Giving the Plan a Bottom
Line
by
Ward Elliott
Rose Institute of State and Local Government
Claremont Men’s College
Summary / Introduction
The central problems of California transportation are
economic: smog, congestion, energy consumption, coat and
quality of service to all sectors of society. Transportation
is insulated from market disciplines which would otherwise
control wasteful use of scarce resources. Our roads and air
are chronically overused because we treat them as a commons, “free” to
users. Public transit is expensive and unresponsive to demand
because it is overregulated and oversubsidized. Jitneys,
which in poorer countries do most of what we are trying to
do unsuccessfully with subsidized buses, rapid rail, or carpools,
are suppressed by law and neglected in transportation planning.
Planners focus on politically attractive alternatives which make little economic
sense while ignoring economically attractive alternatives which are politically
thorny. $70 million worth of transportation planning in California has avoided
bottom-line cost comparison and kept from the public the kind of information
about multi-billion dollar road and transit systems that the public demands,
and gets, when it buys a box of Wheaties in the supermarket.
Proper cost comparison should consider hidden costs as well as conventional
ones. In the Los Angeles Basin, conventional planning picks up $800 million
in annual public transportation costs but misses $2,850 million in smog, congestion,
and hidden budget costs, 2/3 of the smog costs. These cost the average household
$700 a year and subsidize the average car user with $400 a year in hidden benefits.
They are wasteful and regressive. The average peak-hour river gets about $2
a day in hidden subsidy in the smog season, $1 a day in the winter. Ten percent
of daily traffic-upwind, morning, peak-hour drivers– is responsible for
more than 40% of daily vehicular smog and congestion. Shaving that ten percent
by a quarter would eliminate almost the full 40% of congestion and at least
ten percent of vehicular smog, seven percent of all smog.
Only one strategy, smog and congestion charges, appears capable of making such
large improvements without absurdly high costs, yet this strategy is all but
ignored in transportation planning. The most prominent road and rail projects
on which millions of planning dollars have been spent, offer negligible benefits
by comparison, at much higher cost. The proposed Norwalk-El Segundo Freeway,
for example, would cost about 7 cents per passenger mile but probably would
save less than a penny in discounted congestion costs. The proposed SCRTD starter
line, by official estimate, would cost about $2.50 -3.00 per passenger mile
in capital costs and likewise save less than a penny in discounted congestion
costs. Neither the freeway nor the rail line would have any effect on smog,
and both would add to energy consumption.
Some small traffic diverters, such as diamond lines, ramp meters, bus subsidies,
and carpool incentives, might justify their relatively low costs with small
reductions in smog and congestion, but their combined effect, by generous reckoning,
would be less than one or two year’s growth in demand. Legalizing jitneys
would probably do more than any of these to cut transportation costs, and at
less public expense. More powerful diverters, fuel rationing or surcharges,
would cost more in added delay than they would save in smog and congestion
costs.
Smog and congestion charges, being variable by time and place, could make the
cut of 40% and 7% in daily congestion and smog with only a 2 -1/2% reduction
in daily VMT. They would cost about a penny and a half per passenger mile in
fuel system costs and return about 3¢ a mile in public benefits. Such
charges appear to be more production and cost effective, and less regressive,
than existing transportation financing and other proposed alternatives. They
are technically feasible and have been used successfully in Singapore, where
they cut morning peak-hour traffic by 40%.
The figures used are makeshift and need much more work, but they should be
enough to show that planning emphasis has been poorly allocated and will probably
remain so unless planners make more effort to compare the full costs and benefits
of each major alternative. Such a comparison is possible and should be part
of the state transportation plan. It could save millions, and perhaps billions
of dollars of wasted investment by helping the public distinguish figs from
thistles.
Discussion
by
Aurelius Morgner
University of Southern California
There is little of which I am critical in Professor
Ward Elliot’s paper. I agree, of course, wholeheartedly
with his proposal to construct a full cost reference case
from which new transit policy proposals may be evaluated.
Within the framework of his full cost case I would like to
comment on how we have come to this present situation in
Los Angeles transportation and what it suggests for the future.
The present arrangement in the Los Angeles basis whereby people live at considerable
distance from their work by virtue of its freeway system has produced for Los
Angeles the lowest population density of any major city in the world. This
pattern is only in part the result of the market system that permits people
to decide where they will live and work and the means by which they will move
between the two. Long ago the people of Los Angeles cast their dollar votes
in the market place against the “big red cars” and for auto transport.
More important is the fact that through the ballot box public officials further
responded to the public demands for fast auto access to all areas by highway
and freeway construction.
The new feature introduced by the ballot box was that in the market people
no longer had to pay the full cost of transportation. In the past in most cities
powerful, monopolistic privately owned transportation systems had even charged
the consumer more than the full cost of his transportation. Furthermore such
rail systems had not involved congestion and pollution costs which the automobile
involved. Hence the economic incentives in the market toward less density of
population, as in the case of a new city such as Los Angeles.
