NewGeography.com blogs

Has the finance industry trainjacked America?

By all accounts the Acela has been a success. Thought it is far from perfect and constitutes moderate speed rail for the most part, it seems to have attracted strong ridership. A midday train was totally packed on both the BOS-NYC leg and NYC-DC leg the last time I rode it. I didn’t see an empty seat anywhere. Which is pretty amazing given how much more expensive it is than the regional, and frankly not that much faster. It does seem to have accomplished its mission of more closely linking Boston, New York, and Washington.

The question is, is that actually a good thing? Or has the improved connectivity the Acela brings had unforeseen negative consequences? I believe you can make an argument that the Acela has actually helped birth the stranglehold the finance industry has over federal fiscal and monetary policies, and thus has hurt America.

I don’t have time to fully develop that here, but to anyone who has been following any of the many excellent sites tracking the financial crisis over the last few years, it is obvious.

There is now a near merger between Wall Street and K Street. During the financial crisis, the government and the Fed have kept Wall Street well supplied with bailouts and nearly free access to capital that allows them to literally print risk free profits by recycling in the free loans into interest bearing government debt, all while Main St. businesses and homeowners have borne the full brunt of a credit crunch, state and local governments fiscally starve, and infrastructure funds dry up. Finance industry insiders have now obtained a near lock on the position of Treasury Secretary. When a president like Bush dares to appoint someone with actual industrial experience, Wall Street’s displeasure is made manifest, and it generally succeeds in undermining him. New laws like Dodd-Frank strangle new entrants to the field while enshrining the privileged status of the too big to fail. The fact that it allows government to seize these “systematically important financial institutions” shows not the industry’s weakness but its strength, as big banks de facto function as instrumentalities of the state, but with profits privatized and losses socialized. Not a single major figure in the events causing the financial meltdowns has gone to jail or even been prosecuted (only a collection of ponzi schemers and insider traders who, despite their criminality, had no systematic impact – the crisis blew up their scams, their scams did not cause the crisis). The list goes on.

The geographic proximity of New York to Washington, with quick trips back and forth on the Acela, facilitates this. Clearly, you could get back and forth on the shuttle without it, but given the Acela’s popularity, it does seem to have some big benefits in shrinking the distance between New York and DC. I’d argue this has been unhealthy for America. If true high speed rail ever came to the NYC-DC corridor, who knows what might happen?

Perhaps you don’t agree and will feed me to the dogs for this post. But I think it’s very clear that transportation networks have vast impact on the structure of society, not just how people and goods get from Point A to Point B. The interstate highway system is proof of that. Indeed, advocates of high speed rail (and I’ve been a qualified one myself, supporting it clearly in the Northeast Corridor but being skeptical about most others) boast of the positive transformational effects of HSR as one of the reasons to build it. But as with the interstate highway system, we need to be aware of the hidden risks as well.

The Acela is perhaps living proof that high speed rail can reshape America. It is literally helping rewrite the geographic power map of America. Unfortunately, at this point don’t think that’s been a good thing.

This piece originally appeared at The Ubanophile.

The latest US Census Bureau migration data shows that people continue to move from principal cities (which include core cities) in metropolitan areas to what the Census Bureau characterizes as "suburbs" (Note). Between 2011 and 2012, a net 1.5 million people moved from principal cities to suburbs (principal cities lost 1.5 million people to the suburbs). The movement to the suburbs was pervasive. In each of the age categories, there was a net migration from the principal cities to the suburbs. There was also net migration to the "suburbs" in all categories of educational attainment.

These data are in contrast to claims that people are moving from a suburbs to central cities. Virtually none of the migration data has shown any such movement. Moreover, the city population estimates produced for 2011 by the Census Bureau, which indicated stronger central city growth have been shown to be simply allocations of growth within counties, rather than genuine estimates of population increase.

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Note on Census Bureau "Suburbs:"

The movement to the suburbs is undoubtedly understated in the Census Bureau estimates, because many jurisdictions included in the "principal city" classification are in fact suburbs. The Real State of Metropolitan America showed that virtually all population growth in principal cities was either in suburban jurisdictions classified as principal cities, or in cities with substantial expenses of post-World War II automobile oriented (or suburban) land-use patterns. The remaining core cities that are largely only urban core in land use accounted for only 2% of principal city growth from 2000 to 2008.

For a decade, the Census Bureau has used a "principal city" designation instead of the former "central city" term. All former "central cities" are "principal cities." The Census Bureau characterizes all other areas of metropolitan areas as "suburbs." In fact, many of the principal cities are functionally suburbs, having barely existed or not existed at all at the beginning of the great automobile oriented suburban exodus following World War II.

Examples of such suburban principal cities, with their metropolitan areas in parentheses, are Hoffman Estates (Chicago), Arlington (Dallas-Fort Worth), Aurora (Denver), Fountain Valley (Los Angeles), Eden Prairie (Minneapolis-St. Paul), Mesa (Phoenix), Hillsboro (Portland), San Marcos (San Diego), Pleasanton (San Francisco), Kent (Seattle), Virginia Beach (Virginia Beach-Norfolk) and many others.

