Phillip Washington, the transit executive who thinks Los Angeles isn’t congested enough, has been named the leader of Biden’s transition team in charge of the Department of Transportation and Amtrak. Washington is the CEO of Los Angeles Metro, the main transit agency in Los Angeles County.

A year ago, as Los Angeles bus ridership was collapsing due to LA Metro’s insistence on building costly light rail, Washington blamed the loss of bus riders instead on Los Angeles’ famously uncongested freeways. “It’s too easy to drive in this city,” he told the Wall Street Journal. To restore bus ridership, the city has to “make driving harder.”

“Sometimes you have to tell people what’s good for them,” Washington also told the Journal. He will clearly fit right in to Biden’s top-down view of how the world should work. Washington’s support for obsolete light-rail transit will go hand-in-hand with Biden’s support for obsolete intercity passenger trains.

In The Best-Laid Plans, I showed that American cities are increasingly run by a Congestion Coalition, a collection of special interest groups that benefit from increased traffic congestion. The coalition includes urban planners, transit agencies, environmentalists, builders of high-density housing projects, transportation contractors (especially those who build urban monuments that don’t really relieve congestion), and downtown property owners.

Few have been as explicit in stating their goals as Washington, but Biden’s transportation transition team includes several other members of the coalition. Among them are:

• Polly Trottenburg, a long-time smart-growth advocate who was on Maryland Governor Parris Glendening’s staff when he (or someone on his staff) coined the the term “smart growth.”
• Therese McMillan, CEO of the San Francisco Bay Area Metropolitan Transportation Commission, the metropolitan planning organization that pushed through the density-oriented Plan Bay Area;
• Gabe Klein, who believes that buses aren’t “real” transit and so every major American city needs to build expensive rail lines.
• Robert Molofsky, general counsel to the Amalgamated Transit Union, the nation’s biggest transit union.
• Brendan Danaher, chief lobbyist for the Transport Workers Union, the nation’s other big transit union.
• Austin Brown, an advocate for “sustainable” transportation at the University of California, Davis.
• Vinn White, an enthusiast of high-density, transit-oriented developments in New Jersey.

Today is the 50th anniversary of Congressional passage of the Rail Passenger Service Act, which created the National Railroad Passenger Corporation, later known as Amtrak. This law was based on several factual errors, the most important one being a claim that passenger trains could make money if only they were freed from the stodgy railroad executives who supposedly preferred freight over passenger service.

Early Amtrak train to San Francisco from Chicago. It took several years to repaint all of the equipment into Amtrak colors. Photo by Drew Jacksich.

Passenger train ridership had been declining since 1920 and the decline accelerated after World War II. A 1958 report from the Interstate Commerce Commission predicted that intercity passenger trains would disappear by 1970. In response, Congress passed legislation making it easier for the railroads to stop running interstate trains.

In 1968, however, a book came out called To Hell in a Day Coach by Peter Lyon. The book argued that passenger trains were actually profitable but were victims of a long-term conspiracy by railroad executives who believed that freight trains were even more profitable and that the passenger trains got in the way of freight-train profits.

As transportation economist George Hilton pointed out, the American railroad industry had a huge surplus of capacity in the 1960s, a surplus made even larger by the introduction of new technologies such as centralized traffic control. As such, the railroads would have welcomed passenger trains or any trains that covered their marginal costs in order to help use some of that capacity.

Yet many rail fans continued to believe the claim that passenger trains could make money. One, Anthony Haswell, founded the National Association of Railroad Passengers and persuaded Congress to hold hearings in September 1969, considering eight different alternative ways of rescuing passenger trains.

In his testimony at that hearing, Haswell claimed that passenger trains were more efficient than either flying or driving. “That capability of economical movement of trainloads of people is perhaps the most important reason why we should retain passenger service.”

Haswell also stated that passenger trains deserved federal capital support because airports and highways had been built with federal support. However, he added that operating subsidies “are not a fundamental solution to the economic problems of rail passenger service,” which he believed was inefficient operation by the railroads. “The inherent danger of operating subsidies is that they would pay for such inefficiencies on a continuing basis. Railroads receiving such subsidies would have little or no incentive to reduce expenses or increase revenues on their own initiative.… In short, operating subsidies have the risk of becoming permanent drains on Government revenues without commensurate public benefits,” which is exactly what happened.

