New York Governor Andrew Cuomo is upset that the Trump administration doesn't want to fund new tunnels under the Hudson River. Cuomo sent an angry letter to Trump earlier this week accusing the president of being prejudiced against New York and New Jersey because they didn't vote for him. Cuomo claims the tunnels should be federally funded because "the Northeast is home to 17 percent of the entire population and contributes 20 percent to the national domestic product."
But gross domestic product and regional populations aren't among the criteria Congress established for federal funding of transit infrastructure. Instead, one of the most important criteria that the Department of Transportation is required to use is whether the project is "supported by an acceptable degree of local financial commitment." Based on the lack of local support, the Federal Transit Administration's 2020 New Starts funding recommendations gave the project a "medium-low" rating, and under federal law, that makes it ineligible for funding. Not counting some very small projects (such as the downtown Los Angeles streetcar), the only other project to get a medium-low rating was the Portal North Bridge, which is also part of the Hudson Gateway megaproject.
Cuomo argues that Trump has ignored "the financial commitments made by New York and New Jersey." The FTA's profile of the project reveals just what those commitments are.
First, the states are asking the federal government to put up $6.7 billion, or 49 percent of the projected $13.6 billion cost. Second, they want the federal government to make them a loan of $2.3 billion that will be "repaid with PANYNJ [Port Authority of New York and New Jersey] funds." Third, they want another federal loan of $2.0 billion that will be "repaid with project revenues." These two loans total to 32 percent of the projected costs.
Another billion dollars (7%) is supposed to come from "unspecified private capital sources" who will be "repaid with project revenues." Further, $1.4 billion (10%) would come from "GDC funds" derived from "project revenues." GDC is the Gateway Development Corporation, which consists of Amtrak, New Jersey Transit, the Port Authority, and the U.S. Department of Transportation. It currently earns no revenues of its own, so it will have a hard time paying $1.6 billion in construction costs. Finally, $178 million, or 1.3 percent of the total, would come from the Port Authority of New York and New Jersey.
In short, New York and New Jersey are nobly committing themselves to cover 1.3 percent of the cost of the project, while they are relying on the federal government to fund a mere 81 percent. Of course, some of that would be loans, but the states may not be obligated to repay those loans unless the project earns sufficient revenues to do so. The private capital sources who are supposed to put up 7 percent are almost purely imaginary, and even if they existed they would demand that they be repaid out of project revenues before the federal government. But before repaying anyone, these mythical project revenues are supposed to cover another 12 percent of the cost.
Pardon me if I sound naive, but what project revenues are we talking about? Amtrak, New Jersey Transit, and the Port Authority are all money-losing operations. Amtrak claims to make money in the Northeast Corridor, but that's only because it ignores depreciation and the corridor's $51 billion infrastructure backlog, only part of which is the Hudson Tunnels. New Jersey Transit trains don't even earn enough fares to cover 60 percent of their operating costs, much less any to pay for maintenance or capital costs.
In other words, Cuomo is asking Trump to have federal taxpayers pay nearly all the up-front costs and to take nearly all the risks of this project. What if self-driving buses put New Jersey Transit and Amtrak out of business -- or at least reduce their ridership enough that they have no surplus revenues to repay federal loans? What if many of the firms now located in Manhattan realize that the subway system is never going to be repaired and decide to move away? Who is going to pay for the inevitable cost overruns? New York and New Jersey are clearly trying to get these tunnels while putting up as little of their own money as possible.
The FTA has long had a policy that applicants for transit capital funds must put up half the cost in matching funds, and federal loans don't count as matching funds. Following this policy, it rated the Hudson Tunnels "medium low." Congress made the rules, so Cuomo is complaining to the wrong party when he writes Trump, as the Department of Transportation just followed Congressional direction when it gave the project a medium-low rating. If anything, the DOT was generous: the project really deserves a "low" rating.
New York is far denser than any other large American city, with an average of 27,000 people per square mile compared with 2,500 to 4,000 for most American cities. Although the city is criss-crossed by an extensive subway system, there are still some neighborhoods that are more than half a mile from a subway station.
