How to pay for the Nation's roads - a case for public private partnerships

How to pay for the roads still traveled

Notwithstanding increasing mass transit ridership and more prudent use of cars, automobiles will dominate U.S. transportation for decades to come. So how do we pay for roads? Variable tolling is one answer, and in the age of GPS the logical next step should also be explored: a fee on miles traveled everywhere by individual vehicles.
By Matt Rosenberg
October 21, 2008.

I had a telling conversation with an old friend several months ago, a devoted environmentalist who's a community college biology teacher living south of San Francisco in a pleasant small town abutting the Pacific. I don't recall how it came up, but she declared, "We've just got to get more people out of their cars." Then came a pregnant pause, followed by her admission that of course, because of where they lived and worked and their packed daily schedules, she and her husband drove themselves and their children everywhere.

I've been thinking about this lately because, well, the roads are still chock full of cars and trucks, and despite an uptick in transit and bicycle use, traffic is still congested here in metro Seattle, and metro regions nationwide. Meanwhile, U.S. surface transportation needs will require some $12.5 trillion (yes, with a "t") over the next 50 years, according to a landmark federal report issued this year. But the way we fund such projects is broken, relying too much on dwindling by-the-gallon gas taxes due to improved fuel efficiency, and ever more difficult local and regional sales tax hikes.

The historical trends show whopping increases in U.S. miles driven and gasoline supplied. We've gone from 2 million barrels of gas a day in the 1950s to more than 9 million per day by 2007, the U.S. Energy Information Administration reports. The U.S. Bureau of Transportation Statistics reports that U.S. vehicle miles traveled (VMT) multiplied more than fourfold from 1960 to three trillion in 2006. Though the term "highway" is sometimes attached to VMT, they are estimated monthly for all U.S. roads and streets, drawing from data gathered at 4,000 continuous traffic counting locations.

What of the future?

BTS projects that VMT will grow by more than half the current level to 4.7 trillion in 2030, while U.S. population grows about 23 percent from 2005 to 2030. In Washington state, annual VMT nearly doubled between 1980 and 2007, and is projected to rise another 54 percent by 2030.

In the four core counties of metro Puget Sound, daily VMT has more than doubled between 1980 and 2007.

During the oil and gas price run-up earlier this year, drawing considerable media attention were marginal decreases, of a few percentage points only, in monthly and calendar year-to-date U.S. VMT compared to a year ago. Even a slight dip in VMT draws notice in a time when some celebrate the end of suburbia and advocate "carectomies."

One can hope. These days, it seems that every seminar addressing surface transportation and every green "visioning" session includes earnest discussion of how to "reduce vehicle miles traveled." To the skeptic, the imperative sounds like one of those wishful commands sported on the seven-bumper-stickered Subaru Outbacks endemic to Seattle, like "World Peace Now," or "End Poverty." It's an appealing idea, sure. But the devil is in the details.
The infrastructure crumbles

In the meantime, there's still a pressing need to deal with roadway and bridge wear and tear, and increased congestion resulting from exponential VMT growth during a post-Interstate-building era when transportation investment chronically lagged. One reminder comes via veteran Chicago Tribune transportation reporter Jon Hilkevitch, who this month wrote that despite a five percent regional drop in VMT, traffic congestion there has remained high. One big reason:

Roadways were already so badly saturated with traffic before the recent spikes in fuel prices that the decline in miles traveled hasn't significantly loosened the gridlock.

Most daily trips in metro regions actually aren't to and from work, a point often overlooked. But many of those trips by their nature are less likely to involve transit. If you're going to Costco or Lowe's or Target, to your in-laws in Olympia or friends in Lynnwood, to curriculum night at your kid's school across town, or your cottage on Whidbey Island, you're most likely to be driving. Of total daily trips in the four-county core of the Puget Sound region, only 4 percent were via scheduled public transit, according to a 2006 Puget Sound Regional Council survey (second paragraph of p. E-6, here).

Work-related travel is somewhat more predictable, and there's more room, potentially, to change behavior and actually get some people out of their cars, some of the time. But progress there had been scant. The BTS also reports that — based on federal surveys and Census data — between 1989 and 2006 the percentage of U.S. workers for whom the principal means of transport to work was solo driving remained at 76. Those workers usually carpooling declined very slightly, to 10 percent of the workforce over the same 17-year stretch, and those usually taking public transportation decreased from 4.6 percent to 4.3 percent. Walking, biking, taxi, and "other" principal means of conveyance to work grew from a combined 4.7 percent of the workforce in 1989 to 5 percent in 2006, while telecommuting increased from 2.6 percent to 3.9 percent.

Numbers for 2007 and 2008 will likely show some decrease in solo driving to work, and a shade more transit use nationally, but without drawing up a whole new landscape, prospects remain iffy for reducing VMT or merely curtailing its growth.

As politically unpalatable as it seems now — and that would be "very" — some experts believe within a few decades we'll be tolling not just managed highway lanes with time- or congestion-related variable fees but tolling every mile traveled, via GPS devices planted on most if not all vehicles. "VMT tolling" or "mileage fees" have already been studied in Puget Sound and Oregon, and imposed on heavy trucks in Germany. This month, the Atlanta Regional Commission mused publicly about the unsustainability of the federal gas tax and the attractiveness of mileage fees. The Atlanta Journal-Constitution reported:

The board of the Atlanta Regional Commission is studying the idea of eventually dropping the federal gas tax, the main source of transportation funding, as it looks for "sustainable" transportation funding. The gas tax doesn't rise with inflation and gets weaker every year. The ARC, metro Atlanta's planning agency, hasn't approved a final statement on the issue and has no authority to implement it. The agency is giving its recommendations to Congress, as it begins to look toward renewing the multiyear federal transportation funding law.

The gas tax is charged as cents-per-gallon instead of cents-per-dollar, so the same size tank always reaps the same amount of money in taxes, no matter how much the price of gas goes up. In addition, as people get more fuel-efficient cars, they use less gas, and so pay less gas tax. The ARC suggests more research on one of the more talked-about ideas, an odometer charge, or vehicle miles traveled. Such a charge would tax drivers by the amount of miles they drive. The idea is for drivers to pay for the wear they put on the roads. Depending on how sophisticated the tracking is, it could send the tax paid directly to the jurisdictions whose roads the driver uses. To avoid getting weaker every year, as the gas tax does, it would have to be designed to rise with inflation.

For now, to untie Atlanta's grimly congested traffic, the state transportation department is pushing a $400 million-plus plan to convert the region's 44 miles of carpool lanes to electronically-tolled high-occupancy and toll (HOT) lanes, which are open to carpoolers and transit for free, and to solo drivers for a variable fee depending on time of day or congestion levels. Nearly half of the spending would be for added bus service and park-and-ride lots along the HOT lane corridors.

Closer to home, the rationale for considering mileage fees was also well-stated by Oregon officials. A report from ODOT to the Legislature makes the case for advance planning even if political acceptance isn't an immediate prospect.

The first question people ask about the pilot program for mileage fees is, "Why are you doing this?" The answer is simple. Oregon is preparing for the day when a substantial number of motorists are driving highly fuel efficient vehicles and no longer paying enough gasoline taxes to support their road system. ... that day may come about ten years from now. No one in Oregon proposes immediate implementation of an electronically collected mileage fee. Investigation and preparation for a new revenue system, however, is warranted because of the long lead time necessary for any change.

The Los Angeles Times, in an editorial last month titled "America's Broken Infrastructure," provocatively argued:

The vehicle mileage tax is probably the answer. Rather than taxing people based on the amount of gas they buy, it would tax them based on the number of miles they drive. Most likely, this would be done by installing tamper-proof devices in vehicles that would transmit mileage information to a tax office, though the data also could simply be confirmed by a certified mechanic. Some states are performing pilot studies on mileage taxes, but they're a long way from having all the bugs worked out — there are serious technical and logistics questions, not to mention privacy concerns (many people are uncomfortable beaming information about their driving habits to the government). Nonetheless, a mileage tax makes sense because it rightly puts the burden for building and maintaining roads on the shoulders of those who use them, even if they happen to drive high-mileage cars.

I'll admit to deep ambivalence about tolling every mile traveled. It's not about the privacy concerns, which to me seem exaggerated. But mileage fees feel like pervasive fiscal over-reach, no matter how reasonable the peak-hour charges and how meaty the off-peak discounts which would need to be part of any such package. I always eschew a car rental agreement that includes any kind of mileage fee. So I'm not supporting mileage fees here, and Cascadia Center has made no such endorsement, either. But we have hosted public conversations on the topic, and the national dialog on mileage fees will continue to gain impetus because tax funding for surface transportation will need to be leavened more and more with a variety of updated pay-as-you-go strategies.

Whatever one's feelings — and they are likely to be intense — mileage fees with off-peak discounts, and a robust but revenue-neutral national carbon tax could drive increased off-peak travel, greater transit usage, and tele-work.

How soon any of this will happen, if ever, is unclear. What's more clear now is that we like living in the suburbs and that driving is often a necessity. In the suburbs, housing costs are less, though bargains have crept toward the edges, which in turn increases VMT. Suburban public schools aren't always ideal but are much less problematic than urban public schools. More and more jobs are dispersed across metro regions, in varied suburban locales. Meanwhile, the vision of "living close to work" is reality only for a lucky, small slice of the populace.
The shortcomings of present gas taxation

Puget Sound voters will get a chance to weigh in on a $17.9 billion second-phase Sound Transit proposal next month that would extend the starter north-south light rail line in both directions and east, and add to existing ST express bus and commuter rail service. Other regional needs include replacing the shaky Alaskan Way Viaduct and the Highway 520 bridge across Lake Washington; fixing dangerous Highway 2 in Snohomish County; revising tangled interchanges and repairing cracked pavement on Interstate 5 in Seattle (a crucial but unfunded $2 billion job that's rarely discussed); and building key missing links in Pierce County, such as the Cross-Base Highway and the Highway 167 connector to the Port of Tacoma.

Funding the roads piece, and any major additions to the regional transit infrastructure beyond the pending "Sound Transit 2" plan, will be daunting. Regional taxpayers here aren't a bottomless well. And the federal role in surface transportation funding has been heading into permanent decline, as Atlanta's planners and the Los Angeles Times both pointedly note. The federal gas tax hasn't been raised since 1993, and no amount of Beltway jabber and finagling will produce any substantive hike in it soon, or quite possibly ever again. The federal gas tax trust fund was poised to land about $4.3 billion in the red by last month's end, but as Logistics Management reports, Congress threw the troubled account a one-year life preserver of $8 billion from the U.S. Treasury General Fund.

