Out of Control Policy Blog RSS

Out of Control Policy Blog Archives: 3.25.12–3.31.12

Data Does Not Support Claims that Light Rail Improves Rider Health

The Department of the Treasury and the Council of Economic Advisors recently released a new report titled “A New Economic Analysis of Infrastructure” that lists many different reasons to improve infrastructure. Some of the reasons are good, some bad, and others bizarre. But the most noxious claim is that transit usage improves public health. Despite the report’s spin, the cited studies do not reach that conclusion.

The report is split into four major sections that detail the Return on Investment, Investing in Infrastructure, Uses (for) Underutilized Resources, Supporting the Middle Class and Americans Want More Transportation Investment. (Note to the authors: Americans might want more transportation investment but they do not want to pay for it. Unless the transportation genie builds a beautiful new highway, finding the funds to build that highway will be challenging.) Report subsections include such fluffy topics as Building a National Community and Creating a More Livable Community. The report also proclaims that “Now Is The Time to Act.” I am waiting for one of these reports that says tomorrow is the time to act. The report also details the role of a merit-based national infrastructure bank. Perhaps the authors can explain a merit-based national infrastructure bank to the President, because he still does not understand the merit part. 

The report has several good suggestions. The Next Gen section correctly notes the delays from our existing outdated aviation system. The Analytic Approach for Measuring Congestion details the high quality analytic work of the Texas Transportation Institute. (This study is about the only document that praises analytical work to come out of the Executive branch.) And it is hard to argue with building a Safer and More Reliable Infrastructure Segment. 

But the most bizarre and inaccurate claim buried on page 24 of the report is the Public Health Benefits of Transit Investments. The section begins by saying, “If improved infrastructure changed the way Americans live and work, there would be significant benefits to health and wellness.” The report then details several studies that supposedly show this happening in the real world. I have always been skeptical of these claims; logically, walking more should improve your health; but there are often many other factors at play. Furthermore, justifying expensive transportation investments based on small health improvements is a very weak argument.

Quoting from the actual study:

Using data on individuals before (July 2006 to February 2007) and after (March 2008 to July 2008) the completion of a light rail system in Charlotte, North Carolina, they find that the use of light rail to commuter to work is associated with a nearly 1.2 point reduction in body mass index as well as an 81 percent reduction in the odds of becoming obese. Moreover, improved perceptions of neighborhoods as a result of the availability of light rail were associated with 15 percent lower odds of obesity as well as higher odds of meeting weekly recommended physical activity levels for walking and vigorous exercise. 

First, this is one study in one metro area. The results in Charlotte, North Carolina may not be transferrable to other areas of the country. Second, the sample size is very low. Only 26 of the 498 people used light-rail transit (LRT) to commute to work on a daily basis. Although this 5.2% of the total population living in the area is statistically significant, making generalizations based on its small size is a bad idea. Third, there are several lurking variables that might affect the results. LRT users were three times as likely to be African-American as residents of the neighborhood as a whole. Different population groups have different rates of high blood pressure and diabetes. This is something that report should have taken into consideration. The LRT commuters are twice as likely to rent as opposed to own their houses compared with the neighborhood as a whole. Does this affect health or propensity to exercise? It might. 

There are also several key limitations to this study. Quoting from the study:

There is likely substantial reporting error in estimates of these outcomes. For example, the measure of meeting vigorous RPA is likely high because of self-reporting bias. … Establishing the potential long-term effects of light-rail use on obesity will require subsequent follow up studies with larger samples of individuals that specifically measure walking distances through pedometers. 

In other words, the study does not definitively report anything. 

The second related study that the report quotes considered whether building new light-rail systems could be justified based on the potential health benefits. The study was rather blunt: 

While these results suggest that there is a sizable public health benefit associated with the adoption of light rail, they also indicate that the effects are relatively small compared to the costs of constructing and operating such systems. These findings suggest that planning efforts that focus solely on the health impact of modifications in the built environment are likely to overstate the economic benefits.

In other words, the benefits do not exceed the costs. 

The fact that the health part of the report was buried deep inside the contents indicates the Department of the Treasury realized that this is not the strongest part of the report. So why include it at all? 

