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Policy Options for Intermodal Freight Transportation: Special Report 252 (1998)

Chapter: 2 Principles for Government Involvement

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Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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2
Principles for Government Involvement

Governments in the United States are being called upon to alter their roles and priorities in the provision of facilities for freight transportation. For example, governments are investing in facilities not traditionally provided by the public sector. Such projects often involve new forms of cooperative arrangements with the private sector in finance, construction, and operation of facilities. At the same time, governments are considering proposals for privatizing some traditionally public kinds of transportation facilities—ports, airports, and highways.

At the federal level, each time Congress specifies the types of projects eligible for funding through federal transportation aid programs, it is faced with the fundamental policy question of defining the appropriate scope of government involvement in transportation. At the state and local levels, the question of the appropriate government role arises, for example, when the government responds to a private-sector proposal for public participation in a rail access project.

The committee has made recommendations concerning three policy issues: criteria for government involvement (that is, defining the cir-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

cumstances that justify public participation in a freight infrastructure project), the decision as to whether government involvement should entail a subsidy to freight activities, and analysis tools and methods to help governments decide on the merits of project proposals. The committee also developed guidelines for deciding whether public participation in a project is in the public interest. The guidelines are not a recipe for decision making. Rather, the committee’s intent is to argue that standardized procedures would be useful and to offer a starting point for developing such procedures. Actual practical guidelines will have to be tailored to the needs of individual jurisdictions and be subjected to testing and evaluation.

Government investment decisions in this area 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, systematically developed information will be of value in the political process of reaching decisions.

The next section explains how government roles in freight transportation are being altered. Then policy issues concerning criteria for government involvement, justification for a subsidy, and analysis tools are presented, along with the committee’s proposed approaches to each of these issues. In the final section of the chapter, guidelines to aid in these decisions are proposed.

CHANGING GOVERNMENT ROLES IN FREIGHT

As background to consideration of specific policy questions, it is necessary to understand how government responsibilities and relationships with the private sector in freight transportation have been changing. In this section the traditional scope of government involvement in infrastructure for freight transportation is described. Examples of new kinds of projects that government is being asked to carry out are given, and the motivations for these new projects are described.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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Established Government Roles

Government involvement in intermodal freight transportation is already pervasive, and its influence on freight efficiency is great. The major government functions are as follows:

  • Infrastructure investment in ports, highways, inland waterways, and airports;

  • Operation of these freight transportation facilities;

  • Finance and taxation: government collects taxes from freight service providers and charges fees (including fuel taxes and registration fees) to users of some public facilities, and it pays capital and operating expenses of public infrastructure with user fee proceeds, general tax revenues, or borrowing;

  • Regulation: important categories of regulation that affect intermodal freight are land use (e.g., zoning, wetlands preservation), other environmental rules, truck size and weight, transportation safety, and antitrust; and

  • Research, data collection, planning, and education in a variety of economic and technical fields important for public- and private-sector transportation decision making.

Each of these five activities is conducted at all levels of government—federal, state, and local. The problem for public policy is to discover how to coordinate this complex array of government activities to make freight transportation more efficient from the perspective of the public as a whole.

The extent of government involvement differs among the freight transportation modes for reasons that arise as much from historical circumstance as from fundamental economic differences among the modes. The traditional government roles in each mode are as follows:

  • Highways: infrastructure provision and operation, with finance mainly through national and state trust funds and user excises.

  • Marine transport and seaports: port infrastructure provision and operation, with the private sector providing certain facilities; regulation of rates and entry in certain segments (the only mode in which signif-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

icant economic regulation continues). Funding is primarily through fees on local users and port tenants; a national trust fund receives revenues from user excises for harbor dredging.

  • Inland waterways: infrastructure provision and operation (locks, dams, channels, navigation aids); terminals are mostly privately provided. Funding is mainly from general revenues; secondarily, and at a modest level, from a user excise on fuel.

  • Railroads: no major government responsibility for infrastructure or operation, with limited exceptions. Several states have programs providing financial assistance to short-line and regional railroads.

  • Aviation: airport infrastructure provision and operation, with the private sector providing certain facilities; provision and operation of air traffic control facilities. Funding is primarily from local payments by operators and other airport tenants and a trust fund receiving revenues from user excises.

In addition, operators in all modes are subject to safety, environmental, labor, and antitrust regulations. The Surface Transportation Board of the U.S. Department of Transportation retains some oversight of rates, mergers, service abandonments, and common carrier obligations in rail and (to a lesser degree) trucking, but most economic regulation of these modes was ended in the early 1980s. In highways and aviation the government provides facilities and services that are shared by freight and passengers; therefore one of the difficult public policy issues is allocating services and spending among these classes of users. In all modes, it is the private sector alone that owns and operates the cargo-carrying vehicles or vessels and provides services directly to shippers.

New Forms of Government Involvement

There have always been exceptions to the general pattern of government involvement in freight. However, certain kinds of projects departing from traditional roles have become prominent in recent years. The four examples described in this section include project proposals as well as projects completed or under way. Chosen from scores of similar projects, they illustrate some characteristics of these new kinds of government activities. The examples were not chosen as mod-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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els for other jurisdictions to emulate; indeed, they highlight some of the risks of such developments. The committee did not analyze whether these projects have been, or promise to be, successful in meeting the sponsoring governments’ goals.

Of course, more traditional kinds of public works projects remain of vital importance to intermodal freight transportation. In particular, construction and improvement of public roads to improve access to ports and other terminals is recognized as among the greatest needs.

