Media reports suggest President Trump and Democratic leaders have agreed in principle to a $2 trillion infrastructure plan “to upgrade the nation’s highways, railroads, bridges and broadband.”
Minor details such as how to finance it have yet to be agreed. White House Chief of Staff Mick Mulvaney doubts the deal will come to fruition anyway, given differences between the parties on environmental regulations surrounding new projects.
But it’s difficult to think of a worse way to make major policy than to dream up a big round number and then work backwards in deciding how money is spent.
Indeed, if $2 trillion is the answer, then what, exactly, is the economic question?
Is $2 trillion the amount needed to invest in targeted public goods that the market would not or could not provide? Is $2 trillion the amount the politicians think is needed for specific projects to enhance long‐term economic growth? Is $2 trillion the amount politicians feel is necessary to repair existing infrastructure? Is $2 trillion what they feel the federal infrastructure contribution needs to be to alleviate negative externalities such as pollution? Or is $2 trillion maybe what they think is necessary to create shovel ready jobs to minimize unemployment?
Judging by the joint post‐meeting statement from Speaker Pelosi and Senator Schumer, the Democrats have no coherent answer here. Within their 224‐word statement, they outlined no fewer than 9 distinct policy aims or ambitions that any infrastructure package would be trying to meet:
- “creating jobs immediately”
- “bolstering commerce”
- “advancing public health with clean air and clean water”
- “improving the safety of our transportation”
- “expanding broadband to…underserved areas”
- “being for the future”
- paying “the prevailing wage”
- involving “women, veteran and minority‐owned businesses in construction”
- addressing needs in “every congressional district”
Whatever the economic case for a major infrastructure program (and for my thoughts on that, read here), it should be obvious that these aims contradict one another.
Lots of projects with high returns take extensive planning and won’t “create jobs immediately.” Investment in safety might come at the expense of other projects that bolster commerce. Paying “the prevailing wage” will likely leave fewer resources to address needs in more districts. Selecting contractors based on the demographics of the owners might trade‐off the safety quality of the job. Focusing on safety upgrades for existing infrastructure means fewer resources for “the future.” Addressing needs in every district and expanding rural broadband is almost certainly not the best way to bolster overall commerce. I could go on.
This plethora of aims is grist to the mill for a conclusion I reached back in 2017:
The sad truth is that infrastructure investment through the political process rarely prioritises long‐term growth. Other considerations dominate, whether electoral advantage or regeneration of an area – even when market signals point to the need to expand booming regions.
The conflicted role of being both the promoter of a project and being responsible for examining its failures and risks leads politicians to make over‐optimistic claims about a scheme’s benefits relevant to costs.
In principle, smart investments in infrastructure can sometimes improve economic welfare. But when huge amounts of federal money is seen as a communal pot for a host of social, environmental, local and “make work” objectives, the chances that such money will be spent wisely looks slim.
The United States has “at least $232 billion in critical public transportation” needs, claims the American Public Transportation Association (APTA). Among the “critically needed” infrastructure on APTA’s list are a streetcar in downtown Los Angeles, another one in downtown Sacramento (which local voters have rejected), one in Tempe, and streetcar extensions in Tampa and Kansas City.
Get real: even ardent transit advocates admit that streetcars are stupid. The economic development benefits that supposedly come from streetcars are purely imaginary, and even if they weren’t, it would be hard to describe streetcars — whose average speed, APTA admits, is less than 7.5 miles per hour — as “critically needed.”
Much of the nation’s transit infrastructure is falling apart, and the Department of Transportation has identified $100 billion of infrastructure backlog needs. (Page l — that is, Roman numeral 50 — of the report indicates a backlog of $89.9 billion in 2012 dollars. Converting to 2019 dollars brings this up to $100 billion.) Yet APTA’s “critical needs” list includes only $24 billion worth of “state of good repair” projects. Just about all of the other “needs” listed — $142 billion worth — are new projects or extensions of existing projects.
