A commentary in Governing magazine argues that the Trump administration erred in demanding that California return the federal grants used to build its incomplete high-speed rail project. After all, the alternative to not building it is to build it, and that would require at least another $35 billion in federal funds, which Trump does not want to provide.
The other problem is that demanding a refund for incomplete projects creates a perverse incentive for states and cities to finish projects even after they have realized they are a waste of money. “Sometimes common sense wins out only after construction of a megafolly has begun,” says the commentary. “States and cities shouldn’t have to complete projects that they never should have started just to avoid returning federal money they’ve already spent.”
The commentary specifically cites the Honolulu rail line, whose costs have grown from $5 billion when it received federal funding to nearly $10 billion today. The project has been so mismanaged that the Federal Transit Administration has filed three subpoenas for thousands of pages of records. The city probably has enough money to finish 16 miles of the planned 20-mile line, but if the federal government demands a refund if the entire line isn’t finished, it will have to impose another $3 billion or more in taxes on local taxpayers to finish a white elephant.
Another questionable project is the Albuquerque bus-rapid transit line. The city spent $133 million, most of it federal, turning two of the four lanes on Central Avenue into dedicated bus lanes, but the electric buses it bought to use those lanes never worked and the mayor has effectively shut the project down. Now the lanes are used only by a few local buses, and more than 50 businesses on Central Avenue have moved or shut down. The city should reopen those lanes to general traffic, but doing so might lead the FTA to ask for its money back.
In other transit news, Los Angeles Metro has figured out a solution to its rapidly declining transit ridership: make Uber and Lyft riders pay a tax that would go to the transit agency. Los Angeles would just be following the example of New York City. As the Antiplanner predicted a couple of years ago, the result will be zombie transit agencies that don’t carry many passengers funded by other people who are required to pay for transit rides they don’t use.
”
The other problem is that demanding a refund for incomplete projects creates a perverse incentive for states and cities to finish projects even after they have realized they are a waste of money.
” ~ Anti-planner
There is nothing perverse about holding people to their word. Their’s nothing perverse about there being consequences to not following through on that.
What is perverse is the state of California pushing forward to spend $33 billion on a train to nowhere when, if they just stopped now, even after they paid back both the Feds and the $10B in bonds issued, would still free up billions of dollars to spent elsewhere.
One of the assumptions in the argument against demanding paybacks is that all the money was honestly spent so why hurt people for stopping a wasteful project.
I agree that taxpayers should not get stuck for most if the cost – but every professional planner, engineer, architect, contractor and politicians who were involved should be forced to support in detail everything they did and they should have to pay the $ back – or face criminal consequences.
Doing that would discourage future financial theft of government $$.
In principle, yes. But there is a complicating factor in the California HSR case. It remains unclear which scope of the HSR project the federal funds applied to. The initial stub line in the Central Valley was expected to cost around $6 billion. I believe this was proposed as the “minimum operable segment” for the larger network. If CA can claim that this was the actual project that the federal funds were pledged to, then it is upholding its end of the bargain by completing that segment and could argue that it should therefore not have to refund any federal money.
$3.5 billion in federal grants is clearly not enough of a match to prompt the state of California to reasonably conclude that it could move forward with a full SF-to-LA line, which would cost at least $30-40 billion, and for which the hoped-for private investment never materialized.
But the larger issue to me is that this proposal by the Trump Administration is penny-wise and pound-foolish. The money that has already been expended on this project, including anything pledged toward the initial stub segment, is effectively a sunk cost. It can’t be recovered. And any attempt at a clawback by the federal government will not really affect the tax burden for federal taxpayers. More to the point, as Randal mentions, we should not be putting in place disincentives for state and local governments to discontinue large projects that are clearly a waste of money.
“The city should reopen those lanes to general traffic, but doing so might lead the FTA to ask for its money back.”
The lanes could remain as bus lanes, but made part time…
”
It remains unclear which scope of the HSR project the federal funds applied to.
”
The scope of the project in terms of the grants is clear
https://www.hsr.ca.gov/docs/about/funding_finance/funding_agreements/HSRFRA_CooperativeGrantAgreement_Amendment6_051816_Redacted.pdf
”
But the larger issue to me is that this proposal by the Trump Administration is penny-wise and pound-foolish.
”
No, the grants of $929 million has yet to be distributed. Most of the spending of the 119 mil initial segement has __NOT__ yet occurred.
What do you suppose would be the result, once word got out that transit agencies can launch boondoggle after boondoggle, funnel gazillions of federal dollars to unscrupulous consultants and contractors, without being held accountable for even so much completing the projects? Wow! Talk about a perverse incentive!
Requiring payback is a two-edged sword.
What is really needed is a cadre of federal staffers who are truly responsible for ensuring that federally funded projects will deliver public benefits that are reasonably equal to public costs. In other words, an honest, juried benefit/cost ratio analysis.
If public benefits don’t equal or exceed public costs, the public should not be forced to pay for it. That alone would have stopped every rail boondoggle in the last 40 years and all those now lined up at the pig trough.
.
If you read it carefully, they (CHSRA) seem to allow themselves some flexibility to determine where any construction funds from federal grant sources are used. In the Statement of Work (beginning on page 39) they refer loosely to Phase 1 of the project, which would be the SF-to-LA route, but are careful to break this project up into smaller segments. There is reference to a First Construction Section (FCS), which upon perusal includes the Fresno-Merced stub, which subsequently seems to have been designated as the FCS.
I think this flexibility in the grant agreement was intentional, since it allowed CHSRA to get the money when it was made available through the ARRA, while still allowing it to tailor the spending to projects that had a reasonable chance of passing environmental review and avoiding lengthy litigation tie-ups.
I do wonder what the Trump Administration has in mind for the funds, assuming that they could be clawed back, since the funding for this project initially came from a one-time source (the ARRA) that is no longer in operation.
No, the grants of $929 million has yet to be distributed. Most of the spending of the 119 mil initial segement has __NOT__ yet occurred.
But that segment has also not yet been cancelled. In fact, Gavin Newsom’s comments on the project seem to indicate that they still plan to plow forward with that first segment, regardless of how useless it is.
What is really needed is a cadre of federal staffers who are truly responsible for ensuring that federally funded projects will deliver public benefits that are reasonably equal to public costs. In other words, an honest, juried benefit/cost ratio analysis.
Unfortunately you’ll never get an honest, juried BCR analysis out of a federal agency because staffers just to far away from the situation—they don’t and can’t have the local knowledge required to make good decisions. What is really needed is for the federal government to stop funding transportation projects and instead let states and localities handle it.
“What is really needed is for the federal government to stop funding transportation projects and instead let states and localities handle it.”
Agreed. Until then, how close does one have to be to a situation to spot a counterintuitive claim like “give us a billion dollars and we will remove 1000 individuals a day from 1000 cars a day in a stream of 100,000+ cars a day and eliminate congestion and air pollution and create billions of dollars worth of transit oriented development by adding trolleys to already congested streets that will be slower than the cars they replace?
The Antiplanner has called out many studies that have made such claims that were apparently overlooked, misunderstood or, worst, understood but ignored by the professionals entrusted with stewardship of taxpayer funds. How many locally approved sales tax increases have been foisted on people based on the hope that “transit can do here what it has never done anywhere else”?
The fact is that every federally funded transit failure was approved by a federal transit official who believed some bullshit that should have been spotted as counterintuitive. The same could be said for every state funded transit failure and every locally funded transit failure. History continues to repeat itself.