state government

9-Year Run: CEOs Rank Texas #1, California #50

Wendell Cox — Sun, 12 May 2013 22:33:40 -0400

Each year, chiefexecutive.net ranks states based upon their business competitiveness. The latest rankings have just been published in 2013: Best and Worst States for Business.

Texas on Top: For the 9th Year in a Row

For the ninth year in a row, chiefexecutive.net ranks Texas as the most business friendly state. Noting the Texas cost of living advantage, chiefexecutive.net points out that “Young programmers and engineers can actually afford to live well in Austin, where the housing cost index is 300 percent lower than in San Francisco.”

It is not surprising that Austin has emerged as the fastest growing metropolitan area in the United States adding 3.1 percent to its population annually since 2010. This is an astounding rate of growth --- twice that of the San Jose IT behemoth, which at current rate of growth will fall behind Austin in population by 2015. Austin’s growth rate is faster than some of the fastest growing developing world cities, such as Mumbai, Dhaka and Manila.

However there is much more to Texas Austin. Dallas-Fort Worth is the fastest growing metropolitan area with more than 5 million people in the high income world, though at an average annual growth rate since 2010 of 1.9234 percent retains only a narrow lead over similar sized Houston (1.9227 percent). Smaller San Antonio is growing marginally more quickly both Dallas-Fort Worth and Houston (though less than 2 percent).

Texas was joined in the top five by the South’s Florida, North Carolina and Tennessee, as well as Indiana, from the Midwest. Three of the top five (Texas, Florida and Tennessee) do not have a state income tax and chiefexecutive.net notes that other states are looking at tax reform that would improve the business climate.

California: Bringing Up the Rear for the 9th Year in a Row

Just as predictably as Texas ranking first, California has secured the bottom position for the ninth year in a row. A California CEO told chiefexecutive.net“On any particular element, if New Jersey is an ‘8’ on the pain-in-the-ass scale, California is a ‘9 … It’s an ungovernable state, and there’s no movement that will change that, though there are people who want to…”

Nearly as predictably, California is joined in the bottom five by older northeastern states New York, New Jersey and Massachusetts as well as Illinois, from which, like California, hundreds of thousands, even millions of people have fled since 2000.

The complete state rankings can be viewed at http://chiefexecutive.net/best-worst-states-for-business-2013.

A Lasting Solution to the Transportation Funding Dilemma

Ken Orski — Sun, 21 Apr 2013 10:41:00 -0400

President Obama's FY 2014 budget request includes $77 billion for the Department of Transportation and an additional $50 billion "for immediate transportation investments." His next transportation bill to follow the current MAP-21, calls for a 25 percent increase in funding over current levels and assumes a transfer of $214 billion to the trust fund over six years "to maintain trust fund solvency and pay for increased outlays." To offset this spending, the Administration proposes using the "savings" or "peace dividend" from winding down the war in Afganistan.

House T&I Committee Chairman Bill Shuster (R-PA) was not impressed. "The President's budget," he said, "repeats his call to increase spending without identifying a viable means to pay for it. .... You can't just keep on spending money that you don't have." "A proposal we have seen three times before," observed Rep. Tom Latham (R-IA), House Transportation Appropriation Subcommittee chairman referring to the $50 billion request. With massive stimulus spending politically out of fashion, the Administration is repackaging it as "transportation investment." Bill Graves, president of the American Trucking Association, spoke for many stakeholders when he remarked, "For five years, we've waited for President Obama to clearly state how we should pay for these critical needs and, I'm sad to say, we continue to get lip service about the importance of roads and bridges with no real road map to real funding solutions." As for the "peace dividend," the idea has been dismissed as "budgetary gimmickry" by congressional Democrats and Republicans alike.

In sum, a large segment of congressional and public opinion has pronounced the White House proposals variously as "vague", "repetitive," "unrealistic," "implausible" and "politically unachievable." Even the President's most loyal supporters in the transportation community, the liberal advocacy groups, seemed disappointed and circumspect in their comments.

This said, no one disputes President Obama's and the infrastructure advocates’ claim that some of America’s transportation facilities are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50 billion federal crash program as proposed in the President's budget message, or the expenditure of more than $100 billion per year as recommended by the American Society of Civil Engineers (ASCE) in its latest "Report Card."

Instead, as we have argued in recent columns, the challenge can be met if each state did its part to progressively bring up its transportation facilities (including its Interstate highway segments) to a "state of good repair," using its own tax revenues and its formula allocation of the Highway Trust fund dollars (which are expected to total $38-41 billion per year over the next decade.) As numerous news dispatches attest, that's precisely what is happening (see below). A large number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction and modernization of their aging facilities and to maintain their transportation systems in good working condition. "Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back," an association executive who is familiar with the thinking of senior-level state officials, told us.

