Reason Foundation - Experts > Samuel Staley

High-Speed Rail Fails As a Jobs Program

sam.staley@reason.org (Samuel Staley) — Mon, 17 Aug 2009 00:00:00 EDT

The only major transportation program inserted into the $787 billion federal stimulus package was $8 billion for so-called high-speed rail. The Obama administration later added another $5 billion to the passenger rail kitty, bringing the federal commitment to $13 billion. The administration’s initiative, however, may soon become a potent symbol of the economic stimulus program’s failures.

In April, President Obama claimed “my high speed rail proposal will lead to innovations in the way we travel” and new rail lines “will generate many thousands of construction jobs over several years, as well as permanent jobs for rail employees and increased economic activity in the destinations these trains serve.”

Even House Minority Whip Eric Cantor, who voted against the stimulus bill, now wildly praises rail’s job-creation potential, writing, “It is estimated that creating a high-speed railway through Virginia will generate as many as 185,500 jobs, as much as $21.2 billion in economic development, and pull nearly 6.5 million cars off the road annually. Providing a high-speed rail service from Washington, D.C. to Richmond will drive economic development throughout our region for many years to come.”

Michigan Gov. Jennifer Granholm calls the Midwest high-speed rail corridor a “one-of-a-kind partnership that will create jobs for Michigan workers, enhance transportation options for citizens, and provide significant economic development opportunities for communities.”

Parroting estimates made by the Association of American Railroads, Gov. Granholm claims that a one billion dollar investment in rail will generate 20,000 jobs. The $1 billion estimate for “investment” refers to construction, maintenance, and the purchase of equipment such as locomotives and train cars to run on rail lines.

Setting aside Rep. Cantor’s ludicrous 185,000 job creation claims, which are so unreasonably high as to strain credibility let alone plausibility, even the 20,000 jobs per billion dollars spent figure cited by Gov. Granholm would represent a very expensive public jobs program. At the most basic level, that works out to $50,000 per job and would likely represent a subsidy higher than the wages paid to the typical worker.

There are, in fact, better and cheaper ways to create jobs. For example, the federal government could give tax credits to private firms that create new jobs. This type of new jobs subsidy would run about $20,000 per worker and spur up to 1.3 million jobs according analysis by the Upjohn Institute for Employment Research in Michigan.

Of course, rail proponents argue that spending money now on high-speed rail is a long-term investment that will pay off in higher economic productivity over the long-haul. But these job creation and income estimates they use are based on spending for freight rail, not passenger rail.

Freight rail in America is a crucial part of our transportation infrastructure, accounting for 43 percent of the shipment of goods and services from one city to the other. Thus, investments in freight rail have a direct impact on the bottom line for American businesses, increasing the speed and reliability of goods shipment and improving productivity.

Passenger rail in the U.S. is a different story. Passenger rail currently carries a very small portion of city-to-city travel—the market targeted by high-speed rail—and it’s likely to remain modest well into the future. In 2008, Amtrak carried 28.7 million passengers. By comparison, there were 687 million airline passengers in 2008, in part because air service provides frequent high-speed travel to geographically distant cities. Then there’s our well-developed highway network that makes automobiles very competitive with rail for distances under 200 miles. In most cases, once travel and wait times to train stations are factored in, travelers will spend as much time in route on the train as they will in a car.

Consider a trip from Los Angeles to San Francisco, or Chicago to St. Louis, for a typical high-speed train traveler. You’ll likely have to drive to the train station and pay to park. Once arriving in downtown St. Louis or San Francisco, you will like have to take a taxi or rent a car to get to your hotel or meeting place (which is likely to be outside the central business district). The reliable, diverse, and nimble transit system that many advocates envision surrounding high-speed rail stations simply doesn’t exist in most cities today, limiting the appeal of trains. To compensate for these disadvantages, taxpayers will have to steeply subsidize train ticket prices for the business travelers and tourists that are most likely to use them.

Ultimately, high-speed rail’s impacts on American travel patterns and employment productivity are going to be negligible, and the actual job creation potential for high speed rail is much more modest than proponents admit.

Take, for example, the Ohio Hub corridor linking Cincinnati, Cleveland, Columbus, and Toledo to regional destinations such as Chicago and Toronto. Ohio is one of the nation’s largest state economies, employing 5.3 million people. As an old-line manufacturing state, Ohio has lost 300,000 jobs just in the past year. Needless to say, Ohioans will be attracted to the optimistic rhetoric of rail’s job creation potential. Moreover, preliminary estimates by independent consultants suggest the Ohio Hub may actually cover its annual operating costs (although supporters are counting on the federal government covering 80 percent of capital costs of the $3.7 billion project).

Yet, even with these federal subsidies the consultant reports suggest that a $2.3 billion investment in building the rail corridor would generate only 54,540 jobs over the projected nine-year construction phase. That works out to 2,635 jobs per year at a cost of $42,170 per job. Further analysis found 16,700 permanent jobs would be created by the system once the system was up and running, assuming optimistically that ridership reaches forecasted levels and fares are set to cover its operating costs. While that might seem like a lot of jobs, the effort will do little to stem the economic tide turning against Ohio and other states facing the headwinds of global competition and a rising services-based economy.

For transportation investments to have a meaningful economic impact, they will need to cost-effectively improve America’s ability to move goods, services, and people from one place to another. High-speed rail doesn’t do that. It is an extremely costly way to achieve limited portions of these goals, and it inevitably fails as a broad-based solution to the country’s transportation challenges.

In the end, high-speed rail’s contribution to the economic recovery and the nation’s economic productivity is being oversold. Elected officials, from Rep. Cantor to President Obama, would do a far greater service to the public’s understanding of the economy if they would focus on economic fundamentals, not glitzy boutique policy programs that will inevitably fail to meet grandiose expectations they have created for them.

Sam Staley, Ph.D., is director of urban growth and land use policy for Reason Foundation and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield).

Parking Pass

sam.staley@reason.org (Samuel Staley) — Mon, 03 Aug 2009 13:57:00 EDT

Ordinarily, killing a government subsidy would be cause for celebration. But don’t rush out to buy party hats for a purported parking privatization proposal in California. A quick summary of Senate Bill 518, introduced into the California General Assembly on February 26, makes it sound like a money-saving, taxpayer-friendly reform: The legislation would “require that state funds not be used, directly or indirectly, to subsidize parking services” after January 1, 2011. Yet a closer look reveals something more sinister.

In fact, the legislation encourages broader actions by anti-car politicians and bureaucrats to banish the automobile from normal travel. It forces landlords to charge separately for parking, requires employers to provide transit passes as an alternative to parking, and gives preferential treatment to mass transit by requiring employers and landlords to charge a minimum parking fee at least as high as the cost of a monthly transit pass. It also urges tight limits on parking in downtowns, shopping districts, and other places that planners believe should be transit-oriented. Local governments and state agencies will use higher mandated parking fees to push people onto buses and trains, even if it lengthens their commutes.

Transportation and Mobility Take a Backseat in Obama Administration

sam.staley@reason.org (Samuel Staley) — Fri, 17 Jul 2009 11:36:00 EDT

Few would have guessed that a $500 billion federal spending commitment would be considered so trivial it could be put off for almost two years. Yet, that’s where we stand in 2009.

With unemployment nearing 10 percent and the federal deficit officially hitting $1 trillion, the Obama administration has decided it has more important priorities than the transportation reauthorization bill in its extreme makeover of the federal government. The administration, via Transportation Secretary Ray LaHood, has suggested delaying the six-year highway bill for 18 months while other priorities are dealt with, and the Senate leadership agrees with the White House’s priorities.

In terms of mobility and the nuts-and-bolts of transportation policy, a delay is probably the best idea. Rep. James Oberstar (D-MN) and Rep. John Mica (R-FL) recently put forth their plan for a $450 to $500 billion transportation bill, but omitted one very important part: how to pay for it.

Given that failure, the Obama administration has decided it is better to patch up a $20 billion hole in the Highway Trust Fund and craft the long-term highway bill down the road than it is talking about raising the gas tax to pay for Oberstar’s grand plans.

Unfortunately, congressmen failing to offer a revenue stream for their grand spending plans and presidents looking for short-term transportation fixes aren’t unusual. Our political leaders have notoriously underestimated the importance of mobility and transportation investments to the nation’s economic competitiveness. Most presidents since the 1950s have left the task of managing national transportation priorities to Congress and their appointed secretaries of the U.S. Department of Transportation. And the results have been dismal.

Traffic congestion has climbed steadily for more than 30 years. The Texas Transportation Institute recently reported that traffic delays went down slightly in 2007, but that was due to high gas prices and a weak economy, not improved infrastructure. Delays will pick up again when the economy grows. As it is, travelers in 30 of the nation’s 43 largest urbanized areas waste an entire work week stuck in severe traffic jams each year. Business spending on logistics—getting goods and services from point A to point B—has increased by $413 billion since 2004 in part because of the inefficiencies embedded in our failing transportation system. Traffic congestion’s annual monetary cost to the nation’s economy may exceed $150 billion, and this estimate fails to include the negative impacts on our quality of life from the added stress to commutes, missed dinners and soccer games, and overall narrowing of our world as travel beyond the neighborhood becomes increasingly difficult and expensive.

Given the widespread economic and social costs caused by this gridlock, why is the Obama administration putting transportation policy on the backburner? Quite simply, transportation policy has been deemed less important than the economic stimulus, bankrolling failing companies such as General Motors and AIG, climate change legislation, ramping up federal control over the nation’s health car system, and multiple other issues.

The only substantive transportation policy initiative endorsed by the Obama administration thus far has been the $13 billion in new federal commitments for high-speed rail. Unfortunately, this is likely to be a boondoggle that ends up serving two percent of the traveling public along a few highly traveled corridors in the Northeast and West Coast. It isn’t going to jumpstart the economy, nor will it reduce traffic congestion.

While the Obama administration’s neglect of strategic policymaking has left transportation policy in disarray, a silver lining may be emerging from the haze. A delay in considering major new transportation legislation might finally provide the full public discussion on the future of federal transportation policy that it deserves.

National transportation policy needs to be re-thought. Key issues that need to be elevated into this national discussion include:

Keeping federal spending and oversight focused on transportation investments and decisions of national significance;
Prioritizing infrastructure investments on mobility to ensure that access to jobs, services, and goods are the focus of the U.S. Department of Transportation;
Shifting federal funding toward highway and transit user fees and away from gas taxes to create a more customer-directed and sustainable funding mechanism for transportation projects;
Expanding the innovative financing tools and public-private partnerships available to state and local governments so they can tap into private funding sources to supplement public transportation spending;
Giving state governments more discretion over what projects deserve the highest priority in meeting their transportation goals and objectives.

Thus far, the Obama administration’s approach to transportation policy has been embarrassingly naïve, viewing projects as job creators rather than essential building blocks for a globally competitive economy. But the Oberstar-Mica transportation bill isn’t real reform or good transportation policy either and it should be shelved.

Ultimately, the solutions to local traffic congestion and rising transportation costs will not be found in Congress or the White House. It’s time to give the states the real power and authority to meet their challenges head-on, while the D.C. establishment plays a supporting role as facilitator rather than the heavy-handed central planner.

Can the U.S. Copy Spain's High-Speed Rail System?

sam.staley@reason.org (Samuel Staley) — Fri, 19 Jun 2009 00:00:00 EDT

Transportation Secretary Ray LaHood traveled to Europe recently to study high-speed trains in Germany, France, and Spain. Spain’s system apparently captivated U.S. transportation officials because of its scope and alleged cost-effectiveness. It’s unclear, however, whether they took away the lessons that count for transportation policy in the U.S.

True enough, Spain may have the most aggressive and advanced high-speed rail plan in the world. Service from Madrid to Seville began in the early 1990s, and the program has been a cornerstone of the governing socialist party’s attempts to forge a sense of national unity.

The current plan calls for the network to have more than 6,000 miles of track by 2020, putting 90 percent of the Spanish population within 30 miles of a high-speed rail station. Trains will hit speeds of 186 mph. Despite lower construction costs than experienced by either France or Germany, the program will likely cost Spanish taxpayers at least $100 billion Euros (or about $140 billion) if completed.

This is truly an impressive plan. And that’s just it. It’s a plan—for Spain.

Touting the Spanish high-speed rail plan as a “national model” for the U.S. is a stretch by most measures. The two countries are simply on different scales. Geographically, Spain is about twice the size of Oregon (or about 20 percent larger than California). Per capita income is lower than California and about equivalent to Oregon. Spain’s economy churns out about $1.4 trillion worth of goods and services every year, a little less than California.

Spain’s “national” rail network would be roughly equivalent to building out a web of rails for a regional system in part of the U.S. And it would be more expensive, probably running more than $300 billion for a six thousand mile network similar to Spain’s on the West Cost, Midwest, or East Coast. The cost of mimicking Spain and building a national high-speed rail system that would put 90 percent of the U.S. population within 30 miles of a high-speed rail station would be truly astronomical.

But no one in the U.S. is seriously proposing anything close to the kind of national network the Spanish claim to be implementing. On the contrary, most analysts recognize that a truly national high-speed rail system in the U.S. doesn’t make sense.

First, high-speed rail can’t compete effectively over long-distances (trips over 500 miles) even under the best of circumstances. Air travel is faster, cheaper, and more cost-effective. For trips under 100 miles, the automobile and existing urban transit almost always provide a superior alternative to high-speed trains. To the extent they can compete, high-speed trains best serve the downtowns of major cities along major corridors, such as Washington, D.C.-Philadelphia-Boston-New York City.

Second, major U.S. metropolitan areas are already linked together through the Interstate Highway System and a well-developed network of air-travel corridors. At best, high-speed rail creates redundancy in the system, not added capacity. Rather than improving mobility, high-speed rail would need steep public subsidies to cannibalize traffic from existing, largely unsubsidized commercial air traffic.

Third, most of the economic drag from travel delays and congestion is metropolitan, not intercity. The core travel problem faced by U.S. cities and regions is how to improve circulation and reduce traffic congestion within urbanized areas, not how to speed up travel from one major city to the next.

