- TIFIA troubles and Delaney's proposal
- Oregon's new mileage-based user fee
- New "Buy America" rules holding up projects
- Xpress West and RRIF reform
- Transit and priced lanes: a win-win combo
- Upcoming Conferences
- News Notes
- Quotable Quotes
The last six months have seen growing concerns about TIFIA, the FHWA's credit-assistance program for surface transportation projects with dedicated revenue streams. Congress greatly expanded the program in last year's MAP-21 legislation, resulting in a flood of new requests for assistance. As of June, the expanded program had 29 Letters of Interest seeking support for $42 billion worth of projects. But none of these projects has yet been approved.
One of the widely expressed concerns is that Congress's intent to convert the program from one with considerable FHJWA discretion in project selection to one that was expected to be a kind of "check the boxes" approach (i.e., if you meet all the criteria, you get approved, subject to the total amount of loan funds available) is not being followed. Public Works Financing last month quoted one financial advisor to an applicant saying, "The new TIFIA process is more opaque, more complex, and slower than the old one. They've taken the congressional intent in MAP-21 and turned it on its head."
As for administrative discretion, I was dismayed back in January to see then-Secretary Ray LaHood quoted by Transportation Nation as saying that "things look good" for the TIFIA loan requested for the Washington Metro line to Dulles Airport. That statement set off all kinds of worries about political appointees attempting to influence what was supposed to be an objective, by-the-numbers process.
Another troubling development was a report in Public Works Financing that the Joint Tax Committee and the Congressional Budget Office are opposing the use of both tax-exempt Private Activity Bonds (PABs) and TIFIA-type loans in the same project. The issue arose in connection with a proposed WIFIA program being considered by Congress to support water infrastructure projects. PABs and TIFIA loans have been used together on a number of transportation mega-project PPPs, including the Capital Beltway (I-495) express lanes, the LBJ (I-635) express lanes, and the North Tarrant Express managed lanes. JTC/CBO staffers also said they aimed to fix this "problem" in TIFIA in the 2014 reauthorization of MAP-21.
All of this provides the context in which Rep. John Delaney (D, MD) introduced his Partnership to Build America Act in May. While some have characterized it as simply the latest in a long line of "national infrastructure bank" proposals, the proposal is actually quite different. It would create an American Infrastructure Fund (AIF) capitalized by selling $50 billion worth of infrastructure bonds to corporate investors. Delaney, a successful entrepreneur in finance prior to being elected to his first term in Congress in 2012, estimates this initial capital could be leveraged 15 to 1, providing loan capacity of up to $750 billion.
AIF would have an 11-member board, four appointed by the President and seven selected by the largest buyers of AIF's $50 billion worth of bonds. Since it would receive no federal funds, AIF would not be part of the federal budget. As Delaney explained in an interview to be published in the July/August issue of Public Works Financing, he envisions the main AIF products to be a kind of bond insurance like that provided by various insurance companies prior to the credit markets crunch, and perhaps volume-guarantee insurance, as well as direct loans.
Unlike national infrastructure banks, however, AIF would not be directly involved in substantive project evaluation. All such projects would be proposed and vetted by state or local governments or nonprofit entities, meeting sound financial criteria. AIF staff would focus solely on the credit quality of the proposed projects, with staff recruited from the financial community and paid market rates.
The bill would also create an Office of Infrastructure Partnerships (OIP) in the Treasury Department as a resource for state and local governments and private infrastructure providers, overseeing criteria for projects, standardizing the processes AIF would use, and managing its overall infrastructure portfolio.
Delaney has included provisions aimed at encouraging PPP projects to be part of what AIF would support. At least 25% of the projects assisted by AIF must be PPPs (if states don't use that 25%, they don't get it), for which at least 20% of the project financing comes from private capital. However, several PPP-related aspects in the bill's language raised questions for me, so I discussed them with a Delaney staffer. First, since the bill limits AIF assistance to projects proposed by governments or nonprofits, I asked if this would operate like the existing PAB program, in which a government entity issues PABs on behalf of the PPP entity, with that entity responsible for the revenue stream that services the debt. No, he replied, the bill as written would not permit that kind of arrangement. Second, the 20% minimum private-sector investment in a PPP project refers to equity or "private debt," meaning taxable debt. And third, the bill permits AIF to invest equity in qualified projects, up to 20% of the project total. That seems backwards to me: to ensure that a state or local entity proposing a project has "skin in the game," a 20% equity investment by them, not AIF, would seem more prudent.
