Dennis Polhill

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).

Dennis contributed several parts to the Independence Institute’s 1995 Book “Colorado in the Balance.”

1. Transportation and Infrastructure
2. The Colorado Department of Transportation
3. Financing Transportation
4. Colorado Highway Maintenance
5. Water Policy
6. Population Growth and Development
7. Providing Definition to Privatization
8. Unfair Government Competition with Small Business

by Dennis Polhill & Stephen Mueller

Action Agenda

Principles

• There is no impending catastrophe in the economy, in the environment, in technology, or in the availability of resources that will force society to give up the freedom of automobile and truck transportation.
• The evolution of technology will generally augment the freedom and wealth of people. Pertinent examples of this new technology include the information highway, electric cars, and “Intelligent Vehicle Highway Systems (IVHS).” Free market mechanisms such as congestion pricing and weight-distance highway user fees can be used to help implement these new technologies.
• Transportation is fundamentally a private good, because the benefits accrue to the individual using the service, not to society. Thus, it is inappropriate for government to subsidize transportation.

Transportation Finance

• The priority order for using Highway User Tax Fund (HLTTF) revenues should be:
  1. Preservation of the existing system.
  2. Capacity enhancement.
  3. Capacity improvement.
  4. New construction.
• The gasoline tax is a user fee that is imprecise and inadequately assigns the costs and benefits of system usage. The gas tax should be replaced or supplemented with more direct user fees such as congestion pricing, weight-distance fees, and toll roads.
• Although HUTF revenues increased significantly, the condition of Colorado’s roads has diminished. The current policy is failing to adequately to maintain Colorado’s roads and is putting the capital investment in highway infrastructure at risk. To reverse this trend and to mitigate this risk, the following HUTF operating policies should be adopted:
• “Off-the-Top” expenditures from the HUTF should be stopped. Administration of the fund should require less than I%.
• Use of HLJTF revenues by the 331 government agencies should be applied to protecting the already existing infrastructure first. That is, HUTF funds should not be used for new construction, bonded indebtedness, appurtenances, etc. when the condition of roads is declining.
• Congestion pricing and deregulation will create the market-driven incentives that increase the acceptance of carpools and vanpools. In anticipation of this new demand, a plan to develop an enlarged system of (High Occupancy Vehicles) HOV lanes should be developed.
• Improve infrastructure financing and accountability. Require local governments to establish separate funds to accept HUTF distributions. Promote dedicated financing sources for infrastructure maintenance.

Colorado Department of Transportation

• Divest CDOT of highway ownership and operation.
• Do not allow CDOT to consume and integrate RTD and other transportation providers into a bigger and more bureaucratic organization.
• Use private sector solutions, not large government programs, to help solve transportation problems. Loosening regulations designed to protect government monopolies will help provide more transportation service at lower cost. Pursue private sector funding of transportation. Employ more user fees so that the costs of services can be borne by the individual benefiting. Oppose RTD-only bus lanes that limit public access to publicly funded projects.

Highway System Operation

• Develop and implement a modern pavement management system to insure that the proper maintenance is done at the proper time at a minimum cost.
• More sophisticated systems of enhancing highway capacity should be implemented. These include traffic signal synchronization, ramp metering, and driver information systems.
• Begin planning a system of Congestion Pricing, and Intelligent Vehicle Highway Systems (IVHS). Encourage studies of other cities with IVHS in place. Conduct pilot programs on selected highways, and back the idea and launch a legislative effort to implement a market-incentives program.
• Strictly prohibit overweight vehicles on roads and/or develop a weight-distance pricing structure so that economic incentives work properly.

Mass Transit

• Stop expansion of light rail (LRT) until the viability of LRT technology can be successfully demonstrated in the Denver metro area. The MAC was sold as a demonstration project and should be used as such.
• Implement pricing systems that allow government and private transit services to operate on uncongested HOV lanes.
• Remove existing regulatory restrictions that restrict competition and restrain trade in transportation.

Air Quality

• Support carpooling programs through expanded HOV/bus lanes. Encourage use of high occupancy vehicles (HOV).
• Design and adopt an emissions pricing system. This acknowledges that there is a finite quantity of air to allocate and assigns a user fee to those who consume the limited resource. To be fair, the system must apply equally to all (including governments) and to fixed-site emission generators.

