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4
Transportation Finance Equity
Evidence and Experience
The first two sections of this chapter summarize the evidence about the
equity of road and transit finance strategies, with emphasis on different
variants of road pricing. Much of the literature on the equity of road
pricing discusses theoretical and modeling studies of the possible equity
impacts. The literature presenting empirical evidence from practical
implementation of road-pricing approaches is more limited in scope.
Both logic and experience suggest that transportation finance policies
inevitably result in both winners and losers, and possible approaches for
remedying the inequities suffered by losers are discussed in the third sec-
tion of the chapter. The importance of involving all affected groups in
identifying inequities and developing potential remedies is highlighted.
The final section of the chapter identifies and discusses opportunities
to fill gaps in current knowledge about the equity implications of trans-
portation finance mechanisms, with emphasis on the need for robust
empirical evidence.
EVIDENCE ON EQUITY IN ROAD FINANCE
A full assessment of fairness [of road pricing] must consider the incidence of
toll payments, the incidence of taxes that would have been levied in the
absence of tolls, the user benefits (speed and other improvements), the losses
associated with some less desirable form of travel for users who avoid tolls,
and the final results from the investments made with toll revenues. (Puget
Sound Regional Council 2008, 28–29)
This observation, made in the context of the Puget Sound Regional
Council’s pilot project to evaluate travelers’ response to variable road
67
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68 Equity of Evolving Transportation Finance Mechanisms
tolling, illustrates the complexities involved in assessing the fairness
(equity) of a financing mechanism. The evidence presented in the liter-
ature on equity in road finance reflects these complexities, with much of
the work looking at only part of the equity equation—for example, the
burden of a toll, or the equity in services offered or consumed—rather
than the full range of costs and benefits associated with the toll.
Scope of the Evidence
The availability of evidence about the equity implications of road financ-
ing strategies varies considerably depending on the type of strategy. The
motor fuel (gas) tax has been studied extensively, with a flurry of stud-
ies examining the incidence of the gas tax beginning in the 1990s, when
this tax was last raised at the federal level. In contrast, studies of less
widely implemented finance strategies—voluntary toll policies such as
high-occupancy toll (HOT) lanes and comprehensive toll policies such
as cordon tolls, for example—are more limited in number. As discussed
in Chapter 2, HOT lanes have been implemented in various locations in
the United States, and there is some empirical evidence about the equity
implications of these lanes, although modeling studies predominate
(Schweitzer 2009). In the case of comprehensive, or mandatory, tolls, the
empirical evidence is even more limited. Cordon tolls have been imple-
mented in several cities overseas, notably Singapore; London; and Stock-
holm, Sweden, but not in the United States. Empirical evidence about
the equity implications of vehicle miles traveled (VMT) fees and related
taxes is sparse, because such taxes have not been implemented, with the
exception of truck weight–distance charges (see Chapter 2).
Study Methods
Most studies consider the distribution of burdens of taxation or other
financing mechanisms and not the benefits of expenditures. Several rea-
sons underlie this focus on burdens (costs).1 First, examining both costs
and benefits is considerably more complicated than examining costs
1
As discussed in Chapter 3, the burdens of a finance policy may be both economic and non-
economic in nature.
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Transportation Finance Equity 69
alone. The data requirements are complex, in part because the benefits
depend on responses to finance policies that can vary widely among
groups, households, and individuals. There are many ways to use rev-
enues raised by a given transportation finance mechanism, and treating
each of them would greatly multiply the number of cases to be consid-
ered. Furthermore, Schweitzer (2009) notes that the benefits of service
quality improvements to different types of travelers are seldom estimated
for roadway studies, although there is evidence that the differences
among groups may be startling; for example, one study finds that women
value travel-time reliability more than twice as highly as men (Lam and
Small 2001). Finally, the distribution of benefits of expenditures is espe-
cially likely to depend on local conditions, making it particularly diffi-
cult to draw general conclusions. For example, the distribution of
benefits from a highway extension to a suburban area depends on the
spatial pattern of residences and jobs by income group.
