TRB Special Report 303: Equity of Evolving Transportation Finance Mechanisms (2011)

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4 Transportation Finance Equity Evidence and Experience The first two sections of this chapter summarize the evidence about the equity of road and transit finance strategies, with emphasis on different variants of road pricing. Much of the literature on the equity of road pricing discusses theoretical and modeling studies of the possible equity impacts. The literature presenting empirical evidence from practical implementation of road-pricing approaches is more limited in scope. Both logic and experience suggest that transportation finance policies inevitably result in both winners and losers, and possible approaches for remedying the inequities suffered by losers are discussed in the third sec- tion of the chapter. The importance of involving all affected groups in identifying inequities and developing potential remedies is highlighted. The final section of the chapter identifies and discusses opportunities to fill gaps in current knowledge about the equity implications of trans- portation finance mechanisms, with emphasis on the need for robust empirical evidence. EVIDENCE ON EQUITY IN ROAD FINANCE A full assessment of fairness [of road pricing] must consider the incidence of toll payments, the incidence of taxes that would have been levied in the absence of tolls, the user benefits (speed and other improvements), the losses associated with some less desirable form of travel for users who avoid tolls, and the final results from the investments made with toll revenues. (Puget Sound Regional Council 2008, 28–29) This observation, made in the context of the Puget Sound Regional Council’s pilot project to evaluate travelers’ response to variable road 67 

68 Equity of Evolving Transportation Finance Mechanisms tolling, illustrates the complexities involved in assessing the fairness (equity) of a financing mechanism. The evidence presented in the liter- ature on equity in road finance reflects these complexities, with much of the work looking at only part of the equity equation—for example, the burden of a toll, or the equity in services offered or consumed—rather than the full range of costs and benefits associated with the toll. Scope of the Evidence The availability of evidence about the equity implications of road financ- ing strategies varies considerably depending on the type of strategy. The motor fuel (gas) tax has been studied extensively, with a flurry of stud- ies examining the incidence of the gas tax beginning in the 1990s, when this tax was last raised at the federal level. In contrast, studies of less widely implemented finance strategies—voluntary toll policies such as high-occupancy toll (HOT) lanes and comprehensive toll policies such as cordon tolls, for example—are more limited in number. As discussed in Chapter 2, HOT lanes have been implemented in various locations in the United States, and there is some empirical evidence about the equity implications of these lanes, although modeling studies predominate (Schweitzer 2009). In the case of comprehensive, or mandatory, tolls, the empirical evidence is even more limited. Cordon tolls have been imple- mented in several cities overseas, notably Singapore; London; and Stock- holm, Sweden, but not in the United States. Empirical evidence about the equity implications of vehicle miles traveled (VMT) fees and related taxes is sparse, because such taxes have not been implemented, with the exception of truck weight–distance charges (see Chapter 2). Study Methods Most studies consider the distribution of burdens of taxation or other financing mechanisms and not the benefits of expenditures. Several rea- sons underlie this focus on burdens (costs).1 First, examining both costs and benefits is considerably more complicated than examining costs 1 As discussed in Chapter 3, the burdens of a finance policy may be both economic and non- economic in nature. 

Transportation Finance Equity 69 alone. The data requirements are complex, in part because the benefits depend on responses to finance policies that can vary widely among groups, households, and individuals. There are many ways to use rev- enues raised by a given transportation finance mechanism, and treating each of them would greatly multiply the number of cases to be consid- ered. Furthermore, Schweitzer (2009) notes that the benefits of service quality improvements to different types of travelers are seldom estimated for roadway studies, although there is evidence that the differences among groups may be startling; for example, one study finds that women value travel-time reliability more than twice as highly as men (Lam and Small 2001). Finally, the distribution of benefits of expenditures is espe- cially likely to depend on local conditions, making it particularly diffi- cult to draw general conclusions. For example, the distribution of benefits from a highway extension to a suburban area depends on the spatial pattern of residences and jobs by income group. There is a natural tendency to focus on potential losses under a new financing regime. The results of such narrow studies provide one per- spective on the equity implications of finance policies, but the full pic- ture may look rather different. For example, Schweitzer (2009) suggests that the initial pricing of certain projects may be inequitable for lower income groups, but these groups may also benefit disproportionately if the same projects generate positive land use changes or decrease envi- ronmental pollution. Such disproportionate benefits accrue because lower income groups suffer more on average from dispersed land use patterns and environmental pollution than do wealthier travelers (Schweitzer and Valenzuela 2004). A few studies have specifically identified ways that the distributions of benefits and costs are altered if one considers the ways in which rev- enues are actually spent and services are consumed. The term “revenue recycling” is often used to describe the use of the revenues from a financ- ing mechanism, that is, the ways in which revenues are “recycled” or redistributed—for example, by investing in transit or highways, giving monetary credits to individual travelers, or reducing other taxes. Con- sidering revenue uses often alters substantially the pattern of winners and losers, so it is important to know whether revenue recycling was included in a given equity analysis. 

70 Equity of Evolving Transportation Finance Mechanisms Studies of the motor fuel tax have investigated the many ways in which the burden of this tax can be shifted from retailers to final customers, motor vehicle manufacturers, and so on (see Chapter 3 and Box 4-1). Most studies of other road finance mechanisms employ rather simple, and often unstated, assumptions that place all the finance burdens on the most easily identified market participants. Thus, while the incidence of the motor fuel tax is relatively well understood, the same cannot be said for many evolving transportation finance mechanisms. Findings Schweitzer finds that empirical studies of transportation taxes, fees, and charges converge on a basic range of estimates for how much different groups pay, “even though the studies involve significant variations in method, data, and assumptions” (2009, 2). She finds that low-income drivers pay, on average, 0.1 to 0.5 percent of household income for most transportation taxes and fees. Higher toll levels and more comprehensive pricing strategies are expected to take a higher percentage of income— perhaps as much as 2 percent of household income for those earning less than $25,000 a year. Schweitzer emphasizes, however, that these results “depend on the geographic context and on the choices available to low- income motorists” (2009, 2). This dependence on specific details has long been recognized in discussions of the likely equity implications of congestion pricing (see, for example, Giuliano 1994). Schweitzer’s (2009) analysis suggests that a given transportation pric- ing or tax policy is unlikely to be always progressive or always regressive within or across regions when all the costs and benefits are taken into account. Differences in policy instrument design and revenue usage can result in a system that is regressive, proportional, or progressive, depend- ing on specific details and local conditions. Other researchers have reached similar conclusions. For example, research by Pucher in the early 1980s showed that the incidence of public transportation policies is very sensitive to local transit service patterns and to the mix of funding sources used to finance public transit systems (Pucher 1981, 1982; Pucher and Hirschman 1982). Such findings demonstrate that simplistic policy sound bites (e.g., “if we price the freeway, the poor will suffer”) are invariably misleading. 

