Playing Devil’s Advocate: What if we wait?

A discussion on the timing of big-ticket capital projects.

As most of you are aware, I’m a supporter of several (although certainly not all) of the upcoming big-ticket transit projects, including one which has drawn immense criticism because of it’s price tag and concerns about how it is being funded–namely the Milwaukie MAX project. I share concerns about things such as bonding future payroll tax revenues and use of urban renewal funds–and given that these things together are less than 10% of the overall project budget, I find it highly unfortunate that more “honest” sources of revenue haven’t been found to pay for the project.

However, I consider the project an important long-term investment. In the short term, the line will offer significant but not earth-shattering performance and reliability gains over 33/McLouglin, which the line will replace north of Milwaukie. (Average trip time will decrease, but not significantly; reliability will improve due to running in an exclusive right-of-way). Capacity will instantly quadruple, assuming trains run at the same headways as the #33 in the corridor, and MAX will certainly attract some riders that won’t ride the bus. (To what extent such passengers should be accommodated is a frequent topic of discussion). Passengers on the 33 south of Milwaukie will be inconvenienced by a transfer; unlike the proposed project across the river, it will be a transfer to a faster service.

But the key long-term issue that justifies the expense, in my opinion, is the likely possibility that we could soon see a day where gasoline becomes far more expensive than it is. There are also the environmental issues to consider. If and when that day comes–and it may come before the line’s scheduled 2015 opening–we may find that we desperately need a high-capacity, high-performance, non-fossil-fuel powered transit line serving SE Portland and northern Clackamas County. And a few other places as well.

But there’s that word: if. What if “if” never occurs? Might it be better to wait until we Really Truly Need the project, than build it “on spec” today?

Why, indeed?

Obviously, I’m playing devil’s advocate with this question. I believe we need it today; that “if” in this case is as close to a sure bet as we are going to get, and that the cost of waiting outweigh the benefits. In addition, the bulk of the funding for the project is conditioned on the project keeping to schedule; were it to be indefinitely postponed, either of the lottery funds from Salem or the federal matching funds from Uncle Sam might vanish. They could be re-appropriated in the future, but given all the politicking needed to plan a project of this magnitude, it could be a very long time before the project is able to re-start. (And if conditions do change in such a way that public demand for transit is greater, there will be much more competition for funds).

Obviously, this is a hypothetical discussion in the context of Milwaukie MAX. The Final EIS has been written, a Decision of Record will soon be registered with the FTA, and construction is scheduled to begin this year. Preliminary work on the new bridge has commenced as you read this. Some of the funding sources may be jeopardized by forthcoming initiatives and politicking, but the proportion of funding which is presently at-risk is very small–a referendum by Clackamas County voters to withdraw the county’s share of funding is unlikely to scuttle the project.

But since we are engaging in a hypothetical, let as assume, for the purposes of this discussion, that the project could be delayed and restarted without consequence, and that doing so might be advantageous. Obviously, there are some out there who consider this project a bad idea at any time, and would vote for “never” as a start date. While I and the other editors here disagree with that opinion, it isn’t an illegitimate one–go ahead and chime in. But my assumption in the discussion is that the project is worthwhile, and ought to be built sooner or later–and which one (sooner vs later) is the subject of debate.

If you prefer, of course, feel free to replace references to “Milwaukie MAX” with references to projects further in the future, where the wheels aren’t already set in motion–many of the arguments considered are not exclusive to MLR.

Macroeconomics 101

One line of argument, with arguments both pro and con, is the effect of the current recession and level of public debt. Many conservatives argue that during a recession (which arguably we’re still in–even if Wall Street is doing fine, we’ve got 10% unemployment still, which is a Big Problem) we need to tighten our belts, and delay discretionary investments in response to a decline in tax revenues. Others argue that we need to increase spending in a recession, to help bring the economy out of it–and point that many (although not all) so-called “deficit hawks” are far less eager to raise taxes (which would penalize the rich) than cut spending (which tends to inflict more pain upon the poor). A response to the Keynesian school of thought is to point out the current humongous budget deficit, and note that whatever the merits of countercyclical spending otherwise, it is inappropriate with the current level of debt. Many liberal economists would respond that the US is a sovereign currency issuer, unlike countries such as Greece or Ireland (whose debt is denominated in a currency they cannot control the supply of), and that inflation is near zero; thus increasing the money supply (aka “printing money”, which the Fed did a bit of last November) is a reasonable option. OTOH, when the Fed did engage in a bit of “quantitative easing” last fall, the bond market was less than happy–creditors to the US don’t like it much if we devalue our debts via inflation, and inflation would be highly detrimental to Americans living on a fixed income–in particular pensioners, whose pensions would be effectively reduced by inflation of the dollar. OTTH, a good argument can be made that sovereign governments ought to be in charge of the financial sector, rather than the other way around.

That’s enough macroeconomics for this post; the high-level debate over the correct fiscal and monetary response(s) to our current situation are covered by writers far more knowledgeable on economics than yours truly. However, I will note that if countercyclical spending is to occur, the money has to come from Washington. Neither John Kitzhaber, Sam Adams, or Neil McFarlane have the authority to engage in deficit-spending other than via limited means such as obligation bonds–local governments cannot print money, and are rather constrained in the sorts of debt they can issue. Right now, the mood in Washington seems to be against such actions–the “stimulus package” of 2009 was politically unpopular–so the money flow is slowing. OTOH, the Milwaukie MAX funding has already been approved, and the project has a very good FTA cost-effectiveness rating, and thus has a good chance of surviving the sharp pencils.

