Can Move NY Overcome Credible Commitment Problems?

Eric Jaffe writes about Move NY* at the Atlantic Cities. In the piece he highlights some work that Mike Manville and I did on credible commitment:

Some transportation experts worry that a pricing plan won't even advance to the point of debating the economic and equity questions. Over the years some notable pricing plans — Hong Kong in the 1980s, Edinburgh in 2005 — failed to get off the ground because residents lacked faith in the funding agency to manage the new revenue. Scholars Michael Manville of Cornell and David King of Columbia call this the "credible commitment" problem of congestion pricing. A few years back, Manville and King interviewed 50-some officials in Los Angeles about road pricing. About a third explicitly said they would not support a congestion plan because they didn't trust state officials to redistribute the toll revenue as promised, the same share who feared that pricing might be unfair to the poor.

"What happens is, absent that trust, that sort of revenue promise doesn't necessarily lead to the kind of political support you might think," says Manville. "In some ways, what people were saying is it would never get far enough for pricing's regressivity to be a problem, because we would just never see this money." 

Considering the emphasis Move NY's plan places on revenue redistribution, not to mention the MTA's own mixed record of public promises, those findings give reason for pause. The way around the commitment problem, says Manville, is to stress the traffic benefits that a strong pricing plan will bring, as opposed to the revenue gains. Some believe the best way forward is to run a pilot project first, as officials did in Stockholm.

The Atlantic Cities piece nicely describes many of the problems and opportunities for the Move NY plan. Revenue distribution sounds good for assembling coalitions, but these opportunities are constrained by trust. Hopefully such concerns can be overcome.

In earlier work Mike, Donald Shoup and I looked at the politics of congestion pricing, short and ungated version available here.




*Just as a point of disclosure I have informally and infrequently consulted with Move NY on their plans.

Should Voters Have Full Information When Voting on Transport Projects?

Voters are asked to vote on all kinds of transportation projects. In part this is because of declining federal support for projects, and local tax increases require voter approval. Elected officials are also hesitant to promote new taxes to fund projects without clear direction from the electorate. Usually new taxes for transport spending are passed. Yet there are many referendums on specific projects where taxes are proposed for particular investment. Without making any claims about the value of any of the individual projects, it is worth considering when projects violate the spirit and letter of the votes taken. I highlighted some examples pertaining to value capture previously, including the downtown Los Angeles streetcar, which may double in cost and provide less service than promised to voters. Califonia's high speed rail has also been criticized for not adhering to the specific systems and costs spelled out in the statewide 20008 referendum to raise a share of the cost of the project. See Lisa Schweitzer's piece in the LA Times for some details.

This isn't just a problem for transit projects, either, though maybe it is a problem that is worse in California because of a variety of populist legislative requirements. Here is another Golden State example. Today's LA Times reports that the 405 toll road project is in trouble politically. There are a few causes described:

At a meeting this month, crowds packed an Orange County Transportation Authority board meeting to denounce the lanes, which have been supported by Caltrans. City leaders expressed worry that the project would push traffic onto their streets, or that motorists traveling in the toll lanes would find it too difficult to pull off the highway and patronize local businesses.
The political shift over toll lanes has several causes. Some of Orange County's toll roads have struggled to attract drivers and each of the major corridors has been forced to refinance its debt to avoid possible default.
There has also been the sticker shock: Riding the 91 Express Lanes can cost nearly $10 each way at the most congested hours, an investment even for Lexus drivers. If the 405 toll lanes are built, the priciest one-way toll would cost $9.91.
As for the 405, much of the anger stems from what Orange County Supervisor John Moorlach called a "bit of a bait and switch." When voters approved a countywide half-cent sales tax, they were told funds would go toward adding one general purpose lane in each direction at a cost of $1.25 billion.
Instead, the proposal before the OCTA would add one free lane and one toll lane in each direction — but it would also convert an existing carpool lane in each direction into a second toll lane, with the added $220-million price tag paid through bond sales that in turn would be paid off by tolls.

So the project as implemented is not what the voters approved. It is substantially different, in fact. I have written about credible commitment as a barrier to road pricing before, but what is happening with these experiments in direct democracy are a bit different. Rather than voters opposing new taxes or fees because they don't believe the revenues will be used as promised the votes for specific projects are not held as binding. 

