Category Archives: Infrastructure

Virginia’s transportation plan under the microscope

Last week Virginia Governor Bob McDonnell shared his plan to address the state’s transportation needs. The big news is that the Governor wants to eliminate Virginia’s gas tax of 17.5 cents/gallon. This revenue would be replaced with an increase in the state’s sales tax from 5 percent to 5.8 percent. This along with a transfer of $812 million from the general fund, a $15 increase in the car registration fee, a $100 fee on alternative fuel vehicles and the promise of federal revenues should Congress pass legislation to tax online sales brings the total amount of revenue projected to fund Virginia’s transportation to $3.1 billion.

As the Tax Foundation points out, more than half of this relies on a transfer from the state’s general fund, and on Congressional legislation that has not yet passed.

Virginia plans to spend $4.9 billion on transportation. As currently structured, the gas tax only brings in $961 million. There are a few reasons why. First, Virginia hasn’t indexed the gas tax to inflation since 1986. It’s currently worth 40 cents on the dollar. In today’s dollars 17.5 cents is worth about 8 cents. Secondly, while there are more drivers in Virginia, cars are also more fuel efficient and more of those cars (91,000) are alternative fuel. In 2013, the gas tax isn’t bringing in the same amount of revenue as it once did.

But that doesn’t mean that switching from a user-based tax to a general tax isn’t problematic. Two concerns are transparency and fairness. Switching from (an imperfect) user-based fee to a broader tax breaks the link between those who use the roads and those who pay, shorting an important feedback mechanism. Another issue is fairness. Moving from a gas tax to a sales tax leads to cross-subsidization. Those who don’t drive pay for others’ road usage.

The proposal has received a fair amount of criticism with other approaches suggested. Randal O’Toole at Cato likes the idea of Vehicle Miles Travelled (VMT) which would track the number of miles driven via an EZ-Pass type technology billing the user directly for road usage. It would probably take at least a decade to fully implement. And, some have strong libertarian objections. Joseph Henchman at the Tax Foundation proposes a mix of indexing the gas tax to inflation, increased tolls, and levying a local transportation sales tax on NOVA drivers.

The plan opens up Virginia’s 2013 legislative session and is sure to receive a fair amount of discussion among legislators.

Strategy and politics in the of phrasing of bond referendum

How detailed should bond referendum be? The Arlington County Board heard comments from the public on the FY 2013 capital spending plan a few weeks ago. At issue was $153 million in local GO bond referendum that will be on the ballot on November 6th. The Arlington Sun Gazette reports there are four major “bundles.”

  • $31.946 million for Metro, neighborhood traffic calming, paving and other transportation projects
  • $50.533 million for parks, including the Long Bridge Park aquatics and fitness center and parkland acquisition
  • $28.306 million for Neighborhood Conservation and other “community infrastructure” projects
  • $42.62 million for design and construction of various school projects.

At issue was the language accompanying the bond packages. The Arlington County Civic Federation contends the $45 million dedicated to the acquatics center be listed as a separate item rather than bundled under the general category of park improvements.

Scott McCaffrey writes that the County Board has been bundling bonds under thematic groupings for many years as a strategy to lessen voter opposition, an interesting claim.

How explicit does language have to be in municipal General Obligation bond offerings? States typically require GO bond debt be subject to voter approval before issuance, but how does ballot language matter to the outcome?

While not addressing the matter specifically a few related questions have been pursued in the literature. Damore, Bowler and Nicholson in their paper, “Agenda Setting by Direct Democracy: Comparing the Initiative and the Referendum” (State Politics and Policy Quaterly, forthcoming) considers if agenda setters use the referendum process to extract greater spending than the median voter desires. Some of this research indicates that voters are less likely to support state referendum for tax increases but that between 1990 and 2008, 80 percent of bond referendum received voter approval.

As to the need for particular language, there are strategies. The Government Finance Officers Association (GFOA) lists six steps governments can take to improve their chances of getting a bond approved. This includes, “measure design” or “developing ballot language that appeals to voters and clearly explains how this measure addresses the particular issue targeted by the bonds meets the needs of the community.”

I did find anecdotal evidence that politicians struggle with language on ballot questions, in an effort to strike a balance between clarity and increased likelihood of passage. The Rockford Illinois School Board appears to be hemmed-in by how it phrases bond questions. The more detailed the questions the more legally-bound the board is to spend the money as specifically approved by voters.

Speaking of language, in writing this post I was unsure if I should be using”referenda” as the plural of “referendum”. “Referenda” sounds more natural to me but “referendum” appears to be used more often.

