Formula for Success: My Thoughts
In my last post, I challenged you to find at least five examples of inequity, ineffectiveness, or inefficiency in a formula that is governing the allocation of transportation stimulus funds to the states: 25 percent based on total lane miles of federal-aid highways, 40 percent based on vehicle miles traveled in lanes on federal-aid highways, and 35 percent based on estimated tax payments (e.g. from fuel taxes) attributable to highway users in the states into the Highway Account of the Highway Trust Fund (often referred to as “contributions” to the Highway Account). No state can receive less than one half of one percent of the spending.
I found your answers very satisfying and also very disturbing. The satisfying part is that a bunch of you had very smart thoughts, including many points I hadn’t thought of myself. The disturbing part is that this shows just how easily some of you could be doing my job.
Next time I’ll publish some of your critiques; here are mine:
The one half of the one-percent minimum set-aside is obviously questionable in terms of both equity and efficiency. Nothing against Delaware (I make it a point to incorporate all my industrial conglomerates there), but it has 1/364th of the nation’s population and 1/1130th of the interstate mileage. Yet it will still collect at least 1/200th of the money from this pot. This treats Delawareans and Californians differently, which is inequitable. It is also hurts the overall effectiveness of the enterprise; inferior projects may be funded in smaller states.
This formula is based on a snapshot, not a motion picture. There is no provision for accommodating growth. Forward thinking is very important in transportation due to the very long lag times between the time a project is first conceived and the time the first vehicle enters the roadway. By the time major new stimulus-funded projects come online, the balance of population in the country will look different, but the stimulus projects will reflect reality years (even a decade) ago. This disadvantages the booming states (e.g. in the Southwest) and rewards the stagnant ones (e.g. in the Northeast).
Economic stimulus is one of the avowed aims of the package. But as Daniel Wilson of the San Francisco Fed points out, the funding is not directly targeted to areas with the greatest slack in their economies, despite the fact that there is wide variation in economic conditions nationwide (as of March, Michigan’s unemployment rate was 12.6 percent. North Dakota’s was 4.2 percent).
The formula pays insufficient attention to need, particularly congestion relief. As it stands, the formula rewards states that have lots of miles of roadway. But if a state has few miles of roadway, along with lots of travel, doesn’t that suggest that congestion problems there are severe? Might there be a case that states with fewer highway miles be first in the queue when construction dollars are handed out, not last? According to this line of thinking, the urban states lose out and the rural ones win. The alleged rationale for rewarding states based on lane mileage is that highways, whether heavily used or not, all need to be maintained. However, maintenance needs vary very widely across the country. Some states have milder climates that put far less stress on roadways, since pavements expand and contract with temperature shifts. Moreover, use, rather than time, is a more important factor in highway maintenance. So thanks to this provision, large states with low populations and lots of lightly-used highways benefit, regardless of whether they have serious maintenance needs or not.
Some of these biases cancel each other out, so how does this all add up? The Wall Street Journal did an analysis of the stimulus’s per capita transportation and infrastructure allocations by state. By this admittedly crude alternate measure, the big financial beneficiaries are Alaska (unemployment rate 8.5 percent), Wyoming (4.5), North Dakota (4.2), Montana (6.1), and South Dakota (4.9). Clearly these states are quite similar: large, rural, cold, low-population, and generally weathering the recession relatively well.
The losers — North Carolina (unemployment 10.8 percent), Florida (9.7), Utah (5.2), Arizona (7.8), and Nevada 10.4) — are warmer-weather, more urbanized, faster-growing, and are having a tougher go of it in this economic climate.
The difference in funding between the losers and the winners isn’t trivial: the losers are receiving about one quarter to one third of the money per head that the winners are. And this doesn’t take into account the way high-growth states are penalized, as discussed above.
Again, I’d like to stress that all this is no knock on the Obama administration. They needed to pass a bill on short notice, not open the product of years of politicking up for endless debate. The real time to address these issues will come when the major transportation legislation comes up for authorization, which will happen soon.
Perhaps the night before the vote on that bill, our legislators will be up late reading Kant and Rawls, and will resolve the equity and effectiveness issues raised by the formulas (plus the earmarking problem) in the spirit of the highest philosophical precepts. My guess, though, is that you shouldn’t sell your stock in those Dakota road construction companies just yet.