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What if we made transportation systems regulated public utilities?

What if our transportation systems, even the highways, operated as highly regulated public utilities?

The Twin Cities had better start thinking up a Plan B to finance its transportation system. Why? Funding sources that exist now may erode or disappear in the near future.

The federal government, for example, pays half of the cost of constructing new mass transit, but that's down from 90 percent in previous years. If in the next election cycles Congress becomes more conservative, which seems likely, that money could dry up completely. My guess is that neither Speaker John Boehner nor Senate Minority Leader Mitch McConnell want to help build the Bottineau line or finance bus rapid transit from Roseville.

Similarly, Congress seems unable to figure out how to replenish the Highway Trust Fund, which pays for the upkeep and construction of roads and bridges. Its money comes from the federal gas tax, but as cars have become more efficient, its revenues have declined, and it is due to run out of cash this year. Our elected representatives show no willingness to opt for the simple solution: raising the gas tax above its current 18.4 cents a gallon — a levy that has remained unchanged since 1993.

The Minnesota Legislature has also shown little appetite for forking over more cash for transportation. In its most recent session, it allocated to fixing roads a measly $15 million, an amount termed a "bandaid" by MoveMN, a 170-group coalition that offered a modest batch of proposals that would have raised hundreds of millions for trains, buses and roads.

If nothing changes, we will be looking at a future of crumbling bridges, pot-holey roads and halted projects. 

David Levinson, a professor who specializes in transportation issues at the University of Minnesota, says that there's no need for us to live with such shabby transportation or for government to continue shell out bigger and bigger subsidies. In a story recently published on the Atlantic Monthly's CityLab website, Levinson makes the case for returning to private ownership — kind of. He would like to see our transportation systems, even the highways, operate as highly regulated public utilities.

Not a new concept

This is nothing new, as Levinson pointed out when I met with him in his office last week. Roads, trains and bus systems weren't always dependent on government. Time was, private companies ran them. They maintained the rights-of-way and collected fares or tolls that covered costs and provided a healthy profit.

That model fell apart with suburbanization, widespread ownership of cars and the development of an efficient highway system — all of which led to declining use of buses and streetcars. Revenues dropped, and owners raised fares to cover costs, which in a death spiral led to still lower ridership, greater fare hikes and so on — until governments were forced to step in to save the systems.

Since then, governments at all levels have had to pour in ever-larger subsidies to keep the systems running. In the U.S. fares pay for only about a third of the costs. Many of the routes are unprofitable, particularly "long-distance, inefficient suburban routes," Levinson writes. Their losses are paid for by more heavily used urban routes — and by government appropriations. Says Levinson: "They [government transit authorities] run routes that are unprofitable not because they want to but because they're politically directed to."

How would switching ownership to a utility solve this problem? Levinson proposes reconstituting MetroTransit as a public utility — let's call it MetroGetAround or MEGA. It could on its own decide what routes to provide and would price fares at a level that would defray its expenses. If a route proved to be a loser, it would appeal to the Public Utilities Commission (PUC) for a price hike just as Xcel petitions for an increase in electricity rates. Or it could ask the city served by that line for a subsidy to help it come out even. So, for example, if only 50 people a day use the express bus to, say, Apple Valley from downtown St. Paul when 270 were needed for the system to break even, then MEGA could shut down that line. Or the City of Apple Valley, if it truly wanted it, would allocate funds from its budget to support it.

"The subsidy would then be explicit, and people would understand it," says Levinson.

A utility for highways

He advocates a parallel scheme for highways [PDF]. An entity he has dubbed Minnesota Mobility would enter into a contract with MnDOT to maintain and repair roads and highways. If MN Mobility found the gas tax insufficient to cover its expenses, it would, again, appeal to the Public Utilities Commission to raise the gas tax — taking the touchy decision to hike it away from politicians. The "utility" could also, with the PUC's approval, adopt other revenue-raising mechanisms — tolls, for example. Or it could set rates according to congestion, requiring drivers traveling at peak hours to pay higher tolls.

