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Doesn't anyone read the transportation revenue forecast?

November 21, 2008 in Blog

The front page in today's Seattle Times has an article on the transportation budget and how lawmakers suggest "the bad economy won't stop" projects. Consider this quote from the article:

"We're not impacted by the shortfall in the operating budget," said Rep. Judy Clibborn, D-Mercer Island, chair of the House Transportation Committee. "Our projects are moving forward as scheduled."

Actually, the Office of Financial Management recently released its quarterly revenue forecast
for the transportation budget. It shows that over the next 16 year
construction horizon, (an important time frame for the Nickel and TPA
gas tax projects) transportation revenues are $1.352 billion lower than
projected from the baseline, which was updated during the 2008
legislative session. And this does not yet include the labor and
material cost increases that are expected to drive the shortfall even

And the suggestion that transportation projects are "moving forward" is not true. Earlier this year, we released a study, Despite Claims, Gas Tax Projects Are Not on Track, that shows how the legislature delayed several Nickel and TPA projects so far beyond their original completion dates that you have to wonder whether they will be completed at all, especially with the Nickel is scheduled to sunset. 

Earlier, I wrote about how the legislature funded the previous holes in the gas tax projects. In just the last two years, cost increases and slower revenue growth created a $3.8 billion hole in the Nickel and TPA projects. !
Through a series of budget maneuvers and project delays, the legislature was able to fund the deficits.

But after bridging $3.8 billion, the Legislature is probably out of
tricks. They will either have to outright cancel some projects or fund
them from a different revenue source, like the general fund. Both of
which are highly controversial.

Given the $5 billion general fund deficit and the $1.3 billion revenue shortfall in the transportation budget, transportation projects are in trouble.

When the desire to spend public resources on functions that do not belong to government threatens those functions that do, taxpayers end up with neither.

November 19, 2008 in Blog

This article in today's Everett Herald, Out-of-state
competition could trim $146 million off cost of ferries, analyst says
, highlights resistance to allowing companies outside of Washington State to build ferry boats.

"We need to put people to work here in the state of
Washington," said Sen. Mary Margaret Haugen, D-Camano Island, chairwoman
of the Senate Transportation Committee. "If we're going to create jobs we
ought to be doing it right here. I'd rather be putting people to work than
paying out unemployment."

Except, taxpayers don't pay taxes to create jobs--Taxpayers pay taxes to fund vital public services. Given that the newly projected general fund budget deficit is about $5 billion and the
anticipated shortfall in transportation revenues is currently $1.4 billion
, it's unlikely the state will have any additional money to give the contract to build the Port Townsend-Keystone ferries to Todd Shipyards.

When the desire to spend public resources on functions that do not belong to government threatens those functions that do, taxpayers end up with neither.  

Performance-based transportation policy, should focus on traffic relief

November 18, 2008 in Blog

Often, spending transportation taxes is tied to agendas that don't have any relationship to specific performance measures, like congestion relief. This concept was highlighted in an audit conducted by the Washington State Auditor's Office.

In a new report published by the Heritage Foundation, “Reforming
State Transportation Policy: Washington State’s Efforts to Implement
Performance-Based Policies
,” I argue the value of using
performance measures to understand what is working and what is not when
policymakers make decisions on spending transportation taxes. 

Across the country, spending is too often tied to political agendas and
the wishes of influential constituencies, not objective measures of public
need, such as safety and congestion relief.

As policymakers look at
maintaining and expanding transportation infrastructure, they need to make
decisions based on proven, meaningful benchmarks. Otherwise, as we have seen in Washington State, the spending may not
have any relationship to the one solution taxpayers want most: congestion

Read the full report here: Reforming State Transportation Policy: Washington State’s Efforts to Implement Performance-Based Policies

National Report Recommends Tying Transportation Spending to Performance

in Press releases

Seattle – The Heritage Foundation, a nationally recognized Washington DC-based think tank, has released a new report highlighting transportation spending in Washington State.  In “Reforming State Transportation Policy: Washington State’s Efforts to Implement Performance-Based Policies,” Michael Ennis looks at the value of using performance measures to understand what is working and what is not when spending transportation taxes.  Ennis is director of the Center for Transpor

Port of Seattle claims its shrinking, but taxes grow 11%

November 12, 2008 in Blog

Based on this editorial by Port Commissioner John Creighton and Port CEO Tay Yoshitani, taxpayers in King County might think the Port of Seattle is making the tough and responsible financial decisions required in a tough economic climate. They even say this:

In response, we're tightening our belt throughout the port, cutting
overhead spending, leaving some chairs empty and deferring certain
projects. But we must continue to invest in projects that generate jobs
and help the port thrive in a fiercely competitive global market.

