|After the Transportation Blueprint:
Developing and Funding an
|Growing population, urbanization, and overall driving are increasingly straining the state's highways. At the same time, transportation revenues are not growing as rapidly as demand. As a result, there is a "gap" between revenues and demand. This gap has been reduced by the increased use of local sales tax revenues for transportation, the authorizations for which will expire between 1998 and 2010. Failure to reauthorize these measures which generate more than $1 billion per year means that the gap between demand and revenues will widen.|
However, the Blueprint's program funding levels have not been realized thus far, due to lower than anticipated revenues and unanticipated expenses (primarily seismic retrofit of highways and bridges). Meanwhile, California's transportation system is coming under increasing strain from growing population, per-capita driving, and urban expansion, resulting in growing traffic congestion. The increasing congestion, and resulting loss of mobility, reduces both the quality of life for California's residents and the economic health of the state's businesses.
In order to achieve a more efficient use of existing revenues, the Legislature recently enacted
Chapter 622, Statutes of 1997 (SB 45, Kopp) to further refine the state's transportation policies.
Unlike the earlier Blueprint, Chapter 622 does not increase transportation taxes, focusing
instead on encouraging more productive use of existing revenues and on providing more local
develop transportation systems that reflect local priorities. Its major features include:
In this report, we recommend additional changes focusing on state policies for capital outlay expenditures to improve the transportation system (primarily roads and highways, but also including transit capital outlay). Specifically, we discuss ways for the Legislature to:
While the prior individual programs limited flexibility by creating discrete, constrained funding for different types of projects, the two new, consolidated programs will provide greater flexibility in the use of transportation funds. As a result, transportation planners will be able to select transportation improvement projects--including the most cost-effective projects or those with greatest community support--without being constrained by the availability of funding in individual programs.
Although the new, flexible Regional Improvement program is intended to fund a wide variety of transportation improvement projects, Article XIX of the California Constitution continues to impose a barrier against funding transit rolling stock (such as acquisition of buses or rail vehicles). This is because Article XIX restricts the use of fuel tax (gas and diesel tax) revenue to only (1) construction, maintenance, and operation of roads and highways; or (2) construction and maintenance of mass transit guideways (mainly rail tracks).
While acquisition of transit rolling stock can qualify as a Regional Improvement project, the
number of such projects is constrained by the
availability of state funding that is not subject to Article XIX, mainly funds from the Public Transportation Account (PTA, formerly the Transportation Planning and Development account). However, annual PTA revenues are limited and unpredictable, which both constrains and complicates long range planning for transit improvement.
Growth in traffic congestion shown in Figure 1 reflects both the spread of congestion to
previously uncongested roads and an increase in the number of congested hours per day on
already congested roads. While traffic congestion has increased, California has added relatively
little new highway capacity--just 3,250 lane-miles (a 7 percent increase) over the past 20 years. In
this section we discuss how the structure of the state's traditional revenue source--the gas tax--results in transportation revenues that grow less rapidly than demand, thus limiting the state's
ability to construct additional transportation improvements.
State and federal transportation revenue, however, has lagged behind growth in demand factors. Figure 2 shows that in 1997-98 state and federal fuel economy results in the consumption of less fuel and the generation of less gas tax revenue per mile driven. In addition, the value of the slow-growing revenue is eroded over time by inflation. The federal fuel tax, currently 18.3 cents per gallon, suffers from the same type of erosion.
As Figure 2 shows, during the 1970s high inflation reduced the real value of state and federal transportation revenue, even as VMT grew. In response, the Legislature increased the gas tax from 7 cents to 9 cents per gallon in 1983, but during the 1980s, inflation and increasing fuel economy again kept revenues from growing at the same rate as VMT. Revenues finally caught up with population growth in 1991-92 as a result of a 100 percent increase (from 9 cents to 18 cents per gallon) in the state gas tax that was phased in from 1990-91 through 1993-94 as a result of the Blueprint legislation. However, as Figure 2 illustrates, growth in state and federal transportation revenues still lagged behind VMT growth.
