Friday, February 17, 2012

How Much Control Do States Have Over Transport Funding

The proposed (and DOA) House transportation spending bill has lots of people thinking about the federal role in transport funding. In short, the US House bill eliminates federal transit support and allocates the gas tax to roads. It's a bit jarring, for sure, but raises lots of issues about federalism and transport policy. Lisa Schweitzer has a series of excellent posts about this at Urban Ethics and Theory (start with her conclusion), and I suggest you review what she has to say about this.

But others are supporting the federal role because they claim that states and local governments are already making their transport investment choices, so the federal role doesn't alter how the money is spent. The Transport Politic has a post about this here. He argues that "devolution is overrated." I'll argue that this analysis is not quite right because it is limited to the role of fuel taxes and because it undervalues the political distortions.

Freemark does say that states and localities have screwed up spending projects before, and he's right that they have. This doesn't mean that the federal government is better in the role of deciding what projects to fund, however. In fact, many states, counties and metro areas use sales taxes to build new systems and maintain roads, and these taxes are often voted on directly buy the voters. (Sales taxes may be a more regressive form of paying for infrastructure than fuel taxes, and perhaps an analysis of tax incidence might support a federal role, but that's not what the opponents of the House measure are arguing.) When put on a ballot new taxes for transportation projects are overwhelmingly passed (about 75% of the time), even when the new taxes are going to be used for expensive transit investments. These may not be good investments in many cases, but there is ample evidence to suggest that in the absence of federal funding or a complete devolution to local and state decision making transit would not be defunded or in danger of going away.

The federal role complicates local decision making due to political constraints. First, as a piece of background, nearly all gas taxes collected are returned to the state where they were generated. By law at least 92% of all receipts has to be returned to the state where they were generated, and in many cases it is much higher. (This is a new-ish law so don't look at historical donor-donee figures for this.) But all new projects, even if they are listed as a priority by the states, must comply with all federal guidelines and policies. These can greatly increase the costs of projects in both time and money. New York City moved forward with the 7 line extension of the subway system without federal money because of compliance concerns.* Moreover, the federal guidelines through SAFETEA-LU favor commuter oriented projects that have a lot of time savings. These may not actually be high priorities for states and cities, but if you want any money you have to adhere to these guidelines. In addition, federal matching money policies act as incentives for transport plans to maximize their matching dollars, not design the best transport investment. Remember, 10 years ago no one was considering street cars in US cities. Now there are over 70 projects under consideration because the Obama administration committed $280 million for streetcars. Those 70 projects are there because of federal priorities, not because of local preferences. (I've mentioned this before.)

To make a point about local mistakes versus federal mistakes, these streetcars are likely to be a disaster. Operating in mixed-traffic, they will slow down transit, congest auto travel and worsen pollution. This occurred in Paris as dedicated bus lanes were replaced with streetcars. However, if cities paid for these themselves then a few would install streetcars and the rest would realize they are a bad idea.Instead, the federal government will pay for all the streetcars so everyone will realize they are a bad idea after they are all built, so rather than a few bad projects and a little cost we will get lots of bad projects at a lot of cost.

Overall, the role of federal funding for transportation has likely peaked as the gas tax has peaked. I doubt that any federal tax will replace that buying power, and it will be the onus of states, regions and cities to  fund more of their transport investments. (If you think the prospects of higher federal gas taxes are grim, you should consider how much worse the prospects for federal user fees are.) I won't speculate as to what that means for road or transit funding, but will say it will be different. The sooner that states and cities start crafting policies to pay for their transport priorities the better off we will all be, and the more responsive these policies will be to people's concerns.

*The city did ask for federal help with a second station when costs increased but was turned down.
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