In fact, few if any of these new projects are “needed” — they are simply transit agency wish lists. For example, it includes $6 billion for phase 2 of New York’s Second Avenue Subway, but no money for rehabilitating New York’s existing, and rapidly deteriorating, subway system. Similarly, it includes $140 million for a new transitway in Alexandria, Virginia, but no money for rehabilitating the DC area’s also rapidly deteriorating Metrorail system. (In case anyone is interested, I’ve converted APTA’s project list into a spreadsheet for easy review and calculations.)
The $166 billion total on APTA’s “Project Examples” list is less than the $232 billion APTA says is needed, but even if all of the difference is “state of good repair” projects, that difference plus the $24 billion on APTA’s list doesn’t add up to what the DOT says is needed to restore transit infrastructure. This shows that even APTA doesn’t take public safety and “crumbling infrastructure” seriously.
I’ve previously pointed out that the best‐maintained infrastructure is funded out of user fees. For example, Federal Highway Administration data show that only 2.9 percent of toll bridges are “structurally deficient,” compared with 5.5 percent of state‐owned bridges funded mainly out of gas taxes and 12.2 percent of locally‐owned bridges that are funded mainly out of general tax dollars. Gas taxes are a user fee, so state bridges are better maintained than local bridges, but tolls are an even better user fee so toll‐funded bridges are in the best shape.
Politicians allow infrastructure funded out of tax dollars to deteriorate because they would rather spend money on new projects than maintain old ones. APTA’s list simply confirms this: APTA is trying to entice politicians into funding all sorts of new projects rather than maintain the existing ones that are falling apart.
To justify this spending, APTA claims that transit produces $4 in economic benefits for every $1 spent. This is based on a report prepared for APTA in 2009. This report includes two kinds of benefits from transit spending.
First, when anyone spends money on anything, the recipients of that money turn around and spends it again. That’s called “indirect” or “secondary” benefits. Spending money on digging holes and filling them up would produce similar secondary spending. That doesn’t mean the government should pay people to dig holes and fill them up (although that’s really what it’s doing for many rail transit projects). For one thing, if government didn’t spend that money, there would be more money in the hands of taxpayers, who would spend it, generating just as many secondary benefits.
Second, the study counts cost savings to transit riders and other travelers, such as the savings from not having to own a car, from getting to destinations faster, or from congestion relief. But transit costs far more and travels far slower than automobiles; there is no cost or time savings from substituting expensive, slow methods of transportation for inexpensive, fast methods of transportation. Transit also does not provide a significant amount of congestion relief; in fact, large buses, streetcars, light rail, and commuter trains that have many grade crossings often do more to increase congestion than reduce it.
The study’s arguments are even less plausible today, when transit ridership is shrinking, than they were in 2009, when transit ridership had been growing. Charlotte, Los Angeles, and Portland recently spent hundreds of millions or billions on new light‐rail lines or light‐rail extensions, yet transit ridership in those regions dropped after the new lines opened. There is no way that can that be good for transit riders or other travelers.
APTA’s wish‐list is just one more reason why Congress should only pass an infrastructure bill if it is one that is funded exclusively out of user fees. An infrastructure bill funded out of tax dollars or deficit spending would impose huge costs on taxpayers in order to build unnecessary projects that we won’t be able to afford to maintain.
The federal government does a lot of things poorly, including trying to run businesses such as an electric utility, a postal system, and a railroad.
After the government helped ruin private passenger rail in the post-WWII years, it took over the remaining passenger rail routes in the 1970s under the Amtrak brand. Amtrak was supposed to become self-supporting, but it has consumed tens of billions of taxpayer dollars over the years.
Today, Amtrak operates 44 routes on 21,000 miles of track in 46 states. Amtrak owns the trains, but freight rail companies own nearly all the track. A Pew analysis found that Amtrak loses money on 41 of its 44 routes, and an analysis by Randal O’Toole found similar results. More information is here and here.
The few routes that earn positive returns are in the Northeast, and the biggest money losers are the long-distance routes. That brings us to a story in the Wall Street Journal regarding Amtrak head Richard Anderson’s current efforts to stem the losses.
Will Congress let Anderson cut money-losing routes or will it continue to put parochial interests above the system’s overall soundness?
Seeking to attract millions more passengers, Amtrak is preparing an overhaul of its national network targeting increased service in the South and West—at the expense of long-haul routes beloved by train buffs and their allies in Congress.
