The Other People’s Money Problem

I did a poll on Patreon about cost issues to write about. This is the winning option, with 12 votes; project- vs. budget-driven plans came second with 11 and I will blog about it soon, whereas neighborhood empowerment got 8.

OPM, or other people’s money, is a big impediment to cost reform. In this context, OPM refers to any external infusion of money, typically from a higher-level government from that controlling an agency. Any municipal or otherwise local agency, not able or willing to raise local taxes to fund itself, will look for external grants, for example in a federal budget. The situation then is that the federal grantor gives money but isn’t involved in the design of where the money goes to, leading to high costs.

OPM at ground level

Local and regional advocates love OPM. Whenever they want something, OPM lets them have it without thinking in terms of tradeoffs. Want a new piece of infrastructure, including everything the local community groups want, with labor-intensive methods that also pay the wages the unions hop for? OPM is for you.

This was a big problem for the Green Line Extension’s first iteration. Somerville made ridiculous demands for signature stations and even a bike path (“Somerville Community Path”) thrown in – and all of these weren’t jut extra scope but also especially expensive, since the funding came from elsewhere. The Community Path, a 3 km bike path, was budgeted at $100 million. The common refrain on this is “we don’t care, it’s federally funded.” Once there’s an outside infusion of money, there is no incentive to spend it prudently.

OPM modifying projects

In capital construction, OPM can furthermore lead to worse projects, designed to maximize OPM rather than benefits. Thus, not only are costs high, but also the results are deficient. In my experience talking to New Englanders, this takes the form of trying to vaguely connect to a politician’s set of petty priorities. If a politician wants something, the groups will try pitching a plan that is related to that something as a sales pitch. The system thus encourages advocates and local agencies to invest in buying politicians rather than in providing good service.

This kind of behavior can persist past the petty politician’s shelf life. To argue their cases, advocates sometimes claim that their pet project is a necessary component of the petty politician’s own priority. Then the petty politician leaves and is replaced by another, but by now, the two projects have been wedded in the public discourse, and woe betide any advocate or civil servant who suggests separating them. With a succession of petty politicians, each expressing interest in something else, an entire ecosystem of extras can develop, compromising design at every step while also raising costs.

The issue of efficiency

In the 1960s, the Toronto Transit Commission backed keeping a law requiring it to fund its operations out of fares. The reason was fear of surplus extraction: if it could receive subsidies, workers could use this as an excuse to demand higher wages and employment levels, and thus the subsidy would not go to more service. As it is, by 1971 this was untenable and the TTC started getting subsidies anyway, as rising market wages required it to keep up.

In New York, the outcome of the cycle of more subsidies and less efficiency is clearer. Kyle Kirschling’s thesis points out on PDF-p. 106 that New York City Transit’s predecessors, the IRT and BMT, had higher productivity measured in revenue car-km per employee in the 1930s than the subway has today. The system’s productivity fell from the late 1930s to 1980, and has risen since 1980 but (as of 2010) not yet to the 1930s peak. The city is one of a handful where subway trains have conductors; maintenance productivity is very low as well.

Instead of demanding efficiency, American transit advocates tend to demand even more OPM. Federal funding only goes to capital construction, not operations – but the people who run advocacy organizations today keep calling for federal funding to operations, indifferent to the impact OPM would have on any effort to increase efficiency and make organizations leaner. A well-meaning but harmful bill to break this dam has been proposed in the Senate; it should be withdrawn as soon as possible.

The difference between nudging and planning

I am soon going to go over this in more details, but, in brief, the disconnect between funding and oversight is not a universal feature of state funding of local priorities. In all unitary states we’ve investigated, there is state funding, and in Sweden it’s normal to mix state, county, and municipal funding. In that way, the US is not unique, despite its federal system (which at any case has far more federal involvement in transportation than Canada has).

Where the US is unique is that the Washington political establishment doesn’t really view itself as doing concrete planning. It instead opts for government by nudge. A federal agency makes some metrics, knowing that local and state bodies will game them, creating a competition for who can game the other side better. Active planning is shunned – the idea that the FTA should have engineers who can help design subways for New York is unthinkable. Federal plans for high-speed rail are created by hiring an external consultant to cobble together local demands rather than the publicly-driven top-down planning necessary for rail.

