Infrastructure Insights: Public Works in the New Budget Era

“Infrastructure Insights: Public Works in the New Budget Era”
Saturday, May 22, 2010

Meeting Summary

Overview

This session offered both a federal and a state perspective on transportation finance and budgeting. Speakers from the U.S. Department of Transportation and New York State’s Department of Transportation took part in the forum. Jack Wells, Chief Economist for U.S. DOT, discussed America’s infrastructure needs, federal transportation programs, and what’s ahead for reauthorization and transportation finance. Stanley Gee, Acting Commissioner of the New York State DOT, gave an overview of his state’s transportation system, spoke about the current budget crisis and transportation funding crisis in the state, and discussed the painful choices being made in his department.

Jack Wells, U.S. Department of Transportation, Chief Economist

Bio: Jack Wells has been the Chief Economist at the U.S. Department of Transportation since November 2004.  He has previously served as Chief Economist at the Bureau of Transportation Statistics, Deputy Administrator of the Federal Railroad Administration, Minority Staff Director of the House Subcommittee on Railroads,  Staff Director of the Subcommittee on Investigations and Oversight of the House Public Works and Transportation Committee, Senior Economist at the U.S. General Accounting Office, and Assistant Professor of Economics at George Mason University. Mr. Wells has a B.A. from Harvard and a Ph.D. from Yale, both in Economics.

Below is a summary of Mr. Wells’ prepared remarks delivered during the session:

Infrastructure Needs

  • The United States has substantial unmet infrastructure needs.
  • Even as the Recovery Act loosened federal spending for transportation infrastructure last year, state infrastructure spending was shrinking so the overall level of transportation infrastructure spending went down.
  • In 2008, the National Surface Transportation Policy and Revenue Study Commission found that the U.S. should be spending between $241 and $286 billion every year compared with the $86 billion per year that current revenues would actually permit.

Note: The commission’s final report can be read here.

  • In 2009, the National Surface Transportation Infrastructure Financing Commission found that between now and 2035 the U.S. needs to spend $172 billion per year compared with the $76 billion they calculated current revenues can support.

Note: The commission’s final report can be read here.

  • This year, the Department of Transportation’s Conditions and Performance Report found that the cost to contain current performance would be $121 billion annually and the cost to improve that performance with cost effective investments would be between $158 and $196 billion compared with the $79 billion that the U.S. currently can afford to spend. Note: The report can be read here.
  • There are needs in all different modes—highways, transit, rail and ports.
  • The Policy and Revenue Study Commission found that while in absolute terms the unmet needs in highways were greatest, in terms relative to existing funding, the needs in passenger rail were greatest—seven times as great as the available funding.
  • The Federal Highway Administration a few years ago examined highway bottlenecks and found over 2000 freight bottlenecks across the country that cause 243 million hours of delay to the trucking industry and cost the economy $7.8 billion.
  • Transit is essential for the effective functioning of our cities, which are the economic engines of the nation’s economy. Three quarters of our GDP is generated in the top 100 metropolitan areas. So transit is also essential for the economic competitiveness of the United States.
  • Ports are essential for achieving and improving the flow of exports. The President has recently announced his National Export Initiative with a goal of doubling exports over the next five years and improvements to the rail and ports industry will be critical to achieving that goal. Note: for more information see here.
  • People in freight communities for several years have been talking about their concerns that the process of decision making at the local level often focuses on local needs and does not give as much weight to the needs of freight transportation where the benefits of freight improvements often take place outside of the state borders.

Recovery Act & Other Federal Programs

  • The U.S. transportation system has a stovepipe system of infrastructure funding. There is a highway account for highway spending, a transit account for transit spending and an airport and airway trust fund. So there are particular situations such as in Washington where there’s a highway that goes to Dulles Airport. But only people that are going to Dulles Airport can use the highway because it was paid for out of the Airport and Airway Trust Fund. If you want to go anywhere between Washington and the airport, you’re not allowed to use the highway. There are police cruisers that cruise the highway to arrest people who are using the highway to go anywhere other than the airport. That does not result in an efficient use of the nation’s transportation infrastructure.
  • One of the main goals of the Recovery Act was to direct funding to some of the other modes of transportation that are also important to the nation’s economy such as ports and railroads. In launching ARRA programs, the strategic goals of the department were emphasized including economic competitiveness, safety, state of good repair, environmental sustainability and mobility.
  • The U.S. DOT also insisted that the decision making process be guided by the best economic analysis available. This stemmed in part from an Executive Order that was signed by President Clinton in 1994, which required a benefit-cost analysis for all discretionary federal infrastructure programs. And the White House was very insistent that this be applied to all the Recovery Act programs—both the TIGER grant program and the high speed rail program. This was also to prevent the “bridges to nowhere” that became infamous as part of the SAFETEA-LU funding.
  • The department received 1400 applications for a total of $56 billion. Since it was for a $1.5 billion program, the department knew off the bat that they would have to turn down 97 percent of the applications they received.
  • The FY 2010 appropriations bill appropriated $600 million for a follow-on program—called TIGER II. The guidance for the program came out on April 26th and the applications are due on August 23rd. The awards will be announced in October. The department found in the first TIGER grant program that a lot of the applicants had trouble with the benefit-cost analysis requirement so additional written guidance has been provided this time in the Federal Register. The department also hosted a webinar on 5/18 to provide additional guidance on the benefit-cost analysis. The entire video of that webinar is on the department website.