Transportation Finance Equity 71 BOX 4-1 Shifting the Cost Burden of the Motor Fuel Tax Alm et al. (2009) consider shifting of the fuel tax burden from retailers to final customers. They find such shifting to be virtually complete in urban areas (i.e., consumers pay the full cost of the tax) as a result of strong competition among retailers, and exten- sive, though not complete, in rural markets. The Congressional Budget Office (2003) considers the effects of increasing the fed- eral gasoline tax, including the possibility that some of the tax may be shifted to motor vehicle manufacturers by forcing them to absorb some of the extra cost of new, more fuel-efficient vehi- cles. The study finds evidence of some such shifting, but still finds that 83 percent of the burden falls on vehicle owners. Bento et al. (2009), West (2004), and West and Williams (2004) focus more on how travel demand varies across income groups in response to fuel price increases; they find that wealthier households are somewhat less responsive and therefore tend to have more of the tax shifted to them than do poorer households. Taking this dif- ferential responsiveness into account reduces the regressivity of the fuel tax somewhat, but not entirely. Only when the gas-tax revenue is spent in a way that benefits everyone equally, such as by providing an equal per-household tax rebate, does the gas tax become progressive according to these analyses. In contrast, financing transportation services typically benefits different groups unequally, and so the net incidence of the tax could depend on just how those transportation services are distributed. The study by Bento et al. (2009) is notable for its detailed depiction of markets for new and used passenger vehicles, show- ing how a gasoline tax is shifted to various segments of vehicle markets. The authors also consider how the burdens borne by motor vehicle manufacturers and gasoline refiners are likely to (continued on next page) 

72 Equity of Evolving Transportation Finance Mechanisms BOX 4-1 (continued) Shifting the Cost Burden of the Motor Fuel Tax be distributed among various population groups. The result is that the burden of the tax is mildly progressive at low incomes and mildly regressive at middle and high incomes; that is, the greatest burdens (as a fraction of income) are borne by middle- income groups, although the differences are not very great. The main reason for this pattern is that most burdens are shifted to users, and fuel use rises strongly with income at low incomes but less so at higher incomes. It should also be noted that the taxes and user fees charged for trans- portation vary widely across the country. As noted in Chapter 2, for example, road tolls are far more common in California, Florida, Illinois, New York, and Texas than in most other states. If the equity of current taxes and fees (the status quo) is used as a baseline against which to assess the equity consequences of a new finance policy, variations in this base- line in different regions are likely to affect the assessment. Thus, intro- ducing new road tolls in a region in which such tolls are already relatively common may have different equity implications than introducing road tolls in a region in which fees are not currently levied on road users directly (i.e., at the time and place of use). Motor Fuel Tax A number of researchers have found the motor fuel (gas) tax to be regres- sive. Chernick and Reschovsky (1997) provide a typical finding: a sim- ple comparison of data across income deciles, whether for a single year (1982) or averaged over 11 years (1976 to 1986), shows that family expenditures for motor fuel are regressive except for families in the low- est income brackets. (These families typically do not own cars and there- fore do not spend money on fuel.) Several factors may overturn that result, however. One is that comparing tax payments to annual income— as opposed to measures of long-term income—biases the results toward 

Transportation Finance Equity 73 regressivity. Many low-income people (students, for example) may con- sume a lot of fuel and are relatively poor at the time, but are far wealth- ier over the course of their lifetime (Congressional Budget Office 1990; Poterba 1991). Another factor is that wealthier people buy more goods, the prices of which incorporate substantial amounts of the gas tax paid to produce and deliver them to market. Yet a third factor, discussed in Chapter 3, is that low-income households appear to be more responsive than high-income households to changes in fuel price, causing them to shed some of the burden through behavioral changes (West 2004; West and Williams 2004). These behavioral changes depend on the availabil- ity of transportation options and on various markets, including the job market. As a result, the gas tax may not be regressive but closer to pro- portional; that is, it takes roughly the same share of everyone’s income (Rufolo and Bertini 2003). Voluntary and Comprehensive Tolls Schweitzer (2009) summarizes the evidence from a mix of modeling esti- mates and empirical data about the equity implications of voluntary and comprehensive toll policies. She finds both types of charges to be broadly regressive, with the variations in findings depending primarily on differ- ences in policy design and distribution of revenues rather than on differ- ences in study methods and data. Table 4-1 summarizes major findings about equity from a selection of recent studies of road pricing. All these findings are based on models rather than on empirical data and should, therefore, be interpreted with caution; incorporating alternative assumptions into the models could modify the study findings. In addition, while individual studies may be of high quality, few look at all aspects of the equity equation and so need to be interpreted accordingly. Despite these caveats, the diversity of find- ings listed in Table 4-1 illustrates the difficulty of developing a clear pic- ture of the equity impacts of pricing policies. Many of the findings depend on specific policy details and geographical context, and no clear trends emerge about the fairness (or unfairness) of pricing policies. Voluntary Tolls HOT or express toll lanes give travelers the option of paying a toll to ensure a faster and more reliable trip time. It can be 