But one of the top PI stories today includes this one: Port votes to increase taxes 11% next year

The Port of Seattle thinks the best way to get the economy moving again is to make the cost of owning a home more expensive. This seems to contradict the state's plan to make home ownership less costly.

Further, over half of the Port's tax revenue will go toward paying for past financial obligations. Given the Port of Seattle's recent audit history, the tax increase is more of a bailout, rather than an economic stimulus.

Masking the redistribution of wealth with the transportation infrastructure deficit

November 7, 2008 in Blog

You do not need to look very
far to see what
the government's newest response will be to stabilize the  economic volatility in our country: public works spending, particulNew Dealarly in the
area of transportation infrastructure.

Similar to Roosevelt's New
Deal programs in the 1930s, this approach would be another significant
expansion of government....and on the heels of the federal bailout, which by
some estimates, is the largest intrusion of government in the private market in

Highlighted by the
Minneapolis bridge collapse and the growing negative economic impacts caused by
traffic congestion, there is no doubt that this country has a large
transportation infrastructure deficit. So disproportionate spending increases
in transportation infrastructure might be welcome by some unusual allies and
may avoid the "socialist" accusations that usually follow such large
scale market manipulations.

Here is a great article
written by Ken Orski that discusses the background on the current issues
surrounding transportation infrastructure spending.

October 30,

Support for Increased
Public Infrastructure Spending is Growing

The push to
increase investment in public infrastructure is gaining momentum. It is stoked
by the prospect of another "stimulus" (or "economic
recovery") package, a portion of which would be dedicated to roads,
bridges, transit and other public infrastructure. Supporting the initiative is
an influential coalition of trade associations, public interest groups and
labor unions including the American Road and Transportation Builders
Association (ARTBA), Associated General Contractors of America, National
Association of Manufacturers, American Public Transit Association (APTA),
American Society of Civil Engineers (ASCE), U.S. Conference of Mayors, and a
host of local governments.

While some
observers question the effectiveness of infrastructure spending as a short-term
economic stimulus on the grounds that public works projects cannot be launched
quickly enough, proponents, such as AASHTO’s John Horsley, argue that
there are many projects that could be advanced to construction within 90 days
if additional funds were made available. In a briefing paper prepared for an
October 29 congressional hearing on public infrastructure (see below), the
staff of the House Committee on Transportation and Infrastructure cites a
January 2008 AASHTO survey of State Departments of Transportation that
identified 3,071 "ready-to-go" highway and bridge projects at a total
cost of $17.9 billion. A further 559 "ready-to-go" transit projects
at a total cost of $8.03 billion have been identified in an October 2008 survey
by the American Public Transportation Association (APTA).

Hearing on Public Infrastructure Investment

Support for
a second stimulus package was plainly on display at an October 29 hearing of
the House Transportation and Infrastructure Committee. The hearing was convened
at the request of House Speaker Nancy Pelosi to lay the groundwork for
legislative action in the next Congress.

gave the Committee ample ammunition why an economic recovery program with a
strong focus on infrastructure investments would be desirable. New Jersey
Governor Jon Corzine (D-NJ) and former Michigan Governor John Engler, now
president of the National Association of Manufacturers emphasized that the
initiative is needed not just as a short-term stimulus to create jobs and
assist in national economic recovery but also as part of a needed long term
strategy to repair and expand the nation’s infrastructure. Witnesses provided
many specific examples of ready-to-go projects. Lest the hearing be perceived
just as a forum for special interests to plead for increased funding for their
favorite local pork barrel projects, Committee Chairman James Oberstar stressed
the need for applicants to prioritize their wishlists based on objective standards
of need. He elicited a promise from Governor Corzine that he would
"strictly adhere" to doing just that.

