Privatize to Solve Government Cost Overruns

On large and complex government projects, costs will double from the original estimates. This tendency is called Edwards’ Law of Cost Doubling.   

The Wall Street Journal reports on the PATH rail station at the World Trade Center. Edwards’ Law was in effect:

… it has become a budgetary boondoggle, its cost doubling to nearly $4 billion, which gives it the unenviable distinction of the world’s most expensive train station.

Some people are blaming the project’s architect, Santiago Calatrava, for the problems. But, as I noted here, the real causes seem to have been political squabbling and mismanagement by the overgrown Port Authority of New York and New Jersey (PANYNJ). The WSJ notes:

But at the World Trade Center, Mr. Calatrava’s travails signal broader disharmony and discord at the country’s most recognizable construction project. The nearly 14-year effort—for which his firm has collected more than $80 million, according to a person familiar with the payments—has been marred by frequent public fighting between the governmental and private parties involved.

Bursting budgets throughout the 16-acre site have weighed heavily on the Port Authority of New York and New Jersey, the body that owns the site. The agency has delayed other projects like renovations of the region’s airports, and tolls on bridges and tunnels to New Jersey have more than doubled in recent years to raise revenue.

EPA’s Political Activism

Federal regulations are generally issued under a notice-and-comment process. A regulating agency releases a draft of a rule, the public provides comments on the draft, the agency reviews the comments, and then issues a final rule which incorporates public feedback.  

Outside groups can and do launch campaigns to encourage citizens to weigh in on proposed rules. But now it appears that a federal regulatory agency has been using grass-roots style activism and propaganda to push its own rules. The Environmental Protection Agency launched a lobbying campaign to encourage support for a major new rule on drinking water.

The New York Times reports:

Late last year, the EPA sponsored a drive on Facebook and Twitter to promote its proposed clean water rule in conjunction with the Sierra Club. At the same time, Organizing for Action, a grass-roots group with deep ties to Mr. Obama, was also pushing the rule. They urged the public to flood the agency with positive comments to counter opposition from farming and industry groups.

The piece continued:

The Thunderclap [a social media tool] effort was promoted in advance with the EPA issuing a news release and other promotional material, including a photograph of a young boy drinking a glass of water.

“Clean water is important to me,” the message said. “I want E.P.A. to protect it for my health, my family and my community.”

In the end, the message was sent to an estimated 1.8 million people, Thunderclap said.

The EPA advocacy campaign ginned-up more than one million public comments on the proposed water rule. Then Gina McCarthy, the EPA’s administrator, had the audacity to testify to the Senate that 87 percent of commenters supported the rule—as if that high percentage was actual spontaneous and broad-based support from the public.

The EPA’s campaign may have violated federal law, but even it did not, this is a dangerous path for federal agencies to go down.

From this incident, it appears that the EPA is not serious about taking opposing public comments into account before engaging in regulatory action. The purpose of public comments is to gauge public sentiment before a final rule is issued. The agency should act as an unbiased arbitrator of comments, not as an advocacy organization.

How a WTO Meat Labeling Dispute Could Prompt Congress to Change a Bad Law

After losing again at the World Trade Organization, U.S. regulations mandating country of origin labels (COOL) on meat may finally end.  Driven by the possibility that Canada and Mexico could retaliate with increased tariffs, Congress has already begun consideration of a bill to repeal the protectionist program.  If COOL regulations are indeed repealed, American consumers, meat packers, and retailers owe a debt to the WTO’s dispute settlement system.

In the latest WTO decision, the United States lost its appeal of a report originally issued last October.  At that time, I wrote about how the WTO process can help alter the political dynamics in ways that favor free market reform.

Under current U.S. COOL rules, retailers selling beef and pork must include labels stating what country the animal was in when it was born, raised, and slaughtered. This information might be interesting to a curious shopper, but it is completely useless in determining the quality or safety of meat. The same U.S. food safety standards apply regardless of where the animal came from.

Consumers are, of course, welcome to care about things that don’t really matter, and generally, more information is a good thing to have. Sometimes, though, the cost of providing that information is greater than its value. Mandating that companies provide consumers with information will overcome that hurdle by removing the low-information option and forcing consumers to pay the higher price. Making labels mandatory also introduces opportunities for rent-seeking by companies looking to shift costs onto their competitors.

That’s exactly what’s happening with the COOL regulations, and is the crux of the WTO complaint. Canada and Mexico are not complaining that American consumers, armed with their dinner’s travel itinerary will eschew immigrant cattle. Rather, they point out that complying with the rules imposes huge costs on U.S. meat processors who buy cattle that once lived across the border. If a slaughterhouse buys any cattle that rode on a truck traversing the 49th parallel, it must segregate those animals and their meat through the entire production and delivery process.

Two-Month Extension for Federal Highway and Transit Funding

The House of Representatives voted yesterday to extend federal funding for highways and transit for two months. The Senate is expected to pass similar legislation later this week. While transportation bills normally last for six years, this short-term action, which followed a ten-month extension last fall and a two-year extension in 2012, has proven necessary because no one has been able to rustle up a majority agreement on the federal role in transportation.

