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Transportation and Covid-19: a State Guide to Policy and Priorities

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Transportation and Covid-19: a State Guide to Policy and Priorities TRANSPORTATION AND COVID-19: A STATE GUIDE TO POLICY AND PRIORITIES BY ROBERT W. POOLE, JR., BARUCH FEIGENBAUM, RANDAL O’TOOLE, MARIYA FROST, WENDELL COX, AND MARC SCRIBNER TRANSPORTATION AND COVID-19: A STATE GUIDE TO POLICY AND PRIORITIES BY ROBERT W. POOLE, JR., BARUCH FEIGENBAUM, RANDAL O’TOOLE, MARIYA FROST, WENDELL COX AND MARC SCRIBNER The COVID-19 pandemic has introduced Because these long-term P3s are financed unprecedented uncertainty into everyday based on future revenues over a long period transportation operations and long-term (30 to 50 years), critical major projects can transportation planning. Travelers have be financed now, and construction can drastically reduced commuting and their begin much earlier than under normal cash- use of crowded, shared transportation based project funding. modes, including mass transit. It is unclear when—or if—travel will return to past #2 Reinvent Transit: Today’s mass transit trends or whether this "new normal" will systems are expensive, provide poor persist indefinitely. This publication will service, and cater to wealthy choice help guide state legislatures and state- customers who use the service infrequently. focused policy organizations as they Transit agencies that receive taxpayer navigate transportation policy both during subsidies need to prioritize service for low- and after the COVID-19 recovery, with a income, transit-dependent customers who focus on mitigating risks to public-sector have no other mobility options. To improve transportation operations and infrastructure service quality, transit agencies need to investments. coordinate mobility options, contract service, ensure choice customers pay their #1 Use Public-Private Partnerships (P3s) for full costs, and redesign services to operate Infrastructure: Long-term infrastructure P3s in a grid-based pattern. are especially valuable in the post-COVID- 19 environment, as state and local #3 Reduce Amtrak Subsidies: Despite a 90 governments are under severe fiscal stress. percent decline in ridership during the pandemic—and plenty of evidence that operate during a pandemic, governments intercity passenger trains were obsolete should repeal urban containment and before it hit—many in Congress want to densification policies. quadruple subsidies to intercity passenger trains. Government is counting on the #6 Prioritize the Resilience of Highways: To states to contribute to those subsidies, as safeguard against unexpected events such 18 states already do, yet this is an as terrorist attacks, natural disasters, unnecessary burden on taxpayers. recessions, and pandemics, states must emphasize the need for a resilient #4 Strengthen the Users-Pay Principle: As transportation system. The most resilient policymakers face daunting budget holes transportation system is the use of motor given the impact of COVID-19, it may be vehicles and highways. Unfortunately, some tempting to weaken existing fuel tax seek to erode that resilience. We need to protection or divert additional fuel tax protect it. revenue away from roads to fill operating budget deficits. This should be avoided. #7 Encourage a Permissive Regulatory Current travel trends and projections all Environment for Future Mobility: point to a need for additional investment in Automated vehicle technologies hold great our highway system. Strengthening the potential to improve safety, mobility, users-pay principle will ensure that motor accessibility, and overall quality of life. At fuel tax revenue is directed to necessary this early stage, policymakers should focus repairs that will ensure roads are safe and on identifying outdated motor vehicle dependable during and after the COVID-19 policies that unduly limit automated vehicle economic recovery. development, testing, and deployment within their states. Policymakers should #5 Consider the Role of Working from also prepare for an extended period of Home: The COVID-19 pandemic has created uncertainty by avoiding prescriptive a flight from the nation’s largest policymaking built on assumptions that will downtowns and urban cores to the likely prove inaccurate as these dispersed periphery of these areas and technologies develop. telecommuting. Because the densest urban urbanization is insufficiently resilient to USE PUBLIC-PRIVATE PARTNERSHIPS FOR HIGHWAY INFRASTRUCTURE BY ROBERT W. POOLE, JR. REASON FOUNDATION The private sector can be involved in use the long-term agreement to finance the public-sector infrastructure in various ways, acquisition and modernization costs. ranging from simple management contracts The financing is generally based on either to full-fledged, long-term investment and (1) the projected