Austin’s Light Rail cannot be funded and cannot meet needs

COST Commentary: As described below, the high debt and deficits and generally poor condition of the US Federal Budget requires extraordinary diligence to reduce expenditures to the absolute minimum until sound financial conditions are achieved. As part of this effort, Federal transit funding will very likely be slashed in the Federal transportation budgets for several years.

Austin’s mayor and city council members have indicated the proposed Austin urban light rail must be funded at least 50% by the Federal Government as part of any viable, overall financing plan. Since future Federal transit funding will likely be less than one-half of pre-recession levels and there are already major requests for existing planned and ongoing rail projects, it is not probable that Austin will receive substantial funding for its urban light rail. Spending local tax dollars, up-front, for rail, in hopes of future federal dollars, would expose local taxpayers to a major gamble and high probability of huge losses and higher taxes.

In addition to the probable lack of federal funding, Austin has not identified viable local funding sources for an urban light rail which would cost billions of dollars to implement and tens of millions of dollars per year to operate. Bond issues have been mentioned but this would very likely result in higher taxes and/or reduced basic city services. Tax Increment Financing (TIF) has also been mentioned, but, Austin city studies and experience in other cities have shown that TIF financing is not viable as the train does not provide significant net increases to tax revenues. TIF for this purpose is a way of defining “rob Peter to pay Paul.” As demonstrated by Portland, TIF financing of rail transit reduces tax funds destined to pay for critical city services by diverting funds to rail transit, as priority services are degraded. Partnerships with Lone Star Rail and Cap Metro have also been mentioned, but, these organizations do not have sources of income sufficient to support their own mission needs and it will be many years before they do, if ever.

Therefore, it appears highly problematical that a viable funding plan can be established for Austin’s urban light rail at this time. A viable plan implies a sustainable plan. To be sustainable, the urban light rail must be cost effective. This cost effectiveness has not been established and considered by the City Council. There is a wealth of experience and facts throughout much of the nation and in Austin to indicate this urban light rail system will not be cost effective and sustainable. Secondly, there is no foundation in experience which would indicate this urban light rail can be effective in addressing the congestion and air quality issues described by the city as the justification for the urban light rail. In fact, experience in many cities would indicate this light rail cannot meet Austin’s poorly defined needs. This would circle back to provide decreased support for Federal funding even if federal funding was potentially available.

With, perhaps, insurmountable funding obstacles and the lack of analyses and experience models to support the effectiveness of the proposed urban light rail system, why is the City of Austin spending millions of dollars to continue to plan such a system? Austin has almost blindly pursued light rail as a predetermined solution to a very ill-defined problem. As shown in postings throughout this COST site, there is no foundation of experience to support Austin’s affection for light rail. The City has not properly defined the issues being addressed and has not conducted the appropriate alternatives analyses to determine the most effective solutions. Experience would indicate the proposed light rail would: degrade transit with higher fares and less service for the majority of riders who will continue to use the buses and need effective transit; increase taxes for taxpayers who will highly subsidize the small number of rail riders just as Cap Metro’s Red Line commuter riders are; increase travel times for roadway users who will suffer greater congestion; increase pollution; and, reduce safety. The wasteful spending of precious tax dollars on an ineffective light rail will degrade the City’s ability to implement solutions with will improve mobility and quality of life. COST suggests it would be more prudent to take this one step at a time and have a firm foundation plan for funding effective solutions prior to wastefully spending millions of taxpayer dollars, particularly in these stressful financial times for citizens and the City.
Adjusting to Fiscal and Political Realities

by C. Kenneth Orski, Editor/Publisher, Innovation Briefs, June 17, 2011

While we do not know the exact level of funding the House Transportation and Infrastructure Committee will propose in its draft legislation expected to be released in the second week of July, we do know it is going to be far less than the current (FY 2010) funding of $41 billion for highways and $11 billion for transit. What will be the consequences?

That the Federal Government “must learn to live within its means” has become the fiscal conservatives’ elliptical way of stating their opposition to deficit financing. This principle found its way into the House T&I Committee’s “Views and Estimates for Fiscal Year 2012” report and has been reaffirmed since in countless statements and briefings by congressional sources.

The practical implications of this policy for the federal-aid transportation program are unambiguous: federal spending in FY 2012 and beyond will be limited to 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 will 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 the 5-year SAFETEA-LU authorization of $238.5 billion.

Limiting future spending 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 and slightly more in subsequent years. (SAFETEA-LU data from , 4/6/2006) (Adding the estimated unspent HTF funds remaining at the end of Fiscal Year 2011, would enable the annual highway allocation to be raised to $36 billion — a drop of only seven percent from the SAFETEA-LU level).

Such reduction, while not insignificant, would not be catastrophic. The cut in spending 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 funding (such as envisioned through an 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 it as an opportunity to return the federal-aid program to its original roots. Greater spending discipline would refocus the federal mission on 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.

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 long run because of the need to replace aging facilities and to accommodate future growth in population. But major capital expenditures can be, and will need to be deferred for a few years —until after the recession has ended, the economy has started growing again and the federal budget deficit has been reined in. 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, bridges 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.

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