July 23, 2010 7:17PM

Making Transit More Cost‐​Effective

The Federal Transit Administration (FTA) has asked for public comment on Transportation Secretary Ray LaHood's proposal to eliminate a rule that limits federal funding of particularly wasteful rail transit projects. The Cato Institute has submitted comments arguing that, instead of eliminating the rule, the FTA should strengthen it, but also give transit agencies more flexibility in defining the goals of new projects.

Since 1970, American cities have spent nearly $100 billion building new rail transit projects, and tens if not hundreds of billions more running them. While new rail lines appeal to the egos (and campaign coffers) of elected officials, they do little that could not be accomplished for a lot less money by simple improvements in bus service. Even Peter Rogoff, the Obama administration's appointee in charge of the FTA, recently admitted that "paint is cheap, rail systems are very expensive," meaning that painting buses a special color and running them on specific routes can accomplish just as much as spending billions on new rail construction.

To place some limits on the most wasteful rail projects, the Bush administration wrote a "cost-effectiveness rule" in 2005. This rule requires transit agencies to calculate how many hours of people's time major new transit projects will save each year, and divide that into the amortized capital cost plus the annual operating cost of the project. If the resulting cost is more than about $24 per hour (the actual amount varies with inflation), the FTA refused to fund it.

This rule was controversial within the transit industry and Congress immediately waived it for a few particularly expensive projects such as a Washington Metrorail line to Dulles Airport and a BART line to San Jose. So rail advocates were thrilled when LaHood announced in January that he wanted to repeal the rule. Before he can do so, however, the rule has to go through a public review process.

Since January, however, Rogoff gave his speech questioning whether the nation should build new rail projects when an FTA report found that cities with rail transit are unable to keep the lines they have in a state of good repair. So it is possible that the FTA will be open to new ideas. In 2005, the original rule generated only 50 comments, mostly from transit agencies, so a strong public response to the proposed new rule could sway the agency to actually make it stronger, thus saving taxpayers lots of money and heartache in the future.

The main thing fiscal conservatives want is a requirement that agencies proposing rail transit consider a full range of alternatives, such as bus improvements, reduced transit fares, and converting high-occupancy vehicle lanes to high-occupancy toll lanes that are dynamically priced to insure that buses (and others) using the lanes are never delayed by congestion. The main thing the transit agencies want is the ability to calculate cost effectiveness based on factors other than the amount of time people save. The Cato Institute's recommendations meet both these goals by allowing agencies to use any true outputs, such as cleaner air, energy savings, or increased personal mobility, and requiring them to calculate the cost per unit of each output for a variety of alternatives.

The deadline for comments is August 2. People who want to comment can go to regulations.gov to type their ideas directly on the web or submit comments in a Word or text file. You don't have to write comments as long as Cato's. The most important things to say are that the FTA should require transit agencies to consider a full range of alternatives and that the FTA deny funding to any alternatives that are significantly more expensive than the others in meeting environmental and social goals. You can also simply endorse the Cato Institute's comments.