The New Pitch for Taxes: Economic Competitiveness

Gov. Timothy M. Kaine is making a new sales pitch to raise taxes for transportation: Keeping Virginia competitive in a global economy. As the Associated Press reports from Roanoke:

Virginia can thrive in the 21st century’s global marketplace with an international airport and a major port but will falter if it cannot provide road and rail access to both, Gov. Timothy M. Kaine said Tuesday. …

The 27 million passenger visits a year at Dulles International Airport in northern Virginia could be increased to 50 million, Kaine said, but more roads and rail access are needed in the traffic-clogged region. The same is true of Hampton Roads, he said, where the port could become the busiest in the nation with dredging to accommodate even bigger ships. “Are we going to be winners, or are we going to leave these great assets withering and dying?” he said.

Kaine raises a legitimate point: Virginia must bend every effort to maintain its economic competitiveness. That’s always been the dominant theme of Bacon’s Rebellion. So, let’s give the Governor the benefit of the doubt and examine his proposal to raise taxes by $1 billion a year to build the kinds of transportation projects he says will do the trick.

If someone gave you $1 billion a year to increase competitiveness, dear reader, would you spend it all on roads? Or would you spend some of it on education? Or R&D? Or recruiting and building industry clusters? Or, here’s a thought… on cutting taxes?

The problem is that there is no way to evaluate the cost-effectiveness of competing proposals in the absence of a Return on Investment analysis. What is the ROI on upgrading U.S. 460 between Petersburg and Suffolk? No one has calculated such a number, but it apparently is not very high. We know this because three competing proposals from the private sector all say that tolls alone cannot pay for the project. If the Virginia ports, trucking companies, shippers of manufactured goods and the residents of Hampton Roads are not willing to pay tolls sufficient to finance the project, why should the Commonwealth tax its citizens?

Because the $1 billion project would create jobs? So would $1 billion spent in other ways.

Because a more free-flowing port would make warehousing/distribution and manufacturing in Southside more competitive? Fine, that’s a reasonable argument. But let’s see the spreadsheet. How many facilities would Virginia attract with an upgraded U.S. 460 vs. the number we could attract with the old U.S. 460? How does that compare to economic activity that would be generated by letting taxpayers keep the money in their pockets?

Economic development is a worthy cause — perhaps the most worthy of causes. But it does not come from the missallocation of investment capital by the political process, subject as it is to manipulation by special interests.

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7 responses to “The New Pitch for Taxes: Economic Competitiveness”

  1. Ray Hyde Avatar

    I’m sure you could increase the passenger visits from 27 million to 50 million, but why would you want to, and why would you if you could?

    I posted recently about an airport consultant I met who told me that airports have a maximum size beyond which further expansion makes no sense: the infrastructure and internal transportation costs are too high. I suggested that the same effect might hold true for densely populated areas as well.

    Economic development is a worthy cause. but it needs to be balnced with quality of life issues. Likewise conservation is a worthy cause, but it also has to be balanced against quality of life issues as well as economics of life issues.

    Jim is right, we need a way to calculate some kind of ROI/QOL/GNH/GNP ratio that we can agree on, and then we can quibble over the measurements and results. Until we understand what it is we are trying to achieve, we can never set a goal or make plans.

    That is why I object to things like “linking land use to transportation” it is an utterly meaningless phrase and yet people are still upset when their understanding of it seems not to have happened.

    If instead we said something quantifiable, as EPA has done, then we are getting somewhere.

    If we say, OK congestion is a fact of life, but let’s not allow it to eat up more than x% of resources, then you have a goal. The plan to achieve it might be a lot harder.

    If we come to the conclusion that, yes, roads encourage development, and yes, roads cost money, then we can say we won’t build a road until we can forcast development at 5 or 10 persons per acre within five years. If a developer can show sales contracts, he’s got his road. Or something else that is fair transparent and predictable.

    For Dulles 50 million passengers makes no sense to me unless you can ensure me that my trip from home to take-off takes no longer than it does now. If it takes 6 hours to get to and through the airport, you almost may as well drive to New England.

    What is it that we really want to achieve?

  2. James Atticus Bowden Avatar
    James Atticus Bowden

    Who ever taxed themselves to prosperity?

    Expensive infrastructure can find financing, if there is a profit to be made.

