i it Nip A STUDY OF PUBLIC WORKS INVESTMENT IN THE UNITED STATES U.S. DEPARTMENT OF COMMERCE Office of the Assistant Secretary for Policy and Economic Development Administration Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/studyofpublicwoOOcons A STUDY OF PUBLIC WORKS INVESTMENT IN THE UNITED STATES Prepared by CONSAD Research Corporation for U.S. DEPARTMENT OF COMMERCE PHILIP M. KLUTZNICK, Secretary JERRY J. JASINOWSKI, Assistant Secretary for Policy ROBERT T. HALL, Assistant Secretary -» for Economic Development ! I APRIL 1980 TABLE OF CONTENTS ACKNOWLEDGEMENTS EXECUTIVE SUMMARY VOLUME I: HISTORICAL ANALYSIS OF PWI TRENDS AND FINANCING MECHANISMS I . VOLUME II: ANALYSIS OF MAINTENANCE, CONDITION AND FINANCING OF URBAN CAPITAL STOCK II. VOLUME III: EFFECTS OF FEDERAL CAPITAL GRANTS ON FIVE STATE-LOCAL FUNCTIONS: WATER SYSTEMS, SEWER SYSTEMS, STREETS AND HIGHWAYS, BRIDGES, AND MASS TRANSIT III. VOLUME IV: APPENDICES A. Pages i-i i 1-33 1-1.347 1-II.338 1-III.87 1-G.248 ACKNOWLEDGEMENTS The Public Works Investment (PWI) study reported here was mandated by Section 110 of the Public Works Employment Act of 1977 (P.L. 95-28). The study was performed under Contract Number A06-A01-78-1315 by CONSAD Research Corporation and its subcontractors, The Urban Institute and the American Public Works Association. In addition, a number of consultants assisted in various phases of the study. The project was performed under the general direction of Dr". Wilbur A. Steger with Dr. Nazir G. Dossani serving as day-to-day Project Manager. They were assisted by the following members of CONSAD 's staff who were task leaders for various components of the study: Mr. Alan D. Bernstein was responsible for the review of Federal programs reported in Volume IV (Appendix G) ; Dr. Robert A. Lowrey led the analysis of trends reported in Volume I (especially Chapters 3.0, 5.0, and 6.0); Dr. Richard J. Moore had primary responsibility for the analysis of the role of financing mech- anisms reported in Volume I (especially Chapter 4.0); Mr. Michael A. Pagario was responsible for the nine city case study analysis reported in Volume II; and Mr. William P. Weygandt led the data collection efforts that underlay the statistical results presented in Volume I and was also responsible for the regional analysis presented in Chapter 7.0 of that Volume . Other CONSAD staff members who contributed to the study included Dr. David Adler, Ms. Andrea Goldberg, Mr. Edward Goodridge, Ms. Sheila Lichtblau, Mr. Howard McClintic, Ms. Mary Ann Normile, Mr. Michael Shefler and Ms. Ellen Sussna. The Urban Institute team was led by Dr. George E. Peterson who was assisted by Mr. Brian Cooper, Ms. Linda Haugh, Ms. Nan Humphrey, Ms. Susan Mick, Dr. Ray D. Whitman and Mr. Peter M. Wilson. Dr. Peterson's group (particularly Dr. Whitman) was primarily responsible for the anal- ysis of the impact of Federal grant programs presented in Volume III. The members of this group also played a key role in collecting and inter- preting data as part of the field survey teams in the nine city case studies reported in Volume II. The American Public Works Association's efforts were directed by Dr. Robert D. Bugher with Mr. Richard H. Sullivan serving as subcontract Project Manager. The analysts from APWA involved in the study were Mr. Jack Dunn, Mr. Rodney Fleming, Mr. Wayne Kost, Mr. Herbert Poertner, and Dr. Michael Robinson. The APWA team also played a major role in the field research, particularly in the determination of public infrastruc- ture condition. CONSAD's consultants in this study included Dr. John E. Petersen (Director), Ms. Lisa Cole, and Mr. Philip Rosenberg of the Municipal Finance Officers Association. Dr. Petersen and Ms. Lisa Cole provided key inputs to the analysis of the role of financing mechanisms dis- cussed in Chapter 4.0 of Volume I. Mr. Philip Rosenberg was a member of the survey teams in the case study work reported in Volume II. Other consultants who participated in the study included: Dr. Stephen M. Barro; Mr. Donald Berman; Dr. Verne Fahle; Dr. Sidney Goldstein; Dr. Paul Schneiderman ; and Mr. F. Michael Weaver. We would like to thank the many finance, public works, accounting, engineering and budget officials of the nine cities visited by project field teams who spent significant time and effort assisting in the col- lection and interpretation of data for their cities and in reviewing and commenting on our written materials. These cities were: Baltimore, Maryland; Dallas, Texas; Des Moines, Iowa; Hartford, Connecticut; Newark, New Jersey; New Orleans, Louisiana; Pittsburgh, Pennsylvania; St. Louis, Missouri; and Seattle, Washington. In the development of the PWI data base we received help from a number of individuals in Federal agencies. Particularly helpful were: Mr. David W. Cartwright, Mr. John C. Musgrave, Mr. Donald L. Peters and Mr. John N. Wells at the Bureau of Economic Analysis; Mr. Vance Kane, Mr. Gerard T. Keffer and Mr. George A. Roff, Jr. at the Bureau of the Census; Mr. John L. Bloodworth at the Bonneville Power Administration; Mr. William C. Klostermeyer at the Bureau of Reclamation; Mr. Luther G. Burgess at the Community Services Administration; Mr. Joe L. Atkins, Mr. John A. Micik, Mr. Richard E. Smith and Mr. George L. Willson at the Army Corps of Engineers; Mr. Joseph R. Sungenis at the Department of Defense; Mr. Robert Michel at the Environmental Protection Agency; Mr. Daniel Aragoner at the Federal Aviation Administration; Mr. Harold G. Coley at the Forest Service; Mr. Gerard R. Edwards at the General Ser- vices Administration; Mr. Bobby C. Bales and Mr. Frederick L. Dunlap at the National Aeronautics and Space Administration; Mr. Robert C. Van Deusen at the National Park Service; Mr. Kenneth A. Sprankle at the Office of Management and Budget; Mr. David T. Shereda at the Tennessee Valley Authority; and Mr. Gerald E. Neumann at the Veterans Administration. The editing and typing of the final report (including earlier drafts and progress reports) was under the direction of Mary Reiter, who was assisted by Monica Brodine, Annette Cochran, Selena Gilliam and Denise Picciafoco. Finally, and by no means least, the technical project monitors at Commerce deserve particular mention. Through the major part of the study, Dr. Ronald E. Kramer provided invaluable guidance and encourage- ment. His role was later assumed by Dr. Helen Raff el, whose thoughtful reading of the early drafts and subsequent comments significantly im- proved the organization and presentation of study results. Executive Summary EXECUTIVE SUMMARY TABLE OF CONTENTS LIST OF EXHIBITS 1.0 INTRODUCTION 1 2.0 SUMMARY OF FINDINGS 3 2.1 Historical Trends in PWI, 1790-1970 3 2.2 A View of PWI in 1977 3 2.3 Trends in Aggregate PWI, 1957-1977 4 2.4 Trends in PWI By Functional Category 8 2.5 Trends in PWI By Level of Government 8 2.6 Trends in Public Capital STock 13 2.7 Trends in Financing Mechanisms 14 2.8 Trends in Aggregate PWI Relative to Other Economic Indicators 16 2.9 Privatization 19 2.10 The Regional Distribution of PWI 20 2.11 Condition of Urban Capital Stock 23 3.0 RECOMMENDATIONS 29 3.1 Recommendations Emerging From the Analysis of Trends in PWI 29 3.2 Improvements to the PWI Data Base 30 APPENDIX: Map of the Census Regions 32 LIST OF EXHIBITS Exhibit Number Page 1 Public Works Investment by Level of Government (millions of current and constant 1972 dollars) 5 2 Trends in Federal, State and Local Public Works Investment (current dollars) . 6 3 Trends in Federal, State and Local Public Works Investment (constant 1972 dollars) 7 4 Distribution of Total PWI by Function in Selected Years (includes Federal, state and local, in bil- lions of constant 1972 dollars and percent) 9 5 Distribution of Total PWI By Function: A Graphic View 10 6 Distribution of Total PWI By Function, With Highways and Education Excluded: A Graphic View 11 7 Relationship Between PWI and GNP (constant 1972 dollars) 17 8 Relationship Between PWI (excluding investment in highways) and GNP (constant 1972 dollars) 18 9 Federal Grants and Direct Federal Capital Outlays, 1977 21 10 Per Capita Federal Grants-In-Aid to Regions Relative to National Average, 1957-1977 22 11 State and Local Regional PWI Per Capita As a Per- cent of United States Average State and Local PWI Per Capita (constant 1972 dollars) 24 12 Comparative Condition Rating For Each Functional Area by City, January-February 1979 25 A.l Map of the Census Regions 33 1.0 INTRODUCTION In response to a directive set out by Section 110 of the Public Works Employment Act of 1977 (P.L. 95-28), the U.S. Department of Commerce ini- tiated a Public Works Investment (PWI) study. In that Act, the Congress called for the Secretary of Commerce to carry out a study of the long-term characteristics of Federal, state, and local public works investment spend- ing: The Secretary of Commerce is authorized and directed to study public works investment in the United States and the implications for the future of recent trends in such invest- ment . The results of this study are reported in this Executive Summary , which in turn is drawn from the results presented in three detailed volumes and a set of appendices. The desire of Congress as to the types of public works investments to be investigated is found in the Senate report (Report No. 95-38) accompany- ing the legislation: The types of public works covered by the study would include highways and other transportation facilities; sewer lines and treatment plants; civil works such as dams, levees, and local flood protection facilities; water supply systems; schools; hospitals and other health care facili- ties; public buildings; and airports. The principal questions addressed in this study are the following: • Aggregate Trends in PWI — What is the relative share of GNP, and of total government expenditures, devoted to aggregated — i.e. , national — public investment? Have recent trends in PWI resulted in any "disinvestment" in the nation's public capital stock? • Composition of PWI — What is the pattern of types of public investments over time? What role has each government (Federal, state, and local) played in this pattern? What has been the pattern of geographic location of infrastructure investments by various levels of government? • Privatization Aspects -- Over time, have some types of PWI moved from being a public responsibility to a private responsibility? What is the significance and extent of this substitution? • Financing Aspects — What has been the significance of different financing mechanisms? Specifically, what impacts have different types of Federal grants had on the magnitude, type and location of PWI? • Condition of Capital Stock — Is the real productive value of the current stock of public capital being undermined? Has there been a bias favoring new in- vestment as opposed to maintenance expenditures? How significant is the problem of undermaintenance in each functional category? In defining the study, the Secretary of Comnerce identified two separate requirements: a very long-term historical study, and a separate, more intensive examination of recent trends in new capital investment, financ- ing, and maintenance of public works. The historical study forms the second chapter of Volume I of the complete report. It covers the history of public works in the United States from about 1790 to the present. Vol- ume I also contains the detailed examination of trends in investment and financing of PWI over the period 1957 through 1977, a period defined" jointly by the Secretary of Commerce and Congressional staff, in the light of data availability. v Volume II of the report discusses trends in the maintenance and condi- tion of public capital stock. A major feature of this volume is the report of a series of on-site research efforts at nine major U.S. cities: Baltimore; Dallas ; Des Moines; Hartford ; Newark ; New Orleans; Pittsburgh; St . Louis ; and Seattle. With the cooperation and aid of local budget and control officials, researchers amassed fiscal records of these cities for the period 1957 to 1977, analyzed trends in capital expenditures, linked sources of funding to investment, and examined the role of grants-in-aid and other factors influencing expenditures and the condition of capital stock. While Volume II assesses the broad fiscal significance of grants-in-aid in the nine case studies, Volume III examines the specific importance of Fed- eral grants-in-aid in influencing aggregate state and local investment for five major functions — sewer systems, water systems, streets and highways, bridges and mass transit. Finally, a series of Appendices are compiled into a fourth volume, which includes a discussion of data sources, supplementary materials on the case studies, and a review of various Federal agency methods for determining PWI "needs". 2.0 SUMMARY OF FINDINGS The principal findings that emerged from the analysis of the Section 110 Public Works Investment Study are presented here. 2.1 Historical Trends in PWI, 1790-1970 A long historical view suggests that almost any type of governmental expenditure has at one time or another been classified as a "public work". Certain activities have alternated between the private and public domains, and between Federal and state or local levels of government . Both urban and regional development have received primary emphasis in different his- torical periods. Some of the major points and conclusions in the historical overview of PWI include the following: • During the early period of American capitalism until about the 1870's, public works tended to be develop- mental in nature, devoted to the building of trans- portation networks and resource discovery. • By the 1870's, industrialization and private capitalism were in full bloom, and public works became increasingly designed to accommodate the needs of the urban agglomer- ations that had been spawned by the rise of manufactur- ing industry. Accommodation of urban needs meant paying for the social costs of private urban development . • During World War II, industrial construction was widely undertaken as a "public work" with government spending. • After World War II, public works returned to the con- ventional categories of the years before 1932. But governments have now adopted tax and subsidy methods for encouraging an enormous range of private construc- tion with public controls. The historical study concludes that the label "public works" has always been flexibly applied, depending on the needs of the times. Policy-makers have displayed great flexibility in devising innovative public works pro- grams to meet either developmental or distributional needs. 2.2 A View of PWI in 1977 In 1977, the terminal year of this study, current dollar PWI spending was $44.1 billion or about 2.3 percent of GNP. Of this amount, about S6.5 billion of investment was undertaken as direct investment by the Federal government, and the rest by state and local governments. However, about 40 percent of the investment by state and local governments was financed through Federal grants-in-aid (roughly $15 billion). This, along with direct Federal investment, provides the Federal government with an impor- tant role in PWI decision-making, since it funds close to 50 percent of total PWI expenditures. 2.3 Trends in Aggregate PWI, 1957-1977 Focusing first on trends in aggregate, current dollar PWI and, then, on trends after adjusting for inflation, the principal findings are: • Current dollar gross PWI (Federal, state and local combined but not adjusted for depreciation) was at an aggregate level of $44 billion in 1977 compared to $15 billion in 1957, an increase of 5.5 percent a year on the average. The pattern, however, was not one of steady rise. Current dollar PWI peaked at $46 billion in 1975. * • From 1957 to 1968 gross PWI in constant dollars in- creased at an averaee annual rate of 5.3 percent, risine from $23 billion in 1957 to $41 billion in 1968. Between 1968 and 1977, however, gross PWI, in constant dollars, declined at an average annual rate of 3.7 percent, and by 1977 had dropped to approximately $29 billion (again, in 1972 dollars). Exhibits 1-3 provide a summary view of trends i*i the aggregate dollar volume of gross PWI. 2 The effect of inflation has been signifi- cant. The price of PWI projects has increased at a faster rate than prices in the economy as a whole. Over the study period, the GNP price deflator increased by 118 percent, but the price index of PWI projects increased by 133 percent. The greatest increase has occurred since 1972. A project costing $100 million in 1972 would cost $150 million in 1977. It should be noted that the $4 billion in Local Public Works auth- orized in 1977 do not enter into the Bureau of the Census and Bureau of Economic Analysis (BEA) figures that were utilized in this study; and only a part of the $2 billion authorized in 1976 is included in PWI for 1977. Funds are only included in the PWI data as they are actually spent. Therefore, the bulk of the Local Public Works expenditures will appear in the 1978 figures, which were not yet available at the time this study was carried out. It should also be noted that PWI expenditures are classified according to the level of government that does the spending, irrespective of the source of funds (which is often difficult to trace); therefore, Local Public Works Investment is classified as "Local PWI". 2 Prior to 1959, a breakdown of state and local PWI is not available. m m cm M — i 00 w in h fs m m m O NO ON •-s /^ \o r* oo cn CO 00 00 *—* m i-^ on o 00 CM ON CM o vo O co in ro in on — r— no on no en m cm on —i en m oo -H cn cm cm cm O -i O m m oo ON o — I m on c-> -h -* r^ o\ cn r^ —< >!« ON Vj TJ CM 3 C on cj ca 5 £3 .2 5 — c o ■x u » mow r. si ■H rs U5 H 3H Mfl «P a Exhibit 2.: Trends in Federal, State and Local Public Works Investment (current dollars) 45,000 40,000 . HJ 35,000 _ r-i c O 30,000 _ c S-i u 25,000 o 03 c o 20,000 15,000 10,000 5,000 Total PWI f ^- •: y/ Local PWI / f ''^7~ / J / / jS / jr * State PWI s '^ ^>^ Federal PWI """^ . -^ ^- — •""" 1957 1962 1967 1972 1977 Year Exhibit 3: Trends in Federal, State and Local Public Works Investment (constant 1972 dollars) 40,000 I 35,000 o a 30,000 ^ cn r>- ON I 1 *s 4-1 25,000 c RJ U w C o u 20,000 U-4 o CO C o •H r- 1 15,000 g 10,000 5,000 Total PWI Local PWI State PWI \ x n/ ^^.S s \ X \ \ Federal PWI I 1957 l 1 t— r- ■ 1962 T 1 P 1967 Year 1972 1977 2.4 Trends in PWI By Functional Category The principal findings related to trends in PWI by functional cate- gory are: • Two major functional categories, highways and educational facilities, dominate the decline in constant dollar new investment that occurred between 1968 and 1977. The im- portance of these functions relative to others is shown in Exhibits 4 and 5, which display the functional break- down of total PWI across all levels of government. If these two categories of expenditure are subtracted from the totals, the constant dollar value of gross PWI flat- tens out after 1967 (Exhibit 6). . The decline in new investment in highways is a consequence of the approaching completion of the Interstate Highway System; this nationwide pro- ject was also a significant contributor to the rise in PWI from the late 1950' s to the mid-1960 's. The rise and decline in construction of educational facilities over the 21 year period is a consequence of the rise and fall of the school age population. Despite the drop in spending, highways and educa- tional facilities continue to be major components of total PWI, accounting for 24 percent and 19 per- cent, respectively, of constant dollar PWI (across all levels of government) in 1977. • Capital expenditures on utilities (in particular, sewer systems) showed the greatest net increase between 1957 and 1977. Other functional categories which showed major increases in constant dollar PWI expenditure were health facilities and natural resource projects. • The general trend has been towards a more even distribution of spending over all functions. 2.5 Trends in PWI by Level of Government While the role of inflation has been important, it is equally impor- tant to examine whether the spending patterns at the different levels of government, by functional category, would help to explain the overall trends in aggregate PWI. (Discussion of the sources of funds for PWI expenditures at the different levels of government — including Federal grants-in-aid — appears in Section 2.7, below.) CO O H IH TJ O QJ 4-1 03 u a QJ O rH -H 0J rH C/} rH •H 3 43 •H 3 C -H O •H •> 4-) iH CJ CO 3 o 3 O Pn rH I^TJ 43 3 CO 1— I £ 0) 4-1 Cm 4_i c CO a; i— 1 4-t CJ CO CO H 4-1 (1) o « D- H H CO TJ 14-1 V-l C O 01 CO TJ 3 QJ en o Pn H •H crt 4J CO , — i 3 QJ i — i 43 TJ o •H 3 •a U rH •U O CM CO 3 r>- 4-1 c in CO vO O in 00 ■— I CM O QJ CJ co (T> 00 —4 * -d- i— i O H CO CN O QJ i— i Ph CM r-~ o^ CO - 1 H CO m r- CN 00 r^ «* m ■"* o> rH -tf r^ CN r- 1 ,_i CO o a 4-> 3 -3- in O vO o> C* 9^ r^ o QJ CJ U CN Jt >3- 00 CO CM CN CO d CO — i CM ■—i o QJ ■— ' Ph r^ 0> K> 1-1 1-4 CO CN r-» 00 m vO CM CN vO 00 i— 1 O CO -d- J CM o d ,_J CM m CM o o CN CO CO CO QJ a) QJ o •H •H H 3 4-1 4-1 3 O •H •H o •H ■H rH CO 4-1 •H •H cu CO CJ c 4-1 3 Pi 4J CO o CO 33 o U Pm p*> •H rH o 00 co 4_| CO O 4J CO Ou 4= 3 CJ 3 •H CO u CO 4-1 •rl j-i c J2 H CJ 3 3 rH CO QJ CO 3 00 43 3 4-1 CO CO 3 Pn •H 3 TJ CO H QJ O 4-1 PC P-4 W S5 H X S3 o H O 0J M 4= U-4 t— i H 3 4-1 o (0 QJ O 3 TJ CO 3 CO 3 •H QJ •H 3 CO a 4-1 4-1 -a >•> o TJ CO en 4-1 3 CU X) -o 3 TJ 3 rH IH 3 4-1 rH rH rH 3 CJ CO QJ CJ QJ 3 4= 3 U •H IH 4-1 •H QJ O IW QJ 3 3 IH H CO O QJ •H CO QJ CU Ti CO CO 43 4= CO U-4 O 4= 01 QJ o •H CJ TJ > 4= M CO QJ 5 3 4= 4: CO a w 3 CO 3 TJ cu 4-1 O 3 QJ •H 3 4= CO SZ 4-1 QJ 4-1 4-1 •H E rH CU H 3 CO rH •H H 43 4-1 4-1 QJ « cd 3 > QJ rH cu O •H 3 CJ 00 43 CO TD •H •H > rH rH CO CO i-H 43 CO CO 3 1-1 QJ % -H IH 3 rH 43 3 a* 4J CO CO 4J QJ CO QJ 3 3 4= O O QJ 4-> S T3 •H s 3 (1) 4-1 D- QJ s .». 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H O > 00 0) CO O a rH O 3 IW >^ oo CO 00 -H 14-1 CO QJ » H TJ •H 4-1 CO QJ rH CO Tl u CO oo *o cd QJ QJ CJ 3 0) a A H 3 •H ta o LS QJ u TJ rH rH Pi CO QJ rH U-l CO 4= •H o TJ 3 rH "0 4-1 3 3 O CO 3 O 43 % cd -H 4-1 CO 4-1 O -a CJ o CU CJ 4-1 u 3 •H TJ W 3 QJ cd rH 4^ cd 3 IH 4-1 43 cfl 4J 14-1 O ffl CO 3 QJ CO 13 QJ CU l-i QJ CO CJ 43 IH > QJ CO H CO O -H 4-1 QJ 3 a) < 4-1 CO -a O T) 3 cj f= 3 en 3 O QJ •H rH QJ rH •H CX 4-1 CJ l-i CJ 4-1 4J CO CO 3 3 3 3 CU w rH H QJ 43 H H CN crt co & •H 1-1 a H H 3 •H 4-1 >H 4-t 3 CO QJ CO cr •H 4= 3 QJ TJ 4-1 Exhibit 5: Distribution of Total PWI by Function: A Graphic View 40 35 „„ 30 ._ o Q 25 20 Other Housing Health Facilities Transportation Natural Resources Education Public Utilities Highways 300 25.9 34.9 ¥¥¥¥¥¥ ¥¥'<<¥¥¥ | 1967 1972 Year ****** 10 Exhibit 6: Distribution of Total PWI by Function, With Highways and Education Excluded: A Graphic Viev 30 ... 25 n 20 15 ._ 10 CTKWKv ***** ¥¥¥¥¥ m 11.0 221 Other Housing Health Facilities Transportation Natural Resources Public Utilities 13.4 ¥¥¥¥¥¥¥ 7 21 17.8 £¥¥¥¥¥¥¥ ¥¥¥¥¥¥¥ ^ 16.2 ffl*iYt>*tVT % ?' ¥¥¥¥¥¥¥ ¥¥¥¥¥¥¥ 16.8 ¥¥¥¥¥¥¥} tf¥¥¥¥¥¥ 1959 1962 1967 Year 1972 1977 11 The study findings are: • All three levels of government had lower real (i.e., constant dollar) spending in 1977 relative to their peak spending in the study period. For the Federal government, the peak was reached in 1966; for the state governments, the peak occurred in 1967; and the peak for the local governments occurred in 1968. • Direct Federal PWI expenditures (not including Federal grant funding of PWI expenditures at other levels of government) have consistently been the smallest of the three components of total PWI. However, Federal PWI is the only component for which real spending increased steadily between 1972 and 1977. • Direct Federal PWI (as opposed to intergovernmental grants) is concentrated in the areas of natural re- sources and public building construction. In 1977, these two categories accounted for over 75 percent of Federal PWI , with resource-related investment being the highest (49 percent of the total) . • State governments have historically channeled large amounts of money into highways. Although the share of total state PWI allocated to this function dropped from 77 percent in 1959 to 53 percent in 1977, it still re- mained far ahead of all other state PWI outlays. The second largest category, education, was only 20 percent of state PWI by 1977; this share had held steady at roughly 20 percent since 1967, after a rise from the 1959 share of 10 percent. Thus, as state PWI fell, in constant dollar terms, from its 1967 peak value, expenditures on Interstate highway construction wound down faster than the overall fall. Capital expenditures on education facilities fell by the same percentage as the overall fall. But capi- tal expenditures in all other functional areas, as a whole, rose by 14 percent. • Local governments had the largest share of direct PWI expen- ditures throughout the period (although a rising share of local PWI expenditures was financed by transfers from other levels of government). In constant dollars, local PWI was 33 percent higher in 1977 than in 1959, although it was below its 1968 peak. Education has been, and continues to be, the largest category of local spending, but its relative share dropped from 32 percent in 1959 to 22 percent in 1977. The share of highway expenditures dropped from second to third place over the period, while expenditures on sewer systems (especially sewage treatment facilities) during the latter part of the period brought that category up to second place. 12 2.6 Trends .in Public Capital Stock An additional dimension in the assessment of PWI trends is the total value of the nation's public stock and its relation to gross PWI. The stock of highways, schools, and other functional types depreciates over time in accounting terms, and gradually wears out or becomes obsolete in physical terms. The accounting value of capital stock will increase from one year to another if the amount of gross PWI is greater than the amount of depreciation allowances; in that case, net investment, which is an accounting concept, is positive. On this score, the record is one of growth since 1957: • The total value of public capital stock increased throughout the period, from about $348 billion in 1957 to $674 billion in 1977 (both in 1972 dol- lars) . However, the increasing stock, together with declining levels of gross PWI sittce 1968, has meant that an increasing share of gross PWI is being offset by depreciation allowances. As the stock of capital grows, the accounting value of depreciation also grows: • For the Federal share of capital stock, depreciation exceeded gross investment in 12 of the 21 years. Never- theless, Federally-owned capital stock grew 15 percent o^er the period. • For the state and local share of capital stock, gross investment continually exceeded depreciation allowances ; however, an increasing portion of the gross investment is accounted for by depreciation. From a high of $23.3 billion (1972 dollars) in 1968, state and local govern- ment net investment (gross investment minus depreciation allowances) fell to $6.8 billion in 1977. State and local governmental capital stock grew by 125 percent between 1957 and 1977. Thus, it is conceivable that the nation may be approaching a leveling off of the real value of public capital stock. This study, however, has not examined the question of whether slower growth, leveling off, or even a decline in the total value of public capital stock should be a cause for either alarm or satisfaction. No attempt has been made in this study to assess the need for any particular level of the value of total ptiblic capi- tal stock in terms of demographic, social or other trends. If such a need assessment were to be undertaken in the future, it would have to address itself to specific functional types of public capital stock in specific geographic locations. This study has in fact devoted some attention to functional and regional disaggregation of the overall trends in PWI, but, except for a nine-city study, the question of need has not been addressed. 13 It should also be noted in evaluating the significance of trends in the value of capital stock, that a specific facility may, if well main- tained, function adequately long after it has depreciated to zero value in accounting terms; conversely, if badly maintained, it may supply much lower service than its accounting value would indicate. Again, however, apart from the nine-city study, maintenance trends and the actual condition of public capital stock have not been examined in this report. Finally, if the private sector should assume certain functions pre- viously performed by governments, either through direct private investment or by the purchase of government-owned facilities, then the value of the total public] y-owned capital stock may fall, either absolutely or rela- tively. The question of trends in "privatization" is discussed below. 2.7 Trends in Financing Mechanisms As observed earlier, the Federal government is the only level of government for which gross constant dollar PWI increased during the last few years covered by this study. While this increase was not large enough to prevent depreciation allowances from exceeding gross investment in some years, it is an upward trend. A much more significant role emerges if we consider trends in Federal grants-in-aid to state and local governments targeted specifically for capital outlays. On this role, and that of other financing mechanisms , the following study findings are representative Federal Grants-In-Aid In 1957, Federal capital grants-in-aid represented less than one-tenth of total state and local PWI. By 1977, they had increased to about 40 percent of the total and had replaced debt as the largest source of state and local PWI funds. Federal grants to state and local governments for capi- tal projects increased from $1.2 billion in 1957 to $15.4 billion in 1977 (in current dollars). In 1972 dollars, Federal capital grants increased from $1.8 billion in 1957 to $10 billion in 1977. In the second half of the study period, direct Federal PWI, as noted earlier, declined from $7.1 billion to $4.3 billion (in 1972 dollars). During this latter period Federal capital grants increased from $6.9 billion in 1966 to $10 billion in 1977 (both in 1972 dollars). PWI by level of government disaggregates the total according to the level of government that actually spends the funds (see section 2.5 above). An alternative way of disaggregating total PWI is according to the level of government that actually provides the funds. However, funds appropriated in a given year may not be spent until a subsequent year. Thus, yearly compari- sons between PWI and capital grants provided in this section are not an exact match between spending and source of funds. • In 1977, capital grants were most significant in the areas of sewer systems, airports, and highways, and were equivalent to 74, 65, and 49 percent, respectively, of all state and local PWI outlays in these functional areas . Debt Financing • Despite the relative decline in the use of debt financing for PWI by state and local governments, total state and local borrowing (new debt) has increased substantially during the period examined. From approximately $11 bil- lion in 1960, it grew by over 500 percent to $66 billion in 1977. Long-term debt outstanding grew from $70 bil- lion to $258 billion in the same period (current dollars) . • The debt burden for states has been relatively small since 1957, varying between 6 and 8 percent of own -source receipts. However, for local governments this burden has been much heavier, averaging about 18 percent of own-source revenues. If one includes outstanding short term debt as part of debt burden, the local burden increases to about 33 percent of own-source revenues. Own-Source Revenues • From 1957 through the mid-1 960's, own-source receipts repre- sented a major, if not principal, source of state and local government PWI financing. • In more recent years, however, own-source revenues have rapidly declined in relative importance, so that in 1977 they accounted for less than 20 percent of all state and local revenues allocated to PWI. • The single largest contributor to local own-source revenues is the property tax, while at the state level it is the sales tax. However, both levels of government have increas- ingly diversified their own-source receipts, with local gov- ernments making greater use of current charges, and state governments relying more heavily on individual income taxes. Federal grants-in-aid have thus played an increasingly important role in financing capital outlays. It is worth noting, however, that the pro- portion of categorical grants specifically allocated to PWI has declined as a share of total Federal grants-in-aid. Through 1965, Federal grants for state-local capital expenditures represented 40 to 45 percent of total grants. Capital grants continued to grow through 1975 (in current dollar terms) but declined significantly as a proportion of total grants-in-aid, such that by 1977, capital grants represented less than one-quarter of total grants-in-aid to states and localities. Although this is chiefly a function of the growth of discretionary grants, it may indicate changing Federal priorities away from the financing of categorical capital expendi- tures. 15 2.8 Trends in Aggregate PWI Relative To Other Economic Indicators As discussed above, this study does not define what an "appropriate" level of PWI spending should be, either in absolute terms, or relative to a measure such as the Gross National Product. Notwithstanding, trends in such relative measures (ratios or percents) are of interest. On the rela- tion to other economic aggregates, our study findings are as follows: • The ratio of total PWI to GNP reached a 21 year peak of 4.1 percent (based on 1972 dollars) in 1965. The low for the period was 2.3 percent in 1977. The average of the 21 annual values was 3.4 percent. Despite the fact that large amounts of PWI have gone into highway construction, and that these investments have been significantly reduced in recent years as the Interstate Highway System nears completion, the removal of funds for highway construction from the PWI statistics does not reverse the general downward trend of PWI relative to GNP (Exhibits 7 and 8 show real PWI relative to GNP with and without the high- way component) . • Direct Federal PWI in real terms increased at a faster rate than total Federal government purchases since 1959, reach- ing 4.2 percent of Government Purchases of Goods and Services (GPGS) by 1977. State and local PWI relative to state and local GPGS has declined from 28 percent in 1959 to 15 percent in 1977 (based on 1972 dollars). • Gross Private Domestic Investment (GPDI) grew at a faster rate than PWI over the 21 year period. As a percent of total public and private investment, PWI dropped from 19 percent in 1957 to 13 percent in 1977, although it did reach a peak of 21 percent in 1967. If public and private investment are compared on a net basis (that is, after adjusting for depreciation), then net PWI as a percent of total net investment declined from 21 percent in 1957 to 10 percent in 1977. 16 / / / / / \ / '' / / I 1 j / I 1 1 : 1 \ \ \ ' \ 1 1 1 ; 1 i i ! I i i ( i i i t j ' / / cn\ J / .52 / \ "1 / \ 1 / 00 \ 1 / o 1 1 / 7 H 4-1 c CO 0) 1-1 M cfl M 3 i — l U a ^4-4 co 3 to c r-~ o^ . 00 CO 00 m CO vO '"J, ■-i u CO T3 4-J 4-1 4J 4-1 4-t 4-1 4-J 4-1 _J c 5 13 co C en c 3 CO c CO C 0) 0) co a) gj a) O CO 0J 0) 0) a 2 S W o 3 o en w u 3 CJ t-l CO o ^ CO 4-1 c H 3 iH qj •H QJ E i — i 3 Cu ■H •H oo 3 X> CO cr QJ r^ QJ CJJ «4-4 1-4 TJ en > a) a) o U2 M CJ CO QJ J= 43 C o •H u X) 3 QJ QJ a 4-1 V C 3 4-1 QJ 0.) a co u QJ QJ QJ £ 4-1 fU CO o •H c CO 4-1 CD )-< a) QJ TJ 4J T3 QJ Q) T3 3 3 4-J -o CO QJ CO >, t-i 3 >> H •H CO 3 -o •H 1 — 1 O , — i 4-1 H rH 3 CO CO >H O 4J 3 o J2 H QJ 4-1 CO fi 4J 4J LW kO «H CO o> CL QJ CO > QJ CJ 3 •H 4J cr, 1-1 C S H CO -a ■H • — J3 QJ 4J -Q 4-1 4J to •H CO CO OJ C CU 1-1 H X CJ QJ QJ r^ UJ ,c 1-4 r-~ 3 4J cn 3 o 3 O - H •H CO 1-1 •H QJ QJ co o 4J rfl 4-1 4-1 4-1 H | 3 3 "3 CO l-i •H 4J 4J 4J 4J c to CO en 3 CO 3 QJ QJ QJ l-i o l-i U oo U 3 QJ QJ 4J JC U-l CO CO CJ 4-> U-l 01 ai 3 •H •O in U F T3 3 3 4-J rH rH CO l-i 14-1 o U— i O 3 3 CaJ M H C CO QJ i — i CN •H u CO 4J a> 3 co — i 14-1 0) X •H -c QJ X) 4-J 21 Exhibit 10: Per Capita Federal Grants-In-Aid to Regions Relative to National Average, 1957-1977 2.10 2.00 1.80 _ 1.60 1.40 3 1.20 J 2 1.00 _ 0.80 0.60 0.40 •••»•■•» New England Middle Atlantic East North Central West North Central ' South Atlantic ■*■•■•■ East South Central •■■■■a West South Central ........ Mountain • Pacific ,-"-"• V" X \ %.. *&< 'n£ x s\ V. •♦•♦• \/ ^^* s ^>..- 1957 1962 1967 Year 1972 1977 22 • In terms of state PWI expenditures per capita, the Mountain Region is currently spending at about 140 percent of the national average per capita rate, while the New England and Pacific Regions are appro- ximately equal in last place, at about 82 percent of the national per capita rate (Exhibit 11). • In terms of local PWI per capita, the Mountain Region (in first place) is currently spending at about twice the rate of the New England Region (in last place - see Exhibit 11). However, this situation represents a rapid rise for the Mountain Region, which ranked fifth in local PWI per capita in 1957 and fourth as recently as 1972. 2.11 Condition of Urban Capital Stock The disaggregation of PWI by level of government, function, region, and financing mechanism, thus far, has provided an overview which is im- portant for a comprehensive presentation of past trends. The presenta- tion of trends has been one of two major components of the overall study. The other major part was based on a set of nine case studies in which the performance of PWI was viewed at a spatially disaggregated or local level. The study team's researchers examined historical records provided by city officials, and then assessed trends in expenditures for capital outlays, as well as maintenance expenditures, for five key functions: water systems; sewer systems (including sewage treatment); streets and highways; bridges; and mass transit. Trends in financing mechanisms for each function (and separately for capital and maintenance outlays) were analyzed with special attention to the role of Federal grants-in-aid. This research, along with interviews with city officials, resulted in an identification of the condi- tion of the capital stock of the nine cities. The nine cities selected were: Baltimore; Dallas; Des Moines; Hartford; Newark; New Orleans; Pittsburgh; St. Louis; and Seattle. The selection was aimed at securing diversity in city age, fiscal condition, regional location, physical public infrastructure condition, population size, and responsibility for infrastructure condition and maintenance. It cannot be claimed that a sample of nine cities could be representative of all U.S. cities; however, public works-related problems encountered by these nine cities are likely to be shared by many others. The cities selected do include examples which are substantially different from one another, so that a wide variety of public works investment and maintenance issues are represented. A summary of the capital stock condition in each of the nine cities is given in Exhibit 12. The following findings provide additional interpreta- tion: 23 Exhibit 11: State and Local Regional PWI Per Capita As A Percent of United States Average State and Local PWI Per Capita (constant 1972 dollars) 200 „ 180 4-1 w 160 v o. 120 •H 3 100 80 60 40 20. / State / / / 139 1957 7*1 197" Yh Middle East North West Nort Atlantic Central Central South Atlantic East South Central We.st South Central Mountain Pacific 200 180 ►J 2? 140 < ca 120 .. 100 CO u 4) •o a. fiO ■H 3 3 >u 60 O u C 0) 40 74 / / 109 PI / / / / / Local V / / New Kiddle East North West Uorth South West South England Atlantic Central Central Atlantic Central Central 24 - u o 6C 0> ►j U CO 03 u 0> HI o z fa ■— 1 CO a £ CO c h x" Z Q o to •H m o c 3 fa ^N ^-s ,-, c o • » /-. ^ c •H O x-n C e o c Z u O c 01 •H 0) C -H 4J e 01 « 01 4-1 E 03 U 4J X e o >■ 01 co j j-J HI CO to a* w o . CO ^H M S 0) rH u o 4J QUO 01 u JJ O 3 fa 01 Z Q* fa CO Z PQ to to a 01 } to 4-1 • CO 03 >. o c ;-» z o fa CO ►J CO ■H U • 60 £ Q M pa oi X 01 14 •U Z 5 z Q 60 1 C •H >, •H V. . *o o •o ■H C •H •H C 3 C 3 C o M o •H e oo « -H CO CO -H ffl -H « -H o 01 o «J CO C fa e fa fa > C > o > o i-l 1 01 1 O - 0) • O 1 ■o U 4J 1* U (0 M u u W 03 M . u u u T3 "O fr c O (0 o o w O o a. •H U •H O. ■H O o o O W o o o o o E CO O CO nj E CO O o 01 u fa O a, fa » P4 fa M fa 2 fa fa W fa o o > 25 • Water treatment and distribution systems and sewage collection and treatment systems are, generally, in good or fair condition. The results of the case studies suggested that water treatment and distribution systems were generally well maintained. Constant dollar maintenance expenditures for these systems did not increase in every city over the 21-year period, but improved management, better technology, and more efficient use of resources appear to have contributed to the satis- factory condition of the water systems. The condition of the sewer sys- tem (including sewage treatment facilities) appears to be generally im- proving, due principally to capital grants provided under the Federal Water Pollution Control Act Amendments of 1972 (P.L. 92-500). • The condition of streets and bridges varies consi- derably from poor to very good. The condition of the bridge and street networks ranges from poor or poor-to-fair in older cities to good or very good in younger ones. Those cities that have a poor-to-fair rating are becoming increasingly dependent on Federal grants (especially Community Development Block Grants) for their resurfacing programs . • The condition of mass transit systems varies greatly, but in each city it has been improving over recent periods. The condition of mass transit systems is improving for each of the cities due to the availability of UMTA capital and operating subsidies. Capital subsidies allow vigorous replacement programs to be pursued. Operating subsidies help to cover maintenance expenditures. None of the mass transit systems studied is profitable, but the general condition of each is improving, capital outlays are increasing, and maintenance expend- itures are being augmented. • Federal capital grants have, by and large, not stimu- lated increased local capital outlays. However, the evidence suggests that grants-in-aid (capital grants and others) have, in general, been mildly stimulative of total outlays (including operation and maintenance). In general, capital grants apparently either substitute for local expenditures or else simply add on, but do not stimulate additional local contributions in the grant functional category. Two rationales may be offered to explain the non-stimulative nature of Federal capital grants. First, cities which have been experiencing a fiscal squeeze appear to have accumulated such a high backlog of maintenance needs that they cannot de- crease their own outlays despite Federal aid. Federal grants thus become 26 additive or complementary to local programs. On the other hand, cities which are fiscally sound typically do not have a backlog of maintenance or capital needs. Therefore, Federal grants allow these cities to con- tinue their normal programs at a reduced cost to the cities. • The number of functional areas for which a city is responsible is not directly related to maintenance problems. Excessively deferred maintenance does not appear to be a simple function of the number of responsibilities which cities undertake. Some cities, with higher per capita incomes and newer infrastructure, expend sufficient amounts of money on maintaining all five selected functional areas, while others are responsible for fewer functional categories but lack funds to maintain even these adequately. Similarly, the argument that city size operates against larger cities does not apply. • The mechanism by which maintenance budgets are financed has a significant effect on the condition of urban capital stock. A major explanatory variable in the generally fair-to-good and good condition of urban water and sewer systems is the financing mechanism. Both are, for the most part, financed out of user charges. As mainten- ance and capital costs increase, charges may be increased to cover the additional costs. User charges react more quickly to changes in costs than do tax rates or assessments. On the other hand, the maintenance budgets for city streets and bridges rely on taxes as the primary revenue source. Therefore, the fiscal health of the city strongly affects the condition of the street and bridge network. Fiscally healthy cities, generally the younger ones, maintain their bridges and streets at adequate levels. ms • The primary factor affecting maintenance progra appears to be the revenue-generating capacity of central cities and special districts. If a city's capacity to generate own-source revenues diminishes ; then the operating budget (which generally includes the maintenance budget) is adversely affected. Capital stock condition is more likely to be impaired if the primary revenue source for maintenance is taxes and less likely if it is user charges. Also, it is more likely to be impaired if demands to increase social expenditures are straining a budget's already limited re- sources. The maintenance problem is therefore a regional one to the extent 27 that: a) fiscally stressed cities are located generally in the Northeast- Midwest; and b) fiscally stressed cities have greater difficulty in increas- ing revenues to cover maintenance needs, particularly if the primary revenue source is taxation. However, not all cities which experience difficulty generating additional revenue are in the older industrialized regions. And some functional areas, such as water and sewer systems, are adequately main- tained even in cities which have difficulty increasing own-source revenues. The Federal programs affecting expenditures in the five functional areas which were the focus of the case studies were reviewed to examine the extent to which there were any "biases" in the effects these programs had in favor of new investment. The results indicate that: • Federal programs encourage investment in new capital expenditures and early replacement of capital equipment. The literature reviewed, concerning the biasing effects of Federal grants on maintenance and capital outlays, indicated that, indeed, Fed- eral programs often encourage early capital replacement, possibly earlier than is really necessary and/or desirable. Capital projects are premature if expenditures of maintenance funds for the original facility would be a better or more efficient use of total resources. But, when Federal incentives are introduced to accelerate the capital replacement program without a corresponding availability of Federal funds for maintenance, it is more cost-effective for the local government to pursue the capital grants. This outcome has the effect of encouraging local governments to forego maintenance of the facilities that can be replaced easily (with Federal funds) . 28 3.0 RECOMMENDATIONS The recommendations which emerge from this study have been classified into two categories. The first set relates to recommendations emerging from the substantive findings of the study, while the second set applies to issues of data management and acquisition needs for PWI decision-making. 3.1 Recommendations Emerging From The Analysis of Trends in PWI Changing priorities regarding the size and allocation of government budgets , and the inflation rate the economy has been experiencing in recent years, have very likely contributed to the observed decline of positive net investment in public works, which is to say, a slowing down of the rate of increase in value of the total public capital stock. If this trend contin- ues, it could lead to a leveling off or even disinvestment in some types of public capital stock, at least in an accounting sense. Evidence exists which implies that such a trend may be present in the case of Federally-owned public works. While the growth of public capital stock declined significantly during the 1970 's — following a strong rise during the late 1950' s and early 1960's — it is unclear whether a potential leveling off in the quantity of certain types of publicly owned capital stock is, or is not, a desirable development at the present time. A second emerging trend is the strongly increasing dependence of state and local capital outlays on Federal grants-in-aid as a financing source. Trends in direct Federal PWI, and in Federal financing of state and local PWI in the form of grants-in-aid, exert an influence on local and regional economic development; this study, however, has not dealt with the develop- mental repercussions of these trends. The major recommendations that emerge from the trends discussed in this study are therefore as follows : • Several on-going investigations of the PWI needs of larger samples of cities and communities, sponsored by other government agencies (e.g., the Department of Housing and Urban Development, the Department of the Army as mandated by the President's Water Policy Task Force and the Department of Agriculture) , are expected to be completed in early 1980. Once this research is concluded, the desirability of further examining public infrastructure condition and needs should be reassessed. • Studies should be pursued which investigate the role of PWI as a magnet for private investment. That is to say, the economic development impacts of the regional distribution of Federal direct and indirect PWI fund- ing should be investigated. 29 3.2 Improvements to the PWI Data Base The, data base has shaped in large measure both what this study has been able to accomplish and, in addition, what we still do not know. Thus: • There is a need for more closely coordinating and integrating the data collection and estimation activities of the groups within the Federal govern- ment that collect national-level PWI data. Data on PWI at the national level is compiled by three divisions within the Department of Commerce. They are the Census Governments Division, Census Construction Division, and the Bureau of Economic Ana- lysis. There are differences in data sources and definitions used, re- sulting in separate series that are difficult to reconcile. There should be greater coordination among the three groups with the objective of pro- ducing mutually compatible data series on PWI. • There is a need for coordination among Federal agencies responsible for direct Federal PWI with the objective of developing a consistent data base on the regional location of Federal PWI. Each agency has its own data base with definitions, temporal cover- age and regional coverage which differ from one another. • A detailed and comprehensive methodology for the collection of PWT data should be designed and im- plemented. Many of the procedures used currently can be included in such a restructuring. However, there is a need to develop a consistent set of definitions. Moreover, there is a need for better quality control in terms of coverage and consistency over time. The completeness of the data (by functional, regional, and temporal categories) varies from one group to another. Additional improvements to the PWI data base should include the following: Data on linkage of financing mechanisms to expendi- tures is weak, especially at the regional level and below. Collection of detailed data of this type is an important factor for analysis of the impacts of grants-in-aid and other financing mechanisms on state and local expenditures. 30 • A similar problem exists with regard to the lack of data on maintenance expenditures by function, which necessitated that the maintenance data required for this study be collected through field studies. Incor- poration of maintenance data explicitly into Census surveys, and inclusion in a PWI data base, would be highly useful. • The PWI data base resulting from such efforts should be maintained in a computerized, readily updated form across Federal agencies. While there are personnel and capital costs involved in implementing these recommendations, our experience in this study suggests that, without the implementation of such a system, it would not be feasible to perform many of the analyses required to execute a truly comprehensive, detailed, and valid assessment of PWI needs. A related concern which emerges from this study is that PWI has never before been considered as a national-level issue, to be considered as a whole by public decision-makers. Many forces, policies, decisions, and programs underlie what has become a more than $44 billion program by now. It is hoped that this study will provide an impetus to a discussion of the merits of more explicitly viewing trends in the overall level of PWI, public capital stock and its condition, and the resulting national as well as re- gional consequences of PWI. 31 APPENDIX: Map of the Census Regions 32 33 Volume I Historical Analysis of PWI Trends and Financing Mechanisms VOLUME I TABLE OF CONTENTS LIST OF EXHIBITS 1.0 INTRODUCTION AND SUMMARY OF FINDINGS 1.1 1.1 Introduction 1.2 Summary of Findings 1.2.1 Trends in PWI By Level Of Government and Function 1.2.2 Trends in Capital Stock 1.2.3 Financing 1.2.4 PWI in Relation to Other National Income Categories 1.2.5 Privatization 1.2.6 Regional Distribution of PWI 1.2.7 Concluding Remarks About PWI from 1957 to 1977 1.2.8 The Historical Perspective 1.1 1.1 1.1 1.4 1.5 1.7 1.9 1.9 1. 11 1. 11 2.0 A BRIEF HISTORY OF PUBLIC WORKS IN THE UNITED STATES, 1790-1970 1.13 2.1 Introduction and Summary of Findings 2.1.1 Introduction 2.1.2 Summary of Findings 2.2 The Release of Private Energy: 1790-1870 2.2.1 Geography and Philosophy' 2.2.2 Transportation and Discovery 2.2.3 Accommodating Urbanization to 1860 2.3 Rise of the Cities: 1870-1932 2.3.1 The Eclipse of Federal Public Works 2.3.2 Growth of State and Municipal Public Works, 1870 On 2.3.3 The Construction Boom of the 1920 's 2.4 Emergence of the Federal Government: 1933- 2.4.1 New Deal Public Works 2.4.2 The Impact of Federal Public Works Spending in the 1930's 2.4.3 World War II 2.4.4 From World War II to 1960 2.5 To the Present, Summary and Conclusion 13 13 14 15 15 16 19 22 22 1.22 1.29 1.30 1.31 1.33 1.35 1.39 1.41 ii TABLE OF CONTENTS (Continued) 3.0 NATIONAL TRENDS IN PUBLIC WORKS INVESTMENT 1.43 3.1 Introduction and Summary of Findings 1.43 3.1.1 Introduction 1.43 3.1.2 Summary of Findings 1.43 3.2 Trends in Total Public Works Investment 1.46 3.3 Trends in PWI Per Capita 1.51 3.4 National Trends in the Functional Distribution of PWI 1.51 3.4.1 Functional Distribution of Federal PWI 1.51 3.4.2 Functional Distribution of State PWI 1.54 3.4.3 Functional Distribution of Local PWI 1.56 3.4.4 Functional Distribution of Total PWI 1.56 3.5 Public Works Capital Stock 1.59 3.5.1 Trends in Capital Stock 1.59 3.5.2 Functional Distribution of Capital Stock 1.65 3.6 Private Sector Capital Stock 1.69 3.7 Inflationary Trends in PWI 1.75 3.7.1 Trends in National Aggregate Price Changes 1.75 3.7.2 Trends in PWI Prices by Level of Government 1.75 3.7.3 Changes in PWI Price Levels by Functional Category 1.75 4.0 THE FINANCING OF PWI FOR STATES AND LOCALITIES 1.80 4.1 Introduction and Summary of Findings 1.80 4.1.1 Introduction 1.80 4.1.2 Summary of Findings 1.80 4.2 Overview of PWI Financing Sources for State and Local Governments 1.82 4.3 Federal Grants-in-Aid to State and Local Governments 1.85 4.3.1 General Trends in State and Local Use of Federal Grants for Capital Financing 1.85 4.3.2 Distribution of Federal Capital Grants-in-Aid by Function 1.88 TABLE OF CONTENTS (Continued) Page 4.3.3 Impact of Federal Grants on States and Localities: Stimulation and Substitution 1.92 A. 3. 4 Fiscal Impact of Major Federal Capital Grants and Revenue Sharing: Some Empirical Evidence 1.96 4.3.5 Public Works Investment and State and Local Revenue Bases: The Larger Perspective 1.103 4.3.6 Federal Aid to States and Localities: The Longer View 1.104 4.4 Debt Financing by State and Local Governments 1.126 4.4.1 Overall Trends in State and Local Borrowing , 1.129 4.4.2 Long-Term and Short-Term Debt 1.145 4.4.3 Debt Burden 1.150 4.4.4 Purposes of Borrowing 1.156 4.4.5 Characteristics of Investors 1.164 4.4.6 Borrower Types 1.170 4.5 Revenues from Own-Source Receipts and PWI 1.184 4.5.1 The Growth of Own-Source Revenues 1.186 4.5.2 Distribution of Own-Source Receipts 1.191 5.0 RELATIONSHIP OF PWI TO OTHER NATIONAL INDICATORS I . 200 5.1 Introduction and Summary of Findings 1.200 5.1.1 Introduction 1.200 5.1.2 Summary of Findings 1.201 5.2 Federal Government Expenditures 1.202 5.3 State and Local Government Expenditures 1.205 5.4 Relationship Between PWI and GNP, By Level of Government 1.212 6.0 PRIVATE SECTOR CAPITAL FORMATION OF PUBLIC WORKS TYPE PROJECTS 1.217 6.1 Introduction and Summary of Findings 1.217 6.1.1 Introduction 1.217 6.1.2 Summary of Findings 1.217 6.2 Privatization Trends 1.218 7.0 REGIONAL ANALYSIS OF PUBLIC WORKS INVESTMENT AND FINANCING MECHANISMS 1.225 7.1 Introduction and Summary of Findings 1.225 7.1.1 Introduction 1.225 7.1.2 Summary of Findings 1.225 iv TABLE OF CONTENTS (Continued) Page 7.2 Regional Distribution of Federal Public Works Investment 1.227 7.2.1 Agency Specific Analyses of Federal Public Works Investment 1.227 7.2.2 Analysis of Federal Public Works Investment Using the Federal Information Exchange System 1.271 7.3 State and Local PWI 1.302 7.3.1 Analysis of Regional Trends in Total State and Local PWI 1.302 7.3.2 Regional Analysis of PWI Functional Categories 1.318 7.3.3 Statistical Analysis of Variations in the Levels of State and Local PWI 1.322 7.3.4 The Influcence of Socioeconomic Factors 1.324 7.3.5 Some Concluding Remarks 1.325 7.4 Financial Mechanisms 1.327 7.4.1 Regional Variations in Own-Source Receipts 1.328 7.4.2 Regional Distribution of Federal Grants- in-Aid 1.328 7.5 Some Directions for Further Research 1.334 MAP OF THE CENSUS REGIONS 1.346. LIST OF EXHIBITS Exhibit Number Page 2.1 Educational Expenditures, 1840-1860 (millions of dollars and percent) 1.21 2.2 Federal Construction, 1869-1928 (millions of dollars and percent) 1.23 2.3 State and Municipal Construction, Various Years, 1870-1932 (millions of dollars and percent) 1.24 2.4 State and Municipal Expenditures on Primary and Secondary Education, 1870-1920 (millions of dollars and percent) 1.26 2.5 Municipal Expenditures' on Sewers and on Water Filtration Systems, 1881-1910 1.28 2.6 Public Works in the Great Drepression, 1930- 1938 (percent) 1.32 2.7 Regional Impact of Federal Public Works, 1935- 1938 (percent) 1.34 2.8 World War II and the Composition of Public and Private Construction, 1940-1945 (millions of 1957-1959 dollars and percent) 1.36 2.9 Regional Distribution of Public and Private Construction, 1939-1946 (percent) 1.38 3.1 Public Works Investment by Level of Government (millions of current and constant 1972 dollars) 1.47 3.2 Trends in Federal, State and Local PWI (current dollars) 1.48 3.3 Trends in Federal, State and Local PWI (constant 1972 dollars) 1.49 3.4 Composition of Total PWI By Level of Government (percent of constant 1972 dollars) 1.50 3.5 Trends In PWI Per Capita, By Level of Government (percent of current and constant 1972 dollars) 1.52 3.6 Functional Distribution of Non-Defense Federal PWI (millions of constant 1972 dollars and percent) 1.53 3.7 Functional Distribution of State PWI (millions of constant 1972 dollars and percent) 1.55 3.8 Functional Distribution of Local PWI (millions of constant 1972 dollars and percent) 1.57 3.9 Distribution of Total PWI by Function in Selected Years (includes Federal, state and local, in billions of constant 1972 dollars and percent) 1.58 3.10 Total Capital Stock, All Types, Including Residential and Non-Residential, Equipment, Structures and Inventories, But Excluding Military 1.61 LIST OF EXHIBITS (Continued) Exhibit Number Page 3.11 Total (residential and non-residential) PWI, Gross and Net, and Depreciation (millions of constant 1972 dollars) 1.63 3.12 Average Annual Growth Rates for Constant (1972) Dollar Stock of Public Works (percent) 1.64 3.13 Average Annual Growth Rates for Constant (1972) Dollar Federal Non-Defense Capital Stock (net) , by Function (percent) 1.66 3.14 Per Capita Federal Government Net Capital Stock, Excluding Military (constant 1972 dollars) 1.67 3.15 Per Capita Federal Government Net Capital Stock, Excluding Military: Real Average Annual Growth Rates (percent) 1.67 3.16 Federal Non-Defense Depreciation as Percent of Constant 1972 Dollar Investment 1.68 3.17 State and Local Capital Stock Real Average Annual Growth Rates, by Function (percent) 1.70 3.18 Per Capita State and Local Capital Stock, by Function (constant 1972 dollars and percent) 1.71 3.19 Depreciation of State and Local Government Capital Stock by Function, As a Percent of State and Local Gross Investment 1.72 3.20 Per Capita Private and Public Net Capital Stock (constant 1972 dollars) 1.73 3.21 Pe,r Capita Private and Public Net Capital Stock, Real Average Annual Growth Rates (percent) 1.74 3.22 Comparison Between GNP Deflator and PWI Deflator 1.76 3.23 Price Indices for Federal, State, and Local PWI Outlays (1972=100) 1.77 3.24 Trends in PWI Prices by Level of Government (1972=100) 1.78 3.25 BEA Implicit Deflators for Capital Outlays, by Functional Category (1972=100) 1.79 4.1 Financing of State and Local Capital Outlays by Source of Funds (billions of dollars) 1.83 4.2 "Capital Grants as a Percent of Total Federal Grants 1.84 4.3 Capital Grants to States and Localities As a Percent of PWI 1.86 4.4 Total and Capital Federal Grants-in-Aid to States and Localities (millions of dollars) 1.88 4.5 Federal Intergovernmental Expenditures Specifically for Capital Outlay Purposes, by Function (millions of dollars) 1.89 4.6 Per Capita Federal Grants for Capital Purposes (constant 1972 dollars) 1.90 LIST OF EXHIBITS (Continued) Exhibit Number Page 4.7 Federal Grants for Capital Purposes As a Percent of Total State and Local Capital Outlays, by Function 1.91 4.8 The Stimulative Effects of Grants, Summary of Results ' 1.97 4.9 Distribution of Federal Aid to State and Local Governments, by Purpose (percent) 1.106 4.10 Net Federal Loans for State and Local Public Works Activity (millions of dollars) 1.109 4.11 Composition of Total Federal Government Expenditures (millions of dollars and percent) I. 110 4.12 Growth of Federal Grants-in-Aid to States and Localities (millions of dollars) 1.112 4.13 Federal Grants-in-Aid to States and Localities (billions of dollars and percent) 1.113 4.14 Relative Growth of Federal Grants-in-Aid (FY 1957 = 100) 1.114 4.15 Growth of State and Local Dependence on Outside Aid (millions of dollars and percent) 1.116 4.16 Outside Aid to Local Governments (millions of dollars) 1.117 4.17 Outside Aid as a Proportion of Own-Source Receipts (billions of dollars and percent) 1.118 4.18 Functional Distribution of Federal Aid to States (millions of dollars) 1.119 4.19 Federal Direct Transfers for Education to Localities 1.123 4.20 Direct Federal Transfers to Localities for Waste- water Treatment 1.124 4.21 Ratio of Debt Issued to Capital Outlays, for States and Localities (millions of dollars) 1.130 4.22 Total State and Local Long-Term and Short-Term Borrowing (billions of dollars) 1.131 4.23 Total State and Local Borrowing (millions of dollars) 1.132 4.24 Growth of Local Long-Term Debt Outstanding 1.134 4.25 Growth of Total State Long-Term Debt Outstanding (millions of dollars) 1.135 4.26 State and Local Long-Term Total Debt Outstanding (billions of dollars) 1.136 4.27 Relative Growth of Total State and Local Long- Term Debt Outstanding (FY 1957=100) 1.137 4.28 State and Local Borrowing by Type of Issue (billions of dollars) 1.138 viii LIST OF EXHIBITS (Continued) Exhibit Number Page 4.29 Distribution of States by Percent of Net Long- Term Debt in Full Faith and Credit Form (number of states) 1.140 A. 30 Debt Sold by Type of Issuer (billions of dollars) 1.141 4.31 Breakdown of Municipal Bond Sales of $100 Million or More in Size Sold, 1977 1.143 4.32 Growth in Short-Term State and Local Debt Out- standing 1. 146 4.33 Short-Term Debt Outstanding As a Percent of Long- Term Debt Issued 1.148 4.34 Short-Term Debt Outstanding As a Percent of Long- Term Debt Issued, for States and Localities 1.149 4.35 State and Local Government Debt Service Burden (billions of dollars and percent) 1.151 4.36 Growth of Debt Burden for Local Governments (millions of dollars and percent) 1.152 4.37 Growth of Debt Burden for States (millions of dollars and percent) 1.153 4.38 Growth of Debt Burden for States and Localities (millions of dollars and percent) 1.154 4.39 Debt Service Burdens: Differences Between States and Localities 1.155 4.40 Growth of Debt Service for States and Localities (billions of dollars) 1.157 4.41 Growth of Debt Servicing for State and Local Govern- ments (millions of dollars) 1.158 4.42 Relative Growth of Debt Servicing for States and Localities (FY 1957 = 100) 1.159 4.43 Sales of State and Local Government Bonds, by Use of Proceeds (billions of dollars) 1.160 4.44 Functional Distribution of State Long-Term Debt Outstanding 1.162 4.45 Functional Distribution of Long-Term Debt of 43 Large Cities (millions of dollars and percent) 1.163 4.46 Composition of Holdings of State and Local Government Credit Market Debt, by Major Investment Groups (millions of dollars and percent) 1.167 4.47 Composition of Holdings of State and Local Credit Market Debt, by Major Investment Groups: A Graphic View 1.168 4.48 Percent of Net Increase in State and Local Government Debt Acquired, by Various Investors' Groups 1.169 4.49 City New Issue Bond Sales: Spread Between 20-Year Reoffering Yield and Bond Buyer 200 Index, by Quarterly Averages (in basis points) 1.172 ix LIST OF EXHIBITS (Continued) Exhibit Number Page 4.50 Relation of Selected Factor to Rating Category: Averages for 39 Largest Cities (standard deviations are noted in parentheses) 4.51 City Accumulated Surplus and Years of Operating Deficits 4.52 Direction of Change in Ratings for the Largest 39 Cities 4.53 Percent Distribution of Municipal Bond New Issues by Size and Issue, 1974 4.54 Costs of Bond Issues 4.55 Receipts from Own-Sources, for States and Localities (millions of dollars) 4.56 Own-Source Receipts As a Percent of Personal Income, for States and Localities 4.57 Own-Source Receipts As a Percent of Personal Income, for States and Localities: A Graphic View 4.58 Distribution of Own-Source Receipts for Localities 4.59 Distribution of Own-Source Receipts for Localities: A Graphic View 4.60 Distribution of Own-Source Receipts for States 4.61 Distribution of Own-Source Receipts for States: A Graphic View 4.62 Composition of Current Charges (Dollars Per Capita) 5.1 Composition of Total Federal Government Expenditures (millions of dollars and percent) 1.203 5.2 Federal Government Expenditures, by Type (percent of total) 1.204 5.3 Composition of Federal Government Purchases of Goods and Services (GPGS) (current and constant 1972 dollars and percent) 1.206 5.4 Federal Government Purchases of Goods and Services, by Type (percent of total in current and constant 1972 dollars) 1.207 5.5 Composition of State and Local Government Expendi- tures (millions of dollars and percent) 1.208 5.6 Composition of State and Local Government Purchases of Goods and Services (GPGS) (current and constant 1972 dollars and percent) 1.209 5.7 Composition of State and Local PWI (millions of current and constant 1972 dollars and percent) 1.210 5.8 State and Local PWI, by Type (percent of total in current and constant 1972 dollars) 1.211 I. 174 I. 176 I. 178 I. 179 I 181 I 187 I 188 I 189 I 193 I 194 I 196 I 197 I 199 LIST OF EXHIBITS (Continued) Exhibit Number Page 5.9 Relationship Between PWI and GNP, by Level of Government (percent of current and constant 1972 dollars) 1.213 5.10 PWI Less Highways (millions of constant 1972 dollars) 1.214 5.11 Relationship Between PWI and Gross Private Domestic Investment (GPDI) Plus Total PWI (percent of current and constant 1972 dollars) 1.215 5.12 Net PWI and Total Net Investment (billions of constant 1972 dollars) 1.216 6.1 Construction of Structures by the Private Sector (current and constant 1972 dollars) 1.219 6.2 PWI and Private Sector Investment in Public Works (PSPW) (billions of constant 1972 dollars and percent of GNP). 1.221 6.3 Pollution Abatement (Capital Account) Expenditures Related to Non-Residential Fixed Investment 1.222 6.4 PWI, Private Sector Pollution Abatement (PAI) and Private Sector Investment in Public Works (PSPW) (billions of constant 1972 dollars and percent of GNP) 1.224 7.1 Summary of Data Characteristics, by Agency * 1.229 7.2 Definitions of Time Periods Used in the Agency by Agency Analyses of Public Works Investment 1.235 7.3 Army Corps of Engineers Civil Works Expenditures for New Work, by Census Region 1.236 7.4 Composition of Army Corps of Engineers Civil Works Expenditures for New Work, by Census Region 1.237 7.5 Army Corps of Engineers Average Annual Civil Works Expenditures for New Work, by Function, by Census Region (thousands of dollars) 1.239 7.6 Department of Defense Military Prime Contract Awards for "Public Service" Construction Greater than $10,000 by Census Region 1.241 7.7 Department of Defense Military Prime Contract Awards for "Public Service" Construction Greater Than $10,000 by Census Region: A Graphic View 1.242 7.8 U.&. Forest Service Obligations for Construction, Improvements, and Land Acquisition, by Census Region 1.244 7.9 U.S. Forest Service Obligations for Construction, Improvements and Land Acquistion, by Census Region: A Graphic View 1.245 7.10 National Forest System Lands by Census Region, 1977 1.247 LIST OF EXHIBITS (Continued) Exhibit Number Page 7.11 National Forest Recreation Use by Census Region, 1974 1.248 7.12 National Aeronautics and Space Administration Appropriations for Facility Construction, by Census Region 1.249 7.13 National Aeronautics and Space Administration Appropriations for Facility Construction, by Census Region: A Graphic View 1.250 7.14 National Park Service Appropriations for Construction, by Census Region 1.252 7.15 National Park Service Appropriations for Construction, by Census Region: A Graphic View 1.253 7.16 Visits to the National Park System by Census Region, 1975 1.255 7.17 Tennessee Valley Authority Expenditures for Regional Resource Development, by State 1.256 7.18 Tennessee Valley Authority Expenditures for Regional Resource Development, by State: A Graphic View 1.257 7.19 Tennessee Valley Authority Expenditures for Power Programs, by State 1.259 7.20 Tennessee Valley Authority Expenditures for Power Programs, by State: A Graphic View 1.260 7.21 Bureau of Reclamation Appropriations for Construction, Rehabilitation and Betterments, by Census Region 1.262 7.22 Bureau of Reclamation Appropriations for Construction, Rehabilitation and Betterments, by Census Region: A Graphic View 1.263 7.23 Bureau of Reclamation Appropriations for Construction, Rehabilitation, and Betterments in the Mountain Region, by State 1.264 7.24 Bonneville Power Administration Net Additions to Physical Plant, by State 1.266 7.25 Bonneville Power Administration Net Additions to Physical Plant, by State: A Graphic View 1.267 7.26 Census Regions Receiving the Largest Share of Public Works Investments Made on a National Scale, by Agency 1.268 7.27 Census Regions Exhibiting Largest Growth in Public Works Investments Made on a National Scale, by Agency 1.270 xii LIST OF EXHIBITS (Continued) Exhibit Number Page 7.28 Geographic Distribution of Federal PWI, by Census Region 1.273 7.29 Federal PWI by Census Division Using FIXS Data 1.274 7.30 States Comprising Census Divisions and Regions 1.275 7.31 Geographic Distribution of Per Capita Federal PWI, by Census Region 1.277 7.32 Functional Distribution of Federal Public Works Investment 1.278 7.33 Geographic Distribution of Federal Investment in Natural Resources, Environment, and Energy, by Census Region 1.280 7.34 Geographic Distribution of Federal Investment in Space Research and Technology, by Census Region 1.283 7.35 Geographic Distribution of Federal Investment in Commerce and Transportation, by Census Region 1.284 7.36 Geographic Distribution of Federal Investment in Community and Regional Development, by Census Region 1.286 7.37 Geographic Distribution of Federal Investment in Health, by Census Region 1.287 7.38 Geographic Distribution of Federal Investment in Veterans Facilities, by Census Region 1.289 7.39 Geographic Distribution of Federal Investment in Law Enforcement and Justice, by Census Region 1.291 7.40 Geographic Distribution of Federal Investment in General Public Buildings, by Census Region 1.292 7.41 Spearman Rank Order Correlation Coefficients Indicating Degree of Association Between Regional Federal PWI and Selected Socioeconomic and Physical Factors 1.296 7.42 -Comparison of Non-Military Federal PWI Estimates Derived from FIXS Data to Estimates Published by the BEA, Census Governments Division (CGD) and 0MB 1.298 7.43 Comparison of FIXS and Census Governments Division (CGD) Public Works Investment, by Function 1.300 7.44 Population Trends, by Census Region (thousands) 1.304 7.45 Regional Population as a Percent of Total U.S. Population, by Census Region 1.305 LIST OF EXHIBITS (Continued) Exhibit Number Page 7.46 Summary of Descriptive Data, by Census Region 1.306 7.47 Regional Income Summary Statistics, by Census Region 1.308 7.48 Regional Earnings Summary Statistics, by Census Region 1.309 7.49 Regional Share of Total Constant (1972) Dollar State PWI, by Census Region (percent) 1.310 7.50 Regional Share of Total Constant (1972) Dollar Local PWI, by Census Region (percent) 1.311 7.51 State PWI Per Capita As a Percent of U.S. PWI Per Capita, by Census Region (constant 1972 dollars) 1.313 7.52 State PWI Per Capita as a Percent of U.S. PWI Per Capita, by Census Region: A Graphic View (constant 1972 dollars) 1.314 7.53 Local PWI Per Capita as a Percent of U.S. PWI Per Capita, by Census Region (constant 1972 dollars) 1.315 7.54 Local PWI Per Capita As a Percent of U.S. PWI Per Capita, By Census Region: A Graphic View (constant 1972 dollars) 1.316 7.55 PWI As a Percent of Direct Government Expendi- tures, for States and Localities, by Census Region (constant 1972 dollars) 1.317 7.56 Regional Share of Total Constant (1972) Dollar State PWI, for Selected Functions, by Census Region (percent) 1.319 7.57 Regional Share of Total Constant (1972) Dollar Local PWI, for Selected Functions, by Census Region (percent) 1.320 7.58 Summary of Significance of Growth Trends: Analysis of Variance Results 1.323 7.59 Simple Correlation Coefficients for State and Local PWI and Selected Socioeconomic Variables 1.326 7.60 Regional Distribution of Own-Source Revenue as a . Percent of Personal Income for State Governments, by Census Region 1.329 7.61 Regional Distribution of Own-Source Revenue as a Percent of Personal Income for Local Govern- ments, by Census Region 1.330 7.62 Per Capita Federal Grants-in-Aid, by Census Region: A Graphic View (dollars) 1.332 7.63 Per Capita Federal Grants-in-Aid, by Census Region (dollars) 1.333 7.64 Per Capita Federal Grants-in-Aid to Census Regions Relative to National Average 1.336 LIST OF EXHIBITS (Continued) Exhibit Number Page 7.65 Percent Over-and Under-Representation of Per Capita Federal Grants- in-Aid, by Census Region: New England Region 1.337 7.66 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: Middle Atlantic Region 1.338 7.67 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: East North Central Region 1.339 7.68 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: West North Central Region 1.340 7.69 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: South Atlantic Region 1.341 7.70 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: East South Central Region 1.342 7.71 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: West South Central Region 1.343 7.72 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: Mountain Region 1.344 7.73 Percent Over-and Under-Representation of Per Capita Federal Grants-in-Aid, by Census Region: Pacific Eegion 1.345 1.0 INTRODUCTION AND SUMMARY OF FINDINGS 1.1 Introduction The results of the Public Works Investment (PWI) study are reported in three volumes, a volume of accompanying appendices and an Executive Summary for the overall study. This volume, Volume I of the study, de- scribes the principal trends in public works investment and the financing of PWI over the period 1957 to 1977, a period defined by mutual agreement between the Secretary of Commerce and Congressional staff. In addition, it includes a long term historical study of PWI in the United States from about 1790 to the present. This historical study was conducted by Profes- sor Mark Aldrich of Smith College, and forms Chapter 2.0 of this volume. The rest of this volume is described below. National trends in PWI by level of government and by function are discussed in Chapter 3.0. The analysis is conducted in both current dol- lars and constant (1972) dollars in order to assess the impact of inflation. Trends in the total value of the capital stock and depreciation of this capital stock are also discussed. Chapter 4.0 examines the role of financ- ing mechanisms for PWI, tracing the relative importance of grants-in-aid, debt, and other financial instruments. Chapter 5.0 focuses on the sig- nificance of PWI trends relative to other aggregate indicators such as GNP and total government expenditures. There is a separate discussion of trends in PWI at the Federal, state and local government levels relative to total expenditures at each level. Chapter 6.0 presents an assessment of the importance of private sector capital formation in public works type projects such as schools and hospitals. Finally, Chapter 7.0 focuses on trends in PWI at a regional level, using the Census divisions as regions. It includes a separate analysis of direct PWI expenditures in each region by Federal, state and local governments. It also contains a discussion of trends in financing mechanisms at a regional level, with emphasis on the impacts of grants-in-aid. Each chapter of the volume contains an intro- ductory section that summarizes the principal findings of the chapter. An overall summary of findings for this volume is given in Section 1.2. 1.2 Summary of Findings This volume is principally concerned with trends in PWI expenditures over the 21-year period 1957 through 1977, and with trends in the total value of public capital stock. Whenever possible, values are presented in both current dollars and in constant (1972) dollars. 1.2.1 Trends In PWI By Level Of Government And Function The principal findings regarding trends in total PWI and its alloca- tion by level of government and function are as follows: 1.1 Current dollar gross PWI (Federal, state and local combined but not adjusted for depreciation) was at an aggregate level of $44 billion in 1977 compared to $15 billion in 1957, an increase of 5.5 percent a year on the average. The pattern, however, was not one of steady rise. Current dollar PWI peaked at $46 billion in 1975. L From 1957 to 1968 gross PWI in constant dollars in- creased at an average annual rate of 5.3 percent, rising from $23 billion in 1957 to $41 billion in 1968. Between 1968 and 1977, however, gross PWI, in constant dollars, declined at an average annual rate of 3.7 percent, and by 1977 had dropped to ap- proximately $29 billion (again, in 1972 dollars). The price of PWI projects has increased at a faster rate than prices in the economy in general. The ratio of the PWI deflator in 1977 relative to 1957 was 2.33, compared to 2.18 for the GNP deflator. The greatest increase in PWI costs has occurred since 1972. A project costing $100 million in 1972 would have cost $150 million in 1977. Two major functional categories, highways and edu- cational facilities, dominate the decline in con- stant dollar new investment that occurred between 1968 and 1977. If these two categories of expendi- ture are subtracted from the totals, the constant dollar value of gross PWI flattens out after 1967. The decline in new investment in highways is a consequence of the approaching comple- tion of the Interstate highway network; this nationwide project was also a significant contributor to the rise in PWI from the late 1950's to the mid 1960's. It should be noted that the $4 billion in Local Public Works author- ized in 1977 do not enter into the Census and BEA figures that were utilized in this study; and only a part of the $2 billion authorized in 1976 is in- cluded in PWI for 1977. Funds are only included in the PWI data as they are actually spent. Therefore, the bulk of the Local Public Works expenditures will appear in the 1978 figures which were not yet available at the time this study was carried out. It should also be noted that PWI expenditures are classified according to the level of government that does the spending, irrespective of the source of funds (which is often difficult to trace); therefore, Local Public Works investment is classified as "Local PWI". 1.2 The rise and decline in construction of edu- cational facilities over the 21 year period is a consequence of the rise and fall of the school age population. Despite the drop in spending, highways and educational facilities continue to be major components of total PWI , accounting for 24 percent and 19 percent, respectively, of constant dollar PWI (across all levels of government) in 1977. Capital expenditures on utilities (in particular, sewer systems) showed the greatest net increase between 1957 and 1977. Other functional categories which showed major increases in constant dollar PWI expenditure were health facilities and natural resource projects. The general trend has been towards a more even distribu- tion of spending over all functions. All three levels of government had lower real (i.e., constant dollar) spending in 1977 relative to their peak spending in the study period. For the Federal government, the peak was reached in 1966; for the state governments, the peak occurred in 1967; and the peak for the local governments occurred in 1968. Direct Federal PWI expenditures (not including Federal grant funding of PWI expenditures at other levels of government) have consistently been the smallest of the three components of total PWI. However, Federal PWI is the only component for which real spending increased steadily between 1972 and 1977. Direct Federal PWI (as opposed to intergovernmental grants) is concentrated in the areas of natural re- sources and public building construction. In 1977, these two categories accounted for over 75 percent of Federal PWI, with resource-related investment being the highest (49 percent of the total) . State governments have historically channeled large amounts of money into highways. Although the share of total state PWI allocated to this function dropped from 77 percent in 1959 to 53 percent in 1977, it still remained far ahead of all other state PWI out- lays. The second largest category, education, was only 20 percent of state PWI by 1977; this share had held steady at roughly 20 percent since 1967, after a 1.3 rise from the 1959 share of 10 percent. Thus, as state PWI fell, in constant dollar terms, from its 1967 peak value, expenditures on Interstate highway construction wound down faster than the overall fall. Capital expenditures on educational facilities fell by the same percentage as the overall fall. But capital expenditures in all other func- tional areas, as a whole, rose by 14 percent. • Local governments had the largest share of direct PWI expenditures throughout the period (although a rising share of local PWI expenditures was financed by transfers from other levels of government). In constant dollars, local PWI was 33 percent higher in 1977 than in 1959, although it was below its 1968 peak. Education has been, and continues to be, the largest category of local PWI spending, but its rela- tive share dropped from 32 percent in 1959 to 22 per- cent in 1977. The share of highway expenditures dropped from second to third place over the period, while expenditures on sewer systems (especially sew- age treatment facilities) during the latter part of the period brought that category up to second place. 1.2.2 Trends in Capital Stock An additional dimension in the assessment of PWI trends is the total value of the nation's public stock and its relation to gross PWI The principal findings are: • The total value of public capital stock increased throughout the period, from about $348 billion in 1957 to $674 billion in 1977 (both in 1972 dollars). • Because of the large total increase in public capital stock during this period, along with the recent down- ward trend in the deflated value of total gross PWI, there is an associated trend for a higher share of PWI to be accounted for by depreciation of the capital stock. In an accounting sense, a rise in the amount of capital stock in existence generally implies a rise, in the value of the corresponding depreciation allowances. e For the Federal share of capital stock, depreciation allowances have exceeded gross investment in 12 out of the last 21 years. Although, in an accounting sense, PWI by state and local governments has continually ex- ceeded depreciation allowances, an increasing portion of state and local gross investment is accounted for by depreciation. From a high of $23.3 billion in 1968, 1.4 state and local government net investment (gross investment minus depreciation allowances) fell to $6.8 billion in 1977 (both in 1972 dollars). Nevertheless, Federally owned capital stock grew 15 percent over this period. State and local government capital stock grew 125 percent bet- ween 1957 and 1977. • A striking example of the effect of depreciation is seen in state and local expenditures on high- ways. Of gross investment in 1977, 95 percent was accounted for by depreciation and 5 percent was net investment. This compared with corre- sponding figures of 37 percent and 63 percent in 1957. The fall in net investment is largely a consequence of two facts: first, the Interstate highway construction program is drawing to a close, and second, maintenance expenditures are not included in investment statistics and there- fore cannot offset the accounting value of depre- ciation, whether or not actual maintenance ex- penditures exceed depreciation allowances. (Re- placement and renovation expenditures, on the other hand, are included in the investment figures). 1.2.3 Financing The changes over the study period in the levels and trends in PWI expenditures were accompanied by significant changes in the role of dif- ferent financing mechanisms. The findings on public works financing trends at the state and loc levels of government are as follows: Accounting depreciation is not a reliable indicator of actual wear and tear, and the definition of net investment takes not account of actual maintenance expenditures. Furthermore, investment figures may not ade- quately reflect productivity changes. Hence, the value of net investment does not necessarily indicate the extent to which capital stock or the services derived therefrom are actually rising or falling. 2 PWI by level of government disaggregates the total according to the level of government that actually spends the funds (see Section 1.2.1, above). An alternate way of disaggregating total PWI is according to the level of government that actually provides the funds. However, funds appropriated in a given year may not necessarily be spent until a subse- quent year. Thus, the yearly comparisons between PWI and capital grants provided in this section are not an exact match between spending and source of funds. 1.5 Federal Grants-In-Aid • In 1957, Federal capital grants-in-aid represented less than one-tenth of total state and local PWI. By 1977, they had increased to about 40 percent of the total and had replaced debt as the largest source of state and local PWI funds. • Federal grants to state and local governments for capital projects increased from $1.2 billion in 1957 to $15.4 billion in 1977 (in current dollars). • In 1972 dollars, Federal capital grants increased from $1.8 billion in 1957 to $10 billion in 1977. In the second half of the study period, direct Fed- eral PWI, as noted earlier, declined from $7.1 bil- lion to $4.3 billion (in 1972 dollars). During this latter period Federal capital grants increased from $6.9 billion in 1966 to $10 billion in 1977 (both in 1972 dollars). • In 1977, capital grants were most significant for sewer systems, airports, and highways, and were equivalent to 74, 65 and 49 percent, respectively, of all state and local PWI outlays in these func- tional areas. • The largest component of capital grants throughout the study period was highway capital grants. How- ever, capital grants have increased over the period in the sewage treatment, housing and urban renewal, and mass transit categories. Debt Financing • Despite the relative decline in the use of debt financing for PWI by state and local governments, total state and local borrowing (new debt) has in- creased substantially during the period examined. From approximately $11 billion in 1960, it grew by over 500 percent to $66 billion in 1977. Long- term debt outstanding grew from $70 billion to $258 billion in the same period (current dollars). 1.6 • Tax exempt borrowing has been the largest source of debt financing of state and local capital outlays. • Short-term borrowing between 1950 and 1977 grew by over 20 times, as localities found themselves in- creasingly unable to meet immediate needs, both in capital as well as current operating accounts. • The 1970's have seen a deterioration in the quality of state and local debt, reflected in the more stringent terms required by lenders. This has been particularly true for large urban borrowers. The deteriorating quality of the municipal bond market has led to a gradual movement away from general obligation bonds and into the use of other types of indebtedness, such as revenue bonds. • The debt burden for states has been relatively small since 1957, varying between 6 and 8 percent of own-source receipts. However, for local govern- ments this burden has been much heavier, averaging about 18 percent of own-source revenues. If one includes outstanding short term debt as part of debt burden, the local burden increases to about 33 percent of own-source revenues. Own-Source Revenues • From 1957 through the mid-1960' s, own-source re- ceipts represented a major, if not principal, source of state and local government PWI financing. • In more recent years, however, local own-source revenues have rapidly declined in relative im- portance, so that in 1977 they accounted for less than 20 percent of all state and local revenues allocated to PWI. • The single largest contributor to local own-source revenues is the property tax, while at the state level it is the sales tax. However, both levels of government have increasingly diversified their own-source receipts, with local governments making greater use of current charges, and state govern- ments relying more heavily on individual income taxes, 1.2.4 PWI In Relation to Other National Income Categories The decline in the real value of PWI since the late 1960's was oc- curring at a time when the real values of other economic aggregates, in- cluding gross national product (GNP) and private investment, were growing 1.7 (albeit at a slower rate than during the early 1960's), and the nation was experiencing an increased demand for social goods and services. In response to that concern, this study included an analysis of the signifi- cance of the role which PWI has played in the overall economy. In addi- tion, because of the main emphasis which the nation has placed on the development of a comprehensive highway network, special attention has been given to this form of PWI outlay. The ratios of PWI to some of these other aggregates are presented below: • The ratio of total PWI to GNP reached a 21 year peak of 4.1 percent (based on 1972 dollars) in 1965. The low for the period was 2.3 percent in 1977. The average of the 21 annual values was 3. A percent. Despite the fact that large amounts of PWI have gone into highway construction, and that these investments have been signifi- cantly reduced in recent years as the Inter- state Highway System nears completion, the removal of funds for highway construction from the PWI statistics does not reverse the general downward trend of PWI relative to GNP. • Direct Federal PWI in real terms increased at a faster rate than total Federal government purchases since 1959, reaching 4.2 percent of Government Purchases of Goods and Services (GPGS) by 1977. State and local PWI relative to state and local GPGS has declined from 28 percent in 1959 to 15 percent in 1977 (based on 1972 dollars). • Gross Private Domestic Investment (GPDI) grew at a faster rate than PWI over the 21 year period. As a percent of total public and private investment, PWI dropped from 19 percent in 1957 to 13 percent in 1977, although it did reach a peak of 21 percent in 1967. If public and private investment are compared on a net basis (that is, after adjusting for depreciation), then net PWI as a percent of total net investment declined from 21 percent in 1957 to 10 percent in 1977. I. 1.2.5 Privatization Yet another dimension of the study is the trend in what can be termed "privatization", that is, an increasing investment by the private sector in public works type projects such as schools, roads, and hos- pitals. *• On this issue the study found that: • Private investment in educational facilities has followed a pattern similar to that exhibited by public investment in educational facilities, in- creasing in the early part of the study period and then declining. This suggests that education re- lated investments by both sectors may have been influenced by the same market and demographic factors stemming from the rise and fall of the school age population. • The ratio of public to total investment in hospitals declined from 47 percent to 38 per- cent between 1957 and 1977 (in constant dollars), indicating that investment in this area is grad- ually becoming a responsibility of the private • However, inclusion of private sector investments of a public works nature into the definition of PWI does not alter the overall downward trend in the ratio of PWI to GNP during the 1970' s. While the ratios are slightly higher, the peak still occurs during the mid-1960' s and the low point is still 1977. However, if capital outlays for pollution control (which are largely private although govern- ment mandated) are included in the definition of PWI, then a flattening effect in the PWI/GNP ratio is observed. 1.2.6 Regional Distribution of PWI A final aspect of the study addressed the regional allocation of PWI. 2 The conclusions are: In the following discussion, private sector investment in public works projects refers to structures only, and does not include equipment purchases. A breakdown of the latter by function for public works projects was not fea- sible. 2 The regions referred to here are the nine Census regions (see the end of this volume for a map of the Census regions) . 1.9 Direct Federal PWI (excluding intergovernmental grants) has been concentrated in the western and southern regions of the U.S. These regions re- ceived over three-fourths of all Federal direct PWI in 1972 and 1977. 1 The distribution of regional physical resources and legislative mandates, rather than economic or demographic factors, explains much of the regional distribution of direct Federal PWI. Water conservancy and river and harbor works dominate direct Federal PWI, and the corresponding waterways, dams, and hydroelectric power projects are lo- cated predominantly in the West and in the South. On a per capita basis, there is signifi- cant regional variation in the allocation of direct Federal PWI, with the Mountain Region receiving $97 per capita in 1977 (current dollars) and the New England Region receiving $3 per capita. In contrast with the geographic distribu- tion of direct Federal PWI, there has been a clear trend toward a more equal geo- graphic distribution of per capita Federal grants-in-aid. 2 In terms of state PWI expenditures per capita, the Mountain Region is currently spending at about 140 percent of the national average per capita rate, while the New England and Pacific Regions are appro- ximately equal in last place, at about 82 percent of the national per capita rate. In terms of local PWI per capita, the Mountain Re- gion (in first place) is currently spending at about twice the rate of the New England Region. However, this situation represents a rapid rise for the Mountain Region, which ranked fifth in local PWI per capita in 1957 and fourth as recently as 1972. A continuous annual data series was not available by region for direct Federal PWI, but such a series was available for grants-in-aid. 2 The Federal grants-in-aid variable in this context refers to total grants, including those for capital outlays. At the regional level, the separation of grants into those that were expended for capital projects and those that were used for current account disbursements was not feasible. 1. 10 1.2.7 Concluding Remarks About PWI from 1957 to 1977 To sum up, changing priorities regarding the allocation of govern- ment budgets, and the inflation rate the economy has experienced since the late 1960's, have very likely contributed to the decline of positive net investment in public works, which is to say, a slowing down of the rate of increase in the public capital stock. Such a set of circumstances, if continued, could ultimately lead to disinvestment in the capital stock, at least in an accounting sense. Evidence exists which implies that such a trend may be present for direct Federal PWI expenditure; however, this ignores both maintenance expenditures and the greatly increased amounts of Federal money that have been transferred to state and local govern- ments for capital expenditures. Furthermore, sales of government facil- ities represent "disinvestment" without any implied impairment of plant. There is no evidence to support the position that Federal, state or local capital stock, or the services derived from them, have in fact fallen. It is also unclear whether a leveling off in the total quantity of accumu- lated public capital stock is, or is not, a desirable development at the present time. This last question has not been addressed in the present study. Two other significant trends that emerge are the strongly increas- ing dependence of state and local capital outlays on Federal grants-in- aid as a financing source, and the very large regional differences in direct Federal PWI expenditures, that are explained to a large extent by a combination of physical resource factors and legislative mandates. The relationship between these two conduits of Federal public works expenditures — direct expenditures and grants-in-aid — and their regional distributions, exert an influence on the level and concentra- tion of U.S. economic development. 1.2.8 The Historical Perspective A long historical view suggests that almost any type of govern- mental expenditure has at one time or another been classified as a "public work". Certain activities have alternated between the private and public domains, and between Federal and state or local levels of gov- ernment. Both urban and regional development have received primary em- phasis in different historical periods. Some of the major points and conclusions in the historical overview of PWI include the following: • During the early period of American capitalism until about the 1870' s, public works tended to be develop- mental in nature, devoted to the building of transpor- tation networks and resource discovery. • By the 1870' s, industrialization and private capitalism were in full bloom, and public works became increas- ingly designed to accommodate the needs of the urban agglomerations that had % been spawned by the rise of 1. 11 manufacturing industry. Accommodation of urban needs meant paying for the social costs of private urban development. • During World War II, industrial construction was widely undertaken as a "public work" with govern- ment funding. • After World War II, public works returned to the con- ventional categories of the years before 1932. But governments have now adopted tax and subsidy methods for encouraging an enormous range of private construc- tion with public controls. The historical study concludes that the label "public works" has always been flexibly applied, depending upon the needs of the times. Policy-makers have displayed great flexibility in devising innovative public works programs to meet either developmental or distributional needs. 1.12 2.0 A BRIEF HISTORY OF PUBLIC WORKS IN THE UNITED STATES, 1790-1970 2.1 Introduction and Summary of Findings 2.1.1 Int r oduc t ion There is no unique group of projects which always were and always will be public works. 1 Public works are by definition governments' responses to perceived market failures. But what is defined as a market failure, and the ways in which markets fail, may differ in different historical epochs. And the responses of people and their governments change too, for political and ideological and other reasons. So what is a public work, and the reason that it is public, and what level of government undertakes it, and how it is done are all questions to which varying answers have been supplied during the past 200 years of American history. This essay divides public works history up into three broad time periods — the years to 1873, from 1874-1932, and from 1932 to the present. It is useful to think of these epochs as corresponding roughly to early, developing, and mature capitalism. During the early period of American capitalism until about the 1870' s, public works tended to be developmental in nature. That is, they were largely intended to overcome capital shortages, especially in key areas of transportation and resource discovery, and they led the economy rather than simply accommodating private demands. By the 1870's, private capitalism was no longer a hothouse flower. Accordingly, public works were no longer largely designed to overcome shortages of private capital and they no longer led the private economy. Yet public works grew in relative importance during most of these years, and evolved into what has largely been their modern form. Industrialism propelled the urbanization of the economy, and public works became increasingly designed to accommodate urban needs and to pay for the social costs of private urban development. As in so many other areas, 1932 marks the end of an era in the history of public works. Unemployment became a justification for public construction, and with private development depressed, developmental — This chapter is a shortened version of a larger work by Dr. Mark Aldrich entitled "A History of Public Works in the United States, 1790- 1970" (contained in Volume IV, Appendix F, of this study). This larger work, referred to in this volume as "History of Public Works," contains further amplification and documentation of points discussed herein, plus statistical appendices. 1.13 "pump priming" — public works again became more significant. Finally, the Federal role for the first time became dominant. During World War II, industrial construction became conscripted as a public work for the duration. Thereafter, official data seem to sug- gest that public works have returned to the comfortable categories of the years before 1932. But as in the antebellum decades, governments are now encouraging or discouraging via tax and subsidy policies an enormous range of private construction with public controls and sub- sidies of private investments. Hence, the gap between what we label public works and what we in fact treat as construction undertaken with the public interest is becoming increasingly large. 2.1.2 Summary of Findings As we have seen, in the early years of the Republic, the category of permissible state activities was bcoad indeed. Government at all levels invested in transportation, and otherwise helped create the infrastructure of economic development. Yet the emphasis on activities which supported private economic development resulted in the neglect of those projects which, however necessary, had no very clear connection to development. After 1870, as private capitalism came of age, the need for such developmental activities declined. Government public works now concentrated on accommodating private enterprise by picking up the social costs of private economic development. Industrialization had led to urbanization which in turn resulted in massive investments in streets, sewers, water works, bridges, trans- port systems, and other services. With depression and war, the Federal component of public works became paramount for the first time, and large-scale developmental projects were again begun. New justification for public construction appeared, and a great range of projects were tentatively begun. But, after some experimentation in the war and depression decades, it might seem as if public works have returned to their conventional categories. Construction of roads, schools, sewers and water works amounted to 70 percent of all non-military, non-residential government construction in 1970. However, to take these and the other conventional categories as the scope of modern public works is to run the risk of being severely and increasingly out of date. The activities which we actually treat as public works have been expanding rapidly in the recent past, even though we still think in terms of the stylized categories of some 50 years ago. This expansion in the public sphere has come about for essentially two sets of reasons. First of all, in an increasingly urban economy, all investments become more and more public. The most obvious example is pollution control. Federal air and water quality standards have led to a whole new category of "public" investment. Federally mandated but privately financed 1.14 pollution abatement investments are public works by any reasonable defi- nition. It is a gross but useful oversimplification to say that before 1870 we treated private investments as public works and subsidized them. Later we socialized the costs of private economic development with pub- licly financed public works. Now we are forcing private enterprise to finance public works to internalize its own social costs. But there are other reasons for this continued blurring of the public and private sectors. The nineteenth century emphasis on balanced budgets limited the ability of governments to undertake public works or to sub- sidize private enterprises. In addition, a variety of legitimating beliefs supported the notion that a market determined distribution of income and wealth was a just one. Since the 1930' s, these beliefs have eroded. Public works financed through unbalanced budgets are justified by their impact on the unemploy- ment rate. A variety of unprofitable activities may be subsidized even where there are no obvious externalities because they are somehow worthy of public support or because those who undertake them are deemed to be especially deserving of public aid. A Joint Economic Committee study indicated that a minimum estimate of the size of Federal subsidy pro- grams in FY 1970 was $63 billion. *■ Most of these support a current economic activity but in so doing they must also shape the rate and direction of private investment. So it seems we have come full circle since the eighteenth century. The old and rather broad Medieval and mercantilist notions of public activities eroded during the late nineteenth century. Since the Great Depression, public works as traditionally defined have seen a relative expansion, But there has been a much greater expansion in publicly mandated private investments and in public subsidy programs. Neither of these is usually thought to be a public work in the traditional defi- nition. But all are works which it is apparently thought in the public interest to encourage. 2.2 The Release of Private Energy: 1790-1870 2.2.1 Geography and Philosophy The founders of the new nation were aware of, and on the whole sympathetic to, the doctrines of Adam Smith. But the older mercantilist notions which emphasized detailed state intervention in the economy for the common good were also part of their heritage. The result was an eclectic intellectual background well suited to American conditions, U.S. Congress, Joint Economic Committee, The Economics of Federal Subsidy Programs , 92nd Congress, 1st Session, Washington, D.C., U.S. Government Printing Office, 1972, p. 4. 1.15 for geographic and economic circumstances dictated that government would have to play a major role in American economic development, if there was to Jse any economic development . 1 Vast distances, shortages of capital, and undeveloped private busi- nesses characterized the new nation. As a result, concerns with discov- ery and exploitation of natural resources, with solving the problems inherent in vast distances, and with augmenting scarce capital were what shaped early state and Federal public works. Exploratory and scientific surveys, river and harbor improvements, banks, and the promotion of roads, canals, and later railroads, all reflected these concerns. Initially, there was little worry that government would conflict with private enterprise, for private capital was scarce and business organi- zations undeveloped. Instead, government activity was developmental and would encourage lagging private enterprise. This was "constructive liberalism." Government, by building the infrastructure itself, or by aiding in its private construction, could provide a context which would release private energies. 2 2.2.2 Transportation and Discovery 2.2.2.1 Federal Public Works: 1790-1850 From the inception of the Republic, vast schemes were regularly proposed to employ Federal resources in promoting economic development. Even Jefferson favored Federal support of science and transportation, and his Secretary of the Treasury, Albert Gallatin, produced what was in effect a national transportation plan in 1808 with his Report on Roads and Canals . The programs of Gallatin and other enthusiasts of Federal public works were honored largely in the breach. The Federal commitment, although neither miniscule nor irrelevant to antebellum economic devel- opment-, was a far cry from Gallatin's grandiose vision. This was not due to any budding dedication of Americans to free enterprise, however. The main stumbling block stemmed from the sectional rivalries and jealousies which ultimately led to civil war. 3 For a discussion of the economic philosophies of early American statesmen, see Joseph Dorfman, The Economic Mind in American Civiliza - tion 1606-1865 , New York, Viking, 1946, Vol. I, Chapter 18. 2 See Milton Heath, Constructive Liberalism: The Role of the State in Economic Development in Georgia to 1860 , Cambridge, Harvard, 1954; and James Hurst, Law and the Conditions of Freedom , Madison, University of Wisconsin, 1956. 3 Goodrich, Carter, Government Promotion of American Canals and Railroads, 1800-1890 , New York, Columbia, 1960, Chapter 2, describes the sectional rivalries. 1.16 Federal involvement in public works investments to 1850 presently defies an accurate quantitative assessment. Henry Broude has estimated that total Federal expenditures on internal improvements amounted to about 11 percent of the Federal budget during 1820-1840, and as this does not include various subsidies to state and private projects, it is probably a minimum estimate. What did the country get for its money? Perhaps the single most important Federal contribution was its use of military engineers on "public" works whether built by government or private enterprise. Had such talent been unavailable during the 1820's and 1830's, some projects could not have been built and others constructed more poorly. Nor would these projects have been such valuable training grounds for the junior engineers who went on to build the greater projects of the 1850' s and the post-war decades. 2 2.2.2.2 State and Municipal Efforts to 1860 If the importance of Federal public works in promoting economic development up to 1850 must be termed modest, the role of the states, and to a lesser extent, the cities, was central. State and local public works included roads, banks, canals, railroads, scientific surveys, salt works, sewers, public buildings, water systems and more. But while the range of projects is impressive, and testimony to antebellum Americans' willingness to countenance a broad spectrum of government activities, equally impressive is the overwhelming concentration on transportation, discovery and communication. 3 The period of massive aid to transportation on the part of the states came to a rather abrupt halt in the 1840' s. The severe depres- sion which began in 1839 and lasted until about 1845 was one reason. Broude, Henry, "The Role of the State in American Economic Devel- opment, 1820-1890," in Hugh Aitken, ed., The State and Economic Growth , New York, New York, Social Science Research Council, 1959, pp. 1-25. 2 For assessments of the importance of the Army engineers, see Forest Hill, Roads, Rails, and Waterways , Norman, Oklahoma, University of Oklahoma, 1957; and Mark Aldrich, Rates of Return on Investment in Technical Education in the Ante-Bellum American Economy , New York, New York, Arno, 1974. 3 There is an enormous literature on the internal improvements move- ment; see Carter Goodrich, Government Promotion , op . cit . , and also his edited volume, Canals and American Economic Development , Port Washington, Kennikat, 1972; Hill, op_. cit . ; Heath, £p_. cit . ; Louis Hartz, Economic Policy and Democratic Thought , Cambridge, Massachusetts, Harvard, 1948; Oscar and Mary Handlin, Commonweal t h , New York, New York, New York Uni- versity, 1947; Harry Schreiber, Ohio Canal Era , Athens, Ohio, University of Ohio, 1969; and Ronald Shaw, Erie Water West , Lexington, Kentucky, University of Kentucky, 1966. 1.17 Several states which had become financially overextended were bankrupted, and a number of others came close. A revulsion against state involvement set in. But more basic forces were at work too. In the East and Middle West, the ability of private enterprise to mobilize capital and earn a profit in transportation was well-established by the 1840' s. Increas- ingly, therefore, private businesses took up the banner of laissez faire. With the exit of most states from transportation investments, it seems likely that the ratio of public works to private construction began to decline sometime during the 1840' s. As the data in "History of Public Works," Appendix II make clear, the decline continued right on down to the twentieth century. 2.2.2.3 National and Local Projects: 1850-1873 In the quarter century following 1850, government investments in transportation continued to be sizable. However, the relative impor- tance of the various levels of government changed markedly. The states, which had been the major source of funds up through the 1840' s, declined in importance thereafter, and in the post-Civil War years, virtually retired from the field. Federal subsidies became enormous during these years, and aid from the cities was also considerable. Beginning in 1850, Congress sharply increased the scale of its aid to private works of public utility, and it established the general loca- tion of projects to be subsidized. States, too, continued to subsidize some private railroad construction after 1850. But aid from localities between 1850 and 1873 vastly outpaced that from the states, and may have reached $175 million during that period. 2.2.2.4 Significance of Public Works to 1873 Rough estimates of the quantitative significance of public transpor- tation investment are available. Up to 1860, total investment in canals amounted to some $190 million, of which the public component comprised some 73 percent or $139 million. Total railroad investment by that time was $1,145 billion of which some $280 million or 24 percent was public. Excluding roads, total public transportation investment, then, came to $420 million which equalled 31 percent of all investment in canals and railroads to I860. 1 The absolute amount of government aid to transportation after 1860 was also immense, and may have totalled $350 million, most of which occurred before 1873. But as a fraction of total transportation invest- ment, it amounted to much less than in the antebellum decades. This Total spending and government support of canals and railroads is estimated in Goodrich, Government Promotion , op . cit . , Chapter 8, and in Harvey Segal, "Cycles of Canal Construction," in Goodrich, ed., Canals and American Economic Development , op . cit . , pp. 169-215. 1.18 declining significance of government involvement plus the fact that it came as aid rather than as public construction both highlight the fact that the early rationale for public involvement in transportation was eroding, and for about a century railroad construction ceased to be considered a public work. Public transportation investment had a dramatic impact on the pace and pattern of economic development. In the antebellum decades, canal and later railroads opened up the old Middle West and dramatically widened agricultural markets. Later, the transcontinentals brought the great plains states into the expanding network of commercial agriculture, In the South, railroad, canal, and river development played a more mar- ginal role, but still facilitated the expansion of cotton production. In the West, a flood of grain provided by highly mechanized, land- intensive techniques, and of other foods and raw materials resulted, while Western farmers provided markets for Eastern manufactured goods. Cotton was the dominant export before the Civil War and hence paid for a large fraction of vitally needed imports. After the Civil War, Western expansion made America the granary of the Western world. Cheap food reduced pressures on urban living standards and also, by raising the fraction of workers' budgets devoted to non-food items, stimulated urban demands for manufactured items. 2.2.3 Accommodating Urbanization to 1860 2.2.3.1 Ur ban Liv ing Antebellum urban growth was explosive. People living in towns of 2,500 or more grew from 322,000 to 6.2 million from 1800 to 1860, or by a factor of 19. Rapid urbanization during the antebellum years created a host of interrelated demands — for administration, education, housing, police and fire protection, better transport, health and sanitation. Initially, most of these were ignored or handed over to private enterprise or pri- vate charity. 1 Gradually, it began to dawn that many of these were public works and that a better job needed to be done. The two areas in which most progress was made was in building a mass public school system and in constructing municipal water works, and so we now focus on these signif- icant forms of public investment. For a case study of how one city relied on private enterprise for its early "public" works, see Sam Bass Warner, The Private City: Philadelphia in Three Periods of Its Growth , Philadelphia, Pennsylvania. University of Pennsylvania Press, 1968. 1.19 2.2.3.2 Rise of Mass Public Education Concern for public education antedated the American Revolution. On the whole, however, total public investments in educational plant and equipment were probably quite modest during the antebellum years. As Exhibit 2.1 indicates, private funding outweighed public support until just before the Civil War. And while education accounted for about one- fifth of total state and local spending in 1860, on a per capita basis or as a fraction of GNP, the sums were really extremely modest. More- over, these figures include both current and capital expenditures; building construction itself probably averaged no more than one-fifth of public educational expenditures during these years. 2.2.3.3 Growth of Public Water Systems Municipal water supplies in colonial America were all but non- existent. A public well or two, of dubious purity, was the best that could be hoped for. By the 1790' s, several of the Eastern seaboard cities began to try to improve their sources of supply. Their motives were complex: insufficient supplies as the cities expanded were an obvious spur, as was the great New York fire of 1776. So was disease. Yellow fever repeatedly visited Philadelphia, New York, Charleston, and other cities during the 17 90' s, and many thought that the disease was associated with urban filth. *■ In 17 99, after the failure of private enterprise, Philadelphia began the first municipal system in America. After 1840, the system failed to expand to keep pace with population growth and industrializa- tion began to pollute the Schuykill and Delaware Rivers. Other large cities followed similar paths. All in all, by the eve of the Civil War, there were 68 public water systems in the country and many of these were grossly inadequate. In a number of cities, such as Providence, Rhode Island, Portland, Maine, Milwaukee, Wisconsin, and Washington, D.C., there were no provisions for public water supplies. Moreover, no city in the country had a complete sewer system. 2 See especially Nelson Blake, Water for the Cities , Syracuse, New York, Syracuse University, 1956. Also see Charles King, A Memoir of the Construction, Cost, and Capacity of the Croton Aqueduct , New York, New York, Charles King, 1843; Charles Winslow, Man and Epidemics , Princeton, New Jersey, Princeton University, 1952; Chicago: A History , Chicago, Illinois, Department of Public Works, 1973; and A History of Public Works in the United States, 1776-1976 , New York, New York, American Public Works Association, 197 6. 2 For a fuller description of the conditions of American cities in 1860, see Edgar Martin, The Standard of Living in 1860 , Chicago, Illinois, University of Chicago, 1942, Chapters 8 and 9. 1.20 M '■^ X> co •O « CO 4J 3 o C 4J c a. 3 O •H C •-» > XI o o o W Jx 3 C 3 3 O 0) s z e 0) JO eg ■< O as z S < w < C/J O z o H < z CO o a 1.21 2.3 Rise of the Cities: 1870-1932 There are several reasons for thinking that the 1870' s mark a great divide in the history of public works. First, it seems likely that the relative importance of local public works rose sharply, while the role of the Federal government declined. Second, the composition of public works changed drastically. Public transportation investments declined until the early twentieth century, and in general public works tended to accommodate private urban development, but with a lag. And to a considerable extent, these accommodating public works were designed to clean up the rising social costs of private enterprise. Third, thinking about public works evolved into its modern form during these years. With the advent of large private organizations capable of mobilizing capital, the activities which it was thought acceptable for governments to undertake became increasingly confined to areas where private enter- prise could not earn a profit. 2.3.1 The Eclipse of Federal Public Works Federal public works dwindled in magnitude and in their importance to the economy during these years. With the transportation revolution now firmly in private hands for a time, Federal activities during the years between 1874 and 1932 consisted largely of river and harbor con- struction, lighthouse building, reclamation, the building of "military" roads through the territories, and some other minor items. Exhibit 2.2 below presents some of the relevant data on Federal public works during this period. As can be seen, capital formation ranged from 3 to 4 percent of Federal spending during most of the era (although it was double that in the years 1889-1908), and remained a small fraction of GNP. Although a detailed breakdown of the project composition of Federal public works is unavailable, it is clear that river and harbor work must have dominated Federal construction until the 1930's. 2.3.2 Growth of State and Municipal Public Works, 1870 On It is apparent that public works as a fraction of total construc- tion and of GNP began to rise some time during the late nineteenth or early twentieth century (Exhibits 2.2 and 2.3 and "History of Public Works," Appendix Table II). And it is equally apparent that the sources of growth resided at the state and especially the municipal level. State and local construction rose from less than 1 percent of GNP in 1870 to well over 2 percent during the 1920' s (Exhibit 2.3). A detailed breakdown of the project composition of the state and municipal capital formation is unavailable until the twentieth century. Impressionistic evidence allows us to identify what must have been the major kinds of investments during these years, however. These were education, sewer and waterworks, streets and roads. We survey the accomplishments in these areas below. 1.22 Exhibit 2.2: Federal Construction. 1869-1928 (millions of dollars and percent)* Year Federal 2 Construction (dollars) River and Harbor to Federal Total Construction (percent) Federal Construction to Federal Spending (percent) Federal Construction to GNP (percent) 1869-1878 11.0 45 4.0 0.15 1879-1888 12.0 73 4.6 0.11 1889-1898 23.5 64 6.7 0.17 1899-1908 49.2 43 8.7 0.28 1909-1918 65.0 56 3.2 0.19 1919-1928 120.0 46 3.3 0.10 Data are annual averages for decades. i Excludes military construction. Source: "History of Public Works", Appendix Tables II, V, VI and VII. For decades 1869-1878 to 1909-1918 Federal construction computed by applying Kuznets' estimates of Federal shares to government con- struction.. For 1919-1928 data exclude Federal grants to states and municipalities and begin in 1920 to exclude the effects of World War I whose impact was still felt in 1919. 1.23 Exhibit 2.3: State and Municipal Construction, Various Years, 1870-1932 (millions of dollars and percent) State and Municipal Construction to: State and Municipal Spending GNP (percent) (percent) 17.6 0.7 22.2 0.7 17.6 0.8 14.9 0.8 19.6 0.1 28.0 2.1 18.1 2.6 Source: Column one, 1870-1890 computed by applying Kuznet's estimates of State and Municipal shares of government construction. See "History of Public Works", Appendix Tables II and VII. For 1902 and 1913 data are from Historical Statistics of the United States Colonial Times to 1970 (Washington: GPO, 1975), Series Y-673. For 1922 and 1932 data are from "History of Public Works", Appendix Table VI and include Federal grants-in-aid. State and Municipal Construction Year (dollars) 1870 49.4 1880 69.6 1890 99.8 1902 164.0 1913 442.0 1922 1,584.0 1932 1,529.0 1.24 2.3.2.1 Education up Through World War I Data exist on educational expenditures for Census years, and there are annual estimates of capital formation in education from 1889 on. Some of this information is contained in Exhibit 2.4. Public expendi- tures on education remained stable as a fraction of GNP from 1870-1880, and thereafter rose steadily but modestly to 1910, and then stabilized again to 1920. From the 1880' s through World War I, about one-quarter of all state and local expenditures went for education, and by 1922 education accounted for 30 percent of their budgets. Yet if the picture which seems to emerge is one of a society in which an increasing fraction of its resources and especially its public budget is devoted to education, that is by no means the entire story. Enrollment rates which had risen steadily until they reached 58 percent of the school age population by 1880 then declined to 50 percent in 1900 and had only reached 59 percent by 1910. The Progressive Education move- ment during the early twentieth century is clearly a lagged response to increasing inability of the schools to meet the needs of the larger society during the late 1800' s. After 1900, the educational system expanded to fulfill these needs and real expenditures per pupil rose even as enrollment rates increased sharply. 2.3.2.2 Water Supplies and Sewer Systems In the half -century after the Civil War, America became an urban society. By 1920, there were three cities with over one million resi- dents each, and one-third of the population lived in cities of 50,000 or more. For the first time, over one-half the population lived in urban places. Urbanization resulted in unprecedented demands for expanded and purer water systems. Older cities were forced to extend and expand already existing systems while smaller and newer cities made their first public investments in water supply systems during this period. In both cases, two forces impelled the expansion. One was simply the need for more water and the other, with which it occasionally conflicted, was the need for purer water. Yet the progress toward pure water was extraordinarily slow. By 1910, only one-fourth of the urban population had filtered water and the absolute numbers of people involved were less than the entire urban popu- lation had been 30 years earlier in 1880. Not only did public investment: lag behind the exploding urban population, they would have been insuffi- cient even without such growth. *■ Meeker, Edward, "The Social Rate of Return on Investment in Public Health, 1880-1910," Journal of Economic History , Vol. 34, June 1974, pp. 392-419, especially Table 5. 1.25 O JJ 01 o U C 4J u C 0) « OJ w E os a iri in 1-( 4J U C C ■O « O fl C J-» kJ T3 4) t/5 C p. *a o) a) x o c a. a W u mo T3 CI 3 i-l 01 W 4-1 1-1 C CO o rt ■H O. O rH u a fl SiHH QJ 4-1 BhHO CO ■H -i J-l •O 3 i-l H a. x oi O r-. CM <-4. O r^. cm o jg M O 0> o XI >% • a) 4J 0) fe ■H *J u co 4J CO w o o (X (U SO X! u CM U J-> •H •"* «M O •0 O U je 00 AJ o 4J T3 X S S 0) •H W -o 4-1 4J 3 H 4-1 O 4-> 4J jj W -H 10 r-1 U 3 C c c CO en c y u C CO 3 1- O o o C C -H O O U 4-1 4-1 U •H U Or-< o O iH 3 U OJ -H (0 U P- c_> a< XI U "U "O C o C3 O z z r-l 3 AJ r-l CJ C O -H > -H y o o o CO CU tfl CO b 0) O r-l 1-1 r-l i- c l-i O. X OJ X) r-l O H O 0) o o 0) O X •O 3 en 3 X W X 4J ■O tJU -d u w CO CU C Ph 3 3 01 0) O o O, cu fn fe PS u 4J M CJ 4J 3 CO tfl 0) O. Pi Z o CO 00 c 1.32 The project composition of public works also changed quite sharply. Road building no longer dominated as it had during the 1920's, and rela- tive expenditures on public buildings also declined. What rose most was expenditures on conservation and natural resources. 2.4.2 The Impact of Federal Public Works Spending in the 1930's Virtually all economists are agreed that Federal spending had a relatively minor impact on the aggregate level of output and employment during the 1930's. Although the Federal deficit rose sharply during the 1930's, it remained far too small to exert a major impact on total spend- ing, and one economist has estimated that the net increase in demand due to Federal fiscal policy amounted to no more than 2 percent to 3 percent of full employment GNP during these years. 1 The regional distribution and impact of Federal public works was highly uneven during the 1930's, as Exhibit 2.7 indicates. However, because of the skewed distribution of regional per capita income, public works investments must have tended to be mildly equalizing in nature. Clearly, the biggest gainers by far were the Mountain states, followed by the Pacific and most Southern states. The Mid-Atlantic and East North Central states, all of which had per capita incomes well above the national average, received less than the national average of public works employment . The regional distribution of public works expenditures was probably the outcome in part of their project composition. The sharp increase in the relative share of conservation projects in the form of TVA, Bonneville and Hoover Dams, and similar projects surely tilted the distribution of public works to the Southern and Western states. These represent the first Federal projects since the transcontinentals or perhaps the Panama Canal which materially affected the economic development of whole states and regions. A variety of benefits flowed from these projects. For example, cheap electricity from TVA and the Bonneville project transformed their regions and helped attract industry — most especially aluminum refining which is highly sensitive to energy costs. Between 1940 and 1949, seven aluminum refining plants were built in the United States — four in Washington state, one each in Alabama, Arkansas, and Oregon. 2 Brown, E. Cary, "Fiscal Policy in the Thirties: A Reappraisal," American Economic Review , Vol. 46, December 1956, pp. 857-879. 2 Perloff, Harvey, et al . , Regions, Resources, and Economic Growt h Lincoln, Nebraska, University of Nebraska, 1967, p. 453. 1.33 Exhibit 2.7: Regional Impact of Federal Public Works 1935-1938 (percent) Average Public Regional Public Regional Per Works to U.S. Capita Personal Works Employment Public Works Income to U.S. Census Region to Population Employment Average, 1940 New England 0.33 114 121 Middle Atlantic 0.23 79 124 East North Central 0.20 69 112 West North Central 0.30 103 84 South Atlantic 0.33 113 55 East South Central 0.36 124 48 West South Central 0.28 97 61 Mountain 0.68 234 83 Pacific 0.38 131 130 Total 0.29 100 100 Source: Column one from John K. Galbraith, The Economic Effects of Federal Public Works Expenditures, 1933-1938 (Washington: U.S. National Resources Planning Board, 1940), Table 15. Column three from Richard Easterlin, "Regional Income Trends 1940-1950", in Robert Fogel, ed., Reinterpretation of Ameri- can Economic History (New York: Harper & Row, 1971), pp. 38- 49. 1.34 2.4.3 World War II As World War I finished off the Progressive Movement, so World War II brought a halt to the already faltering New Deal. The Old Order, which had so opposed the expansion of Federal public works to cure mass unem- ployment, now rallied 'round the flag and actively promoted a vast expan- sion in public construction beyond the wildest dreams of the most avid New Dealer. This war-induced alliance of industrialists and New Dealers presided over the most spectacular expansion in non-military Federal public works in history. And while Federal construction boomed, it also changed more drastically in form than ever before. For the first time in history, the Federal government entered into a massive program of industrial con- struction. Exhibit 2.8 presents some detailed data on public works investments during the World War II years, plus some information on the behavior of various components of private construction during the same period. It is not possible to estimate with any precision what these figures would have been in the absence of war. Hence, in the next-to-last column of Exhibit 2.8, 1940 is taken as a base and for each category the sum of the differences between actual yearly construction and construction at 1940 levels is computed. The last column expresses this total as a percentage of 1940 expenditures. For example, a figure of +361 percent in this column implies that wartime construction added 3.6 more years worth of building than would have occurred had construction continued at its 1940 pace. Because the wartime years saw both a sharp change in the balance of public to private construction, and shifts in the composition of each of these, the following brief summary of major changes may be useful: • Total non-military construction had a shortfall equal to 1.38 times its 1940 level, almost of all the reduc- tion being private. • Traditional public construction — or roads, sewers, etc. — had a total shortfall equal to about 3.3 years of building at 1940 levels. • The decline in private residential building was not offset by the building of public housing, and the total shortfall in residential construction amounted to 2.2 years of 1940 level building. • The decline in private industrial building was far more than offset by public industrial building and the increase in total industrial building amounted to 9.37 times its 1940 level. 1.35 c > CJ -J r» O 00 n n oi moon oo r» on r~- oo cm co oo so o >AO« O r^ On SO ON CO f*. in <• -4 o\ o on •tf vO 00 CI — < cn r>- «» f> <■ co -* ** © co m m <-< O r» c> r-» -J CNI COvO N •H <7v o m 6 -H m O r* oo o*«» —< vO N \0 <9 NO vD © vO O \D m «» -h «n co es O O m •u O M cj C moMO »NvO oo mn as a-* 3- e p-4 CO CO -H CO -H •H U 1 M o •H M huc C U •H t-l W 4J to c at o w 4J CO 4J (0 •H V "O z c c CJ ■H CO 3 U"OtI o 0) o 3 Wi 3 T3 C i-t « u o 4J Ti M u -3 C a) co % > CJ CO 3 M •H PC XI u •H 3 C "3 01 10 0) co 3 CO u u a C U J-l 01 U u a: -H to •H Ch U Cm J-l u M -H CO CI •H co rt > •H > M rH C iH J t-4 H .fl -W I tO -H CO O CO CO 3 W. tO 3 U *J 2 JJ CJ u u b(U U PL, Pw S o H o H o o H o •H O 73 -H O *J *J OS o o 1.36 • In sum, traditional public works, residential construc- tion and commercial building were sacrificed, so that industrial construction could be expanded. But, because private enterprise was disinclined to risk the vast sums which would be needed, it was the public sector which built the majority (56 percent) of the industrial plant. Between 1940 and 1945, the War Production Board and related agencies financed the construction of about $11 billion of new industrial plant and equipment which was considered usable for civilian production when the war ended. In combination with the $8.6 billion of privately financed manufacturing investment, this equalled about one-half the gross book value of all manufacturing assets in existence in 1 939. 1 The bulk (75 percent) of these facilities were operated by the largest 100 manufacturing firms then in existence, which also tended to be the largest firms within their respective industries. 2 The geographic distribution of Federal wartime construction tended to reinforce the dispersion of manufacturing which was already occurring. Exhibit 2.9 presents the regional distribution of both public and private construction for 1939, 1943, and 1945. In addition, there are also data on the regional allocations of Federal wartime industrial construction, on the shares of manufacturing assets in 1939, and on regional per capita income as a percentage of the national average. Public construction for any of the periods presented was much less concentrated than were 1939 manufacturing assets. The Southern and Western states which, with the exception of the Pacific Coast, were all relatively poor and unindustrialized, were clearly gaining relative to the older regions.. But the reallocation of public construction which occurred from 1939-1945 does not fit this pattern very well. New England and the East North Central states lost shares, but so did Mountain and East South Central states. Private construction in 1939 was much more heavily bunched in the older industrial states than were public works. Moreover, its reallo- cation from 1939-1946 fits the description of a move to the South and West more closely than do public works. Thus, a reasonable summary of regional patterns might be that both public and private building were favoring the South and West, but it was private construction more than public works which was increasingly favoring these regions. U. S. Congress, Senate Report of the Smaller War Plants Corpora- tion, Economic Concentration and World War II , 7 9th Congress, 2nd Ses- sion, Senate Docket 206, Washington, D.C., U. S. Government Printing Office, 1946, Appendix Table D-l. 2 Smaller War Plants Corporation, Economic Concentration, Table 14. 