Innovation Briefs Vol. 20, No. 3 www.innobriefs.com February 25, 2009 The Prospects for a NationalMessage 1 of 1 , Feb 26, 2009View Source
Vol. 20, No. 3
February 25, 2009
The Prospects for a National Transportation Infrastructure Agenda
"Infrastructure is the name of the game." These words, by Sen. Barbara Boxer speaking at the American Gateways Coalition meeting on February 13, summarized succinctly the hopes and expectations of the transportation community. The inclusion of $54 billion for roads, bridges, transit, Amtrak and high-speed rail in the economic recovery package has raised the hopes of the transportation advocates that the nation at last is becoming serious about doing something about its aging infrastructure. And indeed, interest in infrastructure has soared in recent months. Infrastructure has been the focus of a national coalition (Building America’s Future) formed by Governors Rendell and Schwarzenegger and Mayor Bloomberg. It has been a subject of two conferences at the Brookings Institution. It was the main theme and primary topic of discussion at the just-concluded Winter Meeting of the National Governors Association (NGA) and AASHTO’s annual Washington Briefing. The spotlight on infrastructure will culminate with a February 26 release of the long-awaited report of the congressionally-chartered National Surface Transportation Infrastructure Financing Commission. In addition, no less than six privately-sponsored infrastructure-oriented conferences are scheduled in the months ahead, testifying to the keen interest of the private sector in participating in what it perceives as a potential infrastructure bonanza (for a list of the meetings, see below)
What follows is a critical assessment of the prospects for a bold new national infrastructure agenda. Our findings are based in part on the discussions and presentations at the above-mentioned meetings. We heard the prospects for an infrastructure agenda discussed by influential advocates such as Governors Ed Rendell and Arnold Schwarzenegger, and Felix Rohatyn. We also heard from congressional leaders — Sen. Barbara Boxer (D-CA) chairman of the Senate Environment and Public Works Committee, Rep. James Oberstar (D-MN) and John Mica (R-FL), respectively chairman and ranking member of the House Transportation and Infrastructure Committee, and John Olver, chairman of the House Appropriations Subcommittee on Transportation. Our assessment also has drawn upon presentations and informal conversations with congressional staff, federal and state DOT officials, representatives of trade associations and interest groups, and colleagues in the transportation community. Lastly, we have benefitted from monitoring closely the deliberations of the National Transportation Financing Commission whose report, we believe, represents a landmark effort to assess the options for future funding and financing of transportation infrastructure (the Commission’s report will be the subject of a separate NewsBrief following the report’s release on February 26.)
The prospects for a national infrastructure agenda depend on the resolution of a number of discrete issues. Accordingly, we have organized our assessment around those issues.
There is a strong consensus that we need a "21st Century Infrastructure Vision": a national infrastructure strategy and a long-term commitment to its implementation.
The need for a national infrastructure strategy that focuses on clear national goals, requires specific and concrete outcomes, and rewards performance, has been a constant and recurrent theme in the recent infrastructure debate. It has been repeatedly stressed by experts at the Brookings symposia, by the governors at the the NGA Winter meeting and by speakers at AASHTO’s Washington Briefing. Governor Rendell spoke for many participants when he observed that the stimulus bill, while helpful in creating jobs, is not intended to address the long-range infrastructure needs. "We must not only maintain our infrastructure system but also enhance and improve it," Rendell said during the "National Discussion on Infrastructure" held as part of the NGA meeting. The recovery bill, because of its "use-it-or-lose-it" emphasis on short-term job creation, is simply not capable of stimulating truly transformative projects or investments, concluded the governors at the NGA financing session.
The impending authorization of the federal surface transportation program offers a logical vehicle for defining and enacting a strategic infrastructure agenda. An outline of such an agenda can already be discerned. One of its components will be the preservation and enhancement of the existing Interstate Highway system. Another element will be the establishment of a national network of multimodal freight corridors. A third component, as envisioned by Chairman Oberstar, could be a metropolitan mobility program --- a series of "megaprojects" intended to alleviate congestion in the nation's largest metropolitan areas. The final component will be the already funded high-speed intercity passenger rail program. Together, they would provide a foundation and a blueprint for the comprehensive renewal of the nation's transportation infrastructure.
Funding remains an unresolved challenge
The big question yet to be answered is how to fund such an ambitious long-term infrastructure program. The prospect for enacting a big gas tax increase to bridge the gap between the projected Highway Trust Fund revenue and anticipated infrastructure funding needs is slim. There is no enthusiasm in Congress for a big tax increase, several congressional sources told us. A senior Senate staff member was more specific: "You don’t have the votes in the Senate to pass a fuel tax increase in a recession," he said. All signs suggest that President Obama is not willing to spend political capital to champion a tax increase in the current financial climate, especially a tax that would fall disproportionately on lower income drivers. Said Transportation Secretary Ray LaHood at the AASHTO luncheon on February 24: "In a recession the last thing we want is to raise taxes. I am not for it and the Administration is not for it. There are ways of thinking creatively without raising taxes." Even confirmed gas tax advocates such as Rep. Jim Oberstar, confess that the fuel tax, while remaining in his words "the cornerstone of federal transportation system financing," will not suffice to bridge the widening fiscal gap and must be supplemented by other revenue streams.
