Commentary

Federal Reauthorization MAP-21

Subsection of Annual Privatization Report 2013: Surface Transportation

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I. Overview

In June 2012, several years past the expiration of the last federal surface transportation legislation (SAFETEA-LU), Congress enacted its successor, a two-year bill called Moving Ahead for America in the 21st Century (MAP-21). For the first time since 1956, the federal program did not provide a significant increase in funding. In fact, due to ongoing increases in vehicle fuel economy (miles per gallon) and slight decreases in vehicle miles of travel (VMT), revenue from highway user taxes was insufficient to keep highway and transit funding at previous levels. When the House was unwilling to pass a proposed bill that would limit spending to the likely amount yielded by those fuel taxes, Congress cobbled together enough general-fund subsidy to keep spending levels from declining.

MAP-21 streamlined and consolidated a number of federal highway programs, included modest environmental streamlining, and made some advances for tolling and public-private partnerships, thereby giving state departments of transportation (DOTs) some additional tools to cope with flat (rather than increased) federal grants.

II. Tolling Changes

Ever since the ISTEA legislation of 1991, the former outright ban on tolling federal-aid highways has been chipped away. Prior to MAP-21, tolling could be used on such highways except on the Interstate system, but only if the state DOT negotiated a tolling agreement with the U.S. Department of Transportation (USDOT). In addition, four toll pilot programs allowed limited use of tolling to test variable pricing (the Value Pricing Pilot program-15 states), to develop new express toll lanes (the Express Lanes Demonstration program-up to 15 projects), to build new Interstate routes (up to three projects in three different states), and to reconstruct aging Interstates (also three projects in three different states). In addition, High-Occupancy Vehicle (HOV) lanes could be converted to High-Occupancy Toll (HOT) lanes on Interstates and any other expressways.

MAP-21 mainstreamed the right of states to toll, by no longer requiring a federal tolling agreement. Accordingly, it abolished three of the four pilot programs going forward, retaining only the Value Pricing program. Tolling on Interstates is permitted as long as the number of non-tolled general purpose lanes is not reduced. Another new provision appears to grant greater ability to convert HOV lanes to express toll lanes, but conflicts with an existing, more restrictive provision of the law. Instead of expanding the Interstate reconstruction toll pilot program from the three current slots (held by Missouri, North Carolina and Virginia) as urged by several coalitions and many state DOTs, states are left with the difficult alternative of reconstructing a worn-out Interstate with tolls only on new lanes. That would limit what could be financed via toll revenue to only a fraction of the cost of reconstruction. New or replacement bridges and tunnels on Interstates can be financed with tolls on all lanes. Tolling advocates hope to try again when MAP-21 expires, with a new version of the bipartisan Carper/Kirk/Warner Senate amendment that would have authorized all states to use toll finance to reconstruct worn-out Interstates.

III. Public-Private Partnerships (PPPs)

Advocates of public-private partnerships won two out of three battles on this subject, defeating a string of anti-PPP amendments in the Senate and gaining a large expansion of the Transportation Infrastructure Finance and Innovation Act (TIFIA) subordinated loan program, but failing to gain an expansion of tax-exempt private activity bond (PAB) authorization.

Soon-to-retire Sen. Jeff Bingaman (D, NM) got several anti-P3 amendments into Senate bill S.1813, which passed in March. Two would have reduced the attractiveness to investors of leasing existing toll roads, by forbidding them (uniquely, compared with all other businesses) from using accelerated depreciation and prohibiting the use of PABs to finance such acquisitions. The third amendment aimed to reduce states’ gains from such leases by subtracting the miles of privatized highways from a state’s total in the formula for allocating federal highway money. Thanks to an all-out effort by the private sector, the American Road & Transportation Builders Association (ARTBA), and many state DOTs, these measures were deleted by the House-Senate conference that yielded MAP-21.

The big win for PPPs in MAP-21 was a large expansion of the TIFIA program, which provides subordinated loans for surface transportation projects with dedicated revenue streams. Budget authority for TIFIA was increased from the former level of $122 million per year to $750 million in FY 2013 and $1 billion in FY 2014. Since budget authority covers only the expected cost of the loan program to the government, loan amounts are typically ten times the budget authority-hence, TIFIA can make loans totaling $10 billion in FY 2014. The maximum size of a TIFIA loan was increased from 33% of project budget to 49%, but indications are that most loans will be at 33% or less, to aid the maximum number of projects. (At 49%, the program could support projects worth $20 billion in 2014, compared with projects worth $30 billion at 33%.) MAP-21 deletes the non-statutory “livability” and “sustainability” criteria that had been used as part of the selection process in recent years, and allows project proponents to submit requests at any time. By early December 2012, new loan requests under MAP-21 had been submitted to the TIFIA office at the Federal Highway Administration (FHWA) to help finance eight PPP projects worth $7 billion. Loans requested under the previous legislation are being processed for five PPP projects worth $4 billion. (Thirty of the projects seeking TIFIA loans are not PPPs.)

