Austin Contrarian

Texas is studying a tax on the number of miles you drive

News to me:  Texas will study a tax on miles driven:

If you don't like gasoline taxes, here's an alternative: a tax on the number of miles you drive in a year.

The Texas Transportation Commission has directed a fresh study of the idea, and it is not alone.  There are pilot projects in other states and nationally to gauge how such a tax would work.

Texas transportation officials say the study is meant to help give lawmakers information on options ahead of their next regular session in 2011, when they confront a funding squeeze that is expected to drain the highway fund of money for new construction contracts by 2012.  “We need to think differently about how we fund transportation,” Texas Transportation Commission Chairwoman Deirdre Delisi said at a Texas Taxpayers and Research Association forum in November.

Delisi said the vehicle-miles-traveled tax idea is controversial, but should be discussed because revenue from the state's main source of transportation funding, the motor fuels tax, is declining.  The gasoline tax has not been raised since 1991.

The commission asked the Texas Transportation Institute, which is part of the Texas A&M University System, to take the lead on the study.  Commissioner Fred Underwood has emphasized that the commission's goal is to give lawmakers alternatives.

There are good arguments that a gasoline tax is a more efficient tax on externalities.  Heavier vehicles do more damage to roads; heavier vehicles use more gasoline.  Emissions vary with the amount of gasoline used (ignoring vehicle technology).  A miles-traveled tax perhaps better reflects a driver's accident risk to others, but larger vehicles impose a higher risk on other drivers, bicyclists and pedestrians than smaller vehicles.  (Neither accounts for congestion externalities.)

But two drivers who "consume" the same number of miles enjoy equal benefits.  It's fair in that sense to require them to pay the same amount.   A gas tax and miles-traveled tax thus serve different purposes:  a gas tax is a tax on externalities; a miles-traveled tax is a tax on consumer surplus.

A boneheaded proposal from Cap Metro

I missed this at the time, but it deserves comment.

Cap Metro is developing its long-range plan, which it calls "ServicePlan2020."   It has hired a consultant from Washington state to prepare the plan  (13.1 MB pdf).

I doubt the consultants have set foot in Austin because the draft plan contains a simply horrendous proposal, a proposal that could only be made by someone who doesn't know the facts on the ground.   That is to switch key local bus routes from Congress, Colorado and Brazos to Lavaca and Guadalupe.  Most significantly, the 1L/1M, which runs down Congress, and the No. 3, which runs up Brazos on its northern route and down Colorado on its southern route.  These are Austin's two most important north-south bus routes, linking the southern fringe of town with the northern fringe; they have lots and lots of riders.

The consultant offers a couple of rationales.  One is to relieve bus congestion on Congress.   The consultant accurately observes that Congress is beset by a "wall" of buses creeping ever so solely down Congress's twelve blocks.

I won't even paraphrase the other -- it is so bizarrely wrong, I would feel obliged to understate it:

"No road we built in Texas paid for itself."

From Streetsblog Capitol Hill:

Over the past two days at the Congress for the New Urbanism Project for Transportation Reform conference, attendees have called for reform at local, regional, and national levels. In a panel debate about the future of transportation funding and the role of regional planning through MPOs, several speakers argued that the foundation of transportation and development funding had to be systematically overhauled.

Mike Krusee, [AC: former] chairman of the Texas House of Representatives Transportation Committee, said that financial problems were more significant than environmental, though they should be tied together in the same discussion.

"The reason there's not a new transportation bill is because there is no money. We've hit the wall of unsustainability on how we finance the transportation system," he said.

Krusee asserted it was urgent and necessary to understand the nature of this broken financial apparatus and to develop solutions to fix it. In Texas, he said that, on average, it cost the state 20-30 cents per person per mile to build and maintain a road to the suburbs, yet drivers only pay on average 2-3 cents per mile through the gas tax, vehicles fees, etc.

"What we found was that no road that we built in Texas paid for itself," said Krusee. "None."

The expense to build roads and utilities further and further from the urban cores not only drove costs to unsustainable levels, it created an imbalance in who paid for growth. Over the past 50 years, Krusee argued, the federal government used tax money that came by and large from cities to subsidize roads to areas without access otherwise.

"City dwellers have subsidized the land purchases and the development costs out in the suburbs," said Krusee. What's more, the gas tax, which city dwellers pay when driving on city roads, but which goes to freeways largely outside of urban cores, is "a huge transfer of wealth from the cities to the suburbs to build these rings."

Krusee said building the interstate system was initially a good thing, because if facilitated interstate commerce and increased the productivity of cities. Now however, because of congestion caused by ever longer commute patterns, system productivity is in peril. "What's happened is the federal government has basically reneged on the deal. By subsidizing highways out to the suburbs, it's no longer efficient for truck traffic, for goods and services and people to move between cities in the United States because those roads have been hijacked by all the commuters."