Urban transportation by automobile appears to be grossly underpriced. The basic
full cost reference case suggests that probably only about half of the maintenance
and capitol carrying costs are met. When smog and congestion costs are added
it may be that auto users pay not half, but as little as a fifth or a sixth
of their transportation costs. Thus the auto users fundamental decisions as
to how much transportation to buy in connection with his workplace and residence
decisions does not consider the full cost of his action.
By this process of the subsidization of automobile transportation to the consumer
we in the Los Angeles basin have achieved a transportation system that is admired
and envied by the people of the rest of the world. Auto transportation, as
Ward mentions, reduces the time of the average trip in Los Angeles by 60% and
offers transportation to many areas that no public system of rail or bus transportation
could never economically serve. More important the automobile gives people
a complete flexibility to come and go at the time they wish. Thus we have a
system that would seem to befit the world’s most economically prosperous
area, but which in truth is more that a reflection of economic well being,
but of the over consumption of an underpriced good.
Ward Elliot’s cost reference case is an attempt to arrive at what the
full cost this magnificent transportation system really entails. He has roughly
pieced together a surprising amount of data. If the impreciseness of smog and
congestion costs are disturbing, it may merely reflect the newness of our attempts
to qualify such costs. Possibly the inexactness of the estimates will be less
disturbing when we remember that such presumably solid matters as constructions
costs have in recent years been substantially miscalculated in the case of
the San Francisco and Washington, D.C. public transit systems. Elliot’s
concern with the possible regressive nature of transportation costs relative
to lower income groups does, however, to me seem misplaced. Our concern should
be that non-users subsidize users. All public actions affect the distribution
of income. It seems a needless restraint to make every policy fit an income
distributional requirement when equity in income distribution can be treated
as one single matter through taxes and transfer payments being designed to
offset not only what may be deemed to be the undesirable income distribution
effects of the market, but of governmental policies as well.
Lastly, what in general terms might we do in the future to think more rationally
about the transportation problems of the Los Angeles basin? First, we can recognize
that this is not a problem to be “solved” by drawing a public rapid
transit grid. The variables in the picture keep changing and with their change
there are further feedbacks. Second, it seems reasonable to believe that the
increasing recognition of smog and congestion costs must lead to increased
pressures to get the motorist out of his automobile. Incentives politically
are likely to be more acceptable than disincentives. Offers of express buses,
para transport systems, etc. meet this requirement, but probably will not be
sufficient. An important objective may be not to get the autoist to give up
his car, but to drive less or possibly give up his second car. To many economists
the best disincentive is a high price for auto travel which will cause the
motorist to voluntarily stay out of his car to at least some extent. Ultimately,
the important matter may be the voluntary long run relocation of people so
as to shorten their distance to work. Third, relocation of people and changed
patterns of car use all suggest the desirability of marginal adjustments over
time of the transportation system. Flexibility of adjustment is what seems
to be important. Commitments to big plans should be avoided. To create a vast
rail system might mean the underutilization of both it and the freeway system.
The freeway system is already in place. The problem is to make the most effective
use of it. Thus the appropriate strategy would appear to be to raise costs
of freeway travel, change the full cost at time made of all modifications in
the transit system as a whole and at every turn to evaluate the alternative
use of funds in securing a more effective transportation system. This means
that we should not turn back to the drafting board for more effective new systems
of transit routes but first should move forward to the development of meaningful
techniques of cost benefit analysis that would be applied to each measure proposed.
Discussion
by
Robert C. Ellickson
University of Southern California
I wholeheartedly agree with the basic theme
of Professor Elliott’s informative paper: that we need
better cost-benefit analysis of transportation alternatives.
I also support Elliott’s conclusion that a closer economic
evaluation would demonstrate the foolishness of a substantial
investment in a fixed-rail transportation system for Southern
California.
However, to be fair to those who are charged with developing transportation
policy, I must admit that cost-benefit analysis is an extremely difficult undertaking
- - even in the hands of someone as skilled as Professor Elliot. For example,
Professor Elliot treats the exemption of highway systems from local property
taxes as a “cost” of highways, and implies that he would end this
exemption. I disagree. The tax exemption for highways does not consume any
resources, but is rather a pure wealth transfer to taxpayers of governments
that won highways from local taxpayers. Thus, this “cost” should
not properly have been included in Elliot’s cost-benefit analysis.
In addition, it may in fact be efficient not to levy property taxes on highways
and other real property owned by government. When the major authority levying
property taxes also owns the highway, exempting it from taxes saves the deadweight
loss involved in assessing highway properties (no easy task given the absence
of “like sales”) and having the government pay taxes to itself. The
allocative case against the tax exemption is obviously stronger when the governmental
unit that owns the highway is not a major taxing authority; Beverly Hills,
for example, would have been more likely to accept the Beverly Hills Freeway
had it been able to tax it. But my basic point is that the issue of property
tax exemptions for highways is a rather complex one.
I also have some difficulties with Professor Elliott’s objections to using
general local tax revenues to finance highway police and maintenance services.
Professor Elliot considers this practice an inefficient and regressive subsidy.
He would prefer that these services be finances with user charges on motorists.
