[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
        PUBLIC-PRIVATE PARTNERSHIPS: STATE AND USER PERSPECTIVES

=======================================================================

                                (110-46)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                          HIGHWAYS AND TRANSIT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2007

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure



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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia    JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon             DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois          THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of   HOWARD COBLE, North Carolina
Columbia                             JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida               VERNON J. EHLERS, Michigan
BOB FILNER, California               STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas         RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi             FRANK A. LoBIONDO, New Jersey
ELIJAH E. CUMMINGS, Maryland         JERRY MORAN, Kansas
ELLEN O. TAUSCHER, California        GARY G. MILLER, California
LEONARD L. BOSWELL, Iowa             ROBIN HAYES, North Carolina
TIM HOLDEN, Pennsylvania             HENRY E. BROWN, Jr., South 
BRIAN BAIRD, Washington              Carolina
RICK LARSEN, Washington              TIMOTHY V. JOHNSON, Illinois
MICHAEL E. CAPUANO, Massachusetts    TODD RUSSELL PLATTS, Pennsylvania
JULIA CARSON, Indiana                SAM GRAVES, Missouri
TIMOTHY H. BISHOP, New York          BILL SHUSTER, Pennsylvania
MICHAEL H. MICHAUD, Maine            JOHN BOOZMAN, Arkansas
BRIAN HIGGINS, New York              SHELLEY MOORE CAPITO, West 
RUSS CARNAHAN, Missouri              Virginia
JOHN T. SALAZAR, Colorado            JIM GERLACH, Pennsylvania
GRACE F. NAPOLITANO, California      MARIO DIAZ-BALART, Florida
DANIEL LIPINSKI, Illinois            CHARLES W. DENT, Pennsylvania
DORIS O. MATSUI, California          TED POE, Texas
NICK LAMPSON, Texas                  DAVID G. REICHERT, Washington
ZACHARY T. SPACE, Ohio               CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              JOHN R. `RANDY' KUHL, Jr., New 
BRUCE L. BRALEY, Iowa                York
JASON ALTMIRE, Pennsylvania          LYNN A WESTMORELAND, Georgia
TIMOTHY J. WALZ, Minnesota           CHARLES W. BOUSTANY, Jr., 
HEATH SHULER, North Carolina         Louisiana
MICHAEL A. ACURI, New York           JEAN SCHMIDT, Ohio
HARRY E. MITCHELL, Arizona           CANDICE S. MILLER, Michigan
CHRISTOPHER P. CARNEY, Pennsylvania  THELMA D. DRAKE, Virginia
JOHN J. HALL, New York               MARY FALLIN, Oklahoma
STEVE KAGEN, Wisconsin               VERN BUCHANAN, Florida
STEVE COHEN, Tennessee
JERRY McNERNEY, California
VACANCY

                                  (ii)

?

                  SUBCOMMITTEE ON HIGHWAYS AND TRANSIT

                   PETER A. DeFAZIO, Oregon, Chairman

NICK J. RAHALL II, West Virginia     JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             DON YOUNG, Alaska
ELLEN O. TAUSCHER, California        THOMAS E. PETRI, Wisconsin
TIM HOLDEN, Pennsylvania             HOWARD COBLE, North Carolina
MICHAEL E. CAPUANO, Massachusetts    RICHARD H. BAKER, Louisiana
JULIA CARSON, Indiana                GARY G. MILLER, California
TIMOTHY H. BISHOP, New York          ROBIN HAYES, North Carolina
MICHAEL H. MICHAUD, Maine            HENRY E. BROWN, Jr., South 
BRIAN HIGGINS, New York              Carolina
GRACE F. NAPOLITANO, California      TIMOTHY V. JOHNSON, Illinois
MAZIE K. HIRONO, Hawaii              TODD RUSSELL PLATTS, Pennsylvania
JASON ALTMIRE, Pennsylvania          JOHN BOOZMAN, Arkansas
TIMOTHY J. WALZ, Minnesota           SHELLEY MOORE CAPITO, West 
HEATH SHULER, North Carolina         Virginia
MICHAEL A ARCURI, New York           JIM GERLACH, Pennsylvania
CHRISTOPHER P. CARNEY, Pennsylvania  MARIO DIAZ-BALART, Florida
JERRY MCNERNEY, California           CHARLES W. DENT, Pennsylvania
BOB FILNER, California               TED POE, Texas
ELIJAH E. CUMMINGS, Maryland         DAVID G. REICHERT, Washington
BRIAN BAIRD, Washington              CHARLES W. BOUSTANY, Jr., 
DANIEL LIPINSKI, Illinois            Louisiana
DORIS O. MATSUI, California          JEAN SCHMIDT, Ohio
STEVE COHEN, Tennessee               CANDICE S. MILLER, Michigan
ZACHARY T. SPACE, Ohio               THELMA D. DRAKE, Virginia
BRUCE L. BRALEY, Iowa                MARY FALLIN, Oklahoma
HARRY E. MITCHELL, Arizona           VERN BUCHANAN, Florida
VACANCY                              JOHN L. MICA, Florida
JAMES L. OBERSTAR, Minnesota           (Ex Officio)
  (Ex Officio)

