Tuesday, August 16, 2011

Yes Folks, Some Government Spending Really Is "Investment"

These days, we hear politicians earning "points" by always using the word "wasteful" along with "government spending". Yes, some of it is wasteful. But I'd like to point out one example of government spending that's really an investment.

But first - what exactly is an "investment"?

According to Dictionary.com, to invest is:

to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value.

Wikipedia puts it this way:

In Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security of principle, as well as security of return, within an expected period of time.

Can we say that government spending on subsidized transportation is really an investment? Can we all expect to gain from it? Has thorough analysis been done? Is the principle secure? Will we see a secure return within an expected period of time? Or does it fail on any of these counts, making it truly wasteful?

Turns out the American Society of Civil Engineers (ASCE) and the Economic Development Research Group of Boston (EDR) recently did an analysis of spending on highways and transit. They were apparently concerned about the fact that Congress has failed to pass a Surface Transportation bill for three years. Too many things seemed more important to Congress, so we've been limping along with extensions of the previous bill. Since that was crafted eight years ago, a lot of things have changed. One very important change: the Highway Trust Fund, which help build and maintain our road system, has run out of money. It's been supplemented by money from the General Fund...some of it from our income taxes, much of it borrowed and contributing to the trillions of dollars of debt our country now owes.

Here's ASCE summary:

The nation’s deteriorating surface transportation infrastructure will cost the American economy more than 876,000 jobs, and suppress the growth of the country’s Gross Domestic Product by $897 Billion by 2020, according to a new report released today by the American Society of Civil Engineers. The report, conducted by the Economic Development Research Group of Boston, showed that in 2010, deficiencies in America’s roads, bridges, and transit systems cost American households and businesses roughly $130 billion, including approximately $97 billion in vehicle operating costs, $32 billion in delays in travel time, $1.2 billion in safety costs, and $590 million in environmental costs.
If investments in surface transportation infrastructure are not made soon, those costs are expected to grow exponentially. Within 10 years, U.S. businesses would pay an added $430 billion in transportation costs, household incomes would fall by more than $7,000, and U.S. exports will fall by $28 billion per year.

What does this mean to ME?

  • The Bureau of Labor Statistics tells us that in July of this year, 13,900,000 people were officially unemployed. If 876,000 were added to that, it would increase the number of unemployed by nearly 10%. That would further reduce investment in our transportation infrastructure by reducing tax revenue...but the infrastructure would still be deteriorating, needing more investment with less revenue. The infrastructure is our "principle" (because we already invested in it) and if it deteriorates, it would reduce the "security of principle" mentioned in the definition of investment above.
  • How much would it cost for each US household if we invest nothing more than we do now? According to the study, changing nothing incurs a loss of $7,000 per household. (Not a good investment.)
  • The Census Bureau tells us there were 112,611,029 households between 2005 and 2009. If, instead of losing $7000 each household were to invest half that amount ($3500 over the next ten years, or an average of $350 per year) there would be $394,138,601,500 ($394 billion) more spent on transportation infrastructure and services over the ten-year period..
  • According to the Department of Energy the 2009 revenue into the Highway Trust Fund was $36.9 billion. But an additional $350 per year investment from each household produces roughly $39 billion each year, more than doubling the Highway Trust Fund.
  • This $350 per year would result in a net gain of $6650 per year, or $66,500 on the the $350 annual investment.

Is this "wasteful government spending"? You decide.

Friday, August 12, 2011

Calling All Champions

In the last post, I talked about the some of the arguments for and against dropping the WALLY line. In this post, I want to talk discuss what to do about it.

We need a Champion!

By now, I've been to quite a few conferences about transit and transit-oriented development. I've learned that one thing in common with all successful transit initiatives is that they have a "champion" - a person or group who takes an interest, talks to the right people, monitors progress, and when progress lags, kicks butt.

WALLY has no champion.

But isn't AATA the champion for WALLY? No. It can't be.

Let me explain. AATA is a tax-supported transit authority. Like all tax-supported entities, it cannot, by statute, advocate taxing the people to support itself. Conflict of interest.

I'm sure Mike Benham would love to be the champion for WALLY and any number of other the transit initiatives that are part of the "smart growth" master plan. And he would make a great champion. So would Michael Ford. But neither of them can do it without putting AATA in an illegal position...and losing their jobs.

So...where can WALLY find a champion?

I've been inspired by the Texas Eagle Monitoring and Performance Organization (TEMPO). It's a "champion" group for Amtrak's Texas Eagle, the train the runs from Chicago to San Antonio. It's composed of mayors, chambers of commerce, and citizens from the cities and towns along the Texas Eagle's route. They did an incredible job of making sure the Texas Eagle kept running when it was threatened with extinction by Congress. They've monitored its performance and let Amtrak know when they are not happy with it. They've managed to get the frequency increased from three time weekly to every day, by lobbying their congressmen and badgering Amtrak. They've produced travel guides for passengers that whoop up the attractions of each town along the way.