  • Auburn, Maine, Rail Intermodal Terminal (Hickling Lewis Brod 1995, 1–5): A joint project of the state, the city, and a local shortline railroad developed a facility for transfer of containers and semitrailers between truck and rail. The terminal opened in 1994 and was to serve primarily paper shipments from Maine to Chicago. The state and city fully funded construction of the facility, which is leased by the city to a private operator. Of the $2.9 million construction cost, $2.3 million was from the state’s Congestion Mitigation and Air Quality (CMAQ ) funds. CMAQ, a federal-aid program created by the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and drawing on the Highway Trust Fund, can be used to fund highway or nonhighway transportation projects that reduce air pollutant emissions in areas that are not in compliance with federal air quality standards. The project qualified for CMAQ funding because it was expected to reduce truck traffic and highway congestion (FHWA 1996, 2-13–2-16; FRA 1996, 3-7–3-8).

  • Baltimore Port Access Proposal (Phillips 1996): Baltimore and other northeastern ports compete intensely. Nearby states have undertaken projects to improve rail access to their ports. In Pennsylvania, for example, the state contributed $34 million to a project completed in 1995 to enlarge tunnels, lower the railbed, and reconstruct overpasses over rail lines, including road bridges, in order to provide clearances to allow double-stack rail container service across the state to the Port of Philadelphia. Conrail, on whose lines most of the Pennsylvania improvements were carried out, reported its contribution to the project as $64 million. Double-stack trains carry standard freight containers stacked two deep and are the most efficient means of railroad carriage of containers. East Coast ports consider double-stack access to be essential in competing for container traffic.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

In 1996 Baltimore had no double-stack service. The port was served by CSX and Conrail. CSX was blocked from providing double-stack service by low clearance in the Howard Street tunnel in Baltimore. Conrail could have provided double-stack service with a more modest investment but apparently did not find offering such a service attractive.

In 1996 CSX proposed to the state of Maryland that the state undertake the reconstruction of the Howard Street tunnel to allow double-stack clearance and that the state pay for adding parallel track to certain CSX lines that are shared with the state’s MARC commuter trains. CSX argued that congestion on the shared lines caused by the passenger traffic prevented the railroad from upgrading its freight service to the Port of Baltimore. CSX also proposed that the state seek to use federal-aid highway funds for these purposes under existing programs or through the new surface transportation bill. It is not clear whether the project would have qualified for federal aid under program rules, which in general do not allow spending for rail improvements, although conceivably CMAQ funds could have been used.

The pending split-up of Conrail between CSX and Norfolk Southern changed the competitive situation at the Port of Baltimore. Norfolk Southern announced plans, if the split-up were accomplished, to begin double-stack service to the port using Conrail track it would acquire and to expand intermodal service to the port with its bimodal RoadRailer service (a technology that uses special highway semitrailers that can be placed on sets of rail wheels to move on tracks, eliminating the rail flatcars that carry normal containers and piggyback trailers) (Norfolk Southern Corporation n.d.). The Norfolk Southern proposal dampened state enthusiasm for the CSX proposal’s expensive tunnel reconstruction, so the project has not proceeded in its original form.

  • Port of Oakland Joint Intermodal Terminal Project (Glover 1995): This project aims to create a joint intermodal rail yard for ship-to-rail transfer of containerized cargo. When the project was conceived, three railroads served the port. Two (Union Pacific and Southern Pacific) owned or leased facilities at the port, and the third (Burlington Northern Santa Fe) loaded containers hauled by truck 18 km (11 mi) from the port to its yard in Richmond, California (Intermodal Connections 1996). The objectives of the project are to increase container-handling capacity, increase shipper options, reduce local truck traffic, and free a part of the shoreline to make room for port expansion. The initial challenges were to convince three rail-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

roads to share one facility, to convince the federal government to give the port a long-term lease at nominal cost for an adjacent unused military base, to convince the Federal Highway Administration (FHWA) that the project was ISTEA-eligible, and to fit the project into the local transportation capital program.

An initial proposal was to obtain half the project funding from the state’s allocation of ISTEA funds and half from the three railroads and the port, but that level of federal support proved not to be feasible under federal-aid rules. Local government priority scoring of the project in its capital program was high, largely on the basis of the expected reduction in truck trips on regional highways. The projected cost of the project rose steeply because the two railroads already in the port demanded full compensation for their current facilities.

As in the Baltimore case described earlier, a rail merger, in this instance between Union Pacific and Southern Pacific, affected the interests of the parties. The railroads have now agreed to support the project; however, a funding package is not yet in place. Planning activities have received $10 million from an ISTEA program, but substantial federal capital funding will be possible only if reauthorized surface transportation legislation changes eligibility requirements or special legislation is enacted. In seeking federal assistance, the port may argue that federal assistance to the Alameda Corridor rail and highway access project at the ports of Los Angeles and Long Beach will upset the competitive balance unless aid is also given to other West Coast ports.

  • New York City Full Freight Access Program: New York City has no direct rail intermodal service because of inadequate bridge clearances, conflicts with passenger rail traffic, and other impediments. All intermodal service is provided by drayage from intermodal yards across the Hudson River in New Jersey. New York State, in cooperation with the port authority and New York City, has developed an ambitious plan to improve rail service to the city and reduce reliance on trucks for goods movement. The plan includes elimination of clearance restrictions; development of an intermodal terminal, the Harlem River Yard in the Bronx; and construction of a new rail line, the Oak Point Link, connecting the Harlem River Yard and another yard to the Conrail mainline. The terminal is to be developed and operated by a private developer under contract to the state. The state’s projected cost for the program is $300 million. Construction of the rail link was begun in

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

1983, and development rights to the terminal were awarded in 1989. The link has not yet been completed, and the terminal is not in operation. The terminal and rail link project is regarded as critical to the future of rail freight in the region; however, FHWA (Brown 1997) and the New York State Comptroller (State of New York 1997) in 1991 questioned whether the project as it is now conceived will meet its objectives and have called on the state department of transportation to reassess its plans before proceeding.