The goal is to revamp the way Amtrak runs trains on the aging network of national routes it already maintains, with more frequent service between pairs of cities, such as Atlanta and Charlotte, N.C., or Cleveland and Cincinnati. Running more trains over shorter distances would allow Amtrak to better serve those commercial corridors where rail can compete with flying and driving, railroad officials said.
The new service could come at the cost of curtailing some long-distance routes, where storied trains like the Empire Builder and the Southwest Chief have small but fervent bases of support and lineage stretching back to the golden age of U.S. railroads. Any change in Amtrak’s management of the national network will require approval from Congress, which has aggressively defended the long-distance routes in the past, even while pressing Amtrak to focus on improving its financial performance.
Amtrak’s long-distance routes carried about 4.5 million riders in fiscal 2018, down slightly from the previous year. Amtrak reported an adjusted operating loss of $543 million on those routes in 2018, more than offsetting the $524 million in earnings coming from its operations on the Northeast Corridor.
… Amtrak Chief Executive Richard Anderson, a former Delta Air Lines Inc. CEO, has hinted at his desire to boost ridership along densely populated corridors where Amtrak currently runs infrequent service—and has already tangled with supporters of long-distance trains in the process.
… “The present network simply does not fit the future,” [Anderson] said.
Anderson is right. But the best fit for the future would be a privatized Amtrak. Privatization would allow for innovation and cost-cutting to improve service and make rail more financially viable. A private rail company (or companies) could prune excess workers and end harmful union rules. It would be able to close the routes that are losing the most money and shift resources to the core routes to improve service quality.
Congress should get out of the passenger rail business and give rail the private-sector flexibility it needs to better compete against other transportation modes.
Here's the great thing about driverless cars: They will need no new infrastructure because the people designing them are making them work with existing infrastructure. All they ask is for cities and states to fill the potholes and do other basic maintenance.
Here's another great thing about driverless cars: Most congestion results from slow human reflexes, and simulations show that congestion will significantly decline if as few as 5 percent of vehicles on the road are driverless. So, even if you don't have a driverless car, you will benefit from others being driverless.
So why is Bexar County (San Antonio) Commissioner Kevin Wolff proposing to use federal infrastructure dollars to build new interstate highway lanes open only to driverless cars? On one hand, they don't need special lanes. On the other hand, separating them from other traffic eliminates the congestion relief benefits they can provide.
The White House released President Trump's infrastructure plan today, which calls for spending $200 billion federal dollars as seed money to stimulate a total of $1.5 trillion on "gleaming new infrastructure." Almost lost in the dozens of pages of documents issued by the administration is that the reason why the federal government supposedly needs a new infrastructure program is that our existing infrastructure is crumbling, and the reason it is crumbling is that politicians would rather spend money on gleaming new projects than on maintaining the old ones.
The White House proposes several new funding programs. The administration could have dedicated one or more of these programs to maintenance and repair of worn-out infrastructure. Instead, all $200 billion can be spent on new projects, and knowing politicians, most of it will be. To make matters worse, funds for most of the programs would be distributed in the form of competitive grants, but experience has proven that competitive grants are highly politicized.
"In the past, the Federal Government politically allocated funds for projects, leading to waste, mismanagement, and misplaced priorities," agrees White House economic advisor Gary Cohn. The administration's solution, Cohn continues, is to "stimulate State, local, and private investment." In other words, instead of most decisions being made by Washington politicians, they will be made by local politicians. But if local politicians were any better at maintaining infrastructure, then we wouldn't have tens of thousands of local bridges classed as "structurally deficient" and the New York, Washington, Boston, and other subway systems wouldn't be falling apart.
The White House says that the federal funds it proposes to allocate to infrastructure may be spent on either new construction or maintenance, which is an advantage over some existing federal programs that can only be spent on new construction. But just because they can be spent on maintenance, doesn't mean they will be.
The New York subway system is falling apart because the city doesn't have enough money to maintain it. Yet it has enough money to spend $10 billion on a tunnel between Penn Station and Grand Central Terminal for Long Island Railroad trains, which the New York Times has called "the most expensive subway in the world." It also has enough money to build the eight-mile Second Avenue subway, which at $2.1 billion a mile must be the second-most expensive subway in the world.
