# Transportation Policy  Evolution of Federal Freight Transportation Policy [^1]

##  Executive Summary

This paper examines the evolving role of the federal government in
freight transportation. It looks at federal policy through four brief
case studies: the development of the intercontinental railroad; the
construction of the Interstate Highway System; the economic deregulation
of the freight transportation industry; and the implementation of ISTEA.
In each, the paper asks the questions: What created the mandate for
federal action? What role did the federal government play? What
resources were applied? How did the experience shape subsequent federal
policy? It finds that there has been no consistent pattern to federal
freight transportation policy. The federal government appears to have
fashioned approaches to meet the perceived needs and the political
climate of the times.

The mandate for federal involvement has typically come after decades of
debate about strongly enunciated state and industry problems. The
transcontinental railroad was developed to link the country together
after the Civil War. The catalyst for the Interstate Highway System was
national defense and metropolitan development after World War II. The
financial collapse of the railroad industry in the 1950s and 1960s
triggered the economic deregulation of the commercial transportation
industry. And rising public concerns about congestion and the
social/environmental costs of building the Interstate Highway System
were the major national concerns behind enactment of ISTEA in 1991.

The federal government has taken widely differing roles in freight
transportation. The transcontinental railroad was built by the private
sector in public-private joint venture with the federal government. The
Interstate Highway System was built by the states in a public-public
venture led by the federal government. To accomplish the deregulation of
the commercial transportation industry, the federal government
disengaged itself from the industry after almost one hundred years of
direct economic oversight. With ISTEA, the federal government redefined
its relationship with the states, devolving control over most
transportation decision-making to state and local government.

The strategies for funding projects have also varied widely. The federal
government provided grants of land and credit support to the companies
developing the transcontinental railroad, but did not directly finance
construction. By contrast, the federal government took the lead in
funding the Interstate Highway system through fuel taxes collected by
the federal government and reapportioned to the states. Further, the
federal government provided the political and legal structure for
deregulation during the 1980\'s and early 1990\'s. ISTEA and TEA-21
continued the fuel tax based highway model of the interstate system but
gave more decision-making authority to state and local government.

The paper argues that freight transportation has now emerged as a
significant national policy issue on its own. The reliability and
productivity of the nation's freight system are declining because of
increasing demand and deteriorating capacity. These problems must be
addressed because of the freight sector's importance to economic
development and industry competitiveness in a global economy.

This paper[^2] identifies three policy issues for a more focused
national freight productivity program:

-   **Mandate**. Is there a sufficient mandate to improve the
    reliability and productivity of the nation's freight transportation
    system? The paper explores the options for renewing and
    strengthening the mandate initiated in ISTEA and TEA-21.

-   **Organization**. What is the role of the federal government in
    freight planning in an era where the prevailing view is that the
    federal government should not preempt state and local
    decision-making? With state and metropolitan planning organizations
    focused on regional and local issues and the private sector focused
    increasingly on national and global operations, the paper explores
    possible roles for multi-state/multi-jurisdictional trade-corridor
    and trade-area coalitions.

-   **Resources**. What is the appropriate level of federal resources
    and how should they be deployed? If additional investment is needed,
    should it be provided through user fees and grants, or credit
    assistance? The paper explores options for expanding the boundaries
    of current programs and making greater use of innovative
    credit-assistance financing methods.

##  Introduction

With the passage of the Intermodal Surface Transportation Efficiency Act
(ISTEA) in 1991, transportation planners were given a mandate to
consider freight transportation requirements when developing
transportation plans and making investment decisions. While this was a
welcome development for the freight transportation sector, freight
transportation carriers and users have questioned whether the mandate
expressed in ISTEA and its successor, the Transportation Equity Act for
the 21st Century (TEA‑21), has been fully realized.

ISTEA marked the end of the Interstate Era and a shift in leadership on
transportation planning and investment from the federal government back
to state and local government. ISTEA also marked a renewed awareness of
the importance of freight transportation and an integrated, multi-modal
transportation system to sustain economic growth. The preamble to the
Act[^3] repeatedly acknowledged the linkages among economic
productivity, freight and goods movement, and intermodal transportation
(emphasis added).

-   "It is the policy of the United States to develop a National
    **Intermodal** Transportation System that is **economically
    efficient** and environmentally sound, provides the foundation for
    the Nation to compete in the **global economy**, and will move
    people and **goods** in an energy efficient manner....

-   The National Intermodal Transportation System shall consist of all
    forms of transportation in a **unified, interconnected** manner...
    while promoting **economic development** and supporting the Nation's
    preeminent position in **international commerce....**

-   The National Intermodal Transportation System shall include a
    **National Highway System ...** \[of\] roads which are essential for
    **interstate and regional commerce** and travel, national defense,
    **intermodal transfer facilities,** and **international commerce**
    and **border crossings....**

-   The National Intermodal Transportation System shall provide improved
    access to **ports and airports, the Nation's link to world
    commerce**....

-   The National Intermodal Transportation System shall give special
    emphasis to the contributions of the transportation sectors to
    increased **productivity growth**...."