Privatizing roads [PDF] is not as novel as you might think. Dozens of governments have in recent years sold public roads to profit-making companies. In 2006, for example, an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road for 75 years. Chicago sold a 99-year lease on its Chicago Skyway for $1.8 billion. The money went to repay debt and fund road projects. 

The public-utility ownership format can offer several advantages, according to Levinson. Decisions on routing would no longer rest with politicians — or political appointees. Instead, the utility would base them on demand and profitability. Eventually, fares would fully cover all expenses — or that's the hope anyway. MEGA or MN Mobility could also lower costs by opening up routes to competitive bidding for specified periods. London, says Levinson, has successfully managed this with bus contracts let to private companies.

"If the route earns profits, they bid a positive amount," he writes. "If the route loses money, they bid on how much subsidy is required for them to be willing to operate it." If the public utility made money, it could float bonds to finance new projects instead of relying on the government.

If the farebox now recovers only a third of the costs of running, say, the light rail, the public utility (or a private company with which it contracted) would have to charge passengers nearly $7 a trip — although Levinson points out that most people would probably buy lower-priced monthly or annual passes. To help the poor pay the freight, Levinson proposes an outright subsidy, almost like an EBT card. That's less expensive than running routes at a loss, he claims. My fear, however, would be that a $7 fare would drive more people to, sorry, drive, re-starting the old fare decline death spiral — and increasing congestion and degrading air quality.

An overlooked source of funds

To avoid that, a successful system would need more revenue to bring down costs. One overlooked source of funds, says Levinson, might be the property owners along routes. After all, they profit by the public investment in transit, which makes their land and buildings more valuable. One mechanism to dredge money from them would be the value-capture tax, which directs increases in property tax assessments due to transit development to maintaining the line or to reducing fares. Of course, the plain-vanilla property tax does the same thing, I think. As values rise, owners pay more dough — but it goes into a municipality's general funds rather than toward transit.

A great many questions would need to be answered before the Twin Cities metro adopted such a system. For example, what would happen to poor towns on unprofitable routes? They might not be able to cough up the extra subsidies needed to keep their public transportation lifeline operating.

And would private companies necessarily be able to deliver, say, bus service that was better or more efficient than that offered by MetroTransit? As I recall, private bus lines that operated in the far-flung districts of New York's boroughs were among the worst elements of the transit system. Owners skimped on service; buses frequently broke down or failed to show up at stops.  

Finally, a public utility is not completely immune to political pressure. Elected officials usually appoint board members; it takes only a phone call to exert a little influence. Just think Port Authority of New York and New Jersey. Levinson suggests that legislation could put safeguards to assure that the utility is somewhat insulated from politics — perhaps with staggered terms for board members, which would keep one governor or one legislative body from controlling them all at the same time.

Getting government out of various activities and then operating them "like a business" has been a long-time conservative dream, one that hasn't always worked out well in practice. Haliburton and Blackwater arguably did not do a more competent job in the Iraqi war effort than the Department of Defense probably would have done — and both companies charged a ton of money. And Medicare Advantage has proven much more expensive than plain-vanilla Medicare, paid directly by the government. For that matter, drivers on the Indiana Toll Road have not given Cintra Concesiones de Infraestructuras de Transporte rave reviews.

Still, given the current state of transportation finance, we should consider every option.

*** 

Note to readers: This is my last Cityscape column before taking a break from journalism for a while. Before signing off, however, I wanted to thank MinnPost readers for their attention and for their sharp comments, observations, quips and tips. You folks are without doubt the best and the brightest.

Editor's note: The MinnPost staff wishes Marlys, a stellar colleague and one of our site's most-read writers, all the best during her hiatus from regular writing. Cityscape will continue with new contributing writers, beginning Thursday.

