Search results for: surplus extraction

Surplus Extraction

Ever since reading Brooks-Liscow on the growth in American road construction costs since the 1960s, I’ve been interested in the surplus extraction theory of costs. The authors call their main theory citizen voice, in which local groups can use litigation to extract the social surplus generated by infrastructure construction. I’d like to go more deeply into what this theory is and what it implies.

What is surplus?

Normally, a competitive market has no surplus. The owner of a restaurant, the developer of a building in an unconstrained area like suburban Texas, the seller of cloth masks on Etsy, the freelance web developer – none of them is making a killing. People enter the market until profits are driven down to levels low enough to essentially be the owner-manager’s wage. Companies can only make a large profit if they operate at enormous scale, which takes a long time to develop – the profit margins on a single Walmart or Carrefour or Lidl are small, but the profit margins on 10,000 stores add up to a couple billion dollars a year.

Infrastructure is not a competitive market, for a number of different reasons:

  • The construction of transportation infrastructure has strong positive externalities, through enabling agglomeration. In a country with cars, the construction of public transportation also helps mitigate the negative externalities of cars.
  • Infrastructure is not meaningfully competitive. The largest city in the world, Tokyo, has around two competing rail operators per suburban region. In Tokyo, it’s a natural duopoly; in just about every smaller city, it’s a natural monopoly.
  • The barriers to entry are so steep that some kind of price regulation is obligatory. The result is extensive consumer surplus for riders who are not poor.
  • Government involvement means that regulations that make it easier or harder to build infrastructure have large impact, which can create or destroy social surplus.

The upshot is that at non-New York costs, infrastructure construction in New York generates enormous social surplus. I could break this down by component, but for brevity I won’t, and just cite what looks like the upper limit of what the publics in the United States and Europe are willing to pay for urban and regional rail: around $50,000 per projected weekday trip. Lines teetering on the edge of cancellation, like M18 in Paris, Second Avenue Subway Phase 2 in New York, and Crossrail 2 in London, all cluster around this figure.

If we take $50,000/rider as the lowest possible benefit-cost ratio that gets a project built, around 1.2-1.3 in countries that conduct such analyses, then Second Avenue Subway Phase 2, currently projected around $60,000/rider, is 1. But at the median global cost, which exists in France and Germany, it would cost $700 million, or $7,000/rider, for a benefit-cost ratio of 8.5. At costs that exist in Southern Europe, Scandinavia, Switzerland, and Korea, make it $400 million, or $4,000/rider, for a benefit-cost ratio of 15. That’s a big net profit for New York City Transit (or, it would be if its operating costs were not abnormally high too), and a huge net social surplus for New York. Every group that wants a piece of that surplus then has an incentive to make noise and raise costs.

How can surplus be extracted?

People who wish to seize public resources have a variety of methods with which to do so. Some are net transfers of surplus from society to one special interest, but most are net destruction of value in the sense that the loss of social surplus exceeds the gain to the special interest, usually by a large margin.

The technique for surplus extraction is usually the threat of a lawsuit, but in some cases it can be direct political lobbying. The actual lawsuit is almost never important – in the US and Germany, at least, the state usually wins these suits, and the impact of litigation is to delay and to deny political capital.

However, surplus can also vanish into the ether through poor planning. Consultants who are not under pressure to save money may well propose oversize infrastructure just because that’s what they are used to, or to avoid sharing right-of-way across railroads; this has led to unusual cost premiums in the United States for everything that touches mainline rail, whereas the subway and light rail premiums are, outside New York, bad but less onerous.

The demands made by special interests that extract surplus vary. They include any of the following:

  • Gratuitous tunneling instead of above-ground construction. This is usually a demand made of high-speed rail, but there are some gratuitous tunnels in suburban rail as well, for example Crossrail 2. The surplus here is that NIMBYs do not like to see trains from their houses; the emotional value of their views is naturally a fraction of that of the cost of tunneling.
  • Compromise alignments that either increase costs or reduce benefits. This is usually about avoiding specific places; Brooks-Liscow give an example of a Detroit highway swerving around a Jewish community center. But sometimes it can be the opposite – in fact, early US freeway builders expected that communities would lobby for highways near them, not far from them. Los Angeles County’s advocacy for a high-speed rail detour through Palmdale is one such example.
  • Extortion of community benefits to activists, for example demands for larger stations to act as neighborhood centers. A large degree of the cost explosion of the Green Line Extension in Boston came from the policy of accommodating local demands, leading to oversize stations. But such overbuilding can also occur absent extortion – the surplus can vanish into poor practices, representing incompetence rather than malice, as in the oversize viaducts of California High-Speed Rail.
  • Contracts to favored companies. This led to cost explosion in Italy in the 1970s and 80s, especially in Rome but also Milan; unlike the other items on this list, this is generally illegal, and costs in Italy came down after crackdowns on corruption in the 1990s. However, legal versions exist – sometimes the government is just used to doing business with a company with a poor track record, for example the “the devil we know” attitude in California toward Tutor Perini. The surplus in the latter case vanishes not quite into someone’s pockets but more into the state’s unwillingness to oversee contractors more tightly.
  • Labor demands. If the demands are purely about wages then the surplus is distributed without being destroyed. However, these demands are in all cases I know of also about other things. For example, the sandhogs in New York opposed the use of more efficient tunnel boring instead of more dangerous but more labor-intensive dynamite. Protectionism also leads to inferior equipment in addition to higher costs.

Who can extract surplus?

Surplus extraction works through informal mechanisms. The purpose of the nuisance lawsuit is not to win, but to extract a settlement. The threat is delay and loss of political favor for the project rather than outright cancellation. The NIMBY lawsuit in Silicon Valley against California High-Speed Rail was right on the technical merit – the Pacheco Pass route, which would pass through the richest suburbs was technically inferior to the Altamont Pass route, which wouldn’t – still lost; Pacheco was favored due to another kind of surplus extraction, namely Rod Diridon’s desire for shorter Los Angeles-San Jose trip times.

Because surplus extraction works through politics and not clear rules, it benefits those with the most political power. In this way, the rise in NIMBYism in the 1960s and 70s, for example the freeway revolts, contrasts with the contemporary free speech movement, which used formal lawsuits with the intent of winning to expand the boundaries of free speech in America.

The free speech movement celebrated protections for communist Berkeley professors and for pornographers; people with normative professions and normative political views were already protected. In contrast, NIMBYism was most powerful in already rich areas, like Jane Jacobs’ Greenwich Village, or Boston’s South End. Baltimore’s racially integrated freeway revolt was exceptional. New York built freeways through working-class neighborhoods easily, and only encountered political obstacles in the Village, which was by the 1950s gentrified (Jacobs was a journalist with some college education, married to an architect, and her father was a doctor), a new development that hadn’t happened in urban history before and thus the city elites had missed it. Moreover, Jacobs’ remedy of creating and empowering community boards has ensured that only powerful people and powerful communities could change city decisions.

Even more recent attempts to create equity have failed. Slowing down the state and empowering community is always bad for equity, because the community is where inegalitarian traditions live. Black leaders now can derail transit plans just as white leaders can; non-leaders have no voice in neighborhood politics, and it’s those non-leaders who work outside the neighborhood who rely on public transit.