Congress understood the opportunities that a cost-efficient and
competitive transportation system created for trade and economic
development. Congress had watched the impressive improvements in freight
carrier productivity generated by the deregulation of the freight
transportation industry in the late 1970s and early 1980s. Deregulation
freed the freight transportation industry from many modal and
jurisdictional barriers. New, innovative services were created and
productivity increased. By encouraging cross-modal coordination in
public and private freight planning and investment in ISTEA, Congress
hoped to stimulate another advance in national freight productivity that
would spur trade and economic development.

The Congressional emphasis on freight transportation in ISTEA reflects
an historical pattern on the part of the federal government: to focus on
transportation policy issues that either have not been addressed or
cannot be addressed fully by state and local governments. When there has
been a clear mandate, the federal government has often stepped in to
organize and implement a program to advance the nation's transportation
goals. Congress took a first, but partial, step toward a new mandate for
the nation's freight transportation system with ISTEA.

While seeking to encourage freight productivity, congestion and
environmental issues facing the Nation's transportation system became a
primary focus of attention in ISTEA. Freight became a secondary focus.

Freight transportation has now emerged as a significant national policy
issue on its own. Congestion and lack of capacity are constraining the
freight transportation system, and the productivity of that system
appears to be declining just at the time when global trade and
competition are putting new requirements on the system and the
economy.[^4] These requirements take two forms.

-   There has been a dramatic increase in the demand for freight
    transportation. The volume of freight being transported over the
    nation's transportation infrastructure has grown rapidly. This is
    largely attributable to high rates of domestic economic performance
    and increased international trade. In addition, the cost of freight
    transportation has decreased in real terms, making it possible to
    buy more transportation services.

-   Changes in the business sector have resulted in calls for higher
    quality transportation service. Just-in-time manufacturing,
    e‑commerce, and demand for small package service have resulted in
    smaller but more frequent individual shipments of high-value goods
    that must meet tight schedules.[^5]

These changes suggest that ***managing*** the transportation system
through better operation of the public sector infrastructure is now as
important for public policy-makers as building capacity and regulating
transportation service providers.[^6]

These new demands on the freight system prompt two related questions.
Were the steps taken in ISTEA and TEA‑21 sufficient to address the needs
of the freight transportation sector? If not, then what additional
initiatives should be undertaken?

##  Trends in Federal Freight Transportation Policy

The issues of what the national transportation mandate should be and
what role the federal government should take have been addressed several
times over the nation's history. This paper examines the changing role
of the federal government in freight transportation. It looks at federal
policy through four brief case studies:

-   Development of the intercontinental railroad;

-   Construction of the Interstate Highway System;

-   Economic deregulation of the freight transportation industry; and

-   Implementation of ISTEA.

In each, the paper asks the questions: What created the mandate for
federal action? What role did the federal government play? What
resources were applied? How did the experience shape subsequent federal
policy?

### The Railroad Era -- Development of the Intercontinental Railroad

One of the earliest examples of a major federal transportation
initiative was the development of the transcontinental railroad,
completed in 1869. The federal government played an active and
aggressive role in promoting the development of this important
transportation link. There was urgency to do so. The discovery of gold
in California had set off a major migration from the East to the Pacific
Coast and intensified calls for a transcontinental railroad. While the
cities and states along the West Coast were growing rapidly, they were
far from the industrial and population centers in the East. At the same
time, the nation had just emerged from the Civil War, and sentiment was
high to reunite the nation and to facilitate communication and transport
across the interior. A transcontinental railroad served both purposes.

The proposed railroad faced many obstacles. It was thought by many to be
impossible from an engineering standpoint in that it needed to get
across both the Rocky Mountains and the Sierra Nevada. It would pass
through territory inhabited by Native Americans. It spanned a large
number of individual states and territories. And it required a huge
financial investment.

President Lincoln, who early in his career had worked as a railroad
lawyer and had long supported the development of a transcontinental
railroad, understood that the only way to get past these obstacles was
for the federal government to play a leading role. Congress, however,
was less enthusiastic about a large, direct federal role. The Civil War
had stalled earlier Congressional efforts to underwrite the development
of a transcontinental railroad and had drained the government's
financial resources. The government wanted a railroad, but could not
afford to embark on a major spending program. What resulted was a
public-private venture through which two private companies, with the
support and encouragement of the federal government, built the railroad.
The government oversaw and regulated construction, provided grants of
land and credit support, but did not directly finance construction.

The railroad, when completed, was heralded as the most significant
accomplishment of the time. However, there was widespread criticism of
the structure of the public-private partnership. The partnership limited
the government's financial exposure, but it also created an opportunity
for the private companies constructing and operating the railroad to
increase their profits by influencing how the government exercised its
regulatory oversight. There was widespread and justifiable belief that
the government had enabled an enterprise that resulted in
disproportionate wealth for a small number of people -- that the private
railroad builders and operators had put their private welfare far ahead
of public responsibilities. This history and these concerns have shaped
debate to this day about the advantages and disadvantages of
public-private partnerships.

### The Interstate Era -- Construction of the Interstate Highway System

In the 1950s, nearly a century after the completion of the
transcontinental railroad, the nation embarked on another major
transportation initiative, the development of the Interstate Highway
System. Three factors created the mandate for federal involvement and
shaped how the federal government structured the program.

