MARTA Service Cuts - an Example for Cincinnati

The print edition of the Economist has a good article about the Metropolitan Atlanta Rapid Transport Authority (MARTA), which runs the buses and trains for Atlanta and is often held up as an example of rail success. Facing a huge budget shortage next year, MARTA is eliminating 40 of its 131 bus lines, raising fares, cutting rail service by 14.2%, and laying off 300 people. Besides the revenue shortfall, MARTA faces problems with feuding local governments and restrictions on its Operating/Capital Budget distribution.

Whether or not you support rail spending (and MARTA appears to be one of the better functioning systems out there), a big drawback of rail is that it is much more capital intensive than buses. If you want to expand bus coverage, you just buy a new bus at a relatively low capital cost and start opperating it on a line. If you want to expand streetcar coverage, you spend $128 million in capital on a 4 mile line. Advocates often point out that streetcars have a lower operating expenses. However, counting the debt payments on this $128 million, they have a much higher ongoing cost than buses and so are more expensive to city (much more expensive per passenger mile).

Besides the price, the other problem with this capital intensity is that this budget structure is much less flexible than that of buses, as over half of its funds are tied up in debt payments. The Economist states that budget shortfalls are common now with "around 160 urban or regional transport systems in America cut service, raised fares or did both in 2009 or 2010." If, as happened recently, a budget cut is mandated - we may have to cut 10% of bus service in a bus only system. But an equal percentage budget cut to a streetcar system may require a 30% cut in service, as debt payments to cover the large capital expense cannot be cut (unless the city wants to default).

With buses and rail planned to be unified under Metro, I worry about budget problems being solved by deep cuts to bus service because that's what can be cut on an ongoing basis. That's how MARTA fixed it's operating budget - a 30% cut in bus routes. This will really hurt the large number of people who regularly depend on buses to get around.

Ohio Democrats' bizarre war on Wall Street

In the past, I discussed that the Ohio Democratic Party puts off an especially reactionary message, and that this has a terrible effect on the business climate and economic growth prospects of the state. Every commercial I see from Ohio Democrats complains about New York, Banks, and especially foreigners who are "taking our jobs".

Fortunately, Ted Strickland can't run on "outsourcing" in 2010 since he is now the incumbent. So, as far as I can tell Strickland's reelection campaign wants to sidestep his destructive policies and term as governor, and instead focus on the fact that John Kasich used to work for Lehman Brothers in Ohio. Presumably, Strickland is trying to distort facts (Kasich worked in Ohio... and as far as I can tell, was not a senior risk manager for the firm) and play on some prejudice of Ohioans against easterners and especially bankers. Needless to say, I find this creepy and especially provincial. Unfortunately, it bas been a successful election strategy for that bunch the last few years (while also being a terrible governing strategy).

So, I get some joy out of seeing this in the Enquirer:

The Ohio Republican Party released a list of $1.5 million in campaign contributions to Gov. Ted Strickland from financial advisers, including $25,000 from the Lehman family.

The Strickland campaign is claiming these donations came from another branch of the family. But that there is no connection between these investments in the Strickland campaign and Lehman's investment banking seems unlikely. I'll update if there is more info or that it comes out that Kasich convinced Dick Fold to go heavy into Mortgage-backed Securities. Until then, here's some tragic comic Ohio Democratic Party television adds:


Sherrod Brown complains about free trade with foreigners:


The Cleveland Democratic Party:

Cincinnti Business Enviroment Continued

This post if a follow up to yesterday's post on how a better business climate leads to growth. This isn't always an obvious relationship. Increasing taxes and regulation don’t necessarily have a huge impact on growth right away. Proctor and Gamble will not move suddenly because of poor government, even if state taxes increase 30% tomorrow. But, they may start to shift jobs out of town. Yet, in the short-run, bad policies really tend to stifle innovation and make it harder for entrepreneurs who are competing nationally and internationally. Remember when there used to be a bunch of tech start-ups in Over the Rhine? Not any more; the business environment in Cincinnati is becoming less conducive to that type of start-up.

...When people get angry about offices moving to West Chester, they should stop and consider why that's taking place - economic policies more encouraging of growth. Why else would you move out to the boondocks?


In the long-run, bad tax and regulatory policies will also have a big effect when companies are making strategic decisions. NCR’s recent move from Dayton to Georgia was based on expected improved productivity in their new location. When companies are merging you can see this also. Cinergy/Duke and Star Bank/US Bank both decided during mergers to move their headquarters out of Cincinnati. They've both moved to states with better business and regulatory environments. Fifth Third is often mentioned as a merger target. Cincinnati should be very worried about that possibility and potential job shock. Better yet, they should try to turn Cincinnati into the obvious choice for new headquarters. Unfortunately, local policies are causing a significant loss of good jobs and talented workers in Cincinnati, contributing to a brain drain.

Ohio is stuck with some institutions that will continue to be a drag on growth (legacy unions and the labor laws they have pushed through). No doubt also contributing to Ohio's poor business climate, was the 2006 election of Ted Strickland (who favors the U.S. leaving the World Trade Organization) as governor, and the perceived anti-market attitude of his administration. However, stuck though it is in Ohio, Cincinnati can do some things to improve competitiveness.

According to Chief Executive Magazine, business leaders most highly prize low tax rates and perceived attitudes toward business, followed by living environment considerations, such as real estate costs and education. These are considerations that ultimately lead to better business productivity. In the long-term, more productive companies are more successful, grow, and hire more people. This is how a region grows economically.

