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OregonPEN Vol. 2, No. 6 -- 26 March 2016 Stop The Insanity
There is no better way to get an insight to understand our fiscal dysfunction and challenges in Oregon than to examine the underlying "hidden in plain sight" dysfunctional federal funding mechanisms that, like collapsed supermassive stars, creates a gravitational field that distorts the entire galaxy of states bound to it. This is related to what former Metro president David Bragdon talked about last fall in a widely praised piece telling Oregon citizens that they needed to fix the state's broken transportation agencies before even considering whether there was any more money needed.
The treasure trove of archived podcasts at StrongTowns.org yields another gem of insight into this deeply perverse system that has only the Pentagon as a rival for massive waste. This is by Chuck Marohn from 7 February 2013, and he called it "The Circle of Highway Funding." As usual, lightly edited to remove small verbal misfires; any words added in editing are in [brackets].
Interviewer: Does there ever come a moment where you say we may just need to abandon some roads or some bridges, just like Governor Cuomo is now thinking about doing with housing along the coast?
US Secretary of Transportation Ray LaHood: That's not really up to us to decide that. We don't decide things like that from Washington DC, that's up to local officials.
The audio you heard at the beginning there was an interview on New York Public Radio with Transportation Secretary Ray LaHood.
First, I want to tie in this dialog with the transportation secretary who, by the way, I have a favorable impression of. I think this guy's a fairly decent guy trying to do the right thing. I think he has the wrong narrative that he's subscribed to, like so many. That's what we're going to talk about today.
I received on Monday morning of this week, a fantastic ‑‑ an amazing article from the McClatchy News Service, their Washington bureau, written by Curtis Tate and Greg Gordon. The name of the article was called "US keeps building new highways while letting old ones crumble."
In terms of a piece of journalism, this is a quite extensive piece. It's a very long story, there's a lot that went into it ‑‑ there were no real superficial quotes. This is all real good, deep, hard-hitting stuff.
I want to juxtapose the real meat that is within this article with some of the dialog from our transportation secretary. Then some understanding to explain how we got into this mess and the kind of mental shift it's going to take to get out of it.
Let me start with this McClatchy article. I'm just going to read from the top because the first five paragraphs are gold. They really set up the whole article:
"Oil rich Texas has built more highways and bridges than any other state, but over the next two decades, it will fall $170 billion short of what it needs to keep the sprawling network in good repair.
In California, transportation officials estimate that 60 percent of the state's roads and a quarter of its bridges need to be repaired or replaced, at a projected cost of 70 billion over the next decade ‑‑ some 52 billion more than the available funds.
North Carolina, anticipates that it will fall short of keeping its highways in current condition by 22 billion over the next 30 years, and would need more than twice that amount to improve them. America's highway system, once a symbol of freedom and mobility envied the world over, is crumbling physically and financially.
The potentially disastrous consequence of a politically driven road-building binge. President Barack Obama, state transportation officials, civil engineers, road builders and business groups all say that the country needs to invest trillions of dollars in its infrastructure. Yet there's little consensus on how to finance it or what the most pressing needs are."
Let's start with that. It's interesting because there's a litany of states there. They started out with Texas, which is very interesting because Texas likes to tout itself as being this home of modern growth machine and really, when you start digging into it, it is really a Ponzi scheme of highway debt and economic subsidies. Nonetheless, you've got Texas and California, the two bookends of different approaches in this country. Then you've got North Carolina, they could have easily picked about any state in the union.
I've studied most of them to one degree or another and I think only a place like North Dakota, maybe Montana, where they've done very little of this is this situation not dire.
In my own home state of Minnesota, there was a report put out not too long ago, that said, "Over the next 20 years, we need 65 billion, we only have 15 billion projected, that we're going to bring in during that time period."
The ludicrousness of that gap, that's not a modest little policy tweak ‑‑ that is an enormous, enormous gap when you monetize that. We shut down the entire state government about a year and a half ago, I want to say, and that was over a gap of a billion dollars in a biennium, in a two-year period.
If we were going to honestly deal with our transportation infrastructure deficit, that wouldn't have been a billion, it would have been six billion. We're talking numbers that are off the scale; it's gaps that are not closable.
How did this happen? This is the most important thing to understand because we can't start to fix this problem until we understand the problem. I'm going to walk you through this really slow so that we can grasp what the actual problem is.
This is all a function of how we pay for things.
It's all a function of where the money comes from, how it's distributed out, and what the incentives are within those systems. It's critical right off the bat to understand that when it comes to transportation, the federal government pays bulk of everything.