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Comments (23)

Fare thee well

Great article, Marlys. I will miss your excellent and thought-provoking articles. You really are one of my favorite columnists here. Have a great time stepping away from the keyboard. I sincerely hope to see you back at Minnpost!
-Jonathan

I was going to argue that

I was going to argue that Prof. Levinson's suggestions are second best solutions to a vehicle-miles-traveled fee weighted by vehicle gross weight and emissions potential and differentially priced by time of day and type of road. Instead, I want to say I will miss your columns and the dash of East Coast you brought to the public discussion of issues that play out at the nexus between land use and transportation. I wish you well on you hiatus and I look forward to reading your stuff again.

The Bank of Minnesota

Value capture tax? Are you kidding? Look at where the mass transit lines run -- through poor neighborhoods -- You'd up taxes on the people who live along University Avenue, and the businesses there, to cover transit? Take another look at the housing there and the businesses. It ain't exactly Minnetonka. Why did I-94 get run through Rondo? Because the neighborhood was full of rich people and upscale businesses? Get Real.

How about this: Go online and look at a recent Minnesota CAFR (Comprehensive Annual Financial Report) and find the section that line items the state's investments. Let's sell off enough equities to capitalize the establishment of a state bank, The Bank of Minnesota. The bank, then, like the state-owned Bank of North Dakota, receives tax revenues and, like all banks, originates credit (makes loans) and it becomes a revenue-generator for the state, easing the tax burden.

Transit_and_Public_Bank

Hear, hear!

Interest payments swallow 1/3 to 1/2 of the bill for public works projects. The Bank will reduce that to nothing, or next to nothing, with the state lending itself the money.

The biggest promoter of the Bank of North Dakota (BND) is Sen. John Hoeven (R-ND), retired Governor with a departing 87% approval rating en route to the Senate and President of BND in the 1990s.

Even Wells Fargo and U.S. Bank, whose predatory predecessors gave the impetus for BND in 1919, have found a way to live with BND.

We will make them live with the Bank of Minnesota, too. Just get ready for an all-out fight against congenitally passive-aggressive ruling and ruled classes.

Public Banking

If you're interested in public banking, check this out
http://www.publicbanksolution.com/

Farewell

While I haven't always agreed with Ms Harris, I have always enjoyed reading her perspective. I wish her enjoyment in her future endeavors. I will miss her columns on MinnPost.

Is private more efficient?

Firstly, good luck in your 'retirement' and future endeavors. Even when I've disagreed with you I've enjoyed your columns.

Something that I thought about as I read the article is to what extent will a privately run for-profit transit system be more efficiently run than MTC? Granted, simply the presence of subsidies will eliminate some of the efficiency, but not all.

Walker
http://streets.mn

Transit_and_Public_Bank

Hear, hear on a Bank of North Dakota for Minnesota! 1/3 to 1/2 of all public works projects' costs go to interest on loans. With a public bank, MN will collect interest on loans, not pay interest out to private lenders.

The successors to the Socialists, the Non-Partisan League, created the Bank of North Dakota in 1919. Its biggest proponent today is U.S. Senator John Hoeven (R-ND). He served as president of the bank in the 1990s, then served two terms as Governor of ND, and left office en route to the Senate with an 87% approval rating. This is a statement of fact to rebut anyone in advance who wishes to write off the Bank as a left-wing plot to destroy America.

The journalist taking a sabbatical should spend time reading "The Web of Debt" and "The Public Bank Solution" before she resumes her journalist duties.

I like Levinson's ideas

regarding public transit. They're market-based in that costs and expenditures are based on actual use, not simply subsidized. My only problem is with having a commission unaccountable to the voters making the decisions, but that's it.

Plus their current funding scheme is unconstitutional.

Eisenhower built the interstate highway system as part of a national defense strategy to provide key ground transport routes for military supplies and troop deployments in case of foreign invasion. Since managing interstate commerce is a constitutional role of government and national defense is a constitutional role of government, we could justify whatever expense is necessary to maintain that system. But at 18 cents a gallon, the federal government already makes more profit per gallon than the retailer does. That's unAmerican. Which fund did the feds use to pay the billions for LRT? Maybe we could use that fund for roads instead.

