Role of Government


THE

CONSTITUTIONAL

CONTROVERSY

OVER

FEDERAL GOVERNMENT

INVOLVEMENT

IN

TRANSPORTATION

 

By Dennis Polhill

Research assistance by

Dominque Tarpey and Steve McWhirter

 

 

 

 

Presented at

American Legislative Exchange Council

Seattle, Washington

July 2004

 

 

 

 

 

At least 9 Presidents of the United States

issued public statements to Congress

indicating that the U.S. Constitution

required amending before

the Federal government could

become involved in Transportation policy.

In 2004 the question is rarely raised.

 

 

INTRODUCTION

The controversy over whether the Federal government is permitted by the Constitution to be involved in transportation improvements began soon after adoption of the Constitution.

At least nine United States Presidents very strongly believed that the enumerated powers in Article 1, Section 8 of the U.S. Constitution excluded Federal involvement in transportation improvements.  Evidence of their convictions is expressed in unmistakable terms in their veto messages.

CUMBERLAND ROAD – An ambiguity that emerged from early American history is the Cumberland Road.   The first Federal funded highway connected the head of navigation on the Potomac River (Cumberland, Maryland) to the head of navigation on the Ohio River (Wheeling, West Virginia).  Construction was authorized by Congress on March 29, 1806.  Contracts were issued in 1811, but the War of 1812 interfered and construction did not begin until 1815 and was finished in 1818.  America’s eagerness to solidify its claims on western lands was in conflict with Constitutional limitations on Federal authority.

In 1803 Congress passed the 5 percent law.  Five percent of the revenue generated from the sale of Federally owned public lands was deposited into a fund.  Funds generated from 60% of the five percent (three percent) were granted to the States upon admission to the Union for roads, canals, levees, river improvements and schools.  Funds generated from the remainder, two percent, were dedicated for constructing roads “to and through” the West.  Bitter debate ensued when the two percent funds were allocated in 1806 to build the Cumberland Road.  Jefferson chose expediency by not vetoing the bill, but issued his important message[1] to Congress later in 1806 suggesting that the Constitution should be amended to allow Federal involvement in “internal improvements.”

The Cumberland Road became so heavily used that it fell into disrepair.  When Congress sought to again intervene by establishing tolls for maintenance in 1822, Monroe issued his only veto, arguing that Federal collection of tolls implied a power of jurisdiction, that was not granted to the Federal government by the Constitution.  By 1835 the Cumberland Road was known as the National Road and extended into Illinois.  The dilemma was resolved when control was devolved to the respective States that operated it as a toll facility until toll roads were bankrupted by railroad competition.

PRESIDENTIAL ACTIONS REGARDING ENUMERATED POWERS

JEFFERSON – In his December 2, 1806 message to Congress, President Thomas Jefferson considered the problem of a revenue surplus.  Reduction of the import duty on salt would give “advantage to foreign over domestic manufactures.”  Jefferson recommended “continuance and application to the great purposes of the public education, roads, rivers, canals, and such other objects of public improvement as it may be thought proper to add to the constitutional enumeration of federal powers.”  That is, Jefferson favored acceleration of Federal sponsorship, but was of the view that the U.S. Constitution must be amended to allow it.

Jefferson commented again on this topic in a February 14, 1824 thank you letter to Robert J. Garnett.  Garrett had given a copy of a book by Colonel Taylor, “New Views of the Constitution.”  The letter mentioned “the three great questions of amendment:” presidential term limits, popular election of the president, and giving to Congress the power over internal improvement on the condition that each State’s federal proportion of the moneys so expended, shall be employed in the State.

MADISON – James Madison, author of the U.S. Constitution, succeeded Jefferson as President in 1808.  In Madison’s last official act as President he issued a veto on March 3, 1817.  The bill, passed in February 1817, provided for setting aside the Bank bonus of $1,500,000 as a permanent fund for internal improvements.  To circumvent the constitutional prohibition, the bill language cleverly mixed rhetoric including “internal commerce,” “general welfare,” and “common defense.”  Madison replied specifically to each of these claims of authority.

Madison favored the policy but vetoed the bill as unconstitutional, “I am constrained, by the insuperable difficulty I feel in reconciling the bill with the Constitution of the United States.”[2]

He refers Congress to the Constitution, “The legislative powers vested in Congress are specified and enumerated in the 8th section of the first article.”  He adds, “The power to regulate commerce among the several States, cannot include a power to construct roads … without a latitude of construction departing from the ordinary import of the terms.”

“To refer to the power in question as ‘common defense and general welfare,’ would be contrary to the established and consistent rules of interpretation … such a view of the Constitution would have the effect of giving to Congress a general power of legislation … It would have the effect of subjecting both the Constitution and laws of the several States, in all cases not specifically exempted, to be superseded by laws of Congress.”  Finally, Madison points out “the assent of the States … cannot confer the power.”  In other words the states must agree by amending the Constitution, but may not agree to ignore its structurally imposed limitations on Congressional powers.  In the final paragraph Madison asserts, “that the permanent success of the Constitution depends on a definite partition of powers between the General and the State government, and that no adequate land-marks would be left by the constructive extension of the powers of Congress, as proposed in the bill.”

Madison’s veto message closed with sympathy for the policy objective, “I am not unaware of the great importance of roads … and hope that (the bill’s) beneficial objects may be attained …”

MONROE – James Monroe was elected in 1816 to succeed Madison.  His only veto was issued on May 4, 1822.  Monroe, like Madison and Jefferson, approved of the policy, but vetoed the Cumberland Road Bill as unconstitutional, “Congress does not possess the power under the Constitution to pass such a law.”[3]  Monroe reiterated Madison’s points, “This power can be granted only by an amendment to the Constitution.”  In addition to the indirect claims of authority refuted in Madison’s veto (commerce, general welfare and common defense), the Cumberland Road Bill claimed Congressional authority under post roads, the power to make all laws necessary and proper for carrying into execution all the powers vested by the Constitution in the government, and the power to make all needful rules and regulations respecting the territory and other property of the United States.  Monroe, “it cannot be derived from either of those powers, nor from all of them united, and as a consequence it does not exist.”  He closes by suggesting that “Congress (exercise) the propriety of recommending to the states an amendment to the Constitution.”  Monroe’s veto message is brief, less than two pages in the Congressional Record, but he elaborates exhaustively in his May 4, 1822 “Views of the President of the United States on the Subject of Internal Improvements.”  This document is nearly 30,000 words, is not part of the Congressional Record.[4]

JACKSON -Congress became more aggressive.  Andrew Jackson (President 1828-1836) vetoed four transportation bills as unconstitutional.  Like his predecessors he favored federal participation in internal improvements, but understood the Constitution as not allowing, and therefore prohibiting, it.  Jackson offered support to advancing the necessary Constitutional amendment by suggesting public agreement made the amendment possible, “If it be the wish of the people that the construction of roads and canals should be conducted by the Federal Government, it is not only highly expedient, but indispensably necessary, that a previous amendment of the Constitution, delegating the necessary power, and defining and restricting its exercise with reference to the sovereignty of the States, should be made.”  In other words, public consent made an amendment achievable and preservation of both the Constitution and State sovereignty requires it.  Congress elected to not advance the suggested Constitutional Amendment.

The Maysville, Washington, Paris, and Lexington Turnpike Road Company was vetoed as “unconstitutional”[5] on May 27, 1830.  This is one of the longer veto messages consuming 10 pages (over 6,000 words) in the House Journal.  Jackson reviewed the history of his predecessors on the question and summarized the arguments on both sides of the issue.  In the end he agreed with his predecessor-Presidents, “When an honest observance of Constitutional compacts cannot be obtained from communities like ours, it need not be anticipated elsewhere; and the cause in which there has been so much martyrdom, and from which so much was expected by the friends of liberty, may be abandoned, and the degrading truth, that man is unfit for self government, admitted.  And this will be the case, if expediency be made a rule of construction in interpreting the Constitution … No good motive can be assigned for the exercise of power by the constituted authorities, while those for whose benefit it is to be exercised have not conferred it.”

Jackson’s Maysville veto message reiterates language from the Monroe veto message supplement, which evolved into another criterion, “purely local character,” that appears in subsequent vetoes in various forms.  This is discussed in a subsequent section.

The Washington Turnpike Road Company was vetoed as “unconstitutional”[6] on May 31, 1830.

Jackson’s next “unconstitutional” veto was of “An Act to authorize subscription for stock in the Louisville and Portland Canal Company” passed near adjournment and he provided the veto message to Congress on December 7, 1830.  Again he refers Congress to the Maysville veto for edification.  “The practice of thus mingling the concerns of the government with those of the States or of individuals, is inconsistent with the object of its institution.  The successful operation of the federal system can only be preserved by confining it to the few and simple, but yet important objects for which it was designed.  A different practice, if allowed to progress, would ultimately change the character of this Government, by consolidating into one the General and State Governments, which were intended to be kept forever distinct.”[7]

Jackson’s last transportation veto as “unconstitutional” came on December 2, 1834 of “An Act to improve the navigation of the Wabash River.”  “I cannot refrain from expressing my increasing conviction of its extreme importance, as well in regard to its bearing upon the maintenance of the Constitution … the dangers of unconstitutional acts which, instead of menacing the vengeance of offended authority, proffer local advantages, and bring in their train the patronage …in my opinion, the Constitution did not confer upon (Congress) the power to authorize the construction of ordinary roads and canals … I could not consider myself as discharging my duty to my constituents in giving the Executive sanction to any bill containing such an appropriation.”[8]

TYLER – John Tyler vetoed as “unconstitutional” “An Act making appropriations for the improvement of certain harbors and rivers,” on June 11, 1844.  “At the adoption of the Constitution, each State was possessed of independent sovereignty … (which) expressly reserve(d) to the States all powers not delegated … (Congressional) power, in order to be legitimate must be clearly and plainly incidental to some granted power, and necessary to its exercise.  To refer it to the head of convenience or usefulness would be to throw open the door to a boundless and unlimited discretion and to invest Congress with an unrestrained authority.”[9]

Tyler also pocket-vetoed “An Act making appropriations for the improvement of the navigation of certain rivers” on January 28, 1845, but issued no veto message, suggesting that he had said all that he wished to say on the issue in his June 11, 1844 veto message.

POLK – On August 3, 1946 James Polk delivered a veto message to Congress for “An Act making appropriations for the improvement of certain harbors and rivers.”  The bill appropriated $1,378,450 to more than 40 objects of improvement.  Because of the “local character” of these projects, Polk said, “it is difficult to conceive … what practical constitutional restraint can hereafter be imposed … The Constitution has not, in my judgment, conferred upon the federal government the power to construct works of internal improvements … The approved course of the government, and the deliberately expressed judgment of the people, have denied the existence of such a power under the Constitution.  Several of my predecessors have denied its existence in the most solemn forms … The general proposition that the federal government does not possess this power is well settled.”[10]  Polk also advances a test for constitutionality originally laid down by Madison, “Whenever a question arises concerning a particular power, the first question is whether the power be expressed in the Constitution.  If it be, the question is decided.  If it be not expressed, the next inquiry must be, whether it is properly an incident to an expressed power, and necessary to its execution.  If it be, it may be exercised by Congress.  If it be not, Congress cannot exercise it.”

Polk issued a second veto of a transportation bill on December 15, 1847 of “An Act to provide for continuing certain works in the Territory of Wisconsin, and for other purposes.”  Polk’s first objection was the bill’s misleading title.  It passed on the last day of a session and appropriated $6,000 for “continuing” work, while $500,000 was appropriated for numerous new projects.  The veto message opens by referring Congress to his prior veto message of August 3, 1946 and referenced to comments found in the veto messages of Madison, Monroe, and Jackson.  Polk also quotes Jefferson’s 1806 message to Congress recommending “an amendment to the Constitution.”  Restating the obvious Polk writes, “No express grant of this power is found in the Constitution.”[11]

PIERCE – Franklin Pierce issued seven transportation vetoes, more than any other President.  “An Act making appropriations for the repair, preservation, and completion of certain public works theretofore commenced under the authority of law” was vetoed as “unconstitutional” on August 4, 1854.  This bill is “not, in my judgment, warranted by any safe or true construction of the Constitution.”[12]

His first veto message was brief because the bill reached him in the “expiring hours” of a session, but Pierce elaborates at length in his December 30, 1854 (read on January 2, 1855) message to Congress.  He recites the 10th Amendment to the Constitution as further evidence to clarify the intended specificity of the enumerated powers listed in Article 1, Section 8.  He reasoned, “If the framers of the Constitution, wise and thoughtful men as they were, intended to confer on Congress the power over a subject so wide as the whole field of internal improvements, it is remarkable that they did not use language clearly to express it.”  In response to the assertion that language in the Constitution’s Preamble inferred a power vested Congress with authority over internal improvements, he wrote, “To assume that anything more can be designed by the language of the Preamble would be to convert all the body of the Constitution.”

On March 3, 1855, Pierce vetoed “An Act making appropriations for transportation of the United States mail by ocean steamer and otherwise, during fiscal years ending the 30th of June 1855 and the 30th of June 1856.”  In addition to citing that the appropriation was both a bad spending priority and a poor policy, Pierce stated that the bill was “of doubtful compatibility with the Constitution.”[13]

Congress persisted by passing “An Act to remove obstructions to navigation in the mouth of the Mississippi River at the Southwest pass and Pass a l’Outre.” It was vetoed on May 19, 1856, with “my views were exhibited in full on the subject … the Constitution does not confer on the general government any express powers to make such appropriations.”[14]

“An Act making an appropriation for deepening the channel over the St. Clair flats, in the State of Michigan” was vetoed on May 19, 1856 as violating the Constitutional “restriction on the power of Congress.”[15]

“An Act making an appropriation for deepening the channel over the flats of the St. Mary’s River, in the State of Michigan” was vetoed on May 22, 1856, as “not a necessary means for execution of any of the expressly granted powers of the federal government.”[16]

“An Act for continuing the improvement of the Des Moines rapids, in the Mississippi River” was vetoed on August 11, 1856.  For elaboration Congress was referred to his prior veto messages.[17]

“An Act for the improvement of the navigation of the Patapsco River, and to render the port of Baltimore accessible to the war steamers of the United States” was vetoed on August 14, 1856.  Pierce again referred Congress to his prior veto messages.[18]

BUCHANAN – President James Buchanan vetoed “An Act making an appropriation for deepening the channel over the St. Clair flats, in the State of Michigan” on February 1, 1860, as “a violation of the spirit of the Constitution.”  Buchanan declined to provide a protracted reply, “The question of the Constitutional power of Congress to construct internal improvements within the States has been so frequently and so elaborately discussed that it would seem useless on this occasion to repeat or to refute at length arguments which have been so often advanced.”  Suffice it to say, he agreed with his predecessors.  He specifically refers Congress to the Polk veto of December 15, 1847 and offers, “The corrupting and seducing money influence exerted by the general government in carrying into effect a system of internal improvements might be perverted to increase and consolidate its own power to the detriment of the rights of the States.”[19]

ARTHUR – Chester A. Arthur was the last President to unambiguously express his Constitutional views in a veto message.  On August 1, 1882 he vetoed, “An Act making appropriations for the construction, repair, and preservation of certain works on rivers and harbors, and for other purposes.”  “I regard such appropriations of the public money as beyond the powers given by the Constitution to Congress and the President.  I feel the more bound to withhold my signature from the bill because of the peculiar evils which manifestly result from this infraction of the Constitution.”[20]

PRESIDENTIAL VETO SUMMARY – This research of transportation vetoes finds that eight president vetoed 19 transportation bills as unconstitutional violations of enumerated powers.  Jefferson provided the same language in his December 2, 1806 message leaving no doubt of his views on this question (Jefferson issued no vetoes during his presidency).  Links to Senate and House Journals where the exact and complete language of the respective messages may be reviewed are provided in Appendix A.

COOPERATION BETWEEN THE BRANCHES

The most significant power of a President is the power to veto legislation.  Thus, a veto represents the most solemn and sacred act exercised by a President.  A veto may be advanced for any reason or no reason at all.  Most are due to disagreement over scope, methods, nature or priorities of legislation; or philosophical differences.

All Presidents wisely strive to sustain a positive and constructive working relationship with the legislative branch.  Clearly, all of the nine veto-Presidents (Jefferson, Madison, Monroe, Jackson, Tyler, Polk, Pierce, Buchanan, and Arthur) had the option to not use confrontational language by issuing their vetoes on other-than-constitutional grounds.  But they did not, inferring both a powerful strength of conviction and an enormous sense of obligation to express their Constitutional understandings.  That many also exercised these vetoes contrary to their own preference for policy, strengthens the message in their words.

Each of the above vetoes in effect accused members of Congress of ignoring their oaths of office to uphold the Constitution, of failing to comprehend the Constitution’s meaning and intent, or of being unwilling to abide by clearly enumerated Constitutional limitations.  Such accusations are neither trivial nor conducive to a positive working relationship.  Their principled stances provided no rewards.

GENERAL OR LOCAL BENEFIT – The views of the nine veto-Presidents above as represented by unmistakable language directed at Congress are unequivocal.  The specific views of other Presidents are less clearly decipherable from their veto message language.

The Jackson Maysville veto advanced Monroe language that evolved into criterion that appears in several subsequent vetoes in some form, “general welfare” of “purely local character” and eventually became the slippery slope that yielded current Federal involvement.  Did the vetoes of the subsequent Presidents seek to be more subtle and less offensive with their rhetoric toward Congress?  Did these words mean to say with less insult to the integrity of Congress, “unconstitutional under enumerated powers?”

This research does not attempt to comprehensively inventory all vetoes with this ambiguous language.  The cited veto messages sometimes included words like, “for the benefit of particular localities”, “of local interest”, or “lacking a general benefit.”  A partial list of such vetoes follows:

  • Benjamin Harrison, April 29, 1890 “a matter of local interest”
  • Benjamin Harrison, June 4 1890 “the public needs do not suggest or justify such an expenditure”
  • Grover Cleveland, May 23, 1888 “(not) necessary for the transaction of public business”
  • Grover Cleveland, May 29, 1896 “for the benefit of limited localities”
  • Grover Cleveland, July 7, 1896 “I (am not) satisfied that the legislation proposed is demanded by any exigency of the public welfare”
  • Theodore Roosevelt, March 3, 1903, “for local improvement”
  • Woodrow Wilson, July 11, 1918 “not in the public interest”
  • Herbert Hoover, July 11, 1932 “Fraught as it is with possibilities of misfeasance and special privileges”
  • Franklin D. Roosevelt, June 11, 1940 “the public interests are not such”
  • Franklin D. Roosevelt, August 2, 1941 “benefits of such expenditures are dependent upon local enforcement”

 

A Calvin Coolidge veto on May 18, 1928 comes close but does not quite state “local interest” as his reason, “Having in mind the increasing ability of the States to finance road construction due to the general adoption of the gasoline tax and the increase in revenue from this source which would accrue to States from roads.”  The State gasoline tax was a comparatively new innovation.  A Federal gasoline tax was, as yet, nonexistent.  Coolidge was, in effect, arguing against a Federal program of taxation and redistribution, the net effect of which would have advanced Federal involvement in State transportation decisions.

 

SEPARATION OF POWERS – As adherence to the Constitution slipped further from public perception, Congress acted to enlarge its power by including in legislation that Department Secretaries report directly to Congressional Committees.  Presidents objected to this infringement in another series of vetoes.  These are on Constitutional grounds, but because the limitations of Article 1, Section 8 seem to have been largely forgotten, the basis is encroachment on Executive Powers by the Legislative Branch.  These illustrate Congress’ insatiable thirst for more power.

