Day 4: A World Class Transportation System

Minnesota is currently $50 billion short of what it will take to have a “competitive, world class transportation system”. The most serious proposals put forward do not come close to filling this gap. The latest – a proposal from the transportation coalition Move MN to impose some hidden taxes on fuel – is so feeble as to border on disingenuous. In a thoughtful and progressive state where the women are all strong, the men are all good looking and all the children are above average, our leadership is ready to embrace a third class approach, or worse. This is not leadership.

This week we have shown how our current discourse on transportation funding is a one-dimensional debate over just how much more we will spend on the same exact approach. At Strong Towns, we reject such a myopic vision. We envision an approach to funding transportation that builds the collective wealth of all Minnesotans and, in doing so, strengthens the state. We won’t settle for second rate.

Just because governments own, run and manage a system, they don’t magically become immune to the financial constraints imposed on all capital endeavors. We understand how our current transportation system – despite the generally good intentions of policymakers for the past several decades – has become desperately insolvent. Drawing inspiration from the financing of the transcontinental railroad network, we have put forth seven operating principles to govern the financing of a world class transportation system for Minnesota.

Today we describe one version of how those principles can be applied.

Funding Statewide Transportation through Mn/DOT

The State of Minnesota and the Minnesota Department of Transportation can strengthen the state and grow the collective wealth of Minnesotans by focusing on making high speed connections between productive places. This means moving people, goods and materials as quickly and efficiently as possible between economic centers (as opposed to within – for that, see the next section on city government).

• Interstates

Maintenance of the “base” interstate system should continue to be funded by federal gas tax dollars, supplemented, as needed, by the state gas tax. The “base” system includes two lanes in each direction with the outer lanes being the “base” lanes in areas where there are more than four lanes. This is the backbone of the communal system that taxpayers collectively fund. It is the transformative investment from which we all benefit.

Any lanes constructed beyond the base system should be subjected to congestion pricing, a mileage fee that would increase during times of high congestion and abate in slower times. The revenue from this fee will not be put into the general revenue stream of the state but instead be sequestered to fund maintenance of the extra capacity and, where needed, future expansion of the corridor (by whatever mode is most feasible). The fees charged should be managed so as to be sufficient to cover these extra costs.

Any access points off the interstate must be in the form of an interchange. Interchanges will be constructed at a rate of no more than one per every six miles outside of a municipality, or one per 20,000 individuals within a municipality. Where interchanges conform to this dispersion rate, their maintenance should be paid through the gas tax. Where there are extra interchanges, they should be subject to an access charge sufficient to cover their long term maintenance costs.

Any new interchanges should be funded through direct assessment (value capture) of benefitting property owners. The authority municipalities currently have to conduct direct assessments should be provided to Mn/DOT. Municipalities must give municipal consent (which requires a vote of the city council) for any new interchange.

Mn/DOT should commission, through the University of Minnesota, a project to quantify, track and monitor the real return (dollars in versus dollars out) of the interstate system.

• State Highways

Maintenance of the “base” state highway system should continue to be funded by federal gas tax dollars, supplemented, as needed, by the state gas tax. The “base” system includes one lane in each direction. As with the interstate system, this is the transformative investment from which we all benefit.

The same congestion pricing approach applied to the interstates should be applied to anything beyond the base state highway system.

Where interchanges are used on the state highway system, they should be constructed at the same rates as on the interstates. Where interchanges conform to this dispersion rate, their maintenance should be paid through the gas tax. Where there are extra interchanges, they should be subject to an access charge sufficient to cover their long term maintenance costs. Any new interchanges should be funded through direct assessment (value capture) of benefitting property owners.

Any private access to the state highway system outside of a municipality, or within a municipality where the speed limit is set at 30 mph or greater, should be subject to an annual access fee. The fee will be based on a ratio of the traffic on the highway versus the traffic accessing the highway, using methodology currently applied in signal placing and benefit/cost analysis. Under such a system, a farmer with a driveway on a remote state highway might pay $25 per year since the impact of a single home on a low volume roadway would be minimal. A strip mall on a congested corridor may pay thousands (or more) to offset the cost of slowing traffic on the highway. The access fee is compensation to the general taxpayer for degradation of the highway’s capacity, which the general taxpayer funded.