TIFIA provides subordinated debt and requires that a project’s primary financing receive an investment-grade rating. In SAFETEA-LU, Congress authorized up to $15 billion in tax-exempt Private Activity Bonds (PABs) for such purposes. Unfortunately, MAP-21 did not expand this amount, which is likely to be used up during the measure’s two-year duration. It also did not exempt interest on such PABs from the Alternative Minimum Tax (AMT), as airport and highway groups had urged. Hence, when no more PABs are available for PPP projects, taxable debt will have to be used, increasing those projects’ cost of capital and the user fees or state appropriations used to pay off the debt.

Table 1: U.S. Surface Transportation Scorecard (1990-2012)

Contract Amount ($ millions) Project Name Owner Private Risk Notice to Proceed Sponsors (DB Component)
3,850 Indiana Toll Road, IN* Indiana Finance Authority 75-year lease June-06 CintraConcessions/Macquarie
2,800 I-635 LBJ Managed Lanes, TX* Texas DOT DBFOM (toll) Jun-10 Cintra/Meridiam ($2.1 bn Ferrovial Agroman)
2,100 Midtown Tunnel, VA Virginia DOT DBFOM (toll) Apr-12 Skanska/Maquarie ($1.47 bn Skanska/Kiewi/Weeks)
2,100 Denver Eagle P3 Rail, CO* Denver RTD DBFOM (ap) Aug-10 Fluor/Laing/Uberior ($1.27 bn Fluor/BBRI)
2,047 North Tarrant Express, TX* Texas DOT DBFOM (toll) Dec-09 Cintra/Meridiam ($1.46 bn Ferrovial)
1,998 I-495 HOT Lanes, VA* Virginia DOT DBFOM (toll) Jul-08 Transurban/Fluor ($1.4 bn Fluor/Lane)
1,830 Chicago Skyway, IL* City of Chicago 99-yr lease Jan-05 Cintra Concessions/Macquarie
1,814 I-595 Managed Lanes, FL* Florida DOT DBFOM (ap) Feb-09 ACS Infrast. ($1.2 bn Dragados/EarthTech)
1,674 Hudson-Bergen Lt. Rail, NJ NJ Transit DB/Equip+O&M Oct-96 Wash. Group/Itochu ($1.15 bn Perini/Slattery)
1,358 SH 130 Segments 5-6, TX* Texas DOT DBFOM (toll) Mar-08 Cintra/Zachary
1,080 PR-22, PR PR Highways 40-yr lease Sep-11 Albertis/CS Global Infrastructure Partners II
1,040 Grand Parkway, TX Texas DOT DBOM Oct-12 Zachry-Odebrecht
998 RiverLINE Light Rail, NJ NJ Transit DB/Equip+O&M Jun-99 Bechtel/Conti/Foster/Bombardier
980 Jamaican-JFK Airtrain, NY Port Auth. NY/NJ DB/Equip+O&M Sep-99 Skanska/Bombardier ($980m Slattery/Perini)
940 I-95 Express HOT Lanes, VA Virginia DOT DBFOM (toll) Aug-12 Transurban/Flour ($618m Fluor/Lane
914 Port of Miami Tunnel, FL* Florida DOT DBFOM (ap) Oct-09 Meridiam ($607m Boygues/Jacobs)
773 SR 125 So. + Connectors, CA* San Diego Expressway L.P. DBFOM (toll) May-03 Macquarie ($653m Washington/Fluor)
689 JF Terminal 4, NY* Port Auth. NY/NJ DBFOM May-97 Schipol/LCOR ($689m Fluor/Morse Diesel)
611 Pocahontas Parkway Lease, VA* Virginia DOT 99-year lease Jun-06 Transurban ($45m Fluor/WGI)
603 Northwest Parkway Lease, CO* Northwest Parkway Authority 99-year lease May-07 BRISA/CCR
431 IROX I-75, FL Florida DOT DBF Jun-07 Anderson Columbia Co., and Ajax Paving
390 I-4 Conector Florida DOT BF Dec-09 PCL/Archer Western + Atkins
385 Route 3 North, MA Mass. Highways DBF/Maint. Aug-00 Modern Construction/Roy Jorgenson
365 Presidio Parkway, CA CalTrans DBFOM (ap) Oct-12 ACS/Meridiam ($245m Flatiron/Kiewit)
350 Dallas Greenway Toll Road, VA* TRIP II DBFOM (toll) Sep-93 TRIP II ($150 m Brown & Root)
343 Las Vegas Monrail, NV L.V. Monorail LLC DB/Equip+O&M Oct-00 Bombardier/Granite
295 US 550, NM New Mexico SH&TD D/CM/Warranty Sep-98 Koch Materials ($295m CH2M Hill/Flatiron)
236 Rt. 288, VA Virginia DOT DB/Warranty Dec-00 Koch/APAC/CH2M Hill
211 I-95 Widening, FL Florida DOT DBF Dec-07 Community Asphalt
177 Palmetto Exp. Widening, FL Florida DOT DBF Aug-08 Condotte-DeMoya j.v.
140 I-485 Charlotte Loop, NC North Carolina DOT DBF Jun-10 Blythe Construction/Wilbur Smith Assoc.
130 CPTC 91 Express Lanes, CA* CalTrans DBFOM (toll) Jul-93 Level 3/Cofiroute/Granite (sold 01-03)
121 95 Express Lanes Florida DOT DBF Jan-08 FCC/MCM
111 US-1 Improvements, FL Florida DOT DBF Nov-07 Community Asphalt
100 So. Norfolk Jordan Bridge* Cheseapeake VA BOO Jan-11 Figg/American Infra. ($75m Lane Const./Figg)
90 Loop 101 HOT lanes Arizona DOT DBq Jan-11 Kiewit/Sundit +Parsons/URS
85 Camino Colombia Bypass, TX* Texas DOT DBFOM (toll) Jun-99 Granite/Sundit
82 Hathaway Bridge, FL Florida DOT DB/Warranty Jun-00 Granite