There are many problems associated with these types of direct democracy for allocating scarce resources. When voters vote on a project, be it rail, transit, roads, etc., they should have complete information. Since transportation infrastructure projects tend to go over budget frequently, which affects the scope of the projects, it is difficult for voters to accurately assess their support or opposition. Also problematic is the absence of recourse the voters have. By pushing tax and spending decisions to the ballot box elected officials insulate themselves from the severe problems that tend to arise. After all, it was the voters who approved the project, not Rep. So and So. 

Issues of representation, credibility and voter information have not been well examined in the context of local transport finance. As the federal role in transport finance is declining in the US, we need to figure out better ways of raising money for and spending on the infrastructure that we want and need. The experience in California is not encouraging for experiments in direct democracy for transport investment.

Los Angeles's Streetcar Project Doubled in Cost, Service Will Be Less than Promised

The LA Times has a story about new cost estimates for LA's downtown streetcar project. Originally estimated at $125 million, it will now cost about $250 million because of unaccounted costs of moving utilities and some other things. The story has many interesting and distressing tidbits that may have lessons for streetcar investment (and much transport investment).

First, the good people of California and specifically Los Angeles need to stop being lied to about projects they are expected to vote on. Proposition 1A, which voters passed to provide nearly $10 billion to the state's high speed rail project, promised voters a train that has unreasonable cost and service characteristics. The downtown LA streetcar used a popular vote to raise taxes on land* to pay for what was supposed to be half of the cost of the project. Now that vote represents one-quarter of the cost, and no one knows where the balance will come from. In the story Councilmember Huizar's office says they will "aggressively pursue" other federal grants. I hope somebody has a better idea than that.

I say that the people were lied to because moving utilities is a well-known major cost associated with downtown surface rail projects. Perhaps someone thought that the utility companies would just move the utilities out of their own volition, but this is unlikely as utility relocation is subject to lawsuits and has been a big deal for other downtown LA rail projects. I do hope there is a charitable explanation as to why utility relocation was left off the initial cost estimates.

Second, the use of propositions for these projects is straining the credibility of the public sector. Not only are costs double from initial estimates, but now service will be less than promised. From the story:

"We're not losing any sleep over these numbers," Jessica Wethington McLean, the executive director for Bringing Back Broadway, told officials. "They represent a 100% perfect solution, which is very unlikely."
She referred to the expectation that engineers will modify the plans to make them more efficient. That could involve reducing the number of streetcar stops or slightly shifting the tracks to dodge utility lines.

I'm pleased that advocates for the streetcar don't care how much it costs. Bully for them. But since service is now going to be reduced with fewer stations or less convenient track alignments mean that the benefits of the system are also reduced (if the benefits are not reduced because of these expected changes than the features to be eliminated should have never been considered). Whatever the benefit-cost ratio was before, it is much worse now. Somebody should have an inkling to reconsider the project based on new information about costs and benefits. If not, then why bother with all the studies, voting, etc.? And for $250 million for a couple of miles of surface rail shouldn't you get a 100% perfect solution? That's a lot of money for compromise.




*The land tax falls disproportionately on businesses and commercial properties, which did not get to vote for the proposition. There are larger issues of representation associated with the special taxing districts commonly used to pay for these streetcar projects that I won't get into here.

More on Credible Commitment and Transit Investment

I recently highlighted credible commitment as a factor that influences political support and coalitions for transit investment. In Los Angeles Measure J failed by a small margin in part because groups who should be natural allies of the MTA did not find the agency a credible recipient of dedicated sales tax revenue through 2069. Independent of the merits of any investment priorities, transport agencies need to be much more aware of how trustworthy they are in the public view in large part because of the changing structure of transport finance.

