Thursday, January 2, 2014

The Truth about Reducing Unemployment: Washington's Silver Line Metro Extension

by Nomad

Exclusive: In theory, there are practical ways to reduce unemployment. In this post we look at the long-awaited Silver Line Metro extension in Washington D.C shows to see if there can be any lessons to learn about the ways the solutions can get de-railed. 

Back in 1922, a British Labour politician by the delightful name of Frederick William Pethick-Lawrence wrote a small book named Unemployment, in which he laid out the causes for unemployment and possible solutions. He writes:
What is to be done about the unemployable, the lazy and inefficient workers? Punishment is the device to which large numbers of people fly when they are confronted with a human problem for which they can see no other easy solution ; and punishment sometimes active in the form of imprisonment or chastisement, and some times passive in the form of destitution, has been inflicted on bad workers all down history with the avowed object of making them into useful citizens. It has failed, as punishment usually fails, except as an expression of the vengeance of an outraged society.
Punishment and blaming the victim was not a remedy.  Though millions of Americans will see their unemployment benefits run out this month, few people in their right minds think it would do anything to reduce unemployment. It is merely a irrational way to punish people asking for the minimal assistance from the government.

Among the many points he makes, Lawrence concludes there are no easy answers to the problem of unemployment. Preventive measures require a degree of forward thinking not found in most governments. By the time an unemployment problem becomes prevalent, it is, he says, usually too late. As long as nations have booms and busts, there will be cycles of unemployment.

However he does suggest that when unemployment is widespread, it should be seen as an opportunity to overhaul the infrastructure of the country. The costs, Lawrence suggests, would "probably be borne partly by loans to be repaid out of receipts and partly by increased taxation spread over a period of years." 

In other words- gasp!- deficient spending and taxation. And so what, Lawrence says. This kind of relief work shouldn't be considered be wasteful since it would, if well-considered, become part of a larger investment in the nation itself. In both the long term and short term, there would be winners.

So let's take a look at what happened in the US when this solution was attempted. When we look at the one of the largest infrastructure projects - the Dulles Metro Extension- in the nation - the Dulles Metro Extension- we can make some interesting observations.

Lessons of the Silver Line
Travelers know it. Trying to get around in Washington, D.C. can be a nightmare. Dulles International is located more than 20 miles from downtown and with no rail access, getting to the airport involves either car or a city bus or a taxi. A convenient train line? forget it.
So it was definitely an infrastructure problem looking for a design solution but the main objection was the economic downturn. With the stimulus bill passage, it seemed like something might be done to improve the situation. What came as result has become an expensive and controversial political mess, plagued by delays ever since it was proposed.

As one of the largest infrastructure projects of its kind, the Silver Line, upon completion, will provide public transportation access from downtown D.C. to Dulles, as well as the Northern Virginia suburbs of Tysons Corner, Herndon, Reston and Ashburn. In addition to connecting the airport to the region’s transit system, the new line should help reduce traffic congestion on the Beltway. All of this remains in theory because it is still incomplete.

The line will be 28 miles (45 km) long and is estimated to cost up to $6.8 billion for the completed two phase project. (That figure may not be at all accurate. My apologies but the numbers are all over the place. Certainly the cost estimates are subject to a lot of conditions.)
In any case, the costs of the first phase are to be divided between the federal government (around $1 billion)  the state of Virginia  $200 million with the remainder to be paid by the airport itself, local county governments and through fee increases on the existing toll road leading to the airport. Tolls and taxes, in other words.

Although construction on the Silver Line was planned to begin in 2005, delays in approval of the funding pushed back the start date with actual construction commencing on March 12, 2009- nearly four years later.
The first phase of the project was controversial from the start. For one thing, instead of using competitive bidding based upon a detailed specification, the $2.7 billion phase of the larger  $5.6 billion project was awarded to private contractors under the Virginia Public Private Partnership Act.

The contractor was Dulles Transit Partners, which is led by international construction and engineering giant, Bechtel. Bechtel is the largest construction and engineering company in the United States with $37.9 billion in revenue. It employs 53,000 workers on projects in nearly 50 countries.

The contractor, interestingly enough, was reportedly allowed to both design and build the project with no upper cap on its cost. The contract also allowed a great deal of flexibility in price escalation- of $3 million to $6 million a month for delays. Clearly there is no incentive to finish the project. Ever.
According to the spin of Metro officials, when planners drafted the contract agreement, the possibility of delays were written into the estimated costs. So nobody got too worried when things inevitably took longer- much longer - than planned.

Although due to open this year, the delays have pushed back the opening (of the first phase only) to sometime in 2014. Nobody is betting on that. Last month, software problems were the cause of the latest delays. Who is going to argue with safety?
One politician had had enough, it seems.
After the news of the most recent delay leaked out, Democratic Senator Mark Warner took upon himself to write to the authorities about his concerns about the construction delays. He urged them to "do everything in your power to complete the work as quickly and responsibly as possible and avoid further delays so that our region’s commuters and travelers can benefit from this crucial transportation link."

Those delays by themselves are costly. According to the Washington Post, the project is losing up to $3 million in missed fares for every month the new line is delayed. Not to mention the frustrations caused by the construction-caused congestion to the existing routes.