In addition to transporting people, city, county and state roads transport goods to market. Trucking companies pay hefty fees for the use of the roads in addition to the fuel taxes they pay. So that funding source is valid and accounted for.

The LRT and bus system on the other hand, is the least effective and efficient transportation system. It only transports people and not freight, and only along a narrow route of possible destinations. And with the LRT, its source of revenue, ticket sales, is on the honor system. Do you think the state allows trucking companies to operate on the honor system? Think again. We can try to project the number of LRT riders but we can't project revenue because we don't know with any certainty how many will actually pay the fare.

And unlike the interstate highway system and roads in general that are used for national defense and commerce, there's really no constitutional role or justification for the government to provide essentially free transportation for the masses. The bicyclists are right with their choice of transportation because it doesn't cost anyone else anything, and the cars and trucks are right in their choices because taxpayer funding is justified constitutionally and otherwise.

Not so, subsidized public transit.

I've thoroughly enjoyed your work, Ms. Harris. I'm going to miss you.

Good Luck Marlys!

Marlys! I hope you find a way to keep writing about transit and transportation. I've enjoyed your contributions here immensely. Best of luck with whatever's next for you.

Terrible idea

Our transit systems ended up public hands because private owners couldn't charge enough to maintain the lines AND make a profit. And Indiana sold off tens of millions of dollars worth of it's roads to make a quick buck. 75 years, we're what? 4 years into the deal?

It always amazes me when people think they can pay someone to do something for a profit and it will be more efficient than simply paying people to do something. It took me two years to get the DSL connection I was supposed to have out of Qwest/Centurylink, that's the private sector-public utility model in action.

Besides, I wouldn't assume that recent political climate dominated by selfishness and stupidity is permanent. It's not typical for the United States, we've just gone through a particularly toxic era. We have the money to pay for our transportation infrastructure, my guess is Americans will finally wake and realize this is an investment that pays off handsomely once made... unless you sell it someone.

It's not the role of government

to provide you with ride downtown any more than it is to provide you with high speed internet service, in addition to the inherent incompetency of government bureaucracies that's obvious to anyone who lives in this society.

Dennis, you live in a democracy

The role of government is determined by the people, not "declared" by YOU. If we decide we want public transportation systems we can build them, and run them efficiently. YOU don't have to use them, but there's no law of the universe prohibiting their construction. One just as easily claim that it's the role of the government to provide the streets and interstates you drive your car on.

Actually, no

The rationale for streets and interstates is national defense and the regulation of interstate commerce, both constitutional roles of government. Giving you a free ride on a train (and it's free if there's no effort to collect a ticket) is not a valid, constitutional role for government any more than selling hotdogs at the park or providing you with internet service is a valid role for government.

I didn't say it was illegal. Laws were passed. I said if some taxpayer took it to court, SCOTUS would rule those laws requiring taxpayer funding are unconstitutional. "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Legal eagle you are not Mr. Tester

"I didn't say it was illegal. Laws were passed. I said if some taxpayer took it to court, SCOTUS would rule those laws requiring taxpayer funding are unconstitutional."

The constitution explicitly grants legislators the power to levy and collect taxes in order to pay for government services. To whatever extent transportation is a government service, it is perfectly legal and constitutional to levy and collect tax revenue, and spend that revenue on transportation services. Any taxpayer that takes this to court would probably fail to get hearing much less get a ruling that public transportation is unconstitutional.

Libertarian constitutional arguments are always incoherent because they view citizenship (and indeed maybe even civilization) as form of oppression. This is a direct conflict with the US Constitution which explicitly seeks to establish a collective enterprise that guarantees rights of citizens AND establishes the State in which citizens live and create a "more perfect union." Essentially libertarians always end up arguing one way or another that the US Constitution prohibits the government from existing rather than establishing a blueprint for the existence of government.

