[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-331



                      FINANCING OUR NATION'S ROADS

=======================================================================

                                HEARING

                               BEFORE THE

                        JOINT ECONOMIC COMMITTEE

                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 6, 2003

                               __________

          Printed for the use of the Joint Economic Committee



91-928              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                        JOINT ECONOMIC COMMITTEE


    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]


SENATE                               HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman    Jim Saxton, New Jersey, Vice 
Sam Brownback, Kansas                    Chairman
Jeff Sessions, Alabama               Paul Ryan, Wisconsin
John Sununu, New Hampshire           Jennifer Dunn, Washington
Lamar Alexander, Tennessee           Phil English, Pennsylvania
Susan Collins, Maine                 Adam H. Putnam, Florida
Jack Reed, Rhode Island              Ron Paul, Texas
Edward M. Kennedy, Massachusetts     Pete Stark, California
Paul S. Sarbanes, Maryland           Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico            Melvin L. Watt, North Carolina
                                     Baron P. Hill, Indiana



        Donald B. Marron, Executive Director and Chief Economist
                Wendell Primus, Minority Staff Director


                            C O N T E N T S

                              ----------                              


                      Opening Statement of Member


Senator Robert F. Bennett, Chairman..............................     1

                               Witnesses

                                Panel I.

Representative Mark R. Kennedy...................................     3
Representative Marilyn N. Musgrave...............................     5

                               Panel II.

Statement of Robert W. Poole, Jr., Director of Transportation 
  Studies and Founder, Reason Foundation.........................     9
Statement of Robert Atkinson, Ph.D., Vice President, Progressive 
  Policy 
  Institute......................................................    12
Statement of William R. Buechner, Ph.D., Vice President, 
  Economics and Research, American Road and Transportation 
  Builders Association...........................................    15
Statement of Michael Replogle, Transportation Director, 
  Environmental 
  Defense........................................................    18

                       Submissions for the Record

Prepared Statement of Senator Robert F. Bennett, Chairman........    31
Prepared Statement of Representative Mark R. Kennedy.............    32
Prepared Statement of Robert W. Poole, Jr., Director of 
  Transportation Studies and Founder, Reason Foundation..........    33
Prepared Statement of Robert Atkinson, Ph.D., Vice President, 
  Progressive Policy Institute...................................    35
Prepared Statement of William R. Buechner, Ph.D., Vice President, 
  Economics and Research, American Road and Transportation 
  Builders Association...........................................    40
Prepared Statement of Michael Replogle, Transportation Director, 
  Environmental Defense..........................................    48

 
                      FINANCING OUR NATION'S ROADS

                              ----------                              


                          MONDAY, MAY 6, 2003,

                     Congress of the United States,
                                  Joint Economic Committee,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:05 a.m., in 
Room 628, Dirksen Senate Office Building, the Honorable Robert 
F. 
Bennett, Chairman of the Committee, presiding.
    Present: Senator Bennett.
    Staff Present: Donald Marron, Ike Brannon, Wesley Yeo, 
Shaun Parkin, Colleen J. Healy, Trish Kent, Jeff Wrase, Brian 
Jenn, Chad Stone, John McInerney, Wendell Primus and Rachel 
Klastorin.

        OPENING STATEMENT OF SENATOR ROBERT F. BENNETT, 
                            CHAIRMAN

    Senator Bennett. The hearing will come to order. I just 
discovered a new piece of technology here. You have to push the 
button to get the loudspeaker to work.
    Congress is currently contemplating the renewal of the 
Transportation Equity Act for the 21st Century or TEA-21. And 
most of the debate that is going on in Congress has to do with 
the details of that Act. But in the middle of that debate over 
spending formulas and budget problems, I think we should take 
some time to listen to innovative voices that can be heard 
suggesting new and creative ideas. And the purpose of this 
hearing this morning is to talk about those ideas. So those who 
are coming here to rehash the TEA-21 arguments, you might want 
to go someplace else, or you might want to open your minds to a 
different subject and a different look here.
    The first impact of what is going on in our highways hits 
us all personally in the quality of life. Our roads are 
becoming more and more congested every day. Getting stuck in 
traffic has become a common experience of everyone, and it is 
the all-purpose excuse whenever anyone doesn't keep an 
appointment or shows up late. When a simple trip across town 
becomes a logistical nightmare, then something is seriously 
wrong.
    Now there are those that will say this is beyond the 
purview of Congress, and that's true. But Congress has to 
address it because of the role that the Federal Government does 
play in our nation's highways. The average driver spends 62 
hours per year in traffic. So if we can cut that down, 
everybody feels a little bit better. But let's put it into 
economic terms. Because congestion isn't just a problem for our 
families that keeps us away from the things we'd like to be 
doing. It has a very significant economic impact.
    The estimated cost of traffic jams due to wasted time and 
fuel in 2000, the last year for which we have figures, was 
$67.5 billion. If we want to put that in perspective, that's 
enough to pay for the President's entire proposed tax cut. When 
you stretch it over a ten-year period and then put compound 
interest on it, that would give us enough money for the 
economic stimulus package that the President is proposing. I 
call this the ghost tax of congestion, and it is following us 
around wherever we go.
    Transportation makes up roughly 10 percent of the nation's 
economy, but the importance of transportation far exceeds that 
amount, because the transportation network makes it possible 
for us to move the goods and services and people that are 
essential for the economy's activity. In a world of just-in-
time delivery and customized production, if the transportation 
arteries become sclerotic, why the whole body pays a price for 
that. The old line is ``time is money.'' We're losing a lot of 
time, and that means we're certainly losing a lot of money in 
the congestion on the roads.
    Since the automobile came into existence, we have typically 
funded the roads through the gasoline tax. And since the 
interstate highway system was created in the Eisenhower 
Administration, the gasoline tax has meant that for interstate 
highways, the Federal Government provides the huge share of 
funding, tempting some people to shift everything over to the 
interstate system because they get 90 cents out of every dollar 
spent from the federal gas tax.
    But the ability of the gas tax to finance the system of 
interstate highways has deteriorated over the years for a 
number of reasons. The cost of building roads has increased. 
Inflation has eaten away the value of the gas tax. It is not 
indexed for inflation, but was passed as a straight dollar 
amount. And gas tax revenues have been diverted for other kinds 
of transit.
    We saw this dramatically in my own State of Utah. As we got 
ready for the Olympics, we realized that we could not hold the 
Olympics if we did not solve the transportation problem. And we 
had a serious transportation problem in Utah. In order to get 
it solved in time for the Olympics, we had to build it 
primarily with State funds. There are those who accused the 
Utah Olympics of taking $1.6 billion of pork barrel money in 
order to solve this transportation problem and use the Olympics 
as an excuse. Those who made that charge didn't realize that of 
the $1.6 billion we spent on modernizing I-15, $1.4 billion 
came from the State. We couldn't wait for the 90 percent in 
federal dollars. We had a challenge that had to be solved 
immediately.
    The ironic thing about it is that I-15 was open and 
marvelous for the Olympics. The world went away saying that 
Utah had done a superlative job on its transportation, And as 
soon as the Olympics were over, we discovered major, major 
traffic delays at both ends of the amount of work that had been 
done on I-15. We had taken the congestion out of downtown Salt 
Lake, but re-created it 106 blocks away where the five-lane I-
15 went back down to the traditional three, and there was the 
traffic jam all over again.
    So not only has our ability to fund road construction by 
gasoline taxes diminished, the roads themselves have 
deteriorated, which means more expenditures are necessary. 
Again, I-15 in Utah was ready for this kind of repair whether 
we had the Olympics or not. We had to do it because the 
previous design was for roughly 30 years. It had been over 40 
years since anything had been done. And the population had more 
than doubled in that period of time. So many of our interstate 
highways have reached the end of their useful lives at the same 
time that ridership has increased.
    So we're faced with a very serious challenge that has 
significant economic impacts, can slow down the entire economy 
and that requires tremendous financial resources. So rebuilding 
our interstates is going to involve much more than simply 
putting new asphalt where the old asphalt used to be.
    For many of my colleagues, raising the gas tax seems to be 
the primary solution to the challenge of maintaining our 
infrastructure. The last time we did that was under the 
presidency of Ronald Reagan, and that remains an option to be 
looked at, but there are other options that merit serious 
consideration, and it is to hear those options that we are 
holding this hearing today.
    So we've gathered a host of experts to inform us about 
innovative ways that communities all across the United States 
and really throughout the world have been using to finance and 
construct new roads and manage increasing traffic pressure. I'm 
proud to say that our witnesses today are some of the nation's 
leading experts on transportation issues. They publish widely 
on the issues that we have before us.
    Before we hear from this panel, we're going to hear from 
Representative Mark Kennedy, who has introduced the FAST Act--
Freeing Alternatives for Speedier Transportation. Did I get 
that title correct?
    Representative Kennedy. Yes.
    Senator Bennett. Good. He wants to amend toll restrictions 
in TEA-21. I understand that Senator Wayne Allard is expected 
to introduce a similar bill here in the Senate. Representative 
Marilyn Musgrave, a co-sponsor of the bill, was scheduled to be 
with us, and if her schedule allows her to come, we will hear 
her as well. She recently chaired the Transportation Committee 
in the Colorado State Legislature.
    So, Congressman Kennedy, we will start with you. We welcome 
your insights and appreciate your willingness to share your 
testimony with us. We will also include in the Committee's 
record testimony submitted by the Congressional Budget Office 
and the General Accounting Office on these subjects. 
Congressman Kennedy, you honor us with your presence.
    [The prepared statement of Senator Robert F. Bennett 
appears in the Submissions for the Record on page 31.]

                            PANEL I

          OPENING STATEMENT OF REPRESENTATIVE MARK R. 
          KENNEDY, A MEMBER OF CONGRESS FROM MINNESOTA

    Representative Kennedy. Well, Chairman Bennett, thank you 
very much for holding this hearing on this very important issue 
about how do we make sure we get the resources necessary to 
unlock the congestion that's strangling our economy and our 
cities, whether they be in Utah or Minnesota. And I would like 
to thank you for inviting me to talk about the legislation that 
I introduced with Representative Adam Smith of Washington 
State. This legislation, as you mentioned, will soon be 
introduced by Senator Allard here in the Senate, the Freeing 
Alternatives for Speedy Transportation, or FAST Act.
    Mr. Chairman, our nation is stuck in traffic, as you 
clearly stated. We are badly in need of substantial investment 
in our road system. That is something I think everyone 
assembled in this room would agree on. The problem is, there's 
a vast gulf between the investment we need to make and the 
resources that we really have available. And even with a 
radical increase in the gas tax, even the most radical one 
proposed, there would still be this gulf. We have the solution 
to this problem. We have solutions that we are ignoring, and 
many of those are tried and true.
    The user fee for many years was something that we used to 
fund many of our roads with. In fact, up until the time when we 
instituted the interstate highway system, this was a 
significant source of revenue. But in modern times, it has 
fallen into disfavor, at least at the Federal Government level. 
But despite its lack of use or prohibition from use on federal 
interstates, many states have been using this to provide 
themselves with critically needed alternative revenue streams 
and provide a free flow of people and commerce on their roads. 
But we seem to be afraid to use what has been learned at the 
states, at the federal level. We should not ignore the 
successful experimentation from these laboratories of 
democracies.
    The bill that I introduced with Adam Smith, H.R. 1767, the 
FAST Act, draws on the experience of the states and opens up 
the federal system to the innovations they have used with great 
success on their own road systems. It removes the outdated 
prohibition in federal law that prohibits states from using new 
lanes funded by fee revenue on interstate systems under certain 
conditions. And I firmly believe that the people in the 
trenches are by far the people best equipped to know how to 
solve the problems. This really pushes a lot of that power back 
to the states to help them solve much of the congestion that 
they face.
    And that is why this would provide them the maximum 
flexibility possible in how they use these new revenue systems 
but take steps to ensure the integrity of the interstate system 
as well as the confidence of the road user. The states must 
ensure that the driver has a choice to use the new FAST lane, 
that it is a voluntary user decision to pay a fee to use the 
new lanes based on the decision that the fee is worth the value 
received. The fee can only be collected by means of an 
electronic non-cash mechanism. No tolls, no toll booths to slow 
down traffic. Revenues collected on the FAST lanes have to be 
dedicated to the lanes on which they are collected. These fees 
can only be collected under my bill on the new lanes so that 
the user has the confidence that they are getting something for 
the fee they are paying.
    The final condition is that the fees go away when the cost 
of the construction on the new lanes has been recouped. The 
collection of FAST fees on FAST lanes is temporary. And right 
now under our current system, there is nothing to assure that 
if the market says a road should be there, that a road will be 
there, whereas under this bill, we would empower not only the 
states or private entities, but counties, as in the case of the 
Katy Freeway down in Harris County in Texas, can step forward 
and solve these critically needed needs.
    Mr. Chairman, I have a prepared statement that goes into 
more details on the problems we are facing and why I think FAST 
Act is a big part of the solution, and I ask that it be 
accepted into the record.
    [The prepared statement of Representative Mark R. Kennedy 
appears in the Submissions for the Record on page 32.]
    Senator Bennett. Without objection, it will be put into the 
record. Help me understand. Under your bill, then, fees would 
accumulate until the cost of the lane or highway, if an entire 
highway is built that way, is covered. Would you include 
amortization of the money? That is, interest paid on the money 
while it was in use?
    Representative Kennedy. Yes, we would. In fact, we also 
provide that in many cases, you may not just need to build the 
lane, but the interchanges may need to be adjusted in order to 
accommodate the lane. You may need to adjust some bridges. 
Every time I drive under a bridge in my own State, I always say 
``is there room here for an additional lane or are we going to 
have to do something to accommodate an additional lane?'' Those 
costs that can be directly attributable would be allowed to be 
paid for by the fees, and clearly the amortization and interest 
thereto.
    Senator Bennett. So if it costs $20 million to build a lane 
and it didn't get paid for ten years, the interest on $20 
million would also be covered by the amount of fees collected?
    Representative Kennedy. Yes it would. And I think that this 
also opens up the opportunity for private firms to step forward 
and help with this congestion relief. I think a number of 
private firms would consider stepping in and paying for those 
lanes in exchange for getting their money recouped with a 
preset rate of return that would be approved by the states, 
whether that be the MINDOT, their local department of 
transportation or their public utility commission. I think the 
idea of allowing for a return, whether it be interest or a 
market return to a private firm, should be part of what we 
incorporate into the FAST lanes.
    Senator Bennett. Thank you very much.
    Representative Kennedy. Thank you, Mr. Chairman. And I do 
look forward to hearing the testimony of not only Congressman 
Musgrave but Rob Atkinson and Bob Poole who are, as you stated, 
very strong experts in this field, and we appreciate their 
testimony here as well.
    Thank you.
    Senator Bennett. Very good.
    Representative Musgrave, we welcome you and appreciate your 
willingness to come share your thoughts with us. The floor is 
yours.

  OPENING STATEMENT OF REPRESENTATIVE MARILYN N. MUSGRAVE, A 
                MEMBER OF CONGRESS FROM COLORADO

    Representative Musgrave. Thank you, Mr. Chairman. I 
appreciate so much the opportunity to come before you today to 
discuss transportation, one of the most important issues that 
we face. Of course, this year Congress will create vital 
transportation reauthorization policy in TLOU, and I am very 
committed to working with my colleagues to ensure that we have 
enough resources to match our transportation needs.
    However, I have an equal desire to defend the hard-earned 
dollars of taxpayers in Colorado and all around the Nation. 
There are often simple solutions that are offered in regard to 
our transportation funding deficits, indexing and increasing 
the gas tax. And I'd just like to go on record and say I oppose 
those things. While they appear to offer a quick and easy 
solution, of course they would have long-range effects on our 
economy, I believe effects that would be very detrimental.
    Something that I'm very excited to be working on is the 
FAST Act. That actually empowers state and local governments by 
giving them the authority that they need to problem solve. The 
FAST Act allows interstate users to pay a user fee, something 
that makes sense to almost everyone, to drive on a newly 
constructed interstate lane. And there wouldn't be any problem 
with the onerous tolls, toll booths and something that would 
make everyone slow down and impede the flow of traffic. The 
fees are collected voluntarily, and they must be dedicated to 
the road on which they were paid. Once the revenues are paid 
off, then the fee collection ends. And people love that.
    This is an innovative approach that gives states, local 
government and citizens more options in solving our 
transportation problems. I'm sure everyone in this room is 
aware of how much people sit in their cars and wait to get to 
where they need to go. On a national basis, congestion costs 
more than $67 billion annually, more than 3.6 billion hours of 
delay, and 5.7 billion gallons of excess fuel is used. The 
average driver is losing more than a week-and-a-half of work--
that's over 62 hours a year--sitting in gridlock. The average 
cost of congestion per peak road traveler is $1,160 a year. And 
for every billion dollars invested in federal highway and 
transit spending, we know that we have great job creation of 
over 47,000 jobs that are created or sustained.
    My concern about increasing the gas tax is reflected in 
this fact right here. More than 64 percent of the nation's 
freight moves on highways. So what's going to happen if we 
increase the gas tax? What are those items that are hauled in 
those trucks? What's going to happen to the cost of those? We 
all know that it would go up.
    Sadly, nearly a third of all fatal crashes each year are 
caused by substandard road conditions and roadside hazards. 
We're all concerned about saving lives on our roads. More than 
42,000 Americans are killed and 3.3 million are seriously 
injured each year on the nation's highways. So we have to make 
some significant investment in the condition of our 
transportation infrastructure. We don't want it to deteriorate 
any further. We know that more and more people are in their 
cars for longer times, and we need some solutions.
    Currently, 2.5 cents of the per gallon tax on gasohol is 
deposited into the general fund instead of into the HTF. 
Depositing this revenue into the Highway Trust Fund where it 
belongs would increase revenue by about $600 to $700 million 
each year. We also know that under TEA-21, we lost revenue. 
$800 million was transferred from the Highway Trust Fund into 
the General Fund during final negotiations of TEA-21. 
Absolutely, this money should be placed back into the Highway 
Trust Fund. Since TEA-21 was authorized, the Highway Trust Fund 
is the only federal trust fund that does not have the interest 
credited to it. Balances in the HTF earn interest, but that is 
credited to the General Fund. Between fiscal year 1999 and 
2003, it's estimated that the HTF lost about $5.5 billion in 
interest.
    During my tenure in the State Legislature in Colorado, we 
passed some very innovative programs under Governor Bill Owens. 
I served as chairman of the Senate Transportation Committee, 
and I believe that we have some solutions that we could offer 
to the Federal Government respectfully offer those solutions.
    Number one, public-private initiative. That allowed 
Colorado Department of Transportation to leverage private 
finances to fund transportation projects. It saved the state 
time and money while allowing private industries to profit from 
the toll user fees. We also created a tolling enterprise 
authority. Colorado now has the ability to establish a tolling 
authority to general funds for transportation projects.
    During the debate in the state legislature, it was 
suggested that taken together, the public-private initiative 
and the tolling authority would generate approximately $4 
billion for the state over a 20-year period. Also, we passed 
TRANS, Transportation Revenue Anticipation Notes. Now this was 
looked at very critically. We even had to get an opinion from 
our Supreme Court as to whether or not we could do it in 
Colorado. But it passed the muster of the Court, and it's been 
a very successful, innovative approach to highway funding. It 
allowed Colorado Department of Transportation to sell bonds to 
generate money up front at a very important time for 
construction projects. It saved time and inflation costs by 
speeding up the projects. In our State, we have a list of very 
high priority transportation projects, and we call those the 
seventh pot. The TRANS bond program has accelerated the 
completion of those projects in those critical areas.
    We also have State Infrastructure Banks. Inspired by a 
Federal Government pilot program, Colorado established this 
bank which provides very low interest rate loans to private 
companies and local governments for the purpose of funding 
transportation projects. Separate accounts exist for highways, 
rail, aviation and transit projects. Colorado took this federal 
pilot program included in ISTEA, but limited to five states by 
TEA-21 and made it successful and profitable. This would be an 
easy program for us to duplicate at the federal level, and if 
implemented, each state would have more flexibility and greater 
opportunities to expand its infrastructure.
    There are great needs in our nation for transportation 
funding. Again, I oppose increasing the gas tax or indexing, 
but I am certainly supportive and would like to compliment my 
colleague on the FAST Act, and I believe that that affords us 
some relief in this area.
    Senator Bennett. Thank you very much.
    Let me ask two quick questions before we go to our other 
panel. I used to chair the Subcommittee on Legislative Branch 
Appropriations, and discovered that the Taft Memorial, which 
was built entirely with private funds as a memorial to the late 
Senator Robert Taft, is now the responsibility of the Federal 
Government to maintain. And the maintenance costs are now 
higher than the original cost to build the thing, the Taft 
Carillon which you hear pealing out on the Senate side from 
time to time.
    That caused me to think about the maintenance costs of 
these lanes that would be built under the FAST Act. Is there a 
possibility that at some point charges could be reinstituted to 
maintain these lanes, or would they be maintained by the 
general tax fund once they have been paid for? Or do you 
address that? Do you leave that up to the states?
    Representative Kennedy. Mr. Chairman, in my bill, we do 
provide for the maintenance of those lanes to be paid for by 
the fees as well. I think that's also an attractive reason why 
having private participation up front means that if they're 
going to have to pay for the maintenance, they maybe build the 
road better from the very beginning. But we do provide for 
that. And although it expires when it's paid for, there might 
be a small charge that may or may not make sense for the 
maintenance.
    But I really think with the growing congestion that we 
have, once you get to the end of the 10 or 15 years to pay for 
the initial lane, that we're going to probably need to add 
another lane alongside that, to expand that as well, to keep 
the interstate system growing with the needs of the community, 
and the incorporation of paying for maintenance could be 
included with that expansion as well.
    Senator Bennett. Once the lane is paid for, let's take the 
theoretical assumption that it is paid for and there is a 
sufficient endowment to cover maintenance and all charges 
disappear. Does that mean it is then open to all traffic?
    Representative Kennedy. It would be open to all traffic and 
it would revert back to being a lane like any other lane today 
on the interstate system that has no additional cost.
    Senator Bennett. I see. That's a very innovative idea, and 
we thank you very much for your participation here this 
morning. Appreciate both of you coming over.
    Representative Musgrave. Thank you, Mr. Chairman.
    Representative Kennedy. Thank you for your interest.
    Senator Bennett. Thank you. We'll now go to the next panel.

