Spending Won’t Fix What Ails U.S. Infrastructure: Edward Glaeser

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Feb. 14 (Bloomberg) -- President Barack Obama’s announcement yesterday of a six-year, $476 billion surface transportation reauthorization bill, as part of his 2013 budget, is the latest demonstration of a longstanding presidential propensity for transportation projects.

The U.S. owes its emergence as a great power to magnificent investments in infrastructure. The emerging giant of today, China, is following that example. Many imagine that we must again build big to stay on top. But success in middle-age -- for people and nations -- requires wisdom and cunning more than pumped-up brawn. America’s infrastructure needs intelligent reform, not floods of extra financing or quixotic dreams of new moon adventures or high-speed railways to nowhere.

When the U.S. was new, it had a hinterland with seemingly unlimited natural resources that was virtually inaccessible to the population centers of the East and the markets of the Old World. It cost as much to move goods 30 miles over land as to ship them across the Atlantic. Our first leaders dreamed of building waterways that would open the West; George Washington founded the Potomac Canal Company before he became president. The Erie Canal was a wonder of the age, running 363 miles and paying for itself within a decade.

Interstate Highway System

Abraham Lincoln helped win the West by supporting the construction of the Transcontinental Railroad, with public land grants and lending. Of all of Theodore Roosevelt’s myriad presidential achievements, he may have been proudest of the Panama Canal, which sped transport by water between California and the East Coast. President Dwight D. Eisenhower may have been conservative in most things, but not when it came to building the Interstate Highway System that reshaped America around the automobile.

American urbanites see the remnants of our engineering greatness all around them. New York City has three great bridges that were all, at some point, the longest suspension bridge in the world: the Brooklyn Bridge, the George Washington Bridge and the Verrazano Narrows Bridge. The Golden Gate Bridge in San Francisco was also the world’s longest suspension bridge for more than two decades. Today, six of the 10 longest bridges are in Asia.

The spate of bridge and rail construction in China taps into American insecurities and leads many to wonder whether we are falling behind because we aren’t building more. Politicians understand the magical promise of bold new projects, like superfast trains across California or missions to space, but that promise can be false. Spain’s current fiscal woes owe much to its overly ambitious high-speed rail investments. Similar rail projects in China have produced more allegations of corruption and safety problems than economic transformation.

Infrastructure investment only makes sense when there is a clear problem that needs solving and when benefits exceed costs. U.S. transportation does have problems -- traffic delays in airports and on city streets, decaying older structures, excessive dependence on imported oil -- but none of these challenges requires the heroics of a 21st century Erie Canal. Instead, they need smart, incremental changes that will demonstrate more wisdom than brute strength.

Here are seven ways to improve U.S. transportation:

LET USERS PAY: More than two centuries ago, Adam Smith wrote that “When the carriages which pass over a highway or a bridge, and the lighters which sail upon a navigable canal, pay toll in proportion to their weight or their tonnage, they pay for the maintenance of those public works exactly in proportion to the wear and tear which they occasion of them,” and “it is scarce possible to imagine a more equitable way of maintaining such works.”

He then wisely noted that “when high-roads, bridges, canals, etc., are in this manner made and supported by the commerce which is carried on by means of them, they can be made only where that commerce requires them, and, consequently, where it is proper to make them.”

User fees support the maintenance of aging infrastructure. Like all prices, they allocate scarce resources to the people who value them most. Perhaps most importantly, as Smith emphasized, user-fee financing discourages white elephants, because projects that can pay for themselves are practically guaranteed to deliver plenty of value.

In the early days, we paid for infrastructure, such as the Erie Canal and the Brooklyn Bridge, by charging tolls. That was easy to do, as demand for these improvements was enormous. But our fondness for big projects gradually and dangerously moved us away from this ideal. The Highway System is meant to be funded with gas taxes paid into the Highway Trust Fund, but funding formulas mean that the taxes each state pays into the fund rarely match the money received.

The stimulus delivered a dollop of highway spending provided with general tax dollars, and the Congressional Budget Office projects that the Trust Fund will be broke by 2014. Yet Congress is now promoting a vast new road spending bill. The budget the president presented yesterday supports paying for infrastructure with “current user-financed mechanisms,” but also proposes tapping “part of the savings from ending the war in Iraq and winding down operations in Afghanistan,” which just means using general tax revenue to pay for highways.

Given our energy problems, we shouldn’t be bribing anyone to drive. We should make sure that users pay for their travel. Ideally, this should be done with electronic tolling that ties the revenue to the road, but failing that, at least we should ensure that gas taxes are high enough to cover our highway costs.

IMPLEMENT CONGESTION PRICING: We should expect drivers to pay for more than just the physical costs of their travel. We should also expect them to pay for the congestion that they impose on other road users. If you have a scarce commodity, whether groceries or roads, and you insist on charging prices below market rates, the result will be long lines and stock outs, like those that bedeviled the Soviet Union decades ago. Yet U.S. roads are still running a Soviet-style transport policy, where we charge too little for valuable city streets. Traffic congestion is the urban equivalent of a stock out.

The idea of congestion pricing was advanced by the economist William Vickrey 50 years ago. He wanted to charge enough so that streets would move fluidly. Singapore adopted the proposal in 1975, and it now has an electronic system that keeps the roads in the world’s second-densest country moving quickly. London is a more recent example of a congestion-pricing system, and that city has also become more livable as a result.