Krusee, by the way, represented suburban Williamson County.

Krusee's assessment matches TxDOT's own internal assessment.  (This actually should be no surprise since Krusee's committee relied on TxDOT for data.)   TxDOT, for example, concluded that the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes -- just 16% of the total cost.

Some of us get swept up in the rhetoric sometimes, but roads aren't unmitigated evils.   Obviously, we need roads.  Just as obviously, I think, we will continue to need new roads.   But new roads should be built only where drivers are willing to pay for the new capacity.   And the only way to gauge that demand is to price existing roads properly; the revenue they generate will tell us when it is time to add to add that capacity.

No

I agree with Ryan Avent that this WSJ piece makes a bizarre argument against congestion pricing:

By requiring car drivers to pay a fee to drive in a city at peak hours, congestion pricing reduces traffic and raises money that can be used to support public transit—both worthy goals.

Yet congestion pricing has dubious environmental value. Traffic jams, if they're managed well, can actually be good for the environment. They maintain a level of frustration that turns drivers into subway riders or pedestrians.

The author contends that by improving traffic flow, congestion pricing induces more driving, which in turn increases environmental damage:  "If reducing it merely makes life easier for those who drive, then the improved traffic flow can actually increase the environmental damage done by cars, by raising overall traffic volume, encouraging sprawl and long car commutes."

Ryan makes the right arguments.  I think Owen's got the economics flat wrong, which I'll elaborate in another entry.  He's wrong because congestion pricing does not induce more traffic and because congestion pricing encourages more compact cities rather than sprawl.

But Owen's also got the environmental impact wrong.  He ignores that traffic jams impose a cost -- a significant cost -- not imposed by free-flow traffic.  That's health.  Traffic jams concentrate particulate emissions in one location.  High levels of particulate emissions are bad for people.  They cause all kinds of health problems -- asthma and other respiratory illness, obviously -- but also higher risks of infant mortality.

If you need evidence, read this spanking new paper (h/t Matthew Kahn).  It compares infant mortality rates near toll plazas to infant mortality rates after the toll plazas were replaced with an EZ pass system.  They found that the EZ pass system "reduced the incidence of prematurity and low birth weight among mothers within 2km of a toll plaza by 10.8% and 11.8% respectively."  Because toll plazas are notoriously congested and highways with an EZ pass system are not, this is a good proxy for the health effects of traffic bottlenecks.

Environmentalism is not only about carbon emissions.  The wellspring of the movement was Rachel Carson's crusade against environmental contaminants that (allegedly) made people sick.  Any calculation of environmental cost that omits the costs of making people sick is not just a bad cost-benefit analysis, it's bad environmentalism.

Yet another entry about high-speed rail

The national bloggers continue to debate the feasibility of a high-speed rail link between Houston and Dallas.  Up to bat:  Megan McArdle.

I think reasonable people can disagree about the feasibility of HSR, especially since we're just trading  back-of-the-envelope calculations of HSR's costs and benefits.  Although I've argued HSR opponents underestimate the benefits to business-class passengers, in the interest of fair and balanced coverage, let me point to Richard Green's discussion of a more rigorous effort to tote up the costs and benefits.  The authors of that particular study give HSR the thumbs down.

And while I'm in a contrary mood, let me suggest one other potential cost of a Houston-Dallas line.

Everyone agrees that in order for such a line to succeed, it must draw airline passengers to rail.  Lots and lots of airline passengers.  If the airlines lose, say, half of their Houston-to-Dallas traffic, they will have to cut the number of flights between Houston and Dallas.  Obviously.  Many consider that a feature, not a bug.

But what about the effect on other routes?  American is able to offer service from Dallas to virtually every American city because of the huge number of passengers flowing into DFW every day.  Cutting that inflow will reduce the economies of scale that support so many flights.  Ditto with Southwest out of Hobby.    Houston is a huge feeder for DFW, if the number of Bush-to-DFW flights is any indication.  Similarly, Love is a huge feeder for Hobby, judging by the 24+ daily flights.  Networks can be delicate things.  Shrinking one route could sicken other segments. 

HSR could very well make it easier to get from Houston to Dallas and vice versa.  But it could very well make it harder to get anywhere else.   

Path dependence

Ryan Avent has had some back and forth with Tyler Cowen and Will Wilkinson over roads and rail.  Tyler and Will acknowledge that, yes, our reliance on roads rather than rail has been influenced by long-standing government subsidies.  But by now we have sunk so much into roads, and have built up so much road infrastructure, that the marginal cost of adding to our road network is much lower than creating a viable rail network from scratch.  In other words, our past investments have had a lock-in effect, and there's no wishing it away.  

