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The Illinois Department of Transportation has reached a cooperative agreement with Union Pacific and Amtrak that will permit the release of a $1.1 billion federal high-speed rail grant to the state of Illinois to fund passenger rail improvements between Chicago and St. Louis. The agreement was proclaimed by state and federal officials as "historic" and hailed as "one giant step closer to achieving high-speed passenger service between Chicago and St. Louis." But stripped of its rhetoric, the announcement only reveals how inadequate and cost-ineffective the Administration's "high--speed" program is turning out to be.

The billion dollar program of improvements to be completed under the Cooperative Agreement will enable "higher-speed" trains to travel between Chicago and St. Louis in 4 hours and 32 minutes, cutting present trip time by 48 minutes when the planned improvements are completed by 2014. As the Springfield Journal Register pointedly observed, that is 22 minutes longer than the trip time of 4 hours and 10 minutes promised in the original grant application. A four-hour trip time was also pledged in the White House press release announcing the project last January.

Currently Amtrak operates passenger service between Chicago and St. Louis at an average speed of 53 mph. The announcement is silent about the expected improvement in the average speed when the project is completed but our calculations suggest that the planned improvements would increase average speeds only by 9mph, to 62 mph. Of the 284-mile Chicago-St. Louis route, a total of 210 miles of track will be ready for 110 mph operation under the present grant. Upgrading the remaining 74 miles of the line, between Dwight and Chicago, would have to await further federal aid. The State of Illinois originally requested $3 billion to complete the total project.

From what we can read between the lines, Union Pacific drove a hard bargain as a condition of signing the cooperative agreement. "Our priority in working out this agreement," the company’s CEO, Jim Young said in a prepared statement, "was to protect Union Pacific’s ability to provide the exceptional freight service our customers need and expect. ... This agreement allows us to deliver on those customer commitments." The message is clear: UP’s freight operations will take precedence over passenger rail operations. The route, we are told, is expected to accommodate as many as 22 freight trains a day ultimately.

Union Pacific also seems to have won out on another contentious issue. The cooperative agreement is silent about any penalties the railroad might face if on-time performance standards for passenger service are not met – a condition that the Federal Railroad Administration had insisted upon in its initial (and later withdrawn) guidelines concerning the terms of the cooperative agreements.

The announcement, released on December 23, barely two weeks before a new Congress takes office, was meant to give a boost to a program that is barely limping along. The record speak for itself. Two major high-speed rail projects — in Wisconsin and Ohio — have been cancelled by the incoming governors because of the cost burden the operation of the new rail services would impose on the state taxpayers. The Florida Tampa-to-Orlando high-speed line is still in doubt as Gov.-elect Rick Scott ponders its cost and economics. The California high-speed rail program, with its starter line in the sparsely populated Central Valley, has been ridiculed as "the railroad to nowhere." And several HSR cooperative agreements remain stalled in contentious negotiations. It’s not surprising that the Administration would be anxious to show progress and refute the widely held impression that the program is on its last legs. This is not how it was all supposed to end.

Whether the program will, indeed, come to an untimely end will depend on the next Congress. To the incoming Republican lawmakers, eager to make good on their promise to cut federal spending, any unspent HSR funds will present a tempting target for rescission. In addition, future appropriations for the program will have to compete with other urgent transportation priorities amid pressures to trim discretionary spending and Congressman Mica's announced intent to revisit the program and refocus it in ways that, in his words, "makes sense."

It is not a scenario that offers high-speed rail advocates much cheer in the New Year.

Ken Orski is a former senior U.S. Transportation Department official and publisher of Innovation NewsBriefs, a transportation newsletter now in its 21st year of publication.

Reporters, columnists and even consultants often misunderstand urban areas and urban terms. The result can be absurd statements that compare the area in which the writer lives to somewhere else where the grass is inevitably greener, bringing to mind an expensive competitiveness report that suggested St. Louis should look to Cleveland as a model. Sometimes this is the result of just not understanding and other times it results from listening to itinerant missionaries from idealized areas who have no sense of the reality.

