[Senate Hearing 111-1247]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1247
INNOVATIVE PROJECT FINANCE
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HEARING
before the
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 28, 2010
__________
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COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana JAMES M. INHOFE, Oklahoma
THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio
FRANK R. LAUTENBERG, New Jersey DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland JOHN BARRASSO, Wyoming
BERNARD SANDERS, Vermont MIKE CRAPO, Idaho
AMY KLOBUCHAR, Minnesota CHRISTOPHER S. BOND, Missouri
SHELDON WHITEHOUSE, Rhode Island LAMAR ALEXANDER, Tennessee
TOM UDALL, New Mexico
JEFF MERKLEY, Oregon
KIRSTEN GILLIBRAND, New York
ARLEN SPECTER, Pennsylvania
Bettina Poirier, Staff Director
Ruth Van Mark, Minority Staff Director
C O N T E N T S
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Page
SEPTEMBER 28, 2010
OPENING STATEMENTS
Boxer, Hon. Barbara, U.S. Senator from the State of California... 1
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee.. 5
Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland 5
Merkley, Hon. Jeff, U.S. Senator from the State of Oregon........ 8
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma,
prepared statement............................................. 42
WITNESSES
Kienitz, Roy, Under Secretary for Policy, U.S. Department of
Transportation................................................. 8
Prepared statement........................................... 11
Responses to additional questions from:
Senator Boxer............................................ 17
Senator Cardin........................................... 18
Senator Inhofe........................................... 20
Villaraigosa, Antonio R., Mayor, City of Los Angeles, California. 30
Prepared statement........................................... 33
Kopelousos, Stephanie C., Secretary of Transportation, Florida
Department of Transportation................................... 43
Prepared statement........................................... 45
Seltzer, David, Principal, Mercator Advisors LLC................. 55
Prepared statement........................................... 57
Response to an additional question from Senator Inhofe....... 65
ADDITIONAL MATERIAL
Testimony submitted by the Riverside County Transportation
Commission, September 27, 2010................................. 70
INNOVATIVE PROJECT FINANCE
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TUESDAY, SEPTEMBER 28, 2010
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The full Committee met, pursuant to notice, at 10 a.m. in
room 406, Dirksen Senate Office Building, Hon. Barbara Boxer
(Chairman of the full Committee) presiding.
Present: Senators Boxer, Alexander, Cardin, and Merkley.
OPENING STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM THE STATE OF CALIFORNIA
Senator Boxer. Good morning, everybody, and welcome to our
hearing.
There is a growing consensus that smart investments in
transportation are an important part of the solution to the
serious economic challenges we are facing. We must make sure
that our existing infrastructure is sound and plan for future
investments that create jobs, maximize economic development,
reduce our dangerous dependence on foreign oil, clean up our
air, and strengthen our global competitiveness.
In these difficult economic times it is more important than
ever to look for tools that can stretch the resources we have.
We need to get the maximum benefit for every transportation
dollar we spend.
Today's hearing is going to focus on potential changes to
Federal surface transportation programs and funding that will
encourage additional State, local, and private investments in
transportation and accelerate the benefits of those
investments.
The 30/10 Initiative in Los Angeles County is an example of
how timely Federal assistance can leverage local investments in
transportation. In 2008 the citizens of Los Angeles County
approved a half a cent sales tax dedicated to transportation, a
powerful statement that the people of L.A. County are willing
to help pay for a transportation system they need now.
This measure, known as Measure R, will generate an
estimated $40 billion over the next 30 years, including $13
billion for transit projects throughout the County. Mayor
Villaraigosa, who is going to be joining us, has advocated the
idea that with Federal assistance Los Angeles could speed up
delivery of the transit projects expected to be funded with
Measure R so they could be funded over 10 rather than 30 years.
I see the Mayor right behind Roy Kienitz. Welcome.
Accelerating these projects would create an estimated
160,000 jobs while easing congestion and reducing dangerous
pollution. That means healthier families and a healthier
economy in the L.A. region.
I believe the 30/10 Initiative can serve as a model that
can be replicated in many cities and States and counties across
this country. And as we develop the next comprehensive surface
transportation law, we have this opportunity to make changes to
programs that will leverage resources to create more jobs and
build the highway and transit systems our communities need
faster.
For example, I have been looking at changes to part of the
existing transportation law called TIFIA, Transportation
Infrastructure Finance and Innovation Act. TIFIA helps
communities leverage their transportation resources by
providing loans and loan guarantees. According to the Federal
Highway Administration, every dollar made available through
TIFIA can mobilize up to a total of $30 in transportation
investments. So at a time when we are trying to make sure our
deficit does not increase, we want to leverage investments.
This is the word, leverage. Everybody comes out the winner
here.
We need that kind of tool as we look at the next
Reauthorization Bill. TIFIA has been a successful program. But
improvements are needed if it is going to achieve the kind of
transformative results we all want to see moving forward.
Already, mayors from across the country are asking for greater
opportunities for this kind of innovative partnership.
I would like to place into the record a resolution from the
U.S. Conference of Mayors calling for expansion of TIFIA and
bonding programs so communities can accelerate job creation and
the other benefits of transportation improvements. So, without
objection, we will put that mayors' letter into the record.
I want to thank Transportation Secretary LaHood for his
commitment to this idea--this 30/10 Initiative--and for
agreeing to work on expanding this model in the upcoming
transportation bill. We could not ask for a better partner when
it comes to forward thinking transportation issues.
So, I look forward to hearing from today's witnesses on the
best ways we can reform our national transportation policy so
we can better serve the needs of local communities across this
country. We all know that the 21st century transportation
system is absolutely essential to creating jobs and ensuring
future economic prosperity. There is no leading nation on earth
that could be a leading nation if they cannot move people, if
they cannot move goods. Everything would come to a halt.
So, I am very happy that we have these two panels. We are
going to need everybody's ideas and advice and everybody's
engagement as we work across party lines to craft our new
transportation authorization bill.
Senator Alexander.
[The referenced material follows:]
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OPENING STATEMENT OF HON. LAMAR ALEXANDER,
U.S. SENATOR FROM THE STATE OF TENNESSEE
Senator Alexander. Thanks, Madam Chairman.
This is a time when we need to be restraining growth on
spending. But if you were in a private sector and all you could
think of to do over a long period of time was to freeze
spending you would be fired for not being willing to make hard
decisions and not being a good manager.
So, while freezes may help us get off to the right track,
over time we are going to have to remember that there are some
things in which we need to invest and other places we need to
cut. And one area where we must have a good, a good system to
stay competitive in the world is in transportation.
So, I look forward to hearing the witnesses' ideas, and I
thank the Chairman for calling the hearing.
Senator Boxer. Thank you so much, Senator.
Senator Cardin.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM THE STATE OF MARYLAND
Senator Cardin. Thank you, Madam Chair.
I just really want to thank you for the series of hearings
that you have had as we determine the next surface
transportation reauthorization bill. I think we are well
positioned to bring a bill out, thanks to your leadership. And
thank you for this hearing because this is a critically
important issue, how we are going to finance it, not just at
the national level but with our partners at the States.
For a long time we relied primarily on the gasoline tax--
not just at the national level, but our States--to finance our
transportation programs. It may have worked in the past, but it
will no longer work today or in the future because part of our
energy policy must be to use less fossil fuels. We are
investing a lot of money in conservation, a lot of money in
alternative fuels. That is what we need to do. But on the other
hand, if that is all we rely upon to finance our transportation
programs, it is not going to work.
So, we need to look at new ways to do this. With our
tremendous needs out there, I agree with Senator Alexander, we
are going to have to make tough choices. But we know that for
the sake of our economy, for the sake of our job growth and
competitiveness, we need to invest in a stronger transportation
infrastructure. And part of that includes investing much more
aggressively in public transportation which will help us with
our energy policy as well as with quality of life.
In my State of Maryland, Governor O'Malley has put together
a Blue Ribbon Commission to take a look at transportation
funding in our State. I know that is being done in many others,
and I know you need to take a look at the proposals that come
out of these State commissions. They are looking at private-
public partnerships to advance transportation projects.
In Maryland we are looking at value capture as one of the
ways of doing it, consistent with our Smart Growth Initiatives
in our State where we think we can have win-win programs, that
a partner with the private sector enable us more flexible
financing in order to advance economic growth in Maryland and
our Nation.
