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Out of Control Policy Blog Archives: 7.1.12–7.7.12

Rahm Emanuel and Big City Democrats Embrace Privatization

Harris Kenny and I have a column in tomorrow's Wall Street Journal:

We often hear that America's infrastructure is crumbling, but did you know that tens and possibly hundreds of billions of dollars in private infrastructure funds are waiting to be spent? It's money that Chicago Mayor—and Democratic Party powerhouse—Rahm Emanuel has spotted, rightly calling it "a tool here that takes some of the pressure off taxpayers."

In April, the Chicago City Council overwhelmingly approved Mr. Emanuel's $7 billion program to "rebuild Chicago" by constructing two new runways at O'Hare Airport; replacing 900 miles of water pipes and 750 miles of the sewer system; creating special routes for rapid bus transit; modernizing schools, transit stations and city buildings; and building 12 new parks and 20 playgrounds.

To pay for these projects, Mr. Emanuel is turning in part to private firms including Citibank and Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., J.P. Morgan Asset Management Infrastructure Investment Group, and union-held Ullico. These firms say they are ready to provide at least $1.7 billion to help build the "new Chicago." (Though the details are not yet set, the likely arrangement would have the private firms putting up capital and then recouping their investments through user fees over a set period of years or decades.)

"This model of private financing for public infrastructure is happening all over the world, but not here in America," said Mr. Emanuel, who served from 2009-10 as President Obama's chief of staff. "I can't get from here to there on the old model—it's broken."

There are decades of major public-private partnership success stories in the United Kingdom, France, Italy, Spain and elsewhere. The Reason Foundation's Annual Privatization Report finds that partly or fully privatized airports—such as Heathrow and Stansted in London, and Leonardo da Vinci-Fiumicino Airport in Rome, which make money from airlines and especially from passengers in stores, parking lots and the like—handled 48% of European air travel passengers in 2011. That's one reason Chicago is considering privatization plans for Midway Airport (which would ultimately require approval from the Federal Aviation Administration).

Mr. Emanuel's new infrastructure plan is bolstered by the privatization success he's already experienced in Chicago. Last summer he launched a large-scale competitive bidding process in which two companies compete with each other—and head-to-head with city workers—to provide cheaper curbside recycling for Chicagoans.

The competition forced government workers to find better ways to do their jobs, and Chicago reported reducing costs by $2 million in the first six months alone. "The City's crews have worked to close the gap between the private haulers' $2.70 price per cart by reducing their costs by 35 percent from $4.77 to $3.28 per cart," the city government reported in April.

Also privatized by Mr. Emanuel: Chicago's water-bill call center, airport and library custodial services, and the city-worker benefits-management system. Hiring private companies that could manage these services at lower costs led the city to lay off over 600 employees, so the mayor came under predictable fire from government unions. "My duty as mayor is to protect our city's taxpayers and be their voice—not to protect the city's payroll," he responded.

Mr. Emanuel is doing what sensible leaders do: focusing resources on the core functions of government and using competition to lower costs on the rest. When government agencies are forced to compete with the private sector, it saves taxpayers money and makes government more responsive to its customers. Performance-based contracts that set clear standards ensure that high-quality services are delivered by private firms that are held accountable.

Other prominent Democrats are joining Mr. Emanuel in embracing privatization or nonprofit funding for the countless nonessential services that drain city coffers.

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Fourth Round of TIGER Grants Have the Same Problems as Previous Rounds

My most recent commentary details the problems with the latest round of TIGER Grants. Last month, the U.S. Department of Transportation awarded a fourth round of Transportation Investment Generating Economic Recovery (TIGER) Grants totaling almost $500 million to 47 projects in 34 states and the District of Columbia. Last week when House Republicans eliminated the program from the U.S. Department of Transportation's (USDOT) 2013 budget, the White House complained that "politics" was behind the decision. In reality the TIGER Grants have always been political. USDOT made several changes to its grants process to ensure that only projects of the highest quality were awarded grants. Unfortunately, despite the changes the results show that many of the winning projects were the same politically oriented, local boondoggles as in past rounds.

The big winners were ports, multimodal projects, and freight rail projects. Rural areas also did well receiving 24 percent of total funds. Secretary of Transportation Ray LaHood touted the grants ability to put, "people back to work across the country [and provide] a stronger economic future for the nation." There is little evidence the grants accomplish either of those goals. The entire commentary is available here. 