The project illustrates some of the basic difficulties of governmentled freight transportation development projects. To be successful, projects must match the requirements of the private-sector freight industry. These requirements are influenced by frequent changes in markets and technologies. Yet public-sector infrastructure projects can take a decade or more to plan and carry out, and public-sector decision makers may not understand well the needs of private-sector users and are subject to multiple and sometimes conflicting political demands.

Common Elements and Differences in the New Projects

These projects have several elements in common that distinguish them from most government transportation infrastructure investments:

  • They involve direct public support of construction of a facility normally provided by the private sector (in these cases, rail facilities). Similar issues are raised if government builds or upgrades a road or other public facility in a category traditionally provided by government, but to meet the needs of a single private-sector user (e.g., a road connection to a terminal) (Traffic World 1997). [As an example of a road improvement for a freight user, United Parcel Service will expand its Philadelphia air hub as a result of a state agreement to extend a road to the facility (Traffic World 1997).]

  • They involve some form of public-private partnership, that is, a contractual relationship between the government and one or a few transportation firms to cooperate in construction and operation of facilities, under which both contribute funding and other resources.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×
  • They depend on a complex mix of funding from multiple sources. The mix may include local application of federal highway aid, facility user fees, use of government-issued tax-exempt bond finance, government loan guarantees, contributions of land or facilities, general government revenues, and contributions from the private-sector parties.

At the same time, these new kinds of infrastructure projects are diverse, and the preceding examples have important differences:

  • Intermodal projects may be instigated by a private-sector party, general government seeking to make up for a perceived failure of the private sector to provide needed services, or an entrepreneurially motivated public port.

  • The size and public share of total project costs vary greatly. Some truck-rail intermodal terminals developed with public participation have cost a few million dollars; the largest intermodal port-related developments cost 1,000 times that amount. The source of the government’s share may be primarily user fees or it may be general revenues or external government aid.

The reasons why governments become interested in these projects are diverse. As noted earlier, state departments of transportation have been attracted to the concept of truck-rail intermodal as a means of relieving pressure on state highways and highway budgets. Truck-rail intermodal is seen as an aid in meeting air quality objectives, and some federal aid is available to state and local governments for projects that can claim to reduce pollutant emissions. Local governments view the projects as economic development opportunities, and public ports view them as opportunities to increase their business and revenues. Improving the efficiency of the freight transportation system from the perspective of the direct users often is not an explicit or primary objective of all the government entities involved.

The examples of projects given earlier indicate several policy questions that governments face when confronted with similar proposals:

  • What is the rationale for government involvement in each case, as opposed to leaving investment and development decisions entirely to the public sector?

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×
  • What is the rationale for a subsidy of an activity that is normally or frequently carried on exclusively by the private sector?

  • If these justifications are valid in principle, what information and analysis are necessary to ensure that they apply in specific cases and to make the case that the public effort will be likely to yield the intended public benefits?

  • To what extent are local gains from a project also national gains, or is the effect of the government intervention just to redistribute economic activity from one locale to another? Would the private sector carry out the project on its own (even if in another form or in another location) if the government did not contribute?

  • Is it fair for the federal government to support a project that may be detrimental to development hopes in other regions (e.g., a project that affects competition among seaports)? Does the availability of federal aid make it easier for states to conduct projects with weak economic justification?

  • What should be the sources of funds supporting the project? Is user fee financing an option?

Local governments approach these questions pragmatically rather than philosophically: if funds are available for an economic development project, it appears attractive from the local political and economic perspective, and the project would not be carried out without public involvement, then they will support it. However, the federal government, which sets the rules for most tax, transportation aid, and development programs, has need for principles that take into account the benefits and costs to the public as a whole in defining the appropriate government role.

In this chapter, criteria for government involvement are proposed, circumstances that justify a subsidy are described, and needed evaluation tools are identified. The issues of the federal role and finance methods are addressed in Chapters 3 and 5, respectively.

DECIDING ON GOVERNMENT INVOLVEMENT

In general, to evaluate a possible public investment or an incentive or subsidy to encourage a private-sector investment, the government must

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×
  • First, determine that the investment would be worthwhile (i.e., that it passes a benefit-cost test and has a higher payoff than alternative investments), and

  • Second, determine that the private sector would not undertake it on its own. A project may yield a good return and still be unattractive to the private sector if some public benefits cannot be captured in market transactions (that is, there are external benefits) or if institutional barriers stand in the way.

Federal government investment is justified if the project passes these two tests and yet local and state agencies would be unwilling or unable to undertake it.

Mistakes in project selection will occur, so program evaluation is essential for long-term success. Retrospectively, governments can examine each completed project to determine whether it was actually as beneficial as intended and whether it would have been feasible as a pure private-sector project. Over time, government agencies can improve the performance of their intermodal freight infrastructure projects through this process of review.

For freight infrastructure projects, the case for government involvement depends on the following considerations:

  • Intermodal freight as a means to reduce external costs of transportation: An external cost is a cost imposed on others through a mechanism other than a market price. Intermodal freight, especially intermodal developments that have the effect of shifting some freight from truck to rail, can reduce pollution and congestion. These benefits are not properly evaluated in the private market for freight services. Therefore, government involvement to obtain them may be justified.

  • External economic development benefits: Proponents argue that major transportation infrastructure improvements can yield efficiencies in the transportation system beyond those recognized by individual private-sector participants. Jobs created by an infrastructure development project in a region of high unemployment may constitute another form of external economic development benefit. Such benefits are called external because they are net gains to society but do not in themselves generate incentives to the private sector to invest.