State gas taxes, which often support state bonding for transportation projects, are losing buying power, too. Oklahoma's road and bridge bonds are getting pricier because of tighter credit. Connecticut couldn't find a refinancing deal for highly-rated transportation project bonds worth nearly half a billion dollars, a never-before challenge for a state with serious surface transportation needs. Syndicated columnist Neil Peirce writes in The Seattle Times, "The Wall Street fiscal crisis effectively shut the state-local government sector out of borrowing." Well before that storm hit, state transportation project budgets had already been smacked by sharply rising costs for construction materials and equipment fuel, plus a tightening global labor market. India, China, and other fast-developing nations are on a global road building binge.

It's true that a proposed U.S. infrastructure bank could raise some $60 billion over 10 years for deserving projects. That'd be a start, but as Congressional Quarterly reports, the National Surface Transportation Policy and Revenue Study Commission, in a major report issued earlier this year, said $225 billion per annum is needed for the next 50 years for repairs and upgrades to meet future needs. That's $12.5 trillion. The commission noted that current expenditures are less than 40 percent of their recommended yearly nut and that future funding will need to be closely tied to cost-benefit analyses and performance-based outcomes. Expect some major wrangling next year when the new Congress takes up reauthorization of the surface transportation bill, which is rather hopefully named the Safe, Accountable, Flexible, Efficient, Transportation Equity Act, a Legacy for Users — or SAFETEA-LU to you. The commission's scarifying estimate dovetails, roughly, with one by the American Society of Civil Engineers: Just to get moving on vital projects, the nation's infrastructure needs an infusion of $1.6 trillion over the next five years.

A promising development, as much or more for its cost-saving peak-hour rationing incentives as for its revenue-raising potential — is variable-fee highway tolling, now spreading across the U.S., often in so-called HOT lanes. A HOT lane pilot project is under way on Highway 167 in metro Puget Sound, and a federal grant to help fund the Highway 520 bridge replacement requires state legislative approval of pricing on 520.
Even Democrats embrace public-private partnerships

Whether Puget Sound decides to move toward regional variable-fee highway tolling, there's another important tool we're going to be hearing more about: public-private partnerships, or P3s, which help share taxpayer risk and dramatically speed up project delivery. They're not a solution for every occasion, but they deserve leeway to support more of our region's and nation's staggering surface infrastructure needs. P3s are widespread in Europe, Canada, and Australia and now are beginning to gather steam stateside.

High-profile Democrats such as Pennsylvania governor Ed Rendell, House Speaker Nancy Pelosi, Los Angeles Mayor Antonio Villaraigosa, and Chicago Mayor Richard M. Daley are all supporters. The new, Democratic Governor of New York, David Paterson, is interested in transportation P3s, too.

P3s need not involve the sale of public assets such as highways and bridges or transit systems but, rather, the leasing of such facilities, which then yield toll or fare revenue for the private operators. These operators are not reviled foreign sovereign concerns. They are either transit service firms or special "private" infrastructure investment groups which may be headquartered in Europe or Australia but are increasingly bankrolled by U.S. public employee union pension funds or those of building trades unions. Those funds have lost some value in their stock portfolios lately, but they're still flush and see infrastructure as good risk diversification for their long-term obligations to pensioners.

The Washington State Investment Board, representing a slew of state employee retirement funds, plans to invest 5 percent of its sizeable portfolio in infrastructure. The board explains here (p. 2) that it has come to view "tangible asset types" (other than real estate and) including infrastructure as capable of producing "long-term" and "high-quality" revenue streams. A number of others public employee union pension funds in North America have invested in infrastructure, and more have announced similar plans.

They tend to go with the private infrastructure investment groups because directly buying state highway bonds doesn't meet their fiduciary duties to pensioners. Interest earnings on state bonds are tax-exempt, so interest rates are correspondingly a bit lower. Yet public pension funds are already granted a tax exemption on interest earned, so unlike individual investors they have no financial incentive to go for the state bonds. In fact, they have a disincentive, as Robert Poole of the Reason Foundation explains.

For the WSIB and most other public-employee pension fund managers, investing in privately held companies is simply a part of smart portfolio diversification and risk management. As of last year, WSIB had already earned $9.7 billion in private equity profits since 1981 and had one-seventh of its portfolio in private equity.
The proliferation of P3

Can P3 investments that are paid off in toll revenue still prove viable as worries persist about gas prices and road travel volume? In a word, yes. Travelers value their time most of all; private vehicles are usually more direct, flexible and faster than transit; and tolls for managed lanes guaranteed to maintain traffic flow of 45 mph or higher yield a valued benefit, like housing, utilities, and groceries. This perspective cuts across income levels. UCLA and USC researchers in a case study released this year found a sizable percentage of lower-income drivers used HOT lanes and that it was less regressive in terms of tax policy for them to pay related tolls versus sales taxes for transportation projects.

Fears tend to be overblown about runaway toll rates to cover P3 finance costs and profit margins. Governments retain control over P3 toll rates and transit fares. The contracts between private partners and governments are long-term, usually 35 years or more. That's plenty of time to make the margins. In the meantime, P3s deliver transportation projects sooner rather than later or not at all, thus providing quantifiable economic benefits that are rarely counted by critics.

A slew of P3s and traditional-procurement projects studied by The University of Melbourne showed the P3s were up to 30.8 percent more cost-efficient from inception; that cost overruns were nearly non-existent for P3s; that they were completed faster, even when large; were far more transparent; and their benefits tended to be underestimated because the hefty value to the public of quicker project completion and integrated professional management aren't part of the present calculus.

Cal Marsella, the Executive Director of Denver's Regional Transportation District, which is now pursuing a P3 bid process (and, yes, perhaps a small sales tax hike) to complete an over-budget regional light rail program within the original timeline, states in this presentation that P3s can save 10 percent to 25 percent in the design-build phase and 10 percent to 30 percent in the course of operations and maintenance.

This approach to P3s emphasizes bundling of design, construction, operations, and maintenance services provided by private consortiums of industry-leading transportation firms. The payments occur over time and can be pegged to strict contractual performance standards. Exemplified in British Columbia, it's a strategy well-suited to controlling cost overruns during construction, meeting construction deadlines, limiting operations and maintenance costs after project delivery, and ensuring good service. Partnerships BC has employed design-build-operate P3 contracts, or some variation thereof, to construct a new rapid rail line to the airport and the suburban center of Richmond, to rebuild the treacherous road north to Whistler before the 2010 Winter Olympics, and to develop an electronically-tolled bridge across the Fraser River in Vancouver's east suburbs.

The American Public Transit Association in a white paper on public transit P3s says they're no silver bullet but need to be encouraged as part of the financing mix and as a good management tool. Europe, Asia, Australia, and South America are far ahead of the U.S. in implementing public transit P3s, APTA says, although Houston, the Bay Area, and Denver are highlighting the approach. Private investment in transit-oriented development is a related tack and should be encouraged, according to APTA, by working with developers to learn their needs and by encouraging value-capture strategies pegged to new development around transit stations. To facilitate broader consideration of highway and transit P3s, APTA's P3 task force has drafted model legislation for state governments to consider.

Another organization, the National Council For Public-Private Partnerships, holds a special conference this week on transit P3s, including officials from the regions of Boston, Miami, Atlanta, Dallas, and Charlotte, as well as federal figures and private firms.
Zero miles, shared miles, efficient miles

While the U.S. struggles to fund the surface transportation infrastructure backlog and shift the balance from fossil-fueled vehicles to greener alternatives, the world is undergoing a vehicle population boom. A New York University study projects total vehicle stock will more than double globally between 2002 and 2030, with the highest annual percentage growth rates in vehicles per 1,000 population in Asia and South America.

BTS data show that since 1960, the number of passenger vehicles in use globally has about quadrupled, while the U.S. share of that total has decreased more than five-fold. Global commercial truck population is five times greater over the same period, with the U.S. share holding steady at less than a third.

However, in the U.S. we tend to drive longer distances and use a disproportionate share of available fossil fuels. The holy grail in the auto industry is substitution of renewable-source electricity for fossil fuels, in "flex-fuel" plug-in hybrid cars. The vision is that they'll be able to run not only on clean electricity (itself a major undertaking) but also net-green second generation bio-fuels, which don't require acres of food-producing farmland to grow.

GM, Toyota, Ford, and Chrysler are among the automakers focused on bringing plug-in electric flex-fuel hybrids to market in the next few years, with lithium ion battery packs. Those haven't been fully debugged, but engineering teams are working hard to do so. Congress has passed a tax exemption of up to $7,500 per vehicle for plug-in buyers, and large government and corporate fleet purchases would allow manufacturers to scale up production for the masses.

There are still environmental and financial reasons to try to engineer boundaries on growth of vehicle miles traveled. A good framework was provided last month in Redmond by Microsoft Chief Environmental Strategist Rob Bernard at Cascadia Center's "Beyond Oil: Transforming Transportation" conference. (TVW video of Bernard and a full transcript of his remarks.)

Bernard set out a hierarchy of descending transportation preferences that he calls "zero miles, shared miles, and efficient miles":

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The first priority entails schedule-juggling and trip avoidance through tele-work from home, with small meetings as needed in locales near workers' home bases. More than a few Microsoft employees have discovered they can meet near home at a coffee shop rather than drive to Redmond, Bernard said. An astounding 40 percent of the workforce at British Telecom (a Microsoft client) work from home regularly, Bernard said.

With current virtual conferencing tools, and an emphasis on "deliverables" from tele-workers, many other employers — albeit not those in fields such as manufacturing, construction, or retail — could raise their percentage of tele-workers.
*

"Shared miles" would cover public transit, but at present transit routes here just aren't convenient for that many people, said Bernard. He evangelized for an alternative of matching ride-sharers on the fly through smart carpooling, using networked real-time data on the shifting locations and schedules of riders. The same basic principles could help better consolidate freight shipments, said Bernard.
*

"Efficient miles" entail alternative fuel breakthroughs and more of the real-time traffic data purveyed by companies such as the Microsoft spin-off Inrix, of Kirkland, to help drivers optimize routes and departure times.

As far as behavior change around driving, there's a long way to go. If we were constantly reminded of the cost to the infrastructure every time we used it, would that change our actions enough to make a difference, a "zero miles more often" difference? It's not unimaginable.

For surface transportation funding, the federal teat is running dry. States and especially regions will shoulder the brunt in coming decades as we try to catch up before the rising tide of population threatens to overwhelms us. So we're going to have to do a few things differently. We can start sooner, or we can start later. But the longer we wait, the higher the price.

Matt Rosenberg is a senior fellow at the Cascadia Center for Regional Development, a transportation think tank that is part of the Discovery Institute in Seattle. E-mail him at mattr@discovery.org.
View this story online at: http://crosscut.com/2008/10/21/transportation/18586/

Lessons from WPPSS to apply to Sound Transit?

Lessons From WPPSS
A $2.25 billion fiasco illustrates the drawbacks
to "business as usual" approaches for major social decisions
by Elaine Myers and David Lee Myers

One of the articles in Governance (IC#7)
Autumn 1984, Page 28
Copyright (c)1984, 1997 by Context Institute


The previous articles have emphasized possible governance processes for small, voluntary groups. While this may provide a cultural foundation, what about "big time" decisions? The following article explores the history of a set of major decisions (that have now turned sour), and indicates that many of the qualities discussed in the previous articles could have been a great help.