Note: To read the guidance to states, see here.

          To see the webinar video, see here.

  • The TIGER II program has a 20 percent matching requirement for states and localities. The department is hopeful that will provide some additional stimulus for the nation’s economy.

Reauthorization

  • Funding is the key issue that needs to be resolved before reauthorization can move forward.
  • Chairman James Oberstar in the House has been very active but has not been able to persuade the House Ways and Means Committee to make a proposal that will provide the funding that he thinks is needed for a reauthorization program.
  • The Obama Administration has made it clear that it will not support any tax increase in the middle of a recession so it has been proposed that reauthorization be postponed until next year and see how the economy looks at that time.
  • Ken Orski’s newsletter on transportation (Innovation Briefs, Newsbrief No. 4, March 8, 2010: “The Clouded Future of the Surface Transportation Program.”) recently pointed out that in 1982, the U.S. faced a somewhat similar situation. The nation was recovering from a recession. The highway program was in need of reauthorization in Congress. There was a widespread feeling within the transportation community that an increase in funding was needed and an increase in revenues to provide that funding. But Congress was reluctant to support an increase in the fuel tax to create those increased revenues. President Reagan and his Secretary of Transportation Drew Lewis took the lead in lobbying the Congress to enact an increase in the fuel tax—more than doubling it from four cents a gallon to nine cents a gallon.

Note: The Orski newsletter can be read here.

  • The department’s reauthorization proposal will focus on their aforementioned strategic goals, improvements in the decision making process, and greater use of economic analysis in the decision process at the federal level and at the state and local levels as well.
  • The President originally proposed a national infrastructure bank which has now morphed into a national infrastructure and innovation fund, which he proposed $4 billion in funding for in FY 2011. It carries forward the principles of the TIGER grant program—namely a discretionary program at the federal level to address national transportation needs and funding that is available for any surface transportation modes so that funding can be directed to wherever transportation needs are greatest.

Future of Transportation Finance

  • Wells spoke at a Transportation Research Board conference in New Orleans on transportation finance on 5/21.
  • There was a lot of discussion about a VMT (vehicle miles traveled tax) or as it’s sometimes called an MBUF (mileage-based user fee).

Note: a recent report on this topic can be read here.

  • Last year, Secretary of Transportation LaHood talked about the possibility of such a tax and the President’s Press Secretary Robert Gibbs made clear that the President did not support a mileage-based VMT tax at least at that time. The White House made clear they didn’t support any tax increase at that time whether it was a VMT tax or a fuel tax or any other tax. For the future they may be a little more open-minded about what should be the major revenue source for the surface transportation program.
  • There are a lot of issues involved with the VMT tax. It would cost more to collect and the trucking industry has raised serious concerns about that. It would have to have other elements to it to justify the increased costs of administering it. It would have to be a platform for things like congestion pricing and pricing based on emission characteristics of vehicles.
  • Senator Tom Carper from Delaware, Senator Barbara Boxer from California and Congressman Earl Blumenauer from Oregon have asked the department to take a look at what issues would need to be resolved in moving forward to a VMT tax. The department is preparing something that will come out this summer.
  • Members of Congress plan to incorporate research projects and pilot programs in the reauthorization bill that would at least prepare the country to move to a VMT tax if it was decided in the future to do that.

Speaker Contact:
Jack Wells
Chief Economist, U.S. Department of Transportation
Room W84-306 (P-20)
1200 New Jersey Ave., S.E.
Washington, D.C.  20590
(202) 366-9224
jack.wells@dot.gov

Stanley Gee, New York State Department of Transportation, Commissioner

Bio: Stanley Gee was appointed by Governor David Paterson as Acting Commissioner of the New York State Department of Transportation (NYSDOT) effective May 8, 2009. Prior to assuming the position of Acting Commissioner, he served as the Executive Deputy Commissioner of NYSDOT where he functioned as the chief operating officer of the Department. He came to New York State government in 2007 after a distinguished career with the Federal Highway Administration. He began his career in transportation as a summer construction inspector with the State Department of Transportation while he attended the Rensselaer Polytechnic Institute, where he obtained his B.S. in Civil Engineering.

Below is a summary of Mr. Gee’s prepared remarks delivered at the session:

New York Transportation System Stats

  • New York has 114,000 miles of highway, 17,406 bridges, 4,600 mile rail network, 130 public transit operators, and 485 public and private aviation facilities.

