Strategic Issues Facing Transportation, Volume 5: Preparing State Transportation Agencies for an Uncertain Energy Future (2014)

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44 As indicated in the introductory chapter, the plausible future transportation energy scenarios developed for this project include elements related to fuel sources and vehicle propulsion technologies, travel demand and mode choices, and federal policies in the areas of energy, climate, and transportation funding. Emerging fuel sources and vehicle technologies are the central focus of the study and may affect state DOTs in a variety of ways. Assuming current fuel-tax rates remain unchanged, for example, any major reduction in petroleum use—due to higher fuel economy for conventional vehicles or a major shift to alternative fuels—could severely under- cut fuel-tax revenue as the major source of highway funding. Changes in the price and performance of fuels and vehicles may also affect state DOTs indirectly through their effects on total travel and mode split—potentially exacerbating traffic congestion, for example, or prompting calls for increased DOT involvement in supporting alternative travel modes. Finally, in addition to their potential role in influencing future energy demand and travel choices, shifts in relevant federal policy domains could also constrain or expand the policy options available to states for responding to changes in fuel sources and vehicle technologies. The preceding chapter summarized the team’s research on the prospects and challenges for advanced petroleum-fueled vehicles and emerging alternative-fuel options—research that supported the development of the future transportation energy scenario elements related to fuels and vehicle technologies. This chapter reviews complementary background research intended to inform additional elements of the future scenar- ios. Specifically, the first section in the chapter considers three broad socio-economic factors with important implications for both energy and travel demand in the coming decades: population growth, economic growth, and land use decisions. The second section examines challenges and ongoing policy debates in the areas of energy, climate, and transportation funding that offer clues about potential trajectories for future federal policy decisions. The chapter closes with a summary of how certain socio-economic or federal policy developments in the coming decades might be expected to influence the future transportation energy scenarios. More detailed discus- sions of the material reviewed in this chapter can be found in Appendices G and H. 4.1 Population, Economy, and Land Use Trends The discussion begins by considering past trends and future prospects and uncertainties for population growth, economic growth, and land use. More detailed discussion of the material presented in this section can be found in Appendix G. 4.1.1 Population Growth Other factors held constant, an expanding population trans- lates to greater demand for energy and travel. The magni- tude of such effects, however, depends on such factors as age, income, and generational tenure. Past trends. The U.S. population has grown steadily in past decades, increasing from about 150 million in 1950 to almost 310 million in 2010 (U.S. Census Bureau 2000, 2011). This translates to an annual growth rate of approximately 1.2%. Contributing factors have included a sharp rise in birthrates in the decade following World War II (the so-called baby boom), increased life expectancies stemming from advances in medi- cine and improved living conditions, and positive net immi- gration. While there has been a significant decline in birthrates following the baby-boom generation (Shrestha and Heisler 2011), this has been more than offset by greater longevity and continued immigration. Population growth has been stron- gest in recent decades in the western and southern regions of the country and more modest in the Northeast and Midwest (U.S. Census Bureau 1995, 2005). Future expectations and uncertainties. As discussed by Cheeseman Day (undated), the U.S. population is expected to C H A P T E R 4 Population, Economy, Land Use, and Policy Factors

45 continue to grow in future decades, albeit at a declining rate, and to become older and more diverse. Population growth in the West and South is expected to continue to exceed growth in the Northeast and Midwest, and the overall growth rate will be highly dependent on net immigration rates. • Continued population growth, but at a declining rate. Owing in part to gradual declines in birthrates along with the aging of the baby-boom generation past childbearing years, population growth is expected to slow to an annual rate of 0.8% over the next 40 years (Cheeseman Day, undated). • An older population. With continued advances in medicine—the U.S. Census projects average life expectancy to increase to 82.6 years by 2050 (Shrestha 2006)—the average age of the U.S. population is expected to increase over time. • A more diverse population. Owing to differences in birth- rates along with the effects of immigration, non-Hispanic whites are expected to decline as a share of the U.S. popula- tion, while other races are expected to grow at a faster pace. Asian and Pacific Islanders are currently the fastest growing segments of the population (Cheeseman Day, undated). • Regional variations in population growth. U.S. Census Bureau projections suggest that population in the West and South will grow at an annual rate of 1.2% in the com- ing decades, whereas the growth rate will be much lower, at 0.2%, in the Midwest and Northeast (U.S. Census Bureau 1995, 2005). • Uncertain immigration rates. Among the various factors contributing to overall population growth, immigration rates present the greatest uncertainty. In a recent exer- cise examining a range of assumptions regarding future net immigration rates, the U.S. Census Bureau (2009 a, b, c, d) found that the U.S. population in 2050 could vary between 320 million (zero net immigration scenario) and 450 million (high net immigration scenario). 