive federal-aid funding in keeping with the traditional federal program structure: funding by highway user taxes and projects benefiting highway users. The policy options open to Congress are to significantly expand state flexibility to conduct nonhighway projects with federal surface transportation aid funds, leave limitations similar to those in ISTEA in place, or roll back project eligibility rules to prevent spending for nonhighway freight-related projects. The argument in favor of flexibility is that it would allow states and local governments to plan and develop their transportation infrastructure in a manner that maximizes the highway component’s contribution to the overall system. In some cases the solution to a highway congestion problem is not more highway investment, but rather improved functioning of other components of the system, for example, improved interfaces between highways and other modes. Limiting use of Highway Trust Fund revenues to highway-only projects denies local decision makers, who are responsible for the effective operation of the transportation system, the power to make the most sensible use of transportation resources. The argument against greatly increasing state and local government flexibility to use Highway Trust Fund revenues for nonhighway freight projects has several dimensions. One is the violation of the user-pays principle. Although the user-pays principle is very imperfectly implemented in the existing trust fund structure, further erosion of the principle would be unwise, and any increased flexibility should be tailored to avoid such an outcome. Another possible negative consequence of increased flexibility would be escalation of uneconomic interstate rivalries. Any changes in flexibility should be designed to limit the tendency of states or local governments to seek funding for projects that become redundant. Finally, increased flexibility could encourage private-sector transportation companies to demand more public funding for their infrastructure projects. Added flexibility should be designed as a way to improve effectiveness and efficiency in public investment and not as a license for public support of private projects.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Project Selection and Priority for Freight Projects Freight interests have stated that, in their experience, the provisions of ISTEA emphasizing flexibility and local participation in project selection have sometimes come into conflict with the goal of improving intermodal freight efficiency. Proposals have been made for federal actions to influence local decisions on project priorities or to raise the priority of freight-related projects. Although federal program rules exert an important influence on local decisions, problems concerning project selection priorities require local solutions. Policies aimed at increasing the involvement of freight interests in the public project selection process rather than at restricting local responsibility appear more promising. Obstacles to better local investment decisions concerning freight include the lack of planning procedures that identify projects that would yield high freight-related payoffs, the problems of coordinating multiple jurisdictions in the conduct of regional projects, and lack of well-established public-private relationships in planning freight-related projects. Experience with ISTEA suggests that some local areas and freight interests are learning to overcome these problems. A more fundamental obstacle to effective local decision making can occur if there is a mismatch between the jurisdiction of the decision-making authority and the regions or populations that will receive the benefits and bear the costs of a transportation development. This problem is addressed in the following section. Projects of National Significance Both the National Commission on Intermodal Transportation and the U.S. Department of Transportation (DOT) freight policy statement refer to a category of projects of national significance as a sphere of federal responsibility. A project of national significance may be defined as a freight project that has important consequences for the performance of the nationwide freight system. State and local governments and private firms often carry out such projects without need of federal leadership. A project of national significance that entails a federal responsibility is one for which government involvement is justified and that state and local governments are unable or unsuited to

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Policy Options for Intermodal Freight Transportation: Special Report 252 carry out because the national interest differs from the local, because of the scale of the project, or because essential federal responsibilities are involved (e.g., customs). A formal program to identify and carry out projects of national significance requiring government participation might be organized as a “top-down” federal program, with a federal agency actively identifying, developing, and evaluating projects. The top-down model may be necessary in a few cases. However, for most candidate projects of national significance, the appropriate model would be a “bottom-up” approach in which local governments and private parties develop proposals and seek federal government participation in them. Projects would depend on the efforts of the immediately affected parties. The federal government should require that such projects be largely self-financing; the most effective federal role would be as a provider of backup credit and as an absorber of risk, not as a source of grants. Experience suggests that local public and private leadership and predominantly local and user funding is the formula that tends to produce the most successful projects. Proposals heavily dependent on federal grants are risky and should be closely scrutinized. (It should be understood that projects that are primarily highway construction funded from highway-user excise taxes are essentially user funded.) The bottom-up program could be institutionalized and administered by a federal agency. The goal of system optimization and the decentralized nature of decision making in the U.S. economy and government do not inherently conflict, although sometimes they conflict in practice. Such conflicts can be lessened, and local decisions can be expected to harmonize with national interests, if state and local governments have mechanisms for recouping costs of publicly provided facilities through user fees, means are available to compensate parties that bear the spillover costs of development projects, and local governments are not induced by the availability of external aid to undertake uneconomic projects. Federal policy should seek to bring about these conditions. Overall Structure and Size of the Federal-Aid Program Decisions that Congress makes on the overall shape of the federal program usually are not driven by considerations of how freight will be

