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Funding Options for Freight Transportation Projects (2009)

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Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

4Government Responsibilities for Freight Infrastructure The study charge asks the committee to analyze the rationale for public investment in freight transportation projects of national significance and to develop criteria for defining national significance. This chapter ana- lyzes government responsibilities in three steps. The first section below examines the need for involvement by federal, state, or local government, through public investment or other means. The second section identi- fies circumstances that dictate a need for federal government involve- ment and the relevance of the “national significance” concept in defining the appropriate federal role. The third section considers the question of when direct public involvement in building or paying for infrastructure, as opposed to any other form of involvement, is called for. The possi- ble forms of government involvement include regulation, building and operating transportation systems, and incentives for private develop- ment. The examination of these questions is based on the experience of past government freight programs and projects, the committee’s review of freight policy proposals of others, and past Transportation Research Board (TRB) committees’ evaluations of government freight programs. The final section of the chapter is a summary. GOVERNMENT RESPONSIBILITIES Government roles in transportation are dictated primarily by historically established responsibilities that are not likely to change fundamentally in the near term (TRB 1998, 22). First, governments provide and operate certain facilities, including most major elements of freight transporta- tion infrastructure. As described in Chapter 3, governments account for 90 percent of capital expenditures for infrastructure used for freight 153

154 Funding Options for Freight Transportation Projects transportation. Second, governments impose charges (e.g., tolls) and spe- cial taxes (e.g., motor fuel taxes and aviation ticket taxes) on users, gen- erating revenue sufficient to cover most government expenditures for the facilities. Third, governments regulate transportation operations to reduce air pollution, casualties, noise, and other social costs of transport. Control of these costs is a motivation for public infrastructure investment, for example, in mass transit. Control of community impacts of freight trans- portation, especially in urban areas that are the sites of major freight ter- minals, has been amotivation for publicly supported freight infrastructure projects, including projects that eliminate conflicts between passenger and freight traffic and that buffer populated areas from freight traffic. Governments also regulate pricing and other business practices of trans- portation firms, although to a lesser extent than in past decades. Finally, governments provide research and information necessary for the planning and management of public and private transportation facilities. Responsibilities have evolved over time. Economic regulation has diminished, while environmental regulation has become a major influ- ence on practices. The federal share of infrastructure spending declined after its peak in the 1970s but has been stable for the past two decades. Public–private partnerships, in which a private-sector firm provides financing and operates a publicly owned facility, have delivered several projects in recent years. Freight industry participants, seeking to increase resources for the activities most important to them, have proposed alter- ations to the established government responsibilities with regard to freight infrastructure, in at least three directions: (a) expanded government responsibility for planning the development of the freight transportation system and for ensuring provision of capacity (e.g., through assistance to private-sector rail and intermodal facility development), (b) greater direct federal responsibility for setting freight infrastructure investment priorities (e.g., through a federal infrastructure bank), and (c) expanded private-sector participation in building or operating certain facilities now provided by governments (e.g., through private-sector operation of toll roads, ports, or other facilities). Chapter 5 describes proposals in these categories.

Government Responsibilities for Freight Infrastructure 155 The policy issues raised by such proposals for changes in government responsibilitieswere themotivation for the committee’s study charge. The likely consequences of proposals for major alterations to public–private or federal–state roles must be carefully evaluated. The objective of any change should be made clear, and the preferred policies should be those that meet the objective at low cost to the government and with minimal intervention in market decision making. Rules for Determining Responsibility TheTRB Freight Capacity committee recommended three rules for deter- mining the need for government involvement in a freight transportation project or function (TRB 2003, 120). First, when proposed alterations in government responsibilities are being evaluated, economic efficiency ought to be the primary criterion applied in the evaluation. That is, insti- tutional arrangements, public investments, and operating practices of government facilities should be selected so as to yield the greatest total economic benefit. Second, expansion of government involvement beyond its established responsibilities should be limited to certain defined cir- cumstances in which market-dictated outcomes would be far from eco- nomically efficient, specifically, restraining exercise of monopoly power and dealingwith nonmarket costs of pollution, congestion, and accidents. Changes in government roles that would replace user charge revenue with tax revenue, substitute government financing for financing through the credit market, or replace private-sector investment decisions with government decisions require special scrutiny because they would exert important and possibly harmful effects on efficiency. Third, government leadership is a practical necessity in the most com- plex infrastructure projects, that is, large projects in urban areas that extend through multiple government jurisdictions, that involve sensitive environmental issues, and that often involve coordinated improvements to publicly and privately owned facilities serving both passengers and freight. However, exerting leadership in these cases does not require that government subsidize the costs of providing freight facilities. If a facil- ity is economically justified, then paying for it through user charges usu- ally should be possible (facilities that may be exceptions to this rule, and finance options in such exceptional cases, are identified below).

Limits on Government Capabilities Whenpresented as general statements, the rules outlined above aremostly noncontroversial. The TRB Freight Capacity committee noted that they appear in federal executive agency policy statements and in legislation (TRB 2003, 120–121). Nonetheless, applying them in decisions on gov- ernment intervention has proven to be difficult in practice. One obsta- cle to their application is technical: public officials, experts, and industry participants have not reached a common understanding of the nature and magnitude of market failures, how to measure and evaluate them, or the practical effects of government interventions intended to correct them. However, the more important obstacle is that many infrastructure policy debates, although argued in terms of national economic efficiency, in reality are over distributional issues; that is, regional and industry interest groups seek aid and favorable treatment from government with- out weighing the implications for national welfare. For example, in fed- eral programs, the focus on distributional impacts leads, at one extreme, to project earmarking that favors regions or groups with the strongest political representation, and at the other, to formula allocations of fund- ing such that all regions or groups receive proportionate shares regard- less of the relative merits of their projects. Distributional consequences inevitably have a strong influence on political decisions, but allowing freight infrastructure investment and operating decisions to be driven by these considerations depresses the return on public investment. Because of these obstacles, government intervention can be ineffec- tual even when market outcomes are imperfect and a strong case exists in principle for intervention. Failures can occur when governments are unable to evaluate and predict the consequences of regulatory, spending, and tax policies and when distributional considerations take precedence over efficiency in government decisions on allocating resources. Proposals for new kinds of public investment or for public aid to pri- vate firms generally are supported by arguments that market failures are preventing the private sector from providing freight services efficiently on its own and thus necessitate government action (Box 4-1). Alterna- tively, such proposals characterize the government contribution to fund- ing for a freight project as paying for public benefits of the project, while private-sector contributions are described as paying for private benefits (Box 4-2). Because the experience of government transportationprograms 156 Funding Options for Freight Transportation Projects

Government Responsibilities for Freight Infrastructure 157 BOX 4-1 ExternalBenefitsof Freight InfrastructureProjects The justification for public subsidy for an infrastructure project depends on an argument that the project is worth more to the public than it is to the users. Otherwise, the project could be funded with user fees and the subsidy would be unnecessary. In the projects reviewed in Chapter 3 and in the proposed new gov- ernment freight programs reviewed in Chapter 5, the intended external benefits (or reductions in external costs) include the following: • Reduction of community impacts of freight traffic, including pollution, injuries, and congestion. • Offsetting of the effects of market distortions caused by other government actions. Among these are subsidies to trucks in the highway program, suppression of railroad profits and invest- ment by economic regulation, state subsidies to seaports, and competition of untolled roads with toll facilities. • Benefits related to the network character of transportation systems; that is, benefits that accrue to all users of the system when a new destination is added or access to a destination is improved (Eberts 1998, 144–145; Small 1999, 162–166). • Other kinds of external economic development benefits, for example, from accelerating regional development or enhanc- ing national competitiveness. Such benefits often are not clearly defined, and their significance is debatable (Eberts 1998, 138–145; Oden and Mueller 1999). • National security, the grounds for federal actions to reduce specific security risks, for example, cargo inspections at ports. National security is also cited as justification for government provision of base capacity, for example, in the case of the fed- eral Interstate highway program. (continued on next page)

BOX 4-1 (continued) External Benefits of Freight Infrastructure Projects The TRB Intermodal Freight committee considered the rele- vance of external costs and benefits of freight transportation as warrants for government involvement in infrastructure develop- ment (TRB 1998, 30–32; Eberts 1998). The TRB PayingOurWay committee estimated marginal external costs of a set of hypo- thetical freight movements involving various commodities, dis- tances, and transport modes (TRB 1996). These studies’ findings include the following: • Costs are sensitive to the circumstances of individual freight movements. Therefore, broadly targeted policies such as sub- sidies to encourage mode shifts may not be the most cost- effective. • External costs as a percentage of the carriers’ internal costs often appear to be of roughly similar order of magnitude for truck and rail for comparable trips. External costs vary greatly depend- ing on the characteristics of the trip and are particularly high for trips that traverse urban areas, where congestion and pol- lution costs are high, and for trips on any facility where con- gestion is poorlymanaged (i.e., urban streets and highways and inland waterways). • Estimates of benefits of infrastructure projects from reduced external costs of freight traffic are highly uncertain because of inadequacies of data and analysis methods. • Analysis of alternative methods of correcting market failures is essential for determining the most beneficial public policies. In particular, subsidizing an activity to offset the distortions caused by a preexisting subsidy to another activity is unlikely to be the most cost-effective solution when regulatory or pric- ing options are available. 158 Funding Options for Freight Transportation Projects