TABLE 4-1 Equity Findings from Recent Studies of Road-Pricing Policies Study Study Area Proposed Road-Pricing Policy Finding Most travelers (all but those with an income of greater than $80,000 Anderson and Minneapolis–St. Paul, Congestion tolls per year) would be worse off with road pricing unless revenue is Mohring 1997; Minnesota recycled. Mohring 1999 Road pricing would have a detrimental effect on low-income house- Johnston and Sacramento, California VMT tax and peak-period toll holds but would have a positive effect for middle- and high- Rodier 1999 policies income households. Prior to revenue recycling, consumers would be worse off with road Fridström et Edinburgh, Scotland; Cordon tolls and distance- pricing; after recycling, overall societal net benefits may improve. al. 2000 Helsinki, Finland; Oslo, based charges Pricing diminishes the ease of reaching destinations by car but Norway increases the ease of reaching destinations by transit. While pricing makes auto (and nonauto) travel faster by pricing some cars off congested roads, this faster travel is more expen- sive. The combination of the two changes (time plus money) increases the composite cost for typical auto travelers. Revenue recycling can be used to improve transit service. The net benefits of transportation are distributed less equally after Teubel 2000 Dresden, Germany Road user charges for the introduction of road pricing than before. commuters 

San Francisco Bay Bridge, The strategy would harm members of the lowest income group. No A congestion alleviation strategy Nakamura and California combination of tolls plus rationing rates was found to benefit all that is a hybrid between Kockelman 2002 groups of travelers studied. rationing and pricing: travelers could use the bridge on some days without tolls, but on other days only if they paid a toll. Washington, D.C. Value pricing (HOT lanes), limited HOT lanes are more equitable than congestion pricing of some or all Safirova et congestion pricing, and compre- freeway links because there is a toll-free option. al. 2003 hensive congestion pricing Benefits from HOT lanes accrue to all income groups even before recycling. HOT lanes achieve between 77 and 83 percent of the efficiency benefits (reduction in travel time) associated with com- prehensive road pricing. Road user charging will increase social exclusion for some drivers, Leeds, England Cordon crossing charges at each of Bonsall and especially for low-income, car-captive travelers. three cordons; distance-related Kelly 2005 charges within two charge areas; and time-related charges within an inner area Pollution reduction associated with pricing benefits the lowest Leeds, England Road user cordon and distance- Mitchell 2005 income quartile more than the highest income quartile. based charging According to the benefit principle, a distance-based VMT charge is Oregon Distance-based VMT charge Whitty and more equitable than existing gas taxes because payments are Imholt 2005 more clearly related to benefits received. (continued on next page) 

TABLE 4-1 (continued) Equity Findings from Recent Studies of Road-Pricing Policies Study Study Area Proposed Road-Pricing Policy Finding England Nationwide road user charging, If revenues from a national road-pricing policy are recycled through Glaister and including revenue-raising and a reduction in the fuel tax, benefits accrue more to rural than to Graham 2005, revenue-neutral charging urban residents. 2006 options Seattle, Washington, Roadway tolls Tolling is regressive. Franklin 2006 State Route 520 Utsunomiya, Japan Cordon road pricing that charges Area-based tolls produce greater societal net benefits than cordon Maruyama and travelers per crossing and area tolls, but also greater regressivity. Sumalee 2007 road pricing that charges travel- ers for an entry permit (e.g., per day) In terms of money spent (not as a proportion of income), road Austria Nationwide road pricing Steininger et pricing is progressive: poorer households would bear a smaller al. 2007 burden than wealthier households because poorer households spend less money on transportation in general and use public transport more. In terms of money spent as a proportion of income, road pricing is regressive. Zhang et al. Users with the lowest value of time harvest the least benefit (or Sioux Falls, South Dakota Road tolls 2008 suffer the most loss) from road pricing and investment decisions. 

Transportation Finance Equity 77 argued that equity effects are quite small, because the voluntary priced lanes are coupled with parallel toll-free general-purpose lanes (Verhoef et al. 1996). Supernak et al. (2002) argue that equity was not an issue in public discourse on the San Diego, California, I-15 FasTrak lanes, and Douma at al. (2005) report that equity was rarely mentioned prior to the opening of the Minneapolis, Minnesota, I-394 MnPass lane. Other authors disagree, noting that criticism of the initial HOT lane demon- stration project in the Minneapolis region was based largely on people’s concerns about “Lexus lanes” (see Chapter 5) and that equity has been raised as an issue in many HOT lane projects at some point in project development (Weinstein and Sciara 2006). Objective analyses of HOT lanes reveal several potential equity issues. One is the ability to access the facility, which, for early HOT lane proj- ects, often required signing up and paying for an electronic transponder. The acquisition cost of a transponder and minimum advanced payment for access presents a burden for low-income households that may have neither bank accounts nor credit cards. On the 91 Express Lanes in Orange County, California, and on the Pennsylvania Turnpike, trans- ponder ownership rises disproportionately with income (Parkany 2005). Similarly, enrollment in the Katy Freeway QuickRide HOT lane in Houston, Texas, which originally did not require a transponder but still required preregistration and sign-up, increased with income (Burris and Hannay 2003). The tolling industry is, however, transitioning away from transponders to alternative toll collection technologies that do not require initial investments by travelers, such as toll tags or license plate recognition with optical character readers. Beyond the question of access to the system, HOT lane use generally rises with income, with some exceptions. On the I-394 MnPass lanes in Minnesota and the I-15 HOT lanes and the 91 Express Lanes in Califor- nia, travelers from higher income households disproportionately use the lanes and pay tolls (Patterson 2007; Supernak et al. 2002; Sullivan 2000). Thus, both the transportation benefits and financial burdens flow disproportionately to those with higher incomes. Data on use of the QuickRide HOT lane system in Houston are less clear. While those with household incomes of less than $50,000 a year represented only 7 per- cent of respondents to a survey sent to all QuickRide participants, these 

