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A different approach to funding transport infrastructure

By Kevin Cox - posted Monday, 4 July 2005


The provision of transport infrastructure continues to move down the path of increased consumption of non-renewal and environmentally destructive energy sources, with few signs of change. The social and economic capital invested in the existing systems means it is difficult for new approaches to break this trend. We need a way to defeat the tyranny of the status quo and give life to new ways of providing transport infrastructure and to bring the marketplace to transport.

This proposal breaks the trend by creating a market for capital expenditure on transport infrastructure. It will inevitably lead to a consumer market for transport services.

Major transport infrastructure, whether it be roads, railways or airports is funded largely by governments who collect money in taxes from existing users of transport facilities. Local infrastructure is paid from the development charges for houses and other buildings. Governments plan, finance and decide priorities and projects.

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There has been some attempt at providing funds from private resources with toll roads and airports, but these are only provided if the investors are guaranteed favourable conditions, so the risk associated with the ventures is low and the returns are high. Almost all the funds for transport infrastructure come from taxes levied on usage of existing infrastructure. These taxes are in the form of road taxes, fuel taxes, airport taxes and other transport-related taxes.

This means money for spending on transport infrastructure tends to become a political rather than an economic decision, with heavy biases towards extending existing approaches and towards the allocation of some transport taxes for non-infrastructure purposes.

Rather than letting bureaucrats decide where to spend infrastructure dollars, this proposal recommends giving the community the power to decide where to spend the money by getting infrastructure providers to compete for the available capital. Rather than leaving the investment decision in the hands of a few, the investment decisions are made by millions of individuals investing in transport infrastructure.

The infrastructure funds from transport-related taxes are given to the general population as rewards for appropriate behaviour. The general principle is to reward people who use few undesirable transport resources. The rewards that people are given are only used on approved infrastructure projects. There is no increase in existing taxes. The money to give people rewards comes from some of the existing taxes on fuel, registrations, tolls and other taxes and imposts imposed on transport. The difference is the way the community gets ownership of these assets. Instead of the community getting the ownership through governments, the community will own the infrastructure directly.

Allocation of rewards

In principle, rewards are given to people who consume few transport resources. Where they do consume transport resources, rewards are given in proportion to the energy efficiency of their mode of transport. The allocation of rewards can be achieved in many different ways. The ones used in any situation will depend on the local conditions but the general principles will remain the same. That is, people are rewarded for desirable behaviour and the rewards are used to provide more transport infrastructure or, more important, to make better use of existing infrastructure. Some possible ways of allocating rewards are as follows:

Travel to work transport
People who tele-commute (that is, they do not travel to work but use their residences as their offices) get the maximum benefit as do those who walk or cycle to work. People who use public transport also get some benefit depending on the energy efficiency of their mode of transport. People who share vehicles for work transport get rewards. People who use energy efficient transport get a reward.

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Any person who pays income tax from an income derived from personal labour is deemed to be working. To obtain a reward they record all days on which they are entitled to a reward. The reward is a fixed reward and only depends on the method of transport to work.

Education related transport
People who obtain their education in transport efficient ways are given a benefit. The education must be for an approved course and the amount of the reward depends on the time spent on education.

The rewards are the same as work related rewards. Thus, those who obtain their education from their place of residence or work receive the maximum benefit. This reward applies to children as well as adults.

Leisure activities
A system could be introduced where people who own cars can obtain a reward depending on how little they use their cars. This will be a voluntary system and will be organised in a privacy friendly manner, but it will distinguish between work-related activities, leisure activities and which roads people travel.

Car usage is monitored automatically and securely through devices onboard cars. The car knows where it has travelled. If someone wants to be considered for a reward they can have a device installed in their car. These devices record where the car travels, but this information is only kept in the car and only aggregate numbers are given to the rewards system.

Long-distance Travel
People who use energy efficient methods for long-distance travel obtain rewards. Each mode of transport is evaluated and a reward calculated depending on whether it is a car, bus, train, plane or other method.

Ability to use a method of transport
In some situations, such as a large city or in countries or areas with a low driver population, a simple method is to give rewards to people who do not possess a licence to drive a car. This would then give these people access to capital to build methods of transport that suit their needs.

