Funding Options for Freight Transportation Projects (2009)

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SPECIAL REPORT 297 Funding Options for Freight Transportation Projects Funding Options for Freight Transportation Projects During the 1990s, capacity constraints became evident in parts of the U.S. freight transporta- tion system, the consequence of economic and population growth and changing patterns of domestic and global commerce. The constraints impaired economic productivity, but attempt- ing to resolve them taxed the institutional and financial capacities of public- and private-sector transportation providers. This study explores ways to pay for projects that expand freight capac- ity or reduce the costs of freight transportation. The study committee concludes that present finance arrangements are inadequate for main- taining and improving freight transportation system performance. The committee calls for finance reforms that promote productivity gains by targeting investment to projects with the greatest economic benefit and by encouraging efficient use of facilities. Also of Interest Public and Private Sector Interdependence in Freight TransportationMarkets National Cooperative Freight Research Program Report 1, ISBN 978-0-309-11790-6, 60 pages, 8.5 x 11, paperback, 2009, $43.00 Freight Systems 2009 Transportation Research Record: Journal of the Transportation Research Board, No. 2097, ISBN 978-0-309-12613-7, 135 pages, 8.5 x 11, paperback, 2009, $62.00 Marine Transportation and Port Operations 2009 Transportation Research Record: Journal of the Transportation Research Board, No. 2100, ISBN 978-0-309-12616-8, 102 pages, 8.5 x 11, paperback, 2009, $56.00 Debt Finance Practices for Surface Transportation National Cooperative Highway Research Program (NCHRP) Synthesis 395, ISBN 978-0-309-09833-5, 84 pages, 8.5 x 11, paperback, 2009, $49.00 ForecastingMetropolitan Commercial and Freight Travel NCHRP Synthesis 384, ISBN 978-0-309-09814-4, 130 pages, 8.5 x 11, paperback, 2008, $54.00 Forecasting Statewide Freight Toolkit NCHRP Report 606, ISBN 978-0-309-09924-0, 158 pages, 8.5 x 11, paperback, 2008, $55.00 Pricing, Economics, and Finance Transportation Research Record: Journal of the Transportation Research Board, No. 2079, ISBN 978-0-309-12592-5, 153 pages, 8.5 x 11, paperback, 2008, $64.00 Compilation of Public Opinion Data on Tolls and Road Pricing NCHRP Synthesis 377, ISBN 978-0-309-09800-7, 57 pages, 8.5 x 11, paperback, 2008, $42.00 ISBN 978-0-309-12630-4 SpecialReport297 Fu n din g O ption s for Freigh t Tran sportation P rojects

TRANSPORTATION RESEARCH BOARD 2009 EXECUTIVE COMMITTEE* Chair: Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley Vice Chair: Michael R.Morris, Director of Transportation, North Central Texas Council of Governments, Arlington Executive Director: Robert E. Skinner, Jr.,Transportation Research Board J. Barry Barker, Executive Director, Transit Authority of River City, Louisville, Kentucky Allen D. Biehler, Secretary, Pennsylvania Department of Transportation, Harrisburg Larry L. Brown, Sr., Executive Director, Mississippi Department of Transportation, Jackson DeborahH.Butler,Executive Vice President, Planning, and CIO,Norfolk Southern Corporation, Norfolk,Virginia WilliamA.V. Clark, Professor, Department of Geography, University of California, Los Angeles David S. Ekern,Commissioner, Virginia Department of Transportation, Richmond Nicholas J. Garber,Henry L. Kinnier Professor, Department of Civil Engineering, University of Virginia, Charlottesville JeffreyW.Hamiel, Executive Director, Metropolitan Airports Commission, Minneapolis, Minnesota Edward A. (Ned) Helme, President, Center for Clean Air Policy,Washington, D.C. Randell H. Iwasaki, Director, California Department of Transportation, Sacramento SusanMartinovich,Director, Nevada Department of Transportation, Carson City Debra L.Miller, Secretary, Kansas Department of Transportation, Topeka (Past Chair, 2008) Neil J. Pedersen,Administrator, Maryland State Highway Administration, Baltimore Pete K. Rahn, Director, Missouri Department of Transportation, Jefferson City Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Tracy L. Rosser,Vice President, Regional General Manager,Wal-Mart Stores, Inc., Mandeville, Louisiana Rosa Clausell Rountree,CEO–General Manager, Transroute International Canada Services, Inc., Pitt Meadows, British Columbia, Canada Steven T. Scalzo,Chief Operating Officer, Marine Resources Group, Seattle,Washington Henry G. (Gerry) Schwartz, Jr., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, Missouri C.MichaelWalton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin (Past Chair, 1991) Linda S.Watson,CEO, LYNX–Central Florida Regional Transportation Authority, Orlando (Past Chair, 2007) SteveWilliams,Chairman and CEO,Maverick Transportation, Inc., Little Rock, Arkansas Thad Allen (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard,Washington, D.C. (ex officio) Peter H.Appel,Administrator, Research and Innovative Technology Administration, U.S. Department of Transportation (ex officio) J. Randolph Babbitt,Administrator, Federal Aviation Administration, U.S. Department of Transportation (ex officio) Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, Georgia (ex officio) George Bugliarello, President Emeritus and University Professor, Polytechnic Institute of New York University, Brooklyn; Foreign Secretary, National Academy of Engineering,Washington, D.C. (ex officio) James E. Caponiti,Acting Deputy Administrator, Maritime Administration, U.S. Department of Transportation (ex officio) Cynthia Douglass,Acting Deputy Administrator, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation,Washington, D.C. (ex officio) LeRoy Gishi, Chief, Division of Transportation, Bureau of Indian Affairs, U.S. Department of the Interior, Washington, D.C. (ex officio) Edward R.Hamberger, President and CEO, Association of American Railroads,Washington, D.C. (ex officio) John C.Horsley, Executive Director, American Association of State Highway and Transportation Officials, Washington, D.C. (ex officio) Rose A.McMurray,Acting Deputy Administrator, Federal Motor Carrier Safety Administration, U.S. Department of Transportation (ex officio) RonaldMedford, Acting Deputy Administrator, National Highway Traffic Safety Administration, U.S. Department of Transportation (ex officio) Victor M.Mendez,Administrator, Federal Highway Administration, U.S. Department of Transportation (ex officio) WilliamW.Millar, President, American Public Transportation Association,Washington, D.C. (ex officio) (Past Chair, 1992) Peter M. Rogoff,Administrator, Federal Transit Administration, U.S. Department of Transportation (ex officio) Joseph C. Szabo,Administrator, Federal Railroad Administration, U.S. Department of Transportation (ex officio) Polly Trottenberg, Assistant Secretary for Transportation Policy, U.S. Department of Transportation (ex officio) Robert L.Van Antwerp (Lt. General, U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers,Washington, D.C. (ex officio) * Membership as of October 2009.