1.37 •-• § 0> 4)OOM (X, o JJ cfl C M r-t h a) > C CO -W < u u •H -H CO • eo an v) 01 co u • «!UK3 O • U vO - ci 5«3« CU 4J 05 4J •O M 3 05 01 CO "O c fa S C o M • o S3 CJ "*& 0) C cfl JZ U 01 < c On •H | •Ul o> 3 cn x> c^ •H M U Cfl c o Q •H i-l i— I 01 => C h o •H tn OC c 01 o£ u .. crs CM 4J •H XI ■H 4= .H < U CO l-i CO 60 O U O U C O) Z U Z *J •a *J oi •o 05 o 05 U 0) 3: S ac 4J -3 U ON J= CO ^ cj a. < «3 x> CM ON -J >N^N .O CO U u cO C rH CD H e o CO CU CM > r^ a & U « 3 S o o •H O rH ■§-§ -« en ia eo er. -h CM CM CM CM CM en m — < oo -* cm en en r» ia r» «3- en o — lA 00 en r» r» CM CM CM CM — ia en ia u-i en en en IA IA IA 4J > c o 4) O l-l u S o *U O U ft. r« a. u v u r» 4) a (0 4) C ON o *J 01 -" X 01 H « W tl u A u i- >n « o cp 3 H 60 TJ O O 3 C O, H C •n -h 3 >h O • O D C "O »rf « to 41 ^ w _i jb t> CI II O VI 01 3 3 in cj J3 4J c 1.47 Exhibit 3.2: Trends in Federal, State and Local PWI (current dollars) 45,000 40,000 . « 35,000 03 H o u 30,000 . c 01 M " 25,000 o w o 20,000 i— i <-< 15,000 10,000 5,000 Total PWI ~T I 1 F | 1 I I I J T" I T" I | I T 1957 1962 1967 1972 Year 1 ■ I 1977 1.48 Exhibit 3.3: Trends in Federal, State and Local PWI (constant 1972 dollars) 40,000 35,000 25,000 20,000 15,000 10,000 5,000 Total PWI x/ ^__/ Local PWI V. State PWI \ \ Federal PWI 1 r ~ r 1957 t — r 1962 1967 Year 1972 1977 1.49 -H U +J H O rH O CN o u 5 o H 1 h 2 2 o o o o o o 3U3DJ9J 1.50 3.3 Trends in PWI Per Capita The level of PWI in relation to the total United States resident population is presented in both current and constant dollars for selected years in Exhibit 3.5. Constant dollar PWI per capita was greatest in 1967 Since 1957, Federal PWI per capita has increased at a sufficient rate to keep pace with inflation, while state PWI per capita peaked in 1967 but fell steadily thereafter, and local PWI per capita also peaked in 1967 and declined thereafter. 3.4 National Trends in the Functional Distribution of PWI At the national aggregate level, the expenditure data for PWI in various functional categories reflect a myriad of allocation decisions by agencies at the Federal, state, and local levels. This section dis- cusses the functional distribution of PWI for each of these levels of government . 3.4.1 Functional Distribution of Federal PWI The functional distribution of non-defense Federal PWI in constant dollars for 1957, 1962, 1967, 1972, and 1977 is shown in Exhibit 3.6. Natural resources PWI*- stands out as the largest single category of Federal non-defense expenditure. Although constant dollar expenditures have declined somewhat since 1967, the percentage of total Federal PWI expenditure that this category represents has increased since 1967, reflecting the increased concern with conservation over the last decade, an area which for the most part falls under Federal jurisdiction. Other categories exhibited trends as follows: • Education — Federal educational investment expenditures peaked at a level of $47 million in 1962 and declined over the remainder of the time period under study, both in absolute and percentage terms. • Highways — Federal capital expenditures on highways grew in absolute terms from $157 million in 1957 to $233 million Natural resources PWI includes conservation and development of agriculture, fish and game, forestry, and other soil and water resources including irrigation, drainage, flood control, and the like. This includes Federal parks, agricultural experiment stations and extension services, and Federal programs relating to farm price stabilization programs, farm insurance and credit activities, and multi-purpose power and reclamation projects. 1.51 5 . o « -* o CI vO + ti v£> — i Ov •* 0) ,— 1 > CD o ►J T3 >.» © d CO c u vd o co o o o Ohooo'h O cm co o vO >» «3" -H <-< — • - m vo Ovr> O m en co ^^ cm o\ r*. vo co «» © o o v© cm oo «» \o XI o jo co 3 00 Cu C c rt o u » (J J k O O a 4J r-l c tl b o. w t-i to -h a. 3 o ■a a> u s O U JZ 0) l-i c c SB H CO 4J H W CS cSS5 Q> Q) to o a) 3 JZ 3 U O tj ro a) 4-i o fs -* CO «» 00 IA 00 SO CO oo «tf r*. VO (M -^nc> MCOlfllflffl CM NO WON ONinNNN CM CM C> CO vO On^ieNO CM ITl on «s on Nino^N* -» CM •» o H^OONON 3 c Pm 0) o (0 (1) o ►J T3 n c) ^* m ^ *o -* CM CO ON CO NO r» on r*. on cm co •» «* •+ o r-» o> cm •* r-» oo \r\ cm NO NvDN CM -^ ON CO -* ooo«t c V-i o co •H rH •u t-H 3 o XI -o •H M CN f^- CO On •H P •U r-\ c CO CO c u o CO •H c 4-> o o u C 3 U-l fe o 00 O") 5 CM CM ve «* r- -» «» On CO O NO o NO -* O H CM ON CM NON CM O r» co m o^ CO^g 1 CM ON cm co -• ON oo m -* oo 00 U"» «tf © O 00 mmN 00 CM VO 00 NO CM 00 NO U-N V CO ON co •* . f» CM «» li-> NO 4J 4J w c O ON O «*> NO —i co co on in cm «M NO o o g 0) o CM •-• CO O NO -^ CM ^ r* CO NO NO CO «* o oa H CO o ON, u-l ON 111 ►s Cm •I to ■"- 1 1 S-i co no -h o O CO o —* g •H 01 * a: 4J CB "H *J CO JK B w C W H 01 -H-O ►. tl 00 AH 6 w a aj -i c *j a C C B (0 O O O. « «H CO *H Q. •H O CO AJ -H 0) O. CO 3 >. U CO 13 t UUUWWDMI3H hu£ ao « C U «H B | 11 — i to aj w ai a M 3 u rn c i-i j: 0) UO.C0I0I0IMO0I PQ 3 CO 33 U 00 AJ HWiC0*J3£3OO •O 01 o ** <0 t-i !-i CO 0) aj O US US2 >H ■— < 0) CO c 0) o w o -4 O •» • e a "O a 0) ■H a) ai a) D.f-t n u •o SN <8 !-" V tJ c u 3 T5 O "H O 3 •— I •*-* 0* (0 H u£ O ■a at •o 4-1 cd n a) e o> jz 3 c (0 4J CD U u us c o» CD U-l o o-g u^ » 3 « r-t au u ■o co 0) co c 4J -O -H •H e o 4J at £ a S 00 01 a> iH e 3 oi to 3 4J 01 £ 3 > w oi 0) O f-t > 4J u 1-1 oo a a o J3 « oi -o 4-1 3 u ^ c a. 4) Xi « a> •O >H 3 oi on o) •o 4 (X «H U 0) X) o> TJ U-l C8 •o C rH (D oi « 4J -H 4-1 fa O 0) - c > ■H oi n a 5.3 c cd ^-s u O u u OI •H CO c 4J a) fr, 3 - CJ ON XI -l - IT) •H cd CD 1-1 j-i t-i a 0J 4-> a) CO X) X) O •H 0) C O fe cd CT\ CO «m m «n o\ to o 3 -H x: 01 c n O O 5S 3 T3 i-l Xi B. B 4-1 o O 4-» 4J CO CO 0» C C S 0) H 0) 0) 01 >H MBS 14 4J U O D. D, 01 CO O O i-t -H U-l SsOO 3 3 U-l CO 0) • CO" i-t 4-1 co oi oi -o u to 00 q> O CH4J M 3 •HUB 3 0) u •a m oi O, (0 0> r-t OI I •H-O 2 3 0) C X! •O 4J n) a o X> P*. 01 4J to > o •o o u-i o u c •H O 00 • OI CO i-l CD o 4-1 to CO XI C r-l 00 3 3 CO C 3 Oi a o o-h CO u •o o -a 01 CO u CO J4 f-l CO u 01 3 OI CO 0) 2 -o o •o hcoj: E 3 CO 3 M C •w .-1 0» rH X) CO r-l 4-1 o u U CO co c C < 01 n Id IH U O CN CO m co -H • 4J 4J 3 4J CO O OI U-l 3 CO C S o <« 1.58 3.5 Public Works Capital Stock 3.5.1 Trends in Capital Stock 3.5.1.1 Previous Work A 197 6 report by Young and Musgrave^- was a major step in making the BEA capital stock data series known and available for many researchers. In this report, Young and Musgrave announced the publication of Fixed Nonresidential Business and Residential Capital in the United States, 1925-1975 , available through the National Technical Information Service, and described the dimensions of the capital stock series, including the stocks of fixed nonresidential capital owned by the Federal government and by state and local governments. In the later sections of their report, Young and Musgrave described the derivation procedure used to obtain the series, capital consumption allowances, alternative depreciation patterns, capital services, defla- tion and price indexes, service lives and retirement patterns. The development of the BEA estimates is summarized in the following quotation: The NIPA investment flows used to implement the perpetual inventory method for the years since 1929 are: for fixed business capital — gross private domestic fixed invest- ment; for consumer durables — personal consumption expend- itures for durable goods; and for government -owned capi^l — government purchases of durable goods and structures. These flows are extended back into the nineteenth century using data from public and private sources. The NIPA flows are modified in the case of transfers of secondhand assets among sectors. They are also disaggregated to provide detail by legal form of organization and by major industry group (fixed nonresidential business capital) and tenure group (residential capital) . The BEA capital stock estimates are available in historical, constant, and current cost valuations. Historical cost and constant cost stocks are derived by cumulating current- dollar and constant-dollar investment flows, respectively. Current cost stocks are derived by revaluing the constant cost stocks, using the price indexes employed in the NIPA' s to deflate the investment flows. Young, A. H. , and J. C. Musgrave, "Estimation of Capital Stock in the United States," a report presented at the National Bureau of Eco- nomic Research, Conference on Research in Incom€ and Wealth, October 1976. 1.59 Assets are carried in gross capital stock at their undepre- ciated value during the entire time they remain in the stock. The value of these assets is depreciated to obtain net stocks, which equal the difference between the cumula- tive value of gross investment and cumulative depreciation. The BEA estimates of net stocks are based on the straight- line depreciation formula, which assumes equal dollar depreciation each year over the life of the asset. 1 In their discussion of issues, the authors note that using cost (i.e., investment) data as a basis for measuring capital stock does not necessarily provide the best basis for productivity measures. They state the problem as follows: Cost-based measures of capital are not appropriate for determining industrial capacity, or for analyzing the determinants of investment or production, because identical amounts of real capital will represent different capacities to produce goods and services. For such analyses, capital should be measured in terms of its ability to contribute to production. It has been considered difficult to imple- ment such measures statistically. The basic problem is that of measuring the contribution of different types of capital to production. In lieu of such measures, rough allowances for embodied technological change — the cost- less quality change referred to later — are sometimes added to the cost-based measures. Nevertheless, while avoiding efficiency and productivity interpretations, it is possible to gain some insight from the trends in capital stock rela- tive to trends in PWI . The net stock estimates from this study are summarized in Exhibit 3.10 along with the investment data analyzed in an earlier section. The value of total Federal, state, and local capital stock has increased over the period (in 1972 dollars) from just under $348 billion to $674 billion. The value of state and local government capital stock increased throughout the period from an initial value of $249 billion in 1957 to $561 billion in 1977 (again in 1972 dollars). In per capita terms, state and local government net real capital stock grew over the period, from approxi- mately $1,500 in 1957 to $2,600 in 1977. The Federal series, however, showed a decline in net per capita value over the 21-year period from an initial value of $583 in 1957 to $524 in 1977, although the decline was not steady. Young and Musgrave, op_. cit . , p. 4. 2 Ibid. 1.60 o u CO oo •H c 4-1 •H c T3 CD 3 XI T-i •H CJ to X CJ W &S 4-j 00 D c « •H T3 « 3 CO H cu O •H C l-i H O j-i •> c W QJ 0) > p. C >%M H T> i— i c H CO <3 CO ». 0) ^ J-I o D o 4-1 4-1 CJ ca c o cu e r-l a. CO -H 4J 3 O cr H W ra -a u u c o w co J CT> CN a\ C7\ ' voo^invo^^u* cnco — rsm«j'OOrsr--..3-vocNOm\oeNeN-c , cN Oi — isrs^rsa^oconNiOinM'HMOvfO'-f o-*cocoooa-*i--voa>voo©~Tu-\vom-3 , CAr«. foco a>H(o^ooNooioi — osr-~io— ^cNr^srm OotNOOOOOOcooor^-jr-vOCOoOOr^r^-oO rsrnr»meytm-3-o\0-*vOOeNO-*-* Nrvo\MfnOj!NvD-i-ivDtOiOinin cnooeninenc^r-^inos'— • n >o o\ o rs fs ID lA ca i-» cu o\ -CT m v© so in «3- en en ci el rt n n ^ o en CN oo oo O o en O O en CS ST o sr os ST oo OS 5 oo en CN £ oc oo »J3 m m o os CD s £ o O CSI ST m en O". en CSI co ST m OS en vO jin\0 *T>^mminminin cNCNCNCNcncnenenencn mos-3 , -'0-icoHinovo>J CTxOOOOOOO-h. isooo\o-"Ni*i^ifnoiscoovO-^eo^o^o^o^o^o^^^^^^^^ 3 O -O Q. 1.61 These net capital stock figures may be compared with the PWI flow data, which show a pattern for Federal constant dollar PWI similar to that of the capital stock, i.e., PWI increased over the time period but experienced intermittent periods of declining real expenditure (from 1958 to 1959, from 1966 to 1970, and from 1973 to 1974). The state and local series, however, exhibited increasing real PWI expenditures from 1957 through 1968, followed by declining levels of real expendi- tures from 1969 to 1972 and again from 1974 to 1977. State and local government net capital stock increased over the period, albeit at a slower rate from 1969 to 1977 than earlier. Federal per capita PWI displayed a similar trend to that of per capita net stock with little real growth over the two decades. State and local per capita PWI was slightly lower in 1977 than in 1957 (approximately $116 versus $119), while per capita net stock grew over the entire period (all in 1972 dollars) . Data on total residential and non-residential gross investment, depreciation, and net investment are presented in Exhibit 3.11. At the state and local level, depreciation as a percent of gross invest- ment has continually increased since 1967. Also, in more than half of the years during this same time period, the value of depreciation of Federally owned capital stock exceeded the value of gross investment, while depreciation allowances for state and local PWI rose from 41 percent to 74 percent of PWI. One may conclude from examination of the "net investment" columns of Exhibit 3.11 that the Federal capital stock may have experienced "disinvestment" in certain years, although no clear trend is evident. State and local real net investment, while positive throughout the 21-year period, showed a sharp decline from the 1968 high level of $23.3 billion to $6.8 billion in 1977. An examination of five-year growth rates of gross and net capital stock by level of government (shown in Exhibit 3.12) shows declines in the growth rates of both gross and net stock during the last 15 years, with growth in Federal net capital stock quite small over the last decade. On a per capita basis, Federally owned gross capital stock showed no significant change over the last 15 years, while net capital stock experienced negative growth since 1967. Per capita growth rates for state and local gross and net capital stock fell from 1962 through 1977. Thus, the nation may be approaching a leveling off of the value of public capital stock. This study, however, has not examined the ques- tion of whether slower growth, leveling off, or even a decline in the value of public capital stock should be a cause for either alarm or satisfaction. No attempt- has been made in this study to assess the need for any particular level of the value of total public stock in terms of demographic, social or other trends. If such a need assess- ment were to be undertaken in the future, it would have to address itself to specific functional types of public capital stock in specific geographic locations. This study has in fact devoted some attention to functional and regional disaggregation of the overall trends in PWI, but, except for a nine-city study, the question of need has not been addressed \ 1.62 W rH 0) u T3 c OJ o r~- c ON TJ c 4J cfl c CO rH 4-1 cr) en •H C •U c Cj CU T> iw •H CO 1) cn l-i c *-* o o e JJ 01 i-i U > C h E inieN9>m-J09ioi>ooi«voie«ooni*i9iO« NNON-I-Jt0Nin'<(MilffiOinO-' ,n ' ,r, ONNN>jmNO- < ' , lW^P^ in, '" f ' fN0 ' N Government Depreci- ation As Percent of Gross Investment 00>ooNfnnmi^o-JC>-'OP»9\'-n-»NNr. noiMHNovNinoN-i9i0^o>^ Hi n'*0 , J Total Depreci- ation 13,720 13,791 13,807 13,858 13,987 14,207 14,743 15,015 15,604 16,276 16,989 17,740 18.447 19,091 19,695 20,275 20,850 21,429 22,023 22,525 22,969 i U) to — U) 41 i-> O > C U C 41 U M E •TN\00-'*Tro ir 'iA'OlA'jnin'-(^vDCftONH 0>oc0O>?^ | A<" N l~*«3 , CT\r , "»~J^00-^c'4a>-* C 41 C 41 z w s ov_inr~o\oco>i*>vOinootO«^(M-jr>isrio\0 fMCNCMrM^--jvor^coo3-rMeO>0 ate and Local Depreci- ation As Percent of Gross Investment oo«3 , r-ir^p">fj\tNc'"iaooff>eooinvor»vDCT\N£>mco St Depreci- ation uicvicorif>cMoa*u"ii"~'->c l or N - fs, o~ - <^'u**r~»— **o (NuitNCMeM-*oou->r»-(Mnor^o— ' — — • n ov rv i-. »a5oi»9iOO H- NNn^^invoiONN(oai i 1) O J o > c U C 4) OM S 374 663 081 300 988 660 799 652 281 422 041 944 749 741 882 125 135 147 680 510 ,826 1 4J (0 01 u 4J > C 41 C 41 Z M 6 eo(Oifln-coflOOO«N-i-JN- < 1 -« p-< .ill ...... iiii ill Federal Depreci- ation As Percent of Gross Investment Hinisl/M<.iOmo>l«'' H c l-i C O M E 3,571 4,364 3,783 3,787 4,424 4,981 5,784 6,602 6,872 7,040 5,911 4,401 3,684 3,716 3,931 4,010 4,128 3.845 3,*82 3,765 4,122 1. 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1.63 Exhibit 3.12: Average Annual Growth Rates for Constant (1972) Dollar Stock of Public Works (percent) Total Stock Per Capita Stock Federal State and Local Gross Net Fed eral State and Local Years Gross Net Gross Net Gross Net 1957-1962 -0.9 1.2 4.4 4.9 -2.7 -2.7 2.5 2.9 1962-1967 1.1 1.6 4.7 5.3 -0.1 0.3 3.4 4.0 1967-1972 1.1 - 4.1 4.2 - -1.1 3.0 3.1 1972-1977 0.8 0.1 2.8 2.2 _ -0.6 2.0 1.4 - = Less than |.05| percent. 1.64 It should also be noted, in evaluating the significance of trends in the value of capital stock, that a specific facility may, if well maintained, function adequately long after it has depreciated to zero value in accounting terms; conversely, if badly maintained, it may supply much lower service than its accounting value would indicate. Again, however, apart from the nine-city study, maintenance trends and the actual condition of public capital stock have not been examined in this study. Finally, if the private sector should assume certain functions pre- viously performed by governments, either through direct private invest- ment or by the purchase of government owned facilities, then the value of the total publicly owned capital stock may fall, either absolutely or relatively. The question of trends in "privatization" is discussed in Chapter 6.0 of this volume. 3.5.2 Functional Distribution of Capital Stock It was suggested in the previous section that levels of depreciation exceeding gross investment may imply disinvestment in total Federally owned capital stock in some years. However, this phenomenon does not characterized the behavior of all functional categories of Federal public investment: capital stock in certain functional areas clearly continued to grow over the period. Growth rates of Federal government net capital stock by function are shown in Exhibit 3.13. The per capita capital stock estimates and growth rates for functional areas are shown in Exhibits 3.14 and 3.15 respectively. Growth rates are generally declin- ing or negative for all categories except hospital buildings which showed an increase in the rate of growth of the capital stock between 1967-1972 and 1972-1977. Per capita growth rates generally decline more rapidly than do growth rates for constant dollar capital stock unadjusted for population. Per capita net capital stock continues to grow, although at a slower rate, in educational buildings, highways and streets, conservation and development, and other structures. Exhibit 3.16 presents depreciation of Federally owned capital stock as a percentage of Federal investment, by functional category. This proportion rose to a high of 114 percent for the total of all categories in 1972 and declined to about 93 percent in 1977. Educational invest- ment showed a large increase in the depreciation-to-investment ratio between 1972 and 1977; a significant drop in the ratio was evident only for hospitals, with a smaller decline in total structures. These figures bear out functionally the findings presented in Exhibit 3.10, i.e., in all years, depreciation of the Federal capital stock is high relative to gross investment by the Federal government, and that in some years, depreciation-to-gross investment ratios exceeding 100 per- cent suggest that "disinvestment" is occurring. Exhibit 3.16 shows that this phenomenon is most likely occurring in the categories of "other buildings," equipment, and recently, educational buildings. 1.65 Exhibit 3.13: Average Annual Growth Rates for Constant (1972) Dollar Federal Non-Defense Capital Stock (net), by Function (percent) Function 1957-1962 1962-1967 1967-1972 1972-1977 Non-residential Buildings and Structures Education 6.1 4.3 2.0 2.2 Hospital 3.6 5.6 3.6 4.1 Other . Buildings 1.7 2.7 0.4 0.1 Highways 5.2 5.8 4.2 2.6 Conservation/ Development 3.4 3.7 2.3 2.3 Other Structures 10.5 4.9 2.9 3.2 Total 3.0 3.5 1.8 1.7 Equipment -13.4 -2.1 -1.7 -6.0 Total -2.4 2.4 1.2 0.7 Other Buildings = Industrial Buildings plus Other Buildings, Source: J.C. Musgrave, BEA, special tabulation. 1.66 ON 00 <7> r» O f» O O — o u 4) > /-v O o CO H m H )-i O 4) T3 T3 ■H C O. CO CO 4-» • c M O 0) u PL, — ' o\ o\ o — £ i ccl C •u cu •H O CL >-, co 0) U Cl •u 0) en 2 0) c 4J u 5 CI) > )-, u o t-H r-\ cn CO D 1-1 C 0) 5 0) It, 0) 00 CO ca 4J u •H co < u rH »-i CO a; cu ex, pa lO >-* m ■H X) -C X 1 2 -> \o <-i O CN .» i ? ? ? ? ? ? 1.67 Exhibit 3.16: Federal Non-Defense Depreciation as Percent of Constant 1972 Dollar Investment Function Nonresidential Building and Structures Education Hospital Other Buildings Highways Conservation/ Development Other Structures Total Equipment Total 1957 1962 1967 1972 1977 76.9 27.7 51.6 65.4 211.1 61.6 60.7 51.1 52.5 37.2 125.9 190.0 153.9 157.0 107.0 36.9 28.4 28.8 40.8 60.1 56.4 41.8 49.3 64.4 63.8 77.3 16.6 51.5 34.2 64.8 78.7 65.9 70.5 82.2 74.4 340.1 136.8 62.5 331.3 258.4 159.4 86.0 67.1 113.8 93.1 Source: J.C. Musgrave, BEA, special tabulation. 1.68 Capital stock growth rates at the state and local level declined but remained positive in the period 1957-1977, with the exception of sewer systems which showed a higher growth rate in 1972-1977 than in previous time periods (Exhibit 3.17). Gross investment by state and local government in sewer systems grew at an average annual rate of 11.5 percent during this period. In terms of per capita 1972 dollars, as shown in Exhibit 3.18, state and local capital stock increased in every interval from 1957 to 1977, in all functional areas. Growth rates of per capita net capital stock were positive but generally declined from the 1962-1967 period. Exhibit 3.19 presents depreciation of state and local capital stock as a percent of gross PWT by functional categories for selected years. While it was noted earlier that the ratio of total state and local depre- ciation to gross investment increased over the time period, this is not the case for all functional categories. For example, the proportion increases slightly for sewer systems from 1962 to 1967 from 35.6 percent to 49.3 percent and drops to 33 percent by 1977. This result is what one would expect based on the increase in investment in this area in recent years. By contrast, both education and highways exhibit large increases in the ratio of depreciation to gross investment after 1967, with this proportion rising to 75 percent and 95.5 percent respectively in 1977. The increase in the highway depreciation-to-investment ratio, for example, is influenced by the falling off of highway investment as the Interstate Highway System nears completion. In summary, the value of total Federally owned capital stock has declined since 1969 in constant dollar per capita terms. Total public capital stock (Federal and state and local) continues to grow, but the rate of growth has slowed since the mid-1960' s. Per capita constant dollar growth rates for state and local capital stock have slowed con- siderably in the last five-year period. 3.6 Private Sector Capital Stock This section compares trends in net public and private capital stock over the past 21 years. 1 Over the 1957-1977 period, net private and public capital stock grew at comparable rates (Exhibit 3.20). For the 21-year period, net public stock averaged about 35 percent of the real value of net private stock. However, as shown in Exhibit 3.21, per capita net public stock grew at a faster pace than that of the private sector from the late 1950's through the late 1960's, but in 1969, net public stock peaked relative to net private stock and the trend began to reverse. Since the late 1960's, both series have experienced continuously declining growth rates. These data series were derived from the Wealth Estimation program within BEA and include both residential and non-residential capital form- ation. 1.69 Exhibit 3.17: State and Local Capital Stock Real Average Annual Growth Rates, by Function (percent) Function 1957- 1962 1962- 1967 1967- 1972 1972- 1977 Nonresidential Buildings and Structures Education 5.8 6.8 4.3 1.8 Hospital 2.3 2.1 3.3 3.1 Other Buildings 5.5 6.0 7.0 4.0 Highways /Streets 5.3 4.9 3.4 1.0 Community Development 6.2 12.1 5.8 2.6 Sewer Systems 4.6 4.1 3.5 5.5 Water Systems 2.4 4.8 3.0 1.2 Other Structures 4.3 6.2 5.5 3.0 Total 5.0 5.4 4.0 2.0 Equipment 1.4 5.2 7.1 5.5 Residential 6.8 4.0 4.7 0.9 Total 4.9 5.3 4.2 2.2 Source: J.C. Musgrave, BEA, special tabulation 1.70 •a- o cm -* r*. «» o sr «» CM CM «» h» 00 IA cr> © cm co «a- 4-1 CD •H o a u (13 a <-\ T3 co c CJ ccj o hJ CO )-i *o CO c rH cd iH O ° 0) 4J •o r-l n co 1.71 Exhibit 3.19: Depreciation of State and Local Government Capital Stock by Function, As a Percent of State and Local Gross Investment Function Nonresidential Buildings and Structures Education Hospital Other Buildings Highways/Streets Community Development Sewer Systems Water Systems Other Structures Total Equipment Residential Total 1957 1962 1967 1972 1977 32.0 39.0 28.8 54.1 75.0 64.1 63.4 51.1 55.2 60.7 38.7 39.9 31.2 35.0 58.9 36.8 34.6 37.3 51.2 95.5 27.7 25.2 16.7 49.0 43.2 39.8 35.6 49.3 45.1 33.0 49.0 52.7 36.0 66.0 69.8 61.9 46.3 28.9 43.0 65.1 38.4 38.2 34.0 49.4 73.0 59.6 91.6 62.1 65.5 76.5 NA NA NA NA NA 41.2 42.9 37.1 51.9 73.7 NA = Data not available. Source: J.C. Musgrave, BEA, special tabulation 1.72 Exhibit 3.20: Per Capita Private and Public Net Capital Stockl (constant 1972 dollars) Ratio of Net Net Private Net Public Public to Net Year Capital Stock Capital Stock Private Capital Stock 1957 6,029.6 2,055.3 0.341 1958 6,086.0 2,109.1 0.34 7 1959 6,124.6 2,127.9 0.347 1960 6,249.1 2,177.1 0.348 1961 6,304.1 2,203.1 0.349 1962 6,423.1 2,260.0 0.352 1963 6,564.2 2,324.6 0.354 1964 6,734.6 2,393.7 0.355 1965 6,964.6 2,473.0 0.355 1966 7,209.5 2,548.0 0.353 1967 7,412.7 2,639.9 0.356 1968 7,641.5 2,744.2 0.359 1969 7,869.3 2,841.2 0.361 1970 8,065.6 2,879.0 0.357 1971 8,577.0 2,918.5 0.340 1972 8,462.6 2,955.2 0.349 1973 8,750.7 2,989.2 0.342 1974 8,938.5 3,039.1 0.340 1975 8,997.4 3,072.4 0.341 1976 9,100.6 3,094.8 0.340 1977 9,270.1 3,117.6 0.336 Total Nonresidential and Residential. 1.73 Exhibit 3.21: Per Capita Private and Public Net Capital Stock, Real Average Annual Growth Rates (percent) Private Net Public Net Years Capital Stock Capital Stock 1957-1962 1.3 1.9 1962-1967 2.9 3.2 1967-1972 2.7 2.3 1972-1977 1.8 1.1 1957-1977 2.1 2.0 1.74 3.7 Inflationary Trends in PWI This section examines the relative price changes in PWI since 1957, focusing first on aggregate PWI changes, and then on trends across gov- ernment levels and functional categories. 3.7.1 Trends in National Aggregate Price Changes The implicit price deflator for Government Gross Fixed Capital Form- ation, the GNP implicit price deflator, and their respective increases over the 21-year time period are shown in Exhibit 3.22. The ratio of the PWI deflator in 1977 to 1957 is 2.33, compared to 2.18 for the GNP deflator. Thus, PWI expenditures have been characterized by greater price increases over the time period than was experienced by the econ- omy in general, implying that PWI expenditures would have had to grow at a rate slightly greater than the rate of increase of GNP in order to maintain its real share. It has been shown previously that this was not the case. 3.7.2 Trends in PWI Prices by Level of Government Inflationary trends for Federal, state, and local PWI are shown in Exhibits 3.23 and 3.24, using implicit price deflators derived from the BEA current-constant dollar PWI series. The large price changes in PWI which have occurred since 1957 are not concentrated at any one govern- ment level, but are characteristic of all PWI outlays. Moreover, the inflationary trends, while more severe, parallel those of the overall economy. That is, there was a gradual increase in prices from the late 1950' s to the mid-1960' s, after which a noticeable increase in price occurred. As indicated by the slope of the trajectories in Exhibit 3.24, the rate of inflation for PWI has been especially severe during the 1970' s. In the five years, 1972-1977, the average cost of public works investment, by any level of government, increased almost as much as it did over the 13 years between 1959 and 1972. What it cost $1 million to build in 1959 would have cost approximately $2.3 million in 1977. 3.7.3 Changes in PWI Price Levels by Functional Category The rate of inflation by functional type of PWI is shown in Exhi- bit 3.25. The average cost for all types of PWI projects more than doubled between 1959 and 1977, with the cost ratios ranging from 2.18 to 2.69. The rate of inflation over the entire period was greatest for sewer systems and highways, but since 1972, the largest cost in- creases have occurred for housing and community development projects. 1.75 Exhibit 3.22: Comparison Between GNP . Deflator and PWI Deflator Implicit Price Deflator for Government Gross GNP Implicit Year Fixed Capital Formation Price Deflator 1957 6A.32 65.02 1962 64. A3 70.55 1967 72.98 79.02 1972 100.00 100.00 1977 150. 0A 141.61 1977/ 1957 2.33 2.18 Defined as Implicit Price Deflator for Government Gross Fixed Capital Formation from Survey of Current Business, Table 3.9. 1.76 Exhibit 3.23: Price Indices for Federal, State, and Local PWI Outlays (1972 = 100) Year Federal 64 State 62 Local 1959 64 1960 64 61 64 1961 65 61 64 1962 67 63 65 1963 68 64 66 1964 70 65 67 1965 72 67 68 1966 74 70 71 1967 74 73 73 1968 78 76 76 1969 81 81 82 1970 91 89 88 1971 96 95 95 1972 100 100 100 1973 103 108 107 1974 114 128 123 1975 137 140 137 1976 145 141 142 1977 149 149 151 Sources: Survey of Current Business, National Income and Product Accounts, 1929-1974 ; Survey of Current Business, July 1977; Survey of Current Business, July 1978, and special tabulations of state and local PWI by BEA. 1.77 • v*v- • ^x ^v ■ : ^^ ^^>^^ • •^■^ ***» *^>««^ ^ ^^s t > XX • ", )-( £> " CO oc 0) V-i to 01 o c t M 3 P-° i-\ 01 ^ J-l CO 0) i-i T1 4-1 CU 3 Ph O fMr^a>rnnr>.mmmoioo-^»3-movo-H\o>»^ NNiOiocAifirimnN^ijioivrONnNNio-' On vo On r^» lA 03 CO CO C lANtANCOCOC?llACC-r»m«a-mmcMm>3-fnr^.cr>r^oo<'<<:<: -.-.-•--.CMCNZZ.ZZ: WNvDvonr>.Nin-H\or^.i/-ivOr>.Ocor*.^c">Lnoc?>co *-l H M (N n n n — iMoomiriiri^-jfnN coco— inr^r^.-HOOOciOm rtH^^^^KONCOO ^ CM 1 cfl u u « « ■-» iH ceo CU O 3 ^ 8 > ■H 01 60 10 4J CO C J>V _ O 3 •h jo B ai oS «» U CN » 4J O, c on u 0) O -< Cfl Ot Vi U CO 1 rH 3 O 1 HNrl T3 >W 3 CO vO O on >a -1 T3 H »^ • 0) •H IM CO r-l T-l £ O .O JH X « 3 • CO .H (d 10 6O1H T-t T3 C -H B C 01 4J -H cfl Ti 4-1 3 co > a A 3 CO -H O 8 J c r 41 CO U 4-1 uh a >, 4J 01 ■H J= ioN<"iinoio\ninr>oi*-i- 1 »hh .- 1 h >j o — itMOOr^covOinvrc^ finON vO vO vO vO vO nD P*» r** ^ r*- ^* r*» r** r^ h.coo\o-iMMrio-JNf , i«jmvo iALniAvONO\OvOvo\OvO\0^ovOvOr^r^r-*r^r^.r^r^. 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Cfl 1.89 « -o o S IS I I OOOOO^^Hi-tC^.* OOOOOOOOOOOO-t-^OO w e « 0) O 4J •H O C U U o u •H C 01 u 3 10 « u* 0J oooooooooooooooo IT) 14-1 -r! •HUB ooooooooooooo en ko s oo n N «l « ■U 4-1 •H C CO 4-1 C_> w M O 0) CJ oooooooo — oo o o o o o o o O 01 u -o 3 (0 M C NN>j<«f<>jmooooww»o\o\ •OHH 3 £> o) a 3 OJ O D. 4-1 Cu C ZS § o. en -u to io lo »*o ^o \D no **D vO no no so vO p*^ r^ P"» P"* p** r*» r>* p*** On On On On On On On On On On On On On On On On On On On On On ■H CO Q 55 C -H II 1.90 Exhibit 4.7: Federal Grants for Capital Purposes As a Percent of Total State and Local Capital Outlays, by Function FY FY FY FY FY Function 1957 1962 1967 1972 1977 Airports 11.3 23.1 21.0 15.0 64.9 Highways 14.3 39.5 42.6 41.5 49.0 Health and Hospitals 8.5 14.8 18.6 3.6 9.9 Sewer Systems 0.2 4.8 7.8 19.7 NA Education 2.0 1.0 0.7 2.5 NA Total 9.3 19.5 20.5 23.0 36.0 NA = Data not available. Source: Total state and local capital outlays from Department of Commerce BEA special tabulations; Federal capital grants from Bureau of the Census, Government Finances for FY 1967, FY 1972 and FY 1977; for FY 1957 and FY 1962, Manvel, op_. cit 1.91 In the area of hospital construction, there has been little growth in grants to localities in recent years, while construction expenditures by localities have increased. From 1970 to 1977 local capital outlays for hospital construction increased from $424 million to $985 million. At the state level, capital outlays for the same period increased from $365 million to slightly over $1 billion. From 1957 to 1967, grants for hospital construction averaged about $100 million per year, and financed from 10 to 20 percent of state and local capital outlays for this function. Since that time, Federal grants for hospital construc- tion have diminished as a proportion of the total capital outlays. In this area, Schneiderman cites the issuance of long-term debt and the lack of growth in Hill-Burton grants as the reason for this lack of expansion. 1 Between 1967 and 1977, Federal aid never exceeded 10 per- cent of the total. 4.3.3 Impact of Federal Grants on States and Localities: Stimulation and Substitution The existing literature on the impact of Federal grants on state and local expenditures is vast and growing. In particular, one of the key sources of "correlational" studies is the area of revenue sharing. The revenue sharing impact literature is, indeed, becoming quite rich. 2 The findings in one of the most recent studies, for example, report that slightly less than one-half of general revenue sharing funds went for new spending in FY 1974: the rest could be considered a substitute for state or local revenues that otherwise would have had to be raised to maintain existing programs. 3 Of the new spending, most was for capital investment. But the differences were great among types of jurisdictions. Small local governments were likely to spend for capital projects or expanded operations. The harder -pressed cities were likely to use the revenue to limit tax increases or even, on occasion, to reduce taxes. Contrary to some expectations, revenue sharing appears to have had little impact on government structures or on the distribution of political power in local communities. Schneiderman, op_. cit . , p. 20. 2 Nathan, Richard P., e_t al . , Revenue Sharing: The Second Round, The Brookings Institution, 1977, and its earlier version, Monitoring Revenue Sharing , The Brookings Institution, 1975. See also F. Thomas Juster, "Fiscal Impact on Local Governments", in Juster, ed., The Eco- nomic and Political Impact of General Revenue Sharing , Institute for Social Research, University of Michigan, 1976; also Department of the Treasury, Revenue Sharing: Its Use By and Impact On State Governments Washington, D.C., U.S. Government Printing Office, 1973. 3 Nathan, et al., op_. cit . 1.92 Another Brookings 1 monitoring study, initiated by the Department of Housing and Urban Development, employed a similar network of observers to find out what happened when seven categorical grant programs — including such major activities as urban renewal and model cities — were consoli- dated into the Community Development Block Grant (CDBG) program in 1974, with wide latitude delegated to local governments for deciding how the money should be spent. The first year's research disclosed that local officials used their new discretion to expand some activities, such as housing rehabilitation; to reduce others, such as social service activ- ities; and to broaden some to spread the benefits over a wider range of neighborhoods. The field associates reported that the goal of shifting decision-making to the local level was being achieved; local elected officials were strikingly influential in setting priorities, and HUD officials were generally confining their involvement at providing tech- nical advice and overseeing compliance. Statistical modelling has been used to assess the stimulative effects of Federal funding which are in the form of tied grants or price subsidies for capital spending. For example, Gramlich and Galper* have analyzed the impacts of open-end matching grants, closed-end transfers, and closed-end categorical grants on state and local response. A model was used to explain expenditures, revenues, and budgetary surplus as a function of the grants, demographic characteristics, and other variables. It should be noted that, while cross-section and time series data were used, grants were not disaggregated by functional category. ^ Most recently, statistical analysis undertaken by George E. Peterson, at The Urban Institute, has utilized the county as the unit of analysis, to analyze average per capita capital spending as a function of county per capita income, density (persons per square mile) , rate of population growth over the period 1970-1974, proportion of total local expenditures financed by state and Federal aid, and one dummy variable.-' Peterson is Gramlich, Edward M. , and Harvey Galper, "State and Local Fiscal Behavior and Federal Grant Policy," Brookings Papers on Economic Activity , No. 1, 1973. 2 Early work included James A. Wilde, " Grant s-in-Aid : The Analytics of Design and Response," National Tax Journal , Vol. 24, June 1971; T. E. Borcherding and R. T. Deacon, "The Demand for the Services of Non-Federal Governments," American Economic Review , December 1972; and J. C. Ohls and T. J. Wales, "Supply and Demand for State and Local Services," Review of Economics and Statistics , November 1972. Literally dozens of new addi- tions to this literature have been added since this earlier period. 3 The dummy variable was used to designate counties containing central cities that lost population over the decade 1960-1970. These are generally the nation's older central cities whicb might be consid- ered as "declining." "An Examination of State and Local Governments' Capital Demand, Alternative Means of Financing 'Public' Capital Outlays, and the Impact on Tax Exempt Security Markets," pp. 59-69. 1.93 careful to point out that this analysis does not necessarily "explain" public capital spending levels since the regressions are "best inter- preted simply as a short-hand representation of the pattern of metro- politan investment variations."! The differential patterns of central city versus urban fringe capital infrastructure investment, as well as relationships to changing population and income, are revealed by this analysis. Peterson's second regression analysis^ ties together aspects of financing method and capital spending. Here, total per capita gross long-term bond issues were made a function of 1) total per capita capital spending, 2) dummy variables to indicate the degree of public voting con- trol over debt issuance, and 3) the value of state debt issued by special authorities. States were divided into three classifications with respect to voting requirements: states not requiring direct voter authorization of bond issues; states where majority voter authorization is required; and states where more than majority approval is required. The dollar value of debt issued by special authorities was also included as an explanatory variable because it had highly significant explanatory value. These generalized analyses are well supplemented in the literature, and by some ongoing studies, by statistical examinations of substitution and stimulation in grant programs. Stimulation implies that Federal grant monies tend to be associated with increased expenditures by states and localities. A recent study by the Advisory Commission on Intergovernmental Relations reviews some of the principal characteristics of grant programs and evaluates the degree to which they have stimulative and substitutive effects. 3 Several principal conclusions of that study were: • Empirical studies have found that Federal grants tend to stimulate state-local expenditures. However, there is little consensus as to how much stimulus occurs. • Theoretical studies have suggested that different grant types have differential stimulative impact. The greatest stimulus seems to occur from open-ended matching grants, less from close-ended matching grants, and least from non-matching grants. The greater the matching require- ment, the greater the stimulative effect. 1 Ibid., p. 62. 2 Ibid ., pp. 65-69. ACIR, Federal Grants: Their Effects on State-Local Expenditures, Employment Levels and Wage Rates , Washington, D.C., February 1977. 1.94 A number of other empirical studies exist that have examined the question of stimulation and substitution. Gramlich, for example, com- pared the stimulative effects of block grants and matching grant pro- grams:*- • He found that a $1 increase in Federal aid in a block grant that had an effort formula would increase expend- itures by $0.55. • In an unconditional block grant, $1 led to a $0.28 increase in expenditures. • In a matching grant program, $1 led to a $1.12 increase in expenditures. 2 Similar work done by Gramlich and Galper further examined the relation- ship between grant type and state and local fiscal behavior. Generally, these two authors found that Federal grants had a stimulative effect. In the case of matching grants, it was found that total expenditures increased but that in those areas where state and local discretionary control of funds existed expenditures would decrease. Not only does this redistribution of -uses of resources occur under matching grants, but the authors also found that in the case of block grants there would be a reduction in taxes. Studies by Smith, Johnson and Junk, and Horowitz all found that Federal aid was statistically significant in explaining increases in state-local expenditures, although to varying degrees. However, the impact of Federal aid in several of these studies differed across func- tions of expenditures. The stimulative impact of grants-in-aid for highways is shown by most studies to be much greater than for local Gramlich, E. M. , "State and Local Governments and Their Budget Constraints," International Economic Review , Vol. 10, No. 2, June 1969, pp. 163-182. 2 This is noted in ACIR, Federal Grants: Their Effects on... , op . cit., p. 50. .--.-—.-...--._.- —-.-.. 3 Gramlich and Galper, "State and Local Fiscal Behavior...," op_. cit . 4 This is, in part, a function of differing methodologies employed. See A. R. Horowitz, "A Simultaneous Equation Approach to the Problem of Explaining Interstate Differences in State and Local Government Expendi- tures," Southern Economic Journal , Vol. 34, No. 4, 1968, pp. 459-476; S. R. Johnson and P. E. Junk, "Sources of Tax Revenues and Expenditures in Large U. S. Cities," Quarterly Review of Economics and Business , Vol. 10, No. 4, 1979, pp. 7-15; and D. L. Smith, "The Response of State and Local Governments to Federal Grants," National Tax Journal , Vol. 21, No. 3, 1968, pp. 349-357 (cited in ACIR, Federal Grants: Their Effects on. . . , op . cit .) . 1.95 service expenditures or education. In fact, Ohls and Wales conclude that for total service expenditures, Federal aid tends to be more sub- stitutive with regard to state and local expenditures. I An analysis by the Advisory Commission on Intergovernmental Rela- tions provides a review of studies that examine the stimulative-substi- tutive question. A summary of results of their review is shown in Exhibit 4.8. This summary table shows the dependent and independent variables used in a number of studies. In most cases, the dependent variable is a measure of expenditures and the independent variable is the amount of Federal aid. Most of these studies are cross-sectional: data were collected for a number of locales for a given moment in time. As can be seen, most of these studies found Federal grants to be stimu- lative; $1 of aid led to more than $1 of expenditure. However, as can be seen, the amount of stimulation that occurs is uncertain. Stimula- tive impact coefficients range from 1.04 to 2.45. Indeed, several studies found substitutive effects, and this is reflected in impact coefficients of less than unity. More important in reconciling the differences in these studies is an analysis of the impacts of capital grants specifically rather than total grants-in-aid. This issue is discussed in the next section and is a summary of the more detailed materials of Volume III of this study where we discuss the impact of Federal grants on five state and local functions: water systems; sewer systems; highways; bridges; and mass transit. 4.3.4 Fiscal Impact of Major Federal Capital Grants and Revenue Sharing: Some Empirical Evidence^ The available literature concerning the fiscal impact of grants on public investment is very sparse. However, some evidence of the stimu- lative effects is available, and in this section we review that evidence to assess the impact of several major Federal capital grant programs on capital outlays. In addition, we examine the impact that revenue sharing has had on capital spending. The three capital grant programs discussed cover the functional areas of municipal wastewater treatment facilities, highways, and mass transit. Together with revenue sharing, these programs account for approximately one-fourth of all Federal aid to state and local govern- ments; the three capital grant programs account for approximately two- thirds of all Federal capital grants. Ohls, J. C, and T.' J. Wales, "Supply and Demand for State and Local Services," Review of Economics and Statistics , Vol. 54, No. 4, 1972, pp. 424-430. 2 This section was prepared largely by Ray D. Whitman of The Urban Institute with the assistance of Linda Haugh. 1.96 Exhibit A. 8: The Stimulative Effects of Grants, Summary of Results Author Units of Anal vs Is Year Dependent Variable independent Variable Conclusion Grant Impact Coeffi- cient Data Set Kurnow State and local governments 48 states 1957 Per capltu expen- ditures Per capita Federal aid Complementary 2.45 Cross-section Sacks & Harris State and local governments 48 states 1960 Per capita expen- ditures Per capita Federal aid Stimulative 1.55 Cross-section Bahl & Saunders State and local governments 48 states 1950- 1960 Change in per capita expenditures Change in Pedera) grants Stimulative 1.36 Cross-section Oman State and local governments 48 states 1960 Per capita expen- ditures Federal aid Stimulative 1.94 Cross-section Adams 1,249 counties 1957 Local fiscal effort Per capita Federal aid Substitutive 0.96 Cross-eection Henderson 2,980 counties Non-netropolitan 1957 Per capita expen- ditures Per capita state plus Federal Stimulative 1.04 Cross-section Henderson 100 counties Metropolitan 1957 Per capita expen- ditures Per capita state plus Federal Stimulative 1.42 Cross-section Horowitz State and local governments 50 states 1%2 Per capita expen- ditures, employ- ment Federal aid Stimulative 1.26 Cross-section Smith Stete and local governments 50 states 1965 Per capita expenditures Per capita Federal aid Stimulative 1.66 Cross-section Phelps State and local highways 1951- 1961 Stock of capital Federal aid Substitutive 0.045 Time-series Fldot ftl metropolitan areas 1962 Per capita expen- ditures Per capita Federal aid Stimulative 2.35 Cross-section Johnson & Junk 43 cities 1967 Per capita expen- ditures Federal grants Stimulative 2.02 Cross-section O'Brien State and local governments 1958- 1966 Per capita own expenditures Per capita Federal grants Stimulative 1.19 Pooled cross- section - time- series Cramllch & Galper 10 large U.S. city-counties 1962- 1970 Local expenditures Per capita expen- ditures mandated by grants, exo- genous budgetary- resources Stimulative 1.80 Pooled cross- section - time- series Cramllch & Calper State and local governments 1976 quar- ters Local expenditures Per capita expen- ditures mandated by grants, exo- genous budgetary resources Stimulative 1.43 Time-series Inman. 41 cities 1967 Local expenditures Federal aid Stimulative 1.34 Cross-section Ohls & Wales State and local governments 1968 Per capita local expenditures Per capita Federal aid Substitutive 0.29 Cross-section Cabler & Brest State and local governments 1960 Per capita state and local expen- ditures Determlnents of Federal and state aid (Data not coipa rable) Cross-section Sharkansky State government 1963 State government expenditures per capita Federal aid Substitutive (Data not com- parable) Cross-section Expenditures include Federal aid unless otherwise specified. Grants arc stimulative if impact coefficient exceeds unity and substitutive If coefficient if. less thanur.il) unless Federal aid is excluded ircx the aependent variable, in which case a positive coefficient indicates stimulation a.-.d a negative coefficient indicate" substitution. Includes Federal categorical grants and the matching expenditures by lower-level government Source: AC1R, Federal Grents: Their Effects On State-Local Expenditures , Employment levels and Wage Rjies , Washington, D.C., February 1977. 1.97 The results of our review (which are discussed in detail in Volume III) suggest that grants for the construction of municipal wastewater treatment facilities appear to have added about $0.60 to capital outlay for treatment facilities for each dollar of aid. Mass transit grants appear to have added about $0.75 to transit capital outlay for each dollar of aid. Highway grants appear to have added about $1.08 to capital outlay for each dollar of aid, whether for Interstate or ABC programs. Why the highway grants should be so much more stimulative than the others is unclear. There is reason to believe that both municipal facilities and mass transit grants may have added more to total expenditures than to capital outlay, though we have developed little empirical evidence to support this hypothesis and no quantitative estimates. The secondary and advanced treatment facilities financed by the municipal construction program are known to be considerably more costly to operate than the primary facilities they replaced. Municipalities are known to have provided increased subsidies to mass transit systems since the UMTA program began. The evidence on the total expenditure impact of highway grants is contradictory. Sherman 1 found that $1 of Interstate aid added $1.64 to total expenditure; Rao ' s^ estimate was $1.11, not greatly different from the impact on capital outlay. There is reason to believe that the Inter- state program may have added to state expense for operation and mainte- nance of Interstate highways. For non-Interstate Federal-aid highways, Sherman found that $1 of aid left total expenditures essentially unchanged, that is, it was totally substituted for state-local sources of funds. Rao found $1 of aid added $1.55 to total non-Interstate expenditures. The disparity between these findings illustrates the wide fluctuations in impact estimates derived from similar econometric models and supports the point made above, that econometric estimates may not be very precise. Our findings that $1 of Federal capital grants added $0.60 for capital outlays for municipal wastewater treatment facilities, $0.75 for mass transit and a little over $1 for highways are not particularly helpful until they are placed in context. How does the fiscal impact of these grants compare with what one would expect from an understanding of the nature of the grant programs? How does it compare with that of other grants? Do these coefficients tell us anything about the degree to which these programs have been successful? Sherman, L. , The Impacts of the Federal Aid Highway Program on State and Local Highway Expenditures , Washington, D.C., U. S. Depart- ment of Transportation, 1975. 2 Rao, Srikanth, Statistical Analysis of the Impact of Federal High- way Aid on State Allocative Decisions," Draft Final Report prepared for U. S. Department of Transportation, Office of Intermodal Transportation, July 1978. 1.98 All three programs for which we have fiscal impact estimates are closed-ended matching categorical grants. A closed-ended matching grant is one for which to donor requires the recipient to match grant dollars at a certain rate but limits the amount of aid available on these terms. A categorical grant is one confined to a category of spending, e.g., wastewater treatment facilities. Closed-ended matching categorical grants can affect spending in one of three ways.-*- They can operate in a manner analogous to revenue sharing grants, simply augmenting the recipient's fiscal resources. They can operate in a manner analogous to open-ended matching grants by reducing the marginal cost of the project to the recipient. They can operate in a manner analogous to a simple categorical grant by channeling both Federal and state-local dollars into spending for the aided service. We will presently examine each of these three types of fiscal impact in order to develop bench- marks for the impact of the Federal capital grants. Before doing so, we consider the effect of program conditions on spending. Most Federal grant programs attach certain conditions to the use of Federal funds. While some of these, such as auditing requirements, may have a trivial impact on expenditures, others can augment the cost of providing a service considerably. Cost increasing provisions reduce the cost saving effect of the Federal matching dollars. For example, capital grants for mass transit, which appear to reduce local costs to $0.20 for every dollar of capital outlay, actually reduce local costs by much less than this because David Bacon provisions, Section 13c, provisions for the elderly and handicapped, required safety features and the like increase project costs. The extent to which provisions of this type increase local expenditures depends upon the sensitivity of recipient governments to cost changes. Closed-ended matching categorical grants will operate like a revenue sharing grant if the amount of local matching money required is less than the amount the grantee would have spent on the aided activity in the absence of aid. A necessary, but not a sufficient, indication that this is the case is that the recipient has utilized his entire grant allotment. Revenue sharing grants stimulate spending simply by augmenting the recipient's resources. The fiscal impact of such a grant is larger than that of growth in the economic base because, for political and institutional reasons, revenue sent directly to a govern- ment is more likely to be spent than revenue that must be raised by taxation. Empirical studies of the Federal General Revenue Sharing (GRS) program provide one benchmark for this type of grant. For a discussion of these points, see Whitman and Cline, "Federal Impact of Revenue Sharing in Comparison with Other Federal Aid: An Evaluation of Recent Empirical Findings," Chapter I, Final Report No. 1189-01, Washington, D.C., The Urban Institute, 1978; or Stephen M. Barro : The Urban Impacts of Federal Politices: Volume 3, Fiscal Conditions , Santa Monica, California, The RAND Corporation, Chapter VI, 1978. 1.99 A survey research study by the University of Michigan's Institute for Social Research and a monitoring study by the Brookings Institution estimated the aggregate expenditure impact of GRS upon local governments to lie between 60 and 70 percent during the first three years of the program.^ Aggregate impact on states ranged between 53 and 70 percentage points lower than the survey research and monitoring estimates. Another example of revenue sharing type grants is state aid for education. Most state aid programs are broad categorical grants without matching provi- sions for a service that receives substantial local funding. Such grants would be expected to behave like revenue sharing grants. A number of studies have produced grant impact coefficients ranging between $0.40 and $0.60 for each dollar of aid. 2 Hence, studies of the impact of GRS on aggregate local or state spending and studies of the impact of state education grants on school district spending produce broadly similar results. A program having provisions no more stimulative than these could be expected to have a total expenditure impact of the same order of magnitude. Closed-ended matching categorical grants will operate like an open- ended matching grant if the grant is not fully utilized by the recipients, Such a grant reduces the cost of the aided service to the recipient on the margin. The fiscal impact of such a grant depends on the price elasticity of demand for the aided service, if the concept of demand for government services be allowed. If the elasticity is less than one, $1 of grant will add less than $1 to local expenditures. Since the elas- ticity of demand for most state-local services is less than one, accord- ing to most studies, grant impact coefficients should lie between zero and one.-' Of welfare and medicaid, which are the two most important open-ended matching grants, welfare is the most extensively studied. A representative study by Orr estimated the price elasticity of demand for aid to families with dependent children (AFDC) at -0.23, which implies that $1 of Federal aid would increase welfare payments by $0.30.4 Because most state-local functions have higher price elastic- ities, open-ended matching grants or less than fully utilized closed- ended matching grants would have a larger impact coefficient than AFDC. Closed-ended matching categorical grants will operate like a simple categorical grant if required matching is more than the recipient would have spent for the aided activity in the absence of the grant. As in the first case we examined, the recipient will utilize his entire grant allotment. This type of fiscal impact is best understood by examining first the impact of a simple categorical grant. Such a grant requires See Whitman and Cline, "Fiscal Impact of Revenue Sharing in Com- parison with Other Federal Aid," Chapter III. 2 Ibid ., Chapter VIII. 3 Ibid. , p. 12. 4 Ibid ., p. 173. 1. 100 only that grant funds be spent on the aided category. The extent to which the grant is substituted for local revenue sources depends upon what local spending on the aided category would have been in the absence of the grant relative to the size of the grant. At one extreme, if local spending would have been more than the grant, the recipient will sub- stitute the grant for local sources of funds to a very great extent. The aided category benefits from the grant only to the extent that it receives a share of the additional resources that the. grant brings to the recipient government; the effect will be the same as that of a revenue sharing grant. At the other extreme, if local spending would have been zero in the absence of the grant, the recipient will neces- sarily devote the entire grant to additional spending on the aided category. A closed-ended matching categorical grant operates in a similar way with required matching playing a pivotal role. At one extreme, if local spending would have been more than required matching, the recipient will substitute the grant for local sources as in the case of a revenue sharing grant. At the other extreme, if local spending would have been zero in the absence of the grant, the recipient will devote the entire grant plus the required matching to additional spending on the aided category. If the Federal share of program costs is r, $1 of grant will result in $l/r of additional total spending and $l/r - $1 of additional state-local spending. Hence, the maximum expenditure impact of an 80 percent closed- ended matching grant is $1.25 ($1-^- 0.8). Generally, the expenditure impact will be less. We are now in a position to compare the fiscal impact of the three Federal capital grants with predictions based on economic theory. Our examination of these three programs has revealed that each was designed to finance the purchase of capital facilities that would not have been purchased as extensively had there been no Federal aid. The highway program financed construction of the Interstate system. While some segments of limited access highway would have been constructed in the absence of Federal aid, others clearly would not. The municipal waste- water treatment construction program financed the construction of sec- ondary and advanced treatment facilities. Similarly, some of these facilities would have been constructed in the absence of Federal aid, others would not. The mass transit program financed replacements and renovations on existing systems, some of which would have occurred without Federal aid; it also financed accelerated replacement, expan- sions and entirely new systems, most of which would never have occurred without Federal aid. For all three programs, then, there would have been state-local spending in the absence of Federal aid. Maximum fiscal impact depends on the Federal matching rate. Recall that the maximum is $l/r where r is the Federal matching rate. Hence, the maximum expected impact is $1/0.9, or $1.11 for the Interstate pro- gram ($1.05 for states receiving the maximum Federal grant), $1/0.7 for the ABC highway program or $1.43 (the matching rate was 0.7 until 1978), $1/0.75 or $1.33 for the municipal wastewater treatment construction 1. 101 program, and $1/0.8 or $1.25 for the mass transit program. Since there clearly would have been state-local spending in the absence of these programs, actual fiscal impact would be less than the maximum. The only program for which reported fiscal impact is close to the maximum is Interstate highways. That the reported coefficient, $1.08, is so close to the maximum coefficient, $1.11, suggests that there would have been very little construction of limited access highways in the absence of the program. While this is possible, it seems unlikely. A more reasonable explanation is that the econometric estimates are biased upward for reasons that are not altogether clear. 1 The coeffi- cients for the other two programs are considerably less than the maximum. The coefficient for the municipal wastewater treatment construction pro- gram, 0.6, lies less than halfway between the coefficients reported in the Brookings and Institute for Social Research (ISR) studies for revenue sharing (0.08 and 0.12 respectively) and the theoretical maximum of 1.33.2 The coefficient for the mass transit program, 0.75, is probably more than halfway between the share of revenue sharing going to mass transit and the theoretical maximum of 1.25. Transportation received between 0.11 and 0.12 percent of GRS according to the two studies but a considerable share of that probably went into highways. 3 Because Brookings and ISR functional share data are not reliable, these com- parisons are merely suggestive of orders of magnitude. To have found impact estimates that lie between the extremes for these programs is reasonable. Our findings that the Federal capital grants, with the possible exception of highway grants, have had a generally substitutive effect, are consistent with Barro's interpretation of the fical impact litera- ture. Most econometric studies of grant impact have shown that Federal categorical grants stimulate spending, that is, they have fiscal impact coefficients in excess of one, often considerably in excess of one. The only significant exceptions are time series studies by Gramlich and Galper and a pooled time series cross-section for ten city govern- ments also by Gramlich and Galper. Gramlich and Galper, for example, found that $1 of Federal matching aid added $0.08 to spending, accord- ing to their time series equations, and $0.90 according to their pooled Barro, for example, has attempted to show that most econometric grant impact estimates derived from cross-section or pooled time series cross-section studies have been biased upward. See Stephen Barro, Fiscal Conditions , op . cit . , p. 140. 2 See Whitman and Cline, c>p_. cit . , p. 110. Figures are obtained by multiplying functional share by the percentage of funds added to spending. 3 Ibid. 1.102 city equations. 1 As mentioned earlier, Barro is convinced, on the basis of both theoretical considerations and recent empirical findings, that: ...the findings of fiscal stimulation should not be taken as valid estimates of the state-local response to Federal aid and should not be used for policy analysis or for pre- dictive purposes. 2 One point made earlier bears repeating at this time: the fiscal impact of Interstate, municipal wastewater construction and mass transit grants on total spending — current plus capital — probably exceeds their Impact on capital spending alone. The impact of these grants on total spending should be used for comparison with studies such as Gramlich and Galper's. If allowance is made for impact on current expense, our estimates for the municipal wastewater treatment construction and mass transit grants are not out of line with the Gramlich and Galper impact coefficients for total Federal categorical aid. 3 Volume III of this study also assessed the fiscal impact of General Revenue Sharing (GRS) funds on state-local spending. The empirical evi- dence suggests that states and localities together used about one-third of GRS receipts for capital during the first three years of the program; localities used a larger share and states a smaller share. Though the different methodologies for measuring program impact do not yield iden- tical results, they are remarkably similar. The capital outlay effect occurs with a lag of about two years which does not show up in actual use, survey and monitoring data because these data reflect decisions and not expenditures. When compared with GRS, the capital grants have added more to capital outlay than revenue sharing added to capital outlay or even, in two out of three cases, to current outlay. Capital grants are, therefore, more stimulative than revenue sharing, as their programmatic impacts suggest. A. 3. 5 Public Works Investment and State and Local Revenue Bases: The Larger Perspective Up to this point in our examination of aggregate state and local financing of PWI we have focused primarily upon the direct impacts of Federal capital grants and the stimulation of state and local PWI. Gramlich, Edward, and Harvey Galper, "State and Local Fiscal Beha- vior and Federal Grant Policy," Brookings Papers on Economic Activity , No. 1, 1973; also see Whitman and Cline, "Fiscal Impact of Revenue Sharing in Comparison with Other Federal Aid," op. cit . , p. 68. 2 Barro, Fiscal Conditions , op . cit . , p. 140. 3 Gramlich, Edward, and Harvey Galper, op_. cit . 1.103 However, there are several important perspectives that have not been addressed as of yet. First of all, Federal capital grants must be placed in the larger context of intergovernmental aid. We will examine this larger context in the final section on Federal grants-in-aid for state and local governments (Section 4.3.6). In addition, and as we have pointed out previously, while other sources of financing directly ap- plicable to PWI have seen decline in recent years, they still remain important. In Section 4.4, we will focus on the role of debt-financing and PWI. In Section 4.5, we will attempt to relate own-source revenues to PWI expenditures. This last task is especially difficult because of the extreme fungibility of funds from these sources. 4.3.6 Federal Aid to States and Localities: The Longer View Federal aid to state and local government has a long history in the United States. This is particularly true for such functions as education and transportation. As early as the first two decades of the nineteenth century, the United States experienced the establishment of distinctive patterns of fiscal federalism based on the transfer of funds to states in the form of proceeds from the sale of public bonds. By the second decade of the twentieth century, grant programs had developed allocation formulae and matching requirements. ^ The period of the 1930' s saw a tremendous growth in Federal grants, with a diminution of programs in the 1940's. The period of the late 1950's and early 1960's, the beginning point of this study, marks a watershed in Federal-state-local relations. This is true in several senses: • First of all, the absolute magnitude of Federal aid to states and localities began to increase significantly. • Second, there has been a dramatic increase in the Federal role in financing local government directly. While this is a trend most characteristic of the post-1972 period, the growth of Federal programs for localities was evident in the 1960's. 2 This trend marked a dramatic shift in the approach toward federalism in the United States. Maxwell, James A., and J. Richard Aronson, Financing State and Local Governments , Washington, D.C., The Brookings Institution, 1977, p. 51. As Maxwell and Aronson note, grants for highway construction began in 1916 and incorporated a formula for allocation based on popu- lation, area, and road mileage, and required equal state funds. 2 Actually, direct Federal-local aid originated during the Depres- sion and was administered through a variety of newly-created agencies. However, most of these programs were abandoned by the end of World War II. 1.104 • Finally, there was a marked shift during this period away from grants for public assistance and highway programs^ and toward education. As can be seen in Exhibit 4.9, social welfare and transportation grants accounted for 99 percent of total grants-in-aid by the Federal government in 1950. Within the first of these categories — social welfare programs — public assistance grants were the highest contrib- utor accounting for more than 50 percent of all grants. By 1960, the contribution to total grant outlays accounted for by public assistance had decreased dramatically. The period from 1957-1977 marks a dramatic redistribution of the functional outlays of Federal grants-in-aid gen- erally. This changing mix reflects alterations in the overall approach of the Federal goverment to grants-in-aid and in particular functional emphases. Later sections of this chapter will examine the functional distribution of Federal grants-in-aid in detail. The period covered by this study is notable for another reason as well. Not only have there been dramatic changes in the magnitude of Federal grants-in-aid and in Federal-local interaction, but these change; have been accompanied by dramatic changes in grant type. Most Federal grants that have been utilized for capital expenditures traditionally have been categorical in nature, specific to particular kinds of pro- gram expenditures. However, by the end of the 1960's, and to a larger degree in the 1970's, an important issue has arisen: Does the form of the grant make a difference in terms of usage? As a recent study by the Advisory Commission on Intergovernmental Relations (ACIR) notes: Among the many topics of continuing controversy in the grant impact literature, two are particularly prominent. Despite numerous theoretical and empirical studies, dis- agreement still exists about whether Federal grants stimulate or substitute for State and local spending in the aggregate or in specific expenditure functions. Controversy also persists concerning the influence that matching requirements and certain other grant character- istics have on State and local fiscal behavior. In earlier sections, we addressed the issue of substitution and stimu- lation. Here, we will focus on distributional characteristics of grants. This is most evident in state-level grants from the Federal govern- ment. 2 Advisory Commission on Intergovernmental Relations, Federal Grants: Their Effects on State-Local Expenditures, Employment Levels, and Wage Rates , Washington, D.C., 1977, p. 25. 1.105 Exhibit 4.9: Distribution of Federal Aid to State and Local Governments, by Purpose (percent) FY FY FY FY FY Purpose 1950 1960 1965 1970 1975 Social Welfare 78.2 52.8 53.3 70.2 62.3 Public assistance 50.8 30.1 28.8 31.6 28.8 Education 3.7 6.5 6.6 12.8 9.6 Health 5.6 3.1 3.3 4.4 3.9 Economic opportunity and manpower 0.0 0.0 5.0 10.9 9.9 Miscellaneous 18.2 13.1 9.7 10.5 10.1 Transportation 20.8 43.9 38.5 18.6 10.3 Revenue Sharing 0.0 0.0 0.0 0.0 12.6 All Other 0.9 3.3 8.2 10.8 14.8 Total 100.0 100.0 100.0 100.0 100.0 Source: Dales, Sophie R. , "Federal Grants to State and Local Governments FY 1975: A Quarter Century Review," Social Security Bulletin , Vol. 39, No. 9, September, 1976, p. 23. Cited in Patterns of Regional Change , Selected Essays submitted to the Committee on Appropriations, U.S. Senate, October, 1977, p. 562. 1.106 Most Federal grants-in-aid are categorical in nature; they are intended for narrowly defined purposes and constituted approximately three-fourths of all Federal grants-in-aid in 1977. 1 Funds are dis- persed either on a project basis or on the basis of a formula. In dollar terms, formula grants are the predominant form. Categorical grants can be further subdivided in terms of the matching requirements (high, low, none) and in terms of who are the principal recipients (states or localities). The majority of categorical grants have some matching requirement, although the ratio of match varies widely. As the ACIR notes, the level of the matching requirement determines the degree of price subsidy and has an important impact on state-local expenditures response. A relatively recent phenomenon has been the expansion of grants- in-aid programs with a more broadly defined purpose and greater discre- tionary power in the hands of grant recipients. An intended distinction between block grant and categorical grant programs is the strategy of decentralizing decision-making authority from the Federal to the local level. In a sense, this strategy marks a major difference more gen- erally between the New Federalism of the Nixon Administration and Johnson's Great Society program. Block grants, or special revenue sharing programs, and general revenue sharing are the principal inter- governmental fiscal instruments of the New Federalism. 3 Under block grants, Federal aid is authorized for a wide range of activities within a broadly defined functional area. Recipients have substantial discretion in identifying problem areas, designing programs, and allocating resources. Federally imposed regulations are "minimal" (when compared with categorical grants). Federal aid is distributed on a statutory basis (narrowing the discretionary power of the Federal government) . In addition, eligibility requirements are specified by statute; and matching requirements tend to be substantially lower. 1 Ibid. , p. A. 2 Ibid. 3 MacManus, Susan A., Revenue Patterns in U.S. Cities and Suburbs: A Comparative Analysis , New York, New York, Praeger, 1978, pp. 4-6. Also, see, for example, Richard P. Nathan, et^ al. , Monitoring Revenue Sharing , Washington, D.C., The Brookings Institution, 1975; Richard P. Nathan and Charles F. Adams, Revenue Sharing: The Second Round , Wash- ington, D.C., The Brookings Institution, 1977; Richard E. Thompson, Revenue Sharing: A New Era in Federalism , Washington, D.C., Revenue Sharing Advisory Service, 1975; and Wallace E. Oates, ed . , Financing the New Federalism: Revenue Sharing, Conditional Grants, and Taxation , Baltimore, Maryland, Johns Hopkins University Press, 1975. 1.107 Another form that Federal aid has taken is debt service grants. These funds have been used primarily in the areas of urban renewal and public housing. Under the debt service grant, the Federal government pays its portion in yearly installments over the life of the debt issue instead of in a lump sum. Part of the Federal share is raised by states and localities via the tax exempt market, as is the remainder of the funds by states and localities. ACIR figures indicate that the use of these grants doubled in recent years, especially because of increased urban renewal funds. * This trend suggests the increased use of the debt service grant as an alternative financing vehicle for new and expanded Federal expenditures. At the same time, use of these funds transfers financing from the taxable market to the tax exempt state and local market. Finally, Federal aid to states and localities has taken the form of loans. Data suggest that Federal loans have become an increasingly important source of funding for capital facilities. Exhibit 4.10 shows the growth of net loan outlays by the Federal government for state and local public facility financing. Although our principal focus here is on grants-in-aid, it is also important to note the component of Federal aid accounted for by loan activity. 2 4.3.6.1 Growth of Grant s-in-Aid Over Time (1957-1977) In 1977, Federal aid to state and local governments was in excess of $67 billion, an amount equal to approximately one-fourth of total state and local spending, and 16 percent of the Federal budget for that year. 3 These funds were disbursed under several hundred different pro- grams, each with its own criteria for disbursement. The total sum of grants-in-aid from the Federal government to states and localities has grown dramatically over the 21 -year period covered in this study. One indicator of this growth is the absolute increase in grants-in-aid from the Federal government to states and localities. Exhibit 4.11 provides a clear image of this growth relative to the growth of other Federal expenditures, as well as in absolute terms. Advisory Commission on Intergovernmental Relations, Federal Approaches to Aid State and Local Capital Financing , Washington, D.C., 1970. 2 Also see Volume III of this study. 3 This sum does not include Federal lending to state and local gov- ernments. As noted above, lending and loan guarantees represent signif- icant contributions to the needs of states and localities. Net loan outlays for 1977 are estimated at $552 million. See The Budget of the United States Government, Fiscal Year 1978, Special Analysis , p. 289. 1.108 Exhibit 4.10: Net Federal Loans for State and Local Public Works Activity (millions of dollars) Fiscal Year Amount 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 TQl 1977 117 143 156 149 207 190 142 167 289 359 284 272 255 202 206 242 115 189 528 2672 552 'Transition quarter (July 1, 1976-September 30, 1976). > "Estimates. Source: Budget of the United States , Special Analyses N, 0, and P and Appendix (various years) . 1.109 — ' V) > o 03 -H ■- .T) .a -a -a u T! i— i u x, "a •H - n) -H c ca < M -o (X, 1 1 a) 3 e c C d •a oj OJ "i M •H v) i"8-« a w 1 1 ■l-l M-i X CO rH o o O >4-l a o 1. 110 In 1957, grants-in-aid represented only 5 percent of total Federal expenditures, or $4.2 billion. Of this amount, over nine-tenths repre- sented grants to state governments. By 1977, grants-in-aid to states and localities amounted to 16 percent of total Federal expenditures. Utilizing data provided in the National Income and Product Accounts,! this represents a greater than fifteenfold increase. Although differing slightly, data from the Bureau of the Census indicate this same trend over the period from 1957-1977: a more than order of magnitude increase in current dollar aid to states, from $3.9 billion in 1957 to $62.6 billion in 1977. The composition of Federal grants-in-aid, in terms of the recipient government, has changed dramatically over time as well. This is clear in Exhibit 4.12. While state governments received directly about 91 percent of total Federal grants-in-aid in 1957,2 this proportion has decreased over time: by 1977, grants to states represented less than 75 percent of all Federal grants. These relationships are presented graphically in Exhibit 4.13. The decrease (in relative terms) was not dramatic until the advent of general revenue sharing monies in the 1970' s, Between 1972 and 1974, local-level receipts from the Federal government more than doubled, while state receipts increased by 50 percent. Throughout the period of time covered in this study, the growth of grants-in-aid has differed between state and local governments. Exhibit 4.14 indicates the annual growth of Federal grants-in-aid for the two levels of government, presented in terms of growth from 1957 (equal to 100). While the growth indices for each level appeared similar through the mid-1960' s, in more recent years local direct receipts of Federal aid began to increase much more rapidly, more than doubling between 1972 and 1974, and growing somewhat less in the next year. 4.3.6.2 The Growing Dependence of State and Local Governments on Federal Grants Another indication of the importance of Federal grants-in-aid as sources of revenue for state and local governments is the dependence of these governments on such aid. This is especially true for individual functional areas related to public works investment. Using the ratio of grants to own-source revenues as a measure of dependence, one which has been previously utilized by various authors,-^ allows us to make As reported in the Budget of the United States (various years) . 2 Of course, some of this Federal money has always been disbursed by state governments, and represent "pass-through" funds of the Federal government to localities. See, for example, Advisory Commission on Intergovernmental Rela- tions, , Local Revenue Diversification: Income, Sales Taxes, and User Charges , Washington, D.C., 1974, for further discussion of the user of similar measures. See, also, MacManus, op_. cit . I. Ill Exhibit 4.12: Growth of Federal Grants-in-Aid to States and Localities (millions of dollars) Year State Locality Total 1957 3,530 346 3,876 1958 4,497 404 4,901 1959 5,924 489 6,413 1960 6,382 593 6,975 1961 7,131 719 7,850 1962 7,857 750 8,607 1963 8,721 890 9,611 1964 9,046 956 10,002 1965 9,874 1,156 11,029 1966 11,743 1,377 13,120 1967 13,616 1,889 15,505 1968 15,228 1,954 17,182 1969 16,907 2,245 19,152 1970 19,253 2,605 21,858 1971 22,755 3,391 26,146 1972 26,791 4,463 31,253 1973 31,353 7,903 39,256 1974 31,632 10,199 41,831 1975 36,148 10,847 46,994 1976 42,013 13,574 55,587 1977 45,938 16,671 62,609 Source: U.S. Bureau of the Census, Government Finances (annual series) ; State Government Finances (annual series) 1.112 Exhibit 4.13: Federal Grants-In-Aid to States and Localities (billions of dollars and percent) 40 $3.9 S.9 Z, $8.6 8.7%. ZZZZZZZZZZZZK \ 9I.3XN 1967 Fiscal Year 1.113 Exhibit 4.14: Relative Growth of Federal Grants-in-Aid (FY 1957 = 100) Fiscal Year State Local Total 1957 100 100 100 1958 127 117 126 1959 169 141 165 1960 181 171 180 1961 202 208 203 1962 223 217 222 1963 247 257 248 1964 256 276 258 1965 280 334 285 1966 333 398 338 1967 386 546 400 1968 431 565 443 1969 479 649 494 1970 545 753 564 1971 645 980 675 1972 759 1 ,290 806 1973 888 2 ,284 1,013 1974 896 2 ,948 1,079 1975 1,024 3 ,135 1,212 1976 1,190 3 ,923 1,434 1977 1,301 4 ,818 1,615 Source: Derived from U.S. Bureau of the Census, Government Finances (various years) . 1.114 comparisons among levels of government. Exhibit 4.15 shows the growth of this ratio, as well as the absolute aid amount. It is clear from this table that both levels of government are highly dependent upon outside aid as a source of receipts. In addition, that reliance has increased over time, as intergovernmental assistance has grown at a rate equal to or greater than receipts from own sources. As indicated previously, most Federal aid is directed to the states. In the period from 1957-1967, state governments saw a steady, and grad- ual, increase in Federal aid relative to the growth of own resources. However, the period from 1971-1977 has seen own-source receipts increase at about the same rate as Federal aid.l The argument has been made in recent years (1975-1977) that this is ironic, since state governments have experienced a surplus while the Federal deficit continues to increase as have Federal grants to state governments. 2 State and Federal aid to local governments has grown even more dramatically. While aid has always represented a significant proportion of revenues for local governments — 43 percent of own-source receipts even in 1957 — the increase is worth noting. By 1977, outside aid amounted to approximately three-fourths of the revenue generated locally. The vast majority of these funds are state-to-local transfers. This can be seen in Exhibit 4.16 and in Exhibit 4.17. However, equally significant is the increased proportion accounted for by Federal funds in the 1970' s: in 1970, Federal aid was only 9 percent of total direct intergovernmental transfers to localities; by 1977, Federal direct assistance represented more than 16 percent of aid to localities. 4.3.6.3 Functional Distribution of Federal Aid to States and Localities Although the growth of Federal grants-in-aid has been dramatic over the time frame of this study, its distribution among the functional expenditure categories has been quite uneven. Exhibit 4.18 shows the changes that have occurred in intergovernmental transfers for five States also receive funds from local governments. However, the amount has been stable at about 6 percent of Federal aid to states during the period. 2 Gramlich, Edward M. , State and Local Budget Surpluses and the Effects of Federal Macroeconomic Policies , Joint Economic Committee Report, January 12, 1979. Although Federal-state-local indirect "pass-through" funds account for part of this amount, it is impossible to identify these monies. 1.115 Exhibit 4.15 Growth of State and Local Dependence on Outside Aid (millions of dollars and percent) Federal Aid to States State and Federal Aid to Local Governments As a Percent of As a Percent of Local General Local General Fiscal Millions Revenue from Millions Revenue from Year of Dollars Own- Sources of Dollars Own-Sources 1957 3,530 21.3 7,554 43.2 1958 4,497 26.2 NA — 1959 5,924 32.3 NA — 1960 6,382 31.0 NA — 1961 6,412 29.3 10,904 43.6 1962 7,108 30.0 11,678 43.8 1963 7,832 30.5 12,680 44.5 1964 9,046 32.1 13,829 45.7 1965 9,874 32.3 15,232 46.6 1966 11,743 34.0 17,768 50.2 1967 13,616 36.0 20,395 53.2 1968 15,228 35.3 22,295 54.5 1969 16,907 34.1 26,082 56.9 1970 19,253 33.5 29,525 57.5 1971 22,755 37.1 34,473 60.0 1972 26,791 37.9 39,018 60.5 1973 31,353 39.0 47,866 67.9 1974 31,632 35.5 54,752 71.3 1975 36,148 37.3 61,974 73.5 1976 42,013 39.1 69,746 74.8 1977 45,938 37.9 76,948 75.4 NA = Data not available. — = Not applicable. Source: Derived from U.S. Bureau of the Census, Government Finances and State Government Finances (various years). 1.116 Exhibit 4.16 Outside Aid to Local Governments (millions of dollars) Fiscal Year 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Federal 346 404 489 593 719 750 890 956 1,155 1,378 1,889 1,954 2,245 2,605 3,391 4,462 7,903 10,199 10,906 13,576 16,637 Other 7,209 NA NA NA 10,185 10,929 11,799 12,873 14,077 16,391 18,507 20,342 23,837 26,920 31,082 34,555 39,963 44,553 51,068 56,169 60,311 State and Federal Aid to Local Governments 7, ,554 NA NA NA 10, ,904 11 ,678 12 ,689 13 8j29 15 ,232 17 ,768 20 ,395 22 ,295 26 ,082 29 ,525 34 ,473 39 ,018 47 ,866 54 ,752 61 ,974 69 ,746 76 ,948 Federal grants-in-aid to localities includes grants- in-aid to the District of Columbia. Estimates differ from Exhibit 4.11 because of the use of different data sources. NA = Data not available. Source: Bureau of the Census, Government Finances , various years, 1.117 Exhibit 4.17: Outside Aid as a Proportion of Own-Source Receipts (billions of dollars and percent) 00 - 90 - 80 ~ 70 - 60 - 50 ' 40 " | 30 - S3. 5 20 " //, $76.9 State Local 1957 State Local 1962 State Local 1967 Fiscal Year State Local 1972 State Local 1977 1.118 0) Ml o C c •H 0) l-i > 01 a) j: at CO OOOOOOOOOOOOOOOO00<*inin~-< oooooooooooooooocommcsivo \0 r-c^— 'in mocMCMCMoomoc^mooNCMmvDoom'-Hr-.voco <3-mv£ir^oocy\>-<Lrioo— ?>ocyNr^cy\\Ocy\vo \£> cm o r*» v* CO >JNO-iN00>*00^ONf^'^vONNO00 HrtrtM^NOOONvOHOONOWOO HHHHH^HNNNrnn«jinm>CiO — i in cm o co co .-i cm m CONN00MOS>* o«3-cococMCM00inmm (y.3-*-• 3 3 n 4-1 (n Cfl 0) Z OS vooNinr>>-3-.v£> ca 3 u o CD •H T3 S-i CD CO Pn > cu • M CO r-»ooa>o^cMco>o— icMco^-mvor^ inLnmvovOv40vOvOvOvovovO\or^r~»r~»r».f^r^r^r^- ^CTN^CTNCTiCT>cyiCTicyiCJNCTiCT>CTiCTiCJvCTiC^CTiCy>CTiCyi 1.119 lunctional categories that relate to public works investment of states. Also shown are the receipts by states of general revenue sharing funds. 1 4.3.6.3.1 Federal Aid to Highways During World War II, efforts began for the expansion of the road system in the United States. These efforts came to fruition in 1956 in the Federal Aid Highway Act which provided for the construction of a national system of Interstate highways. A Federal Highway Trust Fund was established into which revenue from a variety of Federal excise taxes is deposited and earmarked. Until 1976, Federal aid highway system funds were used for construction purposes only on the Interstate system and ABC program (primary, secondary, and urban extension systems). 2 Federal aid to states for the construction of highways was approxi- mately $97 6 million in 1957 and accounted for 28 percent of total Federal intergovernmental transfers to states. Between 1957 and 1967, the amount received by states for highway construction grew over 300 percent and by 1967 accounted for almost 30 percent of Federal intergovernmental trans- fers to states. However, by 1977 highway receipts from the Federal gov- ernment had declined significantly as a portion of total transfers, equalling only 14 percent of the total. The rapid decline in the proportion of Federal grants to states accounted for by highway funds is primarily a result of the success in completing the Interstate system. 3 With the Federal Aid Highway Act of 1976 and 1978, the formerly limited use of funds — ■ for construction primarily — has changed to some degree, and this may account for con- tinuing large amounts earmarked for the Highway Fund. As Maxwell and Aronson note: The opinion has gained popularity that urban mass transit and high speed rail transportation deserve Federal aid, and that some part of the income of the Highway Trust Fund should be used for non-highway purposes. 4 Not shown in this table are Federal intergovernmental transfers for public assistance. Grants for this purpose, although significant, have continually declined in recent years. From accounting for almost one-third of Federal grants-in-aid to state and local governments in 1963, the public assistance share of Federal aid dropped to 29 percent of this total in 1975. See U. S. Department of the Treasury, Changing Patterns of Federal Aid to State and Local Governments, 1969-1975 , Washington, D.C., 1977. 2 These funds are distributed on a formula allocation matching share basis that has changed over time. 3 The system is more than 90 percent complete today. 4 Maxwell and Aronson, £>p_. cit . , p. 52. 1.120 A. 3. 6. 3. 2 Federal Aid for Education Education was the first state-local service to receive Federal grants, dating back to the early 1800' s when land grants for public schools and colleges were the most prevalent form. The period of the 1950 's and 1960's witnessed a rapid growth in Federal intergovernmental transfers to states for education. Much of this Federal aid took the form of non-capital grants. In 1957, education purposes accounted for 12 percent of total Federal-state transfers, or approximately $436 million. However, this proportion grew steadily throughout the 1960's, reaching a high of 26 percent of the total — $3.5 billion — in 1967. Since that time, the proportion of the total has declined gradually such that by 1977 only 20 percent of the total was accounted for by education, In part, this decline is a function of the growth of other grant areas. But the rate of growth of grants for education slowed as well. 4.3.6.3.3 Federal Aid for Other Functional Areas Very few other functional areas account for significant proportions of Federal transfers to states. 1 However, several areas of particular interest to this examination of public works investment merit our atten- tion. Federal funds for natural resources, health, and airport construc- tion have grown over the 1957-1977 period. In 1957, these three cate- gories represented approximately 7 percent of total transfers; in 1967, their proportion of the total had declined to about 4 percent; in 1977, they represented approximately 5 percent of the total. 4.3.6.4 Federal Grants to Localities: Functional Distribution As was noted earlier, Federal transfers directly to local govern- ments is a recent phenomenon and marks a dramatic change in the nature of fiscal federalism in the United States. Traditionally, most Federal funds have flowed to state governments. Localities, as creatures of state governments, have depended upon aid from the states either in the form of pass-through Federal funds or as funds originating with the state. 2 The recent change in the Federal-local relationship is a function of the expansion and creation of a variety of grant programs, including Highways, education, and public assistance/public welfare payments account for well over 50 percent of total transfers throughout the period of this study. 2 Pressman, Jeffrey, "Political Implications of the New Federalism," in Wallace Oates (ed.), Financing the New Federalism , Washington, D.C., Resources for the Future, 1975. 1.121 funds for education, model cities, community development, urban mass transit, airports, manpower training, wastewater treatment, revenue sharing, and several emergency and countercyclical fiscal assistance programs. While a number of these categories are not of direct rele- vance to this study, several have direct applicability for functional areas of public works. 4.3.6.4.1 Federal Aid for Education Direct Federal aid to localities for education expanded most dra- matically in the 1960's (Exhibit 4.19). In 1957, Federal direct grants to localities for educational purposes was $167 million, or almost 48 percent of direct Federal transfers to localities. By 1962, that pro- portion had declined to 36 percent although the absolute amount — $278 million — had grown. In 1972, Federal transfers to localities for education peaked in absolute terms, amounting to $1.7 billion, or 28 percent of total transfers. Since that time, both the absolute amounts and relative proportion of the total have declined. 4.3.6.4.2 Federal Aid for Other Functional Areas The most notable increases in direct Federal funding have occurred in the areas of wastewater treatment, urban mass transit, general revenue sharing, and several of the special revenue sharing and discretionary programs.* In areas of specific relevance to this study, several char- acteristics of Federal aid to localities can be examined. 4.3.6.4.2.1 Wastewater Treatment In the area of wastewater treatment facilities, Federal grants have increased more than tenfold since 1970, and by 1977 accounted for more than one-fourth of total direct transfers. This is shown in Exhibit 4.20. The tremendous growth of funds in this area is a function of new legis- lative requirements and of the expanding role of the Environmental Pro- tection Agency since the passage of the Federal Water Pollution Control Act Amendments of 1972 (P.L. 92-500). In earlier years, Federal aid for this purpose hovered at somewhat less than 10 percent of total Federal transfers to localities. 4.3.6.4.2.2 Urban Mass Transit Another functional area experiencing rapid expansion of funds in the 1970' s is urban mass transit. Between 1973 and 1977, Federal funds to localities have grown from $275 million to $1.3 billion. gram. This would include the recent emergency fiscal assistance pro- 1.122 Exhibit 4.19: Federal Direct Transfers for Education to Localities Amount Percent Fiscal (millions of Total Year of dollars) Transfers 1957 167 48 1958 182 46 1959 208 38 1960 NA NA 1961 276 37 1962 278 36 1963 342 36 1964 357 30 1965 451 32 1966 490 33 1967 580 33 1968 694 31 1969 *573 24 1970 907 26 1971 ,460 28 1972 1,712 28 1973 1,400 21 1974 892 15 1975 930 9 1976 948 7 1977 1,158 9 NA = Data not available. Source: Bureau of the Census, Government Finances Table 6 (various years). 1.123 Exhibit A. 20: Direct Federal Transfers to Localities for Wastewater Treatment Amount Percent Fiscal (millions of Total Year of dollars) Transfers 1957 1 NA 1958 17 4 1959 36 7 1960 40 7 1961 44 6 1962 42 5 1963 51 5 1964 66 6 1965 75 5 1966 81 6 1967 97 6 1968 118 5 1969 135 6 1970 175 5 1971 475 9 1972 411 7 1973 681 10 1974 1,806 30 1975 2,234 22 1976 2,803 21 1977 4,052 30 NA = Data not available. Source: Bureau of the Census, Government Finances , Table (various years). 1.124 4.3.6.5 Summary Intergovernmental aid for public works investment, indeed aid more generally, has increased dramatically over time. This is especially true in terms of Federal aid to local governments. As a result of this dramatic increase, localities find themselves increasingly reliant on Federal aid. In many ways, Federal aid in the 1960's induced localities to increase both social and inf rastructural expenditures. In addition, the growth in Federal compliance requirements has exerted even greater pressure on already burgeoning local budgets. The effect has been the massive expansion of both budgets and responsibilities at the local level . This changing nature of Federal participation in local government activity has not only meant greater reliance of localities on the Federal government — and thus a dramatic change in the nature of federalism — but may also have led to a skewing of local priorities. The presence of Federal aid — and the requirements of matching programs — often structures the decisional choices of localities. In a world of finite and scarce resources, including financial ones, this means that govern- ments opt not to expend on certain local needs in favor of others. Earlier categorical grant mechanisms tended to encourage certain functional areas of expenditures, and, to the degree that they were stimulative, directed local flows of resources as well. The exclusion of maintenance activities from the use of capital grants, for example, seems to have biased expenditure patterns. The introduction of discre- tionary funds may have been intended to correct this skewing of local priorities; however, the expanded responsibilities of localities in social welfare areas — also as a response to Federal programs and especially for older urban governments — has meant that only a portion of these funds are expended for infrastructural maintenance needs. 1 If one accepts that Federal grants affect the flow of local resources, then several policy considerations are important. Because of the growth of the proportion of state and local capital spending accounted for by Federal grants, this can serve as a mechanism by which For example, Fainstein and Fainstein suggest that in the context of what is referred to as the current "urban fiscal crisis," the skewing effects of Federal grants may have encouraged the creation of welfare responsibilities for certain locales and the production-oriented activ- ities of others. See Susan S. Fainstein and Norman I. Fainstein, "The Federally Inspired Fiscal Crisis," Society , Vol. 13, No. 4, May/June, 1976, pp. 27-32. See also Norton Lang, "The City as Reservation," The Public Interest , Vol. 25, Fall 1971, pp. 22-38. A further argument can be made from this position that the expansion of debt, as well as the increased use of debt for non-capital purposes, are consequences of Federal programs and priorities. 1.125 local activity can be channeled. For example, if maintenance of capital stock is a current need, grant programs can specify the expenditure of monies for that activity. However, a second question is clear and par- ticularly relevant for urban governments: Can a national urban program and its resultant Federal grant programs serve national and local needs at one and the same time?! Given the diversity of local conditions and needs, it may be that generic allocation formulae (non-targeted or dis- cretionary) introduce biases similar to those of existing programs. 4.4 Debt Financing by State and Local Governments^ Borrowing has consistently been the single most important source of financing for state and local capital outlays over time. While the use of debt relative to other capital financing sources has diminished in recent years, it remains true that one of the most remarkable character- istics of state and local financing of public works investment has been the overall increase in indebtedness. This is particularly true for local governments since, historically, local governments have accounted for two-thirds to three-fourths of state and local debt outstanding. Local governments borrow for several reasons: a) to finance capital investment programs; b) to smooth out seasonal fluctuations in revenues and expenditures; and c) to cover a deficit in the current account. ' While the last of these may be judged as unacceptable (especially to bond holders) and the second of these merely transitory, it is neverthe- less true that these two factors have accounted for significant portions of total debt issued in recent years. However, our principal concern here is the trends and impacts of debt financing and the relationship of debt to capital outlays. In this context, we must turn our attention to the principal market within which this borrowing takes place — the municipal bond market. This market has grown not only in terms of size, but also in terms of complexity as: More recently, for example, critics of the UDAG program have sug- gested that urban "distress" criteria do not recognize "pockets of poverty" in cities that do not meet overall distress criteria. Earlier critics of the broad, undiscriminating formulas of the Nixon-era block grants argued the need for sharper targeting and focus. 2 Portions of this section on debt financing were written by John Petersen of the Municipal Finance Officers Association. Dr. Petersen was an expert advisor to CONSAD for this study. 3 Gramlich, Edward M. , "New York City Fiscal Crisis: What Happened and What is to be Done?", American Economic Review , Vol. 66, No. 2, May 1976, pp. 415-428. 1.126 • An array of new financing devices have been introduced to meet the demands of the market. • The conditions of inflation and a tight money market — in the late 1960's and 1970' s — exacerbated problems associated with the debt market. • Traditional purposes of indebtedness have been joined, and indeed superceded, by new purposes, in keeping with the changing perceptions of the functions of the public . sector. In this section, we examine the trends and issues related to the structure and function of debt in the period from 1957-1977. This sec- tion begins, then, with an examination of the relationship between the growth of debt and the growth of capital outlays and continues to examine the growth of state and local debt. However, the growth of debt has not been uniform across all levels of government. The vast majority of debt traditionally is incurred by local governments, but in recent years state debt has expanded at phenomenal rates. Differences between state and local debt burdens, as well as distinctions among types of debt incurred are also examined. The burdens that have resulted from increased rates of indebtedness have been prompted, in part, by the lack of availability of alternative sources of financing. In turn, increased indebtedness differentially affects governments and has led to the search for new forms of indebtedness — such as the use of non-guaranteed debt — as well as fiscal difficulties for some governments. Presented with the fiscal squeeze of recent times, governments have turned away from the traditional forms of debt — long-term general obligation bonds* — to alternative mechanisms for incurring debt. Several principal forms of debt can be characterized by the resources utilized to pay debt service charges incurred. These include such mechanisms as guaranteed debt, short-term debt, and limited liabil- ity obligations. 2 General obligations bonds — GOB's — are characterized by the guarantee of the "full faith and security" of the issuing unit. This issuing unit must have the power to tax to meet the debt service pay- ments on outstanding debt. 2 Guaranteed debt principally refers to housing authority notes and bonds issued under the provision of the Federal Housing Act (of 1949), and may have accounted for as much as 5 percent of total state and local debt in the 1950's and 1960's. Although short-term debt may, in itself, take many forms, it is generally characterized by having a maturity of less than a year. Tax anticipation notes traditionally have accounted for the major portion. Limited liability obligations are also referred to as non-guaranteed debt or revenue bonds. It is character- ized by the fact that it is payable solely through revenues derived from 1.127 The most dramatic manifestation of these fiscal difficulties has been, of course, the fiscal, economic, and social problems associated with New York City. However, Hempel has argued that the quality of state and local debt in the post-war period has weakened generally. Changing requirements of debt service charges, the shifts in the broader revenue structure of state and local governments, and changes in the national economy have all prompted this deteriorating quality of debt.* This deterioration is more problematic for cities, and most dramatic for large urban centers. An ACIR study which focused attention on the specific problems of city debt obligations concluded in 1973 that: ...in general, the present fiscal problems facing cities need not cause a financial emergency in the technical sense, provided local financial management is reasonably good and provided there is no major national economic depression. However, the nation did experience significant impacts of a recessionary nature subsequent to this statement, and financial emergency in more than the technical sense became a reality in 1975.3 Concern with the quality of debt became more pronounced, as evidenced in the plethora of reports dealing with the credit-worthiness of localities and with fiscal plight. This concern continues today. 2 operations. The 1960's and 1970's have seen this form of debt ex- pand markedly as governments seek to avoid debt limitations and augmented fiscal demands on scarce general fund resources. For more complete dis- cussions of these and other alternatives, see Ronald Forbes and John Petersen, Building a Broader Market , New York, New York, Twentieth Cen- tury Fund, 1976. Also, George Hempel, The Post War Quality of State and Local Debt , New York, New York, Columbia University Press, 1971. 1 Ibid. 2 Advisory Commission on Intergovernmental Relations, City Financial Emergencies: The Intergovernmental Dimension , Washington, D.C., U. S. Government Printing Office, 1973, p. 4. 3 Gramlich has provided insightful comments in his "New York City...," op . cit . See also the excellent studies by the Congressional Budget Office, New York City's Fiscal Problem: Its Origin, Potential Reper - cussions, and Some Alternative Policy Responses , October 1975; Joint Economic Committee, The New York Fiscal Crisis , Washington, D.C., U. S. Government Printing Office, November 1975; John E. Petersen, Changing Conditions in the Market for State and Local Government Debt , Joint Economic Committee Report, Washington, D.C., U. S. Government Printing Office, 1976; ACIR, Understanding the Market for State and Local Debt , Report M-104, Washington, D.C., U. S. Government Printing Office, 1976; and Ronald Forbes and John E. Petersen, Building a Broader Market , op . cit 1.128 A. 4.1 Overall Trends in State and Local Borrowing 4.4.1.1 Total Debt Issued and Outstanding As was noted above, borrowing has been strongly associated with the financing of capital outlays. That role has diminished, both because capital outlays have been funded by other sources and because other uses for tax exempt borrowing have been discovered. One way to demonstrate the changing relationship between debt and capital outlays is to examine the ratio of debt issued to capital outlays over time. This is shown in Exhibit 4.21. As can be seen, the debt issued/capital outlay ratio has changed dramatically. In 1957, approximately one-half of all capital outlays was financed by long-term debt issued, if one assumes that new indebtedness was utilized for capital purposes.! However, important distinctions exist between debt issued by different levels of govern- ment and capital outlays. Note that the ratio for localities is much higher than for states in the 1950's and 1960's. The ratio between debt issued and capital outlays for localities increased more slowly, reaching a high of 0.83 in 1972 and again in 1977. For state govern- ments, the ratio continued to climb — ■ with the exception of 1973 — and reached a high of 0.94 in 1976. However, these numbers are some- what misleading in that here we are examining debt issued as if its sole purpose was capital outlay financing; this assumption, as we note later, becomes increasingly erroneous as time passes. More spectacular than the growing ratio between debt issued and capital outlays has been the growth of borrowing over the period 1957- 1977. In 1977, a total of $66 billion in state and local new securities were sold (Exhibit 4.22). Of this amount, $44.5 billion, or 67 percent of the dollar value of the issues, represented new offerings of bonds, long-term securities with an original maturity of more than one year. The remaining one-third were short-term notes-securities with an original maturity of one year or less. 2 Total borrowing in current dollars increased from $11 billion in 1960 to $66 billion in 1977, an increase of 500 percent. While the increase in long-term issues was slightly more dramatic (538 percent) , both long-term and short-term debt issues have been meteoric rises, especially during the 1970's. Exhibit 4.23 is useful in pointing to the long-term trends in borrowing in a slightly different manner. Utilizing Bureau of Census data, we can examine distinctions between state and local trends in This assumption, while not totally accurate, is reasonable for earlier years. 2 These figures are based upon data provided in The Bond Buyer and from the Investment Bankers Association. 1.129 Exhibit A. 21: Ratio of Debt Issued to Capital Outlays, for States and Localities (millions of dollars) States Localities States and Fiscal Year Capital Outlays Debt 2 Issued Ratio Capital Outlays Debt 2 Issued Ratio Local- ities 1957 3 NA 1,493 NA NA 5,283 NA 0.5269 1962 7,031 3,070 0.4366 8,886 6,326 0.7119 • 0.5903 1967 11,102 4,244 0.3823 14,207 7,657 0.5390 0.4702 1970 13,373 3,902 0.2918 15,447 8,945 0.5791 0.4458 1971 14,111 7,221 0.5117 16,144 12,011 0.7440 0.6357 1972 14,641 8,495 0.5802 16,224 13,394 0.8256 0.7092 1973 15,187 7,331 0.4827 18,125 14,473 0.7985 0.6545 1974 16,578 7,801 0.4706 23,168 15,417 0.6654 0.5842 1975 16,330 8,392 0.5139 24,707 12,725 0.5150 0.5146 1976 14,682 13,865 0.9444 23,623 17,806 0.7538 0.8268 1977 13,823 12,377 0.8954 23,856 19,965 0.8369 0.8584 Data on- capital outlays from Exhibit 3.1 of Chapter 3.0 of this volume. Data on indebtedness from Bureau of the Census, Government Finances (various years) . 3 Data for capital outlays from the BEA series is not available for FY 1957 in disaggregated form. State and local capital outlays are combined. NA = Data not available. 1.130 Exhibit 4.22: Total State and Local Long-Term and Short-Term Borrowing (billions of dollars) Year Long-Term Short-Term Total 1950 3.9 1.6 4.5 1960 7.2 4.0 11.0 1970 17.8 17.9 35.7 1975 29.2 29.0 58.2 1976 33.7 21.9 55.8 1977 44.5 21.5 66.0 1978 45.9 21.4 67.3 Source: The Bond Buyer (various issues) 1.131 Exhibit 4.23: Total State and Local Borrowing (millions of dollars) State Debt Local Debt Long- Short- Long- Short- Fiscal Term Term Outstanding Term Term Outstanding Year Issued Issued Total 1957 1,493 216 5,283 1,982 8,974 1958 2,179 329 5,431 2,122 10,061 1959 2,092 509 5,580 2,421 10,602 1960 2,279 415 5,728 2,738 11,160 1961 2,206 464 5,876 3,019 11,565 1962 3,070 411 6,326 3,349 13,156 1963 2,103 424 7,861 3,876 14,264 1964 2,793 641 8,450 4,055 • 15,939 1965 3,022 800 8,227 4,509 16,558 1966 3,597 1,060 8,532 4,991 18,180 1967 4,244 1,287 7,657 5,706 18,894 1968 4,005 2,045 9,352 6,382 21,784 1969 4,859 2,647 10,594 7,436 25,536 1970 3,902 3,104 8,945 9,051 25,002 1971 7,221 3,472 12,011 11,738 34,442 1972 8,495 3,912 13,394 11,810 37,611 1973 7,331 3,674 14,473 12,205 37,683 1974 7,801 3,599 15,417 13,064 39,881 1975 8,392 4,580 12,725 15,206 40,903 1976 13,865 6,011 17,806 12,766 50,448 1977 12,377 3,016 19,965 10,369 45,661 Short-term debt outstanding at end of fiscal year differs from total issuance of short-term debt, and underestimates the impact of short-term debt. However, short-term issues, especially in recent time, are translated into long-term debt (via bond anticipation notes), and therefore is a form of double-counting over time. Source: Bureau of the Census, Government Finances (various years). 1.132 long-term issuances of debt and in short-term debt outstanding (as a proxy measure of borrowing). Here we can note that the most dramatic increases over time have occurred in the state-level component of debt. Long-term issues by states have grown from $1.5 billion in 1957 to $12.4 billion in 1977, an increase of over 700 percent. An examination of the growth of long-term debt outstanding yields some important insights into the trends in the use of debt by states and localities. In 1957, total long-tern debt outstanding for states and localities was in excess of $53 billion; by 1977, this number had grown by a factor of five to $257.5 billion. * These relationships can be seen clearly in Exhibits 4.24 through 4.27. It is evident in these tables that the growth in debt has not been uniform over time, nor has it been uniformly distributed among levels of government. Total long-term debt for state and local govern- ments grew by 115 percent in the period from 1957 to 1977, and by 125 percent between 1967 and 1977. Also clear from an examination of these tables is the large size of local debt compared to state debt. In 1957, local long-term debt accounted for approximately 75 percent of the total long-term debt outstanding. And although declining relative to state debt over the period, it amounted to $167 billion or about 66 percent of the total in 1977. However, as indicated by Exhibit 4.27, the divergence between growth in state and local debt is becoming increasingly large. 4.4.1.2 Alternative Forms of Long-Term Debt Much of the increase in debt outstanding for state and local gov- ernments is the result of increased use of alternative forms of indebt- edness. In particular, the use of revenue bonds has grown rapidly, both in terms of volume and complexity. As Exhibit 4.28 indicates, the proportion of revenue bonds to total state and local bond sales rose from 30 percent in 1960 to 60 percent in 1977. The growth of revenue debt can be attributed to several factors: • Decisions by state legislatures that it is easier to permit the creation of special districts or authorities than to amend restrictive limitations built into state constitutions. • Arguments have been made that users of particular ser- vices should pay the bill rather than the taxpayer. Comparable figures are provided in the Flow of Funds Account of the Federal Reserve System, where total long-term state and local debt outstanding in 1977 was calculated at $251.5 billion. 1.133 ibit 4.24: Growth of Local Long-Term Amount Debt Outs tanding Fiscal (millions Relc itive Growth Year of dollars) (FY 1957 = 100) 1957 39,465 100 1958 42,792 108 1959 47,180 120 1960 51,412 130 1961 55,050 139 1962 59,077 150 1963 64,276 163 1964 67,181 170 1965 72,478 184 1966 77,487 196 1967 82,142 208 1968 85,492 217 1969 93,995 238 1970 101,563 257 1971 111,034 281 1972 120,049 304 1973 129,110 327 1974 141,320 358 1975 149,096 378 1976 155,707 395 1977 167,332 424 Source: Adapted from Bureau of the Census, Government Finances (various years) . 1.134 Exhibit 4.25: Growth of Total State Long-Term Debt Outstanding (millions of dollars) Fiscal Total Debt Relative Growth Year Outstanding (FY 1957 = 100) 1957 13,838 100 1958 15,518 112 1959 17,102 124 1960 18,543 134 1961 19,993 144 1962 21,971 159 1963 23,176 167 1964 25,041 181 1965 27,034 195 1966 29,564 214 1967 32,472 235 1968 35,666 258 1969 39,333 284 1970 42,008 304 1971 47,793 345 1972 53,833 389 1973 58,071 420 1974 65,296 472 1975 72,127 521 1976 84,379 610 1977 90,200 652 Source: Adapted from Bureau of the Census , Government Finances (various years) . 1.135 O rH H O 0) O H I 05 00 C c o O -H hJ h o ►J 60 03 C a; ^ % SJB TI°a jo suoTjxTa 1.136 (OOT = £S6I Ad) aoiopj i^wojq 1.137 Exhibit 4.28: State and Local Borrowing by Type of Issue (billions of dollars) 1950 1960 1970 1975 1977 Long-Term 3.74 6.81 18.19 30.65 46.70 General Obligation 3.13 4.36 11.85 16.05 18.04 Revenue * 0.56 2.07 6.10 14.61 28.66 Utility and User Charge NA 1.79 4.59 4.78 10.65 Special Tax NA 0.08 0.34 4.16 2.88 Lease-Rental NA 0.19 1.17 5.66 15.13 Short-Term 1.64 4.01 17.81 29.90 24.75 Includes amounts for Federal Housing Authority Bonds in years prior to 1975. 2 Figures may not add to totals due to rounding. NA = Data not available Source: Investment Bankers Association, Statistical Bulletin ; Securities Industry Association, Municipal Market Developments (various issues) . 1.138 • Efficiency is served by creating functionally-oriented districts. • Politically (and financially), it is difficult for gen- eral government units to assume increased costs of new or added functionally-specific services. Whatever the rationale, it is true that the role of these debt alter- natives has increased dramatically. This has been true for states, as well as localities, as is demonstrated in Exhibit 4.29. In this table, the distribution of states across time in terms of the use of general obligation bonds is illustrated. Note that in 1957, nine states had 90 percent or more of their debt in full faith and credit form; 16 states had at least 70 percent of their debt in that form. In 1977, only ten states had 70 percent or more of their debt in full faith and credit form. Although the data for states is not totally conclusive, when we turn to all local governments, the shift to new forms of debt is more demonstrable. Of particular note has been the growing reliance on lease-rental revenue bonds. These are secured on lease agreements between the issuing authority and the actual operator of the facility. Lease revenue bonds are very flexible and have been used to finance both traditional purposes (such as office buildings and local schools) and newer activities (such as housing, pollution control facilities, and stadiums) that are fre- • quently quasi-public or privately operated facilities. The lease rentals may be secured on either user charges or on tax revenues. In the latter case, the ability of this type of revenue bond to circumvent debt and tax limitations and referenda requirements is most evident. By 1977, lease rental bonds had risen from a relatively minor share in the market (6 percent of total long-term borrowing in 197 0) to a point where they represented 32 percent of all sales and were challenging the general obligation bond as the most popular form of security — an unprecedented development. Not surprisingly, a corollary movement was the growth in the now ubiquitous statutory authority which, as noted, is often enacted to accommodate the use of revenue bond financing and, especially, the often complicated arrangements involving lease-rental structures. As Exhibit 4.30 illustrates, statutory borrowing — relying for capital needs exclusively on various forms of revenue bonds — represented 40 percent of long-term borrowing in 1977, well ahead of direct loans to local general units of government and direct borrowing by the states. ^ The correspondence between statutory authorities and revenue bond sales is not one-to-one because special districts and general units of government are also issuers of revenue bonds. Statutory authorities, on the other hand, are special purpose entities and do not have general taxing powers and, hence, do not issue tax-supported debt. Most special districts rely on user charges, but soce have property taxing power. 1.139 Exhibit 4.29: Distribution of States by Percent of Net Long-Term Debt in Full Faith and Credit Form (number of states) Percent FY 1957 FY 1962 FY 1967 FY 1972 FY 1977 90 and over 9 8 2 2 2 80-89 1 2 5 7 1 70-79 6 2 4 4 7 60-69 1 5 3 4 9 50-59 1 5 6 7 3 40-49 5 1 2 2 5 30-39 4 6 1 1 2 20-29 4 3 6 7 4 10-19 2 6 2 3 5 1-9 5 3 10 1 3 12 9 9 12 9 Source: Bureau of the Census, State Government Finances , 1957, 1962, 1967, 1972, 1977. 1.140 Exhibit A. 30: Debt Sold by Type of Issuer (billions of dollars) 1960 1970 1975 1977 State 1.00 A. 17 7.43 6.05 Local General Government 2.54 6.21 8.29 15.80 School District 1.35 2.13 2.44 2.86 Special District 0.66 1.16 1.57 2.67 Statutory Authority 1.30 4.39 10.91 18.83 Total 1 6.85 18.08 30.65 46.21 Figures may not add to totals due to rounding. Source: Securities Industry Association and Public Securities Association data. 1.141 The importance of both the revenue bond security and the statutory authority to the municipal bond market is illustrated by the tabulations presented in Exhibit 4.31, which gives a breakdown of the largest 85 bond sales recorded in the municipal bond market in 1977 (sales of $100 million more in issue size) . As may be seen, the largest category of issues were those made by state and local power authorities and dis- tricts, 27 issues amounting to nearly $4.4 billion. State general obli- gation borrowings were next in size, 23 issues of nearly $3 billion in total. Among the various purposes, four issues by the village of Valdez, Alaska, to build the North Slope pipeline terminal (industrial revenue bonds) amassed $1.18 billion. New York City and the Municipal Assistance Corporation sold eight issues through negotiation amounting to $2.8 billion — a special situation caused by the bail-out efforts on behalf of New York City. State housing agencies or authorities supporting the residential mortgage market or low and moderate income housing sold eight issues totalling $1 billion. The summary statistics in Exhibit 4.31 indicate that of the largest 85 issues, only 30 were tax-supported general obligation issues and 55 were revenue bonds. Also revealing is the fact that of the 85 issues sold, 20 were at least in part for purposes of refunding issues that were already outstanding. The characteristics of revenue bonds, general obligation bonds, and leasing arrangements can be categorized. Characteristics of municipal revenue bonds include: • Voter approval is not required . Usually, referendums are not necessary to approve issuance of a revenue bond. Deci- sions may be made directly by municipal officials. This may reduce the incremental delays and costs which result from a citizen vote. • Muncipal debt limitations usually do not apply . Since projects are not backed by the taxing power of a city, revenue bonds often are not constrained by a city's current debt ceiling, which is a function of its tax base. • Financial responsibility is encouraged . Prospective bond purchases act as a check on the financial soundness of the project being financed. • Revenue bond issuance requires detailed information . Detailed documentation required includes a summary of the project's technology, products, and economic viability. This summary (called an official statement) is necessary because prospective buyers must have sufficient information to assess the adequacy of the projected revenue stream. This complexity makes the cost of issuing revenue bonds relatively high compared to general obligation bonds. 1.142 Exhibit 4.31: Breakdown of Municipal Bond Sales of $100 Million or More in Size Sold, 1977 Number Millions Purpose/Security of Issues of Dollars State General Purpose - General Obligation 23 2,964 Local General Purpose - General Obligation 4 Ports - Revenue (Valdez, Alaska) 4 Power Authorities - Revenue 27 Airport - Revenue 2 Housing Authority - Revenue 8 Hospitals - Revenue 3 Community Development - Revenue 2 Roads - Revenue 2 Sewers - Revenue 2 NYC/MAC - General Obligation and Revenue 1 _8 Total 85 Refunding Issues 20 New Capital 65 Item: General Obligations 30 Revenue Bonds 55_ Total 85 15,272 495 1 ,180 4 ,398 680 1 ,046 482 393 414 418 2 ,802 15 ,272 3 ,580 11 ,692 5 ,160 10 ,112 Includes three issues of $1,701 billion of New York City G.O.'s sold to local banks and retirement systems. Source: Investment Securities Association data. 1.143 • Interest rates are higher than those of general obligation bonds . Interest rates on revenue bonds are higher than on similarly rated general obligation bonds. Revenue bonds pay higher interest rates because the investor assumes a ' higher risk when he invests in them. • They may only be used to finance one project . A revenue bond may only be used for single project financing. In general, the mechanism is issued only when a major project, requiring long-term capital, is to be managed by an inde- pendent authority or by a distinct city agency, and only when the service provided will generate enough revenue to operate and maintain the facility, as well as to pay the interest and principal on the debt. Characteristics of general obligation bonds include: • Voter approval required . Typically, voter approval is necessary. • Low interest rates . General obligation bonds carry the lowest interest rate of any financial instrument in com- parison to other long-term debt instruments. The interest rate is low because investor risk is minimal resulting from guarantees by the city's tax -collecting capacity. • Minimum offering size . The effective minimum offering size for general obligation bonds is approximately $500,000. General obligation bonds can be used to finance any project approved by the voters. Therefore, if a project costs less than $500,000 and a local government would like to finance it through general obligation bonds, several projects will be grouped for a single offering. Leasing characteristics are: • Demand on municipal capital outlays is reduced . It allows the local government to use an asset without forcing the city to raise the capital "down payment" necessary to purchase the asset. The city pays for use of the equip- ment in yearly payments. • Lease financing can be instituted rather_ quickly . There are few institutional roadblocks that may delay the f inane ing . • Lease rates are high . Currently, rates are ranging between 10 and 18 percent of the capital cost of the equipment. This contrasts with lower effective interest rates on tax exempt bonds. 1.144 • After the termination of the lease, the local government will neither own nor control the facility . This disad- vantage can be reduced if, in the leasing contract, the local government stipulates options to either renew the lease or purchase the asset at fair market value at the end of the contract. 1 4.4.2 Long-Term and Short-Term Debt Another important feature of the growth in indebtedness of states and localities has been the growth of short-term debt, securities with a maturity of less than one year, over the period from 1957-1977. As was indicated earlier in Exhibit 4.22, short-term borrowing has increased dramatically in recent years. In 1960, $4 billion in short-term debt were issued, approximately 36 percent of total borrowing by states and localities. This ratio of short-term debt to total borrowing grew throughout the 1960's such that by 1970 short-term debt represented one- half of total issues. The 1970 ! s have seen a continuation in the meteoric rise in the use of short-term debt. Between 1970 and 1975, the issuance of short-term debt rose at an average annual rate of 12 percent, from approximately $18 billion in 1970 to $29 billion in 1975. This rise in the use of short-term debt also can be examined in terms of the amount of short-term debt outstanding in a given year. 2 Exhibit 4.32 indicates the amount of short-term debt outstanding annually for each level of government. The rate of increase noted above in terms of debt issued remains true here. In 1957, short-term debt outstanding amounted to $2.2 billion, equal to approximately one-third of long-term issues in that year. By 1970, short-term debt outstanding at year's end was $12.2 billion, an amount equal to 95 percent of long-term issues in the same year. In 1975, short-term debt outstanding equalled $19.8 billion, 94 percent of long-term issues. It is important to note that this dramatic increase in the use of short-term debt peaked in 1975, falling to less than $14 billion outstanding by 1977 and 41 percent of long-term issues. The aggregate patterns shown above gloss over significant distinc- tions in state and local components. First of all, as is true with long- term debt, localities are the predominant users of short-term debt. In 1957, 90 percent of outstanding short-term debt was accounted for by localities. While this proportion declined during the 1960's, the pre- ponderance of the local role remained evident. By 1969, the local pro- portion had declined to three-fourths of short-term debt outstanding. Randol, Robert E., Resource Recovery Plant Implementation: Guides for Municipal Officers, Financing , Washington, D.C., Environmental Pro- tection Agency, 1975. 2 These numbers underestimate the use of short-term debt but do give an image of the cumulative impact of short-term debt. 1.145 Exhibit A. 32: Growth in Short-Term State and Local Debt Outstanding State Local Total Percent of Long- Fiscal Millions Millions Millions Term Debt Year of Dollars of Dollars of Dollars Issued 1957 216 1,982 2,198 32.4 1958 329 2,122 2,451 32.2 1959 509 2,421 2,930 38.2 1960 415 2,738 3,153 39.4 1961 464 3,019 3,483 43.1 1962 411 3,349 3,760 40.0 1963 424 3,876 4,300 43.2 1964 641 4,055 4,696 41.8 1965 800 4,509 5,309 47.2 1966 1,060 4,991 6,051 49.9 1967 1,287 5,706 6,993 58.8 1968 2,045 6,382 8,427 63.1 1969 2,647 7,436 10,083 65.2 1970 3,104 9,051 12,155 94.6 1971 3,472 11,738 15,210 79.1 1972 3,912 11,810 15,722 71.8 1973 3,674 12,205 15,879 72.8 1974 3,599 13,064 16,663 71.8 1975 4,580 15,206 19,786 93.7 1976 6,011 12,766 18,777 59.3 1977 3,016 10,369 13,385 41.4 Source: Bureau of the Census , Government Finances (annua L series for entire period) . 1.146 The critical years of 1974-1975 witnessed a slight increase in the pro- portion of short-term debt accounted for by local governments and a substantial increase in the use of short-term debt by state and local governments. Exhibits 4.33 and 4.34 also suggest the differences between the use of short-term debt by states and by localities. Exhibit 4.33 describes the amount of short-term debt outstanding as a proportion of long-term issues. Note that for local governments, the critical year of 1975 saw the amount of short-term debt outstanding actually exceed the issuance of long-term debt. Clearly, conditions in the debt market and the rationale for the uses of short-term debt had changed. The reasons for the growth in the use of short-term debt have been attributed in particular to the tight money market of the 1970' s. John Petersen suggests several factors that help to explain the dramatic jump in sales of short-term notes in the 1970' s'A • Attempts by long-term borrowers to postpone definitive financing in a period of rising long-term interest rates. • The growth in sales of Unites States government-backed public housing and urban renewal notes. • Attempts to forestall increased taxes or expenditure reductions by short-term borrowing against current deficits. • Attempts to utilize available assets as investable funds by governments to earn profits on investments. Short-term debt has traditionally been in the form of borrowing in anticipation of tax revenues. This debt form is referred to as tax antic- ipation notes (TANS). However, in recent times, many governments have utilized short-term debt in anticipation of intergovernmental assistance payments, a much less secure fund base, and in anticipation of bond issues. As Petersen notes, however, this latter form is also risky in that: ...paying off the short-term debt is often dependent solely upon the future ability of the borrower to convert his short-term liability into long-term debt. 2 Petersen, John, Changing Conditions... , op . c it . , p. 9. 2 Ibid., p. 10. 1.147 Exhibit 4.33: Short-Term Debt Outstanding As a Percent of Long-Term Debt Issued Fiscal Year States Localities 1957 14.5 37.5 1962 13.4 52.9 1967 30.3 74.5 1972 46.1 88.2 1973 50.1 84.3 1974 46.1 84.7 1975 54.6 119.5 1976 43.3 71.7 1977 25.1 51.9 Source: Bureau of the Census, Government Finances and State Government Finances (various years) . 1.148 Exhibit 4.34: Short-Term Debt Outstanding As a Percent of Long-Terra Debt Issued, for States and Localities 1.149 4.4.3 Debt Burden The sale of debt sets up a liability that governmental borrowers must pay off over time. The payments on principal and interest (debt service) must be taken out of current revenues. A useful measure of debt burden is the relationship between a government's revenue receipts from its own sources and the debt service that must be paid annually. There are two common measures of debt service that are useful. One involves simply long-term debt repayments and interest charges, and the other adds in short-term debt outstanding, since this also constitutes a fixed claim obligation. 1 As a whole, the state and local sector has not seen the burden of debt growing, mainly because revenues from own sources have more than kept pace with debt service. Exhibit 4.35 shows that long-term debt service has leveled off at over 9 percent of own-source revenues. Total debt service (including short-term debt) peaked in the early 1970' s and then declined, since the volume of short-term debt has stopped growing, as noted above. The decline in the use of short-term debt, in part, is a function of the fiscal experiences of 1975 and the foreboding of default. Overall, the debt burden on state and local governments cannot be typified as heavy by historical standards. However, if we examine at what level of government this debt burden falls, a somewhat different image of the impact of this burden emerges. As is indicated in Exhibits 4.36 through 4.38, the three^ components of debt service burden have differing impacts on states and on localities. If one utilizes the first measure of debt service suggested above, 3 the burden for state governments has been relatively small, varying between 5.9 percent and 7.6 percent of own-source receipts (Exhibit 4.39). For localities, this burden has been much greater, hovering at 17.5 percent of total own-source receipts. Since debt service must be paid out of the current account, the Implications are clear: local governments must consider seriously the impacts of new long-term indebtedness on their capacity to pay ongoing costs. It is at this point that the interface between capital expenditures and current operations conflict. While the conflict has been less critical at the state level, at the local level the relationship becomes an "either -or" situation. Governments also may have forms of non-credit market debt, such as trade debt and, most importantly, unfunded employee pension obliga- tions. The latter are difficult to measure, but may be even more significant than credit market debt as a future drain on revenues. 2 These three components are long-term debt repayment, interest on debt, and short-term debt outstanding. 3 Debt service equals repayment and interest. 1.150 Exhibit 4.35: State and Local Government Debt Service Burden (billions of dollars and percent) Debt Service As a Revenues Debt Service Percent of Own- from Own- Sources (do liars) Source Long- Revenues Fiscal Long- Total Total Year (dollars) Term Debt Term Debt 1957 34.0 4.1 6.3 11.9 18.4 1960 53.3 5.4 8.6 10.1 16.1 1970 128.2 12.1 26.0 9.5 20.2 1975 217.0 20.8 40.8 9.6 18.8 1977 275.1 26.2 39.6 9.6 14.4 Source: Bureau of the Census, Government Finances (various years). 1.151 ooooooooooooooooooooo vOr-oOONfioor^r^^moor-- on m f) o. r-» ■— iooo^* •~ (M m o vo ■>» ONinvor-m-yr^m m in \o \o N rlifi ^« r-imvor^CT>o-^r->vor-«-HvO~oOinco O C O QJ hJ CJ U U 0) o o- 4-1 13 -• C CD en U Cfl 3 rH 03 rH O •U T3 V3 wonoomoiin-jrinMn .-H»3-r~o< - '*io00mONr-»r->-3'Or-.cocMOfNr«ro M-l CO o c .C.3 4-1 rH O -H ^ e 00»?HvOrHO'^vO' , 1N^\0 \omtnmc^\ocMm C .O O r">oomor~r-.aoaoo P>J{SeNCMCNr-iror r >vr>vOvOvOr~r~r~r»r^r»r»r». On On On On On On On On On On On On On On On On On On On On On 1.152 ooooooooooooooooooooo ci JNtON>}\DI»lCONr10N mo>m— ici~TCMn-3 , r-»«3'»3 , r^ HinconNMfiinNN-}o\N NNNNmn^-irnorveo M^00OMASrtO\ CO 0>JO HcinN-a-ininv£>r-^r-~ooaoo-?H^iflo\ninnift vO CT> CJ> m -tf — l«3-—0'-'v£l —i cm o ^ v£> — iNJorvHr>.<}>cO^H cMmm-a , -»ininoo nnn>jvon o ia co ^ fN s o^nMOift^coo-ircftH^otniniflcoocoie NN-*0>NiO>HCOrO\0'^iNOn'^Nrnr»CMvO-^ vO\or-r-»cooo»-h r>como^Nn-»mvONcoovO- v£> vo o ^o vo vo o r-^ r^* r^ r^ r*» f** r^-* f^ 1.153 ooooooooooooooooooooo \0 \0 r- 00 On O a Q •U O 5 -a o nooiflinooONov inNOeoui-*n«5Neo>JOMnri^noooNHN nmr»ofM-a'»43oooeMvOoo-ff— « on CO 00 CO Q vo O NNNNNM m en ■* in in vo 0) 4J I O O jO (A a forx^nooNOooomomoNOO oo--o«»fnoomCT«-*nr*tvi«nocsiaNPn\or«.ift NNNnnn»m\oiOBONiniftirivooieort i 00 4J 3* o vo oo o c» m o MON^oovoiomH HOiNoovo-»wiAO'<>ONeo-iocowin>»ooi voooo>o iAinirvvOvOvDvOvO^\OvOvOv4^>rx.rxr^rxrxr^pxrx On on On On On On On On On On On On On O* On On On O* On On On 1.154 CO 3 en a 05 < 4J IM a cu o •H o 0) •H cu o > 60 CD u CO erf CD 4J co c 0) 4) u 4J O M X> M 3 CD CD O P 0* CO vO U"l m vO -• m m "4 r^ t^ 00 00 vO r^ r*. r^ r^ vO ^ CD en O en >-i V4 en 3 en D j-» o rH O a •H iH en •H i-l o 1 QJ rH T3 I o a) 1 ^w/ O IT> O O ON ON CM r^ NO _l /— N \D 00 "\ O u to r^ vO 00 -» o vO •tf P"> CM CD CM c> vO r-» r^ CO C?\ O >> en 3 O •H s en en cu c •H CD 4-) T) •H >-e r-H 3 CO « O CU 3 o •H T7 > 3 u CO cu CO CO cu 4J u) Xi CO cu 4-) Q CO .. ON CO 3 CU cu o O M U 3 cu o CU CO a n en co •h cu 3 cu u 0) S en 3 V-i rH cu (0 > 3 o 3 C5 3 CO en 3 en en cu 3 a cu 3 U co 3 (1) •H A Pn 4-1 4J M-l 3 O CU 6 3 3 Ct1 M 0) cu 1-1 > 3 « O CU U u 3 O 1.155 The dramatic effect of including short-term debt outstanding in the measure of debt burden is also clear; for localities, as much as one- third of total current receipts from own sources must be allocated to account for the servicing of debt outstanding. Even for states, the burden is significant, although less startling; approximately one-tenth of own-source receipts must go to cover debt requirements. This alloca- tion of funds may have an impact not only on what is available to spend locally, but also on the receipt of Federal grants under matching require- ment s . The relationships between the growth of debt servicing requirements for states and localities are presented graphically in Exhibits A. 40 and A. 41. The overall trends for both levels becomes visibly clear, as does the preponderance of local-level service requirements. Exhibit 4.42 presents these same relationships, however, relative growth indices rather than absolute growth is shown. In this figure, one notes that state debt servicing requirements have risen much more rapidly than local government requirements, although the amount of money involved is considerably less. The implication here is that while localities may feel the pinch of fiscal choices at present, the current trends suggest as increasingly bleak future for states despite the growth of revenues. As localities become increasingly burdened by fiscal plight, the respon- sibilities of states may increase and the burden felt more at that level. 4.4.4 Purposes of Borrowing As was noted above, state and local borrowing traditionally and preponderantly has been for the purpose of financing capital construc- tion. Recent variations from this secular trend have occurred as a result of both the increasing use of debt for non-capital purposes and the increasing use of public borrowing for private purposes. Thus, over the past 20 years, the uses for which state and local bonds are sold have dramatically changed. As shown in Exhibit A. A3, long-term borrowing for the traditional purposes of education, road transportation, and water and sewage have declined since 1960 in terms of their importance relative to total sales. In 1960, these functions represented 65 percent of total sales, or $A.6 billion. By 1970, this proportion had declined to approximately 57 percent of total sales; by 1975, to 30 percent, and by 1977, to 2A percent of long-term bond sales. Borrowing for such uses as social welfare, utilities, and conser- vation, meanwhile, has grown from 8.5 percent of bonds sold in 1960, to nearly 19 percent of bond sales in 1977. Of particular interest has been the rapid growth in tax exempt borrowing on behalf of privately owned or operated facilities for such purposes as housing, industrial aid, and industrial pollution control facilities. Borrowing for these purposes is difficult to separate from available data because it is not always possible to identify those projects that are in effect public borrowing to support activities or facilitaties that will be carried out (or will house) private parties. As an approximation, however, we can use the 1.156 o o> «o CT> M 1—1 (!) CO B ■u *>— ' J3 0) Q B OJ H /»■>■> I •u 00 C c 0) o u hJ u 0) U-l a. O T3 c c o CO •rl ■U co D u XI cd •H .