Bacon's Rebellion

Democracy Thrives in Sunlight

More Sound Thinking about Transportation Financing — in Washington, Alas, Not Richmond

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by

James A. Bacon
in

The National Transportation Infrastructure Financing Commission is leading the way in re-thinking federal highway funding strategies. There is a consensus among the commissioners that the status quo is not sustainable, reports Ken Orski, publisher of Innovation Briefs, a transportation policy newsletter. The federal gasoline tax served well to fund construction of Interstate highways, but now that the highway system is complete, the United States needs a financing model responsive to new priorities. Writes Orski:

Specifically, the new financial model must allow the nation to compensate for years of underinvestment and deferred maintenance, modernize existing highway facilities, improve system performance, relieve highway congestion and expand road capacity in high growth areas and critical commerce corridors. …

The Commissioners appear prepared to recommend reducing future reliance on petroleum-based fuel taxes in favor of a more diversified revenue model involving road user fees, tolls, private capital, congestion pricing, public-private partnerships and the use of new revenue collection technology. There is also a sentiment among the Commissioners that fees paid by road users should reflect more closely the costs they impose.

With Congress addicted to pork barrel politics and transportation earmarks, there’s no assurance that NTIFC ideas will ever be implemented at the national level. But the Commission’s logic applies equally well to the financing of state road programs. The user-pays financing principles articulated by the NTIFC would have been vastly preferable to Virginia’s recently enacted hodge-podge of taxes, levies, fees and General Fund surpluses by drivers are subsidized by non-drivers.

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21 responses to “More Sound Thinking about Transportation Financing — in Washington, Alas, Not Richmond”

  1. Larry Gross Avatar
    Larry Gross

    One of the bigger issues in Virginia, in my opinion, is the status quo expectation of many localities that no matter what kind of land-use they approve – that they are not responsible for the traffic consequences – and instead VDOT is responsible.

    Imagine.. any locality… approving major land-use changes with significant traffic impacts – doing those approvals in a vacuum and fully expecting VDOT to deal with the consequences no matter the infrastructured required or the cost of that infrastructure.

    Folks can argue about “who should pay” but at the end of the day – an answer of “no one” and “we’ll not do the infrastructure but expect VDOT to do it” is … just plain irresponsible.

    The related idea that the “State must step up to the plate” is another bogus concept because “the State” is … taxpayers.

    So what is really being said is that folks who live in an area where they are approving development – are expecting other taxpayers outside of their area to “step up to the plate”.

    then the third lame concept is that some areas and regions “deserve” to have their infrastructure paid for by folks outside of their area because of their “contributions” to the economy.

    Even if there was a way to keep a truly balanced ledger – it’s the idea that having a disconnect between land-use decisions and transportation consequences is really what is desired by many localities.

    Holding them accountable for the two – in tandem – will, in my view, go a long, long way towards forcing localities to accept responsibility for their actions and in turn focus attention on what projects will be needed .. and more important – where the funding for them will come from.

  2. Anonymous Avatar
    Anonymous

    “Specifically, the new financial model must allow the nation to compensate for years of underinvestment and deferred maintenance,”

    In a nutshell this is what is wrong with demanding transportation proffers for new construction. At least some of this amounts to a sneaky and dishonest way for us to transfer what should have been our costs to a smaller group of new users.

    RH

  3. Larry Gross Avatar
    Larry Gross

    Again – RH gets it wrong – as usual.

    Proffers are for NEW construction for NEW residents.

    In other places – these fees are called Impact Fees but the logic is the same.

    and they really are no different in concept than new residents having to pay for water/sewer connections.

    If we followed the anti-proffer logic – we’d have water/sewer connections provided by existing taxpayers no matter how much or how fast the growth rate.

    Proffers – by the way – cannot be used by any county.

    The county has to be experiencing a high rate of growth – and that is the difference.

    In the days when the growth rate was small – existing taxpayers could and did pay enough in taxes to build infrastructure – at a rate that could be accomodated by reasonable property taxes.

    When the growth rate is high, however, you have to build large amounts of infrastructure in such a short amount of time as to force extremely high property taxes to pay for it.. and that, in turn, would actually harm fixed-income folks as well as modest-income folks like teachers and deputies and service workers.