In addition, the cost of constructing highway improvements--especially in urban--are as has increased faster than the rate of inflation. Highway construction in urban areas brings unique challenges including--acquiring right-of-way, accommodating existing traffic during construction (sometimes requiring night work), and cleaning contaminated construction sites--all of which increase project cost. In addition, community involvement that is allowed by state and federal law can result in design modifications that affect project cost--such as rerouting, soundwall construction, or landscaping. Finally, additional expenditures may be required for environmental mitigation measures to offset damage caused by project construction. All of these factors reduce the "purchasing power" of each dollar of transportation revenue, because it now costs more to provide a given amount of new transportation capacity.
Counties use these local transportation sales tax funds for purposes similar to state and federal transportation funds. This includes primarily expansion of the state highway system, including construction of lane-additions and short connecting highways, improvements to local roads, and construction and expansion of rail transit systems. In 1996-97, local transportation sales taxes generated about $1.2 billion, while state and federal gas taxes provided about $5.3 billion.
Although sales tax measures have allowed local governments to augment available state and federal transportation funds, their future is uncertain. Most of the tax measures were authorized for either 10 or 20 years and will expire between 1998 and 2010. Voters can reauthorize the tax measures, but this is made more difficult by (1) a 1995 court ruling (Santa Clara County Transportation Authority vs. Guardino) that determined that transportation sales tax measures must be passed by a two-thirds vote, rather than a majority vote; and (2) Proposition 218 which further clarified the two-thirds vote requirement. Of the 17 measures, only two--San Benito and Riverside Counties--received greater than a two-thirds vote. At this point, it appears that sales taxes passed prior to Guardino will remain in effect until their planned expiration date unless a court determines that Guardino should apply to, and invalidate, existing sales taxes. All new or reauthorized local transportation sales tax measures will now require a two-thirds vote, and many local transportation officials believe that it will be difficult to meet this vote requirement. Failure to reauthorize these measures means that the gap between demand and revenues would widen, putting increased pressure on the state for additional funding.
California's highway system faces future challenges including continuing population growth, expanding urban areas, growing traffic congestion, increasing costs of transportation improvements, and the gap between growth in VMT and revenue. In view of these challenges, the Legislature should not only focus on policies to increase the "supply" of transportation capacity, but also on policies that reduce the growth in demand. In this manner, the Legislature can adjust both sides of the equation in order to strike a balance that considers both the benefits derived from accommodating transportation demand and the costs of supplying transportation capacity.
Striking a balance between increasing transportation supply and reducing demand requires difficult policy choices and a critical evaluation of the objectives of the state's transportation system. Traditional supply-based policies accept growing transportation demand as inevitable and seek strategies to accommodate that growth. Balancing supply and demand, however, requires policy decision--simplicit, if not explicit--about the level of transportation services that the state will provide, and then requires strategies to reduce demand and make the system operate efficiently.
Unfortunately, Caltrans' California Transportation Plan, completed in 1993, does not address these questions in a manner that provides useful guidance for evaluating transportation investment policies. The plan includes 88 recommendations, ranging from narrow, specific recommendations such as "expand express bus service and facilities," to broad recommendations such as "place maintenance as a priority" and "reduce congestion." Because the recommendations are unfocused and uncoordinated, providing no overall strategic approach to transportation investment, the plan can be used to justify virtually any transportation expenditure. Thus, it provides little direction or guidance on larger policy questions such as:
Priorities for System Improvements. To assure cost-effective system development, the California Transportation Commission, Caltrans, regional and local transportation providers should adopt the following priorities for system improvements: (1) reduction strategies; (2) operational improvements to increase efficiency of the existing system; (3) actions to shift from single occupant vehicles to other modes; and (4) new facilities.
This recommendation represents a dramatic departure from current practices--state policy currently places little if any emphasis on reduction. However, the plan does not discuss how this policy might be implemented or what its effects might be. By presenting this policy without further interpretation or discussion, the plan leaves unexplored questions such as:
Without more thorough analysis in the plan, this fundamental recommendation has limited impact in shaping transportation investment policy.