David Lee Myers is an elected Commissioner of Wahkiakum Public Utility District, a county-wide, publicly owned electric utility in southwestern Washington. He has represented Wahkiakum on the WPPSS Board of Directors since mid 1981. When he is not trying to straighten out billion dollar mistakes, he is a superb professional photographer.

Elaine has observed many of the WPPSS meetings, and takes credit for originally getting David to seek the office. Regular readers of IN CONTEXT may recall description of their rural lifestyle in the Spring 1983 and Spring 1984 issues. Copyright ©1984 by Elaine and David Lee Myers 1984.

The Setting

THE WASHINGTON PUBLIC POWER SUPPLY SYSTEM (WPPSS), better known as "Whoops", is a twenty-three member consortium of publicly-owned electric utilities in the state of Washington. Its Board of Directors consists of one representative (each a locally elected utility commissioner) from each of the twenty-three member utilities. It builds and operates power generating plants, or at least it tries to, under contracts with the Bonneville Power Administration (a federal power wholesaler), a hundred public utilities, and four investor-owned utilities.

WPPSS is most famous for defaulting on 2.25 billion dollars of bonds for its canceled projects Washington Nuclear Plants (WNP) 4 & 5. At the time, this was one of the nation's most spectacular nuclear construction failures. A couple of years later, WPPSS has plenty of company.

WPPSS represents a major fiasco of human governance. Several billion dollars have been spent constructing now- canceled projects. The nation's largest ever lawsuit over securities (bonds) is trying to determine who should absorb the loss. Several billion more have been spent on projects of uncertain future. Electric rates over large parts of the Pacific Northwest have been doubled with little benefit to anyone. A federal agency and several investor-owned utilities are near insolvency (not only due to WPPSS). WPPSS issues have distracted Washington state political leaders from their other work for several years. Hundreds of utility leaders in the Northwest have had to focus their creative efforts on coping with the WPPSS-related problems, to the neglect of other issues, for several years.

Like most failures, WPPSS has much to teach us. In telling the story of this broadly shared cultural mistake we hope to share our understanding of what went wrong, what positive actions helped to limit the damage, and how similar situations (of which there are many) could be better governed.
Old Assumptions

Nuclear plant construction projects have encountered trouble all across the country. Federal agencies, investor- owned utilities, and publicly-owned utilities have all stumbled. With skyrocketing interest rates, inflating construction costs, and new safety demands on an immature technology, the times have not been good to nuclear power. WPPSS makes an especially good case study because it is a complex public agency. Many persons and interests contributed to the process, and its workings are open to view.

As a study in governance this would be a dull story if the causes of the fiasco were evil and greed. But not so. The government officials who were trapped into these errors were men of idealism who lived out an ethic of public service. Those who oversaw or participated in planning and management included part-time elected officials, federal career bureaucrats, and professional engineers and lawyers. They achieved their positions through good records of success. They got into this trouble by the same methods which had previously served them well - a sobering thought for all of us. They had encountered a problem whose resolution required a change in basic assumptions - not just doing things better, but doing different things - and that is hard for most people to do.

To understand how it all began, think back to the early 1970s. The Pacific Northwest had vast amounts of cheap hydro generated power. The region's economy developed to use large amounts of cheap power. Partly in response to this cheap power, the regional economy was growing, using an additional seven percent of electricity each year during the early 1970s. Seven percent per year compounded means a doubling of usage in ten years. Utility planners felt a responsibility to provide the electric power to allow this economic growth to continue. They responded by planning five WPPSS and three other, private utility owned, nuclear plants, and several coal plants. What was on their minds as they proceeded?

Some of the old assumptions that governed the behavior and decisions of the old guard included faith in technological progress, bigger is better, reliance on experts from inside the business, allocation of electricity only by price, do it with Other People's Money numerical models of social phenomena, and what you can't put into numbers, ignore.

Rural and small town commissioners deferred to the decisions made by the experts, decisions often based on a narrow scope of understanding. Predictions of future behavior and need were based on models that used straight line extrapolation from past points. Factors which could not be rendered as "reliable" numbers were simply ignored. For instance, the tendency of customers to buy less electricity as the price increased (price elasticity) was omitted because they didn't know exactly how much less would be bought. Later this would turn out to be one of two or three key errors.

An unquestioning belief in technological progress committed billions of dollars on incomplete designs. Specific plant designs were not completed at the time construction was begun. Since each nuclear plant in the U.S.A. is its own design, there had been too little experience with similar plants. Such blind faith in technological progress meant that much work had to be undone, over and over, leading to worker demoralization, poor craftsmanship, and lack of construction progress for the money spent.

Our culture as a whole believes that bigger is better and centralized is better. Imagine a visit to a BPA system control facility. Full color computer screens monitor the region's generators, transmission lines, and the delivery of power to local utilities. Wall maps as big as the side of a house map out the system with colored lines and lights to indicate status - like a Pentagon war room. There's a morale of pride in the refined control over thousands of miles of system. They love it. Can such people understand generators at every home? Can they let go of their control and power?

The decision-makers here were almost entirely governmental and corporate. The publicly-elected decision-makers tended to be men who were successful in business during the 1950s and 1960s. They had seen greater usage lead to lower prices. Live better electrically. They accepted the assumptions listed above, assumptions that had worked well for several decades. But this decade was to be different.
Forces Of Change

A profound shift in cultural assumptions requires that several forces converge on the situation. By the end of 1980, the WPPSS board had begun to feel various pressures pushing for a change in direction.

The five nuclear power projects had fallen far behind schedule, with increasingly large cost over-runs. In 1979, they had spent money at the scheduled rate, and achieved essentially zero progress in construction. A study of the minutes of meetings shows that frequently one or two Directors would express concern that things were not going well. They would ask questions and perhaps request a study. But typically their concern was not echoed by a majority of Directors and their efforts remained ineffective. Often the problems were blamed on outside forces such as the Nuclear Regulatory Commission and labor unions. In response to the Three Mile Island accident, NRC construction requirements were increasing as fast as construction progressed, and much previously done work had to be changed. The partial truth in those excuses made it difficult for a majority of the Board to see the problems inherent in their projects and to see their management deficiencies.

At the same time, editorials in Northwest papers began to call for investigation and governmental action. The Washington state legislature began an inquiry into the management of the projects. The majority on the WPPSS Board of Directors, while beginning to admit that some changes had to be made (like a new managing director) still felt that the plants must be built, that we would soon run out of electricity, and we had to have more.

In all the discussion of the problem (that nuclear power plants were harder to build and more expensive than originally anticipated), the underlying assumption was doing better what we are already doing. The few lone voices who questioned this assumption were simply ignored. For instance, one WPPSS Director suggested a change from debt financing to more of a pay-as-you-go system, with gradually increasing rates. The people whose behavior (electricity consumption) was causing the expense (nuclear power plants) to be incurred would pay that expense. Also, they would notice sooner if costs were becoming excessive. These thoughts were overridden by the desire to delay as long as possible the price increases.

While lone voices were ignored, outside grass roots/activists groups were seen as the "enemy." Directors lacked the curiosity to seek any truth in their arguments. Public comment on a proposed policy was taken after the WPPSS Board had voted. The citizens could only approve or disapprove of the institutional action, without meaningful input of ideas or information.

Well, if the Board did not choose to listen to the citizens, perhaps they could be forced. The Don't Bankrupt Washington group began an initiative campaign, I-394, to require a public vote on future bond sales.

Regional Power Act Meanwhile (1975-1980), back in Washington D.C., another set of forces was gathering. In an attempt to form an explicit and conscious method for dealing with the looming energy (electric) shortage, the Pacific Northwest Electric Power Planning and Conservation Act was drafted. Citizen groups that had been activated by the oil shortage in 1973 contributed information, ideas, and economic models to provide some alternatives to the old assumptions seen above. The Northwest Conservation Act Coalition (NCAC), a network of groups such as the Sierra Club and the League of Women Voters, played an important role in redefining the methods used to achieve the goal of human progress. Actually, the bill was initiated partly to arrange funding for WNP 4 & 5, and then the alternative ideas supplanted the nuclear plants in the bill. Conservation was defined as a power supply resource and was given a 10% advantage over other power sources when evaluating the least expensive resource to develop. When costs were the same, renewable energy sources were to be given priority in development over non-renewable resources. Outside ideas (previously ignored) became part of the rules governing the actions of the WPPSS Board.

(We've pointed out some good features of the Regional Act, establishing new priorities for energy strategy. There are also some very troublesome features - how the costs and benefits are divided up - but that's another whole article.)

Unfortunately, these new definitions and methods were all cast in another old assumption, that we were going to have an electricity shortage, and we would have to allocate scarce resources. Almost before the ink was dry on the signature to the act, the region was awash in a surplus.

Weatherization With various starts and stops, political maneuvering and rule changes, the Bonneville Power Administration (BPA) and the local utilities began to implement the conservation mandate of the Regional Power Act.

As the news media began to focus on the energy problems and costs, public resistance to continuing the building program grew. As a person close to the action, I (Elaine) was often asked what a person could do to shut down WPPSS. I replied, "Weatherstrip your windows." This was never greeted with much enthusiasm. (As efficient as conservation might be, it has no sex appeal.) I explained that the WPPSS Board was now legally bound to match construction with demand, and if we didn't want the plants built, we must change our behavior so the region didn't need the power.

Under BPA programs, electrically heated homes in the Northwest have been insulated and weatherized, creating construction jobs, saving ratepayers money, and continuing the energy surplus.

Termination Of Plants 4 & 5 In 1980, WPPSS hired a new manager who was far more experienced in managing complex projects. He wrote new construction budgets, far more accurate than previous ones.

The funds required to complete all five projects suddenly looked more like $25 billion than $16 billion. Wall Street underwriters who had arranged all financing so far, said they couldn't do it, they couldn't sell that many more WPPSS bonds. Talk about internal contradictions! $2.25 billion spent on projects 4 & 5, and WPPSS can't raise enough money to finish.

The utility contracts providing financial support for the projects had no provisions for funding a period of "suspended animation" or "mothballing" of the projects. Bonds could not be sold for that purpose, and efforts to make ad hoc funding arrangements failed. So in January, 1982, projects 4 & 5 were terminated.

Meanwhile, the Washington state legislature was adding its influence to the situation by changing some of the players in the game. Starting with a legislative inquiry in 1980, they restructured the governing board of directors of WPPSS from all elected officials to mostly appointed industry experts (do the old way better).

