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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?