Last, but not least, intercity train travel is barely even noticeable in the U.S. travel picture. Amtrak, while taking massive taxpayer subsidies, accounted for just 5.4 million passenger miles in 2006 (the most recent available data). Meanwhile commercial air travel tallied up 590 million passenger miles, and cars accounted for a whopping 2.7 trillion passenger miles.

A comprehensive and truly European-style high-speed rail plan arguably would attract more riders than Amtrak. But even if we double intercity passenger rail patronage in year one of a new system, it would barely equal 2 percent of commercial air-traffic volume—even if all the new rail riders were former air travelers.

Moreover, the strategic plan for U.S. high-speed rail suggests nothing more than a marginal improvement to the current transportation network. The plan calls for upgrading 10 rail corridors to accommodate speeds of 110 miles per hour, not the 150 mph or more commonly considered “high speed” in Europe and Asia. These corridors are also in heavily urbanized (and well-serviced) parts of the Midwest, East Coast, and West Coast.

Although each line will be linked to an existing national rail (Amtrak) route, the current plan hardly qualifies as a “national network” of high-speed rail service. That doesn’t stop the rhetoric though.

The Federal Railroad Administration claims high-speed rail could “transform the nation’s transportation system” by upgrading the nation’s rail infrastructure and committing to developing its 10 corridors.

Unfortunately, the reality of high-speed rail will fall far short of the hype. The U.S. is too large, too wealthy, and too complex to be transformed by investments in a single mode of transportation, particularly one that focuses on a very small part of the overall travel market and doesn’t fit with the country’s size or geography.

Policymakers would serve the American public far better by refocusing their efforts on solutions that would help a broad base of travelers such as reducing urban traffic congestion and upgrading freight corridors to increase the flow of goods and people. The U.S. economy will benefit from the lower transportation costs generated by improved mobility, not shifting travelers from a low-cost transportation service to a high-cost one.

Sam Staley, Ph.D., is director of urban growth and land use policy for Reason Foundation and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield).

Recognizing the Limits of Transit-Oriented Development

sam.staley@reason.org (Samuel Staley) — Mon, 18 May 2009 14:57:00 EDT

With high gas prices prompting a surge in transit ridership to 52-year-highs, there are calls to dramatically increase investment in public transit. The danger, however, is that transit advocates might take their argument about the successes of transit too far. Indeed, this may well be the case with the so-called claims about “transit-oriented development,” or TOD, where transit advocates often suggest that transit is a driver of economic development.

For the most part, property values increase around transit stations. Often, the range of the increases is between 25 to 30 percent higher than the growth non-transit neighborhoods. Unfortunately, these same studies about property values have not examined the underlying causes of these price increases. Despite that, many observers simply assume proximity to transit is the most important factor.

Lots of factors influence private investment, including public safety, access to jobs, quality housing, tax rates, financing, and zoning. Access to transit is likely far down the list compared to these other factors.

A closer look at the numbers suggests that actual transit ridership has little relationship to the private investment around transit stations.

Take the Dallas Area Rapid Transit light rail network, or DART, which is often heralded as one of the most successful new systems in the country. DART’s light rail trains carried nearly 20 million riders in 2008, up 10 percent from 2007 and its website declares the system has “the power to drive land use and urban development in exciting and environmentally friendly directions.”

An analysis of investment within one-quarter mile of transit stops - the standard rule of thumb for estimating maximum impact of transit - by economists at the University of North Texas at Denton estimated that the transit investments triggered $3.3 billion in new investment between 1999 and 2005.

Unfortunately, the economists didn’t examine transit ridership. If they had, their conclusions might have been very different, or at least significantly tempered. The Mockingbird and downtown Plano DART stations, for example, attracted nearly the same level of investment - $270 million and $260 million in new investment respectively. Yet, their ridership is nowhere near the same. Plano’s annual transit ridership was just 22 percent of the level at Mockingbird.

Similarly, the areas near the Galatyn Park and Cedars DART stations attracted nearly the same amount of investment. Yet Galatyn Park’s transit ridership was just 30 percent of the ridership at Cedars. Indeed, some of the stations with the highest ridership—including Pearl, Westmoreland, and the VA Medical Center—had among the lowest levels of investment.

Transit ridership is not driving property development decisions around light rail stations. Other factors are, although most studies have done little to tease out the real causes and relationships.

Although objective research on development and investment around transit stations is sparse, a detailed statistical analysis of investment along the South Corridor of the Charlotte, North Carolina, light rail system raises cautionary flags. The value of development added by light rail to investment amounted to about 13 percent of the $1.86 billion value estimated by the transit agency. After accounting for actual growth (versus announced growth), existing regional and local growth trends, and other factors, former University of North Carolina transportation studies professor David Hartgen figures that any added growth along the light-rail line amounted to about $246 million over 20 years.

The point is not that transit can’t spur economic development. Rather, the concern is that planners and elected officials should not presume that simply improving access to mass transit will goose development in a significant way. The relationship between investment near rail stations and transit ridership is not direct.

This shouldn’t be surprising. Transit follows a fixed-route to specific destinations based on a set schedule. Rail or bus transit is thus frequently an inferior alternative to the flexibility and mobility provided by the customized travel afforded by the automobile. The exceptions are the few places such as Manhattan or travel corridors that are so dense that auto travel is slow and cumbersome.

The rising property values around transit-oriented developments are likely less about providing access to transit than accommodating demand for higher-density and more urban lifestyles that local zoning codes and development regulations impede. To compete against low-density subdivisions, transit-oriented developments must offer significant non-transportation benefits—walkability, mixed uses, public safety, quality housing, urban parks, etc.—to offset the inherent mobility limits of transit. Pharmacies, grocery stores, hair salons, and other neighborhood residential services need to be provided within walking distance.

Understanding the proper role of transit in promoting urban development is important for public policy. Whether we build great urban places or emphasize higher transit use is not a “chicken and egg” choice. Great urban places come first because their benefits offset the individual and social costs of greater dependence on a less flexible, restricted mode of transportation.

In the end, higher transit use is an outcome, not an input, in economic development and urban redevelopment.

Federal and state policies should emphasize transit in the sense that it becomes a service that local residents and businesses demand. Planners and elected officials should not lose sight of the broader need to meet the demand for more dense and varied land uses.

Sam Staley, Ph.D., is director of urban and land use policy for Reason Foundation and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield).

High-Speed Rail Won't Help the Masses

sam.staley@reason.org (Samuel Staley) — Fri, 01 May 2009 16:54:00 EDT

“Imagine boarding a train in the center of a city,” said President Barack Obama. “No racing to an airport and across a terminal, no delays, no sitting on the tarmac, no lost luggage, not taking off your shoes. Imagine whisking through towns at speeds over 100 miles an hour, walking only a few steps to public transportation, and ending up just blocks from your destination.”

Such is the image President Obama painted as his administration launched a nearly $14 billion commitment to start building high-speed rail through out the country. But that imaginary scenario isn’t how high-speed trains will actually play out here in the United States.

Trains embark from terminals on schedules set by train companies, not the riders. Most train stations have parking lots because most Americans don’t, and won’t, live within walking distance of the rail terminal and have to drive to the train station. Riders sit in waiting areas. Many trains, particularly Amtrak trains, are notoriously late, requiring travelers to factor in a time “buffer” on both ends of their destination. Train travelers on overnight trips often check their bags. And, all too often U.S. passenger trains slow and stop on tracks, waiting for freight trains to pass and a green light from the signal indicating the tracks are clear.

One element of President Obama’s description is true: we don’t have to take off our shoes.

Painting implausibly rosy pictures for proposed or pet projects is nothing new. But high-speed rail proponents may be taking this to a new level.

The president, with train commuter Vice President Joe Biden and Transportation Secretary Ray LaHood by his side, called for “a smart transportation system” that would improve mobility, reduce air pollution, boost productivity and create jobs. “What we’re talking about,” he said, “is a vision for high-speed rail in America.”

But high-speed rail cannot become the backbone of a 21st century transportation system in America. To see why, we only need to compare it to the last truly national investment in transportation: the Interstate Highway System

The Interstate system built a national network of highways and connected every major city center in the country at the time. It boosted productivity by providing 24-7 access to a network of roads that linked dozens of cities within metropolitan areas and hundreds of then vibrant downtowns. Economists have estimated that the economic returns on that investment climbed into the double digits because it dramatically reduced travel times, primarily for freight. Decades later, as wealth and productivity drove incomes higher; the Interstate highways enabled the dramatic expansion of mobility for the masses through more intensive use of the automobile.

Contrast this system with the meager high-speed rail routes proposed in the U.S. The planned tracks connect just a few locations within a state. The California system is planning for one stop in Los Angeles, a city of nearly 4 million people. There will be stops in a few nearby cities like Burbank and Ontario. The Bay Area houses a population of nearly 7 million people in 101 cities, but is expected to have just five stops: downtown San Francisco, San Francisco International Airport, Palo Alto (home of Stanford University), downtown San Jose, and Gilroy. California’s won’t get door-to-door service or be within walking distance of many destinations.

In the Midwest, the Ohio “3-C” train corridor plans to link the state’s largest metropolitan areas—Cincinnati, Columbus, and Cleveland—with just 10 stops. These metropolitan areas are home to more than 8 million people in hundreds of cities in more than 15 counties. In contrast to the rail plan’s 10 stops, just one Interstate highway, I-71, links hundreds of cities in the Cincinnati, Columbus and Cleveland metropolitan areas with more than 100 exits. The I-270 beltway circling Columbus, Ohio includes 37 exits alone.

Of course, high-speed rail, unlike the Interstate system, isn’t transportation for the masses. Even with the federal government absorbing almost all the capital costs, prices will likely be too high for most Americans to use it regularly.

Today, a three-hour trip from New York City’s Penn Station in the heart of Manhattan to Union Station in Washington, D.C. on the Acela Express, the nation’s only operational high-speed train, will cost a passenger at least $155 each way. That’s cheaper than flying, but still well outside the budget of a typical commuter.

On the yet-to-be-built California system, a one-way trip from Los Angeles to San Francisco would cost just $70 – not this year, in the year 2030 - according to the California High Speed Rail Authority. Those projected costs are clearly unrealistic.

A detailed Reason Foundation examination of the California high-speed rail plan concluded that the system would need massive taxpayer subsidies to cover basic operating expenses. The due diligence report found "the San Francisco-Los Angeles line alone by 2030 would suffer annual financial losses of up to $4.17 billion." And that’s a $4 billion-a-year loss on what is expected to be one of the most popular parts of the train route.

It’s time for politicians to be realistic: very few people will commute to and from work via high-speed rail or use the trains regularly. These high-speed rail proposals are really catering to business travelers and tourists who already travel by car or use existing commercial airline shuttles between major cities. While this niche market might be robust enough to support a high-fare, rail alternative to flying or driving, all taxpayers shouldn’t be asked pay for it. Asking everyone to shoulder the financial burden of building train lines to benefit a narrow and wealthy segment of the traveling public is just wrong.

Seattle's Long-Range Plan To Beat Traffic Congestion

sam.staley@reason.org (Samuel Staley) — Fri, 24 Apr 2009 15:19:00 EDT

Puget Sound Business Journal

Residents of the Puget Sound region hate traffic congestion. The Seattle-Tacoma-Bellevue urbanized area ranks among the nation’s most congested places, a result of strong growth, geography and a failure to keep its transportation network on par with the needs of the region’s rising wealth.

The Seattle area is on track to match current-day Los Angeles levels of congestion if major upgrades to the road network aren’t implemented now, even with the fall in demand triggered by last summer’s gas prices and the current global recession. The national economy is expected to start turning by the end of the year, and with it will come higher travel demand and congested roads.

The good news is that Puget Sound isn’t necessarily destined for a congested future. Your fate is in your hands. It will, however, take leadership, cutting-edge technology, and a willingness to meet the needs of a globally competitive, service-based economy that values mobility.

Fortunately, the region is ahead of the curve. Washington has at least acknowledged the problem through the state auditor’s study “End Congestion Now.” State and local policymakers have committed to a deep-bore tunnel to replace the Alaskan Way Viaduct, and an Urban Partnership Agreement with the federal government will help underwrite the replacement of the SR 520 bridge. Both projects will also give a boost to public transit.

On the other hand, these investments won’t be nearly enough to meet the challenges of a booming region that wants to remain competitive. The Alaskan Way tunnel will reduce road capacity from six lanes to four. Without upgrades to other arterials and highways, motorists will face even more clogged roads and mobility will fall as a consequence.

Congestion is a time tax that few businesses or employees tolerate in higher income cities.
Greater mobility gives employers access to a greater number of workers, and workers greater access to a larger number of businesses.

The economic consequences are not just theoretical. Reason Foundation Transportation Policy Analyst David Hartgen estimates that relieving congestion over the next 20 years throughout the Seattle-Tacoma-Bellevue urbanized area would cost between $5 and $10 billion but add as much as $13 billion to the regional economy. The Seattle central business district would see its economy goosed by nearly $5 billion as a result of improved access. Reducing congestion in Seattle could generate new output of over $13 billion. Tax revenues alone could be two to three times the construction costs.

Slowing the rate of increase in congestion won’t cut it. The Seattle urbanized area has to focus on reducing congestion below current levels as a policy goal if it wants to achieve the economic benefits of higher mobility.

With current and emerging technologies in transportation, free-flow travel is achievable if strategies and programs are integrated into a long-range transportation plan.

First, transportation planners need to expand the road and transit network to keep pace with the increase in travel demand. This means adding highway capacity as well as improving the efficiency of local roads through traffic signal timing, adding left-hand turn lanes, and removing local bottlenecks.

Second, policymakers need to embrace tolling. This would not be our great-grandfathers’ toll booths, but a seamless 21st century “boothless” network. Travelers would be guaranteed free-flow travel throughout the region by linking these “priced” lanes into a network called a high-occupancy toll, or HOT, network. This technology, along with Washington’s pilot program on Highway 167 between Renton and Kent, is now used in places such as Orange County, California, San Diego, Minneapolis, and Denver. It allows prices to be set by time of day and traffic volume so that free-flow travel is guaranteed 24-7 on the lanes and roads that use it.