Given the difficulty of the original Latin grammar (referendum is a “gerund” and has no plural), it turns out there is an unsettled debate over this. Either is correct according to the Irish paper The Daily Edge. I felt better knowing that even The British Parliament debated over which plural form to use back in 1998. It turns out whether one uses the Latin “referenda” or the Anglicized “referendum” is purely a matter of taste.

The True Cost of the Columbia Pike Trolley: Priceless

A proposal to build a trolley car system on Columbia Pike in Arlington, Virginia continues to provoke strong reactions from residents. The County Board estimates it will cost between $214 million and $261 million to build and between $19.5 million and $25 million to operate and maintain.

As the PikeSpotter calculates, that’s $200 million more to build than the next best option: an enhanced bus line. Why the County Board’s push for a $50 million per mile streetcar system?

According to advocates, the Pike Transit proposal will relieve area congestion, spur economic activity and promote environmental sustainability.

However, residents from all sides of the political spectrum appear to disagree with the County Board. Arlington Yupette says the Pike Transit plans are “elitist” and intended to drive out middle class and working class residents by driving up rents. The end result: the “Clarendonization” of South Arlington. Some point to the need for resources to be directed to the overcrowding in county schools. And still others highlight the high likelihood of such projects becoming boondoggles.

Given the anecdotal lack of popular support expressed by area residents, why are officials persisting? Public finance holds a key. Should the county go ahead and commit to build a rail line here is how it will be financed. Thirty percent of funds will come from the  New Starts/Small Starts federal grant program and 14 percent from the state of Virginia. The remainder is to be provided by Arlington and Fairfax Counties.

Is this fiscal illusion at play? The Small Starts Program will provide up to $75 million if the local government provides a match. County Board officials are confident that Arlington and Fairfax can foot $140 million (Arlington will pay 80 percent of that) with the state of Virginia kicking in a further $35 million. Because a chunk of the cost of building the rail line can be externalized, that is, passed on to state and federal taxpayers, it looks like a bargain…at least for a fleeting moment. It’s still about $170 million dollars more than what it would cost to add more buses.

And there are more complications that arise from mingling federal, state and local dollars as noted by the Sun-Gazette. Virginia is a right to work state. Are union employees required to work on the rail line since the project will receive federal dollars? If yes then the increased labor costs will make the project even more costly to the county. (Lieutenant Governor Bolling believes Virginia state law trumps federal law in the matter.)

While new estimates continue to push the costs higher, at least one Arlington County Board member is undeterred by fiscal considerations, “This is a project that has the most potential to help us achieve our environmental goals and livability goals. We think it will have a very high return.”

That is, the costs of building the streetcar line are concrete, and the returns are mired in the counterfactual.

 

 

 

Is Infrastructure Spending Stimulative?

Wyatt Andrews of CBS News writes:

When Moody’s studied the 2009 stimulus package, infrastructure spending rated high. For every dollar spent, $1.44 was returned to the economy.

The problem with this is that it assumes that infrastructure projects will be executed in exactly the way that Keynesian theorists say that they ought to be (“timely, targeted, and temporary” in Lawrence Summers’s words).

That might work on a blackboard or in an (incomplete) computer model, but not in the real world. In the real world, infrastructure projects involve planning, bidding, contracting, construction, and evaluation. All of this takes time, especially if you want to make sure the money is spent wisely (remember, it also must be properly “targeted” or else it won’t work).

And, indeed, as an emperical fact of life, it does seem to take time. According to the CBO:

[F]or major infrastructure projects supported by the federal government, such as highway construction and activities of the Army Corps of Engineers, initial outlays usually total less than 25 percent of the funding provided in a given year. For large projects, the initial rate of spending can be significantly lower than 25 percent.

When macroeconomists account for the delays that are inherent in these types of projects, they arrive at exactly the opposite conclusion of Moody’s. For example, a recent International Monetary Fund paper by Eric Leeper, Todd Walker and Shu-Chun Yang found: Implementation delays can produce small or even negative labor and output responses.” Moreover, these “Implementation delays can postpone the intended economic stimulus and may even worsen the downturn in the short run.”

This helps explain why Lord Keynes himself became a skeptic of these types of projects later in life.  In 1942 he wrote:

Organized public works…may be the right cure for a chronic tendency to a deficiency of effective demand.  But hey are not capable of sufficiently rapid organization (and above all cannot be reversed or undone at a later date), to be the most serviceable instrument for the prevention of the trade cycle.

Getting Clean Water to Cambodia

Today on NPR:

In the 1990s, he accompanied teams of workers as they went around the city trying to convince ordinary Cambodians that installing a water meter and paying for water meant they would save money and be healthier.