The California Transportation Plan should serve the Legislature as a guide to developing long-term transportation investment policy and balancing demand restraints and supply increases. While the plan is being revised, however, the Legislature should begin to address both demand and supply. In the following sections we discuss steps that the Legislature can take both to restrain demand as well as to increase supply.
For example, enhanced mobility allows people to live in less expensive housing further from work and to make more shopping or leisure trips, and allows businesses to locate further from suppliers and customers. Thus, as long as drivers desire more mobility than can be accommodated by the existing system, increases in "supply" (the size of the road system) will be consumed by drivers. Ultimately, road use will increase, leading to congestion of new road capacity. For this reason, expansion of the transportation system will rarely alleviate congestion permanently; however, by restraining transportation demand this tendency can be offset and existing congested roads, as well as new roads, can be made to operate efficiently.
Restraints on Driving. Driving behavior is not fixed, but is the result of individual decisions in response to economic factors. As Figure 2 shows, over the past 25 years Californians have made decisions that resulted in increased per capita driving. Drivers make these decisions in light of constraints on money (which driving consumes through fuel and other vehicle costs) and time (which driving consumes in greater amounts when trips are longer or roads are congested with traffic). When driving consumes too much money or time, drivers are likely to seek ways to reduce driving, such as combining trips, carpooling, walking, using transit, and shopping by mail.
In many urban areas, heavy traffic congestion--which makes trips more costly in terms of time--is the major constraint on further growth in driving. Because congestion, rather than money, is the constraint, new capacity that reduces congestion will be quickly filled and ultimately congested again. However, it is possible to reduce overall growth in driving so that new road capacity, or even current road capacity, will operate more efficiently. The overall growth in driving can be reduced by:
Using tolls to generate transportation revenue is one way to reveal costs to drivers, because tolls for each road can be set according to its construction cost and congestion conditions. Although toll financed roads are not as widely used in California as in some other states, tolls have been used to finance the construction, operation, and maintenance costs of ten major highway bridges in the state. More recently, California has begun to use tolls to finance construction of new highways. In Orange County, for example, there are currently three toll roads in operation, two operated by the public Orange County Toll Corridors Agency and one operated by a private owner under the terms of AB 680 (Chapter 107, Statutes of 1989) (described below). California's new toll roads collect tolls electronically, eliminating the need for drivers to stop at toll booths.
Even greater efficiency in road use can be achieved by adjusting tolls according to specific conditions on each road at different times of day--higher on busy roads and during peak hours, and lower on less used roads and during off peak hours. This type of variable time-of-day pricing is currently in use on the State Route 91 Express Lanes (these are toll lanes next to nontoll lanes) in Orange County. By adjusting tolls in this manner, it is possible to maintain free-flowing traffic under varying demand conditions. By raising tolls during peak hours, some drivers will postpone trips, take alternate routes, carpool, use public transportation, or change destinations; and remaining traffic will flow more smoothly.
When tolls are increased to eliminate congestion, some drivers--especially those that drive during peak hours and on the most congested roads--will pay more than at present. At the same time, the need for additional capital outlay expenditures to expand the highway system will be reduced. As a result, there could be a surplus of toll revenue that can be used for improvements in other areas, expansion of transit, or to offset and reduce the need for additional transportation revenue.
Expanding the use of tolls has the potential to increase transportation costs for low-income drivers, either increasing the share of income spent on transportation or reducing their transportation options. There are several ways to ensure that low-income drivers do not suffer reduced mobility as a result of toll roads. Where tolls generate surplus revenue (in excess of the amount needed to pay for road construction and maintenance), surplus funds could be used to expand transit or subsidize transit operations to reduce its price. Also, welfare recipients could be provided a monthly transportation subsidy in the form of toll credits, which would be electronically deducted from their accounts when they use toll roads. Low-income drivers who do not receive welfare benefits could be provided reduced "lifeline" toll rates, similar to the reduced lifeline telephone and energy rates.
Legislature Should Expand Use of Pricing on Pilot Basis. While a sudden shift to the widespread use of road pricing is not currently feasible, there are opportunities to expand the use of pricing through a pilot program whereby the effectiveness and impact of road-pricing can be assessed. Such a pilot program should consist of two components--with one component being an extension of an existing demonstration program.