                                 (iii)

                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

Austin, Hon. Terri J., Chair, Indiana House Roads and 
  Transportation Committee, Indianapolis, Indiana................     4
Cohen, Greg, President, American Highway Users Alliance, 
  Washington, D.C................................................    36
Graves, Bill, President and CEO, American Trucking Associations, 
  Alexandria, Virginia...........................................    36
Lowenthal, Hon. Alan, Chair, California Senate Transportation and 
  Housing Committee, Sacramento, California......................     4
Rendell, Hon. Edward G., Governor, Commonwealth of Pennsylvania..    20
Replogle, Michael, Transportation Director, Environmental 
  Defense, Washington, D.C.......................................    36
Spencer, Todd, Executive Vice President, Owner-Operator 
  Independent Drivers Association, Grain Valley, Missouri........    36

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Altmire, Hon. Jason, of Pennsylvania.............................    47
Boswell, Hon. Leonard L., of Iowa................................    50
Matsui, Hon. Doris O., of California.............................    51
Mitchell, Hon. Harry E., of Arizona..............................    53

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Austin, Hon. Terri...............................................    58
Cohen, Gregory M.................................................    62
Graves, Bill.....................................................    68
Lowenthal, Hon. Alan.............................................    77
Rendell, Hon. Edward G...........................................    91
Replogle, Michael................................................    98
Spencer, Todd....................................................   122

                       SUBMISSIONS FOR THE RECORD

Lowenthal, Hon. Alan, Chair, California Senate Transportation and 
  Housing Committee, Sacramento, California, background summary 
  for State Senate hearing on ``Tolls, User Fees, and Public-
  Private Partnerships: The Future of Transportation Finance in 
  California?''..................................................    81

                        ADDITIONS TO THE RECORD

Tysontunnel.org, written statement, submitted by Rep. Duncan.....   128

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  HEARING ON PUBLIC-PRIVATE PARTNERSHIPS: STATE AND USER PERSPECTIVES