The Obama administration is on a mission to increase transit spending. It is throwing everything at the wall in hopes that some of it will stick. Since there is little quantitative data to support the administration’s claims, the administration is changing the New Starts rule so its pet projects can be evaluated by qualitative measures instead. My colleague Bob Poole has more details here. This administration decides what transportation policy it wants and then tries to find the data that supports that policy. The claim that light-rail transit improves public health is not supported by the cited studies.

Print This

FHA's Troubles Are No Myth, Despite What HUD Tries to Spin Away

When we have a gala later this year for the Annual Unintended Consequences Awards, the Department of Housing and Urban Development is sure to be a leading nominee in the "Overall Body of Work for a Federal Department" category. Though I will give HUD a nod for at least recognizing the rising voices of opposition to its frequent missteps as they have developed a pattern of releasing "Myth vs. Fact" documents. Their myth memo for the mortgage settlement was a real strong effort towards securing the AUC Award, and now they have followed on with a recent release for comments on the Federal Housing Administration's struggles.

Former Fannie Mae chief credit officer Ed Pinto went through their 19-point "Myths and Facts Regarding the FHA Single Family Loan Guarantee Portfolio" document and pulled out a few of the most egregious comments. Here are some of his notes. (And bear in mind his four principles for FHA reform: 1) Utilize generally accepted accounting principles, and set rigorous disclosure standards; 2) Establish and maintain loan loss and unearned premium reserves; 3) Establish and maintain a minimum capital requirement of 4 percent of amortized risk in force; 4) Fund a countercyclical premium reserve.)

HUD Lables As Myth: FHA would be declared insolvent by state regulators were it a private mortgage insurance (MI) company.

HUD’s response does not deny the truthfulness of this statement.  Instead HUD points out FHA’s counter-cyclical role.  Yet during the boom HUD used FHA and other agencies and policies to lead a self-described “revolution in affordable housing”. The central policy of this revolution was the near elimination of downpayments, a pro-cyclical policy in the extreme.   HUD seems to espouse a policy of being pro-cyclical in booms and counter-cyclical in busts.

Elsewhere HUD points out that the FHA’s access to funding from the Treasury Department makes complying with private sector standards unnecessary.  This may be comforting to HUD, but the Congress and taxpayers deserve more than HUD’s assurances that all will be well. The FHA is the third largest financial guarantee entity in the United States, surpassed only by Fannie Mae and Freddie Mac (the GSEs). Yet it continues to operate under fiscal standards that can only be described as Byzantine.

 Consider the experience with the GSEs. In July 2008 the GSEs were given a clean bill of health by its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO, now FHFA).  In a statement, OFHEO Director James B. Lockhart opined: "OFHEO has been monitoring and continues to monitor closely Fannie Mae, Freddie Mac, and the mortgage and financial markets. As one would expect, we are carefully watching the Enterprises’ credit and capital positions.  As I have said before, they are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement, which exceeds the statutory minimums.  They have large liquidity portfolios, access to the debt market and over $1.5 trillion in unpledged assets."

During the month of August 2008, the Department of Treasury hired Morgan Stanley to undertake an independent review of the GSEs. 

The taxpayers know all too sadly the outcome of this review—the very next month the GSEs were placed in conservatorship by FHFA with the bailout bill now approaching $200 billion.  

The questions relating to FHA’s current safety and soundness are substantive.  A review similar to the one undertaken with respect to the GSEs in 2008 is undoubtedly needed.  Under private accounting principles FHA likely has a current net worth of -$13.5 billion and an overall capital shortfall under its mandated 2 percent standard of over $32 billion.  This is clear evidence that FHA’s current capital is woefully inadequate today.   

There is hope that this critical review will take place.  On March 27, 2012 the Financial Services Committee of the U.S. House of Representatives without objection from a single Republican or Democrat agreed to H.R. 4264: “The FHA Emergency Fiscal Solvency Act of 2012.”     

Section 15 mandates that the Comptroller General of the United States provide for an independent third-party one-time safety and soundness review of the FHA “in accordance with generally accepted accounting principles applicable to the private sector.”

HUD Lables As Myth: FHA should hold capital levels like a private MI.

HUD bases its entire response on the erroneous statement that private MIs must “isolate their older’ weaker books of business from any recent and healthier year-by-year activity.”  This is not true.  Like the FHA, each MI consolidates all its annual books of business in computing a single capital position. Further, the private MI industry has raised or received over $10 billion in new capital since September 2007, none of which was segregated by book year.