Surplus extraction remains the domain of people with political and cultural cachet. One can fight redevelopment in San Francisco on behalf of a mural to Cesar Chavez; fighting it on behalf of pornographers is harder. Similarly, the unions that have been the best at extracting surplus are traditional ones, doing jobs that existed 100 years ago, at productivity levels that remain stuck in that era, mainly the trades.

Conclusion: saying no

Surplus extraction theory does not say it is impossible to reduce costs. Italy’s sharp fall in costs in the 1990s and Turkey’s gentle fall in the 2010s both suggest that cost reduction is possible. What it does say is that the role of the state is to safeguard surplus and keep it socialized, against demands from many special interests, which should be disempowered through legal changes making lawsuits harder and reducing the ability of consultants and unions to drive up costs.

In that sense, the role of the planner is to say no – and moreover, to say no to charismatic groups representing much-romanticized people. No, dear mother with children, we will not build you a noise wall just because you think 140 km/h electric trains will reduce your quality of life. No, dear tradesman much-profiled as a non-college white voter, we will not hire you for $110/hour when there exist people who will do your job better than you can at $35/hour. No, dear third-generation business owner, we will not listen to what you think about traffic as we replace parking spots with bus lanes. No, dear anti-gentrification activist, we will not pay you as an equity consultant, we will just build the subway in the city. No, dear white flight homeowner, we will not build you a tunnel just to avoid taking a few houses through eminent domain. No, dear deindustrialized city leader, we will not require companies to set up factories in your city at high cost when we can get cheaper imports. It’s never going to be no, dear criminal, or no, dear Nazi, because criminals and Nazis are not used to making such requests and having people listen.

It’s optimistic in a sense, because much cost control comes just from knowing that it’s possible and having the nerve to say no to people who are used to hearing yes. The engineering factors that lead to low costs are important, but first of all, it’s necessary to believe that they are feasible, over local objections.

The United States Learned Little from Obama-Era Rail Investment

A few days ago, the US Department of Transportation (USDOT) announced Bipartisan Infrastructure Law grants for intercity rail that are not part of the Northeast Corridor program. The total amount disbursed so far is $8.2 billion; more will come, but the slate of projects funded fills me with pessimism about the future of American intercity rail. The total amount of money at stake is a multiple of what the Obama-era stimulus offered, which included $8 billion for intercity rail. The current program has money to move things, but is repeating the mistakes of the Obama era, even as Secretary of Transportation Pete Buttigieg clearly wants to make a difference. I expect the money to, in 10 years, be barely visible as intercity rail improvement – just enough that aggrieved defenders will point to some half-built line or to a line where the program reduced trip times by 15 minutes for billions of dollars, but not enough to make a difference to intercity rail demand.

What happened in the Obama era

The American Recovery and Reinvestment Act (ARRA), better known as the Obama stimulus, included $8 billion for what was branded as high-speed rail. Obama and Secretary of Transportation Ray LaHood spoke favorably of European and East Asian high-speed rail at the time. And yet, the impetus to spread the money across multiple states’ programs meant that the sum was, by spending, around half for legacy rail projects euphemistically branded as higher-speed rail, a term that denotes “faster than the Amtrak average.” Ohio, Wisconsin, and Illinois happily applied that term to slow lines. The other half went to the Florida and California programs, which were genuinely high-speed rail. In Florida, the money was enough to build the first phase from Orlando to Tampa, together with a small state contribution.

Infamously, Governor Rick Scott rejected the money after he was elected in the 2010 midterms, and so did Governors Scott Walker (R-WI) and John Kasich (R-OH). The money was redistributed to states that wanted it, of which the largest sums went to California and Illinois. And yet, what California got was a fraction of the $10 billion that the High-Speed Rail Authority had been hoping for when it went to ballot in 2008; in turn, the cost overruns that were announced in 2011 meant that even the original hoped-for sum could not build a usable segment. The line has languished since, to the point that Governor Gavin Newsom said “let’s be real” regarding the prospects of finishing the line. Planning is continuing, and the mostly funded, under-construction segment connecting Bakersfield, Fresno, and Merced is slated to open 2030-33 (in 2008 the promise was Los Angeles-San Francisco by 2020), but this is a fraction of what was promised by cost or utility; Newsom even defended the Bakersfield-Merced segment on the merits, saying that connecting three small, decentralized metro areas to one another with no onward service to Los Angeles or San Francisco would provide good value and taking umbrage at the notion that it was a “train to nowhere.”

In Illinois, the money went toward improving the Chicago-St. Louis line. However, Union Pacific owns the tracks and demanded, as a precondition of allowing faster trains, that the money be spent on increasing its own capacity, leading to double-tracking on a line that only run five trains a day in each direction; service opened earlier this year, cutting trip times from 5:20-5:35 in 2010 to 4:46-5:03 now, at a cost of $2 billion. This is a 457 km line; the cost per kilometer was not much less than that of the greenfield commuter line to Lahti, which has an hourly commuter train averaging 96 km/h from Helsinki and a sometimes hourly, sometimes bihourly intercity train averaging 120. In effect, UP extracted so much surplus that a small improvement to an existing line cost almost as much as a greenfield medium-speed line.

Lessons not learned

The failure of the ARRA to lead to any noticeable improvement in rail service can be attributed to a number of factors:

  1. The money was spread thinly to avoid favoring just one state, which was perceived as politically unacceptable (somehow, spending money on a flashy project with no results to show for it was perceived as politically acceptable).
  2. The federal government could only spend the money on projects that the states planned and asked for – there was no independent federal planning.
  3. There was inattention to best practices in legacy rail planning, such as clockface timetabling, higher cant deficiency (allowed by FRA regulation since 2010), etc.; while the high-speed rail program aimed to imitate European and East Asian examples, the legacy program had little interest in doing so, even though successful legacy rail improvements in such countries as the UK, Germany, Sweden, Switzerland, Austria, and the Netherlands were available already.
  4. A dual mandate of both jobs and infrastructure, so that high costs were a positive to an interest group that the federal government and the states announced they wanted to support.
  5. California specifically was a series of unforced errors, including a politicized High-Speed Rail Authority board representing parochial rather than statewide interests, disinterest in developing any state capacity to plan things (the expression “state capacity” wouldn’t even enter common American political discourse until the late 2010s), early commitment, and, once the combo of cost overruns and insufficient money on hand meant the project had no hope of finishing in the political lifetime of anyone important, disinterest in expediting things.

I have not seen any indication that Buttigieg and his staff learned any of these lessons, and I have seen some indication that they have not.

For one, the dual mandate problem is if anything getting worse, with constant invocations of job creation even as unemployment is below 4% where in 2010 it was 10%, and with growing protectionism; the US has practically no internal market for modern rolling stock and the recent spate of protectionism is leading to surging costs, where until recently there was no American rolling stock cost premium. This is not an intercity rail problem but an infrastructure problem in general in the US, and every time a politician says “this will create jobs,” a surplus-extracting actor gets their wings.

Then, even though the NGO space has increasingly been figuring out some best practices for regional trains, there is still no integration of these practices into infrastructure planning. The allergy to electrification remains, and mainline rail agency officials keep making things up about rest-of-world practices and getting rewarded for it with funds. Despite wide recognition of the extent of surplus extraction by the Class I freight carriers, there is no attempt to steer funding toward lines that are already owned by passenger rail-focused public-sector carriers, like the Los Angeles-San Diego line, much of the Chicago-Detroit line, and the New York-Albany line.