I have been skeptical of all proposals for a "national infrastructure bank," primarily concerned about their likely evolution into entities like those FDR created during the Depression, which funded projects primarily on political criteria. With the federal government already vastly over-indebted, adding more questionable debt is the last thing we need. Delaney has proposed a different approach, which would involve no federal budget allocations and issue no debt that puts federal taxpayers at risk. I do think its PPP provisions need further work, but I welcome this new proposal as a step in the right direction.
The Oregon legislature earlier this month passed SB 810, authorizing a first-in the nation mileage-based user fee (MBUF) program. Assuming the governor signs the bill into law, Oregon will go down in history as the first state to begin the needed transition from charging drivers per-gallon to charging them per mile for highway use. Nearly 100 years ago, Oregon was also the first state to enact a per-gallon tax on gasoline as the funding source for its highways.
Oregon's bill is modest in scope, but incorporates very important principles. First, it is limited to 5,000 drivers who voluntarily opt to join it, paying 1.5 cents per mile rather than the state's 30 cents per gallon gas tax. Second, participants have a choice of methods, and at least one must be non-location-specific (i.e., non-GPS). Other options are likely to include a flat annual rate offering unlimited miles, a plug-in module that simply records miles driven, and a smart-phone app that distinguishes in-state and out-of-state miles. Third, the plan protects driver privacy. In addition to requiring non-GPS options, the legislation requires personally identifiable information to be destroyed within 30 days after it is used for billing. (These MBUF privacy provisions were vetted and approved by the ACLU.) And fourth, all proceeds go into the State Highway Fund and will be distributed 50% for state highways, 30% for county roads, and 20% for city streets. Thus, Oregon has begun the transition to treating highway charging like other utility billing (water, electricity, etc.), where people are used to paying directly for what they use.
Better Roads last month reported MBUF-related activity in six other states. Two of them have passed bills requiring alternative-fuel vehicles to pay an annual fee: $100 for electric cars in Washington State and $64 for hybrid and electric cars in Virginia. A New Jersey senator has proposed a $50 annual fee on electric and natural gas cars, with the revenue dedicated to highway and bridge maintenance. A bill in Arizona calls for a one cent per mile charge for electric cars, estimated to average $120 per year. The North Carolina senate in May passed a bill calling for a $100/year charge for electric cars and $50/year for hybrids. And an Indiana legislative committee is looking into annual road impact fees for electric and hybrid cars.
Peter Samuel of Tollroadsnews.com, while generally supportive of tolling and pricing, has offered a dissenting view on this trend (see Quotable Quotes). Longer-term, I think he has a point, but since we need to get started on moving away from per-gallon charging, I'm encouraged by these fledgling efforts.
A protectionist measure known as Buy America has long been applied to many federally aided public works programs, including highways and transit. If there is even one dollar of federal money in such a project, the iron, steel, and manufactured products involved in the construction must come from the United States. But after MAP-21 was enacted last year, someone in the federal bureaucracy changed the interpretation of what is covered by Buy America to include utility relocations. And that rule change has put billions of dollars of highway and transit projects on hold, as utilities find it impossible to comply. The problem is painfully evident in California, where major projects such as the $1.6 billion widening of I-405 in Los Angeles, the $1 billion Gerald Desmond Bridge in Long Beach, the $636 million eastward extension of the SR 91 Express Lanes into Riverside County, and the $750 million I-80/I-680 interchange in the Bay Area are in danger of losing federal funding or being considerably delayed.
Major utilities such as Pacific Gas & Electric, Southern California Gas, and Southern California Edison object that utility facilities are not owned by the state DOT, and that utility relocations are often paid for out of state, not federal, funds. In addition, legally speaking, they contend that a utility relocation agreement is not a "procurement contract" for purposes of the highway project and therefore does not meet the requirements of the Buy America rules.
