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Decision Making and Finance

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

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Decision Making and Finance

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  1. Decision Makingand Finance Mark Hallenbeck Director Washington State Transportation Center (TRAC)

  2. 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

  3. 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

  4. 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

  5. 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

  6. Why “Ideal” Approach Fails • Many of the key assumptions prove to be invalid • “Eastside of lake will never grow” • Public attitude changes

  7. 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

  8. So How Are Decisions Reached?

  9. Models for Making Decisions • Technical • Rational Actor • Satisficing • Incrementalist • Political • Organizational • Political Bargaining

  10. Decision Making Models • Each model is “true” • But only part of the truth • Real decision making is affected by all of these models (simultaneously)

  11. 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

  12. Rational Actor • Tends to create long term “perfect” solutions • Structured, highly data/analysis intensive • All encompassing analysis process and solution set

  13. 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

  14. 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

  15. Satisficing • An approach where the “answer” satisfies enough of the participants • i.e., induces the least harm, while conveying some benefit

  16. 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

  17. 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”

  18. Incrementalist • Decision makers focus on solutions only marginally different from the status quo • Only a small number of alternatives are examined

  19. Incrementalist • No “right” solution, just temporary measures to alleviate pressing problems • Incrementalist solutions are by nature remedial (fix a “problem,” not a global solution)

  20. 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

  21. Organizational • The following National Cooperative Highway Research Program title isfor a real project: NCHRP 08-42  -  Rail-Freight Solutions to Roadway Congestion

  22. Organizational • Think NIMBY for organizations, not just people: • What’s it do to/for my organization? • To me? • NIMBY = Not in My Back Yard

  23. 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

  24. 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

  25. 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?

  26. Finance (Applied within the context of public decision making)

  27. Sources of Funding • Federal • State • Local • Private • Developer fees and voluntary payments that make the development attractive

  28. 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

  29. 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

  30. Federal Funding • Used to encourage specific types of actions • By formula • By grant • By earmarking

  31. SAFETEA-LU • Formula • Most federal money, divided by apportionment (population and vehicle miles traveled – or VMT) • Formula money is divided into specific pots

  32. 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)

  33. 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)

  34. Federal Funds • Why this specificity? • Politics – allows politicians to funnel money to what they believe is important

  35. 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

  36. 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

  37. Local Funds • Local option gasoline tax • Local option registration tax (Sound Transit) • Other taxes • Tolls • Congestion pricing (HOT, managed lanes)

  38. Who Wants a New Car?

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

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

  41. Finance – What’s important • Who pays and when do they pay? • Is it a DirectorIndirectcost 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)

  42. 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?

  43. 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?

  44. 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

  45. 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?

  46. Good or Bad Funding Mechanism • How easy is it to collect the revenue? • How much does it cost to collect the money?

  47. 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

  48. Who pays? • User? • General taxpayer? • Those with the most money? • A specific cost generator? • Trucks • Polluters • Are there tax breaks? For whom?

  49. Who benefits? • Geographic distribution • Socio-economic distribution • Modal distribution • Where are the subsidies? • Who wins / who loses?

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