The lack of independent federal planning is if anything getting worse, relative to circumstances. In the Obama era, the Northeast Corridor was put aside. Today, it is the centerpiece of the investment program; I’ve been told that Biden asks about it at briefings about transportation investment and views it as his personal legacy. Well, it could be, but that would require toothy federal planning, and this doesn’t really exist – instead, the investment program is a staple job of parochial interests. Based on this, I doubt that there’s been any progress in federal planning for intercity rail outside the Northeast.

And finally, the money is still being spread too thinly. California is getting $3.1 billion, which is close to but not quite enough to complete Bakersfield-Merced, whose cost is in year-of-expenditure dollars at this point $34 billion for a 275 km system in the easiest geography it could possibly have. Another $3 billion is slated to go to Brightline West, a private scheme to run high-speed trains from Rancho Cucamonga in exurban Los Angeles, about 65 km from city center, to a greenfield site 4 km south of the Las Vegas Strip; the overall cost of the line is projected at $12 billion over a distance of 350 km. It’s likely that this split is worse than either giving all $6 billion to California or giving all of it to Brightline West. But as I am going to point out in the following section, it’s worse than giving the money to places that are not the Western United States.

The frustrating thing is that, just as I am told that Biden deeply cares about the Northeast Corridor, Buttigieg has been quoted as saying that he cares about developing at least one high-speed rail line, as a legacy that he can point to and say “I did that.” Buttigieg is a papabile for the 2028 presidential primary, and is young enough he can delay running for many cycles if he feels 2028 is not the right time, to the point that “I built that” will strengthen his political prospects even if he has to wait until opening in the 2030s. And yet, the money committed will not build high-speed rail. It might build a demonstration segment in California, but a Bakersfield-Fresno line and even a Bakersfield-Merced one with additional funds would scream “white elephant” to the general public.

Is it salvagable?

Yes.

There are, as I understand it, $21.8 billion in uncommitted funds.

What the $21.8 billion is required to achieve is a) a complete high-speed line, b) not touching the Northeast Corridor (which is funded separately and also poorly), c) connecting cities of sufficient size that passenger ridership would make people say “this is a worthy government investment” rather than “this is a bridge to nowhere on steroids.” Even a complete Los Angeles-Las Vegas line is not guaranteed to be it, and Brightline West is saving money by dumping passengers tens of kilometers along congested roads from Downtown Los Angeles.

Given adequate cost control, Chicago-Detroit/Cleveland is viable. It’s around 370 km Chicago-Toledo, 100 km Toledo-Detroit, 180 km Toledo-Cleveland, depending on alignments chosen; $21.8 billion can build it at the same cost projected for Brightline West, in easier topography. If money is almost but not quite enough, then either Cleveland or Detroit can be dropped, which would make the system substantially less valuable but still create some demand for completing the system (Michigan could fund Toledo-Detroit with state money, for example).

But this means that all or nearly all of the remaining funds need to go into that one basket, and Buttigieg needs to gamble that it works. This requires federal coordination – none of the four states on the line has the ability to plan it by itself, and two of them, Indiana and Ohio, are actively hostile. It’s politically fine as a geographic split as it is – that part of the Midwest is sacralized in American political discourse due to its industrial history, which history has also supplied it with large cities that could fill trains to Chicago and even to one another; politicians can more safely call Los Angeles “not real America” than they can Detroit and Cleveland.

But so far, the way the Northeast Corridor money and the recently-announced $8.2 billion for non-Northeast Corridor service have been spent fills me with confidence that this will not be done. The program is salvageable, but I don’t think it will be salvaged. There’s just no interest in having the federal government do this by itself as far as I can see, and the state programs are either horrifically expensive (California) or too compromised (Midwest, Southeast, Pacific Northwest).

So what I expect will happen is more spreading of the money to lines averaging 100 km/h or less, plus maybe some incomplete grants to marginal high-speed lines (Atlanta-Charlotte is a contender, but would get little traffic until it connects to the Northeast Corridor and would cost nearly the entire remaining pot). Every government source will insist that this is high-speed rail. Some parts will be built and end up failing to achieve much, like Chicago-St. Louis. Every person who is not already bought in will learn that the government is inefficient and it’s better to cut taxes instead, as is already done in Massachusetts. Americans will keep making excuses for why it’s just not possible to have what European and a growing list of Asian countries have, or perhaps why there’s no point in it since if it were good it would have been invented by the American private sector.

How to Ensure You Won’t Have Public Transportation

In talking to both activists and government officials, I’ve encountered some assumptions that are clearly incompatible with any sort of viable public transportation provision. In some cases, when I don’t feel obliged to be polite, I immediately react, “Then you will not have public transit” or “you will not have trains.” These include both operations and construction. None of the political constraints mentioned in those conversations appears hard; it’s more a mental block on behalf of the people making this statement, who are uncomfortable with certain good practices. But there really is no alternative; social scientific results like various ridership elasticities can no more be broken than economic laws. Moreover, in some of these cases, half-measures are worse than nothing, leading reform among certain groups of activists to be worse than if those activists had done literally anything else with their spare time than advocacy.

The practices: operations

There’s a lot of resistance among American transit activists to the sort of bus operations that passengers who are not very poor are willing to rely on.

Frequency

American advocacy regarding frequency comes extremely compromised. The sort of frequencies that permit passengers to transfer between buses without timing the connection are single-digit headways, and the digit should probably not be a 9 or even an 8. Nova Xarxa successfully streamlined Barcelona’s bus network as a frequent grid, with buses coming every 3-8 minutes depending on the route. Vancouver and Toronto’s frequent grids are both in the 5-8 minute range.

However, American transit agencies think it’s unrealistic to provide a grid of routes running so frequently. Therefore, they compromise themselves down to a bus every 15 minutes. At 15 minutes, the wait time is too onerous; remember that these are buses that don’t run on a fixed schedule, so a transferring passenger is spending 15 minutes waiting in the average case and 30 minutes in the worst case. These are all city buses, with an in-vehicle trip time in the 15-30 minutes range. A bus system that requires 30 minutes of worst-case wait might as well not exist. If this replaces buses that run every 20 or 30 minutes on a fixed schedule, then this makes things worse.

Bus reliability

Buses naturally tend to bunch. The only lasting solution is active control, i.e. better dispatching. I’ve heard managers treat the prospects of hiring a few more dispatchers as a preposterous extravagance. This is not because of some political diktat; hiring freezes are stupid, but those managers don’t push back and don’t hire more dispatchers even when there’s no hiring freeze.

There’s a bit more interest in technological solutions, but when I was trying to explain conditional signal priority to some managers, they didn’t really get it. This is not quite the same issue – this is not a compromise due to perceived (almost never actual) political constraints, but rather lack of technical chops and disinterest in acquiring it. But lacking such chops, the marginally labor-intensive solution is the only one, and yet it’s not done.

Bus-rail integration

American managers love to slice the market; this includes transit managers, in a situation where the issue of frequency makes any makret segmentation a net negative to all riders. In the suburbs, this results in a segmentation of buses for the poor and trains for the rich; once the buses have average incomes that are only around half the area average, both managers and activists treat them as a kind of soup kitchen, and resist any attempt at integration.