By Dennis Polhill

The U.S. Department of Transportation (DOT) was created in 1966 when numerous transportation related functions were brought together in one cabinet level department. The U.S. DOT currently consists of:

• Federal Aviation Administration (FAA)
• Federal Railroad Administration (FRA)
• Federal Highway Administration (FHWA)
• Federal Transit Administration (FTA) [formerly Urban Mass Transportation Administration (UMTA)]
• Maritime Administration
• National Highway Traffic Safety Administration (NHTSA)
• Coast Guard
• Saint Lawrence Seaway Corp.
• Research and Special Programs Administration
• Office of Commercial Space Transportation

From 1966 to the present, massive amounts of federal funds filtered through U.S. DOT, and through its respective administrations, to the 5states. It was, therefore, expedient for the states to copy the organizational model of the U.S. DOT. Colorado was one of the last states to conform. In 1991, the Colorado Department of Highways was renamed the Colorado Department of Transportation (CDOT). The only other transportation function consolidated under CDOT is the Division of Aeronautics (DOA). DOA sustained the Aeronautics Board as an oversight entity. The Aeronautics Board reports to the Transportation Commission.

Now that Colorado has positioned itself to more effectively compete with other states for federal funds, the game may no longer be the pursuit of federal funds. The passage of the Intermodal Surface Transportation Efficiency Act (ISTEA) in 1991 by
the U.S. Congress, signifies a probable end to the era of massive federal subsidies. Although ISTEA appropriations decreased only slightly in 1991, the handwriting is on the wall. ISTEA consolidates appropriations to the respective states into one intermodal pool of funds. Did Congress relinquish control of funding to give states more control or to veil the inevitable future constriction of federal appropriations to the states?

The Federal Highway Trust Fund was established in 1956 with a 2C per gallon gasoline tax in order to finance the construction of the interstate highway system. The federal gasoline tax is now at 18.3C per gallon, and the fund has been building up a surplus since about 1980. The surplus has been loaned to the general fund, which will probably never be able to repay the loan. Prospects are high that federal gasoline tax will rise even more, and that Congress will allocate less to the states for transportation. As more of the gas tax is siphoned off to finance the national debt and other programs, less money will be available to be returned to the states for transportation purposes.

If the provision of adequate transportation services is to become increasingly the responsibility of the states, then a serious look at Colorado’s sources and applications of transportation resources is appropriate and the organizational model of a centrally controlled umbrella transportation entity may or may not best serve Colorado’s future transportation needs.

The assumptions that supports the concept of a state DOT are that technological experts are integrated under one roof to facilitate communication and interaction of competing modes. Policies established by the Legislature can be more effectively implemented and enforced through a central bureaucracy. Transportation resources that may be generated disproportionately among modes can be allocated via a centrally controlled plan of priorities.

Although CDOT is primarily a highway department, personnel have been assigned to the functions of aviation, transit, and railroads. Other U.S. DOT functions are not relevant to Colorado. In Colorado, these transportation services are provided by a variety of local governments, authorities, districts, private corporations, and non-profit corporations. Is it CDOT’s destiny to gobble up these disparate providers of transportation? Or is CDOT’s role more appropriately to facilitate, oversee, communicate, and coordinate? The principle of “subsidiarity” is that “no government task should be assigned to a body larger than the smallest that can satisfactorily perform it.” Subsidiarity is merely government’s version of Tom Peters’ book, In Search of Excellence, which has served to transform corporate America. Simply stated “the enemy is size.” Large bureaucratic corporations with unwieldy overhead cannot minimize expenses and find it difficult to compete. Thus, for corporations to capture efficiencies, they must down-size. Subsidiarity says that governments should do the same.

As long as CDOT is the owner and controller of Colorado’s highways, it cannot evolve into an efficient DOT. The perspective of its people will continue to slant toward highways rather than transportation.

Subsidiarity applied to Colorado’s transportation needs suggests that CDOT is appropriate, but that its role should be limited to facilitating, overseeing, communication, planning, coordinating and possibly research, technology transfer, and finance. Government owned and controlled monopolies are suspect and should be considered prospects for divestiture, devolution, privatization, contracting out, delegation, or decentralization. The big examples include highway ownership, operation and maintenance, and mass transit. The technological limitations that caused highways and mass transit to be natural government monopolies in past generations have disappeared.

By Dennis Polhill

Few people dispute the importance of efficient transportation in an open and free society. As individuals gain in personal affluence, they willingly allocate a portion of their new wealth to increased mobility and freedom. As long as the wealth of society increases (both collectively and on a per capita basis), demand for transportation that efficiently responds to the individual needs of people will increase.

