Articles



Is it Time for Transportation Cooperatives?

With the exception of a small subset of public-private partnerships (P3s), ownership of transportation infrastructure almost exclusively resides in government at the local, state, and federal levels. Transportation, tolling, or expressway authorities often control specialized roadways which make up a relatively small, but increasing, part of transportation infrastructure. The question arises as to whether another form of ownership of transportation infrastructure is possible, and if so, would it be beneficial?

The need for the transportation improvement is usually not the issue. The need for additional funding to bring about the improvement often is the issue.

In discussing general or specific transportation funding, several themes emerge due to public perception. Often, the concept is espoused that, “if government was more efficient and eliminated waste, there would be more than sufficient funds for any transportation improvement.” Similarly, the argument, “if the government would simply shift funding emphasis there would be more than sufficient funds for transportation improvement,” is put forward. It is not unusual, therefore, for discussions of transportation funding to devolve into discussions of unaffiliated governmental issues, such as welfare reform, military spending, or other very diverse, and usually contentious, issues across the political spectrum. Further, even though transportation funding can be isolated and firewalled into trust funds, such as the Highway Trust Fund, there are suspicions on behalf of the general public that current laws can be changed.

The public can be distrustful of providing additional revenues to an agency at any level of government due to the real or perceived potential of using transportation dollars for other governmental purposes. Whether warranted or not, there is often a significant theme of distrust for providing additional funding sources to governmental agencies. In general, this argument flows from the issues previously discussed but can extend further. Even if the governmental entity is stating that all revenue will be used for transportation purposes, the concern is that that decision can be changed by future officeholders. Ownership by an entity that inherently has no ability to fund anything except transportation improvements could address this. Governmental transportation authorities that are seen by the public as subject to political influence cannot fill this role. Private entity ownership is often perceived as placing its profits above the public good. A private, nonprofit, ownership entity may be needed. Transportation has often been referred to as a type of public utility. As such, a utility cooperative may be the appropriate business model.

Electric cooperatives already provide significant public infrastructure in the electric utility industry and provide a model for transportation infrastructure ownership. Both transportation and electric utilities own significant assets, require rights of way, and serve a large number of customers without apparent competition. In short, transportation functions as a utility, and its organizational model can reflect this. Electric cooperatives might, therefore, provide an applicable model for use in the transportation arena.

Can the Cooperative Business Model Handle Large Infrastructure Projects?

To determine whether a cooperative business model might be applicable to transportation funding, electric cooperatives were examined as a potential template for surface transportation. Both of these utilities deliver a critical service that is vital to consumers and the economy as a whole. Both require significant rights of way and a major infrastructure investment, and both have owners in the government sector, the private sector, as well as cooperative ownership. In fact the federal government is the largest owner of the nation’s electrical generating capacity as well as the owner of significant transmission assets.2 Cooperatives clearly are able to function well in an environment that also includes a significant amount of government controlled assets. Also, while electric cooperatives were initially conceived to provide service in primarily rural areas, the growth of urbanized areas has led to suburban cooperatives with significant housing densities. Understanding the issues electric cooperatives faced during urbanization could provide significant insight for transportation cooperatives.

The impact of electric cooperatives on the nation’s electricity production and transmission infrastructure is substantial. The following bullets, from the National Rural Electric Cooperative Association (NRECA), shows a robust business model:3

A total of 905 cooperatives—840 distribution and 65 generation and transmission (G&T) cooperatives—serve an estimated 42 million people in 47 states;

  • Cooperatives own assets worth $140 billion (distribution and G&T co-ops combined);
  • Cooperatives own and maintain 2.5 million miles, or 42 percent, of the nation’s electric distribution lines, covering three quarters of the nation’s landmass;
  • Cooperatives employ 70,000 people in the US;
  • Cooperatives retire $600 million in capital credits annually;
  • Cooperatives pay $1.4 billion in state and local taxes; and

Finally, electric cooperatives generate $40 billion in revenue annually, also according to the NRECA. This compares to slightly over $32.7 billion projected by the Congressional Budget Office to be generated by motor fuel taxes for the Highway Trust Fund in 2011, an amount fairly close to that for 2014.4

Are There Existing Transportation Infrastructure Cooperatives?

A transportation infrastructure cooperative as envisioned here does not currently exist within the US. There are, however, similar types of entities. These include overlay districts, such as municipal service districts (MSD), as well as privately developed, quasi-governmental, community (or metropolitan) improvement districts (CIDs), and regional transportation authorities. For example, in the Atlanta region, CIDs organized under the laws of the state of Georgia and funded through district-specific commercial property taxes currently fund a range of ongoing capital, operations, and maintenance expenditures for transit, roadways, and even interstate highways. The property owners, through their board of directors, decide how these property taxes will be spent.