This is less bad in the main cities – bus-subway integration in the American cities that have subways is good, except for Washington. But in Washington on Metro, and everywhere on commuter rail, there’s resistance to fare integration; New York makes incremental changes to reduce the commuter rail fare premium, but until fares are equalized and transfers made free, this is just a subsidy to the rich segment of the market, rather than a breaking down of the segmentation.

The practices: construction and governance

I bundle governance and construction because, in practice, all the examples I’ve seen of people compromising their own ability to do cost reform involve governance.

Learning from others

At a meeting with some government officials to discuss our costs report, one of the people involved asked us if there are any good examples from the United States, saying that as a matter of politics, it’s hard to get Americans to adapt foreign governance schemes. I don’t know how important this person was; long-time readers know that I don’t know Washington Bureaucratese or its Brussels, Albany, Sacramento, etc. equivalents, and in particular I can’t tell from a title, CV, or social cues whether I’m talking to a decider or a flunky. I certainly did not say “Okay, then you won’t have cost-effective construction, and over time, Americans will learn that the government can’t do anything”; I tried explaining why no, it’s really important to learn from foreigners, especially nonnative Anglophones, and I don’t think it got through.

Building up state capacity

Something about Americans makes them hostile to the idea that the government overtly governs. This is not because they’re inherently ungovernable, but because some of them like to pretend to be. This has led to workarounds, which Bring Back the Bureaucrats by John DiIulio (this is DIIULIO in all caps, not DILULIO) calls the leviathan by proxy model, in which the state is outsourced to consultants. Thus, dismantling the state and instead calling in consultants is supposedly the only way to get Americans to accept government spending. This was said to us, at the same meeting as in the above section, by a different person.

This is, like most political claims that justify inaction, bunk. Consultants are not a popular group in the broad public. “This all goes to consultants” is a standard line justifying misturst of government, regardless of politics, to the point that generic anti-everything populists like to make consultants public enemy #1. In New York, even the unions make this one of their rallying cries in opposition to various kinds of outsourcing; there’s no excuse there to keep hiring consultants to do design and then not knowing how to manage them, where what the MTA should do is replace its leadership with people who know better and staff up to the tune of a four-figure planning and engineering department. It costs money. It costs less money than the New York premium for construction, the difference amounting to around a full order of magnitude.

Saying no to surplus extraction

The United States abounds with examples of infrastructure projects that got outside funding, which could be federal, or even just state if the scale is small enough, that local departments took as opportunities for getting other people’s money.

The solution there is simple: just say no. This requires overruling local regulators, but I routinely see states do it when they care to – Long Island’s entire group of interests, including the LIRR, local officials, and state electeds, opposed Metro-North’s Penn Station Access due to turf battles over train slots into Penn Station that were not even in shortage, until Andrew Cuomo fired LIRR head Helena Williams and all of those supposedly intractable voices were silenced. The ability of California High-Speed Rail to defeat rich NIMBYs in Silicon Valley is also notable; the project is moribund, but not because of NIMBYs.

And somehow, when a municipal fire department or parks department makes demand, the immediate reaction in the same country that did the above is to give in. Federal officials who I’m fairly certain are important deciders told me stories about how “in our system of government” (exact words) there is expectation of municipal autonomy and it breaks some unwritten covenant to interfere when a fire department refuses to certify light rail construction that meets fire code, as in suburban Seattle, because the department wants it to go beyond the code. The state that does not take responsibility and respond appropriately – which in this case ranges from disestablishing the fire department in question to disestablishing the entire suburb – is the state that will not really be able to expand its urban rail network, which is really sad since Seattle’s last extension was good and its high rate of housing growth makes it a good place to invest.

Benchmarking to an external world

Activists and managers may tell themselves that they’re just following some kind of necessary political logic. But at the end of the day, neither the passengers nor the contractors care. If the political logic dictates that the bus system be bad, then passengers will just not use it, and instead get cars and drive and vote against any further increases in transit funding due to memory of its low quality. Likewise, if the political logic dictates that capital construction be run by incompetents with no successful (i.e. non-Anglosphere) experience who can’t say no to requests for other people’s money and who mismanage the consultants, then the region will just not be able to build, even if, like Seattle, it clearly wants to. There’s an external world out there and not just the machinations of political insiders.

CNBC Video on Construction Costs

There’s a CNBC video about construction costs. It references our data a bunch, and I’d like to make a few notes about this.

Urban rail and GDP

CNBC opens by saying better urban rail would increase American GDP by 10%, sourcing the claim to our report. This isn’t quite right: our report references Hsieh-Moretti on upzoning in New York and the Bay Area; they estimate that relaxing zoning restrictions in those two regions to the US median starting in 1964 would have, assuming perfect mobility, raised American GDP by 9% in the conditions of 2009 (and the effect size should have grown since).

The relevance of transportation is that the counterfactual involves both regions growing explosively: New York employment grows by 1,010% more than in reality, so by a factor of about five compared with actual 1960s population and about 3.6 compared with actual 2009 (in 1969-2009, metro employment grew 35.4%), and likewise San Francisco would be 3.9 times bigger than in reality in 2009 and San Jose, having had much faster growth in the previous decades in reality, would have still been 2.5 times bigger. Hsieh-Moretti assume infrastructure expands to accommodate this growth. But if it can’t, then the growth in GDP is lower and the growth in consumer welfare is massively lower due to congestion externalities, hence our citation of Devin Bunten’s paper on this subject.

So the issue isn’t really that building subways would increase American GDP by 10%. It’s that building subways paired with transit-oriented development, the latter proceeding at levels that would raise regional population at a somewhat faster rate than in 1900-30, would do so. The issue of costs in the United States is only peripherally connected with the lack of transit-oriented development, an American peculiarity in which more housing is built in poorer regions than in the largest, richest metro areas. In contrast, Canada gets TOD right and yet is rapidly converging to American construction costs, Toronto’s reaching around US$1 billion/km per the latest estimates. Germany, conversely, is rather NIMBY, although its rich cities still build much more than New York or the Bay Area, and is capable of building subways just fine.

The portrayal of Second Avenue Subway

The portrayal looks mostly good. It points out the tension between Second Avenue Subway’s extreme cost per km and reasonable cost per rider, the latter comparing very favorably with Los Angeles and about on a par with Grand Paris Express. Second Avenue Subway Phase 1 was a bad project in the sense that it was severely overbuilt and poorly managed, but were it not possible to build it for cheaper (which it was), it would be a good value proposition, and even Phase 2 is marginal rather than bad. The issue is that New York’s cost-effectiveness frontier, at current costs, makes it capable of building a few km of subway per generation, whereas that of Paris, a city that isn’t especially cheap to build in, enables the 200 km Grand Paris Express.

The video goes over our comparison of station to tunnel costs, and connects this with various forms of surplus extraction; Eric gives examples of how cities demand betterments and do general micromanagement and threaten to withhold permits unless they get what he calls bribes. It gets the picture well for how important actors, up to and including the mayor of New York, just treat infrastructure as an opportunity to grab surplus for other priorities.