Until the creation of the gasoline tax in 1956, government was unable to respond to the demand for paved roads. The gasoline tax provided appropriate user fee financing. The access to land and the mobility that paved highways offered caused real estate to escalate in value. Free movement of goods and services provided greater access to a wider variety of options and increased market competition helped to lower costs to consumers. The direct benefit to the economy of construction of the 40,000 mile interstate highway system was at least five dollars for each dollar spent on construction. Highway construction adds value via mobility to existing economic generators. When highways are constructed where there are no preexisting economic generators, no economic development benefits result because there are no markets or resources to access. This is a reasonable test for the viability of transportation projects. If mobility and access are improved, the benefits of the project can be balanced against the costs.

The advent of the gasoline tax was simultaneous with the Federal Highway Trust Fund. As interstate highway construction progressed and the power of the gasoline tax was recognized, use of the trust fund was expanded. Federal matching share increased. Funds became more readily available for appurtenances, relocations, environmental, archeological, safety, and other project considerations. Subsequently, trust fund moneys became available for an expanded federal aid system, off-system projects, and maintenance. The trust fund has also been accessed to subsidize other transportation modes: mass transit, aviation, railroads, waterways, and bike paths. Last, but not least, the gasoline tax user fee has been accessed by Congress to finance a portion of the national debt. So the original concept of a user fee for transportation has been greatly expanded and co-opted. The gas tax has become part user fee and part tax based on consumption.

Currently the Colorado tax is $.22 per gallon and the federal tax is $.183 per gallon for a total of slightly over $.40 per gallon. If an average vehicle gets 20 miles per gallon, the user fee is $.02 per mile. However, users have a degree of control over their tax rate. Some own vehicles that get 40 miles per gallon and thus pay only $.O1 per mile user fee. Some get less than 10 miles per gallon and pay $.04 per mile user fee. Advocates of other-than-auto transportation quickly point to subsidies from other sources that go to highways. The Brookings Institution estimates these subsidies at about $22 billion per year nationwide, slightly less than $.O1 per mile. Rush hour traffic congestion points to the fact that not all vehicle-miles traveled are equal. A rush hour vehicle-mile is more valuable than a non-rush hour vehicle-mile.

Heavy vehicles do not pay their fair share of highway costs as measured by structural damage to the facility. A vehicle that weighs twice as much produces 16 times as much road damage (2 to the 4th power). Similarly, due to the fee structure, there is little incentive to avoid overloads, unbalanced loads, or to configure vehicles to mitigate damage. Conversely, truckers argue that autos do not pay their fair share of the highways since they are few compared to the many that consume the capacity of the system.

Mass transit advocates argue that highway taxes should pay for mass transit because congestion is relieved when commuters ride mass transit. Because transportation economics has been contorted by the distortions of subsidies, it is difficult to rationalize logically the role of mass transit in the entire picture. Without massive public subsidies to mass transit, it could not survive. Mass transit ridership nationwide continues to decline in spite of massive subsidies. Currently, ridership is less than 5 % of all commuters. Roughly 5 % of commuters walk to work and 15 % use carpools. It is unlikely that a system of fixed routes and fixed schedules can meet the needs of an increasingly diverse, mobile, affluent, and unconstrained population. It is, however, clear that economic distortions and subsidies to highways work to the disadvantage of viable mass transit. A public policy that subsidizes highways to the detriment of mass transit and then requires additional taxpayer subsidies to mass transit to offset the damage is not rational.

Transportation is a private good, wherein the benefits accrue primarily to an individual. Thus, transportation is a service that receives public subsidy inappropriately. Historically, it has been virtually impossible for aspects of transportation to recover their costs in user fees. However, recent technological advances make it feasible to assign the true cost of transportation services more directly to those who benefit.

The gas tax as a user fee may be inadequate and obsolete. ISTEA (the 1991 Federal Transportation Act) liberalizes the use of congestion pricing, weight-distance
fees and toll roads. As society moves in the direction of free market governance, such fees can be expected to evolve into common usage. The sooner Colorado comes to recognize the future condition, the sooner Colorado can capture the benefits that a more liberal free market approach can yield.

By Dennis Polhill

In 1986, Colorado drivers were paying a gasoline tax of $.12 per gallon. Since then, the tax has gone up 83 % to $.22. Over that same period, what has happened to the condition of our highways?

Roads have gotten progressively worse to the point where many have the look and feel of a third-world nation. By the state’s evaluation, in 1987, 18% of our roads were in “poor” condition. Five years later, in 1991, after all of that extra money was spent, had our poor roads improved? Not exactly-in fact, 42% of our roads were judged “poor.”

