Planners and economists often come to the exact opposite conclusions about various policy proposals. In too many cases, this seems to be because planners (which I define here as “advocates of government spending and regulation”) have a poor understanding of basic economics. To help them out, the Antiplanner has developed ten economic principles for planners. I’ll present five today and five tomorrow.
1. Capital costs are costs.
Too many planners want to ignore, or want other people to ignore, capital costs. Like a high-pressure car salesperson whose job is to get the customer to buy the most expensive car they can afford, they’ll say, “Pay no attention to the number of zeroes at the end of that number. You only have to pay the capital cost once, and then think of all the benefits you’ll get.” Why get a Chevrolet when you can get a Cadillac? Why get a Yaris when you can get a Lexus? Why improve bus service when you can build light rail?
In fact, capital costs are costs, and they can be equated with operating costs using a simple mortgage calculator. Most infrastructure investments have about 30-year lifespans, so calculate the mortgage over 30 years using a reasonable rate of interest. The Federal Transit Administration currently says to use 2 percent. Don’t forget to multiply the monthly payment times 12 to get an annual payment.
Whether viewed as a one-time cost or an annualized cost, capital costs partly represent the opportunity cost of what you could do with that money if you didn’t spend it on whatever the planners are proposing. This opportunity cost can be very high.
2. Maintenance costs are operating costs.
By definition, a capital cost is a cost that leads to an increase in quality or quantity and thus increases potential revenues or, at least, benefits. Operating costs are the year-to-year costs of keeping something running. Under generally accepted accounting principles, maintenance is an operating cost, because it is needed to maintain quality or quantity without increasing either.
Yet both Amtrak and the Federal Transit Administration treat maintenance as capital costs. This allows Amtrak to claim that some of its trains cover their operating costs even as it defers maintenance or seeks huge increases in capital subsidies. It also allows some transit agencies to claim that rail transit operating costs are lower than bus costs even though rail maintenance costs are far higher than bus costs.
As an alternative to these chemical medications, oral medications, the most popular types which are used by the doctors to treat pulmonary arterial hypertension patients.Always inform your doctor the medicines you are taking, prescription, nonprescription or herbal drugs.The sale of professional viagra online is illegal and cannot be obtained under prescription.How it is used to make Pulsatilla. There have been a lot canadian pharmacy viagra of people that can notmanage to fill prescriptions because of the rising issues. Female orgasmic disorder requires complete treatments otherwise a woman would not be able to recognize it.” Any cheap viagra from pfizer attempt to tackle limb-length discrepancy and associated compensations, we’ll focus on only a few fundamental myoskeletal techniques that add to your toolbox of touch. A maximum of 35% of daily calories should be got from fat, and one must consume water. levitra professional canada http://mouthsofthesouth.com/levitra-8755 3. Economic growth requires new economic activity.
Planners often claim that the projects they propose will lead to new jobs, increased tax revenues, or other things that elected officials regard as benefits. In fact, many of the projects they advocate will do little better than shuffle economic activities around without generating many if any new economic activities.
For example, the Florida high-speed rail project that Governor Rick Scott ultimately rejected was supposed to get 96 percent of its passengers from autos and only 4 percent was projected to be new travel. Similarly, many light-rail projects are expected to get all of their riders from people who currently take cars or buses.
Similarly, urban-renewal projects typically don’t generate economic growth; they merely influence the location of development that would have taken place anyway. Thus, they generate no new taxes or other net benefits for the city or region as a whole. In fact, spending tax dollars on both rail transit and on urban renewal are likely to reduce economic growth by imposing higher tax burdens on the region.
4. New economic activity requires lower costs or higher quality.
In order to get the new economic activity that leads to genuine economic growth, new projects must reduce the cost or increase the quality of goods or services available. Transit is more expensive, slower, and less convenient than driving; even the fastest intercity rail is slower and more expensive than flying and less convenient and more expensive than driving. For the same price, multifamily housing is smaller and offers less privacy than single-family housing.
5. Whenever possible, user fees are the best way to pay for infrastructure.
The vast majority of the benefits of any sort of infrastructure are enjoyed by the users of that infrastructure, so it is only fair that they pay for it. But just as important is the fact that infrastructure that is paid for by users is likely to be better maintained than infrastructure that is paid for by taxes.
Users won’t pay as much for poorly maintained infrastructure, so operators who depend on user fees are likely to keep it well maintained. By comparison, politicians prefer to fund new projects over maintenance–“ribbons, not brooms” says one US DOT official–and so infrastructure funded out of tax dollars is likely to suffer from deferred maintenance. This is especially true if that infrastructure is overbuilt in the first place because the planners weren’t subject to the discipline that comes from having to pay for the infrastructure out of user fees.
The planners are very well aware of these rules. They flout them intentionally and dishonestly for personal gain of money, status and power.
I’d rather focus on the moral aspect. Planners used to make great efforts to find out what people wanted, then plan the best and cheapest way for governments to give them that. Planners now make great efforts to make plans that use government power to force people to accept the planners’ own personal desires and whims.
planners (which I define here as “advocates of government spending and regulation”)
Why don’t you use the term statist instead? After all, statism is the belief that the state should control either economic or social policy, or both, to some degree.