4.1.2 Economic Growth As with population growth, an expanding economy also con- tributes to increasing energy and travel demand, all else being equal. Growth in gross domestic product (GDP), a measure of the nation’s total economic activity, tends to stimulate increases in goods movement. Another measure, personal income, tallies all sources of income received by U.S. citizens and resi- dents. Gains in per-capita personal income in past decades have supported greater consumption of goods and services in general, including a rapid increase in automotive passenger travel. Past trends. Adjusting for inflation, U.S. GDP has grown by about 1,500% over the past 80 years, reaching about 17 trillion dollars in 2012 [U.S. Bureau of Economic Analysis (BEA) 2013]. This translates to an average annual growth rate of around 3.38%. Contributing factors to the nation’s past growth include an abundant natural resource base along with investments in physical and human capital, with the lat- ter often viewed as being the most important. Between 1875 and 1975, the average years of education in the United States increased by seven grades, although this has since begun to level off (DeLong, Golden, and Katz 2003). Per-capita personal income has also risen considerably, growing in real terms from about $8,500 in 1930 to about $42,400 in 2011, as measured in 2012 dollars [computed by the authors from BEA 2012 and U.S. Bureau of Labor Sta- tistics (BLS) 2013]. This corresponds to a little under 400% cumulative growth over this period, or an average annual growth rate of 1.98%. In more recent decades, however, in part due to the severity of the recent recession, per-capita personal income growth has been much more sluggish; the average real annual growth rate over the past 20 years (1991 to 2011) was just 1.2%, and over the past 10 years it was just 0.5%. Additionally, income distribution in the United States, and in many other countries, has become increasingly uneven in recent decades, with income for poorer households declin- ing in real terms. This has resulted from a variety of factors, ranging from changes in tax policy to globalization, automa- tion, and other structural economic shifts [Organization for Economic Co-operation and Development (OECD) 2011]. Future expectations and uncertainties. Most forecast- ers assume that the U.S. economy will expand in the coming decades, although there is less certainty about what the growth rate will be. There are also concerns that income disparities will continue to widen, and it is possible that economic growth rates may vary from one region to the next. • Continued economic growth of an uncertain magnitude. Owing in part to the depth of the recent recession, economic growth has slowed in recent years. Between 1930 and 2012, the average annual growth rate for real GDP was about 3.38%; between 1992 and 2012, in contrast, the rate slowed to just 2.51% (BEA 2013). Looking forward, the EIA has assumed an annual growth rate for real GDP of 2.5% through 2040 for the projections in its most recent Annual Energy Outlook (EIA 2013). More optimistically, Dadush and Stancil (2009) projected an average growth rate of 2.9% for 2009 to 2050. While such assumptions fall within the bounds of past expe- rience, it is also possible to envision major disruptions—such as severe climate change—that could undercut growth rates or, alternatively, significant technological breakthroughs that could enable even faster growth. • Potential exacerbation of income inequality. Some of the structural factors contributing to rising income inequal- ity in past decades, such as globalization and automation, appear likely to continue in the coming years. Absent signifi- cant policy intervention—such as a much more progressive

46 taxation system coupled with redistributive investments— income disparities may continue to widen over time. • Geographic variations in growth. It is also possible that growth rates could vary from one region to the next based on the regions’ economic structures. Following the recent recession, for example, smaller cities in the oil- and gas- producing regions of the country have rebounded quickly, while sprawling metropolises in the Sunbelt region have been much slower to recover (Florida 2012). 4.1.3 Land Use Land use—specifically, such factors as population density and the mixing of different types of land use (e.g., residen- tial and commercial)—can have a significant influence on both total travel demand and choice among different modes of transportation. These, in turn, also affect energy demand. Thus, land use reforms are often considered as one of the policy options for addressing such challenges as climate mitigation. Past trends. Before World War II, most of the U.S. popula- tion lived in rural areas. Since that time, however, the United States has experienced significant migration from rural areas to larger cities; by 2000, the share of Americans living in met- ropolitan areas had risen to 80%. Most metropolitan growth, however, has been concentrated in the suburbs rather than in central city areas; between 1950 and 2000, the share of the U.S. population residing in suburbs rose from 23% to around 50% (Hobbs and Stoops 2002). Both policy choices and market factors—for example, the federal tax deduction on mortgage interest, the development of the Interstate highway system, demand among baby-boom generation