Archives

Archives

Article Featured Public Policy

THE STREETCAR HOAX SERIES (Part I): Why Citizens Should Oppose These Projects

 

 


Streetcars are emerging as the latest hot toddy of public capital expenditures. Popularity of these projects follow previous efforts such as stadiums, schools, and museums. But are they smart investments for local taxpayers? This series suggest that streetcars are unproven relative to claims made by proponents and an unwise use of public funds. Part I of The Streetcar Hoax series provides background on these projects and references to third-party research. Part II will take a look at the Cincinnati Streetcar project and equip citizens in cities to vet streetcar proposals. Photo credits are provided here.


 

 

Several years ago, a high-ranking administrator within the State of Ohio Department of Education conveyed to me privately that the state’s massive school facilities program was in-large-part the result of construction industry professionals taking over positions responsible for key decisions about the state’s school buildings. While I have not researched the validity of the claim, clearly what followed recent changes at ODE was the establishment of new facility requirements that made existing structures obsolete. And this obsolescence led to a wave of district facility construction and renovation projects that ranged in the tens of millions of dollars to hundreds of millions of dollars. Cleveland Metropolitan School District, Ohio’s largest network of public schools, approved a $1.2 billion facility program. What was sold to the public — greater community access, student performance, and other benefits — turned out to be a strategic effort to generate projects for the construction industry and facilitate a massive transfer of wealth from public taxpayers to private commercial interests.

THE KEYNESIAN ECONOMICS DILEMMA

SchoolConstruction

Joel Agron’s observations about the impact of school decisions on construction illustrates the power of converting public costs to private gains. One indicator that public school construction is as much to do about constructions is districts that attract considerable lobbying interests for construction an renovation often find it challenging o pass operator levies. In Cleveland, for instance, the 2001 construction levy passed during a 16-year period that witnessed operating levy failures until 2012.

Big-ticket construction programs reflects Keynesian economics; a philosophy that consumer demand stimulates aggregate output, particularly during recessionary periods. Keynesians advocate for the expanded role of the government as consumer in pulling a nation of out economic stagnation or recession, According to John Maynard Keynes, the uniquely large spending capacity of government enables businesses to hire people, and through employment, people spend for discretionary/non-discretionary items that boost the economy. Keynes theorized that this “multiplier effect” is a pragmatic solution to the uncertainties of economic cycles. Conversely, Keynes believed that excess saving, or saving that exceeds anticipated future spending, actually slows the economy, contributing to recessionary periods. In this context, Agron’s observation that education construction continued on a steady course during a recession in 2001. It is important to remember that this new emphasis on high-priced school construction finds its genesis in President Bill Clinton’s School Construction Initiative [SCI]. Announced on July 11, 1996, SCI was designed to, “help communities & states upgrade the physical infrastructure in schools and build new schools, so that students & teachers may have a safe, modern environment for teaching & learning.” Similar observations can be made for other projects underwritten by public capital investment: professional sports facilities, convention centers, cultural centers, and museums.

Citizens facing uncomfortable levels of unemployment naturally turn to whatever sources are available to generate short-term economic activity. As such, Keynesian is as popular today as it was with President Franklin D. Roosevelt during The Great Depression. Critics of Keynesian economics, however, note that a reliance on government leads to myriad negative outcomes. Inflationary spending. Higher deficits and ultimately higher debt. And under-reliance on the private-sector to design, plan, finance, execute, and manage [capital] projects. 

Keynesian-socialize-cost-privatize-gain

Another implication of Keynesian economics is the blurring of public interests and private interests. Spending derived from public resources constitutes a transfer of wealth from consumer-taxpayers to producer-contractors such that investment risks are shouldered by the former, while the benefits accrue to the latter. The absence of risks to the producer bearing sets-up the potential for excess, even reckless, spending; all supported by producers that stand to gain lucrative profits. This is true for publicly financed roads, ports, transit systems, prisons, and other projects that so commingle private sector profit agendas with general public concerns, deciding on these projects for purely public interests is a daunting task. Taxpayers, more often than not, find themselves in a vulnerable position.