Your local streets are going to be paid locally, but pretty much everything else is a function of money from the Federal government. You've got the gas tax that goes to the federal government and goes to what is called The Federal Highway Trust Fund. This is a collection of our gas tax that, in theory, then is distributed back out to the states in order to pay for road construction projects.
This is the way that we've done it since the beginning of the Interstate Highway System. It is a system that has run its course a long time ago.
Let me give you the quote on the highway trust fund from the McClatchy article:
"The fund used to carry a surplus, but lawmakers have bailed it out since 2008 by tapping the treasury for $50 billion. 'That can't continue indefinitely,' said John Horsley, who retired in January as the executive director of the American Association of State Highway and Transportation Officials." That's AASHTO by the way.
"Congress is going to have to find a way to restore funding. Simply increasing the gas tax may not be the best option. Americans have been driving less since 2007, partly because of the recession and higher gas prices and partly because of a generational shift away from car ownership. Rising fuel economy in cars and trucks has also contributed to the decline in gas tax revenues."
Now, this is a meme. John Horsley with AASHTO, obviously one of the insider's in terms of the whole thing, and you can see the meme that he comes forward with: "Congress is going to have to find a way to restore funding. We've not been funding these things at the level that they should be. We need more money."
I'm going to switch back here to Ray LaHood. I've got a quote from him on "The Diane Rehm Show" where he's asked about the funding situation. Here's what the transportation secretary had to say about that.
LaHood: At one time, Diane, we were the leader in infrastructure. We built the interstate system. It's the best road system in the world, and we're proud of it. But we're falling way behind other countries, because we have not made the investments. Congress passed a two‑year bill. Ordinarily, they would pass five‑year bill. It was only a two‑year bill because they couldn't find enough money to fund a five‑year bill. The next decisions that will be made by this congress ‑‑ by this administration ‑‑ will have to be bold if we're going to continue our efforts to fix up our roads, to keep our highways in a state of good repair, to fix up unsafe bridges. We need a bold plan and a bold way to fund it.
So what you're hearing here is what is become the standard conversation, particularly out of Washington and out of policy people:
We need more money. The gas tax is not kept up. It's not been adjusted for inflation. Had we been a little more bold ‑‑ kind of commensurate with the original spirit of the bold highway construction initiative from the 1950s ‑‑ had we kept that pioneering experience here in America – at the very least, index the gas tax to inflation -- that would have solved all these problems.
Forget the fact that we're literally talking billions and billions and trillions of dollars that need to be spent to rectify this situation and that the numbers just simply don't add up. That's the meme being put forth here. We actually just need a little bit more money.
Before we go any further, let's step back and look at the way that this system is funded. I've written down one, two, three, four, five different ways that we fund this system today or that are in discussion about how we fund them.
Let's start with the gas tax.
And let's just talk about the gas tax for a second. Understand that the idea here in the 1950s was that we would have this dedicated fund, the gas tax. When people pay the gas tax that money would go to Washington and get recycled back to maintain the roads.
This makes a lot of sense and is very logical in the 1950s type mentality. Understand, what I mean by 1950s type mentality. I mean gas was, first of all, very cheap. The tax was actually a large portion of the cost of a gallon of gas, much larger than it is today, of course.
We also had an abundance of fuel. The United States was a net oil exporter. We were still a couple of decades away from our oil peak. The idea of gasoline being something that we would someday want to conserve or someday would be a scarce resource was not on anybody's mind. The idea that as you drove more, as you use more, you would then pay more ‑‑ seemed to make a lot of sense in the 1950s.
Let's fast forward to today to 2013. Of course, fuel and energy and oil not only being a huge economic issue, not only being a huge family [issue] ‑‑ I want to use the word moral but I don't quite want to go in the direction of morals, I really want to go towards just the ability of families to adapt in the economy today. It's a huge issue. Then it's also become massive security issue, a state security issue ‑‑ the sources of our oil.
Despite the fact of all this conversation on energy independence, we're not going to be able to bring up and easily convert a system -- that is [now] based on petroleum, that is based on oil and gasoline -- into natural gas. We're not all going to in the next five years be driving natural gas cars.
Oil and the gas tax and the tax on oil has become a real burden around our necks.
It has some amazingly, perverse incentives.
If you think of it from the government standpoint, the government actually benefits in terms of revenue when you drive more. I did, a few years ago, an analysis on the standard cost‑benefit approach we have to projects. It's interesting because one of the things that is listed generally now today as a benefit is a reduction in emissions, a reduction in carbon burned.
While I get what they're going for, in terms of a real world cost‑benefit analysis that's not a positive, that's a negative, because when your revenue stream relies on people burning oil and paying taxes for that, when people burn less oil they use less energy, they're paying less taxes and you're actually going to have less revenue.