The same political advocates who want more money and care little for technical details also care little for oversight. They say “regulations are needed” or “we’ll come up with standards,” but never point to anything concrete: “money for bus shelter,” “money for subway accessibility,” “money for subway automation,” etc. Instead, in this mentality the role of federal funding is to be an open tab, in which every leakage and every abnormal cost is justified because it employed inherently-moral $80,000/year tradesmen or build something that organized groups of third-generation homeowners in an expensive city want. The politics is the project.


  1. Borners

    I was thinking on this with after having a twitter spat with Jonn Elledge an ex-New Statesman/City Metric journalist about HS2 pointing out how unnecessarily and self-destructively expensive it is and why nobody was using Transit Cost data to realise there was a problem. I’ve gotten into debates with other pro-HS2 British commentators before and they get very defensive about the cost. Gareth Dennis’s response is always “abolish the Treasury” rather than ” have TFL and DfT hire a staff that can do technical scoring, design itemized contracts and enforce them etc”. Service sector professionalism ignored in favour of nostalgia-tinged hard-hat-and-high-viz “skills” whether British socialist or nativist-populist Tory.

    The institutional issues are different from the US, local government is weaker, the centre is stronger, but its telling both Crossrail and HS2 were not operated by an agency or corporate body that was going to operate the system after completion. Heck the Nine-elms stations that just opened are sub-optimal, too flash in the architecture, too-small for easy wheelchair access lifts and nothing built on top in space constrained city. 1930’s tube stations were better at this! The only good thing is Battersea Power Station continues the fine tube tradition of wacky names.

    • Rational Plan.

      The problem with HS2 was the Department of Transports insistence of transferring risk to the contractors. Looking for almost no movement in earthworks over a 100 year period. The result of course is the contractors came up with a vastly over engineered line so the would not be held liable. To late for phase 1, but phase 2 is at last seeing some realisation that risk should lie with the state.

    • Rational plan

      The Battersea Power station went through an expensive redesign to support over site development.

      • Borners

        I was thinking Nine elms more than Battersea. This bad use of land after all the expense of construction, maybe you don’t want too tall because foundations but at least 4-6 stories. I spent the summer enjoying Northern Osaka suburban stations, now Hankyu knows how to build stations!

        Where the hell do these people learn about managing risk? The Government always takes the risk with a government backed project (headdesk). Still kind of proves my wider point, nobody in the UK media is saying “this is a bad contract design” which sounds trivial to nimbys/socialists/asshats.

    • fjod

      there’s a particular type of british pro-public transport twitter guy, two prime examples of which you’ve named, who totally fail to understand this problem despite being confident in diagnosing solutions. It seems to be caused either by parochialism (never getting beyond ‘France has fast trains so we should too’) or fundamental unseriousness, or both.

      Obviously British governmental institutions (with the possible, but limited, exception of TfL) have nowhere near enough technical expertise in civil engineering, contracting, architecture, etc etc etc and this is why they can basically a) be taken for a ride by consultants and b) propose solutions that are nowhere near cost-effective.

      • Matthew Hutton

        They also have no experience with marketing, tech, relationship management or dealing sensibly with the public.

        • fjod

          the guys of paragraph one or the institutions of paragraph 2? The latter definitely have relationship management and marketing skills! Perhaps too many of them in fact.

          • Matthew Hutton

            I don’t think the UK government is great at any of those things really. I mean look at how much money they are spending on HS2 through the chilterns and the project is still wildly unpopular there.

          • fjod

            Is there anywhere in the world where a HSR line cutting through an area without stopping there has been popular?

          • Matthew Hutton

            I’d have thought you could make the people of the chilterns at least ambivalent about the project (or give them a damn station).

    • Alon Levy

      It’s a huge problem in the British rail community; my experience with this is not Jonn and Gareth (who I’ve talked to about related issues) but John Bull/Garius from London Reconnections. There’s an enormous wealth of technical information out there about British rail operations and history, and people who immerse themselves in it start internalizing the excuses that London can’t do what works in Paris and Berlin, like rail automation or barrier-free fare collection. German railfans and professionals occasionally do the same when confronted with the capabilities of railways in France and Japan – the standard excuse is “we’re a polycentric country” – or with lower costs in Southern Europe.