    Proffers.. in high-growth areas are a reasonable and fair way to equitable share costs between new folks and existing folks.

  4. Anonymous Avatar
    Anonymous

    Not if the total transportation costs have artificially been raised by existing folks through years of underinvestment and deferred maintenance. Any new funding mechanism needs to take that into account.

    Once those funds go into the pot, how do you know if they get spent for new infrasturcture or to upgrade old infrastructure that should have been fixed anyway?

    All I said was that at least some of this amounts to a way to transfer costs to others. We see the same thing in homewonwers associations: they have not assessed themselves enough to maintain the communities amenities, so they resort to intiation fees, which only apply to new members.

    I agree that existing owners should have some protection from suddenly rising taxes, but economists have studied proffers and impact fees, over and over, and concluded that they are a bad mechanism.

    That economic reality has yet to percolate through the political BS.

    RH

  5. Anonymous Avatar
    Anonymous

    “In the days when the growth rate was small – existing taxpayers could and did pay enough in taxes to build infrastructure – at a rate that could be accomodated by reasonable property taxes.”

    Did they really? Or is it that becasue the rate of growth was slow they had a long time to adjust to the gradual deterioration? The sudden changes in growth also cause sudden changes in our perception.

    Anyway, demanding proffers and impact fees is the cheap way out, politically. It is easy to demonize developers, and easy to put new taxes on people who are note here to vote yet.

    It is a lot harder to go study the imput-output tables and figure out where the money really comes from and where it really goes, especially when you have to do it over decades to account for intergenerational transfers.

    On the other hand it is not so hard to just be reasonable and fair. To recognize that existing residents are part of the transportation problem, too. To recognize that heaping more, new, and nowadays larger, costs on a smaller pool of victims is going to result in obvious distortions.

    RH

  6. E M Risse Avatar
    E M Risse

    Before this string gets too far down the proffer discussion cul de sac, two points are important to make:

    What is “unsustainable” about the current infrastrutre and ways to fix the current transport system is the fact that is relies on LARGE, PRIVATE vehicles to provide Mobility and Access in New Urban Regions.

    That is NOT sustainable regardless of how (or with how much) it is funded.

    Second: Ken O is crafty. He has been called the Ellsworth Tooey of the Road Gang and the Great Fuzz Ball by developers but he is one of the most crafty spokespersons for Business – As – Usual.

    Watch out for the spin.

    EMR

  7. Anonymous Avatar
    Anonymous

    You won’t get any argument out of me that our private vehicles are not too large.

    But we still need our roads to accommodate large public vehicles, buses, fire trucks, and delivery trucks.

    A conventional bus weighs over 15 tons, so unless you keep it pretty full, you don’t gain all that much on the mass moved per passenger front, especially if the bus now has to make a lot of stop and go and circulator movements. It just isn’t all that efficient.

    Even if it is true that what we are now doing is not sustainable with current technology, what we don’t know is how long before the sustainment runs out, or how long that can be forestalled with new technology (or new patterns of settlement).

    Then, we still don’t know if whatever we (eventually) replace current practices with will be any more sustainable or less expensive.

    To say what we are doing now is not sustainable is a nice way to wave the impending doom flag, while wearing the mantle of environmentalism. It doesn’t offer any alternatives that we can prove are real, measurable, options that will improve the net social worth.

    One measure of sustainable is that you can meet all you needs with the amount of energy that falls on the space you occupy. We can make “sustainability” a commodity that we can export and import. Our cities, for example, may be “sustained” by importing solar power from spaces in the desert, just as they are now sustained by using the space previously occupied by plants that became fossil fuel.

    If we allocate sustainable space on that basis, then suddenly cities look a lot less efficient.

    If you are suggesting that we can eliminate the need for large private vehicles by living in smaller spaces and using large public vehicles, and thereby be more sustainable, you may want to re-think that argument.

    Any way you slice it, sustainability is going to mean that we need huge chunks of infrastructure, and lots more space.

    RH

  8. Larry Gross Avatar
    Larry Gross

    Don’t take my word for it.

    Go check the Virginia Code with respect to what jurisdictions are allowed to ask for proffers – and, more important – why.