-i M iH «J O Cfl T3 •H Q <4-l O r-l Cfl 02 c C o o vH •H 4-1 i-H i-H c •H 3 ^ fa O os tn «» m so r*» oo m os so O p** en os *^ OV N m ■* 00 00 tN oo oo m ^ en m «* os <» n « o> O Os O U-> o os en en m so oo oo HoomN < Os en «a- oo cm m so en 2 m —1 — 1 OS CM Q> r-t 03 e u ro O XI H u CO nj C 0) «-t ro 3 <-• tH C M ro u .c OJ in oj oj I-. 3 00 5 3 O! X >s H M U HI III i-t JJ X H H CO " efl •H » O i-l •H 3 y ro to oj c CO C 3 c co OJ u o C_> 4J M OJ CJ >■» X l-l c st: o o 0. CO h CO CM o M CO Q 3 a u •H i-t ■ 4J i-i M CO CO B CO < Z u H oj 3 i-l 05 Cfl C O OJ -H CJ 4J CO OJ -H X iJ 1.163 Although such use of tax exempt borrowing was significantly restricted by various U. S. Treasury and Congressional actions in the late 1960s', certain other uses of the industrial revenue bond (as legally defined) were permitted to continue. By the early 1970' s, two forms of permitted industrial revenue bond borrowing began to gather momentum. Reacting to pressure exerted by the Federal Clean Water and Clean Air Acts, the pollution control bond became a popular means of financing private clean-up facilities. ^ Through the end of 1977, more than $15 billion of such bonds had been sold. Also of growing importance — but less controversial — was the growth in bonds sold to support residential housing. Until recently, such programs have been administered by relatively few state agencies and have been largely geared to assisting low and moderate income housing. Recently, however, the housing assistance bond has taken on a new twist in the form of the municipal mortgage bond. The current explosive growth and controversy surrounding this latest form of "non-traditional" revenue bond provides the context for objections to this form of subsidy and its implications for the municipal bond market as a whole. The use of tax exempt securities for financing housing construction has grown dramatically. As Petersen notes, the use of short- and long- term borrowing for this purpose has resulted in increased pressure for the bond market and can be criticized as a misallocation of public funds in some cases to serve as a conduit for commercial mortgages in the tax exempt market. 2 The impact of the use of the tax exempt market for such non-traditional purposes as housing subsidies, pollution control bonds, and other "private purpose" bonds is that they exert increased pressure on the market, causing interest rates to rise. These higher rates will have to be paid by all government borrowers. 3 4.4.5 Characteristics of Investors The quality of debt and the demand for municipal bonds, the funds from which might be utilized for capital investment, is partially a See George Peterson and Harvey Galper, "Tax Exempt Financing of Private Industry's Pollution Control Investment," Public Policy , Spring 1975. 2 Petersen, John, Changing Conditions... , op . cit . , pp. 12-14. 3 Several authors have noted this impact. See Peter Fortune, "The Financial Impact of the Federal Water Pollution Control Act: The Case for Municipal Bond Reform," Harvard Institute for Economic Research, October 1975. Also Harvey Galper and John Petersen, "An Analysis of Subsidy Plans to Support State and Local Borrowers," National Tax Journal , June 1971. 1.164 function of who is willing to invest in state and local securities. The changing participation of major sectoral investors has had an important impact on the fiscal health of the debt market. 1 The appeal of the municipal security market resides in the tax exempt status of the offerings. However, these offerings are not the first choice among investors seeking the more lucrative returns of corporate bonds. Equally important, the municipal security is charac- terized by the high degree of volatility of the participation of at least one major sector investor — commercial banks. This volatility is a function of the pressures of national monetary policy, inflation, and changing investment objectives. 2 Historically, three major investor groups have dominated the market: commercial banks, individual investors, and insurance companies (partic- ularly non-life insurance). Until 1960, state and local governments acted as a fourth principal investor group. 3 The post-World War II period has seen a seesaw relationship between the two principal investors, commercial banks and individual investors, with the latter group playing the role of picking up market slack when institutional investors have been unwilling to invest (generally, in periods of tight money) . During the late 1940' s and early 1950' s, municipal bonds were a favorite form of investment by commercial banks. But as the supply of municipal bonds expanded in the 1950' s, their relative participation dropped off and individual investors claimed a larger role. Between 1949 and 1960, the annual rate of increase in the sale of municipal bonds was a very high 12 percent. This was clearly true in the debt market of New York City municipal bonds in the early 1970' s. The shifting participation of major investor grous had a great impact on. the subsequent crisis of the city. See the analyses of Roger Alcaly and David Mermelstein (eds.), The Fiscal Crisis of American Cities , New York, New York, Random House, 1977; George Peterson, "Finance" in W. Gorham and N. Glazer (eds.), The Urban Pre - dicament , Washington, D.C., The Urban Institute, 1976; and John Petersen, Changing Conditions . . . , op_. cit . 2 Petersen, John, Changing Conditions... , op . cit . , p. 33. 3 A major, but transitory phenomenon of recent times has been the re-entry of state and local governments as investors in their own secur- ities. State and local general and retirement funds funneled larger sums into the municipal securities market during 1975 and 1976, account- ing for one-sixth of net increases in acquisitions in 1976. This increased state and local activity is explained partially by the par- ticipation of New York City and New York State retirement funds in the bail-out of New York City. 1.165 Exhibit 4.46 presents the major holdings of state and local obliga- tion by major investment groups for the period from 1957-1977. As of the end of 1977, commercial bank holdings of municipal bonds accounted for approximately 45 percent of the $265 billion in outstanding debt held by private investors. The next largest investor group, the house- hold sector, held slightly more than 29 percent of total debt outstand- ing. Next to these two investors in importance stands the fire and casualty companies; their $40 billion in holdings represent 18 percent of privately held tax exempt securities. Much of the behavior of the tax exempt market is explained by the varying participation of these investor groups. 1 We have included a graphic representation of the relative participation of major sectors in Exhibit 4.47. As Exhibit 4.48 depicts, participation of the various sectors has fluctuated through the years. During the 1950' s, the household sector was the dominant demander of municipals, acquiring a little less than one-half of the net new issuances. Meanwhile, commercial banks acquired 20 percent of net new issuances of state and local securities. However, in the 1960's, banks became aggressive buyers and their participation in the market reached a high point when they acquired more than 70 percent of the net new issues sold during the decade. Moreover, by the early 1970' s, commercial bank participation had begun to wane and during the exceptionally uncertain years of 1975 and 1976, bank acquisitions as a percentage of net increase dropped far below their historic average. 2 The relative decline in participation by commercial banks in the 1970' s, and especially the 1975-1977 period, has important consequences for the state and local bond market primarily because of the increasing dependence of the state and local sectors on banking activity. Investment by non-life insurance companies has grown in importance over time but has been volatile, depending greatly on the profit situa- tion of the industry. After a reduction in demand in the mid-1970' s caused by heavy cash needs to meet insurance claims and a poor profit picture because of lagging premiums, non-life insurance companies returned to the municipal market in a big way in 1976 and 1977, acquir- ing one-third of the net new issues in the latter years. This sector See Forbes and Petersen, Building a Broader Market , op . cit . , pp. 72-76. 2 Over the longer term, the decline in bank demand for municipals was attributed to their preference for other forms of tax shelter and the desire for greater liquidity in their investments. For a discussion of the literature on this subject, see John E. Petersen, "State and Local Government Debt Policy and Management," in State and Local Government Finance and Financing Management , Government Finance Research Center, Washington, D.C., August 1978, pp. 62-63. The relatively easy credit year of 1977 saw a resurgence of commercial bank demand, a phenomenon often associated with falling tax exempt yields. 1.166 CO vO vO vO •-- l^NMOOi^flO^vflCIONC^ OOoovomomror^csO'— i— i o <4-l e> o rH CO cO c o o 3 •H r-t .H X) •H c 6 CO c 33 M y-i u O o •<-> e o £ •H 4J >N •H •P CO O « Q. U a J3 OJ CJ Q Q] 4-1 4J CU O cj M .H OJ rH PL, 4-> CO M CO CJ .-i M CO CD O 3 Pw CJ PQ v ~ / 3--i c to o O C Ph Z M ^ o e M CD o; n u i -* n E (3 CU O CO Ph -a /-v rH O .C CU CJ co u 3 CU O Pk >»vo>— •-*a\cNCNoorooNnOt)N^o— icNco-j-mor-^oocr.o^cNrop_. cit ♦ , for a discussion of the effectiveness of various approaches. 1.183 The primary objective usually is to promote some particular type of expenditure or capital facility and the facilitating of small unit borrowing is a means to that end although it may involve a heavy sub- sidy. The most common types of Federal assistance programs involving small governmental issuers involve loans and loan guarantees. The Economic Development Administration (EDA) and the Farmers Home Adminis- tration (FmHA) both make or guarantee loans to small government units that satisfy the criterion that they cannot get financing in the private markets at reasonable rates of interest. The community facilities that are financed by these loans are typically related to economic develop- ment: water and sewer systems, harbors, roads, terminals, and indus- trial parks. 4.5 Revenues from Own-Source Receipts and PWI As we have noted, the principal sources of financing of state and local capital outlays are receipts of grants-in-aid and the issuance of debt. Own-source receipts have provided varying amounts during the time period of this study, ranging from perhaps as much as 40 percent of capital outlays in the 1950' s to less than 20 percent in more recent years. For local governments, this proportion includes those sums that come from certain state revenue funds, such as shared taxes and certain category-specific earmarked revenues. State, and especially local, governments have opted out of capital financing with own-source receipts as the pressures of fiscal strain have increased. The expanded role of Federal aid as a source of revenue has reduced the role of tax receipts in the financing of capital outlays. A study conducted by The Urban Institute in 1969 1 surveyed city, county, and state governments to determine how capital financing occurs. That study suggests that the role of own-source revenues in financing capital outlays also varies across functions. For certain functions where user charges are employed, there is a greater proportion of own- source receipt financing. In addition, certain categories of earmarked tax receipts are utilized to finance capital outlays. These studies were carried out by Harvey Galper and John Petersen. See Harvey Galper and John Petersen, "A Troubled Time for Capital Financ- ing," Nation's Cities , Vol. 8, No. 3, March 1970; "Counties Capital Financing: Current Patterns and Problems," The American County , April, 1970; "Financing State Capital Outlays," State Government , Vol. 63, No. 2, Spring 1970. The survey was conducted in the 1969-1970 period and data are presented for those years. It is important to note that "current receipts" includes shared revenues and other state grants in addition to taxes and current charges. Thus, the number is over- representative. 1.184 The survey conducted by The Urban Institute examined financing by city, county, and state governments. From the city sample, it was found that taxes and other current receipts financed 20 percent of capital out] ays. 1 For some functions, this source was more Important than for others. These include financing for streets, highways, and bridges (39 percent), harbors and terminals (44 percent), water supplies (30 percent), and parks and recreation (27 percent). In several of these areas, current (user) charges provided the needed revenue. In- the case of county governments, current receipts financed approximately 22 percent of scheduled capital outlays. Principal areas utilizing own-source revenues were streets and highways (48 percent of capital outlays financed by current receipts), hospital and health facil- ities (42 percent), water facilities (40 percent), and mass transit (31 percent). 2 In the case of stat^ governments, current revenues financed large portions of capital outlays in several areas: highways and bridges (30 percent), higher education (28 percent), and health and hospital facilities (25 percent). 3 f Thus, the distributional importance of various categories of expenditures differs across levels: m For states, expenditures for highways represent the principal outlay: in the survey, this category repre- sented 61 percent of the total state capital outlays. • For cities, highways, streets, and bridges represents much less of the total: in the survey, this function accounted for 19 percent of the total, and urban renewal programs almost 14 percent. • For the counties included in the survey, fully 19 per- cent of total capital outlays was expended on waste- water treatment and sewage, a higher proportion than on streets and highways (18 percent) or education (17 percent) . The indication from these findings is that current receipts do not represent a principal source of capital financing with the exception of specific functional areas. If state aid and shared revenues are excluded from the definition of "own-source revenue" for local governments, these For local governments, shared revenues and earmarked tax sources collected by the states are calculated as part of the current own-source receipts of localities utilized for capital expenditures. 2 Galper and Petersen, "Counties' Capital Financing...," op_. cit., p. 12. 3 Galper and Petersen, "State Capital Outlays. ..," op_. cit . , p. 126. 1.185 amounts are even smaller. The principal sources of financing from own- source receipts is in current charges for specific functions, certain functionally earmarked tax funds, and to a lesser extent, resources from more general tax receipts (such as property tax). In the sections that follow, we will discuss briefly the overall pattern of receipts from these sources with particular focus on those revenue sources clearly identifiable as function-specific. 4.5.1 The Growth of Own-Source Revenues Locally-generated revenues for states and localities in the aggre- gate have increased dramatically over time. This increase, however, should be viewed in the context of the tremendous expansion of expendi- tures for states and localities, and especially large cities. As Peterson notes, "Few sectors of the American economy have rivaled the state and local sector for growth."! State and local sector spending has grown at rates that are twice that of the entire economy since the early 1950's. Exhibit 4.55 indicates the growth in current dollars of own-source revenues for each level of government. For state governments, this growth has been from over $16 billion in 1957 to over $120 billion in 1977, an increase of 600 percent over the 21 -year period. For local it ies 3 the increase in current dollars has been somewhat less dramatic: from $17.5 billion in 1957 to $102 billion in 1977. This still represents an increase in current dollars of almost 500 percent. Between 1970 and 1977, the amount of revenue that state and local governments obtained from own-source receipts doubled. In per capita current dollar terms, the increase in revenues is also dramatic. For localities, the increase was from $85 in 1957 to almost $280 in 1977. Similarly, for states the revenue increase was from $98 in 1957 to $560 in 1977. However, the growth of state and local revenues in current dollar terms is somewhat misleading. In Exhibits 4.56 and 4.57, we examine the change in own-source receipts as a percentage of personal income. In 1957, own-source receipts for states was equal to 4.8 percent of personal income; by 1977, it had grown to 8 percent. At the local level, the change in the ratio of own-source receipts to personal income is less notable: an increase from 5.3 percent to 6.7 percent over the period, although it reached 6.9 percent in 1972. The startling recognition has been made of recent budget surpluses at the aggregate state and local levels. Data in the National Income Accounts show substantial- increases in the state-local sector surplus Peterson, George, "Finance," in William Gorham and Nathan Glazer (eds.), The Urban Predicament , Washington, D.C., The Urban Institute, 1975, p. 38. 1.186 Exhibit 4.55: Receipts from Own-Sources, for States and Localities (millions of dollars) Localities Fiscal Year States 1957 16,567.2 1958 17,142.3 1959 18,320.2 1960 20,618.8 1961 21,911.2 1962 23,676.9 1963 25,639.3 1964 28,184.4 1965 30,609.5 1966 34,511.2 1967 37,781.9 1968 43,197.4 1969 49,536.7 1970 57,506.7 1971 61,290.2 1972 70,650.7 1973 80,432.3 1974 89,157.2 1975 96,784.2 1976 107,400.7 1977 121,190.6 17,465.3 19,042.7 20,567.0 22,548.4 24,994.9 26,679.5 28,529.8 30,255.6 32,702.6 35,404.6 38,339.5 40,885.6 45,861.0 51,419.7 57,491.2 64,449.0 70,488.3 76,741.3 84,361.6 93,183.3 102,030.8 Source: Bureau of the Census, Government Finances (various years) 1.187 Exhibit 4.56: Own-Source Receipts As a Percent of Personal Income , for States and Localities Fiscal States , Localities , Year Percent Growth Percent Growth 1958 4.8 100 5.3 100 1959 4.8 100 5.4 102 1960 5.2 108 5.7 108 1961 5.3 110 6.1 115 1962 5.4 113 6.1 115 1963 5.6 117 6.2 117 1964 5.7 119 6.2 117 1965 5.8 121 6.1 115 1966 6.0 125 6.1 115 1967 6.1 127 6.2 117 1968 6.4 133 6.0 113 1969 6.7 140 6.2 117 1970 7.3 152 6.5 123 1971 7.2 150 6.7 126 1972 7.6 158 6.9 130 1973 7.7 160 6.7 126 1974 7.8 163 6.7 126 1975 7.8 163 6.8 128 1976 7.8 163 6.8 128 1977 8.0 167 6.7 126 L FY 1958 = 100 Source: Bureau of the Census, Government Finances and State Government Finances (various years) . 1.188 1.189 — from an annual rate of $3.7 billion in the first quarter of 1975 to a high of $32.9 billion in the third quarter of 1977. Gramlich notes that in calendar 1977, the aggregate state and local budget surplus reached $29 billion; this was $11 billion higher than the previous highest surplus on record (in 1976).! Yet, at the same time, the 1970' s have seen an increasing concern for the growing deficit of certain local governments, as well as large Federal deficits. The Federal deficit was $50 billion in 1977.2 However, these figures on the state and local surplus may be some- what misleading because: • The data include pension account funds, monies that are not truly available resources. • The surpluses are not evenly distributed among different government units. • Within the local sector, there are disparities in avail- able resources for different localities. On this last point, Gramlich suggests that the surpluses may not be equally evident (in fact, deficits may appear) when comparisons are made between non-urban and urban governments, large cities, and small cities. ^ Peterson makes a similar point, noting that "fiscal squeeze" is differentially experienced, with old industrial cities feeling the pinch more dramatically. ^ Muller has suggested that there are also important distinctions to be made between "growing" and "declining" urban areas. 5 For declining cities, he found several important rela- tionships: • Decline is positively associated with high public sector employment, service levels, wage rates for municipal workers, employee benefits and unionization, and the performance of special functions. Gramlich, Edward M. , State and Local Budget Surpluses and the Effect of Federal Macroeconomic Policies , Joint Economic Committee, January 12, 1979, p. 1. 2 Ibid . Ibid ., pp. 6-9. 4 Peterson, George, "Finance," op. cit. , pp. 35-118. Muller, Thomas, Growing and Declining Urban Areas: A Fiscal Comparison , Washington, D.C., The Urban Institute, 1976. 1.190 • Declining cities spend more for capital improvements and interest payments. • Declining areas have higher per capita indebtedness. • In declining cities, revenue from taxes has increased faster than in growing cities, while property value has increased more slowly than in growing cities. The rate of taxation for declining cities has been increasing at a much more rapid rate than for growing cities. • Declining cities have had to set aside a large per- centage of revenues for debt-servicing because: School construction is often a municipal function in these areas. Construction wage rates are higher. Capital obsolescence and maintenance requirements are higher. There are large-scale public transit systems in these areas. There is a greater need (demand) for subsidized housing. Similarly, Nathan and Adams have demonstrated that there is a compara- tive disadvantage for Northeastern central cities both in relative terms — when compared to the resource availability of other central cities — and in terms of how central cities compare to their suburbs. Although the objective here is not to examine these comparative differences,* it should be noted that there are wide variances among governmental units in terms of both the amount and type of resources generated locally. 4.5.2 Distribution of Own-Source Receipts We turn now from an examination of the overall growth of state and local revenues from own sources to a breakdown of the distribution of revenues locally generated by states and localities. In most policy discussions, the two types of governments are grouped together, but for Nathan, Richard P., and Charles Adams, "Understanding Central City Hardship," Political Science Quarterly , Vol. 91, No. 1, Spring. 1976, pp. 47-62. 1.191 many reasons, this should not be done. Throughout this task, we have attempted to probe each level separately. Nowhere are the distinctions more apparent than in the distribution of revenue bases locally gener- ated. As we have noted previously, local governments are legal creatures of the states and it is statutorily impossible for many of them to impose certain types of taxes, to exceed certain tax (and debt) limitations, or to take other fiscal actions without state approval. In addition, and as we noted earlier in the chapter, localities are heavily dependent upon state grants-in-aid as a source of revenues. Finally, as Gramlich notes: ...it has historically been harder for localities to share in the rises in income than states because they rely to a much greater extent on the relatively insen- sitive residential property tax....l As a result of these considerations, we will distinguish between these two levels of government in this discussion. At the local level, the most prominent characteristic of revenue generated from own sources is the overwhelming role of the property tax and the limited success (in the aggregate) of local governments to diversify revenue receipts. Exhibit 4.58 indicates the distribution of major components of local revenue over the 1957-1977 period. An examination of this table and Exhibit 4.59 suggest clearly the need for revenue diversification. While the proportion of revenue represented by property tax has decreased , the burden of the property tax has become politically noticeable in recent years. 2 in 1957, the property tax represented 71 percent of total locally generated receipts; by 1977, this proportion had declined to 59 percent. However, in 1957, this proportion represented $73 per capita, while in 1977, this represented $279 per capita. Among types of local governments, there is wide variation in the use of property taxes. Cities, for example, receive approximately 46 percent of own-source receipts from property taxes, while counties are Gramlich, op_. cit . , p. 5. 2 Survey research has shown that the public is most hostile to property taxes, less to the Federal income tax, less to local income tax, and least to local sales tax. ACIR, Local Revenue Diversification: Income, Sales Taxes, and User Charges , Washington, D.C., 1974, pp. 18- 20. This is clearly evident in the political ambience of the post- Proposition 13 era. 1.192 Exhibit 4.58: Distribution of Own-Source Receipts for Localities Total Current Fiscal (Dollars Property Charges Other Year Per Capita) (Percent) (Percent) (Percent) 1957 103.3 71.0 18.0 11.0 1958 110.6 71.0 18.8 10.2 1959 116.1 70.1 19.7 10.2 1960 125.7 70.1 19.8 10.1 1961 136.5 65.9 20.8 13.3 1962 143.5 69.0 21.4 9.6 1963 151.2 68.0 22.3 9.7 1964 158.1 67.8 22.2 10.0 1965 168.7 67.7 22.2 10.1 1966 180.7 67.3 22.7 10.0 1967 193.8 66.3 23.5 10.2 1968 204.6 65.6 23.8 10.6 1969 227.1 64.7 24.2 11.1 1970 253.0 64.2 24.4 11.4 1971 278.8 63.9 24.5 11.6 1972 309.5 63.4 24.1 12.5 1973 335.9 62.4 24.8 12.8 1974 363.0 60.5 26.4 13.1 1975 396.0 59.3 27.3 13.4 1976 434.1 58.9 27.5 13.6 1977 471.6 59.1 26.7 14.2 Source: Bureau of the Census, Government Finances (various years). 1.193 Exhibit 4.59: Distribution of Own-Source Receipts for Localities: A Graphic View FY 1977 1.194 much more dependent, receiving almost two-thirds of own-source revenue from this source. 1 Other tax receipts of local governments represent a minor, but growing, source of revenues. The expansion of the use of non-property tax forms — such as local income, sales, and excise taxes — is further evidence of statutory and political constraints on property tax increases, as well as a means of tapping non-residents of an area. In the case of sales tax, where permitted, it is usually a state- administered tax where funds are then returned to localities. 2 Local income taxes represent approximately six percent of total general municipal revenue raised from own sources. 3 However, it has become a principal source of revenues in those cities collecting it. Dietrich notes, for example, that cities of 50,000 or more raised an average of 44 percent of total tax revenue by means of an income tax. In 1977, non-property taxes represented about one-seventh of total own-source receipts or $67 per capita. This is an increase from 1957, both pro- portionally and in dollar terms. The single most dramatic increase in own-source receipts for local- ities has been in current user charges for specific government activities, The growth of these charges parallels the growth of special districts and suggests the increasing political plight and response of many localities. Furthermore, it is more common in these areas that own-source receipts are utilized for capital expenditures. User charge financing accom- plishes in the public sector what price does in the private sector. In 1957, current charges represented 18 percent of total own-source receipts for localities, or $19 per capita; by 1977, this proportion had increased to more than one-quarter of own-source receipts, or $126 per capita. State government own-source receipts demonstrate greater diversity. The distribution of own-source revenues for states is indicated in Exhibit 4.60 and is graphically presented in Exhibit 4.61. Tradition- ally, the general property tax had been a major source of state revenue. ^ However, the period from the Depression forward has seen an almost total diminution of the state property tax as it has become a local tax. During the time frame of this study (1957-1977), the property tax has never represented more than 3 percent of own-source revenues for states. Dietrich, Robbi Rice, Local Income Taxes; One Solution to Fiscal Dilemmas Facing Local Governments Today , Philadelphia, Pennsylvania, Regional Science Research Institute, 1978. 2 ACIR, Local Revenue Diversification... , op . cit . , p. 47. Dietrich, op_. cit . , p. 7. 4 Maxwell and Aronson, op_. cit . , p. 92. 1.195 ^ 01 c a) (1) ca: u u Lj cfl 0) -c PL, U s- ' vONvOvD^fOvOOONsT'-iroOvCiri r^oooooococr\CT,aNOO'- < '-^^0'-H r-- oo oo a> m o o o o o c 0) n u (U l-i •U PL. o ^ oocT\00 0) i-i a OH K O 3 PL, X Pn ~ t^i^.vovomiriin-J'^fONojr- ' O o o o o> oo oo i — -a c •H 0) CI) 0) > E u 0) — i o •^ -a CJ fl) cfl c c Ph M uO V-i o 4-1 0) j-i •U) co c &, S-i QJ (1) •H fi CJ 01 a i-i u M o CI) 0) O c PL, oS o 1-H ^ 4-1 e fl) 01 o 0) 1-1 rH a> cfl PL, CO •^y vo — h oo r-« oo m vo ctn o~\ o> o o •— i »-$ O^O^fNO^OvJsfcMvJOO otTiini^coincT\OM-*CT,cO'3 , in\ocNooi > -a,oo\o vOLniOintOLnLOv£)vjO^£)LriLOvOvDLOvOvOvi3vOvOI — ■ tOulNO^C^NlflNJinO^ iH CO u 5-< (0 cfl •rl CU (X4 >* Nooo>Oi-*NfO'*in , fli >N cooNOH(\io-i inioiA\DvO>DO>oo^Ov£)vDvDr^NKrvr^r^r^rv 1.196 Exhibit 4:61: Distribution of Own-Source Receipts for States: A Graphic View FY 1977 1.197 The single most dominant form of own-source receipts in the 1957- 1977 period has been selective and general sales taxes. The general sales tax represented more than one-half of total own-source receipts for states in 1957. However, this proportion declined significantly in the 1970' s; by 1977 it represented 43 percent of the total. Selec- tive sales taxes, especially motor fuel taxes, are common to state governments. Furthermore, they provide readily earmarked funds for specific functional expenditures. This is the case, for example, with state highway trust funds to which tax receipts from the motor fuel tax are allocated. 1 The motor fuel tax has declined dramatically as a pro- portion of total receipts. This is a function of several factors: • The creation of the Federal Highway Trust Fund for highway construction. • The near completion of the intra- and inter-state highway systems. • The fact that the tax is not a percentage but a flat rate/volume tax in an era when unit prices of gasoline are rising and consumers attempt to reduce the volume of consumption. • The rapid rise of other receipts, especially from individual income taxes and user charges. The increased receipts from current charges is especially signif- icant for the examination of public works investment. This is true because the functional composition of funds can be identified — as opposed to the uses of general own-source fund revenues — and because the use of funds from current charges for capital expenditures is more likely. However, it is important to keep in mind that current receipts generally have not served as the major contributor to capital expendi- tures. The composition of state current charges is presented in Exhibit 4.62. Note that the largest single category of current charges is for education; this remains true over time. Also, increased revenues from highway (toll) charges have not been as significant as have increases in several other areas, most notably health and hospitals and transportation. As well as smaller amounts received from taxes on motor vehicle licenses and operators licenses. 1.198 0) iH O CO 5-1 U D s-^ 3 O CO 4-1 CO •u CO •H CO iH a r-l CO T3 CO H CD c o O X CO X Q 03 0) oo CO NNNronfnnfonoooooN<- OOOOOO.OOOOOOOOOOO'-i'-t'-i'-i iOr>h.\ovO\OMONrNoocooo^o 0000000000000--1 ts n in m rs \o cNro-d-voooooocNr^r-~a\f00r^cNOCNCTiO covocyi^HCNr r ><-v400^jinifl^M>JO cm <^ oo-i X! CO cO X •H QJ W fn >< r^ co on o - i(Nmmi/*)vO\0\Ovo>o\OvOvo^ovcrNtxh.r--Nr>isi — CTv CT* CT» C^ C?N CT* CJn CJN CJN CJn CT* <^ 4J o c o QJ y H M CO > QJ *3" o m sf oo o > CO «3- o U CO 3 CO CO QJ r-( X) co 00 CO ^r oo C CO vO o 00 «3- ON CO QJ o r^ CO / ""* v -3- m •H •3" .« -a m CN p>. ^"' p^ CN CN -H ft r. >3- p^ vO CO CN • CO CO CO «3- CO ,o 3 QJ CO rH QJ U 3 4-1 QJ U 3 4-1 p^ © m 00 ON o X) CO CO 3 •H X •H X sj- CN CN 00 o H rH c 3 <3- CO '-' o 1-^ a. QJ a QJ «3" X X X r^» •H w w ON CO vO v£> p^ i— ( ^3 >3- t— 1 a. X X CN o CO ON P^ CO 1 c 3 i— 1 CN vO 00 00 r- ON 4J CO CO CN CO /-^ CN CO O v£> t-4 >3 ON QJ CO CO o 00 CO CN <■ »— 1 >-< CO 4-) 4-» CM CO 4-1 QJ 4-1 c •H 4J c QJ e •H QJ O a •H QJ CJ vO on p<» O ON O c 3 4-1 QJ CO QJ Pi QJ Pi m m oo i— i 00 O O QJ 1-4 m CN O CJ o < 4-1 C CO QJ X 3 CO •H X 4-1 3 3 4-1 3 QJ E 3 -3- vO p^ m -J vO o 3 M M CN CN ON .— i i-H P^ 3 rH CO QJ QJ on CO r— 1 r* m vO X CJ CO > > •> ft ft •> * •> o c QJ O O o CN -3- i— i 3 vO Ph X C (0 o oo CO rH CO 3 QJ 4-1 CO 4J H CO CJ O p^ *"[ vO nO ON O QJ QJ 4-1 U o CO hJ r* m vO O ON d e CO V « •^ m csi o o CJ c M CJ "l-i QJ CO QJ OO CO QJ rH CN QJ H oo oo CN P^ ON *3- rH J3 5 CO CO CO -3- 00 ON vO CO CO 4-) H H p*. r^ CN vO ON o 3 •> •> CO r-» P^ o o •H ^^ C 00 00 \o CM 1—1 4J CO z 0) CN •H S CO 0) ON ON >N CO 0) 4-4 CO 4-» CN "J o m ^ o H ro CO •H i CO X CO on <■ p^ d ON o QJ )-< m CN o ft rH CO 43 CO CO QJ H 3 CX )-( QJ 4J 3 CO CO QJ 3 CO CO QJ 3 4J X •H CO o vO p-~ o >* •H •> QJ •H •H on vO o *3" «£> vO CO 00 CO CO 3 00 on «3- « ft » CQ ON C CQ pa 1 CO r-H vO oo o" i— t Si CO m CN 1 ON 4J C >N QJ rH U 3 J-i *-) 3 8 QJ > O 4-1 3 QJ 1-4 3 •u 3 0) l-i l-i 3 4-1 3 CO )-i CO c i— i O - oo O O 3 0) E CO CO •H co QJ QJ •4-1 CO 4-4 4-1 U-4 CO /— \ to > U QJ o o o X X co 4-J O o O 3 c vO r- QJ o O s 4-1 4-1 o 4J ^ -H CO On i—l >> i— i X v-l XI Ph 4! •H QJ CO 3 0) QJ 3 3 c o 1 XI XI CO rH X) > 3 H > > rH P-i cfl ^ CO •H •H CO CO c V4 PQ ex l-i a l-i a a (0 c <: < 0) 1-4 QJ 3 i-i 3 3 3 4J CO CO Pi o i •H QJ a CO 4-1 3 CO 3- QJ o a M M •H CO •H •H QJ w QJ r-^ r>. 1 o -h QJ QJ l aJ 1 rH Pn )-i 4-1 ON ON 3 o > 4-4 P- CO -u CO CO 4-1 M c M 1-1 CO 4-J CO 4-» a u rH c 3 QJ 1 | QJ 14-1 Q) c O 3 4J c o QJ CO Si CJ> u ON ON > O w CO cO CO CO ►J ,n 4J & Vj in m O )-4 u l-i 4-1 O 3 ON ON o H o O o H o u - 1 1.203 Exhibit 5.2: Federal Government Expenditures, by Type (percent of total) Includes net interest paid plus subsidies less current surplus of government enterprises minus wage accruals less disbursements. 1977 1.204 Components of GPGS (as a percent of total constant dollar GPGS) have shown some variation, as illustrated in Exhibits 5.3 and 5. A. Public works investment (PWI) has fluctuated between 3 to 5 percent of GPGS (but has been declining relative to other components), while compen- sation of employees has accounted for about 45-49 percent of GPGS. Non- durable goods and services have increased over the time period from 26.8 percent in 1959 to 38 percent in 1967, then dropped to 36.2 percent in 1977. Defense spending was the only component to show a steady percent- age decline, from 21.2 percent in 1959 to 12.3 percent in 1977. 5.3 State and Local Government Expenditures Total state and local government expenditures consist of purchases of goods and services (93.4 percent in 1977) and transfer payments to persons (11.2 percent in 1977). 1 These percentages have changed little since 1959 (Exhibit 5.5). Exhibit 5.6 displays the shift which has occurred between PWI and non-durable goods and services since 1959. In 1959, PWI accounted for 32 percent of total state and local GPGS, while non-durable goods and services accounted for 16 percent. By 1977, these percentages had approximately reversed, with PWI equalling 15 percent and non-durable goods and services equalling 28 percent. The reason for this is that although real PWI increased by about 14 percent since 1959, purchases of non-durable goods and services more than quadrupled. The small increase in real PWI has not been distributed equally among its components (Exhibit 5.7). Investment in new structures increased by 1 percent over its 1959 value, net purchases of existing structures declined 25 percent, and equipment purchases tripled in value, This shift to equipment was most prominent after 1967. The relative portion of total PWI allocated to each of the three categories is shown in Exhibit 5.8. In summary, changes in the share of PWI relative to other expendi- tures suggest that state and local officials were rapidly reallocating expenditures in response to local demands and crises. As a result, state and local governments are approaching the 1980' s with expenditures heavily weighted in the categories of employee compensation and non- durable goods and services. "Other expenditures" constitute a negative 4.5 percent in 1977 1.205 = 8 5 « = 8 tfl u 0) a o o •H Jj > a. M N 0) co »> • T3 n C ^ CO 4J c a Cfi 0) •o o o u O V c 41 U U-t T3 0. ° § § 03 "" B u r^ C c* & QJ ^H a g c M 4J co 0) C • > <0 2 O *J S O a) c <-l O CO o u 1-1 o ^ S 2 8 no •» » H ■ p. O 1 to 73 00 S c U vn »u-l J c u ° %-z a o c<-n 73 o <■> -o §° § e •J 1° § c 41 0. V s - »o a. •1 ■H M 5 a. 01 u e o 2«-> co ij c o jsD Si* a m 8 • <4 U •> 73 < Cv 10 01 u w V b< b 01 3 (J C 9 3 O 41 pH II O «H c Q -H e — o. o o £ & ■ O. o o i fa 5 <-> 6 K fa ■ Kb 3 O V O £ o «-» u. O 01 o E o ^ o O 01 01 o z l/> Q 1- sjpnoa z a 3UP3BUO0 sjpnoa juajjno jo BUOTttTH jo •uoniTB •O CO 73 CO U 0) O 01 Of o C3V cr. on m c 3 < 7T O 0m C a % o c o c o <0 i o> e 3 o u 3 73 0. 73 C a s o c e o CO z 01 H ON c 3 O < 3 73 O (fa c CO 01 8 c c o to z 01 H ■Of i o> c 3 o < o 3 73 O tfa c CO Si o c " 1 - a, C 73 a c I " cr o 01 u e CO -H u a ■H c CO z 01 7, J ON o> Oi ■ i < o 3 2 a. 8 e a a z 1 § CO e 01 a. § u • 3 O. E 73 e CO to u ■ 01 01 tfa CO 2 c 1 (V 1.206 CD a -a •H > CNJ i-> r-~ 01 CT> CO ^H W 05 T) C O O O O O u-i c O CO CO .u E u c o > iw o o cB <1) M' O a) i-i t3 a) 0) D. fa w 1.207 ,— 1 CO CM CM O 1-^ o \D 00 o\ CM v£> <■ CM v£> CM I CM o <4-l T3 O O rH b -H o I CM MD 00 © CO CO CD a s CM i— i CO o H CD o> 1 o Os 4-1 CO CO U CD 3 V4 43 CD CO OS vO CM CO i— i 4-1 .rl r^. f— ( t—i oo 1 3 -3 0> O^ CM v£> ON •H » •> •> • CM CO O 00 v£> CO Ol 4-1 CO m 1— 1 | vO i— I CD CD CO 4J 3 CM o c 3 -3 CO 3 3 -tf CT\ »tf o O r-l (-1 o\ 1 o o CJ < 4J CJ CJ 3 cj •rH CO >, CD T3 60 5 * »> •> » O CD O o> CO -cj- ^ 4J CO 00 ( o> P* •3 3 CO CO 3 CJ 3 •H = E M vO X CO CO o -3- o •H B 4J CD 0> 1 o •H rH CO u u 3 M O CO r >h ^^ ^ a vO ON r-* 00 rH • CD o> CO O CM rH CO •d" o CO 00 > cx> o o 4J CO CO CO CD c O 60 <4H >. O vO CM CT> Oi 4J ■H rH o> o> ON oo c CO 3 CO v£> O 00 oo CO 3 ^ 3 » n n M pa rH CO m vO 60 • a 3 CD cd fo M (-i to CM ■U >4-l U CO /— \ CO 3 CO 4-1 3 .3 CO 4J CD CD 3 cj O 3 T3 ecM -a s* CD M T5 &4 CU 3 c CO 3 CD U CO 3 3 O 6 CM CO i-i CD r-H a )-l CO Ph to ^ >, CO CD U CJ 3 CD CO c CD > 3 3 3 CJ rH 4-1 to to CL, o 4-» O 4-1 M CO c T3 CD CO CO O •rH CN MH CO 01 O O u u 4J -3 CD B O -H CD CD CO -H s •H c e> > U-l P-, CM CO CD tN T3 u M CO U tH O a CD -H CD MH CO c CU CO O x > CO > O CO cd 4-1 4= 4J J w u x> o u 4J O 3 3 o H o H CO CO 1.208 00 vO Q «A r* © c a> o t-l co ex O T3 o a I* a) tn 0) .-1 CO o CO 13 X CN u r-» 3 CTn IX — < 4J u c c CU CO 4-1 2 CO n a (U o > o u T3 c l-H CO cfl a ■U o d J 9 3 O ^-x •H >j CO cu o C/3 a S T3 c u ed -« o «* in -g 2 g - 8 52 S tl (3 >» O O -H a y £ E 3 cS 60 O 3 o w M MO 3 O 41 3 5 B 3 .Q 0) 0) w •« 3d 3 1 a -i O 01 4i m o I to 3 r-» in 10 <3\ 4) vo -h 30 suotixth SJCXTOa 3UB3BU03 30 suoTXiTg 1.209 V© — « «o «-» r. f> —i u-> 4J OJ m CJ u 4-1 0) O a c •n a •H Cfl u •H en 03 M O rt OoH R H o u T> f a •o Hi 01 c 0) s ki 4J 4J U g s £ 3 o v c Cfl K 3 W S Ok a. •o « <9 4J aj o a> 01 V £3 z 2: 3 u H •J Z Z 3 BJBn°Q 3uaaan3 SJF1XOQ 3UE3BUO0 1.210 0) a H W u >s (0 iH - O M T) ti a 9 « ■ * s " y S-S2! ^ 5 2' £33. C (0 (0 T3 w C W CO 55 S. j - jf« 1.211 5.4 Relationship Between PWI and GNP. By Level of Government In the early 1960's, PWI as a percent of GNP fluctuated between 3.5 and 4 percent (Exhibit 5.9). Since 1966, however, this indicator has continually declined except for a brief reversal in 1974. The peak years for the ratio (in constant dollafs) occurred in the mid-1960' s for all levels of government: 1965 for Federal, 1967 for state, and 1968 for local. The minimum for the 21-year series for each level of government occurred more recently: 1976, 1977, and 1977 for Federal, state, and local, respectively. By 1977, total PWI represented only 2.2 percent of GNP (in constant dollars). Given the large amounts of investment in highways during the study period, a specific question arises with respect to the role of declining highway investments in relation to the overall decline of the PWI/GNP ratio. The relationship can be examined using the ratio of total PWI, less highway investment , as a percent of GNP (Exhibit 5.10). A slight moderation in the net decline is evident. Whereas the PWI/GNP ratio including highway investment had dropped by 45 percent between 1967 and 1977, the decline for PWI/GNP without highways was 39 percent (in con- stant dollars) . Further insight into the economic significance of PWI trends is obtained by analyzing the relation of PWI to total creation of new capital (i.e., public plus private). Exhibit 5.11 shows that PWI at all levels of government has declined relative to total investment in the United States since 1957. While the relationship has fluctuated throughout the period, the overall trend has been a downward one, so that by 1977 total PWI as a percent of total United States investment had dropped six percentage points from 1957 (in constant dollars). This downward trend is even more pronounced for net investment (Exhi- bit 5.12). From accounting for about 21 percent of all net investment in the United States in 1957, net PWI outlays over the past 21 years have declined both absolutely and relatively, so that by 1977 they represented only 9.5 percent of all United States investment. Before concluding this section, it is worth noting that the decline in PWI relative to GNP is not significant in and of itself . It is dif- ficult to define what the "appropriate" level of PWI relative to GNP should be. However, this study indicates that society has in the past allocated a larger share of its GNP for public infrastructure. 1.212 t^rOfOr r )rororn-j--3 - r-~c\io CTNCNioor->. H Pm CNCO--H— <— !>— 1— 1— 1— 1-— 1— !'-<'— 1— lr-l^-lr^r-<000 ooooooooooooooooooooo cintnnnfOfnronnrotocnrOfONMMMNN O H Pn Tl M 0) is Pn P-. IH ^o ^o ^d o ^ v£> r^^r — r^r^*r^r^*r^r^- 1.213 cn 01 z 0J U ►J en < V4— 1 H O 3e 03 CL, >^ •u cO C i— 1 s 0) Cfl 4= CI 4-1 an u o •H (1) H EC PM (yvcor^mrovoooroooroovocoooo-^r^ OHts|N^vONNINvO>JNHO\a\0000\0 < < tn en > aj 01 H hJ 2 03 J= •u M rs •H H Ph X m r^. r^ —i CNI Z2mmr>»ooocogCMCS4CNCSlCNICNICNCNlCslCVJCslCN CO cn cn H a) co •J s \ONiNONrivOvOO-ir<«i/inoooo\cNoooO'^ ooococMjN(j\ooiriOinNcoco(yiMn < oj 01 *cOHHn CO 0) CO M »J P5 C1J ,c 13 H M a) s •H t*4 P-. M f^ C"> O <— "O— IMnO^ONNflOCOiflvONN- I r* cocMO>J^OMftiflfO'- \ ~* <— imoNcor^ONComr-* •— HO 0\OlA- (ON^^mOfONNNfMN^^S flrlNfOr'1«jirivO^Oi45iri>cff'ic'ic'ic'if'ic'lc r )r r )f') n « av o - icNfn0'- O •H H Vj U O o o 1-1 c -a a) c o CD U §g cu P5 .H 4J cd 0) 4-1 pa o H a •H CO 43 3 CO .-t C Pn ^^ o CO •H V4 AJ h-l Cfl cfl Q .H .H eu iH CU U O si *-' T3 <« a u £ . O O H 35* U Q U co a, o « O H i 5 M ft* U Q U 4) ft- O •O O H 0lN9\0lrtOO-UMn 00 9lOI9i9lOlWflOOO»moONiOteO«6vO N WOv N nn nn nn n 5 "H ft. ft. ft. COO\fNl/"l«3-»3'CMvO'^U1vOCNr»-l/"l.3-u">.3-Ou"»r">0» r»or^r^o\ooCT>«yiooaoc>a\i>.oor~iri«3-r».cjNirvtN u ft. OOH M 3 ? 2£* ra Q <-• O ft. O •H » H ft. ft. SIS >-^ oo oo CT* GO oo oo » OvOv OM in n jNNONeofMioninov m cm n < o - iin«io-»ooNooovooicin*NO\oo NnNNflfinnni'iNN-iH^HrfHNHH (s»ooo>o- J t v in«j'mvOf~>oo<^o— '«N<*ivrmvor». o^ff»o»oc>o^o\c^o)o>^a»c^o^o>o\o>o>c>ONOA J3S 5 M «) S2 1 w y Eft. £ a a cs 1.215 Exhibit 5.12: Net PWI and Total Net Investment (billions of constant 1972 dollars) Net PWI as Net Public Net Private a Percent of Investment Domestic Total Net Total Net Year (PWI) Investment Investment Investment 1957 10.2 38.1 48.3 21.1 1958 12.2 26.8 39.0 31.3 1959 12.1 45.0 57.1 21.2 1960 12.2 41.1 53.3 22.9 1961 14.4 37.5 51.9 27.7 1962 15.4 49.5 64.9 23.7 1963 17.8 54.4 72.2 24.7 1964 20.2 59.4 79.6 25.4 1965 21.5 74.2 95.7 22.5 1966 23.2 81.4 104.6 22.2 1967 24.0 68.5 92.5 25.9 1968 23.6 71.2 94.8 24.9 1969 20.0 75.1 95.1 21.0 1970 17.4 57.2 74.6 23.3 1971 15.5 65.2 80.7 19.2 1972 14.9 82.9 97.8 15.2 1973 14.4 95.5 109.9 13.1 1974 14.6 66.6 81.2 18.0 1975 12.1 20.4 32.5 37.2 1976 8.8 47.5 56.3 15.6 1977 7.1 67.4 74.5 9.5 Total Net Investment ■ Net PWI + Net Private Domestic Investment 1.216 6.0 PRIVATE SECTOR CAPITAL FORMATION OF PUBLIC WORKS TYPE PROJECTS 6.1 Introduction and Summary of Findings 6.1.1 Introduction Previous discussion has revealed a rise in real PWI during the first half of the period covered, both in absolute and relative terms, to other economic variables, followed by a fall in the second half of the period. To further investigate this phenomenon, and to examine to what extent "privatization" is responsible for this decline, construction expendi- tures made by the private sector in functional areas that have histor- ically been in the public domain have been tabulated. These data are part of the gross private domestic investment (GPDI) series. Since non-residential producer's durable equipment cannot be distinguished among the relevant functional categories, the data only include investment in new structures and therefore underestimate private sector capital formation in this area. 6.1.2 Summary of Findings The principal findings of this chapter are: • Private investment in educational facilities have followed a pattern similar to that exhibited by public investment in educational facilities, increasing in the early part of the study period and then declining. This suggests that education related investments by both sectors may have been influenced by the same market and demographic factors stemming from the rise and fall of the school age popula- tion. • The ratio of public to total investment in hospitals declined from 47 percent to 38 percent between 1957 and 1977 (in constant dollars), indicating that invest- ment in this area is gradually becoming a responsi- bility of the private sector. • However, inclusion of private sector investments of a public works nature into the definition of PWI does not alter the overall downward trend in the ratio of PWI to GNP during the 1970' s. While the ratios are slightly higher, the peak still occurs during the mid-1 960 's and the low point is still 1977. However, if capital outlays for pollution control (which are largely private although government mandated) are included in the definition of PWI, then a flattening effect in the PWI/GNP ratio is observed. 1.217 6.2 Privatization Trends Previous discussion has shown that PWI, at all levels of government, rose in real terms from the late 1950' s through the mid-1960' s; but from the mid-1 960 's to 1977, real PWI, at all levels of government, has shown a decline. To examine to what extent "private" construction of a "public 1 nature makes up for this decline, construction expenditures made by the private sector in functional areas that have historically been in the public domain have been tabulated (Exhibit 6.1) . 1 These data are part of the gross private domestic investment (GPDI) series. Since non-residential producer's durable equipment cannot be distinguished by the relevant functional categories, the data in Exhibit 6.1 only includes investment in new structures and therefore underestimates private sector capital formation in this area. The data indicate that the private sector has, in these functional areas, increased its activity over the time period 1957-1977. In con- stant dollars, these activities continued to increase through 1973; decreases were noted in 197A and 1975, but in 197 6 and 1977, a 10 per- cent increase was recorded over 1975. With regard to functional distribution, investment expenditures on education by the private sector show similar trends to those that were observed in the public sector (see Chapter 3.0 of this volume). This suggests that similar factors (particularly the decline in school age population) are responsible for trends in both private and public sector investment in education. A strong "privatization" trend is observable in the hospital cate- gory. 2 While public investment in this category (in constant dollars) increased from over $800 million to $1.4 billion between 1959 and 1977 (Exhibits 3.6 through 3.8, Chapter 3.0), it rose from $900 million to $2.3 billion in the private sector. Also interesting is the trend in expenditures of the "other" category, which includes streets, sewer and water facilities. These expenditures more than doubled (in constant dollars) over the 21-year period. Revenue source is not indicated; hence, one cannot be certain these expenditures were 100 percent funded with private monies. That is, the private sector constructed these facilities, but public monies (e.g., grants-in-aid) may have been utilized. Moreover, the functional breakdown of expenditures in Exhibit 6.1 applies only to structures. A similar breakdown for equipment purchases was not available. 2 This is similar to the health and hospital category of PWI in Chapter 3.0 of this volume. 1.218 ©00*000 8 3 ] 3 3 • ooooooooooooo — — oooooo > > 9 a a h 23 : : I 'I — — — ooood x —i»««M*MtMCMr!i»i.»«»«»i/ir»o>©\ff»o>©No©ri ■S3 0(CO»>">»inciB»4N»-noniNinNo 4'9C4^4«^iniONn9tO^N*flA«(DO -S ft) ONOfBnOiNO»M»NvOM'IO-9i» \OsO*^' s O-'-OCO*^CDsOin^ ,. ,- 8 — — a ■3 £ : »> -> .e .- .' I (D ■ w 9 5 3-8 B B -H 9 3 0-0' , >BBiO-NO.Jin*l» All cJ»CftCJ*C*CAC»»0%C*Cf*ej*d*ChO*0»0\CT*0*0»C*0*C>» c c 3 § 1.219 The largest private investments occur in the area of public util- ities. While the rate of growth of these expenditures has declined over time due in part to a declining rate of growth in electricity demand, expenditures have increased by $2.4 billion since 1967.1 Combining the estimates in Exhibit 6.1 with data on PWI and com- paring these figures with GNP (Exhibit 6.2), one does not find any striking differences from the ratios of PWI to GNP presented earlier (see Exhibit 5.9). The ratios in Exhibit 6.2, naturally, are higher but one still finds an overall downward trend with a peaking out during 1963-1968. Private sector construction of "public" works shows a larger overall increase (in constant dollars) than total (government) PWI from 1957-1977 (64 percent versus 26 percent), but the same trend is observed. Dr. Aldrich's historical overview of public works (Chapter 2 . of this volume) has pointed to the emergence of environmental quality as an important new area of public works. In particular, since passage of the Clean Air Act Amendments in 1970 and the Clean Water Act Amendments in 1972, private and public sector spending on pollution abatement has increased significantly. A consistent series of historical estimates have been compiled by the Bureau of Economic Analysis for the period 1972 to 1977. Exhibit 6.3 summarizes private sector capital account expenditures for pollution control and their relation to non-residential fixed investment. Over the six-year period, the private sector spent $38 billion (1972 dollars) on pollution abatement. Moreover, estimates prepared by the Council on Environmental Quality^ indicate that the private sector will need to spend a total of $97 billion in capital outlays over the period 1977-1986 to comply with existing air, water and solid waste pollution abatement regulations. 3 When public sector estimates are added to this, the total capital outlays for environmental control are projected to be $223 billion (1972 dollars). ^ The significance of this level of spending is evident if we compare them against peak and recent levels of highway investment by state and local governments. The peaks for state and local governments occurred in 1966 and 1968 with investments of $10.1 billion and $6.7 billion, respectively. By 1977, total state and local investment had dropped to $6.6 billion. In summary, pollution abatement spending could be the single largest category of public works type investment in the next decade, BEA estimates include electric utility enterprises. 2 Environmental Quality - 1978 , the Ninth Annual Report of the Council of Environmental Quality. The CEQ estimates were deflated using the GPDI deflator. 3 Of this amount, $80 billion is estimated as incremental expenditures associated with Federal regulations. 4 This total includes some expenditures not separately allocated between the public and private sectors. 1.220 exhibit 6.2 PWI and Private Sector Investment in Public Works (PSPW) (billions of constant 1972 dollars and percent of GNP) PWI Less Highways (PWI Less PWI + PSPW (PWI + PSPW) + PSPW Highways + PSPW) (billions 4- GNP (billions -4- GNP of dollars) (percent) 4.9 of dollars) NA (percent) 33.6 NA 36.2 5.3 NA NA 35.4 4.9 25.0 3.5 36.6 5.0 26.4 3.6 38.8 5.1 27.6 3.7 40.7 5.1 28.9 3.6 44.6 5.4 32.0 3.9 48.0 5.5 35.9 4.1 51.3 5.5 36.8 4.0 54.9 5.6 41.4 4.2 55.6 5.5 42.6 4.2 57.5 5.5 43.7 4.2 56.0 5.2 43.1 4.0 54.4 5.1 42.0 3.9 53.5 4.8 41.2 3.7 53.1 4.5 41.4 3.5 53.8 4.4 42.8 3.5 52.5 4.3 42.5 3.5 48.8 4.1 40.3 3.4 47.6 4.1 40.3 3.4 46.1 3.5 39.0 2.9 ¥A = Data not available. 1.221 Exhibit 6.3: Pollution Abatement (Capital Account) Expenditures Related to Non-Residential Fixed Investment Expenditures (billions Pollution Abatement of constant 1972 dollars) As a Percent of tement Non-Residential- Fixed Investment Non-Residential Year Pollution Aba Fixed Investment 1972 5.71 116.8 4.9 1973 6.70 131.0 5.1 1974 6.10 130.6 4.7 1975 6.29 113.6 5.5 1976 6.36 118.9 5.3 1977 6.49 129.8 5.0 1972-1977 37.65 740.7 5.1 Rutledge, Gary, "Pollution and Control Expenditures in Constant and Current Dollars, 1972-1977", Survey of Current Business , February 1979, pp. 13-204. 2 Survey of Current Business , July 1978, July 1979, and National Income and Product Accounts, 1929-1974. 1.222 The addition of private sector pollution control investment to the 1957-1977 figures does not reverse the downward trend of the PWI/GNP ratio (Exhibit 6.4), but as pollution abatement spending becomes a more and more significant type of "Private Sector Public Works," we may see a stabilizing or even upward movement in the investment/GNP ratio in the 1980's. 1.223 Exhibit 6.4: PWI, Private Sector Pollution Abatement (PAI) and Private Sector Investment in Public Works (PSPW) (billions of constant 1972 dollars and percent of GNP) PWI + PAI (PWI + PAI) (billions -!- GNP Year of dollars ) (percent) 1972 40.3 3.4 1973 41.5 3.4 1974 41.6 3.4 1975 39.9 3.3 1976 37.3 2.9 1977 35.9 2.7 PWI Less Highways + (PWI Less PAI + PSPW Highways + PAI (billions + PSPW) -f GNP of dollars) (percent) 47.1 4.0 49.5 4.0 48.6 4.0 46.6 3.9 46.4 3.7 45.5 3.4 1.224 7.0 REGIONAL ANALYSIS OF PUBLIC WORKS INVESTMENT AND FINANCING MECHANISMS 7.1 Introduction and Summary of Findings 7.1.1 Introduction This chapter focuses on regional aspects of Federal, state and local PWI. The organization of this chapter is as follows: Section 7.2 dis- aggregates direct Federal expenditures for PWI, by region, and Section 7.3 does the same for state and local PWI. The discussion then turns, in each of these sections, to the question of the relationships between PWI and regional economic and demographic characteristics. A discussion of financial mechanisms used by state and local governments to raise funds for investment in public capital is found in Section 7.4. The final sec- tion (Section 7.5) raises issues for further research. 7.1.2 Summary of Findings The principal findings of the regional analysis are:l • Direct Federal PWI (excluding intergovernmental grants) has been concentrated in the western and southern regions of the United States. These regions received over three- fourths of all Federal direct PWI in 1972 and 1977. 2 The distribution of regional physical resources and legislative mandates, rather than economic or demographic factors, explains much of the regional distribution of direct Federal PWI. Water conservancy and river and harbor works dominate direct Federal PWI, and the correspond- ing waterways, dams and hydroelectric power projects are located predominantly in the West and in the South. On a per capita basis, there is significant regional variation in the allocation of direct Federal PWI, with the Mountain Region receiving $97 per capita in 1977 (current dollars) and the New England Region receiving $3 per capita. The regions referred to here are the nine Census regions (see the end of this volume for a map of the Census regions) . 2 A continuous annual data series was not available by region for direct Federal PWI, but such a series was available for grants-in-aid. 1.225 In contrast with the geographic distribution of direct Federal PWI, there has been a clear trend toward a more equal geographic distribution of per capita Federal grants-in-aid. 1 In terms of state PWI expenditures per capita, the Mountain Region is currently spending at about 140 percent of the national average per capita rate, while the New England and Pacific Regions are appro- ximately equal in last place, at about 82 percent of the national per capita rate. In terms of local PWI per capita, the Mountain Region (in first place) is currently spending at about twice the rate of the New England Region. However, this situ- ation represents a rapid rise for the Mountain Region, which ranked fifth in local PWI per capita in 1957 and fourth as recently as 1972. Rapid regional growth in PWI does not quickly make poor regions wealthy. The Mountain Region, for example, had the fourth lowest per capita income in 1977, despite a higher than average rate of state PWI since 1957 (local PWI passed the national average in 1973). It has, how- ever, exhibited a higher than national average growth of personal income since 1958. Regional dispersion in the ratio of own-source revenue to personal income has declined over the 21 -year period, as has regional dispersion of per capita Federal grants. Although these declines in "diversity" have accompanied similar declines in dispersion of state and local PWI rates, cross-sectional correlations of these variables are not high. The Federal grants-in-aid variable in this context refers to total grants, including those for capital outlays. At the regional level, the separation of grants into those that were expended for capital projects and those that were used for current account disbursements was not feas- ible. 1.226 7.2 Regional Distribution of Federal Public Works Investment 7.2.1 Agency Specific Analyses of Federal Public Works Investment This section examines the regional distribution of Federal public works investment for a selected group of Federal agencies. 1 The programs analyzed include those of the Army Corps of Engineers and Department of Defense (public works only), Forest Service, National Park Service, National Aeronautics and Space Administration, Bureau of Reclamation, Tennessee Valley Authority, and Bonneville Power Administration. Of these, only the first five have programs which are national in scope. All Bureau of Reclamation projects are located west of the Mississippi, and TVA and BPA are Federally owned and operated electrification pro- jects in the Southeast and Northwest areas, respectively. The data were provided by each agency. Some agencies reported actual expenditures as requested, while others reported obligations, appropria- tions, or, in the case of the Department of Defense, prime contract awards, This prevented aggregation of the data across agencies and a comparative analysis among all agencies and programs. All data were reported on a fiscal year basis and at the state level although the temporal coverage varied slightly. The data were aggregated into Census regions and grouped into "time periods" on an average annual basis for analytical purposes. 2 Each agency was then analyzed separately with a general set of conclusions presented at the end. In this discussion of regional expenditures, we first discuss the five programs that are national in scope. That is followed by analysis of regional specific programs. 3 7.2.1.1 Data Characteristics As indicated above, the data analyzed in this section vary in char- acter from one agency to another. This variation occurs not only in such This is the first of a two part analysis on the regional distribution of public investments by the Federal government. In the following section (Section 7.2.2) the Federal Information Exchange System data base is used to analyze the geographic distribution of obligations for those budget appropriation accounts which are public works investment related. That analysis lacks the temporal coverage presented in the individual agency analyses, but is more comprehensive in its functional coverage of Federal public works investments. 2 By analyzing the data over a period of time, unrepresentative fluc- tuations in the annual levels of regional expenditures are smoothed out, thus providing a clearer perspective on the long-run trends in the geo- graphic distribution of Federal public works investments. 3 Within each of the two groups, these agencies are ordered accord- ing to the size of their programs in the most recent period. 1.227 factors as temporal coverage and outlay type (i.e., expenditures, obliga- tions, etc.), but also in agency methods for allocating investments to the state level. To clarify these distinctions and to give the reader an appreciation for the data and its limitations, a brief description of each agency and the character of its data is provided. A verbal sum- mary of the data characteristics is presented in Exhibit 7.1. All data analyzed are in current dollars. 7.2.1.1.1 Army Corps of Engineers These data include all Army Corps of Engineers new work expendi- tures for such projects as navigation, flood control, beach erosion, multiple purpose power projects, etc. In general, all civil works expenditures for projects specified within the COE construction appro- priation are covered. Work performed by COE for other agencies is not included, since that budget authority would be included in other accounts. The data were obtained from the COE on tape and are also available in hard copy form. 2 The new work expenditures analyzed extend from FY 1957- FY 1977, and in addition to construction outlays, include major equipment and land purchases related to each project. The locations of all expendi- tures, by state, were determined by the location of the project site. 7.2.1.1.2 Department of Defense The Department of Defense data analyzed within this chapter pertain only to that portion of investment spending by the three military branches (Army, Navy and Air Force) for "public service" construction projects. These projects are distinguished from DOD "military" oriented projects by their public works rather than public goods nature. In other words, de- fense spending is generally not considered as a mechanism for promoting national efficiency or increasing the standard of living, as are public works investments. Instead, this spending is viewed more as the provision of a public good. However, within overall defense spending, there are certain DOD expen- ditures which can, and should, be viewed as public works investments. These expenditures consist of such construction projects as hospitals, roads and streets, heating plants, etc., which contribute more to the nation's social rather than military infrastructure, and should, therefore be given equal footing with other similar non-defense public works invest- ments. Perhaps the rationale for this is more apparent when one realizes that many former military facilities and equipment are being reused by both For a detailed description of the Corps of Engineers and its respon- sibilities, see Volume III of this study. 2 Army Corps of Engineers, Civil Works Expenditures by State , the Engineer Data Processing Center. 1.228 cu •o 4J T3 4J 3 o c •H CO 0> CO CO T-J 0) iH rH 4-» O 60 u cfl CO 4J C >-" c 3 s M-t s CJ cu a •H TD o O o CU £ 4-1 0) •H •H a >s CO O 4-1 0) 4-1 o O 4J •rl o CO CJ CO M rH tH X CO )-l s CO 3 a CU rH at cu PL, 0) CU CO iH > -H •H 4-1 4-1 U-l T3 a cu <4-l 3 CU 4-) 'H 4-1 c •H •rl o C CJ o CO o tJ 3 O -rH o (0 CO CO rH 3 T3 •H <-{ •H s ^H 2.1 3 c 4J CU CJ 3 «H 4-t 4J ■U o o CO § CJ «H o o co O a •H 4J •H J-i •rl rH M M •H CO u CU i oi cu CO ►J c ON on ON ON ON ON ON f— 1 ON 1 m ON l vO vO ON 1 vO ON 1 ON m ON CM vO ON ON ON 1 v£> On M T3 O CU JH 5 o 4-1 CO 1! 3 <4-l rH 1 o CU CU r^ Cu C CO U CO • • CO T3 3 4J 13 « 3 J-I H O r-i •H CU CO O O CO -H CO Cu CJ 3 •H <4-l & 4J 4-1 CO CO 3 4-1 CO cj •H CU a CO •rl CO CO 3 Cu ■H 3 4J •H CU 4J M CO 4J 14-1 •H CO 60 J-I M CJ 4J CJ CO •rl CO vw •H 3 Cu 3 CO CO 4-1 rH 3 J-i -H 4-1 U 3 »H 3 •H 3 CO Cu 3 J-i •rl 4J O O 3 CJ O «H CU o o a, *3 3 O O CO •H 4J U !-! J-I Cu 3 O 3 O >4-l 4J CO 3 Cu J-i CO cu U r O CJ >-i -H 4-1 Cu O a cu •H CO 14-1 O J-i •H CO X) TJ X CU CJ 4-> o CO a a. -3 CU cu S 'H CO 3 3 o 3 rH TJ u CO •H > 60 O 3 O s n CU CO 3 CO 4-> CO M U •rl «H O •H o a Cu 3 CO rH CO ^s Cu CU rH 4-1 •H 4-t •h a X CU a M CO XI CO 4-1 CO 4J CO CU •H •> u O ^ O iH CJ •H a CO CO 1 <4-l 3 u o M 3 M 3 T3 <-i CO T3 <-t o CO -H CU Cu J-i a >-i cu CO cu cu CO rH 4J r-\ U O 4-> o 4J 4-* 4-1 J-I CU 4-1 cu •rl •rl 43 •H U CO J-I CO CO •H 60 CJ •H Oi > rH 3 4J a 3 Cu 3 rH Cu 3 O Cu R •rl •rl Cu 3 Cu O Cu O CU CO O !-i CO H U X = W CO O CO o J-i O C_> Cu u J-I cu cu 3 CU CO CO 3 o O cu 3 a O •H •H 3 cu •H •H > 4J •H «4H 4-* 4-t J-i CO 60 CU 3 CO CU !* S J-i 3 Q CO J-I WD CU CO CU W CU 3 4-1 ^ rH 5 3 U-l o o CO M rH a o o <4-l o •H J-I •H J-l CO cu P-, -H O £ cu 3 CO > & 4-1 4J < •H Pi CU CO Cu 3 CU g CU >, 14-1 t-A U u CU CO r-i T3 r-i cu 4J r-\ 4J o B CO < CO CO •H •H CO o 4-1 4J 3 3 CO J-i 3 > -H J-I CO o cu O cu O CO CU 3 >. CO cu •H O •rl 3 X CU 3 -H B Cu J-I 4-1 CO 4-1 3 4J J-i 3 S J-I CU o CO Cu CO cu 3 3 O 13 < O PL, 2 C/l 53 H < =3 CQ < 1.229 the private and public sectors as industrial parks, vocational-technical training centers, municipal airports and other redevelopment operations. 1 The type of data analyzed within the report is DOD military prime contract awards in excess of $10,000. 2 More specifically, the following Federal Supply Classes within the "Construction" group of the "Other Services and Construction" service category were analyzed: Federal Supply Class Code Name Y941 Hospital and Infirmary Buildings Y943 Laboratories and Medical Clinics Y944 Dental Clinics Y945 Dispensaries Y961 Family Housing Y964 Facilities for Morale and Welfare-Interior Y965 Facilities for Morale and Welfare-Exterior Y971 Electricity Generating Plants Y972 Heating Plants Y973 Sewage and Waste Facilities Y974 Water Supply Treatment and Storage Facilities Y975 Roads and Streets Y976 Railroad Tracks Y977 Ground Improvement Structures (Drainage, Gates, etc.) Y978 Fire and Other Alarm Systems Y979 Miscellaneous Utilities and Facilities Construction data for these classes were provided to CONSAD by DOD from a special tabulation of their computerized military prime contract award data files. The data covers the FY 1966-FY 1977 period and were allocated by the DOD to the state level on the basis of the site where the construction was to be performed. Thus, as is true of all regional allocations based on project site, if either the contractor or any subcontractors involved in the construction were located outside the state in which the project was sited, the geographic distribution could be distorted. However, because a broad geographic area is being used to analyze the data and the construc- tion firms typically operate locally, the probability of such an occurrence appears minimal. Finally, purchases of equipment used in the above facilities which are not part of their physical plant, are not included in these data. Their exclusion will underestimate the total value of all DOD "public service" investment. The size of this underestimation, however, is unknown. In fact, it could be argued that even some "military" oriented con- struction projects such as airfields and storage facilities should be con- sidered public works because of their potential private and public reuse potential. 2 In relation to the other types of Federal public works investment data analyzed within this chapter (e.g., appropriations, expenditures, and obligations), prime contract awards most closely resemble obligations. 1.230 7.2.1.1.3 Forest Service As an agency within the Department of Agriculture, the Forest Service is responsible for the management of forests on public lands. The data analyzed in this report include all those obligations incurred by the Forest Service under the following budget appropriation accounts: Construction and Acquisition; Forest Trails; Forest Roads; Highland Scenic Highway; Acquisition of Lands; and Rangelands Improvements. According to the Forest Service, these accounts reflect the bulk of Forest Service public investments. However, one must be aware that obligations for the entire appropriation account are included, and that some of these obli- gations will eventually be spent for such things as Federal employee wages and salaries, services, and other non-capital items. Similarly, other Forest Service appropriation accounts which are predominantly operation and maintenance in nature, and thus not analyzed here, include some capital account obligations. In general, however, use of these data provides a reasonable assessment of the regional distribuiton of Forest Service actual investment outlays. The obligations analyzed cover the FY 1964-FY 1977 period and include funds obligated for construction, major equipment purchases, and bond acquisition. As with the COE data, the regional distribution of the obli- gations is based upon the project sites, which in this case would be the location of national forest bonds. 7.2.1.1.4 National Aeronautics and Space Administration These data include amounts appropriated by Congress to NASA under their "construction of facilities" appropriation account. This appropri- ation provides for "contractual services for the design, major rehabilita- tion, and modification of facilities; the construction of new facilities; minor construction; the purchase of land and equipment related to construc- tion and modification; and advance design related to facilities planned for There are several appropriation accounts dealing with the acquisition of forest lands. 2 The data for the National Aeronautic and Space Administration and Bureau of Reclamation also apply to specific appropriation accounts, and thus are subject to the same qualification. 1.231 future authorization." The data covers the FY 1959-FY 1977 period and include any work which the COE or other agencies perform for NASA. NASA determines the state distribution of its appropriations based upon the "principal place of performance." 7.2.1.1.5 National Park Service Data analyzed for the National Park Service (NPS) are accounts appro- priated by Congress to NPS for construction purposes which, according to NPS, are restricted primarily to the following budget appropriation accounts: • Construction; • Road Construction; and • Planning, Development, and Operation of Recreation Facilities. These data also include funds used to purchase that equipment and land related to NPS construction projects. * All NPS work performed by the Corps of Engineers and the Federal Highway Administration is also included in the data. The data covers the FY 1962-FY 1977 period, and are allocated to the state level according to the location of the National Park. Use of appropriation data to assess the geographic distribution of Federal public works investment may cause some distortions because of cost overruns and reprogramming of appropriated funds which do not show up in the data. However, while not as accurate as obligations or actual outlays when analyzed over a period of time, the data still are useful as a general indicator of the location of Federal investment spending. 7.2.1.1.6 Tennessee Valley Authority Public works investment by the Tennessee Valley Authority is financed from three sources: appropriations by Congress, proceeds available from current power proceeds and borrowing against future power revenues, and proceeds available from non-power activities. The TVA data analyzed in this chapter consist of public works expenditures financed by the first two of the above funding sources. These investments generally account for over 95 percent of all TVA capital expenditures. The public works investments financed by each funding source are examined individually. Those TVA public works investments funded by Congressional appropriations consist of the Regional Resources Development Program, National Fertilizer Development Program, National Energy Demon- stration Program, and General Service Activities. Proceeds available from Unlike the Forest Service data, only those funds in the appropriation account for public investment purposes are included. 1.232 current power operations and borrowings are used for TVA's Power Program, which consists of investment expenditures related to the construction of electricity generating plants. All data are actual TVA expenditures and include all construction outlays and land and equipment purchases made under each of the above programs. The data cover the FY 1957-FY 1977 period, and for those investments funded by Congressional appropriation, include all work under the reimbursable program of TVA's budget. Finally, all public works investment expenditures were distributed among states by TVA according to the individual project sites. 7.2.1.1.7 Bureau of Reclamation As originally set down in the Reclamation Act of 1902, the Bureau of Reclamation was organized to encourage the settlement of the western U.S. by providing for Federal development of multiple purpose water and land-related resource projects. Specific functions to be served by these projects include irrigation, provision of municipal and industrial water supplies, development of hydroelectric power, flood control and river regulation, water quality control, outdoor recreation, and fish and wildlife enhancement. Thus, many of the functions performed by the Bureau are similar to those performed by the Army Corps of Engineers. The major difference between the two agencies is a jurisdictional one. Whereas the Corps operates throughout the nation, Bureau of Reclamation activities are limited to 23 western states. The data analyzed in this chapter consist of the budget authorities granted by Congress for the construction of reclamation projects. These appropriations include amounts intended for equipment and land purchases, as well as for on-site construction, and are included within a number of BOR appropriation accounts. Some of these accounts are: Loan program; Colorado River Basin Salinity Control Projects; Recreational and Fish and Wildlife Facilities; Construction and Rehabilitation; Colorado River Basin Project; and Upper Colorado River Storage Project. Also included are appropriations for the Reclamation Trust Fund, a non-revolving fund. The data cover the FY 1957-FY 1977 period and are aggregated to the state level by BOR according to project site. 1.233 7.2.1.1.8 Bonneville Power Administration The Bonneville Power Administration data analyzed within this chapter consist of net additions to physical plant. Thus, unlike the agencies previously discussed, these data include facility retirements. For purposes of assessing the geographic distribution of public invest- ment, these data can be potentially misleading since the distribution of previous investments can significantly influence the spatial analysis. And there is no a priori reason to expect present investment to spatially resemble those in the past. On a broad regional level, this does not present a problem since BPA activities are limited to the Pacific North- west. However, in a state by state analysis, the impact could be signi- ficant. 7.2.1.2 Definition of Time Periods Used in Analysis As indicated previously, each agency's data have been analyzed on an average annual basis; because of the data limitations, annual fluctuations may not be accurate enough to warrant separate analysis. In general, these annual averages are computed for three time periods — the "early 1960's," the "late 1960's," and the "1970's". However, because the number of years for which historical data are available varies from agency to agency, the time period referred to as the "early 1960's" also varies across agencies. Exhibit 7.2 defines for each agency the temporal make-up of the time periods used in the agency analyses presented below. Notice that because of the limited time series available for the Department of Defense and Forest Service data, only two time periods were analyzed. In the analysis, these are referred to as the "1960's" and "1970' s". 7.2.1.3 Analyses of Agencies with National Programs 7.2.1.3.1 Army Corps of Engineers This is the largest of the agency programs examined, with average annual public works investment expenditures ranging from $743 million in the early 1960's to $1.3 billion in the 1970' s (Exhibits 7.3 and 7.4). Throughout the study period, most of the new work was for flood control purposes. In the early 1960's, flood control outlays accounted for 34 percent of all the average annual Corps of Engineers (COE) new work. In the 1970 's this share was reached 43 percent. The Central Region of the U.S., where most of the inland water- ways are located, has consistently been the largest recipient of COE civil works expenditures, on average receiving over one half of all COE outlays throughout the 1957-1977 period. However, this relative 1.234 Exhibit 7.2: Definitions of Time Periods Used in the Agency by Agency Analyses of Public Works Investment Time Periods Agency Army Corp of Engineers Department of Defense Forest Service National Aeronautics and Space Administration National Park Service Tennessee Valley Authority Bureau of Reclamation Bonneville Power Administration Early 1960's Late I960' 1957-1965 1966-1970 1966-1970 1964-1970 1959-1965 1966-1970 1962-1965 1957-1965 1957-1965 1961-1965 1966-1970 1966-1970 1966-1970 1966-1970 1970's 1971-1977 1971-1977 1971-1977 1971-1977 1971-1977 1971-1977 1971-1977 1971-1977 1.235 Is -I ON •I J 2 © tf\ •* IN in \o r> m SbS S#2 »'. 8 « ~ T3 C 0) a X w en A! u o ^ c iH •H •H > 60 •H 01 OJ C c 0) •rH u 00 c (*. w ^> 4-1 „ ^ m Cfi o a 3 u o 3 u 01 z >, e u u < U-l • O r* o> \© r». vp «•» OOMin o — c> o o — •» © © o> © 3* 2 - >> ID 8 •* "* 2 .3$ .3* J I cl • • 6 s m CO _ J5£| in a. "- -» fM m !??. ? •II c-> m en m W On rn ~* "* Ob Oh < O sa am e 3 Z X no 3 •> o in u § 5 I 2 £ £ 1.236 co o co so - o o» © vo »* •»» S EXS ess srewvr SS 3§ > -H •H 60 tx CO ^ 0} , Xi 4-1 •> u o ^ CU < u o o M ■H 3 CO -o O C a cu e a SSX ES =^ 3 eg O hi c 4J « CO cj 3 10 O U CO 4J e co u co cj cu 3 TB30I JO 3U30J3.I 1.237 share has continually declined — from a high of 60 percent in the early 1960's, the Central Region's share of average annual COE civil works expenditures has dropped to 54 percent in the 1970' s. This relative decline has been most prominent in the western central Census regions. In the West North Central Region, average annual COE expenditures declined absolutely between the early and late 1960's, and grew only by 18 percent between the early 1960's and 1970' s. And in the West South Central Region, the percentage change in average annual COE expenditures between the early 1960's and 1970's (54 percent) was less than the national average (71 percent), leading to a drop of two centage points in that region's relative share. On the other hand, shares of COE outlays going to the eastern central Census regions have been slightly increasing over time, with the East South Central Region being the prime beneficiary. Those Census regions into which COE funds have been shifted from the Central Region are the South Atlantic, Mountain, and Pacific Regions. Of these, the Pacific and Mountain Regions have received the largest share. These two regions rank first and second, respectively, in terms of the absolute change in average annual COE public works expenditures between the early 1960's and 1970's. For the Mountain Region, this has meant a growth of over 700 percent in the average annual level of COE funds received, most of which have gone for flood control purposes (Exhibit 7.5). As a percentage of national COE expenditures, the Mountain Region's share has grown from 2 percent to almost 9 percent. In the Pacific Region, COE expenditure growth has not been quite so rapid. However, combined with the relative decline in the flow of COE funds into the Central Region, it has been significant enough to enable the Pacific Region to assume the number one position in the regional rankings index. Most of the COE expenditures in the Pacific Region go into the construction of multiple purpose projects such as hydroelectric facilities which provide both electric power and flood control. In the 1970's, nearly one-half of all COE multiple purpose civil works were built in this region. Finally, the COE data shows that the Northeast has historically received the smallest share of COE outlays. This share, on average, has been less than 10 percent through the study period, and was at its peak in the early 1960's when it was 9.5 percent. Since then it has declined to approximately 7.5 percent. All of this reduction has occurred in the New England Region where average annual COE outlays for flood control have actually declined between the early 1960's and 1970's. 1 There has, however, been a slight increase in average annual COE outlays in the New England Region from the late 1960's to the 1970's. 1.238 Exhibit 7.5: Army Corps of Engineers Average Annual Civil Works Expenditures for New Work, by Function, by Census Region (thousands of dollars) Census Region Early 1960's Late 1960's 1970's Mew England 26.861.8 17,776.4 21,389.1 NAV 4.674.0 5,187.8 5.732.3 PC 22.187.8 12,152.2 14,694.3 MP — 426.4 962.5 FC-M ~ — — Middle Atlantic 43,941.1 44,944.2 74.278.3 NAV 22.453.9 8,449.5 10.027.6 PC 21,223.6 34.157.6 56,748.6 MP 263.6 2.382.0 7,427.8 FC-M — ~ ~ East North Central 78,355.8 100.461.4 134.607.9 NAV 48.815.7 48,321.9 66,371.7 FC 21,782.9 47,618.7 67,304.0 MP 7.365.4 4,420.3 134.6 FC-M 313.4 200.9 807.6 West North Central 126,081.6 97,649.6 148,554.3 NAV 17.651.4 8.202.6 6.982.1 FC 53.080.4 60,347.5 78.733.8 MP 53,206.4 26,072.4 56.896.3 FC-M 2.143.4 3,027.1 5.942.2 South Atlantic 73,630.9 89,124.2 133,818.6 NAV 28,053.4 46,344.6 30,778.3 FC 27,022.5 31.728.2 82,566.1 MP 17,628.6 11.051.4 20,474.2 FC-M — — — East South Central 78,726.6 98,447.8 156,149.4 NAV 21.492.4 20,772.5 64,802.0 FC 14.643.1 26.974.7 33,572.1 MP 24.790.9 33,472.3 33,894.4 FC-M 17,792.2 17.326.3 23,890.9 Vest South Central 159.353.8 233,757.6 245,267.4 NAV 39.201.0 99.347.0 46.846.1 FC 39.201.0 44,413.9 105,710.3 MP 50,037.1 57.738.1 16.923.5 FC-M 31,074.0 32.250.5 75,787.6 Mountain 12,897.7 87,971.2 108,158.7 NAV 25.8 — FC 7,983.7 21,640.9 45,426.7 MP 4,785.3 66.330.3 62,732.7 FC-M — — — Pacific 143.641.1 181.262.4 245,694.6 NAV 16,087.8 12,325.8 14,987.4 FC 45,965.1 58.185.2 66,337.5 MP 81,731.8 110,751.3 164,369.7 — " Not applicable. Legend: NAV - Navigation FC - Flood Control MP - Multiple Purposes FC-M - Flood Control - Mississippi River and tributaries 1.239 7.2.1.3.2 Department of Defense Investments by the military (excluding civil public works invest- ment by the Army Corps of Engineers) in public works or "public ser- vice" construction projects are second in size to those of the Army Corps of Engineers, of the national programs, and third in size (TVA is second) of all the Federal programs examined in this study. 2 The average annual value of DOD military prime contract awards has grown by 150 percent since the 1960's, from $204 to $504 million (Exhibits 7.6 and 7.7). On a regional basis, military prime contract awards for construc- tion have increased in all areas, with the largest relative growth occurring in the East South Central and East North Central Regions. As a result, both regions have increased their relative share of the average annual awards. In the case of the East South Central Region, this increase in relative share has been a twofold one, accompanied by a significant rise in the regional rankings from ninth to fifth place. For the East North Central Region, however, the increase in relative share was only 1 percent, and the region actually experienced a drop in the regional rankings. Overall, the most important insight gained from the DOD data is the fact that the four largest recipients of "public service" con- struction military prime contract awards in the 1960's continue to be the largest recipients in the 1970's. The Pacific, South Atlantic, Middle Atlantic, and West South Central Regions accounted for more than two-thirds of all the military prime contract awards analyzed, although their combined share declined slightly over the period from 75 percent in the 1960's to 69 percent in the 1970's. The reason for this concentration of investment is not clear. However, while no anal- ysis has been performed, it is likely that "public service" construction contracts correlate highly with all DOD construction. Thus, the impor- tance of the Middle and South Atlantic Regions may in part be attributed to the large amount of military infrastructure which has been tradition- ally located there. On the other hand, the West South Central and Like the Forest Service, limitations in the data coverage require that Federal public works investments by the Department of Defense be analyzed over two rather than three time periods. 2 in this case, investment is measured by the value of the military prime contract awards greater than $10,000 for "public service" con- struction. While comparison of these data with appropriations, actual expenditures, or obligations may result in grossly inaccurate inter- pretations because of the time dimension problem, such comparisons of expenditure types averaged over a period of years can produce some valid insights into the relative size of agency public works invest- ments, since the time lags are smoothed out. 1.240 Exhibit 7.6: Department of Defense Military Prime Contract Awards for "Public Service" Construction Greater Than $10,000, by Census Region Annual Contract (thousands c I960' s Prime Awards f dollars) 1970's Rank Percent of U.S. Total Percent Change Between Census Region 1960's 1970's 1960's 1970'a 1960's and 1970'a U.S. Total 1 204,279 504,300 100 100 147 Mew England 7,519 14,327 8 9 4 91 Middle Atlantic 30.283 63.013 3 15 12 108 East North Central 8.525 25,702 8 4 201 West North Central 11.580 34.613 7 6 199 South Atlantic 39,669 110,934 2 19 22 180 East South Central 7,248 38,556 5 4 432 West South Central 21,559 47,407 4 11 120 Mountain 16.893 36,976 6 8 119 Pacific 61,003 132.772 1 30 26 US Values nay not add Co totals due to rounding. 1.241 u o «4-l >. JO tc T3 •> M O CO O 3 O < • O *J — i CJ -CO- CO M C j-i CO §£ U S-i 0) 0) E 4J •H CO U 0) PL, M Cfl >% M c 3 CO OJ 4-J -H •H •H AJ > .-H O •H 3 CJ £ K •H 4J rC 0) CO a w C CO c o u 01 u o M •H U Q) M C CO 0) (1) K B o V) U i-t CO ,jQ m a 3 a cu Ph 0) q : U IWWWW S3 E2 S£ www n ss 3 <0 O U 3 a o l-i co jj (SIS o w Z w c u a) « u -[E30I JO 3U30J9,J 1.242 Pacific Regions have become strategic defense areas only in the post- World War II era, with the advent and major role of aerospace technology in today's defense programs. These areas also offer large tracts of relatively inexpensive land compared to the populated East.* Finally, as Bolton points out, areas or regions which already have large amounts of defense activity may develop a comparative advantage vis-a-vis other regions in the attraction of procurement contracts. Based upon analysis of the DOD data presented here, this may well be a valid observation. 7.2.1.3.3 Forest Service As indicated earlier, data on Forest Service public works out- lays were available only from 1964. Consequently unlike the COE analysis, where outlays within three time periods were examined, the analysis of Forest Service public investments will be limited to two periods — the 1960's and 1970' s. 3 The average annual investment-related obligations incurred by the Forest Service in the 1970 's have more than doubled their value in the 1960's, from $116 to $251 million. Compared against the invest- ments of other agencies examined in this chapter, Forest Service public works programs are fifth in size overall. Exhibits 7.8 and 7.9 shows the distribution of average annual Forest Service obligations for public works during the 1960's and 1970' s by Census region. In both time periods the Pacific, Mountain, and South Atlantic Regions have been the largest recipients of Forest Service investments. The South Atlantic Region exhibited the largest growth in Forest Service obligations from the 1960's to the 1970 's, increasing by almost 500 percent — well above the national average. As a result, the South Atlantic Region increased its relative share of Forest Service obligations from 5 to 14 percent between the 1960's and 1970' s. This gain almost mirrors the 7 percent decline in the Pacific Region's relative share. Despite this relative loss, however, the Pacific Region continues to receive the greatest share of Forest Service obligations, and together with the Mountain Region accounts for over 70 percent of all Forest Service funds. Finally, the Middle See, for example, Maureen McBreen, "Regional Trends in Federal Defense Expenditures: 1950-1976", in Selected Essays on Patterns of Regional Change , Congressional Research Service, Washington, GPO, 1977. 2 Bolton, Roger, "Impacts of Defense Spending on Urban Areas," Conference on Urban Impact of Federal Policies, Washington, D.C., February 8-9, 1979. The definition of the years included within these time periods was given earlier. 1.243 c CTN co Xi c OJ ' H : ) a) T) 3 c u 4J cfl C 0) 0) 0Q en o - ■u O 3 H 0) c M 01 0) E C^ 0) > o >-» a, E H- 1 „ c o •H 4-1 O 3 U 4-1 co c o 3 u o •H J-i 60 O 0) M-l Pi co co C 3 o co •H C 4J CU CO O CO 60 3 ■H >> o H J3 •H ^3 4.) o « rH CO s cd 00 cu o 3 •H O 'H c i-\ •H 4J 9 € t-l CO CU -H cu ^ C/i 3 60 CO a- CO >-i u u U CU co <: cu TJ a> > a) U T3 -5 fe o 3 P^i «0 ►J ot -o • 3 v£> 00 cm CM VO vO CO CM r-» vO CO m CM CO o ON O oo CM VO ON oo on m CM CM •H CO CO CO cO CO J-i M M u o u 4-1 4-1 4-J •H 3 3 u 3 3 4-J cu OJ •H CU CU 3 u CJ 4J u U rH TJ cO 3 iH 3 rH X ,3 CO .3 ,3 cO cO •u 4-1 4J rH 4J 4-> 4-1 rH <* u U 4-1 3 3 3 O 00 o o < o o •H a co 3 H 3 cu 2 z in CO CO •H 3 O W rH jr 4J »4H CO -H T3 4J 4-» j_i 4-1 4-1 3 •H 3 60 C/3 3 T3 CO CO 3 CO CO 3 o cu cu cu •H CO cu O CO cu O CO O Pi ^ z s w ^ OO w s 2 Cm 1.244 s O 3 >-i 0) s > o a ■H CO AJ >-l o o § a o o •H H 60 O Q) C 3 O CO •h a 4J CD CO o 60 •H >> H .Q O • e t CU & Cu rn C Tl C •H CO 4J O rn 3 u i-< •H 4J ■UJ CO 3 C CO C u M >, 0) u < ■H H iH •H 01 O C CO o U* •H 4J M CO O .3 2 - 5 21 %D CM — O •» O 5 ]j 1.249 Q. X. o o. i-i CO CL U a o c . .. •H C •u O Cfl -H J-i M 4-) c 13 O C -H ■ S |\\\\W so - O OS O VO —< •""» or 1 A\\ sf\\\\\V\\\\\\\\V SL ^ -«i -1 c %%2 a -h o 3S' ^ 1970'» 67.2 1.1 > 10.5 2.8 » 3.8 > 15.0 11.0 2.3 1 16.5 1 4.2 « O CD « O. O JJ o ojsD^somo— i U a o o -h U J= a a ^ •• 3 C O (3 < 3 CO CJ w •a e 3 «0 4J ^H W X»30X JO 3U30J3J 1.253 the 1960's and 1970's. This is not surprising since NPS statistics show these two regions to be the location of the most heavily visited park areas in the National Park System. In fact, as Exhibit 7.16 shows, the geographic distribution of visits to the National Park System roughly parallels the distribution of NPS appropriations. 1 7.2.1.4 Analyses of Agencies with Geographic Specific Programs 7.2.1.4.1 Tennessee Valley Authority The Tennessee Valley Authority is the first of the agencies examined whose programs are geographically limited in scope .^ As created by Congress in 1933, TVA is chartered to promote the unified development of the Tennessee Valley River Basin, an area covering seven states (Alabama, Georgia, Kentucky, Mississippi, North Carolina, Tennessee and Virginia). These states form the entire East South Central Region and part of the South Atlantic Region. However, because any analysis at the Census region level would be biased toward the East South Central Region, the analysis is performed at the state level. As indicated above, the data analyzed here are those TVA public works investments financed by Congressional appropriations and current power proceeds and borrowings. Of the two, Congressional appropriations finance a smaller portion of TVA' s investments amounting to less than 10 percent of all TVA investment in 1977. In general, most of this invest- ment goes into the regional resources development program, which in the early 1960's averaged about $22 million per year. During the 1970's this investment has more than doubled, having grown to almost $50 million per year (Exhibits 7.17 and 7.18). Due to the water oriented nature of the regional resources develop- ment program, the geographic distribution of these TVA expenditures is heavily influenced by the location of the Tennessee River which runs through the states of Kentucky, Tennessee, and Alabama. Thus, these states have received virtually all of the public works investment associ- ated with the program. Some investment has occurred in Georgia, Mississippi, North Carolina, and Virginia, but this has been extremely small and erratic. And while Alabama's share exceeded 60 percent in the early 1960's, Tennessee, the state through which most of the river flows, has been the major beneficiary of TVA investment in the regional resources development program. Although small in area, the Washington, D.C. National Parks are one of the largest attractions in the National Park System. In 1975, these parks attracted almost 30 percent of all visits to South Atlantic Region national parks. 2 The others are the Bureau of Reclamation and Bonneville Power Administration. 1.254 Exhibit 7.16: Visits to the National Park System by Census Region, 1975 Census Visits Percent of Region (thousands) U.S. Total Rank U.S. Total 1 237,389 100.0 New England 10,876 4.6 7 Middle Atlantic 19,527 8.2 5 East North Central 1,702 0.7 9 West North Central 9,474 4.0 8 South Atlantic 94,149 39.7 1 East South Central 29,602 12.5 3 West South Central 13,454 5.7 6 Mountain 34,600 14.6 2 Pacific 24,004 10.1 4 Values may not add to totals due to rounding, Source: National Park Service, Public Use of National Parks, semiannual. 1.255 § 8 I o — tl w O ■3" S S vd sr o 2 «o O 3 as - 1 CO •H X> a so 5 2 3 S >> o rH rH rH 0) £$> > cu 0,° 0J (U CO o CO >-l CU 3 s ° C CO O) 0) H « a o en o <* o vo -« r^ (T> 0S s|\\\\\VAV\\\\\\\\\\ si , o o o 81 o o dWWWWW^ -1 ^ 1 1 s| r 1 1 1 I 1 1 1 TB301 JO 3U33a3£ 1.257 A similar state distribution of average annual public works invest- ment occurs in the TVA power program, where Tennessee, Kentucky, and Alabama on average account for 95 percent or more of all TVA electric power plant construction throughout the study period (Exhibits 7.19 and 7.20). Tennessee again is the largest recipient of TVA power program investments, although its relative share has increased only slightly since the early 1960's. Utility investment in Alabama has exhibited the greatest growth between the early 1960's and 1970' s, increasing by more than an order or magnitude. Utility investment in Kentucky meanwhile has grown at a slower rate than for the Tennessee Valley River Basin as a whole. Consequently, its relative share has dropped by about 8 per- cent over the study period, with this investment apparently shifting to Alabama. Otherwise, the geographic distribution of TVA power program investment has, on average, remained relatively stable since the early 1960's, with capital investment for electric utility construction increasing in all states in the Tennessee River Basin. Finally, the combined average annual public works investment expenditures of all TVA programs amounted to $135, $250, and $922 million in the early 1960's, late 1960's, and 1970 's respectively, making the TVA program the largest of the spatially restricted Federal agency programs examined and second only to the Corps of Engineers of all the programs analyzed in this study. In summary, while the TVA Act restricts the agency's public works investment programs to the southeastern portion of the U.S., the intra- regional geographic distribution of these investments is related to geologic, hydrologic, and other natural physical factors. In other words, it is undeniable that TVA was created by Congress to stimulate growth in an economically depressed area. However, this goal of economic development is relevant only at a broad geographic level. The areas within the Tennessee River Basin which are the major recipients of TVA investments are determined more by physical factors than the state of their economic well-being. 7.2.1.4.2 Bureau of Reclamation The Bureau of Reclamation is another agency whose public investment programs are limited to a specific geographic area. In relation to the other investment programs analyzed in this chapter, the BOR program is fourth in overall size with investments amounting to no more than 35 percent of the average annual level of COE public works investment. 1.258 o • v£> - o> o 1 £ c 1 c a s u tl a 2 if • 09 • - © o> — Is 2 o 88 309 94. 107 404 26( 62 126 18. 38 107 1.211 196 345 14 26 92 69 74 358 23! 31 156 69( O O •» ,S2| 0) o r« ui •« •» co I 3 -* ■ • tl 1.259 K IKS ^wwwwwwvssg u o> o -h x. > 3 O •H O > < to ca a) *j £S :| -[eaox jo 3U9Daa,£ 1.260 While significant year by year fluctuations were observed in the level of BOR appropriations throughout the 1960's, the average annual level remained relatively unchanged (Exhibits 7.21 and 7.22). The average annual level of these appropriations in the 1970's is almost double their 1960's level. The geographic distribution of BOR programs is limited to four Census regions and 23 states, all of which are located west of the Mississippi River. The relative rankings of Census regions within this distribution has remained stable with shifts in individual Census region shares. Between the early and late 1960's, appropriation levels in all Census regions, except the Pacific, declined on an absolute basis. During the 1970' s, appropriation levels increased substantially in all Census regions. The Mountain Region's appropriations during the 1970' s averaged more than twice that of the late 1960's, resulting in a climb of that region's relative share to 50 percent. On the other hand, the West North Central Region has continued to lose its relative position in the distribution of BOR funds, and the West South Central Region has not regained the share it lost in the late 1960's. Finally, BOR appro- priations in the Pacific Region, while increasing by almost 75 percent, have not kept pace with the national average annual growth. For the period as a whole, the Mountain and Pacific Regions have been net gainers in the distribution of average annual BOR funds at the expense of the West North Central and West South Central Regions. Because of the importance of the Mountain Region as a recipient of BOR appropriations, the state distribution of that region's average annual appropriations has been broken out separately (Exhibit 7.23). The most notable insight gained from analyzing the data in the table is the substantial distributional shifts which occur over time. Only Arizona (ranking first) and Colorado (ranking third) hold the same ranking in the 1970' s as they did in the early 1960's. 2 BOR appropriated investments in Idaho, which ranked seventh among all Mountain states in the early 1960's, are much larger in the 1970' s. On the other hand, the average annual level of appropriations estimated for Montana and Wyoming are significantly lower in the 1970's than early 1960's. These wide fluctuations in the state distribution of BOR public works appropriations can be explained by the nature of the BOR programs. As noted earlier, appropriations are distributed among the states and regions according to the location of the public construction sites. Though each BOR project approved by Congress is based upon its regional economic The 23 states are: Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming. 2 Even these states were altered in the distributional mix in the late 1960's, when Colorado climbed to first and Arizona slipped to third in the rankings. 1.261 e o >* •H ,fi •H W J-i 4J a c o a) &e < 4J 4J T) CO C IWWWWWWW^ r-i C S o o a> Pi -M > 3 -H a »M * o ■3" S g 2 a >e -» m evs » c C O -H •H 60 4-1 CU O OS 3 n C 4J 'ri CO CO C 4-> O C CJ 3 O U S o - VH CU 4= CO 4-1 c c •H -H 4J CO CO •H 4J K C a. cu o e M M a a* &, 4J < *-> "« «3 2| ■i ©I • r><#oir->.om-crie>f> © to «*> -«CM *j © j ©v er> m «*> mmm ■I >,. mrscroe> am ,e n h m mm § -3 £ 1 * - | > ?. « p OMM«C>»« £»• *S1. ■o o o •I -O -H 00< CD i» I 0i O -* ■'l «< O ■* i-» u-> o « 1 1 e e • ,3 o o 3 a c 2 5 1.266 © 3 S vp os £ 2£ ■Kfl s ESSSgSSXgSSgS 5| ESS T r ~i 1 1 r o o o o IB301 jo auaoaaj 1.267 ^ o u •H c rH CU X> 00 3 < (X >> <+-i ,0 o CU cu >-l rH 00 CO 4= O CO to 4J rH co 03 0) C 60 o s 00 o s •H X) •H (1) £ CJ 0) CO ps 4-» c CO cu s s o 4-1 •H CO 00 cu 0) > oi s H w 3 CO CO ^J c )-l 01 o u 3 C •H o 3 c 0) 4-1 •H CU 01 U n C CJ CJ X! rH CO 43 A 4J 4-1 rH 4-1 4J M < 4-1 3 3 O < O T3 2 H £1 CO CO )-i 4-i T> 4-1 4-1 •H CO X) 3 CO CO X. CO •H cu 03 H w 2 CO 3 W C 3 03 03 rH rH 4-1 c 4-1 < •H O < 03 •rH rC 4-i <4-l rC 4-1 c 4J 3 3 O 3 o o 03 O CO £ P-, CO c CJ 0) •H u 4-1 c J= CO 4-1 rH 3 4-1 c o CJ o < •H CO ■H •H CO 4-4 4-4 # 4J 4-) •H •H 4J g CO y 3 3 0) CO 03 O O 3 PL, Pi CO S T3 3 M CO 3 O cu O 0) 4-1 CO CO •H a CO c o 4J ■H cu e CO 0) •H CO > tH CO M 14-1 4-1 U M ,43 U CU 0) 3 4-1 0) •H 0Q 0) Q CO CO CO CO O C 0) 3 •H C M •H 4-1 o o 3 ^ O P-l 00 o •H u •H M a c > cu S 03 CO 4-1 w 4-1 u < -3 a, cu 3 3 01 < pd cu 4-1 a) CO rH H E o B 03 CU 03 >•. 4J 4J 4J 3 o c O CO CO M CO o CO o C CU a. CO CU •H cu •H CU > M o< u 4-1 CO 4J oo c o CU o CO CO < H cj o to ss z 1.268 nationally distributed expenditures, shows that no one region in the South or West dominates the regional distribution of Federal PWI. More- over, for all of these agencies, at least one of the Federal regions which is a major recipient is also located in the eastern or northern portion of the U.S. This, together with trends in the regional growth of PWI (Exhibit 7.27) which show that the central area of the U.S. is the fastest growing broad geographic area in three out of the five national programs examined, makes it impossible to draw any conclusions regarding the "sunbelt-frostbelt" controversy of recent years, and suggests that it would be speculative at best to make any statements on whether a region is receiving any equitable share of Federal public works investment. Of the eight agencies examined, three had programs which operated exclusively in the southern and western regions of the nation — the Bureau of Reclamation, the Tennessee Valley Authority, and the Bonneville Power Administration. Even excluding these agencies, however, one finds that physical or resource factors, rather than economic or demographic factors, explain much of the regional distribution of Federal public works investments. This is particularly true for the Forest Service and National Park Service where investment is closely related to the distri- bution and use of public lands. Similarly, National Aeronautics and Space Administration facility investments, while they must be economically justified and are subject to the approval of Congress, generally occur in areas which are climatic or meteorological strategically located, rather than in economically deprived areas. Only in the case of the Army Corps of Engineers, whose individual projects are approved by Congress based upon their development potential, do economic or demographic factors appear to play a major role in the location of public investments. And even here, these investments, which are mostly water resource-related, are physically restricted by the availability of water supplies. In summary, then, while most of the Federal public works investment analyzed in this section are distributed in the southern and western areas of the U.S., the influence of economic and demographic factors appears to be small. Instead, legislative mandates which limit an agency's area of operations, and physical or resource constraints appear to be the most important locational variables. In light of Office of Management and Budget data showing that these agencies accounted for over one half of all direct Federal public works investment outlays in 1977 (defense and non-defense) , these results take on a previously un- recognized significance. Finally, one must maintain the perspective that public works invest- ment projects, in many instances, benefit the nation as a whole, and not just the region where they are located. For example, Corps of Engineers projects to increase the navigability of the inland waterways benefit all U.S. commerce and trade, not just those areas where the waterways are located, 1.269 CO . CO u CO 3 4J u O o s iH o •rl •H 01 44 r»s 60 4J o 3 CT> 0) a 73 CO — < rl CO 43 (3 rH iH 44 CO 4J 73 CO 4J M rH < 3 3 » bo u M rl u CO i2 c 4J 4J 44 4J CO rH •H G C c 3 >> 4-1 u 4«i CU 0) 0> 0) CO 3 o c O c_> o CJ rH O » 5 43 43 43 43 4J 3 < o jj 4J 4-1 4J CO •H 43 3 U 3 u «< ^H 44 O o O o CU z 43 3 73 CO z CO z 60 PM CJ o 3 CO rH u o 4J 4J 4-* 44 u 3 s o o co co CO x-s CO CU C 0) •H 60 iH 0» co & £ £ CN t > CO S < co s <-{ CO "!c >^ o 3 01 4-» 43 •H 60 5 M 3 CO O • a rH ^ rH 3 CO U CU CJ rH CO CO CO > CO M u u 3 CO 4-> cj 4J 4J 4J CU CO CO (3 o 3 3 0) M •H . 5 S 4= CO 43 43 43 60 CO 4-1 rH 4J 4-1 0) - •H G 3 4-1 u M 01 peJ O 60 4J •H O < o 60 r-» 3 ctj CO CO z Z 3 rH C7\ •H Z 4J 44 43 CO CO rH 4J CO s 4-1 4-1 4-1 4-1 43 1-1 •H CO u 3 CO 3 CO CO CJ 4J 73 5 3 1 cS O CO <3 -S CU 3 3 0) CO 43 o 60 o bJ 0) CO 4-> 43 O -3 3 4J -rl 2* CU o U 1-1 O 0) O 14 Z ex •H CO cu 60 u (X 4-1 01 a* 73 G CO co co CO co u CO 3 CO W 43 CO 4J o CU O 0) 3 CO «4H co CO •H o 73 CU 01 a % CO (3 CJ 4J •H CU 43 43 3 4J 4J 0) c rH CO u U-l 4-1 U M •H CJ H 43 M 0) CU 3 4J 01 U-l U 3 •r( 60 01 Q CO CO CO 0) O 0) CO O G CU 3 •rl "3 14-4 0) • • 3 M •H MH CJ O 3 M 3 r^ O CM 60 O •H u •rl u 43 4-> 4J CN CO 4J a 4-1 I # 6 73 CO Pm 4-1 3 CX 0* 0) 43 r-. 0) c G CU <: o CJ ei ai MH CU CO rH rH M X *3 4J 6 O s CO CU CO CJ W 01 •H ^ w 4J 4-1 3 o 3 r-4 N 3 5 O CO CO M CO O CO O •H 3 CU ex CO CU •H M IX u 4-) CO 4J CJ X 60 C O CU o CO CO CU w -l c/1 ->r cm oo i-» CO f-H M CD T) 0) /-^ &H co co u 4-1 3 ctj _ O O iH r- c^ •H iH c 4J O Cd TJ •H 60 4-1 ♦H <4H 3 iH O .O ,0 •H O CO H 3 a 4-» r-l O CO «H CO «H •H 60 H iH CM o a). 0) rH a. > U .O 60 ON m CM CO CM ON CM CM v£> CD d r^ vO in oo vt d oo CM r*« 3 O CO o CO >* m CM CM h» a\ T3 r^ CO U", i— , m <3 F— , CTN ON -tf co H CO ■u o oo 00 o\ ■^ o CO ^ CM CM CM o 4J t— , oo O m r- o as F— 1 i— , o CM CO o v£> CM 00 On CM CO TJ o i— i CM m CO m T3 CO CM 4J •H 3 3 CJ 3 3 4-> CD CD •H «tf I I ( H u r4 4-1 >N CO -Q •H Q •t H CJ & •H O-i X O-rH CO CO Vj l-i Oi CD O -o CD CU O [H I- fi rH )-i o a rH CO r4 CD TJ 0) CO )-i CO rH rH o T CO o oo CN CO o 00 v£> ON O ON CO ON co -t CO 00 CO oo vO CO m v£> CO •H 3 O w rH s: 4-1 U-l co *H T3 4-1 4-1 4J 4J c •H C WJ CO 3 T3 CO CO 3 M CO 3 O oj cu CD •H CO j-y o r; CD O CO 'O p* £> 2: a W s CO y 12 X P-! 1.277 CD 60CM C P*. rt on r-» .C ~* r- u on s 4-1 0) C CD TJ 01 s c O w CO CD CO 00 o -• © r» o o\ ~* tN ~* I 0) 03 c r>- O 4-1 s 4J o M s CD H CO o • M u CO u CD CM o ON r«* IA CN CO <■ uo sr o fa S3 r^ 3 ON d o NO -J" M 00 •* CM *"* ITI "* NO CM CJ •H rH • J3 00 3 3 fa co /-N CO •H •3 .-H c M CM CM uo oo 00 r» CM o o ON 3 3 o CO r-. • • • • 3 H •H H r^ d ON 00 l/N. r- ON -3- -a- r^ d CO O 0) 4J i-l On o oo CM m CN CM m CM oo u -3 Ct) o r^ •a- co CM CM CD 60 T3 * o fa •H «4-l •H 4-1 3 o 3 T3 CJ fa a o CO •3 iH >. § •o CO •H CD 3 •H 1 W "3 c a 00 •H CO 3 fa CD 3 O CO rl CO 4= CO M H £ U •H 4J 3 CJ CO CD • • 3 *■> O •o 4-1 •rl CD •iH 3 CM O 3 M >N •3 c 3 O e rH rH CO t— i CO CD a* a CO 00 C (0 1 CO CD X> 3 • iH CD o CO fa O 3 > r-» CO es s CO H >> a c U fa U c 4-1 o CD o CD 4-1 o o CO O CD u o o H rl OS c CJ •H t-t •r-t 3 MH ft X •rl •iH H CO tH X U 3 CD 4-1 SI CO 3 CO 4-1 43 4-1 u > CD CJ i 3 > CO •H CJ • 3 3 O CD 1 CD CJ 45 a CO 4-1 fa CO H a 3 CO 4-1 5 3 t-i A 3 fa d CO z a CO 6 S s £ £ CO CD O 3 1.278 to commerce and trasnportation. Outlays related to the construction of general public buildings, which refer to investment expenditures by the General Services Administration, were 330 million in 1972 but dropped to zero in 1977. This is misleading since capital investments were actually undertaken by GSA in 1977. However, because of limitations in the FIXS data, these investments could not be measured. This is discussed in greater detail in the functional specific analyses presented next. 7.2.2.1.2.1 Natural Resources, Environment and Energy Federal public works investments related to natural resources, environment, and energy are the largest of all Federal PWI outlays. In 1972 these investments amounted to close to $940 million and accounted for 47 percent of all Federal FWI. By 1977, these investments had grown to nearly $3.5 billion, and 74 percent of Federal PWI. Four Federal execu- tive departments are the source of the funds included under this function: • Department of Defense (Army Corps of Engineers). • Department of Agriculture (largely Forest Service). • Department of the Interior. • Department of Energy. The largest of these sources is the Department of Energy which in 1977 accounted for about 57 percent of all Federal investment in the natural resources, environment, and energy function. The DOE investment funds come from its plant and capital equipment appropriation account. Next to DOE in importance is the Department of the Interior, where there exist a number of agencies making PWI related outlays (the National Park Service, Bureau of Reclamation, and Bureau of Land Management, to name a few). However, the DOI obligations do not include those of the Tennessee Valley Authority, as capital investment outlays in the TVA Fund could not be separately identified in the FIXS data. Since these obligations were stated by the Office of Management and Budget to total approxi- mately $1.2 billion in 1977, 2 this would (ceteris paribus) make the DOI the largest source of investment funds in the natural resources, etc. function, if there was no undercoverage in FIXS. The geographic distribution of natural resource, environment, and energy related investments by the Federal government are shown in Exhibit 7.33. Because of their size, the spatial distribution of these invest- ments is similar to that of total Federal PWI. Alternatively, the spatial distribution of total PWI is determined largely by Federal investment in natural resources, etc. This influence is best illustrated by the follow- ing percentages which show for 1972 and 1977 the portion of total Federal In 1977 these funds were actually those of the Energy Research and Development Administration. In 1972 it was the Atomic Energy Commission. Office of Management and Budget, The Budget of the United States , FY 1979 , Washington: Government Printing Office, January, 1978, p. 182. 1.279 01 60 CN 3 f* co on f~» .3 -* O C^ 3 •—I 4-1 in CN co o vO 00 o i— 1 CN c a 3 cy « 6 ?N 4J 60 CO l-l 0) 0> > c s w 01 3 b a) s «w 3 o o u a -h ° £ ♦H 3 •u W 3 .o * •H (0 m o> 4J CJ CO J-i •H 3 Q O CO CJ CD •h a! an co co U l-i 60 3 4J 01 nj O Z 4-» O CO TJ 60 •H <4-l <-i o X> O CO 3 r-l O 0) *§ V-t M >J n o 4J •u 4-1 4J •H 3 •3 CJ 3 3 4J CU CU •rl 0) 4J 4J iH <; U M 4J 3 3 3 o 60 o O < O o •H co a H 3 cu z z w CO CO 3 W H X 4J CO -H • "3 4J ■u 4J 4J 4-1 3 3 00 w & -3 CO CO 3 CO CO 3 0) cu CU •H ctj o> O CO CU O U 04 » z s w & w u & s 1.280 31 33 25 37 48 43 52 61 10 17 54 97 32 50 79 82 72 83 PWI is each Census region coming from natural resources, etc. related investments: Census Region 1972 1977 New England Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific Because of the increase in natural resource related investments rela- tive to total Federal PWI at the national level, there is an across the board relative increase among all regions. The regions which consistently receive most of their Federal PWI funds through natural resources, etc., related investments are the Mountain and Pacific Regions (i.e., western U.S) . However, in 1977 the concentration of natural resources, etc. related investments in the regional Federal PWI mix is greatest in the East South Central Region. And of the nine Census regions, only in the New England, Middle Atlantic, and South Atlantic Regions is another functional type of Federal investment more important in the regional mix than natural resources related investments. ' Finally, while limited in its temporal coverage, this analysis has produced results consistent with those obtained in the agency specific analyses of Federal PWI presented in Section 7.2.1, which also focused on natural resource related Federal public works investments. That is, while the greatest growth in natural resource related Federal PWI is occurring in the central part of the U.S., the bulk of such investment has and continues to be located in the West. Thus, at least with regard to this type of Federal investment, there does not appear to any evidence of a snowbelt- sunbelt shift. Most likely this is because the geographic distribution of natural resource related investments are more a function of natural or physical factors than socioeconomic ones. 7.2.2.1.2.2 Space Research and Technology The Federal investments in space research and technology analyzed here refer to those obligations incurred by the National Aeronautical Space Administration under their Construction of Facilities appropriation account. From $33 million in 1972, NASA investments have almost quadrupled To some extent this occurs because of the undercoverage in FIXS of GSA capital investments in 1977. 2 In these areas, Federal investment in commerce and transportation is the largest functional component. 1.281 to $129 million in 1977. However, they still account for less than 5 per- cent of all Federal public works investment. Geographically, most of the investment in space research and tech- nology is concentrated in the South Atlantic and Pacific Regions (Exhibit 7.34). These regions, most predominatnly the states of Florida and California, accounted for over 70 percent of all space related invest- ment in both 1972 and 1977. Through an apparent shift of funds from the Pacific Region to the South Atlantic Region in 1977, the latter region has increased its share to 61 percent. 1 Finally, except for the West North Central Region, NASA investments increased in all regions between 1972 and 1977, although not proportionally. Like those of the previous section, these results are quite similar to those arrived at in the agency specific analyses. 7.2.2.1.2.3 Commerce and Transportation Federal public works investments related to commerce and transporta- tion consist primarily of investments by the U.S. Coast Guard and Federal Aviation Administration under their Acquisition, Construction and Improve- ments-^ and Facilities and Equipment (Airport and Airway Trust Fund) appro- priations accounts respectively. These functional obligations were roughly the same in 1972 and 1977, but because of the huge increase in natural resources, environment, and energy related obligations, declined in rela- tive importance from 19 to 8 percent of total Federal PWI. Geographic- ally, the number of regions exhibiting declining outlays exceeded those showing increases by a factor of 6 to 3 (Exhibit 7.35). The largest absolute declines occurred in the South Atlantic and Pacific Regions which were the largest recipients of Federal commerce and transportation investment funds in 1972 and 1977. Combined, these two regions accounted for over 60 percent of all C&T investments in both 1972 and 1977. Of the two, the region with the largest investments was the South Atlantic Region. On a relative basis, the largest declines in C&T Federal investments between 1972 and 1977 were registered by the West South Central and East North Central Regions. These declines were countered by a more than four- fold increase in Middle Atlantic C&T investments, resulting in a climb of that region's relative share from 6 percent in 1972 to 27 percent in 1977. 7.2.2.1.2.4 Community and Regional Development In 1972, Federal public works investments in community and regional development were sixth in overall size in the Federal PWI functional rank- ing. Between 1972 and 1977, these investments almost tripled in size, and rose to third in the functional rankings with a relative share of 5 percent, In the agency specific analysis of NASA public works investment using average annual data, an opposite trend was observed. This clearly illus- trates how the use of only several years of data can be misleading. 2 Most of the funds in this account are used for search and rescue operations, aids to navigation, and enforcement of laws and treaties. 1.282 0) 60 CM C r* co on J3 -■ 00 o o _i m r-. 00 00 o m 00 o m !•*» N© 00 r>. 00 o NO CM ON m I co —* CO r-» rn •H c o 4J •H c 60 IS 4J 0) 3 > CO c c M 5 rH CO s^ h .o 0) -o OJ fX4 & o MH ^-1 o o G C jC o •H co u H 3 .O *0 iH § *J 01 JS •H o O u (0 O 0) •H to a 2 co n -* NO rH r* d r>. CO cu a O co CO CO CO CO M u M u CJ 4J 4J 4J u •H C c u c c 4J 0) CO •H 8 CO »tf CO u 4J CJ CO rH •o CO e • rH e rH £ X CO X. X r* CO <0 4J 4J 4J rH u 4J 4J rH < M M 4J 3 3 c j-i O 60 O O < O c •H o vH CO c H e CD z z w cc CO •H J3 3 o w rH X. 4J M-i •H CO •H • •o c •H ■fi c 60 CO 3 *o CO CO 3 CO to 3 O o >s i 3 CO c (0 JC X en 4J 4-1 CO 3 CO W 1.283 qj 60 CM s r>» ra- CT\ ja O c 4-1 QJ c QJ QJ * 4-1 U QJ 0J PQ PL, 3 •H 4-1 c c o 1 •H 60 4J QJ co OJ 0) > CO c 3 H 01 3 -H QJ Cfl U ^ OJ >> T3 Xi QJ PEH c 4-4 o o •H 4-1 c CB o ■u •H ^ 4-1 O 3 D, XI co •H S 4-> n CO H •H Q 1 o CO •H JS QJ o- O CO U l-l 00 o 1 QJ o o u 4-1 O c H QJ CJ M CO CM QJ r^- P4 P C\ 4-» O cfl T3 60 •rl M-l ^ O O 03 IT) o m o CN CM <-i !-H iH H cd CO CO CO J-i M M M CJ 4-1 4-1 4J 4J •H 3 3 o c 3 4-1 0J QJ •H QJ QJ 3 u U 4-1 U c_> r— I 13 CO 3 rH C3 r-\ Jfl. x; CO X X CO CO 4-1 4-1 4-> rH 4J 4J 4-1 .-1 < (-1 u 4-J 3 3 C O 60 o o <1 O O •H o co 3 H 3 cu 2 z CO CO CO •H 3 o w r-1 A 4J 4-1 CO -H T3 4-1 4J 4-1 4J 4-1 3 •H 3 60 co s 13 CO CO 3 CO CO 3 a 0J QJ QJ •rH CO QJ O CO QJ O co CJ> OS 33 2 2 W S co w 3 2 Cm 1.284 Well over 90 percent of the C&R public works investment are funded by the Bureau of Indian Affairs and are related to Indian economic development projects. Thus, as might be expected, the majority of the funds are spent in the western U.S., particularly the Mountain Region, which along received well over half of all Federal C&R investments (Exhibit 7.36). However, an approximately sixfold increase in public works outlays in the West South Central and Pacific Regions between 1972 and 1977, slightly reduced the Mountain Region's share of funds, and con- currently increased those region's shares. 7.2.2.1.2.5 Education Investment in education is a very small part of total Federal public works investment. Using the FIXS data, these investments consisted of Social Security Administration outlays for construction at Howard Uni- versity and Gallaudet College, and outlays related to construction and improvements at the Smithsonian Institute. At most, these investment outlays accounted for no more than 2 percent of all Federal public works investments, and between 1972 and 1977 declined by almost one-third. Finally, all investment outlays occur in Washington, D.C., where the above institutions are located. 7.2.2.1.2.6 Health Federal public works investments for health were the fastest growing FWI functional outlays between 1972 and 1977. However, even in 1977 these investments were fifth in size, and accounted for only slightly more than three percent of all Federal public works investments. All of the funds under this function come from various agency appropriation accounts and programs within the Department of Health, Education and Welfare, and are related to the construction of facilities. Depending on the particular program, these facilities may or may not be actual health or medical facilities. For example, in 1972 approximately 85 percent of the obli- gations under this function went towards the construction of medical facilities; in 1977 all of it went for general facility construction which includes not only medical facilities and laboratories, but also office buildings. Consequently, the nature of Federal public works invest- ments in health may change from year to year depending upon the particular appropriation accounts of programs grouped under this function. In some years the outlays may relate to actual medical facility construction, while in other years they may pertain to the construction of administration buildings. 1 Despite the significant increase in Federal health related invest- ments, four out of the nine Census regions exhibited a decline in outlays between 1972 and 1977 (Exhibit 7.37). These declines were most noticeable In fact this is true to some extent for all of the functions - health and education, most notably. Moreover, most of the funds in each function include amounts for employee compensation, services, and other things not considered by economists to be of a capital account nature. However, such current items are a minor part of the overall funds and because of government accounting practices cannot be separated from outlays which are strictly capital account. 1.285 cu 00 CN c r% CO . o m co o CN -Jf •H in C §3 4-> O CO -H CU 00 M CO rH 3 CO CO U (3 cu cu •3 CJ CU •S 1 w a. 3 O .Q rH •H 4J CU CO Q •H °3 O 3 •H O a oo to cu oo O *3 cu c O CO O CO 4J *J o C H cu o • 0) • PL. 3 *J o CO *3 00 •rl M-t rH O O CO G ■H O CO iH M rH CU rH ON CM -H CN (0 CO (0 CO M h H u o 4J 4J 4J 4J •H C , (3 a c c 4J CU CU •H cu CU a o o 4J CJ o i-H TJ CO G rH O rH .C J2 f0 J= .C CO CO 4J 4J 4J rH 4J 4J 4J rH < M M 4-1 3 3 c O 00 O O < o o •H CJ CO c H s CU 55 55 CO CO CO •H 3 O w f-i £ 4J M-l CO "H • "3 c •H c oo CO 3 *o CO CO 3 CO CO 3 CJ CU cu cu •rt CO cu O CO cu CO U Pi E> ss £ w » CO w s 2 PL) OO c •H •3 § O u o 4J cu 3 "3 CO rH CO U O 4J O u U g •3 • CJ T3 o M CO o CU o a 4J O o m c m • •CO- o JN CU § c CO c CO rH X J= CO CO 4J 4J CJ cu •H 3 CO CO rH rH CO CO Ou CO > "VI ( >ri (0 1.286 ao a> u CO cu > 3 M i-l CO CO >-i CO C CO r^ M O r-K r^. CU •H H CTv TJ 4J O CU CO T> fa 60 •H 4-1 M-l iH O O X> c O CO fi o c O -H rH O •H 60 CO -rl CN 4-1 CU H rH r^ 3 c*s CU rH c^ ,0 TJ -H . — i •H CO CU S U 3 fa **» 4-1 CO CO C •H QJ o o O J* •H .£> & a •> CO JS u u 60 iH CO CU 0) o re l>« CO r^ ■u •H CO C ,Q 3 O •H CO -H ■fi C 60 cu cu w o M m o rH 3 H CO tO 4-i u iH < o 60 H c cu „ w rH TJ CO !5 TJ cu •H p a s 4J 01 TJ CJ TJ O u cfl o o ex ■u O o Ln 3 m o ^ en c C e R) en J= 43 CD 4J 4-1 0) 3 CO CO rH CO en Cfl cu 0) > r-l hJ 1.287 in the New England and Middle Atlantic Regions where Federal health invest- ment dropped from $0.1 and $0.5 million, respectively, in 1972 to zero in 1977. On the other hand, investment in the West South Central, Mountain and Pacific Regions increased substantially. From a combined regional share of only 2 percent in 1972, these regions grew to account for approx- imately 27 percent of all Federal health investments in 1977. However, the largest share of Federal health investments continued to be centered in the South Atlantic Region (particularly Washington, D.C. and the sur- rounding area). Thus, other than the Washington, D.C. area, there does not appear to be any consistency in the spatial distribution of Federal health related investments, but rather a shift in investments from one area to another. 7.2.2.1.2.7 Veterans Facilities The investment funds within this function pertain to the construction of facilities for aged, disabled, and/or infirm veterans. Most of the funds are included within the Construction, Hospital and Domic iary appro- priation account of the Veterans Administration. Federal investment in Veterans facilities accounted for roughly 5 percent of all Federal public works investments in both 1972 and 1977, and was the fourth largest functional component of Federal PWI. Geographic- ally, the investment funds are spread throughout the U.S., although the distribution fluctuated fairly widely between 1972 and 1977 (Exhibit 7.38). The South Atlantic Region! was consistently the largest recipient of Veteran facility investment related funds, accounting for almost one- quarter of total investment outlays in both 1972 and 1977. Behind it was the Pacific Region whose regional share averaged about 15 percent. Two out of the nine Census regions actually experienced an absolute decline in veterans facility investment funds — both of these located in the South Central U.S. As a result, their combined share of total functional investment fell from approximately 30 percent in 1972 to 14 percent in 1977. On the other hand, investment in Veterans facilities in the Moun- tain and Middle Atlantic Regions expanded significantly. This growth was greatest in the Mountain Region where investment increased signifi- cantly between 1972 and 1977. Combined, the regional share of these two areas rose from roughly 10 percent in 1972 to 30 percent in 1977, an almost mirror image of the investment trend in the East and West South Central Regions. 7.2.2.1.2.8 Law Enforcement and Justice Federal investment in law enforcement and justice increased by a factor of almost four between 1972 and 1977, from $23 to $87 million. However, these investments never accounted for more than 2 percent of Again, within the South Atlantic Region, Washington, D.C. was the largest recipient of investment funds. In 1972, this area received roughly 57 percent of the $22 million worth of Veterans facility invest- ment in the South Atlantic Region. In 1977, the share amounted to 72 percent. 1.288 60 CM 3 r^ fl ff\ n JS-HIN u cx> 3 -■ 4-> 0) 3 0) TJ a\ m vO _, r^ o CO o m sj- CO «tf • H CM CD 3 3 a w 3 U 01 CU « Pm O 03 4J u O 3 H a) o • n co s CU 9J cu, s 4-1 co c 0) o > -h 3 60 H CU OS ,-H CO CO CO s V< 3 o 3 CO •H •3 3 4J CU cu CO fn O 6C •H «+-! >* rH X> XI o s « O CO iH •H CU CO 4J »H M 3 4J (U X) »H -3 O »* CM CN CN CO r-l O CO 0> rH CO CO CN <-* d ^ •H co x: n a cu CO 4J S-! CU 60> O cu d O iH CO 3 3 3 M M U U o 4J 4-1 4-1 4J •H 3 3 CJ 3 3 4-1 CU cu •H 3 3 3 CJ O 4J U C_> •3 CO 3 iH 3 rH 43 X! 3 x: x: CO CO 4-1 4-> 4J iH 4J 4J 4J rH H 3 60 CU (U O 60 o O < O O •H o H c cu z z CO CO CO •m w rH X! 4J u-i -3 4J 4-> 4-1 u 4J 3 •H co 3 TJ CO CO 3 CO CO 3 o CU •H 3 cu O 3 QJ O 3 d z £ W & CO W 3 s CU 1.289 all Federal public works investments. Over 90 percent of the investment funds included within this function come from the Bureau of Prisons Con- struction of Facilities appropriation account. 1 Regionally, the invest- ment covers the entire U.S. but, like investment in Veterans facilities, varies significantly between years because of individual facility require- ments (Exhibit 7.39). Between 1972 and 1977, the change in regional investment outlays ranged from a one-third reduction in the New England Region to a twenty-two-fold increase in the East South Central Region. However, because the relative shares of both of these regions were so small, the effect on the overall regional distribution was minor. On the other hand, changes in investments in the Middle Atlantic, South Atlantic and West South Central Regions had a significant impact on the regional distribution of law enforcement and justice investments. Like the East South Central Region, investments in the Middle Atlantic and West South Central Regions increased by more than an order of magnitude. As a result, the combined share of these two regions increased from 13 percent to 71 percent between 1972 and 1977. Meanwhile, a 30 percent ($4.5 million) reduction in law enforcement and justice investments in the South Atlantic Region caused that region's regional share to drop from 66 percent to 12 percent. 7.2.2.1.2.9 General Public Buildings The Federal investments included under this function consist of out- lays made by the General Services Administration for the construction and improvement of Federal buildings which the agency owns and operates. In 1972 these GSA investments amounted to $30 million, with the majority of the funds spent in the South Atlantic and East North Central Regions (Exhibit 7.40). The decline in investment to zero in 1977 is misleading, however, since in actuality GSA continued to make such investments. The problem is that after 1974 the GSA funds for construction and improvement could no longer be identified in the FIXS appropriation data. Beginning in 1975, these funds and others were combined under one 0MB appropriation account — the Federal Buildings Fund. Consequently, it is not possible using the FIXS data to identify GSA capital related expenditures from current ones, leading to an underestimation of Federal public works in- vestments in 1977. From our analyses, it appears that this underestimation has the greatest effect on the PWI estimates of the South Atlantic Region, where 40 percent of GSA investments in 1972 were located, and where total Federal PWI increased by only 5 percent between 1972 and 1977. 7.2.2.1.2.10 All Other Federal investments classified as "all other" consist primarily of construction outlays by the Social Security Administration, Bureau of the Mint, and the U.S. Tax Court. These outlays amounted to nearly $50 million in 1972 but declined significantly in 1977. Like the general The remaining investment relates to costs associated with convert- ing the former Glynco Naval Air Station near Brunswick, Georgia, into the Federal Law Enforcement Training Center. 1.290 0) 60 CM C I s * CO ON u c j_> a) c 3 cj u st O sr o ** co 6 60 U 0) CO « 0) > co B 3 M 03 c iH 01 CO U M OJ ►» -O .O 01 fa * 01 M-l (J O «H 4J C (0 O 3 •H >-j 4J 3 -O JQ C •H cfl U 4J 4J (0 c Si 01 o cj •h p X o a«« co c >- w 60 3 01 CO r- O CM CO ^ co co CO u-> m v£> r-» ON d d 00 m CM CM in CM d CO M o sr "* CM <*-[ iH O CO 4J *J O C H 0) CJ • M CO o co CO 00 CN i-H ON 00 CO V •H CO 0) O d 0) O u os o z a W » CO a SB a 1.291 Exhibit 7.40: Geographic Distribution of Federal Investment in General Public Buildings, by Census Region Federal Obligations Percent of (millions of dollars) U.S. Total 1972 1977 in 1972 330.1 3.8 39.9 75.3 5.0 131.2 16.0 10.7 4.9 43.5 Values may not add to totals due to rounding. NA = Data not available. Census Region U.S. Total 1 Hew England I Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific NA 100.0 NA 1.2 NA 12.1 NA 22.8 NA 1.5 NA 39.7 NA 4.8 NA 3.2 NA 1.5 NA 13.2 1.292 public building investments, however, significant undercoverage appears to be prevalent among these investments in 1977.- In both 1972 and 1977, the majority of the investments in this function were located in the Middle Atlantic and South Atlantic Regions. 7.2.2.2 Relationship Between Federal PWI Outlays and Other Socioeconomic Variables 7.2.2.2.1 Methodology and Hypotheses One of the major issues underlying the PWI study is the question of whether public works investments are related to trends in other socio- economic variables. We have performed some simple statistical tests of correlation between PWI outlays and selected socioeconomic variables. These analyses focus solely on the FIXS Federal PWI outlay data discussed above. Similar analyses focusing on the relationship between state and local PWI outlays and socioeconomic trends are presented in Section 7.3.1.1 It is worth noting at this time, that the analyses presented here are cross-sectional correlation analyses. Time series analysis of Federal PWI relative to socioeconomic conditions was not possible because of the limited number of years (i.e. , two) of Federal outlay data avail- able. The correlation analyses used census region data. This limited the degrees of freedom and prohibited the use of linear correlation techniques. Instead, Federal PWI was analyzed in the two years separately using rank order correlation methods. The particular rank order correlation technique use was the Spearman method. This descriptive statistic attempts to measure simi- larities in rankings between two variables. Using rank order correlation techniques to measure the extent to which the regional distribution of Federal public works investments are related to the regional distribution of various socioeconomic variables, will indicate whether Federal PWI is related to socioeconomic factors. The computational form of the Spearman rank correlation coefficient is: [ 6 c y* ,} l Ln or - i)J where , D i = the difference between individual i's ranks; and N = number of individuals observed. For example, in the appendix to the 1979 U.S. Budget, Social Security Administration construction outlays in the Limitation on Construc- tion appropriation were reported at $15.7 million, while the FIXS data reported only $3.7 million. 1.293 An r g value of 1 indicates perfect positive correlation between the rank order of two variables. A value of -1 indicates perfect negative correlation, and a value of zero represents the existence of no relation- ship. In all, the regional distribution of six variables were compared against Federal public works investments: • U.S. Land Area; • U.S. Water Area; • Federally Owned Land; • Percentage Change in Population in Previous Five Years; • Per Capita Income; and • Population Density. The first three variables were used as physical resource measures, and were included because of the importance of such factors in explaining the regional distribution of resource related Federal investments in the agency specific analyses (Section 7.2.1). The next three are socioeconomic variables, and were used as proxy measures of regional growth, wealth, and economies of scale, respectively. The rationale for the inclusion of the latter variable may not be obvious. Industrial location theory suggests that agglomeration effects may be an important determinant in the concentration of economic activity. That is, existing centers of economic activity offer an already in place industrial or economic base which serves to attract additional economic activity. ThuSj this variable was added to test whether this is related to Federal public works investment. To perform analyses, the regional distribution of each of the above six variables was correlated with the regional distribution of total and functional Federal PWI.l Each correlation was performed for 1972 and 1977 separately. Prior to performing the analyses it was hypothesized that while any one variable may correlate highly with the investments of a particular Federal function, no one variable would correlate highly with all functional outlays. Nor did we expect to find a high correlation between total Federal PWI and any one variable. There were two primary reasons for this. First, in the agency specific analyses of Federal PWI, physical rather than socioeconomic factors were found to be the major underlying factors behind Federal public Federal investments in education were excluded since they were locally centered in Washington, D.C. 1.294 works investments. And a similar finding was expected in analyses using the FIXS data. Thus, it was unlikely that any one exogenous variable was highly correlated with all functional PWI outlays. Secondly, from the regional analysis of Federal public works in- vestments in the previous section, we found significant regional variations occurring in the relative shares between 1972 and 1977. Consequently, unless similar variations occurred in one of the six variables (an unlikely occurrence) , no one of these variables alone would have high explanatory power. 7.2.2.2.2 Analytical Results The results of the individual correlation analyses are shown in Exhibit 7.41. In general, the results tend to support the hypotheses stated above. Of the six variables no single one was important in explaining the regional distribution of Federal public works invest- ments. The highest correlations were found in 1972, and even here the exogenous variables exhibited only moderate explanatory power. On the whole, total Federal PWI was most sensitive to population growth. How- ever, the importance of this variable in explaining Federal PWI in 1972 was only marginally greater than that of U.S. land area, and Federally owned land. And in 1977 the correlationc coefficients were identical (and quite small) for the three variables. Functionally, the highest correlations occurred in community and regional development. As indicated earlier, these Federal investments consist primarily of outlays for construction on Indian reservations. Thus, it is not surprising that they are highly correlated with the regional distribution of total U.S. and Federally owned land area, or that there exists a strong inverse relationship to population density. It is interesting to note that there also exists an inverse relationship with per capita income. This simultaneous existence of an inverse relationship between Federal PWI and both per capita income and popula- tion is also characteristic of space research and technology outlays, but the result is probably fortuitous, since these investments are made in low income regions not in response to low standards of living, but because the regions are strategically located with regard to safety, security, and climate. 1 With regard to the other Federal functional investments, the analyses produced correlations with the control variables which ranged from moderate to poor. Moreover, several of the functions exhibited correlation coefficients which not only varied in size between 1972 and 1977, but changed signs as well. This suggests two possibilities. The See Section 7.2.1.3.4 for a similar discussion of the importance of these factors. 1.295 O «-> <-l «»> O is ur^oeoeoeiini© e «n n o m o o m l^-l .' r .',••• ^"^i R S D S 5 R 5-5;-: °i - S *0 ^ § § u or 0) Q -a oc 0) c 4J •H a •U 0) CO iH a H •H c CO cj 0J >> 0J .jr. £ Ph T3 01 X) u « a o c CO Jjj o CJ a •H •H CO AJ R OS CO O •H C e O CO o i CO CO CJ o CO oo II « X o s s-g a a c mux © W O s? § o <© m r-\ o vo m © * £ 1 CI © cm >. a « 9 3 3 1.296 first is that many Federal public works investment are related to other variables or factors which were not included in this analysis. For example, those functional investments which consist primarily of build- ing construction (e.g., veterans, health, law enforcement and justice) depend upon the condition of the existing capital stock. Thus, analysis with respect to the average age of the existing facilities may produce higher correlations than those found in this analysis. The second possibility is that Federal public works investments may be more sensi- tive to site specific or local conditions rather than broad regional ones. And the socioeconomic characteristics of aggregate regions can differ substantially from those of the individual localities where the actual investments are made. Consequently, analysis at the regional level may produce anomalies which can distort the underlying relation- ships. 1 This is an important qualification to remember when evaluating the results of these correlation analyses. 