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Forecasting Transportation Revenue Sources: Survey of State Practices (2015)

Chapter: Chapter Five - Conclusions and Suggestions for Future Research

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Suggested Citation:"Chapter Five - Conclusions and Suggestions for Future Research ." National Academies of Sciences, Engineering, and Medicine. 2015. Forecasting Transportation Revenue Sources: Survey of State Practices. Washington, DC: The National Academies Press. doi: 10.17226/22137.
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Suggested Citation:"Chapter Five - Conclusions and Suggestions for Future Research ." National Academies of Sciences, Engineering, and Medicine. 2015. Forecasting Transportation Revenue Sources: Survey of State Practices. Washington, DC: The National Academies Press. doi: 10.17226/22137.
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Suggested Citation:"Chapter Five - Conclusions and Suggestions for Future Research ." National Academies of Sciences, Engineering, and Medicine. 2015. Forecasting Transportation Revenue Sources: Survey of State Practices. Washington, DC: The National Academies Press. doi: 10.17226/22137.
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24 CONTEXT FOR TRANSPORTATION REVENUE FORECASTING There is increasing awareness nationally of a gradual but relentless increase in the gap between transportation revenue requirements and the receipts from traditional sources such as the motor fuel tax. In all likelihood, individual states and federal agencies will have to institute new sources of revenue over the coming decade. A wide range of innovations can be considered for increasing revenue for transportation programs. The most direct approach to raising new revenue, espe- cially in the short term, is to increase the rates of existing taxes, fees, or charges—raising the per-gallon rates of exist- ing motor fuel taxes, increasing toll charges, etc.—thus con- tinuing but enhancing long-established transportation finance mechanisms. Although simple in concept, these changes are often difficult to accomplish for political reasons. Variations on existing user charges, taxes, or fees include tolling prev- iously free state roads, adding high-occupancy toll lanes to existing facilities, restructuring toll collection programs, or changing tax structures. Virginia recently converted its motor fuels tax to a new tax on wholesale gasoline, and California converted a sales tax on gasoline to a per-gallon excise tax in order to insure that the proceeds are dedicated to transpor- tation programs. If it became possible to do so (as a result of changes in federal law), charging tolls on interstate highways would be another example of applying existing forms of revenue collection in a new way. A third approach addresses entirely new forms of taxes, charges, or fees. In 2015, in a demonstration program of lim- ited scope, Oregon will begin charging a mileage-based user fee called a Road User Charge, which is a system of revenue collection not previously employed, though it has been tested in some pilot projects. Some states have considered pursuing commercial real estate development on state-owned rights- of-way as a method of enhancing revenue streams that could be used for transportation programs. If such programs were to be adopted, they would be quite novel; however, no state appeared to be ready to use existing methods or to consider new methods to forecast revenue from such sources. As described previously, states are weighing a wide range of options for new sources of transportation revenue within a larger political and economic context characterized by increas- ing uncertainty. The federal legislation known as MAP-21 was subject to six years of debate before adoption, but provided only two years of federal funding, adding to states’ unease; and recently Congress extended the law rather than enacting a new one. The economic downturn created increasing uncer- tainty with respect to travel volumes that determine revenue from motor fuel taxes. Changes in demographics and in travel behavior are also becoming more volatile and difficult to predict. This combination of circumstances led to the decision to undertake this synthesis. It is important to review and codify information about state transportation revenue forecasting because those forecasts are increasingly salient yet increas- ingly difficult to accomplish. The findings of this survey shed some light on these complexities and raise many new questions as well. SUMMARY OF FINDINGS All but two states reported engaging in some form of forecast- ing of future transportation revenue, but no two states forecast in exactly the same manner. Short-term forecasts were found to be more common, and undertaken using more complex tools; but many states also sought long-term forecasts. Most states rely on relatively straightforward methods of projection, but whether they informally extend trends observed in recent years, use simple linear time-series projection methods, or employ somewhat more formal and multivariate econometric projections varies greatly. Some states convened panels of experts to consider data inputs and forecast outputs for reasonableness and consis- tency with other information and to adjust forecasts as they saw appropriate. Although these adjustments were often sub- jective in nature, they were based upon the knowledge and experience of those participating in the panel exchanges. In a substantial number of states, statutes or custom led to the reg- ular involvement of agencies outside the state departments of transportation (DOTs) in the forecasting process. Some states were required to rely on forecasts made by other state agen- cies, and a larger number relied on outside agencies for data. Other states regularly used data series that were commercially available from consulting firms. Although these practices were found to differ to such a great extent that it is difficult to generalize, in nearly every chapter five CONCLUSIONS AND SUGGESTIONS FOR FUTURE RESEARCh