As a practical matter, the utilities explain that they cannot comply at this point for a host of real-world reasons. As one of the major utilities pointed out in its letter to Caltrans, it has 22,000 different items (SKUs) in its system purchased from numerous suppliers, and a typical utility relocation can involve up to 500 different SKUs. Having never had to contend with Buy America regulations, the utility has no data on which of these 22,000 items were produced overseas or include non-US components. And in a utility system encompassing (for this company) 50,000 square miles, it has numerous storage and yard facilities where materials are on hand, in some cases ordered several years ago. Further, in order to comply in the future, the utility would have to create a complete sourcing system, to enable it to use only US-sourced materials and components on federalized projects.
Though most media have failed to notice this imbroglio, a large coalition of infrastructure and utility organizations, including AASHTO, APTA, the American Public Power Association, and many others have sent a letter of protest to the U.S. DOT. In response, a July 11th memo from Gloria Shepherd (Acting Associate Administrator for Infrastructure, FHWA) reiterated the agency's interpretation of Buy America as applying to utility relocations but offering utilities an additional six months (till Dec. 31) to comply.
This is really foolish policy. Buy America was bad enough in its traditional interpretation as applying only to the iron and steel used in federally aided highway and bridge projects, needlessly raising costs for all highway users to protect a handful of steelworker jobs. But it's even more ludicrous in mandating, in effect, that public utility companies expend huge amounts of time and money creating dual inventory systems to be used only on their work with state DOTs. This is how an economy becomes less productive, thanks to special interest groups getting themselves exempted from the workings of the market, imposing higher costs on everyone else.
Last year Reason Foundation published a taxpayer risk analysis of a proposed high-speed rail line from Las Vegas to Victorville, CA(!), which had filed for a federal loan for about 90% of its estimated $6 billion construction cost. The loan was requested under the Railroad Rehabilitation and Improvement Financing (RRIF) program operated by the Federal Railroad Administration. The U.S. DOT sent a letter to XpressWest dated June 28, 2013 informing the company that FRA was indefinitely suspending its review of the loan application because "serious issues persist" with the project.
Rep. Paul Ryan (R, WI), chairman of the House Budget Committee and Sen. Jeff Sessions, ranking member of the Senate Budget Committee, back in March sent a letter to DOT Secretary Ray LaHood strongly opposing the XpressWest loan; they also asked the Government Accountability Office to evaluate the project. In light of DOT's June 28th letter, Ryan and Sessions informed the GAO of this development and said they would be in touch to explore what modifications to their original request may be in order.
I have a suggestion for Rep. Ryan, Sen. Sessions, and the GAO: reform RRIF to provide the same kind of taxpayer protections as in TIFIA. As I wrote in the April issue of this newsletter, at present the RRIF program is practically a blank check for borrowers. By contrast, TIFIA is intended to provide only gap financing for otherwise sound projects, which until recently could be no more than 33% of the total project budget (and even at the new MAP-21 limit of 49%, no TIFIA loan has ever exceeded 33%, nor should it). Second, any project getting a TIFIA loan must have a dedicated revenue source to increase the likelihood of the loan being repaid. And third, the project's primary financing must receive an investment-grade rating, thereby passing a basic market test.
Congress has been discussing RRIF recently, and a recent House Transportation & Infrastructure railroad subcommittee hearing showed general support for the idea of "RRIF reform." But so far that seems to mean some combination of promoting RRIF's use for high-speed rail (rather than its actual use thus far only for freight rail projects, mostly by short line railroads) and speeding up its loan approval process. But with the federal government $17 trillion in debt and climbing, the priority in any and all federal loan programs must be to minimize taxpayer risk and maximize the odds that such loans will be repaid.
FRA is to be commended for pulling the plug on the Xpress West boondoggle. With that huge distraction out of the way, Congress should focus on restructuring RRIF along the lines of TIFIA.
