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).

Federal funding fun and games

In a comment on the prior post about Milwaukie BRT, RA Fontes noted in the comments that...

Don't know if things will change, but Mr. McFarlane has so far been awfully positive in his comments about Milwaukie LRT---all the jobs and economic development, etc.

An open BRT seems to be a no-brainer for this corridor. Single-seat service from OC and all over Clackamas County with door-to-door trip times that LRT can't hope to match except in a very few showcase examples.

But who cares?

 My response was this:

If I were cynical, I might suspect that getting $750 million of Federal money into the local economy is actually part of the goal.  :)

Actually, I am a bit cynical.  I'm not suggesting that TriMet (or any other particular agency) is engaging in any unique skullduggery... but I'm becoming more and more convinced that the current funding system in the US--where the bulk of tax dollars go to the Great Sausage Factory in the Sky, only to be doled back to the states and local governments by a bureaucracy with more layers than a bushel of onions--is broken.

Other bloggers I know disagree with me on this point, for various reasons.  Uniform standards are a good thing, and on many issues the US Government is more enlightened than quite a few states.  (Even the Bush Administration was more enlightened on transit issues than a few states I can think of...).

But the current method of funding disconnects the source of the funding from the target--encouraging waste and games.   Local governments generally view Federal grants as "free" money--even though it is funded by taxes, receipt of such funds has nothing to do with an area's federal tax liability.  Projects aren't always funded based on technical merit--much ink has been spilled about Peter DeFazio's ability to send transportation earmarks are way.  And yes--it is possible that in extreme cases, projects are pursued not because of the value of the system that gets built, but because of the opportunity to pump outside dollars into the local economy.  While the stimulus affect of locally-funded projects is overrated (such things merely move money around, not add to the wealth of a region); the stimulus affect of $750 million being sent into town courtesy of Uncle Sam is definite and real.  And if the money doesn't come to Portland, it will go to some other region.

Were I really cynical (I know, it's a cheap rhetorical device), I might even expect that project costs were frequently being inflated to boost the tab, and the overall Federal match.  If most of the expenditures are local (local contractors, design firms, property owners), much of the cost may be recovered as additional taxes--and the additional contributions to the overall economy might cancel out the additional cost to public coffers.  As noted previously, the costs for rail construction in the US have risen dramatically in the past decade--far outpacing inflation, wages, or other quantifiable cost factors. 

What would I prefer?  Lower federal taxes for this sort of thing, with local revenues raised to offset the Federal tax break; and local money used primarily to fund local projects.  The Feds could still get involved for projects of national significance (say, the CRC); when recession or other financial crises require use of US government credit, or in other unusual circumstances such as natural disasters--but as a general principle, regions would be expected to self-fund.  Likewise, state and local involvement ought to be segregated somewhat.  Of course, that might result in a few idiocratic states deciding to strike a blow for freedom by paving everywhere--but when gas costs $10, they'll have to live with that decision.

Of course, I don't expect this sort of fundamental restructuring of US governance to happen anytime soon.  Many on all sides of the political spectrum prefer a strong federal government with lots of cash, for numerous reasons.  A massive culture in DC has grown up around a large federal government, a culture that is neither liberal or conservative--and this sort of structural change would be resisted strenuously.  But that doesn't stop me from griping...

In the meantime, I should just remind myself:  When the folks in DC are picking up the tab, I shouldn't complain too much when surface rail projects cost $200 million a mile.

But I'm not that cynical.