For those who haven’t followed the issue, the federal government collects about $34 billion a year in gas taxes and related highway user fees. Once dedicated to highways, an increasing share has gone for transit and other uses since the early 1980s. A 1998 decision to mandate that spending equal the projected growth in fuel taxes compounded the problem. When fuel tax revenues stopped growing in 2007, spending did not and thus annual spending is now about $13 billion more than revenues.

Under Congressional rules, Congress must find a revenue source to cover that deficit. My colleague at the Cato Institute, Chris Edwards, thinks that the simple solution is for Congress to just reduce spending by $13 billion a year. That may be arithmetically simple, but politically it is not. Too many powerful interest groups count on that spending who have persuaded many (falsely, in my opinion) that we need to spend more on supposedly crumbling highways.

The Year of Educational Choice: Update II

Educational choice is on the march.

As I noted back in February, the stars appeared to be aligned for a “Year of Educational Choice.” By late April, state legislatures were halfway toward beating the record of 13 states adopting new or expanded school choice laws in 2011, which the Wall Street Journal dubbed the “Year of School Choice.” The major difference in the types of legislative proposals under consideration this year is that more than a dozen states considered education savings account (ESA) laws that allow parents to purchase a wide variety of educational products and services and save for future education expenses, including college.

On Monday, Tennessee Gov. Bill Haslam signed the Individualized Education Act, an ESA program for students with special needs. Earlier this year, Mississippi enacted the nation’s third ESA law, behind Arizona and Florida. Lawmakers in Montana also passed an ESA, but Gov. Steve Bullock vetoed it earlier this month.

Nevertheless, Gov. Bullock allowed a universal tax-credit scholarship bill to become law without his signature. The law is an important step toward educational freedom, albeit a very modest one. Taxpayers can only receive tax credits for donations to scholarship organizations up to $150, meaning that a single $4,500 scholarship will require 30 donors. No other state has such a restrictive per-donor credit cap. Unless the legislature raises or eliminates the cap, Montana’s tax-credit scholarship program is likely to help very few students.

America’s NATO Liabilities

Washington’s collection of European security dependents (aka, the NATO allies) seek an even stronger U.S. commitment to their defense.  That desire has clearly been on the rise since Russia’s annexation of Crimea in 2014 and the subsequent escalation of the Ukraine crisis.  Not surprisingly, Moscow’s smaller neighbors, especially the three Baltic republics, worry about the Kremlin’s intentions and want to take cover behind the shield of America’s military power.  Their latest ploy is to seek the permanent deployment of a NATO brigade (some 3,000 to 5,000 troops) on their territory.  It is a safe bet that they will want U.S. forces to be part of that unit.  Indeed, the United States already keeps more than 150 troops (along with military aircraft) in those countries as part of a continuing rotation of forces.

It is not hard to understand why small, weak nations would seek maximum protection from a distant power against a large, powerful neighbor that has displayed worrisome intentions.  It is much harder to understand, though, why undertaking such a risk would be in the best interest of the United States.  Allies are only beneficial when they augment a nation’s strength, and the potential benefits of defending them significantly outweigh the potential costs and risks. The Baltic republics (and most NATO members, for that matter) spectacularly fail that basic test.  They do next to nothing to augment America’s already vast military power, while (being on bad terms with their powerful neighbor) they create the risk of a U.S.-Russia confrontation where none would otherwise exist.  In short, they are strategic liabilities, not strategic assets. 

Making matters even worse, the Baltic countries and the other European members of NATO don’t seem terribly serious about their own defense, even as they sound alarm bells about Russia’s behavior.  As I note in a new article in Aspenia Online, their defense spending continues to be woeful.  Despite a commitment following the 2006 NATO summit, only the United States, Britain, Greece, and Estonia currently spend at least two percent of annual GDP on defense.  What is especially frustrating is that several major NATO powers, including Germany, Italy, and Spain, have spending levels far below the two percent target.  By comparison, just the U.S. base military budget is more than four percent of a much larger GDP, and if overseas contingency spending for supposed emergency missions (like the ongoing wars in Iraq and Afghanistan) is included, Washington’s defense outlays reach nearly five percent. 

Reforming the Highway Trust Fund

Congress has created an ongoing crisis in the Highway Trust Fund (HTF). Year after year, policymakers spend more on highway and transit aid to the states than the HTF raises from gas taxes and other dedicated revenues. CBO projects that annual HTF spending will be $53 billion and rising in coming years, while HTF revenues will be $40 billion. That leaves an annual funding gap of at least $13 billion.

Congress faces a deadline at the end of May to reauthorize the HTF. However, Congress will probably enact a short-term HTF extension, and then grapple with the funding gap problem later in the summer. Everyone agrees that Congress should find a long-term solution to the funding gap.

The best solution for the HTF is simple: cut annual spending by $13 billion to match revenues. State and local governments are fully capable of funding more of their own highway and transit expenses. Congress can help the states by reducing federal regulations that boost transportation construction costs, such as Davis-Bacon and environmental rules.

Cutting federal aid for highways and urban transit would improve the efficiency of infrastructure investment. Ending transit aid would be particularly beneficial. Local officials often focus on maximizing the flow of money from Washington, rather than ensuring that projects generate overall net value. By injecting federal dollars and regulations into local transit planning, Congress distorts local decision making and increases the complexity, bureaucracy, and costs of projects.