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Subsidy Clarification

August 30, 2011

So my last post seemed to have garnered some positive feedback (thank you fine readers) but there were also some things that were not very clear to others.  I know sometimes I may not go as far in depth on some things as I would like, but I try to keep in perspective that this is a blog and not a book deal, so I try to keep it under 1000 words.  With that in mind I offer up a part two to my last post.

“Your post makes various other claims about subsidies from urban dwellers to suburban dwellers, but I’ve never seen any serious analysis showing that these claims are true. For example, how do you know that urban dwellers subsidize the costs of police and fire services for suburban dwellers?”

True, there hasn’t been a full in depth, nationwide analysis on this topic (maybe that can be my thesis if I get into grad school next year).  But there is substantial evidence proving it, both from a general logic point of view, and actual incidents.  Education is probably the easiest one to tackle, but police and fire aren’t far off.  What it essentially boils down to is efficiency.  In a smaller more compact environment police can be more efficient, not only with their resources but also with their time.  Less ground to cover, less resources used.  But it is also deeper than that. 

Atlanta’s scenario is a county with multiple cities (an urban core, with suburban cities).  Each of these cities has their own jurisdiction.  Therefore, the choice to establish another separate entity within the same county as the urban core, requires intensive overlapping of staff and facilities.  Suburb X requires their own police department as well as administrative staff and countless resources, duplicate resources often found close by in other cities.  Being that a large portion of their budget is derived from COUNTY property taxes, that means money paid by those in Atlanta is diverted to pay for a police force in a neighboring town.  Subsidy.  In places where the police are representative of an entire county (Charlotte, NC) their resources are spread more thin, or additional staff and resources have to be added to patrol and protect low density areas.  This is more costly, in added fuel costs, additional payroll, and more facilities that only serve a small population, resulting in greatly reduced efficiency.  That small population pays usually less in taxes than urban dwellers (as their homes are generally worth less than those in a city) therefore they are not paying for the additional cost that is incurred to provide them with police and fire services. Even if they paid the same in taxes, the costs to provide them such services is higher.  The cost is picked up by the city residents’ tax dollars.  Subsidy.

“Road subsidies: About 1 cent per passenger-mile, which is about 2% of the total cost of driving. Mass transit subsidies: About 75 cents per passenger-mile, which is about 75% of the total cost of mass transit. Subsidies overwhelmingly favor mass transit, not cars.”

Yes and no.  The numbers I know are wrong, but I understand the point.  And before boring you with numbers this should be kept in perspective.  Rail and mass transit is in its infancy in America, (think about it, even the terrorists found the state of our rail system humerous) with the exception of only a handful of cities.  The rest saw their transit systems dismantled in the early to mid 20th century.  Because of this we are having to rebuild them, from scratch.  One of the reasons why they were dismantled and eliminated in so many places was because of the nearly 100% subsidized road and highway project that took place in the 20’s and 30’s.  Thats how we have most of these interstates.   They were fsubsidized by the government to get the project rolling.  That is essentially what we are having to do with rail now.  So any argument regarding how much roads have or have not been subsidized without considering the historical nature of their development and origination, is a half hearted attempt at truly understanding transportation.

Regardless facts are facts, and according to the U.S Government Accountability Office, road funding is composed as such: 51% “User Fee” (Gas tax, registration, taxes, etc: declining since 1965) 37% Non-user revenue (sales and property taxes, which is a subsidy: increasing since 1977), and 12% Bond Revenue (also a form of subsidy).  So 2%; hardly.  These numbers also do not account for all of the hidden costs associated with roads, and especially highway building.  The environmental impacts, the destructive nature to communities and property values, government bailouts to auto manufacturers, tax breaks for the purchasing of more fuel efficient vehicles.  In fact 3 out of 4 of those represent an immediate revenue decline while the environmental impacts represent an inherent negative effect on “the bottom line.” 

Lastly I would like to point out the fact that I put User Fee in quotations.  A user fee is a direct payment, resulting in the access to another resource.  A toll for a bridge, tunnel, or yes some interstates is a user fee.  A gas tax, car tax, and others are not user fees.  They are taxes, and the distribution of tax money by the government to provide a service is called a subsidy, not a user fee.  When you buy milk and you pay your tax, it is used to provide a government service, a subsidy.  Just because the selected tax is allocated to a likeminded service does not ultimately make it a user fee.  In fact the gas tax is the only tax dedicated solely for the support of a likeminded service.  Did 100% of your grocery tax go to farmers and food producers?  Did the tax money on the last pair of shoes you buy go directly to improving and building sidewalks?  No, so the gas tax is given preferential treatment over other taxes, regardless, making it a subsidy and there is absolutely no way around that.  A user fee would be you, purchasing a one way fare on the subway or a bus.

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2 Comments leave one →
  1. GMK permalink
    September 1, 2011 2:47 pm

    I often make the same point about urban areas subsidizing suburban areas and what I have found is that some people just do not want to get it. I think this may shatter their reality and they might actually have to stop living the way theyu are living. It is kind of like when I make the point about college football players being exploited. It seems so obviouls to me that when a school reeps millions (the NCAA just signed a billion dollar tv deal for college football) and a student gets a free education that that is not fair. I guess if you actually admit that that is exploitation you may actually have to stop watching the game and some people refuse to do that.

  2. September 3, 2011 11:47 pm

    Another great way to present the inefficiencies of the suburbs is by looking at revenue generation on a per acre basis. Currently, most city and regional governments look at the dollars that a new business will bring in without considering all of the consequences. A WalMart Super Center may generate an amazing amount of tax revenue for a city but it may do so by taking up 40+ acres of land. When compared to the urban core or town center, the sprawl development loses time an time again on a per acre basis. Here’s a good article that references some of the work that Joe Minicozzi has been doing on the subject.

    http://www.postindependent.com/article/20110712/VALLEYNEWS/110719986/1083&ParentProfile=1074

    Here are a few quotes from the article:

    “Across the board, other downtown commercial and mixed-use buildings outperform their big-box counterparts using the per-acre tax revenue comparison, both in Glenwood Springs and Rifle.”

    “It’s like comparing the value of a vehicle based on miles per tank (large-format commercial mall) versus miles per gallon (mixed-use downtown development).”

    “Many communities have tended to look at real estate on a miles per tank basis,” Minicozzi said in a recent interview. “But if you look at it on a miles-per-gallon basis, all of a sudden the data on that vehicle changes.”

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