Two months after the hearings, the Department of Transportation had synthesized the eight different alternatives into a single proposal for legislation creating “Railpax,” which would take over passenger service no more than 181 days after passage of the bill. The draft bill never received White House approval, but managed to find its way into Congressional hands.

Before going bankrupt, Penn Central was running Metroliners between Washington and New York in less time than any Amtrak train has ever been scheduled to take on that route.

The real catalyst for the passage of the bill was the June 21, 1970 bankruptcy of Penn Central, the largest corporate failure in American history up to that date. Even as it filed for bankruptcy, Penn Central petitioned to cancel many of its passenger trains, and rail industry leaders were quick to blame the bankruptcy on those money-losing trains.

While money-losing passenger trains were a contributor, the real problem was that the two main railroads making up the Penn Central, the New York Central and Pennsylvania, never should have merged in the first place as they were fundamentally incompatible. PRR was highly centralized; NYC was fairly decentralized. NYC was highly innovative; PRR much more traditional. On top of that, the new company’s top three executives — board chair (from PRR), president (from NYC), and chief financial officer (from a third company) — proved to be unable to work together.

In response to the bankruptcy the Senate proposed to subsidize intercity passenger trains while the House submitted a bill based on the December 1969 DOT proposal that would create a new corporation to take over passenger trains. The House bill passed and was signed by President Nixon.

Railpax was supposed to be a for-profit corporation requiring no federal subsidies. Railroads could divest themselves of passenger trains by joining Railpax and making a one-time-only payment equal to the amount of money they claimed they had lost on passenger service the year before the law passed. In exchange for those payments, the railroads would get stock in the new company, stock which ultimately turned out to be worthless both because the company was worthless and because the stockholders had no voting power over how the company was run.

Most railroads joined Railpax, which changed its name to Amtrak a few weeks before it took over passenger service on May 1, 1971, 181 days after passage of the law. Amtrak immediately shocked Haswell and his supporters by cutting more than half the trains running in the country.

Despite cutting all of those trains, Amtrak quickly burned through the money the railroads paid to buy their way out of the passenger business. Congress then stepped in to provide operating subsidies, leading to the perpetuation of the inefficiencies that Haswell warned about in his 1969 testimony. Congress has also provided capital subsidies for purchasing new railcars, buying the Northeast Corridor and other tracks, and improving those tracks.

Despite these subsidies, average Amtrak fares today are more than twice average airfares. Even if Haswell was right in 1969 that trains were more efficient at moving people, it is no longer true today. In 2018, Amtrak ticket fares averaged 33.1 cents per passenger mile while the airlines collected 13.7 cents per passenger mile. Driving costs about 25 cents a passenger mile, and probably less in intercity travel as autos tend to have higher occupancies for such travel. Amtrak’s high costs are partly due to the extra infrastructure required to run passenger trains but also due to the inefficiencies that come with government subsidies.

Amtrak inefficiencies are perpetuated by subsidies because there are constituencies for those inefficiencies, including unions, rail contractors, and local governments. America has more than 19,500 incorporated cities and Amtrak trains stop in only about 500 of them, but officials in many of those cities are prepared to swear before Congress that their towns vitally depend on Amtrak and so the residents of the other 19,000 cities should subsidize it.

In 2018, the average American traveled 19 miles on Amtrak compared with more than 15,000 miles by automobile, 3,500 miles by plane (including international flights), 400 miles by bus, 100 miles by urban rail transit, 100 miles on foot, and 26 miles by bicycle. Yet Amtrak supposedly deserves $1.5 billion to $2.5 billion a year in federal subsidies plus close to $250 million a year in state subsidies.

This is how government grows out of control: someone fundamentally misunderstands a problem, calls for a new government program to correct that problem, and that government program becomes self-perpetuating because those who benefit from the waste are louder than those who pay the cost. Even Haswell admits that Amtrak has become a “legendary boondoggle” and that he is “personally embarrassed” by what he helped create.

