A Different Way to Evaluate New Transport Investment Subsidy

US cities and regions have spent billions of dollars investing in new rail and bus transit with the hopes of luring drivers from their cars, reducing the environmental damage from personal transportation, minimizing congestion and encouraging economic development. Despite the enormous investment in transit over the past few decades, most cities have seen very little overall transit ridership gains, and the mode share for transit commuting remains about where it was in 1980. A puzzle associated with less than hoped for effects from increased supply of high quality transit is what, if any, complementary policies are cities implementing to raise the price of driving, increase transit supportive land uses, and provide many complementary modes of travel to automobility.

The way we evaluate transit (and transport projects overall) may be part of the problem. Recent work by Kate Lowe and Sandra Rosenbloom highlights that the single most important factor for federal funding of transit projects through New Starts is whether the local funding match is adequate. The next most important factor for funding is the project justification based on a range of predicted outcomes. As Lowe and Rosenbloom write:

“The new regulations permit or encourage applicants to claim a wider range of benefits as part of project justification while reducing the project costs against which benefits are evaluated. These changes are the source of great controversy. Some groups argue that they are long overdue because major transit projects have greater benefits than the FTA has recognized in the past, such as economic development and lowered environmental pollution. Other groups argue that that many of the claimed benefits are prime examples of the “optimism bias” to which the supporters of rail transit projects fall prey, overestimating the effect of transit improvements on ridership (Federal Transit Administration 2008) and attributing to them such benefits as decreased congestion and more concentrated and diverse land use patterns.”

There is nothing wrong with local matching funds or economic development. These are often important planning and governance goals. Yet the primacy of local revenues independent of transport benefits leads to new broadly applied taxes—most often sales taxes—that are only loosely connected to mobility and accessibility improvements. Economic development is also a worthy cause and a major part of local planning. However, transport projects for economic development should be evaluated against other policies and investments that promote economic development. With mature transport networks new economic development effects from an improvement are generally weak, though there may be stronger redistributive effects. Of course, redistribution creates winners and losers.

In many cases benefit/cost analyses are used to evaluate projects. These analyses are worthwhile but subject to political shenanigans and questionable assumptions. More troubling, the actual benefits and the costs of projects are rarely, if ever, evaluated ex post so there is little incentive to not exaggerate benefits and minimize expected costs.

So project evaluation is not perfect, and in many cases not that good, though we do seem to be getting better. However, the current system encourages pursuit of easy money rather than effective policy. There has to be a better way to allocate investment, and this is what I propose. Transport investment should be made on the basis of improved accessibility, congestion reduction, reduced negative externalities and economic efficiency. Rather than base federal spending on whether local governments can raise money or potentially realize benefits at some point in the future, federal spending (and other matches) should be based on what policies local governments have implemented to improve their transportation system.

Criteria used for evaluation for all new transport infrastructure investments should include whether cities and regions have done the following:

  • Enacted congestion pricing. If a city, region or state charges directly for road use, with prices varying by location and time of day, this establishes that congestion is a problem and that the politically difficult work has been done.
  • Relaxed zoning codes to allow greater densities and mixed uses. Again, these are politically difficult but the benefits are potentially large even without new transit or other transport investment because of improved walkability and more efficiently supplied public services.
  • Eliminated parking requirements. At the very least, all parking requirements in designated transit corridors should be eliminated.
  • Charged market prices for curb parking. No free parking. In fact, local policy should reflect the true cost of driving.
  • Installed dedicated bus lanes. If a city or region will not, as a bare minimum, reallocate some road space to transit then why should they be rewarded with new spending? This is not to say all bus lanes must have their own right of way. But high capacity corridors should, and if high capacity corridors cannot be identified then that is evidence that no new spending for expansion is necessary.
  • Liberalized the taxi market. This one is a bit tricky as we don’t know what an ideal taxi market should look like, but in too many cities the regulators are captured by the regulated.
  • Met minimum farebox recovery standards. Farebox recovery in the United States is awful. Low farebox recovery makes planning new lines difficult as system expansion makes existing operating budgets worse. This is not to say that transit should have 100% farebox recovery, but a minimum requirement of at least 50% will help ensure that projects will be considered based on their actual demand rather than some future, unknown demand.

There are other potential criteria, too, but the point is that investment subsidy should be based on revealed actions and a willingness to take on the hard political work of improving our cities. Even if a city did all of the things listed above and didn’t get any money they would be better off because they did all of the things that are proven to improve transportation systems. But if cities do the things listed above, then it doesn’t really matter who pays for new investment as the new investment will very likely be worthwhile because the complementary policies are in place. If cities do the hard political work they should be rewarded. If all they do is raise taxes based on specious claims, they should be held accountable. We currently have this backwards.