Federal Highway Administrator Mary Peters
Remarks as prepared for delivery
U.S. Chamber of Commerce Transportation Roundtable: Financing the Future
September 14, 2004, Washington, DC

Congestion Overview

The U.S. Chamber continues to make invaluable contributions to the debate on the future of transportation. Few understand the importance and the value of highway infrastructure better than the American business community. The movement of people and products is integral to your businesses.

What I would like to do in these remarks is to lay out some thinking on why the private sector and free markets should be a much bigger part of U.S. transportation in the future.

As business leaders, you clearly understand that investments must yield a positive rate of return. You understand the opportunity cost of making investment choices. Investments in transportation and the public sector also have this responsibility -- to make wise investment decisions.

Historical Aspects

I think taking a moment to discuss some historical aspects of transportation in America may be constructive in terms of our discussion about the future.

Back in September 1954, before many of you were born, President Eisenhower established the President's Advisory Committee on a National Highway Program. The Committee was directed to work with Governors to propose a plan of action for submission to Congress for developing an interstate highway system.

The President's Advisory Committee was chaired by Lucias D. Clay (Chairman of the Board, Continental Can Co.). It was later referred to as the "Clay Commission."

The Governors' Conference authorized a seven-man Highway Committee, and concurrently Pres. Eisenhower established a committee representing departments and agencies of the Federal government to conduct studies in coordination with the Governors and the Committee, considering Federal interest in roads and their financing.

The three committees were requested by the President to work in cooperation to study the problem and report back to him. A report to the President was submitted in January 1955, and President Eisenhower transmitted the report to Congress (Committee on Public Works) on Feb. 22, 1955.

The report referenced the number of deaths (36,000) and injuries (more than a million) on the nation's highways, the economic cost of that toll (more than $4.3B/year), the increase in cost of vehicle operation due to the poor physical condition of roadways (1 cent per mile of vehicle travel, or more than $5B/year), the fact that the cost was passed on to individual consumers in the form of higher prices. The report further addressed congestion -- how it would grow in the next decade with growth in the gross national product, and the catastrophic results that would ensue in the event an atomic attack on key cities necessitated quick evacuation, defense mobilization and maintenance of essential economic functions. (Sound familiar?)

The report concluded that absent prioritization, building the interstate system could take more than a half-century, and that certain features should be consistent on a national basis. They set a goal of completing the system of interstate highways in 10 years, and suggested that the Bureau of Public Roads, in cooperation with state highway departments and local government, study the costs of completing the comprehensive, integrated system.

The advisors estimated that the 10-year cost of the system would require an expenditure of $101 billion by all levels of government, that the federal share of the needed construction program should be about 30 percent of the total, or $31.2 billion over the 10-year period. They further concluded, and President Eisenhower ultimately agreed, that highway users should pay for the improvements based on present gas and diesel oil taxes, augmented in limited instances with tolls. They recommended financing the program with special bond issues, to be repaid with the gas and diesel taxes (though the interagency committee disagreed with the bonding premise).

President Eisenhower wanted the system funded with tolls -- he felt strongly that direct user costs were most appropriate to fund the Interstate system. Both the Clay Commission and the BPR's Frank Turner, who served as the Advisory Committee's Executive Secretary, argued that tolls were not feasible in many areas of the country. Even when Clay delivered the report to the President, he asked again about tolling, but was dissuaded by Clay. As it turned out, Congress did not like the Clay Commission's bonding "scheme" either -- chief opponents being Sen. Harry F. Byrd and Sen. Albert Gore, Sr.

Fast forward to the Reagan administration. President Reagan made several attempts to redefine federal and state roles in transportation, including a proposed Federalism Block Grant Highway Act of 1983 and again in 1986. President Reagan argued that with completion of the Interstate, highway responsibilities should be devolved to the states. Congress rejected the proposals.

In vetoing legislation in 1987, Reagan cited funding levels that exceeded his request by $10 Billion, and the 121 "demonstration" projects. Again, sound familiar?

The Economic Drain Of Congestion

I think it is time we declared victory on the Interstate system and the funding system that supported it -- it has served us well. The question is, is it the right system for our transportation system today?

It will have been 50 years next month since President Eisenhower authorized a comprehensive review of the federal role in highways, and how to fund them. Perhaps it is again time to have a hard look.

To get started, let's look at the future of mobility in America, especially on our highways. The U.S. economy and the quality of life of all Americans are dependent on an efficient, effective, safe, and reliable transportation system.

That, unfortunately, is not what we have in all cases today. Is it due to underinvestment, disinvestment, or mis-investment? You be the judge. Regardless, we have a serious mismatch between supply and demand.