Government Responsibilities for Freight Infrastructure 159 BOX 4-2 Public and Private Benefits Proposed definitions of government responsibilities often char- acterize project benefits as composed of public and private com- ponents and apply this distinction in determining the appropriate division of responsibilities for paying for projects. For example, with regard to projects jointly funded by government and the pri- vate sector, it is often said that the government role is justified by the expected public benefits and that shares of project expendi- tures should be divided between the government and the private- sector parties in proportion to relative public and private benefits (Waterfront Coalition 2005, 19; NSTPRSC 2007, 58). This con- cept has been applied in legal and regulatory decisions. The U.S. Supreme Court’s 1935 decision in Nashville, Chattanooga and St. Louis Railway v. Walters [294 U.S. 405 (1935)] established the principle that the identity of the “chief beneficiaries” of the improvement is the relevant fact in determining the reasonable- ness of a state law imposing a share of costs of constructing a grade separation on the railroad (Wisconsin Department of Transporta- tion 2003). The decision argued that the chief beneficiaries of grade separations often are highway users. In practice, it has not been possible to interpret this principle unambiguously or in a way that leads to outcomes that are eco- nomically most efficient or that would generally be perceived as fair. For example, consumers are the ultimate beneficiaries of any improvement in the efficiency of an industry, and in a competi- tive industry, only a small fraction of the cost savings from an efficiency improvement may be passed on to shareholders in the form of higher profits, but these facts are not seen as justifying general public subsidies of industrial investments. Similarly, the population as a whole receives health benefits from industry pol- lution control measures, but industries are required to undertake (continued on next page)

160 Funding Options for Freight Transportation Projects BOX 4-2 (continued) Public and Private Benefits the initial outlays to pay for these measures. For deciding gov- ernment and private-sector responsibilities in such projects, the following would be more useful distinctions: • Benefits to commercial entities versus benefits to individuals (for example, the user benefits of a highway that serves both personal and commercial traffic). It is accepted inmost settings that commercial users of transportation facilities must pay the cost of providing the facilities to them. Because it might be more difficult to charge individuals who benefit, paying a share of the costs of projects that produce such benefits from tax rev- enue may be necessary. Nonetheless, most benefits of a trans- portation facility to individuals who use it are equally as private as are benefits to firms, and frequently can be charged for. • Internal versus external benefits (see Box 4-1). If a project will produce benefits (for example, pollution reduction) that a pri- vate investor would not take into account when considering whether to build it (because the investor would have no way of charging the recipients of the benefit), then a government con- tribution that allows these benefits to be attained may be jus- tifiable.However, subsidizing infrastructure constructionmay not be the cheapest means of attaining such benefits; pricing solutions (e.g., pollution or congestion charges) or regulation often will be more cost-effective. In deciding whether the government should be involved and whether general taxpayers should contribute to the cost of the project, the relevant questions are as follows: First, do the proj- ect’s benefits exceed its costs (i.e., is it economically worthwhile)? Second, would the project be constructed without government involvement? Third, could the project be funded directly by its users, through fees?

Government Responsibilities for Freight Infrastructure 161 illustrates that the risk of unsatisfactory outcomes is real, a new inter- vention ought to be justified not only by a qualitative argument about market failure but also by quantitative evidence that the practically attainable benefits of the action will exceed the costs (Box 4-3). If the obstacles to effective government action could be diminished, then the economic benefit of government’s involvement in freight trans- portation would be increased. Required are (a) better analysis tools and BOX 4-3 Practical Risks in Expanding Government Involvement in Freight Infrastructure Even when market outcomes are imperfect and a case exists in principle for government intervention, experience shows that intervention can be ineffectual. Some observed problems were described in the TRB Freight Capacity and Intermodal Freight reports (TRB 2003, 100–102; TRB 1998, 33–34). The potential problems include the following: • Distributional fairness superseding economic efficiency: Government programs face pressures for allocation of fair shares by state, region, or interest group. This pattern would be unsuitable for efficient development of large-scale freight facilities, which require concentration of resources in a small number of major nodes of the freight system. Selective inter- vention will tilt competition among states, ports, carriers, and shippers and generate demands for compensatory aid. Private- sector recipients of aid inevitably will be subject to a degree of political control over business decisions, which will tend to increase operating costs and reduce investment returns. • Perverse incentives: The availability of external aid reduces sponsors’ incentives for careful project selection. Local proj- ect sponsors are concerned only that constituents’ benefits (continued on next page)

162 Funding Options for Freight Transportation Projects BOX 4-3 (continued) Practical Risks in Expanding Government Involvement in Freight Infrastructure (including income generated by the external grant) justify the local share of project costs. Availability of capital grants dis- courages development of operational solutions to congestion or other problems. • Institutionalization of subsidies: Subsidies, once they aremade available, tend to become routine, rather than awarded on the basis of themerit of individual cases.When subsidies begin to be commonplace in an industry, the risk of undertaking unsubsidized initiatives is increased. • Throwing good money after bad: Political considerations encourage public officials to continue to provide funds to keep an unsuccessful project afloat, either because the project has built a constituency or to avoid admitting an error. • Displacement of investment that would have been carried out by lower levels of government or in the private sector: For example, the General Accounting Office estimates that a $100 increase in federal highway aid causes the states to increase total highway spending by about $50 (GAO 2004, 21–27). To the extent that federal aid displaces state and local spending, it is equivalent to general revenue sharing rather than targeted spending on a federal priority (Gramlich 1990; Oates 1999, 1126–1130). Similarly, a federal tax incentive for private invest- ment may have a high ratio of federal tax dollars lost to net new capital spending stimulated. • Limits on government evaluation capabilities: Proposals for deeper government involvement in overseeing development of the transportation system assume capabilities for evaluat- ing project costs and benefits that do not now exist in gov- ernment agencies. Acquiring them would require experience, new management policies, and new personnel.

Government Responsibilities for Freight Infrastructure 163 cultivation of more widespread understanding of how government inter- ventions, particularly investment decision making and facilities pricing, affect the performance of the transportation system; and (b) institutional arrangements that give system users, through the working of the freight transportation market, more influence over governments’ freight facil- ity investment and operating decisions. FEDERAL RESPONSIBILITIES The three subsections below are a review of the overall scope of federal responsibilities with regard to the freight transportation system, based on the conclusions of past TRB committees; a discussion of criteria for screen- ing individual infrastructure projects to determine the need for federal assistance in programs such as the Transportation Infrastructure Finance and Innovation Act (TIFIA) or in any new federal freight assistance • The excess economic burden of tax funding of infrastructure investment: Raising funds through taxation imposes a cost on society through the distortions in markets that result. That is, increasing tax revenue by a dollar will reduce private con- sumption and investment by more than a dollar. Especially, income taxes discourage income-producing behavior (Eberts 1998, 128–129; Nadiri and Mamuneas 1998; Small 1999, 166–167). Some estimates of the magnitude of this effect are substantial, up to $0.50 per dollar of tax. This cost must be taken into account in evaluating the net benefit of a govern- ment intervention. These are problems thatmany government programs confront and are not in themselves sufficient grounds for rejecting any pol- icy proposal. Nonetheless, in evaluating proposals for expanding the scope of government involvement, it is necessary to compare the “do nothing” alternative with the realistically likely outcome of intervention rather than with the ideal outcome.

164 Funding Options for Freight Transportation Projects programs; and an examination of the relevance of the “national signifi- cance” concept in defining the federal role. Scope of Responsibilities The federal government’s existing responsibilities relating to freight infrastructure provision are extensive: provision of grants to state and local governments for highway and airport construction; collection of revenue, mainly from user taxes, to fund these grant programs; direct federal provision of the inland waterways, harbor channels, and the air traffic control system; regulation of safety and environmental impacts of transportation; economic regulation that includes oversight of rates and competition in the railroad and ocean shipping industries; border con- trols; general tax provisions that influence investment decisions of gov- ernments and private firms; and research and information services. These functions are carried out by theDepartment of Transportation (USDOT), the Department of Defense, the Department of Homeland Security, the Environmental Protection Agency, the Surface Transportation Board, and other federal agencies (Box 4-4). Past TRB committees have pointed out that the federal government has important opportunities for contributing to better performance of the freight transportation system by improving its execution of these established functions (TRB 2003, 122–124). Federal policies that ensure efficient management of the federal grant programs and of the federally provided facilities, cost-effective environmental and economic regula- tion, and tax provisions that do not promote uneconomic investment decisions will be essential to satisfactory performance of the system. Somepast analyses of the problems of improving freight transportation system performance have concluded that a further need exists for a strong federal leadership role. For example, a 2008 Government Accountability Office (GAO) report on the topic argues as follows (GAO 2008, 42): DOT and Congress, which have important oversight roles in regulating interstate commerce, should both play key roles in bringing about needed changes . . . to increase the efficiency and capacity of the nation’s freight transportation system. Given the clear interstate and international character of many freight challenges, the federal government has a distinct and impor-

Government Responsibilities for Freight Infrastructure 165 BOX 4-4 Federal Government Activities Affecting Freight System Performance and Infrastructure Development Funding Aid for Capital Expenditures Federal-aid highway program Airport Improvement Program Freight rail assistance: Railroad Rehabilitation and Improve- ment Financing program; short line railroad investment tax credit Direct Federal Construction, Maintenance, and Operation Inland waterways system Air traffic control system Harbor channels Marine navigation aids Dedicated User Fees and Taxes Aviation: aviation excise taxes, airport passenger facility charges (federally supervised but locally imposed) Highway user taxes: motor fuels excise, heavy vehicle use tax, truck equipment excises Inland waterways fuel tax Harbor maintenance tax (continued on next page) tant role in bringing a national scope and vision to the problems that now face localities, states, and regions that have national freight flows. By promoting and coordinating solutions across jurisdictional lines, the federal government could increase the effectiveness of localities, states, and regional governments and planning organizations in overcoming their freight-related challenges. The fed- eral government could also more effectively direct national resources towards those freight investments and solutions that have nationwide influence.