“capital costs partly represent the opportunity cost of what you could do with that money if you didn’t spend it on whatever the planners are proposing.”
This assumes that the “money” actually existed in the first place and wasn’t created through credit expansion.
AP gaap say that capital expenses have a useful life of more than one year. Painting a bridge once a decade is a capital expense. It adds value, because now the bridge that would have rusted to hell will be preserved. The revenue that comes from bridge users five years out didn’t exist until after it was painted, because the bridge would have fallen apart. Most ‘maintenance’ projects are not annual expenses, in that they do not occur every year. Buying a new bus, rail car, signal system etc…same as repaving a road, rebuilding a rail ballast etc…are properly capital costs. All of the annualized expenses from those projects should show up as a depreciation line item in a finance statement. Keep that line item in mind if you want to check if something pays for itself. Whether it’s Amtrak’s acela or the road connecting a subdivision to job centers miles away.
Multifamily housing might not be cheaper per square foot of living space than single family housing but the government capital costs to support it – roads etc…are vastly smaller. Not to mention other socialized costs, such as when a phone company or other utility is required to offer service to everyone and is forbidden from charging real world installation fees, instead spreading the cost over all system users. Or when a transit system has to offer mobility as a last resort to all service area residents, and is not allowed to charge the suburbanites expensive to serve at the same per trip subsidy given to cheaper to serve urban residents.
Wow. Paint is powerful stuff! Let’s just paint everything!
“but the government capital costs to support it – roads etc…are vastly smaller.”
Prove it.
“Not to mention other socialized costs, such as when a phone company or other utility is required to offer service to everyone and is forbidden from charging real world installation fees”
What entity is doing the requiring and forbidding?
“Or when a transit system has to offer mobility as a last resort to all service area residents, and is not allowed to charge the suburbanites expensive to serve at the same per trip subsidy given to cheaper to serve urban residents.”
This does not even make sense.
Frank your muchaligned king county metro in Seattle has much higher per trip costs than most large bus systems because of so many inefficient routes for those living far away. And they live far away to get larger houses with more privacy than they could afford in Seattle proper. If zoning permitted higher density they could get something the same size, or close to it without the larger public transit subsidy they receive in a far away exurb.
Many states require telecommunications companies to serve everyone. Verizon is getting attacked for wanting to replace the expensive copper network with a much cheaper cell system in remote areas in new York state and elsewhere, and some where their equipment was damaged by hurricane sandy. The state franchise agreement that let’s them operate prohibits them from doing this, or from charging expensive to serve customers the full price of their service.
Read strong towns some time frank. As much as you hate unsustainable transit boondoggles you should know they are a small fraction of the expense of road boondoggles. When the state had to pay for tens of miles of high speed travel daily on roadways given the few road user fees paid by drivers large subsidies are required. Increased density means more people sharing the expense.
I mentioned paint as an example of a non obvious capital expense. Replacing cables supporting a bridge, rebuilding the roadway etc…are the same.
given the few road user fees paid by drivers
This is a lie. Road drivers cover most of the cost of building & maintaining roads. Roads built from property taxes are public goods that are necessary for the city to function. You can lack rail transit and people will be just fine, but it would be a different story without roads. It’s amazing Ahwr can even make this claim with a straight face. The US has a huge network of roads, paid for by the gas tax and by local taxpayers who are, in essence, the shareholders of this system. To replicate the same, but with a transit boondoggle rail network instead, would bankrupt the entire world several times over, at the cool $100-200 million a mile rail boondoggles are now slurping up from taxpayer pockets.
Increased density means more people sharing the expense.
Another lie. It has been proven, time and time again, that increased density does not begin to pay back the much more expensive utilities and infra needed for those buildings.
What Ahwr is proposing is a variant of “look at me grabbing the nickel from your hand while you ignore my taking the 10 bucks from your back pocket”. It’s the only schtick transit boondoggle supporters have left. Holler about a piddly subsidy to roads, while completely ignoring the 100% subsidies to transit.
How about the notion that most passenger rail projects in the U.S. do not come close to covering their maintenance costs (be those costs considered operating or capital), because there just are not very many paying customers riding the system, which means that costs to maintain the system must come from some other group of people, often highway users.
Zilliacus most rail projects are a waste of money given existing land use. Never said otherwise.
You need roads where people are. If everything is crammed into a few square miles you need to pay for far fewer roads than when everything is spread out over a few hundred square miles. Property taxes in the low density outer areas with minimum lot sizes of two acres don’t cover the costs of the added roads they need. If those added people were allowed to live further in (if zoning permitted the density for them to fit without displacing someone else) then you wouldn’t need those extra miles of roads further out. They don’t pay for them. Nobody does. The feds subsidized the first generation of construction. The second generation, rebuilding infrastructure that reached its end of life, was paid for by debt. Now there’s too much debt to borrow to rebuild and no cash for it so everything is just falling apart- the pitance given to transit is negligible – so who pays for the needed rebuilds?
