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Out of Control Policy Blog Archives: 11.11.12–11.17.12

Atlanta-Savannah is not Suitable for HSR

Many in the transportation community have worked hard to derail ill-conceived High-Speed-Rail (HSR) projects. Transportation policy experts have suggested focusing first on the corridor with the best potential in the U.S.—the Northeast Corridor between Washington DC and Boston. Transportation types have explained that using current congestion figures for road and air are incorrect because the Next Generation Aviation system will safely allow more airplane travel and that widened highways and managed lanes will reduce highway delays. We have pointed out that due to the great recession long-distance holiday and vacation travel has declined. For example in 2005, 58,600,000 people traveled during Thanksgiving weekend. In 2012, only 43,600,000 people are forecasted to travel--a decline of 26%. While travel will rebound, in the near term intercity capacity needs have been sharply reduced. We have explained the many differences between European cities and American cities such as central city density and the quality and quantity of transit systems. However, despite all of the facts that transportation professionals present, some HSR advocates continue to live in the delusion zone. 

After announcing he would not be seeking a post in the Obama Administration, Atlanta Mayor Kasim Reed stated that he has two transportation priorities for the city of Atlanta. One is the Atlanta BeltLine—the transit line that got panned by American Public Transit Administration President William Millar. The second is a proposed high-speed rail line between Atlanta and Savannah. 

What are the problems with HSR between Atlanta and Savannah?

1) HSR works best in countries with favorable density patterns and excellent transit systems neither of which describe Atlanta or Savannah. But not one of these countries has built or is considering building a HSR line that begins or ends in a metro area with fewer than 500,000 people. While Atlanta has more than 5,000,000 people, Savannah has only 347,000.

2) High-speed rail works best in metro areas with well-developed transit systems. Atlanta’s transit system leaves much to be desired and all of Chatham County has only 28 bus routes.

3) HSR works best in cities with dense populations closest to the HSR station. New York City has 520,000 people living within 2 miles of Grand Central Station and 1,070,000 working with 2 miles of Grand Central Station. Washington D.C. has 140,000 people living within 2 miles of Union Station and 300,000 people working within 2 miles of the station. Atlanta has 70,000 people living within 2 miles of the proposed Gulch transit station and 80,000 working in that same vicinity. Savannah has substantially fewer people both living and working in the 2-mile radius than Atlanta.

4) After HSR lines are built, somebody has to pay the costs needed to operate them. The federal government has offered only capital assistance to build the trains leaving state or local governments to operate them. Since a proposed line between Atlanta and Savannah would lose money on operating costs even with ticket prices at $150 for a one-way trip, taxpayers throughout Georgia would have to pay a significant portion of their taxes to operate the line.

5) HSR trains need tracks to operate. Norfolk-Southern has freight tracks from Atlanta to Macon and Macon to Savannah but many portions of these tracks have top speeds of 25 miles per hour or less. Further, since Norfolk-Southern owns the rail, it must approve passenger trains using them. Since taking a passenger train trip to Savannah on these existing tracks would take longer than driving, new tracks would have to be built. The complete costs of building such a system are estimated to reach $35 billion dollars.

6) Taking HSR rail between most European and Asian cities is more expensive than flying. A round trip non-stop flight from Savannah to Atlanta costs $250. HSR train travel would cost $300.

7) HSR service faces real security threats. If popularity of HSR improves, so will its vulnerability to terrorism. A 200+ mile per hour train is as tempting a target as 500+ mph plane. A Substantial security system will be needed. 

Pro HSR group America 2050 chose the best 100 routes in the nation; Atlanta-Savannah was not on the list. While Atlanta, Charlotte and Birmingham lies in the Piedmont Atlanta megaregion of interconnected economic activity, Savannah does not lie in any megaregion. It is freight not passengers that primarily travels between the two cities. Atlanta residents alone traveling to Tybee Island will not support an HSR line.   

While consultants determined HSR routes including Atlanta-Charlotte, Atlanta-Jacksonville, Atlanta-Birmingham, and Atlanta-Louisville may be realistic in the future, none are realistic today. Substantial land-use and development patterns will need to change. And Atlanta-Savannah is a worse candidate than any of the studied HSR lines. 