Specifically, in 1989 the Legislature enacted AB 680, authorizing Caltrans to award franchises for the construction and operation of four privately owned toll roads. Eight years later, one of these projects--the State Route 91 Express Lanes project in Orange County--is operational and appears successful; however, progress on the remaining three projects has ranged from slow to none. A toll road project on State Route 125 in San Diego County is still undergoing environmental review, but may eventually be constructed. The final two projects have seen no progress and are essentially dead due to community opposition, environmental, and financial issues.
The limited success so far of AB 680 toll roads is due not to a failure of toll financing, but rather to developers' lack of experience and overambitious project scope. In order that the state can better test the feasibility of toll financed highway development, we recommend that the Legislature direct Caltrans to (1) terminate the franchise agreements for the two dead projects and solicit new project proposals, (2) place the State Route 125 project on a schedule to show progress towards construction or similarly lose its franchise, and (3) report to the Legislature evaluating the AB 680 projects, including their effect on low-income drivers, how any adverse impact can be mitigated, and lessons for future toll road development.
High Occupancy Toll (HOT) Lane Pilot Program. As another component of the pilot program, we recommend that the Legislature authorize a program to investigate the feasibility and congestion-reduction benefits of HOT lanes. The HOT lanes are similar to traditional High Occupancy Vehicle ([HOV], or carpool) lanes, except that non-HOVs can pay a toll to use HOT lanes, while they are barred from using HOV lanes. This allows more effective use of the excess capacity that sometimes exists on HOV lanes, and provides a source of toll revenues that can partially or fully offset the cost of constructing the HOT lane. The private State Route 91 Express Lanes are HOT lanes that are free for vehicles that have three or more riders. The success of this project suggests that HOT lanes deserve greater investigation. Two new HOT lane projects could be authorized under AB 680, if Caltrans revokes the franchises for the two failed AB 680 projects. However, we believe that HOT lanes deserve wider evaluation. Therefore, in order that the effectiveness of HOT lanes can be evaluated, we recommend that legislation be enacted to authorize the construction of HOT lanes, either publicly or privately owned, as a pilot program. Where local support exists, the pilot program should also allow conversion of existing HOV lanes to HOT lanes in order to generate revenue for other improvements.
Inefficient road pricing is one factor that encourages sprawl. Businesses and households that locate on the urban fringe are drawn by lower property costs, even though distances are greater to other parts of the urban area. This choice is made more attractive because drivers do not pay the full cost of their road use; in effect, development on the urban fringe is subsidized by other drivers who suffer from greater highway congestion. More efficient road pricing will necessarily result in land use that minimizes driving, as businesses and households are faced with paying the full cost of their driving decisions.
Explore Land Use/Transportation Connections. Alternative land use policies include urban development boundaries or greenbelts that limit urban sprawl, as implemented in several California cities (most recently in San Jose and Pleasanton) and throughout Oregon. Policies to encourage fill-in development within existing urban boundaries can also reduce sprawl by concentrating development in existing urbanized areas.
Although land use decisions relating to individual residential or commercial developments have predictable transportation effects, the ability of broad land use policies--such as development boundaries, or in-fill development policies--to ease widespread traffic congestion and reduce the growth in VMT has not been widely tested. Accordingly, we recommend that the Legislature direct the Governor's Office of Planning and Research to investigate and report on (1) the impact of state and local land use policies on transportation, (2) successful policies adopted by California communities and in other states and countries, and (3) recommended state and local policies that would harmonize land use and transportation decisions. Additionally, we recommend that the Legislature hold joint hearings of the transportation and land use committees to review the findings and recommendations of the report.
