Saturday, December 17, 2011

Whose Money?

by Conroy

1 World Trade Center under construction
Drivers approaching lower Manhattan in 2011 have seen the steady rise of a new skyscraper, 1 World Trade Center. By December its steel superstructure already stood over 1,100 feet above street level, dominating the famous skyline around it. When the building is “topped out” next year it will be the tallest building in the United States (in fact the tallest in the entire western hemisphere).  1 World Trade Center is the most spectacular part of the massive World Trade Center redevelopment effort, which includes several other towers, the National September 11 Memorial & Museum (the memorial is open but the museum is still under construction), and a soon-to-be-completed transportation hub (road/rail/bus terminal). These are just some of the tangible signs that after a decade New York City has largely (physically) recovered from the 9/11 attacks.

Drivers Sue the World Trade Center?
Not long after 1 World Trade Center peeked above the surrounding buildings, the American Automobile Association (AAA), a service and advocacy group for over 50 million drivers, sued the Port Authority of New York and New Jersey (PANYNJ). Why? Well this fall PANYNJ announced significant toll increases, up to 50%, on its many New York area bridges and tunnels, which include the heavily trafficked Lincoln and Holland tunnels and George Washington Bridge. The higher tolls were needed, according to PANYNJ, to pay for ongoing facility maintenance and planned improvements and to cover some of the cost of the World Trade Center construction. You see, in addition to bridges, tunnel, airports, seaports, and transit, PANYNJ also owns several commercial properties the most visible being the World trade Center site. The AAA lawsuit claimed that the PANYNJ toll increases were an unfair burden to drivers and that toll revenues would be diverted from the bridges and tunnels that toll payers use to unrelated commercial enterprises. In other words, and rather nefariously in AAA’s eyes, 1 World Trade Center was rising high above Manhattan on the dime of drivers who would never benefit from the development.

PANYNJ has countered that in fact they misspoke and all of the revenue raised from increased tolls will be used on their transportation facilities and not a nickel to pay for the World Trade Center construction. Both sides argued their case in court last week and a ruling on the issue might be made by the end of the year. In light of PANYNJ’s modified account of how the toll revenues will be used, I foresee the new toll rates being upheld and no refunds for any AAA drivers, but I’m not a lawyer and won’t wager on any particular outcome.

This whole case may seem like one advocacy group attacking one issue from one public agency, but I think it’s a microcosm of a larger debate being held in many forms nationwide. Namely, when it comes to public money, whether it’s tolls or taxes, whose money is it and who gets to decide how it will be spent? In the 2010 U.S. midterm elections, Republicans across the country benefited greatly from a broad grassroots effort, the Tea Party movement, which essentially argued that elected officials and public agencies were incapable of responsibly using tax dollars. And therefore, all tax increases were unacceptable and major spending programs dubious. On the national level we’ve seen the results of last year’s elections: A tooth-and-nail struggle to get any spending programs passed through Congress, and none of those that eventually were passed included any tax increases. Clearly one’s sympathy or antipathy to the Tea Party movement’s agenda rests in your political and fiscal perspective, but this is one of the fundamental arguments in America today.

Whose Money is It?
So going back to the core question, whose money is it and who has the right to decide how it is spent?

Legally, of course, the state (federal, state, local) has a right to levy taxes. An offshoot of this legal right relevant to the AAA-PANYNJ lawsuit, is individual states also have right to allow agencies (public or private) to charge tolls on roads, bridges, tunnels, and other transportation facilities. The general reaction to taxes might range from annoyance to abhorrence, but there is little argument that they are, to one extent or another, a necessity. After all, it’s hard to envision police, firemen, local roads, streetlights, and other basic services being provided by the private sector. Not to mention “big” items like say, the military or social programs that most would agree fall within the state’s responsibility.

What a tax reformer would argue is that without better limitations on how government spends this revenue, massive inefficiencies and waste will result. Keeping in the transportation theme, we’ll just end up with more boondoggles like the notorious “Bridge to Nowhere.” This is the point of the AAA lawsuit. PANYNJ is using toll revenues and not reinvesting those funds into the facilities that the toll payers use. The flip side of the argument is that handcuffing how the government spends tax revenues can preclude the ability to funnel money into needed programs and resources. For instance, in the case of PANYNJ, assuming they are using toll revenues to pay for the World Trade Center site, might that investment ultimately payoff in commercial rents that will cover the initial project costs and raise large revenues in the long-term?

PATH service paid for by PANYNJ toll-paying drivers
And consider a specific example that raises a similar, but stickier question. Regardless of how the AAA-PANYNJ lawsuit turns out, PANYNJ will still be responsible for maintaining and operating its many facilities, including the PATH rail transit service between New Jersey and New York. This service is essentially subsidized by the tolls paid by PANYNJ users. The PATH user fees do not cover the PATH costs. So drivers are subsidizing transit users. Did you know this was a fact true for every transit service in the United States? Transit service is mostly paid for by drivers through tolls, fees, or gas taxes. A Tea Partier (and maybe AAA) would argue that drivers are being unfairly burdened by paying for other modes of transportation. A transit advocate would claim that transit service improves overall regional transportation and is indispensible for regional mobility and economic growth. Who’s right? How should transportation money be spent? I’ve focused this post on a transportation issue, but you could apply the argument to any aspect of public spending.

It seems you can’t go through a day without hearing or reading about the issue of government finances, spending, debt, and long-term fiscal security. The issue of how government raises money, how it’s spent, who pays, and who benefits is going to dominate public discourse in the coming years as much as 1 World Trade Center will dominate the skyline of lower Manhattan. History might prove the well-learned cliché that nothing is more certain in life than taxes, but if the AAA lawsuit, the Tea Party movement, and the raging debt crisis are any indication, a business-as-usual approach for how those taxes are spent is far less assured.

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