Innovation or Insolvency: Oregon s Options for Transportation Funding

Transcription

1 Innovation or Insolvency: Oregon s Options for Transportation Funding December 2014 By Anna Dearman

2 SUMMARY In response to the summer 2014 Highway Trust Fund crisis and Congress s stopgap measure to prevent insolvency, it is crucial that the state of Oregon seeks out and applies innovative transportation funding sources. Innovation or Insolvency presents the need for sustainable transportation finance as an economic and social imperative obtainable through several creative options not only for generating revenue but also for administering the transportation fund. The options included in this paper represent the more promising alternatives that Oregon and other states have developed to date, as well as additional resources for researching innovative processes and sources for transportation funding. The Oregon Chapter of the American Planning Association is an independent, statewide, notfor-profit educational organization that provides leadership in the development of vital communities by advocating excellence in community planning, promoting education and citizen empowerment, and providing the tools and support necessary to meet the challenges of growth and change. Visit us at Photo courtesy of Martin Heim Many thanks to those who provided insight and feedback for this paper: Ali Bonakdar, AICP, Director of the Corvallis Area Metropolitan Planning Organization Richard Ross, AICP, LPAC Policy Subcommittee Chair, Oregon Chapter of the American Planning Association Becky Steckler, AICP, Program and Policy Manager, Oregon Chapter of the American Planning Association

3 INTRODUCTION Mobility and accessibility are basic needs. Oregonians need to get our kids to school, get ourselves to work, go grocery shopping, ship goods, and get exercise. But our ability to move around and compete in the local and global economy is hampered by decaying roads and bridges and a lack of funding to maintain them. States across the country depend upon federal transportation funds from the Highway Trust Fund to pay for a significant portion of road construction, maintenance, and operations. But in summer 2014, instead of coming up with a long-term plan, Congress enacted a stopgap measure 1 to sustain the Highway Trust Fund until May 2015 an all-too-common Congressional practice that results in great uncertainty and instability in the planning process. Without the extension, Oregon would have seen an immediate cut of $150 million (plus even more in 2015), which would have resulted in canceling or delaying many projects. 2 Lack of a long-term federal transportation-funding plan puts many Oregon transportation projects at risk. Over half a billion dollars of Oregon s transportation funding comes from the federal government. 3 The balance of transportation dollars comes from Oregon s fuel tax, bond proceeds, the weight-mile tax, and driver and vehicle licenses and fees. 4 These projects are critical to keep our citizens safe, our communities livable and our economy thriving. While it is important that the federal government finds a stable source of transportation funding, the state of Oregon must also develop innovative funding strategies if we want to do a better job of maintaining and addressing our transportation needs. We must find a way to keep sustainability dialed into our communities while supporting the literal and figurative vehicles our residents need in order to gain access and mobility and to mobilize our economy in a positive direction, too. Though Oregon has made several steps forward in reducing drivers dependency on the road, it is important that sustainable transportation funding sources are identified in order to continue operations of the infrastructure that people rely on to live and work prosperously in the state. Oregon vehicle miles traveled have recently dropped to less than 20 billion 1. For more context regarding the federal transportation finance bill, see the following: Weisman, Jonathan (2014). Senate approves veteran and highway bills. The New York Times. Retrieved from nytimes.com/2014/08/01/us/senate-approves-veterans-health-carebill.html. 2. Oregon Department of Transportation (ODOT, 2014). What will happen to federal transportation funding? Retrieved from oregon.gov/odot/govrel/pages/federal-funding.aspx. 3. Ibid. 4. ODOT (2011). Budget Retrieved from oregon.gov/odot/comm/docs/budgetbooklet_11-13.pdf. annually, 5 but federal highway funds are still needed to fund new construction projects that preserve and improve the state highway system. 6 Oregon has also instituted the Transportation Options program, an initiative to enhance traveler opportunities and choices to bike, walk, take transit, share rides, and telecommute that is closing the gap between traditional infrastructure funding and alternative transportation options. 7 In the meantime, we must meet in the middle between funding vital transportation infrastructure maintenance and improvement for quality of life and productivity of work and providing options for Oregon residents and visitors to use alternative means of traveling and commuting. Viable strategies for transportation funding in Oregon, with an emphasis on more innovative methods, are outlined in the remainder of this document. WHO SHOULD PAY FOR TRANSPORTATION? Oregon s recent completion of the Road Usage Charge Program pilot project, in which users are charged a fee proportionate to the amount that they drive on roads, serves as a great example of innovation in urban economics: the idea that users of a public good should be willing to pay for its maintenance. Since the implementation of fuel economy standards, vehicles have become increasingly efficient resulting in decreasing revenue from the gas tax. This has also created a disparity between contribution to the gas tax and vehicle type: though both traditional- and alternative-fuel vehicles may drive the same or a similar amount, which justifies a similar responsibility for funding capital improvements and maintenance to roads through the gas tax, more efficient alternative-fuel vehicles use less gas, ultimately contributing disproportionately less to road improvements through the gas tax. As a solution to this disparity, the Road Usage Charge equalizes the amount that drivers of traditional and alternative fuel vehicles pay to use the road. The recent insolvency of the federal Highway Trust Fund has only complicated the matter of who pays for transportation, reintroducing an age-old American angle of debate into the conversation: should the federal government fund state transportation improvements, or should the states be responsible for collecting funds from their citizens or seeking funding from private entities, possibly through public-private partnerships? Oregon and 5. ODOT. Oregon state highway VMT (in billions). Retrieved from ODOT (2014). What will happen to federal transportation funding? Retrieved from Funding.aspx. 7. ODOT. Oregon transportation options plan. Retrieved from O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R