For years I have thought that state DOTs and transit agencies were missing the boat by not taking greater advantage of the synergy between priced lanes and express bus/BRT service. As I pointed out years ago, a variably priced lane is the virtual equivalent of an exclusive busway, but serves both cars and buses compatibly. One of the best examples of this synergy in action is the I-95 Express Lanes in Miami. With only the 7 miles of Phase 1 in service to date (and the 14-mile Phase 2 under construction), this formerly gridlocked commuting route has seen one of the most impressive growth rates in express bus services anywhere in the United States.
Evidently, the folks at Florida DOT get it. They commissioned a study to review the experience of such projects around the country and develop guidelines for planning future projects to maximize benefits for both drivers and transit passengers. The report, "Integrating Transit with Road Pricing Projects," by Steven Reich and Janet Davis of the Center for Urban Transportation Research (CUTR) at the University of South Florida, was published last month and is well worth perusing.
Its first 25 pages explain how priced managed lanes work, review current and planned projects in Florida, summarize similar projects in Atlanta, San Diego, and Seattle, and derive findings and recommendations. An appendix of another 20 pages or so provides tables with brief facts on dozens of US road pricing projects, not just managed lanes.
The findings and recommendations suggest a number of factors to consider when planning a managed lanes project that will include transit—such as starting with at least a sketch-level study to assess how much express bus demand might realistically exist in that corridor. If that looks promising, then factors that can make the bus service more effective—such as convenient park & ride lots and (possibly) direct-access ramps--should be considered.
There is some serious discussion about what toll revenues can pay for in a managed lanes project, with the authors pointing out that if the project involves adding new lanes to an expressway, the toll revenues in some or many cases may not fully cover the capital and operating costs of the managed lanes. Therefore, hopes that transit operating costs can be partially supported out of those toll revenues are generally not realistic. It's important that DOTs and transit agencies understand this, because the situation may be different in projects that simply convert existing HOV lanes into priced managed lanes. But any metro-area network of managed lanes will likely involve a large amount of new lane construction, especially ML-to-ML connectors at freeway interchanges, which will cost a lot of toll revenue.
The report also provides a brief preview of a new concept that's been under study in Tampa under a federal Value Pricing grant: Bus Toll Lanes. The idea is to have transit agencies become investors in new managed lanes projects, using some of their FTA grant money to help pay for the dual-use lane capacity along with a toll agency or state DOT. The BTL study, led by Parsons Brinckerhoff, is finished and the report is in preparation. Articles in the Tampa media and Tollroadsnews.com have summarized the work, which has evaluated three possible systems of BTLs for the Tampa metro area and concluded that the concept looks promising. Whether or not current FTA grant programs could handle funding requests for this kind of facility remains to be tested, but it looks to me like a promising approach. FHWA and FTA officials have been briefed on the study's findings, and the head of the Tampa Hillsborough Expressway Authority was quoted in Tollroadsnews as saying the officials were "most interested" and generally encouraging.
Note: I don't have space to list all transportation conferences that might be of interest. Below are those that I or a Reason Foundation colleague are taking part in.
25th Annual ARTBA P3s in Transportation Conference, July 25-26, 2013, Grand Hyatt, Washington, DC (Robert Poole speaking). Details at: www.artbap3.org.
WTS/TRF/YPT Summer Reception and Conversation on Technology and Transportation Financing, August 14, 2013, Reason Foundation office, Washington, DC (Robert Poole speaking). Details from firstname.lastname@example.org
Florida Transportation Commission MBUF Workshop, August 15, 2013, Burns Building, Tallahassee, FL (Adrian Moore speaking). Details from www.mbufa.org
Reducing Traffic Congestion and Increasing Mobility in Atlanta, 2013, August 28, 2013 Georgian Club, Atlanta, GA (Baruch Feigenbaum speaking). Details at .
IBTTA 81st Annual Meeting, Sept. 22-25, Vancouver Convention Center, Vancouver, BC (Robert Poole speaking). Details at: www.ibtta.org/events.
