Transportation and economic development: an important, yet costly, relationship

The governor of South Dakota, George Mickelson, makes no bones about the relationship between transportation and economic development:

"The very first question that was asked me by people in that delegation [of foreign business representatives] was what the transportation system was in terms of linking with the Interstate system and in terms of air transportation.

"The bottom line, very frankly, is business must be able to transport products and must be able to transport raw materials. And it must be done in a timely and efficient manner."

The governor made those comments last year at a forum sponsored by Transportation 2020, a program of nationwide seminars on transportation issues.

Businesses depend on transportation

And Mickelson is not alone in his assessment.

A recent North Dakota survey showed that when selecting a site for a new business, 68 percent of the companies said convenient highway access is "essential" or "important," and 72 percent said the same thing about proximity to a commercial service airport.

Business and community groups in the Upper Peninsula of Michigan have long called for the construction of more four-lane highways. A consortium of South Dakota groups has hopes for a four-lane loop connecting that state's larger eastern communities. And Wisconsin plans to build a four-lane highway along its northern tier, linking Eau Claire with Green Bay along Highway 29.

Those plans, and dreams, along with similar schemes for airline service, stress the relationship between good transportation systems and economic development, according to Jeff Hornbeck, economic analyst for the Congressional Research Service in Washington, D.C.

The economic development of predominantly rural states, like the Dakotas and Montana, depends to a certain degree on the efficiency of their transportation systems, Hornbeck said. Such a notion is "intuitively accepted," he said.

In a report for Congress prepared last year, Hornbeck said recent economic research "indicates that there is a statistically significant correlation between both regional and national commitments to infrastructure investment and economic growth and productivity."

Some Ninth District communities have taken those conclusions to heart, as the stories in this fedgazette attest. In Wisconsin, South Dakota and the Upper Peninsula of Michigan, cities are working for completion of major highway projects; the South Dakota Legislature has approved plans for an intrastate airline; and transportation officials in Minnesota, Wisconsin and Illinois hope to build a high-speed train between Chicago, the Twin Cities and surrounding Minnesota communities.

But Who Will Pay?

But roads and airports don't come cheap.

Four-lane rural highways cost about $1 million per mile to build (much more in most urban areas), and with the federal government—and many state governments—scrambling to deal with budget deficits, the idea of injecting millions of dollars into new construction programs is becoming hard to sell. Besides, officials from many states concede, with the aging of the existing highway system they've got their hands full just trying to maintain the status quo.

Indeed, states spend about $4,000 per mile annually just for upkeep on existing two-lane highways. And, with automobile traffic expected to continue to increase, maintenance costs will likely grow. Also, airline travel has grown significantly. In the past 20 years, passengers in U.S. airports have more than doubled, to 380 million per year; yet, no new major airport has been built since 1974 (though some are in the works).

Clearly, the status quo isn't good enough for the future, according to Edith Page, project director for the Office of Technology Assessment (OTA) in Washington, D.C. The OTA plans to release a major study this spring showing each state's infrastructure needs, their tax levels and their financial commitment to infrastructure projects.

"There is going to have to be a greater level of investment in the future, but where it will come from, I don't know," Page said.

Congressional Research's Hornbeck said the 1980s witnessed a deviation in the commitment of state and local governments toward transportation projects. In the past, when federal spending increased, local funding matched the increase, he said. But during the last 10 years the opposite has occurred— local governments have been content with letting the federal government spend more.

"That may indicate that local governments have changed their priorities and there is now a decreased willingness to share in the costs," Hornbeck said.

Currently, a debate is raging in Washington over just who should share the bulk of the nation's transportation costs: the federal government, state and local governments or the users themselves. The administration has just released a national transportation strategy calling for greater funding by local governments and through user fees. (See related story following this article.)

Do users pay their fair share? "In general, they do not," according to a 1988 Congressional Budget Office report.

"First, federal taxes undercharge heavy trucks for the damage they do to roads," the report said. "Second, general revenues are increasingly being used to finance highway spending in place of taxes on highway users. Both of these underpayments are incentives to increased use of roads, adding to public maintenance budgets and to operating costs for road users in general."

While the federal government's funding of infrastructure costs, as a percentage of gross national product, has dropped over the past 20 years, and even though there is growing reluctance among local governments to foot the bill, Hornbeck believes government—at some level—will have to ultimately respond. Private funding solutions, such as toll roads, may become more familiar fixtures in the future, Hornbeck said, but he doesn't believe they can be counted on to provide enough funding for the large task ahead. And user fees in the form of higher taxes remain understandably unpopular.

