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Out of Control Policy Blog Archives: 9.8.13–9.14.13

Intercity Bus Service Could Replace Amtrak

This year the Passenger Rail and Reinvestment Act of 2008 (PRIA) is up for reauthorization. Similar to other reauthorizations, Amtrak will likely argue that a federally-funded rail system is the "best way to keep costs low, provide customer choices that build ridership and develop economies of scale." Forget for the moment that all Amtrak lines, save two, are money losers even with federal and often state support. Forget for the moment that the big financial losses of long-distance trains defeat the economies of scale idea. Forget that ridership of 30 million pales to the number who drive or fly. All of these arguments have been discredited numerous times. Focus on the one argument that up until now has resonated with Congress: the “customer choices” argument. 

Amtrak was founded in 1970 to allow freight rail operators to quit operating money-losing passenger rail service. Since its inception the government corporation has been a continuing black hole. While fiscal conservatives have long argued that Amtrak lost money, most Democrats and some Republicans have successfully countered that Amtrak offered a unique transportation service. While automobiles offered a customizable journey from one place to another and planes offered a quick but pricy alternative, Amtrak offered the slow but cheap alternative. And since most Congressman were unwilling to cut a travel option for their community, funding for Amtrak remained. 

But over the last ten years, another low-cost competitor has joined the party--Inter-city buses. Unlike Amtrak they do not require taxpayer subsidies. Unlike Amtrak they travel in shared right of ways with cars so they do not require building and maintaining separate running ways. And unlike Amtrak they are owned and operated by private sector companies that actually want to please their customers. 

To highlight the advantages, M.J. Bradley & Associates prepared an analysis for three groups: Reason Foundation, Taxpayers for Common Sense and the American Bus Association that compares customer costs and societal costs for 20 trips that can be taken by either an Amtrak train or a scheduled motorcoach bus. 

The study found: 

  • In general there are more schedule options by bus than by train;
  • Total travel time is comparable for these modes;
  • Considering fully allocated costs the motorcoach cost per passenger is less than 25% of the cost to provide comparable Amtrak service;
  • Amtrak generates enough revenue to cover both operating and capital costs on only 2 of the 20 analyzed trips;
  • Excluding the Northeast corridor, per-passenger emissions of particulate matter and nitrogen oxides are 80% lower for motorcoach trips than for Amtrak and per-passenger emissions of volatile organic hydrocrabons are 90% lower. 

The Amtrak reauthorization in 2013 could be different because travelers have the option of high quality, low-cost buses. Since Amtrak no longer operates a unique service, there is no need for the federal government to continue funding it. The one valid argument for continued public funding of Amtrak has been derailed. 

The entire study is available here.

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One Explanation for DOJs Bizarre Decision to Sue to Stop American/US Air Merger

Surprising most aviation experts, the Department of Justice decided to file a suit on August 14th to block the merger of American Airlines and U.S. Airways. While most analysts expected DOJ to require divesting flights at Reagan National, the consensus was DOJ and the airlines would work this out without the courts becoming involved. 

Most experts agree that If DOJ had a real objection to these mergers, it should have objected to the Delta-Northwest, United-Continental or certainly the Southwest-AirTran mergers. Given that each of these carriers merged leaving us with three big airlines, the prevention of a fourth big airline that would provide vital competition with the other three is arbitrary and anticompetitive. Without a merger American and USAir will have trouble competing with the other big three. American is currently in bankruptcy and may not survive without a merger. 

DOJ’s and the state attorney general’s stated objections are 1) highly concentrated markets, 2) coordinated behavior leading to higher fares and lower service quality, and 3) the elimination of head-to-head competition. But all of the previous mergers had these same issues and DOJ did not object then. The Cranky Flier does an excellent job tearing apart DOJs arguments on his blog.

Clearly there are other issues at play. DOJ is concerned about service out of Reagan National airport. The one other time the government sued to stop a merger, Reagan National was also affected--the 2001 proposal to merge US Air and United. Washington folks are likely concerned that service from DC will drop but since Reagan is the preferred of the three DC airports, this seems very unlikely. Total traffic from Reagan set a new record high for passengers in 2012. 

Other airlines are interested in adding gates at Reagan. Delta swapped its gates with USAir for gates at LaGuardia. Delta would love to add more gates at Reagan. Southwest would certainly be interested in expanding at Reagan and would likely provide service to many medium sized markets. Further, there are also two other airports in the market. These airports are Washington Dulles where United has a hub and Baltimore-Washington where Southwest has a hub.

