Future of Federal Transportation Programs


E-Newsletter #64/February 3, 2011


The future of federal transportation programs and what it could mean for state governments were clearly on the minds of speakers and attendees at the Transportation Research Board’s annual meeting last week in Washington, D.C.

The meeting, which brought together thousands of transportation professionals from 70 countries, coincided with both President Obama’s State of the Union address and the first Congressional hearings of the year by committees that will likely shape the next authorization of federal transportation programs.

“We’ll put more Americans to work repairing crumbling roads and bridges,” Obama told Congress last week. “We’ll make sure this is fully paid for, attract private investment and pick projects based (on) what’s best for the economy, not politicians.”

But paying for infrastructure improvement is likely to continue to be the major sticking point in getting an authorization bill this year, many at the transportation meeting said.

“The Congress is clearly stalemated,” said Jack Basso of the American Association of State Highway and Transportation Officials. “The major cause of the immediate stalemate is funding. The financial backbone of the whole highway and transit structure is pretty well broken at the moment as evidenced by $35 billion being required from the General Fund to keep the (Highway Trust Fund) solvent.”

Diminishing revenues flowing into the trust fund will mean a diminished program in the years ahead if something is not done, Basso said. States could limp through the next fiscal year with current program levels—about $43 billion for highways and $11 billion for transit, he said.

“What happens starting in 2013 if we are really put in the position of having to stand on the revenues that are coming in: Look for a $31 billion highway program and an $8.5 billion transit program … So lacking some new infusions of funding, we face clearly a vastly diminished program,” he said.

Former Minnesota Congressman James Oberstar shares that gloomy outlook. Until his re-election bid defeat last year, he was the long-serving chairman of the House Transportation and Infrastructure Committee and authored proposed authorization legislation in 2009.

“Now all of transportation stands at a crossroads,” he said in receiving a special Transportation Research Board award Jan. 26. “This is, in my judgment, the most perilous moment for all of transportation that I’ve seen since 1956 because of the budget situation and because of the new structure in Congress, who are bent on imposing a fiscal year 2008 budget on a fiscal year 2011 transportation system.”

Joshua Schank of the Bipartisan Policy Center told meeting attendees the current system of transportation funding at the federal level has three basic problems that must be addressed: silos that separate the different modes of transportation and make comprehensive planning difficult, fighting amongst the states over money without regard for national interests and inadequate resources.

“So it’s like a restaurant that you go to where the food is terrible and in such small portions,” said Schank.

State Transportation Funding

Many state transportation officials who have struggled to attain funding for transportation in recent years don’t see new revenue from the federal government anytime soon.

“I think the notion of relying on the passage of a (federal) motor fuels tax (increase) to support transportation infrastructure is almost a non-starter right from the get-go because it just does not resonate with the public at all,” said Kansas Transportation Secretary Deb Miller.

After seven years of planning and struggle, Kansas officials last year were able to put together an $8 billion, 10-year transportation program funded by a sales tax increase and additional bonding authority. But Miller said an altered political climate in Kansas may make it difficult to keep the tax increase in place.

“We’re in the process now of selecting … expansion or investment projects and I want to get them out as quickly as possible because I want communities to really know if the one cent sales tax goes away—and there are certainly a lot of people in our legislature who campaigned on getting rid of the new sales tax increase—I want people to know what they’re going to lose,” she said.

Georgia is another state that hopes to tap a sales tax to fund transportation. Voters there will decide on a regional basis whether to fund commission-approved projects in their part of the state in 2012.

“If all 12 (regions) end up passing the 1 percent sales tax in 2012, it will mean $1.5 billion in transportation funding in Georgia,” said Stephanie Carter of the Georgia Department of Transportation. “That’s doubling our current program. Last year, our motor fuel revenue was $852 million. It’s huge for the state … If we had raised our gas tax to bring in $1.5 billion statewide, we would have had to have increased our gas tax by 28 cents and that is not politically feasible in a red state—in any state.”

That lack of political feasibility is borne out by the fact that no state approved a fuel tax increase in 2010 and only six states and the District of Columbia approved one in either 2008 or 2009. At least seven states—Connecticut, Maryland, Nebraska, South Carolina, South Dakota, Washington and Wyoming—will consider a fuel tax increase this year, according to Richard Watts of the University of Vermont, who also spoke at the meeting.

Alternative Finance Mechanisms

Two alternative means of transportation finance could be emphasized in the years ahead: charging motorists for vehicle miles traveled, known as VMT, and allowing for more public-private partnerships and tolling of the nation’s roads.