World water experts have nothing but good to say about him and the PPWSA. Per-Arne Malmqvist, a water expert at the Stockholm International Water Institute in Sweden, says they have succeeded in doing something that even cities in the Western world have not succeeded in.

At one point, a Cambodian general who objected to the scheme held a gun to Chan’s head, refusing to pay. But with the help of politicians who supported his scheme, Chan won over all levels of the city.

“It’s not only about technicalities — constructing pipelines and water works — it’s also the management of the system, fighting corruption and having people to pay for the water which, of course, is very important.”

Tyler Cowen, writing in 2008, on the water problems of the Third World:

The solution for the poorer parts of the Third World is deregulation of the market for piped water, combined with the enforcement of property rights. Yes, I’m saying that Third World governments should consider letting private companies sell water at any price they want. This includes giving them the right to cut off people who don’t–or can’t–pay their bills.

Parking Perspectives

In New York City, urban planners are considering new rules which would make it more difficult for developers to construct parking garages, the Wall Street Journal reports.  Currently, parking garages are prohibited if they are expected to increase congestion:

The current process requires developers to show that their garage won’t adversely affect traffic congestion in the immediate neighborhood. Some transportation advocates want the city to take a broader view when considering the issue of congestion, which could make it harder for developers to get permits.

Parking is a complex issue in planing regulation.  On the one hand, some urban critics argue that subsidized parking facilitates urban sprawl by allowing people to easily rely on cars for transportation without bearing the full cost of driving and parking.  On the other, privately-managed, unsubsidized parking garages offer a relatively efficient way for commuters to park in high-density areas while better internalizing the cost of this behavior.

As New York City may move toward limiting parking garages, others are celebrating their contributions to city life.  Baltimore author Shannon McDonald has recently written The Parking Garage: Design and Evolution of a Modern Form, exploring the architectural and utilitarian contributions of American garages.  She points out that in addition to serving the need for storing vehicles in high-density places, entrepreneurs have recently developed new uses for garage roofs including green roof parks, swimming pools, and solar energy plants.

On the Diane Rehm Show with McDonald, Robert Puentes of the Metropolitan Policy Project at the Brookings Institute points out the if municipalities broadened the role of the private sector in parking garage provisions, they could unleash incentives for entrepreneurs to improve the mix of uses of existing garages.

Building from the Top Down

Senator Chris Dodd is sponsoring a bill to promote development of livable cities.  The Livable Communities Act is designed to coordinate federal policies on housing, transportation, energy, and the environment.  It would provide grants to cities to build in alignment with federal urban policy.

As Reuters explains:

Dodd described the bill as combining housing development, public transit, and infrastructure and land-use planning into one comprehensive approach to city development. Currently, many of those decisions are made separately from one another, and Dodd and others said the partitions have led to urban sprawl.

However, Dodd’s explanation of the causes of urban sprawl ignores the history of density restrictions, federal subsidies of highways and mortgages that have pushed and pulled many cities to their current states of sprawl.  His policy prescription does not address the types of challenges that cities pose.

Urban development is the essence of an economic problem, rather than an engineering problem.  Even a “coordinated” federal policy will not necessarily help urban development, which must be a ground-up process.  As Jane Jacobs explains, top-down funding for urban development is often “cataclysmic” because vital development must come from entrepreneurs rather than politicians, and must be supported by local residents.  Without an understanding of the hyper-local issues that impact block-by-block development, federal funding for urban development is likely to destroy blossoming vitality by diverting resources from their most valued uses.

Previous federal urban policies, such as Community Development Block Grants and Federal housing Administration loans have led to systemic problems in American cities such as concentrated poverty and urban sprawl.  The Livable Communities Act is likely to have similar, unforeseen consequences.

Burlington, Vermont Downgraded

Burlington, Vermont’s bond rating has been downgraded from Aa3 to A2 and placed on negative credit watch by Moody’s due to a high debt level. At Digital Society, George Ou places the blame on Burlington’s municipal fiber telecom:

In a city with approximately 20,000 homes and businesses, 4800 of which are municipal fiber subscribers, Burlington Telecom seems to have racked up a $50,000,000 debt.  That works out to about $10,417 per subscriber which is a huge tax payer subsidy for relatively affluent homes and businesses that can afford the relatively expensive fiber service.  Three out of four Burlington residents don’t subscribe to the municipal fiber service and it is likely that many of them can’t afford the service yet all of them are subsidizing the muni-fiber service with regressive local sales taxes.

Worst still, Burlington Telecom’s deficits and debt are rising which makes the prospect of financial stability more of a dream than reality.  This is likely due to the low 24% adoption rate and a dearth of premium high paying customers which makes it extremely difficult to recover the high costs of building out 100% of the residents and businesses.  There is even a criminal investigation to determine if millions of dollars have been misappropriated and a lawsuit to reclaim $17 million that Burlington Telecom took in 2008 from the treasury without notifying taxpayers.

