Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks Podcast. This is your host, Brian Anderson, editor of City Journal. Coming up on the show today, we have a conversation between two of our top experts in the nation on infrastructure and transportation systems. First we have Nicole Gelinas. Nicole is a City Journal contributing editor and a senior fellow at the Manhattan Institute. She writes regularly for us and elsewhere about mass transit, infrastructure, autonomous vehicles, and much else. Nicole was joined by a pioneer in infrastructure policy, Robert Poole. Bob is the cofounder and director of transportation policy at the Reason Foundation and he’s advised numerous federal and state transportation agencies for decades. Bob stopped by our studio to talk with Nicole about his new book, Rethinking America’s Highways, a 21st Century Vision for Better Infrastructure. We hope you enjoy.

Nicole Gelinas: Good afternoon. This is Nicole Gelinas. I am here with the Manhattan Institute with Bob Poole. He is the author of a new book called Rethinking America’s Highways: A 21st Century Vision for Better Infrastructure. And Bob is the director of transportation policy at the Reason Foundation. Good afternoon, Bob. Thanks for coming over to talk to us today.

Robert Poole: Hi Nicole. Thanks very much.

Nicole Gelinas: Well you think that our highway system is broken—congestion, potholes, lost productivity and so forth. Tell us why you think that and when this problem came about.

Robert Poole: This problem has been building; I’ve been in transportation for over 30 years and all those problems that you just identified were problems 30 years ago and they’re even in many cases even worse today. The funding situation is worse. The gas tax is on its last legs. The condition of highways sis slightly improved but we still have about 30% deficient bridges, which is incredibly bad. We have massive congestion that’s getting worse rather than better in all our large- and medium-sized urban areas. And nothing seems to change. All we hear are cries, “we’ve got to spend more money.” But nobody questions how the money, how the decisions get made, who’s responsible for doing what, and why nobody seems to be actually dedicated to solving those chronic problems.

Nicole Gelinas: And how are we supposed to be solving them now? I mean tell us a bit about how the existing system is supposed to work.

Robert Poole: Well the way the system actually does work is that we have in every state we have a state Department of Transportation that’s responsible for the highways system. But they don’t have a direct relationship with the people who use the highways, the so-called “customers.” The customer of the state DOT is the legislature. The legislature gets the tax money from gas taxes and diesel taxes and whatever else they can scrape together. And whenever they have a legislative session, they look at the plan that the state DOT has given them and then they decide “well what are we really going to spend the money on?” And every legislature wants to be able to cut ribbon in his or her district, ideally every year. So the money that gets carved up typically, only bears some vague relationship to the state DOT’s plan because many of them are good, solid professionals. But you get political decisions instead of what really makes the most sense. And you never have or virtually never have even a basic benefit/cost test to say the benefits have to exceed—the dollar value of the benefits have to be more than the dollar value of the cost. In addition, you have a procurement system that is really broken that leads to standardized designs where companies bid low in the sure expectation that if they bid low enough and win, then they’ll be able to make it up on many change orders and so there will be large cost overruns. This is endemic in the highway construction field in the standard way of doing business. And in the legislature’s decisions, highway maintenance gets the leftovers. Because you don’t get any political benefits, there’s no ribbon to cut. Highway maintenance is boring. It’s basically invisible unless the roads are really cracked up. So maintenance is—deferred maintenance is the term used in the field. And it’s a chronic problem, and it’s worse in some states than others, but it’s a problem across the country.

Nicole Gelinas: Yeah it’s a huge, huge problem here in New York. I mean the Brooklyn Queens Expressway has been falling apart now and the cantilevers and they still haven’t gotten around to putting together a formal plan for this. So what would you do instead?

Robert Poole: Well the realization that I came to about a decade ago is that even though people sometimes call the highway system a utility, a network utility sort of like telephones and electricity with all the things connected even though with different providers, it’s not really a utility. All of the utilities in the United States except highways are organized as business where there’s a payment by the users based on how much they use of the service, what services they use and how much they use of it—electricity, water, telephone service, cable, internet, whatever, but not highways. [With] highways it’s only tax money that’s paid to the government, allocated politically. If we ran electricity that way or if we ran cellphones that way, I mean you’d have congestion on the lines, and you’d hardly be able to get a reliable call and people would say “oh well that’s just the chronic problem; that’s just what we have to live with.” I think that’s unconscionable. We need to basically rethink the organizational model and make highways into businesses that have a direct relationship with their customers because they’re paid by their customers directly; the decision-making on where to spend the money would not be made by the politicians. It would be made by the professionals in the department in response to a need to serve their customers properly and to do projects that actually make business sense and earn them a return on their investments. Even if they’re just funded by/financed by revenue bonds, they would still have to sell the bonds to bond holders and they would have to make sense as being likely able to be paid back. None of that exists in the highway system except in the toll roads we have in some states and in some metro areas.

Nicole Gelinas: What are some examples of states that have done this right under the limited ability that they have to do it under some of the, the federal restrictions that you mention in your book?