Based on the concern of this study (and also my biased perspective), if the city wants to grow, it's priorities should be:

1.) Improve local education
2.) Reduce and improve regulation (UrbanCincy has a great post on this today)
3.) Rationalize the transportation system
4.) Improve public safety and perceptions of safety
5.) Improved the perceived attitude of city council towards business
6.) Maybe even reduce taxes.


I would say the top three issues handled by Cincinnati City Council in recents years have been:
1.) The police layoffs.
2.) The issuance of significant debt to pay for a 3.9-mile streetcar system / cuts in bus service.
3.) Kroger executives being yelled at by city council for the seemingly obvious business decision of closing an unprofitable store.

It's simple to set the right goals on what the city should be doing. The politics of making it happen is the tough part. The general move right now appears to be further in the wrong direction, contributing to Cincinnati's relative decline along with the state.

Ohio's Business Climate and Growth Prospects

Chief Executive Magazine publishes yearly rankings of the Best and Worst States for Business. This study surveys over 600 CEOs for their views on a wide range of criteria. Ohio has been on a slide in recent years and is now down to 44th in this year's ranking. According to the authors, CEOs most value low tax rates and perceived attitudes toward business, followed by living environment considerations, such as real estate costs and education.

Predictably, business environment appears to be very a good predictor of population and economic growth for states. Texas ranked as the best state for business in this survey, while New York and California were at the bottom of the list. The authors of the study explain that Texas has also had the biggest net gain in population of any state over the last ten year while California lost 1.5 million and New York had a net loss of over 1.6 million - the highest of any state. Also, "High-tax, big-government New Jersey ranked fourth (in population loss), with a net loss of almost 460,000."

I wanted to see how well this trend holds up. So, below I've put together the changes in population of the top ten states and the bottom ten from these rankings.*

The Best States for Business:


The Worst States for Business:

As you can see, there's a strong correlation between business climate and growth. The data show that every one of the states in the top ten for business climate has outperformed every state in the bottom ten. I find California's mediocre performance particularly startling. The state has everything going for them, with amazing real-estate, the Silicon Valley cluster (!), and even significant immigration due to their position on the border. Nonetheless, California had been outperformed due outmigration from the state, largely due to the hostile business climate.

Here is a summary of the overall trend:



So, the ten states with the best business climate have seen the bulk of the United States' growth in the 2000s.

The authors argue simple out-migration trends actually underestimate the significance of business climate: “The political elites in the states that dismiss out-migration trends overlook the radical demographic adjustment underway. As higher-income earners leave, they are more often replaced by those with lower incomes and lower skills, many needing public assistance. Gone too are the entrepreneurs and risk-takers, off seeking regions where their job creating abilities are rewarded.”

I'm planning a follow up post to explore this problem a little more. But for now, let me say that I believe the most important challenge for Ohio today is to move up on this type of list.

*Note: I used the overall change in population not the net migration that Chief Executive used. This is simply because census population numbers were simply easier to find in a usable form.

Friday Links

Here's my semi-regular post on a few notable links that I've flagged but decided not to turn into full posts:

1. As Cincinnati is now dealing with these regulations, here's Flex Salmon on Why do minimum parking requirements still exist? He's at a loss to come up with a good reason. But, here's a good quote from Tom Vandebilt:

“[I]f all of the vehicles in the county were removed from garages, driveways, and all of the roads and residential streets and they were parked in parking lots at the same time, there would still be 83,000 unused spaces throughout the county.”

We don't see all the costs on these parking regulation, but "everyone, even those who don’t drive, pays for it in one form or another, whether the invisible parking surcharge is built into retail prices or the various costs associated with parking-lot storm-water runoff" and also worse architecture... This is a needless and destructive regulation. Cincinnati is wisely rolling it back, but thus far only for those who are lucky enough to own land within 600 feet of the proposed streetcar route.

2. An underreported but very important ongoing development - "The most recent survey by the Consumer Reports National Research Center found that five-year-old vehicles had about one-third fewer problems than the five-year-old vehicles we studied in April 2005." The rate of problems in cars falling by a third in five years in huge. Robin Hanson comments:

"Most people are surprised to hear that the world economy doubles roughly every fifteen years; when they think back fifteen years, the world doesn’t seem that different. Besides a few big changes, most things seem pretty similar. But this is illusory – most change happens behind the scenes. In fact, one of the reasons why change can be so fast is that most of it happens behind the scenes."

I view this as a relevant point for Cincinnati's streetcar plans. Streetcars are less efficient than auto alternatives right now. But, technology also keeps improving and at a faster rate than we realize. So, it's a mistake to lock in a bad 30 year transportation plan. And, this will become much more 5-10 years from now when we are still paying the bill for the streetcar capital investment, while buses are increasingly more reliable and efficient.

3. Our Conservative Democratic Governor Ted Strickland signed new casino rules legislation. The simple thing to do on gambling would have been for the state just to legalize it with certain regulations. Then anyone could conceivably open a casino if they met certain requires. We would have equal rights and an efficient allocation of casinos. Instead, there are by legislation exactly four pieces of land in the state that can house a casino and certain people granted the privileges to develop that land - A rather questionable set up. So, it's not entirely unexpected that the government created Casino special interests, slipped into the rules an income tax deduction for gambling losses. This is expected to cost the state $60 to $80 million in taxes per year.