So naturally, what those neighborhoods need is an ultra-low-capacity, high-cost form of urban transit: a streetcar. At least, that's what Mayor Bill de Blasio thinks: last week, he proposed to spend $2.5 billion building a 16-mile streetcar line connecting Brooklyn with Queens.
This is such a dumb idea that even transit advocates oppose it. Streetsblog observes that the proposed streetcar route doesn't easily connect with subway stations that would give riders access to Manhattan. It also argues that bus-rapid transit (which New York calls "select bus service") makes a lot more sense than streetcars.
TransitCenter advocate and Brooklyn resident John Orcutt argues that "the American streetcar 'renaissance' of the past 15 years has mainly turned out turkeys": slow ("Reporters for The Oregonian, CharlotteFive and Atlanta magazine have all laced up sneakers and outraced their local streetcars on foot"), expensive ("L.A.’s streetcar has seen its initial cost estimate more than double"), and underperforming ("ridership on Salt Lake City’s S-Line is less than half of planning projections").
TransitCenter head David Bragdon, who previously was president of Portland's Metro Council, agrees. "Most streetcar projects in the U.S. provide slow, unreliable service that does not serve many people," Bragdon noted, urging New York not to "repeat the mistakes of other places and spend $2.5 billion if the result is not useful transportation for riders."
While Portland often claims its streetcar is a great success, it has inflated ridership numbers by at least 19 percent and gained most of the ridership it by offering free rides to most passengers for the first dozen years of operation. Even though it supposedly started collecting fares from all riders in 2012, average fare revenues in 2014 were still just 4 cent per trip, showing that no one is enforcing the fare.
TransitCenter also questions de Blasio's claim that streetcars will generate enough new development to pay for themselves. "Much of the property adjacent to the route is undergoing large-scale development without the spur of a new transit proposal," says a TransitCenter blog post. "Would more value be realized by supporting transit projects of proven effectiveness in other parts of the city?" In fact, as I've repeatedly pointed out, streetcars don't generate any economic development unless that development gets additional subsidies. Even Portland's city auditor agrees.
Few of the critics have commented on the high cost of de Blasio's proposal. Portland spent just under $150 million on its 3.3-mile Eastside streetcar line, which it said somewhat proudly was the most expensive streetcar line ever built. De Blasio's line would cost more than $150 million per mile. Labor costs in New York may be somewhat higher than in Portland, but I don't know of any inherent reason why construction costs should be more than three times as much as elsewhere.
Nor does anyone raise the capacity issue. For safety reasons, a single streetcar line can only support about 20 cars per hour. When jammed full, with most people standing and packed together more closely than most Americans are willing to accept, a streetcar is rated to hold about 134 people, for a throughput of 2,680 people per hour in each direction. By comparison, New York City's subways can move close to 50,000 people per hour, and buses on city streets with a dedicated lane and parking strip can easily move more than 10,000 people per hour (and nearly double that on double-decker buses), most of them comfortably seated. Plus, if a bus breaks down, others can go around it while if a streetcar breaks down most of the line must shut down as they are built with few passing tracks.
Also little noted is the conflict between bicycles and in-street rails. New York has seen a quintupling in bicycle commuting since 2000, and streetcar tracks are a major hazard to these cyclists. A survey of 1,520 Portland cyclists revealed that two-thirds "have experienced a bike crash on tracks."
The real purpose of the streetcar is to give the owners of housing projects that are currently under construction along its proposed route a Disneyland-like ride they can use to distinguish their projects from others in the city. They won't get it very soon, however: de Blasio's plan calls for construction to begin no sooner than 2019 and completion in 2024. For a lot less money, the city could start a locally branded bus service in a few months that wouldn't cause as much congestion and wouldn't create a street hazard for cyclists.