The bottom line is we have got to get this right. This is a
matter of job growth. This is a matter of economic
competitiveness. And we need to make sure that at the end of
the day we have the financing necessary to keep America
competitive.
And with that, Madam Chair, I will ask consent to put my
entire statement in the record and look forward to our
witnesses.
[The prepared statement of Senator Cardin follows:]
Statement of Hon. Benjamin L. Cardin,
U.S. Senator from the State of Maryland
Thank you, Madam Chairman, for holding this hearing today
examining a critical issue we need to address as we work toward
reauthorizing the surface transportation program for the
country.
The Highway Trust Fund and its revenue sources--namely the
gas tax--have been a reliable mechanism for financing highway
and transit programs for five decades. This is no longer the
case.
The combination of higher fuel prices, a growing number of
fuel efficient vehicles on the road, and a stagnant gas tax
rate has caused transportation expenses to outpace
transportation revenues.
A critical part of U.S. energy policy will be in the area
of increased energy conservation and energy efficiency. These
are policies that will reduce our reliance on foreign oil,
reduce carbon emissions, and during these trying economic times
save consumers money.
To many this means driving less, purchasing fuel efficient
vehicles, perhaps even buying electric cars like the new Nissan
Leaf or plug-in hybrids like the Chevy Volt, or using public
transportation to get around.
Unfortunately, funding for our surface transportation
system suffers when people make these thoughtful and positive
transportation decisions. This is because transportation
funding is so reliant upon sustained--if not increased--fossil
fuel consumption.
This divergence in policy and our cultural shift away from
rampant fuel fossil consumption mean we need to rethink how we
raise revenue to pay for future transit and road projects.
States have faced tremendous challenges to raise the funds
needed to complete transportation projects. Many States are
reevaluating the means in which they raise revenue and fund
vital transportation projects.
This has certainly been the case in Maryland. As a result
Maryland has assembled a Blue Ribbon Commission to help tackle
the enormous task of finance assessment and revenue stream
development.
The Commission is comprised of 28 different stakeholders
from the various transportation sectors including freight rail,
transit providers like WMATA, and highway builders.
Transportation advocacy organizations like Triple-A and Smart
Growth organizations as well as labor unions are all working
together to help the State of Maryland tackle funding questions
as it relates to:
Funding sources and structure of the Maryland
Transportation Trust Fund.
Short- and long-term transit, highway, and pedestrian/
bicycle construction and maintenance funding needs.
Options for public-private partnerships, including
partnerships with local governments.
The structure of regional transportation authorities and
the ability of those authorities to meet transportation needs.
The impact of economic development and smart growth on
transportation funding.
Options for sustainable, long-term revenue sources for
transportation.
This collaborative effort will bring about the next generation
of financing mechanisms the State will use to advance its
transportation goals for the future.
With growing fiscal constraints on the State, Maryland is
also engaging in a number of private-public partnerships to
advance transportation projects.
One of the more common methods being used to maximize the
benefits of both public and private investment in a project is
through a ``value-capture'' system.
Incorporating publicly funded infrastructure into private
land values is helping finance public infrastructure across the
State.
As residents and business owners continue to place greater
value on mobility and access to multi-modal transportation
options, value capture financing is helping advance Smart
Growth initiatives throughout Maryland.
By increasing the value of land surrounding transit and
other targeted transportation facilities, the State in
partnership with municipalities can incentivize compact,
accessible growth so developers can get the greatest amount of
return on investments, particularly in transit corridors.
By capturing profits gleaned through public spending, value
capture also provides greater funding opportunities for
community reinvestment and job growth.
Tackling how we finance transportation infrastructure on a
national scale is no small task.
There are certainly lessons we can learn from the States,
but ultimately we need financing mechanisms that complement the
national goals we set for the Nation's transportation
infrastructure.
As we work to reduce congestion and fossil fuel consumption
and improve transport efficiency and the safety of our Nation's
transportation infrastructure we need financing mechanisms that
work toward these goals as well.
Public investment in transportation infrastructure is
incredibly important to getting America back to work, and it is
imperative we develop sustainable and equitable means to pay
for these investments.
I also look forward to working with colleagues on this
Committee to develop this critical aspect to the next surface
transportation authorization bill, which must be a priority for
this Committee to complete.
President Obama's Labor Day speech calling for renewed
investment in our Nation's transportation infrastructure is a
welcome sign. Building roads, bridges, new high speed rail
lines and developing efficient transit systems are all
incredibly important initiatives to get thousands of Americans
back to work on projects that will improve American
competitiveness in the global economy and vastly improve our
citizens' quality of life.
A notable omission from the President's discussion of
infrastructure investment is a call for critical investment in
our Nation's crumbling water infrastructure.
In addition to investments in transportation I would like
to take this opportunity to point out that we need to make
similar investments in water infrastructure.
Infrastructure investment in water systems has one of the
highest job creation potentials when compared across other
broad categories of public infrastructure investment. \1\
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\1\ Political Economy Research Institute, How Infrastructure
Investments Support the U.S. Economy: Employment, Productivity and
Growth (January 2009), 26. http://www.peri.umass.edu/fileadmin/pdf/
other_publication_types/green_economics/PERI_Infrastructure_Investments
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A recent report by the Clean Water Council demonstrates
that investments in water infrastructure would have
``immediate, substantial and far-reaching effects on the
economy.'' \2\
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\2\ Clean Water Council, Sudden Impact: Assessment of Short-Term
Economic Impacts of Water and Wastewater Projects in the United States
(June 2009), 6. http://www.nuca.com/files/public/
CWC_Sudden_Impact_Report_FINAL.pdf
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In examining short-term economic impacts, a $1 billion
investment in water infrastructure:
Could result in an estimated 20,003 to 26,669 jobs across
the Nation, with more than one-half of the jobs created in
industries other than water and wastewater construction.
Almost triples in size throughout the national economy
based on its total demand for goods and services. \3\
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\3\ Id.
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In California, would create 12,390 to 19,574 jobs, with
about 7,000 of these jobs in the pipe construction sector where
average earnings of $68,000 exceed the statewide median
household income. \4\
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\4\ Id. 12.
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Over the long-term, the U.S. Conference of Mayors recently
found that:
$1 of water and sewer infrastructure investment increases
Gross Domestic Product (GDP) by $6.35.
And every job in water and sewer infrastructure creates
3.68 jobs in the national economy to support that job. \5\
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\5\ The United States Conference of Mayors, Mayors Water Council,
Local Government Investment in Municipal Water and Sewer
Infrastructure: Adding Value to the National Economy
(August 2008), i. http://usmayors.org/urbanwater/documents/
LocalGovt%20InvtInMunicipalWaterandSewerInfrastructure.pdf
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I recognize the subject of today's hearing is on
transportation finance, but given our Committee's broader
jurisdiction and the focus Mr. Kienitz's written testimony put
on the President's Labor Day announcement, I wanted to raise
this issue.
I want to remind the Administration and my colleagues that
we must also make much needed investments in water
infrastructure as well as investments in our transportation
infrastructure.
Senator Boxer. Thank you so much.
Senator Merkley.
OPENING STATEMENT OF HON. JEFF MERKLEY,
U.S. SENATOR FROM THE STATE OF OREGON
Senator Merkley. Thank you, Madam Chair.
In Oregon, we have had a process of looking for the choke
points, if you will, the places where strategic investment
would make a real difference. And we have had a series of
programs called ConnectOregon, ConnectOregon I, ConnectOregon
II and ConnectOregon III.
Certainly, as we wrestle with addressing key parts of our
transportation system financing is a fundamental challenge. And
I am interested to hear all of the creative ideas that we will
be discussing today, and thank you for coming and sharing your
thoughts.
Senator Boxer. Thank you.
So, with that, we are honored that we have been joined by
Hon. Roy Kienitz, Under Secretary for Policy, U.S. Department
of Transportation.
Will you not proceed, please?
STATEMENT OF ROY KIENITZ, UNDER SECRETARY FOR POLICY, U.S.
DEPARTMENT OF TRANSPORTATION
Mr. Kienitz. Thank you, Madam Chair. Thank you, Senators.
Good morning.
