Transportation Federalism

The phrase, “all politics is local” is a common phrase in U.S. politics. The former Speaker of the United States House of Representatives Tip O’Neill is most closely associated with this phrase. — Wikipedia

Politics is local, and transportation is too. Roads, rails, ports, tunnels, bridges, canals, and rivers all provide local transportation. Many rivers serve as state or national borders, and rivers, like freeways, often cross state borders. Still, neighboring states usually have stronger incentives to work together to address transportation problems than does the distant federal government.

Consider the usually jammed I-5 bridge crossing the Columbia River from Portland, Oregon to Vancouver, Washington. It is a congested mess every morning and afternoon (and most hours in-between). The bridge was first built in 1917 and expanded in 1958, now having three-lanes each way. Innovative proposals include: “Oregon governor candidate has a solution for Interstate Bridge congestion: water slides“:

One man gunning for the Oregon governor’s mansion claims an amusement park attraction might be the answer, at least on the Interstate Bridge. Democratic candidate Dave Stauffer over the weekend unveiled his idea to erect a 30-story parking garage in Vancouver that would deliver its users to downtown Portland via water slide.

On a more serious note…

The Cascade Policy Institute study, “Devolution of Transportation: Reducing Big-Government Involvement in Transportation Decision Making,” (May, 2016), looks at:

… the role that federal, state, and local governments play in the funding and provision of transportation infrastructure and services. We build the case for dramatic devolution of authority that is presently asserted by the federal government. This authority and funding control should be given to states, localities, or the private sector. Although the issues vary somewhat by the
specific mode of transport, the general findings are the same.

Key to the reports findings is that like politics, most transportation is local:

The vast majority of passenger and goods movements involve short distances. This is inconsistent with the scale of government involvement in the decisions and funding processes that dominate the transportation sector.

The politicized flow of transportation dollars from local gas taxes to federal agencies and back to state and local highways causes much of the confusion. The Cascade study recommends simplifying the system by devolving it to local authorities:

Devolution is a very important policy issue. In the United States, revenues of approximately half a trillion dollars each year are collected by federal, state, and local governments. They are funneled through complex and often politicized
allocation procedures to fund transportation activities. The allocation of the funding is a complex thicket of formulae, programs, trust funds, grants, subsidies, cross-subsidies, and political gerrymandering that is opaque to the average citizen. The aggregate, national pattern of sources and uses of transportation funding is revealing.

Institutional arrangement matter across economic systems, and transportation policy offers an example. With most food, clothing, and housing, the people who consume or use the goods and services pay for them. Why not, for example, have people who drive on highways pay for them? That used to be the case, but over time federal gas tax revenue has been diverted, a significant percentage is now allocated to transit systems.

It is relatively easy for an economist to recognize inherently inefficient institutional arrangements. This is because if an allocation process is insufficiently guided by consumer influence, there will be insufficient discipline to yield beneficial outcomes from the users’ perspective. Economists thus focus on two main criteria when evaluating resource allocation processes like the ones that drive the funding and spending allocations described above.

The study focuses on Oregon transportation, but it analysis of various modes of transportation applies nationwide, finding that major problems and challenges are better addressed locally.

In its conclusion the Cascade study recommends local private and government provision and management of transportation:

In both highway and transit, the elevation of authority to government, in general, and to the federal government in particular, bodes ill for the performance of the largest transportation sectors in our economy. The patterns of travel, the failure to enforce close nexus between those paying for transportation and those using the services, excessive cross-subsidization and fund pooling, all augur for the need to radically devolve authority to a more localized entity––whether private or public.

Not surprisingly, the New York Times, takes different perspective, warning that when the private sector gets involved with transportation infrastructure, the public is likely to suffer. “World Offers Cautionary Tale for Trump’s Infrastructure Plan,” (New York Times, June 16, 2017). The article sings the praises of communist China’s vast transportation infrastructure investments, though this 2-16 WSJ article advises caution: “Is China Building a Road to Ruin? China beats the U.S. on infrastructure but at a heavy cost.” (The NYT article also offers caution about Chinese infrastructure overbuilding.)

The New York Times article mentions public/private transportation projects have gone badly wrong in India, England, and Canada:

In India, politically connected firms have captured contracts on the strength of relationships with officialdom, yielding defective engineering at bloated prices. When Britain handed control to private companies to upgrade London’s subway system more than a decade ago, the result was substandard, budget-busting work, prompting the government to step back in. Canada has suffered a string of excessive costs on public projects funneled through the private sector, like a landmark bridge in Vancouver and hospitals in Ontario.

Back the Chinese transportation infrastructure in the NYT article:

Atif Ansar, the co-author of a paper studying China’s infrastructure investments and a management scholar at the Saïd Business School at the University of Oxford, said he and his colleagues found many roads that “were almost empty” in parts of southwestern China.

“Had China focused on about a third of its most productive investments, it would have reaped lasting economic benefits without the debt overhang,” Dr. Ansar said.

A challenge with this “focus on about a third” advice is deciding which third of infrastructure spending seems likely to be the “most productive.”

(Above posted in June, 2017: https://astoundingideas.wordpress.com/)

This reflects the broader challenge with federal funding of transportation infrastructure. Transportation subsidies tend to flow to the states represented by powerful congressmen, and those on transportation committees in the Senate and House.

Next up: a look at house Congress directs federal transportation spending in the “post-earmark” era…