Colorado’s highway system is 78,043 miles long. The distribution of operation and maintenance responsibilities is:

Colorado State Department of Transportation	9,160 miles
Colorado’s 267 cities	10,725 miles
Colorado’s 63 counties	58,158 m

Colorado’s condition monitoring system is limited to a good-fair-poor visual rating performed by each of the 331 entities that share the Highway Users Trust Fund (HUTF). HUTF is funded by Colorado’s gasoline tax which is currently at $.22 per gallon – 20% above the national average state gasoline tax of $.1832 per gallon. Money drawn from HUTF is based on a formula established by the State Legislature that accounts for condition, miles, and population. Local entities have wide latitude on how to use HUTF funds, including planning, design, construction, maintenance, appurtenances, and the assumption of bonded indebtedness. The $.22 per gallon tax generates $505,900,000 per year which is currently shared: $248,100,000 to CDOT; $95,100,000 to counties; $61,000,000 to cities; and $101,700,000 to bridges, overhead, and miscellaneous.The trend in surface condition of the State highway system has not been reflective of the increased funds available.

Surface Condition

	1987	1988	1989	1992	1921
Good	42%	42%	41%	32%	21%
Fair	40%	38%	41%	40%	37%
Poor	18%	20%	18%	28%	42%

 The proportion of roads in poor condition has increased from 18 % to 42 % (a 133 % increase). The proportion of roads in good condition has decreased from 42 % to 21 % (a decrease of 50%). In other words, over twice as many roads are in the poor category and half as many roads are in the good category. In spite of the significant increase in revenues for roads, condition has plummeted. The probable cause is that the resources are not being managed efficiently.Colorado’s gasoline tax was below the national average until 1986. In 1986, it was increased 50% (from $.12 to $.18). Subsequently, the gasoline tax was raised to $.20 in 1989 and to $.22 in 1991 (roughly 10% more each time). The total increase from 1986 through 1991 was from $.12 to $.22. This $.10 increase represents an 83.3 % increase in just six years.

The idea of pavement management grew from the infrastructure crisis of the 1980s. Pavement management recognized that:

1. Limited resources are available for maintenance.
2. Pavements, like all physical facilities, deteriorate at an accelerated pace as they age.
3. Maintenance can be applied at appropriate times to extend life, sustain service levels, and reduce long term costs.
4. Computer technology and sophisticated mathematical techniques can be employed to manage massive amounts of data and seek optimal application of resources (i.e., maximum benefits for minimum cost).

The potential benefits of such management systems are enormous. Nationally about $15 billion per year is spent on maintenance. Few governments use pavement management systems; however, most experts agree that at least 50% of the $15 billion is lost due to inefficient use of resources. This, of course, is only a fraction of the total cost. Because the roads operates at lower service levels, car repair is greater; delay and travel time is greater; accident and personal injury is greater; and less comfort or service is supplied to the customer at a higher fee. The costs of all of these factors combined total several hundred dollars per capita per year.

Sophisticated management systems are most quickly adopted by the most professional and least political governments. These governments tend to be those with the shortest chronological history and the most limited bureaucracy. Thus, the most innovative governments tend to be cities with populations between 50,000 and 250,000 people. State agencies, which often must lead, cannot lead because of their entrenched decision making structure and tradition. Colorado is no exception. The Colorado Department of Transportation has been very slow to recognize the benefits of pavement management systems and to attempt to capture benefits. In recent years, CDOT has begun the regular and consistent collection of some condition data over the full extent of the CDOT portion of Colorado’s highway network. Far more work is needed to evolve this data into a full fledged management system.

Without the benefit of pavement management systems, it is very tempting to apply the cosmetic approach to highway maintenance. That is, thin overlays that make roads look new for the short term-until after the next election. Long term benefits are sacrificed. The following graph provides an understanding of pavement performance, serviceability, and the benefits of properly timed maintenance.

• Area “A” represents the service benefit of a thin overlay placed at time “A” on a pavement’s life cycle.
• Area “B” represents the service benefit of the same thin overlay placed at time “B” on a pavement’s life cycle.
• NOTE: In both cases the benefit is the relative area under the respective curve.

Since the cost of “A” and “B” are the same, it is clear that “A” is the wiser choice. “A” produces far more benefit than “B.” As the graph illustrates, pavement maintainance earlier in the pavement life cycle produce much more long-lasting road quality improvement than the same maintainance later in the pavement life cycle.

What may have happened in 1986 when more money was available for roads, pressure to show immediate results motivated a public policy of mismanagement in which resources were applied for effect rather than for results. A fully functioning pavement management system would have helped to avoid this public policy error.

The other trap that policy makers fall into when they do not have the information that pavement management systems provide, is that money is diverted from maintainance and into construction. The result is that a politician gets to cut a ribbon in the short term. In the long term user fees have been diverted to subsidize growth on the urban fringe and maintenance has been deferred and will cost more money latter.