As for free rides on trains, theft remains illegal, and the transit cops on the trains routinely ask to see tickets. The ONE time I rode the Hiawatha Line I had to show my ticket to a transit cop.

private is more efficient-but that's not enough

As a practitioner of public-private transit operation, with more than a little experience with Metro Transit, I can tell you that a private operator would indeed squeeze significant efficiencies (15-25% is reasonable) out of the system, but that would not be enough to secure the transit future envisioned by readers of MinnPost. David Levinson does us all a service by opening up the subject of the best delivery mechanism for a sustainable forward-looking option.

Here's my recipe; A public private operating partnership with subsidy dollars that now go to the transit operation instead going to riders who can't handle fares that are directly related to operating costs. It is easy to imagine a technology-based method of providing user-side subsidies to those in need. Why sustain an approach where everybody pays less than half the cost because somebody can't afford more than that?

Then incent the private operator to act like a good retail business-you know, control costs, please customers, market services-all those things that private companies know how to do better than government. But government retains policy control, capital ownership and investment, and concern for equitable distribution of service-the things that government does better.

Myth as wisdom

Mr. Setzer says: "As a practitioner of public-private transit operation, with more than a little experience with Metro Transit, I can tell you that a private operator would indeed squeeze significant efficiencies (15-25% is reasonable)"

Mr. Setzer is simply wrong. In fact right here on Minnpost back in 2010 Steve Berg reported that:

"In the case of SouthWest, it's (the subsidy per ride) nearly twice as high — $4.02 compared to $2.38 for Metro Transit express routes." http://www.minnpost.com/cityscape/2010/09/bus-gap-are-fancy-suburban-bus...

In other words not only are these private bus lines NOT 15%-25% more efficient, on the contrary they're receiving twice the subsidy dollars per ride of public owned bus systems. So "private efficiency" on that bus would cost each rider $4.00 MORE than they're currently paying. Do YOU want to pay $4.00 more per ride, $8.00 a day, $120.00 a month? How long do you think a bus line would last with fares like that? That bus line wouldn't even get off the ground, riders would demand a more affordable public bus within weeks. We already know this because we've already been there with the privately owned street cars 50 years ago... they went out of business. And the kicker is, not only are we subsidizing the private bus, we're paying them to collect a profit as well so we end up subsidizing the business model instead of the riders and no, it isn't cheaper to do that.

Again, this idea that the private sector is more efficient is free market myth masquerading as established wisdom.... nothing more. Sure, stuff can frequently be more efficient, but you make stuff efficient by making it efficient, not by turning it over to the private sector. From a public policy perspective trading private inefficiency for public inefficiency almost always cost more and actually decreases efficiency over-all by adding unnecessary layers of complexity and administrative costs.

And by the way...

The bus lines all started out at privately owned as well, we ended up with Metro Transit because the private owners couldn't make it work. In fact Carl Pohlad was the owner of the Twin City Lines bus system that MTC inherited back in 1970, according to Wikipedia:

" At the time of the acquisition, Twin City Lines had 635 buses: 75% of those were over 15 years old, and 86 buses were so old that they were banned from operating in Minneapolis. MTC acquired 465 new buses over the next five years and built many new bus shelters.[3]"

That gives you some idea just how "efficient" and cost effective Pohlad's private bus company was. I assume everyone here knows who Carl Pohlad was?

Liberal buy-in to the myth on display

Actually Marlyis is demonstrating another really important fact that has to be understood as we try to move forward.

We went from a country where Republican presidents launched the biggest government programs in US history (i.e. the National Highway System under Eisenhower) to a country where Republicans shut down the government rather than even maintain the roads and bridges we've already built.

