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Out of Control Policy Blog Archives: 2.17.13–2.23.13

America's Roads and Bridges Aren't Crumbling

President Barack Obama’s new infrastructure plan calls for spending $40 billion on “urgent upgrades.” But a new Reason Foundation report examining 20 years of state highway data finds the condition of America’s state-controlled roads has improved in seven key areas including deficient bridges and pavement condition.

All 50 states lowered their highway fatality rates from 1989 to 2008 and 40 states reduced their percentages of deficient bridges during that time. Nationwide, the number of deficient bridges in the country fell from 37.8 percent of all bridges in 1989 to 23.7 percent in 2008.

The Reason Foundation study tracks spending per mile on state-owned roads and measures road performance in seven categories: miles of urban Interstate highways in poor pavement condition, miles of rural Interstates in poor condition, congestion on urban Interstates, deficient bridges, highway fatalities, rural primary roads in poor condition and the number of rural primary roads flagged as too narrow.

In the 20 years examined, 11 states (North Dakota, Virginia, Missouri, Nebraska, Maine, Montana, Tennessee, Kansas, Wisconsin, Colorado, and Florida) made progress in all seven categories and 37 states improved in at least five of the seven metrics.

California was the only state that failed to improve in at least three areas, making strides only in deficient bridges and fatalities. Five states—New York, Hawaii, Utah, Vermont and Mississippi—progressed in just three categories.

The Reason Foundation study finds the amount of state-controlled road mileage increased by just .6 percent from 1989 to 2008. However, spending per mile on state-administered roads grew by 60 percent, adjusted for inflation, during that time. Texas and Florida led the growth in spending, with Texas increasing its per mile spending by 174.5 percent and Florida raising its by 149.6 percent, adjusted for inflation.

The percentage of urban Interstates with poor pavement condition dropped slightly from 6.6 percent in 1989 to 5.4 percent in 2008. Two states, Nevada and Missouri made remarkable turnarounds. In 1989, nearly half of their urban Interstates were in poor condition, but by 2008 less than 2 percent were in poor condition.

The percentage of rural Interstates rated in poor condition was reduced by over two-thirds, from 6.60 percent in 1989 to 1.93 percent in 2008. However, almost all of the improvements came before 1999 and two states reported rural conditions worsening by more than five percentage points: New York and California.

“There are still plenty of problems to fix, but our roads and bridges aren’t crumbling,” said David Hartgen, lead author of the Reason Foundation report and emeritus professor of transportation at the University of North Carolina at Charlotte. “The overall condition of the state-controlled road system is getting better and you can actually make the case that it has never been in better shape. The key going forward is to target spending where it will do the most good.”

The report compiles data from a variety of sources, primarily from information the states themselves reported to the federal government from 1989 through 2008. The full report is here and state-by-state summaries are here. Complete data for the year 2009 will soon be available.

Spending on State-Controlled Highways

Spending on state-controlled highways increased 177 percent from $52,000 per mile in 1989 to $145,000 per mile in 2008 (in nominal dollars). Adjusted for inflation, spending per mile on state-controlled Interstates grew by 60 percent.

Spending per mile in Texas, adjusted for inflation, increased 174.5 percent from 1989 to 2008 on state-controlled roads. Four other states increased state highway spending by more than 100 percent after adjusting for inflation: Florida, Oregon, Washington and California.

After adjusting for inflation, two states—Connecticut and Delaware—decreased their spending per mile on state-controlled roads. Connecticut’s spending decreased 35.2 percent per mile and Delaware’s spending fell 22.4 percent per mile from 1989 to 2008.

Deficient Bridges

The percentage of deficient bridges in the country fell from 37.8 percent in 1989 to 23.7 percent in 2008. However, at the current rate of repair it would take over 50 years to fix all of the bridges that are deficient.

Overall, 40 states lowered the percentage of their deficient bridges from 1989 to 2008. In 1989, over half, 56.3 percent, of Mississippi’s bridges were deficient. In 2008, 24.7 percent were deficient. Nebraska went from having 55.1 percent of its bridges deficient in 1989 down to 23.6 percent in 2008.

On the other hand, the number of deficient bridges rose in 10 states: Hawaii, Alaska, Massachusetts, Rhode Island, Idaho, Arizona, Utah, Ohio, South Carolina, and Oregon.

Urban Interstate Condition

Overall, the percentage of urban Interstates in poor condition across the U.S. fell slightly, from 6.6 percent in poor condition in 1989 to 5.4 percent in 2008.

