Clearing it Up on Federal Transportation Expenditures

» The federal government has already devolved most of its transportation powers to local and state governments. And there is little evidence that further reducing the power of Washington will produce better transportation investments.

The reaction to President Obama’s 2013 budget for transportation has ranged from the dismissive — “it’s too big to be part of the discussion” — to the supportive (myself, among others), most of the commentary revolving around the proposed program’s large size. Another theme, however, has reemerged in the discussion: The role of the federal government in funding transportation. It’s not a new conversation, of course; in American transportation circles, the roles of the three major levels of government are constantly being put into question.

The argument goes something like this: The federal government, because of its national power and ability to collect revenues from the fuel taxes it administers, is a wasteful spender and it chooses to invest in projects that are inappropriate enough that they wouldn’t be financed by local governments if they were in charge.

Harvard Economist Edward Glaeser argues for the de-federalization of transport spending, suggesting “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.” He also suggests, somewhat contradictorily, that federal funding “tie spending to need or performance.“*

USC’s Lisa Schweitzer asserts that if cities want improved sidewalks or public transportation, they should pay for them themselves. “The typical arguments [are] that “those things are good for us!”,” she writes. “Of course they are. Why can’t you fund them at the city, or in the case of transit, the state level?” [She adds that she will defend federal investment in a future discussion.]

Bruce Katz of Brookings chimes in. “The states and metropolitan areas are once again playing their traditional roles as “laboratories of democracy” and centers of economic and policy innovation,” he adds. “An enormous opportunity exists for the next president to mobilize these federalist partners in a focused campaign for national economic renewal.” The federal government, it is implied, is just too intrusive to make the right decisions.

Here’s the thing: The large majority of decisions on transportation spending with federal dollars is already made at the state and local levels. And state and local governments already contribute huge sums to the operation, maintenance, and expansion of their transportation programs.

Once the federal government collects tax revenue, it distributes funding to the states based on formulas agreed upon by members of Congress. For the most, part, the money goes back to the states and to metropolitan areas, which then fund projects based on the priority lists that they generate. It is true that Washington allocates some money for transit and some for highways, but within those categories, states and local governments generally have power to pay for the projects they want.

Washington does run very competitive grant programs — exactly the type of performance-based financing Mr. Glaeser demands — for transit investment projects and for programs like TIGER (and, indeed, for the much-hated high-speed rail program). Federal guidelines require most of these projects (unlike those funded by formula) to meet cost-effectiveness and ridership standards. This was not true at the time of the Detroit People Mover (a project I admit I abhor), but it is certainly true now.*** While earmarks (now out of the equation entirely) got a lot of attention as being wasteful, even at the height of the process they only accounted for about 5% of transportation spending from Washington.

I can think of plenty of expensive and arguably inappropriate transit projects paid for by local governments that would not meet the guidelines to be funded by the federal government under its competitive programs. Should we hail Mr. Katz’s “laboratories of democracy” that produced these? Would Mr. Glaeser have these federal grant programs dismantled so states or localities could fund underperforming transit?

Meanwhile, states and local governments are contributing massively to transportation funding already, just as Ms. Schweitzer asks them to. I studied Oregon and Illinois a year and a half ago and found that only about a quarter of Oregon’s Department of Transportation budget comes from Washington; about a third of Illinois’ comes from the national capital.

What about those profligate transit agencies that are egged on by the federal government’s wasteful spending? Their operations spending comes from local, state, and fare revenues — not Washington. And expansion projects — especially the big ones — are mostly financed by local revenues, like dedicated sales taxes that voters across the country have approved repeatedly over the past twenty years. The six largest transit expansion projects currently receiving or proposed to receive funding from the Obama Administration this year each rely on the federal government to contribute less than 43% of total costs. Perhaps Detroit would have paid for the People Mover even if it had had to use its own revenues to do so.

Now, even if we were to recognize the high level of devolution of power and funds that currently does exist in the U.S., some might still argue that the federal government exercises too much power. Its distribution formula for fuel tax revenues results in certain states getting more money than their drivers contributed (“donor” states) and certain states getting less (“donee” states). Why not simply allow states to collect their own revenues and spend money as they wish? Why should Washington be engaged in this discussion at all?