There are a few errors, all minor:

  1. The visualization of Second Avenue Subway has it running down First Avenue in Midtown and Downtown Manhattan, which was certainly not in the original plan and I think still is not.
  2. The video states the cost of Grand Paris Express at $38 billion, I think out of converting euros to dollars at exchange rate, whereas in PPP terms it’s $47 billion in 2012 prices and $60 billion in 2022 dollars, either way about 10 times the absolute cost of Second Avenue Subway Phase 1 for 10 times the projected ridership and 70 times the overall length. But the costs per rider are correct, at least.
  3. I’m not sure why, but the Madrid numbers are stated to be around $200 million/km, which is a cost that I don’t think exists there – costs in our database don’t include the latest lines there, but the ongoing expansion program is 40.5 km for 2 billion euros, which in PPP terms is around $70 million/km, I think all underground.
  4. The section on soft costs says that they were 21% of Second Avenue Subway’s overall costs, compared with a norm of 5-10% elsewhere. This is not quite true – they were 21% of the hard costs (and the same is true of the 5-10% figure); their share of overall costs was therefore a bit lower.

Carmen Bianco and Robert Puentes

Three people are extensively interviewed in the video. The first is Carmen Bianco, who was New York City Transit head in 2013-5. The second is Eric. The third is Eno’s Robert Puentes. The interviews are pretty good (by which I mean those with Bianco and Puentes – I of course find what Eric says good I’m the least impartial judge on this). There’s also a short quote from Bent Flyvbjerg about construction productivity, which isn’t quite true (productivity is rising in Sweden, just at lower rates than general growth).

Puentes talks about standardization, comparing the custom-designed stations in the United States with the standardized ones in Copenhagen. He also talks about the benefits of utilitarian stations and connects this with standardization – American subway and light rail stations aren’t particularly nice (the overbuilding goes to crew break rooms and crossovers, not passenger facilities), but one way local political actors get to feel important is making each station a bit different, and I’m glad he highlights this connection between overbuilding and poor standardization. But I think he somewhat errs in that he says that one cause of this among a few is that American cities build little subway tunneling. Copenhagen, after all, built its first line in the 1990s and early 2000s (using consultants, since there was no preexisting in-house staff and no political appetite to staff up); it just made the right design decision to standardize, which has helped it build a subway even at not especially low costs, in a fairly small city.

Then there’s Bianco, who I think appears talking more than anyone else, even Eric. He gives the standard list of problems in New York: it’s a dense city with a lot of complex underground infrastructure, utility relocation is difficult, and so on. At least on camera, he doesn’t make excuses. It’s just, complex historic utilities are not unique to New York, and I don’t know to what extent he understands that New York can learn this from Italian cities (or from London, which I believe has very good underground utility mapping). I assume Bianco isn’t generally great about this since he was in charge in 2013-5 and didn’t reform this system, but he doesn’t come off as repulsive, and it’s plausible that he’s more reasonable knowing not what he may not have 10 years ago.

I Gave a Followup Talk at TransitCon

Hayden Clarkin’s online conference TransitCon just happened, and I was drafted at the last minute to give a talk about construction costs. Here are the slides; for the most part, they’re a compressed version of slides that regular readers have seen before, except done in Beamer rather than Google Slides.

Cognizant of the fact that most people at TransitCon would have heard of me and our research and many would have read the reports or at least seen me, Eric, Marco, or Elif talk about them, I rushed through the description of our report. Instead of just going over trodden ground, I added slides at the end describing new issues we’d learned about since writing the synthesis, which was in a fairly advanced draft in late summer 2022 already. This fell into two categories: new obstacles, and reactions of people in power.

The new obstacles slide talks about the issue of last-minute squeaking (in the “squeaky wheel gets the grease” aphorism, which can and should be changed to “squeaky wheel gets replaced”). The most glaring examples of gross surplus extraction for Second Avenue Subway and the Green Line Extension all happened fairly early in the process.

In contrast, since then, Eric has spent so much time working in Seattle he could given time make an entire case out of its ongoing problems, and there, some of the extraction has been late in the project: one suburb’s fire department demanded construction in excess of the normal fire codes or else it wouldn’t certify the stations in its jurisdiction as fire-safe. In Dallas, the city itself is grabbing surplus: it’s demanding betterments and holding up the DART Silver Line until it gets them, adding $150,000 a day to the cost of the project. These two examples are both late in the process, after the Full Funding Grant Agreement has been signed; but once there is a political commitment, a local actor can still hope to grab surplus by demanding unreasonable changes.

But it’s really better to view this issue as one of top-level cowardice and unwillingness to take responsibility. The solution in Seattle is not hard: dissolve the department and have it taken over by the state or by Seattle proper. But whoever does that in effect takes ownership of every single fire in the suburb, and this requires taking more responsibility than American politicians and their appointees are used to.

The reaction of people in power plays to how they treat obstacles. I wrote a title for that slide, The Self-Hating State, and then deleted it and replaced it with the less toothy Public Officials and Consultants. But in effect what we see when we present the results to sympathetic federal and state officials who want to do better (i.e. not the MTA) is that most government officials don’t like the government very much. Their eyes glaze over the sort of technical and economic points that their counterparts here talk about, and instead they talk about how consultants have more long-term experience, when most of what the consultants know is how poorly-managed projects are built and where they do have positive knowledge (like the standardization of construction in Copenhagen) they’re not listened to.

Even more frustrating is their reaction to red tape. They take it as a given that the government must involve red tape; the same red tape in the private sector is invisible to them, such as when Seattle-area construction involves multiple jurisdictions each with its own consultants. But more fundamentally, these are people who can rewrite regulations, formally or informally, to make things easier; they just consider a government that works unthinkable.

More on Consultants

We’ve gotten a lot of criticism from various quarters about our analysis and conclusions at the Transit Costs Project. The focus for this post is a criticism that isn’t usually made in public but looks like the biggest one among people in power in the American federal government: the issue of consultants. Writing in Slate about our report, Henry Grabar identified consultants as the ultimate reason the United States can’t build. This should be nuanced in that consultants are one of a few primary reasons, but the broad outline of the complaint is right: the overuse of consultants is a serious problem and must be replaced with large in-house bureaucracies in explicit rejection of the privatization of the state. And yet, there’s pushback. Why, and why is it wrong?

The current situation

In the English-speaking world today, the dominant view of infrastructure is that private companies are inherently more efficient than the state. In service of this ideology, large state organizations were left to rot and then privatized. The historic sequence is generally that as efficiency levels fall, political interest in investing in organizational capacity declines, and in-house organizations take the blame.

American and British societies both believe that specialist experts are inherently suspect and must always lower their gaze in the presence of a generalist who is paid and otherwise treated as a master of the universe, and thus those organizations would receive overclass appointees (US version) or generalist civil servants (UK version) who constantly belittle them and also have little ability to reform them from the inside. It’s remarkable how non-technical the members of the American overclass Eric and I have talked to are; one of them asked us straight out why we didn’t talk to more lawyers in our report where we talked to engineers, planners, procurement experts, and other specialists.

The result of this sequence is that usually at the time of privatization – say, when New York’s MTA let go of its 1,600 strong capital construction department in the early 2000s and downsized by about an order of magnitude – what is left is a hulk, easy pickings for the privatizer. What is left of that is even more of a hulk. The upshot is that in places that rely on consultants in lieu of in-house expertise, the quality of current public-sector leadership (that is, the various state political appointees, most federal political appointees, and even some permanent staff with pure management background) is low. The consultants are individually more competent than them, and this is readily apparent to anyone who’s talked with both sets of people; even the political appointees themselves get it and think their expertise is in managing the consultants.