Transportation Research Board Washington, D.C. 2009 www.TRB.org Funding Options for Freight Transportation Projects TRANSPORTATION RESEARCH BOARD OF THE NATIONAL ACADEMIES S P E C I A L R E P O R T 2 9 7 Committee for the Study of Funding Options for Freight Transportation Projects of National Significance

Transportation Research Board Special Report 297 Subscriber Categories IA planning and administration VII rail VIII freight transportation (multimodal) Transportation Research Board publications are available by ordering individual publi- cations directly from the TRB Business Office, through the Internet at www.TRB.org or national-academies.org/trb, or by annual subscription through organizational or indi- vidual affiliation with TRB. Affiliates and library subscribers are eligible for substantial discounts. For further information, contact the Transportation Research Board Business Office, 500 Fifth Street, NW, Washington, DC 20001 (telephone 202-334-3213; fax 202- 334-2519; or e-mail TRBsales@nas.edu). Copyright 2009 by the National Academy of Sciences. All rights reserved. Printed in the United States of America. NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to the procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. This study was sponsored by the Transportation Research Board and the UPS Foun- dation, Inc. Library of Congress Cataloging-in-Publication Data National Research Council (U.S.). Committee for the Study of Funding Options for Freight Transportation Projects of National Significance. Funding options for freight transportation projects / Committee for the Study of Funding Options for Freight Transportation Projects of National Significance, Transportation Research Board of the National Academies. p. cm.—(Transportation Research Board special report ; 297) 1. Freight and freightage—Government policy—United States. 2. Transportation—United States— Finance. 3. Federal aid to transportation—United States. I. Title. HE199.U5N355 2009 388'.0440973—dc22 2009035337 ISBN 978-0-309-12630-4

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Committee for the Study of Funding Options for Freight Transportation Projects of National Significance Genevieve Giuliano, School of Policy, Planning, and Development, University of Southern California, Los Angeles, Chair Peter J. Basso, American Association of State Highway and Transportation Officials, Washington, D.C. Mary R. Brooks,Dalhousie University, Halifax, Nova Scotia, Canada Kenneth J. Button, George Mason University, Fairfax, Virginia Mortimer L. Downey,Mort Downey Consulting, LLC, Vienna, Virginia William Ellis, Port Authority of New York and New Jersey, New York Robert J. Gernon,Maine Pointe, LLC, Boston, Massachusetts Michael K. Gray, Round Rock, Texas Gill V. Hicks, Cambridge Systematics, Inc., Pacific Palisades, California Jeffrey Holt, BMO Capital Markets, San Francisco, California Adib Kanafani,University of California, Berkeley JamesW.McClellan, Independent Consultant, Virginia Beach, Virginia ThereseMcMillan, Federal Transit Administration, Washington, D.C. DavidW. Seltzer,Mercator Advisors, LLC, Philadelphia, Pennsylvania Transportation Research Board Staff Joseph R.Morris, Study Director

