Madoff Government
The Atlanta streetcar illustrates how government policies improve on Bernie Madoff’s modus operandi
The saga of the Atlanta streetcar, recounted in many local newspaper articles, shows American government at its finest.
When service started in late 2014, disruptive construction had taken only 18 months longer than planned. Initially estimated to cost $72 million—$47 million came from a federal grant—it overran the budget by just $27 million. The 19th-century innovation had an immediate impact: making a 2.7-mile loop between Centennial Olympic Park and the King Historic District, it cut walking time along the route by 8 minutes. By not going overly fast, it also enabled visitors to take in a sociologically interesting sample of Atlanta’s boarded-up storefronts and derelict buildings.
Early estimates of operating costs proved fluid, rising from $1.7 million in 2010 to $3.2 million in 2013 to $4.8 million in early 2015, but actual expenses exceeded them only slightly, at $5.3 million for 2017. Fortunately, passenger fares offset a portion of that amount—about 4.5%. That represented an encouraging increase from 2015, when the introductory fare was $0—which, however, had the fringe benefit of inviting homeless people to enjoy the vehicles’ air conditioning.
While 900,000 people took the free ride in that first year, about 60% fewer recognized the appeal after fares rose rather drastically to $1. The 2,600 weekday ridership projected in the federal grant application might not have been realized, but multitudes continue to board daily—as many as 300 people in the last quarter of 2022 or about 20 per hour. Noting the dozen fellow passengers on a two-loop ride, one reporter trying out the service failed to appreciate the conveniently ample seating when he declared himself a “lonely boy.”
Somewhat unkindly, a state audit in 2016 described the still-young project as being in disarray, but one year later as many as 20 out of 66 critical problems had already been fixed. Safety issues no longer go unrecognized: when new ones cropped up in late 2022, cars were prudently taken out of service for four whole months. Thus far, no fatalities have been reported.
Some naysayers refer to “anemic” ridership, or claim streetcars are often “stuck in traffic,” or say that “There’s no reason to use it,” or dispute investment gains attributed to the service—most of which, to be sure, had been planned long before 2015. One of them even suggested that the city’s initial $25 million outlay by itself could have paid for 1.3 million round-trip taxi rides, though perhaps he pulled his punch by not including the total capital and long-term annual expenses, which would have sufficed to fund perpetual Uber service for more than the current ridership. But by stressing cost effectiveness, such critics underestimate the advantages of public over private enterprise.
Atlanta voters showed more faith when they approved a half-penny additional transportation tax to be used partly for operating the streetcar by MARTA, the local transit organization that took over its management in 2018. The secure funding should keep the subsidy rate per ride well above 1,000% (without considering the initial capital investment). Equally undeterred, Atlanta officials led by Mayor Andre Dickens now plan to extend the streetcar line by several miles to reach the popular Beltline park, promising to enhance its pleasant walking path and dense surrounding neighborhood by adding a double-track rail system and the sounds of streetcars in motion. When the line actually goes somewhere, those officials think, more riders are bound to show up, since they will finally have a reason to use the service. The cost of $230 million—to be funded locally, since the feds are said not to perceive the project’s merits for some reason—would seem a small price to pay.
For the moment, their ambitious move still faces some pesky opposition. As one Georgia Tech professor said of MARTA, “They have a turkey and now they’ll need to make it twice as long.” But overall, the streetcar appears to confirm the expectation of former Mayor Kasim Reed, the project’s key booster, that it “will be a model for other cities across the United States of America.”
What is that model?
It has several components.
To get a project like the streetcar off the ground, you must overpromise by lowballing costs, projecting high usage, and downplaying construction trouble. Anything less would dampen enthusiasm. It’s for the greater good.
Since it would be unrealistic to get actual riders to pay the full cost of the service, you ideally must find some free money, preferably from the feds. That may come with strings attached, but those tend not to be too tight. Increasing tax burdens or government debt should be no hindrance—this is an investment for the future.
Of course, you want your project to be inclusive. Unions, public officials, developers, construction companies, community organizers, PR firms, environmentalists—spread the wealth. The more, the merrier. A little patronage goes a long way.
You need to resist simplistic cost-benefit analysis that focuses on measuring results against projections or gauging expenses per ride or passenger. That’s a risky game. Against short-sighted accounting, stress the inherent virtue of public transit.
Don’t let crises, or any problem for that matter, go to waste. In transit, as a rule of thumb, use disappointing numbers to argue for more. Build it, build it bigger and more expensively, and they will come, eventually. If not, repeat.
At the risk of understating the achievements of American public officials, but in honor of the greatest con job in American history, let’s call this Madoff government. The point is not to view streetcars as a Madoff-style Ponzi scheme, but to highlight the necessary combination of mirage promises and crafty fraud. However, to give credit where it is due, the governmental con is more sophisticated.
Bernie Madoff ran a small and secretive “wealth management” outfit staffed mostly by amateurs working in shady offices. By comparison, government, even Atlanta government, is better organized—lots of professional staff plan ambitious plans, entire bureaucracies are devoted to spending money. The likes of Reed and Dickens easily match Madoff in the necessary salesman glibness. Certainly, the streetcar disarray and lack of expertise could have unraveled the project, but addressing just one third of major problems proved sufficient to keep it afloat. In government, sunk costs are benefits.
Madoff always had to worry about getting more suckers to “invest.” Of course, public officials also have to think about raising funds, but they have an easier time doing it. Federal taxpayers have no choice but to send their contributions to the IRS, and once Congress allocates the goodies, it is hard to follow the money downstream. To a city, federal largesse is free in more ways than one. Compared to Madoff’s crude pitch, local officials use more creative packaging of their tax schemes to extract investments from the marks. For example, they pitched streetcar funding as one item among other “potential” MARTA improvements in a referendum.
Madoff’s fraud was obvious long before he was arrested. He broke actual laws. By contrast, government officials who deliberately overpromise, predictably underdeliver, negligently manage, and wantonly waste, face few legal repercussions. Metaphorical fraud does not risk prison. Reed is a free man. So are the anonymous officials who signed off on the fraudulent federal grant. They make sure to have law on their side.
Madoff’s ‘investors’ had to suspend disbelief. As in any con, the willing collusion of the marks was essential to his success. So it is for government projects. But by contrast with Madoff’s clients, who carefully monitored their returns, phony though they were, public officials often have more pliable targets, such as voters who pay little attention or take the mirage for reality. How many Atlantans could adequately estimate streetcar ridership or tax expense per passenger? In some blue jurisdictions, the marks are especially willing, for example because ideology overrides analysis. Even persistent problems, like those of the streetcar, need not stand in the way. In fact, on the grounds that we just haven’t tried hard enough, failure can be a selling point.
Madoff gambled boldly, though he must have known that his scheme would collapse in the end. As the streetcar story shows, Atlanta officials are at least as bold. As nearly empty streetcars creak through their loop at high cost, they double down on the con in the true Madoff spirit. But once again, they do it better than Bernie: whereas he had to hide his actual troubles, Atlanta leaders brazenly use theirs to push for an extension. They have more guts.
Madoff caused about $18 billion in actual investor losses. By itself, Atlanta did not come close to that amount. But as Kasim Reed correctly said, the streetcar serves as a model. There are many projects like it—witness the travails of high-speed rail in California. In fact, at all levels and in many areas—from state pensions to Covid to climate change to entitlements—American government makes promises that cannot come true and pursues policies on false pretenses at enormous expense. Improving on Madoff’s improvised M.O., it does so routinely and repeatedly. In sheer waste, Madoff government beats Madoff.