Stimulus and Non-Critical Projects

The ideal use of a politically-determined, external infusion of funds into public transit is for a capital expansion that is not critical. The service provided should be of great usefulness – otherwise, why fund it? – but it should fundamentally be not a safety-critical package, which should be funded locally on an ongoing basis. The best kind of project is one with a high one-time capital cost and long-term benefits, since a debt-issuing sovereign state can borrow cheaply and obtain the financial and social return on investment without much constraint.

Positive examples

Outside infusions, such as from a stimulus bill or an infrastructure package, are best used on expansion with short-term costs and long-term benefits. This includes visible projects that extend systems but also ones that reduce long-term operating and maintenance costs. For examples:

  • High-speed rail: it’s operationally profitable anywhere I know of, and then the question is whether the ROI justifies the debt. Because a one-time cost turns into a long-term financially sustainable source of revenue, it is attractive for outside investment.
  • Railstitution of a busy bus route, or burial of a busy tramway. This produces a combination of lower operating expenses and better service for passengers. The only reason not to replace every high-ridership city bus with a subway is that subways cost money to build, but once the outside infusion of money comes, it costs less to run a modern rapid transit system, or even a not so modern one, than a bus system with its brigades of drivers.
  • Rail automation.
  • Speed-up of a rail route to higher standards and lower maintenance costs.

The importance of non-critical projects

Critical projects are not good for a stimulus bill. The reason is that they have to be done anyway, and the process of stimulus may delay them unacceptably, as a local government assumes it will get an infusion of funds and does not appropriate its own money for it. The upshot is that a rational federal funding agency should be suspicious of a local or state agency that requests money for critical projects, especially safety-critical ones.

The point here is that the stimulus process is inherently political. It does not involve technical decisions of what the optimal kind of public transportation policy should be. It instead pits infrastructure investments against other budget priorities, like the military, holding down tax rates, or health care. It’s not meant to be predictable to the transportation expert, and only barely to the political insider. It depends on political vagaries, the state of the economy, and petty personal decisions about priorities.

Thus, an agency that asks for stimulus funds for a project sends (at least) one of two messages: “we think this project is great but if it’s not built people aren’t going to literally die,” or “we are run by incompetent hacks.” In the former case, the point of a benefit-cost analysis is that neither the costs nor the benefits are existential: the project is not safety-critical nor critical to the basic existence of the system, but the budget is not existential to the budget either and if it is wasted then the government will not go bankrupt.

34 comments

  1. numble

    In the U.S. context, a reconciliation bill can only allocate funding to formula-driven grants (where projects are scored based on some statutory or regulatory formula for effectiveness) and the same also applies outside of the reconciliation context due to the earmark ban (the ban is now lifted, but is now replaced by giving each member ~$20 million of earmarks, which does not go far).

    Therefore, agencies will choose to apply federal funding to “critical projects”, because those would score higher against competing projects among the grant evaluation formulas.

    Even if there is local funding to fully-fund a critical project, the agency would still ask for federal funds to go to the critical project, so it can free up money to be spent elsewhere.

    • Jacob Manaker

      There’s nothing stopping Congress from including in the formula a penalty term that makes projects which, if unfunded, have substantial negative effects score lower.

      • ericson2314

        The larger issue is infra in the US has waffled between stimulus and divestment. There is little healthy steady state for a stimulus to just be a cherry-on top.

        The implicit US Democrat hope is that a sufficiently big one-off stimulus would instead set a new normal. The macroeconomics of sufficiently more spending setting off more boom makes sense to me, but the political story is a lot more tenuous.

    • Alon Levy

      100% non-critical – it’s a capacity expansion. Amtrak’s selling it as a critical project, making up reasons why it can’t maintain the old tunnels without a long-term closure, in order to upsell a project that isn’t justified at current fully-laden costs without scaremongering about tunnel closure.