166 Funding Options for Freight Transportation Projects BOX 4-4 (continued) Federal Government Activities Affecting Freight System Performance and Infrastructure Development Security and Border Controls Transportation security operations Customs functions Border immigration controls Agricultural inspections Regulation Transportation safety Federal-aid highway program standards (highway design, con- struction, operation, and planning) Truck size and weight Vehicle emissions Other environmental (e.g., water pollution, hazardousmaterials) Interstate commerce (Surface Transportation Board oversight of railroad rates and competition) Maritime commerce (FederalMaritimeCommission oversight of rates and competition of ocean common carriers and marine terminal operators) International trade and investment (e.g., foreign carrier cabotage restrictions) Antitrust Restrictions on fees charged by recipients of highway and airport capital grants General Tax Provisions Tax-exempt bond provisions Depreciation deduction rules Research and Information Bureau of the Census economic data collection U.S. Department of Transportation data collection U.S. Department of Transportation technical and policy research

Government Responsibilities for Freight Infrastructure 167 Similarly, proposals for expanding federal responsibility that the com- mittee reviewed (described in Chapter 5) call for more active federal engagement in planning and guiding the development of the freight sys- tem through direct federal investment, through federal action to redirect state and local investment priorities in favor of projects serving freight, and through subsidies for private-sector investment. The development of the Interstate system may be cited as an exam- ple of such an activist federal role in directing national transportation system development. However, the Interstate system was in important respects a simpler venture, and more closely related to well-established government activities and institutional arrangements, than assuming responsibility for national coordination of the multimodal freight trans- portation system would be. It is difficult to point to a successful federal model for such an undertaking. In most of the prominent recent federal engagements in freight infrastructure, for example, the federal contri- butions to the Alameda Corridor and the Heartland Corridor, the proj- ects were conceived by the local principals, and the federal government’s role, as a provider of funds or financing assistance, was passive. The only recent major exceptions to this form of federal involvement have been projects on the directly federally provided systems (waterways and air traffic control). The conclusions of the TRB freight committees concerning federal responsibilities are less expansive than the GAO statement and would restrict the federal role to special circumstances. The Intermodal Freight committee found that “federal involvement may . . . be necessary because the scale or complexity of the project puts it beyond local capa- bilities, the risk can be borne more efficiently at the national level, or essential federal responsibilities are involved (for example, customs)” (TRB 1998, 56). The Freight Capacity committee concluded that the fed- eral government is responsible for freight infrastructure if a justification exists for government involvement and “a conflict exists between nation- wide and local interests” (TRB 2003, 24). With regard to the form of federal involvement, the Intermodal Freight committee concluded that, even for major projects, although a “top-down” federal program, with a federal agency actively identifying and developing projects, may be necessary in a few cases, the normal model should continue to be a “bottom-up” approach in which local governments and private parties

168 Funding Options for Freight Transportation Projects develop proposals and seek federal government participation. In these projects, the federal government would be a provider of backup credit and an absorber of risk, not a source of grants (TRB 1998, 101). The past TRB committees urged a cautious approach to expanding federal involvement on three grounds. First, they concluded that con- flicts between national and local interests in development of major freight facilities are not inevitable. Local communities normally welcome industries that produce services for a nationwide market because such industries are the essential foundation of local economies.However, com- munities will oppose development if they are burdened with paying the costs of freight traffic through taxpayer-provided infrastructure and through congestion and pollution spillovers. The preferable solution to this conflict is to develop mechanisms for localities to recover their costs from shippers and carriers, rather than to shift the burden to the federal government and national taxpayers (TRB 1998, 101). Second, the past committees concluded that the federal government lacks competence to displace local public-sector decision making on transportation problems and priorities and therefore that maintaining the established practice of local leadership in project development is appropriate. Finally, the com- mittees believed that improving freight system performance will require increased reliance on market direction in investment decisions and in managing operations, and therefore that policy changes that involve expanding subsidies and increased government control of investment decisions would not lead to progress. Within this limited scope—projects facing unusual challenges because of their scale or complexity and projects involving essential federal responsibilities—there are nonetheless important opportunities to make the federal supporting role in freight infrastructure development a more useful resource to local project sponsors and a more effective means of promoting freight transportation efficiency. The following are someof the forms that new federal interventions could take: • Providing incentives, including funding assistance, for development of local and facility-specific revenue sources to pay for construction and operation of freight infrastructure. • Catalyzing action at the state and local levels to relieve freight mobil- ity bottlenecks through demonstrations and challenge grants (grants

Government Responsibilities for Freight Infrastructure 169 awarded as part of USDOT’s National Strategy to Reduce Congestion illustrate this function). • Revising existing federal credit assistance programs, including TIFIA and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: ALegacy forUsers (SAFETEA-LU)private activity bondprograms, to make them more attractive to project sponsors and to promote federal policy objectives. • Monitoring and evaluation of freight system performance and diagno- sis of sources of inefficiency. Both the earlier TRB freight policy com- mittees recommended specific federal activities of this kind (TRB2003, 127, 135–138; TRB 1998, 108–110). The USDOT Freight Performance Measurement Initiative described in Chapter 3 is an example of the kinds of monitoring required; however, as noted in Chapter 3, present efforts appear to lack priority and focus. • Leading by example, that is, reforming finance arrangements and plan- ning to improve performance of the existing federal-aid programs and of the federally provided facilities (inland waterways, harbor channels, the air traffic control system, and federal facilities at border crossings). • Intervening in exceptional circumstances to resolve conflicts between local and national interests. Historical examples of federal action to resolve conflicts in the national interest include preemption of state truckweight regulations that Congress determinedwere an unjustified burdenon interstate commerce, federal intervention in siting ofmarine liquefied natural gas terminals, and federal supervision of other haz- ardous materials transport. • Facilitating projects that require cooperation of multiple state or local jurisdictions. Past TRB committees as well as GAOand interest groups have identified this function as an important federal responsibility. However, GAO has observed that the federal government lacks a defined policy or mechanism for aid to multijurisdictional projects. GAO cites USDOT’s Corridors of the Future program, announced in 2006, as a step in the direction of developing such a capability (GAO 2008, 27–28). In that program,which has not been continued,USDOT awarded six small planning or capital grants, totaling $63 million, to multistate coalitions that offered proposals for cooperative develop- ment of major Interstate corridors employing innovative design or operational features (USDOT 2007).

170 Funding Options for Freight Transportation Projects Specific actions to strengthen federal supporting activities will be pro- posed in Chapter 6. Identifying Projects Requiring Federal Involvement The study charge asks the committee to identify criteria that can be used to select projects requiring public support. As explained in Chapter 1, the committee understands the charge to refer in particular to the possible need for new or expanded federal activities to assist in freight infrastruc- ture development and to criteria for guiding federal decisions. The pre- ceding sections proposed principles to guide decisions about government involvement and federal involvement. This section describes practical implications of the principles for the administration of federal assistance programs. The experience of TIFIA and theRailroadRehabilitation and Improve- ment Financing (RRIF) loan program suggests that a federal program restricted to projects with primary funding from nonfederal sources and with other rigorous eligibility criteria may receive only infrequent appli- cations. The task of federal program administrators responsible for such a program (either the existing ones or any future programs for freight that may be created) will be to avoid poorly justified projects while encourag- ing applications that present opportunities to demonstrate the value of federal participation in appropriate projects. USDOT already administers at least five programs—TIFIA, RRIF, the Projects of National and Regional Significance and private activity bond programs created in the 2005 surface transportation act (SAFETEA-LU), and the SupplementaryDiscretionaryGrants for aNational SurfaceTrans- portation System provided in the 2009 economic stimulus package—that require it to evaluate and select freight projects that merit federal govern- ment assistance. The Secretary of Transportation is given the authority to approve or deny applications for aid. To manage each of these programs, as well as any programs enacted in the future, the responsible federal agencies have a need for practical criteria for evaluating proposals for fed- eral assistance to ensure that the programs meet their goals of improving the performance of the transportation system. Each of these programs was described in Chapter 3. In summary, the programs’ evaluation cri-

Government Responsibilities for Freight Infrastructure 171 teria, as specified in legislation and USDOT implementing rules, are as follows: • TIFIA: Projects may be a public highway or transit facility or a private- sector rail or intermodal terminal facility that has state or local gov- ernment endorsement (that is, the application for federal assistance must be from a government agency); eligibility is restricted to projects that are large and economically important; the majority of project funding must be from facility revenue or other secure nonfederal sources; and selection is to favor projects that would be accelerated by federal assistance and projects in which federal participation would attract private-sector investment in the facility. • RRIF: Any capital expenditure for infrastructure or equipment by a public or private entity, for freight or passenger service, is eligible; private parties may apply directly to USDOT for assistance. The Sec- retary is to give priority to projects that have safety, environmental, or economic development benefits; are endorsed in state plans; provide rail service to communities; and enhance capacity and relieve bottle- necks on the national rail system. USDOT also considers the financial soundness of projects and the consequent federal financial risk in its review of applications for RRIF or TIFIA credit assistance. • Projects of National and Regional Significance: Eligible projects are to be very large (over $500 million); certain private-sector rail projects as well as public-sector surface transportation projects would be eli- gible; projects must “generate national economic benefits” or “other- wise enhance the national transportation system” (SAFETEA-LU, Section 1301); and the federal investment should leverage additional funding from public and private sources (although the federal share may be up to 80 percent of project costs). This program has not been implemented because Congress earmarked all the funds authorized. • SAFETEA-LUprivate activity bonds: A public-sector sponsormay seek authorization to issue bonds whose interest is exempt from federal income taxes to build a project developed by private parties to con- struct highway, rail, or intermodal transfer facilities. The project also must meet the eligibility requirements of TIFIA or of another federal transportation aid program. The bonds would be issued by the spon- soring state or local government on behalf of the private developer.