For one, as I have noted above, states and municipalities have no clear record of choosing to invest in better projects when they are fully in charge of collecting the revenues to do so. States have too often proven a complete disregard for public transportation investments when they’re left fully in charge — see state infrastructure banks as evidence for that fact. While federal investments in transportation have been far from perfect, they have nonetheless provided for the significant expansion in transit offerings we’re now seeing.

From the 1980s on, the Congress has maintained a steady stream of funding for transit from the fuel tax revenues it collects. How many states, which collect a huge amount of fuel tax revenues themselves, can say the same?

But the most important role of the federal government in transportation financing is to ensure that funding is maintained during economic downturns. The Obama Administration actually increased spending on roads and transit projects following the 2008 recession, despite a decline in federal fuel tax revenues, because it was able to use its power of deficit spending (an authority state and local governments do not have**) to maintain investments when the country needed them. Devolution is overrated.

* Glaeser, when criticizing the transportation budget, also takes the opportunity to refresh his years-long tirade against rail projects, suggesting “Instead of chasing the quixotic dream of high-speed rail in Texas, public-transit aficionados should start agitating for better bus service, with plenty of private competition.” But no one is arguing that we sacrifice better urban bus service for high-speed rail. Is Glaeser suggesting we stop building urban rail lines? If so, how does he expect to transport the people living in all of the towers he wants to construct in the dense urban cores of American cities? Meanwhile, the Obama Administration, no one seems to have noticed, has invested more in bus service improvement projects through BRT and BRT light than any previous federal government.

** Commenter John notes that many transit projects are paid for through bonds, which are in essence deficits, and that states have the technical power to have deficits — and these points are both valid. However, all states except Vermont have some form of balanced budget rule. And the selling of bonds by transit agencies are reliant on them having future guaranteed funding sources to pay back the debt — federal funding like capital grants are an important part of making that equation happen. Transit agencies do not have the ability to expand their debt capacity greatly (unlike the federal government) because of investor fears about future funding security.

*** Update, 22 February: There was a competitive grant program to provide funding for downtown circulators in the 1980s, and four cities won awards. Detroit and Miami built their projects.

Image above: U.S. DOT Headquarters: Not the be-all, end-all. From Flickr user Elvert Barnes (cc)

26 Comments | Leave a Reply »
  • John

    The statement, “[the federal government] was able to use its power of deficit spending (an authority state and local governments do not have),” is highly misleading if not entirely false. Most large transit projects at the local level are paid for by bond issues, which at the federal level we would call deficit spending.

    The only valid aspect of that assertion is that many (though not all) state governments by their own choice have enacted balanced budget amendments, but even in that case, there’s a deep sense in which they still have the ‘authority’ to do deficit spending: It’s a self-constraint, it’s not like the US constitution somehow bestowed the ‘authority’ of deficit spending only on the feds.

    I think I agree with the overall thrust of the article, but it would be stronger if it stuck to the facts.

    • Thanks, John, those are valid points. I’ve added a footnote noting that.

    • Nathanael

      However, only the US government has the power to literally print money (inflation funding, rather than interest-bearing debt funding). It hasn’t really used that power since the Greenbacks were retired.

      I believe that California could successfully print money if it wished to, and get people to accept it, regardless of the “rules” in the Constitution, but it’s the only state with that much clout.

  • Chris

    One point I think this misses is that the large federal budget allocation, in addition to securing a significant amount of transit funding, also secures funding for highways. The federal government’s deficit spending does help ensure transit funding through economic downturns, but to a much greater degree it helps keep driving cheap through economic downturns. I think if you believe a transit-heavy urban system is more efficient, as I do, then the problem is not so much that we are not spending enough on transit as that we are excessively subsidizing its competitors. Federal involvement ensures that problem remains. (Having created it in the first place. Had the federal government never gotten involved in intracity transportation funding, much of our highway capacity would probably not exist today – and we would be much better off for it, with a higher transit mode share.)

    • Nathanael

      The federal government was already charged with intracity transportation funding in the Constitution. “Post roads” include local delivery as well as intercity delivery. :-P I guess I’m saying that horse left the barn a LONG time ago.

  • Danny

    “Washington does run very competitive grant programs — exactly the type of performance-based financing Mr. Glaeser demands — for transit investment projects and for programs like TIGER”

    I thought those grants were given out based on some undefinable concept of “livability”…aka, whoever helps them get reelected. That isn’t a performance metric.