    • The Economist

      The major problem for the Gateway Project/ARC/North River Tunnels is not whether it is critical or non-critical. It is that there are too many stakeholders. NJT (state of NJ), MTA (state of NY), Amtrak, PA of NY&NJ, the Feds, NYC, a bunch of Community Boards, a bunch of little towns in NJ, the Army Corps of Engineers, the Coast Guard and more. Each one has its own interest leading to bureaucracy and red tape not present anywhere else. Even when trimmed down only to the stakeholders that could fund the project, we are left with the first 5 of them. That is way too many compared to anywhere else in the world. In this context it is clear that the smaller entities (the states) will cry “poor” in order to get the daddy (the Feds) to pay up. That is what Cuomo is doing now. That is what Christie did with the ARC. I suspect that Cuomo is miscalculating though and if this falls through there will likely never be another tunnel ever built — why would not the Feds smarten up eventually and not want to deal with the NY/NJ flip-flops? The Obama administration certainly did smarten up and gave Christie the middle finger on a number of requests including money for the Portal Bridge (towards the end of the Christie administration they relented and gave NJ a few million dollars for the preliminary work on the Portal Bridge, but that was it). This is especially likely if Schumer does not get this thing moving. The other senators from NY/NJ are too junior and not invested enough in the Gateway to see it through.
      Going back to the number of stakeholders that need to pay, Alon might have more examples, but the only case with more that one stakeholder that I can think of right now is the Channel Tunnel. The Channel Tunnel had two, one from the English side and one from the French (the English sold their stake later). HS2 in the UK is really just the national government. In China it is all the national government. Maybe there is some other example in Europe with more than one paying stakeholder, but most projects are definitely run and paid for by the national government one way or another. Not so in the US. In the US the Feds insist on local share which probably works out OK where only one local stakeholder is involved, but once there are as many as in the Gateway project it is all about the smaller stakeholders gaming the system to pay the least amount possible. I really think that the Feds should say here are your $5B (or whatever amount they agreed at some point in the past), take it and build the thing or leave it, but we are not going to reconsider this in a generation again. This is all regardless of whether the current plan is good/optimal or not — the current plan is the only plan for the next decade or so no matter whether I/you like it or not.

      • Alon Levy

        Swedish projects are funded by a combo of the state, the county, and the municipality, and often involve negotiation between the county planners and the state agency disbursing grants and handling mainline procurement (Trafikverket).

        • Nilo

          Germany insists on a local match as well if I remember correctly, and Italy has lots of regional funding for transit projects.

          • Alon Levy

            Italy has 30% local match as an austerity measure and it’s been a disaster, the cities have no money so their local match is a PPP at high effective borrowing costs.

          • Herbert

            The reformed GVFG (“Gemeindeverkehrsfinanzierungsgesetz”) calls for 70% federal, 20% state and 10% local match… However, there are still some projects which were decided under the old system which had less federal funding and would also exclude some things from matching federal funds (e.g. trams in mixed traffic). Those will get the new higher funding but the decision to build them naturally couldn’t take that into account…

      • adirondacker12800

        We tried giving the benevolent techocrats free reign and decided we didn’t like that. It’s too bad you find dealing with lots of people icky. That’s the way they have decided it should be done.

        • Alon Levy

          No. You gave a political player who was never a professional planner free reins because the tradeoff was that he would preserve the informal power of wealthy NIMBY suburbs; he erred in mistaking the Village, by then a wealthy NIMBY neighborhood, for a slum.

          • Sassy

            Yes, and low local power has worked well in many parts of outside of New York City.

  2. Frederick

    But in the minds of US politicians, how critical is public transport? Perhaps in their minds, all public transport is non-critical.

    • Matthew da Silva

      Depends on the region. Anyone in the NYC area (except Josh Gottheimer apparently) knows they will always get asked by their constituents, “how do you plan on fixing the MTA/NJTransit/PATH?” Every politician is expected to have an answer of some sort, usually involving advocating for a large, sexy project such as Gateway, East Side Access, or the Second Ave Subway. Heavy suburban involvement in the transit discussion means that big expensive rush hour improvements take precedence and cheap improvements to off-peak and weekend service and/or projects focusing on non-CBD ridership are ignored.

      To a lesser degree, this is generally true in the other metropolitan areas well served by legacy transit, with the exception of higher percentages of suburban indifference and a more balanced advocacy for BOTH big sexy projects and smart operational and service delivery improvements (Boston, DC, San Francisco, Chicago, and sometimes Philadelphia).