revenues generated by the management of large infrastructure facility over the life of the long-term facilities such as airports, toll roads, and concession, or (2) the government’s municipal utilities. agreement to make annual “availability payments” to the company—which may be The purest form involves a competitive slightly higher or lower than a baseline— process under which the winner will design, based on the company achieving (or not) build, finance, operate, and maintain various performance measures. These two (DBFOM) a major facility for a long term (e.g., types of financing are called revenue-risk 50 years). The government negotiates a long- (RR) and availability payment (AP). term contract (called a concession) spelling out performance requirements, a pricing In the AP case, the company’s customer is structure, termination provisions, and more. the government; that is who it must please, because the government is paying. In the The concession may be to take over and RR case, the company’s customers are the upgrade an existing facility (airport, water users of its facility—so it must strive to system, toll road) or to build a new one, and please them. to operate and maintain the whole facility. The winning company (usually a consortium Furthermore, the availability payments of an operator and financial partners) can generally come from the government’s existing revenues. But the user revenues come from fees paid by the facility’s in which state and local governments are customers. Hence, if one of the problems under severe fiscal stress. Because these facing the government is insufficient long-term P3s are financed based on future investment in infrastructure, RR P3s generally revenues over a long period (30 to 50 add a net new stream of user payments, years), much-needed major projects can be rather than relying on existing tax revenue to financed now, and construction can begin pay the company. Since RRs are accountable much earlier than under normal cash-based to highway customers and provide a revenue project funding. source, they are preferred over APs and should be used if possible. WHAT STATES Traditional procurement is termed “design- bid-build.” It originated in the Progressive CAN DO Era when politicians often awarded construction contracts to companies owned 1. Research and Draft a P3 Law: If your by their friends and supporters. state does not have a workable P3 law, research good examples (e.g., Virginia’s The Progressive idea was that experts in Public-Private Transportation Act) and have government would produce the one best P3 experts draft an adaptation. design, and then let construction companies compete solely on the lowest price. The 2. Evaluate Current P3 Law for problem is that the design may be impractical Improvements: If your state has a P3 law to build, and companies know how to use the but there have been few or no projects, system to get numerous change orders to have it evaluated by P3 experts to increase their revenues. understand its shortcomings for a legislative fix. A major advantage of DBFOM P3s, of either the AP or RR type, is that they build in long- 3. Consider Long-Term P3s for Unfunded term stewardship of the infrastructure Infrastructure Projects: Review major asset. That is why DBFOM P3s should be planned but unfunded infrastructure used far more widely than they are today. projects to determine which ones would lend themselves to long-term P3 Long-term infrastructure P3s are especially procurement. valuable in the post-Covid-19 environment ADDITIONAL READING 1 “The Role of Performance-Based Infrastructure,” by William G. Reinhardt, Public Works Financing, November 2014, https://pwfinance.net/the-role-of-performance-based-infrastructure. 2 “Availability Payment or Revenue-Risk P3 Concessions?” by Robert W. Poole, Jr., Reason Foundation policy study, November 2017, https://reason.org/wp- content/uploads/2017/11/infrastructure_availability_payment_revenue_risk _concessions.pdf. 3 “The Benefits of Long-Term P3 Concessions,” Chapter 6, by Robert W. Poole, Jr., Rethinking America’s Highways, University of Chicago Press, 2018, https://www.amazon.com/Rethinking-Americas-Highways-21st-Century- Infrastructure/dp/022655 757X/. REINVENT TRANSIT BY BARUCH FEIGENBAUM REASON FOUNDATION Before World War II, most mass transit The fifth quintile (wealthiest commuters) services were operated profitably by the use rail more than the second quintile private sector. After World War II, facing (working class) and third quintile (middle competition from low-cost personal vehicles, class). many private transit operators went out of business. To preserve service, governments U.S. transit service is failing both riders and assumed control of existing transit lines and taxpayers. Most transit service is oriented in a added new services using taxpayer radial structure, designed to funnel
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