By coincidence, the 40th anniversary of the Staggers Act, which deregulated and revitalized the railroads, took place just two weeks ago. Penn Central’s successor, Conrail, earned its first profits a year after the Staggers Act was passed, suggesting that Congress should have passed the Staggers Act, rather than the Railpax law, in 1970. The Staggers Act shows that government can become less obtrusive, but whether government can ever terminate funding for failed programs such as Amtrak has yet to be proven.

I’ve noticed many economists from Wall Street and elsewhere on cable news shows and other media claiming that more federal infrastructure spending would lift the economy.

The Wall Street Journal reported, “Goldman Sachs economists estimate that the substantial stimulus that would come with a Democratic sweep, along with longer-term spending increases on areas such as infrastructure and health care, would provide the economy with a boost.” Meanwhile, Penn-Wharton economists assume that added federal infrastructure spending under a Biden administration would be highly productive and boost GDP.

I think these economists are missing something fundamental. The federal government owns very little infrastructure. State and local governments and the private sector own 97 percent of America’s nondefense infrastructure. Just looking at public nondefense infrastructure, state and local governments own 87 percent and the federal government owns 13 percent. State and local governments, for example, own the entire interstate highway system and virtually all the nation’s commercial airports.

If additional spending on these public assets was high value, wouldn’t state and local governments increase spending themselves? If the benefits of expanding highways, airports, and urban transit systems outweighed the costs, wouldn’t the owners of these assets be in the best position to spot the opportunities and act on them?

Economists and pundits who claim federal action is needed seem to assume that federal policymakers have superior knowledge or better foresight than state and local officials and infrastructure managers. They seem to assume that the D.C. legislative process produces more efficient outcomes than state and local processes in allocating investment dollars and balancing the benefits of spending with the costs.

Perhaps the view is that the states can’t raise enough money for needed infrastructure. But that is not correct. The states have huge fiscal power to fund high-value projects by taxing, borrowing, or reprioritizing existing spending. If a $1 billion highway project in Texas was expected to generate $1.5 billion in benefits, then Texas highway planners would be the ones to recognize it and the Texas legislature could fund it or attract private financing to build it.

The Penn-Wharton modelers find that Biden’s plan to spend $1.6 trillion more over a decade on infrastructure would boost GDP substantially. Based on a prior study, they assume, “… more public capital investment raises the productivity of private capital and labor. Based on past experience, our analysis assumes that an additional dollar of public infrastructure generates over 10 cents of output per year, everything else equal. In contrast, we estimate that an additional dollar of private capital generates around six cents of output per year.”

Thus, spending another $1 billion on a government high-speed rail line in California will add more to the economy than, say, Intel Corporation building a $1 billion chip plant in the state. That seems unlikely. But if it were true, then the government of California or entrepreneurs in the state would be in the best place to recognize it and fund such high-value opportunities.

For every type of infrastructure, there is an optimal amount of spending. If governments spend too much, the marginal benefits will be less than the marginal costs, which would undermine the economy. Infrastructure advocates and economists such as the Penn-Wharton modelers seem to assume that we are always below the optimum, that more spending is always better. Supposedly, state and local governments across the nation routinely fail to fund marginal investments that have positive net benefits, and the federal government can swoop in and efficiently fill the void.

Trump and Biden want the federal government to spend hundreds of billions, or trillions, more dollars on infrastructure, and many economists in the media cheerlead for it. Economic models assume it will be greatly beneficial. But at the margin, why would it be?

State governments show little hesitation to increase funding of their infrastructure when they see opportunities. Just since 2013, 31 states have raised their gas taxes to fund transportation. Even if there were gaps in state funding, experience shows that federal aid would not fill them efficiently because of red tape, high costs, and pork barrel problems. This study describes why federal spending on state activities is less efficient that state spending on state activities. Greater federal intervention would undermine the efficiency of America’s infrastructure investment, not improve it.

Whichever candidate wins the presidential election is likely to push for higher federal infrastructure spending next year. I’d like to see reporters ask federal policymakers why they think state and local governments can’t fund their own assets. And I’d like to see economists re-think their assumption that Washington is better able to determine optimal infrastructure investment than officials in hundreds of state and city governments that own and manage the assets.