    • Nathanael

      No, the TIGER programs are based on serious performance metrics — although there’s a special rule to funnel a portion to rural projects, because NONE of them would look any good on any performance metrics versus urban projects. Apart from that bias, the TIGER programs have been pretty good; very technocratic.

      There’s a qualitative allowance for weighting the different quantitative objective metrics, but from my study, the professionals at DOT have used their discretion with care, and not abused it. TIGGER allows for even less discretion.

      • While I appreciate your defense of TIGER, I tried to obtain documentation of their project assessments and was told that “no such documents are available that can be made public.”

        Wouldn’t I be able to better judge the professionals at DOT if I could check their work?

        • Nathanael

          But wait, I swear I’ve seen some such assessments.

          I wonder if there’s a delay time on document release (if the documents get “sanitized” before release). I’ve only seen them for the very first round.

  • Last week, majority in Federal House of Representatives laid down the gauntlet. what is shaping up to be a dramatic fight over the future of transportation in the United States. The TIC passed their bill along partisan lines, while the House Ways and Means Committee ousted transit funding entirely from the Highway.

  • Wanderer

    In urban/suburban California, transit and transportation spending is completely dominated by funds raised through county level transportation sales taxes. These funds can provide a majority of transportation funding. Sometimes these funds are being well spent, as in Los Angeles County’s transit transformative Measure R. Other times they’re not so well. Counties become reluctant to accept any guidance from metropolitan regional organizations, let alone the state or federal government. Multi-county projects within a metropolitan region become more difficult–this is particularly a problem in the San Francisco Bay Area, which has 9 counties.

    • Nathanael

      As usual, if you devolve power down to a local level, it becomes nightmarish to do a project which goes between three localities.

    • Even Measure R devotes a sizable portion of revenue to capacity expansion (labeled as ‘traffic reduction’ on its website). Simultaneously expanding transit and auto capacity seems to me to be counterproductive.

  • Josh

    Funny that some of the people who want the Government out of regulating transportation spending would cry foul if the Government got out of the business of keeping a gallon of gas low through subsidies.

    If the price of gas was more reflective of it’s true cost, then perhaps more States might find investments in transit would be more beneficial to their constituents.

    Our country needs an overhaul in it’s energy policy, just as much as it needs to re-think transportation. These two policies should not be viewed as mutually exclusive. We can kill two birds with stone here.

  • Ocean Railroader

    I really think with out the federal goverment jumping in to fund these muti billion dollar highway and transit projects you would see the end of giant mega projects in that when you look at how much fighting goes on between people and counties in building even small projects it wouldn’t work in that they would bikke among one another. Also with the fed it’s a lot harder for the local good old boys system to over take something.

    Basiclly what would happen if this plan happened and the fed got out of federal transportaion these states and local counities would fight over everything more than the monsters in the game Doom with one another.

  • Tim E

    Its ironic, you could argue that the interstate system would have never come to frutition without it being led by the Federal Government. Imagine the mess that our country’s airspace under the direction of individual states. and so on.

    In the same breath, the freight railroad system success is due in part to the interstate commerce clause and the railroads ability to fund parts that make sense and logic to the system as whole. Not by divying up the Capex to individual subdivisions and letting them decide on pet projets.

    Simply put, I’m at an absolute loss when it comes to Republicans mentality concerning the nation’s transportation and inftrastructure. They argue that the free market knows best and turn around do exactly the opposite of what is succeeding in the free marrket. In the same breath I can’t explain Democrats when it comes to entitlements. Probably explains why I became an independent – We can’t fix a pothole and you would go broke paying medical bills after hitting the pothole.

    • Nathanael

      I can only explain the “extreme liberal” attitude towards entitlements: certain things should be public services funded by general taxation, such as medical care (Medicare for everyone). Like in the UK or Canada or Scandanavia. Easy, straightfoward, works. Just like public water systems work. People should be *entitled* to some things as the birthright of a citizen, and we should pay for those through taxes. This has been proven to work in places from Bismarck’s Germany onward.

      I can’t explain the half-assed attitude among so-called “moderate” Democrats, however, who get us more expensive and less effective programs. I think it’s a matter of being bought off by incumbent interests (such as health insurance companies) — “We want to help people, but without goring anyone’s ox”, versus the hardcore liberal attitude of “We’re going to help people and if you get in the way, we’ll wipe your company off the face of the earth”.

