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A Credible Funding Solution for Transportation

Posted by Ken Orski on Tuesday, April 16th, 2013

Innovation NewsBriefs
Vol. 24, No. 6

As we have argued in recent columns, no one disputes President Obama’s and the infrastructure advocates’ claim that some of America’s transportation facilities, are reaching the limit of their useful life and need reconstruction. Nor does any one disagree about the need to expand infrastructure to meet the needs of a growing population. But fiscal conservatives among infrastructure advocates (and we count ourselves among them) contend that this does not rise to the level of a national crisis requiring a massive $50 billion federal crash program as proposed in the President’s budget message, or the expenditure of more than $100 billion per year as recommended by ASCE.

Instead, we pointed out — and many other voices have since concurred— that the challenge can be met if each state did its part  to incrementally bring up its transportation facilities to a “state of good repair” using its own gas tax revenues and its formula allocation of the Highway Trust fund dollars. As numerous news dispatches attest, that’s precisely what is happening (see below). A large number of states are not waiting for the federal government to come to the rescue. They are using their own resources and raising additional revenue to pay for reconstruction of their aging facilities and preservation of their transportation systems in good working condition. “Governors and state legislatures realize that the level of federal assistance beyond 2014 is highly uncertain and they are acting on a credible assumption that federal funding will remain at current levels or may even be cut back,” an association executive who is familiar with the thinking of senior-level state officials, told us.

What about  large-scale reconstruction and capacity-expansion projects that require billions of dollars—transportation  investments that are beyond the states’  fiscal capacity to fund on a pay-as-you-go basis? Those investments,  provided they are credit-worthy (i.e. are revenue producing or backed by dedicated tax revenue),  will be mostly financed through long-term credit instruments  and public-private partnerships. The future of infrastructure mega-projects is intimately tied to the financial involvement of the private sector and to a wider use of  tolling, “availability payments,”  and innovative credit instruments such as TIFIA and private activity bonds (PABs), a veteran facilitator of public-private partnerships told us.

President Obama was right to have shined a spotlight on the privately financed Port Miami tunnel project and to have endorsed the importance of private investment in transportation infrastructure. There is a broad consensus that the Highway Trust Fund no longer can serve that purpose. And finding that much sought-after “long-term sustainable revenue source” that could replace the gas tax, continues to elude everyone. Certainly, the fictitious “savings” or “peace dividend” from winding down the war in Afghanistan that the President has proposed as a means of financing his latest $50 billion transportation initiative are not the answer. That proposal has been dismissed as “budgetary gimmickry” by congressional Democrats and Republicans alike.

The scenario we originally advanced —in which the states assume financial responsibility for fixing and preserving their aging transportation systems, while public and private debt financing is employed to support major facility reconstruction and system expansion  — has since found resonance among numerous stakeholders and advocacy groups. The approach makes sense in view of the continued inability  to find another credible source of federal funding.  It also offers a way to save the Highway Trust Fund from insolvency and provide a lasting solution to the federal transportation funding dilemma.

NOTE: States that recently have undertaken to raise additional funds for transportation include: Virginia and  Maryland (broad transportation funding overhaul  that includes a dedicated sales tax applied to the wholesale price of gasoline.  A sales tax, it has been argued, is no less a “user fee” than the gas tax since every consumer who pays a sales tax also is served by or “uses”  the highway system for goods delivery );  Arkansas (one-half cent sales tax increase to back a $1.3 billion bond issue to fund highway construction over the next ten years); Massachusetts ($13.7 billion bond-financed transportation plan); Maine ($100 million transportation bond proposal) Michigan ( $1.5 billion road plan funded with vehicle registration fees and a tax on fuel at the wholesale level); Missouri (proposal for a dedicated one-cent sales tax for transportation; the tax is expected to raise $7.9 billion over ten years); New Hampshire (12-cent hike in the gas tax over three years approved by the House; Senate approval uncertain);  Ohio (turnpike toll-backed $1.5 billion bond issue for highway and bridge improvements); Texas (statewide tolling);  Wisconsin ($824-million boost to the state transportation fund);  Wyoming (10-cent fuel tax increase, the first in 15 years); and California, Oregon and Washington (exploring new mechanisms for project finance through the cooperative West Coast Infrastructure Exchange). In addition, several states which derive significant revenue from their toll roads have raised toll rates. See also, “State Transportation Funding Proposals,  AASHTO Center for Excellence in Project Finance, April 2013

Recent major transportation infrastructure projects largely financed with long-term credit instruments rather than federal dollars include: the I-495 Beltway HOT lanes project in Northern Virginia; New York’s Tappan Zee Bridge replacement; the San Francisco Bay Bridge Eastern Span replacement; the I-5 Columbia River Crossing;  the Highway 520 floating bridge in Seattle, the Midtown tunnel linking Norfolk and Portsmouth, VA, East End Crossing over the Ohio River, and the Port Miami Tunnel.

C. Kenneth Orski is a public policy consultant and former principal of the Urban Mobility Corporation. He has worked professionally in the field of transportation for over 30 years, in both the public and private sector. He is editor and publisher of Innovation NewsBriefs, now in its 22nd year of publication.

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