172 Funding Options for Freight Transportation Projects The Secretary of Transportation has discretion to select the projects authorized to issue bonds within the act’s cap on the total volume of bonds (SAFETEA-LU, Section 11143).USDOTrequires that applicants be prepared to issue the bonds promptly (FHWA n.d.). • The SupplementaryDiscretionaryGrants for aNational Surface Trans- portation System provided in the American Recovery and Reinvest- ment Act of 2009 (Title XII, Public Law 111-5, February 13, 2009), a $1.5 billion program in some respects similar to the SAFETEA-LU Projects ofNational andRegional Significance program:No restrictions are placed on the kinds of surface transportation projects eligible; freight rail, port infrastructure, and port access projects are specifically identified, in addition to highways and transit. The funds are to be broadly distributed: no grant is to be greater than $300 million, not more than 20 percent is to be awarded to projects in a single state, and the Secretary is to ensure “an equitable geographic distribution of funds” and a balance between urban and rural beneficiaries. Prior- ity is to be given to projects in which a federal contribution will “com- plete an overall financing package,” but no state or local matching share is required (i.e., the federal share of funding for a project may be up to 100 percent). Projects that can be completed within 3 years also are to receive priority. The Secretary is to “publish criteria on which to base the competition for grants.” A relevant comparison may be made between these U.S. federal crite- ria and those applied in the European Union’s (EU’s) Trans-European Transport Network (TEN-T) program, an initiative for development of major international transportation corridors. The projects in the program are the responsibilities of the EU member countries, who participated in a process organized through the EU for identifying priority projects and agreed to cooperate in their completion. The EU provides limited fund- ing and credit assistance (Box 4-5). The criteria for awarding EU assis- tance to projects are similar to those of TIFIA and Projects of National and Regional Significance in the United States. A project is eligible to receive aid if it is listed in the TEN-T plan and is economically viable (that is, benefitsmust exceed costs) but has insufficient “financial profitability” (that is, it could not support itself from user charges) and would not receive full funding from national governments or other local sponsors

Government Responsibilities for Freight Infrastructure 173 BOX 4-5 European Union TEN-T Program The European Union’s TEN-T program is an example of a process of identifying transportation projects of (in this case) continentwide significance (European Commission 2005; NEA et al. 2004; European Commission 2003; European Commission 2007). The EU designated a list of 14 priority European transport projects in 1994. They were eligible for small EU grants and for EU loans, and the member governments agreed in principle to assign priority to the projects and to coordinate their planning and construction. The list was expanded to 30 projects in 2004 after EU enlargement. Most of the 30 projects are actually long-distance corridors with multiple individual construction projects along their lengths. They include passenger and freight facilities in all modes. The network of corridors appears more extensive than selective: corridors traverse every EU state, and every national capital is on a corridor. The goal is to complete the 14 original projects by 2010 and all 30 by 2020. The cost of completing all projects by 2020 was estimated in 2005 as 5252 billion, of which about 5200 billion already had been spent since 1994. Projects were selected on the basis of recommendations of committees reporting in 1994 and 2003. The 2003 committee (on the basis of whose recommendations the project list was expanded from 14 to 30) stated its selection criteria as follows (European Commission 2003, 25): The Group decided to work in two stages. In a first stage, the Group preselected the projects worthy of being examined in more detail, by eliminating those projects not meeting one of the following criteria: • Being on a main trans-European axis pertinent to the internal market of the enlarged Europe, taking in particular into account (continued on next page)

174 Funding Options for Freight Transportation Projects BOX 4-5 (continued) European Union TEN-T Program projects crossing natural barriers, solving congestion problems or corresponding to missing links. • Having a European dimension in particular by meeting a thresh- old of 500 million for infrastructure. • The existence of evidence showing potential economic viability, other socioeconomic benefits (e.g. social, environmental), and firm commitments from the concerned Member States to carry out the required impact assessments with a view to completing the project within an agreed timeframe. In a second stage, theGroup selected the priority projectswith respect to the three following qualitative criteria: • The European value added of the project, in terms of importance for facilitating exchanges between Member States, for instance improving interconnections and interoperability between national networks. • The strengthening of cohesion, either by better incorporating the future Member States into an enlarged Europe, or by connecting the main peripheral areas and the least developed regions to the rest of Europe. • The contribution to the sustainable development of transport while tackling the problems of safety and of environmental pro- tection and by promoting modal transfer. The criteria of the 1994 committee (that recommended the original 14 projects) differed from those of the 2003 committee in some points. In particular, the 1994 criteria specified that projects had to allow for the possibility of private financing and that the programwas to “avoid thepublic financingof infrastructurewhich would lead to distortions of competition contrary to the common interest” (European Commission 2003, 26–27). The 2003 criteria do not mention these two economic requirements, but the 2003 committee stated that they are implicit in the termsof theprogram. “Europeanvalue added,” referred to in the 2003 criteria, appears to be the European equivalent of the concept of “national signifi-

Government Responsibilities for Freight Infrastructure 175 cance” used in U.S. policy discussions. The criterion is qualitative; that is, there has been no attempt to estimate quantitative differ- ences in benefits from the European and national perspectives. In addition to evaluationsperformedby the responsiblenational governments, each project has been evaluated for the European Commission according to multiple criteria, on the basis of stan- dard scenarios concerning future economic and transportation developments. The evaluations are to be updated periodically and presumably will influence future revisions of the program. TEN-T also provides examples of policies of a central agency (the EU) to coordinate infrastructure development across borders. The EU has made only small contributions to the projects and has limited ability to induce themember states to set priorities or coor- dinate development according to theTEN-Tplan. Projects are eli- gible for grants of up to 50 percent of costs for preparatory studies and up to 10 percent for construction (and up to 20 percent for cross-border segments of projects). EU grants through 2004 were 5 billion (out of about 200 billion spent). In addition, 50 billion in loans from the European Investment Bank had been commit- ted to TEN-T projects through 2004. Much of the EU influence appears to be via persuasion, for example, by seeking public com- mitments to the program from the member states, publishing periodic reviews of progress on the projects, and urging member states to cooperate on cross-border projects. A project is eligible to receive aid if it is economically viable (that is, benefits must exceed costs) but insufficiently “financially profitable” (that is, it could not support itself from user charges) and would not receive full funding from national governments and other local sponsors because these parties lack the necessary resources or do not see the project as sufficiently beneficial to their local constituents. A 2007 evaluation of experience with the original 14 TEN-T projects concluded that projects that received EU funding aid were meeting the economic viability standard, (continued on next page)

176 Funding Options for Freight Transportation Projects because these parties lack the necessary resources or do not see the project as sufficiently beneficial to their local constituents (European Commission 2007, 56–57, 81–83). The elements missing in U.S. prac- tice are the EU-wide long-term plan for system development and appar- ently greater reliance by the aid-granting agency on its own project evaluations. The various criteria used in all these programs may be generalized into a small number of considerations. The 1998TRB Intermodal Freight com- mittee (TRB 1998, 100–101) proposed three sequential criteria for assess- ing the federal government’s responsibility for projects that are candidates for aid in a federal freight infrastructure assistance program: 1. Economic justification:Theprojectwould yield benefits from improved performance of the transportation system great enough to justify its costs; that is, it is of economic value from a national perspective. 2. Government responsibility: Involvement of government at some level— state, local, or federal—is justified. BOX 4-5 (continued) European Union TEN-T Program according to postcompletion assessments of project segments in operation, but that the impact of the funding aid on the projects wasunclear. The study concluded that asmany as 45out of 50proj- ect segments (pieces of the 14 large corridor projects) that received EU aid probably would have been built, if sometimes in modified form,without the aid, but that EUassistance in some cases speeded commencement and completion of projects and influenced proj- ect design. The evaluation concluded that “for many projects . . . there is no real financial need for the Community funding” but that contribution from the EU “gives a significant impetus to the decision making and [places] the project higher on the political agenda” (European Commission 2007, 57).

Government Responsibilities for Freight Infrastructure 177 3. Insufficient local capability: State and local governments are incapable or unsuited for carrying out the project unaided (or at least there is a risk that theywould not be able to carry out the project successfully) because – The national interest differs from the local, – The scale of the project is beyond local capabilities, or – The project (or major elements) would perform essential federal functions (with regard to defense, security, customs and immigra- tion, jurisdiction over navigable waters). The TRB committee intended these as criteria for determining a federal interest or responsibility, not for justifying federal assumption of the major responsibility for project funding. The third section of this chap- ter describes the range of forms of federal intervention that may be used to help solve freight mobility problems. Applying each of the three criteria listed above would become succes- sively more dependent on the judgment of the federal program admin- istrators rather than quantitative criteria, as outlined below. Economic Justification The first criterion, the economic value of the project, can be estimated with acceptedmethods. The administrative practices of the federal agency responsible for the assistance program will determine whether economic evaluations are credible for directing program decisions. Experience sug- gests that the followingpractices are necessary to ensure useful evaluations: • Standardized requirements should be imposed for conducting evalu- ations to demonstrate economic justification. For example, in all its projects, the U.S. Army Corps of Engineers applies a standard evalu- ation method, the Principles and Guidelines, which defines national economic development and environmental quality as the objectives of federal water projects and defines how these two measures are to be estimated in project evaluations (USACE 1983; NRC 2001, 19–28). The 1994ExecutiveOrder “Principles for Federal Infrastructure Invest- ments” states general requirements for evaluations (Executive Office of the President 1994). Standard evaluation methods are essential for quality control and for comparability of competing proposals.