To put it another way, the state just passed a $60 to $80 million gambling subsidy. ...This is just bad government. Try to remember it when you vote this November.

4. Reason Magazine has a rather hackish post on the Cincinnati Streetcar, which I nonetheless link to. An outsider's opinion is valuable. They don't see the streetcar turning Cincinnati into another Portland. ...Maybe another Cleveland.

5. The Business Courier informs us that Washington Park was apparently built on top of a cemetery. They include a list of people who are still buried under the park, incuding William Lytle and James Findley. Creepy...

Update 7/6 - Quimbob informs that at least some people have been relocated. No need to fear being haunted by early Cincinnatians now.

Enjoy your 4th of July Weekend.

Experiences with Commuter Rail

I've been making the case lately that rail transit systems are very much a net loss for cities (except those with a high population density, like New York). Increasingly, I think trains are more expensive/less efficient than other forms of transportation, less flexible (locking cities into long-term decisions that they may soon regret), and in sum make a city less productive and as a result marginally poorer.

While admiting that they are a less efficient form of transporation than buses, supporters have argued that streetcars cause development to occur along the line. Others, including myself, have pointed out that this is just reshuffled development (It's like offering P&G a tax incentive to move from 5th to 13th Street and then asserting the tax incentive created a $175 Billion company). As this development is created inefficiently and very expensively, the project is a net loss to the city (especially considering the other more efficient uses for those funds).

Unfortunately, lacking from Cincy Streetcar discussions is evidence of how rail transit has actually performed in comparable cities. This post is my limited attempt to measure performance.

To create a group of peer cities to compare to Cincinnati, I took Wikipedia's list of the ten largest cities in the Midwest and then added any cities within 250 miles of Cincinnati with a population greater than 300,000 that weren't already included (Pittsburgh and Nashville). I compared changes in population since 1990. Population, in addition to being easily available, is a good proxy for economic performance and the overall job market. The change since 1990 is a good measure of a city's long-term growth and fortunately there are several comparable cities who have had train systems for this full period. I put this information into a table, along with some notes on the transportation systems of each city.

My theory going in is that rail transit is a much more expensive way to transport people than buses. Since it is relatively inefficient (except in dense metro areas), rails should be a long-term drag on the economic performance of a city. So, empirically you would expect cities with rail transit to perform worse than those with buses in the long-term. Here's what I found:

Here are the totals for all cities with and without rail:

These results were more or less what you would expect, although the trend is stronger than I anticipated. Chicago, an outlier in the Midwest with much higher density, does alright with rail. The other cities who have built passenger rail systems have all performed very poorly in the long run. On the other hand, those cities who have relied on bus transportation over the last 30 years have on average grown by 10%. Unfortunately Cincinnati has been the worst performer of the bus group, but is still doing better than every city with rail transit except Chicago.

I can anticipate a couple critiques of this data: First, these cities all have their own issues and transportation systems are not responsible for all variances (Detroit would still have issues with any system). It may be the case that cities that are likely to build rail systems are also likely to be poorly governed or just in relative decline already - So, correlation, not necessarily causation. I think there is some truth to this point, however transportation is still relevant (otherwise, why are we spending on it?) Another objection could be that the Cincinnati Streetcar Plan is different from those discussed here. There's some truth to this also, but this data seems to show that the more similar the transportation system to the one proposed in Cincinnati, the worse the city's performance.

Thus, my conclusion from looking at this information is that it is further good evidence that rail transportation is not a valuable investment for a city like Cincinnati. There are very strong relationships in the region between rail transit and stagnation. This is consistent with my view that rail transit (except in high density cities) is an inefficient waste that turns out to be a drag on a city's long-term performance. So, I confirmed my opinion going in... Finally, I would just encourage more tracking of actual performance of projects of this type (For example, a lot more could be done to measure performance outside of the Midwest). I have seen a disappointing lack of evidence that rail transit has or can perform well in a city like Cincinnati, only assertions that it will do exceptional things (countered by convincing evidence that it is inefficient waste). I'm open to such evidence, but suspect the lack of it is a sign that it doesn't exist.

Why Do People Like Streetcars?

I have become increasingly convinced that the streetcar project is a major misstep for the city. However, there is significant support for the streetcar plan among those who are knowledgeable about local issues in Cincinnati.

Streetcars were a smart form of transportation (and actually profitable for companies to run) in the old days when the internal combustion engine had a very low efficiency. I suspect this nostalgia for the old days is one of the reasons they receive some popular support. But now streetcars have all of the problems of buses with none of the advantages (Some argue that it’s an advantage that the system is inflexible and people know the routes cannot quickly change. However, if you think this is important why not try to propose an amendment to the city’s constitution that locks in bus routes? I’d say because that’s not a very good idea. All else equal, it’s better to have a flexible system that can adjust to changes in development and transportation needs).

The city’s current plan is to spend $30 million per mile constructing a streetcar system that will lose about 60% ongoing (and thus never pay back any of the capital). Throw in the significant budget deficit the city already faces and I think the financial argument against streetcar spending is overwhelming. Yet, if the city insists on spending the money - We live in a world of tradeoffs, so they must consider the alternatives uses of those funds. I can think of many, but the obvious alternative is another transportation option: Buses. With the capital costs, streetcars are much more expensive than additional bus service.