FHA should not be allowed to operate is an unsafe and unsound condition, while it unfairly competes with a private sector that has invested and continues to invest real capital. As is noted below, FHA and other government guarantee agencies should credibly begin stepping back from markets that can be served by the private sector and return to a traditional 10 percent home purchase market share.  If this were done, more not less capital would enter the market.

HUD Lables As Myth:FHA masks expected losses by using overly optimistic assumptions regarding future home prices.

HUD appears to agree with this “myth,” but uses the excuse that the projections used in the November 2011 Actuarial Study date from July 2011.  No publicly traded company would be allowed to hide behind such an excuse. Again there is hope that HUD’s disclosures will be held to a similar standard as applies to the private sector.  Section 16 of the above referenced H.R. 4264 also sets disclosure standards for HUD with respect to FHA:

1. Disclosures must provide meaningful financial information and other information that is timely, comprehensive, and accurate;
2. Disclosures must not contain any material misstatements or misrepresentations;
3. Disclosures must make available all relevant information; and
4. Disclosure must not have material omissions that make the contents misleading.

The Congress and taxpayers deserve nothing less than timely, comprehensive and accurate disclosures from a trillion dollar financial entity. While HUD is to be commended for taking steps to increase premiums, eliminate incompetent lenders, and tighten some underwriting standards, it has done little to:

- Address the urgent need to move forward with housing finance privatization; and
- Credibly undertake a return to FHA’s core mission to provide sustainable lending to low- and moderate-income and minority borrowers. Today 90 percent of all mortgages are guaranteed by the Government Mortgage Complex (GMC), consisting of Fannie, Freddie, Ginnie/FHA. Ginnie/USDA, and Ginnie/VA.  Clear and credible steps must be taken to step back from the GMC’s market domination.  Yet even as FHA takes steps to reduce its share, much of the slack is merely taken up by Ginnie/USDA and Ginnie/VA.  

Follow Ed's regular FHA missives here.

Print This

Latest Articles on Reason Foundation

John Taylor and the Need to Limit Fed Discretion

 

John Taylor, Stanford economist and creator of the nominal interest rate rule which bears his name, recently testified before the Joint Economic Committee discussing the merits of the newly introduced Sound Dollar Act. An op-ed published yesterday in the Wall Street Journal highlights his thoughts on the new legislation and on the necessity to curb ad-hoc monetary policy as currently practiced by the Federal Reserve under Ben Bernanke.

The Sound Dollar Act, if passed, would require the Federal Reserve to operate with a single mandate of long-term price stability instead of its current “dual mandate” which requires the Fed to promote price stability and maximum employment. The Act would also limit Federal Reserve purchases to Treasuries (except in emergencies), and give voting rights to all Federal Reserve district presidents at every Federal Open Market Committee meeting. Currently, voting rights are designated on a rotating basis to just four of the regional presidents, and the Fed is authorized to purchase anything it deems necessary, and in any quantity.

Critics of the Federal Reserve, and there are many, argue for a variety of reforms ranging from the return to a gold standard to competitive currencies to merely mild policy changes. Although an oversimplification, the main complaint currently is the uncertainty created by the Fed and Bernanke. Clearly there are numerous ways to solve this problem given the plethora of reform options on the table, but all seek to accomplish the same ends. That is holding Federal Reserve policy to an objective standard, and limiting the discretion of those entrusted with conducting monetary policy. Under a gold standard these are both accomplished through the limits of the commodity. Similarly in a competitive currencies market, the market itself accomplishes these goals. Of the policy reforms put forth, some are better than others, but again all more or less attempt to establish an objective standard and limit Fed discretion but without the headaches and general inconceivable nature of a gold standard or the elimination of the central bank.

Taylor’s testimony, contributions to economics and recent track record argue for the implementation of the Sound Dollar Act. By requiring the Fed to abide by a single mandate of price stability and limiting their open market operations to just Treasuries, the Fed is held to an objective standard and the discretion by which to conduct policy is limited to a single avenue of Treasury sales and purchases and interest rate adjustments.

This reform is not radical like those touting the merits of a gold standard, yet it accomplishes the same goals. It also would allow for a much more smooth transition period and maintain the ability of the United States to conduct monetary policy, but now one that is predictable and that actually promotes maintaining the purchasing power of the dollar, rather than pursuing its decline.