    Only in rare circumstance would a project that did not generate direct transportation and logistics cost savings sufficient to cover its costs be

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

justifiable on account of external economic development benefits. Part of the direct cost savings to users will be passed on to other producers and to consumers throughout the community and the nation, but this redistribution of benefits occurs as the result of any successful investment or development—private as well as public—and is not in itself justification for government involvement.

  • Offsetting subsidies: It is argued that the trucking industry receives a subsidy because the fees it pays in the form of fuel taxes and other excises are less than the cost of providing roads for trucks to use, and that government intervention is appropriate to redress the market imbalance. Similarly, a port may argue that federal aid to a competing port justifies aid to it.

    A closely related argument is that the net cost to the state transportation agency of providing capacity to accommodate freight growth by subsidizing intermodal facilities may be less than the cost of expanding highway capacity, net of any increased highway user revenues. The recent federal highway cost allocation study has provided new information to assess such arguments. It shows that (in contrast to earlier years) some classes of trucks are paying their allocated costs, whereas others are not (DOT 1997, 15).

  • National defense or other public safety need.

  • The established government responsibility for major parts of the transportation infrastructure: Every government investment and operating decision regarding highways, ports, waterways, and airports affects the efficiency of intermodal freight. No private-sector freight development can go forward without some form of support and coordination with the government infrastructure.

If government involvement cannot be justified on one of these grounds, the project belongs in the private sector.

Government officials responsible for infrastructure ought to define such criteria for involvement as general rules or principles to follow. The U.S. Department of Transportation (DOT), for example, has a list of principles defining grounds for federal involvement in its National Freight Transportation Policy Statement (DOT 1996b, 3–4).

At least as difficult as defining principles is applying them in specific cases to evaluate project proposals. Specifications concerning how the responsible agency will quantitatively test whether a proposal meets each

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

of the criteria should accompany the statement of principles. Justifications for the kinds of new government freight transportation projects described earlier usually refer to such criteria. However, the justification often is merely asserted and not supported by quantitative evidence.

SUBSIDIZED VERSUS UNSUBSIDIZED PARTICIPATION

Government participation in a freight infrastructure 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.

A government subsidy is any cost imposed on taxpayers as a whole to pay for benefits that are initially received by users of the freight facility. The subsidy may be direct and overt or indirect and difficult to quantify. Forms of subsidy include contributions from general revenues, transfers of public land below market prices, access to tax-exempt bond finance, loan guarantees, exemption of revenues from income taxation, property tax exemption, or failure to charge users of a government-operated facility a fee that covers the cost of their use (Dowd 1988, 221).

Subsidized projects should carry a heavier burden of justification—government should demonstrate a clear welfare gain as a result of correcting a market failure as grounds for intervention. Most commonly in the case of intermodal freight projects, the alleged market failure is the potential for external benefits. The public investment should pass a benefit-cost test and should be shown to be the most cost-effective means available to achieve the intended benefit. The benefit-cost analysis must quantify external benefits and the value of avoiding external costs (like air pollution or congestion). A subsidy for a transportation project might also be justified as a means of carrying out a government policy of redistributing wealth among regions of the nation or a state. This study has not considered whether subsidies to intermodal freight projects would be an effective means of redistribution compared with alternative programs.

Alternatively, a government agency might plan a project to be entirely self-supporting from user fees and private-sector participant contributions. If government involvement takes the form of providing public facilities, for example a road or a public port facility, and if fees that

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

cover their costs to the government are collected from the users of these facilities, then no subsidy is involved.

After a period of expanding use of economic development incentives in recent decades, governments recently are taking a more cautious and selective approach to proposals for public-private development partnerships that involve subsidies (Phillips 1997). Sports stadiums are an example of a type of project that has commonly received subsidies and is now being regarded more skeptically (Ward 1996).

A degree of skepticism 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 willingness to support future partnerships. Analyses of public-private joint developments have concluded that public officials will be at a disadvantage in dealing with private-sector developers if they lack clear objectives and do not have the analytical tools to assess the benefits, costs, and feasibility of projects (Kaplan 1990; Nunn 1991).

Subsidized intermodal freight projects have risks that ought to be taken into account in evaluating proposals:

  • Projections of benefits of intermodal projects as low-cost alternatives to highway capacity expansion or as a means of reducing highway external costs are highly uncertain and have to be demonstrated quantitatively to make the case for a subsidy. The proposals must be compared with alternative methods of achieving the same ends.

  • 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. The transfer may be regarded as inequitable if the taxpayers who bear the burden of paying the subsidy do not share in the benefits of the project.

  • Conventional analyses sometimes overstate net economic development benefits by confusing redistributions with net gains (e.g., geographic redistribution of employment and transfers of the benefits of efficiencies from carriers to their customers and to property owners).

  • Subsidies to trucks that are built into existing highway user taxes could be a justification for offsetting subsidies to alternative modes. However, the magnitude of this subsidy is disputed (TRB 1996b).

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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  • Government-imposed solutions to intermodal freight problems may supersede preferable solutions that the private market would reach without intervention. Government is not solely motivated by considerations of freight transportation efficiency. Market distortions caused by government interventions will have costs from lost efficiency. In particular, subsidies can lead to overcapacity.

  • 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. If subsidies for freight infrastructure development were liberally available, transportation companies and major shippers might come to expect and require such aid.