What about large-scale reconstruction and system-expansion projects that require billions of dollars---transportation investments that are beyond the states' fiscal capacity to fund on a pay-as-you-go basis out of annual cash flow? Those investments, provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue), will be mostly financed through long-term credit instruments and public-private partnerships. The future of capital-intensive infrastructure projects is intimately tied to the financial involvement of the private sector and to a wider use of tolling, "availability payments," and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us. We list below some of the transportation megaprojects that are being financed (or are planned to be financed) largely with public and private credit rather than with federal dollars out of congressional appropriations.

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Lending credibility to the above funding scenario and hastening its adoption are the new realities underlying the federal role in transportation today. Those realities include: (1) a federal program that no longer has a clearly defined mission or purpose and many of whose functions are properly a state and local responsibility; (2) a Highway Trust Fund that has lost its capacity to support large-scale transportation investments and that has come to depend for its solvency on periodic injections of general funds; (3) a bipartisan absence of political will to raise the federal gas tax and (4) continued inability to identify another credible revenue source to supplement or replace the gas tax.

In sum, having the states assume financial responsibility for fixing their aging transportation facilities and for preserving them in a state of good repair, while employing public and private financing for major capital-intensive infrastructure investments, offers the best solution to the current federal funding dilemma.

NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and Maryland (broad transportation funding overhaul that includes a dedicated sales tax applied to the wholesale price of gasoline. A sales tax, it has been argued, is no less a "user fee" than the gas tax since every consumer who pays a sales tax also is served by or "uses" the highway system for goods delivery ); Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years); Illinois (six-year $12.6 billion statewide construction program to improve roads and bridges); Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal) Michigan ( $1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain); Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements); Pennsylvania ($2.5 billion Senate transportation funding plan; House approval uncertain); Texas (statewide tolling); Wisconsin ($824-million boost to the state transportation fund); Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange). In addition, several states which derive significant revenue from their tollroads have raised toll rates. See also, "State Transportation Funding Proposals, AASHTO Center for Excellence in Project Finance, April 2013

Recent major transportation infrastructure projects largely financed,or to be financed, with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York's Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing; the Highway 520 floating bridge and the Alaskan Way Viaduct in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA; East End Crossing over the Ohio River near Louisville; and the PortMiami Tunnel. Please note that, except for the California High-Speed Rail venture, there are no transportation megaprojects currently being planned whose construction would depend primarily on federal appropriations.

States Seek to Become More Self-Reliant for Infrastructure

Ken Orski — Tue, 02 Apr 2013 15:41:09 -0400

During his March 29 visit to the privately built and financed PortMiami tunnel project, President Obama unveiled a new infrastructure plan. His latest proposal---costing $21 billion--- includes a renewed call for a National Infrastructure Bank capitalized at $10 billion, a $7 billion "America Fast Forward Bonds" program modeled after the former Build America Bonds; and a sum of $4 billion in direct loans and loan guarantees. The White House announcement did not make it clear whether this latest infrastructure initiative --- " to encourage private investment in America's infrastructure" ---replaces or is in addition to the $50 billion "fix-it-first" infrastructure plan that the President announced in his State-of-the-Union address less than two months ago (see, "Infrastructure Advocacy and Public Credibility," InnoBrief, Vol. 24, No. 2, February 20).

Decidedly, infrastructure investment remains on the President's mind. It also continues to generate headlines. Just a week earlier, the American Society of Civil Engineers (ASCE) released its latest "report card" giving the nation a D for highways and estimating the investment needs in surface transportation to the year 2020 to amount to a staggering $1.723 trillion. With expected funding during the same period amounting only to $877 billion, the funding gap comes out to be an astronomical sum of $846 billion--- more than $100 billion per year. As if to reinforce the ASCE conclusions, the Washington Post came out with a front-page story about the deteriorating state of the Capital Beltway, "a politically iconic and locally vital highway... dying beneath your turning wheels" (Beneath the Surface, the Beltway Crumbles, March 31, 2013)

What kind of an impact the President's repeated pleas, combined with the ASCE report card and alarming press stories of "crumbling " infrastructure, will have on public opinion and congressional attitudes remains to be seen. As we have noted earlier, they come at a time of severe budget pressures and intense Republican efforts to curb excessive discretionary spending. To be successful, pro-infrastructure advocates must explain to the skeptical lawmakers where the money would come from. "At some point somebody has to pay the bill," House Speaker John Boehner pointedly remarked in reaction to Obama's latest infrastructure proposal. The advocates also must persuade fiscally conservative House members that there are urgent and compeling reasons to boost spending on public works that override the imperative to reduce the deficit and get the nation's fiscal house in order.

