Subsidies don't matter

A recurring debate between the highway camp and the mass transit camp is, "Who gets the bigger subsidy?"  The highway advocates argue that gas taxes cover most of the cost of roads, while mass transit is almost entirely dependent on government subsidies.  Transit advocates respond that gas taxes really cover only a small fraction of total highway cost; highways are a lot more expensive than the other side admits.  

Personally, I think this is the wrong debate. What matters is that a new piece of infrastructure produce a good return on the investment.  Who pays for that investment is irrelevant.  A road or rail line can be cost-justified even though the government is footing the bill.  Or a road or rail line can be a big pile of crap, in which case it's a big pile of crap regardless of who pays.  Obviously, when the public is footing the bill, it has an incentive to vet the cost-benefit analysis, but the amount of the subsidy, again, has nothing to do with that analysis.

The "highways are already paid for" argument is particularly off the mark.  I could care less whether gas taxes cover all or just part of the cost of roads. Gas taxes are (or should be) levied to internalize externalities. What we do with the money after that is up to us; there’s no iron law that says the money must be plowed back into roads. If gas taxes earn a higher return somewhere else, they should be spent somewhere else.

So we ought to focus on which infrastructure will produce the best return.  Sometimes the better project will be a road; sometimes it will be mass transit.

I know that it is impossible to perform a cost-benefit analysis without a full reckoning of the costs.  To the extent the subsidies debaters are just trying to drag all of the costs out into the open, fine.  But in the end, the subsidies debate cannot answer the big question, "What should we build?"

Comments

[M1EK]

The challenge here is not to forget that investments in highways have more negative and fewer positive externalities than do investments in transit. (The few positive externalities of investments in highways flow disproportionately to the wealthy - as they're much more likely to be able to afford to own, operate, and drive long distances in cars).

Plus, some highway fans argue their investments are necessary to support transit (which is a load of garbage; cities overseas in high-road-tax environments have large bus systems that operate on much smaller roadway networks - most road spending in this country actually hurts rather than helps buses as is the case locally with frontage roads).

[Tory]

I absolutely agree with your cost-benefit equation, although, for most projects I've seen, freeway investments tend to move far more people farther for the $ than most transit projects, esp. rail.

One item I find that is often overlooked in these debates: the basic road network is not optional. No city in the world doesn't have them. Even if you don't drive, your residence must be connected to the road network for freight, police, fire, ambulance, and even construction vehicle access. So that basic road network can be justifiably paid for with property taxes, since everybody has to be connected to it. Where user fees make more sense is when we go beyond the basic road network: highways and freeways - historically the gas tax, but increasingly tolled. My understanding is that the gas tax does pretty much cover all *highways*, but not all *roads* - as property taxes properly pay for the basic streets.

[AC]

M1EK, cars usually create more externalities. Usually. As long as the bus is carrying "enough" passengers. One bus (1) emits more particulate pollution than many cars; (2) causes more congestion than a single car; and (3) causes more road damage than a single car. (It may or may not impose a higher accident externality.)

Obviously, at some load, the per passenger externality dips below that of a single car. (And, no, I'm not arguing that CapMetro buses that are running light on part of their route are a net drag. You have to have a robust network, which means buses will sometimes run with few passengers.)

My point is simply that a mass transit system needs to carry a certain load before the average externalities per passenger dip below that of single automobile.

My main problem with highways/commuter arterials is that they simply aren't priced right, which (1) makes it very hard to determine when they are cost-justified; (2) encourages the construction of too much capacity; and (3) eventualy causes wasteful congestion. But it's wrong to argue that they mainly benefit the wealthy. They permit growth, and growth has many, many positive externalities. A large city has a deeper labor market (and more job opportunities), more opportunity for specialization, more knowledge spillovers, etc. There are negatives to growth, but the positives generally outweigh them. And, as Tory points out, you have to have a basic road network anyway. (Since local road networks raise property values, they are cost-justified when the increase in property values exceeds the cost of construction.)

Oh, and M1EK, I'm keeping my fingers crossed that you like cilantro.

[M1EK]

Tory,

It's a common fallacy that highway investments move more people for fewer $ - it's based on questionable assumptions about how much freeway lanes cost and on dishonest tactics like comparing the modeshare for the entire region rather than on a single corridor. Most recent light rail projects carry as many people during rush hour as two or three freeway lanes (in a given direction) - so you're talking about a huge expense in those areas, given that constructing urban freeways isn't cheap.