On Labor Day, as I think everyone here knows, the President
gave a speech in which he made the first major policy
announcement about transportation to come from him since taking
office. And the big news is that he is going to throw his
support behind a 6-year reauthorization of the transportation
program here, something that I think every member of this
Committee has supported for a while. So, I hope we can add our
voices to yours.
There are a couple of features of that announcement that I
wanted to highlight, the first of which is that we believe
funding levels need to be higher above the current baseline.
And so we want to work with folks on that going forward, to
figure out how to do that in a way that is paid for. The second
of which is, given the economic situation right now, it seems
appropriate to frontload a significant share of that money and
we have suggested the first $50 billion to be made available as
soon as possible.
So, that is how we start this week. That program could have
some very tangible accomplishments. That is hopefully enough
resources to allow us to build or rebuild 150,000 miles of
roadway, construct or maintain 4,000 miles of rail, and in the
first year we are hoping to have an aviation component, too,
which is enough to do at least 150 miles of runway projects.
But obviously over 6 years there is a huge amount that we can
do.
In that reauthorization there are a lot of opportunities.
One of them that I want to talk about today is the idea of
supporting programs like the Los Angeles 30/10 Program. I think
for us that starts with the first thing you have do, which is
to name your goals if you want to make sure you are pursuing
them. So, the Secretary has worked on a strategic plan which
has been released in draft form and hopefully will be released
in final form soon.
And our strategic goals are pretty simple: economic
competitiveness, safety, state of good repair of the existing
system; environmental sustainability;, and community
livability. The way to get toward those things starts to get a
little bit more complicated. I testified before this Committee
in March about the benefits of programs like the Los Angeles
30/10 Program, and we continue to believe that the Federal
Government needs more and better tools to be able to support
programs like that.
The tools that we have right now, as I have testified
before, are very focused on individual projects, what are the
merits of this project, goes from where to where, what are the
costs and benefits of a particular project. What they are
proposing to do is a program of projects which, when pieced
together, creates a network. And I think that is what we all
agree is the future. We need to get away from segment by
segment thinking and get toward network thinking.
And that is the experience in Oregon and Maryland and other
places where they look at the system as a whole. Some places we
propose a transit investment, and some places we have to
rebuild the bridge that already exist but configure it
differently, whether it is for bicycles, pedestrians or cars or
transit, and other places we need to invest in highway
capacity. But that should be case by case.
The problem with programs that we have now is that on the
formula side they tend to be very divided by mode. A highway
dollar is only a highway dollar, and a transit dollar is only a
transit dollar. You cannot do this type of place by place
thinking. And the second of which is, on the loan programs, the
amounts are small, and the rules are very constrained. This
created the problem for the Los Angeles Program in that they
are proposing to do something that is 10 times bigger and much
more flexible than what are current programs allow.
These programs, the TIFIA program that the Chair mentioned,
were imagined in an era when ideas like this were just little
germs starting out, and so the size was small, and the
ambitions were modest, and we have now reached an era where we
have succeeded beyond our wildest dreams, but it means we need
new tools.
I will say the TIFIA program also currently has gone from a
state 5 or 6 years ago of not having enough people to give the
money away to now being horribly oversubscribed. And in fact,
we have probably, I think, about $110 million in subsidy that
we can provide to these projects, and we have had people who
have asked for $13 billion in subsidy. I do not even know what
the ratio is there, but it is 40 to 1 or something like that.
So to remedy these flaws, in our surface reauthorization
proposal that we are actively working on under the President
and previewed, we are looking to come up with a method to
address all of these problems, the first of which is to mix
grants and loans in a flexible way, to do it without dependence
on what mode of transportation is involved; it can be highway,
transit, rail, ports, freight, passenger, whatever that is.
Third, that the investment decisions are driven by sound
analytics, whether that is ridership forecasting or benefit
cost analysis. And fourth, that there is some kind of an
organization, certainly inside DOT and perhaps involving
others, whose job it is to do those multi-modal investments.
The proposal that we have made to do that is this concept
of an infrastructure bank. That has been somewhat poorly
defined up until now, and perhaps that is our responsibility as
much as anyone else's. And the good news is the supporters read
into it everything that they hope it can be, and the skeptics
read into it everything they fear it might be. So, we hope that
as time goes forward we can put together a proposal that
clarifies a lot of those issues and that hope to put some fears
to rest about what it might be.
But our basic goal is to be able to do the things I listed,
mix grants and loans, pick projects based on merit, and do the
analysis about what to fund without regard to what mode of
transportation it comes from.
There are obviously other ways to achieve those goals, and
this Committee can consider our proposal and many other ideas.
But I think we are firm in believing that some decent portion
of the Federal program needs to transition from being pure
formula into a discretionary program which is designed to pick
out the best possible investments on a nationwide level that
help us advance toward our goals.
So, I think our goal is to work with this Committee going
forward and the other Committees of jurisdiction, hopefully as
soon as possible, to put together a robust proposal. And
perhaps one of the tests of it will be, does it meet the needs
of the people who are on the cutting edge trying to do this
stuff; they are leading, and are we able to follow. And we hope
we will.
So, thank you very much.
[The prepared statement of Mr. Kienitz follows:]
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Senator Boxer. Thank you very much.
The infrastructure bank has some support in Congress. Other
people oppose it. So the reason I focus on TIFIA is because it
is part of our--it is already there. So, I think the
Administration, I hope, will recognize that if something is
already in law, it may be easier to go to that model.
I am not saying give up on infrastructure bank. That would
probably have to be done over in the Finance Committee, as I
understand it. Is that correct? It would not be this Committee.
But TIFIA is there.
So, what I want to get at is this. The beauty--and you have
been--the Department has been so supportive of the L.A. idea,
and I just want to press you on the point. Here you have a
situation where voters in a local area have voted to say this
is so important to us, having our roads fixed and our
transportation systems moving, that we are willing to tax
ourselves a half a cent for 30 years. And we would hope--I
would hope--that we can help those local communities that take
that step. L.A. is not the only one. I mean, when I was in
Marin County they always passed sales tax measures, and other
counties and cities all over the country do it.
So, what I am thinking as we go forward and we look at
TIFIA, one way to expand the program beyond what it is now is
to say if there is an area that does vote for a steady stream
of revenue, that the Federal taxpayers know is coming, that if
we can come in and accelerate those programs, because it will
help with jobs, it will get people the results much quicker. I
mean, some people have voted for this they will not be around
in 30 years to see the final project completed.
If this can be speeded up without risk to the taxpayers
because the steady stream of revenue is coming, is that--are
you open to working with us, assuming we have support from
Senator Inhofe on the other side of the aisle? And we are not
taking this up until after this election is over. It is not
going to get caught up in election year politics.
If we can reach some sort of agreement, would you work with
us to reform TIFIA in such a way that it rewards those
counties, cities, States that are willing to take that step so
that we, the Federal Government, is not taking a risk? But what
we are doing is accelerating the funding at the front end, kind
of what your idea is for the 6-year bill, to accelerate the
funding, do not take a risk with it, know you have the steady
stream, and get it going over 10 years, in this case.
Mr. Kienitz. In a word, yes, we are absolutely willing to
do that. What I would say is two points, the first of which is
the thinking that you are describing is very much in line with
what we are looking at for the future of credit assistance
going forward.
The second point that I would make is that what we are
discussing internally about how this infrastructure bank might
actually work actually sounds a lot like what you exactly
described.
So, I am hoping by virtue of the policy process we have
going forward we can end up with something that is, frankly, an
iteration of the tools of TIFIA but larger, more flexible and
more integrated with DOT's discretionary grant programs.
Because in some cases you have a self-help or local option
sales tax community coming in and saying I have 100 percent of
the money I need, I just have it at the wrong time.
Senator Boxer. Right.
Mr. Kienitz. Another case is you have a poor community, as
Senator Kerry at our Banking Committee hearing the other day
that Senator Merkley chaired, came in and spoke about Fall
River, Massachusetts, which is willing to tax itself to pay for
the projects that they need, but the community does not have
the wealth necessary to pay 100 percent of the cost. In that
case, you might want to do a part grant, part loan. And what we
are looking to do is set up some kind of entity that can judge
those things and make those decisions so that enough resources
are able to help.
Senator Boxer. And would it run as a--the Bank would put
money back in as the funds came in to repay the Federal
Government? Would it just be rolling back into the Bank?