178 Funding Options for Freight Transportation Projects • The federal agency must have the ability to verify sponsors’ project evaluations. Project sponsors normally would be required to prepare evaluations (following federal standards). The federal review should verify sponsors’ estimates of traffic, project construction and operat- ing costs, and shipper cost savings and other benefits. • Retrospective reviews should be conducted to determine whether proposal evaluation methods are reliable. Program rules can require aid recipients to conduct the retrospective evaluations, but they would require federal verification for credibility. USDOT now is required to submit periodic reports to Congress on the TIFIA program (USDOT 2006). The reports contain information on the financial performance of projects receiving TIFIA assistance, but no quantitative information about the realized benefits of TIFIA-aided projects. The EU adminis- tration of the TEN-T program has attempted to evaluate actual bene- fits of completed projects receiving EU aid. Although the review found that “the selection process resulted in the selection of projects that are economically viable,” the conclusion is weakened by lack of data for many projects (European Commission 2007, 72, 82). • Evaluations and supporting material should be public and subject to independent review (that is, transparent). Any freight-related project that passes the economic justification test might be reasonably described as nationally significant, regardless of whether the benefits are cost reductions to shippers and carriers or reduc- tions in external costs of freight transportation.However, according to the 2003 TRB committee’s criteria, these nationally significant projects must pass the two subsequent tests before federal involvement can be justified. Government Responsibility The principles stated in the first section of this chapter for determining the need for government involvement can be reduced to objective criteria. Most projects seeking federal assistance will be to construct facilities on the existing publicly owned systems: highways, ports, harbors, inland waterways, and airports. The government responsibility in these is evident. The more difficult cases for federal program administrators to evalu- ate will be projects that would involve public participation in construc- tion of freight rail lines or other infrastructure normally provided by the

Government Responsibilities for Freight Infrastructure 179 private sector. These should not be common because nearly all projects that pass the economic viability test ought to be conducted by the private- sector owners of these systems. Assessments of proposals in a federal assis- tance program should be guided by a predefined list of specific exceptions to this rule. The most important category on the list would be projects in which mitigation of harmful community impacts of freight traffic was a major objective. The examples described in Chapter 3 show that projects in this cate- gory are prominent. They include theAlamedaCorridor, CREATE, Reno ReTRAC, and Alameda East projects. In some of these projects, commu- nity impact mitigation is the primary motivation; others have dual objec- tives of mitigation and improved freight mobility. Governments have been prominently involved in finance arrangements and in promotion of these projects. The examples also show that governments have devised a variety of arrangements for carrying out community impact mitigation projects and that public assumption of the costs of mitigation is not the only option. The section below on interventions for community impact mitigation describes alternative solutions to the problem. Insufficient Local Capabilities According to the three criteria stated above, the federal government’s role in supporting freight infrastructure development is residual: its responsi- bility is for those projects that have high economic value and yet cannot be completed by the private sector or by state and local governments acting alone. The third criterion—whether local parties lack capacity to carry out a project—is the test whose application must depend most on the judg- ment of the federal administrators and the experience of past projects. Under the federal structure of government transportation programs in the United States, the advantages of aligning responsibilities for trans- portation system development are recognized so that facilities are pro- vided and operated by the lowest level of government (federal, state, or local) competent to do so. Obstacles to mobility, even on the national systems, generally are local bottlenecks, most spillover effects are local, and local leadership is essential in political decisions on the design of solutions (TRB 2006, 19–21). Therefore, given limited federal resources and the desirability of state and local governments taking responsibility for all projects within their competences, administrators must determine

180 Funding Options for Freight Transportation Projects how to screen out projects that probably would be successfully com- pleted without federal aid. The Freight Capacity committee’s criteria above give three circum- stances in which state and local governments may be unable or unsuited to carry out a project alone:where a project fulfills essential federal respon- sibilities, where a conflict exists between local and national interests, and where the scale of a project is beyond local resources. Examples of projects related to essential federal responsibilities are installations required at ports and border crossings for security or regulatory processing. As the earlier TRB committees observed, the federal responsibility to participate in the resolution of problems arising from border controls does not imply that taxpayers, rather than the users of border andport facilities, should pay for solutions. With regard to the problem of potential conflicts between local and national interests, the recommendation of the earlier TRB commit- tees was that federal policy should aim to reduce these conflicts by sup- porting development of mechanisms for localities to recover their costs from shippers and carriers, rather than to shift the burden of these costs to the federal government and national taxpayers. Nonetheless, in any fed- eral program to assist development of freight-related projects, it is likely that a large share of applications will be for projects in which community impactmitigation is amajor component. Alternatives for paying for com- munity impact mitigation projects are considered later in this chapter. Existing federal assistance programs attempt to identify projects whose scale justifies federal assistance by setting a minimum size limit on eligible projects. Presumably because Congress judged the original lim- its too restrictive, the minimums have been lowered in revisions of TIFIA and RRIF. The question of whether the scale of the project exceeds local capacity must also depend on the judgment of program administrators, who must take into account a range of factors that relate to the com- plexity of completing a project in addition to dollar cost. Features of proj- ects that would figure prominently in decisions on whether federal participation was required include the following: • The construction cost of the project with respect to the infrastructure budgets of the principal parties. • Institutional complexity, as indicated by the numbers of jurisdictions and private-sector firms that must participate in or acquiesce in the

Government Responsibilities for Freight Infrastructure 181 project. Projects requiring multistate cooperation appear to be a cat- egory inwhich federal facilitation could be valuable; however, as noted above, no established federal mechanism exists for fostering multi- state cooperation in transportation projects. • The likely availability and cost of financing in the private credit market. • Eligibility for funding through established federal, state, or local finance arrangements (lack of available funding may be grounds for special federal involvement). • The need for extensive upfront planning, coordination, and seed fund- ing. (Federal assistance in these activities may be especially valuable in launching difficult projects.) • Project risks related to the novelty of organizational or technological solutions proposed. (High-risk but high-return projects may be an appropriate niche for federal assistance.) • Domestic competitive considerations. (Federal program administra- tors would have to consider explicitly whether federal assistance to a project would unjustifiably favor one region, port, or group of private firms over economic rivals.) The underlying criterion is that the federal government should participate only when its involvement would allow completion of an economically valuable project that otherwise would not go forward, or its involvement would speed project completion, lower costs, or otherwise substantially increase the likelihood of success. The USDOT administrative organization for review of TIFIA applica- tions is an appropriate arrangement for making these decisions within a federal executive agency: the process involves broad consultation, nego- tiation with the sponsors, and approval at the highest executive level of the agency. (See Figure 3-2 in Chapter 3.) Alternative administrative arrangements have been proposed (as described in Chapter 5), includ- ing creation of an independent public entity with authority to choose projects receiving assistance. Internal assessments of both the TIFIA program in the United States and the TEN-T program in Europe have attempted to judge whether aid has been effectively targeted to projects that are beyond the capabili- ties of the local principal parties. The most recent USDOT report to Congress on the TIFIA program does not contain any project-by-project

182 Funding Options for Freight Transportation Projects analysis of whether the federal assistance was necessary for the assisted projects to proceed. It concludes that “severalmore yearsmust pass before the Department can assess the program’s actual long-term costs and ben- efits” (USDOT 2006, 8) but that the program “especially benefits a clearly defined niche of project financings—user-backed start-up projects lack- ing prior market access, where investors must absorb construction risk, performance risk, and demand risk. For these projects, which under the best of circumstances would achieve a senior debt rating not better than the lowest investment grade category, the TIFIA program seems to be filling a market gap by offering attractively priced subordinate and sup- plemental capital” (USDOT 2006, 9). In other words, USDOT sees the primary impact of TIFIA as lowering the cost of projects and thereby perhaps ensuring or accelerating completion. A 2007 evaluation of experience with the original 14 TEN-T projects concluded that the impact of external aid on the projects was unclear. The study found that as many as 45 out of 50 project segments (pieces of the 14 large corridor projects) that received EU aid probably would have been built, if sometimes in modified form, without the aid, but that EU assistance in some cases speeded commencement and completion of projects and influenced project design. The evaluation concluded that “for many projects . . . there is no real financial need for the Community funding” but that a contribution from the EU “gives a significant impetus to the decision making and [places] the project higher on the political agenda” (European Commission 2007, 57). Summary: Identifying Projects Requiring Federal Involvement Major freight infrastructure projects are diverse with respect to the physi- cal and operational characteristics of the capacity problems to be over- come, institutional settings, and feasible finance arrangements. Therefore, a federal assistance program intended for such projects must be flexible and structured to consider proposed projects on a case-by-case basis. Projects can be evaluated economically according to standard methods, but formulating simple rules for assessing the need for and value of fed- eral involvement in any individual project will not be practical. Decisions on the scope and form of federal assistance therefore will depend on the judgment of programadministrators.Nonetheless, certain features of proj- ects can be identified that are likely to figure prominently in all decisions

