Topic: Tax and Budget Policy

Convention Center Boondoggles

Every country wants a national airline, and every city wants a glitzy convention center to bring those free-spending conventioneers to town. But the economic analysis doesn’t hold up well in either case. A new book on convention centers should be required reading for any city council thinking of investing the taxpayers’ hard-earned money in another white elephant. This report by Don Bauder in the San Diego Reader is worth quoting at length:

Would you take advice from a gaggle of consultants whose forecasts in the past two decades have been off by 50 percent?

Of course you wouldn’t. But all around the U.S., politicians, civic planners, and particularly business executives have been following the advice of self-professed experts who invariably tell clients to build a convention center or expand an existing one.

A remarkable new book, Convention Center Follies: Politics, Power, and Public Investment in American Cities, published by the University of Pennsylvania Press, tells the amazing story of how one American city after another builds into a massive glut of convention-center space, even though the industry itself warns its centers that the resultant price-slashing will worsen current woes.

The author is Heywood Sanders, the nation’s ranking expert on convention centers, who warned of the billowing glut in a seminal study for the Brookings Institution back in 2005. In this new, heavily footnoted, 514-page book, Sanders, a professor of public administration at the University of Texas/San Antonio, exhaustively examines consultants’ forecasts in more than 50 cities.

Nashville was told its new center would result in 466,950 hotel room nights; it’s getting around 267,000 — “a little better than half [what was projected],” says Sanders in an interview. Philadelphia isn’t garnering even half the business that was promised.

“Getting half the business [that was projected] is about the norm,” says Sanders. “The actual performance is a fraction of what it is supposed to be.”

Yet, in city after city — including San Diego — self-appointed civic leaders listen to and act on these faulty forecasts. In almost all cases, mainstream media and politicians swallow the predictions whole without checking the consultants’ miserable track records….

How can convention centers get away with such legerdemain? Those in the know shut up, and the press, politicians, and public have neither the time nor the expertise to follow the prestidigitation.

How do the consultants get away with being 50 percent wrong most of the time? In my opinion — not Sanders’s — consultants in many fields are paid to provide answers that the people paying the consultants’ bills want to hear. And the people paying those bills are the business community — using taxpayers’ money, of course.

The worst news: “These expansions will keep happening,” as long as “you have a mayor who says it is free,” says Sanders.

More, much more, in the Reader and of course in the book. Free-market think tanks have been pointing out the bad economics behind convention centers – and publicly funded stadiums – for many years. 

Subsidies for the Seacoast

A June 24 article in the Washington Post looked at sea level rise in North Carolina. Unfortunately, the article followed a common template of portraying a battle of science vs. conservative politics and environmentalism vs. capitalism. But as I noted here about water and drought in the West, liberals and libertarians can agree on the benefits of cutting anti-environmental subsidies.

My Washington Post letter on Friday pointed to the newspaper’s omission of the government subsidy angle:

There is disagreement about rising sea levels on the North Carolina coast, but there is one reform that all policymakers should support: ending subsidies that promote building in high-risk places. For decades, the National Flood Insurance Program has allowed people on the sea coasts to buy insurance with premiums less than half the market level, and the program does not cut off people even after multiple floods. Meanwhile, the Army Corps of Engineers continually rebuilds beaches, thus encouraging development in areas that nature is trying to reclaim. Ending this wave of subsidies would be sound fiscal and environmental policy.

Independence in 1776; Dependence in 2014

Since the 1960s, the Catalog of Federal Domestic Assistance (CFDA) has provided a list of all federal subsidy programs. That includes subsidies to individuals, businesses, nonprofit groups, and state and local governments. The CFDA includes subsidies for farmers, retirees, school lunches, rural utilities, the energy industry, rental housing, public broadcasting, job training, foreign aid, urban transit, and much more.

The chart below shows that the number of federal subsidy programs has almost doubled since 1990, reaching 2,282 today. The genesis of the CFDA was the explosion of hand-out programs under President Lyndon Johnson. Members of Congress needed a handy guide to inform their constituents about all the new freebies.

The growth in subsidies may be good for the politicians, but it is terribly corrosive for American society. Each subsidy program costs money and creates economic distortions. Each program generates a bureaucracy, spawns lobby groups, and encourages more people to demand further benefits from the government.

