Future Fright: Stakeholders Grapple With Infrastructure Funding
The Writing is on the wall for gas taxes: post-oil economy and infrastructure needs will outstrip conventional taxes.

by , Contributing Editor

If oil is on its way out as the long-term source of energy in our industrial world, how will tomorrow’s transportation infrastructure maintenance and construction be financed, as needs far outstrip resources?

That is the primal, long-range dilemma faced by the United States’ transportation establishment as it moves into the 21st century.

Last year, the news was full of warnings about oil, and “inside the Beltway” and out, stakeholders took action to plan for future funding of highways and transit infrastructure needs, the demands of which appeared to far outstrip conventional methods of financing.

For example, the August 2005 cover of National  Geographic (circulation 5.5 million) featured rusting old gas pumps in the desert, and shouted: AFTER OIL: Powering the Future. “Oil is king, but with supplies tight and production expected to peak in the next few decades, the future depends on finding an heir,” the article says.

In February 2005 in France, a new volume — La Vie Après le Pétrole, or Life After Petroleum — described the new urgency of adopting alternative sources of energy.

“As Oil Supply Dwindles, How Will We Cope?” pondered a November 2005 headline in Tucson’s Arizona Daily Star.

Pondering ‘Peak Oil’

And in December, the House Subcommittee on Energy and Air Quality held a hearing on the coming decline of oil. “The theory of Peak Oil states that, like any finite resource, oil will reach a peak in production after which supply will steadily and sharply decrease,” said Representative Tom Udall (D-NM) on December 7.

“A growing number of geologists, economists, and politicians now agree that the peak in the world’s oil production is imminent, predicted to occur within one or two decades,” Udall said. On October 12, Udall and Representative Roscoe Bartlett (R-MD) created the Congressional Peak Oil Caucus to focus attention on the issue.

In the meantime, the worldwide War on Terror, the bottomless appetite for petroleum in growing India, China, and other developing countries, and even Hurricane Katrina have been credited with driving available petroleum supplies down, and price up, for the United States.

As gas and oil prices rise, new interest is building in alternative fuels and autos that will use them. Encouraging their adoption is the fact that their daily operation costs are less because they don’t generate the same level of excise taxes that the conventional gasoline-powered vehicles do.

The result is increased anxiety as to how the country will meet its extraordinary future infrastructure funding needs.

Voluminous research underscores this future need, including a brand new study for the National Chamber Foundation of the U.S. Chamber of Commerce, on the potential funding shortfall caused by increased needs, and reduced income due to inflation.

And the new Safe, Accountable, Flexible, Efficient Transportation Equity Act — A Legacy for Users (SAFETEA-LU) federal surface transportation act (August 2005) funds a number of studies of future needs, while expanding innovative financing methods that are bringing new streams of capital into infrastructure financing.

Here’s how the nation is grappling with the rapidly changing landscape of transportation infrastructure financing.

Existing gas tax doomed?

Toyota Prius hybrid car electric motor. Prius utilizes its gas engine, or electric motor, or both, depending on the need: Low loads driven by electric motor, heavy acceleration by electric and gas motors, and highway speeds by gas motor alone, which simultaneously recharges the battery.

Toyota Prius is a hybrid vehicle of growing popularity, which consumes substantially less gasoline, contributing less in federal gas taxes, while contributing the same amount of wear, tear, and congestion as conventional vehicles.

Beginning in March 2006, the Oregon DOT Road User Fee pilot program is intended to test the feasibility of collecting a vehicle mileage tax to replace the gas tax in that state. Above, a trunk-mounted processor records miles driven in Oregon, in rush hour zones, outside Oregon, and when no GPS signal is available; below, a dashboard-mounted display keeps the driver informed.

Toll highways increasingly will become a revenue source for cash-strapped DOTs, including tolls on existing highways; electronic collection will ease the hassle of toll plazas.

HOV lanes exclude single occupancy vehicles and cut gas consumption and concomitant gas taxes.

The November 2005 release of a National Chamber Foundation-sponsored study by Cambridge Systematics — which found tax receipts into the Highway Trust Fund will fall $55 billion short of covering the currently authorized federal funds of $286 billion — has ignited a conversation within the transportation community. The study found the HTF may be in a deficit as early as FY 2008, which would require added revenue even before SAFETEA-LU expires!