State, federal and local governments could find better uses for $35 billion. Returning the funds to taxpayers may be the best option. Atlanta is fortunate to have a mayor interested in solving its transportation problems. But he needs to start with some realistic and less grandiose plans than High Speed Rail and the BeltLine.

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Six principles for successful Internet gambling regulation

Today the Reason Foundation publishes my policy brief on keys to successful state regulation of Internet gambling.

Thanks to a Department of Justice's December 2011 memo on the parameters of the Wire Act, states can now license real-money intrastate online casino games. Earlier this year, Nevada became the first state to permit online wagering, and in August granted the first online operating license to South Point Poker LLC, which was to have launched trials last month. Since the Reason report went to press, South Point disclosed that its software is still undergoing independent testing but hopes to have its site up by the end of the year.

Elsewhere, Delaware has enacted legislation to authorize online gambling under the auspcies of the state lottery commission and Illinois has begun selling lottery tickets online.

It goes without saying that U.S. citizens should be free to gamble online, just as they legally can in casinos throughout the country. The degree of regulation is subject to debate, but unfortunately remains a necessary element in policy. Yet lessons about taxation and regulation can be learned from experiences in Europe, as well as from regulation of brick-and-mortar casinos in the U.S. With a better understanding of usage trends, consumer game choices and operator cost models, legislators who want to offer constituents the freedom to play online can craft an environment that supports a robust online gaming climate, as opposed to one that drives legitimate operators away.

Regulation should derive from an enlightened approach that respects the responsibility and intelligence of its citizens. Internet gambling can be a safe, secure pastime. Overall, the government's only goal should be to protect users from theft or fraud. Gambling should not approached as an activity that needs to be controlled or discouraged under the rationale that it is a "sin" (to moralists) or "destructive behavior" (to social utilitarians), and then, hypocritically, politically tolerated so it can be excessively taxed on those rationales.

Although it is likely states will differ in the particulars of how they structure the license and tax arrangements, a successful climate for legalized Internet gambling is likely to derive from the following fundamental principles. Lawmakers should heed the following guidelines:

Create a competitive environment

Consumers are best served when there is ample competition. The greater the competition, the more incentive competing companies have to offer better value-both to win new customers, and to keep existing ones loyal.

The state government itself should not compete for players

As a corollary to the competition guideline, states should not attempt to operate online casinos themselves. They should also be wary of giving incumbent lottery management companies a built-in advantage, such as an automatic license set-aside. Experiences in Europe, where some countries initially granted exclusive Internet poker and other gaming licenses to lottery operators, have shown that such ventures are rarely competitive, are inefficiently run, and do not draw players.

Recognizes intrastate online gambling has different cost structure than brick-and-mortar casinos

States that do not account for the difference in cost models between brick-and-mortar casinos and Internet counterparts are setting themselves up for failure. An Internet gaming site can be established with a capital investment that is a fraction of that required to build a land-based casino. But revenues scale down as well; one reason an online poker room can support penny-ante games. States must grasp the lower revenue and tax expectations and set up tax and licensing structures so they are compatible.

Tax operators not players

On the other hand, states should avoid creative new tax structures purely on the justification that some hold the opinion that gambling is a vice or sin. Players should not be taxed through levies on their accounts or through "hand charges" that are paid directly to the state, as some European countries have attempted (again without success; players migrated to Internet casinos in countries without such taxes). Meanwhile, winning players under law are obliged to report winnings (and are often held accountable though W-2Gs). Anything else is double taxation.

Do not attempt to "protect players from themselves."

State legislatures tend to have a love/hate relationship with gambling. They covet the tax revenues, yet they believe that they are being "responsible" by creating artificial notions, such as limiting casinos to "riverboats" or out-of-way locations, in the belief that this will somehow either mask or temper the popular appeal of gambling. The ineffectiveness of these measures is seen in how these conventions gradually fall by the wayside. Likewise, regulations that infantilize players, such as a since-revised Missouri rule that limited player chip purchases to $200 per hour, have proved ineffective and easy to defeat.

