More Toxic Logic

When good governors go bad…

by James A. Bacon

Gov. Bob McDonnell has submitted his amendments to the landmark transportation-funding legislation passed by the General Assembly earlier this year. His proposals tweak the bill — reducing the annual fee on alternative-fuel vehicles from $100 to $64, for instance — without altering the substance.  Among the more notable changes, the governor attempts to “improve the legal posture” of regional transportation taxes to skirt constitutional issues raised by Attorney General Ken Cuccinelli.

These changes are nothing to celebrate — if adopted by the General Assembly, they will render a bad bill a little less bad. What concerns me most is that McDonnell repeats unsubstantiated talking points, which, if allowed to propagate unchallenged, will lead to more pernicious legislation in the future.

Jobs and economic-activity argument. In his press release today, the governor says, “This long-term transportation plan will generate thousands of jobs, create hundreds of millions of dollars in economic activity and provide the Commonwealth with the transportation infrastructure necessary to grow and prosper in the decades ahead.”

There is not a scintilla of evidence that this tax hike/restructuring plan will create either jobs or economic activity. True, the measures potentially will raise some $860 million a year that will be spent on highly visible transportation projects such as widening I-64 between Newport News and Williamsburg, widening Route 28 in Northern Virginia, bringing Amtrak service to Roanoke, and helping to build the Coalfields Expressway in Southwest Virginia, all of which will create jobs.

But the legislation also raises taxes. Those taxes will come from individual Virginians who would have spent $860 million on other goods and services, which also would have supported jobs and economic activity. The only way one could argue that higher taxes would create new jobs and economic activity, as opposed to shifting them from one sector of the economy to the other, is if the investments stimulated economic economic activity that would not have occurred otherwise. But there is simply no way to know if will happen.

Indeed, a case can be made that the tax increase will be economically destructive. In a previous post, “What Will We Get for that Transportation Tax Increase,” I suggested that, by reducing congestion costs, the transportation improvements might generate a 2.1% return on investment, which is below the cost of capital, hence destructive of wealth. And that’s optimistic. My calculations took no account of the well-documented phenomenon of “induced demand,” in which the addition of new transportation capacity induces more driving and, after a delay, erases the reductions in congestion.

The cost-of-delay argument. McDonnell also reiterated this statement: “If we do not act now to solve the Commonwealth’s transportation funding problem, the cost of delay will be much higher in the future.” Says who? Such logic assumes that in a weak global economy, construction costs will increase like they did in the 1990s and 2000s. One could make the alternate case that, as the economies of China, India and other fast-growth countries cool off and as Europe struggles with the euro, global economic growth will slow, price pressures will be deflationary, and construction prices will decline. There simply is no way of knowing for certain.

Investing in the wrong projects. The most important question of all goes unaddressed — are we investing in the right projects? Will growth and development in Virginia resume the suburban-sprawl pattern of the two decades preceding the recession or will profound economic and demographic shifts push the preponderance of growth back toward the urban core? The McDonnell administration has steadfastly refused to even consider that possibility. The governor is promoting projects conceived in the 2000s real estate bubble that have worked their way through the tortuous road-approval process and are now ready for funding. But the world has changed dramatically in the past 10 years. What may have made sense then does not necessarily make sense now.

21 Responses to More Toxic Logic

  1. @ “widening Route 28 in Northern Virginia”

    The problem is they are widening Route 28 in the wrong spot.
    They need to widen the widen in Centreville, VA near New Braddock Rd/Compton Rd. not in Bristow near to the Manassas Airport.

    The current widen will support future growth, but not current major congestion issues.

  2. There are times when I become exceedingly cynical when listening to Bacon rail about the bogus nature of transpo funding in Va as I cannot in good conscience disagree with him for the most part given the oh-so-obvious connection between the availability of transpo funding the developers grand ideas for more roads to greenfield development sites.

    So I have to conclude that this is really about the housing sector and the fact that McDonnell buys into the idea that the housing sector is what really buttresses the economy and anything that boosts it – is “good” for Virginia even if it is pure sprawl and it is even worse than a zero sum game when it comes to highway infrastructure.

    And to be honest, he has lots of support also from the folks who do NOT want to see MORE density in existing MSAs….

    so there is de-facto support for sprawl but carefully dressed up to look like a pig with lipstick.

    Who said that McDonnell was a “principled” conservative?

    ha ha ha… the joke is on Bacon and his GOP cohorts… who thought
    picking McDonnell was NOT picking Deeds… Oh CONTRAIRE !

  3. Jim:

    You and your conservative friends really need to stop the mis-representation of the facts.

    A gas tax frozen in cents per gallon creates a tax cut (in real terms) every year. The gas tax has been cut each year for the last 27 years.

    Bob McDonnell has stopped the tax cuts.

    I mean you and Norm Leahy and the rest do understand inflation, right?

    • Don, I’m not misrepresenting any facts. Read what the man said: “The cost of delay will be much higher in the future.”

      Will be … in the future. That’s the future tense.

      You do understand the difference between the past tense and the future tense, don’t you?