Third, regional policymakers need to embrace private capital. Tolling creates a revenue stream that prioritizes projects based on willingness to pay. It also creates non-tax dollars that can leverage private capital to finance new infrastructure. These private funds simply can’t be tapped through traditional tax financing.

A world-class city of the 21st century nurtures nascent global businesses. These businesses thrive by tapping into a skilled, knowledgeable, and productive workforce. A regional transportation policy strategy focused on improving mobility plays in increasing important role in nurturing this productivity and, ultimately, profitability. Failing to acknowledge this role puts the entire regional at economic risk.

Sam Staley, Ph.D., is director of urban and land use policy for Reason Foundation and co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield).

Housing Market Resilience and Affordability in Houston, Texas

sam.staley@reason.org (Samuel Staley) — Fri, 27 Feb 2009 00:00:00 EST

The median price of a single-family home in Houston dropped 8.5 percent compared to January 2008, according to the Houston Association of Realtors. But Houstonians are still much better off than many other major cities. The S&P/Case-Shiller home-price index finds prices in Phoenix have fallen 34 percent over the last year, 33 percent in Las Vegas, and 31 percent in San Francisco.

A new Reason Foundation policy brief finds that Houston’s housing market adapts to changing economic conditions better than the housing markets in other major cities, in part because it is the only major U.S. city without zoning regulations. The brief says this allows the region to maximize flexibility and accommodate housing diversity.

The report says the region’s lack of zoning policies and wide range of land use options helped it when the housing bubble began to burst. For example, between 2005 and 2007, the number of average monthly residential permits issued in Houston fell by 17.7 percent, which was less than half of the decline seen in Dallas-Fort Worth (44 percent) and San Antonio (35.9 percent).

“Houston’s largely free-market approach to land development has been widely criticized by the planning profession,” said Sam Staley, the report’s author and director of urban growth and land use policy at Reason Foundation. “An analysis of residential market trends, however, finds that Houston’s housing market has been more resilient and robust than other cities in Texas, even in the face of what is widely considered an unprecedented housing downturn. Moreover, this resilience is particularly notable for multifamily housing, a residential sector most cities struggle to nurture and accommodate.”

Energy Reduction and Environmental Sustainability in Surface Transportation

sam.staley@reason.org (Samuel Staley) — Tue, 27 Jan 2009 18:10:00 EST

1. Overview

Chairman DeFazio, Ranking Member Duncan, members of the subcommittee, thank you for giving me this opportunity to discuss environmental sustainability and the future of transportation in the United States. This is a central issue as the federal government works toward its six-year authorization of transportation funding, and understanding the proper context for addressing environmental issues will be critical.

I would like to focus my remarks on two over-arching points:

Transportation policy that loses sight of mobility as a central goal puts our economic competitiveness at risk; and
Mobility is compatible with long-term goals of environmental sustainability.

2. Mobility and Economic Competitiveness

First, we must recognize the central purpose of transportation policy is to provide for and improve mobility for citizens and businesses. In other words, transportation policy is focused on finding effective ways to move people, goods, and services from point A to point B faster and cheaper. This central goal should not be minimized despite the more current concerns over the state of the national economy and the vigorous public discussion over the impending stimulus package. At the end of the day, transportation policy will continue to be about providing efficient, safe, and reliable mobility above all other policy goals or objectives, and the focus of reauthorization will inevitably move beyond the short-term politics surrounding the economic recession.

Importantly, mobility is the proper goal of transportation policy. Reason Foundation Vice President Adrian Moore and I explain the critical role mobility plays in ensuring our continued global competitiveness in our book Mobility First: A New Vision for Transportation in a Globally Competitive Economy. We summarize a growing body of research that shows empirically what urban economists have known for decades: Mobility is critical to national and urban economic success.

The reason is straightforward. Economic productivity improves when we lower the costs of production and make it easier for people to interact. Increased mobility gives workers access to an increasingly diverse number of jobs, and employers enjoy greater access to an increasingly large skilled and productive workforce. This is why congestion has such debilitating impacts on economic growth. As congestion increases, and costs of getting from point A to point B grow, production costs increase and the "opportunity circle" that includes access to markets, resources and jobs resources shrinks.

Thus, while transportation investments are critical to economic productivity and growth, job creation is an indirect impact of successful transportation policy and not a primary goal. This, in fact, is the lesson from the Interstate Highway program created in the 1950s. The central objective of this multibillion dollar program was to link the nation's largest urban centers and integrate them into a truly national transportation network. This goal served economic purposes as well as broader national goals of geographically unifying the nation (in much the same way railroads did in the 19th century) and providing for a more efficient national defense.

The economic impacts were enormous and tangible. The Interstate Highway System and upgrades to various state and regional roads boosted economic growth because these new roads reduced transportation costs dramatically, allowing businesses to improve productivity. Some of these effects, such as providing more efficient routes for long-haul freight movement, were intended. Reducing urban traffic congestion was another, less important goal successfully met, although few anticipated the decentralization of metropolitan areas that followed.

As we move forward thinking about transportation and sustainability, we also need to recognize the fundamental link between mobility, economic productivity, and economic growth.

3. Transportation and the Environment

The critical role transportation plays in economic growth and productivity does not obviate the need to consider the environmental consequences of our transportation investments, the environmental impact of different modes, or the way we use transportation facilities. On the contrary, as we become more aware of the environmental impacts of human activity, we have a responsibility to mitigate the negative effects. We have, for example, made tremendous strides toward improving our air quality even as our use of automobiles has increased dramatically. Air quality, by all metrics, has improved steadily in most U.S. urban areas since the early 1970s as a result of new technologies that lowered emissions while preserving the mobility implicit in automobile use. Indeed, rising economic productivity, and the increased wealth that comes with it, allows us to be even more creative and innovative in improving mobility in an environmentally responsible manner.

Thus, mobility and environmental protection can be complimentary goals. The key is to understand the right contexts in which these goals are pursued and choose strategies that allow for both to be achieved simultaneously. Environmental policy that explicitly or implicitly reduces mobility undermines the long term viability of our cities and national economy and, as a consequence, our ability to meet our long-term environmental policy goals.

A case in point is the role technology will play in meeting greenhouse gas targets. Preliminary findings of research being conducted by The Hartgen Group for Reason Foundation indicates that newly legislated fuel mileage standards will outstrip most other commonly proposed strategies for mitigating carbon dioxide by large margins (see Table 1). In an analysis of greenhouse gas trends in 48 urbanized areas, current trends suggest that without mitigating strategies, CO2 will increase 52 percent by 2030. The new CAFÉ mandates recently enacted by Congress will reduce CO2 by 31.2 percent by 2030. In contrast, increasing the price of fuel to $5 per gallon would only reduce emissions by about 4 percent. The combined effect of increasing the transit share of work trips by 50 percent, increasing the walk to work share by 50 percent, and increasing telecommuting would reduce CO2 emissions by just 2.5 percent.

Notably, the new fuel mileage mandates are also more cost-effective, averaging about $52 per ton removed, and meet the McKinsey & Company benchmark reported in Reducing U.S. Greenhouse Gas Emissions: How Much at What Cost? In contrast, most other strategies are significantly more costly. Physical capacity improvements, increasing transit's mode share, and reducing overall travel by raising the gas tax are expected to cost close to (or more than) $4,000 per ton removed.

4. Environmental Mitigation Strategies and Mobility

Each of these greenhouse gas mitigation strategies has different impacts on mobility and, as a result, on our nation's productivity. Increased fuel mileage mandates do not impact our nation's mobility although they have somewhat smaller impacts on the costs of using specific types of cars and trucks. If the mandates are modest and provide enough of a lead time, they can allow consumers and private suppliers to make choices about what technologies and modes of transport are most efficient for achieving transportation goals. This, combined with the independent decisions of millions of Americans to purchase more fuel efficient automobiles, can increase productivity and mitigate greenhouse gases.

In contrast, policies that attempt to directly reduce travel have an adverse impact on mobility and impinge on our economic productivity by reducing the opportunity circles accessible by employers, workers, and households.

A few quick illustrations make this point. Portland, Oregon's Tri-Met operates perhaps the most successful rail transit system in place among mid-size (and smaller) U.S. cities. Sixty-four light rail transit stations are part of a regional transit network that covers an urban area of 474 square miles and serves 1.2 million people according to the National Transit Database. Yet, these transit stations account for just 22 square miles, or about 5 percent of the regional service area. Even with the more compact urban form created in part by a mandated regional growth boundary, Tri-Met's ability to influence regional urban form and travel patterns is limited to the immediate area around the transit stations.

Arlington, Virginia provides another example. Arlington hosts some of the nation's most robust transit-oriented developments, using a large volume heavy rail system to support development at Metro stations around Ballston and Courthouse Square on the Orange Line and Pentagon City and Crystal City on the Blue Line. The eleven Metro stations represent about 8 percent of the county's land area. About 20 percent of the county's population lives within walking distance (1/4 mile) of one of these Metro stops. Among those within walking distance, however, the private automobile still captures more than half, and often two-thirds or more, of total trips. Thus, in Arlington, rail transit is used by just 5-10 percent of the county's population. Notably, transit's share of total travel in the Washington, DC urban area remains around 7 percent.

The point, however, is not to criticize transit. On the contrary, transit plays a vital role along key corridors in many urban areas and enhances mobility for many. Rather, transit's role in meeting environmental policy goals needs to be kept in context.

Despite recent gains in ridership, public transit remains a relatively small part of the overall travel equation in most major urbanized areas in the U.S. Notably, higher gas prices contributed to a reduction in road travel by 100 billion vehicle miles traveled in 2008, according to the Federal Highway Administration, a fall of about 4 percent. Public transit experienced an increase of about 5 percent. Yet, because transit carries a very small portion of travel, transit was able to capture just 3 percent of the overall decline in road travel.

In addition, the kinds of policies that will be necessary to fundamentally change land use to boost transit ridership significantly would require a dramatic and largely involuntary relocation of people and families into housing they do not want. The single-family, detached house would be an option only for the wealthier income brackets in our major urban areas, effectively inverting the existing distribution of home options and choices.

A policy that focuses largely on shifting travelers out of cars and into transit will reduce mobility. An examination of work trip travel times in 276 metropolitan areas found that the length of public transit trips exceeded those for private automobiles in 272 of those areas. On average, public transit riders spend about 36 minutes traveling to work while private automobile travelers commute about 21 minutes. This does not have to be the case. The innovative use of HOT Lanes, such as the networks being built in Northern Virginia and discussed in Atlanta, Houston, the San Francisco Bay Area, and Miami can finance critically needed road capacity while also providing viable bus rapid transit alternatives.

5. Sustainable Transportation Policy

Sustainable development policies call for a balancing of three goals: economic growth, the equitable use of resources, and environmental preservation. Transportation policy that undermines mobility compromises the productivity necessary to support better environmental stewardship.

What federal policy initiatives, then, can preserve the overarching goals of transportation policy to improve mobility while also recognizing the importance of meeting environmental goals?

First, achieving environmental goals will depend primarily on technological solutions, not broad-based changes in human behavior. The dramatic improvements in air quality in major urban areas is directly attributed to technological solutions, and the same will be true for addressing national greenhouse gas goals. Federal policymakers should resist attempts to directly use transportation policy to address broader environmental goals because it tends to be a very blunt and inefficient instrument.

Second, maintain mobility as the central goal of transportation policy. Policies that directly reduce mobility, including those designed explicitly to reduce vehicle miles traveled or direct commuters to alternatives that will lengthen commute times, should be avoided. While environmental concerns should play a role, federal objectives should include searching for and implementing win-win solutions.

Third, continue to put congestion reduction as a key priority for transportation policy and investments. Widespread traffic congestion places substantial burdens on businesses and individuals. Mitigating these effects should be a primary goal of transportation policy makers to ensure our cities and national economy remain competitive. Many congestion-mitigation strategies-HOT lanes, tolled facilities, capacity expansion-will also have environmental benefits, but their central purpose is to reduce transportation costs and improve economic productivity.

Fourth, aggressively move toward a transportation funding approach based on distance-based financing such as comprehensive road pricing. This approach would establish a more direct, transparent and accountable user-based funding system.

Thank you for your attention. I welcome any comments or questions members of the subcommittee may have.

Sam Staley is director of urban policy at Reason Foundation. He is co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). An archive of Staley's work is here, and Reason's transportation research and commentary is here.

The Five Core Principles President Obama Should Follow

sam.staley@reason.org (Samuel Staley) — Tue, 20 Jan 2009 00:00:00 EST

There is no shortage of issues that President Barack Obama could take on as his top priority.

He could launch a public-private partnership infrastructure program that rebuilds the country's roads, highways, and airports, creating a 21st Century transportation system that paves the way for the economy to rapidly grow. Nearly every city, business and worker in America would thank him for ending congestion and improving mobility.

Or President Obama could reform the dismal public education system by encouraging charter schools, as he has in the past, and implementing school choice. Parents could choose the schools that are best for their kids. Backpack funding that follows kids to the schools of their choice would force public schools to improve because they'd have to compete for and attract students if they wanted funding. Instead of unresponsive schools that waste money and don't get better, you'd have public schools focused on results and delivering value to their customers (parents and kids).

Or President Obama could end the failed war on drugs. During the campaign he wisely and compassionately talked of ending the cruel Drug Enforcement Administration raids on cancer and AIDS patients at medical marijuana dispensaries in states where voters have approved the use of medical cannabis. The government has spent hundreds of billions on the war on drugs and that money could should be saved or, if it must be spent, be put to better use.

The list of options goes on and on. But amidst this recession, it is clear that President Obama's top priority will be his efforts to jumpstart the economy.

The first 100 days of any new president's administration are the most closely watched, and this will be even more true for President Obama. Running a superb campaign based on change and inclusiveness, Mr. Obama seemed to create super human expectations for his presidency during the general election campaign. Now, he's inheriting an economic recession more than a year old that shows no signs of stopping anytime soon. But the general public will expect results, and his critics will be waiting to pounce on any apparent weakness or failures.

Economic policy will clearly be the centerpiece of the opening days in his administration as unemployment nudges ever closer to the levels experienced during the last deep recession in the early 1980s. Policymakers see few practical alternatives to embracing the $850 billion or more stimulus package currently being crafted in Congress.