Second, the nation's taxpayers must become convinced that spending more on transportation will make a difference in practical terms such as easing congestion and improving the lot of commuters, and that the money will not be wasted on questionable projects that have little to do with improving mobility. "The Bridge to Nowhere" as a symbol of wasteful spending still lives in the collective public consciousness.

Third, infrastructure alarmists must contend with the upbeat conclusions of a Reason Foundation study, "Are Highways Crumbling?" That study has found that America's highways and bridges are in a far better condition today than they were 20 years ago. "There are still plenty of problems to fix, but our roads and bridges aren't crumbling," said David Hartgen, lead author of the Reason study. "The overall condition of the public road system is getting better and you can actually make the case that it has never been in better shape." The study affirms what the traveling public experiences every day ---- that the nation's highways and bridges not only are not "crumbling" but in most places are holding up pretty well. "Should I believe the pundits or my own eyes," asked Charles Lane, a Washington Post editorial writer, in a much-quoted column after having traveled thousands of miles "without actually seeing any crumbling roads." (The U.S. Infrastructure Argument that Crumbles Upon Examination, October 31, 2012).

Fourth, as one highly knowledgeable reader of ours (a civil engineer) has observed, "we must get an objective, precise and quantifiable assessment of bridge conditions before launching full bore into repair or replacement actions" costing billions of dollars. "Today," he wrote, " no one, and I mean no one has an objective, clear and precise understanding of the actual condition of America's bridges." Before asking taxpayers for billions of dollars to fix a problem based on subjective visual assessments of bridge conditions, we want to be very sure that we have accurate data to back up our position, our reader concluded. His remarks about bridges could equally well be applied to the condition of the nation's roads.

Lastly, infrastructure advocates must overcome a cynical perception, common among the public, that pressures to increase federal funding for transportation are nothing more than special interest pleadings by interest groups that stand to profit from higher levels of public spending (ASCE is one of them, raising questions as to its objectivity, several observers have noted).

As one transportation advocate at a recent conference observed, "there is an enormous disconnect between us and the American public" --- a disconnect that may not be easy to overcome.

States Are Acting on their Own

As we have argued in recent columns, no one disputes the infrastructure advocates’ claim that some of America’s transportation facilities, such as the Capital Beltway, are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50-70 billion federal crash program as proposed by the President, or the expenditure of more than $100 billion per year as recommended by ASCE.

Instead, the challenge can be met if each state did its part to incrementally, over a period of years, bring its transportation facilities up to a "state of good repair" using its own gas tax revenues and its formula allocation of the Highway Trust fund dollars. As numerous news dispatches attest, that is precisely what's happening (see below). A growing number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction of their aging facilities-- "one lane at a time" if necessary---and keep their transportation systems in good working condition. "Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back," an association executive who is familiar with the thinking of senior-level state officials, told us.

What about large-scale reconstruction and capacity-expansion projects that require billions of dollars---transportation investments that are beyond the states' fiscal capacity to fund on a pay-as-you-go basis? Those investments, provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue), will be mostly financed through long-term credit instruments and public-private partnerships. The future of infrastructure megaprojects is intimately tied to the financial involvement of the private sector and to a wider use of tolling, "availability payments," and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us. " President Obama was right to have shined a spotlight on the PortMiami tunnel project and drawn attention to the importance of private investment in major transportation infrastructure. The Highway Trust Fund no longer can serve that purpose."

The scenario we have suggested above---i.e., having states assume financial responsibility for fixing their aging transportation systems, while relying on debt financing for major facility reconstruction and system expansion---makes practical sense in view of the uncertain future level of federal transportation funding. It also may constitute a way to save the Highway Trust Fund from insolvency and provide a lasting solution to the federal transportation funding dilemma.

NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and Maryland (broad transportation funding overhaul that includes a dedicated sales tax applied to the wholesale price of gasoline. A sales tax, it has been argued, is no less a "user fee" than the gas tax since every consumer who pays a sales tax also is served by or "uses" the highway system for goods delivery ); Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years); Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal); Michigan ($1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain); Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements); Texas (statewide tolling); Wisconsin ($824-million boost to the state transportation fund); Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange).

Recent major transportation infrastructure projects largely financed with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York's Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing; the Highway 520 floating bridge in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA, East End Crossing over the Ohio River, and the PortMiami Tunnel.

