Archives for November 20, 2012

Cashless Tolls Will Unlock the Option of Congestion Pricing in PA’s Big Metros

I’m glad we’re hearing talk about moving to cashless tolls, because that would be an excellent way for the state to save money, stretch taxpayers’ hard-earned dollars further, and improve human welfare all at the same time.

The state would no longer have to spend millions on employing human beings to do the dehumanizing job of making change for motorists in a tiny booth all day. This job is such a sad waste of human potential, and the sooner nobody has to do it, the better. Instead of employing 755 workers to do toll collections, the state could use the money to hire people to do other useful public services. The savings could be used to hire more teachers, or state police, or park maintenance workers, or whatever people want.

Even better, cashless tolling opens up the possibility of congestion pricing in Philly, Pittsburgh and really any city that experiences a congestion crunch during the morning and evening commute:

In what it’s calling one of the most ambitious efforts in the nation, the Pennsylvania Turnpike Commission plans to convert to all-electronic tolling within five years, scrapping the need for drivers to pass through tollbooths.

Toll plazas along the more than 300-mile mainline Turnpike and its spurs, including the Northeast Extension, would be replaced by overhead gantries that would deduct tolls from E-ZPass users, acting commission CEO Craig Shuey said Tuesday.

License plates of vehicles without transponders would be photographed and toll bills would be sent to owners.

If you’re not familiar with congestion pricing, the idea is that tolls go higher during peak travel times, to discourage people from solo-driving into cities’ central business districts at the busiest times, and encourage car pooling and mass transit.

Aside from the anti-toll politics, the biggest challenge to doing congestion pricing so far has been operational. Where do you put the toll plazas? Won’t you just create more congestion if people have to wait in line to pay?

The adoption of cashless tolling takes away those operational objections. With the overhead gantries, you can toll any road that gets congested, from the Turnpike on down to local highways. Raising more money from congestion would be an excellent way to fund the state’s transportation budget, since the tax on congestion would reduce traffic jams and save people and businesses valuable time, improving the economy.

(Thanks: John Micek)

How Better Land Use Policy Can Help Ease PA’s Pension Crunch

Next year’s pension debate is mostly going to be about what happens with new public employees, since it would be illegal to break current employees’ contracts. As such, any reforms affecting future employees will not dent the truly massive amount of money PA is going to have to start budgeting for pension payments already owed. Here’s Eric Boehm reporting on the Independent Fiscal Office’s recent statement on pensions:

An annual economic and budgetary projection from the state’s Independent Fiscal Office, a state equivalent of the Congressional Budget Office, forecasts 0.8 percent revenue growth this year and 3 percent annual growth for the state’s revenues in the next five year. Pension costs are projected to climb by 46 percent in this year’s budget and 42 percent in next year’s budget. “The increase in pension contributions is estimated to be about $500 million per year for the next several years,” said Mark Ryan, deputy director of the IFO. According to the report, those costs will consume 9.6 percent of the state budget by 2017 – up from 4.2 percent of the budget this year.

The political issue for liberals should be obvious. If pension payments are going to keep increasing as a share of the budget, then either we need to cut spending from other parts of the budget, or else we need to increase the size of the budget.

There are a few ways to increase the size of the budget. One is tax rate increases. Another is closing tax expenditures and deductions for a net increase in revenue.

The politics of increasing taxes or closing loopholes are going to be tough, which is why we also need to be focusing on a third lever – increasing the rate of economic growth.

Going back to Eric’s piece, you see that the IFO’s doomsday prophecy is based on the assumption that weak growth will continue:

Those low growth rates are the “new normal,” said Ryan, and are due to modest growth of the labor market, declining revenues from sales taxes, demographic trends and the lack of any expected booms in housing or the stock market.

But the weak rate of growth does not have to continue. While it’s debatable as to how much we can increase the growth rate through policy, there are certainly policy levers available to lawmakers who want to try to increase the growth rate for housing construction, services, and migration.

I would argue that the biggest untapped policy lever is land use. Basically, Tom Corbett needs to copy what Deval Patrick is doing:

Last week, Massachusetts governor Deval Patrick announced a new policy initiative designed to encourage diverse, walkable neighborhoods that use land efficiently. If a municipality meets certain criteria, it will become eligible for preferential treatment in applications for state assistance funds.

In particular, to become eligible a municipality must adopt an “as-of-right” zoning district that provides for the following:

  • An “eligible location,” as defined by the commonwealth’s smart growth standards;
  • A minimum density of eight homes per developable acre for multifamily housing, and four units per acre for single-family homes;
  • At least ten percent of homes must meet affordability criteria (unless a project includes fewer than 12 homes in total);
  • A policy of inclusion that does not restrict occupancy due to “age or any other form of occupancy restrictions,” except for projects intended for the elderly, persons with disabilities, or assisted living.

The policy statement released with the announcement says the Department of Housing and Community Development “expects” municipalities creating such zoning districts to include standards requiring or promoting mixed land uses, sustainability, housing for a range of incomes, and homes for “diverse populations,” including families with kids, individuals with disabilities, and the elderly.

Concurrently, Massachusetts governor Deval Patrick announced a new statewide housing production goal of 10,000 multifamily units in the Commonwealth each year. At a conference in Worcester, Massachusetts last week, the governor said that “to meet the needs of our workforce we need more housing for moderate- and middle-income families. We need more multi-family homes, rental apartments, and starter homes and we need these homes near jobs, near transit, and near city and town centers.”

