David Anderson, research associate with the Department of Applied Economics, presented "Who Pays the Costs of Transportation in the Twin Cities Region?" at a workshop of the Transportation and Regional Growth (TRG) Study held March 21.

In this phase of their research, Anderson and Professor Gerard McCullough, also of Applied Economics, sought to determine the incidence of transportation costs and, specifically, who bears those costs and who imposes them. Identifying activities with high gaps between social and private costs and identifying costs that are distributed unfairly might lead to improved efficiency and a more equitable sharing of costs, Anderson said.

David Anderson

Using a 19-county study area comprising the 7-county Twin Cities metropolitan area and the surrounding 12 counties, the researchers calculated costs for 1998, then projected costs for 2020. Three types of costs were examined: governmental costs (those borne by governments for roads, highway patrol, etc.), internal costs (those borne by the person who causes them, such as fuel and vehicle depreciation), and external costs (those not borne by the person who causes them, such as pollution and congestion).

For governmental costs, Anderson and McCullough examined who pays user fees (such as fuel taxes) and who pays the general revenues needed to make up for shortfalls in user fees, and found that many of these costs are paid for with general governmental revenues. Some costs are paid for with property taxes, but significant payments also come from income and sales taxes. Overall, governmental costs are a relatively small share of total costs, however. The researchers chose not to try to determine who imposes governmental costs, Anderson said, because it is difficult to unambiguously assign responsibility for many governmental costs that are fixed in the short run.

The distribution of internal costs in 2020 is expected to be similar to that in 1998: generally, the lowest costs are found in the central city, while the highest are in the northwest metro. The costs follow income closely and to some extent reflect travel.

Internal costs make up about 84 percent of total costs. According to Anderson, this suggests that people derive significant benefits from driving, because "they chose to drive even though it means that they have to pay these costs," he said.

For external costs, the researchers note that location determines who suffers from air pollution and noise, while system use determines who shoulders congestion and crash costs. Anderson added that people outside the region bear a large share of some types of external costs, such as global warming, petroleum consumption, and crop damage.

Congestion costs are expected to be more than three times higher in 2020 than they were in 1998, Anderson said. Despite this, congestion will account for approximately only eight percent of total travel time costs. The western and northern regions of the metro area appear to be imposing and suffering the greatest congestion costs, Anderson said.

Pollution costs imposed may be very different from pollution costs suffered, Anderson said, "because suffering tends to occur where you live, but pollution is imposed where you drive." Some of the costs of pollution are imposed outside of the region. The researchers feel their cost estimates for air pollution are quite uncertain.

Anderson noted that improving efficiency relating to external costs does not necessarily mean reducing total travel, but perhaps limiting the types of travel that impose the highest costs, such as driving during rush hour.