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O’TOOLE: ‘Trannie Mae’ and special interests

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President Obama's proposal for a transportation infrastructure bank has been lauded as a way to bring "rationality" to federal transportation spending. In fact, such a bank - call it "Trannie Mae" - will just increase the politicization and reduce the effectiveness of transportation dollars.

A real bank lends money for projects that are likely to cover their costs and repay the loans. Many of the projects Mr. Obama wants the new "bank" to fund, including high-speed rail and rail transit, will not see a single dime; they won't cover their operating costs, much less the capital costs of the projects. So much of Trannie Mae's money will have to be in the form of grants, not loans.

The White House says the money will be distributed using "clear, analytical measures of performance" that "will produce the greatest return for American taxpayers." That sounds great. But in actual practice, any performance measures - other than the ability of a project to recover its costs - will be vague and conflicting.

For example, the Federal Transit Administration's (FTA) New Starts program gives out billions of dollars each year to rail-transit projects using supposedly clear, analytical criteria. Those criteria include "cost effectiveness" and "mobility improvement" ratings. However, the FTA does not require transit agencies to compare the added efficiency of rail transit with alternatives, such as bus-rapid transit or simply building new highway lanes.

As a result, decisions about New Starts funding are highly subjective and subject to meddling by lawmakers. If powerful members of Congress find that a favored project is rated low by one or more criteria, they simply exempt the project from those criteria.

Most federal transportation dollars, the White House notes, are distributed using formula-based grants and earmarks. The White House sneers that such funds are "allocated more by geography and politics than demonstrated value."

These formulas take into account such things as land area, population, road mileage and transit ridership. Such funds are far less politicized than New Starts: When all transportation funds were distributed by formula, Congress debated the formulas every six years but otherwise wrote few earmarks and made no attempts to override the formulas during the intervening years. Now that New Starts and other supposedly objective grant-making programs claim a large share of federal dollars, earmarks and overrides are rampant.

Trannie Mae will simply become one more source of pork and social engineering and a way for special-interest groups to override real transportation needs based on what people are willing to pay for transportation. We wouldn't need such a bank if we eliminated transportation subsidies and paid for all transportation out of user fees.

For example, a recent report from the Reason Foundation on the state of the nation's highways finds that "the overall condition of the state-owned highway system has never been in better shape." Meanwhile, the FTA says the nation's transit systems suffer from a $78 billion maintenance backlog, and transit agencies aren't even spending enough money to keep systems in their current state of poor repair.

What's the difference between state highways and mass transit? One is funded almost entirely out of user fees, and the other mostly out of taxes, appropriations, earmarks and other non-user fees. That means transit decisions are made more to please politicians who want to cut ribbons, while highway decisions are made more to serve the users who actually pay the costs of those highways.

Trannie Mae will be no different. If we really want to depoliticize transportation spending and ensure that such spending is worthwhile, Congress should return to formula-based grants.

Moreover, the formula should be rewritten to emphasize user fees, so states and metropolitan areas that fund their transportation programs largely out of fees, rather than taxes, would claim the largest share of federal dollars. Such a user-fee-driven system would be more efficient and more responsive to the needs of transportation consumers and taxpayers.

Randal O'Toole is a senior fellow with the Cato Institute and author of the recent book "Gridlock: Why We're Stuck in Traffic and What to Do About It" (Cato Institute, 2006).

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