Bacon's Rebellion

At 2:04 PM on 25 January under the post “Rail to Dulles is Dead: Give it a Paupers Burial” Groveton said:

“Jim:

“I guess you believe that the ends justify the means. The end is a more efficient pattern of human settlement. The means is to allocate some direct costs back to the people who cause those costs to be incurred while spreading other direct costs to everybody on a per capita or means tested per capita basis.

“This has nothing to do with fairness or equity. It is a mechanism for you to impose your worldview on others. Your worldview (or ends) is to force high density development on “core” NoVA. Your means is to gerrymander direct costs into location-specific and other. You vary the definition of location specific costs until (you think) it proves your point. This is an outcome based (vs. a fairness based) definition. You are willing to throw fairness aside in order to get to your desired outcome. I am not willing to do this.

“You make the following statement, “That logic does not prevail now — the system is rife with massive cross-subsidies — and as a consequence taxpayers living in location-efficient communities are subsidizing those who live in location-inefficient communities.”

“You have never demonstrated that point. A subsidy occurs when a group consumes more of something than they pay for with the balance being paid by others. You have a long litany of “proof points” where one style of development costs more than another style of development. However, you never seem to look at the other side of the coin – the taxes paid by one location vs. another. A subsidy can only exist when one location is paying too little in taxes to cover their costs. The only accurate test for a subsidy must be both an examination of costs and and examination of taxes paid. You give the cost side great effort. Yet you seem to ignore the (much easier to calculate) taxes paid side of the equation. Why?

“You also take the accountant’s view of costs vs. the economists view of costs. Accountants only count costs that are directly incurred. The economist counts costs that are directly incurred and then adds the opportunity costs as well. An accountant might think that a conservation easement which blocks economic development costs nothing since there are no checks being written. An economist might think that same easement costs quite a bit since there is (potentially) a large opportunity cost. Your accountant’s view allows you to excuse the opportunity costs of decisions.

“There are more flaws in the logic of your agruments but I have to get back to work. I am incurring an opportunity cost by not working. I’ll continue my critique when I have more time (and the opportunity costs are lower).”

Groveton:

While you addressed this comment to Jim Bacon, EMR will take a crack at responding to your comment since Jim’s position relies on nearly three decades of working with EMR and on EMR’s experience and research. EMR’s my notes are in italics. Since this post went through a word processor, spelling and punctuation from the original post above has morphed.

“I guess you believe that the ends justify the means. The end is a more efficient pattern of human settlement. The means is to allocate some direct costs back to the people who cause those costs to be incurred while spreading other direct costs to everybody on a per capita or means tested per capita basis.

“This has nothing to do with fairness or equity. It is a mechanism for you to impose your world view on others.”

One view of “fairness and equity” would be that in a democracy with a market economy each citizen, Household, Agency, Enterprise and Institution pays their fair share of the costs, unless there is a transparent, open reallocation of the cost by democratic processes. There are ethical, moral and practical reasons for “subsidies” (e.g. assisting those who have been systematically deprived in the past, those with special disabilities and needs, etc.) Those factors can be reflected in the transparent, open cost reallocation.

“Your world view (or ends) is to force …

No one is “forcing” anyone to do anything. If you want to pay the total cost of your actions, then do what you please.

… high density development on “Core” NoVA.”

It is important to note that this last phrase indicates that you agree with a central reality that in other contexts you seem to discount: More intense settlement patterns are more efficient. That is especially true with the rising cost of overcoming spacial dysfunction.

“Your means is to gerrymander direct costs into location-specific and other.”

On what do you base the charge of “gerrymandering?” Please be specific.

“You vary the definition of location specific costs until (you think) it proves your point.”

EMR has read Jim Bacon’s material for nearly three decades and has not seen any indication of this. Specifically, how is “the definition of location specific costs” (location variable costs) varied?

“This is an outcome based (vs. a fairness based) definition.”

As noted above, a fair allocation of cost is in fact “fair” by definition.

“You are willing to throw fairness aside in order to get to your desired outcome.”

This does not follow. Do you have a specific example?

“I am not willing to do this.”

Neither is EMR and suspect Jim Bacon is not either.

“You make the following statement, ‘That logic does not prevail now — the system is rife with massive cross-subsidies — and as a consequence taxpayers living in location-efficient communities are subsidizing those who live in location-inefficient communities.’