7.2.2.3 Comparison of Federal Public Works Investment Estimates Derived from FIXS Data to Estimates Published by Other Sources Two different centralized data series have been used in the PWI study to analyze Federal public works investments. In discussing geo- graphic distribution of Federal PWI, estimates derived using the Federal Information Exchange System were used, whereas in the analysis of PWI relative to other macroeconomic variables, the Bureau of Eco- nomic Analysis series on Federal gross fixed capital formation was used. In addition, the Census Governments Division and Office of Management and Budget also publish estimates of Federal public works investments. Although these latter estimates were not used in this study, they are part of the universe of data available on Federal PWI. Given this wide variety of Federal PWI data, we felt it would be useful to make some simple comparisons among the various estimates. To keep this comparison as simple as possible, and comparable to the analyses performed using the FIXS data, the comparison has been limited to two years (1972 and 1977) and only national level estimates of non- military Federal PWI are analyzed. In addition, because the FIXS esti- mates of Federal PWI were primarily construction related investments, purchase of equipment and land have been excluded from the other source. Exhibit 7.42 shows the 1972 and 1977 estimates of total non-military Federal construction published by each source. *• In both years the BEA, Unfortunately, given the questionable validity of the FIXS data below the State level, such detailed correlation analyses would have required an effort beyond the scope of this study. The FIXS PWI estimates were derived by us using the FIXS data. The BEA, Census and OMB estimates are published annually in the Survey of Current Business, Governmental Finances, and Budget of the United States Government , respectively. 1.297 en QJ CJ M D O 0J co 60 CO l-i •l-J 0) c X cu •u u O u • W -H M-l O o o W 03 C -u O co G 03 -U O M O 3 o 03 C/0 00 CO U •u a) C 45 CU 4J O O 4J O 3 O M-l 0) CJ S-i co 3 X » I l l O rH Q -H rH O rH O UH-O •H s ^ r* — i ro oo to co M 3 cO CO O r-l X -H rH rH O ft. rH TJ OJ O 3 4-1 0) c V-i 0) OJ (J <4-< Vj <+-< OJ •H Pk O en oo m cm l I CO r-l 3 03 O rH Q 'H r-l O rH UH -O m oo ^ o co CO l-l 3 cO O rH X -H rH rH h HT3 ON CN CM m <-< o CM rH >tf CO 3 O rH O O T3 CO 3 •H 3 4-1 CO 3 O 4-1 1 CO •H 0) a cO 42 •H 4-1 CO 4-1 CO X CO M u CO u X CJ o 3 33 4J o H 1-1 >s PC O U a (4 CO 00 CO TJ o CO s- ' OJ O T3 a) C a. 3 CO rH 3 3 Pi cO H CO CO U c ai O o CO CO cO 3 r4 OJ o Pi 3 •H >, rH 60 3 CO H X ■H 42 4-1 cO X. CO 3 0) U 4-1 4-1 u-\ o © «» M O «o o» —l p4 f> «» S 2 5 •a < s to«»-*mir(vOvosovOvOsOvor«.(r>mvorvr»oOO eftc*o>c*o^o>c*c*c*o^c*c*e^oAososo\c*©od « 3u a o C U V> V O «»NNNNve*ooommnn(on(> PS ja nciN^o9>9io-»i«v0f>»000 , >©-*(M<»l.»u">sOf"» At lO(rtlAO^vOvO\OvOvO^*OvONNNNNNNfs C OSOS0\O'»OsCAONO'*OSONCTsCF\O\OsO\O , *OS CA OS OS C^ fti 1.305 rH 03 co en (0 fi M CNl 00 ,_) vO ,JJ CM _J » *J M (I) m 1— ( on m 1—1 oo O On ON On 3. -H rH CM -I 00 o a 22 in CO crt 3 o W rH X, 4-1 to •H T3 4J 4-1 4-> 4-1 4-1 d c &0 CO s T3 CO CO 3 CO CO 3 01 QJ CU •H cO 0) O CO 0) u od 3 2 a W 3 c/3 w 2 X 1.306 Figures may be cited to support an image of vitality and growth in the Pacific, South Atlantic, or Mountain Regions (Exhibit 7.47 and 7.48), such as the higher growth rates. However, the differences in these average growth rates are not, by themselves, adequate measures of economic conditions. For example, the South Atlantic and the Mountain Regions have enjoyed average (current dollar) growth rates of 9.1 and 9.2 percent in total personal income over a 20-year period, but they still received the third and fourth lowest per capita personal incomes of the nine regions in 1977, with the East South Central Region providing the floor (Exhibit 7.46). Over the 20-year period, 1958-1977, a condition of stability of rank order with respect to the tabulated characteristics has existed which was withstood migration and urbanization trends. In terms of rela- tive share of population, the nine regions ranked in 1977 exactly as they did in 1958 (Exhibit 7.44 above). Some exchanges have occurred in current dollar per capita income, and perhaps these shifts are trend indicators. The New England Region slipped from third to fourth place, being replaced by the East North Central Region in 1973. Meanwhile, the West South Central Region dropped to eighth as the South Atlantic Region moved into seventh, a change that occurred back in 1959. In a third exchange, the Mountain Region dropped to sixth place in an exchange with the West North Central Region, which moved into fifth place in 1963 (Exhibit 7.47). 7.3.1.2 Regional Shares of Public Works Investment In the earlier discussion of background variables, a relatively stable picture emerged, with regions maintaining their relative positions with respect to population, and with regions in the Northeast, Midwest, and South exchanging ranks in a gradual manner with respect to per capita income, with no region changing its rank by more than one position. With respect to FWI, however, the changes are more significant, with several regions shifting ranks by two or more positions (Exhibit 7.49 and 7.50). For example, the South Atlantic Region moved from third to first in rank of state PWI, and from fourth to first in local PWI. One other region improved its position over the 20 year period — the West South Central Region moved from sixth to fifth place in both state and local PWI expenditures. As noted above, these two regions also led in average annual growth rate of income, but in 1977 they still were among the lowest four regions in per capita income. While growth in PWI accompanied growth in income the impact of PWI on income is not well-defined. The preceding discussions presented regional growth trends in terms of shares of national PWI. These data were based on the constant dollar PWI series derived (as described in Volume IV, Appendix B, of this study) 1.307 CO u 03 ON 00 ,— , CN CJN CN m en 00 CN! T—i rH r^- 00 CNI O r-~ On ^O t— , 00 On n£> O r^ I— 1 00 ^D . v£> o m vO n£> r^ CD £ o u c w ^D o 00 en 0* 00 ^o ON 00 in H I s *- en u-i r^ 00 00 CO v£> LO en r^ ca o en o CO m c ON i— , LO m co ON r-^ CNI m r^ m o to CO n ro co CN CNI CNI CN) CN m M 0) Cm 03 4-J •H CTN CN CN — < ON O vO r^ -* <-* r^ o m CN «tf CN O J, m O CO in v£> —1 i— I m CO M < »i i-^ on C O CO CO < u 0) QJ PL, a O 00 0J LO £ On CJ 3 M-l H O t-l 4J 01 CI C 01 o o en M u OJ (l) Cm Pm co ON co ON 00 4-1 rH 4J 4J rH >i os xi i— i Cfl x (-1 4-1 4-1 4-1 w D c C1J n 0) 3: CO u H cfl X! »-i 4J 4-1 4-J en 3 c CO o 0) w LO O 4-i eo 3 H O 4J .H (0 X M 4-1 4-1 4-1 Cfi n c 0) o CD 3 z u 1— 1 CO -C H 4-1 4-1 4-1 05 H a CO CI) W 55 u 0) 4-1 H C 13 CO T3 H T1 c crt -H s oc QJ c 2 w r-^ in ON r- r^ J- m »r»»r>»r-»r^coco \omencMcM r^ocooooor^r^vovovjovo^oooin^vjom-d-^^ovo mcno>com<— •a\mmmvo\oin<— imcocNii— im^m vrinmr-^vovovom^mvjor^oNONOOO'— i o\ n o ^ Hr _|^H_l^-|^H^-( r H^^H^-I^H^H^HCMCMCMCM^H^H^H enoor-~<-(3>OCT\eoinr^ooom— iX)v£)\0^o^O\or^r^r~-r^.r»-r>.r^r>- on o\ cjn on on on on on on on on on on on on on on on on on on 1.310 c O <~s U 4J c r-l 'CO s c o -i u 4-i 4.) en 3 c m O 01 W to u 3 -H O 4J CO < o a) iH (T3 X V4 4-1 4-1 4-1 en M c tfl O 0J W 2 u s < 5 M 0) 3 2 W cMTivOHONinrnificNcoooinMOrt ONffiNsjoi^rsinrN.jr^tNvoint^^n m-Hinoooooooom-.csicT>intncocTi OOOOOOOOOOCTiCTiOOOOOOOOOOOOOOOOCTvCTi 00OOON>JO^NNO -* CT> CN CO r- CO O vO ■H •-< 00 CM *h r^ m r^ Cn| 3 £ CM CM % CM o>6owaio>ooooNinvovovo *d-*3 - mvomcor^.mmvoi— i cm oo o> m - ■ >-< (Tiooasoooooor^r^cyiCT>^H'-r^msf HHrtHHHp4HHHtMMNHHHH r^a\vom»-i'-H«-3'CT>voocM^^vocMcocTi co«*-*j'— icsico CT* CT* CTN CTv C^ ON C7\ CT\ CTn O^ CT* tT* CT» CT* CJN 1.311 through the use of regionally-specific and national-level deflators. Th« use of per capita data provides a way to improve the control of absolute size effects. The data in Exhibits 7.51, 7.52, 7.53 and 7.54 are the ratios of regional per capita to national per capita PWI expressed as a percent. Some outstanding features of these figures appear in the last five years of the series, where, for example, the Mountain Region increased in both state and local PWI, and the Middle Atlantic Region declined in both. Other important results from these exhibits are: • The West South Central Region has shown increases in PWI per capita at both state and local levels, and in 1977, this region was third in state PWI per capita, and fifth in local PWI per capita. (Meanwhile, as shown in Exhibit 7.31 above, the West South Central Region had an 8.9 percent mean growth rate in personal income for 1959-1977.) • Regional PWI per capita, relative to the national average, at both state and local levels for the New England and Pacific Regions has shown a decline over the 21 year period. The above results are generally consistent with data shown in Exhibits 7.49 and 7.50, above. However, the South Atlantic Region, which rose to first in rank in its share of both state as well as local PWI, ranks only fourth in both the state as well as the local per capita PWI index. This region is still low in per capita income with a rank of seventh in 1977. A further consideration of interpreting the regional shares of PWI is the relative importance of PWI as a component of the state and local government budgets. Direct expenditure by state and local govern- ments, as defined by the Bureau of the Census, Governments Division, in- cludes capital and operating expenditures, which in turn includes wages and salaries. Debt service and pension fund payments are excluded. The proportion of direct expenditure which is allocated to PWI is a measure of the degree to which governments invest their funds as opposed to pay- ing salaries and other operating expenses. A summary of data for the period 1961 to 1977 is shown in Exhibit 7.55. This summary includes averages across the 17 year period and standard deviations of the 17 data points. A high standard deviation represents large changes at some time during the 17 years. 1.312 H O 4J T) c OJ CM o r^ >-i on 4J fl 3 < co s CO o w o •H o- CO c u •I-l ^ 60 a; Q) Pu. (U M CO S 3 Ch CO C , C/5 ^ Noooomcooosrr^ (J\ CJ\ N lA N <■ r- r- «^ oo cn ^HoosNmfncMowoMAincooNvOHfn^N NNHON(NCMNNCNCMN-».coo mcMsrvOvocMincMoo-j-ONO r»»r^ONOOCM^-i>-to— • O — • vO 00 00 00 u cn u c CD o *OMAvOON^Ots •^ONinvom^vovocom** r^coo-tfONcooom^ONON CMvOONOO-3-00^00 0) 3 Z W NcoaiOHNfO\tinvoNcooiOH(Mrt.p^r«»r > *r~.r^ On On On On On On On ON On On On On On On On ON On On On ON ON 1.313 l\\\s S| s|\\\\\\\\W\W\\\ =1 ?l\\\\\\\\\\\\\\\\\\\\* o o CM =1 ilWWVWWWW ■uj U •h co a H CJ o c " ~ On SIWAWWW 2 P-i 4-> c • 03 • w S| o s|\\\\\\\\\\\\\V O "-' 4J 3 C a) 0) -H M ir Pi -H s|\\\\\\\\\\\\\\V ctj 05 U 4-1 ir CO C aWWWWWAV •H 0) (1) Cn OS l-H W #i C e |\\\\\\\\\\\ cd CNJ 00 m §|\\\\\\\\\\\\\\\u\\\\\\\\\\\\\ 4-1 1 1 1 1 1 1 1 1 1 ooooooooo OONO^CNOCOvO^fN I»30I JO 3U3DJ3-H iH -" O 4J -O c QJ CM O r-» M ON (U -i P-i 4J 03 CO 4J < CO c 03 O a u o ■H J-j 00 qj a> P-, Pi 03 U O O >, .J 43 <-a 01 JC i-i 4-1 ■u cn D c 0) O QJ 13 en u rH 03 -C >-i 4-1 4.) cn o c 03 o QJ W co u 3 rH O 4-1 CO < -H 03 X3 V-i 4-1 4-1 4-1 CO (-1 c QJ o QJ S z U rH 01 -C u •u 4-> 4-1 CO u c 03 o OJ W 2 u CU 4-1 >H C TJ 03 •H 4-1 2 < -v c 03 r- 1 s oc QJ c 25 W r^ vo »3- <* m r-^ 0\ -H CN C — 1 ~* o - 1 r^ o m co r^ O CN — 1 cn — t cn CM CN CN 00 »£> CN CN 00^«JClO\vOiAO> or~-cncnoocTiCTvcTi ominmvoo-J-vooocNincnovo^-— icnoo mmmvomoin»*oo\oincNr>.fO nmcnmHffifomH^rKr cN O** CT* C^ CT* On C^ 0*n CT» C^ C\ CT» cn co <3- m vo r^ r^ r-. r^ r^ r-^ r^ &\ C^ O^ O^ C^ 1.315 ON CM 3 s|\\\VA\\\\\\\\\\\\ a e k\\\1 = 1 U c AWWWW o X 1-1 •-) sr o u en u ,I\\\\\\\\\\W to o co en •U J-l •rH CO CU rH CO i-H 3 U «H 3 IS o o «c CO u a) cm P., r^ slWWWW CB CJ M -H P-i -u C CJ • co W 4J =C u u s c 3 c o JWWWW 1 W H M-l CJ O ^ *J 3 C <1) JC o > sC " " u 2 u sIVWVWWWWV 4J 01 CO CO Sj < a 3 .c CO < 4-J S| o U •H •IWWWWWW a CJ o •H )-i 60 a) a) W u M CO »r r-i *j T3 C !3 3 Ph CO =l\\\\\\\\\\\\\\ •H i-l 2: u iH CD CO O CJ o >% ■o S| c 0) rH * on m m m 4_) c r^ vo m oo CN CN en «=r t-^ m o o on r* CN 00 vo m \o m on on t— 1 <— 1 cm r^ m o •U 4-1 4J (/) 3 c ON CN on r-i 00 CO m sr On On o r-> oo en m cm ON -H 0) O CL) CN en ^h 3 CO o m oo • CM 00 CM -3" CM CM -3" m oo o r-. so —" 00 \D CM O on m en cm oo oo cm oo r-» en en en en en CM 00 en en st m on o V© «* O O en oo en r^ o -cr o o •H CU 00 rH r- r- r*. r^ r- r^ r-^ r^ r-* r* r-« r^ r-~ r^ r^ r-^ r^ r^ m r-. m r-» in r-» m r- m r-. m r-» m r>« m r-^ m r^ ON ON ON ON ON ON On On ON ON ON ON ON ON On on ON ON c c o 4-1 cn r-l 3 o CO rH 0) •H u 00 CD o •H ^ CO rH O 4J o c J3 •H 4J CO J= *-> n m a a O -H 4-1 4-1 CO s 4J -H >- 3 Q) v-i cn •H T3 o CJ 'J X rH a = o U o o o M cu •~\ a- (N r^ CT s o •H 00 4J 0) c Pd CO 4-1 en en 3 c CO o 3 c_> 0) CJ r-4 CO >> 4-1 43 o H CO 4-1 3 o •H 0> 4-) U o CO s jG 3 CO |X4 H T> crt 01 C 4-t a •H QJ OOrH 01 0> M CO 4J CO >-l ti CO o cu w S3 C_> 0> 4-1 rH 3 T3 CO T3 rH -J- r-. r-^ st 00 -a- st 00 vO O CM m vO st CN CT> st r-. m st rH mo r^ 00 rH 00 O rH O r-« oo U-l rH r-«. as vO 00 00 Os o> O St St in m r^ co m st st m o o rH OS o oo St CO as m rH 00 rH St co oo r^ co st m oo o vO o o st in r~- st o as oo vO vO 00 rH VO St co r-» vD CO CO st oo as CM O cm as co in st as o in in m co CO st o r-- st o> oo O rH cm so m co rH rH cm as st as cm as as co CM St St ^ OS rH 00 CM st CO oo as OS rH st CM vo m as st CO 01 s S3 w V£> rH CM CO OS rH m r>» 00 CO CM CO CM CM st st r^ as CO CO as as o> as \o r». ct. as «o r^ as as >s rH vo r<» as as so r^ CT> Ov vo r-^ as as 3 3 O O •H •H 4-1 •U CO CJ a C 3 3 *a t^ w a CO CO rH >, CO CO rC 4-1 4-1 •H u H CX CJ CO CO 13 CU O OJ 1.320 PWI for education was dominated by three regions: East North Central (25.9 percent), South Atlantic (16.0 percent), and Pacific (17.7 percent), totalling nearly 60 percent of all state government PWI for education. This type of regional dominance occurs in functional cate- gories other than education. In 1977, three regions (East North Central, 30.9 percent; Middle Atlantic, 16.0 percent; and West South Central, 13.8 percent) accounted for over 60 percent of the health and hospitals PWI. In 1977, two regions (South Atlantic, 48,8 percent; West South Central, 17.9 percent) accounted for 66.3 percent of all water transport and terminals PWI. For local government PWI, the East North Central Region had about one-fourth of the total highway PWI in 1961 and in 1977 (Exhibit 7.57). Similarly, in the health and hospital category, the South Atlantic Region accounted for 20 percent of PWI in 1961 and 19.1 percent in 1977. Over- all, however, the local PWI percents are more evenly distributed than the state PWI percents. The largest value in the local PWI exhibit is 27.9 percent, compared to the five values which exceeded 30 percent in the state PWI exhibit. Nevertheless, significant exceptions, where the percent for one of the two years shown is more than twice the percent for the other, do appear in health and hospitals (Pacific Region) , water supply (East North Central Region), and other utilities (East North Central, South Atlantic, East South Central, and Mountain Regions). More specifically, en the other utilities category, which includes electric power and transit, two regions — the South Atlantic and the Mountain — incareased their 1977 share of local PWI to more than twice its 1961 percent. These two regions also increased their share of edu- cation and water supply PWI. The other growth regions, the Pacific and West South Central Regions, both increased their shares of total highway and their shares of total sewer systems PWI. The one category in which all four of the so-called high-growth regions shifted in the same direction was at the state PWI level, where all four increased their shares of natural resource expen- ditures. 7.3.2.2 Summary of Functional Category Data In summary, Exhibits 7.56 and 7.57 represent simplified descriptive data for the functional PWI categories by regions. Although the East North Central and Middle Atlantic Regions were seen to dominate the national economy, the Mountain Region has dominated growth in certain indicators, particularly population and local PWI since 1969. This dominance has been supported, in an average growth rate sense, by major increases in sewer systems and other utilities. It is important to note, however, that some regions are sustaining high levels of economic growth while 1.321 reducing PWI in highways (Pacific, West South Central and South Atlantic Regions), education (South Atlantic and Pacific Regions), and water supply (Pacific and West South Central Regions). The rapidly changing pattern of allocation priorities for PWI suggests a threshhold effect in public outlay decisions for investment. That is, the need for new public capital, whether due to expanding needs or replacement requirements, builds up over a number of years before the decision to undertake the necessary investments is made. There are several reasons why this would occur. Just as is the case with private capital, there is a "lumpiness" associated with additions to the stock of public capital which precludes having continuous additions to public capital over time. Also, it is possible that there is a recognition lag that delays the public perception of the need for new capital addi- tions. Finally, once the decision is made to undertake a capital pro- ject, often the planning takes place over a year or more and includes building for anticipated future needs as well as current needs. These discontinuities in investment levels can be seen easily in the spate of investments in mass transit that are currently underway in several major cities around the country. A small scale rapid rail trans- it system is difficult to conceive of, so that once undertaken, large amounts of public capital are required to complete the system. 7.3.3 Statistical Analysis of Variations in the Levels of State and Local PWI To learn more about the nature of observed variations in PWI, parallel investigations were undertaken for state and local PWI. For each region and functional category we obtained four measures of temporal variation: 1) the mean value over the time period of the ratio of PWI to direct expenditures; 2) its standard deviation; 3) correlation co- efficients for Ln PWI vs. Ln Direct expenditures; and 4) correlation coefficients for Ln PWI vs. time. 1 Each of these measures was subjected to a two way analysis of var- iance to determine if the source of variation either among regions or among functional categories was statistically significant. The results of these analyses of variance are summarized in Exhibit 7.58. In each case the most significant source of variation is among functional cate- gories. The amount of variance attributed to functional categories always exceeded the 0.01 confidence level. The variation among regions was significnat for some measures and not for others. This finding held true for both state and local PWI. This finding suggests that the observed variations in the levels of PWI among regions is more due to differences in the priorities assigned to PWI functional categories among regions than to differences in the Ln = Log to the bas2 e. 1.322 £5 S3 O «M u o 00 CM 00 •» cm in cm «o o a C eg « > (M CSI CO P"> vo r-» O m 4) -o 0! V U 01 60 H 41 (* O JJ as u. U U 1.9 > B) M m a 2£ e cs U 8 C B) c o> d o D..O u u O O ■* J O Q w > *-> 01 C Q 0) u -a 0) c W C 41 (0 O CO U W O 41 O 10 J5JC 1.323 priority assigned to public investment in general. However, we can expect that there tend not to be long term differences in the emphasis in any of the single, large functional categories among regions, other- wise, variations among regions would be more significant. Here, more detailed statistical work will be required before a firm conclusion can be reached. Comparing the results of the analysis of variance for state PWI with those for local PWI suggests that the variability of the spending patterns at the state level tends to be sharper than at the local level. Most of the F ratios obtained with the state PWI data were considerably larger than those obtained with the data for local PWI. Variations in the levels of PWI between regions do not appear to be large enough to affect regional growth rates more than marginally, and it can be expected that the relationship between PWI and regional growth will be confused due to the influence of other economic factors which affect growth, Also, the lesser regional variation for local PWI is consistent with the earlier observation that there is less temporal variation among the functional categories of local PWI. Although this analysis has not produced any conclusions about the source of variation in the levels of PWI, it serves to emphasize the complexity of the relationships, and the need for detailed study of the factors affecting the demand and supply conditions for PWI by function and region. 7.3.4 The Influence of Socioeconomic I actors The mixed results obtained with the analysis in the previous section had a number of possible shortcomings which might be overcome using cross- sectional data. Most economic series contain serial correlation which produces artificially high correlation coefficients, the multi-state regions may mask relationships or regional differences which would be evident with more detailed data, and structural changes occuring in the annual data (e.g., price inflation) may have some unknown impact on the relationships. It may be possible to correct some of these problems using multiple regression and simple correlation analyses. The PWI data for states was used to test the appropriateness of this more geographically detailed approach. Long term trends for several variables were used. The two dependent variables were the weighted averages of the ratio of PWI to Total Personal Income (TPI) over the period for local and state PWI in each state. The division by TPI was made to standardize the PWI vari- ables for regional size. The independent variables consisted of the 1.324 average annual growth rates of TPI, population, earnings, and the urban population of each state for 1960-1976. The simple correlation coefficients for these variables are given in Exhibit 7.59. These simple correlations suggest that there is an association between the relative amount of PWI and the growth rates of the eco- nomic indicators, since six of the correlations are significant at the one percent level of confidence and the other two at five percent. However, none of the correlations suggest that there is a dominant rela- tionship, with only about 15 percent of the variation in the dependent variables "explained" by the variation in the independent variables. This is not surprising, however, given the findings presented earlier in this chapter, and we can deduce from economic theory that public invest- ments would explain only a portion of economic growth. In fact, the causal explanation may run in the opposite direction, with local growth inducing an increase in PWI expenditures. It is, nonetheless, encouraging that these simple correlations exhibit the degree of correlation that they do, as it suggests that PWI and regional growth rates are causally related to each other. The correlations between PWI and urban growth deserve closer study. It was expected that urban growth would have its principal impact on local PWI, but the data show a greater impact on state PWI. This suggests that states play a major role in financing new urban infrastructure. It may be that since, as is shown in Exhibit 7.55 above, states consistently allocate a larger share of their direct expenditures to capital projects, they are better able to finance the large capital investments needed in rapidly growing urban areas. When these variables were introduced into a stepwise regression to obtain multiple correlation coefficients, only one independent vari- able showed up as a significant in each regression. There existed a large amount of collinearity among the independent variables so that once the variables with the highest correlation with the dependent variable was accepted in the equation, the residual variation was poorly correlated with the remaining independent variables. The independent variable selected by the program for state PWI was the urban growth variable. The F statistic for this relationship was 6.309 which is significant at the five percent level of confidence. The variable selected for local PWI was population growth which had an F statistic of 5.023, also significant at the five percent level of confidence. 7.3.5 Some Concluding Remarks A prominent aspect of the analysis in this section is that since the late 1950 's each ^.f the nine Census regions has increased in popu- lation. They have each maintained about the same share (percent) of the total U.S. population, which implies that they have grown at about the same rate. 1.325 Exhibit 7.59: Simple Correlation Coefficients for State and Local PWI and Selected Socioeconomic Variables Average Annual Growth Rates of: Total Personal Income (TPI) Population Earnings Urban Population State PWI/TPI Local PWI/TPI .412 2 2 .397 Z .350 1 .408 2 .427 2 .412 2 .426 2 .315 1 Significant at .05 level. 2 Significant at .01 level 1.326 But any demographer knows that this result is an oversimplifi- cation which ignores rural-urban shifts, age distribution changes, and the entire human capital concept. The investigation of such detailed variables is possible at the regional level, and some analyses could be performed using the PWI data collected during this study. But carrying such a project through a conclusive level presents substantial difficulties which could not be resolved within the confines of the present study. There are some possible policy recommendations of a general nature, one of which is to pay attention to an approach pioneered by the Economic Development Administration and the multi-state regional com- missions. This approach involves the use of multi-county "subregions" and multi-state regions to form a planning/ policy analysis link between local government activities and broad scale regional analyses and policies. The formation of multi-county and multi-state planning/coordinating units received validation when the same concept was implemented by HUD in its Council of Governments and regional planning commissions strategy. Data analysis and planning activities at this level could provide the basis for a PWI, regional growth analysis at a multi-scale level which would be a logical extension of the present effort. The present data base can be incorporated into the planning process of multi-state regions directly. However, to use these data in planning and analysis for sub-state regions, it will be necessary to disaggregate the data further. Given the substantial difficulties this would entail, such disaggregations should be conducted only on an as needed basis. One conclusion which was generally understood, or at least accepted, has emerged again from the present analysis. This results is that high growth rates do not make wealthy regions out of poor ones overnight. Thus, the South Atlantic Region, which has experienced an average current dollar personal income growth of 9.1 percent for the period 1958-1977, still had, in 1977, the third lowest per capita income. (During this period, the U.S. average annual current dollar growth rate for personal income was 7.9 percent). 7.4 Financial Mechanisms The funding source used by state and local governments can vary substantially from one area to another — indeed, from locality to locality. To determine just how large this variance is, and how it 1.327 has changed over time, we have analyzed the distribution of own-source receipts and grants-in-aid at the Census regional level. 7.4.1 Regional Variations in Own-Source Receipts As was noted in earlier chapters, there are regional differences in the distribution of resources available for capital and non-capital spending. In the case of Federal aid, regional differences were shown to be significant in earlier years. However, there has been a trend toward distributional equality across regions in more recent years. In the case of own-source revenues, there are also notable differ- ences across regions and across time (Exhibits 7.60 and 7.61). For local governments, the growth of revenues across regions from own- source receipts varies greatly. The regions with the highest ratios of own-source receipts to personal income are New England, the Middle Atlantic, and the Pacific. Especially notable is the slowness of growth and, if fact, the actual relative decline, of this ratio for some regions. The West North Central, East South Central, and Mountain Regions all experienced declines in the ratio from 1967-1977, and the West South Central and Pacific Regions experienced minimal growth. For state governments, the pattern is somewhat different. The rate of growth in the ratio of own-source receipts to personal income is greater over the 1967 to 1977 period than for local governments. The Pacific, Mountain, East South Central, and Middle Atlantic Regions had the higest ratios. More apparent is the rapid growth between 1967 and 1977 of the ratio for certain regions: New England, Middle Atlantic, East North Central, and Pacific. This suggests the increas- ing demands on the state governments in these regions, and goes far in explaining the current reluctance of taxpayers there to accept these increases. It may also suggest a shifting of some responsibilities, formerly associated with local governments, to the states as fiscal pressures increase locally. 7.4.2 Regional Distribution of Federal Grants-in-Aid There is a growing body of literature concerning the regional impacts of Federal grants-in-aid. Often, the debate is structured in terms of differential gains to areas in the southwest and far west at the expense of the northeast. Also, the argument has been framed in "Special Report: The Second War Between the States," Business Week , May 17, 1976, pp. 92-114; Joel Haveman, Neil R. Pierce, and Rochelle L. Stanfield, "Federal Spending — The North's Loss is the Sunbelt's Gain," National Journal , Vol. 8, No. 26, June 26, 1976, pp. 878-891; and Haveman and Stanfield, "A Year Later, the Frostbelt Strikes Back," National Journal , Vol. 9, No. 27, July 2, 1977, pp. 1028-1037. 1.328 00 Z 1.329 2$ si c o 4J •H c Of, QJ QJ u « M QJ en P-, 3 en 03 c c; CO CJ nj >, 4J 0) C Pi a) g 0) C — 3 „<2 JJ 0! 3 S Xi O i 5^£ 1.332 Exhibit 7.63: Per Capita Federal Grants-in-Aid, by Census Region (dollars) Census Region 1957 1962 1967 1972 1977 U.S. Total 1 22.7 41.8 77.6 147.7 284.0 New England 18.7 35.0 71.0 149.8 306.9 Middle Atlantic 13.8 25.2 64.1 151.6 313.7 East llorth Central 15.9 32.8 57.9 126.5 247.8 West North Central 27.0 44.8 79.3 131.3 265.6 South Atlantic 21.2 33.0 65.1 122.9 255.5 East South Central 26.3 46.2 90.2 155.3 278.6 West South Central 31.0 45.5 81.0 140.1 245.9 Mountain 45.7 64.6 125.6 185.0 307.8 Pacific 34.7 55.2 120.7 201.6 354.4 Values may not add to totals due to rounding. 1.333 The relative positions of some other regions have not changed signif- icantly. The South Atlantic and East North Central Regions have remained consistently below the national average, while the Mountain and Pacific Regions have remained consistently above. The New England Region has moved ahead in recent years, climbing above the national average in 1972. The general trend toward a more equal distribution of Federal aid per capita to regions is most clearly seen when variations from the mean value for the nation are presented simultaneously. The simultaneous representation of these relationships is shown in Exhibit 7.64. In addi- tion, Exhibits 7.65 through 7.73 show over- and under-representation of each region in receipt of grants-in-aid. The trends indicated here are significant. In 1957, for example, for every dollar distributed per capita for the nation in Federal aid, the New England Region received $0.82 and the Mountain Region received $2.01. The convergence of per capita aid is evident over time. In 1977, the Mountain and New England Regions received $1.08 for every $1 per capita distributed to the nation on average. Deil Wright^- argues that the shift occurred because of increased aid during the 1960's to urban states concentrated in the northeast. This is seen as a consequence of the urban focus of the New Frontier and Great Society programs of the decade. However, Dales argues that the changing trend is a function of the matching requirements in many Federal aid programs. The effect is that "...States that receive the largest per capita assistance grants include some of the highest per capita incomes in the country. "2 The variations in the amount of Federal aid received by the various regions and states is in many ways a function of different allocation formulae. Differing factors — such as total population, per capita per- sonal income, maintenance of effort, non-formula project specific grants — affect regional distribution, and given states and regions may fare better under certain grant criteria. 3 7.5 Some Directions for Further Research The analysis discussed in this chapter has raised many more ques- tions than it has answered. This is not particularly surprising given the complexity of the subject. There exists no coherent body of thought Wright, Deil S., Federal Grant s-in-Aid : Perspectives and Alterna - tives , Washington, D.C., American Enterprise Institute, 1968. 2 Dales, Sophie R. , "Federal Grants to State and Local Governments, Fiscal Year 1975: A Quarter-Century Review," Social Security Bulletin , Vol. 39, September 1976, p. 30., - This is noted by Daniel Elazar, American Federalism , New York, New York, Thomas Y. Cromwell Company, 1971, p. 79. 1.334 on how PWI affects the economy, and only a relatively minor portion of the resources available for this study could be directed toward this question. With respect to the directions that additional research might take, there appear to be three main areas requiring further study. One need is to focus on the role that public capital plays in regional and national production functions. This will not be an easy task, but a better under- standing of how public capital interacts with the other productive factors will be required if we wish to formulate rational policies. The second area is more immediately related to the formulation of Federal policy. The evidence developed in this study suggests that the creation of effective Federal policy which will influence the overall rate of public investment must await closer study of the determinants of state and local decision-making, or the Federal government must undertake to increase the amount of direct Federal investment. Whatever approach is considered, it appears to be necessary to develop mechanisms that will discourage the use of Federal monies to substitute for local spending which would occur even if the Federal support were not available. The third area is really a part of, or a prelude to, accomplishing the other two. The statistical complexity of a thorough analysis of the PWI will require a substantial econometric effort. The data bank required for such an effort is a large one, and the problems of multi-colinearity, serial correlation, dynamic relationships, and simultaniety will require the use of sophisticated analytical techniques. These must be dealt with, however, before it will be possible to have confidence that the statistical relationships observed are descriptive of the true relationships. 1.335 Exhibit 7.64: Per Capita Federal Grants-in-Aid to Census Regions Relative to National Average 2.10 2.00 a 1.80 o u Hi c 1.60 c •§ 1.40 1.20 2 1.00 _ c 0.80 •H 00 0! BS O O 0.60 0.40 New England Middle Atlantic ■» ' ■ East Worth Central • •••• West North Central ***••* South Atlantic ••■•■•a East South Central •■■••a West South Central ••■••••• Mountain • Pacific V" *«««■** 1957 1962 — I — 1967 Year 1972 — T - 1977 1.336 3 •H M a cu 01 OS u T3 u e CO m a, M G o w C 3 aj •H 53 4J Cfl •u c C OJ o en •H 0) 60 u 01 a os 0) OS CO 1 3 u en aj c T3 a> c U s >«« 73 ,n C cfl » I -a M •H OJ < > O c •H i-j 1 c CO o c •H 1 c U) 0) 4J t; c i-i m 0) U cu U vO sO 1.338 1-1 c a o u (i) nn TJ 0) 0) P(3 t^ s-- M 4= 0) •u cu u O 4-1 Z O 4-1 c W o rt •H w ■u CO 4J c c 0) o CO ■H cy on l-i CD a Pi. CU pd en 3 t-i CO 0) c -a OJ c u C3 >% T> .Q C ffl 1 T3 )-i ■H (U i o c •H 4-1 1 c CO CU 4-1 u c u m 3 ?^ -a X3 CD U U C M cfl CU M Dh U en \D 8" — 1 a r— | 1 r— j 2 1 o 1 1 i nfi i s g © — — © 1.340 R S 1.341 a ■ o ' ' 1 — 1 r— | r— r [— | r— ] r— | i— | r— | [— i [— | r— | o [ini. o ■ - o- • 8 ■ 5 s s | i 5 I | 2 s 1 | | o § § u l, S •> • • 5 1.342 * s s 5*22 5 i i | »:■ 1.363 QJ -n tu u. CO 4-1 •H c fa- o ct) u oo c 3 n ■H S 4-1 n3 C c 0) tn CU an M . -a JQ c 01 1 TJ u •H CI) < > o a •u i C [fl a> 4-1 y c u ctj 01 M fin o 5 5 ? 1.344 00 i Pi v -I -H •H : CJ J 00 -i CD u c 3 X> 3 » I T3 ■j -H u < > I 2 CO J C I. 345 MAP OF THE CENSUS REGIONS 1.346 i.34: Volume II Analysis of Maintenance, Condition and Financing of Urban Capital Stock VOLUME II TABLE OF CONTENTS Page LIST OF EXHIBITS viii 1.0 INTRODUCTION AND SUMMARY OF FINDINGS II. 1 1.1 Introduction II. 1 1.2 Summary of Findings II. 1 2.0 DESCRIPTION OF CASE STUDY METHODOLOGY AND ANALYSIS OF RESULTS ACROSS CITIES II. 5 2.1 Introduction II '5 2.2 Methodology for Case Study Analysis II. 5 2.2.1 Selection of Functional Categories II -5 2.2.2 Selection of Cities II. 7 2.3 Intercity Comparisons 11.11 2.3.1 Summary of Expenditure Data and Condition of Capital Stock 11.11 2.3.2 Effects of Federal Grants- in-Aid 11.24 2.3.3 Revenue-Generating Capacity of Cities 11.31 2.4 Summary 11.36 3.0 BALTIMORE, MARYLAND II. 38 3.1 Introduction and Summary of Findings 11.38 3.1.1 Introduction 11.38 3.1.2 Summary of Findings 11.38 3.2 City Description 11.39 3.2.1 Population and Employment Trends 11.39 3.2.2 Total Revenues and Expenditures for the City 11.39 3.2.3 City Government Structure/Responsibility for Public Works Activities 11.43 3.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.44 3.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.48 3.4.1 Water and Sewer Systems 11.48 3.4.2 Streets and Bridges 11.54 3.4.3 Mass Transit 11.59 ii TABLE OF CONTENTS (Continued) Page 3.5 Analysis and Conclusions 11.61 3.5.1 Public/Private Cooperation 11.61 3.5.2 Effects of Federal Grants-in-Aid 11.64 3.5.3 Revenue-Generating Capacity of the City II. 64 3. 5. A Some Implications 11.65 4.0 DALLAS, TEXAS 11.66 4.1 Introduction and Summary of Findings 11.66 4.1.1 Introduction 11.66 4.1.2 Summary of Findings 11.66 4.2 City Description 11.67 4.2.1 Population and Employment Trends 11.67 4.2.2 Total Revenues and Expenditures for the City 11.67 4.2.3 City Government Structure/Responsibility for Public Works Activities 11.71 4.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.72 4.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.77 4.4.1 Water and Sewer Systems 11.77 4.4.2 Streets and Bridges 11.85 4.4.3 Mass Transit 11.92 4.5 Analysis and Conclusions 11.96 4.5.1 Public/Private Cooperation 11.96 4.5.2 Effects of Federal Grants-in-Aid 11.100 4.5.3 Revenue-Generating Capacity of the City 11.101 4.5.4 Some Implications 11.102 5.0 DES MOINES, IOWA 11.103 5.1 Introduction and Summary of Findings 11.103 5.1.1 Introduction 11.103 5.1.2 Summary of Findings 11.103 5.2 City Description 11.104 5.2.1 Population and Employment Trends 11.104 5.2.2 Total Revenues and Expenditures for the City 11.104 5.2.3 City Government Structure/Responsibility for Public Works Activities 11.104 iii TABLE OF CONTENTS (Continued) 5.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.108 5.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.113 5.4.1 Water and Sewer Systems 11.113 5.4.2 Streets and Bridges 11.121 5.4.3 Mass Transit 11.127 5.5 Analysis and Conclusions 11.131 5.5.1 Public/Private Cooperation 11.131 5.5.2 Effects of Federal Grants-In-Aid 11.131 5.5.3 Revenue-Generating Capacity of the City 11.132 5.5.4 Some Implications 11.132 6.0 HARTFORD, CONNECTICUT 11.133 6.1 Introduction and Summary of Findings 11.133 6.1.1 Introduction 11.133 6.1.2 Summary of Findings 11.133 6.2 City Description 11.134 6.2.1 Population and Employment Trends 11.134 6.2.2 Total Revenues and Expenditures for the City 11.134 6.2.3 City Government Structure/Responsibility for Public Works Activities 11.138 6.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.138 6.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.143 6.4.1 Water and Sewer Systems 11.143 6.4.2 Streets and Bridges 11.151 6.4.3 Mass Transit 11.157 6.5 Analysis and Conclusions 11.159 6.5.1 Public/Private Cooperation 11.159 6.5.2 Effects of Federal Grants-In-Aid 11.160 6.5.3 Revenue-Generating Capacity of the City 11.160 6.5.4 Some Implications 11.161 7.0 NEWARK, NEW JERSEY 11.162 7.1 Introduction and Summary of Findings 11.162 7.1.1 Introduction 11.162 7.1.2 Summary of Findings 11.162 iv TABLE OF CONTENTS (Continued) 7.2 City Description 11.163 7.2.1 Population and Employment Trends 11.163 7.2.2 Total Revenues and Expenditures for the City 11.163 7.2.3 City Government Structure/Responsibility for Public Works Activities 11.167 7.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.168 7.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.172 7.4.1 Water and Sewer Systems 11.172 7.4.2 Streets and Bridges 11.184 7.5 Analysis and Conclusions 11.189 7.5.1 Effects of Federal Grants- in- Aid. 11.189 7.5.2 Revenue-Generating Capacity of the City 11.190 7.5.3 Some Implications 11.191 8.0 NEW ORLEANS, LOUISIANA 11.192 8.1 Introduction and Summary of Findings 11.192 8.1.1 Introduction 11.192 8.1.2 Summary of Findings 11.192 8.2 City Description 11.193 8.2.1 Population and Employment Trends 11.193 8.2.2 Total Revenues and Expenditures for the City 11.193 8.2.3 City Government Structure/Responsibility for Public Works Activities 11.197 8.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.198 8.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.204 8.4.1 Water and Sewer Systems 11.204 8.4.2 Streets and Bridges 11.214 8.4.3 Mass Transit 11.222 8.5 Analysis and Conclusions 11.225 8.5.1 Public/Private Cooperation 11.225 8.5.2 Effects of. Federal Grants-in-Aid 11.226 8.5.3 Revenue-Generating Capacity of the City 11.227 8.5.4 Some Implications 11.228 TABLE OF CONTENTS (Continued) Page 9.0 PITTSBURGH, PENNSYLVANIA 11.230 9.1 Introduction and Summary of Findings 11.230 9.1.1 Introduction 11.230 9.1.2 Summary of Findings 11.230 9.2 City Description 11.231 9.2.1 Population and Employment Trends 11.231 9.2.2 Total Revenues and Expenditures for the City 11.231 9.2.3 City Government Structure/Responsibility for Public Works Activities 11.233 9.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.233 9. A Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.240 9.4.1 Streets, Bridges, and Sewage Collection Systems 11.240 9.4.2 Water System 11.254 9.4.3 Sewage Treatment System 11.258 9.4.4 Mass Transit 11.262 9.5 Analysis and Conclusions JI'255 9.5.1 Public/Private Cooperation 11.266 9.5.2 Effects of Federal Grants-in-Aid 11.267 9.5.3 Revenue-Generating Capacity of the City 11.268 9.5.4 Some Implications 11.268 10.0 ST. LOUIS, MISSOURI 11.270 10.1 Introduction and Summary of Findings 11.270 10.1.1 Introduction " 5*?Z? 10.1.2 Summary of Findings 10.2 City Description 10.2.1 Population and Employment Trends 10.2.2 Total Revenues and Expenditures for the City 10.2.3 City Government Structure/Responsibility for Public Works Activities 11.275 10.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 10.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 10.4.1 Water System 10.4.2 Streets and Bridges 10.4.3 Sewer System 11.270 11.271 11.271 11.271 11.276 11.281 11.286 11.293 10 4.4 Mass Transit 11.298 vi TABLE OF CONTENTS (Continued) 10.5 Analysis and Conclusions 11.301 10.5.1 Effects of Federal Grants-In-Aid 11.301 10.5.2 Revenue-Generating Capacity of the City 11.302 10.5.3 Some Implications 11.303 11.0 SEATTLE, WASHINGTON 11.304 11.1 Introduction and Summary of Findings 11.304 11.1.1 Introduction 11.304 11.1.2 Summary of Findings 11.304 11.2 City Description 11.305 11.2.1 Population and Employment Trends 11.305 11.2.2 Total Revenues and Expenditures for the City 11.305 11.2.3 City Government Structure/Responsibility for Public Works Activities 11.309 11.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock 11.309 11.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.314 11.4.1 Streets, Bridges, and the Sewage Collection System 11.314 11.4.2 Water System 11.234 11.4.3 Sewage Treatment Facility 11.328 11.4.4 Mass Transit 11.332 11.5 Analysis and Conclusions 11.335 11.5.1 Public/Private Cooperation 11.335 11.5.2 Effects of Federal Grants-in-Aid 11.335 11.5.3 Revenue-Generating Capacity of the City 11.336 11.5.4 Some Implications 11.337 LIST OF EXHIBITS Exhibit Number Page 2.1 Comparative Condition Rating for Each Functional Area by City, January-February 1979 11.13 2.2 Maintenance Expenditures for the Water Systems (in thousands of constant 1972 dollars) 11.14 2.3 Capital Expenditures for the Water Systems (in thousands of constant 1972 dollars) 11.16 2.4 Maintenance Expenditures for the Sewer Systems (in thousands of constant 1972 dollars) 11.17 2.5 Capital Expenditures for the Sewer Systems (in thousands of constant 1972 dollars) 11.18 2.6 Maintenance Expenditures for Streets (in thousands of constant 1972 dollars) 11.20 2.7 Maintenance Expenditures for Bridges (in thousands of constant 1972 dollars) 11.21 2.8 Capital Expenditures for Streets (in thousands of constant 1972 dollars) 11.22 2.9 Capital Expenditures for Bridges (in thousands of constant 1972 dollars) 11.23 2.10 Maintenance Expenditures for the Mass Transit Systems (in thousands of constant 1972 dollars) 11.25 2.11 Capital Expenditures for the Mass Transit Systems (in thousands of constant 1972 dollars) 11.26 2. 12 Non-Local Revenue as Percent of General City Revenue (excluding utility revenues) 11.28 2.13 Adjusted Property Tax Rate for City Activities Per $1,000 of Fair Market Value 11.32 2.14 Indicators of Capacity for Selected Cities to Increase Own-Source Revenues 11.34 3.1 Population, Employment and Income Characteristics of Baltimore 11.40 3.2 Employment by Sector in Baltimore 11.40 3.3 Total Revenues and Expenditures for Baltimore (millions of dollars) 11.41 3.4 Maintenance Expenditures in Current and Constant (1972) Dollars for Five Selected Functions in Baltimore (thousands) 11.45 3.5 Capital Expenditures in Current and Constant (1972) Dollars for Four Selected Functions in Baltimore (thousands) 11.46 3.6 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Baltimore 11.47 3.7 Water System Maintenance Expenditures 11.49 3.8 Sewer System Maintenance Expenditures 11.51 4. ,11 4. ,12 ■4, 13 4, ,14 4. ,15 4, ,16 4, ,17 4, ,18 4, ,19 4, ,20 II .53 II. .55 II .57 II .58 II .60 LIST OF EXHIBITS (Continued) Exhibit Number Page 3.9 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11.52 3.10 Sewer System Capital Expenditures by Revenue Source (thousands of dollars) 3.11 Street Maintenance Expenditures 3.12 Bridge Maintenance Expenditures 3.13 Capital Expenditures for Streets and Bridges by Revenue Source (thousands of dollars) 3.14 Mass Transit Maintenance Expenditures 3.15 Capital Expenditures for Mass Transit by Revenue Source (thousands of dollars) 11.62 4.1 Population, Employment and Income Characteristics of Dallas 11.68 4.2 Employment by Sector in Dallas 11.68 4.3 Total Revenues and Expenditures for Dallas (millions of dollars) 11.69 4.4 Maintenance Expenditures in Current and Constant (1972) Dollars For Five Selected . Functions in Dallas (thousands) 11.73 4.5 Capital Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in Dallas (thousands) 11.74 4.6 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Dallas 11.75 4.7 Water System Maintenance Expenditures 11.78 4.8 Sewer System Maintenance Expenditures 11.79 4.9 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11.81 4.10 Sewer System Capital Expenditures by Revenue Source (thousands of dollars) 11.82 Water Main Breaks 11.84 Sewer Stoppages Cleared 11.86 Street Maintenance Expenditures 11.88 Capital Expenditures for Streets by Revenue Source (thousands of dollars) 11.89 Estimated Expenditures and Funding Sources For Street Resurfacing (thousands of dollars) 11.90 Capital Expenditures for Bridges by Revenue Source (thousands of dollars) 11.91 Condition of Streets in Dallas 11.93 Maintenance Expenditures, Dallas Transit System (thousands of dollars) 11.94 Revenue Trends, Dallas Transit System (thousands of dollars) 11.95 Estimated Funding Sources for Capital Expenditures, Dallas Transit System (thousands of dollars) 11.97 LIST OF EXHIBITS (Continued) Exhibit Number A. 21 Capital Outlays for Park and Ride Terminals in Dallas (thousands of dollars) 4.22 Capital Outlays for Surtran (thousands of dollars) 4.23 Age of Fleet, Dallas Transit System, September 1978 4.24 Engine Overhauls and Maintenance Inspections, Dallas Transit System 5.1 Population, Employment and Income Characteristics of Des Moines 11.105 5.2 Employment by Sector in Des Moines 11.105 5.3 Total Revenues and Expenditures for Des Moines (millions of dollars) 11.106 5.4 Maintenance Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in Des Moines (thousands) 11.109 5.5 Capital Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in Des Moines (thousands) 11.111 5.6 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Des Moines 11.112 5.7 Water System Maintenance Expenditures 11.114 5.8 Sewer System Maintenance Expenditures 11.115 5.9 Water System Capital Expenditures By Revenue Source (thousands of dollars) 11.117 5.10 Sewer System Capital Expenditures By Revenue Source (thousands of dollars) 11.118 5.11 Street Maintenance Expenditures 11.122 5.12 Bridge Maintenance Expenditures 11.123 5.13 Street Capital Expenditures by Revenue Source (thousands of dollars) 11.124 5.14 Bridge Capital Expenditures by Revenue Source (thousands of dollars) 11.125 5.15 1977 Bridge Need Survey 11.128 5.16 Mass Transit Maintenance Expenditures 11.129 5.17 Mass Transit Capital Expenditures by Revenue Source (thousands of dollars) 11.129 6.1 Population, Employment and Income Characteristics of Hartford 11.135 6.2 Employment by Sector in Hartford 11.135 6.3 Total Revenues and Expenditures for Hartford (millions of dollars) 11.136 6.4 Maintenance Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in Hartford (thousands) 11.139 LIST OF EXHIBITS (Continued) Exhibit Number Page 6.5 Capital Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in Hartford (thousands) 11.141 6.6 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Hartford 11.142 6.7 Water System Maintenance Expenditures 11.144 6.8 Sewer System Maintenance Expenditures 11.145 6.9 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11.147 6. 10 Sewer System Capital Expenditures by Revenue Source (thousands of dollars) 11.148 6.11 Data on Main Breaks, Leaks and Repairs 11.150 6.12 Maintenance of Sewer Systems 11.152 6.13 Street Maintenance Expenditures 11.153 6.14 Bridge Maintenance Expenditures 11.155 6.15 Capital Expenditures for Streets and Bridges by Revenue Source (thousands of dollars) 11.156 6.16 Operating Revenues and Expenditures for Mass Transit (thousands of dollars) 11.158 6.17 Mass Transit Maintenance Expenditures 11.158 7.1 Population, Employment and Income Characteristics of Newark 11.164 7.2 Employment by Sector in Newark 11.164 7.3 Total Revenues and Expenditures for Newark (millions of dollars) 11.165 7.4 Maintenance Expenditures in Current and Constant (1972) Dollars For Four Selected Functions in Newark (thousands) 11.169 7.5 Capital Expenditures in Current and Constant (1972) Dollars For Four Selected Functions in Newark (thousands) 11.170 7.6 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Newark 11.171 7.7 City Water System Maintenance Expenditures 11.173 7.8 Regional Authority's Water System Maintenance Expenditures (Newark's contribution only) 11.175 7.9 Water System Maintenance Expenditures (City plus Regional Authority) 11.176 7.10 Sewage Collection Maintenance Expenditures 11.177 7.11 Regional Authorities' Sewage Treatment Maintenance Expenditures 11.178 7.12 Sewer System Maintenance Expenditures (City System plus Regional Authorities) 11.179 7.13 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11.180 Exhibit Number LIST OF EXHIBITS (Continued) 7.14 7.15 7.16 7.17 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 8.11 8.12 8.13 8.14 8.15 8.16 8.17 8.18 8.19 Sewer System Capital Expenditures By Revenue Source (thousands of dollars) Street Maintenance Outlays Capital Expenditures for Streets By Revenue Source (thousands of dollars) Capital Expenditures for Bridges By Revenue Source (thousands of dollars) 11.182 11.185 11.186 11.188 Population, Employment and Income Characteristics of New Orleans 11.194 Employment by Sector in New Orleans 11.194 Total Revenues and Expenditures for New Orleans (millions of dollars) 11.195 Maintenance Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in New Orleans (thousands) 11.199 Capital Expenditures in Current and Constant (1972) Dollars for Five Selected Functions in New Orleans (thousands) 11.200 Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for New Orleans 11.202 Water System Maintenance Expenditures 11.205 Sewer System Maintenance Expenditures 11.206 Water System: Eleven Year Summary of Capital Expenditures by Revenue Source (dollars) 11.207 Sewer System: Eleven Year Summary of Capital Expenditures by Revenue Source (dollars) 11.209 Sewer System Capital Expenditures (thousands of dollars) 11.210 Water System Repair Activity, 1966-1972 11.211 Sewer System Maintenance Activity, 1967-1973 11.213 Street Maintenance Outlays: Expenditures by the Street Maintenance Division, Department of Streets 11.216 Capital Expenditures for Streets by Funding Source (dollars) 11.217 Capital Expenditures for Bridges by Revenue Source (dollars) 11.219 Street Maintenance Levels, New Orleans Department of Streets 11.220 Complaints Received and Responded To, New Orleans Department of Streets 11.221 New Orleans Public Services, Inc. Transit Maintenance Expenditures 11.223 LIST OF EXHIBITS (Continued) Exhibit Number Page 9.1 Population, Employment and Income Characteristics of Pittsburgh 11.232 9.2 Employment by Sector in Pittsburgh II. '232 9.3 Total Revenues and Expenditures for Pittsburgh (millions of dollars) 11.234 9.4 Maintenance Expenditures in Current and Constant (1972) Dollars for Six Selected Functions in Pittsburgh (thousands) 11.236 9.5 Capital Expenditures in Current and Constant (1972) Dollars for Six Selected Functions in Pittsburgh (thousands) 11.238 9.6 Summary of Condition of Capital Stock and of Maintenance of Capital Expenditures for Pittsburgh 11.239 9.7 Street Maintenance Expenditures 11.241 9.8 Bridge Maintenance Expenditures 11,243 9.9 Sewage Collection Maintenance Expenditures 11.244 9.10 Capital Expenditures (including resurfacing) for Streets by Funding Source (thousands of dollars) 11,245 9.11 Capital Expenditures for Street Resurfacing by Revenue Source (thousands of dollars) 11.246 9.12 Capital Expenditures for Bridges by Revenue Source (thousands of dollars) 11.248 9.13 Sewage Collection Capital Expenditures by Revenue Source (thousands of dollars) 11.249 9.14 Restricted/Closed Bridges as of January 11, 1979 11.251 9.15 Water System Maintenance Expenditures 11.255 9.16 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11,256 9.17 Sewage Treatment Maintenance Expenditures 11.259 9.18 Sewage Treatment Capital Expenditures by Revenue Source (thousands of dollars) 11,260 9.19 Maintenance Expenditures on Mass Transit 11.263 9.20 Total Maintenance Employees for Mass Transit System 11.264 9.21 Capital Expenditures on Mass Transit by Revenue Source (thousands of dollars) 11,265 10.1 Population, Employment and Income Characteristics of St. Louis 11.272 10.2 Employment by Sector in St. Louis 11.272 10.3 Total Revenues and Expenditures for St. Louis (millions of dollars) 11,273 xiii Exhibit Number LIST OF EXHIBITS (Continued) 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10 15 10 16 10 17 10 18 Maintenance Expenditures in Current and Constant (1972) Dollars for Five Selected Functions in St. Louis (thousands) Capital Expenditures in Current and Constant (1972) Dollars For Five Selected Functions in St. Louis (thousands) Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for St. Louis Water System Maintenance Expenditures Water System Capital Expenditures by Revenue Source (thousands of dollars) Annual Summary of Repairs to the Water Distribution System Street Maintenance Expenditures Bridge Maintenance Expenditures Capital Expenditures for Resurfacing by Revenue Source (thousands of dollars) Capital Expenditures For Streets (including resurfacing) by Revenue Source (thousands of dollars) Capital Expenditures for Bridges by Revenue Source (thousands of dollars) Sewer System Maintenance Expenditures Sewer System Capital Expenditures by Revenue Source (thousands of dollars) Mass Transit Maintenance Expenditures Mass Transit Capital Expenditures by Revenue Source (thousands of dollars) 11.277 11.278 11.280 11.282 11.283 11.285 11.287 11.288 11.289 11.290 11.292 11.294 11.296 11.299 11.300 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 Population, Employment and Income Characteristics - of Seattle Employment by Sector in Seattle Total Revenues and Expenditures for Seattle (millions of dollars) Maintenance Expenditures in Current and Constant (1972) Dollars For Six Selected Functions in Seattle (thousands) Capital Expenditures in Current and Constant (1972) Dollars for Six Selected Functions in Seattle (thousands) Summary of Condition of Capital Stock and of Maintenance and Capital Expenditures for Seattle Street Maintenance Expenditures Bridge Maintenance Expenditures Sewage Collection System Maintenance Expenditures 11.306 11.306 11.307 11.310 11.311 11.313 11.315 11.316 11.318 xiv LIST OF EXHIBITS (Continued) Exhibit Number Page 11.10 Capital Expenditures for Streets and Bridges by Revenue Source (thousands of dollars) 11.319 11.11 Sewage Collection System Capital Expenditures by Revenue Source (thousands of dollars) 11.320 11.12 Sewage Collection System Maintenance Activities 11.323 11.13 Water System Maintenance Expenditures 11.325 11.14 Water System Capital Expenditures by Revenue Source (thousands of dollars) 11.326 11.15 Operation and Maintenance Expenditures for the Sewage Treatment Facility (thousands of dollars) 11.329 11.16 Sewage Treatment Capital Expenditures by Revenue Source (thousands of dollars) -11.330 11.17 Mass Transit Maintenance Expenditures 11.333 11.18 Capital Expenditures on Mass Transit (thousands of dollars) 11.334 1.0 INTRODUCTION AND SUMMARY OF FINDINGS 1.1 Introduction The results of the Public Works Investment (PWI) study are reported in three volumes, accompanying appendices, and an Executive Summary for the overall study. This, the second volume, addresses key issues relat- ing to the physical condition and maintenance of the nation's public capital stock, and the changing nature of sources of support for capital and maintenance outlays. It focuses on nine United States urban areas. The reasons for generally inadequate maintenance expenditures — including biases in Federal allocations toward capital outlay, fiscal stress, age of the city, and others — are explored, and urban capacity to generate revenues for maintenance purposes is investigated. Our approach to the maintenance question was to select a sample of cities and to analyze the trends and problems in maintenance outlays for each of these urban areas. This "bottom-up" or micro level investigation produced the results which are presented in detail in Chapters 3.0 through 11.0 of this volume. Chapter 2.0 discusses the case study methodology and presents a comparison of case study data and results across the cities. The nine cities selected were Baltimore, Dallas, Des Moines, Hartford, Newark, New Orleans, Pittsburgh, St. Louis, and Seattle. The selection process, outlined in the next chapter, was based on city age, fiscal condition, regional location, physical condition of the public infrastructure, population size, and jurisdictional responsibility for the infrastructure category. We attempted to survey cities which were substantially different from one another, so that a wide variety of public works investment and maintenance issues would be addressed. We do not suggest that these nine cities are necessarily representative of a larger universe; however, we believe that public works-related problems encoun- tered by these nine cities are likely to be shared by many other cities. Although the results of our research into problems of urban public finance and of capital stock conditions are more suggestive than defini- tive, we believe that readers interested in current urban problems will discover many case study findings applicable and germane to their inter- ests. 1.2 Summary of Findings For each of the nine cities in the sample selected, five functional types of infrastructure were examined in detail. These were: water systems; sewer systems; streets; bridges; and urban mass transit. The overall findings may be summarized as follows: II. 1 • Water treatment and distribution systems (water systems) and sewage collection and treatment systems (sewer sys- tems) are, generally, in good or fair condition. The results of the case studies suggested that water treatment and distribution systems were generally well-maintained. Constant dollar maintenance expenditures for these systems did not increase in every city over the 21-year period, but improved management, better technology, and more efficient use of resources appear to have contributed to the satis- factory condition of the water systems. The condition of the sewage collection and treatment systems appears to be generally improving, due principally to capital grants provided under the Federal Water Pollution Control Act Amendments of 1972 (P.L. 92-500). However, not all of the systems examined were in good or fair-to-good condition. Moreover, in cities in which collection systems are supported by taxation and treat- ment systems by user charges, the treatment systems are generally in better condition than the collection systems. • The condition of streets and bridges varies considerably, from poor to very good. The condition of the street network ranges from poor-to-fair for Hartford and New Orleans, to good for Des Moines. None of the street networks received very good ratings. The condition of bridges varied from poor and deteriorating rapidly in Newark and Pittsburgh to very good in Des Moines. Those cities that have a poor or poor-to-fair rating on their street systems are becoming increasingly dependent on Federal grants (especially Community Development Block Grants) for their resur- facing programs. Even so, resurfacing expenditures in some cities are not increasing sufficiently to arrest the growth of backlogged projects, and the condition of their streets is worsening. • The condition of mass transit systems varies greatly, from poor to good, but is generally improving. The condition of mass transit systems is improving due to the avail- ability of UMTA capital and operating subsidies. Capital subsidies allow vigorous replacement programs to be pursued; operating subsidies help to cover maintenance expenditures. None of the mass transit systems is profitable, but they are generally improving in condition, capital out- lays are increasing, and maintenance expenditures are being augmented. • Federal grants-in-aid have not generally led to increased local funding of public works programs in the five func- tional areas examined. These grants tend to either substitute for local expenditures or else simply add on, but do not stimulate additional local contributions. Two rationales may be offered to explain the non-stimulative nature of these Federal grants. First, cities which have been experiencing a fiscal squeeze appear to have accumulated such a high backlog of maintenance II. 2 needs that they cannot decrease these outlays despite Federal aid. Federal grants thus become additive or complementary to local programs. On the other hand, cities which are fiscally sound typically do not have a backlog of maintenance or capital needs. Therefore, Federal grants allow these cities to continue their normal programs at a reduced cost to the cities. • The number of functional areas for which a city is responsible is not directly related to maintenance problems. Excessively deferred maintenance is not a simple function of the number of infrastructure responsibilities which cities undertake. Dallas, for example, expends sufficient amounts of money on maintaining all five selected functional areas, while Hartford is responsible for only two functional categories, both of which are significantly underfunded. For the same two cities, the argument that city size operates against larger cities does not apply. Dallas is five times the size of Hartford and yet maintains its capital stock well. Des Moines, a smaller city than Dallas, also maintains its infrastructure exceptionally well. • The mechanism by which maintenance budgets are financed has a significant effect on the condition of urban capital stock. A major explanatory variable in the generally fair to good condition of urban water and sewer systems is the financing mechanism. Both are, for the most part, financed out of user charges. As maintenance and capital costs increase, rates have likewise been increased to cover the additional costs. User charges have the potential to react more quickly to changes in costs than do tax rates or assessments. The maintenance budgets for city streets and bridges rely on taxes as the primary revenue source. Therefore, the fiscal health of the city strongly affects the condition of the street and bridge network. Fiscally healthy cities, such as Dallas and Des Moines, maintain their bridges and streets in adequate condition. • The primary factor affecting urban maintenance programs is the revenue-generating capacity of central cities and special districts. If a city's capacity to generate own-source revenues diminishes, then the operating budget (which generally includes the maintenance budget) is adversely affected. Capital stock condition is more likely to be poor if the primary revenue source for maintenance is taxes and less likely if it is user charges. Also, it is more likely to be poor if demands to increase social expenditures are straining a budget's already limited resources. The maintenance problem is therefore a regional one to the extent that: a) fiscally stressed cities are located generally in the Northeast-Midwest; and b) fiscally stressed cities have greater difficulty in increasing revenues to cover maintenance needs, particularly if the primary revenue II. 3 source is taxation. However, not all cities which experience difficulty generating additional revenues are in the industrialized Frostbelt, e.g., New Orleans. And some functional areas, such as water and sewer systems, are adequately maintained even in cities which have difficulty increasing own-source revenues. To summarize, the maintenance problem is primarily a revenue- generating problem for functional areas which are financed by property, income, sales, and other taxes. While there is a pressing need to augment revenues in many of the cities that were studied, the political and economic capacity to increase own-source revenues, for a variety of reasons, appears to be limited. II. 4 2.0 DESCRIPTION OF CASE STUDY METHODOLOGY AND ANALYSIS OF RESULTS ACROSS CITIES 2.1 Introduction This chapter has two purposes. First, it provides (in Section 2.2) a discussion of the approach that was used in the selection of the nine cities for analysis of capital stock condition. Second, it discusses the results of the case studies by focusing on comparisons across cities. Included in this analysis (Section 2.3) are: condition of capital stock by function, maintenance and capital expenditure trends, effects of Federal grants-in-aid, and the revenue-generating capacity of the cities. The following chapters of this volume (Chapters 3.0 through 11.0) provide a more detailed analysis of these issues for each city individually. 2.2 Methodology for Case Study Analysis 2.2.1 Selection of Functional Categories Cities are traditionally responsible for the construction and main- tenance of many elements of infrastructure, such as streets, sewers, and water systems. As cities grow and expand, the demand for construction of infrastructure increases. If the demand for new public structure slows, it is often supplanted by the need for maintaining, renovating, and replacing the existing capital stock. In a recent article, Daniel Vining suggests: Under conditions of economic expansion, the large city's greater efficiency in capturing the economic surplus generated by this expansion allows it to stay ahead (and justify) its larger costs and, in the process, out-compete the smaller city. When the expansion comes to an end, the economics of city size are against the large city. Its maintenance costs remain disproportionately large rela- tive to the small city while its engine of growth sucks on an emptying tank. 1 A similar assessment is made by George Peterson: Once a city's road, sewer and water networks have been constructed to serve a given population, the cost of Vining, Jr., Daniel, "The President's National Urban Policy Report," Journal of Regional Science , Vol. 19, No. 1, February 1979, p. 76. II. 5 maintaining these networks does not decline signifi- cantly when population shrinks. On the contrary, as capital infrastructure ages, it becomes more costly to keep in repair. 1 Concern for replacing and maintaining the public infrastructure of a city is also expressed by mayors, 2 Congresspersons, and the residents of urban areas. The everyday problems which they face include potholes, bridge repairs, and sewer collapses. It becomes important, then, to examine more closely what is happening to the city's infrastructure. If public infrastructure is necessary for private investment and diversified economic development in a regional context, then urban economic develop- ment is dependent on the existence of a viable, sufficient, and well- maintained infrastructure. 3 In order to establish whether cities have maintained their infra- structure or not, in-depth case studies of nine cities were undertaken. Instead of examining all the functional categories in which cities under- take maintenance, five functions characteristic of most urban areas were identified. These functional categories, in addition to being common to all cities, are also significant in terms of the total expenditures of all urban areas. Peterson, George, "Finance," in William Gorham and Nathan Glazer, eds., The Urban Predicament , Washington, D.C., The Urban Institute, 1976, p. 44. For similar statements, see Peter House and Robert Ryan, The Worn-Out City , Berkeley, California, The University of California, The Institute of Transportation Studies, May 1977; Northeast-Midwest Institute. The North-South Summit on Regional Cooperation , 1978; George Pidot, Jr., "A Principal Components Analysis of the Determinants of Local Government Fiscal Patterns," Review of Economics and Statistics , Vol. 51, No. 2, May 1969, pp. 176-188; and John Kain, "Failure in Diagnosis: A Critique of Carter's National Urban Policy," Cambridge, Massachusetts, Harvard University, Department of City and Regional Planning, Policy Note P78-2, August 1978. 2 See the testimony of Mayor Landrieu (New Orleans), Mayor Caliguiri (Pittsburgh), and Mayor Schaeffer (Baltimore), in Keeping Business in the City , Hearings Before the Subcommittee on Fiscal and Intergovernmental Policy of the Joint Economic Committee, Congress of the United States, Washington, D.C., U. S. Government Printing Office, 1978. 3 See, inter alia , Stuart Holland, Capital Versus the Regions , New York, New York, St. Martin's Press, 1976; A. 0. Hirschman, Development Projects Observed , Washington, D.C., The Brookings Institution, 1967; and A. 0. Hirschman, The Strategy of Economic Development , New Haven, Connecticut, Yale University Press, 1958. II. 6 The functional categories selected (water treatment and distribu- tion, sewage collection and treatment, 1 streets, 2 bridges, and urban mass transit facilities) represent approximately 25 percent of total city expenditures for all activities for each of the past five years. •* Since this study focuses on public works investment, or public capital outlays, it was also necessary that the five functional categories form a large component of the public capital stock of urban areas. These five functions represent almost 50 percent of all cities' capital outlays for FY 1976-19 77 . ^ To add other functional categories would have required the inclusion of those which are less comparable across cities, such as education or electric power (which is not always provided by city gov- ernments), or less significant capital categories. The selection of these five functional categories, we believe, accomplishes two purposes: it makes comparisons across cities simpler; and through these five categories we account for a substantial portion of total urban public capital investment. 2.2.2 Selection of Cities To cover a cross-section of United States cities in our case studies, several variables were used in the selection process. These variables included: The regional location of the urban area; Population, with the stipulation that no city be over one million; Jurisdictional responsibility for capital stock, con- struction, and maintenance; City age; and Fiscal condition of the city. In the rest of this volume, the term sewer system is used to refer to a combination of the sewage collection and the sewage treatment system. When we wish to distinguish between the two, we have referred to them individually. The term water system is used in an analogous manner to denote water treatment and distribution. 2 Includes highways as well, if under the city's jurisdiction. 3 U. S. Department of Commerce, Bureau of the Census, City Government Finances in 1976-1977 , Washington, D.C., U. S. Government Printing Office, 1978, pp. 5-6. 4 Ibid. II. 7 Twenty-one cities were selected for a preliminary (screening) survey, using these five selection variables. The primary purpose of the survey was to obtain a preliminary and current description of the physical con- dition of the cities' infrastructure. After this survey, and as a result of it, another variable — condition of the capital stock as determined in this initial survey — was added to the previous list of variables for final case study selection purposes. Since the "condition" of the capital stock in the 21 cities was described by city officials, * the condition rating could only be viewed as a qualitative, and probably not a neutral, statement. Nevertheless, this imperfect measure of capital stock condi- tion did provide another element for the selection of the final set of case study cities. From the initially surveyed cities, nine cities were ultimately selected and visited, based on the six selection criteria. Detailed data on capital and maintenance expenditures, revenue sources, and condition of the capital stock for each of the five functional categories were collected during these visits. The final listing of variables and the distribution of the selected cities on each variable are as follows: • The regional distribution of the urban areas (as defined by the Bureau of the Census) : Hartford, Newark, and Pittsburgh from the Northeast Region; Des Moines and St. Louis from the North Central Region; Baltimore, Dallas, and New Orleans from the South; and Seattle from the West Region. • Population (in 1975), with the stipulation that no city be over one million: Baltimore and Dallas had 750,000-1,000,00 inhabitants; New Orleans and St. Louis had 500,000-750,000 inhabitants; Newark, Pittsburgh, and Seattle had 250,000-500,000 inhabitants; and Des Moines and Hartford had less than 250,000 inhabitants. The results of this "condition" survey are reported in Volume IV, Appendix D, of this study. Condition assessments were obtained from officials through telephone conversations. II, Jurisdictional responsibility for capital stock construc- tion and maintenance: Baltimore, Dallas, Des Moines, and New Orleans have responsibility for four or five of the five selected functional categories;! Newark, Pittsburgh, St. Louis, and Seattle have responsibility for three of the five functional areas; and Hartford has responsibility for only two of the five functional areas. Age of the city:^ Baltimore, New Orleans, and St. Louis were classified as older cities; Hartford, Newark, and Pittsburgh were classified as intermediate-aged cities; and Dallas, Des Moines, and Seattle were classified as newer cities. Fiscal condition:-* Newark, New Orleans, and St. Louis were considered to be in relatively "weak" fiscal condition; Hartford, Pittsburgh, and Seattle were considered to be in "generally stable" fiscal condition; and Baltimore, Dallas, and Des Moines were considered to be in "consistently stable" fiscal condition. Special districts, county or state entities control the other func- tional categories. 2 The age group was assigned by determining the time elapsed since the city's ten year population growth rate last exceeded the national urban population growth rate. Cities were classified as new if this occurred since 1940, as intermediate if this occurred between 1880 and 1940, or old if this occurred before 1880. See Alfred Watkins, Urban Development Within the U.S. System of Cities , unpublished Ph.D. disser- tation, New School for Social Research, 1977. 3 Fiscal condition is influenced by three factors: 1) problems in achieving consistently balanced operating budgets within the last five years; 2) evidence of emergency budgetary actions such as service cut- backs, personnel layoffs, or special tax increases; and 3) problems in gaining access to the credit markets within the last five years. See Volume IV, Appendix D, of this study, II. 9 • The preliminary assessment of the conditon of capital stock: "Good" rating for Dallas and Des Moines; "Fair" for Baltimore, Pittsburgh, St. Louis, and Seattle; and "Poor" for Hartford, Newark, and New Orleans. A field survey team visited each city for four days. The case study data collection efforts commenced January 2, 1979, and were completed February 16, 1979. The team gathered data on maintenance expenditures, capital expenditures, revenue sources for capital and maintenance outlays, and the condition of the capital stock in each of the five selected func- tional categories. Throughout this volume, the term "current" refers to conditions as of early 1979. In order to obtain comparable data across cities, we needed defini- tions for "capital expenditures" and "maintenance expenditures." The following operational definitions were selected: • Maintenance expenditures were defined as those expend- itures which permit a facility's useful life to be reached. An example of this is pothole patching of streets which allows for the continued use of streets. Another example is the repair of breaks in water lines. • Capital expenditures were defined as expenditures for the construction of a new facility, for replacement of an older facility, or for the extension of the original useful life of a facility. This latter category is usually referred to as "renovation." But, because it was virtually impossible to separate this item (renova- tion) from the capital expenditure data for each city, it was included under that category. Wherever possible, however, resurfacing of streets (considered to be a "renovation" activity by our definition) was separated from other data. Maintenance and capital expenditure data were collected for the 1957 to 1977 period whenever possible. Often, only the last few years of data were available for the time period covered in this project. In a few instances, maintenance expenditures could not be separated from the operation and maintenance data. Where this occurred, the combined oper- ation and maintenance figures were collected, and the implications of this discrepancy are discussed in the individual studies. The mainte- nance and capital expenditures data were analyzed in both current and constant dollars. For conversion to constant (1972) dollars, the follow- ing indexes were used: 11.10 For capital expenditures on water and sewer systems, the Environmental Protection Agency's Sewer and Sewage Treat- ment Indexes for Selected Cities* were used for deflating the current dollars. For converting capital expenditure figures for streets, bridges, and mass transit, the Engineering News-Record Building Cost Indexes for Selected Cities were employed. 2 For converting maintenance expenditures into constant dollars, it was assumed that wages in the private sector for skilled workers (for which data are available) were similar to those paid to public sector employees.-^ Because most maintenance work requires skilled labor, the Skilled Labor Index (SLI) from the Engineering News- Record Cost Indexes in 22 Cities^ was used to deflate current dollar maintenance expenditures for all five functional categories. The SLI for Hartford and Des Moines was not available. Therefore, we used similar deflators from the Bureau of Labor Statistics. 5 2.3 Intercity Comparisons 2.3.1 Summary of Expenditure Data and Condition of Capital Stock Two preliminary observations emerge from the data collected on the nine urban areas. The first is that the decline in the condition of the capital stock is directly correlated with the deferral of maintenance. While this conclusion may not be universally true, it is generally appli- cable to the five selected functional categories. Except where indicated See Volume IV, Appendix B, of this study. 2 Ibid. 3 See Stephen Barro's discussion concerning comparability of wage rates for skilled workers in the public and private sectors in Stephen Barro, The Urban Impacts of Federal Policies, Vol. 3, Fiscal Conditions , Santa Monica, California, The RAND Corporation, April 1978, p. 47. 4 Engineering News-Record , "Engineering News-Record Cost Indexes in 22 Cities," March 1978, p. 75. Bureau of Labor Statistics, "Increases in Union Wage Rates in the Region and City (1957-1966)" and "Percent and Cents-Per-Hour Changes in Wage Rates by City (1967-1977)," Union Wages and Hours Building Trades , New Haven's indexes were used as surrogates for Hartford's; Des Moines indexes were available until 1975, after which Omaha's indexes were used; and New York's indexes were substituted for Newark's. 11.11 in the discussion below, a low condition rating indicates that deferral of maintenance is taking place and a high condition rating indicates that maintenance deferral is not a problem. The second general observation is that no discernible trend can be gleaned from the 21-year time-series on capital expenditures. Capital outlays are often made in response to needs, demands, or growth of the urban area. More recently, increased capital outlays have also been made in response to Federal mandates and incentives; for example, to improve environmental quality and to provide an improved public trans- portation system. Furthermore, the trends in maintenance outlays vary by function and by city. Therefore, expenditure patterns for each func- tional area are reviewed separately in the following discussion. 1 2.3.1.1 Water Treatment and Distribution Systems Examination of trends in maintenance expenditures for separate func- tional areas leads to different conclusions about the investment and main- tenance process. Of the selected functional categories, water systems in most of the cities were generally in good physical condition (Exhibit 2.1). Constant dollar maintenance expenditures did not increase over the entire time period for each city (Exhibit 2.2). In fact, four of the cities registered a slight decrease in constant dollar maintenance outlays, while only three increased maintenance outlays. 3 Nevertheless, our assessment of the water systems' condition suggests that substantial problems in this area are not being experienced by any of the surveyed cities and deferral of maintenance presents a problem only in Newark and St. Louis. ^ A more detailed description and analysis of capital and maintenance expenditures by revenue source for each city is given in Chapters 3.0 through 11.0 of this volume. 2 The condition rating for all five functional areas was based on the evaluation of various documents, information, and interviews in each city. The pertinent information on each city appears in the site visit results described in Chapters 3.0 through 11.0. This evaluation was performed by an engineer on the team. It is our belief that the ratings are at least comparative in that a "fair" rating for one city is similar to a "fair" rating in another. Absolute and generally recognized measures are lacking and formulae to determine a quantitative "condition" assess- ment do not exist. (See Volume IV, Appendix E, of this study.) 3 It was not possible to separate maintenance expenditures from other operating expenditures for Newark and Baltimore in order to determine if maintenance expenditures increased or decreased. 4 The only exceptions to this uniformly good rating for water systems are Newark's (city-owned) and St. Louis' water systems; the former is in fair condition and the latter in the "fair but worsening" condition. 11.12 u 03 c CO n u H co o z O s Ph CQ TO « cn 32 5 Q ►J at CO C o c 01 JJ o z c o 0) "r! c 01 4-1 a 01 « e 4J g u i-H a 4j o > 01 CO ►J rH CO 01 co 1— 1 0) CO o « 0) •-. 01 M o )H 4J X IH r-l Q JJ G u jj § u s -' Ph *-' o 0) CO z z pa Q CO CO Ph e 01 co " CO a >. o c ^ 4-> z o Ph 00 co o . oo a o> ' m oi u X u z 2 z Q 60 1 c •H >, 1-» M c °<2 U 60 M U 00 JJ 60 JJ 60 -a >s TJ o T3 •H C ■H C 3 C 3 C o U O C 60 CO -H (0 CO -H CQ -H 0Q -H o 01 o u to c tJH c (ti PH > c > u > o 1 01 1 O - QJ « o i ■o M 4-> u u w w u u U U) U (H 1-1 u •a -o fc c O ffl o O tn o o a. •h a. o o O M o o o o o S co o CO ca a CO o o OI CJ Ph O Ph Ph 3 a, a, m d- 3 fe t«H M Cv. a o > 11.13 ri ui %r\ in i ooNoon ZZZ222ZZ2ZZ00minvoc0r«.»ymmP"i «* ON 3 U, lON^OM^NON vo m m o si on o P*l ON CO v© \D CI inOvTNNn-oiji\onoovONnooo (S N (M N N m vt \o o> O S OMB lO oo ©ONcNcivO-j-crNfiovo lovinmoei CM CM -< z m oonosooioni>OM , icONO»n-iocnooooOvor>.©mON©cM O^ 00 vfi \0 N O *J CM O M3 P vj- n o co ~y — • ^o on -j oo o m fi sTN^ICMmO'i^vOONinO — r- -a- in c* n m o\ C> CO CM CM M M I -H Cfi m 0) u 1-1 m 3 4-1 •H o T3 T3 c 0) pn4 O- r~» X ON W — I OnzZZZO>Z22Z2 Oi O r>. o >J eo >} NOMOcoN>oovoiooinoOMniniftO>rfM7i t~->3-in^CM«3-sTOP~;fs.inPlC^-KTs3-incM»TCOPnO — © on © o O O O CM CO CQ O -* o-> cm m aooNONoeocOvom© 3 -O c5 IB 0) 01 0) c 60 -H c o pa X o a ^rs0^^oinino>o-^vto inNino^o>ffiPi^\0(OOi^ M ID on on on On ON On ON ON on on 01 ON ON ON ON ON ON ON U. 11.14 One explanation for the surprising co-existence of declining mainte- nance outlays with the continuing good condition of the water system may be found in the history of capital expenditures. Large replacement and expansion investments in portions of water systems, activities that have been classified as "capital outlays," have taken place in the past two decades (Exhibit 2.3). Also, construction of new water treatment plants has been occurring over this period. Because of the relative newness of substantial portions of the system, maintenance is not a high cost item at this time. It is also possible, and this needs investigation, that better materials, improved technology, and better management have less- ened the overall requirement for increases in constant dollar maintenance outlays. 2.3.1.2 Sewage Collection and Treatment Systems For those six cities or special districts which own and operate both the sewage collection and treatment systems, only St. Louis' sewer system, operated by the Metropolitan Sewer District, was found to be in less than good condition (Exhibit 2.1). The other five cities (Baltimore, Dallas, Des Moines, Hartford, and New Orleans) have sewer systems in at least fair-to-good condition and have increased constant dollar maintenance outlays over the study period (Exhibit 2.4). The three cities which do not have combined collection and treatment have divided the functional responsibility of sewage collection and sewage treatment between the city and special districts. For two of these cities (Pittsburgh and Seattle), the condition of the sewage treatment systems (owned by special districts) was good. In Newark, there are plans to replace the sewage treatment facilities within the next few years. Maintenance expenditures on the collection system have declined for Newark, but have remained stable in Pittsburgh and Seattle. Newark's sewage collection system is in poor con- dition, while Pittsburgh's is fair to good and Seattle's is in good con- dition. A reason for the generally good rating of sewage treatment systems (in six of the nine cities) is that the Federal Water Pollution Control Act Amendments (P.L. 92-500) require secondary and, in some cases, advanced sewage treatment and also provide for grants to cover 75 percent of the necessary capital outlays to upgrade treatment plants. (Exhibit 2.5 shows capital outlay trends over the 1957 to 1977 period.) Major portions of the sewage treatment plants are relatively new and, on the whole, in good condition. Because of this, few problems were found in the condition of these treatment facilities. Where problems did occur, they were to be found in the sewage collection system which is generally older than the treatment system. 2.3.1.3 Streets and Bridges Unlike water and sewer systems, which were generally in good to fair condition with a few exceptions, the condition of streets and bridges varies considerably (Exhibit 2.1 above). At one extreme are the cities 11.15 m vo cm o o ~? — ■ o\ m o> oo —i CM O CO •<: < -i vo en ~r — i Z z U in in co in O O m m r-» r» lOinincjr^^i^inao r~.ioincor^~j-— ico or- — i — r~oo— ■ -j O m cm — c oo er> co r- > cocm-3-v£)0-0- co in oo — ' io o -i co -* «3- cm — i m o o cm oo cr, <<<<<(<<<<0(snnMWN-ipi ocoiocMr-o^oc^ cm co m o — i ia mo io n to oo cocjNr-.coiocoaom^in>3-cM nnHioooj(NOi-»n O VO -H CM CM CM i£> moocMO-3-cj\o\r--oi.-i sJOOOMMrvr'iOi'l O in r-» oo U-l CO v£> CM vO a* oo r-» o o I-- -J o o^— i^m\ONN>jchN-io v£>ao — ivocovou-i O — i vD^O^OvOOOvOO^O cr*cr\<^cr\cr*c^a~*0'« ^ o\ CTn 0"v 11.16 S£ Z ".-. S. o o r-s tn o co a* -r r-i o < VD ^ o "-, n o ■ . O O I"- -T O I o © — o co a> c n o >> 01 o <• n .t si - o r, n n ^ C^OrNOC^OO*0>OCNI> to u QJ 3 0) c/3 OJ -C •u M o 4-1 to CO DOvon-.->jio O c*l CO sO -J o o K7.^KisSZZNMnnNnnooo <<<<<<<<< — < inN^^onvon-r-Hflocomo^HOin-" zzzzzvozzzzzr- >f> — O •£> O CT\ >D ■ -3- o o a\ >o u ti o a) & 3 41 C -r*fNior^ma.roor^u-i(NoooOO^ q ^ ^ ^, , £c£ 11.17 © »■> O -o r-« f. i ^OOkTHOO-^N^Ntfnis^ffl <<<■*<■*<<<<< zzzzzzzzzzz ZO"-i-o<-i»o_.»co^-r-. O r»l — -t 3 i-H •H T3 (3 CN o — r» o ■ sO«iOff*«*»«M— en«i ffl ^cnflOMfflrxO*^ O -T — — O I t £ 3 o)| N^inoinsocoifl 11.18 of Hartford, New Orleans, and Pittsburgh with streets and bridges in generally poor condition; at the other are the cities of Des Moines and Dallas with streets and bridges in generally good condition. To obtain additional insights into the condition of streets, an examination of a city's "implicit" replacement cycle can be made.l Data on the ratio of miles of street resurfacing accomplished per year to total city street mileage, a measure of the implicit replacement cycle, are available for seven of the cities.^ These replacement cycles varied across cities from over 300 years in New Orleans to 9.2 years for Pittsburgh. The latter represented a shorter cycle than cities with a condition rating of good, such as Dallas. Thus, while New Orleans' replacement cycle reinforces the condition rating, Pittsburgh's does not. This is because many factors, including total use, weight of vehicles, differences in freeze-thaw cycles, terrain, soil characteristics, maintenance practices, and materials explain why Pittsburgh has a shorter replacement cycle and a lower condition rating than Dallas, which had a 24-year cycle. 3 Constant dollar maintenance expenditures on streets (Exhibit 2.6) declined for eight cities between 1971 and 1977, more sharply for some (e.g., Hartford) than for others (e.g., Seattle). One notable exception is Pittsburgh, which reversed overall decline in outlays during the 1957 to 1973 period, and increased street maintenance expenditures through 1977, to a level which was over twice the 1971 level. Maintenance expenditures for bridges generally indicate declining trends as well (Exhibit 2.7). A consideration concerning resurfacing and capital expenditures relates to the availability of Community Development Block Grants and Local Public Works funds. (See Exhibit 2.8 for street capital expendi- tures under which resurfacing expenditures are subsumed.) These provide cities with funds which enable the funding of resurfacing projects which otherwise could not, or would not, be undertaken. Bridge capital expend- itures (Exhibit 2.9) are, likewise, heavily dependent on the availability of Federal grants. Implicit replacement cycles indicate the rate at which a system is being replaced. If a system's useful life is, say, 20 years, one would expect (given a smooth historical trend in expenditures) that about 5 per- cent of the system would be replaced each year. Of course, actual cycles would reflect the average age of the stock, the lumpiness of most invest- ment and other factors. 2 Resurfacing data for Baltimore and Des Moines were not obtained. Because of the good condition of Des Moines' streets, it might be assumed that an acceptable replacement cycle is maintained. See Chapters 3.0 through 11.0 of this volume for data on replacement cycles for other cities. 3 For a discussion of factors that affect the condition of streets, see Volume IV, Appendix E, of this study. 11.19 en r*» vo to oo oo o <• cm o m nomanconiji^ mmoNoovor^.omocM oco 2t0M»C0C0(MaiO2OC0CftNO-I-<^OI , > o m m o cm n m o cm o\orainomoon en ~l 1 \D "I vO St ro ^ en •~l "i m 00 o CO ^ on -J, -^ ■^ •* < >J «J n N CM -j- m m m ) u r-» u u vo d on co H — < a z ^ x -h o m co r^ <<<<<<<<<<:.ocnr-. CM— l— ice— iotMcoovcovDOr^m» co CTv r^ en o VO m St ^ co CM CO O vO m en ON _| _ o ^ m en in en m vO VO o vO VO CM CN ( 5 r^ o crj O ON 0"n crv o vO r~ VC m ~l o ~~l co sf ^ 1 w o co n e\i h cm en on in vo — * en en r-~ 4 co -a co l-l CO Oh en 5 co co : oj co —I TJ CO en en cm cm OcomcMONeno>-J-H in o O f>ONCha^CNCT\CN^ fcj H H 4J 11.20 r^tyifi^inr^voc") Or^vOvor^Of^-roooo inoocNr^.*-HOCN^HOeNZcocr>r^r-»inr~oom NinO\NlrtN}>}flrinpini , innn( , i 4J > C u >-. C CO u w S ^ t0 TJ •» u 60 to o to - g, 2 Cl«)>tiriOCO^O*OOm^>jOiHOCOvON oooor^Ovomr^oooooNONm— (tNCT>rvicN-3- m m vj co o> •o to 3 o> u c se o 4-» m\£>«d-or^r-»v£> on o r^ n£> m r*» »r vO— itMiO— lOOOOvor-ZZZZZt^^^OOvOO CT» CO CO CO Ncoo\0'-vOvOvOv£>\OvOvO^OOvDr>.r-~r^r^.r^r-^r^ •H CO 13 ^! 111 C MO ffl to -o o> m CU Cm « to : rH -o -o •• o tu d c -a ■O W « "H 01 01 10 n j: w 3 CMS vO C 0) HMO « H c* ct> > , M > = u 0J C CO -H TT O 01 CJ CO O -H U U -H C O U CO 61 CN O "O 11.21 nff>^Mrsoo\o«teonio ""■JNiOOOOOO Z CM O CM O «3- On uo CJ\ O O VO00 N N \OvOvOvO"-*cMvOfOO\r^.-( r-0' > »-^cOOr~.^3-«3-*j-o-3 - 0\\or»«\oOr»..-*oOOO rMfOCMO»3 - 0^\or-»o\f^sor^ m N r> n N fso\ s\oo\r-«ONr^mCT>\OfMvoooooor^ocMioooo csivovocMmoff>'^u-icN^Hcnoocr>cMC^voa>o>r^r^ m •* -a- m ^^■j^m^^ Nn^nnoo oor^oscoor^-xor^r-.uoo vO CO vO vO *^ O •— i \0 O ^-< vO ZZZZZZZZZZCMr^m-d-OxcocM-HP*^^ no nxooONinmNH oononvON^ovN <■ O O O -h cm a* . cMcNOcMO\orN--^r>»\Oco»3''-!mocMCivor~-< , ">-H N (s -h >j couovoomcococMoocoo\o>mooo r»» -* m cm — < «» — i «* r-» cm u-> ^^^sj-^ cMCM-^mr^cMO\vO\DOOvoo-*ooocric^moo-3- NrfHON(nui-i>j^ooiflM^NONoco^co -^ >a- oo co oonu-im -a-cocMCT\ooocoin-^a» -h .-i m co co — i.-i-HCT\oomooaNcor-. CO M O— ' 4-1 /~s en (A u oinKciininMfliooiflOMnMJ>N0 — i — icmcmcococmcouo-j^t^-u-icocmvo m co u-i co vo r^ cm cm co o -* (OlAinN00-Hrfl«lMNNONHOMnfl0N^W vo cM^3-CT\ v o"0' , ^cMcri-Hu-icMvocriaNOr-»ooaor^ ■*— iff>cM O iJ O -H' 0) c 0) -3 •h a ro O o*» os -^ o\ \o O vO O -H r» >T H/ioOMnvoinoOH^io^^riinoooNNCOM o^ r^cooNO^csco^mvor^ooONO — < n n ^ »n so n On On On On On On On On On On On On on On On On on On On On On 11.22 (NNNWCMninri O r*» -j m o o en *j- m zn")CslCT\Or»*v£>-^*7 oo X)Or^Om OOOOOO— ■OOOOOOOcOorMOm CO u cu nj i-i <-i 3 rH ■u O •H -O C CM W 4J H C cu ctj 4J 4-1 •H CO a c CO O U CJ o o o o o o o o CO^\OOtOOO^vO^^^N OCT-^£>or~^-r-~n-Hoo--^vDO oa>oocft0^oo o o o o o o o-\ OOOOOCOOOC^OOOvOOO 11.23 2.3.1.4 Mass Transit Facilities The fifth functional category studied in this project, mass transit, is the responsibility of city government in only two of the nine cities — Dallas and Des Moines. Two states — Connecticut and Maryland, three special districts — Metro (Seattle), Bi-State (St. Louis), and the Port Authority (Pittsburgh) , and two private companies — in New Orleans and New Jersey, 1 provide services in the remaining cities. The condition of mass transit systems has generally been improving over the past few years (Exhibit 2.1). The condition of New Orleans' bus and trolley system was rated as poor to fair because of the old age of the buses, but it is improving. Bi-State (St. Louis) has a new system, but inade- quate maintenance has led to a less than fair condition of the mass transit system (see Exhibit 2.10 for maintenance expenditures). The primary reason for the improving condition of the mass transit systems is the Urban Mass Transportation Administration grants which subsidize up to 50 percent of operating costs and 80 percent of capital costs. The capital subsidy program has enabled mass transportation agencies to replace old vehicles with newer ones, resulting in a younger, more modern fleet. (Exhibit 2.11 indicates capital expenditure trends.) In fact, the bus replacement program for several cities (e.g., Hartford, Pittsburgh, Seattle) is so vigorous that the average age of the fleet is being reduced each year. 2.3.2 Effects of Federal Grants-in-Aid 2.3.2.1 Biases Against Maintenance The primary explanation for the improving condition of mass transit systems is the fact that they are not financial burdens strictly of the local governments, and that large Federal operating and capital subsidies are received by all of these mass transit systems. Generally, however, Federal subsidies are not available for maintenance of the other four functional areas. 2 Indeed, those Federal programs that aid water and sewer systems, streets and bridges are almost always used for capital outlay purposes. The bulk of Local Public Works (LPW) funds may be expended for capital projects only. In addition, Community Development Block Grants are spent primarily on capital programs; likewise, cate- gorical grants for streets and sewage treatment are capital grants. There are exceptions, however. General Revenue Sharing (GRS) funds, if transferred to a city's General Fund (which finances most maintenance activities of cities), are not directly traceable to specific functional Newark is served by a statewide private mass transit company, Transport of New Jersey. Expenditure data for the Newark district could not be obtained for this study. 2 This anti-maintenance bias is discussed in Volume III of this study. 11.24 ioo>ooooM , ioino-»N-^o\H(noooHai or^oor^roi/iis-o^yNOONr^vo^-HCicMON ^^ONONO^mONONOul-yr^O — < vO f-- -* — i to -j S5Z>OMN' , ' s l'1-J-Jr"NOO>OMO*M nnioriN CM CM CM -*-*«* m m (0-^NO\-H^OvrivOrt' , l(MO>N ONr"»cor~.ocM ZZZ2ZZZ0\!0riN»NO^»MM'1OO I c to o Z 3 ZZZZZZZ — iNWMMOMnOOCONvOOOlflO uiHOavo\wo»o>0'-iNNn co oo oo m co ro ro rn ro aj cj to 60 Vj .O X co M CU CO ,n t-i •o 4J rH O rl y-i cn £ 10 ON 4) ^ U 3 w •u C CO •H cfl 0) T3 iJ C C CO CU C £ a o X CJ 0) w a> m a 60 u ci m no on r^ c u c -i CJ ir> oo on — i cn u . <<<;-<<:<;<:o-*c">i/-!00vocM ><->r^-j ZZZZZZZCNO^ONCNONOOoor^ONOoocM 4) to NNN^-lHCMlN -H CM — < CM 4) W O UOTJ C —■ d) C X CJ 00 O nO nO O 00 O uo en r~ «* o cm co <<;— iuoouoocmon <■-*-* in \o m vo r-OOONO-^CMCO-^UOvOC^OOONO — I CM CO -tf uO vO r-~ On ON ON ON On On On ON On On On On ON On On ON On On On ON ON 60 On /-N C -h no (fl 1-1 NO - *-> jr. on c i > uo n: > c «N~< (J u to z O HI >, tK Tt U « -I 4J —I tO ■H CJ 01 cj -a ■o co CM C H CM co H 11.25 r* m iri oo o vO O vO o o n>jNwNN»Mrt ^Hft-ioi^ o m oo »» O O O O O CI f> o o o <■ ooooo«3-rof^ooomo(N oo n m r- »» -h m O O 00 CO o« CM o ^ _i —< ,h r-» cr> ro ZZZZZZZO\»n — i C>iN^ \OffllflvOP11fl<-vfvON SvO vC U1 N in r~ o o o o o -* rOOOOOOOOCO ZZZZZZZZZZ<=0 CM^ O O O dod O U3 •H 3 a o CO .C <<<:J <<<«i:OrtvO«fCM^N ZZZZZi NnOMinHinos ^NOfOr^vOvOCO <;<<:<:<<:<;<<<<<0-i-^-C^v£>ONr- r»» ojoiOhnm^i/ivo^-oo^o- i N fl >of in *o f"« in i/i iA o o *o ^ vO O O vD o o i"— r*- r— r*» r— r— r*^ r— > »0'NC>0>0 , ia , »0 , *0" > >cr\0 > »0 , *C^O > *0*NO'»0"%0 > *OC7NO^CT» II. 2S categories. Therefore, it is not known how much of GRS is expended on maintenance programs. Furthermore, GRS funds are often expended in one particular department — often in the police or fire department — which releases other revenue for the remaining departments. Hence, even when GRS funds are not expended directly by, for example, the street depart- ment for maintenance activities, they indirectly contribute to mainte- nance. In short, because of the fungibility of (inability to trace) GRS, it is impossible to attribute any direct impact on maintenance outlays. Similarly, CETA employees and, to a lesser extent, Anti-Recessionary Fiscal Assistance (ARFA) funds are sometimes utilized for maintenance activities . Even with these potential sources of Federal funds for maintenance, it must be emphasized that no categorical maintenance program exists similar in size and scope to categorical capital programs. A biasing effect of this is that capital projects which receive Federal funds are often chosen over maintenance projects. 2.3.2.2 Reliance on Federal Grants-in-Aid City reliance on Federal grants-in-aid is another dimension of the effects of Federal grant availability for cities. While it is true that all local governments have received more Federal funds in the past five years (since the introduction of General Revenue Sharing) than in any previous period, some cities rely more heavily on Federal aid than others, Prior to increased Federal grants in the late 1960's, Federal grants- in-aid comprised approximately 1 or 2 percent of city revenues for the nine case study cities. Since 1968, they have increased dramatically; by FY 1976-1977, four of the nine cities received at least one-fifth of their total revenues from the Federal government (Exhibit 2.12). 1 And all but Dallas received more than one-fourth of their revenues either from state or from Federal sources. In effect, most of these cities are becoming increasingly dependent upon intergovernmental aid in general, and upon Federal aid in particular. Federal contributions to capital outlays for sewer systems have become very high recently. Capital outlays by cities have increased dramatically in the 1970's with Federal grants as the major funding source. Reliance on Federal grants for capital outlays is very high because of a Federal mandate and Federal fund availability. Similarly, the lucrative UMTA grants have resulted in a very high level of reliance on Federal grants for capital programs. The percentage figures of Federal aid to cities in Exhibit 2.12 only reflect the proportion of direct Federal aid to cities. Indirect Federal aid that is funneled to the cities by the states appears as state aid to cities and are reported as such in City Government Finances . 11.27 r- r^ On 1 o oo CO 00 CO on v£) on r^ m m sr CO o ON 00 in on v£) CO a •H CU ■H < OS CO Ph iH rH on 4-1 CO CO r-l c 4-1 U CM CM ^r CM CO m 00 r*« CM cu C OJ CM £ cu e r^ oo ON d CO d vO r-» e B cu on vO CM CO m CO CO CM CO e° •^ cu > CU <4H B o > o o o 00 4-1 >N u c 4-1 cu cu 00 •H 4J CJ ^D CJ C H ON M CU Pm r^ r«. o 00 on r^ ON CM \D on co 3 o d d >3- m CO vO vO 00 d CO on m <— i CO CM i— i PS 3 •"■ cu 8 £ cu ^ r*« 4-1 r^ •H 0\ O rH rH v£> cn r-» u on 1 CO CU 3 C £ 14-1 > o CU CO os CO 4-1 /~\ < r^ a CO rH on CO r— 1 a 3 •H r-l i v-i C <: rH cu o. 0) CO a F— | w u u < cu MH e >. T3 o cu 4-1 CU 3 •rl pH 4-1 rH c cu •H cu 00 > 4J o vO 0) 3 M on os 60 CU Oh l rH a r^ CO •H » o vO m CO CU u m CO d ■— 1 CM vO ^ d i-H 3 CM CM CM i-H CM « cu o M CU I O -? «* sO m cr. m vO CO 00 MH O CM •* d d r^ d i-H rH 4J c cu 6 4-1 r4 CO a cu Q >o- m vO CM ON CO r* oo CM w CM r^ CM CO d d CM CO c l-< d B o u IM T3 0) M cu Q cu CU CO 00 CO M c TJ cu r-l •H o •H u rH 3 3 0) 1 CO o o r*5 M XI O rH CU CO X iw 1-1 o CO rJ 4-1 o 4-» rH 4-1 CO 4-1 4-1 M rH rH CO r4 3 3 4-1 • CO 3 CO CO cu CO cu cu •H 4-1 M Ph u M 1 -d •H O o n Cfl >* I? O >% o co o fX4 M Ph M PLI Ph o to 0) 0) 0) o > > > Pm 00 a) C oo 3 >-l 3 On CN 03 3 cd h r^. ^ U fi ON O O >» B -< n) O Q> 4J l|_| .H 0) T3 3 3 a 5 c QJ (- g 4J CCJ y 5 W oj u g « a) Ph o o -h m H U fl ON cfl CD w a cu Pm e cd Pm o u < o en co c n < s i- 1 oo o\ 3 CO c* a> cu i— i — * O OO 3 I ^ c ao CD CO o ^ Pm ,3 Pm On e ^H ^M v£> •^- i-H CM CN CO -M I I I 03 e j= M •H •H U 3 3 f= CO O o ^i )M J3 O •H CO X M-l )-i O cn kJ u iH 4-1 CO 4J H H cn u 3 3 4J cn CO 0) CO CD S •H ±J pq Q Q X z z Pm CO 11.34 city's water and sewer systems.! These two functional areas are differ- ent from most city functions in the way residents/consumers pay for the provision of these services. Most city functions are financed from revenues derived via taxation. Water systems, as well as sewer systems (or at least the sewage treatment component of the system, if the sewer system's responsibility is separated into sewage treatment and sewage collection components), are financed primarily via user charges, i.e., charges or rates placed on consumption of the services. In most cases, rates are raised to cover any increases in costs. 2 This is one of the primary reasons for the consistently good condition of the water systems which were surveyed. That is, funds for maintenance expenditures may be augmented through rate increases in order to improve the system's physical condition. Furthermore, in the usual case, water and sewer departments or special water districts and sewer districts establish a fund account (an "Enterprise Fund") which cannot be used to finance any activity other than water- or sewer-related projects. There is no competition by other city agencies for these enterprise funds as there is for the city's "General Fund" scarce resources. However, not all functional responsibilities of cities can be as financially self-sufficient as water and sewer systems. User charges cannot be attached directly to every public service, e.g., streets, police. 3 This is one of the major differences between activities which provide goods that are divisible and can be priced according to usage and goods that are non-divisible or do not respond to conventional markets. Those maintenance activities that are the responsibility of a city and that are financed via tax revenues do not keep pace with the cost of living as well as do those maintenance activities that are financed via user charges. Cities which have a poor capacity to increase needed own-source revenues (i.e., fiscally stressed cities) have difficulty in maintaining their infrastructure. Furthermore, many of the cities that are fiscally distressed are older, industrial cities that, as the cita- tions at the outset of this discussion suggest, have greater maintenance needs than newer cities. Any measure of fiscal condition or fiscal stress might be used. See, e.g., Richard Nathan and Charles Adams, "Understanding Central City Hardship," Political Science Quarterly , Vol. 91, No. 1, Spring, 1976; Terry Clark, et al . , "How Many New Yorks?", University of Chicago, 1976; Touche Ross and Company and First National Bank of Boston, Urban Fiscal Stress , 1979; and Edward Gramlich, "State and Local Budgets the Day After It Rained," Brookings Papers on Economic Activity , Vol. 1, 1978. 2 St. Louis' Metropolitan Sewer District appears to be the exception in that several proposed rate increases were denied. 3 See discussion on public goods arguments in, e.g., Richard Musgrave, Theory of Public Finance , New York, McGraw, 1959; Robert Haveman, The Eco - nomics of the Public Sector , New York, John Wiley and Sons, Inc., 1976; John Due, Government Finance , Homewood, Illinois, Richard Irwin, Inc., 1968; and James Buchanan, The Public Finances , Homewood, Illinois, Richard Irwin, Inc., 1965. 11.35 None of the fiscal stress studies reviewed includes a "conditon or needs" variable in the measurement of fiscal strain. To illustrate this problem, the recent First National Bank of Boston (FNBB) study concludes that only four of the 66 cities surveyed were fiscally stressed. 1 How- ever, if their indicators of stress, which are based on per capita tax, debt, and current expenditure, 2 are applied to a hypothetical city which spends little or nothing, the conclusion would be that the city does not experience fiscal stress. But this ignores the possibility that the urban infrastructure may not perform at adequate levels and that current expenditures on maintenance and construction fall far short of needs. That is to say, a city may be financially "healthy" (unstressed) by the FNBB criteria, if it is not expending any funds. However, if it cannot maintain an adequate infrastructure, its physical and economic health will be imperiled. A fiscal strain index which relies strictly on financial data ignores the underlying needs of the city — not just social needs, but physical (capital) needs as well. 3 Many of the public officials interviewed in the present study acknowledged that two related factors affected their cities' economic health. First, demand for social programs has increased significantly in the past 10 to 15 years. Second, the cities' infrastructure needs, especially in maintenance activities, have been increasing. Both needs may not be easily satisfied because of the cities' incapacity to raise sufficient revenues. Often the result is that maintenance activities suffer cutbacks. 2.4 Summary If a city's capacity to generate own-source revenues diminishes, the operating budget (which generally includes the maintenance budget) is adversely affected. Capital stock condition is more likely to be impaired if the primary revenue source for maintenance is taxes and less likely if it is user charges. Also, it is more likely to be impaired if demands to increase social expenditures are constraining Touche Ross and First National Bank of Boston, op_. cit . 2 The study only concentrates on local taxes per capita, total debt per capita, and current operating expenses per capita. While these variables are elements in any fiscal strain index, they are all finan- cial variables, thus not necessarily indicative of potential infrastruc- ture problems. 3 This is a primary reason for disagreeing with the First National Bank of Boston's study on their assessment of Pittsburgh as a "trend- bucker." Our conclusions suggest that the city's capital needs are high; their study suggested that Pittsburgh expended comparatively small amounts of per capita in one year — 1975 — which is hardly indicative of a longer trend. But, by doing so, its capital needs probably increased. 11.36 a budget's already limited resources. The maintenance problem is a regional one to the extent that: a) fiscally stressed cities are located generally in the Northeast-Midwest; and b) fiscally stressed cities have greater difficulty in increasing revenues to cover maintenance needs, particularly if the primary revenue source is taxation. However, not all cities which experience difficulty generating additional revenues are in the industrialized Frostbelt, e.g., New Orleans. And, some functional areas such as water and sewer systems are adequately maintained even in those cities which cannot generate sufficient revenues for adequate main- tenance expenditures in other functional areas. Excessively deferred maintenance is not a simple function of the number of infrastructure responsibilities which cities undertake. Dallas for example, expends sufficient amounts of money on maintaining all five selected functional areas, while Hartford is responsible for only two functional categories, and both are significantly underfunded. If the same two cities are examined again, the argument that city size operates against larger cities does not apply. Dallas is five times the size of Hartford and it maintains its capital stock well. Des Moines, a smaller city than Dallas, also maintains its infrastructure exceptionally well. In sum, the maintenance problem is primarily a revenue-generating problem for functional areas which are financed by property, income, sales, and other taxes. There is a pressing need to augment revenues in most of the cities that were studied — although we cannot be certain what other effects such revenue-raising activities might entail. The political and economic capacity to increase own-source revenues, for a variety of reasons, appears to be quite limited. 11.37 3.0 BALTIMORE, MARYLAND 3.1 Introduction and Summary of Findings 3.1.1 Introduction Baltimore is an old, seaport city that lost over 120,000 residents between 1960 and 1977. It remains large, with over 800,000 inhabitants and, although it is in the South Atlantic Region (Census definition), it has a manufacturing and employment base that makes it similar to cities in the Northeast. The city of Baltimore is responsible for the sewer and water systems and for bridges and streets. The Mass Transit Admin- istration of Maryland is in charge of mass transit for Baltimore, and has authority to acquire and operate capital stock. A unique responsi- bility of Baltimore is that the city constructs portions of the Interstate highway system that pass through its boundaries, an activity undertaken elsewhere by the appropriate state agencies. Per capita income in 1975 was 86.5 percent of the SMSA income, and property taxes are $26.54 per $1,000 on the estimated fair market value. 3.1.2 Summary of Findings The major findings from our visit to Baltimore include the following: • Own-source revenue-generating capacity is fair. Although urban outmigration and loss of employment opportunities have eroded the city's tax base, in recent years the city's vigorous use of tools to encourage economic development (e.g., loan programs, subsidies, tax breaks) has initiated a revitalization program. If the strategy is successful, revenue-generating capacity should increase. Property taxes are moderate to high (similar to St. Louis' and Pittsburgh's), but not at the very high levels of Hartford and Newark. • Street and bridge conditions are only fair, even though capital outlays are at high levels. The very large capital outlays for streets and bridges are due almost solely to the city's responsibility for Interstate highway con- struction. But maintenance expenditures have both shown an overall decline between FY 1971 and FY 1977: from $5.3 million to $3.9 million for streets; and from $900 thousand to $700 thousand for bridges. As a result, the overall condition of the streets and bridges is only fair. • The condition of the water and sewer systems is good. Adequate revenues for maintaining the water and sewer systems have been realized by the city, as user charges have been altered to cover increased costs. 11.38 • The mass transit system is in good condition. The state-owned bus system has received large sums of capital and operating funds from UMTA. The condition of the system is good and improving. • Intergovernmental revenues, in general, and Federal grants-in-aid, in particular, finance a great deal of the city's activities. Over two-thirds of street and bridge capital outlays, as well as capital outlays for mass transit, are funded by the Federal government. Intergovernmental aid amounted to 65 percent of total city revenues in FY 1977. 3.2 City Description 3.2.1 Population and Employment Trends The population base of the city of Baltimore eroded 9 percent between 1960 and 1975 (Exhibit 3.1). The SMSA, on the other hand, experienced an increase of over 24 percent during the same time period. Like many central cities, Baltimore's unemployment rate has been con- sistently higher than that of the SMSA, reaching 10 percent of the workforce in 1975 compared to 8.1 percent for the SMSA. The central city's per capita income was $240 less than the U.S. average in 1975; in 1960 both figures had been almost equal. As the suburban areas have grown, so have employment opportunities Employment increases in retail, wholesale, and selected services indus- tries have been fairly steady for the SMSA between 1958 and 1972 (Exhibit 3.2). However, manufacturing employment declined for both the SMSA and the central city. The city also lost jobs in the whole- sale and retail trade sectors. However, employment in the selected services sector increased in the city. 3.2.2 Total Revenues and Expenditures for the City Exhibit 3.3 indicates that the city has substantially increased its expenditures between FY 1968 and FY 1977. Baltimore expended well over $1 billion in FY 1977, a 163 percent increase over the FY 1968 level. This increase is almost double the Consumer Price Index (CPI) increase. The CPI (with 1967 = 100) stood at 185.8 for Baltimore in June 1977 or an 85.8 percent increase over 1967.1 The increase in U. S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, Vol. 100, No. 12, December 1977, p. 106. 11.39 Exhibit 3.1: Population, Employment and Income Characteristics of Baltimore 1960 1970 1975 1977 Population SMSA City Per Capita Income SMSA City Unemployment Rate SMSA City 1,727,023 939,024 2,071,016 905,787 2,147,850 851,698 5.3% 6.5% 3.5% 4.6% 8.1% 10.0% NA 819,900 $ 1,967 (1959) $ 3,297 (1969) $ 5,001 (1S74) NA $ 1,867 (1959) $ 2,876 (1969) $ 4,330 (1974) NA 6.8% 8.9% Civilian Labor Force Employed SMSA City 643,482 362,311 810,545 352,700 860,000 307,000 NA NA Exhibit 3.2: Employment by Sector in Baltimore 1958 1963 1967 1972 Manufacturing Emp .0 yir.cn t SMSA 195,926 190,512 209,700 180,000 City 111,757 103,852 106,700 90,600 Wholesale Employment SMSA 28,650 31,695 34,032 38,184 City 26,015 26,629 25,484 23,892 Retail Employment SMSA 93,661 92,953 104,102 121,747 City 68,576 57,193 56,392 52,393 Selected Services Employment SMSA 34,785 34,946 39,985 62,036 City 28,994 24,941 27,803 34,761 NA Data not available. Source for Exhibits 3.1 and 3.2: U.S. Department of Commerce, Bureau of the Census, County and Cit y Da ta Book , (various years); 1975 figures for Civilian Labor Force Employed and Unemployment Rates were obtained from Geographic Profile of Employm en t and Unemployment, 1975 , U.S. Department of Labor, Bureau of Labor Statistics; 1977 figures were derived from City of Baltimore, Official Bond Offering Statement , April 15, 1978. 11.40 ££ o — o u a) co 1 £ 1,104.6 703.4 523.0 172.4 8.0 378.8 289.2 199.5 50.5 39.2 89.7 22.4 1.124.7 U.O 694.1 258.7 22.6 138.2 o o £ NT r» x> on .» NT £ o | O ON IN — (MM in- on (N INN j aiNonwin — _ o vo f> n o NT VO (-1 — CM 00 00 £ \D rN m r- co r- OOn ul o J n- HI -• i/n in. ^ -c nt co NT O U1 O "N fN -T O + ce" o n 3 C SI > 41 tD o- 41 00 '« Ss ° ., C U 4) U 3 tu a> c en o u .= e > O " CJ O 30) 3 >n i I i 3 + 3 c u 3 09 41 3 | O. ui 4i a ^3 3 a u u 8 S 5 g c a. •-> c U X 3 X 41 u o 6d C JJ — I >. OO C «J 4J u J a ■* .e ih U O s o ■ -J 3 .a a 3 s > H b C a J -1-1 Q 11.42 expenditures, then, has been quite substantial. It is even more note- worthy in light of the city's 10-year decline in population. Expendi- tures per capita (current dollars) increased from $467 in FY 1968 to $1,372 in FY 1977. Intergovernmental revenues accounted for the largest increase on the revenue side of the city's finances, increasing by approximately 220 percent during the same period. These amounted to $703 million or 64 percent of total revenues for FY 1977. In FY 1968, they were only one-half of total revenues. The Federal portion of intergovernmental revenues increased from $10.5 million in FY 1968 to $172.4 million in FY 1977. Part of the reason for the magnitude of the increase is that, unlike most cities, Baltimore receives Interstate highway funds for construction of portions of the Interstate Highway System that pass through the city's boundaries. Despite this, the absolute amount and relative increases are impressive. Own-source revenues have increased only 78 percent in the FY 1968 to FY 1977 period. Over one-half of the FY 1977 own-source revenue is derived from property taxes ($199.5 million). This proportion of roughly 50 percent represents a slight decrease from the FY 1968 level of 61 per- cent of total own-source revenue derived from property taxes. Long-term debt issued has remained at comparatively high levels over the 18-year history presented in Exhibit 3.3. Because bonds are used to finance capital construction, the bond issuances indicate that the city has been financing a continuing capital program. In addition, capital expenditures as a ratio to total expenditures have actually increased over the past nine years, from 14 percent (or $58.7 million) in FY 1968 to 23 percent (or $258.7 million) in FY 1977. For an older, industrial city, large capital outlays, such as observed for Baltimore, are rare indeed. 3.2.3 City Government Structure/Responsibility for Public Works Activities The city of Baltimore operates under a Mayor-Council form of gov- ernment. Four of the five selected functional areas are part of the city government and all are under the purview of the Department of Public Works. These are water, sewer, bridges and streets. Bridges and streets are financed by the General Fund for operating purposes. Water and sewer are financed through separate and autonomous funds, the Water Enterprise Fund and the Wastewater Enterprise Fund, respectively. These funds are self -financing and receive charges for water usage. Public transportation is provided by the state of Maryland. The Mass Transit Administration is funded by fare box receipts, state con- tributions, and Federal grants. The city does not participate in the financial arrangements of the mass transit system. Therefore, no finan- cial burdens are borne by the city for provision of this service. 11.43 3.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock The active capital program of the city is impressive; in addition, Exhibit 3.4 indicates that the water, sewer, and mass transit systems have increased maintenance outlays noticeably in constant dollars. However, maintenance expenditures on streets and bridges have declined. Street maintenance has exhibited a secular, downward trend that has been fairly consistent for the entire 21-year period. Bridge maintenance registered a sharp increase between FY 1965 and FY 1971; between FY 1971 and FY 1977, maintenance expenditures decreased by over $200,000 (1972 dollars) or 24 percent. 1 Many of the older cities have completed the construction of their public infrastructure; therefore, capital outlays tend to become a smaller part of total expenditures. In Baltimore, however, the reverse is true. While it is an old city, capital outlays have increased notice- ably. Capital outlays in constant dollars increased between the first few years of the study and the last few years for all of the selected functional areas except the water system (Exhibit 3.5). Capital outlays for streets and bridges have increased significantly in current and constant dollars. Since some of these outlays were for construction of the Interstate Highway System (an activity usually not undertaken by city governments), comparisons with other cities is diffi- cult. Sewer system capital outlay increases are, in large part, a function of EPA requirements and funding availability. UMTA Section 3 (capital subsidy) grants provided the impetus for mass transit outlay increases. The water system, because it had undergone major renovation and expansion during the first ten years of the study period, required less capital expenditures in the later years. A more comprehensive picture of the interactions between mainte- nance and capital outlays and the condition of the capital stock is presented in the summary table, Exhibit 3.6. Analysis of the data in this table suggests that, while per capita maintenance expenditures (constant dollars) have increased significantly for water and sewer systems, the condition of the systems is only fair. Data limitations may have biased the analysis, however. Maintenance expenditures for the water system include operating costs, as well as maintenance costs, after FY 1970. The maintenance component could not be separated. Therefore, maintenance activity actually may have remained at earlier levels. The increase in sewer maintenance activity is most likely associated with the physical expansion (new investment) of the sewer system. However, it has been possible to increase revenues for mainte- nance of the sewer system. These activities are financed through a Data for FY 1965 to FY 1970 were not available 11.44 d h 0) CO V-i PQ 3-S d co •H C O CO -H CU -H d •H J-i in c u H en TO w c o cj oo o vo «e o oo o ZZZZZZZZZZZZZZ 0-»0>«»OCi'\«» -a- -» •* in ve m \o c 3 CJ innnnONO zzzzz.zzzzzzzzz . . ... . . ^ ^ ifl ui N r> oo 0) •a u i-l c w c o On^nvo^of^t^vo o\ o sifi inN *y o~?o>u"ir-.mu"ivon<:<<:<m— lOOOOOi^zzZZZdfivDOvOO-- cncsi csi csi ^3- (N -h m * OO 00 oo ts co i^ c QJ 1-1 1-1 3 cj vj-Oeimor^-OuisT^. ^, - ..HnOOaJN* OU"iHON-J(00<<<<ooo-\Ocr> a (SI c CO o CJ oonoNaino- i -* ifl o o-nofl m o-jONmHoo5< o\in o n eo om -iinN(Mis(NOon-Hvo^ u-itNvOvT — n-iOrsizzzzznvO— . 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Cu TJ X 0) W 3 C T3 -H C J-> CT3 C O to CJ 3 C *-» V-i no a- 325.5 43.0 5.8 36.3 0.9 229.4 170.8 113.0 57.8 58.5 53.1 294.3 171.3 54.6 46.0 22.5 O © IN IN IN «N on o o .» >n — o nT — m no o O O oo m oo NO in. m — on no on no m o m nt — £ in aiifiton o o on — on on o ■»«« fin •» m -a- in on o oo IN. Ontntn oo- on on «*i 00 MOO— in — ON 1 — IN CM in in no O O nT , + 3 C > c o « 9 e i a 2? 1 m g S I u° i E — i O. O 01 u 01 c « •> ou.ee > ti u « fl o oi e- — o t- c£ > 10 -3 O b K Wi OUOO 3 « 3 >n oo w u- _1 OH O u 1 J 1 + e a. e o m 3 -o C ■ 01 3 ■o C 01 ft • U 01 01 H 3 3 u -i a -h e -a >n -3 § 5 J s e e. u a U K 3 K 01 U O M « — >N oo e n u ej u ■* — oi u u o. -< X e 3 to u u w O U => O V e -a 01 n ■o c 1 • • A 01 o ! is S 00 s g 00 -1 — — a MX-* — IV • 11.70 1967 equals 100, was 182.4 in August 1977, or an increase of 82 percent. 1 The increase in city revenues then was approximately double the increase in the CPI. Most of the increase in revenues was derived from the city's own sources. The increase amounted to $146.7 million, or 177 percent, for the ten-year period. Although intergovernmental revenues increased by 367 percent (or $33.8 million) between FY 1967 and FY 1977, they amounted to only 13 percent of total revenues. The Federal portion of intergov- ernmental revenues increased from $6.9 million to $36.3 million, which represented 11 percent of total revenues. The dependence of the city on Federal aid is low when compared to other major cities. Indicative of the growth which new areas experience and of the accompanying necessity to provide and extend public infrastructure is the increase in capital expenditures. The trend for capital expenditures indicates rather sizeable capital outlays. Between FY 1959 and FY 1967, capital expenditures averaged $20.3 million annually (current dollars). From FY 1967 to FY 1977, the average increased to $54.6 million annually. Long-term debt is almost always used to finance capital expenditures, which. explains Dallas' consistently high levels of borrowing. Current expenditures have registered a comparatively rapid increase in the past ten years. In FY 1967, current outlays amounted to 44 percent of total expenditures. By FY 1977, current outlays increased to over 58 percent of total outlays. 4.2.3 City Government Structure/Responsibility for Public Works Activities The city of Dallas operates under a Council-Manager form of govern- ment. All five of the selected functional areas are under the jurisdic- tion of the city. The Department of Streets and Sanitation maintains the streets and bridges of the city. Resurfacing and construction of streets are performed through the city's Department of Public Works, which is also responsible for capital outlays for bridges. Water and sanitary sewer services are provided to the city (and sold to some neighboring cities) by the Water Utilities Department of the city. These services are paid for by rates that are approved by the City Council. The Charter of the City states "that all receipts and revenues from the Water Utilities Department shall constitute a separate and sacred fund, which shall never be diverted, for any purpose, other than provision of water and sanitary sewer services. "2 Mass transit is operated by the U. S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review , Vol. 100, No. 12, December 1977, p. 106. 2 Cited in City of Dallas, Official Bond Offering Statement , May 1, 1978, p. 16. 11.71 city's Dallas Transit System. DTS has been in operation since January 1, 1964, receiving all of its operating revenues from fare-box receipts until 1972 when Federal and city funds were made available. 4.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock Because of the growth of the total urban capital stock, one would expect maintenance expenditures to rise (Exhibit 4.4). Indeed, water system maintenance expenditures increased by over 376 percent between FY 1957 and FY 1977. The cost of maintenance, as measured by the Skilled Labor Index (SLI), rose considerably less during that same period, by 209 percent (see constant dollar equivalents in Exhibit 4.4). In other categories, sewer maintenance rose more than fourfold, while street main- tenance increased much less than the real cost of maintaining streets. The 1967 to 1977 decade witnessed an increase in the SLI of 124 percent, while sewer maintenance expenditures increased by 178 percent, water maintenance by 164 percent, street maintenance by a mere 8 percent, and mass transit maintenance expenditures increased by 129 percent. Rapid growth rates of newer cities result in a need to invest in physical infrastructure. Dallas' rapid growth has been accompanied by significant capital expenditures (Exhibit 4.5), demonstrating a commit- ment to the expansion of its capital stock at fairly uniform levels of constant dollar outlays. It should be noted that, due to the unavail- ability of data, capital outlays for streets exclude private developers' contributions until FY 1975. Total capital outlay figures prior to FY 1975 would have been significantly higher if this were included. Capital outlays for water have been relatively stable since FY 1957 and increased sewer capital outlays in the early 1970's have reflected EPA's secondary treatment requirements. The upsurge beginning in FY 1973 reflects this. Even when capital expenditure figures are adjusted for inflation, increases are still evident (Exhibit 4.5). The summary table (Exhibit 4.6) presents some of the more important features of the five functional areas that were investigated. In gen- eral, the condition of the public capital stock of all five areas is relatively good. And even the condition of streets, which Dallas' rating system calls "fair," is much better than in older cities. Much of the reason for only a "fair" condition rating for streets is that the last two years of the study period witnessed some of the most severe winter weather experienced in Dallas. The freeze-thaw cycles did a great deal of damage to the streets. However, while Dallas recently spent less on maintaining the streets than during earlier years, it has shifted much of the increased expenditures into resurfacing (a capital outlay) . The per capita maintenance figures in constant dollars demonstrated this shift in emphasis as it decreased from $4.33 in FY 1972 to $2.98 in FY 19 77. As will be shown later in the text, resurfacing expenditures increased more than tenfold between FY 1975 and FY 1977. 11.72 O J! J » o o «> r-« o> o < < < < < <<<<<<<<<<<■< ZZZZZZZZZ z z z z zzzzzzzzzz o o o o o o o o o o c Tl m c u 01 m m c 3 o o o J=. 4-1 -d ^^ C cri w 01 4-1 H c rH 0) m >-i a u 3 c CJ •rH Pi CO •H C c/i •rH CD •u i-i CJ 3 e j-i 3 •H tXH X! c: -n cu 0) a ■u x CJ UJ cu rH 0) •H ■u (n C •H S-i 01 o s ta o a* cr. ca o o o O *3-r'--^-3'^r~r-tcAf"tfNIOO r*i *£> C C 3 T3 "O 111 H O OOOOOOOOOOOOOOOOOOO oo ' ' 2 o I ' ab«Oi O C o> cr. o TO o\ ^ ■ vo nmo O O r>J O c o u ■h o. j; |i - o < n CTn to -m Tl *-»< c CO t/l C 3 en u ,G (/i W c ^-^ C) U I/) cri -n rH C rH 03 03 a ■u C a 01 u u tn 3 C U o •H c .u •H U c OJ 3 0) t^ !-J 3 ■ra u aj •H j-> -n c; c aj 0) rH a. QJ X c/j w QJ > CtJ ■H 4-1 ^ •H a Vj m O U [*' Nno-jnr. © i vOr^fnoOO^OOsD OOOOOOOOOOOOOO OOO OOO \D vD - ■"•*y^O<" v JCOi~-— ■ Or** as f> r-» o>00 ~ — fsi^r--r>JOO^f^O^ on o*> ^ — * r-j cO OOO^OD^IN^N- >T*-r(7> -J" O -T —*rMu"*csioo , i-*00 niflii in — • O vo m on i OOcr.—' r- O o > \r»jr--r">ou"*c s ''-*ocor-"»\r> o»**.co n o CO r-» 00 O i a C R £ u u a a. a. 19 u c o O — CJ w ssss O «M 0» f-> -» © — CM o o o J» o o o © © c o o m m cm z • • • O «3- O «0> — m o o o o o o o — e'o'oo O UN I*. » O a 9 c re k a. u re o c o> re o- e 0) c X erg re --> c c* o — (J « _. r. «n >C vo in r. «r _ on — m no o i-i to nO NO •» CM r-N CM <. < o o Z Z ■ • o o z . . . o re u. UN o i- ry. on on o> ON on on on on ON ON ON ON sssi c 3 (J no««o .» .» o. r^ CM <-> UN 00 o o u% no en .» cn vo vO NO — Degree of Difficulty to Increase Own- Source Revenues 3 o o -J ! I 00 I N3 Oi X e 5o» u C J 5 § o f s as s. ►.-< «> ^ o * re eg u B 0) oi o re C CO 0> a w o re 1 u u. o o a e 1 . o> -i re >> & 1 1 CO u C"J • 3CNH £ S§E u e re on i re re tu • . re e «i 01 re to 01 CO u re -I 0) re u is tl U to M c « e C" « e ■*" ut •a s.s re x o i re > V w «i SuSo a ti -< o a e re c o c >> 3 -< C »< W «4 kl tl >» C-1UOCJCJO — -h o y m ^ o reoc»• re 01 < re e c 3 8 *? re 3 i CO CO u s o> 8 01 9S u V V) a ■o a c re H re X J 2 a -O D. U U B c o i 2 ■H O re o re o "" c * ° o eo-3 ki c. 5 5 11.75 In general, Dallas is not fiscally "strained" and can increase its revenues. Maintenance outlays have kept up not only with the cost of living, but also with the expanding population base.l Furthermore, own- source revenues are the primary means by which maintenance outlays, as well as capital outlays, are financed. Federal (and state) transfers to the city account for a small fraction of water, sewer, and street capital outlays. Federal contributions to water and sewer capital expenditures together, when totalled over the period FY 1969 to FY 1977, amounted to 15 percent. Streets received considerably less, and the percentage of bridge capital expenditures financed by Federal funds while high in the last few years, represented small absolute amounts. Mass transit .depend- ence on Federal funds has been and remains high. As discussed earlier, one reason that own-source revenues have increased to fairly high levels is Dallas' ability to annex unincorpo- rated areas. This has contributed to its revenue-generating potential. 2 The revenues which were obtained through this vigorous annexation policy have augured well for the city's own-source revenue-gathering capacity. The flight to the suburbs and concomitant decrease in the revenue base are partially offset by the annexation of these suburbs. Part of the revenue drain, then, is recaptured. Two other factors would allow the city to increase its revenues if necessary. Its property tax rate in FY 1977 was $1.39 on $100 of assessed valuation, or $10.42 per $1,000 of fair market value, since assessed val- uation is currently only 75 percent of fair market value. Also, the state constitutional tax rate limit for city purposes is $2.50 on $100 of assessed valuation. Hence, assessed valuation and/or the property tax rate could be raised. Another source of revenues is the bond market. Dallas has a high credit rating; Standard and Poor's rating is AAA, and Moody's is Aaa.4 Access to the bond market is good. In sum, Dallas has the good fortune of being able to raise revenues through any one of the following actions: annexation, increased property taxes, or bond issuances. Dallas has invested, and continues to invest, heavily on its infra- structure. Because the physical size of this infrastructure has grown rapidly over the past several decades, there is greater maintenance Even though population declined between 1970 and 1975, latest pro- jections in the Bond Offering Statement indicate that the population is increasing, and is already beyond the 1970 figure. 2 For a comparison, see Thomas Muller and Grace Dawson, The Impact of Annexation on City Finances: A Case Study in Richmond, Virginia," Washington, D.C., The Urban Institute, May 1973. 3 Property tax is used for debt service and for the General Fund. 4 Continental Illinois National Bank and Trust Company, Comparative Analysis of City Credits , August 1978, p. 16. 11.76 activity to be performed. The extent to which Dallas has been able to maintain it is reflected in the generally "good" condition of this infra- structure. A. A Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area A.A.I Water and Sewer Systems A. A. 1.1 Maintenance Expenditures and Revenues The mechanism by which the operating budgets for the water and sewer systems are financed is through the collection of fees and charges. These charges are deposited in one account, the Water Utilities Fund, to be used for sewer and water operations and maintenance. Exhibit A. 7 indicates that maintenance expenditures on the water system have increased at an average annual rate of 8.1 percent between FY 1957 and FY 1977, which is significantly greater than the 5.8 percent average annual rate increase in the cost of maintenance. Maintenance expenditures as a per- cent of total operations and maintenance annually have been between 35 and AO percent (except for FY 1959). This fairly constant ratio demon- strates that maintenance activities have not been neglected in the oper- ating and maintenance budget. Similarly, sewer system maintenance expenditures have increased much faster than the real cost of maintaining the sewer system. Exhibit A. 8 shows that the average annual rate increase in maintenance expenditures has been 8.8 percent (slightly more than the increase in water maintenance expenditures). Maintenance expenditures, as a percent of total operations and maintenance expenditures, showed a fairly significant increase during the mid-1960' s. Like the water system, maintenance activities for the sewer system are receiving consistent portions of the operating and main- tenance budget. One would expect, moreover, that in a growing city like Dallas, increases in maintenance expenditures should at least keep pace with the cost of maintaining the infrastructure. This, in fact, has been the case. The cost of maintaining the infrastructure, as measured by the Skilled Labor Index, has increased 310 percent during the past 20 years. The corresponding increase in maintenance expenditures for the water system was 372 percent, and for the sewer system it was AA2 percent, both figures being well above the Skilled Labor Index increase. A. A. 1.2 Capital Expenditures and Revenue Sources There are four revenue sources for capital outlays in the water and sewer system. The most important is bonded indebtedness which has con- tributed over 57 percent of total capital expenditures for the water 11.77 Exhibit 4 .7: Water System M< lintenance Maintenance Expenditures Annual Fiscal (thousands Change Year of dollars) (percent) 1957 1,512 1958 1,500 - 0.8 1959 1,550 + 3.3 1960 1,838 +17.9 1961 1,844 + 0.3 1962 2,015 + 9.2 1963 2,108 + 4.6 1964 2,063 - 2.2 1965 2,218 + 7.5 1966 2,473 +11.5 1967 2,617 + 5.8 1968 2,704 + 3.3 1969 2,900 + 7.2 1970 3,295 +13.6 1971 3,899 +18.3 1972 4,101 + 5.2 1973 4,788 +16.8 1974 4,340 - 9.4 1975 6,228 +43.5 1976 6,941 +11.4 1977 7,140 + 2.9 Average Annual Rate of Chang e (FY 1957-FY 1977) + 8.1 (FY 1968-FY 1977) +10.7 Maintenance Expense as Rate of Percent of Inflation^ Total O&M (percent) 36 — 35 + 2.7 34 + 4.0 38 + 2.6 38 + 2.5 40 + 3.7 40 + 3.5 37 + 7.1 39 + 3.3 41 + 4.3 40 + 3.1 39 +10.9 37 +12.5 38 + 8.7 39 + 8.0 38 +12.2 39 + 7.2 35 + 5.1 41 + 5.3 42 +10.2 NA + 4.1 + 5.8 + 8.1 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes of 22 Cities, March 1978, p. 75. ^ "' NA = Data not available. — = Not applicable. Source: Dallas Water Utilities, Monthly Financial Statement 11.78 Exhibit 4.8: Sewer System Maintenance Expenditures Maintenance Maintenance Expenditures Annual Expense as Rate of Fiscal (thousands Change Percent of Inflation Year of dollars) (percent) Total O&M (percent) 1957 843 45 — 1958 831 - 1.5 43 + 2.7 1959 926 +11.4 42 + 4.0 1960 1,032 +11.4 42 + 2.6 1961 1,108 + 7.4 45 + 2.5 1962 1,083 - 2.3 45 + 3.7 1963 1,035 - 4.5 44 + 3.5 1964 1,148 +10.9 45 + 7.1 1965 1,372 +19.5 50 + 3.3 1966 1,540 +12.2 54 + 4.3 1967 1,640 + 6.5 57 + 3.1 1968 1,643 + 0.2 53 +10.9 1969 1,776 + 8.1 51 +12.5 1970 2,236 +25.9 51 + 8.7 1971 2,398 + 7.2 50 + 8.0 1972 2,632 + 9.8 49 +12.2 1973 2,921 +11.0 47 + 7.2 1974 2,900 - 0.7 43 + 5.1 1975 3,508 +21.0 45 + 5.3 1976 3,724 + 6.2 47 +10.2 1977 4,566 +22.6 NA + 4.1 Average Annual Rate of Change (FY 1957-FY 1977) + 8.8 + 5.8 (FY 1968-FY 1977) +12.0 + 8.1 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. NA = Data not available. — = Not applicable. Source: Dallas Water Utilities, Monthly Financial Statements. 