Taylor’s full testimony can be found here, and his op-ed here.

 

Print This

Minimum Wage Kills the $5 Footlong in Frisco

As a rule, I hate the Subway $5 Footlong commercials. I give all due deference to the ad agency that came up with the promotion. From a business perspective it is brilliant advertising. Though the "catchy" nature of the tune is why I (and I'd imagine many others) despise them. Also, I am constantly frustrated at the workers in the Subway near our Reason office in DC for being so stingy with the black olives. (Who eats just four black olive slices?)

Nevertheless, annoyingly memorable commercials aside, that is no reason to attack and get rid of the $5 Footlong—which is effectively what San Francisco has done by raising the minimum wage to $10.24 this year. Here is the story from a local Bay Area NBC affiliate:  

The sandwich-making chain stopped selling the five-dollar footlongs in San Francisco due to the "high cost of doing business," according to SF Weekly. Signs posted at Subway sandwich shops sadly inform San Francisco patrons -- we hear Willie Brown is a big fan -- that "all SUBWAY Restaurants in SF County DO NOT PARTICIPATE IN Subway National $5.00 Promotions," according to the newspaper. [...]

Apparently, the city's new minimum wage, raised to $10.24 as of Jan. 1, make $5 footlongs an impossible business model.

This is not really surprising. The economics on the unintended consequences of the minimum wage have long been established. It is almost self evident: just ask why we should not raise the minimum wage to $500 or $1,000 a hour and you get the same answer as to how $10.24 per hour can be unsustainable.

Proponents of minimum wage laws suggest that businesses should just eat the extra cost, since those rich fat cat owners of capital and industry can afford it, so that the lower class folks can earn a "livable" wage (a term highly open to interpretation). But as Subway is apparently demonstrating, at a certain point you can't run at a loss. And so the costs are getting passed on to the customers of Subway in San Francisco. 

More from Reason on the minimum wage here.

Print This

Bernanke Resolved to Favor Traders, Inflation, and Government Debt with Continued ZIRP

Fed Chairman Bernanke told the National Association for Business Economics conference this week that the labor market was still in “deep” trouble and so we should expect ZIRP (zero interest rate policy) to continue for the next several years.

His comments stand in sharp contrast with the hyper-campaign-mode-minded Obama administration, which insists its policies since taking over are the reason why employment is improving. Ignore the data in these charts hidden behind the curtain though: White House unemployment projection and unemployment rate including labor market non-participants and dissatisfied part-time workers

Putting the politics aside, what Bernanke is essentially saying is that he prefers the trade off of propping up stock prices versus encouraging savings

He prefers low rates that enable federal borrowing to be more manageable in excess versus allowing housing prices to fall to their natural bottom and homeowner debt deleveraging to pick up steam. 

Just like his comments on the gold standard last week, he has it all backwards. The Wall Street Journal notes:

Mr. Bernanke argued, seemed likely to require "more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,"

The idea is that if consumers can borrow at low rates they can consume more. But since savings rates are next to nothing, ZIRP actually is dragging the consumer’s preferred preference of develeraging. So we don’t see housing hold debt declining very far nor is consumption carrying the economy forward.

The idea is that if businesses can borrow at low rates they will invest in their operations, hiring new workers with the cheaper cost of money. But since fiscal policy is threatening substantial regulatory and tax changes, and ZIRP itself creates inflation concerns, most new business activity gets sidelined in the uncertainty.

The idea is that with ZIRP, we can get positive inflation pressures that help stave off deflation. But deflation is often a good thing. Would you rather the price of iPhones go up or down? 

Finally, even if low-interest rates were the answer to jump starting the economy, they ignore that labor market problems go much deeper than the 2008-09 recession or the financial crisis. We have structural changes in the types of labor demanded in the U.S. that our workers are not well trained to accomplish. This is something that can’t be fixed over night nor can it be addressed by a simple economic growth upswing. 

From the WSJ:

Print This

How Rising Health Costs Will Hurt the Economy

Beyond just government spending on health care increasing in the coming decades, which is a rather hot topic this week, private health care costs are set to grow at an increasingly exponential rate in the coming years. This is not necessarily something new, as we've had rising health care costs for decades now. But what is going to be a challenge for the economy is that economic prosperity trends America had in the 20th century were able to absorb these rising costs in a way we won't see in the next few years since those trends have flatlined.

