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Available Options for Financing Highways

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					Available Options for Financing
           Highways

             Johnnie Waid, MSCE, EI
              Virginia Sisiopiku, PhD

        University of Alabama at Birmingham


    International Highway Engineering Exchange Program
                    Albany, New York
                    September 17, 2007
        Problem Statement
Financing the construction and
maintenance of highway systems is
extremely important
Economy, safety, and quality of life are all
affected by the condition of highways
Current funding sources are declining



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
             Methodology
               Case Study – Alabama
               Literature Review
                – Alabama’s existing highway financing
                  system
                – Income sources for highway projects
                  across the nation and abroad
               Data Analysis, Projections, and
               Forecasts
                – Feasibility of alternative solutions in
                  Alabama
                – Profitability

AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                 Economy
A large number of commercial vehicles
travel through the state
$128 million worth of freight shipments
originated in Alabama in 2002
All states depend on a dependable
highway system for commerce



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                    Safety
A 20-year FHWA study determined that
road and bridge improvements made a
large difference in reducing accidents

On average, 10 large trucks crash per day
on Alabama highway’s
– One of the nation’s highest accident rates



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
             Quality of Life
Southern citizens love to drive
– Vehicle miles traveled (VMT) per capita
     In 2003, 4 of the top 10 states were southern states
     Alabama, Georgia, Mississippi, and Tennessee
Alabama citizens lead the pack
– Ranked 3rd in the nation, 1st among southern
  states
– Alabama – 13,028 miles per capita in 2003

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
             Study Objectives
1. Evaluate the existing revenue system for
   highway funding
2. Assess the potential impact of hybrid and
   alternative-fueled vehicles on revenue
3. Determine alternative and innovative
   solutions to finance the construction,
   maintenance, and improvement of
   roadways

   AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
ALDOT State Funding Sources
              ALDOT State Revenue Budgeted 2004-2005
              Petroleum                 Other
            Inspection Fee           $7,778,178
             $57,827,045                 2%
                 12%                               Gasoline Tax
                                                  $214,142,173
                                                      45%
   Motor Fuels Tax
    $118,280,805
        25%
                             Auto Licenses
                             $74,540,444
                                 16%




 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
      Alabama’s Fuel Taxes
Current fuel tax rates
– $0.18 per gallon – gasoline
– $0.19 per gallon – diesel fuel
Rate has not increased since 1992
– Flat rate, not adjusted for inflation
National average gas tax - $0.215 per
gallon


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Alabama’s Fuel Taxes (Continued)
                                                            Gasoline Taxes in Southeastern States
Gasoline tax (cents per gallon)




                                  30.00
                                  25.00
                                                                                                                                                                                National Average,
                                  20.00                                                                                                                                             21.53
                                  15.00
                                  10.00
                                   5.00
                                   0.00



                                                                                                                National Average

                                                                                                                                   South Carolina
                                                                          Mississippi




                                                                                                                                                               North Carolina
                                                                                                                                                    Louisana
                                                    Tennessee

                                                                Alabama




                                                                                        Georgia

                                                                                                     Kentucky
                                          Florida




                                                                                             State




                                  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Effect of Declining Fuel Taxes on
             ALDOT
Annual VMT by Alabama drivers is increasing...
                            Annual Vehicle Miles Traveled (VMT) per Licensed Driver
                 17000


                 16500
  VMT / person




                 16000


                 15500


                 15000


                 14500
                     1995     1996   1997    1998   1999          2000      2001   2002    2003    2004
                                                           Year

                             Annual VMT / Licensed Driver                Linear (Annual VMT / Licensed Driver)

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Effect of Declining Fuel Taxes on
             ALDOT
... But, net gasoline tax receipts per annual VMT
are decreasing
           Net Motor Fuels Tax Receipt per Annual VMT

 $0.0105

 $0.0100

 $0.0095
       1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
                                    Year

                   $ / Annual VMT          Linear ($ / Annual VMT)

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Highway Funding Across America
The 2 funding sources that all states have
in common are:
– fuel taxes and
– federal funding
Many states have begun to address the
need to plan for dwindling gas tax and
highway fund revenues


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
           Highway Funding
            Across America
Innovative Financing Options
– Public Financing
     District Improvement Financing Program
     (Colorado)
– Electronic Tolling
     E-ZPass (Northeast Toll Roads)
– Road User Fees
     Mileage tax (Oregon)