On one hand, taxpayers can trust their judgments when most lack the technical and financial expertise to subject proposals to the highest degree of scrutiny. On the other hand, taxpayers can trust the perspectives offered by individuals, contractors, developers, consultants, bankers, politicians, and other entities that routinely have a vested self-interest in these projects. In the end, the abuse of Keynesian economics witnessed in excessive spending for unproductive projects widens the very economic disparities that Keynesians purport to solve. This is true, even in [rare] cases where 5-to-10 percent of a proposed project’s spending occurs in lower-income segments of the population or with historically under-utilized businesses. Even then, 90-to-95 percent of spending finds its way into coffers of wealthy producers that, again, did not place their own investment at-risk, as would be the situation in privately-financed projects.

THE STREETCAR CRAZE

Streetcars are the latest emerging focus of large-scale public expenditures. The Community Streetcar Coalition [CSC] lists 32 streetcar projects underway in cities across America.

Community Streetcar Coalition map of 32 streetcar projects across the US
Source: Community Streetcar Coalition, 2013. Retrieved: http://www.scribd.com/doc/156961912/Evaluation-of-St-Louis-Streetcar-by-Jill-Mead, Dec 31, 2013.

With Mayor John Cranley recently ending his fight to stop the streetcar project, Cincinnati, is now on a course to be one of the next victims of an economic hoax. The emergence of streetcar projects is found in increased availability of federal funds associated with key shifts in federal policy. Namely:

  • Passage of the American Recovery and Reinvestment Act (ARRA) in February 2009 allocated $1.5 billion in Dept. of Transportation grants through the Transportation Investment Generating Economic Recovery (TIGER) program.
  • Authorization of $750 million in ARRA funding for Fixed Guideway Infrastructure Investment Program.
  • New Federal Transit Administration [FTA] evaluation criteria for New Starts and Small Starts applications, developed in-conjunction with DOT’s 2009 Livability Initiative. FTA’s expanded set of six criteria: 1) introduced transit-supporting land use (such as TOD) enabled by the project; 2) added economic development effects; and 3) diminished the weighting of cost effectiveness.
  • FTA’s increase of funds for the Urban Circulator program from $25 million to $130 million. The Urban Circular program assists transportation solutions (e.g., streetcars) that connect urban areas and better enables redevelopment that converts urban spaces into pedestrian-friendly mixed-use, high density areas.” 
     
FTA-NewStartCriteria
FTA New Starts Evaluation Process
Source: http://www.fta.dot.gov/documents/FY13_Evaluation_Process.pdf

 

Federal policy is returning America to an outdated transportation option that proved inefficient in the 19th century. Notwithstanding, streetcar projects are converting public resources into business profits, which creates special interests motives for these projects — irrespective of the short- and long-term effect of public budgets and general economic conditions of a municipality. Streetcar projects come with lofty promises about economic development, regional modernization, improved people movement, and enhancing a metropolitan area as a tourism destination. These, however, are very ambitious goals that lack empirical evidence.

Promises to engage minority firms in these projects, while appealing to casual observers, do not stand-up to serious scrutiny given the long-term costs and opportunity cost, especially from the vantage point of vulnerable populations that ultimately lose services when municipalities cut budgets to maintain costly capital programs. That is, the promises of a few minority firms benefiting is a terrible basis for committing to public projects that lack [financial] feasibility. Minority inclusion arguments are little more than pipe dreams, particularly for African Americans, in states and cities notorious for winning roughly 1 percent of public contracts — as is the case for Cincinnati, the State of Ohio, and many municipalities and states across the country. Further, basing a regional decision on a few million dollars to a couple of potential businesses is tantamount to asking a community to subsidize a very small segment at the detriment of the broader [black] community. This has proven to be a terrible choice in numerous past public projects.

SHOULD TAXPAYERS SUPPORT PUBLICLY-FINANCED STREETCARS?

