Henry George's proposal in action
Today’s Tribune gives us another example of the community collecting the rent: Chicago Park District harbors.
For many years, boat slips were greatly underpriced, so in order to get one you had to bribe a Park District employee. In 1996, harbor management was contracted out to Westrec Marina Management. Rates were raised and continue to increase. Harbors were improved and the number of spaces increased from 4400 to 5100.
A slip for your 35-foot boat at the popular northside harbors will cost you $3418 if you’re a Chicago resident, with a 25% surcharge for nonresidents. Fees are expected to yield $20.4 million in 2007, against $7.3 million operating costs. Of course there are also capital expenses, but the balance goes into the Park District’s general fund (although part of the cost is municipal tax which presumably goes to the City).
Of course there are people complaining about the cost: “It saddens me to see these prices get to the point where some people have to reconsider whether they can afford to do it anymore. With the way the economy’s going, fewer people will be able to get into boating in the first place,” says one boater.
You will always get people complaining, on behalf of the poor, that their costs should be reduced. It is obvious that boaters are not poor people. If you don’t want to pay to keep your boat in Chicago, there are less expensive harbors at Waukegan, Winthrop Harbor, Michigan City, and elsewhere. There are cans and star docks (which I guess require one to row out to one’s yacht) for as little as $1200/year.
Henry George’s proposal is really this simple. The community makes land valuable. That value belongs to the community, who should collect it in the form of a periodic payment for the exclusive right to use a piece of it. Even when the land is water.
Vicki!
Interrupting the serious blogging to note a new puppy in the house, Vicky. She’s ten weeks old, allegedly a mix of Gordon Setter and Lab, quickly learning to be spoiled, but most importantly, made it thru last night without peeing on the floor.
Let’s assume she’s a Georgist, so I’ll categorise this item thus.
Public ignorant about taxes
That’s my personal conclusion from the Tax Foundations latest opinion survey results. Not entirely ignorant, to be sure, but people think that the most unfair tax most of us pay are gas taxes. The only taxes considered less fair are real estate taxes and the estate tax, which few ever pay. And what’s most fair? taxes on beer, wine, and cigarettes, followed by payroll taxes and the corporate income tax.
Not only did the survey fail to distinguish between land taxes and improvement taxes, but it didn’t even consider taxes on gross receipts.
CTA pension liability isn't the only one
A February Civic Federation report(pdf), which I just encountered, reviews the year-end 2005 status of ten pension funds serving local gov’t employees in Chicago and Cook County, including CTA. Total unfunded liabilities: $16,486,000,000. And of course this doesn’t include any of the inadequately-funded State pension funds, nor suburban funds.
So some solution will have to be found for public pension funds, and I see no reason why transit riders should pay any more than other taxpayers for unwise decisions made by those they elected.
Chicago Transit Audit
On March 15 Illinois Auditor General William Holland released his “Performance Audit” of the RTA, CTA, Metra, and Pace. It can be downloaded from here. Apparently most of the actual labor was subcontracted to Maryland consulting firm Infrastructure Management Group.
The main techniques used seem to be peer group comparisons and trend analysis. Thus, cta is compared to such agencies as New York MTA, MARTA, SEPTA, MBTA, etc. (with separate comparison groups for bus and rail), Metra is compared to various commuter rail agencies, and Pace to smaller bus operations including Milwaukee. This technique may be appropriate if the “peers” are reasonable “models” to be followed, but if some of them are less than competently managed it’s of limited value.
Although it’s one of the last items reviewed, I think the most important point made (and it’s not really news to those who’ve been paying attention) is the disasterous state of CTA’s pension funding. A detailed history is provided, starting from the 20 months in the mid-1990s when, even though the pension plan wasn’t fully funded, transit management and labor decided to take a “pension holiday” and suspend contributions to the pension fund. Then on 1/1/2000, actuaries recommended that the pension contributions be increased to 16.54% of payroll (from 9%). Not only was the rate not increased, but pensions were raised by $40 to $75/month.
Actuaries continued to recommend increases in funding (to 18.19% in 2001, 29.46% in 2002, 34.98% in 2003, 45.16% in 2004, 48.32% in 2005, 50.3% in 2006), but the reaction of the management/labor board that runs the pension system was to keep the contributions at 9% and again raise pensions. Thus we are in the position where the plan is only 34.42% funded (meaning if I understand it correctly that it has only 34.42% of the money it should have to pay benefits already earned), with an unfunded actuarial liability of $2.3 billion. This is money which, under the Illinois Constitution, will have to be paid even if the entire transit system is liquidated or disintegrates.