By Dennis Polhill

Water Quantity Action Agenda

• Convert state and federal water projects to private ownership.
• The key to minimizing waste of water is to have the rights freely transferable between private owners in a free market. The owners of a water resource should bear the opportunity cost of wasting it. The approach is equally applicable to surface diversion, instream flows, and non-tributary ground water.
• Allow private rights for instream flows. Change Colorado water law so that water simply left flowing in a stream for environmental reasons becomes a legally protected use.
• Because markets are good at allocating resources, reliance on markets becomes more essential as a particular resource (water) becomes more essential.

Analysis
The availability of a reasonable quantity of good quality water is critical to the survival of human beings. The operative word is “reasonable.” Water law in the U.S. has followed two paths: riparian law and appropriation law. The 100th meridian bisects Kansas. Because of the climate of the continent (i.e. annual rainfall), states east of the 100th meridian are governed by riparian law. States west of the 100th meridian are arid in climate, have more limited water resources, and are governed by appropriation laws. The basic riparian philosophy is that there is more than enough water to go around, and everyone can have as much as they want, at any time, and for any purpose whatsoever. Appropriation law conversely treats water as a limited resource. Water is recognized as a property right. Definition of water rights is accomplished through a body of laws, a system of water courts, and a staff of state water engineers. Reasonably sophisticated free markets have evolved in appropriation states where water rights are regularly bought and sold.

The historical view that we as a culture have had of water tends to distort thinking about water. Essentially, the culture has been (even in appropriation states) to waste, to contaminate, and to throw away water. With growing population and diminishing reserves of naturally available clean water, society’s culture of free and wasteful water use will have change.

In Colorado, the old culture has stimulated much public debate and controversy-most
recently over the Two Forks Dam project. The arguments for the project are rooted in the old culture of ample cheap water-readily available to be contaminated and wasted. Sustaining the old culture is not in the best interest of society.

Colorado has ample water for domestic consumption through 2040. Market forces can be used to motivate wiser use of this valuable and limited resource. Two Forks Dam is probably unnecessary and likely will never be built. About 80% of Denver Metro peak water
consumption is used in lawn irrigation. With restricted supply and increased demand, prices will increase. Lawn irrigation systems will have the incentive to be more efficient and lawns will get smaller.

On a more global scale, about 90% of all water consumption is used in farm irrigation. Price increases will yield ample water for domestic consumption. A 10% efficiency improvement by farmers doubles the amount of water available for domestic consumption. It is estimated that a 10% increase in cost of water to farmers would be enough to motivate a consumption reduction of 1.0%.

As water becomes more valuable and more expensive, society will be less willing to throw it away. Wastewater effluents will continue to be cleaner and secondary usage of wastewater treatment plant effluents will increase, mostly for industrial and irrigation purposes.

Only 1 % of domestic water consumption is actually taken internally by human beings. Thus, if domestic water prices skyrocketed, duplicate systems with different quality standards would quickly evolve. Closed water recycling systems are not likely to become commonplace for at least 100 to 200 years because of economics, aesthetics, and abundance. Technology is not the limiting factor in the evolution of closed systems. People physically consume only 2 gallons of every 10,000 gallons that comes to the U.S.

The problems of domestic water supply are economic. As long as free markets are inhibited by government interference, availability problems and resultant environmental problems will tend to be exaggerated. A rational Colorado water public policy suggests that the State should foster, not inhibit, the evolution and operation of free market mechanisms.

by Dennis Polhill

Population
In 1940, the Denver Metro area had a population of 350,000. By 1990, it had grown to 1,900,000. This amounts to a compounded annual growth rate of 3.8%. If the Denver Metro area continues to grow at 3.8% per year, there will be a population of 4,000,000 in 2010; a population of 12,000,000 in 2040; and a population of 79,000,000 in 2090. If the growth rate declines to 2%, Denver’s population will be 2,800,000 in 2010; 5,100,000 in 2040; and 13,800,000 in 2090.

From 1980 to 1990, the Denver Metro area grew by 13.6 % or a 1.28 % compounded annual growth rate. From 1990 through 1994, Colorado’s population jumped by 11 % or 2.64 % per year. The US Census Bureau recently reported that Colorado’s growth rate of 2.9 % between July 1, 1992 and July 1, 1993 was 2.6 % . The Colorado State Demographer projects 1995 population growth to be 1.8 %.

Denver’s Economic Cycle
The last economic crash occurred in the early 1980s when oil and mining simultaneously collapsed. In the late 1980s, emigration was offset by births to yield zero population growth. When National Consumer Price Index (CPI) increases were 4 %, Colorado’s inflation was at zero for several years, motivated by a survival struggle of retail businesses. Economists agree that Denver “hit bottom” about 1988.

