How much is gas in your neighborhood?
In the Los Angeles Basin, gas prices have surpassed $4 per gallon, a significant increase from $2.89 just a year ago. Could this be an illustration of what Federal Reserve Chair Jay Powell refers to as “temporary inflation”?
Perhaps it is. Supply is likely to rise in response to this demand. As of now, the Baker Hughes rig count indicates that there are 430 active drilling rigs—13 more than the previous week, but 234 fewer than the same time last year.
We suspect that gas prices in Los Angeles will remain above $4 per gallon for the foreseeable future, especially with California’s refineries now producing the mandated summer blend gasoline.
Furthermore, rising gas prices may also stem from excessive money printing alongside the escalating demand. As a result, prices could increase significantly.
In response, President Biden has laid out a plan. On Wednesday, he revealed details in his $2.25 trillion American Jobs Plan, which will eventually be followed by the American Family Plan. If Biden and his administration have their way, we may soon no longer need gasoline at all; electric vehicles and commuter trains will become the norm.
The Financial Focus of the American Jobs Plan
Transportation is the largest expenditure in the American Jobs Plan, totaling $620 billion. Within this, $174 billion is allocated for electric vehicles, $85 billion for public transit, and $80 billion for both passenger and freight trains.
Transportation Secretary Pete Buttigieg, a vocal advocate for commuter trains, previously promoted a new downtown station for the South Shore Line during his tenure as Mayor of South Bend, Indiana. Unfortunately, the expensive feasibility studies did not lead to actual development.
In truth, South Bend taxpayers may have narrowly avoided a costly endeavor. However, under the American Jobs Plan, U.S. taxpayers might soon find themselves funding such ill-conceived projects nationwide.
What comes next is our firsthand account of what may soon unfold in your city or town…
Chronic Money Drain
At Economic Prism, we are not inherently against trains, subways, or light rail systems. Over the past two decades, we frequently used the LA Metro Blue Line (now the A Line) for our commutes between Long Beach and Los Angeles.
The light rail service generally operated on time. While the passenger crowd was mostly pleasant, it was occasionally overshadowed by rather unpleasant odors. On rainy days, one could even find vendors selling umbrellas at inflated prices, alongside remarkable street art throughout the trains.
Some days were undoubtedly more enjoyable than others; however, rides were rarely uneventful. For example, one December evening in 2005, we found ourselves on the Blue Line heading back to Long Beach just as the funeral service for Tookie Williams—a notorious figure and author—had concluded.
This event took place one week after he was executed at San Quentin Prison, with Governor Schwarzenegger rejecting any final pleas for clemency. After a lengthy memorial service attended by notable figures like Reverend Jesse Jackson and Snoop Dogg, train cars were packed with mourners, creating an atmosphere thick with both grief and the scent of alcohol.
While we enjoy commuter trains, our main concern is the fundamental issue at hand…
Commuter trains represent a substantial financial burden. They come with exorbitant construction costs and often operate at a loss endlessly.
A Closer Look: LA Metro’s Budget
The Fiscal Year 2020 budget for LA Metro was a staggering $7.2 billion. Out of this total, only $284.5 million was generated from passenger fares, while an additional $96.8 million came from advertising and other sources. This left an overwhelming $6.8 billion supported by a mix of imposed sales taxes, diesel and gas taxes, tolls, along with various grants and bonds.
In essence, a staggering 94 percent of LA Metro’s budget derives from compulsory contributions. On top of that, the pandemic provided unexpected financial relief…
The recent $1.9 trillion American Rescue Plan Act included $1.6 billion earmarked for LA Metro, in addition to the $861.9 million received through the CARES Act. So, what strategies is LA Metro considering to improve its financial situation?
In February, LA Metro staff provided an update on their Fareless System Initiative (FSI). The leading concept currently involves launching a fareless pilot program in 2022 to offer free rides to low-income riders and K-12 students.
LA Metro staff suggest that around 70 percent of current riders may qualify for this pilot program, touting increased ridership as a key benefit.
Clearly, LA Metro does not plan to recover fare losses through increased volume, but rather through alternate revenue sources.
Moreover, the agency is closely examining a federal bill named the Freedom to Move Act, which proposes a $5 billion competitive grant program for local agencies interested in implementing fareless systems.
Free transportation, framed as “freedom,” mirrors other “free” offerings, such as money, drugs, food, and education, capturing the spirit of the times. Yet, the idea that fareless transit equates to true freedom is fundamentally flawed.
The reality is that free metro rides have nothing to do with freedom. Politicians can label legislation as they wish, but they cannot alter the fact that there’s no such thing as a free lunch…
With Biden’s proposed $2.25 trillion American Jobs Plan, local entities will gain the capacity to replicate and expand LA Metro’s model of extreme capital consumption across the nation.
Strap in for the journey ahead!
Sincerely,
MN Gordon
for Economic Prism
Return from Coming to America: LA Metro’s Model of Extreme Capital Consumption to Economic Prism