The irony is that de Blasio campaigned for office on the claim that, unlike his predecessors, he wouldn't cowtow to developers. Now, when the city has far higher transportation priorities elsewhere, he wants to blow $2.5 billion on a toy train that, at best, will slightly enhance the value of developments that are being built anyway and at worst add to congestion and make streets more dangerous for cyclists.
A popular knock against vouchers and other school choice programs is that private schools do not serve many students with disabilities, whereas public schools serve everyone. If that’s true, then the vast majority of public schools in New York City must actually be private.
According to a federal investigation just rejected by the de Blasio administration, the large majority of New York City elementary schools – 83 percent – are not “fully accessible” to students with disabilities. That forces many disabled students to travel far afield from their local public schools, which are supposed to serve every zoned child. The U.S. Department of Justice's letter to the city laying all this out contains this anecdote:
In the course of our investigation, we spoke to one family who went to extreme measures to keep their child enrolled in their zoned local school, rather than subject the child to a lengthy commute to the closest "accessible" school. A parent of this elementary school child was forced to travel to the school multiple times a day, every school day, in order to carry her child up and down stairs to her classroom, to the cafeteria, and to other areas of the school in which classes and programs were held.
Of course, it is unrealistic to expect that every school is going to be able to provide the best possible education for every child – all kids learn different things at different rates and have different strengths and weaknesses – but it is especially true for children with disabilities. Yet while the public schools often fall lightyears short of the goal, that is the standard to which public schooling advocates love to hold schools in choice programs. And not only is it unrealistic no matter what, but vouchers are usually a fraction of the funding public schools get, averaging around $7,000, versus New York City’s nearly $19,000 per pupil.
The scope of NYC’s failure to live up to the ideal is sobering, but revelations of double standards on this front are not new. School districts often pay for kids with the most challenging disabilities to attend private institutions, and there are several choice programs that are, in fact, specifically designed for children with disabilities. But maybe now, before choice opponents attack private schools again, they’ll at least try to get their own house in order. Or in New York City, their hundreds of houses not fully serving disabled children.
The federal corruption trial of former New York Assembly Speaker Sheldon Silver (D-Manhattan) has concluded with a conviction on all counts, despite his lawyers’ interesting argument that trading favors — in this case, funneling state grant money to a doctor’s clinic in exchange for highly lucrative asbestos-claim referrals to Silver’s law firm — is just the way everyone does politics in New York. It’s a huge win for Preet Bharara, who holds Rudy Giuliani’s old job as chief federal prosecutor in Manhattan — often seen as the only jobholder capable of cleaning up New York politics, because all the relevant actors within the state government itself are too compromised one way or another.
Ward heelers and frank rogues are common enough in Northeastern politics, but Silver always presented himself as something else, the voice of conscience speaking for every kind of progressive movement in New York. He had won the National Conference of State Legislatures’ “William M. Bulger Excellence in State Leadership Award,” delightfully named after the notorious boss of Massachusetts politics. Silver had the power, but he also had the pretensions.
As John Podhoretz writes in the New York Post, “That Silver was (to use a Yiddish term for thief) a goniff was a universally suspected fact even back in the late 1990s.” The Assembly boss was also for many years one of the fabled “three men in a room” in Albany — the governor and senate majority leader being the others — who decide important questions in privately cut deals. It happens that another of the three men in that room — Sen. Majority Leader Dean Skelos (R-Long Island) — is in the midst of his own trial on corruption charges.
So does this mean better days ahead for New York, a terribly misgoverned state? As one who has been writing about New York politics since way back, I can’t bring myself to be too optimistic.
I got interested in Silver originally because of his distinctive role as protector of New York’s trial lawyers and their various schemes for using liability law to keep up a steady flow of redistribution through the court system. Most of these schemes raise the cost of living and doing business in New York, such as the state’s unusual rule which used to expose car-lease providers to unlimited liability for crashes in leased cars, which drove up the price of a car lease for many New York consumers by $600. The state’s unique “scaffold law,” which makes business 100% liable for many on-the-job falls even if caused primarily by others’ negligence, has been estimated to drive up the cost of the Tappan Zee Bridge reconstruction alone by $100 million [corrected from Friday afternoon number -- W.O.] For the past decade Silver has been associated with a large mass tort firm (not charged with wrongdoing in this case) which has benefited from many official programs and policies, from the liberal stance of the New York judiciary on asbestos litigation, to its role in Sept. 11 claims, to Medicaid recoupment actions.