As streetcars are an inferior technology, the persistence of public support is a small puzzle. As far as I can tell, there are a few reasons people prefer streetcars to buses. The first is nostalgia. There seems to be a view that a streetcar will make Cincy more popular with tourists. But, I don’t see this being much of a factor as every other city seems to be sinking money on streetcars. They simply don't differentiate the city and aren't a tourist attraction like SF cable cars.

Another further reason for support is offered up by Megan McArdle at the Atlantic:

The streetcars I'm most familiar with are Philadelphia's… so let me offer my take on why people (read: affluent, especially white people) like streetcars: they don't have so many poor people on them.

Streetcars are developed in a fixed area and not frequently expanded. They have a high capital cost. This means the area along the lines gentrifies. Thus, when you get on a streetcar, it normally has a lot of other affluent people on it. By contrast, when you get on a bus, it normally has a lot of poor people who have been sitting on it for an hour, patiently waiting to get to work. The association builds between streetcars and affluence, busses and poverty, in one's mind.

Even though streetcars may help gentrify a neighborhood, that doesn’t mean they’re a good investment. Sinking a bunch of the city’s money into a loser investment may be good for the effected neighborhood, but is still a net loss for the city.

Economic growth is fundamentally about productivity improvement. Streetcars are a move in the opposite direction and make the city a little poorer. The streetcar project is not as bad as say spending funds on a monorail, but it’s still a waste. Streetcars wouldn’t make Cincinnati the next San Francisco or Portland. They’d make Cincinnati more like St. Louis and Cleveland - poorer versions of Cincinnati with light rail.

Are Hybrids good for the enviroment?

New Cincinnati Streetcar Poll

There's a new poll out by SurveyUSA on support for the Streetcar within the city of Cincinnati. The Key findings are:

48% Cincinnati residents believe the streetcar is a "waste of taxpayer money".
7% are unsure
20% say it's a risky project
and just 27% say is will "Revitalize Cincinnati's core"

51% say most of the ongoing funding for the streetcar should come from fares. In reality, even supporters' ridership assumption will pay for much less than half. If all voters were aware of this, I suspect support would fall further.

When it comes to actually paying for the project: 61% disapprove of the city borrowing of $64 million to pay for the Streetcar, and only 31% approve.

So, there is overwhelming opposition within the city to the streetcar plan just passed. It seems the majority correctly see the project as an unnecessary burden and hindrance to future growth in the city. This poll should be devastating to the Streetcar project. So, why is it being pushed through, if not in response to the wishes of voters? Once again, I suspect it might have something to do with support for the streetcar among certain special interests (landowners and businesses along the route) who see a large profit opportunity.

I believe this issue should not be decided by elected officials, who are more easily influenced by the small group who will benefit from the project (like pork legislation). This is essentially a special interest project and given it's size should be put to an up/down vote on the ballot. The city and the taxpayers should be allowed to decide this one. Tom Luken has said he will circulate petitions to place the streetcar on the November ballot. That would be very good for the city of Cincinnati.

Cost & Benefit Analysis of the CincyStreetcar

Through the streetcar debates quite a few numbers have been cited on the economic benefits of the Streetcar project in Cincinnati. I believe they deserve more scrutiny. The study that has been used to provide the economic backing for the streetcar is the Cincinnati Streetcar Economic Analysis from 2007, which is posted on Cincinnati-oh.gov.  The report was produced by HDR Decision Economics, a Maryland-based for-profit architectural, engineering and consulting firm. Their numbers produce a 2.7 to 1 Economic Benefit to Cost ratio. The following is some detail and analysis of the HDR study:

Assumptions:
First, let's examine some of the assumptions. The study assumes that the population of the city will continue to declines as will commercial real-estate units in the central business district. To give you an idea, here's the city population graph cited:

The study's "Community Development Benefits" are based off this base-line. However, the baseline doesn't appear to be accurate. Census restatements have shown the city has actually grown since 2000, and the populations of downtown and OTR have increased at a swift pace. The principle benefit of the project is difference between the "projected incremental growth in property values in the Base Case (without a Streetcar System) and Alternative (with a Streetcar System) over the period 2008- 2042." This benefit takes into account the opportunity of unused real-estate along the route that has a large potential upside. But, since growth has already occurred without the streetcar, this potential upside is overstated. Also, they don’t take into account the casino (Of course, how could they in 2007), which is also working to increase occupancy in downtown and OTR. As you can’t really redevelop the same unused building twice, the study is likely overstating this potential benefit.

Here are the projected Usable Residential and Commerical Real Estate Unit Growth in Over the Rhine with (blue) and without (pink) the Streetcar. They project a decline in usable real-estate in OTR without the streetcar. This has not been the case in the three years since the study took place, and it certainly doesn't gut check with me - especially with the various new developments going on in the area.

Actual Growth / Political Economy:

So, I believe the study has an overly negative base-line forecast for Over-the-Rhine. However, this does not disprove that there will be some additional growth due to the streetcar. The study’s authors point to increases in property values along streetcar lines in other cities (It’s worth mentioning that most of the cities are studied during the recent property bubble, so they almost certainly have overstated property value gains). Nonetheless, I believe this claim. This comment about Philadelphia is typical “Voith (1993) found a premium for single family homes with access to rail stations of 7.5% to 8.0% over the average home values.” That is fair enough - When expensive transportation is provided along a certain route, the value of land along that route is higher than other land not served by the mass-transit. The city has decided to spend a disproportionate amount of it's transportation budget along a certain route, and of course the land values will increase somewhat along the well-served route. If not, there would be no benefit at all to public transportation, which I don't believe is true. The relevant question is whether the benefits exceed the costs.

