Introduction

In the name of "economic development," Florida decision-makers continue land-use and transportation policies that increase urban sprawl and worsen our over-reliance on single-occupant vehicle transportation, to the neglect of other modes of transportation. This means more miles traveled in personal vehicles, more gasoline and oil purchased, more (and bigger) personal vehicles purchased, and more parking lots and lanes of pavement built. It means fewer transportation choices to walk, bicycle or ride public transit to work and other destinations. This lack of choice is a special burden for poor, elderly, disabled and other residents unable to drive. It also increases traffic congestion that means less efficient movement of tourists, freight, and business travelers.

Most important, it means that Florida consumers increasingly spend more on vehicles and fuels produced elsewhere and less on goods produced here, principally housing – and that this harms Florida’s economic health and competitiveness in the global marketplace.

Governor Jeb Bush’s 2000-2001 transportation budget, with "Build More Roads" as its slogan, proposes $4.2 billion in spending that would actually create even greater transportation inefficiencies, more sprawl and a stronger drag on our economic competitiveness. Ironically, Florida’s home building industry supports such policies of state and local government that actually reduce consumer spending for their products.

The Direct Consumer Costs of the "Build More Roads" Approach

Florida policy-makers show little understanding of the economic consequences of transportation and how to make rational economic choices in transportation investments. What passes for transportation economics rarely goes beyond the usual compilation of gasoline consumption, fuel tax revenues, time lost in stalled traffic, and a few other over-worked indicators. For example, the Florida Transportation Commission measures transportation efficiency solely by how effectively Florida Department of Transportation (FDOT) officials meet cost and schedule targets in major transportation programs.

These can be important indicators of costs, but they neglect the larger economic consequences of current trends, especially as they affect what we consume and produce and export (to other states, as well as nations), the value added by Florida-based businesses and their workers, and the impact on personal earned incomes and net worths.

We can begin with the reality that today’s transportation system relies almost exclusively on automobiles, and that this over-reliance will increase under current trends. Some of the measurable economic impacts of this are:

Annual gasoline consumption in Florida is about 7.5 billion gallons, at great expense to consumers. The roughly $0.55 increase in retail gasoline prices per gallon in Florida since early 1999 alone means an annual loss of $4.125 billion in purchasing power that residents and visitors can spend on other goods and services here in 2000.

Almost none of the value added in consumer purchases of gasoline happens in our state. Crude oil for gasoline is produced and refined somewhere else. Service stations are mostly owned by major oil companies based somewhere else. Florida jobs involved in gasoline sales are low wage. Gasoline taxes are a fixed amount per gallon, not a percentage, so that none of the $4.125 billion increase in gasoline prices produces additional gas tax revenues in Florida.

The number of passenger cars and trucks registered in Florida increased by about 400,000 from 1996 to 1998. The typical two-car family is fast becoming a three-car one. The throw-weight and cost of personal vehicles is also increasing. The annual consumer costs to own and operate a large car or sport utility vehicle in 1998 were $9,441 and $9,223 respectively, according to the American Automobile Association.

As with gasoline, little of the value added in buying and maintaining a car or truck happens in Florida. None is manufactured here. Neither are almost all auto parts. Auto dealerships and repair businesses are increasingly owned either by national chains or the manufacturers themselves.

Because so little of that personal vehicle spending remains in Florida, it is a virtual zero-sum proposition. What Florida consumers spend on personal vehicle travel is that much less that they can spend on anything else. And less consumer spending on non-transportation goods and services hits Florida home builders especially hard.

In other words, Florida’s transportation system is a boon to the producers of personal vehicles and fuel located somewhere else than Florida – and a major drain on our balance of payments with other states and nations.

National Patterns of Consumer Spending on Shelter versus Transportation

Florida is typical of Sunbelt states, where urban sprawl has had its greatest impact. But Florida stands in contrast to the Northeast, where urban areas are more compact and people are less reliant on single-occupant vehicle transportation. Consider these data from Consumer Expenditures in 1998 by the U.S. Bureau of Labor Statistics:

The typical household in the Northeast in 1998 spent $1,003 more on shelter, defined as the cost of buying or renting a home, than on transportation – while the typical household in the South spent $1,315 more on transportation than on housing.

In the Northeast, the average household in 1998 spent $7,789 (21.4 percent of its total consumer spending) on shelter. It spent $6,186 (17.4 percent of its total consumer spending) on transportation.

In the South, the average household in 1998 spent $5,232 (16.1 percent of its total consumer spending) on shelter. It spent $6,547 (20.1 percent of its total consumer spending) on transportation.

Selected metropolitan areas show similar patterns, linked to their degree of urban sprawl and availability of public transit.

In sprawling Tampa, the average household in 1998 spent $6,123 (18.5 percent of its total consumer spending) on transportation – and $5,761 (17.4 percent of its total consumer spending) on shelter – or $362 more on transportation than on shelter.