What the consultants know

When the state doesn’t really like itself and privatizes key functions to consultants, the consultants look more competent. One federal official – not a political appointee, to be clear – told us straight out that the consultants have experience since they work on so many projects, domestically and internationally.

The problem is that what the consultants know is how things work on projects that use consultants. This is how an experienced consultant can say something as obviously wrong as “The standard approach to construction in most of Europe outside Russia is design-build.” Is this even remotely true? No. Parts of Europe are transitioning to design-build under British influence, universally seeing cost increases as they do so, but even in the Nordic countries and France this process is in its infancy, and in nearly all of the rest of Western Europe it’s not done at all. The upshot is that the US/UK consultant sphere is an expert on how to build public transportation in the failed US/UK way, and its international experience is largely (not entirely) US/UK-style badness.

But Americans are an incurious people. Even the ones who are aware of European and rich-Asian success in infrastructure and urbanism only really interact with it as tourists. So they can’t distinguish a government-built program like the TGV or nearly every European subway system from the few that are more consultant-driven like the Copenhagen Metro (at the time of its construction, Scandinavia’s highest-cost metro – though the rest of the Nordic world is catching up in both privatization and costs).

What’s more, the American preference for generalist knowledge means that what they see of the Copenhagen Metro is much more its use of unconventional financing than its use of driverless trains at very high frequency or its standardization of station components. Thus, looking at a metro that for all its expense by its regional standards was also cheaper than anything in the US going back to the 1970s, they take notes and imitate all the bad and none of the good.

The interaction between consultants

Okay, so in theory, if consultants’ recommendations are followed exactly and a turnkey system is built, in theory it should still be possible to imitate the medium costs of Denmark.

But in practice, the hallmark of consultants is private competition. This means there are different firms, and even though they are all broadly similar, they compete and each has a slightly different way of doing things and may have different recommendations for a specific project. And then each government agency in the United States hires a different consultant and the consultants clash and there is no way to resolve the conflict.

Seattle’s cost explosion in the last 10 years, going from semi-reasonable costs for U-Link to a world record for a majority-above-ground project for Ballard-West Seattle, comes from a somewhat different place from what we’ve seen in New York and Boston. For example, New York and Boston both have ample surplus extraction by local actors, but the extraction there happened before the plans were finalized and the Full Funding Grant Agreement was made; in the Seattle suburbs, one municipal fire department has demanded changes even after the FFGA and threatened not to certify the project. The issue of consultants there is likewise a new problem: a complex project – I think the Pacific Northwest intercity rail program but I forget – requires intergovernmental coordination and the different agencies hired different consultants, leading to substantial inter-contractor contention. The argument for privatizing state planning to large design-build contracts is that they avoid this contention, but here it’s recreated by the very presence of competition.

Nor is replacing competition with a single private consultant going to solve the situation. The private sector’s norms of how to deliver value depend on competition; all benchmarks used for how to successfully deliver to the customer are honed based on how to beat or at least match other firms that could get the contract if the firm fails. A private monopolist combines the worst aspects of the public sector (no competition) with those of the private sector (fundamentally adversarial relationship with the customer). As soon as a project is large enough that multiple agencies are involved, forcing them to all use the same consultant, even if the initial choice does feature competition between WSP, AECOM, Arup, and other such firms, means that for the duration of the project there’s such lock-in it has the same problems as a literal monopoly.

The way forward

If it’s not possible to successfully deliver infrastructure megaprojects through competition among private consultants or through a private monopoly, it follows that delivery must be done through the public sector. This means a public sector that is staffed up with thousands of permanent professional hires. Small cities can use big cities’ agencies or a federal agency as a public-sector consultant; in all cases, this must be domestic rather than international, since the social mission that makes many public monopolists good vanishes at the border and turns into predatory monopolistic behavior (for example, by SNCF toward other national railways).

Metropolitana Milanese, the infrastructure builder that also provides public-sector consulting services for the rest of Italy, has around 1,300 employees. The Anglo world can imitate that – never literally import the firm, but set up a similar construct, with advice by MM, RATP, and other public-sector engineering firms about how to do so and even some early hires. This needs to be done publicly and ostentatiously, to make it clear what’s going on for the sake of transparency and to lock in good changes. Instead of regulators who nudge, the state needs people who do; there is no alternative.

It’s Easy to Waste Money

As we’re finalizing edits on our New York and synthesis reports, I’m rereading about Second Avenue Subway. In context, I’m stricken by how easy it is to waste money – to turn what should be a $600 million project into a $6 billion one or what should be a $3 billion project into a $30 billion one. Fortunately, it is also not too hard to keep costs under control if everyone involved with the project is in on the program and interested in value engineering. Unfortunately, once promises are made that require a higher budget figure, getting back in line looks difficult, because one then needs to say “no” to a lot of people.

This combination – it’s easy to stay on track, it’s easy to fall aside, it’s hard to get back on track once one falls aside – also helps explain some standard results in the literature about costs. There’s much deeper academic literature about cost overruns than absolute costs; the best-known reference is the body of work of Bent Flyvbjerg about cost overruns (which in his view are not overruns but underestimations – i.e. the real cost was high all along and the planners just lied to get the approval), but the work of Bert van Wee and Chantal Cantarelli on early commitment as a cause of overruns is critical to this as well. In van Wee and Cantarelli, once an extravagant promise is made, such a 300 km/h top speed on Dutch high-speed rail, it’s hard to walk it back even if it turns out to be of limited value compared with its cost. But equally, there are examples of promises made that have no value at all, or sometimes even negative value to the system, and are retained because of their values to specific non-state actors, such as community advocacy, which are incorrectly treated as stakeholders rather than obstacles to be removed.

In our New York report, we include a flashy example of $20 million in waste on the project: the waste rock storage chamber. The issue is that tunnel-boring machines (TBMs) in principle work 24/7; in practice they constantly break down (40% uptime is considered good) and require additional maintenance, but this can’t be predicted in advance or turned into a regular cycle of overnight shutdowns, and therefore, work must be done around the clock either way. This means that the waste rock has to be hauled out around the clock. The agency made a decision to be a good neighbor and not truck out the muck overnight – but because the TBM had to keep operating overnight, the contractor was required to build an overnight storage chamber and haul it all away with a platoon of trucks in the morning rush hour. The extra cost of the chamber and of rush hour trucking was $20 million.

Another $11 million is surplus extraction at a single park, the Marx Brothers Playground. As is common for subway projects around the world, the New York MTA used neighborhood parks to stage station entrances where appropriate. Normally, this is free. However, the New York City Department of Parks and Recreation viewed this as a great opportunity to get other people’s money; the MTA had to pay NYC Parks $11 million to use one section of the playground, which the latter agency viewed as a great success in getting money. Neither agency viewed the process as contentious; it just cost money.

But both of these examples are eclipsed by the choice of construction method for the stations. Again in order to be a good neighbor, the MTA decided to mine two of the project’s three stations, instead of opening up Second Avenue to build cut-and-cover digs. Mined stations cost extra, according to people we’ve spoken to at a number of agencies; in New York, the best benchmark is that these two stations cost the same as cut-and-cover 96th Street, a nearly 50% longer dig.