The study estimates the total Residential property along the route will see a value increase of $107 million and the Commercial real estate will increase by $272 million (in NPV). Due to the inaccurate assumptions above, this almost certainly overestimates the benefit of streetcars to the affected neighborhoods. Nonetheless, I’m sure there will be some value that landowners will be able to collect from being relatively advantaged transportation-wise. And, if there are few landholders who think they can gain a significant chunk of this $379 million benefit, they will be willing to exert a lot of influence to make sure this project goes through. This presents a political-economical problem.

Cost Benefit to the City Budget:
HDR uses a Monte Carlo simulation (a common statistical technique) to produce a median expected annual operating cost of $2.2 million for the streetcars. The Economic analysis does not include fare estimates. However, an Feasibility Study included on the city's website estimates ridership of 4,600 per day with a $0.50 fare. This implies 4,600 x $0.50 x 365 = $840,000 in revenue annually. So, even in the study sponsored by the city, fares will only be able to cover 38% of operating costs. Compare this to the much more economically rational New York subway, where fares cover 67% of operating expenses.

Furthermore, if you include the capital costs (As basic finance says you should) and assume a 30 year depreciation - That’s $75.7 million (the study’s capital assumption, not the $128 million now proposed) / 30 years = $2.5 million annually.

Thus, annually: $840,000 Revenue - ($2,200,000 operating cost + $2,530,000 Depreciation) = $3,890,000 in projected annual losses for each of the next 30 years.

So, by the project’s own estimates fares will pay for 18% of the streetcar - much less than the current rate for Metro buses. Also, worth mention - This budget structure is much less flexible than Metro, as over half of its funds are tied up in debt payments. If, as happened recently, a budget cut is mandated - we may have to cut 10% of bus service. But an equal percentage budget cut to a streetcar system may require a 20% cut in service, as its debt payments to cover the large capital expense cannot be cut.

Cost Benefit to Cincinnati:
So, the streetcar will put Cincinnati's goverment further into debt. This strikes one as unwise after the upheaval over last year's budget cuts. Nonetheless, the streetcar could conceivably be worthwhile if the benefits to the community are large enough. Here is how HDR lists the total Costs and Benefits of the project:

The study lists Travel Cost Saving Benefits and Mobility-related Benefits, both of which are debatable. But as they are relatively small, I will taken them as given. However, 88% of the projected benefit comes from the aforementioned $379 million in Community Development Benefits. This is the expected increase in property values due to the streetcar. HRD assumes the streetcar will stimulate economic development that would not have otherwise occurred. Yet, they only forecast property values along the route. It is implicitly assumed that there is no effect on the rest of the city and the streetcar does not displace other growth. This is the key assumption in the study, which makes their analysis positive.

On this, I would fault the study for being insufficiently reflective. HDR only tells us that property values will probably go up along the route (obviously). It does not estimate the net effect for the city, and so quietly assumes that there cannot be a downside. So, it does not take into account all the factors you would want to consider when making an investment decision. The Cato Institute (admittedly a libertarian think tank) makes this argument about streetcars displacing invesment “To the extent that rail transit increases property values along its route, for an urban region as a whole, this is a zero-sum game: increases along the route are offset by lower property values elsewhere. It may even be a negative-sum game is higher taxes and land-use regulation need to support the rail lines discourage economic growth.” The City's Streetcar page includes a limited response to Cato's study, but it does not address this very important point.

Let me give an exaggerated example. The city could give a large tax incentive to move offices to 13th Street. However, if Procter and Gamble agrees to move it does not mean that tax break was a brilliant move with a great payback. It does not mean that the policy produced the benefit to the city of now having P&G's offices at a relatively small expense. It would significantly increase land values on 13th Street, but this would not be a net gain for the city. This is merely reshuffling development. But, this type of activity has been included in the growth assumptions based on the experiences of other cities. The Federal Transit Administration has found that “urban rail transit investments rarely ‘create’ new growth,” they “redistribute growth that would have taken place without the investment.” This benefits those who own property along the route, but does not benefit the city.

With the streetcar, marginally more restaurants and apartments will most likely pop up along the route. However, just about all of this development would have occurred elsewhere in the city - People do have to eat and sleep. More development will occur along the route because that will probably be best (and most expensively) served area in the city transportation-wise. Other areas will be marginally more poorly served, both because they have to pay for this benefit for this politically favored route with their taxes and because their own budgets will be squeezed to help pay for the streetcar.

My Conclusion:
Here are my major points:
- The Benefits that will accrue along the proposed streetcar route are exaggerated, but do exist.
- The Streetcar will put the city further in debt, and will never operate near a profit.
- The Benefits to property values along the route will be offset by a decline in property values elsewhere in the city.
- As a result, taking into account the streetcar's price tag, a streetcar investment would be a bad deal for Cincinnati.