This is a fair and accurate statement. It could be more clear if “taxpayers” was replaced by “citizens” for reasons noted below. EMR believes Jim Bacons used “taxpayers” to mean “all citizens” or “all Households” in a specific component because “everyone pays taxes” not because the inequity is rooted in the level of taxes that citizens pay. Note that Jim appropriately uses the word “communities” with a small “c.” See GLOSSARY

“You have never demonstrated that point.”

Perhaps Jim has not but EMR has. Based on 25 years of experience in actually building the components of human settlement pattern, EMR derived five “Natural Laws of Human Settlement” and four of the five (The Cost of Services Curve, The 10X Rule, The 10-Person Rule and The 87 ½ Percent Rule) taken together support Jim’s statement. He does not cite these laws every time he notes the cost allocation inequities and neither does EMR. See Natural Laws in GLOSSARY.

This is critically important because those who are uncomfortable with the implications of the positions the Jim and EMR take, immediately leap to illogical, emotional and pseudo-scientific irrelevancies without ever addressing the core principles upon which these arguments are based.

“A subsidy occurs when a group consumes more of something than they pay for with the balance being paid by others.”

That is a fair statement.

“You have a long litany of “proof points” where one style of development costs more than another style of development. However, you never seem to look at the other side of the coin – the taxes paid by one location vs. another.”

Here is where use of the word “taxpayer” becomes a source of confusion. Taxes are a red herring in these discussions because “taxes” (especially municipal taxes on property) only cover a few of the 40 +/- important location variable goods and services. State and federal taxes cover a few more and with some notable exceptions such as the federal and state gas tax they are flat rate taxes. Your federal tax bill does not have a line item for the military cost of keeping oil costs low since 1973.

“A subsidy can only exist when one location is paying too little in taxes to cover their costs.”

Again “tax” is not the issue. It turns out those who are benefiting from the overall location cost mis-allocation subsidies are frequently benefiting from a tax subsidy as well but that is another story.

Because scattered urban land uses frequently cannot benefit from some “urban” services paid for through municipal (especially property) taxes it is assumed the scattered location urban land use is being “overtaxed” for services. That is one of those illogical, emotional and pseudo-scientific irrelevancies we note above.

“The only accurate test for a subsidy must be both an examination of costs and examination of taxes paid.”

See above on taxes.

“You give the cost side great effort. Yet you seem to ignore the (much easier to calculate) taxes paid side of the equation. Why?”

Why? Because you assume the use of the word “taxpayer” meant the only issue was “taxes.” It is not.

Before going on to your next point it is important to understand that in the Washington-Baltimore New Urban Region, including the National Capital Subregion (and in every major New Urban Region in the US of A) there is far more land already devoted to urban land uses than can be efficiently used to support the projected population for the next 50 years.

Given the rising cost of energy to overcome spacial dysfunction this is a huge “opportunity cost” that is not yet on your screen.

“You also take the accountant’s view of costs vs. the economists view of costs. Accountants only count costs that are directly incurred. The economist counts costs that are directly incurred and then adds the opportunity costs as well. An accountant might think that a conservation easement which blocks economic development costs nothing since there are no checks being written. An economist might think that same easement costs quite a bit since there is (potentially) a large opportunity cost.”

This is a bit demeaning because Jim has demonstrated a broad, not narrow, view of the world. Condescending tone aside, when you get all the costs, including the opportunity cost and benefits to the scattered development proponent on the table, Jim’s original statement is right on.

“Here is the rub. There are lost “opportunity costs” but there are also “avoidance costs” things that would cost a lot if they were allowed to happen that are never billed.”

This is a lot easier to calculate with goods and services, it is not as easy with settlement patterns but when all is said and done and all the costs are fairly allocated, Jim is right.

“Fair allocation” takes in all these costs and benefits and says, if you want to pay, go for it. EMR says if someone is willing to pay the total cost and it is still not in the best interest of society as determined by democratic processes then there should be compensation paid.

That would almost never happen because most of that “loss of value” is “loss” from an inflated, speculative valuation based on failure to understand the first of the five Natural Laws: A= PiR2.

“Your accountant’s view allows you to excuse the opportunity costs of decisions.”

See above

“There are more flaws in the logic of your arguments but I have to get back to work. I am incurring an opportunity cost by not working. I’ll continue my critique when I have more time (and the opportunity costs are lower).”