In Atlanta, with probably the nation’s worst urban sprawl problem, the average household in 1998 spent $8,787 (22.4 percent of its total consumer spending) on transportation – and $7,716 (19.6 percent of its total consumer spending) on shelter – or $1,071 more on transportation than on shelter.

In Philadelphia, with a more compact urban area and better public transit, the average household in 1998 spent $9,428 (24.7 percent of its total consumer spending) on shelter – and $7,159 (18.8 percent of its total consumer spending) on transportation – or $2,269 more on shelter than on transportation.

In Chicago, the average household in 1998 spent $7,754 (21.1 percent of its total consumer spending) on shelter – and $5,859 (16.1 percent of its total consumer spending) on transportation – or $1,895 more on shelter than on transportation.

The difference between Atlanta and Philadelphia and Chicago are instructive because all three had about the same amount of consumer spending by an average household – $39,315, $38,131 and $36,497 respectively – but sharply different levels of spending on transportation and shelter.

The Potential Benefits for Florida Businesses, Primarily Home Builders

Transportation investments that reduce our over-reliance on single-occupant vehicle travel and enable more compact urban development would re-allocate consumer spending for goods and services that have a much higher Florida value-added content and involve higher-paying jobs, primarily purchase of a home.

For example, a family with transportation choices that allow owning one fewer large car or sports utility vehicle has $9,441 or $9,223 more to spend annually on other goods and services. If that money goes to purchase a house or apartment, the family could pay additional mortgage payments in the same annual amounts and thus afford a house costing $105,000 more than otherwise (assuming an 8 percent, 30-year fixed-rate mortgage).

Fannie Mae has already recognized this tradeoff and begun offering "Location Efficient Mortgages" in a $100 million pilot program in Seattle, Chicago, Los Angeles and San Francisco. Using a formula that includes availability of public transit and number of stores within walking distance in urban neighborhoods, it lets home buyers borrow more than they could under conventional borrowers’ income requirements. Business Week called it the "Close-to-the-Bus Mortgage."

A study of spending patterns in three major cities found that residents in neighborhoods close to work, schools, shops, entertainment, other destinations and public transit had about $7,000 more a year more to spend on non-transportation goods and services.

Seattle’s Continental Savings Bank has determined that a family with a monthly income of $5,000 seeking to buy a home in such neighborhoods can thus qualify for a $207,583 home instead of a $166,955 home.

Transportation policies that, for example, produce a shift of $1 billion a year of consumer spending from transportation to housing would significantly benefit Florida’s economy, and not just the housing industry.

Investments in Housing versus Consumption Spending on Vehicles

More consumer spending on home purchases and less on vehicle travel would directly benefit Florida’s home building and related industries and their workers – but have even greater indirect economic benefits.

More consumer spending on home purchases would create more wealth and higher financial net worths for Florida residents because of this reality: A home is an asset of stable or appreciating value, while a personal vehicle depreciates to virtual worthlessness in a dozen years and gasoline literally burns up.

Higher net worths of Florida residents would enable them in future years to afford higher consumer spending and investments in other areas. For example, the single greatest source of start-up capital for beginning entrepreneurs is their home equity.

State and local governments would benefit greatly from new investments in housing by increasing property tax revenues, while expenses for roads would increase at a lower rate.

Fewer personal vehicles on Florida roads would also increase availability of road lanes for more efficient freight hauling, one of our state’s most pressing needs, as well as more efficient movement of tourists and business travelers.

Federal Income Tax Policies Subsidize Home Purchase

Federal income tax policies provide subsidies for both home purchases and property tax payments that benefit homeowners, home builders and state and local governments.

For example, a deduction of $10,000 for home interest paid by a Florida resident with a marginal tax rate of 28 percent produces, in effect, a $2,800 federal subsidy for that resident’s home purchase in one year and corresponding amounts in future years.

Likewise, $2,000 in property taxes paid by that resident produces a federal subsidy of $560 every year.

However, because none of the auto loan interest or sales tax paid on a personal vehicle purchase, or for fuel excise taxes is deductible from federal income taxes, no similar federal subsidy exists for personal vehicle travel.

Conclusion

Transportation policy makers have long rationalized the huge environmental and social costs of our over-reliance on single-occupant vehicle and sprawl as necessary for "economic development." Home builders have demanded these policies, with great success, especially in Sunbelt states like Florida, even though they limit consumer spending on housing and thus depress sales by the housing industry.

Yet it is increasingly clear that such policies are economically self-defeating – that they encourage unproductive consumption and discourage productive investments – that they lead to less wealth for residents, state and local governments, and business, especially home builders – and ultimately, a state less competitive in the global economy. Is it possible that the lower housing costs we in Florida cite as an economic competitive advantage is really a measure of how much less our consumers can spend on housing after spending so much more on transportation?

Further research is needed, but the early signs are that our current and proposed personal and public transportation investments will make us poorer and less competitive, and that we ignore this impact at our peril.