State Budget Crisis

  • In the last year, the state has seen a hiring freeze and lost 240 full time employees.
  • Spending has been reduced by 13 percent.
  • There has also been an increase in workplace conflicts; more disciplinary actions, reported suicides, etc.
  • The state faces a $9.2 billion budget deficit this year.
  • The state has been operating without a budget since April 1.
  • The state is not paying contractors or consultants on existing contracts if work involves state funds of any kind. 
  • The state is being sued. As of 5/22, the state was 45 days into the new fiscal year (though not technically late on payments until 30 days after a bill for work is submitted.) 
  • The state is having to “make the case” even to do things like purchase fuel.
  • The department is operating with no consultants to help deliver new projects. 
  • No new projects are being awarded. 
  • The state risks losing an entire construction season if a budget is not agreed upon.
  • Furloughs have been averted for the moment, but the discussions affect morale – and the need to generate emergency plans to continue essential safety operations. 
  • Many employees would be eligible for early retirement incentives – the affects of an aging workforce and limited hiring over the last decade.

State Funding Crisis

  • The state’s five-year capital plan has expired.
  • The state’s Dedicated Highway Bridge and Trust Fund is no longer sustainable with annual revenues and requires growing and significant general fund support – similar to the federal Highway Trust Fund.
  • A 2005 voter-approved bond program has expired.
  • There is no federal authorization in place and it may not occur soon.
  • Governor Paterson’s budget includes a revised transitional 2-year capital plan.

American Recovery & Reinvestment Act successes

  • NYSDOT met all federal mandates on or ahead of schedule and delivered ARRA projects.  The department had responsibility for more than $1.3 billion for highways, $26 million for transit, and NYSDOT applied for discretionary grants and received $151 million for rail and an $86 million TIGER grant. That was on top of delivering the state’s entire $1.6 billion scheduled capital program.  This was done with no additional staff (in one hard choice, the department gave up hiring staff that would have helped deliver ARRA projects in order to meet staff reduction targets.)

Capital Plan

  • A $25.8 billion capital plan was originally proposed in October 2009.
  • It focused on maintaining and improving the department’s core program – bridge conditions and federal aid pavements were the priority. 
  • It was multimodal and recognized that “even during these times of great challenge, we cannot stop planning for the future.”
  • It included “planning for the future” – including $300 million for rail and a small amount for sustainable planning.  It emphasized asset management and lifecycle costs – investing in maintenance when it can have the most impact on the life of the infrastructure – and addressing the maintenance backlog.
  • No one disagreed with the plan and its priorities, but Governor Paterson said it was not affordable in the current environment.

Painful Choices

  • The department scaled back the capital plan in the executive budget to focus on critical infrastructure and critical services and the need to maintain focus on critical safety inspections. 
  • Potential Rest Area Closures – The Executive budget proposal includes savings from rest area operations.  To achieve these savings, the department has developed a plan that calls for closing some older facilities, temporarily closing facilities that are in need of significant repair, and achieving savings in existing janitorial contractual arrangements.

Other choices being looked at:

  • Technology - Maintenance Decision Support System (MDSS) – This is an automation tool for snow and ice response, integrating weather forecasts, actual weather and pavement conditions and plow truck data transmitted via Automatic Vehicle Location. It produces site specific treatment recommendations. It’s being piloted in three counties (Albany, Allegheny and Broome).  The pilot program has shown cost savings potential, and other states are also reporting cost savings.  A business case is being prepared that will likely recommend statewide implementation based on a 3 to 5 year payback on the initial $5+ million investment from savings in salt, fuel,  and overtime costs.
  • Revenues - HELP Sponsorship - State Farm Insurance is paying $2.1 million a year to “sponsor” 87 HELP (Highway Emergency Local Patrol) trucks.  The program is designed to decrease motorist delay and increase motorist safety by providing emergency roadside service to disabled vehicles on high volume, limited access roadways in several areas of New York State. State Farm is providing $25,000 per truck on a two-year contract with three  1-year renewals; State Farm has paid for everything including truck decals, signs, and brochures.

Note: For more information, see here.

  • 511  Traveler Information Sponsorship – New York has probably the most extensive 511 system in the nation for traffic and travel info.  It is multimodal and includes the schedules of more than 60 transit operators – including rail, commuter bus, subway and intercity bus.  The state is improving the system as funds and staffing allow.  The state is sharing 511 data to allow the open market to develop applications and looking for sponsorship opportunities.

Note: For more information, see here.

Planning for the Future

  • Rail Program – The state received ARRA funding for the Empire Corridor EIS/Market Analysis/Service Development Plan for a rail corridor from NYC to Albany to Buffalo/Niagara Falls. They are moving forward on implementing $151 million in ARRA grants and developing and applying for future grants for the NEC corridor planning effort.  The department sees significant potential for revitalizing upstate New York by providing viable transportation service between major upstate cities and providing green jobs in transportation sector that already has a base in New York.

Speaker Contact:
Stanley Gee
Acting Commissioner
New York State Department of Transportation
50 Wolf Road - 6th Floor
Albany, NY  12232
(518) 457-4422
commissioner@dot.state.ny.us

For another summary of this session, see the story in the Capitol Ideas E-Newsletter, which can be read here.