Within cities, in areas where the speed limit is less than 30 mph, all properties within half a mile of the highway (measured perpendicularly) shall have a highway surcharge on their property tax. The surcharge will be based on the value of the land (higher valued land will pay more, note it is the land only and not the total improved property value) and is meant to pay for (a) the added costs of constructing and maintaining an urban highway, and (b) compensation to the general taxpayer (who funded the system) for degradation to the highway’s capacity. It should likewise be sequestered for this purpose.

Municipal governments would have the option to assume the maintenance and overall responsibility for any state highway segment within their boundaries that has a speed limit less than 30 mph. It will be to their advantage to do so when land values rise sufficiently. Where this happens, the highway surcharge would be paid to the local government instead of the state. The state should establish a “turnback” fund with excess gas tax dollars (I anticipate there will be some) to facilitate conversion of these segments to true urban form before they are given over to the city for maintenance.

As a policy note: the legislature would need to repeal minimum speed requirements – currently set at 30 mph – from state statutes. This language is in the statutes primarily to address speed traps, but it has been used to justify over-engineering for as long as I’ve been working in this field.

I would like to eliminate the ridiculousness of traffic signals – a “solution” gone awry – but I’ll acknowledge that this may be too great a leap. My hope is that the access fees, and the raising of our collective intellect over time, would ultimately reduce the number of signalized intersections. There are very few intersections that improve their performance with a signal instead of some type of continuous flow improvement, such as a roundabout. (For a little more on the madness of traffic signals, you can read this post I wrote a while back.)

• Intercity Transit

I emphasize transit between cities here because funding transit within cities I reserve for municipal governments. We don’t have a lot of this today and what we do have tends to serve cornfields and the back of big box stores. Those sunk costs can’t likely be recouped and the cost of maintenance of those locations is not that great.

The capital costs of intercity transit needs to be funded by a combination of (1) value capture and (2) revenue from congestion pricing.

Value capture can be done by a direct assessment of property owners whose properties improve in value as a result of the construction of the station. Another option is to have Mn/DOT acquire the land directly adjacent to the proposed station using the same process currently used for right-of-way acquisition. As part of constructing the station, Mn/DOT would also be tasked with developing the property, the “profit” from which would be captured to pay for the station and any other related improvements. This would be a very complex process that would necessarily involve a partnership with the city and, through public bidding processes, private developers.

If congestion pricing along a highway corridor yields sufficient revenue (a reflection of demand) to justify transit improvements (high initial cost but ultimately lower costs per passenger per trip), then diverting that sequestered revenue to fund the capital costs of transit is a good investment.

Note that intercity transit has a sequential nature. Shuttle vans can provide great, low-cost transit between cities, building value on each end. After demand is established with vans, they can be replaced with a bus line to improve capacity and add even more value on each end. Finally, with enough demand on each end, rail becomes a feasible alternative using the financing mechanisms already described.

Operations and maintenance of intercity transit systems should be funded through the fare box.

• Bridges

Bridges on the interstate and state highway systems would be paid with the gas tax where they are part of the “base system” as previous defined. Where they are beyond the base system, a tolling mechanism shall be established to cover the repair, maintenance and replacement of the existing bridge. Fares collected shall be sequestered for that purpose.

Minnesota currently has too many bridges to maintain. Our friends in Stillwater notwithstanding, there is no justification for the construction of any new bridges on the interstate or state highway system (although one might argue that the new, $680 million Stillwater bridge is a replacement).

Bridges not on the interstate or state highway system shall become the sole responsibility of local governments. It is appalling that we have major bridges in disrepair, that we had a major bridge collapse, and yet the state somehow found significant sums of money to re-construct two bridges near my rural home, one which provides service to some very high-priced homes on an island. Priorities.

Finally, one-lane bridges that are currently rated “functionally obsolete” and are scheduled for replacement solely for that reason shall not be improved. Where traffic is sufficient to warrant more than one lane, the improvement may proceed, but we should improve no bridge that is functioning adequately simply because it doesn’t meet some theoretical standard.

• Freight, Air and Water

I wanted to include these simply to acknowledge that they are significant factors in the overall conversation, but I must admit that, besides airports where I have done some projects, I have limited knowledge of how we currently finance these modes of transport. My experience with airports has left me with a sour sense that, without a bizarre web of subsidies from the federal government, air travel would be limited to major airports. I don’t want to discount freight, air and water, but I don’t have a lot to add (and our statewide debate seems to be focusing on everything else as well).

