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

Chapter: 5 Public Finance of Intermodal Freight Projects

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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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5
Public Finance of Intermodal Freight Projects

Once a decision has been reached for government participation in a freight infrastructure project (or a category of projects), public officials and private-sector participants must decide on each participant’s share of financial responsibility for construction and operation and the revenue sources for the public share.

Finance is sometimes seen as a purely technical matter of putting together a package of loans, grants, and revenue streams to produce a desired end product. However, decisions on responsibility and revenue sources will be critical not only to the feasibility of the project or program 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. Decisions on finance are also important from the point of view of equity—they determine, in part, who pays for the project and who receives benefits.

Debates over public involvement in intermodal freight transportation infrastructure stem from two concerns. First, the public sector may

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

be missing opportunities to accomplish worthwhile projects. Obstacles are alleged to arise because (a) governments do not place proper weight on freight transportation benefits in making up their public works programs, (b) projects fall between the cracks of established program categories, (c) projects would entail nontraditional public-private relationships, and (d) the division of responsibilities among government jurisdictions is not defined.

The second concern is that government may be building or maintaining facilities that are not worthwhile. States are tempted to subsidize their ports and resist market and technological pressures toward port consolidation. Facilities may receive government support on the basis of weakly documented claims of benefits for economic development, the environment, or congestion reduction. Governments recognize that they cannot afford to expend scarce transportation funds on projects that do not yield high payoffs, and government intervention in segments of the transportation enterprise that can be efficiently handled by the private sector is likely to degrade rather than enhance system efficiency.

With hindsight, intermodal freight projects with government involvement generally can be classified into one of three categories:

  • Successful, legitimate projects that yield worthwhile benefits, including important public benefits, and for which the government contribution was essential. They may involve a subsidy, or the government may fully recoup its initial outlays through user fees or other revenues. The goal of government finance policy is to ensure that funding is available for these projects.

  • Projects that never yield the benefits that were claimed for them when they were undertaken because use projections are not realized or various indirect benefits were forecast speculatively and overoptimistically. Often it is found that the government was the instigator of these projects, federal or other external support was provided, and private-sector participation was weak. These projects harm transportation efficiency by diverting funding from where it is most needed.

  • Projects that are justified economically and that probably would have been undertaken in some form and in some location without government involvement, but for which the private sector has extracted subsidies or other concessions from a government to ensure that the investment takes place in its jurisdiction. Local governments are willing to grant concessions to such projects if the alternative is loss of

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

important development, especially if external sources are available to offset some of the cost. However, from a national point of view these projects may degrade efficiency by misdirecting investment.

Failed projects cannot always be avoided since investment entails risks, and expediency will inevitably determine many local government economic development decisions. The goal is to maximize the number of winners from the standpoint of all affected parties. The rules and principles that govern finance practice can help attain this goal by influencing the likelihood that good projects will be accomplished and bad projects will not.

The two important links between finance and performance are the rules governing the granting of subsidies and the extent of reliance on user fees. It was noted in Chapter 2 that government involvement does not necessarily imply subsidy. Public participation in a completely user-fee-financed project might be necessary because government already owns some of the facilities involved (e.g., roads or ports), government can act as an honest broker among numerous participants, or exercise of eminent domain is justified. Projects relying on user fees as the predominant revenue source, having strong private-sector participation and risk sharing, and having government contributions that include substantial local funds are more likely to be winners for public and private participants and from a national as well as a local perspective. On the other hand, availability of subsidies can contribute to overcapacity and retard adjustments to market forces.

The committee considered selected finance issues where it believed opportunities exist for improving the performance of the freight system through better public finance practices. The first two sections of this chapter address policy issues that are relevant to state and local governments deciding on finance arrangements for individual projects:

  • Who should pay for a project, and

  • Innovative finance mechanisms.

The following four sections deal with policy questions relevant to the federal government, which influences project finance decisions through its aid programs and tax laws. The federal issues are

  • Management of the federal transportation trust funds,

  • Rules for tax-exempt bond finance,

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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  • The relation of federal tax and aid policies to privatization, and

  • Project finance and interstate economic development competition.

The study committee commissioned a background paper, “Public-Sector Financing in Intermodal Freight Transportation,” by John E. Petersen. Basic policy principles as well as practical financing mechanisms are examined in the paper. The paper is published in Part 2 of this report.

