State Lawmakers Just Say No (to federal rail funds)

House Bill 422, filed yesterday and sponsored by Ric Killian (R-Mecklenburg) and Phillip Frye (R-Avery), would prohibit North Carolina’s Department of Transportation from accepting any federal funds earmarked for high-speed rail without first getting the General Assemly’s approval.

Refusing federal funds for high-speed rail boondoggle projects would follow in the footsteps of Governors in Wisconsin, Florida and New Jersey who have refused federal funds for high-speed rail. Such projects are notorious for running over initial cost projections by wide margins, and North Carolina lawmakers are right to be concerned that any federal funds would end up being insufficient as costs rise above projections and North Carolina taxpayers are left picking up the tab.

Furthermore, North Carolina doesn’t appear to be a very appropriate location for high speed rail lines. According to this analysis, Charlotte is the only NC city among the top 40 in the nation for populations within 10 to 25 miles of downtown – an indication that this area lacks population density in its urban areas sufficient to justify rail projects. The analysis further concludes that passenger rail for intercity travel would only be viable with additional regional investments (more state and local taxpayer dollars).

But many will still insist that NC would be foolish to pass up “free” federal dollars to build high-speed rail lines because it would “create jobs.” I pointed out previously, however, that such federal funds are not “free,” and in fact hinder a state’s economic growth prospects.  A Harvard study examined the impact of federal earmark spending in states and found that federal “fiscal spending shocks appear to significantly dampen corporate sector investment activity.” The authors findings included a reduction in capital and R&D investment among the impacted states, and also “evidence that firms scale back their employment” after a spike in federal funds.

There is no such thing as a free lunch, and federal funds for rail boondoggles are no exemption. HB 422 is a good idea because accepting these federal funds would put NC taxpayers at risk for paying for the very likely cost overruns and the politically-motivated rail projects will divert scarce resources away from entrepreneurs and make the state’s economy worse off.

UPDATE: In the original post, one of the several references to the proposed project mistakenly referred to it as “light rail.”  That has been updated.