With the September release of the 2004 Texas Transportation Institute Urban Mobility report, we are reminded of the economic drain of congestion.

According to TTI, annual delay per peak period traveler is 46 hours and 5.6 billion gallons of fuel was wasted in traffic jams.

Congestion, however, affects more than just commuters stuck in traffic. It also raises costs for businesses reliant on just-in-time delivery and prevents small businesses from making more service stops each day.

Congestion has this kind of subtle, perverse effect on our entire economy. One business at a time and one commuter at a time, congestion robs our nation of productivity. And as companies like Wal-Mart and UPS. have demonstrated, mobility is a cornerstone of our nation's economic success.

HTF Falling Short

As we heard from the prior panel, it's clear that the Highway Trust Fund is no longer meeting today's transportation needs.

Several reasons:

• Fuel efficiency, alternative fuels
• HTF is no longer a proxy for needs – as it was for the Interstate
• Does not reflect true user cost of system
• Subject to increasing levels of earmarks
• Allocation methods produce winners and losers
• Has the HTF become a public works program rather than focusing on national transportation system? Is it too focused on construction rather than maintenance, operation, and improvement of transportation systems?

Our concern must be movement of people and products. The Interstate system contributed to a reduction in transportation and logistics costs, from 18 percent of GDP in 1980 to 10 percent in 1990, where it remains today. That is good, but is it enough, and more importantly, is it sustainable?

Likely not, with congestion and driving logistics costs going up.

Action Steps

We need to determine what is truly in the federal interest to promote and support in terms of surface transportation in the future, and then structure a funding mechanism to support those priorities. I think some areas for consideration include preserving the Interstate and NHS to support national mobility/economy, security, research and technology, and national standards.

This discussion is complicated, of course, by the urgent and important need to reauthorize surface transportation programs now. We are nearly at a full year after the expiration of TEA-21.

Some of the difficulty experienced in trying to accomplish reauthorization is perhaps due to the problems I just discussed.

Having been taught by my father to not present only problems, but solutions, let me suggest some of the latter...

Unleash The Free Market

The answer to meeting future transportation needs and reducing congestion is the same answer we have for nearly every other product and service in America -- unleashing the power and opportunity of our free market system.

The same market forces that took us from Ma Bell's standard issue, black phone to cell phones and Blackberrys can relieve congestion, reduce the need for road repairs, and improve the safety of our highways.

The Bush Administration proposes a number of ways to involve our free market system in surface transportation. One of them is through public-private partnerships.

Already, we're seeing how public-private partnerships can work.

A good example is the King Coal Highway in southern West Virginia. A partnership among the state DOT, private enterprise, the local redevelopment authority, and Federal Highways is allowing a mining company to place in designated areas the excess material generated by coal-mining activity.

It's creating the roadbed for a future four-lane highway and, along the way, saving an estimated $150 million off the total expected cost and allowing it to be completed much sooner. These are the types of results we are encouraging in other projects around the country.

Another proposal is what we refer to as pricing, often in the form of tolling.

Recent research shows that tolling is not only a proven congestion buster, but also viewed by Americans as a viable option for funding transportation needs.

In Illinois, the Governor proposed eliminating the tolls in the Chicago area and replacing the revenue with a modest increase in the gas tax. He assumed that eliminating toll barriers, which persistently generated a string of constituent complaints, would make him a political hero. When Chicago residents, however, were asked whether or not they would support a gas tax increase to replace tolls, 74 percent opposed and only 16 percent approved.

Those being surveyed were then asked which was a greater problem: the cost of tolls or having to stop at tollbooths to pay the toll. Sixty-six percent said having to stop and 13 percent said paying the toll.

With today's technology, there is no reason why anyone has to stop to pay a toll.

We in the Bush Administration want to give states more options that they can use to meet their transportation needs. One of those options is HOT lanes.

American drivers are eager for better service on highways in the form of HOT lanes or "High Occupancy/Toll" Lanes. In HOT lanes, low occupancy vehicles are charged a toll, while High-Occupancy Vehicles (HOVs) are allowed to use the lanes free or at a discounted toll rate. HOT lanes create an additional category of eligibility for people wanting to use HOV lanes. People can either meet the minimum vehicle passenger requirement, or they can choose to pay a toll to gain access to the HOV lane.

Either way, they have choice.

Research in Minnesota shows that when asked whether new capacity should be financed through tolls or increasing the gas tax, respondents favored tolling three to one. And a number of states are actively considering HOT lanes, including on the Capital Beltway in Virginia.

Building HOT lanes can be a public private partnership.