The Moonbeam Express

Ken Orski — Fri, 03 Feb 2012 11:55:59 -0500

Seldom has public opinion and expert judgment been more unified than in its opposition to the California high-speed rail project. The project has been criticized by its own Peer Review Group, the Legislative Analyst's Office (LAO), the California State Auditor, the State Treasurer and a group of independent experts (Enthoven, Grindley, Warren et al.). In addition, the bullet train has come under severe criticism by influential state legislators and by members of the state's congressional delegation. Equally damaging to the project's future prospects have been two public opinion surveys showing that California voters have turned solidly against the project, and the opposition of virtually all of California's newspapers, including The Orange County Register, whose latest editorial we reprint below.

Editorial: Bullet train becoming "Moonbeam Express" (OC Register, Feb 1, 2012)
Gov. Jerry Brown wants to use anti-global-warming carbon taxes to fund California's much-maligned high-speed rail project.

In a brazen denial of the obvious, Gov. Jerry Brown now insists the proposed California high-speed rail can be built for much less than its own business plan stipulates, and wants to use anti-global-warming carbon taxes to underwrite the proposal, whose price tag has nearly tripled in the three years since voters approved it.

The governor seems intent on demonstrating how California's state government has burdened taxpayers with mounting debt, while overspending to create consecutive years of budget deficits. The rail project has been dubbed "the train to nowhere" because the only portion close to being built would link relatively sparsely populated Central Valley towns and no metropolitan areas. Perhaps with Mr. Brown's new foolish insistence, it should be christened the Moonbeam Express.

Since the rail proposal appeared on the 2008 ballot, it has been widely and legitimately criticized in detailed analyses by the rail project's own Peer Review Group, the state auditor, treasurer, Legislative Analyst's Office, local governments including Tulare, Madera and Kings counties and the city of Palo Alto, numerous state and federal lawmakers from both parties and studies by UC Berkeley Institute of Transportation and the Reason Foundation. These highly unfavorable critiques reflect many of the criticisms the Register Editorial Board has raised since the project was proposed.

In only three years, the train's estimated cost has increased from $33 billion to $98.5 billion in the latest version of its own ever-changing business plan.

Voters approved only $9.9 billion in bonds based on the rest coming from Washington and local governments along the route, and private investors. Washington has provided about $3 billion and not another dime has materialized or been pledged. Meanwhile, the estimated completion of the original phase of the project, from San Francisco to Anaheim, has been extended 14 years beyond the original estimate of 2020.

Ridership estimates are unrealistic, meaning trains can't operate solely on ticket revenue as required by the initiative. Costs, even at their current highest level, are certain to increase, and the needed additional funding sources are not forthcoming. Given hostility in Congress to the project, more money from Washington, which is grappling with its own massive deficits and debts, won't be seen in the foreseeable future.

State Sen. Doug LaMalfa, R-Richvale, introduced a bill Monday to put the high-speed rail proposal back on the November ballot so voters can de-authorize selling the $9.9 billion in bonds.

The Register has urged this ill-conceived and increasingly untenable project be resubmitted to voters. Thankfully, for the most part, bonds remain unsold. There is no reason taxpayers should assume billions more debt --- with annual interest payments of up to $1 billion --- when the likelihood is remote the train ever will be built, despite the governor's strained assurance.

Moreover, state Sen. Diane Harkey, R-Dana Point, notes that the governor's proposed new revenue stream --- carbon taxes created by the 2006 Global Warming Solutions Act--- is another hoped-for, rather than assured, solution. "The state's cap-and-trade program is not yet in operation, and revenue estimates of $1 billion per year are unreliable and unsubstantiated," Ms. Harkey said. "Relying on projected revenues that fall short is the key reason why our state deficit continues to explode year after year. To rush this project forward, just using up the $3.5 billion of federal funds, with the hope of an additional funding mechanism based on guesswork, is irresponsible."

A Devastating Verdict for California HSR

Ken Orski — Thu, 05 Jan 2012 17:21:43 -0500

Like many other observers, we have found the California High-Speed Rail Peer Review Group to have made a convincing case for a fresh look at the feasibility of the California high-speed rail project. The group's report was issued as eleven House Democrats – eight from California – joined an earlier request from twelve Republican House members for an independent GAO investigation of the embattled project.

That is why we find Governor Brown’s reaction – that the peer reviewers' report "does not appear to add any arguments that are new or compelling enough to suggest a change of course” – to be incomprehensible. Either the governor issued the statement without the benefit of having read the report, or else he is so ideologically committed to the project that he refuses to look the facts in the face.

Precisely which conclusions of the report are not compelling enough, the governor’s spokesman has not made clear. Is it the statement that "the Funding Plan fails to identify any long term funding commitments" and therefore "the project as it is currently planned is not financially feasible"?

