DE-FEDERALIZE TRANSPORT SPENDING: Most forms of transport infrastructure overwhelmingly serve the residents of a single state. Yet the federal government has played an outsized role in funding transportation for 50 years. Whenever the person paying isn’t the person who benefits, there will always be a push for more largesse and little check on spending efficiency. Would Detroit’s People Mover have ever been built if the people of Detroit had to pay for it? We should move toward a system in which states and localities take more responsibility for the infrastructure that serves their citizens.
See, people? It’s not just me and bunch of wild-eyed Tea Partiers.
Ryan and the other Democratic House members sent the U.S. Transportation Department a letter on Tuesday that questioned whether it was appropriate for the Ohio Department of Transportation to use $1.5 million from the federal State Planning and Research program to study privatizing a public asset. The federal money was revoked in response to that letter.
The argument from the Dems is that they think it’s wrong for the Feds to promote the study of a policy they don’t agree with. Well, yippee, now I get to whining from both sides of the aisle about How Dare People Study Things I Don’t Like, a whine most common in my experience among American conservatives, but now, apparently, is gaining traction with lefties like Dennis Kucinich. Awesome.
Anyhoodily, the Reason Foundation blog featured this contribution from Sam Staley:
The “privatization” being discussed is hardly radical. In fact, it’s standard policy in other parts of the world, including Europe, China, and India. In fact, the U.S. is a laggard in the use of this tool to finance and manage public assets. The state of Ohio is not considering a “sale” of a public asset, either; it’s considering a long-term lease to a private company in what’s called a concession with strict performance criteria that usually shifts risk off taxpayers. The allusion to 1,000 jobs being lost (err, “threatened”) is a red herring. Even if jobs are reduced–and substantial evidence suggests the turnpike’s payroll is bloated–hundreds of jobs will still be held by Ohioans. Moreover, Ohio Gov. Kasich has been clear in that he wants to use the revenues from the lease to fund infrastructure investments in other parts of the state (following the successful lead of Indiana’s lease of the its tollroad by Gov. Mitch Daniels). So, these funds would in fact generate the jobs the Congressmen and women claim will be threatened or lost through other infrastructure projects.
Let’s ignore the repeated use of “in fact” (Hey, blogging is hard!) and put aside the silly notion that anti-privatization is “being political” but being pro-privatization is somehow “not political” (hint: it’s all politics, folks). Nonetheless, Staley is right about the jobs issue: if the Turnpike stays open, the jobs will be fine. And there’s a chance the Turnpike might be run better under a lease, and that might mean some gains. There’s also no guarantee it’s going to be run better. But it’s not as though jobs will simply vanish into thin air regardless of what they do.
Here’s what outrages me: either that “study” is actually a first-step implementation (in which it shouldn’t be called a “study”; it should be called a pilot) or OMG WHO IS GETTING $1.6 MILLION TO STUDY PRIVATIZATION? I’m currently studying privatization on a grant 1/3 that size. And this study is on ONE TURNPIKE. ONE!! We’re studying the ENTIRE FREAKING WORLD. I tried to find the details of the study but couldn’t, but I’m so totally holding out for more money next time if people in Ohio get $1.6 mil for studying it.
In all seriousness, the size of the grant does make one wonder: if privatization is such a swell idea, and businesses are going to make heaps and gobs of money by doing things so much better than government does, why can’t the franchisee fund their own Ohio Turnpike study? Why do federal taxpayers have to be on the hook for that? And why doesn’t the Reason Foundation balk at that part of the issue rather than balking at canceling the study? No government doesn’t mean “government for studies I like but not for studies I don’t like.” Shouldn’t there be a market for privatization studies?
I tried to find the details of the study, but I couldn’t find them online. If anybody has them, could you post a link or some details in the comments?
I had a flood of emails after the privatization piece appeared in the Times, and I don’t have time to respond to everybody, I’m sorry to say. However, to the guy who spent roughly a page and a half telling me that of course I would support higher taxes because I am a blood-sucking professor growing fat off the taxpayer, I just want to say one thing: USC is a private university, m’kay?