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
              Highway Funding
              Around the World
Pay-as-you-drive Fees
– Tolling fees to replace current car taxes (United Kingdom)
Congestion Price Tolling
– Congestion zone charges are in addition to normal fees (United
  Kingdom)
Privatization of Toll Roads
– Has become the conventional method around the world
– Some countries selling existing toll facilities (Canada, Italy,
  Portugal, France, Spain, and Japan)
Truck User Fees
– Toll Collect on the Autobahn (Germany)
– Distance Based Heavy Vehicles Fee (LSVA) (Switzerland)


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Hybrid & Alternative Fuel Vehicles
Contribute to decreased fuel tax revenues
0.5% of U.S. market in 2004 were hybrids
Estimated 15% of market will be hybrids
by 2020 (American Association of State Highway and
Transportation Officials)

Ownership of all alternative fuel vehicles
and hybrids is growing at 9.3% annually
(Energy Information Administration)



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                Hybrid Vehicle Sales
                    U.S. Hybrid Vehicle Sales by Year


           250000
                                                          2005
           200000
Vehicles




           150000
                                                   2004
           100000
                                            2003
                                     2002
           50000       2000   2001

               0
                                     Year



AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
  Alternate Financing Sources
Considered in Alabama Case Study
Vehicle Mileage Road User Fee (VMRUF)
Heavy Truck Road User Fee (HTRUF)
Toll Roads
Private Funding
Inspection Fees
Increase Current Fuel Tax


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 Vehicle Mileage Road User Fee
           (VMRUF)
Charges user based on distance traveled (VMT)
instead of gallons of fuel purchased
Uses an OBU (GPS & odometer) to record
mileage driven within the state
Short-range radio communication at the pump
transmits data to ALDOT database
Driver is charged mileage fee and credited fuel
tax
Could also be used as a congestion fee

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
    Data Flow for VMRUF

                     OBU




                              Station
        ALDOT


AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
            Gas Tax Revenue Flow at
               Distributor Level
                        Wholesale Distributor


         $$$
(cost of fuel and gas
tax reimbursement)


                                          $$$
                                        (gas tax)


           Retail Gas
            Station
                                                    ALDOT




    AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
VMRUF and Gas Tax Revenue Flow
   from End User to ALDOT
   Mileage Fee
 Equipped Vehicle

                               $$$
                    (mileage fee and fuel cost)                Gallon, mileage fee,
                                                                and tax paid data



                                                  Retail Gas
                                                  Station


  Non-Mileage Fee                                                      $$$
      Vehicle                                                   Bill (Refund) for
                                                                   taxes owed         ALDOT
                                         $$$                        (overpaid)
                               (gas tax and fuel cost)




  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 VMRUF Projected Revenue
Vehicle sample used for calculations
– 2004 registered vehicles (excluding buses,
  motorcycles, and large trucks)
– Percentages adjusted to itemize hybrid (0.03%) and
  alternative fuel vehicles (0.23%)
Revenue estimated for 2020 by projecting VMT,
registered vehicles, percent hybrid and percent
alternative fuel vehicles
The difference between the gas tax and the
estimated road user fee revenue more than
doubles from 2004 to 2020.

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
   VMRUF 2004 Revenue with Road
   User Fee Rate of $0.015 per mile
 Vehicle      Avg      2004       2004 Gas      Inflation     Road User
  Type        MPG     Vehicle       Tax         Adjusted         Fee
                      Gas Tax     Revenue         2004
                                                Revenue
LPG & CNG     21.25     $ 75.00    $ 0.45 M       $ 0.45 M        $ 1.2 M
Ethanol       15.25     $ 23.39    $ 0.07 M       $ 0.10 M      $ 0.56 M
Electricity   N/A       $ 0.00          $0             $0        $ 0.13 M
Hybrid        38.3      $ 74.30    $ 0.86 M        $ 0.13 M     $ 0.22 M
Automobile     25.1     $ 94.26     $ 165 M        $ 248 M       $ 340 M
Van           22.7     $ 102.86      $ 37 M         $ 55 M        $ 69 M
Truck          16.8    $ 143.68     $ 261 M        $ 391 M       $ 352 M
SUV           22.5     $ 104.85     $ 26 M          $ 39 M        $ 48 M
TOTAL                              $ 489 M        $ 733 M       $ 810 M

