Connecting state and local government leaders
On major infrastructure investments, “state and local leaders face strong incentives towards inaction,” the managing director of the Stanford Global Projects Center writes in a guest article.
PALO ALTO, Calif. — Silicon Valley is home to some of the world’s brightest minds. Engineers there are developing autonomous vehicle technologies and connected infrastructure systems that have the potential to revolutionize our transportation networks. It is a wonder, then, why so many of those bright minds still commute to and from work every day on a choo choo train.
Caltrain runs right down the spine of Silicon Valley between San Francisco and San Jose, and more than 65,000 people ride it every day. Given its surroundings, though, Caltrain looks like it belongs in a history museum. Its rail cars are still schlepped up and down the peninsula by diesel-burning engines. The trains break down or have other issues (like a diesel fuel spill) often enough that Caltrain simply isn’t a reliable daily commute option for someone who can’t afford to be stranded.
Caltrain’s public board has identified a solution to the problem, specifically a project to modernize the trains by electrifying the existing system and installing intelligent train controls. Today the project has a price tag of approximately $2 billion, with the majority of the funding coming from state and local sources, along with a $647 million grant approved under the Obama administration.
The project has had long journey to “shovel ready” but, after literally decades of planning and environmental review, by mid-2016 the project was about as shovel ready as one can get. Perhaps too much so in fact—the contractor is in place and can now claim costs for any delays by Caltrain.
And those delays are coming. In a bit of political drama stranger than fiction, it appears that the project’s planning and approvals took just one month too long. The final sign-off on the project’s federal grant was delayed until February 2017, and a few weeks ago the Trump administration announced that it is delaying its final decision and may cancel the funds altogether, putting the project back in limbo.
The decision comes after California Republican legislators asked the Trump administration to rescind federal funding for the project. Their logic is that the funding is associated with the California High Speed Rail project, which they oppose. Caltrain has rightfully argued that its upgrade is a completely separate project, but it is also true that California’s High Speed Rail trains would, eventually, run along Caltrain's tracks when they pass through the corridor. The only likely point of agreement is that this project is now a debacle.
Beyond the political drama, though, Caltrain’s woes are illustrative of a broader phenomenon in U.S. infrastructure. When it comes to major projects, our state and local leaders face strong incentives towards inaction. There are several drivers of this, but in some cases federal involvement can actually be a contributor, as opposed to a solution.
Caltrain’s upgrade is one of those projects that should be an easy decision. It would significantly improve the operations, timing, and capacity of the transit system—and thus is projected to increase ticket sales, too—and serves an economically thriving region. The problem is that, while the project would certainly be a productive use of federal funds, it is also pretty reasonable to assume that the taxpayers, ticket-buyers, and companies of Silicon Valley could probably come up with all of the funding for the project if they had to. That is not likely to happen now, though. With federal funds that close to approval, Caltrain is likely to wait, hoping the funds come through eventually.
This is a conundrum local leaders face in a nation that has, historically, spent a lot of federal money on local infrastructure. Can they make the case for funding from the feds? Or should they just raise local funding for their projects? Making the holdup problem worse, local governments are actually incentivized to under-maintain their infrastructure in some cases—routine maintenance often doesn’t get federal attention, but a major rehabilitation or replacement might. The end result is that projects often sit in limbo.
If this is an endemic problem in the U.S., it shouldn’t necessarily be solved by less federal spending on infrastructure. The secondary economic benefits of infrastructure spread beyond just the state or region that are the direct users of it, so some federal support will always be economically justified. The question is whether that support could be structured in a way that incentivizes innovation and action for the institutions that actually have to put projects together—our state and local governments.
International examples abound. In Australia, for instance, the federal government provides supplemental funding when a local project leverages existing government assets to finance new projects, which gives local agencies an incentive to be efficient. In Canada, the federal government created a grant program to provide supplemental funding for well-structured Public-Private Partnerships (P3s) for infrastructure. The benefits of that program were two-fold. First, it leveraged federal dollars with private investment in projects. Second, it enabled the federal government to establish best practices at the local level by rewarding projects based on specific metrics, such as innovation and the potential to move forward quickly, as opposed to only general economic benefits.
Our infrastructure problems in the U.S. are not caused by a lack of smart engineers, or a lack of financing for good projects for that matter. In many cases, it comes down to the incentives of our political leaders and administrators to push good projects forward. There is an opportunity for the feds to help, and not just by adding money.
But in Silicon Valley, for now at least, Caltrain’s modernization is probably going to remain on hold. In the meantime, a good number of the world’s brightest engineers and entrepreneurs will continue to sit waiting, perhaps wondering why their train is taking so long.
Michael Bennon is Managing Director at Stanford Global Projects Center and served as a Captain in the U.S. Army and U.S. Army Corps of Engineers.