Wednesday, November 3, 2010

Federal Funding Fun and Games Revisited

Back in July, I ranted about the current system of transit funding in the United States, wherein local projects generally depend on an injection of cash from Uncle Sam for viability--money that was, of course, originally sent to Washington by local taxpayers.  To summarize the prior article, the presence of the US government as middleman produces several distortions in the funding process.
  • Federal money is viewed as "free".  While it isn't free in a strict sense, it is "free" in that it is completely disconnected from federal taxes collected.  Much like widening a freeway causes it to attract more cars (or improving a transit line attracts more riders), government agencies passing out "free" money causes it to be overconsumed....
  • ...and often times, the point seems to be dining at the federal trough, rather than improving transit outcomes.
  • And given that, there are incentives for costs to be escalated in order to increase the federal match--lest the money go to some other jurisdiction.
  • The process of determining who gets what can be overly political.  Some projects get funded via earmark, and those that go through regular appropriations have to jump through oodles of (expensive) red tape to prove their worth.  And different types of projects are more likely to be funded depending on who occupies the White House
Given all the brouhaha over various expensive local projects such as the Columbia River Crossing (CRC) and Milwaukie MAX, both of which have price tags well north of a billion US dollars, and not to mention the brouhaha over completed local projects (such as WES) widely regarded as boondoggles, let me add a few more reasons to the list.
  • The difficulty of achieving Federal funding makes delaying or descoping projects difficult.  Both CRC and MLR are attracting a lot of controversy due to their high price tags, given the recession.  A plausible argument is that We Should Be Saving Money In A Recession--an argument which is more plausible given the large public debt at all levels of government.  (We'll ignore for now the Keynesian ideal that spending on infrastructure is a good thing to do in a recession--which is one argument for federal funding, in that the Feds are the only layer of government capable of counter-cyclical investment, assuming there exists the political will to do so.)  However, there's a problem:  Major capital projects which require handouts from Washington (and Salem) can't easily be delayed--they can only be killed.  (They can be restarted, of course, but doing so often requires starting over from square one).  If things don't happen on schedule, the money disappears--and there is generally no promise that it will be restored in future appropriations.  (This argument is a favorite of the CRC committee--which loves to assert that if the project scope is changed, the project will never get built, because Uncle Sam will spend his money elsewhere.)
  • On the opposite side of the coin--this makes it easy for hostile politicians to kill worthwhile big-ticket projects.  New Jersey governor Chris Christie cancelled the ARC project--decades in the making--with a stroke of his pen; consensus is that a new tunnel between Jersey and Manhattan will require additional decades to resurrect, should a political consensus to do so arise.  
  • The current rules excluding operational costs from Federal funding have long been a source of contention.
  • Finally, FTA rules require agencies to live with their mistakes.  Jarrett tweeted a reasonable question upon learning that Measure 26-119 failed, wondering if TriMet might plug the budget hole by killing WES--a service that has had extremely low ridership but at a high operational cost, and which has given the agency a bit of a black eye.  Ignoring the local politics, it would make sense--except that then the FTA would then likely demand a refund of the money paid to help fund the project.  Even if TriMet were to "suspend" the service--shutting it down until conditions improved, it wouldn't matter.  (And no, the FTA wouldn't then return the money back to TriMet were the service to re-open under better economic conditions).


  1. Quote:
    (We'll ignore for now the Keynesian ideal that spending on infrastructure is a good thing to do in a recession--which is one argument for federal funding, in that the Feds are the only layer of government capable of counter-cyclical investment, assuming there exists the political will to do so.)

    You realize of course, that this is *everything*. We've got a federal government that can borrow at the lowest rates in either of our lifetimes. We've got a huge population of de-mobilized construction workers leftover from the housing boom. It's *insane* not to put both of those to use to buld roads, bridges, sidewalks, bikepaths, sewers, and rails. How could we *not* average a return of 3% on that investment over the next 30 years? (Or 1% if the fed actually manages to hit it's target inflation rate!) It makes me want to claw my own eyeballs out that a wave of politicians were just swept into office with a mandate to prevent us from taking advantage of those facts to invest in our recovery and our next economic boom.

  2. Yes. Michael--I do realize EXACTLY that, and quite agree with you. I was "ignoring" the issue because it's largely outside the scope of local control, but yes--counter-cyclical spending is generally an excellent idea. (Unfortunately, it also needs to be matched with counter-cyclical savings--paying down debt during good times--but our political culture seems to have a very hard time with that.)

  3. Maybe the federal government needs to artificially create some interest group that has a deep incentive for us to pay down debt during fat years. Like, if every federal employee or contractor got a New Year's bonus every year in proportion to declines in the federal debt as a share of GDP.

    Then they'd hire anti-debt lobbyists, right? And that's really what we need.

  4. Too many interest groups, though, prefer to loot the treasury. And few politicians in DC really seem to be serious about debt reduction--far too many (on both sides) seem to view the present state of the economy as an opportunity to transform the political landscape in their favor.

    The GOP's posturing on the debt--along with the laughable claim that the debt can be reduced without either raising taxes or reducing popular entitlements like Social Security--makes them hard to take seriously. And some on the left (not Obama) seem to act as though it doesn't matter. And I can think of a few on both sides who think a default on the national debt would be a Perfectly Fine Idea.



Keep it clean, please