Rising health costs are not new...

America has gone from spending $147 per capita on health care in 1960 to around $8,400 per capita in 2010 on health care. And as life expectancy has increased from 69 years to 78 years during that timeframe, the costs have picked up more rapidly. And that is not to mention that technological advances while more life saving have also been more costly.

But economic trendlines are flatlining...

Prior to 1960 we had a significant period of economic prosperity. Entrepreneurship and innovation and labor force expansion and education were all on the upswing in the early to mid part of the 20th century. As a result, we were able to absorb inflating health care costs without it too dramatically hitting economic growth. However, all of those factors have flatlined at various points in the past few decades. And the trends are catching up to us. As a result, the increased costs over the next decade are going to have much more visible effects than in the past. Here are three examples:

1—Labor Market Participation: According to the most recent BLS data, there are actually more people outside the labor force today than there were a year ago when the unemployment rate was higher. If we were to add those who have stopped looking for a job in the past month to the labor data, the headline unemployment rate would go from 8.3% to about 9.6%, according to CBO projections. Unfortunately, this weak labor market participation is a long-term trend. The labor force stopped growing substantially in 1990, and today's labor force participation rate has actually declined to levels last seen in the early 1980s.

This is important because much of America's economic growth following World War II came with a substantial surge in labor market participation, particularly by women entering into the work force, going from 32.7% of the work force in 1948 to 58.1% in 2011. The baby boomer generation also helped fuel the economic boom. Larger labor pools enabled capital to be put to work more efficiently. Even if economic output continues to grow with all these workers on the sidelines, our output is dramatically lower than where it would be if we had more people working. A two-decade flatline in labor market participation that is declining means bad news for output in the coming years.

2—Education Results: At the same time that the labor force was expanding in the 20th century, education gains were rapidly moving forward. From 1900 to 1970, high school graduation rates climbed from 6% of children to 80% of children. But since then we have flatlined, and even declined a bit in graduation rates. The number of high school grads relative to the population has fallen to 9.6%. Even with life expectancy and the baby boomers adding age to the overall population-this is a sign of substantial stagnation. Test scores in core subjects have also flatlined since the 1970s, according to a 2011 report from the National Center for Education Statistics. This may not appear to be a problem, but given the technological advances and teaching method advances since the 1970s, we should expect test scores to increase.

These and other flatlining education trends mean less competitive American workers, slower adaptation to shifts in economic fundamentals, and exacerbated employment problems. Low-skill labor opportunities are shrinking every day due to automation, efficiency gains, and the capacity to outsource some manufacturing work. Workers of the future will have to be even better educated then the current generation to compete in a world of skilled labor.

3—Innovation and Entrepreneurship: The lifeblood of the American economic miracle has always been new businesses. But since peaking in 2006, employment in new businesses and registration of new businesses has seen substantial declines. Entrepreneurship was down nearly 25 percent in 2011 compared to 2006. And economist Tyler Cowen has laid out a strong case that innovation has been one the decline in America since the 1970s. This means that innovation and entrepreneurship have had correlated slow downs with the labor market expansion's stall out and the drop off in educational advances.

This means weak economic prospects in the near- to medium-term...

All of this suggests we should not be expecting the big GDP growth period often seen after recessions. We have had a recession, a financial crisis, a global fiscal crisis, a national debt crisis all hit at the same time that innovation, entrepreneurship, education, and labor trends have taken negative turns. And this is not to mention that America's major growth sectors are changing and it is going to take time to reorient the work force to the new growth sectors.

What kind impact will these trendline shifts cause?

To start with, having more GDP resources taken up by health care spending means less business investment, translating into fewer jobs.

  • Based on current policies, the CBO has recently projected that mandatory government healthcare spending will rise from 10.4% of GDP in 2012 to 12.8% of GDP in 2020. 
  • Private health care costs are also expected to rise at an increasing rate over the remaining years of the decade as the Centers for Medicare and Medicaid Services projected last summer average annual health spending to outpace growth in the overall economy and reach $4.6 trillion in national health spending by 2020, or 19.8 percent of GDP. 

The more that health care costs consume GDP, the less capital the economy will have to build on. That means lower economic growth from business expansion, and possible continued challenges for unemployment over the next decade-don't be looking for that 6% unemployment rate any time soon.