Why did they bother? Because they realized the economic value of well-run, reliable, frequent rail service to each and every town along the way. That's why it was the mayors and chambers that started the organization. And notice that elected officials and business leaders carry a lot of weight with Congress.

That's what we need for WALLY: elected officials and business leaders. They need to champion the economic benefits of a commuter line the runs north and south, as well as east and west. They're the ones who can talk to legislators and have their voices heard.

And not just for WALLY. The Ann Arbor to Detroit line needs similar champions. So does the Wolverine line - Amtrak's service from Pontiac to Chicago. SEMCOG can't advocate for the AA-Detroit line any more than AATA can advocate for WALLY. And by 2013 or 2014, Michigan will have to pay for the entire cost of Wolverine service, according to PRIIA, a Federal statute that modifies the way Amtrak is funded. Who will go to the State legislature and tell our congressmen and senators we really need Wolverine service? Not Amtrak - they are forbidden by statute.

It's up to us, the citizens, to alert the elected and business leaders of the economic value of each of these services to their communities, and point out what they stand to lose without them.

So let's do it. Let's kick butt.

Thursday, August 11, 2011

Is WALLY Dead?

At Tuesday's meeting of the Ann Arbor Transportation Authority's Planning and Development Committee there was a short but intense discussion of WALLY, the WAshtenaw-LIvingston commuter rail proposal.

You see, about $190K has been budgeted for station architecture, but not spent this year. Should it remain in the budget for next year? The money has come from several sources, including Washtenaw County, the City of Howell, and AATA itself. The question came up when Board Member David Nacht questioned whether it was responsible to pay architects to design stations if the chances of trains running was practically nil.

Mr. Nacht is doing his job in a responsible way. His point is that spending taxpayer money for something that's already doomed is irresponsible, and AATA should either return the money or use it for something more likely to succeed.

AATA staff members pointed out that money has already been spent for WALLY line track upgrades, signal systems, grade crossing adjustments, refurbishing rail cars, and environmental studies. Why kill the project now?

The answer - which is well taken - was that operating funds haven't been identified, so even if all the preparations are made, how can we run trains without enough money? Without Livingston County's support for WALLY, the trains just won't run anyway.

Good points, but not insuperable. If it had been easy, we would have done it already. Although I respect Mr. Nacht for trying to be a good steward of taxpayer money, cutting off funding for WALLY is not responsible for two reasons...

1. Money already invested

A lot of money has been invested in WALLY already. If the $190K is given back, it will effectively kill WALLY. The point is not that the architecture of stations is essential to get WALLY going. The service can start, if necessary, using concrete slabs and bus shelters. But AATA has been the leading agency for WALLY, and refusing to spend money on it would send a powerful message that it's a dead duck.

Mr. Nacht's question is, "Aren't we just throwing good money after bad?" If the death of WALLY was a sure thing, I suppose he'd be right. But it's not a sure thing unless AATA kills it. More on that later...

Another reasonable question of Mr. Nacht's: "Can't the track be used for freight and the rail cars for other purposes?" Yes, but the freight business run by Great Lakes Central Railroad was doing fine before the tracks were upgraded. MDOT, which provided the money for the upgrades, did it specifically for passenger service. Its purpose was to reduce congestion on parallel US 23 during peak travel times. It directed the money to rail rather than highway because adding lanes to US 23 would be far, far more expensive. And yes, the rail cars could be used on the Ann Arbor to Detroit commuter line when/if it starts, but there is another set of cars refurbished for that purpose. If WALLY doesn't use the cars intended for it, the money will have been spent for resources that won't be used.

In short, by saving $190K, several million will have been spent needlessly. I call this penny-wise but pound-foolish.

2. Future money lost

By refusing to continue with AATA's funding for WALLY, we-the-taxpayers will lose out on a great deal of money we could be getting. Some of this is Federal and State transportation money, but even more is private investment that will go elsewhere

Yes, WALLY is public transportation and is eligible for Federal and State funds. Both Federal and State treasuries are tight, and likely to get even tighter. But what money is available will go elsewhere if give up hope now.

Moreover, the primary reason for WALLY (in my view, at least) is not to relieve congestion on US 23, helpful as that would be. It's to provide an economic incentive for investment in compact, transit-oriented development in Southeast Michigan. That's a goal worth a lot of effort, because without it we'll lose not only money, but one chance for a future with hope of sustainability. Our children and grandchildren will find themselves in a region whose developement is choked by high transportation costs and low potential for growth. Those who can, will leave the area to those who can't. It's what I'm working to prevent.