4 many other states and organizations have already begun to address the need for, at the very least, more thought on innovative transportation financing options and potential financing mechanisms; like Oregon, many state and federal transportation entities have created administrative offices to develop business partnerships and savvy alternatives to traditional transportation finance. In order to add value to existing initiatives, the following is a summary of available transportation funding sources, as well as a recommendation for implementing some of the more innovative transportation financing strategies that are emerging. HOW DOES OREGON PLAN AND PAY FOR TRANSPORTATION? Federal Transportation improvements in Oregon have been funded in part through federal authorization acts such as the current federal program expiring by October 1, 2014: MAP-21, or Moving Ahead for Progress in the 21 st Century (2012). State Oregon is among the states which rely most heavily on federal sources of funding for transportation improvements, 8 though state revenues generated through the gas tax and other user fees account for almost 60% of the total, with bonds accounting for around 20%. 9 The state gas tax, at around 30 cents per gallon, actually constitutes 30% of state revenue to fund transportation improvements, which is unsustainable considering the recent transformations in both the fuel efficiency of our vehicles and the frequency with which we use them. In the 2013 and 2014 sessions, only one piece of legislation establishing a new source of transportation financing has been passed: Senate Bill 810, which authorizes the Road Usage Charge Program. 10 The Oregon legislature has provided additional funding to supplement the federal and state gas taxes through several measures: the Oregon Transportation Investment Acts (OTIA) I III, financed through vehicle registration and driver license fees as well as revenue bonds; the Jobs and Transportation Act (JTA, 2009), which increased the state fuel tax, driver and motor vehicle fees and weight-mile taxes on heavy trucks to provide a significant increase in revenue to the State Highway Fund; and ConnectOregon I V, financed by lottery-backed revenue bonds The Pew Charitable Trusts (2014). Funding challenges in transportation infrastructure. Retrieved from research-and-analysis/analysis/2014/05/05/funding-challenges-intransportation-infrastructure. 9. ODOT (2011). Budget Retrieved from oregon.gov/odot/comm/docs/budgetbooklet_11-13.pdf. 10. ODOT (2013). Summary of transportation economic and revenue forecasts. Retrieved from Because of its historic reliance on issuing bonds, bond retirement Source: Oregon Department of Transportation Local The main source of local transportation revenue for many cities in Oregon is transportation impact fees from new developments and charging developers with System Development Charges (SDC). These revenues are spent on local transportation improvements. At the local level, project sponsors can provide a match to help fund transportation maintenance and improvements. Many Oregon cities actually contribute their own funding to local transit systems, and there are also transit districts that are supported through employee payroll or property taxes. CURRENT PROPOSALS The Oregon Transportation Forum (OTF) is a broad coalition of public and private interests that advocate on transportation funding and policy. It proposed several innovative policies for generating revenue to be used on transportation infrastructure and planning improvements in the state for consideration by the 2015 Oregon Legislature. 12 Realizing that federal and local contributions to transportation finance are insufficient, OTF has drafted proposals to support the Oregon legislature in implementing the following recommendations: increasing taxes and fees to maintain and enhance transportation systems, reallocating fees and general fund revenues to support AMTRAK and disabled and elderly transit services, restoring ConnectOregon s multimodal funding and developing a Multimodal Trust Fund (similar to the Highway Trust Fund), improving coordination and efficiency between state and local transportation planning efforts and cost shares, and supporting the Road User Charge program and advocating for its transition to a required charge. OTF presented these proposals to its member agencies in preparation for delivering official recommendations to the state legislature in the 2015 session. ( payback ) has now become a significant line item in ODOT s budget. 12. A comprehensive list of these recommendations is available as an attachment to the following (beginning on page 35): Association of Oregon Counties (AOC, 2014). Agenda: Legislative committee meeting. Retrieved from O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R