With Silver gone, there might be movement on a few issues like this. But legal policy was only one of the many pots in which Silver kept his fingers, as Steven Malanga and Seth Barron detail in separate articles at City Journal. New York sluices huge amounts of money in its gigantic social services apparatus through non-profits, and friends of Sheldon were there to profit. Real estate development in New York is subject to famously convoluted restrictions, and huge sums are at stake in its rent control and rent stabilization system. Again and again, Silver was there to broker deals for his friends behind the scenes.
This particular wheeler-dealer may be off the scene for good, pending appeal, but it is the overreach of Empire State government that made his career possible. So long as New York pursues failed policies like rent control, it will open huge leeway for hidden favoritism. And then, sure as day, in will move the Sheldon Silver types.
The New York Times reports:
For decades, idealistic twenty-somethings have shunned higher-paying and more permanent jobs for the altruism and adrenaline rush of working to get a candidate to the White House. But the staffers who have signed up for the Clinton campaign face a daunting obstacle: the New York City real estate market....
Mrs. Clinton’s campaign prides itself on living on the cheap and keeping salaries low, which is good for its own bottom line, but difficult for those who need to pay New York City rents....
When the campaign’s finance director, Dennis Cheng, reached out to New York donors [to put up staffers in their apartments], some of them seemed concerned with the prospective maze of campaign finance laws and with how providing upscale housing in New York City might be interpreted.
Here are some words that don't appear in the article: rent control, regulation, zoning. But those are among the reasons that housing is expensive in New York. As a Manhattan Institute report noted in 2002:
- New York City and State have instituted policies that severely distort the dynamics of housing supply and demand. Only 30 percent of the city’s rental units, for instance, are subject to market prices. These distortions—coupled with Rube-Goldbergian environmental and zoning regulations—have denied New York the kind of healthy housing market enjoyed by most other major cities.
And a report by Edward Glaeser and Joseph Gyourko for the Federal Reserve Board of New York Economic Policy Review suggests that "homes are expensive in high-cost areas primarily because of government regulation" that imposes "artificial limits on construction."
As I've said in other contexts: This is the business you have chosen. If you want the government to control rents and impose regulatory costs on the building of housing, then you can expect to see less housing and thus more expensive housing. Welcome to your world, Hillary Clinton staffers.
I recently speculated whether Detroit's fiscal problems should be a warning sign for the crowd in Washington.
The answer, of course, is yes, though it's not a perfect analogy. The federal government is in deep trouble because of unsustainable entitlement programs while Detroit got in trouble because of a combination of too much compensation for bureaucrats and too many taxpayers escaping the city.
A better analogy might be to compare Detroit to other local governments. Some large cities in California already have declared bankruptcy, for instance, and you can find the same pattern of overcompensated bureaucrats and escaping taxpayers.
And the same thing may happen to New York City if the next mayor is successful in pushing for more class-warfare tax policy. Here are some excerpts from an excellent New York Post column by Nicole Gelinas:
Mayoral candidate Bill de Blasio...thinks New York can hike taxes on the rich and not suffer... De Blasio’s scheme is this: Hike income taxes by 13.8 percent on New Yorkers making above half a million dollars annually....After five years, de Blasio would let this tax surcharge lapse, and — he says — find another way to pay.
But there's a big problem with de Blasio's plan. Rich people are not fatted calves meekly awaiting slaughter.
