Tag: subsidies

Transit Death Spiral Continues

Transit ridership has been dropping for four years and increased subsidies won’t fix the problem. Data released by the Federal Transit Administration yesterday show that nationwide ridership was 3.1 percent less in June 2018 than it had been in June 2017. Ridership fell for all major modes of transit, including commuter rail (-2.6%), heavy rail (-2.5%), light rail (-3.3%), and buses (-3.8%). 

June 2018 had one fewer work day than June 2017, which may account for part of the ridership decline. But ridership in the first six months of 2018 was 3.0 percent less than the same months of 2017, and again ridership declined for all major modes of transit.

As in previous months, I’ve posted an enhanced spreadsheet that has all of the raw monthly data from the FTA spreadsheet but includes annual totals from 2002 through 2018 in columns GZ through HP, modal totals in rows 2125 through 2131, transit agency totals in rows 2140 through 3139, and urban area totals for the nation’s 200 largest urban areas in rows 3141 through 3340. The same enhancements are included on the “VRM” or vehicle-revenue miles worksheet.

June 30 is the end of the fiscal year for many if not most transit agencies, so now we can compare transit’s 2018 fiscal year performance against 2017 (see columns HU to HW in the spreadsheet). Nationwide ridership in FY 2018 declined 2.7 percent from 2017 and of course it fell for hundreds of transit agencies.

Of the nation’s 50 largest urban areas, June ridership grew in eleven, January through June ridership grew in ten, and fiscal year ridership grew in just six. Seattle is one of the six, having grown by 1.4 percent, the others being Pittsburgh (0.2%), Providence (1.1%), Nashville (3.5%), Hartford (3.3%), and Raleigh (6.1%). Except Seattle, these urban areas have seen declines in other recent years so this increase is not a great victory and probably won’t be sustained for long in the future. 

As I’ve noted elsewhere, Seattle has enjoyed steady growth in transit ridership not because it built light rail but because it has increased downtown jobs from 216,000 in 2010 to 292,000 in 2017. Downtown jobs are the key to transit ridership because most transit agencies run hub-and-spoke systems focused on central city downtowns. But replicating Seattle’s downtown growth is impossible in most regions, as all but six American cities have far fewer downtown jobs; nor would most people agree to accept the costs Seattle is paying in terms of subsidies to new employers, traffic congestion, and high housing prices resulting from land-use restrictions that prevent jobs and housing from moving to the suburbs.

Fiscal year ridership declines in many urban areas were larger than the increases in the few regions where ridership grew. The worst were Charlotte (-15.1%), Cleveland (-11.7%), Miami (-10.3%), St. Louis (-8.2%), Memphis (-7.7%), Jacksonville (-7.0%), Baltimore (-6.6%), Richmond (-6.6%), Philadelphia (-6.5%), Cincinnati (-6.2%), Virginia Beach (-6.1%), Dallas-Ft. Worth (-5.9%), Phoenix (-5.6%), and Boston (-5.2%). This is in addition to significant declines in all of these urban areas between 2014 and 2017.

Officials at the Charlotte Area Transit System must be proud that the light-rail expansion they opened in March led to a 65 percent increase in June light-rail ridership over June 2017. Yet this was a hollow victory as the agency lost 36,000 more bus riders than it gained in rail riders.

Transit agencies get about a third of their operating funds from fare revenues, and the decline in ridership has forced many to reduce service. The vehicle-revenue miles page shows that nationwide transit service declined by 5.1 percent in June 2018 vs. 2017. While some people blame the ridership declines on the service reductions, at least one study says it is the other way around: service has declined because riders abandoned transit, forcing agencies to cut back on spending.

Transit ridership has declined in many urban areas despite increasing service. Among many others, Phoenix increased 2018 service by 11.0 percent yet lost 5.6 percent of its riders; San Jose increased service by 3.1 percent but lost 4.2 percent of its riders; Indianapolis increased service by 4.3 percent yet lost 3.9 percent of its riders; Austin increased service by 6.5 percent yet lost 1.1 percent of its riders.

It appears that ride hailing is the principal factor in ridership declines. A recent study estimates that ride hailing grew by 710 million trips in 2017. If just 36 percent of those trips were people who would otherwise would have taken transit, then ride hailing is responsible for all of the decline in 2017. Declining ridership leads to service reductions, which results in more ridership declines, producing a death spiral of revenue shortfalls followed by service reductions followed by more revenue shortfalls.

