The FTA to America: Cost-Benefit Analysis is Dead

Yesterday the Federal Transit Administration (FTA) announced what it called a "dramatic change" in the way it grants money to local mass transit systems. Dozens of multi-million dollar rail and bus projects across the country will be affected. Now the most wasteful of those projects will get a new leg-up when competing for grants.

To understand the change, however, you have to go back to June 2004, when Congress made clear in a report attached to its annual Transportation appropriations bill that FTA's New Starts grant program (from whence comes the vast majority of the $10 billion in gas taxes that goes to transit) needed to be reformed. Congress said that the criteria the FTA used to evaluate which projects got funded were abstruse and impenetrable, and that grants were obviously going to whatever eye-grabbing system politically pushed itself to the front of the line. The GAO also reported (more than once) that the FTA needed to refine the way it evaluated projects, and the Department of Transportation's Inspector General also chimed in with the growing chorus for reform. So, on March 9, 2005, the FTA released a "Dear Colleague" letter to mass transit systems across the country, stating that from then on out the administration would focus on the "cost effectiveness" of transit programs and that only projects rated "medium" or "high" in cost effectiveness would get funds. This meant that every project had to provide at least $24 of consumer benefit per hour of transit system riding.

The change may seem abstruse and inconsequential, a mere switch in the bureaucratic lexicon, but it fundamentally reshaped the way transit was funded in America. While before almost every major project that was submitted to the FTA was "recommended" for funding, after the 2005 "Dear Colleague" letter, the number recommended dropped by more than half (from an annual 27 recommended projects to 10). There was of course no change in funding, and both before and after about 5 or 6 major projects got grants every year, but now those projects that got grants had to actually show some benefits to commuters. They had to demonstrate with some real numbers how these projects would not just be "light rails to nowhere," but would carry real riders who could actually help pay the way. (Of course the riders wouldn't actually sustain the entire line themselves, otherwise they wouldn't need the grants. These lines would ultimately just be less un-cost effective than the other projects.) The 2005 Transportation Bill (SAFETEA-LU) further clarified that real specifics had to be used in evaluation.

The major effect of this was that light-rail projects got the shaft. Almost regardless of the planners or the politicians involved, no sensible report could mangle the numbers enough to make light-rail look cost-effective. While for years FTA had funded larger and larger rail-based projects (under the theory that they were more "transformational"), now the FTA looked towards Bus Rapid Transit (BRT) and small scale improvements. A 2003 transportation bill amendment that was created by Congressman Earl Blumanauer (D-OR), although originally intended to fund Portland streetcars, actually encouraged BRT by creating the "Small Starts" program for projects under $250 million dollars that allowed "non-fixed guideway" (i.e. bus projects) to be funded for the first time.

Of course the light-rail lobby has been pushing to destroy these changes, and especially cost-effectiveness accounting, ever since, arguing that vague, indefinable terms like "livability" needed to receive more weight in FTA evaluations.

With the Democrats in charge they began to see results. In 2009, the transportation bill encouraged (but did not require) more consideration of non-cost factors in FTA evaluations. And on January 13th, the Obama administration handed the light-rail lobby the final coup de grace they had been craving. The system will now drop cost effectiveness as a necessary criteria and go back to giving equal weight to the old inscrutable "six statutory project justification criteria."

It is worthwhile to note that all of these (environmental impacts, mobility improvements, "other factors," etc.) have continued to be considered since 2005, but since then those funded projects also had to be cost-effective as well. No longer. In the announcement Ray LaHood also promises to revise the criteria further to give even more emphasis to "livability." Such a change will insert even more discretion and politics into the grant-making process. Light-rail (as I've discussed before, one of the great boondoggles in modern government), unconstrained by proof of effectiveness, will further extend its march across the American landscape, drawing down not just more resources from the federal government, but also from those local governments foolish enough to build them without a thought for the long-term funding. More white elephants systems will drag down transportation budgets and snarl traffic in major American cities.

Which is a shame because Bus Rapid Transit has been showing real promise. As early as 2001 the GAO showed that BRT was much cheaper and just as effective as light-rail. And now, despite complaints that "no one ever built a building because of a bus stop," there is real evidence that BRT can spur development. Cleveland's Euclid Avenue line has surprisingly kick-started a real-estate boom along its corridor, against even the expectations of most of its planners. Also, while light-rail continuously over-estimates its ridership numbers (see the incredible Seattle Links numbers), a study of 21 BRT lines show that they consistently underestimated their ridership by 20 to 70%.

This consistent underestimation of buses and overestimation of light-rail ridership should reveal to any sensible reader that planners have a real systematic bias against buses and for rails. The underestimation of buses comes from the old saw that buses simply have a "bad image," and planners take this to mean that no matter the cost and the convenience, people simply won't ride them. Buses may indeed have a bad image, but most researchers have found that Americans have a shockingly rational relationship to transportation, and that a mere bad image won't deter them for long. Just look at the continual success of the inter-city Chinatown buses, which, against all the predictions of Amtrak, prove that millions of people prefer cheap, run-down buses to heavily subsidized rail service. The truth is that you provide anyone with a short and easy commute or trip, and they'll take it, no matter the mode. So despite all the talk of America's "addiction to the automobile" or their "romance with the rails," romance will not cause someone to cram into a subway car 2 hours a day for 260 days a year if its not a good way to get to work, and addiction will not cause someone to climb into a car if they have to pay $40 for parking for the day and they can't afford it. Americans travel a lot, and not surprisingly they are very particular about cost and convenience, and less particular about image, on their morning slog. The only place then where buses have a truly unassailable burden about "image" is in the planning community itself, which is why they manage to keep being surprised when people flock to cheap and efficient BRTs.

And if cost-effectiveness was used to evaluate these BRT projects, their benefits would continue to be obvious. The Obama administration, however, has decided to turn its back on the evidence and find new means for justifying its romance with the rails.

Blog Roll: Greater Greater Washington, of course, is totally loving this announcement, ditto The Transport Politic, ditto Streetsblog. Numerous local papers also report that this change could "help our local transit projects." See Dallas, Washington D.C.

There have to be some other cons out there, right?