As for the basic road network, yes, it exists in countries that price road use very high - but it looks very different. For one obvious example: multi-lane (more than one each way) arterial roads are the exception, not the norm. Those extra lanes on arterials in the suburbs are 100% for the use of car drivers - buses don't need them and rarely if ever use them. Even in the urban cores of those cities, roads aren't as fat as we've made them - and that's a cost that the local taxpayers bear in toto, not the drivers (those roads being funded almost exclusively by property and sales taxes; not fuel taxes).

[M1EK]

AC, as for the positive externalities of roads helping everybody - I think you're very wrong here. Suburban sprawl creates more costs for the low-wage workers - they typically have no option but to drive, which means the low-wage job doesn't bring home as much money. I also see no lack of jobs in parts of this country which subsidize roads less than we do. Building those mega-arterials with property and sales tax dollars (like we do here) hits the poor twice: first by collecting a regressive tax; and second by incenting more jobs to locate in places that are difficult to impossible to serve with public transportation.

(On my reverse commute on the express bus up 183, next in my series, a handful of people would get off every day at the Arboretum to go work retail - imagine how much would have been left to bring home if those people had to own a car to hold those jobs).

[AC]

Well, you are right that the car-based society disadvantages those who can't drive, whether because they are physically unable to or cannot afford to. This is why the poor almost always live in the central city, where the transit is. But they benefit from the larger city in other ways, and, regardless, I think the benefits of a larger, more diversified and specialized city exceed the harm to them. In other words, it's a matter of equity rather than net welfare.

Property taxes are regressive. I've argued that before myself. Again, that is matter of equity, not economic efficiency. But roads to the suburbs lower the commuting costs from the suburbs, reducing property values in the central city. I can't say that the reduction in property value fully offsets the property taxes diverted to roads, but it does mitigate them somewhat.

I'mt not saying that all roads are good. You know I think they should be priced (which would solve some of the inequity). And I certainly don't approve of TxDOT's standard form -- elevated superhighways with frontage roads.

Without a decent road system, a city will be denser. But it will also be smaller. There is an optimal balance that can't be resolved simply by saying "buses are better than more highways," because that sometimes is not true.

[M1EK]

"But they benefit from the larger city in other ways,"

How? Or more precisely, how do they benefit from the suburban sprawl model exemplified by, say, Phoenix compared to, say, Portland? I have never seen any convincing study that argued that dispersing employment through the suburbs (the inevitable result of subsidized sprawl) helps those stuck in the city in any way, shape, or form. Even the "the overall economy is better" argument is refuted fairly easily.

Note that I'm presuming your definition of "larger" to be geographic here. If you just mean "bigger" as in "more people, more activity", then "denser" can do it just as well.

I should also say that "decent road system" to me is enough roads to get the goods delivered and let the buses move around. That's what should be funded out of general funds - and I'm even willing to consider some pricing there. But that's a much smaller (in terms of lane-miles) system than what we get in most cities in this country; the difference being stuff we throw down to help suburbanites drive their hearts out.

It's clear that this model works just fine in other countries - there are jobs; people get goods delivered; people get to work; etc. (all of which the red-meat-brigade in this country will tell you won't happen without subsidized highways, so we'd better pay up).

We're not that far apart on this, you're right, but it's very easy to misinterpret "decent road system" into "the road system that Houston has", as I believe somebody like Tory has already done.

[M1EK]

BTW, Tory, the problem with your approach, even if the basic road network is the size I prefer rather than yours, is that you still incur gas taxes when driving on those 'basic roads'. Highways, in other words, don't come close to funding themselves - they always required money from people who drove on other roads; as well as substantial interjections of property and sales taxes (usually in the form of ROW purchases, but sometimes beyond that) and a batch of debateable subsidies as well.

So I would absolutely disagree with this contention:

"My understanding is that the gas tax does pretty much cover all *highways*, but not all *roads* - as property taxes properly pay for the basic streets."

Nope. The gas tax covers the majority but not all highways; and it only covers that much because a lot of non-highway drivers still pay it. Property taxes make up some of the difference, which is especially odious when you consider that suburban areas are far more likely to have a given major arterial lane-mile be part of the 'highway' system than are urban areas.

