Put Toll Concession Fees In a Permanent Fund For All
|August 20, 2012||Posted by Jeffery J. Smith under News|
Local Equity & Citizen Dividends Proposed
Two scholars tell you how much you can expect to be paid by traffic. This 2012 article is from Toll Road News, Jly 8. The authors are from Cornell University. Geddes was a member of the US Congress’ National Surface Transportation Policy and Revenue Study Commission and a senior staff economist on the President’s Council of Economic Advisers.
by Richard Geddes & Dimitar Nentchev
Under Investment Public Private Partnerships (IP3s), the value from newly priced roads is captured through concession leases. The leasee’s payments are used to capitalize a permanent fund. The fund then distributes dividends to all households in the newly priced area.
Geddes and Nentchev say the typical P3 model for concessioning an existing highway with a big one-off lump sum payment gets voters suspicious the money will be misused or quickly squandered when it is under the control of politicians. They don’t feel any stake in the project.
They argue that giving the public a direct and long-term stake in the proceeds of concessions via investment funds will overcome some of the political opposition to P3s, and in particular to tolls on presently untolled roads.
And the imposition of tolls is commonly denounced as inequitable in that it disproportionately affects lower income groups. But “universal dividend payments are progressive in that they represent a larger share of income for poor families, so an IP3 reduces income inequality.”
Permanent funds of this type have a history and record outside toll roads. Texas had a permanent funds created in its constitution in 1876 for schools and universities, and the largest today in America is the Alaska Permanent Fund financed by concession fees on North Slope oil.
Geddes and Nentchev see the greatest potential for permanent funds in highways as taking unpriced and congested urban roads and offering them as toll concessions to be managed by congestion pricing, the concession fees to go into a priced-roads permanent fund that will invest the money and pay dividends to the citizens of the jurisdiction doing the concession. The sponsoring government will decide what proportion of concession fees goes into the permanent fund and what proportion is used for transport projects associated with the concession.
The authors see key to success of their project as ensuring that the IP3 fund is administered and governed independently of politicians: “A key benefit of the permanent fund structure over existing proposals is improved governance by placing the value inherent in priced transportation facilities into an independent, transparent fund insulated from short-term spending…. placing lease (concession) proceeds directly into a permanent fund reduces opportunities for using value realized through pricing to fund projects that may be politically appealing but not cost beneficial.”
By regularly putting currently unpriced roads out to bid, the process will help signal where funds will be most productively used. In the proposed context of pricing roads and projects, pork barrel projects and proverbial ‘bridges to nowhere’ will more easily be recognized as wasteful.
And unlike the deficit financing/borrowing practice of the US government and many states’ the IP3 approach “enhances intergenerational equity by ensuring that transportation network value is preserved for future generations and is a well-maintained asset that can generate dividends in perpetuity.”
Geddes and Nentchev also point out that to the extent bonds for road projects are backed by general revenue of governments taxpayers are being subjected to financial risk for which they receive no compensation. The approach of pricing highways increases savings and can improve a government’s bond rating.
The two researchers use detailed traffic data for Columbus OH. Assuming 40% of an upfront payment was spent on immediate projects and 60% invested in a City Tolls Permanent Fund, it should be able to support an annual dividend to each of 318k households in the city of $909 under a 15 year concession.
In addition Columbus citizens would benefit by freer flowing traffic thanks to the congestion pricing. And they’d have a framework for future improvements independent of the vicissitude of politics.
Toll Road News editor: “The IP3 isn’t run by politicians, elected officials, because their perspective is the next election — too short-term. It’s natural they’ll exercise opportunistic control over the enterprise, and raid the tolls fund, as they do with state turnpikes, port authorities, and suchlike conglomerate agencies to cover other deficits. So the IP3 is rightly kept out of their hands.
But there are challenges too with enterprises run by independent people. Who appoints them to begin with. Another word for independent is unaccountable — a power-unto-themselves — and that certainly has the potential for abuses too.
JJS: It’d be interesting how much abuse, if any, occurs in the existing funds cited above in Alaska and Texas.
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