Decision Makingand Finance

Mark HallenbeckDirector

Washington State Transportation Center (TRAC)

Decision Making

• All public sector transportation decisions are political

– Any decision that involves public funds is political

– Also note: the world moves as a result of decisions, not as the result of analysis or plans

The Ideal Planning Process• A rational and analytical approach

– Make goals / objectives– Determine alternatives– Mathematical analysis ranks alternatives– “Best” alternative is selected

• Producing near term projects taken from long term plans that achieve long range goals

The Reality

• “Ideal” approach frequently does not mesh with political realities

• Consensus on goals/objectives is hard to create

• It is very difficult to weigh the relative merits of diverse goals

The Reality

• Public opinion / attitude changes over time as conditions change, making old plans inappropriate

• This is particularly a problem for long range (20 year) plans

• It also creates interesting artifacts:– Ramps to nowhere off of SR 520

Why “Ideal” Approach Fails

• Many of the key assumptions prove to be invalid– “Eastside of lake will never grow”

• Public attitude changes

Trends Affecting Planning

– Fiscal austerity / tax revolts– Increased need for rehabilitation and maintenance– My quality of life vs. your ability to drive– Changing demographics

• 2 income families, more cars/house, smaller households – Broadened role of transportation

• Importance of “equity”– Continued suburbanization

So How Are Decisions Reached?

Models for Making Decisions

• Technical– Rational Actor– Satisficing– Incrementalist

• Political– Organizational– Political Bargaining

Decision Making Models

• Each model is “true”

• But only part of the truth

• Real decision making is affected by all of these models (simultaneously)

Rational Actor

• Very technical / analytical / numerical• Assumes rational/unbiased decision maker• Completely informed• Decision based on maximum attainment of

goals and objectives• A clear decision maker

Rational Actor

• Tends to create long term “perfect” solutions

• Structured, highly data/analysis intensive

• All encompassing analysis process and solution set

Rational Actor - Why Not

• Can’t identify all of the alternatives

• Can’t define goals/objectives in a way that they can be realistically compared against each other

• Lack information

Rational Actor - Why Not

• Takes too long to build consensus (sometimes never)

• Lack a single decision maker

• Comprehensive plans don’t deal with specific agency requirements / decisions

Satisficing• An approach where the “answer” satisfies

enough of the participants

• i.e., induces the least harm, while conveying some benefit

Satisficing

• Underlying model is rational/analytical, but…– Don’t need to examine all alternatives

– Actions/consequences are restricted to a range of situations

– Decision making is project oriented

Incrementalist

• Differs from satisficing, in that there is an implicit expectation that this problem will be revisited in future years

• • Decision maker is allowed to adjust the goal

/ objective so that what is possible meets the “goal”

Incrementalist

• Decision makers focus on solutions only marginally different from the status quo

• Only a small number of alternatives are examined

Incrementalist

• No “right” solution, just temporary measures to alleviate pressing problems

• Incrementalist solutions are by nature remedial (fix a “problem,” not a global solution)

Organizational• Political rather than analytical approach

• Assumes organizations do the planning. Each working towards its own goals

• That is, transit authorities always find transit based solutions

Organizational

• The following National Cooperative Highway Research Program title isfor a real project:

NCHRP 08-42  -  Rail-Freight Solutions to Roadway Congestion

Organizational

• Think NIMBY for organizations, not just people: – What’s it do to/for my organization? – To me?

• NIMBY = Not in My Back Yard

Political Bargaining

• Decisions / plans are the result of deals struck between decision makers

– Vote for my disaster relief funding bill and I will vote for your gas tax increase

– I won’t vote for your bill if you don’t put in an earmark that pays for my new interchange

Political Bargaining

• Outcomes are not “optimal” except for the interests involved

• Goals of some of the decision makers often have little to do with the “real” problem

– Democrats versus Republicans• Right now, its all about making the other party look

bad in order to win the next election

Political Bargaining

• NIMBY for politicians:

– What does it do for me politically?

– What does it cost me politically?

• Note: organizational thinking asks these same two questions, only phrasing them “what does this do for/cost my organization?

Finance

(Applied within the context of public decision making)

Sources of Funding

• Federal• State• Local• Private

– Developer fees and voluntary payments that make the development attractive

Federal Funds

• Highway trust fund – Federal portion of gas tax (18.4 cents / gal.)

