Friday, July 29, 2005

Not theirs to invest

The title is a paraphrase of Walter Williams' excellent column "Not yours to give" from this past February. The same principle applies when government agencies want to invest taxpayer dollars in a business venture: it's not theirs to invest, no matter how certain they are of success. New York's previous example was the West Side Stadium; were it really such a good idea, private investors would have been all over it, beating government to purchasing and developing the West Side railyards.

Now the New York MTA wants to develop those railyards for housing, businesses and new MTA headquarters. On Thursday, the New York Post reported that the MTA revealed it has an $833 million "surplus" -- and cutting fares (present or future) is out of the question:
Instead, Katherine Lapp, the agency's executive director, asked the MTA's board to consider spending $481 million of the surplus to build its own platform over the rail yards — not for a football stadium, but for a residential and commercial community.
Funny, I seem to have missed the public announcement that they'd changed their name to the Metro Real Estate Development Authority.

It's easy, of course, for the MTA to throw so much at a very risky venture: it's not their money! NYC Mayor Mike "Führer" Bloomberg and Gov. George Pataki were eager to "invest" a total of possibly $1 billion taxpayer dollars in the proposed West Side Stadium. In both cases, had there been a genuine demand for the stadium, or for the railyards to be developed into communities and business space, the private sector would have already looked into it -- and probably would have completed it long before the politicians even dreamt of it. Remember what Donald Trump did for Central Park's Wollman rink: after the city had tried and failed for six years to repair it, Trump stepped in. "The job took 4 months to complete at a fraction of the city’s cost," he wrote in his book The Art of the Deal.

Since politicians are investing other people's money, they have no incentive to weigh the risks carefully. Politics, not business sense or reason, becomes the chief influence, blinding the politicians so that they have no reason to scrutinize the endeavor's worthiness, let alone consider alternatives. As Milton Friedman put it, "...if I spend somebody else's money on somebody else, I'm not concerned about how much it is, and I'm not concerned about what I get. And that's government."

The MTA has raised fares twice in the last few years, the most significant of which was in 2003, when single fares went from $1.50 to $2. Is it so surprising that the MTA is now in the black? The last hike came despite loud criticism that the MTA has not opened its books to a full, independent audit. As far as I'm aware, it still has yet to, and it continues to perform certain accounting shenanigans. Back in 2003, the New York State Comptroller's Office released a report detailing its discovery of the MTA's two budgets: one public, one secret. The public budget "hid" half a billion dollars compared to the secret budget, and the MTA used that artificial revenue shortfall to justify that year's fare increase.

But the bigger reason the MTA is in the black is that Albany gives it so much taxpayer money, i.e. subsidies. The proposal for the 2006-2010 "capital plan" is more than $17 billion, which seems like a lot, but then consider the MTA had asked for $27 billion. The MTA has requested similar amounts for previous five-year plans (is anyone else spooked by the Stalin reference?). As long as Albany keeps handing out money, the MTA has no reason to streamline its operations, structure its employees more efficiently, or make do with older equipment that's still serviceable. To that list we can now add "making do with its office headquarters." While a developer will build the new MTA headquarters, the MTA must still spend money to prepare the site before anyone will touch it.

The fair (no pun intended) thing to do is for the MTA to return the $833 million to Albany. It can be valid to cut fares and/or shore up the MTA's pension program, but the taxpayers who provide the subsidies should get the first relief. Why not put the money toward pensions? Simply, the MTA needs to improve it other than relying on lucky "found money." If the pension program is underfunded, then workers need to contribute more for their own retirement, the MTA needs to streamline itself so it can contribute more, and the MTA needs to ponder whether its benefits are too generous. Letting the MTA put the money toward pensions doesn't encourage it at all to improve the program's structure.

The best solution is to eliminate the MTA's subsidies completely and force it to run like a real business: lean and efficient, competitive, and profitable. But that will never happen. Similar to Amtrak, there's too much politics involved. MTA executives, and the union members who like their taxpayer-funded jobs with generous benefits, are a powerful influence. Even were that not the case, nothing can be done until people stop believing the lies that public transportation doesn't have to run like a business, that it's ok for government to bail it out.

4 Comments:

Blogger TKC said...

Curiously enough, 'Not yours to invest' is the same reason I am not too fond of private social security accounts. If they truely are private then why the government middle man? If they are not truely private then the 'Not yours to invest' comment fits perfectly.