There were four changes between the TIGER III and TIGER IV processes. First, in TIGER IV the USDOT provided a more detailed and streamlined explanation for conducting cost-benefit analysis. From program inception, the USDOT economics team has produced quality, easy-to-understand instructions in cost-benefit analysis. These detailed instructions have been one of the program's highlights. Unfortunately, they have not improved grant quality. Despite increased guidance between TIGER I and TIGER II, the average score of a project that received funding only increased from 2.2 to 2.3 on a scale of 1-4. The quality of the project applications had little to do with the size or geographic location of the applicant. While exact scores have not been released for TIGER IV, preliminary data indicate that additional guidance did not significantly increase scores. There are two possible reasons for the continual mediocre scores. First, applicants do not bother to conduct quality analysis because they believe politics or other factors are at play. Second, applicants do not have the technical know-how to create quality analysis. Neither reason suggests applicant quality will improve in the future.

Second, in TIGER IV only applicants can contact USDOT to schedule meetings. Previously, lobbyists could meet in an applicant's place. While lobbyists can be useful; in this situation their role should be reduced. The department deserves credit for making the change. 

Third, since this application round had a more compressed schedule, applicants in the preliminary round were required to include a detailed statement of work, project schedule and project budget. While providing more information immediately, is better than providing less, I am concerned that the shorter time frame reduced the application quality. It is not possible to conduct as much detailed analysis in two months as it would be in six. This could increase the political influence in the grant selection process. 

The final change was extremely troublesome. The department set aside $100 million for high speed and intercity passenger rail. The administration has bungled high-speed rail from the beginning. From awarding High-Speed Rail (HSR) funding to 39 states to using HSR funds to increase train speeds 10 miles per hour, to ignoring the most appropriate corridor for HSR (the Northeast Corridor), the administration's high-speed rail program has been an embarrassment even compared to other poorly-run government programs. If TIGER survives for 2013, Congress should eliminate HSR grant funding for the program. The Obama administration uses HSR funding for political purposes only. Future administrations from both sides of the political aisle may very well do the same. 

The TIGER IV Grants have other problems. As in previous rounds, the grants fund far more local priorities than national needs. The federal government's purpose in transportation is to fund and coordinate national projects. Article 1 section 8 of the U.S. Constitution authorizes Congress "to regulate Commerce with foreign Nations, and among the several States, and with Indian Tribes." However the five non-motorized transportation projects, the six transit projects and the six multimodal projects TIGER Grants have funded serve no national need. Some of the port, passenger rail and highway projects are also local in nature. While these may be excellent projects, if states and localities want them then states and localities should fund these projects.

The full commentary is available here.

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Stockton Begins Legal Battle in U.S. Bankruptcy Court Today

Updated on Friday July 6, 2012 at 1:28 PM Eastern.

Last week Stockton, California became the largest city (by population) to file for bankruptcy in U.S. history. The initial hearing is today in U.S. bankruptcy court in Sacramento. The trial is especially significant because the city’s lawyers are attempting to use bankruptcy to impose losses on its bondholders, which include private financial institutions and the state of California. Steven Church of Bloomberg reports:

No U.S. municipality has used bankruptcy to force bondholders to take less than the full principal due since at least 1981, and possibly as far back as the 1930s, according to lawyers and court records.

Church reports the city’s three largest creditors include:

  1. California Public Employee Retirement System (CalPERS), $147.5 million;
  2. Wells Fargo Bank NA as trustee for $124.3 million in pension obligation bonds; and
  3. Wells Fargo Bank NA as trustee for three other sets of bondholders owed $107 million.

One of the most interesting subplots will be the legal battle between CalPERS, and Wells Fargo Bank North America and Assured Guaranty Ltd. Cate Long, a guest contributor to Reuters’ MuniLand blog, speculated on Twitter today whether or these calculations are accurate though. Assured Guaranty Ltd. insured $161 million of Stockton’s bonds. Meanwhile, National Public Finance Guarantee, which has insured about $224 million of Stockton's debt, is owned by MBIA Inc. Combined, MBIA Inc. and Assured Guaranty Ltd. hold approximately $385 million in Stockton's debt, and at this point they are allowed to argue together in court. In the case of principal reduction, these parties arguably have the most to lose.

This morning, Church wrote:

Bondholders will be limited to two main options if they are to block Stockton in court, said Lee Bogdanoff, a bankruptcy attorney: get the case thrown out or defeat the city’s reorganization proposal.

“The most important power they have is a seat at the negotiating table,” Bogdanoff, a founding partner of Klee, Tuchin, Bogdanoff & Stern LLP in Los Angeles, said in a telephone interview. “They can try to influence the decision makers.”