Whereas the justification of subsidies to a project depends on projections of external benefits, the rationale for government involvement in a project that pays its own way depends on established responsibilities and special competencies of government. Circumstances that justify public involvement in these cases include the following:

  • State and local governments historically have a monopoly on the road business, and this circumstance is not likely to change greatly in the near future. The most important change needed in government policy to improve intermodal freight efficiency may be for better evaluation of the direct benefits of road improvements to freight users. This would entail proper methods of identifying needs for connectors to ports and other intermodal terminals. Freight interests sometimes argue that highway agencies have tended historically not to see freight as a customer or constituent and that highway projects with relatively large freight benefits have systematically failed to get the priority they deserve, on benefit-cost grounds, in road programs.

  • Certain government agencies (in particular, ports) are independent, self-supporting entities, and a few make profits. As long as governments operate such facilities, they should behave entrepreneurially, seeking investment and marketing opportunities to improve their returns. Such a government enterprise would be expected to enter into joint arrangements with private-sector firms to make facilities expan-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

sions and improvements that would increase the net revenues of the private firms, financed by its expected increased revenues. For example, a port may conclude that its attractiveness to ocean carriers and shippers would be enhanced by increasing the number of railroads with access to the port and might enter into joint ventures with rail firms to this end.

  • Government may have a role as facilitator or broker. There may be situations where, because of institutional complexity, only government can provide the impetus to reach a solution. Multiple jurisdictions may be involved, or the use of eminent domain may be justified. In such cases government may be able to function as a leader or red-tape cutter but still require that fee revenues from facilities cover the cost of the solution.

Analysis tools and clear guidelines for decision making would allow governments to decide whether a subsidy to a project is in the public interest and to avoid the potential pitfalls of subsidies.

ANALYSIS TOOLS

State and local governments need standard methods and basic data for evaluating freight infrastructure investment proposals. Data are needed that would allow governments to evaluate demand forecasts, modal diversion forecasts, and estimates of effects on congestion and pollution. Of equal importance, the financial and economic performance of completed projects and facilities in operation should be systematically and uniformly 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.

Development of benchmarks would be of great practical use in evaluating existing or proposed transportation facilities. A benchmark is a systematic comparison of performance measures (e.g., measures of physical efficiency, cost, and rate of return) at similar existing facilities with the facility being evaluated. Benchmark comparisons for freight facilities should include state-of-the-art facilities abroad as well as in the United States.

DOT policy recognizes the necessity of benefit-cost analysis to support public transportation investment decisions. DOT’s policy

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

statement concerning ISTEA reauthorization recommends that “ISTEA’s successor should encourage state and local officials to base investment decisions on systematic cost-benefit analysis …” (DOT 1996a, 8–9), and its National Freight Transportation Policy notes that “the Office of Management and Budget has established guidelines for the economic analysis of Federal infrastructure investments. The guidelines apply rigorous cost-benefit standards to all proposed investments” (DOT 1996b, 5–6).

However, 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. For example, in preparation for a 1994 Transportation Research Board (TRB) conference, public authorities were asked to describe economic impact analyses of selected case study intermodal freight projects. The Alameda Corridor Authority provided this summary:

By 2020, the growth of the ports and the Alameda Corridor will generate an additional $31.9 billion in federal taxes per year, including $5.2 billion per year in additional customs receipts. Growth of the harbors will generate an additional 700,000 jobs regionwide and 2.2 million jobs nationwide by 2020. Construction of the project itself will employ 10,000 workers in the central Los Angeles area between 1995 and 2000. Economic development along the corridor will be enhanced because of improved traffic conditions, including reduced delays for customers, employees, and residents of the area. (TRB 1996a, 50)

The economic effects of an Illinois UPS terminal constructed with government participation were described in the same source as follows:

In addition to the initial construction investment, state and local taxing bodies will greatly benefit by the increase in tax revenues. Direct and indirect payroll is estimated to reach nearly $72 million per year when UPS reaches full operating capacity. (TRB 1996a, 55)

Evaluation of a transportation improvement ought to start with assessment of transportation benefits compared with project costs.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

Because transportation benefits are not quantified, these two assessments are inadequate as full evaluations of the projects. In addition, the employment and fiscal estimates in these two examples must be considered with caution. Effects on employment and government finances often are central to state and local government project evaluations. These effects are relevant to government decisions and should be estimated, but such projections are difficult. Employment effects cannot be forecast with the precision that these citations imply. From the national perspective, and often even from a regional perspective, these effects can represent redistribution of jobs rather than net job growth. Estimates of tax effects sometimes do not take into account the cost of providing public services for the tax-generating facility.

A more useful framework for evaluating intermodal freight project proposals is illustrated by the Federal Railroad Administration’s RAILDEC analysis procedure, a benefit-cost framework that evaluates a carefully considered list of public and private benefits and costs (FRA 1996, 5.1–5.7). TRB’s Special Report 246 (TRB 1996b) also illustrates a method for evaluating social costs of freight transportation that could be adapted for evaluating infrastructure proposals. These analyses concentrate on quantifying and valuing direct effects of transportation projects: changes in shipper and carrier costs and changes in external costs of pollution, accidents, and congestion.

A standardized analysis procedure such as RAILDEC must be supported with continual review and updating. Comparisons must be made between estimates of social costs in the evaluation procedure and estimates from other sources and from new research. Agencies should compare actual outcomes with those predicted or assumed in the prospective analysis to validate the analysis procedure.

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. Quantitative economic evaluations involve uncertainties. Estimates of externalities, which are important in justifying many government intermodal activities, are probably the most uncertain. Nonetheless, benefit-cost analysis has the value of forcing decision makers to expose and scrutinize, within a standard, accepted framework, the justification for the project, the costs and expected payoffs, and the assumptions that underlie these projections.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

GUIDELINES FOR DETERMINING THE SCOPE OF PUBLIC-SECTOR PARTICIPATION

The guidelines proposed here are an effort to synthesize consideration of the issues identified in the preceding sections into a checklist for organizing the information needed to evaluate public-sector and public-private proposals for intermodal freight infrastructure projects. The steps are mostly obvious, and many public agencies follow similar procedures when planning infrastructure investments.