By 1990, it was clear that the economy was rapidly improving. Boom growth (defined as unsustainable and reflected by rapidly escalating rents, property values, employment, population, and retail sales) occurred in 1992 and 1993.

As Denver began to reach the top of the new peak, rates of growth diminished in 1994. At the end of 1994, U-Haul reported the 1 % more families had moved out than had moved into Colorado. Comparing the number of first mortgages recorded to the number 12 months earlier (to remove seasonal variations) showed a steady decline throughout 1994 (compared with 1993) with the final five months all showing negative growth and the final two months with significant negative growth (approximately 20%).

Entrepreneurial Capital
Colorado is positioned in time and in geography to become the entrepreneurial capital of the world. Some of the assets of Colorado are aerospace and defense technology, computer firms (IBM, HP, Apple), telecommunication firms, biotechnology firms, geography information systems and global positioning systems firms, an educated work force, and one of the highest new business start-up rates. The collective economic effect of these major assets should be enough to propel Colorado’s economy for the next several decades.

Realistic Planning Window
Looking back 100 years exposes the folly of attempting to plan 100 years into the future. The rapid pace that new technologies and the interaction that multiple paradigm shifts are impacting our lives is so significant that even a 50 year long range plan is impractical. It was only a decade ago that microcomputers and VCRs were becoming commonplace. Two decades ago it was photocopy machines. In the next decade, we will see the impacts of the information highway, interactive TV, holography, HDTV, genetically improved foods, new therapies to treat diseases, virtual offices, smart cards, wireless video transmitters, biodegradable plastics, E-money, voice recognition technology, electronic shopping, and explosion of economic wealth in far off parts of the world. The result will be a lifestyle of increased freedom and increased economic affluence for most people. How does all of this add up so as to yield a reasonable guess of what the world will look like in 20, 30, or 50 years? What are likely to be the burdens on and shape of the infrastructure?

Population Density
The conventional wisdom that the Denver Metro area population will be 3,000,000 in 2020 and 4,000,000 in 2045 is reasonable.

The population densities of today are the product of dramatic 20th century innovations in transportation and communication. Those who influence public policy appear generally of two opposing minds. One philosophy is that current densities are too low and public tax subsidies should be used to influence higher density. The other philosophy is that current densities are desirable and public tax subsidies should be used to facilitate more of the same. The result is a schizophrenic public policy that in one instance tries to encourage high density growth and in another instance tries to encourage low density growth, both via public tax subsidies. In some cases the same advocates insist on tax dollars to build light rail and in the same breath insist on more tax money for open space that makes light rail less viable. Is there any way to give these folks what they want when it seems that they themselves do not know what they want? Could it be that they want it both ways?

Development Fees
For over a decade the people have demanded more user fees. Policy makers have failed to comprehend the deep meaning of this demand. Aside from more and higher permit fees, plan review fees, photocopy fees, map sales fees, and the like, little has been done.
Colorado has 3,500,000 people living on 103,598 square miles for an overall density of 33.8 people per square mile. The six county Denver Metro area has a density of 411 people per square mile (12/29/94 Rocky Mountain News). Lakewood, representing what is typically perceived to be normal urban density, has about 130,000 people living on about 40 square miles or about 3250 people per square mile. On the average this density is 5 people per acre or 2 dwelling units per acre. Since most homes are on quarter acre lots, the difference is accounted for by park lands, schools, shopping centers, office buildings, rights of way for streets and utilities, and undeveloped parcels.

Undeveloped and underdeveloped parcels create a social cost in terms of public services. A vacant lot has access to a street, sidewalk, water line, sewer line, telephone line, electric line, gas line, drainage, and other facilities. The vacant lot does not experience the capital cost, the maintenance cost, or the operating cost of these facilities. Since the proportional costs are not recovered from the vacant lot, other taxpayers must make up the shortfall. Since it is impossible to enlarge facilities (telephone lines, streets, etc.) incrementally each time an infill lot is built on, the facilities must be sized and constructed under the assumption of full development. Until an area is fully developed, the balance of the community financially supports the undeveloped land. Until a pricing system is developed that fairly assigns construction and carrying costs of infrastructure to undeveloped and underdeveloped land, taxpayer dollars are being used to subsidize individual properties, to reduce density and to increase building on the suburban fringe. Properly assessed infrastructure costs not only would encourage infill development but fringe development would occur more completely and consistently. A barrier to such fees is that suburban cities are competing with each other for growth. Fair or unsubsidized pricing systems would tend to divert growth to other cities.