Today’s hearing will differ from a typical corporate case, Bogdanoff said. Unlike a company, the city doesn’t need to ask U.S. Bankruptcy Judge Christopher Klein for permission to pay any bills it ran up before filing for court protection, such as wages, utility bills or rents. As a result, creditors won’t be able to use the hearing to pressure the city on its spending habits, Bogdanoff said.

The first legal question today is about the city's mediation process. California Assembly Bill (AB) 506 passed earlier this year requiring distressed municipalities to enter mediation before declaring bankruptcy. While Wells Fargo Bank NA was awarded three city parking garages and city hall, the parties failed to resolve their differences. The intention behind AB 506 was for future cities filing for bankruptcy to avoid the flurry of lawsuits that ensued after Vallejo, California’s filed for bankruptcy several years ago.

Scott Smith of The Stockton Record reports:

Marc Levinson, the lead attorney hired to represent Stockton, will ask U.S. District Judge Christopher Klein to unseal a 790-page document at the heart of a three-month-long, closed-door mediation process that attempted, yet failed, to avert bankruptcy.

Levinson argues in court papers that this massive document, which resembles a bankruptcy plan, lays out in detail what the city in mediation asked its major creditors to give up...

Proving in court that a municipality first tried to avoid bankruptcy and that it is, in fact, broke are basic facts that must be established before moving ahead with a bankruptcy case...

(U.S. District Judge Christopher Klein) is expected to rule from the bench today on two other motions that Stockton filed:

  • First, the city wishes to set an Aug. 9 deadline for any challenges to the legitimacy to Stockton's bankruptcy.
  • Second, the city has asked to maintain a website designed to tell each of the 6,000 stakeholders of upcoming hearings and filings, rather than having to send each a notice by overnight mail, which would be costly and labor intensive."

For more on California municipal finance issues, see my previous posts on Stockton and Mammoth Lakes. For the latest on Detroit, Michigan, see Detroit and Michigan: A Fragile Bargain and Detroit and Its Unions Fight Over Work Rules from Melissa Maynard of Stateline.

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Social Security’s Trust Fund to Start Losing Value in 2013

The 2012 Social Security Trustees Report--the authoritative source on the program's finances--states that the program's "trust fund assets" will "continue to grow" through 2020. This claim has been repeated by numerous sources as varied as US News & World Report, the AFL-CIO, and the American Academy of Actuaries. However, as revealed by data buried deeper in the 252-page Trustees Report, this assertion disregards the effects of inflation, which are projected to overrun any expected trust fund gains and contribute to an accelerating decline that will start in 2013.

Making financial claims that fail to account for inflation, per the Journal of Accountancy, "does not deliver a message that is completely true and fair." Likewise, the textbook, Cost Accounting: Principles And Practice, states that "inflation accounting presents a true and correct view of the financial state of affairs of a firm," and the academic serial work, Quantitative Investing for the Global Markets, affirms that "we should be concerned not with nominal quantities [i.e., those not adjusted for inflation] but with real ones."

In 2010, for the first time in 25 years, Social Security's expenses exceeded its income from payroll taxes and taxes on Social Security benefits. This state of affairs continued in 2011 and is projected to continue every year into the foreseeable future. Nonetheless, Social Security has two other sources of income: transfers from the general fund of the Treasury (like those required under the 2011 and 2012 payroll tax holidays) and interest that the program receives from its trust fund, which is comprised of Treasury bonds.

The transfers from the general fund of the Treasury are allegedly temporary and represent a gift to the Social Security program mainly financed by income, corporate, and excise taxes. On the other hand, the interest on the trust fund primarily stems from previous surpluses of Social Security taxes that were loaned to the Treasury. As recently as two years ago, this interest was supposed to keep the trust fund growing for a decade after Social Security's expenses began exceeding its tax income.

In 2010, Social Security's Office of the Chief Actuary projected that this interest income would keep the trust fund growing in real value through 2020. The 2011 projections moved this date to 2018, and the recently released 2012 projections pushed the date to 2012, meaning that the trust fund will start declining in real value next year. After 2013, the trust fund is projected to decline by greater amounts each year until becoming exhausted in 2033.

After 2033, Social Security's projected shortfalls could be covered by increasing payroll taxes by 33% starting in 2033 and rising slightly thereafter. These deficits could also be covered by reducing benefits by 24% starting in 2033.