      It boils down to a hierarchy of who looks down on who and won’t learn. So Europe won’t learn from non-Western countries – hence the indifference to how Taiwan is suppressing corona and how Korea came close; Japan won’t learn from Korea even if Korea learns deeply from Japan; Northern Europe won’t learn from Southern Europe; Germany will learn from Switzerland only after all options have been exhausted even as Switzerland copied Germany’s InterCity concept and perfected it; the US won’t learn from anybody else; and New York won’t learn from other US cities, even other Northeastern ones (“minimum 22 minute turn times” when Boston, on the exact same regulations and signals, does 10).

  2. AJ

    This reminds me vividly of Strong Town’s argument that “Just Print the Money” is an immensely corrosive mindset. MMT and whatnot are an academic distraction; it’s ultimately about misaligned incentives driving bad decision making.

  3. jonsalmans

    Different levels of government have access to different streams of tax revenue. For instance, it would be hard for a local government to levy a high gasoline tax because a motorist could just drive to the next town over. A federal gas tax is less easy to evade.

    Local governments get their funding mostly from property taxes. If the government services funded by local taxes benefit non-residents who don’t have to pay (which in the case of transit could be suburban residents who travel to the city), the amount of local government funded transit spending that makes sense to resident voters is likely to be less than the optimal amount for everyone who benefits. For this reason, state and federal funding makes sense to me.

    Alon identifies some important problems with how that funding is administrated currently. I think the focus should be on how to administer federal funding more effectively rather than just not providing federal funding.

  4. Brett

    Federal plans for high-speed rail are created by hiring an external consultant to cobble together local demands rather than the publicly-driven top-down planning necessary for rail.

    State and local governments in the US are often budget-constrained by tax regimes and balanced-budget requirements. Keeping a lot of staff on hire for planning means having to do unpopular (and sometimes challenging in blue states due to union strength) lay-offs when tax revenue doesn’t balance out with expenditures, so it’s easier to use consultants and contractors that can be more quietly severed.

      • Brett

        German states have balanced-budget requirements that their state-level governments can’t circumvent?

  5. Jacob Manaker

    Interestingly, this is (yet another) coherent argument for earmarks. If (say) Boston’s representative in the House has to spend political capital to acquire federal funding for a Boston-area project, then the representative is going to push on the T’s design team to make sure that the earmark is as small as possible. It’s only when the allocation of funds is passed off to civil servants who face no political pressures for their decisions that federal funds becomes OPM.

    • Eric2

      435 congresspeople wheeling and dealing is about the least professional forum for transit decisions imaginable.

      • Alon Levy

        Yeah, this. There exists a country in Europe that makes project decisions politically; it’s called the Netherlands and is Continental Western Europe’s capital of high costs.

  6. Reedman Bassoon

    The problem escalates to higher levels than the article gives notice to. California will loudly and gladly tell you that it’s economy, on its own, would be the fifth largest in the world (bigger than India, bigger than the UK, and only behind the US, China, Japan, and Germany). But California is not about to use its own money to build high speed rail (even if that HSR never exits the state). Spending federal money means waste isn’t a concern to any politician in the state. The construction unions are 100% in suport of all government spending at all levels, and the civil service unions are looking forward to their members making $100k per year taking tickets and emptying trash cans at the stations. [ “Cost underestimation and overrun cannot be explained by error and seem to be best explained by strategic misrepresentation, namely lying, with a view to getting projects started”, [Megaprojects and Risk,
    (Flyvbjerg, Bruzelius, Rothengatter)]}

    • Nilo

      California has significantly curtailed budgetary and monetary powers compared to most modern states, which has no small part of the issue. (Massively bad planning and a horrible environmental regime are a huge issues too.)

  7. adirondacker12800

    It is their money. They pay state and Federal taxes. All of it has local matching requirements.

    • Alon Levy

      It’s not their money. Does Somerville run a net tax imbalance? Almost certainly. But if the GLX had been canceled, Somerville’s taxes wouldn’t fall to match. Hence, OPM.

  8. Matthew Hutton

    The flaw with this post is that if you are building a new infrastructure project through a powerful community you will have to offer them some sort of quid-pro-quo. The question is more about what to make that quid-pro-quo so that it doesn’t have to be a project mitigation and can instead be something of the choice of that community that offers them the most value within a reasonable budget. And a reasonable budget might be 10-20% of project costs.

