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Can-Do States

Posted by Ken Orski on Wednesday, July 17th, 2013

Innovation NewsBriefs
Vol. 24, No. 9

Recently, Rep. Nick Rahall (D-WV) called for a $5.5 billion emergency federal program “to fix the nation’s backlog of deficient and structurally obsolete bridges”  (H.R. 2428).  He was responding to the well- publicized collapse of the  I-5 bridge  in Washington State . “It’s an emergency out there,” Rahall proclaimed at a news conference on Capitol Hill. ” We cannot afford for the next bridge to collapse. It’s time to act.”   Predictably, infrastructure advocates and lobbyists, never letting a serious accident go to waste, echoed Rahall, calling the I-5 bridge  incident a “wake-up call on the state of U.S. infrastructure”  and “a dramatic reminder that we need to make significant investments to bring our bridges to a state of good repair.” They conveniently ignored the fact that the collapse was caused not by any “structural deficiency”  but by a semi truck with an oversized load hitting an overhead girder. The bridge is back in service with a temporary replacement span.  A permanent new span will be installed in late summer.
 
Significantly, Chairman Shuster and the Republican House and Senate leadership did not endorse the new  funding proposal. They recognized the funding demands for what they are —opportunistic calls for more federal infrastructure spending. Rep. Rahall’s bill is likely to meet the same fate as did former Rep.Oberstar’s call for a $25 billion emergency bridge repair program (backed by a five-cent gas tax increase)  in the wake of the Twin Cities bridge collapse in 2007 (I-35W). The proposed legislation will diea quiet death in the referred committee.
 
States taking initiative
 
No one disputes 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 on both sides of the political divide contend that this does not rise to the level of a national crisis requiring a massive federal response.
 
Instead, as we have argued in recent columns, most  deficiencies and inadequacies in the nation’s transportation infrastructure can be dealt with if each state undertook progressively to bring its transportation facilities up to a state of good repair. States would use their existing regular federal-aid highway program funds and supplement them with locally-raised revenue. Large-scale reconstruction and system-expansion projects that are beyond the states’ fiscal capacity to fund on a pay-as-you-go basis would be financed  through long-term credit instruments.
 
It looks like that is precisely what’s happening. A growing number of states aren’t waiting for the federal government to come to the rescue with new money. They are taking matters into their own hands and taking control of their infrastructure agendas.  
 
The  AASHTO Center for Excellence in Project Finance lists 30 states that are currently debating or have already passed measures aimed at increasing funding for transportation (“State Transportation Funding Proposals, April 2013). Some outstanding examples:  Arkansas has approved a dedicated one-half cent sales tax  increase whose proceeds will back a $1.3 billion bond issue to fund highway construction over the next ten years.  Illinoishas enacted in 2009 a six-year $31 billion infrastructure improvement program known as “Illinois Jobs Now!” of which $14.5 billion is dedicated to transportation. According to the DOT spokesman, the program has enabled reconstruction of 7, 200 miles of road pavement and 1,170 bridges as well as provided funds for Chicago transit improvements and matching money for the Chicago-St. Louis high speed rail program. Maryland has passed a series of increases in the gas tax in the years to come to fund major transportation projects. The measure, which is the first increase in the state gasoline tax since 1992,  will raise the state gas tax by 12.1 cents a gallon by July 2015. The increases are expected to bring in an additional $4.4 billion for transportation projects from fiscal 2014 to 2019;
 
North Carolina has adopted a new “Strategic Mobility Formula”  that revised the manner in which $1.5 billion in state and federal highway funds get spent annually by emphasizing projects that will ease congestion and promote economic growth.  Ohio has passed a turpike toll-backed $1.5 billion bond issue for highway and bridge improvements; Oregon has adopted a voluntary  mileage-based user fee system in lieu of a state fuel excise tax. The bill will allow up to 5,000 participants to pay 1.5 cents per mile in place of paying the state gas tax at the pump. The experiment may pave the way for a statewide program, the first of its kind. South Carolina has passed a transportation funding bill that could raise more than $700 million for roads and bridges; Utah uses vehicle-related sales taxes to fund a multi-year multi-billion dollar highway system, including the completion of its $1.7 billion I-15 corridor expansion project. In FY 2014 this tax is projected to generate more than $500 million according to a DOT spokesman. Federal funds make up only 17 percent of the state’s highway budget.  Virginia has overhauled its transportation  financing system by eliminating its 17.5 cents per gallon gas tax and replacing it with a 3.5 percent sales tax on the wholesale price of gasoline and a 6 percent sales tax on the wholesales price of diesel fuel.  The tax reform is expected to provide  $5.9 billion in additional  transportation funding over the next five years alone; Vermont  and Wyoming have sharply raised their state fuel taxes (by 5.9 cents, and 10 cents per gallon respectively).
 