                              ----------                              


                         Thursday, May 24, 2007

                  House of Representatives,
    Committee on Transportation and Infrastructure,
                      Subcommittee on Highways and Transit,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 2167, Rayburn House Office Building, the Honorable Peter 
DeFazio [Chairman of the Subcommittee] presiding.
    Mr. DeFazio. Good morning. Thanks for being here.
    We are going to change the order a bit. Governor Rendell, 
being a multimodal guy, is on the train and the train is a bit 
delayed. So we are going to have the second panel first.
    This is, I believe, the third or fourth hearing this year 
we have held on private-public partnerships. I am not going to 
repeat the concerns expressed. We are continuing to investigate 
both the benefits and potential pitfalls of public-private 
partnerships.
    The Chairman and I sent out an advisory letter to State 
legislators and governors and DOTs a couple of weeks ago 
expressing some of the concerns we have. We are concerned about 
some one-sided presentations that have been made. And we are 
still looking forward to_it has not yet happened_the 
Administration posting a more balanced discussion of the issues 
on their web site as opposed to the so-called model 
legislation. The Chairman and I are in the final moments of 
drafting up our own sort of advisory on these issues that will 
go into our concerns in more depth, and we hope to be providing 
that before the Memorial Day break.
    With that, I would turn to whichever of my Republican 
colleagues has decided to go first.
    Mr. Duncan. Thank you, Mr. Chairman. I have this down as 
the third hearing, but I think we also had a briefing by the 
GAO which was sort of like a hearing. So this is the third and 
a half, I guess. In February, we held what could be called an 
overview hearing on public-private partnerships. In April, we 
held a hearing on innovative contracting techniques. Today we 
will hear testimony from Governor Rendell of Pennsylvania and 
two State legislators on the States' perspective on public-
private partnerships. We will also hear from four witnesses 
representing users of our Nation's highway system, to get their 
opinions on these partnerships.
    In my home State of Tennessee, our philosophy for funding 
transportation projects has been pay-as-you-go. We will spend 
no more than we take into the State Transportation Fund. Toll 
roads have not been a part of the funding mechanism for roads 
in Tennessee. But this does not mean that toll roads and other 
public-private partnerships do not have their place in the 
national toolbox of financing alternatives.
    It is also important to remember that these partnerships 
are much more than just toll roads. PPPs are contractual 
agreements between public and private sector partners that 
allow more private sector participation than has been 
traditional. We held an entire hearing in April on innovative 
contracting techniques. None of the technologies presented 
involved tolls. Some States are also exploring concepts such as 
availability payments and shadow tolls as ways to incorporate 
private sector financing into public infrastructure projects. 
Under these approaches the private sector will provide the up-
front financing for the project in return for a guaranteed 
stream of payments over a number of years from the public 
entity sponsoring the project.
    While I am open to exploring additional private sector 
participation in transportation projects, I am concerned about 
possible ``sweetheart'' deals for private companies. In 
particular, it is very important to make sure that decisions 
made by State and local governments regarding long-term lease 
agreements are made with the public good firmly at the 
forefront. We need to make sure that not all the money is paid 
up front so that governors and taxpayers many years down the 
road are left holding the bag.
    I am particularly interested in hearing from Governor 
Rendell about how his proposal to lease the Pennsylvania 
Turnpike will ensure that the public interest is protected with 
these concerns in mind.
    Mr. Chairman, that concludes my statement. I ask unanimous 
consent that the Record be held open for 30 days for the 
submission of written statements or follow-up questions to the 
witnesses. Thank you.
    Mr. DeFazio. I thank the Ranking Member. I now turn to the 
Full Committee Ranking Member, Mr. Mica.
    Mr. Mica. Thank you. I appreciate Mr. DeFazio and Mr. 
Duncan holding this important hearing in a series of hearings. 
I try not to interfere in the work of the Subcommittees in my 
position as the Ranking Republican. But I think this is a very 
important hearing to participate in as you begin your panels 
and discussions today.
    I think Mr. Oberstar would be here, too. I know his keen 
interest in this issue. I was saddened to learn, I think he 
lost one of his uncles and had to depart Washington for the 
funeral. So our thoughts are with him. But I know he would be 
here, too, because he also believes this is a very important 
topic.
    The whole question of public-private partnerships has been 
a hotly debated issue during the past couple of years. In my 
home State, we have used a host of innovative financing 
techniques to fund transportation projects. I come from central 
Florida. Just in the area around Orlando we have over 170 miles 
of toll roads, and we also have a State turnpike which has been 
running through the heart of central Florida for many years.
    I had hoped that our new Secretary of Transportation 