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Policy Options for Intermodal Freight Transportation: Special Report 252 affected; however, these decisions have implications for freight transportation. The key decisions are total funding; the extent of federal control, as exerted through program category funding and interstate redistribution; and the structure of user taxes supporting the program. The overall size of the federal surface transportation program—the dollars authorized and disbursed for highways and other transportation projects—is the characteristic of the present program with the greatest effect on freight. Highways are the major government responsibility affecting the intermodal freight system. Resources sufficient to maintain adequate highway system performance are essential for intermodal freight efficiency. Reordering of priorities in state surface transportation capital spending programs in favor of projects important for intermodal freight will be far more difficult to achieve in a period of static or declining funding. REGULATORY AND OPERATIONS ISSUES In addition to building transportation facilities, government operates highways, ports, airports, and waterways. Its performance as an operator affects the efficiency of the intermodal freight system. Operation entails maintenance, fees and pricing, rules and procedures, labor relations, and communication with users. The public enterprises that manage ports and airports commonly function as landlords rather than as operators of their facilities; that is, operations are conducted by private-sector tenants. Important categories of regulation that affect intermodal freight are land use (e.g., zoning and wetlands preservation), other environmental rules, truck size and weight, transportation safety, maritime regulation, and antitrust regulation. This area includes an extremely diverse array of laws and government practices. The committee selected three topics that other recent reviews of intermodal policy have not emphasized and that illustrate the importance of regulatory and operations issues for intermodal performance. Facilitating Application of Information Technology Information is an essential complement to freight transport. All freight must be accompanied by information to provide direction to handlers;

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Policy Options for Intermodal Freight Transportation: Special Report 252 answer the questions of controlling authorities (e.g., customs); and reconcile the records of shippers, consignees, and everyone in between. Freight transportation has benefited from the radical improvements in information technology of recent decades. However, progress in linking the evolving information and transportation systems has been slowed by lack of interoperability, incomplete network infrastructure, and shortage of skills. There is an important federal role in facilitating the application of information technology in transportation. Government cannot mandate standards or the use of particular infrastructure—such efforts have failed repeatedly. Nevertheless, government can provide research support for the development of solutions to problems in the current systems. Also, as a major participant in the overall transportation system, government should take an active lead by ensuring that its systems in areas such as customs, enforcement, and military logistics are interoperable with evolving industry systems. In some cases, flexibility in applying regulations on anticompetitive practices may be advisable to permit industry collaboration on key precompetitive aspects of transport-related information infrastructure. Economic Regulation of Freight Transportation Ocean carriers engaged in scheduled service have antitrust immunity under U.S. law to form shipping conferences to set uniform rates. Rates and practices are overseen by the Federal Maritime Commission. Federal regulations also restrict competition in coastwise shipping. The regulations and shipper conference rate-setting affect competition among ports. Rate restrictions may prevent carriers from offering different rates to different ports on the same coast or quickly changing rates to respond to changing demands on vessels and terminals. The arguments in favor of regulation are that ocean shipping is a strategic industry for the economy and defense, deregulation would result in greater dependence on foreign carriers, regulation preserves U.S. maritime jobs, and regulation provides a degree of stability in a volatile market. The experience of the rail and trucking industries shows that deregulation can have benefits for the public. So that the trade-offs among strategic and economic considerations can be understood, DOT should examine how economic regulation of ocean and coastal

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Policy Options for Intermodal Freight Transportation: Special Report 252 shipping affects freight transportation and efficient use of the U.S. port system. Rates and market access in international air cargo transport also are controlled to some extent by international agreements and conference rate-setting. The consequences of these practices for the performance of the air cargo system should be understood. Pricing Practices Among the most important decisions that governments make as operators of transportation facilities is how to charge their customers. Government charges that affect intermodal freight include highway and waterway user excise taxes and fees charged by ports and airports to carriers and concessions. Improved pricing of government transportation facilities would yield large payoffs in improved efficiency. Improved pricing means charging each user fees and taxes that more closely match the costs (including net external costs) of providing service to that user. PUBLIC FINANCE OF INTERMODAL FREIGHT PROJECTS Decisions on financial responsibility and revenue sources will be critical not only to the feasibility of a public-sector intermodal freight project but also to its chances for long-term success. Mechanisms established for project finance can help ensure that necessary and valuable projects are built and that government avoids participation in projects with low payoff or little public significance. The committee has examined the following selected policy issues that are relevant to state and local governments deciding on finance arrangements of individual projects or to the federal government, which influences project finance decisions through its aid programs and tax laws. Who Should Pay for the Project The candidates for paying for a public-sector intermodal freight transportation project are users (through tolls or other fees), other direct beneficiaries (e.g., owners of property adjacent to the development), the

