The Department of Transportation (DOT) is proposing new rules that would allow it to fund exceedingly wasteful rail transit projects that do nothing to relieve congestion. While the existing rules require transit agencies to demonstrate that proposed new rail lines are at least minimally cost effective, the proposed rules focus instead on such vague criteria as “livability” and “environmental justice.”

This rule goes back to 1991, when Congress created the “New Starts” fund to provide grants to transit agencies that want to build new rail lines or other fixed transit lines (such as busways). There were no limits on how much transit agencies could ask for, and the agencies quickly discovered that cities that proposed the most expensive projects got the most money. This sent the cost of rail projects soaring.

For example, in 1986–before New Starts–Portland completed a 17-mile light-rail line that cost about $200 million. In 1998, after New Starts, it completed a 13-mile light-rail line that cost $950 million. Both received the same percentage of federal matching funds, but the second line was “gold plated” as part of Portland’s effort to capture “its share” of the New-Starts pot. Predictably, the city is now working on a 7-mile line that will cost $1.5 billion.

In an effort to put a cap on this wasteful spending, the Bush administration passed a rule in 2005 requiring that New Starts projects meet a minimum test of cost effectiveness. That test required that projects cost no more than $24 for every hour of time that the transit project saved travelers, including both transit riders and highway travelers who enjoyed congestion relief from the project. Even $24 an hour is pretty wasteful considering that most bus improvements save time at a cost of only $1 to $6 an hour, but the rule did put a damper on some excessively wasteful rail proposals.

Also in 2005, Portland Congressman Earl Blumenauer persuaded Congress to create a “Small Starts” program for streetcars and similar projects costing less than $100 million. Blumenauer and others were angered when the Bush administration wrote a rule requiring transit agencies to prove that streetcars were cost effective relative to improved bus service. Since a single streetcar costs ten times as much as a bus, there is no way streetcars can be more cost effective than buses, so no streetcar projects were funded out of Small Starts.

Unlike the Bush administration, the Obama administration has drunk the Kool-Aid of streetcars and rail transit. In 2010, Secretary of Transportation–or, as I prefer to call him, Secretary of Immobility–Ray LaHood announced that he was changing the rules so that he could fund streetcars and other wasteful projects out of Small Starts and New Starts. (Funds for the streetcar grants that LaHood provided to Atlanta, Cincinnati, Dallas, Tucson, and other cities came out of stimulus monies, not Small Starts.) LaHood has freely admitted that his goal is to “coerce people out of their cars.”

Ironically, soon after LaHood’s announcement, the head of the Federal Transit Administration (FTA), Peter Rogoff, gave a speech castigating transit agencies for seeking funds for new rail projects when existing rail transit lines suffer from a $60 billion maintenance backlog. “Paint is cheap, trains are expensive,” Rogoff said, observing that agencies that paint buses a special color and call them a special bus often gain as many new riders as agencies that build expensive rail line. The DOT soon removed Rogoff’s speech from its web site, but copies have been preserved here.

Cato’s 2010 comments on LaHood’s proposal pointed out that a true cost-effectiveness analysis, which is required by law, requires transit agencies to compare rail proposals with a full range of alternatives. The draft rules that the FTA released in January, 2012, however, only require agencies to compare the cost effectiveness of rail against doing nothing.

Moreover, instead of measuring cost effectiveness by the number of hours of time the projects save travelers, the proposed rules would measure it by the number of new transit riders the project is projected to gain. This means that projects that increase congestion (by, for example, building streetcar lines in streets or running frequent trains across grade crossings), wasting most people’s time, will actually score higher because planning models assume congestion leads more people to ride transit.

Cato’s comments on the proposed rules also point out that the law requires the FTA to account for the effect of projects on congestion and mobility. However, the law does not allow the FTA to consider livability, environmental justice, or the other new criteria proposed in the rules. The draft rules therefore violate the law in several places.

Comments on the proposed rules are due March 26 and can be submitted on line. While it is uncertain whether LaHood will pay any attention to your comments, what is clear is that the Obama administration is more interested in imposing its utopian view of how people should live on American cities than it is in increasing people’s freedom and mobility.

In March, Cato published my review of every rail transit system in America (as of 2008), showing that in nearly every case buses would have been more cost-effective at moving people. This same view was expressed last week by a surprising source: Peter Rogoff, the Obama administration’s appointee in charge of the Federal Transit Administration (FTA).

Appropriately, Rogoff spoke before the Federal Reserve Bank of Boston, whose transit system, he pointed out, is in a “grim” state. Nationwide, he noted, America’s transit industry suffers from $78 billion worth of deferred maintenance – most of which is due to rail transit lines that cities cannot afford to keep in shape. Rogoff was disturbed that cities were asking for federal grants to build more rail lines when they can’t keep the existing trains in a state of good repair.

Rogoff says he has been telling transit managers, “if you can’t afford to operate the system you have, why does it make sense for us to partner in your expansion?” Cities that build “shiny new rails now … need to be mindful of the costs they are teeing up for future generations.”

“Let’s start with honesty,” he said: “Paint is cheap, rails systems are extremely expensive.” He suggested that, instead of expensive trains, many cities can attract just as many riders onto transit by painting buses on specific routes in distinctive colors (as Boulder, CO has done).

Part of the problem, Rogoff knows, is that Congress has given cities incentives to build high-cost transit projects. To address this issue, the last transportation bill, in 2005, included a section requiring the Federal Transit Administration to evaluate the incentives created by federal funding.

Unfortunately, the FTA dropped the ball: the resulting report said nothing about existing incentives and addressed only the question of whether new incentives could be created to encourage agencies to bring their properties up to a state of good repair. While that is a laudable goal, it is an input, not an output.

According to historic data published by the American Public Transportation Association, the productivity of public transit – outputs per unit of input – has declined dramatically since the federal government began funding transit in 1964. From 1964 through 2008, the inflation-adjusted cost of operating transit increased by more than 360 percent, while transit ridership grew by a mere 24 percent and fares by 62 percent.

Ultimately, transit should be privatized, but in the meantime Congress or the administration can adopt a race-to-the-top program similar to the one the administration is using to improve education. Rogoff should direct his agency to rewrite its incentive report before Congress takes up transportation again in 2011.