There are several other ways of expressing the program's expected shortfalls. One measure commonly cited by the press is the 75-year open group unfunded obligation, which amounts to $8.6 trillion. This represents the money that must be immediately added to the trust fund to cover projected shortfalls for the next 75 years. To give this figure some context, it is equivalent to 10.7 times the total income for Social Security in 2011 or an additional $54,500 from every person who paid Social Security payroll taxes in 2011.

The open group unfunded obligation, however, does not provide a full accounting of Social Security's commitments. According to the Treasury Department's Financial Report of the United States Government, this metric "understates financial needs by capturing relatively more of the revenues from current and future workers and not capturing all of the benefits that are scheduled to be paid to them." A measure that accounts for this is the closed group unfunded obligation, which reveals how much money must be immediately added to the trust fund to cover the projected shortfalls for all current taxpayers and beneficiaries in the Social Security program. This approximates the method by which publicly traded companies are required by law to report the finances of their pension and retirement plans, and it currently amounts to $21.6 trillion or an additional $136,900 from every person who paid Social Security payroll taxes in 2011.

Even the closed group unfunded obligation assumes a proactive approach to Social Security's looming deficits. If, instead, we continue on our current path and just borrow the money to fund these programs, the shortfall will amount to an additional $276,000 (in 2012 dollars) for every person expected to be paying Social Security taxes in 2086.

It also bears noting that all of the measures described above may be optimistic because they are based upon the Social Security's Administration's intermediate assumptions, which have proven to be far more positive than actual outcomes.

James D. Agresti is the president of Just Facts, a nonprofit institute dedicated to researching and publishing verifiable facts about public policy. This post first appeared at JustFactsDaily.com

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California Democrats, Deep Pockets, and Ideological Irrelevance

California legislators have agreed on a budget deal that satisfies their adopted special interest groups while crippling California residents across the spectrum.  This time around it is especially interesting because, believe it or not, legislators have agreed to cut numerous welfare programs in order to protect the interests of public sector unions in Sacramento.

Governor Jerry Brown and the state legislature reached a deal on a balanced budget in the state of California for the upcoming fiscal year, beginning on July 1, 2012.  The $92 billion budget for FY 2012-2013 is facing a projected deficit of $15.7 billion, which the budget deal attempts to close through a combination of cutting or shifting funding for a number of social service programs, and raising revenue through an ambitious November ballot initiative that attempts to amend the California Constitution in order to raise the sales tax and increase state income taxes on those who earn over $250,000 annually (keep a look out for Reason's upcoming commentary on this hefty tax package).

What stuck out while the budget was being negotiated last week was the sheer amount of power that public unions have over budgetary spending in Sacramento.  Even while entertaining deep cuts to welfare and education programs, California lawmakers refused to pass Governor Brown's budget while it contained language that would cut hours and pay for public workers.  The notion that Democratic legislators tragically accept budget cuts when it comes to helping the poor and marginalized while simultaneously fulfilling favors to public unions is astounding.  According to Bloomberg, they rejected a proposal to authorize furloughs (unpaid days off) if unions didn't agree to a one-year 5% deduction in payroll.  Furthermore, they took out language that allowed the use of private contractors in place of public workers to save money.           

Democratic lawmakers rejected a proposal in the May Revision of the governor's budget, which called for a 7% cut in hours to public workers in In-Home Supportive Services (IHSS), a state program that provides personal care to senior citizens in their homes, which saves taxpayers $225 million.  Here is the official language:

"Across-the-Board Reduction in IHSS Hours - The May Revision reflects a decrease of $99.2 million General Fund in 2012-2013 from a 7-percent across-the-board decrease in authorized hours effective August 1, 2012.  Similar to the 3.6-percent across-the-board reduction that under current law sunsets on July 1, 2012, recipients may direct the manner in which the reduction of authorized hours is applied to previously authorized services."

The plan was to cut hours by removing tasks such as doing laundry from the assigned duties of in-home workers.  California lawmakers led by Assembly Speaker John Péréz and Senate President Pro Tempore Darrell Steinberg balked at this idea.  While these 'heroic' lawmakers fought to protect the rights of workers to get paid by taxpayers for doing the laundry, they said not a word about, for instance, the state cutting the Healthy Families program.  This program, which provided health insurance for 880,000 poor children, shifts the children to the purview of the largely inefficient Medi-Cal program.

Unions, especially those in the public sector, have had a pervasive influence and deep pockets in California politics.  During the 2010 election cycle, unions contributed almost $75 million to politicians and ballot initiatives, according to the National Institute on Money in State Politics.  And earlier this month, a number of unions called upon their members to hold protests in Sacramento against cutting their hours, branding it as a campaign to save the money and lives of "California's most vulnerable residents."  All this while ignoring the almost $1 billion in cuts on welfare-for-work programs for poor residents and the 8.7% cut in funding for children in low-income families.