The first was the relationship of national security to infrastructure.
While the need for a national highway system was discussed after World
War I, the development of this system was spurred after World War II by
the start of the Cold War. The experience of the war years had made
clear that the nation's road system could not support rapid mobilization
nor sustain a war effort. The spread of Communism in Eastern Europe had
heightened public anxiety about another war and generated support for a
strong national defense system. A network of high-speed highways
throughout the country was sold as a national defense measure that would
also strengthen the nation's economy.

The second factor was the push to develop the suburbs and the beginning
of the Baby Boom. Following the war, returning servicemen obtained
careers in the private sector and started families. Demand for housing
shifted to areas beyond the central cities, which remained the centers
of employment. Rapid access between the new bedroom communities and
city-based employment centers was provided via high-speed highways.
These highways in turn made the suburbs more attractive for new
residents, and greatly enhanced the economic development prospects of
the suburbs.

The third factor was that large government programs developed in
response to the war effort and the Great Depression that preceded it had
made the notion of a federally sponsored highway program acceptable.
There was widespread political support for a federal initiative to
develop an Interstate Highway System. The debate was less about whether
it made sense for the federal government to embark on this program and
more about where the proposed highways should be built.

The Interstate Highway program was structured as a partnership between
the federal government and the states. The federal government led the
planning effort and was responsible for assembling the funding for the
program. The states became the owners of the system. State highway
departments were established or strengthened to work in partnership with
the federal Bureau of Public Roads, a part of the Department of
Commerce, to design and build the system. The program was financed
primarily through fuel taxes collected by the federal government and
apportioned to the states based on the cost to complete the Interstate
highways located within a state. There was no private sector
involvement.

The Interstate Highway System was one of the greatest accomplishments of
the second half of the 20^th^ Century. It shaped not only surface
transportation, but also land use throughout the country. It opened
regions once regarded as remote to development. By creating beltways to
bypass congested metropolitan centers, the Interstate Highway System
accelerated the transformation of the streetcar suburbs of the 1890s
into the automobile suburbs of the 1950s. And it reinforced the nation's
fascination with and dependence upon the automobile, a pattern that
continues to the present.

There was also a negative side. The Interstate Highway System and the
automobile traffic it generated led to increased demand for imported oil
and dramatic increases in air pollution. This in turn resulted in new
efforts to regulate engine pollutants and fuel economy. The massive
building program also resulted in the forced relocation of families,
businesses, and communities, primarily in inner cities, to make way for
the new highways.

The cumulative social, economic, and environmental impacts of the
highway construction program created intense community opposition in
many cities. By the 1970s, public support for a massive, national
highway program driven by decisions made by a large federal bureaucracy
was waning. This reaction to the Interstate program would strongly
influence the ISTEA debate over federal transportation policy 20 years
later, and led to a decision to shift control over transportation
investment from the federal level to the state and local levels.

### The Deregulation Era -- Economic Deregulation of Commercial Transportation

During the 1970s and 1980s, the federal government embarked on an
ambitious program to reshape regulation of the commercial transportation
sector. Federal economic regulation of freight transportation had begun
with the 1887 Act to Regulate Interstate Commerce targeted at the
railroad industry. The federal economic regulation was a response to
concerns that unfettered competition was bankrupting railroads while
unregulated pricing was permitting others to charge monopoly prices and
inviting collusion. The Supreme Court had confirmed earlier the rights
of states to regulate the railroads, but the states found it difficult
to regulate consistently and effectively across state borders.

The federal government was drawn in to ensure uniform national
regulation. Under the Interstate Commerce Commission's regulatory
regime, the railroads operated under government oversight of the
services they could provide, the routes they could use, and the prices
they could charge. The same basic approach was applied to the motor
carrier industry in the 1930s and the airline industry in the 1950s.

The urgency to deregulate these industries in the 1970s and 1980s was
triggered by the financial collapse of a number of railroad companies
and the subsequent formation by the government of Conrail as the freight
railroad in the Northeast and Amtrak as the national passenger railroad.
The problem had been building for years; by the 1970s, the railroad
industry was replete with bankrupt or financially weak carriers.
Deteriorating capital stock, intense competition from motor carriers,
changing markets, and poor management had brought much of the industry
to the edge of collapse. In 1976, more than 47,000 route-miles,
approximately 25 percent of the nation's total, were operated at reduced
speeds due to dangerous conditions.[^7]

The railroad sector was not the only sector suffering under a heavy
regulatory burden. The aviation sector also was feeling the effects of
fuel price increases, and air service was widely regarded as too costly
and not as responsive to market demands as it could be. The Civil
Aeronautics Board (CAB), established in 1938, regulated air carriers in
the United States. The CAB determined flight routes and prices for the
airlines. These restrictions caused market distortions and
inefficiencies, driving up ticket prices and skewing the demand for air
travel. The cost of an unregulated intrastate flight from Los Angeles to
San Francisco, for example, was often less expensive than a regulated
interstate flight of equal distance.