Our reauthorization proposal would allow states to better leverage their transportation dollars by taking advantage of innovative financing, such as private activity bonds, and other public-private partnership options.

Americans are always willing to pay more for quality and convenience. Many workplaces offer free coffee, but employees, including me, still drop by Starbucks because Americans value quality.

The United States Postal Service will deliver a First-Class letter for 37 cents, but businesses are willing to pay $15 for overnight service because they value the convenience and reliability that comes with an on-time delivery guarantee.

When you think about it, highways are no different. Drivers will pay extra for quality and convenience on roads that meet Interstate standards.

The Administration wants to give states the option, such as HOT lanes, for a variety of reasons. Conversations on pricing tend to focus on the additional revenue tolls will raise, but additional revenue is only one of many benefits that will result from pricing.

Let me give you four others:

1. Pricing encourages economic thinking. If we appropriately price the cost an urban driver imposes on the system during rush hour, that driver will either pay the cost, find someone to share the cost by carpooling, commute during non-peak hours, find other means to get to work by bus or train, or arrange to tele-work one or more days a week.

   As a result of these economic decisions, congestion will decrease almost immediately as some drivers decide not to commute alone in their car during rush hour.

   A recent UK national road pricing study produced a stunning conclusion -- using road pricing to achieve a four percent reduction in traffic reduces congestion by 50 percent. We call this the August in Washington DC phenomenon!

2. Pricing is more equitable. Those who use the network during peak periods should pay more than those who do not. This is the same type of pricing we use for telecommunications, electricity, movies, time-share vacation homes, airline tickets, and virtually any other business that experiences higher demand periods.

   Highways should not be different. Why should a driver in Wyoming on Sunday pay the same charge to use the system as a commuter in LA driving to work at 8:00 a.m. on Monday morning?

3. Pricing is not subject to earmarking and keeps funds local. Today, the most pressing needs are regional and local because of congestion. Pricing allows communities with enormous transportation need to raise revenue to meet those needs.

   Allocating resources to build a system based on political strength is not the most rational way to develop any network and highways are no different. In fact, the politics of road construction and the lack of financial transparency fuels public opposition to gas taxes.

   Taxpayers cannot determine exactly where their taxes are being spent -- they do not see much progress in relieving congestion -- so they often oppose additional tax increases.

   Tolls, however, are paid and spent locally. As a result, those paying the fees benefit from the fees they pay.

4. Pricing creates customers and encourages innovation. Toll authorities in America tend to be more customer-focused because their revenues are directly tied to the number of drivers using their facility.

   Toll authorities maximize revenue by reducing costs while keeping their facilities in good repair.

   The need for cost control prompts those authorities to reduce the expense of building and maintaining highways by innovating and considering life-cycle costs.

An Interconnected Network

Notwithstanding these benefits, pricing does have its critics.

Some have expressed concern that charging user fees for existing facilities is a form of double taxation because those facilities have already been built using tax dollars.

These critics are willing to allow the pricing of new facilities as long as tolls are removed once the debt is paid. This instinctive reaction to pricing is driven by a failure to see highways as a network. Instead the opponents of pricing view highways as individual segments.

But that is not how our highways work. They form an interconnected network.

Our highway system is no different than any other utility. Would we require Dominion Virginia Power to vary their rates based upon which lines were already paid for? Then customers with old lines would pay less than those with new lines. Would we require them to charge us only for the line that goes to our house and not any of the rest of the network? Of course not. A network cannot be built with that type of pricing.

Why do we think about roads differently? Part of the answer is historic.

The first roads in America were privately owned toll roads. The need for a national highway network outstripped the ability of small, rural communities to pay for their portion of the network.

State and federal governments filled the financing gap. Now that we find ourselves with a four million mile network of roads, we should ask if the financing models of the past make sense for our future.

Free Markets Deliver Innovation

Let me close by noting that highways are traditionally government planned, government funded, and government maintained. Not the typical American approach to industry.

But that is changing. The time has come for us to acknowledge that building a highway network is no different than building a telecommunications network or a network for the delivery of electricity. I, for one, am quite happy to have options beyond a black, boxy, dial desk telephone.

Cable's market share of high-speed Internet has gone from 44 percent of two million subscribers to 75 percent of 20 million subscribers. Cable companies say they have invested $85 billion in their network because it benefited from deregulation in the 1996 Telecommunications Act, which removed price controls.

The time has come for us to allow states to expand the pricing of their highway networks and to let the free market deliver the innovation, cost savings, and quality it has delivered in every other industry.

It is time to study alternatives to revenue sources for transportation. It is critical to unleash the free market.

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