WHO SHOULD PAY FOR THE PROJECT

A government planning an intermodal freight project must devise a finance package that apportions the cost burden among participants and others. The candidates for paying for an intermodal freight transportation project are users (through tolls or other fees), other direct beneficiaries (e.g., owners of property adjacent to the development), the local public (through subsidies from local general tax revenues or tax concessions), the national public (through use of federal grants or tax-exempt bond finance), or indirect beneficiaries (e.g., application of road user fee revenues to rail transport on the grounds that rail use relieves road congestion).

How a choice should be made from among these options was discussed in Chapter 2. As argued in that chapter, the decision on who will pay for a project is important from the standpoint of fairness and because it will affect the probability that the project will be successful (that is, that the project will improve intermodal freight efficiency).

The predominant benefit of most projects in which the government participates is the direct benefit to users. Such projects should be financed by user fees or private-sector contributions, with each user paying a fee commensurate with the cost of providing service to that user. In some projects, external benefits such as pollution reduction or mitigation of highway congestion 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.

Local government choices on project funding sources are constrained. As a practical matter, any external funds available (for exam-

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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ple, federal aid) for which the locality has no higher-priority application must be used. Also, local governments may feel compelled to make compromises for the sake of job retention.

Communities that lie along the route of a major national freight corridor (for example, towns along railroad main lines and major port cities) bear environmental costs from this activity, including noise, air pollution, and traffic delays and accident risks caused by rail-highway grade crossings. It may be argued that this burden is unfair because the economic benefit of the freight traffic is distributed nationwide whereas the environmental costs are disproportionately local. In certain circumstances, the local community can capture some of the national benefit as recompense for the local costs. For example, one of the principal intended benefits of the Alameda Corridor port access project in Southern California is to eliminate 200 grade crossings in the Los Angeles area (Preusch 1997). The project will be paid for in part by a per-train fee paid by railroads for use of the new grade-separated rail line.

In other circumstances there may be no feasible mechanism for local governments to charge a tax or fee to compensate for local costs. In such cases a national subsidy to the local area to mitigate the effects might be regarded as justified on equity grounds, even when the benefits of mitigation are entirely local. The Congestion Mitigation and Air Quality program of the Intermodal Surface Transportation Efficiency Act of 1991 provides federal grants for projects to improve local air quality. In the absence of a mechanism to charge polluters for their contributions to local emissions, this aid may be regarded as essential for equity.

Whatever funding mechanisms and sources are chosen for a proposed project, the review of the proposal should include an assessment of the implications of funding for the burden of costs and a justification for the distribution of the burden. The public requires a clear accounting of cost burdens to judge the cost. Such an accounting often is difficult in complex finance packages that include loan guarantees and tax-exempt bond finance.

INNOVATIVE MECHANISMS FOR RAISING CAPITAL AND OPERATING FUNDS

Most state and local government funding of transportation facilities serving freight is for road construction. The traditional means of

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

financing most state road projects has been pay-as-you-go, with funds derived from the federal-aid highway program grants and from a state highway fund that receives revenues from the state fuel excise tax. For highway projects, the term “innovative finance” refers to any arrangements that depart from these practices, including use of debt finance, use of new revenue sources, and public-private partnerships—joint development by the government and the private sector of projects serving joint public and private ends—to increase funds available for transportation infrastructure and accelerate completion of projects.

Innovative finance received an impetus from the National Highway System Act of 1995, which authorized a pilot program to create State Infrastructure Banks (SIBs). A SIB is best understood not as a distinct funding mechanism, but as a necessary structure to facilitate or institutionalize the various innovative finance techniques. The pilot SIBs are to be capitalized with a portion of participating states’ federal-aid funds or with a share of a special $150 million appropriation Congress made in 1997 to get the program started. States can also choose to leverage federal capital by using it as collateral against which to raise additional funds through bond issuance (GAO 1996, 3).

SIBs can offer loans (generally at below-market rates) or loan guarantees to local governments or private entities for undertaking certain kinds of transportation infrastructure projects. Loans are to be repaid to the SIB with revenues derived from the project, dedicated taxes, or general government revenues. Among state applications for the pilot program, freight-related projects proposed included highways, the Alameda Corridor port access project, and a truck-rail intermodal terminal. Revenue sources for repayment of loans included highway toll receipts, state transportation funds, special taxes from a tax-increment financing district, associated real estate development, and lease payments from private operators of publicly owned facilities (GAO 1996, Appendix 3).

