Must Read 

The battle is joined for the future of congestion pricing.  New York City’s strikingly successful new congestion pricing program is under assault from the Trump Administration, which is trying to retroactively invalidate the go-ahead previously issued by the US Department of Transportation.  As Henry Grabar points out, Trump’s opposition has ironically turned erstwhile pricing opponent Governor Kathy Hochul into and outspoken proponent:

Hochul, who got cold feet about implementing the toll last summer, has now picked her first big public battle with the president, turning the fight for congestion pricing into a resistance issue. Holding up the White House’s A.I. composite of King Trump, she said: “Think about this the next time you’re stuck in traffic.” 

Hochul and New York’s MTA are suing the US DOT over its reneging on approval for congestion pricing.  This promises to be a key legal battle challenging one of many Trump administration edicts.  The city argues, powerfully, that the U.S. Department of Transportation which said it approved pricing a few months ago is the same legal entity that now claims to disapprove, based on an entirely new set of concerns that it never voiced during its original evaluation.  To a judge, that’s likely to be an “arbitrary and capricious” reversal.  This is particularly egregious example of a contrived reason being presented for a pre-determined conclusion (as evidence by candidate Trump’s stated opposition to pricing during the campaign).  While the appeals proceed, the city is keeping the cameras on, is collecting toll revenues, and congestion in New York City is down, with better travel times, faster buses and safer streets.

Oops, we spent a billion dollars we didn’t have.  Sometimes, its hard to grasp the depth of the mismanagement in state highway departments. On Monday, officials of the Oregon Department of Transportation testified to the Legislature that in the last couple of years, they’ve spent a billion dollars that they didn’t have.  Willamette Week’s Nigel Jacquiss explains:

About one hour and ten minutes into a hearing on the state highway fund, Travis Brouwer, ODOT’s assistant director and top finance official told lawmakers how the agency made a more than $1 billion error in its 2023-25 budget. To put the “error” in perspective, a January audit of ODOT pegged the actual damage as $1.1 billion out of a $5.9 billion biennial budget. In other words, the agency expected to have nearly 19% more revenue than it actually generated.

As we’ve pointed out, the Oregon Department of Transportation has treated its funding as an elaborate shell game for years.  They’ve made false claims that their hands are tied and that they can’t spend money on operations and maintenance.  But as their “fix” for this problem makes clear (i.e. cancelling or postponing indefinitely scheduled future expenditures) to backfill the hole created by their overspending, they’ve diverted money from basic maintenance (like painting bridges) to pay for cost overruns on bloated, mismanaged freeway widening projects.  And amazingly, to date, the agency is never held to account.

Real transportation reform.  This is actually a “must listen.”  Beth Osborne of Transportation for America is interviewed by the podcast “War on Cars” and offers some candid, and discomforting reflections on federal transportation policy.  A veteran of six rounds of transportation reauthorization legislation on Capitol Hill, Osborne points out that for too long, those promoting anything other than highways–whether its safety, transit, cycling, or walking, have been marginalized.  That’s now coming home to roost:  She says:

We need to stop–as a movement–supporting new small programs to fix the damage that is continuing to be created by much bigger programs. We basically created a nice, neat box of separate programs that could just be set on fire.  And the majority of the program, and I mean by hundreds of times, Reconnecting Communities, is a billion dollars. The overall highway program is $55 billion this year. The notion that that was the way you fix this was ridiculous.  And . . . I know everyone says, well, it’s how you negotiate for change. That’s a floor.  No, it’s not. It’s a ceiling. We did this with Transportation Enhancements back in 1991 with ISTEA. It’s been capped. It’s now called Transportation Alternatives, but about 10 years ago, was slashed. So it wasn’t even maintained. It didn’t even grow with the program.  We need to stop that thinking. That is how we have been beaten for 30 years–and we either grow up or give up.  And this is my sixth re-authorization. I’ve watched it happen over and over and over again, and at some point, if you are willing to sell out for so little, you’re part of the problem. So I’m going to say that up front: Stop creating little programs to do good that is going to be undermined by much bigger programs that are just creating issues you’re gonna have to fix with your little program in 20 years when you finally get to it. It’s ridiculous.

Osborne will be testifying to the Senate on transportation policy, and Transportation for America has a concise report card showing how despite spending a trillion and half dollars on transportation over the past several decades, we’ve monumentally failed to make progress on our stated goals, such as making roads safer and reducing congestion.  The T4A website has the details; but have a listen to the podcast, where Beth speaks from the heart.

New Knowledge

Quality of Life matters to prosperity even more than we thought.  A new study published by the London School of Economics concludes that quality of life, especially in big cities, is a far more important economic advantage than previously thought.  

For decades, economists have studied differentials in wages, productivity and prices–especially home prices and rents–to estimate quality of life differentials between places.  The underlying models are based on the assumption that if people are mobile and all goods and services except housing are freely traded (and therefore priced similarly everywhere) that differences in rents and wages must reflect quality of life:  people pay more for housing and or accept lower wages because of the value they attach to quality of life.  

The authors apply their framework to data from Germany and find that the urban quality of life premium is a bigger factor in explaining economic success than the urban wage premium.

Ahlfeldt and his co-authors have altered that model to incorporate a spatial element, and the frictions that are associated with moving goods, services and people between places.  The two charts above summarize the benefits workers derive from being located in larger cities. There is both an urban wage premium (wages are higher in larger cities) and an urban quality of life premium (larger cities have a higher computed quality of life).  The author’s conclude:

Figure 6 suggests that in Germany, high QoL is an even more important reason for workers to locate in large cities than high wages. This is a striking result given that, since Marshall (1890), the literature has mostly focused on productivity as the main reason why workers concentrate in cities.

In short, quality of life, including a broad range of amenities and consumption opportunities are more plentiful in larger cities.  This has important policy implications.  A good quality of life may be essential to attracting and retaining talented workers and bolstering economic productivity.  As the authors conclude:

Our findings suggest that quality of life is a much more significant determinant of local economic development than previously thought, showing that people’s decisions on where to live are affected by more than just wages and housing costs. This has profound implications for policymakers. Efforts to make struggling regions more productive are important, but equally critical is ensuring a high quality of life to attract talent. Strategies could include investing in cultural and recreational amenities, reducing pollution and crime or improving the urban built environment.

Gabriel M. Ahlfeldt, Fabian Bald, Duncan Roth, and  Tobias Seidel.  “Measuring quality of life under spatial frictions,” London School of Economics, Centre for Economic Performance, No. 2061 December 2024 
https://cep.lse.ac.uk/pubs/download/dp2061.pdf