This is not about the merits of state social programs. It is about the disconnect between Democratic state legislators' rhetoric vs. their power politics.  When our 'leaders' in the state legislature decided to stoically accept the situation, shake their heads, provide some choice quotations for the media and resignedly concede to welfare cuts while simultaneously scratching the backs of entrenched public unions, they made it clear that this was more about political expediency than anything else.  And is it so surprising?  A quick search reveals that Assembly Speaker John Péréz, a powerful figure in Sacramento and key opponent of Brown's IHSS payroll cuts, has deep ties to well-funded unions.  Indeed, his biggest campaign contributors were trade unions and public sector unions, with almost 88% of contributions coming from outside of his district.  Assembly member Bob Blumenfield, the Chairman of the Assembly Budget Committee, also received his largest campaign contributions from unions, with as much as 93.2% of the contributions coming from outside of his district (the "representative" from Southern California received most of his campaign funding from Sacramento).

The branding and rhetoric on the part of the politicians and unions has been painfully and disappointingly typical.  Steinberg, when asked why he rejected the furloughs, said that he simply wanted to give the unions more time to negotiate.  Péréz stated, "We have worked hard to preserve In Home Supportive Services for the thousands of Californians with debilitating medical conditions who rely on the support from IHSS caregivers to ensure they can live independently, at lower cost to the tax payers."  SEIU Local 1000, California's largest public union, argued in a statement that the IHSS cuts in hours would, if passed, "put vulnerable seniors and people with disabilities and people with disabilities in danger."  And one union executive by the name of Bruce Blanning made the case that outsourcing jobs to private companies would be more costly than using salaried public workers. 

It is hard to believe that politicians with vested interests in union well-being are fighting for the benefit of California's worst-off residents.  The sugar-coated rhetoric from the lawmakers like, "We know our loved ones would rather be cared for in their own homes by providers who want to stay them say healthy" is dishonest at best.  The argument that exorbitant and unnecessary social programs save taxpayer money is deceitful, the logic inconsistent.  And the insistency of the unions that outsourcing public programs to private contractors is more expensive than investing in public worker salaries and pensions is asinine.  It seems these smoke and mirror arguments exist because, for whatever reason, these California lawmakers like to pretend to hold some semblance of an ideology while conducting their backroom dealings.  Let it be a lesson: deep pockets are a far more lucrative sell for these California lawmakers than ideological consistency will ever be.

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Mammoth Lakes, California Files for Bankruptcy

Earlier this week Mammoth Lakes, California filed for bankruptcy, news largely missed in the run up to the Fourth of July holiday. The Mammoth Lakes Town Council voted unanimously on Monday July 2 to authorizing the filing of a petition for relief under Chapter 9 of the Bankruptcy Code in U.S. federal court. Mammoth Lakes has 7,700 permanent residents and is located about 300 miles north of Los Angeles. Mammoth Lakes is Mono County’s only incorporated community and it is best known for its proximity to Mammoth Mountain Ski Resort.

On June 27 the town issued the results of its AB 506-mandated mediation, which included 16 total parties but did not include its largest creditor, Mammoth Lakes Land Acquisition (MLLA). The mediation lasted 60 days and a full list of agreements reached is available on the town’s website here. Parties include groups like CalPERS (California Public Employee Retirement System), public employee unions, non-profit organizations, contractors, bodies of government, for-profit developers and financial institutions. MLLA was one of several parties that did not participate in mediation.

According to a statement issued by the town:

Bankruptcy, unfortunately, is the only option that the Town is left with, after its largest creditor, Mammoth Lakes Land Acquisition (MLLA) repeatedly refused to mediate its $43 million judgment against the Town, and obtained a State court order requiring payment of the full judgment by June 30, 2012.

City officials distill their fiscal woes down to two problems:

  1. "A lack of sufficient revenue to pay its current and anticipated obligations, as evidenced by a $2.7 million initial shortfall in its 2011-2012 fiscal year budget, balanced through painful measures in June 2011, an additional unanticipated shortfall of $0.9 million in the same 2011-2012 fiscal year that forced the Town to reduce its already low available cash, and a projected $2.8 million budget shortfall in its 2012-2013 fiscal year.
  2. A Writ of Mandate issued by a State Court ordering the Town pay a $43 million judgment owed to MLLA by June 30, 2012.”