78 Equity of Evolving Transportation Finance Mechanisms relatively low-income respondents made proportionately more Quick- Ride trips than those with higher incomes (Burris and Appiah 2004). These authors caution, however, that the numbers of frequent and midlevel users in the low-income group may be too small to support reli- able conclusions. Nonetheless, there is evidence that when low-income drivers place a high value on travel time savings (for example, to avoid a late penalty when collecting a child from day care), they choose to avoid the congested toll-free lanes and pay the tolls to get the benefit of a faster trip (Weinstein and Sciara 2004). Comprehensive Tolls In the absence of a parallel free option, the equity calculus of tolling changes. Empirical evidence about the equity impli- cations of VMT taxes and comprehensive urban tolls is limited, although there are some data from cordon toll policies overseas. Schweitzer (2009) examined the results of a modeling study of the Stockholm cordon toll (Eliasson and Mattsson 2006). She reports that the direct incidence of the toll was projected to be approximately pro- portional to income or slightly progressive, mainly because public transit use in Stockholm is high and increases sharply with decreasing income, so that most low-income residents would be little affected by the toll. Furthermore, if the use of toll revenues to improve transit is taken into account, then the net benefits (toll payments and travel costs less revenues) would be progressive; in fact, the lower and middle-income groups would receive a net advantage, whereas the highest income group would incur a small net cost. Most of the studies of comprehensive tolling systems find that road pricing introduces inequalities in payment burdens compared with non- priced roads, at least if use of the road-pricing revenues is not taken into account. In general, tolls hit lower income groups harder than higher income groups as a share of income, although all income groups are likely to benefit from reduced congestion. If low-income groups are infrequent auto users but depend on other modes that share the roads with cars, notably buses, then road tolls may be beneficial to such groups because of the benefit they receive from reduced congestion and faster trips. This effect was projected for the cordon toll in Stockholm (Eliasson and Mattsson 2006). In the case of the London congestion charging zone, 

Transportation Finance Equity 79 buses did move faster and more reliably for a time after the conges- tion charge was introduced; however, increased congestion in central and inner London, due largely to a proliferation of road works and the reallocation of road network capacity for various initiatives, has pre- vented further improvement in bus speeds and reliability (Transport for London 2008). Pricing may also have a more beneficial effect on low-income households by reducing congestion and resulting vehicle emissions in areas abutting roads where low-income groups often live (Schweitzer 2009). EVIDENCE ON EQUITY IN TRANSIT FINANCE Research on the equity of public transportation finance has generally taken two forms: • Demand-side studies have focused on the sociodemographics of tran- sit passengers, often in comparison with users of other travel modes; and • Supply-side studies have examined who pays and who benefits from transit fares, subsidies, and service. Both of these topics received substantial scholarly attention in the 1970s and 1980s but have been given less attention since then. Sociology and Demography of Transit Riders Research on public transit sociology and demography has examined both the fate of disenfranchised groups and the unequal patterns of tran- sit usage by income, race–ethnicity, sex, and other categories. For the most part, researchers have found that public transit in the United States is disproportionately patronized by low-income, carless, and nonwhite riders, whereas services are often not configured to meet such riders’ needs (see, for example, Giuliano 2005; Grengs 2001; Pucher et al. 1998). In an analysis of the 2001 National Household Transportation Survey, for example, Pucher and Renne (2003) found that 38 percent of all tran- sit riders nationally came from households with incomes below $20,000, compared with just 12 percent of automobile travelers. They also found significant differences in incomes and race–ethnicity by transit mode: for 

80 Equity of Evolving Transportation Finance Mechanisms example, 47 percent of bus and light rail transit passengers came from households with incomes below $20,000, compared with 20 percent of heavy rail passengers, and just 6 percent of commuter rail passengers. Likewise, they found that racial–ethnic minorities were far more likely to ride public transit than whites, who used transit for only 0.9 percent of their total daily trips by all means of transportation (e.g., auto, tran- sit, walking, cycling). Comparable percentages for other racial–ethnic groups were 5.3 percent for blacks, 3.2 percent for Asians, and 2.4 per- cent for Hispanics. Transit Fares, Subsidies, and Service Complementing research on the sociodemographics of transit riders are studies of the incidence of transit fares, the allocation of transit subsidies, and the distribution of transit service. A starting point for most of this work has been an examination of how transit fares, subsidies, and services affect choice riders vis-à-vis those who are transit dependent. (Choice riders are defined as those who have the option of traveling by private vehicle for a given trip.) The absence of a private vehicle option is usu- ally due to age, disability, or income limitations that preclude travel by car, rather than to choice. Research in the 1970s and early 1980s found that, because low-income and nonwhite passengers tend to make shorter transit trips, transit fares that do not vary by distance traveled result in higher fares per mile for these travelers (Bates and Anderson 1982; Cervero 1981; Cervero and Wachs 1982; Rock and Zavattero 1979; Ugolik and Leutze 1979; Wachs 1981). Some of this research extended the analysis to distributional impacts of the variance in costs of transit service delivery by time of day and direction (Cervero 1990; Hodge 1988). In recent years, however, transit fares have attracted relatively little attention as a topic for empirical research on the social equity of transportation finance mechanisms, even though smart card technology has opened up an array of pricing possibilities. Schweitzer (2009) observes that researchers have been more occupied with compar- ing the relative merits of different modes for low-income travelers than with measuring whether any mode is affordable at all. She suggests that higher transit fares (i.e., higher mobility costs) can contribute to social exclusion for low-income transit patrons unable to afford a car. 