    The reality is .. that if a jurisdiction grows at a slow rate – the existing residents can put aside a small amount of their taxes every year to pay for new infrastructure.

    But when the growth rate accelerates – the same amount of money set aside no longer can keep up with the scope and scale of what is needed.

    and that is the reason why the “high growth” counties have – been permitted by the GA to use proffers.

    Again – harking back to the days when we should have been charging impact fees and proffers – and were too shortsighted to do so – is no justification at all for continuing a practice that was wrong at the start.

    RH uses the same logic for environmental laws. His view seems to be that if something used to be allowed but is no longer … that it is wrong to make the law more restrictive – even though we know it was not restrictive enough to start with.

    In other words.. we cannot correct for past mistakes.. no matter what – because it means that some folks got a free ride and that’s not fair to the current folks – when you take the free ride away.

    With this kind of logic – applied to businesses – who originally sold abestos or mercury-laced products.. or folks who used to dump motor oil in ditches – we can’t change the law – because it would not be fair to existing folks if they could not do what folks 20 years ago did.

    Proffers pay for infrastructure for new folks. It’s a fair and equitable allocation of costs. User pays – if you will.

    The fact that we did not always do this – is, in fact, the reason why we now have a deficit.. and have to catch up – and EVERYONE has to pay more… to catch up – not just the folks who pay limited proffers just to deal with their immediate development.

    Again – the reason we are behind is that localities .. approved significnat transportation-impacting land-use changes WITHOUT charging impact fees and proffers – and they did so with the idea that somehow – VDOT would pay – no matter how much or even if the money was more than the locality actually contributed through their gas tax.

    It was a pyramid scam… where localities pretended that they could approve any level of development and VDOT and the rest of the taxpayers in Virginia would pick up the tab.

    In the end – new residents – have a responsibility to pay for their share of the infrastructure that they need (and will use) … such as water/sewer, and roads and schools.

    and I’ll point out again.. if a development was totally private – and not requiring any taxpayer-provisioned roads, water/sewer, schools, fire/rescue, etc.. then the purchasers of those homes WOULD be paying for the infrastructure and proffers/impact fees would not be part of the conversation at all – and for good reason.

    Why not require EVERY new development to pay ALL of their infrastructure needs?

    what is the justification that they should not besides the lame canard that ..that’s the way it used to be?

  9. Anonymous Avatar
    Anonymous

    That is a complete mistatement of my arguments. All I have said is that once investments have been made, under rule of law, it is incumbent on the law to ensure those investments are protected when new rules occur which damage those investments, notwithstanding any previous deficiencies in the law.

    If you create a law that makes 100 people better off by a dollar, and one person worse off by ten dollars, then surely we can find it in the goodness of our heart to accept 90 cents and make the one loser whole. It makes no difference whatsoever that the previous law was deficient.

    He made investments that were legal at the time with our tacit approval. To later change the rules without compensation is exactly equivalent to stealing, no matter what the supposedly altruistic reason for the theft. It is exactly like Venezuela nationalizing American oil intersts, only worse.

    On the other hand if you make a law that makes 100 people better off by a cent and costs one person ten dollars, then you can’t justify the new rule by claiming a savings to the taxpayers.

    It’s also a lot different when you require someone to stop doing harm and when you require him to do good without pay. Or if you fine him for not doing what you wish done. I believe we have gotten fuzzy about which is which through various kinds of convoluted and self serving thinking. If we allow that to continue, then the danger to our freedom will be far more dangerous than some minor environmental problems we solved selfishly.

    ————————-

    I understand about proffers, where they are allowed and not. I also claim that we have been paying for insufficient infrastructure and allowing for deferred maintenance for many years.

    Just like the HOA’s we are making up the difference by charging what amounts to initiation fees to join our communities.

    I agree that existing residents need some protection when massive capital costs cause short term problems.

    But we are fooling ourselves if we think that proffers mean the new residents and developers are going topay the bill for us.

    When the proffers are not designed to pay for infrastructure, but to prevent development outright, then we are lying to ourselves.

    The only differnce between my position and yours is that n the end – new residents and existing – have a responsibility to pay for their share of the infrastructure that they need (and will use) … such as water/sewer, and roads and schools. There is no evidence whatsoever that existing residents have paid enough over the years, and no evidence that they won’t still use the infrastructure.