There is a natural tendency to focus on potential losses under a new
financing regime. The results of such narrow studies provide one per-
spective on the equity implications of finance policies, but the full pic-
ture may look rather different. For example, Schweitzer (2009) suggests
that the initial pricing of certain projects may be inequitable for lower
income groups, but these groups may also benefit disproportionately if
the same projects generate positive land use changes or decrease envi-
ronmental pollution. Such disproportionate benefits accrue because
lower income groups suffer more on average from dispersed land use
patterns and environmental pollution than do wealthier travelers
(Schweitzer and Valenzuela 2004).
A few studies have specifically identified ways that the distributions of
benefits and costs are altered if one considers the ways in which rev-
enues are actually spent and services are consumed. The term “revenue
recycling” is often used to describe the use of the revenues from a financ-
ing mechanism, that is, the ways in which revenues are “recycled” or
redistributed—for example, by investing in transit or highways, giving
monetary credits to individual travelers, or reducing other taxes. Con-
sidering revenue uses often alters substantially the pattern of winners and
losers, so it is important to know whether revenue recycling was included
in a given equity analysis.
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70 Equity of Evolving Transportation Finance Mechanisms
Studies of the motor fuel tax have investigated the many ways in which
the burden of this tax can be shifted from retailers to final customers,
motor vehicle manufacturers, and so on (see Chapter 3 and Box 4-1).
Most studies of other road finance mechanisms employ rather simple,
and often unstated, assumptions that place all the finance burdens on the
most easily identified market participants. Thus, while the incidence of
the motor fuel tax is relatively well understood, the same cannot be said
for many evolving transportation finance mechanisms.
Findings
Schweitzer finds that empirical studies of transportation taxes, fees, and
charges converge on a basic range of estimates for how much different
groups pay, “even though the studies involve significant variations in
method, data, and assumptions” (2009, 2). She finds that low-income
drivers pay, on average, 0.1 to 0.5 percent of household income for most
transportation taxes and fees. Higher toll levels and more comprehensive
pricing strategies are expected to take a higher percentage of income—
perhaps as much as 2 percent of household income for those earning less
than $25,000 a year. Schweitzer emphasizes, however, that these results
“depend on the geographic context and on the choices available to low-
income motorists” (2009, 2). This dependence on specific details has
long been recognized in discussions of the likely equity implications of
congestion pricing (see, for example, Giuliano 1994).
Schweitzer’s (2009) analysis suggests that a given transportation pric-
ing or tax policy is unlikely to be always progressive or always regressive
within or across regions when all the costs and benefits are taken into
account. Differences in policy instrument design and revenue usage can
result in a system that is regressive, proportional, or progressive, depend-
ing on specific details and local conditions. Other researchers have
reached similar conclusions. For example, research by Pucher in the early
1980s showed that the incidence of public transportation policies is very
sensitive to local transit service patterns and to the mix of funding
sources used to finance public transit systems (Pucher 1981, 1982; Pucher
and Hirschman 1982). Such findings demonstrate that simplistic policy
sound bites (e.g., “if we price the freeway, the poor will suffer”) are
invariably misleading.
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Transportation Finance Equity 71
BOX 4-1
Shifting the Cost Burden of the Motor Fuel Tax
Alm et al. (2009) consider shifting of the fuel tax burden from
retailers to final customers. They find such shifting to be virtually
complete in urban areas (i.e., consumers pay the full cost of the
tax) as a result of strong competition among retailers, and exten-
sive, though not complete, in rural markets. The Congressional
Budget Office (2003) considers the effects of increasing the fed-
eral gasoline tax, including the possibility that some of the tax
may be shifted to motor vehicle manufacturers by forcing them
to absorb some of the extra cost of new, more fuel-efficient vehi-
cles. The study finds evidence of some such shifting, but still finds
that 83 percent of the burden falls on vehicle owners. Bento et al.
(2009), West (2004), and West and Williams (2004) focus more
on how travel demand varies across income groups in response
to fuel price increases; they find that wealthier households are
somewhat less responsive and therefore tend to have more of the
tax shifted to them than do poorer households. Taking this dif-
ferential responsiveness into account reduces the regressivity of
the fuel tax somewhat, but not entirely. Only when the gas-tax
revenue is spent in a way that benefits everyone equally, such as
by providing an equal per-household tax rebate, does the gas
tax become progressive according to these analyses. In contrast,
financing transportation services typically benefits different groups
unequally, and so the net incidence of the tax could depend on just
how those transportation services are distributed.