5 INNOVATING TRANSPORTATION FUNDING Numerous options are available for innovating our transportation finance sources and mechanisms. The Federal Highway Administration (FHWA) publishes a comprehensive list of innovative transportation financing options, recommending either new financing mechanisms, designed to leverage resources; new fund management techniques or new institutional arrangements. 13 Many of the options described by the FHWA are already practiced in Oregon, but the following list features several of the more innovative options that should be further considered for implementation here. Road Pricing Without Tolls Including Travel Demand Reduction Techniques Pay-As-You-Drive (PAYDAYS) car insurance: assesses individualized premiums based on miles driven instead of calendar year, providing motorists new option to save money by reducing risk exposure through driving less Car Sharing: automated hourly neighborhood car rentals substituting for ownership, voluntary and converting virtually all fixed-vehicle ownership costs to usage-based fees Parking and Access Pricing Strategies o Parking Cash-Out: allows employers to offer option of receiving taxable cash in lieu of parking subsidy, providing employees incentive to find alternatives to drive-alone peak-period commuting o Variably Priced Metered Parking: price parking to achieve particular occupancy standard, few spaces always readily available o Pricing Off-Street Parking: parking operators sell passes for limited number of uses, or operators continue to sell monthly passes (perhaps at higher rate) and provide rebate for unused days; could include free transit, in which transit agency and parking operator agree to revenue apportionment scheme; monthly transit pass could also include few days of free parking as sales enticement Variable Port Access Charges for Trucks: trucks pay for privilege of transferring loads at port facility; rates vary to discourage peak-period use Vehicle Miles Travelled (VMT) Fees: Oregon s Road Usage Charge is an example; distance-based fees levied on vehicle user for use of roadway system 13. Federal Highway Administration. Project finance. Retrieved from Other Motor Fuel Taxes Environmental and inspection fees Minnesota: surcharge to pay debt service on bonds sold for roadway improvements Florida: State Comprehensive Enhanced Transportation System tax, portion of which used to fund transportation projects on adopted work programs in districts where tax collected Sales taxes Local Option Taxes and Fees Local Option Sales Taxes Vehicle Registration Fees Income/Payroll/Employer Taxes Property Taxes Local System Development Charges Local Development Impact Fees Local Transportation Operation Fees (appended to utility bills, etc.) Other Local Revenues Fares: user charge for public transit exclusively collected at local level Advertising: selling space on transportation facility assets Naming Rights: selling private sector right to name transportation resource such as toll road or transit station Shared Resources: private donations of telecommunications technology (principally fiber optic communications), and sometimes cash, granted in exchange for access to public rights-of-way; invaluable tool for states seeking to build technological backbone for intelligent transportation systems (ITS) Transportation Utility Fees (TUF): treat transportation networks like a utility, similar to other local services such as water and wastewater treatment financed primarily from user charges; many examples in Oregon Value Captured Revenue: part of land value created due to transportation improvement captured in form of revenue; revenue generated can help finance transportation improvement or go toward further transportation investment, spurring new round of increased accessibility and land value O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R