Similar subsidies occur when cities, counties, and utilities extend infrastructure at less than cost to new development. Every 2000 dwelling units constructed generates a need for one additional elementary school. If those 2000 homes do not bear the cost of the school, then all taxpayers must bear the cost collectively. But didn’t the pre-existing 2000 homes already pay for the pre-existing elementary school that they use? It is similarly true for fire stations, police stations, snow plows, sewage treatment plants, extra pavement lanes and thickness, traffic signals, libraries, telephone switching stations, electric transforming terminals, and so on. If the marginal costs of social facilities are assigned to new development through appropriate impact fees, the cost of development is higher and for a project to be viable the economics must shift. The end result of ending development subsidies is that urban densities will increase, housing costs will increase, much more infill development will occur; infrastructure will be used more efficiently, yielding economies to governments in their operating budgets, and lower property taxes.

Population Distribution in 2020
The disparity of densities serves to illustrate the inefficiency with which society elects to use its land and infrastructure resources. Typical suburban density is 3250 people per square mile. Yet, the six county Metro average density is 411. If the 6 county urban area was fully built up to typical suburban density (3250 people per square mile), them it could house over 14.5 million people. At city of Denver density (nearly 7000 people per square mile) over 31 million people could be housed.

Because it costs more to build taller buildings, the height of building reflects the value of the land on which it is built. Thus, planners have discovered that core city skylines tend to approximate 3 dimensional normal probability distributions.

Aberrations occur where cities are adjacent to rivers, lakes, oceans, mountains, major highways or other physical barriers. These distributions can be visualized as similar in shape to a World War I army helmet.

The removal of subsidies to fringe development would tend to normalize economic forces and elevate the value of land in the core city and developed suburbs. The army helmet would in effect be raised slightly. A 10% density increase by 2020 in the core city and developed suburbs could accommodate 150,000 people (15 % of expected population growth in Colorado).

The remaining additional 850,000 population growth can be accommodated by additional developed suburbs (about 240 square miles) or by increased density in the urban-rural fringe (from 160 to 360 people per square mile). The third option is that population will spill out beyond the boundary of the 6 county metro area. If the 850,000 fall into the three categories equally, developed suburbs will increase by nearly 80 square miles; the current suburban-rural fringe of about 160 people per square mile will consume 1800 square miles (1.7% of Colorado’s land.)

Air Quality
The “brown cloud” will continue to decrease. By 2010 deicing sand will be replaced by more expensive and environmentally neutral chemicals. By 2000, 2 % of automobiles will be electric powered. Other clean fuels (such as propane, compressed natural gas, and alcohol) already in use will become more popular. Catalytic converter technology will make even more significant impacts in auto emissions. The older autos that compose 10% of Denver’s 2,000,000 automobiles and generate about 60% of Denver’s bad air problem will be essentially retired by 2005. The development of hydrogen as a clean burning fuel source for automobiles will likely never reach the market as it will be unnecessary and ultimately yield to less expensive options.

Water Quantity
Colorado has ample water for domestic consumption through 2045. Market forces can be used to motivate wiser use of this valuable and limited resource. About 80% of the Denver Metro peak water consumption is used in lawn irrigation. With restricted supply and increased demand, price will increase. Lawn irrigation systems will have the incentive to be more efficient and lawns will get smaller. As water becomes more valuable and more expensive, society will be less willing to throw it away. Wastewater effluents will continue to be cleaner and secondary usage will increase, mostly for industrial and irrigation purposes.

Highway Transportation
Since densities will not change significantly (less than 20%), the local carrying capacity of the existing infrastructure is generally adequate through 2045. Most residential streets and parking areas can accommodate a 20% increase without any significant change to capacity, structure, or geometrics. Arterial streets and highways will have to be the focus of highway managers. About 80% of suburban arterioles can either accommodate a 20% increase as is, or with attention to “bottle necks” in the system (intersections, interchanges, bridges, tunnels, signal coordination, curb cuts, and parking configurations). Only 20% of suburban arterioles will require significant capacity increases in the form of lane additions. A somewhat greater capacity increase will be needed on core city arterioles.

Telecommuting
Telecommuting will grow along with use of the information highway. More people will work at home, but more importantly, telecommuting will facilitate the evolution of “virtual offices” (people can work anywhere) and “flexplaces” (shared office space with personal lockers, some people will have several strategically located). Coupled with more flexible working parameters, such technologies will have significant impact on the need for infrastructure. Because people can travel during off-peak time, the underutilized off-peak highway capacity will be used more efficiently. When a highway has to be sized to accommodate an 8:00 am and 5:00 pin rush hour, it must be twice as big as it needs to be 80% of the time.

