Bailout

Annals of public-private dysfunction, Traffic.com edition

By Felix Salmon

Eric Lipton has an excellent summary of a scathing government audit of a scheme to improve the quality of the information that states and cities have about traffic congestion. (The report isn’t meant to be online until later this afternoon, but I downloaded it from the inspector general’s website with no problem, and have put it here.)

What seems to have happened is that a small group of lawmakers, all of whom received campaign contributions from a financially-troubled company called Traffic.com (a subsidiary of Navteq), pressured the Federal Highway Administration to give sweetheart deals to the company which involved less money for the public and much less benefit for people stuck in traffic.

Traffic congestion is estimated to cost Americans $78 billion a year, and a good way of bringing that number down is to be able to inform drivers in real time where bottlenecks are. To that end, the government paid Traffic.com the full cost of installing sensors along highways in 27 cities. But then, astonishingly, the cities in question weren’t allowed to share that information with the public:

The Massachusetts Highway Department, the report says, was formally prohibited from using the data to offer highway message board estimates to Boston-area commuters on traffic delays. Local and state governments were also prohibited from posting the traffic information on government Internet sites or traffic information telephone hotlines, unless they paid Traffic.com a fee for the data.

The inspector-general doesn’t attempt to calculate the amount of money lost to congestion which might have been saved had Traffic.com’s information been more freely available. But it does show how Traffic.com managed to get around the requirements to share its revenues with the states:

Although the Federal task orders specified that the public partners would share TTID revenue, FHWA allowed the service provider to reserve the public partners? shares for system operations or capital improvements related to the service provider?s assets. The certified public accounting firm?s 2002 report quotes the service provider?s financial statements that said, ?[the shared revenue] will be reinvested in the Company for upgrades to the digital traffic systems.?

In English, Traffic.com was basically saying “yes, we owe you this money, but we’ll just plough it back into our own privately-owned company instead, I’m sure you’ll be OK with that”.

Was the highways administration indeed OK with such shenanigans? The general message from the report is that the bureaucrats knew that the deal was a bad one, but that they didn’t want to pick fights with powerful lawmakers.

The FHWA Deputy Executive Director?s April 2001 memo stated, ?. . . there may be less expensive ways of acquiring the data. We believe that competition will allow the marketplace to sort this out and result in the greatest return on the public investment in these data.? However, FHWA referred us to at least nine letters from members of Congress that generally directed the Department and FHWA to use the ITOP accelerated procurement process, rather than full and open competition, to select a service provider.

Members of Congress might not be authorized to direct the Federal Highways Administration on such matters, but that doesn’t stop them from trying — or the FHWA from complying. This is one reason why all public-private partnerships should be negotiated through an arm’s-length agency which is insulated as much as possible from Congress.

The FHWA, in its response to the report, is a little sheepish, but also proves its mastery of the art of producing incomprehensible gobbledygook:

We do appreciate the OIG?s recognition that FHWA?s implementation of TTID necessarily balanced statutory requirements in order to achieve the legislative objective of providing private technology commercialization initiatives to generate revenues.

Insofar as this means anything at all, it’s wrong. The primary legislative objective here wasn’t to generate revenues for Traffic.com or anybody else: it was to reduce congestion. It would be great if both the FHWA and the OIG kept their eyes more on that particular prize. Although I suspect that this whole scheme is becoming increasingly outdated, and that over time aggregated information from GPS-enabled phones and other devices is going to provide much better real-time congestion data than expensively-embedded road sensors.

Full post as published by Macroprudential on December 14, 2009 (boomark / email).