      Cities with newer, lesser-used systems on the West Coast accept the basic precept that they need better transit for reasons of climate and economic competitiveness and ask themselves, “What can we do to make our investment worth it?”.Combined with liberal use of ballot measures out west, this means that every few years, some sort of “investment plan” with a little something for every interest group comes up to vote. This plan is likely not the highest and best use of funds given the need to win ballot measures with broad geographic appeal often spreads investment thinly. (Seattle, Portland, LA, San Jose, San Diego, Minneapolis*, sometimes Phoenix).

      In the fast-growing Sunbelt, the question is “do we need transit?”, and this has started to break down on partisan lines, with support for transit expansion becoming a badge of pride among southern liberals of “being a real city” and derision towards transit becoming a symbol of conservative resistance to the changing culture and economy of the “New South”. Ballot measures come up here, but they fail much more frequently, tend to become proxies for the culture wars, and tend to be much smaller as cities often have to go it alone in the absence of proper state funding and indifference from suburban and statewide GOP majorities. (Atlanta, Austin, Charlotte, Raleigh-Durham, Dallas, Houston, Miami, Orlando, Nashville, sometimes Phoenix)

      In disinvested Rust Belt metros, transit is only on the mind of inner city activists and the most local layer of politicians, usually consisting of calls for better bus service and/or free bus service. Suburbs are actively hostile towards transit expansion as they think it could be a vector for inner city problems. In absence of proper government support, transit agencies struggle to maintain proper service on whatever infrastructure they inherited from prior eras of investment and are often dependent on chasing federal grants. A downtown streetcar gimmick might get a desperate mayor excited. (Cleveland, Cincinnati, Detroit, Indianapolis, New Orleans*, St. Louis, Kansas City, Baltimore, Pittsburgh, and sometimes Philadelphia)

      *As the one fast-growing large midwestern metro and a bastion of liberal politics, Minneapolis’s transit politics in many ways represents that of the West Coast and his little in common with it’s slow-growing neighbors.

      *Despite being located in the Sunbelt, New Orleans’ growth patterns and transit politics more resembles that of the Rust Belt.

      • AJ

        Good framework. I like assigning MSP to West Coast and NOLA to Rust Belt, that feels accurate.

        I would put Indianapolis (and Columbus) with the New South; they are rapidly growing and have much younger infrastructure than similarly sized cities in the Great Lakes, local urban politics is around improving the bus network to serve more than just transit-dependent populations and focused on incremental improvements given the lack of sustained support for transit, and there isn’t a major overhang of legacy assets to maintain. Unlike some southern cities, I’d say the suburbs are more indifferent than hostile, but the lack of major rail projects and the lack of state support I think places these two cities in the New South rather than the West (like MSP) grouping.

        • Matthew A da Silva

          Thanks!

          I agree with your classification of Indianapolis and Columbus now that you’ve laid it out, especially given the weird state-level meddling with Indy’s transit plans.

          Two other cities I forgot were Denver and Salt Lake City, which fit nicely into the West Coast paradigm.

          The city I struggled the most to categorize was Philadelphia. It has a Rust Belt-like iffy state funding situation, has lost ridership over the past several decades and has failed to meaningfully expand, but its system is considerably more comprehensive and well-used than any of the other “Rust Belt” cities, and transit is vital to the city’s basic functioning in ways like the DC/Boston/San Francisco/Chicago cluster.

          • AJ

            I’d put Philly firmly with Chicago and Boston given the significant legacy subway and tram network. Like Chicago, Philly simply needs good maintenance of its existing infrastructure and better operating patterns, such as regional rail rather than commuter rail operating patterns. Improving land use around existing stations (e.g. the sports complex) would be a far better way to improve transit ridership than any proposed megaproject. The state politics might be different, but like NYC/Chicago/Boston, greater Philly has ample wealth to fund critical projects and keep the existing system in good order without needing to wait around for state or federal funding

      • Lee Ratner

        I think liberal support transit in the United States is often more theoretical than actual. They think it is a good idea for somebody else. At least among my friends in the Bay Area, I’m the only regular transit user that I know of. Everybody else does car, bike, or ride share to get around.

        • Matthew A da Silva

          Where do you and your friends work? The ability to live a short walk or bike ride from your office is something only a privileged few can afford in a high-cost metro like the Bay Area. In New York City, upper middle class usage of transit is primarily driven by the work commute, which then finds its way into other aspects of people’s lives as they build their lives around the reliable transit.

