Today’s conservatives tend to criticize this point of view. And I have to admit that one of those criticisms deserves to be taken seriously – namely, that government is a bad capital allocator. This in fact is the situation with our current transportation investments.
In the past, we saw enormous economic benefits from investments in transportation infrastructure. In the early 19th century, the Erie Canal was revolutionary. The railroad network transformed America. The interstate highway system likewise set the stage for another half-century of growth. These were so transformative that government didn’t have to be a great capital allocator to get great returns.
But are investments like that available today? They do not appear to be. There is no new transportation technology comparable to the train or the automobile which is so transformational and universal that there could be a nationwide build-out of it. The one major form of transportation we have not deployed in the U.S. is high-speed rail. That could be beneficial, but it’s not likely to be revolutionary. And it is only viable in a limited number of corridors.
Instead, what we are doing is continuing to invest in more of what we already have, especially new roads. But since our highway network is mature, the return on investment for this is much lower than for our past investments. One study suggested the return on investment for new highways had fallen to 5 percent by the 1980s. That means we need to be much more selective about where, and in what, to invest.
Much of America has a stagnant or shrinking population, making it a bad fit for new or expanded highways. But it’s the nature of government to spread investment around like peanut butter. Every state or region of a state has to get its “fair share” of spending, whether it needs it or not.
American growth today is regionally unbalanced. There’s a lot of growth in places such as Dallas-Fort Worth, Nashville and Phoenix. They should be building a lot of new highway infrastructure. Whereas declining cities like Cleveland or St. Louis probably should not be building new roads. But our system of infrastructure finance is not set up like that.
In fact, our system is too often set up to spend more money on the places where it is least likely to get a return. If there’s a depressed or underdeveloped region of a state, you can be sure that a new highway is proposed as the solution. These almost never produce the results touted.
A good example of poor capital allocation is the Ohio River Bridges Project in Louisville, Ky. Local leaders there debated building a new bridge across the river for decades. Leaders in neighboring Indiana wanted a bridge in the East End, which would open new land to development. Kentucky leaders pushed for a downtown bridge instead. They compromised and decided to build both. Wealthy residents in the East End on the Kentucky side of the river demanded ludicrous, cost-expanding elements such as a tunnel underneath a purportedly historic landscape. Nevertheless, the project was built, using tolls to cover the funding gap.
After opening, it became evident that the project was a debacle. The tolls imposed on the new bridges led to large traffic diversions. The new downtown bridge doubled capacity on Interstate 65, but traffic actually fell by almost half as people simply diverted to the existing free bridges. This was more than $1 billion flushed down the drain.
Cincinnati appears poised to do something similar. Ohio and Kentucky are gearing up to spend $3.6 billion to expand the capacity of that city’s downtown Brent Spence Bridge by building a companion bridge, as in Louisville. Thanks to a special $1.6 billion grant obtained through the recent federal infrastructure act, there will not be tolls on this bridge. However, that does not make it a wise place to spend $3.6 billion. Adding a small toll would likely have resolved any congestion issues without spending any public money at all. In fact, a toll would raise money.
Also, as was the case in Louisville, the traffic projections being used to justify the project are likely inflated. In 2016, the Cincinnati Business Courier noted that “traffic on the Brent Spence Bridge has decreased, but that does not mean a new bridge isn’t needed, according to transportation planners.” Since 2016, traffic levels on the bridge have been flat, according to Ohio Department of Transportation data. Traffic in 2023 was actually 21,000 vehicles per day lower than its level in 2013.
Odds are the project will be marginally useful, but won’t have an especially high return. If you gave local leaders $3.6 billion to spend wherever they want, they probably wouldn’t choose to put it all on this bridge. If you told them they had to pay for it themselves, they’d never do it. But since the funds are available from federal and state sources, they will take it.
Our current system is not set up to allocate government capital efficiently to where there is likely to be a good return. This is a serious and legitimate challenge for those of us who would like to see the government invest more.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