  • Dwight D. Eisenhower, July 16, 1956 “violate the fundamental constitutional principle of separation of powers”
  • Lyndon B. Johnson, June 4, 1965 “undesirable and improper encroachment by the Congress and its committees into the area of executive responsibilities”
  • Lyndon B. Johnson, August 21, 1965 “repugnant to the Constitution (by) encroachment (on) the separation of powers between the legislative and executive branches”
  • Richard Nixon, April 5, 1973 “conflicts with the allocation of executive power to the President”
  • Jimmy Carter, July 10, 1978 “directs Secretaries to report to congressional committees”

OPENING THE FLOODGATES

INTERSTATE HIGHWAY SYSTEM – On June 29, 1956 President Eisenhower signed into law the “National System of Interstate and Defense Highways.”  Title II, the Highway Revenue Act, was its financial component that raised the Federal gasoline tax from 1 cent (implemented in 1932) to 2 cents (raised to 3 cents in 1958 and to 4 cents in 1959) per gallon and was scheduled to expire on June 30, 1972.  The 40,000 miles of new highways would be State owned and operated.  The Federal role was fiscal, to collect and redistribute revenues to expedite construction by States.  Conformity of construction among the States was an important goal of the legislation.  The Clay Committee estimated the total cost at $27 billion.  The bill authorized $25 billion.  By 1958 the system had increased to 41,000 miles at a total estimated cost of $41 billion.  In 1966 the Bureau of Public Roads became the U.S. Department of Transportation.  The Interstate System was completed in 1982.  In 1976 the Federal gasoline tax was extended and in 1990 increased from 9 cents to 14 cents.  Currently the Federal gasoline tax, at 18.4 cents, generates about $40 billion per year.

GROWTH OF PORK – In “Breach of Trust” former U.S. Representative Thomas Coburn of Oklahoma defines pork as “one member of Congress determines where the money is to be spent.”  Congress uses the friendlier label: “earmark.”  By this definition Federal Transportation Legislation contained only ten pork projects in 1982 at a cost of $386 million.  The 1987 bill contained 150 pork projects for $1,300 million, motivating a Reagan veto.   By 1991 the number of projects had grown to 539, at $6,200 million and the 1998 bill contained “a record shattering 1,467 pork projects for $9,500 million.”  “Shuster consistently argued that setting aside 5 percent … was a very reasonable thing to do.”  The debate had moved quite considerably afar from the points so eloquently articulated by Madison, and others.

Coburn elaborates on how these projects are generated by vote-buying.  Maverick Congresspersons who say, “My vote is not for sale” are punished.  The going rate of $15 million for a vote for the 1998 bill was corroborated by several Congresspersons.  House Transportation Chairman, Shuster, lividly denied the accusations as “McCarthyism.”  But Budget Committee Chairman, Kasich, called the bill an “abomination,” introducing a short-lived amendment to the bill that would reduce the federal gasoline tax to 4 cents per gallon.

TRUST FUND HISTORY – The Reason Public Policy Institute Policy Study 216[21] by Bob Poole in 1996 reviewed the history of the Federal Highway User Trust Fund, seeking to account for all costs in order to reveal a more accurate listing of donor versus recipient states aggregated over the life of the Fund.  Conventional wisdom is that 21 states are donor states.

RPPI reasonably underestimated the costs of Federal administration, mandates, delays and distortion of priorities.  This exercise revealed that the number of donor states is 33, 12 more than are generally considered donor states.  Because RPPI conservatively estimated and because other costs exist that were not included in the analysis such as the significant resources state and local governments use lobbying to recover “free money,” 33 donor states is an understatement.  In a yet-to-be-released CATO study, author Gabriel Roth, estimates that at least 42 states are donor states.  Thus, few states receive more money than they pay into the Trust Fund and the vast majority of states are injured by the continued movement of funds through the D.C. money-filter.  The value of money is not enhanced when it goes thru D.C.  A listing of the donor and recipient states based on RPPI’s 1996 research, along with their current representation in Congress is provided in Appendix B.

CONCLUSION – Notwithstanding, the Constitutional foundation, the historical evolution and the political promises, the trend toward higher levels of Federal waste, inefficiency and corruption should disturb all who care about good government.  This is exactly what the Polk veto of 1860 predicted, “The corrupting and seducing money influence exerted by the general government in carrying into effect a system of internal improvements might be perverted to increase and consolidate its own power to the detriment of the rights of the States.”

  • The Federal gasoline tax was created as a temporary tax to construct the Interstate Highway System.
  • The Federal gasoline tax has achieved it mission.
  • The Interstate Highway System was completed in 1982.
  • Since 1982 the number of “pork” projects has grown exponentially.
  • Continuation of the Federal gasoline tax is injuring transportation in at least 33 states.
  • The states injured by continuation of the Federal gasoline tax represent 88% of the U.S. House membership.
  • The Founders and several successor presidents stated that the U.S. Constitution does not delegate to the Federal government the authority to be involved in transportation improvements.
  • The Constitution has not been amended to allow Federal involvement in transportation.
  • All of the indirect claims of authority by Congress have been answered by the various presidential vetoes of proposed transportation legislation.
  • The warnings that ignoring the limits imposed by the Constitution would open the door to unbounded authority and centralization by Congress have come true.
  • The warning that money would become “corrupting and seducing” has come true.
  • The warning that ignoring the limits imposed by the Constitution would subjugate the states to Congress has come true.

State Departments of Transportation are sufficiently prepared to handle the added responsibility of prioritizing and managing their own transportation systems.  Devolving to the states responsibility for transportation is not only the right thing to do, but will result in improved fiscal efficiency and accountability.  After all, this is how the problem of the Cumberland Road was reconciled in 1835.  The era of massive transportation construction has ended.  The future challenge is to operate and maintain the world’s foremost transportation system with efficiency.  This cannot be achieved well with continuing top-down mandates.  Rather, devolution and liberalization of Federal restrictions will free those with the most innovative and creative leadership solutions to act.  There is a time to lead and a time to follow.  Less Federal involvement in transportation will facilitate more leadership in some, if not all 50, states, which will help America to be more competitive in this time of global competition for markets and jobs.  We owe it to the future to devolve transportation responsibilities to the states where they rightfully belong.

 

 

 

APPENDIX – A

 

LINKS TO CONGRESSIONAL RECORD

REGARDING ENUMERATED POWER

 

President

Bill

Date

Reference Location

Link to Reference Location

Jefferson

N/A

Dec. 2 1806

Senate Journal

http://lcweb2.loc.gov/cgi-bin/ampage?collId=llac&fileName=016/llac016.db&recNum=3http://lcweb2.loc.gov/cgi-bin/ampage?collId=llac&fileName=016/llac016.db&recNum=4http://lcweb2.loc.gov/cgi-bin/ampage?collId=llac&fileName=016/llac016.db&recNum=5

Madison

H.R. 29

March 3, 1817

House Journal

 

http://lcweb2.loc.gov/ll/llhj/010/1400/14170534.tif http://lcweb2.loc.gov/ll/llhj/010/1400/14180535.tif http://lcweb2.loc.gov/ll/llhj/010/1400/14190536.tif http://lcweb2.loc.gov/ll/llhj/010/1400/14200537.tif

Monroe

H.R 50

May 4, 1822

House Journal

 

http://lcweb2.loc.gov/ll/llhj/015/0500/05590560.tif http://lcweb2.loc.gov/ll/llhj/015/0500/05600561.tif

Monroe

May 4, 1822

Veto Supplement Not in Congressional

Record

 

Jackson

S. 27

May 31, 1830

Senate Journal

 

http://lcweb2.loc.gov/ll/llsj/019/0300/03600360.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03610361.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03620362.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03630363.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03640364.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03650365.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03660366.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03670367.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03680368.tif http://lcweb2.loc.gov/ll/llsj/019/0300/03690369.tif

Jackson

H.R. 285

May 27, 1830

House Journal

 

http://lcweb2.loc.gov/ll/llhj/023/0700/07330733.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07340734.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07350735.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07360736.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07370737.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07380738.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07390739.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07400740.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07410741.tif http://lcweb2.loc.gov/ll/llhj/023/0700/07420742.tif

Jackson

H.R.304

Dec. 7, 1830

House Journal

 

http://lcweb2.loc.gov/ll/llhj/024/0000/00150015.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00160016.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00170017.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00180018.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00190019.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00200020.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00210021.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00220022.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00230023.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00240024.tif http://lcweb2.loc.gov/ll/llhj/024/0000/00250025.tif

Jackson

S. 97

Dec. 2, 1834

Senate Journal

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Tyler

H.R. 203

June 11, 1844

House Journal

 

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Tyler

H.R.541

Jan. 28, 1845

Pocket

No veto message.  Tyler’s previous veto on constitutional grounds infers that this bill might have been vetoed on similar grounds.

Polk

H.R.18

Aug. 3, 1846

House Journal

 

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Polk

H.R.84

Dec. 15, 1847

House Journal

 

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Pierce

H.R. 392

Aug. 4, 1854

House Journal

 

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Pierce

H.R. 595

Mar. 3, 1855

House Journal

 

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Pierce

S. 1

May 19, 1856

Senate Journal

 

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Pierce

S. 2

May 22, 1856

Senate Journal

 

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Pierce

S. 14

May 19, 1856

Senate Journal

 

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Pierce

S. 53

Aug. 14, 1856

Senate Journal

 

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Pierce

H.R. 12

Aug. 11, 1856

House Journal

 

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Buchanan

S. 321

Feb. 2, 1860

Senate Journal

 

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Arthur

H.R. 6242

Aug. 1, 1882

13 Cong. Reg. 6758

http://www.i2i.org/articles/MISC/arthur.pdf

 

 

 

 

 

 

 

 

 

 

 

APPENDIX – B

 

FEDERAL HIGHWAY TRUST FUND

CONGRESSIONAL REPRESENTATION

OF

DONOR AND RECIPIENT STATES[22]

STATE

DONOR OR RECIPIENT

Congressional Votes

Senate

House

Alabama Donor

2

7

Alaska Recipient

2

1

Arizona Donor

2

8

Arkansas Donor

2

4

California Donor

2

53

Colorado Donor

2

7

Connecticut Recipient

2

5

Delaware Recipient

2

1

Florida Donor

2

25

Georgia Donor

2

13

Hawaii Recipient

2

2

Idaho Recipient

2

2

Illinois Donor

2

19

Indiana Donor

2

9

Iowa Donor

2

5

Kansas Donor

2

4

Kentucky Donor

2

6

Louisiana Donor

2

7

Maine Donor

2

2

Maryland Recipient

2

8

Massachusetts Recipient

2

10

Michigan Donor

2

15

Minnesota Donor

2

8

Mississippi Donor

2

4

Missouri Donor

2

9

Montana Recipient

2

1

Nebraska Donor

2

3

Nevada Recipient

2

3

New Hampshire Donor

2

2

New Jersey Donor

2

13

New Mexico Donor

2

3

New York Donor

2

29

North Carolina Donor

2

13

North Dakota Recipient

2

1

Ohio Donor

2

18

Oklahoma Donor

2

5

Oregon Donor

2

5

Pennsylvania Donor

2

19

Rhode Island Recipient

2

2

South Carolina Donor

2

6

South Dakota Recipient

2

1

Tennessee Donor

2

9

Texas Donor

2

32

Utah Recipient

2

3

Vermont Recipient

2

1

Virginia Donor

2

11

Washington Recipient

2

9

West Virginia Recipient

2

3

Wisconsin Donor

2

8

Wyoming Recipient

2

1

TOTAL

100

435

17 Recipient States

34

54

33 Donor States

66

381



[1] See Appendix A for a link to the Congressional Record.[2] See Appendix A for a link to the Congressional Record.[3] See Appendix A for a link to the Congressional Record.[4] See Appendix A for a link.[5] See Appendix A for a link to the Congressional Record.[6] See Appendix A for a link to the Congressional Record.[7] See Appendix A for a link to the Congressional Record.[8] See Appendix A for a link to the Congressional Record.[9] See Appendix A for a link to the Congressional Record.[10] See Appendix A for a link to the Congressional Record.[11] See Appendix A for a link to the Congressional Record.

[12] See Appendix A for a link to the Congressional Record.

[13] See Appendix A for a link to the Congressional Record.

[14] See Appendix A for a link to the Congressional Record.

[15] See Appendix A for a link to the Congressional Record.

[16] See Appendix A for a link to the Congressional Record.

[17] See Appendix A for a link to the Congressional Record.

[18] See Appendix A for a link to the Congressional Record.

[19] See Appendix A for a link to the Congressional Record.

[20] See Appendix A for a link.

[21] http://www.reason.org/ps216.html

[22] http://www.reason.org/ps216.html

Opinion Editorial

By Dennis Polhill, Nathan Pawlicki
The tax spenders (politicians, lobbyists, and special interest groups) claim that Colorado has a budget crisis. They say the $150 million shortfall in the $15.2 billion State budget can be remedied only with more taxpayer money. This same budget was $6.3 billion in 1992 and $3.4 billion in 1984.

Referendum C would retain an estimated $3.7 billion in constitutionally required taxpayer refunds over the next 5 years to cover the $150 million shortfall. The extra revenue would be used for new programs or to grow existing programs.

As if addressing Colorado, President Calvin Coolidge said, “Nothing is easier than the expenditure of public money. It doesn’t appear to belong to anyone. The temptation is overwhelming to bestow it on somebody.” The process of “bestowing” is fun and beneficial to politicians. Interest groups reward them in subsequent elections. In other words, it is natural for politicians to focus on the revenue side. When Ref-C fails, perhaps politicians will look elsewhere. Washington State did.

In 2002, Democrat Washington Governor Gary Locke faced closing a budget gap of over $2.7 billion, a 15 percent shortfall. The historic budgeting process of adding taxpayer money to cover inflation was a nonstarter.

Director Marty Brown of the Office of Financial Management asked, “Why aren’t we asking the right questions? Why are we so focused on the cuts and not on the keeps?” Indeed! It was this creative and iconoclastic thought that helped Washington State to emerge from the wilderness.

By asking the right question Washington was able to focus on maximizing results. This helped to validate the missions of respective departments rather than accepting the assumption that everything being done should forever continue. “Outcome Budgeting” is one of many budgeting methodologies. Unfortunately these methodologies are theoretical abstractions because virtually all government budgeting merely adds more taxpayer money to the last budget. Without a “budget crisis” there would be no “political will” to exercise fiscal discipline.

Governor Locke’s staff designed five key questions for the budget process: “Is the real problem short or long term?; How much are citizens willing to spend?; What results do citizens want for their money?; How much will the state spend to produce each of these results?; How best can that money be spent to achieve each of the core results?” These spawned a challenge list and detailed purchasing plans.

Ten “Results Team” leaders divided up the 1300 state functions, assisting department heads with the process. Fiscal pressure yielded creative cooperation. Spending in one area can contribute to outcomes elsewhere. The higher education team used some of its funds to pay for better K-12 education, to better prepare its incoming students and reduce its funding of remedial programs. Two teams jointly brought forth increased effort to protect water quality.

The budget would be painful. It eliminated health insurance for 60,000; limited Medicaid coverage; and ended 2,500 state jobs. Cost of living increases for state employees were frozen, university tuition would increase, 1,200 low risk felons would be released from prison and several small programs would be shut down.

The Tacoma News Tribune reported, “Few Washingtonians will find much to like about the brutal state spending plan. But as ugly as the result was, there’s a lot to like about the way Locke and his staff arrived at it, using a new process that forced hard choices about the core priorities of state government.”

“Core Priorities” is the foundation principle. By passing TABOR, Colorado voters stated that their government was big enough. Voters left to legislators the tough task of debating and deciding “core priorities.” Because spending is more fun and focusing on “core priorities” is hard work, legislators have put Ref-C on the ballot. Ref-C essentially asks Colorado to validate the 1992 TABOR decision, “Are you really sure you want fiscal discipline in state government?”

Without a “budget crisis,” Washington State would not have implemented “Outcome Budgeting” and would not have saved its 6 million taxpayers from a $2.7 billion budget debacle. Perhaps Colorado’s $150 million “budget crisis” is too small to spark interest in budgeting reform or to motivate political leaders to have a serious look at “core priorities” or to focus on the spending side.

Why wait for a “budget crisis?” Nothing precludes forward thinking political leaders from exercising innovative action in the absence of a true “budget crisis,” except their will to do so.

Dennis Polhill is a Senior Fellow at the Independence Institute

Nathan Pawlicki is a former Independence Institute intern and a graduate student at Regis College.

Opinion Editorial

By Dennis Polhill
What is wrong with this picture?

Traffic congestion is the worst ever and is worsening. Congestion imposes costs that exceed the cost to eliminate it. Half of the gas tax goes to the Federal government, which neither owns nor operates any highways, railroads, airports or transit facilities. Congress increasingly uses transportation revenues for non-transportation purposes and imposes rules that make it difficult for states to solve problems.

One could conclude that Congress wishes to damage both the mobility and economic well-being of America. Instead, Congress’ motivation is merely a quenchless thirst for more power, control, and self-gratification.

It is said “spending to politicians is like drugs to addicts.” There may be no better proof than Federal Transportation legislation. Even though there is no longer a national transportation policy, taxpayers spend $40 billion per year to fund it.

The Federal government was slow to involve itself in transportation, because the U.S. Constitution clearly identified “internal improvements” as outside Federal domain enumerated in Article 1, Section 8. At least nine presidents issued no less than 20 vetoes of transportation legislation as “unconstitutional.” The importance of mobility to the outcome of World War II provided the rationale for ignoring the Constitutional limitation.

The Federal gas tax, implemented in 1956, would finance construction of the 40,000 mile “National Defense Highway System.” Scheduled to expire in 1972, the tax was repeatedly extended and increased. The prohibition against Congress designating specific projects in transportation bills ended in 1982, coincidently (or not) the same year Interstate construction was finished. Reagan vetoed the bill because it contained 152 “earmarks.”

The current reauthorization was debated for over 2 years as Congress contemplated the amount of pork and the extent to inhibit state leadership in transportation. The prospect of a Bush veto was a beacon of hope for those wishful of enlightened or less damaging policy.

The veto threat ended talk of a tax increase and reduced spending to $286.4 billion. H.R.-3 passed both houses with veto-proof margins, increasing “earmarks” to 6,371. Freshman Oklahoma U.S. Senator, Tom Coburn, in his book “Breach of Trust” writes about his tenure as a U.S. Representative during the 1998 reauthorization, “Representative Largent accused the Transportation Committee of trying to buy his vote. Largent said the committee asked him where he wanted to spend $15 million in his district. A disgusted Largent said, ‘My vote is not for sale.'”

This practice continues and explains the bipartisan veto-proof majorities in both houses. It also explains the coincidence that four of Colorado’s seven U.S. House Districts are “earmarked” for $16 million each. Committee members and leadership receive more “earmarks.” This is why Alaska’s per capita “take” is over 10 times that of second place, Washington State. The 92 percent return of taxes to Colorado is an improvement. It means Colorado taxpayers lose only about $350 million.

The behavior of Congress has become so outrageous that scholars from both the left and the right now advocate that the Federal gas tax should be delegated to the states. In a recent lecture, Anthony Downs of the Brookings Institution suggested, “It is time to seriously look at the possibility that we need to devolve all transportation funding out of Washington.”

Congress prefers more power, control and ego-gratification, not less. The reauthorization had included the creation of the Transportation Finance Corporation. Fortunately the Bush-veto threat helped to kill TFC. TFC would have used the gas tax to finance debt for more spending. As with the slippery slope of earmarks, the concept would have begun small at $30 billion. Taken to the extreme the $40 billion annual revenue might eventually add another trillion to the national debt, rapidly nearing $8 trillion. TFC spending would serve as an obstacle to devolving the tax to the states. To the extent that debt is wise, the decision is better-made by the respective states.

There is no example in history of a corrupt political institution reforming itself. At Runnymede, under threat of death King John reluctantly signed Magna Carta. Amazingly tolerant of Congressional abuses, citizens patiently await reform. Understandably fearful of being denied their states’ rightful funds, state legislators are cowed. Yet hope for leadership persists. In 2003 Colorado overwhelmingly passed a bipartisan resolution (97-3) asking that the Federal gas tax be devolved. Arizona passed a similar resolution in 2004. How outrageous does Congressional behavior have to be before this corruption ends?