11.79 system between FY 1957 and FY 1977, and one-half of total capital expend- itures for the sewer system for the same period (Exhibits 4.9 and 4.10). The Construction Funds Account is composed of fees for hookups and exten- sions, bond transfer monies (usually monies that are left over from pre- vious bonds) , and Water Utilities Fund transfer monies (or monies that were a surplus from prior years) . Private aid in construction is the third account. This revenue source is attributable to customers (about 45 percent) who pay fees and to developers (about 55 percent) for the water and sewer systems. Private aid in construction amounted to over 9 percent of total capital expenditures for the water system, and to almost 13 percent for the sewer system. The Water Utilities Fund, which is the repository of fees and charges and intergovernmental revenues for water utilities capital pur- poses, has contributed over 17 percent of total capital expenditures for the water system, and over 15 percent for the sewer system. Because Federal grants-in-aid are funneled to the Water Utilities Fund which is used for both sewer and water systems, it is not known precisely how much has gone separately to water and to sewer capital outlays. In FY 1969, Federal funds paid to the Water Utilities Fund amounted to $300,000; in FY 1975, this figure had increased to $8.2 million, but it dropped to $4.1 million in FY 1977. Of these Federal grants, $225,000 were for the water system and the balance was for the sanitary sewer system with primary emphasis on expansion of capacity and on provision of tertiary treatment capability in sewage treatment plants. Capital expenditures for the water system have been consistently large between FY 1957 and FY 1977. These large outlays are attributable to at least two circumstances. Increasing demand (due to population growth) for the city to provide water to its residents is one obvious explanation. The other circumstance is that the city must construct supply lines from as far away as 100 miles due to the limited water supply within the city or nearby. Capital expenditures for the sewer system, likewise, were stable until tertiary treatment requirements were mandated. This is the reason for the current dollar increases beginning in FY 1973. 4.4.1.3 Condition of the Water and Sewer Systems The Dallas water system is comprised of multiple raw water reser- voirs, three water treatment plants, 16 pumping stations and approxi- mately 3,500 miles of water lines. About one-half of Dallas' 3,500 miles of water mains are less than 25 years old. Highly corrosive local soils have caused the exterior of the gal- vanized iron main lines to corrode, and shifting of the soil has caused breaks in the water mains. These two factors constitute the major reasons for water main breakages. However, since these problems are corrected soon after they occur, the distribution system remains in good condition. 11.80 Exhibit 4.9 Water System Capital Expenditurs By Revenue Source (thousands of dollars) Fiscal Water Construction Private Aid in Year Bonds Utility Fund Funds Account Construction Total 1957 3,281 646 718 751 5,396 1958 9,103 733 547 392 10,775 1959 8,983 701 541 531 10,756 1960 8,493 782 658 1,335 11,268 1961 9.533 891 1,021 737 12,182 1962 13,676 1,052 987 1,169 16,884 1963 10,165 1,039 990 936 13,130 1964 5,038 2,500 1,170 961 9,669 1965 5,749 3,865 1,381 445 11,440 1966 9,395 2,595 452 883 13,325 1967 9,549 1,466 443 345 11,803 1968 7,473 1,603 839 189 10,104 1969 4,788 1,095 2,394 2,437 10,714 1970 2,260 3,224 1,348 1,485 8,317 1971 2,996 2,709 1,942 1,211 8,858 1972 13,372 2,597 3,077 854 19,900 1973 4,722 3,478 4,397 1,279 13,876 1974 4,976 3,875 2,384 1,260 12,495 1975 4,297 3,993 3,126 1,973 13,389 1976 2,603 4,152 2,275 1,821 10,851 1977 1,630 2,393 3,709 2,234 9,966 Source: Dallas Water Utilities, Annual Reports . 11.81 Exhibit A. 10: Sewer System Capital Expenditures By Revenue Source (thousands of dollars) L Fiscal Water Construction Private Aid in Year Bonds Utility Fund Funds Account Construction Total 1957 1,063 200 599 454 2,316 1958 1,057 237 772 303 2,370 1959 853 215 593 330 1,991 1960 973 373 803 957 3,106 1961 1,528 731 1,229 509 3,998 1962 2,650 861 907 807 5,224 1963 2,159 874 1,772 671 5,477 1964 1,994 1,002 1,027 685 4,707 1965 2,803 1,090 1,457 281 5,631 1966 1,690 1,076 803 625 4,194 1967 1,158 1,054 739 267 3,218 1968 1,318 1,135 894 146 3,492 1969 1,318 784 2,077 1,901 6,080 1970 408 2,210 2,344 1,323 6,285 1971 1,989 1,414 3,442 1,021 7,866 1972 3,486 1,540 3,231 871 9,127 1973 4,610 1,948 3,739 1,283 11,580 1974 13,046 2,048 2,883 2,883 20,860 1975 12,272 2,222 679 2,163 17,567 1976 14,378 2,261 304 1,243 18,186 1977 9,057 1,388 4,557 1,712 16,732 Source: Dallas Water Utilities, Annual Reports. 11.82 One indicator of the work performed by maintenance crews is the number of water main breaks. Exhibit A. 11 lists the number of main breaks for various years from FY 1972 through FY 1978. This tabulation shows that the annual number of breaks during FY 1972 and FY 1973 was much higher than during the period FY 1975-FY 1977. In FY 1978, the number of breaks again increased. This increase is attributed to the severe winter and low temperatures. The 2,230 breaks of that period amounted to a 24 percent increase over the previous 12 months, and 23.8 percent increase over FY 1976. In January 1978, a very cold month, there were 403 main breaks. Overtime work by Department field crews was 34 percent above FY 1977. Cleaning and relining water mains as preventive maintenance are emphasized. The present goal is to clean about 24 mains per year but usually only 10 to 12 mains are actually cleaned. However, this level of maintenance has proved adequate, as the good condition of the system reflects. The sewer system is also in good condition. In FY 1977, the city had responsibility for 3,240 miles of sanitary sewer mains. There has been an average annual increase of about 50 miles of sewer mains during the last ten years. Compared to other cities, the Dallas sewer system is new. Approximately 63 percent of all the sewer mains in Dallas have been in place for less than 25 years; 26 percent, for less than 15 years; and 8 percent, for less than five years. Approximately 75 percent of the sewer mains were installed since World War II. The oldest sewers are about 40 years of age. Approximately 60 percent of the 6-12 inch diameter sewer pipe is vitrified clay. The remainder and nearly all pipe larger than 12 inches in diameter is made of concrete. Some of the concrete sewer lines are in poor structural condition. Hydrogen sulfide gas has produced spalling on interior pipe surfaces. One reason for the excessive hydrogen sulfide concentration in the Dallas sewer system may be the lack of sufficient numbers of manholes, which would provide venting of the gas accumulation. Much of the system in located in creek beds having watertight manholes, further precluding fresh air access. Pipe joint construction of 20 years ago and earlier was made of oakum and mortar, which deteriorates appreciably with age. During the 1950 's and early 1960's, a poured bitumastic joint was used. Although these have greater life, they are also subject to deterioration. Since 1962, rubber gaskets have been used to make the joint seal. These pro- vide a joint seal that is relatively infiltration-free. Sewer lines in Dallas were laid without installing manholes at changes in grade and alignment. The principal problem caused thereby is that the proper inspection and maintenance of sewers is greatly inhibited and more costly. The distance between manholes in one sewershed averages about 860 feet, and about 1,000 feet in another. Dallas Water Utilities now require that manholes be no farther apart than 400 feet. 11.83 Exhibit 4.11: Water Main Breaks Fiscal Year 1972 1973 1974 1975 1976 1977 1978 NA = Data not available. Source: Dallas Water Utilities, Annual Reports Number of Main Breaks Repaired 2 ,200 2 ,600 NA 1 ,347 1 ,801 1 ,799 2 ,230 11.84 The conclusion of an engineering firm conducting inflow and infil- tration studies in 1973 for the city of Dallas was that inflow is a much larger problem than infiltration. The firm found infiltration to be practically non-existent in Prairie Creek. The vast majority of inflow/ infiltration exists in the Five Mile Creek sewershed. A sizeable amount of inflow exists in the Elam Creek sewershed. Because the city of Dallas has an active ongoing program of infil- tration/inflow identification and elimination, the problem is becoming less serious year by year. The infiltration/inflow problems in Dallas have been found to be "non-excessive" in accordance with definitions of EPA. The major factor contributing to high correction costs is the high cost of constructing manholes needed for conducting the evaluation survey and for rehabilitation work. In FY 1977, the Wastewater Collection Division's Emergency Complaint Section responded to 11,601 service request calls. Seventy percent involved a city problem. There were 68 service request calls involving property damage caused by sewage flooding a home or business. The number of repairs to the wastewater collection system in FY 1977 was 8,376. In FY 1978, estimates show about 9,000 repairs, and in FY 1979 projections indicate 9,500 repairs. The miles of sanitary sewers cleaned in FY 1977 were 992. Estimates for FY 1978 are 1,000 miles and for FY 1979 projections indicated 1,095 miles. Exhibit 4.12 is a tabulation of the number of stoppages cleared in Dallas' sewers during each year from FY 1970 through FY 1977. This is also presented as the number of stoppages per 100 miles of sewer mains. The table suggests that the number of stoppages cleared is decreasing, presumably an indication that levels of maintenance are satisfactory. However, about one-third of the 3,240 miles of sanitary sewer mains in Dallas are considered to be in poor condition by Dallas Water Util- ities' officials. These mains are located primarily in the West Dallas, Oak Cliff, South Dallas, East Dallas, and downtown areas of Dallas — mostly in low-income areas. More than 90 percent of the service requests originate from these areas and these areas also experience flooding. In general, though, the condition of the overall sewer system is good. 4.4.2 Streets and Bridges 4.4.2.1 Maintenance Expenditures and Revenues There are 3,274 miles of roadway in Dallas, of which 210 miles are the responsibility of the state. The remaining mileage, more than 90 percent of the system, is the responsibility of the city of Dallas. II Exhibit 4.12: Sewer Stoppages Cleared Fiscal Year Number of Sewer Stoppages Cleared Stoppages Per 100 Miles of Main 1970 2,770 97.6 1971 2,557 88.5 1972 2,235 76.0 1973 2,181 73.1 1974 1,799 58.8 1975 1,640 52.6 1976 1,825 57.9 1977 1,730 53.9 Source: Dallas Water Utilities, Wastewater Collection Division, Annual Reports. 11.86 The Street Maintenance Division of the Department of Streets and Sanitation performs maintenance on Dallas streets. Its revenue source is the General Fund. Exhibit 4. 13' shows expenditures by the city for street maintenance from FY 1958 through FY 1977. The growth rate in maintenance expenditures has increased more slowly than the inflation rate. Meanwhile, the number of miles of streets within the city has been expanding. In FY 1975, the city was responsible for 2,950 miles of streets, in FY 1977 it had 3,006. However, resurfacing increased in FY 1977, which partially explains the decline in maintenance. But, street officials suggest that maintenance has been deferred and that a backlog of $15 million has developed in recent years. One of the reasons for the backlog is that annexation of unincorporated areas often brought poorly maintained streets under the purview of the city. Bridge maintenance efforts on the 18 major bridges and many secon- dary ones are small. Officials of the Streets and Sanitation Department estimate that these maintenance expenditures amounted to only $20,000 annually in the past few years. 4. A. 2. 2 Resurfacing/Capital Outlays and Revenue Sources Capital expenditures for streets have been generally rising since FY 1958. Exhibit 4.14 indicates that over two-thirds of total capital expenditures for the 20-year period were financed through bonded indebt- edness. Estimates of private developers' construction of streets are not available prior to FY 1974. Therefore, the effective total capital expenditures were higher than the figures shown. The Federal aid com- ponent in these data is quite small. Exhibit 4.15 presents a breakdown of revenue sources for resurfacing projects. Note the enormous jump in FY 1977 which might explain the corresponding decrease in maintenance expenditures at that time. Capital expenditures for bridges have been quite low (Exhibit 4.16). The major expenditure category in the last ten years has been the narrow bridge replacement program. Expenditures by the state for new bridges on the Interstate and primary system networks in the Dallas area undoubt- edly have been much greater than the city of Dallas' bridge outlays over the last 20 years. 4.4.2.3 Condition of Streets and Bridges The city has developed a computer data file as part of its street inventory system and a program for rating the physical condition of street surfaces, sidewalks, curbs, and gutters. Each street segment is given a condition rating annually by field inspectors. Six separate rating categories are used, and each is assigned a numerical rating (A = 8, B = 7, C = 6, D = 5, E = 4) . 1 An objective to be maintained is to keep all streets above a rating of "C" (fair) . See descriptions of these symbols at the bottom of Exhibit 4.17. 11.87 Exhibit 4.13: Street Maintenance Expenditures Maintenance Expense 1 Annual Rate of , Fiscal (thousands Change Inflation' Year of dollars) (percent) (percent) 1957 NA 1958 1,777.0 — — 1959 1,973.5 +11.1 + 4.0 1960 2,008.6 + 1.8 + 2.6 1961 2,153.1 + 7.2 + 2.5 1962 2,200.3 + 2.2 + 3.7 1963 2,211.2 + 0.5 + 3.5 1964 2,352.9 + 6.4 + 7.1 1965 2,288.0 - 2.7 + 3.3 1966 2,712.0 +18.5 + 4.3 1967 2,649.1 - 2.3 + 3.1 1968 3,052.2 +15.2 +10.9 1969 3,298.9 + 8.1 +12.5 1970 3,759.2 +14.0 + 8.7 1971 4,833.0 +28.6 + 8.0 1972 3,641.9 -24.6 +12.2 1973 3,598.9 - 1.2 + 7.2 1974 3,235.9 -10.1 + 5.1 1975 3,400.0 + 5.1 + 5.3 1976 3,500.0 + 2.9 +10.2 1977 3,300.0 - 5.6 + 4.1 Average Annual . Rate of Change (FY 1958-FY 1977) + 3.3 + 5.8 (FY 1968-FY 1977) + 0.9 + 8.1 In 1975 the city began charging rent for city-owned equipment and vehicles used by operating departments. Also in 1975, pension costs were included in the budgets of each division, rather than as a separate General Fund item, the previous practice. Under the "old" system, the 1975 Streets and Sanitation budget was estimated at $15.1 billion (cf. City of Dallas, 1975-76 Operating Budget , p. 314). After the change in reporting practices actual Streets and Sanitation expenditures in 1975 were $24.5 million, an increase of $9.4 million over what they would have been under the old system. Of the $9.4 million difference, $5.8 million is due to the new equipment ren- tal charge, and $1.2 million to pension costs previously recorded in other funds. The equipment charge and pension costs amount to 62 percent and 8 percent, respectively of the Streets and Sanitation budget under the old system. They amount to 38 percent and 5 percent, respectively, of the Streets and Sanitation budget under the new system. Using these percentages, it is possible to roughly adjust 1975-and-later figures to obtain comparable series. To adjust the figures down for comparability with the earlier fig- ures, they have been reduced by 43 percent (38+5). This removes the pension and equipment rental portions and yields a consistent series. Hence, the maintenance figures for the last three fiscal years are estimates. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. ~ NA" - Data not available. — «= Not applicable. Source: City of Dallas, Operating Budgets . 11.88 Exhibit 4.14: Capital Expenditures for Streets By Revenue Source (thousands of dollars) Estimated Federal lecal Grants and fear Bonds Revenue Sharing^ 1958 3,918 1959 2,650 I960 3,148 L961 6,458 962 5,150 1963 10,715 964 10,915 965 14,245 966 11,523 967 9,237 968 6,384 688 969 9,072 688 970 17,031 688 971 16,073 688 972 11,408 688 973 21.312 1 .155 974 21,480 1 ,600 975 19,338 1 ,900 976 10,896 2 ,345 977 11,905 1 ,994 Property Owner 4 General Fund Private Assessments 3 Developers 492 257 NA 529 224 NA 412 436 NA 395 403 NA 331 300 NA 485 624 NA 572 609 NA 1,017 508 NA 725 574 NA 849 322 NA 1,951 270 NA 1,064 607 NA 1,871 610 NA 3,436 NA 803 600 NA 2,953 523 NA 2,470 417 NA 1,156 25 3,000 1,788 16,000 1,381 2.200 6 27,000 Total 4,667 3,403 3,996 7.256 5.781 11,824 12,096 15.770 12,822 10.408 9.293 11,431 20,200 20,197 13,499 25,943 25,967 25,419 31.029 44,480 'otal 222,858 29,680 9,509 46,000 320,481 Includes resurfacing; excludes funds for state and Federal highways. Expenditures from the Street Improvement Funds and Street Paving Funds (for equipment, land and structures) excluding property owner assessments. Figures from 1958 through 1974 are actual. After 1974, Street and Storm iewer Improvement Funds were aggregated In Dallas financial reports, and the street-related portion of reported :apital outlays was estimated as follows: expenditures from the Street Improvement Funds in the 4 years prior to 1975 averaged 76 percent of the sum of Street Improvement and Storm Sewer Capital Project Funds. This percentage :as applied to the totals for 1975-1977. From 1958-1974: Revenue into Street Improvement Funds from Property Owner Assessments. From 1975-1977: 'Property Owner's Share of Paving Costs" in schedule of changes in city fixed assets. 4 Resurfacing outlays only. Estimates of Engineering Division. The Capital Construction Fund was established in 1976-1977. It consists of General Funds surplus revenues ind capital project funds "reprogrammed" from their original project. 1A - Data not available. Source: City of Dallas, Annual Financial Reports ; Dallas Capital Budget; Dallas Operating Budget. 11.89 Exhibit A. 15: Estimated Expenditures and Funding Sources For Street Resurfacing (thousands of dollars)! Funding Sources Community Cap ital Fiscal Resurfacing General Development Revenue Const ruction Year Expenditure 256.9 Fund 256.9 Block Grants Sharing Fund 1958 1959 224.4 224.4 1960 436.4 436.4 1961 402.9 402.9 1962 300.4 300.4 1963 623.6 623.6 1964 608.6 608.6 1965 507.9 507.9 1966 574.5 574.5 1967 321.9 321.9 1968 269.7 269.7 1969 607.5 607.5 1970 610.0 610.0 1971 0.0 0.0 1972 600.0 600.0 1973 523.4 523.4 1974 416.8 416.8 1975 325.2 25.2 300 1976 750.0 0.0 350 400 1977 3,500.0 0.0 1,300 2, 200 Prior to 197 6 resurfacing was paid for out of the General Fund, through the Street Maintenance Division component of the operating budget. Actual resurfacing outlays were reported in annual budgets for the prior years, as a capital outlay ("Structures: Streets"). For 1976 and later years, when funding was shifted from the General Fund to other sources, resurfacing expenditures and fund sources were reported in Dallas Capital Budgets. Sources: Dallas Operating Budget ("General Budget" in earlier years); and Dallas Capital Budget. 11.90 Exhibit 4.16: Capital Expenditures for Bridges By Revenue Source (thousands of dollars) Fiscal Year Bonds 1958 1959 680 1960 1961 1962 776 1963 1964 934 1965 1966 1967 1,787 1968 1969 1970 1971 2,446 1972 1973 1974 1975 1976 140 , 1977 Total 1 6,763 Grand Total = $7,873. Community Federal Development Revenue Sharing Block Grants 700 325 85 1,025 85 Source: Engineering Division, Dallas Department of Public Works. 11.91 Inspection of Exhibit 4.17 reveals the condition ratings given to all city streets in Dallas each year from FY 1975 through FY 1978. The "condition rating" is identified in the left hand column, followed by the number of street-mileage assigned to each condition rating. Each of these mileage entries is then multiplied by the "condition weighting" numerals for the various numerical ratings. The product is entered in the column entitled "Weighted Factor." This figure is divided by the number of miles of streets to derive a numerical condition rating that represents the physical condition of all streets. This value has improved from 5.93 in FY 1975 to 6.25 in FY 1978. Thus, street condi- tion, considered as a whole, has improved from slightly below fair to between fair and acceptable. In FY 1975, the general opinion of the Street Maintenance Division officials was that street conditions were declining. Since then, the condition has improved. However, resurfacing expenditures, which became very large in FY 1977, no doubt contributed to the improvement. The condition of the bridges in Dallas is good. A recent inspection report for the Street Maintenance Division recommended that minor improve- ments be made on some of the city's bridges. Most of the recommendations focused on such items as painting, repairing curbs, and other small activ- ities. No bridge deck replacement was recommended. 4.4.3 Mass Transit 4.4.3.1 Maintenance Expenditures and Revenues Bus service is provided by the city through the Dallas Transit System (DTS) . DTS became a municipal operation on January 1, 1964. Service to and from the Dallas/Fort Worth Airport is the responsibility of a joint Dallas/Fort Worth agency called Surtran. No data were obtained on Surtran, with the exception of total capital spending by source since inception. With respect to the DTS itself, maintenance expenditures have increased over the past 14 years, but the increases have not kept up with the inflation rate (Exhibit 4.18). Furthermore, there has been a steady decline in maintenance expenditures as a percent of operating expendi- tures until FY 1973 when the trend began to level off. The revenue sources for maintenance are the same as for other oper- ating costs. Funding has shifted in the last five years from complete reliance on passenger receipts to a mix of own-source revenue and Federal and city of Dallas assistance. Exhibit 4.19 documents revenue trends. Mass transit in Dallas is not supported by any earmarked rev- enue sources (e.g., a special payroll tax or sales tax). The city annually appropriates General Fund revenue to DTS. 11.92 to «H o O re « ■H >, a C S « m h 3 « -H X» QJ CO C 01 o ■h«3 t- y y •a vm -o O u O O 3 O 3 C 60 00 -H C -H etc o 3 3 O O O U> *J w "o re ■h re 60 .h o 01 to w CO Xl p -5 . E> CO • it h u - a. e u> oi c ^ u So o • u H •o c ~^ ■" c -h -a oi re .h c « ^ »«i^ 3 .£> una. M CO o O u "*• « CJ •o oo re C b>H 0» 3 .XI ^ a> re o »tS k *j e re > o re x» x re g . •flu o c e re « o o 3 c re y u y 2 cS s i oncoin^o © » CO N O CO CO ^ O ^SNIflONO r^. >o vo OI N *h e* 892 3,478 8,560 4,458 92 17,482 2,950 1,336 3,061 8,296 4,282 40 320 17,338 2,934 2,234 3,360 8,626 3,810 159 18,192 3,006 3,189 3,540 9,786 2.571 13 47 19.149 o on vjo oo o © © — •* o © ul »» r^ a\ © cm o •H •* CM O 0> m r^ u"y o ^* o — vr cm © rovo no oo o «-■ ^h m cs © in o oo r-» — « © -i-»N*NNO n - _ _ rs. oo r- r**« oo •—* f*t <*> *J\ CTs ^ vO (O H ft O —I 0\ CM CT\ CN m —> «» «o- oo c* N r^ M vo O O •» vo <"i oo m — i oo m on O rv n f*» ^ \jd p» oo n vo ro o es *a- ^ r-* o rO U"V SO 00 O < « O Q W *J vO<00OQW©*J r* N O vO ON .H 3 CO C N\ono\oo 4-1 01 <<<;<<:<:<<oooo o > ZZZ2ZZZZZvO0000rO f*» CO J-l *T3 .H > CO CD CD J3 fa 0(5 CO OOOOOOOOOOOOOCM ddddo'dddooooncn «tf CM OOOOOOOOOOOOOOO CM (U 3g 4J CD to > >% CD CO OS 60 G~* g •H (D CD ■U 3 •u CO 3 CO >-i CD >. Hi > CO a. CD o ei OOOOOOOOOOOOcMO d d d d d d d d d d d o •* co O r- h m o oo m CM CM CM 00 <<<<<<<< O T) cfl J= 4J X) a c o CO £ en CD >j 4= CU 4-) oo 3 U CD o co 4-1 en co 4-1 O. J-i o Q, i-t CU CO <* S oo o c 1-1 •H 4-< 4J CO co t-l 4-1 c 0) •H & fa s 4-t CD CO 6 u CO g co •H iH CD rH ^ g CD O O )-i •H 4-1 > CD i— I CO CO 3 CD 4J o a 3 co CD CO CD - 00 o 43 • CO CD .H 3 3 T3 CD 3 > CO CD u CO -H U CO CD •H J3 U 4-1 CD O 4-1 CO CO g 3 o 4-1 CD O 3 •H O M .3 CO cO X •H CD w fa >* -^•invor>»oocT\o— "cMco-sj-mvor^ vOvOvOvOvOvOf^»r^.r^r^r^r~»r^r^ C7»C^0^C^CT\CJ\0 > >CT\CT<0 > iCT\0 > \0'\CTi 60 •> 3 g •H CD 4-1 4-1 CD 3 4-1 CD CO g >•> CD O -u O 3 11.95 4.4.3.2 Capital Expenditures and Revenue Sources Exhibit 4.20 shows capital spending by revenue source since the beginning of public ownership. In addition to obtaining city, state, and Federal funds to finance capital spending, DTS has issued revenue bonds totalling $14.9 million, of which $13.5 million have been spent. In addition, Federal funds contributed almost one-half of the total cap- ital expenditures. Over 55 percent of capital expenditures since 1964 ($18,751,400) have been for the purchase of buses. Excluded from these investment figures, however, are expenditures for park and ride terminals, transitway construction, and Surtran vehicles and facilities. Construc- tion and operation of park and ride terminals and transitways are the responsibility of the city of Dallas, which has issued general obligation bonds and obtained state and Federal grants to build them (Exhibit 4.21). Capital spending by source is shown in Exhibit 4.22. Total spending since the beginning of Surtran operation is shown because annual figures were not obtained. 4.4.3.3 Condition of the Mass Transit System There are 456 buses in Dallas' bus fleet (Exhibit 4.23). The average age of the bus fleet is ten years. Two-thirds of the fleet, however, is older than 12 years. The level of preventive maintenance has declined in recent years, because the maintenance budget has not been sufficient to sustain mid-1970's levels of maintenance activities. Exhibit 4.24 shows that engine overhauls and maintenance inspections have become less fre- quent. However, DTS Maintenance Division staffing has not decreased over the same period. There are currently 166 maintenance positions, an increase of about 5 percent over the last five years. In part, this modest increase has been necessary to provide major maintenance to Surtran buses. Surtran reimburses DTS for maintenance services. One might expect maintenance positions to increase as the number of buses in the fleet increases. Because the increase in personnel has not increased as much as the fleet size, the frequency of maintaining the city's bus fleet has worsened and the overall condition of the bus fleet is considered as only fair. 4.5 Analysis and Conclusions 4.5.1 Public/Private Cooperation The notion that the private sector is contributing to the construc- tion and payments of public works is well exemplified in Dallas. Indeed, an examination of the capital expenditure tables for water, sewer, and streets (Exhibits 4.9, 4.10, and 4.14) reveals that "private aid in con- struction" and contributions by private developers are not insignificant entries. The data for water and sewer capital expenditures for the 21- year period demonstrate that private developers and individuals contributed 11.96 T3 /-s C W ai u a co x .h W rH o CJ T) c 1-1 co o co y-i 3 to J= oj jj o tj 3 s O a) CO 4J CO M t^ C CO •H X) 4-1 a •H 3 CO U< c CO T3 l-i el i/i vO -^ -< N m -j m cm cncovocniriOo^ocM voooo-Hcom-rocM cm -h r» n -j- vo cm >* -^ O cr> -j- en cm (N00O\N00inON C7\CMCOOJU-lO OOCMOOOOOOOOOOO dodooooodooJo\cM X. , a. *-i CO t-I C H 3 -H « c 4j 01 to u t-l c c ai CO •H Q. c o -H Uh 00 13 c c c CO flj O f-H Cfl M c en c a U CO J= CO C C) 5sfa CO u -h a m c c a OOOOOOOOOOOOOCM ddodddoddodoor-^ c OOOCMC5\>j-eOOOOCT\0000 OOCON-TNCOiDNrNC^ClrtiO oo'~'cyi«a-ONvoc*i^-iooo > i CO-JfflNCO^^N>JMN>0 .*mvor-»ooc7\o-*cMc->.g-i/-ivor-» co T-l C o a XI o • B F CO c CJ >>T3 u ij tJ C 01 3 Cn o C/) M = W & 1— 1 U-l O r-l O CM ■c a ai *j CO 4-1 •H C 4-1 OJ CO TT a 0) a I cj en oj w 3 to 4J 0) CJ Xi XI CJ ft CO 4-1 11.97 Exhibit 4.21: Capital Outlays for Park and Ride Terminals in Dallas (thousands of dollars) Financing Sources Total General Capital Outlays Obligation Bonds Federal Grant State Grant 1,348 1,230 102 16 Total as of September 1978. Source: City of Dallas, Budget Summary 1978-79 . Exhibit 4.22: Capital Outlays for Surtran (thousands of dollars) Financing Sources Total . Federal City of Dallas City of Ft. Worth Capital Outlays Contribution Contribution Contribution 4,135.1 2,607.6 1,757.4 310.1 Total as of September 30,1978. Source: Dallas /Ft. Worth Surtran System, Financial and Operating Report for the Month of September 1978 . Exhibit 4.23: Age of Fleet, Dallas Transit System, September 1978 Year in Service Number of Buses 1964 11 1965 15 1966 275 1972 50 1975 56 1978 49 Total 456 Source: Dallas Transit System, Financial and Operating Report for the Month of September 1978 . 11.98 Exhibit 4.24: Engine Overhauls and Maintenance Inspections Dallas Transit System Fiscal Year Number of Engine Overhauls Number of Maintenance Inspections 1975 1976 1977 1978 115 76 44 56 (estimated) 2,200 1,700 1,039 914 1 (estimated) Inspection interval increased from 4,000 to 12,000 miles in 1978, Source: City of Dallas, Operating Budgets , 11.99 9.5 percent of total capital expenditures for the water system and 12.8 percent for the sewer system. It was not possible to gather much data on private contributions to street capital expenditures. But the infor- mation that was available indicates the significance of private developers in constructing streets, which was almost one-half of total street capital outlays. It should be pointed out that not all of the capital outlays listed under private aid in construction were related to investments undertaken by the city within the same year. The "private aid" refers to independ- ent developments, some of which were constructed outside of the city and later annexed. Much of this is merely an accounting procedure. That is to say, because of Dallas' annexation policies, many areas are brought under the purview of the city with its water, sewer, and street systems intact. When that happens, the value of existing systems is incorporated under capital expenditures. For example, if a street were paved by a developer five years ago and the area were annexed today, the value of the streets would be listed in the city's books as a (private aid) capital outlay today. While much activity is undertaken solely by the private developers, some of it is based on aid from the city. The city, for example, can require developers to install wider diameter sewer pipes and water mains or wider, better grade streets than they normally would. In these cases, the city pays the developer the difference in cost. The extent to which the city participates in these projects cannot be discerned from the data. However, city officials indicate that these payments occur frequently. One other item needs to be mentioned. Often, the newly annexed ter- ritories of the city do not have adequate sewer, water or street facil- ities. This happens either because no specifications and standards were imposed on the builders so that they constructed these public facilities with the least amount of cost, or because the areas are older and in need of repair. The city has often entered a newly annexed territory and replaced large portions of the water and. sewer systems and streets. The citizens of this district are then billed (by special assessments) for the construction of those facilities. Also, maintenance has often been deferred in these newly annexed territories. The city, then, has to increase its maintenance expenditures to cover those projects. These problems in annexed portions of the city are compensated by the increased revenue base that is created. A. 5. 2 Effects of Federal Grants-in-Aid The effect of Federal grants-in-aid on the condition of streets, on maintenance activities or on capital expenditures (except for contribu- tions to the mass transit system) is minimal. Grants-in-aid for mass transit amounted to over 45 percent of total capital expenditures since the first day of operation under the city's jurisdiction. UMTA Section 5 money for operating expenditures also contributes to maintenance activities Bridges have received some Federal funds for capital outlays, but the sum is quite small. 11.100 Streets, water and sewer systems receive relatively small amounts from the Federal government for capital expenditures. The sewer and water systems receive no Federal funds for operation and maintenance purposes. Most Federal funds deposited into the General Fund for oper- ating (and maintenance) expenditures by the city are impossible to trace. It might be assumed that some Federal monies are used for maintaining the streets and bridges. But because Federal grants to the city of Dallas are relatively low, it is doubtful that these grants-in-aid have much impact on maintenance. Indeed, it is difficult to postulate that Federal monies play a major role for the city, except for EPA grants for secondary treatment facilities. In general, Federal funds appear to be substitutive rather than stimulative in Dallas. 4.5.3 Revenue-Generating Capacity of the City The revenue-generating capacity of the city of Dallas is extremely good. Property taxes could constitutionally increase another $1.11 per $100 of assessed valuation, if needed. The high credit rating by both Moody's and Standard and Poor is another testimonial to Dallas' excel- lent financial condition. Also, the large capital outlays year after year demonstrate the capacity of the city to undertake these projects. However, not all is excellent. Two factors are worthy of attention. The first, as mentioned above, is that street maintenance may be under- funded. The rise in street maintenance expenditures has been consider- ably less than the rate of inflation. This may be the reason for only a fair rating for the condition of the streets given by city standards. This rating is due to comparatively high self-imposed standards; in fact, in our judgment, the streets are in relatively good condition. Further- more, the enormous capital outlays for street resurfacing in the past few years have improved their condition so that maintaining them is not as important as it might have been. Since the freeze- thaw cycles are not as severe as in the north, less maintenance is required. The second, and more critical, problem concerns the limited supply of inexpensive water. As the city and its suburbs grow, the increasing demand for water will require increased usage from supplies more distant from the city and thus more costly. Currently, Dallas receives a portion of its water from a reservoir 32 miles from the city limits. The next available source of water is approximately 100 miles away. Besides the very high capital costs involved in constructing a water line of that distance, and the high costs to transport the water, its maintenance might become a strain on Dallas Water Utilities' resources. Since the city has had a propensity to grow fairly rapidly, except for a brief period between 1970 and 1975, this problem is receiving attention by city officials. 11.101 4.5.4 Some Implications Although two potential problem areas have been identified, the city is currently in very good fiscal condition. A reflection of this assess- ment is the generally good condition of the city's capital stock. Only the slight downward trends in mass transit maintenance present any real concerns for the condition of the capital stock. Contrary to the position of many cities, Dallas' reliance on Federal (or state) aid is quite small. Own-source revenues together with money derived from the sale of bonds finance most of what the city needs. As long as the city's revenue base is expanding, increases in own-source revenues are not threatened. Furthermore, the economic health of the city and its expanding revenue base provide for a high credit rating, allowing for easy access into the bond market. Currently, the most successfully utilized mechanism for expanding the revenue base is Dallas' annexation policies. The broad implications of the use of annexation powers and of an expanding economic base are that Dallas attracts people and industries and consequently expands its internal revenue-generating capacity. Because of this, expenditures on maintenance activities are at satisfactory levels or higher. Emphasis on maintenance programs for the rapidly expanding infrastructure of the city is, and has been, a hallmark of the city. The continuance of ade- quate maintenance programs and the availability of revenues to pay for them suggest that the physical condition of the city's infrastructure does not appear to be jeopardized in the immediate future. 11.102 5.0 DES MOINES, IOWA 5.1 Introduction and Summary of Findings 5.1.1 Introduction Des Moines, a young city located in the Midwest, has a fairly stable population base, averaging approximately 200,000 people for the past 20 years. The stable population and comparatively high per capita income (109 percent of the national average in 1975) suggest that the city should be able to maintain its capital stock in good condition. The city is res- ponsible for streets, bridges, water and sewer services. The Des Moines Metropolitan Transit Authority, a special district, has responsibility for mass transit. Property taxes are $13.50 per $1000 fair market price, which is the third lowest of the nine cities. 5.1.2 Summary of Findings The principal findings from out visit to Des Moines are as follows: • The capacity to increase own-source revenues is good. Des Moines has a low property tax rate compared to the other cities in the sample, growing employment opportunities, and relatively high per capita income, all of which contribute to a fiscally sound situation. Furthermore, in order to finance many capital and maintenance projects, residents of the neighborhood where the projects are built are billed for some portion of the costs. (A special assessment procedure is used for streets and sewers.) • The condition of the city's capital stock is good. Adequate capital and maintenance outlays coupled with a policy of billing neighborhood residents for costs have translated into a good to very good condition rating for four of the five functions examined: water system, sewer system, streets and bridges. • The mass transit system is in fair condition, but improving. The bus system was acquired in 1975 by the city from the private sector. At that time it was in poor condition. Since then, the city initiated a preventive maintenance program and a vigorous capital replace- ment program, financed in part by UMTA. This has resulted in an improved condition rating. 11.103 5.2 City Description 5.2.1 Population and Employment Trends The population of the city of Des Moines decreased a little between 1960 and 1975 and increased slightly from 1975 to 1978 (Exhibit 5.1). The population of the SMSA increased over 23 percent between 1960 and 1975. However, the income composition of the suburban and central city residents is not significantly different. The per capita income for the SMSA was only slightly higher than for the city in 1969 and 1974; it had been lower in 1959 for the SMSA. The national per capita income of $4,572 in 1975 was less than Des Moines' per capita income of $4,975. Unemployment rates have been similar for both the central city and the SMSA. Exhibit 5.2 illustrates that employment growth in the city and the SMSA has been steady between 1958 and 1972. While the SMSA's employment growth is greater than that of the city, the latter is not suffering from a decline in its economic base. 5.2.2 Total Revenues and Expenditures for the City The proportion that own-source revenues is of total city revenues has decreased slightly between FY 1967 and FY 1977 from 74 percent to 62 percent (Exhibit 5.3). Revenues from property taxes, the largest contributor to own-source revenues, doubled over the ten year period, while total revenues almost trebled. While Federal grants increased by almost $7 million (or one-tenth of total city revenues), to pick up some of the slack, state revenues to the city also increased from $2.5 million in FY 1967 to $13.3 million in FY 1977. The expenditures for the city of Des Moines between FY 1967 and FY 1977 have increased by 126 percent. The cost of living, as measured by the Consumer Price Index, increased by almost 80 percent during the ten year period. 1 In real terms, the city was spending substantially more in FY 1977 than ten years ago. Capital spending has fluctuated annually but has not been a negligible factor in the city's expenditures. 5.2.3 City Government Structure/Responsibility for Public Works Activities The city of Des Moines operates under a Council-Manager-Ward form of government. Responsibility for streets, bridges and the sewer system is divided between two regular departments of the city. The Engineering U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review , Vol. 100, No. 12, December 1977, p. 106. Since data were not available for Des Moines, the CPI for Minneapolis was used as a surrogate. 11.104 Exhibit 5.1: Population, Employment and Income Characteristics of Des Moines 1960 1970 1975 1978 Population SMSA 266,315 313,562 328,391 NA City 208,982 201,404 194,168 200, 000 1 Per Capita Income SMSA $1,731 (1959) $3,443 (1969) $5,079 (1974) NA City $2,296 (1959) $3,404 (1969) $4,975 (1974) NA Unemployment Rate SMSA . 2.9% 2.8% NA NA City 3.1% 3.0% NA 3.9% Civilian Labor Force Employed SMSA 107,563 133,053 NA NA City 87,214 86,802 NA NA Exhibit 5.2: Employment by Sector in Des Moines 1958 1963 1967 1972 Manufacturing Employment SMSA 23,004 21,621 25,400 26,900 City 16,742 15,018 17,200 17,700 Wholesale Employment SMSA 9,329 8,869 10,026 11,378 City 8,792 8,302 8,873 9,081 Retail Employment SMSA 15,836 16,962 19,429 24,971 City 14,659 15,511 17,191 19,633 Selected Services Employment SMSA 6,133 6,808 8,277 11,000 City 5,802 6,380 7,346 9,081 1978 figures were derived from City of Des Moines, Municipal Bond Offering Statement , October 23,1978 NA= Data not available. Sources for Exhibits 5.1 and 5.2: U.S. Department of Commerce, Bureau of the Census, County and City Data Book , (various years); 1975 figures for Civilian Labor Force Employed and Unemployment Rates were obtained from Geographic Profile of Employment and Unemploy- ment, 1975, U.S. Department of Labor, Bureau of Labor Statistics, 1977. 11.105 > u- e 26.3 3.4 2.5 0.6 0.2 19.6 13.6 12.7 NA NA 3.1 2.9 3.3 00 i>» >o rl z z 2 Os •<■<••< on z Z m — Z o < Z CM E r- OOOO r ^~;° < .«,° vo0 . rA ricN — d n n -' z Z N ri ri O Z Z -» cm z ■< • Z CM M3 vn ui o sor^ o» On o O 00 OS < < ■ < z d E r* ci -. z Z Z — O Z Z cm -» CM e* r- cm < < < m z z oo cm z < z o oo o* cm vonO m o on O (-1 — ZZ ZOONZZl-lCMCM < < ■ ■ < ON Z Z -» CM Z < Z 1*1 on ON _ on — -« CM IN CO ON • •<< <••<<■•• 00 — — ZZ ZOO^ZZl-l-"^ * < < ™ • < oo z Z -» <""l z < Z CM a 3 IJ c L3 3 01 3 c V ? 2 & 1 1 . C U 41 U S 2 O U B u ' S e -h &.oou^ = c o m o u .£ c a j oun ■ 2 g §. i 2 3 <3 Ills g 1 1 a Bl U4 O + u -M >n e* c « « a. 19 CI U vV ■h -* a a se z ;• ill O 3 zo'l £ 11.106 £ 72.1 22.8 13.3 7.0 2.5 43.6 26.0 23.7 NA NA 13.4 4.2 5.7 vO Z z >o m z < Z 00 ON £ .» c* «rv c-> — <-> m ui r* en on ono cm © o> — 1 r-oiozz — »»■» vO CM — n NN — r» en CJ> < < . . < on z Z O -» Z vO oi Z 1 on £ O Nn« on vO n cm cm — on ... I ...<<... oo r-ir^Nol -»«zz«>»n oo z Z r- ■» Z OO < z m on E ON — r-. .j o >-»MS«»ZZMN«»en ™ < < ^ ""• < ON z z rs >o z o Z VO o e (m nn- en- >ono o on «» — a- in ci d coMa«nzzin>nen <■ cm — • — °. < < ^ °. < o z z vc -» z 00 on r» »moMM - oho m"r- >C r-^ en en d NO>C«nzz Z Z •» CM Z i en -* < Z CM .._- + It 3 + c r) O 5 1 O o a: a 9 a * ft. 2 5- 5 8 e k ai o c in oi ii e u " « 8 •-> O. O U «J -* 3 c o •> o u .e e -< e i- v i- ~i «iaweua>o>oi ouoq uaie»i-i©«-.u> >«no u x w w oi o^oo 3 « 3 - 1 « uw u. j OH U Z 41 « S 1 I + 01 CO 3 to CI 3 -o e 01 a y. ui n c 5 (0 41 3 -a c ui • 01 I I a a 01 TJ & . 8 us oi a, b X M 3 w e -a ►» ai oi c eg u i s. ti s U X 3 41 UI 6 + O " W >< Menu 41 U -H — 41 •j u a. ■* j5 e 9 » u u M U z> o 0) c ■o 41 TJ C 01 a J3 41 a 5 S » H O 1 b c o o m J - £ S i m o Zi u d h • o. a oi o oi u 2 lA ° -J Q. C oe a cyj 11.107 Department is responsible for construction of all city streets, bridges and sewer projects. The Public Works Department's activities involve maintaining the streets and bridges, and it is responsible for sewage treatment plant operation and maintenance, and storm sewer construction and maintenance. Des Moines Water Works provides water to the city and sells it to neighboring towns and suburbs. It is a wholly-owned enterprise of the city. Responsibility for administration is vested in the Board of Water Works Trustees which is appointed by the Mayor with the approval of City Council. This Board has complete control of water works management through its appointment of a General Manager, a Treasurer and legal coun- sel. The Des Moines Metropolitan Transit Authority (MTA) was created in December 1973 to replace the Iowa Regional Transit Corporation. MTA is a semi-autonomous, public agency serving the cities of Des Moines, West Des Moines, Windsor Heights, Clive and Urbandale. 5.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock Exhibit 5.4 presents the 21 year history of Des Moines' maintenance expenditures in current and constant dollars for the five selected func- tional areas. The trend in constant dollar maintenance expenditures on the water system indicates that maintenance outlays are increasing at a faster pace than the cost of living. The pattern of sewer maintenance expenditures in constant dollars has been stable. Maintenance expenditures on bridges in constant dollars have decreased over the 21 year period and street maintenance expenditures have declined noticeably since their peak in FY 1964. The decline in bridge maintenance expenditures has not been as dramatic, but since FY 1957, expenditures have declined in constant dollars by approximately 20 percent. Mass transit maintenance expenditures are available for only three years due to the recent creation of Des Moines Metropolitan Transit Authority. The three year decline in maintenance outlays cannot be considered to constitute a trend. The capital program for the water system reflects a commitment to replacement and gradual expansion of the system. Capital expenditures for the sewer system in constant dollars also reflect a commitment to re- placement except for two large, multi-year capital outlays in the mid-1960 's and in the mid-1970 's. The former reflects expansion of the main sewage treatment plant while the latter reflects EPA requirements for construction of secondary treatment facilities. II.li o% 02 T) ^-^ 3 0] u rn c 3 m u X en 4-1 c ^ C ) en a) T3 c C •H cfl o T, 4J s en 0) a) l-i Q >-i 3 3 U •H (3 Uj •H 3 O C/) •H 0) J-l u a 3 3 •u 3 •H fe Tl c T) cu a; a 4-1 X a w 0) •H •u In s •H )-i 1 O PL, C c o <<<<<<<<<<<<<<<<<< . . . ZZZZZZZZZZZZZZZZZZl-»CT>u-( O CO -J i 3 ZZZZZZZZZZZZZZZZZZOOCN en c o ■^OcOrlOnOvOMiAri OCOOOOOfNj «j — co.jnic\Dno>oa)xc-jcococ'>oo vC !Oi^ -jn^ccoj2vDsON^2^cn---.^wo>-- c LO c c "i-i 1 ^ 1 ^ , CM - c u ^ — eoC'rsOiriOtn^co — ^y o ct* ni r-» -^ r* in 3 c c yfl--0\oot>>oa)-«N-ccN- ONaDn^(*|^OONCOMtAO\NMvO---'^iAO Si c r. c -HOr^O^OO^Ttf-t^r^soutu-iirto— ♦ ^ r* co CO ^ so^ONooeoeocoooP*- oo^OO — — OOOfM c 3 o r»Ovoctaiftn^ONN^OvO>0'-cON«ytJiN --*»OtAfMOvC)Of^f^sOiAvOl/ ,, l — lA n t> N vfl n m £ N«owo' - 'N^ > c eg •O T> £ E. 4) C U SI J O u o S n o cu .» nil « ix ai r-i -a c* CO 3-1 3 -o • r-l ^ ~ 3 S . E C V 41 C i-< u >, -o u i_i o " 01 U"| C »J -H U r» 41 3 <0 E fi- ll. 109 Capital expenditures on streets and, to a lesser extent, on bridges have been fairly substantial for the 21 year period (Exhibit 5.5). These high levels of capital outlays may explain why maintenance expenditures in constant dollars have been declining, since street resurfacing is con- sidered to be a capital project. Capital outlays for bridges have increased substantially in constant dollar terms since the relatively low level period of FY 1969 to FY 1973. Capital expenditures for the mass transit system (since its beginning) have been fairly substantial, with replacement of worn-out equipment and buses being aided by UMTA capital grants. The summary tables on capital and maintenance expenditures do not relate those expenditures to the condition of the capital stock. To assist in the development of insights into this and related issues, we have pre- pared a summary of the most relevant findings of this case study (Exhibit 5.6). In general, the condition of all five functional areas is good. The city is not constrained in its capacity to generate own-source revenues. Thus, as the demand for maintaining or expanding the existing capital stock increases, the city has the ability to either raise taxes or to increase user charges. The decline in maintenance expenditures for streets and bridges (Ex- hibit 5.4) could, in principle, be due either to deferral of maintenance or to the fact that the city is using its resources more efficiently and pro- ductivity is increasing. The latter explanation is the more realistic one for Des Moines. The street and bridge networks are in good condition. The Federal contribution for street capital outlays has been relatively minor compared to the city's strong capital improvement program. The Federal grants for bridge purposes, however, are quite substantial, amounting to almost one-fifth of total capital expenditures on bridges for the FY 1968 to FY 1977 period. The city is engaged in a vigorous bridge rehabilitation and replacement program which is reflected in capital expenditures figures in recent years (Exhibit 5.5). Federal grants are not used for water system capital projects. Except for monies that were available in the FY 1958 to FY 1960 period from bond issuances, virtually all of the capital outlays made have been financed by a pay-as-you-go system; that is, user fees and charges finance all capital outlays. However, the Des Moines Water Works is in sound financial condi- tion and can undertake the required capital projects as they arise. Further- more, maintenance activities are financed from the Water Work's fees and charges and constant dollar expenditures have increased in both total and per capita terms at an adequate rate. Maintenance expenditures for the sewer system have also increased at an adequate rate between FY 1972 and FY 1977, the only years for which main- tenance expenditures were available. Prior to FY 1972, the "maintenance" figures included clerical and administrative salaries (Exhibit 5.4). Capi- tal expenditures per capita decreased from the FY 1967 levels, but were still high during the mid-1970' s. One-third of the capital expenditures 11.110 ZZZZZZZZZZZZZZZZZvDONor-© o o o o O cr> o O r- ■» to ON Cfi -i 3 w o c ^ to u Cfi co a> a c O -H c w CO 'H •H CU U CO O U U-l 00 1/1 — (M © - -©>/icr.«f\i>.e*iMo^o* 0^0»o>«NOi*Nnnctno r«. m N " ! ■' - — ^So*-N o»frr^(N»ONO'no>^\off i »nnsio^N«nr o ec-o u CO It M u a. u o> n >H O < 0) 3 4) *J to CMS O « 00 T5 ■H > O U O T3 I cu n q 3 <-t i -o z « » n jj u m W e oONMNonooc6i 5 E 01 O u T3 O r» O O ■» o o <-i in ao o-< o> c c e £•? e £' 25 3£ 11.111 TJ O « C 3 --: " OOKlNt ox-id sr no in oi CO IX CM rx ul no r^ ix o>o>o> » ONONONON ON ONONO\ Ills -» IX On Oi c 01 3 IX — nO CM C-l CM lx u-, "O-Nt ■ -- d .» ui o. rx O NO -3> 00 — 1 CM NO 00 d o o O NO -J" CM 1/1 ON CM O NO CO 1/1 O CM O -< c-l < nO CO . z . . o o o ON NO o >n 01 -* O nmi a i| 01 01 os a 01 0) c 3 >-■ o -J 8 j ! § TJ c O 00 •n o I o J > e oi tj o a c -i in o sj u e CO a oi -its. tj r-: r-i o 0«H U o c nm a. U -H C O o o o u mJ 00 C C 3 C 0) 41 a JO -< m. B C > m. 01 mi - O 3 O 00 mi mi u a o ■Ml mm MH Ml o E -= a d. U. Ml Ml O ■3 c B 01 01 o o o.r_> z z < z < z Oi a CO «H M 01 01 >N > 00 < < U1 o c Xm 0) C 01 3 ~< u c C OJ TJ C Uu 3 01 r- -1 « 5 S- aj 01 > CO mH C m> CO o u 3 in c C 01 o tj ■■j a c CO 01 c *-> O CO u> er C 01 O TJ r_j co U 01 Mi 01 C " eg rg M/ 3 C 01 O TJ [_> CO c e § & O TJ 11 Ml Oi > Q. mi b 01 C 01 a a c o c 3 U. B n s >N jj TJ CO c 1 1 co m, on G —I 3 MM C5 3 — , e m. o o i X 3 TJ C >n C O XI c a - => 01 01 Ml oca C M< Cm -I co o ca £. m. 5 (in 11.112 which were made between FY 1968 and FY 1977 were financed from Federal sources in response to requirements for secondary treatment facilities. There is a commitment to maintaining the system at fairly constant levels of expenditures. Thus, the sewer system has a very active maintenance and capital program. The mass transit system, recently acquired by a public regional authority, is actively involved in capital programs with a great amount of support from the Federal UMTA program. UMTA has provided Des Moines MTA with 80 percent of its total capital expenditures between FY 1974 and FY 1977. The result of this replacement program is that the average age of the fleet, currently at 15 years, is becoming younger. The over- all condition of the fleet is improving. In addition, a preventive main- tenance program, which will aid in the improvement of the condition of the mass transit system, has been initiated recently. 5.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 5.4.1 Water and Sewer Systems 5.4.1.1 Maintenance Expenditures and Revenues Des Moines Water Works has increased maintenance expenditures for the water system at a substantial average annual rate of 9.3 percent (Exhibit 5.7). This increase compares favorably with an inflation rate of 6.1 per- cent. Since FY 1968, the rate of increase has been at 10.2 percent a year, still considerably above the 8.5 percent inflation rate. Maintenance expenditures for the city-owned sewer system also have been substantial (Exhibit 5.8). However, it was impossible to determine the dollar amount of salaries that were spent only for maintenance purposes for the FY 1957-FY 1971 period. These "total maintenance expense" figures reflect the sum of expenditures for maintenance-related materials and equipment plus all salaries (maintenance as well as non-maintenance related). After FY 1971, a different accounting format was implemented which allowed for a separation of maintenance-related salaries. There- fore, the figures for the FY 1972-FY 1977 period are accurate estimates of the total amounts of money expended for maintenance purposes only. During this latter period, maintenance expenditures increased at an average annual rate of 12.5 percent compared to an average annual infla- tion rate of 7.5 percent. 5.4.1.2 Capital Expenditures and Revenue Sources The last bond issuance for the Water Works was in FY 1958. The pro- ceeds of these bonds were expended for capital purposes by FY 1960. Since that time, it has been the policy of Des Moines Water Works to pay for all 11.113 Exhibit 5.7: Water System Maintenance Expenditures Fiscal Maintenance Expense Annual Change Year 1 (thousands of dollars) (percent) 1957 291.7 1958 294.0 + 0.8 1959 310.6 + 5.6 1960 355.4 +14.4 1961 422.8 +19.0 1962 450.5 + 6.6 1963 466.3 + 3.5 1964 460.6 - 1.2 1965 517.0 +12.2 1966 477.7 - 7.6 1967 716.2 +49.9 1968 705.9 - 1.4 1969 726.0 + 2.8 1970 895.6 +23.4 1971 1,011.6 +13.0 1972 1,155.1 +14.2 1973 1,173.8 + 1.6 1974 1,219.7 + 3.9 1975 1,367.4 +12.1 1976 1,396.9 + 2.2 1977 1,733.2 +24.1 Average Annual Rate » of Change (FY 1957-FY 1977) + 9.3 (FY 1968-FY 1977) +10.2 Rate of , Inflation' (percent) 4.2 4.6 4.5 3.3 4.1 3.3 + 3.7 + 4.3 + 3.6 + 4.3 + 6.8 + 6.9 +11.4 +18.6 + 3.3 + 4.3 +11.4 + 8.8 + 6.5 + 6.5 6.1 8.5 FY 1957-FY 1977 ended December 31 Derived from the Bureau of Labor Statistics, Union Wages and Hours, Building Trades , BLS Bulletin, "Increases in Union Wage Rates in the Building Trades by Region and City" (for FY 1957-FY 1966); and "Percents and Cents-Per- Hour Changes in Wage Rates by City" (for FY 1968-FY 1977). Because Des Moines was not included in FY 1976 and FY 1977, Omaha's indexes were used as surro- gates. — = Not applicable. Source: Des Moines Water Works, Annual Reports. 11.114 Exhibit 5.8: Sewer System Maintenance Expenditures Sewage Treatment Total Materials and 1 Plant Personnel Maintenance Equipment Services Expense Fiscal (thousands (thousands (thousands Annual Change Yearl of dollars) 348.9 of dollars) of dollars) 470.3 (percent) 1957 121.4 1958 362.7 129.3 492.0 + 4.6 1959 408.8 139.9 548.7 + 11.5 1960 421.2 152.3 573.5 + 4.5 1961 437.9 156.4 594.3 + 3.6 1962 458.1 495.2 953.3 + 60.4 1963 504.0 510.9 1,014.9 + 6.5 1964 555.0 193.7 748.7 - 26.2 1965 419.9 207.4 627.3 - 16.2 1966 617.1 211.1 828.2 + 32.0 1967 510.0 223.2 733.2 - 11.5 1968 367.6 248.1 615.7 - 16.0 1969 853.0 336.1 1,189.1 + 93.1 1970 611.3 425.9 1,037.2 - 12.8 1971 659.1 882.7 1,541.8 + 48.7 1972 886.4 (2) 886.4 - 42.5 1973 931.4 (2) 931.4 + 5.1 1974 2,111.3 (2) 2,111.3 +126.7 1975 (3) (3) (3) — 1976 1,605.6 (2) 1,605.6 ~ 1977 1,640.2 (2) 1,640.2 + 2.2 Average Annual Rate of Change (FY 1957-FY 1977) + 6.4 (FY 1968-FY 1977) + 10.7 (FY 1972-FY 1977) + 12.5 Rate of Inflation* (percent) + 4, + 4, + 4. + 3. + 4. + 3. + 3. + 4. + 3. + 4. + 6.8 + 6.9 + 11.4 +18.6 + 3.3 + 4.3 + 11.4 + 8.8 + 6.5 + 6.5 + 6.1 + 8.5 + 7.5 l n 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30, 1975; and FY 1976 and FY 1977 ended June 30. Materials and equipment and sewage treatment plant personnel services for maintenance activities are combined after FY 1971 under materials and equipment. 3 Data included in FY 1974. Derived from the Bureau of Labor Statistics, Union Wages and Hours, Building Trades , BLS Bulle- tin, "Increases in Union Wage Rates in the Building Trades by Region and City" (for FY 1957-FY 1966); and "Percents and Cents-Per-Hour Changes in Wage Rates by City" (for FY 1966-FY 1977). Because Des Moines was not included in FY 1976 and FY 1977, Omaha's indexes were used as surrogates. — " Not applicable. Source: City of Des Moines, City Comptroller, Annual Financial Reports . 11.115 capital (and operating) outlays from the revenues derived from fees and charges. Exhibit 5.9 tabulates total capital outlays by revenue source for each year of the FY 1958-FY 1977 period. Capital outlays have been fairly substantial for a city that has not experienced any growth in the last 20 years. The capital program does not suffer from revenue short- falls. The city's sewer system utilizes revenues generated from bond issu- ances as the predominant revenue source for capital outlays (Exhibit 5.10). The next most important revenue source is funds derived from special assess- ments on private property. Property owners contribute to the costs of re- placement or extension of the sewer system to their own property. These specal assessments, then, cover a portion of the capital construction costs with the city sharing in these costs. Federal funds have contributed to approximately one-fifth of total capital outlays during the 21 year period. Most of the Federal participa- tion has occurred in the last three years of the study period, amounting to over $3.8 million. These outlays since FY 1974 reflect secondary treat- ment requirements. In fact, sewer system capital expenditures between FY 1974 and FY 1977 accounted for almost 40 percent of total capital outlays for the sewer system in the FY 1957-FY 1977 period. 5.4.1.3 Condition of the Water and Sewer Systems The water treatment plant, build in 1949, was enlarged and improved in 1958 when another treatment basin was added at a cost of $2.5 million. The condition of the treatment plant can be characterized as very good. The Director of Engineering claims that the preventive maintenance program in effect, heads off problems and keeps equipment in good operating condi- tion. Transmission lines of 30-inch diameter and larger are constructed of reinforced concrete pipe. In newer installations, pre-stressed concrete pipe has been used. Pipe sizes 20-inch diameter and less are usually made of ductile iron. Older transmission pipe lines were constructed of cast iron in smaller diameters. Although none of the pipe has cathodic protec- tion, the transmission pipelines are in good condition. As of January 1, 1977, there were more than 710 miles of water mains varying in size from four inches to 60 inches in diameter. This is more than three times the length of the mains in the system in 1920, the first year of public ownership. Distribution systems owned by other communities served by the Des Moines Water Works account for another 255 miles of water mains. All testing of the pipeline system is done by the crews of the Water Department. This includes pressure tests in various parts of the distri- bution system. The water supplied to customers meets interim primary regu- lations of the U. S. Environmental Protection Agency, as well as the secon- dary regulations. 11.116 Exhibit 5.9: Water System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Yearl Bond Fund 1958 200.0 1959 1,200.0 1960 400.0 1961 0.0 1962 0.0 1963 0.0 1964 0.0 1965 0.0 1966 0.0 1967 0.0 1968 0.0 1969 0.0 1970 0.0 1971 0.0 1972 0.0 1973 0.0 1974 0.0 1975 0.0 1976 0.0 1977 0.0 Total 1,800.0 Own-Source 557.2 841.9 629.8 452.1 103.0 233.5 165.1 306.7 575.4 225.2 420.8 609.3 1,035.3 2,787.5 488.4 1.023.9 1,086.2 2.321.7 1,551.0 823.9 16,237.9 Total 757.2 2,041.9 1,029.8 452.1 103.0 233.5 165.1 306.7 575.4 225.2 420.8 609.3 1,035.3 2,787.5 488.4 1,023.9 1,086.2 2,321.7 1,551.0 823.9 18,037.9 FY 1958 through FY 1977 ended December 31. Source: Des Moines Water Works, Annual Reports. 11.117 Exhibit 5.10: Sewer System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Special Year 1 Assessments Bond Funds State Funds Federal Funds Total 1957 NA 265.2 0.0 0.0 265.2 1958 NA 128.2 0.0 0.0 128.2 1959 257.7 149.1 0.0 0.0 406.8 1960 968.7 425.5 0.0 0.0 1,394.2 1961 1,003.0 281.4 0.0 0.0 1,284.4 1962 328.4 78.4 0.0 0.0 406.8 1963 514.4 75.6 0.0 0.0 590.0 1964 548.7 211.8 0.0 0.0 760.5 1965 102.9 11.6 0.0 0.0 114.5 1966 113.2 2 ,244.1 0.0 220.0 2,577.3 1967 38.1 2 ,041.2 0.0 0.0 2,079.4 1968 28.4 1 ,909.9 0.0 179.3 2.117.6 1969 9.0 214.5 0.0 300.0 523.5 1970 160.3 258.6 0.0 0.0 418.9 1971 241.9 402.6 59.6 57.6 761.7 1972 256.2 568.8 130.7 128.1 1,083.8 1973 347.4 308.9 37.0 297.5 990.8 1974 97.1 1 ,342.5 134.0 2,159.0 3,732.8 1975 (2) (2) (2) (2) (2) 1976 339.4 2 ,997.8 167.3 1,195.1 4,699.6 1977 34.4 396.6 30.4 462.2 923.6 Total 5,389.2 14 ,312.4 559.0 4,998.8 25,259.4 FY 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30, 1975; and FY 1976 and FY 1977 ended June 30. 2 Data included in FY 1974. NA Data not available, Source: City of Des Moines, City Comptroller, Annual Financial Reports ; "Special Assessments Bond Book". 11.118 The total amount of "unaccounted for" water is approximately 14 per- cent of the total output of the treatment plant. Water Works officials estimate that 8 percent of this represents leakage and the balance repre- sents free water that is used for various public purposes. Most of the pipeline in the distribution system is of cast iron, some as old as 100 years. Some of the pipelines laid in 1890 have been concrete lined. Since the 1920's, concrete lined water pipes have been used as a standard practice. To date, there is no pipe cleaning or pipe relining program conducted on a regular basis. Tuberculation is said not to be a problem except in isolated cases. There has not been a program on pipeline replacement nor is any planned at the present time. As of 1976, there were 644 miles of sanitary and combined sewers in the city of Des Moines. Approximately 30 percent of these are combined sewers, many of them constructed of brick, and some of which are 100 years old. Many of the lateral sewers in the combined system are constructed of clay. Combined sewers have not been constructed in Des Moines since about 1920. The combined sewers, in general, are in good condition and have given very little problems over the years. At the present time, a 2,000 foot long brick interceptor sewer is being lined with cement grout. Such linings have not been common in the past. It appears that the overflow regulators will need to be improved in the future, as they produce over- flows which violate the water quality standards. The city has about 451 miles of sanitary sewers. Most of these are vitrified clay pipe and many of these sewer lines will require replacement in the near future. Inspection of these sewers is conducted by the city's Engineering Department which has a small crew that conducts sewer inspec- tions using a television camera. This crew operates ten months of the year when weather permits. The crew televises 8-9 miles of sewer pipe per year. It is estimated that approximately 20 percent of the total sewer system has been inspected using television equipment. An inflow and infiltration study of the sanitary sewer system was made in 1977. The study found that there were many areas in the city where inflow and infiltration was considered to be excessive. Following the areawide inflow and infiltration study, sewer system evaluation studies were made in 40 subsystems. It was found that in 13 of these systems it would be cost-effective to make corrections to the inflow and infiltration problems. There are about ten additional areas in the outlying suburbs where it is considered cost-effective to make corrections to the sewer system. The total program in the city of Des Moines is estimated to cost approximately $20 million, based on 197 9 unit costs, which is almost as much as has been spent on- capital projects since FY 1954. The major problems are with the trunk sewers. It is estimated that in about half of the systems where footing drains are connected to sani- tary sewers, it will be necessary to build relief sewers. It is expected that this can be accomplished under the programs included in P.L. 92-500. Generally, the lateral sewers are of sufficient capacity and will not re- quire corrections. 11.119 Another source of inflow to the sanitary sewer system are catch basins which have been built on some of the sanitary sewer lines. It is not clear why catch basins were built discharging into sanitary sewers; however, the situation does exist in many areas. It is esti- mated that after these catch basins are removed from the sanitary sewer lines, the capacity of the sewers will be sufficient. Another problem affecting the capacity of the sewers was accumulation of debris. In FY 1973, the city of Des Moines invested a large sum of money in purchasing maintenance equipment to clean the sewers. Since that time, the debris problem has lessened and the sewers have been operating more efficiently. Maintenance expenditures since FY 1974 have declined because of the effectiveness of the cleaning operation. The principal problem remaining with the sanitary sewer system is that sewage backups occur in approximately 1 ,000 basements during exces- sively wet weather. This usually does not occur unless the groundwater table is also high. To date, only one relief sewer has been constructed to correct this problem. The basement backup problem is considered to be a result of the connection of footing drains and roof leaders to sanitary sewers . The main sewage treatment plant, the Des Moines Wastewater Treatment Plant, provides secondary treatment using trickling filters. The plant was built in 1940 and expanded during the mid-1960 's. Areas served by this plant include all the western suburbs and all of the city of Des Moines except the extreme south portion. The effluent, which is dis- charged to the Des Moines River, does not meet secondary treatment stan- dards during all months of the year, particularly during winter months. In the 1960's, trickling filters were converted to "high-rate" flow to increase the capacity of the plant. At that time, modifications were also made to the final clarifiers and a grease incinerator was added. In 1972, chlorination was added to the treatment process. The total cost of replacing the plant, based on 1975 dollars, is $48 million. The Highland Hills Wastewater Treatment Plant is also a secondary trickling filter design. It is a much smaller plant than the main treat- ment plant. It was built in the early 1950's by a private company. The city purchased the plant in 1956 and rebuilt it in the late 1960's. Effluent is discharged to a creek without chlorination. Because both treatment plants are to be abandoned, the condition of the treatment plant is only fair. With the court-ordered replacement of the main treatment plant to be completed by 1985 and the abandonment of the other treatment plant, the condition of the treatment facilities will improve in the near future. 11.120 5.4.2 Streets and Bridges 5.4.2.1 Maintenance Expenditures and Revenues Between FY 1957 and FY 1977 , the city of Des Moines increased main- tenance expenditures at an average annual rate of 6.5 percent, slightly greater than the inflation rate (Exhibit 5.11). However, the maintenance figures for FY 1957 to FY 1962 include salaries for administrative and clerical workers as well as for maintenance workers. Most of the salaries were for maintenance purposes and the total annual maintenance expendi- tures for these early years are rough estimates of total maintenance ex- penditures. Increases in maintenance outlays between FY 1968 and FY 1977 did not keep up with the inflation rate. Since FY 1963 over 75 percent of all revenues which were used for street maintenance purposes were derived from the state's gasoline tax which was returned to the city. The city received 15 percent of the total amount of revenues which the state received from its gasoline tax. The remaining revenues were derived from special assessments on property owners who owned property adjacent to streets that were repaired. Maintenance expenditures on bridges have not kept pace with the infla- tion rate for the 21 year period (Exhibit 5.12). The average annual rate of increase between FY 1968 and FY 1977 was greater than for the total 21 year period, but it was still less than the inflation rate. Since FY 1963 the revenue source for bridge maintenance has been the gasoline tax, a state fund which is returned to the city. 5.4.2.2 Capital Expenditures and Revenue Sources Almost 70 percent of capital outlays for streets has been derived from the sale of general obligation bonds between FY 1957 and FY 1977 (Exhibit 5.13). Special assessments on property owners have contributed to slightly less than one-fifth of total capital expenditures on streets. Federal grants have contributed over $2 million since FY 1971, but the magnitude of the contribution vis-a-vis total capital outlays has not been significant. The trend in capital expenditure for streets has been consistently upward, reflecting a strong commitment to resurfacing and to paving unimproved or dirt streets. Like the capital program for streets, most of the revenues generated for bridge capital programs are from bond issuances (Exhibit 5.14). Fed- eral sources contributed to more than 10 percent of total capital outlays for bridges. Almost 90 percent of the $2.4 million Federal contribution was spent during the last year of our study period. 5.4.2.3 Condition of Streets and Bridges The city has approximately 980 miles of streets, 160 miles of which are unpaved. There is a plan to eliminate about 20 percent of the unpaved streets. This program was started in FY 1975 and should be completed by about FY 1985. Streets are classified as arterials, collectors, or local 11.121 Exhibit 5.11: Street Maintenance Expenditures Fiscal Year* 1957 1958 1959 1960 1961 1962 1963 196 A 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Revenue Source (thousands of dollars) Special Assessments State 233.2 3.0 315.6 0.0 513.8 9.1 417.8 0.8 391.6 3.4 439.4 4.7 1.018.4 659.1 1,909.1 744.8 856.2 1,369.3 0.0 1,616.6 49.4 1,557.3 0.0 1,485.1 634.9 1,608.6 46.3 1,705.7 2.2 1,764.7 0.0 1,493.3 0.0 1,782.7 93.6 3,126.5 (2) (2) 422.9 2,371.8 101.0 2,499.5 Maintenance Expense (thousands of JollArO 728.6 833.1 982.8 956.9 996.7 1,030.0 1,677.5 2,653.9 2,234.5 1,616.6 1,601.7 1,485.1 2,243.4 1,752.0 1,766.9 1,493.3 1,782.7 3,220.1 (2) 2,794.7 2.600.5 Annual Change (percent) +14. +18. - 2. + 4. + 3. +68. +58. -15.8 -27.7 - 0.6 - 7.6 +51.1 -21.9 + 0.9 -15.5 +19.4 +80.6 Rate of Inflation (percent) + 4.2 + 4.6 + 4.5 + 3.3 + 4.1 + 3.3 + 3.7 + 4.3 + 3.6 + 4.3 + 6.8 + 6.9 +11.4 +18.6 + 3.3 + 4.3 +11.4 + 8.8 + 6.5 + 6.5 Average Annual Rate of Change (FY 1957-FY 1977) (FY 1963-FY 1977) (FY 1968-FY 1977) 6.5 3.2 6.4 + 6.1 + 7.1 + 8.5 FY 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30 1975; and FY 1976 and FY 1977 ended June 30. 2 Data included in FY 1974. These total figures include maintenance, clerical and administrative salaries as well as maintenance costs and are not comparable with later years. These salaries are equivalent to the difference between "Maintenance Expense" and "Special Assessments" plus "State". L Derived from the Bureau of Labor Statistics, Union Wages and Hours, Building Trades ; BLS Bulletin "Increases in Union Wage Rates in the Building Trades by Region and City" (for FY 1957-FY 1966); and "Pefcents and Cents-Per-Hour Changes in Wage Rates by City" (for FY 1967-FY 1977). Because Des Moines was not included in FY 1976 and FY 1977, Omaha's indexes were used as surrogates for those two years. — ■ Not applicable. Source: City of Des Moines, Annual Financial Reports; City of Des Moines, "Road Use Tax Report". 11.122 Exhibit 5.12: Bridge Maintenance Expenditures Fiscal Maintenance Expense Yearl (thousands of dollars) 1957 64.4 1958 60.7 1959 68.0 1960 72.4 1961 95.5 1962 81.7 1963 93.1 1964 91.5 1965 106.0 1966 103.5 1967 NA 1968 99.3 1969 107.6 1970 110.1 1971 114.2 1972 118.9 1973 124.1 1974 172.2 1975 (2) 1976 132.5 1977 162.1 Average Annual Rate of Change (FY 1957-FY 1977) (FY 1968-FY 1977) Rate of Annual Change Inflation 3 (percent) (percent) - 5.7 + 4.2 +12.0 + 4.6 + 6.5 + 4.5 +31.9 + 3.3 -14.5 + 4.1 +14.0 + 3.3 - 1.7 + 3.7 +15.8 + 4.3 - 2.4 + 3.6 — + 4.3 — + 6.8 + 8.3 + 6.9 + 2.3 +11.4 + 3.7 +18.6 + 4.1 + 3.3 + 4.4 + 4.3 +38.8 +11.4 — + 8.8 — + 6.5 +22.3 + 6.5 + 4.7 + 6.1 + 5.6 + 8.5 FY 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30, 1975; and FY 1976 and FY 1977 ended June 30. 2 Data not included in FY 1974. 3 Derived from the Bureau of Labor Statistics, Union Wages and Hours, Building Trades ; BLS Bulletin, "Increases in Union Wage Rates in the Build- ing Trades by Region and City (for FY 1957-FY 1966); and "Percents and Cent s-Per -Hour Changes in Wage Rates by City (for FY 1967-FY 1977). Because Des Moines was not included in FY 1976 and FY 1977, Omaha's indexes were used as surrogates. — = Not applicable. Source: City of Des Moines, Annual Financial Report ; City of Des Moines, "Road Use Tax Report". 11.123 Exhibit 5.13: Street Capital Expenditures by Revenue Source (thousands of dollars) Fiscal Special Year* Assessments Debt State Federal Total 1957 758.8 0.0 134.1 0.0 892.9 1958 385.0 0.0 8.3 0.0 394.2 1959 315.7 0.0 62.5 0.0 378.2 1960 538.8 164.0 223.2 0.0 '926.0 1961 511.9 320.0 261.5 0.0 1,093.4 1962 414.1 524.3 465.7 0.0 1,404.1 1963 433.5 567.9 719.5 0.0 1,720.9 1964 433.6 702.0 762.3 0.0 1,897.9 1965 461.4 317.0 558.4 0.0 1,336.8 1966 468.9 1,786.8 41.0 0.0 2,296.7 1967 599.3 2,547.5 0.0 0.0 3,146.8 1968 569.1 2,696.6 0.0 0.0 3,265.7 1969 170.8 3,219.4 0.0 0.0 3,390.2 1970 352.5 2,978.8 300.0 0.0 3,631.3 1971 379.2 4,218.0 353.7 159.4 5,110.3 1972 379.8 2,372.5 379.8 644.7 5,776.8 1973 390.3 1,610.0 412.6 738.6 3,151.5 1974 730.3 3,572.6 1,016.7 381.4 5,701.0 1975 (2) (2) (2) (2) (2) 1976 1,107.2 5,601.5 0.0 111.1 6,819.8 1977 885.0 4,202.1 260.3 75.9 5,423.3 Total 10,286.1 37,401.0 5,595.6 2,111.1 55,757.8 FY 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30, 1975; and FY 1976 and FY 1977 ended June 30. 2 Data included in FY 1974. Source: City of Des Moines, Annual Financial Report ; City of Des Moines, "Road Use Tax Report". 11.124 Exhibit 5.14: Bridge Capital Expenditures by Revenue Source (thousands of dollars) Fiscal Own- Year 1 Source Debt State Federal Total 1957 0.0 19.6 0.0 0.0 19.6 1958 0.0 6.2 0.0 0.0 6.2 1959 14.5 10.9 0.0 0.0 25.4 1960 0.0 343.7 0.0 0.0 343.7 1961 0.0 0.0 0.0 0.0 0.0 1962 0.0 0.0 0.0 0.0 0.0 1963 0.0 0.0 0.0 0.0 0.0 1964 0.0 0.0 0.0 0.0 0.0 1965 0.0 574.2 0.0 0.0 574.2 1966 0.0 3 ,563.8 0.0 150.0 3,713.8 1967 0.0 4 ,589.7 98.0 50.0 4,737.7 1968 0.0 2 ,750.1 0.0 0.0 2.750.1 1969 0.0 449.1 107.6 0.0 556.9 1970 109.3 230.2 0.0 0.0 339.5 1971 0.0 317.8 394.4 0.0 712.2 1972 0.0 326.3 0.0 0.0 326.3 1973 0.0 131.1 0.0. 43.7 174.8 1974 0.0 956.6 0.0 48.5 1,014.1 1975 (2) (2) (2) (2) (2) 1976 0.0 2 ,161.9 0.0 0.0 2,161.8 1977 0.0 831.6 0.0 2,144.2 2,975.8 Total 123.8 17 ,271.9 600.0 2,436.4 20,432.1 FY 1957 through FY 1973 ended December 31; FY 1974-FY 1975 began January 1, 1974 and ended June 30, 1975; and FY 1976 and FY 1977 ended June 30. 2 Data included in FY 1974. Source: City of Des Moines, Annual Financial Reports ; City of Des Moines, "Road Use Tax Report". 11.125 streets. All improved streets and unimproved residential streets are inspected annually. Many of the paved streets in Des Moines were formally built as concrete or brick streets. Most of these now have an asphalt overlay. Twenty years ago, the city had no preventive maintenance program on streets. Cracks and other physical defects occurring in the city's streets were corrected by applying an asphalt overlay using materials from the city's asphalt plant. Today, the city does not own an asphalt plant nor does it do an extensive amount of asphalt overlay work. Instead, the city street maintenance program on paved streets includes three differ- ent activities: 1) slurry seal coatings, principally on collectors and old improved residential streets; 2) chip seal coating, principally on col- lectors and arterial streets having high traffic volumes; and 3) asphalt concrete overlays, principally on arterials and collector streets. Unpaved streets are maintained using the asphalt stabilization process. The trend in recent years has been to increase the surface seal pro- grams and the decrease the amount of asphalt overlays. On unimproved streets, asphalt stabilization is being used less each year because some streets are paved and this reduces the number of miles of streets that are amenable to this process. In the asphalt stabilization process that is presently practiced, the city now uses an emulsified asphalt which has a greater life than the cutback asphalt which was used formerly. In general, the condition of the streets, because of these active maintenance and capi- tal improvement programs, is good. The Engineering Department conducts an annual inspection of the 59 bridges for which the city of Des Moines has responsibility. Included among the 59 bridges are two pedestrian walkway structures. An additional 18 viaducts, which are maintained by the state of Iowa or by railroad com- panies, are given inspections at five year intervals by the city's Engin- eering Department. All bridges on freeways and primaries are the responsi- bility of the state of Iowa. The Iowa Department of Transportation has reconstructed most of the defective bridges on the primary extensions in the city. Inspection of bridges in Des Moines was started by the city in FY 1961. The first overall inventory of bridges was made in FY 1966 and, in FY 1967, a permanent bridge file was started. The city's Engineering Department now participates in the Iowa Structure Inventory and Appraisal Program. The state had adopted a form for reporting bridge inspection data. After data are provided to the state each year, a computer run for the bridges repor- ted on is provided to the city. A formula is used for an overall rating of each structure. The city's Engineering Department has also developed its own bridge inspection form. The primary use of this city form is in deter- mining which bridges shall be selected for repair, rehabilitation or replace- ment. 11.126 Results of the 1977 bridge need survey made by the city's Engineering Department are presented in Exhibit 5.15. This table tabulates the needs and the costs of repair, replacement or rehabilitation of 35 bridges consi- detered to be in need of some type of work. The Scott Avenue Bridge over the Des Moines River (Structure No. 13) needs major rehabilitation and replacement of the concrete duct. This cost is estimated to be approxi- mately $2 million. Another major need is the rehabilitation of the Court Avenue bridge across the Des Moines River (Structure No. 51). This is esti- mated to cost $1,763,000. The total program envisioned by the 1977 bridge need survey calls for an outlay of $12,462,500. This is allocated as fol- lows: repairs, $487,500; replacement, $4,957,000; and future replacement and rehabilitation, $7,018,000. The $12 million in bridge needs represent a large capital outlay when compared with the $20 million in bridge out- lays during the last 21 years. Since 1964 the city has removed and replaced three major bridges, one of which (the 6th Avenue Bridge over the Des Moines River) had collapsed. During this period, ten other major structures were rehabilitated, one new viaduct was constructed and five smaller bridges were rebuilt. All exist- ing bridges are considered to be structurally adequate; however, two bridges (Scott Avenue and Court Avenue) are scheduled for replacement. Many of the other bridges require various degrees of repair and maintenance. Except for the Court Avenue Bridge and the Scott Avenue Bridge, the condition of the City's bridges as a group appears to be very good. As- phalt overlays have been placed on approximately 40 percent of the bridge decks. This has provided protection against weathering and improved the riding quality of those bridge decks that had shown signs of deteriorata- tions. The pedestrian bridges are fairly new, and they are in excellent condition. Maintenance has been negligible. The deterioration of bridges that had to be replaced or rehabilitated is attributed to the extreme weather conditions and the use of salt for snow and ice control. 5.4.3 Mass Transit 5.4.3.1 Maintenance Expenditures and Revenues Because the Des Moines MTA is a recent organization, a trend in main- tenance is not apparent. However, Exhibit 5.16 does present the amount of money that has been spent for maintenance purposes since its first full year of operation. Although maintenance expenditures have actually de- creased over the three years, it cannot be concluded that maintenance is being deferred. 5.4.3.2 Capital Expenditures and Revenue Sources Des Moines MTA came into existence in FY 1974 with purchases of the buses and other equipment. Since then, UMTA has contributed 80 percent of the capital costs, with MTA supplying the remaining 20 percent (Exhibit 5.17) The capital program for the FY 1974 to FY 1977 period has been rigorous over the short life of this regional authority. 11.127 Exhibit 5.15: 1977 Bridge Need Survey Structure Number Name and Location Needs Repair Cost Replacement Cost Future Replacement and Rehabilitation PI Pedestrian Indlanola Repair Epoxy, Fence $500 P2 Pedestrian University Repair Fence, etc. 500 2 Hubbell over 4 Mile Gunite, Expansion Joint 5,000 $190,000 3 Easton over 4 Mile Paint Bottom Rail 1,000 4 Williams over 4 Mile Repair Fence 200 450,000 6 Scott Ave. over 4 Mile Closed $812,000 7 Scott Ave. Minor Repair 300 S40.000 9 E. Hartford Replace w/culvert 15'10" - 9 ' 1 1 " 49,000 10 E. Hartford Replace w/culvert 14' -3" x 8' 11" 43.000 13 Scott Ave. /DM River Deck & Rehabilitation 2.000,000 15 S.W. 5th/Raccoon R. Replace 2,100.000 16 S.W. 9th/Raccoon R. Replace Joints 7.000 20 McKlnley /leader Replace 380.000 ! 25 S.W. 9th/Yeader Replace 790,000 ; 26 Park Ave. /Creek Repair 4.000 27 Park Ave. /Creek Repair 4,000 28 S.W. 34th/St. Johns Rd. Rehabilitation and Guard Rail 30,000 29 6 3rd /Raccoon R. Replace part of deck 10.000 600, 000 1 32 North Valley Dr. 350,000 33 Pleasant St. Golf Ck. Repair 4.000 35 Grant /Des Moines R. Repair 25,000 49 Locust /Des Moines R. Repair 10,000 50 Walnut/Des Moines R. Repair 15,000 36 Forest /Closes Cr. Replace w/culvert 120,000 37 University/Keo Repair 70.000 38 University/Des Moines Repair Shot Crete 80,000 40 2nd/Birdland Dr. Replace 210,000 41 2nd /Des Moines R. Widen & Rehabilitate 1,075.000 43 Prospect/Closes Cr. Replace 53,000 44 7th St. Viaduct Repair Joints, etc. 85.000 45 8th St. Viaduct Repair 1,000 48 Fleur Viaduct Replace deck 170,000 51 Court /Des Moines R. Rehabilitate 1,763,000 52 Indlanola Rd./Yeader Ck. Replace 280,000 $487,500 $4,957,000 $7,018,000 Total Need: $12,462,500 ^dltional bridge. Source: Department of Engineering, City of Des Moines, Iowa. 11.128 Exhibit 5.16: Mass Transit Maintenance Expenditures Fiscal Year 1 Maintenance Expense (thousands of dollars) 388.0 Annual Change (percent) Maintenance as Percent of O&M Rate of , Inflation' (percent) 1975 17.1 — 1976 389.7 +0.4 14.0 +6.5 1977 352.1 -9.6 11.7 +6.5 FY 1975 through FY 1977 ended June 30. Derived from the Bureau of Labor Statistics, Union Wages and Hours, Building Trades , BLS Bulletin, "Percents and Cents -Per -Hour Changes in Wage Rates by City". Because Des Moines was not included in 197 6 and 1977, Omaha's indexes were used as surrogates. — = Not applicable. Source: Audited Reports of Des Moines Metropolitan Transit Authority. Exhibit 5.17: Mass Transit Capital Expenditures by Revenue Source (thousands of dollars) Fiscal Year l Federal 1974 966.4 1975 1,171.6 1976 1,416.6 1977 2,727.8 Total 6,282.4 Local 241.6 292.9 354.1 681.9 1,570.5 Total 1,208.0 1,464.5 1,770.7 3,409.7 7,852.9 FY 1974 through FY 1977 ended June 30. Source: City of Des Moines, Metropolitan Transit Authority, Project Budget , 11.129 5.4.3.3 Condition of the Mass Transit System The mass transit system in the city of Des Moines is owned and operated by the Des Moines Metropolitan Transit Authority (MTA) , a state-chartered public agency. Prior to 1973, when the MTA was created, the system was pri- vately owned by the Iowa Regional Transit Corporation. The MTA serves the cities of Des Moines, West Des Moines, Windsor Heights, Clive and Urbandale. A total of 90 motor coaches are owned by the MTA at the present time. Of these, four buses have been inactivated and are a source of parts needed to replace defective parts in operating vehicles, when such parts are not available from standard supply sources. The average age of the entire fleet is 15 years. Of the 86 operational buses, all are used regularly; however, only 71 are used during peak hours. This gives a reserve strength of 15 buses which the MTA considers to be satisfactory. Some of the older buses have a capacity of 35 or 40 passengers, which is small compared to modern buses. Thirty-five of the system's 90 buses were purchased new, 23 years ago. These buses are not in good condition, and it is difficult to obtain parts for them. Fifty-five vehicles are more recent models, having been purchased in 1974 and 1977 and are in good condition. Currently, 20 new buses are on order for spring delivery. Upon delivery of the new coaches, an equal number of the old buses will be retired from service. An updated maintenance program was initiated in early 1978 when the MTA employed a person from outside the agency to serve as the Maintenance Manager. Prior to this time, the facilities for maintenance were inadequate and the maintenance program unsatisfactory. Buses were operated without proper servicing and maintenance. Beginning early in 1978, a preventive maintenance program was inaugurated. At 6,000 mile intervals, every bus is checked thoroughly — steering, brakes, tires, electrical system, transmission, differential, etc. — and the buses are serviced by lubricating the chassis, changing the oil, and replacing all filters. Service crews also wash, vacuum and fuel each bus nightly, regardless of weather. The success of this program is apparent in the reduced numbers of road calls required to service buses in operation. Formerly, seven to eight road calls were made daily; now there are only one or two road calls daily. 11.130 5.5 Analysis and Conclusions 5.5.1 Public/Private Cooperation Since this report covered city expenditures for public infrastructure it excludes the contribution of private developers. In Des Moines, deve- lopers are responsible for the provision of water and sewer lines, streets and sidewalks according to city specifications. The dollar amount of these private contributions could not be estimated. However, as Exhibits 5.10, 5.11 and 5.13 indicate, property owners in Des Moines are responsible for repairing, replacing and maintaining many segments of the city's infrastruc- ture. For example, if streets need seal coating or slurry sealing, the city performs these activities and assesses the adjacent properties; these assessments cover the cost of maintenance activities. Furthermore, the burden is on the individual property owners, not on the city's finances. Another example is the city program of paving unpaved or unimproved streets, The city is petitioned by the property owners to have their street paved. The city assesses the properties, then paves the street. The cost of pav- ing is shared by the city and the property owners. The direct contribution to the construction and maintenance of the city's infrastructure by indivi- duals (property owners) is quite substantial. The burden on the city of providing and maintaining these public investments is lightened somewhat by the participation of property owners. 5.5.2 Effects of Federal Grants-In-Aid Des Moines Water Works has never received any Federal funds. The other four areas have all received some Federal funds, with the greatest amounts going to the mass transit system and the sewer system. During the last several years, Federal grants have been fairly substantial for up- grading the sewage treatment plants to meet secondary treatment require- ments. Analysis of expenditure trends suggests that Federal grants were mildly stimulating in that a dollar's worth of Federal aid contributed to a greater-than-normal level of capital outlay on the part of the local sewer system. The reliance on Federal grants for the sewer collection sys- tem is not significant since the Federal grants were used for secondary treatment purposes. The reliance of the mass transit system on Federal grants, on the other hand, is substantial. Since FY 1973, fully 80 percent of total capital expenditures were funded through Federal sources. Without these Federal funds, MTA's capital program would not have been as large. Until FY 1976, the impact of Federal grants on bridge replacement, rehabilitation or construction was very minor because these grants were very small. In FY 1977, however, over $2 million from Federal sources were spent on the bridge capital program. The city has a strong commit- ment to bridge replacement and rehabilitation programs, even without 11.131 Federal assistance. Because of that, the bridge capital program is not dependent on Federal aid, nor does Federal aid stimulate additional spend- ing on the part of the city. In fact, it may be substitutive for own- source or debt funds. The street capital program is not dependent on Federal aid. Federal grants have amounted to only 5.2 percent of total capital outlays during the last ten years of the study period. 5.5.3 Revenue-Generating Capacity of the City Property taxes are based on 100 percent of the fair market value (FMV). In 1978, the property tax rate was $13.50 per $1,000 of assessed valuation which was up from $12.68 in 1977. The city relies almost solely on the property tax to generate own-source revenues, with small amounts derived from current charges and minor taxes. However, the city has neither a general sales tax nor an income tax. Therefore, the only burden on the residents is the property tax. Because cities finance their debt burden, to a large extent, through property tax revenues, one measure of any city's ability to incur more debt for capital projects is to analyze the city's current debt per capita. The per capita debt burden in 1977 for Des Moines was $364, which amounts to a very low debt burden compared with other Aaa rated cities, which, on average, had a per capita debt in 1978 of $430. * This very low debt bur- den suggests that the city can raise its property tax rate if needed. However, the city is so fiscally sound that in FY 1976, it transferred $2.4 million of its operating surplus to its capital project fund. As one source stated, "The city's economy is stable and diversified and fin- ancial statistics are generally above average relative to all 'Aaa' rated cities. These factors give Des Moines an excellent long-term credit out- look. The city ranks as one of the best 'Aaa' rated cities, "2 and its ability to generate adequate revenues for its services is excellent. Indeed, Des Moines is probably among the most financially sound cities in the nation. 5.5.4 Some Implications The city's overall dependence on Federal funds for financing the five selected functions is very low, while its use of own-source revenues for these functions is quite high. Coupled with this is the fact that the city is not fiscally strained and could raise additional revenues to cover cur- rent or future needs. However, the results from our site visit suggest that maintenance activities are adequately funded and the city's capital program is not neglected. Continental Illinois National Bank and Trust Company of Chicago, Comparative Analysis of City Credits , August 1978, p. 19. 2 Ibid. 11.132 6.0 HARTFORD, CONNECTICUT 6.1 Introduction and Summary of Findings 6.1.1 Introduction The city of Hartford, an intermediate-aged city of 153,000 people located in the industrialized Northeast Region, has responsibility for only two of the five functional areas, namely, streets and bridges. A regional authority is responsible for sewer and water services, and the state of Connecticut owns the mass transit system. The city has a low per capita income relative to the national average, high property taxes compared with the other cities in this study, a high rate of manufactur- ing employment losses, and (in 1976) a 12 percent unemployment rate. 6.1.2 Summary of Findings The major findings concerning the condition of the urban infrastruc- ture in the city of Hartford include the following: • Own-source revenue-generating capacity is low. Hartford has a very high property tax rate, and this tax is the pri- mary source of maintenance financing. Low per capita income and declining employment opportunities exacerbate the city's fiscal strain. • Maintenance expenditures on streets and bridges are declining, and their condition is deteriorating; how- ever, capital expenditures are increasing due to Fed- eral involvement. Maintenance expenditures in constant dollars declined over the FY 1957 to FY 1977 period for bridge and street maintenance. The condition was rated poor and worsening due to continued neglect. Capital expenditures, on the other hand, have increased over the last eight years of the study period. However, past neglect of bridges and streets requires further significant outlays. Fortunately, relatively large amounts of Federal grants for streets and bridges, reaching 90 percent of total capital expenditures on streets and bridges by FY 1977, provided a source of funds for streets and bridge work. • Water and sewer maintenance expenditures have increased and the physical condition of the systems is good. Increases in maintenance outlays have offset inflation, and the levels of maintenance have kept these systems in good operating condition. The ability to raise user charges and water taxes assessed on cities in the water district have been important factors in a satisfactory maintenance and capi- tal construction and replacement program. 11.133 • The mass transit system is improving its condition due to UMTA grants. UMTA grants, which cover large portions of both capital and operating costs, have been a major factor in improving the condition of the bus sys- tem since FY 1973. 6.2 City Description 6.2.1 Population and Employment Trends Hartford's population, like that of many cities in the Northeast, has been declining over the past 25 to 30 years (Exhibit 6.1), while the popu- lation of the Hartford SMSA has expanded by more than 23 percent since 1960, and since 1950 it has almost doubled. In recent years, the city has exper- ienced very high unemployment. Its per capita income in 1974 was about three-fourths the average per capita income for the SMSA. To compound the problems of a slowly eroding population base, high unemployment, and very low per capita income (the U.S. average per capita income in 19 74 was $575 greater than Hartford's) is the shift in the indus- try mix of the city (Exhibit 6.2). Between 1958 and 1972 employment in manufacturing declined by almost 50 percent. Wholesale and retail trade employment also dropped significantly. The only increase was for selected services. During this same time period, employment for the SMSA increased substantially in three of these four areas, with a modest increase in manufacturing employment. Thus, the population growth in the suburbs has been accompanied by a shift in economic activity from the central city to the area outside of the central city. 6.2.2 Total Revenues and Expenditures for the City Exhibit 6.3 details the city's revenue and expenditure patterns for the past 19 years. One of the more salient features of this table is the high reliance on property taxes as the primary mechanism by which own-source revenues are raised. Property taxes historically have accounted for between 80 and 93 percent of own-source revenues and constituted about 45 percent of the city's total revenues in FY 1977. Another feature is the impact of Federal grants-in-aid. In FY 1977 Federal aid amounted to slightly over one-fifth of total revenues. Reliance on Federal aid has increased in the last decade. For example, between FY 1968 and FY 1977, Federal aid increased from $1.5 million to $38.1 million and was approximately equal to state aid. As noted in sim- ilar analyses for other cities, this state aid includes unestimated "pass on' funds from the Federal government. With the cost of living (i.e., inflation 11.134 Exhibit 6.1: Population, Employment and Income Characteristics of Hartford 1960 1970 1975 1976 Population SMSA City 549,249 162,178 663,891 158,017 679,600 154,000 679,600 153,000 Per Capita Income SMSA City NA $ 2,103(1959) $ 3,920(1969) $ 3,107(1969) $ 5,293(1974) $ 3,997(1974) NA NA Unemployment Rate SMSA City 3.9% 5.7% NA 4.5% NA 13.0% NA 12.0% Civilian Labor Force Employment SMSA City 219,128 73,370 NA 68,005 NA NA NA NA Exhibit 6.2: Employment by Sector in Hartford 1958 1963 1967 1972 Manufacturing Employment SMSA City 83,183 25,386 90,177 22,232 110,600 23,300 86,000 12,800 Wholesale Employment SMSA City 12,632 9,172 12,386 6,756 15,011 7,368 16,730 5,943 Retail Employment SMSA City 30,823 16,582 32,866 13,844 38,010 13,777 47,525 11,386 Selected Services Employment SMSA City 9,705 6,324 12,093 8,122 15,183 9,295 23,067 12,125 NA = Data not available. Sources for Exhibits 6.1 and 6.2: U.S. Department of Commerce, County and City Data Book (various years); population figures for FY 1970, FY 1975, and FY 1976 and unemploy- ment rates for FY 1975 and FY 1976 were derived from City of Hartford, Official Bond Offering Statement , February 11, 1977. 11.135 oo co z z <"> ■ o ul -. o u"i . , O O Z Z i O O J= C -1 o a« z I S £ 6 C «& VI 11.136 ON f» ■ar n — o CM CM f» -» •o NO o d NOVCOO d on co < < d d ct> r» r~. 2 je -. >5 z z (S •< z ■< z d £ NO NO — m r» O o — d cm' o — d — -a- in < ■< f> «» ^ «( «< d < < 00 r- r» z z z z z z 1 s r no — m i^ O •J -<» * d < < d «» .j' «£ <: NO <: < m -a- — 00 r-. r~ z z z z Z z 1 e „ gj m o*-j sTNO CM O o 00 — en d rl ri 00lfllfl<( oo Q. ■o to ■3 0) CD 0) 3 00 01 3 3 ra 41 X IS o 4J x. 01 a) 3 c c ■o s s§.°s C 11 c to e a E H US O. O 0) u r- 1 CU a. O 01 O U .= C r-H C O u X. « » K-l U W U C <-> 0) O ui c so 1 > u O 10 > ■o c 3 X U U o ai »u tl O O ID 3 -H re oO c 3 «h u 3: J3 4) m 01 01 01 00 c i c o. £ •o c C c 3 10 c o ° " u o o to J 11.137 rate), as measured by the Consumer Price Index, increasing by 85 percent between 1967 and 1977,1 the primary reason for the city's capacity to maintain service at the 1967 level rests on the availability of Federal grants. That is, Federal aid to Hartford has grown faster than both the inflation rate and own-source revenues, suggesting that much of the slack in real revenues is being shouldered by Federal grants-in-aid. 6.2.3 City Government Structure/Responsibility for Public Works Activities The city's home rule charter was granted by the Legislature in 1947, and it established a Council-Manager form of government with the City Manager as Chief Executive Officer. The City Manager is appointed by the nine-member City Council. The city has direct responsibility for only two of the five areas that were selected. The Department of Public Works main- tains the street and bridge network and is responsible for contracting out the capital projects. The Metropolitan District Commission (MDC) was cre- ated in 1929 by a special act of the state legislature. It owns and main- tains the sewer and water systems which serve Hartford and six neighboring towns. MDC receives most of its revenues through water user charges and through taxes levied on the seven local governments. The revenues for the water system are segregated from those for the sewer system and can be used only for water related activities. The mass transit system which serves Hartford is owned by the state of Connecticut and is known as Connecticut Transit. After a four-month strike which ended in March 1973, the state agreed to pay the deficits of the pri- vate firm, the Connecticut Company. In May 1976, the state received UMTA Section 3 (capital subsidy) funds to purchase the company. Currently, it is state-owned and part of the state's urban bus system. It is operated by Connecticut Transit Management, Inc., a subsidiary of National City Manage- ment, Inc., of Houston, Texas, under contract with the Connecticut Department of Transportation. 6.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock Conventional wisdom suggests that older cities, such as Hartford should "invest" in maintaining the capital stock that already exists; maintenance expenditures, then, might be expected to increase or remain stable at rela- tively high levels. In Hartford, the observed trends are mixed. Exhibit 6.4 suggests that maintenance on the water and sewer systems has increased over the last ten years. While the cost of providing these services has increased more than 85 percent between FY 1968 and FY 1977, maintenance expenditures for the water system and sewer system stayed ahead by increasing 110 percent and 140 percent, respectively. U.S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review , Vol. 100, No. 12, December 1977, p. 106. Boston's CPI is used as a surrogate for Hartford's CPI. 11.138 u U) c o u H a> 5 •J- i-l c a ID c o ZZZZZZZZZZZZZZZZ«nooinoflO-JOioOO>>><0'- l OO>ON COflONO'OUl^OOOOOvOiri-iNflMMN-JZ/, c 'J 3 r»noOOOOOOOOOOOOOOOO MOOinnn^iAOOW^oONonnmxz to a o 1-1 VI 3 a: 672.2 656.1 331.2 220.1 301.8 77.8 195.9 187.2 156.8 199.7 110.2 99.9 A69.8 537.6 321.9 120.0 186.2 86.8 83.3 88. A 78.5 u ooooooooooooooooooooo c">orji/-\OOv©u"iOOO'~-000000000 coomoin^TOOOtNr^vO'/imOoiOOO — • O 11 3 41 c c en = ZZZZZOZZZZZt--r^.f^r^i«.r-.ao<»j»3-oocM«»*TOOcj\ <<;<<ZZZZZi/1i/"ivOr^r^eO-<-<(N<.N a 3 c w c o o cm jr^^r>TOC7^r~cNic*o (ni o tC5MnNi^m>i~r- ' oo 0>ZZZZ<^ZZZZZ«N-^f^fM«N u-> O co r-~ U) 41 957 958 959 960 1961 1962 1963 196A 1965 1966 1967 1968 1969 1970 971 1972 1973 197A 1975 1976 1977 u. J £ 41 3 U IX, (D o : S,, ^ 3 3 N£> «0 vO 41 41 <7l U U -• 4) (/) £ <0 41 m u e Pi o c 4) 41 M JC CO 3 *J (0 41 CO O a. 4i >w 4) CO H C 00 41 (0 C 3 3 i0 c a s u C ^ O -H r>. x-i r» 41 Cft CO ?-• 3 •H u m *a 05 0) 01 u u to AJ 3 w c o o M N H CO rs N d vOvOOOvOOsrOO o»oiinoo-j s -j -j ffin iA h ^ *^ 00 CO 00 CO -3-«3-oomr^r--r~ mm sj- co cm cr* o cm o oo o\ ojmto onoon u c 0) M u 3 o ooooooooooooooo o o o o o o 00 O O O cm O o CM 0> N O O — 1 CO oooooooo o o o o o o CM CM — l —> r-M C7\ o o o o o o o o o o o o 00 I s * ■"-! CM r-4 CM HNHrlH u t 0) CO sr c cd co C o u m z z z z z m z CT* vO *^ 00 Na-jHm N s r» m O r~ o sr oo cm oo m oo r^ -< C O^ w o CM — i HHlOOflN r-» r»» co oo «* o oo cr> oo m cm co 01 u 5 U a CO jj CO C o o CO 0> m m CM < < < < t^ < vOsrr» vO CM CM CM N O _l _| f* CO rx CM r- o> — i o » O CO 00 00 — i r-» r-» o «h <;<:<:<;mcocor~. ZZZZ-"00C7\cm 6,716 2,025 2,820 2,920 2,084 1,754 Cd u CJ cd CO OJ r-«. oo o> o — " cm co in m in * * * ^ o\ o^ o> c^ c^ c^ o> »^m^oiNooo>o<- 1 O^CT^O^O^ONCJSCTNO^ cm co sr m vo r*. r-* r-~ r~ r-» r-» r-» o> ON C7% on ON on fa £ J £ £ mm r*» w H OJ 3 TJ 01 0) C a M 4J cfl n c 3 3 rt CO JZ -H cd 01 O J3 0) 3 0) U 01 M e uio u 0) 0) U .-• >, 0) iH oo u cd C3 3 -ri- al M h3 a. -a ai d. «W Ti § (J O 3 O t-( CO -O 0) Vj l-i O CO ^ CO 4J ^ 3 01 i-l CO CO T) y o co oi a oi -a eg -h nj a s w CM -r( U t3 ^ -a cj oi oi a. c 3 "O h id-o o c oi w • oi o CO 4J co w oi o u oi r~ oo oi o aj f^ 60 T3 r-l IH Cd CTi C -H 01 60 -H -H U CO T) O *J J3 -H M cfl CTl 4-1 y -H 3 cd w O ^o -X) ■o o « < uu C 3 -4 41 O 41 41 IS < o u ON *E E On ON ON ON KE8E o r~ <*> rs no m no no ■O tl 01 41 c u 1" £ * ON se — ST s» r. E 3-> •a -4 o-<-> a en C On o — ST ST ST ST O O ^ <-l -. on o o NO -• 00 < . . . -H O IM IN — O — IN ddniin ID 01 O ST O — © -^ 1 3 MONS u-N -D r~ r-. rs eo in rs u-i no is. r- ON ON ON ON On O. On On 01 i§ It, a 11 3 O ST ST ST ST IN -. d S >/1 O IN st O O — I CO O O in rs .o a CJ o o O CO d no ST C --4 X u c a a 2 C OS ST ST -T o X X J 01 r c o -4 et >-> c •a u %s T3 0) O H 1 « J3 CO O >> l, a. --I 3 oo n 41 e c -a 3 e 01 rt q 01 O O O r-l • c ■H C q 01 o § o CO - c p ft- u ■o u oo 3 e .O -H ^ > a e c 0) a u -< u a. as < Z < z Much greater than 50 year resurfacing cycle (prob- ably close to 100) 1 bridge has been rebuilt; replacement is unusual, but recormen- ded by City Engineer oi a oo »4 n u 01 01 tl 01 > NM o -S O -i >- *J> c 5 g | O 01 « C M C u 4- e u a 01 X C £-5 u -o q It IIUH u a oi •o u t HU « Hi 11 01 £ c c 00 01 C c cu a *-i t: > * >, c « t^ Ql W u > o a Hore personnel are available for maintenance, suggesting im- proved mainten- ance frequency 01 -< o Ix E 3 2 -3 n c o H i S cC g s . W CI o c w. -3 -H 3 ° ~ Com C -3 C o a t4 c — oi c -o u e n u : 3 41 o ss 4» C "3 i- n sh a S S -i o c; S. -' a o lu •« o. o ^« no o 3 no a ci -• « 3 s- II I 41 X m Cj » ^ 2 o - O f" o i" °E <-> 3 T3 U U 41 II -I "O ■h a 3 i-c 41 J " CI -0 O -H O E S • u -o C I- u •H 41 O E : -a -ex o >> o -o >-i ■S, 2 OX -4 o st a 1- >s 3 CI ^ OO ' . I^nT , s 11 ' ■I N • ) sH O CI vc /: o ci • K On c re o n nm 5 S 11.142 The sewer and water systems appear to be in good condition. Increases in maintenance expenditures have offset inflation, and the level of mainten- ance, while fairly constant, has been adequate. One of the reasons for a good maintenance record is the fact that the water system is funded almost solely through charges for water use and the sewer system is financed pri- marily through taxes levied on the seven member cities and towns. As the costs to maintain and to construct the facilities increase, the charges and tax rates can also rise to meet the increased costs. MDC's dependence on Federal grants has been minimal (last column of Exhibit 6.6), except for the EPA grants to the sewer system's secondary treatment facilities. Prior to FY 1968, all capital expenditures were fin- anced from own-source revenues and bond issuances. State and Federal funds were virtually non-existent. Connecticut Transit, the bus system, has received fairly large sums of money from the Federal UMTA Section 3 (capital subsidies) and Section 5 (dis- cretionary subsidies) programs. However, this money has only been made avail- able since FY 1973. With the receipt of Federal operating and capital monies, the age of the fleet and the condition of the buses have improved and more maintenance personnel have been hired. Almost two-fifths of all capital ex- penditures have been derived from Federal sources. The remainder has been paid by the state. The city does not participate at all in financing the bus system. The state owns it and any local contributions for capital grants are put up by the state. There is no burden on the city for the provision of mass transit services. 6. A Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 6.4.1 Water and Sewer Systems 6.4.1.1 Maintenance Expenditures and Revenues Maintenance expenditures for the water system have increased at an average annual rate of 8.6 percent over the last ten years, or significantly higher than the 7.4 percent average annual rate of inflation (Exhibit 6.7). Maintenance expenditures, as they relate to total operation and maintenance expenditures, have remained relatively stable at 21 to 23 percent, indicating that the priority given to maintenance activities is not declining. The revenue source for the operating budget is strictly charges for the use of water. These charges are deposited in a Water Utility Fund for operating purposes. Maintenance expenses on the sewer system have also grown faster than the rate of inflation (Exhibit 6.8). The 10.1 percent average annual rate of increase for the last ten years is noteworthy. As the sewer system grew larger and more complex, as it has with the construction of a plant in FY 1970 and with the addition of secondary treatment facilities, maintenance expenditures on the system have increased. 11.143 Exhibit 6.7: Water System Maintenance Expenditures Maintenance Annual Expense Rate of Inflation Fiscal Maintenance Expense Change As Percent Year* (thousands of dollars) (percent) of Total O&M (percent) 1957 417.7 — 36.2 1962 488.4 — 33.0 — 1968 837.7 — 22.6 — 1969 893.8 + 6.7 22.7 +11.1 1970 1,034.0 +15.7 22.6 +12.6 1971 1,176.6 +13.8 21.7 +11.2 1972 1,247.0 + 6.0 21.0 + 7.2 1973 1,338.1 + 7.3 21.4 + 7.4 1974 1,537.6 +14.9 22.0 + 7.3 1975 1,650.4 + 7.3 21.4 + 4.2 1976 1,806.2 + 9.4 23.3 + 3.6 1977 1,756.4 - 2.8 21.1 + 2.4 Average Annual Rate of Change (FY 1968-FY 1977) + 8.6 + 7.4 Fiscal years ended December 31. 2 Derived from Bureau of Labor Statistics, Union Wages and Hours , Building Trades (BLS Bulletin) , "Percent and Cents-Per-Hour Changes in Wage Rates by City"; because Hartford was not included, New Haven's indexes were used as surrogates. — = Not applicable. Source: Metropolitan District Commission, Annual Financial Reports . 11.144 Exhibit 6.8: Sewer System Maintenance Expenditures Maintenance Annual Expense Rate of Fiscal Maintenance Expense Change As Percent Inflation 2 Year 1 (thousands of dollars) (percent) of Total O&M (percent) 1962 321.9 — 33.4 1968 517.7 — 16.9 — 1969 546.3 + 5.5 16.7 +11.1 1970 619.7 +13.4 16.5 +12.6 1971 723.4 + 16.7 16.6 +11.2 1972 763.8 + 5.6 15.6 + 7.2 1973 803.2 + 5.2 13.5 + 7.4 1974 961.4 +19.7 13.6 + 7.3 1975 1,182.4 +23.0 15.4 + 4.2 1976 1,237.8 + 4.7 14.8 + 3.6 1977 1,246.9 + 0.7 13.8 + 2.4 Average Annual Rate of Change (FY 1968-FY 1977) +10.1 + 7.4 Fiscal years ended December 31. Derived from Bureau of Labor Statistics, U nion Wages and Hours Building Trades (BLS Bulletin) , "Percent and Cents-Per-Hour Changes in Wage Rates by City"; because Hartford was not included, New Haven's indexes were used as surrogates. — = Not applicable. Source: Metropolitan District Commission, Annual Financial Reports. 11.145 The primary revenue source for sewer maintenance is taxation of the member cities. Another minor revenue source is the Water Utility Fund which sometimes contributes to the sewer system's General Fund. 6.4.1.2 Capital Expenditures and Revenue Sources Capital expenditures for the water system were high between FY 1969 and FY 1971 (Exhibit 6.9). The $25 million outlay over the three year period is attributable to the two-stage water treatment plant system that was constructed at that time. The other capital expenditures for the remaining years reflect a commitment to replacement and construction. Only 6 percent of total capital expenditures for water between FY 1968 and FY 1977 were derived from Federal sources (principally from HUD). The Water Utility Fund and revenue bonds financed practically all the capital outlays. Capital expenditures for the sewer system were financed through var- ious sources (Exhibit 6.10), the most important being Federal and state sources. Most of the Federal funds were derived from the EPA, and a signi- ficant share of the other funds was obtained through bonded indebtedness and own-source revenues. 6.4.1.3 Condition of the Water and Sewer Systems All water supplied to the city of Hartford and six towns that parti- cipate in the MDC is filtered and chemically treated at two treatment plants — the West Hartford Works and the Bloomfield Treatment Plant. The filtered water is chlorinated and fluorides are added. A chemical treatment building was constructed to house all equipment required for chlorination, fluorida- tion and corrosion control of the filtered water prior to its delivery to consumers. In I960, the plant was expanded and four filter beds were added. From that time until now, the conditon of the plant has been excel- lent. At the present time (i.e., early 1979), one valve needs replacing and roofing repairs are required at intervals. Gate valves on the inlets and outlets of the 22 filters at the West Hartford Plant are showing signs of wear. The condition is steadily wor- sening. The filters have been in service since the 1920' s and are installed in 20 inch diameter pipes. Until recently maintenance has involved replace- ment of the stems and wedges of these valves. However, a valve replacement program has been started which will be completed in one or two years at a cost between $100,000-$200,000. Approximately 75 percent of the finished water is delivered directly into the distribution system with only 25 percent going into storage to be used for peak demand. The reservoir used for storing filtered water is of concrete and is in very good condition. The water loss is said to be negli- gible and there have been few repairs required. 11.146 Exhibit 6, 9 j Water System Capital Expenditures by Revenue Source (thousands of dollars) Fiscal Water Utility Total Year* Bonds NA Fund Federal 0.0 Expenditures 1957 NA 1,866.8 1962 NA NA 0.0 2,251.9 1968 533.5 573.9 1,050.0 2,157.4 1969 9,405.2 1,481.7 0.0 10,887.9 1970 200.4 1,429.8 350.0 1,980.2 1971 10,681.4 1,590.4 0.0 12,271.8 1972 3,717.9 1,647.6 1,350.0 6,717.5 1973 297.5 1,577.5 150.0 2,025.0 1974 1,463.4 1,357.0 0.0 2,820.4 1975 1,640.6 1,280.2 0.0 2,920.8 1976 575.0 1,509.8 0.0 2,084.8 1977 469.8 1,284.4 0.0 1,754.2 FY 1968- FY 1977 Total 28,986.7 13,733.3 2,900.0 45,620.0 Fiscal years ended December 31. NA= Data not available. Sources: Metropolitan District Commission of Hartford, Annual Financial Reports , and Metropolitan District Commission reports to the State Public Utilities Commission, 11.147 Exhibit 6.10: Sewer System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal General Total Yearl Bonds Fund Federal State Expenditures 1962 NA NA 0.0 0.0 4,363.6 1968 6,550.7 933.0 204.1 51.0 7,738.7 1969 7,776.6 1,356.6 659.8 165.0 9,958.0 1970 6,009.5 1,349.0 10,984.3 2,746.1 21,088.9 1971 800.0 1,142.4 6,808.1 1,702.0 10,452.5 1972 1,905.0 1,557.4 3,527.4 881.8 7,871.2 1973 3,718.7 1,210.1 4,833.8 1,208.4 10,971.0 1974 0.0 2,663.5 4,938.0 1,234.5 8,836.0 1975 2,999.4 1,940.2 1,312.4 328.1 6,580.1 1976 3,071.7 1,122.8 38.8 9.7 4,243.0 1977 2,514.9 1,759.2 22.6 5.7 4,302.4 1968-77 Total 35,346.5 15,034.1 33,328.9 8,332.3 92,041.8 Fiscal years ended December 31. NA = Data not available. Sources: Metropolitan District Commission of Hartford, Annual Financial Statements , and Metropolitan District Commission reports to the State Public Utilities Commission. 11.148 Exhibit 6.11 is a tabulation of statistical information extracted from annual reports of the MDC Water Bureau. The tabulations show that main breaks in pipes of 12 inch diameter and larger occurred on the aver- age of approximately 11 times annually during the eight year period from 1970 to 1977. During that same eight year period, the number of breaks in the smaller water mains (less than 12 inch diameter) gradually increased from 63 breaks annually in 1970 to 98 breaks in 1977. The number of ser- vice mains repaired because of leakage has increased from 180 leaks repaired in 1970 to 275 leaks repaired in 1977. This important trouble area is prob- ably due to leaks in the older portions of the water system. In general, the water system is in good condition. However, the number of water main breaks has increased, suggesting that the system is beginning to experience problems. These problems have been arrested quickly enough to characterize the system as being good. Though maintenance expenditures for the sewer system are increasing rapidly, some problems are being encountered. The overall condition is considered to be relatively good. Approximately 70 percent of the 224.4 miles of sewers carrying sanitary wastes from the city of Hartford con- sists of combined sewers. Most of these sewers are probably between 50 and 100 years old. No other city or town in the greater Hartford area has combined sewers. Since about 1930, only separate sanitary sewers have been installed in the city. As part of an extensive sewer separation program, the city of Hartford has removed about 75 percent of the combined sewers in the central business district and replaced them with separate sanitary and storm sewers. There is an ongoing program of sewer separa- tion with 75 percent of the cost being provided by the Federal government, 15 percent by the state government, and 10 percent by local bond financing. A program of separation to begin in 1981 is estimated to cost $450 million. Many of the combined sewers are old brick sewers ranging in size from 18 inches to 48 inches in diameter. A larger number of these are more than 100 years old and maintenance is a costly item. Some are not large enough for a person to enter and it is necessary to use television techniques for examining the interiors of these sewers. The old vitrified clay pipe sewers also cause problems. These sewers are laid with jute and mortar joints which become defective if the jute deteriorates and the mortar drops out. Repairs to such joints are made by digging into the street surfaces to expose the joints and then placing a cap of grout over such joints. Many of the old clay tiles are also crack- ing and collapsing. In 1977, 50 main sewer repairs were made on clay and brick sewers. Cleaning of sewers is done principally in the newer resi- dential areas outside the city of Hartford. Some sewer lining has been performed to rehabilitate sewer pipes, but this activity is not done widely yet. 11.149 -n CU 0) a. •H • H PL, cn Cu cu cu o IX •H > 05 >H ^ CU cfl en a) h-i o <; oo a) 05 •-% J=> M a) c +j H-l -H CU o 6 co co ^ OJ -H CM o\ \o o CM O CM i— I 00 a) a, xi m LO - oo CM m r-H vO r^ a\ 43 -H CM m O m <— i 00 vO 1— 1 \D CO ,— I E Ph = 3 vO v£> CO m 0> o O CM CM CO H CU 4J CO CU a) e cu cfl •H •H Ph •a CM y -' I g. u a cu •H 4J CO CU X 6 r-« m m vO a> o o o CM m ^- •H cu cO 11.150 Exhibit 6.12 is a tabulation of various maintenance activities carried out on the entire sewage collection system operated by the Metropolitan Dis- trict Commission. Information is provided for nine selected years between 1960 and 1977. In 1977, a total of 1,583 complaints were investigated — more than the number reported in any previous year. In 1960, there were only 960 such complaints reported. The amount of linear feet of sewer tele- vised as a means of inspection has decreased in recent years. In 1971, a total of 15,080 linear feet were televised. In 1977, approximately 73 re- pairs were made to various sewers and catch basin connections. This is an increase from earlier years. Repairs made to house sewers vary from year to year and the average is in the neighborhood of 150 such repairs annually. Cleaning of catch basins has decreased somewhat through the years. In 1960, a total of 9,396 basins were reported cleaned, whereas in 1977, only 6,864 basins were cleaned. Since 1972, sewer cleaning has increased from 254 miles to 262 miles in 1977. In 1975, the tabulation shows that 314 miles of sewers were cleaned. Since 1975 the number of sewer stoppages has de- creased from 144 to 79 annually. Despite a good maintenance record, the age of the sewers and the fact that a larger percentage of them are con- structed of brick suggest that problems may be encountered in the future. The Metropolitan District Commission operates four sewage treatment plants. Each of the four plants produces an effluent that meets Federal and state standards. During the summer months, May 1 through November 1, the effluent is chlorinated before being discharged to the Connecticut River. The plant having the largest treatment capacity is the Hartford Plant which serves the city of Hartford. The major maintenance problems at this plant involve incineration and sludge drying equipment. At six month intervals, it is necessary to shut down one of the three inciner- ators for repairs. The sedimentation tanks of the Hartford Plant sometimes require main- tenance. Normally, between $6,000 and $10,000 are spent annually on repairs to the cracks in the concrete tanks. The effluent pumping station, although carefully maintained, requires approximately $20,000 of maintenance annually. Overall, the water pollution control facilities of the Metropolitan District Commission are in good condition. The modernization of the Hartford Plant in 1972 converted the then existing primary treatment to secondary treatment. Prior to this conversion, the Hartford Plant was only capable of producing an effluent with 50 percent removal of suspended solids and 35 percent removal of Biochemical Oxygen Demand (BOD). Currently, it removes 88-90 percent of suspended solids and BOD. 6.4.2 Streets and Bridges 6.4.2.1 Maintenance Expenditures and Revenues Expenditures for the maintenance of streets and bridges have suffered drastic cutbacks in the past 20 years. Current expenditures for street maintenance actually declined since FY 1957, while the inflation rate in- creased by an average annual rate of 5.7 percent (Exhibit 6.13). If FY 1968 IT. 151 en Pu Cl fi o 0) u Pi OT ^ en en >-i cu CD rH £ -H u a) e c CO *-»■ o CN vO >fr ON ro O ON CN ON m i— 1 o a. 0) M (1) r. 3 •H a> CO rn 01 CO ea c O o 4-1 rf3 •rH a 4-1 co jj o m crt ai •H c; c CO c a xi 0) a o OS CO CO d) o m 00 <: vO o S3 m a. co o > > o co a o 4J t-l O 4J 3 © I i ■» I on in o OlsOO. ee — — © oo r*. — os r» o so n *» Q, O O * i i j © S • 5 n a u ti 11.165 CO 0) C TJ cu cu > 3 Pi -H J-l rH C ca o 4-» o o ^ H 377.6 222.5 174.1 46.7 1.7 146.4 134.4 99.8 34.6 12.0 8.7 343.8 1.1.0 280.8 16.1 10.6 15.4 en o» 00 00 en Cn 00 <-l — i •» «Ovm Or» •» on SCON — O O 1 O O en en cm.- ** — ~ oo en r. >e o -» r» ^ -tf ooo«inn nino 1 ch oo cm r. en m o — en so oo en en on Wv 1 en t rJ Oooo-i r. -o oo — > en -< en _ en — O en cm n m cm en oo r» en -» -< -i © o d d en i/> *o* so vfi «n ff» co tfl >fl co— cm — o •* en in en o o E O —«r> n -Nin enen en r^ en en cm en o cm ~ 1 o f» P» en on en m cm o cm oo « -» en CM CD en en -> — CM -« 00 00 o en e en -»o en — en >o en r>n ao O r- en cm cm <» rs 1 -* r- ao mm -o» — — i oo o m -o o _ _4 <0 M -I d d — -oiian .or S- + 41 3 C 41 > at 41 c 41 (J s e S 1 5 So a >. n u m J3 41 C w u O 3 hi a e u e B -" a. o -j u oi c n o> 3 u .= e > U4IU-H • • W C J U W " 13 3!5 3 >> eaviu OH u u 1 i i + . -o 4i c it e 1 41 — 41 C a. W a. U X 3 X 41 U O W O u — X 00 C ej w 41 1- -1 — 41 u u a. -h £ c 3 n u u — O O 3 O 41 c ■o V JO V ■a c V 3 ■ a «f e ■H 41 J H l b C 2 2 X "° ■ v u "9 11.166 37 percent. The sources of revenues for these increases are evident from the exhibit. State aid to Newark increased from $30.1 million, or 20 per- cent of total revenues, in FY 1967, to a level of $174.1 million, or 46 percent of total revenues, in FY 1976. Federal grants also increased dramatically during this period from $1.4 million, or less than one per- cent of total revenues, to $46.7 million, or 12 percent of total revenues. Own-source revenues increased by only 31 percent during the FY 1967 to FY 1976 period. Property tax revenues in current dollars were almost identical for each of the ten years, ranging between $95 million and $101 million. These increases were not sufficient to keep up with inflation. However, intergovernmental transfers were increasing at a rate consider- ably faster than the inflation rate. Capital expenditures as a percentage of total expenditures have amounted to between 4 and 6 percent during the past six years. These capital expenditures are extremely low compared to other cities, new or old, suggesting possibly that unfilled capital "needs" are growing. Current expenditures, or expenditures for operating purposes, are an over- whelming portion of total expenditures for the city. 7.2.3 City Government Structure/Responsibility for Public Works Activities The city of Newark operates under a Mayor-Council form of government. One of the departments in the city, the Department of Public Works, is responsible for streets, bridges, sewage collection system, and water supply and distribution. However, the city's own water supply system (the Pequannock Watershed) does not have the capacity to serve all of its customers. Therefore, the city and six other municipalities own another water supply facility, the Wanaque-Ramapo facility. The city owns 40.5 percent of the Wanaque facility and is entitled to 40.5 percent of the available water during the year. This water supply facility is managed by the North Jersey Water Supply Commission. Additionally, the city purchases water from a private firm, the Elizabethtown Water Company, to supplement the other two supply sources. This firm supplies less than 10 percent of Newark's consumption and is not analyzed in this study. Although the city has responsibility for sewage collection, three regional authorities are responsible for sewage treatment. The Passaic Valley Sewerage Commission serves all of Newark except for the west part of the city. This regional authority was established by the state in 1902 and serves 29 municipalities. The Essex-Union Joint Meeting is another regional wastewater treatment authority which serves ten munic- ipalities. This treatment facility serves a large portion of Newark. The third regional authority, Second Joint Meeting, serves seven munic- ipalities including a very small portion of northern Newark. 11.167 Mass transportation is provided by a private transportation company owned by Public Service Electric and Gas Company. This company, Trans- port of New Jersey (TNJ) , is responsible for providing mass transit to the state. The Newark area is the largest district served by TNJ, accounting for approximately 40 percent of TNJ's total service.! 7.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock Conventional wisdom suggests that older cities — particularly those with stable or declining populations — should invest more of their resources in maintenance and replacement of existing facilities than in new capital outlays. Newark, an older, industrial city, should be expected to illustrate this tendency through increased maintenance expenditures and low levels of capital outlays. But the city's expendi- tures for maintenance on streets, the sewage collection system, and the water system have declined in constant dollars (Exhibit 7.4), especially in the last ten years. However, Newark's contributions for maintenance purposes to the regional water and sewer systems (also indicated in Exhibit 7.4) increased in recent years. In some functional areas, the decline in maintenance expenditures is dramatic. For example, maintenance expendi- tures on streets actually declined in current dollars during the FY 1957 to FY 1977 period. In constant dollars, maintenance outlays decreased by FY 1977 to less than one-fourth of the FY 1957 level. While the bridge data indicates no expenditures, some maintenance, such as painting, is performed occasionally and appears under the heading of street mainte- nance. But total maintenance expenditures for bridges are miniscule. Capital expenditures in current dollars for streets and bridges have been erratic, declining and rising with no discernible trend (Exhibit 7.5). And even in the years of highest spending, the levels of these outlays are not very large. Capital expenditures on sewage treatment facilities reflect requirements for secondary treatments. These summary tables do not relate expenditures to the condition of the capital stock. To develop insights into this and related issues, we have prepared a summary of the most relevant findings of the Newark case study (Exhibit 7.6). The condition of the bridges is deteriorating rapidly. The fair to poor condition of the streets and declining mainte- nance activity reinforce the view that the city's infrastructure is deter- iorating. In per capita terms, maintenance expenditures have declined from $5.37 (1972 dollars) in FY 1957 to $1.55 in FY 1977, despite the fact that population has been falling. Capital expenditures per capita began to increase in FY 1977 to comparatively high levels, reflecting renewed emphasis on street resurfacing and reconstruction programs, with a large portion of these capital outlays relying_on Federal grants. Because TNJ provides service to the entire state and because it is a privately-owned company, revenue and expenditure data were not available at a relevant level, i.e., at the Newark level. Therefore, mass transit is excluded from the discussion that follows. 11.168 4-1 tn C X> Cfl c u 01 CO BJ c 3 o U X. 4-1 Ti C Cfl ^s h 4-1 to c 3 OJ cu 1-1 55 u c u •H c co •H C O CO •H 0) 4-1 >J 3 c 4-1 3 •H f* T3 C XI 01 aO r-000 Off>® 4 < s£J C* *£> O O ^rr^iAt^O^f-nOO-J'O i 00 O CT* O f> n vorsncONO . — sO fl o ^o^f^ 1 "" , o o cr> — » cooo — sO fl O CO lAO-MOD-OOOM^ i o « o o o oo oo 2 § — C 3 -< ci ci at a M e u ai - i I i .-Is S 22 S . 3 — 41 C >• X o U. uj en u. 11.169 ct) u 01 C 3 01 o 4-1 x: en 4-J C v_ ' o U M u T) 01 c 5 oi 0) SB 4-1 C C 0) M U en c u o T> o c 0) cu i— l a 0) X en. W (-1 rH D 01 4-1 h a h 03 u Pn I M OOOOOOOOOOOOO » -r> O r- O i/> — • OOOOOOvOOOOOOO r- l~ *o O O NO ^J o o o • o>ou->o>oaN — a>oo o as o w* o* O* O O ' \ONfflO*-" NO»oON-sjNn -• ^ o O < ^omi-ovsoooa^m -i r- o <-i . in cOr-ir-^c-t-^flr^u-ir-i^TvOaNi •a c a o e a 3 3 E «, O I- o> c c m £ S OOr^oi^-O aoOfMr- 11.170 ■ ■« *S 5" Us ■o <2 2 £ «•£ *3 0> ON c Capital expendlturea are combined with the city's capital expenditures on th« water systea 48. ez (FY 1957-FY 1977) 65. IX (FY 1968-FY 1972) o > 01 o o •o u 60. 8Z (FY 1957-FY 1977) 66. 2Z (FY 1968-FY 1977) On O 1 01 3 ■a u s-a rt 01 • o. a <0 --n c on o — (J w »» .* O r» o o> — o 00 vO 1- lA O o o O -• m o O O O iO 01 3 0.-1 o C 01 01 c ON o -• (J w -SO- IOffi0» 1 ON ON ON ON ££££ £S££ £ 5 £ S ssii e 01 3 o> — o o i»n<4 r. O — O cs IM — jS*? »^>oo o o o o o o o o o o o d O 1 01 Q -1 C 3 a t* o I •o 01 X J § § 0) z X £■ tJ c •o « (J •a e • c a -i -o it -H -o e e e w a-o a o -h o UUOCCBBO.C -■ c ee o o « -h o is § n .-< c e -rf CL-O O -* 1J a o —tJ •* u u o c n oi -o o oi -i -< it o J.SS !Sr • o o 13 o O t. o o c 01 S 01 1 .1 8. «0»t( „ 5 f. 5 » S * < z < u — o 01 w 3 n«n u ^ O 01 3 !"■ W it 01 oi u c — oo a o ~< u ™ c on u u U o w ^ it c < z *» e C 01 01 c cr ■ a« e oi u. as 01 M >. > X I ! n e e oi u c e M CI e " -1 c |i « c c 5 •o e 00 M .5 5 c c a 3 5513 o 3 1 1 ^ - i c -a 1 1 U J< » C E ~ i oo o H — n. o 3 u s 1 g- . :? 1! § 5u Bo o -I « -o " d -h oi Sg Z d w '5 a h • • O C «; O v. — 01-1 u -0 ° 3 I ss oi 3 c -or i- o. i-i oi a op o u u « O. U (J 01 U B S, » -I I- o( iss w . J -I TJ a -lu c • i S2 =>- s « i a as.* I .if III o? j;s |g * I S Jg 1 J • i a. u 3 u x -o ■O 01 3 -I B CO) 01 O 01 3 -C K -3 B C * uS5?lIS2 - - e 01 1- •< ^ c ooi *3i J t-c cs-cuz >Di;>Z ,/, eiO 01 it 1-01 W-OE c 7. - 01 Z V C 3 . 11.171 Federal grants for sewer system capital outlays have also been significant. Despite this, observation of the collection system suggests a„ poor overall condition, resulting in part from declining maintenance activities. The Passaic Valley treatment plant is currently very old and deteriorating. However, upon completion of the new secondary plant, the old one .will be discontinued, thus eliminating the current poor rating. The city's water system organization has performed relatively well in terms of maintenance activities, with the result that the condition of the reservoirs and plant is good. The distribution and transmission system is only in fair to poor condition due to lesser emphasis on this portion of the water system. Maintenance expenditures per capita have remained at fairly constant levels in constant dollar terms. The regional water treatment system is in much the same condition as the city's facil- ities and a stable trend in maintenance expenditures is observed. The city relies on tax revenues for its operating budget. A declin- ing tax base, high unemployment, and other factors that are considered to be fiscal strain measures are quite evident in Newark. The result is that insufficient revenues are raised. Even the city-owned water system, which is intended to be self-supporting through user charges, has recently turned to the city to cover its deficit. However, because of the city's legal obligation to contribute a certain amount to the regional sewage treatment authorities and to the regional water authority, these regional authorities have much less difficulty in increasing own-source revenues in order to cover higher operating and capital costs than does the city's water system. 7.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 7.4.1 Water and Sewer Systems 7.4.1.1 Maintenance Expenditures and Revenues Newark owns and operates its own water treatment and distribution system. However, a portion of the water is treated by a regional author- ity. The data reported for the regional and local water systems could not be disaggregated into a maintenance and an operating component. Therefore, what is presented combines operation and maintenance and is not comparable to the maintenance outlays of the other case studies. Exhibit 7.7 presents a 21-year history of operations and maintenance expenditures on Newark's own system. The FY 1968 had abnormally high expenditures. For the FY 1957 to FY 1977 period, operations and main- tenance expenditures increased at a 5.7 percent average annual rate, a figure lower than the rate of inflation. 11.172 Exhibit 7.7: City Water System Maintenance Expenditures Rate of Fiscal Maintenance Expense Annual Change Inflation^ Year 2 (thousands of dollars) (percent) (percent) 1957 1,323 — 1958 1,513 +14.4 + 3.3 1959 1,446 - 4.4 + 8.1 1960 1,389 - 3.9 + 3.0 1961 1,521 + 9.5 + 7.2 1962 1,552 + 2.0 + 4.1 1963 1,773 +14.2 + 5.2 1964 2,073 +16.9 + 4.9 1965 2,128 + 2.7 + 9.4 1966 2,219 + 4.3 + 3.2 1967 2,297 + 3.5 + 5.2 1968 4,955 +115.7 + 7.9 1969 3,242 -34.6 + 6.4 1970 2,471 -23.8 +12.1 1971 2,598 + 5.1 +17.7 1972 2,847 + 9.6 + 5.2 1973 3,030 + 6.4. + 5.6 1974 3,543 +16.9 + 5.3 1975 3,714 + 4.8 + 7.3 1976 3,660 - 1.5 + 7.8 1977 4,042 +10.4 + 4.8 Average Annual Rate of Change (FY 1968-FY 1977) - 2.3 + 3.5 (FY 1957-FY 1977) + 5.7 + 6.6 Includes operation and maintenance of water system. 2 FY 1957-FY 1977 ended December 31. 3 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.173 Newark's contribution to the regional authority's operations and maintenance of the treatment plant has increased at a rate almost double the inflation rate between FY 1968 and FY 1977 (Exhibit 7.8). However, Newark's contribution to the regional authority has been slightly less than the inflation rate for the longer 21-year period. The city's con- tributions to the regional authority have increased at a faster rate than the rate of increase for operations and maintenance on its own water sys- tem. This anomaly is partly explained by the fact that Newark is legally obligated to pay a fixed percentage of the regional authority's total costs. A summary table (Exhibit 7.9) shows the total operations and maintenance expenditures to which the city has contributed. Maintenance expenditures on the city-owned sewage collection system are presented in Exhibit 7.10. The average annual rate of increase is almost one-half the inflation rate for the FY 1957 to FY 1977 period. This figure decreases to one-third the inflation rate between FY 1968 and FY 1977. Maintenance expenditures by the city on the sewage collec- tion system, then, have decreased at a significant rate in real dollars. Maintenance of the sewage treatment plants, which are owned by three regional authorities, have increased at a much faster rate than inflation (Exhibit 7.11). The average annual rates of increase for maintenance expenditures were 9.7 percent for FY 1957 to FY 1977 and 15.2 percent between FY 1968 and FY 1977 compared to inflation rates of 6.6 percent and 3.5 percent, respectively. A conclusion similar to that for the water system emerges. That is, the city's contribution to the regional sewer treatment plants' maintenance activities have increased at a con- siderably faster rate than maintenance expenditure increases on its own sewage collection system. This anomaly is partly explained by the fact that the city must pay the regional authorities for treating its waste- water. These expenditures cannot be decreased unless usage declines. A composite summary table (Exhibit 7.12) aggregates maintenance expendi- tures on the collection system and the city's contribution of maintenance expenditures to the three regional sewer authorities. 7.4.1.2 Capital Expenditures and Revenue Sources The city of Newark has contributed little to the capital outlays of the regional water authority during the last 21-year period. Exhibit 7.13. therefore, presents capital expenditures for the city-owned water system.! Most capital outlays are for replacement and renovation of the existing system. For this reason, capital expenditures are fairly low. More than 95 percent of total revenues for water system capital out- lays between FY 1957 and FY 1977 were derived from bond issuances. Less than 3 percent of total expenditures were derived from Federal sources. Dependence on Federal grants for capital projects is minimal. Two minor capital outlays in FY 1961 and FY 1977 were for the regional authority's water system, not for the city's. 11.174 Exhibit 7.8: Regional Authority's Water System Maintenance Expenditures (Newark's contribution only)* Rate of . Fiscal Maintenance Expense Annual Change Inflation' Year2 (thousands of dollars) (percent) (percent) 1957 369 — — 1958 11 -97.0 + 3.3 1959 413 +3,654.5 + 8.1 1960 438 + 6.1 + 3.0 1961 442 + 0.9 + 7.2 1962 451 + 2.0 + 4.1 1963 1 ,550 +243.7 + 5.2 1964 521 -66.4 + 4.9 1965 553 + 6.1 + 9.4 1966 604 + 9.2 + 3.2 1967 641 + 6.1 + 5.2 1968 696 + 8.6 + 7.9 1969 496 -28.7 + 6.4 1970 743 +49.8 +12.1 1971 855 +15.1 +17.7 1972 889 + 4.0 + 5.2 1973 947 + 6.5 + 5.6 1974 989 + 4.4 + 5.3 1975 1 ,124 +13.7 + 7.3 1976 1 ,115 - 0.8 + 7.8 1977 1 ,271 +14.0 + 4.8 Average Annua! . Rate of Change (FY 1968 -FY 1977) + 6.9 + 3.5 (FY 1957 -FY 1977) + 6.4 + 6.6 Includes operation and maintenance of water system. 2 FY 1957-FY 1977 ended December 31. 3 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.175 Exhibit 7.9: Water System Maintenance Expenditures (City plus Regional Authority) Fiscal Maintenance Expense Year^ (thousands of dollars) 1957 1,692 1958 1,524 1959 1,859 1960 1,827 1961 1,963 1962 2,003 1963 2,325 1964 2,594 1965 2,681 1966 2,823 1967 2,938 1968 5,651 1969 3,738 1970 3,214 1971 3,453 1972 3,736 1973 3,977 1974 4,532 1975 4,838 1976 4,775 1977 5,313 Average Annual Rate of Change (FY 1968-FY 1977) (FY 1957-FY 1977) Rate of Annual Change Inflation 3 (percent) (percent) - 9.9 + 3.3 +22.0 + 8.1 - 1.7 + 3.0 + 7.4 + 7.2 + 2.0 + 4.1 +16.1 + 5.2 +11.6 + 4.9 + 3.4 + 9.4 + 5.3 + 3.2 + 4.1 + 5.2 +92.3 + 7.9 -33.9 + 6.4 -14.0 +12.1 + 7.4 +17.7 + 8.2 + 5.2 + 6.5 + 5.6 +14.0 + 5.3 + 6.8 + 7.3 - 1.3 + 7.8 +11.3 + 4.8 - 0.7 + 3.5 + 5.9 + 6.6 Includes operation and maintenance of water system. 