In 2009, the top 1 percent of taxpayers (the 34,598 households making above $493,439 annually) paid 43.2 percent of city income taxes (they made 33.9 percent of income), according to the city’s Independent Budget Office. Each of these families paid an average $75,477. No, most people won’t up and leave (though if 20 percent did, they’d leave New York with less money than before the tax hike). But they can rearrange their incomes. Unlike most of us, folks making, say, $10 million have considerable control over how and when they get paid. That’s because much of their money comes from cashing out a partnership, or selling stock or a house or a painting. To avoid a tax hike, it’s easy enough for them to pay themselves earlier by selling their stuff earlier — before the tax hike. The city made $800 million in extra taxes last year because rich people sold their stuff before President Obama increased investment taxes in December. Or, people can pay themselves later — after the five years’ worth of higher taxes are up.
Gelinas makes some very important points. She warns that the city would have less money if just 20 percent of rich people escaped. She doesn't think that will happen, but she does explain that rich people can stay but take some simple steps to reduce their taxable income.
This is because rich people are different from the rest of us. As I've previously explained with IRS data, they get the vast majority of their income from business and investment sources rather than from wages and salaries.
This means, as Gelinas notes, they have considerable control over the timing, level, and composition of their income.
So if Mr. de Blasio wins and succeeds in pushing through his tax agenda, don't expect to see much--if any--additional revenue. This will be a tailor-made example of the Laffer Curve in action.
In this video on class warfare taxation, I explain that the Laffer Curve is one of five reasons why soak-the-rich taxes are misguided.
I'll close by addressing a common argument from folks on the left. They assert that places such as New York City (or states such as California) can impose higher taxes because they provide more in exchange.
I sort of agree, though not with the notion that people are getting "more in exchange" from the politicians in New York City and California.
Instead, it's clear that some people are willing to pay more because they like the non-political features of NYC and the Golden State. For those who like museums, fancy dining, and Broadway shows, there's no easy substitute for New York City. And for people who like the ocean and a Mediterranean climate, it's hard to compete with California.
But there are limits. Last month, I shared a very powerful map from the Tax Foundation showing there's been a huge shift of taxable income out of New York and California between 2000 and 2010.
Governor Jerry Brown recently succeeded in pushing through a huge tax hike in California, so I expect even more people will leave that state, regardless of the climate.
And if Mr. de Blasio is elected and imposes a big tax hike in New York City, I suspect some rich people will decide enough is enough.
No, they won't move to Connecticut or New Jersey, both of which have become high-tax nightmares in recent decades. But there are a good handful of zero-income tax states, and the rich folks in New York City will figure out that there are also good restaurants in places such as West Palm Beach, Florida, and Austin, Texas.
Welcome news from New York: a unanimous four-judge appeals court has confirmed a trial court order striking down the New York Department of Health's attempt to ban large soda portions. The decision is here, Newsday coverage here, and our earlier coverage here.
The appeals court ruled that in enacting the ban the NYC department of health had overstepped its legally granted powers. As I observed in this Commentary article in March, New York has its own distinctive body of law by which courts step in to prevent administrative agencies from claiming quasi-legislative powers not clearly delegated to them, the rules laid out in a 1987 case called Boreali v. Axelrod. The appeals court agreed with trial court judge Milton Tingling that Boreali was directly controlling, and that the department had clearly overstepped Boreali's ban on essentially legislative action by an administrative agency. (Why, you ask, don't federal courts apply as tough a standard to keep administrative agencies in Washington, D.C. from arrogating to themselves essentially legislative functions? Good question...)
Although the appeals court did not reach the issue of whether the Bloomberg rules were "arbitrary and capricious," and although neither it nor Judge Tingling reached the underlying issues of individual consumer choice that are at stake, this was far more than just a "win on a technicality." The rule that government agencies cannot overstep their lawfully granted powers is a vital one in protecting the liberty of the citizen. On this issue, and not this alone, Mayor Michael Bloomberg has acted more as a Napoleon issuing peremptory dictates than as an elected executive carrying out the will of legislators on the City Council and in Albany.
Napoleons of the political class are a good bit more dangerous to us all than the sugar-laden Napoleons of the bakery shelf. We should rejoice that this one is getting sent back to the kitchen.