Abe Lincoln wisely commented, “Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

Opinion Editorial

By Dennis Polhill

RTD’s FasTracks boondoggle is about much more than wasting billions of taxpayer dollars and the implementation of destructive policies. It is about increasing government control over people and redistribution of wealth. The damage caused by similar authoritarian policies has resulted in death and impoverishment for millions.

Philosopher Thomas Sowell notes, “…(leftists)… love to say things like, ‘We’re just asking everyone to pay their fair share.’ But government is not about asking. It is about telling. The difference is fundamental. It is the difference between making love and being raped, between working for a living and being a slave.” Joseph Sobran adds, “Today, wanting someone else’s money is called ‘need,’ wanting to keep your own money is called ‘greed,’ and ‘compassion’ is when politicians arrange the transfer.” Using words to mean other-than-their-meaning is demagoguery and serves to muddle the search for truth. Demagogues resort to spin when facts fail to support their biases. Coercive charity is not charity; it is Taliban-style tyranny. Morality has no merit when force replaces “free will.”

Socialism in all its forms is a failed philosophy. After Marx authored the Communist Manifesto in 1848, civilization was drawn hypnotically to Socialisms’ seductive false promises of plenty: “from each according to his ability; to each according to his need.” Abraham Lincoln countered with yet-to-be-proven wisdom, “the poor cannot be made rich by making the rich poor.” But Lincoln’s assertion was hypothetical and lacked empirical evidence that would eventually follow. All of the world’s nations gravitated to Socialism over the subsequent century. Because the United States drifted more slowly, it became an island of wealth and prosperity; an aberration to the abject poverty that humans had suffered in perpetuity.

Had Lenin lived, the twentieth century might have ended differently. Only 5 years after the Russian Revolution he recognized Socialism’s failings and advocated a return to “limited capitalism.” Later that year a stroke denied Lenin the opportunity to act on his revelation.

Lenin’s successor lacked the courage and strength to avert peril. Socialism requires conformity. Stalin dealt with the nonconformists. In “Poisonous Power,” psychologist June Stephenson estimates that Stalin was responsible for 50 million deaths.

Another version of Socialism surfaced with Adolf Hitler’s, National Socialism. He said, “Let them own land and factories as much as they please. The decisive factor is that the State is supreme over them regardless of whether they are owners or workers. All that is unessential; our socialism goes far deeper. It establishes a relationship of the individual to the State, the national community. Why need we trouble to socialize banks and factories? We socialize human beings.”

Hitler’s preaching motivated fellow-Austrian and economics professor, Friedrich Hayek to confronted Socialist dogma in “Road to Serfdom.” Hayek pointed out that all forms of Socialism lead to authoritarian tyranny. Hayek elaborated, “Whoever talks about potential plenty (under socialism) is either dishonest or does not know what he is talking about. Yet it is this false hope as much as anything, which drives us along the road to planning.”

The second half of the twentieth century ratified the views of Lincoln, Lenin and Hayek. Korea and Germany serve as indisputable proof. In each case a pre-existing nation was divided with each part pursuing the opposite ideological path. With identical history, geography, culture, climate, customs, language, and ethnicity, Socialism resulted in every form of injury and imposition upon the respective populations; conversely Capitalism resulted in wealth, abundance, freedom and opportunity. Other examples provide corroboration: Eastern versus Western Europe; Red China versus the Asian Tigers; and the Post-Soviet-Union performance of its various pieces. Not a single feature of Socialism can be offered as superior. Therefore, discussions about a middle ground, or trade-offs, or optimizing, are rather futile.

The experience of the twentieth century proves that no version of Socialism works. Ongoing experimentation serves no constructive purpose. Because a mixture that is half-poison and half non-poison is still poison, there is no yet-to-be-discovered third way. A hybrid system that is part Socialism and part Capitalism cannot save this failed ideology. Alternative labels, such as “progressive” or “liberal” merely distract bystanders from gaining understanding.

The significant wealth in American society works to hide the injury done by Socialist institutions, such as RTD. Competition can and will improve regulatory-protected, tax-subsidized, State-controlled monopolies in education, transportation, and Social Security. When these institutions are de-socialized, decentralized and de-bureaucratized, Americans will be freer, wealthier and better served.

The future is clearly in the direction away from Socialism and toward more individual freedom and more individual empowerment.

(c)2004
The Independence Institute
13952 Denver West Parkway, Suite 400
Golden, CO 80401
303-279-6536
www.independenceinstitute.org

INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is the President of the Independence Institute.

DENNIS POLHILL is a Senior Fellow at the Independence Institute.

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute
or as an attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

Opinion Editorial

By Dennis Polhill, Orogdol Sanjaasuren

The 20th century gave witness to a Titanic ideological struggle between collectivism and property rights. The 1990s closed the century with dramatic events symbolizing the victory of freedom over tyranny. The Berlin Wall sought to contain East Germany’s population. Its fall in November 1989 signified colossal economic and political change. Every week another dictatorial regime fell. The Soviet Union ceased to exist on March 17, 1991. Newly Independent States (NIS) rushed to draft constitutions enumerating individual rights comparable to those of Western nations. But the declaration of rights and freedoms was insufficient to yield instant affluence. These NIS would suffer tragically, while struggling to make their economies serve their people. Collectivism had destroyed the fundamentals: property rights, rule of law, work ethic and incentives. In their place were oppressive regulations, burdensome taxes, and proliferation of black markets, graft and corruption. Some would suffer more than others. The differences are a product of political courage, wisdom and leadership. The comparative experiences of the NIS offer valuable lessons.

In little more than a decade after disintegration of the Soviet Union, Estonia has become one of the most economically free nations in the world. The Heritage Foundation 2004 Index of Economic Freedom rates the nations of the world and gives Estonia an index of 1.76 that ranks it as 6th behind Hong Kong, Singapore, New Zealand, Luxembourg and Ireland. The United States is ranked tenth. Estonia’s 1.4 million people enjoy a GDP/capita of $4,984. By contrast, the economies of other NIS, Moldova and Mongolia produce only $678/capita and $430/capita and are now known as the most impoverished nations in Europe and Asia respectively. By what means did Estonia create so much wealth: 7.3 times that of Moldova and 11.5 times that of Mongolia?

Estonian Prime Minister during six of these transition years, Mart Laar, credits three fundamentals: (1) “There can be no market economy and democracy without laws, clear property rights, and a functioning justice system;” (2) “be decisive about reforms and stick to them despite the short-term pain they bring;” (3) change the culture of socialism so that people think for themselves to make decision and take responsibility. Estonia became a free trade zone in 1992, abolishing all import tariffs. Also in 1992 all subsidies, support, and cheap loans to businesses were stopped, forcing them either “to die or to begin working efficiently.” With tax reform, “we had to make clear that if somebody works more and earns more, he will not be punished.” Taxes were decreased sharply and a flat tax was instituted. There is no tax on corporate income that is reinvested. “We realized quickly the danger of extensive reliance on aid” and adopted a “Trade, not aid” policy in 1993.

While the Heritage Foundation rates the Economic Freedom of the world’s nations annually, the Fraser Institute and the National Center for Policy Analysis rate the comparative Economic Freedom of the American states and Canadian provinces. Even though these 60 sub-national governments equally enjoy some beneficial fundamentals, such as the rule of law, the differences are significant. For example, the top rated state scored an index of 8.2, while the 50th ranked state scored only 5.7. This translates to a wealth difference of $7,391/capita. A differential of 0.1 in the index represents a $295/capita wealth difference. Greater wealth is a magnet for both new jobs and new talent.

Colorado is tied for first place ranking with Delaware, South Dakota and Tennessee. However, the other three states are improving faster than Colorado. Unless Colorado commits to more aggressive policies favoring economic freedom, it will fall to 4th place or worse next year.

The structure of the index should not dictate Colorado policy. But, it may provide clues about where to improve. The index is composed of 10 variables that are combined into 3 areas that are then combined to yield the overall index. The three areas are: Size of Government; Takings and Discriminatory Taxation; and Labor Market Freedom. Colorado ranks among the top 5 states in all areas except “Takings and Discriminatory Taxation”, where Colorado comes in 15th. “Taxes that have a discriminatory impact and bear little reference to services received infringe on economic freedom.”

Some Colorado taxes are used disproportionately to redistribute wealth, rather than to recover the costs of government services from those who use them. Fewer taxes, lower taxes and less regulation would help create jobs and add to the wealth and freedom of Colorado citizens.

Communist politicians know something that American politicians have yet to grasp: governments must get smaller.

(c) 2004
The Independence Institute
14142 Denver West Parkway, Suite 185
Golden, CO 80401
303-279-6536
www.independenceinstitute.org

INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is the President of the Independence Institute.

DENNIS POLHILL is a Senior Fellow at the Independence Institute.

OROGDOL SANJAASUREN is a visiting scholar from Mongolia studying free market economics in the United States.

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

Opinion Editorial

By Dennis Polhill

As a fundamental rule of negotiation and basic courtesy, it is counterproductive to offend ones adversary when first introduced. The predictably defensive reaction among government managers ostracizes the word “privatization” to the lexicon of words rarely spoken in government circles, throttling an open and honest discussion of “privatization” as a tool for governments to improve efficiency. Ambiguous semantics do not help, but hinder the process of making government more efficient and effective.

When intended as an umbrella term encompassing all forms of improving government efficiency, the word “privatization” fails. Are the myriad of management tools, including zero-based budgeting, performance budgeting, leadership-effectiveness skills, management-by-objectives, organizational development, quality circles, and so on, subsets of privatization? If managements efficiency tools were located under the “privatization umbrella,” would they then be called “privatization” when the same management tools are applied in the private sector? How can something private be privatized? Maybe competivized or efficiencyized would be a more accurate term.

Use of the word “privatization” does not help to clarify and focus the debate. Alternate, more precise and less confrontational words would help advance the “privatization” cause.

Government Reinvention

Most private-sector entities are under enormous competitive pressures that cannot be replicated in government. Governments fundamentally perform monopoly functions. Competition is the core motivating force that yields more service for less money than governments can achieve. When competitive forces are unleashed in various quasi-private entities, significant efficiencies emerge. In a study of deregulated “natural monopolies,” the Brookings Institution found on average that deregulation of airlines (1977), trucking (1980), railroads (1980), natural gas (1984), and long distance telephone (1984) yielded lower costs to consumers of 13 percent after two years, 22 percent after five years, and 40 percent after 10 years in inflation-adjusted dollars. These efficiencies are hardly trivial and add several hundred dollars per year to every familys wealth.

Governments have been found manufacturing furniture, selling hearing aids, consulting on international contracts, manufacturing lifeboats, performing photogrammetric flights, operating grocery stores, providing Internet services, and much more. Most people, including most politicians and government managers, would concede that these are not proper government functions. Because this group of examples exploits the tax exemption, tax subsidy, regulatory exemption, and liability exemption advantages of governments to compete unfairly against privately owned taxpaying businesses, it is referred to as “unfair government competition.”

Honest government managers are sometimes blindly trapped into committing similar abuses by their dedication to implementing efficiency. What should the manager of a government-owned asphalt plant do when he learns that 20 percent more product can be produced (the same notion applies to smaller examples, like use of dump trucks, street sweepers, and car washes)? If he fails to produce the excess product, then unit cost of the remainder output is inflated. If he uses the product wastefully, then no efficiency is gained. If he sells it on the market, he enters into competition with private suppliers, potentially injuring the market and causing unit costs to escalate for others at a subsidy expense to his government. What to do? Excess-capacity is a signal to government managers. Any internal function with excess production capacity is a function with inflated internal unit costs requiring internal cross-subsidization. Thus, divesting the function and purchasing the units externally would capture efficiencies. Governments must invent new salary structures, incentives, and bonus systems that reward managers for capturing efficiencies.

###

Copyright 2002, Independence Institute

INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is President of the Institute.

DENNIS POLHILL, a Senior Fellow with the Independence Institute, wrote this article, which was originally published in the March 2002 edition of Privatization Watch.

ADDITIONAL RESOURCES on this subject can be found at: http://independenceinstitute.org/

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

Opinion Editorial

By Dennis Polhill

The failed monorail proposal contained interesting aspects, one of them being the absurdity of its discussion as a viable proposal.  Voters wisely recognized the dubious and speculative nature of the exaggerated technological and economic claims.  Even if the monorail could have worked at any price, then how would this massive capital outlay ever do anything to address traffic congestion?  To succeed, the monorail would have to absorb all future as well as some of the pre-existing trip demand.  When expectations transcend the unlikely and range to the impossible, advocates engage in delusional fantasy.

The November 2001 election was friendly to most ballot measures across the nation.  Odd-year elections typically do not address many issues.  Nationwide there were four statewide initiatives and 29 referred measures in five states.  Thirty-one of the 33 passed.  The only other item to fail was a referred measure that would have allowed Washington state funds to be invested in the stock market.  It received eight percent more yes votes than did the monorail.  The Colorado monorail might arguably have been the 2001 elections stupidest idea in America.

Die-hard supporters hold firm in their view of monorails viability.  If its viable, they should not be deprived of the opportunity to profit by offering this service in the free market.  The fact that advocates opted for the awkward, slow, inefficient and maddening politics of a government-sponsored project suggests that they do not truly believe its viability.

Non-viable projects require the coercive force of government to extract support from unwilling taxpayers.  Therefore, all capital-intensive proposals brought for a vote should be suspect.  The current orgy of collectivist coercion threatens the very foundation of self-government, free markets and freedom.  Well intended, but unenlightened, zealots seek to impose their view of a better life upon all.  Provided privately, the monorail would empower every individual to choose whether its benefits were worth the outlay.  This is how good decisions are made: at the grocery store; when going to dinner, plays or movies; in buying cars, houses or vacations.  Choice is the American way.

Yet there is no shortage of ideas unabashedly requiring coercive imposition: sports stadiums, convention centers, light rail, T-REX, and monorail.  The reasoning is always the same.  The huge cost is small if imposed on large numbers of people.  The first bite of the monorail apple would cost each person in Colorado only $19.  Its assumed that people will not perceive the next bite, which is to be 80 times bigger.  Instead of doing its critical tasks well, government is intruding into all forms of activities, subverting rather than augmenting markets.

James Buchanan earned the 1986 Nobel Prize in Economics for the development of Public Choice Theory.  The theory asserts that the behavior of political actors is predictable on economic grounds.  That is, special interests succeed most when benefits are concentrated and costs are distributed widely. After being defunded by statewide vote of the people in 1993, the Colorado Tourism Board was refunded in 1999 by the state legislature.  Legislators are effectively powerless when confronted with enormous pro-spend testimony and minimal anti-spend testimony.  It is not economically rational for citizens to incur the time, expense and hassle to testify against special-interest legislation when their individual cost is small.

An Independence Institute Issue Paper by Dr. Barry Fagin, “Who Testifies and Why <http://independenceinstitute.org/Publications/IP/PoliticsandGovernment/WhoTestifiesAndWhy.htm> discovered that before the Colorado Senate Finance Committee chances are 96% that a witness is a beneficiary.  Another study finds that before the U.S. Congress, witnesses favor more spending 145 to 1 and senior legislators are more inclined to support special interests.

Because parasitic interest groups prefer a more favorable audience, the ballot is their instrument of last resort.  Indeed, monorail advocates were rejected by the legislature prior to their decision to go to the ballot.

Spending money frivolously is a right each individual enjoys.  There are as many ways to do it as there are personalities.  People work hard and save in order to maximize this right.  Its exercise relieves stress and enriches.  Intellect and individualism become more pronounced.  Outlays offer new business opportunities and elevate the wealth of other individuals.

But extended to the collective, frivolous expenditure is not a right.  It is collectivist tyranny.  To the minority being imposed upon, the fact that the frivolous spending decision was made by either 51 or 99 percent is cold comfort.  To preserve freedom and choice, Americans must learn that many government transportation proposals are boondoggles that consume more resources than they create.

Under the collectivist abuse model, each free person is impoverished ever so slightly each time a non-viable activity is funded.  It is the torturous death by one thousand cuts.  All Americans owe it to themselves and to their grandchildren to give deep and serious consideration to the implications of offering support to collectivist endeavors.

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Copyright 2001, Independence Institute

INDEPENDENCE INSTITUTE is a non-profit, non-partisan Colorado think tank. It is governed by a statewide board of trustees and holds a 501(c)(3) tax exemption from the IRS. Its public policy research focuses on economic growth, education reform, local government effectiveness, and Constitutional rights.

JON CALDARA is President of the Institute.

DENNIS POLHILL is a Senior Fellow with the Independence Institute.

ADDITIONAL RESOURCES on this subject can be found at:

http://independenceinstitute.org/

NOTHING WRITTEN here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.

PERMISSION TO REPRINT this paper in whole or in part is hereby granted provided full credit is given to the Independence Institute.

Opinion Editorial

By Dennis Polhill, Matthew Edgar

The Regional Transportation District (RTD) will not allow Coloradans to have real transit solutions such as jitney service. A jitney is a privately owned minibus that carries passengers from point to point on a flexible schedule.

In 1989, the Florida legislature accidentally created a legal loophole that permitted competitive, unregulated services like jitneys. Within months, over 20 jitney firms had emerged to serve the accidentally created market. Before this loophole, certain regulated jitneys were allowed to operate in conjunction with the Miami version of RTD, Metrobus.

The new jitney services provided faster trip times, shorter wait times, flexibility in boarding locations and drop-off points, and availability of service in late evening. The largest advantage jitney service had over Metrobus in Miami was trip speed and ease of boarding.  In order to board the jitney, the passenger would simply flag down the jitney from any place along the jitneys route not just bus stops fixed in inconvenient locations. In this sense, it acted much like a taxi service. In addition, the jitneys would run on time in order to satisfy their customers.  The irony in Colorados ban on jitneys is that the largest complaints made by RTD passengers are: trip times are too long; the buses are routinely off schedule; the bus stops are not conveniently located; and, that RTD does not provide late night service.

Because of the benefits of faster trips, shorter wait times, better travel times, and flexibility in stopping locations, the Miami jitney services were able to establish a market of their own. In the first year, the jitney services attracted 43,000 to 49,000 passengers per weekday. That breaks down to about 110-115 passengers per vehicle per weekday.  Most of these passengers said that if not for the jitneys, they would take their own car: a new market was created solely for jitneys in Miami.

In addition to all the other benefits, the jitney service was much cheaper. With no government subsidy, the jitney service was able to charge $1 per passenger, whereas Metrobus charged $1.75. RTD charges $1.75 for peak hour travel, and 75 cents for non-peak travel (to which is added a state and federal subsidy worth four times that amount).  To repeat: that $1.00 was the average jitney charge in Miami, without subsidies from the government.

Despite the benefits of faster trips, shorter wait times, flexibility in boarding, and late evening service, Miami ended legal jitney service in 1991. The various jitney services operating without regulations were charged with operating without a license. The fine for the crime of for-hire transportation of people was a charge of $100 to $500 and/or up to 10 days in jail.  The reason for ending jitney service was political. The government simply did not feel comfortable allowing the private sector to compete against a public sector monopoly bus system.

This was evinced before the loophole was started.  In March 1983, the Board of County Commissioners in Miami questioned the conflicting policy of support for private sector and public sector transportation services. The commission chose to support protecting the monopoly by restricting jitneys from large Metrobus areas. A large Metrobus area was defined as any area in which jitney service would have a serious negative impact on existing service.  According to the commissioners, that was ample reason to close the loophole.

Is the argument that jitneys hurt a government-controlled monopoly a worthwhile defense for ending a beneficial service? No. Moreover, is it any reason not to allow jitneys in Colorado? Again, the answer is no. Some make the argument that there is no jitney market in Colorado. No one can answer this question until we actually conduct an experiment in free market jitneys.

