Innovative financing for transportation infrastructure, notes from a seminar

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The Metropolitan Planning Council graciously provided me with a free entry to a seminar in October about infrastructure funding and financing at their office at 140 S Dearborn. The seminar featured Rob Puentes of the Brookings Institution, Illinois Senator Heather Stearns, and Dr. Paul Hanley a professor at the University of Iowa. They talked about three innovative ways to fund construction of highways, airports, transit, and other capital-intensive projects: the surface transportation bill (Puentes), public-private partnerships (Stearns), and distance-based taxing (Hanley).

This article will be presented in two parts: presentations from Puentes and Stearns today, and Hanley on Friday. It is my intention that by presenting that discussion to readers, you can learn about some of the ways infrastructure in the United States is paid for.

Puentes on surface transportation bill

Puentes pointed out – and everyone in the audience probably already knew this – that Congress continues delaying a re-authorization of a multi-year surface transportation bill (STB). It’s currently known as SAFETEA-LU and it expired in September 2009 (770 days ago according to Transportation For America’s clock). Since then, Congress has just passed bills that simply extend the program with the same funding levels and formulas it already defines. This bill is where all of the sustainable transportation funding comes from; it includes Congestion Mitigation and Air Quality (CMAQ, which we cover regularly and helps pay for transit, bicycle, and pedestrian projects) and Transportation Enhancements (which we mentioned for the first time in “Value of trails” and can also pay for bicycle and pedestrian projects).

[This week, Congress announced MAP-21, a new STB, but only for two years instead of the normal six. Stay up to date on the progress with Transportation For America’s blog. MAP-21 stands for Moving Ahead for Progress in the 21st Century.]

Puentes said he thought that the American Recovery and Reinvestment Act (ARRA) halted the push for reform because its funding (provided by the issuance of new debt, bonds or Treasury Bills) could only go to “shovel ready” projects. Yet the legislation included mandates for transparency (even created a website that described projects, the number of jobs they created, and their costs) to protect the funding against fraud, abuse, and “bad decisions”.

The gas tax is one way to fund infrastructure, and its the primary source of the Highway Trust Fund (HTF), a bank account that’s dedicated to paying for the STB (it includes a transit account). But Puentes explained how the HTF has come up short time and time again:

Year	See note 1
2008	Injection of $8 billion from the general fund into HTF
2009	$7 billion injection
2009	$36 billion injection from ARRA
2010	$14 billion injection
Total	$65 billion

The Congressional Budget Office predicts that the HTF will run out of money at the end of Fiscal Year 2012, which will be September 30, 2012. [CBO projects that the trust fund will be unable to meet its obligations in a timely manner sometime during the second half of 2012.]. The transit account will run out of money at the end of FY 2013 (September 30, 2013).

Can we keep extending the existing surface transportation bill, SAFETEA-LU? Many people (government and transit agencies, and legislatures) are in a “cut mode” – 21 states cut their transportation budgets in FY 2011. Only 14 states are considering innovative transportation funding and financing. “State governments provide the lion’s share of transportation spending” but they’re mostly reliant on gas taxes, which are “not sustainable, because the distance we travel is down and our miles per gallon is up”.

[Again, Congress is discussing the replacement bill, MAP-21, this week.]

Puentes proposes that instead of coming up with new sources, we devise different spending mechanisms. He gives three examples:

1. National Infrastructure Bank (NIB) – “This is anti-formula” (see note 2). It would be used to make investments for projects with a national scope. He talked about how a new connection is needed between Detroit, Michigan, and Windsor, Ontario. The current Ambassador Bridge is privately owned (recent story on the situation). This connection isn’t Detroit or Windsor’s responsibility, but the nation’s, because it carries goods to and from many states. There’s a local project: CREATE, to reduce railroad congestion.

The White House blog explains how a National Infrastructure Bank would work as part of the American Jobs Act.

2. Public Private Partnerships (PPP) –  Seminar sponsor Metropolitan Planning Council devotes a section on their website to this topic: they are “binding agreements between the public and private sectors that allow a private entity to assume significant control of, and risk for, multiple elements of an infrastructure project”.

3. Leverage metro sources: local taxes. Utah, Los Angeles, even Chicagoland to a bit. Puentes said that when transportation infrastructure referendums are put to a public vote, 70% of them pass.