Is it the reviewers' assertion that "the [travel] forecasts have not been subject to external and public review" and, absent such an open examination, “they are simply unverifiable from our point of view"?

Could it be their statement that "the ICS [Initial Construction Section] has no independent utility other than as a possible temporary re-routing of the Amtrak-operated San Joaquin service...before an IOS [Initial Operating Segment] is opened"?

Or, is it the Panel's conclusion that "...moving ahead on the HSR project without credible sources of funding, without a definitive business model, without a strategy to maximize the independent utility and value to the State, and without the appropriate management resources, represents an immense financial risk on the part of the State of California?"

To us, the findings seem at least deserving of a respectful consideration.

But the California High-Speed Rail Authority (CHSRA) is not ready to concede anything. Here is the opening paragraph of its response:

"While some of the recommendations in the Peer Review Group report merit consideration, by and large this report is deeply flawed, in some areas misleading and its conclusions are unfounded. ...Although some high-speed rail experience exists among Peer Review Panel members, this report suffers from a lack of appreciation of how high-speed rail systems have been constructed throughout the world, makes unrealistic and unsubstantiated assumptions about private sector involvement in such systems and ignores or misconstrues the legal requirements that govern construction of the high speed rail program in California."

It is not our intention to delve in detail into the Authority's response and judge the soundness of its arguments. No doubt, the CHSRA response will come under a detailed examination by the Authority’s critics in the days ahead. Suffice it to say that, having carefully and with an open mind examined the Authority’s rambling nine-page response, we find that it did not satisfactorily rebut the peer group’s central point: that it is not prudent, nor "financially feasible," to proceed with the $6 billion dollar rail project in the Central Valley (including $2.7 billion in Proposition 1A bonds) in the absence of any identifiable source of funding with which to complete even the Initial Operating Segment. To do so, would be to expose the state to the risk of being stuck, perhaps for many years, with a rail segment unconnected to major urban areas and unable to generate sufficient ridership to operate without a significant state subsidy.

The Authority's lashing out at the peer reviewers and the dismissive tone of its response suggest that it has already made up its mind to stay the course and circle the wagons. That is not a wise posture to assume in the face of an already skeptical state legislature.

The Impact of Federal Cutbacks

Matthew Leiphon — Fri, 02 Dec 2011 17:52:31 -0500

During my college days, I had the opportunity to interview a local government official tasked with conducting various disaster response programs. North Dakota had, at the time, been dealing with severe flood issues for nearly a decade, and the interviewee had vast experience dealing with the ins and outs of working within the system to find mitigation solutions. Asked about the challenges of having to deal with a multitude of state and federal agencies, he informed me that the most vital contacts he had were at the federal level. His reasoning?

"That's where the money is."

Given the current political winds blowing from D.C., the conditions that spurred that view might be about to change in substantial ways.

With the recent failure of the "Super Committee" to find a deal on potential budget cuts and tax reforms, states may soon find themselves faced with a set of federal spending cuts to programs and services that undergird large parts of their economy. These automatic cuts, triggered in 2013 by the committee's failure, will total nearly $1.2 Trillion and be between domestic and defense expenditures. While many may laud such cuts as a way to help bring the federal budget back towards a semblance of order, it is worth noting that the impact on state economies moving forward could be substantial.

Federal spending, be it on defense, salaries for federal workers, infrastructure, or procurement makes up a sometimes major part of state economic activity. As outlined in a recent piece at stateline.com, some states have far greater exposure than others. In New Mexico, home to several major federal research institutions, over 12% of Gross State Product (GSP) is attributable to federal government spending. Virginia and Maryland, home to so many federal workers and contractors are even more economically dependent on federal spending, with 13.5% (MD) and 18.5% (VA) of their economies being due to federal activity. The spillover of cuts at the federal level can't help but impact on the overall economic health of such states. The impact will likely be felt throughout the nation as federal agencies find themselves forced to tighten their belts.

Scholars of federalism often refer to the period since the late 1970's as the era of "New Federalism." Beginning under President Carter, and embraced fully by the conservative movement during the 1980's, New Federalism was marked by increasing devolution of powers and responsibility to state governments and calls for states to be given more control over the reins when spending allotted federal dollars.

While states continue to play an important role in the system, actions taken over the past few years under the Bush and Obama administrations seemed to hearken back to the earlier, cooperative model of federalism, with the federal government taking on a more assertive role in working with and through state and local governments to provide stimulus, reform healthcare, and implement post 9/11 security initiatives. While state leaders might have chafed at the strings tied to certain lines of funding, the dollars provided offered states a way to backfill budget shortfalls during a time of economic stress.