In Colorado, most people who do not ride RTD do not ride because it is slow and often off-schedule, bus stops are inconvenient, and routes do not travel to the desired destinations of passengers. All these problems with RTD provide market room for jitneys to provide service. In other words, the jitneys market would be those who are not satisfied with RTD. A potential market 10 to 20 times larger than that served by RTD may be available for jitneys.  If a demonstration found only a fraction of that to be true, the positive impact on traffic congestion at no cost to taxpayers would be immediately noticeable.

Some will still ask, But what about the hurt government monopoly? If RTD loses passengers then they have an incentive to improve and help passengers. Thus, there is really no need to negate a good service like jitneys for the sake of protecting an inefficient government monopoly.  That is what happened in Miami when the government, after only a few months of jitney service, closed the jitney loophole.

By not allowing jitneys, we are forced to choose between riding a slow and inefficient service and driving on congested roads. Jitneys are one solution to decreasing congestion and challenging the government monopoly to improve service.

Dennis Polhill is a Senior Fellow at the Independence Institute, and Matthew Edgar is a summer intern at the Independence Institute and a junior at the University of Denver. They wrote this article for the Independence Institute, a free market think tank in Golden; http://www.i2i.org

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action. Please send comments to: Editorial Coordinator, Independence Institute, 14142 Denver West Parkway, Suite 185, Golden, CO 80401. Phone (303) 279-6536 or FAX to (303) 279-4176; e-mail is webmngr@i2i.org

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org

Copyright 2001

Opinion Editorial

By Dennis Polhill

The recent bankruptcy and closure of Sunset Beach Fitness and Racquet Club in Golden is a reminder that the laws of economics are real and that our political masters persist in ignoring them.

Sunset Beach was a successful and thriving Golden business. The owners participated in all of the right groups, were on city committees and donated willingly to the proper functions. But on May 21, 1991 the city sales tax was increased by 1%. Passage was by 11 votes and the number of spoiled ballots was strangely high, exceeding the margin of victory. Disaffected citizens claimed foul, circulated initiative petitions to bring the matter to a second vote and filed suits.

For a politician spending money is like a cocaine fix to an addict. They were not about to be dissuaded by mere citizens and the city invalidated 84% of the petition signatures to avoid a repeat election.

The sales tax increase yielded a $1,500,000 per year windfall. The revenue stream was quickly committed to bonds. Since this was shortly before the voters enacted the Taxpayers Bill of Rights, which requires voter approval for governments to issue bond, the city of Golden avoided having to ask the voters for permission to go into debt. No expense was be spared for a Taj Mahal Recreation Center. Rec Centers are not bad, but they can cause problems for taxpaying businesses.

When the Rec Center opened in 1994, Sunset Beach monthly gross revenues declined $10,000.  At 5% interest, $10,000 represents the monthly return that $2,400,000 would yield. Thus, Sunset Beach’s market value decreased $2,400,000. The investors would not get back their investments.

Golden had conducted a Financial Feasibility Analysis. The analysis stated that because other governments had built expensive Rec Centers, Golden could also. This is political rationalization for keeping up with the Joneses.

The study estimated that a Golden Rec Center would have a cost recovery ratio of 55%.Cost recovery ratio means that users will pay only 55% of operating costs. Non-users would pay all other costs: 45% of the operating costs plus the capital/construction costs. Essentially, through the force of government, Rec Center users make non-users pay over half of the cost of the Rec Center.

The unfairness of non-users having to pay for services of users is compounded by impact on competitive markets. Normal businesses do not have the force of government or the power to redistribute costs to people who don’t want the business’s service. The only revenue source for businesses is voluntary  exchange with customers. Under Golden-style collectivism, collapse of competition and market failure are inevitable. Because hidden and redistributed costs are still costs, government monopoly yields less service at higher cost.

Anti-trust laws recognize the importance of fair competition. Corporations are prohibited from engaging in certain types of predatory conduct. Penalties are severe.

Government sponsored market failures are shockingly common. The City of Denver, not content with being in the ski resort, land development, and golf course businesses, unabashedly discusses spending $107,000,000 to build a city-owned hotel. The Foothills Park and Recreation District is seeking $41 million, of which $16 million would build a Rec Center near a competing business. Golden wants its 16,000 people to pay $54 million ($3,400 each) for a golf course.

The absurdity is mind-boggling. Taxpayers who don’t golf or use Rec Centers are forced to pay for  millions of dollars in capital assets, yet receive no benefit. How can Golden claim that golf should be subsidized? Subsidized golf courses tax the poor to benefit  the rich.

When will politicians learn to resist the seductive false promises of socialism? When one person is unfairly injured so that another can gain, society makes no progress.

Dennis Polhill is a Senior Fellow with the Independence Institute, a free-market think tank in Golden, http://i2i.org. He is co-author of a chapter on unfair government competition with small business, in the book Colorado in the Balance, and also author of a longer Issue Paper on the subject.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org

Opinion Editorial

By Dennis Polhill

Elementary school students learn the opposite of politics. The Scientific Method, both used in school and required in Science Fair projects, mandates that a proposition, idea, question or assertion be proven. The notion is that facts are verifiable and repeatable. That June 21 has more daylight than any other day of the year can be proven by observing, measuring, and verifying with other research. It is an indisputable scientific fact.

The search for fact-based knowledge is not easy. T.C. Chamberlin seems in regular cycle to be forgotten and rediscovered. Chamberlin was a geologist and President of the University of Wisconsin in 1890 when he wrote his most important work. He observed that even objectively motivated and well-disciplined scientists fell victim to the phenomenon of “premature conclusion.” He wrote, “The central psychological fault is intellectual affection The vitality of study quickly disappears when the object sought is a mere collocation of dead, unmeaning facts A working hypothesis may with the utmost ease degenerate into a ruling theory.” The scientific method breaks down and is corrupted when scientists become biased toward a particular conclusion. Eagerness to reach conclusion, interferes with the ability to challenge veracity. Ultimately, bad science will fail the test of time.

If it is this difficult to for those honestly seeking truth to hold focus, then how successful can the political process be when interests work complex strategies with the sole intent of achieving a preconceived outcome? Truth is less important than victory. Failure has no consequence, because taxpayers are forever burdened to make the best of the situation.

The federally required Environmental Impact Statement process was originally designed to identify and quantify truths. However, the EIS has become a tool of interests to advance political agendas.

National experts have observed the Colorado Southeast Corridor EIS as particularly flawed. This is the study that is supposed to justify Light Rail along I-25. Blatantly false statements in the Major Investment Study should have caused an objective Colorado Department of Transportation to disqualify the offending consultant from consideration to perform the EIS. That company’s business goal of building its light rail resume might also have been sufficient cause to select another.

The Independence Institute produced a 30 page footnoted comprehensive research paper with 38 pages of involved spreadsheets showing that improvements other than light rail would provide more mobility, less congestion and less environmental impact, while assigning most costs to those who directly benefit. Submitted for the public record, the research was summarily dismissed in a 5 page discussion by individuals apparently unable to comprehend the analysis.

Just as Socrates was condemned to death in 399 B.C. for revealing truths that a tyrannical state wished undisclosed, the EIS process has become an enemy of truth. Statements such as, “No light rail system has reduced traffic congestion,” are verifiable.

For the first time, Colorado voters approved use of tax dollars to construct light rail. Whether the Regional Transportation District’s prior outlay of over $300 million was an illegal use of public funds is a subject for another time. Referred Measure 4A was approved with a 65% “yes” vote. But 4A was “joined at the hip” with Referred Measure A, TRANS, which authorized the state to accelerate construction of 28 highways projects by incurring $1.7 billion in debt. TRANS received 62% yes. The “joined at the hip” message was that both projects had to be approved for voters to get either one. In other words, anti-automobile people were obliged to vote for highways in order to get light rail and pro-automobile folks were compelled to vote “yes” on light rail to get highways.

Since November 1999 politicians have rushed to declare the election result a mandate to construct rail. RTD is spending millions for MIS studies in every direction, a monorail to Vail was suggested and light rail in Colorado Springs, Greeley, Fort Collins and paralleling I-25 to Wyoming have been proposed, as if a single centralized technology could solve a decentralized transportation problem.

Voters have defeated every light rail tax increase until appended to desperately needed and long withheld highway improvements. As Chamberlin said, “If our vision is narrowed by a preconceived theory as to what will happen, we are almost certain to misinterpret the facts and to misjudge the issue.”

Not only is there no mandate to build rail, there is no factual basis to conclude that Denver will record the first ever light rail success. The Transportation Industrial Complex uses misperceptions, including the phony EIS process, to sustain and grow itself.

Dennis Polhill is a Senior Fellow in Transportation Policy at the Independence Institute, a free-market think tank in Golden, http://i2i.org.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org
Copyright 2000 I2I

Opinion Editorial

By Dennis Polhill

Like here in Denver, the Orange County Transportation Authority in California has expressed an interest in constructing light rail. The conflict of interest is obvious. If OCTA finds in favor of LRT, it gets a bigger budget, more staff, more prestige, and more power.

Suspecting that the OCTA might be overstating the benefits, a Grand Jury was convened to investigate the claims being made by the local transit agency and to study the process by which this decision will be made.

The Grand Jury Report was released in May 1999. The Grand Jury was not kind in its comments about OCTA activities. Jurors looked at 12 LRT systems built in various parts of the country over the last two decades and found that none can be called a success. The report stated that the national experience with urban LRT systems ability to solve traffic congestion, air pollution, and related urban problems has been poor.

Criticizing the OCTA for doing more promoting than studying, the Jurys analysis suggests that Orange County would experience, negligible impact on traffic congestion, less effectiveness than predicted, more expense than predicted, an inflexible system, and no improvement in commuter travel times, energy conservation, or safety.

The Jury went on to instruct OCTA to amend outreach programs to include data on the national experience, to establish and publish measurable goals, and that disinterested experts should provide historical perspectives. The Jury suggested that the public deserves full disclosure of all perceived benefits, drawbacks, costs and impacts that this project would have before it is approved or disapproved.

In short, the Orange County Grand Jury ordered its government transit agency to stop lying.

Perhaps a Grand Jury is needed to look into the Regional Transportation District. RTDs recent cancellation of its public forum on LRT is merely the most recent example in a long history of questionable actions.

The decision to have the Great Debate was approved early in 1999 by the new RTD Board. With a budget of $30,000, six nationally recognized experts were invited to debate both sides of the issue on September 13.The Urban Land Institute, a pro-LRT group, was allowed to become a co-sponsor by contributing an additional $10,000.

Because the question about LRT effectiveness is nationwide, interest was national. C-SPAN and CNN considered coverage. Advocates on both sides looked forward to offering their best arguments.

The debate controversy started when RTD decided to charge a higher admission fee to the general public than to elected officials and bureaucrats. With some free admissions, the anticipated 200 attendees would have produced about $5,000.RTDs decision to cancel the debate will cost RTD more money than to have waived the registration fee altogether. Is it possible that another agenda is at play? Is it possible that RTD feared that the debate would put too much information in front of the public immediately prior to its November tax election?

RTD deceit has a long history. The 1973 special election that gave RTD its current sales tax base experienced several election irregularities. Voters have yet to be offered the opportunity to re-authorize the 10 year plan approved in 1973.That election authorized 20% to increased bus service. The remainder was for rapid transit construction (not LRT). Having spent the money on bus service, RTD asked for another tax increase in 1980 for LRT.

Undeterred by the 1980 defeat, RTD continued to spend millions without authorization on planning and right-of-way. Finally in 1990 RTD spent $116,000,000 to construct the LRT demonstration line. But before demonstration line performance data was available, RTD proceeded to extend LRT south on Santa Fe Drive. The extension was to cost taxpayers $177,000,000.At RTD the $20,000,000 spent on Santa Fe right-of-way is not a cost because it is hidden. In total, RTD has subversively spent over $300,000,000 on LRT without authorization.

Much of what RTD tells the public is less than true. RTD frequently claims increasing ridership without mentioning that they count boardings, not people. Even those increases are smaller than population growth or RTDs increasing tax take. This means, of course, that unit costs are increasing and market share is decreasing.

The LRT ridership numbers estimated for the I-25 Corridor are 30,000 versus 300,000 for the highway. But the counting methods differ. Similar counting yields that LRTs 3% market share would serve about 10% to 15% as many people as a single highway lane.

RTD has spent millions to propagate the false perception that LRT will relieve traffic congestion and air pollution. It is time that the truth be told. Because RTD cannot be trusted, Colorado should convene a Grand Jury to expose the truth.

Dennis Polhill is a Senior Fellow in Transportation Policy at the Independence Institute, a free-market think tank in Golden, http://i2i.org.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org

Copyright 2000 Independence Institute

Opinion Editorial

By Dennis Polhill

The phony claim that the federal budget is balanced underscores the need to privatize. Congress has conveniently borrowed surpluses from nearly 30 trust funds including $100 billion this year from social security to assert fiscal responsibility. The truth is that the trust funds have been robbed and the national debt continues to soar. Currently at $5.5 trillion, the national debt recently surpassed $20,000 for every person in the U.S. Heavy taxation and public debt fund a too-large government sector. Privatization means shrinking the government sector.

The 20th century has seen a global swing to socialism. Contrary to its utopian ideals, socialism impoverishes the people, despoils the environment, tramples individual rights, suppresses freedom, and fosters the evolution of totalitarian leaders such as Hitler and Stalin. Socialism has murdered more human beings in the name of “good” than have all religious persecutions through all of history. In every case, socialism has collapsed in total failure. Socialism has no redeeming qualities.

When most of the world’s nations became more socialist, the U.S. followed. In 1900, the U.S. government sector (combined federal, state, and local government) consumed 8.1% of U.S. economy. By 1989, it had grown to 35.2%. Estimates currently put it at 50%. The U.S. trend to socialism was comparatively slow. With less socialism than other countries, the U.S. economy grew stronger and Americans become enriched. Its 6% of the world population enjoys 25% of the world economic production. The average American has nearly ten times the wealth as most others.

The desire for economic growth has motivated countries to reverse their socialist policies. Nearly every country in the world is moving to shrink its government sector. This is achieved by various methods of privatization. The three major categories of privatization are divestiture, deregulation, and outsourcing.

The most significant privatization successes in the U.S. have been in bringing competition to various monopoly industries. The previous assumption was that they were “natural monopolies” and could operate more efficiently if protected from competition. The deregulated industries are airlines (1977), trucking (1980), railroads (1980), natural gas (1984), and long distance telephone (1984). Competition brought immediate benefits to consumers. The cost of service in inflation-adjusted-dollars declined 13% after two years, 22% after five years, and 40% after ten years. The Brookings Institute calculates these economic efficiencies as $53.1 billion per year or $200 per person. Estimates are that impending electric power deregulation will add $100 to each persons pocketbook. Most people would have considered these industries “private” before they were “privatized.”

These examples show that the word “privatization” poorly describes this process. Private firms frequently privatize by outsourcing and divesting. Outsourcing is the simple admission that the best computer chip manufacturer may not be equally competent at overseeing janitors. Divestiture is the companys move from a weak to a stronger market. The failure to outsource and divest means that a firms ability to specialize, focus and compete is diminished. Ultimately, the firm cannot capture sufficient revenue and ceases to exist.

With the goal of bringing economic benefits to consumers, governments have a role to play in maximizing competition in both sectors. The economic continuum has socialism and capitalism at opposite extremes with many intermediate gradations. Service is lowest and cost is highest at the socialist extreme. Cost is lowest and service is highest at the competitive extreme.

Some intermediate gradations in order of decreasing efficiency are (1) unrestricted competition, (2) oligopoly (few suppliers), (3) private sector monopoly, (4) government protected private monopoly (utility franchises), (5) government monopoly, (6) government protected government monopoly (mass transit), and (7) socialism. Any step in the direction of more competition holds the promise of benefits to consumers. There are privatization experiences where moving government monopoly functions to private monopolies failed to produce benefits because of the lack of competition. On the other hand, the five utilities discussed illustrate the potential of moving a government protected private sector monopoly to a higher level of competition.

The notion of benefits to consumers brings government cost accounting to the forefront. Thomas Huxley wrote, “Facts do not cease to exist merely because they are ignored.” Government cost accounting defies a Huxley’s law corollary, “Costs do not cease to exist merely because they are hidden.” The privatization dilemma for government is that certain indirect costs are not known, are not properly accounted, or are not directly recoverable.

Politicians and bureaucrats are, at best, disingenuous with their constituents when they claim that privatization does not work, is expensive, or cannot be done.

Dennis Polhill is a Senior Fellow at the Independence Institute.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email)webmngr@i2i.org

Opinion Editorial

By Dennis Polhill

Who should be exempt from taxes? By resoundingly defeating Amendment 11, Colorado voters said that private charities should continue to be exempt from property taxes. But there is a far larger tax exemption issue that has not been debated: should government entities be exempt from taxes? Why is it fair that ordinary citizens pay the state sales tax when they buy office supplies, but the Denver City Council, for example, is exempt from the tax?

The notion of governmental tax exemption is rooted in the famous 1819 case, McCullough v. Maryland, which held that “federal properties within city boundaries are not taxable.” The logic was rooted in the English common law of sovereign immunity wherein the king is immune because the king is the law.

But sovereign immunity is inconsistent with constitutionally limited government that recognizes citizens as the true sovereign. The 1819 McCullough ruling was adequate for simpler time when governments were fewer and their purpose was constitutionally limited. Taxation among governments would constitute a transfer providing no direct benefit and unnecessarily increasing costs.

But times have changed, and the immunity from taxation premise deserves rethinking. The U.S. now has nearly 90,000 governments. Colorado will soon exceed 2,000. Within Jefferson County there are 140.

The location of the Federal Center in the city of Lakewood imposes unreimbursed, costs of traffic control, snow removal, street sweeping, pothole patching, drainage, police and fire protection and so forth. Many more similar impacts accrue when a county government locates facilities in a small town. The Grand county school district is deprived of needed operating revenue because Winter Park ski resort (owned by the City of Denver) does not pay property tax. Some governments provide more free services to other governments than they receive. This inequity creates the incentive for feudalistic-like competition among them. They quickly and aggressively compete to secure new-found revenue sources and service rights.

Some non-traditional services (like day care) find as many as five levels of government laying claim to the right to provide the service, even though the service is also provided by non-profits and by taxpaying businesses.

When the government provides a service, such as running an athletic club, and the government is exempt from taxation, then the government enjoys a huge hidden cost advantage over private competitors. The hidden costs are not efficiencies; they are cost burdens that are redistributed to other governments, to taxpayers, and to individual consumers. The government clubs may drive the other athletic clubs out of businessnot because the government club is better, but because the private clubs have the burden of sales taxes, property taxes, corporate income taxes, etc., from which their government rival is exempt.

Back in 1819, government entities did not compete directly with private business or with each other. But today, governments are without limits.

As more tax-exempt government entities drive private competitors out of business, the tax base is eroded.

Ultimately, the government tax exemption issue forces us to consider the purpose of taxation. Under one philosophy of taxation, the purpose of taxation is to pay for government services. Under this philosophy, most government tax exemptions should be abolished. For example, if a county sales tax is used to fund fire protection for everyone in the county, a government owned athletic club or day care center in that county should also pay sales taxes, since the government facilities benefit from fire protection the same as everybody else.

The other philosophy of taxation is that taxes are to redistribute wealth from the unworthy to the worthy. Since governments are (supposedly) not motivated by monetary gain, while normal businesses operate under the profit motive, it is good that taxes redistribute wealth from people who work for private business to people who work for the government. The tax exemption for government entities, by giving government entities more money to spend on salaries, amounts to an indirect transfer of wealth from private to government hands.

Until society comes to grips with the core principles, the public policy problem will continue to grow. Complexities are inevitable when society has the basics wrong.

The simplest cure for the tax-exemption problem would be to make governments subject to ordinary taxes, the same as everyone else.