Some cities are supplementing transit revenues by taxing ride-hailing companies, which I’ve noted elsewhere is a little like taxing word processors to protect the typewriter industry or pocket calculators to protect the slide rule industry. At least one city is looking at taxing marijuana to subsidize transit.

It doesn’t really matter. The decline in transit ridership is beyond the control of transit agencies, and increasing subsidies to what is already the nation’s most-heavily-subsidized form of transportation won’t make much difference. The only question is when will appropriators realize that it is pointless to continue subsidizing a dying industry and start winding down those subsidies.

What Do the Subsidy Recipients Think about Cutting Subsidies?

Ever since President Trump and budget director Mick Mulvaney released a proposed federal budget that includes cuts in some programs, the Washington Post has been full of articles and letters about current and former officials and program beneficiaries who don’t want their budgets cut. Not exactly breaking news, you’d think. And not exactly a balanced discussion of pros and cons, costs and benefits. Consider just today’s examples:

[O]ver 100,000 former Fulbright scholars, among them several members of Congress, are being asked to lobby for not only full funding but also a small increase.

As a former Federal Aviation Administration senior executive with more than 30 years of experience in air traffic control, I believe it is a very big mistake to privatize such an important government function. 

On Thursday, all seven former Senate-confirmed heads of the Energy Department’s renewables office — including three former Republican administration officials – told Congress and the Trump administration that the deep budget cut proposed for that office would cripple its ability to function.

This is nothing new. Every time a president proposes to cut anything in the $4 trillion federal budget — up from $1.8 trillion in Bill Clinton’s last budget — reporters race to find “victims.” And of course no one wants to lose his or her job or subsidy, so there are plenty of people ready to defend the value of each and every government check. As I wrote at the Britannica Blog in 2011, when one very small program was being vigorously defended:

Every government program is “well worth the money” to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people “who will be most affected” by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers’ pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

A $4 trillion annual budget is about $12,500 for every man, woman, and child in the United States. If the budget could be cut by, say, $1 trillion — taking it back to the 2008 level — how much good could that money do in the hands of families and businesses? How many jobs could be created? How many families could afford a new car, a better school, a down payment on a home? Reporters should ask those questions when they ask subsidy recipients, How do you feel about losing your subsidy?

House Testimony on Energy Subsidies

I testified to a House committee today on Department of Energy (DOE) loan programs. These were the Bush/Obama-era subsidies to Solyndra and other renewable energy businesses.

I discussed five reasons why the loan programs should be repealed:

1. Four Decades Is Enough. The federal government has been subsidizing solar and wind power since the 1970s. These are no longer the sort of “infant industries” that some economists claim need government help. Solar and wind are large and mature industries, and they already receive subsidies from state governments, particularly in the form of utility purchase mandates, which are in place in 29 states.

2. Failures and Boondoggles. The DOE claims that Solyndra’s bankruptcy was the exception, and that the agency’s overall loss rate on loans is low. But as an economist, I’m more concerned with whether the overall benefits of projects outweigh the costs, and that appears not to be the case for numerous projects. The Ivanpah solar project in California, for example, is producing less electricity and consuming more natural gas than promised, and its cost per kwh is at least three times more than for natural gas plants.

3. Corporate Welfare and Cronyism. The Washington Post found that “Obama’s green-technology program was infused with politics at every level.” Public opinion polls have shown plunging support for both politicians and big businesses over the years, and one of the reasons is such cronyism. Businesses and policymakers would gain more public respect if they cut ties to each other by ending corporate welfare.

4. Private Sector Can Fund Renewable Energy. Most DOE loan guarantees have gone to projects backed by wealthy investors and large corporations, such as Warren Buffett and General Electric. Such individuals and companies are fully capable of pursuing energy projects with their own money. Buffett’s Berkshire Hathaway has invested $17 billion in renewable energy since 2004. With that kind of private cash available for renewables, we do not need the DOE handing out subsidies.

5. Subsidies Distort Decisionmaking. Federal energy subsidies create counterproductive incentives in the economy. For example, subsidized firms tend to become slow and spendthrift, thus subsidies undermine productivity. Also, because subsidies are not driven by consumer demands, they can induce firms to invest in activities that will not succeed in the marketplace in the long term.

You can watch the full hearing here. My testimony is here. More background on energy subsidies is here.

