What this series is meant to do is to pull back the curtain for people who assume that, when we make investments in infrastructure, the government is ultimately getting money back -- through new income tax, sales tax, property tax, etc... -- in an amount that exceeds the cost of the project. There is a common assumption across the population that new infrastructure built in the American model we use today is an "investment" in our future prosperity, an investment that pays real, dollar returns.
Nothing could be further from the truth.
The reality is that we are spending enormous amounts of money on an American way of living that cannot be financially sustained. At this point in our development, nearly every project we do in the current American model costs us vastly more money than we will ever recoup in added tax revenues. Our economy is stifled and, despite our extraordinary efforts, we can't revive it, largely because we're choking on an infrastructure platform that sucks wealth instead of creates it.
We've used private and public leverage and a variety of perverse incentives to create thousands of local Ponzi schemes, each providing the illusion of growth and prosperity. It is not real, and we as a people inherently know that.
This week we've looked in depth at one project, a railroad overpass in Staples, MN. Staples was awarded a TIGER II grant along with other federal and state support totaling the entire cost of the project, $9.85 million. In their TIGER II application, they detailed the costs and the benefits of the project and concluded that there is a return of 8.7 times the cost of the project. As we've shown, the costs are all real dollar costs but the returns are nominal quality-of-life benefits, largely a couple minutes of saved time, that accrues only to the people of Staples and those that pass through.
As someone who has spent years around this type of analysis, I had actually grown numb to the fraud. This is the way all of these cost/benefit analyses are performed - it was old news to me. It took an hysterical reaction by an insider to my mild critique of this project to help me realize how many advocates have actually convinced themselves, and the public, that the claims of real benefits are true.
Reality is a much different picture. In the case of this project:
Direct Financial Costs - $16,140,000
- Project cost: $9,850,000
- 20 years of financing of the Federal contribution: $4,600,000
- 20 years of financing of the State contribution: $380,000
- Lost gas tax revenue: $640,000
- 25 years of maintenance: $670,000
Direct Financial Benefits - $0
- The opportunity costs of spending $16,140,000.
- The ability for Staples residents, and some of those driving through Staples, to allocate time currently spent waiting for a train to other activities.
- The ability for Staples residents, and some of those driving through Staples, to save on the wear and tear of their vehicles through a modest reduction in estimated daily driving distances.
- Enhanced public safety, primarily through the potential for increased response time.
- Modest reduction in fossil fuel consumption, which is debatable since similar projects have historically induced increased fossil fuel consumption.
If we are honest with ourselves, the question we are asking here is whether or not the benefit to Staples residents now being able to get to where they are going without interference from the train and to have improved safety access is worth $16 million of Federal and State dollars.
That is much different, and more honest, than asking whether or not a project that has benefits that exceed the project cost by a factor of 8.7 is worth the investment.
This entire series started with us trying to explain to infrastructure advocates, economic developers and those that defend that status quo why their plans are being met with increased skepticism. We are not uniformed and we are not ignorant. The average person may not know all the details we have presented this week, but they also are not stupid. It doesn't take a lot of deep thought to understand that the current approach of spending more and more money on new infrastructure while our existing systems rot is foolish. Now that austerity is being forced upon us, there are fewer and fewer defenders of this approach willing to look the other way hoping their day for a payout will soon come.
There are a lot of issues in this series that we have not touched on, the most obvious one being "JOBS"; the notion that infrastructure spending creates jobs and is thus always good. There is also the contention that new infrastructure creates new growth and that new growth will make up for all of the financial shortcomings with this project. If these topics interest you and you do not want to wait for me to come back to them in the context of this project, you can read some past posts we have done.
- How to create jobs
- How to create jobs (continued)
- The Small Town Ponzi Scheme
- Growth. I love you, I need you, I want you!
- If you are not growing, you are dying
We'll get back to these discussions as well as look at the land use impacts, the bad incentives that are inherent to the current system and the way we would reconfigure state and federal programs such as TIGER II so that we were building Strong Towns.
Finally, we'll end this series for now with a line from yesterday's post:
If readers take one thing from this analysis it should be this: The way we spend money today on infrastructure responds to our preferred lifestyle choices, but provides no financial return.
If you want your town to be strong and resilient, not fragile and dependent, then you need to move towards a Strong Towns approach. This will mean confronting, at the local level, the financial realities of the current American way of growth and development, then plotting a new course where the community's collective spending on infrastructure generates a real return on the investment.
Other posts in this series:
- Part 1, Background on cost/benefit analyses
- Part 2, Review of time savings benefit and distance benefit
- Part 3, Review of safety, carbon reduction and O&M benefits
- Part 4, Review of the project cost analysis
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