As the bonds sold to finance the power plants (not yet producing any power/revenue) started to come due, revenue had to be increased by raising the rates. Price elasticity, ignored back in the projections of 1976-1980, began to shape electrical demand downward, creating more internal contradictions. Although BPA calculated rates to produce the needed revenue, the decrease in demand was sufficiently great that the anticipated revenue did not materialize. There was a possibility that raising the rates still higher would actually decrease the revenue collected. This is known as the death spiral in the rate/revenue relationship, and suggested that there were inherent limits to the rate increases that the regional economy could bear.

The increased rates (perceived cost doubled in about one year, 1981-82), occurring at the same time as the termination of two power plants ($2.2 billion down the hole) ignited a ratepayer revolt. Angry consumers are a very mixed group. On the one hand, they did succeed in recalling some of the least competent of the old guard commissioners, and focusing community attention on the upcoming November 1982 elections. However, they tended towards a very negative agenda (hell, no!), and a short attention span dictated by the evening news and newspaper headlines. The increasing public debate at utility meetings, and the letters to the editor in local papers contained a mix of reasoned analysis and hysterical ranting. The new WPPSS manager, while setting new heights in project productivity, was constantly berated for the failures of his predecessor.

The elections in November 1982 accelerated the acceptance of new points of view. Many of the older commissioners, men who had been successful in small town business in the 1950s and 1960s, were replaced by people who had been urban activists, city planners, and back-to-the-landers of the 1960s and 1970s. New decisions could be made by people not associated with the mistakes of the past.

In the same election, I-394 passed, 2 to 1, creating more external pressure for change in the construction program. The rules for selling bonds and financing projects were changed to incorporate the public's consent. WPPSS took the new law to court, claiming it could not apply to projects underway. Though WPPSS eventually prevailed, the pressure on it had been very significant.

Another feature of I-394 was a requirement for a cost- effectiveness study of the plants, before any more bonds could be sold. This became the most detailed calculation of the relative costs of the nuclear plants and other energy strategies. Public comments were taken on the methods and assumptions for the computing. Even when the results are flawed, such a process reveals the assumptions and values behind policy decisions. Thus any proposal must be more thoroughly thought out, and may be more knowledgeably debated.

Default And Litigation Internal contradictions once awakened soon acquire lives of their own. According to the Participants' Agreements of utilities contracted to support WNP 4 & 5, those utilities seemingly guaranteed bond payments in the event of termination. A very expensive appearing prospect. The power supply which had been intended to save all the utilities from crippling shortages now threatened to price some of them out of the market into insolvency, taking their customers with them. So they sued, claiming the contracts should not be binding. Soon the bond Trustee, Chemical Bank of New York, was in court against all the participating utilities, seeking declaratory judgment that the utilities must pay. Much to most everybody's surprise, the state Supreme Court soon ruled that the contracts were flawed and the utilities were not bound to repay the bonds. Holders of a couple billion dollars of bonds were left in the lurch. WPPSS defaulted on its bond obligations in July 1982, and the bondholders sued, claiming fraudulent issuing of securities.

The securities case is big. Alleged damages against each utility far exceed its worth. Evidence to be considered includes 140 million pages of documents. Years will be required for any conclusion to be reached. Litigation is not an efficient form of governance. It's "nyah nyah" and "gotcha," when what we need is to rebuild cooperation and optimism.

The Regional Plan The Regional Power Act created the Regional Power Council, eight members appointed by the states' governors, to plan the region's power supply and level of conservation effort, together with other uses of rivers, such as fish and wildlife. Many competing uses were to be balanced in a single, whole-systems plan. The Council began work on this Plan in 1981.

The process of developing the Plan provoked intense argument by governmental agencies, corporations, and interest groups. Citizen groups such as NCAC and Natural Resources Defense Council developed alternative models for future plans. The institutional insiders (establishment/money/power) drafted Plan A as they interpreted the Regional Power Act. The citizen outsiders (passion/voluntary/vision) offered Plan B based on new goals and methods. The result was a hybrid Plan.

Slowdown Of Plants 1 & 3 The litigation destroyed Wall Street's confidence in WPPSS, so it couldn't sell bonds for continuing construction of plants 1 & 3. This became one reason they were soon to be slowed down.

There was also a decline in power demand (1981 -1982), which suggested persistent regional surpluses. We wouldn't need the plants finished until several years later than scheduled, if ever. Although there was new worker pride on the job, and the projects had become leaders in efficient management, construction was suspended. Since they are covered by a different set of contracts, provisions were being made for the possible restart of construction. Their future is one of the hottest regional debates today.
The Present

Energy policy is being conducted more openly and democratically than when the WPPSS nuclear plants were begun. WPPSS Board committee meetings are open to the public and attended by reporters and interest group leaders. The Regional Council meets only in public. BPA conducts Town Hall Meetings to explain its policy options and collect comments from the public, before making its decisions. Ratepayer protest groups, and alternative policy groups have been vigorous. Many public utility official elections have been contested. It will be a challenge to sustain this energetic public involvement as the headline crises recede, yet we can only benefit if we do.

Events continue to expose hidden assumptions, which may warrant re-evaluation. The key one is that human progress is seen as synonymous with material progress. A delay in building power generation is seen as giving up on progress. Other frontiers for the human spirit are forgotten. This view is so widespread in our culture that it does not surprise. Harder to understand are the many people who think of conservation as sacrifice. As if insulating one's house and having more money left over after paying the utility bill is being worse off.

Another erupting issue is the extent to which the federal government, through the Bonneville Power Administration as power wholesaler, should use residential consumers as a revenue resource to guarantee conditions for profitable operation of major private industries and private utilities. For example, residential customers may be asked to support construction costs of plants needed to supply power not so much for themselves as for the region's aluminum industry. Industry would not guarantee to buy the power.

For several decades utilities have relied on centralized power generation and control. The economic risks of building the largest generating plants have become unacceptable. Also, a system relying on a few large plants is more vulnerable to operational failures. Increasing numbers of utility leaders are taking an interest in dispersed, smaller units of generation. In the near future, new micro-electronic equipment may allow practical coordination of large numbers of these units.

It is our tradition to resolve social needs by seeking new technology, new equipment, new materials, new processes, and more of all of them. This strategy is becoming more expensive and increasingly limited by material supplies or by pollution concerns. It is going to look more effective to examine and modify our style of action. Self examination makes us feel very anxious, whereas building new toys is lots of fun. But when the toys get too expensive, we'll learn.

Strange as it may seem, centralized, technological activities are often seen as "masculine," and decentralized or behavioral solutions as "feminine." This presents an emotional barrier to many men's acceptance of some alternatives like insulation, passive solar building design, and small generation sources.

The securities litigation has come to dominate utility decision-making. The dominant concern is "cover your ass:" yours and your utility's. Don't make any statement or decision now which admits or even suggests past error or inadequacy. In this way the lawyers have almost taken over utility management. Any new policy must first be examined in light of court defense of past policies. Sure makes it hard to change direction.

The history of the WPPSS fiasco cannot be openly explored in detail because everybody involved is in court. Say something and it may be used against you. So, many people keep quiet. Just for instance, this article lacks specific names because of the litigation, and lacks specific numbers and anecdotes because my own (David's) reference materials and meeting notes are in out-of town law offices.
Conclusions

It is uncertain how far, how fast the described shift will go. Opponents are still vigorous.

There are three points we especially emphasize:

The decision-making process in any particular business needs continual invigoration by infusion of fresh factors. These include personnel neither scarred nor fettered by involvement in past decisions, new institutional arrangements to sidestep stale routines, and a wide range of fields of thought and expertise.

Several factors are needed simultaneously to change a major, sustained way of doing business:

* The system must start to stumble and fail in its own terms, for internal reasons.
* Someone has to develop an attractive alternative.
* Great pressure must be applied from outside.
* Some new people are required.

Aggregate and individual behaviors closely reflect one another. Strengths and weaknesses of the overall social organism are those of the bulk of individuals within it. A democratic governmental body is shortsighted and materialistic only because its citizens are. Likewise it can be farsighted and humanitarian - if enough citizens want that.

Though our story has revolved around Northwest energy policy, the dynamics of the governance issues are typical for our society. We hope our account helps us all to better understand other unfolding cultural dramas, to nurture the positive directions, and to effectively push on vulnerable points of the old systems.

Please support this web site ... and thanks if you already are!

The WPPSS Default. A foreshadowing for Sound Transit?

Monday, Feb. 13, 1984
Pulling the Nuclear Plug
By Peter Stoler

A chain reaction of setbacks hits the industry, but the need for power remains It began with such promise. The scientists and engineers who had shown the terrible destructive power of the atom at Hiroshima and Nagasaki were going to harness its tremendous force in an atoms-for-peace program. They would build nuclear power plants producing electricity so easily that it would be "too cheap to meter." At a time when technology promised an almost boundless potential for improving humankind, nuclear power seemed so modern.

But today the concrete cooling towers standing in open fields or alongside rivers appear to many as monuments to a god that failed. Much of the public fears that nuclear plants are sending out mysterious and unseen radiation that will maim generations to come, or may somehow explode.

Instead of providing low-cost energy, many of the plants are managerial and financial disasters that have produced higher electric bills. Moreover, a new generation accustomed to seeing the dark side of technology sometimes views nuclear power as the future that did not work.

Opponents and critics of nuclear power are ready to write its obituary. But they are likely to be disappointed. Reports of the industry's death are premature. This year the U.S. will get 13% of its electricity from the atom; by the mid-1990s, according to some estimates, that figure will have risen to about 20%, and nuclear power will be the nation's most important source of electricity after coal.

Nevertheless, the nuclear industry is not well. Like a patient with a chronic disease, it has been ailing for more than a decade. It has been suffering seriously for nearly five years, ever since a 1979 accident turned the nuclear plant at Three Mile Island, Pa., into a focal point for public fears and protests. Now a series of reversals has worsened nuclear power's condition still further.

The first of the new setbacks occurred last July when the Washington Public Power Supply System, or WPPSS (more widely known by the satiric sobriquet of "Whoops"), defaulted on $2.25 billion worth of bonds. The consortium of 23 electric companies, which had postponed or canceled construction of four of its five proposed nuclear power plants, had sold the securities to help finance two of the facilities. The WPPSS default, the biggest municipal bond failure in history, shook financial markets and raised questions about the ability of utilities to manage nuclear plant construction.

The industry might have recovered from the WPPSS debacle, but in recent weeks it has suffered a series of other reversals. In mid-January the federal Nuclear Regulatory Commission denied Illinois' giant Commonwealth Edison a license to operate its new Byron plant, which was nearly completed and had cost $3.7 billion. Reason: the NRC said it had "no confidence" in the quality-control procedures for some of the construction. Three days later, Public Service Co. of Indiana announced that it was canceling all further work on its 2,260-megawatt (MW) Marble Hill plant, half completed at a cost of some $2.5 billion. The loss has put a severe strain on the company's finances. The utility said last week that it would eliminate 100 jobs over the next month. In addition, 573 of the utility's remaining 4,000 workers will go on a four-day week.