Future Highway and Public Transportation Financing was produced in two phases. “This study was initiated in response to the gridlock, the decaying roads and bridges, and the inadequate transportation infrastructure that are costing the U.S. economy billions in productivity,” the report said. “Phase I found that the federal funding share falls short of what is needed to maintain and improve our nation’s transportation infrastructure. Phase II lays out long-term options to fully fund our transportation system and quantifies specific strategies that can guide the transition to a new financing mechanism.”

Maintaining existing infrastructure means that pavement and bridge conditions and travel levels of service will remain the same, the report said. Below this level, conditions will deteriorate and congestion will grow. Improving transportation infrastructure means that all additional highway and transit spending will have a positive benefit/cost ratio and will improve U.S. economic productivity.

“To maintain our current transportation system, all levels of government must invest $235 billion in 2006, $304 billion in 2015, and $472 billion in 2030,” NCF found. “Current revenue streams will fall far short of these levels: the cumulative shortfall through 2015 is $0.5 trillion. To improve our transportation system to a level that benefits the nation’s economic productivity, all levels of government must invest $288 billion in 2006, $368 billion in 2015, and $561 billion in 2030. Current revenue streams will fall far short of these levels: the cumulative shortfall through 2015 is $1.1 trillion.”

The major reason for the shortfall in federal revenues is that federal motor fuel tax rates are not indexed to inflation and have lost one-third of their purchasing power since the last adjustment in 1993, NCF said. “Of the approximately $0.60 per mile that automobile drivers now pay to operate their car, only $0.01 of this is paid in federal fuel taxes into the HTF,” NCF’s report said. “Paying an additional half cent per mile into the HTF would currently fully fund the federal share of needs to maintain the nation’s highway and transit systems.”

Indexing motor fuel tax

Indexing federal motor fuel taxes to inflation would have the most immediate impact on revenues in the short-term, through 2010, the study says, adding the motor fuel tax is the only major existing tax that is not indexed to inflation.

This dovetails with the observations of the American Association of State Highway &Transportation Officials executive director John Horsley, at the spring AASHTO board meeting in May 2005.

“The real challenge facing federal fuel tax revenues is the loss in purchasing power due to inflation,” Horsley said. “The last time the federal gas tax increased was in 1993. By 2010, AASHTO forecasts that inflation will have reduced the purchasing power of Highway Trust Fund revenues by 30%.”

Inflation has been a problem state DOTs have been fighting for decades, AASHTO’s Horsley said.

“The first major increase in the federal gas tax came in 1956 and 1957, when it was increased to $0.04 under President Eisenhower to fund the Interstate highway system,” he said. “By 1982, its purchasing power had been reduced by 62%. In that year President Reagan supported raising the gas tax by $0.05. Over the next eight years it again lost ground until it was boosted by another $0.05 by President Bush in 1990, then by $0.043 under President Clinton in 1993. Because this tax is levied by a fixed amount of cents per gallon, rather than on the basis of a percentage as are sales taxes or income taxes, either it is adjusted periodically to restore its purchasing power, or it loses ground. How to restore and sustain the purchasing power of the Highway Trust Fund will be the central challenge to be taken up in the next reauthorization in 2009.”

Beefing up the fuel tax, VMT

Other short-term strategies suggested by NCF include:

• Closing exemptions to the Highway Trust Fund so that revenues dedicated to transportation are spent on transportation.

• Recrediting interest to the HTF so that the HTF can reap the full benefit of the revenue paid into the fund by users.

• Dedicating 10% of U.S. Customs import revenues to transportation to account for transportation’s contribution to the facilitation of international commerce.

• Giving states and local governments more revenue and investment options by authorizing expanded use of tolling and by encouraging states to index their motor fuel taxes to account for inflation.

In the medium term, 2010 to 2015, the National Chamber suggests:

• Broadening the base of user payments to the HTF by collecting a vehicle fee to capture fair payments from hybrid and other alternative fuel vehicles.

• Ensuring that any subsidies for the purchase of hybrid and nonpetroleum-powered vehicles come from the general fund as was done for ethanol fuel subsidies, not from the HTF.

• Recommending that the recently authorized National Surface Transportation Infrastructure Financing Commission oversee a new cost allocation study, setting principles and guidelines for the efficient and equitable allocation of HTF fees.

In the long-term, the federal government should provide leadership in creating maintaining and expanding a vehicle-miles-traveled tax. It recommends:

• Adopting two vehicle-miles-of-travel fees: a state VMT fee as well as a local-option VMT fee to help ease metropolitan congestion.