                            PANEL II

    Senator Bennett. We appreciate all of you being here. We 
have with us Robert W. Poole, Jr., who is the Director of 
Transportation Studies at the Reason Foundation in Los Angeles. 
We have Dr. Robert Atkinson, who is Vice President and Director 
of Technology and the New Economy Project at the Progressive 
Policy Institute.
    We have Dr. William Buechner, who is Vice President of the 
American Road and Transportation Builders Association. He's 
Vice President for Economics and Research and their chief 
economist. And then we have Michael A. Replogle, who is 
Transportation Director of Environmental Defense.
    Gentlemen, we appreciate your taking the morning with us. 
We'll hear from you in the order in which I have introduced 
you.
    Mr. Poole.

    OPENING STATEMENT OF ROBERT W. POOLE, JR., DIRECTOR OF 
           TRANSPORTATION STUDIES, REASON FOUNDATION

    Mr. Poole. Thank you, Senator Bennett. I appreciate very 
much the opportunity to be here this morning. My focus today is 
on a potential breakthrough idea in urban transportation. As 
you mentioned in your opening statement, our major cities, our 
major urban areas are just plagued by traffic congestion. $67.5 
billion per year in lost time and wasted fuel. And that number 
has grown larger every single year that the Texas 
Transportation Institute has produced those reports, which 
suggests to me that what we've been doing about congestion is 
simply inadequate, and we need to look for better approaches.
    We have been investing as a nation mostly in two forms of 
urban transportation in the last two decades, HOV (high 
occupancy vehicle) lanes and mass transit. Unfortunately, the 
2000 census revealed that in most cities, a smaller fraction of 
people car-pooled to work in 2000 than used that mode in 1990. 
Likewise, a smaller fraction used transit to get to work in 
most cities, despite all that we've been investing in improving 
those modes. And since population has continued to increase, we 
have even more people trying to use pretty much the same amount 
of freeway capacity to get to work. So it's no wonder 
congestion has no reached record levels.
    I'd like to suggest a fresh approach. Let's not abandon HOV 
lanes, but let's figure out a way to use them more 
productively. Let's not retreat from mass transit, but 
likewise, let's develop a form of mass transit that competes 
better with the automobile. And let's face the fact that we do 
need, just as you needed it in Salt Lake City, we need more 
highway capacity and figure out a way to build more. All three 
of these come together in an approach we call HOT (high 
occupancy toll) Networks.
    The basic idea is as follows. We shift the operating 
principle from HOV lanes to HOT lanes, High Occupancy Toll 
lanes, convert them to high-speed premium lanes that drivers 
can use by paying a market price, but which truly high-
occupancy vehicles like buses and van pools can use for free. 
Use the toll revenue stream to support large-scale issues of 
revenue bonds to generate the billions of dollars needed to 
build out the existing HOV facilities into a complete, seamless 
network, and then encourage transit agencies to run large-scale 
regional express bus service on that seamless, uncongested 
high-speed network.
    Now this HOT Network idea of ours combines two recent 
innovations. One is HOT lanes and the other is Bus Rapid 
Transit, or BRT. Currently there are four HOT lane projects in 
operation, two in California and two in Texas, but another 
dozen are in the planning stages, including a proposal here in 
Washington to add them to part of the Beltway in Virginia.
    The basic idea is to sell the unused capacity to paying 
motorists. HOT lanes use fully electronic toll collection. 
There's no toll booths anywhere on them. And the two in 
California use variable pricing to match supply and demand and 
control access and thereby control congestion, to keep them 
free-flowing at the speed limit at the busiest rush hour, which 
is a pretty amazing achievement.
    Bus Rapid Transit refers to high quality express bus 
service usually on special lanes, and it's been proven in 
cities like Ottawa, Bogota and Curitiba. BRT provides service 
quality equivalent to most rail transit, but at a significantly 
lower cost. The Federal Transit Administration is now a big 
supporter of BRT based on busway operations in places like 
Miami and Pittsburgh.
    Now our HOT Networks concept would provide an uncongested 
right-of-way throughout the metro area for BRT service without 
any cost of that to the transit agency, because it would be 
paid for by the tolls voluntarily paid by drivers.
    Last year my colleague Ken Orski and I did a detailed study 
of the potential of HOT Networks. We defined a network of this 
sort as an interconnected set of limited access lanes on an 
urban freeway system which buses and van pools could use at no 
charge and everybody else would pay an electronic variable 
toll. You'd begin such a network by converting the existing HOV 
lanes to HOT lanes, then issue toll revenue bonds based on the 
entire proposed future network to pay for the capital costs of 
building out all the missing links and connectors to make it a 
true network.
    There would be four main benefits from such a network in an 
urban area like Washington, DC. or Salt Lake City. First of 
all, every driver in the region would have congestion 
insurance. In other words, they would know that whenever they 
really needed to get somewhere on time, they could opt to use 
these pay lanes and get there quickly and on time in a reliable 
fashion. And that's something that's simply not available today 
on our freeways at any price to anybody.
    The second benefit is there would be much greater 
productivity than today's underutilized HOV lanes, because we'd 
have a lot more people and vehicles per hour going through 
them.
    Third would be we'd be generating a large new funding 
source for urban transportation over and above what's coming in 
today with gas taxes, and that's very, very important at this 
juncture.
    And finally, there would be much simplified enforcement 
compared to today's HOV or HOT lanes, because every valid 
vehicle would have to have an electronic transponder, and you 
can do all the enforcement electronically.
    So the main question that Ken and I looked at in our study 
was how feasible is the idea that these things could be 
actually funded by toll revenues? Could they be largely self-
supporting? To answer that question, we had to model actual 
networks or proposed networks in real cities and figure out 
what they would cost to build and how much revenue they might 
be able to generate.
    We selected eight of the most congested areas in America: 
Los Angeles, San Francisco, Washington, DC., Seattle, Houston, 
Dallas, Atlanta and Miami. In each case we contacted the local 
metropolitan planning organization (MPO), got their long-range 
plan, looked at what they planned to build in HOV lanes over 
the next 25 years, what they already have, and then we filled 
in missing links and figured how much would it cost to build 
everything either that they plan or that we said in addition 
would be needed. And that gave us a basic estimate of the cost 
to build eight of these networks in eight large cities, and it 
turned out to be $43 billion. That's a lot of money, and it's 
not going to happen unless we come up with a new source of 
funding.
    That was the easy part, though. The complicated part was 
estimating how much revenue might be generated by people 
voluntarily paying a premium toll to bypass congestion. And 
fortunately, here we had a lot of data from the operating HOT 
lanes in California. We had access to a lot of experts. We 
developed a pricing model and tailored it to each network, and 
we ended up with baseline estimated revenues of $2.9 billion 
per year over the eight metro areas.
    And we talked to investment banking people who fund toll 
roads, and they said, well, you could probably issue about ten 
times that annual dollar revenue stream in revenue bonds up 
front. So that would be $29 billion in toll revenue bonds, 
which would fund about two-thirds of the $43 billion in costs 
to build out all of these networks. The balance of the money 
would come from the existing highway trust fund monies that the 
MPOs already plan to spend adding HOV facilities over the next 
25 years. But with the up-front toll revenue bonds, these 
networks could be built in the next ten years, not spread out 
over 25 or 30 years, and we could build more because we'd have 
that revenue source available.
    Now to us, that looks like a win-win proposition. It shows 
the power of market pricing to address the problem of traffic 
congestion. But unlike attempts from the top down to mandate a 
price being charged on every lane on a freeway system, our 
approach would be strictly voluntary. The only people who pay 
would be those who choose to use the lanes to bypass congestion 
on the days and times of their choosing. Yet those paying 
drivers would be making a significant financial contribution to 
make possible the new infrastructure that could be used for 
high quality Bus Rapid Transit.
    Now my organization doesn't lobby, so I'm not here to 
advocate legislation, but I'd point out that if Congress wants 
to take an idea like this seriously, it would only take a few 
simple changes to make this possible. As Congressman Kennedy 
mentioned, there's a current problem with the federal ban on 
putting tolls on interstates, so that would need to be adjusted 
for these new lanes and for HOV lanes that become part of a 
network like this. And local officials would need the 
permission to exempt only buses and van pools from the pricing 
on these networks.
    It would also be helpful if there were a joint FTA/FHWA 
program to actually help MPOs and state DOTS that wanted to 
develop these networks and get assurances of long-term 
stability and so forth.
    But to sum up, the idea of congestion pricing or road 
pricing has been floating around in transportation circles for 
more than 25 years. It's always had a lot of promise in theory, 
but it's usually been considered just politically impossible or 
infeasible to do. Very few elected officials are willing to 
impose a charge on something that people have gotten used to 
getting for free, and motorist organizations don't want to pay 
twice for using existing freeways. That's why we really need to 
create true value pricing where people only pay if they get 
something better. And that's what our proposal offers, we 
believe. We'd get $43 billion worth of new urban transportation 
infrastructure, giving every driver in the region congestion 
insurance on the entire freeway system. At the same the people 
who use transit or who might use transit if it were faster and 
more reliable gain a whole new kind of express bus service that 
operates throughout the region on uncongested lanes, and 
without having to pay for the cost of creating those lanes 
through the transit system. That appears to me to be a win-win 
proposition, and I certainly commend it to your attention and 
to the attention of those who will be reauthorizing TEA-21 this 
year. And I'd be happy to answer any questions that you have.
    Thanks very much.
    [The prepared statement of Mr. Poole appears in the 
Submissions for the Record on page 33.]
    Senator Bennett. Thank you very much.
    Congressman Kennedy, if you'd like to come up and sit here 
so that you can ask questions, we'd be delighted to have you be 
an honorary Member of the Joint Committee. That's Congressman 
Stark's seat, and I'm delighted to have you fill it.
    [Laughter.]
    Dr. Atkinson.

  OPENING STATEMENT OF ROBERT D. ATKINSON, VICE PRESIDENT AND 
   DIRECTOR, TECHNOLOGY AND NEW ECONOMY PROJECT, PROGRESSIVE 
                        POLICY INSTITUTE

    Dr. Atkinson. Thank you, Senator Bennett. I appreciate the 
opportunity to appear before the Committee. I won't go into the 
details on how bad the problem is. You and the other speakers 
have attested to that. But I do want to start with why is the 
problem so bad. The problem is so bad largely because we have a 
highway shortfall in this country. Up until the mid-1980s, 
early 1980s, we were able to keep pace with population growth 
and demand growth for transportation with our highway system. 
Since then, we've fallen behind. Between 1987 and 1997, our 
highway capacity expanded just 9 percent in our major 
metropolitan areas while VMT, Vehicle Miles Traveled, expanded 
42 percent. And I think it's pretty obvious to anyone who has 
taken microeconomics that when that happens, the result is 
congestion.
    Why did that happen? Well, part of it is because we just 
had a bigger economy. We've grown. Half of the growth in VMT 
was simply due to the fact that there are more workers 
commuting to work every day. So why didn't we build more roads? 
There are many different reasons. One of them is opposition 
from people who don't want a road in their neighborhood.
    But there's a more compelling reason, and that's the myth 
that's been perpetuated over the last 15 years that essentially 
says road building isn't the answer and doesn't solve 
congestion. This is the myth of induced demand. If you build a 
road, it just gets crowded again. But the reality is, when you 
look at the careful studies that have been done, induced demand 
is a factor, but only a small factor, and places that expand 
their highway capacity faster than their population grows 
actually find that they reduce congestion. We're never going to 
get rid of congestion. We'll never get zero congestion, but we 
can certainly make progress.
    The other reason we haven't really dealt with this problem 
of expanding our highway capacity is a lack of funding. As a 
share of miles traveled, highway expenditures by all levels of 
government fell from about 8.7 cents per mile in the early 
1960s to just 3.9 cents in 1997. At the same time, our system 
needs have gone up as we've gotten a bigger population and more 
roads, and in addition, our infrastructure has aged.
    Senator Bennett. If I could interrupt you. Are those 
constant dollar figures or are they adjusted for----
    Dr. Atkinson. They are adjusted for inflation.
    Senator Bennett. So what year figures are we talking about?
    Dr. Atkinson. Early 1960s, with the average was about 8.7, 
and 1997. So these are in 1997 dollars.
    Senator Bennett. In 1997 dollars. Thank you very much. I 
apologize for the interruption.
    Dr. Atkinson. One of the reasons for that shortfall is that 
on a per-mile driven basis, gas taxes that the average American 
pays to drive their car, are about half of what they were 40 
years ago. Part of that is because the gas tax hasn't kept up 
with inflation. The other part of it is, because our cars are 
just more fuel efficient even with the rise of SUVs and other 
cars, we have a more fuel efficient fleet, so people pay less.
    Well, it's pretty clear when you look at the evidence that 
if we expanded our highway capacity, we could reduce 
congestion. To do it, it's going to cost a fair amount of 
money, though. DOT estimates that just to keep our highway 
system in the current condition is going to require a 16 
percent increase in funding from $48 billion to $56 billion in 
1997 dollars. Cutting congestion would require significantly 
more. They estimate up to $94 billion per year. Well, we can't 
get there from here unless we do a couple of things.
    PPI supports increasing the gas tax. We feel that's an 
important step to take, particularly at minimum to index it to 
inflation, which it hasn't been. We need to get more revenues 
there. One idea we have proposed is a temporary increase in the 
gas tax for ten years where Congress would phase in a three-
cent-a-year increase in the tax for five years, and then keep 
it at that level for ten years and then take it down to where 
it was after adjusting for. This would raise $25 billion a 
year. It would allow us to catch up and make up for this 
shortfall we've had for the last 20 years, but not provide a 
long-term burden on drivers.
    Having said that, though, we also strongly support the view 
that we have to use other means in addition to the gas tax; in 
this case, tolls. In 1997, tolls accounted for less than 5 
percent of current highway revenues. And so we're strong 
supporters of a wide variety of measures, and I commend Bob 
Poole and the Reason Foundation for their innovative ideas on 
tolls, which we fully support. The whole idea of HOT lanes and 
HOT Networks and other types of tolling can be used to expand 
capacity.
    Let me just respond to some of the complaints or possible 
objections that people might have about road pricing. Opponents 
tend to make three or four different objections: they're 
inefficient, they're unfair, and they represent double 
taxation. With regard to inefficiency, we've heard from a 
number of speakers this morning, that may have been true 20 
years ago. I still get frustrated when I drive to New York and 
have to stop every five miles on the New Jersey Turnpike and 
pay my quarter. New tolling systems employ on the fly, 
transponder-based tollings, so they're not inefficient.
    The issue of double taxation and isn't this a new tax? Gas 
taxes and tolls only cover about 88 percent of highway costs. 
If you include the cost of maintaining other roads, including 
local streets, the share is significantly lower. So it's not as 
if the gas tax already pays its fair share. It doesn't pay 
enough. And as a result, other people who don't use the roads 
are actually subsidizing drivers.
    It's even worse when you consider that the cost of adding 
lanes in urban areas is significant. A DOT study showed that 
the cost of adding an average lane in an urban area is about 30 
cents per mile driven. And yet gas taxes would account for just 
2 cents. So again, you can't really get there from here. If you 
want to expand capacity in these high-cost areas, you have to 
ask drivers to contribute, ask users to contribute.
    Lastly, on the issue of a tax increase. I think if Congress 
decided this year that they were going to toll all the 
interstates, one might make a reasonable case that that would 
be a tax increase. On the other hand, a proposal like 
Congressman Kennedy's is not a tax increase, because it's 
essentially a way for consumers to buy a service that they 
might otherwise not have the choice to buy. As long as we're 
giving consumers a choice between driving on the free lane and 
buying a new service, just as they might want to go out and buy 
a plane ticket to New York. That's not a tax. It's something 
they've voluntarily chosen. I don't really see that as an 
additional tax.
    And finally, there are people who would argue that these 
are unfair. Some people have called these Lexus lanes as a 
derogatory term, essentially that only people with Lexus cars 
and high incomes would drive on these lanes. Most of the 
studies, in fact all the studies, have shown that's not true. 
Certainly there's a mix of income of people who drive on these 
lanes. Although to be fair, use of the lanes are more highly 
correlated with higher incomes.
    Now is that a problem? I would argue as someone who is 
affiliated with the Democratic Leadership Council and being a 
Democrat and being concerned with equity, that that's not a 
problem. I see it as just the opposite. This is a way to get 
higher income people to pay for infrastructure so lower income 
people don't have to pay for it. So I see it in some ways as a 
very progressive idea. Now the problem is, well, what if lower 
income people don't benefit? Well, I think they would benefit. 
All the studies have shown that by adding new capacity on 
existing lanes, the free lanes flow more freely, and as a 
result, everyone benefits.
    Finally, if people are concerned about that, there are 
measures you can take to directly address the equity issues. 
For example, you could use revenues from HOT lanes to support 
transit. I think it's going to be a little more problematic to 
divert toll revenue from new construction. I think you have to 
use that for new construction. But on HOT lanes where you're 
really just tolling an existing highway, you could certainly 
divert some of that to transit and address some of these 
issues.
    So in closing, let me say I think this is an idea whose 
time has come. There are several things that Congress can do to 
support this and help advance it. Clearly, H.R. 1767 is an 
important step forward. It would give states the ability to do 
this. But I would go one step further.
    While I commend Congressman Kennedy on the bill, and I 
think we need to do it, I would also say we might want to take 
one additional step, and that is to give states some incentive 
to move more towards tolls. One of the reasons states haven't 
done it, they can toll their own roads and they haven't done it 
that much, is largely because of political opposition and 
bureaucratic inertia in state DOTS. It's just something that 
they haven't done, and so they're not going to do it 
automatically. Our idea is for a limited period of time of six-
year reauthorization, we tell states that they can, if they 
build a toll road, get a 90 percent match from the Federal 
Government instead of the typical 80/20 split. We believe this 
would give states a real incentive, because they'd be getting 
more money, have to spend less of their money to use to build 
toll roads.
    Once you build a system of toll roads in states essentially 
people get used to them, elected officials get used to them, 
state DOTs get used to them, and it would just become the new 
way of doing business in the 21st Century.
    So with that, let me close and say I think we can talk for 
a long time about the purity of the gas tax and why we ought to 
fund roads with the gas tax. At the end of the day, it's not 
going to get us where we need to go, even if we increase it, 
which we advocate. We have to have other revenue sources, and 
tolls are a critical source.
    Thank you very much.
    [The prepared statement of Dr. Atkinson appears in 
Submissions for the Record on page 35.]
    Senator Bennett. Thank you.
    Dr. Buechner, I understand you were a senior economist for 
the JEC for 20 years.
    Dr. Buechner. I was here for a long time.
    Senator Bennett. Welcome home.
    Dr. Buechner. And it's nice to be back. Thank you.

     OPENING STATEMENT OF WILLIAM R. BUECHNER, Ph.D., VICE 
     PRESIDENT, ECONOMICS AND RESEARCH, AMERICAN ROAD AND 
              TRANSPORTATION BUILDERS ASSOCIATION