• Other motor vehicle funds– Heavy vehicle fees

• Registration by weight versus weight-mile fee• Allowable weight versus actual weight carried • Drive as many miles as you wish

– General budgets

Federal Funding

• SAFETEA-LU– Current surface transportation bill– Safe, Accountable, Flexible, Efficient

Transportation Equity Act – a Legacy for Users• Followed TEA-21

– Transportation Equity Act for 21st Century• Which followed: ISTEA

– Intermodal Surface Transportation Efficiency Act

Federal Funding• Used to encourage specific types of actions

– By formula– By grant– By earmarking

SAFETEA-LU

• Formula– Most federal money, divided by apportionment

(population and vehicle miles traveled – or VMT)

– Formula money is divided into specific pots

SAFETEA-LU – ‘pots’

• Separates funding by mode and by intent• Funding allocations include

– Interstate maintenance– National highway system– Surface transportation program (STP)– Congestion Mitigation and Air Quality (CMAQ)

SAFETEA-LU

• More Funding Allocations– Bridge Replacement and Repair– Metropolitan planning– Recreational trails– Highway Safety & Safe Routes to Schools– Transit capital assistance / New Start program– Transit formula grants– Equity bonus (ensures minimum return on federal gas

taxes paid)

Federal Funds

• Why this specificity?– Politics – allows politicians to funnel money to

what they believe is important

Flexibility

• Federal programs have been getting more flexible in how they allow funds to be spent

• It is not clear whether the bill after SAFETEA-LU will continue that trend

State Funding

• State gasoline tax• Vehicle mile tax• License and Registration tax• Vehicle weight tax (trucks)• Commodity excise taxes

– Car purchase, tire purchase, etc.• General funds

Local Funds

• Local option gasoline tax• Local option registration tax (Sound

Transit)• Other taxes• Tolls• Congestion pricing (HOT, managed

lanes)

Who Wants a New Car?

Who is willing to pay for your own new car right now?

Who is willing to pay for someone else to have a new car?

Finance – What’s important

• Who pays and when do they pay?• Is it a Direct or Indirect cost to the user?

– Highway tax (gas tax, registration tax, vehicle miles driven tax)

– User fee (tolls, parking charge)

• Other– Non-user fee (sales tax, income tax)

Willingness to Pay?

• When any question of raising more money occurs, key questions for determining the acceptability of that mechanism are:– How much benefit does someone get relative to

their cost?– How much will they actually notice that

payment?– How does that payment effect their behavior?

Finance

• Distribution of Funds:– How are funds collected and redistributed?

• For taxes this is a BIG issue– Are taxes “spent” wisely?– Who subsidizes who?

• Is there support for that subsidy?

Good or bad funding mechanism?• What is the intention of the funding

mechanism?– Fund a (specific/general) transportation

improvement?– Create a specific economic result? (decrease use of

oil)– Recover specific expenses? (weight-distance taxes)– Penalize “bad” behavior– Generate the most money

Good or bad funding mechanism?

• Who pays?• Does it cover the cost of the services

received?• Where does the money go?• Is it voluntary or mandatory?

Good or Bad Funding Mechanism

• How easy is it to collect the revenue?

• How much does it cost to collect the money?

Good or bad funding mechanism

• Can it be evaded? (Fair enforcement)– How easy is it to avoid paying the tax?

• How will that funding change over time?– Inflation– Maturation

Who pays?

• User?• General taxpayer?• Those with the most money?• A specific cost generator?

– Trucks– Polluters

• Are there tax breaks? For whom?

Who benefits?

• Geographic distribution• Socio-economic distribution• Modal distribution

– Where are the subsidies?– Who wins / who loses?

Gas Tax

• Who pays?– If a regional tax exists– What happens when you cross borders?– Over time what happens?

• Should gas tax be used for non-transportation purposes?

• Should gas tax be used for non-highway purposes?

Vehicle Registration Taxes

• Should they be value based?

• Should they be allowed to be used for non-transportation purposes?

Tolls

• Are tolls a fair form of revenue?• Should toll revenue be used to support costs

other than facility specific costs?• Is peak pricing fair? • Pricing by vehicle classification? • Pricing by occupancy level?

Regional taxes

• Should regions (city’s, counties or groups of those entities) be allowed to adopt additional tax structures?

• Should they be allowed to charge non-residents additional fees?