While a CID or similar structure could be seen as a forerunner to a transportation cooperative, there are differences. The two primary differences from cooperatives in the context of tolling are that: the CID is not controlled specifically by users of the infrastructure improvement, and, the funding is not provided by the users of the transportation facility directly. While additional property taxes could be part of a cooperative’s funding source, toll revenues through ownership of the transportation improvement would likely be a much stronger revenue source and serve to improve the public and political acceptance of the use of tolling.

However, regardless of the specific long-term revenue source for the cooperative, seed money will be needed to fund capital bonds or operations loans in order to start collecting revenue through use fees. It may be possible for a State Infrastructure Bank, which may provide favorable repayment options, to perform this function. Or borrowing from history, the US government could serve as an initial investor, such as was done with the 1935 Rural Electrification Act to establish rural electric cooperatives. Loans and grants from the REA were the seed funding for over 400 electric cooperatives within five years serving almost 300,000 households, and that model could work well for transportation.5

Monetization of existing infrastructure, via tolling of bridges or facilities for planned expansion or improvement, could provide initial seed money for transportation cooperatives. While there are some isolated implementations of this approach to provide a “down payment” for future transportation infrastructure, such as the current tolling program on Washington State’s SR-520, public approval and political feasibility will depend on many factors including the acceptance of the cooperative concept, and an obvious need for transportation improvements to justify tolling.

Legal Issues

There are significant legal considerations to be addressed if a transportation cooperative were to be formed. These would include financial, legislative, and those issues related to liability of a private entity versus a public entity. Many of these issues have been addressed in P3 agreements. It is also likely that a solutions model could be found in existing utility cooperatives, as many of the same issues would have been encountered as those faced by a developing a transportation cooperative.

How Will the Public React to Cooperatives?

To date, one of the more persistent concerns expressed by the public regarding toll facilities is the perceived and actual issue of “double taxation”. As the fuel tax continues to fade, this may become a lesser issue. However, the rise of mileage-based user fees, if such fees 1) are not aware of geographic presence as calculated, and, 2) do not flow back to the cooperative within which the fees were assessed, could raise the same issues. Provided the public perception of double taxation is resolved, the cooperative concept appears to address many of the commonly voiced objections to tolling and transportation funding in general. In particular, the cooperative model yields a mechanism unavailable today by which those paying into the infrastructure investment also benefit from not only the service provided, but also the revenue generated. How transportation cooperatives may compare with other forms of transportation financing is shown in Box 2. In almost all measures, the co-op model is anticipated to improve upon other forms of funding, with the notable exception of revenue distribution. In particular, if the co-op model includes use-based distribution and ownership, then the complexity of this model for revenue distribution is substantially greater than other models, and warrants testing.

Implementing pilot projects, where the ownership entity is not a foregone conclusion, could be informative. The projects could include development and testing of various ownership criteria, management of the facility, clarification of legal issues including liability, the relationship of the cooperative entity to governmental entities, and, of course, public acceptability and reaction. Two types of potential projects should likely be tested. The first pilot project could be an entity that deals with area-wide transportation utility fees. This would be very closely related to the electric cooperatives in function. A second pilot project, involving a toll facility (either all lanes or price managed lanes), would also be very informative in determining how the concept of a commercial co-op would work within the context of a toll facility, and if it could gain public acceptance. These pilot projects should be set up to sunset on a set date if the cooperative were found to be ineffective. This could potentially increase both public and political acceptance of the process.

Does the public desire an entity where they are able to exercise significant control over how roadways are financed, maintained, and expanded? What type of return on investment would members of a transportation cooperative expect? From the governmental perspective, would cooperatives be viewed as a revenue threat, or would they be viewed as a boon due to increased tax revenues and a release from at least some financial responsibility for roadways? These questions have yet to be answered and will require significant investigation. One thing, however, is certain: the mechanisms for transportation infrastructure development, funding, and operations are all evolving. During this evolution, ownership structures will also need to evolve.

 

Notes:

  1. Cooperative. US Small Business Administration.
  2. Federal Oversight of Electricity Markets and Infrastructure. US Government Accountability Office.
  3. Co-Op Facts & Figures. National Rural Electric Cooperative Association.
  4. The Highway Trust Fund and Paying for Highways. Congressional Budget Office. Statement of Joseph Kile (Assistant Director for Microeconomic Studies) before the US Senate Committee on Finance, May 17, 2011.
  5. The Rural Electrification Act of 1935 led to the creation of the Rural Electrification Administration, 1935 to 1994. Most cooperatives formed by the program continue in operation under the Rural Business Cooperative Service, a division of the US Department of Agriculture’s Rural Development Bureau.

Image Header Source: Garrett (Creative Commons)


Geographies: United States
Sectors: Roads
Topics: Policy, Funding & Finance, Other