Stephanie Kopelousos could be here and testify today. 
Unfortunately, she had some critical issues in Tallahassee and 
will not be with us. Maybe we can make a statement from her or 
from the Florida Department of Transportation a part of the 
record at a later date.
    I believe that public-private partnerships, specifically 
private sector financing, will be an absolute key component and 
must play a role in solving our impending transportation 
funding crisis. However, by the same token, I do not think that 
should be the only solution that we pursue. I think, first of 
all, the Federal Government does not really know what we want 
our national infrastructure to look like, starting with 
highways. We passed our interstate-initiating legislation back 
in the 1950s, we have passed some intermodal requirements along 
the way, but no one can tell you what the Interstate is going 
to look like 20 to 50 years from now and who will be 
responsible for what.
    With a lack of Federal policy and the creation of this 
vacuum, States are beginning to initiate actions dealing with 
trying to meet the congestion and transportation requirements 
of each of their entities. Last night I read Governor Rendell's 
statement. Read and hear Governor Rendell's statement, and what 
Pennsylvania faces the other 49 States also face--a crisis not 
only in construction of new highways, roads, but the statement 
on bridges is just like a statement across the Nation.
    So, first of all, we lack a Federal policy as to what we 
want our infrastructure to look like. Secondly, we do not know 
what the Federal Government's responsibility is going to be, 
and we do not know how we are going to finance that. We have 
created a vacuum and States will be moving forward to take some 
action if we do not take some action.
    However, I do want to say that I have to express some 
concern about the letter that was sent by Chairman Oberstar and 
Subcommittee Chair DeFazio to the Governors, the State DOTs, 
some of the State legislators on May 10th. They wrote to 
strongly discourage States from entering into public-private 
partnership agreements that are not in the long-term interest 
of our national transportation plan.
    Well, somebody tell me what our long-term national 
transportation plan is. Again, I think they are trying to fill 
that void. I will give my colleagues on the other side of the 
aisle the benefit of the doubt that we do not want anyone to 
enter into any agreements that are not in the public interest. 
But, again, they are filling a void caused by a lack of Federal 
policy. These hearings I know are being conducted to develop 
that policy.
    I believe that in the future we in the United States 
absolutely will have to rely on leveraging with the private 
sector dollars for funding transportation projects. Europeans 
and Australians have been doing this for over 40 years. I think 
we can look at other models and create our own that fits our 
unique requirements in the United States and optimize the 
dollars and financing that is available to move these important 
infrastructure projects to the benefit of the public.
    There is one particular sentence in the Oberstar and 
DeFazio letter that I do disagree with, and this caused quite 
an uproar in the Transportation Committee. The letter states 
that the Committee ``will work to undo any agreements that do 
not fully protect the public interest and the integrity of the 
national system.'' Now, again, if they do not protect the 
public interest, I do have concerns and would concur with that 
statement.
    But the States are operating in a void of public policy and 
I defy anyone to tell us what our national system is today and 
what it will look like in 20 or 50 years from now. And I also 
sympathize with the governors and other State legislators and 
officials trying to deal with what has turned into a national 
parking lot as far as highway transportation is concerned.
    I look forward to working with Members of the Committee as 
we hopefully resolve some of these issues and learn from these 
witnesses and others how we can best move forward. Sorry to 
take a little bit extra time, but I do feel this is important. 
I think Mr. Oberstar would do the same if he were able to be 
here. Thank you. I yield back.
    Mr. DeFazio. I thank the Ranking Republican Member.
    The Committee is attempting, we are doing it on two tracks 
here. One is to look at potential funding resources to deal 
with national infrastructure needs. The other is to develop a 
vision and fully assess the national infrastructure needs. We 
are only in the fourth or fifth month of assessing that.
    I would agree with the gentleman in terms of we need a new 
vision. We have been living off of past capital for basically a 
half a century that was provided by Dwight David Eisenhower as 
President and the National Interstate System and we have just 
only incrementally changed that. We need to look at a 
transportation policy for the 21st century.
    But I would also state that the existing system is the 
Interstate system and we have concerns about fragmentation and/
or segmentation where critical parts of the designated 
Interstate system charge extortionate rents or tolls because of 
poorly drafted and entered into private-public partnerships. 
That is what we are referring to in that letter.
    With that, unless there are other Members who urgently have 
an opening statement, I want to turn to the witnesses and move 
ahead. Thank you.
    The order on the agenda would be the Honorable Alan 
Lowenthal, Chair of the California State Senate Transportation 
and Housing Committee. Senator Lowenthal.