For more on America’s infrastructure, see here. To understand why the federal government fails at much of what it does, see here. To appreciate the disadvantages of federal aid for state activities such as infrastructure, see here. For studies on transportation infrastructure, see here.

The infrastructure plan recently released by the Biden campaign is a collection of tired ideas that have consistently failed in the past. Too much of the plan is based on last year’s groupthink and not enough of the plan recognizes the new realities that have emerged from the pandemic.

A large part of the plan is based on getting people out of their cars and onto transit and bicycles. American cities have been trying to do this for the last fifty years, spending $1.5 trillion subsidizing transit, and it hasn’t worked anywhere. The plan calls for connecting low-income workers to jobs by building more transit, yet people can reach far more jobs by automobile than by transit while auto ownership, not transit subsidies, are the key to getting people out of poverty.

The plan is based on assumptions about transportation dollar and environmental costs that are fundamentally wrong. Transit, the plan says, saves money while cars impose a burden on low-income people and produce too many greenhouse gas emissions. In fact, when subsidies are included, American transit systems spend five times as much moving a passenger one mile than the average automobile. Ignoring subsidies, average transit fares are still more than the average cost of driving per passenger mile. Transit also uses more energy and emits more greenhouse gases per passenger mile.

The only token acknowledgement of the changes brought about by the pandemic is the use of the word “resilient” in the plan. But the planners seem to think that transit is resilient as it proposes “expanded public transit systems, giving more Americans an affordable, efficient way to get around without their cars.” In fact, as Hurricane Katrina, the Camp Fire, and other natural disasters have shown, highways and private motor vehicles are far more resilient than mass transit.

Just look at the current pandemic: transit agencies are in financial crises, but the highways are there when we need them, 24/7. As of August, transit ridership was still down by 65 percent, while driving was down only 12 percent. None of this is taken into account by the anti-auto parts of the plan.

The plan calls for electrifying cars and trains in order to reduce greenhouse gas emissions. It fails to note that most of the electricity in the country comes from burning fossil fuels so electrification doesn’t reduce greenhouse gases.

Of course, planners want to shift to renewable energy, which will cost trillions of dollars. Adding the transportation system to the electrical grid will massively increase the burden and cost of doing so. California is already suffering rolling blackouts due to its emphasis on renewable but unreliable energy; just think how bad it would be if the demand for electricity were doubled.

The plan mentions self-driving cars, but suggests that the government needs to spend billions on “smart cities” to make those cars work. Yet the government can’t even coordinate traffic signals in most cities; how is it going to operate and maintain so-called smart infrastructure? Biden apparently never got the memo that virtually all of the companies developing autonomous vehicles are designing those vehicles to rely on existing infrastructure and not to need any smart improvements in that infrastructure.

Finally, it is worth noting that the very first item in the plan is to “create good, union jobs.” Unions are among the biggest backers of the Biden campaign and this emphasis shows that Biden is just catering to his constituency. While that’s not a surprise, many of the problems with crumbling infrastructure emphasized in the plan can be traced to the high cost of union labor and union rules that makes it difficult to keep infrastructure in a state of good repair.

In the end, the Biden plan shows that government can be counted on to pick losers, not winners, and to prefer obsolete technologies and solutions that fail to recognize the changes society has made in recent months and years. Implementing this plan will waste trillions of dollars on infrastructure we don’t need and that we won’t be able to afford to maintain. This will cripple our cities and reduce the productivity of our economy.

They’ve caught all the thieves and rapists in Fairfax County, Virginia, and now it’s full steam ahead against the other big menace to suburban tranquility: 9‑year-old girls and their treehouses.

The Annandale blog reports that Erwan Dapoigny built a treehouse in May for his daughter Ana’s ninth birthday. But Ana and her friends were having so much fun they were terrorizing the entire neighborhood. The government had to put a stop to it. Fairfax County sent the family “a letter saying they need to pay a $913 fee and get special approval to keep the treehouse – or they will have to tear it down in 30 days.”

The Wakefield Weekly says that Fairfax demanded the family either “remove the treehouse within 30 days, relocate it to the back yard, or apply for and obtain a special permit. Failure to comply, it says, could result in court-ordered sanctions or civil penalties—$200 for the first citation and $500 for subsequent citations.”

