It doesn't take an economist to know we're getting whacked at the pump.
When it comes to the billions in federal gasoline and diesel fuel tax revenues, one associate professor of policy analysis and management knows precisely where they are going--down to the last tenth of a cent--and Rick Geddes has a better idea. Four ideas, actually:
First, more of the fuel-tax revenues in the Highway Trust Fund should go back, no strings attached, to the states where the fuel was sold; individual states know more than Washington does about local needs for transportation infrastructure repairs, improvements, and innovations, believes Geddes, an expert on legal and economic aspects of government regulation of industry.
Second, transportation infrastructure maintenance and improvements should be paid for, to a much greater degree, by those who actually use the infrastructures; new technologies that would allow "value pricing" on busy highways, for example.
Third, the use of private capital to fund public transportation infrastructure should not be restricted by the federal government, said the Cornell economist,
Finally: no, the federal fuel tax should not be raised by 200 percent, as some members of the National Surface Transportation Policy and Revenue Study Commission believe.
Even more money in the Highway Trust Fund would be an irresistible temptation for lawmakers with earmark projects like Alaska's "Bridge to Nowhere" and Florida's "Coconut Road" interchange, Geddes maintains.
Those views place the Cornell professor in a minority of three, among the 12-member commission that studied policy-and-revenue issues in advance of the 2009 reauthorization of the Federal highway and transit programs. Geddes questions whether allocation of federal fuel tax revenues under the 2005 reauthorization, known as SAFETEA-LU, has been either flexible or equitable.
But he's sure of two things: His 22-month experience, as the lone academic appointee to a commission filled with transportation industry representatives and administrators, was an eye-opening education for a Ph. D. economist. And the experience continues to inform his teaching, here at Cornell.
* Final report: transportationfortomorrow.org/final_report
* Minority report: transportationfortomorrow.org/final_report/pdf/volume_1_minority_views.pdf
When the President Calls
Duty on the commission wasn't Geddes's first national service. From 2004 to 2005, he had taken leave from the faculty he joined in 2002 to become a senior economist on the Council of Economic Advisers, in the Executive Office of the President, where his portfolio included transportation, regulation, and finance.
He returned to teaching at Cornell, and took on added responsibilities as director of undergraduate studies in the department when President Bush called again, making Geddes one of his appointees to the transportation policy-and-revenue commission. The appointment started a 22-month odyssey: numerous trips to Washington, D.C., of course, plus a 10-city round of public hearings to gather information on all sectors of surface transportation in the United States.
The public-hearing trips also gave commissioners a chance to study transportation experiments, such as a toll road in Minneapolis that constantly monitors traffic volume and adjusts tolls to discourage travel during peak times and give toll-payers a break when traffic is light. Seeing the Minneapolis experiment in action convinced Geddes that the so-called value pricing works: travelers willingly pay more for the convenience of using special infrastructure where traffic flows freely. (However, in Minneapolis a parallel conveyance is available to those who don't mind slogging it out with the crowd.) And the success of the congestion-pricing experiment cemented Geddes's conviction: that travelers who actually use particular pieces of infrastructure--a new highway in Los Angeles, for example--should foot the bill. And not the farmer pumping gas in Mississippi, with no intention of driving through Los Angeles.
Technology behind value pricing for the use of transportation infrastructure is the easy part, Geddes notes. Beyond the already-familiar RFID (radio frequency identification) tags that document road and bridge usage (in systems like Fast Lane and I-Pass), technologies such as ITS (for intelligent transportation system) and VII (vehicle-infrastructure integration) are ready to go. An ITS system, for instance, would employ geo-positioning satellites and GPS devices in vehicles to monitor usage of particular roads, bridges, and tunnels--and bill accordingly. The more down-to-earth VII would track a vehicle's passage with roadside monitoring devices. And VII would also allow hands-free, train-like convoys of hundreds of closely spaced cars on specially outfitted highways--if drivers come to trust computers to operate vehicles, that is.
Big Technology Is Watching
Trust, indeed, is a key issue in futuristic toll-collection systems. Some travelers might not want a satellite tracking their movements. But those who jealously guard their privacy--while zipping through an E-ZPass tollbooth---aren't the only ones who know where the car has been lately. In any case, the desire for privacy among travelers is another reason to maintain at least one cash-based toll booth.
Geddes said: "Direct pricing of road services allows customers to face the full, true cost of using a particular road. When consumers face that cost, they will take it into account in their decisions about when and how to use the road."
With an economics philosophy like that, Geddes and two other commissioners declined to approve the final report Instead, they issued a 10-page minority report calling for "greater state responsibility and accountability, rational pricing, and market discipline" in the national transportation system. The three minority commissioners concluded with these words: "To simply modify historic methods of providing infrastructure, relying on increases in the federal fuel tax and inviting political earmarking, is a recipe for failure that we, as a nation, can no longer afford."
Besides Geddes, the other two "minority" members were Mary E. Peters, the U.S. Secretary of Transportation, and Maria Cino, former deputy secretary in the U.S. Department of Transportation.