families for larger housing, and the so-called white flight from inner cities follow- ing the desegregation of urban school districts—contributed to the rapid rise in suburbanization. In more recent decades, however, there has been renewed interest in land use policies aimed at densifying and revitalizing central urban areas. Future expectations and uncertainties. The United States will not run out of undeveloped land anytime soon. Of the nation’s 2.26 billion acres of land, only 66 million, or about 3%, were urbanized as of 1997 (Lubowski et al. 2002). The federal government controls roughly 30% of the nation’s land, which has been set aside for national parks, national forests, national wildlife reserves, military reserves, and other public-interest uses. Much of the remainder, though, could in theory be developed, allowing for continued suburbanization in future decades. While this has been the dominant land-use theme for much of the past century, the future trajectory of land use is much less certain. • Shifting policies and market forces. Against the past backdrop of sprawling suburban development, many states and local jurisdictions are now implementing or considering smart growth policies intended to promote greater density, more mixed-use development, and better integration of land use and transportation. Such policies are usually aimed at improving sustainability and liv- ability, and there is some evidence that both younger and older households (pre- and post-children) are attracted to vibrant urban locales. Broad adoption of smart growth land-use policies might therefore lead to an increasing share of the population living in denser and revitalized central city areas (Myers and Gearin 2001). In contrast, other authors have outlined more dystopian visions of the future in which energy or climate challenges render cur- rent urban structures supported by long-distance trans- port uneconomical, triggering a possible return to rural living with increased emphasis on local food production (e.g., Kuntsler 2005). It is thus possible to envision plau- sible futures involving denser urbanization, continued sub- urbanization trends, or even a reversal to more rural living. It is also possible that shifts in land use could vary from one state to the next based on different policy choices by states and local jurisdictions. 4.2 Energy, Climate, and Transportation Funding Policy Debates The focus of the discussion now shifts to ongoing chal- lenges and policy debates relating to energy, climate, and transportation funding. As noted earlier, future federal or state policy actions in these areas—for example, a decision to tax carbon emissions or to shift to greater reliance on general revenues versus user fees to fund transportation— may affect both aggregate energy and travel demand along with choices among competing fuels and travel modes. Addi- tionally, federal policy choices in these areas may have the effect of constraining or expanding the options available to states as they seek to address any impacts associated with evolving fuel sources or vehicle technologies, making it useful to consider federal energy, climate, and transportation funding policy ele- ments within the future scenarios developed for this project. The discussion in this section focuses first on energy and climate policy and then transportation funding policy. While excise taxes on gasoline and diesel could arguably be catego- rized under either of these domains, the historic purpose of fuel taxes has been to raise highway revenue. Accordingly, fuel taxes are discussed in the context of transportation funding rather than energy and climate policy. 4.2.1 Energy and Climate Policy Debates Through the 1800s and early 1900s, formal and infor- mal U.S. energy policies focused mainly on developing and

47 approaches that seek to increase U.S. production of tradi- tional energy sources and demand-side approaches that seek to reduce energy demand or displace fossil fuels with cleaner energy alternatives. Demand-side strategies can be further differentiated into the categories of regulatory mandates, subsidies, and pricing (taxation) mechanisms. • Supply-side policies to boost domestic energy production. Based on the recent emergence of technologies designed to enhance recovery from existing wells and exploit reserves from unconventional sources such as tight oil and shale gas, domestic oil and natural gas production have experienced a significant resurgence in the past few years. Indeed, recent analysis by the IEA (2012) suggests that the United States could become the leading global oil producer by 2020 and a net oil exporter by 2030. Potential supply-side policies for accelerating domestic production, some of which are already in place, include offering subsidies for oil and gas explora- tion and development, opening more federal and state lands to drilling, and relaxing environmental and safety-related permitting requirements. • Demand-side policies involving regulatory mandates. Regulatory mandates govern the quantity or qualities of goods or harmful wastes produced by individual firms or by an industry as a whole. Current federal mandates to reduce petroleum demand include CAFE standards, which govern the average fuel economy for new vehicles offered by major auto manufacturers and have recently been har- monized with federal and California emissions standards for greenhouse gases (EPA 2012), and renewable fuel stan- dards (RFSs), which specify volumetric targets for various categories of liquid biofuels to be sold by major fuel ven- dors (EPA 2013). The regulatory-mandate approach has often been employed at the state level as well. • Demand-side policies involving subsidies. Governments may employ subsidies to