But Ana is in a commanding position atop her fortress and fighting back. She has launched a Change​.org counterattack, so this battle may have just begun.

Since 1986, low-income housing tax credits (LIHTCs) are the main way in which the federal government tries to increase the amount of affordable housing for low-income families. Yet they have become an enormous scam that allows non-profit organizations such as Habitat for Humanity to pad their budgets building expensive housing that is mostly rented to middle-income people.

As described in this 2017 Cato Institute bulletin, the Internal Revenue Service allocates tax credits to state housing agencies each year. The agencies then give them to developers that are often non-profit organizations. The developers can sell the tax credits to raise funds to build new supposedly affordable housing. The IRS currently distributes about $10 billion worth of tax credits a year, more than three times as much as the Department of Housing and Urban Development (HUD) spends building public housing, which was less than $2.9 billion in 2020.

A group called Seattle for Growth has compiled a list of 89 low-income housing projects funded since 2008, with links to the complete financial applications for 30 of those projects. A handful of these projects were built by the city or county housing agencies, while all of the rest were built by non-profit organizations such as Mercy Housing, which builds and operates housing projects in eighteen states ranging from Washington to Georgia.

The 89 projects included 6,700 housing units built at an average cost of $300,000 (in today’s dollars). While $300,000 sounds affordable in a city in which the median housing price is $780,000, the housing units built by the non-profits averaged less than 700 square feet in size, compared with more than 3,000 square feet for new homes built in the West in 2019.

According to the Census Bureau, new home construction in the West costs an average of $139 per square foot. Another source says that home construction in Seattle costs $141 per square foot. Yet, according to the financial applications, the non-profits in Seattle are spending more than $530 per square foot building supposedly affordable housing.

Of this $530, an estimated $258 per square foot would be spent on actual construction, with another $15 per square foot for “contingencies.” The rest includes a variety of fees for the architects, the developers (meaning the non-profits), and the government. All of the developments also included large common areas such as hallways and, in some cases, parking structures, and these added considerably to the total cost.

There are several reasons why the costs are so high. The first is that neither the IRS nor HUD provide much oversight over how the funds are spent. Since no one in the federal government pays any attention to how low-income tax credits are spent, developers are free to spend as much as they want. A 2018 GAO report found projects ranging from under $100,000 to more than $700,000 per unit, and few if any state agencies seemed to judge projects based on their costs.

A second problem is that Seattle has an urban-growth boundary that has greatly increased the price of land in the region. According to a 2017 study published by the National Bureau of Economic Research, the average price of land in Seattle is more than $1.3 million per acre, compared with under $300,000 per acre in fast-growing regions that have no urban-growth boundaries such as Atlanta, Houston, and Raleigh.

A third and even bigger problem is that most of the Seattle projects weren’t really built to provide affordable housing; instead, they were built to provide customers to the region’s light-rail system. LIHTCs can pay for no more than 70 percent of the cost of housing projects; to be eligible for state and city housing funds covering the remaining 30 percent, Seattle projects have to meet a number of specific requirements including “compact development,” “access to public transportation,” and “walkable neighborhoods.” As a result, all but two of the 30 projects whose applications I examined were mid-rises (4- to 6‑story) or high-rises (7‑plus stories). Such projects are much more expensive to build due to the need for more structural steel and concrete, not to mention all of the common areas they require that aren’t needed for single-family homes.

“Government will malperform if an activity is under pressure to satisfy different constituencies with different values and different demands,’’ wrote Peter Drucker in his 1989 book, The New Realities. ‘‘Performance requires concentration on one goal.” Agencies administering affordable housing funds have lost sight of their goal and so the money they spend doesn’t help as many people as it could.

Not that the 6,700 units of housing in Seattle’s 89 projects help that many low-income people. Many of those units are available to any household that earns less than the Seattle-areas’s median income, which was $93,000 in 2019, and only a few are affordable to those who truly have low incomes. Despite the fact that the non-profits that built the projects spent none of their own money on the capital costs, the rents they charge for most of the apartments are higher than truly low-income people can afford to pay.