 TESTIMONY OF THE HONORABLE ALAN LOWENTHAL, CHAIR, CALIFORNIA 
   SENATE TRANSPORTATION AND HOUSING COMMITTEE, SACRAMENTO, 
CALIFORNIA; THE HONORABLE TERRI J. AUSTIN, CHAIR, INDIANA HOUSE 
   ROADS AND TRANSPORTATION COMMITTEE, INDIANAPOLIS, INDIANA

    Mr. Lowenthal. Thank you Mr. Chair and Members. Thank you 
for inviting me here today to discuss California's experience 
with public-private partnerships and to share my thoughts 
concerning an appropriate State policy on public-private 
partnerships given our current understanding of the 
opportunities and challenges of this financing tool.
    When it comes to transportation funding, California is in 
the midst of the same struggle as is the Federal Government. 
California has not raised its gas tax since 1994, and the value 
of the tax has eroded substantially due to inflation and rising 
construction costs. At the same time, the State expects 
tremendous population growth, with the number of vehicle miles 
traveled growing at an even faster rate. As a result, the State 
has been in the uncomfortable position of under-investing in 
its transportation infrastructure. And today we have some of 
the worst congestion in the Nation.
    Public-private partnerships have been increasingly 
presented to policymakers as a tool to finance much-needed 
transportation facilities. In California, the debate has 
focused solely on using public-private partnerships for the 
design, build, finance, and operation of a new transportation 
facility. As a State, we are not considering the lease of any 
existing infrastructure, as has been done in the City of 
Chicago or the State of Indiana.
    Public-private partnerships are not new to California. I 
have submitted to the Committee a report that details 
California's experience with public-private partnerships. To 
summarize, in 1989 the legislature passed legislation allowing 
for the construction of four public-private partnerships. Two 
projects were initiated before legislation was passed in 2002 
limiting the number of public-private partnerships to two.
    The first project included a ``non-compete clause'' which 
prevented the State from making needed improvements to the 
facility. Due to the limitations imposed by the non-compete 
clause, a public agency purchased the concession rights to the 
toll lane in 2002, making California's first operational 
private toll project a public facility.
    California's second and only other public-private 
partnership, which is financed by Macquarie Infrastructure 
Group, has experienced significant cost overruns and project 
delays. Who bears responsibility for these increased costs--the 
public or the private partner--is subject to dispute between 
the two parties. This facility is not yet in service and 
already the legislature has extended the length of time that 
tolls may be charged in order to facilitate the resolution of 
this dispute.
    California's experience with public-private partnerships 
lends support to the following concerns about these 
arrangements:
    One, concession agreements may limit the ability of a 
public agency to adapt to the changing transportation needs of 
a region; and two, working with a private entity may be a 
contentious and litigious endeavor for public agencies because 
private companies may work to protect their investment over the 
public interest.
    While public-private partnerships have had a troubled 
history in California, the State nonetheless recognizes that 
development concessions may offer certain opportunities a way 
forward.
    One arena in transportation that I believe is ripe for 
public-private partnerships is in goods movement. Last year, 
the California Legislature passed legislation to authorize four 
public-private partnerships to facilitate the development of 
infrastructure that is primarily designed to support the 
movement of freight. Forty-five percent of the Nation's 
seaborne cargo enters the State by the Ports of Los Angeles and 
Long Beach, the majority of which is simply passing through our 
State to other parts of the country. The trade activity is 
expected to double by 2020. Southern California is experiencing 
a public health crisis due to air quality that has been 
degraded by emissions from goods movement activity. The State's 
infrastructure can barely handle existing trade, let alone 
accommodate this overwhelming coming growth.
    Under the current system of transportation funding, 
retailers and manufacturers who ship goods to the United States 
are profiting from the use of California's transportation 
infrastructure. At the same time, communities near our seaports 
and along our trade corridors are subsidizing the cost of 
consumer goods with poor health and a diminished quality of 
life.
    Public-private partnerships have the potential to provide 
needed goods movement-related facilities. Concession agreements 
could and should include specified performance standards 
regarding the mobility of goods and the environmental and 
community impacts of transportation facilities. In this way, 
public-private partnerships may help to improve not only the 
transportation infrastructure, but also community health and 
well-being. Perhaps more importantly, public-private 