• Indexing VMT fees to inflation to help close the annual gap between transportation needs and revenues.

• To consider varying the VMT by vehicle weight, fuel type and consumption, environmental impact, road system, and geography to account for different levels of use and impact and to ensure that all users of the system pay their fair share of infrastructure costs.

“The Bush administration is working to evolve and improve the traditional approach to paying for our nation’s highways,” said Federal Highway Acting Administrator Rick Capka. “And a big part of that is increasing private sector investment.”

Through innovative programs such as SAFETEA-LU, states have more flexibility to use congestion pricing, tolling, and other innovative forms of financing that have the potential to give us a better return on our transportation investments, Capka said.

“We recognize along with you that there are growing strains on traditional highway finance mechanisms,” he said November 3 at the U.S. Chamber of Commerce. “Relying primarily on the gas tax is not the best long-term approach. And, leveraging infrastructure investment through innovative financing will help us tackle the biggest problem in surface transportation — congestion.”

Hybrids only long-term problem

AASHTO’s executive director John Horsley questions the conventional wisdom that because of increasing fuel efficiency, the gas tax is no longer viable as a source of support for highway and transit funding.

“We are hearing this regularly from leaders at the highest levels in the U.S. Department of Transportation,” Horsley said at the AASHTO spring board meeting in May 2005. “The trouble is, it just isn’t true.”

For example, he observes, EPA’s April, 2004 report on the popular “light-duty automotive fleet” shows that fuel efficiency has not increased over the last 18 years, but has declined. “In 1987, the average for [this] fleet was 22.1 miles per gallon,” Horsley said. “By 2004 it had declined to 20.8 miles per gallon. During this time many fuel-efficient passenger cars have indeed entered the market, but the popularity of pick up trucks and SUVs has also increased to an all-time high. They now constitute 48% of the market. Because Hummers and other gas guzzlers are now such a major part of the American scene, fuel efficiency has gone down, not up.”

He added the Congressional Budget Office in January 2005 projected a 3.3% annual increase in federal gas tax revenues from 2005 to 2015. “CBO says gas tax revenues are going up, not down.” Horsley told the AASHTO members.

The hybrid vehicles — powered partly by gasoline and partly by electricity — are moving into the general market. Hybrids face technical challenges — such as battery size and life — but the interest in hybrids is high and will grow.

While hybrids provide significant reductions in energy use and greenhouse gas emissions, they have yet to exceed straight gas vehicles in terms of cost efficiency, and they still induce wear and tear on highways just as much as conventional vehicles — while not contributing as much, proportionally, to pavement upkeep through federal and state gas taxes.

In addition, the Department of Energy’s FreedomCAR & Fuel Partnership is a public/private effort examining the basic research required to develop technologies for affordable alternative vehicles, and the fueling infrastructure to support them. Such vehicles may double the fuel efficiency of current gasoline-powered autos, but with the concomitant reductions in federal gas tax contributions.

“Many believe that the sale of hybrid vehicles like the Toyota Prius and Honda Civic are about to alter the equation,” Horsley said. “There is no question that hybrids are increasing in popularity, especially in light of the recent surge in gas prices.

“But let us put this in perspective,” he added. “In December, 2004, the Washington Post reported that  in 2004, 79,000 hybrids had been sold nationally, 44,000 in 2003. That is out of more than 16 million in annual automotive sales, and more than 200 million vehicles registered nationally. Hybrids constitute   less than 0.02% of the vehicle fleet today.”

The presence of hybrids in the overall fleet is expected to increase rapidly, but it remains a long-term problem, Horsley said. “Over the next 10 years they may erode gas tax revenues by between 1 to 3%,” he said in May. “By the 2025 to 2035 timeframe, however, according to the NCHRP study they could erode revenues by 15% or more. This is a legitimate concern we should take seriously and prepare to deal with in the timeframe from 2015 and beyond. But in the near term, it is not a significant factor.”

He added the 2003 NCHRP study also addressed alternative fueled vehicles such as those fueled by hydrogen, electricity, and compressed natural gas. The market share for these vehicles is not expected to exceed 0.02% until after 2020.

SAFETEA looks to the future

As SAFETEA-LU — the successor to the Transportation Equity Act for the 21st Century — was debated, stakeholders made sure future funding studies were part of the resulting legislation. As a result, SAFETEA-LU authorizes a variety of forward-looking studies on both needs and financing.