Nonetheless, some public infrastructure projects, even those supported by extensive impact analyses, go forward without benefit of some of the critical evaluation steps suggested here (Kaplan 1990). Public-private intermodal freight projects, because of their novelty, lack established evaluation procedures. These evaluation guidelines are suggested as a starting point for local jurisdictions to develop their own. Any such formal evaluation procedure would be a complement to the essentially political process of public debate and discussion that is the basis of major public works investment decisions.

The evaluation of infrastructure proposals hinges on a fundamental question: what criteria should government administrators apply to choose between alternative actions (in this case, between alternative public works investments)? The criteria that are selected constitute a definition of the public interest. Economics alone cannot provide the criteria. The test known in economic theory as the Pareto criterion is a necessary condition that any chosen option should meet: do not choose an action if there is a feasible alternative that makes some members of the public better off and makes no one worse off. However, this rule does not solve the problem of choices that help some and hurt others. For example, a state government decision to change investment priorities to allow construction of projects to facilitate freight access may leave peak-hour commuters worse off, compared with the status quo. The judgments of fairness that such choices depend on necessarily are made through the political process. The criterion applied in these guidelines is social benefit-cost analysis: in choosing among competing uses of funds, government decision makers should favor projects that yield the greatest net benefits. The guidelines rely on the simplifying assumption that a limited set of options is available to decision makers. This assumption holds, for example, in the case of federal surface transportation aid: a fixed sum

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

is available, all the funds will be spent, and only certain categories of expenditures are eligible. Often, however, the decision is more complicated: local governments must decide whether to spend tax revenues for transportation rather than education, public safety, or other government programs or to reduce taxes. The guidelines cannot tell governments how to make these global choices, but information from the prescribed project analyses would be useful in these decisions.

The value of these guidelines depends on the extent to which requirements or procedures for rational analysis can influence government decisions. In the judgment of the committee, development of better economic information would change the set of projects that are selected, and the changes would increase the public benefit of transportation programs. The committee did not study how economic information has affected government investment decisions historically. However, it probably would be possible to document important instances of rational analysis leading to better decisions in the public transportation sector. As one example, pavement management systems, widely used by the states to plan highway maintenance programs, have improved the cost-effectiveness of maintenance expenditures. These systems have not supplanted political decision making; rather, they have exerted an influence on decisions that remain essentially and appropriately political.

The study committee commissioned a paper, “Principles for Government Involvement in Freight Infrastructure,” by Randall W. Eberts, as background for this topic. That paper is the primary source for the guidelines. The paper appears in Part 2 of this report.

Step 1: Ask questions about the market for the proposed intermodal freight facility.

  • Are there internal benefits (i.e., benefits to users) from providing the facility?

  • Is the existing facility operating beyond capacity and creating bottlenecks?

  • Would the new facility or expansion reduce the average cost of operations and thus provide transportation services at a lower price?

  • Would the new facility create intermodal opportunities where none were previously available?

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×
  • Do bottlenecks exist that impede efficient access of transportation modes to the intermodal facility?

  • Could additional modal connections further enhance the utility of the proposed facility?

These are all questions about whether a market exists for the use of the new or expanded facility.

If the answer to one or more of these questions is yes, then calculate the expected revenue and costs of the operation and the projected deficit in terms of net present value. If there is an appreciable possibility that costs will exceed revenues, a decision must be made as to whether a subsidy is justified.

Justification for government subsidies to help finance the deficit projects depends on sufficient levels of external benefits. Estimation of externalities is very difficult, but Step 2 provides a rough method for doing so.

If direct benefits appear likely to significantly exceed costs, ask why government involvement is needed at all in the project. Public-sector funds might be substituting for private-sector investment. There may be justification for public involvement in such a project; for example, government participation may be necessary to overcome institutional obstacles, or the government may already be involved as the operator of roads, ports, or other facilities that will form part of the project. However, in these circumstances no subsidy is justifiable because user fees sufficient to cover costs could be assessed.

The evaluation does not require government collection of proprietary cost data. Rather, the necessary analysis is a market projection asking what demand for the new facility would be at various levels of service and user charges. Market forecasting techniques used in the private sector will be applicable.

The public sector’s ability to assess the transportation benefits and market potential of infrastructure projects serving freight will depend on its contacts with the private sector. Local officials and the freight industry will need to establish working relationships for exchange of information to allow governments to identify and evaluate projects that would yield freight benefits.

Step 2: Determine the existence of external benefits generated by the intermodal freight facility.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

TABLE 2-1 Checklist of Possible Internal and External Benefits of Intermodal Freight Projects (Eberts, Part 2; TRB 1996b, 32–35)

BENEFIT

INTERNAL

EXTERNAL

Reduction in total

 

 

freight transportation cost

 

Reductions in accident costs

 

 

Users of intermodal facility

 

Nonusers

Reductions in network

 

 

congestion delay

 

 

Users

Nonusers

 

Reduction in pollution costs

 

Economic development

(see Step 3)

 

Use a checklist like the one in Table 2-1 (with modifications dictated by the nature of the project being considered) to determine what external benefits may be generated by the facility.