Just last year, Burlington was crowing about its Aa3 bond rating and its fiscal prudence, predicting that Burlington Telecom would become self-sustaining in the near term. What a difference a year makes.

Via the Twitter feed of Cord Blomquist.

The Tax Contract

When citizens pay taxes to their municipal, state, or federal government, they generally view the payment as upholding their end of a contract with their government. In return, they expect a certain level of services such as infrastructure, public safety, and education.

This model of taxation requires transparency in public spending and taxation, a transparency that can be obscured by fiscal gimmickry that is prevalent at all levels of government. One way that policy makers obfuscate the level of taxation is by creating complicated tax structures that levy high rates on certain goods, such as excise taxes. Constituents may not realize the full burden of these taxes until they reach high enough levels, as may be occurring in Chicago. A recent Chicago Tribune article explains:

Mayor Richard Daley’s budget includes dozens of new or higher taxes and fees to raise an extra $53 million.

[ . . . ]

The taxes and fees were part of what Ald. Robert Fioretti (2nd) calls a “nickel-and-dime” approach to balancing the city budget. Like nearly all his colleagues, Fioretti voted for them in late November, but this week he questioned whether city and county taxes and fees had reached a tipping point.

My constituents are saying they will have to move out of the city, and I’m hearing it also from suburbanites who say they can no longer afford to come into the city,” he said. “I’m concerned. I’m more than concerned at this point.”

When local tax rates reach a level that citizens feel far exceeds the level of services they receive in return, cities and states risk population loss or the type of citizen protest seen in Toms River, New Jersey. In theory, competition between localities should ensure that city and state governments do not allow their tax burdens to get out of line with the public services that they offer. However, if tax policy is difficult to decipher, residents may have a hard time keeping track of what they’re paying for.

This may lead to the conflicting opinions on Toronto’s tax levels.  As reported in the Toronto Sun:

Toronto residents may pay the lowest property taxes in the GTA, but the city’s true property tax rates are being masked by growing user fees, resident groups and council critics told the Sunday Sun.

At 0.85%, Toronto’s combined rate for city and education taxes is the lowest in the GTA. But when you combine other fees, such as garbage, a personal vehicle tax and the land transfer tax, homeowners are also feeling the pressure of being “taxed to death.”

However, a Toronto Star editorial argues that unlike in Chicago, Toronto residents do receive a level of public services that correlates to their tax burden:

You get what you pay for, of course, and despite what the right-wingers would have us believe, Torontonians have it relatively easy when it comes to municipal taxes.

As for the media, their response is as dumb as it is predictable. Mere mention of higher taxes sends the scribblers into paroxysms of outrage.

Get over it.

The Star’s flippant attitude toward the level of municipal taxes may be because the people of Toronto do, in fact, get what they pay for. Or it may perhaps be that the author, the Star‘s Christopher Hume, is a victim of fiscal illusion, unaware of the full amount he pays in taxes and fees.

Regardless, these two conflicting and subjective opinions draw attention to the important concept: all levels of government must honor the contract that they enter into with their citizens when they levy taxes. If this contract is breached, cities and states risk losing population to places that offer a higher value of services for taxes.

Point Pleasant Beach to Mayor: “No New Taxes, or Police Furloughs.”

Residents in Point Pleasant Beach, New Jersey have resorted to a seldom-used method to protest their mayor’s proposal to raise taxes: they want him recalled from office. The recall petition containing 1,250 signatures was approved this week, giving Mayor Vincent Barella until July 22 to mount a challenge to the motion being placed on the ballot in November.

point-pleasant-beachThe movement to recall Mayor Barella began in the fall, after he asked the state government permission to levy local special options taxes on beach badges, paid parking lots, and alcohol — and more controversially, proposed parking fees on all neighborhood streets — to meet the $11.5 $1.5 million gap in the borough’s budget.

Republican state representatives don’t  like the idea. “We don’t support raising taxes, and [Barrella] doesn’t accept that response,” said state Sen. Andrew R. Ciesla (R-Ocean), referring to the all-Republican northern Ocean County delegation to the legislature. “He believes that it is appropriate to raise taxes in order to cure the financial ills of the borough on the backs of nonresidents and residents alike.”

And the Mayor’s Democratic rivals who initiated the petition also disapprove, claiming he has other options. Said one petitioner, “We have eight too many cops…. Manasquan has 6,500 people with 18 cops. We have 26 cops for 5,300 people.”

Residents’ motives seem clear — “No New Taxes!” — but the solutions aren’t as easy. Continue reading