Source: Public Works Financing, November 2012

Notes: Project cost for leased assets represents discounted present value of excess cash flow.

* = developer financed

DBFOM=design-build-finance-operate-maintain

BOO=build-own-operate

AP=availability payment

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Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation. Poole, an MIT-trained engineer, has advised the Ronald Reagan, the George H.W. Bush, the Clinton, and the George W. Bush administrations.

Surface Transportation

In the field of surface transportation, Poole has advised the Federal Highway Administration, the Federal Transit Administration, the White House Office of Policy Development, National Economic Council, Government Accountability Office, and state DOTs in numerous states.

Poole's 1988 policy paper proposing privately financed toll lanes to relieve congestion directly inspired California's landmark private tollway law (AB 680), which authorized four pilot toll projects including the successful 91 Express Lanes in Orange County. More than 20 other states and the federal government have since enacted similar public-private partnership legislation. In 1993, Poole oversaw a study that coined the term HOT (high-occupancy toll) Lanes, a term which has become widely accepted since.

California Gov. Pete Wilson appointed Poole to the California's Commission on Transportation Investment and he also served on the Caltrans Privatization Advisory Steering Committee, where he helped oversee the implementation of AB 680.

From 2003 to 2005, he was a member of the Transportation Research Board's special committee on the long-term viability of the fuel tax for highway finance. In 2008 he served as a member of the Texas Study Committee on Private Participation in Toll Roads, appointed by Gov. Rick Perry. In 2009, he was a member of an Expert Review Panel for Washington State DOT, advising on a $1.5 billion toll mega-project. In 2010, he was a member of the transportation transition team for Florida's Governor-elect Rick Scott. He is a member of two TRB standing committees: Congestion Pricing and Managed Lanes.

Aviation

Poole is a member of the Government Accountability Office's National Aviation Studies Advisory Panel and he has testified before the House and Senate's aviation subcommittees on numerous occasions. Following the terrorist attacks of Sept. 11, 2001, Poole consulted the White House Domestic Policy Council and the leadership of the House Transportation & Infrastructure Committee.

He has also advised the Federal Aviation Administration, Office of the Secretary of Transportation, White House Office of Policy Development, National Performance Review, National Economic Council, and the National Civil Aviation Review Commission on aviation issues. Poole is a member of the Critical Infrastructure Council of the Los Angeles Economic Development Corporation and of the Air Traffic Control Association.

Poole was among the first to propose the commercialization of the U.S. air traffic control system, and his work in this field has helped shape proposals for a U.S. air traffic control corporation. A version of his corporation concept was implemented in Canada in 1996 and was more recently endorsed by several former top FAA administrators.

Poole's studies also launched a national debate on airport privatization in the United States. He advised both the FAA and local officials during the 1989-90 controversy over the proposed privatization of Albany (NY) Airport. His policy research on this issue helped inspire Congress' 1996 enactment of the Airport Privatization Pilot Program and the privatization of Indianapolis' airport management under Mayor Steve Goldsmith.

General Background

Robert Poole co-founded the Reason Foundation with Manny Klausner and Tibor Machan in 1978, and served as its president and CEO from then until the end of 2000. He was a member of the Bush-Cheney transition team in 2000. Over the years, he has advised the Reagan, George H.W. Bush, Clinton, and George W. Bush administrations on privatization and transportation policy.

Poole is credited as the first person to use the term "privatization" to refer to the contracting-out of public services and is the author of the first-ever book on privatization, Cutting Back City Hall, published by Universe Books in 1980. He is also editor of the books Instead of Regulation: Alternatives to Federal Regulatory Agencies (Lexington Books, 1981), Defending a Free Society (Lexington Books, 1984), and Unnatural Monopolies (Lexington Books, 1985). He also co-edited the book Free Minds & Free Markets: 25 Years of Reason (Pacific Research Institute, 1993).

Poole has written hundreds of articles, papers, and policy studies on privatization and transportation issues. His popular writings have appeared in national newspapers, including The New York Times, The Wall Street Journal, USA Today, Forbes, and numerous other publications. He has also been a guest on network television programs such as Good Morning America, NBC's Nightly News, ABC's World News Tonight, and the CBS Evening News. Poole writes a monthly column on transportation issues for Public Works Financing.

Poole earned his B.S. and M.S. in mechanical engineering at Massachusetts Institute of Technology (MIT) and did graduate work in operations research at New York University.