This wouldn't have been possible were it not for the success of the anti-government rhetoric of the 80s. And it's important to remember that that rhetoric would not have succeeded so well without the huge liberal buy-in to the myth of private sector efficiency. Remember it was Al Gore along with Clinton who presided over the re-invention of government that was largest privatization program in US government history. And while we're at it, do you remember the amazing transformation we all experienced with an fantastically less expensive yet vastly more efficient government by the end of the 90s? No? That's right, it never happened. Instead we got the financial sector meltdown and one popping bubble after another. The only reason government spending decreased during this period is we dialed back the military spending a bit.

While conservatives decided that government was the enemy, liberals decided it was irrelevant. So we ended up with paralysis and gridlock rather obvious policies like national health care, energy planning, and infrastructure. 20 years later we're still trying to figure out how to get high speed internet distributed universally because we decided government was irrelevant and the private sector would take of it. So now we pay more for less available and slower speeds than any of our peers. It's the health care fiasco all over again.

So now you want to extend those fiasco's into our transportation system? Will liberals buy into the myth of private sector efficiency and free markets again or have they learned their lesson?

Toll Roads

Having driven extensively on Chicago and Florida toll roads, I have to say I would be vehemently opposed to such an implementation here in Minnesota. If there's a more inefficient way to get people around town I have yet to see it. Every couple of miles you have to stop and pay the man, just as you get your car up to speed. I would much rather pay a higher gas tax and call it done than to go through that business.

Todd's tolls....

Yeah but toll road proponents point out that modern technology lets you fly-by with a transponder on your dash! That actually makes it worse because it creates a two tier transportation system that directly inconveniences travelers at the expense of commuters. As a nation we can afford to have a good transportation system, we just have to start thinking like a nation again instead of a "market".

For Whom the Road Tolls

Sorry for the title. It's one of those mornings.

Toll roads are somewhat better for people who have the epass as they can drive straight through. Even they have to drop speed as they approach a toll booth as the rest of traffic slows and they navigate through the lane.

Another consideration: your tolls are not just paying for the roads; they're also paying for the additional bureaucracy. Someone needs to pay for the toll booths, attendants, security, executive salaries, and built-in profit. All that is on top of the road construction and maintenance, so you're paying for a lot of overhead that doesn't even go for a road.

E-pass and bureauracray

One thing to look at would be our e-pass system here in MN, on 394 for instance. Many people don't realize that the e-passes themselves are actually administered by a private French company. You can only find that out by calling and asking, everything you see on the website and anywhere else identifies MNDOT as the caretakers of the HOV lanes. And in fact, yes, MNDOT i.e. the taxpayers built the road, installed the hardware, and physically maintains the lanes. All the French company does is distribute the passes and collect the tolls. So yeah, we built the thing at taxpayers expense and then turned it over to a private company to make a profit. And who knows if that actually saving us any money?

I know a few years ago MNDOT started bragging that after three years they were finally collecting enough tolls to pay for the lane but what does that mean? Does it mean they're covering the costs of paying the French company or does it mean they're collecting enough to pay the French company AND keep the lane repaired, snow free, and maintained year round?

Remember, you have to look at maintenance over time, you can't take a snapshot on a given year. As roads age they need more maintenance and eventually need to be resurfaced, so you when you claim to be collecting enough tolls to "pay" for a road you need to look at costs over a decade or so. In theory you can be ahead for several years and then drop into the red when have to do a major resurface. The 394 toll lanes are on actual bridges for instance, when those need major repair it can cost a lot more than a road on the ground.

So to figure this out, you have to look at how much we're paying the private company and figure out if that's actually less expensive than having MNDOT to it. In order to figure that out, you have to look at actual cost of administration PLUS the cost of the lanes repair and replacement over time in relation to the toll revenue.

I know in a lot of other states the HOV lanes have bumped up the minimum capacity from two to three people in the car, that's probably an indication that they weren't collecting enough revenue with the lower occupancy (forcing drivers with fewer than two passengers to pay, whereas here in MN you use the lane for free if you have one passenger). AND states that have bumped up the passenger number like MA, have much higher traffic congestion than we do, so it's not a lack of traffic keeping the revenue down.