Individuals, businesses, and nonprofit groups that become hooked on subsidies essentially become tools of the state. They have less incentive to innovate, and they shy away from criticizing the hand that feeds them. Government subsidies are like an addictive drug, undermining American traditions of individual reliance, voluntary charity, and entrepreneurialism.

The rise in the size and scope of federal subsidies means that Americans are steadily losing their independence. That is something sobering to think about on July 4.

Which subsidies should we cut? We should start with these.

Federal Highway Spending

The federal Highway Trust Fund (HTF) is running out of money. Congress will likely pass a short-term fix for the program in coming weeks. Over the longer term, many policymakers favor raising taxes to close the $14 billion annual gap between HTF spending and revenues.

Tax-hike advocates say the gap is caused by insufficient gas tax revenues. It is true that the value of the federal gas tax rate has been eroded by inflation since it was last raised two decades ago. But the gas tax rate was more than quadrupled between 1982 and 1994 from 4 cents per gallon to 18.4 cents. So if you look at the whole period since 1982, gas tax revenues have risen at a robust annual average rate of 6.1 percent (see data here).

In recent years, gas tax revenues have flat-lined. But the source of the HTF gap was highway and transit spending getting ahead of revenues, and then staying at elevated levels.

The chart below (from DownsizingGovernment.org/charts) shows real federal highway and transit spending since 1970. Real highway spending (red line) has almost doubled over the last two decades, from $29.1 billion in 1994 to $56.2 billion in 2014. Real transit spending (green line) has also risen since the mid-1990s. (If you visit the /charts page, you can see the dollar values by hovering the mouse over the lines.)

For more, see my congressional testimony and also recent items by Emily Goff.

A Plea to End Corporate Welfare

Following last week’s event for Ralph Nader’s Unstoppable, I sat down with him to discuss some of the ideas he expressed about how best to gather a large coalition to end corporate welfare, crony capitalism, and corporatism. We may agree more than this discussion indicates, but we disagree quite a bit, as you’ll see. You be the judge.

A somewhat longer audio version is available here.

Cato Spending Charts

How much does Congress spend on Veterans Affairs, the IRS, or Customs and Border Protection? How much has spending increased over time?

You can answer those questions quickly and easily with Cato’s updated charting tool for the federal budget.

The tool allows you to plot real outlays for about 500 departments, agencies, and programs, 1970-2014. All data is from the Office of Management and Budget.

The chart page opens blank. Click “+” to open a department and then check boxes for the departments, agencies, and programs you want to plot.

To save your chart as an image or a pdf, right click on it.

This chart shows spending on the three largest federal agencies. The data is in constant 2014 dollars.

California, Drought, and Water Policy

In today’s Wall Street Journal, Stanford economics professor Edward Lazear provides an economist’s view of the California drought situation:

Many parts of the country, notably California and Texas, are experiencing intense drought… Yet weather isn’t the only problem: government-dictated prices, coupled with restrictions on the transfer of water, have made a bad situation much worse.

That is true. Freeing up markets would go a long way toward easing water battles and water shortages throughout the American West. Government controls on water transfers and prices suppress markets, and the resulting distortions harm the economy and the environment.

Lazear’s proposals make sense, but he overlooks one key reform: getting the federal government out of the water business. Much of the water infrastructure in the West is owned by the federal Bureau of Reclamation, and its policies are a fundamental problem, as Peter Hill and I discuss in this essay.

Hill and I examine Reclamation’s history of waste, bureaucratic arrogance, pork barrel politics, and environmental damage. We discuss water rights, water prices, and water economics. We recommend that Reclamation’s assets be transferred to state governments, or even better to the private sector.

Reclamation’s massive Central Valley Project, for example, should be handed over to the State of California. The CVP was originally supposed to be a state project. It was approved by the California legislature and by a state referendum in 1933. But then the state decided to lobby Washington for funding and was successful, so the federal government took it over.

But it is time to stop central-planning America’s water policies. Water issues in the West are far too complex for a distracted Washington to deal with properly. The states have different legal structures for water rights, different types of farming, and different access to groundwater. So the states should be the ones to control their water infrastructure, which would allow them to tailor their policies to the unique challenges they each face.