Tag Archives: construction

WMATA’s failures are institutional, not personal

Chris Barnes who writes the DC blog FixWMATA  is supporting a petition to replace the Board of Directors of the Washington Metropolitan Area Transit Authority. Frustration with the transit agency is growing among Washington-area residents as ongoing system repairs have made the system’s weekend service increasingly unusable. The situation has led to the birth of multiple blogs documenting WMATA’s failures. As an intern in DC from the Czech Republic recently summed up the situation, “Metro is both terrible and expensive.”

While the need for reforms at WMATA is clear, replacing the Board of Directors is unlikely to lead to significant improvements in the system. Rather, WMATA’s problems are institutional, and new actors facing the same incentives as the current WMATA Board are unlikely to produce better results. Some of the institutions preventing a Metro of reasonable quality and cost include:

1) Union work rules. Stephen Smith, my co-blogger at Market Urbanism, has done an excellent job of explaining how union work rules make transit needlessly expensive. One of the biggest culprits is requiring shifts to be at least eight hours and preventing the hiring of part-time workers. WMATA rationally runs trains and buses more often during morning and evening rush hours, but it is not permitted to staff these time periods at levels above mid-day staffing because of the eight-hour shift requirement. Combined with the above-market wages and benefits that WMATA employees make, these bloated employee costs prevent WMATA from achieving a higher farebox recovery rate and having more resources to dedicate to needed capital improvements.

2) Intergovernmental transfers. Over half of WMATA’s current capital improvement budget comes from the federal government, meaning that while the benefits of the system are narrowly bestowed on riders, a large share of the capital improvement costs are spread across U.S. taxpayers. This large dispersal of costs permits much more expensive transit than would be tolerated if all funding came from the localities that benefit from the system. Furthermore, with funds coming from the District, Maryland, Virginia, and the federal government, the flypaper effect comes into play. This means that a $100 million infusion from the federal government to WMATA will not reduce the cost born by local taxpayers by $100 million; rather, total spending on the project will increase with grants from higher level of government. Absent incentives to spend this money well, WMATA demonstrates that high levels of federal funding will not necessarily result efficiently carried out capital improvements.

At Pedestrian Observations, Alon Levy provides a comparison of transit construction costs across countries, and finds that U.S. construction costs are exorbitant. The reasons for these cost disparities are many and not well-understood. One reason for high costs in the U.S., though, may be that the prevalence of  federal funding comes with the strings of costly federal regulations.

3) Accountability. While all U.S. transit systems suffer inefficiencies from intergovernmental transfers and union work rules, DC’s Metro has a unique governance structure that seems to produce particularly bad and costly service. WMATA has the blessing and the curse of being multijurisdictional. On the one hand, the Washington region is not plagued with the agency turf wars that New York City transit sees. Several of the system’s rail lines run through Virginia, DC, and Maryland, providing many infrastructure efficiencies and service improvements over requiring transfers between jurisdictions.

Despite these opportunities to provide improved service at a lower cost, WMATA’s lack of jurisdictional control seems to do more harm than good. No politician can take full credit for running WMATA efficiently, so none prioritize the agency’s performance. It’s a tragedy of the political commons.

Josh Barro has recommended directly electing the Board of Directors of WMATA to create elected officials with an incentive to improve service. This institutional change would be more likely to improve outcomes than replacing the current Board with new members who would face the same incentives. Clearly, WMATA’s Board of Directors is failing in its job to oversee quality and cost-effective transit for the region; however, replacing the board members without changing the institutions that they work under will not likely improve outcomes. Intergovernmental transfers and union work rules limit transit efficiency across the country, but WMATA’s interjurisdictional status exacerbates inefficiencies and waste.

A price tag on congestion

The research organization TRIP finds that traffic congestion comes at a steep price for drivers in the Washington, DC area. They determine that congestion and poor road conditions cost drivers $2,195 annually in lost time and the added vehicle operating costs of driving on congested, poor quality roads.

TRIP supports increased infrastructure spending, and I haven’t looked into their methodology, but undeniably DC-area drivers waste copious time sitting in traffic. Despite this, a Washington Post poll finds that Maryland drivers do not support higher taxes to pay for road expansion or maintenance. Perhaps increased taxes are unpopular because state residents believe that transportation projects involve wasteful spending that won’t improve conditions for drivers. Additionally, they may realize that traffic congestion is very difficult to overcome in a world of zero-price roads. Because additional roads lower the time cost of driving, additional lanes induce more people to drive farther. Building enough roads to eliminate congestion for everyone who would like to use them at zero-price in DC’s rush hour might not be possible, as reducing the region’s congestion problems would even lead more people to move to the area.