Nevertheless, it will take more than money. President Obama and Congress could inflict serious damage on the economy if smart, prudent choices aren't made. If an $850 billion stimulus package is spent the way the $700 billion bailout has been spent thus far, you'll have a lot of angry taxpayers - and maybe a country still mired in a recession.

The policies adopted in the first 100 days of the Obama administration will endure far beyond this recession and well into his expected run for a second term four years from now. So here are five important principles for President Obama and his advisors to consider as they embark on their historic moment in history.

1. Do no harm.

Despite the economic turmoil in national housing and financial markets, the Obama administration should not ignore the potential to seriously undermine long-term economic growth through politically expedient programs focused on short-term job growth. Japan tried the path that many are urging President Obama to follow. In the Washington Post, Amity Shlaes wrote, "Between 1992 and 2000, the Japanese launched 10 stimulus packages that included public works...In Japan, the '90s were a lost decade: The unemployment rate more than doubled and surpassed the U.S. rate -- an unthinkable occurrence just a few years earlier. Even today, Japan is having trouble climbing out of its cement pit."

Filling potholes, repairing sidewalks, building duck ponds, and laying concrete for roads and bridges to nowhere will do little to enhance the nation's long-term competitiveness even though these projects may be "shovel ready." The jobs will end when the project does, and any positive ripple effect through the economy will be small. At the same time, the rush to push a stimulus bill with a heavy infrastructure spending component has the potential to fundamentally derail important discussions about prioritizing investment in the nation's infrastructure. Most infrastructure projects are large and expensive. They need to be done wisely, with strict oversight. Congress has failed miserably when it comes to overseeing the bailout funds. Infrastructure stimulus is ripe for fraud and abuse. Sticking taxpayers with thousands of bridges to nowhere won't help the economy.

Infrastructure and transportation policy should be about improving mobility to gain improved access to markets and services for U.S. citizens and businesses, not short-term job creation. Reducing traffic congestion on our roads and bridges is vital, but it isn't a jobs program. Choosing wasteful projects to 'get the economy moving' may well torpedo chances for serious reform to the national transportation network at a crucial time. The country needs to improve its freight corridors, reduce urban congestion, enhance the safety of our roads and trains, and modernize our aviation system. This takes serious study and investment, not rushed stimulus.

2. There's no free lunch.

Goosing spending today carries long-term obligations.

After the stimulus is over, what will the Obama administration do about the debt and deficit? One approach is to raise taxes once the economy is growing again, but this approach will likely put a significant drag on the economy and hopefully President Obama recognizes this.

Federal, state, and local taxes already consume more than 30 percent of our economy according to the Tax Foundation. A national (federal, state, and local) tax burden greater than 23 percent eats into national growth. Simply borrowing money to fund the stimulus is "robbing Peter to pay Paul," where Paul is really your son, daughter, or grandchild.

The only other option is to reduce spending on other programs. President Obama appears to recognize this tradeoff, vowing recently to address Medicare and Social Security reform quickly. Medicare, the nation's health care entitlement program for the elderly and disabled, is expected to go belly up by 2019 and Social Security will exhaust its reserves by 2041 without serious reform. The key will be to bring spending for these major programs in line with inflation and to reduce spending overall as the economy heats up. Setting a long-term goal of bringing the federal government tax burden down to less than 15 percent of the nation's economy will ensure steady long-term growth.

3. Use tools that work.

It sounds so obvious, but a pragmatic approach to policy should be a high priority. The Obama administration has seemed genuinely interested in building coalitions during this transition process, saying it will take ideas from both sides of the aisle.

Congress appears committed to a major short-term spending program to stimulate the economy, but other tools may, in fact, be more effective at achieving these and other goals. Tax cuts could be more effective than stimulus. It's easier for the Treasury Department to cut checks to the average American household than it is to evaluate, prioritize, and approve spending programs for state, local, and federal government agencies.

4. Cut off ineffective programs.

The Obama administration is entering a "perfect storm" of sorts in federal policymaking: there are huge expectations for new federal spending, but few resources to fund them. These challenges offer a unique opportunity to sweep ineffective programs off the federal budget rolls. President Obama recognized this on the campaign trail when he vowed to eliminate redundant programs and bring transparency to the evaluation of federal programs. Whether the program is an abstinence-only sex education program or one of the 6,371 Congressionally designated "earmarks" in the last transportation bill, the Obama administration will have no shortage of targets. The debate over the stimulus bill, and how to pay for it, gives the administration an unprecedented opportunity to cut out the fat from federal spending. Taxpayers will understand that underperforming or wasteful programs have to go during this economic climate. Mr. Obama should take advantage of the opportunity.

5. Freedom counts.

At the end of the day, the Obama administration should recognize that entrepreneurship, innovation, and experimentation have been the hallmarks of America's job creation and prosperity, not increased regulation that push managers and businesses into one-size-fits all rules. This may, in the end, be the biggest tightrope the Obama administration has to walk. During the campaign, President Obama was optimistic and extolled the benefits of America's entrepreneurial spirit, talent and initiative. On the other hand, he chastised American business leadership for being short-sighted and making poor decisions.

As President Obama and his advisors build their reform agenda, they will have to avoid killing the goose that laid the golden egg. If the financial services industry regresses to the point that American business relies only on the stodgy ways of risk-averse banks of the 1960s and 1970s, the credit and financial liquidity necessary to fund the next Google, Apple, Sun Systems, or electric car manufacturer Tesla Motors may not exist. New rules and regulations aimed at investors and companies often backfire, stifling innovation and many of the nation's brightest entrepreneurs. In this global economy, we can't afford to handcuff America's competitiveness.

President Obama and his team have their work cut out for them. They realize that the first 100 days is the "honeymoon" period where meaningful work on the "nation's business" gets done. They will have to avoid the temptation to do something, anything now in response to the economic recession (which is temporary) and keep their programs and reforms focused on the long-term health of the U.S. economy. Focusing on these five core principles will be the most effective way to manage that agenda and ensure that it is successful.

Sam Staley, Ph.D., is director of urban growth and land use planning at Reason Foundation. He is co-author of Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). An archive of his work is here.

Making Sure Infrastructure Stimulus Isn't Pork Parade

sam.staley@reason.org (Samuel Staley) adrian.moore@reason.org (Adrian Moore) — Wed, 07 Jan 2009 00:00:00 EST

President-elect Barack Obama's transition team is days away from releasing the details of an economic stimulus plan. If, as expected, more than $200 billion is directed toward transportation infrastructure, federal funding for roads, bridges, and transit will exceed spending in more typical years by more than a third. In 2008, for example, the federal government spent $70 billion. This raises the question: where will all this money go? Under the current system, pork. And more pork.

States receive most transportation funding from the federal government based on a complex formula. The money isn't given to projects based on their potential economic impact, efficiency or effectiveness. Congress allocates a large chunk through a process driven by special interests and earmarks. The number of "earmarks"-specific projects inserted into transportation legislation by individual members of Congress-increased from just 10 in 1982, to 1,850 in 1998, to 6,371 in the 2005 federal highway bill. Throwing a couple hundred billion dollars into this system with a mandate to "spend it fast" is a recipe for waste that won't meet the stimulus goals of the incoming Obama administration.

Mr. Obama, seems to recognized this danger. On Jan. 6, the Associated Press reported, "President-elect Barack Obama says he will bar pork-barrel projects from the massive economic stimulus bill he wants Congress to pass." Mr. Obama said, "We are going to ban all earmarks, the process by which individual members insert projects without review." So we'll see how that plays out in the real world with Congress.

More than a little irony characterizes this policy conundrum. Transportation was one of the most strategic, focused, and economically effective functions of the federal government for decades after President Eisenhower signed the Federal Aid Highway Act in 1956, creating the modern-day Interstate Highway System.

The federal government, in fact, was likely the only institution capable of embarking on such an ambitious program at the time. Private roads and bridges were too small in scale and scope to be able to undertake such a mega-project. Private financial markets didn't have the capacity to coordinate the capital necessary to make it work. The technology simply didn't exist to make road pricing and national toll roads cost-effective. Moreover, crossing state borders created political hurdles significant enough that a pre-emptive role of the federal government made sense.

Those times are gone. The private sector is now far more strategic and effective in delivering infrastructure projects that count than the federal government. A report by Infrastructure Partnerships Australia found in a survey of 54 major infrastructure projects the private sector delivered the facility a head of schedule and on budget while public projects were delayed 15 percent on average and over budget by 23 percent. The Dulles Greenway and Pocahontas Freeway in Virginia are domestic examples of public-private partnership projects. Europe and Austrialia have frequently used private capital to bring projects on-line ahead of schedule and under budget.

The federal government had clear goals in building the Interstate system. Today, it does not have a clear vision of its role in transportation funding and construction. Without an updated vision for the federal government's role, transportation (and other government spending) is likely to fall flat or, worse, undermine our nation's economic viability by allowing the gridlock and traffic jams that plague our urban areas to worsen as the economy recovers from the recession.

Federal transportation dollars need to be narrowly focused on transportation projects that are clearly national in scope or have demonstrably significant economic impact. Specifically, federal policy should focus on four key areas of national interest:

Interstate highway upgrades that link state highways in fast growing corridors, tapping into private companies to finance, build and operate these roads through user fees and the most up-to-date technology to ensure free-flow speeds at the maximum speed limit allowed. Places like Phoenix, Las Vegas and Austin, Texas, have grown immensely since Interstate system was first developed.
Leading multi-state coordination in expanding urban areas, resolving disputes such as the current spat between Missouri and Illinois over how to pay for a bridge over the Mississippi River in St. Louis, or facilitating an agreement between Kentucky and Ohio to build bridges spanning the Ohio River.
Protecting and supporting key freight corridors to ensure our manufacturers and producers have networks they need to get materials in and products out, whether it's the ports of Los Angeles and Long Beach, upgrading rail connections through Chicago, or ensuring goods move north from Houston of New Orleans to the interior of the US. Over 80 percent of all goods (by value) in America are now shipped by truck.
Investing in transportation research, safety and related issues, with special focus on new technologies and methods of managing transportation systems (such as stop light synchronization, electronic tolling, new road design, and toll roads) coordinating common standards for things such transmission frequencies for new technologies, and incentivizing experimentation and innovation, particularly with private sector participation.

Paradoxically, elevating these areas to national priorities would mean the federal government would largely back out of the regular project grant making process. Instead, specific funding priorities would be set by those closest to the problem, empowering states and regional authorities that already generate more than half of funds spent on transportation. Thus, federal funds for purely local projects would go away over a transition period, refocused on projects with clear national impacts. State and local governments will have strong incentives to adopt direct user fees to establish willingness to pay criteria for deciding what projects should be funded and when.

Travelers, drivers, taxpayers and businesses will benefit from this transition because funding levels will be set and projects selected by those closest to the problem, not formulas or legislative gamesmanship.

Rahm Emanuel, President-elect Obama's chief of staff, told The New York Times last fall that, "You don't ever want a good crisis to go to waste; it's an opportunity to do important things you would otherwise avoid."

This is clearly true for U.S. transportation policy. This recession and the ongoing transportation funding crisis should prompt Mr. Obama and Congress to reinvent the U.S. Department of Transportation in ways that allow it to become a player in laying a foundation for the long-term growth of the national economy. Not only is the federal government working on stimulus packages, it is poised to commit $500 billion in transportation spending as part of the six-year reauthorization bill of the Transportation Equity Act for the 21st Century. The nation can continue to waste precious resources on bridges to nowhere or we can finally reform the transportation funding system to reflect the needs of our modern, global economy.

All Infrastructure Spending Is Not Created Equally

sam.staley@reason.org (Samuel Staley) adrian.moore@reason.org (Adrian Moore) — Fri, 05 Dec 2008 00:00:00 EST

The economy is officially a year into a recession, marking one of the longest periods of economic stagnation since World War II, and bolstering calls for yet another, even bigger federal stimulus package. On Tuesday, the nation’s governors met with President-elect Barack Obama and funding for infrastructure projects topped their wish-list.

“There is not a governor in this country that would turn down money for roads and bridges and infrastructure projects,” Gov. Michael F. Easley of North Carolina declared.

"Infrastructure investment is not only necessary for long-term economic growth and global competitiveness - but it will also create jobs when Americans, and Californians, need them the most," said California Gov. Arnold Schwarzenegger. "With an immediate commitment to national infrastructure investment, it's possible to put shovels in the dirt and start immediately on projects across the nation."

But, this begs an important question: Would all transportation infrastructure spending have an equal impact?

No.

Federal policymakers need to consider much more than dumping money into the transportation sector if they want to have a meaningful, positive impact on the economy. It takes more than digging ditches and laying asphalt to ensure that investments create improvements in mobility that spur job creation and increase productivity. To maximize the impact of any infrastructure spending, the transportation investments must be the right kind, in the right place, and at the right time. Those are no small obstacles.

On the surface, transportation seems like a “no brainer” if there is going to be a massive federal stimulus package. Our bridges, roads, and transit systems are crumbling. Depending on which interest group is compiling the numbers, the nation is under investing in transportation infrastructure by $70 to $100 billion per year.

According to Reason Foundation’s Annual Highway Report, 50.7 percent of America’s urban interstate highways were congested in 2006. And of the nearly 600,000 highway bridges in the country, 24.1 percent were deficient or functionally obsolete.

The National Governors Association suggests $57 billion in infrastructure projects could be started within 120 days of being funded. The American Association of State Highway and Transportation Officials claims that 3,109 transit and highway projects, accounting for $18 billion in new spending, are “ready to go” once state and local transportation agencies get a funding green light from the federal government. This spending would create 630,000 jobs according to their studies.

But not all of those projects will offer a return on taxpayers’ investment. A bridge to nowhere or a lightly-traveled light rail route that will long require heavy annul subsidies isn’t a good use of money just because it is infrastructure.

This isn’t the 1950s. It’s not just a matter of building the obvious routes needed for an Interstate highway system that will connect major metropolitan areas and create freight corridors. The country has reaped the economic rewards of the Interstate system. But, our rate of return has been falling on these investments since the 1970s. Now it is time to rethink transportation investments in the context of the modern economy.