Although I generally am quite sympathetic to increased reliance on user charges,
they are not always the most efficient financing mechanism. To be specific,
if the administrative costs of levying user charges exceed the allocative gains
they promise (by introducing the pricing mechanism into the provision of governmental
services), user charges are not in fact efficient. For example, we will all
be receiving inoculations against swine flu this coming fall. I hope the federal
government will not impose user charges to finance that program. Since everyone
will be receiving the benefits of those shots, it would be more efficient to
use general federal tax revenues, and save the deadweight administrative costs
of collecting flu-shot fees from beneficiaries. Although benefits from highways
are not quite so equally distributed, it is still the case that even non-motorists
needed highways for buses and trucks. At bottom, the efficiency of financing
highway policing and maintenance services with user charges would depend on
the type of charge used. Local gasoline taxes would be cheap to piggy-back
onto state and federal gasoline taxes, but might be easy to evade in highly
balkanized metropolitan areas. By declining to nominate any user fee system
to substitute for general revenue financing, Elliott has again somewhat obscured
the complexity of the problem.
My last criticism goes not to Elliott’s efficiency analysis, but rather
to his assumptions about the incidence of the property tax. He adheres to the
traditional view, popularized by Dick Netzer, that the property tax is in effect
a regressive excise tax on the consumption of housing. The Netzer view is not
under severe challenge. A growing body of literature argues that the common
component of property taxes on improvements is in reality a tax on capital,*
and thus progressive. If the modern theorists are correct, the use of property
taxes to finance highway support services is not as regressive as Elliott implies.
I will focus the latter half of my remarks on the politics of transportation,
a topic that may have been inadequately emphasized this afternoon. I certainly
do not claim to have a full-fledged model of transportation politics; if I
did, I might be able to explain the following paradoxes in current policy.
Paradox 1.
Like most economically-minded academicians, both Elliot and I would probably
end up advocating higher fuel taxes, peak-hour surcharges on motorists, and
the deregulation of transportation carriers as ways to improve transportation
policy. These sorts or policies are not only supported by economic theory,
but also by evidence from Singapore and elsewhere. The interesting puzzle is
why politicians at all levels are ignoring our advice and rather are pursuing
economically-suspect multi-billion dollar hardware systems. I can at least
offer an hypothesis to explain their behavior. It is rather clear that academic
experts on transportation are not very important politically. Ranged on the
opposite side is a surprising alliance of two powerful groups that do favor
fixed-rail systems - - the public lobby and the environmentalists.
To be provocative, I will venture a scenario to explain why we have been seeing
such great interest in expensive fixed-rail systems in the last few years.
A decade ago, the public works lobby (building trades unions, contractors,
materials manufacturers, civil engineers, etc.) Filled their pork barrel in
large measure with interstate highways and dams. As you know, public works
are more lucrative for most of these interest groups than private projects;
for example, under the Davis - Bacon Act, “prevailing wages” (i.e.,
union wages) must be paid on federally-funded public works. Under my scenario,
the steady diet of highways and dams became increasingly threatened after the
year 1970 with the passage of the National Environmental Protection Act, and
the escalation of legal and political challenges by environmentalists to both
highway and dam projects.
At that point, the public works lobby discovered two sorts of expensive construction
projects that the environmentalists not only did not object to, but would in
fact lobby to support: sewage treatment plants and fixed-rail transportation
systems. Since 1970, the federal government has greatly increased its grants-in-aid
for both. In short, my hypothesis is that the public works lobby found it could
not beat the environmentalists, and therefore joined them.
Paradox 2.
As a commuter from West Los Angeles to U.S.C., I am currently being subjected
to the indignities of the Diamond Lane Experiment. That program meters traffic
at freeway entrances through lengthily queues, not through monetary toils that
might rather easily be collected by automatic toll-collecting machinery. Elementary
economics indicates that time spent waiting in line is a deadweight loss; it
is thus highly doubtful that the current system is the most efficient. Why
then was it adopted? Perhaps the explanation lies with the perceived distributive
injustice of charging commuters tolls. My point is that the answer primarily
requires a better understanding of politics, not economics.
Paradox 3.
It is ironic that governments are heavily subsidizing construction and operating
of bus and rail transportation systems during a period of “energy crisis.” Those
subsidies are usually defended as counter-balancing the sorts of subsidies
to auto transportation that Professor Elliot has identified. But if one is
concerned about distortion in consumer choices between transportation modes,
surely the appropriate solution in a time of expensive energy is to stop subsidizing
automobiles, not to increase subsidies to its alternatives. Subsidizing all
modes of transportation is certain to increase energy consumption. The explanation
for the paradox again must lie in the political forces that shape transportation
policies.
My basic theme is thus that those who wish to influence transportation policy
must develop more sophisticated models of transportation politics. As I hope
my three paradoxes have illustrated, the current transportation policy makers
are clearly not listening to their academic critics. They obviously do not
share our concern about efficient resource allocation. Rather, they are motivated
to mollify the most organized interest groups. Discussions of transportation
alternatives should not ignore this political reality.
Top | Home | Contents