As for my recommendation - There have been many cities that have seen a strong increase in mass transit ridership in recent years. That increase is attributable to buses. They are simply a better economic decision. ...Instead of New York or Portland, I think a more relevant comparison for Cincinnati mass transit is to Cleveland's RTA Rapid Transit. There are some differences and the Cleveland mass transit system is larger and a little different than the one proposed in Cincinnati. But Cleveland is one of the most similar cities to Cincinnati and is under the same state government. Cleveland has a significant rail mass transit system with 30,000 daily riders, Cincinnati does not. Which city is more prosperous and dynamic? The difference isn't all due to the streetcar, but this is an example we should look at when planning our transportation future.

If Cincinnati sinks money into at a streetcar system, in ten years it will find itself with a larger fiscal problem, a marginally worse transportation system, and relatively less competitive.

Why Streetcars?

I wanted to write something about the streetcar. Unfortunately, it's impossible to find the campaign contributions to the council members who voted for the streetcar online...

It is often claimed by streetcar supporters that the project will pay for itself with increased tax revenue. Chris Bortz (C - Towne) has claimed the project would have a 14 to 1 return. He may also believe that if Cincinnati replaced all roads with rails, it would become by far the richest city on the Earth.

I don't doubt that a streetcar will drive some investment along the route (as other cities have experienced). This is why the landowners who support the streetcar do so. However, I think this development will mostly just be displaced investment that would have happened somewhere else locally, and the it will happen at the expense of other neighborhoods in the city that will have to pay for the system. So, why should Price Hill have to pay to enrich landowners in OTR? It doesn't seem fair to me, especially if it's a bad deal for the city overall.

The Enquirer had some stats in April story on the $64 million committment. This is how the city plans to pay for that $64 million committment that was just made yesterday:

- $28 million will be paid for by new bonds taken out by the city.
- $11 million will come from the sale of the Blue Ash airport.
- $25 million will come from expected proceeds of a downtowne/riverfront TIF (Tax Increment Financaning). i.e. the city could borrow against the future expected increased taxes revenues from new development along the streetcar route.

So, if I understand this correctly, streetcar backers are only willing to count on $25 million of the $128 million spent by the city being recouped in additional tax revenue. This may be a conservative estimate, but that's an awful deal for the city. Of course, it's still a great deal for those with property along the route (Even if you include their lobbying expense, they only pay a small percentage of the overall expense yet reap about all of the benefit). It's also worth noting that city council has a bad history of forecasting expenses for projects and future revenues, almost always being too optimistic.

Supporters seem to believe that the streetcar will make the city significantly more cosmopolitan and prosperous - just like the artist's renditions of the plan. I think the streetcar will be most like a bus on rails (that is a slightly worse bus). I doubt there will be much benefit. I think the way a city looks after a streetcar system is built is basically determined by how it looked before. Portland has some cool stuff along its route, but they would have had that stuff anyway, just spread the city around a little differently. The streetcar didn't produce the Decemberists. On the other hand, Buffalo's huge mass transit spending had mostly served to exacerbate the city's budget problem, with little apparent benefit.

Tom Luken says he wants to put this funding issue on the ballot. I think that is an excellent idea. I would consider this a special interest issue - Policy should not be made by the few politicians on council who are more easily swayable by the beneficiaries of the project and the activists who are willing to show up to speak at council meetings. It would better be decided by the whole of the city's taxpayers who will have to fund the project. The draconian Issue 9 received 44% of the vote in 2009, I think a direct challenge to spending on this streetcar project would stand a strong chance of success. The city should at least be allowed to decide.

When You Pass A Law Saying There's Only One Property In The City That Can Opperate A Casino

Whoever owns that property gets a nice payday.

From the Cincinnati Enquirer: "The developers of the downtown Cincinnati casino closed Thursday on the 20-acre site, paying $35 million - or more than double the market value of $14 million."

Someone's lobbyist got them a $21 million payday. Legalizing gambling would have been supperior to this cartel system of Ohio granting regional monopolies for casinos. But, congrats to them.

Friday Links

Here are a few things notable things from this week that I flagged but didn’t turn into full blog posts:

1. For those voting in the Republican primary, Donald of Cincinnati Blog says Ghiz over Monzel:

The contrast between Ghiz and Monzel was clear. Ghiz offered nuanced answers, the kind that you'd expect from someone who has thought about how to address development, budget, and public safety issues. Monzel, on the other hand, offered nothing but bits of his stump speech. His campaign strategy seemed clear: do nothing but throw out "red meat" to the base, and hope that the voters don't catch on.

2. The Cincinnati Enquirer had a story on how Chris Bortz ignored the Ohio Ethics Commission’s decision on his obvious massive conflict of interest in the Streetcar project.

3. Bortz responds today:

It is well known that Vice Mayor Roxanne Qualls owns a condo a block away from the proposed route. Mayor Mallory's father owns a home less than three blocks away from a proposed connector to Uptown. Former Vice Mayor Jim Tarbell, who voted on the streetcar while a member of Council, owned a business along the proposed route. Under the staff attorney's reasoning, none of these dedicated and committed public servants would be able to participate in the streetcar debate. … So a member of council who lives near a park can't vote on the Parks Department budget?

Obviously those are not the same as the Bortz family’s significant holding along the route. …But actually I’d be okay with Bortz’s rule.

4. The Enquirer’s Politics Blog has a list of companies giving money to Issue 1 “The Third Frontier” …Surely, they not giving just for influence over the $700 million in grants the program is giving out. The Enquirer repeats a line about the initial program “Ohio voters approved spending $500 million in 2005 … generating an estimated $6.6 billion in economic benefits.” If a hack economist gave them those numbers, they should be fired. …Or let's increase the program 100x and we’ll all be rich.