A most recent example is from the Sydney Morning Herald, one of Australia's largest and most respected newspapers.

Columnist Elizabeth Farrelly told her readers that Paris covers one-quarter the land area (urban footprint) of Sydney and has a population of 5.5 million. In fact, the urban footprint of Paris is at least five times larger and the population nearly double.

According to the Institut national de la statistique et des études économiques (INSEE), the statistics bureau of France, the urban footprint of Paris was 2,723 square kilometers in 1999 and the population in that area was 10,143,000 in 2006 (both figures are the latest data available).

In contrast, according to the Australian Bureau of Statistics (ABS), the statistics bureau of Australia, the urban footprint of Sydney was 1,788 square kilometers in 2006. However, even the 50 percent larger urban footprint of Paris may actually understate the difference, because ABS uses a lower population density threshold than INSEE for urban versus rural classification. The difference between the two urban footprints is shown in the figure below.

Ms. Farrelly also decried the continuing sprawl that she perceives in Sydney, despite the fact that no urban area in the new world, except perhaps Vancouver, has shut down home construction on its fringe to a greater degree (nor even has Paris). The effect of Sydney's development Berlin Wall is housing affordability so bad that it is second only behind Vancouver out of nearly 275 metropolitan areas in the 6 nations we cover in the Demographia International Housing Affordability Survey.

I studied with the Austrian economists at New York University. The Austrian school of economics (as contrasted to Keynesians or Chicago school economists) work with a theory about business cycles that essentially starts from the understanding that what appear to be almost mechanical, regular ups and downs in the economy are actually caused by the periodic disappointment of the expectations of entrepreneurs. The alternative is to suggest that business owners periodically and collective wake up stupid one morning and start making a lot of bad decisions. A connection to the routine horizons of fiscal policy – for example, the 5-year funding cycle for federal highways – is a more likely cause of what appear to be “cycles”.

A current example of how government spending policy can make a disaster of the economy by confounding decision making is the changes/not-changes in US tax policy. What if you are a business owner who has a fiscal year that runs from July 1 to June 30? All of your plans for the first half of 2011 would have been based on the tax cuts expiring (which is the reasonable thing to do – don't change your plans until the law is changed). If the tax cuts are extended, then the last half of your budget is completely changed. In this case, there will be more net income. Being unable to plan for this, according to economic principal-agent theory, will put a lot of cash in the hands of managers who may not spend it in the best interests of the shareholders. The failure of managers to invest wisely when government stimulates business through unexpected and excessive free cash flow is well-documented.

Now imagine you are a state whose tax policy mirrors the federal policy. Tax cuts to businesses and individuals translate into revenue cuts for states, counties and cities. Any state that opts out of mirroring whatever Washington D.C. passes risks being cut-out of certain federal funding programs in the future. Nebraska, for example, passes a biannual budget. The last one covered the fiscal-years 2009-2011, which was based on the tax cuts expiring at the end of 2010. The difference if the tax cuts are extended will be a $200 million shortfall. Nebraska is a relatively small state, so consider what this will do to the budgets of all the states, plus counties and cities in the U.S. This could be the event that brings the global financial crisis in public debt home, especially to states like California which are already in trouble.

Note: A good source for more on Austrian economic theory is the Mises Institute at Auburn University. Click this for a brief on "The Austrian Theory of the Business Cycle" from Roger Garrison – who is an expert on the subject.