Moreover, the stations were built oversize, for reasons that largely come from planner laziness. The operating side of the subway, New York City Transit, demanded extravagant back-of-the-house function spaces, with each team having its own rooms, rather than the shared rooms typical of older stations or of subway digs in more frugal countries. The spaces were then placed to the front and back of the platform, enlarging the digs; the more conventional place for such spaces is above the platform, where there is room between the deep construction level and the street. Finally, the larger of the two station, 72nd Street, also has crossovers on both sides, enlarging the dig even further; these crossovers were included based on older operating plans, but subsequent updates made them no longer useful, and yet they were not descoped. Each station cost around $700 million, which could have been shrunk by a factor of three, keeping everything else constant.

Why are they like this?

They do not care. If someone says, “Give me an extra,” they do not say, “no.” It’s so easy not to care when it’s a project whose value is so obvious to the public; even with all this cost, the cost per rider for Second Avenue Subway is pretty reasonable. But soon enough, norms emerge in which the appearance of neighborhood impact must always be avoided (but the mined digs still cause comparable disruption at the major streets), the stations must be very large (but passengers still don’t get any roomy spaces), etc. Projects that have less value lose cost-effectiveness, and yet there is no way within the agency to improve them.

How to Spend Money on Public Transport Better

After four posts about the poor state of political transit advocacy in the United States, here’s how I think it’s possible to do better. Compare what I’m proposing to posts about the Green Line Extension in metro Boston, free public transport proposals, federal aid to operations, and a bad Green New Deal proposal by Yonah Freemark.

If you’re thinking how to spend outside (for example, federal) money on local public transportation, the first thing on your mind should be how to spend for the long term. Capital spending that reduces long-term operating costs is one way to do it. Funding ongoing operating deficits is not, because it leads to local waste. Here are what I think some good guidelines to do it right are.

Working without consensus

Any large cash infusion now should work with the assumption that it’s a political megaproject and a one-time thing; it may be followed by other one-time projects, but these should not be assumed. High-speed rail in France, for example, is not funded out of a permanent slush fund: every line has to be separately evaluated, and the state usually says yes because these projects are popular and have good ROI, but the ultimate yes-no decision is given to elected politicians.

It leads to a dynamic in which it’s useful to invest in the ability to carry large projects on a permanent basis, but not pre-commit to them. So every agency should have access to public expertise, with permanent hires for engineers and designers who can if there’s local, state, or federal money build something. This public expertise can be in-house if it’s a large agency; smaller ones should be able to tap into the large ones as consultants. In France, RATP has 2,000 in-house engineers, and it and SNCF have the ability to build large public transport projects on their own, while other agencies serving provincial cities use RATP as a consultant.

It’s especially important to retain such planning capacity within the federal government. A national intercity rail plan should not require the use of outside consultants, and the federal government should have the ability to act as consultant to small cities. This entails a large permanent civil service, chosen on the basis of expertise (and the early permanent hires are likely to have foreign rather than domestic experience) and not politics, and yet the cost of such a planning department is around 2 orders of magnitude less than current subsidies to transit operations in the United States. Work smart, not hard.

However, investing in the ability to build does not mean pre-committing to build with a permanent fund. Nor does it mean a commitment to subsidizing consumption (such as ongoing operating costs) rather than investment.

Funding production, not consumption

It is inappropriate to use external infusions of cash for operations and, even worse, maintenance. When maintenance is funded externally, local agencies react by deferring maintenance and then crying poverty whenever money becomes available. Amtrak fired David Gunn when the Bush administration pressured it to defer maintenance in order to look profitable for privatization and replaced him with the more pliable Joe Boardman, and then when the Obama stimulus came around Boardman demanded billions of dollars for state of good repair that should have built a high-speed rail program instead.

This is why American activists propose permanent programs – but those get wasted fast, due to surplus extraction. A better path forward is to be clear about what will and will not be funded, and putting state of good repair programs in the not-funded basket; the Bipartisan Infrastructure Framework’s negotiations were right to defund the public transit SOGR bucket while keeping the expansion bucket.

Moreover, all funding should be tied to using the money prudently – hence the production, not consumption part. This can be capital funding, with the following priorities, in no particular order:

  • Capital funding that reduces long-term operating costs, for example railway electrification and the installation of overhead wires (“in-motion charging“) on bus trunks.
  • Targeted investments that improve the transit experience. Bus shelter is extremely cost-effective on this point and a federal program to fund it at a level of around $15,000/stop (not more – it’s easy to make local demands that drive it up to $50,000) would have otherworldly social rates of return. Washington bureaucrats are loath to be this explicit about what to do – they try to speak in circumlocutions, saying “standards for bus stops” instead of just funding shelter, or “transit asset management” instead of just committing to not playing the SOGR game.
  • Accessibility upgrades. This require close federal control to eliminate local waste, because much of the money would be going to New York, which has a long-term problem of siphoning accessibility money to other priorities like adding station access points or repairing stations, and has a uniquely incompetent local environment when it comes to construction costs.
  • Planning aid for improving bus-rail interface; these two modes are often not planned together in American cities, and commuter rail is not planned in conjunction with other modes. San Jose, for example, has a proposal for large expansion of bus service, part of which is parallel to Caltrain; the local agency, VTA, owns one third of Caltrain and could expand rail service within the county and integrate it with bus service better, but does not do so.
  • Rail automation, to reduce long-term operating costs. Bus automation could go in this bucket too but is at this point too speculative; save it for one or two stimuli in the future.

Avoiding local extraction

Local government has very little democratic legitimacy. It’s based on informal power arrangements, in which direct elections play little role; partisan elections are rare and instead primaries reign with severe democratic deficits (for example, it’s hard to form any kind of base for opposition to challenge a sitting New York mayor or governor). Without national ideology to guide it, it is the domain of cranks and people with the time and leisure to attend community meetings on weekdays at 3 pm. Local community takes its illegitimate power and thieves what others create, whether it is the market or the state.

Recognizing this pattern means that federal funding should not under any circumstances coddle local arrangements. If, for example, California cannot spend money cost-effectively because it is constrained by referendum, federal funding can be used to bypass this system, but never work under its rules. If the local business community is traumatized by cut-and-cover construction in the distant past, the feds should insist that subway money that they give will be used for cut-and-cover instead of mined stations.

The typical surplus extraction pattern concerns car dominance. State DOTs are in effect highway departments; transit planning is siloed, usually at separate agencies. They use their power to demand the diversion of transit money to roads. For example, in Tampa, a plan to increase bus service led to a DOT demand to pave the routes with concrete lanes at transit agency expense (with federal or state transit funding). The list of BRT projects that were just highway widenings is regrettably too long. The feds should actively demand to keep transit funding for transit, and not roads, social services, policing, or other priorities.

In particular, the feds should give money for some bus improvements, but demand that agencies prioritize the bus over the car. No bus lanes? No signal priority? No money. Similarly, they should demand they engage in internal efficiency measures like stop consolidation and all-door boarding with proof of payment ticket collection, which a larger and more expert FTA can give technical assistance for.

It may also be prudent to give transitional resources, up to a certain point. Funding private-sector retraining for workers displaced by automation is good, and in some limited cases public-sector retraining, as long as it doesn’t turn into workfare (there is no way for the subway in New York to absorb redundant conductors or surplus maintenance staff). If moderate amounts of capital funding are required for bus improvements, such as traffic signal upgrades to have active control and conditional TSP, then they are good investments as well.