With the demise of the Super Committee, continued calls for deeper spending cuts and gridlock over raising revenues are setting the table for a changed federal-state relationship. As federal agencies strike their tents on various programs and initiatives, states will find themselves receiving less direct federal largess and facing lower economic activity as federal dollars working their way through the local economy are reduced. Budget austerity may lead the federal government to increasingly leave the states to their own means- devolution by force, instead of by choice.

Adjusting to Fiscal and Political Realities in Transportation Funding

Ken Orski — Thu, 23 Jun 2011 15:38:54 -0400

As this is written, we do not know the exact level of funding the House Transportation and Infrastructure Committee will propose in its draft legislation, to be unveiled in the first week of July and marked up the following week. Nor do we know what level of funding the Senate Finance Committee will come up with. But we do know that both Houses will be obliged to propose far less funding than is contained in the current (FY 2010) surface transportation budget of $52 billion ($41 billion for highways, $11 billion for transit). What will be the practical consequences of this belt tightening?

The proposition that the Federal Government "must learn to live within its means" has become the fiscal conservatives’ article of faith and an elliptical way of stating the Republican opposition to deficit financing. This principle has found its way into the House T&I Committee’s "Views and Estimates for Fiscal Year 2012" report and it has been reaffirmed in countless statements and briefings by congressional sources.

The practical implications of this policy for the federal-aid surface transportation program are unambiguous: federal budget authority in FY 2012 and beyond will be limited to the tax receipts flowing into the Highway Trust Fund. Those revenues (plus interest) will amount to an estimated $36.9 billion in 2011, according to the Congressional Budget Office (CBO)— $31.8 billion to be credited to the Highway Account and $5.1 billion to the Transit Account. Over the next ten years, CBO estimates these revenues will grow at an average rate of a little more than one percent per year, largely reflecting expected growth in motor fuel consumption. ("The Highway Trust Fund and Paying for Highways," testimony of Joseph Kile, Asst. Director of CBO, before the Senate Finance Committee, May 17, 2011).

Thus, over a six-year period, 2012-2017, tax receipts credited to the Highway Trust Fund (plus interest) could be expected to amount to approximately $230 billion— about the same sum as was authorized in the 5-year SAFETEA-LU authorization ($238.5 billion).

Limiting future budget authority to tax revenues flowing into the Highway Trust Fund will cause a significant drop from the current funding level. However, current spending has been inflated by a massive injection of stimulus funds from the American Recovery and Reinvestment Act of 2009— a total of $48 billion ($27.5 billion for highways, $6.8 billion for transit and $8 billion for high-speed rail). The stimulus almost doubled the annual amount of funding available for transportation, making baseline comparisons misleading. A more accurate measure would be to compare the expected FY 2012 funding with pre-stimulus funding levels. In this comparison, the highway program would suffer a drop of 17% — from an average of $38.6 billion/year during SAFETEA-LU (FY 2005-2009) to $32 billion/year in FY 2012. Adding the uncommitted HTF funds remaining in the Highway Account at the end of Fiscal Year 2011 ($14.8 billion, CBO estimate) would enable the annual highway allocation to be raised to about $34 billion/year — a drop of only 12 percent from the SAFETEA-LU level). (SAFETEA-LU data obtained from www.fhwa.dot.gov/safetealu/safetea-lu_authorizations.pdf, 4/6/2006),

Such reductions, while not insignificant, would not be catastrophic. The cut in spending authority could be absorbed by streamlining and narrowing the scope of the federal-aid program. Its primary mission would need to be refocused on traditional "core" highway and transit programs and on keeping existing transportation assets in a state of good repair. Discretionary awards such as the TIGER and high-speed rail grants would have to be eliminated. Proposals for major infrastructure spending (through the proposed Infrastructure Bank) would have to be dropped. So would programs that are deemed of little national significance or that do not serve the national need — such as various "transportation enhancements," set-asides, and "livability" projects that cater to narrow constituencies. Most of these Trust Fund "hitchikers," as Sen. James Inhofe calls them, will have to be handed off to state and local governments.

Will states and local governments be willing and able to pick up the slack? Some will, others may not. Many states and localities have been willing to approve significant transportation improvement programs– provided the objectives are clearly spelled out. In fact, voters approved 77 percent of local transportation ballot measures in 2010, according to the Center for Transportation Excellence.