The $43 million judgment owed to MLLA appears to be what pushed Mammoth Lakes over the edge. The Los Angeles Times reports:

A state appellate court decision in December 2010 upheld the judgment and chastised the town for trying to back out of the agreement it signed in 1997 with Mammoth Lakes Land Acquisition.

The agreement required the developer to make improvements to nearby Mammoth Yosemite Airport’s fixed-based operations. In return, it would receive rights to develop a $400-million Hot Creek hotel project on 25 acres at the airport and an option to buy the land.

The court found that Mammoth Lakes changed its priorities in 2007 after it determined the project would interfere with Federal Aviation Administration policy governing the use of the airport property for aeronautical purposes and, as a result, derail the town’s plans to extend the runway to accommodate Boeing 757 passenger jets.

The developer, which had invested in some improvements at the airport, filed a breach of contract lawsuit against the town after it refused to move forward with the hotel project until the FAA policy issues were resolved.

The court found the city had not lived up to its end of the bargain.

This filing is reminiscent of Stockton, California’s recent filing, in that the city was ill equipped to handle the economic downturn and aggressive economic development projects initiated during the boom years went sour. It's important to note that every city is unique and this reinforces that we are not seeing contagion at the local level. Mammoth Lakes is hoping that through bankruptcy they can solve fiscal woes and either free up revenue, or issue additional bonds, to pay its creditors over the next ten years.

The following public services will remain open and/or available:

  • The Police and Fire Departments, along with other safety partners such as paramedics and Sheriff's office, will provide high levels of response and care;
  • Road, parks, and airport maintenance services will continue as scheduled;
  • Town Office business hours and service deliver will continue as usual without interruption of services;
  • Community services and providers such as Mammoth Hospital, Mammoth Community Water District, and Mono County are separate from the Town and are not impacted.

For more on municipal finance issues, see my previous posts on Stockton, California and Jefferson County, Alabama. For an update on Harrisburg, Pennsylvania, see this post by Maggie Clark of Stateline (in short, the state barred the city from declaring bankrupcty until November 30.) For an update on Detroit, Michigan, see this post from Melissa Maynard of Stateline (in short, officials continue to hammer out the details of the consent agreement signed in April by Michigan Governor Rick Snyder and Detroit Mayor Dave Bing.)

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DC Should Use PPPs for Express Bus and Forget About Streetcars

Will the District of Columbia build its proposed streetcar network? The saga of the proposed DC H Street streetcar took another bizarre turn last month when former Mayor and current councilmember Marion Barry proposed blocking the streetcar. Last week Barry withdrew his disapproval resolution but made it clear that he has major problems with the project. According to dcist: 

Councilmember Marion Barry (D-Ward 8) withdrew his disapproval to a $50 million contract needed for final work on the H Street NE late last week, but not before sending out a lengthy statement in which he criticized the project, saying that it is too expensive a project, will only serve "newcomers" to the neighborhood and is poorly planned. 

Barry has hardly been a model public servant. His concerns are more related to politics than money, which is too bad because he actually makes several valid points. 

The district has a strong transit system made possible in part by federal transportation dollars. However, transit service remains insufficient in many district neighborhoods. As a result, DDOT commissioned the 173-page DC's Transit Future System Plan Final Report detailing the District’s ambitious transit plans. The plan recommends 8 express buses, 13 streetcars and 1 transitway. The report has several good recommendations including express buses and a K Street Transitway. However, the report also recommends streetcar service that the district does not need and cannot afford. 

From a transportation standpoint, streetcars do not have a single advantage over an express bus or BRT line. First, proponents claim that streetcars increase ridership and transport more passengers than buses. But they are comparing apples to oranges. In cities where streetcars replaced buses and transported more people, they did so because other changes were made to the street. For example, San Francisco’s F-Market streetcars achieve better times than the buses they replaced because the Streetcar was given its own dedicated lane. Before the change, buses were slowed by car traffic. Buses stopped in designated bus pullouts and after they picked-up and dropped-off passengers they had to wait for traffic to pass before they pulled back into the travel lane. The Streetcar has its own dedicated lane where it does not have to compete with cars. It picks up passengers in that lane and does not have to wait for passing cars to begin moving again. Dedicating one lane of travel to the streetcar also had the effect of severely worsening traffic congestion that may have increased ridership. These changes would have increased ridership for the buses just as much as for the Streetcars.