A Hybrid Funding Approach?
What we could end up with in the next authorization, therefore, is a menu of financing tools and funding sources. Supplementing the Highway Trust Fund revenue could be expanded TIFIA assistance for highway/bridge infrastructure (see below), investment tax credits for new rail freight capacity, dedicated freight-related fees for a freight transportation program and stimulus money for a high-speed rail program. To enhance state-level capacity to fund infrastructure, Congress could further authorize incentives for tolling and public-private partnerships. But any such speculation must be tempered by a caveat that no one has yet come up with a clear answer as to where the money for an ambitious long term infrastructure program would come from. As one congressional aide put it, enacting the next transportation legislation will be "a wrenching effort."
The prospects for a National Infrastructure Bank remain uncertain.
A National Infrastructure Bank (NIB) and/or a federal capital budget have been prominently mentioned as a source of capital for major infrastructure projects of regional or national significance. Both concepts have been vigorously championed by infrastructure advocates, notably Governor Rendell, Sen. Dodd (D-CT), chairman of the Senate Banking Committee (and author of the Dodd-Hagel bill NIB bill), and Felix Rohatyn. Support for a National Infrastructure Bank has been reaffirmed by President Obama in a February 18 interview with newspaper reporters. But the President acknowledged that "there’s probably going to be some bipartisan congressional resistance from legislators who are being understandably protective about their ability to influence infrastructure investment decisions." This may have been an understatement. While a proposal to de-politicize the process of making major investment decisions by taking it out of the hand of Congress appears attractive to some, it is anathema to many influential legislators of both parties such as Sen. Baucus, Chairman of the Senate Finance Committee. The notion already has been shot down once before, when the National Transportation Policy Commission recommended the creation of an independent presidentially-appointed commission (NASTRAC) to identify, select and fund major infrastructure projects. Rep. John Mica’s proposal for a National Strategic Infrastructure Plan has a better chance of gaining support on Capitol Hill by building upon state and metropolitan planning process to identify candidate infrastructure projects and vesting the ultimate project selection and funding authority in the hands of Congress.
A possible source of infrastructure capital might be an already existing financing tool, the Transportation Infrastructure Finance and Innovation Act (TIFIA).
The TIFIA program, enacted in 1998, provides federal credit assistance to major transportation projects of regional or national significance. Eligible projects must generate a dedicated stream of revenue. The program is designed to fill funding gaps and leverage private co-investment by providing supplemental and subordinate capital in the form of direct loans, loan guarantees and lines of credit.
Title XII of the stimulus bill includes $1.5 billion for discretionary surface transportation grants, of which $200 million may be allocated for additional budget authority to support the TIFIA credit program. With the current TIFIA funds completely committed, these additional monies would enable the TIFIA program to infuse additional capital into public infrastructure.
According to FHWA data, each dollar of TIFIA budget authority supports at least $8 of Federal credit assistance. Assuming the maximum TIFIA contribution of 33 percent of a project's eligible costs, each dollar of TIFIA budget authority represents at least $24 in infrastructure investment. A $200 million allocation to TIFIA would, therefore, represent at least $4.8 billion worth in additional infrastructure investment capital.
The VMT Fee Brouhaha
A tax on vehicle-miles traveled (VMT) has been mentioned by Transportation Secretary Ray LaHood as "one of the things that we need to think about" in contemplating future funding for transportation infrastructure. Many transportation experts and economists share the Secretary’s opinion, and the National Financing Commission is expected to strongly endorse the idea in its report. It came as something of a surprise, therefore, when White House press secretary Robert Gibbs brusquely dismissed the idea. VMT fees, he said, "is not and will not be the policy of the Obama administration."
The tide of opinion, however, is running strongly in favor of the Secretary (see, for example, the current National Journal’s Transportation blog at http://transportation.nationaljournal.com) As a February 23 editorial in the Washington Post pointed out, a tax on vehicle miles traveled is thought by many transportation experts and economists as "the most promising, fairest and environmentally responsible replacement for the gas tax.... You’d think this young administration would be encouraging an open exchange of innovative ideas" rather than dismissing them peremptorily out of hand. The White House Press Secretary also has earned a rebuke from Rep. Jim Oberstar. "I’ve got news for you," Oberstar said in remarks at the AASHTO Washington Briefing, "transportation policy is not going to be written in the press office of the White House. It’s going to be written in Congress."
The idea of replacing the gas tax with a VMT fee is also gaining ground in several states, notably in Oregon (where a VMT fee has been the subject of a pilot program), Wisconsin, Massachusetts, North Carolina and Idaho. Underlying these efforts is growing belief and evidence that time for the gas tax is running out. Last year the Highway Trust Fund had to be rescued from insolvency with an $8 billion infusion from the general fund. It is possible that the Fund may require additional infusion of funds as early as this fall.