A third blow fell when Cincinnati Gas & Electric and two partner companies announced that they were halting further nuclear construction on their long-troubled William H. Zimmer plant at Moscow, Ohio. They plan to convert the 810-MW facility, 97% finished at a cost of $1.7 billion, into a coal-burning installation. A fourth shock to the gasping industry came when a Pennsylvania public utilities commission led overextended Philadelphia Electric to halt construction for 18 months on one of its two Limerick reactors, where $3 billion has already been spent.

The nuclear power industry had anxiously been watching as economic recovery slowly nudged upward the demand for electricity. Now, utility executives concede, the industry will do well just to hold its own. No one expects U.S. utilities to shut down any of the 82 nuclear plants currently in operation, but no one is betting against cancellation of some of the 48 plants in various stages of construction around the country. The utilities have not placed an order for a new nuclear plant since 1978, and they are unlikely to do so in the near future. Says Robert Scherer, chairman of Georgia Power and head of the U.S. Committee for Energy Awareness, a pro-nuclear group: "No utility executive in the country would consider ordering one today—unless he wanted to be certified or committed."

The U.S. nuclear power program did not reach its present condition suddenly. The illness appears to have been congenital and may have been caused, at least in part, by the great expectations that greeted its birth.

James Newman, a congressional counsel who helped draft the Atomic Energy Act of 1946, said: "This new force offers enormous possibilities for improving public welfare, for revamping our industrial methods and for increasing the standard of living." Proclaimed David Deitz, Pulitzer-prizewinning journalist and author of the 1945 book Atomic Energy in the Coming Era: "The day is gone when nations will fight for oil." Before the U.S. had time to consider fully the potential problems involved with the new form of energy, the nation leaped into the nuclear age.

The industry started off small: in 1957 the Government beached a submarine reactor at Shippingport, Pa., and converted it into a power station with an output of 60 MW. The earliest American nuclear facilities were built by private companies, such as General Electric and Westinghouse, as loss leaders to convince utilities that atomic power was the future. They needed little convincing. By the end of 1967 the U.S. had 28 times as much nuclear capacity on order as it did in operation. The capacity of plants under construction increased from 300 MW in 1962 to 700 MW in 1965 and 1,150 MW in 1972. "It is clear," said NRC Commissioner Victor Gilinsky, a frequent critic of the industry, "that we got ahead of ourselves in expanding and scaling up the applications of nuclear power as fast as we did."

It soon became obvious that building the plants was a more complicated task than the prophets of nuclear power had thought. Many units were plagued by problems, thereby raising fears about the plants' safety. A 1975 accident at the Browns Ferry nuclear reactor in Alabama intensified these concerns by showing how human and mechanical error could combine to create a potentially serious situation. In that accident, a worker using a candle to search for air leaks managed to start a fire in the plant's electrical wiring. This knocked out five emergency core-cooling systems and briefly reduced the plant's protection against a meltdown, which can theoretically occur if the core overheats and its molten uranium fuel drops through the bottom of the reactor.

The Browns Ferry accident fed a growing antinuclear movement. It included environmentalists such as the Sierra Club, Friends of the Earth and Citizens Against Nuclear Power, a handful of doctors and several scientists, as well as movie stars like Jane Fonda and other celebrities. The coalition of opposition battled nuclear power on several fronts, demonstrating at plant gates and marching in the streets of Washington. One of the opponents' most effective weapons was forcing the projects into legal battles that delayed programs and increased construction costs.

The event that really pushed the anti-nuclear movement and rocked the industry occurred early in the morning of March 28, 1979. Several water pumps stopped working at Metropolitan Edison's Unit 2 at Three Mile Island, a station southeast of Harrisburg, Pa. If everything had been handled properly, the event might have resulted in nothing more than a brief shutdown for the year-old plant.

But a series of operator errors compounded the machinery's malfunctions. Within a matter of hours, the reactor's radioactive core had become temporarily uncovered, and the reactor had come closer to a meltdown than anyone knew — or at least admitted — at the time.

Coming only two weeks after the release of the film The China Syndrome, which depicted safety problems in the nuclear industry, the T.M.I, accident sent residents of the area fleeing for safety. Pennsylvania Governor Richard Thornburgh was forced to consider ordering a total evacuation of the region. The accident also caught both the industry and the NRC unprepared. No one knew exactly how to solve the problem. "What shook the public the most," said Gilinsky, "was seeing the men in the white lab coats standing around and scratching their heads because they didn't know what to do. The result was that accidents were taken seriously in a way they never had been before." T.M.I. 2 may not actually have suffered a meltdown, as industry spokesmen were quick to maintain, but the credibility of the industry and the NRC suffered.

The T.M.I, accident led to a lengthy investigation and an NRC list of some 6,000 steps that utilities had to take in order to improve the safety of their plants.

The expensive reforms involved operator training, the development of evacuation plans and the addition of a great deal of hardware. The safety search continues. Late last week, after workers discovered a large crack in a steam pipe at Georgia Power Co.'s twin-reactor Hatch plant at Baxley, the NRC ordered owners of five similar plants in the U.S. to search for possible cracks; all the reactors were temporarily closed. T.M.I, produced a much tougher attitude toward operators who broke safety rules. Until then federal law limited the fines that the NRC could impose to $25,000 for each violation. Soon after T.M.I., Congress removed that lid, and since then the NRC has been handing out higher and higher fines. Last February electric circuit breakers at the Salem plant of New Jersey's Public Service Electric & Gas twice failed to function properly, preventing an automatic emergency shutdown of the reactor. In May the NRC levied a fine of $850,000, the biggest in its history, against PSE&G for attempting to restart the plant without recognizing that anything was wrong. Applying the lessons of T.M.I, has cost the nuclear power industry billions of dollars and significantly slowed its expansion. New safety equipment has added millions to the cost of both existing reactors and those under construction.

Changes in the licensing process and opposition from environmentalists have stretched out the time it takes for plant approval and construction from seven years in the early 1960s to as long as 14 years now. It would be unfair and unrealistic, however, to blame all of the industry's problems on the accident and its aftermath. The industry's ailments are due to a whole congeries of factors. One of the most important was the twin oil shocks that hit the world during the 1970s. The first occurred in 1973-74, when the Organization of Petroleum Exporting Countries raised the price of oil from about $2.50 to more than $11 per bbl. Then Arab members of OPEC cut off oil exports to the U.S. The steps triggered long lines at gas stations and led the U.S. to look for a quick technological fix for its fuel problems. Nuclear power seemed like just the answer to some, and President Richard Nixon launched his much ballyhooed "Project Independence." It set the goal of obtaining half of American electricity from nuclear power by the year 2000. The objective made good sense at the time.

Demand for electricity had been rising steadily, increasing an average of 7% a year for more than a decade.

In some parts of the Sunbelt, demand was doubling every seven years, practically overnight in an industry that normally plans on a 15-to-20-year schedule. The world of energy economics, though, was about to change. After the second oil shock, in 1979, which followed the overthrow of Iran's Shah, the price of OPEC crude reached as high as $40 per bbl. Energy consumers reacted to the staggering prices by conserving fuel in a way that had never been imagined. Demand for electricity increased by only 1.7% in 1980 and .3% in 1981 and actually shrank 2.3% in 1982. That was the first decline in power use since the end of World War II. The lower energy consumption placed the power industry in an awkward position: the supply of electricity far exceeded the demand. American utilities now have about 30% more generating capacity than they need, far more than the 20% to 25% generally considered sufficient to meet unusual weather-caused emergencies or to assist neighboring utility companies. In response to the lower energy demand, some utility companies slowed or halted construction of new plants, whether coal or nuclear.

Indeed, more plants — 18 — were canceled in 1982 than in any other year since the U.S. first went nuclear. Encouraged by the strongly pro-nuclear Reagan Administration, other utilities ignored the omens and pressed on with plans to expand their generating capacity in expectation that demand would soon come back. Still others kept building nuclear plants on the ground that it was often more economical to complete the multibillion-dollar projects than to abandon them. That assumption sometimes proved erroneous. Constructing nuclear plants has proved very expensive. In the early 1970s, says Charles Komanoff of the New York City-based consulting firm Komanoff Energy Associates, there was little difference in the construction costs of nuclear and coal-burning plants.

Nukes cost $200 per kilowatt (kW) to build, coal plants around $175. But nuclear construction prices quickly began climbing. By the late 1970s, Komanoff says, nukes cost $700 per kW, compared with $500 for coal plants. Now, with post-T.M.I. requirements pushing the price of nuclear construction even higher, coal plants are clearly more economical. According to Komanoff, a coal-fired plant with state-of-the-art pollution-control equipment can be built today for around $1,200 per kW; a nuclear plant costs $3,000 per kW. Says Komanoff: "The power industry may really have made only one forecasting mistake, and that was that nuclear plants would become cheaper." That one mistake would have been bad enough, but the industry also committed several others.

The most obvious was poor management of plants under construction. Industry analysts agree that all too many nuclear projects have been badly conceived, poorly designed and inadequately controlled. Each U.S. nuclear plant is in effect a custom-made affair. The industry has failed to follow the lead of such countries as France and Canada, which have adopted standardized reactor designs. Such blueprints would allow modifications made on one plant to be copied at others in the series. Each American plant must now be checked out individually, and the lessons learned from operating one are difficult to apply to others. The construction of facilities, which is generally done by a veritable army of subcontractors under the direction of the utility, is often poorly supervised. The result of this laxness is work that can best be described as shoddy. Some of the earthquake supports for California's Diablo Canyon plant were installed backward, as was the reactor vessel at the San Onofre plant near San Diego. Reactor supports at Comanche Peak in Texas were installed 45° out of position. Pipes inside and outside the reactor building at Shoreham on Long Island, N.Y., failed to meet properly and had to be connected with elbow joints. One reason the nuclear industry has been so prone to glitches is that it plunged into building atomic plants on a grand scale before it had enough experience and expertise.

The danger of radiation release makes the precision required in putting up a nuclear plant much greater than the accuracy needed in an ordinary coal-fired facility. "It's like building a giant Swiss watch," says David Freeman, a director of the Tennessee Valley Authority, which operates two atomic plants. Many nuclear construction crews tried to build these Swiss watches with little more than the skills needed to hammer together a coal burner. Delays and repairs have led to catastrophic cost overruns, which have plagued many plants completed in recent years as well as some of those currently under construction. Florida's new St. Lucie 2 facility, which was built and brought on line in six years for $1.4 billion, about four times its original estimate of $360 million, is considered an industry bargain.