foster the emergence or increase the adoption rate of new products or technologies promis- ing important public benefits. Examples of recent federal subsidies intended to reduce or displace petroleum con- sumption are tax credits for battery electric vehicles and plug-in hybrids authorized in the Energy Improvement and Extension Act of 2008 and the American Clean Energy Act of 2009; the 2009 Car Allowance Rebate System (also known as the “cash for clunkers” program), which provided rebates to consumers for replacing an older vehicle with a new model capable of much higher fuel economy (Knittel 2009); and recently expired tax credits on the production of corn-based ethanol. While subsidy programs are often popular, they also require an ongoing funding stream and thus can be difficult to sustain over a prolonged period. • Demand-side policies involving pricing. As with subsi- dies, pricing (taxation) policies also involve the application expanding access to cheap and reliable sources of fuel and electric power. While these efforts succeeded in facilitating strong economic growth and improving living standards, they also led to a rapid rise in the combustion of fossil fuels— most notably coal to generate electric power and petroleum to fuel a growing number of cars and trucks. Growing reli- ance on fossil fuels led to other policy challenges in turn. Poor air quality, resulting from, among other contributing factors, the combustion of coal for heat and power along with and auto and truck exhaust, became increasingly problematic for many urban areas in the earlier part of the twentieth cen- tury. In the 1970s, with spiking fuel prices and market dis- ruptions following the Arab oil embargo of 1973, the adverse economic and national security implications of increasing U.S. reliance on foreign sources of petroleum emerged as a significant policy concern. Over the past two decades, as the significant risks of climate change resulting from fossil fuel combustion have become more apparent, strategies for miti- gating climate change have slowly become intertwined with U.S. energy policy debates. Past trends. Energy and climate debates in recent years have focused largely on three main objectives: promoting low and stable energy prices, enhancing energy security (reduc- ing reliance on imported petroleum, particularly from poten- tially hostile regions of the world), and reducing greenhouse gas emissions. While air quality challenges persist, the regu- latory framework for improving air quality—the Clean Air Act, as administered by the EPA—is already in place. Though there is some contention over the pace and rigor of EPA rul- ings issued under the Clean Air Act, the regulatory frame- work appears relatively well entrenched. In contrast, the past few years have witnessed more spirited debate on potential policies for reducing energy costs, enhanc- ing energy security, and mitigating climate change. Of these, the first two are broadly popular, while the third remains con- troversial at present. Some policies, such as more-stringent vehicle fuel economy standards, are able to address all three of these goals simultaneously. Others, however, may perform well for one of these objectives but poorly for another. Tax- ing greenhouse gas emissions, for example, could be a potent policy option for mitigating climate change, but it would also raise rather than lower fossil-fuel energy costs for the con- sumer. Efforts to increase domestic fossil-fuel production, in contrast, could help reduce energy costs and lead to greater energy independence, but also undermine efforts to reduce carbon emissions. This lack of alignment has led to strong disagreement among stakeholders with varying interests over the best set of energy and climate policies for the United States to pursue. Potential policies aimed at some combination of lower energy costs, increased energy security, and mitigation of climate change can be broadly divided into supply-side

48 ties affecting future policy choices include potential shifts in the relative prioritization of policy goals and voter attitudes toward pricing as a policy mechanism. • Relative prioritization of policy goals. With anticipated increases in U.S. oil and natural gas production, the past urgency of energy security concerns appears to be reced- ing. The issue that now eludes consensus is whether the nation’s policies should aim primarily at low energy costs or should instead focus more strongly on climate change. Some policy options such as CAFE standards can simul- taneously reduce the energy cost of travel and mitigate climate change. Many other policies, however, such as sup- port for petroleum production or the application of car- bon pricing, involve trade-offs between the goals of energy cost and climate mitigation. Should a greater degree of agreement regarding the relative prioritization of these goals emerge—perhaps in response to changing economic conditions or new information about climate change—it could set the stage for significant shifts in federal energy and climate policies. • Application of pricing policies. Should public opinion coalesce on the need for greater action to address climate, the next salient question is whether the application of pricing to achieve energy and climate goals will achieve broader adoption among states or at the federal level. Car- bon pricing, for instance, could support even more rapid progress toward energy independence along with climate mitigation, but to date this idea has proven too divisive to gain sufficient support for federal implementation. 