    On the other hand, there is strong evidence to suggest that those who have not developed over the years have been paying more than their share, that existing residents are getting and have been getting a free ride. Officials in my county regularly profess that the need to keep these farms because they keep our taxes low. (Our taxes being everyone but the farmers of course.)

    When that situation comes to an end, and some landowner wishes to develop, we conveniently forget about both the upfront money he has been paying for decades, and we forget that we haven’t been paying enough.

    I don’t know what the right balance is, all I’m suggesting is that we at least consider these issues. To simply refuse to recognize that they exist is snarky and dishonest, in my opinion.

    On the other hand, why not require every new developer to pay ALL of his infrastructure needs? Three reasons: once he pays for them they belong to him. Every gated community would be free to charge tolls etc. We could revert to the era of walled cities and fiefdoms. If we set a price for infrastructure and say fine, you pay one hundred percent then we would also have to pay off all our existing loans, without the help from new residents.

    Finally, if we really charge them 100% we lose most arguments against preventing development we don’t like and don’t want. If we set a price that covers all externalities, then why wouldn’t someone who pays that price be permitted to pollute at will?

    RH

  10. Larry Gross Avatar
    Larry Gross

    geeze Ray .. I don’t know where to start…

    …”Three reasons: once he pays for them they belong to him.”

    no they don’t. he/she pays the proffers for the development and THEN… they are passed along to each buyer… as they should be and then the locality uses that money to build schools for the kids of the folks in that new development.

    It’s the same exact concept as water/sewer hook-up fees.

    Do you think water/sewer is done fairly? Do you think existing residents should pay for the water/sewer hookups for new folks?

    on what basis would you support hookup fees for water/sewer and not for other infrastructure to serve the same folks?

    … you say.. there is no evidence that existing residents won’t use the new infrastructure…

    Ray… hello??? new folks pay proffers for new schools… that are needed if their kids are going to have a seat to sit in…

    new folks pay .. for that new fire station.. that they will need if their new home catches on fire…

    new folks pay for that new road entrance into their subdivision and expansion of the local roads that they will need to use..

    then you argue.. that proffers are wrong.. because they “might” be misused.. instead of what they were intended for…

    Ray.. HELLO???? you can make this argument about ANY tax… or fee…

    using your logic.. we should not pay any tax or fee because it “might” be not used correctly.

    your arguments – if implemented – would result in disaster… for infrastructure and services for EVERYONE.

  11. Anonymous Avatar
    Anonymous

    Well, ther is the difference.

    I figure if I buy it, I own it.

    You figure if I buy it, you own it.

    RH

  12. Anonymous Avatar
    Anonymous

    THEN… they are passed along to each buyer…

    Actually, that is only part of what happens. He builds the infrastructure, and add his profit on the top. Economists will tell you that about half of the added cost is assed along to the buyers. The new higher cost of homes is soon reflected in the value of older homes, so the protection gained from demanding proffersis quickly reduced.

    The other half comes out of the seller of the land, because the developer is not willing to offer as much when his risk is higher.

    So, after paying taxes on empty land for decades, getting no services, and subsidizing his neighbors who built early with no proffers, the late land seller gets hit with half the cost of the proffers.

    “new folks pay .. for that new fire station.. that they will need if their new home catches on fire…”

    and now the folks who were there previously have twice as much protection in case of multiple alarm fires, and they pay nothing.

    It isn’t my idea that proffers are a bad thing. Go read some economics. Even I don’t claim they are all a bad thing, but I do see how they can be and are abused, which is something you refuse to consider.

    RH

  13. Larry Gross Avatar
    Larry Gross

    Ray – do you know WHY water/sewer is characterized as an “availability” fee?

    You don’t own the lines even though you pay a substantial fee to have them connected to your home.

    what you (and I) “own” is the right to use the service (provided you pay the monthly useage charges).

    the same would be true of .. say paving a subdivision road and each homeowner paid his/her share of the paving.

    We don’t own the road and what we’ve paid for – is the right to use it.

    for that matter, we don’t own the fire station or the library or any other infrastructure/facility that was purchased with our property taxes.

    so…no..just because you “buy” does not mean that you own it.