Government Responsibilities for Freight Infrastructure 183 on federal participation. These features relate to project size, institutional complexity, the likely availability and cost of financing in the private credit market, and special federal responsibilities. Effective federal management of a freight infrastructure assistance program will require stronger central evaluation capabilities and defini- tion of standard economic evaluation methods. Federal decision making must be transparent and consistent. Even though some evaluation crite- ria will be qualitative (for example, the assessment of the likelihood that the project could be conducted with local resources alone), they should be defined in such a way as to make clear that certain kinds of projects will be excluded from federal assistance. Some decisions of managers of a federal program may be contentious, particularly those that entail con- centrating federal resources in the small number of locations where the most significant freight bottlenecks occur. A federal assistance program should itself be guided by clearly defined and measurable goals. They should include using the influence of the federal government to promote sound long-term finance and plan- ning practices in state and local government infrastructure projects and achieving completion of economically valuable projects that would not have been carried out or would have been substantially delayed without federal participation. Periodic retrospective evaluations of the perfor- mance of federal assistance programs should be carried out, which assess the economic value of completed projects that received assistance and the programs’ success in meeting other defined goals. Projects of National Significance The study charge asks the committee to assess the applicability of a cri- terion indicating national significance for selecting freight infrastruc- ture projects for public investment. The basis of the study charge, as well as of legislation referring to projects of national significance such as SAFETEA-LU’s Section 1301 (establishing a grant program for proj- ects of national and regional significance) and policy statements of USDOT and others over the past two decades referring to projects of national significance, is the premise that projects in this category consti- tute an important portion of transportation infrastructure investment needs, that there is a backlog of such projects, and that new projects will

184 Funding Options for Freight Transportation Projects become necessary as traffic increases in coming decades. The conception of these projects is that they are large (in comparison with typical trans- portation infrastructure project costs of past decades), are discrete, usu- ally involve improvements of multiple modes of transportation serving both passengers and freight, usually are located in urban areas and involve multiple government jurisdictions and private entities, have require- ments that do not match existing funding programs and institutional arrangements, and are unlikely to be completed without federal leader- ship or support. In federal legislation and in policy proposals, the term “project of national significance” (or “project of national and regional sig- nificance”) always has been used to designate projects that are worthy of federal support because they possess these characteristics (see Box 4-6). The most frequently cited examples of such projects are the Alameda Corridor and CREATE, for example in the report of the National Sur- face Transportation Policy and Revenue Study Commission (NSTPRSC 2007, 19). Certainly other projects of similar complexity have been carried out and will continue to be needed. However, it is striking that 9 years earlier, the same two projects were used by the TRB Intermodal Freight committee to illustrate the concept (Smith 1998, 200–202). As Chapter 3 described, only two TIFIA loans to primarily freight-related projects and two RRIF loans exceeding $50 million to freight rail infra- structure projects have been awarded in the decade since these programs were created with the intent of institutionalizing the kind of federal assis- tance given to the Alameda Corridor. Lists of major freight projects (or of freight bottlenecks requiring capital solutions) for particular regions or modes have been drawn up [for example, the California Goods Move- ment Action Plan (Business, Transportation, and Housing Agency and California Environmental Protection Agency 2007), the I-95 Corridor Coalition’s Mid-Atlantic Rail Operations Study (I-95 Coalition 2002), and USDOT’s highway freight bottlenecks inventory (Cambridge Sys- tematics 2005)], but no recognized national list of the highest-priority project needs exists. Thus the objective of programs intended to promote projects of national significance remains poorly defined, and it is con- ceivable that the kinds of projects to which the term commonly has been applied may not be as numerous or as great a share of freight investment needs as they were at one time thought to be.

Government Responsibilities for Freight Infrastructure 185 BOX 4-6 Projects of National Significance: Past Uses and Definitions The TRB Intermodal Freight committee cited uses of the term “project of national significance” in the 1990s to designate a cate- gory of freight project that merited federal assistance. The 1994 report of theNationalCommissionon IntermodalTransportation recommended that “Congress should provide special funding annually to support some number of intermodal projects that are truly of national or regional significance” and that “such proj- ects should be eligible for supplemental funds from the Federal government due to their national significance.” USDOT’s 1996 National Freight Transportation Policy Statement declared that “Federal participation may be appropriate when infrastructure investment projects have a national or regional significance” (TRB 1998, 54–61). In theTIFIAcredit assistanceprogram,oneof the cri- teria by which USDOT is to judge applications is “the extent to which the project is nationally or regionally significant, in terms of generating economic benefits, supporting international com- merce, or otherwise enhancing thenational transportation system” (Transportation Equity Act for the 21st Century, Section 1503). More recently, the primary criteria for funding eligibility in the Projects ofNational andRegional Significance (Section 1301) federal-aid program category created in SAFETEA-LU are that the project “generate national economic benefits,” “reduce con- gestion, including impacts on the State, region and Nation,” or “otherwise enhance the national transportation system.” The “Findings” introducing Section 1301 state as follows: “Current levels of investment are insufficient to fund critical high-cost infrastructure facilities that address critical national economic and transportation needs.” Comments submitted in response to a USDOT rulemaking on evaluation of proposals under this (continued on next page)

186 Funding Options for Freight Transportation Projects BOX 4-6 (continued) Projects of National Significance: Past Uses and Definitions program (71FR41748, July 24, 2006) suggest related definitions of national significance as a rating criterion. For example, the I-95 Corridor Coalition proposes that “a highly recommended [for Projects of National and Regional Significance funding] freight and/or passenger project should address transportation needs and connectivity at an international trade gateway or domestic trade hub; along a national trade, commerce, or mil- itary corridor; or along a multistate regional trade, commerce, or military corridor” (I-95 Coalition 2007, 4). The American Association of State Highway and Transporta- tion Officials (AASHTO) Board of Directors used a related con- cept as one of the “funding and financing principles” of its 2007 recommendations to the National Surface Transportation Policy and Revenue Study Commission. AASHTO recommended that “the Federal government should be responsible for the ‘national’ benefits share of investment resulting from trade agreements, international ports, border crossings,major national freight gate- ways, and substantial security requirements mandated for freight facilities” (AASHTO,Transportation—Invest in Our Future: Sur- face Transportation Policy Recommendations,March 2007, p. 90). In other words, it was proposed that a nationally significant share of each project can be determined and that this share should determine funding responsibilities. Although in each of these uses “national significance” is a war- rant for federal involvement, the 1998 TRB committee’s defini- tion emphasized that federal involvement might not be essential in many such projects: “A project of national significance may be defined as a freight project that has important consequences for the performance of the nationwide freight system. State and local governments often carry out such projects without need of fed- eral leadership. A project of national significance that entails a

Government Responsibilities for Freight Infrastructure 187 The case study projects in Chapter 3 and the other major projects cited in this report illustrate that large projects are being carried out today by governments and the private sector with the institutional structures and finance arrangements that are now available. The megaproject model exemplified by the Alameda Corridor and CREATE does not correspond to themost typical pattern of development of infrastructure systems. State highway agencies and railroads develop long-term corridor improvement plans that are composed of numerous projects staged over a period of decades. Each individual improvement produces benefits, and the plan can be altered over time as traffic and available funding change. By this means, state and local governments and private firms routinely construct transportation facilities, oftenwith federal assistance butwithout any pri- mary federal role, that serve national markets and affect system perfor- mance over a wide geographic area. The federal government has little involvement beyond regulation in the development of the other nation- wide infrastructure networks—telecommunications and electric power. The criteria outlined in the preceding subsection are sufficient for deter- mining the need for federal involvement. They donot dependon any defi- nition of national significance beyond the requirement that a project be economically justified. National significance, as the term has generally been used in federal laws and in the transportation policy statements of various organizations, is not a definitive criterion for deciding which federal responsibility is one for which government involve- ment is justified and that state and local governments are unable or unsuited to carry out because the national interest differs from the local, because of the scale of the project, or because essen- tial federal responsibilities are involved (e.g., customs)” (TRB 1998, 100–101). This two-part definition first defines a project of national significance in a functional sense (as a project whose impact on freight mobility propagates through the nationwide transportation system) and then states additional criteria for deter- mining which such projects entail a federal responsibility.