For example, SAFETEA authorizes a National Surface Transportation Policy and Revenue Study Commission, which will complete a study on future Highway Trust Fund revenues and the impacts of these revenues for future highway and transit needs. Among the considerations will be alternative approaches to generating revenues. The commission will develop a report recommending policies to achieve revenues for the Highway Trust Fund that will meet future needs.

Complementing this study will be a $12.5-million Road User Fees Study, which involves a long-term field test of assessing highway use fees based on actual mileage driven by a specific vehicle on specific types of highways, using an onboard computer. The study is to be performed by the Public Policy Center of the University of Iowa.

Regarding system needs, the transportation secretary is directed to conduct a Future of Surface Transportation System Study. This will be a review of current conditions and future needs of the surface transportation system, and is to develop a conceptual plan with alternatives to ensure that the surface transportation system will continue to serve the nation’s needs.

New NCHRP study

AASHTO is working with the National Cooperative Highway Research Program to undertake an analysis to use in developing a strong, clear vision for the nation’s future highway needs. The analysis would provide ammunition for AASHTO and its member DOTs in interactions with the new study commission and in preparation for the next reauthorization. This $525,000 NCHRP Project 20-24(52), Future Options for the National System of Interstate and Defense Highways, is anticipated to start in February 2006 and continue for 15 months.

The research results will support an AASHTO/TRB-sponsored conference on the future of the Interstate system in the second half of 2006. The analysis is expected to identify options with the greatest potential for improving highway operations and capacity, including intermodal passenger and freight connectors and access to military bases, strategic ocean ports, and airfields.

Among the analysis’ tasks will be to examine the criteria for the current Interstate and National Highway System designations, and suggest how the Interstate system designation might be broadened to include selected NHS segments. The analysis also should summarize existing research on the economic impact of the Interstate highway system.

The work will estimate travel demand for the envisioned systems using high and low economic growth assumptions for 15-, 30-, and 50-year time periods, and estimate the restoration, rehabilitation, reconstruction, and resurfacing needs of the current Interstate system in 15-, 30-, 50-year increments, including careful examination of safety and security needs, mobility needs, and innovative materials, design and construction techniques, and contracting practices to facilitate restoration, rehab, reconstruction, and resurfacing, and to minimize total life-cycle costs.

Added capacity in the form of lane additions in both rural and urban areas also is to be studied, separated into exclusive truck lanes, general capacity needs, and HOV/HOT lanes. All new lane additions should be considered both as toll lanes and non-toll lane additions.

And key investment requirements for new corridors will be studied, as well as new intermodal connections to key public, commercial, and defense rail, transit, air, and water terminals and ports and critical military installations. These corridor and intermodal connections should include both upgrading existing roadways and building new facilities.

Oregon ahead of feds

Actually, states like Oregon already are conducting their own similar research. “The Oregon Legislature recognized in 2001 that the gas tax would no longer be a viable solution to paying for road maintenance and new construction as higher mileage vehicles and hybrid vehicles are coming to market,” the state reported.

As a result, next month (March 2006) Oregon will launch a year-long project to study an alternative to the gas tax in that state. The Oregon DOT Road User Fee pilot program is intended to test the feasibility of collecting a vehicle mileage tax to replace the gas tax in the state of Oregon. In late 2005, the state was looking for volunteers who live on the east side of Portland who would allow the state to install a small device in their car for a period of about 15 months.

Oregon will log the number of miles driven outside Oregon, inside Oregon, the number driven during rush-hour periods, and the number driven when a GPS signal cannot be received. The pilot study will run through March 2007, with reader devices being installed in February 2006. Volunteers will receive a minimum of $100 in compensation for their complete participation in the pilot, and many will have the opportunity to earn more. In addition, a random group of volunteers may be selected to receive a $0.24 per gallon discount off their fuel bill for six months.

SAFETEA extends federal taxes

SAFETEA-LU also extends conventional federal gas taxes through 2011. These taxes consist of per-gallon taxes on highway motor fuel and truck related taxes, including an annual tax on heavy vehicle use, a load rating-based tax on heavy truck tires, and a retail sales tax on truck and trailer sales.