Groveton, you make a lot of very good observations and have some solid ideas about governance change but critiquing the core tenets of the evolution of functional and sustainable settlement pattern is not a “while I eat my lunch” sort of effort.

Keep up the good work. Abandon the rest, no one can do it all.

EMR

It appears that the Rail-to-Dulles issue isn’t going away. In today’s column, “They Played Us,” Doug Koelemay writes colorfully that the recent Federal Transit Administration to refject federal funding for the heavy rail project is “the largest federal assault on Virginia rail since Union Gen. Benjamin Butler ripped into the Richmond & Petersburg line in 1864.”

Doug advances the argument that there is something grievously flawed with the process by which the FTA reached its decision. He concludes that the FTA should:

Stop moving the goal posts, start looking ahead at opportunities in rapidly urbanizing areas and start delivering what Virginians, like all Americans, expect — a process that reduces the time and cost of delivering transit projects, that helps allocate risks and responsibilities, that contributes predictability and transparency to the process and that accommodates innovative project delivery methods, such as the partnerships and financing mechanisms proposed by Virginia for Dulles Rail.

No doubt Doug is right, the FTA process could be improved. But there’s no overlooking the flaws inherent with the project that was submitted to the FTA either.

E M Risse offers a very different take on the FTA decision. He agrees in “Who Killed Dulles Rail?” the FTA is hardly innocent. Who would expect a Republican administration to give such a plum to a state with a Democratic governor? But plenty of others deserve a share of the blame, including, in ascending order: state officials, Washington Dulles airport, civic cheerleaders, landowners and developers, consultants and “investors,” municipal “leaders,” tunnelphiles and, most egregiously, the Washington Post. To paraphrase Pogo, “We have seen the enemy, and it is us.”

While we’re on the topic, it’s worth noting that Amy Gardner writes in the WaPo today that the Carlyle Infrastructure Fund and other private equity groups have expressed an interest in investing in a Rail to Dulles project. I’m not holding my breath — like the existing proposal, Carlyle would extract wealth from Dulles Toll Road commuters rather than the property owners who would be enriched by the project — but it’s always possible that an outside equity group would bring fresh thinking to the project.

Meanwhile the Washington Examiner has posted a story on how Rail-to-Dulles supporters are taking heat for having vested themselves in a project that turned out a loser. Most interesting are the comments of former Congresswoman Leslie Byrne who may face Gerry Connolly, chair of the Fairfax Board of Supervisors, in a bid for her old 11th District seat. “Neither the Board of Supervisors nor the governor’s office have cloaked themselves in glory on this,” Byrne said. “They went forward with an idea that wasn’t well accepted, and that’s the price you pay for it.”

Byrne faulted the Kaine administration for excessive secrecy and failing to adequately bid the project. And she criticized Fairfax supervisors for using Dulles Rail as a justification for approving too much new development. Said Byrne:

When you focus so much on ‘we’re going to expand zoning because we’re going to have a wonderful rail project,’ it became about the expansion of zoning and not really about how to move people most efficiently.

The Kaine administration is blasting the federal administrators who rejected $900 million in federal funding for the Rail-to-Dulles project, complaining that the Federal Transit Administration pulled an unexpected U-Turn. As Amy Gardner sums up the argument in the Washington Post:

Federal transportation officials gave incremental approvals to the proposed Metrorail extension to Dulles International Airport on many of the same issues that they cited in rejecting it this week, according to letters, memos and interviews.

At several points in the past two years, Federal Transit Administration officials said the project was doing fine on cost and construction management, according to the correspondence and phone calls with Virginia officials.

But Thursday, the tone changed. FTA chief James S. Simpson declared the project unfit for federal funding. And he pointed to many of the issues that project officials and Virginia politicians had thought were settled and done with.

FTA officials respond that the project backers misread their comments of encouragement. Furthermore, on the critical issue of the project’s cost, the Kaniacs failed to deliver proof of cost cuts before the FTA’s decision-making deadline. Who’s to blame for the miscommunication? I don’t know.

But it is important to sort out responsibility for this fiasco. Virginia is on the hook for tens of millions of dollars of design and engineering costs that it could have saved had it not jumped the gun. The Kaine administration can’t be blamed for failing to salvage Dulles Rail because the project, under the current funding structure, is inherently unsalvageable. But the Kaniacs should be held to account for wasting those millions of dollars on design costs. How much was that number, by the way? Published figures do not say.