However, it should be noted that providing alternatives to driving does not actually reduce the overall demand for transportation, but rather provides different ways to fulfil that demand. Transportation alternatives can therefore increase the overall level of mobility, but may not result in reduced traffic congestion. As a result, the Legislature should not rely solely on alternatives to driving, but should consider them as a way to provide mobility while reducing demand for driving through other approaches. Alternatives for the Legislature to consider include:
The need to provide transportation alternatives depends upon the extent to which state and local policies restrain growth in driving and upon the performance objectives for the transportation system, including the overall level of mobility that is desired. Gas tax revenue can currently be used to construct mass transit guideways, carpool lanes, and bicycle and pedestrian facilities. Relaxing Article XIX of the State Constitution, as recommended earlier in this report would provide greater flexibility in funding transit improvements.
California's transportation revenue structure--based primarily on the gas excise tax and augmented with local sales tax revenue--does not generate revenue that grows with transportation demand because of erosion due to inflation and fuel economy gains. However, this revenue structure is only one of many possible options, some of which could better generate revenue that grows along with demand, thereby providing revenue to improve and expand the transportation system when appropriate. In addition, some revenue mechanisms encourage efficient road use by signaling the actual cost of driving, while others hide these costs from drivers, thereby contributing to excessive road use.
State Gas Tax. The gas tax has several advantages, including familiarity and low administrative costs. It also approximates a user fee, where drivers pay more as they use roads more, which tends to encourage efficient road use. Disadvantages are erosion of growth in its value, due to both inflation and increasing fuel economy, and the fact that the per-mile equivalent tax depends on vehicle fuel efficiency, thus treating different drivers differently. However, the first disadvantage of the gas tax is not insurmountable, because the size of the excise tax can be indexed (automatically adjusted) to account for inflation and increasing vehicle fuel economy.
Vehicle Miles Traveled Tax. Rather than taxing consumption of fuel, a VMT tax taxes driving at a specified cost per mile. As a user fee, the VMT tax is superior to the gas tax because it directly taxes road usage and treats all drivers similarly regardless of fuel consumption. A VMT tax would not be eroded by increasing fuel economy, but would be eroded by inflation unless the per-mile tax is periodically adjusted. The major obstacle to implementing the VMT tax is its implementation and enforcement costs.
Local Sales Taxes. Local transportation sales taxes are not eroded by inflation and they generate more revenue as the economy grows. However, sales taxes are not user fees because the tax is imposed on activities unrelated to driving. Thus, driving appears less costly than it actually is, encouraging excessive road usage and ultimately contributing to a need for additional transportation improvements. Additionally, the two-thirds vote requirement makes local sales taxes difficult to impose.
Local Gas Taxes. Counties can, upon approval by two-thirds of the voters, impose a fuel tax surcharge on sales of motor vehicle fuel within the county. The local gas tax has most of the same benefits and limitations of the state gas tax. However, the two-thirds vote requirement makes the local gas tax difficult to impose. Also, because the tax base (sales of motor vehicle fuel) is much smaller for a local gas tax compared to that of a local sales tax, a local gas tax would have to be about 11 cents per gallon in order to generate the same amount of revenue as a half percent local sales tax. A tax increase of this magnitude could result in migration of gas sales to neighboring counties with lower taxes. Although no county has yet attempted to impose a local gas tax, Chapter 878, Statutes of 1997 (AB 595, Brown) authorizes the nine San Francisco Bay Area counties to seek voter approval for a regional gas tax that would apply in all nine counties.
Tolls. Tolls can be the most effective user fee for transportation because they can be set according to the actual cost and traffic conditions on each road in order to encourage efficient road use. Electronic toll collection simplifies the implementation of tolls and allows toll levels to be easily varied to control traffic levels.
As a result, we recommend that the Legislature ensure that the state gas tax can provide adequate funding to achieve the state's transportation goals and that its value is not eroded by inflation and fuel economy. The Legislature can accomplish this by either periodically adjusting the gas tax rate through statute, or adopting an automatic indexing mechanism that adjusts that tax rate in response to inflation and fuel economy.
In addition, we recommend that the Legislature investigate: (1) the increased use of toll financed roads through a pilot program, and (2) the feasibility of using VMT fees.
|Acknowledgments This report was prepared by Michael Cunningham, under the supervision of Dana Curry. The Legislative Analyst's Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature.||LAO Publications
To request publications call (916) 445-2375.