September 14 TFAC Meeting
Page 6
Transportation Finance Advisory Committee
September 14, 2012
Hiway Federal Credit Union
WELCOME, AGENDA REVIEW AND APPROVAL OF MINUTES
Present at the meeting were: Cal Brink, Senator Scott Dibble, Chair Sue Haigh, Cory Hoeppner, Shar Knutson, Commissioner Harlen Madsen, Shawn Mason, Commissioner Peter McLaughlin, Representative Terry Morrow, Adolph Ojard, Art Rolnick, Commissioner Tom Sorel, Anna Stanley, Dan Riley, and Charlie Zelle.
Charlie Petersen opened the meeting with introductions. Charlie asked for the Committee to provide comments or concerns regarding the TFAC process. Ken Buckeye discussed the addendum (which was attached to the minutes) regarding how Minnesota’s funding compares with other states. Ken also presented the outreach and education plan. He said that the TFAC is now at a strategic time where we will be gathering input from stakeholders. Time on the agenda will be set aside to receive comments at the meetings on September 24 again on October 15. He said that we will test any recommendations with MnDOT’s on-line community. This will help us understand what messages resonate with the public. In October we will host public comment meetings in each district and will present that information at the next meeting. In November we will have an opportunity to review the public comments and draft recommendations. November 19 we may hold a state-wide video conference, in which others are also invited. Our final recommendations will be made in December. Our website will notify the public that they can testify. In addition, Nick Thompson noted that the media will spread the word to the districts as MnDOT goes out with the State Highway Investment Plan public process.
Representative Morrow said that he is concerned that only 30 minutes are being allowed for public comment. Senator Dibble said that we need more time for public comment and it needs to come sooner. Senator Dibble said that it is important that MnDOT allow public comment. He discussed the importance of public hearings. He noted that many stakeholders have very good information and we should hear it prior to charting our course. Commissioner Madsen said that the committee has the opportunity to start the process, but not complete it. This type of conversation should be ongoing. He believes these are the highest profile and the most integrated discussions he has ever seen regarding transportation funding. Senator Dibble said that he has heard comments that MnDOT has many hearings, but doesn’t listen to the comments gathered. Charlie Petersen will sit down and try to process this, allow more public comment, other ways to gather information, and we will take this and try and package it so that people can be heard. Charlie reminded the TFAC that they were selected to be on this committee because of your expertise, knowledge and because of the organizations you represent. Charlie noted that members represent their communities and their comments should reflect that. A part of this process is to broaden the communication. We will try to put together something for the next meeting.
Commissioner Madsen passed some pictures around for members’ comments. He later explained that the pictures represented a barn he had built from the forms that were used for the I-35W bridge. He discussed the need to be careful with our resources. Shar Knutson said that she has never had so many people contact her regarding a committee she is on. Therefore, she also believes public comment is important.
Charlie Petersen suggested that members should start with ideas and not decisions. He said that it is our desire to have a construction team, not a demolition gang. We need to talk and figure things out. We need to listen respectfully, in order for creativity to occur. It is ok to challenge, but not to tear down.
REVIEW CORE PRINCIPLES GENERATED AT AUGUST 13TH MEETING PERSPECTIVES
Charlie reviewed the group’s ten core principles and pointed out that the notion of return on investment was mentioned several times as a core principle. For that reason, Charlie invited Art Rolnick to discuss return on investment from an economist point of view. He explained that most people believe ROI to be the same as benefit cost analysis. This concept was developed in 1848. It is a tool used to think about investments. The benefits of an investment take time. A certain amount of funds are available and a decision must be made on which investments to make. For private companies, it is fairly straight forward. With regard to public investments, you have a fixed amount of money and need to consider which projects will benefit the most people. You then consider projects and rank them. He gave some examples of investments and their return. He discussed the problems with trying to put a value on public spending. It is not a benefit cost ratio, but an internal rate of interest. Generally speaking, they do not get into inequality issues, but if you say all improvements should be done in the Twin Cities based on efficiencies, you may run into problems. You need to put dollar answers on what it means to be fair, or you can go beyond benefit analysis. When you take equity into account, you learn you need to invest in outstate Minnesota also. A member said that he struggles with the subjectiveness, rather than the objectiveness. He inquired how that can be accounted for. You can put dollar values on people getting a job, getting to work quicker, etc. Even in private industry you might have to consider attitudes, as well as profits. Representative Terry Morrow suggested considerations in rural Minnesota: What is the benefit of paved roads versus gravel roads, what is value of dial a ride so grandma can stay in her home. Commissioner Sorel said that when we consider safety fatalities, there is data that discusses the value of a life, and it is incorporated into safety. Commissioner Sorel said that all this is considered in quality of life. Chair Sue Haigh said that the Met Council has identified the benefits both direct and indirect. There is a lot of data available on the value of these benefits. People need to understand the true benefits to them in order to want the benefit. She said their task is to identify many projects over a long period of time, and what the revenue should be for doing those projects. However, when we get to the issue of identifying revenue streams to achieve benefits it gets more complicated. Senator Dibble asked what would happen to the money, if used for another need. If this is accepted as a starting point, perhaps we could get out of the box. The 2008 transportation bill was passed because the business community stepped up with their support for the needs. Charlie Zelle said that when he presented the Itasca IOR report, it emphasized this. We needed to price the benefits and figure out how to measure that. The direct benefits needed to be measured. The indirect benefits are more economic benefits and stories we get from employers stating that they can’t attract employees without doing this.