I raised a warning flag back in November. (See “Damn the Torpedos, Full Speed Ahead!”) When it was reported that design work would begin on the project even without formal FTA approval, I asked, “Isn’t that risky? After all, the Federal Transit Administration has expressed significant reservations about the project. Federal funding, which would pay roughly 25 percent of the project cost, is hardly guaranteed.” Somehow, I got the message, and I’m nothing but a two-bit pundit. On the other hand, I was paying attention. Apparently those who were determined to push the project through were not.

At the risk of repeating previous posts, it’s time to stop the finger pointing. This incarnation of Rail to Dulles is dead. The Kaine administration needs to dust itself off and start working on transportation alternatives for Tysons Corner and the Dulles corridor. There are alternatives, and there’s little time to waste.

James Simpson, the Federal Transit Administration honcho who axed federal funding for the Rail-to-Dulles project has explained his thinking to the Washington Examiner. There’s not much in the article that I didn’t cover yesterday in “Rail to Dulles Is Dead. Give It a Pauper’s Burial,” but it hits the highlights with greater clarity than I managed to do.

Plus, Simpson does elaborate on his concerns about the ongoing financial viability of the Washington Metro system. Metro faces a $7 billion backlog of capital and maintenance needs, he says, that remain “unfunded and dire” — even without the additional commitments entailed by extending a heavy rail line to Dulles airport.

That’s what happens to heavy rail systems: They depreciate. It’s not enough to raise the money to build them. It’s not enough to cover the annual operating deficits. You have to continue to invest in them or they fall apart. You can get away with under-funding for a few years, maybe even a couple of decades. But eventually the under-funding catches up with you.

The entire debate over the Rail-to-Dulles revolved around finding the money to build the project. I have neither read nor heard anything about how much it will cost each year to fund the depreciation and operating deficits, much less who would pay for the shortfall. Has anyone made that calculation?

Say what you will about road projects — the process of selecting where to build them is highly politicized, and they often reward developers while promoting dysfunctional human settlement patterns — but at least there is a mechanism in place in Virginia to pay for ongoing maintenance and operations. It’s called the gas tax. The maintenance backlog for Virginia’s roads, highways and bridges is not nearly as bad, apparently, as the backlog for Washington Metro.

Let us hope the Kaine administration has enough sense not to try to revivify the corpse of the Rail-to-Dulles project. Time’s awasting. Traffic congestion in Tysons Corner and the Dulles corridor are only getting worse. It’s time to focus the conversation on what comes next.

Broadly speaking, I see these alternatives:

User Pays. Reconceptualize the Rail-to-Dulles project from scratch. Instead of looking to users of the Dulles Toll Road and the federal government for revenue, reboot the project as a “user/beneficiary pays” system. That means tapping the extraordinary increase in values that would accrue to property around the Metro stations. I laid out a methodology in May 2006: (1) Create Community Development Authorities that will issue bonds to cover the costs of the projects; (2) Pay off the bonds by means of a property tax surcharge in the CDA districts; (3) Recompense property owners for the higher tax by the presence of a Metro station and higher density development rights, both of which would increase the value of their property. (See “Rail Rip-Off” for details.)

Bus Rapid Transit. Alternatively, build a mass transit system around BRT. Buses don’t drive land use changes and they won’t appeal to those who want to rebuild Tysons as a mixed-use, pedestrian-oriented district. But a BRT system would cost about one fifth of the Metro extension. This is the obvious fall-back position. It warrants a serious look.

Either of the first two alternatives could be complemented by one or both of the following:

Congestion pricing (Tysons). Create a congestion pricing authority in Tysons Corner, charging single-occupancy vehicles for entering the district. The price would vary by time of day, depending on the level of congestion. There would be two sets of benefits: (1) Tolls would encourage commuters to avail themselves of transportation alternatives; and (2) all funds collected by the tolls would be required by law to be reinvested inside the district: either for road construction, traffic light synchronization, BRT stations, Metro stations, traffic demand management programs or any other initiative that would increase transportation capacity or manage demand.

Congestion pricing (Dulles corridor). Create a congestion pricing authority for the Dulles Toll Road, and replace the current flat tolls with congestion tolls. All funds collected by the tolls would be required by law to be reinvested inside the corridor. The money could be used to improve roads, synchronize traffic lights, support BRT or help pay for Metro in the corridor. As with the Tysons scenario, congestion tolls would both encourage changes in commuting behavior and provide a steady funding stream.