——————————————————————————–

Dennis Polhill is a Senior Fellow at the Independence Institute, a free-market think-tank located in Golden, Colorado

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action.
Please send comments to Editorial Coordinator, Independence Institute, 14142 Denver West Pkwy., suite 185, Golden, CO 80401 Phone 303-279-6536 (fax) 303-279-4176 (email) webmngr@i2i.org

Issue Paper

By Dennis Polhill

Although seldom a topic of conversation around Americas dinner tables, the generation and transmission of power is as ripe for privatization as the transportation industry. We must act quickly to assure that we do not lose the window of opportunity to do something significant in this area.

A brief background for the discussion of this issue is as follows. Infrastructure typically must be constructed to proved adequate capacity for peak demand. Thus, a great deal of capacity is simply wasted most of the time. This is true with highways, airports, water plants, telephone lines, power plants etc. When free market mechanisms can be injected, innovation ways to level demand emerge. Because capacity that was once wasted is now utilized, the product unit price is reduced both to the off-peak and peak users. Value is created, by using the facility more efficiently. Once pricing mechanisms are introduced to highway usage, at least twice as many vehicles can be carried on the same system with less congestion and virtually no increase in maintenance cost.

Technological and regulatory advances are beginning to allow for the rethinking of previous assumptions about the use of public and quasi-public monopolies in providing various utility services. Services that were once natural monopolies, justified on the basis of economic efficiency, may not be so justified in the presence of these innovations. Already deregulation has brought competition, greater efficiency and price reduction to consumers in natural gas and telephone serviced. Both of these were once widely considered to be natural monopolies. Electric power generation and transmission will soon be among the next major utilities to experience the benefit of competition.

In 1992, Congress passed the Energy Policy Act. This act required utilities to permit customer access to other suppliers and to the growing number of independent power producers. It set the stage for multilateral long distance competition among energy consumers and producers. Customers served by a local utility at high rates could buy power from other lower cost sources.

Already the California Public Utilities Commission has acted. Electricity users in California will soon be free to shop both inside and outside the state. Large industrial users may choose their supplier in January 1996. Subsequently, freedom will be expanded to small industrial users, then commercial, and finally to residential customers in the year 2002. Kiplinger Washington Letter predicts nationwide open competition within 10 to 15 years. The rates of Long Island Lighting are nearly double the national average. Competition will bring cheaper electricity to the consumer, will force Long Island Lighting to become more efficient, and will capture underutilized capacity in other parts of the country. Michigan is allowing a test of competition with bug users. Already the big three automakers made a deal with Detroit Edison to stay on as customers until 2004 in exchange for lower rates.

In the world of competition, the capture of efficiency results in dislocations. The industry has already reduced its force by 20,000 jobs. There will be mergers, takeovers and failures. Is it appropriate to have taxpayer subsidies to some but not all suppliers who are in competition with each other? Well, currently nearly 24% of American electricity customers are served by government-owned utilities and receive direct subsidies of over $2 billion per year. In addition, because their governments do not pay taxes they receive indirect subsidies of $4.8 billion per year. Under the old paradigm, these subsidies represent a transfer payment from taxpayers who do not live in subsidy areas to those that do. Under the emerging competitive paradigm subsidized electricity is free to go to another location. Thus, localized benefits of this subsidy will soon disappear. In t he future these subsidies will represent dislocations in the free market mechanisms that give unfair competitive advantage to some to producers. This is an inappropriate and dysfunctional roll of the government to play. The sooner these subsidies can be disengaged, then the sooner the benefits and efficiencies of free market competition will be realized by all. All of society benefits when economic efficiency is captured. All of society is injured when economic efficiency is lost or is stalled.

Most socialist state economies in the world have moved in the direction of free markets by divesting their electric power utilities. The U.S. has been slow to follow. In the free market model, financial risk is shouldered by the investor, not the rate-payer as with the American-style system or the taxpayer as with the foreign-style government ownership system. Both the rate-payer and the taxpayer risk models will quickly yield to investor risk as competition evolves. To facilitate the inevitable change, government should get out of the way as quickly as possible. Electric utility ownership and subsidy by the government must cease. Government can play an active roll by clearing away regulatory and property rights obstacles.

Governments Need Job Descriptions

By Dennis Polhill

An advantage that private sector entities have over public sector entities is clarity of purpose. The parts of private sector entities function like a well-tuned and well-oiled machine. Both the purpose of the overall entity is clear (to produce widgets) and the purposes of the respective subordinate functions are equally clear (to produce left front widget wheels). Private sector human resources and talent are intensely focused at producing more and better widgets. This intense focus yields an endless stream of innovative ideas. Innovations discovered are quickly identified and implemented. Individuals who add value are rewarded. When left front widget wheels malfunction, the problem is quickly realized and corrected. Both individuals and organizations perform more efficiently and more effectively when they know their purpose.

Governments are deprived of the advantage of clarity of purpose. Governments operate under a vagueness of purpose that frustrates its workers and preempts the efficient disposition of its charge. The disadvantage of government is augmented by the sweeping trends of the last century wherein the New Deal encouraged and facilitated massive expansion of the dominion of government. The proliferation of multitudes of fragmented governments has not mitigated, but has compounded, the problem. Currently, there are over 86,000 governments in the U.S. The number is growing by 4,000 per year or eleven per day. Colorado has nearly 2,000 governments.

Governments do, of course, have charges, and they perform many critical functions. However, those charges, by virtue of the very nature of government, must remain vague. The need to sustain reasonable decision making latitude, supports the argument for vagueness. The temptation for elected officials to respond to the desires of special interests by directing public resources into new areas is evidently irresistible. The result (rightfully or wrongly) in a practical sense is a public policy of dynamic perpetual change and waffling. To the employee committed to results, the situation is untenable. Goal achievers and self starters either stop being self-starters or leave government service. To the extent that vagueness can be minimized by virtue of a more clearly defined specific purpose, efficiency will result.

Given the assignment to define the role of government, one would quickly find oneself confounded. Defining what government should do is very difficult, if not impossible, particularly in specific terms. Since it is so difficult to define what governments should do, perhaps the best approach is to search for activities that governments obviously should not do.

In a socialist society, all goods and services are produced and distributed by the state (the government). In a capitalist society, goods and services are of two types: public goods and private goods. Private goods are produced and distributed by the private sector. Private goods are acquired by an individual consumer for his individual private consumption. Examples are shoes, radios, oranges, and automobiles. They are divisible. Private goods can be produced in units sufficiently small for individual households to purchase. The satisfaction, benefits, and costs are limited to the individual purchaser. Those who are not willing or are not able to pay the market price for private goods are excluded from the benefits and enjoyment such goods confer. This exclusion is called the exclusionary principle.

Public coeds (sometimes called social goods or collective goods) are goods and service that provide benefit to the general public as a whole. Examples are police protection, fire protection, transportation systems, flood control, regulations, and national defense. Public goods are goods that are not likely to exist without the benefit of government sponsorship and subsidy. Public goods are not divisible. They are of such large units that individuals cannot purchase them. They yield widespread benefits to the entire community. Public goods cannot be supplied on the basis of buyer initiative. The exclusionary principle does not apply to public goods. Everyone receives benefit.

There are many examples of governments at all levels that have crossed over the line, and have entered into the provision of private goods. When governments compete in the same market with private businesses, the businesses can be injured and, in many cases, destroyed. When governments use their power of tax exemption, liability exemption, and regulation exemption to injure their competition unfairly, many groups are injured.

When government owned businesses do not pay taxes, other governments are deprived of revenues that they need, and to which they are entitled. Who wins when Winter Park does not pay property tax? Winter Park generates jobs, housing, people and kids. The kids need to have a school to attend. If the Grand County School District does not get operating revenue from Winter Park, how is it expected that the School District can carry on its function? The Federal Center produces traffic, flooding, and other impacts on the City of Lakewood. When the Federal Center does not pay its fair share, Lakewood’s operating costs are elevated and revenue base is diminished. Is this fair?

When government owned businesses are exempt from or limited in their liability, consumers are placed at risk. Why should a consumer at Water World in Federal Heights be at a greater risk than at Southshore Water Amusement Park in Arapahoe County? If a consumer becomes a quadriplegic at Water World, why should that individual be limited to damage recovery of $250,000? Is it not reasonable for the injured party to expect the same damage relief irrespective of who the owner of the property is?

When government owned businesses are exempt from regulations, both the public and consumers are at risk. When special districts claim to be exempt from zoning codes and procedures, then do the procedures truly protect the public from injury? The same is true of all laws: building codes, sign codes, fire codes, inspection procedures, plan reviews, the permit process, flood plane infringements, environmental impact reviews, curb cuts, etc. How can a government function in an objective regulatory role (without conflict of interest) when it is in the same business as a private business upon which it wishes to impose regulations?

Unrelated Business Income Tax (UBIT) laws came into existence to curb abuses by non-profit corporations that overstepped the bounds of their charge to perform charitable work. Similar controls on errant government activity are needed.

Further Reading

Dennis Polhill. Unfair Government Competition Against Small Business, Independence Institute issue paper no. 12-93 (July 9, 1993).

by Dennis Polhill

Privatization is a word that is greatly misperceived and unfairly imaged. Its very mention causes adrenalin rushes in government employees. Privatization is a word that is used with great caution, suspicion and trepidation in the public sector… if we don’t
talk about it, maybe it will go away. The premier national trade group of the public works field lost members the first time it offered a seminar on privatization. One can witness bureaucrats shifting brain circuits when certain words register.

Private Sector
To build an understanding of privatization, one must begin with reasonable and rational definitions. Who is the private sector and who is the public sector? The public sector is all of us collectively and the private sector is all of us individually. This
applies both to actions and to property ownership. In all societies both must coexist. One cannot exist without the other.

Privatization
There are two types of privatization: contracting out (or out-sourcing) and divestiture. When the failed socialist states of the world mention the word privatization, they are referring to divestiture. Under Margaret Thatcher from 1980 to 1988 the
United Kingdom divested itself of 40% of its state sector. When Russia, Poland, Venezuela, and Mexico use the word privatization they are not talking about contracting out. In the US, the definitional perception is the opposite. Privatization means contracting out. People carry on protracted conversations using the word privatization without the faintest perception of divestiture ever entering their thoughts. U.S. business owners even talk about “privatizing” functions in their private companies that they cannot perform efficiently in-house. In the US, privatization typically means out-sourcing.

Divestiture
Divestiture is putting ownership and control of assets in the hands of the people (private parties). Control by the people means allowing the people to exploit the assets by using them to create value by filling unfilled needs. In US history, divestiture has been effectively used to foster economic growth and individual freedom. There is no better example than the Homestead Act. The federal government owned all of the land and sold it off cheaply to farmers on the condition that they would “work” the land. This divestiture program did much to make America the economic success that it is today.

Divestiture is a method used by countries to stimulate economic growth. The
greatest economic success of the post World War II Marshall Plan was West Germany. Though Germany’s per capita share of the Marshall Plan was small (only 45 % of the average) Germany’s annual economic growth rate of 22.5 % was nearly triple the economic growth rate of other Marshall Plan countries (8.4 %). This is attributed, in part, to Germany’s quick decisions to divest itself of state owned businesses and property.

Other economic success stories that put property ownership in the hands of the people as part of an overall divestiture strategy include Japan, Hong Kong, South Korea, Taiwan, and Singapore.

Deregulation
Deregulation is the third prong of the privatization triad-the first two being contracting out and divestiture. Had the Homestead Act provided cheap land, but denied them the freedom to work it, no value could have been created by the people. Similarly, West Germany’s post World War II transition was. from a fascist state to a free market. A fascist states allows private ownership of property, but controls critical aspects such as quantity of goods, product mix, resources to be used, product specifications, etc.

A current example worthy of note is that Argentina outright abolished 36 regulatory agencies. In the last few years, Argentina has gone from a 300% annual inflation rate to one of the strongest economies in South America. The point is that the free use of property permits people to create value via innovation. Every regulation denies at least a tiny degree of freedom to the owner and results in a cost to society’s economy. Excessive regulation can be the death of 1,000 cuts to property ownership and to an economy. Regulations should be imposed discretely and sparingly. Where regulation is excessive or no longer necessary, it should be rolled back.

Why does privatization work? As the economic theories of Marx., Engels, Lenin, and Keynes are discredited, the names Hayek, Friedman, and Sowell are ascending as the new leaders of dominant economic thought. In Free to Choose, Friedman identifies four categories of spending.

  • Category I – You spend your money on yourself.
  • Category II – You spend your money on someone else.
  • Category III – You spend someone else’s money on yourself.
  • Category IV – You spend someone else’s money on a third party.

The efficiency with which purchasing trade-off decisions are made diminishes sequentially from Category I to IV. Consider the example of buying a wristwatch and deciding to pay an extra $10 for an extra feature. The trade-off decisions are made with less efficiency as the category number increases. The decisions of the most efficient bureaucracies of the world (sole proprietors) are all Category I spending decisions. As organizations grow in size, decisions creep in that are increasingly Category II, III and IV. Thus, large organizations are very often less efficient than small ones. All government spending decisions are in the least efficient Category IV. Obviously when government functions can be moved out of Category IV, economic efficiencies result.
When does privatization make sense? Economic efficiency is what elevates society’s total wealth and standard of living. Conversely, economic inefficiency detracts from the total (and in turn individual) wealth. Thus, the test for privatizing (whether it be divestiture or out-sourcing) should be an economic test. If the activity can be performed more efficiently privately then it should be privatized.

The term economic efficiency has sometimes become rhetoric to create a smoke screen to forestall privatization. Government accounting does not yield true cost-of-service information, but private contracts do. Various overhead, administrative, tax, regulatory, and liability expenses are typically misallocated or not counted at all by governments. Not recognizing costs does not mean that they do not exist. It merely means that they are hidden. The aforementioned economic efficiency test should be applied fairly and honestly. To do this, government cost accounting must become complete, accurate, and honest.

How much savings can be expected by privatizing? This is difficult to answer because so little has been done, because government cost accounting is so poor, because the bureaucracy generally does not buy into the concept of economic efficiency, and because the definitions have become garbled. Precision-tuned numbers will not exist until the previous list of obstacles is diminished. In terms of conceptual numbers, even Ted Gaebler, author of Reinventing Government, an friend of big government irrespective of cost, has quoted 22% as the inherent cost burden that government must bear just to be open. Obviously the savings potential is a function of the quality of the contract, the sophistication of the activity (high tech versus low tech), the availability of qualified bidders, measurability of the work, the amount of uncertainty that the bidder must account for in the bid, the extent to which incentives can be installed in the contract, and so on.

Institutional Resistance
Since implementing privatization amounts to shifting the paradigm and contradicting conventional bureaucratic thinking, it is a much easier matter to bungle away the savings (either intentionally or not) than it is to succeed. The questions that follow failure are far easier to address: “Everyone knew it wouldn’t work. This proves that we are already as efficient as is humanly possible” versus “Why didn’t we do this sooner? Are there more savings to capture? Think of the money that has been wasted and the other things that could have been accomplished.”

The incentives that are offered to government managers need to change. Because of ease of measurement, a bigger budget and a bigger staff implies more responsibility and, in turn, more status, power and salary. To succeed in making government more efficient through privatization is counter to basic instincts. To say that privatization is a tool to be used by managers when appropriate, is to say that privatization will not be done.

Action Items

  • Government cost accounting should be modified to identify all cost components of producing various services. The units of service produced and the cost per unit should be reported to the public and the media.
  • Clarify the respective duties of various government entities and prohibit them from declaring themselves exempt from each other’s laws. If a county has jurisdiction over zoning, a park district cannot declare itself exempt. If a city has jurisdiction over building codes, fire codes, and sign codes, school districts must yield to city rules and procedures.
  • Governments should specify in clear terms why they are being formed and the scope of their functions. This can be called an annual business plan. These functions should be subject to periodic sunset review by a vote of the citizenry.
  • Governments should not compete with each other. The same services should not be supplied by two governments to the same geographic area or to the same customer base.
  • Governments should be governed by their own laws. Since regulations exist to protect the health, safety, and welfare of the public, it is inappropriate for a government to be exempt from any regulation. This applies equally to regulatory procedures, such as plan reviews, permitting, testing, and inspection. This is especially true when a government operates in competition with private businesses.
  • Governments that compete with private businesses should avoid the conflict of interest that exists when they function as a regulator. Their regulatory responsibility should be reassigned to an independent agency.
  • Government agencies that supply private goods to consumers in competition with taxpaying businesses should not be exempt from taxes or fees.
  • Government agencies that compete with private businesses should not be exempt from laws and regulations designed to protect consumers. Examples of such laws include exemption from liability and from anti-trust statutes.
  • Develop procedures and guidelines for governments to divest from services when government monopoly is no longer needed. This occurs when there is a technology shift or when there is an evolution in market demand creating the opportunity to grow private sector competitive suppliers.
  • CRS Title 24, Article 113, “State Government Competition With Private Enterprise” should be amended and enlarged:
    • To apply to all governments, not just the state.
    • To provide damage relief to injured businesses and individuals.
    • To impose penalties against individuals personally who knowingly participate in injury to existing businesses.
    • Remove the complaint and administrative responsibility for this law from the Colorado Office of Regulatory Reform (ORR) and reassign it to an advocacy branch of the state that is more likely to be concerned with saving jobs and protecting private property than enlarging government.
  • The advocacy agency should:
    • Define and streamline the complaint process.
    • Make the public aware that there are protections.
    • Log and track all complaints and remedies.
    • Report annually to the Governor and the Legislature.
  • Finally, activate the State’s Privatization Commission. Give it a charge such as enforcement or monitoring of CRS 194-24-113. Appoint commissioners dedicated to protecting small business, rather than protecting the government.

Number 12-93

By Dennis Polhill

Executive Summary

Unfair Competition exists when a government or quasi-government entity takes
advantage of its tax exemption and other privileges to supply private goods to the market
in competition with private suppliers. Unfair Competition adversely effects all
Americans. Small businesses are most vulnerable. When jobs are lost, the poor, the
unemployed, and women are especially damaged. When private enterprises are replaced
with less efficient government enterprises, national productivity and competitiveness are
adversely impacted. When the tax base is diminished, all taxpayers are injured.
The Federal government has investigated Unfair Competition frequently since 1980. In
1980, the Small Business Administration did a study which yielded numerous grievous
examples and extensive recommended actions. In 1986, a White House Conference on
Small Business labeled Unfair Competition as the third most serious concern in the
country for small business. In 1987, the General Accounting Office surveyed 27,000
businesses, nearly two-thirds of which were found to be suffering a degree of Unfair
Competition.
In Colorado at least 34 industries are currently suffering damage as a result of Unfair
Competition from government. Unfair Competition is also perpetrated by quasigovernment
agencies that enjoy either monopoly privilege, tax exemptions or regulation
exemptions that are granted by government. Among the steps necessary to a solution are
the following:

  • All regulations which do not apply to government business entities, but which do apply to private industry should be either abandoned or enforced uniformly.
  • Agencies of governments that supply private goods to the market should lose their tax exempt status and other privileges.
  • Governments should adopt accounting practices and management approaches that reveal more closely the true cost of service provided.

Entire Paper: Unfair Government Competition Against Small Business (PDF)

APWA REPORTER,  NOVEMBER 1992

Carrying public works into the future

The article entitled “Infrastructure for sale” [August 1992] by Stephen T. Pudloski is outstanding. More needs to be written on the interesting and critical subject of privatization. Although the United States lags behind most other countries in the world when it comes to privatization, progress is being made slowly.

As was cited in Pudloski’s article, “user fees are more efficient than general taxes” in a free market economy at fairly assigning costs. Federal financing of infrastructure and other historic practices have acted as barriers to the achievement of economic efficiency. Economic efficiency elevates our collective standard of living; inefficiency does the converse. The issue for true public works managers is not how to get more funding so much as it is how to accomplish the most with what is available.

When the National Council on Public Works Improvement concluded its 3-year investigation into the nation’s infrastructure crisis, the conclusion was clear: infrastructure decisions are economic decisions. Viewing infrastructure decisions as economic decisions, however, involves significant revisions in how we as public works practitioners view the work we do. As part of this self-examination, I believe the profession should support two very important trends.