4.2.2 Transportation Funding Debates Roads and transit systems are typically planned and funded by the public sector based on revenue raised at federal, state, and local levels. Common funding sources are user fees (e.g., fuel taxes or transit fares) and various general revenue sources (e.g., property taxes and sales taxes). Looking back over the past century, several major themes in transportation funding policy emerge. First and foremost, the United States has traditionally relied to a significant degree on user fees to fund highways and, to a lesser degree, transit systems (Brown et al. 1999). Federal and state excise taxes on gasoline and diesel provide the major- ity of user-fee revenue for highways in the country, comple- mented by additional federal and state sales and registration fees for trucks or passenger vehicles along with facility tolls in many states. [For a recent breakdown of user fees and other highway revenues at federal and state levels, see table HF-10 of Highway Statistics 2010 (OHPI 2012).] As the primary user fee, fuel taxes can be viewed as a fair way to apportion the cost of of financial incentives to motivate certain choices on the part of producers and consumers. In contrast to subsi- dies, however, pricing has the effect of reducing demand for products viewed as undesirable. With the imposition of fees or taxes, pricing tends to be more controversial than subsidies. On the other hand, pricing policies typi- cally generate a positive revenue stream (or at minimum can be designed as revenue neutral); as such, they can be maintained over time without adverse budgetary con- sequences. Potential pricing policies aimed at reducing fossil-fuel consumption and greenhouse gas emissions include higher taxes on gasoline and diesel, carbon taxes, and carbon cap-and-trade programs (Burger et al. 2009). While the federal government has not yet instituted car- bon pricing, several states have recently initiated cap-and- trade programs [Union of Concerned Scientists (UCS) 2012]. Another potential pricing approach, one that com- bines fees with subsidies, is often described as a feebate program. As applied to vehicle purchases, for example, a feebate program would include subsidies for those who purchase vehicles with higher fuel economy or purchase alternative-fuel vehicles along with penalty fees for those who opt for vehicles with lower fuel economy (German and Meszler 2010). Current federal energy and climate policies in the United States can be viewed as relatively moderate in tone, consisting mainly of regulatory mandates and subsidies and generally eschewing more controversial pricing approaches. From the perspective of potentially relevant policy goals, the current policy mix might also be characterized as conflicted, a reflec- tion of the seemingly inevitable competition among stake- holder interests seeking to influence policy choices based on their own goals. While current energy policy could be described as a combination of all of these approaches, it is quite possible that this may result in a combination of policies that tend to undermine one another. To illustrate, current federal policies simultaneously subsidize fossil-fuel development, require auto manufacturers to achieve much higher fuel economy, and offer tax credits to stimulate demand for electric vehicles. The first two of these policies, however, should have the com- bined effect of making petroleum-fueled vehicles cheaper to drive, in turn making it more difficult for electric vehicles to achieve commercial success. Future expectations and uncertainties. Looking forward, and taking into consideration the current degree of partisan division in national politics, it is possible that the current mix of U.S. energy and climate policies could remain intact for the foreseeable future. It is also possible, however, to envi- sion major shifts in federal policy by 2050, especially given mounting concerns related to climate change. Key uncertain-

49 omy. The politics of increasing fuel-tax rates, however, appear to have become more challenging in recent years. Federal fuel-tax rates, for example, were last raised in 1993; since then, they have lost at least a third of their value to inflation (NSTIFC 2009). Though a few states have indexed their fuel-tax rates for inflation, and others have instituted rate increases relatively recently, many states have instead allowed their fuel-tax rates to stagnate as well. Based on the most recent available data from the FHWA (OHPI 2011), it appears that as many as 19 states have not increased fuel-tax rates since the 1990s, and as many as six more have not increased rates since the 1980s or earlier. Because fuel-tax revenue constitutes such a large share of overall highway funding, the erosion of fuel taxes has led in turn to a significant reduction in real high- way revenue in relation to vehicle miles of travel (VMT) over the last several decades. Based on author computa- tions using data from OHPI (undated), BLS (2013), and ORNL (2012), real highway revenue per VMT declines by more than 30% between 1970 and 2010; absent the recent congressional transfers of general funds to keep the HTF solvent (roughly $15 billion combined in 2008 and 2009, necessitated by the decline in real fuel-tax revenue) along with subsequent stimulus funding under the American Recovery and Reinvestment Act, the decline in real highway revenue per VMT would be close to 50%. • Devolution of highway funding responsibility. The ero- sion in federal and state fuel-tax revenue has had the effect of devolving greater funding responsibility to local governments (Goldman and Wachs 2003). Through the 1960s and early 1970s, during the height of the Interstate construction era, federal and state governments provided about 80% of all highway revenue, with local jurisdic- tions providing the remaining 20%; by the mid-2000s (preceding congressional transfers of