A well-functioning freight transportation system is essential to national prosperity. Advances in freight transportation and logistics in recent decades have been a major source of productivity growth in the U.S. economy. Freight transportation is a joint enterprise of the private sector, government, and public enterprises; therefore it is important to review public-sector programs that serve freight to determine how well they are keeping up with rapid change in industry. The Transportation Research Board formed a Committee for a Study of Policy Options To Address Intermodal Freight Transportation to examine prospects for changes in programs to improve the efficiency of the freight system, and of intermodal freight in particular, in the light of recent experience.
PRINCIPLES FOR GOVERNMENT INVOLVEMENT
Governments are reexamining the scope of their involvement in freight transportation, 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 finance, construction, and operation of facilities. Clear guidelines and systematically developed information will be of value in the process of reaching decisions on government involvement.
Deciding on Government Involvement
Officials responsible for infrastructure should define criteria for government involvement in freight projects and specify how to test quantitatively whether a proposal meets each of the criteria. To warrant public-sector participation, a proposed freight infrastructure project must possess one or more of the following characteristics:
The project will reduce external costs of transportation.
It will yield external economic development benefits, that is, benefits that do not influence decisions of users of the facility.
It will redress an imbalance caused by subsidies to some class of carrier.
It is necessary for national defense.
It falls within the established government responsibility for parts of the infrastructure.
Subsidized Versus Unsubsidized Participation
Government participation in a freight project does not necessarily mean subsidy of the project. To justify a 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 obtaining the external benefits given in the preceding list. The justification ought to be supported primarily by quantitative estimates of the value of external benefits.
Governments should apply standard methods for evaluating infrastructure investment proposals. The performance of completed projects should be systematically evaluated according to established guidelines. The appropriate framework for evaluating intermodal freight project proposals is to quantify their direct effects as transportation projects: expected changes in shipper and carrier costs, changes in external costs such as pollution and congestion, and effects on the location of economic activity.
The federal government, cooperatively with the states and metropolitan planning organizations, should undertake research and tests to develop and demonstrate such standard methods. Research also is needed to measure and project freight system performance. Existing federal programs intended to facilitate intermodal freight should be quantitatively evaluated, and future federal initiatives affecting freight should incorporate program evaluation.
FEDERAL SURFACE TRANSPORTATION PROGRAMS AND FREIGHT
The committee examined options for provisions of federal surface transportation programs aimed at improving intermodal freight efficiency.
Use of Highway Trust Fund Revenues for Nonhighway Freight Projects
Increased flexibility to choose the kinds of projects that receive funding from federal highway user fee revenues would free states to manage their transportation programs by defining objectives and searching for the optimal means to attain them. However, expanding flexibility entails risks. First, it tends to undermine the user-pays principle. Second, it could fuel uneconomic interstate rivalries in development of facilities. Finally, transportation companies might come to routinely demand aid for private infrastructure improvements. Any expansion of flexibility ought to be designed to avoid these pitfalls as far as possible.
Project Selection and Priority for Freight Projects
Although federal programs influence local decisions, most problems concerning project selection priorities require local solutions. Obstacles to proper accounting of the needs of freight in local transportation investment decisions include lack of procedures to identify high-payoff freight-related projects, problems of coordinating multiple jurisdictions, and lack of established public-private relationships. Improved decision making will come about through expanded initiatives to
promote involvement of carriers and shippers in the public political processes of developing investment plans.
Projects of National Significance
The U.S. Department of Transportation’s freight policy identifies, as a sphere of federal responsibility, a category of projects of national significance in which government involvement is justified but that state and local governments are unable or unsuited to carry out, because the national interest differs from the local, the scale of the project is beyond local means, or essential federal responsibilities are involved. A top-down, federal government–driven approach to such projects may be necessary in special cases. However, for most projects, a bottom-up approach, under which local governments and private parties develop proposals and seek federal government participation in them, has advantages. The federal government’s most effective role in such projects, when they are outside the bounds of conventional federal surface transportation aid projects, would be as a provider of backup credit and as an absorber of risk rather than as a source of grants.
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 when local governments have mechanisms for recouping costs of public facilities through user fees and for compensating parties that bear external costs, and when they are not induced by external aid to undertake uneconomic projects. Federal policy should seek to bring about these conditions.
Overall Structure and Size of the Federal-Aid Program
The 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.
REGULATORY AND OPERATIONS ISSUES
Government affects the efficiency of the freight system through its responsibilities for operation as well as development of highways, ports, airports, and waterways.
Facilitating Application of Information Technology
Progress in linking information and transportation systems has been slowed by lack of interoperability, incomplete network infrastructure, and shortages of skills. Government can facilitate the application of information technology in freight by ensuring that its systems in areas such as customs and enforcement are interoperable with industry systems. Also, flexibility in applying regulations on anticompetitive practices may be advisable in some cases to permit industry collaboration on precompetitive aspects of transport-related information infrastructure.
The federal government should undertake research examining how the efficiency of information exchange in the freight system is affected by practices and requirements of government as a provider and purchaser of transportation services and as a regulator.
Economic Regulation of Freight Transportation
The federal government should examine how economic regulation of ocean and coastal shipping affects intermodal freight performance and use of port facilities.
Improved pricing of transportation facilities operated by governments, including highways, waterways, and airports, would yield payoffs in improved freight 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 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.
Who Should Pay for the Project
Most transportation projects in which the government participates should be financed by user fees or private-sector contributions. In some projects, external benefits such as pollution reduction 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 benefit is primarily local development, local government should provide the subsidy.
Innovative Mechanisms for Raising Capital and Operating Funds
Innovative finance techniques, which provide attractive terms for private-sector partners, expand debt financing, and stimulate development of new revenue sources like special tax districts and tolls, have the potential to increase and accelerate funding of public-sector transportation projects. If Congress and the states wish to promote use of these arrangements, increased direct federal capitalization of infrastructure banks, changes in certain tax-exempt bond finance restrictions, and removal of state legal barriers to public-private joint development will be necessary.
Rules for Use of Tax-Exempt Bond Finance
Expanding tax-exempt bond finance could have negative consequences. Tax-exempt finance entails a federal subsidy that may not
be regarded as equitable and that biases the capital market toward government-selected rather than private-sector-selected investments. If Congress decides to promote innovative finance, public-private partnerships, or privatization of some government transportation functions, then some reduction of differences in the tax treatment of publicly and privately financed infrastructure may be necessary. However, the rules should seek to avoid tax-exempt finance of projects that are unproductive or whose benefits are primarily local.
The federal government should conduct research on the costs and distributional effects of alternative financing mechanisms for public works projects and on the relationship of financing arrangements to the performance of public intermodal projects. Research that examines the experience of other nations with port and airport privatization is also needed.