The highway and road system must meet the needs of a globally competitive, dynamic, services-based economy. Today approximately 80 percent of all goods, by value, are shipped by truck in this country. Only 15 percent of travel on our nation’s roads is traditional commuting, and 97 percent of our total travel is by automobile. Americans don’t just get up and go to work. We combine and “chain” our trips to include errands, non-office business, personal appointments, and to meet friends for coffee or happy hour. Our demand for flexible and adaptable modes of transportation, primarily the car, has skyrocketed, placing unprecedented demands on the transportation system. At the same time our investment in the network has languished. Travel demand on our roads has outstripped additions to capacity by 3-to-1 over the last three decades.

The 21st century economy needs a transportation network that is fast, efficient, and flexible. Achieving this will require directing transportation investments to meet the following fundamental concepts:

Think 3-D. We can eliminate chronic traffic congestion and increase travel speeds by adopting cutting edge engineering solutions and embracing innovative road design to provide multi-layered access to key destinations through tunnels, flyovers, queue jumpers (or duckers), and elevated expressways.
Recognize the hidden costs of congestion. Congestion is a job killer because it limits our access to our most valuable resource: people. For the most part, people will live within a 30 minute commute of their workplace. Congestion shrinks this “opportunity circle” for workers and employers alike, preventing businesses from tapping into the most talented and productive workers available. Transportation projects should place a premium on reducing congestion.
Adopt a “mobility first” transportation strategy. Transportation networks in a services-based economy need to emphasize connectivity with shorter travel times, lower overall travel costs for individuals and businesses, and expeditiously connecting people and businesses within metropolitan areas.
Embrace market forces and the private sector. There’s a reason almost one-third of our new road infrastructure has been built as toll roads. Modern tolling marries the powerful economic force of “willingness to pay” with new public and private capital capable of delivering the infrastructure users want. In short, toll roads put the right roads in the right place at the right time.
Embrace innovative highway design and materials. The private sector has repeatedly shown its ability to provide new designs, using new materials, to speed up the delivery of transportation infrastructure when they’ve been allowed. It’s time to give state and local governments more freedom to test the waters with private capital and incentivize innovations that meet real needs identified on the local and regional levels.

These concepts will be central to achieving a policy goal of improving the long-term viability and efficiency of our transportation network. And before the federal government gives governors billions for new infrastructure spending, someone should talk to Secretary of Transportation Mary Peters, who has said there is over $400 billion in private capital ready to be spent on infrastructure projects.

Public-private partnerships, like those Peters proposes, offer the best hope of prioritizing the long wish-lists of infrastructure projects. The private sector will gravitate to projects that offer steady revenue streams and the best chance for profit: new toll roads that relieve congestion in urban areas or highly traveled bridges in need of repair, for example. On the other hand, projects centered around pretty ribbon-cutting ceremonies or meant to deliver pork to congressional districts will be found wanting by investors.

Increasing private sector involvement can close the funding gap, reduce the ‘need’ for stimulus spending and make certain the most-needed transportation projects – the ones that will deliver the most bang for our bucks - rise to the top.

The way we fund our roads is failing and out of date. Simply pouring billions more into building roads the old fashioned way won’t fix it. A modern transportation network designed to meet today’s diverse travel needs would help the economy grow. Unfortunately for taxpayers simply handing a big stimulus check to governors won’t deliver that network.

Stop Trying to Force People Out of Cars

sam.staley@reason.org (Samuel Staley) — Sun, 21 Sep 2008 00:00:00 EDT

Sacramento Bee

Adopting a policy objective to reduce automobile use would be poor public policy, reflecting little more than a knee-jerk political reaction to a long-term environmental problem.

True enough, the passenger automobile is an important source of carbon emissions, but it's not the most important contributor. Industry takes that spot. More importantly, cars emit carbon because of the fuel they use, and that fuel source will likely change dramatically over the next several decades even without interventions from government.

Electric hybrid technologies already have the capability of cutting carbon emissions in half within certain classes of vehicles (e.g., four-door sedans), and more than 65 hybrid models will be available on the American auto market by 2010. Plug-in electric technology is close to becoming commercially viable at today's energy prices, and an electric power system that relies increasingly on nuclear energy, wind, and hydroelectricity means we can reduce carbon emissions without sacrificing the mobility provided by the automobile.

More fundamentally, public policy focused on significantly reducing automobile use in favor of other travel modes - whether it is mass transit, bicycling, or walking - betrays a stunning naiveté about travel or a brazen disregard for the needs of everyday Californians.

Perhaps both. The automobile is popular because it provides maximum flexibility in a society that values mobility.

It allows us to cover more ground more efficiently than any other alternative unless one lives in a niche housing market such as a high-density downtown or within a third of a mile of a transit stop (with meaningful connections).

Most Californians have chosen to live elsewhere, and automobiles represent their travel mode of choice. These choices need to be respected by policymakers, not ignored.

Freddie Mac and Fannie Mae Were Never Privatized

Thu, 18 Sep 2008 00:00:00 EDT

The re-nationalization of mortgage insurers Fannie Mae and Freddie Mac presents a serious challenge to national housing policy. But it is important to note that the failure of Fannie Mae and Freddie Mac is not an example of privatization gone amok; it is an example of what happens when privatization doesn't happen in the first place.

Despite all appearances, the firms were never really private; rather they operated as anomalous "government-sponsored enterprises." As GSEs, Fannie and Freddie had stockholders, boards of directors, and made profits from interest on the loans they securitized. However, their profit motives were skewed by their beliefs (correctly) that the government would cover any big financial losses. Like playing poker with someone else's money, you're more likely to place chips down on a risky bet if its only pride you have to lose. This fundamental flaw inherently them from being fully private companies.

When Fannie Mae was 'privatized' in 1968, and Freddie Mac created to compete with it in 1970, they were tasked with a simple mission: insure and finance mortgages to low- and middle-income families with good credit histories. These firms had the good intentions of getting good people into good homes that otherwise didn't meet the credit standards of corporate America. But good intentions don't defeat bastardized incentives on risk.

If Freddie and Fannie had stayed true to their missions, they would not be in this mess today. Somewhere along the line, their executives decided to begin taking on riskier mortgages in order to grab a slice of the subprime mortgage market and the profits that looked, at the time, to be a never-ending pool of interest payment money. However, when many of those loans blew up, they were left with nearly $5 billion in debt and no collateral to cover it.

Sure, they met part of their mission to help low-income families, but also backed mortgages made to borrowers who didn't fully document their incomes or had no assets.

The more Fannie and Freddie strayed from their mission to finance those with good credit histories, the more bad debt they took on. Whether or not GSEs are appropriate for government, Freddie and Fannie defrauded the American taxpayers by setting themselves up for losses they had no business going near. They certainly would have suffered some losses from the sheer size of the housing bubble, considering that between the two of them they own $5 trillion of the $12 trillion in outstanding mortgages. But they wouldn't have been bitten by the subprime bug.

Financial analysts accuse Daniel Mudd and Richard Syron, former chief executives of Fannie and Freddie respectively, of being greedy for extra profits. They undoubtedly made poor decisions and are partially to blame. Yet, it is the goal of any business to maximize profits while taking the appropriate risks. Because of the perverse system in place, Mudd and Syron had little risk. They knew they had a government safety net to back them up, whether they were outside their mandate or not.

These perverse incentives are just on reason that free market groups, like this one, called for the privatization of Freddie and Fannie for years. It was clear to everyone that they were merely "quasi-private" with their GSE status. In February 1995, Reason's Bob Poole suggested they be fully privatized in a Reason magazine article. Many others warned for decades that taxpayers might get caught with a large bill if Fannie or Freddie encountered financial crisis. Conjecture has become reality, and it is American taxpayers who are suffering the consequences.

Businesses can only succeed with the proper profit motives to guide and restrain them. The hopeful future privatization of Fannie Mae and Freddie Mac should carefully weigh this reality in determining the proper course of action.

Vice President's Role In Governing Evolves

sam.staley@reason.org (Samuel Staley) — Fri, 12 Sep 2008 00:00:00 EDT

Gov. Sarah Palin's speech to the Republican National Convention helped give the John McCain presidential bandwagon the bounce it needed to pull ahead of the Obama/Biden ticket in national polls.

Now as she takes on the conventional vice presidential candidate role on the Republican ticket as an ideological pit bull. This is unfortunate because her nomination to number two spot raises important questions about how modern presidencies govern.

Historically, Gov. Palin's nomination should hardly be controversial. One of the oddest and most extraordinary characteristics of the U.S. Constitution may be the absence of a job description for the vice president. John Adams, the nation's first vice president and our second president, famously complained to his wife Abigail: "My country has in its wisdom contrived for me the most insignificant office that ever the invention of man contrived or his imagination conceived."

The vice president was considered so inconsequential that vacancies were common. Eighteen presidents have left the position unfilled after they were elevated to the presidency or they succeeded a president who died in office. Neither Harry Truman nor Lyndon Johnson bothered to appoint a successor after the deaths of Franklin D. Roosevelt and John F. Kennedy. (This changed in 1967 when the 25th Amendment required the president to nominate a successor.)

This isn't surprising since, officially, the duties of the vice president are limited: succeed the president in the event the office is "vacated," preside over the Senate and cast the deciding vote in the case of a tie, and certify the results of the electoral college in a presidential election. Other than that, constitutionally, the VP can kick back and enjoy the show.

All this began to change in 1952, when President Dwight Eisenhower gave Vice President Richard Nixon uncharacteristically executive responsibilities. Nixon, in the words of Cleveland State University constitutional scholar David Forte, "became a fully functioning executive official." But, the veep's status still waxed and waned, depending on his personal relationship with the president.

The vice president's status may have changed permanently when Walter Mondale was elected as the nation's 42nd vice president under Jimmy Carter. In addition to traveling extensively and stumping for the administration's agenda, Mondale initiated weekly meetings with Carter and fleshed out his policy staff to mirror that in the White House. "After Mondale," notes Colby College presidential scholar G. Calvin Mackenzie, "vice presidents have tended to be involved in policy decisions and often in efforts to implement them."

President Bill Clinton elevated the vice president's status even further as Al Gore took on substantial governing roles on environmental policy and system-wide government reform.

Under President George W. Bush, Dick Cheney has become an integral part of the policy machinery, prompting some to even muse that the current administration is an informal co-presidency.

And that's what makes the nominations of Sen. Joseph Biden and Gov. Sarah Palin historically provocative and politically interesting.

Obama's pick of Biden is very "new school," thoroughly within the evolving role of the vice president since Mondale. Like Cheney, Biden is the consummate Washington insider, effective at working with legislative coalitions with a deep appreciation for beltway politics and the machinery of the federal government. Obama has said he chose Biden to help him govern. Moreover, his former presidential candidacy and deep knowledge of foreign affairs would have qualified him to fill the shoes of several cabinet-level positions.

Then there's Gov. Palin. McCain chose Palin for her impact on voters, not to help him govern. The socially conservative Palin serves an important tactical purpose by energizing the Republican base and addressing fears among party stalwarts that McCain isn't conservative "enough." Her rousing speech at the GOP convention was calculated to carefully nurture her outsider status and complement the political myth of McCain's maverick status.

These themes work contrary to the evolving role of the vice president we've seen in recent decades, and raise important questions about her ability to assist McCain in implementing the reform agenda they are touting.

Unfortunately, while Palin's outside the beltway experience and independent streak is serving McCain's candidacy very well now, should they win, she will face a very steep learning curve if she moves from the Alaska governor's mansion to inside-the-beltway politics and the massive bureaucracy of the federal government.

This election will be historic for many obvious reasons, not the least of which the U.S. will finally see either an African-American president or a woman vice president. It will also be historic for the less obvious, but potentially more important, reason that the role of vice president is permanently transitioning from, in the words of John Adams, "the most insignificant office" contrived or conceived, to a critical position in national governance.

Sustainable Mobility in American Cities

shirley.ybarra@reason.org (Shirley Ybarra) sam.staley@reason.org (Samuel Staley) — Mon, 08 Sep 2008 00:00:00 EDT

Sustainability is the "buzzword" du jour in planning and environmental circles. Virtually every government has put in place a sustainability program of one sort or another, and we shouldn't be surprised that the concept has come to transportation policy.

Unfortunately, like its parent in environmental policy, sustainable transportation can mean many things to many people.

In Europe, unlike the U.S., many transportation policy analysts and decision-makers reach back to the 1994 definition provided by the Organization for Economic Cooperation and Development (OECD) as their benchmark: "Transportation that does not endanger public health or ecosystems and meets mobility needs consistent with (a) use of renewable resources at below their rates of regeneration and (b) use of non-renewable resources at below the rates of development of renewable substitutes."

The problem with this definition is that it completely ignores the fundamental role transportation plays in creating sustainable economic development and growth. Transportation systems and networks do not exist in and of themselves. They represent a crucial service-often public but increasingly private-that provides mobility. Moreover, like all services that provide fundamental economic and social value, they must increase the value they provide to society.

Too often, policy recommendations adopting a sustainability label implicitly accept a static policy making environment and focus on redistributing existing resources rather than thinking about how the stock of resources might be improved. This may be even more important in transportation than in other parts of the economy and society. Increased mobility, in fact, leads to greater economic productivity, allowing us to use existing resources more effectively and efficiently. Moreover, technology and innovation can easily make what now seems like a very scarce and limited resource obsolete within a generation.

Oil is probably the best contemporary example of this phenomenon. As the BRIC-Brazil, Russia, India, and China-economies grow at astounding rates, the demand for oil is likely to outstrip supply for a while, pushing prices up. Moreover, many energy analysts believe we have already met "peak oil"-that point where we no longer discover new reserves at a pace sufficient to keep up with current consumption. This geological reality has prompted many in the policymaking community to naively rush into heavily subsidizing alternative fuels such as ethanol since these rates of growth in the demand for oil are unsustainable. Many nations and cities have also started to embrace more draconian ideas such as cordon charges and other fees to explicitly limit customized travel options such as the use of automobiles.

This is unfortunate, because strategies that focus on reducing automobile use are not sustainable in an economic or an environmental sense.

From an economic perspective, efforts to push travelers and commuters into public transit inevitably have one of two effects.