Other factors

Various other factors which could influence the decision include:

  • When will peak oil occur? As noted above, a major justification for the project is the price of gasoline and other fossil fuels. Petroleum is not produced in Oregon; it’s something we have to import. Whether it comes from Alaska or Texas or Venezuela or Saudi Arabia, it nonetheless gets here on a freighter or in a pipeline. As a result, nearly every dollar spent on gasoline is a dollar sent out of the region; the local value-add is pretty small. The price of gas, essentially, is a tax on our economy, and that excludes the taxes that we ourself levy on fuel. It’s a tax which confers no benefit on the region–and in many cases it’s money that winds up in the hand of various unsavory characters. And it’s a particularly regressive tax; millionaires pay the same amount for gas as do minimum wage workers. (OK, rich guys may buy premium for their fancier cars, true…). Every dollar increase in the price of gas represents hundreds of millions of dollars removed from the local economy; a $2 increase in fuel prices would represent an increased “tax” on the region which is comparable in size to TriMet’s annual operating budget, but without paying for a single bus or train. This suggests that should gas start to get expensive again, increased transit capability cannot come too soon.
  • The ability to redeploy highways: The previous item suggests a reason why waiting is bad; here’s one that might weigh in on the side of delay. A major expense of the Milwaukie MAX line (and capital projects in general) is the cost of right-of-way. To be useful, the lines have to be built through existing urban fabric–and generally, there’s already something there along the route. A big chunk of money is going to UPRR (buy me a beer and I’ll tell you what “UP” really stands for) for the ROW between the freight lines and McLoughlin, and another big chunk is going to demolish perfectly good buildings in the SE industrial area. TriMet has long saved money by running in downtown streets, but tearing out a few lanes of McLoughlin (or Barbur or I-5) to make room for tracks (or a busway) is presently out of the question. In a post-Peak Oil world, we may find that the political climate has changed, however, and that converting highways to rail lines is suddenly a practical thing to do, given that nobody wants to drive at $5/gallon. This would be poetic justice, after all, many of our urban highways occupy former railway grades. More than a few transit advocates call for such conversions today–but today, removing highway capacity just ain’t happening. Tomorrow, it might.
  • Construction costs: Another issue to consider is this: Building rail in the US, at the present time, is expensive, far more so than in comparable countries elsewhere in the world, with similar levels of labor cost and environmental regulation. Lots of different reasons why have been suggested (large number of stakeholders each imposing their own requirements, a convoluted approval process with lots of red tape, above-market labor rates, rail being a “specialty” discipline in the construction trades and thus bids subject to far less competitive pressure than projects involving pouring concrete). If a project were delayed, or delay could be credibly threatened, then maybe costs might go down. OTOH, costs could go up as well, especially if a construction boom occurs in the future.
  • Changes in technology: One other issue sometime suggested is that future technological improvements may make our planned choices obsolete (whether rail, busway, or freeway) in the near future. GM and Nissan both now manufacture vehicles capable of full-time electric drive; Toyota and Honda have had hybrids on the market for several years. Some rather exotic technologies (driverless autos, “personal rapid transit”, etc.) are presently the subject of research, although many of these are decades out and would require far more substantial changes in infrastructure to deploy.
  • The population forecast and the long-term economic outlook. One other important point to make is that many infrastructure projects which add capacity, whether road or rail, are based on predictions of future demand as much as on current demand. Current demand is often constrained by existing capacity, and induced demand is a long-demonstrated phenomenon–but projections on future demand are based on long-term projections of population growth, a science which is inexact, to say the least. Population trends are inherently tied in with economic trends (and vice versa) as well as demographics; a region with a robust economy will attract immigrants, and a region with a declining economy will often have people moving away. (Population and the economy are important for financial reasons as well). It is tempting to suggest that “wait and see” is a prudent approach, particularly given the current recession–the concern that “this is the new normal” and there won’t be a substantial recovery for a long time, is a reasonable one. On the other hand, concerns about long term trends represent a level of uncertainty that will always be present, no matter how long one waits–for a project expected to last for decades, there’s often no advantage in delaying for a few years.
  • Organizational issues: Finally, there’s the laundry list of issues specific to TriMet and other agencies involved–concerns about their finances (in particular, agreements with workers past and present) and their organizational competence. Some feel that TriMet has to get its finances in better order prior to spending any money on a project of this magnitude. Others may think that projects of this nature are part of the solution and not the problem–the bulk of funds available for construction are not available for pensions and other expense items, and that longer term, capital projects will help with the operating bottom line.

Thoughts? Any others? As noted above, this post is meant to stimulate a bit more discussion on the merits of big-ticket capital projects, and their timing. If you think that waiting is a reasonable course of action (whether in the context of MLR, another project in the pipe, or in general), feel free to say so–but please include in your missive what conditions ought to be satisfied for the project to proceed. If you think that full speed ahead is the correct course of action, please add your two cents about why delay is unwise and/or arguments for delay are unimportant. (And if you hate the project altogether, go ahead and say that too–though keep in mind that an underlying assumption of this discussion is that the project is ultimately worthwhile).

Happy Chinese New Year!

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