general funds to the HTF and the subsequent stimulus), the combined federal and state share had declined to around 72%, while the local share had risen to 28% (based on data from OHPI, undated). • Reduced reliance on highway user fees. Federal high- way revenue has traditionally relied exclusively on user fees, including motor-fuel taxes along with several truck- related fees. While states make use of some general revenue sources such as income, sales, and property taxes to help fund highways, user fees—most notably, fuel taxes, vehicle registration fees, and tolls—still account for about almost three-quarters of all state highway revenue (OHPI 2012). In sharp contrast, local jurisdictions are much more likely to tap general revenue sources, such as sales taxes or gen- eral obligation bonds, to fund roads and other transporta- tion infrastructure (Goldman and Wachs 2003). As such, building and maintaining the road network since the burden for a given driver varies in proportion to the amount that he or she travels. In comparison to general revenue mechanisms, fuel taxes and other user fees also promote more economically efficient use of the road network (Wachs 2003). Additionally, the federal government and states have his- torically increased fuel taxes and other transportation revenue sources as needed to fund desired improvements. Initially set at 1 cent per gallon in 1932, for example, the federal excise tax on gasoline has been increased nine times in the inter- vening years—most recently in 1993—and currently stands at 18.4 cents per gallon. Many states have instituted similar fuel-tax increases as needed or have indexed their per-gallon fuel taxes to automatically increase with inflation. To garner public support for levying and increasing fuel taxes to pay for roads, the federal government and most states have chosen to hypothecate (dedicate) fuel-tax revenue for investments in highways and, more recently, transit and other alternative modes—an arrangement that is relatively rare outside of the United States. With the Highway Revenue Act of 1956, for example, Congress created the HTF account to serve as a repository for federal fuel-tax receipts, which are in turn allocated to states to fund the Interstate system and other federal-aid highways. In essence, hypothecation represents a pact between road users and the government that fuel taxes will be treated as a user fee; road users agree to pay, through fuel taxes, to fund the road network, and the government in turn agrees to invest the resulting revenue in construction and maintenance projects that benefit road users. Past trends. While the broad themes just discussed held for much of the twentieth century, there have been several significant shifts in recent decades. Most importantly, the federal government and many states have not increased per- gallon fuel-tax rates to keep pace with inflation and improved fuel economy. This has reduced overall highway funding in relation to travel, diminished the share of highway revenue raised through user fees, and led to a gradual devolution of transportation funding responsibility to local jurisdictions. Important trends in transit funding include greater depen- dence on subsidies along with more rapid growth in transit funding than in ridership. Turning to investment choices, key themes in recent decades include insufficient overall levels of investment, diversion of highway user fees to other modes, and disproportionate investment in transit in comparison to mode share. • Decline in real fuel-tax revenue and total highway rev- enue in comparison to vehicle travel. Because federal and most state fuel taxes are levied on a cents-per-gallon basis, they must be either indexed or increased periodi- cally to keep pace with inflation and improved fuel econ-

50 ing decades, through a series of federal transportation bills, the share of HTF funds directed to non-highway uses—including transit, air quality mitigation, bicycle and pedestrian improvements, and the like—has gradually grown. Based on analysis of data from a recent Govern- ment Accountability Office (2009) study, Poole and Moore (2010) estimated that as much as 25% of HTF funds may be allocated to projects not directly related to highway and bridge capacity, maintenance, operations, and safety. While many of the non-highway investments have merit, Poole and Moore posit that the diversion of fuel-tax rev- enue for other modes has made it more difficult to secure the support of road user groups for increasing federal fuel taxes to keep pace with inflation and total vehicle travel. • Disproportionate investment in transit relative to use. U.S. highway investment greatly exceeds investment in transit. In 2010, for example, highway expenditures across all levels of government (inclusive of interest on debt and bond retirements) were about $205 billion (OHPI 2012), while total transit expenditures were about $55.6 billion (APTA 2012, Table 56). Yet transit receives a dispropor- tionately large amount of funding relative to its use. Based on estimates from the 2009 National Household Travel Survey (Santos et al. 2011), and depending on the com- parison metric (trips versus passenger miles and commute trips versus all trips), the ratio of personal vehicle travel to transit travel ranges from 25 to 1 to 59 to 1, while the ratio of highway investment to transit investment is closer to 3.7 to 1. Future expectations and uncertainties. Mounting trans- portation revenue challenges, especially in relation to highway funding, have in recent years prompted increased discussion and debate over potential policy reforms aimed at bolstering investment in the nation’s transportation networks [see, for example, items in the references section