Deregulation was proposed as the solution to the ills of the commercial
transportation sector. The premise behind deregulation was that, over
the years, government regulation had resulted in increased levels of
inefficiency among commercial carriers. In addition, the regulations
seemed out of step with the needs of shippers and receivers desperate to
reduce costs and compete against Asian imports. Therefore, if regulation
could be eliminated or greatly scaled back, the carriers would respond
by becoming more efficient and responsive to the demands of the market.
Competition would result in lower transportation costs and higher levels
of service.

Four separate pieces of deregulatory legislation were enacted between
1978 and 1984. These included the Airline Deregulation Act of 1978, the
Staggers Rail Act of 1980, the Motor Carrier Act of 1980, and the 1984
Shipping Act. All employed the same basic approach of focusing on easing
restrictions on market entry and exit, removing price controls, and
allowing for differential services.

The effect of deregulation was to remove the modal and jurisdictional
barriers among freight carriers. The result was the birth of the
intermodal transportation industry and dramatic growth in freight
transportation. Since deregulation was adopted, transportation costs
have declined, and service has improved. In addition, new technological
innovations such as double-stack rail service have been adopted.

Economic deregulation has not been perfect, but the general approach has
been a success. The lesson learned from this federal transportation
policy era was that the best government transportation policy was often
to reduce the role of government. This philosophy became a major
defining theme behind the federal transportation policy debates in the
late 1980s that lead to the enactment of ISTEA.

### The ISTEA Era -- Implementation of ISTEA and TEA‑21

#### ISTEA

At the end of the 1980s, as Congress began considering the
reauthorization of the surface transportation program, four factors
emerged to shape the debate over the form of the new transportation
authorization. The first and most obvious factor was that the
construction of the Interstate Highway System was nearing completion.
Completion of the Interstate system had been among the nation's highest
surface transportation priorities and achieving that goal was on the
immediate horizon. The second factor in the debate was the emergence of
intense public concern about the environmental impacts of
transportation. While these concerns were not new, they received
significant attention in a parallel effort to amend the Clean Air Act in
1990. Third, after years of deteriorating conditions in the nation's
transit systems, a consensus had developed around the need to redress
what was viewed as significant under-investment in transit. And finally,
the success of the economic deregulation of the commercial
transportation industry in the 1970s and 1980s led to a widely held view
that the federal government's role in transportation should be more that
of an enabler than of a controller.

ISTEA, which was signed into law in 1991, responded to these factors in
a dramatic fashion. The legislation was a major departure from prior
surface transportation programs, changing the roles of the federal
government and its state and local partners. Specifically, ISTEA
devolved more control of transportation investment decisions to state
and local government. This action was based on the premise that those
levels of government would know best how to complete remaining pieces of
the Interstate system and integrate highways and transit systems into
the urban centers.

ISTEA also established a specific link between transportation planning
and project funding. States and Metropolitan Planning Organizations
(MPOs) were required to develop transportation plans and improvement
programs according to prescribed guidelines and use these as the basis
for prioritizing projects and allocating federal funds. The plans were
required to meet transportation requirements and conform to the
requirements of the Clean Air Act.

Funding flexibility was another characteristic of ISTEA. Funds were
distributed to the states in broad program categories. The states were
given the flexibility to allocate funds to a wide variety of projects
and, within limits, to shift funds among categories.

These changes removed many of the modal barriers to state and local
transportation investments. State and local government could trade off
investments between highways and transit to build the most effective
portfolio of transportation systems and services for their state and
metropolitan areas. In addition to lowering modal barriers at the state
and local level, ISTEA gave emphasis to transportation as an integrated,
multi-modal system rather than a collection of distinct and independent
modes. It created an Office of Intermodalism in the Office of the
Secretary of Transportation and gave the office responsibility for
initiatives to foster the development of intermodal transportation in
the United States. However, the office was given limited funding and
authority. It was to coordinate initiatives, not oversee programs.

Despite the frequent mention of freight in the preamble to ISTEA, the
primary focus of ISTEA was metropolitan and state planning and
investment. There were specific provisions to implement the freight
mandate, but they were relatively few. Neither the scope of emerging
freight needs nor the range of appropriate responses were fully
understood when ISTEA was debated.

The most significant provision affecting freight transportation was the
call for designation of a National Highway System (NHS). Congress
recognized that the national transportation system was a major factor in
maintaining the nation's international competitiveness and ensuring
continued economic strength. Congress called for the identification of
those highways (including the Interstate Highway System, the Strategic
Highway Network and its Connectors, and other principal arterials
identified by the States in cooperation with the Federal Highway
Administration \[FHWA\]) that were critical to the economic well being
and development of the nation. These NHS priority highways were eligible
for dedicated funding.

The call for designation of the NHS also included a provision to
identify intermodal connectors: highways and local roads linking the NHS
to key intermodal facilities (e.g., ports, rail terminals, airports,
etc.). However, the NHS program differed from the Interstate program in
that funding was limited to the authorized levels of the program rather
than the cost-to-complete the designated NHS highways and intermodal
connectors. In that regard it was more of a conceptual and planning
framework than a commitment to fund a new system of highways. It was a
call to maintain the funding of critical highways rather than a call to
build new facilities.

