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Recently I was riding on the Metra, the commuter rail system that connects the suburbs to downtown Chicago. I picked up “On the Bi-Level”, the flyer that Metra management makes available to riders and was browsing through it when I came upon this innocuous sounding statement:
I certainly will not argue that Metra is without challenges. Perhaps the biggest challenge, and one that will impact many of our plans, is our needs for more capital money to invest in our system. We estimate Metra will need about $9.7 billion over the next decade to achieve a state of good repair on the system, and we expect to receive about a fourth of that amount from traditional federal and state sources. Riders need to understand that fares help us cover our operating costs but have never been a significant source for capital expenses – we must rely on Washington and Springfield for that funding.
Within the utility community there is a concept called “generation equity”. This implies that you need to spread the burden of replacement and renovation across the life cycle of users, rather than hitting them all on the first riders, such as in the case of a train line. On the other hand, you cannot just ignore ongoing capital costs and let the system run into ruin by paying the minimal upkeep costs every year.
In this article, Metra lays bare the facts that:
- Fare costs (riders) only “help” them cover their operating costs
- Funding from other sources (and debt) helps them cover the rest of their operating costs
- Then they rely on largess from the state or Federal governments for about a fourth of their capital costs
- And who knows where they are going to get the rest of the funds for capital replacement
In fact, it would be impossible for Metra to re-build the train lines that they have today in the current regulatory and legal environment. Permits, lawyers, litigation, politically favored contractors, and a welter of archaic tools and practices would make the costs impossibly high and the deadlines incredibly long. By “capital” costs, they are generally talking about replacing bridges, stations and sections of existing track rather than “true” expansion, although they do occasionally add some incremental lines or stations.
“In fact, it would be impossible for Metra to re-build the train lines that they have today in the current regulatory and legal environment”
This is one reason why I have liked freight rail as an investment..no one today could possibly duplicate Norfolk Southern or CXS or Union Pacific or Kansas City Southern.
In California, they are using highway funds to build light rail. In Irvine the rail project got “sidetracked” when voters found out it didn’t go anywhere but City Hall.
States, cities and the federal govt should be expanding highways rather than throwing more money down the light-rail sinkhole. But like the building of coal and nuke power plants, improving the road system is taboo for ideological reasons that most Americans don’t support but that are a priority for the leftists who dominate our bureaucracies. If the taxpayers are going to subsidize transportation infrastructure let it be the infrastructure that people actually use, namely roads. Light rail is ruinously expensive by comparison in almost every American urban area.
There is an option not mentioned. I think it is more likely. There is a tremendous rent-seeker investment in all the “current regulatory and legal environment”. Those who control that environment will never risk any part of their rice bowl for something as worthless to them as maintaining the infrastructure.
Chicago, Los Angeles, New York City, and other Blue Cities are just a bit behind Detroit. The third and most likely option is infrastructure collapse.
Subotai Bahadur
This dynamic only works so long as the villains are faceless, unidentified forces. When it’s Bob Jones of 123 4th street two towns down who is costing you an extra 3 days out of your life in travel costs every year, Bob has reason to fear. And if there is a bridge collapse or a derailment with loss of life, Bob better get a bodyguard. He’ll need one to protect against the outraged relatives.
So why don’t we know Bob’s name? It’s not like this is a particularly hard task. It’s just that nobody does it.
Why build spacecraft to explore the moon or mars when people are starving?
Why build dams when women are oppressed?
Why build heavy rail when blacks live in AmeriKKKa?
Why build nuclear power plants when children live in fear about their next meal?
The most important task of government is spending money to improve the human condition.
That’s what they keep telling me. I reject it, in toto (or in dialect, “totally, dude”). Real change will come from the freedom of private citizens to build rails, spacecraft and power plants.
(I’m not THAT Bob.)
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“This implies that you need to spread the burden of replacement and renovation across the life cycle of users, rather than hitting them all on the first riders, such as in the case of a train line.”
Is there a typo in this? Maybe it’s all the years of heavy carbon dioxide, but I simply cannot track through this line.
(I’m hoping it’s a typo. Otherwise, . . . )
No it isn’t a typo.
When you build a natural gas system, for example, you could charge all of the capital costs to the initial users, and then charge everyone the costs of expensing it forever (ongoing costs). However, when you build something like this, if the initial costs are too high, then it never gets built in the first place. This is a “network effect” model – if more people join in the initial build, the cost / unit is lower, and thus you want to entice more people to join in the original build. A friend of mine said he say a movie on the Amish and the first time the neighbors started to dislike the Amish was when the communities were joining together to install party-line telephones and the Amish wouldn’t join so they were damaging the economics of this initial project.
You see it for something like the initial build out of the Kansas City fiber system by Google, as well. When you are making a big investment up front and many layers of todays’ and subsequent home owners will benefit from it, how do you price it? And if you charge it all to the first home owner, you likely will have trouble raising all the capital and be met with more dissenters.
But since virtually no one builds anything with actual physical networks anymore this is largely a conceptual discussion. There are many virtual networks precisely because the initial cost of joining and participating is nil.
Welcome to USSA, comrade. Here, train rides you! It makes me wonder what life is like in capitalist countries.