While the above prospect may sound alarming when set against the current inflated spending levels, distorted by the stimulus spike, many fiscal conservatives view the new fiscal environment as an opportunity to return the federal-aid program to its original roots. Greater spending discipline, they hope, will refocus the federal mission on national interests and legitimate federal objectives, restore the program’s lost meaning and sense of purpose and give states and localities more voice and responsibility in managing their transportation future. With more constrained funding, certain hard-to-attain objectives such as greater emphasis on asset preservation, expanded use of highway pricing and tolling and higher levels of private investment, will become a greater imperative and more achievable.

Let us also not forget that the federal contribution constitutes only about 25% of the nation's total surface transportation budget (40% of the capital budget). The rest is provided by state and local governments. The nation would still be spending more than $150 billion/year to preserve and improve our highways, bridges and transit systems— $50 billion short of the level recommended by the National Transportation Policy and Revenue Commission, but still a respectable level of funding.

What about major new infrastructure investments? Undoubtedly, they will be necessary in the longer run because of the need to replace aging facilities and to accommodate future growth in population. But major capital expenditures can be, and will have to be, deferred until the recession has ended, the economy has started growing again and the federal budget deficit has been brought under control. At that more distant moment in time, perhaps toward the end of this decade, the nation might be able to resume investing in new infrastructure and embark on a new series of "bold endeavors" — major capital additions to the nation’s highways and rail systems. For now, prudence, good judgment and the compelling need to rein in the budget deficit, dictate that government should live within its means. And that means spending no more than what we pay into the Trust Fund.

Confirming International Research: Hudson Tunnel Costs Explode

Wendell Cox — Wed, 09 Feb 2011 00:49:49 -0500

Governor Chris Christie of New Jersey is looking like a prophet now. In late October, the Governor cancelled a new tunnel across the Hudson River between New Jersey and New York City, because of the potential for cost overruns, which would be the responsibility of New Jersey taxpayers. By that point, the cost of the tunnel had escalated at least $1 billion to $9.7 billion. The tunnel was to have doubled New Jersey Transit and Amtrak capacity into Penn Station from New Jersey.

Now Amtrak proposes to build the tunnel itself, a scaled down version of the previous tunnel. The new tunnel would increase capacity for New Jersey Transit and Amtrak trains by 65 percent.

However, the cost is not scaled down. For one-third less the capacity, initial estimates place the cost of the new tunnel at 40 percent more ($13.5 billion) than the already escalated cost of the cancelled tunnel.

Of course, it is likely that if planning and construction proceed, the cost of the tunnel could increase substantially beyond initial estimate. This virtual inevitability is indicated in international research by Oxford University professor Bengt Flyvbjerg and others.

The President's Unserious Proposal

Ken Orski — Sun, 30 Jan 2011 14:38:30 -0500

"Within 25 years, our goal is to give 80 percent of Americans access to high-speed rail." With this ringing statement in his State of the Union address, President Obama injected new hope into the flagging spirits of high speed rail advocates. Predictably, spokesmen for industry associations, progressive advocacy groups and other stakeholder interests praised the President’s goal as a symbol of his renewed commitment to support investment in infrastructure. But hardly any one we spoke to at the TRB meeting took the President’s ambitious goal seriously.

"After listening to President Obama’s remarks on high-speed rail, I am left with more questions than answers," observed Rep. Bill Shuster, Chairman of the Subcommittee on Railroads of the House Transportation and Infrastructure Committee, who addressed the TRB Committee on Intercity Passenger Rail. "These promises mean little and the White House knows it," observed a railroad industry consultant attending the meeting, "it’s not within Obama’s power to commit future Administrations and Congresses to this pipe dream." "The President is out of touch with reality; where does he think the money will come from?" was a succinct reaction of a former senior U.S. DOT official.

Lack of a Financial Plan

There is good reason for these expressions of skepticism. Although some likened President Obama’s expansive vision to President Eisenhower’s historic call for a 42,000-mile Interstate Highway network, there is a vast difference between the two initiatives. The Interstate Highway proposal was backed by a reliable and steady revenue stream in the form of a federal gas tax. The high speed rail goal lacks a financial plan. It is not supported by a dedicated source of revenue that could maintain the program on a self-sustaining basis over a period of years. Nor can the Administration count on borrowed money or annual appropriations out of general revenue in the current political environment in which deficit reduction rather than new spending is the top congressional priority. Calling expenditures on high-speed rail "investment" does not obscure the reality that we would be spending money that we do not have. As if to underscore this point, the Congressional Budget Office announced on January 25 that this year’s federal budget deficit of $1.5 trillion will be the biggest one in history and the largest as a share of the economy since World War II. "Obama’s proposal is likely to land with a dead thud on Capitol Hill," opined National Journal’s transportation editor Fawn Johnson.