What ISTEA did not do was create a funding program specifically for
freight projects. The funding flexibility of ISTEA, however, made it
possible to fund certain types of freight projects. The newly created
Office of Intermodalism was empowered to serve as an advocate for
freight projects, but freight projects funded through ISTEA programs had
to be identified as priorities within the state- and MPO-led planning
processes. This proved difficult for the states and MPOs, because while
the costs of many freight projects are borne locally, the benefits of
most of these projects extended well beyond the borders of a given state
or metropolitan area. Building political constituencies for freight
projects crossing political jurisdictions proved a major barrier.

ISTEA also did not explicitly authorize funding for rail-freight
projects. This meant that the project sponsor of a rail-freight project
needed to identify other ways to qualify the project for funding
indirectly, such as describing it as an air-quality enhancement project.

The effect of the freight policy language of ISTEA was to raise
expectations in the freight transportation sector. However, the limits
on the funding programs themselves made it difficult to prioritize and
fund freight-specific projects, particularly when they were competing
for funding against other, more visible and traditional projects with
well-organized supporters. In addition, the devolution of
decision-making to the state and local level and the emphasis in ISTEA
on thinking and acting locally complicated freight transportation
planning and project development. The perspective of state and local
planners is limited by statute to the area over which they have
jurisdiction. However, freight systems tend to be national or global in
scope. The NHS addressed this issue, but only within the highway network
and its intermodal connectors.

In summary, ISTEA gave state and local governments a mandate to address
metropolitan congestion and rebalance highway transit investment; it
shifted roles and responsibilities to give state and local governments
greater control over the planning and investment process; and it freed
them to move funding across modes under certain conditions. It also gave
state and local governments a new mandate to address freight issues, but
provided few specific tools to do so and left open the question of an
appropriate federal role. Despite these limitations, ISTEA remains an
important first step in meeting the nation's freight transportation
needs.

#### TEA‑21

TEA‑21 began to redress these shortfalls of ISTEA, providing new
resources and tools to address freight needs at the federal, state, and
local levels. TEA‑21, enacted in 1998, continued much of the basic
framework of ISTEA. In addition, it included four new programs that have
been beneficial in meeting freight transportation needs.

The first two programs are the National Corridor Planning and
Development Program and the Coordinated Border Infrastructure Program.
These programs share an annual funding authorization of up to
\$140 million. Funds are awarded annually through a competitive process.
While these programs are not limited to freight projects, they have
proven to be a good source of funding for such projects. There are three
reasons for this. The first is that the programs are funded with
resources over and above the regular formula apportionments to the
states. This provides states the opportunity to seek funding for
trade/freight-oriented projects without taking funds from other state
and local priorities funded through the regular federal-aid programs.
Second, the programs are discretionary, allowing the federal government
to fund freight programs and projects that might not otherwise receive
state and local funding. Finally, the scope of these programs is
intended to promote multistate consideration rather than individual
state and local focus, thus better matching the scope of today's freight
transportation systems. This enhances the competitiveness of freight
projects which often have benefits far beyond the border of a given
state or metropolitan area.

The major shortcoming of these programs is that the need far surpasses
the annual funding limit. The experience to date has indicated that
applications received have exceeded the funding available, in some years
by a ratio of eight to one, in others by a ratio as high as 16 to one.
Also, fewer multistate initiatives emerged than anticipated.
Additionally, Congress has earmarked much of the program funds for
non-freight projects.

TEA‑21 also created two new credit programs. The first of these is the
Transportation Infrastructure Finance and Innovation Act (TIFIA), which
provides loans, loan guarantees, and lines of credit for large projects.
The program is modeled after a loan provided for the Alameda Corridor
Transportation Project, a truck and rail corridor project enhancing
access to the ports of Los Angeles and Long Beach. To qualify for
assistance under TIFIA, a project needs a source of revenue to cover
debt service costs, the total project must be valued at over
\$100 million or 50 percent of the state's annual federal-aid highway
apportionments, whichever is less,[^8] the federal TIFIA loan cannot
exceed one-third of the total project cost, and the project's senior
debt obligations must receive an investment grade rating from at least
one of the major credit rating agencies. These factors limit its
applicability, but TIFIA is an important tool that can be used for
financing freight projects that meet the program guidelines.

The second program, the Rail Revitalization and Improvement Funding
program (RRIF), is also a credit program, but it is targeted
specifically at providing credit for rail infrastructure and equipment.
Although the program was established in law, administrative guidelines
were slow to be developed to implement it; only one loan has advanced to
date. The structure of the program essentially requires applicants to
pay an up-front fee representing a percentage of the loan requested in
order to qualify. This has proven to be a substantial disincentive to
use the program.

TEA‑21 addressed some but not all of the limitations in ISTEA related to
freight transportation. First, TEA‑21 created funding programs awarded
annually for projects determined to have regional and national
significance. The demand for funding under these programs illustrates
clearly that they are addressing a significant need. Second, TEA‑21
provided limited support for rail projects through TIFIA and RRIF. This
was a significant step despite the limitations on applicability and
funding.

In summary, ISTEA and TEA‑21 provided state and local governments an
opportunity and responsibility to address freight transportation issues,
broke down barriers to state and local planning and investing across
highway-transit modal boundaries, and created new resources to fund
freight projects. They also added shippers and carriers to the list of
transportation stakeholders to be consulted in developing transportation
improvement programs.