The University of Iowa has continued research begun by the state of Oregon on implementing a VMT fee system. More than 2,500 motorists in 12 regions of the country took part in recent studies. Although concerns about privacy and cost of implementation continue to be potential drawbacks, VMT fees did have a high level of acceptance among participating motorists.

“Seventy percent of participants thought the system was reliable, accurate and fair,” said the university’s Paul Hanley. They agreed VMT is a viable replacement for the fuel tax.

Still, others think it may be difficult to overcome some public perceptions about VMT fees.

“People have real privacy perception issues with the federal government tracking or knowing or charging based on how many miles they travel,” said the Bipartisan Policy Center’s Schank.

Despite a decline in the number of public-private partnership transactions in recent years, some experts believe 2011 could see a resurgence of them.

“I think there has been a depolarization of the discussion,” said John Flaherty of the Carlyle Group, a global investment firm. “Some of the most ardent advocates on both sides have left the field and there is no longer this political discussion. I think too that business has become more thoughtful … and the public has become a little more educated … State and local governments are starting to turn to alternative means to increase their funding opportunities or their funding options.”

Investment experts say private capital is available to states for infrastructure projects if legislative and regulatory barriers are removed. Slightly less than half the states don’t have legislative authority to enter into such agreements and there are limitations on the kinds of roads that can be tolled.

“This industry pretty much since its inception has suffered from a surplus of capital and a lack of opportunities, which is sort of remarkable,” said D.J. Gribbin of Macquarie Holdings, another global investment firm. “Outside of Facebook, I don’t know that there’s any other industry where we’re essentially saying ‘no, you cannot invest in our industry. Please keep your money and maybe come try again later.’”

In Texas, once one of the leading proponents of public-private partnerships (known there as comprehensive development agreements), lawmakers could vote later this year on whether to remove a moratorium on new agreements that has been in place since 2007.

An official from Virginia’s Department of Transportation, which has seen drastic budget cuts and downsizing in recent years not to mention a series of audits aimed at restoring public confidence in the agency, said enhancing transportation revenues is not an option during the current legislative session. The state is pursuing what he termed an aggressive public-private partnerships program.

Expanded tolling is likely to come hand in hand with more public-private partnerships, a development Gribbin and others welcome.

“There is bipartisan support of tolling,” Gribbin said. “Environmental groups like tolling because it reflects the real cost of highway infrastructure to users … Those (conservatives) who don’t consider them taxes like (them) because (a toll is) a user fee and it makes more sense than taxing … Hopefully it will become apparent that really the best tool that we have to add capacity to our interstates is to price them.”

Most importantly, Gribbin said, states in the future will likely have to take a “self-help approach” to transportation funding. He cites Texas’ reliance on tolling, California’s local option sales taxes and Florida’s Turnpike Enterprise as potential role models.

“Let’s encourage states and localities to go out there and raise funds for their infrastructure needs,” he said. “We need to move the federal government from the role of sugar daddy to kind of wise counsel. (They’re) not going to be in a position just to hand out dollars anymore … We’ve fostered a culture of dependency at the state and local level.”

Prospects for New Authorization Legislation

The weeks ahead are likely to see at least some movement on federal transportation authorization. The House Transportation and Infrastructure Committee’s new chairman, John Mica, is holding a series of field hearings around the country to hear what Americans think should be in the bill. The newly reconstituted panel convened for the first time in New York City on Thursday, one day after another panel with jurisdiction over the authorization, the Senate Environment and Public Works Committee, met in Washington. The House committee hopes to produce a bill by spring and the Senate committee by Memorial Day.

The Obama administration is expected to release its goals for authorization when it submits its budget proposal. U.S. Department of Transportation officials told Transportation Research Board meeting attendees those goals are likely to include a multi-modal approach to transportation funding, more financing options for states including an infrastructure bank and expanded use of public-private partnerships, and a broader list of recipients who can receive federal transportation funding.

All concerned say they would like to get a bill passed this year. But with an undecided funding scenario and a fast approaching 2012 presidential campaign season, that may be difficult. Still, many at the meeting said in spite of diminished expectations they will be watching anxiously to see what transpires.

Kathy Ruffalo served on one of two federal commissions established by Congress to study authorization issues. Despite the challenges ahead, she remains hopeful of some resolution. She said Congress has two choices: Live within its means in transportation or increase revenue.

“We’ve got to get out of this gray area. It’s killing industry. It’s killing businesses and it’s causing uncertainty and instability,” she said. “So Congress needs to make a decision and we can all figure out where to go from there … Transportation has always been a bipartisan issue and I think that should be one of our tasks to keep it that way and I think we may have a chance at getting a bill done.”

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