Ryan responds that Tyler and Will are committing the "sunk costs" fallacy, but I'm not sure that's right.  Past investments matter a lot because they have generated network externalities.   One million dollars spent extending an already extensive network is often worth more than one million sunk to build a network from scratch.  

But Ryan is right that past investments in suburban infrastructure do not require us continue throwing up barriers to denser developments:  

In practice, the US is far from done building.  Tens of millions of new homes will be built in the coming decades.  Hundreds of billions of dollars will be spent on transportation infrastructure.  The current built environment has, as a result of decades of government policy, taken on a rather suburban, auto-centric tilt.  So what?  No one is suggesting that we tear down all of that and replace it with something entirely new.  I, and others, are suggesting that making it easier (or, you know, legal) to build in a denser, more walkable fashion would be advantageous.  Similarly, given the burden of maintaining such a large and costly road infrastructure, it might be wise to devote a larger share of dollars for new construction to substitute technologies.

And bear in mind that a technology's lock on the market is not always as secure as it seems.  A small initial advantage allowed VHS to dominate the videotape market, all but squeezing out Betamax.  But it did not save VHS from the DVD, even though a vast infrastructure had been created to support VHS:  video players, Blockbuster, video cameras and a complete library of titles.  All wiped out by a superior technology.   

Now imagine the government had subsidized VHS to help it fend off insurgencies from new technologies.  At best, many of us would still be stuck with an inferior technology.  At worst, there would be no DVD.  The government should let these things work themselves out in the marketplace; that's the true libertarian position.

All of this means that the government should let denser development happen.  Stop the  subsidies and tax policies -- including subsidies to new highways -- that encourage shifts to the suburbs.  There are perfectly sound economic arguments for investing in rail lines in some situations; make those investments.  Many home buyers, probably most, will continue to settle in the 'burbs.   But we can't anticipate shifts in technology.  Nor shifts in preferences or energy costs.  We think we can.  But we really, really can't.   If the housing market would continue down today's path anyway, fine, but the government shouldn't lead it by the nose.  

What's the NYC subway worth to New Yorkers?

One strategy would be to estimate the benefits to subway riders, the benefits to drivers (who face less congestion), the benefits to businesses (which enjoy a deeper labor pool and increased productivity), the benefits to retailers (which enjoy a larger market), etc., and add them up.  I don't know how to do that.

But another strategy  is to estimate the subway's impact on property values.  After all, the value of the subway ought to be capitalized into property values.  (Randal O'Toole agrees, but inexplicably refuses to reckon this a positive.)  Real property in Manhattan is very expensive in part because of its density of residents and employees.  Real property elsewhere in the city and the metropolitan area is very expensive in part because residents there are close to -- and can get to -- Manhattan.  Without the subway and commuter rails, Manhattan's density would be impossible, and residents in the metropolitan area would have a harder time getting to it, assuming they'd still want to.

This estimate, too, is beyond my capability, but at least I can estimate the value of New York City property to one order of magnitude.  In 2008, the assessed value of all real property in New York City was $800 billion.  (The market value surely was higher.)   Estimating the value of the property elsewhere in the metropolitan area is a lot trickier.   But because New York City has only 42.5% of the metropolitan area population and just 4.5% of the metropolitan area's land area (Wikipedia), it's a safe bet that the rest of the metropolitan area was worth at least as much in 2008, for a total of $1.6 trillion.  Since property values have declined sharply in the metropolitan area over the last year, let's discount this by 25% to $1.2 trillion.

The value of the subway and commuter lines to New Yorkers is the difference between the value of the metropolitan area property with and without the subway/commuter lines.   (Consumer surplus will increase the total, but I ignore it for convenience.)  The subway and commuter lines are, conservatively, worth at least $12 billion per percentage point in difference.

I can only make a wild guess about the magnitude of the difference.   We do know, though, that Manhattan's density would have to drop sharply without the subway.  Manhattan's standard density is more than 70,000 ppsm.  New York City's standard density is 26,000 ppsm.  Among large American cities, San Francisco's is next, at 17,000 ppsm.  And San Francisco is quite  compact for an American city; it's just twice the size of Manhattan.  Chicago, 25% smaller than New York City (and blessed with the "L"), has a density just half of New York City's.  I don't see how Manhattan could sustain a density more than quadruple  San Francisco's, nor do I see how New York City could sustain a density more than twice Chicago's.  In other words, I think it's likely that Manhattan and New York City would lose half their population; Manhattan surely would lose more than half its daytime work force.

My wild guess is that New York City proper would lose a large percentage of its value and the metropolitan area a similar percentage.  20%?  30%?  These numbers seem extremely conservative to me.  And that puts the total value of the subway and commuter rail to New Yorkers at a rock-bottom minimum of $240 billion.