An alternative to raising taxes to fund new road construction would be to implement congestion pricing on area roads. Roads could be electronically tolled and priced at the rate that will eliminate congestion, varying with driver demand. So far municipalities have tended to implement congestion pricing on new highways. Here in the DC area, the 495 Express Lanes opened in November with congestion pricing. The new lanes were funded primarily by a private company, and the tolls are not yet meeting revenue projections; many drivers are choosing to continue driving on more congested, zero-price roads. However, congestion pricing doesn’t necessarily need to be implemented on a new road. Alternatively, policymakers could implement congestion pricing on existing roads or on specific lanes to reduce congestion for those willing to pay.

Tolls are often politically unpopular because, as Donald Shoup points out in The High Cost of Free Parking, people are often very opposed to paying user fess for a provision that has previously been funded by taxpayers broadly. However, the gains from congestion pricing may outweigh the political costs. Allocating road use through prices puts roads to higher-value uses. Assuming that TRIP’s estimate of the cost of congestion is correct for the average driver, this cost will vary widely among drivers who value their time differently, and drivers will value their own time differently depending on the day and the importance of being on time to their destination. Thus pricing roads according to demand allows those who have flexible schedules to drive when roads are otherwise uncrowded, and those who place a high value on their time will be willing to pay a high toll for the convenience of saving time and reaching their destination promptly.

 

Opportunity for States to Protect Land Use

This post originally appeared at Market Urbanism, a blog about free market solutions to urban development challenges.

If this season’s political campaign rhetoric has demonstrated anything, it’s that governors love to take credit for job creation. What I haven’t seen any governor mention, though, is that there is huge opportunity for economic growth in relaxing zoning codes. Most obviously, allowing new opportunities for infill development will create construction jobs. More significantly though, in the long run, cities allow for faster economic growth (and job growth) than other locations.

The regulations that prevent cities from growing keep economic progress below what it otherwise would be. While researchers disagree over whether population density or total population is the variable that is most significantly correlated with economic growth, either way zoning plays an important role in holding back job growth, providing policymakers who are willing to deregulate with opportunities to improve their competitive standings next to other cities.

Political incentives stand in the way of this growth opportunity, however. Most zoning restrictions benefit a city’s current residents at the expense of potential residents. For example, minimum lot size requirements serve to raise the price of homes, preventing low-income people from moving into neighborhoods that current residents wish to keep exclusive. By changing this current order, policymakers risk losing the support of their homeowning constituents, and interest likely to be better organized than renters and potential city residents. Limitations on housing supply raise the value of existing homes, artificially raising the value of residents’ assets, which homeowners strongly fight to protect.

At the local level, policymakers are therefore incentivized to privilege homeowners’ interests at the expense of broad economic growth. At the state level however, the incentives may be different, such that economic growth may benefit state policymakers more than protecting home values. State policymakers have constituents who live in a wide variety of municipalities, some where land use restrictions are less binding in some than others. Additionally, homeowners will face greater challenges in organizing to support artificially propping up home values at the state level compared to the municipal level. State policymakers could therefore benefit themselves by setting limits on the how much municipalities are permitted to restrict development. Importantly, limiting the degree to which municipalities can restrict development does not force density; rather, it allows developers to provide more density if residents demand it.

California legislators considered a bill of this model earlier this year which would have limited cities’ abilities to set parking requirements in neighborhoods where transit is widely available. As Stephen explained, this bill came under criticism from both the American Planning Association and the Reason Foundation, both citing the need for local control of land use. However, this misses the key role of higher level governments within a federalism model.

After the Supreme Court decided in Kelo v. City of New London that municipalities have the power to use eminent domain for economic development, 44 states adopted amendments to protect their citizens from eminent domain for non-public use to various degrees. States did not have this type of reaction to Euclid v. Ambler, which set the precedent allowing cities to create zoning codes, but there is nothing stopping them from setting limits on cities’ zoning power now.  Federal and state governments have a role to set a floor of freedom for all of their residents, which gives states an opportunity to set limits on how much their municipalities can restrict land use.

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.

Where is the coercion in land use?

On Wednesday, The Wall Street Journal published an article about Denver’s light rail expansion plan. Two Cato analysts came down on different sides of the issue. Randall O’Toole, writing at Cato-at-Liberty, says that the expansion is a waste of money. He writes:

Under RTD’s latest “rethink,” transit will no longer take people from where they are to where they want to go. Instead, planners will try to coerce and entice people to live in places served by rail transit and go where those rail lines go.