According to the Financing Commission, moving to a national VMT fee will take at least a decade. But it is not too early to initiate the process of education and transition as part of the next surface transportation authorization. Kudos to the Secretary for having the courage and imagination to think "outside the box."
A National Freight Transportation System
With virtual unanimity the transportation community believes that the nation is on the verge of a freight transportation capacity crisis. Three comprehensive proposals to address the impending freight mobility challenge are vying for congressional attention: the Critical Commerce Corridors initiative of the American Road and Transportation Builders Association (ARTBA); the American Gateways Coalition’s National Strategic Freight Mobility Program and Trust Fund (Freight-21); and AASHTO’s Action Agenda for Freight. All three initiatives share many features in common. These include establishment of a National Multimodal Freight Program; definition of a national network of freight corridors and facilities (road, RR, waterways, intermodal connectors); a dedicated source of funding to finance freight-related improvements and capacity expansion, to be financed at least partly with freight-related charges; close partnership with the trucking and shipping industry; and creation of a single focus for multi-modal freight in the U.S. Department of Transportation. Most of these features are likely to find their way into the authorization legislation. A national freight transportation plan and program is thus likely to become an early and key component of a national infrastructure agenda.
Long-term Commitment to Expanding High-Speed Rail Service
In what may become one of the Obama Administration’s signature initiatives, the high-speed rail program got off to an impressive start with a $8 billion appropriation in the stimulus bill. The administration plans to ask for $1 billion more in each of the next five years. The rail program is the most tangible gesture so far to develop new infrastructure (as opposed to fixing and managing existing infrastructure). It also is an initiative that is most likely to capture the public imagination. "High-speed rail is the infrastructure bank," said Rahm Emanuel, suggesting that the administration’s plan for capital investment in infrastructure will be focused heavily on creating a national network of high-speed rail lines, much as the Eisenhower administration focused on creating the intestate highway network.
Secretary LaHood has submitted recommendations to the White House outlining at least six corridors for possible investment in high-speed train service. Among them are likely to be the California LA-SF corridor, the Northeast Corridor, the Chicago Hub Network, the NC/Southeast Corridor, the Texas/South Central Corridor and the Florida Corridor
Admittedly, there is more to a national infrastructure agenda than high-speed intercity rail service. But if the $9 billion grant should mark the beginning of a concerted and sustained national program of tying the nation with a network of high-speed rail lines, this could become President Obama’s most lasting legacy.
Will the Surface Transportation Program be Enacted on Schedule?
Much as Chairman James Oberstar and Rep. Mica would like to push the reauthorization process "full steam ahead," (they have promised to have a draft bill ready by June), some observers are cautioning against excessive optimism. The stimulus bill, they suggest, will inevitably affect the urgency with which Congress perceives the need to act by the October 1 deadline. The transportation funds in the stimulus bill represent a full year’s appropriation for the surface transportation program at current funding levels, thus relieving the pressure on lawmakers to act during the current session of Congress. Moreover, it was pointed out, States will be busy "digesting" the stimulus money and may not be in a position to obligate additional funds immediately. Any delays in spending the "shovel-ready" money contained in the stimulus package will be used by critics to argue that states are not equipped to absorb any higher levels of funding. (Note: when the FY 2009 omnibus appropriations and the stimulus funds are added together, the total funds made available to U.S. DOT in FY 2009 for surface transportation will amount to a staggering $101 billion in spending authority —nearly twice as much as the actual FY 2008 appropriation according to Transportation Weekly data ($53 billion in FY 09 appropriations and $48 billion in stimulus funds)
The authorization process may also be slowed down by delays in the appointment of senior level U.S. DOT officials. The Administration’s increasingly rigorous vetting process is complicating Transportation Secretary LaHood’s team-building efforts at a time when his team should already be hard at work formulating the administration’s transportation authorization proposal (So far only two senior DOT appointments appear to be beyond the stage of a rumor: Jane Garvey as Deputy Secretary and Roy Kienitz as Undersecretary for Policy.) Further delays may occur as a result of a crowded congressional legislative calendar, including a possible preemption of the Senate early fall calendar by a climate change bill.
In the event a multi-year authorization were to be delayed, an extension of the existing law would need to be considered. Postponing enactment of a multi-year authorization by one year might not be such a bad idea for it would give the Administration and Congress some breathing space to develop a truly thoughtful legislation and an opportunity to generate public support for a major new infrastructure initiative. "I would much rather see a one-year delay and do it right, than rush the process and end up with a poorly thought out bill," one state official told us.
Privately sponsored infrastructure conferences
Transportation Infrastructure in the Future, organized by Japan International Transport Institute, Washington D.C., March 3
Rebuilding America’s Infrastructure, organized by Iona College, Washington, DC March 4
Fifth Annual Public-Private Partnerships, organized by City & Financial Conferences (U.K.), Washington D.C., March 12-13
Infrastructure Investment World, organized by Terrapin Conferences (U.K.), New York City, April 27-30
Opportunities in Transportation Infrastructure, organized by Infocast, Washington D.C. June 4-5
North America Strategic Infrastructure Forum, organized by CG-LA Infrastructure, Washington D.C. September 22-24
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