Federal funding is declining as a share of overall transport investment. As a response, local, regional and state actors have to take a larger role in taxing and spending for transport, as well as assessing priorities for investment. Voters are not likely to support new taxes, road fees, transit fares and other revenues if they think their money will be spent foolishly or dishonestly. For instance, in the New York region the Port Authority of New York and New Jersey damaged it's reputation after raising tolls on their Hudson River crossings in 2011. The dramatic increase in tolls was widely perceived to be needed for reconstruction of the World Trade Center site, and AAA filed a lawsuit on these grounds. Here is more from the Wall Street Journal with some details that the WTC site is diverting money away from existing infrastructure. Overall, the actions of the Port Authority will make it more difficult to raise revenues for required maintenance and new investment in the future regardless of the merit of the WTC project. Also in New York, the MTA is still negatively affected by the myth that they used to keep two sets of books. There never was a second set, but the MTA is less credible because of the perception and has trouble gaining political support at the state capital. I wrote about credible commitment and the MTA last year here and also highlighted distrust toward the Twin Cities Metropolitan Council because of investment choices the agency made.

So when I read stories such as this one from San Antonio, where the transit agency is swapping money with the highway department to avoid a lawsuit about improper use of sales tax revenues, I worry that the agencies involved are causing long term harm for short term gains. From the San Antonio story:

In a funding swap, $92 million in state money previously set aside to add nontoll lanes on U.S. 281 and Loop 1604 would replace local money reserved for the streetcar project.
In turn, the local money assigned to streetcars would go to adding the nontoll lanes.
The local money comes from the Advanced Transportation District, funded by a 1/4-cent sales tax approved by voters. The state money is from the Texas Mobility Fund.
The Texas Transportation Commission, which governs the Department of Transportation, is expected to vote Nov. 15 on shifting the state money.
Whether the new funding plan will crush any potential court challenge to streetcars remains to be seen.
Jeff Judson, a staunch opponent of rail and the use of ATD funds for streetcars, questioned the legality of spending TMF funds instead.
“I just don't think TxDOT should be accommodating the expenditure on transit, when it's just not their role, and transit will do nothing to reduce congestion,” said Judson, director of the Heartland Institute, a free-market advocacy group.
TxDOT Executive Director Phil Wilson said the agency's proposal to assist with the streetcar funding reflects its increased focus on partnerships.
“We want to find the best opportunity to take dollars and extend them as far as we possibly can,” Wilson said, adding that TMF money is among “the most flexible of funding sources the state has.”
Bexar County, VIA and the city voted last fall to fund the 5-mile streetcar system along with park-and-ride and transit centers.
But the streetcars — the centerpiece of the plan — generated the most controversy.
ATD money was just one of the funding sources, but streetcar opponents, including several Republican elected officials, said it could not be spent for streetcars because voters were promised it wouldn't go to light rail when they approved the sales tax in 2004. Streetcars and light rail, opponents contend, are the same thing.
Longtime rail advocate Judge Nelson Wolff disputes the similarity and believes officials were in the right to use the ATD money. But he didn't want to risk a lawsuit that could delay streetcar construction.

Again, my point is not about the relative merits of streetcars or light rail or roads or park and rides. Rather, the convoluted process of swapping money to achieve a desired result is problematic. In this case, streetcar investment. I will note that the most likely reason that the voters were not asked about streetcars on the 2004 ballot is that at that time the federal government didn't provide funding for streetcars. A change in how projects are evaluated put in place during the Obama administration opened the door for lots of streetcar projects. Cities had no idea what they were missing until the feds starting picking up the tab. Back to my point, as transit agencies become more responsible for raising money and prioritizing investments they have to become more accountable for those decisions, and they must act is ways that enhance credibility rather than reduce it.  Money swaps, poor investment decisions and other actions are problematic for good long term governance of transport investment.

Are Transit Agencies Credible?

Transportation finance is politically challenging in the best of times. These are not those times. In the New York region, the New York MTA has responded admirably to the damage caused by Hurricane Sandy. Will their efforts and effectiveness in restoring most service in the aftermath help the credibility of the authority with the public and elected officials? We'll see. What about New Jersey Transit, which is also working hard but has not had the same success restoring service?

Credibility matters for agencies more than generally thought. Mike Manville and I wrote a paper about credible commitment as a barrier to congestion pricing, where we argue that agencies that are not viewed as credible have particular challenges with politically difficult policies. In Los Angeles, credible commitment is a major issue facing the ballot Measure J to extend a dedicated sales tax 30 years to pay for transit improvements. Specifically, LA bus riders, who are the overwhelming majority of transit users, don't think the new revenue will be spent on improving bus service. Rather, they think that the LA MTA will spend the new money on expensive rail projects. From the LA Weekly story:

"The potentially devastating impacts of Measure J -- combined with the MTA's record of shamelessly ignoring the needs and concerns of working class Latinos and blacks as it advances a corporate-driven agenda -- has moved leaders of major churches to speak out," said the Bus Riders Union in a press release.