Start here: http://mdahmus.monkeysystems.com/blog/archives/cat_funding_of_transportation.html

from the bottom up is most helpful.

[AC]

By "bigger" I mean "bigger population."

A city will naturally densify as it grows, and that's good. But its population will not grow as fast if its growth must take place solely through densification.

How big would Chicago be if its boundary were limited to its 1908 or even 1960 urbanized area boundary? It would be denser for sure, but it's already pretty dense, and it would be a lot smaller. So fewer roads = denser but fewer people. There's an optimal balance here -- finding it is the tricky part -- but suburban arterials are not per se bad.

And there's this puzzle, too: Why have central cities historically supported highways? The demonstrably lower property values, at least in the short run. I think it's because they understand that a more populous city provides a lot of positive externalities.

Maybe where we differ is that I think that many suburban arterials still would have been built even if they had been priced properly.

[Roger L. Cauvin]

One of the constructive reasons for debating the level of subsidization is to recognize the unintended consequences of those subsidies.

Free market advocates often take for granted that the government must build roads. But subsidizing road construction has consequences. It affects each individual's cost/benefit analysis (conscious or unconscious) of where they should live and whether they should drive a car or use transit. It also accommodates (and results in more) sprawl.

For some people, the first step towards understanding the undesirability of sprawl is to recognize that it is artificial. The first step towards understanding how to remedy it is to recognize that government policies - including road construction - causes it.

Most people don't even have this basic understanding of the effects of government building roads. How can we expect to engage in a meaningful dialog about transit without this basic understanding?

[M1EK]

AC, we would have suburban arterials built if they were priced properly, but there would be fewer of them, and they would have fewer lanes. The point isn't to freeze a city in amber; the point is that you end up with a TRUE 'basic transportation network' plus actual non-subsidized demand, which is going to be a lot less than what we have today, where people in the city pay for big roads in the suburbs.

Braker Lane, for instance, wouldn't be 6 lanes if Austin were London.

[Matt Turner]

I would just like to ask do you know of a single privately run rail way that carries primarily people? Not Amtrak, it's heavily subsidized.

On the flipside it's much easier to fine privately own toll roads and bus services. This is quite simply the easiest way to see which has a better ROI. If a company isn't going to take it on then the ROI probably isn't good. Which is the case with rail. Railheads love to make excuses like it's because UP doesn't allow Amtrak to run efficiently, but even in places like the New York to Boston run it's loosing money, so i don't see that as viable.

Also the thought that only the wealthy can afford to drive long distances is well pretty much a fallacy. The reason for this is because anyone who's wealthy will fly. Which is actually the most efficient way to travel(in the short term), because of how little infrastructure it takes compared to roads or rail. (http://americandreamcoalition.org/ADCFS2.pdf)

While I'm sure M1EK is rolling his eyes from the link to the American Dream Coalition, everyone really should read that pdf, even if it's only to see what the other side is saying.

On a final note, just because I'm pro-road doesn't make me anti-transit. I really believe in transit (although I wish CapMetro was more efficient with our money and their routes). One difference between me and alot of the train people is that i believe transit's first job is to get people who want a better life, but can't afford a car to jobs, so they can make their life better. Versus alot of the train folks who believe it's to replace cars.

[AC]

Well then, M1EK, we're arguing over nothing.

I agree that suburban arterials are overbuilt. They're built wide enough to accommodate current and foreseeable demand without congestion. Suburban arterials ought to be congested. I came across an interesting result the other day -- if an arterial is built to optimal capacity and congestion priced correctly, the revenue generated will exactly offset the cost of construction.

Matt, I think we're generally talking about local mass transit here. Although I'm still studying this, I think long-distance passenger rail only makes financial sense in the U.S. for dense corridors like the northeast and perhaps the SD to SF route. Personally, I'd love to see high-speed rail connecting the Texas triangle. I would pay a very large premium to get to Dallas downtown in 2 or even 2.5 hours rather than fly to Love, with all the hassles that entails. Clients would pay because I'd be a lot more productive. I suspect the cost is prohibitive, though.

[Matt Turner]

AC,
How would a high speed train be any different that Air travel? If it was successful it would require exactly the same security as Air travel, with exactly the same delays. If it didn't then we'd eventually have bombings like in Spain. It's the number of people they're looking for not a plane vs train.