Robert Poole: Two of the standout states are Virginia and Texas. Both have done quite a growing number of—we call them P3—Public private partnerships. But they’re long-term projects financed by the toll revenue and by equity investors. So for example on the capital beltway around Washington, D.C. and around Northern Virginia, there is now express toll lanes that are privately financed under a 70 year—we call it a concession—it’s like an electrical utility franchise. And they’re very customer responsive. They charge variable prices to try to keep the traffic flowing smoothly at rush-hour so you can have a fast, reliable trip no matter what time of day it is. And prices are obviously highest at the busiest times. But the company is successful that is doing this. They’ve won additional concession agreements to lengthen it southward and northward. So that’s one example is Virginia. And they have three or four other projects, the huge new tunnel in the Hampton Roads area is about I think 1 billion and a half dollar long-term concession also financed by the 12 revenues. Texas has two billion and two and a half billion dollar express lane toll projects in Dallas and in Fort Worth that are in operation now. [They’re] hugely popular. There was such bad congestion on the LBJ Expressway and on what’s called the North Tarrant Express in Fort Worth, that now people have a choice. And they really appreciate having the choice. There’s backlash of opposition in Texas by populist, Tea Party conservatives who have put a moratorium on more projects of this sort, but that’s something that may get corrected in coming legislation.

Nicole Gelinas: What’s their criticism?

Robert Poole: Their criticism is that highways should be free. I mean it’s really kind of no-nothing populism and basically what they’re defending is basically what Milton Friedman called a socialized enterprise. I don’t think they realize the irony of that or maybe they don’t care what Milton Friedman thought or wrote. But they really just, they don’t really understand. They also call it crony capitalism. They think somehow that this is not done decided by a fair, competitive process, and that the deals that are signed, the long-term agreements, are not enforceable somehow. They’re all wrong and I have a whole chapter in the book to looking at the specific criticisms they make and explaining why they’re either misinformed or deliberately not telling the truth.

Nicole Gelinas: Now here in New York, I’ve got to address the transit issue because most people in New York City rely, not on highways to get to work like in Texas and even in Virginia, but on a subway, a commuter rail, a bus. How would you apply a model like this to a city like New York where we actually have a lot of money coming off of the bridges that the MTA and Port Authority own? That money goes to subsidize the transit system. Would you suggest something like a congestion pricing program for the roads within New York City and have some of that money go to defraying the cost to transit? Because frankly, we do have problems with funding our highways, with rebuilding roads—as you mentioned, they haven’t seen enough maintenance in decades. But the bigger, immediate problem and the problem that has played a part in the gubernatorial election is people are just fed up with the transit system, with record ridership and delays.

Robert Poole: Well I’ve read a number of articles in the New York Times and from the Manhattan Institute about the very high cost of building, digging subway tunnels in New York City and I, while in principle I agree—I think congestion pricing is part of the answer to mobility in New York City because you just can’t get around on the streets anymore—I’m hesitant to pour more money into an unreformed transit system. I think it’s like giving explosives to a child or something. It’s not a responsible thing to do. There’s major reforms needed in how projects are procured but also in how subways are run. They were very late to go to get rid of subway tokens, for example—I mean electronic ticketing and so forth. They should have distance based pricing like the Washington Metro has had since its inception. They should have peak pricing—you know, not everyone has to travel at rush-hour. People do, but people have different time periods when they have to be at work and so forth. So there are a lot of reforms that could be done. If you were starting over and could start from scratch, the model in Hong Kong and Japan of real estate and rail transit being part of the same enterprise has a huge amount to recommend it, because having a subway station creates a huge amount of economic value. Right now that’s a windfall to the property owners who happen to be there, whereas in Hong Kong, Hong Kong Mass Transit Railway is profitable. It was partly privatized. It’s no longer wholly government owned, about a decade ago, because it’s all based on this model of real estate value and the transportation. And I don’t know how to start retrofitting that into a place like New York City or Chicago or the District of Columbia. But if someone could really figure out a way to do that, it would start in that direction, I think that would help. But labor reform and procurement reform and things, I would say for me would be preconditions before coming up with a big new source of funding for the subway.

Nicole Gelinas: Yeah I think you’re right and that gets back to your original point or one of your original points you make in the book, and that’s, we have to depoliticize a lot of these decisions and it’s kind of a chicken or the egg issue. I mean we have some PPP’s in New York but the conditions under which they’re awarded preserve a lot of these project labor agreements and—

Robert Poole: It’s also that you want to create virtuous incentives in the organizational structure. I mean when the decisions are all made by politicians, then the agency in question sees their legislatures as their customers. That’s who they have to please, where they should be focused on pleasing their actual customers, the ones who use the service. And that applies to drivers on roads. It applies to transit riders on transit. Yet, the model is focused all in the wrong direction. It’s not focused on the best service for the customers in either highways or transit.

Nicole Gelinas: Yes and one of the first steps to doing that would be to price the space on the highways as you—

Robert Poole: Yes absolutely, but also reform the pricing on the subways. Somebody who goes three miles should not be paying the same amount as somebody who goes 15 miles. I know the different levels of income and so forth. I also think part of that reform should be transit vouchers for people who are truly low income and who need transit to travel, it’s far better to subsidize the deserving customers rather than subsidizing the bankers, lawyers and accountants who also ride it at the ridiculously low fare. So fare reform in all of those forms I think would be a big part of a fundamental reform in addition to obviously the labor practices.

Nicole Gelinas: Well thank you again for coming today, Bob. And again, Bob’s book is Rethinking America’s Highways: A 21st Century Vision for Better Infrastructure. Again, this is Nicole Gelinas for the Manhattan Institute. Thank you for listening.