In tandem, those rising health care costs are going to limit innovation and entrepreneurship. As new business start-ups are the lifeblood of the economy, this means lower GDP growth, translating into higher federal budget deficits.

Furthermore, rising health costs also mean the household debt situation will deleverage slower, hurting housing, and by extension economic recovery.

Conclusion

The take away here is that the impact of rising health care costs will be much more acute in 2020 than in 1980-unless of course we see some unexpected innovation that is on the scale of the Internet emerge to power the economy forward. Many of the growth trends we relied on in the path are flatlining and the low-hanging fruit of innovation is disappearing, as Tyler Cowen would say.

The good news is that the nature of todays and the next decades' economic woes are transitional. Our economic sectors are shifting. Our education system is not breaking down so much as struggling to adjust to changes in economic fundamentals. And the America spirit will adapt. The question is when.

Print This

While Portugal Cancels High-speed Rail, U.S. Government Considers $5 billion for Second California Project

While Portugal’s government cancelled a high-speed rail line between Lisbon and Madrid, politicians in the U.S. want to build another unnecessary high-speed rail line in California. According to the The Wall Street Journal:

Prime Minister Pedro Passos Coelho immediately suspended the expensive project when he took over the office in June last year, saying Portugal didn't have financial conditions to pay for it after requesting a EUR78 billion international bailout. Discussions on the line's future, however, continued.

Portugal's plan to build the EUR8.3 billion high-speed train network was launched in 2006 by then prime minister Jose Socrates. Many economists have raised doubts as to the benefits of the project, noting that the funds used to build the high speed train network would be better used for other means, or saved. 

While California’s economy is not nearly as debt ridden as Portugal’s, there are valid comparisons. Both California and Portugal have substantial debt; California has $361,000,000,000 and climbing. This equates to 18% of California’s GDP. Portugal has 400,000,000,000 euro of debt. This equates to 106% of Portugal’s GDP. Both have cut other services. Portugal started cutting pensions and reducing public service wages in 2010. California has already cut Social Security, child-care, public education, public safety, and libraries. According to Governor Jerry Brown, “These cuts to universities, in  home supportive services, schools, prosecutions are not good, they are not the way we would like to run California, but we have to live within our means. 

Apparently “living within our means” does not apply to high-speed rail. The meandering service connecting Los Angeles with San Francisco is now forecast to cost $100 billion. The first section will not start at either Los Angeles or San Francisco but connect Bakersfield to Merced in the sparsely populated central valley. The project has been panned by the California High-speed rail review group, the California Transportation Institute, the Institute of Transportation Studies and every other non-partisan group. Many Democrats in the state legislature now oppose the project. Senator Joe Simitian of Palo Alto said “…we don’t know, after three and a quarter years, what the plan of the High-Speed Rail Authority is.”

And the insanity does not stop with one line. According to NBC’s Today Show, a company linked to Senate Majority Leader Harry Reid wants to build a second bullet train line from Victorville (which many consider the middle of nowhere) in California to Las Vegas. The location of the train station is so remote that is not currently in the city limits. The Obama Administration is close to awarding $4.9 billion to build the 150 mile-per-hour train. The loan would be three times the amount that FRA has loaned 32 other projects through the Railroad Rehabilitation and Improvement Financing program since 2002. Transportation Secretary Ray LaHood has blessed the train because, “It means jobs.” Yet, the professionals at the Federal Railroad Administration (FRA) have major doubts about this new line.

Construction cost estimates stand at $6.5 billion not including interest on the loan. FRA found numerous problems with the way the consultant conducted the analysis. These include the overall model, the accounting of air travel time and air delay and the inducement of day-trips. FRA found almost all of the touted 80,000 jobs would be temporary. At most 722 would be permanent. Desert Xpress, the company that plans to build the line, was depending on private dollars. However after private investors failed to materialize, Desert Xpress turned to the attractive loan terms of federal money.

The biggest problem with this line is it relies substantially on automobile users. The Federal Railroad Administration, Congressional Research Service, and the Office of the Inspector General have found high-speed rail does not induce people to leave their cars or reduce highway congestion in any way. In the U.S. and across the world, rail improvements of less than 150 miles reduce automobile ridership less than 1%. Why? According to the Inspector General “Automobile travel differs greatly from air or rail travel in that it generally involves door-to-door service, offers greater flexibility in time of departure, and does not require travelers to share space with strangers.”