Mr. Kienitz. We have not finally determined it, but my
guess is no. Everywhere I go everyone says well you are not
going to create another Fannie Mae, are you? And I think,
frankly, that model is substantially out of favor at this
moment.
We are working on the Federal Credit Scoring Act, which is
exactly how TIFIA works. You assess the risk of the loan up
front, a subsidy amount is set aside, and then that is put back
into the Treasury----
Senator Boxer. So the funds would go back into the
Treasury? They would not go back into the infrastructure bank?
Mr. Kienitz. Right. And so the----
Senator Boxer. So how does the infrastructure bank get the
funding?
Mr. Kienitz. It would get it through appropriations from
Congress. You end up having that cycle because if Congress
appropriates the funds, the funds go back to the Treasury, then
Congress can appropriate them again. What it means is that the
cycling of the dollars flows through here rather than flowing
internally within the Bank. And I think that provides, to some
degree, I do not know if a check on the process is the right
way but a check in with authorizers to make sure people feel it
is being used properly.
Senator Boxer. Well, I think we ought to discuss that
because my experience is when the funds go back to the general
Treasury, then they do not specifically get used for
transportation. That is why I like the Highway Trust Fund.
I do not know where Fannie Mae and Freddie Mac come into
this at all. It has nothing to do with it. Nothing. What I am
talking about is like the Land and Water Conservation Fund,
where the funds go there. What I am talking about is like the
Highway Trust Fund, where the funds go there. So, I do not, I
would never support an independent infrastructure bank.
I am just telling you now--this is really important--you
may not have the support for an infrastructure bank in other
Committees. I do not even know about in this Committee. But in
other Committees you may not have it. And so you need to be
open to using your other tools, such as TIFIA, and making it
function more like an infrastructure bank. It is a question of
having to start off with a whole new idea and get the support
for it as opposed to taking something that is already in the
law and changing it to meet the need.
I am open to all the solutions. But this Committee, I think
if I could just speak, I think, for most of the members, I
think we are very interested in leveraging the dollars and not
adding to the deficit. I mean, that is basically what the
perfect world is. And so I hope you will work with us because I
do not know whether the infrastructure bank has the support,
and we do not control that here in this Committee.
I am just trying to be realistic here. My goal--I do not
care what we call it because I do not care about those things,
but what I do care about is that the Federal Government is able
to leverage State and local funding in a way that does not put
our taxpayers at risk and accelerates projects and creates jobs
and does it soon. With all that in mind, we have to be flexible
on how we approach it.
So, I hope the Administration will be flexible with us.
Regardless of what we call it, if we are able to do those
things, and if it goes through another Committee I am thrilled
with it, it does not matter. But I just want to make sure that
we do not lose this opportunity, the great idea that came out
of Los Angeles that I think is going to benefit the whole
country. Let us not lose it because we are tied to one
particular way to, you know, accelerate the funding or generate
the funding.
Senator Alexander.
Senator Alexander. Thanks, Madam Chairman.
Mr. Under Secretary, thank you for coming. When the
Department makes its 6-year proposal, I think it would be a
constructive idea to say this is how much money we have over
the next 6 years based upon our revenue sources, and this is
what we can pay for. In other words, say we have this much
money, and we have this many requests, but to begin with we are
going to recommend as the top priority for Federal funding the
following proposals. And then, that is Section One. And Section
Two would be, here are other areas where we think there is a
Federal interest, and in these areas we need X more money.
Would that not be a reality check on the Congress and the
American people so we could see just what that much money will
produce for us?
Mr. Kienitz. Yes, sir. That seems like a reasonable
approach. I am trying to figure out how we would put that
together. We have not made any internal decisions yet on total
size of what the Administration is going to propose so we are
not quite at a point to do that yet----
Senator Alexander. Well, I know, which is why I am saying,
in other words, I mean how much money are we going to have a
year for the next 6 years based upon the current projections?
Mr. Kienitz. I think the current revenue allows us $290
billion over the next 6 years. I think that is something that
is about right.
Senator Alexander. OK. Well, let us just say Congress says
to you, all right, that is all you are going to get. What can
you buy with that? And you say, well, let us all look at the
country's future, and for $290 billion a year this is what we
can afford to do. And then you say after that, but we think
there are some other things that need to be done, and they are
going to cost Y, and before we start talking about how to pay
for them, let us talk about whether we need them.
The reason I mention that is I was driving the other day in
Tennessee along what we call I-840, which is a four-lane
interstate quality highway that we built when I was Governor in
1985 primarily to--we built 100 miles of interstate highway,
100 percent paid for by the State government rather than 90
percent Federal and 10 percent State. That required our third
gas tax increase in 6 years. But nobody minded because it was
for the purpose of bringing in the auto industry which is now
one-third of our manufacturing jobs.
There is always a discussion about what States should do,
and what cities should do, and what the Federal Government
should do. There is nothing to keep Tennessee from deciding
that it wants the best highway system in the State and that it
wants other transportation advantages and then finding a way to
pay for it. And if we have poor communities within the State,
and this happens every time we raised the gasoline tax which is
the way we did it then, many of the rural areas benefited from
the State-wide tax increase because they had, they are relying
on property tax.
So, I wonder if we should not get back to the idea of--and
there is the further argument that States are able to build
roads sometimes more rapidly and at less of a cost than the
Federal Government because of Federal rules and regulations and
the inability of Members of Congress to have a regular
appropriations process from year to year.
So, I am wondering whether this is not the time for a good
discussion about saying, OK, we have got about $290 billion a
year for about 6 years, these are our priority projects, and
they are paid for. Now, if you want anything else, you are
going to have to build them in the States. And there may be a
few other things that the Federal Government ought to do, and
then we could focus our new money on that.
Mr. Kienitz. Yes, Senator, I think that makes an enormous
amount of sense. What the data has actually shown is in fact
the Federal contribution to the whole system that has not grown
in pace with costs. And what you have seen over the last 10 to
15 years is a gradual but inexorable increase in the share of
the total system costs that is paid by State----
Senator Alexander. Well, what is wrong with that? I mean, a
cent on the gas tax in Tennessee is a cent on the gas tax in
Tennessee whether the Federal Government raises it or whether
the State government raises it. And we used to think--it may
not still be true--that we could build a road faster and
cheaper than the Federal Government could by the time we got
through all the rules.
Mr. Kienitz. There is nothing necessarily wrong with it. My
point is that it is already happening. The exact thing that you
stated is already happening. I mean, when I worked in State
government in Pennsylvania we spent huge amounts of energy
trying to raise revenues locally or at the State level because
we knew that, at least in those years, we were unlikely to get
X amount----
Senator Alexander. Well, to make a last point, and I look
forward to discussing this with you because I think this is
very important, there is a wide bipartisan attitude on this
Committee toward these issues. We do not want to just give the
impression to cities and counties and States around the country
there is big grab bag of money here for any project that you
can compete for.
I would rather us say, we have some very important Federal
priorities, and we have enough money to pay for those. Now
after that, States are going to have to do it, and the Federal
Government is going to have to consider a discrete number of
high priority projects that have national significance or
regional significance, and we will find additional ways to pay
for those.
We might have to raise some money, we might have to do
something like the Chairman is suggesting or expand something,
but that would help us get away from the idea that there is
just sort of an unlimited amount of money that everybody should
go rush to compete for, and in this day and time, that might be
welcome.
Thank you, Madam Chairman.
Senator Boxer. Thank you very much.
Senator Cardin.
Senator Cardin. Thank you, Madam Chair.
Mr. Under Secretary, thank you for your testimony. I am
going to try to cover a couple of points, if I might, during
the time that I have.
I want to start first with my concern on the financing of
public transit. My, I guess, major concern is that as you look
at the historical way that we have financed transportation
programs using a gasoline tax, the advocates for highways and
roads say, well, that is our money, it goes for highways and
roads.
In Maryland our roads are in terrible condition as far as
volume is concerned; the second most congested area in the
Nation is right here in the Nation's Capital. You try to get
from the Capital out to Rockville at 5 p.m. and you have got
yourself a long drive. It is much better if we had better
public transportation. We do have transit, but when you try to
get across county from Prince Georges County to Montgomery
County, there is a purple line being suggested for public
transit. Now, that is going to cost a lot of money. And I
support that. That is going to help us on our highways because
it is going to take cars off the highways.