from Whitty (2003), TRB (2006), Cambridge Systematics et al. (2006), NSTPRSC (2007), and NSTIFC (2009)]. Many studies have outlined motivations for a renewed and more clearly defined federal role in transportation funding, and they have also high- lighted policy advantages—such as fairness and economic efficiency—of greater reliance on user fees, including such options as tolls, congestion tolls, mileage-based user fees, and transit fares. Yet the recent trend has been toward devolution of greater funding responsibility to local governments along with increased reliance on general revenues. Transportation funding policy thus appears to be at a crossroads: future uncertainties include the respective roles of federal, state, and local governments and private industry in funding and operating transportation networks; funding levels for trans- portation; funding mechanisms; and the relative allocation the recent devolution of highway funding responsibility has also translated to increased overall reliance on general revenue sources rather than user fees. • Increasing transit subsidies. Shifting focus from high- ways to transit funding, one of the main themes in recent decades has been increased reliance on subsidies. Between 1988 and 2010, based on data from the American Public Transit Association (APTA 2012, Table 71), the share of annual transit capital and operating expenses derived from user fees (transit fares) and other direct sources of agency revenue (such as advertising and concessions) has declined from about 33% to just under 26%. Remaining funds are provided, in roughly even shares, by federal, state, and local subsidies. • Growth in transit funding relative to ridership. Owing largely to the subsidies just discussed, total transit capital and operating expenditures have risen rather rapidly in recent years, growing by about 57% in real terms between 1996 and 2010 [based on expenditure data from the 2012 Public Transportation Fact Book (APTA 2012, Table 56), and inflation data from the consumer price index (BLS 2013)]. Over this same period, total transit service capac- ity as measured by revenue miles has increased by about 47% (APTA 2012, Table 9), while ridership in passenger miles has increased by about 31%. In other words, the cost of providing additional transit capacity at the mar- gin has been increasing, in real terms, while the level of ridership supported by additional capacity at the mar- gin has been decreasing. This may portend challenges in continuing to expand transit funding through greater subsidies in the coming years, especially given the fis- cal constraints currently faced by most local, state, and federal agencies. • Insufficient overall investment in surface transporta- tion. Owing largely to the stagnation in fuel-tax rates in recent decades, transportation funding shortfalls have become more severe. Relatively recent estimates (NSTIFC 2009) suggest that the gap between projected federal, state, and local revenue and the amount needed to maintain the nation’s transportation networks in their current condi- tions falls in the range of $57 billion to $118 billion per year, while the shortfall in funding needed to substantially improve the networks falls in the range of $113 billion to $185 billion per year. Absent sufficient funding, many jurisdictions now find it challenging to fund needed main- tenance, let alone to build new capacity. • Diversion of federal highway revenue. When the HTF was established in 1956 to fund the Interstate system, federal excise fuel taxes on gasoline and diesel were designated as the main source of HTF funding (additional truck-related fees were also hypothecated to the HTF). In the interven-

51 lenges. In contrast, general revenue measures to fund trans- portation, often levied by local governments, have enjoyed much greater success at the ballot box in recent decades (Goldman and Wachs 2003), and it remains unclear whether future transportation funding policies will continue to shift toward general revenue or instead return to the more tradi- tional focus on user fees. • Investment in roads versus transit. While the United States invests much less in transit than it does in roads, transit still receives disproportionate funding in relation to transit rid- ership versus automotive travel. This can be explained, in part, by the fact that transit represents a relatively uncon- troversial means for addressing numerous worthy social and economic goals—for example, improving access for those unable to drive, easing traffic congestion, reducing greenhouse gas emissions, and making more livable urban communities. Yet the ability of transit to deliver on many of these goals depends on high ridership, which has yet to be achieved in many U.S. cities and is even less common in suburban and rural areas. At the same time, the state of repair for roadways is rapidly deteriorating in many states, leading some to argue that the share of road use fees (e.g., from federal fuel taxes) currently allocated to fund transit should be reduced or eliminated (Poole and Moore 2010). Looking forward, it is unclear—particularly if one assumes continued shortfalls in available transportation funding— whether the nation will continue to increase funding for transit or instead shift a greater percentage of revenue to the road network. 