How towns bail out the auto industry

By , Jon G. Lindgren is mayor of Fargo, N.D., and Associate professor of economics at North Dakota State University.

One of the best kept secrets in American local government is the extent to which the person who uses the automobile heavily is subsidized by the people who use it little or not at all. The automobile and oil industries have no doubt cheered this situation because, when local government shifts some of the cost of operating cars from heavy users to others, car companies will sell more cars and oil companies will sell more gasoline.

In my view, it makes no more sense for local governments to bail out the automobile industry than it does for the federal government to bail out the Chrysler Corporation.

To see where this subsidization occurs, let's walk through the budget of your local city or county. The first visit on such a stroll would be to a department devoted almost exclusively to automobile transportation. This is the street or road department. Its construction and maintenance activities are of little value to people who seldom use autos.

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Let's move on to law enforcement -- the sheriff's office or police department. A large portion of this department's resources are devoted to directing traffic, putting up signs and traffic signals, and helping out in the design of streets and intersections.

Moving on to the planning and engineering parts of the building, we find several people who plan and design streets, highways, and publicly owned parking lots.

The public relations arm of the local government, the elected officials and their support staff, devote time to automobile issues. Nearby will be the local government's financial offices where people spend their time trying to come up with a financial plan to pay for all of this.

These observations leave out the factor of taxes lost from public property used for parking or right-of-way. In addition, many of the privately owned parking ramps have been financed with tax-free municipal bonds.

It is hard to question this arrangement without encountering someone who will confidently lecture you on the nature of the gasoline excise tax. This tax, he will tell you, is a user tax. All of the facilities needed for the automobile, this argument goes, are paid for by automobile drivers when they buy gasoline which has this tax added into the price. Guess again.

The budget for Fargo illustrates the magnitude of the error in this argument. Fargo is a North Dakota city of 61,000 people. Its budget allocations are similar to virtually all US cities and many countries. The automobile industry bailout can be seen in two categories of expenditures, operations and capital works.

If one adds up all of Fargo's annual operating expenses which help the automobile user, I estimate them to be $3.5 million. Gasoline taxes pay a portion of this, but the shortfall is about $2 million. This shortfall, about 18 percent of the city's entire budget, must be picked up by the general public including those who use automobiles very little.

The subsidy in the capital expenditures is more subtle. The street in front of a house or business is usually paid for by billing the property's owner. If there is a renter, the rent is raised for a portion of this fee.

The original reason behind this fee was the theory that any property owner would want access to his or her property. Since the access adds value and usefulness to the property, theory concluded that the cost of the street should be borne by the property owner.

But, as streets became wider, and gasoline taxes did not keep up with drivers' demands for more and wider streets, the fee levied against property grew and eventually became a contribution to the entire automobile transportation system. Rather than billing the property owner for an inexpensive but adequate street that gave access to the home or business, the property owner began to pay for wider and faster streets used by the public at large.

In Fargo and many other cities, this system has been used to pay for portions of streets which do not even pass near the property being billed. The property owner pays for these streets whether he uses them or not. In other cases, the owner is forced to pay for a heavily traveled street in front of his property which actually reduces the value of the property.

In Fargo, property owners have averaged $1 million per year in capital expenditures toward the automobile transportation system. To arrive at this figure, I have differentiated between the cost of streets which provide access to property and those which provide transportation.

Fargo's annual subsidy is the sum of the above two amounts or $3 million. The nationwide magnitude of this subsidization is staggering. Were users of automobiles to pay for these costs, the impact upon automobile and gasoline sales would be significant. Yet the nationwide results, like those from decontrol of energy prices and rejection of a Chrysler bailout, would be positive. It would allow each industry -- as well as each firm -- the opportunity to stand on its own worth to society.

For the automobi le industry, charity should not begin at home.

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