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.
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.