We do not get credit for those dollars. So, tell me your
thoughts, or the Administration's thoughts, on how we are going
to capture the transportation revenues to fairly reflect the
value of the transportation infrastructure so that public
transit is in a fair position moving forward on surface
transportation.
Mr. Kienitz. Thank you, Senator. We are focused on that
question, and as we are putting together a financial structure
for our proposal, which we will hopefully be able to unveil, we
are looking precisely at that matter. It goes to whatever
revenue source you have, how do you allocate them, but also
goes to what kind of revenue source do you use to support a
program. I am not in a position to say anything about it other
than we hear you, and we hope to have a good answer to your
concern.
Senator Cardin. Well, and I am just going to underscore the
point that the transportation funding proposals in the past
have enjoyed broader support because it is called a user fee.
And all I am suggesting is that we need to have a better
justification in our infrastructure financing to recognize the
value of public transit. It helps the motorist. And we need to
be able to articulate that, and it starts with the
Administration.
Mr. Kienitz. Yes, sir.
Senator Cardin. The second point I want to bring up is
really Senator Alexander's point on how we finance this. I am
somewhat concerned. I am for creative financing, for leveraging
the best that we can particularly as it relates to the private
sector. And in Maryland we have used some creative financing in
order to advance transportation programs. I think our Governors
have done that with the public interest in mind and have done
it in a prudent way.
However, when you suggest that we are going to frontload
which, I think most of us agree, or you have this new mechanism
of this infrastructure bank, I think some of us get concerned
as to whether we are delaying fiscal reality as far as making
sure the revenues are there to finance a 6-year program,
perhaps frontloading the first couple of years expecting
Congress to come back, or the next Administration to finance
the last few years, but or running additional deficits and not
paying for the programs the way that we should.
Can you give me any sense of comfort from this
Administration's views on this as to whether in fact we are
going to have an adequately financed transportation program for
6 years--you said you favor 6 years, but that we will be able
to have the type of investments not only the first 2 years but
for all 6 years?
Mr. Kienitz. What I can say is that the President's
statements have been, I hope, pretty clear on this matter which
is obviously we want a 6-year bill, as you said. Second, we
want it to be paid for. And third, we want a funding level that
is robust, above what is currently affordable, and enough to
support a long-term program.
The one difference, perhaps, is the pattern in the past has
always been year 1 of the 5 or 6 years is the smallest and year
5 or 6 is the largest, and our economic team looked at that and
compared that against national economic trends where year 1 is
where the economy is soft, and hopefully by years 4, 5, and 6
the economy will be roaring again. We felt that the balancing
time of those dollars should perhaps be reversed just for
purely macroeconomic reasons.
Senator Cardin. I understand the need to invest now, but I
can tell you 5 years from now you are not going to be able to
buy as much with the same dollars as today. So, if you do not
build in the natural progression, including maintenance of
infrastructure, then you are going to shortchange the out
years.
Thank you, Madam Chair.
Senator Boxer. Thank you.
Senator Merkley.
Senator Merkley. Thank you very much, Madam Chair. A couple
of questions.
We have the program in Oregon of working with TIFIA, and
one of the comments that our State transportation team gave to
us is that they largely have not utilized it because they can
get a lower rate on their own bonding than they can. And I was
a little surprised about that as to why that would be the case.
I wanted to ask a question about that.
They also said because it is limited to one-third of a
project, their recommendation is to have that one-third
boundary expanded. So, maybe if you could comment on that as
well, it would be helpful.
Mr. Kienitz. Yes, sir. On the matter of one-third, that is
a comment we have heard from basically everybody who has
commented on the TIFIA Program. I think the original idea was
the Federal Government was very inexperienced at doing the
credit rating on these projects, and so TIFIA would be safer if
we were making sure that there were enough of other people's
money in the project, that they were doing the due diligence
and the credit rating, too, and so we were not sort of exposed
by ourselves.
So, I think that was the origin of that idea. We since have
heard from everybody, particularly in the last 2 years as the
private financing sources for infrastructure have not dried up
but become significantly more difficult to get your hands on,
that the demand for TIFIA to cover 50 percent or two-thirds of
a project is a lot higher. So, we have heard that from
everybody and are going to see how far we are able to go on
that front.
On the question of interest rates, it is certainly true,
one of the reasons that the program was undersubscribed 4 or 5
years ago is for exactly that reason. The rates that were
available in the private market were just too competitive, and
you did not have to go through the Federal process. And so
people went elsewhere.
What we are finding now is that what we offer now is not so
much the lowest rate, although the rates are very low, what we
offer is 25-, 30- or 35-year credit with no repayment of
principle until your project actually opens the doors and is
collecting revenue, which could be 5 years, and even deferral
of principle payments beyond that. Those are terms that the
private market just is not offering right now.
Now, in another year or 2 or 3, maybe the private market
will come back and start offering that. But that is what our
applicants have told us, it is the patience of the capital that
the Federal Government can bring to it, and it is the thing
that the market is not offering right now.
Senator Merkley. It is helpful. Another comment that they
put forward was that generally, the structure is more amenable
to very large projects, and is it feasible to run loans through
a State bank and therefore break it into smaller pieces and
make it available to smaller communities often which may have
more difficulty with bonding?
Mr. Kienitz. Yes, sir. That is something that when I was in
Pennsylvania we actually did. We had one of these State
infrastructure banks in which we could advance dollars to fund
a local project, and the locals could pay us back over time
with other grant dollars or formula dollars that they had
gotten. The repayment period there, though, is typically 3, 4,
5 years, so if once you are talking about a 25- or a 30-years
process, much more due diligence is required there. But I take
your point that TIFIA has tended to give loans in the $100
million, $200 million, and $300 million range. If you have got
a community with a $15 million project, that is tougher.
The State infrastructure banks have filled that niche to
some degree. But since they are getting repaid with formula
dollars and the formula dollars are only authorized a couple of
years out, that has generally been the limitation.
Senator Merkley. And finally, the Oregon State
Transportation looked very closely at three potential public-
private partnerships and found, after a number of years of
studying them, found really two challenges. One is that doing
the projects required not just tolling upon the project but
tolling upon parallel roads that had always been toll-free,
huge public reaction to that. And second, when they ran the
numbers they consistently found that it was cheaper for the
State to be the entity than it was the private partner.
And they looked at a lot of places, a lot of projects done
elsewhere around the country and around the world, and found
that often these public-private partnerships were far more
expensive to the public in the long term than when the public
put up their own cash. And so they studied those three projects
and eventually set them aside. But any thoughts or insights
related to that?
Mr. Kienitz. Yes, sir. In my experience both at DOT and
before coming to DOT we found many of the same things, that
with the private infrastructure investors, their great
advantage is that they are willing to be creative, go out and
hunt for capital, and they will set it up however you want to
set it up. As for the Government, we have a little bit more of
a regimented structure. But we are not looking to make money.
We are just looking to get our money back. They are looking to
make money, and so the return on their investment that they are
hoping for is going to be significantly higher.
The question has always been, if you can get pure public
financing for a project, the financial picture is better than
if you are going through purely private. The issue has been
that the Government's ability to do that has always been
severely constrained.
I think what the Chairman is talking about is a program
that would offer a significantly larger share. The TIFIA
Program has been very safe up until now. Its financial
performance has been strong. And so I think we all have the
confidence to expand that model quite a lot and that it would
still be safe. But that has always been the issue. Governments
have been afraid, wary about getting into the business in a way
that the private sector, at least up until a couple of years
ago, was less wary.
Senator Merkley. Thank you.
Mr. Kienitz. Yes, sir.
Senator Boxer. Well, thank you so much. Can you just tell
your boss that we appreciate all the work he is doing to help
us with the 30/10 Initiative?
Mr. Kienitz. I will. Thank you.
Senator Boxer. We appreciate it.
And now we will ask our Panel II, Hon. Antonio
Villaraigosa, Mayor, city of Los Angeles, great leader in
transportation, we are so pleased that you are here; and Hon.
Stephanie Kopelousos, Secretary, Florida Department of
Transportation, welcome Secretary; and Mr. David Seltzer,
Principal at Mercator, am I saying it right?
Mr. Seltzer. Close.
Senator Boxer. Say it.
Mr. Seltzer. Mercator.
Senator Boxer. Mercator, yes? Advisors.
We are so pleased you are here. We have a vote at 11:30.