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The LaSalle Street Station transfer project built stairs and an elevator to better connect Metra passengers with CTA bus routes and the Blue Line.  It was paid for by a federal CMAQ grant and Tax Increment Financing (TIF), a local funding source for economic development projects. Photo by the Chicago Department of Transportation. 

Stearns on public-private partnerships

Stearns opened her talk with a joke: “Congress is making Illinois look somewhat functional”. She then talked about the current state of road infrastructure funding in Illinois:

$1.9 billion for highways
$0.66 for local roads
$0.38 for bridges
$0.097 for traffic safety

[It just occurred to me now that she didn’t talk about transit at all in her speech.]

The source of Illinois’ funding:

$1.3 billion federal
$1.7 billion state capital plan [comprised of debt, gas tax, and raising taxes on candy and alcohol].
$130 million from local sources

She noted that the state gas tax hasn’t changed since 1990, standing at 19.0 cents per gallon. The federal gas tax has stood at 18.4 cents per gallon since 1984. Read more about the Illinois motor fuel taxes, including the underground storage tax and environmental impact fee.

“The Illinois Supreme Court has hung up bond issuance”. The state has authorized the issuance of $1.75 billion in bonds, but only $600 million has gone to the market. [I think she was talking about the court decision regarding Wirtz Beverage vs. State of Illinois, which ruled in Governor Quinn’s favor in July, meaning the capital plan can go forward and continue issuing bonds.]

Stearns talked about the second spending mechanism Puentes proposed using more of: Public Private Partnerships, or PPP. The state legislature signed Public Act 97-0502, the Public Private Partnership for Transportation Act, in August. It allows the Illinois Department of Transportation (IDOT) and the Illinois State Toll Highway Authority (Illinois Tollway) to enter into agreements with a private entity to share risks but also to share revenue. IDOT can use it for both projects that reconstruct/renovate and expand. ISTHA cannot: they can only use it for new opportunities. Stearns emphasized that the legislation explicitly excludes airports (so as to not open a “Peotone can of worms”) [see note 3].

The projects that IDOT and Illinois Tollway choose for a PPP must be consistent with regional transportation plans (like GO TO 2040). How does it work? Well, Stearns was brief on this:

1. IDOT and ISTHA identify potential projects for this mechanism and present them to the Illinois General Assembly. They must authorize the project via joint resolution.
2. The Governor has veto authority.
3. The projects are issued as either A) sealed bidding (only the agency can see the bids; an alternative is open bidding where you can see bid amounts but now who’s bidding them), B) sealed proposals (proposals are used when the agency isnt’t sure what end results are so they want to see some ideas), C) design-build (a negotiation).
4. The max term for the agreement is 99 years.
5. There must be a project labor agreement that sets prevailing wages and MBE/DBE status [see note 4].
6. Building materials are exempt from sales tax (a benefit to the private partner).

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Governor Quinn breaks ground on a transit operations facility in Rock Island, Illinois. Photo by the City of Rock Island. “The project is funded through a combination of federal, state and local capital funds. The project will also receive $15.5 million in Illinois Jobs Now! funds (the current Illinois capital and infrastructure spending bill). Press release. 

Notes

These notes are my own and did not come from the speakers.

1. Because general revenue funds are used to fill in the gaps of the Highway Trust Fund, people who don’t drive can end up subsidizing the infrastructure of those who do. Elly Blue crunched the numbers on why a “bike tax” would be unfair.

2. Formula funding is just that: Money is distributed to states based on the factors defined in the specific funding program. For example, the share of Safe Routes to School funding available to a state is proportional to its total school enrollment in primary and middle schools (grades K-8). For all formulas, read the Federal Highway Administration’s guide to Financing Federal-Aid Highways.

3.  Peotone refers to a stuck third-airport project for northeastern Illinois. We have underused airport capacity in Gary, Indiana, and Rockford, Illinois, both of which can be accessed by existing train or shuttle buses.

4.  “A Project Labor Agreement (PLA) is acomprehensive pre-hire collective bargaining agreement that is negotiated between a project’s owner (a state for example) and an appropriate labor organization (an area or state building and construction trades council) which sets out the basic terms and work conditions for that particular project”. That description comes from an Illinois Department of Transportation guide. Not everyone supports PLAs.

5. There was no discussion about innovating funding or financing for transit and highway operations. The federal government assists states in maintaining highways, but does not assist transit operations.

Photo of a Blue Line train at Chicago and Milwaukee by Colin Clinard.