When Feds Spend Highway Money, Taxpayers Get Fleeced

December 5, 2011

When Feds Spend Highway
Money, Taxpayers Get Fleeced

For release Dec. 7 and thereafter (680 words)

Right before his inauguration in 2009, Barack Obama invited the nation’s governors to meet with him in Philadelphia to discuss the nation’s economic problems. Gov. Mitch Daniels teamed up with his buddy, Pennsylvania Gov. Ed Rendell, to start a conversation about federal stimulus spending. Their idea was for the government to suspend federal rules and regulations that slow down infrastructure projects at taxpayer expense.

Based on his experience with the Major Moves highway construction program in Indiana, Daniels was certain the idea would save billions. Although most highway projects use a combination of federal and state funds, and therefore must follow federal rules, some Major Moves projects had been built exclusively with state dollars and were exempt from federal mandates. As Daniels recalls in his book “Keeping the Republic,” those came in at two-thirds the cost.

Although the Daniels-Rendell idea wasn’t implemented, Daniels continues to believe relaxation of federal rules is an obvious way to save money. This is especially true when it comes to the infrastructure crisis.

The American Society of Civil Engineers estimates the United States needs $2.2 trillion of infrastructure spending over the next five years to upgrade its bridges, highways, waterways, etc. It’s an unmanageable amount considering that Congress is supposed to be finding ways to trim $1.2 trillion from the deficit.

Backing up Daniels’ claims is a fascinating case study of two construction projects on County Road 17 in Elkhart County, one subject to federal mandates and the other not.The study was conducted in 2009 by Dulcy Abraham and Varun Kishore of Purdue University’s School of Civil Engineering and sponsored by state and federal transportation departments.

The road underwent a major upgrade beginning in 2002. One stretch of the improvement, heading north toward Michigan, was completed using all local dollars. The other segment, heading south from County Road 18, was financed mostly by federal taxpayers.

Both projects used competitive bidding. Both followed the same lane and shoulder width, lane slope and pavement thickness standards. Both were done by the same contractor.

Here’s the part that will make taxpayers sick.

After adjusting for inflation and project differentials, researchers determined the cost per mile of the local project was $1 million. The cost per mile of the federal project was $2.8 million – and that’s in spite of economies of scale that came with federal purchasing power.

Although the researchers offered no political analysis and noted that their study was “not exhaustive” enough to reach broad conclusions, their work gives politicians more than enough ammunition to justify change in the way federal highway money is spent.

Some cost differences reflect congressional policies that would be politically difficult to reverse. For example, federal projects must comply with the Davis-Bacon Act, which requires union wage scales, and the National Environmental Policy Act, which protects delicate ecosystems.

But many of the regulations serve no purpose other than to complicate the process. For example, the report identified project specifications, review stages and detailed data collection requirements that had no notable impact on the final product.

There’s one more argument against the federal way of doing it: On almost every measure of quality assessed after the projects were completed, the locally financed one was superior. “The results of these tests indicate that the road section built using 100 percent locally funded project may have better pavement performance than the road section built using federal funds.”

In a 2010 paper, Gabriel Roth, a transportation economist, concluded that federal involvement in highway finance increases costs taxpayers in three significant ways. First, “one-size-fits all federal rules may ignore unique features of the states and not allow state officials to make efficient tradeoffs on highway design.” Second, “federal grants usually come with an array of extraneous federal regulations that increase costs.” Third, “federal intervention adds substantial administrative costs to highway building.”

As Governor Daniels has proven, states can save billions when given the leeway to innovate with technology, privatization and that old-fashioned highway funding mechanism called the toll road. If congressional leaders ever get serious about budget cutting, Indiana points to a better way.

Andrea Neal is adjunct scholar with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.



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