Congestion pricing should have been allowed in Manhattan years ago, and it could help many U.S. cities. Our highways could become more efficient if they raised tolls during peak commuting hours, which would encourage alternative means of travel and commuting during off-peak hours. Airports, too, could make traffic delays rarer by charging higher fees, especially during peak periods.

We could build more roads to deal with traffic, but the work of Gilles Duranton and Matthew Turner casts cold water on that approach. They devised a “Fundamental Law of Road Congestion”: highway miles traveled increase almost one-for-one with highway miles built. If you build it, they will drive. The better approach to ensure that a scarce resource is used efficiently is to charge higher prices during peak use periods.

DE-FEDERALIZE TRANSPORT SPENDING: Most forms of transport infrastructure overwhelmingly serve the residents of a single state. Yet the federal government has played an outsized role in funding transportation for 50 years. Whenever the person paying isn’t the person who benefits, there will always be a push for more largesse and little check on spending efficiency. Would Detroit’s People Mover have ever been built if the people of Detroit had to pay for it? We should move toward a system in which states and localities take more responsibility for the infrastructure that serves their citizens.

The federal government does have a role. It should ensure coordination in nationwide networks. It can embrace smart policies, such as the Education Department’s Race to the Top initiative, that provide incentives for innovation and reform, and the president’s budget seems to move in that direction. The government must go beyond just being the big spender cutting checks. Our current approach has produced a highway system in which, as the Office of Management and Budget once noted, “funding is not based on need or performance and has been heavily earmarked.” The House’s new highway bill may be earmark-free, but it does little to tie spending to need or performance.

INSTITUTIONALIZE MAINTENANCE FUNDING: Throughout the world, political leaders love to cut ribbons on new projects, but they hate the hard work of maintaining older infrastructure. The natural result is that bridges become unsafe and highways are riddled with potholes. As I suspect that states and localities will always do too little to invest in maintenance, this would be a good place to redirect federal spending.

Instead of funding new projects, the Highway Trust Fund could instead become solely a road and bridge maintenance fund. Obama’s 2013 budget moves in this direction by espousing a “fix-it-first policy,” but that isn’t the same as tying future tax revenue to needed maintenance.

New projects would be funded in-state, but federal money could only be used to keep our current system working. States would receive gas-tax revenue paid only by drivers on their own roads to cover needed maintenance expenditures. Ideally, if maintenance needs are below gas taxes, then federal gas taxes in that state would be cut accordingly. The federal government would monitor infrastructure quality and use its funding to ensure that standards were kept high.

PROMOTE PRIVATE-PUBLIC PARTNERSHIPS: Chile has been at the forefront of pioneering public-private transportation investment, and the U.S. has much to learn from its example. The basic idea is that the government establishes the need for some new investment, and clears the political hurdles, but then takes bids from the private sector for construction and operation. The private entity pays the upfront costs, which are then recouped with toll revenue. In some cases, a moderate subsidy may be required, but at least that subsidy is transparent.

This system has three big advantages. The private sector may be most cost-effective at construction and maintenance. The project only goes forward if private investors anticipate significant toll revenue. The private operator has every incentive to keep up maintenance, because it can only recoup costs if people keep driving the roads. There are also challenges involved in managing private concessions, as California’s experience with State Road 91 illustrates, but these hurdles should be surmountable, especially if we have enough regulation to keep private roads and bridges safe.

CHERISH THE BUS: There is an old joke that 40 years of transportation economics at Harvard can be boiled down to four words: “Bus Good, Train Bad.” The many advantages of the bus were first illustrated in the classic text, “The Urban Transportation Problem,” by John Meyer, John Kain and Martin Wohl. (Meyer and Kain were both mentors of mine). Buses are flexible, cheap and can move almost as fast as urban trains if they operate on a dedicated road or a private tunnel. Perhaps the most positive transport innovation of the past decade has been the enormous competition of private buses plying the roads of the Eastern Seaboard.

Cars can’t be the only answer for urban commuters, especially for poorer Americans during an era of high gas prices. Buses can be a pleasant alternative, with televisions and Wi-Fi connectivity. Buses can move quickly if they are given enough space to drive. Instead of chasing the quixotic dream of high-speed rail in Texas, public-transit aficionados should start agitating for better bus service, with plenty of private competition.

SPLIT UP THE PORT AUTHORITY: Last week gave us another painful audit of the work by the Port Authority of New York and New Jersey to manage the World Trade Center site. I’m not going to pile on, but this super-entity is too big to succeed. How can the Port Authority possibly focus on tasks such as making New York’s airports more functional when it has so much else on its plate?

The problems at John F. Kennedy International Airport aren’t evidence of the need for a new federal infrastructure agenda, they indicate only that the Port Authority has too much to do. Splitting off the airports, probably into two separate entities (for New York and New Jersey), could generate managerial focus and more competition. The airports can fund themselves if they are free to charge higher landing fees. Millions of fliers into New York should be perfectly willing to pay a bit more to ensure a more pleasant experience. More nimble and less restricted airports would help that happen.

America’s infrastructure has been great and can be great again. But we don’t need vast new projects that we won’t bother to maintain. We need a number of smart, incremental reforms that will enable our system, and our country, to live up to their potential.

(Edward Glaeser, an economics professor at Harvard University, is a Bloomberg View columnist. He is the author of “Triumph of the City.” The opinions expressed are his own.)

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To contact the writer of this article: Edward Glaeser at eglaeser@harvard.edu.

To contact the editor responsible for this article: Max Berley at mberley@bloomberg.net.