SIBs and similar innovative finance techniques have the potential for increasing and accelerating funding of transportation projects by providing attractive financing terms for private-sector partners, providing for debt finance of local government projects that otherwise would probably be financed only on a pay-as-you-go basis, stimulating development of revenue sources like special tax districts and tolls, and providing a structure and models for public-private joint development.

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

The planned construction of a 27-km (17-mi) segment of Virginia Route 288, although it is not primarily a project to serve freight, illustrates the application of innovative finance techniques. The project was conceived before enactment of the SIB program, although it was designated as a potential recipient of a SIB loan in the state’s application to the SIB pilot program (GAO 1996, Appendix 3). An agreement between the state and a private firm calls for the firm to finance, design, and construct the road. The state will then receive ownership, and the firm will operate the road as a franchise. The project will be financed with private debt and equity in combination with public funds. Tolls collected with an automatic toll collection system will be the principal revenue source for debt service. The public contribution is expected to include a tax collected from nearby landowners through creation of special tax districts. The project would not have been possible before 1995 state legislation sanctioning public-private transportation development (American City and County 1996). This case shows how private-sector participation, underused revenue sources like tolls and special tax districts, and a combination of federal, state, and local government support can be brought together to accelerate completion of worthwhile transportation projects.

The General Accounting Office’s (GAO’s) review of the SIB pilot program identified potential barriers to the use of the SIB mechanism. Among them are the limited number of available projects that can be expected to generate revenues through user fees or dedicated taxes, conflicts with federal tax-exempt finance rules for public-private projects receiving funding from a SIB capitalized with state bond proceeds, and state laws restricting joint public-private ventures (GAO 1996, 13–18).

The success of SIBs will depend on the extent to which institutional obstacles now hinder local government access to capital markets or local government utilization of project-level revenue sources in financing transportation improvements. Conclusive evidence that such barriers are blocking substantial numbers of high-payoff projects does not exist. Congress and the states will need objective and detailed assessments of whether the pilot SIBs succeeded in expanding funding available for transportation infrastructure, the sources of such additional funding, and the success of the projects funded through SIBs.

The important policy choice facing Congress, the states, and the U.S. Department of Transportation, once the results of the pilot SIB

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

program have been assessed, is whether and how to promote further use of infrastructure banks and similar innovative finance arrangements. The options the federal government will consider include further promoting innovative finance through increased direct federal capitalization of SIBs and relaxation of tax-exempt bond finance restrictions to promote public-private partnerships. States must decide whether to change their laws to remove legal barriers to public-private joint development (as Virginia did in the case described earlier) and whether to participate in the federal infrastructure banking program.

MANAGEMENT OF TRANSPORTATION TRUST FUNDS

The federal government maintains four transportation trust funds that finance facilities serving intermodal freight: for highways, harbor dredging, inland waterways, and airports and airways. Many states maintain similar trust funds for highways. The trust funds are accounting entities that receive revenue from excise taxes targeted to users of public transportation facilities. Their disbursements are ostensibly restricted to purposes benefiting users. Trust fund finance is seen by its supporters as under assault today from a combination of congressional actions to divert revenues from their traditional purposes and Congress’s propensity to allow balances to accumulate by restraining spending below revenues.

The principal policy issues regarding federal trust funds include the relationship between fund revenues and expenditures, allowable categories of expenditures, and the underlying questions of whether trust funds are desirable mechanisms for transportation infrastructure finance and whether their use should be expanded or curtailed. The policy options for Congress are as follows:

  • Preserve and reinforce the mechanism as trust fund defenders advocate, by spending down balances and curtailing diversions;

  • Maintain the status quo under which a major portion of spending is for the direct benefit of user fee payers but revenues are also used for other purposes, including budget-balancing; and

  • Abolish the trust funds. Abolishment would not necessarily entail abolishing user fees.

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

The most common arguments in favor of trust fund finance are funding stability and fairness. However, as discussed in the section on use of Highway Trust Fund revenues in Chapter 3, the mechanism may also promote efficient use of facilities and efficient investment because it is an approximate form of pricing. Projects can be financed through user fees without maintenance of a trust fund, but the trust fund feature probably makes pricing for public services more politically acceptable than if user fees were treated as general revenues.