That gives us plenty of time because we have a 15 minute
window. So, we have a good hour to listen and to ask questions.
So Mayor, we will start with you.
STATEMENT OF ANTONIO R. VILLARAIGOSA, MAYOR,
CITY OF LOS ANGELES, CALIFORNIA
Mr. Villaraigosa. Thank you, Senator Boxer, Senator
Merkley, members of the Committee. Thank you for the
opportunity to address you today.
I want to say, on behalf of the people of Los Angeles, and
thank Chairman Boxer for her leadership, her support. Her
interest in transportation infrastructure is critical not just
to our county and our State, but I think to the Nation. Your
focus on innovative project finance has helped move this issue
forward at a very, very critical time. Your ability to
spearhead a unique coalition of labor, business, and
environmental leaders in support of L.A.'s 30/10 Initiative has
been invaluable.
And I would also like to thank Secretary LaHood and the
Obama administration for their infrastructure proposal.
I do not have to tell you all, you know better than anyone
that the American Society of Civil Engineers gave the U.S.
infrastructure an overall grade of a D. They estimate that the
need in the next 5 years for infrastructure is $2.2 trillion.
The Administration's infrastructure plan is an important one.
Our roadways, transit, rail systems, and airports ensure the
vitality of our economy. Jobs are created and the economy grows
when people and goods move efficiently from place to place.
We are investing less than other countries as a percentage
of our GDP. We are investing about 2 percent of our GDP. Europe
is investing roughly 5 percent. And I do not have to tell you
that China is investing 9 percent and growing.
And according to the report of the Congress of the National
Surface Transportation Infrastructure Financing Commission, the
total combined highway and transit spending as a share of GDP
has fallen 25 percent since the beginning of the Federal
Highway Trust Fund. According to data from the Congressional
Budget Office, this expenditure has averaged 1.9 percent of GDP
from 1956 until 1970, but only 1.4 percent from 1990 to 2004.
I think we all agree that America deserves a first class
transportation infrastructure network, and innovative financing
tools such as the national infrastructure bank would help build
it.
But as you said, Madam Chair, there are financing
mechanisms now that we could use to accelerate that. And I want
to focus on the need for the Federal Government to approve a
national program of innovative financing tools so that local
and State government can put people back to work.
As I have said to this Committee before, but I do not
believe that Senator Merkley was in the Committee when I made
those remarks last time, was as Speaker of the California State
Assembly, I remember in the 1990s when people would come to the
legislature asking for the State to invest in this or that
initiative, and I would always say, if it such a good idea, how
much of your money are you putting up? The beauty of what we
are proposing here is that we are putting our money up.
I do not have to also tell you that the national
unemployment rate is still 9.6 percent in the most recent
statistics. Simultaneously, the U.S. deficit is estimated at
$1.5 trillion. We must spend tax dollars more wisely and
leverage the available funding in a smarter way.
We cannot expect the Federal Government to bear the entire
cost of our infrastructure needs. I think Senator Alexander was
speaking to that a few minutes ago. Cities and States cannot
pay to build the systems entirely on their own, either. New
partnerships, new financing mechanisms, and innovation are
essential to building infrastructure in many regions.
We need incentives to increase local funding for
transportation infrastructure. Cities and regions that are
coming to the table with more local money in hand should be
rewarded and incentivized. We need tools that let local
government build infrastructure faster, and to bring projects
to the shovel-ready stage we need to have certainty that
financing will be available over time.
I am suggesting two new tools to encourage investment in
infrastructure and to help create jobs. These tools will be a
catalyst for major transit initiatives across the country. They
will help us put people back to work, and they will help
improve our air quality. First, the TIFIA Program should be
expanded and modified. Second, we should establish a new
category of infrastructure bonds with a high interest rate
subsidy.
As you know, TIFIA, the Transportation Infrastructure
Finance and Innovation Act, is a Federal direct loan program.
This program can and should be expanded. Congress needs to
increase the pool of money so that it can support more major
projects across the country.
And we need to give TIFIA greater flexibility. We need to
move beyond project by project loans to think about funding
transit systems and networks. Finally, we need an up front
commitment that loans will be available in the future at an
interest rate lock to increase funding certainty.
Now, infrastructure takes years to develop and build. We
need a robust TIFIA Program that can support significant public
works investments in multiple cities and States. The second
proposal would create a new category of qualified tax preferred
bonds to fund major transit projects.
In the American Recovery and Reinvestment Act of 2009
Congress created a program for school construction. The program
provided tax preferred bonds with very high subsidies. We need
a similar program to help fund major transportation
infrastructure investment. These bonds would allow issuers to
finance more than twice the dollar value of capital
improvements than is possible with traditional tax-exempt bonds
for any given annual revenue stream. They would not only
stimulate greater investment, but also take pressure off the
conventional Federal grant programs.
These tools will create jobs; they will help cities realize
the environmental health and mobility benefits associated with
their transportation projects. These tools should be created
now or should be incorporated in the next Surface
Transportation Reauthorization Bill.
With high unemployment and great needs for infrastructure,
I am hopeful these tools may be created sooner rather than
later. That is why, as you said, while the infrastructure bank
may be a good idea, these programs currently exist; they can be
expanded in a way to move projects now.
We would take advantage of these financing tools for our
30/10 Initiative in L.A. We may be the car capital of the
world, but we are building a sustainable transit system of the
future. In 2008, 68 percent of our voters approved Measure R, a
30-year, $40 billion, half-penny transportation sales tax. At
least 65 percent of the funds will be spent on transit
improvement and systems. 30/10 is our proposal to build 12
Measure R transit projects in a decade instead of a planned 30
years.
The 12 transit projects will create 166,000 jobs. Now, we
talked about the national unemployment rate of 9.9 percent. In
L.A. it is 14.3 percent. And I can tell you, this would be an
important shot in the arm for our region. According to the L.A.
Economic Development Corporation these jobs will have economic
impact of more than $22 billion.
I do not have to tell you that L.A. is an economic engine
for the Nation. L.A. and Long Beach ports move 44 percent of
the seaborne goods. We have a gross domestic product of $718
billion. Only California, Texas, New York, and Florida have
economies larger than L.A. County. We represent 5.5 percent of
the U.S. economy and 38 percent of the California economy.
Notwithstanding that, we are struggling. And so a project
like this could not only reinvigorate us, it could help other
cities like Houston, Salt Lake City, Atlanta, and Chicago who
have told us they would benefit from the tools that we are
proposing.
Together we can jumpstart regional and national economic
recovery using our local investments in infrastructure. This
model will enable the Federal Government to leverage its
resources strategically based on local community needs and
their willingness to be bold.
Again, Madam Chair, I want to thank you for your leadership
in this effort.
The one thing that has become crystal clear at a time when
we are looking at historic deficits and debt is that we need
creative financing mechanisms to incentivize localities.
Senator Alexander talked about the State building its highway
system. This city, this county, is willing to do the yeoman's
work in doubling the size of our rail system, reducing carbon
emissions by 500,000 tons, saving 10 million gallons of gas a
year, increased transit boardings by 77 million. This can be
replicated around the country with creative financing
mechanisms of the kind that I have mentioned.
Thanks very much.
[The prepared statement of Mr. Villaraigosa follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Senator Boxer. Thank you so much for your very important
leadership. You know, as we get ready to mark up a bill, we are
making the record here on this important issue.
Before I call on the Secretary, I wanted to put into the
record the opening statement from Senator Inhofe who is at an
Armed Services Committee hearing. And I think it is important
for me to read to you what he says because we--although
everyone knows we have had our difference on the environment,
when it comes to public works we tend to see things alike. So,
let me read what he says about the TIFIA Program.
He says, another way to leverage non-Federal funds is a
loan program contained in the current highway program called
TIFIA. Although it took time to get going, TIFIA now is very
popular and recently received applications for 10 times the
amount it can lend. It is used in many situations including as
a component of the PPP financing or by States to supplement
more traditional financing. Clearly, this is a successful
program that must be dramatically expanded.
He goes on to talk about the infrastructure bank and
raises, I would say, some important issues where he feels it
would actually be a substitute for other mechanisms and not
really add much to what we have.
So, I think it is important as we go forward, and the
reason I think it was so important to have this hearing and
others before we actually sit down to write the bill, we need
to find the areas where there is agreement across the aisle. If
we find that agreement, we will get a bill done. If we do not
find that agreement, we will not.