    Look around the world at huge engineering projects – and follow the money. Look at the U.S. and see what is being financed with private funds, precisely because there is a profit to be made.

    If government money is used for public roads, rail, etc, then use existing funds, don’t put a new tax burden on the taxpayers – the families of Virginia.

  3. Larry Gross Avatar
    Larry Gross

    Really good questions from Jim and good follow on discussion.

    If you asked Walmart … say .. should they build more distribution warehouses or buy more trucks… and more importantly what the right mix should be right now.. next year… 5, 10 years – I would think (hope?) that they would be motivated to find (correct) answers.. and not be dissuaded from pursuing those answers because the work was “too difficult” .. just “TOO MUCH” effort.

    There’s also no guarantee that just because a business is private sector and non-govt – that they’ll perform at sufficiently high enough levels to actually stay in business and give their competitors a run for their money either.. “cream of the crop” survive, the rest slip beneath the waves.

    But when we shift to the govt side of the equation.. entities like VDOT and even our School Systems are downright inept at finding some the answers to important questions like Jim espouses above.

    And they’re not idle questions – they’re important questions with respect to as Ray says ROI… cost effectiveness.. i.e how much should we be spending and on what?

    Govt cannot seem to get there from here – unless they are forced to measure performance – AND they are accountable to the public (their.. ahem.. paying customers) for not only getting results – but getting results by spending LESS money instead of the more typical “if you want more.. give us more”

    This is the question that Walmart makes sure DOES get answered and that is “can we do this better for less resources”?

    .. and if the answer is no.. then the next question is “can we afford to operate this way?”

    Ask VDOT that question and they roll their eyes at you.

    Ask METRO that question.. ditto.

    Ask the Schools that question.. same answer..

    None of them have any interest in doing anything more than be tasked to crank their respective wheels…

    Heaven forbid.. someone should ask them if it’s the right sized wheel … or similiar questions…

  4. James Atticus Bowden Avatar
    James Atticus Bowden

    Larry: Metrics, metrics who’s got the metrics? Excellent point that Ray Hyde often makes. In my day job I work on metrics to evaluate future military capabilities. And the modeling and simulations to capture those capabilities.

    One metric in many manifestations is T, Time. How long does it take to ….

    For any given volume of space you can parametrically make excursions on the cars, people, trains, buses, etc. for the network of transportation and see what happens to different aspects of T.

    By the way, philosophically, when I wrote about Virginia’s ‘finitudes’ or land, air and water – another is the Time available for the people living here.

  5. Ray Hyde Avatar

    I’d be willing to bet that Walmart has an entire team of people figuring out exactly what the right mix of warehouses, trucks, and stores are. And they have contingency plans for what happens if fuel prices change the required mix, and how it will change over time, what happens if they start selling bulkier items like appliances vs compact items like CD’s ad infinitum.

    The reason that Walmart gets the right answer so often is that they put an enormous effort into it.

  6. Larry Gross Avatar
    Larry Gross

    re: what metrics?

    the “right” metrics – those necessary for one to intelligently evaluate ROI for a given industry, company, plant, office.

    re: WalMart and “enormous effort”

    .. and the questions is.. “why would Walmart go through that much effort”

    .. and the answer is – that it’s critical to their success as an enterprise

    … try that moniker on VDOT for size

    building roads – one at a time – is NOT an answer to mobility needs in the Wash Metro Area

    Is transit more appropriate?

    Who the hell knows.

    Neither VDOT nor METRO are particularly interested in finding out the answer – much less configure their missions and enterprises to actually achieve something that could be judged on it’s merits .. with metrics.

    This is like .. one of us building new bedrooms – one for each new kid.. rather than asking the simple question whether other alternatives exist before we start down a very expensive path.

  7. Larry Gross Avatar
    Larry Gross

    and .. on the issue of competitiveness for jobs….

    Headline: Cummins: Education plan was deal-maker

    “With half its work force expected to retire over the next decade, Cummins could have put its new plant in a state where plenty of young workers are available. Instead, it chose its Columbus hometown over New York and Virginia.”

    read the story before forming an opinion:

    The “DEAL” was much more than just education.. quite a bit of “incentives”

    Still… should Va be going to the extra mile to brings jobs to those rural areas of Virgnia that are hurting?

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