May 16, 2017

Transportation Finance Policy

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Today’s transportation policy debate in the United States centers almost entirely on the notion of coming up with more money. How do we find the money to maintain what we have built? How do we pay for ongoing improvements to the system? We’ve reduced the conversation to a simple correlation: the more money we spend, the better off we will be. This is a dangerously false paradigm. More than a big pot of money, what our transportation approach needs today is to focus on building financially strong cities, towns, and neighborhoods.

Ever since we began building the interstate system in the mid-1950s, our approach has embraced two conflicting objectives: long-distance transportation and local real estate development. On a national level, we understood that connecting places across great distances with a high-speed transportation system was a transformative investment. At the local level, we found that federal transportation projects could be leveraged for short-term economic growth.

Suburban real estate development requires interchanges, turning lanes, and frontage roads, not to mention the extension of expensive utilities. Ironically, all of this expensive infrastructure creates traffic congestion and degrades the massive investments we make in cross-country mobility. If we’re serious about the economic benefits of moving goods and people across long distances—and we should be—the more we spend encouraging local commutes, the less productive our transportation system becomes.

We’ve never really confronted this conflict with anything but more money. Our response to congestion was to create more capacity, which opened more real estate for development, which, of course, created even more congestion. This would be merely a tragic farce if it weren’t also bankrupting our cities and, by extension, our country.

Modern American cities expand horizontally, and new cities are formed on the commuter edge of existing cities, partially by mining federal transportation investments for local gain and partially by cashing in on other state and federal programs for building infrastructure and financing new construction. This approach gives a local government all the benefits that come with new growth—permit fees, utility fees, property tax increases, sales taxes—and, in exchange, the city takes on the long-term responsibility of servicing and maintaining all the new local infrastructure.

If you’re a federal policymaker worried about the next quarter’s GDP or unemployment statistics, the long-term liabilities that cities accumulate won’t register on your list of concerns. If you’re a local politician, it’s easy today to rationalize a future commitment, especially when you can assure yourself that new growth today will make those future people better off (an expectation, incidentally, not supported by history or math).

The reality is that, in chasing short-term growth incentives, our cities have racked up decades of liabilities for maintaining infrastructure—promises that have come due—without having any real incentive to do the hard work of building the wealth necessary to pay for all the long-term maintenance. America’s cities are functionally insolvent, drowning in liabilities, desperately chasing more growth. New growth or an injection of federal cash might buy some time. But ultimately, without a change in approach, it will only make the solvency problem worse.

We need to recognize that our transportation system creates enormous value when travel speeds are either above 60 mph or below 20 mph. Everything in between—the vast majority of what we actually construct today—is excessively expensive to build, gives us a negative return on investment, and is the source of tremendous safety concerns.

The federal government must focus on interstate travel with the goal of achieving speeds over 60 mph. That means closing interchanges instead of building new ones, applying surcharges to congested lanes during peak demand, and prioritizing maintenance over any system expansion. These approaches will cost less, not more, than what we currently are planning to spend while improving system performance significantly.

State governments should follow the same plan as the federal government, a difficult challenge because states manage many more miles of unproductive roadway than the federal government does. States have an additional critical task, however: they must empower cities.

The highest financial returns on our transportation investments happen where speeds are less than 20 mph, yet state governments can’t work at the level of detail required to realize those returns. Cities can—although having spent six decades following state and federal guidelines, they will need the flexibility (and incentives) to invent an entirely different approach.

The most difficult challenge that local governments face is discovering ways to make better use of the infrastructure we’ve already built. It falls to cities to find a way to make those trillions of dollars in upcoming maintenance projects more than just delays and inconvenience; they need this spending to result in wealthier, stronger places. To accomplish this task, local government officials need more tools.

We must restore the taxing authority cities had in the 1950s. That patchwork of local approaches was gradually replaced in the name of efficiency—it’s much easier for national corporations to operate with only one set of rules per state—but we now have the ridiculous situation in which a city that is a technology hub has the same tax rules and incentives as a city with an agricultural economy. If cities are going to become more financially productive, they must be able to customize their own tax policies to their own economic reality.

More productive use of our existing infrastructure is also going to mean changes to local land-use codes, business regulations, and economic incentive programs. It’s going to mean spending more money on parks, recreational opportunities, and other quality-of-life programming. It’s going mean a focus on biking and walking. And it’s going to mean local transit investments that provide frequent service between successful places instead of poor service to a wide coverage area.

The future prosperity of America’s cities will depend more on the quality of life they provide for the people who live there than on how quickly commuters can get in and out. Our transportation investment approach still focuses on the commuter model. That must change.

Once we have refocused our transportation investments on building financially strong cities, towns, and neighborhoods, then we can intelligently talk about how much more money might be needed and where it would be best to obtain it.