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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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