    Dr. Buechner. Senator Bennett, thank you very much for 
inviting the American Road and Transportation Builders 
Association (ARTBA) to testify this morning on financing our 
nation's roads. As you mentioned, I was a senior economist here 
for a long time, and I'm very happy to be back to testify on 
this very important subject.
    ARTBA is an 100-year-old association representing the 
transportation construction industry. Its core mission is to 
aggressively advocate federal capital investments to meet the 
public and business communities' demand for safe and efficient 
transportation. We have more than 5,000 members from all 
sectors of this industry, and so we have a consensus view on 
our recommendations.
    Let me begin by saying that we're very heartened that the 
Joint Economic Committee is exploring how to generate 
additional revenue to meet our substantial investment shortfall 
in highways and public transit facilities. Of all the many 
policy areas that are covered by this Committee, few have as 
direct an impact on the nation's economy as the government's 
investment in transportation.
    While ARTBA's focus is on financing for the core federal 
transportation programs, we've long been a leader in the area 
of public-private partnerships and leveraged financing for 
transportation projects. More than 60 major companies are 
represented in our Public-Private Ventures Division.
    The Transportation Equity Act for the 21st Century, or TEA-
21, established a number of financing mechanisms that were 
designed to foster public-private partnerships. Among them are 
the Transportation Infrastructure Finance and Innovation Act, 
or TIFIA; State Infrastructure Banks, which was carried over 
from ISTEA; toll road programs, provisions like that. After 
five years of experience under TEA-21, the results have been 
somewhat mixed, though. There have been a number of good 
projects delivered at substantial cost savings to the public, 
but not as much interest or private equity as had been hoped.
    The TIFIA program offers federal credit assistance for up 
to one-third of the cost of transportation projects of national 
or regional significance. For the 11 projects that have been 
approved so far, TIFIA has provided $3.6 billion of the total 
project cost of $15.4 billion, but at a projected U.S. budget 
cost of only $190 million. So that's been a terrific leverage 
from this particular program.
    The total, however, is far below the authorization for this 
program. We have a number of suggestions that we would make 
when this program is reauthorized after TEA-21, including 
lowering the threshold for the project size, permitting 
intermodal projects, and somehow or other getting the TIFIA 
office over at the Federal Highway Administration to be more 
enthusiastic about approving these projects.
    For State Infrastructure Banks, 32 states now have them. 
They provide revolving funds for transportation projects. There 
are about 310 loans outstanding, worth about $4 billion. But 
only four of these State Infrastructure Banks are eligible for 
a TEA-21 pilot program which allows them to use federal highway 
funds for bank capital. We recommend that this pilot program be 
extended to all 50 States.
    For a public-private partnership to work, though, as a 
source of funding, there has to be a stream of income from the 
project back to the private investor. Traditionally, this has 
meant tolling, and tolling is gaining acceptance as a source of 
highway funding. Congressman Kennedy's proposal, Bob Poole's 
proposals for HOT lane corridors, and the concept of truck-only 
toll lanes, which ARTBA has endorsed, are creative variations 
on this tolling approach that can generate new revenue sources 
for highway improvements. Our major caveat is that the funds 
should be used for further investment in transportation and not 
go into general funds.
    There are, of course, other ways of generating a revenue 
stream for private investors, like development districts where 
businesses and developers benefitting from a highway investment 
will finance it through higher property or sales taxes, or 
programs where project investors would be compensated with land 
and development rights near a project, like we did with the 
railroads back in the 19th Century.
    Initiatives such as these can be important new sources of 
transportation investment, but our view is that they are a 
supplement to and not a substitute for the core investment that 
is financed by the federal-aid highway and mass transit 
programs. Providing and maintaining the nation's transportation 
infrastructure is and always has been a core function of 
government. More than two years ago, ARTBA began urging that 
the successor to TEA-21 create a presidential commission which 
would evaluate alternatives for financing transportation 
improvements in the future. It's clear that as alternative 
fuels and other technology developments reduce dependence on 
petroleum, the Congress will have to develop alternatives to 
the traditional transportation revenue sources.
    For the past half century, though, most federal 
transportation investment has been user-fee financed. Revenues, 
for example, from the federal motor fuels taxes and taxes on 
heavy trucks are credited to the Federal Highway Trust Fund and 
are supposed to be used to finance capital investments in the 
nation's highways and mass transit systems.
    Prior to TEA-21, this relationship was often breached, 
however. Congress would provide whatever amount could be carved 
out of the domestic discretionary budget cap for highways and 
transit in competition with everything else. The result would 
have no formal link to either Highway Trust Fund revenues or 
the nation's transportation investment requirements.
    TEA-21 addressed half of this problem by linking highway 
program funding directly to Highway Account receipts. But the 
annual investment in highways still had no relationship to the 
nation's surface transportation needs. The 2002 Report to 
Congress by the USDOT on the Conditions and Performance of the 
Nation's Highways, Bridges and Transit concluded that under 
TEA-21, ``capital investment by all levels of government . . . 
remained below the `Cost to Maintain' level.'' And I'm quoting 
directly. ``Consequently, the overall performance of the system 
declined.'' And that's the end of the quote.
    For TEA-21 reauthorization, our organization has for more 
than two years urged that Congress take the next step up to a 
performance-based funding mechanism for highways and mass 
transit. What this means is financing the federal highway and 
mass transit programs at the level necessary, at minimum, to 
maintain current physical and performance conditions, and then 
hopefully begin improving conditions.
    Based on this USDOT report, the House Transportation and 
Infrastructure Committee found that this minimum level of 
investment would total $320 billion over the next six years, or 
an average of $54 billion per year. That would include about 
$270 billion, at least $270 billion at minimum for highways and 
another $50 billion for transit. We've supplied a copy of the 
Committee's findings with our prepared statement.
    The only current reauthorization proposal that will meet 
these investment needs is the program proposed by the 
bipartisan leadership of the House Committee on Transportation 
and Infrastructure. This proposal would provide $375 billion 
for the highway, transit and safety programs over the next six 
years, including $300 billion for highways and the rest for 
transit and safety. This level of investment would not only 
maintain current highway and transit conditions, it would begin 
to make some improvements.
    The problem of course is that projected revenues into the 
Highway Trust Fund are not sufficient to finance the level of 
federal highway and transit investment required to meet the 
nation's needs. A meaningful increase in highway and transit 
investment will require a substantial infusion of new revenues 
into the Highway Trust Fund.
    There are a number of proposals for this. A year ago we 
proposed an increase in the federal gas tax of about 2 cents a 
year, which would make it possible to meet our nation's needs.
    The bipartisan leadership of the T&I Committee is 
considering a number of revenue options, including spending 
down the Highway Trust Fund balance, compensating the Highway 
Trust Fund for revenues lost to the gasohol tax incentives, 
reinstating interest on the Trust Fund balance and reducing 
motor fuel tax evasion. These would all be helpful, but when 
you look at the numbers, it's not much money. The revenue 
impact may be $3 or $4 billion a year, but it doesn't get 
anywhere near up to what we need to invest.
    To bridge this gap, the Committee is also considering 
recommending a one-time 5.5 cent/gallon adjustment to the motor 
fuel excise tax to restore purchasing power lost since the rate 
was last adjusted in 1993, plus subsequent indexing of the rate 
to the CPI. We wholeheartedly support this approach or pretty 
much any other approach that comes up with new user-fee 
supported revenues into the Highway Trust Fund.
    Our prepared statement provides a lot of details on the 
economic and safety benefits of increasing surface 
transportation investment as well as details on the cost to the 
economy of failing to increase federal investment in 
transportation infrastructure.
    In summary, Mr. Chairman, there are many ways in which the 
private sector can help finance investment in transportation 
infrastructure. ARTBA has been a leader over the years in 
supporting public-private partnerships. The federal 
responsibility for supporting investment in highways and 
transit, however, cannot be ignored. A minimum federal 
investment of at least $270 billion will be needed during the 
next six years just to maintain current conditions on the 
nation's highways. An investment of $50 billion is necessary in 
the transit systems.
    The bipartisan leadership of the House Committee on 
Transportation and Infrastructure has developed a bold proposal 
to meet these goals, and we urge Congress to enact it. We also 
urge the Congress to include the TIFIA, SIB and toll road 
revisions that we propose in the TEA-21 reauthorization 
legislation.
    Thank you.
    [The prepared statement of Dr. Buechner appears in the 
Submissions for the Record on page 40.]
    Senator Bennett. Thank you very much.
    Mr. Replogle, you get the last word.

OPENING STATEMENT OF MICHAEL REPLOGLE, TRANSPORTATION DIRECTOR, 
                     ENVIRONMENTAL DEFENSE

    Mr. Replogle. Thank you, Chairman Bennett. Good morning. 
I'm speaking on behalf of Environmental Defense. We're an 
organization with 300,000 members that links science, economics 
and law to try and help protect the environment.
    The central point I'd like to make this morning is that 
when we finance, tax and price transportation in ways that 
favor driving and roads over transit and other travel choices, 
as was the case for much of the last century, it skews 
investment and consumption decisions, and that harms the 
efficiency of our transportation system, public welfare and the 
environment.
    As we reauthorize TEA-21 and seek new means of innovative 
financing for surface transportation, Congress should assure a 
level playing field for competition between travel modes to 
encourage wise stewardship decisions by both consumers and 
officials.
    The ISTEA and TEA-21 laws began to level the playing field 
between highways and other means of transportation after 
decades of overwhelmingly pro-highway policies. This slowed the 
long, rapid rise of vehicle miles of travel and the decline of 
transit ridership. In fact, in the last seven years, transit 
ridership grew by almost 20 percent, and vehicle miles traveled 
grew by only 11 percent. Yet financing problems are now 
dampening this recent trend. Disastrous local and state 
finances have prompted transit service cutbacks and increased 
fares with nine out of ten large transit agencies raising their 
fares, and a third of all transit agencies providing less 
service. Together with rising unemployment, this has caused 
transit ridership to fall slightly last year, breaking the 
recent trends of rising ridership, while vehicle miles 
traveled, which had been declining or flat, rose last year 
about 1.7 percent, fueled in large part by Americans driving 
more between cities instead of taking planes.
    But Americans want more and not less transit service and 
travel choices. A recent poll showed eight out of ten Americans 
agree that increased public investment in public transportation 
would strengthen the economy, create jobs, reduce traffic 
congestion and air pollution, and save energy. I must disagree 
with my colleague Rob Atkinson about whether we can actually 
build our way out of traffic congestion. There are a whole set 
of studies that in fact show that we really can't. If you build 
roads, they fill up. Recent studies show that a 10 percent 
increase in lane miles of road capacity typically spurs about 
an 8 percent increase in vehicle miles of travel, leaving 
congestion in the long run little changed, but boosting 
traffic, sprawl and pollution.
    Now this can be offset if we increase the price of driving 
and thereby manage rather than give away scarce and expensive 
road space and parking. Arid the proposals that we've heard 
about this morning could help to do just that. But if toll 
revenues go just to building more roads, we're caught in a 
vicious circle that harms the environment and reduces access to 
opportunities for those without cars.
    On the other hand, if toll revenues are dedicated to 
expanding travel choices, like paying for better transit, then 
road pricing actually increases equity, reduces demand for road 
expansion, and enhances environmental performance.
    Now there are notable examples of this. In San Diego, 
underused HOV lanes have been turned into high occupancy toll 
lanes which allow solo drivers to use those lanes if they're 
willing to pay a fee with an electronic toll. This finances new 
express bus services, providing access to jobs for those who 
otherwise wouldn't have it, and it trims traffic congestion.
    In New York/New Jersey, the Port Authority a couple of 
years ago instituted higher tolls for solo drivers in the rush 
hour and offpeak discounts for those using electronic 
transponders on the Hudson River bridges and tunnels. And that 
experiment has cut traffic congestion in the peak hours by 
about 7 percent. And about 40 percent of the toll revenues from 
the Port Authority bridges and tunnels there that are priced 
like that are going to pay for PATH rail service that connects 
New York and New Jersey, which further expands travel choices, 
and trims traffic congestion in those same tolled corridors.
    So as Congress considers financing, new means of financing 
roads, we urge you to look at such innovative approaches as a 
model. We urge you to reject proposals like the ones from 
Senators Grassley and Baucus that would raid the transit 
account to fund roads, leaving transit short by about $4 
billion a year, destroying TEA-21's guaranteed and firewalled 
transit funding. This would undermine public support for the 
whole transportation program.
    Now new proposals for toll financing, like Congressman 
Kennedy's proposed bill, unless modified, could further tilt an 
unlevel playing field by restricting billions of dollars in 
potential new revenues solely for the use of building more 
roads. This could fuel more sprawl and more traffic while 
inadvertently plunging our transit programs back into decline.
    We need to stop financing and subsidizing roads and driving 
with non-user fee sources. As you've heard from earlier 
witnesses, these non-user fees, like local property taxes, 
sales taxes and other general fund revenues already bear close 
to 40 percent of the cost of building and operating our 
highways.
    This is an inequitable use of money and exacerbates sprawl 
and environmental degradation while drawing down resources that 
might better be spent addressing education, health care and 
homeland security needs at the local level.
    We urge you to assure a more level playing field through 
the following actions in reauthorizing TEA-21:
    First, assure parity of both funding match requirements and 
project approval requirements for new transit and highway 
projects. If new transit projects only get a 50 percent federal 
match, the same should apply to new highways.
    End the restrictions that limit tolls on interstate roads, 
as we've heard others support.
    Ensure that toll road revenues are available for transit 
and traffic reduction strategies as well as paying off bonds to 
build roads, and ensure that toll roads are managed with public 
oversight to meet environmental and equity performance 
standards. With those significant changes, we could support 
Congressman Kennedy's bill.
    Encourage bus rapid transit services on managed lanes to 
expand travel choices and boost efficiency. The posterboard 
that you see here to my left shows the TransMileneo Bus Rapid 
Transit System in Bogota, Colombia which was built in less than 
three years at a cost of under $8 million a mile. This is a 
notable and adaptable model with prefabricated stations, as you 
see there, that fit into the median of the highways. It 
efficiently separates fare collection, which you pay when you 
go into the station, from boarding the buses. And the buses 
operate on very fast reserved lanes that are free of delay.
    We also need to look at creating a new flexibility 
incentive grant program in TEA-21 to reward states that change 
their constitutions or statutes to assure both transit and 
highway revenues are funded from state transportation revenues. 
More than 30 states have constitutional or statutory 
restrictions that limit the ability to use state gas taxes for 
anything other than building highways.
    We need to reauthorize the value pricing program at $25 
million a year for grants, technical assistance and pilot 
projects to evaluate innovative strategies that manage traffic 
or reduce driving and related pollution and other problems 
through pricing. This is a successful program.
    We need to double funding for the Congestion Mitigation Air 
Quality program, expanding its eligibility to include pay-as-
you-drive insurance, and dedicating about $15 million a year 
for a new pay-as-you-drive insurance grant program to 
demonstrate how motorists can save on their premiums if they 
drive fewer miles. This is the equivalent of having a vehicle 
mile of travel fee. It's like a road toll, but it's actually 
saying you can save on your car insurance if you drive less 
rather than paying basically a fixed price no matter how many 
miles you now drive, which is the way our insurance system 
typically sets rates.
    We need to provide equal tax treatment of commuter benefits 
for transit users, drivers, cyclists and car poolers, as Senate 
bill 667 and House bill 1052 would provide.
    And finally, we need to increase funding for metropolitan 
and state planning to expand routine consideration of pricing, 
smart growth and transportation strategies in planning and 
project reviews, and to support timely implementation of the 
new air quality standards.
    We need to fund research and complete the rapid deployment 
of advance travel models similar to the TRANSIMS model at Los 
Alamos National Lab, in order to help local agencies have the 
tools they need to effectively consider and evaluate such 
strategies in a wide array of potential implementation locales.
    In conclusion, innovative pricing strategies like HOT lanes 
could play a vital role in making TEA-21 reauthorization work. 
They could provide critical revenue and new approaches to 
enhance efficient system management and performance. We look 
forward to working with you and your colleagues to build 
support for that agenda, assuring sound accountability for 
equity and environmental stewardship.
    I'd be happy to answer any questions.
    [The prepared statement of Mr. Replogle appears in the 
Submissions for the Record on page 48.]
    Senator Bennett. Thank you very much. Thank you all for 
your testimony. I need to accept for submission a letter from 
the National Taxpayers Union laying out their attitude on some 
of these issues. As one might expect, they are opposed to an 
increase in the gas tax.
    Let me ask a few mechanical questions here. How much would 
it cost per car to put a transponder on each car? Who would pay 
that, and how would it be monitored? What happens if a non-
transponder car wanders into a HOT lane?
    These are just mechanical questions that occurred to me as 
you describe how this is going to work.
    Mr. Poole. These are relatively straightforward matters 
that we now have experience in half a dozen cities with. The 
transponders today cost about $20, $25 apiece. And in some 
systems, people pay a deposit and essentially lease them from 
the system. They pay the one-time fee and then they get it back 
if they move or turn it in. In other cases, they're made 
available at no charge simply because the desire is to spread 
them as widely as possible so that as many people in the metro 
area as possible already have them so that they don't have to 
use toll booths. This is for systems that are phasing in the 
electronic tolling in parallel with existing toll booths.
    And the enforcement is very straightforward. All the toll 
road systems now that use the transponders are going to video 
license plate recognition system, so that if you drive under a 
gantry and there's a signal that either there is no transponder 
on the vehicle or there is an expired account, then 
automatically a video camera photographs the license plate, and 
that becomes a violation that is actionable with a fine or 
denial of registration if it's repeated offenses, that sort of 
thing.
    It's becoming very straightforward. Generally there needs 
to be a state law amendment to permit enforcement by means of 
the video camera, but that has seemed to be no problem in most 
states.
    Senator Bennett. Is it the front license plate or the back? 
Because many states don't require a front license plate.
    Mr. Poole. Right. In the states like Florida where it's 
only the back license plate, it seems to still be workable 
using only the back license plate.
    Mr. Replogle. Mr. Chairman, if I could just follow up on 
that question?
    Senator Bennett. Sure.
    Mr. Replogle. In Toronto, I think we see the most effective 
system for automated enforcement. They don't treat the customer 
who uses one of these toll facilities without the transponder 
as a criminal violator and send him a ticket with a big fine, 
which is what many states in the United States do. On this 
private toll road, a beltway around Toronto, a fully automated 
expressway with 40 entrances and exits, anyone who doesn't have 
a transponder tag simply gets a bill a month later by mail 
through the license plate identification, and there's a one 
dollar Canadian surcharge added to each toll transaction to 
cover the cost of having to track the person down. And the toll 
road company that's providing the service is making a nice 
profit at about 70 cents American per transaction, simply 
treating those people as new customers who then have an 
incentive to get the toll tag.
    Senator Bennett. They want people to?
    Mr. Replogle. It's a smart way to do it, I think.
    Senator Bennett. I see. Okay.
    Mr. Replogle. It's customer friendly.
    Senator Bennett. I heard you say that the current user is 
being subsidized 40 percent out of the general fund. I think 
you said it was 20 percent, or someone said it was 20 percent, 
Dr. Atkinson. Which is it?
    Mr. Replogle. I think it depends on how you account for the 
costs. The 40 percent covers the costs that are attributable to 
police, fire and emergency services related to serving 
motorists on the highways and other ancillary costs and comes 
out of a study that was done for the Congress about half a 
dozen years ago.
    Senator Bennett. Okay.
    Dr. Atkinson.
    Dr. Atkinson. 1 would agree with that. I'm basing my 
comments on an OTA study that was I think in 1995 that 
documented all of this, and it depends whether it's direct 
costs or indirect costs. The costs would actually be even 
higher if you include what are called externalities--air 
pollution, noise pollution--the share of gas tax would be even 
lower if you include those, and Michael or I did not include 
those. So if you just include pure costs, it's about 40 percent 
shortfall.
    Mr. Replogle. Yes. In my testimony I go into more detail on 
that. There was a cost allocation study done for the Federal 
Highway Administration in 1999 that estimated that the health 
costs from traffic-related air pollution alone, not counting 
the cost related to air toxics, amounts to $40 to $65 billion a 
year, which represents a hidden cost on the average American 
household of about $600 per household.
    Senator Bennett. Of course, if you keep traffic moving, 
that goes down, because a very large percent of the pollution 
comes from cars that idle as they're sitting at stop lights or 
sitting in traffic.
    Mr. Replogle. The pollution level per mile driven tends to 
be lowest in between around 20 and 45 miles an hour. High speed 
driving and very low speed driving are both big pollution 
generators.
    Senator Bennett. Do you agree with that? I had not heard 
that with respect to high speed driving.
    Mr. Poole. I think this depends on which pollutant you're 
looking at. I believe nitrogen oxides do increase with speed, 
but I believe the other pollutants don't.
    Mr. Replogle. The Volatile Organic Compounds (VOCs) also go 
up, but not quite as sharply as the NOX. But both 
are precursors of smog. And the particulate pollution, which 
also comes in part from NOX, is really the place 
where the biggest health care costs and impacts are found.
    Dr. Atkinson. The other issue is stop-and-go traffic, which 
is more polluting than free-flowing.
    Senator Bennett. Right. I drive a Honda Insight that turns 
the engine off when you're under 19 miles an hour. It drives my 
wife nuts.
    [Laughter.]
    Senator Bennett. It takes a little getting used to.
    Dr. Buechner. Which I think makes a point, which is that a 
lot of this can be addressed by improving the technology of the 
automobiles. It's not the highways that cause the pollution.
    Senator Bennett. Well, the congestion. And of course we 
know that the older cars pollute a whole lot more than the 
newer cars do, simply because the technology has improved all 
along, so that if you are driving a classic 1963 Ford, you may 
get admiring glances from your neighbors, but you're really 
doing terrible things to the atmosphere at almost at any speed. 
Isn't that correct?
    Dr. Atkinson. That's correct.
    Mr. Replogle. Yes. New cars are much cleaner than older 
cars, and as we bring in the new Tier II standards, it will 
reduce pollution significantly further and the heavy duty 
diesel standard. We're making a lot of progress on the 
technology, but the science also shows that we still have a 
long way to go to protecting public health to meet the new 
national ambient air quality standards for fine particulates 
and ozone.
    And even with all of those cleaner technologies that we're 
bringing on line with the new laws and regulations, EPA studies 
just in the last year are still showing that by 2015, we can 
still expect 20 or more of our largest metropolitan areas to 
face serious health threats from air pollution.
    Transportation emissions will continue to be a major source 
of those pollution problems even 15 years from now. And so we 
can't ignore the growth in miles driven, even as we go out 15 
and 20 years. It's still a place where we can make cost 
effective pollution reduction. So we do have to pay attention 
to the effect of building more roads on increasing the amount 
of driving.
    Senator Bennett. Yes, Dr. Atkinson.
    Dr. Atkinson. I'd just like to respond, because I think 
that's an important point, that there are some in the 
environmental community who would like us to address our air 
quality problems by essentially constraining demand for 
driving, and in large part by not building any more roads.
    I don't believe that's an effective strategy, because 
there's no evidence that Americans will drive less. They will 
continue to drive because they have to drive and they choose to 
drive. So I don't think a strategy of constraining highway 
capacity is really a viable air quality improvement measure. We 
are much better off with measures that are more oriented 
towards building cleaner cars than somehow trying to make 
Americans' lives more miserable and hoping that there are some 
ancillary air quality benefits.
    Senator Bennett. Just to comment on that. Of course, the 
effort to make cars cleaner is undoubtedly what's behind 
President Bush's initiative with respect to fuel cells, 
hydrogen fuel cells in cars. That requires an enormous amount 
of electricity. And so you then talk about how you deal with 
the emissions that come if we generate that electricity with 
fossil fuels. And I'll let Senator Domenici talk about nuclear 
power and how that solves some of those problems. We probably 
shouldn't go any farther than that in this hearing.
    But I would note, having lived for a dozen years in Los 
Angeles and having lived through the alerts that used to be 
routine in Los Angeles, and now going back to Los Angeles to 
visit our grandchildren, six of whom live there with their 
parents, how the freeways have gotten substantially more 
congested than they were when we lived there, and yet Los 
Angeles has not had a clean air alert for several years now, 
that there has been a substantial decrease in the Los Angeles 
area, once the nation's number one poster child for smog, a 
substantial decrease in the air alert situation even as the 
number of people driving and the number of cars on the road 
have gone up.
    So I think there is hope. I'm not suggesting, Mr. Replogle, 
that we should not continue to go in that direction. But I 
think as we view some of these issues, we should not refuse to 
recognize success that we have had in the environmental cleanup 
that we've been under for the last 20, 25 years. We've done 
frankly a remarkable job. And the only other comment and then 
I'll yield to my colleagues, Americans want convenience. And 
the one convenience you get out of driving your own car is that 
you can come and go whenever you like. And one of the reasons 
why inner city trips are predominately by automobile is that if 
you drive your own car, you don't have to rent one when you get 
there.
    Now if I am going to New York City, I will take public 
transportation to New York City. It's quicker. It's not 
cheaper, but it is quicker. And when I get there, I don't have 
to park my car. Parking my car in New York City, the cost 
literally to park it is more than the cost to buy it. A monthly 
parking fee is higher than the monthly payment on the 
automobile. So I can take a cab. I can take the subway, or I 
can walk, and I have absolutely no desire to have a car in New 
York City.
    But if I am driving to--if I am traveling to, let us say, 
St. George, Utah, I'm tempted to take my car even though it's a 
four-and-a-half hour drive because I have it there and there 
are no taxis. I would have to rent a car and then turn it in, 
so you make the decision on the basis of a series of 
circumstances. I think as we examine this issue, we shouldn't 
demonize people who make inner city trips by car as saying, 
well, they're just wasteful gas hogs. They're making rational 
economic decisions in terms of what it costs in both money and 
time.
    And I think what you're all calling for is an examination 
of the overall transportation system taking those rational 
individuals' decisions into account and making the best system 
possible so that those who want to purchase congestion 
insurance--I love that term--can. I think that's a great 
selling point. Those who want to purchase congestion insurance 
can do it and make a rational decision. And, yes, Dr. Atkinson, 
the people who are at the lower economic level can decide 
getting to this appointment on time is worth this kind of an 
expenditure, and it is available to me even though most of the 
time I will make the decision to stay in the free lanes. And 
the people who say, I don't care. I'm going to pay it all the 
time, the public gets the benefit of their money to help pay 
for the free lanes.
    All right. I apologize. I filibustered so that Congressman 
Hill has left. I had no intention to do that. I wanted to 
recognize him as a Member of the Committee.
    Congressman Kennedy.
    Representative Kennedy. Thank you, Mr. Chairman, and thank 
you, panel for your great testimony. Many of you inspired our 
proposal. I'd like to first talk with you, Mr. Poole, about the 
HOT Networks. And as I proposed through the FAST Act, if there 
is a corner of a beltway that's congested, we can move in 
there, add additional lanes and free up that.
    Now in your HOT Networks example, you're I think implying a 
HOT lane that surrounds the whole beltway.
    Mr. Poole. Yes, that's correct.
    Representative Kennedy. And my question is couple-fold. 
Number one, if you dealt with the congestion spots with FAST 
lanes or HOT lanes, whatever you want to call them, isn't there 
a lot of parts of a beltway that if the congestion spots were 
dealt with would move freely without an incremental lane, and 
has there been any study of that?
    Mr. Poole. There really hasn't been, but I think you raise 
a good point. We looked at really highly congested metro areas, 
and we didn't attempt to apply this whole network model to 
smaller scale and less congested cities. I'm not sure that the 
complete network is necessary or appropriate for metro areas of 
any size. It may only be something that's tailored to the most 
severely impacted large metro areas.
    Removing bottlenecks by selective applications of pay lanes 
might be sufficient in many metro areas.
    Representative Kennedy. So it's quite possible by using a 
FAST lane implementation on a phase-in basis that we may be 
able to achieve the same sort of goals inspired by the----
    Mr. Poole. Yes. If most of the rest of the network remains 
largely uncongested, then you could still have a regional 
express bus service, for example, by letting it speed through 
the bottlenecks but then still operate on regular lanes 
elsewhere on the system, yes.
    Representative Kennedy. And our FAST lanes proposal is 
meant to try to embrace those options, whether it be authorized 
car pools or bus rapid transit, because I think a lot of the 
reasons that make bus rapid transit less attractive to people 
is they think they're going to be stuck in the same congestion 
that the other roads are.
    Mr. Poole. Exactly.
    Representative Kennedy. And if they know that through those 
congested areas that they have sort of a free ticket at a near 
guaranteed speed based on variable congestion pricing, I think 
it can be a powerful tool and I think what bus rapid transit 
provides is a flexibility. The needs of transit within a 
community aren't always predictably to the center city and back 
and sometimes change over time, and bus rapid transit does 
provide it and clearly is part of what we're looking for.
    A key concern, though, I have is I think we have to listen, 
and I'm a little concerned by what you said, Dr. Buechner, and 
that you said $320 billion is our need which, let's take that. 
That's about $70 billion short of what the Administration has 
said. But you made the comment that the only proposal that 
would address that need is what was put forth by the Committee 
as stated.
    And if we looked at that difference between $320 billion 
and the $250 billion or so of the Administration, that $70 
billion gap over six years, you know, Dr. Poole, you had 
mentioned that in just ten areas alone, ten metropolitan areas 
alone, that that was about forty-some billion dollars.
    Mr. Poole. Right.
    Representative Kennedy. And my question is, is not the FAST 
lane an alternative way to plug the gap between 320 and 247 or 
250 in the Administration? Is there not really two alternatives 
to approach this very significant need?
    Mr. Poole. I think very clearly so. I mean, there is the 
potential, on a project-by-project basis around the country, to 
plug that gap with toll-supported projects like your FAST 
lanes.
    Dr. Buechner. These are alternative ways of providing 
additional funds. And ARTBA has supported the idea of tolling, 
public-private partnerships and ideas like that. In TEA-21, 
there was a pilot program provision that would have let the 
state DOTS test out tolling for expanding interstate 
construction, permitting three possible projects. In the six 
years, no state took them up on that.
    Tolling is an excellent idea and it would be a new source 
of funds, but in reality, it is a very difficult decision for 
the political process to make to apply tolls to a highway. 
Connecticut a few years ago did away with their tolls on the 
Connecticut turnpike. So again, if that would work out, yes, 
that would be a terrific alternative. But, again, there are 
tremendous needs out there, and these needs are not just a wish 
list. The needs figure is based on an economic evaluation of 
over 100,000 highway segments and the improvements that they 
need. This is where these needs investment figures have come 
from. If we don't do something to start addressing them, our 
transportation system will move from something that facilitates 
economic growth to (where I think we already are getting to) 
the point where it's impeding economic growth in a lot of our 
major metropolitan areas.
    So if this can be made to work, it would be certainly a 
help.
    Representative Kennedy. And I agree with you that we still 
need the gas tax, that the gas tax, you know, you can't fund 
everything with a FAST lane, HOT lane, whatever, and that we 
are facing significant congestion.
    But my concern is, is have we put too many restrictions on 
the ability to make these projects work? And I'm very 
interested in how we embrace the private industry. Because as I 
look around the world as much of the research put out by Dr. 
Atkinson and Mr. Poole would suggest, that many other countries 
are embracing public-private partnerships, a fee-based revenue 
in a much stronger way than we are. And the examples of the 
states around the country has shown that this can be done. So 
I'd be very interested in what further we need to do to 
facilitate public-private partnerships stepping forward to help 
us achieve the reality of being able to do this gap in a 
market-based way.
    Mr. Poole. Since you asked, Congressman, one thing that I 
think you had mentioned in other contexts is the idea of Chafee 
bonds, of creating a level playing field for toll revenue bonds 
that private partners in a public-private partnership could 
issue tax-exempt toll revenue bonds on the very same basis as a 
public agency. That would be an enormous boost to making more 
projects feasible to be done as true public-private 
partnerships.
    Representative Kennedy. And we do intend to bring out a 
second bill to complement the FAST bill to help facilitate 
public-private partnerships of what a Chafee bond would be an 
example. But I would invite all the participants if there are 
other restrictions that are preventing the full embrace of 
other entities to participate in this, to let us know so that 
we can incorporate those, because I think unlocking this 
potential at the state and local areas for them to address 
problems as they see fit with creativity and new innovations 
and embracing the private sector is a way that we can really 
solve the congestion that's been bedeviling us for a long time.
    Mr. Replogle. The political challenges of implementing time 
of day pricing and road pricing in many communities have been 
rather formidable. We need to assure continued support for 
investment in programs like the Value Pricing Program which 
have funded public education and research efforts to help 
communities develop local leadership coalitions to look at all 
of the issues around implementing things like HOT lanes or FAST 
lanes, and to put together a broad-based consensus to support 
those initiatives.
    Representative Kennedy. And I agree. And I appreciate the 
fact that back in Minnesota, our governor and lieutenant 
governor, who is also the head of the Department of 
Transportation, as well as those that are fighting over the gas 
tax, I have both the transportation alliance and the chamber, 
as well as the taxpayers league, supporting this back in 
Minnesota, and they are thinking, as you mentioned, Dr. 
Atkinson, that this can apply to state roads as well, that 
there aren't restrictions, and that ought to be considered.
    And I think embracing things like congestion pricing, like 
Bus Rapid Transit, and potentially also certain forms of HOV, 
is a great way to build that community support around something 
that I think needs to really happen.
    Thank you, Mr. Chairman, for your time.
    Senator Bennett. Thank you. We appreciate your testimony 
and your questions.
    In conclusion, I have a few observations that I'll simply 
get on the record. I was in the Department of Transportation 
when ground was broken for the Metro here in Washington, and 
one of the things that we considered and were unable ultimately 
to deal with but that I think has a place in this discussion, 
was the possibility of taxing the increased property value of 
those buildings that were close to Metro stops. Because there 
was a tremendous boost in property values if you have access to 
a Metro stop. And I remember saying to the then-Undersecretary, 
``Why don't we get them to pay for it? Because they're going to 
get the value.'' And he was intrigued with that idea, but we 
ultimately couldn't really make that happen.
    In a way, however, that justifies some of the subsidy for 
mass transit that comes out of general funds. The money going 
into general funds is property tax based on increased property 
tax value, and the mass transit system that created that 
increased value is getting some of the value of that, getting 
the benefit of that.
    But we have to recognize, and you've made this point I 
think, Dr. Buechner, you've made it most specifically, the 
economic cost of clogged arteries of transportation is very 
high. And when the economy becomes less efficient, everything 
else suffers. I am one who believes very strongly in the 
importance of getting the most efficient use of the economy 
that we possibly can.
    Just pick a subject that's very much in the debate right 
now, capital gains tax acts as a barrier to prevent capital 
from flowing from mature investments to entrepreneurial 
investments. Now if it's so high a barrier that no money flows, 
which it would be if it were 100 percent, you would clearly 
lower it. Alan Greenspan, every time I ask him about the 
capital gains tax rate, he says the best capital gains tax rate 
is zero. I don't think we're going to get there. You test the 
water the same way businessmen do when they raise prices on a 
pair of shoes. Is this price sensitive? Can I go from $50 to 
$55 and see any dropoff in sales? And if I don't see any 
dropoff in sales, I'll take the extra five bucks. And you 
should experiment I think with capital gains tax.
    Okay. I used that as an example because to make the economy 
efficient, you want capital to flow to where it produces the 
greatest return. You want labor mobility, that labor can flow 
where it can produce the best benefit, and you want goods and 
services and people to flow. We've been talking about primarily 
trucks, but we are also talking about people getting to work. 
And at some point in this whole debate, we've got to talk about 
our highest level talent spending a lot of time sitting in high 
mileage crown rooms or ambassador rooms at airports, because we 
haven't built a new airport in this country, other than the 
Denver Airport, for maybe half a century. And the inefficiency 
that comes with keeping that high quality talent sitting around 
waiting for better schedules is something that the economy pays 
for.
    So the more we can do to grease and make efficient the flow 
of goods and people going to work, the more economic benefit 
overall that we get. And we come back to the fundamental 
question, which is I keep saying to my colleagues, money does 
not come from the budget. Money comes from the economy. And the 
more efficient the economy is, the more likely we are at the 
federal level to get revenues coming in in a way that then 
makes it possible for us to do the kinds of social requirements 
that as a modern society we all have.
    So I think you've made a contribution with your testimony 
here this morning. We will do our best to spread the word to 
our colleagues who were not wise enough to join us and see what 
we can do to move down this road.
    Thank you, all of you, for your preparation and your 
presentation here today.
    The hearing is adjourned.
    [Whereupon, at 11:50 a.m. the hearing was adjourned.]