One check on this would be to look at the cost of a disruption in service.  During the 2005 strike, the city estimated each day of disruption after the first cost the city $300 million.  If we annualize that loss (ignoring weekends) and capitalize it using a 10% discount rate, the total value of the subway (and just the subway) is $795 billion.  The long-term loss would be  lower as residents adjusted (by switching to buses, say), but it's hard to see how the long-term loss would fall by more than two-thirds.   (And, remember, we've ignored weekends.)

My $240 billion estimate, while just a guess, seems a reasonable guess.  And it seems very reasonable to assume that the value falls somewhere within the range of $100 billion to $500 billion.

The new parking doctrine

For self-declared free-marketeers, we Americans have developed some deeply socialistic tastes.  We simply can't abide rationing some things by price.  Water.  Roads.  Parking.  Especially roads.  But especially parking.

San Francisco's Livable City has put together a nice chart comparing standard American parking doctrine to a more market-oriented, or at least economically rational, doctrine:

Here's a fun exercise.  Go through the chart and replace "parking" with "roads."  The chart remains just as valid.   

Superficially, there is one significant difference between roads and parking:  government is the exclusive supplier of roads (except for subdivision streets); private developers supply most parking.  The market must be "choosing" the efficient amount of parking.  But this difference is an illusion, as everyone understands by now.  The government uses its own money to build too many roads or, more commonly, roads with too much capacity.  It uses minimum parking requirements to force private developers to build too much parking.  In fact, since it costs the government much more to build excess road capacity than to mandate excess parking capacity,  we should expect a greater oversupply of parking than of road capacity.

Glaeser on HSR

Economist Ed Glaeser runs the numbers for a hypothetical high-speed rail line from Houston to Dallas and concludes they don't add up.   I think it's a closer call.

Here's the crux of his estimate:  

I estimate benefits by comparing rail to air.  A train going from Dallas to Houston at 150 miles an hour would take 96 minutes.  Southwest Airlines takes an hour for the same route, but the need to arrive early could add on an extra hour.  I’ll add on an extra 36 minutes for the driving time to the airports, which means that the train saves an hour.  The per-passenger benefit from the high-speed rail line is the saved cost of the Southwest ticket ($80) plus an hour’s worth of time (let’s say $40, which seems generous), plus any added benefits from the comfort of the train (let’s say $20 more).  All told, benefits per trip are $140.  Since the variable costs are $72 for the trip (30 cents a mile times 240 miles), benefits minus variable costs come to $68 a trip. If these numbers were right (and I think that they are very kind to rail), then the system should be able to run a healthy operating surplus.

. . .

Now it’s just down to multiplying: 1.5 million trips times $68 a trip means $102 million for benefits minus operating costs.  Annual capital costs came in $648 million, more than six times that amount.  If you think that the right number is three million trips, then the benefits rise to $200 million, and the ratio between the per rider net benefits and costs drops to one-to-three.  This is the cruel arithmetic faced by people, like myself, who would love to be pro-rail.

A couple of problems  here.  First, Glaeser underestimates the value of time for business travelers, who surely would be HSR's predominant users.  I don't know where he got his estimate of $40 per hour, but it is belied by the air fares travelers already pay.  The walk-up fare for a one-way trip from Houston to Dallas (the fare business travelers pay) is $140.  From airport parking lot to airport parking lot, the flight from Houston to Dallas takes about two hours.  Add an average of one hour for travel to and from the airport, for a total travel time of three hours.  By contrast, it is a four-hour drive from Houston to Dallas.  The plane beats the car by one hour, which means the business traveler values his time at least at $140/hour.   Even if we are generous and assume the plane is one and one-half hours faster, business travelers are willing to pay almost $100 to save one hour.

Peer pressure

Last week's Newsweek featured yet another high-speed rail proposal, this one by America 2050:

I've discussed high-speed rail before.   Whatever the average Texan thinks about its feasibility in Texas, this map is likely to provoke a uniform reaction:   Why the hell should the Midwest get high-speed rail get before the Texas Triangle?   America 2050 proposes linking Chicago, Detroit, Minneapolis and St. Louis ten years before Houston and Dallas, and twenty years before San Antonio and Austin.  This, even though the Texas Triangle is more compact than the Midwest and growing at a much faster rate.

Although high-speed rail is taking a long time to get off the ground (so to speak), once a region  starts actual construction a lot of the doubts elsewhere will vanish under the pressure to remain competitive.  Even if most Texas are skeptical that HSR will produce much economic benefit, they will not want to gamble on being wrong, particularly since it would take 10-20 years to catch up.  The construction of a real HSR line in California or in the Midwest will likely spark a nationwide race for rail. 

On a related note, Tyler Cowen discussed Texas HSR a few weeks ago.  (He's mostly skeptical.)

H/t The Urbanophile.