It sets up this really perverse incentive where the more efficient we make things, the actual less revenue we're going to have.
It also creates this huge problem where, when we're short of revenue, when we actually raise the tax, there's an immediate feedback loop where people then start to make different choices. They start to drive less.
We sat down for instance and figured out that, in Minnesota, we would need an 83 cent a gallon gas tax increase – 83 cents – in order to cover the gap that we've got right now today. That is a static analysis. That assumes that the more we raise the gas tax, people don't drive any less. Of course when the gas tax goes up 83 cents, people are going to drive a lot less.
I met with a Minn-DOT official who -- under the table -- gave me the information and said,
"You know Chuck, we've done this analysis dynamically and nobody really knows where the number is, but we know it would be at least $2 a gallon and probably closer to $3 a gallon that the gas tax would need to go up in order to fill this."
[The] underlying understanding there being, the more you raise the gas tax the less people drive. It's like a dog chasing its tail, so then you've got a raise it more, which makes people drive less, which means you have to raise it more. The gas tax has become an incredibly prickly and difficult tax to administer because of these perverse incentives.
Now, forget the fact that our economy is an energy slave. We can't really grow GDP the way that our economy demands and requires that we do without cheap fuel. The whole thing resists, just as a base assumption, anything that would increase the cost of energy.
Let's look at the second way that we fund the stuff and that is through debt.
There's a great quote in this article that lays this out, because the debt equation is utterly fascinating. Let me read this from the McClatchy article. "States have taken on more debt, and some have about as much as they can support. According to Federal Highway Administration data, all states carried a combined $56 billion in road bond debt at the end of 1995, in current dollars. By 2010, they owed $154 billion."
Within 15 years we've tripled the amount of debt that we have for transportation at the local level. In fact, one of the statistics that is the most revealing to me, this whole juggernaut of growth that we see in the State of Texas: Texas actually is projected to spend this year or has crossed over already this year, more on debt service for its highways than it actually is spending directly on highways.
In other words, they've kept this all going by taking on more and more debt and the cost to actually service that debt now is taking up the vast majority of their budget. This is literally borrowing from future growth in order to fund growth today ‑‑ a completely not‑viable long‑term economic strategy.
Debt obviously has an end to our capacity to use it, to induce and create growth. The dangerous thing about debt particularly the way we do transportation funding today, when our investments are so incredibly low return, when you take on debt to fund capital projects, the idea is that the new revenue created by that capital project would ultimately be able to retire the debt.
Because our expenditures are so low return on investment, because we have no value‑capture mechanism, no way to recoup through taxation any, even pennies on the dollar sometimes, of the investments that we're making, there's no way that these debts will be retired. There's no way that these capital investments will ultimately generate enough revenue to pay off the debts.
Debt is kind of like a dead‑end road. Sorry for the pun, but it's the dead‑end road from which there really is no easy return from. Let's look at some of the other ways. Those are the two most common of course.
We also have one now that started to pop‑up and that would be the sales tax.
There's a lot of places that are pushing the sales tax as a way to bridge these gaps. Understand that this is being done largely because the sales tax is a cash cow.
We have a consumption‑based economy and something like 70 percent of our economy is consumption. By putting modest little taxes on consumption here and there we can generate enormous, enormous sums of money.
And if the goal is simply to fund more transportation spending regardless of its return on investment, regardless on if those are good expenditures or not, if the goal is just to fund more highway spending, kind of the easiest way to do it through the one you're going to get the least resistance from, because it literally is going to be a penny here and a penny there over very broad spectrum of places, it's going to be by using the sales tax.
The only thing that would possibly be more stealthy in terms of the taxes would be the value‑added tax, but there's really nobody talking right now seriously about using a value‑added tax, so let's just focus on the sales tax.
Here's the kind of fundamental problem with the sales tax. While it gets you where you need to go in terms of revenue – and I say that with some reservation, because I don't think we can make up the trillions in gap that we have in terms of our transportation funding scenarios -- even with the sales tax, you're going to be forced to make some really, really difficult choices. But you can start to make up some of those gaps with the sales tax, but here's the problem:
The sales tax, because it's so kind of stealthy, is completely uncorrelated with demand for transportation improvements. In other words:
"I pay sales tax. I expect my road to be pothole free, my commute to be quick and congestion free, and I expect that as essentially an American right. I have paid my sales tax. I have paid for that service."
There's a general expectation of people today, even from the gas tax which anybody who scratches beneath the surface can see that the gas tax doesn't cover anywhere near the total amount of liabilities and expenditures we have. Yet, there is kind of this, I'll say, middle class entitlement mentality that we're all paying gas tax, and so the road should all be in tip‑top shape.