If you look at where the growth is already happening in PA, you’ll see it’s in the top 5 largest metros – Philadelphia, Pittsburgh, Lehigh Valley, Harrisburg and Scranton. That’s where most of the state’s revenue is coming from, and if we want more state revenue from faster growth, then the obvious thing to do is try to grow those metros.

Right now, the incentives are sort of misaligned. Local politicians are not thinking about the state pension crunch when they are deciding on housing, transportation and land use policies. But they should be! How much those metros are willing to grow will affect how difficult a time the state will have paying pensions.

To align the incentives for growth, what we need are state policies to encourage more housing and office construction in those 5 biggest metros – to reduce housing and office prices in those places, reduce the time and money costs of transportation, and attract more people and businesses to live and work there.

One idea is to copy what Deval Patrick is doing – tie state aid to by-right zoning policies at the local level. Even better, the state could tie aid to adoption of comprehensive county-level zoning and land use plans, so that decisions about housing and development are substantially more insulated from the narrow neighborhood politics that lead to underbuilding at the city level.

The state could also adopt weighted student funding, which would reward areas that pursue pro-growth housing policies instead of penalizing growing districts as the current system does. Currently, politicians who are inclined to increase the housing supply are met with resistance from residents who worry that more housing will bring more school-aged children and higher school taxes. That has got to change. State policy needs to reward areas that try to grow their populations, especially in the 5 largest metros.

State transportation funding also needs to be concentrated on the 5 largest metros. It needs to be cheaper and easier to get around within and between them, so that more housing and office construction leads to more real growth and doesn’t get choked off by increased traffic congestion. Harrisburg should pick up the tab for mass transit improvements in the 5 largest metros, with the goal of increasing trip frequency. Bringing Bus Rapid Transit systems to all 5 metros would significantly increase the amount of housing and office growth each could absorb. Extending SEPTA service to Allentown would better integrate Southeast PA’s two largest economies. Subsidizing air travel between Philly and Pittsburgh would better integrate the state’s two largest economies.

There are all kinds of things that can be done to boost the growth rate using state land use and transportation policy, but first state politicians need to stop pretending that PA’s economy in based on fracking and manufacturing jobs in the big empty areas of the state. It is not. The top 5 largest metros are the real economic drivers. If politicians want faster growth to pay for more of the pension outlays, instead of unpopular tax increases and budget cuts, they need to adopt economic policies focused on growing the metros.

Why Bethlehem Residents Would Pay Less With Single Trash Hauler

I’ve been waiting for somebody to make this point so I could knock it down, and it finally showed up in the comments:

Mr Marshall did not “poll” me. When was that conducted. I am so satisfied with my private trash hauler, I can’t believe it is an issue AGAIN, AND AGAIN, AND AGAIN, AND AGAIN. The expense for hauling my trash would most certainly go up. The point of recycling was to “reduce trash” deposited on the landfill. The City encouraged recycling, is proud of it (at taxpayer expense). Callan is leaving…he does not care about the privage sector jobs that will be lost. One last thing, no matter what the price of the single hauler system….the VERY NEXT DAY

To understand why this is mistaken, we need to consider two concepts from economics.

One concept is the Winner’s Curse. In an auction, the person who wins is the person whose bid overshoots the market value. Unless the auction is especially uncompetitive, the winner is the person most willing to overpay. It’s called the Winner’s Curse because the winner of an auction tends to get a bad deal. The bidding process for a public contract is like an auction. Service providers compete to offer the best package of services for the lowest price. Politicians want to pick the cheapest option, so the way to win is to accept a lower profit margin than the other companies. The winner ends up in a Winner’s Curse situation where they accepted kind of a bad deal to get the contract. But on the flip side, it means Bethlehem residents are getting a really good deal.

The other concept is monopsony. Monopsony is the opposite of monopoly – a single buyer, rather than a single seller. Just like a monopoly uses its market power to push up prices for buyers, a monopsony uses its market power to push down prices for suppliers.

Amazon is a pretty good example of a monopsony. Everybody shops on Amazon, so companies can’t afford not to be selling their products on Amazon. But for that same reason – the huge market of potential customers – Amazon has a lot of power over supplies to force them to sell their stuff at lower prices. The suppliers don’t have anywhere else to turn to reach that many customers, so they have little choice but to accept very low profit margins.

It’s the same idea with a single trash hauler. Haulers want access to the large market, and will accept low margins to get the contract. By pooling purchasing power and buying trash services together, Bethlehem residents will get a lower price and a better value.

The term “single hauler” might be confusing people about what is happening here, since it sounds like there’s no competition. In reality, the competition happens in the contract bidding process. Contrary to what the commenter is arguing, the price is locked in for the duration of the contract. The contract winner cannot raise prices until the contract is up.

Another argument I keep hearing is that the city shouldn’t go with a single hauler because seniors currently get discounted rates. Now it may be the case that the single hauler ends up being even cheaper than with the senior discount, but if it’s not then that needs to be addressed in the Mayor’s political strategy. Find out what the seniors are paying now, and if the single hauler would be more expensive then buy off the seniors. The way to kneecap the private haulers’ political coalition is by promising the seniors the same price. Take some of the savings and give it to seniors as cash for their trash bills . There’s no reason for everybody to keep paying more just because some people are getting discounts now.