Cities typically spend large amounts of taxpayer money inducing businesses to relocate next to streetcars, improving the street’s appearance and removing dilapidated buildings. These improvements would increase bus ridership as well. But while cities are reluctant to spend money to improve streets that buses serve, they are comfortable using substantial resources to improve streets with streetcar routes.

Second, proponents claim that Streetcars are faster. But real-world travel data does not support this claim. For example, in transit-happy Portland the city advises streetcar riders to expect an average speed of 7-12 miles per hour in the slow lane and 15-25 miles per hour in the fast lane. Buses travel between 10-20 miles per hour in the slow lane and 20-35 miles per hour in the fast lane. Buses can go around obstacles in the street, while streetcars have to wait for these obstacles to move. 

Third, claims that Streetcars are better for the environment are also incorrect. WMATA buses run on clean natural gas, which is no worse for the environment than electricity, especially when that electricity is generated by coal. As buses travel on existing streets, no new infrastructure is needed. However, streetcars require electric wires, new tracks or both. Building this infrastructure generates pollution. 

However there is one major downside to building streetcar lines that many advocates fail to mention—the cost. Buses have more seats than streetcars and can move five times as many people per hour. Streetcars cost almost twice as much to operate per vehicle mile and far more to build and maintain. When a proposed streetcar network in Austin was compared to a proposed bus network, the capital costs of the streetcar network were seven times higher than the bus network. 

Earlier this week, DDOT added twist. The agency put out a request to transportation companies asking them to consider financing, building, and operating the streetcar (and operating neighborhood Metrobus routes). According to Greater Greater Washington: 

Should a private company finance, build and operate the streetcar? Should it also take over neighborhood Metrobus routes from WMATA? Yesterday, DDOT put out a broad request to transportation companies asking them to weigh in on the possibilities.

Public-private partnerships only work if there is profit-making potential for the private side. Private companies have financing and efficiency advantages that are not available to the public sector. In PPPs each sector is able to use its strengths. While privatization is an excellent option for WMATA popular bus service, I remain skeptical about the streetcar prospects. The expensive to build expensive to operate streetcar seems as if it is a money-loser. For a PPP to work, DC may need to give the streetcar operator some form of crony capital. That is not the way to develop a PPP. The better option would be a cost-effective, environmentally friendly, flexible bus. Using a PPP agreement for existing and new express bus and bus-rapid-transit service is a better choice.

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California's High-Speed Rail System Shouldn't Get More Taxpayer Money

As Joseph Vranich and Wendell Cox and I have a new piece on the California high-speed rail system:

Despite California’s budget deficit rising to $16 billion recently, Gov. Jerry Brown is asking state legislators for $6 billion in bonds to launch construction on the proposed high-speed rail system. Voters approved a $9.95 billion bond package for the “bullet train” in 2008, but just about everything about the rail system has changed since then. 

The California High-Speed Rail Authority (HSRA) issued a revised business plan in April that calls for a 130-mile segment running from Bakersfield to Madera in the state’s Central Valley. If the Central Valley leg is built, the plan says the system would eventually share tracks with commuter trains in the Bay Area and Los Angeles, in what it is calling a “blended” approach. Not exactly the bullet train from San Diego to Los Angeles to the Bay Area and Sacramento that voters were sold back in 2008. 

The last thing California should do right now is add billions more in bond debt. Beyond the most obvious – the state simply cannot afford it – there are at least five major reasons California shouldn’t move forward on this rail project. 

1. Broken Proposition 1A Promises: The Costs Look Nothing Like What Voters Approved 

The text of Proposition 1A asking California voters to approve $9.95 billion in bonds for the project in 2008 said: “The total cost to develop and construct the entire high-speed train system would be about $45 billion.” 

Now the High-Speed Rail Authority says the price tag for a scaled down system will be $68.4 billion. Last year, the HSRA actually estimated the costs would be over $98 billion but to lower the sticker shock by $30 billion they’ve shifted to a “blended” plan that uses slower, existing rail tracks instead of building the exclusive tracks capable of handling high-speed trains that they originally planned on. 

The official proponent's argument in the Proposition 1A ballot pamphlet also promised voters that ticket prices would be “about $50 a person.” Now, they are saying tickets would cost an average of $81 each way, with “express” tickets for the fastest trips costing $123 one-way. 

The costs have changed so much from what voters were promised that funding should be halted until the HSRA fulfills its 2008 promises to voters, or until voters get to approve the changes. Several groups, including popular KFI radio talk show hosts John and Ken in Los Angeles, are starting to get the signatures needed to put a re-vote of the high-speed rail initiative on the ballot. 