2 FY 1957-FY 1977 ended December 31. 3 Measured by the Skilled Labor Index of Engineering News-Record Cost Index in 22 Cities, March 1978, p. 74. Because Newark was "«♦■ included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.176 Exhibit 7.10: Sewage Collection Maintenance Expenditures Rate of Fiscal Maintenance Expense Annual Change Inflation^ Year 1 (thousands of dollars) (percent) (percent) 1957 293 — — 1958 328 +11.9 + 3.3 1959 295 -10.1 + 8.1 1960 289 - 2.0 + 3.0 1961 306 + 5.9 + 7.2 1962 349 +14.1 + 4.1 1963 426 +22.1 + 5.2 1964 411 - 3.5 + 4.9 1965 421 + 2.4 + 9.4 1966 495 +17.6 + 3.2 1967 801 +61.8 + 5.2 1968 562 -29.8 + 7.9 1969 670 +19.2 + 6.4 1970 689 + 2.8 +12.1 1971 797 +15.7 +17.7 1972 798 + 0.1 + 5.2 1973 761 - 4.6 + 5.6 1974 991 +30.2 + 5.3 1975 893 - 9.9 + 7.3 1976 533 -40.3 + 7.8 1977 624 +17.1 + 4.8 Average Annua] . Rate of Change (FY 1968-FY 1977) + 1.2 + 3.5 (FY 1957-FY 1977) + 3.8 + 6.6 L FY 1957-FY 1977 ended December 31. 2 Measured in the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.177 Exhibit 7.11: Regional Authorities' Sewage Treatment Maintenance Expenditures Rate of Fiscal Maintenance Expense Annual Change Inflation 2 Yearl (thousands of dollars) (percent) (percent) 1957 630 1958 785 +24.6 + 3.3 1959 697 -11.2 + 8.1 1960 850 +22.0 + 3.0 1961 856 + 0.7 + 7.2 1962 872 + 1.9 + 4.1 1963 923 + 5.8 + 5.2 1964 801 -13.2 + 4.9 1965 701 -12.5 + 9.4 1966 914 +30.4 + 3.2 1967 961 + 5.1 + 5.2 1968 1,120 +16.5 + 7.9 1969 1,226 + 9.5 + 6.4 1970 1,048 -14.5 +12.1 1971 1,346 +28.4 +17.7 1972 1,225 - 9.0 + 5.2 1973 1,619 +32.2 + 5.6 1974 1,836 +13.4 + 5.3 1975 2,712 +47.7 + 7.3 1976 2,809 + 3.6 + 7.8 1977 4,015 +42.9 + 4.8 Average Annual Rate of Chang e (FY 1968-FY 1977) +15.2 + 3.5 (FY 1957-FY 1977) + 9.7 + 6.6 L FY 1957-FY 1977 ended December 31. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Index in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of- the City of Newark. 11.178 Exhibit 7.12: Sewer System Maintenance Expenditures (City System plus Regional Authorities) Rate of Fiscal Maintenance Expense Annual Change Inf lation^ Yearl (thousands of dollars) (percent) (percent) 1957 923 1958 1,113 +20.6 + 3.3 1959 992 -10.9 + 8.1 1960 1,139 +14.8 + 3.0 1961 1,162 + 2.0 + 7.2 1962 1,221 + 5.1 + 4.1 1963 1,349 +10.5 + 5.2 1964 1,212 -10.2 + 4.9 1965 1,122 - 7.4 + 9.4 1966 1,409 +25.6 + 3.2 1967 1,762 +25.1 + 5.2 1968 1,682 - 4.5 + 7.9 1969 1,896 +12.7 + 6.4 1970 1,737 - 8.4 +12.1 1971 2,143 +23.4 +17.7 1972 2,023 - 5.6 + 5.2 1973 2,380 +17.6 + 5.6 1974 2,827 +18.8 + 5.3 1975 3,605 +27.5 + 7.3 1976 3,342 - 7.3 + 7.8 1977 4,639 +38.8 + 4.8 Average Annual Rate of Change (FY 1968-FY 1977) + 12.0 + 3.5 (FY 1957-FY 1977) + 8.4 + 6.6 FY 1957-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.179 Exhibit 7.13: Water System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Own-Source Year 1 Revenues Bonds 1957 157.2 2,087.8 1958 133.4 2,089.6 1959 0.0 5,156.0 1960 0.0 550.0 1961 0.0 225.0 1962 0.0 240.0 1963 0.0 105.0 1964 0.0 380.0 1965 0.0 3,850.9 1966 0.0 602.0 1967 0.0 891.0 1968 0.0 1,212.6 1969 0.0 309.0 1970 0.0 276.4 1971 0.0 0.0 1972 0.0 328.0 1973 0.0 371.0 1974 0.0 231.0 1975 0.0 732.6 1976 0.0 749.0 1977 0.0 293.0 Total 290.6 20,679.9 State Federal Total 0.0 0.0 2,245 0.0 0.0 2,223 0.0 0.0 5,156 0.0 0.0 550 225 0.0 0.0 0.0 0.0 240 0.0 0.0 105 0.0 20.0 400 0.0 119.1 3,970 0.0 0.0 602 0.0 0.0 891 197.4 0.0 1,410 0.0 0.0 309 0.0 5.6 282 0.0 405.0 405 0.0 0.0 328 0.0 0.0 371 0.0 0.0 231 7.4 0.0 740 0.0 0.0 749 293 0.0 0.0 204.8 549.7 21,725 *FY 1957-FY 1977 ended December 31. 2 These capital outlays were Newark's contributions to the regional authority. In FY 1961, the entire $225,000 was spent by Newark for the regional authority; in FY 1977, $290,000 of the $293,000 total was spent by Newark for the regional authority. Source: Annual Audits of the City of Newark. 11.180 The opposite is the case for the sewer system. Almost one-half of total capital expenditures have been financed from Federal grants between FY 1957 and FY 1977 (Exhibit 7.1A). Between FY 1968 and FY 1977, Federal grants amounted to almost two-thirds of total capital expenditures. Large Federal contributions received by the sewer system authorities were pri- marily for secondary treatment facilities mandated by P.L. 92-500. Exhibit 7.14 is a combination of total capital outlays for Newark's sewage collection system and for Newark's contributions to the regional authorities' treatment plant facilities. It should be noted that the FY 1977 capital expenditure figure is for the collection system only. Data on capital outlays for the treatment facilities were not available. 7.4.1.3 Condition of the Water and Sewer Systems The Pequannock Watershed, located approximately 25 miles northwest of Newark, is totally owned by the city of Newark. Its five reservoirs have the capacity to store 14.3 billion gallons of surface runoff from the 63.7 square mile watershed. Four of the Pequannock's five raw water storage reservoirs are formed by earth dams. One reservoir has a concrete dam. These reservoirs and dams are in very good condition and the stored raw water is high quality, because of the high level of maintenance and environmental control provided throughout the entire watershed. The present water treatment plant was built in 1950-1951. Because of the preventive maintenance program, the plant is in excellent condition. However, the water from the plant does not meet EPA Primary Drinking Water Standards for iron, manganese, and turbidity. A new 100 mgd treatment plant is under construction (by court order) and should be completed by 1981. This plant is designed to meet existing Federal and state standards for drinking water. Treated water leaves the plant in a 28-mile long aqueduct, consisting of twin 48-inch diameter concrete-lined, steel pipes. These pipes are about 100 years old. Cathodic protection has not been provided. The condition of the interior surfaces is not known, except at points where the pipe has had to be exposed for repairs or special maintenance. Con- crete linings were applied inside these pipes in the 1940 's and 1950' s. The inside bottom half of the pipe has begun to deteriorate. There is no plan for correction, relining, or replacement of the pipes because funds are not available. A 1971 survey of portions of the steel trans- mission pipeline indicated that the older pipes in the transmission sys- tem have deteriorated and need work. Deterioration is a result of the age of the pipes (100 years) and the lack of preventive maintenance. The Wanaque-Ramapo water supply facilities, located east of the Pequannock Watershed, are owned jointly by six local municipalities. Finished water is pumped into a transmission line, then to the Wanaque Aqueduct Balancing Reservoir and various storage reservoirs and towers located in the vicinity of the water distribution systems. 11.181 Exhibit 7.14: Sewer System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Own-Source Year* Revenues Bonds State Federal Total 1957 182.3 3.7 0.0 0.0 186 1958 197.2 120.8 0.0 0.0 318 1959 193.5 64.5 0.0 0.0 258 1960 205.3 148.7 0.0 0.0 354 1961 204.9 2.1 0.0 0.0 207 1962 435.2 177.8 0.0 0.0 613 1963 449.9 202.1 0.0 0.0 652 1964 436.8 627.2 0.0 56.0 1,120 1965 407.0 7,570.2 0.0 162.8 8,140 1966 433.0 3,102.9 0.0 72.2 3,608 1967 446.8 1,286.6 0.0 53.6 1,787 1968 0.0 1,438.5 582.3 1,404.3 3,425 1969 910.4 607.0 1,138.1 4,931.6 7,587 1970 642.7 1,285.5 780.5 1,882.3 4,591 1971 703.4 664.4 664.4 1,875.8 3,908 1972 580.4 58.0 812.6 4,353.0 5,804 1973 535.0 160.5 749.0 3,905.5 5,350 1974 508.8 373.1 237.4 2,272.6 3,392 1975 604.0 862.9 690.3 6,471.8 8,629 1976 624.9 555.4 555.4 5,207.3 6,943, 1977 16.0 0.0 0.0 0.0 16' Total 8,717.5 19,311.9 6,210.0 32,648.8 66,888 FY 1957-FY 1977 ended December 31 Local sewage collection only. No data were available on Newark's contribution to regional authorities. Source: Annual Audits of the City of Newark. 11.182 Newark's city-owned water distribution system is very old, having been constructed in the mid- to late-1800's and early 1900' s. Almost all pipes are cast iron, and were installed prior to the upgrading of water pipe standards by the American Water Works Association (AWWA) , which call for concrete linings in cast iron and steel pipes. About 75 percent of Newark's distribution pipelines needs cleaning and lining to improve water pressure, turbidity, and color during peak-flow periods. The problems of tuberculation are particularly severe in 6-inch and 8- inch diameter cast iron mains, of which Newark has many miles. Generally speaking, the condition of the Newark sewer system is poor and the trend is "downhill." Most of the serious problems relate to cave- ins of the old brick combined sewers. Apparently there are few pipe restrictions in the collection system. Flooding from excess sewage flows are frequent. But because of the age of the sewers in Newark, the sewer system is in need of immediate attention. Inflow and infiltration is a serious problem for the Passaic Valley Sewerage Commission which treats most of the city of Newark's wastewater. An inflow and infiltra- tion study conducted by a consulting engineering firm in 1974-1976 surveyed approximately 73 percent of the area of the city of Newark. Based upon measurements made in this study, it was determined that the average flow in the system is approximately 57.2 million gallons per day (mgd) . It was also concluded that there was approximately 19.8 mgd of excess flow in the system in the form of infiltration. The total cost of treating this quantity of clean water (following completion of the new treatment facility) is estimated to be $4.95 million per year — equivalent to a capitalized cost of approximately $52.4 million. In accordance with the Federal guidelines, "inflow" was determined only in the areas served by separate sewers using various flow measurement techniques during extremely wet weather. Total inflow was found to be 4.8 million gallons per day. This is much smaller than the amount of estimated infiltration. Wastewater from the city of Newark is treated by three special regional agencies, the Passaic Valley Sewerage Commission, the Essex- Union Joint Meeting, and the Second Joint Meeting. The interceptor sewer of the PVSC dates back to the early 1920' s. It consists of 21 miles of main interceptor and 13 miles of branch interceptor. The interceptor sewer suffered two major failures, one of which occurred in 1969 and the other in 1971. Careful inspection of a three and a half mile segment of the main interceptor sewer was made in 1972 and 1973. Although there was evidence of deterioration, the structural integrity of the sewer is satisfactory. One of the problems of the PVSC in connection with its interceptor sewer is that the old brick sewers of the city of Newark collapse occasionally and collect in the interceptor sewer causing blockages. Because the Second Joint Meeting handles only a small part of Newark's wastewater, information was not collected on this regional treatment facility. 11.183 The PVSC regards infiltration and inflow into their interceptor sewers as a major problem. A study made by the PVSC shows that a major part of this infiltration comes from the city of Newark. Accordingly, the PVSC plans to notify all cities participating in their system that contribute wastewater flows to make corrections of their collector sewers to eliminate at least 50 percent of the inflow and infiltration. Because these collection systems are owned by the individual cities, PVSC can only request these cities to take action but they cannot require them to take the necessary actions. The existing primary treatment plant operated by the PVSC is essen- tially a series of settling basins. On one occasion, approximately 40 percent of the settling basins were out of service. Lack of proper maintenance was at least one cause. Due to increased maintenance activ- ities since then, no more than ten percent are currently out of service at a given time. The Essex-Union Joint Meeting operates a 100 mgd treatment plant which provides secondary treatment. The city of Newark is responsible for about 15 percent of the flow to this plant. The condition of the recently constructed facility is good. 7.4.2 Streets and Bridges 7.4.2.1 Maintenance Expenditures and Revenues Maintenance expenditures for bridges and streets are declining in current dollars. In fact, the city has spent little money for maintain- ing its bridges since at least 1957, the beginning year of this study. The decrease in street maintenance expenditures amounts to an average annual rate decrease of 0.7 percent for the FT 1957 to FY 1977 period (Exhibit 7.15). The cost of maintenance, however, has increased (inflated) at a rate of 6.6 percent per annum. Own-source funds available for street maintenance activities have had to compete with demands from other departments. The result has been that maintenance activities in general and street maintenance in partic- ular are losing ground. Street maintenance is also financed with addi- tional funds from the state's Motor Vehicle Tax. Some of the revenues from this fund are used as well for other activities of the city. Until FY 1969, approximately one-fourth to one-third of all street maintenance was financed through the Motor Vehicle Fund. But since FY 1970 through FY 1977 this has dipped to an average of approximately one-tenth of total maintenance expenditures. 7.4.2.2 Capital Expenditures and Revenue Sources Apart from Federal grants which were spent on capital outlays for streets, street capital expenditures have not been significant (Exhibit 7.16). Approximately 61 percent of total capital expenditures on streets were financed through Federal sources. Most of the Federal 11.184 Exhibit 7.15: Street Maintenance Outlays Rate of Fiscal Maintenance Expense Annual Change Inflation 2 Year 1 (thousands of dollars) (percent) (percent) 1957 825 — 1958 941 +14.1 + 3.3 1959 845 -10.2 + 8.1 1960 726 -14.1 + 3.0 1961 741 + 2.1 + 7.2 1962 960 +29.6 + 4.1 1963 660 -31.3 + 5.2 1964 945 +43.2 + 4.9 1965 750 -20.6 + 9.4 1966 770 + 2.7 + 3.2 1967 987 +28.2 + 5.2 1968 1,088 +10.2 + 7.9 1969 1,206 +10.8 + 6.4 1970 932 -22.7 +12.1 1971 800 -14.2 +17.7 1972 790 - 1.3 + 5.2 1973 • 717 - 9.2 + 5.6 1974 907 +26.5 + 5.3 1975 738 -18.6 + 7.3 1976 804 + 8.9 + 7.8 1977 712 -11.4 + 4.8 Average Annua! Rate of Change (FY 1968-FY 1977) - 4.8 + 3.5 (FY 1957-FY 1977) - 0.7 + 6.6 FY 1957-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Because Newark was not included, New York's indexes were used as surrogates. — = Not applicable. Source: Annual Audits of the City of Newark. 11.185 Exhibit 7.16 Capital Expenditures for Streets By Revenue Source (thousands of dollars) Yearl Bonds Federal Total 1957 1.0 0.0 1 1958 343.0 0.0 343 1959 60.0 0.0 60 1960 6.0 0.0 6 1961 285.0 0.0 285 1962 0.0 0.0 1963 156.0 0.0 156 1964 0.0 29.0 29 1965 52.9 45.1 98 1966 115.7 125.3 241 1967 49.5 49.5 99 1968 225.0 75.0 300 1969 937.5 312.5 1,250 1970 498.0 1 ,992.0 2,490 1971 217.6 326.4 544 1972 24.3 7.7 32 1973 6.2 198.8 205 1974 250.8 2 ,257.2 2,508 1975 193.0 0.0 193 1976 599.9 45.1 645 1977 479.8 1 ,519.2 1,999 Total 4,501.2 6 ,982.8 11,484 FY 1957-FY 1977 ended December 31. Source: Annual Audits of the City of Newark, 11.186 revenues were derived from urban renewal funds and local public works programs. These outlays are not sufficient to meet the needs of the city. City officials estimate that approximately $200 million are needed to resurface and reconstruct the city's streets. Much of this need is a result of relatively low maintenance and capital expenditures in the past. Capital expenditures for bridges have been very low (Exhibit 7.17). Only $1.6 million were spent on the city's bridges during the 21-year period, and the entire sum was derived through bond issuances. All of these bridge capital outlays were made since FY 1970. There still is a backlog of bridge capital needs. 7.4.2.3 Condition of Streets and Bridges The city has approximately 400 miles of streets. Of this amount, approximately 57 miles are arterials, 38 miles are collector streets, and 305 miles are local streets serving both residential and indus- trial areas. Newark does not have a formal street rating system but overall con- dition assessments are made on the "usability" of the streets. The city engineering department estimates that about 90 percent of all streets in Newark are in fair or poor condition. They define poor street conditions as extremely difficult to drive and in need of reconstruction, and fair street condition as streets in need of major repairs including removal of sections of the surface and light resurfacing. Streets in good con- dition were defined as driveable and "not too bumpy." Information obtained in interviews indicates that Newark's streets were steadily ' deteriorating in the period from 1957 through 1977. The most rapid deterioration took place in the period 1970 through 1974. Since that time, because of better street maintenance, street deterioration has slowed down. The Division of Streets and Sidewalks has responsibility for pro- viding maintenance services for 32 bridges. Of these, eight support streets over railroad tracks, and 24 support streets over cross streets. There are few records and no inventory of city bridges. There are a total of about 60 bridges in existence in Newark. Some of these are the responsibility of the State of New Jersey and Essex County. From a practical standpoint, no bridge maintenance has been pro- vided during the past 21 years. Since 1970, bridges have deteriorated badly. Concrete bridge structures have deteriorated more than the struc- tural steel bridges. This is evidenced by cracks, spalled concrete, and exposed steel reinforcements. Concrete bridge decks show signs of deterioration. However, this is kept to a minimum by restricting salting operations on bridge decks. Manual labor is used for ice removal according to the Division of Streets and Sidewalks. 11.187 Exhibit 7.17: Capital Expenditures for Bridges By Revenue Source (thousands of dollars) Fiscal Year Bonds Total 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 6 47 327 406 56 326 404 25 6 47 327 406 56 326 404 25 Total 1,597 1,597 FY 1957-FY 1977 ended December 31. Source: Annual Audits of the City of Newark. II. 1. 7.5 Analysis and Conclusions 7.5.1 Effects of Federal Grants-in-Aid Reliance on Federal grants by Newark is among the highest, if not the highest, of all United States cities. On a per capita basis, Newark planned to receive over $223 in Federal FY 1978 from anti-recessionary fiscal assistance (ARFA) , CETA, and Local Public Works programs.* This allocation per capita is the highest of any large city and significantly higher than the next highest, Buffalo, which was to receive $155 per capita. The projected effect of eliminating these three economic stim- ulus programs is that the property tax would have to increase substan- tially — $25.80 per $1,000 of fair market value (FMV) — in order to maintain the same levels of service. Buffalo, the second most impacted city, would have to increase its property taxes $15.60 per $1,000 FMV. Estimates for FY 1978 suggest that ARFA, CETA, and LPW funds comprise almost ten percent of total operating revenue for the city of Newark. 2 Newark's capital outlays are becoming increasingly dependent on Federal aid. Because of EPA secondary treatment requirements, the regional authorities have had to spend additional monies for secondary treatment plants. This program has probably been mildly stimulative for these regional authorities in that they would not likely have spent these additional monies without the local matching requirements. Federal grants for streets have not been stimulative because much of the capital outlays has been financed by LPW or other non-matching grants. The withdrawal of Federal funds would almost certainly lead only to reduced levels of total capital outlays. Indeed, a high-ranking Newark public official suggested that Federal grants for capital outlays were just about the only funds available for capital projects; that basic- ally Federal programs constituted the city's capital program. If CETA and ARFA were eliminated, it is estimated that almost one- third of the city's work force would be laid off. And without LPW funds, almost three-fourths of capital projects would not be realized. 3 i n general, cutbacks in Federal programs would decimate the city's work force and its capital improvement programs. Newark is highly dependent on Federal aid, not only for capital programs but also for its day-to-day survival. U. S. Department of Treasury, Office of State and Local Finance, "Report on the Fiscal Impact of the Economic Stimulus Package on 48 Large Urban Governments," January 23, 1978, p. 64. 2 Ibid., p. 75. 3 Ibid ., pp. 75, 80, and 81. 11.189 7.5.2 Revenue-Generating Capacity of the City In order to raise sufficient revenues to cover annual expenses, the city relies on several revenue-generating mechanisms. Two of the more significant revenue sources are the property tax and the payroll tax. In 1976, the tax rate for the city on property was $58.80 per $1,000 of assessed valuation. The resulting rate of $58.80 per $1,000 for Newark was the highest property tax rate of all nine cities examined in this study. This tax rate represents a twofold increase over the 1973 rate. When combined with the school and the county tax rates, Newark prop- erty owners pay $100 per $1,000 in assessed valuation in property tax. This high rate would become less meaningful if the assessed valuation were low. Assessed valuation for Newark and Essex County is intended to be 100 percent of fair market value. This was reflected in Exhibit 2.13 earlier which compared property tax rates on a fair market basis for the nine cities. Normally, once the assessed value falls below 80 percent of fair market value, revaluation of the entire county is supposed to commence. The last revaluation was in 1957. The city of Newark esti- mated that revaluation would increase assessed valuation by $300 million. Although this process would result in a significant increase in property tax revenues to the city, officials would, in all likelihood, not be willing to increase the already heavy burden on its residents. An employer payroll tax is authorized by state legislation and cannot be changed by any city. The state legislation calls for taxes of 1 percent to be levied on every payroll of $2,500 or more per quarter. It is levied on employers based on the location of the firm, not on the place of residence of the employees. This tax has generated approximately $11-12 million annually since its passage in 1972. How- ever, the city cannot unilaterally raise the levy unless it is approved by the state. The payroll tax thus cannot be regarded as a mechanism the city may use to increase revenues. Changes in property tax revenues over the past ten years have been minimal primarily because valuation has remained stable. But as tax rates increase, as they have done in Newark, one would expect revenues to increase. This has not happened in Newark. One reason is that the number of residential, commercial, industrial, and apartment properties upon which property taxes are levied have declined by over 10 percent between 1970 and 1976. 1 This phenomenon is important in understanding why own-source revenues are difficult to raise. Furthermore, the prop- erty tax base is small because over 68 percent of the city's land is tax exempt (owned by other governments) . City of Newark, Official Bond Offering Statement , December 15, 1976, p. 45. 11.190 Declining economic activity, a drastically shrinking revenue base, low per capita income, and high unemployment impinge on the capacity of the city to increase its own-source revenues. If service provided by the city is to be maintained, own-source revenues would not generate sufficient funds for these city services. The primary method by which service can be maintained is for state and Federal revenues to make up the difference. Internally generated revenues cannot be relied upon. 7.5.3 Some Implications The degree of difficulty in raising own-source revenues and the increasing reliance on Federal grants are characteristic of Newark. The need to maintain the existing capital stock is increasing due to deferral of maintenance in the past. The result of a declining revenue base and mounting maintenance needs is that the condition of the capital stock is deteriorating at an alarming rate. Bridge, street, sewage col- lection, and water system maintenance have all declined noticeably, although water system maintenance expenditures have not declined at the high rate of the other functional areas. The regional sewer and water authorities are not suffering from deferred maintenance as much as the city of Newark due, in part, to the legal obligations of the regional authorities' member cities. The obligation of the city to its own functional areas is constrained much more than its obligations to the regional authorities. The city is constrained by the need to balance its budget even if own-source revenues are declining and the likelihood for increased revenues is remote. The result has been that the condition of Newark's capital stock is, in gen- eral, poor. Maintenance has been deferred for many years and is at a very critical juncture at this time; if revenues are not increased, the situation can only worsen. And the socioeconomic variables (employment, income, population) that affect the revenue-generating Capacity of the city are moving in a direction that is detrimental to the city's public finances. 11.191 8.0 NEW ORLEANS, LOUISIANA 8.1 Introduction and Summary of Findings 8.1.1 Introduction New Orleans, an older city in the West South Central Region, lost 11 percent of its population between 1960 and 1977, and currently has over half a million residents. The city is responsible for streets, bridges, and water and sewer services, while a private company, New Orleans Public Service, Inc., owns the mass transit system. New Orleans has a low per capita income compared with the national average (88.1 per- cent of the national average in 1974), a declining revenue base, and the lowest property tax rate among the nine cities observed. 8.1.2 Summary of Findings Our study of the condition of urban infrastructure in the city of New Orleans resulted in the following conclusions: • New Orleans' capacity to increase own-source revenues is poor. In addition to low income, a high poverty rate and an unwillingness of the residents to have their extremely low property tax rates increased has placed city in a fiscal straight jacket. Increasingly, the city has turned to Federal and state sources to provide services to the residents. Intergovernmental aid now amounts to almost 40 percent of the city's total revenues. • The condition of the streets and bridges is poor to fair. A decline in maintenance expenditures over the study period has resulted in the deteriorating condition of the city's bridges and streets. Also, streets are resurfaced infrequently; prior to 1977, only four to five miles of 1,600 miles of city streets were resurfaced annually, imply- ing a maintenance cycle of over 300 years. • Water and sewer systems are in fair to good condition. Even though constant dollar maintenance expenditures have declined slightly since FY 1967 for the water and sewer systems, they are in fairly good condition. Constant or increasing levels of capital outlays and more efficient use of available resources have contributed to the good condition assessment. • Mass transit is in poor to fair condition, but improving. Recent UMTA grants have modernized the very old bus and trolley fleet. This aged fleet was in poor condition, but is being improved with the aid of Federal funds. 11.192 8.2 City Description 8.2.1 Population and Employment Trends New Orleans exhibits some characteristics of a declining city (Exhibit 8.1). The population of the city decreased from 627,000 in 1960 to 561,000 in 1977, a decrease of 11 percent. At the same time, the New Orleans SMSA has increased from 907,000 to 1,133,000, an increase of 25 percent. The unemployment rate and the per capita income for the city have been similar to those for the SMSA. However, the industrial mix of the city has demonstrated declines in manufacturing, wholesale and retail trade employment, with a significant increase in other service sector employment (Exhibit 8.2). The SMSA experienced increased employ- ment in all four selected sectors between 1958 and 1972. Industry flight to the suburbs has paralleled the population shift. 8.2.2 Total Revenues and Expenditures for the City Rapid and dramatic changes in expenditures and in the composition of revenue sources are apparent from Exhibit 8.3. Whereas expenditures in current dollars increased moderately from FY 1959 to FY 1969, a notice- able surge in expenditures commenced around FY 1970; over the next six years, it increased by 108 percent. These increases were financed pri- marily through a 396 percent increase in intergovernmental revenues, an increase of $80 million. Further analysis of the FY 1970 to FY 1976 period reveals that the major share of that increase is attributable to grants-in-aid from the Federal government, a change from $4.4 million to $65.3 million, or 1,384 percent. These grants currently comprise more than one-four/th of the city's revenues. Revenues derived from own sources (taxes and charges) increased only 53 percent from FY 1970 to FY 1976, less than one-half of the city's general revenue increases. Exhibit 8.3 also indicates that, since FY 1964, capital expenditures have remained relatively stable in current dollars, declining as a proportion of total expenditures from 27 percent in FY 1964 to 15 percent in FY 1976, but with significant fluctuation. With regard to current problems, an analysis of the Capital Improve- ment Program for 1979 * suggests that, because of limited revenues, few new capital projects will be initiated. Federal monies are available for selected projects, but some of the larger Federal matching grants (e.g., Federal Aid Urban Systems program for street resurfacing and reconstruction) may not be obtained because the city may well be unable to raise the required revenues for matching programs. From all indica- tions, it will be difficult to generate sufficient revenues for the few capital projects that are planned in the Capital Improvement Program. "Capital Improvement Program, New Orleans, Louisiana, 1979-1983," Recommended and Adopted by the City Planning Commission, September 1978, 11.193 Exhibit 8.1: Population, Employment and Income Characteristics of New Orleans 1960 1970 1975 1977 SMSA City 907,123 627,525 1,046,470 593,471 1,094,423 559,770 1,133,100 561,200 Per Capita Income SMSA City $ 1,718(1959) $ 1,739(1959) $ 2,797(1969) $ 2,705(1969) $ 4,190(1974) $ 4,029(1974) NA NA Unemployment Rate SMSA City 5.3% 5.6% 5.0% 5.8% NA NA 8.7% 8.2% Civilian Labor Force Employed SMSA City 302,793 223,779 368,261 208,787 NA NA 441,500 NA Exhibit 8.2: Employment by Sector in New Orleans 1958 1963 1967 1972 Manufacturing Employment SMSA City 34,023 29,281 49,051 31,054 55,500 33,800 54,600 28,700 Wholesale Employment SMSA City 22,661 20,006 23,284 19,115 27,083 20,728 28,181 17,683 Retail Employment SMSA City 44,781 38,425 43,444 32,998 53,496 37,704 60,955 34,552 Selected Services Employment SMSA City 20,821 18,904 21,702 17,880 28,351 23,366 39,429 29,149 NA - Data not available. Sources for Exhibits 8.1 and 8.2: U.S. Department of Commerce, Bureau of the Census, County and City Data Book (various years); 1977 figures are derived from City of New Orleans, Official Bond Offering Statement , December 1, 1977. 1977 population figures are derived from U.S. Department of Commerce, Bureau of the Census, Current Population Reports , "Federal-State Cooperative Program for Population Estimates: Estimates of the Population of Louisiana Parishes and Metropolitan Areas, July 1, 1976 (revised) and 1977 (provisional)," Series P-26, No 77-18, July 1978. 11.194 ON 99.5 U.7 12.1 2.1 0.5 78.1 50.1 23.0 27.1 28.0 6.7 CM CM -» !*> ■» O CS O 00 CM SO SO ,o en vO SO os 00 r~Os»»«* OS—— ©00 CM oi — — so-tcm cm cm cm cm on en r~ — J © o* p« eo n d d sO m cm — so m o» ffl soso oo — m— en o OsOOOIOOO so co — — m en cm — cm en o O r- so os rJ o O •« I* •» oo m cm OS < Z CM in CO Os en sO O — «o rt OS sO O OOsOO n-J »fl 1 NOO so m o — •* — os OS Z sO SO OS — CMClvO-T -^r* NH CM 00 — O O © Z CM m 1 sO 00 SO Os o so O so ^O so o m — so en •o -» — O <: Z en NO OS en en O O <-l cmo o os m m o O - 1 rx r» < Z en o 10 OS t lO Os-9 — -» in «r> ° "^ ""1 O o cm in O -T oo o o -» — Z so OS O IOCM O en CM— — O sO .» — o — © z o -» 1 -o c-» m vO — — m — — — m o so so m co os d CJ PC >- = El 3 c > BS e s • 3 c 41 > v o) oo «j >> a u u X 41 e w oi u a j o e u- c E — a o «) u 0) e <» oi ooj=c > I. «l 1. 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The Board has the sole responsibility for approving and selling general obligation bonds, revenue bonds, and limited tax bonds (for the Sewerage and Water Board) , and special tax bonds issued by spe- cial improvement districts and the Audubon Park Commission. In most instances, no such bonds may be sold without the approval of three-fourths of the members of the nine-person board. 1 The Board annually determines the amount of ad valorem tax millage (dedicated to debt service) necessary to be levied and collected by the city in the next fiscal year for the payment of principal and interest on outstanding general obligation bonds and on those to be issued during the current year. The authority vested in the Board is considerable in that it has both the power to issue bonds and determine the amount of ad valorem millage. The millage recommended by the Board is approved and levied by the City Council. Even the rates for water and sewer services which are set by the Sewerage and Water Board must be concurred with by the Board of Liquidation and City Council. Two of the 13 seats on the Sewerage and Water Board are occupied by Board of Liquidation members. Thus, the Board plays a prominent role in over- seeing and managing the city's debt. Four of the five functional areas that are examined herein are part of the city government. The Department of Streets has jurisdiction over streets and bridges and is a regular department of the city. The Sewerage and Water Board (SWB) , a quasi-independent board of the city, has exclu- sive control over the construction, maintenance, and operation of the sewage, water, and drainage systems of the city. The SWB is a separate entity receiving its revenues from water and sewage rates. However, even though it operates relatively independently of the city government (i.e., it has independent control of the administration of its activities and finances), the City Council and Board of Liquidation must approve bond issuances and rate increases. 2 Mass transit is provided by a publicly-regulated, private utility, New Orleans Public Service, Inc. (NOPSI) . NOPSI provides electricity, gas, and public transportation to the city of New Orleans. Under a cross-subsidy program, a certain percentage of the profits that NOPSI earns from its gas and electric utilities is transferred to the mass The Mayor and the two Councilmen-at-large occupy three seats. The other six members, referred to as syndicate members, originally were appointed by the Governor, Lieutenant Governor, and Speaker of the House in 1880; vacancies are now filled by the remaining syndicate members. 2 The SWB must unilaterally increase rates to produce revenues (excluding operation and maintenance costs) at least equal to 130 per- cent of the maximum amount required in any calendar year for interest, principal, and sinking fund payments on all outstanding bonds. 11.197 transit utility. Until 1978, NOPSI has been able to cross-subsidize its mass transit operations. However, currently NOPSI cannot generate suffi- cient profits from the gas and electric utilities for cross-subsidization purposes. The city has agreed to subsidize transit services with an annualized 8.33 percent rate of return on its transit rate base. This Subsidy and Indemnity Agreement has been operational since 1977, and the city expects to subsidize mass transit operations for the first time in 1979. 3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock It was suggested earlier that the decline in capital outlays rela- tive to total expenditures may reflect limited revenue sources. This decline also may be due in part to the fact that older cities like New Orleans have already constructed much of their infrastructure. However, government requirements for secondary treatment of sewage and for drinking water quality standards, and renewed interest in mass transportation have made it imperative that cities and special districts providing these ser- vices increase capital outlays. In general, however, one might expect the city's emphasis to have shifted to maintaining the existing capital stock. 1 This section analyzes maintenance expenditures and their relation to total capital outlays and the conditions of the capital stock. Exhibits 8.4 and 8.5 present the current and constant dollar expend- itures on maintenance and on capital outlays for the FY 1967 to FY 1977 period by the five selected functional areas. Maintenance expenditures in constant dollars have decreased, with the exception of mass transit, over the period analyzed. A discernible trend for capital outlays is more difficult to ascertain. Capital outlays for sewers have reflected requirements for secondary treatment for publicly owned treatment plants following passage of the Federal Water Pollution Control Act Amendments (P.L. 92-500). These outlays for secondary treatment will begin to taper off soon and should return to a level reflecting replacement needs. The water system also has required capital investments as part of its normal replacement program, although considerably less than for sewers. Capital outlays for streets have generally declined since FY 1967, except for a few significant increases, most notably in FY 1977. The very large appropriation2 for FY 1977 reflects a significant increase See, e.g., George Peterson, "Finance," in William Gorham and Nathan Glazer, eds., The Urban Predicament , Washington, D.C., The Urban Institute, 1976, pp. 35-118. 2 Actual expenditures were unobtainable. Revised annual appropriations are used as a surrogate for actual expenditures for streets and bridges only. 11.198 ■ c o (VI c «J 4-1 SO c O o NA NA NA NA NA NA 3.548.3 3,625.8 3,081.8 3,426.5 3,730.3 H oo 5 c 3 \C O O* CO CM r-! — • en — < oo «£«£<<< < \0 u"l -* CO u"> Z Z Z Z Z z oo co <* eo in en .* n •» u-i on H co oo O l"» <<<:<< < < oo r* r- vo z z z z z z z c u 3 o o o o o o o o <<<<< < < © o o o ZZZZZZZ — -'-'-' tn o> 01 u CM e aj co c o u —i ao m o c~ oo -J m oo m3 ^Ouoo0i~»aoorvooa> — ■ co z— ■ 0> «-< CM CO -J O 00 -» CO CM--CMCMCMCMCMCMCOCO u 01 3 0> oo CM C 0) • 4J 01 c o o ro co co co 00C0M3Ov0CO-<-^-*M3O «3-r^coocooou3-3"OOM3 -H00u0CO00l-»CM*TCO CMCMCOCOCMCMCOOOO-* c hi u 3 CO CO CO CO vor«t?>M3copoefo\cMr» » r~ 00 vO ^«3-CO-HCMvOOOOCOincO •CCO-i-MOm^vOO© — < UO *J" .M ~h' -< — i ^^^CMCMCM « 0) rsOOONO-HCMcO-j'uovor^ vovOM3r-.r-«r-^r-.r~r-.r~r~ ** £ u. 11.199 r^ co rH C ^ (0 CO ■u 3 S£ 4J 4-1 CO ^ C O CO ° 3 T3 CU C H «u 4J S t C CO •*§ CO «H CU 4J )-i o •H Pm g-8 Mf u c to u ev- o o o o o < -e> — O o c> en © d o d © CO en d © d CM co Ov o u c CO CM o 03 c <5 u o «a> «» H •o n lA lA 01 09 in JJ r* o o o © © r>» Ov o o o 3 £ c 41 en © O d d d _I o o d d CO oo m «a> s u cm CM °1 3 en «» 09 41 »*• •w C O en O 09 * o M O 3 09 s •H u c o O o © o © © © o © O i a> 41 d IA © o d d d d d d d 0> •o U IA CM U1 fl •H o 3 CJ c s to •o 4» u y 41 41 41 h CO u eo r-» Ov en o r^ vO r. r> u-> © H Sj c to vO en vO vO >» d J vO O J vO 01 ce O CO Ov -a- CO lA CM to U) CM ia Ov n CM r«. Ov Ov 5 CO S) c o CM O en vO CO CM lA en CM ^ 41 m u 41 ij -0 •o 1) a e V a) M k u >, CO i-l vO 00 "■; CM ■*: ^ O *"| CM O r~ t O u c CO ia CM en O vO CM -J 4) O o r». r-~ r^ -3 CO CO C/3 O sr Ov ia en vO 00 CM ov oo u u >v c 3 00 CO CM vO CO en vO «» -» CO o C 41 00 < ■o 3 03 CO a u •o u CO 01 as CO so c lA ia IA CO CO vO CM Ov O 1 M © ia *°. en Ov O 00 f^ CO 0) 4-1 -C Cw 3 CM ci -a- CO en VO CM CM lA y 41 h 3 41 t/i CM Z •H 3 CX 00 J3 a c 3 4) 4) o. T3 E IJ 4J c o u u 3 CJ r» CO 3 C 01 T3 -T •» o CM 00 J CM O en vO © 0) c 4> 00 en o ia 00 00 Ov O vO C -» vO oo en eo © CM vO •W > 00 O c 5 CM en r» en CO en r«. •» Ov >. w is CM en C 11 11 41 01 JJ u u CO > J3 rv e en 0) in U c u u a u m «h CO en m 00 vO o 2 u 3 £ O ov o en CM ov en o u v CM CM CM CM en CM CM CM to CM XI o •o a Ov Ov w u C o *"• - T) 3 o CO ia en © CO © esi u u 3 u tn CO B r~ en © en lA vO lA co 60 OO CI O OV o> en CM CM c > c o CO u z) D. u u a. o CO u. U> bu u. u M en -3 lA C5 U U S CO OV o fN en U-l vO U) o vO vO vO Ov Ov Ov Ov Ov OS ov ov OV o> "- 11.200 in the Federal role: approximately $13 million of those current dollar expenditures are from Federal sources. This figure is almost 40 percent of all Federal grants for streets for the 11-year period. The above summary tables do not relate expenditures to the condition of the capital stock. To develop insights into this and related issues, we have prepared a summary of the most relevant findings of this case study (Exhibit 8.6). In general, the sewer system is faring the best compared to the other functional areas in terms of both maintenance expenditures and capital outlays. Total constant dollar maintenance expenditures decreased slightly between FY 1967 and FY 1977. Per capita expenditures remained relatively stable because population was declining. Maintenance activity (in terms of repair frequency) has been fairly con- stant as well. However, as the system expands through new capital outlays to meet Federal standards, we would expect maintenance expenditures to increase. Such a trend has not yet emerged, but it is difficult to con- clude whether or not this implies deferred maintenance. Maintenance and some capital expenditures for sewers are financed through fees and charges. Because these fees are determined by a rate that can change to meet increasing costs (with the approval of the Sewerage and Water Board, Board of Liquidation, and City Council), it is not difficult to increase own-source revenues, although not all rate increase recommendations are passed by City Council. While the operating budget receives virtually all of its funds from fees and charges, capital outlays are less dependent on own-source revenues. The revenue source for the majority of sewer capital outlays has been the Federal government. The number of repairs of the water system has decreased and the system is in fair to good condition. Revenues for water maintenance activities, like those for sewer maintenance, are derived from fees and charges. No discernible trend in capital outlays is apparent between FY 1967 and FY 1977. It should be noted that the water system received almost no Federal grants for capital outlays and was financed through fees and charges and revenue bonds. Streets have increasingly become a problem area for the city. Main- tenance activities are financed through the city's General Fund or, for large enough projects,, they are contracted out and financed through other sources. The decline in maintenance expenditures in constant dollars has been noted above (Exhibit 8.4). This decline has been partly responsible, in our judgment, for the deterioration in the physical condition of the city's streets. In addition to this reflection on the physical condition, it is useful to analyze "implicit" replacement cycles.! In 1977, 19 miles Implicit replacement cycles indicate the rate at which a system is being replaced. If a system's useful life is 20 years, one would expect (given a smooth historical trend in expenditures) that about 5 percent of the system would be replaced each year. Of course, actual cycles would reflect the average age of the stock, the lumpiness of most investment and other factors. 11.201 d O 01 o c ■H lis a. (1) en 5 c > M 4-1 O U-I a en 0) ■H u jj a •H u TJ •H C -o d u cu y_| X o w fr H i 4J •H i a w u -<3 I «C c e -< C o J) II -o re a o oi c £ 3 c c •- £-1 Is 2 " p " 2 t! 5 - S 1 11.202 3 o. *-i a 5 g • o. n • ■ ti a uk • 3 & i n o u ■ I n ti c • > « v ■3 3- 5 *! 1 1% 5 2| o u a -< c si 3 T> "O < C 5 S^ 1 " of street were resurfaced (of 1,600 miles in the city) which implies a resurfacing cycle of 84 years. In fact, only four to five miles had been resurfaced annually prior to 1977, implying a replacement cycle of over 300 years. Two considerations need to be mentioned with regard to capital out- lays. First, a large Federal contribution to street capital outlays was realized in FY 1977. It is not certain that this substantial outlay will continue indefinitely in the future. Secondly, and more importantly, these per capita figures do not indicate increased or decreased use of streets. It might be posited that, because of the expanding employment and population base for the SMSA, the use of the city's streets has increased, even on a per capita basis. Furthermore, since the popula- tion base for the city has declined, less revenues are derived from the remaining taxpayers to maintain, resurface, or reconstruct city streets. City taxpayers appear unwilling to increase taxes on property, and since taxes on income and sales are at their constitutional limits, increases in own-source revenues are unlikely. These factors, we believe, have led to deteriorating conditions in city streets; in fact, the Director of Streets estimates that $350-$400 million are needed immediately for street resurfacing and reconstruction. Bridges receive even less attention than streets. Maintenance is performed by one five-man crew, and it does not appear to be sufficient to halt the declining condition of the city's bridges. In fact, more than one-fifth of the 30 bridges are structurally deficient and one bridge is closed. Capital outlays have been practically non-existent over the last 11 years. There has been no Federal aid for the minimal outlays that were made. Maintenance expenditures, in constant dollars, for mass transit have increased in the last several years more than for the other functional areas. The primary reason is that Federal participation through UMTA Section 5 (discretionary funds) provides operating monies to mass transit. Because of the Section 5 program, the condition of the buses and trolleys is poor but improving. The fleet is relatively old. However, in 1974, UMTA Section 3 (capital subsidies) provided capital to purchase 108 new buses to improve the average age and overall condition of the fleet. Ridership has declined and fare-box receipts have not kept pace with increasing costs. As a means to finance its operations, fare-box revenues are not sufficient and are somewhat difficult to raise. Federal aid through UMTA has increased and is the main financing mechanism for capital outlays. 11.203 8.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 8.4.1 Water and Sewer Systems 8.4.1.1 Maintenance Expenditures and Revenues The Sewerage and Water Board (SWB) provides drinking water in New Orleans through a distribution network that does not extend beyond the city limits, and it provides sewage collection and treatment for the city. Expenditure levels, in current dollars, for maintenance of the water system are presented in Exhibit 8.7. The water maintenance expend- itures for the FY 1967 to FY 1977 period have increased at a rate lower than the cost index and have declined relative to other operating costs due partly to improved maintenance methods. From FY 1967 to FY 1973, maintenance outlays grew at an average annual rate of 2.5 percent. In the last four years, the rate of growth in spending has trebled, to an average of 8.3 percent per year. The greatest increase in mainten- ance spending occurred in the most recent year — a growth of 17.5 percent. However, maintenance outlays are a declining portion of total operation and maintenance (O&M) expenses. In FY 1969, 28 percent of all O&M expenses were maintenance related, and in FY 1977, the figure had fallen to 18.3 percent. Maintenance expenditures for the sewer system have increased at an average annual rate of 9.5 percent between FY 1973 and FY 1977, and by 11.9 percent between FY 1967 and FY 1973 (Exhibit 8.8). The early period increases have more than kept up with the rate of inflation, while the FY 1973 through FY 1977 increase has not. The source of revenue for both water and sewer operating and main- tenance expenditures are fees and charges for use of the systems. The fees and charges for water consumption are placed in the Water System Fund. Fees and charges for use of the sewer system are deposited in the Sewer System Fund. 8.4.1.2 Capital Expenditures and Revenue Sources Whereas maintenance expenditures are financed through the revenue derived from fees and charges (the Water System Fund) , capital expendi- tures have a variety of revenue sources (Exhibit 8.9). However, more than one-half of total capital outlays for the FY 1967 through FY 1977 period have been financed from the Water Sytem Fund with less than $5 million (or 18 percent) being derived from bonds (Water Revenue Bond Fund) . The amount of money that has been contributed by Federal and state sources (the Revenue Capital Fund) is quite small, amounting to a total of slightly less than $600,000 over the 11-year period. 11.204 Exhibit 8.7: Water System Maintenance Expenditures Fiscal Yearl 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Maintenance Expense (thousands of dollars) 1,414.2 1,340.3 1,437.4 1,617.8 1,528.6 1,469.2 1,638.4 1,994.0 2,037.5 2,158.9 2,536.8 Average Annual Rate of Change (FY 1967-FY 1973) (FY 1974-FY 1977) Maintenance Expense Rate of Annual Change as Percent Inflation 2 (percent) of Total O&M (percent) NA - 5.2 NA +12.5 + 7.2 28.0 + 9.4 +12.6 NA + 4.7 - 5.5 28.8 + 9.7 - 3.9 25.3 + 8.8 +11.5 26.0 + 8.8 27.8 +10.3 + 2.2 24.5 + 5.7 + 6.0 24.2 +10.8 +17.5 18.3 + 6.2 + 2.5 + 9.0 + 8.3 +10.6 L FY 1967-FY 1977 ended December 31. FY 1967-FY 1973 and FY 1974-FY 1977 figures are shown separately because, beginning in FY 1974, a new system of accounts was adopted, making comparisons difficult between the two periods. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. NA = Data not available. — = Not applicable. Source: Annual Reports , Sewerage and Water Board of New Orleans, 1967-1973; Black and Veatch, Report on Operations for 1977, Sewerage and Water Board of New Orleans. 11.205 Exhibit 8.8: Sewer System Maintenance Expenditures Fiscal Year J 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Maintenance Expense (thousands of dollars) 789.6 939.7 1,074.9 1,167.6 1,153.3 1,238.2 1,520.9 1,288.9 1,295.9 1,467.2 1,692.7 Average Annual Rate of Change (FY 1967-FY 1973) (FY 1974-FY 1977) Maintenance Expense Rate of Annual Change as Percent Inf lation^ (percent) of Total O&M (percent) NA +17.7 NA +12.5 +14.4 NA + 9.4 + 8.6 NA + 4.7 - 1.2 NA + 9.7 + 7.4 NA + 8.8 +22.0 36.1 + 8.8 — 27.6 +10.3 + 0.5 23.6 + 5.7 +13.2 25.0 +10.8 +15.4 24.4 + 6.2 +11.9 + 9.0 + 9.5 +10.6 X FY 1967-FY 1977 ended December 31. FY 1967-FY 1973 and FY 1974-FY 1977 figures are shown separately because, beginning in FY 1974, a new system of accounts was adopted, making comparisons difficult between the two periods. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. NA = Data not available. — = Not applicable. Source: Annual Reports , Sewerage and Water Board of New Orleans, 1967-1973; Black and Veatch, Report on Operations for 1977, Sewerage and Water Board of New Orleans. 11.206 Exhibit 8.9: Water System: Eleven Year Summary of Capital Expenditures by Revenue Source (dollars) Fiscal Year 1 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 WSF 907,186 1,711,543 2,373,294 1,166,374 876,139 2,339,528 2,052,711 2,712,345 1,426,063 2,141,099 2,572,011 CEF 572,916 285,634 612,301 WRB 285, 330 (TM) 18,830 604,492 796,012 658,597 363,646 399,366 2,074,247 73,113 RC 42,056 219,217 116,441 (30%) 131,921 (80%) 86,045 (85%) Total 1,807,488 1,711,543 2,373,294 1,690,055 2,092,982 3,135,540 2,827,749 3,075,991 1,825,429 4,348,167 2,731,170 11 Year Total 16,898,193 1,470,851 4,988,303 595,680 27,619,408 WSF CEF WRB RC TM Water System Fund (revenues derived mainly from fees and charges) Construction and Extension Fund (revenue from two mill ad valorem tax dedicated to extension and construction of water, sewerage and drainage systems) Water Revenue Bond Fund (revenues derived from water bond proceeds) Reserve Capital Fund (funds derived primarily from intergovernmental transfers) Two Mill Tax Bond Proceeds (primary for drainage) FY 1967-FY 1977 ended December 31. 2 The percentage figures within the parentheses correspond to the approxi- mate portion of Federal revenues. Source: Annual Reports , Sewerage and Water Board of New Orleans. 11.207 As with the water system, there are several revenue sources for sewer capital outlays. Since FY 1967, capital outlays remained rela- tively stable until FY 1973 when Federally mandated secondary treatment facilities were funded and constructed. More than $62 million were expended from FY 1973 to FY 1977, while only $19 million had been expended during the previous six years (Exhibit 8.10). The Reserve Capital Fund has contributed 63 percent of total revenues for capital outlays between FY 1967 and FY 1977. During construction of secondary treatment plants (1973-1977), the proportion reached 80 percent. Long- term bonds accounted for approximately 18 percent of the funds for the 11-year period, while fees and charges from the Sewer System Fund con- tributed 17 percent of total capital outlays. Since 1960, two-thirds of all sewer-related capital spending has been for treatment facilities (Exhibit 8.11). Since FY 1973, when EPA requirements and funding were available, treatment facilities have received over 84 percent of total capital outlays. 8.4.1.3 Condition of the Water and Sewer Systems Few water mains have been replaced in the transmission and distribu- tion network. However, the capacity of the system has increased. Since 1966, an average of 18.2 miles of water mains have been constructed annually, expanding total system mileage from 1,324 miles to its current total of 1,509 miles. Over the same period, an average of 0.7 miles of mains have been abandoned or removed each year. On a cumulative basis, since the system's beginning in the 1890' s, only 73 miles of main have been removed from service. It has not yet been necessary to replace a substantial portion of the system originally constructed. Until recently, the SWB summarized water system maintenance sta- tistics annually. Major repair activities are shown in Exhibit 8.12 for the period 1966-1972. More recent data are not available. During the 1966-1973 period, the number of water main repairs has been roughly constant, an average of 1,054 per year. However, the number of valve, hydrant, and service connection repairs each year declined during the same period, due to improved maintenance methods and materials and a reduction in land subsidence. The decline in repair activity is consistent with the slow growth (2.8 percent per year) in maintenance spending during the period. The Sewerage and Water Board's opinion is that the current condi- tion of the water transmission system is good. Some of the problems that cause main breaks are related to settlement of soils. This is related to the nature of the soils which, in this geographical area, expand and contract as soil moisture varies. One of the reasons that the pipelines are in good condition is that cathodic protection was installed years ago as a means of preventing or reducing corrosion of the pipelines. 11.208 Exhibit 8.10: Sewer System: Eleven Year Summary of Capital Expenditures By Revenue Source (dollars) SSF CEF SSRB RC Total 483,397 41,452 208,262 190, 703 (TM) 120,000 1,493,660 9,783 16,043 3,079,263 7,087,747 15,000(TM) 1,122,388 436,177 492,118 1,350,319 815,975 26,940,934 (100%) 83,655 1,424,087 14,161,221 (97%) 23,619 2,483,894 (80%) 1,272,090 5,233,915 (85%) 619,440 15,274,770 52,248,592 1967 560,546 483,397 41,452 208,262 1,484,411 190, 703 (TM) 1968 1,131,191 120,000 1,493,660 9,783 2,634,634 1969 601,677 16,043 3,079,263 3,800,940 1970 223,841 7,087,747 7,342,631 15,000(TM) 1971 299,738 1,122,388 436,177 1,858,303 1972 1,238,860 492,118 1,350,319 3,081,297 1973 425,739 815,975 26,940,934 28,182,648 1974 1,682,713 83,655 1,424,087 3,190,445 1975 3,552,439 14,161,221 17,713,660 (97%) 1976 1,669,261 23,619 2,483,894 4,206,774 (80%) 1977 3,154,074 1,272,090 5,233,915 9,660,079 11 Year Total 14,114,340 619,440 15,274,770 52,248,592 83,155,822 SSF - Sewer System Fund (revenues derived mainly from fees and charges) SSRB - Sewer Service Revenue Bond Fund (revenues derived from sewer bond charges) RC - Reserve Capital Fund (funds derived primary from intergovernmental transfers) CFF - Construction and Extension Fund (revenues derived from two mill ad valorem tax dedicated to construction and extension of water, sewerage and drain- age systems) TM - Two Mill Tax Bond Proceeds (primarily for drainage) *FY 1967-FY 1977 ended December 31. 2 The percentage figures within the parentheses correspond to the approximate portion of Federal revenues. . Source: Annual Reports , Sewerage and Water Board of New Orleans. 11.209 Exhibit 8.11 Sewer System Capital Expenditures (thousands of dollars) Fiscal Total Capital Power Projects Year 1 Expenditures 3,221.8 Treatment 0.0 Collection 3,112.4 and Other 1960 109.5 1961 3,258.1 0.0 3,092.3 165.8 1962 2,004.0 0.0 1,961.8 42.2 1963 2,417.4 1,335.2 1,028.1 54.1 1964 5,645.1 4,548.3 1,084.9 11.9 1965 1,079.6 269.1 790.6 19.8 1966 2,582.7 1,819.4 688.4 74.9 1967 1,484.4 187.8 517.0 799.6 1968 2,634.6 880.2 1,106.0 648.4 1969 3,800.9 724.2 2,387.1 689.6 1970 7,342.6 5,654.2 946.5 742.0 1971 1,858.3 212.6 769.3 876.4 1972 3,081.3 676.7 1,441.5 963.1 1973 28,182.6 26,414.8 825.0 942.7 1974 3,190.5 1,170.3 1,017.7 1 ,002.5 1975 17,713.7 16,284.5 349.4 1 ,079.8 1976 4,206.8 2,547.0 377.5 1 ,284.2 1977 9,660.1 7,008.9 1,352.5 1 ,298.7 FY 1960-FY 1977 ended December 31. Source: Annual Reports , Sewerage and Water Board of New Orleans; Black and Veatch, Report on Operations, (various years). 11.210 Exhibit .8.12: Water System Repair Activity, 1966-1972 Year Number of Water Main Repairs Number of Valve Repairs Number of Hydrant Repairs Se Number of rvice Repairs 1966 1,001 524 960 6,107 1967 989 540 1,084 6,392 1968 1,162 653 1,229 5,887 1969 1,141 338 1,225 5,896 1970 928 487 1,151 4,785 1971 1,042 453 1,155 4,591 1972 1,021 257 583 4,798 Source: Annual Reports , Sewerage and Water Board of New Orleans. 11.211 The Board enters into a contract annually with Pitometer Associates to conduct leak detection surveys. According to an article in Public Works Magazine in October 1978, a 1977 survey by Pitometer Associates of 204 miles of water pipeline revealed an average of 512 breaks per 1,000 miles of pipe. This sample represents 13 percent of the total miles of water pipe installed in New Orleans. This breakage rate is considered high compared to other cities. The Board does not conduct a regular ongoing pipeline maintenance program nor does it clean or line water pipes. The reason for this is that excessive tuberculation does not occur and water pressures have been maintained to provide water to the system. In its history, the Board has never had a cleaning and relining program and it does not plan to initiate one at the present time. One of the routine maintenance items at the water purification plants is the rebuilding of the sand filters. At the larger plant, 44 rapid sand filters are used for the final treatment of the water. One or two of these filters are rebuilt each year — at about 20 year intervals between rebuilding. At the Carrollton Plant, five pumps — all of them electrically powered — lift water from the Mississippi River to the water treatment plant. The principal problems at the intake stations are the deterior- ation of the manifold pipeline system and check valves. One of the three pipelines which bring river water to the pumps is a 72-inch steel pipe that is in need of maintenance. The pumps are of good quality, although old, and give very few problems in maintenance. By proper monitoring of the pump operation, maintenance is provided as is required, At the present time, the treated water meets EPA Interim Primary Drink- ing Water Regulations. New Orleans has separate storm and sanitary sewer systems with approximately 1,400 miles of sewer pipes. The original system was installed in the early 1900' s and is composed of several types of pipe including vitrified clay pipe, cast iron, reinforced concrete, and steel pipe. After 1973, records of the maintenance workload were changed and relevant and comparable data could not be obtained. From 1968 to 1973, the number of blocked sewer mains unchoked by SWB crews increased 53 percent (Exhibit 8.13). Sewer main and connection repairs showed no general upward or downward trend in the same period. Before 1971, SWB relaid about a mile of sewer pipe annually, but since that time there have apparently been few sewer replacements. An in-house report of inflow and infiltration shows that this is a serious problem. One of the major factors that has contributed to the high rate of inflow and infiltration into the sanitary sewer line is the manner and sequence in which the sanitary sewers and house con- nections were installed relative to installation of the storm sewers. In most cases, the sanitary sewers and storm sewers were constructed at the turn of the century. In some cases, storm sewers were installed 11.212 Exhibit 8.13: Sewer System Maintenance Activity, 1967-1973 Number of Number of Number of Feet of Year Main Repairs Mains Unchoked Connection Repairs Pipe Relaid 1967 216 NA 709 5,000 1968 187 1,064 664 7,200 1969 186 1,085 669 4,500 1970 210 1,196 714 4,100 1971 221 1,561 638 1972 203 1,566 618 100 1973 155 1,631 518 NA = Data not available. Source: Annual Reports , Sewerage and Water Board of New Orleans. 11.213 across the sanitary lines at a higher elevation many years later. Often the vertical distance between the sanitary sewers and the storm sewers was only a matter of inches. With opening of joints in the storm sewer system and changes in soil moisture and settlements and expansion of soil, leakage from the storm sewers into the sanitary sewers and house connec- tions is prevalent. Most of the old sanitary sewers have joints that were constructed of oakum and mortar. With expansion and settlement of the soils, the oakum has deteriorated, and over a period of time the pipe joints have opened up. Later, oakum and tar joints were used and, after that, the modern polyvinyl chloride joint materials came into use. These are used currently and have proved quite satisfactory in preventing leakage. For the most part, maintenance of the sewage collection system con- sists of correcting breaks and of failures. Replacement of sewer lines is dictated by obsolescence. High maintenance items at the four waste- water treatment plants include pumps, screens, and grit removal equipment, and furnaces (multi-hearth, vertical shaft) . The pumps require steady maintenance on a year to year basis as do the screens and grit removal equipment which are subject to severe friction. Refractory linings and the racks in the furnace require replacement at regular intervals. Until recently, the four treatment plants operated by the Board were capable of treating only 26 percent of the total sewage from the city of New Orleans, the balance having been discharged into the Mississippi River without treatment. An expansion and the current upgrading of the east bank plant in 1972 and the expansion of the west bank plant will cause all of New Orleans' sewage to be treated prior to discharge into the river. Generally, the condition of the collection and treatment systems is good, and repairs and maintenance are given high priority. 8.4.2 Streets and Bridges 8.4.2.1 Maintenance Expenditures and Revenues There are 1,600 miles of street within the city limits. Thirty- three miles of Interstate highway and 92 miles of other state roads are the maintenance responsibility of the State Office of Highways. The remaining mileage (which is the focus of our study) is under the juris- diction of the New Orleans Department of Streets. Street maintenance in New Orleans has suffered from budget cuts, which have reduced the number of street maintenance employees to 337 from 476 in 1974. The loss of maintenance employees because of General Fund budget cuts has been partially offset by CETA-funded employees assigned to street maintenance. In 1977, 97 CETA positions were assigned to the Streets Department. Currently, 42 CETA employees are working in the Streets Department and the remaining positions are unfilled. 11.214 The street maintenance budget is supported by the General Fund. State aid, indirectly, supports street maintenance. The General Fund receives receipts of state gasoline and vehicle taxes from the Parish Road Fund. These monies are used for street maintenance and capital projects. Streets Department officials believe that maintenance is under- funded. Street maintenance outlays have grown an average of 5 percent annually in the last ten years but have not kept up with inflation during those years, and there has been a substantial decline in the condition of the streets (Exhibit 8.14). The state of Louisiana is responsible for 206 bridges within the city limits. The city-responsibility bridges are generally smaller than the state-responsibility bridges, and they have been a minor maintenance and capital outlay burden to the city. Maintenance expenditures for bridges are part of the Street Maintenance Division budget, and they are not formally budgeted or accounted for as bridge expenditures per se. However, Streets Department officials estimate that only $100,000 per year has been spent on bridge maintenance by the city in recent years. 8.4.2.2 Resurfacing/Capital Outlays and Revenue Sources Resurfacing, reconstruction, and new construction of streets are contracted out to private firms. Because of the work being contracted out and because these are all regarded as capital projects, resurfacing projects could not be distinguished from reconstruction or new construc- tion projects. However, the Director of Streets suggested that approxi- mately $200,000 was spent annually on resurfacing until 1967. Since then, roughly $900,000 has been spent annually. In FY 1978, Community Development Block Grant funds were used for resurfacing for the first time, paying for $1.9 million in resurfacing contracts. 1 Resurfacing had not been a substantial element in total capital spending for streets until FY 1978, when the rate of spending doubled from the previous decade. In the next two years, an annual allocation of about $3 million is planned for resurfacing out of CDBG funds. It appears that a backlog of resurfacing needs has accumulated for many years, which currently is being reduced through newly available state and Federal funding sources. Capital outlays, which include resurfacing, are presented in sum- mary form in Exhibit 8.15. The predominant revenue source is Public Improvement Bonds which almost always include street projects. Federal aid has also been quite important, amounting to almost 38 percent of total capital oulays over the 11-year period. State aid has also con- tributed more than 7 percent of the total. Private individuals, Department of Street Records, "1978 Resurfacing Program." 11.215 Exhibit 8.14: Street Maintenance Outlays: Expenditures by the Street Maintenance Division, Department of Streets Fiscal Yearl Maintenance (thousands of Expense dollars) Annual Change (percent) Rate of Inf lation^ (percent) 1968 2,154.3 — — 1969 1,976.6 - 8.2 + 9.4 1970 2,171.8 + 9.9 + 4.7 1971 2,289.0 + 5.4 + 9.7 1972 2,377.7 + 3.9 + 8.8 1973 2,418.5 + 1.7 + 8.8 1974 2,940.5 +21.6 +10.3 1975 2,892.4 - 1.6 + 5.7 1976 3,410. 5 3 +17.9 +10.8 1977(Budget) 3.337.0 3 + 2.1 + 8.2 Average Annual Rate of Change (FY 1968-FY 1977) + 5.0 + 8.2 X FY 1968-FY 1977 ended December 31. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 74. Excludes expenditures for opening streets to maintain comparability with other years. Note: Maintenance Division expenditures do not include resurfacing. Also, the Division does no street cleaning. — = Not applicable Source: New Orleans Operating Budgets. 11.216 r^O-d-CTNOOOvO-H— ^-< -T 3- r~»coovor--.oo — 4 rt io ui fsoioniflm-*>tooNM vOONOmNOCNCN-d - OCT. <- —1 r^ ON ooooocNocro-moo Oor^-OOr^roin OCONhOONON m co <"o CN 00 o -<**** cn <• O m on ^ CM cor~-mocNcocomcN COCM [s N N fH rv CO M r^oooNO— icN00v3-mvor^ ON On On On On on on on On ON ON (-1 •H cu a) 4-1 00 x> 03 T3 £ 00 3 0) OJ PQ o C cu iH Q 4J CO c JJ T3 OJ •H <1J CO a -a OJ 03 c u U 0) ex cu U-i r^ M O r~- • ON CO CO CO _i OJ c 4J u o 0) £ 60 •H < XI a (^ H a CN m 0) CJ p M 03 3 CU o >> c/3 11.217 under the paving lien program, have contributed slightly more than the state has over this period. Prior to FY 1967, private citizens con- tributed a great deal to the paving program, amounting to more than $8.2 million between FY 1963 and FY 1967. 1 Capital outlays for bridges by the city for the 11-year period have been insignificant (Exhibit 8.16). When capital outlays for bridges are made, they are financed primarily through bond issuances. 8.4.2.3 Condition of Streets and Bridges The Division of Streets has been doing less of the major maintenance functions between 1972 and 1977 than in the previous five years (Exhibit 8.17). The main exception to this trend is in concrete roadway patching which has increased by 28 percent. The number of complaints received by the Department of Streets has been 44 percent greater in the last five years than in the previous five years (Exhibit 8.18). Of the 1,600 miles of streets in the city of New Orleans, 40 miles are unopened, 310 miles are classified as temporary surface streets, and the balance of 1,350 miles are paved from curb to curb. The quality of the subgrade in New Orleans is poor. The average elevation of streets is between 4-4^ feet below sea level. In portions of the city, the sub- grade is gumbo clay and peat. These conditions, combined with a high water table, contribute substantially to the deterioration of the streets in New Orleans. Estimates by one city official concerning the condition of the city streets is indicative of the streets' generally poor condition. This official claimed that 50 percent of the "temporary" streets cannot withstand the traffic for which they were designed. These streets are located principally in old residential areas. About 25 percent of the asphalt strip streets and 10 percent of the concrete streets and con- crete streets with asphalt wearing surfaces are unable to support design capacity traffic. A review of complaints received and corrections made for the two years 1977 and 1978 reveals that the predominant complaint concerns temporary surface streets. A review of the city's records for this period indicates that most of the complaints were acted upon and cor- rections made. However, as many as 30 percent of the complaints received in some categories were not corrected. This may have been the result of the inspector's recommendation or lack of funds. The condition of the streets is in fact worsening. Streets need to be repaired, resurfaced, reconstructed, and maintained. Yet shrinking revenues for these functions have added to the deteriorating conditions. Figures are derived from New Orleans City Planning Commission, New Orleans Capital Improvements, 1963-1972, 1973, p. 19. 11.218 Exhibit 8.16: Capital Expenditures for Bridges By Revenue Source (dollars) 1 Fiscal Miscellaneous Year2 Bonds Capital Fund 1967 1968 55,000 1969 1970 20,000 1971 1972 1973 1974 1975 1976 1977 150,000 Total 205,000 20,000 Bridge projects' expenditures may show up under street capital expendi- tures, if the streets that are being constructed or reconstructed have bridges somewhere within the area to be constructed. 2 FY 1967-FY 1977 ended December 31. Source: Worksheets of Capital Budget Officer based on revised annual appro- priations. 11.219 Exhibit 8.17: Street Maintenance Levels, New Orleans Department of Streets Asphalt Topping Laid (thousands of square yards) Surface Oiled (treatment of unimproved streets, in thous- ands of square yards) Curbing Reset (thousands of lineal feet) New Curb Built (thousands of lineal feet) Slurry Sealing (surface treat- ment for asphalt streets, in thousands of square yards) Sidewalk Poured (thousands of square yards) Pea Gravel Laid (on unimproved streets, in thousands of square yards) Cracks Filled (thousands of feet) Concrete Roadway Poured (thous- ands of square yards) Potholing (thousands of square yards) Average 1967-1972 248.0 1,137.0 Average Difference 1967-1972 (percent) 12.1 25.3 229.0 2.9 833.0 355.0 3.6 138.0 171.0 672.0 3.6 16.7 72.0 2.2 422.0 223.0 4.6 118.0 -31 -41 -70 -34 -69 -24 -49 -37 +28 -14 Does not include resurfacing; only smaller patching work. All resurfacing is performed by contract rather than Street Maintenance Staff. Source: New Orleans Operating Budgets 1970-1974, Departments of Streets Annual Reports , 1975-1976, Department of Streets Monthly Performance Reports, November 1973 and November 1974. In FY 1973 and FY 1974, available January -November figures projected to full year by multiplying by 12/11, an approximation which assumes the same level of activity in the missing month as the average for previous months. 11.220 Exhibit 8.18: Complaints Received and Responded To, New Orleans Department of Streets Average Average Difference 1968-1972 1973-1977 (percent) Complaints Received 5,492 7,930 +44 Complaints Completed 5,081 6,597 +30 Source: See sources for Exhibit 8.17. 11.221 It is likely that deferred maintenance will take its toll in the very near future. Increased CDBG funds and other Federal monies are helping but more funding is needed in order to upgrade the streets to acceptable standards. The condition of bridges is poor to fair. The city owns about 30 bridges varying between 20 feet to 40 feet in length. One of these is closed to traffic because of its deteriorated condition. Of the vehic- ular bridges owned by the city, approximately 14 are constructed of wood. The city also has about 38 wood pedestrian bridges. There are approxi- mately 19 bridges carrying railroad tracks over streets. The city par- ticipates with railroad companies in providing bridge maintenance and repairs. It appears that the city has no ongoing program on bridge maintenance. Only those bridges on which complaints are received or which are in dire need of maintenance and repairs are given attention. Most of the maintenance performed on concrete and steel bridges consists of painting. The city has one bridge maintenance crew consisting of a foreman, a driver, and four laborers. Most of the efforts of this crew is devoted to maintenance of bridge supports. The most recent survey of bridges in New Orleans indicates that 22 percent of the city's bridges are structurally deficient. Many of these are under state jurisdiction and therefore are not the responsibility of the city. The city of New Orleans spends approximately $100,000-150,000 annually on bridge maintenance. 8.4.3 Mass Transit 8.4.3.1 Maintenance Expenditures and Revenues Maintenance expenditures have been increasing over the last several years. Expenditures for maintenance activities increased from $3.9 million in FY 1973 to $5.6 million in FY 1977 and to $6.5 million in FY 1978 (Exhibit 8.19). 1 However, some of this increase must be attrib- uted to the expansion of the fleet that occurred in FY 1974 when 108 new buses were purchased, resulting in an increase in the fleet size by 23 percent. Prior to FY 1975, revenues for maintenance have been derived solely from fare-box receipts and cross-subsidization from the gas and electric utilities. UMTA Section 5 funds (discretionary funds used primarily to cover operating costs) were granted for the first time in FY 1975. These Federal funds amounted to $952,643 in FY 1975 and $1,840,559 in FY 1976. Federal and own-source revenues accounted for all revenues for the oper- ating budget. Note that "maintenance" includes fuel which should be considered an operating item. However, it was impossible to separate the fuel expenditure from the rest of the maintenance expenditures. 11.222 r» oo U"l eft -o — o — {N r- Cft © -» ~T sr eft r»l v£> -T O sr cm p - co C* -» <~> O ON NOff>N On r- on in m — oo — o no o 00 o r- •"< *o en d d o in\o»r tn - in o> O CT* C* ft OD 00 -» in ao < Z -i -- -^ -a* oo -^ ao ^o -^ a* »n cm co ao o> m O f~ m vo -»(N—o z © O »n m rs oo m m -» ci m er> >o o o r~ >o — z d E ts r«*^r*r^ m -a* m vo *a* oo ov *n«o is o o> >n m <»> oo .» en N + 3 C c o C > OS 41 a >v re u ^ -C 11 C u 41 (_> 3 o u w b -h 41 u> ^ c " 41 ci 41 « ei re utio-i-iOb os > re -o u u X w o-joo 3 re 3 >> OOCO U. -J OH <-> ^ 41 — 1 I s 0) ■a c 3 c a. a 01 3 ■o C 41 X B 0) U 41 41 ~l 3 3 re u 4j C "O >. T3 c a. , oo c re ^ i-i U u 3 O •a 41 3 a Xi 41 Q | B o 1 U OS s g oa -3 i-l ■H Q 11.234 0) 3 a ^ > (U OS C +J o o o 163.4 62.9 22.7 37.2 3.0 88.2 74.7 41.6 11.8 21.3 13.6 12.3 162.7 2.4 124.7 21.5 8.3 5.9 o o cm M^mo *» in en «-< -- a* f* -• o 4 on s 52S - sii*§= 5 r-1 •- O Oi O u"v CM on — -• ■» -» on O COOOCO » ff> M ^ (N ffi <► >C rs -* .a- cm -^ r. ic n eo *o en — CM 00 U-l MS — ri J cm ri d «n .» •» ON <-> cm on m O Mn-OM'» >» ■n oo <> cm -■ en is ms <-i oo mj en — i O m ON rs O 2 2 o ON m3 «ainn ^ in n n o ^ oo u*i no \o s n «c is o n a a] cm UN. © .» — i — O vO CM C-l vO ON \Q O is — 2 2 on ON .» r. r> m ff. >o o cs n rs c»> o en «t*e 41 >■ 3 + 3 c o > 01 01 c OJ 01 3 e 01 > 01 • 3 S 2 m C id 01 o = oi oi e w c 6 •"< O. O 01 W 41 c io oi ou-=e > b 41 b — I 11 01 b C J 41 V 01 O T3 O UK b OU4IO 3 O 3 >s MM U. J OH O b b in -i 1 I i 3 + a 01 3 ■o c 01 c, u a o c u ■ 01 3 i 01 a x a « u c oi —13 3 0} W 41 = -v XX oi c n c 21 c a. t, c = j ti u o uj ~i U -H >. ■jl OC = O b cJ .J b O. — X ui\ — u => o c l 01 •o 41 IS XI a £ E — 41 2 •" b OS b C o 03 _) so -o go o 1C z © 11.235 a C/) cfl "3 4-J c V) cfl 3 CO o 3 c; o -C Tl u c ^—' m J3 •u C-0 C m CD 3 u -Q u Cfl 3 4-1 u 4-J 1-4 Cfl 3 3 4-J o •H ■H Tl u c O a) r. O. 3 X Ui w -3 a) a) o u a o m (U 3 r-1 0) CU 4-1 CO 3 •H X m ■H X CO ^ttOlN-OMft^VW c 3 oooooooooooooooooo^^^. -j *n — .r*r-.r~r-.cr«OC^O^Ov£> C O <-> 01 5 51.3 104.8 65.1 54.3 59.6 77.6 58.8 51.9 51.7 89.7 76.9 49.3 45.2 50.6 42.1 47.0 (3) (3) (3) (3) (3) c 000©00000©0©0©00 ,:,, '><''> p "i r ^ r '» a u i zzzzzzzzzz»o>n«»--co c u NA NA HA HA NA NA NA NA NA NA 1,883 1.819 2.012 1.847 801 1.261 1.054 778 836 940 1,602 ft «^i/>t'-»«^tDia^^'Ov£>>^sOvOf-'r«.p^f^r*.r«.r^'** u. *" 1 g a. e 2 | £ I -3 « 8 C V i ; t s a 5 o tl » ■o S- _ » JS 5 S € •s §11 f o o a oi • ; 2 S 5 d ^ • « o o "° o i to « 28 | 2 1 "8 f O U « g tl -< r» to —> * * o * „ ON ON 4i o 111" ! ] e : 1 1 5 5 js < 11.236 Bridge maintenance expenditures actually decreased in constant dollars between FY 1957 and FY 1970. Beginning in FY 1970, maintenance increased quite rapidly through FY 1973 and then dropped by over $90,000 (1972 dollars). Sewer collection maintenance, like bridge and street maintenance, is funded through the Department of Public Works. There is no readily discernible trend in constant dollar terms; expenditures fluctuate around $50,000 (1972 dollars) annually. ALCOSAN's expenditures on sewage treatment maintenance have increased quite rapidly in both current and constant dollars. However, we expect to find some growth here because ALCOSAN began with new equipment in the late 1950' s and as the system becomes older, maintenance needs increase. Water maintenance expenditures show a decline in the early 1970's and a rise in FY 1976 and FY 1977. Much of the earlier decrease is attributable to a change in accounting practices whereby approximately 50 employees were transferred to another department and, more importantly, to the fact that an increase in the number of CETA employees occurred that is not reflected in the table. In spite of these shifts, the constant dollar decrease through 1975 is probably an accurate indication of the maintenance trend, but the decline is not as severe as it appears. Main- tenance expenditures in constant dollars for the mass transit system have been stable for most of the period, with some increases in recent years. Trends in capital expenditures in constant dollars for streets suggest a gradual downward movement until FY 1976 (Exhibit 9.5). More was spent annually in the FY 1959 through FY 1970 period than in the FY 1971 through FY 1976 period. In FY 1977, there was an enormous increase in capital expenditures, the majority of this increase being allocated to resurfacing projects. Sewage collection capital outlays have not been stable, but have fluctuated greatly from year to year. Sewage treatment capital expendi- tures surged during the early to mid-1970' s in response to the availabil- ity of an EPA grant for the construction of secondary treatment facilities. Capital expenditures on the water system in constant dollars demon- strate a generally downward, secular trend. Most of the capital projects are of the replacement variety. Very few are for extension or expansion of the system. Bridge capital expenditures (1972 dollars) have increased and declined several times throughout the 21 -year period. The most notable levels of capital outlays occurred between FY 1969 and FY 1973, after which they declined rather significantly. Mass transit capital outlays have increased substantially in constant dollars. The discussion on patterns and levels of spending needs to be supple- mented with information on how spending is related to, or affected by, the condition of the capital stock. Exhibit 9.6 summarizes the more salient features of the condition of each selected functional area. Both the water system and sewage treatment facilities are in good to very good condition. Maintenance work is performed routinely and has remained at fairly high levels. 11.237 4-J 01 c Cfl en 3 4-1 o CO Xi a C 3 £. T) 60 r. 5-1 CTl 3 JO u (/) c •u ooooooo oooo oooooo oooo oo^jjoo ^ £ ^ s £ 5 S £ S ^ 2fj;° - o o ft — 00 isOOvO- • o\ M •* ^ ce-tfiOffl oi^nc S tS S^ SJ rC S! r~ i^o2t-j -o to to o r- O m m O O NMtni^^^-j^^^^j^Nn^nne £ ooooooo oooo oooooo oor-o 0COr~«>*©O'-isCr-j-jCDi'~>?c*lfic0Or~.£>fi*-» Of>cor~.lr->OvO^ -o (-> — rsi^jr-co Z Z Z Z Z Z Z ZZZZ z^iniNN* ««n- 3 C7s00CT>OO ~ CO -- r- — (niOi/^O cm m o — <<<<<•<< <<<< <-oo-c<-itoo- — r~r~ zzzzzzz zzzz am-«.» in— »-mo> O O — 0 ^ *tf f< O O *T CM 00 n- — (M CO n N O "rt •» © — rt rfi-^oOO'ON -j on in J >o CO —• O >o n rj o 05 O>o f^ o on -^ on o ~? O O r-i u-t o^ ^ *o w N-j ff o -3 - ' *f\ nmrsin >j *o on i/i r-* cn cy> — — » co c OJ 3 OOOOOOO OOOO OOOOOO OOOO- B^mr^mmm 3 c c O ifl N " tO (M*l r** 00 >* — • U3 >ft •» N O N C0r*O*vD c : ooo oooo oooo oooooo oooo ^rsnn-NNtoiOON O «* C O « « N — C* *© V o*\c7NCT-c->o T »cr»0"0*'0*o**o^o^c*cT>c>«o**C'0 , \o , NO^o , < ■^ £ > 3 «J 2 S 1 S "8 ? "§ o « « — c t> E.2 sc«c (FY 1957-FY 1977) Not certain, soae Federal funds were used on street/ bridge projects but were classified only under streets KG •C 1 O 1 c * ■i 3 ■H • ■a •-• cm m -a o in O M« OV xsss o w\ l» o O -J oo o d d - o -» >o o r» O cr> -i d m J^d «n ri ve 3 u n <-> i o — <* ° ~ °. "" o O O i 22:22 CM ITI » ddo'i vo d a> rj 00 »D — dddo 3S »OMM>. m >e i~ r- III O r~ IM r^ "• e 01 3 g222 C-l CT> <* O O O ~ d 6 d^ _ o -a I— oo 3 -■ -J -o O odd — . 2 jl >nO 01 Op — tl 01 4, 3 as a. »* IP « JZ X I ■v X J3 M X 1 ■o ■5 § 2 00 1 1 5 g* — c ■O B C IS O U | 2 I •o a -o § o a gs« a. a a a -m 1 ■g o (J & > 1* a >. < < z OC0ChuQ>4Ch>* ■ 1- w c oi e * « c o u h •<( a « « u ■ B 01 -O -rt -o U >, 01 01 IN B 0) O o b (J • O -H vO o *j novo a u -a* •< 00 — (0 00 01 ►, 5 £oo 0) < o — < "N. C C V 01 •H o 3 o tr C 01 u. H - -i 2 2. 3 u ■ C 01 O > U 01 ii a: c ■ 01 5 1 a 2 B M 9 25 S 8 5 25 o. " S BO U) 01 ■O C K 1 n 01 c i e o <0 n e 3 o o s 0) i i I la <£ * ° o oi oi -q o -h K S S H 8 £ 5 3 >~ O - 1 O O C 01 l~ C 01 3 o « I I .' n o. ji -I 3 to -I u O ore oi — o c a C U *J C 4> O -I u 01 o vr>oooocN + + + + + + O^CMfnfN^vONCO m m cn m O— ivroocricoor-»ococo m cm as oo 00 m -i 1-1 O (0 CO CJ CJ 4-1 0) ^ 1-4 a: o CO Q. CO •H CU 3 ,3 Pi OJ 4-1 2: r-i 60 CO 00 3 •H c •H O •H )-i C (-( 3 Ct] OJ "0 3 OJ c CO Pn ,3 00 4J r— 1 s 3 CO w o 3 g 3 14-1 3 o 01 3 < X •H 0) c >> T3 4J 3 >^ C rH 3 ,—1 3 O m 1-1 o O o i-i X> )-i >, e X OJ TJ 3 00 CJ CJ O 01 CO O CO CD 3 3 <1> TJ )-i 0) CO CO 3 CO 4-1 3 3 CO rH 3 CO 0) CO rH •rH 4J a 3 o t s x o -a •H W ,C CO 4-1 4H as as 1— 1 CO IH u CO CO CU ■H >H u. cn r-» co co oo so ,_) r^ 00 r-- <-i 3 £ C n_^ < 0) CJ) 'j 3 S2 CO T5 a o 3 QJ o 0) JT, >>. 4J 3 4-1 r^ •H •H r*« >, 1-1 as X> CO 0) o .— i CO rH J3 -a in 3 J3 4J g 0) u r^~ 4-1 CO CJ 3 < 3 •rH •rH in CO CL CO 4-1 vD CO 3 D- 1-1 CTN 0) •> CO a o '- , e CO H CO IX £ CO < cn < ex. 4-1 o CN co z 0) H.26: Exhibit 9.20: Total Maintenance Employees for the Mass Transit System Fiscal Year Number 1965 636 1966 615 1967 580 1968 575 1969 587 1970 626 1971 668 1972 692 1973 686 1974 701 1975 718 1976 751 1977 745 1978 753 As of December 31 of each year. The figures for FY 1971 to FY 1978 include approximately 55 employees who work on capital projects. Source: Tabulations by Port Authority of Allegheny County, private communi- cations to CONSAD. 11.264 Exhibit 9.21: Capital Expenditures on Mass Transit By Revenue Source (thousands of dollars) Fiscal Year 1 Federal State County Other Total 1964 2 1,367.5 183.4 332.8 380.4 2,264.1 1965 2,721.0 509.3 678.8 431.4 4,340.5 1966 2,958.7 731.2 758.5 143.9 4,592.3 1967 2,958.7 731.2 758.5 143.9 4,592.3 1968 2,958.7 731.2 758.5 143.9 4,592.3 1969 2,958.7 731.2 758.5 143.9 4,592.3 1970 2,611.8 641.9 669.2 199.9 4,122.8 1971 13,341.8 3,405.7 3,433.0 363.3 20,543.8 1972 10,222.2 2,627.8 2,632.3 311.6 15,793.9 1973 8,189.3 2,109.4 2,109.4 0.0 12,408.1 1974 8,461.5 2,147.7 2,048.5 3.9 12,661.6 1975 10,294.7 2,476.5 1,891.1 0.0 14,662.3 1976 9,645.6 2,470.8 2,425.1 0.0 14,541.5 1977 8,381.4 2,097.6 1,951.9 0.0 12,430.9 Total 87,071.6 21,594.9 21,206.1 2,266.1 132,138.7 FY 1965-FY 1977 ended December 31. 'These figures refer only to the March 1 to December 31, 1964 period, Source: Derived from Port Authority of Allegheny County, Annual Financial Reports . 11.265 years. As the capital program continues and older buses are replaced, the average age will decrease and the condition improve. Federal and state grants for the purchase of new buses, together with an improving preventive maintenance schedule, suggests that the condition of PAT's bus system is fair to good and improving. 9.5 Analysis and Conclusions 9.5.1 Public /Private Cooperation Because Pittsburgh reached its expansionary phase in residential construction many years ago, private developers do not construct the city's public infrastructure as they do in Dallas. This is not to say that there is no cooperation between the public and private sectors. However, one city official suggested that, historically, there have been few, if any, cost-sharing programs with the private sector. One important consideration is the city's loan program, which offers rehabilitation loans with low interest rates for residential and small commercial properties. Larger industries are now permitted to receive these low interest loans if employment will be expanded as a result. The funds for this program are deposited with local banks which normally make the loans, and are used to subsidize the difference between the standard interest rate and the low rate the city established. The city has engaged in building parking lots as an incentive for private construction. Also, the existence of industrial parks with the provision of services necessary for industries that locate there is a strong city-created attractional device. However, until recently the city could not grant tax exemptions to certain industries or builders as an incentive. This would have violated the state's uniformity clause which stated that one property could not be exempted without exempting others. Passage of the Local Economic Revitalization Tax Assistance program altered that restriction last year, and the city is now discuss- ing the possible use of tax incentives. Even though tax exemptions could not be granted, buildings were not taxed at the same rate as land, nor are they currently. This policy (peculiar to Pittsburgh) of a separate tax on land and one on structures, which is one-half the rate on land, gives an advantage to construction of buildings over leaving the land vacant. Cooperation exists between the public and private sectors, but private construction of public infrastructure is very rare.'- In fact, Developers do have to conform to city specifications if they are building. But since there are few development projects in previously undeveloped areas, developers' construction of public infrastructure is extremely small. 11.266 because most of the public infrastructure has been in place for several decades, the real emphasis of the city has been to induce development within the city through various programs. The city, then, is underwriting some of the private sector's costs. 9.5.2 Effects of Federal Grants- in -Aid Reliance on Federal grants for capital and operating costs is note- worthy. According to an official publication, Federal grants to the city of Pittsburgh in FY 1977 jumped to over $60 million* from the relatively high figure of $37.2 million in FY 1976 as reported in Exhibit 9.3. Countercyclical aid and CETA funds accounted for $26.8 million of the FY 1977 figure. The large inflow of Federal funds has kept the financial burden on the taxpayers at low levels. Pittsburgh's reliance on Federal aid is very high. One study suggests that if three economic stimulus packages (CETA, Local Public Works, and Anti-Recessionary Fiscal Assistance) were ended in 1978, the property tax in Pittsburgh would have to increase by $11.10 per $1,000 of fair market value in order to maintain the same level of services.-^ This projected increase is higher only for New York ($25.80), Newark ($13.20), and Buffalo ($15.60). And it is significantly higher than the average $4.60 per $1,000 of fair market value that is projected for all 48 large urban governments that were examined in that study. To illustrate Pittsburgh's reliance on Federal grants, the Water Department provides a useful example. In FY 1978, it employed 176 persons (out of 205 budgeted positions) . The CETA employees accounted for approximately 50 persons, bringing the total number of people working under the Department of Water to 226. If CETA funds were to be eliminated, the water rates would have to finance those persons who are currently paid by CETA funds. And because the Water Fund receives revenues primarily from charges on water consumption, the rates most likely would increase. In general, if Federal grants were withdrawn, the city would have to find other revenue sources in order to maintain the existing level of service. But, the crux of the problem is that sufficient internal revenue sources are not likely to be available. City of Pittsburgh, Official Bond Offering Statement , June 7, 1978. 2 U. S. Department of the Treasury, Office of State and Local Finance, 'Report on the Fiscal Impact of the Economic Stimulus Package on 48 Large [Tfk'j'n Pnirornmanfc " To m i o t-it 9 "X 1Q7R i-> fi^ Urban Governments," January 23, 1978, p. 65. 11.267 9.5.3 Revenue-Generating Capacity of the City The ability of the city to generate sufficient revenues to cover operating and capital expenditures is declining. With a rapidly eroding population base, a relatively high unemployment rate,* and a per capita income that is less than both the national and SMSA per capita incomes, the city is hard-pressed to find additional revenue sources or to increase the financial burden on its residents. The property tax in 1978 was $27.50 and $13.75 per $1,000 of fair market value for land and buildings, respectively. Assessed values are intended to be 50 percent of fair market value. Because there is no legal limit on ad valorem taxes, these property tax rates can legally be increased but it is doubtful whether this is a reliable source of future revenues. A panoply of taxes (other than real estate), ranging from an earned income tax, business privilege tax, and personal property tax to an amusement tax, parking tax and mercantile license tax, generated revenues in excess of $31 million in FY 1976 and $40 million in FY 1977. It is questionable if these tax levies can be increased. Bond issuances to cover capital projects may not be as effective in the future as in the past, because Pittsburgh's bond rating by Moody's has slipped to Baa-1 (1978), from A (1977) and from A-l (1976). However, the interest rate on the latest (1978) bond issuance was only slightly higher than on the previous issuance. The impact of the bond rating decrease, then, has probably not been too burdensome thus far. 9.5.4 Some Implications The capacity to generate additional own-source revenues does not appear to be strong for the city of Pittsburgh. However, ALCOSAN does not appear to suffer from revenue shortfalls, while PAT desperately needs, and obtains, outside funds. The city of Pittsburgh's reliance on Federal grants is quite high^ and the ability to substitute own-source revenues for existing Federal grants-in-aid is low. Maintenance in some cases is being deferred only because sufficient revenues are lacking. The condition of bridges is illustrative in this context: maintenance expenditures have been low and the condition of the bridges has deteri- orated. Pittsburgh's unemployment rate was estimated to be 8.2 percent in 1977, while the suburban unemployment rate was 6.2 percent. See Lynn E. Browne and Richard F. Syron, "Cities, Suburbs, and Regions," New England Economic Review , January/ February 1979, p. 58. 2 See, e.g., U. S. Department of the Treasury, op_. cit . 11.268 However, if the increased maintenance and capital outlays that were realized in FY 1977 are indicative of renewed emphasis on maintaining and expanding the infrastructure, the condition of the capital stock will improve. But it must be stressed that many of these programs exist because of the availability of Federal grants. The future condition of the capital stock in all likelihood would decline precipitously if these external funds were eliminated or reduced significantly. 11.269 10.0 ST. LOUIS, MISSOURI 10.1 Introduction and Summary of Findings 10.1.1 Introduction St. Louis, an older, industrial Mid-Western city, has experienced a dramatic decline in its population base. By 1975, more than 30 percent of the 1960 population had emigrated from the city. From a peak of over three-fourths of a million people, the population of St. Louis has now declined to slightly more than half a million inhabitants. This decline in the revenue base may be expected to have negative impact on the func- tions for which the city is responsible, i.e., streets, bridges, and the water system. A special district, the Metropolitan Sewer District, is responsible for sewage collection and treatment, and the Bi-State Devel- opment Agency is in charge of the mass transit system. Per capita income for the city was 88 percent of the national average (1975) and the pro- perty tax rate was $27.40 per $1,000, the third highest of the nine cities examined in this study. 10.1.2 Summary of Findings Our study of the condition of the urban infrastructure in St. Louis resulted in the following findings: • The capacity to increase own-source revenues is poor to fair. Erosion of the population base, decline in employment opportunities, relatively low per capita income, and a relatively high tax rate all con- tribute to a generally low capacity to increase own-source revenues. • The condition of the sewer system is fair, while the water system is in fair but worsening condition. The sewer system was assessed to be in fair condition but large capital or maintenance outlays to upgrade the system are essential for the near future. If these are provided, the condition should improve. The fair but worsening condition rating for the water system may be attributed to an inadequate rate schedule, insufficient numbers of main- tenance personnel, and the fact that a large percentage of water services is unmetered. These factors may lead to a further deterioration of the water system if not corrected. • Streets and bridges are in poor to fair condition. These two tax-supported functions have received less and less main- tenance funding; by FY 1977, constant dollar maintenance expenditures were one-half of the FY 1957 maintenance outlays. The result is that the condition of streets and bridges is deteriorating. 11.270 • The mass transit system is in poor condition. Inadequate maintenance outlays, lack of a preventive maintenance program, and inadequately trained personnel have culminated in a sur- prisingly poor condition rating for a relatively young bus fleet. 10.2 City Description 10.2.1 Population and Employment Trends The decline in population has been dramatic for the city of St. Louis. Exhibit 10.1 illustrates that the rapid population movement out of the city decreased the population base of the city by 225,000, or a decrease of 30 percent, between 1960 and 1975. The entire SMSA (including St. Louis) increased its population during the same period by over 12 percent. Flight to the surrounding areas from the central city is comprised mostly of middle class persons. The SMSA's per capita income in 1960 was $209 higher than the national average of $1,843, and by 1975, it was still above the national average of $4,572 by $149. The city's per capita income has not kept pace with the national average during the 15-year period. In 1960 it was only slightly lower, but by 1975, it was over $500 per capita lower than the national average. Unemployment rates, which are consistently higher for the central city than for the SMSA, compound the problem of declining population and lagging per capita income. One of the reasons for the high unemployment rate is the drift of employment opportunities from the central city to the suburban area (Exhibit 10.2). Employment in three of the four selected occupational categories for the city decreased rather sharply between 1958 and 1972; the exception is the modest increase in the selected services sector. Employment in the SMSA has increased at fairly constant rates of growth, except for the 13 percent decline in manufacturing employment between 1967 and 1972. 10.2.2 Total Revenues and Expenditures for the City During the ten years between FY 1968 and FY 1977, expenditures of the city increased by 120 percent. The cost of living increased by 73 percent during the same period, measured by the Consumer Price Index for St. Louis.'- The city, then, has increased its expenditures rather substantially over the ten-year period (Exhibit 10.3). The CPI for St. Louis stood at 173.2 in March 1977 according to the U. S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review, Vol. 100, No. 12, December 1977, p. 106. 11.271 Exhibit 10.1: Population, Employment and Income Characteristics of St. Louis 1960 1970 1975 1977 Population SMSA City 2,104,669 2 750,026 ,410,884 2 622,236 ,366,542 524,964 2,386 517 ,000(1976) ,000(1976) Per Capita Income SMSA City $2,052(1959) $1,801(1959) $3,295(1969) $2,726(1969) $4,721(1974) $4,006(1974) NA NA Unemployment Rate SMSA City 4.4% 5.4% 4.9% 6.4% 7.9% NA 6.7% 7.8% Civilian Labor Force Employed SMSA City 763,637 294,000 914,474 1 231,765 ,020,000 NA 220 NA ,800 Exhibit 10.2: Employment By Sector in St. Louis 1958 1963 1967 1972 Manufacturing Employment SMSA 243,573 259,686 295,500 City 136,246 129,069 131,900 256,100 97,300 Wholesale Employment SMSA City 47,249 37,784 48,446 34,297 53,395 35,033 56,576 26,679 Retail Employment SMSA City 104,269 59,060 102,423 44,066 113,835 42,571 133,183 36,461 Selected Services Employment SMSA City NA = Data not available. 38,084 27,558 41,606 27,547 50,706 29,798 67,826 32,653 Sources for Exhibits 10. land 10.2: U.S. Department of Commerce, Bureau of the Census, County and City Data Book , (various years); 1977 and 1976 figures are derived from City of St. Louis, Official Bond Offering Statement , May 15, 1978; Unemployment and Civilian Labor Force Employed figures for 1975 are obtained from U.S. Department of Labor, Bureau of Labor Statistics, 1977, Geographic Profile of Employment and Unem- ployment , 1975. 11.272 no On e 122.1 9.0 7.7 1.1 0.1 105.6 84.3 33.6 28.8 21.9 21.3 7.5 119.1 0.6 96.0 12.6 6.1 3.7 © o d d nO no ON *» r^\000 on © cm r* — on ■*» -■ on 00 en cm cm — no no e«. — no no 00 00 no on e CO &\ *3 t*\ -+ incMA"^<*1 to lit e- in in O O •jiflHstooo r- O ONrsPINN- no no i» m en m CM CM — 00 no en CM co- < z o on cm © m en cm a>inM^iAsT ^ in coiflM o a* no flff * r* O 00 NrtN -•< on d r~' od d ri O r» — — Z -i en NO on £ m OO00CM NsTIs- ■ O CM — *«ido 2 n d n' e* * i-^ O r- en cm — ~ in d o^ no no cm CO z o no On £ en — ^rincM r» .» oo -• — — en O en en •» r- cm O r~ — < Z £ eo ooonc^cm cam •» N o> en in cm — do z -« o^ — — en r-I On r» CM CM CM — on fx. «m 5 3 o > >■ a 3 c 01 tt a c u § e V > V CO a. oi — u 2 2* % . C U 01 O 3 oj v a u c E — i O. O «l u W e « e> ou.ee > l.4ik-< ei « k. c u « oi " II n O O S. 11 O K oc > C -O O UK U OWOVO 3 C 3 >n oin b j oh o « u 10 -• 01 — 3 I i =3 CO 01 3 •o e V u CI c «l 41 3 "3 C U U ■ w 3 C 01 o. X 0) CO Id oi oi — 3 3 eg u u C -O >. TJ C eo C 3 0i — 01 C O. tj c u X 3 X 01 UJ O U " — X DO C ej 4J U 01 w -H U 5 5 111 9) Ul 01 c XI -n ■3 C 3 CO ,0 01 o I s a h O 1 u c o 11.273 M cu rt oi r-H H O cd •a u U-l H O £ 307.4 85.4 27.6 57.5 0.1 209.3 162.5 34.7 45.4 82.4 46.8 12.9 279.0 12.1 216.3 33.1 10.3 7.2 O O O-. E o on en o ■-> oo r»- ic m >o — © oo *© o m o o n .t « -j n •- r-* r*» ro -a* o» -* in d n ^ — ■ r» ie oe •• ft r\ o •* ■» r» en r» m m E O -3* r* m IN toN N*<»<* O m c-> in -- »o oo-»oor*o «* so r^cvro ao -4 r) n >A ^ «^ ci en on e o m m <7n E \o en — «er >y -j n o oo «» n m n ao m ri o ^ atn r^ >o »n o nO — .3 in OK « _ 00 — o o 2 E on os ono c» r- m -- -* v© O rg no O nO O vo tn >o iA •} o en ITI CO On en r- <-i c-i O oo -o d K> 1 1 oo c*-»«JO o^N*-"m en f. O <1 O <0 -O en m on -i 00 00 so' vo' E on - 1 o >oo r*. >© m on en -^ -a* on en O co o m o m r~ r* m en r. _-. «j — . n r-> e-i r-i ON <-> on en -» •» o o m m o E oo innoo -o*OMno on en < QMflO *© -- vo ci © in en r» d — on f» in ^ ^ 0"> en cieo-i-T o >e © f. en >» >0 -. no n o in oo o m« n r» w-> -^ on en n m on o«i m on io oo -o on en — oo •» en m ^ !n 00 no E rsi oeooMO .» en m o f-i .» r. r» r. co r- eo en ON O — ^ * s c > a = V 3 B B s c 41 i 1 05 >, m ! 2 iu 5 I 6 -< c o o o o .= e > u o l, — r> -3 U u X u Z, <-> :j C 3 0C 3 >. tj V> J. J OH U " u. oo — 1 i i => + 3 ■o C o. Id tl e o CO tl ■v V a. k m a U 41 tl -i r 3 a u u r ■ ~Z ** "2 w s 5 — S o s a w a 3 5 « O w — 3 w — >-. -3 oe c r: « C t» V t "< w 41 fc u — — C a u u e. — — W M U (J 9 o c -3 -a "3 C ■o II 3 JB a t I 1 u c u. a ti ESS? Ill u 11.274 The relative composition of revenue sources during the same period has been altered significantly. Property tax revenues, which contributed 27 percent of total revenues in FY 1968, actually declined in current dollars by FY 1977 and were about 11 percent of total city revenues. The burden of financing city expenditures shifted from own-source revenues (especially property and income taxes) to intergovernmental revenues. Between FY 1968 and FY 1977, intergovernmental revenues increased more than eightfold, amounting to more than 27 percent of the city's total revenues by FY 1977 compared to 8 percent in FY 1968. The Federal portion of intergovernmental revenues has increased dramatically from $2.2 million in FY 1968 to $57.5 million in FY 1977. Federal revenues account for almost one-fifth of total city revenues. Capital outlays have remained a fairly constant proportion (approxi- mately 10 percent) of the city's total expenditures since FY 1967. Prior to that fiscal year, capital outlays comprised approximately 15 percent of the city's total expenditures. In relative terms, then, cap- ital outlays decreased in the latter half of our study period. 10.2.3 City Government Structure/Responsibility for Public Works Activities The city of St. Louis operates under a Mayor-Council form of govern- ment. Of the five selected functional areas under study here, the city is responsible for three. The city's Department of Streets operates, maintains, and constructs the street and bridge network and receives its funds from the city's General Fund. The Department of Public Utilities is in charge of the water division which is operated as a self-supporting enterprise receiving revenues from user charges on water consumption. The Metropolitan Sewer District (MSD) was established by Missouri statute and is charged with operating and maintaining the sewage collec- tion and treatment facilities for the city and for a major part of St. Louis County. 1 Revenues from MSD's operations are derived from ad valorem taxes and user charges. Public transportation facilities for St. Louis flnd the entire metro- politan area, including parts of Illinois, are proviaed by the Bi-State Development Agency. Bi-State was established as a separate political subdivision by identical Missouri and Illinois statutes. Operating revenues are derived from farebox revenues, subsidies from the state of Illinois, subsidies from several political subdivisions of the state of Missouri (including the city of St. Louis) and UMTA grants. The city government is not overlapped by the St. Louis County government. They are separate governing jurisdictions. 11.275 10.3 Summary of Findings on Maintenance, Capital Outlays and Condition of Capital Stock Conventional wisdom suggests that older, industrial cities that have already constructed vast portions of the city's public infrastructure should be concentrating attention on maintaining the existing infrastruc- ture. Maintenance expenditures, at the very least, should not decline in real terms. In St. Louis, maintenance expenditures in constant dollars have declined for the water system, streets and bridges (Exhibit 10. A). Because the sewer maintenance figure includes operating costs as well, it is not possible to determine whether or not the maintenance expendi- ture component of operating costs has actually increased or decreased. Mass transit maintenance expenditures in constant dollars decreased significantly until FY 1973, when there was a noticeable increase, and FY 1976 and FY 1977 levels were about the level in FY 1964. Maintenance outlays on the water system have been stable in constant dollar terms until FY 1976 and FY 1977 when they slipped below the $2 million figure for the first time since FY 1958. Street maintenance expenditures demonstrate a secular decline in constant dollars until FY 1970 when there was a dramatic increase for that year. However, the FY 1970 through FY 1977 figures include not only street maintenance expenditures but bridge maintenance as well, except for maintenance of the MacArthur Bridge statistics, which were still recorded under bridge maintenance.! Despite this potential source of overestimation, street maintenance expenditures dropped precipitously between FY 1970 and FY 1977, reaching the lowest constant dollar level in the 21-year period in FY 1976 and FY 1977. What compounds the declining trends in maintenance expenditures on the street and bridge systems are the low and declining levels of capital outlays. Capital outlays for streets, which include resurfacing expenditures, have decreased from a high of over $7 million (constant dollars) in FY 1957 to an average of only $485,000 for each of the last seven years of the study period (Exhibit 10.5). Capital outlays for bridges in constant dollars have likewise deteriorated over the 21-year period. Trends in capital expenditures for the sewer system reflect con- struction of major projects for trunk sewers in the mid-1960' s and EPA requirements for secondary treatment in the 1970's. The large outlays for the water system in the 1960's are a result of construction of steam plants, rebuilding of a treatment plant and major improvements to the water system in general. The large outlay in FY 1973 is due to the electrification of steam-operated pumps. MacArthur Bridge is a toll bridge and records currently are kept separate from other bridge operations. However, the so-called mainte- nance expenditures for the MacArthur Bridge include salaries to the bridge personnel and are, therefore, much higher than actual maintenance outlays. 11.276 S58SSB5B3S5E- — — O (U ■H 4-1 fe c •H >-" s c >o o o *o inno>£i>JN^ son *naoo-rO — vo o < < a & sO -JD >£) -£> ^£> sD sO •£> i on o*u-icotnooi-~*»O r oo^oo3ono>oo ^o 2 - >oo o> *o *o ^r (^ a» ^jinco 0.0 ■ -t o! ^ m — • a> >o i" oo -h «n^ O -^ r~ o O ^ ' •O T3 T> "O 2 I » ff ff ^ T) E C E E 11.277 on ca O w en C -H O 3 U O i-J 0) •H M Vj to 3 c U o •H c 4-1 •H CJ c en 3 0) tn u 3 T3 u 0) •H 4-1 T5 o C 0) CD i— I a a) X c/> w CI) r-H > Cfl •H 4-1 Uh •H a. u cd u Uh B c B i c u ooooo<*">'»c->oo o >» — oo 0OO00-»<->'~O0 O in O r-J <<<-<<<< CO OOONo con\on o3»-*t »nmm(T.*oo^ , NO-tftn z cm m ei o r-- ">» c o *""!"^'!"!"" f ;1'!'""l° N "^"l B i> 3 mCMsnmcoO'i^jr^or^vOOOfnvOincgco a\ — CO *T r-~incoc-icr*rMiniOmosOr"ir-.so*©iOf"> — t r~ m c-i r~nr-r^aoooNnso«^«o^Mao> ^ (nj — m NiftOf>>0>iOO*TlNvO -T O ***• <""> s c c iftsON^O«J^OMTi^oONOO m u-\ f>. r* 3 c 3 2ZZOOr>.oOOOrMmr-*(^.^jcsir^.«co u-.cNsO*0 1 Z -" - C 2 -Q U T3 «J -« oo a -h 3 £ ai c a J3 O C O C C C « 13 3 U o o o b- a ■ «M I r* « •O -o -O -O r» r» rj a* o> qj o> o> iw o> ■" c c e c -j 0> 0> Ol ON C «l C " " H " ui « o C C EZ L v at v I I I I > .c > ■ r» r^ r» .» e « c " m lA m vO O O • 9> « Ol « U 1 u Q h " u . £ C £ C £? £ s 11.278 Capital expenditures for the mass transit system were non-existent for the first five years of the Bi-State system's existence (FY 1964 to FY 1968). Between FY 1974 and FY 1977, with the availability of UMTA Section 3, (capital subsidies) funds, capital outlays increased to very high levels. The above summary tables do not relate maintenance and capital expenditures to the condition of the capital stock. To develop insights into this and related issues, we have prepared a summary of the most relevant findings of this case study (Exhibit 10.6). In general, main- tenance activities for all five selected functional areas have been declining. One result is that the condition of the capital stock is poor to fair. As noted earlier, the population of the city decreased 30 percent between 1960 and 1975. This was accompanied by a significant decline in absolute levels of constant dollar maintenance expenditures. However, the decline in population does not imply a corresponding decline in the use of the water and street systems. In fact, the streets are being used more and water consumption has increased, since many of the suburban dwellers work in the city and use the city's public facil- ities. As a result, the condition of the streets is only poor to fair, while the condition of the water system is described as fair. Resurfac- ing of streets, according to city officials, is at very low levels. And replacement of water pipes has dropped off rapidly in the last four years. The water system has received virtually no funds from the Federal government for capital projects. And while Federal grants for street capital purposes amounted to a very small percentage of total capital expenditures for the 21-year period, they did amount to almost one-fourth of total capital expenditures between FY 1968 and FY 1977. Even with the significant participation of Federal programs in the last ten years of the study, there has been a decrease in capital expenditures (Exhibit 10.5) Without Federal programs, however, it is certain that the condition of the streets would be even worse. The condition of the bridges is like that of streets, poor to fair. Maintenance performed on the bridges of the city has been declining over the 21-year period. While maintenance expenditures for bridges were declining, so were capital expenditures. However, the decline in capital expenditures would have been more severe and the current conditions worse had Federal programs not contributed over one-third of total bridge capital expenditures between FY 1968 and FY 1977. Indeed, Federal grants were non-existent before FY 1973 and total capital expenditures on bridges since FY 1967 were also extremely low. The city's bridge capital program is now heavily reliant on Federal grants. The two special districts which were investigated, Bi-State and the Metropolitan Sewer District (MSD) , are reliant on Federal grants also. Bi-State has received four-fifths of its revenue for capital purposes from the Federal UMTA Section 3 (capital subsidies) programs between FY 1964 and FY 1977. Most of the capital outlays were made during the 11.279 T3 C TO ^ a o 4J en rn •H 3 rH 03 ■J •H a. ■u cfl t/1 u u u-l o o U-l c 01 o (1J •H S-i > ,_! 1-1 ri o « ■o — < C 3 jl £ 1 >>u- I «-~ p «( rt o II o 5 -< Ju '""•§ a g u II c x JflONN O O V — 9> w o « o B — ao a a -o o a. • -h -4 e f e §7JS £21 ff> C i« I C K <£<*<* Ove-a g , uu m£SC o « w w. » £ * —"Si a cans i j 2 u j f 25 - U V U *< 3 Si 1 " 2 ° u H S o 6 iJ c 3 u w w u 3 3 * * " US ° ."I " 5 2. " * S a^- o. u — u >, w a " u £ e ■£ * •" 3 a •». « o >. « • i - S 115 u a -o TIG > S SB ii 3 VI O > •5 2 JJI — 3 C U — — °" = c ■" iS " £ x c a *.2 8. jg J! J5J! I — -4 tl o o >, 0O.XUUU3CI ■ ■ u ic u C -> « « 1*5 "1 £ £i I 5 ° li.280 last several years of the study period. A result has been that the bus fleet is very young at 5.5 years of age. However, maintenance activities have not been adequate to maintain the buses in good operating condition. Although maintenance expenditures on the mass transit system (Exhibit 10. A) have been relatively stable in constant dollars over the 14-year period, the size of the fleet has increased substantially since 1964, resulting in a lower maintenance personnel per bus ratio. The condition of this comparatively young fleet is poor. The MSD has also experienced a gradual decline in its maintenance activities. However, as described above, this is not reflected in the maintenance expenditures per capita figures since these include an oper- ating component also. Capital expenditures in per capita terms have fluctuated over the 21-year period. A large component of total capital expenditures has been state and Federal sources. Between 1957 and the early 1970' s, much of the intergovernmental revenue funds were attrib- utable to the state. After 1972, most of the intergovernmental revenues were derived from Federal, or more specifically, EPA sources. Even with these contributions, the condition of the system is only fair to poor. Without Federal grants for capital improvement purposes, it is likely that the sewer system would be, much like the mass transit system, in worse condition. 10.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 10.4.1 Water System 10.4.1.1 Maintenance Expenditures and Revenues Maintenance expenditures for the 21-year period, as presented in Exhibit 10.7, have increased at an average annual rate of 5 percent. However, the rate of inflation at 6.3 percent annually was higher than the rate of increased expenditures. In the last ten years of the study period, the inflation rate was considerably higher, compared with the entire 21-year period, while increases in maintenance expenditures were lower than in the previous decade. Operating costs of the Water Division are financed through user charges. These revenues are deposited in a special fund which finances all operating costs, including maintenance expenditures. 10.4.1.2 Capital Expenditures and Revenue Sources Between FY 1960 and FY 1977, capital outlays were financed by the Water Department's own funds and by revenue bond issuances. During this period, over 60 percent of total capital outlays were financed through own-source revenues (Exhibit 10.8). However, if the 18-year period is divided into two segments, the significance of each revenue source changes. Revenue bonds supplied 58.4 percent of the total revenues 11.281 Exhibit 10.7: Water System Maintenance Expenditures Maintenance Expense Rate of Annual Change Inflation^ (percent) (percent) -16.5 + 4.8 +54.3 +4.5 - 3.9 + 2.9 + 3.0 + 4.2 - 7.7 + 5.4 +18.3 + 3.8 - 6.5 + 4.9 + 5.2 + 3.5 +24.4 +9.1 - 1.1 + 5.2 + 7.4 + 5.9 + 7.0 +10.3 + 2.8 +11.0 - 0.5 + 9.2 -11.8 + 8.4 + 9.3 + 3.9 +16.7 + 8.1 - 8.6 + 8.6 - 4.9 + 6.9 + 8.1 + 5.4 Average Annual Rate of Change (FY 1957-FY 1977) + 5.0 + 6.3 (FY 1968-FY 1977) + 4.4 + 8.0 Fiscal (thousands Yearl of dollars) 1957 983 1958 821 1959 1,267 1960 1,217 1961 1,253 1962 1,157 1963 1,369 1964 1,280 1965 1,347 1966 1,675 1967 1,657 1968 1,780 1969 1,905 1970 1,958 1971 1,949 1972 2,179 1973 2,382 1974 2,780 1975 2,542 1976 2,418 1977 2,615 Fiscal years ended March 31, except that FY 1957 ended April 8, and FY 1958 ended April 7. 2 As measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 cities, March 1978, p. 75. — = Not applicable. Source: City of St. Louis, Water Division, Annual Financial Statements . 11.282 Exhibit 10.8: Water System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Year 1 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Total Own-Source Funds 3 2 NA NA NA 364, .4 6,965, .9 1,286, .3 863, .6 2,433, .6 930. ,2 548. .3 728, ,0 1,445. ,8 1,145. .9 3,500. ,4 596. ,6 941, ,3 9,648. ,0 3,737. .6 978, .8 1,367. ,6 565, ,6 Bonds z NA NA NA 511.6 9,779.1 1,805.7 1,212.4 38,047.9 3,416.4 1,305.8 769.7 1,022.0 328.2 260.1 794.6 135.4 213.7 2,190.0 848.4 222.2 310.4 128.4 25,254.1 Total NA NA NA 876 16,745 ,092 ,076 ,850 ,236 ,318 ,750 ,774 1,406 4,295 732 1,155 11,838 4,586 1,201 1,678 694 63,302 FY 1957-FY 1977 ended March 31. Annual revenue sources were estimated. Between FY 1957 and FY 1967, own-source funds contributed 41.6 percent of total capital outlays and bond funds contributed 58.4 percent. Between FY 1968 and FY 1977, own-source funds contributed 81.5 percent of total capital outlays and bond funds con- tributed 18.5 percent. NA = Data not available. Source: City of St. Louis, Water Division, Annual Financial Statements. 11.283 required for capital outlays during the first segment (between FY 1960 and FY 1967). Capital expenditures in this eight -year period amounted to more than one-half of the 18-year total. For the next ten years, own-source revenues accounted for 81.5 percent of the revenues spent for capital outlays. In the early 1970' s, capital spending increased over the previous five-year level. These capital outlays were for construction of major transmission mains and for the purchase of pumps and electrical equip- ment for one of the plants. Since FY 1973, however, capital spending has declined rapidly to its pre-1970 levels. 10.4.1.3 Condition of the Water System The present primary pumps serving the Chain of Rocks Plant were installed in the 1950' s, and the distributive pumps in 1959-1960. These pumps are in fair condition, but operating personnel are concerned about them because of both age and lack of qualified operating and maintenance personnel. The two water purification plants are in fairly good condition, considering their age (over 70 years old). Major rebuilding has been done at roughly 15-year intervals. This is the major factor that has prevented rapid deterioration of facilities. However, the level of maintenance provided by the Distribution Section is seriously deficient. The slackening of maintenance began in the late 1960's. From FY 1968 to FY 1971, 12 maintenance men, working as three crews, were assigned duties involving painting fire hydrants, checking valves on water mains and other miscellaneous preventive maintenance. Each crew was assigned to a specific area of the city. Beginning in FY 1970, the policy on maintenance was changed. The new policy was to respond only to crises. Routine maintenance was cut sharply. By FY 1974, routine maintenance was eliminated from the program of the Distribution Section. The lack of frequent and significant increases in the water rate, the large percentage of water services that are not metered (about 86 percent) and the difficulty of employing sufficient numbers of qualified personnel for maintenance and operation are major causes for the collapse of the preventive maintenance programs. A cleaning and lining program that was underway since FY 1958, or earlier, was terminated abruptly around 1969. From FY 1970 through FY 1975, pipelines were not cleaned or lined. The program was resumed on a much smaller scale in FY 1976 and has been continued at a reduced rate through the present time. The total length of pipe cleaned and lined annually during the last 21 years is tabulated in Exhibit 10.9. This table also summarizes the maintenance activities undertaken each year from FY 1957 through FY 1977. Some entries were omitted from the tabulation because the needed data were not found in the Division's annual reports covering those particular years. The listing of broken fire hydrants includes breaks caused by vehicle impact. Such accidents were responsible for the majority of fire hydrant breaks. Water meter repairs include those made in the 11.284 ^~\ 4-1 T> cu JiONin^O»>«»>»>*JZ5 oo m cm >x> «, 0) w s c M o CU •H 4-1 XI 4-1 CO 0) 3 3 >-i £> •H •H CO ^ a 4-1 cu co oi •H Q M 0) 4-1 CO 3 0) 43 2J2 4-1 iH 08 ct) (U o > .-J cm ooo^c n cm HoonH^HinooiooiOvofin cNOO»foaN.vooo-^m ooosvfm*i2srco H H CI VO mnncNNrt ^H©0>»cn OCNCT.CN r-4^ifOvo<:r^<:<:<;> t»4 ^cMOO^<<cocj\0'-i(Mfn.3 , in^iN CyNCTiCT»C7NCT>CTiCyiCT>ONCTC7NCTiCT>CTiCT>CTiCT»CT»CT> M CO a cu Q „ C ■H CO •H • > •H CO Q s: )-i o cu i-i 4-1 1 CO 3 T3 „ CU CO T3 •H C 3 CU cu O H hJ r^ -O r^ cO < > U-l U-, CO O r~- ^j >, m o 4-1 ex. c •H ~* CO o K CO .. O cu a II o 00 11.285 field and in the meter shop. Meter replacements include all replace- ments, whether made to correct leaks or faulty operation. The last column reveals the vigorous program of pipeline cleaning and lining that was underway from FY 1961 until FY 1967. In general, however, the number of repairs performed annually has declined. This decline in maintenance activity, or deferral of preventive maintenance, is a major reason for the declining overall condition of the water system. 10.4.2 Streets and Bridges 10.4.2.1 Maintenance Expenditures and Revenues Maintenance expenditures on streets increased at a much slower rate than inflation for the FY 1957 to FY 1977 period (Exhibit 10.10). The large increase between FY 1968 and FY 1970 was due primarily to the inclusion of bridge maintenance outlays within the street maintenance division. Since FY 1970, however, there has been a decrease in mainte- nance outlays for both streets and bridges at an annual rate of -5.6 percent annually. This compares very unfavorably with a 7.2 percent annual inflation rate. Exhibit 10.11 illustrates the slight increase in bridge maintenance expenditures between FY 1957 and FY 1977. However, bridge maintenance outlays increased at a very low annual rate after FY 1968. Since FY 1968, bridge maintenance expenditures appear under the street maintenance divi- sion, except for maintenance on the MacArthur Bridge (a toll bridge). *• Exhibit 10.11, therefore, provides information on bridges in general between 1957 and 1968 and only on the MacArthur Bridge between 1970 and 1977. The maintenance expenditures on the MacArthur Bridge include salaries to toll operators. Street and bridge maintenance expenditures illustrate a noticeable decline in maintenance outlays which has tran- spired since FY 1970. 10.4.2.2 Capital Expenditures and Revenue Sources Street resurfacing may increase when maintenance outlays decrease, offsetting the potentially damaging effects of deferred maintenance. In St. Louis, however, resurfacing expenditures in the past seven or eight years have not increased above the FY 1957 to FY 1968 levels to offset the decline in maintenance (Exhibit 10.12). Approximately two-fifths of the revenues used for resurfacing were derived from the city's General Fund. The remainder was supplied by bond issuances. In FY 1977, CDBG funds were used for resurfacing. Expenditures on resurfacing are combined with new capital outlays in Exhibit 10.13. Capital expenditures in current dollars during the FY 1957 to FY 1967 period were quite substantial. Much of this is due The revenue source for maintenance expenditures is the tolls. Therefore, maintenance of MacArthur Bridge is not a burden on the city finances. 11.286 Exhibit 10.10: Street Maintenance Expenditures Maintenance Expense Rate of Fiscal (thousands Annual Change Inflation 2 Year* of dollars) (percent) (percent) 1957 1,076 — 1958 NA — + 4.8 1959 NA — + 4.5 1960 1,102 — + 2.9 1961 1,197 + 8.6 + 4.2 1962 1,253 + 4.7 + 5.4 1963 1,189 - 5.1 + 3.8 1964 1,130 - 5.0 + 4.9 1965 1,201 + 6.3 + 3.5 1966 1,211 + 0.8 + 9.1 1967 1,213 + 0.2 + 5.2 1968 1,313 + 8.2 + 5.9 1969 NA 3,515^ 2,685:; 2,350;: 2,542;: 2,868^ 2,344:? 2,179;? 2,400 J — +10.3 1970 — +11.0 1971 -23.6 + 9.2 1972 -12.5 + 8.4 1973 + 8.2 + 3.9 1974 +12.8 + 8.1 1975 -18.3 + 8.6 1976 - 7.0 + 6.9 1977 +10.1 + 5.4 Average Annual Rate of Change (FY 1957-FY 1977) + 4.1 + 6.3 (FY 1970-FY 1977) - 5.6 + 7.2 l Ti 1957-FY 1977 ended April 30. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. "' ' Includes bridge maintenance, except for MacArthur Bridge. NA = Data not available. — = Not applicable. Source: City of St. Louis, Annual Reports of the Comptroller of the City of St. Louis. 11.287 Exhibit 10.11: Bridge Mc Maintenance Expense Fiscal (thousands Year 1 of dollars) 1957 640 1958 472 1959 475 1960 584 1961 860 1962 710 1963 576 1964 598 1965 685 1966 695 1967 678 1968 838 1969 NA 710^ 903:: 744:; 828:: 570:: 938^ 1.053, 748 J 1970 1971 1972 1973 1974 1975 1976 1977 Annual Change (percent) -26.3 + 0.6 +22.9 +47.3 -17.4 -18.9 + 3.8 +14.5 + 1.5 - 2.4 +23.6 +27.2 -17.6 +11.3 -31.2 +64.6 +12.3 -29.0 Average Annual Rate of Change (FY 1957-FY 1977) + 1.8 (FY 1970-FY 1977) + 0.8 Rate of Inflation 2 (percent) + 4 8 + 4 5 + 2 9 + 4 2 + 5 4 + 3 8 + 4 9 + 3 5 + 9 1 + 5 2 + 5 9 +10 3 +11 + 9 2 + 8 4 + 3 9 + 8 1 + 8 6 + 6 9 + 5 4 + 6 3 + 7 2 *FY 1957-FY 1977 ended April 30. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. 3 Includes maintenance and salaries for the bridge personnel of MacArthur Bridge (a toll bridge) only. NA = Data not available. — = Not applicable. Source: City of St. Louis, Annual Reports of the Comptroller of the City of St. Louis . ~~ .---=--— -— - -.,— ~ - — 11.288 Exhibit 10.12: Capital Expenditures for Resurfacing By Revenue Source (thousands of dollars) Fiscal Year 1 General Fund Bonds Federal Total 1957 0.0 418.0 0.0 418.0 1958 293.3 18.7 0.0 312.0 1959 209.3 8.7 0.0 218.0 1960 0.0 472.0 0.0 472.0 1961 6.5 359.5 0.0 366.0 1962 1.0 155.0 0.0 156.0 1963 1.3 62.7 0.0 64.0 1964 0.0 314.0 0.0 314.0 1965 0.0 467.0 0.0 467.0 1966 0,0 489.0 0.0 489.0 1967 0.0 352.0 0.0 352.0 1968 7.3 107.1 0.6 115.0 1969 0.0 4.0 0.0 4.0 1970 0.0 96.0 0.0 96.0 1971 0.0 10.0 0.0 10.0 1972 107.2 24.8 0.0 132.0 1973 449.8 30.2 0.0 480.0 1974 267.7 41.3 0.0 309.0 1975 113.6 12.4 0.0 126.0 1976 613.0 0.0 0.0 613.0 1977 314.1 0.0 142.9 457.0 Total 2,384.1 3,442.4 143.5 5,970.0 FY 1957-FY 1977 ended April 30. Source: City of St. Louis, Annual Reports of the Comptroller of the City of St. Louis. 11.239 Exhibit 10.13: Capital Expenditures For Streets (including resurfacing) By Revenue Source (thousands of dollars) Fiscal General Year 1 Private Fund Bonds Federal Total 1957 3.6 0.0 3,771.4 0.0 3,775.0 1958 0.0 293.3 3,058.7 0.0 3,352.0 1959 0.0 211.6 1,574.4 0.0 1,786.0 1960 0.0 30.6 2,704.4 0.0 2,735.0 1961 0.0 6.5 1,891.5 0.0 1,898.0 1962 0.0 24.1 2,204.9 0.0 2,229.0 1963 0.0 1.3 3,352.7 0.0 3,354.0 1964 0.0 125.0 3,342.0 0.0 3,467.0 1965 0.0 18.6 3,031.4 0.0 3,050.0 1966 0.0 20.1 1,081.9 0.0 1,102.0 1967 0.0 0.0 2,366.0 0.0 2,366.0 1968 0.0 7.3 530.1 0.0 538.0 1969 0.0 4.6 68.4 0.6 73.0 1970 0.0 0.0 1,851.7 214.3 2,066.0 1971 0.0 0.0 36.5 28.5 65.0 1972 0.0 107.2 86.2 68.6 262.0 1973 0.0 449.8 288.2 0.0 738.0 1974 0.0 276.5 142.5 0.0 419.0 1975 0.0 174.0 97.0 0.0 271.0 1976 0.0 642.1 31.5 384.4 1,058.0 1977 0.0 314.1 160.8 959.1 1,434.0 Total 3.6 2,706.7 31,672.2 1,655.5 36,038.0 FY 1957-FY 1977 ended April 30. Source: City of St. Louis, Annual Reports of the Comptroller of the City of St. Louis. 11.290 to the local match for Interstate highway funds, hence, contributing to the apparently large capital outlays. * Since FY 1968, there has been a substantial decline in capital expenditures. A reason for this decrease is that bond funds are becoming increasingly scarce. Bond issuances contributed almost 90 percent of total capital expenditures in the FY 1957 to FY 1977 period; that they are diminishing augurs poorly for the city's efforts to maintain adequate spending levels. In the last two years of the study period, CDBG funds have boosted the spending levels on capital outlays for streets. In fact, Federal grants have contributed more than one-half of total capital expenditures during FY 1976 and FY 1977. Similarly, Federal grants for capital outlays on bridges have amounted to one-third of the city's capital expenditures on bridges in the FY 1974 to FY 1977 period (Exhibit 10.14). The amount of capital expenditures for bridge purposes since FY 1967 has not been significant, except for the last two years of the study period. Prior to this time, capital expenditures were very low and were financed principally through bond issuances. As bond funds became scarcer (after FY 1966), capital outlays on bridges diminished significantly. 10.4.2.3 Condition of Streets and Bridges The approximately 1,150 miles of streets are classified by the city as either residential, collector or arterial streets. As of February 1979, there were approximately 750 miles of residential streets, 250 miles of collectors, and 200 miles of arterials. Approximately three- fourths of the 200 miles of arterials are in good condition, and the balance are considered to be poor. Of the 250 miles of collector streets, approximately 150 miles are in adequate condition, and the balance are rated from poor to fair. Residential street condition ranges from poor to fair. Alleys were described by city officials as being in "horrible condition." Many of them have caved in from sewer collapses and settle- ment of soils. Only emergency repairs are made on alleys. There is no ongoing maintenance program for the city's 500 miles of alleys. Officials of the Street Division believe that the city should be restoring street surfaces at a rate of about 10 percent per year. However, the restoration program falls short of this goal. Review of several annual reports of the Street Department from 1959 to 1975 shows that the amount of resurfacing had increased significantly until 1974 when it fell sharply. The volume of street resurfacing for four sample fiscal years was as follows: • FY 1959: 232,993 square yards. • FY 1970: 372,586 square yards. What does not appear in this table are the Federal matching funds for the Interstate highways. 11.291 Exhibit 10.14: Capital Expenditures for Bridges By Revenue Source (thousands of dollars) Fiscal General Year 1 Private Fund Bonds Federal Total 1957 0.0 282.4 260.6 0.0 543.0 1958 0.0 0.0 572.0 0.0 572.0 1959 0.0 0.0 2,530.0 0.0 2 ,530.0 1960 0.0 0.0 901.0 0.0 901.0 1961 0.0 0.0 611.0 0.0 611.0 1962 0.0 0.0 2,003.0 0.0 2 ,003.0 1963 0.0 0.0 1,418.0 0.0 1 ,418.0 1964 0.0 0.0 678.0 0.0 678.0 1965 0.0 0.0 450.0 0.0 450.0 1966 0.0 0.0 535.0 0.0 535.0 1967 0.0 0.0 21.0 0.0 21.0 1968 0.0 0.0 6.0 0.0 6.0 1969 NA NA NA NA NA 1970 0.0 0.0 28.0 0.0 28.0 1971 0.0 0.0 22.0 0.0 22.0 1972 0.0 0.0 96.0 0.0 96.0 1973 125.1 0.0 86.9 0.0 212.0 1974 113.0 0.0 107.6 317.4 538.0 1975 158.2 0.0 632.6 527.2 1 ,318.0 1976 316.4 0.0 381.8 392.8 1 ,091.0 1977 217.2 0.0 329.3 237.5 784.0 Total 929.9 282.4 11,669.8 1,474.9 14 ,357.0 l 7Y 1957-FY 1977 ended April 30. NA = Data not available. Source: City of St. Louis, Annual Reports of the Comptroller of the City of St. Louis . 11.292 • FY 1973: 1,131,504 square yards. • FY 1975: 78,000 square yards. Maintenance of city-owned bridges is a responsibility of the Bridge Maintenance Section of the Division of Street Maintenance. Major rehabil- itation, replacement, and construction is done under contracts adminis- tered by the St. Louis Board of Public Service. The city is responsible for the maintenance of one bridge spanning the Mississippi River, the MacArthur Bridge. Other Mississippi River bridges are the responsibility of other public agencies and several railroad companies. The city does not have an inventory of its bridges nor a summary of the physical con- dition of all bridges. There is no regular bridge inspection program. There are four vehicle bridges that connect Illinois with the St. Louis Central Business District — Poplar Street, King, Eads, and MacArthur. The latter two also carry railroad traffic. A major problem is that the Poplar Street Bridge is overused (90,000 vehicles/day) while the other three bridges are used by only 43 percent of the drivers who live in Illinois and work in downtown St. Louis. There are four proposed solutions being studied now. Three solutions call for modifying existing bridges, and one proposes a new bridge. The MacArthur Bridge, for which the city has responsibility as an owner, was built in the 1920' s. This bridge i~ in poor condition and has been closed from time to time, especially during winter months. A private engineering firm has been retained in past years to inspect the bridge and make recommendations for rehabilitation and maintenance needs. Piecemeal repairs have been done by the St. Louis Department of Public Utilities. Some structural members of this steel bridge have been replaced. Many city bridges have an insufficient number of lanes and insuffi- cient lane widths. Examples are the bridges at 12th Street and Morganford, Tower Grove and Vandwenter, and the Hamptom Avenue viaduct. The 21st Street Bridge across Mill Creek Valley has been closed to traffic. Three vehicle bridges are posted for height limitations, and one bridge is posted for road limitation. Bridge deterioration is also a problem. This deterioration includes decks, structural members, bridge railings, sidewalks, and expansion joints. 10.4.3 Sewer System 10.4.3.1 Maintenance Expenditures and Revenues Maintenance expenditures by Metropolitan Sewer District (MSD) for the region have increased at an average annual rate of 10.7 percent for the 21-year study period (Exhibit 10.15). This rate compares favorably with the 6.3 percent average annual inflation rate. During the past ten years of the study period, maintenance expenditures increased at an annual rate that is almost double the inflation rate. These impressive gains, 11.293 Exhibit 10.15: Sewer System Maintenance Expenditures Maintenance Expense Rate of Fiscal (thousands Annual Change Inflation 3 Year2 of dollars) (percent) (percent) 1957 1,434 1958 1,642 +14.5 + 4.8 1959 1,830 +11.5 + 4.5 1960 1,866 + 2.0 + 2.9 1961 1,983 + 6.3 + 4.2 1962 2,028 + 2.3 + 5.4 1963 2,010 - 0.9 + 3.8 1964 2,152 + 7.1 + 4.9 1965 2,263 + 5.2 + 3.5 1966 2,408 + 6.4 + 9.1 1967 5,193 +115.7 + 5.2 1968 3,460 -33.4 + 5.9 1969 5,066 +46.4 +10.3 1970 5,749 +13.5 +11.0 1971 6,934 +20.6 + 9.2 1972 7,998 +15.3 + 8.4 1973 8,537 + 6.7 + 3.9 1974 9,358 + 9.6 + 8.1 1975 10,708 +14.4 + 8.6 1976 11,428 + 6.7 + 6.9 1977 12,653 +10.7 + 5.4 Average Annual Rate of Change (FY 1957-FY 1977) +10.7 + 6.3 (FY 1968-FY 1977) +15.5 + 8.0 Includes sewage collection maintenance and waste water treatment operation and maintenance. 2 FY 1957-FY 1977 ended June 30. 3 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 cities, March 1978, p. 75. — = Not applicable. Source: The Mississippi River Treatment Plant Subdistrict, Annual Financial Statements. 11.294 however, should be viewed with some caution. Since it was impossible to separate operation costs in order to derive an appropriate annual maintenance expenditure, the figures presented in Exhibit 10.15 reflect both operation and maintenance expenditures. The average annual rates of increase are only significant if the ratio of maintenance to total operating costs remained uniform during the 1957 to 1977 period. If the maintenance ratio declined, then the table substantially overstates the increases in maintenance. Because of the fair to poor rating of the condition of the sewer system (see discussion below), it is our judg- ment that, indeed, maintenance has not kept pace with increases in operating expenditures. 10.4.3.2 Capital Expenditures and Revenue Sources The large capital outlays in the mid to late 1960 's were attrib- utable to the completion of a system of major trunk sewers, as well as the completion of two treatment plants in FY 1968 and FY 1970 (Exhibit 10.16). The comparatively high levels of capital outlays after FY 1974 were due primarily to the construction of secondary treatment facilities mandated by EPA. The three main revenue sources are bond issuances, state and Federal grants, and own-source funds (the latter being comprised of user charges and ad valorem taxes levied on service area residents) . The largest contributor, state and Federal sources, accounted for 37 percent of total capital expenditures for the 21-year period. However, since FY 1967, state and Federal grants have amounted to 42 percent of total capital expenditures. Revenues derived from the sale of revenue bonds have con- tributed 34 percent of total capital outlays; most of these bond funds having been expended between FY 1964 and FY 1969. Own-source revenues accounted for the remaining 29 percent. 10.4.3.3 Condition of the Sewer System St. Louis is served by combined sewers in all of its 61 square mile area, except for one small area served by the northern segment of the major interceptor sewer along the Mississippi River. The MSD does not know precisely how many miles of sewers are in its wastewater collection system, nor the size and exact location of many of the sewers. Estimates indicate that there are approximately 1,103 miles of collection sewers and trunk sewers within the city of St. Louis. The majority of the sewers serving downtown areas of the city were constructed between 1860 and 1870; however, based upon operational expe- riences, relief sewers have been installed over the years to supplement most of these. Many of the major sewers are between 50 years and 125 years old. There are two tunnel interceptor sewers paralleling the Mississippi River, which were constructed between 1964 and 1970. 11.295 Exhibit 10.16: Sewer System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal Own-! Source State/ Year 1 Private 0.0 Funds Bonds 160.2 Federal 0.0 Total 1957 19.8 180.0 1958 0.0 91.8 16.2 0.0 108.0 1959 0.0 164.8 41.2 0.0 206.0 1960 0.0 67.3 50.7 0.0 118.0 1961 0.0 0.5 529.5 0.0 530.0 1962 0.0 12.2 3.8 0.0 16.0 1963 4.8 132.0 22.2 0.0 159.0 1964 5.9 183.0 2 ,764.0 0.0 2,953.0 1965 0.0 52.5 5 ,193.5 0.0 5,246.0 1966 10.7 117.7 10 ,572.6 0.0 10,701.0 1967 0.0 77.2 386.2 25,281.6 25,745.0 1968 0.0 258.5 33 ,124.4 3,545.1 36,928.0 1969 0.0 13 ,160.0 822.5 2,467.5 16,450.0 1970 0.0 7 ,505.1 278.0 2,907.9 10,691.0 1971 0.0 1 ,147.3 4.3 3,161.4 4,313.0 1972 0.0 1 ,314.8 2.6 1,240.6 2,558.0 1973 0.0 3 ,762.1 32.0 2,614.9 6,409.0 1974 0.0 2 ,866.4 4.5 1,643.1 4,514.0 1975 0.0 6 ,626.6 10.4 3,815.0 10,452.0 1976 0.0 4 ,622.2 71.1 2,417.7 7,111.0 1977 0.0 3 ,672.5 13.2 9,477.3 13,163.0 Total 21.4 45 ,854.4 54 ,103.1 58,572.1 158,551.0 FY 1957-FY 1977 ended June 30. Source: The Mississippi River Treatment Plant Subdistrict, Annual Financial Statements. 