In-short, no. This recommends that citizens oppose streetcars given the lack of empirical evidence that justifies this type of taxpayer commitment. The Cincinnati streetcar, while approved by residents City Council, is both ill-advised and destined to present serious challenges. The logical extension to the question above is, “If streetcar development is a poor decision for municipalities, how is it that Cincinnati approved its project?” Answering this second question reveals insights other cities can derive from Cincinnati’s experience. 

 

WHAT OTHERS ARE SAYING…

 


Summary:

Streetcar development is not a rational choice for modern cities, with the exception of self-supporting boutique tourism.

Source: 

The Streetcar Conspiracy

Author:

Randal O’Toole, Senior Fellow
CATO Institute

Underwriter:

N/A

URL:

http://www.cato.org/sites/cato.org/files/pubs/pdf/PA699.pdf

Excerpt: 

The real push for streetcars comes from engineering firms that stand to earn millions of dollars planning, designing, and building streetcar lines. These companies and other streetcar advocates make two major arguments in favor of streetcar construction. The first argument is that streetcars promote economic development. This claim is largely based on the experience of Portland, Oregon, where installation of a $103-million, 4-mile streetcar line supposedly resulted in $3.5 billion worth of new construction. What streetcar advocates rarely if ever mention is that the city also gave developers hundreds of millions of dollars of infrastructure subsidies, tax breaks, and other incentives to build in the streetcar corridor. Almost no new development took place on portions of the streetcar route where developers received no additional subsidies.The second argument is that streetcars are “quality transit,” superior to buses in terms of capacities, potential to attract riders, operating costs, and environmental quality. In fact, a typical bus has more seats than a streetcar, and a bus route can move up to five times as many people per hour, in greater comfort, than a streetcar line. Numerous private bus operators provide successful upscale bus service in both urban and intercity settings. Streetcars cost roughly twice as much to operate, per vehicle mile, as buses. They also cost far more to build and maintain. Streetcars are no more energy efficient than buses and, at least in regions that get most electricity from burning fossil fuels, the electricity powering streetcars produces as much or more greenhouse gases and other air emissions as buses.”

 


Summary:

The economic impact of streetcars is largely unknown.

ource: 

TCRP SYNTHESIS 86

Relationships Between Streetcars and the Built Environment

Author:

Transportation Research Board of the National Academies

Underwriter:

Federal Transit Administration

URL:

http://onlinepubs.trb.org/onlinepubs/tcrp/tcrp_syn_86.pdf

Excerpt: Chapter Three, page 11

“IMPACTS ON ECONOMIC DEVELOPMENT

One of the most notable aspects of the survey findings is that few, if any, of the systems were seeking information regarding the impacts of the streetcar on economic activity such as job attraction, change in job mix, retail sales, tax revenues, and so on. Although occasionally the literature forecasting economic benefits for proposed streetcar systems posits that streetcars will attract more “creatives” to the area, this idea cannot be substantiated. Few systems surveyed riders as to purpose of trip or demographic composition; of those that have conducted rider surveys, the primary question has been whether the rider is a resident or visitor (likely related to the goal of increasing tourism in several of the systems’ communities). Almost all of the system operators interviewed considered these economic-related questions as vital, and most requested more research around this topic, particularly in cases in which the streetcar system is slated for expansion and significant commitment of public funds.”


 

Summary:

The absence of cases that demonstrate the impact of streetcar-only development.

Source: 

Do Streetcars Promote Economic Development?

Author:

David Levinson,
Professor in the Department of Civil Engineering at the University of Minnesota
Director of the 
Networks, Economics, and Urban Systems (NEXUS) research group

Underwriter:

N/A

URL:

http://www.streets.mn/2013/08/26/do-streetcars-promote-economic-development/

Excerpt: 

“We have no evidence that streetcars, of themselves, promote economic development in the context of present-day US cities. That is, there is no case where modern streetcars were built, nothing else was done by the public sector (no road reconstruction, no public subsidies for development, no change in development regulations), and the level of private sector economic development changed measurably, and more than in an otherwise comparable control case.

 

 

Like the Facebook page for automatic updates on future articles. Click here  

 

 


 

 

  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  
  •  

Comments are closed.