Transportation Finance Equity 81 Research on the distributional consequences of transit service alloca- tions has centered primarily on three issues: variation in subsidies by income and race–ethnicity, the distribution of central city services vis-à- vis suburban and commuter-oriented services, and the allocation of expenditures and subsidies between bus and rail modes (Rogers 2003). The first set of these studies has generally found that higher income households tend to pay more in absolute terms in taxes (usually sales and property taxes) to fund transit subsidies than lower income households. Higher income transit riders tend to enjoy higher per trip subsidies than lower income riders, however, because they are more likely to patronize expensive-to-provide peak-period, peak-direction, express bus and rail trips (Caliper Corporation 1985; Frankena 1973; Pucher 1981; Taylor et al. 1995). Like the fare research discussed above, the second and third sets of studies have tended to find that capital-intensive, commuter-oriented, and suburban transit services, such as commuter rail, tend to require larger per passenger subsidies and convey more higher income riders than less-capital-intensive, central-city transit services, such as urban buses (Luhrsen and Taylor 1996; Moore 1993a, 1993b; Rubin et al. 1999). Some investments in new transit services, however, aim to reduce congestion and pollutant emissions by attracting automobile users, who tend to come from higher income groups. Scholars have generally posited a tension between the needs of disproportionately low-income and minority riders, on one hand, and efforts to draw higher income drivers out of their cars on the other (see, for example, Garrett and Taylor 1999; Grengs 2002, 2005; Sanchez et al. 2003). While investments aimed at attracting discretionary riders have raised equity questions and sometimes litigation, courts have held that it is within the mission of such agencies to pursue broader community goals at the expense of income equity (see Chapter 1). REMEDYING INEQUITIES The evidence presented in the preceding sections demonstrates that road and transit finance policies result in both winners and losers, with the lat- ter suffering a variety of inequities because of the ways transportation 

82 Equity of Evolving Transportation Finance Mechanisms services are funded. The possibility of remediating (or offsetting) trans- portation pricing or finance inequities has attracted attention in the lit- erature, but there is little information on actually implementing remedies. Scope of the Literature Several scholarly studies propose and evaluate a variety of remediation strategies, often aimed at finding ways to garner political support for road pricing in the face of opposition to new tolls and fees (King 2009; Weinstein and Sciara 2006). Much of the literature focuses on possible ways of assisting those with low incomes who may have difficulty paying for new road tolls or fees—that is, on ways of offsetting income-based inequities associated with these highway finance policies. In principle, strategies to compensate for inequitable transportation finance effects could involve either transportation or nontransportation remedies. Examples of transportation remedies include offering affected parties toll rebates or subsidies and providing alternative or improved transportation services for those who have difficulty affording tolls or taxes (King 2009). Examples of nontransportation remedies could include using toll revenues to support affordable housing options near employment sites and building a playground to compensate a commu- nity for the adverse impacts of a nearby highway expansion. In practice, however, the literature focuses almost exclusively on transportation remedies, with other solutions rarely considered explicitly as remedies for transportation finance inequities. Proposed Remediation Strategies Proposed transportation strategies for remediating inequities resulting from transportation finance policies fall into three main categories: • Altering the design of the finance policy; • Giving exemptions, discounts, subsidies, or rebates to parties adversely affected by the policy; and • Offering or improving alternative transportation services. 

Transportation Finance Equity 83 Altering the Design of Finance Policy Bonsall and Kelly (2005, 408) suggest that it may be possible to modify the design of a road user charging strategy so as to “reduce the likelihood of at-risk groups becoming socially excluded.” They suggest a number of approaches, including the following: moving the boundary of a cordon toll; redefining the basis for the charge, for example, by applying distance-related charges to all traffic within a designated area and not just to traffic entering the area; and allowing different methods of paying the charge. Allowing different methods of payment of road user charges or tran- sit fares could avoid or reduce some of the adverse impacts on low- income travelers. As noted above, if road user charges have to be paid as a lump sum in advance or require access to a bank account or credit facil- ities, low-income groups are likely to be at a disadvantage. Similarly, requiring that drivers pay to have their vehicles equipped with transpon- ders or other technologies for toll collection may be difficult for some low-income drivers (Bonsall and Kelly 2005). Schweitzer (2009) makes a similar point and also notes that low-income travelers may be dis- advantaged by methods of paying transit fares. She observes that the high up-front costs of purchasing a transit pass favor higher income travelers, who can then enjoy discounts and conveniences for transfers and trip chaining. For example, travelers on the Los Angeles countywide transit system pay $744 per year if they purchase a regular monthly pass but $884 per year if they cannot pay out in lump sums for monthly passes and so purchase a weekly pass. For regular riders who pay for each ride separately, the prices are even higher; just two rides (with one transfer) each work day cost $944 per year. Exemptions, Discounts, Subsidies, or Rebates Almost all cordon toll systems implemented in Europe feature some type of subsidy, discount, or exemption (King 2009). For example, members of groups receiving discounts or exemptions under London’s congestion charging policy include disabled drivers, residents living within the priced zone, and certain health service staff and patients. Two proposed pricing strategies in the United States, neither of which was implemented, 

84 Equity of Evolving Transportation Finance Mechanisms included subsidies aimed at offsetting inequities associated with user charges. A 1993 proposal to implement congestion pricing on the San Francisco Bay Bridge included “lifeline” credits for low-income motorists, and the 2008 New York City congestion pricing proposal offered rebates to low-income drivers (King 2009). Bonsall and Kelly (2005) note that the choice of groups to receive an exemption or discount is often politically motivated, and not necessar- ily needs-driven; however, both the San Francisco and New York City proposals used established criteria to identify those entitled to rebates or credits—namely, those qualifying for lifeline utility services from Pacific Gas and Electric and Pacific Bell in the case of the Bay Bridge, and those eligible for the federal earned income tax credit in New York City. Alternative or Improved Transportation Services The most direct and common government action to offset inequities in highway finance has been to improve public transportation services, using revenue either from general funds or from the proceeds of gas and other sales taxes or road user fees. This approach aims to provide a less expensive alternative for those who have trouble affording a road charge or an increase in the gas tax. In both London and Stockholm, funds were invested in improving public transportation services in advance of implementing cordon tolling strategies. Bonsall and Kelly (2005, 407) observe, however, that “public transport can never hope to provide the standard of convenience offered by the private car.” Thus, drivers of all incomes may be limited in their ability or willingness to switch to public transit in response to tolls because of their travel needs or circumstances. Trip origins and destinations may not be adequately served by transit, and the necessary timing of trips may not comport with transit service schedules. In addition, the need to link trips to chauffeur children or the elderly or to carry heavy groceries or other bulky goods may preclude an easy switch to transit, even if services are improved. Low-income drivers with no realistic alternative to making particular journeys by car may be particularly hard-hit by road use charges. Rosenbloom (2010) and Schweitzer (2009) cite research show- ing that simply providing more mass transit services may not benefit older, fixed-income motorists, even though it might help younger peo- 