Now that I have that out of my system, we can talk about some of the other, more interesting questions that came in.
Are you saying we should or shouldn’t privatize?
I’m not saying either one. I am saying that privatization is inevitable if Americans don’t want to pay taxes for infrastructure.
We can cut back on supposedly “wasteful” projects (and we should), but those are about a millionth of a fraction as important to the total, overall maintenance needs budget than Tea Partiers make them out to be. We’ve had years and years of shrinkage in value from the gas tax because we don’t index it for inflation; in the interim, demand has risen. The fund shrinks, on and on. With the recession, demand has scaled back a little, but when you are using facilities and your funds are shrinking, the money for maintenance and repairs has to come from somewhere. And in a no-tax situation, that means privatization, or letting your maintenance go.
In general, there is very little evidence that suggests private infrastructure costs anybody less than projects simply owned and operated by governments. There are many reasons for this finding: privatization deals are often hamstrung politically–e.g., concessionaires limited in what they can charge no matter what the demand or unforeseen operating issues they can’t recover, etc etc etc, forced operation in faraway, unprofitable areas, etc. Many argue we haven’t seen terribly fair experiments with privatization, and they may be right. But they also may be wrong.
Is the US really in as much trouble as Greece?
No. The US economy, even with our recession, is massive; our debt is a portion of our total productive capacity. Greece, on the other hand, is underwater for lack of a better term. There’s a big difference there.
Forced privatization, however, can come from multiple sources. In Greece’s case, they have to sell, period. In our case, we could decide tomorrow to tax ourselves to get the revenues we need to maintain our existing system.
But if you simply defund infrastructure maintenance, the assets go to pot or you force governments to go looking for private investors. And that’s where the US is. We’re making bad decisions to defer maintenance and to seek public-private partnerships on new projects (which everybody still loves, all the chattering about “cutting the fat” notwithstanding).
The basic point of the op-ed is that yes, we can try to force gummint to privatize its services. But cutting off the funding and not maintaining the assets is a terrible way to do that, and forcing down government bond ratings is a Stupid McStupid way to do that.
But I think government is just too big and out of control. I want more privatization.
The better way to go forward with privatization, if you really, really, really ideologically hate government and would rather live in a world of tolls and fees for quasi-public goods, is to let government negotiate privatization deals when the assets are in good condition (desirable), and they can bring to the table something other than the concession rights—the ability to absorb some of the capital risks associated with large-scale infrastructure. That ability to deal with the risks associated with building and maintaining large-scale facilities, with bond financing, is really what governments can bring into public-private partnerships. If you constrain that ability with tax aversion and letting bond ratings go to pot, you hamstring the ability for institutions, both public and private, to draw on the sort of deeper, longer-term revenue-smoothing commitments that you need to build something like a train line between San Diego and Sacramento rather than a hotel.
Not keeping our infrastructure maintained is a bad strategy, even if we DO want to get parts of it out of gummint hands: private companies do not necessarily want to run concessions on poorly maintained facilities, and they do not want to inherit a maintenance risk. Used cars that have a certified maintenance record with them usually have a price premium over those that don’t–just so.
My taxes are already too high. I can’t stand anymore.
That may be true, but one final word of caution. There’s a reason why every single commentary on infrastructure privatization always includes the words “there’s no such thing as a free lunch.” Because there is no such thing as a free lunch in infrastructure. If you privatize infrastructure, you may (or may not) have lower taxes over time as those facilities move into private hands.
But Santa Claus doesn’t run private infrastructure projects: profit-making companies do. They need to charge tolls and fees for you to use their stuff so they can stay in business. So on the one hand, I’m told that Americans HATE tolls and fees, too. Well, best get over that if you want privatization because that’s how road/parking/park/school/etc concessionaires make their money.
Maybe the sum total of what you pay when you select out of some services and select in to only those you patronize, but there is little evidence to suggest that actually works out. There are always cross-subsidies, even in privately produced goods (the beer pays for a lot of the food in restaurants, etc).
