Trannie Mae: Obama’s New Bank

President Obama’s new “plan“–more of a sketch, really–to “Renew and Expand America’s Roads, Railways and Runways” calls for spending $50 billion rebuilding 150,000 miles of roads, building and maintaining 4,000 miles of rail, and rehabilitating 150 miles of airport runways and installing a modern air traffic control system. Where do these numbers come from? Is $50 billion enough to do it all? Where will the $50 billion come from? The plan provides no answers to these questions.

For example, a new air traffic control system alone is expected to cost at least $20 billion. At $12.5 million a mile, rehabilitating 4,000 miles of passenger rail lines would consume all of the $50 billion. At a conservative $1 million a mile (which won’t do much rebuilding), treating 150,000 miles of roads would cost three times the $50 billion Obama proposes to spend.

Like the $8 billion that Obama proposed to spend on high-speed rail 19 months before his transportation secretary finally admitted that the administration’s high-speed rail plan would cost $500 billion, the $50 billion is obviously just a “down payment” on the plan. In short, someone just made up all these numbers, threw out $50 billion as a starting cost, and then called it a “plan.” (I wonder what the planners who read this blog think of this abuse of their professional title.)

To stretch the $50 billion, the plan calls for creating an “infrastructure bank” that would “leverage private and state and local capital to invest in projects that are most critical to our economic progress.” How would such a Trannie Mae compare with a real bank? A real bank loans money to projects that are likely to cover their costs and repay the loans, but if projects had to cover their costs, no passenger rail project would get a single dime. So Trannie Mae will instead give money away using supposedly “clear, analytical measures of performance” that “will produce the greatest return for American taxpayers.”

How will that return be measured if not by the ability of projects to pay back the costs out of user fees? What is to prevent funds distributed according to supposedly clear but actually vague criteria from simply becoming another source of pork barrel? Even if Obama managed to rise through Chicago’s political machine without himself being corrupted, he cannot be naive enough to believe that this system will work without being based on “politics” rather than objective criteria.

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The usual way Congress has distributed transportation funds, the White House notes, is through formula-based grants and earmarks. The White House sneers that such funds are “allocated more by geography and politics than demonstrated value.” The earmarks are based on politics, but the formula-based grants are based solely on geography. What’s wrong with that? The actual formulas take into account such things as land area, population, road mileage, and transit ridership. Such funds are far less politicized than New Starts: When all transportation funds were distributed by formulas, Congress debated the formulas every six years but otherwise wrote few earmarks and made no attempts to override the formulas during the intervening years.

Trannie Mae will simply become one more source of pork, social engineering, and a way for special interest groups to override real transportation needs as evidenced by what people are willing to pay for transportation. We wouldn’t need such a bank if we eliminated transportation subsidies and paid for all transportation out of user fees.

For example, a recent report from the Reason Foundation on the state of the nation’s highways finds that “the overall condition of the state-owned highway system has never been in better shape.” Meanwhile, the nation’s transit systems suffer from a $78 billion maintenance backlog and transit agencies aren’t even spending enough money to keep systems in their current state of poor repair.

What’s the difference between state highways and transit? One is funded almost entirely out of user fees and the other almost entirely out of taxes, appropriations, earmarks, and other non-user fees. That means transit is subject to politics, the good intentions of transit enthusiasts who care more about expansion than maintenance, and special interest groups that parasitize the taxpayers in the name of better transit. Trannie Mae will be no different.

Unfortunately, reporters and editorial writers are likely to trot out various experts who will claim an infrastructure bank can depoliticize transportation funding when the exact reverse is true. It is actually unfair to Fannie Mae to call Obama’s proposal Trannie Mae, because at least Fannie Mae expected to get the loans it purchased repaid. People should be under no delusion that Trannie Mae will work this way: it will just be another source of government waste.