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Policy Options for Intermodal Freight Transportation: Special Report 252 local public (through subsidies from local general tax revenues or tax concessions), the national public (through use of federal grants or tax-exempt bond finance), or a category of indirect beneficiaries (e.g., applying road user fee revenues to rail transport on the grounds that rail use relieves road congestion). The predominant benefit of most projects in which the government participates is the direct benefit to users. Such projects should be financed by user fees or private-sector contributions, with each user paying a fee commensurate with the cost of providing service to that user. In some projects, external benefits (such as pollution reduction or mitigation of highway congestion) or defense needs are an important part of the justification for government participation. In these projects each user ought to pay the net cost of its use of the service after deducting the public benefit, and government should make up the difference between revenues from users and project costs. If the intended external benefits are primarily local development, local government should provide the subsidy. Road construction to improve access to ports and other intermodal terminals is one of the most important categories of freight-related government infrastructure projects. Road projects are to a great extent funded by users through highway user excise taxes, so they at least partially meet the criteria proposed here. Practical constraints on local governments may dictate departures from this ideal assignment of responsibility. Local governments will not allow any external funds available (for example, federal aid) to go unused and may feel compelled to make compromises for the sake of job retention. The Congestion Mitigation and Air Quality (CMAQ ) program of ISTEA provides federal grants for projects to improve local air quality. In the absence of a mechanism to charge polluters for their contributions to local emissions, such aid may be regarded as essential for equity. The review of the project proposal should assess the implications of the funding package for the incidence of cost burdens. Innovative Mechanisms for Raising Capital and Operating Funds The term “innovative finance” refers to any funding arrangements that depart from traditional practices for a category of public works. Greater reliance on debt finance, use of new revenue sources (e.g., tolls and spe-

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Policy Options for Intermodal Freight Transportation: Special Report 252 cial tax districts), and public-private partnerships can increase funds available for transportation infrastructure and speed completion of projects. Congress in 1995 authorized a pilot program to create State Infrastructure Banks (SIBs) to facilitate the various innovative finance techniques. Potential obstacles to the use of innovative finance mechanisms include the limited number of projects that can be expected to generate their own revenues, conflicts with federal tax-exempt finance rules, and state laws restricting public-private ventures. The important policy choice facing Congress and the states is whether to promote further use of infrastructure banks and similar innovative finance arrangements. The options the federal government will consider include further promoting innovative finance through increased direct federal capitalization of SIBs and relaxation of tax-exempt bond finance restrictions to promote public-private partnerships. States must decide whether to change their laws to remove any legal barriers to public-private joint development and whether to participate in the federal infrastructure banking program. Management of Transportation Trust Funds Trust funds are accounting entities that receive revenue from excise taxes paid by users of a public facility and whose disbursements are ostensibly restricted to purposes benefiting users. Because of extensions in the kinds of uses to which the funds may be put and caps imposed on spending, the federal transportation trust funds function differently today than when they were conceived. The policy options for Congress are to Preserve and reinforce the traditional mechanism by spending down balances and curtailing diversions; Maintain the status quo, under which a major portion of spending is for the direct benefit of user fee payers but revenues are also used for other purposes or retained; Create multimodal trust funds into which users of all freight modes would pay and that would be available for multimodal public works projects; or

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Policy Options for Intermodal Freight Transportation: Special Report 252 Abolish the trust funds. (This would not necessarily entail abolishing user fees.) States that use trust fund finance face similar policy choices. The most common arguments in favor of trust fund finance are funding stability and fairness. The mechanism may also promote efficient use and development of facilities because it makes pricing for public services more politically acceptable. The argument against trust funds is that the mechanism creates an undesirable constraint on public investment decisions. There is no economic reason why the optimum level of investment in a category of facilities should necessarily always equal user fee revenues. Rules for Use of Tax-Exempt Bond Finance Proposals have been made for altering the rules for tax-exempt bond finance to make it easier for public-private transportation projects to qualify. Relaxing restrictions would encourage development of new funding sources for transportation projects by attracting private-sector participation in projects that serve both public and private ends. However, greatly expanding tax-exempt bond finance could have negative consequences: Tax-exempt bonds have the same effect as a subsidy from all federal taxpayers to the beneficiaries of the project. If the public benefits are primarily local or regional, the subsidy might be regarded as inequitable. Tax-exempt bonds bias the capital market in favor of government-selected investments. The cost of this diversion is justified only if favored projects generate sufficient public benefits. Expanded use might increase the frequency of defaults and raise the cost of borrowing for all users of tax-exempt finance. If tax-exempt finance is liberally available for a class of projects, the tendency will be for it to be used routinely. Congress faces the choice of maintaining existing restrictions, which are designed to avoid these risks, or expanding eligibility. If Congress decides to promote innovative finance and public-private partnerships, some reduction of differences in the tax treatment of publicly and privately financed infrastructure may be necessary.

