If you are not familiar with the Civic Caucus, “a Minnesota e-group of senior policy wonks,” I highly recommend checking out their web site (http://www.civiccaucus.org/). The group holds weekly interviews with area policy makers and influencers. What is unique about these interviews is the interviewees tend to be more candid than they are in press interviews or public statements.

Thus you get Peter McLaughlin admitting that a chief objective of the rail system is to guide development and congestion relief is a lesser goal – a position contrary to what many supporters of light rail claim when trying to rally public support of projects like the Central Corridor. You get state Rep. Bernie Lieder warning that counties should look to property taxes to make up any transit operating shortfalls and not looking to the state for aid as a result of the transit sales tax that was part of the $6.6 billion transportation tax increase package – which came during a legislative session ostensibly focused on property tax relief.

Summaries of Civic Caucus interviews (approved by the interviewee), posted here, are emailed to over 800 Minnesota movers and shakers for comment and response, which is linked to each interview. (Full disclosure — I have been interviewed twice by the Civic Caucus: One on the future of newspapers and once on transportation policy. Minnesota Free Market Institute President David Strom has spoken to the Civic Caucus on government in Minnesota.)

On June 20 the Civic Caucus interviewed Matt Kane of Growth and Justice on major transportation issues in Minnesota. It is an excellent interview, which I recommend as a thoughtful progressive approach to transportation. I found it interesting that Kane and I are not far apart on the reasons for congestion, the deficiencies in the structure of transportation funding and a dislike of the transit sales tax – although often for different philosophical reasons. Following are my specific responses to Kane’s comments submitted to the Civic Caucus:

In discussing the Central Corridor, Kane noted that it is not intended to ease congestion but to accommodate anticipated demand, which buses can’t accommodate, and thus provide access to destinations for people. Regarding the relationship between buses and LRT he says, “We need to keep in mind both costs and who is served when exploring transit modes.”

I think Kane’s analysis is of the Venus De Milo kind — what there is of it is magnificent, but missing are important elements. The first is, transportation is about more than getting from point A to point B. All trips are taken with a purpose. Mobility is getting people from where they are to where they want to go, to do what they want to do when they want to do it. While transit can enhance the ability to get from where you are to where you want to go, ii doesn’t necessarily enhance your ability to do what you want to do (grocery shop for a family) or when your want to do it (grocery shop on a Viking’s Sunday). To the extent that transit costs detract from other transportation options, it is a limiting factor on mobility.

Second, demand is never independent of price. The demand for transit is based on the assumption that non-transit riders will subsidize not only transit construction but also ongoing transit operations. This greatly distorts the market. On the one hand, there are lamentations that the wealthy don’t pay their fair share of taxes; on the other the state subsidizes suburbanites who work downtown and people who can afford to drop a couple hundred dollars at a Viking’s game. For transit “demand” to have a viable economic meaning (let own a multiple-line viability), we need to move away from subsidizing the system to a model where most people pay a full fare market rate and the state, as necessary, subsidizes low-income riders allowing them to make independent transportation decisions.

Third, Kane’s statement vis-à-vis keeping costs and who is served in mind is what in the business world we referred to as “skilled incompetence.” It is circularly true, but ignores that hard reality that there is a trade-off involved and that someone is going to come out holding the smelly end of the stick. It avoids conflict during decision-making, but never removes it because it is never brought up. The Central Corridor project was premised on LRT from the get go. Just look at all the route controversies and manipulation of the bus routes taking place to make the project viable – all taking place well after the fact that LRT was decided on as the way to go. And why did the U finally compromise? Because it didn’t want to be the one that kept LRT , the agreed upon good, from becoming a reality.

Regarding suburban transit systems, Kane noted that that it is difficult to design a system to well serve potential transit users in locations with low densities for housing and low concentrations of jobs, but innovative approaches would be welcome.

The lack of innovative approaches is an opportunity cost of heavily subsidized transit systems. Because public models are so large in scale, they set pricing parameters – think Medicare setting the bar for medical prices in private practice. Segmenting the transit system into a public sector that picks the low hanging fruit and a private sector that must compete with subsidized pricing in suboptimal sectors does not encourage risky innovation.

