Tuesday, February 13, 2018

The Rich "Capture" Transit - a ponzi scheme in the making #Trump #Infrasture #Proposal

If you don't follow the Twitters, you may have missed the trending topic of #infrastructure as of yesterday when whitehouse.gov posted some guidelines and a legislative framework to make America's infrastructure great again. I went to the source, and at every turn of the Trump Administration's "Building a Stronger America" initiative, there is a common combination of proposals:

  1. Eliminate Regulations (lower expectations)
  2. Reduce Federal proportion of cost-share (states and cities, your allowance is slashed)
  3. Solicit Private Investors (cash-strapped state and local governments will have little choice)
  4. Promote Profiteering (exploit resources; remember, they're scrambling)
All types of infrastructure share in the aggressive shift of goals from serving the public interest to returns on investments. The topics range from water infrastructure, to access roads to public lands for resource extraction, to transportation (among others). Every type of infrastructure on the list, based on my review, all elements achieve the magic combination above.

Trump's proposal may not pass, but there are enough scary concepts that should be blocked before they become enacted by legislation. The bad ideas, taken one at a time, can be misleadingly tame in their quantity of terribility. Taken together, they're terribly terrible. The compounding terribility is akin to the compounding of the words: (1)Trump, (2) talking, (3) with women, (4) grabbing, and (5) grabbing by... nevermind. This demonstrates the wrong combination of things make the terrible, terrifying.

How does this relate to the much talked about #Infrastructure plan?

So let me explain how the wrong combination of proposals, bad city fiscal statuses, and desperation of cities can result in local governments being robbed by the wealthy investor class and savvy developer (legally, of course).

Potentially good ideas by themselves: 
  1. Cities using value capture to sustain the revenues necessary to operate and maintain a first-class transit service
  2. Cities made to focus on generating a return on investments; not offer miserable transit that's federally subsidized
  3. Public-Private Partnerships (PPPs)
The Federal cost-share allocated to the cities in years prior have not always been used effectively. I point to the good work at Strong Towns to illustrate the arguments that liabilities of our over-built, under-utilized, poorly maintained roads, highways, interstates, bridges, and tunnels add up to a bunch of places that have a frightening fiscal future ahead of them as a lot of bills are coming due. Many at the same time.

What cities have been able to do effectively with a Federal project funds is to use it as leverage in bringing needed resources to the negotiations of PPPs. Transit stations could be (and have been) designed with space that offers leased space (maybe managed by and profitable to private firms operating within) that offered a return to the city. This is an example of value capture. Value capture studies record these returns at 6.5% to 7%, even in American cities where value capture is rare and not pursued aggressively (as it is in Hong Kong or Tokyo).

My expectation is, without those Federal project funds, cities will have far less leverage in the negotiations of PPPs. Instead, cash-strapped cities will compete over a limited supply of capable investors (compounded by the preserved lending power left over from quantitative easing policies). In the mismatched supply and demand, cities with desperate needs will be forced to take desperate measures with little guidance for best practices in how to navigate the new terrain of private funding and managing the new federally mandated value capture aspect to the project.

And with the private sector stepping in and financing the major share of these infrastructure projects, would they not be best suited to be first in line for the value captured from these brand new projects? As a mortgage holder, I know that my payments are meant to slowly benefit the principal owed. Would the financiers not treat cities similarly? Would the value capture rate not first benefit the investors? Will the private parties defer maintenance so that by the time the city starts to get a cut on the value capture that those returns will be eaten up on additional costs associated with older equipment and infrastructure? With a profit motive, is there not opportunity to see value capture models get aggressive?

Some of these ideas (i.e. value capture) work well on their own, but in conjunction with the rest of the conditions, I have serious concerns that the trillions of dollars worth of work that is needed across the country will be inequitable, insufficient, and parasitic results due to the ideological (not empirical) motivations to punish all forms of government, who supposedly does not contribute to wealth (according to the right-wing libertarian basic talking points), and continue the long played game of privatizing the profits and socializing the liabilities.

I hope I am wrong.

I also hope that if I am right that we move beyond the question of how much to spend, and talk about how it is spent.