So is the Palo Verde complex, three 1,270-MW units 50 miles west of Phoenix. It is looked upon as a success by current nuclear industry standards because the expected final cost of some $6 billion is only about double the original estimate of $2.8 billion. A study released in January by the Energy Information Administration, a division of the Department of Energy, showed that 36 of the 47 nuclear plants surveyed cost at least twice as much as initially projected, while 13 of them were four times higher. Among the most expensive of these nuclear white elephants:

SHOREHAM. Overlooking the sound on the North Shore of New York's Long Island, this 1,100-MW plant was supposed to cost $241 million when it was started in 1965 and was expected to go on line in 1975. Now nearly a decade behind schedule, the plant will cost at least $4 billion, or 15 times the original estimate, and could run the Long Island Lighting Co. (Lilco) even more before it produces any electricity. The utility last year had a continuing battle with Suffolk County officials over the approval of evacuation plans in case of an accident. The emergency procedures were finally approved, but now the plant's diesel generators have been found to be defective and may have to be replaced. The utility's chairman, Charles Pierce, resigned suddenly last week. He gave no reason, but the company's board was reported to be unhappy with his handling of the problems at Shoreham.

SEABROOK. Besieged by members of the Clamshell Alliance and other environmentalists, the two-reactor Seabrook plant was begun by Public Service Co. of New Hampshire in 1976 and was slated to cost $973 million. Unit 1, which stands near the coast, may be ready in July 1985, but the company is making no predictions as to when—or whether—Unit 2 will be completed. The utility is currently revising both its construction schedule and the cost projections for the whole project. The most recent estimate: $5.8 billion.

MIDLAND. Conceived as a cooperative venture that would supply Michigan's Consumers Power Co. with electricity and a neighboring Dow Chemical plant with steam, the two-unit, 1,300-MW project on Michigan's Tittabawassee River was launched in 1969. It then carried a $267 million price tag. The problem-plagued development is currently nine years behind schedule and egregiously over budget. Company officials say that construction, now 85% complete, has al ready cost $3.4 billion.

The impact of such overruns on the companies involved is enormous. Lilco, which concedes that it now has a cash-flow problem, is paying more than $1 million a day in interest on its Shoreham loans and losing $1.5 million for each day that start-up is delayed. New York Governor Mario Cuomo said last week that he doubted Shoreham would ever begin operating and that he saw no reason why the state should bail Lilco out of its losses. "Let them take a bath," he said. "They're a private corporation."

Consumers Power Co. is spending $1 million a day in interest payments to keep its Midland project going. Consumers Power's long-term debt now exceeds the firm's shareholder equity by more than $1 billion; Chairman John D. Selby has warned that if the twin reactors are not finished, the company, which has 1.3 million electric customers, could be forced into bankruptcy proceedings. The credit ratings for bonds issued by several utilities have been lowered. Moody's Investors Service dropped the ratings on bonds put out by Public Service Co. of Indiana from Baa2 to Ba2 after the company announced that it was abandoning the Marble Hill plant. Standard & Poor's has warned Illinois' Commonwealth Edison that its B1 rating of the utility's commercial paper was put on credit watch because of the NRC's denial of an operating license for the Byron units.

These actions hamper the companies' efforts to raise capital and keep their nuclear projects going. They also hit utility stockholders, who may see the value of their investments shrink. The price of Lilco's stock dropped last year from $17 to $10.13, costing the company's 181,127 stockholders an estimated $70 million. The ultimate victims may be consumers. Lilco customers, who already have the highest electricity bills in the U.S., can expect to pay up to 50% more to help cover the costs of building the Shoreham plant. Public Service Co. of New Hampshire is prevented by law from imposing the expense of construction work at Seabrook on the public until it is receiving power from the plant. If Seabrook 2 ever goes on line, the company will have to increase rates by 40% to 50% to recover its investment. Consumers may not even be spared from paying for abandoned nuclear operations. Companies like Public Service Co. of Indiana are seeking permission to pass part of their loss on to customers in the form of higher fees. Many antinuclear activists see recent events as confirmation of all their dire predictions. "This is a failed technology," says Melody Moore, director of Chicago-based Citizens Against Nuclear Power. Even businessmen sympathetic to nuclear energy as a source of electric power are pessimistic about its future. "Nuclear power is well into free fall. It's beyond recovery," says John Nichols, president of Illinois Tool Works, a diversified manufacturing firm.

Utility company executives are bitter about their present plight. Says Don Beeth, director of nuclear information at Houston Lighting & Power: "The first lesson we've learned is 'Don't build nuclear plants in America.' You subject yourself to financial risk and public abuse." William Dickhoner, president of Cincinnati Gas & Electric, sounds a similar note: "It's almost a punitive deal to open a nuclear plant these days."

A few utility executives question the future of nuclear power in the U.S. "Some days I think I may be building the last nuclear plant that's going to be built for a while," says R.E. Conway, the senior vice president of Georgia Power. "They are just too expensive for a company like us to construct any more." Georgia Power's Plant Vogtle, a two-unit facility now more than 50% complete, is expected to come on line at ten times its original price tag of $660 million. For many utilities, nuclear plants are far too costly. The huge, quasi-governmental Tennessee Valley Authority made a commitment in the 1960s to generate most of its electricity by nuclear power.

Since August 1982 the giant utility has canceled four nuclear units and taken a $1.8 billion loss. Now it is turning back to coal. "We recognized the situation we were in and took the most prudent action," says Hugh Parris, manager of power at TVA. "Some folks might look at abandoned nuclear plants as monuments to mistakes and stupidity. I look at them as monuments to good management." Despite these myriad troubles, however, the majority of utility company executives feel the nuclear power industry will survive. Says Commonwealth Edison Chairman James O'Connor: "We have limited options in the ways we can produce electricity. It's important not to lose sight of the considerable role nuclear energy plays. Very little attention has been paid to the pluses, too much to the negative side of the industry. I would not over time write off the nuclear option." Many Government officials agree. Says Secretary of Energy Donald Hodel: "I think it will come back. I think eventually the U.S. will say we need a continuing nuclear component." Edward Merrow, director of energy policy programs at the Rand Corp., believes nuclear energy is inevitable. "It is the only real energy alternative that appears viable," he says. "Coal is an alternative, but it is problematical, what with environmental difficulties and acid rain." Merrow's point is well taken. American energy needs are bound to increase, even if slowly, particularly if the current economic recovery continues. Other sources of energy will simply not meet future U.S. power demands. Oil is too valuable as an aircraft and automobile fuel and as a raw material for petrochemicals to be used to generate electric power. Only 6% of American electricity comes from oil-burning plants, and that figure is likely to shrink. Natural gas is better used as a heating fuel, and its share of electricity generation has gone down sharply in the past two decades.

Alternative energy sources are not ready to play a big role in electricity generation. Neither solar nor wind energy is sufficiently developed to produce large amounts of electric power. Solar panels are being more widely used on new homes, particularly in the Sunbelt. But even solar's most ardent backers do not argue that sun power can generate enough electricity to become a major energy factor.

Windmills provide some supplemental power at experimental installations around the U.S., especially in California, but few utilities can rely on them because of problems with cost, reliability and durability. Nuclear fusion, in which light atoms of hydrogen, extractable from sea water, are fused to provide energy, is likely to remain an elusive dream for the remainder of the century. Scientists have yet to achieve a self-sustaining fusion re-action in the laboratory, much less design a commercial fusion reactor.

The U.S. could rely more on coal to meet its energy requirements, and the idea is appealing. The U.S. has abundant coal reserves — enough, according to some estimates, to last 200 years — and coal-burning plants can be built more quickly and cheaply than nuclear ones. But coal facilities pump thousands of tons of sulfur oxides and other pollutants into the air each day. They are the prime cause of acid rain, which is slowly destroying some U.S. and Canadian lakes and may be damaging forest areas. Despite their lower construction costs, coal plants are no cheaper to run than nuclear ones.

The Atomic Industrial Forum, which represents the nuclear industry, reported that nuclear-generated power actually undersold coal-produced electricity, 3.10 per kilowatt-hour (kWh) to 3.50 in 1982. Figures compiled by United Engineers and Constructors, an energy consulting group, showed that nuclear power cost 3.20 per kWh, while coal was 3.190. Contrary to a widespread impression, nuclear plants can be run well and economically. The 830-MW Maine Yankee Atomic Power plant in Wiscassett, Me., has operated reliably since it first went on line in 1972. The plant established a world record for performance by working 392 consecutive days without shutting down during 1977 and 1978 and was in service 79% of the time last year. Yankee Atomic Electric's plant in Rowe, Mass., has been producing 185 MW without an accident since it started up in 1961. The Trojan plant on the Oregon side of the Columbia River was completed in 1975 at a cost of just $460 million. It provides some of the cheapest thermal energy in the U.S. (2.50 per kW) and has a good safety record. Even the most ardent nuclear power advocates admit that the industry must change in order to survive and expand. The industry could help itself by developing standardized reactors and revamping management procedures so that construction could be handled by a single experienced company rather than confederations of subcontractors. The industry must also be more sensitive to public concerns about safety and the disposal of nuclear wastes.

Regulatory reform is necessary to cut through the paperwork that can delay projects and increase construction costs. Says Cincinnati Gas & Electric's Dickhoner: "You can't build something when you have 285 regulatory changes while it's being built." Such reforms could help the nuclear industry without endangering public health.

Despite the fears about safety, the difficulties of disposing of waste materials and the outrageous construction-cost overruns, nuclear power is not finished. The atom will be part of America's and the world's energy future. "We'll all live to see the building of additional nuclear plants down the road," says W.S. White, chairman of Columbus & Southern Ohio Electric Co. The U.S. may never have to rely on nuclear power to provide most of its energy, but it does need reactors for a large portion of its electricity. American consumers want to continue flicking light switches and turning on appliances without worrying about where the power will come from. The American economy depends on an expanding supply of energy to continue growing. Moreover, the U.S. needs a secure, reliable energy supply that is not subject to disruption by political upheavals abroad. In short, the nation requires a mixture of energy sources to drive its economy in the future, and nuclear power should be part of that mix.

With reporting by Jay Branegan, J. MADELEINE NASH

How to fund the rebuild of State Infrastructure WRC Policy Brief

Washington Research CouncilPB 06-13 March 21, 2006 http://www.researchcouncil.org/publications_container/connecting_to_growth_part_two_march_21_2006.pdf
Infrastructure in Washington: Letting
State and local governments lack sufficient funds to meet our infrastructure needs. With old systems wearing out and growth straining existing infrastructure, most funding goes to maintenance and catchup. But agencies must play catch-up because they failed to expand systems during times of growth. Putting more funding into system expansion now will help prevent future system overloads in growing areas. To this end, Washington must consider new political models and decision processes.
to support the growth that will head our way in the next decades.

The brief begins with a short discussion of the political environment within which governments make growth and infrastructure funding decisions, followed by a set of principles that should guide efforts to expand infrastructure capacity to meet the needs of growth. We conclude with a series of recommendations for revenue strategies to provide infrastructure funding specifically to accommodate housing and job growth.