The Road Less Traveled By 
The second phase of this project is to handled in a very different way, according to an announcement by the Metropolitan Washington Airports Authority (MWAA).  First of all Bidding on the construction contract was competitive.
“We are very encouraged by the price submitted by Capital Rail Constructors and the potential savings it includes,” said Pat Nowakowski, executive director of the Dulles Corridor Metrorail Project. “This has been a very successful competitive procurement process. The winning proposal is well below our original estimates of $1.4 billion to $1.6 billion for this portion of the project, which hopefully will allow us to pass on additional savings to users of the Dulles Toll Road.”
However, there is another point to add, but perhaps another lesson to learn. Anti-union organizations see this as a victory too. As part of the contract agreement, the deal would not require costly government-mandated project labor agreements. Such agreements would have required a collective bargaining agreement with multiple unions as a condition of winning and performing the work on Phase 2.

In addition, say critics of unions, it would have forced firms to follow inefficient union work rules, pay into union pension plans and hire most or all construction workers from union hiring halls.
Studies have found PLA mandates typically increase the cost of construction between 12 percent and 18 percent compared to similar non-PLA projects by restricting competition to only firms willing to comply with onerous union requirements. In addition, a PLA would have taken jobs away from Virginia’s hardhats and replaced them with out-of-state workers, as 94.6 percent of the Commonwealth’s construction workforce does not belong to a union.
Of course, the question is then whether union workers are demanding more than they actually deserved for their labor or whether non-union workers are simply cut-rate laborers who are willing to accept sub-standard wages and conditions. That's a critical question because the savings to the taxpayers shouldn't be based on poverty wages or unsafe or inhumane working conditions. 

However, whatever the answer, if these points are accurate, then the key to keeping infrastructure projects affordable and in turn, keeping more people employed is competitive bidding and reducing the effects of special interests, whether they be unions or corporations.

Hypocrisy that Hides the Truth
In the larger perspective, all things transportative will be improving around the Washington area as long as the good people of Virginia have the patience. 
In April of this year,  Republican Governor Bob McDonnell, in one of his final acts as governor of the Commonwealth of Virginia, signed into law a $5.9 billion tax increase on Virginia families to fund light rail and transportation projects throughout the Commonwealth. The tax increase is the largest in the history of Virginia, surpassing even Democrat Governor Mark Warner’s 2004 tax increase.

Grover Norquist, president of the right wing, Americans for Tax Reform- a member organization of the American Legislative Exchange Council (ALEC) - was, predictably, outraged calling the approval "a crushing blow to the Average Virginian."  As if the average Virginian were not going to reap any benefit from improved rail and better roads. As if improvements to the rail and highway network in the state would not make businesses grow and thereby strengthen the economy. As if putting more Virginians to work would not mean anything to the economy.
Even more amazingly, partisan Norquist somehow turned the Republican hypocrisy into a Democratic pork-barrel attempt:
“Don’t be fooled. ... it is only a matter of time before Democrats cry for more tax dollars to pay for even more special interest projects that don’t benefit the average family or small business owner."
But, sir, this was a Republican governor that told Virginians, in no uncertain terms:
"Any general increase in the taxes of Virginia I’m not going to support. I’m not planning to raise taxes. That’s the best I can tell you."
Then he raised taxes.
It's not a surprised the voters believed him. During the 2009 Virginia gubernatorial debate, McDonnell made it clear that only tax cuts are the right way to respond to an economic recession.
In Virginia 2010 State of the State Address, McDonnell was just adamant:
We will not turn our economy around by taxing Virginians more. To do so would ignore the indisputable truth that the fiscal fortune of any government is tied to the economic prosperity of its people.
Okay, I know. It's not all that shocking that a politician would lie. It has happened once or twice in the past.

But there's perhaps there's something more to it. McDonnell, it seems, was simply pandering to the tax-hating Tea Party minority. He told them what they wanted to hear.
In fact, the hard reality was that the only way to keep unemployment down in the state was exactly what the dear Frederick Lawrence of 1922 recommended: deficient spending on necessary and well-thought-out infrastructure projects, with costs shared as widely as possible between local and federal governments- as well as those who chiefly benefit from the improvements. 
Not blank check to government contractors.
Not pork barreling on wasteful projects like bridges to nowhere.
Smart spending through careful government oversight, with project bidding based on market competition. Not rocket science, folks. Biting the bullet today means a better future for our children. Plain and simple. Our grandparents recognized it. 

The Tea Party voters,  led by fanatical (but un-elected) Norquists of the world, are not going to listen to time-honored common sense. They will continue to muddy the waters with their rage. Republicans and the conservatives that serve the Tea Party are just plain wrong. But the pressure these groups exert can make telling the truth about taxes a lot harder for some politicians.

Even Fox News pointed out McDonnell's aims in January of 2011,
“Chief among the governor’s priorities for Virginia has been job creation.”
And it worked. The unemployment rate in Virginia has fallen from 7.2% when McDonnell took office to 5.2% today, which is the 3rd lowest rate east of the Mississippi. Proof enough perhaps that stepping away from the anti-tax rhetoric makes sense.

Sooner or later, Republicans- I mean, those who genuinely care about reducing unemployment and improving the economy- will have to choose between being honest with voters- even the ones that despise tax hikes- or implementing the same failed policies over and over. 

On January 11th, Virginia will see a Democratic governor, Terry McAuliffe, being sworn in. Unlike the former governor, McAuliffe supported the bipartisan transportation bill that Norquist railed against. In announcing his candidacy last year, he told the people of Virginia,
"It is absolutely clear to me that Virginians want their next Governor to focus on job creation and common sense fiscal responsibility instead of divisive partisan issues."
The new governor is also a strong supporter of the Silver Line extension. The question is now whether McAuliffe can somehow combine common sense as well as brutal honesty about taxes with Virginians.