partnerships in the realm of goods movement may foster the 
development and demonstration of new technologies to support 
the movement of freight in a manner that produces zero 
emissions.
    The primary users and beneficiaries of goods movement 
facilities would be private entities such as retailers and 
manufacturers as well as the trucking and railroad companies 
employed to move their cargo. Focusing public-private 
partnerships on goods movement, where a private company charges 
other private companies, such as retailers, manufacturers, 
trucking companies, for the use of that facility, evens the 
playing field, so to speak, between those who control the 
facility and those who pay to use it. Cargo owners have a 
greater ability to pay for their use of the facility and/or 
pass on their costs and they have a greater ability to choose 
different facilities, such as other ports, if the price of 
doing business using that facility becomes too high.
    As I close, I would like to suggest a series of 
intermediate steps that States may take to address 
infrastructure dilemmas and take advantage of private sector 
efficiency and innovation. First, States could develop more 
publicly operated toll facilities, which also invite private 
capital into infrastructure development through the sale of 
tax-exempt bonds. States could also allow a greater role for 
the private sector in the operation of facilities. Finally, 
regardless of whether a facility is public or private, Federal 
and State Government should do more to encourage demand 
management strategies in order to achieve higher performance 
from our existing facilities.
    Thank you. I welcome any questions by the Subcommittee.
    Mr. DeFazio. Thank you, Senator.
    With that, I now turn to the Honorable Terri J. Austin, 
Chair of the Indiana House Roads and Transportation Committee. 
Welcome.
    Ms. Austin. Thank you, Mr. Chairman and Members of the 
Committee, for the opportunity to testify here today about 
Indiana's experiences.
    In March 2006, the Indiana General Assembly enacted 
legislation for the first time that gives our State's executive 
branch the authority to enter into public-private partnership 
agreements for the financing and development of limited access 
facilities, tollways, roads and bridges, and other 
infrastructure assets. And I might add that this past session 
we added passenger and freight rail to the definition of P3 
agreements.
    This same legislation, which is also known as House Bill 
1008, also allowed a quasi-state agency called the Indiana 
Finance Authority to enter into an agreement with a private 
consortium to lease the Indiana Toll Road. And as you may know, 
the Indiana Toll Road is about 157 mile stretch that hits the 
Ohio Turnpike on our eastern border and the Chicago Skyway on 
our western border and also includes Federal Interstates I-80 
and I-90. The lease agreement, which was finalized with the 
multinational firm Macquarie-Cintra, was a concessions model 
that gave up tolling revenue and rights to the road for a 
period of 75 years in exchange for a one time up-front payment 
of $3.8 billion.
    The Indiana Toll Road Concession and Lease Agreement gave 
the exclusive franchise and license to not only operate, 
manage, maintain, rehabilitate and toll this thoroughfare, but 
it also included the rights to all revenues that are generated 
by the agreements with vendors and concessionaire that provide 
goods and services along the toll road.
    What I would like to do today with my testimony is to offer 
what I think are four principles that any legislative body, and 
I especially hope this particular body will consider as you 
look at the possibility of public-private partnerships, and 
this also goes for State legislators, as we wrestle with what 
are the appropriate tools for our infrastructure development 
toolbox, and how do we protect and safeguard the public 
interest.
    First and foremost, I would suggest that adequate public 
debate regarding P3s should be one of the priorities. Elected 
officials should debate whether or not public-private 
partnerships based upon agreements that last two, three, and 
four generations really represent good public policy and good 
transportation policy.
    For this to happen, and for the public and their duly 
elected representatives to be able to adequately examine these 
types of agreements, we need more than a few short weeks to 
build a working knowledge about P3s, examine prospectus 
agreements and reports, and understand the unprecedented 
amounts of information that accompany projects of this nature. 
This also includes an opportunity to examine various P3 models 
and to weigh the pros and cons of such agreements so that 
legislators and the public can participate in meaningful 
discussions.
    Indiana, as you know, has a part-time legislature. The 
eight weeks of the 2006 legislative session did not afford 
enough time to consider such a complex and far-reaching 
proposal before we were asked to cast a vote that would 
effectively tie the hands of both the executive branch and the 
legislative branch for decades to come.
    Ultimately, the public should have some level of discomfort 
