Lights Out For Free Public Goods?

Posted: June 14th, 2010 | Author: | Filed under: Government, Transit | Tags: , , , | 2 Comments »

Most American local governments and transit agencies are struggling to balance their finances. In addition to the economic downturn, revenues are often limited by property tax limits or political resistance to tax or fee increases. Meanwhile, costs have been ballooning. Many fixed costs, such as the price of energy, health care, and other employee benefits have expanded dramatically in recent years. The result has been a quiet crisis, which is sowing the seeds for future problems. Here in Boston, last year the MBTA only had enough funds to fix six of the agency’s 56 infrastructure projects that were ranked as most important for public safety on an internal 10-point rating scale. At the MBTA and other agencies, important upgrades and maintenance are being delayed. Similar patterns are playing out in cities and towns making hard decisions about upgrades to critical road, water, and other infrastructure.

However, the financial distress is also provoking government officials to create new forms of revenue generation. The most notable example relates to streetlights. Although desired by citizens for safety, the increasing cost of electricity has pushed several cities to deactivate them. In the face of citizen complains, several allow local residents to directly pay for the cost of their operation. Presumably the capital costs are “sunk” so the marginal cost of operation is electricity and a small maintenance fee. Concord, Massachusetts is deactivating many, and providing residents the option of sponsoring a streetlight of their choosing at the cost of $17 per light per month, or $204 a year. Colorado Springs, Colorado is making deep cuts to a range of public services, including deactivating over 30% of the city’s streetlights. (At right, crews disconnect a streetlight in the city.) As in Concord, citizens can adopt local streetlights at a cost of $100 to $240 per year, depending on size.

When I proposed this as a model for raising public funds to a group of graduate students recently, they immediately raised concerns. On the surface, the transaction does look like an example where government provides services for a fee instead of safeguarding the public interest. Will poor neighborhoods lose out? However, on closer examination I think the arrangement is more nuanced. Although the streetlight adopter provides all the funding, they by no means enjoy all the benefits. The nexus between who pays and who benefits is indirect at best. In both of the cases above, governments decided which streetlights should remain on for safety purposes (at intersections, for example). Officials in Concord admitted to adding streetlights where they may not be needed during better times. In addition, in already relatively homogeneous communities like Concord (where only 2% of families were below the poverty line in 2000), the equity effects are muted.

Policymakers could also affirmatively address such concerns, while allowing residents the freedom to fund their local streetlight. In this arrangement, the price charged would be slightly above the true cost (say 10%), and the extra money be used for lighting elsewhere in the city, or even to subsidize the purchase cost for low income households adopting their own streetlights.

Similar scheme could be used in transit. The public good funding model is in crisis, with too little revenue to support the desired level of service. One approach could be to create a discrete fund for the maintenance and improvement to each bus line and rail station. Anyone who wanted to – neighbors or otherwise – could donate to these “earmarked” accounts. However, the agency would implement a tax on the donations that would be shifted to the stations and lines receiving the least. That way institutions and riders could donate to support “their” station or line, and the system as a whole could gain access to scarce unconstrained funds.

Many bus and rail lines connect rich and poor neighborhoods, so donations for these may already have equalizing effects. This approach may be troubling because it may seem to encourage differentiated levels of service for different neighborhoods. However, the practice of paying for transit service in general is not unheard of, in Washington, D.C. sponsors of major events have made cash payments to keep the subway system open later in the evening. Private groups dedicated to augmenting public services are already well-established for parks (private conservancies), schools (PTOs), and urban neighborhoods (BIDs). Why not for transit?

I’m not sure whether such a scheme could be workable. However, in the absence of reform our current system is under stress. If we don’t like the alternatives (such as a simple fee for service), advocates for public transit and local governments should consider innovative alternatives that satisfy both the fickle voters and the public interest.

Thanks to Libby for the post title idea

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