                       Submissions for the Record

=======================================================================

           Prepared Statement of Senator Robert F. Bennett, 
                                Chairman

    Good morning and welcome to today's hearing. Congress is currently 
contemplating the renewal of the Transportation Equity Act for the 21st 
Century (TEA-21), the federal surface transportation program. Amidst 
the routine debate over the program's budget and spending formulas, 
some voices can be heard suggesting innovative and creative ideas. They 
suggest an approach that could eventually lead to a seismic change in 
how we fund our nation's roads. The purpose of this hearing is to 
examine some of these ideas.
    Our roads are becoming more and more congested every day, and 
getting stuck in traffic has become a primary quality of life issue in 
many communities. When a simple trip across town becomes a logistical 
nightmare that chews up a good portion of a person's day, something has 
gone seriously wrong.
    Many of the problems that challenge families today fall beyond the 
purview of Congress. But something as mundane as roads has real life 
consequences. One study found the average driver spends 62 hours each 
year in traffic. If we can alleviate traffic congestion so people can 
spend more time at home, we could go home at the end of the day having 
strengthened American families.
    Congestion isn't a problem just for our families, it wreaks havoc 
with our economy. The estimated cost of traffic jams due to wasted time 
and fuel in 2000 was $67.5 billion. This cost is what I call ``the 
ghost tax of congestion,'' always following us around where ever we go.
    Transportation makes up roughly ten percent of our nation's 
economy, but the importance of the transportation sector far exceeds 
its share of output. In a world of ``just-in-time'' delivery and 
customized production, companies cannot afford to wait for their parts 
to arrive or for their finished products to be delivered. Despite the 
heralded information revolution, businessmen still need to come 
together to do work. If time is money, we are certainly losing a great 
deal of money due to congestion on our roads.
    Since the invention of the automobile our roads have been typically 
funded by the gasoline tax, with the federal government providing the 
lion's share of the money needed to build and maintain interstate 
highways. The ability of the gas tax to finance our network of 
interstate highways has deteriorated in recent years for a number of 
reasons. The cost of building roads has increased, inflation has eaten 
away the value of the tax, and gas tax revenues are not always used for 
roads.
    Not only has our ability to fund road construction via gasoline 
taxes diminished, the roads themselves have deteriorated. Many of our 
interstate highways are nearing the end of their functional life and 
need to be replaced. This process will not be cheap; since the advent 
of the interstate highway system our understanding of how to build safe 
roads has increased greatly. Rebuilding our interstates will involve 
much more than simply putting the new road where the old one used to 
be.
    For many of my colleagues, raising the gas tax seems to be the only 
solution to the challenge of maintaining our infrastructure and dealing 
with the problem of congestion. However, other options merit further 
exploration. Today we have gathered here before us a host of experts to 
inform us about innovative ways that communities all across the United 
States and the world have used to finance and construct new roads and 
manage the increasing traffic pressure on them. Our witnesses today are 
some of the nation's leading experts in transportation issues and have 
published widely on the issues facing our transportation system today.
    Before we hear from them, a few of our colleagues have joined us to 
explain their legislative approach to solving this problem. 
Representative Mark Kennedy has introduced the FAST Act, Freeing 
Alternatives for Speedier Transportation, to amend toll restrictions in 
TEA-21. I understand Senator Wayne Allard is expected to soon introduce 
a similar bill here in the Senate. Representative Marilyn Musgrave, a 
cosponsor of the bill, can give us a state perspective as she recently 
chaired a transportation committee in Colorado's state legislature. We 
welcome your insights and we will be sure to share your testimony with 
the committees of jurisdiction. To our distinguished panelists, 
welcome, and I look forward to your testimony.

                               __________
         Prepared Statement of Representative Mark R. Kennedy, 
                  A Member of Congress From Minnesota

    We are spending too much time stuck in traffic, away from our 
families. Federal transportation statistics put numbers to some of the 
more tangible costs of our congestion crisis. Traffic congestion costs 
the United States more than $67 billion annually. We waste almost 6 
billion gallons of fuel and 3.6 billion hours idling, while polluting 
the environment, in traffic jams. For the average person, this means 
$1,160 and 62 hours wasted by congestion every year.
    In my own home state of Minnesota, our problems are getting worse 
by the day. According to the 2000 Census, Minnesota, and the 
Minneapolis/St. Cloud Mega-Corridor in my own sixth congressional 
district, are experiencing one of the highest rates of increase of 
traffic congestion in the country.
    The latest 10-year plan out of the Minnesota Department of 
Transportation does not offer much room for hope that we will be able 
to wake-up from our traffic jam nightmare any time soon. Approved road 
construction does not come anywhere near to meeting demand.
    This is not to criticize MnDOT. They are doing as much as they can 
with what they have. The problem is one of resources. There is simply 
not enough money available to build the roads we need. Even the most 
radical calls for a gas tax increase will not provide the money we 
need. We need new ideas.
    We do not have to look far to find them. In this country, our 
laboratories of democracy, the states, have been highly innovative 
about solving traffic problems. Over the last few years, states like 
Virginia, Texas, California, and Colorado, to name a few, have done 
admirable work to solve the congestion problems facing their driving 
public. And we should also be mindful of work being done overseas. In 
countries like Japan, China, Australia, Canada, and Italy, leaders have 
not relied on obsolete thinking in transportation policy as we have in 
America. We take much pride in this country on being the embodiment of 
freedom, and allowing the individual room to thrive in this country. 
Yet, at least in transportation, we are falling behind.
    That's why I introduced the bipartisan Freeing Alternatives to 
Speedy Transportation--FAST--Act (H.R. 1767) in the House of 
Representatives. This legislation, which I have introduced with 
Democratic Representative Adam Smith of Washington State, and its 
companion bill in the Senate soon-to-be introduced by Senator Wayne 
Allard of Colorado, will help relieve congestion on the nation's 
interstate highway system.
    The FAST Act facilitates the construction of desperately needed new 
lanes. It does so by eliminating an outdated federal prohibition that 
prevents states from implementing a user fee-based revenue stream to 
provide the resources they need to expand their congested interstate 
systems. At the time of its inception, this prohibition in Section 301 
of Title 23 of the United States Code may have made sense. But in the 
21st century, with modern technologies, the only thing it does is to 
stand in the way of proven solutions to the congestion that is 
threatening to bring our economy to a standstill.
    The FAST Act includes three important conditions to promote fiscal 
responsibility and driver confidence. First, fees will only be 
collected using non-cash electronic technology. No tolls and no 
tollbooths. Second, the voluntary fee is for new lanes only, and the 
revenue collected is dedicated only to those new FAST lanes. This leads 
to the third point, when the revenues collected from FAST lane users 
have repaid the costs of the FAST lanes, the fees expire.
    The FAST Act will provide states and users numerous benefits. The 
FAST Act empowers states with a new revenue stream they can use to 
solve their own problems so that they do not have to come to Washington 
D.C. every time they need to build a road. FAST lanes also will free up 
critical dollars for other state priorities, so that high-dollar 
projects on congested metropolitan roads do not absorb all of the 
resources of a state. Projects get completed FASTer using FAST lanes; 
and when roads get built quicker, they cost less and get people moving 
sooner.
    Every driver will benefit when FAST lanes are constructed. Drivers 
will have the choice to determine if FAST lanes make sense for them. 
Those who choose to use them will be able to to get where they are 
going a little quicker for a small fee. Those who choose not to use the 
FAST lanes will benefit from having fewer cars in the existing lanes at 
no additional expense.
    The FAST Act's benefits are not limited to drivers and states. 
States have the flexibility to allow Bus Transit systems and carpools 
to use the FAST lanes free of charge, providing more alternatives to 
commuters. Even the environment will benefit from having fewer cars 
stuck on congested roads, burning six billion gallons of gasoline each 
year just by idling in traffic.
    In my home state of Minnesota I have been gratified that this idea 
has received a groundswell of support. Leaders like Governor Tim 
Pawlenty and Lt. Governor/MnDOT Commissioner Carol Molnau recognized 
the benefits of FAST and heartily endorsed this legislation. Likewise, 
the Minnesota Chamber of Commerce, the Minnesota Associated General 
Contractors, Minnesota Taxpayers League and the Minnesota 
Transportation Alliance also support the bill.
    The FAST Act is a new approach to solving our critical federal 
transportation needs based on state-proven programs. It is time to get 
our country moving FAST again.

                               __________

Prepared Statement of Robert W. Poole, Jr., Director of Transportation 
                 Studies and Founder, Reason Foundation

    Mr. Chairman and members of the Committee: My name is Robert Poole. 
I am the Director of Transportation Studies at the Reason Foundation, a 
nonprofit research and educational organization based in Los Angeles. 
We've been researching market-oriented transportation policies for the 
past 15 years, and several of our policy proposals have been 
implemented in a number of states.
    The focus of my comments today is a potential breakthrough idea for 
addressing the transportation needs of America's large urban areas. 
These areas are plagued by traffic congestion. The latest report from 
the Texas Transportation Institute estimated that the cost of 
congestion in the largest 75 urban areas is $68 billion per year in 
lost time and wasted fuel. That number has grown larger every year for 
the past two decades. That suggests to me that what we've been doing to 
address congestion is inadequate.
    As a nation, we have been making major investments in two forms of 
urban transportation: HOV lanes and mass transit. Unfortunately, the 
2000 census figures revealed that in most cities, a smaller fraction of 
people carpooled to work in 2000 than in 1990. Likewise, a smaller 
fraction used transit to get to work in 2000 than in 1990. And since 
population has continued to increase, we have even more people trying 
to use pretty much the same amount of freeway capacity to get to work. 
No wonder congestion is at record high levels.
    I would like to suggest a fresh approach to urban transportation. 
Let's not abandon HOV lanes, but let's use them in a more productive 
way. Let's not retreat from mass transit, but let's develop a form that 
competes better with the automobile. And let's face the fact that we 
need more urban highway capacity and build more. All three of these 
changes are part of our new approach called HOT Networks.
    The basic idea is as follows. Shift the operating principle of HOV 
lanes to HOT lanes--that's high-occupancy toll lanes. Convert them to 
high-speed premium lanes which drivers can use by paying a market price 
and which truly high-occupant vehicles--buses and vanpools--can use for 
free. Use the toll revenue stream to support large-scale toll revenue 
bond issues, to generate the billions of dollars needed to build out 
the existing HOV facilities into a complete, seamless network spanning 
most of the metro area's freeway system. Encourage the transit agency 
to operate large-scale regional express bus service on this seamless, 
high-speed network.
    The HOT Network idea combines two recent innovations: HOT lanes and 
Bus Rapid Transit (BRT). Currently four HOT lanes are in operation, two 
in California and two in Texas. Another dozen or so are in the planning 
stages, including here in Washington for a portion of the Beltway. The 
basic idea is to sell the unused capacity to paying motorists. They use 
fully electronic automated toll collection, and the two in California 
use variable pricing. We now have solid evidence that variable pricing 
is a powerful tool to match demand with supply on such lanes, to keep 
them flowing at the speed limit even at the busiest rush hours.
    Bus Rapid Transit refers to high-quality express bus service, 
usually offered on special lanes. In cities like Ottawa, Bogota, and 
Curitiba (Brazil), large-scale BRT systems provide transit service 
quality equivalent to far more costly rail transit systems. The Federal 
Transit Administration has become a big booster of BRT, based in part 
on studies of very promising busway operations in U.S. cities, 
including Miami and Pittsburgh. Our HOT Networks concept would provide 
an uncongested right-of-way for BRT service spanning the entire metro 
area without cost to the transit system.
    Last year, my colleague Ken Orski and I carried out a detailed 
study of the potential of HOT Networks. We defined such a network as an 
interconnected set of limited-access lanes on an urban freeway system. 
Buses and organized vanpools would use these lanes at no charge; all 
others would pay a variable toll, collected electronically. Such a 
network would begin by converting the area's existing HOV lanes to HOT 
lanes. Toll revenue bonds based on the entire network would be used to 
pay the capital costs of filling in missing links and building costly 
flyover connectors at freeway interchanges, to make the network truly 
seamless.