Wendell Cox questions the long-held and popular belief that lower density cities have longer average work trip travel times and greater traffic congestion compared to more compact cities.  He puts forward several key evidence, arguments and analyses to show that the opposite is true - that higher urban densities are associated with longer work trip travel times and greater traffic congestion.

Download the report.

Although some infrastructure advocates are hoping to use the current budget negotiations to win support for an increase in the federal gasoline tax, the idea is unlikely to gain support in Congress or the Administration.  While  the 2010 Simpson-Bowles deficit-reduction commission proposed raising the federal gas tax by 15 cents/gallon as part of a broad deficit-reduction plan, neither House Speaker John Boehner (R-OH) nor Senate Majority Leader Harry Reid (D-NV) have endorsed the idea.  Nor is an increase in the federal gasoline tax popular among  the rank-and-file.  Most lawmakers see the pressure to raise it as coming only from a narow coalition of liberal advocacy groups and transportation stakeholders that stand to benefit from increased federal transportation spending.

Nor is the Obama administration eager to advocate a gas tax increase whose burden would fall most severely on the middle class ---precisely the constituency it  wishes to protect from the pain of any further tax increases.  Given this perception, it is almost certain that a federal gas tax increase will remain off the table in the current fiscal cliff negotiations  and probably throughout the next session of Congress as well.

Look instead for the states to assume a larger share of responsibility for funding their transportation needs. An early harbinger may be the state of Arkansas whose voters recently approved a half-cent statewide sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years. The measure has been called "the largest infusion of new tax dollars into a state transportation system in recent history." Local  referenda supporting public transportation also have appeared on the ballot in numerous states.  According to the Center for Transportation Excellence,  last November voters approved 70 percent of such initiatives.

In addition to greater local financial participation, look for a shift in emphasis from federal funding to public and private financing of large infrastructure projects. The shift will be fueled by a vastly expanded TIFIA lending authority ---by more than 600 percent, from $122 million in FY 2012 to $750 million in FY 2013---and by a large reservoir of equity in pension funds and private infrastructure investment funds looking for attractive investment opportunities. (TIFIA stands for the Transportation Infrastructure Financing and Innovation Act).

This means an expanded role for tolling, for TIFIA and private sources of capital can only be used to finance facilities that are backed by a dedicated stream of revenue to cover interest payments on the loan and the loan repayment itself.   Tolls are viewed by many as a fairer way to pay for new and reconstructed highways and bridges because, unlike the gas tax,  they are paid only by the users of the particular tolled facility. In other words, drivers in Montana will not be required to pay for a road or bridge built for and benefiting mainly  the residents of say, Texas.  

The likely prospect that  financing will replace stagnant or dwindling federal funding, dominated discussion among financial practitioners at ARTBA's Public-Private Partnership Conference in Washington on October 10-11. Participants were encouraged to hear that 19 projects worth $27.5 billion have already submitted letters of interest for TIFIA loans in the past three months. Four more projects totaling $1.9 billion have been announced since October.  More applications are certain to follow as it becomes clear that the Highway Trust Fund no longer can continue to serve as a source of investment capital for transportation infrastructure.

In sum, rather than hoping for an increase in the gas tax, the transportation community should look forward to three new trends as the most likely response to the perceived inadequacy of current  transportation revenue:  greater financial participation by state and local taxpayers,  a shift in emphasis from federal funding to private and public financing, and an expanded use of tolling.

Las Vegas Railway Express has signed an agreement with the Union Pacific Railroad to operate a conventional speed train from Fullerton, in Orange County to downtown Las Vegas, according to a story by Michelle Rindells of the Associated Press.

This is not to be confused with the proposed Xpress West (formerly DesertXpress) high-speed rail line which would operate from Victorville to Las Vegas, expecting riders to drive through Los Angeles Basin traffic congestion to get to the station. Further, unlike Xpress West, the Las Vegas Railway Express train would require no financial assistance from taxpayers for its largely leisure travelers. As we indicated previously, our analysis concludes that XpressWest revenues are unlikely to be sufficient to repay a proposed federal loan. This could expose taxpayers to a loss of $5.5 billion or more --- approximately 10 times as great as taxpayer losses in the Solyndra federal loan guarantee debacle.

The Las Vegas Railway Express promoters intend to take the full financial risk, as do most entrepreneurs who start businesses. Moreover, the Las Vegas Railway Express train would operate only when demand is substantial, with all trips between Thursday and Monday. The first trip is tentatively scheduled for New Year's Eve, 2013.

Here's hoping the train is successful and that the owners make at least a competitive return on investment, while providing employees commercially funded (not subsidized) jobs, paying, not consuming taxes and with revenues earned from willing customers, rather than relying on public funding. And just as important, if they fail, taxpayers will not be left holding the bag. That's how things should work.