Reason's 20th Annual Highway Report Shows Trends. Earlier this month Reason Foundation released its 20th annual highway report, documenting key indicators on highway conditions and performance for all 50 states. Based on data reported to FHWA for 2009, the overall trend showed improvements in six of the seven measures over the prior year. And it also showed how problems are generally limited to a small number of states Almost 2/3 of poor-condition rural Interstate miles are in just five states, and over half of poor-condition urban Interstate miles are in five states, with California and New York in both categories. An overview and access to the full report are online at http://reason.org/studies/show/20th-annual-highway-report.
US P3 Advocacy Group Formed Five major construction firms and an infrastructure investment firm unveiled the Association for the Improvement of American Infrastructure (AIAI) at a New York conference last month. The founding members are ACS Infrastructure Development, Cintra US, Fluor Corp., Kiewit Development Co., Skanska USA, and Star America. AIAI aims to create an alliance of labor unions, trade association, consulting engineers, and contractors to work toward greater standardization of P3 enabling legislation and procurement practices. Details are available from Acting Executive Director John Parkinson: email@example.com.
Supreme Court Upholds Trucking Deregulation. A unanimous US Supreme Court rejected the contention of the Port of Los Angeles that it had legal authority to impose "concession agreements" on drayage trucks serving the port that would require them to be operated only as fleets, rather than by owner-drivers. The Court agreed with the position of the American Trucking Associations that the Port's policy violated federal pre-emption of economic regulation of trucking, airlines, etc.
Orlando-Miami Passenger Rail Progress. All Aboard Florida, the new passenger rail division of Florida East Coast Railway's parent company, reached another milestone last month, by signing agreements with Florida DOT and the Orlando-Orange County Expressway Authority to acquire right of way alongside the two agencies' BeachLine Expressway between Orlando and I-95 near Cocoa. The rest of the right of way, from Miami to Cocoa, is already owned by FEC. The last major agreement, still being worked on, is for a station at the Orlando International Airport.
California: Cleaner Air and More Cars. Two new reports call into question California's plans to mandate high-density urban development as a means of reducing vehicular emissions, including CO2. First, the Institute for Research in Environmental Sciences at the University of Colorado issued a report documenting greatly reduced vehicular emissions in the Golden State over the past 50 years, despite a threefold increase in people and cars. Transportation consultant Thomas Rubin analyzed the assumptions used by the Association of Bay Area Governments in its state-required Plan Bay Area, calling for drastic housing and land-use changes allegedly necessary to achieve CO2 reduction targets. His analysis suggests that the Bay Area is already very close to achieving the required 2020 levels, without enacting the land-use and housing plans. See: http://reason.org/news/show/does-california-really-need-major
Good Data on the "Peak Auto" Question. Michael Sivak of the University of Michigan's Transportation Research Institute has produced a useful compilation of data useful for addressing the question of whether the United States has reached a peak of vehicles, driving, etc. His analysis suggests that the 2008 peak in the number of light-duty vehicles is probably temporary (due to the recession), but that rates of vehicles per person, per licensed driver, and per-household may have reached long-term peaks. "Has Motorization in the U.S. Peaked?" is Report No. UMTRI-2013-17, June 2013.
East Coast Toll Interoperability Getting Closer. Starting this month, Florida's statewide Sunpass electronic toll collection system will be interoperable with North Carolina's QuickPass, the first step in a broader interoperability plan involving all 15 E-ZPass states in the northeast and Midwest. Florida DOT's next likely agreement is with Georgia's PeachPass system.
Breathing Room on Global Warming. Reason magazine science correspondent Ron Bailey posted a good overview of a major new study on global warming published in Nature Geoscience. The researchers estimated new equilibrium climate sensitivity (to greenhouse gas emissions) and transient climate response numbers. Bailey reports that New Scientist characterizes the changes as "a second chance to save the climate." The new figures are significantly below previous numbers from the UN's Intergovernmental Panel on Climate Change. Read the whole article at www.reason.com/blog/2013/05/21/future-global-warming-likely-less-second.