As the table indicates, the major categories of external benefits usually will include reductions in accidents, congestion, and pollution. (External economic development benefits are addressed in Step 3.) In the table, “users” of the intermodal facility means freight users (e.g., commercial vehicles on an access road, but not private vehicles). “Internal” benefits are benefits that users would have some incentive to pay for obtaining. “External” benefits are benefits that the users would have no incentive to pay for. For example, the table shows accident reduction as partly internal and partly external because users are liable for part, but not necessarily all, of the costs of accidents.

Estimate first the value of the external benefits that can be quantified with the least uncertainty. Then ask, How close does the value come to meeting the projected deficit? If the external benefits that are easiest to quantify are not sufficient to justify the subsidy, estimates of the more uncertain benefits must be made, keeping in mind the downside risk that the more uncertain the projection of benefits, the greater the chance that they will never be realized.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

The value of this step is not just the single number for the value of external benefits that is derived. Rather this analysis indicates how great external benefits would have to be to justify the project and makes expectations and assumptions clear and public (DeCorla-Souza et al. 1997).

Step 3: Estimate economic development benefits.

Estimate the number of additional jobs and the increase in total wages that might be generated by the new or expanded facility.

Economic development benefits can be valued as the increase in net income of residents of the community as a result of the net increase in employment. It is important to estimate the part of the apparent employment effect that represents additional jobs rather than geographic rearrangement of employment. Finally, in examining a project from the national perspective, it is necessary to examine the likely effect on other potential and existing freight system developments.

The employment effect is sometimes the most difficult one to integrate with the analysis. From the local perspective, new employment may be the greatest net economic gain, whereas from the national perspective, the new jobs in the region of the project are just the result of local residents capturing some of the benefits of the nationwide improvement in freight transportation efficiency that the project causes. If a project proposal is being analyzed as a possible federal government investment, and direct benefits in the form of direct transportation facility user benefits and reduced external congestion, pollution, and accident costs have already been counted, then crediting the project with some additional benefit stemming from increased wages and salaries will usually be double counting and therefore an error. Any employment increase attributed to a project is likely to represent a net increase (as opposed to a geographic redistribution of employment) only in exceptional circumstances, for example, if it occurs in communities with chronically substantially higher unemployment than the regional or national average.

Step 4: Compare the project with the payoff from alternative uses of the public resources and with alternative means of attaining the intended benefits.

The appropriate comparison may be with other projects in the state or local area’s transportation capital improvement program or with other nontransportation local infrastructure projects or public services.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

If external benefits from improved air quality and reduced congestion are an important part of the project’s justification, comparison should be made with other ways of attaining these benefits.

This step establishes priorities among competing uses of funds. Comparison of a comprehensive set of costs and benefits among alternatives constitutes a benefit-cost analysis of the proposal.

Consider the option of no government action. At this point in the analysis the required information has been assembled to decide whether government involvement is necessary according to the criteria defined earlier in this chapter.

Step 5: Examine who would receive benefits and bear costs.

The key questions are as follows: If the project will generate spillovers in the form of increased or reduced pollution and congestion, will certain local jurisdictions or neighborhoods be disproportionately affected? What share of the initial mobility-enhancement benefits of the transportation investment will local citizens ultimately receive through increased wages, property values, or tax revenues (net to added governmental costs)? For each of the finance options under consideration, how will the cost burden be distributed among local and national taxpayers and private-sector participants?

Firm quantitative answers to these questions will probably seldom be attainable, but the questions should be addressed directly in analysis and public discussion.

Step 6: Determine whether a subsidy is necessary, which level of government ought to provide the subsidy, and the mechanism of finance.

At this point in the analysis the necessary information has been assembled to decide whether a subsidy to the project is justified according to the criteria specified earlier in this chapter. Allocating responsibility for a subsidy, if one is justified, is primarily a question of fairness to be settled through the political process. One method of distributing the burden of the subsidy that may be regarded as equitable is as follows. To the extent that the project subsidy is justified by local economic development benefits, the subsidy should be contributed locally. Subsidies justified as means to reduce external costs should be contributed by the taxpayers that match in general the pop-

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

ulation that would bear the costs if the external costs were internalized through imposition of pollution or congestion fees. For example, if pollution reduction from reduced truck travel is part of the project justification, and if the trucks are carrying goods bound to and from nationwide markets, then taxpayers nationwide would be assigned responsibility for the subsidy.

Recognize the full costs and risks involved. Subsidies are never free, even if they do not appear as budget outlays. Tax-exempt bond finance and loan guarantees entail public costs. All such costs should be quantified, and the parties who will bear the costs should be identified. Risks should be examined explicitly: if use and revenue projections are not realized, what will be the consequences and who will bear the costs?

The examination of the distribution of benefits and costs in Step 5 will help in the analysis of finance options.

Step 7: Follow up.

Compare the results of completed projects with projections. Retrospective evaluations must follow uniform established procedures so that scorekeeping is fair and localities can learn form each other’s experiences. A recent National Research Council study recommends methods for measuring the performance of public infrastructure improvements (NRC 1995), and a Resources for the Future study has recommended methods for evaluation of CMAQ transportation projects, including freight projects (Farrell et al. 1998).

REFERENCES

Abbreviations

DOT U.S. Department of Transportation

FHWA Federal Highway Administration

FRA Federal Railroad Administration

NRC National Research Council

TRB Transportation Research Board

Brown, H. J. 1997. Memorandum: Bronx and Northern Manhattan Arterial Needs. New York Division, Federal Highway Administration, U.S. Department of Transportation. http://www.tstc.org/bronxmemo.html

DeCorla-Souza, P., J. Everett, B. Gardner, and M. Culp. 1997. Total Cost Analysis: An Alternative to Benefit-Cost Analysis in Evaluating Transportation Alternatives. Transportation, Vol. 24, No. 2, May, pp. 107–123.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

DOT. 1996a. ISTEA Reauthorization: Policy Statement and Principles.