And everybody, regardless of where they want to live and how they want to live, or where they want to drive or when they want to drive, should be able to drive congestion-free, highly maintained, high quality roads. Door‑to‑door service.
The sales tax does nothing, does nothing to dampen that expectation, and really it takes us far in the other way creating even greater entitlement mentality, because now, not only am I paying gas tax, but I'm also paying the sales tax, and I have expectations on what the outcome should be.
If there is no correlation, no kind of direct supply-demand correlation between what we want, what our expectations are, and what we are willing to pay for, we are all going to expect lobster, and we are all going to be willing to pay for hot dogs and hamburgers.
And there will always be -- whether we can extend this out 5 years, 10 years, or 20 years by using sales tax and kind of piece these things together - at some point, we are going to have to reconcile the fact that there is lack of correlation between one and the other.
I'm going to talk a little bit in a little bit about what that lack of correlation does, because today there's essentially with the gas tax there used to have the same effect that is not as pronounced with the sales tax. But I'm going to talk in a little bit about what the kind of the ramifications are of having things be uncorrelated.
A correlated tax would be something like a mileage tax, or even, to a degree, a toll road.
We use toll roads, and some states are experimenting with mileage taxes as a way to generate revenue. It's interesting because I often see Minnesota held up as an example of a state that is experimenting seriously with mileage taxes. And I'm telling you being here in Minnesota and being in kind of plugged in to what's going on ‑‑ we are not experimenting seriously with mileage taxes.
Maybe we are from a technical stand point of view, maybe there's some people out there, and I think that there are always some meters and stuff that are measuring these things and figuring out like technically how we would do it.
The problem with the mileage tax has never been technical. We've always been able technically, not always, but in recent times, you've been technically able to institute this tax. The problem is always been political. Are we actually going to do it?
I did see a study, and I couldn't find it for this podcast, so I'm not going to able to quote the numbers directly, but I saw a study from Wisconsin that looked at "What would the per mile tax need to be to actually pay for the things that we are using?"
The number was just astronomical. It was a low-per-mile taxes like a nickel or a dime.
I don't know what it was. The aggregated numbers when you start to looking at like what people we are going to be forced to pay additionally in a year, it was hundreds or thousands of dollars, many times thousands of dollars for people, just on top of what they do today in additional fees and in additional taxation based on these mileage-type charges.
Here's the interesting thing about a mileage tax, and I don't know there's a lot of people have thought through. When you get in a taxi -- I've been in a taxi with my dad and my wife too. If I have ten words to describe each of them, frugal would be one of those ten.
When you get into the taxi, the first thing that happens is they punch the button, and it'll say the base charge then, so $2.50, $3.50, or whatever it is. Right then, my wife starts squirming, because she's like, "Oh my gosh, we are just wasting money," and every time the car stops at a light, and the meter keeps turning even though we are not moving, I can see like her, start to rub her palms together and get a little nervous twitch like, "Oh my gosh, we are just like sitting here burning money literally." With my wife and my dad I have experienced this.
There is a really, really strong incentive with the mileage tax to drive less. In fact, the McClatchy article has a quote in here that is utterly fascinating. It's about toll roads but not about mileage tax, but you got essentially the same kind of mentality. Here's the quote, "Tolls are unpopular with the public. The trucking industry opposes them, and truckers will go miles out of their way to avoid them."
This is why I've always found just hilarious when this cost benefits analysis that engineering professionals and economists put together to equate congestion with time savings and equate those time savings with financial benefits: A lot of people value their time much, much less than they value their money. And people would do ridiculous, ridiculous things to save themselves some money, but cost themselves enormous amounts of time.
The market for time and money, it's not rational, in other words.
Once you start introducing, say, to state highways, to state aid highways, or whatever level you institute these mileage taxes on, people would do everything they can to avoid them. They'll drive local roads. They'll do everything they can do to avoid paying these taxes, and it changes the entire nature of the system. Now, people may say that is good and I actually think that would be good, I think we need to change the entire nature of the system.
But the idea here of the mileage tax is not to blunt driving, it's to raise revenue. If you hear all the conversations coming out, whether it's from the transportation sector, secretary, or whether is from one of the activist group, it's never about driving less. It's always about having the money to accommodate the infrastructure demands that we currently have now in the system. A mileage tax or toll road will not get you there, because it will directly dampen the demand. It will more closely correlate people's willingness to pay with their demand for the system. And I would suggest that if there actually was a correlation, people would drive a lot less. People would drive a ton less.
They would live differently. They would feel the transportation cost more closely, and they would become a bigger part of the decision-making process when they choose where to buy a house, where the kids are going to go to school, or where they going to work.
