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2 Principles for Government Involvement
Pages 20-45

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From page 20...
... At the federal level, each time Congress specifies the types of projects eligible for funding through federal transportation aid programs, it is faced with the fundamental policy question of defining the appropriate scope of government involvement in transportation. At the state and local levels, the question of the appropriate government role arises, for example, when the government responds to a private-sector proposal for public participation in a rail access project.
From page 21...
... CHANGING GOVERNMENT ROLES IN FREIGHT As background to consideration of specific policy questions, it is necessary to understand how government responsibilities and relationships with the private sector in freight transportation have been changing. In this section the traditional scope of government involvement in infrastructure for freight transportation is described.
From page 22...
... The extent of government involvement differs among the freight transportation modes for reasons that arise as much from historical circumstance as from fundamental economic differences among the modes. The traditional government roles in each mode are as follows: · Highways: infrastructure provision and operation, with finance mainly through national and state trust funds and user excises.
From page 23...
... Several states have programs providing financial assistance to short-line and regional railroads. · Aviation: airport infrastructure provision and operation, with the private sector providing certain facilities; provision and operation of air traffic control facilities.
From page 24...
... Of course, more traditional kinds of public works projects remain of vital importance to intermodal freight transportation. In particular, construction and improvement of public roads to improve access to ports and other terminals is recognized as among the greatest needs.
From page 25...
... The pending split-up of Conrail between CSX and Norfolk Southern changed the competitive situation at the Port of Baltimore. Norfolk Southern announced plans, if the split-up were accomplished, to begin double-stack service to the port using Conrail track it would acquire and to expand intermodal service to the port with its bimodal RoadRailer service (a technology that uses special highway semitrailers that can be placed on sets of rail wheels to move on tracks, eliminating the rail flatcars that carry normal containers and piggyback trailers)
From page 26...
... In seeking federal assistance, the port may argue that federal assistance to the Alameda Corridor rail and highway access project at the ports of Los Angeles and Long Beach will upset the competitive balance unless aid is also given to other West Coast ports. · New York City Full Freight Access Program: New York City has no direct rail intermodal service because of inadequate bridge clearances, conflicts with passenger rail traffic, and other impediments.
From page 27...
... in 1991 questioned whether the project as it is now conceived will meet its objectives and have called on the state department of transportation to reassess its plans before proceeding. The project illustrates some of the basic difficulties of governmentled freight transportation development projects.
From page 28...
... Improving the efficiency of the freight transportation system from the perspective of the direct users often is not an explicit or primary objective of all the government entities involved. The examples of projects given earlier indicate several policy questions that governments face when confronted with similar proposals: · What is the rationale for government involvement in each case, as opposed to leaving investment and development decisions entirely to the public sector?
From page 29...
... Local governments approach these questions pragmatically rather than philosophically: if funds are available for an economic development project, it appears attractive from the local political and economic perspective, and the project would not be carried out without public involvement, then they will support it. However, the federal government, which sets the rules for most tax, transportation aid, and development programs, has need for principles that take into account the benefits and costs to the public as a whole in defining the appropriate government role.
From page 30...
... For freight infrastructure projects, the case for government involvement depends on the following considerations: · Intermodal freight as a means to reduce external costs of transportation: An external cost is a cost imposed on others through a mechanism other than a market price. Intermodal freight, especially intermodal developments that have the effect of shifting some freight from truck to rail, can reduce pollution and congestion.
From page 31...
... A closely related argument is that the net cost to the state transportation agency of providing capacity to accommodate freight growth by subsidizing intermodal facilities may be less than the cost of expanding highway capacity, net of any increased highway user revenues. The recent federal highway cost allocation study has provided new information to assess such arguments.
From page 32...
... Most commonly in the case of intermodal freight projects, the alleged market failure is the potential for external benefits. The public investment should pass a benefit-cost test and should be shown to be the most cost-effective means available to achieve the intended benefit.
From page 33...
... . Subsidized intermodal freight projects have risks that ought to be taken into account in evaluating proposals: · Projections of benefits of intermodal projects as low-cost alternatives to highway capacity expansion or as a means of reducing highway external costs are highly uncertain and have to be demonstrated quantitatively to make the case for a subsidy.
From page 34...
... Circumstances that justify public involvement in these cases include the following: · State and local governments historically have a monopoly on the road business, and this circumstance is not likely to change greatly in the near future. The most important change needed in government policy to improve intermodal freight efficiency may be for better evaluation of the direct benefits of road improvements to freight users.
From page 35...
... Analysis tools and clear guidelines for decision making would allow governments to decide whether a subsidy to a project is in the public interest and to avoid the potential pitfalls of subsidies. ANALYSIS TOOLS State and local governments need standard methods and basic data for evaluating freight infrastructure investment proposals.
From page 36...
... ." (DOT 1996a, 8­9) , and its National Freight Transportation Policy notes that "the Office of Management and Budget has established guidelines for the economic analysis of Federal infrastructure investments.
From page 37...
... Estimates of tax effects sometimes do not take into account the cost of providing public services for the tax-generating facility. A more useful framework for evaluating intermodal freight project proposals is illustrated by the Federal Railroad Administration's RAILDEC analysis procedure, a benefit-cost framework that evaluates a carefully considered list of public and private benefits and costs (FRA 1996, 5.1­5.7)
From page 38...
... . Publicprivate intermodal freight projects, because of their novelty, lack established evaluation procedures.
From page 39...
... The paper appears in Part 2 of this report. Step 1: Ask questions about the market for the proposed intermodal freight facility.
From page 40...
... Step 2: Determine the existence of external benefits generated by the intermodal freight facility.
From page 41...
... As the table indicates, the major categories of external benefits usually will include reductions in accidents, congestion, and pollution. (External economic development benefits are addressed in Step 3.)
From page 42...
... The employment effect is sometimes the most difficult one to integrate with the analysis. From the local perspective, new employment may be the greatest net economic gain, whereas from the national perspective, the new jobs in the region of the project are just the result of local residents capturing some of the benefits of the nationwide improvement in freight transportation efficiency that the project causes.
From page 43...
... One method of distributing the burden of the subsidy that may be regarded as equitable is as follows. To the extent that the project subsidy is justified by local economic development benefits, the subsidy should be contributed locally.
From page 44...
... Department of Transportation FHWA Federal Highway Administration FRA Federal Railroad Administration NRC National Research Council TRB Transportation Research Board Brown, H
From page 45...
... 1996. Intermodal Freight Transportation: Volume 2: Fact Sheet, Federal Aid Eli gibility.


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