The Faulkner County Quorum Court continues to consider the creation of a Regional Intermodal Transportation Authority (RITA) for Faulkner, Conway and Perry Counties. The purpose of RITA would be to expand surface, air and water transportation facilities in the three Counties. The Authority would have a Board of Directors appointed by the County Judge from each County. The Authority would have the usual broad powers to enter into contracts, borrow money (but not tax), condemn property through eminent domain, and a long list of other related powers.
When the Quorum Court first began consideration of a RITA, assertions were made that a RITA was a new government agency that had the potential to expand employment and promote economic development in the three Counties. Promoters claimed it would not cost the County taxpayers anything, and that it would be funded by federal and state, and private grants.
Asserting that a RITA might create jobs at no cost to the County’s taxpayers is a wonderful claim, but it side-steps the question “Is RITA in the public interest?” This question must be addressed first and answered ‘yes’ before proceeding further.
An economist addresses the ‘public interest’ question by looking at how private businesses make investment decisions. The private sector estimates the construction cost and the net revenues expected during the economic life of the project. The expected net revenues from the sale of the goods and services in the future will exceed the cost. The analyst calculates the discount rate (compound interest in reverse) that reduces the future revenues to current dollars, because the cost of the project is in current dollars. If the discount rate on a project exceeds the business’ cost of money, the stockholders will benefit if the project is undertaken.
When addressing ‘The Public Interest,’ the economist uses the similar net benefits and costs by rearranging the terms into the ratio of the net benefits divided by the costs. If the ratio exceeds one, the public interest is promoted, because the benefits exceed the costs.
Proponents of RITA assert that one possible activity is to construct another railroad bridge crossing the Arkansas River. Since there are railroad bridges at Little Rock and Pine Bluff and bridge for a tourist train in Ft. Smith, what is the probability of another bridge? Most would say that given the actual and potential railroad traffic the potential is zero. So, the net benefits associated with another bridge crossing the Arkansas River is zero.
Proponents assert there is a possibility of a liquefied natural gas compressor station. Examining the gas production from the Fayetteville shale formation, two characteristics loom large. First, it is less expensive to transport natural gas by pipeline to the Gulf Coast, compress it there, and load it directly into ocean going vessels than it is to handle compressed gas twice — once here and a second time at the Gulf.
Second, most of our local shale gas is already sold under long-term contracts. Any unsold gas is insufficient to supply the needs of a compressor station in one of the three Counties. For these two reasons the probability of a gas compressor station at a RITA location is very close to or zero. There are no expected benefits from such a facility.
The net revenues of all the other potential activities of RITA must include the probability of their occurrence. Most are quite low and some are zero. So, all of the potential new facilities at a RITA location have their total net benefits close to zero.
There are two different costs associated with the establishment of a RITA. The first is manpower and facilities. At a minimum, a director, an administrative assistant, and at least one other assistant, along with rent, office equipment, vehicle(s) and other operational expenses would cost somewhere close to $300,000 per year. These annual costs would accumulate each year and compounded at 3-4 percent per year.
The second cost is associated with co-payments required for most state and federal grants. An experienced engineer reminded the Quorum Court at its last meeting that most federal grants require a local contribution of 20 percent with the likelihood that the local contributions would increase to 50 percent.
Finally, the source of the initial funding must be addressed. The proponents claim the Faulkner County taxpayers will not be asked to contribute. The RITA in Fort Smith has asked the member counties to provide funds. Faulkner County has to repay a $5 million loan used to finance the construction of the new Justice Building during the next five years. Outstanding salary adjustments of nearly $300,000 per year are needed to increase some employee salaries to the average of other similar counties in the State. Lastly, Faulkner County continues to increase in population necessitating an outlook for additional funding from County revenues.
The prospect for any estimate of the benefit to cost ratio exceeding one is frightfully dim for any time in the foreseeable future. The proponents of RITA would be best advised to return to the Quorum Court sometime in the future with their powder dry by proving with a numerical analysis that a RITA is in ‘The Public Interest.’
(The author is an emeritus professor of economics at UALR and a Justice of the Peace for District 7.)