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Transportation Funding in a Changing Political Environment

Posted by Ken Orski on Monday, October 4th, 2010

A series of events toward the end of September addressed the challenge of inadequate transportation funding, a quandary that has long bedeviled transportation advocates. Collectively, these events paint a picture of a transportation community that strongly believes it is essential  to increase investment in infrastructure but struggles in vain to find the means to pay for it — and probably can expect little help from the next, more fiscally conservative Congress that is bent on reducing spending.

The events in question included a debate on “The Future of High-Speed Rail” organized by the Progressive Policy Institute (PPI) as part of the Second Annual North America Strategic Infrastructure Leadership Forum; a session on “Policy, Politics and Financing for US High Speed Rail,” also at the Leadership Forum; a day-long AASHTO-sponsored forum titled “Funding and Financing Solutions for Surface Transportation in the Coming Decade;” and a hearing of the Senate Environment and Public Works (EPW) Committee on “Innovative Project Finance.” Also worthy of note was the release of a Harvard University report summarizing the conclusions of a workshop on Transportation Revenue Options held at the John F. Kennedy School of Government on May 13-14 2010. (The report can be accessed at http://belfercenter.ksg.harvard.edu/publication/20389/transportation_revenue_options.html).

High-Speed Rail

The Progressive Policy Institute Debate

The High-Speed Rail debate, held on September 29, featured Pierce Homer, former Viginia Secretary of Transportation, Petra Todorovich, Director of America 2050, Mark Reutter, PPI Fellow and a well-known writer on railroad issues and Kenneth Orski, editor and publisher of Innovation NewsBriefs. The debate was moderated by Michael Riley, managing editor at Bloomberg.

How can we realistically fund the program in a period of high budget deficits, was one of three questions discussed by the panel. All panelists agreed that long-term dedicated funding was essential to support a program of high-speed rail development, but differed on how to raise the money. One suggestion was to allocate five billion dollars a year from the existing Highway Trust Fund for HSR construction; this could be done without an increase in the gas tax by cutting out earmarks that now divert billions of dollars to questionable uses. However, most panelists thought the Highway Trust Fund is already stretched to the limit and is in no position to assume an additional burden of funding a rail program.

Another suggestion was to create an autonomous High Speed Rail Fund, similar in concept to the Highway Trust Fund. The suggestion was accompanied by a caveat that there might not be enough political support for such a Fund. Will future Presidents and Congresses embrace high-speed rail with as much enthusiasm as the present Administration, asked one panelist, or will concerns about budget deficits and spending constraints oblige them to focus on other, more-urgent public priorities? Even today, it was pointed out, political support for high-speed rail is hardly unanimous. Witness the opposition of five Republican gubernatorial candidates who have pledged to cancel federally sponsored high-speed rail projects in their states, if elected [ the states in question and their Republican candidates are California (Meg Whittman), Florida (Rick Scott), Illinois ( Bill Brady), Wisconsin (Scott Walker), and Ohio (John Kasich)]. Despite the optimistic predictions of HSR boosters there are still huge uncertainties concerning the long-term financing and political viability of these projects.

The National Rail Plan

In the meantime, at the other session on high-speed rail financing, Karen Hedlund, Chief Counsel of the Federal Railroad Administration (FRA), discussed the Administration’s recently published update of the National Rail Plan (Moving Forward: A Progress Report). The report reveals an imaginative conceptual vision of a tiered network of passenger rail corridors that takes into account different demographies and geographies of the nation. The hierarchy includes Core Express Corridors between large city pairs separated by distances of up to 500 miles that would have true high-speed rail service on dedicated track; Regional Corridors radiating from mid-size urban areas that would have 90-125 mph service on a mix of dedicated and shared track; and Emerging/Feeder Routes that would serve smaller or more distant areas with 90 mph service on shared track. FRA has wisely recognized the need for a family of rail services with different performance characteristics and levels of service rather than for a massive  network of dedicated high-speed rail lines criss-crossing the country from coast to coast, as  some rail enthusiasts are advocating (e.g. the U.S. High-Speed Rail Association.)

The report does not address the problems and conflicts arising from shared passenger-freight operation that have been the subject of much discussion and press coverage in recent months (see, for example, “High-Speed Rail Stalls: Freight Carriers Balk at Sharing Tracks With the Faster Passenger Service,” The Wall Street Journal, September 21, 2010, and “Is the High-Speed Rail Program at Risk?” Innovation NewsBrief, June 16, 2010.) However, the issue is obviously still very much on the minds of FRA top management. In a speech at RailTrends in New York, on September 29, FRA Administrator Joseph Szabo once again sought to reassure a nervous railroad industry that he will not allow government investment in high-speed rail to adversely affect freight operations.”Let me state for the record that we’re simply not going to allow that to happen,” Szabo said. High-speed passenger rail can coexist with freight operations, he told rail executives. Despite these official reassurances, skepticism within the railroad industry, we are told, persists.

Amtrak Jumps on the High-Speed Bandwagon

Decidedly, visions of high-speed rail travel seem contagious. In a September 28 announcement, Amtrak unveiled a proposal to link Boston and Washington D.C. with a dedicated high-speed rail line on its own alignment and top design speed of 220mph. The high-speed service would cut the trip time between Washington and New York to an hour and a half and between Boston and New York to 84 minutes. The project is estimated to cost $117.5 billion and take 30 years to complete. The proposal does not address the question of funding, but obviously an enterprise of this scale and national significance would require a special act of Congress and a long-term funding commitment, an approach similar to that used in launching  the Interstate Highway Program.