11.296 The condition of the public sewers is poor to fair. The smaller sewers are the most troublesome. In the central business district, most sewers are of brick construction and are usually quite deep. Many sewer failures occur near the Mississippi River because of poor soil conditions and the shifting of soil following the spring rise of the river. Estimates indicate that there are approximately 15,000 manholes and 60,000 catch-basins on the sewer system within the city of St. Louis. Many of these have deteriorated and leak badly, particularly the many older ones constructed of brick and concrete masonry. These are being replaced and upgraded year by year. Trapped inlets now have a different design. MSD has two crews that make sewer inspections using television equipment. This has been underway since 1964. Available manpower and equipment is not sufficient to permit television inspection of the entire sewer system in a reasonable length of time. Therefore, the inspections are made only in response to requests by repair and maintenance crews. Only about 300 feet is televised in a day. The inspection program is not considered to be sufficient; however, funds have not been available to expand the program. Forty-seven of the District's 120 pumping stations handle sewage from the city of St. Louis. There are two pumps at each station, each having sufficient capacity to pump the entire load. Thus, one pump is on standby. Generally, the condition of the pumps is very good and a preventive maintenance program is ongoing. MSD's two wastewater plants are relatively new, having been put into operation in 1970. At present, both plants provide only primary treat- ment. The Bissell Point Plant, located on the Mississippi River in northern St. Louis, has a design capacity of 248 mgd . At present, this plant processes an average of 140 mgd delivered from a 42.4 square mile area of the city and county. The Lemay Plant, located south — on the Mississippi River in St. Louis County — has a design capacity of 175 mgd. It processes an average of 110 mgd from 41.9 square miles of the city and county. Generally, the Lemay Plant and Bissell Point Plant are in very good condition. Their reliability and efficiency have remained constant. Future plans call for constructing another $424 million of improvements at the Lemay Plant in the near future and $40 million at a later time. At the Bissell Point Plant, approximately $200 million will be required to add secondary treatment capability. There are three major components of MSD's programmed maintenance and inspection. These are 1) sewers, 2) pump stations, and 3) treatment plants. For sewers, the MSD Maintenance Department has three districts in the city of St. Louis for responding to complaints and performing related work. There are six districts assigned to cleaning sewers in the city. Overall, the sewer maintenance program is not satisfactory; more personnel are needed. 11.297 Approximately 60 persons of the Pump Station Division were assigned to pump station maintenance as of 1976. The Pump Station Division has a computerized preventive maintenance program, based upon manufacturers' maintenance recommendations. There are also eight additional persons that have responsibility for continual cleaning of more than 100 bar screens located at pump stations. Treatment plant maintenance is pro- vided systematically and successfully by the Wastewater Department. 10.4.4 Mass Transit 10.4.4.1 Maintenance Expenditures and Revenues Between FY 1964, the first year of Bi-State's existence as the regional mass transit authority, and FY 1977, the average annual increase in maintenance expenditures was only 6.3 percent (Exhibit 10.17). The rate of inflation, however, at 7.3 percent, outstripped the increases in maintenance. If just the last ten years of the study period are analyzed, increases in maintenance expenditures are slightly higher than increases in the inflation rate. Maintenance expenditures are financed through a variety of sources. In 1976, UMTA Section 5 (discretionary subsidies) assistance became avail- able and contributed $7.9 million. In FY 1977, this figure dropped to $6.8 million and then increased dramatically to $14.7 million in FY 1978. Operating subsidies are also granted by the city of St. Louis, St. Louis County, the states of Illinois and, to a much lesser degree, Missouri, and by a small number of municipalities in St. Louis County. Finally, fare-box revenues are also used for operating, but not for capital, pur- poses. 10.4.4.2 Capital Expenditures and Revenue Sources Since Bi-State came into existence in FY 1964, almost 80 percent of its total capital expenditures were derived from Federal sources (Exhibit 10.18). The remainder is contributed by the state of Illinois and by a sales tax on St. Louis City and St. Louis County residents who are served by Bi-State. For the first ten years of Bi-State's existence, very little was actually spent on capital outlays for the mass transit system. Beginning in FY 1974, a vigorous capital program with heavy Federal subsidies commenced. Bi-State purchased 240 buses in FY 1974, 200 buses in FY 1975, 180 buses in FY 1976, and refurbished buses in FY 1977 at a cost of $4.5 million. 10.4.4.3 Condition of the Mass Transit System As of February 13, 1979, Bi-State owned 996 buses, 934 of which were assigned to regular routes on that dace. The other 62 buses were assigned to special services. Approximately 62 percent of the buses were purchased since FY 1974. Therefore, only about 38 percent of the bus inventory is older than four or five years. The average age is 5.5 years. 11.298 Exhibit 10.17: Mass Transit Maintenance Expenditures Maintenance Expense Rate of Fiscal (thousands Annual Change Inflation 2 Yearl of dollars) (percent) (percent) 1964 3,285.4 — 1965 3,306.8 - 0.7 + 4.9 1966 3,290.5 - 0.5 + 3.5 1967 3,412.1 + 3.7 + 9.1 1968 3,430.0 + 0.5 + 5.2 1969 3,628.4 + 5.8 + 5.9 1970 3,484.3 - 4.0 +10.3 1971 3,803.2 + 9.2 +11.0 1972 4,966.8 +30.6 + 8.4 1973 3,508.0 -29.4 + 3.9 1974 4,798.0 +36.8 + 8.1 1975 6,553.8 +36.6 + 8.6 1976 7,811.9 +19.2 + 6.9 1977 7,291.5 - 6.7 + 5.4 Average Annua! . Rate of Change (FY 1964-FY 1977) + 6.3 + 7.3 (FY 1968-FY 1977) + 8.7 + 8.0 FY 1964-FY 1971 ended February 28. FY 1972 began March 1, 1971 and ended June 30, 1972; FY 1973-FY 1977 ended June 30. 2 Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. — = Not applicable. Source: Bi-State Transit System, Bi-State Development Agency of the Missouri-Illinois Metropolitan District, Annual Financial Statements. 11.299 Exhibit 10.18: Mass Transit Capital Expenditures By Revenue Source (thousands of dollars) Fiscal State of Missouri Yearl Federal Illinois Conti ributions Total 1964 0.0 0.0 0.0 0.0 1965 0.0 0.0 0.0 0.0 1966 0.0 0.0 0.0 0.0 1967 0.0 0.0 0.0 0.0 1968 0.0 0.0 0.0 0.0 1969 574.1 100.0 150.0 824.1 1970 574.1 100.0 150.0 824.1 1971 1,538.3 150.0 0.0 1,688.3 1972 0.0 0.0 0.0 0.0 1973 0.0 0.0 0.0 0.0 1974 10,664.0 688.8 1 ,977.2 13,330.0 1975 7,843.6 363.2 1 ,597.8 9,804.6 1976 20,654.7 781.5 4 ,382.3 25,818.4 1977 3,568.1 89.3 802.7 4,460.1 Total 45,416.9 2,272.8 9 ,060.0 56,749.6 FY 1964-FY 1971 ended February 28. FY 1972 began March 1, 1971 and ended June 30, 1972; FY 1973-FY 1977 ended June 30. Source: Bi-State Development Agency, Summary of Grants . 11.300 Although the average of of Bi-State's 996 buses is very young, the buses are in poor condition. It is evident that the preventive mainte- nance program is not followed. As evidence of this condition, 178 of the 934 buses assigned to regular routes were out of operation on February 13, 197 9. This represents 19 percent of the regular route buses. Buses purchased prior to FY 1975 have good transmissions which normally provide 100,000 miles of service before the transmission must be rebuilt. For those buses purchased after FY 1974, rebuilding the transmission is usually required after an average of only 30,000 miles. Rebuilding a transmission requires 50 hours of time. This removes a bus from service for one week. Bi-State's maintenance department has a preventive maintenance plan, This plan calls for a series of inspections and checks of various bus components at 1,500 mile intervals. The lists of inspections and checks appear formidable and comprehensive; however, the maintenance department has not been successful in carrying out this program as planned. The timing and manner in which inspections are made are not in conformance with the mileage schedules and maintenance standards. Lack of sufficient numbers of qualified mechanics is a major prob- lem for the Bi-State Development Agency. The total number of personnel assigned to the maintenance department on February 13, 1979 was 403. Management personnel within the department feel that an additional 100 mechanics, or more, are needed. Because of the inadequacy of the main- tenance forces, Bi-State is making plans to subcontract some of the mechanical work to private companies. However, the current maintenance program can only be given a poor rating. 10.5 Analysis and Conclusions 10.5.1 Effects of Federal Grants-in-Aid For streets and bridges, Federal funds are replacing bond funds. Bond revenues are rapidly declining as a source of capital for bridge and street programs. In order to increase the amount of spending on streets and bridges, Federal funds have allowed the city to accelerate its program. However, as Exhibits 10.13 and 10.14 suggest, these funds are used for what appear to be backlogged projects. The city's depend- ence on these grants to continue or to improve the capital program is very high. For without Federal grants, the city's capital improvement programs would be very small. Federal grants-in-aid to the two special districts which were studied, Bi-State and MSD, suggest different conclusions. Because of EPA requirements for secondary treatment, MSD was required to expend II.3C1 additional monies in the mid-1970 1 s. MSD is not dependent on Federal aid for the continuance of its programs. MSD probably could not have undertaken such a capital program (secondary treatment) without Federal aid. But, with the Federal requirement to upgrade treatment and the availability of Federal funds, MSD has constructed the secondary treat- ment facilities. Federal grants for the mass transit system, Bi-State, are stimula- tive. Prior to the availability of Federal programs and later of UMTA Section 3 (capital subsidies) grants, Bi-State did not have a transit capital investment program. Federal grant programs led to incentives to invest in capital stock. Almost all capital outlays are shared costs with the Federal government, and without Federal grants-in-aid, Bi-State would be involved in capital spending only to a very minor degree. 10.5.2 Revenue-Generating Capacity of the City The city of St. Louis has four primary revenue sources from which city expenditures can be made. Unlike most cities, the most important revenue source is not the property tax, but the earnings or income tax. The earnings tax is one percent of gross income of city residents and contributed over $44 million to the General Fund in FY 1977, which was more than the revenues from the real estate and personal property tax. Another revenue source that contributed a large sum to the General Fund is the city's franchise tax. The franchise tax is a gross receipts tax on public utilities at a rate of approximately 10 percent. This tax generated over $32 million in FY 1977, which was almost as much as the property tax contributions to the General Fund in FY 1977 and in prior years. The other non-property tax is the city's sales tax which began in FY 1970. This is a one and one-half percent tax on gross sales within the city, of which the city is entitled to one percent of the tax and Bi-State receives the remaining one-half percent. Property taxes have generated approximately $34 million for each of the last ten years (Exhibit 10.3). Assessed valuation is at 100 per- cent of fair market value (FMV) and the tax rate has increased from $18.90 per $1,000 of FMV in FY 1957 to $25.70 per $1,000 in FY 1967 to $27.40 per $1,000 in FY 1977. The increase in the tax rate amounts to only about 50 percent during the 21-year period, a very small increase compared to most other cities; however, the rate is currently in the middle to high range compared to the other eight cities examined in this study. The reason the property tax has not increased revenues very much is that the overall assessed valuation for the entire city has been decreasing. The city might use the property tax as a release valve in response to fiscal pressures, since the rate has increased only slowly in the last few decades. However, as the population continues to decline, the burden of increased property taxes falls on the remaining population. In effect, total property tax revenues have remained the same for a long period of time while people have migrated out of the city. The result is that now 11.302 fewer people are carrying a larger burden of financing the city's activ- ities. Property tax increases, then, may not be a feasible mechanism for relieving fiscal strain. The earnings and sales taxes are better suited to the change in eco- nomic conditions than are property taxes. These two taxes respond to inflation much more rapidly, alleviating to a large extent revenue short- falls during rapid inflation periods. However, with all the existing taxes, coupled with the need for the city to expand its revenue base to Improve maintenance and capital outlays, it is doubtful whether any of these taxes can be used to alleviate fiscal strain. If current service levels are to be upgraded, the city must find alternative revenue sources. 10.5.3 Some Implications A declining revenue base, per capita incomes that are lower than the national average, and increasing maintenance needs do not augur well for the city of St. Louis. The city's internal revenue generating capacity, although based on diverse sources, is not large. Property taxes, even income taxes, could probably be raised, but the magnitude of the required increase for capital and maintenance activities could not be met. A Department of Treasury publication suggests that for the city to maintain current service levels, an increase in the property tax of $8.40 per $1,000 of FMV would be required to replace AFRA, LWP, and CETA funds which the city is currently receiving. 1 This amounts to almost a 30 percent increase in property tax, an increase not likely to be approved. Furthermore, even with these three economic stimulus packages, much more would be needed in terms of maintenance and capital outlays for the city. The city's maintenance and capital expenditures, in real terms, are not adequate. Indeed, without Federal grants it appears that the city's capital programs for streets and bridges and Bi-State's bus purchase pro- gram would drop substantially. Until the time that more revenue from any source are forthcoming, the condition of the capital stock, which is only poor to fair currently, will continue to deteriorate. U. S. Department of the Treasury, Office of State and Local Finances, "Report on the Fiscal Impact of the Economic Stimulus Package on 48 Large Urban Governments," January 23, 1978, p. 65. 11.303 11.0 SEATTLE, WASHINGTON 11.1 Introduction and Summary of Findings 11.1.1 Introduction Seattle, a relatively young city of approximately one-half million people, is located in the Pacific Region. The city of Seattle is respons- ible for streets, bridges, the water system, and sewage collection. Sewage treatment and mass transit are the responsibility of a special district, the Municipality of Metropolitan Seattle. Although the city has lost population since 1960, the per capita income is almost 39 per- cent higher in Seattle than the United States average. The city's revenue base appears to be quite strong. 11.1.2 Summary of Findings The principal findings emerging from the Seattle case study are as follows: • Own-source revenue-generating capacity is good. The comparatively wealthy status of the city of Seattle and its relatively low property tax rates suggest that the city can afford to increase outlays for maintenance or capital purposes if the need arises. This is true despite the fact that the population base is decreasing and unemployment has become high in recent years (over 9.1 percent since 1975) • The streets and bridges are in fair condition. Constant dollar maintenance expenditures have declined for both streets and bridges (FY 1977 levels were 74 percent and 77 percent of FY 1975 levels, respectively), and their physical condition is only fair. However, a regular inspection program for bridges has aided in correcting problems. • The water and sewer systems are in good condition. Adequate maintenance and capital expenditures, recently improved management, and preventive maintenance programs have resulted in well- maintained water and sewer systems. • The mass transit system is improving. A vigorous replacement program and emphasis on maintenance of the existing fleet are two important indications of an improving capital stock. 11.304 11.2 City Description 11.2.1 Population and Employment Trends Seattle's population declined over 12 percent between 1960 and 1975, while the Seattle-Everett SMSA increased its population by 27 percent (Exhibit 11.1). The decline in the city's population base has not been accompanied by a decline in the per capita income of the remaining resi- dents. In fact, per capita income has increased rapidly and has remained at a higher absolute level for city residents than for the SMSA as a whole. This phenomenon is due in part to the high wage, high technology industries that are located in Seattle. The unemployment statistic indicates that a relatively high level of unemployment has existed for both the city and the SMSA. Much of this can be explained by the cyclical nature of the aerospace industry, which is the largest employer in the area. In 1978, the increased demand for aircraft led to a boom in the Seattle economy, alleviating much of the unemployment problem. Manufacturing employment declined by almost one-third for the city of Seattle between 1958 and 1972 (Exhibit 11.2). Wholesale and retail trade remained unchanged, while selected services employment climbed to almost a 50 percent increase. The SMSA, on the other hand, experienced an increase in employment in three of these sectors with a slight decrease in the fourth, manufacturing. 11.2.2 Total Revenues and Expenditures for the City The growth in own-source revenues for Seattle during the FY 1967 to FY 1976 period (Exhibit 11.3) has been 146 percent, slightly more than the increase in total revenues of 133 percent.! More importantly, intergovernmental revenues, which comprised only 11 percent of total revenues in FY 1967, grew by more than 430 percent in the ensuing years, amounting to over one-fourth of Seattle's total revenues by FY 1976. The Federal portion of this increase rose considerably from $1 million in FY 1967 to over $54 million in FY 1976. Expenditures in current dollars doubled in the FY 1967 to FY 1976 period. However, in constant dollars the growth is substantially less, The reason that the increases in own-source revenues and inter- governmental revenues appear so much higher than total revenue increases is due to the inclusion of "utilities" which have often expended more than they receive in revenues. If "utilities" are excluded, general revenues increased by 204 percent between FY 1967 and FY 1976. 11.305 Exhibit 11.1: Population, Employment and Income Characteristics of Seattle 1960 1970 1975 1977 Population SMSA City 1,107,213 557,087 1,424,605 530,831 1,406,746 487,091 NA NA Per Capita Income SMSA City $2,329(1959) $2,522(1959) $3,838(1969) $4,052(1969) $4,091(1974) $5,800(1974) NA NA Unemployment Rate SMSA City 5.82 6.1% 8.2% 8.3% 9.1% NA NA 8.4% Civilian Labor Force Employed SMSA City 419,933 230,114 556.755 226,629 608,000 NA NA NA Exhibit 11.2: Employm ent By Sector in Seattle 1958 1963 1967 1972 Manufacturing Employment SMSA 114,920 121,556 162,200 108,600 City 81,944 79,301 64,300 54,900 Wholesale Employment SMSA 26,009 27,348 31,817 33,798 City 23,842 24,159 27,036 24,507 Retail Employment SMSA 53,010 59,362 71,479 80,289 City 37,968 37,370 42,831 39,005 Selected Services Employment SMSA 20,176 20,973 28,038 39,713 City 17,147 16,746 20,519 25,560 NA ■ Data not available. Sources for Exhibits 11.1 and 11.2: U.S. Department of Commerce, Bureau of the Census, County and City Data Book , (various years); Civilian Labor Force Employed and Unemploy- ment Rate for 1975 were obtained from Geographic Profile of Employment and Unemployment , 1975 , U.S. Department of Labor, Bureau of Labor Statistics, 1977; 1977 employment rate obtained from Lynn Brown and Richard Syron, "Cities, Suburbs and Regions", New England Economic Review , January /February 1979, p. 45. 11.306 £ 148.9 16.7 13.9 1.0 1.7 67.3 36.0 19.6 16.4 31.3 64.9 160.9 6.9 53.9 18.0 80.2 1.8 O 00 £ e» Own* O en -■ eN r» >o (ni >£,_r-i_ J J o> 1 m (J ex r- vO vO r^ 00 (Nl — It (M r- o en ~< in e-~ o -O -J e- -> CM (VI O O ~ O<-M00|f!C0 O r-~ ic .» vo rv _, en o vO 3 * -J O CT> O -■ ma-f. 1 (NvO r~ — ul r~. (N r- o < sD evj UINOIN O ev en — r» < eM O OV O — Z O SO 1 en en 00 2 2 2 2 2 2 < Z vO SO £ ,1 e~ m -• O en c* o m -> o-> en — i m m ■< Z vO C OS 3 C CI C 11 u a 3 C u a 00 a >> (o ~ u JZ 01 C i- CJ U 3 1 - 1% s, s c eo M OUJIC > u(uu-h a et T3 u 1- « u B J « C 3 (3 3 >- l J s 3 3 C u TJ CO T3 O. x a a -13 3 C -O >< T3 e c ™ c c a <-> a. 1 Z 5 £ o u — >, c 3 re or~i^ .o >o (M .90 O OJ -a > gj m c w o o o r-« On-500 on r« o I r» i w on c m a ui "jo 3 ra 11.308 since the Consumer Price Index for Seattle rose by 68 percent during these years. 11.2.3 City Government Structure/Responsibility for Public Works Activities The city of Seattle operates under a Mayor-Council form of govern- ment. The Engineering Department is responsible for maintenance, operation, and construction of the city's streets, bridges, and sewage collection system. The city's Water Department is part of the city's governmental structure, although it is financially independent. The Municipality of Metropolitan Seattle (Metro) was established as a special district and currently operates, maintains, and constructs sewage treatment facilities and the mass transit system for the Seattle- King County area. Metro came into existence in 1958 to operate only the sewage treatment facilities. By 1963, the transfer of the sewage treat- ment facilities and major interceptors from the participating towns was completed. Data are not available before 1963. In 1972, mass transit for the Seattle-King County region came under the jurisdiction of Metro after operating as a city-owned enterprise for two years. Before 1970, public transportation was managed by an independent commission. 11.3 Summary of Findings on Maintenace, Capital Outlays and Condition of Capital Stock Conventional wisdom suggests that a city (and SMSA) with a declining population base should be investing its resources in maintaining the already constructed public infrastructure. This line of thought would suggest that Seattle and the Seattle-Everett SMSA should evidence an increasing emphasis on maintenance outlays. However, the maintenance expenditures as illustrated in Exhibit 11.4 do not demonstrate this emphasis. Constant dollar maintenance expenditures for four city func- tions — water, sewage collection, streets, and bridges — have declined generally during the study period. This trend is not shared by Metro's operation of the mass transit system. Maintenance expenditures for mass transit increased substantially in the FY 1972 to FY 1977 period. The figures for Metro's maintenance outlays for sewage treatment are not accurate since operating costs are combined with maintenance and are therefore inseparable. No discernible trends are evident in capital expenditures (Exhibit 11.5). Capital expenditures for the water system were rela- tively high in the first six years of the study period (due to constuc- tion of a second water supply source), after which they declined. U. S. Department of Labor, Bureau of Labor Statistics, Monthly Labor Review , Vol. 100, No. 12, December 1977, p. 106. 11.309 tfl c 4-1 cfl C/l CO c 3 o CJ A 4-1 -a S-* c m 0) T~\ j-» 4-1 c 4_) -i in 3 U c T3 Pn C CL a) X 4-1 W O 0) i-l c 1 c J «i»»(0Mioifio< N«»-noio«» NA NA 3,690 3.397 3.200 3.140 2,757 2.593 2,495 2.404 2.450 2,444 2,376 2,209 2,017 1.966 4,074 4,711 5.313. 5,632. 5,249. c 6 NA NA 1.623.8* 1,597.0* 1.568.4* 1,601.8* 1,461.6* 1,426.3 1,447.1 1.490.8 1,617.0, 1.760.0 1,877.2 1,921.9 1.896.8 1.966.1 4,278.0 5,559.0 6,908.0 7,885.0 8.040.0 •1 c m c o o c 3 o NA 337.8 335.0 228.3 328.1 330.0 326.3 317.6 282.9 NA 461.8 218.1 269.6 201.3 178.1 132.7 401.7 322.5 68.5 88.3 320.9 4) c a c o — _fir~>oi/"i — m e«o ^NO c C NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 3.684.8 4,293.2 4,447.7 4,422.1 4,238.7 e 01 3 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA 3,869.0 5,066.0 5,782.0 6,191.0 6,485.0 o tl o <-> j c o f-.»nco-*r*-o'*-3''30 •&\r\os\r>r***f\&&* NA NA NA NA NA 1,294 1,551 1,381 1,376 1,257 803 965 773 854 801 887 899 841 837 902 998 c 3 NA NA NA NA NA 660.3 822.3 760.0 798.3 779.8 530.6 695.1 611.3 743.5 753.4 887.9 944.5 993.2 1,088.8 1,264.1 1,528.1 0) R 3 c c o r"iut m^r.OONtt^ Z Z Z Z Z Z Z Z Z Z Z 00 u-l u^ >o CO r» -a *n u^ tn B 3 NA NA NA NA NA NA NA NA NA NA NA ,358.1 ,210.7 ,364.6 ,532.7 ,826.7 .828.1 ,749.9 .985.4 ,115.1 .003.3 « o NCOOO ,- Nn c CO <» n u c . r>- IU 91 C C m -5 — o O 8 " > c -o o c b. 3 bl U 11.310 nj c j-i co Ul w C 3 o O o J= 4_> XI *w* C cfl o o *m*f.r.WNinn crnnr>.'^^cor--jr^m r- ^ -a" —• — co r- o — ei o ai to C c a o n^--^o^O-J»^ »n — • sO O — . oo r- m r^ -jor-^-je^cn^^ocowic* o (D n ifl ^vDi-^^rr^ocvomcorx-o n^o — s£> O CO o vo cr*mo\OOcorir**r»*£>r- O c* — ■ f« CO >£> OO <*> c 3 OOOOOOOOOOO OOOO O O o o o r-*o-3 > '~ , lc*N'"10 , *i/"*r"inr*j vOCO~TOOP~00''vO«A*© 4 N ^ N O «■* in >n >© ^ n tn o r~ •JtM>TU-l«-|~T 6 OOOOOO oooo O O O O O oooooo oo<-jo <<<<<<»NO^l»N r- CO O l- ZZZZZZrsl<"-|*oc*ir«n — CO O r- O O o o o S <5 (5 — - — 2 "^ 2 """ ~^22-° C o 3 s a 3 U OnN^OiON-"^!^ ON C* O O ««.„- Tooco"'irvfNs»-3--»r-«T to r~ r» <-> _ - *> .» — c 3 (J OOOOOOOOOO OOOO o o o o o NA 5,860. 5,230. 5,550 3,830 1,960. 2,860 3,090 3,210 5,230 3,230 NA 7,410 15,530 16,340 13,240 o o o o o co fM i-. u-> cf- mNPlMO c o 6,290.9 6,207.2 13.157.7 16.130.1 13.509.9 12.401.2 5.905.5 6,366.9 4,791.8 2,929.0 2,645.6 4,030.4 4,420.1 4,693.9 3,789.2 5.513.0 -c O <*» 00 C> m-no< 3 c OOOOOOOOOOOO OOOO O O o o o -0-J»^OJO^NDO(DOIO r*> ao r^ -- -. o o — o 3 rtneoo**^ i "*iNNM merlin l 9J >- r* CO c* O — Nfaj^\ON(00*o- « r* CT\CNONO"*C*O^ONO , *C>*0"»0 , »ONO''0''C*0*'CF\C*C*ONC* 11.311 Similarly, sewage collection capital outlays were very high in the early 1970' s due to the city's sewer separation program. This capital improve- ment program is almost completed and the decline in capital expenditures reflects this. In constant dollars, capital expenditures for streets and bridges appear to be less in the last five or six years of the study period than in any other five or six year period. Metro's trends in capital outlays for sewage treatment and mass transit facilities reflect two factors. The first is that sewage treat- ment capital expenditures were very high in the early years of Metro's existence due to Metro's rapid expansion and construction program to serve most of King County (including Seattle). The second factor is that the availability of UMTA capital grants in FY 1976 and FY 1977 allowed Metro to accelerate its capital program. The two summary tables do not relate expenditures to the condition of the city's and Metro's capital stock. To develop insights into this and related issues, we have prepared a summary of the most relevant find- ings of the Seattle case study (Exhibit 11.6). In general, the condition of the capital stock for the five selected functional areas is fair to good. The two functional areas with the highest ratings are the city's water system and the city's and Metro's sewage collection and treatment system. For these functions, maintenance activities have increased or have remained at adequate levels. Constant dollar maintenance outlays per capita have actually declined from $3.52 in FY 1968 to $2.69 in FY 1977 for the water system, and from $2.35 in FY 1962 to $1.73 in FY 1972 and back up to $2.05 in FY 1977 for the sewage collection system. A recently initiated preven- tive maintenance program has resulted in improved levels of maintenance for the water system, arresting its slowly declining condition. Constant dollar maintenance expenditures for the sewage collection system have rebounded from the FY 1967 level and the result has been that the condition of the system is improving. The sewage treatment maintenance expenditures could not be separated from general operating expenditures. Hence, a pattern could not be ascertained. But the con- dition of the treatment facilities suggests that maintenance is not being neglected. A further reason for the improving condition of the sewer and water systems is that capital improvements and replacement programs have been fairly substantial over the years. Approximately one-fifth of the total capital expenditures for the 21-year period were financed by state and Federal sources. Local sources are the largest contributors to the capital programs, reflecting a strong commitment to capital improvement. The condition of streets and bridges is only fair. Indeed, main- tenance expenditures per capita on bridges declined substantially in constant dollars between FY 1958 and FY 1977. Per capita maintenance expenditures in constant dollars for streets have fluctuated and cur- rently are very close to the FY 1958 figure. A backlog of resurfacing 11.312 < U •J — 4. O < q V. C* M IT. < Z KE E mEmE E E jC 3 -o a 8E8E O* .» r» _ o\ fM r. o IM o^"i" -j^ J3 3 c dodo 35 5 3 £ £ SS££ £§££ "JRR llll <-> u. u *hon oo O r~. crv /-> O .» rv, OO^lKl C,-.. 00 00 -J k-i r- o < < • O O O -> J 1-1 (VI -J --do <-l vT — O O ^ N3>^- (-1 o ,o ^) .o 00 (V, .o dodo r~ -J fv" O Degree of Difficulty to Increase Own-So'irce Revenues I 1 § z 9 i c 00 j 1 1 O (J 1 (J M C , e « U C M — CO 41 2 c li a - - e 3 — o rc w 41 co -o U. Q. 3 — — E -o a o « a 9 SI < z u a O a. O 4> CO k. o a 3 o c . IM c -4 o a < Z o |S 3 V — 41 3 •■ « "»H 1. « O U — « C - n B *" * o c 4> — — 5 c ■< z 41 S 00 u « X o c* 41 a. •O C 3 S i 2 2 c n u a o .* e - as as 1 1 1 1 u e .£ HI I- o 1*8 3 >«, - O 4 41 C 00 S-S u. — < a J 8 3 &i s s H £ 2 2 I g S ss s .- 41 CL O « 41 «s s a ? s- g ,i » O — u o "q -5 2 o a o! c 5 Zl I 1 ". 3 -^ — •s -S -2 S 1 2 3 « s. a 2- 5 C M 2* 5 -2 I £ S 2 2 5 w a - - " > O 41 O O >s 3 k. -O -u u ■ * PI *"" " 2 3 k. oo S »< e « c?o 5 — — c u -o — b o c o OS c II I 52 S : i 5 a 11.313 needs has accumulated: very few miles of street have been resurfaced in the past several years. Despite the decline in constant dollar mainte- nance expenditures for bridges, the condition of the bridges is fair and is not deteriorating. This is partly due to a regular inspection program. Federal contributions to the city's capital outlays for streets and bridges are quite small, amounting to approximately 2 percent of total capital outlays. The Federal contribution was received after FY 1973. Federal funds for capital outlays clearly are not relied upon as an important source. The average age of the mass transit fleet is high at about 19 years. However, expansion of the fleet and replacement of the older buses in 1978 and 197 9 (years which were not covered in this report) have lowered the average age and, hence, improved the condition of the fleet. Both maintenance expenditures per capita and capital expenditures per capita increased considerably by FY 1977 over the FY 1972, FY 1967, and FY 1957 levels in current and constant dollars. As the fleet is modernized and attention to maintenance increases, the condition of the fleet improves as well. Much of the reason for this improvement can be traced to the availability of UMTA Section 3 (capital) grants and UMTA Section 5 (discretionary) grants that are used primarily for operating (including maintenance) purposes. In FY 1976 and FY 1977, Federal grants for capital purposes totalled more than $14 million, or 80 percent of total capital outlays, for new rolling stock. Reliance on Federal aid, then, is very high. Without Federal grants, the condition of the fleet would likely not improve, or at least the trend of improvement would be slower, because fare-box receipts are not large enough to cover needed capital outlays. 11.4 Maintenance, Capital Outlays, Condition, and Revenue Sources of Each Functional Area 11.4.1 Streets, Bridges, and the Sewage Collection System 11.4.1.1 Maintenance Expenditures and Revenues The expenditure pattern for maintenance on Seattle's streets is difficult to analyze (Exhibit 11.7). Although expenditures increased rather significantly between FY 1958 and FY 1977, there were substantial increases in some years and declines in others. However, the cost of maintaining the streets increased at a slightly faster compound annual rate than the actual compound annual increase in maintenance outlays. There was very little change in bridge maintenance expenditures (in current dollars) between FY 1958 and FY 1977 (Exhibit 11.8). When compared with the average annual rare of inflation for the 20-year II.3L Exhibit 11.7: Street Maintenance Expenditures Maintenance Expense Rate of Fiscal (thousands Annual Change Inflation 2 Year 1 of dollars) (percent) (percent) 1958 339 1959 334 - 1.5 + 4.5 1960 402 +20.4 + 5.8 1961 408 + 1.5 + 4.1 1962 443 + 8.6 + 5.3 1963 685 +54.6 + 3.8 1964 533 -22.2 + 3.6 1965 629 +18.0 + 5.8 1966 NA — + 6.6 1967 677 — + 6.2 1968 645 - 4.7 + 8.7 1969 726 +12.6 + 9.8 1970 625 -13.9 + 9.8 1971 1,021 +63.4 + 8.1 1972 457 -55.2 + 6.8 1973 1,250 +173.5 + 5.1 1974 832 -33.4 +12.2 1975 1,379 +65.7 +10.3 1976 1,095 -20.6 + 7.9 1977 1,206 +10.1 + 8.7 Average Annual Rate of Change (FY 1968-FY 1977) + 7.2 + 8.7 (FY 1958-FY 1977) + 6.9 + 7.0 FY 1958-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. NA = Data not available. — = Not applicable. Source: Engineering Department, "Operating Cost Report". 11.315 Exhibit 11.8: Bridge Maintenance Expenditures Maintenance Expense Rate of Fiscal (thousands Annual Change Inflation2 Year 1 of dollars) (percent) (percent) 1958 337.8 — 1959 335.0 - 0.8 + 4.5 1960 228.3 -31.9 + 5.8 1961 328.1 +43.7 + 4.1 1962 330.0 + 0.6 + 5.3 1963 326.3 - 1.1 + 3.8 1964 317.6 - 2.7 + 3.6 1965 282.9 -10.9 + 5.8 1966 NA — + 6.6 1967 461.8 — + 6.2 1968 218.1 -52.8 + 8.7 1969 269.6 +23.6 + 9.8 1970 201.3 -25.3 + 9.8 1971 178.1 -11.5 + 8.1 1972 132.7 -25.5 + 6.8 1973 401.7 +202.7 + 5.1 1974 322.5 -19.7 +12.2 1975 68.5 -78.8 +10.3 1976 88.3 +28.9 + 7.9 1977 320.9 +263.4 + 8.7 Average Annual Rate of Change (FY 1958-FY 1977) - 0.3 + 7.0 (FY 1968-FY 1977) + 4.4 + 8.7 FY 1958-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. NA = Data not available. — = Not applicable. Source: Engineering Department, "Operating Cost Report' 1 . 11.316 period, bridge maintenance expenditures declined significantly. During the FY 1958 through FY 1977 period, annual maintenance expenditures fell to $68,500 in FY 1975 from its 20-year high of $461,800 in FY 1967. The sources of revenue for both street and bridge maintenance are the General Fund of the city and the City Street Fund, the latter being financed through a state gasoline tax which is returned to cities based on population and number of street miles. The City Street Fund has con- tributed over one-third of total maintenance outlays during the FY 1958 to FY 1977 period. Sewage collection maintenance expenditures have increased at a slightly faster average annual rate than the inflation rate (Exhibit 11.9). Current dollar expenditures have increased at a fairly constant rate during the 16-year period. The revenue source for sewage collection maintenance is the General Fund of the city. 11.4.1.2 Capital Expenditures and Revenue Sources Capital expenditures for streets and capital expenditures for bridges could not be distinguished. Exhibit 11.10, therefore, presents combined street and bridge capital expenditures. More than one-half of total capital outlays between FY 1958 and FY 1977 were financed through state funds. These state funds are state gasoline tax grants, but they do not represent a specific state highway program. State funds may be used for either maintenance or capital outlays by the recipient city. Bond funds contributed almost one-fourth of total capital expenditures during the 20-year period. Federal funds have been negligible. The "private" column refers to developers' contributions to street construction and to Local Improvement Districts' (LID) contributions; the latter accounts for most of the total "private" figure. LIDs are citizen-created, small neighborhood groups that petition the city to draw up plans for public improvements (e.g., street reconstruction, sewer line replacement) . Each property is then assessed and each prop- erty owner pays a portion of the capital improvement cost. The city bills each property owner on a pre-arranged 10 to 20 year' payment plan. Although "private" contributions accounted for a sizeable portion of the total in the FY 1958 to FY 1977 period, between FY 1968 and FY 1977 the proportion has steadily declined; city officials attribute the decline to the high cost of street improvement projects. LIDs have also contributed a fairly large amount of capital expend- itures on the sewage collection system, which are subsumed under the "private" column in Exhibit 11.11. One reason for the relatively high amounts of capital outlays is an increased interest in replacing sewer lines after a major sewer collapse in 1955. The very high capital outlays in the post-1968 period are due to a major sewer separation program (prior to this time most of the sewers were combined) of over $70 million. It was impossible to determine the "city" revenue source, except to estimate — very roughly — that most of this corresponded to bonded indebtedness. 11.317 Exhibit 11.9: Sewage Collection System Maintenance Expenditures Fiscal V laintenance Expense Annual Change Year 1 (thousands of dollars) 660.3 (percent) 1962 _. 1963 822.3 +24.5 1964 760.0 - 7.6 1965 798.3 + 5.0 1966 779.8 - 2.3 1967 530.6 -32.0 1968 695.1 +31.0 1969 611.3 -12.1 1970 743.5 +21.6 1971 753.4 + 1.3 1972 887.9 +17.9 1973 944.5 + 6.4 1974 993.2 + 5.2 1975 1,088.8 + 9.6 1976 1,264.1 +16.1 1977 1,528.1 +20.9 Average Annua! Rate of Change (FY 1968- -FY 1977) + 9.1 (FY 1962- -FY 1977) + 5.7 Rate of Inflation 2 (percent) + 3.8 + 3.6 + 5.8 + 6.6 + 6.2 + 8.7 + 9.8 + 9.8 + 8.1 + 6.8 + 5.1 +12.2 +10.3 + 7.9 + 8.7 + 8.7 + 7.5 FY 1962-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. = Not applicable. Source: Sewer Maintenance Division, Computer Printouts of Maintenance Expenditures. 11.318 Exhibit 11.10: Capital Expenditures for Streets and Bridges By Revenue Source (thousands of dollars) Fiscal Year* Bond Fund State Federal Private Total 1958 1,548 1,869 1,280 4,697 1959 1,758 812 70 2,640 1960 2,175 1,039 1,650 4,864 1961 1,096 1,497 2,810 5,403 1962 1,189 3,630 1,000 5,819 1963 869 1,604 2,280 4,753 1964 2,060 4,699 1,330 8,089 1965 2,635 3,910 1,400 7,945 1966 210 2,293 1,190 3,693 1967 422 2,321 1,770 4,513 1968 267 4,373 962 5,602 1969 1,965 5,918 519 8,402 1970 1,028 6,750 455 8,233 1971 803 9,364 484 10,651 1972 1,208 5,223 784 7,215 1973 1,734 6,566 1,106 9,406 1974 1,026 4,719 245 1,363 7,353 1975 3,462 5,149 83 628 9,322 1976 3,583 5,517 1,561 1,394 12,055 1977 4,095 5,233 549 889 10,766 Total 33,133 82,486 2,438 23,364 141,421 FY 1958-FY 1977 ended December 31. Source: Department of Engineering, Annual Audits . 11.319 Exhibit 11.11: Sewage Collection System Capital Expenditures By Revenue Source (thousands of dollars) Yearl City 1958 4,805.2 1959 1,516.7 1960 666.0 1961 1,685.2 1962 1,097.6 1963 1,887.6 1964 463.5 1965 1,605.0 1966 3,399.5 1967 2,713.2 1968 NA 1969 7,113.6 1970 14,908.8 1971 15,686.4 1972 12,445.6 1973 11,951.0 1974 15,220.0 1975 9,330.0 1976 4,387.5 1977 1,271.6 Total 112,154.0 Private 1,054.8 3,713.3 4,884.0 2,144.8 862.4 972.4 2,626.5 1,605.0 1,830.5 516.8 NA 296.4 621.2 653.6 794.4 629.0 0.0 0.0 2,362.5 1,618.4 27,186.0 Total 5,860 5,230 5,550 3,830 1,960 2,860 3,090 3,210 5,230 3,230 NA 7,410 15,530 16,340 13,240 12,580 15,220 9,330 6,750 2,890 139,340 l ¥Y 1958-FY 1977 ended December 31. NA = Data not available. Source: City of Seattle, Engineering Department, Annual Financial and Statistical Reports. 11.320 11.4.1.3 Condition of Streets, Bridges, and the Sewage Collection System The 452.8 miles of arterial streets and 1,201.8 miles of residential streets are not inspected on a regular basis, nor is a periodic report prepared on the condition of streets and appurtenances. Street inspec- tions are made when complaints are received by the Street and Bridge Maintenance Division. Some of Seattle's streets date back to 1910, mostly in residential areas. Cobblestones were used in constructing some of these old streets. The residential streets are in "fair to good" condition. Arterials, as a group, are only "fair." Overall, street condition is said to be getting progressively worse. Cracks have been developing in asphalt surfaced streets. The city has fallen behind in patching cracks and resurfacing streets that have deteriorated badly. Formerly, the city's philosophy was that arterial streets have a 50-year life. Staff members now feel that the actual average life is about 17 to 18 years. Approximately $335,000 were spent on resurfacing arterials during one year, about four years ago. In FY 1978, the com- parative amount was increased to $880,000. The city has never done more than ten street-miles of resurfacing in one year during the last ten years. In residential areas, there are many low grade asphalt streets. In 1975, about 104 miles of these street surfaces were rebuilt using the asphalt stabilization method. In 1976, about 76 miles were rebuilt. About one-third of the balance of these streets needing work were rebuilt in 1977, 1978, and 1979 (the last is underway). About ten miles of these low grade residential streets are gravel roads where the asphalt stabili- zation process will not work. Overall, although the streets are in fair condition, the city is falling behind in providing needed main- tenance. With the exception of the railroad bridges that carry railroad traffic and freeway bridges serving Interstate traffic, all of Seattle's bridges are inspected annually by the city of Seattle Engineering Depart- ment. Of the 187 bridges which the Engineering Department inspects regu- larly, 79 are owned exclusively by the city. Ownership of others is shared with the state of Washington, railroad companies, the Municipality of Metropolitan Seattle, and various private interests. The Seattle Engineering Department bi-annually submits a complete inventory and report covering the 187 bridges included in the city's bridge inspection program. Sixteen state-owned bridges carry Interstate highway traffic and, therefore, the state is responsible for all matters pertaining thereto, including inspection. Some of the city-owned bridges are posted for weight limits and one bascule bridge is closed to traffic. This draw-bridge was closed because of damage resulting from a ship collision which occurred in June 1978. This bridge carried 70,000 vehicles/day and must accommodate ships. The replacement cost is estimated to be $100 million. 11.321 There are seven bascule bridges in Seattle. Five of these, includ- ing the bridge that is closed, are owned by the city. Three cross a canal and two span Spokane Street. Two bascule bridges are owned by the state. Except for the closed bridge, all the bascule bridges are in "good" condition. They receive good maintenance under regularly scheduled maintenance programs. Nine bridges inspected by the city have a "sufficiency rating" below 50, the numerical rating below which a bridge is eligible for Federal funding. All of these bridges are vehicular, two being owned by the city and seven owned by railroads. It appears that many bridges in Seattle need extensive maintenance work and rehabilitation, and that some should be replaced. The current maintenance program is operated at a low level, and has been for many years. However, in the early 1970's, five major rehabilitation/replace- ment projects were undertaken at a total cost of more than $7 million. The bridges' condition, as a result, have improved, but is only fair at the present time. The sewer maintenance activities provided between FY 1961 and FY 1977 by Seattle Sewer Utility Division are presented in Exhibit 11.12. Correction of sewer blockages and overloads were recorded for the period FY 1965 to FY 1973. Activity in clearing blockages and inspecting sewer overloads commenced in 1965 and terminated abruptly after 1973. The initiation of this type of maintenance activity may have been brought about by the increased number of sewer backup claims filed, beginning in 1965. Many of these claims were paid by the city. In 1968, the number of backup claims paid by the city totaled 137, amounting to an expenditure of $28,184. Root growth into sewers is a serious problem in Seattle. During the period FY 1963 through FY 1977, the Sewer Utility Division cut roots in approximately 200 miles of sewer per annum. Sand removal, partic- ularly in sewers in West Seattle, has increased from 22 sewer -miles in FY 1963 to 179 sewer -miles in FY 1977. Sewer lining was first mentioned in the annual reports in FY 1976 when 91 miles of sewer pipes were lined. One year later, in FY 1977, this increased sixfold to 599 miles. The lining material used is plastic pipe, usually polyurethane. Lining helps to correct problems of leakage and blockage from tree roots. Total sewer repairs by city crews reported annually increased from a low of 33 in FY 1961 to a high of 98 in FY 1977. Increased maintenance activity by the city over the period has been sufficient enough to warrant a good condition rating. The 83 lift stations operated by the city for pumping sewage are an important part of Seattle's systems of sanitary and combined sewers. The hilly topography and large differences in elevation in relatively short distances along the sewer pipelines makes gravity flow impractical or impossible in many areas. 11.322 CO CO T) > Hi C O a -H i 1 4J 3 CO iH 4J Pm 4J -H CO CO CO >. Cu CO e o CO •H TJ u CO o O (1) o o oj 00 (0 CO » O) 0) 00 CO J2 o o o a a) 3 T3 a- vO vO r« l-~ r^ r-^ co a> ON CTi CT\ <7\ CT> ON CT\ CT\ •H >< tn 11.323 The lift stations are carefully maintained and are in good condi- tion. At each station, there is always one reserve pump which can be put on-line when needed. A telemetry system connects with all the pump- ing stations that can overflow into fresh water bodies during a malfunc- tion. This system permits continuous monitoring of pump operation and transmits electronic alarm signals to a central point. Inspection and repair crews are thereby alerted immediately, and prompt action can be taken. 11.4.2 Water System 11. A. 2.1 Maintenance Expenditures and Revenues Maintenance expenditures on the water system have increased stead- ily between FY 1968 and FY 1977 at an average annual rate of 4.4 percent (Exhibit 11.13). However, the increase in current dollar outlays has been offset by the average annual rate of inflation which increased at 8.7 percent. In constant dollars, then, the 1977 maintenance expendi- tures are half a million dollars less than in FY 1968 (Exhibit 11. A). Exhibit 11.13 further suggests that, as a percentage of total operation and maintenance, maintenance has been declining steadily for the ten- year period. The Water Department has implemented a program to increase work efficiency and productivity with resulting cost savings. In effect, then, the declining maintenance expenditures in constant dollar terms reflect in part the Department's increasingly efficient allocation of resources. Maintenance outlays are financed through user fees and charges. 11. A. 2. 2 Capital Expenditures and Revenue Sources Capital expenditures on the water system have been financed pri- marily from local sources, bond issuances, and user fees and charges (Exhibit 11.14). These two sources have contributed to almost three- fourths of the Water Department's total capital outlays for the FY 1957 to FY 1977 period. The "special assessments" column refers to the LID contributions. These contributions to the water system are based on an assessment of the property being improved and the collection mechanism is the same as for streets and sewage collection. Although the data could not be disaggregated after FY 1970 * to show.preciselv the amount of money LIDs were contributing, city officials suggest that LID parti- cipation has been decreasing in recent years due to the high costs of improving the water system. It should be noted that LIDs come into existence only if the local residents want the improvements. Therefore, these "special assessments" are requested by the citizens and are not mandated by the city. See Department of Water, City of Seattle, "Efficiency and Produc- tivity Improvements in the Seattle Water Department," January 1978. 11.324 Exhibit 11.13: Water System Maintenance Expenditures Maintenance Maintenance Expense Expense As Rate of , Fiscal (thousands Annual Change Percent of Inflation' Year 1 of dollars) (percent) Total O&M (percent) 1968 1,358.1 +33.8 1969 1,210.7 -10.9 +26.6 + 9.8 1970 1,364.6 +12.7 +27.5 + 9.8 1971 1,532.7 +12.3 +27.8 + 8.1 1972 1,826.7 +19.2 +30.4 + 6.8 1973 1,828.1 + 0.1 +28.4 + 5.1 1974 1,749.9 - 4.3 +25.8 +12.2 1975 1,985.4 +13.5 +26.0 +10.3 1976 2,115.1 + 6.5 +25.2 + 7.9 1977 2,003.3 - 5.3 +21.5 + 8.7 Average Annual Rate of Change (FY 1968-FY 197 7) + 4.4 + 8.7 FY 1968-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. — = Not applicable. Source: Financial Reports submitted to the State of Washington. 11.325 Exhibit 11.14: Water System Capital Expenditures By Revenue Source (thousands of dollars) Fiscal User Fees State and Special Yearl Bonds and Charges Federal Aid Assessments Total 1957 2,582 639 390 3,611 1958 2,170 484 1,151 3,805 1959 5,900 1,363 556 523 8,342 1960 7,371 1,544 707 669 10,291 1961 5,515 1,702 589 1,043 8,849 1962 6,425 1,153 570 74 8,222 1963 1,842 1,084 754 318 3,998 1964 1,257 1,243 666 1,259 4,425 1965 324 1,701 816 542 3,383 1966 91 1,118 779 197 2,185 1967 22 1,472 405 109 2,008 1968 653 1,337 864 326 3,180 1969 865 1,409 969 492 3,735 1970 822 1,720 808 837 4,187 1971 1,415 427 1,735 (2) 3,577 1972 2,296 1,752 1,465 (2) 5,513 1973 553 1,229 889 (2) 2,671 1974 378 1,112 1,160 (2) 2,650 1975 410 1,874 1,176 (2) 3,460 1976 1,756 1,929 1,256 (2) 4,941 1977 3,294 1,794 1,092 (2) 6,180 Total 41,189 31,715 18,379 7,930 99,213 FY 1957-FY 1977 ended December 31. After FY 1970, "Special Assessments" and "State and Federal Aid" were combined and could not be separated; the sum of these two funding sources appears under the "State and Federal Aid" column. Source: Water Department, Annual Reports 11.326 The reason for the substantial capital expenditures in the FY 1959 to FY 1963 period is that another water supply facility was constructed at a cost of $25 million which became operational in FY 1964. This con- struction was financed principally through bonded indebtedness. The majority of capital outlays since FY 1964 have been made for extending water mains. 11.4.2.3 Condition of the Water System The Water Department of the city of Seattle provides water to approx- imately one million people in the metropolitan area. One-half of this number are served inside the city limits and the others are served by 34 water purveyors to which the city wholesales water. The city owns and maintains water mains within the city and in four isolated areas outside the city boundaries. All construction operations and maintenance activities on city- owned facilities are conducted by the Seattle Water Department through its full-time force of 394 employees (in 1977), supplemented by various private organizations serving under contract on major projects. The 1977 work force numbered 27.2 percent fewer employees than were employed in 1973. Seattle utilizes two sources of water. One is the Cedar River Watershed and the other is the Tolt River Watershed. The Seattle Water Department did not have a systemized program of inspection until 1977. Since that time, an inspection program has been underway for checking dams, reservoirs, and transmission lines. By early 1978, the Department had completed inspections of every mile of its 149.7 miles of supply mains (transmissions) . Pressure and flow tests of pipelines are con- ducted only when problems arise. The water intake for the Cedar River Watershed is located on the Cedar River in Landsburg. It consists only of screening devices and facilities for dispensing chlorine and fluoride solutions. The water is not filtered, which is unusual for water systems serving large cities. Floodwaters during the years 1975-1977 caused some undermining of the downstream aprons, but these have been repaired. Lake Youngs, located downstream of Landsburg, is used for storing treated water. Three water transmission lines extend from Lake Youngs to serve Seattle. One of these is a steel pipeline built many years ago. It is now being cement-lined. The other two, also built of steel, are much younger — one about ten years old, and the other about 20 years. Cathodic protection is now being installed on these two pipe- lines at "hot spots" where soil characteristics accentuate pipeline corrosion. The condition of this facility is generally good. The Tolt River Supply came on line in 1964 to supplement the exist- ing Cedar River Supply. The facilities, which are said to be in "very good" condition, are similar to those of the Cedar River Supply. Although the raw water is of poorer quality than that of Cedar River, treatment consists only of screening, chlorination and fluoride application. 11.327 About 90 percent of the 1,564 miles of pipe in the distribution system, as of December 31, 1977, was of eight-inch diameter or larger. Tuberculation is a minor problem. A survey of water main breaks made by the city of New York, between 1974 and 1977, revealed that Seattle had the smallest average number of breaks per mile of water main of 16 large cities included in the survey. Seattle's average break rate was reported to be 11 breaks/1,000 miles/year. Break rates of several other cities were as follows: St. Louis, 72; Baltimore, 148; New Orleans, 512; and Houston, 1,290 (most frequent). It is said that all parts of the water system can perform at the design capacity. Parts of the water system are about 80 years old. 11.4.3 Sewage Treatment Facility 11.4.3.1 Maintenance Expenditures and Revenues Maintenance expenditures on Metro's sewage treatment facility could not be separated from total operating costs. Therefore, Exhibit 11.15 presents operations and maintenance expenditures for a few years exclu- sive of general and administrative costs. Because maintenance outlays could not be called from the data, the increases in annual totals may not be reflective of increases in maintenance expenditures. 11.4.3.2 Capital Expenditures and Revenue Sources Treatment and disposal of sewage from the city of Seattle and other areas in the metropolitan area is provided by the Municipality of Metro- politan Seattle (Metro) . Metro has invested heavily in sewage treatment facilities since its first year of operation, 1963. The "total capital expenditures" column of Exhibit 11.16 corresponds to actual annual expenditures. However, the "state and Federal" and "Bond Fund" columns correspond only to revenue sources of projects at the time a project was completed. For example, if a project was constructed during a five-year period, the annual expenditures would appear under the "total capital expenditures" column. But the final five-year expenditure total would appear only once for the whole project under the appropriate revenue source at the time the project was completed. Therefore, the summation of the revenue sources by year do not sum to the annual "total capital expenditures" because of the use of two different accounting procedures. The Bond Fund has been the major revenue source, accounting for almost two-thirds of total capital expenditures during the 15-year period. The state portion of the "state and Federal" column was close to 100 percent until the early 1970' s when the Federal component, due to EPA funding, became predominant. However, the actual amount that corresponds to each source could not be discerned from available data sources. 11.328 Exhibit 11.15: Operation and Maintenance Expenditures for the Sewage Treatment Facility (thousands of dollars) Fiscal Year 2 Transmission Division Treatment and Disposal Division 3,082 Total 1973 787 3,869 1974 951 4,115 5,066 1975 1,056 4,726 5,782 1976 1,167 5,024 6,191 1977 1,174 5,311 6,485 The figures presented in this table include operation and maintenance costs of the Transmission Division and of the Treatment and Disposal Division; excluded are administrative and general costs. 2 FY 1973-FY 1977 ended December 31. Source: Municipality of Metropolitan Seattle, Annual Financial Reports. 11.329 Exhibit 11.16 Sewage Treatment Capital Expenditures By Revenue Source (thousands of dollars) Fiscal State and Total Capital Year 1 Federal 2 Bond Fund 2 General Fund Expenditures 3 1963 438 30,207 (4) 20,280 1964 191 30,058 <4) 26,320 1965 409 25,115 (4) 26,660 1966 860 15,157 (4) 15,950 1967 942 (4) 12,580 1968 2,815 (4) 14,320 1969 3,329 9,112 (4) 13,170 1970 4,646 (4) 7,880 1971 2,659 20,358 (4) 10,020 1972 5,942 (4) 5,770 1973 10,016 (4) 11,190 1974 6,382 (4) 7,450 1975 5,905 (4) 10,990 1976 7,075 (4) 12,300 1977 9,140 (4) 6,240 Total 5 44,598 130,000 26,500 201,120 FY 1963-FY 1977 ended December 31 Net additions to plant; when project is closed out, the value is added. (Represents revenue received in each year although not necessarily spent in that year. ) Represents actual expenditures in each fiscal year. 4 Data for each year unavailable. Represents actual expenditures over the 15 years (FY 1963-FY 1977). Source: "Total Capital Expenditures" were derived from the actual revenue and expenditure tables of Municipality of Metropolitan Seattle, Annual Reports ; revenue sources were derived from completed project summaries of the same report. 11.330 11.4.3.3 Condition of Sewage Treatment Facilities Operation and maintenance of the five wastewater treatment plants and the interceptor sewers are accomplished by two divisions under the Water Pollution Control Department of Metro. These are the Renton Division and the West Point Division. The West Point Division operates and maintains four of Metro's plants which provide primary treatment of wastewater. Each of these four treat- ment plants provide primary treatment, and discharge chlorinated effluent through outfall diff users to Puget Sound. Each plant consumes the sewage solids, and methane gas produced by this process is used to provide much of the energy required for plant operation. The Renton Division operates and maintains the Renton Wastewater Treatment Plant which provides secondary treatment using the activated sludge process. Because the Renton plant has no digesters, sludge is pumped (at high costs) to the West Point collection system and then transported through the system along with collected sewage, for treat- ment at the West Point plant. In a report on the operation and maintenance of Metro's facilities during 1977, a private engineering firm stated "all areas were being maintained and operated in a satisfactory professional manner. Few major equipment changes have been made in the last four years and this has made it possible. . .to increase their task efficiency and improve the existing systems. "1 Thus, all five treatment plants are in good condition. Furthermore, Metro's 37 sewage lift stations are also in good condition. One problem with the Metro system is that it includes many miles of combined sewers collecting large quantities of stormwater runoff which must be transported and treated. In many rainstorms, the sewers over- flow, or the flow must be bypassed into Puget Sound, untreated. In either case, the quality of receiving water is impaired. Since 1968, the city of Seattle spent $64 million in separating combined sewers that discharged into Lake Washington. This program has been completed. Sanitary wastes are no longer permitted to be discharged into the Lake. During 1977, updated NPDES permits were negotiated for all five of Metro's wastewater treatment plants. Water quality in the areas of plant discharges have been monitored regularly by Metro and by the University of Washington. The water quality has been found to be excellent, except for some remaining problems during wet weather that results from runoff and combined sewer overflows. 1977 Report, Engineers Review of METRO'S Facilities , Brown and Cladwell, April 1978, Seattle, Washington. 11.331 11.4.4 Mass Transit 11.4.4.1 Maintenance Expenditures and Revenues Maintenance expenditures on the mass transit system have increased at an average annual rate of 9.3 percent between 1959 and 1977 (Exhibit 11.17). The average annual percent increase was very modest until 1972. In recent years (between 1973 and 1977) when both the suburban and the city's system came under the responsibility of Metro, maintenance out- lays have increased fourfold. 11.4.4.2 Capital Expenditures and Revenue Sources Between 1957 and 1974 very little was spent on capital programs for the mass transit system (Exhibit 11.18). Since public transportation has come under the purview of Metro, a rigorous capital program has been Implemented. In FY 1976 and FY 1977, capital outlays for rolling stock have accounted for 72 percent of all capital expenditures for rolling stock since FY 1957. Over $14 million, or 80 percent, of the $18 million spent for rolling stock in these two years are from UMTA grants to Metro. The remainder is financed from local sources and state sales tax revenues, Of the 5.4 percent state sales tax in Seattle, 4.6 percent is used by the state, 0.5 percent by the city, and 0.3 percent is used by Metro for mass transit operations. Metro also receives one-half of the motor vehicle excise tax (which is 2 percent) collected in the county. m These revenue sources, together with farebox receipts, comprise the local share of capital projects. Prior to FY 1969, however, all capital and operat- ing costs were paid from farebox receipts. 11.4.4.3 Condition of the Mass Transit System As of December 31, 1977, Metro owned and operated a fleet totalling 67 6 units — 617 motor coaches and 59 trolley coaches. Although the average age of the fleet was 19 years, indicating a very old fleet, a replacement program is upgrading the fleet considerably. In 1978, 302 new units were ordered and by 1981 all buses older than nine years will have been replaced. The average amount of "down time" for motor coaches is approxi- mately 5 percent. This has remained quite steady over the last several years, indicating a continuing emphasis on maintaining a larger fleet. There were 11,537 trouble calls (road calls) during FY 1977. This included 9,023 for motor coaches and 2,514 for trolley coaches. Expressed as "miles traveled per trouble call," motor coaches averaged 2,527 miles/road call and trolley coaches averaged 585 miles/road call. Brakes and electrical system malfunctions constituted the major problems of the motor coach group. Brake problems were more prevalent in the older buses, and electrical problems prevailed for the newer buses. Most of the road calls for trolley coaches were to correct electrical contactors. 11.332 Exhibit 11.17: Mass Transit Maintenance Expenditures Fiscal Year* 1959 1960 1961 1962 1963 1964 1965 1966 1067 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 Maintenance Expense (thousands of dollars) 1,628.8:? 1,597.0, 1,568.4, 1.601. 8f 1.461.6, 1,462.3 J 1,447.1 1,490.8 1,617.07 1,760.0 1,877.2 1,921.9 1,896.8 1,966.1 4,278.0 5,559.0 6,908.0 7,885.0 8,040.0 Average Annual Rate of Change (FY 1968-FY 1977) (FY 1959-FY 1977) Rate of , Annual Change Inflation' (percent) (percent) - 2.0 + 5.8 - 1.8 + 4.1 + 2.1 + 5.3 - 8.8 + 3.8 0.0 + 3.6 - 1.0 + 5.8 + 3.0 + 6.6 + 8.5 + 6.2 + 8.8 + 8.7 + 6.7 + 9.8 + 2.4 + 9.8 - 1.3 + 8.1 + 3.7 + 6.8 +117.6 + 5.1 +29.9 +12.2 +24.3 +10.3 +14.1 + 7.9 + 2.0 + 8.7 +18.2 + 8.7 + 9.3 + 7.1 FY 1959-FY 1977 ended December 31. Measured by the Skilled Labor Index of Engineering News-Record Cost Indexes in 22 Cities, March 1978, p. 75. Estimated by assuming 11 month total (as of November) is 11/12 of annual total. 4 Commission Budgets of Seattle Transit System. Based on actual ten months expenditures plus two months anticipated expenditures. — = Not applicable. Source: Commission Budgets of Seattle Transit System and Municipality of of Metropolitan Seattle, Annual Reports . 11.333 Exhibit 11.18: Capital Expenditures on Mass Transit (thousands of dollars) Fiscal Rolling Land and Yearl Stock Equipment Buildings Total 1957 112 54 10 176 1958 85 151 236 1959 73 20 550 643 .1960 25 8 50 83 1961 105 49 793 947 1962 71 32 56 156 1963 2,796 60 2,856 1964 34 39 25 98 1965 19 74 14 107 1966 8 45 32 54 1967 17 38 2 57 1968 17 21 45 83 1969 2,538 101 8 2,647 1970 40 24 252 316 1971 4 37 53 94 1972 29 22 51 1973 1974 485 205 526 1,216 1975 576 208 784 1976 11,275 671 1,228 13,174 1977 6,807 1,328 2,265 10,400 Total 25,087 3,194 5,931 34,182 L FY 1957-FY 1977 ended December 31 Source: Commission Budgets of Seattle Transit System and Municipality of Metropolitan Seattle, Annual Financial Reports . 11.334 In general, the condition of the mass transit system is improving due to increased maintenance outlays and a rigorous capital replacement program. 11.5 Analysis and Conclusions 11.5.1 Public/Private Cooperation The above discussions on capital outlays for the city's infrastruc- ture ignore a potentially important dimension: the private sector may invest in the public infrastructure. However, in Seattle, the partici- pation of subdividers or developers is not a very important factor. The city has lost a sizeable portion of its population base over the years and, as a result, the amount of new housing construction has not been significant. However, when new homes or subdivisions are constructed, the developers are required to bear the full costs of providing sewer, water and gas lines and, in the case of subdivisions, of constructing the streets. City-mandated specifications must be met by the developers. These "public" services, then, are deeded to the city. It was not possible to determine accurately the dollar amount of these public works in which the private sector has invested. Another effort on the part of the city to encourage capital improve- ments is the Local Improvement Districts (LIDs) . LIDs are formed by residents of a neighborhood who want to pave streets and alleys, put wires underground, or replace the water, sewer or gas lines. The LIDs then petition the city to share in the cost of the capital improvement program. If approved, the city assesses the affected property and the owners pay their share. The payment plan allows for the residents in the LID to repay the city over a 10 or 20 year period. Indeed, the "private" and "special assessments" columns of Exhibits 11.10, 11.11, and 11.14 for the most part refer to the LIDs' contributions. These private outlays for "public" purposes have been rather substantial in the past 20 years, amounting to over $23 million for streets, $27 million for sewer lines, and $8 to $10 million for water lines. The sum of $60 million in private contributions during the 20-year period for public purposes is not inconsequential. The cooperation between individual residents of Seattle and the city government for capital improvement programs appears to be rather successful in maintaining the condition of the capital stock. 11.5.2 Effects of Federal Grants-in-Aid EPA capital grants to Metro have had the effect of stimulating more capital investments than Metro would have done. However, much of the EPA-mandated capital investments are completed and annual capital out- lays are beginning to decline to "normal" levels. 11.335 Federal grants to Metro's mass transit system are very substantial. The capital replacement program that Metro has instituted requires very large capital outlays for the next four to five years. The goal is to reduce the average age of the fleet from its 1977 level of 1 9 years to an average of nine years by 1981. Metro's plan is to purchase 70 buses in 197 9, 222 in 1980, and 296 in 1981. Federal grants (UMTA Section 3) will provide 80 percent of the required capital outlays. These grants, then, are stimulative to the extent that Metro is required to expend more monies (the 20 percent match). However, the degree of stimulation is not clear, because one might assume that Metro would have spent the equivalent of the 20 percent match for capital outlays without Federal fund availability. Regardless, reliance on Federal programs for both operating and capital purposes is high. Termination of these UMTA pro- grams would have a very large impact on Metro's mass transit program. Capital outlays for the city's streets and bridges network have been influenced only marginally by Federal grants. However, state funds are very substantial (Exhibit 11.10). There appears to be little stimu- lative effect of the small Federal funds on the city's expenditure pattern. The Water Department has received some Federal funds, but these have been minimal. Most of the "state and Federal aid" figures presented in Exhibit 11.14 refer to state contributions. Federal program contri- butions have not been significant. The effect of non-capital grants is more difficult to ascertain. Results of a Department of Treasury study suggest that CETA and ARFA allocations to Seattle amounted to over 10.5 percent of the city's own- source revenues in 1978.1 The effect of these particular programs is to reduce the tax burden on Seattle's residents. If the services and pro- grams that CETA and ARFA are providing should be maintained by own-source revenues, the increase in property taxes would amount to $2.40 per $1,000 of fair market value. * This increase is almost one-half of Seattle's current property tax rate of $4.95 per $1,000, which, however, is among the lowest property tax rates of the nine cities examined in this study. 11.5.3 Revenue-Generating Capacity of the City The capacity of the city to increase its own sources of revenue in response to demand can be considered to be in the "fair" range. There are four primary internal sources available to Seattle. The most impor- tant has been the property tax. Properties in the city are assessed at U. S. Department of the Treasury, Office of State and Local Finance, "Report on the Fiscal Impact of the Economic Stimulus Package on 48 Large Urban Governments," January 23, 1978, p. 66. 2 Ibid ., p. 65. 11.336 100 percent of fair market value. This assessed valuation has increased from 50 percent of fair market value between 197 and 1975 and from 25 percent prior to 1970. The tax rate after 1975 has been $4 . 95 per $1,000 of assessed valuation. However, when valuation doubled, the ad valorem tax rate decreased by about one-half. The effect has been that assessed valuation increases have been offset by tax rate decreases leading to virtually no change in the property tax burden on property owners. The state has mandated that sales taxes for city purposes cannot exceed 0.5 percent. The state also sets the sales tax rate for Metro's operations which is currently at 0.3 percent. While the sales tax is a fairly reliable source of income, it can only be changed by the state legislature. As a pressure valve to increase city revenues (or Metro's revenues), it is therefore not within the city's control. Seattle imposes a business tax of 0.165 percent on gross sales by business establishments (exclusive of grain and flour business estab- lishments which are taxed at a rate of 0.0165 percent of gross sales). This tax rate has been in existence since 1963 and, since there are no legal upper or lower bounds on it, the business tax can be changed by City Council. As a mechanism by which the city can increase its revenues, the business tax does provide an escape valve. However, it may be politically difficult to increase the business tax rate. The income tax, like the sales tax, is determined at the state level. The city is forbidden by the state to levy any income tax on its residents or on employees working within the city. The city, then, must rely pri- marily on sales, business, and property taxes. Since property tax rates have not changed much during at least the past ten years, it appears that an increase in the property tax rate can be relied on as a way to alle- viate potential fiscal strain. 11.5.4 Some Implications The decreasing trend in constant dollar maintenance expenditures for bridges and for the water system suggests that maintenance outlays should be increased to offset potential problems in the future. However, the condition of the water system is currently improving. Because the water system can increase its rates to cover operating expenses, there is no cause for alarm about the water system's capacity to finance addi- tional operating outlays. Maintenance and capital outlays for streets, likewise, should increase due to the backlog of resurfacing needs and the slowly deteri- orating condition of the streets. Revenues for street and bridge main- tenance are derived from the General Fund which seems to be in fair fiscal condition. Taxes or other sources of funding could be augmented to cover these outlays. 11.337 Maintenance appears to be adequate for the sewage treatment and col- lection systems and is improving for the mass transit system. Increased sewage treatment costs due to an expanded physical system can be covered by increasing the user charges. And Metro is receiving aid both in the form of UMTA Section 5 (operating subsidies) assistance, and also from the state's sales tax and motor vehicle excise tax, for the purpose of providing public transportation. As long as these programs are avail- able, maintenance is unlikely to be deferred. 11.338 Volume III Effects of Federal Capital Grants on Five State- Local Functions: Water Systems, Sewer Systems, Streets and Highways, Bridges and Mass Transit Ill 4 III 5 III 8 III 11 III 13 III 17 VOLUME III TABLE OF CONTENTS Page LIST OF EXHIBITS iv 1.0 INTRODUCTION AND SUMMARY OF FINDINGS III.l 1.1 Introduction III.l 1.2 Summary of Findings III.l 2.0 CAPITAL GRANTS FOR THE CONSTRUCTION OF MUNICIPAL III. 4 WASTEWATER COLLECTION AND TREATMENT SYSTEMS 2.1 Introduction and Summary of Findings 2.2 Provisions of the Law 2.3 Municipal Treatment Facilities and Water Quality: Problems and Accomplishments 2.4 Fiscal Impact 2.5 Biases in Grant Programs 2.6 Conclusion 3.0 CAPITAL GRANTS FOR WATER TREATMENT III . 18 AND DISTRIBUTION SYSTEMS 3.1 Introduction and Summary of Findings III. 18 3.2 Provisions of the Law III. 19 3.3 Problems in Financing Water Facilities III. 21 3.4 Accomplishments III. 21 3.5 Biases in Grant Programs III. 22 3.6 Conclusion III. 23 4.0 CAPITAL GRANTS FOR HIGHWAYS III. 24 4.1 Introduction and Summary of Findings III. 24 4.2 Provisions of the Law III. 25 4.3 Problems with the Nation's Highway Programs III. 30 4.4 Accomplishments III. 33 4.5 Fiscal Impact III. 35 4.6 Biases in Grant Programs III. 37 4.7 Conclusion III. 40 5.0 CAPITAL GRANTS FOR BRIDGE CONSTRUCTION, III. 42 REPLACEMENT AND REHABILITATION 5.1 Introduction and Summary of Findings III. 42 5.2 Provisions of the Law III. 43 5.3 The Bridge Program III. 45 5.4 Accomplishments III. 46 5.5 Biases in Grant Programs III. 47 5.6 Conclusion III. 47 ii TABLE OF CONTENTS (continued) Page 6.0 CAPITAL GRANTS FOR MASS TRANSIT III. 49 6.1 Introduction and Summary of Findings III. 49 6.2 Provisions of the Law III. 50 6.3 The Mass Transit Problem III. 55 6.4 Accomplishments III. 62 6.5 Fiscal Impact III. 63 6.6 Biases in Grant Programs III. 68 6.7 Conclusion III. 72 7.0 INTER-PROGRAM COMPARISONS III. 74 7.1 Introduction III. 74 7.2 Accomplishments of Federal Capital Grants III. 74 7.3 Weaknesses of Federal Capital Grants III. 75 7.4 Fiscal Impact of Federal Capital Grants III. 76 7.5 Impact of General Revenue Sharing on Capital Spending III. 81 7.6 Conclusion III. 87 iii LIST OF EXHIBITS Exhibit Number Page 2.1 Water Quality Changes at NASQAN Stations, 1975-1977 III. 12 2.2 Capital Outlay for Municipal Wastewater Treatment III. 14 Facilities, 1970-1978 4.1 Authorizations, Federal-Aid Highway Act of 1978 for III. 28 Interstate, Interstate-RRR, Primary, Secondary and Urban Systems (millions of dollars) 4.2 Pavement Condition of Rural and Urban Interstate, III. 32 Arterial and Collector Highways, 1970 and 1975 (percentages) 6.1 Authorizations Available for Capital Projects, III. 51 Federal Public Transportation Act of 1978 and 1979 Appropriations (millions of dollars) 6.2 Middle Estimates for Modal Energy Required for III. 60 Various Urban Transportation Modes (British Thermal Units Per Passenger Mile) 6.3 Vehicle Purchases of Bus Transit Systems, 1972-1975 III. 65 6.4 Detail of Fiscal Impact Estimate for Rail Transit III. 67 Grants (billions of dollars) 7.1 Share of General Revenue Sharing Funds Used for III. 84 Capital Outlay According to Actual Use Reports, 1973-1975 (percent) 7.2 Share of General Revenue Sharing Funds Used for III. 85 Capital Outlays According to Institute for Social Research and Brookings Studies, 1973-1975 iv 1.0 INTRODUCTION AND SUMMARY OF FINDINGS 1. 1 Introduction The results of the Public Works Investment Study are reported in three volumes, accompanying appendices, and an Executive Summary for the overall study. This, the third volume, presents the available evidence as it relates to the effects of Federal programs on capital and maintenance outlays in five urban functional areas: municipal wastewater collection and treatment systems; water treatment and distribution systems; high- ways; bridge construction, replacement, and rehabilitation; and mass transit. Although a city's own source revenue-generating capacity is a very important variable in understanding differential maintenance practices and levels (see Volume II) , Federal programs also affect main- tenance activities and capital expenditures. The approaches and accom- plishments of relevant Federal programs are summarized and reviewed, and estimates of the fiscal impact of these programs, in terms of their stimulative and substitutive effect on local outlays, are discussed. The conclusions which are presented in this volume are primarily based on a literature review and secondary sources. This volume supple- ments the materials provided in the case studies (see Volume II), where the role of Federal grants was analyzed in detail for nine specific cities. It also supplements the Volume I material on the role of dif- ferent financing mechanisms for PWI; some of the material in Volume I was in fact drawn from the discussion presented here. The rest of this volume is organized as follows. Each of the five functional areas is discussed in a separate chapter. For each, there is a description of the legislation authorizing the grants, followed by a review of the problems to which the grant is addressed. The accom- plishments of the grant programs are reviewed and the fiscal impact of the grants evaluated. An analysis of the biases of the program on expenditure decisions is presented, followed by concluding remarks on each grant program. The last chapter of this volume provides a compar- ison of these issues across the five grant programs. 1.2 Summary of Findings The principal findings relating to the effects of Federal programs on urban infrastructure for the functional areas studied are as follows: III.l • Federal programs in the five areas studied have resulted in numerous accomplishments. The wastewater treatment construction program has accelerated the construction of secondary and advanced treatment facilities. There are some indications that water quality has begun to improve. Federal grants for rural water supply have made centrally supplied water available to a number of rural communities that would have continued to rely on private well water in the program's absence. The outstanding achievement of Federal highway grants has been the construction of the Interstate Highway System. These grants have also directed funds and attention at safety aspects in the design, maintenance, and operation of the nation's high- ways. The bridge program has produced an inventory of the condition of bridges on the Federal-aid system and is currently doing the same for off-system bridges. It is financing replacement and reconstruction of deficient bridges. The mass transit program is responsible for the revival of the transit industry in the United States. It has financed public purchase of failing private bus lines and the development of new bus systems. • Federal programs encourage investment in new capital expenditures and early replacement of capital equipment. The literature search on the biasing effects of Federal grants on maintenance and capital outlays suggested that, indeed, Federal programs often encourage early capital replacement, possibly earlier than might otherwise be economically justified. Urban Mass Transportation Adminis- tration grants, for example, which subsidize 80 percent of mass transit capital costs, may provide support for capital projects which normally would not have been undertaken, and which may be premature, in that expenditures of maintenance funds for the original capital stock might be a better or more efficient use of total resources. When Federal incentives are introduced to accelerate capital replacement, it can be more cost-effective from the local government point of view to pursue the Federal grants. • Federal programs have been biased against maintenance- related programs. An anti-maintenance bias is manifest in Federal programs, where categorical capital grants specifically exclude the use of Federal funds for maintenance purposes. The bias becomes acute since categor- ical maintenance programs do not exist — with the exception of the operating subsidy component of the UMTA program — to address the needs of older infrastructure. III. 2 • The fiscal impact of Federal programs on capital outlays has generally been substitutive. For wastewater treatment and mass transit capital programs, a dollar of Federal aid to state and local governments appears to have led to addi- tional capital outlays of significantly less than a dollar. In the case of wastewater treatment, for example, a significant share of Federal aid is being used to support expenditures that would have been made in the absence of Federal legislation. The impact of highway grants is difficult to assess but evidence suggests that it is probably stimulative to a small degree. III. 3 2.0 CAPITAL GRANTS FOR THE CONSTRUCTION OF MUNICIPAL WASTEWATER COLLECTION AND TREATMENT SYSTEMS 2.1 Introduction and Summary of Findings 2.1.1 Introduction The 1972 Federal Water Pollution Control Act Amendments (P.L. 92-500) sought to restore the chemical, physical and biological integrity of navigable waters by 1985, to provide protection of fish and wildlife, and to enable recreation in and on the water (the "f ishable-swimmable" goal) by 1983. As part of this mandate, Federal assistance was promised to publicly owned wastewater treatment systems. Federal grants cover 75 percent of capital costs for these systems, with the remaining 25 percent paid by state and local governments. 2.1.2 Summary of Findings The major findings of this chapter are as follows: • Unnecessarily technologically-complex treatment plants have been constructed and there is a bias against main- tenance activities in the Federal program. The high matching ratio of Federal funds to local funds is an incen- tive for local governments to apply for EPA funding. However, since oper- ation and maintenance costs are not provided for in the legislation, com- munities often select plant designs with a high degree of automated control and back-up components. Decision-making is thus biased toward large initial capital outlays. The level of treatment EPA has tried to achieve has been questioned as being unnecessarily high in many instances. In a number of cases, the higher levels of treatment has added little to water quality but has increased capital and operating costs substantially. • The operation and maintenance of existing facilities appears to be well below standard. A number of factors are responsible for this: treatment processes that are too complex for plant operators; low operation and maintenance budgets; unreliable equipment; and failure by EPA and the states to enforce standards with an adequate inspection program. Despite these problems, however, progress i«s seen in some areas. While the impacts of the program on water quality are not clear-cut, some encouraging evidence is available suggesting that the major capital outlays are beginning to improve water quality. III. A • The fiscal impact of the program appears to be substitutive. The fiscal impact of the program has not been examined in detail, but the evidence suggests that it has led to larger total outlays for sewage treatment than would otherwise have been forthcoming. However, a signifi- cant part of Federal aid is being used to support expenditures that would have been made by the local governments in the absence of Federal legisla- tion (e.g., because of state or local laws). • There is much emphasis on the immediate construction of new treatment facilities. A more relaxed compliance schedule would have allowed for studies that examined the possibilities of more cost-effective programs. The short deadline made it impractical to develop areawide water quality plans which are necessary for an efficient strategy. In the absence of effec- tive areawide plans, the states have established individual standards without adequate consideration of spillover effects. 2.2 Provisions of the Law The Federal Water Pollution Control Act Amendments of 1972 sought to "restore and maintain the chemical, physical and biological integrity of the navigable waters" by 1985, and sought as an interim goal to attain a degree of water quality "which provides for the protection and propagation of fish, shellfish and wildlife, and provides for recreation in and on the water" by July 1, 1983 (the f ishable-swimmable goal) . 1 As one step toward achieving these goals it required that all publicly owned treatment works in existence on July 1, 1977 provide secondary treatment, and by 1983, best practicable treatment (BPT).2 it provided "Federal financial assis- tance... to construct publicly owned waste treatment works''^ to accomplish these objectives. The 1972 Act authorized $18 billion for this purpose and the Clean Water Act of 1977 authorized the Administrator of the Environmental Protection Agency (EPA) to grant on a case-by-case basis time extensions "up to July 1, 1982, or if innovative technology is to be utilized, up to July 1, 1983". 4 Grants for the construction of publicly owned treatment works cover new construction including all expenses associated with construction of a new facility such as preliminary studies and design, renovation including Federal Water Pollution Control Act, As Amended, 22 U.S.C. et. seq., Title I, Section 101. 2 Ibid. , Title III, Section 301(b)(1)(B). 3 Ibid. , Title I, Section 101(a)(4). 4 House Conference Report 95-830, p. 75. III. 5 alteration, remodeling, improvement or extension of treatment works, and, in the case of sludge application and land treatment processes, includes land acquisition costs. Treatment works are interpreted to include inter- ceptor and collector sewers, pumping equipment, and facilities for treat- ing sewage. The grant does not cover costs of maintaining treatment works or other current expenses associated with their operation. The grant pays 75 percent of the cost of ordinary treatment works, leaving the remaining 25 percent to state-local governments. For treat- ment works employing innovative or alternative technologies, the Federal share is 85 percent, and EPA will pay 100 percent of the cost of altering those that later prove to be impractical. The states must set aside 2 percent of their allotment in FY 1979 and FY 1980 and 3 percent in FY 1981 to be used for grant increases for innovative or alternative treat- ment processes and must use at least one-half of 1 percent for these purposes during each of the three years. The special incentive 'lapses after 1981. The 1977 Amendments added the special provisions for inno- vative or alternative technologies to encourage experimentation. Inno- vative technologies are those which are new and promising but "not yet fully proven under the circumstances of its contemplated use."l Alter- native technologies, which focus on wastewater reuse, pollutant recycling and energy recovery, include land treatment, water reclamation, direct industrial reuse of effluents, composting and land application of sludge, and burning sludge to produce energy. 2 Grants under the construction program are allocated among states according to an average of the House and Senate formulae described below. Both formulae draw upon EPA's 1976 Needs Survey -^ which estimates the cost of meeting EPA's 1983 goals in each of the following categories of need: I Secondary Treatment; II Advanced Treatment; IIIA Infiltration/Inflow; IIIB Replacement and/or Rehabilitation; IVA New Collector Sewers; IVB New Interceptor Sewers; V Combined Sewer Overflows; and VI Control of Stormwater. U. S. Environmental Protection Agency, Office of Public Awareness, A Guide to the Clean Water Act Amendments , EPA 129/8, November 1978, p. 8, 2 Ibid., p. 9. 3 U. S. Environmental- Protection Agency, Office of Water Program Operations, Cost Estimates for Construction of Publicly-Owned Wastewater Treatment Facilities: 1976 Needs Survey , MCD-48A, February 10, 1977. The 19 78 Needs Survey is now completed. Congress has not yet decided to use these more current data for the allocation of program funds. III. 6 The House formula allocates 50 percent of funds in proportion to the sum of categories I, II, and IVB, 25 percent of funds in proportion to the sum of categories I through V and 25 percent of funds in proportion to 1975 population. The Senate formula is very complex. It utilizes each state's share of 1975 population and of need (as measured by the sum of categories I, II, IIIA, IVB, and V), together with certain floors designed primarily to increase the share of small states and those experiencing a reduction from the previous year's allocation. Initially, each state is assigned a share equal to the larger of population and need. The initial shares are totaled and pro-rated back so that the total does not exceed 100 percent. The secondary shares are subject to three floors: e One-half of 1 percent of the total; • The lower of population and need; and • 75 percent of FY 1977 share. The third set of shares which result from the application of these floors are then pro-rated back so that once again the total does not exceed 100 percent. The shares which result are then averaged with those resulting from the House formula to produce the final allocations. Allocation of funds within the states is accomplished primarily by means of each state's priorities list. EPA may intervene by removing projects which do not meet the enforceable requirements of the 1977 legislation, defined below. Each state is required to create a five- year priorities list based on the Needs Survey. In determining its priority list, each state must consider: • Severity of pollution problems; • Existing population affected; • Need for preservation of high quality waters; • National priorities; and • Any additional factor the state deems pertinent. The state is free to weight each of these factors and each of the needs categories as it sees fit in developing its priorities list. EPA must reject projects to which it has not granted a Section 402 permit (permit to discharge pollutants) or 404 permit (permit to discharge dredged or fill materials) or which fail to employ the best practicable waste treatment technology; these provisions together constitute the enforceable requirements of the Act. In states having 25 percent or more rural population, 4 percent of funds must be set aside to pay for the Federal share of the cost of projects employing innovative or alter- native technologies in towns of 3,500 or less population. III. 7 States which do not use the 4 percent set-aside for this purpose forfeit that 4 percent of their allocation. In the remaining states, one-half of 1 percent of the state allocation must be set aside for projects employing innovative or alternative technologies, an amount which is subject to the same forfeit provisions. Amounts forfeited are reallocated to other states which have fully obligated their allotments. Some states provide aid to localities for a portion of the 25 per- cent state-local share (or the 15 percent share in the case of innovative or alternative technologies). Thirty of the 50 states provide such aid. Twenty-two of them provide statutory shares ranging from 5 to 20 percent of project cost, with all but five covering one-half or more of the non- Federal cost. The remaining eight have different arrangements including variable grants, hardship grants, loans and state-funded capital grants programs similar to the Federal program. 1 2.3 Municipal Treatment Facilities and Water Quality: Problems and Accomplishments Pollution of the nation's waters comes from a variety of sources which are commonly classified into point and nonpoint sources. Point sources fall into two categories, industrial and municipal. Municipal treatment facilities control pollutants from both municipal and indus- trial point sources, the latter of which accounts for about 25 percent of the waste received by municipal facilities. 2 Industrial point sources are also treated by polluting industries. Nonpoint sources of pollution are a far greater problem than point sources both because of their magni- tude and because they are more difficult to control. For example, bio- chemical oxygen demand and nutrient loadings from nonpoint sources are five to six times those from municipal and industrial point sources. 3 Pollution control efforts to date have been largely directed toward point sources which are easily gathered and treated in treatment facil- ities. Control of nonpoint sources is likely to be more difficult since it involves control of a host of activities from agriculture and feedlots to solid waste disposal and storm runoff. Adequate control of municipal point sources requires bringing waste products through sufficiently capacious and leakproof sewers to an appro- priately equipped facility for removal of pollutants and discharge of U. S. Environmental Protection Agency, Municipal Construction Division, Office of Water. Program Operations, Clean Water Fact Sheet , Attachment 2, January 1979. 2 Council on Environmental Quality, Environmental Quality: The Ninth Annual Report of the Council on Environmental Quality , Washington, D.C., U. S. Government Printing Office, December 1978, p. 103. 3 Ibid. , p. 119. III. 8 effluents. Problems arise at each step of this process. Sewers can leak, either discharging raw sewage or absorbing rainwater. Combined sewage systems, which employ a single sewer for sewage and stormwater, produce a much larger volume of wastewater than those with separate storm sewers. Both inflow leaks and combined sewers can lead to overflow during storms and a consequent discharge of untreated sewage. Unfortunately, correcting infiltration, inflow, and combined sewer problems is a major undertaking. One approach involves renovating or replacing major portions of the nation's sewers and constructing entirely new systems to handle storm- waters at enormous expense. Another approach is the construction of facilities for the temporary storage of sewer overflow. Primary facilities typically remove only a portion of wastes from sewage. Secondary facilities remove much more, usually over 85 percent of pollutants .such as suspended solids and biochemical oxygen demand. Advanced (tertiary) treatment is necessary to achieve higher removal efficiencies for these pollutants and to treat others such as dissolved solids. Facilities of a given type are effective only if they are properly operated and maintained. Adequate and cost-effective control of municipal point sources require attention to each step in this pro- cess. We examine some types of problems at selected points in the treatment process in the following paragraphs. Testimony given at the 1978 oversight hearings of the House Com- mittee on Public Works and Transportation raised a number of questions about the level of treatment EPA was trying to achieve. 1 One issue concerned the desirability of requiring secondary treatment for all facilities. In some areas, moving from primary to secondary treatment made very little difference to water quality but added significantly to the cost of operating the facility. An even more basic issue was the desirability of advanced treatment to the extent that EPA had been requiring it. In a number of cases, the selection of advanced rather than secondary treatment added little to water quality but added See, in particular, the statement of Elmer B. Staats, Comptroller General of the United States, before the Subcommittee on Investigations and Review, House Committee on Public Works and Transportation on the Environmental Protection Agency's Water Pollution Control Grants Pro- gram, July 11, 1978; the General Accounting Office studies on which Staats drew, especially "Better Data Collection and Planning is Needed to Justify Advanced Waste Treatment Construction," CED-77-42, December 21, 1976; and "Secondary Treatment of Municipal Wastewater in the St. Louis Area — Minimal Impact Expected," CED-78-76, May 12, 1978; Statement of Jerome Horowitz and Larry Bazel on the same date and their study on which they drew, "An Analysis of Planning for Advanced Waste- water Treatment," Final Report prepared for Headquarters, U. S. Envi- ronmental Protection Agency, Office of Planning and Evaluation; and statement of Ned W. Williams, Director, Ohio Environmental Protection Agency on the same date. III. 9 significantly to cost, both for operation and maintenance, and also for capital. Cases can be found in which, had the decision to construct a particular facility been related to an overall areawide water quality plan, advanced treatment would not have been selected. A related prob- lem is that new facilities have often been unnecessarily technologically complex, raising operation and maintenance expenses to very high levels. The problem has been less serious in high density urban communities, where the added costs can be divided among a large number of users, than in rural communities where the costs have often exceeded the capacity of the communities to pay them. Low income residents in these communities in particular have suffered from very sharp increases in sewage charges, which has raised questions regarding the equity of the program. Finally, the operation and maintenance of municipal treatment facilities appear to be well below standard. EPA has found that less than one-half of all treatment plants sampled were achieving design performance with respect to removal of suspended solids. ^ The nation's wastewater treatment facilities are thus operating well below capacity and emitting an unnecessarily large quantity of pollutants into the nation's waters. A number of factors are responsible: treatment pro- cesses that are too complex for plant operators; poorly trained staffs and patronage appointments; low operation and maintenance budgets; unreliable equipment resulting in part from EPA's procurement rules; and cut-rate construction. EPA's and the states' failure to enforce standards with an inspection program adequate to the problem has allowed the problem to continue unabated and even grow worse in some cases. Despite these problems, progress is seen in some areas. P.L. 92- 500 greatly accelerated Federal grants for the construction of municipal wastewater treatment facilities. Under the old law, P.L. 84-660, the Federal government distributed a total of $5.2 billion in grants for projects totalling $14 billion in eligible costs during the 16 years between 1956 and 1972.3 Under P.L. 92-500, the Federal government has spent $10.4 billion during the 6.5 years (FY 1973 through the first half of FY 1979) and has obligated $20.9 billion.^ Because planning and con- struction of treatment plants take so much time, the results of this effort are only just beginning to appear. From the inception of the CEQ, Environmental Quality , op . cit . , Table 2-19. 2 Ibid . , pp. 146-149, and "Political-Technical Mire Breeds Poor Sewage Plant Operation," Engineering News Record , June 15, 1978, pp. 24-26. Environmental Protection Agency, Municipal Construction Division Office of Water Program Operations, Clean Water Fact Sheet , February 1979, p. 3. A Ibid., p. 3. III. 10 program through February 1979, EPA has awarded 5,102 grants totalling $18.9 billion for construction, but only 1,241 construction projects totalling $1.3 billion have been completed. Hence, it should not be surprising that the impact on water quality is just beginning to be seen. The National Stream Quality Accounting Network (NASQAN) of the U. S. Geological Survey has collected three years of uniform data on water quality at the downstream ends on 349 water basins. 2 These data measure ten different characteristics of water quality shown in Exhibit 2.1. It should be noted that these overall measures reflect not just discharges from municipal facilities but industrial sources, as well as nonpoint and natural sources. The data show the percentage of stations experiencing improvement exceeded those experiencing deter- ioration for only four of the ten characteristics: fecal coliform bacteria, dissolved oxygen, dissolved zinc, and total zinc. For the remaining six characteristics, the majority of stations show deteriora- tion. The Council on Environmental Quality (CEQ) characterizes the improvements in fecal coliform bacteria levels as "encouraging. "3 A study by EPA found that water downstream of 11 cities where major treatment projects were completed between 1967 and 1975 had improved in nine of the 11 cities. ^ The degree of improvement was not indicated. The most recent data pertaining to improvement in water quality was assembled by EPA's Needs Survey. It found that during the 1973-1978 period, the flow through all municipal treatment facilities increased from 26 to 29 trillion gallons, an 1 1 percent increase, while the total quantity of pollutants discharged into the water decreased from 11,800 to 11,400 tons per day. 5 These data suggest that the municipal treatment program is beginning to have some effect. More analysis is needed, however, of trends in individual pollutants before a conclusive evaluation can be given. 2.4 Fiscal Impact The only comprehensive published fiscal impact estimate appears in the Annual Reports of the Council on Environmental Quality. The CEQ Reports project incremental public capital investment for water pollution abatement over a ten-year period. The most recent projections, covering the period 1977-1986, estimate the incremental capital investment (1977 1 Ibid. , p. 2. 2 CEQ, Environmental Quality , op . cit . , p. 91. 3 Ibid. , p. 96. 4 Ibid., pp. 113-114. Private communication from Jim Chamblee of the EPA Needs Survey III. 11 Exhibit 2.1: Water Quality Changes 1 at NASQAN Stations, 1975-1977 Percentage of Stations Water Quality Characteristics Improved No Change Deteriorated Fecal coliform bacteria 7.3 88.9 3.8 Inorganic nitrogen 5.8 86.7 7.5 Organic nitrogen 3.8 83.4 12.8 Total phosphorous 4.3 83.2 12.5 Dissolved oxygen 4.5 92.9 2.6 Fecal streptoccocci bacteria 1.8 87.3 10.9 Dissolved solids 4.1 74.1 21.8 Dissolved zinc 9.1 86.5 4.4 Total zinc 12.8 85.8 1.4 Phytoplankton 2.0 93.6 4.4 Indications of change tested for statistical significance at the 90 per- cent level. Source: CEQ, Environmental Quality , op . cit . , p. 96. III. 12 dollars) to be $26.4 billion compared to total public investment of $65.3 billion. The estimates were prepared for CEQ by economist Edwin H. Clark. II, who has also provided this study with similar esti- mates for the 1970-1978 period. His estimates are based on an extrap- olation of the trend in expenditures for municipal wastewater treatment facilities from 1958 until 1967, the last year before significant Federal aid was made available. He uses his extrapolation technique to make an informal estimate of what would have been spent in the absence of the program, which he calls the "baseline." The computation of the fiscal impact of the grants appears in Exhibit 2.2. The data covers the 1970-1978 period. From total outlay for municipal wastewater treatment facilities, $30.8 billion, one sub- tracts baseline outlay of $21.2 billion to obtain incremental outlay of $9.6 billion. Incremental outlay is divided by total Federal aid for wastewater facilities, $16 billion, to obtain incremental outlay per dollar of Federal aid. These data indicate that in the 1970-1978 period a significant portion of Federal capital grants was being used to finance baseline expenditures that would have been incurred in the absence of the 1972 Amendments (P.L. 92-500) — for example, in response to state standards. 2.5 Biases in Grant Programs Some of the features of the authorizing legislation have resulted in the neglect of sewage problems, inappropriate levels of treatment and inadequate operation and maintenance which have characterized municipal wastewater treatment facilities. A few comments are needed with respect to the legislation and to the set of goals it established. Critics have argued that a minimal level of secondary treatment is too costly to justify, because in many cases primary treatment would result in little ultimate difference in water quality at significantly lower cost. However, this is a difficult question to answer adequately since dollar estimates of the benefits from improved water quality — such as improved health, aesthetic effects, recreation improvements, etc. — are difficult to research and to analyze, The legislatively defined deadline of 1983 has also been described as "unrealistic" and "exceedingly ambitious." Critics have argued that the 1983 deadline leaves little time for the development of areawide water quality plans which are necessary for an efficient pollution control strategy. The combination of so-called premature deadlines and very ambitious goals was blamed for EPA's delay in implementing Section 208 of the Act, the areawide planning provision, in time to be useful in allocating the first $18 billion in municipal grants. *■ In the absence Freeman, "Air and Water Pollution Policy," op . cit . , pp. 64-65 III. 13 Exhibit 2.2: Capital Outlay for Municipal Wastewater Treatment Facilities, 1970-1978 Expenditures Item in Billions Total outlay $30.8 Less baseline $21 . 2 Incremental outlay $ 9.6 Federal aid $16.0 Source: Special analysis by Edwin H. Clark II, former Senior Economist, Council on Environmental Quality. See text for explanation. III. 14 of effective areawide water quality plans, the states established indi- vidual standards and effluent limitations without adequate consideration of spillover effects. One result of hasty and inadequate planning was the construction of advanced wastewater treatment (AWT) facilities where less costly facil- ities would have been sufficient. Horowitz and Bazel's study of six plants selected by EPA as the best examples of AWT showed that all were in excess of needs. EPA, in response to criticism received during the 1978 oversight hearings, is now screening with great care applications for AWT facilities. It is also giving more attention to planning.' It was evident by 1977 that too little attention was being paid to the contributions of faulty sewer lines to the pollution control problem. Exfiltration from leaky sewers causes raw wastewater contamination of groundwater, and infiltration and inflow and combined sewer problems dilute wastewater concentrations thus increasing the volume of wastes that must be treated. While the 1972 legislation allows grants to be used for major sewer renovation, it may have contributed to the problem by emphasizing the construction of new treatment facilities. The 75 percent Federal matching share may have contributed to the construction of excessively complex treatment facilities in some instances. With the Federal government paying 75 percent of construction costs and in some states the state government paying some proportion of the rest, the local sewer department or district tends to seek facilities with minimum operating and maintenance costs. Thus, "some designers and EPA are pushing computerized automation of treatment plant processes and controls as a substitute for qualified operators. "2 Sewer districts have found themselves in possession of complex equipment designed to remove a very high percentage of pollutants in order to meet EPA and state stan- dards. Proper operation requires properly trained personnel, older operators need to be retrained at local expense and new operators must be hired at the high wage rates which prevail. Operation of the new facilities to design specifications is thus much more costly than oper- ation of previous facilities, sometimes three or four times as costly. One remedy for inadequate operation and maintenance would be to correct the bias which favors capital outlay. If, for example, instead of a program of 75 percent Federal grants for capital, the Federal gov- ernment provided, say, 40 percent grants for capital and fixed dollar Horowitz and Bazel, "An Analysis of Planning and Advanced Waste- water Treatment", op_. cit . , and Congressional testimony cited above. 2 "Political-Technical Mire Breeds Poor Sewage Plant Operation", op . cit . , p. 26. See also Richard Raymond, "The Impact of Federal Fin- ancing Provisions in the Federal Water Pollution Control Act Amendments of 1972", Public Policy , Winter 1979, pp. 109-119. III. 15 subsidies for operation and maintenance with the same total cost, .sewer districts would have a greater incentive to construct smaller, less capital intensive plants. Officials at EPA believe that such an approach, while sensible in theory, is not practical. Financing secon- dary and advanced treatment facilities is difficult enough for some municipalities and sewer districts with 75 percent Federal money; the barriers might be insuperable with 40 percent Federal money. EPA has recently taken steps to strengthen operation and maintenance of treatment facilities for which the Act does make some provision. Under Section 104(g)(1), EPA provides funds for operation and maintenance training programs. In addition, it maintains a small technical assistance program which sends EPA personnel to treatment plants to demonstrate operation and maintenance techniques. Under Section 109(b), 13 states have received grants for the construction of training facilities appro- priate for their particular training needs. EPA has recently established a plant inspection program under which data on plant efficiency are supplied to plant management. Municipalities found to be in violation of their permits are subject to enforcement actions which will require them to upgrade operation and maintenance of the facility to meet permit conditions . ^ Under the law, responsibility for proper operation and maintenance rests with the grant recipient, that is, the municipality or sewer dis- trict. As we have seen, many of these recipients have thus far had difficulties meeting this responsibility. The recently declining level of PWI effort by states, and budget surpluses in some states, suggests that the states might assume some part of the burden. Whether assisted by the states or the Federal government, and whether accomplished through operating subsidies or training and technical assistance, or both, it is evident that a more extensive program directed toward operation and main- tenance is needed. The UMTA experience is probably relevant in this context, but in any case, greater sophistication and knowledge with regard to incentives, management, and organization is needed. The high costs of operation and maintenance are particularly burden- some to small communities in regions of low population density. These costs are inequitable to both the community and its low income residents. EPA has taken a number of measures to aid small communities, following a memorandum on the subject by former Administrator Russell Train which had a major impact on EPA policy toward small communities . 3 Freeman, "Air and Water Pollution Policy," op_. cit . , pp. 61-62. 2 Information on operation and maintenance programs in the above paragraph was supplied by Myron F. Tiemans, Chief, Policy and Guidance Branch of EPA. 3 Ibid. III. 16 Finally, further evaluation is needed of the 85 percent subsidy established by the 1977 legislation for the construction of facilities employing innovative or alternative technologies. The unanswered ques- tion for future study is whether the facilities built under this provi- sion will be more cost-effective than those that would have been built had the provision never been passed and, if they are not, whether the extra cost is a reasonable investment in research and development. 2.6 Conclusion Federal grants for the construction of municipal wastewater treat- ment facilities have initiated an upgrading in the nation's capacity to remove pollutants from wastewaters and to improve water quality in the sea, lakes, rivers, and streams. Though only a fraction of the planned treatment facilities have been completed to date, there have been improve- ments in water quality traceable to the program. While Federal capital grants were being used to finance new capital projects, they also financed much of what the local sewer authorities would have financed in the absence of the aid. Several features of the Federal Water Pollution Control Act may have biased decisions with respect to the construction of municipal wastewater treatment facilities. Ambi- tious goals with respect to both the speed and to the degree of the clean-up of the nation's waters, accompanied by large authorizations for construction, have resulted in a program that has emphasized the construc- tion of new treatment facilities. Had better planning and information been available, they would undoubtedly have shown in some instances that lower levels of treatment, improved sewer lines, and control of storm- water or other nonpoint sources would have been more cost-effective than costly treatment plants constructed or under construction. A new Federal subsidy for operation and maintenance together with adequate inspection, technical consultations, and training programs would provide sewer dis- tricts with a much stronger incentive to operate their plants to design specifications. Such a subsidy could help to alleviate the heavy fiscal burden which advanced treatment has imposed on small communities. III. 17 3.0 CAPITAL GRANTS FOR WATER TREATMENT AND DISTRIBUTION SYSTEMS 3.1 Introduction and Summary of Findings 3.1.1 Introduction Two grant programs support capital outlays for water treatment and distribution facilities. One is the Community Development Block Grant (CDBG) program; the other is the Water and Waste Disposal Loans and Grants program administered by the Farmers Home Administration (FmHA) . The CDBG program funds a great many community development activities, primarily in urban areas; these activities include water projects, but these accounted for less than 3 percent of total CDBG outlays in 1977. The FmHA program provides financial assistance for water systems in rural areas and in towns of up to 10,000 population. 3.1.2 Summary of Findings The principal findings related to capital grants for water treatment and distribution systems are as follows: • A significant level of funding has taken place in rural areas; however, funding in urban areas has been rela- tively small. The water and sewer facilities program under Section 702 of the Housing and Urban Development Act funded a total of 2,246 projects totalling $986.7 million during the ten years from its inception in 1965 to the establishment of CDBG in 1974. Since the inception of CDBG, water and sewer grants together have declined in relative importance from 6.1 percent in the first program year, to 3.6 percent in the second, to 2.9 percent in the third (1977). During the entire three-year period, they amounted to about $290 million. Of this total, only a small amount has been directed to water systems. The FmHA loan program has been in existence since 1937 and the grant program since 1965. From the pro- gram's inception through fiscal year 1977, FmHA has awarded 13,310 loans totalling $12,851 million and 5,200 grants totalling $675 million. Because of the small contribution of Federal funds in urban areas, fiscal impacts have not been discernible and are not discussed in this chapter. • Apart from industrial and agricultural uses, for which charges are easily allocated, the benefits from water supply are measured primarily relative to health stand- ards and to the availabity of adequate flow for fire protection. III. 18 With regard to health impacts, direct attribution of improved health indices to improved water supply is difficult. Assessment of the health impacts of water treatment PWI awaits reliable epidemiologic studies. 3.2 Provisions of the Law Two grant programs support capital outlay for water treatment and distribution facilities: the Community Development Block Grant program (CDBG) , administered by the Department of Housing and Urban Development (HUD), and the Water and Waste Disposal Loans and Grants program, admin- istered by the Farmers Home Administration (FmHA) . In addition, General Revenue Sharing and Local Public Works funds can be used for water facil- ities. The HUD program is aimed particularly toward urban areas and the FmHA program toward rural areas. CDBG is a block grant which funds a great many community development activities: water and sewer projects together accounted for only a small fraction of CDBG funds (2.9 percent in 1977).! Congress created the CDBG program in 1974 by consolidating seven categorical grant programs including a program of water and sewer facilities grants under Section 702 of the Housing and Development Act of 1965. 2 There is some interest in Congress in. additional Federal grants for water facilities. Representative Drinan of Massachusetts introduced a bill, H.R. 278, on January 15, 1979, which would authorize grants "to public water systems for cleaning and updating water supply lines for purposes of assisting such systems to comply with the requirements of this Act (Safe Drinking Water Act) and other Federal and state require- ments respecting the provision of safe drinking water. "3 The Drinan bill is a response to the additional costs of supplying water from meeting the requirements of the Safe Drinking Water Act of 197A. Requirements of the Act for the control of chemical contaminants will cost several hundred million dollars in capital outlay and several tens of millions of dollars in operating and maintenance expenses. 4 U. S. Department of Housing and Urban Development, Community Plan- ning and Development Office of Evaluation, Community Development Block Grant Program: Third Annual Report , Washington, D.C., U. S. Government Printing Office, 1976, p. 243. ? Nathan, Richard P., Paul R. Dommel, Sarah F. Leibschultz, Milton D. Morris and Associates, Block Grants for Community Development , Washington, D.C., U. S. Department of Housing and Urban Development, 1977, p. 53. 3 Ninety-Sixth Congress, First Session, H.R. 278. 4 Environmental Protection Agency, Interim Primary Drinking Water Regulations," Federal Register , February 9, 1978, Part II. III. 19 The FmHA program provides loans and grants for constructing, repair- ing, improving, expanding or otherwise modifying water supply and distri- bution systems in rural areas and towns of up to 10,000 population. A primary objective of the program is to provide financial assistance to rural communities which are not able to issue bonds or obtain credit. In addition, poor communities otherwise unable to afford water systems are eligible for grants which pay up to 75 percent of project cost. Commun- ities are eligible for grants only if the debt service portion of cost to users exceeds specified levels which depend on median income for the area: • 0.75 percent of median income when median income is $6,000 or less. • 1 percent of median income when median income is $6,000 to $10,000. • 1.25 percent of median income when median income is $10,000 or above. Loans under the program are available for a maximum term of 40 years at 5 percent interest. Since communities would generally have to pay higher interest rates in today's market, the loan program has an implicit subsidy component. The program authorizes $900 million in loans and $282.5 million in grants for FY 1978, which are allocated among states one-third according to population and two-thirds according to population in poverty. The CDBG program distributes about $3 billion in block grants partly by formula and partly on a discretionary basis. Formula funds go to rela- tively few urban governments, 640 in 1978, and account for about 75 per- cent of the money. * All general purpose units of government, of which there are nearly 40,000, are eligible for discretionary grants to which the remaining 25 percent of the money goes. There were 1,818 communities which received discretionary funds in the first year of the program, 1,965 in the second year, and 1,950 in the third year. 2 To be eligible, communities must go through an application process which includes submis- sion of a three-year community development plan, a housing assistance plan, and a one-year program. They must use funds for any of eight cate- gories of new physical renewal which include water facilities and five miscellaneous categories. As mentioned earlier, only a small percentage of funds have been used for water and sewer systems. Dommel, Paul R. , "Block Grants for Community Development: Decen- tralizing Decisionmaking," prepared for Conference on "Fiscal Crisis and the American City: The Federal Response ," Washington, D.C., The Brookings Institution, 1978, p. 9. 2 Ibid. III. 20 The Drinan bill would authorize $75 million in grants for the first fiscal year under the program. The grants would pay 75 percent of proj- ect costs. The bill requires the agency administering the program to give priority to municipalities with outdated or inadequate water lines. 3.3 Problems in Financing Water Facilities Grants for water treatment are unlike many capital grants in that water facilities are self-financing, if it is possible to sell the water by metering or other pricing methods which approximate metering. Except for small communities which have difficulty gaining access to credit markets, capital investments for water facilities are generally financed by issuing revenue bonds or obtaining loans which are amortized over a period of years through the levy of user charges. The FmHA program pro- vides loans to rural areas and small towns unable to gain access to credit markets. It also subsidizes water facilities in rural areas which would otherwise be unable to afford the luxury of central water supply; rural households frequently rely on individual wells. The FmHA program is thus addressed partly to a financing problem and partly to a perceived inequity, namely, the alleged inferiority of well water provided on an individual household basis. The imposition of new Federal regulations which increase the cost of water supply create a financing problem, though one which is not insurmountable where water departments or districts can raise their charges to cover the added expense. Older cities face the additional problem of repairing or replacing deteriorating facilities. Once again, the cost of needed repairs and replacements can be met through increased user charges if the locality is not making optimal use of meters and charging appropriate rates. 3.4 Accomplishments The water and sewer facilities program under Section 702 of the Housing and Urban Development Act funded a total of 2,246 projects totalling $986.7 million during the ten years from its inception in 1965 to .the establishment of CDBG.l Since the inception of CDBG, water and sewer grants together have declined in importance from 6.1 percent in the first program year to 3.6 percent in the second to 2.9 percent in the third. ^ During the entire three-year period, they amounted to about Dommel, Nathan, e_t al_ . , Block Grants for Community Development , op . cit . , p. 22. 2 Department of Housing and Urban Development, Community Development Block Grant Programs: Third Annual Report , op . cit . , p. 243. III. 21 $290 million. We do not know what percentage of these funds goes to each type of project, but there are indications that the allocation to water systems is small. The FmHA loan program has been in existence since 1937 and the grant program since 1965. From the program's inception through FY 1977, FmHA has awarded 13,310 loans totalling $12,851 million and 5,200 grants totalling $675 million. 1 3.5 Biases in Grant Programs Water is an easily marketed commodity, the benefits from which accrue primarily to the consumer. It can be individually supolied in rural areas with individual wells. In more densely populated areas, it is more eco- nomically supplied and with greater protection of health by collective water systems. Apart from industrial and agricultural uses, for which charges are easily allocated, the benefits from water supply are mea- sured primarily relative to health standards and to the availability of adequate flow for fire protection. One problem of financing water facilities is gaining access to credit. Communities with access to credit can pay for facilities by raising user charges and amortizing their cost over a period of time. Communities without access to credit have a problem for which a loan program such as the FmHA loan program is a generally appropriate response, though it may perhaps be questioned whether the benefits justify the charging of inter- est below the market rates. Provision of grants which incorporate a sub- sidy and which affect overall capital distribution must always be justified according to some (frequently debatable) social criterion. A second problem of financing water facilities is insufficient demand on the part of users. Users may be unwilling to buy centrally supplied water or to buy enough of it to justify construction or expansion of a water facility. This may happen particularly in rural areas where house- holds and farms frequently have their own wells. The FmHA grant program is addressed to this problem. Some CDBG money may go toward the construc- tion of water facilities for which there is inadequate demand. One justi- fication for subsidies of this kind is externalities. The likelihood of disease from contaminated water is less from central water systems. A community's capability to control fire is greater with central water supply. Whether these externalities are sufficient to justify subsidies is frequently arguable. Another justification occasionally advanced is that of equity. It may seem unfair for poor communities not to have the benefit of central water which is regarded as superior. This justifica- tion, however, relies on the strength of the case to be made by the individual community. Turnbull, Allen L., "Establishment of Water Rates on FmHA Financed Water Systems," A Project Report Presented to the Institute for Applied Financial Management of American University and The Farmers Home Associ- ation, June 1978, p. 2. III. 22 3.6 Conclusion Federal aid for water projects in urban areas, originally provided under a water and sewer facilities grant, is now limited to the CDBG pro- gram. While there is nothing to prevent communities from using a sub- stantial share of CDBG funds for water projects, they in fact use only a small and declining fraction for these purposes. Federal aid for water projects in rural areas is provided by FmHA loan and grant programs. The loan program provides a small implicit subsidy. The grant program sub- sidizes projects in low income communities in inverse proportion to median income. Water, however, is generally self-financed through user charges. Whether central water systems have large enough externalities to warrant Federal subsidies is subject to the same questions and justifi- cations, traditionally using both economic and public interest rationales. as other programs involving Federal intervention in matters of local development. III. 23 4.0 CAPITAL GRANTS FOR HIGHWAYS 4.1 Introduction and Summary of Findings 4.1.1 Introduction Federal capital grants are available for the construction and recon- struction of the four types of Federal-aid highway systems (Interstate, Primary, Secondary, and Urban); for the construction and renovation of public land highways and forest highways; for the elimination or reduction of road hazards and roadside obstacles on Federal-aid roads; and for a number of other purposes. This chapter focuses on the four types of Federal-aid highway systems. 4.1.2 Summary of Findings The major findings of this chapter are as follows: • The Federal-aid highway programs have made significant accomplishments. The outstanding achievement has been the construction of the Inter- state Highway System. The Federal-aid highway programs have directed funds and attention to safety in the design, operation, and maintenance of the nation's highways. They have also brought uniformity among states with respect to the provision of highway services. • A serious issue with the nation's newly expanded highway system is the potential deterioration of highway structure. The expanding highway system which must be maintained by state or local governments is receiving little in the way of Federal funds for maintenance and rehabilitation. Though the highways are still service- able, restoring and keeping them in optimal condition will tax the resources and administrative skills of Federal, state, and local govern- ments . • Federal funds are now available for resurfacing, restora- tion, and renovation. The Federal-Aid Highway Act of 1976 authorized limited funding for resurfacing, restoration, and rehabilitation (RRR) of interstate routes that are at least five years old, and for upgrading sections not up to current standards. The 1976 Act also requires that at least 20 percent of funds for Federally aided primary and secondary routes must be used for RRR work each year. With the passage of the Act, recognition was given to those deteriorated segments of the Federal-aid highway system that needed to be restored to good condition. III. 24 • Federal grants are biased against maintenance. The Federal-aid highway programs may have set the stage for deterior- ation of the nation's highways by effectively subsidizing state and local construction but not maintenance. There is also some incentive to allow highways to deteriorate to a point where RRR funds can be used, instead of maintaining the Federal-aid highway system with state or local own- source funds. The program has not provided sufficient incentives to see that reconstruction and maintenance are carried out in a timely fashion. • The fiscal impact of this program is mildly stimulative. The fiscal impact is difficult to assess but a review of relevant studies suggests that this program is mildly stimulative; that is, a dollar in Federal funds had led to an expenditure of slightly more than a dollar on highways. 4.2 Provisions of the Law The Federal-Aid Highway Act of 1978, like its predessessors in 1976, 1973 and before, provides Federal aid for capital expenditures on desig- nated Federal-aid highways and bridges (and in some cases non-Federal-aid highways and bridges), as well as for non-capital expenditures for beauti- fication, planning, and research. The Highway Safety Act of 1978 provides additional Federal aid for pavement marking, hazard elimination, rail- highway crossings, which are capital outlay items, and for other safety programs involving training and research. These Acts are Titles I and II respectively of the Surface Transportation Assistance Act of 1978; Title III is the Federal Public Transportation Act of 1978. Federal capital grants are available for the construction and recon- struction of the four types of Federal-aid highway systems (Interstate, Primary, Secondary, and Urban), for public lands highways and forest highways, for the elimination or reduction of road hazards and roadside obstacles on Federal-aid roads, for the elimination of hazards at rail- highway crossings on both Federal-aid and off-system roads, for repair of highways damaged by natural disasters, for certain special programs such as the Great River Road along the Mississippi River, and for a number of other purposes. Federal capital grants for programs other than construction or reconstruction of the four Federal-aid highway systems account for about 10 percent of 1979-82 authorizations. Our analysis concentrates on the four Federal-aid highway systems. We briefly consider Federal aid for off-system projects toward the close of our discussion. We begin with a description of the characteristics of the four Federal-aid highway systems. The Interstate System when completed will consist of a 42,500 mile connected network of freeways in both urban and III. 25 rural areas linking most of the nation's cities of 50,000 or more popula- tion. Though about 92 percent of the System's miles are open to traffic, about 40 percent of the System's $110 plus billion cost has yet to be expended.^ Some segments planned for urban areas may never be built. The Primary System consists of more than 260,000 miles of arterial roads which are the most important roads to interstate, regional, and statewide travel. The Interstate System is part of the Primary System but sepa- rately funded. 2 Primary roads include both rural arterials and their extensions through urban areas. Most of these roads are state owned and maintained. The Secondary System consists of about 415,000 miles of rural collector roads which link local roads with the arterials. It includes many locally owned and maintained routes as well as the less important state routes. The Federal government removed about 200,000 miles of secondary roads from the Federal aid system in 1976, thus reducing its role in financing rural roads. The Urban System, established in 1970, consists of about 130,000 miles of arterial and collector streets serving local urban transportation needs. Most of these streets are locally maintained and owned. Designation of Urban System streets was made by local officials with subsequent concurrence of the states in contrast to Primary and Secondary System roads which are designated by the states with local concurrence. Recipients can use capital grants for primary, secondary, and urban roads for new construction or reconstruction but not for maintenance. This has always been the case. Prior to 1976, the Interstate program provided no funds for reconstruction. The Federal-Aid Highway Act of 1976 authorized limited funding for resurfacing, restoration, and reha- bilitation of interstate routes at least five years old and for upgrading sections not up to current standards and those built prior to 1956. This program, known as the RRR program, is in recognition of an emerging prob- lem on older portions of the system. Funds for the maintenance of Inter- state highways have never been available. The 1976 Act also formalized existing arrangements for primary, secondary and urban routes by defining construction to include RRR work. The 1978 legislation increased the Interstate RRR program from $175 million per year to $275 million beginning in fiscal year 1981. It also required that at least 20 per- cent of primary and secondary funds must be used for RRR work each year. The states, in accepting Federal aid, agree to perform adequate mainte- nance on all aided highways. The law defines maintenance as: The preservation of the entire roadway, including surface, shoulders, roadsides, structures, and such traffic control devices as are necessary for its safe and efficient utili- zation. J Washington Post , October 29, 1978. 2 U. S. Department of Transportation, Federal Highway Administration, America on the Move , 1977 Edition, p. 12. 3 Section 101, Title 23, U.S. Code. III. 26 Federal Highway Administration regulations further define mainte- nance as: Work primarily for rejuvenation or protection of existing surfaces; resurfacing of less than 3/4 inch minimum thick- ness or of short length; patching and repair of minor failures; and undersealing of concrete slabs other than essential as part of restoration for resurfacing. 1 The 1978 Act authorizes funds for fiscal years 1979 through 1982. Authorizations for each of these years for each of the four main highway programs appear in Exhibit 4.1. Interstate authorizations are $3,250 million for 1979 and 1980, $3,500 million for 1981, and $3,200 million for 1982 plus $125 million annually to fund the one-half of one percent minimum. The minimum provides that no state shall receive less than one-half of one percent of the total Interstate authorized for all four programs . The 1978 Act includes authorizations for the Interstate System at $3,200 million for 1983 and at $3,675 million for 1984 through 1990 when the system is to be completed. It requires that all routes or portions of routes on the Interstate System and all substitutions for Interstate routes (see below) be under construction or under contract for construc- tion by September 30, 1986. Of the remaining three programs, the Primary System receives the largest authorization, more than half of total authorizations for Primary, Secondary and Urban. The law allows: State and local government — jointly — to withdraw nonessential large urban area interstate segments and associated costs and receive an equal amount (adjusted for inflation) of federal general funds for mass transit or highways. 2 The 1978 Act restricts such withdrawals and substitutions to those made prior to September 30, 1983 and excludes new Interstate mileage in order to expedite completion of the system. It raises the Federal matching share for these substituted funds to 85 percent. The 1978 Act provides for a Federal share of the costs of Primary, Secondary and Urban Systems of 75 percent in most states with higher shares in public lands states and a 90 percent share for the Interstate System. Public lands states are those for which at least 5 percent of U. S. Department of Transportation, Federal Highway Administration, "Resurfacing, Restoring, and Rehabilitation (R-R-R) Work," FHWA Notice N 5040.19, June 28, 1976, p. 2. 