Local Mass transit gets even more relevant(I was trying to be more than fair). Find me a privately owned and operated local mass transit system that isn't run on buses. This is because the ROI isn't there. Inversely you can find quite a few privately owned local transit systems that run on buses(SuperShuttle, Yellow Cab, etc...) and a few local privately owned toll roads which are making money hand over fist. So what's the reason for that if not ROI?

[AC]

(1) High-speed rail presumably would travel from downtown to downtown. It's a real hassle getting to an airport, parking, then getting from the airport to the city center. That adds an hour each way. A completely unproductive hour.

(2) Security -- security at an airport is unpredictable and sometimes takes forever because they are screening passengers for a couple dozen flights (or scores of flights in Atlanta)at one time. Going through security would be a snap if you only had to deal with one plane or train at a time.

(3) There's the cost of scheduling delay because I have to leave some extra time to get through security.

Ultimately, air travel cripples my productivity because I'm not in one spot long enough to get much work done. (1) travel time to airport is unproductive; (2) time getting through security is unproductive; (3) time waiting for the airplane is generally too short to be productive; (4) there's some productive time on airplane, but very little for short flights to Dallas (around 50 minutes) or Houston (35 minutes); (5) time getting to taxi and then to downtown is unproductive. From start to finish, it takes me a minimum of 2.5 hours, usually 3, to get from downtown Austin to downtown Dallas. My lost productivity is somewhere between $600 and $800 one way. (Someday I'll total up the lost productivity caused by this blog!)

But, like I said, I think high-speed rail in Texas is cost-prohibitive. Too bad.

[The Overhead Wire]

Matt, I have a problem with this definition and assumption:

"One difference between me and alot of the train people is that i believe transit's first job is to get people who want a better life, but can't afford a car to jobs, so they can make their life better. Versus alot of the train folks who believe it's to replace cars."

First you're assuming that automobiles will always do the job better. That is not true. Where I live in San Francisco, it is much faster to take BART to work in Downtown Oakland than it is to drive. It's also better to take Muni downtown rather than drive. San Francisco wasn't always this dense and the local leaders wanted BART and a Muni Subway because they wanted a different type of place. Portland leaders wanted a different type of place. I've never said replace cars with transit, its all about the option most people don't have with respect to quality alternatives to the car.

Another point is that transit is for the poor is a fallacy. Transit should be for people who want a choice in their travel and command of their pocketbooks. The free market guys always ignore the fact that people haven't really had a choice in over 50 years. Many people could even ride bikes but don't want to deal with the automobile traffic and aren't given a real throughway to use bikes. I commend M1ek for biking all those years as well as others who are out on the mean streets avoiding the next collision.

People are now paying on average about 19% of their income on transportation. In areas like New York, Chicago or San Francisco, that number drops to 9%. Why? Because they have a choice to live in walkable communities that don't require a car and sometimes require transit. Now there are some people that want to drive in the car. But we don't allow people to prioritize their own monetary decisions in that way since there aren't as of now a heck of a lot of choices. This isn't an issue you have with the "train people". Its an issue you have with allowing people to pool their resources for their idea of a better lifestyle. With gas prices going up, people are starting to wonder if the balance of transportation options we have now was really the right way to go.

[bittergradstudent]

Matt--

The answer would have to lie in the actual price of the gas being cheaper for the train than it would be for the airplane. This would, of course, require a lot of people opting for the train over the plane, where the fact that a single train can carry a lot more people than a single plane can, while the train ends up using a lot less energy, since it doesn't have to take off. Also, being able to go outside and smoke might be attractive to some, though it would likely be prohibited anyway. But still, when I go to Houston to see the Cardinals play the Astros, I am really annoyed that I have to mess around with my car, and spend the two hours driving when I could be reading or doing research.

Where rail really makes sense is for long haul freight. It is completely inefficient, environmentally destructive, and expensive to have as many long haul freight truckers on the interstates as we do. It might make some sense to just attach a couple of passenger cars to the end of a long haul freight train, but that probably wouldn't be very rapid with all the stops along the way.

[bittergradstudent]

overhead wire--

I would also say that some of the reason why people in NYC and SF and whatnot spend less on transportation is that the fraction of their income that they spend on housing goes WAY up, too.