I hope a few folks can be jailed for this pension mess but the auditor does not deal with that issue. Of course, the CTA’s Board is covered under a different plan, one that receives “pay as you go” employer contributions equal to 135% of salary. There are 22 beneficiaries (former Board members) and 6 active.
In nonpension matters, the Audit makes some good points but in a number of aspects does not go deep enough. Discussing planning, they don’t deal with the issue of why the Brown Line expansion or Douglas rebuild were approved without adequate consideration of less costly and equally effective alternatives.
The lack of a strong, centralized planning function, and the absence of a long-term strategic plan that sets a structure and broad guidelines encompassing financial, programmatic, and operational aspects of the Service Boards and the RTA, has been a major contributing factor to the present state of transit in northeastern Illinois.
and so here’s the Auditor’s recommendation about planning:
The RTA should conduct a long-term, comprehensive strategic planning process that sets a structure and broad guidelines encompassing financial, programmatic, and operational functions of the Service Boards and the RTA. The RTA should perform this
strategic planning process on an ongoing basis.
In addition, regarding major new Service Board initiatives, such as New Starts projects, the RTA should establish a set of criteria for funding and prioritizing such initiatives across all agencies.
Such criteria could include:
• How does the proposed project fit within the regional long-range strategic planning process;
• What is its priority;
• What is the desired schedule;
• What resources are available; and
• Which transportation mode is preferred.
But this recommendation is being made by a Maryland consultant probably unfamiliar with (and not contracted to consider) the details of Chicago planning issues, so it’s probably the best we could expect.
Following are some other highlights, all direct quotes from the report except where outdented.
We were also told that the CTA president was evaluated by the CTA Board at the
December 2005 Board meeting. The minutes from that session constitute the only written record of that evaluation. We reviewed these minutes, yet they did not contain any specific reference to the president’s review.
CTA’s monthly customer complaint report tracks the volume, but not the category, of complaints.
CTA’s trains are slower than their peers, which makes them less efficient in terms of cost/passenger or cost/mile, even after adjustments have been made to reflect their smaller size.
CTA’s operating costs for buses are $97.24/hour, compared to $105.24/hour for railcars. So apparently it would be cheaper to pave over the elevated, run buses every thirty seconds or so, rather than keep operating the trains. However, bus costs may be somewhat understated because apparently cta counts a bus as “in service” while deadheading (and in fact, most deadheads do permit passengers.)
To gauge the performance of maintenance personnel, the CTA rail operations group uses a “Periodic Maintenance Inspection Program.” Under this program, the Quality Improvement Section inspects cars at each of the nine shops and assigns points based on the nature of any oversights that are found, with more severe oversights earning higher points. Each shop is ranked according to its overall score, encouraging competition between shops to improve performance.
Wouldn’t it be interesting to see those numbers?
Currently CTA’s call center handles an average of 19,000 calls per month, with an average hold time of 6.2 minutes and a 55 percent abandonment rate. Abandonment rates and hold times had been between 4 to 36 percent and 23 seconds to 9 minutes and 25 seconds, respectively, from 2002 through 2005.
The customer service department attributes the jump in the abandonment rate to the implementation of a referral to the web site in the recorded voice.
• Reduce total bargaining unit compensation package to market levels ($191,800,000). The AECOM report notes that this would be system wide savings, but full implementation through attrition could require several decades.
I am not familiar with the AECOM report but apparently it assumes cta staff are massively overpaid. I wonder on what basis?
Pace buses costs $69/hour to operate (compared to $97 or more for CTA), spends less on maintenance than CTA but their buses break down only one-eighth as often. Only 22% of Pace’s buses are past “retirement age” compared to 47% for CTA, but could this be the entire explanation? I wonder why the Auditor didn’t recommend having Pace take over one CTA garage to see how they could do.
I have read somewhere that the Audit slams cta’s absenteeism as a major problem, but actually cta’s sick days seem to be only in the neighborhood of 1% of hours worked (sick) and the cost of sick days and workman’s comp is only maybe 2% of total labour cost. I don’t think it’s unreasonable for an average bus driver to take two or three sick days a year, and that’s all this seems to imply. In fact, if he really feels sick, I don’t want him driving the bus I’m on.
The Audit makes clear that one reason sales tax revenue has grown more slowly than operating expense is that most of the population (and sales) growth is in the collar counties, where the sales tax rate is only 1/4 of the Cook County rate.