The first trend is privatization. Yes, privatization is a management tool to be used selectively. Yes, contract costs are sometimes frightening because all costs are visible. Yes, contract management is difficult because a cadre of qualified suppliers is not always available. And yes, mechanisms of control and fair payment have yet to evolve. But as we can see from examples in such distant places as Singapore and Argentina, privatization can foster a strong national economy by shifting the management burden for day-to-day service operations to private suppliers. This has left industry and local leaders free to focus on larger issues such as infrastructure management.

The second trend is cost identification. Every single thing that can be done to identify true and total costs of services and to properly assign those costs will help American public managers at all levels make better, quicker, and more effective management decisions. If government accounting cannot give the answers, then alternative or supplemental accounting systems must be installed.

The tax exemption has become a travesty. Originally intended to avoid double taxation, it now robs taxpayers by encouraging governments to rob each other of needed revenues while simultaneously operating at growing levels of inefficiency. The tax exemption should be eliminated. Only when governments pay the rightfull taxes to each other will the proper revenue be generated for services delivered.

In viewing infrastructure decisions economically, we have a duty to become increasingly aware of the true costs and benefits of the decisions we make. As we become attuned to creating value, as opposed to creating additional overhead costs, two decision parameters emerge.

The first of these parameters is the value test. When an infrastructure decision cannot stand this value test, the activity should not be executed. Always, the value created should exceed the cost of the facility investment. This value test should be applied both globally, for example when deciding to build new airports or expand mass transit, and also locally, in instances such as deciding to patch potholes or paint a water tank.

The second priority is maximizing value. When priorities are set on the basis of highest value created, policy decisions are greatly simplified. Those items that add the most value are developed first. Maximizing value has many obvious benefits: lower long term cost, higher operating efficiency, enhanced tax base and revenue, and a diminished need for tax revenue.

How does all this discussion about economics relate to privatization? If governments do not know the true cost of providing a service, that in itself is sufficient argument for contracting out a service. To be a good manager, one must first know what one is managing and also the costs.

Any public works manager that does not know his or her costs or who is not in control of these costs is not a competent manager. The argument that “the system does not allow me to know my true costs” is insufficient. As a public works manager, leadership is incumbent upon you. In the business sector, a manager is forced out of business by the competition as soon as he or she loses touch with costs.

Many deserve to be commended for recognizing the way privatization, when implemented wisely, can help move public works into the future. Working together, we can help brighten the future and improve the efficiency of public works services for all.

Dennis Polhill, Senior Fellow Independence Institute, Denver, Colorado

Denver Post May 10, 1991

Here’s a Way to Shape Up our Congress

Congress has again failed to act according to its own standards: 1991 was the year of Gramm-Rudman where the federal budget deficit would cease to grow.

Even with the October tax increase, Congress has failed to follow its own guidelines to the tune of a record 1991 V budget deficit of over $320 billion.

Committee decisions are sometimes used to abdicate responsibility for decisions. This is a technique used throughout our government, both on the administrative (staff) side and obviously on the legislative side.

A 1990 survey of taxpayer perception proves the effectiveness of the strategy. Although most taxpayers believed Congress was doing a poor job, they believed their congressman was doing a good job.

When a president is blatantly in violation of the law, Congress has the power and duty to impeach the president. In the case of Gramm-Rudman and its successors, Congress has violated its own law and thus is obligated to impeach itself.

Seeing as it is unlikely that Congress will impeach itself, an incentive pay plan is suggested to encourage fiscal responsibility. Every year that spending does not exceed revenues, each member of Congress will receive a bonus of $1 million. The cost of the incentive will be only $535 million per year. This is only one-sixth of 1 percent of what Congress did to the taxpayer in 1991.

Another benefit that would come out of the bonus system is that there would be more interest to serve among folks of leadership ability.

DENNIS POLHILL

Lakewood

Colorado Engineering. January 1987

Privatization of Public Works
by Dennis Polhill

The infrastructure Colorado’s Pubic Works is falling into increasing disrepair. There is a serious shortfall of money in the public sector to pay for replacement of aging utilities, public buildings, institutions and roadways. There is a movement in numerous other States for the privatization of these public works allowing private investment and operation of these facilities.

Yet Colorado lags far behind in this effort and as of yet has not ventured into this concept. How do you feel about privatization of public works and if in favor of it, what do you think needs to be done to encourage it?

The issue simply is “How best can various services be supplied.” If privatization offers the potential of greater efficiencies, then privatization is a service delivery option that must be looked into by public works managers. Privatization doesn’t mean government will go away. The only thing that changes is the way government conducts its business. When methods can be employed that offer greater efficiencies, more or better services can be provided and overall economic efficiency improves. Overall economic efficiency is what sets the limit on the standard of living that we all enjoy. None of us has anything to gain by encouraging anything but the highest level of efficiency.

Government works under a disadvantage. Inherent within government are various institutional mechanisms that are not conductive to decisive decision-making and operational efficiency. Government is full of people who are frustrated, because their full potential is underutilized.

  • In 1974 Cornell University under an EPA Grant, performed an exhaustive comparison of private sector vs. public sector trash collection. For equivalent service public sector service delivery was 67% more expensive.

  • Street lighting service is provided most efficiently when the capital facility is owned by government, but operation and maintenance is contracted.

  • In California Proposition 13 forced government to be more aware of the “true” cost of doing business. Alternative delivery mechanisms are a way of life. Intergovernmental contracts are common. Most municipal engineering is contracted to consultants. In some cases the entire public works function is contracted to a management consultant who subcontracts the various functions. Contracting of Non-Public Works functions is occurring.

The challenge of the future is to manage public works more efficiently by exercising more creativity. One of our tools is privatization. Privatization must evolve, as we build a new body of professionals: the private sector public works managers. As much as government can benefit from private sector initiative, the concept of privatization of public works cannot succeed without the insights and experience of practicing public works managers. Thus, the private sector public works manager must evolve. He will be one who draws from both the public sector and private sector experience to insure that services are delivered efficiently and effectively.

Privatization has a place in the future of public works management. The sooner we recognize and acknowledge this, the sooner we can get on with the challenge of making things work better.

Trends in the National Transportation Policy
by Dennis Polhill
C.E. 170 Transportation Characteristics
Instructor: Professor Athol
December 22, 1975

Table of Contents

I. Setting the Stage
1. Tradition
2. The First Legislation
3. The First Real Effort
4. Decline
5. The Federal Role
6. The “Good Roads” Movement

II. The New Era
1. The Federal Aid Highway Act of 1916
2. The Federal Highway Act of 1921
3. The Hayden-Cartwright Act
4. Toll Roads
5. Interregional Highways
6. The War Years
7. The Federal Highway Act of 1944
8. A Financing Problem
9. The Federal-Aid Highway Act of 1956
10. The Federal-Aid Highway Act of 1958
11. The Federal-Aid Highway Act of 1961
12. The Federal-Aid Highway Act of 1962
13. The Federal-Aid Highway Act of 1966
14. The Federal-Aid Highway Act of 1968
15. The Federal-Aid Highway Act of 1970
16. The Federal-Aid Highway Act of 1973

Bibliography
Long Distance Telephone interviews

I. Setting the Stage

1. Tradition

In early England monasteries were largely responsible for the maintenance of roadways. After Henry VIII dissolved the monasteries (1536-1539) the roads rapidly deteriorated. In 1555 the Parliament instituted “Statute Labor” which required four days work per year upon the roads by every parishioner. This is the source of the common law concept which has carried through to the American system. The effectiveness of this system was identified early in the history of the United States and adjustments were proposed.. In 1785 George Washington proposed abandonment of county- controlled statute labor in favor of contract work directed by a central authority. Governor Livingston of Pennsylvania in 1791 proposed that each county establish its own maintenance force to be paid by county taxes to “work faithfully instead of the ridiculous frolic of a number of idlers.”

2. The First Legislation

The first American road legislation was passed by the Virginia General Assembly in 1632. The Act was three lines and provided merely that roadways should be built.

The second action was taken in 1639 by the colony of Massachusetts. It was significant in that it was the first to mention right-of-way widths. In 1664 New York passed roadway legislation which specified standards (i.e., ten foot roadway width, stumps cut close to ground, and bridged). In 1704 the Maryland colony passed a law similar to New York’s with the addition of roadway markings (notches in trees).

In 1743 a charter was granted to the Ohio Company (private enterprise) to make a road across the mountains to the confluence of the Monongahela and Kanawha Rivers. This was the road which was used by General Braddock in 1755 during the French and Indian War. In 1758 General John Forbes made another road through Bedford and Ligonier for his successful assault on Ft. Duquesne in Pittsburgh. In 1775 the Transylvania Company was chartered with the purpose of making the wilderness road through the Cumberland Gap into Kentucky. Most American roads at the time of the revolution were mere pack trails. A few, mostly those mentioned above, were wide enough for wagons. Pounded stone was not implemented until 1832 and wood planks were not used until 1835.

3. The First Real Effort

After the Revolutionary war the federal government was interested in the development of roads for the purpose of maintaining the unity of the nation. As a carry-over from English common law local authorities were responsible for road repair. Local agencies demanded help from the States. The States were unable to help due to their war debts. Therefore, state governments met the challenge by chartering private turnpike companies with the authority to build roads and charge user tolls. Virginia granted the first such charter in 1785 but Pennsylvania rapidly became the leader in 1791 by adopting a statewide transportation plan for 68 road and navigation improvements. In 1808 the Secretary of the Treasury reported to Congress that Connecticut had 50 turnpike companies and 770 miles of road, and New York had 67 companies and 3,110 miles of road. Some turnpike companies were subsidized by the States through stock purchased on tax exemptions. Many were able to profit up to 15 percent per year, the maximum legal limit.

Four main transmountain roads were built to meet the demand for westward migration. The Lancaster Pike was ex-tended to Pittsburgh. In New York a road was built from Massachusetts to Lake Erie. The Cumberland Road was built. from the Head of Navigation on the Potomac River (Cumberland,

Maryland) to the Head of Navigation on the Ohio River (Wheeling, West Virginia), The Northwest Turnpike was built from Winchester, Virginia to a point on the Ohio River.

4. Decline

The Railroads came into the picture about 1830. By 1850 only a few turnpike companies and transportation companies had not yet gone bankrupt due to competition from the railroads. The growth of roadways, had reached a peak.

Turnpike companies stopped maintenance. Travelers refused to pay tolls because of the condition of the roads. Responsibility for roadways fell back to state and local agencies who were able to do little. The period from 1850 to 1900 has been labeled the “dark age of the rural road.” Basically the only new roads built during this period under federal subsidy were military wagon roads built by the Army Corps of Engineers primarily in the territories.

5. The Federal Role

In 1796, Colonel Ebenezer Zane chose his revolutionary war veteran bounty land warrant at the juncture of the Muskingum, Hockhoeking, and Scioto Rivers. He received special permission from Congress to make a post road from Limestone, Kentucky (now Maysville) to Wheeling, West Virginia. This was the first instance of subsidy by the federal government for roads. Zane’s trace, like the others started out as a pack trail, but its economic significance was rapidly identifiable. Heavy traffic caused Zane’s road to be chopped out wide enough for wagons by 1803.

In 1803 Congress passed the 5 per cent law. A fund was established in-which 5 per cent of revenues generated from the sale of federally owned public lands was deposited. Three per cent was granted to the States upon admission to the Union for roads, canals, levees, river improvements and schools. Two per cent was used for constructing roads “to and through” the west. -All 33 states admitted between 1820 and 1910 were subject to this law except Texas and West Virginia,”-which had no federal lands.

The two per cent is the interesting part. In 1806 Congress authorized these funds to be used for the construction of the Cumberland road, one of the four transmountain roads. Bitter debate developed in and out of Congress..

Strict constructionists to the constitution denied that the federal government had the authority to build roads, except in territories. Article X of the Bill of Rights, “The Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Proponents of federal road building prevailed by citing the “General Welfare” clause of the Constitution. By 1813 the Cumberland road was open from Cumberland, Maryland to Wheeling, West Virginia. The road became so heavily used that appropriated funds were not sufficient for maintenance. Congress took action by authorizing tolls in 1822. President Monroe vetoes the act stating that collection of tolls implied a power of jurisdiction which Was-not granted to the federal government by the Constitution. In 1835 the Army Corps of Engineers conducted major repair and rebuilding after which the road was turned over to the States for operation as a toll facility.

In 1823 Congress granted Ohio a 120 foot R.O.W. and one mile of public land on each side to finance a road from eastern Lake Erie to the Western Reserve. In 1827 Congress subsidized a toll turnpike in Ohio from Columbus to Sandusky.

In 1827 Indiana used its land grant money to build the “Michigan Road” from Lake Michigan to Indianapolis and then to Madison.

In 1830 President Andrew Jackson vetoed a bill funding the Mayville turnpike in Kentucky stating and set-ting the national policy that “Internal improvements of a purely local character are not of national importance.” This reasoning negates the claim of highway proponents under the “General Welfare” clause leaving the “police powers” (State’s Rights) clause to prevail.

All subsequent federal legislation, even during the heavily liberal periods before World War I and during the depression, have been very careful not to challenge the precedents set by these two presidential vetoes. It will be interesting to-see what, if anything, evolves as a result of the 1974 Federal-Aid Highway Amendments signed into law by President Ford, January 5, 1975, which open the Highway Trust Fund to off-system projects.

6. The “Good Roads” Movement

The interest in good roads was revitalized in the 1880’s through the lobbying power of the League of American Wheelmen and other cyclist groups. In 1893 Congress established the office of Road Inquiry. The office had a budget of $10,000, one agent, and one clerk; was organized under the Department of Agriculture; and was to “make investigations in regard to the best methods of road making, (and) to prepare publications….suitable for…. disseminating information on this subject.”

Briefly, the Office of Road inquiry became the office of Public Road Inquiry in 1899, the office of Public Roads in 1905, the office of Public Roads and Rural Engineering in 1915, the Bureau of Public Roads in 1919. In 1939 the Bureau of Public Roads became the Public Roads Administration under the Federal Works Agency. In 1949 the Federal Works Agency was abolished. The Public Roads Administration became the Bureau of Public Roads again, temporarily under the General Services Administration (7/1/49 – 8/20/4.9) and finally under the Department of Commerce. In 1966.the Department of Transportation was established. The Bureau of Public Roads was transferred under this consolidation move and became the Federal Highway Administration.

In 1895, four passenger cars were registered in the United States. By 1900, 8,000 were on the roads. By 1910 there were 458,000. In 1904 the first complete inventory of public road mileage was conducted by the office of Public Road Inquiry. The United States had 2,151,570 miles of road.

Only 153,662 miles were improved with stone, gravel, or sand- clay surfaces. (A few were even better: the first brick street was constructed in Charleston, West Virginia in 1872; the first rock asphalt street was constructed in Newark, New Jersey in 1870; the first sheet asphalt street was constructed in Washington, D.C, in 1879.1 Not included in the total was 1,101 miles of stone surface toll roads in Pennsylvania and 497 miles of toll roads in Maryland. Ninety-three per cent of the nation’s roads were dirt paths. In 1891 New Jersey was the first state to pass a State-Aid Bill. It was also the first state to allow local governments to utilize debt services for road projects. By 1917 all states had adopted State-Aid legislation for roads. Roy Stone, first Head of the Office of Road Inquiry recommended that “object lesson roads” (experimental/demonstration) be constructed. Stone got approval but his budget remained at $10,000. He was forced to go to private and local sources for funds. Stone resigned in 1893. Martin Dodge, the new Director continued the demonstration road program. The “object lesson” concept was successful. Once it became widely known that “good roads” were a potential reality, the clamor increased. Congress would have to do something.

Even the railroads, secure in their position as the backbone of the American transportation system, got on the good roads bandwagon. The railroads had learned a hard economic lesson by yielding to pressures to build spur routes and duplicate parallel routes which never provided profits. The railroads were anxious to provide service to those unprofitable tributary routes through other means.

Finally, in 1912 Congress authorized $500,000 for an experimental program of rural post-road construction. It is interesting to note at this late date how cautious Congress is with regard to the precedents set by the vetoes of Presidents Monroe and Jackson. Under Article I, Section 8, Para-graph 7 of the U.S. Constitution, Congress is specifically delegated responsibility for postal roads. In fact, the appropriation was made through the Post Office Appropriation Act and States were required to come-up with two-thirds of the project costs. Only 17 states took advantage of the program. This was the only one of 60 federal monetary aid bills to pass in 1912. Consequently a Joint Congressional Committee was appointed to determine if and how federal funds could be used to aid highway construction. The report was submitted in 1915 and resulted in the passage of the Shackleford Good Roads Bill.

II. The New Era

1. The Federal Aid Highway Act of 1916

In 1916 Congress parsed the Shackleford Good Roads Bill, better known as the Federal Aid Road Act. This Legislation was revolutionary in concept and established the be-ginning of a new era in transportation. The Act circumvented established precedents by making the program optional to the States on the basis-of a 50 – 50 matching funds relationship. Each State was required to establish a state highway department capable of administering the funds. States received apportionments on the basis of formulas weighted by area, population, and rural mail route mileage (still relying on the post-road responsibility of Congress). The States retained the initiative and prerogative in proposing roads and types of improvements, the responsibility for surveys, plans, specifications, right-of–way acquisition, and contract administration. No tolls could be charged. Ownership and maintenance responsibility remained with the State. This act set the pattern for all highway legislation of the future.

The century long debate over the nature and intent of the Federal-State relationship had,~ in all practicality, been resolved. During conservative periods attempts have been made to swing back to the transitional “Federalism:” late 1920’s Eisenhower administration, Nixon administration; but it is unlikely that this will ever be successful.

The traditional interpretation of federalism as a strict division of responsibilities between the Federal and State Governments had been adjusted to, but not yet labeled, the “New Federalism.” The “New Federalism” is difficult to define but is generally described as a mixture of responsibilities, similar to a marble cake.

2. The Federal Highway Act of 1921

The Federal-Aid Road Act of 1916 authorized $5,000,000; $10,000,000; $15,000,000; $20,000,000; $25,000,000 for fiscal .,years 1917, 1918, 1919, 1920 and 1921 respectively. The pro-gram was an astounding success. However, in 1917 the United

States found itself in the midst of World War I. It was quickly discovered that the railroads were not capable of handling the increased demand for transport of war material. The trucking-industry was born. In one year the number of trucks in the country doubled. There were no load limits and during the spring thaw of 1918 even the best roads deteriorated. The poor condition of the roads and fuel restrictions helped trucking for hire to thrive.

After the war, road builders and truck manufacturers agreed on a truck capacity of 7 1/2 tons. The post office appropriation act of 1920 authorized $200,000,000 of additional funding for the 1916 road act. Also $139,000,000 worth of surplus war material and equipment was distributed among the State Highway Departments. The railroads were helped back on their feet by the Transportation Act of 1920. The Federal-Aid Highway Act was about to lapse. Another highway act was necessary to continue the program. The Federal Highway Act of 1921 was passed. A major provision of this act was the requirement that all State Highway Departments designate a system of principal roads which would be eligible for federal aid funds. The “Federal-Aid System” was limited to seven per cent of the total mileage in each state and subject to approval of the Bureau of Public Roads (to assure continuity between states). Congress appropriated $75,000,000 for fiscal 1922.

3. The Hayden-Cartwright Act

The Federal Aid Highway Act of 1934, better known as the Hayden-Cartwright Act, is significant in that it allowed the use of federal matching funds up to one and a-half per cent for surveys, plans, and engineering investigation. Highway planning was born. During the next two years, 1934 and 1935, Herbert S. Fairbank, Deputy Commissioner for Research of the Bureau of Public Roads became a strong and outspoken advocate of “Planning for Planning.” He is called the Father of Highway Planning. His recommended inventories required a great deal of man power. Under the National Recovery Act, manpower was made available for both highway work and planning. Requirements for state matching funds were temporarily lifted so that work could continue.

