National Infrastructure Planning?

Shortly before election day, the liberal/left think tank Center for American Progress (CAP) released a new report rehashing what are by-now old ideas: “Creating a National Infrastructure Bank and Infrastructure Planning Council.” (www.americanprogress.org, September 2012) The report laments inadequate levels of investment in infrastructure, inefficiencies in deciding what projects to invest in, and the need for both centralized funding and central planning to “develop a comprehensive national infrastructure plan.”

More recently, commentator Fareed Zakaria echoed these thoughts in a post-election piece for Time. And Transportation Secretary Ray LaHood, following direction from Congress, convened the first meeting of DOT’s new Freight Policy Council.

I’ve written about the flaws in proposals for a national infrastructure bank before, so in this article I will concentrate on the merits (or not) of national infrastructure central planning. Proponents of this idea face a very high burden of proof, in view of the global failure of central planning of national economies over the past century. The CAP report laments that “despite the interdependence of America’s electricity, water, transport, and telecommunications networks, the vast majority of federal [infrastructure] funds are dispersed in sector-specific programs that do not take into consideration the impact of their initiatives on other infrastructure systems.” The authors argue that with more federal planning, “channel deepening at ports [could] be planned alongside the bridge replacements required to ensure new and larger freight vessels can accommodate harbors.” As if ports couldn’t figure this out on their own?

And needless to say, I suspect other agendas at work when CAP’s authors argue that projects should be ranked by “expected economic and social returns” and that a planning council should “prioritize projects that lead to economic growth and job creation“—i.e., favor labor-intensive projects that reduce, rather than increase productivity. They are even more explicit about the importance of “promoting models that protect wages and collective bargaining rights,” presumably by extending the reach of such costly federal regulations as those of the Davis-Bacon Act and the Jones Act.

Rather than increasing the productivity of capital investments in infrastructure, this kind of central planning would be far more likely to reduce it. Here are two current examples from the goods-movement field, natural fodder for the new Freight Policy Council. The barge industry is circulating scary stories about the deterioration of locks on the inland waterways system, and is even offering to increase the amount of the fuel tax its members pay into the Inland Waterways Trust Fund, so as to increase federal investment in locks and dams on this system. They fail to point out that at present those user tax revenues cover only eight percent of the capital and operating cost of the locks and dams. The Waterway Council’s proposal would increase this to about 12%, with all the rest continuing to come out of the soon-to-be-non-existent federal general fund.

Another example is port dredging. Incoming cargo ships pay a Harbor Maintenance Tax, based on the value of their cargo, that goes into a federal Harbor Maintenance Trust Fund. Ports compete to get money from that fund for dredging, but they can only get it if (a) the Army Corps of Engineers does a benefit/cost study showing that the national benefits of the project exceed the costs and (b) if Congress earmarks funds for the project in a periodic water resources bill. Two inconvenient facts for this model are (1) that some of the largest ports—Seattle, Oakland, Los Angeles, Norfolk—have naturally deep harbors and get no benefit from this Trust Fund, and (2) there are no national benefits to having one port rather than its competitor get a dredging grant.

In these two examples we see two egregious subsidies at work: a general-taxpayer subsidy for the barge lines, artificially lowering their cost versus their competitor railroads (who pay for 100% of their own infrastructure); and large cross-subsidies among ports. Both kinds of subsidies reduce the productivity of goods-movement infrastructure. Yet advocates of national freight planning never seem to mention these kinds of issues when touting central planning.

We do have examples of state and local institutions working out solutions to freight infrastructure problems. The Port of Miami is not waiting for a federal earmark of dredging funds. It is going ahead with a bond issue to finance the needed dredging to increase its channel depth to the 50 feet needed by the larger ships expected to use the expanded Panama Canal. It is also working cooperatively with the Florida East Coast Railway to provide improved rail connections to the port, aiming to compete with Savannah by getting incoming containers to the Southeast faster by rail than the latter can via much slower ocean steaming. And in Chicago, the railroads and state and local transportation agencies are making good progress on the CREATE program to streamline intermodal freight transfers by creating numerous grade separations and rail flyovers.

I suppose DOT’s Freight Policy Council might be a useful talking shop for identifying the occasional bottleneck in the system. But local knowledge and user funding look to me like far more appropriate tools for fixing most of these problems.

Robert Poole edits the Reason Foundation’s Surface Transportation Innovations, where this first appeared.