States' Ambivalence

A second reason for skepticism is the ambivalent attitude of the states toward high speed rail. As Federal Railroad Administrator Joseph Szabo, speaking at the TRB meeting, correctly pointed out, the high-speed rail initiative is a state-driven program. Hence, support of governors and state legislatures will be essential if the Obama vision is to succeed. But, as we have seen, several fiscally-strapped states (Wisconsin, Ohio, Iowa) have declined to participate in the Administration’s HSR program while Florida’s Governor Scott still has to be heard from.

Other governors and state legislatures may well follow their example should they conclude that high-speed rail projects will burden their constituents with massive annual operating subsidies and possibly open-ended risk of construction overruns. The protracted and still inconclusive track-sharing negotiations with the Class 1 railroads suggest that more than one state is having second thoughts about the wisdom of proceeding with these projects (at least on terms demanded by the Administration). About one-half of the dedicated HSR funds still remain unobligated according to the latest Federal Railroad Administration report.

Fred W. Frailey, a respected writer and commentator on the railroad industry and author of Twilight of the Great Trains thinks that enthusiasm for high-speed trains has peaked and is on the wane. Writing in the current (March) issue of TRAINS, Frailey says the collapse of support is not merely a partisan event. Election results suggest that the public was never really won over. Nor will the Association of American Railroads or its member railroads fight for HSR. "So anyway you cut it, the high-speed show is over," Frailey concludes.

A Fresh Congressional Posture

This does not mean that fast trains will have no role to play in America’s future. There is a need to diversify travel alternatives in crowded travel corridors to accommodate future population increases. But, as a congressional hearing in New York City on January 27 made clear, federal efforts should be refocused on places where passenger rail investment is economically justified and where there exists a potential of sufficient ridership to attract private capital. As Congressmen Mica and Shuster correctly concluded, this means concentrating on the densely populated and heavily traveled Northeast Corridor with its serious air traffic congestion and well-developed urban transit distribution networks in major metropolitan areas.

A majority of the witnesses testifying at the hearing seemed to agree with the two congressmen. They included such influential advocacy groups as Building America’s Future (Gov. Ed Rendell and Mayor Michael Bloomberg), America 2050 (Petra Todorovich) and U.S. High Speed Rail Association (Thomas Hart).

Thus, the need to involve the private sector and to focus on the Northeast Corridor as a matter of first priority could well emerge as the core elements of a new congressional posture on high-speed rail. Instead of lavishing money on projects in numerous states in an unrealistic and fruitless attempt to make high-speed rail accessible to 80 percent of Americans, Congress would use targeted financial incentives to attract private investment and encourage private sector involvement in a few corridors where high-speed rail service makes economic and transportation sense. The inducements could include long-term operating concession agreements, loan guarantees, tax credits, availability payments and other creative financing arrangements. Whether additional federal funds to bolster such a policy will be forthcoming in the deficit-conscious 112th Congress, remains to be seen.

Ken Orski is Editor and Publisher of Innovation NewsBriefs, a Washington-based transportation newsletter in its 22nd year of publication.

In the Hunt for a Red October

Matthew Leiphon — Wed, 28 Jul 2010 19:31:46 -0400

California's precarious budget situation appears to be driving the state closer to potential fiscal ruin. The state is now 28 days into a new fiscal year, operating without a budget, and the deadlocked legislature in Sacramento appears unable and/or unwilling to strike a deal on a new budget able to cover the state's massive $19 billion deficit.

With no fix on the immediate horizon, California faces a cash shortage. State Controller John Chiang claims that at current burn rates, the state will find itself out of cash by October if the budget impasse continues. In order to sustain the state's remaining reserves for as long as possible, Chiang plans to start issuing IOUs to contractors "in August or September to preserve cash".

Today, in another effort to defer the date the state will run out of funds, Gov. Schwarzenegger issued an executive order requiring state employees to "take three unpaid days off per month." This move comes in the wake of the Governor's proposal to impose minimum wage pay on state workers to save money, currently stuck in the courts.

If the state legislature is unable to find a solution to the deficit, and creditors prove unwilling to accept more IOU's, California may be forced to effectively default on its debts. According to Newgeography contributor Bill Watkins, under such a scenario bond issues could fail, state operations grind to a halt, and the "mother of all financial crises" might be unleashed. Even if California is able to find ways to juggle debt load and convince creditors to accept IOU's while the budget impasse drags on, such stop-gap actions may place its already shaky credit rating at risk of being slashed further towards junk status. The state, legally unable to declare bankruptcy, must find some solution to its budget dilemma or it will become the first state to default since the Great Depression.