INFRASTRUCTURE FOR GROWTH: POLITICAL ORPHAN

Prior to World War II, large cities developed in an orderly, compact way, and communities outside cities grew slowly, if at all. The old rural infrastructure systems (or lack thereof) suited most of the state. Then with the housing boom of the post-war era, growth spread rapidly into rural areas
outside those old cities. The infrastructure to support this new growth rested in large part on federal funding for freeways and wastewater systems, postponing the need for state and local governments to take responsibility for funding the infrastructure of growth. Furthermore, most systems were relatively new, so state and local agencies could direct capital funding to expansion of infrastructure, rather than replacement or retrofit.
Over the last 30 years or so, as growth has strained the state's infrastructure and old systems have begun to wear out, federal funding has diminished. Yet we have not developed a new political model to replace the money and leadership provided by federal agencies. State and local governments struggle to justify extension of roads and utilities to accommodate the expansion and greater density of our urban areas. And with so much energy and money needed to catch up on the investments not made during the past few decades, extensions for new growth often take a back

seat.




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Under current funding structures, the pattern is rational. From both an administrative and political perspective, concentrating on deficiencies makes a lot of sense. For public works agencies, ensuring the reliability and integrity of existing systems should always be a top priority. From
the perspective of elected officials, their voters use the existing systems and expect them to perform adequately. So although expanding infrastructure networks certainly has its rewards everyone likes ribbon cuttings the dynamics of government lean toward existing systems.
Further, new infrastructure extensions have weak or non-existent constituencies (i.e. votes in local elections). Because they go through sparsely-populated areas that have infrastructure adequate for current low-density uses (country roads, wells and septic systems), these extensions benefit few current voters. The development and building industries and the owners of developable land will all benefit, but they may not live in the jurisdiction, and, in any case, do not carry many votes.
If infrastructure extensions need to compete for funding with existing systems every year, and for every capital improvement dollar, they will always lag behind. State and local governments need new mechanisms to capture the revenue generated by growth to pay for the infrastructure needed to serve that growth. The previous brief (PB 06-11) noted that this happens to some degree, but the existing mechanisms, especially impact fees, do not provide the magnitude of dollars or the flexibility needed to undertake major projects like arterial extensions, trunk sewer lines or drinking water storage.

SIX PRINCIPLES
Following are six principles that will guide policy at the state and local level toward a new model of funding that encourages the construction of infrastructure needed for growth.
1. State must address fiscal implications of Growth Management
The Growth Management Act (GMA) may be the largest unfunded mandate to hit local governments in a very long time. State legislation established a set of requirements with which local governments must comply, but provided no financial capacity to meet those requirements. The two most important of these mandates are:
Concurrency. The GMA requires that cities and counties have adequate infrastructure in place before new homes or businesses get built. Failure to meet concurrency can mean shutting down development. Yet the state has provided very little capacity to build the needed facilities and exempted its own state highways from the re
quirement.
Infill development. By requiring counties to cut off development from outlying areas, the state implies that future development will take place in already-developed areas. But many of these infill locations have inadequate infrastructure septic systems, narrow roads, no stormwater systems that cannot handle additional density. The the
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ory that infill would not require infrastructure investments has proved wrong, yet the state has provided little assistance with upgrades.


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2. Capture tax revenue generated by growth to use for growthrelated infrastructure
A frequently-heard canard is that growth does not pay for itself. In fact, new housing and commercial construction generates more than enough
money to pay its way (R.W. Thorpe & Associates, 2005; Washington Research Council, 2001). Most of that money, however, gets siphoned
away to state and local general fund budgets. As will be described in more detail below, capturing tax revenue from growth-related activities
can provide money to pay for growth-related infrastructure.
An important distinction between growth-related revenue and ongoing tax revenue streams is that the former takes place just once, and in one location. The sales tax on a construction project is paid just once, but the
sales taxes paid by the residents of that project
Figure 1: Annual Residential Building Permits

Source: Washington Center for Real Estate Research
constitute a reliable
14,000 1
stream of revenue for
as long as that home
stands. Because growth
12,000 d
itself varies over time,
revenue from these
10,000
one-time building pro
jects does not provide a
V
t KING
8,000
-A- PIERCE
reliable funding stream
t SNOHOMISH
for general government
CIF SPOKANE
purposes. Growth
6,000
d
related revenue does, however, provide an
4,000
d
appropriate source of
funding for infrastruc
2,000
ture, since capital pro
jects can vary, depend
ing on funding.
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Figure 1 shows how variable development
activity can be over short periods of time. For example, between 1995 and 1998, permits rose by 67 percent in King County and 62 percent in Snohomish County, but subsequently fell by 27 percent in King County and 31 percent in Snohomish County. The sales taxes and business and
occupation taxes from residential building would have swung just as wildly.
Using growth-related revenue for infrastructure not only provides an appropriate nexus between revenue source and public need, it also removes a volatile component from the funding stream for state and local ser
vices.
3. Direct discretionary infrastructure money to areas accepting growth
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State government agencies and regional planning organizations control a
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number of discretionary infrastructure funds available for local projects
or for state projects that will have local impacts. All of these programs


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Washington Research Council
have project selection criteria, and these criteria should shift to support growth. More specifically, the selection process should include a heavilyweighted criterion that measures the degree to which a local government actively supports housing growth, and the degree to which the project in question supports growth. In other words, some substantial portion of discretionary infrastructure funding should reward jurisdictions that work to accommodate their share of growth and should not reward jurisdictions that fail to accommodate growth.
The largest discretionary program at the state level is the Transportation Improvement Board (TIB). The TIB receives 3 cents of the statewide fuel
tax, and funds $70
Figure 2: Scoring System for TIB Urban Programs
million to $100
Source: Transportation Improvement Board
million worth of
projects per year.
To receive TIB
Weightingpoints given to each criterion
Urban Arterial
Urban Corridor
assistance (TIB
Program
Program
Sidewalk Program
funds average 40 to
Criteria
(FY'07 $27.3 million)
(FY'07 $34.4 million)
(FY'07 $4 million)
45 percent of pro
Safety
50
10
50
ject cost) local gov
Mobility
20
35
n/a
ernments apply to
one of several pro
Pavement Condition
15
n/a
n/a
grams. The Board
Mode Accessibility
10
10
n/a
then scores appli
Local Support
5
n/a
20
cations, using
Funding Partners
n/a
30
n/a
weighted criteria,
Growth & Development
n/a
15
n/a
and awards funding
Pedestrian Access
n/a
n/a
30
based on these
scores. Figure 2
Total Points
100
100
100
shows the weight given to various
project selection criteria for the three major urban-area programs. "Growth and development" is an explicit criterion in only one of the three listed programs, receiving a weight of 15 points out of 100. While the "mobility" criterion can apply to capacity-enhancing improvements, it also applies to actions such as freight mobility, signal timing and street grid completion that mostly benefit developed areas.
The TIB is just one example of the infrastructure assistance programs that should be geared more toward helping local governments accommodate growth. While changing project selection criteria will generate some controversy, it will provide much-needed incentives for local governments to accommodate growth.
4. Assist small jurisdictions with complex processes
Some of the most effective infrastructure funding and financing tools are also the most complex to implement. Small local governments rarely have the staff or expertise to undertake programs like local improvement districts, latecomer fees or various types of bond financing. As a conse
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quence, many funding and financing tools go unused.
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Since much of the housing growth in the state takes place in small cities
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and areas with small utility districts, this administrative capacity gap must
be closed. The state, probably through the Department of Community,


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Trade and Economic Development, should maintain staff and expertise to assist local governments in setting up complex infrastructure funding and financing programs. In some cases, as will be recommended below, such
support programs could devolve to counties.
5. Connect the Buildable Lands program to infrastructure funding
One of the most problematic aspects of the Buildable Lands Process that measures development capacity in six counties is the lack of information about infrastructure availability. Under Buildable Lands, local governments can count as "buildable" land not currently served by infrastructure, and without service on the immediate horizon. So while the land is technically buildable, it can't actually be used until roads and utilities go in.
For local governments to count land as "buildable," they should have plans and timelines in place to provide infrastructure to that land. If they cannot do this, such land should not be counted in the inventory of land available to meet housing goals. To meet this sort of requirement, local governments will need to commit part of their long-term funding stream to infrastructure extensions, or plan to use alternate funding methods. In any case, plans to provide infrastructure to buildable lands must have a funding component, and not just be lines on a map. (Washington Research Council, 2005)
6. Extend infrastructure planning and funding time horizons to match growth horizons
Comprehensive plans for land use and development typically extend out 20 years. In contrast, the capital facilities elements and capital improvement programs that provide the infrastructure for those growth plans extend out only six years. Since most development depends on the availability of infrastructure, any land use plans that require infrastructure not included in the current six-year CIP must be considered speculative.
Local governments should extend the timelines for infrastructure planning and funding out to match the timelines of their land use planning. Although funding may be difficult to predict over the long term, local governments actually have more control over that funding than they have over the land uses included in the 20 year plan. Ironically, governments seem willing to commit to long term plans for activities they do not control, while sticking to short term plans for activities they do control. The reverse should apply.
REVENUE STRATEGIES FOR GROWTH These six principles suggest the following strategies:
Create new Growth Arterial Program at TIB. The central transportation problem for growing cities and counties in the state is the lack of capacity in arterials, and the lack of funding mechanisms to expand and extend the arterial network to accommodate new growth. The state funds the high
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ways system, and developers themselves usually fund the local streets serving their projects. But the main collector arterials get caught in the middle, with their very high cost and limited political constituency.


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The state should provide a much higher level of support for construction of arterials in rapidly-growing areas. Such a commitment could be run through a new program administered by the TIB. A new Growth Arterial Program (GAP) would fund only those arterials that need expanding or extending to open new areas for development or to accommodate major infill development. Jurisdictions applying for funding from the GAP would need to demonstrate that they have capacity for new housing and have taken steps to encourage its development. GAP-funded projects could pass through already-developed areas on their way to fast-growing ones. The project selection criteria must make very clear, however, that the GAP cannot fund projects that primarily remedy existing deficiencies. Annual funding for the GAP should be at least equal to the other major TIB programs.
Create a new Growth Utility Program. Urban-level utility service, primarily sewers and stormwater systems, do not exist in a remarkable number of otherwise developed areas. These are often islands of lightly-built residential and commercial land that development has leapfrogged. Without utility service they will remain underdeveloped, even though their location suggests they would be attractive residential or commercial areas. As noted in the section on LIDs, getting utilities funded in these areas remains a major challenge, since many current landowners do not want to pay for service they do not feel they need.
To provide money to extend utilities to infill areas, as well as to newly developing areas, a new Growth Utility Program (GUP) would be established, perhaps administered by the Public Works Board. Like the GAP, the GUP would have funding criteria that require applying jurisdictions to demonstrate that the projects will primarily facilitate new housing growth. Clearly, existing homes and businesses will benefit from the new utility service, but the area served by the new lines should have substantial capacity for infill development.
Tie growth infrastructure programs to Buildable Lands. Both the GAP and the GUP would require cities, counties and utility districts to demonstrate that the projects for which they seek funding will primarily support housing growth, and one way to show the connection is through the Buildable Lands process. In the six counties that must undertake Buildable Lands, jurisdictions must identify all land that can accommodate housing growth, and where, specifically, housing can be built. This process should point to areas that would benefit from infrastructure extensions appropriately funded by the GAP and GUP.
Facilitate Local Improvement Districts. The best way to minimize controversy over infrastructure funding is to ensure a direct relationship between those who pay for infrastructure and those who benefit from it. Local improvement districts or LIDs, accomplish this at the local level by creating special taxing districts consisting only of properties that directly benefit from a new piece of infrastructure. (LIDs have close cousins in road improvement districts and utility local improvement districts RIDs and ULIDs respectively. The descriptions in this section apply to all variations.) LIDs are especially useful for upgrading old areas where infill would overwhelm existing roads or pipes, and for adding infrastructure,
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especially sewers, in sparsely-developed areas.