Financing new infrastructure
 
A July 12 Brookings Institution sponsored forum, entitled Can-Do States: A New Era for Infrastructure Investment, shined a spotlight on another revenue-raising strategy that is receiving increased attention by state authorities. This approach employs an array of innovative financing tools and credit instruments to raise funds for major infrastructure projects. The tools include public-private partnerships, state infrastructure banks, revolving loan funds, private toll road concessions and availability payments. Indeed, private capital and long-term credit have replaced federal dollars in virtually all large-scale transportation infrastructure ventures today.
 
These (and their state sponsors) include:  (1) the I-495 Beltway HOT lanes project in Northern Virginia (VA); (2) the New York Tappan Zee Bridge replacement (NY); (3) the San Francisco Bay Bridge Eastern Span replacement (CA);  (4)(5) the Highway 520 floating bridge and Alaskan Way Viaduct in Seattle (WA); (6) the Midtown tunnel linking Norfolk and Portsmouth (VA); (7) the East End Crossing over the Ohio River near Louisville (IN);  (8) the PortMiami Tunnel (FL);  (9) Goethals Bridge linking New York City and New Jersey (NY-NJ); (10) the I-69 “Section 5″ project (a 21-mile stretch of the national I-69 Canada-to-Mexico corridor) (IN); and (11) the proposed second  Detroit-Winsor Bridge Crossing (MI). It is safe to say that, except for the California High-Speed Rail project, there are currently no major transportation facilities on the drawing board whose construction would hinge on federal appropriations.
 
More examples of innovative financing are likely to be aired at ARTBA’s coming 25th Annual “P3 in Transportation” Conference in Washington on July 25-26.  The annual ARTBA event has traditionally served to bring together the Who’s Who in the world of innovative transportation financing and project delivery.  Both  U.S. Transportation Secretary Anthony Foxx and House Transportation & Infrastructure Committee Chairman Bill Shuster have been invited to address the Conference.

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 Why are states aiming for more fiscal autonomy?
 
The new “can-do” spirit is the states’ pragmatic response to the dwindling federal capacity to fund  transportation.   “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.
 
States’ desire for more fiscal autonomy and self-sufficiency is strengthened by several other factors:  (1) a realization that the federal program has lost its sense of  a mission and purpose and that many of its present functions are properly a state and local responsibility;  (2) a realignment in federal spending priorities that favors social programs at the expense of capital investments;  (3) a  Highway Trust Fund that has lost its capacity to support large-scale transportation investments and has come to depend for its solvency on periodic injections of  general fund revenue;  (4) a federal project approval and delivery process that is bogged down with procedural and regulatory requirements, causing delays and cost escalation in infrastructure reconstruction; (5) bipartisan absence of a political will in Congress to raise the federal gas tax (and understandably so: two-thirds of Americans oppose increasing this tax according to a recent Gallup poll); and (6) continued inability to identify another credible revenue source to supplement or replace the federal gas tax (a nationwide mileage-based user fee system is at best years away).
 
Short- and long-term implications
 
States’ growing involvement in funding transportation is a trend of far reaching consequences. In the short run, more state revenue dedicated to transportation will lessen the pressure for Congress to come up with increased resources to fund the next reauthorization.  It has been estimated that to finance a six-year program at current spending levels would require roughly $320 billion ($53 billion/year). Trust Fund revenues and interest over the same period are expected to bring in only $240 billion according to CBO—- leaving an unfunded shortfall of $80 billion. Additional state-generated revenue may significantly narrow this gap.
 
In the longer run, greater state fiscal autonomy may modify the federal-state relationship in transportation. There will be less need for direct  financial aid to highways, fewer federal requirements and mandates to comply with, and more emphasis on research, technical assistance and support of transportation investments of truly national scope and significance (High-Speed Rail in the Northeast Corridor comes to mind). “This is not devolution,” a thoughtful colleague listening to the Brookings forum presentations told us. “This is states acting responsibly to preserve their transportation assets, modernize their infrastructure and take charge of their own transportation future.”

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 24th year of publication.

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