The expansion comes with a steep $7.4 billion price tag, and O’Toole is likely correct that this is too much to spend; light rails across the country lose money, and the 122-mile above-ground expansion has experienced a cost overrun from $4.7 billion in 2004. The United States is notorious for unreasonably high transit construction costs compared to other countries. Additionally, the light rail is an airport connector, an often poor use of tax dollars, particularly when the airport is located far from downtown, as in Denver.

However, O’Toole’s judgment that the new plan amounts to coercion seems to be based not primarily on the light rail’s cost, but rather on zoning rules that will distinguish the new light rail stations from some of Denver’s existing light rail stations. The land around the new stations will not be dedicated to government-owned parking lots; instead developers will have the freedom to put housing or commercial uses adjacent to the stations with parking garages as far away as 1000 feet.

Timothy Lee, a Cato adjunct scholar writes at Forbes:

If the plan is to dump government-owned parking garages and instead sell the land to private developers, that’s a clear win from a free-market perspective. And if planners liberalize zoning rules to allow high-density construction that’s illegal in most suburbs, so much the better. On the other hand, if the plan is to actively subsidize or even require dense development, that is worth criticizing. But it’s important to be clear that the problem is coercive means, not the goal of providing more walkable neighborhoods.

Lee makes a key point here. The suburban style development that we see in many parts of Denver is not the free market at work, as O’Toole assumes. Rather, more dense, urban development is outlawed in many parts of Denver and cities across the country. Both O’Toole and Lee make some good points on the plan, but if a city is going to spend too much on transit, that doesn’t mean the transit should be strangled with liberty-limiting suburban zoning laws.

Detroit’s Financial Future

This post originally appeared at Market Urbanism.

After flirting with Chapter 9 bankruptcy or a state takeover of its finances, Detroit has reached a deal with the state of Michigan that will allow it to remain independently managed with a requirement for state oversight. The Detroit Free Press reports:

The city has seven days to create the positions of chief financial officer and program management director and 30 days after that to make a hire from a list of three candidates from the mayor and state treasurer. Lewis said the city is compiling a list of candidates.

“We’ve got a lot of requirements that are in the agreement,” Lewis said. “We’ve got a lot of work to do (with the agreement) and then getting to the work of fixing the city. Our focus is on executing the plan and getting the resources here to execute the plan.”

Snyder reiterated that the city “shouldn’t expect” a cash bailout, adding that Detroit is one of many troubled communities in the state. But he said the state would use its resources in a variety of ways to help the city.

Snyder said the agreement assures the things that need to be done will get done, describing it as a “progressive series of steps” that first allow the mayor and the council to make the decisions, and then empowers the project manager to do so if they don’t. “This is a legal document designed to deal with situations when they don’t go right,” he said.

While bankruptcy protection offers the advantage to cities of achieving a more manageable debt load, it doesn’t come without a cost. Bankruptcy would add an additional stigma to Detroit, already known for municipal financial distress, encouraging business disinvestment.

Vallejo, CA filed for bankruptcy in 2008, and as the New York Times explains, the city is still in a difficult financial position. After bankruptcy cities have less room in their budgets to provide public services such as infrastructure, parks, and schools while their tax rates don’t fall accordingly. This contributes to further erosion of the tax base as businesses and residents leave the city.

Municipal bankruptcy is always a two-sided issue involving both revenue and debt. At The Atlantic Cities, Emily Badger covers the equation from the revenue side. While cities often both subsidize and enforce sprawl through road-building, parking requirements, and minimum lot sizes, these policies are detrimental to their property tax equations. She cites the positive example of Asheville, NC as a city that has taken advantage of denser downtown redevelopment to improve its ratio of property taxes to infrastructure costs:

Asheville has a Super Walmart about two-and-a-half miles east of downtown. Its tax value is a whopping $20 million. But it sits on 34 acres of land. This means that the Super Walmart yields about $6,500 an acre in property taxes, while that remodeled JCPenney downtown is worth $634,000 in tax revenue per acre. (Add sales tax revenue, and the downtown property is still worth more than six times as much as the Walmart per acre.)

[. . .]

All of this is also just looking at the revenue side of the ledger. Low-density development isn’t just a poor way to make property-tax revenue. It’s extremely expensive to maintain. In fact, it’s only feasible if we’re expanding development at the periphery into eternity, forever bringing in revenue from new construction that can help pay for the existing subdivisions we’ve already built.

