Decision Making
and Finance
Mark Hallenbeck
Director
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
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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
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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
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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 is
for 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
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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
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Interstate maintenance
National highway system
Surface transportation program (STP)
Congestion Mitigation and Air Quality (CMAQ)
SAFETEA-LU
• More Funding Allocations
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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
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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?
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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 nontransportation purposes?
• Should gas tax be used for nonhighway purposes?
Vehicle Registration Taxes
• Should they be value based?
• Should they be allowed to be used for nontransportation 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 nonresidents additional fees?