Transportation Finance Equity 85 ple. As these authors note, using transit can require more physical exer- tion than driving alone, even under favorable circumstances. Researchers and analysts generally agree that offering improved pub- lic transportation services to those unable to afford road tolls and taxes is not a panacea for offsetting inequities associated with highway finance policies. The equity nexus between highway taxes and tolls and transit use is relatively weak. While transit users come disproportionately from low- income households, most poor people travel in private vehicles for most trips. As such, not all poor travelers can make use of transit services, even when these services are well designed and operated (NSTPRSC 2007). Therefore, the provision of improved transit services to offset inequities in highway financing policies is an imperfectly targeted remedy at best. Furthermore, transit improvements in and of themselves do not nec- essarily meet the needs of travelers most affected by higher transporta- tion taxes or user charges. This is particularly true of improvements that emphasize rail and other commuter-oriented services geared to central business district (and higher average income) commuters. For example, rail passengers receive substantially higher subsidies, on average, than do bus passengers (Taylor et al. 2000; Ward 2005). Yet bus riders are more likely to be poor, minority, and female, while rail riders are more likely to be wealthier, white, and male (Bullard, 2004; Bullard et al. 2004; Cohen and Hobson 2003; Mann 1997; Rosenbloom and Fielding 1998; Sanchez et al. 2003). Despite the aforementioned limitations, some research suggests that offering public transportation services can offset inequities under certain circumstances. An evaluation of congestion pricing in Stockholm con- cluded that spending the money generated by a central city cordon con- gestion pricing program to improve public transit (and related) services would substantially address the equity consequences of congestion pric- ing (Eliasson and Mattsson 2006). Likewise, Bonsall and Kelly (2005) suggest that inequities caused by road user charges in the United King- dom could be largely offset if revenues were used to improve the trans- portation system, provide alternative modes of transport, or provide alternative means of participating in the normal activities of society. Even so, not all drivers would be able to make alternative arrangements without compromising their participation in society. 

86 Equity of Evolving Transportation Finance Mechanisms In summary, available evidence indicates that the effectiveness of alternative transportation services (and in particular public transit) in offsetting inequities associated with road finance policies depends on the details of the local setting, the services provided, market demographics, and the spatial distribution of jobs and residences. This finding is not surprising, given that the inequities themselves depend on the details of the financing strategy and local conditions. Stakeholder Participation to Identify and Target Remedies Effective dialogue with stakeholders can lead to a better understanding of public concerns about possible inequities and help identify equity concerns that might otherwise be overlooked (see Chapter 5). As a result, such dialogue offers opportunities to highlight areas in which remedies are needed and to gather information useful in developing these remedies. One of the challenges in developing remedies is targeting them effec- tively to the needs of at-risk groups (Bonsall and Kelly 2005). As noted in Chapter 1, over the years a body of laws and regulations has evolved that collectively encourage, and in some cases guarantee, participation in decision-making processes by a wide variety of stakeholders, particu- larly members of historically disadvantaged groups. Such participatory decision making gives stakeholders the opportunity to request specific, and possibly substantial, changes to transportation projects, including changes intended to remedy inequities. Case study research suggests that environmental justice laws and administrative regulations have given previously marginalized or disen- franchised groups far more power at the bargaining table than in years past. For example, Ward (2005) undertook five case studies of environ- mental justice debates of planned public transit improvements. She found that many of the issues raised in the discussions were not focused primarily or at all on the specific improvement or project being consid- ered, and many were not within the power of the local transit operator to affect. Nonetheless, Ward’s findings suggest that opening the trans- portation decision-making process under the policy of environmental justice can bring a variety of untreated inequities to the surface. The 

Transportation Finance Equity 87 information provided can help public officials address the concerns and needs of socially or economically disadvantaged groups, even though some of the untreated inequities may be tangential to transportation. Obstacles to Funding Remedies Excess revenues are often not available to fund remediation strategies, particularly when newly constructed transportation facilities have to pay for themselves from toll revenues (Weinstein and Sciara 2006). Many of the HOT lane projects opened in the past few years have not yet covered their initial costs, which has left little or no net revenue to address remediation of inequities, and the same may also be true of toll roads. For example, revenues from the E-470 toll highway in Colorado are committed to debt service for the next 20 years, with revenue after that point already assigned to the Colorado Department of Transporta- tion (King 2009). Plotnik et al. (2009) suggest that, in practice, states are most likely to devote toll revenues in their entirety to the construction, improvement, and maintenance of tolled facilities. Therefore, these authors suggest that researchers “should generally assume that no rev- enues will be available to offset any undesirable equity effects [of tolls]” (Plotnik et al. 2009, 15). Public transportation budgets are often stretched too thin to allow funding of remediation strategies, particularly in times of economic downturn. For example, the Low Income Flexible Transportation (LIFT) program operated by AC Transit in the San Francisco Bay Area was ter- minated after 1 year because of budget constraints (King 2009), and so was not in place long enough for an assessment with confidence of the effect of free transit passes for low-income middle and high school stu- dents. Qualification for the LIFT program was based on existing criteria linked to income, with free passes distributed to students enrolled in a free or reduced-price lunch program. In contrast, transit systems offer discount pricing for all senior citizens regardless of income, but such programs do not target explicitly people in need of financial assistance. To avoid financial obstacles, finance strategies can sometimes be designed to include some form of remediation. For example, legislation authorizing HOT lanes on I-394 in Minnesota stipulates that 50 percent 