Kane said that the metro area needs a wider range of options for getting to where they need to go and that land use matters, too, in terms of where people live vis-à-vis where they work.  He said that the use of pricing mechanisms to encourage drivers to seek lower cost alternatives has appeal. One approach he noted would be to charge motorists based on vehicles miles traveled, perhaps varying the rate based on when, where, and how far a trip occurs. Kane also said he is not opposed to considering a parking tax, too.

Treating roads as a commodity, it is reasonable that during high demand times, individuals should pay more for the limited supply of road than during times when the supply of road is greater than the demand. In the interview Kane noted that reducing congestion shouldn’t discourage economic activity, yet he seems divorced from that concept with these recommendations. New pricing mechanisms should NOT be implemented to ENCOURAGE alternatives; they should be implemented to provide additional value (generally time-saving) for additional cost. Thus, charging congestion pricing is not a good policy (and a parking tax is an absolute disaster) – building an alternative route or designating high speed lanes at a cost is better policy. LRT like the Central Corridor, subsidized transit that only replaces existing capability, is not cost effective; a high-speed light rail charging what the market will bear might be. Higher cost should be based on increased value.

Kane also said that the metro area needs a wider range of options for getting to where they need to go and that land use matters, too, in terms of where people live vis-à-vis where they work. This is the dangerous notion of new urbanists – the idea that we must accept decreased mobility as if that had no consequences. The Department of Labor tells us that the average person will change jobs four to seven times in a career. If a person is limited to making career choices based on proximity to his or her home, that severely limits opportunity. The slippery slope is new urbanist transportation can’t work without land use policy; land use policy can’t work without reengineering individual behavior.

Kane said Growth & Justice favors tapping into income tax revenues. The Minnesota Free Market Institute doesn’t favor an increase in income taxes, but we do believe that state resources are state resources and roads, bridges, and transit should be paid for out of general fund dollars and compete with hockey arenas, zoo exhibits and sheet music museums for bonding authority. The bucket approach of category-designated funding for to transportation projects and the process that places a priority on geographic equity over statewide necessity ought to be done away with.

To support transportation funding, Kane says Growth & Justice believes Minnesota should look to income tax increases targeted toward higher income earners. A discussion of this notion can be summed up in two words: “Carlos Delgado.”

Delgado is a professional baseball player traded from the Florida Marlins to the New York Mets. His contract contains a clause that if he moves from a low income tax state (or no income tax like Florida) to a high tax state, his new team must increase his salary so he nets the same dollar amount. The Mets had to pay Delgado an estimated $350 to $400K a year more than the Marlins because of the New York tax system.

The point is, in the modern world a single state cannot control the flow of capital. If Minnesota has a higher marginal tax rate at upper incomes, it will have to pay higher salaries to lure people to come to or stay in Minnesota. Higher salaries, in turn, create a higher cost of doing business, which creates higher prices for products and services. Higher marginal rates also create a larger pre-tax gap in wages between wealthy and non-wealthy (between mobile and non-mobile professions and individuals).

A progressive tax system is a more effective tax system when low income people pay a very low tax rate, but the marginal rate jumps quickly between low and average earners and then increases in very small increments at the margins. Economic activity is determined at the margins, and the greater the tax percentage of the last dollar earned, the less motivation to earn that dollar and the less value of that dollar’s worth of productivity to society. Top-loading the system decreases productivity and, contrary to the objective of Growth & Justice, creates a greater (and more visible) income gap between wealthy and non-wealthy. It creates a society where benefits for the majority are based on the productivity of a small minority, which hurts low and middle income families dependent on government services during times of recession when upper incomes tend to fall more rapidly as then do government revenues.

A final note on the Growth & Justice model: While G&I is going through the multiple steps of their process of collecting and analyzing data to come up with economic policies, millions of individuals are making billions of decisions, each in its small way contributing to a changing economic environment. It is a “fatal conceit” to think that any group of experts can shape the market more effectively than individuals pursuing their own interests – that a better society is produced by experts integrating transportation, land use and behavioral engineering using a multistep planning model than is the society created in response to millions of individuals making billions of transactions.