That would be a great thing. It's never going to happen.
I don't see mileage taxes becoming an important part of our lives. If they do, I can only see them happening in limited places, in the same way that toll roads happen today. Not something that it's going to be in the sense of game changer.
Let's talk about the fifth thing, and that would be, what is kind of in a congenial way called, "Public‑Private Partnerships" -- The idea that the government and private businesses would get together to build infrastructure.
There's two ways that this manifests itself. The first one is where the government literally can't afford some type of improvement, and they allow the private sector to go out and make this improvement on public right-of-way, something that would normally be public, but then to charge for it.
This is essentially the government being too weak‑kneed to actually do the project themselves and charge a toll. They simply, just under the guise of private‑public partnership, shop the whole thing out. Let someone else be the meany. Let someone else run this thing. Of course, then the risk is borne by someone else, and of course the profit margins are borne by someone else.
It is a kind of back‑door way into doing a toll road for politically weak government or parties.
Let's look at the other form of private‑public partnership though, that being where some type of improvement is needed or requested by the private sector, and the public sector can't provide it.
I'll give you a good example here in Minnesota. Best Buy located in Richfield and they moved their corporate headquarters out there, a huge, huge building, tremendous transportation demand. They needed and I don't know exact numbers, but it was millions and millions, tens of millions, it might even been over $100 million in infrastructure improvements that were needed on that site in order to happen.
Same thing happened up the road in Bloomington where we had the Mall of America.
The same thing was proposed to happen when the Vikings Stadium was going to be up in Arden Hills. So in Minnesota, we've seen a number of times where the private sector makes some type of improvement. That improvement is going to change the transportation situation, and the government does not have the money to react to that.
In those situations, you get what it is essentially called a private‑public partnership. Where the private sector steps in, whether is Best Buy, the Mall of America, or the Vikings, and says, "You know what? We will pay for all of or a portion of those improvements, and then the public sector will take them over and maintain them."
This is the old Ponzi scheme thing that we've talked about on this podcast for a quite a long time. When the private sector builds this stuff, it's literally a business decision, "Does this make sense? Here's how much we are going to invest. Can we get this money back with the investment that we are making?"
In Best Buy case, "Are we going to save or buy having everybody in one location enough to justify this expenditure?" If you're Mall of America, you're saying, "Are we going to be able to charge rents high enough and have enough revenue coming through here to justify these expenses?"
This is basically a part of your pro forma so it's part of your upfront cost. For the local unit of the government you essentially get the improvement and in Richfield's case you get the Best Buy. In Bloomington's case you get the Mall of America.
You get the private sector investment, but the real liability for this ‑‑the real costs are a generation away.
If someone else builds the infrastructure for us, we don't have to come out for 20, 25, 30 years and really do any type of major renovations. So we've got 25 years where we're going to be collecting tax revenue where nothing is going to be going out the door. In terms of a cash flow situation this is the optimal situation, at least for the first two and half decades, zero money out, millions and millions of dollars coming in.
That's why these public‑private partnerships are so popular because we can literally get stuff done. Leveraging, essentially, making future promises that we don't have to reconcile with our balance sheets today.
Obviously, that also is not a long‑term solution. At the end of the day you get to the situation where, when you start to analyze the funding, you can really ask what does happen: "How do we go forward from this point on, Chuck?"
I'm here to say that the biggest problems we have is not a lack of money.
Even though that's how it's manifesting itself, that we don't have money to do the things that we think we need to do, the problem is actually how the money we have has been and is being allocated.
This again comes out right in the McClatchy article. There were brilliant couple of paragraphs here, I'm going to quote from it again:
"Paved By Politics. Highway supporters frequently characterize their foes as anti‑road, anti‑jobs or anti‑progress. However, even the most ardent highway proponents agree privately on what they're reluctant to admit publicly. Some road projects are better than others. In some state transportation plans, it's hard to tell the difference.
And in the absence of clear national priorities, politics drives where the funding goes.'Instead of making hard decisions, we're going to make sure everybody gets something,' says John Fisher, who is a transportation consultant, who worked on federal policy at the Congressional Research Service. 'We're going to make sure everybody gets something.'"
This is how someone like Michele Bachmann -- I'm not trying to make this political. If I were I probably tend to lean more towards the right side than left especially on fiscal issues, but I will talk about Michele Bachmann here, a darling of the right, the Tea Party movement, who famously said that transportation spending is not pork and earmarks for transportation spending are not earmarks.