88 Equity of Evolving Transportation Finance Mechanisms of the revenues (net of debt service) be used to support transit service in the corridor (Weinstein and Sciara 2006). Revenues from the I-15 HOT lane in San Diego must be divided approximately equally between fund- ing for bus service in the corridor (the Inland Breeze Express Bus Ser- vice) and highway patrol and operations in the corridor (King 2009). OPPORTUNITIES TO FILL KNOWLEDGE GAPS There is both ample need for new transportation finance mechanisms and much interest in finding such mechanisms. As transportation finance mechanisms are developed, tested, and applied, it will be impor- tant to capture and analyze the experience—both the actions themselves and their impacts—to inform future transportation finance decisions. Current knowledge about the equity implications of alternative trans- portation financing mechanisms is limited, as discussed earlier in this chapter. This section identifies opportunities to learn more about such equity impacts by documenting experience, extending the scope of analyses, and using improved data and analytical tools. Learning from Experience Schweitzer’s (2009) review of the empirical research on equity implica- tions of transportation user charges and taxes shows there to be very few comprehensive before-and-after studies that document the equity out- comes of road pricing. The studies that have been completed provide useful information about users, nonusers, operations, and revenues, as the analyses of the I-15 and 91 Express Lanes projects in California demonstrate (Sullivan 2000; Supernak et al. 2002). For example, data on traffic and traveler-related aspects of the I-15 project were used to explore ways of allowing the HOT lanes to carry more traffic during peak commuting periods while maintaining required levels of service (Supernak et al. 2003). Dynamic, traffic-sensitive pricing with solo drivers paying a per trip fee to use the lanes was found to result in better utilization than the original pricing strategy, whereby a limited number of solo drivers paid a flat monthly fee for unlimited use of the HOT lanes. Weinstein and Sciara (2004, 9) emphasize the value of documentary evidence as a resource for others, noting that “what is learned from proj- 

Transportation Finance Equity 89 ect experiences before can point the way towards more equitable proj- ects in the future.” Further practical implementation of new finance mechanisms, perhaps through experimental programs or pilot projects, will provide an opportunity to add to the knowledge base on equity implications. Equity Implications for the Freight Sector Little is known about the equity impacts of evolving transportation mech- anisms, such as road pricing, on workers and businesses in the freight sec- tor. The trucking industry is far from homogeneous, comprising both owner–operators and large trucking companies, and there are many truck classes characterized by different weight and axle configurations. Road pricing is expected to have different impacts on different sectors of the trucking industry (Dornan 2008). In addition, if the costs to use priced roads are passed on to customers, the competitive balance between trucks and other modes might be shifted, with consequences for both the pub- lic and private sectors (see, for example, GAO 2011). Schweitzer (2009) observes, however, that empirical research on transportation finance equity has been almost exclusively focused on passenger travel, to the exclusion of freight. She notes that most equity concerns affecting low- income drivers also affect truck owner–operators, who depend on trans- portation for their livelihood, as well as small business owners who rely on shipping. Furthermore, existing research has tended to ignore improve- ments in service quality or differentiation resulting from finance changes and has largely failed to evaluate the distribution of external cost burdens. Both of these omissions are likely to be important in assessing equity impacts on individuals employed within the freight sector, on freight businesses, and on their customers (Schweitzer 2009). Estimating Incidence Understanding a policy’s incidence is of central importance to equity analysis, but burden shifting has not been considered adequately in most studies of equity implications of transportation financing mecha- nisms, with the exception of the gas tax. Furthermore, most incidence analyses have focused on who pays taxes or fees, with relatively little 

90 Equity of Evolving Transportation Finance Mechanisms attention given to burdens resulting from a need to use less convenient transportation services (such as walking or taking public transit in place of driving) or, in a worst case scenario, from foregoing travel altogether. Future studies that consider burden shifting explicitly and do not limit their analysis to financial burdens alone should provide a more accurate picture of the equity implications of evolving transportation finance mechanisms. More Accurate Descriptions of Travel Behavior Changes in travel costs can affect the behavior of households and busi- nesses in complex ways. In the case of households, for example, changes in travel behavior depend not only on income, but also on gender, age, employment status, infirmities or disabilities, and household responsi- bilities. Schweitzer (2009) observes that researchers have generally had to limit the strata by which they study the cost and benefit incidence of transportation finance strategies because of data limitations; identifying detailed incidence with statistical accuracy requires larger and more complex data sets than are typically available. Most of the studies dis- cussed earlier in this chapter rely on empirical data taken from a variety of surveys and transportation databases. These data sources do not always capture the dynamics of household travel in response to changing prices and services—results that might shed light on equity issues. In the future, new data collection strategies may make this task easier. Recently, Peters and Gordon (2008) developed a more focused sampling approach when they used E-ZPass data from toll collections on the New Jersey Turnpike and the Garden State Parkway to investigate the equity burden of New Jersey road tolls. More fine-grained data on travel behavior are needed to provide an improved basis for describing, understanding, and anticipating behav- ioral responses to evolving transportation finance mechanisms, includ- ing actual prices paid and services used. Furthermore, such microscopic, personal data about behaviors need to capture behavioral responses over time, as behaviors shift with circumstances and situations. Such data come primarily from surveys, and particularly from longitudinal panel surveys; however, surveys in general are becoming more difficult to con- duct effectively, in part because of their high costs. It is particularly dif- 