4.3 Implications for Transportation Energy Futures Many of the trends and uncertainties discussed in this chapter—for population; the economy; land use; and future energy, climate, and transportation funding policy—could exert significant influence on future energy and transportation choices and outcomes. Faster population growth, for example, should translate to increased energy and travel demand, all else being equal. Any significant trend toward denser urban land use could help reduce automotive travel and increase transit mode share. The adoption of some form of carbon pricing would make it easier for low-carbon alternative fuels to achieve commercial success, while a continuation of the recent trend in transportation funding toward reduced reliance on user fees—most notably fuel taxes—could enable faster growth in automotive travel. The material in this chapter on population, economy, and land use is discussed at greater length in Appendix G, while Appendix H provides additional background on energy, climate, and transportation funding policy options of funding among different modes, most notably highways and transit. • Federal, state, local, and private roles in funding trans- portation. With the Interstate system now complete, some argue that a shift toward greater local funding responsi- bility is appropriate, reasoning that local officials are in a better position to judge what investments will be most helpful and that residents will be more willing accept rev- enue measures when the money will be invested in local improvements and local officials can be held accountable. Yet there are at least three drawbacks to greater reliance on local funding. First, much of the Interstate system is near- ing the end of its 50-year design life and will soon need to be rebuilt, a task of national importance likely to cost far more than the initial construction (Regan and Brown 2011). Sec- ond, greater reliance on local resources has to date led to reductions in total revenue relative to total travel; that is, increases in local funding have been insufficient to offset overall reductions in state and especially federal funding. Third, increased devolution of funding responsibility to local areas has typically resulted in greater reliance on gen- eral revenue sources such as sales taxes, which do not per- form as well as user fees for many policy objectives. Absent sufficient public funding, it is also possible that private industry [most likely through public–private partnerships (PPPs)] could take a greater role in financing and operat- ing transportation facilities in the United States. • Level of funding. The recent pattern in surface trans- portation funding can be described as one of increasing disinvestment (Cambridge Systematics et al. 2006), and the question is whether voters will continue to support this trajectory. Strong arguments can be made that the nation’s investment in a world-class transportation net- work in prior decades has been a key underpinning of its economic prosperity to date, and that further investment will be critical in ensuring success in future years. Yet con- stituencies favoring lower taxes and smaller government have gained greater political influence of late, reducing the likelihood of significant increases in the level of pub- lic investment for at least the near term. Over the longer term, it is difficult to predict whether leaders will continue to focus on austerity or instead ask the public to invest more in transportation to promote continued economic growth. • Funding mechanisms. Recent technical innovations have enabled a range of advanced user-fee mechanisms, such as open-road tolling, congestion tolls, mileage-based user fees, and weight-distance truck tolls, that offer many com- pelling policy advantages (Sorensen and Taylor 2006). Yet such options also face significant public acceptance chal-

52 including growth in automotive travel, growth in truck travel, and growth in transit mode share. In the two tables, rows correspond to the different potential trends, develop- ments, or policy choices of interest, while columns present the future scenario elements. A black arrow pointing upward corresponds to a positive (increasing) effect on the element in question, whereas a light gray downward arrow indicates a negative (decreasing) effect. For example, the black upward arrow in the cell for greater population growth and the price of fuel indicates that faster population growth will tend to put increased pressure on oil prices, all else being equal. Addition- ally, note that the converse of each entry generally holds—for and debates. Drawing on available literature where avail- able, the closing sections of these appendices consider how some of the plausible future trends, developments, or pol- icy choices in these areas could affect the energy and trans- portation elements of the future scenarios developed for this study. Table 4.1 and Table 4.2 summarize the expected effects. Table 4.1 focuses on the fuel and vehicle technology ele- ments of the study, including price of oil, fuel economy for conventional vehicles, mix of different fuels used in trans- portation, vehicle cost, and energy cost of travel. Table 4.2 considers the transportation elements from the scenarios, Future Trends, Developments, or Policy Choices Price of Oil (End Use) Fuel Economy Alternative Fuels Vehicle Cost Energy Travel Cost Population Greater population growth Longer lifespans Higher immigration rates More low-income births Economy Higher GDP Higher personal incomes Increased income inequality Land Use Denser mixed land use Energy and Climate Policy Expanded production CAFE standards Renewable fuel standards Renewable fuel subsidies Clean vehicle subsidies Feebate programs Carbon pricing Transportation Funding Policy Increased total funding More funding for highways More funding for transit Tolling or MBUFs Higher fuel taxes General revenue sources Note: = positive or increasing effect, = negative or decreasing effect; see Appendices G and H for analysis. Table 4.1. Expected effects on fuel and vehicle scenario elements.

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