25 case states’ efforts to project future revenues were found to focus on traditional and well-known sources of revenue. Nearly all survey respondents and state officials interviewed reported that they concentrated on traditional sources of rev- enue and avoided forecasting potential future revenues from entirely new or dramatically different sources for what they considered to be justifiable reasons. In general, state DOTs did not add potential new revenue sources to their forecasts if these had not been adopted by state legislatures. Respondents reported that innovative rev- enue sources were beyond the scope of consideration by state DOTS, but rather had to be introduced by state legislatures and/or governors’ offices. Often new revenue initiatives were politically complex and the subject of broad public debate. State DOTs interpreted their roles, as defined in statutes or state constitutions, as operating or implementation agencies that could act to put new revenue sources into place; but invariably they stated it would be inappropriate to engage in political debates and saw making projections in advance of the adoption of new charges or fees to be politically sensitive. In addition, representatives of state DOTs reported that when state legislatures or governors were considering new revenue sources for transportation, they were more likely to turn to legislative research staff or analysts to produce estimates than to state DOT staffs. States’ innovations in the forecasting of transportation revenues fell into a few categories: • Modest innovations in forecasting revenue enhance- ment: Despite often being prohibited to “lead” state leg- islatures in seeking new revenue sources, several state DOTs had incorporated into their forecasting procedures innovations in revenue collection that had been enacted by their state legislatures in recent years in order to update the forecasts to improve their accuracy. State leg- islatures were far more likely to change rates of taxation or amend the structure or administration of previously existing taxes than they were to institute entirely new tax instruments or policies. For example, on July 1, 2013, as part of a comprehensive tax overhaul, Virginia con- verted its gasoline tax from a per-gallon excise tax to an ad volarem sales tax, at the same time as it added to the state diesel fuel tax and changed other non-transportation related sales taxes. This change imposes obligations on those forecasting future transportation revenues in Virginia, but the change in procedures is structured by innovations that Virginia DOT did not determine. • Methodological upgrading: Survey results and the lit- erature review indicated that states have generally been satisfied by the accuracy of their revenue projections, but that uncertainty in conditions surrounding their fore- casts had grown over the past decade. Some states have introduced innovations to improve methods of forecast- ing transportation revenues regardless of their sources or their novelty. Several states had become concerned that their methods of forecasting were too simplistic to capture the unstable policy environment within which state DOTs operate today. Consultants were hired or information was gathered from other states in efforts to improve forecasting methods. Some states that consid- ered more advanced forecasting tools, including Wash- ington and Oregon, adopted them, but others, including Missouri, did not. In most of these cases, states con- sidered and sometimes adopted econometric models to replace simpler trend extrapolation that had been used previously. A few other states had considered, but few had adopted, probabilistic forecasts that projected ranges of forecasted quantities within bands of uncer- tainty in place of previous practices involving simpler point estimates. Although such approaches to forecast- ing are favored by consultants or academics because of their elegance or sophistication, it would appear that the demands for data necessary to such models lessened their potential attractiveness to practitioners. • Forecasting accuracy: Despite some interest in upgrad- ing their forecasting models or methods, few agencies formally measured, published, or reported the accuracy of their forecasts. This could be because reporting accu- racy could make them vulnerable to criticism from inter- est groups, political leaders, or the media. It also more simply could be that agencies have limited staff resources and give other tasks higher priority. Because the formal reporting or publication of forecasting accuracy of dif- ferent models and methods was rare, and most states pro- vided little data about the accuracy of their projections, it was not possible to determine whether more sophisticated mathematical models yield forecasts that are to any extent more accurate than forecasts based on simple models, informal trend extrapolation, or pooled expert judgment. The benefits of sophisticated forecasting tools have yet to be demonstrated to be greater than their costs. SUGGESTIONS FOR FUTURE RESEARCh AND COLLABORATION States share a sense of urgency regarding the forecasting of future transportation revenues and recognize that current con- ditions make such forecasting increasingly challenging; so it would appear productive to develop a forum for the exchange of information. DOT staff responsible for revenue forecasting in some states appear to consult regularly with those having similar responsibilities in other states, but many other state forecasters do not. Information-sharing among the states could likely be greatly improved to the benefit of most. A regularly updated website on transportation revenue forecasting, perhaps maintained by AASHTO’s Center of Excellence in Project Finance; a blog to facilitate exchanges between relevant staff and different state agencies; and regular sessions on transporta- tion revenue forecasting at AASHTO and TRB annual meet- ings could advance the state of the art in state transportation revenue forecasting while recognizing the diversity in state capabilities and approaches and without threatening disconti-

26 nuity in current practices except where the states themselves see obvious gains from adopting new methods, models, or data. It might be useful for agencies to track forecasts made over time and to include in a longitudinal database the actual reve- nues collected in the years for which forecasts had previously been made. States could use these comparisons as a resource when evaluating and updating their forecasting methods. Among the most obvious threats to the validity of revenue forecasts is the increasing difficulty predicting motor fuel tax revenues, as the range of power sources of vehicles grows rapidly and fuel efficiency ratings become increasingly vari- able. Several states report relying on national fuel economy estimates when preparing revenue forecasts because they have no reliable source of data on changing fuel economy of the vehicle fleet in their particular state. It would appear fea- sible to develop state-specific vehicle fleet fuel economy pro- files and even forecasting tools for changes in fuel economy profiles. Research resulting in such tools could be conducted under the auspices of the NCHRP or through a pooled funding study sponsored by several states. In addition, although the AASHTO Center of Excel- lence in Project Finance maintains a website that lists state sources of revenue and rates of transportation finance rev- enue instruments, such as motor fuel taxes per gallon, the website was, as of March 2015, four years out of date. With the nature and rates of charges, fees, and taxes changing dra- matically at the state level, and with 50 states, the District of Columbia, and Puerto Rico seeking current information to inform their deliberations, there is an urgent need to update that website and to keep it current. While toll financing is likely to be increasingly important in a resource-constrained transportation environment, only a very small number of state DOTs reported that they fore- cast revenue from tolls. Toll authorities and private financial institutions have forecast toll revenues for decades, and it would be useful for states to become better informed regard- ing toll forecasting methods in this country as well as in for- eign countries, where toll road financing is quite common. A synthesis study on toll revenue forecasting methods would be a useful complement to the present study.

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 479: Forecasting Transportation Revenue Sources: Survey of State Practices documents current and proposed forecasting methodologies, as well as shortcomings of methods as reported by state departments of transportation (DOTs). The report also includes information about the types of revenue being forecasted, and how satisfied DOTs have been by the accuracy of their projections.

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