5. Tyler Cowen presents it as a Dutch peculiarity, but this sounds like a really good idea:

Potholes, stray garbage, broken street lamps? Citizens of Eindhoven can now report local issues by iPhone, using the BuitenBeter app that was launched today. After spotting something that needs to be fixed, residents can use the app to take a picture, select an appropriate category and send their complaint directly through to the city council. A combination of GPS and maps lets users pinpoint the exact location of the problem, providing city workers with all the information they need to identify and resolve the problem.

Enjoy your weekend

Angry to What End?

Many Cincinnati City Council members are to paraphrase Megan McArdle "Angry, Very angry, Do you understand Roselawn voters? They're very very angry at Kroger for closing its store."

This is one of those stories that gets a thousand crazy comments on Cincinnati.com, so I'm hesitant to wade in. ...But, I'm not sure there was much point to city council's hearing yesterday, except to express that city council doesn't like the economic reality that companies sometimes have to close stores. I don't know for sure, but I suspect that Kroger is not closing their store because they hate Roselawn, but because the store has not made a profit in ten years and it didn't make sense to have a location there anymore.

I suspect that the more important message that Council is sending to businesses is this: When you open a store in Cincinnati, you should understand that if things do not go as planned and the store is unprofitable (or loses a million dollars a year) you could be hauled in front of city council and berated if you decide to close it.

City Council is putting a burden on businesses that want to operate in the city, and it's something any company should consider when it opens a significant store in the city. They will be publicly badmouthed by the government if it doesn't work and they need to back out. On the margins, some businesses could be less likely to take a chance investing in Cincinnati with this risk. This risk factor might not be big enough to have a noticeable effect. But, all else equal this means fewer companies taking chances to invest in Cincinnati and perhaps fewer grocery stores.

It might make sense to create a tax break for operating a grocery is an underserved area. But, what Council is doing doesn't improve anything. So, it's just bad for the city.

File under: Bad Government

Good New for Streetcars (and Columbus), Bad News for the Rest of Cincy Metro

Veronique de Rugy of Mercatus has done some analysis of the allocation of federal stimulus spending based on the data available at Recovery.gov. One of her findings is that where money is spent doesn't appear to be related to unemployment or decline in employment in districts (As economists would like to be the case with a Keynesian stimulus). What explains how stimulus spending is allocated?

The average Democratic district receives 81 percent more than the average Republican district.

A significant part of this result is due to state capitals being mostly located in Democratic districts, and receiving much more in stimulus allocations. However:

Even after taking out the money spent through state capitals, the average Democratic district receives at least 30 percent more than the average Republican district.

So, good news for projects (such as the Streetcar) located in Ohio's 1st district, currently represented by Democrat Steve Driehaus. But, it's bad news for people living in the other districts of the Tri-State which are all currently represented by Republicans - They are paying the same taxes for stimulus spending across the country, but on average receive significantly less. ...I live in the 1st district ;-)

A Desire Named Cincy Streetcar

The Cincinnati City Council is expected to approve some funding today for streetcars. the Streetcar movement is popular in the Cincinnati blogosphere (They’re way more hip than riding a bus, right?). And there are some points to be made by activists in favor of streetcars. However, I think the streetcar effort is primarily driven by the big property owners along the proposed route (some of whom are on city council). The project takes tax dollars from everyone across the city and spends them to improve transportation along a certain 3.9 mile stretch. This will certainly improve the land values for those who are fortunate enough to own property along the chosen route. The area will gentrify. But, these improved property values will be paid for by the taxes of everyone else in the city. It’s a classic case of concentrated benefits and diffuse costs. In other words, I would say it’s pork for a certain group of Cincinnati elites.

This is not to say the streetcar is a bad idea. I’m undecided, but certainly not convinced.

The relevant question is - is this the best use of the taxpayers’ money? Chris Bortz today argued that it was and said it would have a 14 to 1 return (!!!). Yet, there’s another form of public transportation, which the city has been cutting recently, which appears to be a better investment - buses. They’re more flexible to respond to changing demand, require no major capital investment, and help people from the suburbs gets to their jobs downtown (i.e. a big economic return for the region). Streetcar backers have not been able to put together a convincing argument on why a small streetcar is better than additional busses. I suspect the city will move forward with this project anyway, not because of the debate, but because the streetcar has important support from relevant special interests in Cincinnati. This is unfortunate.

Update 4/20:
I don't want to give the impression that I'm alleging some conspiracy emanating from a smoked filled room. The supporters who would benefit are pretty visible - Besides the activists who spoke at the city council hearing, many of the other speakers were various business/land owners who would benefit from a streetcar. I've read Tom Luken also made this point at the hearings (not that I necessarily want to be associated with him). They probably genuinely believe it's a good project, but they are lobbying for tax dollars to help themselves. So, it's a classic case of a small group of people who would benefit and a large group who will pay the cost (city taxpayers). I don't think the streetcar will be a disaster, I just think it's probably not the right investment decision, and may be being made for the wrong reasons. Could be worse...

Stats on Tea Partiers

Some interesting poll numbers about Tea Partiers via @binarybits: Tea Partiers are 65% pro-choice, 57% pro same-sex unions, and 53% pro maintain/increase legal immigration.