• Complete Streets and Trails

I don’t propose anything in conjunction with the interstate system.

I think we can aspire to trails between cities but, right or wrong, they would currently be largely recreational. Where they are not recreational but designed for commuting between cities – as in parts of the Twin Cities Metro Area – they can and should be funded by local governments. Recreational trails can be funded with the recently passed statewide sales tax for arts and recreation.

I would require that any “rails to trails” corridors be required to retain the rail alignment in perpetuity as I want to reserve the right to have a “trails to rails” program when that need arises (which I suspect it will).

As many of you know, I’m not a fan of how state DOT’s implement complete streets, which would more properly be called “complete roads”. Cities have far more incentive – and should be given even more – to build financially productive places. Such places are strongly correlated to bike and pedestrian facilities.

Transportation Funding within City Government

Since the “Minnesota Miracle” of 1971, where the legislature ended most local taxes and fees in exchange for agreeing to fund a number of local obligations with statewide revenue, the relationship between the state and local governments has been one of parent/child. The parent (the state of Minnesota) may have made this bargain while aspiring to benevolence, but the relationship since has evolved into a controlling and dysfunctional version of the helicopter parent.

Author Judith Warner describes the helicopter parent as physically "hyper-present" but psychologically absent. The state currently tells cities what development fees it can charge, the detailed process they must go through to charge those fees and directs the limited ways in which those fees may be spent.

The state allows local governments only one tax – the perverse and destructive property tax – and even establishes limits on how much that tax can be increased in any given year. Every city, regardless of whether they are a county seat or a bedroom community, a center for mining or tourism, heavy into manufacturing or services, they all have the same tax structure.

Cities can’t adopt a local sales tax unless they complete the mandated process which includes (1) a direct tie to a specific capital project, (2) approval by a majority of local voters and (3) approval by our benevolent parent, the state legislature. Even when cities have met (1) and (2), the legislature has often withheld their approval.

Things might be different if the helicopter parent weren’t, in this case, such a deadbeat. Unfortunately, they are. Not only has the state repeatedly balanced their budget at the expense of local government aid (their part of the Minnesota Miracle grand bargain) and the school districts, but the entire reason I am writing this series is because the state has so dramatically messed up transportation funding, threatening all cities.

It’s time for daddy to let go.

When it comes to transportation, cities have the complex task of building productive places, the source of wealth that this entire exercise in government is meant to nurture and secure. Cities need to have every tool at their disposal, including:

• The option for a land value tax (instead of a property tax).
• The ability to create transportation districts (legislation currently pending)
• The ability to do direct assessments (they do have this presently).
• An option for a local sales tax.
• Impact fees for communal infrastructure.
• An option for other customized local taxes, such as extraction taxes (mining/logging areas), lodging taxes (tourism areas) and even a local income tax.

Cities need to be able to customize their local tax and fee structure to meet the pressing needs – transportation and otherwise – of their community.

There is only one tool I would limit: debt. Debt is like dynamite. You use it well, and you can clear away a lot of problems. Use it incorrectly, and you can blow a place up. To limit the ability of cities to blow themselves up, I would cap municipal debt service at 5% of the current year’s budget. I would allow that amount to climb to 10% only where voters approve (as they currently are asked to with the sales tax). I would place a hard cap at 10%.

Note that today the state puts no cap on debt. I’ve seen cities that are deeply caught up in the Growth Ponzi Scheme and now spend 50% of their budget (and rising) on debt service. I’ve seen cities where no council member is under 60 years old take on 30 and 40 year debt obligations. Both of those instances are inter-generationally immoral. The state does have an obligation to limit this type of irresponsibility, especially since –by limiting the range of options for cities – it is inducing the debt.

It is also important to briefly emphasize the difference between a land tax and a property tax. The former taxes the value of the land only (just the dirt) while the property tax includes both the land and the improvements that have been made. The land tax creates an incentive to improve one’s property (since only the land is taxed, taxes don’t increase when the property is improved) while the property tax creates an incentive to allow properties to decline (improving a property raises one’s taxes). If we want cities to be successful, if we want to build wealth within our state, we will stop discouraging people from improving their property.