                                              + $321 MILLION
        AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
   VMRUF 2020 Revenue with Road
   User Fee Rate of $0.015 per mile
 Vehicle      Avg      2020       2020 Gas      Inflation    Road User
  Type        MPG     Vehicle       Tax         Adjusted        Fee
                      Gas Tax     Revenue         2020
                                                Revenue
LPG & CNG     21.25     $ 75.00     $ 3.7 M        $ 3.7 M       $ 11.2 M
Ethanol       15.25     $ 23.39     $ 0.6 M          $1M         $ 5.4 M
Electricity   N/A       $ 0.00          $0             $0         $ 1.3 M
Hybrid        38.3      $ 87.12     $ 106 M        $ 160 M       $ 278 M
Automobile     25.1    $ 110.53     $ 318 M        $ 476 M       $ 653 M
Van           22.7     $ 120.61      $ 70 M        $ 105 M       $ 132 M
Truck          16.8    $ 168.48     $ 502 M        $ 753 M       $ 677 M
SUV           22.5     $ 122.95      $ 50 M         $ 75 M        $ 92 M
TOTAL                             $ 1,050 M      $ 1,573 M     $ 1,850 M

                                              + $800 MILLION
        AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
            Privacy Issues

             Citizens might view the OBU as
             an invasion of privacy
             New technologies have made GPS
             type systems more mainstream
              – OnStar
              – Electronic toll devices
              – Cell phones




AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 Privacy Issues (Continued)
           OBU technology must be designed so
           that “tracking” is not permitted
           GPS used only for the purpose of
           determining if the miles driven are
           within the state
           Short range radio frequency used for
           communicating with pump also
           prevents tracking of vehicle


AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
   Heavy Truck Road User Fee
           (HTRUF)
Heavy trucks do the majority of the
damage to roadways
Trucks also contribute to a large number
of accidents in the state




 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
     Criteria for Trucks to be
          Subject to Fee
              Same as trucks subject to the
              International Fuel Tax Agreement
              (IFTA)
               – Section 810-8-1-.07 of Motor Fuels Tax
                 Rules
              A motor vehicle qualifies if it:
               – Has 2 axles and is >26,000 lbs
               – Has 3 or more axles, regardless of weight
                 and/or
               – Is used in combination and gross
                 weight > 26,000


AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
HTRUF Methods of Payment
Automatic fee collection
– Truck equipped with OBU (GPS and
  odometer) and pays a mileage fee
– Trucks purchase a temporary pre-paid tag at a
  standard daily amount
Manual option
– Using detailed mileage logs kept by fleet
  owners
– Evasion much more difficult to stop

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Data and Revenue Flow for HTRUF
  (Trucks Equipped with OBUs)


  ALDOT




                                     DSRC units and
                                        cameras




  Bank




  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 Data and Revenue Flow for HTRUF
(Trucks Equipped with Pre-paid Tag)

                                A

                 B




     ALDOT            Station

                                      DSRC units and
                                         cameras




  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Data and Revenue Flow for HTRUF
 (Trucks NOT Equipped with OBU
         or Pre-paid Tag)


     ALDOT




                                       DSRC units and
                                          cameras




  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 HTRUF Projected Revenue
Annual truck mileage based on 2002 data.
Mileage rates shown from $0.10 to $0.25
per mile
– Germany charges $12.5 eurocents per
  kilometer average ($0.24 per mile)
Rates can be adjusted for vehicle weight,
emissions, and axle class
– For simplicity, a flat fee is used for
  estimates

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
        HTRUF Projected Revenue
 Average truck       Truck      Revenue      Revenue      Revenue      Revenue
  weight (lbs)       Miles      $0.10 per    $0.15 per    $0.20 per    $0.25 per
                   (millions)     mile         mile         mile         mile
26,001 – 33,000         173.1     $ 17.3 M    $ 26.0 M      $ 34.6 M     $ 43.3 M