The study by Bento et al. (2009) is notable for its detailed
depiction of markets for new and used passenger vehicles, show-
ing how a gasoline tax is shifted to various segments of vehicle
markets. The authors also consider how the burdens borne by
motor vehicle manufacturers and gasoline refiners are likely to
(continued on next page)
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72 Equity of Evolving Transportation Finance Mechanisms
BOX 4-1 (continued)
Shifting the Cost Burden of the Motor Fuel Tax
be distributed among various population groups. The result is
that the burden of the tax is mildly progressive at low incomes
and mildly regressive at middle and high incomes; that is, the
greatest burdens (as a fraction of income) are borne by middle-
income groups, although the differences are not very great. The
main reason for this pattern is that most burdens are shifted to
users, and fuel use rises strongly with income at low incomes
but less so at higher incomes.
It should also be noted that the taxes and user fees charged for trans-
portation vary widely across the country. As noted in Chapter 2, for
example, road tolls are far more common in California, Florida, Illinois,
New York, and Texas than in most other states. If the equity of current
taxes and fees (the status quo) is used as a baseline against which to assess
the equity consequences of a new finance policy, variations in this base-
line in different regions are likely to affect the assessment. Thus, intro-
ducing new road tolls in a region in which such tolls are already relatively
common may have different equity implications than introducing road
tolls in a region in which fees are not currently levied on road users
directly (i.e., at the time and place of use).
Motor Fuel Tax
A number of researchers have found the motor fuel (gas) tax to be regres-
sive. Chernick and Reschovsky (1997) provide a typical finding: a sim-
ple comparison of data across income deciles, whether for a single year
(1982) or averaged over 11 years (1976 to 1986), shows that family
expenditures for motor fuel are regressive except for families in the low-
est income brackets. (These families typically do not own cars and there-
fore do not spend money on fuel.) Several factors may overturn that
result, however. One is that comparing tax payments to annual income—
as opposed to measures of long-term income—biases the results toward
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Transportation Finance Equity 73
regressivity. Many low-income people (students, for example) may con-
sume a lot of fuel and are relatively poor at the time, but are far wealth-
ier over the course of their lifetime (Congressional Budget Office 1990;
Poterba 1991). Another factor is that wealthier people buy more goods,
the prices of which incorporate substantial amounts of the gas tax paid
to produce and deliver them to market. Yet a third factor, discussed in
Chapter 3, is that low-income households appear to be more responsive
than high-income households to changes in fuel price, causing them to
shed some of the burden through behavioral changes (West 2004; West
and Williams 2004). These behavioral changes depend on the availabil-
ity of transportation options and on various markets, including the job
market. As a result, the gas tax may not be regressive but closer to pro-
portional; that is, it takes roughly the same share of everyone’s income
(Rufolo and Bertini 2003).
Voluntary and Comprehensive Tolls
Schweitzer (2009) summarizes the evidence from a mix of modeling esti-
mates and empirical data about the equity implications of voluntary and
comprehensive toll policies. She finds both types of charges to be broadly
regressive, with the variations in findings depending primarily on differ-
ences in policy design and distribution of revenues rather than on differ-
ences in study methods and data.
Table 4-1 summarizes major findings about equity from a selection of
recent studies of road pricing. All these findings are based on models
rather than on empirical data and should, therefore, be interpreted with
caution; incorporating alternative assumptions into the models could
modify the study findings. In addition, while individual studies may be
of high quality, few look at all aspects of the equity equation and so need
to be interpreted accordingly. Despite these caveats, the diversity of find-
ings listed in Table 4-1 illustrates the difficulty of developing a clear pic-
ture of the equity impacts of pricing policies. Many of the findings
depend on specific policy details and geographical context, and no clear
trends emerge about the fairness (or unfairness) of pricing policies.
Voluntary Tolls HOT or express toll lanes give travelers the option of
paying a toll to ensure a faster and more reliable trip time. It can be
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TABLE 4-1 Equity Findings from Recent Studies of Road-Pricing Policies
Study Study Area Proposed Road-Pricing Policy Finding
Most travelers (all but those with an income of greater than $80,000
Anderson and Minneapolis–St. Paul, Congestion tolls
per year) would be worse off with road pricing unless revenue is
Mohring 1997; Minnesota
recycled.