John Irons,
Research and Policy Director of the Washington-based Economic Policy Institute,
was the only witness to address the issue of financing. He testified that, in
his view, the recovery package should be deficit financed. "While deficits
should not be ignored," he said, "deficit reduction must take a back
seat to short-term stimulus." Allowing a temporary increase in the
national debt next year to levels no higher than what we averaged in the 1990s
(46.1% of GDP) would allow room for about $900 billion in additional debt"
Irons testified. Infrastructure investments should be seen as an insurance
policy against a prolonged downturn, he added, to counter the argument about
the time lags encountered in construction contracts

support for increased spending on transportation infrastructure came from state
transportation officials. Meeting on October 20 in Hartford CT, the American Association
of State Highway and Transportation Officials (AASHTO) called for an overall
$545 billion investment in surface transportation infrastructure over a period
of the next five years (2010-2015). The recommended allocation would provide
$375 billion for highways, $93 billion for transit, $42 billion for freight
improvements and $35 billion for intercity passenger rail. Increased federal
funding would be coupled with national performance standards set to achieve
national goals.

for the stimulus bill is not unanimous

Support for
a stimulus bill and increased infrastructure spending is not unanimous. In
another congressional hearing, held concurrently by the House Ways and Means
Committee, witnesses offered a more skeptical view. Governor Mark Sanford
(R-SC) opened his testimony with a ringing plea not to approve the contemplated
stimulus package, arguing that the money "may in fact further infect our
economy with unnecessary government influence and unintended fiscal
consequences." "Common sense voices from both sides of the aisle are
raising red flags about our national deficit," he warned. Government
spending has grown 57 percent this decade alone and if the stimulus passage is
passed, this year’s budget could top $1 trillion — adding to the over $10
trillion national debt, Sanford said. State debt across the country has also
increased by 95 percent over the past decade because of "unsustainable
spending growth," he added.

skeptical witness, economist Alan Viard of the American Enterprise Institute,
argued that, while in theory, increasing infrastructure spending could reduce
the severity of a recession, in practice timing lags make it difficult to
deliver the stimulus at the time it is needed. He cited the Congressional
Budget Office and a long list of economists in support of his conclusion.

contracting lead times was also the reason why the White House and
Transportation Secretary Mary Peters have come out in opposition to the
stimulus package, with Peters citing past experience with time lags encountered
in construction contracting. On Capitol Hill, House Minority Leader John
Boechner (R-Ohio) added to the skeptical opinion, saying that he would reject
any bill that includes "hundreds of billions in new pork-barrel spending
masquerading as economic stimulus."

Ronald Utt,
transportation analysts at the Heritage Foundation pointedly reminded people
that infrastructure provided and operated by the private sector, such as
pipelines, electric power plants, transmission grids and telecommunication
networks do not seem to suffer from an "investment deficit. "Our
infrastructure is deficient only where it relies on the public sector for
maintenance and rehabilitation," Utt wrote in an October 23 Heritage
Foundation commentary entitled "Is America’s Infrastructure ‘Crisis’ Just
Another Crisis for Socialism?". According to Utt, the solution is not to
pour more billions of dollars into a public works program but to begin shifting
more responsibility for the maintenance and operation of infrastructure from
the public to the private sector. It’s an observation that may have
considerable merit, but nonetheless is full of irony in these days of what is
becoming the largest expansion of the federal government’s role in the economy
since the 1930s.

Investment in Infrastructure

transportation stakeholders are not the only ones supporting greater investment
in infrastructure. That also seems to be the sentiment of private investors.
Infrastructure is one of the "rare bright spots in a tumultous
market" wrote editors of Financial News. Several executives of
private equity firms whom we encountered at a recent New York meeting,

While the
age of highly leveraged deals may be over, they said, there are still billions
of dollars in domestic and foreign infrastructure funds waiting to be invested
in transportation facilities. Toll roads appeal to long-term investors because
they generate strong demand even in times of slower economic growth and produce
steady and predictable cash flow relatively unaffected by economic downturns.
And long-term investors such as pension funds and insurance companies require
stable, income-oriented investments to match their long-term liabilities and
payout obligations. Given the current volatility of the equities market, the
low interest rates of the government bond market and the risky nature of
investments in corporate credit instruments and real estate, infrastructure is
now seen as a "safe haven" for long-term investors, a senior bank
official told us. The reported decline in toll revenue in recent months is seen
as a passing phenomenon tied to a recessionary economy. In the long run, toll
roads have lost none of their revenue earning potential.