First, it lengthens commute and travel times, reducing productivity and compromising the ability of our cities compete to globally. Our cities benefit from faster travel times, not slower ones. Moreover, faster travel times count for human resources, not just transporting capital goods.

Second, strategies that explicitly attempt to limit automobile based travel force people (and businesses) into higher densities. While higher densities (and more mixed uses) are not necessarily negative, the trade offs often include a much higher cost of living and lower mobility.

The key policy issue is whether these choices are made voluntarily-a demand side response that should enhance social welfare-or are forced through supply side limits-a response that compromises welfare by forcing citizens and businesses to accept a "second best" outcome.

The economies that focus on "first best" outcomes are the ones that will survive and prosper. In short, public policy focused on maximizing transportation performance will compete and be sustainable.

In addition, we need to recognize the critical role technology plays in changing the environment for resources use. Honda has already introduced a car for a limited test run that produces zero emissions. As gasoline prices increase, we are seeing the expected market shift toward cleaner and more fuel efficient vehicles. Moreover, we may easily see a world powered by nuclear electricity and wind turbines, making fossil-fuel based technologies that drive current transportation choices (and environmental concerns) obsolete.

Indeed, a transportation system based on renewable resources for its energy needs will meet the sustainable mobility goals of most developed nations. The key is to have the right technology in the right place at the right time. Now, as oil prices are increasing at rates unknown for a generation, we are seeing significant shifts through market-mechanisms toward alternative fuels.

Importantly, fixed-route alternatives are less likely to meet the mobility needs of a globally-competitive, 21st century city if we assume it becomes the backbone of the transportation network. Notably, global cities such as London and Paris still rely on the automobile for most travel in their urban areas. The automobile dominates because it provides flexibility and adaptability, two crucial features of a dynamic, competitive services based economy. A fixed-route transit-centric approach, as London is finding out, will increase travel times and ultimately degrade mobility for every one. Lowering mobility degrades both equity, by limiting access to jobs and products for workers and consumers, and economy by reducing productivity and efficiency.

Transit, of course, will continue to play a vital role in urban economies. It's a question of scale and the breadth of its application, not its viability as an important mode nested within the larger transportation network. Transit, however, cannot provide the back bone of a transportation network because our economic, social, and cultural needs are too diverse and dynamic. Transit will certainly remain viable, even profitable, as an alternative for certain segments of the population that place high values on hyper-urban environments (e.g., Manhattan, Central London, central Paris, etc.). These populations, however are a minority of the regional urban population, in wealthy nations. Eighty percent of Parisians live in the suburbs. In New York, just 1.5 million people live in Manhattan out of an urban region of nearly 20 million.

So, the automobile, and flexible rubber tire transit, is sustainable mobility.

If automobile-based travel is the core of a contemporary, flexible urban transportation network, we must thoroughly rethink the way this system is managed. Congestion is rising at dramatic rates. In the U.S., 12 metropolitan areas will have levels of congestion equivalent to, or exceeding, current-day Los Angeles unless policies are changed dramatically. Transportation policy must add capacity to allow supply to meet demand, but the new capacity as to be the right capacity, in the right place, at the right time. It also has to be managed efficiently.

Ultimately, road pricing will be the key policy reform needed to meet these transportation needs and ensure our transportation networks maximize mobility in a sustainable way.

Road pricing in the U.S. is being introduced in the form of HOT (High-Occupancy Toll) Lanes. HOT lanes are reserved for buses and other high occupancy vehicles but are also open to single occupant vehicles upon payment of a toll. The number of cars using the reserved lanes is controlled through the use of variable pricing (via electronic toll collection) to maintain free flowing traffic at all times even during rush hours. While occupancy rates vary in carpool lanes - some permit high-occupancy vehicle (HOV) rates of 2 or HOV-3 to ride free while others are free only to super-high vehicles such as van pools and buses.

The Reason Foundation first suggested in 1988 that the private sector could build supplemental congestion-relief toll lanes, using electronic collection using variable pricing which would keep the traffic free flowing even during busiest rush hours. The resulting project opened to traffic in 1995 in the median of SR-91 in Orange County California.

In 1993, another Reason Foundation paper examined converting HOV lanes that had been constructed around many US cities to HOT lanes by extending the concept of meeting the occupancy rate or paying a toll for single occupant vehicles. HOV lanes were originally intended to reduce traffic by getting drivers to share rides but many were underutilized and frustrating to drivers who could not use them. This conversion concept was dubbed "HOT lanes" a nomenclature that continues today and is supported by the US Department of Transportation. In the 1990's, the next three HOT lane projects were conversions of HOV lanes: I-15 in San Diego, California and I-10 and US-290 in Houston. To date, Colorado (I-25), Minnesota (I-394) and Utah (I-15) and Seattle (SR-167) have HOT lanes in operation. Other states are also implementing projects for congestion relief HOT lanes including Virginia (a $1.7 billion project to add HOT lanes near Washington DC) and Maryland near Baltimore.

When properly planned and executed, HOT lanes can be combined into a HOT Network of interconnected roadways that allow congestion-free travel throughout the region. There are currently no HOT networks in operation, but a number of metro areas (including both San Diego and San Francisco areas in California) include them in their long range transportation plans. Moreover, many of these HOT Networks can be self-funding if designed properly.

HOT lanes benefit not only those on the HOT lanes, but transit as well. For motorists, free-flowing HOT lanes give everyone an option of "congestion insurance" as an alternative to gridlock when drivers decide it is most important: to pick the kids up from daycare, make it to their soccer game or catch a flight. Variable pricing allows roadway managers to change the price to ensure sustainable congestion-free travel over the long term while also creating a sustainable flow of revenues to maintain and improve the facilities. By using pricing to discourage certain folks from traveling during peak hours, HOT lanes actually increase mobility. Orange County's experience is that the HOT lanes represent one third of the highway's lane miles, but carry over half of the traffic during the rush hour.

HOT lanes benefit transit riders as well. Because HOT lanes are free flowing and operating at high speeds even during rush hours, they can provide reliable guideways for express bus service. Transit agencies would prefer dedicated bus lanes. However with the value pricing keeping HOT lanes free-flowing; HOT lanes become the virtual equivalent of dedicated busways.

HOT lanes with variable pricing have become widely accepted as sustainable congestion relief technology in the U.S. The concept is support by environmental groups, local business associations and politicians of all persuasions. Implementing variable-pricing is a top priority of the U.S. Department of Transportation.

In conclusion, sustainable mobility means a lot of things to a lot of people. But, in the end, we need to focus on the ultimate purpose of a transportation system and network: improving mobility for people, businesses, services, and goods. We also need to be sensitive to the demands of high-end, services based economies that are adding significant value in the global economy. Most of all, we need to ensure we don't let naïve ideas about current resource use trap us into adopting policies that technology and innovation will solve on their own. Policymakers have bold new tools; most notably road pricing that will provide both the incentives and the financial wherewithal to make increasingly mobile urban areas sustainable environmentally, socially, and economically. Policies that compromise mobility are not sustainable in the long run.

California to Restrict Driving With Latest Global Warming Plan

sam.staley@reason.org (Samuel Staley) — Tue, 26 Aug 2008 00:00:00 EDT

The state government has decided Californians are going to drive less, whether they like it or not. Want to buy a Prius or insulate your home as your contribution to lowering carbon emissions? Sorry, but that's not doing enough for the government's tastes. California wants politicians and planners to have a bigger say in where you live, shop and work so that they can make sure you don't drive that Prius too far.

Senate Bill 375 is the state's latest far-reaching piece of legislation intended to help to meet one objective: reduce greenhouse gas emissions by 30 percent by 2020.

To cut emissions, the government will take a more active role in where you live, how you get there, and what kind of home you live in. While this legislation thankfully stripped away specific regional targets that would have been far more draconian, the core governing values underlying California's approach should sound alarms in and out of the state.

Analysis prepared by the California Senate notes the legislative intent of the bill is to integrate housing planning with regional transportation planning. Regional planners are supposed to determine housing needs and use statistical modeling to "allocate housing units within the region consistent with the development pattern included in the SCS [sustainable communities strategy]."

A sustainable communities strategy is planning jargon for reducing carbon dioxide. It's the only criterion that counts in SB 375. Neighborhoods could become mired in crime, failing infrastructure, and poor schools, but if they reduce carbon dioxide emissions they would be considered sustainable and conform to the SCS. This is Sacramento's idea of "smart growth."

An outcome as dire as this isn't as far flung as it seems. The way California communities are expected to achieve lower carbon dioxide levels is by dramatically reducing mobility. Automobiles and light trucks, the legislation claims, emit 30 percent of the state's greenhouse gas emissions. So the solution is to reduce driving, measured by vehicle miles traveled.

Such a grand, sweeping overhaul of land development will have significant negative consequences. Mobility will be greatly reduced since public transit (and walking) almost always takes significantly longer to reach destinations than automobile travel in California. Economic productivity will fall because companies will have access to fewer qualified workers within acceptable commuting distances. Job mobility will be limited since changing jobs will likely entail moving an entire household to a new home to avoid inordinately long commutes.

Fortunately, California planners can't outright ban the use of cars - yet, or limit them to particular groups of people, as they do in places such as Singapore. Instead, cities and counties are required to achieve their greenhouse emissions targets using the obtuse and indirect method of changing land use. In other words, communities are expected to make driving so difficult and expensive that people will either walk or use transit.

Politicians in Sacramento don't seem bothered by the fact that driving a hybrid automobile, such as the Prius, beats every public transit mode on carbon dioxide emissions except heavy rail.

Regional planners nevertheless are supposed to use their models to dramatically increase residential densities, and use smart growth planning to funnel new growth into "transit priority projects." A transit priority project must have a minimum density of 20 dwelling units per acre, a standard that effectively prohibits single-family homes with a yard. Dramatically reducing automobile use means stuffing families into dense urban-living environments. Goodbye house, hello high rise. You didn't really want a yard (or a car) anyway.

The bill stops short of explicitly mandating that all new development follow these rules, but the practical effect will likely be the same.

The heavy-handed, centralized approach to land-use planning embedded in SB 375 is an inevitable consequence of California's greenhouse gas law passed in 2006, which requires emissions to be reduced to 1990 levels by 2020.

Sadly, California legislators didn't have to take this latest path. They could have recognized the value of mobility and the importance Californians place on housing choice by using deregulation and market incentives to enhance freedom and cut emissions. They could have streamlined the planning process, eliminating politics and red tape, while promoting mixed-use developments that don't restrict other choices. Mixing condominiums and retail space, single-family homes and townhouses are not bad outcomes if they are desired by consumers.

On the energy front, they could have focused on market-based technological solutions to our energy needs, such as allowing the private sector to build nuclear power plants to produce electricity or streamlining the permitting process for wind power. Moving public utilities to market-based pricing for electricity, water and sewer, would also go a long way toward encouraging conservation and the development of alternative energy sources.

In the end, as it often does, the California legislature took the path of rigid control and top-down planning in ways that will hurt the state's residents and businesses.

Dayton, Ohio: The Rise and Fall of a Former Industrial Juggernaut

sam.staley@reason.org (Samuel Staley) — Mon, 11 Aug 2008 00:00:00 EDT

NewGeography.com

Few people would recognize Dayton, Ohio of 2008 as the industrial powerhouse it was less than one hundred years ago. Once a beacon of manufacturing success, Dayton claimed more patents per capita than any other U.S. city in 1900. Its entrepreneurial climate nurtured innovators such Charles Kettering, inventor of the automobile self-starter and air travel pioneers Wilbur and Orville Wright. As the U.S. economy took off after World War II, Dayton was home to the largest concentration of General Motors employees outside of Michigan.

The city also nurtured companies that would became stalwarts on the Fortune 500, including National Cash Register (NCR), Mead Paper Company, business forms companies Standard Register and Reynolds and Reynolds, Dayco and Phillips Industries. To put this in context, just 14 U.S. cities could claim six or more Fortune 500 headquarters in 2007. Not a bad performance for an urban area that peaked as the 40th largest city in the U.S. in 1940.

These early industrialists were more than just business men. They were also visionaries. The founder of NCR, John H. Patterson, is widely credited with laying the foundation for the first modern factory system, pioneering the basic principles that still drive much of modern advertising, and redefining the relationship between labor and management.

NCR may also have been America's first truly global business. "The cash register," writes Patterson biographer Samuel Crowther, "is the first American machine which can claim that on it the sun has never set." Even as Patterson was toiling away in a little shop in Dayton, cash "registers were being sold in England and Australia." The company's first non-US sales office was established in England in 1885 and its first European factory was established in Germany in 1903.

It's difficult to underestimate Patterson's influence on American industry. By 1930, an estimated one-sixth of all U.S. corporate executives had either been an executive at NCR or been part of Patterson's management training programs. Among NCR's alumni were IBM's visionary CEO Thomas Watson as well as the presidents of Packard Motor Car Company, Toledo Scale, Delco (now Delphi) and dozens of others.

What may separate men like Patterson to their equivalents today in places like Silicon Valley was their intense civic involvement. Patterson was one of the first business leaders to try to apply scientific management to local government, testing out his ideas in rebuilding the city after a disastrous flood ruined downtown Dayton in 1913. He also helped create the Miami Conservancy District, one of the nation's first flood control districts that still manages a system of low-level dams and levies that keep downtown flood-free to this day. Perhaps one of Patterson's most prescient civic innovations was bringing the city manager form of local government to the first large city in the U.S.

As significant as Patterson was as an individual, he was not alone. The Dayton area benefited from the entrepreneurial drive and civic commitment of hundreds of businessmen that built large companies, many publicly traded. Patterson was the most iconic of the icons.

Dayton's Economic Descent

Today one would not expect such vision in Dayton, and you would be unlikely to find it. Since the early 1970s, nearly 15,000 manufacturing jobs disappeared at NCR. Automobile plants cut payrolls as the economy restructured toward services, and foreign competition outsold domestic manufacturers. As late as 1990, five General Motors plants employed more than 20,000 people regionally. Now, fewer than 12,000 work in these factories and Delphi is on the cusp of closing two more plants. NCR's world headquarters employs fewer than 3,000 people. Mead Paper Company has merged with a competitor, becoming MeadWestvaco and its corporate headquarters has moved to Richmond, Virginia.

