Guest Post: JS

From JS:

Henny Penny and the Highway Trust Fund

In classic public choice fashion transportation infrastructure providers are clamoring that the Highway Trust Fund is going bankrupt and the message is echoed by the administration telling of the dire consequences of such insolvency.  Such urgent cries seem self-serving and ignore the much more mundane analysis of what individuals of our nation need to effectively transport themselves and the goods of our economy.

First, the gas tax is not going to expire and the congress while busy creating a crisis for what appears to be rent seeking purposes will extend spending authorization at least at a level of where receipts will provide, a 20% or 30% scale back of federal dollars is the real result, and each state while taking some time could determine if those expenditures where needed and raise sufficient revenue to address the cut back.

Second, let us look at one example of spending:

On May 21, 2014, in the midst of the potential impending doom, the US DOT provided $2.1 billion to build a 3.9 mile subway line to reach the heart of Los Angeles Metro underserved transit dependent users in Beverly Hills.  In the FEIS document prepared by the LA MTA and approved by the Federal Transit Administration (FTA) they concede the project is “Low” in cost effectiveness, but how low the cost effectiveness is should take ones breath away. 

In the first phase a total of $2.6 billion in construction costs will be expended and $51 million in annual operating cost will be needed.  If the complete Purple line is built $6.2 billion in construction cost would be expended and $180 million in annual operating costs.  These expenditures are met with approximately 12,000 new daily riders in Phase I and 27,000 new daily riders with the complete system.  At current $1.50 ticket price and assuming no transfers, senior or monthly pass discounts and a 7% interest rate one can arrive at the following annualized Revenues and Costs:

If new passengers were required to pay required to pay a non-subsidized fare and no new riders left the system it would require an $80 ticket.  While not standard in transit planning, I am proposing that assessing the amount users pay as an important measure of the value received.  In many cases there may be justification for some subsidies for externalities, but a -98% return on investment seems difficult to justify.

From an environmental standpoint, the emissions resulting from external efforts to provide the needed subsidy would be on the order of magnitude of 0.035 Tons of GHG emissions per new Purple Line passenger trip and likely generated 16 miles of driving per new Purple Line passenger trip.  So even if the new transit were to have zero pollution, the pollution effects of the efforts to generate the needed Purple Line subsidy will far exceed the pollution of the no build, Bus Rapid Transit or Single Occupant Vehicles alternatives.

May be the more telling values are the professional services fees for the complete project of $815,000,000, when annualized is $57,000,000, versus the annual $10,700,000 in ticket revenue.  When your consultants are getting paid approximately five times more than the value the users are willing to pay, the incentives to get the value proposition correct don’t seem aligned.

My own assessment is that nationwide funding close to current levels using market mechanisms does not seem wholly unreasonable, but based on the example above we need to reduce the federal funding portion and allow the state and local governments make the tough tradeoffs so they feel both the benefit of the facilities and pain of the purse.