Gummint workers are lazy and incompetent. We’d get better service if our roads were in private hands.
Ok, but if we weren’t all working in the same place, Dilbert wouldn’t be as funny as it is, now would it?
One thing that private companies do tend to be able to do better than governments: they differentiate levels of service to let people buy into the service level they want. It’s very hard for governments to charge a “first class” and “third class” fee on tax-supported goods. Service differentiation can really make a big difference in how well services are fit to market demand.
However, service quality on privately owned concessions tends to vary, too, for a whole bunch of reasons. Remember when United Airlines was putting the hammer down on its employees in the mid2000s? Worst. Service. Ever. Heaven Help You if your flight got cancelled.
Of course you want us to spend money on infrastructure! That’s how you make your living! You’re writing out of self-interest.
I hear this charge a lot. Truth be told, it doesn’t matter to me professionally whether we privatize or not. I have private companies asking me to consult, I have governments that ask me to consult. My skills are portable between sectors.
Ultimately, I think it’s an open question about whether we need to spend more money overall on infrastructure. Is it more important than education or health care? I can’t presume to answer that question. But it’s really hard to maintain markets and everything Americans say they believe in if nobody can get decent water service, our energy grid is outdated, and we have potholes big enough to swallow 1980s Buicks. Infrastructure is one of those things where you have to spend money to make money: casinos, for example, have routinely built their own little transit and road projects to make it easier for their customers to come gamble.
So whether we strategically disinvest or not, whether we decide never to build HSR or anything new ever again, we do have to maintain our system if we want to function as an economy. It’s like this: you either pay for repaving, or you pay for new shocks and struts on your car more often than if the roads were in good repair.
Keep the questions coming if you like, and thanks for reading.
There’s some important stuff here, notably the “gun to the head” comment. That’s never a time to be making deals, as you have no choice.
Brilliant MPP student Teddy Minch sent me this link for what boils down to, in Teddy’s words, a Greek fire sale. On the auction block:
For the taking: four wide-body Airbus jets, a state lottery, a state horse-racing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece’s famed coast.
Now it will be enlightening to see what happens here. I’m assuming the coastal areas are going to get bought up really fast–there are mega-bazillionaires who will want the coastal property for private playgrounds, and since the universe appears to have lost any sense that such natural blessings ought to be public goods, they’ll get them here.
Does anybody want to operate Greek telecommunications? Their electric company? Banks? Not me.
Anybody want to pool our money to buy some coastal property? Oh, and lets buy the airport near it and the roads serving it so we can completely control the space, and then we could swank around like John Forsythe as Blake Carrington, Capitalist.
For 40 years, the US has spent billions investing in transit systems hoping to get people out of their cars. We have obdurately ignored economists who note that pricing gasoline more appropriately with a gas price floor or carbon tax would raise the costs of driving, would give us revenues to invest in public transit, and would do what everybody wants everybody else to do—stop driving gas guzzlers and stop driving so much.
Instead, we’ve built and built transit that has underperformed for years simply because driving is still so cheap. But we haven’t invested probably enough to prepare for the demand for public transit because we don’t have the revenues to do so, partially because we’ve stuck to the policy of keeping gas cheap.
Stupid, short-term thinking.
The Financial Times has a series of very good articles recently on where we are.
Gas prices spur inflation (of course they do, if everybody is getting around by car, everything from labor to other inputs are higher in prices)
And it’s not helping the trade deficit (again, basic math)
The New York Times has in recent years begun presenting presidential budgets in interactive treemaps, and I think the presentation is really helpful and clear.
In transportation, all the funds fare well. Despite all the durm and strang, highways continue to capture a very large portion of the budget by either absolute or per person measures.
The big moves are obviously $5b for an infrastructure bank and the $8b for Federal Railroad Association, where Amtrack funds will get rolled into the Federal commitment to HSR, yielding a 53,000 percent increase for the FRA.
We’ll see how it all fares in the Congress.
In other HSR news, Governor Rick Scott joined the governors who have rejected the HSR proposal based largely on the trillion-dollar deficit. HT to Gabriel Rossman for that link.