The Highway Trust Fund has been the source of funding for most of the programs in federal surface transportation acts. The HTF is composed of the Highway Account, which funds highway and intermodal programs, and the Mass Transit Account. Federal motor fuel taxes are the major source of income into the HTF.

Prior to SAFETEA-LU in 2005 and the American Jobs Creation Act of 2004, the HTF was impacted by the so-called gasohol exemption, which had the effect of reducing revenues generated by sales of gasoline containing a blend of ethanol. As ethanol spread in popularity, the impact became substantial.

The 2004 act replaced the reduced tax rates that applied to gasohol with a credit paid from the General Fund of the treasury and ended the retention of a portion of the tax on gasohol by the General Fund.

These actions, coupled with a number of provisions to reduce gas tax evasion at the wholesale level, provided increased tax revenues to the Highway Trust Fund, and retained gasohol’s reduced cost to consumers, while increasing demands on the General Fund.

SAFETEA and innovative financing

No matter what the long-term needs are, America needs innovative financing now to give a boost to its highway system, FHWA’s Capka said. The private sector brings a lot to the table that complements the public sector, such as cost and management efficiencies, the ability to complete projects faster and at less cost, and a growing group of willing investors ready to share the risk in advancing large, crucial projects, he said.

“Over the past two years or so, Secretary Mineta and his team at the Department of Transportation have spoken often about Public-Private Partnerships,” Capka said in November. “For many people, the subject was a new one. We explained what it is, why innovative financing has so much potential, and emphasized that a few states are already trying it out. Well, times have definitely changed. PPP is now part of the mainstream.”

Via the National Highway System Designation Act and TEA-21, the federal government has allowed states additional means to make highway investments through innovative, or alternative, financing mechanisms that may or may not involve public-private activity.

 These alternative mechanisms included State Infrastructure Banks, which are revolving funds to make or guarantee loans to approved projects; Grant Anticipation Revenue Vehicles, also known as GARVEEs, named after then-Federal Highway Administrator Jane Garvey, which are state-issued bonds or notes repayable with future federal-aid; and credit assistance under the Transportation Infrastructure Finance and Innovation Act, also known as TIFIA, including loans, loan guarantees, and lines of credit.

“All are part of the FHWA’s Innovative Finance Program,” said General Accounting Office Physical Infrastructure Issues director, JayEtta Z. Hecker to the Senate Committee on Environment and Public Works in September 2002. Back then, as Congress pondered reauthorization of TEA-21, Hecker reported that

• Federal funding of surface transportation investments included federal-aid highway program grant funding appropriated by Congress out of the Highway Trust Fund, loans and loan guarantees, and bonds that are issued by states and that are exempt from federal taxation.

• A number of states were using existing alternative financing tools such as State Infrastructure Banks, GARVEE bonds, and TIFIA loans. “These tools can provide states with additional options to accelerate projects and leverage federal assistance, [and] they can also provide greater flexibility and more funding techniques,” she said.

• Expansion of the use of alternative financing mechanisms has the potential to stimulate additional investment and private participation, Hecker told Congress.

Trans-Texas is public-private venture

In Texas, a major public-private-funded transportation corridor in the planning stage is the Trans-Texas Corridor, a proposed multi-use, statewide network of transportation routes in Texas that will incorporate existing and new highways, railways, and utility rights-of-way. Specific routes for the TTC have not been determined. As envisioned, each route will include:

• Separate lanes for passenger vehicles and large trucks.

• Freight railways.

• High-speed commuter railways.

• Infrastructure for utilities including water lines, oil and gas pipelines, and transmission lines for electricity, broadband, and other telecommunications services.

Plans call for the TTC to be completed in phases over the next 50 years, with routes prioritized according to Texas’ transportation needs. TxDOT will oversee planning, construction, and ongoing maintenance, although private vendors will be responsible for much of the daily operations.

In 2005, then-FHWA administrator Mary Peters joined Texas Governor Rick Perry and Ric Williamson, chairman of the Texas Transportation Commission, to announce an agreement between the state and a private consortium of engineering, construction, and financial firms. The consortium, Cintra-Zachry, has proposed investing $7.2 billion to develop the approximately 600-mile, Oklahoma-to-Mexico portion of the Trans-Texas Corridor.

“Texas is a national example for all states and a leader in unleashing the resources, innovation, and efficiency of the private sector to bring transportation improvements to the public faster and at less cost to American taxpayers,” said Peters. “Public-private partnerships in transportation hold great promise in cutting the congestion that’s choking our economy and keeping families apart from one another.”