Remember America’s crumbling infrastructure that supposedly needs trillions of dollars for maintenance and rehabilitation? President Trump doesn’t. Instead, the seven sentences in his State of the Union speech that focused on infrastructure talked about building “gleaming new” projects rather than fixing existing systems.
The only news is that he is upping the ante from $1.0 trillion to “at least $1.5 trillion.” More disturbingly, other than mentioning an “infrastructure deficit” — which could just as easily be interpreted to mean a shortage of new infrastructure as a deficit in maintenance — Trump said nothing about fixing existing infrastructure. Instead, he wants to “build gleaming new roads, bridges, highways, railways, and waterways.”
Why? We have plenty of railways. Though the railroads have trimmed the nation’s rail mileage by 45 percent since 1916, they move more freight than ever and seem to be quite capable of adding capacity where they need it without government help. High‐speed trains, meanwhile, are pointless when we have planes that can go twice as fast and don’t require hundreds of billions of dollars of supporting infrastructure.
Nor do we need more interior waterways. The ones we have are government subsidized and paralleled by railroads that could easily replace them if subsidies ended tomorrow (as they should). Fixing the Jones Act to allow low‐cost shipping to Alaska, Hawaii, and Puerto Rico is more important than adding new waterways in the contiguous 48 states.
Our state and interstate highways and bridges are actually in better shape than ever. City and county roads aren’t doing as well and many urban roads are heavily congested, but these are local problems, not federal ones. They are best handled by fixing the system of user fees that should pay for them, such as by Oregon’s experiment with mileage‐based user fees (in which I am a participant). More federal funding would only allow the states to delay making those changes.
Finally, our transit systems — especially the most important ones in New York, Chicago, Washington, Boston, and the San Francisco Bay Area — are suffering from overspending on gleaming new transit lines and neglect of the existing ones. More new lines will only make that problem worse.
In short, President Trump has fallen for the politician’s fallacy of preferring ribbons over brooms — that is, building new infrastructure rather than maintaining the old. This is underscored by a leaked infrastructure plan that outlines seven different initiatives and programs, none of which is focused on repairing or rehabilitating America’s existing infrastructure.
This country may need some new infrastructure, but mainly it needs to better utilize and take care of the infrastructure it already has. Since politicians seem to be incapable of doing that, and since user‐fee‐funded infrastructure tends to be far better managed and maintained than politically funded infrastructure, Congress should focus on returning as much infrastructure as possible to funding systems that rely on user fees, not taxes.
The Trump administration will release its long‐waited infrastructure plan in coming weeks. The plan is expected to include $200 billion over 10 years of federal funding. Where will the money come from? The president has pondered raising the federal gas tax.
Revenues from the 18.4 cent‐per‐gallon federal gas tax go into the Highway Trust Fund, and then are dished out to the states. But 98 percent of U.S. streets and highways are owned by state and local governments, and the owners should do the funding. States that need to improve their highways can increase their own gas taxes, sales taxes, issue debt, add user charges, or pursue public‐private partnerships.
There is no advantage in raising federal highway revenues rather than the states raising their own. The states can tackle their own infrastructure challenges, and about half of them have raised their transportation taxes in the past five years.
Supporters of a federal gas tax hike say that the tax has not been raised since 1993, and its real value has been eroded by inflation. That is true. But the federal gas tax rate more than quadrupled between 1983 and 1993 from 4 cents to 18.4 cents, as shown in the chart below. The 4‑cent rate would be 9.8 cents in today’s dollars, so the real gas tax rate has risen substantially since the early 1980s.
The chart shows that the states have steadily raised their own gas taxes in recent years. API discusses state gas taxes here, and they emailed me data back to 1994. (I’ve interpolated a few missing years). The state average — currently 33 cents — includes both gasoline excise taxes and other taxes on gasoline.
I hope Trump does not go down the road of gas tax increases. Pumping more money through the federal bureaucracies would fuel more top‐down planning and inefficiency. Funding for highways and other infrastructure should be handled by state and local governments and the private sector.
More on infrastructure here and here.