Transportation Projects Aren’t Being Chosen on the Merits

The future of the federal surface transportation program

The Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA) was enacted as part of the TEA-21 reauthorization. Its purpose was to “leverage limited federal resources and stimulate private capital investment in transportation infrastructure by providing credit assistance rather than grants to projects of national or regional significance.” Its credit support is limited to 33% of a project’s total budget; originally projects had to be at least $100 million in size, but SAFETEA-LU lowered this to $50 million. Other project debt must receive an investment-grade rating-an important tool to weed out poorly justified projects. And there must be a dedicated revenue source to repay the TIFIA loans.

In its early years TIFIA supported a mix of government toll projects and some rail stations and other rail projects that had dedicated (tax) revenue sources. But in the later years of this decade, it developed into an important part of the financing package for long-term concession projects. Included in this category are three new toll roads (South Bay Expressway, SH 130 Segments 5 & 6, and Pocahontas Parkway Extension), four managed lanes megaprojects (the LBJ and North Tarrant Express managed lanes in Texas, the Capital Beltway HOT lanes in Virginia, and the I-595 express lanes in Florida), and the Port of Miami Tunnel. Of the 17 projects with TIFIA financing, two are transit stations, two are intermodal stations, and 13 are highway projects. TIFIA loans of $6.3 billion are supporting total project costs of $23.4 billion, illustrating the leverage the program was intended to provide. Moreover, 13 of the 17 projects are supported by user charges, representing $5.1 billion of the $6.3 billion.

Unfortunately for all these good things, in the past year the TIFIA program has changed course. The current Administration has added “livability” and “sustainability” to the selection criteria, without going through a normal rule-making process. That change has apparently led to toll projects that add highway capacity getting aced out. The latest round of TIFIA funding requests produced 39 project requests, of which 25 were toll bridges, highways, or tunnels. But not one of the four projects selected to submit detailed applications were of this kind. While two do represent highway infrastructure-replacing Doyle Drive in San Francisco and replacing the Goethals Bridge in New York/New Jersey-both are to be financed based on availability payments. (The other two are Denver’s Eagle rail project and a San Francisco waterfront project.) Many toll projects (some P3 and some public) were left with gaping holes in their financing plans.

This major change in direction occurs during a long-running battle about the future of the federal surface transportation program. One way of looking at it is between the “old guard” Highway Trust Fund model and the “progressive” Transportation Trust Fund model. The former would continue to have highway user taxes largely fund a program of federal assistance to a state-run highway improvement program, driven largely by formula but greased by a generous helping of earmarks. The latter would “break down the silos” and put all transportation revenue into an intermodal trust fund, to be allocated in some kind of a “merit-based” manner. The states, under this model, would be directed to achieve federal goals and hapless highway users would become the cash cows for all manner of highway and non-highway projects.

A preview of how this might work out in practice is the Administration’s TIGER grant program. An analysis of TIGER I and II sent to me by an investment banker (who asked that his name not be used) is very eye-opening. For TIGER I, of the $59.7 billion in funds requested, 56% was for highway projects. But only 14% of the $1.5 billion actually awarded was for highways. Some of the nationally significant projects receiving TIGER grants included:

· A fisheries dock and freighter loading facility in Juneau, Alaska;

· A new traffic signal system, angled parking, and ADA-compliant crosswalks in Whitefish, Montana;

· Completion of an eight-mile urban bicycle and pedestrian network in downtown Indianapolis;

· Reconstruction and improvement of 16.3 miles of bike and pedestrian facilities in the Philadelphia area.

TIGER II, alas, funded many similar projects, including:

· Repairing dilapidated sidewalks in Peoria, Illinois;

· Adding median landscaping to create a more walkable environment in Fort Valley, Georgia;

· Building a streetcar line in Salt Lake City with projected daily ridership by 2030 of 4,000 people.

Both TIGER programs were allowed by Congress to use a significant fraction of their budget for additional TIFIA credit support, which would have leveraged the limited federal dollars at a time when demand for solid TIFIA projects greatly exceeded that program’s budget. But the Administration used only small fractions of those amounts for this purpose.

What particularly galls me is that despite the TIGER program’s numerous examples of Administration earmarks, it continues to be touted as a “merit-based” approach that should supplant the long-standing formula approach in the federal surface transportation program. As John Stossel would say, “Give me a break!”

I’m greatly encouraged that most of Congress, in response to the recent “wave” election, has sworn off of legislative earmarks, at least for the next two years. But that same Congress needs to cease funding Administration earmarks like the TIGER program.

The new “clean sheet of paper” House reauthorization bill needs to give the state DOTs the tools they need to leverage private capital. That means a larger authorization for states to issue Private Activity Bonds and a larger budget for a reformed TIFIA program. In reforming TIFIA, Congress should remove the “livability” and “sustainability” criteria and require that eligible projects have user-fee or availability payment-based revenue streams. That would open the door wider for a host of good toll and P3 projects that were turned down in the latest round.

Robert Poole is director of transportation studies at Reason Foundation. This column first appeared in Public Works Financing.