Policy Squabble Kills I-5 Bridge Project in Portland. A long-running battle over the cost of the replacement bridge over the Columbia River between Portland, OR and Vancouver, WA reached an unfortunate stalemate early this month. The Washington State Senate refused to enact a proposed funding package for the bridge, objecting to Oregon's insistence that the bridge include a light-rail line, which voters in most of the Vancouver area have rejected. The aging six-lane bridge is a major congestion bottleneck on I-5, but the proposed $3.4 billion price-tag was considerably inflated by the inclusion of a light rail line.
"A statewide road user charge is in one sense a universal toll and in another sense an anti-toll, a simple revenue-raiser. Your payment as a motorist is unconnected to particular trips on particular roads at particular times—the characteristics of a toll. Payments are not made directly to the road service provider but are filtered through a state fund, through state-legislated and politically driven grants, and trickle down to road agencies without any market connection to the motorists who pay. . . . We prefer real tolls linked to a particular road and administered flexibly to operate that road as an independent business. Real tolls allow distinctions to be made in toll rates according to demand, to local conditions, and highway costs, and they allow different roads, bridges, and tunnels to be financially self-supporting and accountable more directly to their customers and to their investors"
—Peter Samuel, "Editorial: We're Dissenting," Tollroadsnews.com, July 8, 2013 (www.tollroadsnews.com/node/6625)
"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 anyone 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 . . . 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 up with new money. They are taking matters into their own hands and taking control of their infrastructure agendas."
—Ken Orski, "Can-Do States," Innovation NewsBriefs, Vol. 24, No 8, July 16, 2013 (www.innobriefs.com)
"Today Caltrans has approximately $2.5 billion of infrastructure projects—over 30,000 jobs on 10 projects—that have been suspended due to 'Buy America' or will be in the near future. Thirty-eight more projects valued at another $3 billion not yet in construction are in limbo due to utility relocation issues, and the deteriorated Gerald Desmond Bridge—a vital link in the nation's trade system now under renovation at the Port of Long Beach with 3,000 jobs at stake—is at risk pending 'Buy America' certification. The 91 Freeway, notoriously congested, is the only major link between Orange County and the Inland Empire—at risk because two major utility companies cannot begin their relocations due to 'Buy America.' So the irony of 'Buy America' is that its implementation will not create jobs but massive layoffs—exactly the opposite of its sound bite intent and exactly the opposite of what President Barack Obama called for in his May 17 address to rebuild the nation's infrastructure and spur job creation."
—Lucy Dunn, "'Buy America' Needs Rethinking," Orange County Register, June 11, 2013"
"[All] cars are getting greener, driven in part by manufacturers' need to meet emissions standards. In the longer term a race is on between scientists trying to create low-cost, low-carbon 'biofuels,' which could give petrol and diesel engines a new, clean lease on life, and others trying to make electric batteries lighter, cheaper, and more reliable. The odds are that pure electric cars, despite their slow start, will be part of tomorrow's cleaner traffic: they just will not be the whole answer. Given this uncertainty, the wise things for politicians would be to set overall emissions targets and leave the risk to business-people. Wherever this has been tried, in Europe, America, Japan, and more recently China, carmakers have grumbled: but they have responded—most notably by squeezing more efficiency out of the century-old internal combustion engine. Sadly, politicians see electric cars not as a means to a greener future but as an end in themselves."
—Editorial, "Flat Batteries," The Economist, June 1, 2013
"Leaders in the nation's transportation-related environmental movement appear to be sharply turning away from the idea that futuristic plug-in electric vehicles are going to be the transformative solution once envisioned for solving the adverse environmental impacts caused by vehicles run on fossil fuels. Not only has electric car technology not yet come close to living up to its promise of just a few years ago; some are now openly questioning whether the full life-cycle environmental impacts of electric vehicles even constitute a net improvement over existing gas and diesel-powered vehicles."
—"Electric Car Hype Continues to Suffer Blows . . .," Washington Letter on Transportation, Vol. 34, Issue 28, July 8, 2013
"We spend a lot of transportation money in the Houston region on roads, and for good reason: That's how most people travel. Houston is a growing place, and there aren't two or three job centers, there are about eight. Getting people between them . . . is going to take roads."
—Doug Begley, Houston Chronicle, quoted in Wendell Cox, "Driving Trend in Context," NewGeography, May 28, 2013.