33,001 – 40,000          49.2     $ 4.9 M       $ 7.4 M      $ 9.8 M     $ 12.3 M


40,001 – 50,000         123.7    $ 12.4 M      $ 18.6 M     $ 24.7 M     $ 30.9 M


50,001 – 60,000         173.8     $ 17.4 M     $ 26.1 M     $ 34.8 M     $ 43.5 M


60,001 – 80,000        1822.6   $ 182.3 M     $ 273.4 M    $ 364.5 M    $ 455.7 M


80,001 – 100,000        230.0    $ 23.0 M      $ 34.5 M     $ 46.0 M     $ 57.5 M


  Total Gross Revenue           $ 257 M      $ 386 M       $ 514 M     $ 643 M


       AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
VMRUF & HTRUF Technology

Standardized Technology Requirements
– The OBU’s used on the vehicles should have
  standards developed to be used for all units
– Provide for the ability to seamlessly integrate
  the technology throughout several states




 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                Toll Roads
Alabama has only 6 miles of toll roads, 3
toll bridges, and 1 toll ferry
Toll road are underutilized in the state
Fairness is a main advantage
Should be examined on a project-by-
project basis to determine suitability as a
financing option


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
     Revenue from Toll Roads
Traditionally, tolling may be suspended
after the initial capital costs of the project
have been recovered
Continued tolling can pay for
– Ongoing maintenance and improvements
– Other highway projects
Leveraging Funds
– TEA-21 authorizes that toll revenues can be used
  as credit (up to 100%) toward the non-Federal
  matching share of some transportation projects

   AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
          Electronic Tolling
Electronic much more cost effective
– Traditional 2-lane toll plaza
     Capital costs – up to $30 million
     Operating costs - 1/3 of toll revenues
– Electronic toll plaza
     Capital costs - $150,000
     Operating costs – 1/10 of toll revenue
– Oklahoma Turnpike Authority
     Transitioned to electronic tolls in 1990
     91% decrease in cost of toll collection

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 Electronic Tolling (Continued)

Electronic much more safe
– Accident rate on toll roads is 1/3 less than on
  non-toll roads
– Electronic facilities can be even safer
     Oklahoma Turnpike Authority
     100% decrease in toll plaza accidents since
     implementing electronic tolling



 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
              Value Pricing

Also known as congestion, or peak-period,
pricing
FHWA sponsored Pilot Programs
Encourages off-peak travel and generates
revenue
Congestion control


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
           Private Funding
Greater flexibility to locate and arrange
financing
Less strict bidding and contracting methods
– Saves time and money
Greater profits
– Motivated by a return on investment
More efficient operating techniques and
technologies
More innovations in design and
    construction
 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Private Funding (Continued)
More attention to maintenance and
customer service
– Private companies see drivers as customers,
  not tax payers
Since private investors want people to
continue to travel their roadways, they will
provide reasons for travel
– Increases in area businesses
– Stimulation of local economy

 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
 Privately-Owned Toll Roads

Design, Own, Operate, and Build
Private firm retains control for a period of
time, after which ownership is turned over
to the DOT
Ownership term is traditionally around 35
years


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                    Bonds
Grant Anticipation Revenue Vehicles
(GARVEEs) are a common form of bond
financing
Can be used to leverage federal funds
Use federal funds as the primary source of
repayment for the bond debt
Spreads out the cost of project over the lifetime
of the bond
Additional project cost of interest expense
Can finance toll roads or other highway
projects
 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
               Inspection Fees
Generate revenue, promote safety, and promote
environmental health
Safety testing and Emissions testing
Proposed Inspection Fee Revenue
Proposed Fee   Amount to   Amount to    Estimated
                station      DOT         Revenue
                                       (FY 10/04 –
                                          09/05)
$15            $5          $10         $45.4 M




 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Vehicles Required for Inspection
Safety testing required for all cars, light-
duty trucks, vans, and SUVs registered in
Alabama.
Emissions testing required for those
vehicles in the top six population counties
– Jefferson, Mobile, Madison, Montgomery,
  Tuscaloosa, and Shelby
– Exemptions from emissions testing
     Alternative fuel and diesel vehicles
     Antique vehicles (25 years or older)
 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
    Low Income Exception

Inspection waiver for low-income vehicle
owners
– Income is lower than a pre-determined limit
– Cost to bring vehicle into compliance is above
  a pre-determined amount




AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
  Increase Current Fuel Tax

Existing gas tax is $0.18 per gallon
– Last adjusted in 1992
Adjusted for 3% annual inflation, the 2006
rate should be $0.27 per gallon
No start-up costs
Absence of public support to raise taxes