Nevada and Missouri made remarkable turnarounds. In 1989, 47.8 of Nevada’s urban Interstates were in poor condition. In 2008, just 1.6 percent were poor. Missouri’s urban Interstate mileage in poor condition decreased from 46.7 percent in 1989 to 1.3 percent in 2008.

Meanwhile, seven states reported more than 10 percent of their urban Interstates in poor condition in 2008. A quarter of Hawaii’s Interstates were in poor condition in 2008. In 1989, just 4.1 percent of California’s urban Interstates were in poor condition. In 2008, that number had ballooned to 24.7 percent. Vermont went from 2.9 percent of urban Interstates in poor condition in 1989 to 17.5 percent in 2008. New Jersey, Oklahoma, New York and Louisiana are the other states with more than 10 percent of urban Interstates in poor condition.

Rural Interstate Condition

The percentage of rural Interstates rated in poor condition was reduced by over two-thirds, from 6.60 percent in 1989 to 1.93 percent in 2008. However, almost all of the improvements came before 1999.

Five states (Missouri, Rhode Island, Idaho, Nevada and Wisconsin) reduced their percentage of poor rural Interstates from over 20 percent to near zero. Two states reported rural conditions worsening by more than five percentage points from 1989 to 2008: New York and California. And just four states had more than 5 percent of rural Interstates in poor condition as of 2008: California, Alaska, New Jersey and New York.

Urban Interstate Congestion

Overall, congestion on Interstates decreased from 52.6 percent in 1989 to 48.6 percent in 2008. Between 1999 and 2008, however, the percentage of congested urban Interstates increased by 8.5 percentage points. Moreover, some of the overall reduction in congestion can certainly be attributed to the recent economic recession. Without the current recession, fewer states would have experienced reductions in congestion.

As it stands, 29 states reduced urban Interstate congestion between 1989 and 2008. Six states (Delaware, Massachusetts, Virginia, Alaska, Missouri and South Carolina) reported improvements greater than 20 percentage points. In 1989, 68.3 percent of Delaware’s urban Interstates were congested. In 2008, 24.4 percent were congested. Massachusetts’ urban Interstate congestion went from 68.5 percent in 1989 to 41.6 percent in 2008.

Eighteen states reported a worsening of urban Interstate congestion. The greatest increase in congestion, 36.2 percentage points, was in Minnesota. Kentucky, where congestion worsened 33.9 percentage points, was next. Iowa, Alabama, Idaho and Mississippi also saw urban congestion rise by more than 20 percentage points.

Fatality Rates

Between 1989 and 2008, the U.S. fatality rate improved from 2.16 fatalities per 100 million vehicle miles to 1.25 fatalities per 100 million vehicle miles, a drop of about 42 percent.

All 50 states lowered their highway fatality rates from 1989 to 2008, and all but three states (Oregon, Kentucky and Delaware) reported improvements from 1999 to 2008. New Mexico, Nevada and Mississippi saw the biggest decreases in fatality rates.

This week the National Safety Council reported that traffic fatalities rose in 2012 for the first time in several years.

Rural Primary Road Pavement Condition

The percentage of rural arterial roads in poor condition improved from 2.6 percent in 1989 to just 0.5 percent in 2008. Thirty-four states lowered the percentage of rural arterials in poor condition and three states (Alaska, Montana and Idaho) reduced their percentage of poor rural pavement by more than 10 percent.

Narrow Lanes on Rural Primaries

Narrow lanes on major rural roads are a key measure of sight visibility and safety. The proportion of narrow lanes on the rural primary system improved from 12.9 percent in 1993 (the earliest year of comparable data) to 9.6 percent in 2008. Hawaii, Rhode Island, Arkansas and New Jersey made the biggest improvements.

The Size of State Highway Systems

North Carolina, Texas, Virginia, Pennsylvania and South Carolina have the largest state-administered highway systems. Hawaii, Rhode Island, Vermont, New Jersey and Massachusetts have the smallest.

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Fixing the Too Big to Fail Dilemma

The call to break up banks deemed "Too Big to Fail" (TBTF) is one you'd expect from the likes of Christopher Dodd, Barney Frank, and even Occupy Wall Street-but when you have folks like conservative columnist George Will, the hawkish President of the Dallas Federal Reserve Bank Richard Fisher, and former Citigroup CEO Sandy Weil echoing these sentiments,then maybe it's time to listen up.

Enter Congressman John Campbell, Chairman of the Financial Services Subcommittee on Monetary Policy and Trade, who just last week introduced the Systemic Risk Mitigation Act, a bill aimed at eliminating the TBTF problem. While the California Republican's bill doesn't go as far as saying big banks need to be torn apart, it does intend to shrink TBTF banks by requiring them to hold more capital. The idea is to get big banks to shrink their balance sheets, putting taxpayers at less of a risk in event of a failure.