SAFETEA encourages toll projects

Already, SAFETEA-LU is providing states with public-private innovative funding channels and increased flexibility to use tolling, not only to manage congestion, but to finance infrastructure improvements.

Under SAFETEA’s new Interstate System Construction Toll Pilot Program, the transportation secretary may permit a state (or compact of states) to collect tolls on an Interstate highway, bridge, or tunnel for the purpose of constructing Interstate highways. The program is limited to three projects in total (nationwide), and prohibits a participating state from entering an agreement with a private person which would prevent the state from improving adjacent public roads to accommodate diverted traffic.

SAFETEA-LU’s Interstate System Reconstruction and Rehabilitation Toll Pilot Program was established in TEA-21 to allow up to three Interstate tolling projects for the purpose of reconstructing or rehabilitating Interstate highway corridors that could not be adequately maintained or improved without the collection of tolls. SAFETEA-LU makes no revisions to the program, and it continues without change.

TEA-21’s Value Pricing Pilot Program is continued, funded at $59 million through 2009, to support the costs of implementing up to 15 variable pricing pilot programs nationwide to manage congestion and benefit air quality, energy use, and efficiency. A new set-aside totaling $12 million through 2009 must be used for projects not involving highway tolls.

The new Express Lanes Demonstration Program will allow a total of 15 demonstration projects through 2009 to permit tolling to manage high levels of congestion, reduce emissions in a nonattainment or maintenance area, or finance added Interstate lanes for the purpose of reducing congestion. A state, public authority, or public or private entity designated by a state may apply.

Eligible toll facilities include existing toll facilities, existing HOV facilities, and a newly created toll lane.

Tolls charged on HOV facilities under this program must use pricing that varies according to time of day or level of traffic; for non-HOV, variable pricing is optional. Automatic toll collection is required.

In Illinois, an international consortium of two firms with extensive experience in the toll road business was awarded a 99-year concession and lease agreement from the City of Chicago for the Chicago Skyway. Under this agreement, the consortium paid $1.8 billion for the right to toll, operate, and maintain the Skyway. A similar arrangement is under consideration with the Indiana Toll Road.

And in Southern California, on SR-91, HOT lanes are built in the median. Capital and maintenance costs are fully supported by tolls, which vary by time of day, and are adjusted every three months to ensure that traffic flows freely.

Public-private innovative funding

In addition to the public-private toll projects described above, SAFETEA-LU includes public-private innovative financing provisions.

SAFETEA-LU establishes a new State Infrastructure Bank program which allows all states, the District of Columbia, and certain territories to establish infrastructure revolving funds eligible to be capitalized with federal transportation funds authorized for fiscal years 2005 to 2009.

“This program gives states the capacity to increase the efficiency of their transportation investment and significantly leverage federal resources by attracting non-federal public and private investment,” the Federal Highway Administration says. “SIBs provide various forms of non-grant assistance to public or private entities for eligible projects, including below-market rate subordinate loans, interest rate buy-downs on third party loans, and guarantees and other forms of credit enhancement. Any debt issued or guaranteed by the SIB must be of investment grade quality.

The Transportation Infrastructure Finance and Innovation Act program provides federal credit assistance to nationally or regionally significant surface transportation projects, including highway, transit, and rail. TIFIA was established in TEA-21 to fill market gaps and leverage substantial private investment by providing projects with supplemental or subordinate debt. SAFETEA-LU authorizes a total of $610 million through 2009 to pay the subsidy cost (similar to a commercial bank’s loan reserve requirement) of supporting federal credit under TIFIA.

The threshold required for total project cost is lowered to $50 million ($15 million for ITS projects), and eligibility is expanded to include public freight-rail facilities or private facilities providing public benefit for highway users, intermodal freight transfer facilities, access to such freight facilities, and service improvements to such facilities including capital investment for intelligent transportation systems.

Three types of TIFIA loans are provided in SAFETEA. Secured loans are direct federal loans to project sponsors, offering flexible repayment terms and providing combined construction and permanent financing of capital costs. Loan guarantees provide full-faith-and-credit guarantees by the federal government to institutional investors, such as pension funds, that make loans for projects. And lines of credit represent sources of funding in the form of federal loans that may be drawn upon to supplement project revenues.