  14. Anonymous Avatar
    Anonymous

    The real mistake here is that you think that only the new people benefit from or use new infrastructure, and therefore only they should pay for it.

    But, it is right up there in the quote, not my quote, that we have undinvested and deferred maintenance for years.

    It isn’t my quote, even though I’ve made the same comment previouslly. That makes at least two people who think that way.

    If that comment is true, that we have underinvested and deferred maintenance for years, then it is dishonest to foist all the cost off on the newcomers. Aside from that, it is the cowardly way out to tax people who have no representation.

    It is like walking into a card game, changing the game, changing the deck, and not contributing to the pot.

    No one is saying here that newcomers shouldn’t pay their fair share, just that existing owners don’t get off scott free. All I’m saying is that maybe someone should look at the input output tables on this a little more carefully.

    The only reason you can be so stressed about this is that you know that the results might not work out as far in your favor as you would like.

    And, hey, I’m an exiting owner being stung with higher taxes same as you. We are in the same sinking boat. I’m just not willing to make those who are still in the water pay an extra fee to climb on board. I don’t think it is right.

    You think they will make us sink faster, and I think we’ve got another hand to help us bail.

    And, don’t be surprised that if you stick them with high assessments, high home costs, and high taxes, that they are going to want gold plated services.

    By underinvesting and deferring maintenace we’ve got what we paid for. But those new people paying full freight are going to expect to get what they pay for.

    RH

  15. Larry Gross Avatar
    Larry Gross

    RH – read the title of this thread.

    EVERYONE will pay …

    re: “dishonest to foist all the cost off on the newcomers.”

    this is not the case.

    new folks pay for new schools and this is ONLY the building itself.

    EVERYONE pays the salaries of the new teachers – which – if you check it out – is much, much more than the cost of the building.

    new folks pay for NEW water/sewer but EVERYONE pays for the operation and maintenance of same.

    EVERYONE also pays for new roads via their gas taxes AND in those counties that use bonds for new roads – EVERYONE does pay.

    Proffers/impact fees cover a small, limited area where the new infrastructure is usually focused on the new development – for instance – proffers can and are, quite often – a school site and a monetary contribution that does not cover all the construction costs – and the county through it’s existing taxpayers picks up the rest of the cost.

    You focus so much on the idea that someone “might” be getting more than they paid for.. that we should never charge new folks for new infrastructure because they might be paying “more” than they should.

    the simple fact is that if we implemented policy according to you – existing residents would have to pay for all infrastructure no matter what the growth rate.

    I have never heard you say – exactly how the infrastructure issue should be handled in high growth areas.

    Put something on the table that addresses this.

  16. Groveton Avatar
    Groveton

    Ray and Larry –

    Both of you put forth arguments about the cost of infrastructure. You also argue about the possibility that people living in one area are passing on the cost of infrastructure to people living in a different area.

    All of this would make sense if everybody were taxed equally. However, that is not the case.

    If you want to argue fairness – you have to take total taxes paid by the residents of a community and suntract the total cost of government services provided to that community. If a community is paying more in total taxes than it is receiving in total services – then it is not “ripping off” anybody. In fact, the communities that pay less in total taxes than they receive in total services who are “ripping off” others.

  17. Groveton Avatar
    Groveton

    And … neither of you have any idea as to which communities generate tax – services surpluses and which have tax – services deficits. Until these facts are found all arguments about community vs. community “fairness” are bs.

  18. Larry Gross Avatar
    Larry Gross

    re: net donors and net recipients.

    are we talking about the State Income Tax .. or the local Property Tax?

  19. Larry Gross Avatar
    Larry Gross

    re: proffers, impact fees, adequate public facilities, et al

    You know.. any developer can make any proposal to a locality – and that includes changing the Comp Plan and the designated zoning/land uses – and any locality is free to accept.

    If a proposal had zero impact of local infrastructure – i.e. a gated community .. totally self-contained -there would be no argument – and no reason for the proposal to be turned down.

    and such communities _have_ been built….