And so I am very pleased with the support for TIFIA here,
and I think we, you know, definitely have a place here where we
can join in partnership.
So, with that, I will put that in the record, if there is
no objection, and call on Hon. Stephanie C. Kopelousos,
Secretary, Florida Department of Transportation.
Madam Secretary, welcome.
[The prepared statement of Senator Inhofe follows:]
Statement of Hon. James M. Inhofe,
U.S. Senator from the State of Oklahoma
As I've said here before, I believe in Federal
infrastructure spending and see it as one of the primary
purposes of Government. Given our enormous infrastructure needs
it is difficult to imagine that the next highway bill could
ever meet all of these needs--especially since the Highway
Trust Fund is in dire condition. Not only do we need to get the
most for our Federal highway dollar, but we also need to
encourage State and local governments and the private sector to
invest as much as possible in roads and bridges.
This hearing is on innovative financing, which really
accomplishes both: getting the most out of each Federal dollar
and leveraging non-Federal funds. The two forms of innovative
financing I'm most excited about are public-private
partnerships and the TIFIA program.
One of the most frequently discussed ways to leverage non-
Federal investment is through public-private partnerships, or
PPPs. With PPPs, State or local governments enter into an
agreement to raise private capital and transfer risks to the
private sector, making challenging and unaffordable projects
possible. This is a way to unleash an enormous amount of
private investments in public infrastructure. This financing
source is as important to helping us address our infrastructure
crisis as a robust Federal highway bill.
Another way to leverage non-Federal funds is a loan program
contained in the current highway program called TIFIA. Although
it took some time to really get going, TIFIA now is very
popular and recently received applications for 10 times the
amount it can lend. It is used in many situations, including as
a component of PPP financing or by States to supplement more
traditional financing. Clearly, this is a successful program
that must be dramatically expanded.
I will end on a final note about infrastructure banks,
which is a very hot topic these days. First of all, we have
government infrastructure banks for transportation: at the
Federal level we have TIFIA, and at the State level we have
State infrastructure banks which are capitalized by the Federal
Government. What most proponents of a new infrastructure bank
want is a mechanism to give out more grants. Banks don't give
out grants; they give out loans. There is also currently a
mechanism for giving out Federal transportation grants--it is
called the highway bill. I don't believe an infrastructure bank
will increase total transportation investment--it will only
take money away from what would otherwise go through the
existing highway and transit programs. The only thing you are
going to do is move decisionmaking from States to US DOT
officials in Washington--an outcome I do not support.
I look forward to the testimony from our witnesses. Thank
you.
STATEMENT OF STEPHANIE C. KOPELOUSOS, SECRETARY OF
TRANSPORTATION, FLORIDA DEPARTMENT OF TRANSPORTATION
Ms. Kopelousos. Madam Chairwoman, Senator Merkley, I
appreciate it. It is a real honor and a privilege to be here
today to talk about innovative financing for projects. Florida
has been a real leader, and I want to touch on three today, our
experience with public-private partnerships, the TIFIA Program,
as well as tolling.
When you look at public-private partnerships, we have had a
real expansion of our program under some legislation that
Governor Crist did as soon as he got into office that enhanced
our capabilities. And I will tell you, we have 10 current
public-private partnerships under contract today, and I will
give you several of the benefits that we have experienced in
Florida.
One is leveraging the financial assistance, clearly
important. Two has been the innovation that we have gotten from
the private sector that has helped us move some of these
important projects forward, also advancing these priority
projects where they have been sitting on hold because we just
truly did not have the financing. And probably one of the most
important things that we have been able to leverage is sharing
of the risk, sharing the risk with the private sector that
allows the State to get the best value.
I want to focus on just a couple of the projects that we
have experienced and some of the good ideas that we have had.
We have been able to--a project in southwest Florida that we
did under a design-build-finance, which was I-75, we added an
additional lane, now six lanes for 30 miles along that highway.
We delivered that project 5 years ahead of when we would be
able to do it by just using the normal funding. So, the
community is excited about it, we delivered it right before
Christmas last year, and I will tell you, a great present for
them.
Another concept that we have able to use with two of our
projects is the availability payment that we have used through
our public-private partnership legislation in the State. We
have been able to do two significant projects. The Port of
Miami Tunnel fixed a real congestion problem out of port as
well as in the downtown area.
But probably the one that we are the most excited about is
our 595 Project in Broward County, truly one of our most
congested areas in the State. We are adding three reversible
lanes to a tune of about $1.2 billion. We are able to do this
15 years before we would normally get this program in our
current system. So, we have seen true success on those.
I really want to touch on what the Mayor said about the
TIFIA Program. We have used it. We were the first in the
country to utilize a TIFIA Program and just applaud USDOT for
continuing to make it stronger and better. But we do believe
that there need to be some enhancements, true enhancements.
Two of the projects that I mentioned, 595 and the Port of
Miami Tunnel, we truly would not have been able to do those
projects, get those projects across the goal line, without the
little help with the TIFIA Program, and that has been
successful. But to add on to what the Mayor said, we are
looking for some of the same flexibilities, true increases to
the moneys that we have going to the program, and look at
increasing the eligibility amount per project. Right now, it is
capped at 33 percent. It may need to be a little more on some
projects; it could be a little less. So, take a look at that.
One of the other issues we found in our project on 595 was
really to look at possibly a 30-day window prior to our
financial close on the project to lock down what the interest
rate would be on the loan. It provided some instability and
some concerns with the private sector, and I think if we could
get that changed that would really help us in moving some of
these larger projects forward.
And in tolling, to address some of Senator Merkley's issues
about public-private partnerships, we in Florida have a
turnpike enterprise that has been truly successful. We have
been able to add about 595 lane miles with the enterprise and
really expand our tolling throughout the State, and I think
that is where the mix of using public-private partnerships as
well as our turnpike that we have been able to get the best
value out of our State resources as well as the innovative
tools that we are using.
In closing, if we could just encourage you in the next
Federal bill to look at enhancing our financial tool box, I
think to continue to enhance that is important, help facilitate
public-private partnerships where they are needed and where
they best serve the States, as well as continue the strong role
of State DOTs through the formula-based programs that are
equitable, importantly streamlined and that really meet the
national goal that we are all looking for in this next Federal
bill.
Senator, we are here to help. We appreciate the
availability of your staff and Senator Inhofe's staff. As
Florida, we do not have a Senator on this Committee, and your
staffs have been extremely available to us, and we appreciate
having that input.
Thank you.
[The prepared statement of Ms. Kopelousos follows:]
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Senator Boxer. Well, thank you so much. That means a lot,
and I will tell Senator Inhofe what you said. We appreciate it.
Mr. Seltzer.
STATEMENT OF DAVID SELTZER, PRINCIPAL,
MERCATOR ADVISORS LLC
Mr. Seltzer. Chairman Boxer, thank you for inviting me to
testify this morning.
My name is David Seltzer, and I am a principal at Mercator
Advisors. We are a consulting firm that advises policymakers
and project sponsors on how best to finance major
infrastructure projects and programs. I would like to briefly
share with you our firm's views on innovative project finance
tools that could stimulate more investment in this fiscally
constrained environment.
Credit assistance and tax incentives are powerful Federal
policy tools today because A, they maximize the financial
capacity of State, local, and project revenue streams by
lowering interest costs, and B, they have a much smaller
budgetary impact than traditional grants.
USDOT's primary credit program for surface transportation
is, of course, TIFIA. And from a budgetary viewpoint Federal
credit is more cost effective than grants since the fiscal
charge is based not on the face amount of the loan but on its
expected losses from default.
The average budget score on TIFIA loans has been only 10
cents on the dollar. And as Under Secretary Kienitz said,
earlier this year DOT announced that it had received 39 letters
of interest from project sponsors seeking $12.5 billion in new
TIFIA loans for projects totaling nearly $41 billion. However,
available funding can support less than 10 percent of that
expressed credit demand.
So, the three recommendations that we would offer for the
TIFIA Program are first, increase the TIFIA funding. Based on
the tangible demand, the funding level should be at least
tripled to about $375 million per year over the next 6 years.
That would support $20 billion-plus of new loans, leveraging
over $60 billion in total investment.