Just as another aside, if you are paying taxes for mass transit then why do you have to pay to use mass transit. They're trying the same sort of thing here in Montgomery County, Maryland. However, it is with ambulances. The pols now want to charge you to take an ambulance trip. Isn't this why we are paying taxes? You know, for emergency services? If they are going to charge us on top of paying our taxes then this is just screaming for privatization.

Friday, July 29, 2005 5:00:00 PM  
Anonymous Eric said...

tkc, the vast majority of what the government does for us is "screaming for privatization". The last country of 300 million people and 50+ ethnic groups that tried to have the central government mandate and implement education standards collapsed and splintered into about 10 different countries, for example.

Doesn't it seem ridiculous that after fighting global socialism/communism for 60 years, and stopping its violent spread, we are now traveling the path that spelled the end for the USSR? Centralized governments/economies on this scale are doomed to collapse from their own sheer inability to accomplish anything.

Friday, July 29, 2005 5:42:00 PM  
Blogger Perry Eidelbus said...

Very good points, guys.

TKC, the only reason I support "privatizated" accounts is because we can't get real privatization. For now, only for now, I'll accept "private accounts" as a first step toward dumping the Ponzi scheme completely. No candidate today dares propose abolishing Social Security; everyone knows it's political suicide. I think it was in the 1990s when the Dick Tracy comic strip had a story about Diet Smith being kidnapped and replaced with an impostor. The conspirators wanted to ruin Diet's presidential campaign, and one of the impostor's campaign statements was that he'd "begin by abolishing Social Security." That one frame still lingers in my mind.

The vast majority of people will reject a candidate who wants to abolish Social Security, and not strictly because people think government should provide for their retirement. Deep down, some know that no Social Security means they'd have to work more years and save a higher percentage themselves; but under the current system, government will provide more than what they've paid in.

For the same reason, people benefiting from subsidized public transportation don't mind the use of tax dollars. So when a liberal once told me, "I don't mind helping people," I knew it wasn't out of a sense of altruism. Inside, he knows others will pay to subsidize things he uses. Part of his taxes subsidize Amtrak, and part of others' taxes subsidize the Long Island commuter railroad that he rides. Then life becomes a rat race to get your piece of government handouts, whether you're Senator Byrd or a regular Joe who's simply eligible for a government program. And as I once wrote, people feel entitled just because they pay their taxes. They don't consider it immoral to take more than what they pay in.

There's a saying in public choice economics, "Concentrated benefits, dispersed costs." Your tax share to subsidize special interests is low enough that it's not worth your time to fight them. But federal pork expenditures, in aggregate, are so bad that it is now worth our time to oppose them -- oppose them all at once. The energy and transportation bills are perhaps the worst pork of all time.

As a teenager, Eric, I started to worry that the United States was just too big for one government to handle, and that it would have to split to be governed effectively. That's before I learned that state's rights is the true federalism. A lot of the problem is the federal income tax. Prior to the 14th and 16th Amendments, the only individuals Congress could tax were the relatively few federal citizens. A resident of a state was a citizen of that state, but not a "United States" (federal) citizen when it came to domestic purposes, including taxation. This is why an amendment was needed to declare everyone "United States" citizens, and it wasn't just for giving citizenship to slaves. Congress before couldn't directly tax state citizens, only the states, which was part of the need for a census. If California had 10% of the population, it had to contribute 10% of the federal budget.

That was a far superior system because it promotes limited government. When the larger states had to pay the lion's share, they tended to avoid pork. Isn't it amazing how, when you have to pay for exactly how much government you use, you limit your use?

Friday, July 29, 2005 10:06:00 PM  
Anonymous Eric said...

Heh, I think you and I date the beginning of the path we are currently on to the same time frame, 1861, give or take.

An argument could be made that it really dates back to Andrew Jackson. But I think it is clear that large, central government was brought to the table by Lincoln, the Civil War and the 14th Amendment.

It can still be fixed, but I don't think even the outrage at Kelo is enough. We're on the central government running everything track. Even Reagan (and he was nowhere near perfect), with all his ability to communicate, was unable to convince the electorate or the oligarchy that it's the wrong direction.

I wonder if, 50 years from now, the US won't end up balkanized like the USSR?

Friday, July 29, 2005 11:27:00 PM  

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