The federal trust funds all carry unspent balances. There is no economic reason why receipts should equal expenditures in every time period. However, the existence of an unspent balance tends to undermine political support for the funding mechanism. Some industry groups and state governments have opposed allowing trust fund balances to accumulate. For example, a National Council of State Governments report advocates congressional action to permanently and automatically distribute all Highway Trust Fund revenues each year (National Governors’ Association 1997).

The argument against trust funds is that the mechanism creates an undesirable constraint on public investment decisions, since users defend their claim to the funds.

The federal harbor maintenance trust fund faces a special difficulty. Revenues to the fund are from a charge proportional to cargo value on imports and exports through U.S. seaports. Disbursements pay for Army Corps of Engineers harbor dredging. Federal courts recently declared the charge unconstitutional because export duties are specifically forbidden in the Constitution. The court decision noted the weak connection between collections and expenditures at particular ports as part of its rationale for rejecting the government’s argument that the charge is a user fee rather than a duty (American Shipper 1997). Congress has the options of restructuring the fee so that revenues are closely related to costs or abandoning user fee finance of harbor dredging.

RULES FOR USE OF TAX-EXEMPT BOND FINANCE

The sale of bonds by local governments, the interest on which is exempt from federal income tax, is an important financing component of many local public works projects. Federal tax law sets the rules for

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

the kinds of activities eligible for tax-exempt bond finance. Today a bond may be tax exempt only if no more than 10 percent of the proceeds are used for private purposes, as defined by federal regulations, and no more than 10 percent of payments to bondholders derives from private sources. Lending of tax-exempt bond proceeds by the issuing government to a private entity is also tightly restricted. Finally, federally guaranteed bonds are ineligible for tax-exempt status.

Bonds whose proceeds are used for certain specified types of facilities are exempt from these limits. Exempt facilities include airports, docks, and wharves, but other kinds of facilities that might be involved in a public-private intermodal project are not exempt (GAO 1996, 19).

Proposals have been made for altering the rules for tax-exempt bond finance to make it easier for public-private transportation projects to qualify. Federal legislation was considered in 1997 that would create a pilot program to permit tax-exempt bond finance of highway projects with major private participation and that would be transferred ultimately to public ownership (AASHTO Journal 1997). The Presidential Infrastructure Commission in 1992 recommended creation of Public Benefit Bonds that would not be subject to current private activity restrictions and that could be used to finance infrastructure projects (Petersen, Part 2).

GAO identified the private involvement limits on tax-exempt debt as an important potential inhibition on the utility of the SIBs that were created by the National Highway System Act of 1995, because these banks were intended to be capitalized in part with proceeds from state-issued tax-exempt bonds (GAO 1996, 19). GAO did not recommend that rules be changed on this account, but the implication of the report is that Congress will need to examine the rules if it wants the infrastructure bank program to grow.

Relaxing restrictions on tax-exempt bond finance would encourage development of new funding sources for transportation projects by attracting private-sector participation in projects that serve both public and private ends. However, greatly expanding tax-exempt bond finance could have some negative consequences:

  • Tax-exempt bond finance does not reduce the cost of a project to the public as a whole. Rather, it redistributes the cost. Tax-exempt bonds have the same effect as a subsidy from all federal taxpayers to the

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

beneficiaries of the project financed with the bonds. If the public benefits that justify the subsidy are primarily local or regional, use of the federal subsidy might be regarded as inequitable.

  • The subsidy affects the overall efficiency of the economy, since it biases the capital market in favor of certain government-selected investments. The diversion of capital may be good or bad depending on whether the favored projects generate public benefits sufficient to justify public support.

  • If tax-exempt finance is liberally available for a class of projects, the tendency will be for it to be used indiscriminately rather than selectively, and projects without it will not be built. This pattern has emerged in the case of professional sports stadiums—nearly all stadiums built in recent years have received some kind of tax-exempt financing (Ward 1996).

It is because of such concerns that Congress enacted the existing limits on the use of tax-exempt bonds. Legislation has been introduced to further tighten the rules for some uses (e.g., stadiums) (Ward 1996). However, if Congress wishes to promote innovative finance and public-private partnerships, some reduction of differences in the tax treatment of publicly and privately financed infrastructure may be necessary.