188 Funding Options for Freight Transportation Projects transportation projects merit extraordinary federal support or involve- ment. Indeed, any substantial freight transportation infrastructure project that is expected to yield benefits is significant to the national economy. The federal role is a residual one: a project merits federal assistance if it is of high economic value andwouldnot be accomplished by the state and local governments and the private sector acting alone. The recommendations presented in Chapter 6 propose methods of applying this rule. FORMS OF INTERVENTION The first two sections of this chapter argued that government involve- ment in infrastructure projects is justified where the government respon- sibility has been established by practice (e.g., highways), where market outcomes would be unsatisfactory because nonmarket costs are impor- tant, and where the private sector cannot act alone in complex institu- tional settings. Federal action is called forwhen government participation is needed and state and local authorities are incapable of resolving the transportation problem unaided. Proponents of new publicly supported freight infrastructure projects generally cite these same grounds as justifi- cation. For example, public support of rail and waterways projects is pro- posed as ameans to induce a shift of traffic from truck tomodeswith lower environmental costs, and to offsetmarket distortions caused by truck sub- sidies in the highway program and by the depression of rail investment incentives caused by economic regulation (AAR 2007). However, building or paying for infrastructure seldom is the only option for fulfilling the government responsibility in these circumstances. Regulation, taxation, and pricing can mitigate problems of pollution and congestion. Public–private cooperation to resolve amobility problemdoes not require shifting of cost burdens for commercial facilities to the public. Once the determination ismade that government involvement is required, it is necessary to search for the most cost-effective means of intervention. Regulatory and Pricing Alternatives The states and the federal government could largely eliminate subsidies for intercity trucking and inland waterways by adjusting user fees and taxes (registration and permit fees, tolls, and fuel taxes). If truck and

Government Responsibilities for Freight Infrastructure 189 waterway transportation is receiving a subsidy because the fees and spe- cial taxes that operators pay are less than the cost to governments of pro- viding facilities to them, then the railroads will not build some capacity that would be economically beneficial (i.e., the cost savings to shippers and to government transportation agencies would exceed the cost of building and operating it) because competition from the subsidized alternative modes prevents the railroads from charging rates that would make the investment attractive. Adjusting user charges on the compet- ing government-operatedmodes so that the revenues they generatemore closely match government agency costs of providing facilities would improve transportation efficiency and increase the incentive for private- sector rail capacity investment. The most recent federal highway cost allocation study found that user fees and taxes paid by operators of combination trucks (the principal freight-carrying vehicles) equal 80 percent of the highway agency expen- ditures attributed to this class of vehicle (USDOT 1997, Table ES-5). In spite of some arbitrary assumptions employed in allocating costs among vehicle classes, the federal study estimates indicate the order of magni- tude of the average truck subsidy in the highway program. However, for trucks loaded to the legal weight limit, the underpayment is greater, and the implicit subsidy to trucks operating on the most congested highways probably is much higher than the USDOT study average estimate. The TRB Fuel Tax committee concluded that adjusting truck user charges to better reflect costs would yield important benefits from improved high- way system performance, as well as redressing a truck–rail competitive imbalance (TRB 2006, 164–166). The present structure of highway user fees and taxes does not take into account the costs of congestion, pollution, and accidents caused by truck traffic. However, the TRB Paying Our Way committee concluded that, as a percentage of freight rates, these costs appear to be of similar mag- nitude for truck and for rail long-distance freight traffic, and therefore failure to charge for them may not greatly distort truck–rail competition (TRB 1996, 96–97). Railroads also argue that rate regulation (or the possibility of partial reregulation, for which bills periodically are introduced in Congress), by reducing revenue, suppresses railroad investment below theoptimum level. [Although changes in federal law greatly curtailed economic regulation of

190 Funding Options for Freight Transportation Projects railroads after 1980, the federal government, through the Surface Trans- portation Board, retains oversight of rail rates to prevent railroads from exercising monopoly pricing power in markets where competition is weak. Railroad mergers are also subject to review. Since deregulation, disputes between the railroads and their customers have led to propos- als for legislation that would increase shipper protections (TRB 2003, 31–32).] Attempting to offset the effect of regulation on rail revenue by means of rail investment subsidies would be unlikely to lead to efficient development of the freight system. The net effect of a government pol- icy of protecting shippers by depressing freight rates through regulation, and then subsidizing railroads as an incentive to provide capacity to serve shippers, would be to shift responsibility for paying for capacity from shippers to taxpayers. The consequence would be that railroads would have less information about which capacity increases shippers would be willing to pay for and therefore less ability to direct investments to the most valuable improvements. Adjusting the regulatory policies that are the cause of the problem would be the preferable solution, since this reform would restore appropriate market incentives as the guiding force for investment decisions. The railroads have made proposals with regard to regulatory changes that they believe are called for (e.g., allowing prod- uct and geographic competition to be considered in Surface Trans- portation Board reviews of the reasonableness of railroad rates) and have indicated which proposed tightenings of regulation they believe would be detrimental to performance (AAR 2008a, AAR 2008b). Government subsidies to the users of freight facilities or to private- sector providers of facilities, even when used to correct a genuine market imbalance, risk harm to transportation system efficiency. Subsidies to waterways or railroads to offset subsidies to trucks can result in over- consumption of all the modes of transportation; that is, the value of the service to some shippers will be less than the cost of providing it. Subsi- dies, once they are made available, tend to become routine and institu- tionalized, rather than awarded on the basis of the merit of individual cases. When subsidies begin to be commonplace in an industry, the risk of undertaking unsubsidized initiatives is increased. For example, if a state provides subsidies to its ports, competition will discourage ports in neighboring states fromundertaking capital improvements fundedbyuser charges (TRB 2003, 35–36). Similarly, if some railroad capital improve-

Government Responsibilities for Freight Infrastructure 191 ments are granted subsidies, then the risk to a railroad of undertaking an unsubsidized improvement has increased, since it may be undercut by a competitor who develops a service with help from a subsidy. Indeed, after the federal grant to construct the Heartland Corridor rail project (described in Chapter 3) was awarded, a competing railroad proposed partial public funding for improvements on routes parallel to the corridor (Watson2008). The railroads themselves recognize the risk that acceptance of government subsidies could have the effect that partial reregulation would gain political favor as a reciprocal measure (AAR 2007). Chapter 1 noted that freight capacity became a prominent policy con- cern beginning in the 1990s in part because of bottlenecks at ports and intermodal hubs caused by the rapid growth of international trade. Because of the U.S. merchandise trade deficit, capacity requirements at ports and other facilities serving international merchandise trade have been dictated primarily by import traffic volume. Subsidizing freight infrastructure therefore in effect subsidizes imports and may increase the merchandise trade deficit. In cases where a subsidy to a freight service provided by the private sector is judged to be necessary, alternatives to a lump-sum capital grant should be considered, for example, a pay-for-performance agreement that would give the recipient a continuing incentive for operating and investment decisions that delivered public benefits. Such agreements are used in the public transit industry (Hensher and Wallis 2005). When a privately owned facility is built with the aid of an up-front government grant, the government bears the full risk that the hoped-for public ben- efits will not be realized. Interventions for Community Impact Mitigation The motivations for several of the most significant recent and proposed public freight infrastructure projects have been to reduce adverse com- munity impacts asmuch as to addphysical capacity to the freight network. The growing volume of freight traffic in port cities and in hub cities like Chicago conflicts with local traffic and imposes congestion and pollution costs on residents. Reducing these impacts or compensating communi- ties for them will be necessary to allow freight traffic to grow, because communities eventually will halt growth through the political process if

192 Funding Options for Freight Transportation Projects the costs are too great. One way to manage local freight traffic impacts is by pricing; congestion pricing on highways is a well-known example. However, local governments do not have authority in all circumstances to impose charges on carriers or to regulate their traffic. If freight trains are creating road congestion at railroad–highway grade crossings, the state and local governments have limited authority to require the rail- road to alter its operations or to pay for an overpass (Wisconsin Depart- ment of Transportation 2003). The government’s options are to pay for a capital improvement to mitigate the impact (e.g., a grade separation) or to pay the railroad to undertake some other mitigation. In circumstances where the government cannot legally or practically impose the cost burden on the carrier, it may be reasonable for the gov- ernment to pay the cost of mitigation. An example is the Reno ReTRAC project described in Chapter 3. In that case, the City of Reno had no authority to require the railroad to pay for mitigating the impacts of train traffic through the city, so it paid for most of the project with a dedicated city sales tax and other local taxes. As the consequence of state and federal laws and court decisions, todaymost costs of construction of rail–highway grade separations are paid by government rather than by railroads. Projects such as ReTRAC are not equivalent to subsidies for rail oper- ation; that is, they do not necessarily tend to promote overuse of rail ser- vices or overinvestment in railroads. If the value of rail service on the Reno tracks to the railroad and its customers had been less than the cost of mitigation, then the city could have paid the railroad to change its operations rather than build the mitigation project. As long as the gov- ernment and the railroad can negotiate, the low-cost solution to the prob- lem is likely to be found. However, there is no general rule, considering either efficiency or actual practice, that the cost burden of mitigating community impacts of traffic cannot be placed on the users of the transportation facility or on the private-sector operators of the facility (whose revenue derives from the users). Whenever new facilities or major expansions of existing facilities are to be constructed, the operator of the facility normally will be required to pay for mitigation features. An example is the proposed expansion of the Intermodal Container Transfer Facility in Los Angeles (described in Annex 3-2), where the railroad has incorporated mitiga- tion features, including a buffer zone, in the project design. The Clean

Government Responsibilities for Freight Infrastructure 193 Truck Program at the Ports of Los Angeles and Long Beach (described in Chapter 3) is a capital project paid for in part by fees on shippers for the purpose of community impact mitigation. Routinely, regulations require transportation operators to pay for pollution mitigation features in the design and operation of facilities and equipment (e.g., vehicle emission controls and runoff controls). Similarly, construction of high- way noise barriers is funded from highway user fee revenue rather than by the local communities requiring protection. In none of these examples do the operators or users of the transportation facility directly benefit from the mitigation measure, but nonetheless they (and their customers) bear responsibility for paying for it. In practice, cost sharing in projects like grade crossing separations is determined by negotiation between the interested public and private par- ties. If shippers and carriers can be induced through negotiations to pay for mitigation (as a condition of continuing the freight service that gives rise to the adverse community impact), this outcome will not be detri- mental to efficient freight systemdevelopment.Moreover, a legal require- ment for carriers or shippers to pay formitigation (e.g., a noise regulation) will not be detrimental to efficiency provided the cost of the required mit- igation is justified by its benefit to the community and the law allows employment of the most cost-effective solutions. In cases where legal, equitable, or practical considerations prevent government from imposing the cost burden on shippers or carriers, it may be in the public interest for the government to pay for mitigation. Government payment for mitigation will be consistent with economic efficiency provided that the government considers cost-effective mitiga- tion options, which might include reimbursing carriers or shippers for altering their operations rather than building an infrastructure solution. As long as the cost of the mitigation measures is less than their benefit to the community and less than the value of maintaining service on the freight facility, the outcome will be in the public interest. The risk of an unfavorable negotiated outcome is greater if funding for mitigation is available from the federal government, because the external grant relieves the local parties of the necessity of considering all the costs and benefits of alternative resolutions. If the federal govern- ment pays a share of costs, then it becomes responsible for the objective and quantitative assessment of the costs and benefits of the alternatives.