Preface This study of funding options for freight transportation projects was ini- tiated by the Transportation Research Board (TRB) Executive Commit- tee in 2006. The Executive Committee recognized that freight system bottlenecks are a potentially significant hindrance to economic growth. It recognized also the concerns in government and industry that estab- lished institutional and finance arrangements have not adequately re- sponded in recent decades to the demands imposed by growing volumes of freight and passenger traffic and fundamental shifts in regional and global patterns of trade. To conduct the study, TRB formed a committee that included mem- bers with expertise in infrastructure management, freight transportation management, business logistics, public-sector finance, economics, and public policy. The committee’s task was to consider how reforms in the public-sector finance arrangements supporting transportation facilities could improve the efficiency of freight transportation in the United States. The studywas sponsored by TRB and by theUPS Foundation, Inc. The committee received briefings at its meetings from government and private-sector transportation administrators and from experts in various aspects of public finance. The committee reviewed the institu- tional and finance arrangements of a number of recent significant proj- ects to gain an understanding of the funding options available today and the challenges that these projects confront. It was aided in this review by Gary Maring and Iris Ortiz of Cambridge Systematics and Daniel Smith of the Tioga Group, Inc., who prepared detailed case studies of projects. The committee made use of the work of earlier TRB committees that studied related problems, especially those that authored the reports Policy Options for Intermodal Freight Transportation (Special Report 252, 1998); vii

viii Funding Options for Freight Transportation Projects Freight Capacity for the 21st Century (Special Report 271, 2003); The Marine Transportation System and the Federal Role: Measuring Perfor- mance, Targeting Improvement (Special Report 279, 2004); and The Fuel Tax and Alternatives for Transportation Funding (Special Report 285, 2006). The report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the National Research Council’s (NRC’s) Report Review Committee. The purpose of this independent review is to provide candid and critical comments that assist the authors and NRC in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The content of the review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. The following individuals participated in the review of this report: Cameron Gordon, University of Canberra, Australia; Larry M. King, Naples, Florida; Ian W. H. Parry, Resources for the Future, Washington, D.C.; Eugene K. Pentimonti, Great Falls, Virginia; Tracy L. Rosser, Wal-Mart Stores, Inc., Mandeville, Louisiana; John M. Samuels, Jr., Palm Beach Gardens, Florida; Kumares C. Sinha, Purdue University, West Lafayette, Indiana; and William G. Waters II, Univer- sity of British Columbia, Vancouver. Although the reviewers listed above provided many constructive com- ments and suggestions, they were not asked to endorse the committee’s conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Lester A. Hoel, University of Virginia, and C. Michael Walton, University of Texas, Austin. Appointed by NRC, they were responsible for making certain that an independent examination of the report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Joseph R. Morris managed the study and drafted the final report under the guidance of the committee and the supervision of Stephen R. Godwin, Director, Studies and Special Programs. Suzanne Schneider, Associate Executive Director of TRB, managed the report review process.

Preface ix Norman Solomon, Senior Editor, edited the report; Jennifer J. Weeks, Editorial Services Specialist, prepared the prepublication manuscript and background papers for web posting; and Juanita Green, Production Manager, coordinated typesetting and printing, all under the supervision of Javy Awan, Director of Publications. Nikisha Turman and Laura Toth assisted with meeting arrangements and communications with com- mittee members.

Summary 1 1 Introduction 15 Charge to the Committee 19 Examples of Finance Arrangements 23 Conclusions of Earlier TRB Committees on Finance Policy 34 Outline of the Report 39 2 Freight System Performance and Infrastructure Finance 43 Views on Finance Problems 44 Trends in Freight Transportation System Performance 50 Relation of Finance to Performance 70 Summary 81 3 Freight Transportation Infrastructure Finance Practices Today 88 Spending for Freight Infrastructure 88 Finance Arrangements for Public Freight Infrastructure 90 Case Study Illustrations of Finance Arrangements 118 Annex 3-1: Case Studies Summary 131 Annex 3-2: Illustrative Current Freight Infrastructure Capital Projects 138 Contents

4 Government Responsibilities for Freight Infrastructure 153 Government Responsibilities 153 Federal Responsibilities 163 Forms of Intervention 188 Summary 194 5 Review of Finance Reform Proposals 198 Scope of Finance Reform 199 Reform Proposals 203 Criteria for Evaluating Finance Options 215 Annex 5-1: Examples of Recent Finance Reform Proposals 227 6 Findings and Recommendations 249 Government Responsibilities for Freight Infrastructure 249 Evaluating Finance Alternatives 255 Recommendations 262 Study Committee Biographical Information 281