6 o Special Assessments: tax assessed on parcels identified as receiving direct and unique benefit as result of public improvement o Tax Increment Financing (TIF): special provision in state law allowing diversion of property tax increment derived from increase in property value over base year to pay off capital bonds for public improvements within TIF district o Development Impact Fees (DIFs): onetime charges levied on new development Developer Contributions: upfront contributions or periodic contributions paid over project duration Private Equity Capital: Long-term equity allowing increased debt coverage for any given revenue level, increased coverage improving credit worthiness of project debt; sources include overseas companies in specific business of owning and operating transportation assets, and US and international financial firms able to raise and manage large amounts of equity capital. Note: the preceding strategies represent supplemental, not primary, sources of revenue for transportation finance. CHALLENGES AND OPPORTUNITIES Considering the options provided by the federal government and available to the states and local jurisdictions, a few key initiatives could change the landscape of Oregon s transportation funding sources within the next few years. The uncertainty around a transportation funding bill in Congress should prompt states to identify and even create mechanisms around alternative financing sources. Additionally, any effort to generate new funding sources for transportation infrastructure will need to be coordinated with efforts to promote equity, reduce greenhouse gas emissions, and continue to manage transportation demand. One of the greatest challenges to transportation planners is coordinating projects from among various funding sources: for example, urban and rural, transit and roads, and alternative transportation funding sources are all separate, and the use of each may be restricted to specific purposes. Beyond exploring the options listed in the above table, policymakers should also prioritize legislating mechanisms that would enable planners to have the flexibility for accessing each of the transportation funding sources for multiple purposes, and to create combinations of funding sources for financing single projects. CONCLUSIONS Despite extreme challenges to financing transportation in the state, Oregon is a leader in the nation on innovative funding sources. Time will tell if potential risks of the Road Usage Charge outweigh its benefits for generating revenue and internalizing some of the negative effects of road use, but the fee has great potential for success. Important considerations with regard to the Road Usage Charge will be to monitor its acceptance and equitability, and to look for additional opportunities to implement user fees across the state. Congestion pricing is another promising source of transportation finance, and developments in the Road Usage Charge Program should be used to both assess and nurture the state s readiness for tolls with regard to public relations and infrastructure. 14 Commendably, Oregon is striving for an intelligent transportation system: with the existing and proposed user fees, and potentially with the additional innovative transportation finance sources as described in this paper, Oregon will not only mitigate the risk of insolvency but will also prosper in the new economy made possible through sustainable transportation funding. 14. American case studies on congestion pricing are especially helpful for states; in addition to the California (though dated), Washington and Minnesota examples provided in the Smart Growth America Innovative DOT Handbook, the following report on a congestion charge in Brisbane, Australia, could be more useful than an approximation to Europe: Liu, C. & Zheng, Z. (2013). Public acceptance towards congestion charge: A case study of Brisbane. Retrieved from O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R

