More Reforms Before More Revenue in Transportation

Good morning and thank you Chairman Rafferty for the invitation to testify before your committee and for your consideration of our policy solutions to help address Pennsylvania’s transportation infrastructure funding challenges.

While many in this building and in the transportation industry view Pennsylvania’s transportation infrastructure as a revenue problem, I would like to frame the issue as a spending problem.

The Pennsylvania Transportation Funding and Reform Commission’s 2006 report got it exactly right when it wrote:

The Commission concludes that no additional funding should be provided for highways, bridges and transit unless a series of parallel actions are taken to reform funding structure and a number of transportation business practices.”
[emphasis mine]

Yet while transportation funding has since increased significantly, little to no substantive reform has changed how we do business in transportation.

So before you pursue additional revenues or increased taxes, it is important to better spend the money taxpayers are already contributing toward our transportation infrastructure. My testimony focuses on transportation spending reform because we would argue that tax increases should be considered as a last resort, only after every tax dollar the Commonwealth already receives is spent more wisely.

I’m sure you are aware of how much Pennsylvanians already pay in transportation taxes, but it is worth repeating as I make my case for the need for spending reform.

Since Gov. Rendell took office, funding for our roads, highways, and bridges has significantly increased. Bridge repair funding jumped from $259 million in 2002 to $959 million in 2009; while funds for roads increased from $1.1 billion to $1.5 billion.

According to the Federal Highway Administration, these funding levels rank Pennsylvania 4th in the nation for overall state highway and road spending, and 9th in both spending per mile and spending per capita. Yet according to a Reason Foundation analysis of state-owned highway systems, Pennsylvania ranks 38th in the country in cost-efficiency. The only states that rank higher on per capita spending are those with small populations, such as Alaska, Wyoming, and Montana. In other words, Pennsylvania taxpayers are already contributing generously and they should rightly demand a better bang for their transportation bucks.

To that end, I’d like to offer six alternatives that will promote a more cost-efficient transportation system in Pennsylvania without raising taxes.

#1 Repeal “Prevailing Wage” laws on public construction projects.

It is well documented that “Prevailing Wage” laws unnecessarily drive up the cost of road construction. State-mandated wages for government projects are, on average, 40% higher than the private sector pays for the same work. Repealing these laws and paying market wages on state-funded construction projects would free up hundreds of millions of dollars for highway construction and repair, and would represent the single greatest infusion of cash without raising taxes or compromising quality.

#2 Stop redirecting highway and bridge money to other purposes.

Every year, hundreds of millions of dollars are redirected from road and bridge maintenance and the Capital Budget to other projects including bike trails, beautification efforts, corporate welfare, hockey arenas, convention centers, film producers, and the like. Practices such as Gov. Rendell’s redirection of $7 million from a mysterious pot of money in the Department of Transportation to SEPTA workers for bonuses-effectively rewarding them for striking on Election Day-should not be permitted. Instead, transportation dollars should be strictly used for filling potholes, building roads, and retrofitting bridges.

#3 Enable “public-private partnerships”.

States across the nation are turning to public-private partnerships (P3s) to help address their transportation funding and operation challenges. P3s are ideal for new construction on express lanes, high occupancy lanes, highways, and bridges and can reduce costs to taxpayers and commuters. Florida’s public-private partnership initiatives for highway maintenance have generated cost savings between 15% and 20%.

The contractual mechanism in P3s increases the incentive to produce high-quality work and to ensure high performance. Indeed, the level of performance is firmly established in the contract and the private sector provider is held accountable. Generally, contracts can (and should be) performance-based (focusing on outputs or outcomes) and can include quality assurances. Often these performance standards exceed those established for the public agencies. For example, the Indiana Department of Transportation admitted that it could not meet the standards of performance included in the Indiana Toll Road contract with a private operator.

P3s also protect taxpayers’ interests. These contracts allow government agencies to shift risk from taxpayers to the contractors. With the power of a contract at hand, governments can build quality assurance and quality controls into project delivery as a means to manage risk. An increasing trend is the employment of warranty concepts whereby the contractor places a long-term guarantee on their work. This further shields taxpayers from risk.

Finally, public-private partnerships produce innovative solutions. In non-competitive systems and where the incentive structure is not set up to reward innovation, there is no motivation to “swim upstream” and advance a new idea. Private firms have far more opportunity and incentive to encourage and foster innovative ideas at all levels.

#4 Eliminate the Pennsylvania Turnpike Commission and lease the turnpike.

While it has been rare that we’ve agree with Gov. Rendell on policy proposals, we did agree with his proposal to lease the Pennsylvania Turnpike. That idea remains as viable today as it was three years ago, and it should be considered once again when a new administration is willing to dedicate the lease proceeds to our roads, highways, and bridges.

Short of leasing the turnpike to a private operator, rolling the Turnpike Commission into PennDOT and eliminating an unnecessary bureaucracy would offer substantial savings in transportation spending. While PennDOT is hardly a bastion of efficiency, it employs one-fourteenth the number of workers per mile. In fact, the Turnpike Commission has more managers per mile than PennDOT has total workers per mile.

#5 Privatize rest stops.

While the state spends taxpayer dollars to manage highway rest stops, it could earn money by privatizing them and leasing the property to restaurants and service stations. In fact, Pennsylvania already has privatized some rest stops, but there are opportunities to do much more-for instance, along I-80.

#6 Reform mass transit.

Reforming Pennsylvania’s mass transit systems is critical for reducing their ever-increasing need for taxpayer subsidies. Where increased taxpayer funding is necessary, the burden should be on local rather than state taxpayers. And the users of mass transit must shoulder more of the costs of their transportation choices rather than the drivers of Pennsylvania.

For low-income transit users, there is a simple solution-offer fare assistance. A means-tested tax credit or voucher would allow low-income families to afford the costs of mass transit and target aid to those who need it rather than subsidizing riders who can afford to pay the true cost of their trip.

By shifting the burden of paying for mass transit to users rather than taxpayers, transit agencies like PAT and SEPTA will become more focused on attracting customers with a quality service than on seeking higher subsidies from Harrisburg. Currently, transit system funding depends on how effective their lobbyists are, not on how well they provide services to customers in Pittsburgh and Philadelphia.

In addition to transferring increased costs of transit to the users, much can be done within the systems to improve efficiency. Competitive contracting of mass transit services, whereby private providers contract with the government to operate transit services, has reduced operating costs in cities across the United States by 20-51%, with savings of about 35% being the norm. Houston experienced savings of 26%, San Diego, over 30%, and Denver, 46%. Las Vegas, home of the largest fully contracted out U.S. system, has costs approximately 30% below systems of similar size.

In conclusion, Pennsylvania taxpayers are already contributing significant tax dollars toward our transportation infrastructure. Therefore, before the General Assembly and Governor consider higher taxes or going further into debt, you as elected officials have the fiduciary responsibility to make sure our current transportation tax dollars are well spent. Only after these substantive reforms have been enacted should you consider asking the taxpayers for more revenue.

Thank you, and I’m happy to answer any questions.