Mohring 1999
Road pricing would have a detrimental effect on low-income house-
Johnston and Sacramento, California VMT tax and peak-period toll
holds but would have a positive effect for middle- and high-
Rodier 1999 policies
income households.
Prior to revenue recycling, consumers would be worse off with road
Fridström et Edinburgh, Scotland; Cordon tolls and distance-
pricing; after recycling, overall societal net benefits may improve.
al. 2000 Helsinki, Finland; Oslo, based charges
Pricing diminishes the ease of reaching destinations by car but
Norway
increases the ease of reaching destinations by transit.
While pricing makes auto (and nonauto) travel faster by pricing
some cars off congested roads, this faster travel is more expen-
sive. The combination of the two changes (time plus money)
increases the composite cost for typical auto travelers.
Revenue recycling can be used to improve transit service.
The net benefits of transportation are distributed less equally after
Teubel 2000 Dresden, Germany Road user charges for
the introduction of road pricing than before.
commuters
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San Francisco Bay Bridge, The strategy would harm members of the lowest income group. No
A congestion alleviation strategy
Nakamura and
California combination of tolls plus rationing rates was found to benefit all
that is a hybrid between
Kockelman 2002
groups of travelers studied.
rationing and pricing: travelers
could use the bridge on some
days without tolls, but on other
days only if they paid a toll.
Washington, D.C. Value pricing (HOT lanes), limited HOT lanes are more equitable than congestion pricing of some or all
Safirova et
congestion pricing, and compre- freeway links because there is a toll-free option.
al. 2003
hensive congestion pricing
Benefits from HOT lanes accrue to all income groups even before
recycling. HOT lanes achieve between 77 and 83 percent of the
efficiency benefits (reduction in travel time) associated with com-
prehensive road pricing.
Road user charging will increase social exclusion for some drivers,
Leeds, England Cordon crossing charges at each of
Bonsall and
especially for low-income, car-captive travelers.
three cordons; distance-related
Kelly 2005
charges within two charge
areas; and time-related charges
within an inner area
Pollution reduction associated with pricing benefits the lowest
Leeds, England Road user cordon and distance-
Mitchell 2005
income quartile more than the highest income quartile.
based charging
According to the benefit principle, a distance-based VMT charge is
Oregon Distance-based VMT charge
Whitty and
more equitable than existing gas taxes because payments are
Imholt 2005
more clearly related to benefits received.
(continued on next page)
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TABLE 4-1 (continued) Equity Findings from Recent Studies of Road-Pricing Policies
Study Study Area Proposed Road-Pricing Policy Finding
England Nationwide road user charging, If revenues from a national road-pricing policy are recycled through
Glaister and
including revenue-raising and a reduction in the fuel tax, benefits accrue more to rural than to
Graham 2005,
revenue-neutral charging urban residents.
2006
options
Seattle, Washington, Roadway tolls Tolling is regressive.
Franklin 2006
State Route 520
Utsunomiya, Japan Cordon road pricing that charges Area-based tolls produce greater societal net benefits than cordon
Maruyama and
travelers per crossing and area tolls, but also greater regressivity.
Sumalee 2007
road pricing that charges travel-
ers for an entry permit (e.g.,
per day)
In terms of money spent (not as a proportion of income), road
Austria Nationwide road pricing
Steininger et
pricing is progressive: poorer households would bear a smaller
al. 2007
burden than wealthier households because poorer households
spend less money on transportation in general and use public
transport more. In terms of money spent as a proportion of
income, road pricing is regressive.
Zhang et al.
Users with the lowest value of time harvest the least benefit (or
Sioux Falls, South Dakota Road tolls
2008
suffer the most loss) from road pricing and investment decisions.
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Transportation Finance Equity 77
argued that equity effects are quite small, because the voluntary priced
lanes are coupled with parallel toll-free general-purpose lanes (Verhoef
et al. 1996). Supernak et al. (2002) argue that equity was not an issue in
public discourse on the San Diego, California, I-15 FasTrak lanes, and
Douma at al. (2005) report that equity was rarely mentioned prior to the
opening of the Minneapolis, Minnesota, I-394 MnPass lane. Other
authors disagree, noting that criticism of the initial HOT lane demon-
stration project in the Minneapolis region was based largely on people’s
concerns about “Lexus lanes” (see Chapter 5) and that equity has been
raised as an issue in many HOT lane projects at some point in project
development (Weinstein and Sciara 2006).
