So much nonsense, so little time… Let us now take a close look at Governor Bob McDonnell’s argument that Virginia needs to raise tax revenues so we can construct new transportation projects… so we can ameliorate horrendous congestion costs that are costing Virginians billions of dollars per year.
Here’s what the governor had to say in a Wednesday press release:
Just this month, the Texas Transportation Institute released a new study finding that our growing immobility has made the Northern Virginia/Washington region America’s most congested area. Virginia Beach is America’s 20th worst. Richmond, the 60th. The inability of Virginians to move quickly around their neighborhoods and cities comes with a major financial price tag. The Institute estimates our congestion costs drivers in Northern Virginia $1,400 a year. It costs drivers in Virginia Beach $877 per year and drivers in Richmond $581 per year. The bipartisan failure to address our transportation needs for almost three decades has cost every citizen of this state thousands of dollars, and countless hours of time that could have been spent at home and at work.
Add up all the numbers, and it appears that congestion is costing Virginia’s three largest metro areas $2.9 billion a year. As those are the three regions with the largest populations and the worst congestion, we can round off total congestion for the state to about $3 billion. That sounds like a lot of money. Why wouldn’t Virginians be willing to pay a little more in taxes to whittle down that number?
The compromise tax proposal, if fully implemented, would raise about $860 million annually. That sounds like a lot of money, too. How much congestion relief would it buy us?
That’s hard to say with any certainty, but follow my logic here. According to a document posted on the Virginia Department of Transportation (VDOT) website, the total value of Virginia’s roads and highways amounted to $353 billion in 2000. That’s just the road network, not including any rail assets. It doesn’t count the billions of dollars of assets added since then — the Woodrow Wilson Bridge, the Interstate 95-Capital Beltway Mixing Bowl. Nor does it account for the fact that highway-construction inflation has been 12% to 15% since then, which would imply a higher replacement value for those assets. But let’s accept it as an extremely conservative valuation.
Now, let’s say the state invests that $860 million a year. That $860 million will increase the asset value of Virginia’s transportation infrastructure by about 0.2% per year. That’s two-tenths of one percent.
Now, let’s assume that the state targets genuine congestion-mitigation projects, not speculative economic development projects like the $1.4 billion U.S. 460 Connector or political pay-offs like the Charlottesville Bypass. And let’s assume that the dollars are allocated to the highway districts that suffer the worst congestion, not distributed to districts in proportion to which they paid the taxes. Let’s further assume that the new tax revenues add incrementally to the valuation of assets in the most congested areas of the state by 0.3% annually (not a mere 0.2%).
Now, let us give that spending a multiplier, on the grounds that taking one percent of the cars off a crowded road will reduce the level of congestion by a factor of two or more. For simplicity’s sake, we will pretend that the phenomenon of “induced demand,” in which building more roads induces more driving, does not even exist. Let’s assume that a 0.3% increase in the valuation of VDOT assets leads to a 0.6% decrease in congestion.
What is that 0.6% reduction in congestion worth to Virginia drivers? Well, six-tenths of one percent of $3 billion is about $18 million. In other words, Virginians will spend $860 million a year to save $18 million in congestion costs. That represents a 2.1% Return on Investment.
Think of it this way, if my assumptions are close to the mark, the state would take your tax dollars and reinvest them in transportation projects that would yield you 2.1 pennies on the dollar in the form of reduced congestion. Even in Ben Bernanke’s super-low interest-rate environment, that return would suck. You could double or triple the return on your money just by pre-paying your mortgage!
Finally, let’s dig a little deeper and ask ourselves, whom does that spending benefit? It benefits drivers who place the greatest value on their time, in other words, those who earn the most money. Raising taxes to build more roads benefits the affluent far more than the middle class and working class. It also benefits those who drive a lot at the expense of those who drive only a little or not at all. There is a reason why there is no clamor among the populace for this tax increase — most people see minimal benefit from it. There is a reason why the special interests are driving this tax increase forward. They expect to reap the spoils.