If such networks could be created, they would offer many benefits:

1. ``Congestion insurance'' for all drivers in the metro area, ensuring 
        that when they really needed to bypass congestion and get 
        somewhere on time, they would have the option to do so--
        something simply not available today at any price.
2. Much greater productivity than today's underutilized HOV lanes, as 
        measured by people and vehicle throughput per hour, thanks to 
        extensive express bus service as well as paying vehicles.
3. A major new funding source for urban transportation infrastructure, 
        to supplement the declining real value of today's fuel taxes.
4. Greatly simplified enforcement compared with HOV or HOT lanes, since 
        every valid vehicle would be required to have a transponder, 
        and this can be detected electronically. Enforcement would be 
        via video recording of the license plate number, just as on 
        most toll roads today.

The main question we addressed in our study was: How feasible is the 
idea that HOT Networks could be largely self-supporting from toll 
revenues? To answer that question, we needed to model hypothetical 
networks in real urban areas and estimate what it would cost to build 
them out. And we also needed to get a handle on how much revenue they 
might generate.
    We used TTI data to select eight metro areas with the highest 
intensity of congestion: Los Angeles, San Francisco, Washington, 
Seattle, Houston, Dallas, Atlanta, and Miami. In each case, we obtained 
the long-range transportation plan of the local metropolitan planning 
organization (MPO) and reviewed their plans for adding HOV facilities 
over the next 20-25 years. We put these on a map showing already 
existing HOV lanes and then filled in missing links that were not in 
the plans, usually for reasons of cost. We also checked for missing 
flyover connectors--and there were many of those, because they tend to 
be very costly. We then conferred with federal and state DOT experts, 
as well as engineering firms, to develop current cost estimates for at-
grade lane additions, elevated lane additions, and flyover ramps. That 
enabled us to estimate the cost of building out each network. That 
total was $43 billion for the eight metro areas.
    That was the easy part. More complicated was estimating the revenue 
that might be generated by people voluntarily paying premium tolls to 
bypass congestion. Fortunately, we had access to extensive data from 
the two California HOT lanes that use variable pricing. We also had 
access to one of the leading traffic and toll revenue forecasting 
firms, which has done many studies of existing and proposed HOT lanes. 
We developed a pricing model and applied it to the eight metro areas, 
taking into account the length of rush hour in each one, the extent of 
the HOT Network (in lane-miles), and a set of assumptions about the 
variable pricing structure. Overall, we came up with baseline revenues 
of $2.9 billion per year over the eight metro areas.
    We then used a simple rule of thumb that says you can probably 
issue toll revenue bonds in the amount of approximately 10 times that 
annual revenue stream. Hence, we estimated that $29 billion in revenue 
bonds could be issued in support of these HOT Networks. That would fund 
two-thirds of their capital costs. The rest would come from 
conventional state and federal highway trust fund monies--the same 
funds the MPOs would be using anyway as they added more HOV lanes over 
the next 25 years. Except that building out the system as a HOT 
Network, with the bonds issued up front, would mean building it out 10 
to 15 years sooner than would otherwise be possible. And more of the 
trust fund monies would be available for other needed transportation 
projects.
    To us, that looks like a truly win-win proposition. It illustrates 
the power of market pricing to address what has been considered an 
intractable problem: traffic congestion. Unlike attempts to mandate 
``congestion pricing'' from the top down on all freeway lanes, our 
approach would be strictly voluntary. The only ones who paid would be 
those who freely chose to do so, on those days and at those times when 
it was worth it to them to bypass congestion and get somewhere on time. 
Yet those paying drivers, in making their individual choices to pay, 
would be making possible the creation of a vast new infrastructure for 
high-quality bus rapid transit.
    My organization does not lobby, so I am not here to advocate 
legislation. But I will simply point out that if members of Congress 
like this idea, only a few simple changes in TEA-21 would make it 
possible. There would need to be some further easing of the general 
federal ban on putting tolls on currently free Interstates, for the new 
and existing lanes in urban areas that become part of a HOT Network. 
There should be clear federal permission to permit paying vehicles to 
make use of former HOV lanes that get incorporated into a HOT Network. 
And local officials should be free to exempt only buses and vanpools 
from the pricing on the HOT Network.
    It would be even more helpful if there were to be a joint FTA/FHWA 
program to help MPOs and state DOTS that wanted to develop HOT 
Networks. Investors in large-scale HOT Network bond issues would want 
assurances that the whole network would actually get built, and that 
variable pricing would be used, as planned, for a very long time. 
Mechanisms like a Full Funding Grant Agreement could be helpful in that 
regard.
    To sum up, let me remind you that ``road pricing'' or ``congestion 
pricing'' has been floating around in transportation policy for more 
than 25 years. It has always had great promise in theory, but has 
usually foundered on the shoals of political reality. Very few elected 
officials are willing to impose a charge for using what people have 
traditionally used without paying. And motorist organizations have an 
understandable negative reaction to being asked to ``pay twice'' for 
existing freeways.
    That's why it's essential to create true value pricing, in which 
people pay only if they get something much better in exchange for 
paying. That's what HOT Networks offer drivers: $43 billion worth of 
new urban transportation infrastructure, giving them congestion 
insurance across the entire freeway system. And at the same time, those 
who use transit or who might want to use transit if it were faster and 
more convenient, will get the benefits of high-speed regional express 
bus service operating over this entire network. And those responsible 
for urban transportation gain a major new funding source, at a time 
when funding constraints threaten to put off many needed projects for a 
long time.
    I believe HOT Networks to be one of those rare opportunities: a 
truly win-win proposition. Thanks you for the opportunity to explain 
this concept, and I look forward to any questions you may have.
    Note: The complete HOT Networks policy study is available online at 
the Reason Public Policy Institute website. The URL is www.rppi.org / 
ps3O5.pdf. Robert Poole may be reached by email at [email protected].

                               __________
     Prepared Statement of Robert Atkinson, Ph.D., Vice President, 
                      Progressive Policy Institute

    Mr. Chairman, members of Subcommittee, I am Rob Atkinson, Vice 
President and Director of the Technology and New Economy Project of the 
Progressive Policy Institute. PPI is a think tank whose mission is to 
define and promote a new progressive politics for America in the 21st 
century. It is a pleasure to testify before you on the issue of the 
role of road pricing in solving America's surface transportation 
challenges. PPI has been keenly interested in promoting public policies 
to help address the central problem facing our nation's transportation 
system-high levels of congestion. We strongly advocate the increased 
use of road pricing as a way to meet that goal. While technologies 
enabling no-hassle road pricing have advanced dramatically, federal and 
state laws and resistance by transportation agencies hold back this 
promising innovation.

How Bad Is Congestion?
    Once upon a time, cars and highways represented freedom. Now, for 
most Americans, they represent constraint, as drivers crawl along in 
stop-and-go traffic hoping to get home at a reasonable hour. Traffic 
congestion just keeps getting worse. According to the 2000 census, 
commuters spent an average of 25.5 minutes to get to work, more than 
two-and-one-half minutes longer than they did in 1990, and more than 
double the 40-second rise of the 1980s. While this may not sound like a 
lot, the increase alone adds up to an additional 10 hours a year stuck 
in traffic. The problem is even worse in large and mid-sized 
metropolitan areas. According to Texas A&M's Texas Transportation 
Institute (TTI), the average commute time during rush hour is almost 40 
percent longer in the nation's 75 largest metro areas than during non-
rush periods.\i\ This is up from about 15 percent longer in 1982. 
Drivers now waste an average of 62 hours per year stuck in traffic, the 
equivalent of more than one-and-one-half weeks of work.
---------------------------------------------------------------------------
    \i\ Schrank, David and Tim Lomax, ``2002 Urban Mobility Study,'' 
Texas Transportation Institute, June 2002, http: // mobility.tamu.edu/
ums/.
---------------------------------------------------------------------------
Why Is Congestion So Bad?
    Traffic congestion has gotten worse for two reasons: The demand 
(vehicle miles traveled) has increased while the supply (miles of 
roads) has stagnated.
    Why are people driving more? Unlike what some opponents of 
expanding roads claim, the main big contributor is the growth of the 
economy. The 15 percent increase in employment in the 1990s accounts 
for more than half of the increase in vehicle miles traveled (VMT). 
Moreover, because incomes went up so much during the 1990s (and cars 
are lasting longer), driving has become more affordable. As a result, 
for the first time m our history over 90 percent of households own a 
car. Moreover, because more people face increased time pressures and 
fewer work standard 9-to-5 hours, car-pooling has declined. Put it all 
together and you get a 28 percent increase in VMT in the last 
decade.\ii\
---------------------------------------------------------------------------
    \ii\ Bureau of Transportation Statistics: http://
WWW.transtats.bts.gov.
---------------------------------------------------------------------------
    Even with an increase in VMT, congestion should not get worse if 
roads are expanded by an equivalent amount. Unfortunately, between 1987 
and 1998, while VMT on freeways or principal arterials in urban areas 
increased 42 percent, lane miles increased only about 9 percent.\iii\ 
This is why even though we added 40 percent fewer drivers in the 1990s 
than we did in the 1980s, travel times increased three times 
faster.\iv\ Confirming what the average American would see as common 
sense, the bottom line is best stated by TTI: ``Road construction has 
been shown to play a key role in holding the line against urban 
mobility decline.''
---------------------------------------------------------------------------
    \iii\ The actual increase was 13.1 percent expansion, but over 30 
percent of this is due to reclassifying rural counties as urban.
    \iv\ Source: Alan Pisarski, personal communication.
---------------------------------------------------------------------------
    One of the main reasons for this infrastructure shortfall is that 
while highway funding has increased in the last several years, as a 
share of miles traveled, highway expenditures by all levels of 
government fell from a high of 8.7 cents in the early 1960s to 4.6 
cents in 1985, to 3.9 cents in 1997 (in constant dollars).\v\ At the 
same time the systems needs have increased as population has grown and 
much of the infrastructure has aged.
---------------------------------------------------------------------------
    \v\ ``Highway, Bridge and Transit Finance,'' Chapter 6 in ``1999 
Status of the Nation's Highways, Bridges, and Transit Conditions and 
Performance Report,'' U.S. Department of Transportation: Federal 
Highway Administration, http: // www.jhwa. dot.gov/policy/1999cpr/
index.htm.
---------------------------------------------------------------------------
    In 2000, DOT estimated that overall highway funding would need to 
increase 16 percent from $48.7 billion to $56 billion per year (1997 
dollars) just to maintain the physical conditions of existing highways 
and bridges over the next 20 years.\vi\ Expanding and improving the 
highway system so that road congestion won't get worse will cost $76 
billion per year, a 56 percent increase.\vii\ Cutting travel time by 1 
percent per year will require annual surface transportation investments 
of $94 billion per year. However, projected amounts of transportation 
funding will fall significantly short of these levels. As a result, if 
we want to make significant progress in improving the performance of 
our surface transportation system, we will need to invest more.
---------------------------------------------------------------------------
    \vi\ Preliminary data from the 2002 Conditions and Performance 
Report indicate that a 17 percent increase in highway spending, from 
$64.6 billion to $75.9 billion per year (2000 dollars), will be needed 
just to maintain the physical conditions of existing highways and 
bridges over the next 20 years. Source: Statement of Mary E. Peters, 
Administrator, Federal Highway Administration, Department of 
Transportation, before the Committee on Transportation and 
Infrastructure Subcommittee on Highways and Transit, House of 
Representatives, Hearing; on the Status of the Nation's Highway and 
Transit Systems, September 26, 2002.
    \vii\ Preliminary data from the 2002 Conditions and Performance 
Report indicate that a 65 percent increase in highway spending, from 
$64.6 billion to $106.9 billion per year (2000 dollars), will be needed 
to improve the system. Ibid.
---------------------------------------------------------------------------

Tolls Will Have to Play an Increased Role In Financing our 
        Transportation 
        Infrastructure in the 21st Century
    Even if it were raised a modest amount--a necessary, but 
politically difficult task--the gas tax simply will not provide enough 
revenue to make the investments needed to reduce congestion. The 
problem may get even more acute as cars become more fuel-efficient and 
gas tax revenues decline. Moreover, many regions spend most of their 
limited transportation dollars on maintenance; they have little 
remaining to fund system expansion. As a result, toll roads will be the 
only way for many regions to finance lane and highway expansions. Tolls 
accounted for less than 5 percent of total highway revenues in 1997. 
Expansion of toll systems, including high-occupancy toll (HOT) lanes, 
value express lanes, truck-only lanes, and congestion pricing of 
existing lanes, could significantly increase revenues to offset the 
costs of new construction.\viii\
---------------------------------------------------------------------------
    \viii\ Other nations are further ahead than the United States. For 
example, the Netherlands recently instituted a comprehensive mobility 
plan to keep traffic moving in the areas of Amsterdam, Rotterdam, The 
Hague, and Utrecht. They plan to institute a two-year road pricing test 
period and construct new toll roads with express toll lanes. Several 
cities in Norway, including Trondhiem, Oslo, and Bergen, instituted 
tolls to build new roads and widening existing ones.
---------------------------------------------------------------------------
    One promising approach to implementing road pricing would be to 
convert existing high-occupancy vehicle (HOV) lanes to HOT lanes. The 
development of HOT lanes can bring new revenues and pricing incentives 
to road use by essentially auctioning off space on existing HOV lanes. 
HOV lanes spread throughout most of America's largest metro areas in 
the 1980s and 1990s as an effort to encourage commuting by carpool and 
bus. But years later, the common spectacle of little-used HOV lanes 
adjoining jamned ``regular'' lanes is creating a backlash, with lane 
restrictions being loosened or eliminated in five states. A number of 
regions have come up with a better idea: HOT lanes currently operate in 
two parts of California (San Diego and Orange Counties) and in Houston, 
Texas, and additional projects are currently in development in eight 
other states.\ix\ The concept is simply to open up existing 
underutilized HOV lanes to voluntary toll traffic, resulting in a 
reduction of traffic congestion in the ``regular'' lanes, generation of 
revenue for other transportation projects, and an option for commuters 
who are willing to pay-or who urgently need-to get down the road. HOT 
lane tolls can and should also be used for the broader purpose of 
reducing traffic congestion and pollution, while making transportation 
more affordable. In San Diego, tolls are used to subsidize express bus 
service in the corridor, which promotes all three purposes.
---------------------------------------------------------------------------
    \ix\ These include Arizona, Colorado, Florida, Georgia, Minnesota, 
Oregon, Virginia, and Washington. Prior to Governor Glendening's veto 
of the idea, Maryland was also on the list.
---------------------------------------------------------------------------
    The concept of road pricing can go beyond HOT lanes to value 
express lanes, whereby new roads or lanes are built and supported in 
all or part through the use of tolls.\x\ These new roads and/or lanes 
would offer reliable, free-flowing travel throughout metropolitan areas 
for a fee. As roads continue to get more congested, there is an 
increasing number of people who would gladly pay extra to drive on un-
congested roads. By adjusting the fee in real time, a free flow of 
traffic could be maintained. Robert Poole of the Reason Institute has 
proposed value express lanes throughout entire metro areas.
---------------------------------------------------------------------------
    \x\ Orski, Ken, ``Financing Future Transportation Needs, Part III: 
Long Term Alternatives-New Funding Concepts,'' Innovation Briefs, vol. 
13, no. 5., September/October 2002, http: // www.innobriefs.com/
abstracts/2002/sepO2. html#2.
---------------------------------------------------------------------------
    The Orange County, Calif., 91 Express Lane is an example of such a 
value express lane project. Opened in late 1995, it is one of four 
private toll road ventures permitted by legislation passed in 1989. 
Project development and operating procedures are delineated in a 
franchise agreement signed by the state and the facility's operator, 
the California Private Transportation Company. Four lanes (two in each 
direction) were built in the median of State Route 91, an extremely 
congested, six-lane highway. The amount of the toll varies by time of 
day to ensure that traffic flows smoothly. To keep the lanes free of 
congestion at rush hour, express lane tolls have been raised more than 
once a year since 1995. The current cost of traveling the entire 10-
mile span of HOT lanes ranges from $1.00 to $4.75, and it is estimated 
that drivers save an average of 12 minutes in commuting time.
    Finally, with the recent implementation of congestion pricing in 
central London there has been renewed interest in using pricing to 
manage congestion. Economists have long argued that drivers do not pay 
the full social cost of driving when they drive during peak periods and 
that because of this that drivers over-consume peak period travel. The 
notion is that if drivers traveling at peak periods were charged a fee 
(or a higher fee than at other times of the day), that travelers who 
had other choices (e.g., transit, time shifting) would not drive then. 
The experience so far in London has proven this point, as traffic is 
down approximately 20 percent and average speeds are up considerably. 
It's important to note, however, that in this case the congestion tolls 
are used not to raise revenue to pay for new capacity to alleviate 
congestion, but rather to induce people to not drive. It's unlikely 
that a similar scheme will be introduced in the U.S., nor is such an 
approach needed except perhaps in the few most congested urban cores. 
However, tolls easily could and should be varied on roads (and bridges) 
to adjust to demand conditions in order to not only maximize the 
efficient utilization of our limited transportation infrastructure but 
also pay for infrastructure expansion.