As the economy has tanked, the city has shrunk. After peaking at more than 260,000 people in 1960, the city is barely clinging to a core city population of less than 160,000. In the 2000 census, Dayton ranked 147th in size nationwide. Its metropolitan area is now ranked 59th.

Meanwhile, the suburbs have grown. Nearly 74 percent of Montgomery County's population lived in Dayton in 1930. The growth of suburban cities shrunk that proportion to less than a third by the mid 1980s. Now, less than 20 percent of the metropolitan area's population lives in the city of Dayton.

Lessons for Other Cities

Dayton's early dependence on traditional manufacturing, with a particular emphasis on assembly line work, put the region at a competitive disadvantage as growing international trade and dramatically reduced transportation costs allowed for the global dispersion of factory work.

Yet perhaps most remarkable is not the region's decline, but its resilience. Despite the ongoing decline of manufacturing sector, the metropolitan area still knits together a population of over one million people. What accounts for this?

First, the regional economy has diversified. Now, as in other metropolitan areas, the growth in employment is in services. Two local major health care networks - Premier Health Partners and Kettering Medical Network - employ 15,300 in facilities that are nationally recognized for their quality of care. Wright Patterson Air Force Base is a center for scientific research and development and employs another largely civilian workforce of 21,000.

Second, some of the large industrial companies of the past have evolved to meet the needs of an information economy. NCR, while its presence has diminished, is now a high tech company. Reynolds & Reynolds, a former business forms manufacturer, now provides software in niche markets such as auto sales. The region is also home to the legal information services provider Lexus/Nexus, now a division of Reed Elsevier but originally a division of the Mead Paper Company's investment in data management services.

Third, core parts of the traditional manufacturing base literally retooled to become globally competitive. In the early 1980s, more than 600 machine shops employed nearly 20,000 people. As the 1990s unfolded, this number had fallen by half. As the 21st century got its start, the number of tool and die shops had revived and employment was rebounding close to 15,000. The shops remain small, but they are deeply invested in global trade. Productivity is up along with incomes.

Fourth, the region remains at a strategic logistical and demographic location in the Midwest. The city of Dayton is at the cross roads of two major interstate highways - the major east-west link I-70 and the north-south connector of I-75. Combined with access to three major airports, the Dayton region can easily benefit from and tap into economic growth in nearby metropolitan areas such as Columbus, Cincinnati, and Indianapolis. Ironically, many of the highway improvements some believed would "empty" the downtown - the interstates plus a partial beltway, I-675 - ended up tying the city and suburbs to other larger urban areas and enhanced the region's geographic importance.

Dayton's economy may no longer provide the flash and glitter of 20th century economic leadership, but the region has demonstrated a remarkable robustness that holds lessons for other cities striving to remain competitive in a global economy. All cities or economic regions pass through periods of growth and decline. The real question is whether they can adapt to changing economic circumstances.

Dayton survived by building on the secrets of its past success. Its innovative manufacturing base has become more tech-centric and service-oriented. New areas of vitality such as health services have been enhanced. The city may no longer be what it was at its peak a century ago, but its future is far from grim.

A Carbon-Free Electricity System in 10 Years

sam.staley@reason.org (Samuel Staley) — Tue, 22 Jul 2008 00:00:00 EDT

Former Vice President Al Gore just called on America to ditch electricity that is generated by fossil fuels over the next 10 years and shift to a carbon-free system using renewable energy sources. Anyone taking the Nobel Prize-winner seriously recognizes that achieving this goal would inevitably entail giving the government control of vast swaths of the private economy.

Mr. Gore's goal is to eliminate man-made greenhouse gases. That means moving the economy away from natural gas, oil, and coal and toward solar, water, wind and geothermal.

"Ending our reliance on carbon-based fuels," Gore said, holds "the answer" to overcoming three challenges: our stagnating economy, global warming, and "dependence" on foreign oil.

Shifting to renewable sources would reduce our reliance on oil, cut carbon dioxide emissions and, according to Gore, create high-wage jobs in a new environmentally-friendly industry.

It's a nice armchair theory. But what would it take to achieve it in the real world?

Start with restructuring the entire economy, piece by piece.

Currently, 70 percent of our electricity is produced by fossil fuels, according to the U.S. Energy Information Administration. Another 21 percent comes from nuclear power. Just 9 percent of our energy currently comes from renewable sources.

But, there's a twist. Two-thirds of that renewable power comes from water, which is limited and geographically constrained to places with rushing rivers and dams such as the Rocky Mountains and other Western states. Less than 1 percent of all of our electricity currently comes from wind and geothermal. Solar power is barely a blip.

Yet, Gore is proposing that in just one decade we literally flip our electricity sector from fossil fuels to 100 percent renewable sources.

There are reasons that existing renewable technologies serve a tiny fraction of our overall electricity needs today. Cost is one. Distribution is another. And you simply cannot make Gore's shift, as much as it may sound like a good idea, in just 10 years without an unprecedented dislocation in the economy.

Gore recognizes that shifting to renewable sources for power generation would require massive upgrades to, and expansion of, the existing electricity transmission and distribution system - he calls this the Unified National Grid - so that customers can tap into these renewable sources.

While we clearly need electricity infrastructure upgrades, such as adding capacity and making the grid "smarter" technologically to enhance efficiency and reliability, Gore's call raises significant concerns.

Without advance knowledge of where the most economically efficient generation sources will be in the future (or even if those sources will require a grid), master planners will inevitably miscalculate where and how to build new capacity, at great cost to electricity customers or taxpayers.

Prudent caution, however, is not part of Gore's 10-year plan. We are "called upon to move quickly and boldly to shake off complacency," he told his audience, and "those who, for whatever reason, refuse to do their part must either be persuaded to join in the effort or asked to step aside." He left open the question of what would happen to those who refused to join the effort or step aside.

The message is clear. The federal government will have to choose which technologies should be adopted - and where, force private industry to adopt them, or, if necessary, create the government-run agencies to make it happen.

Factories will have to be retooled; workers retrained; research and development accelerated. Consumer concerns about cost, functionality, efficiency, or convenience will be irrelevant. This is the government, where customer service and satisfaction aren't top priorities.

Most people recognize that, at some point, the Unites States will have to wean itself from oil, natural gas, coal and other fossils fuels. But now is the time for the U.S. to embrace markets and private-sector innovation, not squelch them.

Ultimately, Gore's plan reveals itself as government planning and mandates disguised as national energy policy. Gore, of course, is right in one respect: technology will be the key to solving our future energy needs. But ultimately, technological advancements will be spurred by encouraging private innovation, not by creating an energy bureaucracy modeled after the IRS or U.S. Postal Service.

Gas Tax Increase or Private Capital?

sam.staley@reason.org (Samuel Staley) — Wed, 16 Jul 2008 00:00:00 EDT

Congress isn't waiting to see who wins in November before deciding how to spend the next trillion dollars or so on the nation's roads, rails, bridges, and tunnels. Yet, all the beltway jockeying for transportation money may be diverting attention from an even bigger problem: our inability to tap into billions of private capital as our competitors soak up a growing worldwide pot of infrastructure funds.

The stakes are high. We're not just faced with the problem of how to maintain and repair our roads and rails. We also need to find a way to come up with billions of dollars to redesign and reconfigure our transportation network for the 21st century. That's a big challenge because we are already facing an annual transportation deficit of at least $75 billion, according to groups such as the American Society of Civil Engineers and the National Cooperative Highway Research Program, the National Surface Transportation Policy and Revenue Commission.

But where will the money come from?

Some are holding out for a major increase in the gas tax to fund infrastructure needs. The National Surface Transportation Policy and Revenue Commission recommended a hike of 60 cents. Many in Congress would like to see a gas tax increase increase, but most insiders doubt they can get much more than a few pennies at the end of the day. Few see Congress rushing in to hike the gas tax in the midst of record-high gas prices and a slumping economy.

Further complicating a gas tax option is its scale: even if taxes were increased dramatically the gas tax still wouldn't provide all of the needed funding for road projects.

Meanwhile, the US is in danger of leaving billions of infrastructure dollars on the table for other countries to eagerly snatch up. Private investments funds are capable of leveraging $525 billion for infrastructure investments worldwide, more than 10 times the amount available just eight years ago. These funds are simply looking for the right places to invest. And thus far they've found them outside of the United States.

Europe and Asia have decades-long histories of tapping into private equity to fund their transportation infrastructure using public-private partnerships. France has virtually its entire limited access highway system under the management of privately-owned firms, including Cofiroute, ASF, APRR, and Sanef. Australia has been tapping into private capital using companies such as Macquarie and Transurban to build tunnels and tollroads in its major cities since the 1990s. Italy and the United Kingdom claimed nearly half of the private investment in public infrastructure between 2003 and 2006 among the 20 nations that make up the Organization for Economic Cooperation and Development (OECD), according to Standard & Poor's.

China may be the most aggressive in using private capital to build its transportation infrastructure. The nation is embarking on an epic road-building program that will match the size of the US Interstate Highway System and be completed in less than half the time. Its expressway network is intended to link all provincial capitals, 80 percent of the nation's population, and 90 percent of the nation's ports, according to a report prepared by the China Construction Bank Corporation (CCBC). Most of these expressways are being financed by tolls, and the tollway companies depend on private capital to finance them.

The US lags behind all of these countries. Just a handful of projects have closed in the US for a fraction of the amount of capital available on the global market, most notably the $3.8 billion Indiana Toll Road and the $1.8 billion Chicago Skyway. In a positive sign, three Greenfield (new) toll road deals were signed recently in California, Texas and Virginia. The combined investment value, however, doesn't even match the Indiana deal. While a consortium of domestic and foreign companies submitted bids to lease the Pennsylvania Turnpike, the winning bid of $12.8 billion is still far from a done deal even though it is strongly supported by Democratic Governor Ed Rendell.

The US market appears to be limited largely for political reasons. In the immediate aftermath of the Indiana and Chicago partnership deals, Congressmen James Oberstar (D-MN) and Peter DeFazio (D-OR) sent a letter to governors and state highway officials warning them that the US House Committee on Transportation and Infrastructure would "work to undo any state public-private partnership (PPP) agreements that do not fully protect the public interest and the integrity of the national system."

A strong response from state officials quelled some the protest from Capitol Hill and the short-term momentum to rein in public-private partnership projects. Nevertheless, proponents of public-private partnerships were put on notice that the federal government might become active in discouraging the further use of private capital in highway and transportation projects.

We may be giving private capital, even US-based funds, little choice but to invest their billions in fruitful, but less lucrative projects abroad. That would be unfortunate for the US, undermining our global competitiveness and undercutting efforts to shore up a transportation system desperately in need of an extreme makeover. Unless national transportation policy gets on track and embraces private capital, our transportation system will continue to lag far behind our global competitors.

Hey Ohio, Suing Companies Isn't Good for the State's Economy

sam.staley@reason.org (Samuel Staley) — Thu, 10 Jul 2008 00:00:00 EDT

Few events show the poverty of Ohio's approach to economic development policy more than the state's official response to DHL's decision to phase out its airborne freight operations in Ohio. The short-term stakes are big-6,000 jobs in the central Ohio town of Wilmington alone. The long-term stakes, however, may be even bigger and cost the state even more jobs down the line.

Faced with a money losing operation with contractor ABX, DHL decided it needed to cut costs. Moving its airborne freight business to UPS and its Louisville hub was the solution. The decision, DHL executives said, was strictly financial.

State and local officials were completely blindsided.

Wilmington's mayor was even on a courtesy visit to the company's headquarters in Germany when he heard the news. Clearly, this was a poor public relations move on the part of the company.

Enter Lieutenant Governor Lee Fisher, current director of the Ohio Department of Development and former Attorney General. Faced with impending job cuts by Continental Airlines in Cleveland and the closure of yet another auto plant in Dayton, Fisher decided to take a strong, visible stand.

Plan A? Sue DHL. That's right. Bog down DHL's attempt to cut costs and remain competitive by swamping the company in litigation and claiming its decision to move business to UPS violates the nation's antitrust laws.

Fisher assured the Dayton Daily News editorial board that he was working on a Plan B. Plan B is to come up with a way to reuse the airport facilities in Wilmington for some other use. In other words, it's not a plan at all. In fact, it's what anyone would do with an unused, yet economically valuable asset.

Fisher's approach says much more about current economic development policy than the bizarre specifics of this problem suggest. By making litigation a central part of economic development policy, the state is putting all businesses on notice. There's a new economic sheriff in town, and Ohio businesses better tow the state's economic line-or else. If Ohio businesses don't play according to the state government's rule book, real or perceived, they can expect the government's attorneys and public officials to play hard ball.

On the one hand, this shouldn't be a surprise. The Strickland administration has been transparent in its belief the state needs to take charge of the Ohio economy. That's one reason they dubbed the $1.57 billion hodgepodge of economic development programs in HB 554 an "economic stimulus" package.

The bill includes traditional New Deal-style public works programs such as the issuance of $148 million in bonds for the Public Works Commission for local infrastructure and state capital improvements. The legislation also includes lots of money to pump up new industries, part of Gov. Ted Strickland's agenda to remake the Ohio economy by subsidizing alternative energy companies, biomedical products and other "new economy" industries.

Perhaps Ohio's new economic managers will be successful where virtually every predecessor has failed. But it's hard to see how.

On the one hand, the governor and his advisors are seeing the rise of new companies such as the Cleveland Clinic and Cardinal Health services as a sign of the times. The simplistic approach is to pump taxpayer money into the growing companies and direct money out of the declining industries.

But many of these companies didn't need government subsidies to grow in the first place. Health care and biomedical companies have been booming for more than a decade. State subsidies are not more likely than private capital to pick the right winners in these dynamic fields.

The state-directed approach also ignores other important details. Honda Motor Company, a "traditional" manufacturer, has seen its Ohio based employment soar from 10,600 in 1995 in 16,000 in 2006. Wal-Mart has boosted its employment from 15,100 to 50,000, making it Ohio's largest employer. These companies are unlikely to tap into the special programs and subsidies that Ohio's new managers have established for the favored industries that they have anointed through legislation.

