Transportation and the Economy

Presented to theTransportation Summit

December 12, 2012

Presentation Outline

• The Transportation Sector in Maryland• Conceptual Foundations: Supply and Demand Side Effects• Demand Side Effects: multiplier effects, regional effects,

employment effects.• Supply Side Effects:

– Employment effects– Property value effects– Productivity effects

• Transportation Finance• Concluding Comments

The Maryland Transportation Sector in Context

The Maryland Transportation Sector by Region

Changes in the Maryland Transportation Sector over Time

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Percent of Jobs by Skill Levels

High-skill Middle-skill Low-skill

Jobs by Skill Level by Industry

The Maryland Transportation Sector

• Proportionately smaller than US, Virginia, and New Jersey;

• Proportionately largest in Western Maryland, Southern Maryland and the Upper Eastern Shore;

• Growth stopped in the 2000s; and• Employs a large proportion of low

skilled workers.

Demand-Side Effects of Expansion in the Transportation Sector

• Direct Effects• Multiplier Effects• Most effective in recession—

like now;• Higher proportionate effects in

Eastern and Western Maryland• Larger benefits for low skilled

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Multiplier Effects of Expenditure on Transportation

Supply-Side Effects of Expansion of Transportation Sector

• Employment Effects– Localization economies

• Property Value Effects– Access capitalization

• Productivity Effects– Production costs– Time cost savings

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Transit Impacts on Property Values

Maryland’s One Percent

Importance of Maryland’s One Percent

• 1.2% of land• 38.8% of all jobs• Compared to the rest of the state, Maryland’s

Economic Centers feature—– High employment densities– High industrial diversity– High relative wages– High employment growth– High share of total trips– High transit share of trips– Shorter trip lengths.

Determinants of Job Growth in Maryland’s Economic Centers

• # firms in the same industry (+)• # firms in different industry (+)• Average firm size (-)• Property Value (-)• Average Peak Hour Speed (+)• Distance from Highway ramp (-)• Distance from Highway (-)• Distance from Nearest Bus Stop (-)• Within half mile of transit station (+)

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Dollar Value of Freight Flows

Source: 2009 IMPLAN data, EcoNorthwest Haul-Choice Model of truck-dependent industries

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Freight Flows in Dollars to Baltimore

Congestion in 2030

There’s No Free Lunch

• Raise $800 million in net new annual funding for transportation through a combination of net new revenues and bonding.  

Gasoline Prices and Taxesin Other States and Nations

External Costs of Driving

• The National Academy of Science estimated external damages on a per-gallon basis, with a range of 23 to 38 cents per gallon (with gasoline vehicles at 29 cents per gallon).

Who Pays the Gas Tax?

• Most analysts agree: gas taxes are regressive. • Persons in the bottom half of the income

distribution average 0.85 percent of income. • “Nevertheless the magnitude of the tax burdens is

moderate enough so that, when combined with a reasonably simple compensation scheme, gasoline tax increases could be implemented that would generate substantial revenues and provide efficiency benefits, yet protect the poor from undue hardship.”

HOWARD CHERNICK & ANDREW RESCHOVSKYNational Tax Journal, June 1997

Concluding Comments

• Transportation plays a critical role in the Maryland economy--as everywhere else;

• Transportation expenditures stimulate demand and job growth—especially during recessions;

• Capital investments in transportation infrastructure can reduce costs, spur productivity, and increase property values;

• Increases in gas taxes would push prices closer to true marginal social cost.