The real issue to the attorneys general of the various states is hubs. Cities want their airport to be a hub for at least one airline. The combined airline will have 8 hubs, 6 major and 2 minor, which is three more than it needs. But most of these hubs will likely see minor service reductions:

Dallas: American’s Dallas hub is the second largest in the world. American is unlikely to cut service here.

Chicago O’Hare: This airport ranks second in the U.S. both number of flights and number of passengers. American might cut a small amount of service but major cuts are unlikely

Miami: This airport may see cuts in domestic service as this is a geographically poor domestic hub, but this will be offset by an increase in international flights.

Charlotte: This airport may see a decrease in international service but will likely keep most of its domestic service. Despite having fewer than 2,000,000 people in the metro area, Charlotte’s US Airways hub is the third largest airline hub in the world.

Philadelphia: This hub’s fate is more challenging to predict. However, with the competition for gates in New York intense most analysts expect small service reductions in Philadelphia. The city is likely to remain a hub.

Phoenix: This hub’s fate is also challenging to predict. Sandwiched between Dallas and L.A. this hub is probably not necessary. But American’s L.A. hub is relatively small. Unless the airline can secure substantially more gates at L.A., American may not close its Phoenix hub. Regardless, Southwest also has a hub in Phoenix, so the airport will have quality airline service no matter what American decides.

New York City: This is another small hub for American. Both La Guardia and Kennedy have fewer than 100 American flights a day. NYC is an important metro area with Delta and United having larger hubs. American may close this hub but it is unlikely to matter. 

The following chart shows airline hubs by region.

Table 1: Airline Hubs by Region



Airline

Northeast hub

Southeast hub

Midwest hub

Central hub

Rocky Mountain hub

West Coast hub

Delta

NYC-Kennedy,

NYC-LaGuardia

Atlanta

Detroit

Minneapolis

Salt Lake City

(Los Angeles, Seattle)

United

Washington-Dulles

 

Chicago-O’Hare, Cleveland

Houston-Intercntnntl

Denver

Los Angeles, San Francisco

Southwest

**

Baltimore-Washington

Atlanta

Chicago-Midway

Houston

-Hobby

Denver, Phoenix

(Los Angeles, Oakland)

American/

US Air

Philadelphia, (New York City)

Miami, Charlotte

Chicago-O’Hare

Dallas

Phoenix

(Los Angeles)

*Cities in parenthesis represent smaller hubs with fewer than 150 flights per day.

**While Southwest calls its hubs focus cities, the larger focus cities function as hubs. 

So while hub closings are possible, they do not look to be a major issue. Many states/cities do not have to worry about losing their hub(s).

USDOT and States’ Attorneys General are using emotion—that of angry Americans--to guide their decisions. DOT knows (I hope) that they do not have a case. But they believe that they have to do something for Americans upset with airlines. Filing a lawsuit that they cannot win shows that these regulators sympathize with everyday Americans. 

The reality is that Americans, particularly in smaller metro areas have long been spoiled. They have been receiving the benefits of great air service while the airlines have lost money and taken government bailouts. Cincinnati and Memphis could never support their hubs. Airlines wasted millions flying half full planes and offering discounts. This unsustainable business model forced every legacy carrier into bankruptcy at least once. Savvy leaders finally realized they had to make changes, including cutting unprofitable routes. By allowing previous mergers and blocking this one, DOJ is not only acting arbitrarily but protecting an oligopoly that excludes other carriers. DOJ is taking action even if such actions only make the situation worse. 

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Charlotte Transit Agency Uses Infographic to Mislead on Transit's Effectiveness

The infographic that the Charlotte Area Transportation System (CATS) created to help sell the public on plans to extend its light-rail line has so much spin, most folks will feel dizzy after reading it. As reported by Eric Jaffe in The Atlantic Cities, the agency created “Truth About Transit,” an infographic designed to promote the LYNX rail extension. While none of the claims is dead wrong, taken together they leave the impression that CATS rail is far more effective than it is in reality. What is missing is any background, context or objectivity. CATS came up with nine so-called myths; I will address the four most egregious.

 

Supposed Myth According to CATS: Light rail ridership projections are inflated.

CATS claim: Charlotte’s light rail ridership for the opening year was 53% over forecast.