However, ISTEA and TEA-21 differed significantly from the earlier
federal actions to deregulate commercial transportation. The initiatives
taken to deregulate the commercial transportation sector removed nearly
all economic barriers to business agreements among carriers and between
shippers and carriers. In contrast, ISTEA and TEA‑21 addressed modal
funding boundaries but did not break down the institutional barriers
facing states and MPOs trying to work across state and local lines, or
the barriers to investing in intermodal freight projects. In recognizing
that freight transportation needs are not contained neatly within state
and local boundaries, it is clear that ISTEA and TEA‑21 did part, but
not all, of the job.

#### State and Local Experience with Federal Freight Transportation Policies under ISTEA and TEA-21

The state of public sector freight planning and investment today
reflects both the positive impacts of ISTEA and TEA‑21 in enunciating a
national freight mandate and the barriers to improving freight planning
and investment.

The freight mandates of ISTEA and TEA‑21 were successful in focusing
state and federal attention on freight issues, although freight
investment must compete with other, broader infrastructure investment in
the process. There is a growing awareness at the state and local level
of the importance of freight transportation and a push to re-link state
and local transportation investment, especially freight transportation
investment, to economic development. States, MPOs, and business leaders
are much more mindful today of the need to maintain and improve the
productivity of the freight system as a strategic competitive advantage
than they were 10 or 20 years ago. The lessons learned from the rapid
expansion of the domestic economy over the last decade, the challenges
of global economic competition, and the prospect of losing market
advantages in a recession have brought home the message that the freight
system, as much as land cost, labor availability, and tax policy, is
critical to economic success.

The MPOs in Chicago, Columbus, Ohio, San Francisco, and New York were
early leaders in examining local freight needs and reaching out to the
freight community for advice and guidance on freight transportation
improvements. In almost all these MPOs, the push to develop freight
planning capabilities and programs grew out of the ISTEA and TEA‑21
mandates, but without dedicated funds for staff and projects. Highway
and transit planners, engineers, and economists were reassigned as
freight specialists, and project funds were cobbled together from
multiple public and private sources. The same has been true at the state
level. Washington State, Wisconsin, California, Maine, Florida,
Maryland, Texas, and Ohio have all started to assemble information on
the movement of freight within the state, and to tie freight policy and
transportation investments more closely to state economic development
goals.

However, the public sector process for planning, financing, and
delivering freight improvements has proven to be slow, inflexible, and
disjointed compared to private sector needs and expectations. The states
and MPOs, accustomed to dealing with complex, long-term, and expensive
highway and transit investments, have had difficulty responding to the
private sector freight industry's
innovate-today-or-be-out-of-business-tomorrow environment. Since ISTEA,
the state and MPO focus has been regional and local while the private
sector focus has been increasingly national and global. (See Figure 1.)
This has compounded the difficulty of engaging private sector freight
interests in state and MPO planning processes. A decade after ISTEA,
freight representation and participation in planning and programming
decisions at the state and MPO levels (and even at the federal level)
are limited despite efforts to bridge the two cultures.

The mismatch between the span of private sector freight operations and
state and local jurisdictions has driven a growing number of states and
MPOs to pull together ad hoc initiatives to understand and solve
regional freight movement needs. The I‑95 Corridor Coalition launched an
intermodal freight and passenger program covering the 12 states from
Maine to Virginia and recently sponsored a Mid-Atlantic Rail Operations
project to look at the tradeoff between highway and rail investment in
the congested and capacity-constrained corridor between the New
York-Northern New Jersey region and Virginia. The southeast states
pooled funds for the Latin America Trade and Transportation Study, which
evaluated the capacity of the region's highway, rail, and port systems
to serve the growing demand for freight movement between the U.S. and
Latin America. The Pacific Northwest states and British Columbia have
funded a series of studies examining economic development strategies and
freight movement needs along the I‑5 corridor. And the eight states
along I‑10 from Florida to California are funding a joint effort to
improve cross-country truck movement and access to ports along the
corridor. However, these initiatives have been difficult to launch and
maintain. Multistate programs -- whether organized around trade areas or
corridors -- fall awkwardly between the constitutional jurisdictions of
the federal government and the states. Without a constitutional mandate
and dedicated funding, the multistate programs are sustained
precariously by consensus, Congressional earmarks, and short-term,
pooled funding agreements.

Figure 1. Freight Transportation Perspectives\
*State and MPO Focus Is Regional and Local; Private\
Sector Focus Is Increasingly National and Global*

![](media/image1.wmf)

The mandate to understand and plan for freight in an increasingly
complex planning and investment environment has also brought into
sharper focus the inadequacy of freight planning data and analysis
tools. There are massive amounts of data on freight and the freight
transportation system. There are databases on commodity and vehicle
movement by truck, rail, inland waterway, marine steamship, and air.
Each database delineates a few features of the freight transportation
system and provides a glimpse of reality, but it is very difficult to
assemble a complete and comprehensive picture of the freight system from
these databases without a major investment of time and effort. For many
MPOs, all but a handful of states, and even the federal government,
assembling a complete and comprehensive picture of freight movements has
been a major hurdle to understanding freight flows and identifying
policies and improvements to improve freight productivity. At the
federal level, efforts to develop planning frameworks such as the
National Highway System (NHS) or the Marine Transportation System (MTS)
have been useful, if partial, first steps.