Here's the New York Times story. FYI - I'm not the Tea Party type, but I do think they've been unfairly painted by the left as bigoted extremists. This gives Democrats a comfortable naritive about themselves, where all opposition to their plans is illegitimate and probably motivated by some dark internal flaws.

John Cleese offers insight on this mindset in a 1987 SDP/Liberal Alliance spot:


"The great thing about having enemies is that you can pretend that all the badness in the whole world is in your enemies, and all the goodness in the world is in you! Attractive, isn't it?"

Ohio Style Casinos

Allow me a brief sarcastic rant - The Columbus Dispatch reports new rules being proposed by Neo-Puritanical Ohio politicians:

"The four new casinos in Ohio would not be granted 24-hour liquor permits, nor would they be able to offer complementary alcoholic drinks to players, under the set of ground rules that House Democrats plan to introduce within the next two weeks."

Wouldn't it be interesting if you could just choose to gamble and drink legally wherever you wanted - not just at the casinos and tracks that have given adequate dollar amounts to the correct politicians in exchange for a legal monopolies? Nah, we'd all gamble and drink ourselves into Gamorrah...

HT Politics Extra

Update Nice story on the lobbying effort against this.

Surreal Cincinnati

So, let's say you're walking out of Cianciolo's or the Ohio Book Store - If you're a rather fatalistic fellow with some time to browse, you just may be in luck: MainStreetCaskets.com has a prominent storefront right on Main Street in Cincinnati. This store front is complete with a facing of merchandise out front for curious window-shoppers. A quick perusal of their website shows the value of this little shop (The 'Going Home' for only $899! That price is just insane).

But we all know this already... I'm posting about a more recent development. From the same storefront as MainStreetCaskets.com, you can now also buy scooters. Talk about one-stop shopping - Now you don't have to make two trips! Below is a camera phone picture - apologies for the low quality.BTW, I think funeral-related expenses are priced way too high because there is not enough competition. So, I support developments like this business that helpp open up the market. However, as a store front this is pretty surreal and I'm surprised that it works as a business decision.

Conan v Leno

I much prefer Conan O'Brien to Jay "The Evil of Banality" Leno. However, as Bill Simmons explains, you can't say NBC was being stupid dumping Conan. Leno put on an awful show at 11:30, but it drew a good audience. Conan dumbed down his show to try to copy this, but was unable to repeat Leno's sucess and lost half his audience in six months (HT: James Choi).

Do you think Conan worked at 11:30?
Conan's show sucked at 11:35. That's the reason the ratings were down — not because of his lead-ins. What's Jon Stewart's lead-in? What's SNL's lead-in? Conan did a watered-down, toothless version of his 12:35 show, and even his die-hard fans weren't crazy about it. These are the facts. Only after they canned him did he show flashes of the old Conan again. Look, he's not Johnny Carson; he's a gawky, super-witty, awkward, hyperactive goofball who isn't going to appeal to everyone.

Do you think Conan handled this situation the right way?
I thought he was too whiny. Look, it's television. His job was to deliver ratings and revenue; he lost nearly 50 percent of Leno's 11:35 audience in six months, but took none of the blame and made no effort to fix his show. This wasn't his fault? And besides, he's the one who stupidly passed up all that Fox money in 2004. I never understood that. What was so special about a Tonight Show that had twelve years (and counting) of Leno stink on it? How iconic could it have been?

Isn't this all kind of silly? Isn't the theory that everyone just watches everything on Hulu and DVR anyway?
Normally, I'd agree with you, but did you see the numbers? Leno's 11:35 show made $35–40 million profit for NBC; Conan's show was on pace to lose $5 million and had zero critical buzz. So it was a big deal, I think; look at where Conan was five years ago and where he is now. It's one of the biggest falls in TV history. NBC paid $43 million to get rid of him!

Hold on Hope

Homeless Haitians Told Not To Flee to U.S. - The U.S. State Department has been broadcasting via radio to Haitians: "(We) will intercept you on the water and send you back home where you came from." Kerry Howley comments via Twitter "Massive monetary aid to Haiti looks very cynical through immigration lens." ...Indeed, opening our doors to refuges is probably the best thing the United States could do to relieve suffering in Haiti. However, that doesn't appear to be an option politically for the current administration.

In the long-term, The biggest help the United States could give to Haiti's economy would be to repeal tarrifs on Haitian sugar. Unfortunately, this policy also has a significant special interest group opposed to it: domestic sugar producers. Those producers are dominant politically even though the potential benefits in lower food expenses to U.S. consumers from a liberalized sugar marker outweigh the excess profits producers are currently making from their captive market.

The fact to find depressing about this is that it shows how little of a voice Haitians have in the United States. U.S. aid to Haiti is definitely helpful... But the policies we could adopt to really help Haitians are not even on the table because of their slight costs to American special interests. If 1/100 as many Americans were suffering you can bet the goverment would take every step necessary to help (And would be heavily criticized for any failings, as in New Orleans. I'm not saying we should treat this the same as a domestic disaster, but we can easily do more. The current U.S. Administration is providing some important and very public help to Haiti, but certainly not the best help.

Update: The U.S. has now also banned commercial air travel from Port-au-Prince due to security concerns.

File Under "Things Bad for Downtown Cincinnati"

Graphic Anti-Abortion Billboard To Appear in Cincinnati

Regardless of how they feel about abortion, most people don't want to see this while eating lunch.