I’m not advocating these options, merely pointing out that there are options to the Rail-to-Dulles project as currently conceived. It’s time to start talking about something that has a chance of happening.

The federal government will not provide critical funding for the Rail-to-Dulles heavy rail project, U.S. Department of Transportation officials announced yesterday, effectively killing the $5 billion extension of Metro rail along the Dulles corridor. The decision set off a round of caterwauling that could be heard all the way to Richmond by people who said they were surprised, nay, shocked, by the decision.

Sen. John Warner is “livid,” according to one source quoted by Amy Gardner in the Washington Post. And Secretary of Transportation Pierce R. Homer is none too happy either. Said he: “Many of the issues that were raised today were heard for the first time by the congressional delegation, the governor and the project team, and that is disappointing.”

Then there’s the Washington Post editorial page:

To say that the FTA’s decision is a bolt from the blue is an understatement. Until a few weeks ago, officials representing the state, Metro and the regional airport authority believed, and say they had been told, that the plan was on track and likely to gain FTA approval by the end of January.

But the only people who should be surprised are those who convinced themselves that federal officials would abandon all common sense and ignore the multitude of problems that have cropped up around the project. James S. Simpson, administrator of the Federal Transit Association enumerated sound reasons for denying the requested federal funds — many of which were noted in a report last summer by the DOT’s Office of Inspector General (See “Rail to Dulles: Off the Tracks?”), fueling a firestorm of public debate at that time.

In a letter to Gov. Timothy M. Kaine, Simpson wrote that the project would receive a rating of medium-low under federal funding criteria. Oh, yeah, big surprise — to Washington Post editorial writers, maybe, but not to anyone else. The feds have made no secret that the project was marginal. That’s why state transportation officials have been desperately looking for ways to trim costs!

But there’s more, a lot more. Wrote Simpson: “FTA is concerned that the cumulative risks and uncertainties that characterize the Dulles project in its current form are extremely likely to result in further cost escalation and schedule delays.” Gee, another big surprise — to anyone who doesn’t read Bacon’s Rebellion, or the Washington Examiner. We’ve been harping on precisely those concerns for a couple of years now.

Now for the details:

• Cost reductions. On Oct. 4, 2007, the FTA told the Metropolitan Washington Airports Authority (MWAA), entasked with managing the rail project, that it required “commitments” for $250 million in cost reductions. By Jan. 17, 2008, however, the FTA had received notification of only $16.5 million in change orders and promises that Dulles Transit Partners, the contractor, was working on another $67.1 million. The FTA could not make its cost-benefit calculations on the basis of promises. It had to work with the facts in hand. The project didn’t make the cut.
• Finances. FTA was concerned by the project’s “aggressive financial structure,” including extensive backloading of debt, optimistic revenue assumptions, and significant growth in costs for the Washington Metro transit system, of which the Rail-to-Dulles project would be a part.
• Project risks. “The Project,” Simpson wrote, “is dependent on many and complicated inter-oprganizational management arrangements for Project design and implementation. MWAA … lacks experience with heavy rail construction and has limited experience with design-build contracts, raising serious questions about its ability to control project costs and schedule. … Early indications of potential inter-agency conflicts are already apparent in the Dulles project.”
• Washington Metro. The Washington Metro, which would run the rail line once built, has its own massive problems. “Because WMATA faces significant, unresolved capital funding needs for maintaining the current system, the proposed extension to Metrorail may pose serious financial and operating challenges, and further strain the system as a whole.”

Summarized Simpson: “The sheer number and magnitude of the current Project’s technical, financial and institutional risks and uncertainties are unprecedented for a candidate New Starts project — particularly one seeking nearly $1.5 billion in Federal participation (i.e. $900 million in New Starts funds and $580.4 million in a loan….)”

The only surprise is that the Rail to Dulles project could have lurched along, a dead man walking, as long as it has. The people who should be ashamed are not those who put this nightmare out of its misery, but those who perpetuated its existence, squandering millions of dollars in the process, in the face of all evidence — stalling any meaningful conversation about alternatives for addressing the very real transportation needs of the Dulles corridor.

(Hat tip to “Too Many Taxes” for forwarding a copy of the Simpson letter.)