HIGH RETURN ON INVESTMENT (ROI) PROCESS AND PROJECTS
Nick Thompson discussed how MnDOT is doing high ROI projects. He discussed one example of trying to do everything we can within our property boundaries, as it is very expensive to purchase property. MnDOT considers what alternatives there are to overcoming the problem. A consideration is what if the dollars used for wide shoulders were invested elsewhere. Technology can dramatically reduce your costs. MnDOT needs to consider how the project benefits the community’s quality of life. Mr. Thompson also discussed several examples of these types of projects.
Arlene McCarthy discussed the efficiencies being used by the Met Council. The latest policy plan focuses on solving problems. The Met Council is aware of where the worst congestion is and that helps in prioritizing their projects. We need to preserve what we have, as well as to know what needs to be expanded. The focus needs to be on moving people—not cars as was done previously. Projects are tailored so that we spend money to meet the need. She discussed lower cost/high benefit projects. Ms. McCarthy also discussed active traffic management. Through surveys the Met Council has found that reliability, speed, safety and capacity are extremely important to people. She discussed transit investments that the Met Council has made. More disabled can now ride regular busses due to their low floors, saving much money as compared to using Metro Mobility. The more automated the technology, the quicker riders can make their trips. Cards are much quicker than cash. GPS bus technology also helps improve bus service. There are capital costs and operating costs for technology and both are considered. High return on investment is always considered in determining which projects to do. There is much public involvement in deriving the ROI equivalent with transit. The decision is driven by ridership and benefit to an area. It is the Met Council’s desire to have good projects so that partners feel good about the projects. Snelling will be the first arterial BRT. BRT projects have a lower cost than an LRT
FUNDING AND FINANCING PRINCIPLES
Charlie Petersen inquired if committee members felt it would be okay for staff to write up the principles. A couple of principles would be balancing return on investment within a comprehensive framework and bringing in the value that transportation is important to the quality of life. Representative Morrow is concerned that using the rate of return on investment may be more difficult to establish in rural communities. Representative Morrow, Shawn Mason, and Dan Riley agreed to re-write the Problem Definition developed from the facilitated exercise at the August meeting. This will be reviewed at the September 24th TFAC meeting along with the re-stated funding principles.
THE NEW NORMAL – TOM STINSON AND TOM GILLASPY
A combination of demographics and economic changes have led to a new normal. Mr. Stinson noted that when the great Recession is over and the economy is growing it is not likely that we will return to where we once were. Education and transportation have been key to the State’s economic growth. The central cities are much less populated than they were in the 1920’s. Mr. Gillaspy noted that after WWII the outer suburbs grew quickly. In the late 2000’s foreclosures began in the central cities and moved to the suburbs. Minnesota continues to grow at a rate of 40,000-50,000 people per year. In addition, we have a net flow of migration. The number of Minnesotans turning age 65 is increasing sharply this year. More Minnesotans will be 65+ than school age by 2020. Nationally, Minnesota is the most average age. He noted that as China’s economy modernizes; the number of people who are significant savers, (about 50% of their income) will lessen, increasing interest rates. Land farther from the metropolitan areas will not maintain their value. Value is determined by the cost to get to the center of the city and the value of an individual’s time. With increasing congestion, it will take longer to get in to the central cities. There will be chronic government costs, and federal funding will not be as favorable a situation as in the past. Transportation aid packages have been held up in the past and may likely be in the future. Not all old rules of thumb will apply, but the question is which rules will apply.
· Technology will continue to play an important but often unpredictable role.
· Trends are not just local trends, but are usually worldwide.
· It is becoming more difficult to tax transactions, as many are being conducted globally.
· Only half of black and Latino kids are graduating from high school. Human capital is becoming less available.
· Advancements in technology are moving ahead at a faster and faster pace. Part of productivity is larger and faster machines putting people out of work.
· Productivity can also mean a more efficient transportation system, possibly being able to use your computer on the way to work.
Minnesota’s history has been that we are not the lowest cost producer, but we are the best. Increasing productivity also means making things better (improved quality) and making better things (innovation, new products). Lean principles may drive you away from technology.
The traditional transportation systems’ focus was for markets for Minnesota commodities and markets for Minnesota products and services. It now includes the modal system. Seniors will be a greater percentage of the electorate, creating greater tensions in the budget and an even greater reluctance for increased taxes. Commissioner Sorel commented that uncertainty of funding is making it difficult to plan for budgets. He inquired if under the new normal we can’t count on the same things we did a few years ago. He asked how we should look at this issue for the future. We are in very uncertain times, and he believes that will increase, rather than decrease. We do live in remarkable times. People that grasp for opportunities will do well and those that don’t won’t. Disruptors can and do occur.
FINANCIAL CONCERNS FOR TRANSPORTATION IN LOCAL POLITICAL SUBDIVISIONS
Abby Bryduck with the Association of Minnesota Counties discussed the challenges of the county transportation structures. Almost 90% of roads are local roads, with 35% of them being county roads. Part of the county system is funded through the County State Aid system (“CSAH”). Roads must be deemed to be important enough to receive the CSAH designation. The CSAH system is funded through the highway users tax sources, including gas tax, vehicle sales tax and motor vehicle taxes. Other county roads are paid for with taxes and assessments. Key challenges to the county system are increasing prices of bituminous, increasing inflation of costs and materials, increased maintenance and needs due to an aging infrastructure, and aging population presenting additional safety and mobility concerns. She indicated that Minnesota is definitely falling behind in the area of maintenance. Unmet needs have increased from 32% to 49% between the end of the century and now. Bonding has been a state response to the challenges. Chapter152 increased the gas tax 8.5 cents per gallon and removed the cap on tab fees. A solution may be to leverage constitutionally dedicated streams. She also discussed the County Transit Improvement Board. It generates $100,000,000 per year. Each CTIB also has regional rail authorities. If the region decides to accelerate the development of the economically competitive transit way system, the 10% RRA capital contribution will be a very significant property tax burden. This will be a financial concern going forward.