Other studies found most travelers were “broadly happy” going to Las Vegas by car or airline. Currently flights from Los Angeles to Las Vegas can be booked for under $100. This is likely far cheaper than tickets for the train could be.

Even pro high-speed rail group America 2050 does not think much of the Los Angeles to Las Vegas line. This type of project ranks poorly in the group’s two primary criteria of regional population and employment in the central business district. There is little population in Victorville and even less employment. The group did not think much of a plan to link downtown Los Angeles to Las Vegas, ranking it 5th in the region behind almost every other California corridor. This project that starts in the middle of nowhere, 100 miles from downtown Los Angeles, would rank even lower. 

The project has much to do with the political power of Senator Harry Reid. Reid initially backed another rail program but changed his mind after Sid Rogich, a Republican adviser to two presidential campaigns, helped Reid win re-election in 2010. Anthony Marnell, another member of Republicans for Reid, is president of one of several companies associated with Rogich. Marnell has donated at least $15,000 to political committees connected to Reid since 2010.

The Victorville-Las Vegas rail project is another unnecessary high-speed rail project. It makes less financial sense, than the Los Angeles to San Francisco project that stands to cost at least $100 billion to build. Instead of acting like Portugal and canceling the first unnecessary high-speed rail program, politicians may burden California with a second unnecessary high-speed rail line. Practical infrastructure and California do not belong in the same sentence.

Print This

FHWA and FTA Could Improve Monitoring of Highway Trust Fund

The U.S. House will likely pass another transportation funding extension this week. This three-month extension will buy the House more time to develop a long-range transportation bill. Any bill the House passes will need to be rectified with the Senate bill. It is unlikely that any bill will become law before November.

As a result, the solvency of the Highway Trust Fund remains an issue. The Trust Fund manages the federal gas taxes that each motorist pays. As the U.S. now spends more trust fund money than it receives, the fund will go bankrupt without transfers from the general fund. The fund is forecast to go bankrupt this September. Over the past four years $35 billion has been transferred from the general fund to the trust fund. Since Congress has pledged to eliminate further bailouts of the trust fund, proper management and monitoring is critical. 

For this reason the Office of the Inspector General (OIG) analyzed DOT’s management of the Highway Trust Fund’s solvency to determine if the department could improve the understanding and accuracy of the projections. The OIG suggested several steps that the department could take. Both the Federal Highway Administration (FHWA) and the Federal Transit Administration (FTA) were found to have issues. The full report is available here

In 2008 both FHWA and FTA instituted procedures to track shortfalls. FHWA also added a procedure to adjust the outlay of funds to State DOT’s. Although the tracking tools provide a rough job of estimating funds, a better system could improve tracking. 

The OIG found three problems with the current procedure. First, the projections are established in the President’s annual budget and outside of the six-month review are not updated. The condition of the highway trust fund can change substantially in as little as three months. Second, while the long-term projections are accurate, current tools do not allow for determination of short-term deviations. Third, it is challenging especially for FTA to determine long-term estimates since program funds are spent over different time periods from as little as 12 months to as long as 10 years. Once a shortfall appears, FHWA invokes payment delays and proration. FTA has no such policies. 

Determining how long the transportation fund will remain solvent is critical. Hopefully, the next transportation bill will fix the funding issues by reducing funding for programs without an interstate purpose including livability, non-motorized transportation, and transit. The lack of a long-term bill prevents States from undertaking major construction projects because there is no funding certainty. Temporary funding is less than ideal, but it still provides some guarantees. States are more likely to begin construction projects with funding certainty.

The inspector recommended that FHWA and FTA take three steps. First, provide in the weekly report to Congress a range of dates as opposed to a specific date when funding will end. Second, conduct an assessment of outlays to representative projects to identify deviations in outlay trends and adjust the forecast accordingly. Third, publish on each agency’s respective website its cash management procedures and what triggers the use of these procedures so stakeholders more fully understand the process.

The agencies agree with the first recommendation. The agencies also acknowledge the need for the second recommendation but want to choose a different evaluation procedure. This is appropriate if the procedure works; however, the agencies have not provided a date for conducting the assessment. The agencies need to select a date to make this process effective. 