Objective analyses of HOT lanes reveal several potential equity issues.
One is the ability to access the facility, which, for early HOT lane proj-
ects, often required signing up and paying for an electronic transponder.
The acquisition cost of a transponder and minimum advanced payment
for access presents a burden for low-income households that may have
neither bank accounts nor credit cards. On the 91 Express Lanes in
Orange County, California, and on the Pennsylvania Turnpike, trans-
ponder ownership rises disproportionately with income (Parkany 2005).
Similarly, enrollment in the Katy Freeway QuickRide HOT lane in
Houston, Texas, which originally did not require a transponder but still
required preregistration and sign-up, increased with income (Burris and
Hannay 2003). The tolling industry is, however, transitioning away from
transponders to alternative toll collection technologies that do not
require initial investments by travelers, such as toll tags or license plate
recognition with optical character readers.
Beyond the question of access to the system, HOT lane use generally
rises with income, with some exceptions. On the I-394 MnPass lanes in
Minnesota and the I-15 HOT lanes and the 91 Express Lanes in Califor-
nia, travelers from higher income households disproportionately use the
lanes and pay tolls (Patterson 2007; Supernak et al. 2002; Sullivan 2000).
Thus, both the transportation benefits and financial burdens flow
disproportionately to those with higher incomes. Data on use of the
QuickRide HOT lane system in Houston are less clear. While those with
household incomes of less than $50,000 a year represented only 7 per-
cent of respondents to a survey sent to all QuickRide participants, these
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Transportation Finance Equity 91
ficult to secure funding for surveys with a payoff that is primarily long
term—for example, the aforementioned longitudinal panel surveys. In
addition, the reluctance of a growing segment of the population to
respond to surveys poses problems in obtaining satisfactory data. Per-
sonal Global Positioning System tracking systems can reduce the response
burden for surveys of travel behavior, but these systems are presently
more expensive than traditional surveys. In the future, applying the most
effective data-gathering techniques will be necessary to build an objec-
tive basis for analyzing, forecasting, and evaluating the equity impacts of
evolving transportation finance strategies.
Fine-grained freight data, analogous to the personal travel data already
described, will also be needed to develop an understanding of equity
impacts on the freight sector. Some useful data may be obtained from
vehicle tracking information used to manage logistics operations.
Anticipating Equity Outcomes
Anticipating equity outcomes requires predicting how people will change
their behavior in response to changes in prices, service levels, regulations,
or other facets of transportation finance policies. Travel behavior mod-
els are used to predict such behavioral changes.
Predicting day-to-day variations in people’s travel behavior in response
to new taxing and pricing strategies, particularly dynamic strategies
based on real-time measurement of roadway performance, requires
sophisticated models. Such behavioral variations depend on how people
value (travel) time, and value of time is of central importance in under-
standing the impacts of both variable road pricing and tolled roads. Peo-
ple’s willingness to pay a road toll or fee to save time varies from person
to person, and for the same person in different situations. For example,
a low-income driver working two jobs may be willing to pay a high toll
to avoid congestion and make a faster trip to get from one place of work
to another on time; under less pressing circumstances, however, that
same traveler may simply avoid the peak period or choose an unpriced
(and more congested) roadway. All models currently implemented in
the United States use a single value of time for each market segment
(e.g., income group), however, which may be one reason behind the
poor record of forecasting the use of toll roads and the resulting frequent
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92 Equity of Evolving Transportation Finance Mechanisms
financial problems of toll-road operators (Flyvbjerg et al. 2003, 2005;
Kriger et al. 2006).
Models also need to capture the possibility of drivers adjusting their
departure times to optimize some combination of travel time and user
fees, an adjustment that may, in turn, affect route or mode choices.
Households may reallocate tasks among people within the household or
among different time slots with resulting changes in time of day of
travel, ridesharing, or trip chaining (i.e., combining several destinations
in the form of successive one-way trips within a larger tour). Because
these are primary responses to time-of-day pricing and may vary con-
siderably across different types of households, they are important in
equity analysis.