      • Jack Hope

        That’s where a lot of the real insanity lies. When the financial crisis, so many people across the political spectrum were up in arms that the United States government was socializing losses. But the United States has been doing that for decades when it comes to health care, taking people at the times when they’ll cost the health care system the most (elderly or poor) and paying for them out of the public purse, while allowing private interests to profit off of insurance premiums from healthy people in the prime of their lives.

        This typifies the way the critical failure of the United States government: because they are so married to corporate interests and fearful of being labelled ‘socialists’ they continue to create inefficient programs that fail to meet their goals and end up costing the United States more money.

  • IsaacB

    Have the pundits conveniently forgotten the early 20th century investments in infrastructure built by the feds, like the Tennessee Valley Authority, Rural Electrification and all those big dams?

  • Progressive Capitalist

    The Highway Trust Fund has come to the end of its useful life. If an interstate hasn’t been built by now, it really isn’t terribly needed.

    Infill on and revamping of existing infrastructure are the most cost-effective, city-building tools. New York City has realized more ROI via parklettes and diets, which actually reduce the total number of lane-miles of streets. And if the nation’s most congested city can reduce capacity yet realize less congestion and more vibrancy, then surely, much less congested places can, too.

    Stop feeding the monster. Seeking a higher ROI without any federal subsidy, more cities will choose to invest in their existing streets over building more “stroads” and highways.

    • Jack Hope

      A ‘starve the beast’ strategy for progressives and urbanists?

      That might work.

      • Progressive Capitalist

        Yes, market urbanism is the solution. Transit will flourish, when the competing modes are no longer heavily subsidized. Metros also have more local and regional tax capacity to respond to neglected transit systems and retrofit their streets for human-powered modes. Localized financing can also pay off such stronger ROI investments through their value-capture.

        More than ever, we also need a true populism that both reduces our oil dependence and reduces our deficit-spending. The Teabaggers have given us the right messaging. Progressives can just be the ones to deliver on it, and best of all, without the hypocrisy of the entitlement-culture of rural areas.

  • I’d be curious to hear thoughts on why states tend to underinvest in non-automotive modes, whether that is a good or bad choice for varying states and across varying modes, and how that might be turned around in states which have a more dire need to investment in non-automotive modes.

    • Nathanael

      Rural bias (which is systemic in the US system) is the first and most prominent problem. If your goal is to serve a spread-out, low-population rural area, automotive modes actually *are* the most cost-effective among many expensive modes.

      I can explain the history of systemic rural bias in the US system; state legislatures were allowed to overrepresent rural areas until the Baker v. Carr ruling, and the rural-dominated upper houses continued to gerrymander control for themselves for decades afterwards; the legacy of this is *still* giving us trouble in New York. The US Senate, of course, is still malapportioned to overrepresent rural areas.

      But this doesn’t explain the behavior *within cities and suburbs*. There’s other stuff going on.

      • I’m actually OK with a rural bias, though I admittedly come from rural areas myself… but that’s also exactly why I (along with many fellow Pennsylvanians) support transit.

        There’s a strong appreciation that improved city transit helps support the tax base that finances the rural areas & also supports the market for rural-produced goods, regional transport is key to moving freight, and strong city cores help preserve the countryside from runaway development.

        Furthermore, conservative roots identify fondly with transit’s capability to move more people at lower cost (enabling taxpayer dollars to be spent more efficiently), enable a greater freedom of movement and freedom of choice, and work in partnership with business — both Wall Street and Main Street — in acknowledgment that by and large: most customers arrive into the store on two feet; not on four wheels.

        Of course, growing up along the Keystone Corridor and with an immense freight rail history has surely helped nurture many of us toward a fond regard of transit systems… but Pennsylvania provides at least some evidence that the urban/rural divide need not be the barrier.

        To reiterate what I’ve said many times before: I’m a small government fiscal conservative… and that’s exactly why I’m an urbanist.

  • william price

    How does the US compare to other nations is transportation expenditures per person? It seems that being wedded to a transportation system based upon cars, highways and airplanes is dangerous longterm, since so much of our wealth is spent on inefficient modes of transportation and so much of that wealth goes abroad for foreign oil and vehicles.

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