Objections to Road Pricing
    Opponents of road pricing make a number of objections, charging 
that it is inefficient, unfair, and represents double taxation.
    It is true that paying tolls at staffed tollbooths is inefficient 
and costly. However, electronic toll collection systems that use 
vehicle-mounted electronic transponders to automatically debit funds 
from drivers' pre-paid accounts enable road pricing without slowing 
traffic or requiring toll collectors. This technology also enables 
governments to easily institute a variety of road pricing approaches, 
including pricing based on time of day, level of congestion, number of 
passengers, and type of car (e.g., electric-gas hybrid cars ride for 
free).
    Some oppose tolls because they believe that drivers have already 
paid for roads through gas taxes and that tolls represent a form of 
double taxation. However, gas taxes do not cover the full costs of 
driving. Gas taxes (and tolls) cover only about 88 percent of the cost 
of highways. If the costs of maintaining other roads and local streets 
are factored in, the share of road costs paid by gas taxes is even 
lower. In short, gas taxes do not come close to paying for the costs of 
the nation's surface transportation system. Moreover, gas taxes do not 
cover the costs of adding lanes or expanding roads. One study found 
that the average construction costs for adding lanes in urban areas is 
over 30 cents per mile driven during peak periods, yet gas taxes amount 
to only about 2 cents per lane mile.\xi\ Likewise, drivers pay nowhere 
near the total cost of driving when they use, roads during peak 
congestion periods.\xii\
---------------------------------------------------------------------------
    \xi\ DeCorla-Souza, Patrick and Anthony Kane, ``Peak Period Tolls: 
Precepts and Prospects,'' Transportation, vol. 19, no. 293, p. 311, 
1992, Kluwer Academic Publishers.
    \xii\ While the cost to each additional driver on a congested road 
increases, the cost to the rest of the drivers from the incremental 
addition of more cars increases even more. As a result, drivers on 
congested roads do not pay the full social costs.
---------------------------------------------------------------------------
    Some conservatives oppose road pricing because they see it as a tax 
increase. While this could be true if existing roads were tolled, it's 
not true if tolls are used to finance new road capacity and if current 
gas tax revenues continue to be spent on transportation and not 
diverted to the general fund. Tolls are simply a way to charge the user 
for their use of a service. Clearly when a consumer pays to buy a 
service, neither they nor we see that as a tax. The same holds true for 
transportation. If used to support new capacity expansion, tolls would 
simply be the price people would voluntarily pay for a new service. If 
consumers did not want to ``buy'' this increased mobility, they could 
remain on ``free'' lanes.
    Finally, road pricing is opposed by some, particularly on the left, 
who believe that roads are a public good which should be provided 
equally to all. For example, some liberal groups have criticized HOT 
lanes as unfair, calling them ``Lexus lanes.'' They argue that all 
Americans should be treated equally and that charging some for premium 
service creates a two-tiered society with the privileged getting to 
cruise along at 65 mph while everyone else sits in traffic. There are 
several problems with this view.
    First, as a representative of an organization affiliated with the 
Democratic Leadership Council, I am sympathetic to concerns about 
equity. However, I believe that in this case, well-intentioned equity 
concerns are misplaced. Studies have shown that HOT lanes are used by a 
representative mix of commuters, not just the wealthy.\xiii\ But even 
taking into account the fact that higher income travelers do use the 
lanes more than lower income travelers, one can make a compelling case 
that using tolls to expand infrastructure is in fact highly 
progressive--since higher earners are actually paying more for public 
infrastructure. But opponents will argue that unless you pay, you don't 
benefit. In reality, everyone benefits from charging those willing to 
pay for additional lanes or using underutilized lanes, since this means 
there will be fewer drivers in the free lanes. Second, road pricing can 
be explicitly designed to address these equity concerns. For example, 
some of the revenue generated can support transit, and people who take 
transit could get credits (through smart cards) that let them use toll 
lanes on days they need it most.\xiv\ Finally, it's one thing to raise 
equity concerns, it's another to propose realistic alternative 
solutions. We can ask Americans to wait a very long time until the gas 
tax is finally increased on all drivers so it raises enough revenues to 
add new capacity, or we can just move ahead now and expand capacity, 
drawing revenues from those that are willing to pay. In most cases, 
arguing that roads should be funded solely by the gas tax means that 
new roads will simply not be built.
---------------------------------------------------------------------------
    \xiii\ Analysis by Edward Sullivan and Joe El Harake of the 91 
express lanes in southern California found that while upper-income 
drivers use lanes more, the difference; is not too pronounced. Fifty 
percent of households with incomes of higher than $100,000 stated that 
they rarely or never use the lanes, while 25 percent of individuals 
with incomes below $25,000 use them frequently.
    \xiv\ DeCorla-Souza, Patrick: and Anthony Kane, ``Peak Period 
Tolls: Precepts and Prospects,'' Transportation, vol. 19, no. 293, p. 
311, 1992, Kluwer Academic Publishers.
---------------------------------------------------------------------------
How the Federal Government Can Boost Road Pricing
    While a number of new road pricing projects have emerged in the 
last decade, overall progress is slow. In 1997, Congress created an 
Interstate Toll pilot project and a road pricing pilot program within 
DOT. No funds were devoted to the former project and the road pricing 
program received just $11 million per year for FY2000 to FY2003 to 
support up to 15 new state and local value pricing programs. In spite 
of energetic efforts by the DOT program managers, the results have been 
disappointing largely because the incentives for states to try a new 
and potentially controversial proposal were minimal. Moreover, DOT 
itself has been ambiguous about road pricing. As a result, if Congress 
wants to kick-start new road pricing projects it will have to provide 
much stronger incentives.
    1. Repeal the limitation on tolls on interstate highways, as long 
as toll collection is electronic and the tolls are used to support road 
or lane expansion or major rebuilding.\xv\ To enable states to generate 
more revenues for road expansion, Washington needs to remove the 
regulatory barriers to road pricing. In order to ensure that states do 
not simply slap tolls on sections of interstates that carry large 
numbers of out-of-state drivers, any new tolls should be allowed only 
on new roads or expanded lanes. The Freeing Alternatives for Speeding 
Transportation (FAST) Act, H.R.1767, introduced by Mark Kennedy (R-MI) 
and Adam Smith (D-WA) would do this.
---------------------------------------------------------------------------
    \xv\ Section 1216 of Transportation Equity Act for the 21 st 
Century (TEA-21) says that with the exception of a limited pilot 
program, states cannot put new tolls on interstate highways. States 
should be able to add new lanes to interstates and charge all 
electronic tolls on them.
---------------------------------------------------------------------------
    2. For a limited period of time, raise the required federal share 
on road projects involving pricing by at least 10 percent. While 
reducing restrictions on tolling federally funded highways is an 
important step, it may be not be enough to convince states to take the 
somewhat politically risky step of using tolls to add capacity. 
However, if the federal government provided states with incentives to 
use tolls to fund new capacity, this would help states overcome their 
inertia and political caution. One way to do this is to raise the 
federal share of funding for toll roads. Currently, the federal 
government provides 80 percent of funds for most road projects. To 
jump-start road pricing projects, Congress should provide a 90 percent 
match on these projects. While this will not provide additional funds 
to states, it will let them stretch their own state funds further. Some 
will argue that since road-pricing projects raise revenue, federal 
funds should be used instead for maintenance and construction of roads 
that are not priced. However, the revenues from the road can be used to 
support other transportation projects in the state. Until toll roads 
become more widespread, it makes sense for the federal government to 
provide incentives for their creation.
    3. Change the tax laws to allow private corporations to issue tax-
exempt bonds for toll roads as long as they get approval from the state 
DOT. Under current law, certain types of privately funded projects, 
such as public transportation facilities, airports, waste disposal 
facilities, and water and sewage facilities, are eligible for tax 
exempt financing with private activity bonds.\xvi\ However, privately 
built toll roads are not eligible. In contrast, publicly funded and 
operated road projects can obtain tax-exempt bonds. Additionally, the 
fact that a private operator cannot own a publicly funded project 
reduces the incentive for private companies to operate roads. Moreover, 
private toll roads compete against publicly provided roads. Changing 
the tax laws to enable private toll roads to be eligible and raising 
the state cap on private revenue bonds to reflect this change would 
enlist new innovative public-private partnerships.
---------------------------------------------------------------------------
    \xvi\ ``Issue Brief: Private Activity Bond Volume Caps,'' June 
2002, http: // WWW.gfoa.org/flc/briefs/062702/volcaps.06.02.pdf.
---------------------------------------------------------------------------
    4. Make the receipt of federal highway funding contingent upon the 
states adopting an interoperable national toll system so that any toll 
transponder can be used anywhere. Allow states to use federal highway 
funds to offer free transponders to all drivers when they register 
their vehicles.\xvii\ Toll roads will expand if it is easier to use 
electronic toll transponders. While a number of East Coast states 
adopted a shared E-ZPass standard, other states use different 
systems.\xviii\ But even for states with the same standard, unless they 
are linked to the same system, drivers cannot use one state's 
transponder in another state. For example, a commuter in Washington, 
DC. would have to get a ``Smart Tag'' to drive on the Dulles Toll Road 
in Virginia and an E-ZPass for the Chesapeake Bay Bridge in Maryland, 
not because the transponders are different, but because Virginia is not 
linked into the E-ZPass system. As a result, transponder 
interoperability is needed. In addition, to encourage the use of toll 
transponders, it needs to be much easier for Americans to get low-cost 
transponders.\xix\
---------------------------------------------------------------------------
    \xvii\ Transponders cost anywhere between $15 and $35, and are 
often free since they save the toll road authority money by avoiding 
the use of expensive human toll collectors.
    \xviii\ For example, Florida, South Carolina, Texas, and Kansas use 
a different standard.
    \xix\ Most likely, the next generation of transponders for which 
there is an agreed North American standard will be built into vehicles 
by the manufacturers. In addition to permitting automatic tolling, they 
could support a wide range of new applications, such as allowing police 
to download license and registration data if they pull a car over, give 
the driver a dashboard display of the fog warning one-half mile ahead, 
and download a movie at the gas station for the kids in the backseat. 
(Source: interview with Peter Samuel, editor, Toll Roads Newsletter).
---------------------------------------------------------------------------
Conclusion
    If we do not want to see even higher levels of congestion when 
Congress revisits the TEA-21 Act in 2009, moving forward this year to 
remove restrictions and provide incentives for the greater use of tolls 
to expand our nation's infrastructure will be critical.

                               __________
   Prepared Statement of William R. Buechner, Ph.D., Vice President, 
   Economics and Research, American Road and Transportation Builders 
                              Association

    Mr. Chairman, Congressman Stark, and Members of the Committee, 
thank you very much for inviting the American Road and Transportation 
Builders Association to testify this morning on ``Financing Our 
Nation's Roads''.
    I am Dr. William Buechner, ARTBA's Vice President for Economics and 
Research and chief economist. Prior to joining ARTBA in 1996, 1 served 
22 years as a senior economist for the Joint Economic Committee, and I 
have a doctorate in economics from Harvard University. I am very 
pleased to be here this morning to present ARTBA's views on this 
important subject.
    ARTBA marked its 100th anniversary last year. Over the past 
century, its core mission has remained focused on aggressively 
advocating federal capital investments to meet the public and business 
community's demand for safe and efficient transportation. The 
transportation construction industry ARTBA represents generates more 
than $200 billion annually to the nation's Gross Domestic Product and 
sustains more than 2.5 million American jobs. ARTBA's more than 5,000 
members come from all sectors of the transportation construction 
industry. Thus, its policy recommendations provide a consensus view.
    Importance of Transportation Investment. This committee deals with 
issues that directly relate to the development and management of 
material wealth of the federal government and the nation. Few issue 
areas have a bigger impact on the U.S. economy than transportation 
investment.
    Transportation infrastructure is the catalyst for new development. 
It provides the platform necessary to perform virtually all of the 
activities of both government and the private business sector.
    Without transportation infrastructure, people cannot get to and 
from work. Raw materials cannot be sent to manufacturing facilities . . 
. products and food stuff cannot be sent to market. The travel and 
tourism industry that so many of our states depend on would not exist.
    Emergency response is a meaningless term without uncongested 
transportation infrastructure. While usually overlooked in federal 
budget and policy discussions, transportation investment--or the lack 
thereof--impacts public health and insurance costs borne by government 
and society.
    Without our complex transportation infrastructure system, our 
military would still be mustering for an action in Iraq . . . and 
literally hundreds of thousands of Americans would have died over the 
years in hurricanes, floods and other natural disasters.
    Clearly, providing and maintaining the nation's transportation 
infrastructure is--and always has been in most civilized and 
progressive societies--a core function of government. We are heartened 
that the Joint Economic Committee is exploring this issue area with the 
intention of providing recommendations to the Congress on how to 
generate additional revenue to meet the very substantial investment 
shortfall in highway and public transit facilities that the U.S. 
Department of Transportation outlined in its 2002 report to Congress.
    Significant new investment in transportation improvements is 
critical to job creation and future economic growth in America. We need 
not only to maintain the transportation infrastructure we have, but 
also to build more capacity into the system to ensure that the system 
is not retarding economic growth.
    This year, traffic congestion in America will cost our economy 
nearly $70 billion in lost productivity and wasted motor fuel costs, 
according to the Texas Transportation Institute. Motor vehicle crashes 
will cost the American economy $230 billion this year, according to the 
National Highway Traffic Safety Administration. Poor road conditions or 
outdated alignments are a factor in a third of those incidents.
    That $300 billion drain on the American economy is 10 times what 
the federal government is investing in capital improvements to the 
nation's surface transportation system during 2003.
    With the federal highway, transit, airport and rail investment 
programs all due for reauthorization by the Congress this year, a 
window of opportunity exists to take the bold financial actions that 
are necessary to ensure the nation has the safe and efficient 
transportation network we need for the new century.
    As detailed in our testimony, the investment shortfall we face will 
need more than ``innovative'' financing. There is no ``silver bullet.'' 
There is no easy answer or way out. The inescapable fact is that it 
will be necessary to increase federal highway user fee rates to meet 
the challenge that the federal government itself has quantified.
    Public-Private Partnerships and Innovative Financing. While ARTBA's 
core focus is on the federal programs that finance investment in 
highways, mass transit, airports, rail and water transportation, we 
have long been a leader in the area of public-private partnerships and 
leveraged financing for transportation projects. More than 60 major 
companies in the industry are represented in our Public-Private 
Ventures Division, which has developed a set of recommendations for 
increasing the ability of private companies to build and operate 
transportation facilities in the United States. To further this effort, 
we conduct an annual conference each fall in Washington where hundreds 
of participants meet to discuss public policy and business 
opportunities in the public-private partnership area.
    We are very encouraged that this committee is taking a lead role in 
bringing ideas for additional mechanisms for financing investment in 
the nation's infrastructure, to the Congress.
    Let me summarize some of our ideas for increasing the role of the 
private sector in financing transportation investment.
    First, public-private partnerships can supplement the core federal 
transportation investment programs, but not replace them. The core 
programs are funded through what in essence are user fees. While not 
perfect, this method has proven effective in financing transportation 
projects aimed at meeting general public needs and facilitating 
economic growth, defense and emergency response activities and 
environmental objectives for almost half a century. Public-private 
partnerships are best suited for ``mega'' projects that, due to 
expense, could not otherwise be financed in a timely manner through 
normal user fee revenue streams without either very large increases in 
those fees or curtailing investment in the overall core maintenance, 
rehabilitation and new construction programs.
    The Transportation Equity Act for the 21st Century (TEA-21) 
established a handful of financing mechanisms--the Transportation 
Infrastructure Finance and Innovation Act (TIFIA), State Infrastructure 
Banks (SIBs), and toll road provisions--that were designed to foster 
public-private partnerships. After five years experience, the results 
have been mixed. There have been a number of good projects delivered at 
substantial cost savings to the public. But these mechanisms have not 
attracted as much interest and private equity as had been hoped.
    There are a number of ways TIFIA, SIBs, and toll funding could be 
improved to make them more attractive to potential private-sector 
investors.
    TIFIA Program. Under the TIFIA program, which offers federal credit 
assistance for up to one-third of the cost of transportation projects 
of national or regional significance, 11 projects have been approved so 
far worth a total of $15.4 billion. Federal TIFIA loan commitments have 
totaled $3.6 billion and the projected U.S. budget cost is $190 
million. But certain provisions of the program have erected barriers to 
project submissions.
    We would suggest the following changes to the TIFIA program in TEA-
21 reauthorization legislation:
    1. Lower project eligibility to $50 million from the current $100 
million;
    2. Permit intermodal projects;
    3. Eliminate the ``springing lien'' provision, under which junior 
federal debt becomes senior debt under a default, because it raises the 
perceived risk and cost of private financing and discourages private 
equity; and
    4. Require the TIFIA office at FHWA to become more active in 
encouraging project applications.
    State Infrastructure Banks. Currently, 32 states have established 
State Infrastructure Banks, which provide revolving funds for 
transportation projects. Currently, SIBs have 310 loans outstanding 
worth $4.1 billion. Only four of these SIBS, however, are eligible for 
a TEA-21 pilot program allowing them to use federal highway funds for 
bank capital.
    ARTBA recommends that the pilot program be extended to permit all 
50 states to use some federal funds to capitalize the SIB revolving 
funds.
    Toll Roads. For a public private partnership to work as a source of 
funding for a highway project, there has to be a stream of income from 
the project back to the private investor.
    The traditional option for generating a revenue stream has been 
tolling, and tolling is gaining acceptance as a source of highway 
funding. The HOT lane corridor proposal that Bob Poole has developed 
and the proposal for truck only toll lanes, which ARTBA has endorsed, 
are two creative variations on the tolling approach that can generate 
new revenue sources for highway improvements that would provide needed 
additional capacity and higher levels of safety.
    But there are other ways to generate a revenue stream for private 
investors. For example, development districts can be established where 
businesses and developers who would benefit from a highway investment 
would finance it through higher property or sales taxes. Investors 
could also be compensated with land and development rights near a 
project, similar to what was done to foster development of land-grant 
railroads in the 19th century.
    Financing the Federal Highway Program. As I said earlier, 
initiatives such as those discussed earlier in our testimony or 
suggested by other witnesses this morning are important potential new 
sources of highway investment, but they are a supplement to and not a 
substitute for the core investment financed by the federal-aid highway 
program and the federal mass transit program.
    For the past half century, most federal transportation investment 
has been user-fee financed. Revenues from the federal motor fuels taxes 
and certain taxes on heavy trucks are credited to the federal Highway 
Trust Fund. These revenues are supposed to be used to finance capital 
investments in the nation's core highways and mass transit systems.
    Prior to the enactment of TEA-21 in 1998, this relationship was 
often breached. Congress would provide whatever amount could be carved 
out of the domestic discretionary budget cap for highways and transit, 
with no formal link to Highway Trust Fund user fee revenues or the 
nation's surface transportation investment requirements.
    TEA-21 addressed half this problem by linking highway program 
funding directly to Highway Account receipts and using Mass Transit 
Account receipts to finance 80 percent of federal transit investment. 
But the annual investment still had no relationship to the nation's 
surface transportation investment needs. The 2002 Report to Congress on 
the Conditions and Performance of the Nation's Highways, Bridges and 
Transit by the U.S. Department of Transportation states bluntly: 
``Capital investment by all levels of government between 1997 and 2000 
remained below the `Cost to Maintain' level. Consequently, the overall 
performance of the system declined.''
    For TEA-21 reauthorization, ARTBA has for more than two years urged 
that Congress fund the federal highway and mass transit programs at the 
level necessary to meet our nation's highway and transit investment 
requirements. At minimum, this should be the amount required to 
maintain current physical and performance conditions and, hopefully, 
begin improving conditions.
    Highway and Transit Investment Needs. There are a number of ways to 
determine highway and transit investment needs, but the only 
methodology that is actually based on economic principles is the method 
used by the U.S. Department of Transportation for its biannual 
Conditions and Performance Report.
    The U.S. DOT's report is based on a sample of 113,000 highway 
segments from around the country. For each of these segments, the state 
DOTS provide details on physical conditions and traffic volume, as well 
as traffic projections. The U.S. DOT model then projects forward 
physical and performance conditions and examines up to 28 alternatives 
for addressing any problems identified. For each alternative 
improvement, the model computes the sum of the economic benefits, 
including the impact on travel times, crash costs, and vehicle 
maintenance costs, and compares the benefits to the cost of the 
improvement. It then ranks potential projects according to the benefit/
cost ratio. Similar models are applied to bridge and transit investment 
needs.
    Based on this model, the 2002 Conditions and Performance Report 
found that an annual investment of $82.6 billion in constant 2000 
dollars will be required by all levels of government during the 20-year 
period from 2000-2019 just to maintain current physical and performance 
conditions on the nation's highways and bridges.
    When the Transportation and Infrastructure Committee factored in 
projected inflation of about 2.2 percent per year for the next six 
years and assumed that the federal government should continue providing 
the approximately 43 percent share of total public highway capital 
investment that it has assumed over the past decade, the Committee 
found that the minimum federal surface transportation investment needed 
for the next six years just to maintain current highway and transit 
conditions totals over $320 billion or an average of almost $54 billion 
per year. Highway investment by the federal government would have to 
total more than $270 billion or $45 billion per year, while transit 
investment would have to total more than $48 billion. To improve 
highway and transit conditions by making all economically justified 
investment would require more than $400 billion, or $72 billion per 
year. A copy of the Committee's findings is attached at the end of my 
statement.
    I should note that these are conservative estimates because they 
assume a significant slowdown in travel growth over the next two 
decades. Similar forecasts have been made in the past but have always 
been wrong.
    The following table shows the number of highway miles in each state 
with pavement surfaces that are rated ``unacceptable'' by the Federal 
Highway Administration and need resurfacing or reconstruction. The 
table also shows the number of bridges in each state that U.S. DOT has 
determined are either structurally deficient or functionally obsolete. 
The bottom line is that almost 18 percent of core highway pavements 
currently need resurfacing or reconstruction, and 27 percent of all 
bridges need to be replaced. These percentages will continue to grow in 
the years ahead if Congress funds the highway program in 
reauthorization below the level needed to maintain current conditions.
    Reauthorization Proposals. Three weeks ago, Congress finalized a FY 
2004 budget resolution that would provide a total $218 billion for the 
federal highway program over the next six years and $49 billion for 
transit. Not only are both figures far short of the minimum investment 
needed to maintain current conditions, the highway figure is barely 
sufficient to accommodate projected inflation and it is well below the 
amount needed to increase the return to donor states to the proposed 95 
percent.
    The only current reauthorization proposal that will meet the 
nation's highway and mass transit investment needs for the next six 
years is the program proposed by the bipartisan leadership of the House 
Committee on Transportation and Infrastructure.
    This proposal would provide $375 billion for the highway, transit 
and highway safety programs over FY 2004-2009. The modal split would 
likely be approximately $300 billion for highways, about $65 billion 
for transit and the remainder for the highway safety programs. This 
investment level would not only maintain current highway and transit 
conditions, it would begin to make some improvements.
    The problem, of course, is that projected revenues into the Highway 
Trust Fund are not sufficient to finance the level of federal highway 
and transit investment required to meet the nation's needs. With 
current revenues, there would be virtually no growth.
    It is clear that a meaningful increase in highway and transit 
investment will require a substantial infusion of new revenues into the 
Highway Trust Fund.

[GRAPHIC] [TIFF OMITTED] T1928.001

    Last year, in our ``Two Cents Makes Sense'' proposal, ARTBA showed 
how the nation's highway and transit needs could be met with an annual 
two cent-per-gallon increase in the federal motor fuels user fee over 
the next six years, even if no other new revenues sources were adopted. 
An annual rate adjustment of less than two cents per gallon would be 
sufficient if other revenue enhancements were enacted.
    To achieve the same goal, the bipartisan T&I Committee leadership 
is considering a number ofrevenue options, including spending down the 
Highway Trust Fund balance, compensating the Highway Trust Fund for 
revenues lost to the gasohol tax incentive, reinstating interest on the 
trust fund balance, and reducing motor fuel tax evasion. These would be 
helpful but the revenue amounts are small. To bridge the gap, the 
Committee is also considering a 5.5 cent/gallon adjustment to the motor 
fuels excise to restore purchasing power lost since the rate was last 
adjusted in 1993, plus subsequent indexing of the rate to the CPI. 
ARTBA wholeheartedly supports this approach.
    There have been suggestions that, in lieu of an increase in user 
fees, revenues to increase federal investment in highways and mass 
transit be raised by issuing bonds--that is, by borrowing the money. 
Some find this an attractive idea. But before Congress considers such a 
sweeping change in the financing of surface transportation investment, 
it should pay attention to the observations presented in an excellent 
article by Dr. Martin Wachs, Carlson Distinguished Professor of Civil & 
Environmental Engineering at the University of California, Berkeley, 
titled ``A Dozen Reasons for Raising Gasoline Taxes.'' Dr. Wachs 
writes:
    ``In the end, borrowed money is not really revenue at all, because 
it must later be repaid using revenues from taxes or user fees. In 
addition to repaying the borrowed funds, the state must bear the cost 
of interest, which, if funds are held for 20 or 30 years, often exceeds 
the value of the principal.''
    A copy of Dr. Wachs article is attached to my statement.
    Consequences of Inadequate Investment. Let me turn to another 
issue, the economic consequences of failing to meet our highway and 
transit needs.
    Highway and Bridge Conditions. The 2002 Conditions and Performance 
Report is very clear about the consequences of failing to increase 
highway investment--highway conditions will deteriorate substantially. 
The average quality of highway pavements will deteriorate by 26 percent 
by 2019 at the current level of highway investment, while the backlog 
of structurally deficient or functionally obsolete bridges--currently 
over 160,000 bridges--will likely grow by a similar amount.
    Safety. Safety conditions will also deteriorate. The National 
Highway Traffic Safety Administration projects that traffic fatalities 
will increase from 42,000 per year currently to more than 50,000 per 
year by the end of the decade without further increases in highway 
safety investment. Increasing the use of safety belts and reducing the 
incidence of drunk driving will help reduce fatalities, but highway 
conditions are implicated in one-third of all highway fatalities each 
year, which can only be cut by investing in highway improvements.
    According to a recent report from the National Highway Traffic 
Safety Administration, highway crashes cost $230 billion each year, 
including hospital costs, lost productivity and wages, legal costs, 
property damage and a host of related costs. One-third of this is $75 
to $80 billion, or more than double the annual federal investment in 
highway improvements. Highway crashes are one of the most serious 
public health issues in the United States. Highway crashes are the 
number one killer of young people under the age of 25. Congress should 
not ignore the safety consequences of highway investment when setting 
funding levels in TEA-21 reauthorization.
    Congestion and Mobility. Finally, at the current level of highway 
investment, congestion will inevitably get worse. The U.S. DOT report 
calculates that failure to increase highway investment will reduce 
average highway speeds by 2 miles per hour by 2019, raise the amount of 
travel under congested conditions from 33 percent today to 36.4 percent 
and increase annual delay from 31 hours per capita to 36 hours.
    Congestion is already having a serious economic impact. According 
to the Texas Transportation Institute's 2002 Urban Mobility Report, 
traffic congestion in the nation's 75 largest cities costs an annual 
average of $67.5 billion, including the cost of 3.6 billion hours of 
delay and 5.7 billion gallons of wasted fuel.
    A recent study by ARTBA based on data from the Census Bureau's 
latest Commodity Flow Survey showed that more than three-quarters of 
the value of all freight traffic in the U.S. is transported by truck. 
During the 1980s and 1990s, many U.S. businesses adopted the ``just-in-
time'' delivery system, which freed up billions of dollars of warehouse 
and inventory funds for more productive investments. Congestion 
threatens to undo these gains to the detriment of our economic growth.
    And there is growing evidence that congestion is impairing small 
business growth. Many small businesses in urban areas have cut growth 
plans because they can't work around the congestion, while management 
time is being absorbed by logistical problems at the cost of growth. 
Tax cuts will not stimulate growth in areas where highway congestion is 
the limiting factor.
    There are social and health consequences to congestion as well, 
including the impact on family life, the amount and quality of time 
parents get to spend with their children, and the impact on health of 
the stress of driving under congested conditions.
    The proposal by the bipartisan leadership of the House 
Transportation and Infrastructure Committee will address these 
problems. It will also have a powerful stimulative impact on the 
economy. A study of the Committee proposal by Global Insight, Inc. 
(formerly DRI-WEFA) found that the highway and transit investment and 
fuel tax increase would together generate $290 billion of Gross 
Domestic Product over the next six years, for a return of more than 
$2.80 of additional output for every federal dollar invested. It would 
generate a net gain of over $800 per household of disposable income 
after paying the increased motor fuels tax, as well as more than $100 
billion of federal income and payroll tax revenues.
    Conclusion. With an ever-growing U.S. population and, hopefully, an 
ever-growing U.S. economy to sustain and improve American quality of 
life, saying as we enter the 21st Century that ``our priority now 
should be just maintaining the transportation infrastructure that we 
already have'' or ``we can't afford to invest more in new 
transportation capital assets'' is like saying ``America can't afford 
to defend itself anymore--the planes and tanks we used in World Wars I 
and II can serve all our needs if just maintain them.''
    Those people are wrong. Transportation investments, like defense 
investments, are what ensure America will be strong now . . . and in 
the future. It's an investment for our children and grandchildren.
    In summary, Mr. Chairman, there are many ways in which the private 
sector can help finance investment in transportation infrastructure, 
and ARTBA has been a leader in supporting public-private partnerships. 
The federal responsibility for supporting investment in highways and 
transit, however, cannot be ignored. A minimum federal investment of at 
least $270 billion will be needed during the next six years just to 
maintain current conditions on our nation's highways. An additional 
federal investment of about $50 billion is necessary to maintain the 
nation's mass transit systems. The bipartisan leadership of the House 
Committee on Transportation and Infrastructure has developed a bold 
proposal to meet those goals. We urge the Congress to enact that plan. 
We also encourage the Congress to include the TIFIA, SIB, and toll road 
revisions we propose in the TEA-21 reauthorization legislation.
    That concludes my remarks. Again, ARTBA appreciates your invitation 
to testify this morning. I would be happy to answer any questions.