Of more
consequence to the prospects for private investment in infrastructure, the
private equity executives warned, is the nature and extent of the expected
government oversight to be placed upon private toll concessions. If the capital
market should conclude that legal restrictions and regulatory barriers placed on
such concessions are too onerous and burdensome, investors (especially foreign
investors) may decide that investing in U.S. infrastructure is not worth the
trouble and they will turn instead to infrastructure investment opportunities
abroad. Such a decision, in the judgment of the private equity executives,
would be most unfortunate for it would deprive fiscally strapped state and
local governments of a much needed source of capital to modernize and expand
public infrastructure.

Calls tor
increased spending on public infrastructure began before the current push for a
stimulus package. We called attention to them already one year ago ("The
Infrastructure Financing Debate is Gaining Momentum", NewsBrief, November
2007) and again in March of this year ("The Problem of Infrastructure
Deficit is Attracting Growing Attention, NewsBrief No.9, March 2008). The
infrastructure debate was triggered by the bridge collapse in Minneapolis, an
incident that jolted the public into realizing that we have allowed our
transportation infrastructure to seriously deteriorate through decades of
under-investing. But the earlier debate always assumed that additional spending
on infrastructure would require new sources of funding and a major financial
contribution by the states. The stimulus advocates, on the other hand, are now
pushing for deficit financing and a 100 percent federal share.

point of view prevails will depend upon internal discussions among fiscal
conservatives and liberals within the Democratic party, since the Democrats are
virtually assured control of Congress, probably with expanded majorities. On
Capitol Hill, conservative Blue Dog Democrats will argue that, with this year’s
deficit potentially approaching $1 trillion, now is not the time to abandon the
pay-as-you-go rules which hold that any spending increases must be offset by
equivalent new revenues (or spending cuts). The liberals, on the other hand
will argue that, with a deepening recession and growing unemployment, containing
the deficit is the last thing on their mind. That posture was epitomized by a
remark by House and Means Chairman Charles Rangel (quoted in the Wall Street
Journal, October 30): "For God’s sake," he said, "don’t ask me
where the money will come from. I’m going to the same place [Secretary of the
Treasury] Paulson went."



Along side
the stimulus package, the concept of a National Infrastructure Bank (NIB)
figures prominently among the infrastructure financing initiatives to be
considered in the next Congress. The purpose of the bank would be to provide
financial assistance to major public infrastructure projects "not
adequately served by current financing mechanisms." The concept has been
endorsed by presidential candidate Barack Obama and Speaker Nancy Pelosi as
well as by a number of private and public sector figures such as Pennsylvania
Governor Ed Rendell (D-PA), former Treasury secretary Larry Summers and Senate
Banking Committee chairman Christopher Dodd (D-CT).

The Bank, as
initially proposed by Senators Christopher Dodd (D-CT) and Chuck Hagel in their
bill, S.1926, has been resurrected in a fresh and more elaborate form by
Everett Ehrlich and Felix Rohatyn in a recent article in The New York Review
of Books
("A New Bank to Save Our Infrastructure," October 9,
2008). Both Ehrlich and Rohatyn had been key figures in the CSIS Commission on
Public Infrastructure that had produced the original 2007 report recommending
the National Infrastructure Bank.

In its new
version, the National Infrastructure Bank would replace the various modal
programs as the source of capital for highways, mass transit, airports and
other public infrastructure. Rather than receiving grants through pre-set
federal formulas and congressional earmarks, states and other levels of
government would come to the Bank with investment proposals they wished to
pursue. Unlike NASTRAC, the entity proposed by the National Transportation
Policy and Revenue Commission, the bank would not act on a top-down comprehensive
plan for the nation’s infrastructure. Proposals for infrastructure investment
would continue to come up from state and local level. What would change
is the way projects are selected for funding. The Bank would rate projects and
set funding priorities using a set of objective criteria reflecting regional or
national significance, productivity and economic benefit.