TTIP Could Rein in the Abuse of Tax Incentives to Attract Foreign Investment

I’ve written often about the global competition to attract foreign investment, and have made the point that investment flows to jurisdictions with good policies in place. Globalization of production and the mobility of capital mean that national policies (regulations, tax policy, immigration, trade, energy, education, etc.) are on trial, with net investment inflows rendering the verdicts.

But some countries (and some U.S. states) use tax holidays and other forms of tax forgiveness, in lieu of adopting good policies, to attract investment, which burdens taxpayers and subverts the process of matching investment to its optimal location. These are subsidies – like so many other programs – that distort markets and should be discouraged.

In today’s Cato Online Forum essay, which is associated with the TTIP conference taking place on October 12, Ted Alden from the Council on Foreign Relations puts forward a strong proposal to end this madness via the Transatlantic Trade and Investment Partnership negotiations.

Read it.  Provide feedback.  And please register to attend the conference.

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Solyndra: A Case Study in Green Energy, Cronyism, and the Failure of Central Planning

Back in 2011 I wrote several times about the failure of Solyndra, the solar panel company that was well connected to the Obama administration. Then, as with so many stories, the topic passed out of the headlines and I lost touch with it. Today, the Washington Post and other papers bring news of a newly released federal investigative report:

Top leaders of a troubled solar panel company that cost taxpayers a half-billion dollars repeatedly misled federal officials and omitted information about the firm’s financial prospects as they sought to win a major government loan, according to a newly-released federal investigative report.

Solyndra’s leaders engaged in a “pattern of false and misleading assertions” that drew a rosy picture of their company enjoying robust sales while they lobbied to win the first clean energy loan the new administration awarded in 2009, a lengthy investigation uncovered. The Silicon Valley start-up’s dramatic rise and then collapse into bankruptcy two years later became a rallying cry for critics of President Obama’s signature program to create jobs by injecting billions of dollars into clean energy firms.

And why would it become such a rallying cry for critics? Well, consider the hyperlink the Post inserted at that point in the article: “[Past coverage: Solyndra: Politics infused Obama energy programs]” And what did that article report?

King v. Burwell: How the Supreme Court Helped President Obama Disenfranchise His Political Opponents

Criticizing my recent post-mortem on King v. Burwell, Scott Lemieux kindly calls me “ObamaCare’s fiercest critic” for my role in that ObamaCare case. Other words he associates with my role include “defiant,” “ludicrous,” “farcical,” “dumber,” “snake oil,” “ludicrous” (again), “irrational,” “aggressive,” “comically transparent,” and “dishonest.”

Somewhere amid the deluge, Lemieux reaches his main claim, which is that (somehow) I admitted: “the King lawsuit wasn’t designed to uphold the statute passed by Congress in 2010. It was intended to ‘enfranchise’ the people who voted against the bill.” I’m not quite sure what Lemieux means. But perhaps Lemieux doesn’t understand my point about how the Supreme Court helped President Obama disenfranchise his political opponents.

As all nine Supreme Court justices acknowledged in King, “the most natural reading of the pertinent statutory phrase” is that Congress authorized the Affordable Care Act’s premium subsidies, employer mandate, and (to a large extent) individual mandate only in states that agreed to establish a health-insurance “Exchange.” That is, all nine justices agreed that the plain meaning of the operative statutory language allows states to veto key provisions of the ACA—sort of like the Medicaid veto that has existed for 50 years and lets states destroy health insurance for millions of poor Americans. The Exchange veto includes the power to shield millions of state residents from the ACA’s least-popular provisions: the individual mandate and the employer mandate.

Video: Teachers Victimized by IRS’s Illegal Taxes Call King v. Burwell a “Godsend”

Yesterday, I blogged about the 70 million Americans President Obama is subjecting to illegal taxes, who would be freed from those taxes by a ruling for the challengers in King v. Burwell. Many of the victims of those illegal taxes are teachers. Kevin Pace, for example, is a jazz musician and music professor in Northern Virginia who lost $8,000 of income in one year alone when the Obama administration unlawfully imposed ObamaCare’s employer mandate on his employer. 

A group called American Commitment has produced a short video telling the stories of two more victims of these illegal taxes. One says these illegal taxes reduced his hours worked by 40 percent, calling it “absurd” and “unfair.” Another says a ruling for the King v. Burwell challengers would be a “godsend” and asks Congress to “come to its senses and give me back my hours, please.”

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