Is Governor Scott wrong or right? (I have trouble remember it’s Governor Scott not Governor Rick.)
Anyhoozy. Let’s go back to the NYT Treemap again and see what’s what: who lost money, and how much debt is eating our lunch:
The National Endowment for the Arts (-13.1 % on an already small budget)
The National Endowment for the Humanities (also -13.1 % on an already small budget)
The Small Business Administration loses nearly half its already small budget (-44 %)
The Environmental Protection Agency loses 13 percent of its $9 billion budget. Compared to the billions thrown at HUD($37B), I’m rather appalled at this.
Nonetheless, Community Planning and Development loses 5 percent of its budget.
The Office of Vocational and Adult Education loses -17 percent.
Employment and Training Administration loses half of its budget. Half.
He proposes to cut the IRS budget by nearly a quarter, which is wonderful wonderful wonderful news because that allows for even more tax evasion than we currently have. This? This is sucking up to the Republicans to show how the White House is reaching across the aisle.
The interest on the public debt? It’s doing well. It’s up by 15 percent, to $470 billion (more than all the programs I just listed above) and about $4000 per person.
I’m thinking people are going to be losing work with all these cuts.
Ah, but all this HSR will create jobs jobs jobs! Investment you know. Education? Pshaw! We all know human capital is a complete waste on the job front.
The Office of Federal Student Aid gets a nice big bump, at least–51 percent. The statement is clear: kids going to college will have to borrow more and pay more ultimately for college, but the costs of borrowing will be lower.
I am not sure what the distributional consequences are of the education cuts, but I have a suspicion. And it’s not progressive, even though federal student aid is.
I personally do not value HSR more than I value the NEA, the NEH, the EPA, or education for adult learners—often the US’s most economically disadvantaged learners. What do you value?
I am in Toronto talking about policy design, road design, and equity, and I opened the Toronto Globe and Mail yesterday to this story: Bus Service Cutbacks.
I asked a table of transit experts why we always seem to hear about transit operating subsidies but we seldom hear about water subsidies or garbage collection subsidies. Those all operate with subsidies for the most part. An interesting conversation ensued.
AWESOME!!! Go check it out.
One of the common arguments I hear is that transit is underfunded. Now, this is a subjective question. For those who believe that having transit is absolutely vital to cities, no amount would be enough. So that’s not the point.
The other argument that I hear is that we spend too much on highways rather than transit. Again, subjective. There’s no way to suss this question easily enough for a blog post.
But we can take a look at what people seem to believe is a disparity in funding.
This is the graphic you are most likely to see when we discuss differences between highway and transit funding:
Ok, so of the total, highways get about 55 to 60 percent and transit gets 17 percent on average over the time period, but by the end of the time period, transit’s share has risen to about 20 percent and highways has gone to about 54 percent.
So that’s a pretty big difference in funding. But when you factor in the passenger miles served, the calculus changes. In the following graphic, I have assigned 100 percent of the spending on highways to passenger cars–a major overstatement, but it serves the point. It’s an overstatement because highways also serve trucks (a big deal), motorcycles and some transit (less of a big deal.)
But I am not sure that external costs are relevant to expenditure fairness. Whether we factor in external costs or not is relevant to tax policy, for sure, but it’s probably not relevant to the budget equity arguments often made. It’s one thing to talk about optimum investment, which would require marginal social cost: it’s another to try to figure out if transit exists is “David” to auto’s “Goliath”.
Here, we’re trying to figure out if transit riders are getting the shaft. Are they getting the shaft (the transit advocate side)? Or are they rolling in dough they don’t need (the Reason foundation argument)?
This is one of the few times I actually might believe the apples and oranges arguments about comparing. Transit is in a building stage, but highways, for the most part, are in the maintenance phase. We could argue ourselves in circles: to reach investment parity, we’d need to double the transit numbers per passenger mile, etc, etc.
I just don’t know what I think. I need to fiddle with the numbers more.
All these data are from BTS, btw.