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So, why are these tools not used more? A few quotes from the Washington State Local Improvement District Manual provide clues:
LIDs have a reputation as difficult to administer, time consuming, and a public relations disaster waiting to happen.
An LID asks [citizens] to not only put up with a project they may not like personally, and which may disrupt their lives, but also to pay for it.
LIDs are complicated and require a cast of thousands.
An LID financed project tests an agency's public relations skills like no other.
And this from a document meant to encourage and facilitate the use of LIDs! The fact that the Manual covers 114 pages with contributions by authors in six disciplines should provide another clue about the difficulty of undertaking
LIDs. (Municipal Research Services Center, 2003)
But despite the apparent difficulty, LIDs offer the best way to unlock the po
tential for housing in infill settings with fragmented property ownership. Many
older sections of urban areas were never laid out by developers as formal subdivisions, and received only minimal infrastructure. These areas can have obsolete housing and commercial property, large or undeveloped parcels, or low value uses, all of which can be converted to housing. But these areas also have small parcels with multiple owners and will see redevelopment and infill on a parcel-by-parcel basis. By spreading the cost of infrastructure upgrades across all property owners and allowing them to pay the cost over many years, LIDs provide a logical way to bring these areas on the market.
The nature of these infill areas suggests that they lie predominantly in innerring suburbs that grew outside the boundaries of central cities, with their higher infrastructure standards. As noted in Principle #4, these small suburban cities do not have the staff capacity or money to devote to complex projects like LIDs. So, unless a critical mass of property owners initiates the LID, an underdeveloped area will likely remain that way, freezing out much needed infill housing development.
Technical assistance and expertise from state or regional agencies should be available to local governments and groups of property owners wishing to form LIDs and their cousins. The assistance program could be reimbursable through the overall LID budget, should the project go forward.
To get LIDs moving, local governments should begin to highlight areas that would benefit from LIDs. To begin with, cities and utility districts should map all existing urbanized areas that lack sewer service, and include on those maps the housing growth potential of the area. These maps can be overlaid with logical LID boundaries for sewers, based on drainage basins. Similarly, areas that have multi-family housing potential but lack sidewalks and other basic streetscape amenities, should also be mapped and publicized.
LIDs have traditionally been locally-driven, initiated by property owners to
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upgrade their surroundings. In the case of infill housing areas, however, leader
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ship will need to come from local government, since current residents may see
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little benefit from upgraded infrastructure. Promoting and facilitating LIDs in
infill areas is a logical part of the implementation of comprehensive plans.


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Facilitate latecomer processes. Latecomer processes accomplish the same thing as LIDs, but in a different timeframe and with less involvement by the public sector. In a latecomer process, the first landowner to develop property in an area pays the entire cost of a necessary infrastructure improvement, with all subsequent developers (latecomers) paying their share when they hook a new project into the new facility. The advantage of a latecomer process over an LID is that current property owners do not need to pay anything until they redevelop their property. Latecomer processes work best in areas with a small number of large parcels and developers with deep pockets.
For example, if an area zoned for multi-family housing does not have adequate sewer capacity, the first developer will pay for the larger sewer line in the street. Existing property owners can tie their existing buildings into the new line for free, but if they develop their property and tie an apartment building into the new sewer line, they must reimburse the first developer for a share.
Latecomer processes can also help develop infrastructure in peripheral areas. New subdivisions may be required to upgrade infrastructure under various mitigation programs, but such funding will rarely be sufficient to build trunk systems. Consider, for example, a developer who controls 50 acres out of a 200 acre area. This developer should not be required to cover the entire cost of the arterial and sewer line extensions needed to serve the whole area. The developer may, however, be willing to finance construction of those improvements knowing that the owners of the other 150 acres will pay their share eventually.
This very logical system works quite well where it exists. The trouble is that, like LIDs, latecomer processes introduce complexities that many jurisdictions do not want, or cannot handle. For latecomers, someone has to decide on the fair shares for all potential users, and someone has to track developments as they tie into the new utility line or use the new streets or sidewalks. This all adds up to one more administrative headache for under-funded public works agencies. Faced with administrative burdens, many jurisdictions have not instituted latecomer processes. As a result, developers needing to add infrastructure have two unappealing choices. First, they can pay for the new facility and give all latecomers a free ride. Or, they can wait until another owner goes first and get the free ride themselves, but risk losing the market initiative.
The solution lies in centralizing administrative processes. There is no reason why the assessment and record-keeping functions must remain with the jurisdiction responsible for the infrastructure. These could reside with a county government for all jurisdictions in the county, or be contracted out by a small jurisdiction to a larger, adjacent jurisdiction. An administrative fee added to the latecomer process could cover the cost of these services.
The Legislature should consider requiring all growth management jurisdictions to adopt latecomer processes. If administrative services are available through other governments, or even private or non-profit entities, there should be few other objections. Most developers are willing to pay their fair share of the infrastructure needed by their projects, but they do not want to end up being chumps.
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Legalize real tax increment financing. The third of the primary value-capture
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mechanisms after LIDs and latecomer agreements tax increment financing
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(TIF) has long tempted public works agencies and economic development
practitioners in Washington. But since courts have repeatedly declared it ille


Page 9

gal under the state constitution, this bootstrap method of funding infrastructure remains tantalizingly out of reach.
TIF uses the new property tax revenue generated by a project to fund the infrastructure needed to make that project feasible. This requires close coordination between the local government undertaking the infrastructure improvements and the developers of the adjacent land. This close relationship has led courts to conclude that TIF violates the state constitution's prohibition on the lending of the state's credit and its prohibition on the gift of public funds. The 2006 Legislature passed a bill (HB 2673) that would provide local government further TIF options. At this writing, Governor Gregoire has yet to act on the bill.
At this point, the only real solution appears to be a constitutional amendment that explicitly allows a workable TIF program for specific purposes. The Legislature has attempted such amendments in the past, but voters have rejected them. With heightened awareness of the need to build infrastructure, and with a more sophisticated voter information and campaign structure, a constitutional amendment may have a higher likelihood of success than in the past.
Add new criterion for current Transportation Improvement Board urban programs. As noted above, the Transportation Improvement Board (TIB) has the largest pool of state money for local infrastructure projects. Figure 2 shows how the scoring system does not place significant emphasis on infrastructure for growth. A glance through the project lists shows that the TIB spends most of its funds in already-developed areas, and although the projects seem worthwhile, few of them add to the state's capacity to absorb growth.
The TIB should add a criterion to its current urban programs that measures the impact of the project on accommodating growth, either in infill situations or in newly developed areas. The weight given to such a criterion should be high enough that projects in newly developing areas that cannot demonstrate improvements in safety, mobility or pavement conditions (they do not have those problems yet!) can score highly.
The TIB has done an excellent job of providing high-impact funding to local projects across the state, enabling cities and counties to make expensive improvements. The great strength of the TIB comes from the political insulation it enjoys and its ability to fund projects that lack strong voter constituencies. Infrastructure for growth will benefit from those same decision making qualities.
CAPTURE GROWTH-RELATED TAXES?
A revenue strategy that has received some level of interest is to capture a portion of the sales, B&O and other taxes collected on construction projects. Since construction varies so much from year to year, state and local governments receive unpredictable windfalls which might be dedicated to
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For example, a modest 2,000 square foot house with a construction cost of
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$75.00 per square foot would yield $9,000 in sales tax to the state, and up
to $4,400 to various local governments. That home would also yield B&O


Page 10
tax from all of the various contractors. $1 million luxury homes and high rise condominiums would, of course, yield far more. In periods of rapid growth, these taxes add up to quite a lot of additional revenue to governments.
The challenge of structuring a growth-related revenue program will be to ensure that it captures windfalls while not hampering the ability of state and local governments to catch up on reserves and emergency funds during periods of revenue growth.
CONCLUSION: FREE MONEY ... ALMOST
Much of politics involves decisions about the gathering and allocation of public resources for varying and competing purposes. As this brief and the previous one have discussed, funding for the infrastructure needed to accommodate growth does not tend to fare well in this political game. The noise of today's problems and today's constituencies will usually drown out the weak cries on behalf of tomorrow's residents. Absent the sorts of federal commands and money that built the Interstate freeway system, state and local governments will find their hands full just meeting the infrastructure needs they see today, and will have few resources left for future needs.
This brief proposes to fund the infrastructure needed for future growth using two sources. First, state and local governments need to tap into the windfall revenue generated during periods of rapid housing and commercial development. Second, local areas and projects need better tools and assistance to capture the property value and utility that infrastructure creates. Both of these sources of funds tie directly to growth itself - no growth means no money, and rapid growth means money will be available. Governments should not rely on
such sources for general operating purposes, but infrastructure programs can
use them.


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REFERENCES
Freund, Bill, & Michael Luis, 2006. Local Government Infrastructure Study.
Washington Association of Realtors.
Municipal Research and Services Center, 2003. Washington State Local
Improvement District Manual, Fifth Edition.
R.W. Thorpe & Associates, 2005. Residential Development Revenue and
Expense Financial Analysis. City of Duvall and Snohomish County. Released through Master Builders Association of King and Snohomish Counties.
Washington Research Council, 2001. Taxes and Fees on Construction of a
House. Policy Brief 01-19.
Washington Research Council, 2005. Buildable Lands Process Flawed.
Policy Brief 05-13.
Washington Research Council, 2005. Housing for Economic Development.
Policy Brief 05-12.
Washington Research Council, 2006. Housing Supply: The Quiet Job Killer.
Policy Brief 06-01.
Washington Research Council, 2006. Infrastructure in Washington:
Connecting to Growth. Policy Brief 06-11.
Washington Research Council, 2006. Ways to Boost Housing Supply: Local
Actions. Policy Brief 06-03.
Washington Research Council, 2006. Ways to Boost Housing Supply: State
Actions. Policy Brief 06-02.
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