'Large Commitment Is Unavoidable'

"Because infrastructure serves national interests and falls within the realm of public goods, it is asserted that a continued strong presence by the federal government is needed," Hornbeck wrote in a recent report to Congress. "Others disagree and suggest that maybe it is time to turn responsibility of the public assets back to the states now that they have been constructed. No real consensus has formed with respect to future transportation policy; it is generally acknowledged, however, that a large and long-term public financial commitment at some level is unavoidable." That commitment may be especially unavoidable for rural areas, according to Edith Page. She said small urban areas depend on property taxes for 70 percent of their public services, while larger urban areas—with more and varied resources—get funding for essential public services from 55 percent of total property taxes.

And, in the meantime, while government agencies haggle over funding levels for future highway and airport projects, the nation's existing transportation network needs constant repair. The Federal Highway Administration estimates, for example, that a weight-restricted bridge carrying 2,000 autos a day must be detoured by 200 trucks. If the detour length is five miles—at 50 cents per mile—the 200 trucks would incur about $182,500 in extra costs per year. If the bridge is eventually closed and the 2,000 autos must make the same detour—at 20 cents per mile—the costs amount to an additional $730,000 each year.

"It's just killing us," Page said about the economic costs of road deterioration. "It's really killing us."

Funding Debate Hits Home in Ninth District Communities

Because rural areas comprise most of the Ninth District, some rural communities may feel slighted by the attention given to the transportation problems of larger urban areas, according to Richard P. Braun, director of the Center for Transportation Studies at the University of Minnesota.

"To hell with gridlock, we're still worried about mudlock," has been the rallying cry of much of the rural Midwest for years, Braun said.

The Center for Transportation Studies has recently begun a million-dollar research project on 17 different transportation issues facing the Upper Midwest, including the relationship between transportation and economic development.

While acknowledging that the recent debate over transportation funding has put more emphasis on private funding, Braun shares Hornbeck's doubts about the feasibility of such proposals.

"I may be wrong, but I'm going to be surprised if more than 5 percent of transportation costs will ever be carried by private funds," Braun said, including toll roads and private interchanges. Instead, he believes local governments will be required to pick up more of the tab.

But Braun did acknowledge that in California, where he said highway congestion in some communities has reached dire levels, private funding of public roads—usually in the form of matching funds—is much more common. Also, if a high-speed train is eventually built between the Twin Cities and Chicago, transportation officials concede that it must be funded by private investors.

No Free Lunch

In the end, if local governments are required to pick up a large share of the infrastructure tab in the future, that may spell doom for non-urban communities, according to Page. As an example, she cited the small oil-boom communities of some Southern states that have fallen on hard times in recent years. While studying the current infrastructure needs and the future prospects for those communities, one official from the Office of Management and Budget told Page: "They should all just pack up and move to the city."

That's a simple response charged by frustration, Page contends, but it reinforces the point that, when it comes to transportation and economic development, there are limited funds and no easy answers.

In other words, she said: "There's no free lunch and no silver bullet."

STATE AND LOCAL GOVERNMENT SPENDING FOR HIGHWAYS
AS A PERCENT OF TOTAL EXPENDITURES

State	Fiscal Year 1976-77	Fiscal Year 1986-87
Montana	18.4	13.2
North Dakota	17.4	11.6
South Dakota	16.6	13.7
Minnesota	10.6	5.4
Wisconsin	9.9	9.1
U.S. Average	8.4	7.9

Source: U.S. Department of Commerce

NINTH DISTRICT BRIDGE DEFICIENCIES*

	Bridges in Inventory	Structurally Deficient**	Functionally Obsolete***	Total Deficient Number	Total Deficient Percent
Montana	4,705	501	2,260	2,671	58.7
North Dakota	5,231	1,890	1,096	2,986	57.1
South Dakota	6,796	1,734	1,376	3,110	45.9
Minnesota	13,002	1,934	1,720	3,654	28.1
Wisconsin	12,729	3,839	1,319	5,158	39.7
United States	576,508	130,223	100,397	230,620	40.0

Source: Federal Highway Administration
*U.P. figures unavailable.
**Structurally Deficient: Inadequate for existing traffic due to deterioration in their decks, supporting members or superstructures.
***Functionally obsolete: Inadequate because of too few or too narrow lanes, overhead clearance restrictions, sharp approaches or other geometric problems.