State and local governments know their transportation needs better than the government in Washington, D.C. But that doesn’t mean state and local governments are necessarily more efficient or less prone to public choice problems when it comes to funding projects. Some of that is due to the intertwined funding streams that make up a transportation budget.
Emily Goff at The Heritage Foundation finds two such examples in the recent transportation bills passed in Virginia and Maryland.
Both Virginia Gov. Bob McDonnell (R) and Maryland Gov. Martin O’Malley (D) propose raising taxes to fund new transit projects.
Temptation to Diversion
In Virginia the state will eliminate the gas tax and replace it with an increase in the sales tax. This is a move away from a user-based tax to a more general source of taxation, severing the connection between those who use the roads and those who pay. The gas tax is related to road use; sales taxes are barely related. There is a much greater chance of political diversion of sales tax revenues to subsidized transit projects: trolleys, trains and bike paths, rather than using revenues for road improvements.
Maryland reduces the gas tax by five cents to 18.5 cents per gallon and imposes a new wholesale tax on motor fuels.
How’s the money being spent? In Virginia 42 percent of the new sales tax revenues will go to mass transit with the rest going to highway maintenance. As Goff notes this means lower-income southwestern Virginians will subsidize transit for affluent northern Virginians every time they make a nonfood purchase.
$1 Million Bus Stop
As an example, consider Arlington’s $1 million dollar bus stop. Arlingtonians chipped in $200,000 and the rest came from the Virginia Department of Transportation (VDOT). It’s likely with a move to the sales tax, we’ll see more of this. And indeed, according to Arlington Now, there’s a plan for 24 more bus stops to complement the proposed Columbia Pike streetcar, a light rail project that is the subject of a lively local debate.
Revenue diversions to big-ticket transit projects are also incentivized by the states trying to come up with enough money to secure federal grants for Metrorail extensions (Virginia’s Silver Line to Dulles Airport and Maryland’s Purple Line to New Carrolton).
Truly modernizing and improving roads and mass transit could be better achieved by following a few principles.
- First, phase out federal transit grants which encourage states to pursue politically-influenced and costly projects that don’t always address commuters’ needs. (See the rapid bus versus light rail debate).
- Second, Virginia and Maryland should move their revenue system back towards user-fees for road improvements. This is increasingly possible with technology and a Vehicle Miles Tax (VMT), which the GAO finds is “more equitable and efficient” than the gas tax.
- And last, improve transit funding. One way this can be done is through increasing farebox recovery rates. The idea is to get transit fares in line with the rest of the world.
Interestingly, Paris, Madrid, and Tokyo have built rail systems at a fraction of the cost of heavily subsidized projects in New York, Boston, and San Francisco.
Stephen Smith, writing at Bloomberg, highlights that a big part of the problem in the U.S. is antiquated procurement laws that limit bidders on transit projects and push up costs. These legal restrictions amount to real money.
French rail operator SNCF estimated it could cut $30 billion off of the proposed $68 billion California light rail project. California rejected the offer and is sticking with the pricier lead contractor.
Eileen Norcross ([email protected]) is a senior research fellow with the Mercatus Center at George Mason University. Used with permission of the Neighborhood Effects blog of the Mercatus Center (http://neighborhoodeffects.mercatus.org/).