2. There’s Still No Legitimate Funding Plan 

The California High-Speed Rail Authority says it will need $53 to $62 billion to build the Phase 1 Blended System, which would run from Los Angeles to San Francisco. Sacramento and San Diego appear to have been dropped from the plan. The state currently has the $9.95 billion in taxpayer-backed bonds originally approved by Proposition 1A plus an additional $3.5 billion in federal grants. But where is the remaining $40-$50 billion going to come from? 

In April, the nonpartisan Legislative Analyst’s Office wrote, “We find that HSRA has not provided sufficient detail and justification to the Legislature regarding its plan to build a high–speed train system. Specifically, funding for the project remains highly speculative and important details have not been sorted out. We recommend the Legislature not approve the Governor's various budget proposals to provide additional funding for the project.” 

If the state starts building a high-speed train system somewhere between Bakersfield and Fresno it will run out of money well before the system is finished. That’s okay with many train advocates, who figure once construction begins the government will be forced to find the rest of the money to avoid having a partially built $10 billion train to nowhere sitting in the Central Valley. But the legislature can’t afford to be so fiscally reckless. It needs to demand a detailed plan showing how the full rail system will be funded before approving the bond money to start construction. 

Read the rest here.

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Innovators in Action: Indianapolis’ Parking Meter Lease, One Year Later

In case you missed it, last week we published the latest installment of Reason Foundation's Innovators in Action series, my interview with Indianapolis Deputy Mayor for Economic Development Michael Huber on the first year results from the modernization of the city's metered parking system, the product of a long-term lease of the system to a private concessionaire.

In August 2010, Indianapolis Mayor Greg Ballard announced the winning bidder for a 50-year concession (lease) of nearly 3,700 city parking meters in the downtown and Broad Ripple areas. Under the concession, ParkIndy—a team composed of Xerox and its local partners Denison Global Parking and Evens Time—have taken over responsibility for meter system operations, maintenance and capital investment, in exchange paying the city $20 million up front and an estimated $300-600 million share of ongoing revenues over the 50-year lease term. The city council approved the deal in November 2010, and the concessionaire took over parking meter operations in March 2011.

City revenues generated from the parking meter concession will be dedicated to street, sidewalk and other infrastructure improvements in the metered portions of the downtown and Broad Ripple areas, effectively allowing the Ballard administration to stretch its existing $500 million infrastructure repair program even further.

Based on the interview, the city appears pleased with the early results. Here's a short excerpt:

Gilroy: Overall, how are Indianapolis taxpayers and drivers benefitting from the parking lease? Could the city have committed to the same level of operation, same level of investment without turning to the private sector?

Huber: One of the key goals of this program was to increase the convenience for citizens and visitors. In the upgraded system, motorists have the choice to pay with coin, credit card, debit card or even with a phone or online application. Initial trend data shows that in the busiest section of the metered parking area, over half of the monthly transactions are now credit card payments. In just the first full month of having pay-by-phone functionality, thousands of pay-by-phone transactions were made. Leading to a better experience because motorists now know when there meters is about to expire and can add additional time from a meeting or if they are having dinner without worrying that they may get a ticket.

In addition to this flexibility in how to pay, motorists will benefit from having a higher level of meter reliability. Newer meters break less often than the older legacy meters did, and the new meters utilize a wireless network to provide operational data to a centralized maintenance department that can dispatch repair crews much faster than the City was able to in the older system. Often when the city was in charge of repairing meters they would be broke for days or weeks leading to lost revenues and poor customer experiences.

The concessionaire’s new Parker mobile application also allows motorists to find available parking spaces using sensors and support equipment that ParkIndy has installed.

It is difficult to imagine how the city could have made all of the technical upgrades and process improvements in the metered parking system given the state of municipal budgets, not just in Indianapolis but everywhere. In addition, the concession agreement provided an initial $20 million upfront payment that has allowed the city to fund projects that would otherwise have been delayed, or would not have happened at all.

Read the whole interview for Huber's thoughts on the first year revenue picture, the transition to privatization, operational efficiency and a look forward to the second year of the lease.

As I wrote here last week, Indianapolis' parking meter lease has been a model example of privatization done well, a public-private partnership that continues to bring dividends for the city and taxpayers. Mayor Ballard's administration and the ParkIndy team deserve a ton of credit and should serve as an example to other governments seeking similar transformative partnerships.

For more on the subject, recent Reason Foundation articles on parking privatization include:

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication has been on a temporary hiatus since then, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

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