While states and MPOs are adapting traditional transportation models to
analyze truck freight movements, trucks trips represent a small fraction
of all vehicle trips, are governed by industry-specific routing and
dispatching rules, and operate across MPO and state boundaries. Few
states and MPOs have had the resources and patience to build effective
truck freight models. Building national truck-freight models and
integrating these with rail, air, waterway, and marine freight models is
only now being addressed by FHWA's Office of Freight Management and
Operations and its partners in the Office of the Secretary, the FHWA
Office of Policy, the FHWA Planning Core Business Unit, the Federal
Railroad Administration, the Maritime Administration, and the Bureau of
Transportation Statistics through the Multi-Modal Freight Analysis
Framework program.

From the viewpoint of states and MPOs, ISTEA and TEA‑21 created new
freight programs (e.g., TIFIA, RRIF); permitted states to expand their
funding of highway operations to reduce congestion; and gave states the
flexibility both to allocate funds to a wide variety of projects and,
within limits, to shift funds among categories within the Highway Trust
Fund. The states and MPOs have applied these programs and related
"innovative financing" techniques to advance freight projects, pushing
the envelope with limited funds. Federal, state, and local governments
are investing a record amount of money in transportation systems, but
most of these funds, especially money from the highway trust funds, are
allocated to maintenance and rehabilitation of existing highways and
bridges. Fewer and fewer funds are available from established
transportation funding sources for new highway, rail, and port freight
projects.

States and MPOs are advancing the ISTEA and TEA‑21 mandates to improve
the productivity of the nation's freight transportation system. They
have made creative use of the new technical and financial resources
offered by ISTEA and TEA‑21, but major institutional, technical, and
funding barriers remain.

### The Case Studies -- Conclusions

The case studies examined the changing role of the federal government in
freight transportation, asking the questions: What created the mandate
for federal action? What role did the federal government play? What
resources were applied? How did the experience shape subsequent federal
policy?

The broadest conclusion to be drawn from the case studies is that there
has been no consistent approach to freight transportation policy.
Instead, the federal government has fashioned pragmatic approaches to
meet the perceived needs and the political climate of the times.

#### Mandate

The mandate for federal involvement typically comes after decades of
debate about strongly enunciated state and industry problems. The
transcontinental railroad was developed to link the country together
after the Civil War. The catalyst for the Interstate Highway System was
national defense and metropolitan development after World War II. The
financial collapse of the railroad industry in the 1950s and 1960s
triggered the economic deregulation of the commercial transportation
industry. And rising public concerns about congestion and the
environmental costs of overbuilding the Interstate Highway System were
the major national concerns behind enactment of ISTEA in 1991.

#### Organization

The federal government has taken widely differing roles in freight
transportation. The transcontinental railroad was built by the private
sector in public-private joint venture with the federal government. The
Interstate Highway System was built by the states in a public-public
venture led by the federal government. To accomplish the deregulation of
the commercial transportation industry, the federal government
disengaged itself from the industry after almost one hundred years of
direct economic oversight. With ISTEA, the federal government redefined
its relationship with the states, devolving control over most
transportation decision-making to state and local government.

#### Resources

The strategies for funding projects have also varied widely. The federal
government provided grants of land and credit support to the companies
developing the transcontinental railroad, but did not directly finance
construction. By contrast, the federal government took the lead in
funding the Interstate Highway system through fuel taxes collected by
the federal government and reapportioned to the states. The federal
government provided the political and legal structure for both
deregulation and ISTEA, but left the issue of financing transportation
improvements up to the private sector and state and local government.

##  Implications and Issues for the Future

Looking beyond ISTEA and TEA‑21, it is important to evaluate the
nation's future outlook for freight transportation, and to consider how
best to address its needs. Is it necessary to completely redesign the
federal transportation program or is it possible to meet the needs of
freight transportation through enhancements to the existing programs?
Based on the historical experience with federal transportation policy as
well as the more recent experience under ISTEA and TEA‑21, it is
possible to draw a number of implications that could suggest future
responses to freight transportation policy issues.

### Mandate

Is it time for a stronger freight mandate? History has shown that, as a
general rule, the federal government becomes involved in national
transportation initiatives in response to strongly enunciated state and
industry problems. The major federal initiatives in the transportation
sector have all been in response to situations regarded by policy-makers
as national imperatives. The transcontinental railroad was developed to
link the country together. The catalyst for the Interstate Highway
System was national defense. The financial collapse of several major
railroads triggered the economic deregulation of the commercial
transportation sector; and rising public concerns about congestion and
the environmental costs of overbuilding the highway system were the
major national concerns behind enactment of ISTEA and TEA‑21. Today, the
reliability and productivity of the nation's freight system are
declining because of increasing demand and deteriorating capacity. A
national imperative is now emerging to improve freight transportation
productivity because of the freight sector's importance to economic
development and industry competitiveness in a global economy. This
suggests that ISTEA and TEA‑21 mandates need to be renewed and
strengthened to address freight issues. The problems of the freight
transportation sector and the consequences of not addressing them are
clearer today than when ISTEA was enacted 10 years ago, and they will
sharpen in the coming years.