Transportation Finance Equity 91 ficult to secure funding for surveys with a payoff that is primarily long term—for example, the aforementioned longitudinal panel surveys. In addition, the reluctance of a growing segment of the population to respond to surveys poses problems in obtaining satisfactory data. Per- sonal Global Positioning System tracking systems can reduce the response burden for surveys of travel behavior, but these systems are presently more expensive than traditional surveys. In the future, applying the most effective data-gathering techniques will be necessary to build an objec- tive basis for analyzing, forecasting, and evaluating the equity impacts of evolving transportation finance strategies. Fine-grained freight data, analogous to the personal travel data already described, will also be needed to develop an understanding of equity impacts on the freight sector. Some useful data may be obtained from vehicle tracking information used to manage logistics operations. Anticipating Equity Outcomes Anticipating equity outcomes requires predicting how people will change their behavior in response to changes in prices, service levels, regulations, or other facets of transportation finance policies. Travel behavior mod- els are used to predict such behavioral changes. Predicting day-to-day variations in people’s travel behavior in response to new taxing and pricing strategies, particularly dynamic strategies based on real-time measurement of roadway performance, requires sophisticated models. Such behavioral variations depend on how people value (travel) time, and value of time is of central importance in under- standing the impacts of both variable road pricing and tolled roads. Peo- ple’s willingness to pay a road toll or fee to save time varies from person to person, and for the same person in different situations. For example, a low-income driver working two jobs may be willing to pay a high toll to avoid congestion and make a faster trip to get from one place of work to another on time; under less pressing circumstances, however, that same traveler may simply avoid the peak period or choose an unpriced (and more congested) roadway. All models currently implemented in the United States use a single value of time for each market segment (e.g., income group), however, which may be one reason behind the poor record of forecasting the use of toll roads and the resulting frequent 

92 Equity of Evolving Transportation Finance Mechanisms financial problems of toll-road operators (Flyvbjerg et al. 2003, 2005; Kriger et al. 2006). Models also need to capture the possibility of drivers adjusting their departure times to optimize some combination of travel time and user fees, an adjustment that may, in turn, affect route or mode choices. Households may reallocate tasks among people within the household or among different time slots with resulting changes in time of day of travel, ridesharing, or trip chaining (i.e., combining several destinations in the form of successive one-way trips within a larger tour). Because these are primary responses to time-of-day pricing and may vary con- siderably across different types of households, they are important in equity analysis. Advanced models that consider travel in terms of a tour (a journey from home to one or more activity locations and back home) are being developed and implemented in response to planners’ needs for better forecasting tools in general (see, for example, Donnelly et al. 2010). These models offer the potential to forecast changes in travel behavior with enough sophistication to support equity analysis. In contrast, traditional travel behavior models often fail to account for some of the ways people modify their behavior in response to changes in transportation prices (including taxes) and services. As a result, traditional models, although widely used, are limited in their ability to predict the behavioral changes central to equity analyses. To predict long-term impacts of policies, it is also necessary to antic- ipate location shifts and land use changes as travelers, shippers, and oth- ers adapt to changes in transportation facilities, services, and the way these are financed (priced). Because travel is an inherently spatial phe- nomenon and because geographic and return-to-source equity are so important in the policy process, anticipating the land use impacts of transportation decisions is a priority—and also a challenge. Realistic land use models are complex, and their data needs are demanding, but modeling tools to support comparison of the long-term spatial effects of different transportation financing options are important for equity analysis. Some such land use models are deployed or under development within a few of the larger metropolitan planning organizations and at least one state. 

Transportation Finance Equity 93 CHAPTER HIGHLIGHTS • There is limited empirical evidence on the equity implications of evolving transportation finance policies, and even less evidence on the effectiveness of strategies for remedying inequities resulting from such policies. • When it comes to assessing equity, the devil is in the details. The find- ings from empirical and theoretical studies of the equity of different transportation finance policies typically reflect different local condi- tions and policy details and are independent of differences in study methods, such as data quality or analytical procedures. The impacts of policy design, local conditions, revenue usage, potential remedies for inequities, and other specific details on different groups of people are critical in determining a policy’s overall equity implications. • The results of studies examining different road-pricing variants (e.g., HOT lanes, cordon tolls, and VMT fees) do not show any clear trends about the fairness (or unfairness) of such policies, in part because pol- icy details vary from place to place. In addition, very few studies have examined the full range of costs and benefits associated with a policy, so the findings from a single study often provide a narrow perspective rather than an overall equity assessment. • If cost burdens alone are considered, most, if not all, forms of road financing are regressive to some extent (i.e., they put a disproportion- ately large financial burden on lower income people). To make informed decisions about finance policies, however, it is necessary to go beyond the cost burdens alone and to address the policy’s benefits—for exam- ple, faster travel times, cleaner air, and safer roads as the result of con- gestion pricing. A policy’s benefits, generated through the effective use of revenues to address the transportation needs of communities, can counterbalance some or all of its inequities. • The most commonly used strategy for offsetting inequities in the financial burden of a transportation policy is improving public transportation—at least in the relatively few instances where any remedy at all has been implemented. Providing more and better public trans- portation may help offset some of the inequities associated with high- way financing but is not a consistently effective remedy, especially for low-income motorists who have no realistic alternatives to making 

94 Equity of Evolving Transportation Finance Mechanisms particular journeys by car. Whether improved transit services are a viable alternative to driving depends on the details of the services pro- vided, the populations served, the geographic distribution of jobs and residences, and other local conditions. • Strategies for remediating inequities associated with a transporta- tion finance policy can be difficult to implement and maintain because of other demands on the revenues generated. One possible approach to ensuring at least some form of remediation is to man- date that some portion of the revenues be set aside for remedies in the affected markets. • Engaging all stakeholders in participatory decision making about transportation programs and projects can help identify inequities and target remedies to the needs of adversely affected communities or groups. Such an approach also helps ensure that affected groups are part of the problem-solving process. • Documenting practical experience with evolving transportation finance mechanisms, including information pertaining to equity, can provide robust empirical evidence with which to inform future deci- sions about the use of such mechanisms. Comprehensive studies that record travel behaviors both before and after a mechanism has been implemented form a particularly valuable basis for equity analyses. Including information about the freight sector in such studies could help fill the current knowledge gaps in this area. • The design and evaluation of evolving finance mechanisms require both data and predictive power that generally exceed typical current capabilities. To improve equity analyses in the future, special efforts will be needed to gather data at the required level of detail and to develop models capable of predicting and analyzing travelers’ com- plex behavioral responses to evolving finance policies. REFERENCES Abbreviations GAO Government Accountability Office NSTPRSC National Surface Transportation Policy and Revenue Study Commission 

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