The wall, the chicken, and the egg

Mr. Nacht is afraid continuing efforts on WALLY is like driving full-speed into a concrete wall. I know from my study of rail transit growth that it's a wall of mist. Forgive me for saying it again: it's normal for rail initiatives to face opposition and for people to think it will never work. But the opposition is more a wall of mist than of concrete. When nay-sayers see the benefits and decide to invest time and money in the project, it works. Or at least, if they stand back with a wait-and-see attitude, once it gets going the rail line proves itself worthy of continued funding.

The wall is not simply nay-sayers, but a lack of obvious funds to run the trains with. Nobody "knows" where the money will come from. That doesn't mean there isn't money to do it with. Remember that 76% of people polled for AATA's Transit Master Plan said they wanted the Smart Growth plan - the plan requiring the highest level of citizen funding. WALLY is part of that plan, and though it won't serve everyone, it is part of the package people say they want. Out of the entire Smart Growth plan, it's only a small part, requiring a modest proportion of any funds raised through millages. For the last several months we've heard Tea Party legislators talking about "the will of the American people" being to cut back on everything. I honestly don't believe it. Some Americans, sure. Not all of us. Paying for something that will benefit our local economy is far different from sending money off to Washington with no say in how it's spent.

Michael Benham compared finding the funding to a chicken-and-egg process. Without operating funds, why should we build it? But without building it, how can we operate it? Clearly we have to start by building it. I'd rather see us being the egg, not the chicken - in the sense of "chickening out".

If we don't invest in Southeast Michigan, nobody else will. Let's do it.

Wednesday, August 3, 2011

Public-Private Stations

As news of the impact of Federal budget cuts trickles down, I'm reminded once more of Wake Up Washtenaw's emphasis on private-sector investment. Since its inception four years ago, Wake Up Washtenaw has held that private investment, not government dollars, is the key to successful, sustainable community development.

Sure, this isn't a time when the private sector has a lot of money to throw around, either. But the principle remains: the key to success lies in private investment.

Why? Because the underlying philosophy of our country is private enterprise.

Is government "bad"? No. Is business "good"? No. But each has its strengths and weaknesses.

The private sector can usually come up with more innovative ideas, and can usually get from plans to accomplishments faster. But business requires a rapid return on investment, and may be unwilling to shoulder risks. The government, on the other hand, is here for the health, safety, and welfare of its citizens (or should be) and so can take risks if necessary. It can wait much longer for return on its investments...and is often OK with no direct returns at all. The government also has what are known as "police powers", which in the legal sense include regulating land use and, sometimes, using "eminent domain" to acquire land for the public good.

All of that adds up to "public-private partnership" (PPP) being a good way to go.

Stations for transit, whether for rail or bus, are a good example of PPP opportunities that often go begging. But we've recently seen a couple examples where PPP has been used here in Michigan: one is Woodward Avenue light rail in Detroit, where station "naming rights" are sold for $3 million each.

The other example is Ann Arbor's Fuller Road station...sort-of. It's being built with funds from the City of Ann Arbor, a Federal High Speed Rail grant, and the University of Michigan Medical Center (UMMC). It's the latter that can be considered private...sort-of. Certainly, it's not the usual kind of "private" partner, but UMMC functions in many ways like a private business, so let's just call it that. After all, it's the largest employer in Washtenaw County.

Looking farther afield, Washington Metropolitan Area Transit Authority in the D.C. area has capitalized on PPP with many of its stations, leasing land to developers of high-rise buildings.

Even farther away, Japan has many examples of railways (all are at least nominally private) that make money from a host of travel- and land-related sources. The typical medium-to-large Japanese rail station is lined with shops, much as airports are in the U.S. Many also have high-rise or underground buildings with shopping centers, hotels, banks, and offices, directly over the tracks, under tracks and street, or immediately adjacent to them. Washington's and Chicago's Union Stations offer shops or, at least, food courts.

Why don't more of our stations do that? At meetings, I've gotten a sense that transit planners think primarily about government funds for their projects. There are well-established channels for government money, but not private funds, to flow to transit agencies. Likewise, developers and businesses don't analyze potential new locations in terms of possible partnerships with transit. Most banks and other lenders don't think of PPP with transit as a safe lending risk.

That doesn't mean forward-looking transit officials haven't tried. AATA's CEO Michael Ford has gone practically door-to-door along Washtenaw Avenue looking for businesses willing to help support improved bus service along the corridor. And the new AATA downtown transit center will apparently be built without any private investment. When urged at a Board meeting a couple of years ago, the response was a brief, "We've tried". But apparently failed.

And yet, since the 1960s Federal transit funding laws have encouraged PPP. Why hasn't it taken off? Are the Federal rules too complex? Are lenders too hesitant? Are the communication channels too rusty? Most of all, what can we do about it...?