Don't discount the market as an effective regulator

The Internet itself offers numerous resources in the form of information sites, message boards and discussion groups where players can exchange information about the quality and reliability of particular sites, the general skill level of players, and any concerns about sites that might be cheating or too tolerant of collusion or poker bots. Independent game analysts have proved adept at identifying problem software and posted their findings.

The return of Internet gambling is only a matter of time; the consumer demand is there and the fiscal situation in many states makes the taxation opportunities attractive. While a number of states will resist, for most, the issue should lead to serious debate. The paper, in addition to making the principled case for legalized Internet gambling, addresses and recommends policy approach with an aim toward creating win-win-win regulatory environments for consumers, game site operators and state governments.

The full report can be downloaded here.

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Innovators in Action: ODOT Director Jerry Wray on Addressing Ohio's Transportation Funding Challenges Through Streamlining, Public-Private Partnerships

State departments of transportation are increasingly cutting costs and seeking new ways to finance and deliver transportation projects as revenues from traditional funding sources—primarily federal and state fuel taxes—continue to erode. In our latest interview in the Innovators in Action 2012 series, I sat down with Ohio Department of Transportation (ODOT) director Jerry Wray to learn how the agency is trying to address its long-term challenges by innovating today through streamlining measures, public-private partnerships (PPPs), and other strategies.

Facing an estimated $1.6 billion highway funding gap in coming years, Ohio policymakers began taking concrete steps to develop new cost-saving and project financing tools in 2011, passing legislation authorizing a potential long-term lease of the Ohio Turnpike to private investors and granting ODOT the authority to enter into PPPs to finance and develop new transportation projects.

ODOT took another major step earlier this year in establishing a new internal Division of Innovative Delivery to identify alternative transportation funding solutions. Among its early initiatives, the Division is exploring PPPs to modernize the Ohio Turnpike, develop non-Interstate rest areas, and establish a corporate sponsorship program for state-owned rest areas, bridges, interchanges and sections of highway. Further, the Division is also exploring innovative financing approaches for several different state transportation projects, including the Brent Spence Bridge over the Ohio River in the Cincinnati area, the Portsmouth Bypass in Scioto County.

Here's a brief excerpt from the interview:

Gilroy: Can you describe some of the solutions you’re advancing at ODOT today?

Wray: We have to produce projects at the retail level: quick delivery of projects is what people want from us. Everything we do—from plowing snow to building new interchanges and highways—our citizens want faster and better.

To help us meet citizens' expectations, we've been exploring many different ways of saving money since January 2011. For example, we've reduced staff by over 400 through attrition and saved over $34 million annually, a savings that will repeat year after year. We expect further staff reductions through attrition in the coming years as well, which we expect will generate further savings.

We've also moved to zero-based budgeting this year. ODOT used to carry forward lots of money as a cushion for future years, but we can't afford to let that money sit on the books when we can use it to build projects around the state. We will free up millions of dollars this year alone.

We've also re-budgeted $150 million off of our previously adopted biennium budget, taking a hard look at areas like equipment usage, overtime control, and vehicle usage and purchasing. We believe we could reduce our vehicle fleet by up to 40 percent, for example.

That's what we can do internally, as an agency, to identify areas where we can deliver the same great service ODOT is known for and do it at a lower cost to our customers. But we’re not stopping there. I oftentimes tell groups of people when speaking at public events that, “this isn’t your grandpa's ODOT.” And it isn’t. We’re embarking on a new program—the Division of Innovative Delivery—that will allow us to essentially do two things: 1) reduce construction costs by partnering with the private sector, and 2) generate additional money by leveraging the value of state-owned assets.

For instance, we are conducting a top-to-bottom review of all of ODOT’s assets that could potentially generate money for the department. We have a website that provides real-time traffic information to the motoring public. Is there a market for ODOT to sell advertising space on that website? We’re about to find out. We have thousands of bridges, interchanges and other transportation features that private businesses could pay us millions of dollars to sponsor. So, we’re pursuing an aggressive sponsorship and advertising program.

We're also looking at new and innovative ways to finance transportation projects, and we see great value in engaging the private sector through public-private partnerships.

The full interview is well worth a read and is available here.

[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 was on a temporary hiatus in 2011, 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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