The authors
have proposed that the Bank’s capital would come from the funds now dedicated
to existing infrastructure programs — about $60 billion annually.
Alternatively, the Bank could obtain its own capital by issuing long-term bonds
backed by its loan portfolio. The Bank could also rebundle its loans and sell
them to investors in the capital markets (not unlike Fannie Mae’s subprime home
mortgage securities but presumably backed by sounder, income-producing

Congress could be persuaded to adopt an Infrastructure Bank along the lines
proposed by Messrs Ehrlich-Rohatyn is an open question. Asking Congress to cede
control over the federal public works programs, surrender its power to make
infrastructure investment decisions, and abolish all modal distinctions seems
far-fetched. Along with some members of the Transportation Infrastructure
Financing Commission, we think a more promising (and more congressionally
acceptable) model for the Bank would be the already existing Transportation
Infrastructure Finance and Innovation Act (TIFIA). The TIFIA program, which has
been in existence since 1998, provides federal credit assistance to
transportation projects of substantial regional or national significance.
Projects must be eligible for federal assistance under Title 23 and generate a
dedicated stream of revenue from user fees. TIFIA assistance can take the form
of secured loans for construction and permanent financing (for a term of up to
35 years); loan guarantees to institutional lenders making loans for projects;
and lines of credit that may be drawn upon to supplement project revenues.

Endowing the proposed National Infrastructure
Bank with TIFIA-like authority while expanding and liberalizing TIFIA’s
conditions (e.g. by adding Title 49 (transit) to the category of eligible
projects, substantially increasing its capitalization, and lifting the ceiling
on credit assistance (currently at 33 percent of project costs) would
accomplish all the purposes of the Dodd-Hagel bill while preserving the
existing balance of power between federal and state government.

Neither rail or infrastructure-spending will save America

October 31, 2008 in Blog

Here are two studies that are relevant to the discussion on infrastructure spending to create jobs and the cost/benefits of rail.

More Transportation Spending: False Promises of Prosperity and Job Creation, by Dr. Ronald Utt, Senior Fellow at the Heritage Foundation

The vast majority of
independent academic and federal government studies on the
rela­tionship between infrastructure spending and eco­nomic activity
have found that the impact is very modest and long in coming.

High Speed Rail: The Wrong Road for America, by Randal O'Toole, Senior Fellow at the CATO Institute

High-speed rail proposals are high cost, high-risk megaprojects that
promise little or no congestion relief, energy savings, or other
environmental benefits. Taxpayers and politicians should be wary of any
transportation projects that cannot be paid for out of user fees.

You might remember Dr. Utt was the featured speaker at our annual transportation event earlier this year and spoke about performance-based policies in transportation.

Container Tax update...

October 24, 2008 in Blog

From the RAMP blog, here is a good update on the proposed container tax being considered studied:

There have been some significant developments in the container tax
debate in Washington State this week. As some may recall, the
legislature considered a bill to impose a $50 per twenty-foot
equivalent unit tax in 2007 (most containers passing through
Washington's ports are 2 TEUs in length). That bill was amended to
create a study of potential diversionary impacts of a container tax, as
well as other potential alternatives for funding freight
infrastructure. The Legislature retained Cambridge Systematics to
conduct the study.

Earlier this year, Cambridge's
subcontractor, Dr. Robert Leachman, validated industry's arguments that
significant diversion would result if a tax were adopted—a 30 percent
drop in volumes with a $30/TEU tax. What would this mean for Washington
state? A loss of 9,415 jobs and $58.5 million in lost wages.

week Cambridge concluded that even on major freight corridors, such as
a completed SR-167, passenger vehicles, and not freight, received the
majority of the benefits from each of these projects. They also found
that heavy trucks, a subset of which carry containers, received the
least amount of benefit.

Responding to this information, key
legislators on the state transportation committees have said it is
difficult to provide the linkage necessary to justify a container tax,
especially given the potential diversionary impacts.

Sound Transit Wants To Spend $22.8 Billion To Serve Only 0.4% Of Trips

October 17, 2008 in Publications

This November, voters in King, Pierce and Snohomish Counties will again decide on whether to expand Sound Transit’s regional mass transportation system. The new Sound Transit proposal (ST2) would add 36 miles of light rail, expand the Sounder commuter rail by four daily round trips between Tacoma and Seattle and expand the Express bus system by 17 percent.