[M1EK]

Given that short-haul air service is so inefficient, and that the carriers who rely on hub/spoke are in such dire straits, it would have been really nice to have had a bit of forward thinking and have built some regional high-speed rail networks by now.

And, no, they're not really any more expensive than building highways. Much less land; higher construction cost; pretty much evens out in the end. The difference is that we acquired all that land for the highways a long time ago when it was a lot cheaper.

Plus, high-speed rail can be (and should be) electrified. Then you're free from worrying about liquid fuel costs.

The model would be: take a 1.5-2 hour train ride to Houston, then hop on a plane to London. Or a 1.5-2 hour train ride to Dallas, then a flight to New York.

Boeing recently announced that their mix of airplanes going forward just took a radical shift - nobody's ordering those awful regional jets and small planes anymore. We're going to be really hurting when the flights to the hubs are cut down even more (a few cuts from AUS for AA and CO in just last couple weeks), and there's no rail passenger service to replace them.

(I'm having to go to Huntsville,AL on Monday and decided to fly Southwest to Nashville and drive 2 hours just to avoid the hub in Dallas - you can at least marginally work on a SW flight; the crappy hub planes they fly these days have so little room that I can't unfold my laptop far enough to work! That's a pretty strong sign of a pretty severe disfunction).

[Tory]

I spoke with Alan Clark yesterday, head of transportation for H-GAC, and he confirmed that, for the most part (95%+), all highways built in TX are paid for with gas tax money and only gas tax money. In fact, much of our gas tax money is siphoned off by both the feds and the state for non-road budget items (or, in the feds case, for other states too), so we're getting fewer highway lane-miles for our tax than we should be getting.

High-speed rail is not only astronomically expensive for service our airports already provide pretty well (with little or no subsidy, I might add), it's also a cakewalk to secure airports vs. hundreds or thousands of miles of rail where a simple rail cut could derail a 150+ mph train and kill hundreds.

[M1EK]

Tory, that's misleading and disingenuous - it ignores the amount of gas tax collected from people when they are driving on roads outside the state highway system. This overwhelms the amount of gas tax 'diverted' at either level.

(In many states, the state highway department would either be running a lot more of the major arterial roads in cities like Austin or Houston, or would simply be giving some of that money back to those cities to operate those roads - that is not the case in Texas, where the Constitution requires that the gas tax be spent only inside the state highway system (and on DPS and the 5 cents that goes to schools)).

In other words, Lamar Blvd in Austin doesn't see a penny from the state - except for the part that is in the state highway system (Town Lake bridge and points south; 183 and points north). However, I pay the gas tax no matter which part of Lamar I drive on.

[Tory]

I understand that. But that's the funding mechanism we politically agreed on for highways. Can't just tax the gas you use only on highways.

> This overwhelms the amount of gas tax 'diverted' at either level.

I think I disagree with that. For myself and most people I know in Houston (may not be as true in Austin), I'd bet 75+% of our vehicle miles are on freeways or highways. Not vehicle minutes, but vehicle miles. Probably the same total time as spent on local surface streets, but going a lot faster on average during that time. Work commutes for sure, but even local trips often get to a freeway or highway with commercial retail all along it pretty quickly.

[bittergradstudent]

Tory-

the second point is the whole point. A large majority of the people in Houston live in the periphery, and drive around on freeways to cross the large distance between home, work, and recreation. Of course this imbalance isn't going to affect these people. The whole point is that people that live in the downtown area use gas, and pay the gas tax, but generally don't really drive on highways, because they already live near their work.

[Tory]

Yes, there are certainly some people that pay more in gas tax than they use highways and freeways (although those people in downtown you describe probably use very little gas at all, including taxes). I'm just arguing that on an overall population basis, it does seem to roughly balance out. Ideally, we'll shift towards tolls and rely less on the gas tax (and we're headed that direction), although tolls are impractical for at-grade highways with traffic signals.

And BTW, I live in Meyerland, which is considered a "close-in" neighborhood in Houston (SW corner of the 610 loop), but I still use freeways all the time to get to restaurants, visit friends, go shopping, whatever (610, 59, 10 mainly).

[M1EK]

Tory, no, it most definitely does NOT balance out - because otherwise we'd be funding our non-highway major arterial network with the overflowing dollars from the gas tax instead of passing repeated bond elections to pay for them out of the general fund.