Rapid Transit
With a top speed of 55 miles per hour, light rail can never evolve to fill society’s need for rapid transit. Rapid transit is a train that travels from 100 to 200 miles per hour. It will evolve as a viable transportation alternative between population centers of medium range distance (60 to 200 miles). Rights of way should be reserved along interstate highways for future implementation of rapid transit. The route that will become economically viable first is Denver to Colorado Springs and Pueblo, followed shortly by Denver and Ft. Collins to Cheyenne. Commuters, shoppers, tourists, and sport fans will use it. The Denver – Colorado Springs trip would take 20 minutes. The train may be underground or elevated, may be in a tube, and may be magnetically levitated. Rapid Transit is not expected to become economically feasible before 2045.

Power Systems
Recent technology has been generally stagnant. Power plants using heat engine technology have been at practical maximum efficiency of about 30% for some time. By 2010 there will be new technological approaches in geothermal, wind power, propane, and natural gas. Super-thin films will make solar energy cost-competitive. Room temperature superconductors will reduce power-transmission losses. Cold fusion may even become a reality.

On the low tech side, deregulation of power utilities will foster price and service competition. One predictable result will be rate structures that charge less for power used off-peak demand. So folks who can program their computer to run their refrigerator or recharge the automobile at the right time will save money. Of course, power storage technology will continue to make giant leaps

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.

Term Limits Don’t Be Fooled

For United We Stand America, 1995

By Dennis Polhill

Term Limits threatens the status quo of the elected elite in both parties in Congress. This issue, more than any other, crystallizes the cultural difference between elected officials of both parties and the people. Term limits is the issue that proves that elected Republicans are as hypocritical as elected Democrats.

Witness also the impassioned conflicts between freshmen and veterans. The freshmen are more in touch with the people. The veterans more convinced of their indispensability. This is more evidence that tenure in Washington tends to co-opt and enculturate. Term limits is about changing the culture of careerism. Nothing more, nothing less. The Republicans are wrong in thinking that the people will be less zealous for term limits now that the “right” deeds are being done by the “right” folks.

As proud and determined term limit advocates, we recognize the system as fundamentally flawed, not the people. Thus, the cure is not so much to change individuals, as to insist on basic structural changes to the system. UWSA’s contribution in framing the scope of the “Contract with America” and facilitating the Republican take over of both Houses is an enormous and commendable achievement. We do not object to Republicans riding the term limit issue to win elections, but we will not tolerate betrayal! Republicans be warned.

On March 29, all four proposed constitutional amendments on term limits died in the U.S. House. First, they voted among the four; then, the one with the most votes was voted Yes or No. This allowed virtually everyone in the House to vote “Yes” on a term limit bill (good rhetoric for the next election) with full confidence that none would pass. The least hypocritical, but most out of touch with their constituents are Rep. Hefley and Rep. Skaggs. They voted “No” across the board. The least restrictive of the four was the most popular (WHAT A SHOCK!). It allowed 12 years, a two year sabbatical, 12 more years, etc. and would have overturned term limits laws already passed in 22 states. Translation: 36 years or service was allowed in 40 years or 24 years was allowed in 26. Because the people are winning the battle, we do not have to accept just any version of term limits that Congress chooses to allow. It is good that this failed. It did not satisfy the fundamental test, “will this change the culture of careerism?” Rep. Allard showed the most courage by voting “No” on watered-down term limits. He is a hero and should be recognized and commended as such. Rep. Schaefer and Rep. Mclnnis are term limit supporters voting “Yes” on all but one version. Rep. Schroeder wins the award for the highest degree of hypocrisy. A long time and outspoken opponent of term limits, she voted “Yes” on retroactive term limits. What are the chances that her vote is an honest vote? Based on this vote alone, targets to be term limited in the next election are Schroeder, Hefley, and Skaggs.

There were 288 members of Congress who voted “Yes” on one or more versions of term limits. The Sanford-Deal term limit bill (H.R. 1104) is a statute, and therefore, requires only 218 votes to pass. It is currently being blocked from a vote by the House leadership. All it does is endorse the rights of the states to set congressional term limits. If it can be voted on, it will become the ultimate hypocrisy test of the 104th Congress. If Republicans truly support states rights OR term limits, they can pass it without a single Democrat vote. Any member of Congress who voted “Yes” on any of the four amendments should have no difficulty voting for, or cosponsoring, this bill. Encourage your member of Congress to become a sponsor of HR. 1104, and to pressure the House leadership for a vote. Let them know that the people are not about to be fooled by their deceptive tactics. We, the people, insist on term limits. We insist on a return to representative government.