[GRAPHIC] [TIFF OMITTED] T1928.002

    Prepared Statement of Michael Replogle, M.S.E., Transportation 
                    Director, Environmental Defense

    Good morning Mr. Chairman and members of the committee. I am 
speaking on behalf of Environmental Defense, an organization with 
300,000 members that seeks to integrate law, science, and economics to 
find practical solutions to environmental problems.
    Wise stewardship of our transportation system, economy, 
environment, and communities demands a level playing field between 
highways and other transportation choices. When financing, taxation, 
and pricing systems favor driving and roads over transit, walking, 
biking, and other choices, it skews consumer and agency investment and 
consumption decisions, harming efficiency and public welfare. We urge 
your action in the reauthorization of America's key federal 
transportation law, TEA-21, to make the playing field more, not less 
level, so Americans can be wise stewards of transportation.
    How we finance our nation's transportation has a powerful influence 
on our travel choices, communities, public health, equity of access to 
opportunities, transportation system performance, and quality of life. 
For much of the last century, government funding for transportation, 
tax policy, and transportation pricing policies have strongly favored 
private motor vehicle use. While spurring unprecedented mobility, this 
also led to sprawl, induced traffic, degraded air and water quality, 
reduced access to opportunities for the millions of Americans who don't 
drive. It diminished transportation choices and made it harder to walk 
safely where we live and work, diminishing routine physical activity. 
Scientists now link our dependence on cars with asthma and other 
respiratory diseases, cancer, obesity, and impaired mental health.
    The great progress we've made in producing cleaner cars has been 
significantly offset by growth in driving. The growing supply of 
``free'' roads and highways, especially high-speed motorways with 
little local access function, supported by deep subsidies to motorists 
from general revenues, is a key factor in rising traffic and 
congestion. From 1970 to 1998, vehicle miles traveled (VMT) increased 
by 136 percent, or more than three times the rate of population growth. 
Other indicators of driving activity--vehicle trips per person, average 
vehicle trip length, and number of motor vehicles per person--have also 
risen sharply, in no small part due to the major expansion of highways 
in the past half century.
    Over 160 million Americans still live in areas with poor air 
quality. Fourteen million with asthma gasp for air when ozone levels 
rise. Those living near high volume roads face cancer risks of 1 in 500 
from air toxics. Emissions from cars and trucks are increasingly linked 
to cancer, childhood asthma and other respiratory illnesses. And 
transportation greenhouse gas emissions--up 9 percent since 1990--bring 
new threats to our health and environment. Indeed, U.S. DOT estimates 
the health effects of air pollution from motor vehicles costs us $40 to 
$65 billion annually, dwarfing the $27 billion in federal 
transportation spending, and this doesn't consider the effects of air 
toxics. This is a hidden tax of over $600 a year on each U.S. 
household, and is disproportionately borne by our children, elders, and 
the infirm. TEA-21 reauthorization represents an opportunity to improve 
our accounting for these hidden costs and to align the strategies we 
use to finance transportation with the goals of minimizing these 
burdens while maximizing the efficiency of our mobility system.

     A LEVEL PLAYING FIELD BETWEEN ROADS AND OTHER TRAVEL CHOICES?
 
   The 1991 ISTEA reforms--reaffirmed and extended in the 1998 TEA-21 
law--began to level the playing field between highways and other means 
of transportation after more than a half century of overwhelmingly pro-
highway policies. Uneven local match requirements to get federal 
transportation funding, which once favored Interstate highway 
construction over transit and local street improvements, were leveled 
at an 80:20 federal-local match. The door opened for state and local 
governments to begin exploring new transportation financing and 
management strategies, such as High Occupancy Toll (HOT) lanes and 
electronic time-of-day road pricing. Federal transportation funds were 
made more flexible to support transit, pedestrian safety, and market 
incentive programs, such as promoting employer-paid transit benefits. 
Accountability was expanded for states and regions to consider the 
short and long term effects of transportation decisions on air quality 
and transportation system performance.
    Thanks in no small part to these reforms, the long rapid rise of 
vehicle miles of travel began to slow and more Americans began choosing 
alternatives to driving. From 1996-2002, transit ridership grew 19 
percent, compared to an 11 percent increase in vehicle miles of travel. 
Yet transportation finance problems now dampen this recent positive 
trend. Disastrous local and state finances caused by the recession and 
rising homeland security costs have prompted transit agencies to cut 
back service, increase fares, or both to compensate for funding 
shortfalls. Nine in ten large transit agencies have implemented or are 
planning to implement fare increases and one-third of all agencies are 
providing less frequent service. Rising unemployment--now at more than 
8.4 million Americans--combined with these transit fare increases and 
service cutbacks caused transit ridership to fall slightly last year, 
while vehicle miles driven rose 1.7 percent over 2001 levels as more 
Americans drove to avoid air travel for many intercity trips.
    A shortage of funding in the federal Transit New Starts program--a 
primary source of financing for new rail transit--has led to sharp 
reductions in the federal snatch provided for transit expansions sought 
by dozens of cities across America. Now there are proposals to write 
into law a requirement for local sponsors of new transit projects to 
come up with $5 for every $5 US DOT provides (a 50:50 match), while 
highway project sponsors still only need to come up with $1 for each $5 
from the US DOT for new roads (an 80:20 match). Such an unlevel playing 
field is a recipe for unwise investment choices. The Progressive Policy 
Institute proposes a 70:30 match for both highways and transit, a fair 
and sensible suggestion, given that all transportation dollars are 
scarce. But new proposals for road toll financing threaten to restrict 
billions of additional dollars for building new roads, cutting out 
transit, which may be thus cast into another spiral of decline.
    A transit proposal floated by Senators Grassley and Baucus would 
reallocate federal gas tax funding, which now is divided so 15.44 cents 
goes to the ``highway'' account and 2.86 cents goes to the ``mass 
transit'' account. Under the Grassley-Baucus proposal, the mass transit 
account revenue would be reduced to 0.50 cents, thereby raising the 
highway share to 17.9 cents. This would leave the transit program short 
by nearly $4 billion a year, to be made up by some sort of borrowing, 
modeled on the AASHTO proposed Transportation Financing Corporation. 
Large scale borrowing through a new class of federally sponsored debt 
would substitute expensive tax credits for direct appropriations and 
leave transit funding in a highly precarious indebted position entering 
the next funding authorization cycle. As a means around the budget 
caps, it falls short of the AASHTO proposal, which relied on a tax 
increase through indexing to generate revenues to offset the tax credit 
revenue losses. With no revenues, the transit program could not 
generate these offsets. In short, this proposal would destroy TEA-21's 
guaranteed and firewalled transit funding support, putting roads first 
at the expense of travel choices and wise system stewardship. Americans 
want more, not less transit service and travel choices. According to a 
recent poll conducted for the American Public Transit Association, 81 
percent of Americans agree that increased public investment in public 
transportation would strengthen the economy, create jobs, reduce 
traffic congestion and air pollution, and save energy. Nearly three-
quarters of Americans support the use of public funds for the expansion 
and improvement of public transportation. Unfortunately, according to 
the 1995 Nationwide Person Transportation Survey, only 49 percent of 
all Americans have easy access to public transportation, living within 
one-quarter mile of a transit stop. If we are to avoid repeating the 
mistakes of the past, highway financing innovations need to recognize 
these broader public demands for transportation choices and ensure that 
increases in transportation funding benefit all travelers and 
transportation stakeholders, rather than reinforcing our already 
overwhelming dependence on driving.

     STATES TRANSPORTATION FINANCING: A VERY UNLEVEL PLAYING FIELD

    While the federal government has invested more in transportation 
since 1991 under ISTEA and TEA-21, states have lagged behind, both in 
the amount of financing they have provided and in the flexibility of 
the funds made available to meet diverse transportation needs. Since 
1991, only six states increased their gasoline taxes faster than the 
rate of inflation--most didn't increase gas taxes and five states 
actually decreased them. At the same time, the growth in non-user fee 
revenues outpaced even the growth in state motor fuel tax revenues.
    Contrary to popular impression, America's roads and highways are 
only partially funded by ``user fees''--taxes on fuels, tires, vehicle 
sales, registrations, and the like. Sales taxes, property taxes, and 
general revenues provide a major share of the funding to build and 
operate highways and roads--as much as 4 out of 10 dollars of the 
costs, according to some studies. And of the 41 transportation funding 
measures on the ballot in 2002, only four attempted to increase state 
gasoline taxes on users, with all of the other measures proposing to 
increase general taxes directly or indirectly in support of future 
transportation improvements.
    Since state governments have been reluctant to pursue increases in 
traditional transportation user fees, local governments have been 
forced to turn to the general taxpayer--and often the voter--to support 
transportation infrastructure. Historically, most local governments and 
transit agencies have not been given access by their states or road 
tolling agencies to user fees, such as motor fuel taxes, to finance 
transportation improvements. In addition to the difficulty local areas 
confront in gaining access to user fees, in more than 30 states 
constitutions or statutes limit the expenditure of transportation user 
fees for anything other than highway improvements (see Table 1). This 
skews transportation decisions in favor of road construction, rather 
than balanced transportation investments and pursuit of strategies that 
lead to more efficient system management and expanded travel choices. 
It particularly hurts transit agencies because they thus often end up 
relying on appropriations from the state's shrinking general fund.
    In light of this development many local officials, transit 
agencies, environmental and labor groups are asking state governments 
to open up state gasoline tax revenues, transportation trust funds, and 
toll revenue streams for public transit and other local transportation. 
There is an increasing belief that states and road toll agencies should 
not continue to sequester state transportation trust funds or toll 
revenues for their own uses, excluding the legitimate transportation 
needs of local governments and transit users, while asking local 
governments and transit users for additional project funding; and 
general tax revenues to support the state highway system.

                                 Table 1
------------------------------------------------------------------------
                                                States with Statutory
   States with Constitutional Provisions       Provisions Restricting
 Restricting Expenditure of  Gasoline Tax    Expenditure of Gasoline Tax
           Revenues to Highways                 Revenues to Highways
------------------------------------------------------------------------
Alakama...................................  Alaska
Arizona...................................  Arkansas
Colorado..................................  Florida
Georgia...................................  Hawaii
Idaho.....................................  Indiana
Iowa......................................  Mississippi
Kansas....................................  Montana
Kentucky..................................  Nebraska
Maine.....................................  New Mexico
Minnesota.................................  South Carolina
Missouri..................................  Tennessee
Nevada....................................
New Hampshire.............................
North Dakota..............................
Ohio......................................
Oklahoma..................................
Oregon....................................
Pennsylvania..............................
South Dakota..............................
Utah......................................
Washington................................
West Virginia.............................
Wyoming...................................
------------------------------------------------------------------------

    Towards this end, Congress should support the creation of a new 
Flexibility Incentive Grant Program that would allocate flexible 
federal transportation funds to those states that amend their state 
constitutions or statutes to (1) create a transportation trust fund 
that distributes transportation dollars for both highways and transit; 
or (2) unlock their existing highway trust fund by distribution 
transportation dollars for both highways, and transit; or (3) increase 
the percentage or level of spending dedicated towards alternative 
transportation such as the dedication of new state gas tax revenues, 
interest on existing highway funds, motor vehicle excise taxes, tolls, 
loans to be made out of highway funds, or other resources, for transit 
use--to encourage states to unlock their own transportation resources 
for transit use and efficient total transportation system management.

       FOSTERING EFFICIENT TRANSPORTATION AND FINANCING WITH NEW 
                           PRICING STRATEGIES

    Some automobile manufacturers are beginning to offer more fuel 
efficient vehicle options for motorists, including new higher 
efficiency hybrid gasoline-electric vehicles like the Honda Impact, 
Toyota Prius, Honda Civic, and Ford RAV-4. Efforts to develop natural 
gas, electric, and fuel cell vehicles offer some promise for a 
reduction in petroleum dependence before the end of the 20-year 
transportation plans adopted by regions under TEA-21. While these will 
not immediately impact federal and state revenues from gasoline taxes, 
which comprise the major source of transportation funding, it would be 
prudent for Congress to support efforts by states and regions to 
develop transportation user fees other than the gas tax to assure 
stable future financing of transportation systems.
    An array of pricing innovations could play a valuable role in 
helping America meet financing, system management, and environmental 
goals, but most face regulatory or market entry barriers. ISTEA and 
TEA-21 both provided support for the Federal Highway Administration to 
support pilot projects and research in pricing innovations through what 
has most recently been known as the Value Pricing Program. This program 
merits reauthorization at a level of at least $25 million a year.

               BENEFITS OF ALTERNATIVE PRICING STRATEGIES

    Congestion pricing and road tolls, mileage or emission based 
registration fees, VMT fees, Pay-AsYou-Drive (PAYD) auto insurance or 
other use-based auto insurance, and gasoline tax increases could all 
produce significant revenues as well as traffic and pollution 
reduction. Expert analysis of likely impacts of such strategies in many 
other metropolitan areas have found substantial traffic and 
corresponding emission reductions possible as a result of any one of 
these strategies.
    For example, a study by the California Air Resources Board found 
that congestion pricing fees of $0.10 a mile would yield a NOX 
reduction of 2.5 percent in the South Coast region of California under 
1991 conditions, increasing to 3.6 percent with a $0.19 per mile fee 
under 2010 conditions. They found that a $0.50/gallon fuel increase 
would yield NOX reductions of 3.33.8 percent in various 
California metro areas under 1991 or 2010 conditions. They found a 
$.02/mile VMT fee would reduce NOX emissions by 3.64.3 
percent in various California metro areas under 1991 or 2010 
conditions. They found emission fees reducing NOX emissions 
by 4.2-17.3 percent depending on assumptions in various California 
metro areas. Combining congestion pricing of $0.09/mile in peak, a $1 a 
day employee parking charge, a $0.50/gallon fuel tax increase paid at 
the pump, and a mileage and emissions based fee of $40-400/year, with 
current transit service, they found NOX emissions reduced by 
9.9-12.1 percent in San Francisco, Sacramento, San Diego, and Los 
Angeles under 1991 or 2010 conditions.
    Combining the same congestion pricing with a $3/day employee 
parking charge, a $2/gallon gas increase paid at the pump, and mileage 
and emission fees of $10-1000/year, with extensive transit investment 
would cut NOX emissions in these same cities by 32.0-34.9 
percent under 1991 or 2010 conditions. The EPA states that ``VMT fees 
of $0.01 to $0.05 a mile alone would reduce gaseous emissions and VMT 
by about 4 to 11 percent, while a VMT fee weighted for emissions was 
estimated to have a significantly greater impact on emissions, 
particularly for VOC and NOX.'' EPA summarizes various 
studies to conclude that added fuel taxes of $0.40 to $2 a gallon 
usually reduce NOX emissions 1.2-6.9 percent. At the pump 
VMT fees of $0.01 to $0.05 per mile usually reduce emissions 5-8.6 
percent. Traffic reductions correspond closely to these reported 
NOX reductions, and generate proportionally greater 
congestion reduction benefits.

                             PAYD INSURANCE

    A recent study by the Federal Highway Administration showed that by 
converting fixed motorist costs of car insurance, taxes, and fees to 
variable costs that allow motorists to save money if they drive less, 
consumers would save billions of dollars a year and experience 
substantially less traffic delay. A element in this, Pay-As-You-Drive 
(PAYD) car insurance, could cut air pollution and traffic congestion by 
10 percent to 12 percent or more. Under current term-based insurance 
pricing, motorists who drive less than the average pay much higher 
costs per mile for car insurance than those who drive more than 
average, which encourages more driving and pollution. For example, for 
an intermediate size car, insurance premiums typically represent a cost 
even greater than fuel and oil costs, about one-fifth of the typical 
total financial costs of owning a car. When insurance premiums are 
converted to distance-based charges, motorists can save money by 
driving less and combining trips.
    Newly available data indicate that distance-based insurance pricing 
is more actuarially accurate, and therefore more equitable and 
economically efficient than current pricing. Distance-based insurance 
provides specific benefits including reduced accidents, traffic 
congestion, and pollution, facility cost savings, insurance 
affordability, and increased consumer welfare. Vehicle travel foregone 
consists of low-value trips that consumers willingly give up in 
exchange for financial savings. Distance-based premiums would use 
``odometer audits'' to provide accurate mileage data, which is 
estimated to have incremental costs averaging $7.50 per vehicle year. 
Research suggests total benefits of distance-based insurance to be many 
times greater than costs, with a benefit:cost ratio of 50:1 estimated 
for the case of British Columbia. Motorists are expected to reduce 
their average mileage by about 10 percent under distance-based pricing, 
providing net savings to the vast majority of consumers. Even high 
mileage drivers experience virtually no increase in total vehicle costs 
if they reduce their mileage as predicted. Higher-mileage drivers would 
also benefit most from reduced traffic congestion, accident risk, and 
pollution.
    The state of Texas enacted in May 2000 HB 45, which authorizes 
insurance companies to offer distance-based motor vehicle insurance 
policies. The Oregon House has passed a bill to offer a $100 state tax 
credit for insurance companies writing distance-based motorist 
policies. US EPA and the Federal Highway Administration have in recent 
years cooperated in promoting, use-based car insurance strategies, 
including PAYD insurance. FHWA's Value Pricing program supported 
important research and pilot projects for use-based insurance in 
Georgia and Massachusetts, but unfortunately cut off funding for these 
in 2002.
    Market incentives like PAYD insurance face significant state and 
local regulatory and institutional costs and barriers. Insurers express 
a strong desire for additional actuarial data to support PAYD policies. 
Government support is needed to foster public-private partnerships, 
share risks, collect and evaluate data, educate and inform consumers 
and service providers, and incubate and demonstrate alternative 
marketing, pricing, and business models.
    Congress should also provide $15 million a year for a PAYDAYS (Pay-
As-You-Drive-And-You-Save) Grant Program to support expanded research 
and pilot testing of this market based strategy, including risk sharing 
with insurance companies pilot testing this approach to policy pricing, 
paying for expanded actuarial research, marketing, partnership 
development, evaluation, and promotion. This would allow a designated 
university or non-profit entity to act as a research clearinghouse, 
capacity-building center, and catalyst for public-private partnerships, 
supporting efforts by governments, non-profit entities, and companies 
to design, test, and evaluate innovative mileage and parking pricing 
strategies. The potential payoff--a reduction of 10 percent in traffic 
while saving consumers money and reducing accidents and casualty losses 
to insurers--is well worth such up-front investment to help jump start 
this market innovation.
    Another important potential source of funding for developing, 
evaluating, and mainstreaming these activities is the Congestion 
Mitigation and Air Quality Improvement (CMAQ) Program. This program 
should be reauthorized at twice its current funding level to account 
for anticipated growth in air quality non-attainment areas and for an 
expanded program targeted to deal with air toxics problems. Sub-
allocating CMAQ funds to local areas and assuring air agencies a 
greater role in project selection will foster fuller and more effective 
use of these funds. Congress should explicitly authorize use of CMAQ 
funds for promotion and demonstration of PAYD insurance, permitting use 
of funds for pilot project start-up, marketing, risk-sharing, mileage-
based rebates, other related incentives, and evaluation activities 
serving both attainment and non-attainment area motorists, provided 
that pilot projects focus on producing substantial emissions reduction 
benefits in air quality nonattainment or maintenance areas. Congress 
should encourage of the use of CMAQ funds for ``parking cash-out'' 
pilot programs as well, including start-up program incentive, payments 
to commuters and risk guarantees for developers who reduce parking and 
instead establish dedicated transportation incentive programs for site 
access.
    Congress should support initiatives to expand the use of automated 
time-of-day road pricing on existing tolled facilities and when such 
systems are managed to reduce the need for added roads and direct new 
revenues substantially to support expanded means of access to jobs and 
public facilities for people without cars. Accountability for 
environmental, community, and equity impacts must not be weakened 
through increased reliance on bond and private road financing.