Campbell's bill would require banks with more than $50 billion in assets to hold a capital buffer in the form of long-term bonds, which must total at least 15 percent of the bank's total assets. Investors in these bonds would be prohibited from receiving a government bailout if the bank holding them were to fail. The bill would also use new credit default swaps on the long-term bonds as a measure of the banks stability. If the rates on the swaps rise too fast the banks could be subject to stress test and could even be placed into receivership by the federal government. The bill also seeks to repeal the ban on proprietary trading with customer deposits known as the Volcker Rule from the Dodd-Frank Act, but Campbell concedes that repealing the Volcker Rule is not a "core element" of the bill.

The bill is problematic in the sense that it puts banks like JP Morgan and Bank of America, which individually have over $2 trillion in assets, in the same category and subject to the same rules as a bank, like Salt Lake City based Zions Bank, which has just over $50 billion in assets. The 15 percent capital cushion is also a completely arbitrary amount. On top of that, banks would still have to comply with the Basel III capital requirements that Dodd-Frank seeks to implement as well. It's double whammy of capital requirements which the big boys with over a trillion dollars in assets may be able bear, but it wouldn't be as easy for banks closer to the $50 billion threshold.

Perhaps the better line of delineation between big and small is $250 billion. This is more along the lines of the 12 U.S. Banks that Richard Fisher identifiedback in January as candidates for TBTF status. Together, these 12 banks hold 69 percent of total industry assets, but only account for .2 percent of all U.S. Banks.

But the spirit of the bill is fine, right? Not only does it aim to lower systemic risk and taxpayer risk, but it also seeks to level the playing field between small community banks and the larger megabanks. This is the point at which you would normally lose any support from free marketeer's on the conservative and libertarian side of the spectrum. Why is it governments role to "level the playing field" between the big banks and their smaller competitors? They would argue that if the free market didn't want big banks, there wouldn't be big banks and that it's not the role of Washington to interfere in the way private enterprise conducts business. Washington coming in and trying to break up the big banks could easily be regarded as just as an intrusive form of regulation as the Dodd-Frank Act was.

But what more conservatives and libertarians are starting to realize is that it's not the free market that keeps these behemoth banks big; it's crony capitalism.

TBTF banks inherently receive a hidden subsidy just because of the fact they are too big to fail. With very few exceptions, precedent has shown that if a large bank or even a large corporation (like General Motors) is on the verge of failure Washington will stop it from happening if the institutions failure might trigger a chain reaction of failures and widespread economic devastation. This precedent has allowed TBTF banks to obtain lower borrowing costs than its smaller competitors who don't have the advantage of having the TBTF designation. Far from being any sort of scarlet letter, the TBTF designation has become a source of immense benefit for the big banks which the Dodd-Frank act does nothing to address. The academic literature on the benefits TBTF institutions receive as a result of simply being TBTF is extensive, and places the amount in subsidies received by the biggest banks between $30-$60 billion a year (less so in the years before the financial crisis).

When it was on the verge of failure Lehman Brothers was able to obtain a substantial amount of short-term credit from the Reserve Primary Fund, a large money market mutual fund, in what some economists like Arnold Kling view as nothing more than "a bet that the government would engineer a bailout." This loan is an advantage that would simply not have been available to a failing community or regional bank at the time, or even now. It's an advantage that the big banks would not be able to receive themselves on the free market without the TBTF bailout precedent that Washington has already set.

In a recent paper, University of Minnesota Professors John H. Boyd and Amanda Heitz find that their calculation indicate that "the cost to the economy as a whole due to increased systemic risk is of an order of magnitude larger than the potential benefits due to any economies of scale when banks are allowed to be large." So what the facts are building up to is a situation in which being a big bank is not necessarily a net benefit for the economy, and part of the reason these banks can be so big is because they are supported by the Federal Government in more ways than one (we won't even get into the revolving door cronyism between SEC officials and TBTF banks over the last 10 years, which has led to numerous exemptions and favorable regulations).

In a sense though Congressman Campbell's proposal, or any variation of it is really a second best option to privatizing the FDIC, which would not only get taxpayers completely off the hook but it would also allow the free market to determine what the best ways are to go about regulating and insuring big banks. Another option would be to allow banks to opt-out of the FDIC system, and obtain private insurance elsewhere, where they would be subject to different private regulations that may be less stringent than the federal governments, but taxpayers wouldn't be on the hook if they were to fail. But privatizing the FDIC system simply isn't politically feasible and unrealistic at this point. Although if you can get Occupiers and George Will to agree on something, then maybe anything is possible.

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