        • gt

          At least in my pre-COVID workplace in Boston, all of my coworkers (20-40 year old liberals) commuted to work either using the T or biking. Taking the commuter rail in is quite common too among people I know that live in the suburbs.

          I can imagine that the Bay Area is quite different, but I think that’s because of issues with the situation, not because of their appreciation for mass transit. BART is particularly bad, from what I’ve heard, and the decentralization of the Bay Area makes it difficult to use public transit for everything. If the transit were improved (which they want), they would probably use it a lot more.

  3. Herbert

    Do you have any real world data that points to subways ceteris paribus having lower running costs than trams? Because what is frequently said in Germany, especially with “poor” cities like many in the Ruhr is that they are now “saddled” with tunnels the built with federal and state funds way back when (or built when their own coffers were fuller) and now they have to basically replace them as they are at the end of their life (steel reinforced concrete has a very limited lifetime and that is what the vast majority of tunnels are made of) and cannot afford to.

    I think there were even a few tunnels which were built, used in revenue service for a while and subsequently replaced by surface operation again to cut costs.

    Certainly the anecdote of Germany’s only automated subway also having among the highest fares for a single ride (3.10€, I think) does not point towards automated subways being the be-all end-all

    • Alon Levy

      Sort of? You can get US data from the NTD, but US cities that have historic light rail systems (Boston, SF, Philadelphia) tend to have high costs for them.

      In Vancouver, the driverless trains that were not built as PPP have extraordinarily low costs – follow links from here. Oslo’s non-driverless trains have low opex as well – this translates to around $4/car-km.

      In Berlin, I can’t find operating costs per mode, but I can find driver counts. There are 790 U-Bahn drivers and 1,046 streetcar drivers; the train-km figures are similar, but U-Bahns are mostly 100 m long and occasionally 50, and streetcars here are 30-40 m long. I don’t know the proportion of U-Bahn workers who are train drivers, but on the S-Bahn it’s nearly half, so having to use maybe 3 times as many drivers for the same service is a big drag on operating costs.

        • Eric2

          Operating costs should scale linearly (or maybe sub-linearly) with ridership. That is not what I think of when I hear the word “spiraling”.

          You can replace a bus with trams, or a tram with metro, and lower the operating costs substantially – at the cost of high construction costs to get the new system built. In general there is a tradeoff between operating and construction costs. High capacity systems are not automatically better value – if they have relatively low ridership, the loss in construction costs will outweigh the gain in operating costs.

      • Herbert

        We have already established that the U.S. is usually bad at everything public transit so I wouldn’t look to them for best practices or what things “ought to” cost.

        And labor cost is not the only cost involved in subways. Crucially my point was mostly about expensive maintenance and replacement of the infrastructure. If the labor advantage exists, is it large enough to compensate the maintenance and replacement disadvantage?

  4. P Baldo

    In the US, it seems that most of this money will be going to Amtrak. Any tips for avoiding an embarrassment?
    Outside of the east coast, money is paid to freight railroads to upgrade track & signals, build sidings & grade separations, etc to allow a few passenger trains per day to operate at higher speeds among long, slow freights. This allows a few tens of $ Billions of public money to be spread out to a few dozen routes, where the same money wouldn’t pay for a single high speed line. Downsides are built-in limits on capacity and speed. Here in the midwest, we have Chicago-St.Louis as an example. Over $1 Billion spent. 5 1/2 hours for a 300 mile trip. A few round-trips/day. Most people expected more from Chicago-St.Louis. Is a better outcome possible using this model?

    • Nilo

      The Amtrak money is going to be spent in an embarrassing manner. Either its going to become victim of the NEC’s massive cost bloat, or be wasted upgrading freight railroads instead of acquiring/building Amtrak exclusive lines.

      To answer your question, no a better outcome is not possible using Amtrak’s current terrible share the railroad model, and it should seek to abandon it where it aims to run real passenger service.

  5. Mikel

    What do you think of the way the EU recovery plan has been set up? The selection process seems more like an eurocratic black-box system — is that what you mean by “political”? It feels to me like the requirement for projects to be almost shovel-ready will favour projects that were going to be built anyway.

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