194 Funding Options for Freight Transportation Projects In summary, the burden of paying for freight-related infrastructure improvements should be assigned in a way that promotes economically efficient development and operation of the transportation system. The surest way to meet this objective would be to fund improvements with revenue from charges paid by users of the facilities constructed, although practical constraints will prevent this solution in some cases. If con- struction of a freight facility cannot be paid for by user charges because the facility would compete with a subsidized facility, the preferable solu- tion is to eliminate the subsidy on the competing facility rather than to subsidize the new facility. If legal or practical constraints prevent gov- ernments from imposing charges on carriers or shippers to pay for com- munity impact mitigation, government funding of such projects may be justifiable, following objective evaluation of all mitigation options. How- ever, numerous precedents exist for requiring transportation system users to pay for impact mitigation, and such requirements are consistent with economically efficient development of the system. SUMMARY Government roles in freight infrastructure development are dictated mainly by their historically established responsibilities, which are exten- sive and are unlikely to be greatly altered in the near future. Most policy proposalswith regard to freight infrastructure development involve incre- mental changes in government roles: either greater or less involvement in some aspect of the industry. The most significant changes in recent pro- posals would be an expansion of direct federal responsibility for funding and selecting highway and nonhighway freight infrastructure projects, government participation in funding and selecting freight rail infrastruc- ture projects, and concessions for private operation of facilities that are now publicly owned (in particular, highways, ports, or airports). Major changes in government roles would entail risks, and there- fore such proposals should be approached with caution and evaluated carefully. Chapter 3 described how inefficient operation and failure to target investments to projects with the highest returns have been recur- ring problems in public programs that build and operate infrastructure. Changes in government roles that involve increased subsidies to freight

Government Responsibilities for Freight Infrastructure 195 traffic or that would replace market-driven investment decision making with government decisions would be vulnerable to these risks. Governments have an essential role in overcoming institutional and political obstacles toneeded infrastructure development and in controlling environmental costs of development. Governments requiremore effective instruments for carrying out these responsibilities than are now available. Ways to strengthen these instruments are proposed in Chapter 6. The federal role in freight infrastructure development has been, appro- priately, limited and supplementary. A project merits federal assistance if it is of high economic value and would not be accomplished by the state and local governments and the private sector acting alone. If this rule is followed, then “national significance” is not a necessary or useful criterion for determining federal responsibility. USDOT already has considerable experience in choosing projects for federal participation, andCongress has legislated general criteria to guide these decisions. USDOT capabilities could be strengthened by measures that will be proposed in Chapter 6. REFERENCES Abbreviations AAR Association of American Railroads FHWA Federal Highway Administration GAO General Accounting Office; Government Accountability Office NRC National Research Council NSTPRSC National Surface Transportation Policy and Revenue Study Commission TRB Transportation Research Board USACE U.S. Army Corps of Engineers USDOT U.S. Department of Transportation AAR. 2007. Freight Rail Capacity Expansion Act of 2007 (S. 1125/H.R. 2216): Frequently Asked Questions. www.aar.org/IndustryInformation/InfrastructureTaxIncentive/∼/ media/AAR/ITC/FAQ_flyer_v3_FINAL.ashx. AAR. 2008a. Product and Geographic Competition. Feb. AAR. 2008b.Why Railroad Re-Regulation (S. 953/H.R. 2125) Should be Rejected. Aug. Business, Transportation, andHousingAgency andCalifornia Environmental Protection Agency. 2007. Goods Movement Action Plan. Jan. www.arb.ca.gov/gmp/docs/gmap- 1-11-07.pdf.

196 Funding Options for Freight Transportation Projects Cambridge Systematics (in association with Battelle Memorial Institute). 2005. An Ini- tial Assessment of Freight Bottlenecks on Highways. Prepared for Federal Highway Administration, Oct. Eberts, R. W. 1998. Principles for Government Involvement in Freight Infrastructure. In Special Report 252: Policy Options for Intermodal Freight Transportation, Transporta- tion Research Board, National Research Council, Washington, D.C., pp. 117–152. European Commission. 2003. High-Level Group on the Trans-European Transport Network. Report. June 27. European Commission. 2005. Trans-European Transport Network: TEN-T Priority Axes and Projects 2005. European Commission. 2007. Ex-Post/Final Evaluation of the Trans-European Transport Network Multiannual Indicative Programme 2001–2006: Final Report.Nov. ExecutiveOffice of the President. 1994. ExecutiveOrderNo. 12893: Principles for Federal Infrastructure Investments. 59 FR 4233, Jan. 31. FHWA. n.d. Private Activity Bonds (PABs). www.fhwa.dot.gov/ppp/tools_pabs.htm. GAO. 2004. Federal-Aid Highways: Trends, Effect on State Spending, and Options for Future Program Design. Aug. GAO. 2008. Freight Transportation: National Policy and Strategies Can Help Improve Freight Mobility. Jan. Gramlich, E. 1990. How Should Public Infrastructure Be Financed? In Is There a Shortfall in Public Capital Investment? (A. Munnell, ed.), Federal Reserve Bank of Boston, Mass. Hensher, D. A., and I. P. Wallis. 2005. Competitive Tendering as a Contracting Mecha- nism for Subsidising Transport: The Bus Experience. Journal of Transport Economics and Policy, Vol. 39, No. 3, Sept., pp. 295–321. I-95 Coalition. 2002. Mid-Atlantic Rail Operations Study: Summary Report. April. www.i95coalition.org/coalition_publications.html. I-95 Coalition. 2007. Response of the I-95 Corridor Coalition to December 21 Fed- eral Register Notice: Projects of National and Regional Significance Evaluation and Rating. Feb. Nadiri, M. I., and T. F. Mamuneas. 1998.Contribution of Highway Capital to Output and Productivity Growth in the US Economy and Industries. Federal Highway Administra- tion, Aug. www.fhwa.dot.gov/policy/gro98cvr.htm. NEA et al. 2004. TEN-STAC: Traffic, Bottlenecks, and Environmental Analysis on 25 Corri- dors. European Commission, Sept. NRC. 2001. Inland Navigation System Planning: The Upper Mississippi River–Illinois Waterway.National Academy Press, Washington, D.C. NSTPRSC. 2007. Report of the National Surface Transportation Policy and Revenue Study Commission: Transportation for Tomorrow.Dec.

Government Responsibilities for Freight Infrastructure 197 Oates, W. E. 1999. An Essay on Fiscal Federalism. Journal of Economic Literature,Vol. 37, Sept., pp. 1120–1149. Oden, M. D., and E. J. Mueller. 1999. Distinguishing Development Incentives from Developer Give-Aways. Policy Studies Journal, Vol. 27, No. 1, pp. 147–164. Small, K. A. 1999. Project Evaluation. In Essays in Transportation Economics and Policy: AHandbook inHonor of John R.Meyer (J. Gómez-Ibáñez, W. B. Tye, and C. Winston, eds.), Brookings Institution Press, Washington, D.C., pp. 137–177. Smith, D. 1998. Freight Projects of National Significance: Toward a Working Definition. In Special Report 252: Policy Options for Intermodal Freight Transportation,Transporta- tion Research Board, National Research Council, Washington, D.C., pp. 199–233. TRB. 1996. Special Report 246: Paying Our Way: Estimating Marginal Social Costs of Freight Transportation.National Research Council, Washington, D.C. TRB. 1998. Special Report 252: Policy Options for Intermodal Freight Transportation. National Research Council, Washington, D.C. TRB. 2003. Special Report 271: Freight Capacity for the 21st Century.National Academies, Washington, D.C. TRB. 2006. Special Report 285: The Fuel Tax and Alternatives for Transportation Funding. National Academies, Washington, D.C. USACE. 1983. Economic and Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies.March 10. USDOT. 1997. 1997 Federal Highway Cost Allocation Study. Aug. USDOT. 2006. Transportation Infrastructure Finance and Innovation Act of 1998: Report to Congress. July. USDOT. 2007. Corridors of the Future: Fact Sheet. Sept. 10. Waterfront Coalition. 2005.National Marine Container Transportation System: A Call to Action.May. Watson, R. 2008. Railroad Seeks Faster, Cheaper Route Between Great Lakes, Virginia Port. Transport Topics, June 16, p. 1. WisconsinDepartmentofTransportation. 2003.FacilitiesDevelopmentManual:Chapter 17: Railroad Coordination.May 2.

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TRB’s Special Report 297: Funding Options for Freight Transportation Projects explores ways to pay for projects that expand freight capacity or reduce the costs of freight transportation. The committee that produced the report found that present finance arrangements are inadequate for maintaining and improving freight transportation system performance. The report calls for finance reforms that promote productivity gains by targeting investment to projects with the greatest economic benefit and by encouraging efficient use of facilities.

A summary of the report, which was published in the July-August 2010 TR News, is available online.

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