Who Needs Academics, Anyway?
Regarding Geddes's role as the lone academic on the commission, the project's executive director, Federal Highway Administration Deputy Associate Administrator Susan Binder said, "The perspective that Professor Geddes brought was very useful because he can look, objectively, at components of the transportation industry and find parallels in other sectors of the economy. With his fresh eye and experience with regulation in postal services and in electrical systems, he was able to say: 'Wait a minute, let's step back and learn from other models."'
More modestly, Geddes said his value to the project "was that I was not beholden to other interests." The other commission members included representatives of state and city transportation departments, construction contractors, railways, shipping, and retail business.
Returning to Ithaca between his many road trips, Geddes was eager to incorporate his national-level experiences in his teaching (including PAM 334 Corporations, Shareholders, and Policy and PAM 341 Economics of Consumer Law and Protection). He tells his students that value pricing of transportation services is not some radical scheme that works only in Minneapolis. Indeed, William Vickery, who shared the 1996 Nobel Prize in Economics with James A. Mirriees, became famous for his work on value pricing in transportation.
Per-gallon fuel levies are "the most regressive kind of tax--a tax that hits the poor the hardest," Geddes observed. He doubts that major increases in the federal tax will pass in Congress, because the legislators' constituents would be outraged. Some of those constituents benefited from the more than 6,300 transportation earmarks that lawmakers attached to related--and sometimes vaguely related--legislation. Federal formula funds, which return fuel tax revenues to states on the basis of road mileage, population, and other metrics in each state, are supposed to ensure more equitable and rational financing of projects, according to Geddes. Increased federal tax revenue would fuel more pork barrel projects that states neither want nor need, he said.
Geddes' work wasn't over, however, when the commission report was released on January 15, 2008. Besides giving news-media interviews, he was summoned to testify before the House of Representatives' Committee on Transportation and Infrastructure. Preparing his two minutes of oral remarks (in addition to lengthier written testimony that was entered in the record), Geddes was savvy enough to avoid terms like "pork barrel" and "earmarks." But that didn't stop congressmen from grilling the professor on certain aspects of the minority report that might not resonate favorably in their home districts.
Then came an invitation to speak at the National Governors Association meeting, where the organization's Economic Development and Commerce Committee included leaders of states with serious transportation problems, such as California governor Arnold Schwarzenegger. This time Geddes got to talk for 10 minutes before the questions started flying.
As the reauthorization bills move through Congress next year, Geddes expects more requests to speak with the media and to legislative committees. He will evaluate each request before deciding. He's already turned down one high-level summons--to testify before a U.S. Senate committee.
"I couldn't miss an important meeting that day," Geddes said, "with my daughter's kindergarten teacher."
RELATED ARTICLE: Sometimes Regulators Listen: How PAM's Sharon Tennyson Helped Massachusetts Drivers
If there's one industry consumers love to hate, it is the insurance industry. Insurers like state regulation of their industry even less, as evidenced by all the insurance lobbyists in state capitals. And insurance ratepayers aren't always so pleased with the states' regulatory record, either.
Into the fray, like a calm police officer investigating a five-car fender-bender, comes Sharon Tennyson. The associate professor of policy analysis and management can analyze insurance policies, of course, even the fine print. But this economist's real expertise is the big picture: the impact of laws and government regulation on insurance firms, consumer behavior, and the organization of the insurance market.
After Tennyson's detailed study and comprehensive analysis of automobile insurance under state regulation, she has issued her "police report," in a recent series of articles, book chapters, and presentations, on one wreck that is no accident: At fault, Tennyson finds, is way too much state regulation.
Speaking on the topic "Efficiency Consequences of Rate Regulation in Insurance Markets" at a conference last year, Tennyson cited a large body of scholarly research to support the conclusion that "insurance markets function in a workably competitive manner in the absence of rate regulation." Prices and profits in unregulated insurance markets are not excessive, Tennyson said, because of competition among numerous firms that do business in unregulated states.
In Tennyson's opinion, the dubious distinction of the most "interventionist" automobile insurance regulatory systems goes to the Commonwealth of Massachusetts. Besides setting uniform rates that must be charged by all companies. Massachusetts ' regulates virtually all aspects of the market's operation there--from vehicle-risk ratings to conditions for policy cancellation. If a fed-up insurer disagrees, Massachusetts also sets conditions for exiting the market.
Tennyson shared that opinion in May 2007 hearing before the Massachusetts Division of Insurance, testifying: "I strongly conclude that moving away from the fixing and establishing of rates in 2008 will benefit Massachusetts drivers--by increasing competition and reducing market and incentive ... distortions fostered by the fixed-and-established rating system."
Massachusetts regulators apparently listened to the Cornell economist. Under a new (April 2008) "managed competition" scheme, insurers can set their own rates--subject to approval of the Division of Insurance. Massachusetts even set up a web site to help drivers compare rates and shop for discounts.
For more information: Sharon Tennyson, email@example.com.
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