Reality: Long-term light rail ridership projections for Charlotte are inflated.

How CATS spun this: CATS actually released three different ridership figures. When it submitted the proposal to the federal government, it submitted a ridership forecast of 25,700. Then, after it received federal funding, it revised its forecast downward to 18,100. Finally, before the line opened it revised its forecast downward again to 9,100. Since, CATS used the 25,700 number to get federal funding, that is the correct number to use in calculations. To be charitable we calculated the percentages for the 18,100 figure as well. 

Light rail ridership for the opening year was 30% under the official forecast and 8% over the revised forecast. Light rail ridership today is 47% under the official forecast and 25% under the revised forecast. 

According to calculations from the National Transit Database, at the end of its first full year LYNX ridership averaged 19,700 daily riders. However, the forecast the agency provided to the federal government for funding indicated 25,700 weekday riders. And the agency’s revised forecast of 18,100 is similar to LYNX’s best year. 

How did LYNX get the 53% over figure? It used rail ridership forecasts for the opening year of 9,100 riders, which the agency deliberately low-balled to make ridership look high.   

The more salient point is that ridership has declined significantly from 2008. Today ridership averages 13,500 people. Why? Despite the recession ridership in cities with effective transit systems such as New York City and Washington is increasing. It is likely that many early riders viewed the system as a tourist attraction. They would ride it several times to see how LRT worked. Others tried if for a year or two and realized they could commute more quickly by car.

 

Supposed myth according to CATS: Charlotte light rail carries fewer people than a lane of I-77.

CATS Claim: One lane of I-77 can move 2,200 people per hour, LYNX could transport 6,240 people per hour.

Reality: Charlotte light rail carries far fewer people than a lane of I-77. For every passenger the LRT line moves, I-77 moves 5.7.

How CATS spun this: Of all CATS’ claims this comes the closest to being an outright lie. According to transit consultant Tom Rubin, on a weekday CATS currently carries approximately 4,054 passengers per directional route mile while I-77 moves approximately 23,471. According to basic math 23,471 is a lot larger than 4,054.

CATS further assumes total occupancy of 236 to justify its claim. It also assumes that trains will expand to 3 cars. But the current 2-car trains are underutilized so why would it expand them to three? Accepting the 3 car trains, this would require squeezing passengers into cars like sardines, something that works in China but will never work in Charlotte. And the high number of passengers will decrease the number of trains per hour that operate since full trains take longer to load and unload. (I realize Charlotte does not have experience with really full trains but that's how it works in New York City and Washington D.C. where they do.)

 

Supposed myth according to CATS: Transit is used in only 2-3% (home-work) trips made each day

CATS Claim: CATS attracts up to 17% of commute trips into major employment zones

Reality: Transit is used by 1.9% of (home-work) trips made each day

How CATS spun this: Yes, some corridors have higher transit service than others. This is as true in Casper, WY as in New York City. But the supposed myth that a very small percentage of Charlotte commuters use transit is a fact. No matter the spin 1.9% of commuters in the region, or 32,000 of 1,700,000 people, is a very small percentage. Worse, building and maintaining rail has caused the agency to cut back on bus service. So while the few people lucky enough to work at major downtown corporations can now use one rail line, the rest of the metro area is facing significant cutbacks in bus service. Many families who do not own a vehicle and cannot bike or walk to work now face longer transit commutes or no transit service at all. As a result, this type of new rail line can lead to fewer total people commuting by transit.

 

Supposed myth according to CATS: Transit doesn’t reduce vehicle miles traveled (VMT) per capita

CATS claim: In regions with both rail and bus options, there are fewer vehicle miles traveled per capita than in bus only or limited transit cities

Reality: There is no proof that transit reduces VMT. It is possible; we just do not know.

How CATS spun this: While this claim is not as crazy as some of the others, there are no peer-reviewed studies that support it. Further the data CATS uses to back up its claim are laughable. First, VMT is influenced by a host of factors. Density is the most important but land-use, development patterns and politics also matter. The prevalence of transit is maybe the 25th most important factor.

Before we address this claim, let’s correct CATS’ transit vocabulary. There is no such thing as “Large Rail.” It is either heavy-rail or high-capacity-rail. And there is no such thing as “Small Rail.” It is either light-rail or low-capacity-rail. And Bus Only is a bad term as well. There are many types of bus service—local, limited-stop, express, BRT, premium. There terms are very creative but no transit officials labels light-rail as small rail. 