7 RESOURCES Transportation funding options In addition to the FHWA s Project Finance website, several organizations have produced comprehensive lists of innovative options for transportation finance. The following may be especially useful for cross-reference: Caltrans (2013). Alternative transportation financing strategies. 1 This Preliminary Investigation focuses on identifying resources that address Mileage-Based User Fees (MBUFs; Oregon s Road Usage Charge is an example), P3s, tolling and road pricing, and debt and credit mechanisms. The report also identifies resources that discuss public perception and awareness of innovative transportation financing strategies, as well as a discussion of state DOT experiences with alternative finance. Smart Growth America (2012). The innovative DOT: A handbook of policy and practice. 2 More analytical than a comprehensive list, this handbook is most useful for its discussion of revenue sources (Focus Area 1) and pricing (Focus Area 3). Oregon s lottery-backed bonds and Road Usage Charge pilot are used as case studies of revenue, and the Washington case study on congestion pricing could be useful for Oregon in response to House Bill Other transportation finance websites. The following websites contribute some additional information to that provided by FHWA Project Finance sources: o Minnesota Department of Transportation. Alternative transportation finance. 3 o AASHTO Center for Excellence in Project Finance. Transportation funding & financing. 4 o FHWA Resource Center Innovative Finance Team Caltrans (2013). Alternative transportation financing strategies. Retrieved from 2. Smart Growth America (2012). The innovative DOT. Retrieved from pdf. 3. Minnesota Department of Transportation. What is alternative transportation finance? Retrieved from funding/innovative/. 4. AASHTO. Financing. Retrieved from 5. FWHA Resource Center. Innovative Finance Team. Retrieved from Congestion pricing Considering the application to Oregon of findings from the European Commission study on congestion pricing, as presented in the final report on HB and memo on the pilot, 7 DOT should ultimately implement additional congestion pricing pilot programs throughout the state. Washington has expanded its successful toll program, which would serve as an appropriate case study for Oregon on congestion pricing in metropolitan areas. 8 CITATIONS AASHTO. Financing. Retrieved from transportation-finance.org/funding_financing/financing/ Association of Oregon Counties (AOC, 2014). Agenda: Legislative committee meeting. Retrieved from Leg%20Agenda.pdf. Caltrans (2013). Alternative transportation financing strategies. Retrieved from newtech/researchreports/preliminary_investigations/ docs/alternative_transportation_financing_strategies_ pi_ pdf. Cambridge Systems, Inc. & CH2M HILL, Inc. (2009). Assessment of congestion pricing and HB Retrieved from congestionpricing/buxbaum_assessmentreport_2009.pdf. Congestion Pricing Advisory Committee (2011). Recent CPAC selection of congestion pricing pilot project. Retrieved from REGION1/congestionpricing/otc_cpmemo_ pdf. Federal Highway Administration. Project finance. Retrieved from FWHA Resource Center. Innovative Finance Team. Retrieved from teams/finance/. Liu, C. & Zheng, Z. (2013). Public acceptance towards congestion charge: A case study of Brisbane. Retrieved from S Cambridge Systems, Inc. & CH2M HILL, Inc. (2009). Assessment of congestion pricing and HB Retrieved from gov/odot/hwy/region1/congestionpricing/buxbaum_assessmentreport_2009.pdf. 7. Congestion Pricing Advisory Committee (2011). Recent CPAC selection of congestion pricing pilot project. Retrieved from Washington State Department of Transportation (2013). WSDOT Toll Division annual report FY Retrieved from wa.gov/nr/rdonlyres/348e3eed-1d8f-44cc-ac1e-2a9ebd45774f/0/ TollDivisionAnnualReport_FINAL_031114_WEB.pdf. O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R

8 Minnesota Department of Transportation. What is alternative transportation finance? Retrieved from Oregon Department of Transportation (ODOT, 2011). Budget Retrieved from gov/odot/comm/docs/budgetbooklet_11-13.pdf. ODOT. Oregon state highway VMT (in billions). Retrieved from VMT_Graph.pdf. ODOT. Oregon transportation options plan. Retrieved from ODOT (2013). Summary of transportation economic and revenue forecasts. Retrieved from gov/odot/td/ea/reports/dec_2013_forecast.pdf. ODOT (2014). What will happen to federal transportation funding? Retrieved from GOVREL/Pages/Federal-Funding.aspx. The Pew Charitable Trusts (2014). Funding challenges in transportation infrastructure. Retrieved from Smart Growth America (2012). The innovative DOT. Retrieved from documents/the-innovative-dot.pdf. Washington State Department of Transportation (2013). WSDOT Toll Division annual report FY Retrieved from rdonlyres/348e3eed-1d8f-44cc-ac1e-2a9ebd45774f/0/ TollDivisionAnnualReport_FINAL_031114_WEB.pdf. Weisman, Jonathan (2014). Senate approves veteran and highway bills. The New York Times. Retrieved from O R E G O N S O P T I O N S F O R T R A N S P O R TAT I O N F U N D I N G O A PA D E C E M B E R