 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
           Estimated Revenue from
             Increasing Fuel Tax

 Gas tax   Diesel tax   Gasoline    Diesel    TOTAL        %
($/gallon) ($/gallon)   Revenue    Revenue   Revenue   increase
                                                         from
                                                        current
                                                       amount
$ 0.18     $ 0.19       $ 457 M    $ 144 M   $ 601 M      -

$ 0.20     $ 0.21       $ 507 M    $ 159 M   $ 667 M   11.0%

$ 0.27     $ 0.28       $ 685 M    $ 212 M   $ 897 M   49.4 %
$ 0.30     $ 0.31       $ 761 M    $ 235 M   $ 996 M   65.8 %




     AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
                 Conclusions
Four main objectives of innovative finance
according to FHWA:
1.   Maximize the ability to leverage federal funding
2.   Utilize existing funds more effectively
3.   Begin construction on projects more quickly
4.   Make funding possible for major transportation
     investments that might not otherwise receive
     financing
All of the innovative financing options meet one
or more of these criteria.

AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
             Conclusions (Continued)
             Alabama Funding Solutions as Innovative Finance Options

  Innovative        Maximize the     Utilize existing        Begin         Make funding
  Financing           ability to      funds more        construction on     possible for
   Solution       leverage federal     effectively       projects more        major
                       funds                                quickly       transportation
                                                                           investments
VMRUF

HTRUF

Publicly-
Publicly-owned
toll roads
Private funding
of toll roads
Private funding
with bonds
Road user
congestion
charges
Inspection fees

Increase fuel
tax

       AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
   Alabama Criteria for Good
       Financing Sources
Criteria to Determine Good Revenue
Sources for Highway Financing
1. Equitable solutions
2. Easily understood by the user
3. Reliable and adequate source of income for
   the present and the future
4. Diversity of sources



AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
   Alabama Criteria for Good
       Financing Sources
All options meet these criteria, except:
– Simply raising fuel taxes is not a reliable
  source of income for the future
– Funds must be found for the repayment of
  bonds, making them a less adequate source
  than other options
Diversity criteria is met by implementing
more than one option

AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Comparison of Anticipated Revenues
      Innovative Financing Solution                 Anticipated
                                                     Revenue
Current Fuel Tax                                      $ 601 M
Gasoline ($0.18/gallon) and Diesel ($0.19/gallon)
Increased Fuel Taxes for Inflation                    $ 897 M
Gasoline ($0.27/gallon) and Diesel ($0.19/gallon)
VMRUF                                                 $ 922 M
Road User Fee ($0.015/mile) + current fuel tax
revenue for buses, motorcycles, and large trucks
HTRUF                                                 $ 643 M
Truck user fee ($0.25/mile)
Inspection Fee                                        $ 45 M
$15 ($10 to ALDOT and $5 to service station)

     AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Recommendations for Immediate
            Use
Increase fuel tax
– At least $0.27/gallon
Implement inspection fees
– $15 Fee ($10 to ALDOT, $5 to service station)
– These amounts should be studied and altered, if
  needed, by decision- and law-makers
Toll Roads
Private funding
– Privatization of toll roads
– Bonds for toll road and other highway projects
Reevaluate money allocations of vehicle
registration fees and title fees
 AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Recommendations for Future Study
 Vehicle Mileage Road User Fee (VMRUF)
 – Has the ability to revolutionize the way highway
   revenues are collected in the state
 – Technology design
 – Cost-benefit analysis
 – Pilot study
 Heavy Truck Road User Fee (HTRUF)
 – Technology design
 – Cost-benefit analysis
 – Pilot study
  AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
Available Options for Financing
           Highways

                         The time is now for investing
                         and implementing change.
                         By investing in these future
                         studies, Alabama and other
                         southern states could lead the
                         way in the U.S. for innovative
                         sources in highway funding!




AVAILABLE OPTIONS FOR FINANCING HIGHWAYS
For Additional Information
                Johnnie C. Waid
                Auburn University
          Department of Civil Engineering

             johnnie@auburn.edu


  University Transportation Center of Alabama
               http://utca.eng.ua.edu
               UTCA Report # 05114




AVAILABLE OPTIONS FOR FINANCING HIGHWAYS

				
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