### Organization

Do the roles and responsibilities for freight planning and investment
need to be changed? What is the federal role in freight planning and
investment in the After-TEA era? Who does the federal government need to
work with? The Interstate era and experience under ISTEA and TEA‑21
argue for working in partnership with state and local governments and
the private sector. However, the experience of the transcontinental
railroad and the deregulation of the commercial transportation sector
argue against too much federal government involvement with the private
sector. The federal government has been rightly concerned about
distorting the competition of the marketplace or providing too much
public support to individual private enterprises. This complicates any
future response to freight transportation needs since so much of this
sector is in the hands of private industry.

Recent history suggests that the federal government should focus its
efforts on encouraging state and local governments to plan and invest in
freight system capacity. This builds on ISTEA and TEA‑21 and is in
keeping with the prevailing view that transportation solutions are best
left to state and local governments, which are more fully engaged in the
issues of economic competitiveness and global trade opportunities today
than when ISTEA was enacted.

Still, there remains a need for strong federal leadership and a forum
for identifying freight trends and issues and catalyzing action. The
health of the freight transportation system is a national concern. It
warrants continuing Congressional and Department of Transportation
attention.

Federal leadership is also central to improving the ability of states
and MPOs to work together on freight projects. Many freight problems are
regional in scale. They require an overall understanding of the full
scope of the transportation system and how it operates. Multistate
freight programs -- whether organized around trade areas or trade
corridors -- fall awkwardly between the constitutional jurisdictions of
the federal government and the states. Without a constitutional mandate
or dedicated funding, most multistate coalitions exist precariously,
sustained only by consensus, Congressional earmarks, or pooled highway
research funds.

### Resources

What is the appropriate level of federal resources and how should they
be deployed? Historically, the federal government has minimized its role
in funding transportation projects, especially freight transportation
projects. Even the transcontinental railroad did not receive significant
federal funding outright. Instead, the federal government granted land
and provided limited credit support, but left it to the railroads to
raise the capital for the enterprise. The Interstate system was the
exception, but the national defense imperative following World War II
was compelling enough to launch the program. However, the source of
funding, fuel taxes, was specifically tied to its intended use. This had
the effect of creating the modal structure of current federal programs
and strong constituencies for those programs. This suggests that it will
be difficult to structure a major new funding program and maximize its
flexibility to fund intermodal projects.

However, the federal government could act to expand the TEA‑21 borders
and corridors programs, and consider making intermodal-corridor border
projects as well as highway- projects eligible. It could also establish
a complementary terminals and connectors program. The last mile of road
connecting Interstate or other NHS highways to marine ports, airports,
and rail terminals is often an under-designed and poorly maintained
"orphan" in state and local planning and funding.

The federal government could move to better integrate the public sector
process for planning, financing, and delivering freight improvements.
The current process is slow, inflexible, and disjointed compared to
private sector needs and expectations.

Finally, the federal government could mount an aggressive effort to
improve freight data and analysis tools. For many MPOs, all but a
handful of states, and even the federal government, assembling a
complete and comprehensive picture of freight movements has been a major
hurdle to understanding freight flows and identifying policies and
improvements to improve freight productivity. The operations view of the
freight transportation system that looks to build freight capacity and
productivity through better management of public infrastructure and
better coordination with private operations is crucial in planning for
future requirements.

### Conclusion

What does this review of freight transportation policy suggest? First,
while freight has emerged as a significant policy issue, it has not
achieved the urgency needed to suggest a massive investment program. It
does merit an aggressive federal response in partnership with state and
local government. Second, it will be necessary to develop a federal
response that recognizes that freight needs extend beyond the scope of
states and metropolitan areas. This does not suggest that the state and
metropolitan focus of ISTEA and TEA‑21 is wrong. Rather it suggests that
the existing focus be supplemented with further efforts to look at trade
corridors and multi-state regions. Third, it will be necessary to
fashion a working relationship with the private sector that recognizes
the major role that the private sector plays in freight transportation
but respects the proper role of government. The credit programs of
TEA‑21 are a start, but other funding programs may be needed. This will
require a means of discerning public interest from private benefit to
determine the appropriate level of public support.

[^1]: This working paper was prepared by Cambridge Systematics, Inc., a
    member of the Battelle Team providing research and analysis support
    to the Federal Highway Administration Office of Freight Management
    and Operations. It is one in a series of working papers providing
    initial analysis and discussion of the trends and issues affecting
    freight transportation productivity in the United States and North
    America. The series is available at
    http://www.ops.fhwa.dot.gov/freight/adfrmwrk/index.htm. The working
    papers were prepared under contract DTFH61-97-C-00010, BAT-99-020.
    The opinions expressed in the working papers are those of the
    authors, not the Federal Highway Administration. The working papers
    are being circulated to generate discussion about emerging freight
    issues and may be updated in response to feedback from public and
    private sector stakeholders.

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