[. . .]

“The thing is it all works fine when you have all this new growth and the new gap is met by all these new permit fees – that’s like free money,” Joe Minicozzi [of Public Interest Projects] says.

Cities should not be in the business of requiring the sort of development that is most expensive for them to support. However, this analysis ignores the debt side of Chapter 9, one that may be even more difficult to tackle politically. Despite the harm that poor financial management causes, local elected officials simply do not have the proper incentives to avoid it.

Politicians operate on election cycles, and during their time in office they generally seek to provide their constituents with the best possible services at the lowest tax rate. This leads them to put off payment on long term debt and liabilities using accounting gimmicks and fiscal evasion techniques to spend more on goods that residents will see in the near term.

A combination of debt and declining revenue has put Detroit in the position it’s in today. Its urban development strategy must be a part of the property tax revenue solution. Perhaps the new officials that the city hires will help with debt management, but this additional oversight is unlikely to overcome the incentives of election cycles.

It Isn’t Easy to Count Stimulus Jobs

Image courtesy of chrisroll

The 1603 program gave $10.7 billion to 5,098 businesses for 31,540 projects, according to the Treasury Department. Recipients were generally reimbursed 30% of their costs after projects were finished.

Those businesses claimed on federal applications that they created 102,883 jobs directly. But the Journal found evidence of far fewer.

About 40% of the funding, $4.3 billion, went to 36 wind farms. During the peak of construction, they employed an average of 200 workers apiece—a total of roughly 7,200 jobs.

Now, those projects employ about 300 people, according to the companies and economic development officials. Their parent companies employ many more, both in the U.S. and abroad.

This is from a lengthy and fascinating story by Ianthe Jeanne Dugan and Justin Scheck on the front page of today’s Wall Street Journal. Keep in mind that this is only focusing on what Frederick Bastiat would call “what is seen.” There is an unseen side to stimulus spending which is the degree to which it crowds out or crowds-in private sector economic activity.

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.

More on the Dangers of Inequitable Taxation

Last week, I opined on the problems with inequitable taxation: when two similarly-situated firms or individuals encounter different tax regimes, there are perverse incentives to alter economic behavior so as to lower one’s tax bill. This means individuals and firms make decisions based on the whims of politicians and lobbyists rather than on the values of consumers and investors. The result is inefficiency and waste.

A new paper by Daria Burnes, David Neumark, and Michelle White explores another problem with inequitable taxation: governments themselves can alter their behavior as a way to steer economic activity toward those industries that face higher rates of taxation. The authors note that local-option sales taxes “give local government officials an incentive to encourage retailing, since retailing generates more sales tax revenue than other land uses.”

How do they do this?

[T]hey can zone additional land for retail use, they can allow land zoned for retailing to be developed at higher density levels, and they can reduce the often‐formidable set of approvals and inspections that are required for construction or renovation. They can use all of the same policy instruments and practices in reverse to discourage other land uses.

They find that local officials in higher sales-tax jurisdictions do seem to concentrate on attracting large “big-box” stores and shopping centers. The effect is larger in the center of counties, where inter-county competition is weakest. Moreover, they find that high-tax jurisdictions tend to discourage manufacturing employment.

Boise County, Idaho files for bankruptcy

Boise County, Idaho filed for bankruptcy this week. In this case, the county is not struggling to pay its bondholders, but was found by a court to be in violation of a federal law.

The county owes a housing developer $6.2 million after a court found the local zoning commission put too many restrictions around a building project for a treatment facility for troubled teens. In December a federal judge ruled the action constituted discrimination under the Fair Housing Act and found in favor of the developer. Boise County (which is, despite its name, not home to the state’s capital) with a budget of $9.4 million has recently raised sewer fees, and claims the debt will need be paid off over a 20 year period but needs federal bankruptcy protection to come up with a plan to pay it. That plan will involve higher taxes, a county official notes, “every property tax owner in the county will have to pay a share of this debt.”

The project in question, Alamar Ranch, was the subject of alot of local discussion when it came before the Boise County Planning and Zoning Commission. Some residents were in favor of the facility because it was shown that it would create jobs. In addition, the facility’s mission is to help troubled teens, a project with many positive benefits for society. Other residents worried that the facility would lead to local crime, introduce traffic, and constitute another expense for the local government. Opponents to the facility, it is claimed in legal documents, swayed the local zoning commission to block construction. Residents interviewed see it differently.

(h/t http://edwardweinhaus.com/)