The Amtrak initiative not only dwarfs the Obama HSR program in scale and ambition; it is also  more compelling in its logic. For if there is one corridor in this country that justifies and deserves true high-speed rail service by virtue of its urban densities, passenger flows, economic activity and sheer size and importance, it is the Boston-to-Washington corridor. More than any other transportation initiative of recent years, the Amtrak concept plan evokes the tradition of what Felix Rohatyn has called America’s “bold endeavors” — a series of grand transportation enterprises that began with the Erie Canal and the transcontinental railroad in the 19th century and continued into the 20th century with the Panama Canal and the Interstate Highway System. The Northeast Corridor High-Speed Rail Line would be a truly worthy 21st century inheritor of that tradition. Could a regional-scale project fire the public imagination and mobilize national support in the same vein that  the Interstate Highway system did 50 years ago? Time will tell. But If it should fail to obtain political support it will not be for lack of vision or bold design.

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Funding and Financing Transportation Infrastructure

The AASHTO Forum, held on September 30, brought together a group of distinguished speakers from the public and private sectors, congressional staff members, and industry stakeholders for a day-long dialogue on the funding and financing of surface transportation infrastructure in the days and years ahead. Rep. John Mica (R-FL) Ranking Member of the House Transportation and Infrastructure Committee and Pennsylvania Governor Ed Rendel addressed the Forum, along with Rep. Earl Blumenauer (D-OR) and Sen. Ron Wyden (D-OR).

A Variety of Financial Tools and Programs

Discussions at the Forum demonstrated once again that there is no dearth of financial tools and programs, many of them federally-assisted, to leverage funds and expedite project delivery. They include the TIFIA Program, offering direct loans, loan guarantees and lines of credit for surface transportation projects of “regional and national significance;” tax-exempt Private Activity Bonds (PAB), issued by state and local governments to aid in financing privately funded transportation projects; taxable Build America Bonds (BAB) whose interest rates are subsidized by the Federal government, thus lowering the net borrowing costs for state and local government issuers; State Infrastructure Banks (SIBs) which provide credit assistance in the form of loans, loan guarantees and letters of credit and serve as revolving infrastructure investment funds for state-sponsored surface transportation projects; and availability payments, a relatively new financing technique that has received wide publicity because of its use in two recent concession-based transportation projects, the $900 million Port of Miami Tunnel and Florida’s $1.65 billion I-595 express lanes/reconstruction project.

The Infrastructure Bank

No meeting on financing techniques these days is complete without discussing the concept of the Infrastructure Bank and the Forum was no exception. The Infrastructure Bank is part of the recent White House infrastructure plan and has been prominently advocated by Rep. Laura DeLauro (D-CT), sponsor of the National Infrastructure Development Bank Act of 2009 (H.R. 2521). Among its other proponents are such well-known opinion leaders as Gov. Ed Rendell, Former House Majority Leader Dick Gephardt, Felix Rohatyn and Sen. Chris Dodd (D-CT), chairman of the Senate Banking, Housing and Urban Affairs Committee.

But the Infrastructure Bank is not without its critics. At a Senate Environment and Public Works (EPW) Committee on September 28, Chairman Barbara Boxer (D-CA), expressed skepticism about the need to create a new federal financing mechanism when there already exists the well-established (and highly popular) TIFIA program created by the Transportation Infrastructure Finance and Innovation Act of 1998. Why not expand and reform a program that already exists, she asked, instead of creating a new bureaucratic structure? Other congressional critics of the Infrastructure Bank include such powerful figures as Senators James Inhofe (R-OK), ranking member of the Senate EPW Committee and Max Baucus (D-MT), chairman of the Senate Finance Committee.

Supporters of the Infrastructure Bank in and out of the Administration respond that TIFIA is fine as far as it goes but it lacks grant-making authority and offers financing only on a project-by-project basis. What is needed is an ability to flexibly combine grants, loans and loan guarantees to finance not just stand-alone projects but multi-modal regional programs or networks of projects, Roy Kientitz Undersecretary for Policy, said at the EPW hearing. Critics allege that a semi-autonomous financing entity as proposed by the Administration would escape congressional oversight and supervision. That, of course, is anathema to many influential lawmakers who think that major investment decisions on projects or programs of national significance properly belong in the hands of Congress rather than in those of “unelected bureaucrats.” Senatorial skepticism and opposition are the main reason why a grant-and-loan-making Infrastructure “Bank” as proposed by the Administration is given little chance of getting congressional approval.

Innovative Financing Is No Substitute for New Funding

The AASHTO Forum was a useful reminder of the essential role that creative financing plays in facilitating infrastructure development. Using financing tools, state and local transportation agencies can gain immediate access to funds and advance projects into construction much faster than under a “pay-as-you-go” annual appropriation process. While toll revenue is often used as a revenue stream to liquidate indebtedness over time, other revenue streams can also be employed, such as dedicated sales taxes and revenues derived from tax assessment districts and other “value capture” projects. This enables localities to finance projects, such as transit, that themselves do not generate sufficient revenue to pay for their construction costs.

But in the final analysis, innovative financing is no substitute for new funding. And on that score  the Forum shed little new light and offered no new solutions. Nor did it explore the possibility of alleviating funding shortfalls by focusing  attention  on transportation investments of high national priority —essentially the core elements of the highway and transit federal-aid program —  and shedding discretionary programs of marginal relevance. That policy — trimming non-essential spending — will almost surely figure as part of next year’s congressional agenda.  It also may offer a partial answer to the funding shortfall conundrum that haunts the transportation community.

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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 21st year of publication.

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