Federal Subsidies Derail Local Train Systems

Return transportation funding to local and state governments

January 5, 2006 • News Releases

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WASHINGTON — A new study released today by the Cato Institute argues that instead of helping cities solve local transit problems, federal transportation subsidies actually encourage local governments to squander funds on extravagant and wasteful programs.

In the Policy Analysis “A Desire Named Streetcar: How Federal Subsidies Encourage Wasteful Local Transit Systems,” Randal O’Toole, a Cato adjunct scholar and director of the Thoreau Institute, shows how federal subsidies undermine the effectiveness of local transportation systems by promoting the construction of highly visible and expensive transit services.

Current laws give transit and labor unions veto power over federal grant projects. That bargain favors high‐​cost transit systems over low‐​cost bus systems, says O’Toole. In order to provide better transit services at a lower cost, transit agencies could contract out all of their service. However, “any plans by transit agencies to do so without a state mandate would be opposed by transit unions and thus would make the agencies ineligible for federal funds,” points out the paper.

Worse, the Environmental Protection Agency (EPA) gives federal subsidies to anti‐​highway activist groups to participate in transportation planning initiatives, and the EPA also ties the funds to mandates for air quality improvement projects. The anti‐​auto groups, along with the EPA guidelines, favor rail transit over new roads.

“Most cities would never consider building new rail systems without federal incentives to waste money,” according to the author. “In fact, buses can provide the same level of service as trains for far less money.”

O’Toole advocates fundamental reforms for the federal transportation system in order “to minimize the adverse incentives it creates.” In a best case scenario, Congress would eliminate federal subsidies all together, leaving transit funding up to the states.

Cato Policy Analysis no. 559