The Measure's supporters don't understand the opposition:

Denny Zane, a leading advocate for the 2008 countywide sales tax hike approved by voters -- and a key force behind this proposed 30-year extension of that tax hike just four years later, finds the Bus Riders Union's position galling.
Zane says that both Measure R from 2008 and the proposed Measure J on the November 6, 2012 ballot send 20 percent of the tax hike into the bus system.
"All around the country, bus systems had major dramatic cutbacks," Zane says. 

 To which the Bus Rider's Union responds:

But Measure J opponents point out that to the millions of bus riders, 20 percent of this latest tax hike is chicken feed.The vast majority of the millions of mass transit users in Los Angeles and its suburbs use the bus -- not the subways and light rail. But, they note, under Measure J, the subways and rail get the lion's share of this proposed sales tax hike to 2069.

There are good reasons to be skeptical of the LA plan. Here is a overview of service and investment since the sales tax measure first passed in 2008:

Since 2009 the MTA has added eight miles of train service, at a capital cost of about $2 billion. These new trains, the Expo Line and an extension of the east-county Gold Line, carry a total of about 39,000 people a day.

In the meantime, the cash-strapped authority radically reduced bus service twice: It cut bus lines by 4 percent in 2010 and 12 percent in 2011. These cuts were made even though buses move more than four times as many Angelenos as trains do.

 Bus riders in Los Angeles have a long history of feeling like they are not a priority. They have genuine reasons to oppose Measure J. The MTA also needs to recognize that they have credibility problems that they have to address. Is the MTA credible enough to trust with dedicated sales tax revenue until 2069? That's a lot of required trust. Damien Goodmon of the Crenshaw Subway Coalition has an answer:

"Can you trust these guys with that much money?" asks Damien Goodmon of the Crenshaw Subway Coalition. "Hell, no!"

And he likes transit spending:

Goodmon favors transit spending but hates the way Metro has gone about it. He's pissed off about the gobs of money being lavished on the Purple Line Westside Extension, which will run under Wilshire Boulevard.
The $6.3 billion to $9 billion Westside Extension will suck up a hefty chunk of the sales tax collected from consumers countywide, yet it falls miles short of the "subway to the sea" once promised, and it won't be completed until 2035.
Meanwhile, the planned Crenshaw Line in South L.A., serving mostly black and Latino riders, will be built on the cheap, at ground level. Goodmon has pleaded with Metro to address safety concerns at points where the line will intersect with streets.
Other black leaders were outraged when Metro's board chose not to build a Crenshaw Line transit stop at Leimert Park, which, in the eyes of many, is the business and shopping heart of black Los Angeles.
Goodmon says the Metro board's unfairly tilted votes on where to spend Measure R taxes amount to "basic economics: We're getting jacked."

Getting jacked, indeed. It is possible and reasonable to support transit investment and oppose Measure J (or any other similar measure). The agencies responsible for collecting and spending the money must be credible. It is not clear that this is the case in LA.

Now Published: Credible Commitment and Congestion Pricing

Mike Manville and I are pleased that our paper "Credible Commitment and Congestion Pricing" is now published in Transportation. Available online at this link (gated). Here is the abstract:

Abstract
Transportation analysts frequently assert that congestion pricing’s political obstacles can be overcome through astute use of the toll revenue pricing generates. Such “revenue recycling,” however, implies that the collectors of the toll revenue will not be its final recipients, meaning that any revenue recipient must believe that the revenue collector will honor promises to deliver the money. This raises the potential for credible commitment problems. Promises to spend revenue can solve one political problem, because revenue is an easy benefit to understand, but create another one, because revenue is easy to divert. Revenue recycling may therefore not be a promising way to build political support for congestion pricing. We highlight the role commitment problems have played efforts to implement congestion pricing, using examples from around the world and then focusing on California. Because congestion reduction is a more certain benefit than any particular use of the toll revenue, demonstration projects, rather than revenue promises, will be key to pricing’s political success.