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Policy Options for Intermodal Freight Transportation: Special Report 252 Relation of Federal Tax and Aid Policies to Privatization Federal tax and program eligibility rules also will affect the feasibility of privatization. States are experimenting with private-sector road development, and ports and airports may become candidates for privatization. The policy option to be considered by Congress is whether, for some categories of facilities, tax and aid program rules ought to be neutral with respect to whether the facility is in public or private hands. Neutrality could be accomplished by allowing access to aid under some circumstances for certain private facilities or by restricting aid to public facilities. RESEARCH NEEDS The research needs identified by the committee relate to developing, testing, and demonstrating methods for obtaining the information required for decisions on public-sector intermodal freight programs and to evaluating current programs. Needs related to each of the four areas of the committee’s conclusions are given in the remainder of this chapter. The committee recommends that the federal government undertake research on the following topics. The topics are of importance to states as well. Principles for Government Involvement The federal government, cooperatively with the states and metropolitan planning organizations, should develop standard methods for evaluating freight infrastructure investment proposals. Methods should be consistent with Executive Order 12893, “Principles for Federal Infrastructure Investments.” Federal mandatory standards are not necessary or practical; rather the federal role should be to demonstrate the utility of the methods. Methods should include means for conducting benchmark comparisons of freight facility performance with actual state-of-the-art facilities. The Federal Railroad Administration’s RAILDEC analysis package is an example of such a procedure. Standardized analysis procedures must be supported (a) with retrospective evaluations of projects to compare

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Policy Options for Intermodal Freight Transportation: Special Report 252 actual outcomes against those predicted or assumed in the prospective analysis and (b) with comparisons of estimates of social costs in the evaluation procedure against estimates from other sources and from new research. The federal government needs to maintain existing data programs that collect freight activity data and ensure that these programs are compatible with the requirements of local and regional transportation planning. The possibility that freight infrastructure improvements may yield economic benefits in the form of network externalities or reorganization benefits that cannot be measured by observing the direct transportation cost savings produced by the project remains a poorly understood aspect of transportation project evaluation. Research is needed to clarify the relevance of such benefits in evaluations. Federal Surface Transportation Programs and Freight Research is needed to define, measure, and forecast national freight system performance. Examples of important topics in the area are projection of long-term capacity constraints, examination of institutional obstacles to improved performance, and establishment of benchmarks for national and international comparisons of freight system productivity. The most practical way to study these topics will be through targeted research that involves screening for exceptional cases that are then studied in depth, rather than through new comprehensive data collection programs. New federal initiatives affecting freight should incorporate formal program evaluation. For example, the CMAQ and SIB programs should undergo evaluation. The government needs to systematically track how the new and experimental programs are used and document successes and failures. Regulatory and Operations Issues Policy research is needed to examine how the efficiency of information exchange throughout the freight system is affected by federal practices

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Policy Options for Intermodal Freight Transportation: Special Report 252 and requirements, including information exchange requirements imposed by regulation, information exchange practices between the federal government and its suppliers, and federal antitrust oversight of private standards-setting activities. The research must look across government organizational boundaries. Research on international port and airport privatization that examines effects on shipper costs, trade, and local employment would help in evaluating U.S. policy. Analysis of effects of economic regulations on ocean shipping should be conducted, following the model of evaluations of rail and trucking regulation. Study is needed on whether programmatic efficiencies could be gained through reorganization of the U.S. Department of Transportation along lines that would parallel commercial realities in intermodal freight and passenger transportation. Public Finance of Intermodal Freight Projects Research is needed on the costs and distributional effects of alternative financing mechanisms for public works projects, including tax-exempt bond finance, user fees, and use of federal aid. Case studies examining the relationship of finance to performance of public intermodal projects are needed.