    Imagine .. any/all growth proceeding in this fashion…

    what would be the problem with that?

    we’d have a genuine “user pays” culture – and no reason to oppose growth…

    and then we could get on to Groveton’s issue of why the State takes money from Fairfax and gives it to Galax….

  20. Anonymous Avatar
    Anonymous

    I agree, Larry, and this is the gist of my comments above. Zoning regulations should be frealy alienable and fungible. If a community claims that each new home costs them $2500 extra a year in services, then anyone willing to pay that extra amount should be free to build. Or, if someone builds a very expensive home that pays far more in taxes than the average, he should be free to build.

    But, that isn’t the case, and you know it. If a community decides they want to keep your open space, then they will keep it, at your expense, and use proffers etc. as an excuse.

    The fact is that any developer can make any proposal, and be turned down. One developer made fifteen seprate proposals to a community concerning a parcel of lannd. Each time the community said, “You need to give us a little more.” Each time, he did, until there was nothing left to give.

    At that point, he sued and won. However, such suits are forbidden until every administrative path has been exhausted. Usually this means that the transaction costs are so high that there is no point in proceeding.

    As it stands, the community is free to make any demands it wants concerning infrastructure, or the costs thereof, and the landowner has no way to discover if they are real.

    So, even if your proposal (which I agree with) were to come to pass, we would still need procedutres which are fair, transparent, and predictable. What we have now are procedures that are political.

  21. Anonymous Avatar
    Anonymous

    Groveton:

    I’m not sure I understand what you mean.

    We hear a lot here about locational costs, and I agree with you that these are too ill defined to argue over.

    Now, if you are talking about communities within the county, certainly some are more tax positive than others. The county argues that any home valued at less than $750,000 is tax negative. Since the avrerage home is only around $250,000, there must be alot of tax negative places. (This was a few years ago, when the average assessment, jumped to $350,000 the breakeven point also magically jumped to over a million.)

    Apparently, the county gets to that figure by dividing the budget by the tax rate to come up with an assumed assesment that would cover the bills. But, it turns out that real estate taxes are only one-third of the county’s revenue stream. So, if you divide the magic $750,000 figure by $250,000 you get – 3.

    So then you have to figure out where all the rest of the money comes from. Fees, kickback from the state, fines, BPOL, etc.

    And, how it is spent.

    Even if you figure there are some areas where housing is will below average and other areas well above, it doesn’t necessarily follow that those areas are more tax negative, even though it seems intuitively right. But if the “community” is the entire county then none of this matters.

    I think that, in general, a lot of this comes out in the wash and inequities are too small to consider. Even if you could identify the inequities, you probably can’t squeeze more out of some people – they just don’t have it.

    My beef with Larry is that he makes too much out of the inequities, and apparently considers them to be an assault on his own pocketook. His solution is to put more of the costs on smaller and smaller groups – any group that he can identify himself as not being a part of. But the smaller the base the more painful the fix and the greater the likely inequities. At the same time, we know that the person who initially pays a tax or fee isn’t the ultimate payor.
    to the the extent that is true, what goes around comes around, and we are kdding ourselves if we think “the other guy” is going to pay.

    On the other hand, there are some widely recognized problems, which we seem prepared to accept, even welcome. My usual example is the widely publicized claim that farms and open space pay twice as much in taxes as they recieve in services. Clearly, if we really wanted to save and conserve farms and open space, we would want to fix this disincentive.

    But there are plenty of other examples.

    Then there is the issue of when the “community” is larger than the county, and you get into the discussion of donor vs reciever counties and NOVA vs ROVA.

    I think it comes down to this. Larry thinks the user should pay, as long as it is someone else.

    I think that user pays is a bad idea becasue the transaction costs are so high that they outweigh the benefits. However,IF, you can fix that problem, and IF you make the arguments as to who pays what universal, THEN it might work.

    BUT I suspect that Larry and many others would not like the result. When they don’t get the desired result, then they will invent a whole new set of assumptions, designed to support new disincentives, until they get the desired behavior.

    I suspect that the argument is as you say, based on things we don’t know and can’t, or don’t, measure. In other words, we are prone to notice evey one elses externalities and ignore our own.

    If I seem to be arguing in favor of a strict user pays regime, it is to show the absurdities that result if you take it to its logical extreme.

    RH

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