“SAFETEA-LU is the largest investment our country has ever made in highway, transit and safety programs,” Capka said. “It broadens the availability of federal financing initiatives such as TIFIA, a credit assistance program for large transportation projects. Another provision — what I consider a major policy change — gives states more flexibility to use tolling to finance infrastructure improvements. States can choose what’s best for them.”

Also, SAFETEA-LU expands bonding authority for Private Activity Bonds, by adding highway facilities and surface freight transfer facilities to a list of other activities eligible for exempt facility bonds. Qualified projects, which must already be receiving federal assistance, include international bridge or tunnel projects for which an international entity is responsible and facilities for the transfer of freight from truck to rail or rail to truck (including any temporary storage facilities related to the transfers).

FHWA acting administrator Capka sees much more opportunity ahead. “At the state level, many restrictions are still in place,” Capka said in November. “Only 19 states have public-private partnership laws. Virginia has had one on the books for several years, and the Commonwealth is reaping the benefits. But many states have not even contemplated the idea that the private sector could be a highway service provider or investor. For the most part, we’ve financed transportation the same way for 50 years. As always, institutional inertia is a challenge for the states who traditionally build the roads and the private sector that can — potentially — invest in, construct and operate a vital roadway.”

For More Information

For more information or background about the issues in this article, start with these Web sites.

• One of the best overviews of the themes of long-range funding of transportation infrastructure is the Transportation Research Board’s Conference Proceedings 33, Transportation Finance Meeting the Funding Challenge Today, Shaping Policies for Tomorrow,  Report of the Committee for the Third National Conference on Transportation Finance, Chicago, October 2002. See the 111-page report at http://trb.org/publications/conf/cp33transportationfinance.pdf.

• The Senate Committee on Environment and Public Works conducted an Oversight hearing to Examine Transportation Fuels of the Future on November 16, 2005. Read testimony and statements from a variety of legislators and stakeholders at http://epw.senate.gov/hearing_statements.cfm?id=248677.

• The executive summaries to the National Chamber Foundation’s 2005 reports, Future Highway and Public Transportation Finance Phase I: Current Outlook and Short-Term Solutions, and Future Highway and Public Transportation Finance: Phase II, Study Release Event, may be downloaded at www.uschamber.com/ncf/publications/default. Also, there is another 2005 report, Impact of Travel & Tourism on the U.S. and State Economies; don’t miss it.

• Download the Cato Institute’s Briefing Paper No. 90, Hydrogen’s Empty Environmental Promise, by Donald Anthrop, at www.cato.org/ pub_display.php?pub_id=2608.

• The Congressional Research Service Issue Brief for Congress IB10134, Gasoline Prices: New Legislation and Proposals, may be viewed at www.ncseonline.org/NLE/CRSreports/05oct/IB10134.pdf .

• Another CRS product, Alternative Fuels and Advanced Technology Vehicles: Issues in Congress (IB10128), June 2005, is available at www.ncseonline.org /NLE/CRSreports/05jun/IB10128.pdf .

• Lastly, the CRS overview of the new surface transportation legislation, Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU or SAFETEA): Selected Major Provisions, October 18, 2005 (RL33119), may be downloaded at www.opencrs.cdt.org/ rpts/RL33119_20051018.pdf. This gives a look at each of the major provisions of the act, including innovative finance provisions.

• Another valuable document is testimony by General Accounting Office Physical Infrastructure Issues Director JayEtta Z. Hecker to the Senate Committee on Environment and Public Works in September 2002. The document — Transportation Infrastructure: Alternative Financing Mechanisms for Surface Transportation — may be downloaded at www.gao.gov/new. items/d021126t.pdf.

• The well-researched, 332-page Winning the Oil Endgame, produced by the Rocky Mountain Institute is available for purchase — or free download — at the Web site of the institute. Review it at www.oilendgame.com/.

• In one way or another, road pricing is coming. Read about it in detail in the TRB Conference Proceedings 34: International Perspectives on Road Pricing, Report of the Committee for the International Symposium on Road Pricing, November 2003. It can be downloaded at no charge at www.trb.org/publications/conf/CP34roadpricing.pdf.

• States are flush with cash in 2005. Read all about it in The Fiscal Survey of the States: July 2005, released December 2005, by the National Association of State Budget Officers. See it at www.nasbo.org/Publications/fiscalsurvey/fsspring2005.pdf.

Reprinted from Better Roads Magazine
February 2006

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