It was estimated that for each person working on the highways two other people were employed in the manufacture and trans-port of needed material and equipment. With the inclusion-of “WPA” funds, appropriations during the ’30’s went as high as $1.2 billion per year.

4. Toll Roads

During the 1930’s the Pennsylvania Turnpike was constructed between Harrisburg and Pittsburgh. It was planned and built by special state authorities, which used private engineering firms and financed the project with revenue bonds. During World War I2, heavy military use of the road proved valuable both to the turnpike authorities and the military. Increased traffic allowed the revenue bonds to be retired early and expeditions movement of war goods aided the military. This, with the increase in traffic after World War II stimulated growth of toll roads in several states.

5. Interregional Highways

The value of the Pennsylvania Turnpike was recognized before the war. In 1938 Congress directed the Bureau of Public Roads to study the feasibility of a toll-financed system of six superhighways. The report, “Toll Roads and Free Roads” was presented to Congress in 1939. The report stated that a 14,000 mile toll road system as suggested by Congress would not be self-supporting. The report went on to document the need-for a system of interregional super-highways with connections through and around cities. A 26,700 mile system was proposed with the suggestion that the federal government contribute more than the traditional 50 per cent federal share. In 1941 President Roosevelt appointed a National Interregional Highway Committee headed by Thomas MacDonald, Commissioner of Public Roads to look more closely at the concept. The value of the Hayden-Cartwright Act and Herbert Fairbank’s inventory of data for planning was realized. -In addition, Congress in 1943 requested the Bureau of Public Roads to make a study of the need for a nationwide expressway system. In 1944 a single joint report was submitted to Congress entitled “Interregional Highways.” The study considered many alternatives and recommended a 39,000 mile optimum network. The report called for “high standards of geometric design” and full access control. No cost estimate was made, but a $750,000,000 per year post war expenditure was suggested.

6. The War Years

A Federal Highway Act was passed in 1940 but little of the apportioned funds were utilized due to World War II.

In 1941 (less than three weeks before Pearl Harbor) Congress passed the Defense Highway Act. It authorized 75 per cent participation by the federal government but approved only projects on a designated strategic highway network. Roads which provided access to military establishments were subject to 100 per cent participation. In 1943 Congress amended the

Defense Highway Act so as to authorize expenditure of funds still remaining under the 1940 Highway Act. For the first time federal funds were allowed for right-of-way acquisition. The funds were used only for PS & E (plans, specifications and estimates) and for R.O.W. acquisition for two reasons: (a) critical material was needed for the war effort, and (b) Congress wanted to generate a reservoir of plans in order to start highway construction immediately after the war.

7. The Federal Highway Act of 1944

The Federal Aid Highway Act of 1944 required the designation of a “National System of Interstate Highways” not to exceed 40,000 miles. The Act also authorized $500,000,000 per year for the first three years after the war. The funds were restricted to a 45:30:25 ratio for primary, secondary and urban extensions, respectively. This distribution was later labeled the “ABC Program” and the ratio remained until-1973. The Act retained the provision which allowed the use of federal funds for right-of-way acquisition and established as a prerequisite to federal aid that traffic control devices must conform with uniform standards. The indirect or passive nature of this last requirement reflects the continued reluctance of Congress to confront the constitutional question of State’s rights. No funds were specifically designated for interstate construction.

On August 2, 1947, selection of the general locations of the interstate routes was announced. Much discussion between theStates, the Department of Defense and the Bureau of Public Roads had gone into the selections. A total of 37,700 miles was recommended. The remaining 2,300 miles authorized by Congress was reserved for auxiliary urban routes.

8. A Financing Problem

In 1952 the Federal Aid Highway Act authorized $25,000,000 specifically for the interstate system and equal amounts for 1954 and 1955. The 1954 Federal Aid Highway Act authorized $175,000,000 for 1956 and 1957 respectively. for the interstate system at 60 per cent participation. The program was ineffective. Federal authorizations were too small and States were unable to finance their portion. The first interstate highway cost estimate was $11.3 billion in 1949. At this rate, the interstate system would never have been completed. The cost estimate was increasing faster than the system was being built.

In 1953 the House Subcommittee on Roads conducted hearings and published the “National Highway Study.” The automobile manufacturer’s association had just completed a study which indicated that unsafe and inadequate highways were costing the nation’s motorists at least 3 billion dollars per year. In 1954 President Eisenhower described a “properly articulate highway system” in his message to the Governors’ Conference. In response the Governors’ Conference directed its Committee on Highways to prepare a special report to the President. The Kennon Committee Report went to the President with the message that the national government should assume primary responsibility for financing the interstate system. The Federal Aid Highway Act of 1954 directed the Bureau of Public Roads to make several extensive studies. One of these was the “Needs of the Highway System, 1955 – 1984” (March 1955) estimated the cost of the interstate system at $23.2 billion. Another was “Process and Feasibility of Toll Roads and their Relation to the Federal Aid Program” (April 1955). This report indicated that 6,700 miles could be financed by tolls; but that widespread interest in toll roads would soon end.

After the report from the Kennon Committee, Eisenhower” appointed the Advisory Committee on a national highway program, better known as the Clay Committee for its chairman. The Committee report “A 10-year National Highway Program” was presented to Congress in February 1955. This report set the estimate at $27 billion and recommended a 90 per cent ($25 billion) share for the federal government. The interstate system was to be constructed over a 10 year period and was to be financed by $20 billion of long-term bonds-which would have been-.repaid over a 32 year period from the existing 2-cent federal motor-fuel tax. Congress was not happy with the report: (a) the proposal placed a 32 year ceiling on ABC programs; (b) it would cost $12 billion in bond interest, and, (c) it removed fiscal control of the program from the hands of Congress.

Early in 1955 bills were introduced into both the House and Senate, but no legislation resulted. Although nearly all factions were in favor of the interstate programs, there was lack of agreement and compromise.

9. The Federal-Aid Highway Act of 1956

By the time Congress returned in 1956 pressure of public opinion had increased. Differing factions were ready for compromise. The pay-as-you-go concept was agreed upon.

A house bill was passed 4/17. It was amended and passed in the Senate 5/29. A compromise bill was developed by 6/25 and passed both houses on 6/26 by overwhelming majorities. President Eisenhower signed the bill 6/29. The National System of Interstate and Defense Highways was born. This Act is actually two acts. Title I is the Federal-Aid Highway Act of 1956. Title II is the Highway Revenue Act of 1956.

Title z directs the Secretary of Commerce to cooperate with State Highway-Departments in the establishment of design standards (AASHO and BPR had already begun. The standards were completed and adopted by July 1956). Title I authorized 41,000 miles of interstate. Inclusion of existing toll roads in the interstate system was permitted (federal funds could not be applied to toll roads and the toll roads must be opened to free travel once the bonds are paid off). The Act limited vehicle weights and widths by adopting the AASHO limits or those of the respective state, whichever was higher. The Act expanded on a provision of the Federal-Aid Highway Act of 1950 which established the requirement for public hearings when by-passing or going through a city. Advanced acquisition of right-of-way was permitted. The federal share was 90 percent. A generous ABC program was continued. The apportionment formula as applied to the interstate was to be changed, effective 1959. Subsequent apportionments would be on the basis of need, so that the entire system would be completed at the same time.

Title II created the funding mechanism which would make the interstate system possible. It created the Highway Trust Fund which is the source of federal matching funds.

Creation of the Trust Fund required several amendments to the Internal Revenue Code. Previously highway funding was taken out of the general budget. Similarly, highway revenues went into the general treasury. The idea behind the fund is simply to separate the highway money from the regular federal budget to require the highway users to pay for the highways. Highway. user taxes were increased for the period 7/1/56 to 6/30/72. The taxes are deposited in the Trust Fund and are administered by the Secretary of the Treasury. If a balance should accrue in the Trust Fund, the money was to be loaned to the general treasury under the same conditions as, but in place of, outside money. By 1969 over $160 million had been generated from interest on the Trust Fund balance. The highway user taxes and the Trust Fund have been one of the most popular taxes ever devised.

10. The Federal-Aid Highway Act of 1958

In January of 1958, as required by the Act of 1956, the Bureau of Public Roads submitted its first periodic estimate of the cost of completing the interstate system. Over a million man-hours went into preparation of the estimate. This was the first detailed estimate of the entire 41,000 mile system. It came to $37.6 billion (the $10 billion increase was due to four factors: traffic projections, $1.3 billion; local needs (dictated by congressional action), $3.8 billion; construction prices, $4.1 billion; and miscellaneous, $.8 billion). In addition, 1958 was a time of recession. Congress decided to accelerate the highway program as a cure for the economy. The Federal-Aid Highway Act of 1958 was passed. It increased interstate authorizations from $2 billion to $2.2 billion for fiscal 1959 and to $2.5 billion for each of fiscal 1960 and 1961. To avoid depletion of the Trust Fund the highway user taxes had to be raised in 1959.

11. The Federal-Aid Highway Act of 1961

The second periodic estimate of the cost of completing the interstate system was presented to Congress in January 1961. Over two million man-hours went into its preparation. $33 billion would be required to complete the system. It confirmed the estimate of 1958. The “Highway Cost Allocation Study” undertaken in 1956 was also presented to Congress in January 1961. The purpose of this study was to recommend a system. of equity by which costs and benefits to highway uses would be matched. The Federal-Aid Highway. Act of 1961 was passed, raising certain highway user taxes, establishing equity among users, and putting the Trust Fund back on a sound basis.

12. The Federal-Aid Highway Act of 1962

The need for an integrated transportation program and in-depth planning became apparent in 1962. AASHO, NACO, and AMA (National League of Cities) launched their “Action Program” which advocated urban transportation planning.

The National Committee on Urban Transportation had been advocating such transportation planning since its creation in 1954 by AMA, ICMA, ASPO, NIMLO, APWA, and MFOA. The Federal-Aid Highway Act of 1962 required a continuous planning program and called for greater cooperation among all levels of government. The Act stipulated that after 7/65 projects would not be approved unless they were based on continuous, comprehensive, and cooperative transportation planning. Congress repeated itself in regard to transportation planning in the Housing Act of 1961 and the Urban Mass Transportation Act of 1964. There was no question as to the position of Congress in regard to comprehensive, in depth planning, the integration of transportation systems, and cooperation between governments. The 1962 Act also required state highway departments to furnish satisfactory relocation advisory assistance to families displaced by the new interstates.

13. The Federal-Aid Highway Act of 1966

Four acts of significance to the highway system were passed in 1966. The National Traffic and Motor Vehicle Safety Act identified the necessity “to establish motor vehicle safety standards.” The Highway Safety Act attempted to establish a “coordinated national highway safety program.” It required states to establish an approved highway safety program. The Federal-Aid Highway Act merely appropriated revenues ($3:6 billion each for fiscal 1968 and 1969). The Transportation Act created the Department of Transportation.

14. The Federal-Aid Highway Act of 1968

The Federal-Aid Highway Act of 1968 created the “Traffic Operations Program to increase capacity and safety” (topics). There was $400 million authorized under topics on a 50 – 50 matching basis. Most states added 25 per cent for local governments making the local government share only 25 per cent. The 1968 Act also established appropriations for fiscal 1970 and 1971 of $4 billion each.

15. The Federal-Aid Highway Act of 1970

The Federal-Aid Highway Act of 1970 repeated the relocation assistance requirements of the 1962 Act. The relocation requirements were repeated again and expanded to all federal-aid projects by the uniform Relocation

Assistance and Real Property Acquisition Act of 1970. Another redundancy appeared on the environmental front.

The National Environmental Policy Act of 1969 establishing the E.I.S. (environmental impact statement) was passed.

The 1970 Highway Act repeated the environmental concern. The 1970 Act changed the participation ratio to 70 per cent federal for ABC programs. Topics was continued. The Trust Fund was extended to 1977 and $4 billion was appropriated for each of fiscal 1972, 1973 and 1974. The Highway Safety. Act was extended as Title II of the 1970 Highway Act. It is interesting to note that the Highway Trust Fund had proved so successful and so popular that in 1970 the Airport and Airway Development Act and the Airport and Airway Revenue Act were passed creating the Airway Trust Fund.

16. The Federal-Aid Highway Act of 1973

The 1973 Highway Act symbolizes the trend of changing priorities as the completion of the interstate system approaches and as the need for integrated transportation is recognized. Appropriations had peaked. The 1973 Act authorized only $3.25 billion each for fiscals 1975 and 1976.

The topics program was discontinued. In place of topics section 230 authorized off-system projects to eliminate safety hazards. Section 301 increased the appropriation under the Urban Mass Transportation Act of 1964 from $3.1 billion to $6.1 billion with 80 per cent federal participation from the Trust Fund. Section 124 opened the Trust Fund for bikeways and walkways: “sums appropriated …. shall be available for bicycle projects and pedestrian walkways…..”

The ABC (45:30:25) ratio was changed and federal participation on ABC projects was increased to 90 per cent.

The major change under the Federal-Aid Highway Amendments of 1974 was an additional provision for off-system projects. “These new funds may be used on any rural road or bridge which is toll free and not on a federal-aid system, and which is under the jurisdiction of and maintained by a public authority and open to public travel. The funds may not be used within the boundaries of any urban area with a population of more than 50,000.”

In the colonial period the emphasis was; against roads.

Roads could be used by the Indians and, therefore, were a liability. Most of the first roads were made by Armies as a necessity for making attacks. As the Indian threat decreased and as the population increased, crude roads, often only pack-trails were established. After the Revolutionary War there was a strong movement to provide roads and canals in an effort to tie the nation together, promote westward growth, and strengthen the economy through internal flow of goods. These roads were primary provided by creating private turnpike companies. With the development of the railroads about 1830 both the roads and the canals declined. The railroads maintained total dominance of the transportation picture until after 1900. The clamor for good roads by cyclists and the development of the automobile caused Congress to act. Legislation was passed in 1916 which allowed federal aid for highways without infringing on states rights. During World War I the importance of the automobile was realized and the highway program was accelerated. During the depression the highway program was accelerated even more in an effort to revive the economy. The highway system was doing so well that some thoughts were given to higher ideas such as planning and a nationwide system of superhighways. After World War II highway development was accelerated to provide the transition from war economy to peace economy. In-depth studies were conducted into the feasibility of an interstate system. In 1956 the Highway .Trust Fund was created and the interstate system was under way, top priority. The interstate system can be,attributed much of the credit for the booming economy of the 1960’s. The interstate produced a cost/benefit ratio of 2.9 on the basis of direct savings to uses along.

The peak has passed. The interstate is 87 per cent complete. Appropriations for highways has begun to decrease. What is in store, as evidenced by the planning requirements of the 1962 Highway Act and the increasing diversity of allowable applications of Trust Fund money by the 1970, 1973, and 1974 Highway Acts, for the future is a less concentrated, more general, integrated transportation policy. .

Bibliography

“Highways to Nowhere” by Richard Hebert, 1972.

“Mankind on the Move” by Christy Borth, 1969.

“Transportation Geography” by Michael Hurst, 1974.

“Future Highways and Urban Growth” by Wilbur Smith and Associates, 2/61.

“American Highway Policy” by Charles L. Dearing, 1941.

“Road to Ruin” by A.Q. Mowbray, 1969.

“Transportation Century” by George Mott, 1966.

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“The Urban Economies, 1985” by Curtis C. Harris, Jr., 1973.

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“Social and Economic Effects of Highways” by the Socio Economic Studies Division, Office of Program and Policy Planning, FHWA, U.S. DOT, 1974; and the 1975 Supplement Thereto

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“Regional Decision Making: New Strategies for Substate Districts”. Volume I of Substate Regionalism and the Federal System, October, 1973, by the Advisory Commission on Intergovernmental Relations.

“The History and Development of Road Building in the United States” by. Thomas H. MacDonald, October 6, 1926, paper #16-85, A.S.C.E. Transactions.

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-by The Office of the Federal Register, National Archives and Records Service, Governor Services Administration.

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“Federal-Aid Highway Project Procedures” 9/18/74, FHWA,U.S. DOT.

“New ederal Funds for Rural Roads – The Off-System Federal-Aid Highway. Program” 5/75,” FHWA, U.S. DOT.

“The Federal-Aid Highway Program and Federal-State ; Relation ship” 1/75, FHWA, U.S. DOT.

“The- Administration of Federal-Aid for Highways” 1/57,by The Bureau of Public Roads, U.S. Department of Commerce. “Acquiring Your Real Property for Federal-Aid Highways” 8/75 Office of Right-of-Way, FHWA, U.S. DOT.

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“The American Nation” 1965, by Hicks, Mowry, and Burke.

“The Policy Setting: Analysis of Federal-Aid Policy Alternatives” by Richard P. Nathan, Brookings Institute for the U. S. Congress Joint Economic Committee.

“The Highway Trust Fund” 5/69, The American Road Builder, by E. M. Cope (Chief, Highway Statistics Division, Bureau of Public Roads).

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“Pending Legislation Affecting Federal-Aid Highway Programs” 11/?5, APWA Reporter, by Daniel J. Hanson, Sr. (Executive Vice President, American Road Builders Association). .

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Long Distance Telephone interviews

11/6 Management Information Systems, FHWA

11/6 John Sharp, Program Coordinator for Historical Development, FHWA

11/6 Mr. Burdell, Chief of Federal-Aid Division, FHWA

11/6 Richard Wineburg (an Aide to Mr. Burdell)

11/6 DOT Library Information Desk

11/6 Mr. Maloney, Part-Time Historical Consultant, FHWA

11/6 Mrs. Feldman, Public Affairs Office, FHWA

11/6 Mr, Highland, Public Affairs office, FHWA

11/7 Mrs. Ritter, Works for Mr. Maloney

11/10 Dr. Suelleri Hoy, Executive Secretary of American Public Works Association Bicentennial Commission

12/1 Ellis Armstrong, Chairman, APWA Bicentennial Commission

12/9 Mr. Moss, Legislative Aide for Representative Goodloe E. Byron

By Dennis Polhill

INTRODUCTION

Federalism is a Constitutional Division of Authority and Functions between National and State Governments. Traditionally government policies particularly with respect to Federal Aid have attempt ed to conform with the rigid Constitutional Division of responsibilities. Until recent years, what Federal Aid existed, was applied primarily for educational purposes’. At various periods in History, it can be observed how attitudes of the time influenced the development of Federal Aid as _ contrasted with Traditional Federalism. The term “New Federalism” implies a dynamic, ever-changing relationship between the various levels of government. The existence of a “New Federalism” is a matter-of- ‘ fact which is evidenced by the enormous increase in Federal Aid in recent years. The question which remains is not whether or not it will be, but rather what form will it take. Revenue Sharing is just one of the “New Federalism” alternatives.

HISTORY OF FEDERAL AID

The History of Federal Aid goes back to pre-Constitutional Times. Under the Northwest Ordinance unconditional land grants were provided to the States for educational and internal improvements. In 1837 (Andrew Jackson) distributed, again unconditionally, a Federal Budget Surplus of five million dollars to the States proportioned to the states Congressional representation. This was the only program in American History that even begins to approximate what is known as Revenue Sharing today.

In 1862 Congress passed the Morrill Act which provided for land grants to the States to be used specifically for land-grant colleges. This Act is historic in that it defined the objectives to be met and outlined conditions for participation and supervisory procedures. The second Morrill Act, passed in 1890, provided cash payments annually to the States for the same purpose.

Until World War I most of the new programs were for Agriculture: 1887, Agriculture Experiment Stations; 1911, Forest Fire Protection; 1914, Agriculture Extension Work. The Forest Fire Protection Program required Federal approval of a State submitted plan and continued Federal inspection. These features have remained as key features of virtually all Federal Aids.

The World War I period was important in that new Federal Grants-in-Aid were initiated for Public Health, for Vocational Education, and for Highways. Following the war no new programs were enacted even though existing programs were continued and in some cases expanded.

Emphasis was placed on initiative at the State level, the Traditional Federalism. Several States adopted Social Legislation that was later used as a basis for new federal programs.