Chicago Magazine has an interesting article on the sore subject of Illinois corruption. The article was written by Shane Tritsch who interviews several experts on Illinois political history. There’s no “good old days” of clean government in the Land of Lincoln. Tritsch explains a major reason for Illinois’ historical graft:

Owing to historical factors, Illinois developed a labyrinthine governmental structure that offered fertile ground in which corruption could sprout. The Illinois constitution of 1870, in effect until 1970, limited the amount of debt counties and municipalities could carry and taxes they could levy. When cities needed to fund improvements, they got around those constraints by creating new units of government with the capacity to borrow—a library district, for example, would be created to build and administer a new library. “The 1870 constitution almost forced you into multiple units of government if you were going to deliver services beyond your municipality or modernize your municipality,” says Redfield. Today the state contains almost 7,000 separate governmental fiefs—far more than any other state—ranging from counties, towns, and school and fire districts to water reclamation and mosquito abatement districts. Most have budgets to protect and authority to wield. “It’s very hard to stay on top of it all, and it creates many more opportunities for patronage,” says Cindi Canary. “It creates ways for small islands of graft and corruption to stay hidden.”

It appears that Illinois’ luck is running out. According to Forbes, Illinois is number two on the list of states Americans are fleeing behind New York:

at No. 2. Illinois is expected to lose 27,000 people this year, consistent with its average annual loss over the last five years. The losses are likely linked to the state's economy and tax structure. Job losses in manufacturing and industrial machinery are likely pushing people out of the state

The bond market has taken notice of Illinois’ debt problem. While Illinois can’t go legally bankrupt, creditors can refuse to extend credit. Illinois faces massive public pension crisis in the coming years. Unfunded liabilities will make Illinois a less desirable place to invest.

The Illinois economic situation was born in Illinois’ history of corruption. Shane Tritsch’s article is a decent history on Barack Obama’s home state. The Chicago segment of Illinois corruption is certainly unique. Below is an excellent segment from a National Geographic TV special on how Chicago was taken over by the Mob.

Portland is known primarily as a cool city, where people spend their 20s happily working in the service sector, drinking craft beer, eating organic food, and exploring a variety of unconventional lifestyle options. In short, Portland is weird. That’s not just an observation: it’s the city’s marketing strategy. Keep Portland Weird is a pretty common bumper sticker in the city (believe it or not, there are cars in Portland). Yet despite the non-conformist attitude of Portlanders, the municipal government seems bent on destroying everything fun about the city.

The first attack, which I documented in Reason Magazine, is on craft beer, the city’s primary cultural export. The city attempted to increase the tax on beer producers several fold, though the motion was soundly defeated. It was the only time I’ve ever seen hippies handing out anti-tax fliers in bars on Friday nights. This was followed up by an EPA mandated tampering of the water supply, which may or may not reduce the quality of the world beer capital’s unparalleled beer.

The second attack is on street vendors. Portland has some of the most liberal rules regarding street vendors. You can find anything from Mexican to Thai food in the nearly 600 Portland street carts. This is one of the things that make the city charming. Street vendors add to the street life of the city. Yet this summer, a story about a little girl having her unlicensed lemonade stand shut down drew international attention. Now City Commissioner Randy Leonard is openly discussing a city wide crackdown on food vendors. The complaint? Many of them are guilty of attaching unlicensed appendages such as awnings and decks.

Where are the complaints originating from? You guessed it: local restaurants. They claim that street vendors are providing unfair competition, since they don’t have to provide restrooms, be wheelchair accessible, and so forth. This has so alarmed the Commissioner that he’s instructed building inspectors to assign top priority to inspecting street vendors. Ironically, this debate completely ignores the most legitimate question: are street vendors actually hurting anyone? Is their safety record worse than local restaurants? Are they blocking off public sidewalks? The answer to the first question isn’t clear, since the inspection reports aren’t reported in the same way they are for restaurants. Having said that, the health inspectors would shut them down if there were egregious violations. The second question is easier. They aren’t unduly encroaching on sidewalks. If anything, they’re providing sidewalk dwellers shelter from the rain with their unlicensed awnings.

Quirky things like world class craft beer and street vendors are what make Portland interesting. If the city is going to market itself as a destination for the creative class, it is going to have to stop cracking down on the very things that attract these people in the first place. After all, they sure aren’t moving to Portland because of the local economy.