      If McDonnell wanted to say that the gas tax had shrunk in value over the *past* 25 years, he would have been fine. But that’s not what he said.

      • You’ve gone from misrepresentation to being disingenuous.

        Here’s what you said, “But the legislation also raises taxes.”.

        In real terms, that is only true if the additional $860M per year is more than the inflation adjusted transportation taxes would have been under a competent revenue plan.

        If a person was making $20,000 per year in 1986 and never got a raise …
        would you claim that the person received a “massive pay hike” if they had their salary raised to $30,000 in 2013? Or, would you declare that the person received a long overdue COLA?

        If you wanted to be honest you would write something like, “Bob McDonnell has upset Virginia conservatives by ending 27 straight years of annual gas tax cuts (in real terms)”.

        You understand inflation. You know the gas tax has fallen in real terms for 27 consecutive years. You know this is far from an Obama – like increase in the tax RATE.

        The problem with pretending not to understand inflation is that it seriously detracts from your other, good points like providing ROIs for road projects.

        • Let’s say Fredo has gone 25 years without ever getting a raise. Then one year, he gets a raise. You still say he got a raise, even if that raise hasn’t caught him up with inflation over the previous 25 years.

          If you want to footnote the raise (or tax increase) by saying it hasn’t kept up with inflation compared to 25 years ago, that’s just jim dandy. But a raise is a raise, and a tax increase is a tax increase.

          • re: ” a tax increase is a tax increase.”

            GAWD… that is SO “tea party” Jim… Neanderthal… in fact…
            same thing I guess… do you feel the same way about COLAs for Federal and State retirees?

            what else ? any/all inflation-adjusted payments?

          • How hard is this? The General Assembly passed a tax increase. That tax increase is designed in part to offset the last 27 years of inflation on the static gas tax and in part to offset future inflation. Everybody knows this. Must it be stated every single time?

          • And a tax decrease is a tax decrease. How’s this – After 27 consecutive years of gas tax cuts Bob McDonnell raised taxes?

            You and your ilk fixate on the increase but can’t bear to mention the endless decreases.

  4. re: transpo funding in Va. We should also acknowledge that in 2002, Va effectively increased the gas tax by 10 cents…

  5. I agree with Jim on most points here, but Don is right that McD has ended ghost tax cuts since no one had raised the gas tax while inflation made it an annually cut.

  6. Putting aside the inflation issue, which for the gas tax is significant, this entry makes the refreshing point from the conservative perspective that tax increases should only be supported if they promote economically and environmentally sustainable growth. These projects, on the whole, especially that Route 28 widening, clearly do not, and this transportation investment looks ill advised.

  7. Clearly, VDOT needs more money just to stay even. But even more important is to ensure the money is well spent. I like the efforts, partially successful, of Delegate LeMuynon and Senator Marsden to force funding of projects based on RoI instead of who has the best lobbyist.

  8. Uh oh, Jimbo …

    http://washingtonexaminer.com/cuccinelli-claims-credit-for-road-bill-he-nearly-killed/article/2525458

    Quoth the Coochven … evermore!

    “I was honored to work with members of the McDonnell administration in making sure the legislation was able to move forward without the threat of any legal challenges,” Cuccinelli said in a statement. “Moving forward, I remain committed to working to fix Virginia’s transportation problems, which will create jobs and ease the congestion across the commonwealth.”

  9. I don’t want to wade into this debate about what is and is not inflation, but as a transportation planner, I do feel compelled to note that maintaining roads today is always less expensive than completely reconstructing them in 5, 10, 15 years, regardless of the cost of construction and materials. While I can’t believe I’m saying this, McDonnell is partly right on that count.

  10. And if embedding that table didn’t work, here’s what I mean again: http://www.flickr.com/photos/iheartmountains/8594618581/

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  12. Jim – You are the Don Quixote of conservative pundits. I am afraid you are tilting at windmills if you think that any politician is going to listen to your ideas on smart growth and ROI (which make sense) in deciding whether to build a road. R

  13. I’m amused as the way that McDonnell “solved” the “unconstitutional special tax in some areas” issue that the Cooch heralded and Conservatives were swinging from trees howling about.

    So what did McDonnell do? Why he did the well-exercised GA tactic of (re)writing the law in such a way that it was generic but it’s provisions were so carefully stipulated that it only applied to two jurisdictions!

    what MASTERY! what typical GA sausage-making! and what a way to raise taxes!

    superlatives all around!

    makes me wonder why McDonnell and his surrogate sponsors (and legislative staffs) did not take that approach in the first place and why our vaunted AG did not get in the game early and advise McDonnell and the GA on how to write a “proper” regional tax!

    so now the Jim Bacon pitchfork and torch crowd has to disperse… tail tucked behind them and shuffle on off…. their only lonely retort… “wait til the primaries”!

    and the sheer BEAUTY of this approach in the future is that (like we have seen before) – to include other regional MSAs – all that needs to be done is to slightly “tweak” the stipulations.

    Sheer GENIUS!

    Toxic Logic Indeed!

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