Second, incentivize applicants to identify those new
funding streams. The primary reason for the Nation's
infrastructure gap is insufficient revenue streams to support
the new investment. If TIFIA prioritized applications where a
vast majority of project funding, say at least two-thirds, came
from sources other than Federal grants, it would reward State
and local governments like Los Angeles County who make the
difficult decision to impose the taxes, fees, or user charges
necessary to support new programs.
And third, allow up front credit commitments for
transformational programs. TIFIA was originally conceived as a
project finance tool oriented toward individual projects. And
as a result, the Federal credit commitments were tied to
project-specific milestones such as environmental approvals.
Today, however, transportation agencies are recognizing that a
portfolio of large interrelated projects can produce systemic
regional benefits in terms of mobility, air quality, and
economic development.
It would aid these plans, like the 30/10 Proposal or
Initiative, if the TIFIA financing commitments were more
predictable over the multi-project delivery period. And this
could be achieved by authorizing DOT to make up front,
programmatic, conditional commitments provided that no
underlying loan would be funded until the applicable
environment and other public approvals were met.
Now in addition to credit assistance, we believe tax
incentives should be a central component of any comprehensive
Federal strategy. Like credit, tax incentives encourage greater
investment through reducing financing costs, and they, too, are
scored at just a fraction of the cost of grants. And while Tax
Code changes are not under this Committee's jurisdiction, we
recommend Congress consider expanding two existing tax
incentive programs.
First, the Qualified Tax Credit Bonds. Last year, Congress
authorized various tax subsidies to reduce State and local
borrowing costs, including the $22 billion School Bond Program
with a 100 percent Federal interest subsidy. A similar program
targeted to major transportation projects could more than
double the level of investment compared to tax-exempt bonds.
Congress could specify an annual volume cap to control the
fiscal impact, which could be allocated by the Transportation
Secretary to those projects conferring the highest economic and
social return.
Second, Build America Bonds. It appears that Congress may
extend the expiring Build America Bonds, or BABs Program, for
at least another year. BABs, which subsidize 35 percent of
interest, currently are limited to projects without private
sector involvement.
In recent years, however, the private sector has played a
larger role in developing, managing, and financing projects and
taking risk. We think a strong policy argument could be made to
extend BABs eligibility to projects with private participation
that are available to and benefit the general public, such as
highway transit and other transportation facilities.
Thank you for the opportunity to appear before you.
[The prepared statement of Mr. Seltzer follows:]
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Senator Boxer. Well, thank you all.
I wanted to start with you, Mr. Seltzer. When we talk about
dramatically increasing TIFIA, which I support, the point you
make is very key. That you dramatically expand it, but it is
leveraged so the Federal Government is not spending that much
more, but the dollars go much further. What is the multiplier
effect, do you think, approximately, for every dollar we put in
there?
Mr. Seltzer. Well, based on the historic TIFIA performance,
the average budgetary cost of each loan has been say 10 cents
on the dollars. So, there is a 10 to 1 leverage in terms of
budgetary cost effectiveness. And then the TIFIA share is
limited to not more than one-third, and oftentimes less than
that, so there is at a least a threefold multiple on that. So,
it is in excess of 30 to 1 multiplier for the budgetary scored
cost of the program.
Senator Boxer. Thank you. I think that is very key, and I
think that is why you see support for expanding this program
from Senator Inhofe, and I think we have it across party lines.
And that is why I am harping on TIFIA so much because I see
people coming together around it, rather than getting off in an
argument about some new program which may be very good but
could slow us down. And I think it is key.
Mayor, I wanted to ask you about the support for this
program from the Mayors. We do have a letter from them. Could
you describe the level of interest in this as you speak to your
colleagues?
Mr. Villaraigosa. The U.S. Conference of Mayors
unanimously, on consent, approved the 30/10 Initiative as a
model for the kind of innovative financing cities need across
the country. In addition to that, I mentioned a number of
cities that have specifically indicated interest. And, in
addition to that, Secretary LaHood was last week here in DC at
the Conference of Mayors where he mentioned the 30/10
Initiative as a model. So has Governor Rendell, who has talked
about this as a template for infrastructure investment across
the country.
Senator Boxer. Well, I want to pursue this because, in a
time when everybody talks about partisanship, I was so
impressed with the group that you brought back here when we had
that press conference. And as I remember it, correct me if I am
wrong, you had business leaders, you had labor leaders, you
had----
Mr. Villaraigosa. Public health and environmental leaders--
--
Senator Boxer. All right. So, you describe----
Mr. Villaraigosa. We had a broad cross section of----
Senator Boxer. Just describe to us the support for this
concept.
Mr. Villaraigosa. Well, bankers, small business people, the
Chamber of Commerce, some of the ethnic business organizations,
the public health advocates were there, environmental
organizations, labor, the leader of the AFL-CIO, Mr. Trumka,
was with you and I at a rally in Los Angeles where he said that
this is a template for what we need to do, that we need to
replicate 30/10 across the country.
Senator Boxer. Well, let me just close my question to the
Secretary.
To me, you know, I am sitting here, and I am thinking of
the beauty of this proposal, and three words come to my mind,
leveraging, accelerating, and partnership. And you are blending
all of these ideas together. And to me, and I think to others
on this Committee, those are three things we really need to do.
So, Madam Secretary, how would you respond to this 30/10 idea?
Ms. Kopelousos. Senator, I think the issues are clear.
There is much need around this country for infrastructure, from
all aspects of it, and I think the more we can leverage at
every level--not just State or local but at the Federal level
as well--the better off we are going to be in delivering the
infrastructure that we need. We need to determine, are we going
to have a world class infrastructure around our country----
Senator Boxer. No question.
Ms. Kopelousos. And what level we want, and then how are we
going to get there.
Senator Boxer. And do you think if we were to include this
notion, an expansion of TIFIA with a commitment to leverage
local funds, to accelerate funding so we get it done quicker
because right now, as the Mayor has told me, bids are coming in
25 and 30 percent less. Is that true in Florida?
Ms. Kopelousos. Yes, absolutely. We are seeing 20, 27
percent.
Senator Boxer. My goodness. So, you could actually save so
much money you could even do more at the end of the day. So,
the answer here is, if we were to do this, and encourage local
action, do you think it would send a signal to the cities and
counties and States that they will have funds, the possibility
of having their funds leveraged and accelerated, do you think
that would help local communities step up to the plate?
Ms. Kopelousos. Chairwoman, I think it would. I think, too,
in high growth States like you and I live in, we have had to
address those issues numerous ways, and I think any enhancement
of the tools with TIFIA, we have been able to use it in
Florida, it has been through some tweaks, and I applaud Chris
Bertram and the team at USDOT for what they have done with the
TIFIA Program now, but any enhancement of that would truly
benefit, I think, at least those in Florida.
Senator Boxer. Excellent. Mayor, anyone who wants to add,
we have a little time.
Mr. Villaraigosa. I just wanted to mention, and thank you
for your testimony, Mr. Seltzer, that 30 to 10 multiplier
effect with TIFIA, that is with the expansion of TIFIA, well,
that is with the TIFIA Program and obviously if it was expanded
threefold, all the more. But with the creation of Qualified
Transit Improvement Bonds, you would be adding another
multiplier effect here because you are creating a new category
of bonds for transportation infrastructure much as you have for
forestry conservation, renewable energy projects, energy
conservation, and new schools.
Senator Boxer. You mean the Build America Bonds that Mr.
Seltzer spoke about. Is that correct?
Mr. Seltzer. Senator, there are actually two different
classes of bonds, expanding Build America Bonds to allow the
public-private partnerships and expanding the existing
Qualified Tax Credit Bonds to allow major surface
transportation projects to take advantage of that same tool.
And while I recognize it is not--it has to go to the tax
writing committees, many good ideas for Tax Code measures in
the past have come out of this Committee, such as the Private
Activity Bonds for highway and intermodal facilities.
Senator Boxer. Anything else that anyone on the panel would
like to add? If not, I would ask the three panelists if they
could meet me in this room so I can thank you so much for
coming today. So, see you there shortly.
I want to thank Senator Inhofe's staff for giving us his
opening statement so I could read part of it into the record.
And we stand adjourned, and our hope is to get a bill done,
to at least start the bill writing process before the end of
this year.
Thank you very much.
[Whereupon, at 11:15 a.m., the Committee was adjourned.]
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