But as Cliff Slater points out -- in his article on fixed rail at http://www.lava.net/cslater/lightrail.htm -- none of the top 20 congestion-managing U.S. cites have invested in fixed rail while most of the bottom cities have done so. He suggests that this is because the top 20 have invested in expanding road capacity instead. I believe that it is due, at least in part, to something more insidious. "Big transport," unlike small and flexible paratransit systems such as van-pools, inevitably requires massive public subsidies. For example, TheBus was already costing Honolulu $115 million per year in subsidies, even before the strike. Governments that much in the hole are loath to facilitate alternative solutions because they would lower ridership and increase the required subsidies. Instead they throw good money after bad. See "Blackhole Economics," http://www.hawaiireporter.com/file.aspx?Guid=e5519258-c009-449b-99f5-84c0ea027330

"The Federal government will pay 50 percent of the cost. We can't afford to pass up such a large infusion of money."

If past practice is a guide, the maximum Federal subsidy will be 50 percent or $525 million, whichever is less. Since the cost is said to be $2.6 billion, we cannot expect the Feds to pay more than 20 percent of the cost. Inasmuch as urban-rail cost-overruns average 50 percent nationally -- see http://www.publicpurpose.com/pp-rail.htm -- the cost to Hawaii is likely to be more than $2.6 billion, not less, even after deducting federal subsidies.

Those Hawaii citizens living outside of the affected corridor are being told, in effect, "wait your turn."

The project will cost Hawaii taxpayers something in excess of $2.6 billion and will be ongoing until 2018, if it is finished on time. Just when do you suppose your turn will come?

Some Simple Principles

Taxpayer money should not be spent on large projects that do not pass a benefit-cost test. There are no plans to conduct such a test. Rather the current plan calls for resurrecting the environmental impact statement for the fixed rail project that was defeated in 1992. A prima facie analysis for that project concluded that direct benefits would only justify costs if riders valued their time at $93 per hour, in 1991 dollars. (See the report in an acrobat adobe pdf version at Fox and Roumasset) And even the Supplemental Draft Environmental Impact Statement estimated that fixed rail would only decrease congestion by 1.1 percent (ibid.). That is, if congestion were to increase by 10 percent by the time the project were built, the project would result in a net increase of 8.9 percent. And once one accounts for congestion increases caused by construction, it would be hard to claim any congestion benefits at all. (All of this abstracts from congestion increases due to the failure to implement congestion-reducing alternatives.) It is widely accepted that cost recovery through user fees is impossible and that fixed-rail systems must be heavily subsidized. A sensible rule-of-thumb is for user fees to be set high enough to cover operation and maintenance. Therefore the $2.6 billion must be justified by the economic value of reduced congestion. But as already discussed, those benefits would be small or negative.

Alternatives The reason that congestion is excessive is because the roadways are unpriced. Policy makers and planners have long recognized the need to provide incentives to producers and consumers to cut down pollution, but they are reticent to apply similar logic to excessive driving. Roadway pricing, such as practiced in London, and San Diego's "value pricing" on Interstate 15 -- see http://www.fhwa.dot.gov/policy/otps/sandiego.htm -- is a win-win solution. The program runs a huge budget surplus because collections are large relative to costs of implementation. The surplus can be returned e.g. by rescinding the more than 50 cents of state and local gasoline taxes and by allowing tax credits on state excise and income taxes. Those that place a high value on driving their own vehicles during rush hour would benefit from the lower congestion. Others would benefit from lower taxes and driving costs. Only when roadways are priced does congestion provide correct signals for increasing capacity. Otherwise, increased capacity may actually increase travel time by creating bottlenecks elsewhere in the system. In economics, this is known as the Pigou-Knight-Downs paradox -- see http://www.econ.ucsb.edu/~tedb/Courses/UCSBpf/readings/traffic.pdf -- see also http://econpapers.hhs.se/paper/nwucmsems/976.htm

Summarizing, if it's broke (i.e. mispriced), don't spend more money on it.

Boston College professor Richard Arnott also notes that "there are many other margins on which public policy can be applied to reduce congestion -- parking policy, policies to encourage smaller cars, trucks, and buses, policies to encourage civil driving behavior, policies with respect to car insurance, policies to reduce the disruption caused by traffic accidents and road work, tax policies, and policies to spread work start times, to name only a few. The application of basic economic principles to these new areas of transport policy holds considerable promise." See http://fmwww.bc.edu/ec-p/facsem/TrafficCongestion.pdf

James Roumasset is a professor of economics at the University of Hawaii. He can be reached via email at: mailto:jimr@hawaii.edu

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