In conjunction with giving cities more options for paying for transportation improvements –including streets, sidewalks, trails and transit – we need to repeal one of the most destructive forces acting on cities today: the state aid system.

Again, the dysfunctional helicopter parent provides resources to make transportation improvements, but those resources come with a litany of design standards, many of which are not compatible with creating value and building wealth throughout our communities. I’ll provide one example from my hometown that I’ve seen dozens of times around the state, particularly in the Twin Cities metro area.

H Street in Brainerd is 44-feet wide. It runs through one of the oldest, traditional neighborhoods in the city. Few people park along the street – the city’s code has encouraged off street parking – and the openness combines with the width of the street to give it a drag strip feel. Speeding is a problem, particularly near the school, and the city often sends a police officer out to park during pickup and drop off.

Last summer I was part of a private team that did a speed study. We tested the impact that narrowing driving lanes and adding bike lanes would have on speed. Our results suggested the change would reduce speeds dramatically. When it got to the city, the proposal was rejected, not because anyone opposed the idea or because anyone felt it wouldn’t work. It was opposed because this hyper-local street – a street that carries little traffic, all of it from the neighborhood – was built with state aid money and the state aid standards require wider lanes.

We’re legislating stupid, destructive outcomes. These are complex, nuanced situations that can’t be successfully micromanaged from a centralized state aid office. I could provide dozens of examples where state aid is the primary driver of stupid. This entire system should be shut down, the money that goes to cities today through the program given to them through a transportation block grant.

Tomorrow I’m going to talk in detail about winners and losers, but just to anticipate one question, I’d like to mention congestion. I’ve already explained how I would address congestion between cities with congestion pricing evening out demand and ultimately funding additional capacity. Since today we treat congestion within cities the same way (add capacity), you might be tempted to believe I think the same. You would be wrong.

The proper response to congestion between cities is to build capacity. The proper response to congestion within a city is to intensify land use. The former is simple, almost mechanical. The latter is extremely complex and nuanced. After decades of ripping cities apart in the fight against congestion, it is time we recognize congestion as our best friend in our effort to build wealth and prosperity.

Transportation Funding within County Government

When it comes to transportation and our current funding crisis, county highway departments are dinosaurs in search of a meteor. Their expertise lies in that unproductive wasteland between road and street, that stroad environment that neither moves cars quickly nor creates an environment of enduring value.

I can say with all conviction that I can’t think of a county transportation project worthy of public funding. I’m sure there are some, but I can’t identify one.

Show me a county road that provides a critical link between two important economic centers and I’ll show you a roadway that should be a state highway. Show me a county road that provides a platform for creating productive land use and I’ll show you a street that should be part of a city system.

The greatest value the county system provides, which is does at great expense, is a marginal improvement in travel time on the first and last miles of many trips. These segments are simply not worthy of our scarce resources.

I would provide counties all the tools I would provide cities with a couple of extra provisions. Funds collected within a municipality for transportation must be used for transportation within that municipality. Funds may not be transferred from within municipalities to subsidize the transportation desires of individuals or businesses located outside of the municipality (something nearly every country currently does that is self-destructive, not to mention nonsensical in so many ways).

With dismantling the state aid system for cities, I would also dismantle it for counties. But while I would give the cities the same money as a transportation earmark (sans design mandates), I would divert the county’s current share back to the state system. The county road system has little to no statewide value. Where it has regional value, let the region fund it.

Now before all you regional transit advocates get mad because projects like the Southwest Corridor are essentially county projects, let me give you two words: North Star. In the system I am proposing, North Star would have been built with two stops: Target Field and downtown St. Cloud. There would not have been any watered-down, regional coalition, each member of which needed their piece of the pie (and their ego massaged) only to get the project run out to a cornfield. A stop could have been added at any time in the future when that cornfield actually became a place and justified the investment. As we sit now, our grand regional coalition will never get that line to St. Cloud because they all got their stop already and what more do they need. Opportunity wasted.

Obviously anytime you put something like this out there, especially something this long (we’re over 9,300 words now for the week), there is a lot to talk about. For you Strong Towns members, don’t forget our member chat today where we can talk about this series and more. If you’re not yet a member, it’s never too late to sign up.

Coming Up:

• Friday: Winners, losers and why it matters.