LaHood Eliminates Cost-Efficiency Rules

Last week, Secretary of Transportation Ray LaHood announced that federal transit grants would now focus on “livability.” Buried beneath this rhetoric is LaHood’s decision to eliminate the only efforts anyone ever made to make sure transit money isn’t wasted on urban monuments that contribute little to transportation.

Back in 2005, then-Transportation Secretary Mary Peters stunned the transit world when she adopted a “cost-effictiveness” rule for federal transit grants to new rail projects. In order to qualify, transit agencies had to receive a “medium” cost-effectiveness rating from the FTA, meaning they had to cost less than about $24 for every hour they would save transportation users (either by providing faster service to transit riders or by reducing congestion to auto drivers). This wasn’t much of a requirement: a true cost-efficiency calculation would rank projects, but under Peters’ a project that cost $0.50 per hour saved would be ranked the same as one that cost $23.50 per hour. But any projects that went over the $24 threshold (which was indexed to inflation – by 2009 it was up to $24.50) were ruled out.

After unsuccessfully protesting this rule, transit agencies responded in one of four ways. Those close to the $24 threshold cooked their books to either slightly reduce the cost or slightly increase the amount of time the project was supposed to save. Those that were hopelessly far away from the $24 threshold, but had powerful representatives in Congress, obtained exemptions from the rule. These included BART to San Jose, the Dulles rail line, and Portland’s WES commuter train. Those that didn’t have the political clout either shelved their projects or, in a few cases such as the Albuquerque Rail Runner commuter train, tried to fund them without federal support.

In 2007, when Congress created a fund for “small starts,” Peters imposed another rule that transit agencies would have to show that streetcars were more cost-effective than buses. This led to further protests because the the money was “supposed to be for streetcars” – the provision had been written by Earl Blumenauer, who represents Portland, the city that started the modern streetcar movement. But everyone knew streetcars would never be as cost-efficient as buses. This meant that, except for Portland, virtually every agency that had wanted to waste federal money on streetcars shelved their plans.

Until now. LaHood’s announcement means that cost is no longer an issue. If your project promotes “livability” (which almost by definition means anything that isn’t a new road) or “economic development” (meaning it will be accompanied by subsidies to transit-oriented developments), LaHood will consider funding it, no matter how much money it wastes.

Many transit agencies are elated. Cities from Boise to Minneapolis to Houston now see that their wacko projects that defy common sense now have a chance of getting funded.

The bad news for transit agencies is that this doesn’t mean there will be any more money for transit. Instead, there will be more competition for the same pot of money. Not to worry: House Democrats plan to open the floodgates to more transit spending as soon as they can get federal transportation funding reauthorized. This means taxpayers can expect to see more of their money wasted and commuters can expect congestion to get worse as more of their gas taxes are funneled into inane rail projects.