The Depression brought an explosion of new Federal Aids involving,

1) Precise definition of aided areas

2) The requirement of State plans in conformance with Federal Standards

3) State matching of Federal funds

4) The review and audit of aided programs by the relevant Federal Agency.

Some of the major new programs were: 1933, School Lunch Program; 1935, Old-age Assistance; 1935, Aid to Dependent Children; 1935, Aid to the Blind; 1935, Services for Crippled Children; 1935, General Health; and 1937, Low-Rent Housing. Many of these programs were interrupted during World War II but reinitiated in the post war period in 1953 the Eisenhower. Administration took office with a goal to make basic changes in the scope and character of Federal Aid Programs. The Commission on Intergovernmental Relations (Kestnbaum Commission) issued its report in 1955.

“The grants widest use has been in stimulating the States to launch or expand services for which State and Local Governments are generally regarded as primarily responsible. National Funds and Leader ship have stimulated State and Local activity in Agricultural Education and Research, Welfare Services, Public Health Services and Vocational Education, to site some prominent examples. In some of these fields the States or Localities had already made a start before the grant was made. Generally, though not always, the grants have produced notable spurts in State and Local Action, and the proportion of State and Local expenditures to Federal Aid-has shown a steady and substantial overall increase”.

In 1957 and 1958 the Eisenhower Administration’s Joint Federal-State Action Committee attempted unsuccessfully to eliminate certain Federal grants-in-aid in exchange for steps to turn over a compensating amount of Federal Revenues to the States. Despite Eisenhower’s efforts, Federal Aid Expenditures tripled to $7.3 billion over his Administration 1953 – 1961.

Under Kennedy and Johnson major new Federal Aid Programs have been established in Education, Antipoverty, Manpower Training, Mass Transportation, Mental Health, Air and Water Pollution Control and Aid to the Arts. Federal Aid has risen to $17 billion in 1968.

FEDERAL AID ALTERNATIVES

According to Richard Nathan who prepared the report “The

Policy Setting: Analysis of Post-Vietnam Federal Aid Policy Alternatives” for the U. S. Congress Joint Economic Committee, there are five major Federal Aid Alternatives:

A) Continued reliance on existing types of Federal Aid Programs
B) Revenue Sharing
C) Federal Tax Credit
D) Model Cities
E) Regional Aid Approach

A brief explanation of the five alternatives follows:

A) Continued reliance on existing types of Federal Aid Programs

As can be seen by the trends indicated under “History of Federal Aid”, Federal Aid traditionally has been restricted to categorical type programs. These can be subdivided into four types.

1) Narrowly Defined Formula-type Grants. These include formula-type grants for very specific purposes within major expenditure areas.
2) Highways and Public Assistance. These are formula-type grants for broad areas.
3) Broadly Defined Formula-type Grants. Aid is given to major functional areas with relatively few strings attached. This type of Traditional Aid most closely approximates the Revenue Sharing ideas. The Pre-Civil War grants and the Elementary and Secondary Education Act of 1965 fall into this class.
4) Project Aid. The use of project grants has in-creased in recent years. Project grants are used more at the local level while the various Formula type grants are primarily aids to the State level.

B) Revenue Sharing (Tax Sharing)

Revenue Sharing is the redistribution of Federal Tax Revenues back to various State and Local Governments with a minimum of restrictions.

C) Federal Tax Credit

This is intended to accomplish the same purpose as Revenue Sharing, shift power through money from the Federal Government to the State and Local Governments. The mechanism is to allow a tax credit rather than a deduction to the taxpayer. In other words, a percentage of Federal Income Tax would be credited against an individuals State Income Tax. This approach is favored by the U. S. Advisory Commission on Intergovernmental Relations and the Committee for Economic Development. If implemented tax credit would stimulate states to rely more heavily on income taxation. Much could be discussed on the question of tax credit but it is beyond the scope of this paper to deal with the subject in more detail.

D) Model Cities

On January 16, 1966, President Johnson in a message to Congress recommended a $2.3 billion, 6-year “Demonstration Cities Program that will offer qualifying cities of a11 sizes the promise of a new life for their people”. The Federal Government would provide financial assistance under existing Urban Aid Programs, plus 90% of the cost of planning and development; special supple-mental grants of 80% of the total non-federal contributions required from projects under existing grant-in-aid programs; federal grants for relocation of families and businesses; and technical assistance to help carry out the program. On March 2, 1966, Mayor Jerome P. Cavanagh of Detroit, testified before the Housing Subcommittee of the House on behalf of the National League of Cities and the U. S. Conference of Mayors, “we should recognize that $2.3 billion is a start and nothing more.” The National Housing Conference and the National Association of Housing and Redevelopment Officials also questioned the adequacy of $400 million per year. In November of 1967 the program was enacted. In the June 11, 1975 Cumberland Evening Times, the Associated Press reported that of the only fourteen model cities nearly all were in serious financial difficulty.

E) Regional Aid Approach

Funds would go to regions on a basis patterned after the Appalachia Regional Economic Development Program enacted in 1965.

REVENUE SHARING – BACKGROUND

On October 20, 1972, President Nixon signed into law the “State and Local Fiscal Assistance Act of 1972”. Passage of this measure is the result of conservative efforts, in the light of the “New Federalism”, to attempt to redistribute power to State and Local Governments. Federal Aid prior to the Civil War resembled Revenue Sharing but was not enacted with this purpose in mind. This end was first eluded to by President Eisenhower’s Commission on Intergovernmental Relations (the Kestnbaum Commission) in 1955. The subsequently appointed Joint Federal-State Action Committee was unsuccessful at attempts to enact Legislation in 1957 and 1958. In Congress even Conservatives were reluctant to separate the taxing responsibility from the spending “FUN”.

In the Spring of 1964 Walter Heller, Chairman of the President’s Council of Economic Advisors introduced the Heller Plan to President Johnson. The Heller Plan recommended supplemental General Aid to the States with no conditions attached. In a speech on May 22, 1964, Johnson called for “New Concepts of Cooperation, a ‘Creative Federalism’.” In the early Fall of 1964 the Pechman Task Force reported to the President. Recommendations conformed with those of Heller with the exception of a few broad conditions to be placed on Aid. Pechman also suggested the use of tax effort and per capita income factors along with population in the distribution formula. President Johnson was very much in favor of the Heller-Pechman Proposals. During the end of the Presidential Campaign, October 28, 1964, the White House issued a Presidential Statement, “Intensive Study is Now Being Given to Methods of Channeling Federal Revenues to States and Localities”. The same day an outline of the Pechman Task Force Report appeared on page one of the New York Times; strong opposition arose from labor groups and federal officials. In mid December 1964, the President called a halt to speculation about the plan. In the 89th Congress twenty-five Representatives introduced various forms of Tax Sharing Legislation. In the 90th Congress fifty-nine House Bills and twenty-nine Senate Bills were introduced. A December 1966 Gallup Poll indicated that 70% of the American People favored a 3% distribution of Federal Revenues to States and Local Governments.

In 1969 Nixon took office. His position was one very favorable to Revenue Sharing. By February of 1972 discussion of the Mills Plan vs. the Nixon Plan was in progress. Compromise prevailed. The House passed a Revenue Sharing Bill on June 22, 1972 by a 274 – 122 vote. Senate was not satisfied with the plan and amended the House Bill. The Senate Finance Committee approved the bill on August 16, 1972. Nixon signed the Legislation into Law on October 20, 1972,

REVENUE SHARING – DESCRIPTION

The “State and Local Fiscal Assistance Act of 1972” (P.L. 92-512) provides for the distribution of $30.2 billion over five years to 38,750 State and Local Governments with relatively few restrictions. In 1972 $5.3 billion was to be distributed ($25.47/capita nation-wide). The distribution formula is based on population, per capita income and Adjusted Tax Effort (ATE). State distributions are:

One-third State Government and
Two-thirds Local Governments as per formula

The act is administered by the Office of Revenue Sharing (Graham W. Watt, Director) under the Department of the Treasury. The function of the office is to maintain accurate formula data, calculate and disburse payments and audit usage of funds for applicable compliance.

REVENUE SHARING – ALLOCATION PROCEDURE

State allotments are calculated by the Senate th’ree-factor formula and the House five-factor formula for each State. The higher figure is used and a11 States are scaled down proportionately to meet the allocation amount. Alaska and Hawaii are allowed an adjustment factor, 25% and 15% respectively. Within each State the State Government gets one-third. Counties (geographic, not political) receive a pro-portion of the remaining two-thirds based on population, A.T.E., and P.C.I. up to 145% but not less than 20% of the statewide per capita . entitlement. From the county portion, Indians and Alaskan natives receive a share on the basis of population; all townships receive a proportion equal to the proportion of township A.T.E. As compared to the total A. T.E. within the county; similarly for county governments; the remaining portion is for other units of local government. The division of funds among townships is done on the basis. of population, A.T.E. and P.C.I. up to 1451 but not less than 207. of the applicable per capita rate. Similarly for other units of local government. Only three of the five categories of local government are eligible: Counties, Townships and Municipalities, Special Districts and School Districts do not receive General Revenue Sharing Funds. ‘

REVENUE SHARING – USE OF FUNDS

Revenue Sharing may be used to pay operating and maintenance costs in any “Priority Expenditure Categories”: Public Safety (Police, Courts, Corrections, Crime Prevention, Fire Protection, Civil Defense, Inspection of Buildings, Plumbing, Electrical Facilities, Gas Lines, Boilers and Elevators); Environmental Protection (Smoke Regulations, Inspection of Water Supply, Sanitary Engineering, Collection, Refuse Disposal or Waste Recycling); Public Transportation (Highways, Bridges, Streets, Grade Crossings, Snow and Ice Removal, Transit Systems); Health, Recreation, Libraries, Social _.Services (Food, Clothing, Shelter, Daycare, Job Training); Financial Administration (Accounting, Auditing, Budgeting, Investing, Tax Collection, Fiscal Affairs). General . administrative costs such as the Chief Executive’s salary is not permissible. The act specifies that any ordinary and necessary capital expenditure authorized by State and Local Law is an appropriate use of General Revenue Sharing Funds. Budgeting, appropriation and use must meet State and Local Law requirements regarding use of a recipient’s own revenue. Revenue Sharing dollars may not be used to obtain federal matching funds. Recipients must observe nondiscrimination and labor standards. Money must be used, obligated or appropriated within twenty-four months of the end of the entitlement period. Funds transferred to private agencies or other units of government are still subject to a11 restrictions of the act.

A planned use report must be filed in the Office of Revenue Sharing prior to the beginning of each entitlement period. An actual use report must be filed by September 1, of each year. Both reports must be published.

REVENUE SHARING – IN ACTION

Prior to the release of the first entitlement – following is a list of anticipated Revenue Sharing Applications.

JURISDICTION EXPECTED HIGH PRIORITY USE
California Cut Income Tax
San Francisco Equipment for Municipal Railway
Los Angeles Eliminate Budget Deficit
Ontario, California Eliminate Budget Deficit
Oregon Reduce Property Tax
Portland Public Works, Fire Stations, Recreation
Multnomah County Restore Previously Cut Services
New Mexico Education, Law Enforcement, Environmental Improvement and Economic Development
Oklahoma Education
Michigan General Fund
Detroit Forestall Additional Cuts in Services
Illinois Freeze Property Tax, Education
Wisconsin Reduce Property Tax
Milwaukee Prevent Additional Tax Increases
North Carolina General Fund
New York Balance Budget
New York City General Support of the City Budget
White Plains, New York Forestall Tax Increase
Mobile, Alabama Fire and Police Equipment
Atlanta, Georgia Salary Increases, More Police & Fire
Houston, Texas Public Works: Streets, Water, Sewe
Pine Bluff, Arkansas Public Works
Phoenix, Arizona Public Works: Streets and Sewers
Waterloo, Iowa Reduce Proposed Tax Increase
Lima, Ohio Capital Projects
Montana Capital Improvements
Mississippi Capital Improvements

During entitlement period 4 (July 1, 1973 – June 30, 1974) actual use as a percentage of all Revenue Sharing Funds distributed was as follows:

Public Safety 23%
Education 21%
Public Transportation 15%
Multi-purpose General Government 10%
Health 7%
Environmental Protection 7%
Recreation 5%
Social Services for Poor and Aged 4%
Other Uses 4%
Financial Administration 2%
Libraries 1%
Housing/Community Development 1%
Corrections Under 1%
Economic Development Under 1%
Social Development Under 1%

The actual use reports for entitlement periods 1, 2 and 3 and the planned used reports for entitlement period 5 indicate the same general distribution. The State level spending is: 52% on primary and secondary education, 8% on public transportation, 7% on health, 7% on multi-purpose general government and 6% on social services for the poor or aged. Local governments spend 36% on public safety, 19% on public transportation, 11% on general government, 11% on environmental protection, 7% on health and 7% on recreation. On a regional basis there are no significant variations in the above distributions. Of both State and Local Governments, 84% reported that Revenue Sharing had enabled them to avoid incurring new indebtedness, or reduced the level of new indebtedness.

APPRAISAL

Revenue Sharing was a God-Send to Local Government. Even though it amounts to little more than 3% of State and Local Government Expenditures, it has at least temporarily forestalled an impending financial crisis. For some, like New York City, Revenue Sharing came too late with too little. New York City has a debt of over $14 billion today. The development of the crisis situation could only result in the inevitable termination of Local government as an autonomous governing body. That is to say, Local government would either be drawn gradually (as the trend has been in the past) or be forced catastrophically be-coming some type of subsidiary of the federal bureaucracy. Improved transportation, communication and mechanized warfare have necessitated a trend toward more centralized government. Centralized government also allows more efficient administration of certain public services such as Social Security. Therefore, I personally feel that a trend back to Traditional Federalism is not realistic and not in the best interest of the Nation. But, I also feel that Local government should be a part of our government. Categorical type Federal Aid serves the interests of the federal bureaucracy and, therefore, is not an answer to preserving the system. Revenue Sharing seems to be the right idea but changes will be necessary. The problem with changes at this time is that all indications are that potential changes will not be improvements. The ink was barely dry on the Act in 1972 when the Chairman of the House Appropriations Committee was calling for amending legislation to impose supervisory controls.

His point has been proven to be well taken. A 12-member committee of the National Academy of Sciences and the National Academy of Engineers recently concluded, “Local Governments and Agencies lack the planning and management personnel and capabilities necessary to meet decision-making responsibilities imposed by Revenue Sharing”. It cannot be denied that this problem exists. The mistake, however, is that every-one seems to be jumping to the conclusion that it is in everyone’s best interest to impose restrictions. If Revenue Sharing becomes categorical or “big brother” provides necessary management services, the program becomes just another extension of the federal bureaucracy and local government will never be able to develop self-reliance.

Where the First $5 Billion in “Sharing” Goes

Planned Use Report, Actual Use Report

BIBLIOGRAPHY

1. Readings on State and Local Government Edited by Irwin N. Gertzog 1970 — Prentice-Hall, Inc.

2. The Politics and Economics of State-Local Finance by L. L. Ecker-Racz Prentice-Hall, Inc. — 1970

3. Financing State and Local Governments by James A. Maxwell 1966 — Brookings Institution

4. The New Federalism by Michael D. Reagan 1972 — Oxford University Press

5. General Revenue Sharing – Reported Uses 1973-74 Office of Revenue Sharing 1975

6. What is General Revenue Sharing Office of Revenue Sharing 1973

7. A Fiscal Program for a Balanced Federalism Committee for Economic Development 1967

8. Federal Revenue Sharing A New Appraisal The Tax Foundation 1969

9. One Year of Letter Rulings on General Revenue Sharing: A Digest Office of Revenue Sharing 1973

10. Legislative Analysis, Federal Revenue Sharing American Enterprise Institute 1967

11. Revenues, March 1975 Office of Revenue Sharing

12. Getting Involved, Your Guide to General Revenue Sharing Office of Revenue Sharing March 1974

13. General Revenue Sharing, Data Definitions for Allocations to to Local Governments Office of Revenue Sharing 1975

14. Regulations Governing the Payment of Entitlements Under Title I of the State and Local Fiscal Assistance Act of 1972 Office of Revenue Sharing 1973

15. State and Local Government by Russell W. Maddox and Robert F. Foquay 1975 — D. Van Nostrand Company

16. – The American City, June 1975 Unions Want National Urban Policy, Too P. 50

17. A.P.W.A. Reporter, February 1974 Revenue Sharing and Public Works P. 14

18. The American City, September 1974 Local Governments Can’t Handle Revenue Sharing, Report Concludes P. 108

19. Professional Engineer, February 1975 Innovative Technology and the Cities: A Marriage as Yet Unconsummated P. 16

20. The American City, May 1975 Cities Face Huge Fiscal Gaps P. 26

21. Politics in States and Communities by Thomas R. Dye 1973 — Prentice-Hall, Inc. P. 59 – 60 –P. 536 – 538

22. The American City, January 1973 Revenue Sharing Funds – How Do Cities Plan to Use Them? P. 12

23. Municipal Maryland, December 1972 Uses of Revenue Sharing

24. Nation’s Cities, October 1972 The Future of Revenue Sharing P. 4

25. Nation’s Cities, October 1972 Revenue Sharing Becoming Law P. 5

26. Nation’s Cities, October 1972 Provisions of the State and Local Fiscal Assistance Act of 1972 P. 8

27. Nation’s Cities, October 1972 Revenue Sharings New Data Needs P. 11

28. Municipal Finance Officers Association Newsletter, March 1, 1973 Revenue Sharing Regulations Released

29. Department of Treasury’s Interim Revenue Sharing Guidelines

30. Washington Report for State Legislators, September 21, 1972 Outline of General Revenue Sharing Bill (H.R. 14370)

31. Washington Analysis (National League of Cities) September 1972 General Revenue Sharing as Agreed to by Conferees

32. M.F.O.A. Newsletter, April 1, 1971 Special Federal Revenue Sharing

33. The American City, November 1974 Free Bus Service Increases Retail Sales P. 19

34. T.A.C., November 1974 Bill Would Extend Revenue Sharing P. 32

35. T.A.C., March 1974 Act Now to Preserve Tax-Exempt Municipal Bonds P. 108

36. T. A.C., January 1975 Revenue Sharing Reenactment is Top Priority for I.C.M.A. P. 61

37. T.A.C., March 1973 Revenue Sharing Could Shrink Bond Market P. 28

38. T.A.C., May 1972 Look Before You Leap to New Tax Source P. 37

39. T.A.C., October 1973 How California Cities Will Use Revenue Sharing P. 110

40. T.A.C., November 1971 Doubts Expressed About Revenue Sharing P. 16

41. The Policy Setting: Analysis of Post-Vietnam Federal Aid Policy Alternatives by Richard P. Nathan Brookings Institute for the U. S. Congress Joint Economic Committee

42. Public Works, February 1974 Revenue Sharing Uses Take Form P. 7

43. Letter Appointing Federal Members of the Joint Federal-State Action Committee, July 20, 1957 by Dwight D. Eisenhower From Public Papers of the Presidents P. 562

44. T.A.C., August 1974 Revenue Sharing to be Pushed P. 6

45. Lyndon B. Johnson: The Exercise of Power by Rowland Evans and Robert Novak The New American Library — 1966 P. 501

46. U.S. News & World Report, February 21, 1972 Tax Sharing: Mills Plan vs. Nixon’s P.151

47. U. S. News & World Report, October 9, 1972 It Is Official: Who Gets What From Revenue Sharing P. 94

48. U.S. News & World Report, July 3, 1972 Revenue Sharing: Who’d Get What P. 46

49. U.S. News & World Report, August 28, 1972 Revenue Sharing’s Chance P. 68

50. U.S. News & World Report, October 2, 1972 Revenue Sharing – Where the Billions Will Go P. 20

51. T.A.C., December 1972 House Appropriations Chairman Seeks More Control Over Revenue Sharing P. 10

52. Many other Newspaper and Magazine articles and Letters too numerous to list

NOTE: T.A.C. – abbreviated for (The American City)