The Inevitable Decline of Government

LaVonda Atkinson, the cost engineer for San Francisco Muni‘s $1.6 billion Central Subway project, has found so many problems with the project–and so little interest within Muni or the Federal Transit Administration in fixing those problems–that she has given hundreds of pages of budgetary and internal documents to the San Francisco Weekly. “Your article” about these documents “is going to get me fired,” she told the Weekly‘s reporter.

Politicians such as then-San Francisco Mayor Gavin Newsom (center) love to have their photos taken breaking ground or cutting ribbons, in this case for the Central Subway project.

As just one example, Muni told the San Francisco city controller that it spent $110 million on preliminary engineering, when it told the Federal Transit Administration that it spent only $70 million. The extra $40 million went into a slush fund for other stuff.

At the other end of the country, an outside review of the Port Authority of New York and New Jersey (PATH) has found the agency to be almost completely dysfunctional, mainly because it has turned into a slush fund for the two states to use to fund projects irrelevant to its mission. “It is no longer possible for the Port Authority to adequately fund its own facilities and services while simultaneously allocating hundreds of millions for non-revenue-generating state projects,” says the report.

Both of these agencies were created during the Progressive era, when it was popularly believed (at least among those who founded the agencies) that enlightened government managers would make decisions in the public interest and produce better results than capitalists who were primarily interested in profits. Like other Progressive-era agencies, such as the Forest Service and state highway departments, these agencies began with a remarkable esprit de corps and for their first few decades, at least, produced many valuable achievements. Yet today they are almost all mired in bureaucracy, laden with debt and/or deficit spending, and subject to the whims of powerful politicians.

What happened? For one thing, all of these agencies began with the notion that their costs would be covered by user fees. Fares would pay for transit, tolls would pay for bridges across the Hudson and East Rivers, gas taxes would pay for highways, and timber and grazing receipts would cover national forest management costs. In many cases, this proved true: Except for a few years of the Depression, Muni covered its costs to and beyond the end of World War II; PATH tolls paid for the George Washington, Verrazano Narrows, and other bridges; gas taxes covered all costs of building, maintaining, and operating state and interstate highways; and even the Forest Service managed to earn a profit in a few years of the 1950s and 1960s.

Funding agencies out of user fees keeps agency officials in touch with their mission of serving those users. As a result, they tend to make decisions that make the users happy without irritating anyone else, such as taxpayers who might otherwise have to subsidize those users.

At some point, however, user fees aren’t enough. In the case of Muni, politicians interfered with the agency’s ability to increase fares or reduce costs by replacing rails with buses. They also demanded that Muni pay the highest wages in the industry. Eventually, Muni required subsidies to keep afloat.

In the case of the Port Authority, bridge tolls brought in so much cash that politicians insisted on diverting some of the money to subsidize subways, buses, and even the World Trade Center, a giant ego project that was totally unnecessary given that Manhattan had a surplus in office space when it was built.

In the case of the Forest Service, Congress diverted a significant portion of the agency’s revenues to counties, so that many counties ended up getting many times what they would have received in taxes had the forests been private. Meanwhile, Congress also restricted the agency’s ability to charge fair market value for most of the goods and services it offered.

For whatever reason, eventually all these agencies became dependent on federal, state, or local appropriations. When that happened, the missions of the agencies became muddy. Was the goal of transit agencies to move people or to pay fat wages to transit union members and award giant contracts to rail builders? Was PATH’s goal to smoothly operate the region’s transportation systems or to build monuments for state governors? Was the Forest Service’s goal to provide sound land management for a wide range of forest users or to cater to the most politically powerful users?

“Government will malperform if an activity is under pressure to satisfy different constituencies with different values and different demands,” management guru Peter Drucker wrote in his 1989 book, The New Realities. “Performance requires concentration on one goal.” Actually, agencies can achieve multiple goals as long as each of those goals is reflected in fees paid by some or other users and the agency’s overall goal is to collect enough user fees to cover costs.

Once agencies become dependent on tax dollars, however, they quickly develop justifications for those tax subsidies. Soon, they feel as entitled to those subsidies as social security recipients feel about their monthly checks. To keep the subsidies flowing, agency officials soon begin catering to anyone who will support increased funding, even if the funding no longer goes toward the agency’s original mission. This leads to mission creep as the agency redefines its mission to follow its budget rather than the goals for which it was created.

Given a variety of interest groups pushing for incompatible policies, agency managers become increasingly mired in red tape because following the rule book becomes their main defense when they inevitably offend one group or another. Soon, the main interest group they work to please is themselves as they come to sincerely believe that whatever is good for the agency is good for the country. As one Forest Service official was fond of telling the Antiplanner, the agency’s motto during the 1980s, “Caring for the land and serving the people,” had morphed into “Caring for our egos and serving ourselves.”

At this point the Progressives who originally supported the agency (or their descendants) mutter darkly about bureaucracies captured by powerful corporations and seek reforms such as restricting campaign contributions or agency restructuring. Such reforms deal with symptoms, not problems. The real problem is the size of government, and in particular the size of government subsidies, so reforms should aim mainly to privatize or shrink government agencies–at least those involved in transportation, resource management, or other fields competing directly with the private sector–to be no larger than can be supported by the user fees they collect.


4 thoughts on “The Inevitable Decline of Government

  1. Fred_Z

    Among the most important innovations of capitalism is the notion of the fast and effective bankruptcy. It takes assets away from bozos and gives them to those likely better at operating them, or selling them for scrap.

    Most organizations, public and private, seem eventually to fall into the hands of bozos. When that happens actual bankruptcy is inevitable, but not necessarily fast or effective bankruptcy.

    The problem is that the bankruptcy process is never fast or effective for governments, like Weimar, Venezuela, Argentina (several times), Zimbabwe, probably the USA, and government bodies, including crony capitalists like GM, which have fallen into the hands of bozos.

    The only solutions I have ever been able to think up are mandatory retirement from the civil service after a fixed period, say 10 years, or a constitutional amendment forcing the re-passing of every law every 10 or 20 years, otherwise automatic repeal. I reject all calls to hang corrupt politicos and civil servants like those in this article, satisfying though that might be. Tattooing them pink, seizing their assets and sending them to shovel snow into piles in the arctic does have appeal…

  2. Hugh Jardonn

    Observant post, buy you seem to confuse the Port Authority of New York & New Jersey (PANYNJ) with its mass transit subsidiary Port Authority Trans-Hudson (PATH). Thus, when you write: “PATH tolls paid for the George Washington, Verrazano Narrows, and other bridges” you mean to say “Port Autyority (PANYNJ-formely known as “Port of New York Authority.”

  3. Ohai

    With the title “The Inevitable Decline of Government,” I was half expecting some sort of anarcho-capitalist screed, but the premise that government agencies in transit and resource management should be made to rely more on user fees seems reasonable.

    In fact that’s a principle I could get behind. I wish my local government would stop subsidizing private automobile ownership and start charging drivers market rates to park on public streets. Or that the Federal Government would stop subsidizing fossil fuel production.

  4. metrosucks


    of course though you are perfectly fine with your local government subsidizing transit and not charging transit riders the full cost of their trips. How convenient to pick on the automobile, which in reality is only very slightly subsidized.

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