Most of the cost of interstates were paid for by drivers. But even that hasn’t been true for years. And even when it was who paid for the extra lane so suburbanites could travel cheaply? Those living further in that spent most of their time on local roads but paid the same per gallon gas tax. Tolls reflecting the true cost of the road turn off so many and have led to such opposition when installed because for the first time those drivers had to pay for what they were using.
“If zoning permitted higher density they could get something the same size, or close to it without the larger public transit subsidy they receive in a far away exurb.”
You can get 2000 square feet in Seattle for the same price as in Renton if only more density were allowed? Does that also come with a .15 acre yard? Wow! Anyway, again, blame government and planners for these regs. And NIMBYism. And individual preferences for yards and space.
“Many states require telecommunications companies to serve everyone.” States. Government. Planers. Your point?
“unsustainable transit boondoggles… are a small fraction of the expense of road boondoggles.”
Unsupported assertion.
“the few road user fees paid by drivers”
Another unsupported assertion.
Plus what metrosucks and CP said.
@ahwr, Increasing the population density does not result in lower infrastructure capital or maintenance costs per capita. For items such as water and sewerage, a doubling of density results in a quadrupling in the size and volume of pipes. Powerline and telecom infrastructure must be buried instead of strung overhead. Installing and maintaining infrastructure in high density locations is necessarily more expensive than greenfield or suburban development. There is also less disruption of commerce in greenfield and suburban areas when capital improvements and maintenance must occur.
You state the situation incorrectly when you assert that road users are subsidized. Nearly all commuters are road users and all pay a portion of the taxes for the roads. There are very few road users who pay no taxes except for a small portion who utilize buses. The real issue with roads is apportionment of costs with equity. Some users pay less and use roads vastly more. This is certainly true, but easily rectified via the use of tolls.
2x density = 4x sewage volume?
The required distribution volumes scale up cubically.
Yes people shit more when they live in apartments right?
ahwr, while I suspect you’re simply a sock puppet (your arrival is conspicuously preceded by a troll’s departure), it’s possible you’re not. Either way, your posts here aren’t contributing, and they border on trolling. You’re making unsupported assertions, and then when called to back those assertions, you refuse and heckle others for their assertions.
Are you here to contribute or heckle? If it’s the latter, please just say so I can stop responding to you.
“For items such as water and sewerage, a doubling of density results in a quadrupling in the size and volume of pipes.”
And a fractioning of the length of the pipes, resulting in overall savings for the dense infill versus housing in the greenfield that is miles from the treatment plant.
The topic is how statists ignore economic law, not how much shit fits in a pipe. Or where the shit ends up.
Focus, people.
Furthermore, volume is directly proportional to length, so Jardinero1 is incorrect in saying that “quadrupling in the size and volume of pipes” occurs in multifamily housing, if the housing is located in dense, urban environments.
Gilfoil, On a linear foot basis, upgrades and maintenance are far cheaper in less dense environments than more dense environments. On an urban infill, which doubles or triples density, the infrastructure has to be upgraded all the way from the source to the destination, not just the single block or two where the infill is occurring. A sewer and water upgrade will require the destruction and replacement of a street all the way from source to destination. Dense infill creates a requires for larger storm sewers as well because the runoff volume is much greater. Thus, Infill and densification imposes costs on all. Why do you suppose zoning boards and permit authorities are so loathe to permit dense infill where none existed before? Because it will result in large capital and maintenance expenditures on infrastructure in the very near future. If density is avoided, then so are the expenditures.
Loathe? Where are you talking about? In the Bay Area they are handing out permits as fast as they can and they still can’t infill fast enough to meet the demand.
http://www.bizjournals.com/sanfrancisco/blog/2014/10/lake-merritt-bart-oakland-redevelopment-housing.html
http://www.bizjournals.com/sanfrancisco/blog/2014/10/shorenstein-city-center-oakland-metlife-housing.html
http://www.bizjournals.com/sanfrancisco/blog/real-estate/2014/10/city-ventures-west-oakland-development.html?page=all
One exception doesn’t prove a rule. The exceptions you cite are likely in areas that already possess the requisite sewer and water capacity. In most communities, where low density zoning is already permitted, a higher density variance is nearly impossible to obtain. And it isn’t just because the nimby’s show up, the nimby’s merely provide a convenient foil for zoning boards to avoid upzonings. They are really trying to avoid additional capital outlays as I described. Just to be clear, I am not in favor or against density per se. I don’t really care. I am merely stating facts. I live in Houston where developers supposedly have free rein and there is a great deal of infill densification occurring. That infill is occurring where the requisite sewer and water capacity already exists. If it doesn’t exist, the developer must provide it or the permits are not issued. The developer also must provide for or otherwise pay for the additional stormwater runoff.
Jardinero infrastructure doesn’t last forever. When you expand at the end of a life cycle costs are reduced dramatically. The marginal cost of greater sewer or electrical capacity is very small when you are already ripping up the road.