According to the Census Bureau, the poverty line for a Seattle family of four is under $33,000 a year. Under requirements that households spend no more than 30 percent of their incomes on housing, a family earning $33,000 a year can afford to spend $825 a month on rent and utilities. Yet only ten of the 110 units of the Capitol Hill TOD, a project now being built with low-income housing tax credits, will be priced this low. The average unit in the complex will require an income of $40,000 a year, and the most expensive $56,000. This means that most of the 110 units are really middle-income housing.

This isn’t just a Seattle problem: such high-cost housing is being built using affordable housing subsidies in many states. As the Los Angeles Tenants Union observes, “U.S. housing policy has become a market-driven, mixed-income program of ‘Affordable Housing’ for carefully selected, mostly middle-income tenants, largely excluding the very poor.”

The public tends to view non-profit organizations as more altruistic than private developers, but this reveals that non-profits are just as money-grubbing as anyone else. If they were really concerned about helping low-income people, they would be lobbying to abolish the urban-growth boundaries that have made land expensive in West Coast urban areas such as Seattle, Portland, San Francisco, San Jose, and Los Angeles. But such land-use regulations actually work in their favor since they increase the number of people who need “affordable housing,” so the non-profits make no complaint about the boundaries.

Without the boundaries, most low-income housing would not be needed. In Buckeye, Arizona, which may be the most developer-friendly city in the country, builders are selling new 2,094-square-foot homes for $264,990, or $126.55 per square foot. That includes the land, permits, hookups, architecture fees, and everything else that costs $532 per square foot in Seattle affordable housing projects.

It is clear that the low-income housing tax credit program is not accomplishing its goals and should be abolished. For more information, download my complete report on this program.

This summer, a Washington Post article described the large reduction in toll-road revenue caused by the coronavirus pandemic. As of July, less traffic had resulted in more than a $9 billion shortfall. Both public and private operators have lobbied for increased federal and state assistance to offset the reduction in revenue. But properly designed public-private partnership (PPP) contracts offer an alternative to manage demand shocks.

While PPPs have been relatively rare in the U.S., over the last three decades there has been €203 billion of PPP investment in Europe and $525 billion in developing countries. In the fall issue of Regulation, Eduardo Engel, Ronald Fischer, and Alexander Galetovic revisit the international experience with PPPs. They argue that although the overall experience with PPPs has been positive, “good governance and careful contract design are necessary to reap the benefits from PPPs.”

A common problem with PPPs is that after contracts are awarded they are routinely renegotiated, often in ways that benefit concessionaires at the expense of taxpayers. These renegotiations arise because of the incentives embedded in the PPP contracts. Traditionally, PPP contracts are fixed term. The concessionaire is guaranteed the toll revenues collected over a pre-established time period. If demand is less than anticipated, the concessionaire will receive less revenue. Concessionaires respond by requesting more favorable terms than offered by the original contract.

Engel, Fischer, and Galetovic argue that present-value-of-revenue (PVR) contracts solve the problem of demand uncertainty. As Peter Van Doren and Thomas Firey summarized in a blog several years ago:

In a PVR auction, it is understood that the private company will only operate the road for a time, and then it will be returned to the public. Regulators set a maximum toll level that motorists will be charged to use the road. Private companies then bid on the amount of toll revenue, measured in present value terms, they would want to receive before the road is returned to the public. The lowest PV bid wins. The winner collects revenues and pays for the maintenance of the road until it has earned the revenue that it bid in present value, regardless of whether it takes five years or 50. Thus, the term of the franchise is variable depending on road usage; if usage is less than expected, the lease extends. If usage is greater than expected, the lease is shorter-term. The private company won’t “lose,” but it won’t make a windfall either.

By allowing the lease term to fluctuate with changes in demand, PVR contracts eliminate demand risk and reduce the incentive for renegotiations. Chile’s experience with PPPs exemplifies this effect: while almost 60 percent of fixed-term PPP contracts in Chile have been renegotiated, only 6 percent of PVR contracts have been.

Infrastructure should be paid for by those who use it. The Chilean experience with PPP projects using PVR contracts should be emulated by the U.S.