The third recommendation is more of a sticking point. DOT leaders do not want to identify their cash management procedures and implementation time since DOT leadership can change its cash procedures in response to external events. Striking a balance between flexible fiscal management procedures and public information is challenging. The agency does not want to draw a line in the sand that might cause panic or lead states to take shortcuts to receive funding when the state is not ready. However, the department has the responsibility to be open and honest with the public. Congress, construction companies, and citizens have concerns about federal resources that they support with gas taxes. DOT should be as open as possible about the process. OIG is satisfied with DOT’s response to the third recommendation, but the agency could go further. 

Transportation extensions and excessive spending are poor ways to run a transportation system. However, the U.S. will have more of the same for at least the next eight months. With this reality, DOT needs to have a plan to effectively communicate available national transportation funding.

Print This

Reason-Rupe Poll: Americans Don't Think Health Care or Broccoli Mandates Are Constitutional

As the Supreme Court hears challenges to the Patient Protection and Affordable Care Act this week, a new Reason-Rupe poll of 1,200 adults finds 62 percent of Americans believe it is unconstitutional for Congress to mandate the purchase of health insurance, while 30 percent think requiring health insurance is constitutional.

Legal experts have suggested that if Congress has the power to require individuals to buy health care insurance, it may also mandate that Americans buy broccoli. The Reason-Rupe poll finds 87 percent of Americans believe Congress does not have the power to require the purchase of broccoli, while 8 percent say Congress can force you to buy vegetables.

Reason-Rupe finds 54 percent of Americans think the health care law will result in the rationing of health care services. Half of Americans have an unfavorable view of the health care law, while 32 percent have a favorable view of it. Similarly, 49 percent say the law should be repealed and 36 percent would let it stand.

When it comes to addressing their health care needs, just 23 percent of Americans trust the government. That’s less than half of the 50 percent who say they trust health insurance companies and considerably lower than the 84 percent who trust their doctors.

The Reason-Rupe poll results reveal some health care reforms that the American public would support. Over two-thirds, 69 percent, of Americans would like to be able to shop for health insurance in the same way they shop for auto insurance. And many are willing to move away from our existing system to do so: 48 percent of Americans would prefer to receive the money their employers spend on health care as part of their paycheck and then shop for their own health care plans. Forty-one percent would like to continue to get insurance through their employer.

If they were allowed to shop for health care plans across state lines, 43 percent of Americans say insurance premiums would go down and 23 percent believe they’d go up.

In thinking about the quality and cost of their own health care, 67 percent of Americans tell Reason-Rupe that public sector workers have better health care benefits than private sector workers. Twenty-two percent say the benefits are about the same, and 4 percent say private sector workers get better benefits than government workers.

With Rep. Paul Ryan’s budget plans back in the news, the Reason-Rupe poll also finds voters are open to changing the future of Medicare. For people not yet in the program and under the age of 55 right now, 65 percent of Americans favor changing Medicare into a program that would give recipients a credit that could be used to purchase private health insurance. Just 24 percent would oppose the change. If those modifications were made to Medicare, 34 percent of Americans think the quality of care would improve, 33 percent believe it would stay the same and 24 percent say it would worsen.

A majority of Americans, 52 percent, support the health care law’s provision that prevents insurance companies from denying coverage to those with pre-existing conditions. However that support collapses when trade-offs are presented. Only 37 percent would support the pre-existing conditions law if tax increases were needed to pay for it; just 38 percent would support it if it caused higher premiums; and 41 percent would support it if it caused longer wait times to see a doctor.

The Reason-Rupe poll also asked about organ donation. Most Americans, 55 percent, believe healthy adults under medical supervision should be allowed to sell their own organs. Thirty-four percent oppose the sale of organs.

Full Poll Online

The complete Reason-Rupe survey is online at http://reason.com/poll and here (.pdf).

This Reason-Rupe poll, conducted March 10-20, 2012, surveyed a random, national sample of 1,200 adults by telephone (704 on landlines, 496 on cell phones). The results have a margin of error of plus or minus 3 percentage points. The poll was conducted for Reason Foundation by NSON Opinion Strategy.

This is the latest in a series of Reason-Rupe public opinion surveys dedicated to exploring what Americans really think about government and major issues. This Reason Foundation project is made possible thanks to the generous support of the Arthur N. Rupe Foundation.

Print This



Out of Control Policy Archives