Advanced models that consider travel in terms of a tour (a journey
from home to one or more activity locations and back home) are being
developed and implemented in response to planners’ needs for better
forecasting tools in general (see, for example, Donnelly et al. 2010). These
models offer the potential to forecast changes in travel behavior with
enough sophistication to support equity analysis. In contrast, traditional
travel behavior models often fail to account for some of the ways people
modify their behavior in response to changes in transportation prices
(including taxes) and services. As a result, traditional models, although
widely used, are limited in their ability to predict the behavioral changes
central to equity analyses.
To predict long-term impacts of policies, it is also necessary to antic-
ipate location shifts and land use changes as travelers, shippers, and oth-
ers adapt to changes in transportation facilities, services, and the way
these are financed (priced). Because travel is an inherently spatial phe-
nomenon and because geographic and return-to-source equity are so
important in the policy process, anticipating the land use impacts of
transportation decisions is a priority—and also a challenge. Realistic
land use models are complex, and their data needs are demanding, but
modeling tools to support comparison of the long-term spatial effects
of different transportation financing options are important for equity
analysis. Some such land use models are deployed or under development
within a few of the larger metropolitan planning organizations and at
least one state.
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Transportation Finance Equity 93
CHAPTER HIGHLIGHTS
• There is limited empirical evidence on the equity implications of
evolving transportation finance policies, and even less evidence on the
effectiveness of strategies for remedying inequities resulting from such
policies.
• When it comes to assessing equity, the devil is in the details. The find-
ings from empirical and theoretical studies of the equity of different
transportation finance policies typically reflect different local condi-
tions and policy details and are independent of differences in study
methods, such as data quality or analytical procedures. The impacts
of policy design, local conditions, revenue usage, potential remedies
for inequities, and other specific details on different groups of people
are critical in determining a policy’s overall equity implications.
• The results of studies examining different road-pricing variants (e.g.,
HOT lanes, cordon tolls, and VMT fees) do not show any clear trends
about the fairness (or unfairness) of such policies, in part because pol-
icy details vary from place to place. In addition, very few studies have
examined the full range of costs and benefits associated with a policy,
so the findings from a single study often provide a narrow perspective
rather than an overall equity assessment.
• If cost burdens alone are considered, most, if not all, forms of road
financing are regressive to some extent (i.e., they put a disproportion-
ately large financial burden on lower income people). To make informed
decisions about finance policies, however, it is necessary to go beyond
the cost burdens alone and to address the policy’s benefits—for exam-
ple, faster travel times, cleaner air, and safer roads as the result of con-
gestion pricing. A policy’s benefits, generated through the effective use
of revenues to address the transportation needs of communities, can
counterbalance some or all of its inequities.
• The most commonly used strategy for offsetting inequities in the
financial burden of a transportation policy is improving public
transportation—at least in the relatively few instances where any remedy
at all has been implemented. Providing more and better public trans-
portation may help offset some of the inequities associated with high-
way financing but is not a consistently effective remedy, especially for
low-income motorists who have no realistic alternatives to making
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94 Equity of Evolving Transportation Finance Mechanisms
particular journeys by car. Whether improved transit services are a
viable alternative to driving depends on the details of the services pro-
vided, the populations served, the geographic distribution of jobs and
residences, and other local conditions.
• Strategies for remediating inequities associated with a transporta-
tion finance policy can be difficult to implement and maintain
because of other demands on the revenues generated. One possible
approach to ensuring at least some form of remediation is to man-
date that some portion of the revenues be set aside for remedies in
the affected markets.
• Engaging all stakeholders in participatory decision making about
transportation programs and projects can help identify inequities and
target remedies to the needs of adversely affected communities or
groups. Such an approach also helps ensure that affected groups are
part of the problem-solving process.
• Documenting practical experience with evolving transportation
finance mechanisms, including information pertaining to equity, can
provide robust empirical evidence with which to inform future deci-
sions about the use of such mechanisms. Comprehensive studies that
record travel behaviors both before and after a mechanism has been
implemented form a particularly valuable basis for equity analyses.
Including information about the freight sector in such studies could
help fill the current knowledge gaps in this area.
• The design and evaluation of evolving finance mechanisms require
both data and predictive power that generally exceed typical current
capabilities. To improve equity analyses in the future, special efforts
will be needed to gather data at the required level of detail and to
develop models capable of predicting and analyzing travelers’ com-
plex behavioral responses to evolving finance policies.
REFERENCES
Abbreviations
GAO Government Accountability Office
NSTPRSC National Surface Transportation Policy and Revenue Study Commission
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