2 Highway Users Federation, Highways, Safety and Transit: A Sum- mary of the Surface Transportation Act of 1978 , p. 11. III. 27 Exhibit 4.1: Authorizations, Federal-Aid Highway Act of 1978 for Interstate, Interstate-RRR, Primary, Secondary and Urban Systems (millions of dollars) 1979 1980 1981 1982 Total Interstate 3,250 3,250 3,500 3,200 13,450 Interstate - Minimum 1/2% 125 125 125 125 500 Interstate-RRR 175 175 275 275 900 Primary 1,550 1,700 1,800 1,500 6,550 Secondary 500 550 600 400 2,050 Urban 800 800 800 800 3,200 Source: Highway Users Federation, Highways, Safety, and Transit: A Summary of the Surface Transportation Act of 1978 . III. 28 their total land area is in nontaxable Indian lands, public domain lands, national forests, national parks and national monuments. The maximum Federal share in public lands states is 95 percent. The 1978 Act raises the Federal matching share in most categories from 70 percent to 75 per- cent except for the Interstates. The provisions of public lands states remained the same. The 1978 Act also liberalizes the policy allowing transfer of funds from one non-Interstate program to another. The maximum transfer between Primary and Secondary Systems increased from 40 to 50 percent and that between urban extensions of Primary and Urban increased from 20 to 50 percent. Transfers from Urban to Rural Secondary are not permitted. The transfer provisions give the states considerable flexibility in setting priorities for highway projects. Provision for transfers from Interstate to other systems other than for nonessential urban segments would jeopardize completion of the Interstate System. The 1978 Act revised the Federal penalty for state failure to enforce state laws and Federal regulations governing vehicle sizes and weights on Federal-aid highways and included other provisions designed to increase the effectiveness of size and weight limits. Investigations had shown that excessive wear on the nation's highways was traceable, in part, to overloaded vehicles and that some states had not been enforcing the law. The Act called for a 10 percent temporary reduction of allocations to non-complying states, a more realistic penalty than the prior 100 percent fund cutoff. It also permits the use of Federal funds for weight-related capital equipment such as "fixed and portable weighing scales, scale pits, scale installation and scale houses."! Federal highway grants are allocated among states according to dif- ferent formulae which are related to the cost of constructing and recon- structing the various Federal-aid highway systems. Interstate alloca- tions are based directly upon a series of detailed cost estimates for completion of the system except for the one-half of one percent minimum. Each state receives a share equal to the ratio of the Federal share of the estimated costs for all states. Cost estimates are revised period- ically. Interstate-RRR allocations are based three-quarters on lane miles of Interstate in use more than five years and one-quarter on the number of vehicle miles travelled on such lanes. Each state receives a share under each part of the formula equal to the ratio of the total of lane miles or vehicle miles on Interstate routes within its borders to the United States total. Because the Primary System serves both rural and urban areas, funds are allocated in accordance with factors relating partly to rural mile- age and partly to urban mileage. Two-thirds of Primary funds are allo- cated according to a formula which gives equal weight to each of three factors: Highway Users Federation, Highways, Safety, and Transit..., op . 16. III. 29 • The ratio of the area of each state to the total area of all states. • The ratio of the rural population of each state to the rural population of all states. • The ratio of the mileage of rural delivery routes and intercity mail routes where service is performed by motor vehicles to the total of all such mileage for all states. The remaining one-third of Primary funds is allocated according to the ratio of the urban population in each state to the urban population in all states. Funds for the Secondary System, which serves only rural areas, are allocated according to a formula which is nearly the same as the three factor formula for rural primary funds, differing only with respect to the third factor which is the ratio of the mileage of rural delivery and state routes in each state to the total of such mileage in all states. Funds for the Urban System are allocated in proportion to the urban population of each state, except for states with very small urban populations which receive no less than one-half of one percent of each year's apportionment. As mentioned earlier, some aid is available for capital projects on off-system roads. The 1978 Act provides $200 million annually from general funds for the Safer Off-System Roads Program which finances "bridge replacement, high hazard and roadside obstacle removal, and... the construction, reconstruction and improvement of any road not on the Federal-aid system."! States must devote a minimum of 50 percent of their apportionment to highway safety projects. The Act provides $190 million annually for the Rail-Highway Crossings Program which finances elimination of hazards at railroad-highway crossings on both Federal-aid system roads and off-system roads. It provides limited funds for off-system bridge replacement which we discuss in the following section. The description of these programs makes it evident that most Federal support for off- system projects is safety related, and the amount of support is extremely limited. For the most part, state and local governments must fund capital projects on non-Federal-aid system roads from sources other than Federal aid. There are more than three times as much mileage on these as con- tained in the Federal-aid system. 4.3 Problems with the Nation's Highway Programs A serious issue with' the nation's newly expanded highway system is the potential deterioration of highway structure. Though the highways U. S. Department of Transportation, Federal Highway Administration, America on the Move , op . cit . , p. 15. III. 30 are still serviceable, restoring and keeping them in optimal condition during the coming years will tax the resources, the administrative skills and the flexibility of Federal, state and local governments. A related set of problems, which is concerned not with the highways themselves but with how they are financed, is the lagging growth in highway user taxes on fuels brought about by efforts to conserve energy, and the political difficulty in raising tax rates to produce needed revenues. A study prepared by the U. S. Department of Transportation for the Congress, The Status of the Nation's Highways: Conditions and Perform - ance , presents measures of the surface condition of the highways in 1970 and 1975.1 The study divides highways into three groups with respect to pavement condition: good, fair and poor. 2 The findings of the study with respect to pavement condition for both rural and urban portions of the highway system appear in Exhibit 4.2. The data for Interstate high- ways, according to interpretations offered in the Report, suggest that 22 percent of rural portions and 29 percent of urban portions will need RRR work by 1980; 4 percent of rural and 3 percent of urban portions need work now. Data for non-Interstate arterials and collectors reveal an even larger proportion of highways in only fair condition, 46 percent for arterials and 55 to 60 percent in the case of collectors. Moreover, these proportions were larger in 1975 than in 1970. Six and 7 percent of urban and rural arterials respectively and 9 and 10 percent of col- lectors need repair work now. Highway departments were generally able to keep up with the most pressing reconstruction jobs during the 1970- 1975 period as indicated by the generally stable proportion of poor pavement. But the data suggest that the nation will in the coming years be faced with a very large maintenance or reconstruction effort. The Department of Transportation study estimated that the amount of capital investment for construction and reconstruction to maintain the 1975 con- ditions and performance of the nation's highways would total about $20 billion during the 1976-1990 period. 3 A number of developments, however, will make it difficult to main- tain even current levels of spending. The national effort to conserve energy has cut into the tax base on which both the Federal and state governments draw to finance a major share of their highway outlays, namely, taxes on motor fuel. Both state and Federal excise taxes are U. S. Department of Transportation, Office of the Secretary, Report of the Secretary of Transportation to the United States Congress The Status of the Nation's Highways: Conditions and Performance , Washington, D.C., U. S. Government Printing Office, 1977. 2 Pavement with a Present Serviceability Rating (PSR) of 3.5-5 is good, of 2.5-3.5 for Interstate and 2.0-3.5 for other highways is fair and with lower ratings is poor. 3 Report of the Secretary of Transportation to the United States Congress, op_. cit . , p. 12. III. 31 Exhibit 4.2: Pavement Condition of Rural and Urban Interstate Arterial and Collector Highways, 1970 and 1975 (percentages) Rural Portions Urban Portions Interstate Arterials Excluding Interstate Collectors Poor Fair Good Poor Fair Good Poor Fair Good 1970 NA NA NA 8 44 48 9 58 33 1975 4 22 74 7 46 47 10 60 30 1970 NA NA NA 6 41 53 9 48 43 1975 3 29 68 6 46 48 9 55 36 NA Data not available. Source: U.S. Department of Transportation, Office of the Secretary, Report of the Secretary of Transportation to the United States Congress, The Status of the Nation's Highways: Conditions and Performance , Washington, D.C. , U.S. Government Printing Office. 1977, Figures 3.8 and 3.9. III. 32 specific to the quantity of fuel rather than a percentage of costs. The growth of gasoline consumption is being constrained by national policy (e.g., the passenger and light truck fuel economy standards mandated by the Energy Policy and Conservation Act of 1975 (EPCA)), as well as by other events (e.g., OPEC price increases and a slowing down of growth rates in GNP). Assuming that the states will increase their gasoline tax rates at the same annual rate as over the 1970-1975 period, Sherman pro- jected that total state highway revenues, under the provisions of EPCA, will decline by an annual rate of about 1 percent which contrasts with a 6.6 percent annual increase in the 1967-1975 period. 1 This projection assumes a 2.6 percent annual growth rate in vehicle miles traveled which is "consistent with recent demographic trends and approaching saturation of high income car ownership levels and driver licensing rates. "^ Other observers have a different view. They observe that truck use is expected to grow in response to a growth in truck freight. They also observe that the number of women driving their own vehicles has been increasing and is not expected to peak until 1990. Overall, the number of drivers are expected to grow relative to the population until 1990. 3 Taking these considerations into account, analysts have projected continued growth in highway revenues, but at a slower rater than previously. If revenue growth is inadequate to finance desired highway expendi- tures, both the Federal government and the states can, in principle, raise user tax rates. However, a serious shortage of revenues to finance highway programs would in the short run lead to expenditure cuts and mea- sures to raise additional funds such as increased reliance on debt. Hence, it would appear that during the next few years state and local highway departments will be hard pressed for funds to carry out desired highway programs. 4.4 Accomplishments Because they have evolved very gradually since the Federal-Aid Highway Act of 1956, the accomplishments of these programs are best eval- uated over the entire period since 1956. The 1956 Act was a watershed, for it marked the beginning of a serious Federal effort to construct the national system of Interstate highways authorized by the Federal-Aid Highway Act of 1944. Sherman, Len, "State and Federal Issues in Financing Highway Pro- grams," Paper submitted for publication to the Transportation Research Board, June 16, 1978. 2 Sherman, Len, "State and Federal Issues in Financing Highway Pro- grams," o£. cit . , p. 11. 3 Private communication from V . W. Rankin, Highway Users Federation, III. 33 The outstanding achievment of the Federal-aid highway programs has been the construction of the Interstate System, an integrated system of limited access highways throughout the nation. More than 90 percent of the system is now complete. At present, about 18 percent of all vehicle miles are traveled on Interstate; when it is complete, the figure will rise to 22-23 percent. * There is no way of knowing for certain what the highway system would have looked like had there been no Interstate pro- gram. There would certainly have been limited access highways in heavily traveled corridors with gaps along less traveled routes. The system of primary roads would have been somewhat better. Capital outlay for high- ways would have been less. Because Interstate highways are safer than others, the safety record on American highways would have been worse. The second noteworthy achievement of the Federal-aid highway pro- grams is the funds and attention they brought to safety in the design, operation and maintenance of the nation's highways. States and local- ities not only used Federal safety standards on Federally aided highways, as the Federal government required, but they also incorporated them into their own design specifications and operation and maintenance standards. 2 A study by Dynatrend comparing equivalent highway projects in four repre- sentative states found: There were no differences in design features compared on equivalent Federal-aid and 100 percent state funded proj- ects. Some differences were found between projects with ordinary R/R/R programs, with the state projects having less pavement overlay and narrower shoulders. -* This finding is particularly noteworthy because the only differences found were in the RRR program which is recent. It would appear that Federal-aid projects have a demonstration effect; in the course of time states tend to adopt Federal standards. Federal design standards which have improved highway safety include higher design speed, improved shoulders, better markings, guardrails, and traffic control devices, especially on secondary roads. ^ The 4 to 5 percent secular decline in the accident rate is partly attributable to the achievements of the Federal-aid highway programs. Private communication from Carlton Robinson of the Highway Users Federation. 2 In the opinion of Robinson. Dynatrend Incorporated, Impact of the Federal-Aid Highway Program on State and Local Road Construction , Prepared for the U. S. Department of Transportation, Federal Highway Administration, Policy Planning Divi- sion, January 1978, p. xvii. Robinson, Carlton, o_p_. cit . III. 34 A third accomplishment of the highway programs has been the degree of uniformity among states which the programs brought to the provision of highway services. Without these programs, the states would doubtless have raised the necessary revenues through the levy of higher user taxes on motor fuel. The distribution of revenues among states would probably have been different, however. The less traveled Federal lands states probably would have been less well served. 4.5 Fiscal Impact Several recent econometric studies, drawing on the wealth of data on state-local highway expenditures and Federal capital grants for highways, have attempted to estimate the fiscal impact of highway grants. Prominent among them are studies by Enns , Sherman and Rao. We discuss each of these studies in turn. Enns examined the impact of Federal highway grants on state expendi- tures for highway construction, maintenance and highway revenues. He applied multivariate regression analysis to a pooled cross-section time series sample of the 48 contiguous states for the period 1959-1970. He introduced a number of explanatory variables to account for systematic differences in fiscal behavior across states and over time. He found that the Federal grant coefficient in the construction equation varied between 1.03 and 1.11 depending upon the estimating technique. These coefficients mean that $1 of additional Federal highway aid was associ- ated with between $1.03 and $1.11 of additional state highway expenditure from all sources including the Federal aid, or between $0.03 and $0.11 of additional expenditure from state sources. Theory predicts that the maximum expenditure response to matching grants of this kind will be less than or equal to the statutory matching requirements. 2 Interstate grants require recipients to spend $1.11 for each $1 of aid where the Federal matching rate is 90 percent and $1.05 Enns, J. H., The Response of State Highway Expenditures and Revenues to Federal Grants-in-Aid , Report R-1233-FF, Santa Monica, California, The RAND Corporation, 1974. 2 Highway grants are closed-ended matching grants, i.e., are subject to a ceiling given by the authorization. The maximum expenditure response to such grants is given by what the response would be to open-ended match- ing grants. The maximum will equal the statutory matching requirement if the price elasticity of demand for the service equals one, less if the elasticity is less than one and more if the elasticity is more than one. The price elasticity of the demand for state-local services is generally less than one. III. 35 where the rate is 95 percent, the maximum in the public lands states. * The remaining grants for Primary, Secondary and Urban highways, often referred to as ABC grants, require recipients to spend $2 for each $1 of aid since the matching rate was 50 percent until 1970 on these high- ways. The Enns estimate is for a composite of Interstate and ABC grants. One explanation for why it is as low as it is emerges from a study by Miller. 2 Miller found that for 41 states highway expenditures were greater than necessary to meet the statutory matching requirements. Under these circumstances the expenditure response to a matching grant will be similar to the response to a block grant. The estimated response com- bines the response to Interstate grants, which yield a maximum response of $1.11, the response to ABC grants in the 41 states which react to the grants as a block grant and would be expected to spend less than $1 for each $1 of grant, and the response to the ABC grants in the remaining states which could spend up to $2 for each $1 of grant. 3 To summarize our findings from the Enns and Miller studies, Interstate grants have been mildly stimulative of capital outlay; ABC grants in a few states that tend to spend no more than Federal matching requirements have also been stimulative and ABC grants in the remaining states have been sub- stitutive and comparable to block grants. Sherman studied the impact of Federal aid upon total highway expend- itures (current plus capital) using data from the 48 contiguous states over the period 1957— 1970 . ^ His results are summarized and compared with the results of a similar regression analysis in a study by Rao.-> Both regression equations separated Federal aid into two components, Interstate and non-Interstate; they used, in addition, a number of other explanatory variables. Sherman found that $1 of Interstate aid added $0.64 to state highway current and capital expenditures from own sources (i.e, exclusive of Federal aid) and that $1 of non-Interstate aid reduced own source expenditures by $1.10. This latter coefficient implies that the states The states must spend $1 for each $0.90 of aid or $l-^$0.90 = $1.11 for each $1 of aid. In general, the states must spend $1 divided by the matching rate for each $1 of aid. 2 Miller, E. , "The Economics of Matching Grants: The ABC Highway Program," National Tax Journal , Vol. 27, 1974, pp. 221-229. 3 See the discussion in Ray D. Whitman and Robert J. Cline, "Fiscal Impact of Revenue Sharing in Comparison with Other Federal Aid: An Eval- uation of Recent Empirical Findings," Final Report No. 1189-01, Washington. D.C., The Urban Institute, 1978, pp. 184-189. 4 Sherman, L. , The Impact of the Federal Aid-Highway Program on State and Local Highway Expenditures , Washington, D.C., U. S. Department of Transportation, 1975. Rao, S., "Statistical Analysis of the Impact of Federal Highway Aid on State Allocative Decisions," Draft Final Report prepared for U. S. Department of Transportation, Office of Intermodal Transportation, July 1978. III. 36 completely substituted Federal ABC grants for own-source revenues, an unlikely response. The first coefficient implies that the states increased own-source spending by $0.64 for each $1 of interstate aid, a strong stimulative effect. Considered in conjunction with Enns' findings, this could imply that Interstate aid greatly increased the states' main tenance expense, though it is unlikely to have had so large an effect. Rao's results are more reasonable. His coefficient for Interstate grants is 0.11 which is the same as one of Enn's coefficients for capital grants. His coefficient for non- Interstate grants is 0.55, a strong stimulative effect. As noted above, this could imply that non-Interstate aid greatly increased states' maintenance expense. Rao also ran three regressions using 1957-1970 data for the 48 con- tiguous states to explain the influence of Federal aid on state capital outlay. The first, which used a single Federal aid variable, total Federal highway grants, showed that $1 of Federal highway grants added $1.08 to state capital outlay for highways. The second, which separated Federal aid into Interstate and non-Interstate, showed that $1 of Inter- state grants added $1.08 to state capital outlay for highways and $1 for non-Interstate added $1.07. The third equation, which used Interstate, Primary, Secondary and Urban grants as independent variables, was not successful because of the high correlation of the latter three. * Rao's results, then, are consistent with Enns'. Both Interstate and ABC grants appear to be mildly stimulative in the aggregate. 4.6 Biases in Grant Programs The Federal-aid highway programs may have set the stage for deterior- ation of the nation's highways by creating a program which effectively subsidizes and monitors state and local construction and reconstruction but not maintenance and enforcement of weight and size limits. Federal grants for Interstate highways pay 90 percent of the costs in the majority of states and up to 95 percent in public lands states. Substitutions are allowed for nonessential urban segments. So large a subsidy certainly results in the construction of more high-grade primary highways than states would have constructed on their own. Whether the program has biased highway construction decisions in an undesirable or wasteful way is difficult to judge. The primary rationale for the Interstate System was to create a single system of limited access high- ways to carry a substantial portion — say 20 to 25 percent — of total vehicle miles. Until 1976, the Interstate System was the only Federal-aid highway system for which Federal aid could be used only for new construction; the 1976 Act created the RRR program for Interstate, but authorized only Rao, S., op_. cit . , Table 2 III. 37 $175 million annually. A study mandated by the 1976 Act, Interstate Resurfacing, Restoration and Rehabilitation Study , determined that RRR needs on the Interstate System were considerably in excess of the amount authorized. 1 The study attempted to estimate the cost of maintaining the Interstate System in at least "good" condition during the 1977-1995 period. * It includes costs for pavements and bridges as well. The study found that it would cost about $1.3 billion per year for each of the first two years to catch up with overdue RRR work and thereafter an average of $950 million (1975 dollars) annually during the study period. The $175 million provided by Congress and even the $275 million provided by the 1978 Act to begin in 1981 falls far short of meeting the estimated cost, and will need to be supplemented by significant state and local resources if these goals are to be met. Portions of the Interstate System need resurfacing or reconstruction for a number of reasons. The older portions of the system are now 20 years old and due for major reconstruction. The oldest portions, such as the Pennsylvania Turnpike, were built prior to 1956. It is popularly believed that the severe winters in 1977 and 1978 may have hastened the need for reconstruction and maintenance on many highways, although some highway engineers disagree. 3 Another factor is the heavy truck loads the System has been carrying, In 1 974 , "Congress, as an energy conservation measure, permitted states to increase the truck weight limit from about 73,000 pounds to 80,000 pounds. About 40 states have done so. "4 The state highway officials association has claimed that their road tests have shown that the increased weight can cut pavement life by 25 to 40 percent. 5 Moreover, vehicles loaded far above the legal limits do shorten highway life and there is evidence that such abuses are widespread. Preventing truckers from overloading their vehicles requires a vigorous enforcement program which the states claim they cannot afford. The 1978 Act modified the weight enforcement provisions of Federal law. For example, it changed U. S. Department of Transportation, Office of the Secretary, Report of the Secretary of Transportation to the United States Congress, Inter - state Resurfacing, Restoration and Rehabilitation Study , Washington, D.C. U. S. Government Printing Office, 1977. 2 See the discussion of pavement ratings above. Rankin of Highway Users Federation believes that mild winters in which the ground alternately freezes and thaws are harder on highways than severe winters. Stanfield, "Highway Aid is Shifting," op_. cit . , p. 1318. 5 Stanfield, op_. cit., pp. 1318-1319. III. 38 the penalty to states for failure to enforce weight limits to 10 percent of a state's allocation of Federal highway funds from 100 percent which was too severe to be enforceable. It also made capital facilities for weight determination eligible for Federal highway aid. While these changes should certainly help, they do not address the basic problem that enforcement procedures and organizations are not directly subsidized while construction and reconstruction are. Maintenance of interstate and all Federal-aid highways is also ineligible for Federal aid. Though states agree to maintain Federal aid highways when they accept the Federal aid, the program provides a potential financial incentive to favor new construction and reconstruc- tion. So long as new construction is the only aided activity, the pro- gram's bias is limited to encouraging a higher quality of construction than the states might otherwise have chosen. And provision of Federal aid for RRR work provides states with a potential incentive to defer maintenance. There is at present more Interstate RRR work needed than the states are willing to undertake with limited Federal support. A higher priority goes to completing the Interstate System. Deferral of needed resurfacing is potentially costly because the surface may need much more expensive repair when the work is finally undertaken. On the other hand, earlier completion of the system produces benefits in the form of fewer accidents and saves people both time and inconvenience by reducing congestion, whether it would be more prudent and economical to complete necessary resurfacing before completing the system Is an interesting and complex issue. Another factor may deter adequate reconstruction and maintenance of the Interstate System. Interstate highways are big and expensive to maintain. States incurred a sizeable future financial burden when they undertook construction of Interstate routes. The burden is greater in some rural states than elsewhere because the per capita costs of main- taining the large per capita investment in Interstate mileage is rela- tively great. As highway funds have become scarce, it is not surprising that some states have chosen to defer costly maintenance and reconstruc- tion of Interstate routes. Similar biases exist for the Primary, Secondary and Urban portions of the Federal-aid highway programs. Primary, Secondary and Urban high- ways are now eligible for 75 percent Federal matching grants for both construction and reconstruction. One might think that so large a Federal share would have given the states a stronger incentive to construct and reconstruct highways for which they are responsible. Economic analysis has shown that this has not happened in most states. Miller found that, in all but nine states, the Primary, Secondary and Urban highway programs have had "only a small effect in increasing total highway expenditures by state government, with the major effect being to replace expenditures that III. 39 would have been made in any case". Therefore, Federal aid has not, generally, stimulated any more construction than would a block grant in like amount. A study by Sherman for the Department of Transporta- tion published in 1975 reached a similar conclusion. * With the growing scarcity of highway revenues, the incentive effects of Federal grants for non-Interstate routes may change. State officials have indicated that non-Federal programs are the first to go as highway revenues dwindle.^ States and localities may also curb maintenance and reconstruction on off-system roads in order to take advantage of , the 75 percent or higher matching rate on Federal roads. Thus, the potential distorting effect of the Federal-aid highway programs on state-local deci- sions is becoming a matter of serious concern. The Federal-aid highway programs may also bias resource allocation because they alter incentives to FHWA which administers the programs. Because they are purely capital grant programs, FHWA has concentrated its administrative efforts on monitoring the quality of construction and overall planning of the Federal-aid highway system. It has not effec- tively monitored the quality of maintenance, though it is empowered to do so by law, nor has it attempted to monitor enforcement of weight limits, 4.7 Conclusion The outstanding achievement of the Federal-aid highway programs since 1956 has been the construction of the Interstate System, an integrated nationwide system of limited access highways. The second noteworthy achievement has been the attention and money directed at safety aspects in the design, maintenance and operation of the nation's highways. A third achievement has been the degree of uniformity among states which Federal financing brought to the provision of highways. Econometric studies suggest that highway capital grants have been stimulative with each dollar of aid adding a little over one dollar to state capital spending for highways. As the nation enters an era of increasingly scarce highway revenues, the Federal-aid highway programs may have an increasingly biasing effect on the allocation of highway resources. Provisions of 90 percent or Miller, E., "The Economics of Matching Grants: The ABC Highway Program," National Tax Journal , Vol. 27, 1974, pp. 221-229. 2 Sherman, L. , The Impact of the Federal Aid Highway Program on State and Local Highway Expenditures , op . cit . 3 Porter, A.L., S. Rao and T.D. Larson, "Effects of Federal Funding Policies on State and Local Transportation Performance: Preliminary Findings," Unpublished paper presented at Conference Session No. 87, Transportation Research Board Annual Meeting, Washington, D.C., January, 1978, cited in L. Sherman, "State and Federal Issues in Financing High- way Programs," op_. cit . , p. 15. III. 40 better matching grants for the construction of the Interstate System, but not for reconstruction or maintenance, has resulted in some neglect of these highways. The programs have provided neither the states nor FHWA with sufficient incentive to see that needed reconstruction and maintenance are carried out in a timely fashion. Until recently, state-local funds for Federal-aid highway systems have been sufficiently plentiful in most states that large matching grants have had no effect upon the cost of these highways at the margin However, the provision of Federal support for construction only has focused FHWA's monitoring efforts on the quality of construction rather than on maintenance and the enforcement of weight limits. Failure to provide specific Federal programs for enforcement activities and main- tenance monitoring is still a drawback. More serious is the effect of matching provisions, that make it increasingly likely that states and localities are likely to divert expenditures from maintenance dnd off- system expenditures to capital expenditures on the Federal-aid highway system unless the program is modified. III. 41 CAPITAL GRANTS FOR BRIDGE CONSTRUCTION, REPLACEMENT AND REHABILITATION 5.1 Introduction and Summary of Findings 5.1.1 Introduction Federal capital grants for bridges are available under three separate programs. First, bridges on any Federal-aid highway system are eligible for Federal aid on the same terms as any other component of the system. Second, the Highway Bridge Replacement and Rehabilitation Program provides Federal matching grants for replacement and rehabilitation for bridges on and off the Federal-aid highway system. Third, the Safer Off-System Roads Program provides Federal aid for replacement of off-system bridges along with assistance for the elimination of other safety hazards and road work. States may use funds under any of these three programs to pay for initial bridge inspection, while the National Bridge Inspection Act of 1978 man- dates inspections for off-system bridges and permits states to use funds from the Highway Bridge Replacement and Rehabilitation Program for this purpose. 5.1.2 Summary of Findings The principal findings related to the bridge construction, replace- ment and rehabilitation program are as follows: • Replacement and rehabilitation may be Federally-funded. The 1978 Act eliminated the incentive to totally replace a struc- turally deficient but rehabilitatable bridge by permitting Federal funds to be used for bridge rehabilitation as well as replacement. • Lack of Federal support for maintenance activities is a potential bias in the program. As in the case of highways, provision of an 80 percent subsidy for rehabilitation and no subsidy for maintenance gives state and local gov- ernments an incentive to defer maintenance. Adequate maintenance could, however, postpone the need for major rehabilitation. Because most Federally-funded bridges receive their revenues under highway programs, fiscal impact is not separately discussed in this chapter. The discussion in the previous chapter covers both highways and bridges. III. 42 5.2 Provisions of the Law Federal capital grants for bridges are available under three separate programs. First, bridges on any Federal-aid highway system are eligible for Federal aid on the same terms as any other component of the system. Second, the Highway Bridge Replacement and Rehabilitation Program provides Federal matching grants for replacement and rehabilitation for bridges on and off the Federal-aid highway system. Third, the Safer Off-System Roads Program provides Federal aid for replacement of off-system bridges along with assistance for the elimination of other safety hazards and road work. States may use funds under any of these three programs to pay for initial bridge inspection which the 1968 National Bridge Inspection Act mandated for Federal-aid highways. Follow-up inspections, which must be made every two years, are not eligible for Federal aid. The Federal-Aid Highway Act of 1978 mandated inspections for off-system bridges as well and permitted states to use funds from the Highway Bridge Replacement and Rehabilitation Program for this purpose. Since we have already described the provisions of the Federal-aid highway program which apply equally to bridges, we begin this section with a description of the Highway Bridge Replacement and Rehabilitation Program. The Highway Bridge Replacement and Rehabilitation Program, estab- lished by the Federal-Aid Highway Act of 1978, is an enlarged and improved version of the Special Bridge Replacement Program created by the Federal-Aid Highway Act of 1970. Authorizations under the program are: FY 1979 $900 million FY 1980 $1,100 million FY 1981 $1,300 million FY 1982 $900 million and are much greater than under the earlier program which authorized, for example, only $180 million for FY 1978. The new program provides a Federal matching share of 80 percent in place of 75 percent under the earlier program. It covers the rehabilitation or replacement of unsafe bridges whereas the earlier program covered only replacement. The new program finances bridge projects on off-system highways to the extent of not less than 15 percent but not more than 35 percent of each fiscal year's authorization; if a state shows need inadequate to justify the 15 percent level of expenditure for off-system bridges, the floor may be lowered. The earlier program covered only bridges on the Federal-aid highway system. The bridge program apportions all but $200 million of the funds authorized among the states in proportion to the ratio of the cost of replacement and rehabilitation of each state's deficient bridges on the III. 43 Federal-aid highway system (data for off-system bridges is not yet avail- able) to the total of all such costs for all states subject to a minimum and a maximum; each state must receive a minimum of one-quarter of one percent but no more than 8 percent of the total authorization for each year. The $200 million is set aside for projects which cost more than $10 million each. State departments of transportation estimate the cost of replacement and rehabilitation of bridges from bridge inspection con- ducted by the state and local governments on an ongoing basis. The states submit a revised list to FHWA every two years. For each bridge included in the cost estimate, the state must submit to FHWA a Structural Inventory and Appraisal Sheet which contains a preliminary estimate of the cost of improvements. All bridges on the Federal aid system are included in Federal cost estimates and quality of the data is considered quite good. The 1978 Act directs the Secretary of Transportation to make an inventory of all bridges off the Federal-aid highway system by December 31, 1980, and to assign priorities and determine costs of reha- bilitation. Such an inventory will provide a data base for allocating funds for off-system bridges separately in the future. The law requires that funds be apportioned within states in a fair and equitable manner. The program finances replacement or rehabilitation of bridges which are unsafe due to structural deficiencies, physically deteriorated or functionally obsolete. The Act defines a functionally obsolete bridge as one too narrow to handle flow or unable to safely service the system of which it is a part. The Act defines rehabilitation as major repairs necessary to restore the structural integrity of bridges, as well as work necessary to correct major safety defects. Bridge maintenance costs are ineligible for Federal support. The Safer Off-System Roads Program established by the Federal-Aid Highway Act of 1976 authorizes $200 million for each of fiscal years 1979-1982, a total of $800 million, for various capital projects including replacement and rehabilitation of unsafe bridges on off- system roads. Appropriations which come from the General Fund rather than the Highway Trust Fund have been $305 million to date, less than the amount authorized. About 25 percent of program funds have gone into bridges. The program apportions funds among states as follows: • Two-thirds according to the following three factor formula. One-third in the ratio which the area of each state bears to the total area of all states. One-third in the ratio which the rural populations of each state bears to the total such population of all states. III. 44 One-third in the ratio which the off-system mileage of each state bears to the total such mileage of all states. • One-third in the ratio which the urban population of each state bears to the total urban population of all states. The law requires that funds be apportioned within states in a fair and equitable manner. 1 The Federal-Aid Highway Act of 1978 increased the Federal matching share under this program from 70 to 75 percent. Apart from the higher Federal share, the program provides Federal aid for off-system bridges that is identical to that provided by the Highway Bridge Replacement and Rehabilitation Program. It serves a useful purpose because the amount available for off-system bridges under the bridge program is relatively small. 5.3 The Bridge Program The extent of neglect and deterioration of the nation's bridges was investigated following the 1967 collapse of the Silver Bridge in Point Pleasant, West Virginia, which killed 46 people and provided the impetus for enactment of the 1968 National Bridge Inspection Program. Of the 564,000 bridges in the United States, 407,000 or 72 percent were built prior to 1935, the first year that uniform standards of design in these bridges were introduced. 2 Both the quality of construction and also the standards of design in these pre-1935 bridges are unknown. Today these bridges carry dramatically increased traffic flows, heavier vehicles and increased vehicle speed. They are no longer able to service safely the traffic of the 1970's. There are currently an estimated 105,500 deficient bridges, both on and off the Federal-aid highway system. The estimated cost of replacing the deficient bridges is $23 billion. 3 In addition to creating traffic bottlenecks, traffic flow problems and increased cost to industry and commerce, deficient bridges endanger lives of citizens. Approximately eight to ten deaths per year occur as a result of bridge collapse and as many as 2,000 deaths per year may L Title 23, U. S. Code, Section 219(b). 2 Opening Statement of Honorable John C. Culver, U. S. Senator, Iowa, Before the Subcommittee on Transportation, U. S. Senate Committee on Environment and Public Works, March 6, 1978, p. 215. U. S. Department of Transportation, Special Bridge Replacement Pro - gram, Seventh Annual Report of the Secretary , Washington, D.C., U. S. Government Printing Office, April 1978, p. 4. III. 45 occur due to dangerous approaches to bridge entrances, poor bridge- highway alignment or obsolete bridge structure. 1 State performance of necessary inspection and maintenance prior to the 1968 bridge program had varied. Some had done an excellent job. Some had been negligent. Many were aware of bridge deficiencies and were scheduling repair and replacement along with other highway projects as budget priorities allowed. Ignorance on the part of the states was doubtless a part of the problem. In the absence of costly engineering studies, serious bridge deficiencies became obvious only after a bridge had failed. 5.4 Accomplishments The original Special Bridge Replacement Program of 1970 was a small experimental program with annual authorizations averaging less than $120 million. Its outstanding achievement was to create an inventory of defi- cient bridges on the Federal-aid highway system. It also provided the Federal government with an opportunity to experiment with capital grants for bridges on a small scale. Experience with the program uncovered two notable weaknesses with the original legislation. The most important of these was the incentive given to states to completely replace repairable bridges. If 75 percent Federal matching funds were available for replace- ment of a deficient bridge but no Federal funds were available for major rehabilitation, the more costly replacement option might have been cheaper for the recipient. The second of these was the omission of any special provisions for financing replacement of major bridges. Money available through Federal-aid highway funds was often insufficient to implement a costly bridge project in any one year. 2 a state which does not obligate the funds authorized to it loses those funds. Hence, the incentive for the state was to obligate the funds for the construction of highways rather than bridges. The 1978 legislation remedied these two weaknesses. By permitting rehabilitation as well as replacement, the Act eliminated the incentive to totally replace a structurally deficient but rehabilitable bridge. By providing a $200 million special fund for capital projects costing more than $10 million, it made Federal money available for major bridge repair. Abramson, Martin, "Our Bridges Are Falling," Parade , January 7, 1979. The Highway Users Federation regards these estimates as weak. 2 Statement by the Honorable Jim Flaherty, Honorable Hugh B. Elder, and Milton L. Johnson representing the National Association of Counties, before the House Subcommittee on Surface Transportation on the Nation's Bridge Crisis, May 12, 1977. III. 46 5.5 Biases in Grant Programs Lack of Federal support for maintenance, which characterizes other Federal capital grants as well, is a potentially serious bias in the pro- gram. As in the case of highways, provision of an 80 percent subsidy for rehabilitation and no subsidy for maintenance gives state and local gov- ernments a potential incentive to defer maintenance; adequate maintenance could, however, postpone the need for major rehabilitation. The largest single item in the maintenance of bridges is repair of bridge decks which support the riding surface. The problem is particularly severe in areas with severe winter climates where road salt is frequently used. Heavy use of salt can cause the breaking off of pieces of the deck of a new bridge in four to six years. Several protective measures are available that can prolong deck life.l Cleaning and resealing of deck joints, and cleaning drains periodically will minimize salt damage and prevent development of excessive pressure on the bridge structure. Cleaning, lubrication and replacement of cor- roded bearings improve the flexibility of the bridge and lessen stress on bridge structure. Bridge railings and, on steel bridges, the substruc- ture and superstructure require periodic painting to prevent corrosion. In addition to these, good maintenance requires a good set of records on each bridge and regular inspections of bridge conditions by fully qualified engineers. Adequate maintenance is costly. So long as there is a backlog of renovation and replacement projects eligible for Federal aid and state- local spending from own sources for bridges exceeds the matching require- ments for Federal aid, and so long as states and localities expect this situation to continue, they have every incentive to perform the necessary maintenance despite its cost. Performance of the necessary maintenance will lower their long-run costs. However, if state-local own-source funds for highways diminish relative to Federal aid or if such funds are expected to do so, state and local officials have an incentive to post- pone maintenance. Federally supported construction projects cost them only $0.20 or $0.25 for each $1 of outlay. Poorly maintained bridges will become eligible sooner for Federal matching grants for rehabilitation. 5.6 Conclusion The bridge programs have created a needed inventory of the condition of bridges on the Federal-aid highway system. The current program is funding necessary inspections on off-system bridges. The original spe- cial bridge program was biased in favor of replacement rather than reha- bilitation of bridges, a bias corrected in the 1978 legislation. The See Volume IV, Appendix E, of this study. III. 47 1978 Act also provided special funding for large bridge projects. As long as the backlog of high priority bridge projects (from a local view- point) exceeds available Federal aid and state-local matching funds, and the situation is expected to continue, the 80 percent Federal matching grant will not have a biasing influence on local allocation decisions. III. 48 .0 CAPITAL GRANTS FOR MASS TRANSIT 6.1 Introduction and Summary of Findings 6.1.1 Introduction Federal capital grants for mass transit are available under the Urban Mass Transportation Act of 1964 as amended by the Urban Mass Transportation Assistance Act of 1974 and the Federal Public Transportation Act of 1978. In addition to grants under the mass transit program, the Federal Aid High- way Act of 1973 authorized the use of Federal-aid highway funds for the construction of highway related mass transit facilities, the use of Federal Aid for Urban Systems funds for mass transit capital grants, and the exchange of Interstate highway funds for general funds for capital outlays on mass transit projects. Some of the mass transit programs provide aid exclusively for capital projects and others may be used for either capital projects or to cover operating deficits (including maintenance) . Those aimed exclusively at capital projects include Section 3 discretionary grants and Section 5 for- mula grants for bus systems under the Urban Mass Transportation Administra- tion (UMTA) program, as well as transfers and exchanges from the highway program. Of grants available for either capital or operating purposes, only a small percentage — about 7 percent — has been used for capital projects in the past. 6.1.2 Summary of Findings The major findings of this chapter are as follows: • UMTA grants have refurbished mass transit systems and led to large increases in total outlays. UMTA grants have financed public acquisition of failing private mass transit companies, refurbished and replaced the nation's fleet of buses, and financed entirely new rail rapid mass transit and bus systems. While UMTA grants have led to large increases in total outlays, there is evi- dence that $1 of capital grants to state and local governments has led to less than $1 of additional capital outlay, indicating a substitutive fiscal impact. • The program has a bias toward early replacement deci- sions, probably implying inefficient use of resources. However, maintenance is not necessarily neglected. Capital subsidies have probably resulted in premature replacement of buses and rolling stock, raising the cost of the service. Although UMTA Section 5 funds may be used to cover up to 50 percent of operating costs, including maintenance, the bias towards early replacement creates an incen- tive to defer maintenance. III. 49 6.2 Provisions of the Law Federal capital grants for mass transit are available under the Urban Mass Transportation Act of 1964 as amended by the Urban Mass Trans- portation Assistance Act of 1974 and the Federal Public Transportation Act of 1978. In addition to grants under the mass transit program, the Fed- eral Aid Highway Act of 1973 authorized the use of Federal-aid highway funds for the construction of highway related mass transit facilities, the use of Federal aid for Urban Systems funds for mass transit capital grants and the exchange of Interstate highway funds for general funds for capital outlay or mass transit projects. Some of the mass transit programs provide aid exclusively for capital projects and others may be used for either capital projects or to cover operating costs (deficits). Those aimed exclusively at capital projects include Section 3 discretionary grants and formula grants for Bus Systems under Section 5 of the Urban Mass Transportation Administration (UMTA) program as well as transfers and exchanges from the highway programs. Sections 3 and 5 and other UMTA programs are listed in Exhibit 6.1 along with appropriations for fiscal year 1979 and authorizations for fiscal years 1979-1983. Other UMTA grants may be used either for capital projects or to cover operating deficits. These include three of the four Section 5 formula grants — Basic Tier, Second Tier and Commuter Rail/Fixed Guideway — and the Rural Assistance grants. Only a small percentage — about 7 percent — of grants available for both capital and operating purposes have been used for capital projects in the past.* Because the Second Tier, Commuter Rail/Fixed Guideway, Bus Systems, and Rural Assistance programs were crea- tures of the 1978 Act, there is no track record for their use. The relative importance of the major sources of capital grants has been changing. Prior to 1978, 85 percent of capital grants came from the Section 3 discretionary program, 13 percent from Interstate transfers and the remaining 2 percent from Section 5 formula grants and Urban Systems transfers. In 1978 Interstate transfers increased to 26 percent of the total and Section 3 declined to 68 percent. The 1978 Act which took effect in 1979 shifts bus capital from Section 3 to a special Section 5 formula program. As a result. Section 3 funds decline further to an estimated 57 percent of the total. Computed from unpublished data from the Urban Mass Transportation Administration, covering the period from 1965 through September 30, 1977. 2 Urban Mass Transportation Administration, Unpublished tables. 3 Urban Mass Transportation Administration, Fiscal Year 1985 Budget Estimates for Submission to Congress . III. 50 a) o> •r-) (^ O CO i— 1 < 4-1 ^H M en O -d c a o CO C4H •H a O jj CO CO u en N H 3 o l-i O .-i A rH rH u JO •H 3 3 ^e < Oh co r-* •H ON a> )H CO BJ )H 0) K e Q) •H cu •H H )H jj H 0) CO T3 4J * rH U 3 3 Ul CO •H O s ■u 03 O £ CO O cO cu o 3 H PQ CO CJ cq S 3 c CO O o )H •H 00 4-1 4-1 o a o u cu cu P-. en CO 03 3 CO M • H oo o lO' o O 3 •> m o ON > CN ""' ro 3 3 4-1 X C o ■H 3 CO O '/I at 4-1 u CO to l-i 3 CU O "3 u CU ClH "3 3 CU co 03 r-~ ro c^ >, cfl i»h s o jr 00 4J u EC < III. 51 Before leaving these data we take note of the fact that appropria- tions generally fall short of authorizations as demonstrated by the 1979 data. Appropriations for Sectidn 3 were only 89 percent of authoriza- tions and appropriations for Second Tier and Rail were only 62 percent. We turn now to a consideration of each of the programs providing capital grants to mass transit. Section 3 discretionary funds provide 80 percent Federal matching for mass transit capital projects. Eligible projects include construction of new, and extension of existing, fixed guideway systems; acquisition, construction, reconstruction and improvement of mass transit facilities including purchase of rail rolling stock, buses and real property; detailed analyses of alternative new fixed guideway systems; and other mass transit related capital projects. UMTA distributes funds on a project by project basis at its discretion. Between 1976 and 1978, 30 to 35 percent of Sec- tion 3 grants were budgeted for buses and the remainder for rail. With the creation of the Section 5 formula grant for buses, discretionary fund- ing for buses has dropped to about 10 percent of the Section 3 total. *■ Between 1976 and 1978, 50 to 60 percent of discretionary grants for rail went into new rail systems or extensions of existing systems, and the remainder went to improvements of existing systems.^ The 1979 appro- priations conference report contained legislative recommendations which UMTA has adopted regarding the allocation of Section 3 grants among the various types of capital projects. As a result the budget level for rail improvements in 1979 is roughly three times that for rail starts. 3 Inclu- sion of Interstate highway transfers, however, would increase the share of funds going to new systems. ^ Mass transit capital projects have been concentrated in a few large metropolitan areas. For example, six urbanized areas received two-thirds of UMTA commitments during the 1965-1976 period; ten urbanized areas received over 80 percent. -> Private communication from David A. Lee, Director of Planning and Policy Analysis, American Public Transit Association. 2 Congressional Budget Office, Urban Mass Transportation: Options for Federal Assistance , Washington, D.C., U.S .. Government Printing Office, 1977, p. 4 and private communication from Richard B. Mudge, Principal Analyst, Congressional Budget Office. Lee, private communication. Improvement includes extension of exist- ing systems. 4 Mudge, private communication. Calculated from Charles River Associates, Subsidies, Capital Forma- tion and Technological Change , Vol. 2, Chapter 9: Mass Transit, prepared for Experimental Technology Incentives Program, National Bureau of Stan- dards, Washington, D.C., 1977, Table 5-3. Includes transfers from Interstate III. 52 Section 5 formula grants for bus systems pay 80 percent of the cost for the purchase of buses and equipment and the construction of bus- related facilities. For the first two years of the program (1979 and 1980) funds are apportioned by formula among urbanized areas on the basis of popu- lation and population density as are Basic Tier funds (see below) . The law requires the Secretary of Transportation to study alternative distribution formulae and report his findings to Congress by January 1, 1980. Section 5 formula grants apart from those for bus systems pay 80 per- cent of the cost of capital projects or up to 50 percent of operating defi- cits at the discretion of the recipient. There are three sources of these funds each with its own allocation formula: Basic Tier, Second Tier and Commuter Rail /Fixed Guideway. The Basic Tier is a continuation of the 1974 formula grant which apportioned funds to each urbanized area or part thereof as follows: • One-half according to the ratio of the urbanized population of each area to the total population of all urbanized areas; and • One-half according to a ratio for that area of the population density to the total weighted population density of all urbanized areas. The Second Tier is a new element designed to provide additional mass transit funds for larger urbanized areas . Eighty-five percent of these funds are distributed to urbanized areas with populations over 750,000 according to the same formula as for the Basic Tier except that the urban- ized areas over 750,000 feature replaces the all urbanized areas feature. Fifteen percent of these funds are allocated in a similar manner to areas with populations under 750,000. The 1978 Act created the new Commuter Rail /Fixed Guideway program "to replace and consolidate two existing commuter rail programs. "^ The new program provides capital or operating assistance for projects involving commuter rail or other fixed guideway systems. A fixed guideway system is "any public transportation facility which utilizes and occupies a separate 'right-of-way for exclusive use of public transportation service including but not limited to fixed rail, automated guideway transit, and exclusive facilities for buses and other high occupancy vehicles. "2 Two-thirds of and Urban Systems. Urbanized areas in order of decreasing size of urban commitments are New York-New Jersey-Connecticut, Boston, Chicago, Atlanta, San Francisco, Oakland, Washington, D.C., Philadelphia, Baltimore, Seattle and Pittsburgh. Highway Users Federation, Highways, Safety and Transit: A Summary of the Surface Transportation Act of 1978 , p . 26 . 2 Federal Public Transportation Act of 1978, Section 308(c)(2). III. 53 these funds are apportioned according to a two part formula which allo- cates one-half according to each urbanized area's share of national com- muter rail train miles in the prior fiscal year, and the other half accor- ding to the share of the number of commuter route miles; each state is subject to a one-half of one percent (of funds appropriated for this pro- gram) floor and a 30 percent ceiling. The remaining one-third of the funds are apportioned to each area's share of the number of fixed guideway system route miles nationwide (excluding commuter rail route miles) in the pre- vious fiscal year; each state's portion of an urbanized area is subject to a 30 percent (of funds apportioned) ceiling. The 1978 Act created a new formula grant program for public transpor- tation projects in areas other than urbanized areas, i.e., small towns and rural areas. As in the case of other formula grants, this program pays 80 percent of the cost of construction projects and up to 50 percent of the cost of operating subsidies. Funds may be used for public transportation projects included in each state's program of projects for public transpor- tation services in areas other than urbanized areas. States must submit their programs annually to the Secretary of Transportation for approval. Funds are apportioned among states according to the ratio of the population in areas other than urbanized areas in each state to the total of all such population in all states. The law requires each state to provide for a "fair and equitable distribution of funds within the State". * States may use up to 15 percent of funds for administration and for technical assis- tance to recipients. The Federal-Aid Highway Act of 1973 authorized the use of Federal-aid highway funds from any Federal-aid system for "the construction of exclusive or preferential bus lanes, highway traffic control devices, bus passenger loading areas and facilities (including shelters), and fringe and transpor- tation corridor paving facilities to serve bus and other public transporta- tion passengers. "2 There is no limit to the amount of Federal-aid highway funds that can be used for these purposes. Matching ratios are the same as for highway projects, namely 7 5 percent for Primary, Secondary and Urban funds and 90 percent for Interstate highway funds and up to a maximum of 95 percent for all systems in public lands states. The 1973 Act also authorized urban areas to use Urban Systems funds for the purchase of buses and rolling stock, fixed rail facilities, and the construction, reconstruction, and improvement of fixed rail facilities. Originally limited to $200 million in fiscal year 1975, the provision now applies to the entire $800 million Urban Systems apportionment. Urban Mass Transportation Act of 1964 as amended, Section 18(b) 2 Title 23, U.S. Code, Section 142. III. 54 Under certain conditions states may exchange Interstate funds allo- cated for a "non-essential" segment of the System in an urbanized area of more than 50,000 population for an equal amount from general funds for the construction or purchase of facilities for public transportation or for other non-Interstate highways. The Federal matching share for substituted mass transit projects, originally 80 percent, became 85 percent with the 1978 Act. All Interstate substitutions except those under injunction, must be approved by September 30, 1983 and under contract by September 30, 1986. Whereas previously states could designate new Interstate mileage as a result of any withdrawals, the 1978 Act prohibited new designations: The value of Interstate Highway segments potentially available for transfer is estimated to total as much as $10 to $12 billion, already withdrawn and available for transit projects. 1 6.3 The Mass Transit Problem Until recently, urban mass transit has been a declining industry. In 1950, following heavy wartime use, ridership stood at 13.8 billion passenger trips annually. One year prior to the passage of the Urban Mass Transporta- tion Act of 1964, which provided Federal capital grants for mass transit for the first time, ridership had declined to 6.9 billion trips, half of the 1950 level. Ridership continued to decline for another eight years reaching a low of 5.3 billion trips in 1972. Decline of the industry brought a reduced level and quality of service and bankruptcy of numerous private mass transit companies. Then, in response to increasing Federal and local subsidies and the 1973 energy crisis, ridership began a slow ascent at an average rate of about 1.7 percent per year, reaching 5.7 billion trips in 1977, the last year for which reliable data are available. Between 197 3 and 1974 ridership increased 5.9 percent, largely in response to the energy crisis. 2 Federal efforts to revive the urban transit industry have been in res- ponse to a variety of concerns. One concern was traffic congestion in the central cities, particularly the central business district. The older cities especially, designed for mass transit rather than the automobile, were threatened by severe congestion that attended growing use of the auto- mobile in the post-war period. Adequate urban expressways proved to be exceedingly difficult to construct for both economic and political reasons. Improved traffic management of congested highways (e.g., increased tolls) which has the potential to significantly reduce congestion has been diffi- cult to implement politically and administratively. Cities suffering from increasingly acute fiscal problems have lacked the fiscal capacity to pay CBO, Urban Mass Transportation... , op . cit . , p. 7. 2 American Public Transit Association, Transit Fact Book , 1977-7J Edition, Washington, D.C., June 1978. III. 55 for costly mass transit projects on their own. Federal subsidies for mass transit were a logical if expensive alternative. Improved mass transit held out the promise of ameliorating a number of other problems as well. A nation without mass transit would immobilize the poor, the young, the aged and the disabled who were unable to afford or use cars. At the least, the minimum levels of mass transit service seemed necessary. Moreover, as industry moved to suburban locations, and in the absence of a mass transit system providing access to these suburban jobs, central city residents faced increasingly bleak prospects for employ- ment. Automotive air pollution might be reduced by greater reliance on mass transit. Increasingly scarce supplies of energy, especially petroleum, would be conserved if mass transit could replace some proportion of the trips taken by the energy inefficient single occupant automobile. Finally, an improved mass transit system might encourage higher density development, reducing unsightly urban sprawl and slowing or reversing central city decline. The diversity of objectives which improved mass transit presumably could serve assured political support for the 1964 Act and the 1974 and 1978 extensions. * Grants totaling more than $8 billion since the Urban Mass Transit Assis- tance Program began have not yet achieved the envisioned goals of mass transit in American society for several reasons. Ridership increases have been slow and the prospects for further increases are less than originally anticipated in the view of many, but not all, mass transit analysts. Public mass transit subsidies, which have already increased substantially since 1964, may have to be increased still further if the industry is to maintain its market share. Finally, subsidized mass transit has failed to realize many of the results its proponents had sought. We examine each of these problems in turn. Despite increasingly subsidized mass transit fares, construction of new mass transit systems such as BART (San Francisco) and Metro (Washing- ton, D.C.), and increases in the cost of owning and operating an auto- mobile, only modest increases in ridership have occurred to date. More- over, two-thirds of the 1972-1977 growth in ridership occurred following the 1973 energy crisis. A recent study cited by Altshuler finds that the potential for growth is quite limited. A doubling of vehicle mileage would generate a 20 to 40 percent increase in riders; elimination of mass transit fares would generate another 50 to 7 percent increase according to the study. 2 Altshuler, Alan A., "Changing Patterns of Policy: The Decision-Making Environment of Urban Transportation", in Public Policy , Vol. 25, No. 1, Spring, 1975. 2 Skidmore, Ownings and Merrill, Inc. and Systems Design Concepts, Inc., Energy, The Economy and Mass Transit: Summary Report , Washington, D.C., U.S. Congress, Office of Technology Assessment, 1975, pp. 31, 39. Cited in Altshuler, "Changing Patterns of Policy: The Decision-Making Environment of Urban Transportation", op_. cit . , p. 193. III. 56 Altshuler estimates that a combination of both strategies would attract between 1.5 and 2.5 percent of urban passenger miles from automobile to mass transit, but at a public cost of $6 billion annually in addition to the cost of current subsidies. * A more optimistic case for the prospects for growth in ridership can be made, however. Some cities have exhibited significant ridership in- creases. The failure of mass transit to generate more significant gains in ridership under current conditions may have less to do with its poten- tial than with the failure of various agencies, local leaders, and transit officials to encourage and implement complementary urban development and traffic management policies. Moreover, the prospect of severe shortages of petroleum products during the coming decades suggests possible major increases in the demand for urban mass transit. Public subsidies for mass transit have grown enormously since the UMTA program began and the appetite of the mass transit system for public monies is still growing. The aggregate national operating deficit increased from $10 million in 1964 to $1.7 billion in 1975.2 Operating subsidies from all levels of government could rise from about $1.4 billion in 1975 to over $3 billion in 1980 under conservative assumptions. A number of factors have combined to drive operating expenses up faster than farebox revenues; they include increasing energy and labor costs, Federal government regula- tions and local policy decisions to hold down fares. The subsidy per trip can be considerable. For example, BART's 1976 operating deficit was appro- ximately $1.23 per ride. 5 Federal, state and local mass transit authorities will probably have to turn to better urban planning and system management if they want to encourage further mass transit growth. If these policies suc- ceed, gains in ridership will help reduce deficits. An increase in the demand for mass transit born of a gasoline shortage would contribute further to the reduction in deficits. Moreover, a major energy crisis could markedly in- crease the desirability of subsidized mass transit in the eyes of legislators. Studies of subsidied mass transit have thus far failed to demonstrate the major achievements which its proponents envisioned: significant gains in ridership yielding revenues sufficient to cover most operating expenses, reduced air and noise pollution; significant energy savings; increased speed and comfort of commuting; significant revitalization of downtown areas and Altshuler, "Changing Patterns of Policy . . .", op_. cit . , p. 193. 2 Ibid . APTA, Transit Fact Book , 1975-1976 Edition, p. 25 and "Funding Needs Questionnaire Summary", APTA mimeo, December 1975, p. B-02, cited in CBO, Urban Mass Transportation . . . , op . cit . , p. 14. CBO, Urban Mass Transportation ..., op. cit . , p. 14. 5 Ibid., p. 32. III. 57 reduction of urban sprawl; and improved transportation for young, black, aged, or disabled. Some cities and states have in fact observed improve- ments in these problems, but the role of subsidized mass transit has been difficult to identify conclusively. On the other hand, the criteria by which it has been judged may have been too severe. Had major mass transit improvements not been undertaken in American cities, each of these problem areas might have exhibited a significant worsening. Moreover, mass transit proponents have underestimated the importance of complementary policies such as traffic management and land use planning which make mass transit more cost-effective. Energy impact studies have frequently failed to dis- tinguish oil, an expensive imported resource of growing scarcity, from electricity generated with coal, a relatively inexpensive domestic resource. Finally, the impact of mass transit, especially rail, on urban form will not fully be seen for many years. Unfavorable judgments of mass transit projects are thus premature. In the following pages, we examine the highlights of the mass transit controversy in somewhat greater detail. We begin with an examination of rail, and then we turn to bus. Much of the evidence illustrating the shortcomings of rail projects is drawn from studies of San Francisco's BART. Though BART got about one-third of its riders from single-person autos, "vehicle trips on the key San Francisco-Oakland Bay Bridge corridor show virtually no change, even though BART appears to carry about 19 percent of cross-bay traffic".! Six UMTA rail projects cited by Hilton (four in Chicago, one in Cleveland and one in Boston), had an imperceptible effect on major expressways from which traffic would be diverted. 2 Rail projects have failed to significantly effect auto congestion, even though the 19 percent of cross-bay traffic is a substantial amount, because other automobiles rapidly take the place of those diverted. "Since auto trips appear fairly stable, total trips by all modes must have increased."-' A number of strategies can be employed to counteract this prob- lem: increasing the cost of using single passenger automobiles, by means of tolls and parking taxes; providing frequent and reliable feeder bus service (a relatively costly strategy); and encouraging high density commercial and residential development near rail outlets. BART has suffered from some design problems, such as an insufficient number of downtown stops, which make it less than fully illustrative of the potential of rail. It has not employed complementary traffic management, feeder bus and planning strate- gies as effectively as it might have, yet, it has absorbed a share of com- muter traffic, though less than its advocates originally hoped, and it has CBO, Urban Mass Transportation . . . , op . cit . , p. 31. 2 Hilton, George W., "The Urban Mass Transportation Assistance Program" in James C. Miller III (ed.), Perspectives on Federal Transportation Policy , American Enterprise Institute for Public Policy Research, Washington, D.C., 1975, pp. 135-140. 3 CBO, Urban Mass Transportation . . . , op . cit . , pp. 31, 32. III. 58 strengthened downtown San Francisco, though perhaps less dramatically than hoped. Finally, it may have prevented a significant worsening of congestion, economic base decline of downtown areas, and so on. To significantly reduce the amount of congestion, it is necessary to do more than divert traffic to rail or bus; other traffic management tech- niques are also required. Though rail transit is widely believed to offer significant savings in energy use, studies of the Congressional Budget Office suggest other- wise. CBO finds that rail offers "little as an energy conservation tool . . . because of the huge amounts of energy consumed in construction. There is also evidence that suburban-oriented rail systems . . . , by encouraging new and longer trips, by providing park-and-ride access, and by diverting people from relatively fuel efficient buses, may actually increase regional energy use."* Exhibit 6.2 provides a summary measure of energy use for alternative urban transportation modes in order of energy efficiency. The measure shows typical energy requirements per mile, door to door, including energy used in construction and maintenance of track, roadway, vehicles, and other capital. Vanpool is the most energy efficient mode, single occupant auto- mobile, the least. New heavy rail systems are close to the bottom of the list followed only by the automobile. Critics of the CBO study have pointed out that among other heavy biases introduced, the summary measure of energy use employed ignores potentially crucial distinctions between modes using oil fuels and rail modes using electricity which can be generated from other energy sources. With the growing scarcity of oil and the pressure oil Imports exert on the nation's balance of payments, electric powered transit modes are more attractive than the exhibit suggests on energy grounds. Though heavy rail systems (old and new) do increase the speed and comfort of the line-haul portions of the trip from suburbs to downtown, the difficulty of gaining access to the system from dispersed suburban locations diminishes the overall quality improvement. As we have already indicated, complementary public policies are necessary to take full advan- tage of a rail system. Where the availability of rail per se is insuffi- cient to induce commuters to abandon their cars, effective traffic manage- ment policies increasing the cost of auto use can tip the balance. Land use policies and development strategies can encourage location of apartment complexes and commercial properties near rail outlets, increasing the desirability of rail. It is now evident that only when local authorities pursue policies of this kind will rail make a significant contribution to urban life. CBO, Urban Mass Transportation . . ., op . cit . , p. 33 III. 59 Exhibit 6.2: Middle Estimates for Modal Energy Required for Various Urban Transportation Modes (British Thermal Units Per Passenger Mile) Mode Energy Vanpool 2,420 Bus 3,070 Heavy Rail Transit (Old) 3,990 Commuter Rail 5,020 Light Rail Transit 5,060 Carpool 5,450 Heavy Rail Transit (New) 6,580 Average Automobile 10,160 Single Occupant Automobile 14,220 Source: Congress of the United States, Congressional Budget Office, Urban Transportation and Energy: The Potential Savings of Different Modes , Washington, D.C., U.S. Government Printing Office, 1977, p. XV. III. 60 In San Francisco, ridership on BART has consisted "primarily of the young, well-educated, and affluent". 1 More generally, the income distribution of transit patrons in those urban areas where most transit use occurs is not very different from that of highway users . . . Moreover, the largest subsidies tend to be absorbed by those who take the longest transit trips — usu- ally the most affluent riders. Finally, the most Federal transit aid has gone to finance the construc- tion of new rapid transit systems and extensions, intended to serve the most affluent end of the poten- tial transit market spectrum. 2 Although the above assertions are debatable, it is possible that rail systems are not the best way of providing urban transportation to those without access to the automobile, except in the most densely populated cities. On the other hand, rail systems are not built with this sole objective. That rail should primarily serve affluent persons who may place a higher value on their time and who must be lured away from the automobile is perhaps appropriate. Bus and other modes are always em- ployed along with rail, and these modes may be more useful to lower income groups. As with rail, bus projects have been criticized for their failure to profoundly change urban transportation. Certainly, commuter buses have not replaced the private automobile as the predominant mode of commutation nor have they eliminated rush hour congestion. And, there have been some real failures. One group of demonstration projects funded under Section 6 of the Urban Mass Transportation Act. established eighty-three routes in fifteen cities intended to provide outward mobility for ghetto residents to factories or other places of suburban employment. These projects, which were intended to offer a service that the existing routes of transit companies generally provide imperfectly, if at all, proved highly unsuccessful. ^ CBO, Urban Mass Transportation . . . , op . cit . , p. 33. 2 Altshuler, "Changing Patterns of Policy . . .", op_. cit . , p. 189, 3 Section 6 provided funding for demonstration projects. Hilton, "Urban Mass Transportation Assistance Program", op_. cit . p. 134. III. 61 Other demonstration projects (although not intended to enable unemployed people to find jobs) have been quite successful, notably projects involv- ing limited access bus lanes on freeways. The demonstration program has also funded projects involving the use of pricing and other techniques of improved traffic management that authorities now realize are crucial for the success of both bus and rail transit. Bus ridership has grown at a respectable 3.33 percent per year since its trough in 1972, and these gains must be judged against possible declines in the absence of the pro- gram. As with rail, public policies complementary to bus projects have not always been forthcoming. Part of the overall mass transit problem has been the difficulty of coordinating public policies so as to make opti- mal use of mass transit investments. 6.4 Accomplishments The UMTA program has unquestionably been the most important factor in the revival of the mass transit industry in the United States. There is no way of knowing with certainty what would have happened to ridership in the absence of UMTA subsidies. Had the rate of decline that prevailed between 1950 and 1964 continued through 197 7 ridership would have stood at about 25 percent of its 1950 level (or 60 percent of its 1972 level), or 3,461 million rides per year. The decline would have been more or less severe, depending upon the extent to which state and local governments intervened to rescue failing mass transit systems. The significance of the mass transit revival differs in different places. In a large number of cities UMTA provided the necessary capital for the purchase of failing private mass transit companies. Without UMTA capital mass transit operations would have ceased in many of these cities. In the declining central cities, such as New York, UMTA grants helped to preserve mass transit systems that are lifelines for city survival. These cities simply lacked the resources to replace aged equipment. UMTA grants have also permitted modest strengthening of mass transit systems in these cities through the construction of extensions. In other cities such as Atlanta, UMTA grants have allowed mass transit to become a more important part of urban transportation than it would have been in their absence. In still other cities, such as Nashville, UMTA grants made possible the deve- lopment of an efficient and effective public transportation system where none would have existed. Whether these achievements are worth the multi- billion dollar costs of the programs is a subject that is hotly debated. That the program is largely responsible for them is widely acknowledged. Calculated from American Public Transit Association, Transit Fact Book, 1977-1978 Edition, Table 8. III. 62 The oriv>,i na i goal of the program was to save public mass transit in the United States. Bus transit systems had been failing and would have continued to fail in the absence of the program. The same was true of commuter rail lines. Rail rapid transit systems were operating extremely old and obsolete equipment to deal with all of these problems. More recently the locus has shifted to coordinating the entire urban transpor- tation system. Without such coordination, public mass transit has great difficulty competing with the private automobile. The very difficulty new mass transit .systems such as BART are having has emphasized the importance of coordinat lug a n urban transportation modes . Hence the new challenge to UMTA and th e mass transit industry which it has rescued is to make mass transit competitive through the development of complementary public poli- cies . 6.5 Fiscal Impact The UMTA program is widely credited with rescuing the mass transit industry from continued secural decline. Only one study — by Charles Rivers Associates — has attempted to quantify the program's impact upon mass transit capital, and the impact estimates are presented partly in physical rather than monetary units. 1 A crude estimate of the fiscal impact of the program can be estimated from these data. The Charles River study estimates the impact of capital grants first on bus transit and then on rail transit. We take up each of these in turn. The study's estimate of the impact of capital grants on bus capital begins with an estimate of the effect of capital grants on total cost. The study found that the grant reduced total costs by about 10 percent. In order to estimate the impact of capital grants upon capital outlays for buses, the. study attempts to estimate the effect of a 10 percent cost reduction on ridership. Drawing from the literature on the price elasti- city of demaiul for mass transit and both theoretical and empirical know- ledge of bus transit demand, the study finds that the cost reduction may have brought about a 6 to 15 percent increase in ridership over the level that otherwi.se would have prevailed. * Actual ridership increased 15 per- cent from its 1972 trough of 3.6 billion revenue passengers by 1975. 3 The study concludes that, "without the capital grants program, the number Charles River Associates, Subsidies, Capital Formation and Technolo- gical Change . op , c it . 2 Ibid. , p. 93. 3 Ibid. , p. 88. III. 63 of bus passengers would have been, at worst, no lower than the 1972 level, assuming all cost reductions were passed on and using highest elasticities. "* If bus passengers had remained at the 1972 level, "bus purchases would have remained at about the normal replacement rate of 2,500 per year at the very least. "^ The study attributes accelerated replacement, which averaged over 1,000 additional buses per year between 1972 and 1975, to the subsidy. In addition to normal and accelerated replacement , the bus stock increased by 400 vehicles in 1974 and 2,100 in 1975 after falling by over 850 in 1972 and 1973 combined. If the entire increase in ridership was the direct or indirect result of the grant program, then perhaps the increase in the bus stock can also be attributed to the program. Data on bus purchases from the Charles River study appear in Exhibit 6.3. There is enough information to draw up a crude estimate of fiscal impact. If the above assumptions are all valid, the capital grant stimu- lated a 38 percent increase in vehicle purchases over what would have occurred in its absence. If the vehicles purchased were identical to the vehicles that would have been purchased in the absence of the program — and they were not as we shall see shortly — the fiscal impact of the pro- gram can be calculated as follows: Vehicles delivered 1972-1975 3 less vehicles without Federal aid (7 percent) Federally aided vehicles , Federal cost (75 percent of above) Vehicles delivered 1972-1975 less routine replacement Induced purchases Share of Federal aid _ Induced Purchases adding to outlay Federal Cost The calculations are carried out in terms of physical buses and assume implicitly that each bus costs the same. The calculations suggest that 55 percent of UMTA capital grants for buses stimulated additional spending on buses in the 1972-1975 period. Fiscal impact would necessarily have been greater than computations such as the above suggest because the 16,183 1,133 15,050 11,288 16,183 10,000 6,183 6,183 1 1 98ft : 55 percent Ibid . , p. 93. Another important determinant of ridership is service level. Since in the absence of the UMTA program service levels would have been worse, ridership could have declined below the 1972 level. Hence, the Charles River estimate is not quite as conservative as the study suggests. 2 Ibid ., p. 96. 3 Based on the ratio of UMTA commitments 1971-1975 to manufacturers deli- veries 1972-1976. Commitments precede deliveries. Calculated from data sup- plied by the American Public Transit Association. 4 Federal share was two-thirds until 1974 when it was increased to 80 percent. III. 64 Exhibit 6.3: Vehicle Purchases of Bus Transit Systems, 1972-1975 New Vehicles Delivered 2 Routine Replacement 2 Increase in Stock 2 Accelerated Replacement 1972- 1972 1973 1974 1975 1975 2,904 3,200 4,818 5,261 16,183 2,500 2,500 2,500 2,500 10,000 -75 -789 414 2,111 1,661 479 1,489 1,904 650 4,522 American Public Transit Association, Transit Fact Book , 1975-76 Edition, Washington, D.C., 1976. 2 Estimated, see source. Source: Charles River Associates, Subsidies, Capital Formation and Technological Change , op . cit . , p. 88. III. 65 program encouraged (by subsidizing an average of 75 percent of costs) and required, in some instances, the purchase of "options" on new buses such as safety features that add to their cost. We estimate that these options added about 10 percent to the cost of buses purchased which is the equiva- lent of about 1,500 additional buses. If this estimate is correct, about 68 percent of UMTA bus grants represent additional spending on buses. Actual fiscal impact could have been higher or lower. As the author sug- gests, the assumptions used in the Charles River estimates may provide an upper bound. In that case, the fiscal impact is less than we have esti- mated. Another possibility, however, is that bus ridership would have actually declined somewhat after 1972 in the absence of the program. In fact, UMTA has funded the public acquisition of about 400 private bus com- panies at a cost of $400 million since the program began. ? Without Federal funding, many of these bus systems might have ceased operation. Hence, the estimate we presented above lies between estimates that could be somewhat higher or lower . Assuming that capital accounts for up to 80 percent of total costs of rail transit, the 80 percent Federal subsidy reduces total costs by as much as 64 percent. 3 One would expect, therefore, that the effect of an 80 per- cent capital subsidy on rail capital formation would be larger than its effect on bus. The Charles River study asserted that, with the exception of BART, which received only $300 million from UMTA, and Metro, which has so far received over $700 million, but is being largely funded from other Federal sources, it "is unlikely that the construction of most new rail systems or extensions would be undertaken in the absence of UMTA financing."^ By separating UMTA mass transit grants into those for new rail as opposed to extensions, which we assume to be induced by the program following the Charles River study, and those for renewal of existing systems, which we assume to be largely substitutions for local funds, we can construct a crude and highly judgmental estimate of the program's fiscal impact. The component parts of the estimate appear in Exhibit 6.4. We use the Charles Rivers assumptions that half of Section 3 grants went for new sys- tems and extensions. Of these we exclude a $300 million grant to BART and a $100 million grant to Chicago because they funded new systems (BART) or extensions (Chicago) that would have been built without UMTA funding. The remainder of the $1.7 billion going to new systems and extensions, or $1.3 billion, we attribute to the stimulative effect of the program. Of the remaining $1.7 billion in Section 3 grants we include only 40 percent or $680 million representing accelerated replacement and amenities that we deemed unlikely to have been spent in the absence of an 80 percent capital 1 (6,183 + 1,500) 4- 11,288 = 68 percent. 2 Charles River Associates, Subsidies, Capital Formation and Technolog - ical Change , op . cit . , p. 91. 3 I_bid., p. 100. 4 Ibid. III. 66 Exhibit 6.4 Detail of Fiscal Impact Estimate for Rail Transit Grants (billions of dollars) Source Rail Transit Section 3 New Systems and Extensions Interstate and Urban Commuter Rail Grant 1.7 Renewal of Existing Systems 1.7 97 Portion Used for Induced Projects 1.3 .68 .78 Explanation Subtract $300 million for BART and $100 for Chicago extensions 40 percent induced Include Metro, 25 percent of MBTA and 40 percent of remainder as induced Section 3 Interstate and Urban 1.16 TOTAL 5.53 50 percent induced Cumulative Section 3 capital grants for rail 2/1/65 through 9/30/77 were $4.77 billion according to UMTA Table 1-A (unpublished). According to UMTA Table 4, 77 percent of rail commitments were for rapid transit, the remainder for commuter rail. We divide Section 3 grants according to these proportions. For explanation see text. III. 67 subsidy. The 40 percent figure is a rough estimate reached after consul- tation with a number of mass transit authorities. We concluded that most Interstate and Urban transfers were stimulative. These funds went to four metropolitan areas (Washington, D.C., Boston, Philadelphia, and New York). The $700 million grant to Washington funded a portion of Metro which would not have been constructed in the absence of Federal money, though the money came from sources outside of UMTA and the transfer pro- grams. We attribute about $50 million of Boston's money to extensions that would not have been built without Federal money. We attribute 40 percent of the remaining Interstate and Urban funds to the stimulative effect of the program, and 50 percent of all commuter rail funds. We conclude on the basis of a series of highly judgmental assumptions that about $3.34 billion of the $5.53 billion in grants for rail transit were used for expenditures that would otherwise not have occurred. The Federal matching share, which was 67 percent under the 1965 act and raised to 80 percent under the 1974 revisions, appears to have averaged about 75 percent. 1 The $3.34 billion in stimulative grants, then, added about $4.45 billion to spending when local matching is added in, 2 or about 81 percent of the $5.53 billion in rail capital grants. Capital grants for bus and rail together appear to have been partly stimulative and partly substitutive. About three-quarters of grant money appears to have been added to capital spending. This fiscal impact esti- mate applies to capital outlay only. Total fiscal impact is probably somewhat larger because most mass transit systems operate with a local subsidy. Local subsidies have increased with the UMTA program. (These results emerge from an admittedly crude estimating procedure built upon the Charles River study estimates of the grant's impact on capital for- mation.) Many mass transit systems would have survived in the absence of UMTA and among the likely survivors are major systems like New York's, that account for a very large proportion of ridership. The likely survivors have been able to substitute UMTA funds for own source revenues to some extent, which explains the partly substitutive effect of the UMTA capital grants. 6.6 Biases in Grant Programs The UMTA program biases urban public transportation decisions in a number of ways which increase certain costs of public mass transit services over levels that might otherwise prevail. The most fundamental bias encour- ages large scale public transportation systems over sub-optimal public-private Ratio of the Federal commitment to gross project cost for rail rapid transit through May 31, 1977, unpublished table from UMTA. 2 3.34 - 0.75. 3 A weighted average of bus and rail impact coefficients with bus receiv- ing a weight of one-third and rail two-thirds. III. 68 systems, such as single passenger auto, taxis, jitneys, vans and buses operated by private enterprise. Analysis suggests a number of cost- effective approaches which do not involve public subsidies. These ap- proaches emphasize pricing mechanisms, however, and tend to ignore certain social policy objectives. Transportation experts believe that existing transportation resources can be utilized more effectively than they are at present. An approach frequently discussed by transportation economists, but almost entirely ig- nored by practitioners, is peak-hour pricing of congested urban highways and higher charges for parking in congested urban centers. A well designed highway use pricing system would deter avoidable trips, encourage car- pooling and strengthen the demand for mass transit, making possible higher fares and lower mass transit deficits or even profits. It might also lead to less dispersal of economic activity away from the central city in the long run, though it is by no means obvious that dispersal is desirable. The chief difficulty with the pricing approach is implementation. Insti- tutional and organizational structures tend to make toll collections and other procedures inefficient and costly. Other low cost improvements, several of which UMTA has encouraged, could be utilized much more extensively. Management improvement, parking restrictions, pricing disincentives, express lanes for high occupancy veh- icles, car -pools and vanpools are demonstrably effective, and are being implemented in cities throughout the country through UMTA's demonstration program and through other means. They are included in the joint UMTA-FHWA (Federal Highway Administration) requirements for Transportation Systems Management planning and implementation. They are also included among potential actions to improve urban air quality for EPA's new requirement for State Implementation Plans. ^ However, the 80 percent capital subsidy for rail and bus transit tips the balance in favor of rail in a number of cities. Because rail is more capital intensive than bus, the subsidy is perceived as lowering the cost of rail transit by a much larger percentage than the cost of bus transit. In fact, although capital is up to 80 percent of costs of fixed guideway systems, the street and highway costs of bus and vanpool systems tend to be ignored. Moreover, the greater capital intensity of rail means that it has a much greater capacity per passenger to absorb capital than does bus. Although bus sys- tems have received virtually all of the funding Private communication from David Lee of APTA. III. 69 they have requested, unlike rail systems they are unable to make use of more than a limited share of the total without a much greater expansion of service. * Most new rail systems or extensions would not have been undertaken in the absence of the capital grants. Except in the most densly traveled corri- dors, rail systems are more expensive than bus, when costs are accounted for narrowly, and even more expensive than the private auto. A study of BART estimates that, at the then current peak volume of 8,000 passengers, the full cost of a peak-hour trip for a representative trip was $6.77 for BART plus feeder bus, $3.21 for bus, and $4.05 for a subcompact auto. These costs typically ignore the costs of street networks, and also the fact that overall urban form is biased in favor of autos. Objections to rail projects are even less convincing for extensions than for new systems and less convincing still for improvements. Exten- sions of existing systems may have benefits that extend well beyond the new segment as the enlarged system provides a more extended transit network to all patrons. While nearly half of the capital grants for rail transit through fiscal year 1977 have been for new systems, and two-thirds for new systems and extensions together,-* the new balance is now swinging toward modernization of existing systems. ^ The UMTA rail program is increasingly aimed at the more defensible rail projects. The 80 percent capital subsidy in conjunction with UMTA guidelines that permit replacement of 12 year old buses may have resulted in earlier replacement of buses than would otherwise have occurred, because the use of newer more comfortable buses attracts more riders. Depending upon average annual mileage, it can be efficient to keep buses in service for up to 20 years or more. 5 Using buses that are old, however, creates image and attractiveness problems for the mass transit system. The Charles River study concluded that of 16,183 buses delivered in the 1972-1975 period, 4,522 or more than one-quarter represented accelerated replacement. There Charles River Associates, Subsidies, Capital Formation and Technolo- gical Change , op. cit ♦ , p. 100. 2 Webber, Melvin M. , "The BART Experience: What Have We Learned?", The Public Interest , Fall 1976, p. 86, cited in Ibid ., p. 105. 3 UMTA, unpublished tables, Tables 1-A and 10. 4 Private communications from Lee, op_. cit . Tye, William B., "The Capital Grant As A Subsidy Device: The Case Study of Urban Mass Transportation" in U.S. Congress, Joint Economic Com- mittee, The Economics of Federal Subsidy Programs, Part 6, Transportation Subsidies , Washington, D.C., U.S. Government Printing Office, 1973. Charles River Associates, Subsidies, Capital Formation and Technolo- gical Change , op . cit . , p. 89. III. 70 is, however, no other evidence that the subsidy has had an impact on replacement. One rationale for a capital subsidy is that local authori- ties may be undercapitalized, that is, they are maintaining a fleet too old to be cost-effective. A study by Tye of bus transit in Celeveland and Chicago revealed that Cleveland was in fact overcapitalized (i.e., replaced its buses too early) and Chicago maintained an optimal replace- ment schedule.* There is no published analytical evidence consistent with the undercapitalization hypothesis. Another possible positive bias of an 80 percent capital grant is to enable transit companies to purchase "option" they would not have purchased had they had to pay the full cost; among these are amenities such as air conditioning, safety fea- tures and features designed to serve the elderly and handicapped. * The UMTA program, by "strengthening the hand" of the transit unions, may result in higher wages of transit employees. Available evidence suggests only a limited effect through 1975. From 1967 to 1975 "annual earnings of transit employees rose 21 percent faster than the general price level," through most of this increase occurred prior to the expansion in capital grants in the early 1970's.-^ Section 13 (c) of the Mass Transportation Act of 1964 has limited labor saving improve- ments in transit: In order to obtain Federal transit aid, local transit authorities must convince the Department of Labor that no employees will be affected. Generally, the Department will grant certifica- tion only if all potentially affected unions concur. The result has been to minimize labor- saving as an objective of the transit moderniza- tion programs, and to help embed obsolete and expensive work practices even more deeply into the fabric of the industry. ^ The Davis-Bacon Act requires that workers on all federally aided con- struction projects be paid prevailing wage rates which are usually interpreted by the Department of Labor to be union wage rates. 5 The Urban Mass Transportation Act declares that, "elderly and handicapped persons have the same right as other persons to utilize 1 Ibid. o Charles River Associates, Subsidies, Capital Formation and Technological Change , op . cit., 97. 3 Ibid. , p. 96. Altshuler, "Changing Patterns of Policy," op_. cit . , p. 194. However, UMTA has recently attempted to counter these influences. The Buffalo mass transit grant required that construction workers beforehand agree to accept lower wages. III. 71 mass transportation facilities and services." UMTA has issued regu- lations to implement this policy which require new rail systems, those undergoing substantial modernization, and new transit buses to meet certain design criteria to provide access to the elderly and handi- capped. Compliance with these regulations is costly. More important are the Department of Transportation's currently proposed regulations to implement Section 504 of the Rehabilitation Act of 1973 which would require full accessibility to handicapped persons "not only in new sys- tems but in all existing bus, light rail, commuter rail, and heavy rail systems nationwide. "2 Both the Urban Mass Transportation Act and the Section 504 regulations are costly approaches to providing adequate transportation to the elderly and handicapped who it is claimed "would be far better and less expensively served by subsidized taxi and dial- a-ride services. "3 But this criticism ignores the social policy objec- tives on the basis of which various decisions were made. 6.7 Conclusion The UMTA capital grants programs have halted the decline of urban mass transit in the United States and brought about its modest revival. They have financed public acquisition of failing private transit com- panies, refurbished and extended rail rapid transit in the major declin- ing central cities, refurbished commuter rail systems, and replaced the nation's fleet of transit buses with modern air conditioned vehicles. They have also financed entirely new rail rapid transit and bus systems. About three-quarters of the UMTA capital grants have added to capital outlay by municipalities and transit authorities. Fiscal impact upon total spending, however, was probably greater since the UMTA program has been accompanied by growing municipal subsidies. Capital grants for urban mass transportation facilities bias urban transportation decisions and tend to produce systems which are more costly than before, although this increased cost is not necessarily borne directly by users. Capital subsidies have a tendency to bias decision- making in favor of rail as opposed to bus transit at substantial public ■expense; however, rail systems have external impacts which might help justify the increase in cost, e.g., greater centralization of places of work. The capital subsidies also bias replacement decisions toward Urban Mass Transportation Act of 1964 as amended, Section 16 2 Private communication from Lee, o_p_. cit . 3 Altshuler, "Changing Patterns of Policy," op_. cit . , p. 195. III. 72 premature replacement of buses, raising the social cost of the service; benefits of having newer equipment include such modern amenities as air conditioning. Whether the benefits of these programs justify the public expense is difficult to determine. III. 73 7.0 INTER-PROGRAM COMPARISONS 7.1 Introduction The recent decline in state-local and especially municipal capital outlays and evidence in the large cities of a deterioration of capital infrastructure have stimulated an interest in the impact of Federal aid on state-local capital spending. This chapter draws together our find- ings concerning the effects of Federal capital grants in each of the five selected functional areas. It begins with a review of the leading accomplishments of each program and fiscal impact for each of the three program areas for which evidence is available. It then examines the weaknesses common to the several programs. Next it attempts to inter- pret these fiscal impact findings, comparing them first with such benchmarks as is provided by the economic theory of grants and second with the findings of econometric studies of the impact of Federal cate- gorical grants in the aggregate. The final part of the chapter reviews the evidence concerning the capital spending impact of General Revenue Sharing. No evidence is yet available on the capital impact of two other Federal programs likely to have had important effects on capital outlay, namely, Community Development Block Grants and Local Public Works, although studies by Federal agencies are currently underway in both program areas. 7.2 Accomplishments of Federal Capital Grants We can assess the accomplishments of Federal capital grants from either a programmatic or a fiscal perspective. Here we enumerate the programmatic achievements. The municipal wastewater treatment construction program has accel- erated the construction of secondary and advanced treatment facilities, and there are some indications that water quality has begun to improve. FmHA grants for water supply have made centrally supplied water available to a number of rural communities that would have continued to rely on private well water in the program's absence. The outstanding achieve- ment of Federal highway grants has been the construction of the Inter- state System. These grants have also enhanced provisions for safety in design, operation and maintenance both on and off Federally aided sys- tems. The bridge program has produced an inventory of the condition of bridges on the Federal-aid system and is currently doing the same for off-system bridges. It is financing replacement and reconstruction of deficient bridges including some very costly ones. The mass transit program is responsible for the revival of the transit industry in the United States. It has financed the municipal purchase of failing pri- vate bus lines and the development of new bus systems. It has replaced old buses and rail cars with new ones. It has helped finance the III. 74 development of new rail transit systems. It has financed programs demon- strating innovative approaches to urban transportation problems. Each capital grant has advanced one or more program objectives. Each is clearly more than a vehicle for channeling Federal aid to state or local recipients. It is of some interest, however, to estimate to what extent these grants have augmented capital spending in the aided areas. To this we now turn. 7.3 Weaknesses of Federal Capital Grants All of the capital grant programs we have reviewed encourage the substitution of capital for other inputs and pay insufficient attention to operation and maintenance. Four of the five Federal capital grants we have examined subsidize capital outlay but not operation and maintenance expenditures. The fifth, mass transit, provides a subsidy for operation and maintenance of up to 50 percent of operating deficits. The Federal share of capital costs under these programs ranges up to 75 percent for FmHA water grants and from 75 to 95 percent for the others. Economic theory predicts that such subsidies may encourage more capital intensive projects than would otherwise have been constructed. Even the mass transit program may have this effect since Federal operating subsidies are quite limited. All of the capital grant programs we have reviewed except FmHA water grants provide illustrations of the substitution of capital for operation and maintenance expense. For example, automated treatment facilities can be used in place of more labor intensive facilities. Early replacement of buses, the selection of rail over bus transit, and the selection of mass transit of any kind over low capital alternatives are all ways of using Federal capital grants to reduce operation and maine- nance expense. Deferral of maintenance to the point where the condition of pavement or deck is poor enough to quality for RRR work can do the same thing for highways and bridges. The operation and maintenance- problem is, however, not primarily the result of high capital subsidies, though provision of significant Federal aid for operation and maintenance would have helped. For highways and bridges, for example, the maintenance program is an outgrowth of the com- bination of a bulge in required maintenance on an enlarged network of Interstate highways and bridges, increased truck loads, and the decline of revenue growth. For wastewater treatment facilities, the problem is a consequence of the high cost of operating secondary and advanced plants as well as the difficulty of obtaining adequately trained personnel. But all of the programs illustrate the tendency of recipients to purchase, with Federal subsidies, amenities which they otherwise would not have purchased. The purchase of "options" on buses and rail transit cars are illustrations of luxuries that some mass transit authorities might have done without in the absence of Federal subsidies. Similarly, rural com- munities purchase water systems with Federal subsidies that they would not have purchased without them. There are many stretches of Interstate highway in rural areas that are of a quality well in excess of what would III. 75 have been purchased in the absence of the Interstate program. Similarly, in states where Federal ABC grants have stimulated expenditure, more and better highways are constructed than would have been constructed in the absence of Federal aid. Another feature of Federal capital grants is that they tend to increase project costs over levels that would otherwise have prevailed. Sometimes the cost increase is associated with an improvement of service, sometimes not. Davis-Bacon provisions raise labor costs in construction to union levels for all Federal capital grants. As noted in the previous chapter, Section 13(c) of the Mass Transportation Act of 1969 may have resulted in limiting the use of labor-saving improvements in mass transit, and UMTA regulations regarding facilities for the elderly and handicapped have raised the cost of new buses and mass transit systems. 7.4 Fiscal Impact of Federal Capital Grants We have reviewed and developed evidence concerning the fiscal impact for three of the five Federal capital grants examined in this study. Grants for the construction of municipal wastewater treatment facilities appear to have added about $0.60 to capital outlay for treatment facil- ities for each dollar of aid. Mass transit grants appear to have added about $0.75 to transit capital outlay for each dollar of aid. Highway grants appear to have added about $1.08 to capital outlay for each dollar of aid, whether for Interstate or ABC programs. Why the highway grants should be so much more stimulative than the others is unclear. There is reason to believe that both municipal facilities and mass transit grants may have added more to total expenditures than to capital outlay, though we have developed little empirical evidence to support this hypothesis and no quantitative estimates. The secondary and advanced treatment facilities financed by the municipal construction program are known to be considerably more costly to operate than the primary facil- ities they replaced. Municipalities are known to have provided increasing subsidies to mass transit systems since the UMTA program began. The evidence on the total expenditure impact of highway grants is contradictory. Sherman found that $1 of Interstate aid added $1.64 to total expenditure; Rao's estimate was $1.11, not greatly different from the impact on capital outlay. There is reason to believe that the Inter- state program may have added to state expense for operation and mainte- nance of Interstate highways. For non-Interstate Federal-aid highways, Sherman found that $1 of aid left total expenditures essentially unchanged, that is, it was totally substituted for state-local sources of funds. Rao found $1 of aid added $1.55 to total non-Interstate expenditures. The disparity between these findings illustrates the wide fluctuations in impact estimates derived from similar econometric models and suggests that econometric estimates may not be very precise. III. 76 Our findings that $1 of Federal capital grants added $0.60 for capital outlays for municipal wastewater treatment facilities, $0.75 for mass transit and a little over $1 for highways are not particularly helpful until they are placed in context. How does the fiscal impact of these grants compare with what one would expect from an understanding of the nature of the grant programs? How does it compare with that of other grants? Do these coefficients tell us anything about the degree to which these programs have been successful? All three programs for which we have fiscal impact estimates are closed-ended matching categorical grants. A closed-ended matching grant is one for which the donor requires the recipient to match grant dollars at a certain rate but limits the amount of aid available on these terms. A categorical grant is one confined to a category of spending, e.g., wastewater treatment facilities. Closed-ended matching categorical grants can affect spending in one of three ways.l They can operate in a manner analogous to revenue sharing grants, simply augmenting the recipient's fiscal resources. They can operate in a manner analogous to open-ended matching grants by reducing the marginal cost of the proj- ect to the recipient. They can operate in a manner analogous to a simple categorical grant by channeling both Federal and state-local dollars into spending for the aided service. We will presently examine each of these three types of fiscal impact in order to develop benchmarks for the impact of the Federal capital grants. Before doing so we consider the effect of program conditions on spending.. Most Federal grant programs attach certain conditions to the use of Federal funds. While some of these, such as auditing requirements, may have a trivial impact on expenditures, others can augment the cost of providing a service considerably, as our discussion of the cost increasing effects of Federal capital grants has suggested. Cost increasing provi- sions reduce the cost saving effect of the Federal matching dollars. For example, capital grants for mass transit, which appear to reduce local costs to $0.20 for every dollar of capital outlay, actually reduce local costs by much less than this because Davis-Bacon provisions, Sec- tion 13(c) provisions for the elderly and handicapped , required safety features and the like increase project costs. The extent to which pro- visions of this type increase local expenditures depends upon the sensi- tivity of recipient governments to cost changes. For a discussion of these points, see Whitman and Cline, "Fiscal Impact of Revenue Sharing in Comparison with Other Federal Aid: An Evaluation of Recent Empirical Findings," Chapter I, Final Report No. 1189-01, Washington, D.C., The Urban Institute, 1978; or Stephen M. Barro, The Urban Impacts of Federal Policies: Volume 3, Fiscal Condi - tions, Santa Monica, California, The RAND Corporation, Chapter VI, 1978. III. 77 Closed-ended matching categorical grants will operate like a revenue sharing grant if the amount of local matching money required is less than the amount the grantee would have spent on the aided activity in the absence of aid. A necessary, but not a sufficient, indication that this is the case is that the recipient has utilized his entire grant allotment. Revenue sharing grants stimulate spending simply by augmenting the recip- ient's resources. The fiscal impact of such a grant is larger than that of growth in the economic base because, for political and institutional reasons, revenue sent directly to a government is more likely to be spent than revenue that must be raised by taxation. Empirical studies of the Federal General Revenue Sharing (GRS) program provide one benchmark for this type of grant. A survey research study by the University of Michigan's Institute for Social Research and a monitoring study by the Brookings Institution estimated the aggregate expenditure impact of GRS upon local governments to lie between 60 and 70 percent during the first three years of the program.* Aggregate impact on states ranged between 53 and 70 percentage points lower than the survey research and monitoring estimates. Another example of revenue sharing type grants is state aid for education. Most state aid programs are broad categorical grants without matching provi- sions for a service that receives substantial local funding. Such grants would be expected to behave like revenue sharing grants. A number of studies have produced grant impact coefficients ranging between $0.40 and $0.60 for each dollar of aid. 2 Hence, studies of the impact of GRS on aggregate local or state spending and studies of the impact of state education grants on school district spending produce broadly similar results. A program having provisions no more stimulative than these could be expected to have a total expenditure impact of the same order of magnitude. Closed-ended matching categorical grants will operate like an open- ended matching grant if the grant is not fully utilized by the recipients, Such a grant reduces the cost of the aided service to the recipient on the margin. The fiscal impact of such a grant depends on the price elasticity of demand for the aided service, if the concept of demand for government services be allowed. If the elasticity is less than 1, $1 of grant will add less than $1 to local expenditure. Since the elasticity of demand for most state-local services is less than 1, according to most studies, grant impact coefficients should lie between and 1.3 Of welfare and medicaid, which are the two most important open-ended matching grants, welfare is the most extensively studied. A represen- tative study by Orr estimated the price elasticity of demand for aid to See Whitman and Cline, "Fiscal Impact of Revenue Sharing in Com- parison with Other Federal Aid," Chapter III. 2 Ibid. , Chapter VIII. 3 Ibid. , p. 12. III. 78 families with dependent children (AFDC) at -0.23, which implies that $1 of Federal aid would increase welfare payments by $0.30.1 Because most state-local functions have higher price elasticities, open-ended matching grants or less than fully utilized closed-ended matching grants would have a larger impact coefficient than AFDC. Closed-ended matching categorical grants will operate like a simple categorical grant if required matching is more than the recipient would have spent for the aided activity in the absence of the grant. As in the first case we examined, the recipient will utilize his entire grant allotment. This type of fiscal impact is best understood by examining first the impact of a simple categorical grant. Such a grant requires only that grant funds be spent on the aided category. The extent to which the grant is substituted for local revenue sources depends upon what local spending on the aided category would have been in the absence of the grant relative to the size of the grant. At one extreme, if local spending would have been more than the grant, the recipient will sub- stitute the grant for local sources of funds to a very great extent. The aided category benefits from the grant only to the extent that it receives a share of the additional resources that the grant brings to the recipient government; the effect will be the same as that of a revenue sharing grant. At the other extreme, if local spending would have been zero in the absence of the grant, the recipient will neces- sarily devote the entire grant to additional spending on the aided cate- gory. A closed-ended matching categorical grant operates in a similar way with required matching playing a pivotal role. At one extreme, if local spending would have been more than required matching, the recipient will substitute the grant for local sources as in the case of a revenue sharing grant. At the other extreme, if local spending would have been zero in the absence of the grant, the recipient will devote the entire grant plus the required matching to additional spending on the aided category. If the Federal share of program costs is r, $1 of grant will result in $l/r of additional total spending and $l/r - $1 of additional state-local spending. Hence, the maximum expenditure impact of an 80 percent closed- ended matching grant is $1.25 ($1 ■ •*- 0.8). Generally, the expenditure impact will be less. We are now in a position to compare the fiscal impact of the three Federal capital grants with predictions based on economic theory. Our examination of these three programs has revealed that each was designed to finance the purchase of capital facilities that would not have been purchased as extensively had there been no Federal aid. The highway program financed construction of the Interstate system. While some segments of limited access highway would have been constructed in the absence of Federal aid, others clearly would not. The municipal waste- water treatment construction program financed the construction of secondary 1 Ibid. , p. 173. III. 79 and advanced treatment facilities. Similarly, some of these facilities would have been constructed in the absence of Federal aid, others would not. The mass transit program financed replacements and renovations on existing systems, some of which would have occurred without Federal aid; it also financed accelerated replacement, expansions and entirely new systems, most of which would never have occurred without Federal aid. For all three programs, then, there would have been state-local spending in the absence of Federal aid. Maximum fiscal impact depends on the Federal matching rate. Recall that the maximum is $l/r where r is the Federal matching rate. Hence, the maximum expected impact is $1/0.9, or $1.11 for the Interstate pro- gram ($1.05 for states receiving the maximum Federal grant), $1/0.7 for the ABC highway program or $1.43 (the matching rate was 0.7 until 1978), $1/0.75 or $1.33 for the municipal wastewater treatment construction program, and $1/0.8 or $1.25 for the mass transit program. Since there clearly would have been state-local spending in the absence of these programs, actual fiscal impact would be less than the maximum. The only program for which reported fiscal impact is close to the maximum is Interstate highways. That the reported coefficient, $1.08, is so close to the maximum coefficient, $1.11, suggests that there would have been very little construction of limited access highways in the absence of the program. While this is possible, it seems unlikely. A more reasonable explanation is that the econometric estimates are biased upward for reasons that are not altogether clear. ^ The coefficients for the other two programs are considerably less than the maximum. The coefficient for the municipal wastewater treatment construction program, 0.6, lies less than halfway between the coefficients reported in the Brookings and Institute for Social Research (ISR) studies for revenue sharing (0.08 and 0.12 respectively) and the theoretical maximum of 1.33.2 The coefficient for the mass transit program, 0.75, is probably more than halfway between the share of revenue sharing going to mass transit and the theoretical maximum of 1.25. Transportation received between 0.11 and 0.12 percent of GRS according to the two studies but a considerable share of that probably went into highways. 3 Because Brookings and ISR functional share data are not reliable, these compar- isons are merely suggestive of orders of magnitude. To have found impact estimates that lie between the extremes for these programs is reasonable. Barro, for example, has attempted to show that most econometric grant impact estimates derived from cross-section or pooled time series cross-section studies have been biased upward. See Stephen Barro, Fiscal Conditions , op . cit . , p. 140. 2 See Whitman and Cline, op_. cit . , p. 110. Figures are obtained by multiplying functional share by the percentage of funds added to spending. 3 Ibid. III. 80 Our findings that the Federal capital grants, with the possible exception of highway grants, have had a generally substitutive effect are consistent with Barro's interpretation of the fiscal impact liter- ature. Most econometric studies of grant impact have shown that Federal categorical grants stimulate spending, that is, they have fiscal impact coefficients in excess of 1, often considerably in excess of 1. The only significant exceptions are time series studies by Gramlich and Galper and a pooled time series cross-section for 10 city governments also by Gramlich and Galper. Gramlich and Galper, for example, found that $1 of Federal matching aid added $0.80 to spending, according to their time series equations, and $0.90 according to their pooled city equations. * As mentioned earlier, Barro is convinced, on the basis of both theoretical considerations and recent empirical findings, that: ...the findings of fiscal stimulation should not be taken as valid estimates of the state-local response to Federal aid and should not be used for policy analysis or for pre- dictive purposes. ' If Barro is correct, then our findings with respect to the Federal capital grants are not out of line. One point made earlier bears repeating at this time: the fiscal impact of Interstate, municipal wastewater construction and mass transit grants on total spending — current plus capital — probably exceeds their impact on capital spending alone. The impact of these grants on total spending should be used for comparison with studies such as Gramlich and Galper's. If allowance is made for impact on current expense, our esti- mates for the municipal wastewater treatment construction and mass transit grants are not out of line with the Gramlich and Galper impact coefficients for total Federal categorical aid. 3 7.5 Impact of General Revenue Sharing on Capital Spending It would be instructive to examine the impact of other major Federal grants for capital projects, particularly Community Development Block Grants (CDBG), the Local Public Works program (LPW) , and General Revenue Sharing; unfortunately, there is no evidence in the literature of the impact of block grants in general on capital outlay. The only study which has examined the fiscal impact of CDBG at all is a Brookings Whitman and Cline, "Fiscal Impact of Revenue Sharing in Comparison with Other Federal Aid," op_. cit . , p. 68. 2 Barro, Fiscal Conditions , op . cit . , p. 140. 3 Gramlich, Edward, and Harvey Galper, "State and Local Fiscal Beha- vior and Federal Grant Policy," Brookings Papers on Economic Activity , No. 1, 1973. III. 81 monitoring study which does not clearly distinguish the impact of the pro- gram on capital spending. 1 And while the Economic Development Administra- tion has commissioned studies of the fiscal impact of LPW, none is yet available. However, a great deal of empirical evidence is available on the cap- ital spending impact of GRS. The Actual Use Reports of the Office of Revenue Sharing describe the share of GRS receipts which recipients reported to the' government that they used for capital spending. 2 The survey of 367 recipient governments conducted by the University of Michigan's Institute for Social Research describes the share used for capital according to a survey of finance officers. The Brookings Insti- tution's monitoring study of 65 recipient jurisdictions describes the share used for capital according to the informed judgment of Brookings field associates who weighed a variety of evidence before reaching a conclusion. ^ Econometric studies by Barlow and Adams and Crippen provide statistical evidence from time series data on capital spending. 5 The Actual Use Reports, the survey and monitoring data, and the econometric studies each provide somewhat different views of the impact of GRS on capital outlay. We review estimates from each of these sources and reconcile the differences between them to the extent possible. Nathan, Richard P., et al., Block Grants for Community Development , prepared for U. S. Department of Housing and Urban Development, Washington, D.C., U. S. Government Printing Office, 1977; and Paul R. Dommel, et al. , Decentralizing Community Development , Washington, D.C., U. S. Government Printing Office, 1968. 2 U. S. Department of Treasury, Office of Revenue Sharing, General Revenue Sharing, The First Use Reports , March 1974, General Revenue Sharing: Reported Uses 1973-1974 , Reported Uses of General Revenue Sharing Funds 1974-1975 . 3 Juster, F. Thomas (ed.), The Economic and Political Impact of Gen- eral Revenue Sharing , Washington, D.C., U. S. Government Printing Office, 1976. The study also reports the capital share according to a survey of chief executive officers. Nathan, Richard, Allen D. Manvel and Susannah E. Calkins and Associ- ates, Monitoring Revenue Sharing , Washington, D.C., The Brookings Insti- tution, 1975; and Richard P. Nathan, Charles F. Adams, Jr., and Associates, Revenue Sharing: The Second Round , Washington, D.C., The Brookings Insti- tution, 1977. Barlow, Robin, "Measuring the Fiscal Impact of General Revenue Sharing Through Analysis of Budget Data" in Juster, Impact of General Revenue Sharing ; and Charles F. Adams, Jr., and Dan L. Crippen, "The Fiscal Impact of General Revenue Sharing on Local Governments," Prelim- inary report prepared for the U. S. Department of Treasury, Columbus, Ohio, School of Public Administration, The Ohio State University, 1978. III. 82 The share of revenue sharing funds used for capital outlay, according to the Actual Use Reports for the 1973-1975 period, appears in Exhibit 7.1. The data show that the localities in the aggregate used a little less than one-half of the GRS funds for capital outlay, and the states used about one-eighth; states and localities together, according to these data, used just over one-third of GRS funds for capital. Actual use data must be used with great caution. Three major studies which have examined the validity of actual use data have concluded that there is little relation- ship between these data and fiscal impact estimates prepared with more objective methods. 1 The University of Michigan's ISR survey found the correspondence between actual use data and their survey data to be poor for large cities but much better for small cities. 2 However, because survey data have many of the same shortcomings as actual use data, the correspondence for small cities does not necessarily lend credence to actual use data. Whatever the weaknesses of actual use data, estimates from this source for capital outlay are not as different from those from other sources as the above cited critical findings would suggest. The share of revenue sharing funds used for capital outlay according to the ISR survey and Brookings monitoring studies appears in Exhibit 7.2. ISR conducted surveys for two fiscal years, 1974 and 1975. The Brookings data relate to entitlement periods ending June 30, 1973 (Round 1), June 30, 1974 (Round 2) and December 31, 1975 (Round 3). The Brookings Round 2 data correspond fairly well to the ISR fiscal year 1974 data, since fiscal year 1974 ends on June 30, 1974 for many but not all state and local governments. The Brookings Round 3 data cover a one and one- half year period, the first year of which corresponds to the ISR fiscal year 1975 data in a manner similar to the previous year. ISR data show the localities using about 40 percent of GRS funds for capital outlay in fiscal years 1974 and 1975. Brookings data show that localities use about 45 percent in Round 1 and an average of 36 percent in Rounds 2 and 3, or slightly less than the ISR data. ISR data show the states using 14 and 17 percent for capital in 1974 and 1975. Brookings data show the states using 21 percent in Rounds 1 and 2; Round 3 is not yet available. States and localities together used 37 percent for capital in 1973 according to Brookings, and 30 percent in 1974. According to ISR, they used about 32 percent in 1974 and 1975. Nathan, et_ al . , Monitoring Revenue Sharing ; Thomas J. Anton, et al. Understanding the Fiscal Impact of General Revenue Sharing , Ann Arbor, Michigan, Institute for Public Policy Studies, University of Michigan, 1975; and Catherine H. Lovell, ejt al . , The Effects of General Revenue Sharing on Ninety Seven Cities in Southern California , Riverside, California, The Drylands Research Institute, 1975. o Juster, The Economic and Political Impact of General Revenue Sharing , op . cit . III. 83 Exhibit 7.1: Share of General Revenue Sharing Funds Used for Capital Outlay According to Actual Use Reports, 1973-1975 (percent) Unit of January 1, 1972 to July 1, 1973 to July 1, 1974 to Government June 30, 1973 June 30, 1974 June 30, 1975 Localities 44 48 47 States 6 18 15 Localities and States 33 37 36 Source: Whitman, Ray D. and Robert J. Cline, "Fiscal ' Impact of Revenue Sharing in Comparison with Other Federal Aid ...", op_. cit . III. 84 Exhibit 7.2: Share of General Revenue Sharing Funds Used for Capital Outlays According to Institute for Social Research and Brookings Studies, 1973-1975 Source Jrookings Round 1 Brookings Round 2 and FY 1974 Brookings Round 3 and FY 1975 Institute for Social Research Local State State-Local 41.7 14.0 32.5 38.7 17.1 31.5 Brookings Local State State-Local 45.2 21.1 37.2 34.5 21.0 30.0 37.3 NA NA Source: Whitman and Cline, "Fiscal Impact of Revenue Sharing in Comparison with Other Federal Aid . . .", op. cit . , Tables III. 7, III. 8, and III. 9. III. 85 Estimates from the two studies are remarkably close considering the weaknesses of each methodology. The ISR data are derived from a survey of finance officers, as mentioned, and are subject to some of the same biases as the use reports. They have been shown to differ enormously from more reliable estimates for individual jurisdictions.! The Brookings data are derived from a sample of only 65 jurisdictions selected without the benefit of scientific sampling techniques. Had the sample been scien- tific, the potential estimating error would have been very large for so small a sample of the more than 38,000 recipients. 2 Since the data are informed judgments by field research personnel, they are prone to unknown and unmeasurable estimating biases. It may be that the similarity of the two sets of estimates is the result of compensating errors. Though actual use, survey and monitoring studies suggest an early impetus to capital spending in response to revenue sharing, expenditure trends do not reveal it. Barlow's econometric analysis of budget data for 75 cities reveals no impact on capital spending in 1973 and 1974, but a positive impact in 1975. Adams and Crippen's analysis of expendi- ture trends for large and small cities shows the same result. For small cities, there was no effect in 1973 and 1974 but a large effect in 1975 and 1976. For large cities, there was again no impact in 1973 and 1974 and there was an effect in 1975 and 1976, though the effect was smaller than for the small cities. These findings are not inconsistent with those reported above, because the use, survey and monitoring data all attempt to measure decisions by recipients regarding the use of revenue sharing funds during each period whereas the expenditure data used by Barlow and Adams and Crippen measure actual outlays. Capital outlay decisions generally take some time to implement. The Barlow and Adams and Crippen studies suggest that expenditures lag behind decisions to spend by about two years. Adams and Crippen's estimate of the share of GRS used for capital outlay is not greatly different from ISR estimates for cities in the same size class. Adams and Crippen estimate that cities over 300,000 population used 18.6 percent of their GRS funds for capital outlay over the 1973-1976 period. The ISR study shows the same cities used 13.2 percent for capital during the 1974-1975 period. Adams and Crippen estimate that cities under 300,000 used 53.9 percent while ISR data show 48.3 percent for the same sets of years. 3 See Whitman and Cline pp. 26-29. 'Fiscal Impact of Revenue Sharing," £p_. cit . , Ibid PP 30-34. Adams, Charles F. , Jr., and Dan L. Crippen, "The Fiscal Impact of General Revenue Sharing on Local Governments," ojp_. cit . III. 86 Empirical evidence of the impact of GRS on capital spending shows that states and localities together used about one-third of GRS receipts for capital during the first three years of the program; localities used a larger share and states a smaller share. Though the different meth- odologies for measuring program impact do not yield identical results, they are remarkably similar. The capital outlay effect occurs with a lag of about two years which does not show up in actual use, survey and monitoring data because these data reflect decisions and not expenditures 7.6 Conclusion Federal subsidies for state-local capital projects have a number of weaknesses. It seems to be human nature to attempt to resolve a complex problem with numerous political, social and economic dimensions by con- structing a capital facility. Some observers have humorously labeled this tendency "the edifice complex." A more comprehensive approach to problem-solving will, in many instances, yield better results at less cost. Capital subsidies encourage the substitution of capital inputs for operating and maintenance inputs at some loss in economic efficiency. There is some tendency for this to lead to neglect of necessary operation and maintenance, which is, however, also affected by other flaws in the design and administration of the programs. Most of the programs we reviewed contained cost increasing features that may not have been strictly necessary, a weakness common to many Federal grant programs, capital and non-capital alike. The programs we have reviewed can claim very real achievements. Each was designed to achieve specific programmatic objectives, e.g., construction of the Interstate System, or construction of secondary and advanced wastewater treatment facilities. Evaluation of each of these programs reveals that each has furthered such objectives considerably. Analysis of the fiscal impact of these programs suggests that they gener- ally had a somewhat substitutive effect on capital outlay, that is, less than 100 percent of grant funds were added to capital outlay. However, since each financed capital facilities more costly to operate and main- tain than the facilities that would have existed in the absence of the programs, their impact on total expenditure is greater than on capital expenditure. Hence, these grants have been less substitutive than our fiscal impact estimates indicate, and may even have stimulated additional state-local outlay. When compared with GRS, the capital grants have added more to capital outlay than revenue sharing added to capital outlay or even, in two out of three cases, to current outlay. Capital grants are, therefore, more stimulative than revenue sharing, as their programmatic impacts suggest. III. 87 •U.S. GOVERNMENT PRINTING OFFICE : I960 0-320-012/621,7 PENN STATE UNIVERSITY LIBRARIES minium AOOOOVaWZDO