It was her district where we spent $670 million, or in the process of spending that, on a single bridge to serve 16,000 cars, while all the bridges in the state that are in a state of structural repairs like 1,154, I think is the number. To fix those will cost $0.5 [b]illion, much, much less than this one bridge, to fix 1,100 bridges. That's 1,100 bridges instead of carrying just 16,000 cars a day carry a combined 2.4 million cars a day.
Why don't we spend our money on fixing our existing bridges?
Why are we building new stuff?
Well, it's because everybody gets a little bit of the pie. Everybody gets a little bit of something. And so, instead of focusing on high return investments, instead of focusing on essential parts of the system, we just simply hand out a little bit to everybody.
Incidentally, for all you urbanites out there, all you people who are large-city dwellers, and rural people too should understand this, because I think the meme is the opposite. There is a sense in rural areas that we are subsidizing the urban areas that somehow we are paying all this amounts and getting very little, while the urban areas are getting all the transit systems and all the big road projects and everything else. The reality is the exact opposite.
Rural areas pay a very small percentage of the total take and get much more back than what they pay in. The urban areas are the exact opposite of that. So you have a situation where we're essentially trying to make it fair, for political reasons and having nothing to do with what the highest return investments are, we're spreading the money around to different areas.
There is also another thing that's going on here and that is that, the federal government essentially defers the decision‑making to local units of government. They basically have no national priorities in terms of what the money should be spent on, and they just ask the states, and the states in turn around and ask the local units of government, "Hey, what do your local districts want? What do your local people want?"
When you put your ear to the ground and ask them, "What do you want? What are we going get?" You're going to get more of the same and the reasons are very, very clear.
You're going to get more of the same because the transportation spending on new stuff gives you new revenue and new growth and a new cash community or government, without you having to spend very much money at all.
The maintenance, it just becomes a pain, but when you get something new the maintenance is someone else's pain. It's the pain of someone two, three decades from now. It's not the pain of anyone today. The idea of getting this new growth is incredibly enticing to local governments.
If we can get the new overpass out on the edge of town, and as part of that we get the new Big Box store, the new Kwik‑E‑Mart, the new drive‑through, a fast food joint, we've got to spend very little to make all that bulk of the money to build the project. The private sector will come in and then they'll help us by helping you install the infrastructure and all that. We just get all that new revenue, which is fantastic. It all flows in.
The problem is that we then have this long‑term liability that's going to come due in 20, 25, 30 years. The reason where we are at today is because when you look back 20, 25, 30‑plus years ago, you see these low return transactions that have now come due and they've come due at the same time as we're continuing to make these other low return transactions.
We literally have had 60 years of unproductive low-return transactions and can't continue anymore.
Let me backup, because I've got an interview. This is the one from the New York Public Radio with transportation Secretary LaHood. He backs up this point like, hey at the federal level we don't have anything to do with this. You know, this is all about what the locals want.
Interviewer: Does there ever come a moment where you say we may just need to abandon some roads or some bridges just like Governor Cuomo is now thinking about doing with housing along the coast?
LaHood: That's really not up to us to decide that. We don't decide things like that from Washington DC. That's up to local officials, that's up to local mayors and local officials, state officials to make those decisions. We only take our cues from local officials. If they decide that a road shouldn't be rebuilt, a bridge shouldn't be rebuilt then we go along with those local decisions.
That's very, very true. I mean, I've been in meetings with Minn-DOT officials, where I laid this whole Ponzi scheme thing out and showed them how they're just fueling very low return investments and they're not getting -- there is absolutely no hope whatsoever that they'll be to recoup Minn-DOT's cost, let alone the cost being projected on the local level. The pushback that I get most commonly is "Hey Chuck, we're just responding to what the locals want. I mean this is what the locals are telling us that they want. What are we supposed to do? Are we supposed to fight them?"
Let me throw one other wildcard in here and then I'm going to it tie all together. That wildcard has to do with the idea of jobs, job creation, but then also a whole feedback loop of money.
I don't want to just descend into the lobbyist kind of thing. I think we sometimes get intellectually lazy in this country by just blaming everything on lobbyists and everything on Washington. Yes. I mean, you can throw a lot of rotten tomatoes in that direction, but I think we let ourselves off the hook at the local level intellectually, when we just say "Oh, everybody's bought and paid for."
But I think there is something to be said about the incentives in the system and the feedback loops. Again this great McClatchy article touched on this. I am going to quote a final time from it here. "Highway projects generate work for engineering and construction firms, and the industry is a top political donor. Wealthy landowners, developers and business interests who benefit from new highways also write big checks to lawmakers who deliver fresh pavement. It's a free‑for‑all where the most well‑organized and well‑financed political interests are driving our transportation policy," Cooper said ‑‑ Cooper being Donna Cooper, a senior fellow at the Center for American Progress in Washington."
