November 27, 2013

Referendum Potholes: The Bait-and-Switch

Here’s another problem with referenda on transportation projects, from a place well-experienced with them.  From David King’s blog:

Should Voters Have Full Information When Voting on Transport Projects?

Voters are asked to vote on all kinds of transportation projects. In part this is because of declining federal support for projects, and local tax increases require voter approval. Elected officials are also hesitant to promote new taxes to fund projects without clear direction from the electorate. Usually new taxes for transport spending are passed.
Yet there are many referendums on specific projects where taxes are proposed for particular investment. Without making any claims about the value of any of the individual projects, it is worth considering when projects violate the spirit and letter of the votes taken.
I highlighted some examples pertaining to value capture previously, including the downtown Los Angeles streetcar, which may double in cost and provide less service than promised to voters. Califonia’s high speed rail has also been criticized for not adhering to the specific systems and costs spelled out in the statewide 20008 referendum to raise a share of the cost of the project. See Lisa Schweitzer’s piece in the LA Times for some details.
This isn’t just a problem for transit projects, either, though maybe it is a problem that is worse in California because of a variety of populist legislative requirements. Here is another Golden State example. Today’s LA Times reports that the 405 toll road project is in trouble politically. There are a few causes described:

At a meeting this month, crowds packed an Orange County Transportation Authority board meeting to denounce the lanes, which have been supported by Caltrans. City leaders expressed worry that the project would push traffic onto their streets, or that motorists traveling in the toll lanes would find it too difficult to pull off the highway and patronize local businesses.

The political shift over toll lanes has several causes. Some of Orange County’s toll roads have struggled to attract drivers and each of the major corridors has been forced to refinance its debt to avoid possible default. There has also been the sticker shock: Riding the 91 Express Lanes can cost nearly $10 each way at the most congested hours, an investment even for Lexus drivers. If the 405 toll lanes are built, the priciest one-way toll would cost $9.91. As for the 405, much of the anger stems from what Orange County Supervisor John Moorlach called a “bit of a bait and switch.”

When voters approved a countywide half-cent sales tax, they were told funds would go toward adding one general purpose lane in each direction at a cost of $1.25 billion. Instead, the proposal before the OCTA would add one free lane and one toll lane in each direction — but it would also convert an existing carpool lane in each direction into a second toll lane, with the added $220-million price tag paid through bond sales that in turn would be paid off by tolls.

So the project as implemented is not what the voters approved. It is substantially different, in fact. I have written about credible commitment as a barrier to road pricing before, but what is happening with these experiments in direct democracy are a bit different. Rather than voters opposing new taxes or fees because they don’t believe the revenues will be used as promised the votes for specific projects are not held as binding.


There are many problems associated with these types of direct democracy for allocating scarce resources. When voters vote on a project, be it rail, transit, roads, etc., they should have complete information. Since transportation infrastructure projects tend to go over budget frequently, which affects the scope of the projects, it is difficult for voters to accurately assess their support or opposition. Also problematic is the absence of recourse the voters have. By pushing tax and spending decisions to the ballot box elected officials insulate themselves from the severe problems that tend to arise. After all, it was the voters who approved the project, not Rep. So and So.
Issues of representation, credibility and voter information have not been well examined in the context of local transport finance. As the federal role in transport finance is declining in the US, we need to figure out better ways of raising money for and spending on the infrastructure that we want and need. The experience in California is not encouraging for experiments in direct democracy for transport investment.

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  1. One has to question why transport infrastructure projects go over budget so often.

    In my line of work estimates are carefully constructed with reasonable contingencies built in. A certain amount of minor change to the requirements and delays in deliverables is normal so those are built into the quotes we provide to clients up front. We do not generate lowball estimates just to win projects because we know that repeatedly going back to the client to ask for more time or money makes us look incompetent. If we find we cannot do the work on time and budget then the blame falls upon us and we eat the loss.

    Public sector contracts should be no different.

    Many projects run late and go over budget because the client asks for changes. In those circumstances every change request is met with a formal estimate of the impact on both schedule and cost. Until the client agrees to pay for the changes we stick to the original requirements. When a referendum is used to provide approval for scope and budget there can be no change management system.

    Without the ability to ask for changes governments must assume all project risks reasonably within their control and not go back to the Minister of Finance or the public asking for more money. Like a private contractor those responsible for mistakes must suffer the consequences. If that means the Minister of Transportation misses a few pay cheques, so be it.

    Finally there are circumstances beyond the control of either side so the total amount asked for in the referendum must include both a primary budget and a contingency fund to be used only in the event of something like extreme weather. The contingency fund should be big enough to cover any reasonably foreseeable event so there should always be money left over at the end to put toward operating expenses.