Sunday, August 18, 2019

Bridge Economics in Alabama

There are three things certain in life: Death, taxes and the determination of people to avoid both.

Yes, this is going to be a snarky post with a little good ol' smart-assery. Hey... this stuff needs to be said and I have the un-buffered medium with which to say it.

Remember: I am not opposed to tolling as a concept for financing projects with the demonstrated economic benefits needed to support it. I am opposed to projects that do not have the economic benefits that the toll seeks to monetize. Ramming infeasible projects through just because you can is a recipe for economic disaster. Bad tax policy has a bad habit of making bad things happen. Duh.

Tolling defenders claim that the toll is not a tax--you can simply use another route to make the trip. This makes about as much sense as saying sales taxes aren't taxes because you can simply choose not to eat. Or not to wear clothes. Or not to use deodorant. Or not take your anti-psychotic medication. You can choose to be hungry, naked, smelly and crazy and go tax free, right? Your choice.

Come on, folks. If the government makes you pay for the privilege of doing something, it's a tax.

From an economics perspective, a tax and a toll evoke the same response in how businesses and consumers behave in the marketplace. For consumers, the cost is a new item in their budget constraint. To the extent feasible the consumer will avoid paying it and will forego buying something else to pay what cannot be avoided. For businesses, the full tax burden will be added to the cost of the goods sold and the owners will absorb the risk of reduced sales as a result.

A toll and a tax are interchangeable in a model of any economy burdened by either.

So, henceforth this space will use the term "tax" when referring to the cost burden of this project. When you correct the terminology you change the narrative.

"Toll" is a four-letter word.

Even famous people avoid taxes. We're not famous here, but we have our ways.

Under current Alabama law, anyone aged 19 and over can buy a car without being required to simultaneously register the vehicle with the state. This is because Alabama law requires car owners to provide proof of liability insurance when registering their vehicle. Not surprisingly, cars are cheap in Alabama and they're easy to obtain. Look around -- $99 sign and drive (SAD) car dealerships are thriving from one end of the state to another. They don't care about your credit and they might not even check to make sure your driver's license is valid.

Those cars will become very popular if the Mobile River Bridge & Bayway project is built as a taxed route. No tag means no tax.

Alabama drivers are also notorious for failing to renew their vehicle registration, and part of that is because they have also failed to renew their liability insurance. For many, paying the first period's insurance premium and defaulting on the plan is part of the SAD game. But the state still has a name and address for that tag, expired or not. That tag promptly disappears.

This will also be a popular choice among commuters in Mobile and Baldwin Counties, especially among lower income folks. These are the people for whom a new $90 monthly tax has crowded the budget constraint.  Do they renew registration and insurance? Do they look for work in a place with no transportation tax? Do they take a look-see at what others are doing to avoid the tax?

We can also reasonably expect the emergence of a black market dealing in fake or stolen license tags and stolen or hacked electronic transponders. Craigslist and similar sites will surely have any of these on offer.

Tough choices will be made by consumers and businesses and none of them will be beneficial to the revenues of the tax collector.

The ALDOT/FHWA team has decreed that the number of invalid tags using their project will amount to about 5%, and that average weekday traffic on the 2030 established and taxed project will be about 70,000 vehicles. Doing some math gives us approximately 3,500 tax violators per weekday.

If we conservatively assume 48 4.5 day work weeks, we could see 756,000 accused tax cheats every year.

Goat Hill has a plan for all these tax cheats. Alabama Senate Bill 347 flew through the 2019 legislative session, giving the state the power to assess administrative fees on unpaid tax violators; to non-renew vehicle registration of vehicles for failure to pay a tax violation and assessed administrative fees; and to further provide reciprocal agreements with other states or jurisdictions that have also pursued the madness of directly taxing drivers.

What percentage of the 756,000 tax cheats will bite the bullet and pay up? Half, maybe?

That leaves the other half as unrepentant tax cheats in the eyes of the pointy heads in Monkeytown. They are coming after you, you rebellious Gulf Coastians.

This is going to be our administrative and judicial nightmare:
  • There won't be enough local yokels or state troopers on the road to pull over and either ticket or tow the tax dodgers. 
  • There won't be enough room in the impound lots for tax dodging vehicles to be held pending resolution. Towing companies will feast on the carnage.
  • Traffic court dockets will be jam packed with transportation tax dodgers. Our municipal and district court systems will have much less docket space for the real public safety threats like DUIs, reckless drivers, scene leavers and drug traffickers. Real bad guys will get away.
  • What will be done with the people who are on their third or fourth tax cheat citation? Jail them?
  • Vehicle registrations will plummet while $99 SAD auto sales will be steady or climbing.
  • There will be thousands more unregistered and uninsured vehicles on our roadways every year. This is a serious threat to the personal and economic well-being of every safe driver on the road.
  • People will inevitably lose their cars and will also lose their jobs. Another $99 SAD?
  • Traffic on the tax-free route will skyrocket and traffic on the taxed route will drop. 
  • The Africatown Community will be swamped with tax-avoiding but otherwise decent and courteous drivers on the tax free route.
  • The taxed route operator's revenues will suffer, leading to an inevitable increase in the tax rate. The increased tax rate will then drive even more consumers to either constrain their other spending or (more likely) join the growing hordes of tax cheats.
  • The economic output of Mobile and Baldwin Counties will drop. Home prices will fall. Sales tax collections will contract.
  • The Alabama Gulf Coast will be less competitive in recruiting new business. Who wants to locate in an area with depressed personal income, slumping housing prices and higher-than-average unemployment?
This has a very good chance to be the economic picture of the Alabama Gulf Coast in about 10 years, if the MRB&B project is built as planned. 

It doesn't have to be this way. If the ALDOT and FHWA team go back to the drawing board, they can develop an economically feasible plan.  That plan would likely follow the lead of the 2014 EIS, which never recommended taxing the plan's users. That plan would also seriously consider the economic effects of hurricane and storm damage risk. Don't hide behind a leeway-laden standards recommendation. Don't fearfully try to design away 100% of the risk posed by an improbable storm event occurring with an unlikely sea level rise. Instead, compute the expected annual risk of a wide array of alternatives and seek the plan that best balances cost with risk reduction benefits.

The only other alternative is the no-build alternative. The people of the Alabama Gulf Coast are used to storms and hurricanes. We're used to the occasional weekday traffic jams on the Bayway. We know better than to try making an optional Bayway trip on check-in days during the summer tourist season. 

We're ok with it as is.


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