Use of Rewards

Rewards can only be used for capital expenditure on transport or transport-related activities. The rewards are allocated by the owner of the reward. The reward can be given, loaned, sold or given in return for equity in an ongoing business. Rewards are transferable.

Examples of the use of rewards might be the construction of new, or repair of existing, infrastructure such as roads, railways or airports. It might be for the development of information systems to facilitate car pooling. It might be for the development of better ways of using existing infrastructure, such as systems, to facilitate the automatic control of cars while on the roads.

Public road expenditure will be financed, like any other transport expenditure, by borrowing to purchase rewards, by loaning the rewards from people or by giving equity in roads.

Outcomes

It is difficult to predict the outcome and that is the method’s advantage. What we do know is it will influence the behaviour of the population. People will start to look for alternatives so they can get rewards. They will then tend to spend the money on systems that will provide them with rewards while still providing their transport needs.

If there are environmentally undesirable outcomes, they can be overcome by changing the reward structures, reducing the value of rewards for particular infrastructure or eliminating the use of rewards on particular infrastructure systems.

Even though we do not know what will happen, we can guess. It is almost inevitable that a method for charging for the use of public roads will be introduced. Technologies are available to allow this to happen in a consumer friendly and private manner and it is expected this proposal will accelerate the introduction of such systems. Such systems could be financed from the infrastructure funds. This will, in turn, give alternatives to the way rewards are calculated.

As people get rewards for reducing transport needs, or to use efficient forms of transport, it is likely public transport usage will increase. This makes it more likely that further public transport infrastructure will be built because the usage will increase, making it economic to install new public transport facilities. It also makes it more desirable to live close to where you work and or close to public transport. Again, this reduces transport costs and increases the desirability of behaving in a transport efficient manner.

If people travel by train or by bus between centres of population then they are likely to be given a reward. This increases the desirability of building long-distance efficient infrastructure, such as trains or buses. Capital is given directly to people, so it will mean some will keep the capital and this will help fund their future. The system will result in more economically efficient transport, so there will be an economic dividend that may show itself in a reduction of taxes.

Innovators will be encouraged to come up with new schemes to reduce transport costs and energy consumption as there will be capital available for investment. Currently, an entrepreneur who has a good idea has to now persuade entrenched bureaucrats to invest public monies. People will choose to invest either on the basis of direct returns or on the basis that they think the project is a good one for them and society. For example, a community may decide to invest all its funds in providing a safe environment for their children to cycle and walk to school.

Other ideas that might find the light of day are schemes for energy efficient public transport, but based on automatic low speed, highly efficient vehicles that can move people around their local suburbs.

It is expected other outcomes will be the desirability of living close to public transport routes, which may lead to high density living along and above public transport routes.

The worst outcome

The worst outcome is that existing systems will continue much as they are but that a significant section of the population will change their behaviour. The worst outcome will be a significant reduction in non-renewable energy for transport.

The best outcome

The best outcome will be for the general population to understand the different tradeoffs with respect to transport and to receive tangible benefits for behaving in socially desirable ways. This will lead to less resource-intensive methods of travelling or even eliminate the need for much travel. The total system will become more efficient and will lead to the reduction in green house gases and the elimination of other undesirable outcomes.

As conditions change, the reasons for obtaining the rewards will change and the system will be able to evolve and redirect itself towards desirable outcomes.

Practicalities of introduction

The system can be introduced gradually. It does not require a big bang approach and it can be introduced on a trial basis in different parts of the country or with different groups. It is suggested it starts in areas where there is the greatest need and where it is possible to see alternatives arising quickly. It requires a government to introduce the system as they currently control the allocation of capital for transport infrastructure. However it could be any state government or local council that could first introduce the system. The Federal Government could even finance the initial introduction as a pilot study in a receptive community.

Disclosure

The author is interested in developing the information systems to support the calculation and distribution of rewards. More important will be the development of capital ownership systems to allow the efficient mass ownership of capital goods. The author would like to compete for the right to provide such systems.

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Article edited by Angela Sassone.
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About the Author

Dr Kevin Cox is an entrepreneur. Previously he has taught Information Systems in Canberra and Hong Kong and worked with computers for various multinationals in Australia, the USA and Indonesia.

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