The report has some interesting observations about fare elasticity (the ratio of ridership change to fare change), estimating that it’s about -.15 for cta, between -.3 and -.4 for pace, and very small for Metra. There is of course no further segmentation, nor any long-term analysis. A proper understanding of fare elasticity would have to consider the interaction with parking prices and long-run effects on travel demand.
p. 274 gives us a context-free analysis of transit funding flows:
Whether one bases the subsidy allocation on passenger miles or boardings, the results are essentially the same: the city of Chicago is the largest net importer of transit tax revenues, and suburban Cook County is the largest net exporter of sales tax revenues. Since a predominant number of trips made by residents of Chicago is on the CTA, it is clear that CTA benefits from the current statutory and discretionary allocations of sales tax revenues.
The current revenue allocations also favor the collar counties, with the exception of Kane County, which is a net exporter of sales tax revenues. Generally, the net import of tax revenues by the collar counties reflects the effect of a lower sales tax rate than is levied in Cook County, while at the same time their residents have good access to transit services provided by Metra and Pace.
It would be interesting to compare this with expenditures of highway funds. And consider that some transit trips are cheap to serve (reverse-direction commute, and any non-cbd trip that can use a feeder bus required to serve cbd trips), while others are expensive (mainly peak-direction cbd-oriented).
And cta’s multiple administrative hq’s:
p. 381: The top floor of the CTA Headquarters building (approximately 34,000
square feet) is unoccupied. The CTA has been attempting to rent it, but
has been unsuccessful. The CTA’s financial plan for acquiring the new
headquarters was based on the assumption that rental income would be
generated by this space.p.383: When CTA consolidated its headquarters at West Lake, most of the administrative functions that were located at North Racine were relocated to West Lake. The CTA control center remains in the North Racine building, occupying the top floor of a three-story building, which has a total gross floor area of approximately 100,000 square feet.
The decision to vacate two-thirds of that building (approximately 71,500 square feet) did not relieve CTA of its lease payment obligations
Illinois farmland prices continue to rise
Our friends at the Illinois Society of Professional Farm Managers and Rural Appraisers have issued their 2007 report. Basically, farmland prices continue to rise into the first quarter of this year. Although 1031 exchanges are still a factor, the greater part of the increase seems to be due to increasing yields of crops selling at higher prices (ethanol subsidies being part of the reason). Coal mining also seems to be a factor, I guess because landowners can expect to sell rights, or the land itself. And wind turbines, which as I understand it yield far more than field crops.
Prime quality farmland is selling at $5,000 to $6,000 per acre outside of metropolitan areas, and up to $30,000 on the suburban fringe. “Recreational” (hunting) land goes for less (this being land not terribly good for farming).
The report points out that 55% of American farmland is owned by people who do not farm it, and “that number is growing.” If I were inclined to join them, I would be concerned by the report’s assertion that “Farmland is a growth stock,” with a graph very reminiscent of a stock chart, showing that farmland values fluctuate, but the long-term trend is sharply up.
There’s lots more and the report is well worth a look by those interested in where our food comes from and what it costs to produce.
Leasing of urban land remains common
Georgist instructors always need to point out that people are quite willing to develop land taht they do not own, as long as they expect to be able to keep possession of the improvements they make. So it is not really striking, but useful to note, that Loyola University plans to “sell development rights to about three acres near its North Side lakefront campus. The school hopes to extend a 75-year ground lease to a developer that will finance the project.” (from the Chicago Tribune, March 7 “Inside Commercial Real Estate”).
Why is Loyola looking to lease rather than sell? No one says, but possibly they want an assured income stream with some sort of escalator to benefit from expected increases in land values. Or possibly they are planning to try to somehow keep the land exempt from real estate taxes. Possibly they want to tie their successors’ hands to prevent depletion of their endowment.
Or perhaps they’re thinking very long term.
High-priced vacant lots in Winnetka
"Intellectual Property" vs. Future Archaeologists
There’s already a lot of old digital files that no one can read. And “Digital Rights Management” limitations will make future archaeologists’ tasks even more difficult. So says Phil Zimmerman, the inventor of PGP encryption.
“I think intellectual property law has gone a little bit crazy and is counter-productive for society,” says Zimmermann, referring to masses of archives of film that needs to be moved to modern media before it degrades completely. “You need to transfer it but the copyright holder is dead, and no-one knows how to contact the estate.