      MANAGED TOLL LANES: A ROAD TO GREATER SYSTEM EFFICIENCY AND 
                            EXPANDED CHOICES

    A promising option for unclogging roads, especially in more 
congested metropolitan areas, is automated time-of-day tolls and High 
Occupancy Toll (HOT) lanes, which allow solo drivers to pay to use High 
Occupancy Vehicle (HOV) lanes, while giving a free ride to buses, vans, 
and sometimes carpools. These can put to work unused capacity in HOV 
lanes and low efficiency general purpose lanes, helping to pay for 
expanded transportation choices. A network of HOT lanes on existing 
highways is likely to provide more effective congestion relief than 
building new roads, especially if revenues are used to expand travel 
choices for all. But new outer beltway roads--even if built as toll 
roads--are likely to exacerbate sprawl and put more jobs out of reach 
for those without cars, hurting the poor and the environment. Wise 
policy will avoid the latter, instead giving time-stressed travelers a 
way to buy relief from growing congestion delays in existing freeway 
and travel corridors.
    New non-stop electronic toll technology means motorists don't need 
to slow down to pay tolls. And HOT lane fees--higher in rush hour and 
discounted at other times--can keep traffic flowing without wasting 
scarce road capacity like some HOV lanes do. This makes it possible to 
contemplate future conversion of some existing general-purpose lanes to 
HOT lanes, particularly where new capacity is being added to existing 
roads. But HOT lanes should not be created at the expense of effective 
HOV or bus lanes, where these provide efficient services, as in the 
Shirley Highway Corridor of Washington, DC, or the approaches to the 
Lincoln and Holland Tunnels connecting New York and New Jersey, or some 
Seattle HOV lanes.
    HOT lane experience indicates this strategy can garner popular 
support. In the most recent survey of the I-15 Express Lane corridor in 
San Diego, 91 percent of I-15 commuters agreed with the statement, 
``it's a good idea to have a time saving option on the I-15 always 
available.''
    On California's Route 91, diversion of traffic onto HOT lanes has 
reduced congestion on the entire road and increased the number of 
passengers per car to 1.6, compared to the average of 1.2. Similar road 
toll related incentives have been implemented or are being considered 
in Texas, Florida, Colorado, Georgia, New Jersey, New York, and other 
states.
    The Port Authority of NY-NJ in March 2001 introduced time-of-day 
tolls on Hudson River bridges and tunnels and Staten Island bridges, 
giving discounts for electronic toll payers who avoid rush hours and 
charging a premium in the time of most concentrated demand, just like 
movie theaters and many other services. This helps reduce congestion by 
shifting the time of day of traffic. Regional agency officials have 
estimated the Port Authority's modest time-of-day toll system has cut 
traffic in the peak hours by 7 percent, saving tens of thousands of 
hours of travel delay. Toll revenues support better PATH rail transit 
and regional transportation infrastructure and services. The NJ 
Turnpike, NY Thruway Authority, and other tolling agencies have 
implemented time-of-day tolls to manage traffic.
    HOT lanes in existing road corridors--if developed appropriately--
can expand both travel choices and equity, but if revenues are 
dedicated solely to road construction, these benefits can disappear. 
HOT lane critics often unfairly bash them as ``Lexus Lanes,'' serving 
only the rich. Several real-world HOT lanes look more like ``Lumina 
Lanes,'' used by people of widely varying incomes who occasionally need 
to bypass traffic delays that disrupt their social, family, or work 
life. A working class mom who is facing a $1 a minute penalty for 
picking her kids up late at daycare is happy to pay $4 to save 20 
minutes by using the HOT lane on those several days a month when she 
needs it. The typical users of California HOT lanes spend less than $20 
a month on HOT tolls, using them on days they are in a real rush.
    The real issue is what happens to the toll revenue? If HOT lane 
revenues fund new transit, as on San Diego's I-15 HOT lane, everyone 
wins. Lower income transit users and carpoolers can get access to 
otherwise inaccessible suburban jobs. Drivers benefit from reduced road 
congestion and better services and choices. If a portion of HOT lane 
revenues help pay for the road, then those who drive most are paying 
more of their fair share, helping all taxpayers win, since road user 
fees don't cover the cost of building and operating America's roads. 
And with new accounting rules forcing fuller disclosure of deferred 
maintenance, transportation providers need new sources of revenue to 
maintain systems, expand choices, and cope with growing travel demand.
    But if HOT lane revenues, or other road tolls and motorist user 
fees are dedicated solely to building more highways, or if the tolls 
are dismantled once the bonds used to pay for the road capacity have 
been retired, then the net impact of this financing system is likely to 
be increased traffic, pollution, sprawl, and unequal access to 
opportunities and public facilities that hurt those without cars, 
especially people of low incomes, minorities, the disabled, the very 
young, and the very old. If HOT lanes and toll-supported road 
privatization and bond financing schemes are used to evade 
environmental and public accountability laws, these impacts are not 
likely to even be recognized until it is too late to do anything about 
it. The externality costs of imprudent investment choices will accrue 
to those least able to afford it, while the profits from road 
construction, sprawl development, and subsidized motor vehicle use 
accrue to a narrower set of private interests. The result would be an 
unlevel playing field for roads vs. transit, fostering imprudent 
stewardship of transportation resources, the environment, and 
communities.
    Reauthorization of TEA-21 offers new opportunities to remove 
barriers and provide new support for more widespread development of 
equitable value pricing strategies and market incentives. Clearly, 
Congress should support proposals to eliminate restrictions that have 
limited the ability of agencies to impose tolls on federal-aid 
Interstate highways but it should look closely at what restrictions and 
performance measures are placed on the system and how toll revenues may 
be used.
    H.R.1767. Rep. Mark Kennedy recently introduced a FAST Lane bill 
(H.R. 1767) which would allow the use of tolls on the Interstate System 
to finance the construction and subsequent improvement of designated 
FAST (Freeing Alternatives for Speedy Transportation) lanes. Many 
environmentalists would support this bill if it is changed to:
     Drop the provision that lane fees expire when costs have 
been recouped;
     Provide for the authorization of such fees to be collected 
on existing as well as new lanes, at local option, if this provides for 
improved traffic flow or maintenance of capacity in the corridor;
     Permit the use of revenues not just for new lane 
construction, but also to support transit, vanpool, walk and bike 
transit access, and other transportation capital and transportation 
operating expenses in the affected travel corridor; and
     Require establishment of local performance goals for 
maintenance of capacity, efficient traffic flow, and fair access to 
jobs and public facilities for low income and minority residents in the 
travel corridor, with periodic evaluation and consideration of 
adjustments to toll levels and apportionments of net toll revenues to 
meet these performance goals.
    Without these changes, H.R. 1767 would facilitate rapid expansion 
of sprawl, traffic, and pollution--increasing highways, exacerbating 
inequity of access to jobs and public facilities for people without 
cars and benefiting higher income travelers while discriminating 
against low-income people. With the changes above, however, it could 
result in improved equity of access and net environmental benefits.

                REASON FOUNDATION HOT NETWORKS PROPOSAL

    The Reason Foundation's recent report, HOT Networks: A New Plan for 
Congestion Relief and Better Transit, offers a somewhat broader vision 
than H.R. 1767 as it links HOT lane development to substantial 
expansion of Bus Rapid Transit (BRT). While this report has been 
valuable in spurring discussion of the concepts it advocates, it falls 
short of presenting a balanced proposal. It would create new sprawl and 
traffic inducing outer beltways, such as the Inter-County Connector 
around Washington, DC, using a combination of HOT revenues and Highway 
Trust Fund resources. It would dedicate HOT lane revenues to paying off 
bonds for the new road capacity and rely on the severely oversubscribed 
and under-funded Federal Transit Administration New Starts Program to 
finance purchase of transit vehicles to operate on the HOT/BRT lanes, 
diminishing federal support for locally-supported new rail transit 
investments across America. It does not include the costs of BRT 
stations, access, or maintenance facilities in the cost estimation for 
the HOT/BRT system. And nowhere does the report address the critical 
limitation on BRT and transit systems across America today--a steady 
funding source for operating assistance. With this set of ingredients, 
the Reason Foundation's proposal would, if adopted wholesale, 
contribute to significant sprawl and traffic growth, while failing to 
address the transit funding crisis that is causing transit service 
cutbacks and fare increases across America.
    If these shortcomings were addressed, however, the proposal could 
garner support from many in the environmental community. BRT does 
constitute a more viable and cost-effective strategy than rail for many 
communities where transit services are now severely limited, but to be 
effective, it must be adequately financed and supported with land use 
plans for transit-oriented development, improvements to pedestrian and 
bicycle access, and a dedicated source of operating assistance. But BRT 
should not be regarded as a simple add-on to a HOT network.
    To be effective, as in the outstanding example provided by Bogota's 
TransMileneo system, BRT needs to encompass reforms in transit fare 
collection systems, transit route structures, and transit access 
systems, with well designed stations, high-level boarding, separation 
of fare collection from boarding, and a high level of priority in 
traffic. BRT is probably best operated in the environments created by 
high level urban arterial streets. But BRT is adaptable to suburban 
environments and freeway medians when supported by appropriate access 
and land use coordination strategies.

                   DRAFT ADMINISTRATION SAFETEA BILL

    The February 2003 draft of the Administration's SAFETEA bill, still 
undergoing interagency review and modification, proposes a number 
ofpositive steps in the pricing arena:
     Variable tolling projects for roads, bridges, and tunnels, 
would be ``mainstreamed'' as a part of the regular Federal-aid program.
     The numerical limit on the number of variable pricing 
projects would be eliminated, ending a major barrier to wider 
consideration and adoption of road pricing.
     The purpose for variable road pricing would be broadened 
to include air quality improvement in addition to congestion 
mitigation.
     Revenues from variable pricing projects could be used for 
any purpose authorized under Title 23, which could include support for 
transit capital and at least some operating expenses of transit, 
vanpool, and other projects.
    On the other hand, the bill would eliminate important elements of 
the Value Pricing program:
    1. The legislative mandate for active Federal support for State and 
local pricing initiatives would be significantly diminished.
    2. Specific federal funds to support State and local pricing 
initiatives, including pre-implementation and operational activities, 
would be eliminated.
    3. The scope of project activity supported would be significantly 
narrowed from what was included under the TEA-21 program.
    4. The reauthorization proposal focuses exclusively on toll pricing 
initiatives, with other non-toll market-based congestion reduction 
initiatives, such as parking pricing and pay-as-you-drive insurance, 
not included in the scope of the proposed legislative language.
    What other elements need to be part of a sound and balanced TEA-21 
reauthorization value pricing program?
     Congress should encourage automated time-of-day tolls as a 
promising tool for transportation facility management and financing.
     States and transportation facility operators should be 
encouraged to replace obsolete toll booths that cause congestion and 
pollution with new barrier-free customer-friendly tolling systems using 
toll transponders and image processing and billing systems.
     Congress should encourage state motor vehicle agencies to 
issue toll transponders with motor vehicle registrations to encourage 
their widespread availability in states where tolls are used.
     Congress should eliminate restrictions on tolling highways 
that were constructed with federal aid, which can now only be tolled 
under limited pilot projects authorized by TEA-21.
     Congress should reauthorize the Federal Highway 
Administration's Value Pricing Program at a level of at least $25 
million a year and assure a well funded broad-based program to 
encourage state and local research and pilot testing of transportation 
user fee incentive strategies and other voluntary market incentive 
strategies. This should explicitly authorize support for initiatives 
such as Pay-As-You-Drive (PAYD) car insurance.

 FEDERAL TAX TREATMENT OF COMMUTER BENEFITS: STILL NOT A LEVEL PLAYING 
                                 FIELD

    Federal and state tax policies are a part of the recent story of 
transit resurgence and part of the story of the unlevel playing field. 
For the vast majority of working Americans, a free parking space at 
work has for decades been the sole commuter benefit offered by 
employers because that was until recently the only tax-free commute 
benefit worth speaking of.
    So if you drive alone to work you gain the benefit. If you take 
transit, carpool, walk, or bike, you lose the benefit and likely pay 
your own daily transit fare. With this kind of incentive, it's no 
surprise that on any given day nine out of ten American commuters drive 
to work and nine out of ten of the cars driven to work have one 
occupant. Yet the 85 million ``free'' or subsidized employer parking 
spaces actually cost American business more than $36 billion per year. 
By spurring more driving, these subsidies exacerbate traffic congestion 
and air pollution. A 1995 congressional study found that ``free'' 
parking of all kinds costs our society over $250 billion per year.
    In 1998, Congress took steps to make tax policies more equal for 
all commuters, allowing employers to offer tax-free transit and vanpool 
benefits of up to $100 a month, with taxable cash-in-lieu-of-parking 
benefits allowable for the first time. Tax-free benefit limits for 
employerprovided parking were set; at $175 per month--a practice which 
still leaves solo drivers at an advantage. Allowing employee-paid pre-
tax transit benefits saves transit-using employees over $400 a year 
while saving employers a smaller amount on withholding. Having 
employers pay for transit is a bigger incentive for employees. Offering 
such a benefit to federal executive agency employees in the national 
capital region induced 11 percent of employees who used to drive to 
work to switch to transit, taking 12,500 cars off the region's crowded 
roads every workday. At firms in California and Minnesota offering a $2 
a day incentive instead of free parking, one out of eight who used to 
drive are finding another way to get to work. Such benefits help 
employers attract and retain employees and provide the greatest help to 
low and moderate wage workers who spend the largest share of their 
incomes commuting and often ride transit, carpool, bike, or walk to 
work.
    The cost of such employer provided transit benefit programs to 
employers is very small and can easily be fit within the scope of 
ordinary cost-of-living increases offered by most employers to their 
employees on a periodic basis. State tax credits can make this cost 
even smaller. For example, in Maryland, if an employer offers an 
employee a cost of living increase, for each $1 in after-tax cost to 
the employer, the employee typically receives $0.53 in after-tax 
income. If that same $1 in after-tax employer expense is instead 
devoted to an employer-paid qualified transit benefit of $60 a month, 
the typical Maryland employee who receives it ends up gaining $1.76 in 
after-tax benefits, thanks to the leveraging effect of federal and 
state tax provisions.
    The savings for employees offered by the federal tax law changes 
are significant and make a high level of employer and employee 
participation in the next several years realistic across America. For 
example, an employee earning $50,000 per year who spends $780 annually 
on transit ($65/month) could realize a tax savings (at 42 percent) of 
$328 as a result of paying their transit cost using pre-tax dollars, 
exercising one of the new Commuter Choice options, while their employer 
would gain payroll tax savings (at 7.65 percent) of $60 per employee. 
Even if the cost to set up and administer the program equals 2 percent 
of the transit benefit, the employer will still enjoy payroll savings 
of $44. Employers are likely to face new costs to offer transit passes 
or added cash income in lieu of parking, but these can also translate 
into substantial cost savings of several types. It is much cheaper for 
an employer to boost non-taxable employee benefits than to offer added 
taxable income or cost-of-living increases to retain or attract 
workers. If the employer is able to expand employment without adding 
more parking spaces or to otherwise avoid the cost of building, 
leasing, or maintaining parking spaces for workers, capital cost 
savings can amount to $5,000 to $20,000 per avoided space and operating 
costs can amount to $750 to $3,000 or more per year per avoided space. 
Such savings are often significant enough to more than pay for a cash-
in-lieu-of-parking or transit pass benefit. But additional financial 
incentives and support by transportation agencies and other government 
bodies are essential to rapid adoption of Commuter Choice voluntary 
incentives. These can be highly cost-effective in reducing congestion 
and pollution.
    DOT and EPA are promoting Commuter Choice, but Congressional action 
is needed to further expand efforts to foster widespread adoption of 
these voluntary incentives. EPA estimates that if half of all U.S. 
employees were covered under these commuter benefits, traffic and air 
pollution could be cut by the equivalent of taking 15 million cars off 
the road every year, saving American workers about $12 billion in fuel 
costs. For every 10 percent of U.S. employees participating, commute 
VMT would be cut by 3.2 percent, or 20 billion miles, with emission 
reductions of 54,000 tons VOC, 480,000 tons CO, 33,600 tons 
NOX, and 2.36 million tons C02. EPA estimates 
reductions of 26-30 percent in commute vehicle trips for a full 
Commuter Choice program. Los Angeles research shows that those who 
receive free parking at work drive 72 cars per 100 employees, while 
those who paid for parking at work drove 53 cars per 100 employees, or 
26 percent less.
    Congress should take further steps to encourage employer support 
for such ``Commuter Choice'' initiatives by adopting:
     The Commuter Benefits Equity Act (S.667) would provide 
equal tax-treatment for parking and transit benefits with $190 per 
month in qualified tax-exempt benefits.
     The Bike Commuter Act (H.R.1052) would allow employees who 
bike to work the same financial incentives as transit users.
     The Mass Transit Tax Credit Act of 2001 (H.R. 906) would 
provide a 25 percent tax credit to employers for the cost of providing 
transit: benefits to their employees. This is modeled after measures 
adopted by several states--including Maryland, Minnesota, Oregon, 
Washington, Georgia, New Jersey--that have begun offering tax credits 
of up to 50 percent and up to $50 per employee per month for employer-
paid non-driving commuter benefits.

   REFORMING TRANSPORTATION PLANNING AND PROJECT REVIEWS TO CONSIDER 
   PRICING AND SYSTEM MANAGEMENT OPTIONS FOR EFFICIENT TRANSPORTATION

    Increased reliance on motor vehicle user fees could provide a 
powerful means of meeting the rising demand for transportation 
investment and services and for matching that demand with 
transportation supply. But metropolitan and statewide transportation 
planning in most places currently gives only cursory attention to this 
capacity. Few areas consider the effects of different pricing schemes 
on travel demand and consider the effects of various transportation 
investment options on travel behavior, land use, and transportation 
system efficiency and operations.
    Such evaluation typically requires use of metropolitan computer 
travel simulation models as used for project planning studies, regional 
and state transportation and air quality planning and programming, and 
environmental permitting decisions. Unfortunately, many of the analysis 
tools in widespread use fail to reflect current scientific knowledge 
and best practice methods. This can lead to serious errors in 
forecasts, in performance evaluation measurement, and poor investments 
that fail to meet their objectives. When road tolls are relied upon to 
service bonds, poor analysis can lead to failure to meet debt 
obligations, and taxpayers can be left holding the bag, as has happened 
with projects such as the Dulles Greenway in Northern Virginia. 
Congress should assure adequate funding for improving these computer 
models across America, funding the TRANSIMS model development and 
research effort at $25 million a year and funding a $35 million annual 
program to support timely deployment of best practice travel and 
emission models at metropolitan planning organizations and state 
agencies.
    A number of scientific studies in recent years have documented the 
common sense adage: ``If you build it they will come,'' that building 
more roads generates more traffic, often to a degree that the increased 
highway capacity does little or nothing in the longer run to abate 
congestion. A recent paper by two former EPA scientists, attached by 
reference, summarizes the literature, and shows that for every 10 
percent increase in road lane miles, it is typical to find a 3 to 11 
percent increase in vehicle miles traveled, with 8 percent being a 
typical median value.
    A 2002 analysis by the Metropolitan Washington Transportation 
Planning Board showed that by deferring 100 lane miles of highway 
expansion projects--a 0.5 percent reduction in lane-miles of road 
capacity--Virginia saved $800 million in capital costs while cutting 
NOX emissions by more than 1 percent, or nearly 2 tons per 
day, and reducing vehicle miles of traffic by 0.6 percent. This 
illustrates how expansion of new highways often produces a growth in 
air pollution emissions and congestion by spurring more traffic, rather 
than a reduction in emissions and congestion as often claimed by the 
road lobby. This illustrates how reducing expenditures on new roads is 
often the most cost-effective emission and congestion reduction 
strategy, because it avoids generating costs, traffic, and air 
pollution. This also illustrates why it is imprudent for motorist user 
fees to be dedicated solely to investments in highways, rather than to 
make these revenues available for what are often more efficient and 
effective forms of public investment that accomplish transportation-
related purposes, whether for transit, the revitalization of walkable 
neighborhoods where people can live without generating so many car 
trips, affordable housing close to jobs, or public health services that 
help offset the hidden costs of our transportation system.
    Considering those costs and choices will require improvements to 
the metropolitan transportation planning process which today expends 
little effort to consider transportation pricing and growth management 
strategies that could provide attractive alternatives to the current 
plan of business-as-usual deeply subsidized road system expansions that 
accommodate and support sprawl and driving while neglecting the needs 
of pedestrians, bicyclists, and those without cars. Improved data 
collection and impact analysis tools and planning requirements are 
needed to help state and local agencies evaluate and advance effective 
pricing and management strategies. These will also help address demands 
to streamline the project review process in a manner that delivers 
better projects that also protect the environment, public health, and 
the ability of the public and local officials to know about the effects 
of major decisions before they are final, a core principal of the 
National Environmental Policy Act of 1969.
    TEA-21 reauthorization should strengthen accountability, 
transparency, and performance-oriented planning requirements, assuring 
consideration of transportation pricing reforms. State and metropolitan 
areas should be required to develop and periodically update integrated 
transportation, natural resource protection, and growth management 
plans that consider at least one alternative scenario that considerably 
reduces traffic growth through better system management. Agencies 
should regularly report on the current and projected performance of 
their transportation system management, investment, and proposed 
programs and plans, accounting for cumulative and secondary impacts on 
growth patterns, public health, greenhouse gas emissions, the 
achievement of natural resource planning; goals for air, water, and 
habitat protection, and the provision of equal access to jobs and 
public facilities for all residents, including those without cars, 
without undue time and cost burdens.

                               CONCLUSION

    Across America, we are on a crash course with worsening traffic 
congestion, crumbling roads and bridges, and investment levels that 
can't even keep up with maintaining the infrastructure we've got. 
Throwing more money into road building and streamlining project reviews 
to curtail consideration of environmental factors in transportation 
decisions won't solve congestion. But better accountability, planning, 
consideration of pricing and system management alternatives, and 
support for new smart incentive strategies can help local and state 
agencies, business, and citizens cut their way through our traffic mess 
and boost transportation equity. Congress has a key role in helping 
state and local governments and their private partners make this 
transformation from trying to build our way out of congestion and into 
the new information era, where we manage congestion and expand choices 
and smart incentives.
  
