A New "American System"?

Los Angeles -- The City of the Angels may be about to give birth to a new version of the "American System" -- the national-state-local transportation partnership that, for over a hundred years, helped propel America into global economic leadership.

In 1824, Henry Clay and the Whig party proposed the first American System. The federal government, using revenues on tariffs and from the sale of public resources, would fund transportation infrastructure -- roads, canals, harbors, railroads -- to link different regions of the country. Clay's vision of major federal investment as the key to improved transportation was finally realized only during Abraham's Lincoln's administration. But from 1860 until 1973, this partnership-based American System was the foundation of America global leadership. It's culmination was the Interstate Highway System.

By 1973, it was clear that a transportation system dependent on oil could no longer be "made in America." OPEC laid down the core challenge -- move beyond oil with a new version of the American System, or keep importing oil at the cost of exporting jobs and technological leadership. America blinked. Or perhaps it would be more accurate to say that the oil industry kept blinders on our leadership. Today we send a billion dollars a day out of our economy and into those of Venezuela, the Persian Gulf, Iran, and Nigeria. That's about three and a half million jobs a year. Not only is our oil imported but so are most of the vehicles we use to burn it. New transportation technologies, like advanced batteries, are emerging not from American laboratories but from places like China and Europe.

The federal deficit would seem to make a second version of the American System (one designed to create a made-in-America transportation system that's no longer dependent on oil) a fiscal impossibility. But Los Angeles has come up with a new formula --one that seems to offer the hope that perhaps, after all, America can rise to the challenge of moving Beyond Oil.

L.A. voters have approved a sales tax to pay for twelve new major transit projects, which are planned to be built over 30 years. But now the city, led by Major Antonio Villaraigosa, has proposed to build all twelve projects in ten years instead.  Called "30-10," this proposal will dramatically lower costs, because construction costs currently are very low. It will accelerate the creation of 167,000 new jobs in this region alone. Building more transit all at once will also increase the total number of jobs created, because if the volume of projects is big enough then the supply chain -- equipment manufacturers -- will build local factories. That's why China has been jumping ahead.

The L.A. sales tax won't generate enough revenue to pay for this accelerated schedule. So Villaraigosa is asking the federal government to loan the city the shortfall -- loans secured by the sales tax -- further leveraging the fact that the federal government can borrow money cheaply right now. So this is the perfect response to our seeming economic dilemma -- it generates jobs now, but helps pay down the federal deficit later.

But why do this only in Los Angeles? Cities all over the country in the past five years have agreed to tax themselves to build new transit projects. But in many cases they lack the cash flow to pay for the projects quickly. Denver, for example, just decided against another sales tax increase and is slowing down its transit expansion.  But federal loans could bridge the gap without increasing either the sales tax or the federal deficit. And cities like St. Louis, Chicago, Salt Lake City, Phoenix, and Seattle all have opportunities to build a new kind of partnership with the federal government -- one in which the feds become the banker, but local communities pay for projects that will benefit them. This, after all, was how Franklin Roosevelt solved one of the major failures of the first American system -- electrifying rural America. Rural Americans paid for their new REA electrical systems -- but the federal government made sure they had the credit they needed to finance the upfront costs.

It will be ironic if the city that gave us the freeway is the same one that shows us the path toward a much-needed new American Plan -- one that gets us Beyond Oil.