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Joseph M. Giglio and Charles Chieppo

High-tech highway funding

By Joseph M. Giglio and Charles Chieppo
July 22, 2009

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WITH FUNDING set to expire this fall, the House Transportation and Infrastructure Committee proposes to authorize a half trillion dollars in federal spending on surface transportation over six years. The Obama administration took a different view, announcing that it wanted Congress to delay reauthorization for 18 months.

But neither addressed how they would pay for a new authorization. That failure is the latest evidence of a surface transportation financing program in need of transformation, not just reauthorization.

Technology should be at the heart of that transformation. Today, fuel tax receipts are the principal federal funding source for highway and mass transit projects. But the rise of higher-mileage and alternative-fuel vehicles, together with the failure to raise the tax in more than 15 years, show its limitations as a reliable 21st-century funding source.

Advances in technology make it possible to provide customers with highway access via the same market mechanisms used for goods and services like electricity, cellphones, and water. We should immediately begin the transition to technology-based direct-user charges and commit to deploying such a system nationally by 2020.

The transition will require ending the illusion that most highways are free. Rather than burying construction, operations, and maintenance costs in a tax on gasoline, consumers would pay directly for road usage using transponders, as is the case on the Massachusetts Turnpike and other toll roads.

But technology now enables systems that are far more sophisticated than FastLane. Congestion can be managed by varying road usage charges depending on the time of day.

Money-back travel-time guarantees could be offered to help customers accept highway pricing. For example, a charge of 10 cents per mile during particular time of day would be linked to a minimum average traffic speed. If the average falls below the minimum, customers are charged progressively less.

Performance guarantees would allow customers to make meaningful trip-by-trip choices between the value they place on saving travel time and how much they’re willing to pay to use a highway.

Today, fuel tax receipts go into the federal Highway Trust Fund. But for the second time in a year, the Fund is running dry. The need to address the shortfall and hopes that economic recovery will make more money available for transportation are behind Obama’s call for delaying reauthorization.

Unless a new revenue source is put in place or spending is slashed, the fund will need an extra $5 billion to $7 billion to meet its obligations to state transportation departments and transit authorities for the rest of the federal fiscal year, and another $8 billion to $10 billion for 2010. The administration’s plan to cover its proposed 18-month delay includes another $20 billion transfer from the General Fund. Just last summer, Congress transferred $8 billion from the General Fund.

Continuing to do the same thing and expecting a different result is insane. Alternative-fuel usage will continue to grow and vehicles will become even more efficient, resulting in ever-diminishing returns from the fuel tax.

Additional reforms are needed to transform surface transportation funding. Exploding budget deficits and debt projections will compromise the administration’s ability to deliver on promises to reverse years of under-investment in infrastructure, but the federal government should at least maximize state and local officials’ flexibility to work with private-sector partners to solve growing mobility and congestion problems.

Highway Trust Fund money should be available for any transportation mode or combination of modes, and together with private funds. All forms of project delivery and financing options should be allowed. In addition to generating desperately needed resources, transforming the way we fund surface transportation can yield congestion reduction, environmental benefits, and a renewed focus on customer service.

Technology-based solutions introduce a new level of fairness and accountability. And history teaches us that consumers are willing to pay a reasonable price if they get real value in return.

Joseph M. Giglio is a professor of strategic management at Northeastern University. Charles Chieppo is the principal of Chieppo Strategies.

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