Let’s examine CATS comparison cities: New York and Dallas. New York City has 18 times more people than Charlotte. New York, has lower VMT because it is extremely congested, located on water and built before World War II when cars were less prevalent on a pre-planned street grid. Even without its fantastic transit network it would still have a much lower VMT. 

Dallas has seven times more people. And Dallas has a lower VMT because congestion is much more severe. Worsening congestion to lessen VMT is a perverse policy goal. Further, Dallas is the poster child for how not to build rail. Despite populations increases and the addition of a light-rail network, fewer people take transit in Dallas in 2013 then before the light-rail network was built. When a region spends billions to build transit and the total number of people commuting by transit declines, you have made some major mistakes.

Charlotte developed after World War II with no geographical boundaries when cars were more prevalent with one of the smallest population densities for any medium sized city in the world. As a result of these factors, not the quality of transit, Charlotte has a high VMT. 

If we take CATS logic at face value, CATS wants to spend lots of money on new trains while cutting bus service. First, this will cause economic hardship for transit dependent riders. Second, because the city has no money to expand its highways, congestion will be so bad that people will drive fewer miles. And those added trains, similar to ones in Dallas, will be mostly empty. Is that really a goal worth achieving? 

CATS has exaggerated its ridership, its trains' real capacity, the importance of one train line and transit’s effect on VMT. This same agency wants taxpayers money to extend a light-rail line that is currently underused. The agency hopes that since facts are not compelling, a little spin will do the trick. Here’s hoping Charlotte taxpayers look at the facts.

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Wilmington, Delaware Rejects Pension Increase But Problems Persist

The City Council of Wilmington, Delaware rejected a recommendation by the city pension commission to increase public employee pensions for the first time since 2006 on Thursday. The recommendation would have increased annual public employee pensions between $93 and $547 a year, a modest change but an unaffordable annual cost to the city of $200,000.

Chief among the concerns behind the vote was the reality that city pensions are already underfunded. Funding ratios for the largest plans, which use a 7.5% investment return assumption, range from 47.6 to 83.5%.

The city forecasts significant increases in spending on the five city pension programs.

According to the FY 2014 budget, approved in May:

  • FY 2012: Wilmington spent $14.4 million out of a budget of $147.8 million (9.72% of the budget)
  • FY 2013: Wilmington spent $14.7 million out of a budget of $145.7 million (10.1% of budget)
  • FY 2014:Wilmington is budgeting $15.6 million out of a budget of $145.5 million (10.69% of budget)
  • FY 2015: Wilmington projects it will spend $16.4 million out of a budget of $153 million (assuming 10% property tax increase; 10.7% of budget)
  • FY 2016: Wilmington projects it will spend $17.2 million out of a budget of $155 million (11% of budget)

The city, well aware of the escalating costs of public employee pensions and the corresponding diversion of increasing amounts of tax dollars to fulfill pension obligations, by rejecting the pension commission's recommendations has at least spared taxpayers from having even more of their tax dollars funneled away from city services.

The city has previously made adjustments to the city pension system--by passing responsibility to the state.

The city shifted pension management responsibility to the state for police and firefighter pensions hired after August 1991, and in 2011, closed the city's pension program for new general employees. All employees hired after July 2011 have been enrolled in the state pension system. According to 2013 a Pew report on city pension systems, City Treasurer Henry Supinski expects the closing of the city plan to "reduce expenses and ease the city’s administrative burden."

While this may alleviate some pressure from the city of Wilmington, the Delaware state pension system has problems of its own.

According to a recent report by State Budget Solutions, using a fair-market valuation of tying the Delaware pension system's investment returns to the same rate as Treasury bonds, the Delaware pension system is only 48% funded. With liabilities of $16.3 billion and assets of $7.8 billion, Delaware's state pension system has a per capita unfunded liability of $13,324.

Long-term budgets in Wilmington and Delaware are likely to be increasingly occupied by rising pension costs, as municipal and state governments across the country are similarly dealing with. Meanwhile, taxpayers may become increasingly aware that they are paying more taxes and getting fewer services for them.

The issue of pension reform may be unpopular with some special interest groups, but for the sake of taxpayers and systemic stability, it is an issue that needs to be addressed. Simply rejecting proposals to increase pension benefits across the board and passing responsibility to larger government systems may give the illusion of sustainability for a short time, but it may actually just delay the inevitable: reform or implosion.