The DHL precedent has far bigger implications for the future of Ohio's economy than many think. Few companies will want to locate in Ohio if they believe state officials will be second guessing strategic business decisions, or examining the details of their bottom line to ensure investments are justified. In a state where the lack of job creation is the primary driver of economic stagnation, putting the government in charge is unlikely to create the kind of investment climate that encourages the private investment necessary to expand Ohio's employment base.

The Myth of the Gas Price "Crisis"

sam.staley@reason.org (Samuel Staley) — Thu, 19 Jun 2008 00:00:00 EDT

Once again, Americans are besieged by a crisis. You can't turn on the cable news channels without hearing about "sky-high" gas prices and our "addiction" to foreign oil.

Sen. John McCain wants to suspend the gas tax. Sen. Barack Obama wants a "windfall profits tax" on oil companies. And both major political parties seem to support funding various programs to find alternatives.

But are high gas prices really a "crisis"?

"For many Americans there is no more pressing concern than the price of gas,'' President Bush said at the White House on June 18th. "Congress must face a hard reality. Unless members are willing to accept gas prices at today's painful levels or even higher, our nation must produce more oil."

At its root, today's gas prices reflect a simple market reality: the world pumps 85 billion barrels of oil out of the ground each day while the world wants to consume 87 billion barrels. Moreover, developing nations, primarily India and China, but also Brazil and eastern European countries, are growing rapidly, pushing long-term demand even higher.

It also doesn't help that our capacity to pump and refine oil is stubbornly resistant to expansion. A new refinery hasn't been built in the US since the 1970s.

Some of this inelasticity is economic-oil companies and refiners remember all too well the industry wide recession triggered by falling gas prices in the 1980s and 1990s after an equally severe price spike in the 1970s. Most of the inelasticity, however, is political-unrest in Nigeria and Iraq, saber rattling in Venezuela and Iran, or special interest opposition in the US and Western Europe.

So, in reality, today's prices reflect the mismatch between supply and demand. The prices we face today, at the gas pump and on the world market, are really a normal and essential market outcome.

So what will we do? First, as in previous cases, we'll cut down how much we drive. In fact, vehicle miles traveled, a common measure of demand, has fallen over the last year in the US.

Second, once we think the high prices will stay around for a while, we will begin to change how we get around. Fortunately, most of us won't be forced to dramatically change our lifestyles. Simply dumping the SUV for a hybrid, four-door sedan essentially neutralizes the effect of the run up in gas prices over the last two years.

The more important step, however, will be long-term changes. That's when, with the help of the profit motive, new kinds of vehicles will be available on a broad basis for consumers throughout the economy. That's when we take advantage of an emergence of electric-only vehicles, perhaps even a version of the new Tesla sports car - currently over $100,000 for a car that goes about 220 miles per charge - will be priced low enough for the middle class. Honda has already launched the emissions-free, hydrogen fuel cell FCX Clarity for a limited run before going into mass production within 10 years. Drivers already have 20 different hybrid models to choose from. There should be 65 hybrid models by 2010.

While many working-class families will have to change their lifestyles or spending habits to deal with higher gas prices, most won't. The median household income in the US is now $48,000 per year. Higher gas prices would be equivalent to about a 1 percent reduction in their total income at today's prices. Most families will have the financial flexibility to make adjustments needed to accommodate higher prices.

As painful as it is for many, the correct response to high gas prices is to simply let the market work, not use them to justify billion dollar programs on inefficient fuel alternatives or adopt politically expedient gimmicks like a gas tax holiday. Market economies provide the natural incentives to both suppliers and consumers to ensure the needed adjustments will be made at the right time with the right technologies. We don't need politicians or energy planners to trump market decisions.

As Gas Prices Rise-We'll Adapt

sam.staley@reason.org (Samuel Staley) — Thu, 22 May 2008 00:00:00 EDT

Americans may shake their fists at $4 per gallon gas on Memorial Day, but these frustrated gestures will mean little in the long run if experience is any guide. We won't sell off the car and hoof it to work. We won't move to apartments and townhouses in the big city. Instead, we'll do what Americans do-innovate to make our lives even better off instead of accepting a lower standard of living.

Conventional wisdom, of course, says otherwise. Some environmental activists and other anti-car ideologues are practically beside themselves with joy as gas prices climb higher. Public transit use is up, and some early evidence suggests that home prices are falling faster in far-flung places with long commutes. Perhaps, they hope, Americans are finally breaking from their "addiction" to gas guzzling automobiles and making the "right" choices by living in smaller homes in dense neighborhoods in congested cities closer to their jobs.

Many politicians, including, presidential candidate Sen. Barack Obama are on the bandwagon. Obama recently criticized the "Big 3" automakers during a stop in Warren, Michigan for making cars people wanted to buy - trucks, minivans, and SUVs - rather than the money-losing smaller cars produced by their Asian competitors.

"Now, a big part of the reason autoworkers are struggling on the factory floor is because of decisions that were made in the boardroom. Rather than invest in the fuel-efficient cars of the future," the senator-turned-economic soothsayer said, "auto executives invested in the SUVs and large trucks that may have helped meet a rising demand, but that essentially guaranteed that they would be outpaced by foreign competitors and that the industry's long-term problems would be harder to solve."

Republican candidate Sen. John McCain has also called for increased fuel efficiency standards on cars sold in the U.S., but the real world shows the backseat driving by politicians and others is wrong. While gas prices are likely to increase over the long-term, technology and innovation are likely to keep the car and automobility at the top of our livability agenda.

First, take the experience of Europe. Gas prices now exceed $8 per gallon in Belgium, France, Germany, Italy, and the United Kingdom according to the U.S. Department of Energy. Yet automobile travel is booming. "Despite efforts to promote the popularity of other transport modes," the European Commission writes, "the car remains the personal means of transport par excellence." The number of passenger cars per capita has increased five times faster in Europe than in the U.S. since 1990.

Second, let's take a look at U.S. public transit. Undoubtedly, higher gas prices are pushing more people out of their cars and onto buses and trains. In some cases, transit ridership is up 10 or 15 percent over last year.

But, how significant is this jump? Only public transportation in New York and San Francisco can claim a metropolitan wide market share of more than 5 percent. Regional transit accounts for less than 4 percent of all travel in Boston, Chicago, and Washington, DC, despite hosting some of the most extensive systems in the nation. Transit's share of travel in growing cities such as Los Angeles, Phoenix, Houston, and Atlanta barely even registers on the travel radar screen.

A far more important indicator is how Americans will adapt to maintain their standard of living and quality of life.

Higher gas prices will not just spur more oil exploration. They will drive the search for new ways to provide the mobility American consumers want by reducing the need for oil. Twenty-two hybrid car models were already sold in the U.S. market when Toyota sold its one-millionth Prius in 2008. JD Power and Associates estimates that 65 hybrid models of cars, trucks, and SUVs will be available by 2010. As Obama pointed out in Michigan, "GM is releasing an average of one new hybrid model every three months for the next two years. So we're certainly taking steps in the right direction." As gas prices climb even higher, automobile companies will inevitably ratchet up their efforts to compete on energy efficiency just to survive.

Even if automobile technology lags consumer demand, we shouldn't underestimate the ability of Americans to find new ways to preserve their lifestyles. Already, telecommuters outnumber public transit riders in half of the top 50 American cities. Job growth in the suburbs has outstripped traditional cities for decades. High gas prices will likely accelerate these trends.

In the end, elected officials would be far better off letting international oil markets work on their own without interference from Congress or regulatory agencies. In a dynamic, market-based economy, consumers will make the adjustments necessary to maintain their standard of living and provide the proper incentives for car and energy companies to develop new products to meet these shifting desires. Intervention by misguided backseat drivers will do more to prevent these changes than encourage them.

Politicians Must Ignore Urge to "Do Something" About Housing Woes

sam.staley@reason.org (Samuel Staley) — Tue, 15 Apr 2008 00:00:00 EDT

Los Angeles Business Journal

Angelenos must feel like Alice peering through the looking glass. A little more than a year ago, home prices were soaring, and for many middle-class families, homeownership was little more than a pipe dream. Now, the Los Angeles housing market is mired in a recession unparalleled since the Great Depression.

Unfortunately, state and local policymakers have little choice but to ride out the storm. Any attempt to "rescue" homeowners, Realtors or builders will wreak even more havoc on the housing market and economy.

The depth of the housing crisis is hard to dismiss. The California Association of Realtors reports that housing sales in the Los Angeles region are down 42 percent compared to February 2007 and home prices have fallen 20 percent. In Ventura County and the High Desert, prices have dropped even further. And in the San Fernando Valley, foreclosures nearly outnumber home sales, according to a study by California State University, Northridge.

Of course, the housing market meltdown isn't unique to Southern California. The National Association of Realtors reports national home prices fell for six straight months, the first time that has happened since they began recording sales data. The impact of all this on the economy has politicians scrambling to bail out lenders and homeowners. Sen. Hillary Clinton has even called for a moratorium on foreclosures and freezing interest rates in existing mortgages to stop the bleeding. But these feel-good programs will make L.A.'s problems worse, not better.

Speculative bubble

Unlike the Midwest and Northeast, where housing market woes are rooted in weak and stagnant economies, much of the housing mess in California is the result of a speculative bubble and a severe imbalance between housing supply and demand.

L.A.'s housing problems stem from the long recognized inability to meet rising demand. L.A.'s Department of Housing reports that the city needs to produce 8,600 new housing units per year just to meet current demand. From 1999 to 2003, the city added just 4,800 units a year.

This market imbalance goosed housing prices; it was a seller's market. During the housing boom, the median L.A. home price soared to nearly $600,000 in 2006 according to the U.S. Census Bureau. But these prices were simply unsustainable, and set the stage for today's devastating crash.

How do we know?

Using conventional rules of thumb, a typical household can "afford" a home valued between three and four times its annual income. So, a typical household would need to earn between $150,000 and $200,000 a year to afford the median house in Los Angeles, depending on the size of their down payment.

But, L.A.'s median household income is just $51,315. In other words, the typical L.A. household can afford a home valued between $150,000 and $200,000, about one third of the median price of a typical home here.

Despite that gap, the housing market stayed robust because many households took advantage of the inflated value of their homes, sold them and used the equity as a down payment on new, higher priced homes.

Others took advantage of creative lending products, including zero down payment requirements and adjustable rate mortgages, to take on housing debt they really couldn't afford long-term. By 2006, more than a half a million L.A. households, 44 percent of all households, were funneling 35 percent or more of their monthly income toward home upkeep and their mortgages.

Unfortunately, the only practical way out of this morass is to wait.

Local and state politicians need to fight their impulses to "do something." The best thing, as painful as it may be, is to let the local housing market rationalize itself and bring prices back in line with the reality of what L.A. households can afford. This likely means even further declines in home prices while banks and other financial institutions scramble to readjust their portfolios to reflect lower home prices.

Limited supply was the biggest factor driving up home prices in California, but many investors were also playing the L.A. real estate game in the same way they'd play the stock market or blackjack tables in Las Vegas. They bet that they could take an interest-only loan, flip the house, and win big. Well, some lost that bet. The government shouldn't be in the business of bailing these gamblers out.

After years of skyrocketing housing prices, many first-time homebuyers and middle-class families could actually benefit from this market correction if it brings L.A.'s housing prices back in line with the region's incomes. Then the working families long priced out of the Los Angeles housing market may finally get a shot at owning a home.

Cities Can Sell Abandoned Homes in Blocks

sam.staley@reason.org (Samuel Staley) — Sun, 23 Mar 2008 00:00:00 EDT

Indianapolis Star

Indianapolis, like other big cities in the Midwest, is straining under the weight of abandoned homes. Nearly 7,000 abandoned buildings litter the landscape of the city's most hard-pressed neighborhoods, and the Indianapolis Housing Agency and Mayor Greg Ballard deserve credit for trying to take the bull by the horns. Unfortunately, their recently announced initiative may not be bold enough.

Realizing record foreclosure rates were sinking the city's housing market, the housing agency has proposed having the city buy foreclosed homes from the federal Department of Housing and Urban Development and then sell them to neighborhood development agencies. The goal is to have the homes renovated and resold at affordable prices. Indeed, in cities across the nation, nonprofit neighborhood associations have been at the forefront of developing affordable housing in central cities.

Yet Indianapolis can be much bolder. Sherron Franklin, the former councilwoman whom the mayor put in charge of the initiative, could be given the authority to use market incentives to create a model for cities across the nation.

The problem Indianapolis faces, like other major urban centers, is too much housing of the wrong kind. That's one reason home prices are so low compared with outlying suburban areas. These low prices, and the low-income consumers to which they cater, squeeze profit margins to the point that individual developers and builders can't make enough money to justify a major investment or commitment.

Indianapolis is in a position to turn this around in a revolutionary way.

Rather than sell foreclosed and abandoned homes as individual units, the city should use this opportunity to consolidate the properties and sell them as a block. Rather than offer neighborhood groups one house, or several houses scattered throughout these neighborhoods, the city could offer them as one property. This gives developers, whether private for-profit or nonprofit, more opportunities to make the project financially viable.

Then developers can think in terms of larger-scale projects that might include a mix of residential and commercial units, a mix of different kinds of housing units -- or the property might be redeveloped based on its current use. The low profit margins on individual units can be aggregated over the entire project, or even increased by allowing higher-valued commercial uses. Developers can think "urban village" rather than low-income home.

For the first time in decades, developing in poor neighborhoods might hold the promise of profitability. The key will be to consolidate enough parcels to create a large enough threshold to make this attractive.

Moreover, because the properties being transferred are already in foreclosure, the city and private developers won't have to worry about violating property rights through eminent domain. The deeds will be clear. In fact, the potential for realizing higher property values should make it easier to acquire nearby properties or secure the blessings of neighbors. A critical part of the success of such a program would be to create large enough bundles of property that experienced developers would take this opportunity seriously. They should also be market-rate housing units.

With the right leadership, an Indianapolis program could become a model for housing policy for the nation's mayors by turning blight into a bright beacon of urban revitalization, one based on economic realities rather than political good intentions.