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Federally-Funded Infrastructure Is Costly and Inefficient

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Federally-Funded Infrastructure Is Costly and Inefficient

October 28, 2014

New York Times columnist Paul Krugman’s call for more publicly-funded infrastructure fails to acknowledge that infrastructure funding, when directed by government, goes to costly projects favored by politicians, not enterprises for which users are prepared to pay.

President Obama often calls for more high-speed rail, and trains are the best examples of projects that suit politicians rather than users and taxpayers. Projects ranging from California’s bullet train to Florida’s cancelled Orlando-to-Tampa line all have cost overruns and unrealistic ridership projections. One Florida Department of Transportation study estimated that the Tampa-to-Orlando line would lead to 4.5 million new riders annually—a laughable figure considering Amtrak’s popular Northeast Corridor Acela line has annual ridership levels of 3.3 million. High-speed rail trains simply do not make economic sense. 

The problems do not stop with high-speed rail. The Las Vegas Monorail was financed by tax-exempt state bonds. The monorail bonds were initially rated at the lowest investment grade level, and the bonds defaulted in 2010. In 2013 the monorail had 4 million riders, rather than the 19 million forecast, and earned just $18 million in fares. As is typical with government-directed infrastructure, entrenched interests trumped riders’ priorities. The 3.9 mile track was not extended to McCarran Airport or built down the median of the Las Vegas Strip not only due to cost, but because politically-connected taxi cab companies would have lost out on business or had to improve their service.

The proposed $2.4 billion Purple Line light rail extension in the Maryland suburbs of Washington, D.C. is projected by the Maryland Transit Administration to cost over $200,000 per new rider. Considering the budget for the recently-opened Silver Line has swelled to nearly $6 billion, the true cost could be higher. Even with $1 billion of federal money requested by the state, Maryland would still have to pay $1.4 billion, money that deficit-prone Maryland does not now have. 

Federally-funded infrastructure projects are inherently costly. As part of the infrastructure spending in the February 2009 stimulus bill, Obama issued an Executive Order that "encouraged" federal agencies to consider requiring project labor agreements for construction projects that cost the federal government over $25 million. Although project labor agreements raise the cost by requiring union labor, the Executive Order was signed "to promote economy and efficiency in Federal procurement," according to the Order. 

These labor agreements reduce competition since only 14 percent of private sector construction workers are unionized. Labor agreements benefit unions, but harm taxpayers who must pay about 15 percent more for the same projects. 

The true barrier to infrastructure investment is not a lack of government funding, but regulations that stand in the way of private investment. 

According to the World Bank, the United States ranks as the world’s fourth-best economy based on the ease of doing business, yet comes in 34th in terms of dealing with construction permits, behind countries such as Thailand, Namibia, Guatemala, and Qatar. On average, securing a construction permit in the United States requires 19 distinct procedures and 91 days, both of which are much higher for large-scale infrastructure projects since approval from multiple local, state, and federal agencies is required. 

For example, the Environmental Protection Agency objected to the Intercounty Connector, a route that connects I-95 to Interstate 270 in Maryland. The EPA was concerned that the route would affect the Paint Branch Watershed, "which supports the only naturally reproducing brown trout population in metropolitan Washington." The EPA blocked the proposed route twice before in 1983 and 1997 because of similar concerns. The project, after 50 years in the making, finally cleared the EPA review in 2006.

According to Cato Institute economist Chris Edwards, the United States is stuck in a 20th century mentality and falling behind the global trend towards privatization of infrastructure funding, management, maintenance, operations, and financial risk. Less than four percent of global public-private projects are in the United States. This lack of private sector expertise increases costs and reduces innovation, not to mention scare taxpayer dollars end up going to infamous “bridges to nowhere.”

Some progress has been made in private highway construction and maintenance, as can be seen from Northern Virginia’s Dulles Greenway and Orange County, California’s State Route 91, both privately built and funded. This allows the companies to charge tolls based on congestion levels, which reduces traffic and ensures only those who benefit from roads are paying for them. With the federal Highway Trust Fund running chronic deficits, increased privatization of roads is a viable alternative to government highways littered with potholes and congestion.

It is difficult to see how opposition to costly projects such as the Purple Line is an example of what Krugman calls “destructive ideology.” Yes, American infrastructure is falling behind, and yes, something does need to be done. But the solution is to reduce the regulatory red tape that burdens states and private companies and discourages them from investing. Ending requirements that infrastructure projects be performed by union labor and streamlining permitting would allow for faster infrastructure construction at a lower price—rather than spending billions more in taxpayer dollars for projects that are unlikely to meet the projections of rosy-eyed politicians. 

Jared Meyer is a policy analyst at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here
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