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Benefits of Denver Plastic Bag Fee "Minuscule"

 

Denver is among several major U.S. cities including San Diego, Dallas, and New York City considering plastic bag taxes and bans. The idea is to nudge residents to go "green" by using less "single-use" plastic bags in favor of reusable bags in an effort to reduce waste and litter from plastic bags.

The proposed legislation in Denver, which is actually less onerous than a lot of recently passed ordinances which ban the use of plastic bags outright, would charge consumers a 5 cent fee (essentially a tax) for every paper and plastic bag used. Retailers would also need to keep track of the amount of reusable, paper, and plastic bags used by consumers at checkout. The city would retain 3 cents of every bag sold to pay for education campaigns and to buy reusable bags. Stores would get 2 cents to implement the program.

 At the request of Mayor Michael Hancock, who is against the City Council's bag tax measure, the Denver Office of Sustainability has been researching the potential impact of the proposed legislation. The Office's findings are fairly clear:

 

  • A bag fee would at best make only a "miniscule" contribution towards the City's 2020 goal of reducing waste sent to landfills by 20 percent. In fact high-density polyethylene bags, the kind most frequently given out at grocery stores, make up only 0.3% of municipal solid waste in Denver.

 

 

  • In terms of litter, the Office of Sustainability found that an in-depth study of litter associated with the bags that would be subject to the fee would be necessary before the city can sufficiently develop and recommend policy around the use of plastic bags. At current, the city has access only to "speculation and anecdotes" when debating litter issues related to the ordinance.

 

At the moment, the City Council is likely to pass the legislation with 7 of the 13 council members in support of the legislation. While Mayor Hancock has hinted he may veto the bill if passed by the City Council, he hasn't vetoed a bill in his two years in office so it's by no means a sure thing. At the very least, the take away of this report should be that more research is necessary and more questions need to be answered before such a fee is considered.

Read more from Reason on the impact plastic bag bans and taxes here and here

 

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Chicago Stops Midway Privatization Deal, Time for FAA to Give Other Large Airports a Chance

Chicago Mayor Rahm Emanuel’s abrupt cancellation of his planned 40-year lease of Midway Airport to a private consortium has led some to question the future of U.S. airport privatization. On the contrary, if the Federal Aviation Administration acts responsibly, the Midway debacle could open the airport privatization door to other hard-pressed cities.

When Congress created the Airport Privatization Pilot Program, it decreed that only one of the five “slots” in the program could be used to lease a “large hub” airport (the 29 largest, based on annual passenger counts). For more than five years, Chicago sat on that slot, preventing any of the other 27 large non-Chicago hubs from even considering privatization. In the FAA reauthorization bill enacted last year, Congress increased the number of slots to 10—but retained the “only one large hub” restriction. The law does not spell out how long an applicant may occupy a slot without using it.

Chicago first tried to lease Midway under former Mayor Richard Daley in 2008. But after it selected the winning bidder in 2009, that bidder was caught out by the credit markets collapse and was unable to finance its $2.5 billion bid. When Rahm Emanuel ran for mayor after Daley retired, he campaigned against asset privatizations. But last year, faced with mounting budget problems, he decided to revive the Midway-lease idea. Chicago had held onto its slot thanks to FAA granting its repeated requests for extensions. But when FAA granted the most recent one, it warned that it would be the last.

There are good reasons for FAA to stick to its guns. First, five years ought to be enough time for one applicant to hog the only slot available to any of America’s 29 largest airports. Second, while Chicago could claim mitigating circumstances in the collapse of its first attempt, terminating the second attempt was the city’s own decision.

Third, and most important, in creating the Pilot Program (and expanding it last year), Congress intended to give the cities and counties that own airports the opportunity to try out a phenomenon that has led to many of the world’s largest airports to be sold or leased to a growing investor-owned airport industry. Among these airports are Auckland, Buenos Aires, Copenhagen, Frankfurt, London’s Gatwick and Heathrow, Melbourne, Rome, Sydney, and Vienna (large hubs, all).

Many city and county governments face massive shortfalls in their pension systems, as well as under-funded infrastructure. Of the 27 governments that own large hubs other than Chicago, it’s quite possible that one or more would seriously consider a long-term lease of its airport for several billion dollars—if a slot in the Pilot Program were available. They should have this option, as Congress intended. Chicago had its chance—and blew it. FAA must open the door to the other 27.

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