Conclusion

Funding public transportation is useful, provided there is enough of a connection between the source of funds and the management thereof that the money is not wasted. A larger and more technocratic federal government is an ideal organ for this, with enough planning power to propose bus network redesigns, rail planning, integrated fare systems, and intermodal coordination. It can and should have technical priorities – shelter is far and away the lowest-hanging fruit for American bus systems – and state them clearly rather than hiding behind bureaucratic phrases (again, “transit asset management” is a real phrase).

It’s fundamentally an investment rather than consumption. And as with all investments, it’s important to ensure one invests in the right thing and the right people. A local transit agency with a track record of successful projects, short lead times from planning to completion, technical orientation, and the ability to say no to highway departments and other organs that extract surplus is a good investment. One that instead genuflects before antisocial groups that launch nuisance lawsuits is not so good an investment, and funding for such an agency should be contingent on improvement in governance of the kind that will make local notables angry.

Early Commitment

I want to go back to the problem of early commitment as I explained it two months ago. It comes out of research done by Chantal Cantarelli and Bert van Wee about Dutch cost overruns, but the theory is more generally applicable and once I heard about it I started seeing it in play elsewhere. The short version is that politically committing to a megaproject too early leads to lock in, which leads to compromised designs and higher costs. The solution, then, is to defer commitment and keep alternatives open as much as possible.

The theory of lock in

The papers to read about it are Cantarelli-Flyvbjeerg-Molin-van Wee (2010), and Cantarelli-Oglethorpe-van Wee (2021). Both make the point that when the decision to build is undertaken, it imposes psychological constraints on the planners. They are not long or difficult papers to read and I recommend people read them in full and perhaps think of examples from their own non-Dutch experience – this problem is broader than just the Netherlands.

For example, take this, from the 2010 paper:

Decision-makers show evidence of entrapment whenever they escalate their commitment to ineffective policies, products, services or strategies in order to justify previous allocations of resources to those objectives (Brockner et al, 1986). Escalating commitment and justification are therefore important indicators of lock-in. The need for justification is derived from the theories of self-justification and the theory of dissonance which describe how individuals search for confirmation of their rational behaviour (Staw, 1981; Wilson and Zhang, 1997). This need arises due to social pressures and “face-saving” mechanisms. The involvement of interest groups and organizational pushes and pulls can also introduce pressures into the decision-making process, threatening the position of the decision-makers, who may feel pressure to continue with a (failing) project in order to avoid publicly admitting what they may see as a personal failure (McElhinney, 2005). “People try to rationalize their actions or psychologically defend themselves against an apparent error in judgment” (Whyte, 1986) (“face-saving”). When the support for the decision is sustained despite contradicting information and social pressures, the argumentation for a decision is based on the need for justification.

The focus on face-saving behavior leading to escalation is not unique to the literature on transportation. In international relations, it is called audience cost and refers to the domestic backlash a political leader suffers in case they back down from a confrontation they were involved in earlier; this way, small escalations turn into bigger ones and eventually to war, or perhaps to a forever occupation.

There are a number of consequences of lock in:

  1. Projects will follow designs set long ago, especially ones that were hotly contentious. For example, California High-Speed Rail has stuck with the decision to build its alignments via Palmdale and Pacheco Pass, since the possibilities of changing Palmdale to the Grapevine/Tejon alignment and Pacheco to Altamont Pass both loomed large (there was a NIMBY lawsuit trying to force a change to Altamont). However, at the same time, there are plans to potentially run the partially-built system without electrification, since that issue was never in contention and is not part o the audience cost.
  2. There are unlikely to be formal cancellations. California is again a good example: high-speed rail lives as a hulk, not formally canceled even when the governor said of the idea to complete it, back during the Trump administration, “let’s be real,” defending the initial construction segment between Bakersfield and Fresno as valuable in itself. Formal cancellation is embarrassing; a forever construction project is less visible a failure.
  3. Prioritization is warped to tie into real or imagined connections with the already-decided project. California is not as clear an example of this as of the other two points, but in New York, once the real (if not yet formal) decision to go forward with Second Avenue Subway was made in the 1990s, the Regional Plan Association tied in every proposed expansion plan to that one line.

Surplus extraction

Cantarelli-van Wee treat early commitment as a problem of bad planners, who become psychologically wedded to potentially incorrect solutions. However, it is instructive to shift the locus of moral blame to surplus extraction by political actors, such a local politicians, power brokers, and NIMBYs.

In the story of HSL Zuid, much of the extra cost should be blamed on excessive tunneling. In the flat terrain of Holland and near-coastal Brabant, no tunneling should have been needed. And yet, the line is 20% underground, partly to serve Schiphol, partly to avoid taking any farmland in the Groene Hart. The Groene Hart tunneling has to be understood in context of rural NIMBYism (since at-grade solutions to habitat loss exist in France).

In this formulation, the problem with lock in is not just at the level of planners (though they share most of the blame in California). It’s at the level of small actors demanding changes for selfish reasons, knowing that the macro decision has already been made and the stat cannot easily walk away from the project if costs rise. These selfish actors can be NIMBY, but they can equally be local power brokers wanting a local amenity like a detour to serve them or a station without commercial justification. In Germany, an extra layer of NIMBYism (albeit not on connected with lock in – we have late commitment here) is demands to include freight on high-speed lines, in order to take it off legacy lines, which design forces gratuitous tunneling on high-speed lines in order to moderate the grade.

California is a good example of a non-NIMBY version of this. The state politically committed to building high-sped rail in the 2008 election, for which it showed clear maps of the trains detouring via Palmdale and going to San Francisco via Pacheco Pass. By the time further environmental design showed that the Los Angeles-Palmdale route would require tens of km more tunneling through Soledad Canyon than anticipated to avoid impact to an ecologically sensitive area, the state had already pitched Palmdale as a key high-speed commuter suburb, and Los Angeles County made housing plans accordingly. The county subsequently kept agitating for retaining Palmdale even as other alignment changes in the area were made, turning Palmdale into its pet project.

The planning literature undertheorizes and understudies problems arising from localism. In conversations with people in the European core as well as the United States, there’s an unspoken assumption that the community is good and the state is bad. If the community demands something, it must represent correction of a real negative externality, rather than antisocial behavior on behalf of self-appointed community leaders who the state can and should ignore. It doesn’t help that the part of Europe with the least community input is the Mediterranean countries, which Northern European planners look down on, believing any success there must be the result of statistical fudging.

The solution: late commitment

To reduce costs and improve projects, it’s best to delay political commitment as late as possible. This means designing uncertain projects and only making the decision to build at advanced stages of design – maybe not 100% but close enough that major revisions are not likely. The American situation in which there is no regular design budget so agencies rely on federal funding for the design of the projects they use the same federal funding for leads to bad outcomes over and over. California, which went to referendum without completing the environmental design first, takes the cake.

Late commitment is thankfully common in low- and medium-cost countries. Germany does not commit to high-speed rail lines early, and, judging by Berlin’s uncertainty over which U-Bahn extensions to even build, it doesn’t commit to subways early either. Sweden is investigating the feasibility of high-speed rail but rail planners who I talk to there make it clear that it’s not guaranteed to happen and much depends on politics and changes in economic behavior; overall, Nordic infrastructure projects are developed by the civil service beyond the concept stage and only presented for political negotiation and approval well into the process. Southern European planners com up with their own extension programs and politically commit close to the beginning of construction.

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.