DOT. 1996b. National Freight Transportation Policy Statement.

DOT. 1997. 1997 Federal Highway Cost Allocation Summary Report. Aug.

Dowd, T.J. 1988. Port Finances and Operations: Understanding the Bottom Line. In Urban Ports and Harbor Management: Responding to Change Along U.S. Waterfronts (M. J. Hershman, ed.), Taylor and Francis, New York.

Farrell, D., W. Harrington, and A. J. Krupnick. 1998. Evaluation of CMAQ Projects. Resources for the Future, Washington, D.C., Feb.

FHWA. 1996. Intermodal Freight Transportation: Volume 2: Fact Sheet, Federal Aid Eligibility. U.S. Department of Transportation.

FRA. 1996. Intercity Freight and Passenger Rail: State and Local Project Reference Guide. U.S. Department of Transportation, Sept.

Glover, J. 1995. Public Authority, Private Customers: Financing Issues for an Independent Authority. Presentation at TRB Executive Committee Meeting. June 8.

Hickling Lewis Brod, Inc. 1995. Benefit Cost and Financial Analysis of the Rail Intermodal Facility at Auburn, Maine. Federal Railroad Administration, U.S. Department of Transportation, April.

Intermodal Connections. 1996. Vol. 2, No. 5, Oct. 10.

Kaplan, M. 1990. Hunting Blind: The Creation of Public/Private-Sector Partnerships for Infrastructure Development. Municipal Finance Journal, Summer, pp. 181–191.

Norfolk Southern Corp. n.d. The New Norfolk Southern System: Benefits to Intermodal Transportation. http://www.nscorp.com

NRC. 1995. Measuring and Improving Infrastructure Performance. Committee on Measuring and Improving Infrastructure Performance. National Academy Press, Washington, D.C.

Nunn, S. 1991. Formal and Informal Processes in Infrastructure Policy-Making: How Fort Worth Assembled Capital for Alliance Airport. Journal of the American Planning Association, Vol. 57, No. 3, Summer, pp. 273–287.

Phillips, D. 1996. CSX, Md. Officials Laying Groundwork for a Railroad Pact. Washington Post, July 16, p. C1.

Phillips, M. M. 1997. More States Reassess Business Incentives. Wall Street Journal, March 20, p. A2.

State of New York. 1997. McCall: Downstate Rail Projects Not Producing Results. Office of the State Comptroller. Feb. 18. http://www.osc. state.ny.us/divisions/press_office/feb97/21897.html

Traffic World. 1997. High on the Hog. May 19, p. 18.

TRB. 1996a. Conference Proceedings 11: National Conference on Intermodalism: Making the Case, Making It Happen. National Research Council, Washington, D.C.

TRB. 1996b. Special Report 246: Paying Our Way: Estimating Marginal Social Costs of Freight Transportation. National Research Council, Washington, D.C.

Ward, J. 1996. Is the Sun Setting on Tax-Exempt Stadium Financing? American City and County, Oct., pp. 42–48.

Suggested Citation:"2 Principles for Government Involvement." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
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TRB Special Report 252 - Policy Options for Intermodal Freight Transportation recognizes that freight transportation is of critical importance to the United States and that intermodal freight transportation is one of the major technological and organizational trends affecting the performance of the sector.

During the last two decades, the importance of freight efficiency to the nation's economy has become more apparent to federal policy makers and has emerged as an increasingly important element of laws and regulations related to surface transportation. In the Intermodal Transportation Efficiency Act of 1991 (ISTEA), Congress stated: "It is the Policy of the United States to develop a National Intermodal Transportation System that is economically efficient and environmentally sound, provides the foundation for the Nation to compete in the global economy, and will move people and goods in an energy efficient manner."

The term "intermodal" is usually interpreted as referring to places where the various modes connect for the purpose of transferring passengers or freight or to operations designed to move on more than one mode. ISTEA introduced provisions, carried over and extended in the Transportation Equity Act for the 21st Century, that allowed taxes collected for the highway trust fund to be used for intermodal investments designed to facilitate more efficient connections between the modes. Highways and trucking are central to intermodalism because virtually all freight moves by truck at some point in its trip.

Intermodal transfer points include any terminals where freight is transferred from one mode to another. Intermodal connections are critically important to freight movement. Massive seagoing vessels deliver containerized cargo to ports, where the containers are either trucked to rail yards for placement on trains or offloaded directly onto rail cars at the port terminal. Containerization has introduced extraordinary efficiencies into freight movement, but the connection points remain sources of friction and lost efficiency.

The TRB committee that examined policy options for intermodal freight transportation concluded that public investment in freight facilities is complex. These types of facilities (rail yards, port terminals, and truck terminals) have usually been financed exclusively by the private sector. The committee concluded that introducing public funds into this mix could undermine the "user pays" principle that has been fundamental to highway finance, fuel interstate rivalries, and come to be demanded by private-sector firms as a substitute for formerly private investment.

Appropriate federal and state roles in such projects are not yet well established in practice; hence there are uncertainties about how to proceed and a risk of wasted resources. Before federal and state funds are invested in such facilities, the investments should be clearly justified. Such justification might include, for example, that the investment would reduce negative externalities and increase positive externalities, or that it is necessary for national defense. In defining an appropriate public role, government agencies should apply standard analysis tools to estimate costs and benefits and winners and losers. The public role in financing major facilities should also receive close scrutiny to ensure that public benefits justify the expenditure of public funds and that users pay to the extent that they benefit. The location of benefits also matters: when benefits are primarily local rather than national, local or state governments are the appropriate sources of funding.

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