Put the E back in ISTEA:

The Efficiency Feebate Apportionment Process

Congress used the 1991 reauthorization of the surface transportation funding laws to give state and local officials unheralded flexibility to spend federal funds on alternative modes of transport. This flexibility has not been significantly utilized. ISTEA's upcoming reauthorization provides an opportunity to further encourage investing in efficient means of travel. One such measure should be the Efficiency Feebate Apportionment Process (EFAP), discussed here.

The Background
The 1991 changes allow funds from the new Surface Transportation Program (STP) and Congestion Mitigation and Air Quality (CMAQ) program to be spent on a wide range of projects, including highway, transit, bicycling and walking facilities. State and local officials decide what to do with the money.

Unfortunately, most transportation agencies retain their highway biases. The Surface Transportation Policy Project shows two trends with the new flexible programs. First, states are obligating the versatile funds at a slower rate than funds in the traditional highway accounts. For instance, 1994 obligation rates reached 86% for the National Highway System, but only hit 64% for STP funds. Second, little of the flexible funds are actually flexed. Only 5% of 1994's STP and CMAQ funds were transferred from the Federal Highway Administration to the Federal Transit Administration for transit projects (State Obligations Report, Fiscal Year 1994, pp 7 & 3).

The General Accounting Office warned this was likely to happen. "The inclination to continue past practices and look to highways in lieu of transit may persist without federal direction or incentives to optimize flexible funding (Mass Transit, Historical Patterns and Future Outlook, GAO / T-RCED-91-15)."

The incentive needed is the Efficiency Feebate Apportionment Process. EFAP has three elements:

Efficiency: the minimization of time/money/energy used to produce a result.

Feebate: a self funded program which encourages a desired outcome. The money collected through the economic disincentive of "fees" is used as an economic reward in the form of "rebates."

Apportionment: the use of formulas to divide up federal funds amongst the states.

EFAP combines these elements into a strong inducement for states to turn the intangible concept of improving efficiency into the ever tangible incentive: cash. States taking few, if any, measures to change course get their apportionment reduced while states implementing means to bolster productivity get more transportation funds.

The Nitty Gritty
The process is an additional formula tacked onto the regular apportionment calculations. The process is built on a foundation which uses Vehicle Miles Traveled and Population as efficiency indicators. In order to smooth out irrelevant annual fluctuations, three year rolling averages of both VMT and Population are utilized. The Population/VMT ratio of a given state is compared from year to year and a Percentage Change is calculated. The Percentage Change of all the sates is added up and the sum divided by the number of states, creating an Average Percent Change. Each state's Percentage Change is then compared to the Average Percent Change to determine the state's Relative Percent Change. The Relative Percent Change is used as a multiplier on the state's Base Apportionment. Finally, a True-Up Mechanism is applied, ensuring the total fees and rebates add to zero. The result is the new State Apportionment.

										
 Formula                                                                    
 Explanation
[(Pop2/VMT2)-(Pop1/VMT1)]/(Pop1/VMT1)=PC 
 PC = state's Percentage Change, from year 1 to year 2
PC-[(sum of all PC)/(number of states)]=RPC                
RPC = Relative Percent Change
RPC * WM * BA = F                                                            
F = Feebate
                                                                                       
BA = Base Apportionment
                                                                                      
WM = Weighting Mechanism
BA+F=TF                                                             
T = Temporary Figure
(sum of all F)*[BA/(sum of all BA)]=TUM                          
TUM = True-Up Mechanism
TF-TUM=SA                                                     
SA = State's Apportionment
									

The Results
The calculations for each state are based on the state's change from the prior year. Thus, each year provides a new chance to improve. Thereby, even the least efficient states can get bonuses by making concerted efforts.

In conclusion, EFAP is a simple and effective means to make boosting the transport sector's efficiency a national goal while letting state and local officials determine if and how to meet that goal. This combination of management by objective and decentralization of control embodies the spirit of both ISTEA and the present direction of federal policy.