Let me go on here. "Most members of Congress defend their efforts to secure highway funds for what they regard as crucial projects for their states. Few oppose road projects, regardless of party. They get two photo opportunities, one to throw the first shovelful of dirt and the other to cut the ribbon. There's a huge difference between spending on things that benefit the national system and spending on things that benefit a local developer," Fisher says." That's John Fisher, the gentleman from the Congressional Research Office, I quoted from earlier.
There is a huge difference between spending on things that benefit the national system and spending on things that benefit a local developer.
I think if you look at. I mentioned the St. Croix bridge earlier, this huge project $670 million for 16,000 cars a day. It was interesting because the conversation all around that, on the pro‑bridge side were all essentially the development community. It was all about job creation. It was all about the new development opportunities that would sprout up.
In fact, if you go to that area of the state, it's the Stillwater area here in Minnesota. You'll see that, out of ahead of the project, things have started to occur, the Big‑Box standards have all come in and everybody's lined up on what the corridors is going to be through there. It's just anticipation of development that drives all this at the local level. It is a pernicious feedback loop, and I'm going to let Ray LaHood describe the incentives as he sees them. I don't think he quite sees them the way I do, but he's actually speaking, I think, the truth here in his own roundabout way.
LaHood: There are a lot of small businesses that are in the road construction business, the bridge construction business that would benefit from a bold infrastructure bill, a bold transportation bill, a five‑year bill with some very bold ways to fund it. I don't think you'd be turning off people in America because they know that America is one big pothole right now.
So, we can all get behind this because America is one big pothole. We want to create jobs. There is a lot of small businesses, there is a lot of contractors that would benefit from this, a lot of people with well‑paying jobs, so we just go out and start building stuff.
Let me tie this all together, because I think we can all grasp the problem here or I guess the symptoms of the problem, and whether you are one who, at one end of the spectrum believes well, there's just not enough money or at the other end of the spectrum believes, we're wasting tons of money on things that are unproductive, these are symptoms of a deeper problem.
Let me try to tie together what that deeper problem is while we finish up here.
Look at how the system is funded. You have these uncorrelated fees that have this perverse effects, the gas tax, the potential mileage tax, the ability to take on debt. These are all done generally at the local level. The gas tax is collected at the pump with you paying it at the local level. It then gets filtered to this centralized place whether it's the states that are using it then to fund their transportation permits or whether it's the federal government with the Federal Highway Trust Fund.
These centralized entities then say as a matter of policy. "Hey. We've got no priorities here about how this is going to be spent. We've got lots of standards and we have lots of rules that you have to follow when you spend it, but really have no priorities: Go on and spend this as you will. Just tell us what you want to do locals. We're listening to you."
The locals look at this and say,
"Wow. We're getting this money from the state. We're getting this money from the federal government. It's free money. It's essentially money that our taxpayers at the local level have paid in, has filtered their way up the system and now is filtering back down to us. All we've got to do is meet these federal standards and these federal guidelines and state guidelines and we can get this money. That's ours to take, if we don't take it the next city over is going is going to take it, so we should get out there and spend it."
You create essentially this vicious cycle and then understand when the money comes down, the money is being spent for new things. I mean you get huge matches for new stuff, but when it's for maintenance that's all a local obligation.
Well, I can tell you, you can go to any city in this country and you can say, "Look, we'll give you $2 million, $5 million, $10 million. Whatever the number is, we'll give you this for this local project you do today. Maybe there's no match, maybe there's a 5 percent or 10 percent match, but we'll give you this money to do this project and then the only catch is that you then take it over and maintain it. 25, 30 years from now, you're going to have to go out and spend some money."
If I am a local politician and I am seeing my city decline, I am seeing my city fall apart. I'm seeing jobs flee. I'm seeing general stagnation, neighborhoods starting to decline. Do I sit and say, "Wow, I'm not sure if that's a good deal for us. I'm not sure if 25, 30 years from now that's gonna make us better off." Or do I say, "That's the problem of those guys 25, 30 years from now. That's their deal to worry about. That's not my deal."
I think we're asking a lot, if we expect local politicians to do that. The problem we have, the system we've set up essentially is just sloshing money around with no priorities, no coordination and no accountability. The people who would be accountable are going to appear over the next three ‑‑ the people who would hold someone accountable --- are going to appear over the next three decades.
They are going to likewise be dependent on the system. They are likewise going to be paying these fees, and they're going to be at a loss to explain exactly what is going on, the same way that we are sitting here today.
If we wanted to hold someone accountable for the mess we're in today, we would literally need to go back 30 years ago, look at all the people and all the decisions that they made, and say "Are you serious?"