    And as for the rich and powerful you will have to offer a quid-pro-quo – for example for the people of Buckinghamshire for HS2 – then in order to be fair you should offer a similar quid-pro-quo to everyone else.

    Additionally letting the people of the community debate between themselves what the “present” should be frames the discussion in a way that accepts that the infrastructure project will be going ahead which is very helpful framing.

    • Matthew Hutton

      And in addition or maybe instead I wonder if it would also be valuable to improve the complementary local infrastructure – such as for example electrifying the Aylesbury line and the Chiltern line for HS2 – or building a better bus interchange with crossrail at the crossrail stations.

      • Matthew Hutton

        You are still going to struggle to offer politically well connected regions nothing but pain in exchange for large infrastructure projects.

        And that is true in every country. Even in China they struggled to extend the Shanghai maglev due to the Shanghai middle classes objecting.

          • adirondacker12800

            What technical merits? That the historical significance of the grade crossings blocking traffic would go away? Or the diesel exhaust? The trains would be faster? Where they have been running since 1863?

          • Alon Levy

            The change in the weight of train frequency midway through the original mid-2000s EIR process in order to argue that branches reduce ridership and therefore Pacheco > Altamont. They didn’t go to court on anything explicitly NIMBY, and a bunch of them weren’t even NIMBYs but generic anti-spending trolls like Morris Brown.

          • Matthew Hutton

            The whole 10 mile long chilterns tunnel is an almost certainly an entirely technically pointless mitigation to make the people of Buckinghamshire feel better about HS2. And it’s a hell of a lot more expensive than funding some affordable housing or community groups or whatever.

          • adirondacker12800

            The ones advocating for Pacheco were YIMBY’s. The powers that be in San Jose realized that a branch to San Jose would never get built.

          • Alon Levy

            YIMBYs in the sense of San Jose (and Gilroy) wanting that diversion, sure – but that’s not really what Californians think of when they talk of political YIMBYism. I guess Scott Wiener supports getting more money to build California HSR as is, though…

      • SB

        Is electrification of Aylesbury line and the Chiltern line worthwhile regardless of any HS2 considerations?

        • Matthew Hutton

          I’d have thought so. There’s a train every 30 minutes and a fair chunk is 4 rail electrified already as it’s a tube line.

        • Borners

          Chiltern line is the last non-electrified railway line in the London area, its also part of Birmingham’s commuter zone and it connects Brum and London to major tourist destinations Bicester, Oxford and Stratford upon-Avon. Add in a bunch of wealthy towns like Banbury etc its got a lot of latent demand. It’d also be a good idea for infill and development. But its unlikely any time soon because its Remainer territory so is tainted in the view of the powers that be.

  9. Ericson2314

    I think an irony here is planning is (meta) opex, vs “nudging” and hiring consultants is deemed temporary and capex. You might not want the federal government subsidizing operations, but you do want them involved and thinking (i.e. planning) on and ongoing basis.

    This is where I suspect fed subsidization of operations might actually not be so bad, if it also acted as a back-door way to force Federal planning. Though perhaps my different view of economics (you can print money but not state capacity or projects being done in a timely matter.

    • Alon Levy

      The problem is that the federal planners are aggressively uninterested in solutions; they nudge rather than build or operate, and I’ve seen DC insiders who most American transit advocates like choke on questions about bus shelter or maintenance.

      • Ericson2314

        Is this US federal being worse than US state because Amtrak, or because these people don’t have any real responsibilities just doing nudging?

        The hope would be for federal subsidies to mean federal involvement to mean repercussions for failure to mean competant and unified planning.

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  11. Tracy Hall (@video_manager)

    Another issue with OPM is the invitation to grift – no-one local will be looking and the turn-around time even if “they” are looking is so long it’s clearly worth the risk.

    Our current situation(s) have me, at least, assuming *everything* is about the grift – *mostly* personal.

  12. martin

    That is exactly one reason why support requiring California HSR to run between SF and LA in 2 hrs and 40 mins. While that time might be achieved via running starts, non-stop service, no other rail traffic, it does set a minimum of what kind of infrastructure gets built.

    Even if the result gets slowed down here and there, there will be some public questions about the reasons for the slowdowns, and even if the slowdown is 30 mins, it’s still 30 mins on top of 2 hrs 40 mins, rather than from some goal that got defined way after all the infrastructure was built.

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