RELATION OF FEDERAL TAX AND AID POLICIES TO PRIVATIZATION

Several states are experimenting with forms of private-sector road development, and existing ports and airports, which are beginning to be privatized in other countries, may come to be seen as candidates for privatization here. Federal-aid program and tax rules will strongly affect the feasibility of privatization. Tax-exempt bond rules require any facility that has been publicly owned to retire any tax-exempt bonds outstanding if it is sold or transferred to private use (Petersen, Part 2). Also, a private-sector facility that competed with public facilities would be handicapped by lack of access to tax-exempt finance and to other forms of federal aid that public facilities can tap. The policy option to be considered concerning this issue is whether, for some categories of facilities, tax and aid program rules ought to be neutral with respect to whether the facility is in public or private hands. Neutrality could be accomplished by allowing

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

access to aid under some circumstances for certain private facilities or restricting aid to public facilities.

PROJECT FINANCE AND INTERSTATE COMPETITION FOR ECONOMIC DEVELOPMENT

One of the ways that decisions about finance mechanisms affect intermodal freight transportation efficiency is through the effect of finance arrangements on interstate rivalry for business at ports and other transportation hubs. For the sake of economic development and to retain local jobs, states sometimes compete in offering various incentives to carriers and shippers to use facilities within their boundaries. For example, a state may feel obligated to offer assistance to a railroad serving a port because a neighboring state offered similar assistance.

On the whole, competition among jurisdictions in the United States in providing residents with services and economic opportunities probably improves the efficiency of government and increases the ability of citizens to obtain the level of public services they want and are willing to pay for. However, interstate economic rivalry will be detrimental to national freight system efficiency if it leads to subsidized overcapacity. Proposals for controlling these rivalries have included the following:

  • Interstate cooperation: Multistate agreements could be made to share information about economic development programs, use common analysis methods, and adopt uniform standards and measures of accountability.

  • Disclosure: Government offers, especially in direct competitions for an industry relocation decision, should be made public during the bidding.

  • Standards: States should set standards for what constitutes a development prospect worth offering incentives to obtain. Standards would be concerned, for example, with quality of jobs and their availability to the local population, performance monitoring, and enforcement mechanisms.

  • Program evaluation: The costs and benefits of development incentives should be measured and evaluated retrospectively. Such evaluations would have to follow established methods and standards and use data reported according to uniform procedures (Eberts, Part 2).

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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A 1996 Maritime Administration report observes that public sea-ports could improve their revenues through collusion:

The economic costs of following price/service competition ultimately may force the port industry to reexamine these practices. By exploring the potential benefits of regional cooperation within the context of the antitrust immunity which they are allowed by statute, public ports may realize both substantial savings and improved profitability, while improving their competitive standing nationally and internationally. (Maritime Administration 1996, 44)

Of course, a port cartel could have negative consequences for intermodal freight efficiency, shippers, and consumers. Overcapacity could be supported by monopoly pricing, and ports might become less responsive to shipper and carrier service requirements. The positive aspect of such an arrangement would be that ports would become more self-supporting and the need for subsidies would be lessened. The ideal solution from the standpoint of freight efficiency probably would be for ports to compete without recourse to subsidies.

Federal regulations and programs affect the costs borne by state and local governments in offering development incentives to firms. For example, the rules of the federal surface transportation aid programs determine what kinds of projects can be funded with federal aid, and federal law determines what activities are eligible for tax-exempt government bond financing. Tightening restrictions on the use of federal funds and tax-exempt bonds will curtail state economic development assistance and interstate rivalry, whereas liberalizing the rules will expand state efforts.

REFERENCES

Abbreviation

GAO General Accounting Office

AASHTO Journal. 1997. New Transportation Bond Plan Eyed. Vol. 96, No. 5, Jan. 31.

American City and County. 1996. Proposed Virginia Route 288 Wins Approval. Oct., p. 44.

Suggested Citation:"5 Public Finance of Intermodal Freight Projects." Transportation Research Board. 1998. Policy Options for Intermodal Freight Transportation: Special Report 252. Washington, DC: The National Academies Press. doi: 10.17226/11414.
×

American Shipper. 1997. Court Rules Against Harbor Fees. July, p. 20.

GAO. 1996. State Infrastructure Banks. Oct.

National Governors’ Association. 1997. Financing for Highway and Public Transit. Washington, D.C., July 28.

Maritime Administration. 1996. Report to Congress on the Status of the Public Ports of the United States 1994–1995. U.S. Department of Transportation, Oct.

Preusch, J. A. 1997. Plan of Finance: The Alameda Corridor Project. Presented at 76th Annual Meeting of the Transportation Research Board, 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:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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Suggested Citation:"5 Public Finance of Intermodal Freight Projects." 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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