Of course, if we [had done] that many, many, many of our homes wouldn't exist today. They've been induced into the locations that they are because of all of these transportation spending. Would we not be alive? No, we'd be alive. We'd be living somewhere else.
It would be different, but we wouldn't have this expectation of this massive transportation network, this expectation that is completely uncorrelated now, after six decades, with our willingness to pay.
How do we stop this crazy train? How do we stop this feedback cycle and this feedback loop? I can only see two places where it stops.
The first one is at the federal level, and this is in theory. I mean, I actually don't see this happening.
I don't see the Federal government getting out of the transportation business because, literally, this is the place where you can buy your own election. This is the place where you can pass out the slush money.This is the goody bag and I don't see the feds being interested in getting out of this anytime soon. I can see them continuing to not fund it and I can see them continue to have tighter and tighter budgets, but I can't see them getting out of the business of funding.
Let me just point out. Canada, to the best of my knowledge, and I've spoken to a number of people there who have confirmed this. I'm not a Canadian, but to the best of my knowledge, Canada has no national highway program. They have no national mechanism for funding. I will say, no equivalent of the Federal Highway Trust Fund. They have no federal plan for where to build highways. Yet, somehow you can get all over Canada without the centralized coordination.
Nonetheless, we do.
And I don't see it going away but if somehow we were to back off from it. If somehow we were to say, "You know, we built out the Federal Interstate System. We no longer are worried that Highway 35 when it crosses from Minnesota into Iowa is not going to line up. Our job is done here. We're now in a maintenance mode. Let's turn it back to the states to maintain." We should really be doing that. If we were to do that, I think that that would be the first step in arresting this problem.
Here is the other way that we can go about doing it and it's much messier but literally we can do it.
That is to just say no at the local level, to just turn back the money, just not accept it.
When the Federal government shows up and says, "Look, you know, we've got all this money for X or we've got all this money for Y. You just have a tiny local match and we'll help you build it."
We say "You know what. We aren't going to do it. We're going to just take care what we've got. In fact not only are we only just going to take care of what we've got. We're actually going to cut back on what we have to maintain here. We're actually are going to have to pay our things back a little bit to get our balance sheet in order at the local level."
Our local officials need to know that it's OK to not accept that money. It's OK to let the next town over get it. In fact, it's funny because last week when I was actually going to think about doing the show on The Simpsons monorail episode till this came out and I think I might circle back around to that.
It was the 20-year anniversary of The Simpsons monorail episode last week and its one of the most iconic sitcom episodes ever. The Phil Hartman character comes to town and schnookers everybody into building the monorail.
And it's utterly fascinating from a social commentary standpoint because we immediately identify with the people who are getting on board of the next big thing. Without thinking about all the previous investments that had been made, without any consideration to the long‑term ramifications, we see this.
And what it looks like, at the very beginning, the community is skeptical; the Phil Hartman guy, he goes, "Oh, you know, this might more of a Shelbyville kind of idea. You know, the neighboring community over." To which the Mayor stands up and says something like, "Well, you just tell us your idea and we'll vote for it." The implication here being, if you don't do it, the [next] city over will do it.
We get this all the time. When the federal money comes in the door and it's offered. We may look at it and say, "This isn't the optimum thing for us, but if we don't do this the money is just going to go somewhere else."
It's not like the money is going to be saved or not going to be spent. It's going to be the city down the road. There you're going to get the shiny new big box and there you're going to get the shiny new dry‑through restaurant and the shiny new Kwik‑E‑Mart and all that. We're going to be left on the outs.
It's going to take some cities to say, we want to be on the outs, because on the outs is actually, where we are going to be financially solvent. It's actually the place that's going benefit us economically. Chasing after the next big inducement that comes through the door is going down further into this dead‑end road from which it's very hard to get back from. We're going to stop doing it.
I don't think we can rely on the Federal government to change their approach. I don't see them doing it, I don't see them having any incentives to do it, and they're certainly far enough away from the ramifications of all this -- where you can get a person who I think is a genuinely, probably a very good guy, like Secretary LaHood, or I'll even say Jim Oberstar who was our local representative for a long time. I think he is genuinely very decent kind person who thinks he is doing the right thing--[but they are] completely out of touch with the ramifications at the local level, especially as these ramifications manifest over multiple decades and multiple life‑cycles.
We have to, as local leaders, as local officials, as local change‑makers, as local Strong Towns advocates, have the guts and the ability to stand up and say, "No, we're not going to do it anymore." If you can do that, not only will you have my deepest respect but you'll actually be on your way to building a Strong Town.
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