with elected officials who serve two, four, and six year terms 
when they propose to enter into 75 or 99 year contractual 
obligations. As legislators, we know that laws can be amended 
and even repealed. However, there are simply very good reasons 
that long-term leases of public assets deserve extra time and 
extra scrutiny.
    Citizens deserve the right to change their mind about 
public policy and the course that their leaders have charted. 
Even if it reduces the windfall from a long-term P3 agreement, 
government needs to make certain that the agreements are not 
too difficult to extract themselves from.
    Additionally, we need to make sure that we are not pursing 
P3 agreements solely to avoid other policy options that may be 
even more complex or perhaps more politically difficult. There 
are difficult questions that should be pursued at the same time 
we examine P3 agreements. But most importantly, there should be 
a diverse strategy for keeping our Nation's infrastructure 
strong. We should not put all of our eggs in one basket simply 
because private equity firms are flush with cash and they are 
looking for roads to lease.
    Secondly, I would suggest that there has to be a verified 
project need and support for the project. Projects that are 
being promoted for P3 financing should be part of an 
established comprehensive, long-range plan for transportation 
infrastructure. The decision to undertake any new project 
should not be about following the money or taking advantage of 
a newly found ``cash cow.'' There should be an identified need 
for the project that is substantiated by feasibility studies 
and verifiable data.
    When vetting a project and an agreement, there should be 
strong support from local elected officials and residents, and 
a thorough examination and understanding of both the 
consequences and implementation of such an agreement. I believe 
it would be desirable to have local involvement and support 
throughout the entire scope of the project, including both the 
conceptualization, design, implementation, and evaluation of 
the proposal. Especially for projects that involve Federal 
transportation assets, there should also be substantial 
involvement and partnership communication between Federal 
officials, transportation officials, and elected officials, and 
locals, and at the state level.
    The third principle I would suggest is transparency, due 
diligence, and independent monitoring. In the case of Indiana's 
P3 agreement for the lease of the toll road, it was essentially 
a fait accompli. An RFP for the project had already been 
developed, disseminated, and responses were received prior to 
any legislative knowledge or involvement. Although requests for 
information were submitted by both legislators and the public, 
sometimes there was a reluctance to bring forward the details 
and information regarding the agreement and anything that had 
any of the financials that it had been based upon. But there 
were virtual, I would say, ``bedrooms'' created that allowed 
prospective bidders to go in and take a look at all this data. 
And it was difficult for legislators to actually have access to 
some of that same information.
    I would say that the reluctance on the part of any 
administration or anybody to disclose that type of information 
does little to foster public confidence that these long-term 
agreements are actually in the best interest of the public.
    Fourth, I would simply suggest that asset realization and 
distribution should follow the appropriate legislatively bodies 
and authorities. Cash-strapped States and local governments 
seem to be choosing to receive the funds up front. I know that 
is what Representative Duncan expressed some concern about. 
When this occurs, I believe that the legislative branch is the 
appropriate authority to take a look at how those funds should 
be distributed. I will simply say that in Indiana's case, we 
still have over $2 billion in local road, street, and bridge 
projects that have not been addressed by the General Assembly 
and we need to take a look at how we distribute the proceeds 
from any type of agreement where we get such an up-front 
windfall.
    I would simply add, and this is not in my written 
testimony, however, that the funds for the Indiana Toll Road, 
which is also known as Major Moves, is being reinvested in 
transportation infrastructure. However, it is scheduled to run 
out after 15 years. And what do we do when a lease is 75 years, 
we have given away the rights to our revenue, especially even 
the development revenue along the toll road and the rights to 
future development, to a private entity.
    In summary, I want to be perfectly clear that I do not 
think that all public-private partnership agreements are bad, 
nor should they be rejected out of hand. However, based upon 
what I have witnessed in Indiana and as reported in other 
States, the asset monetization and the long-term lease of 
transportation infrastructure deserves far more public 
discussion and debate than it has received.
    We are all aware of the challenges that you face in terms 
of the Highway Trust Fund and how it is going to impact 
revenues that are available to State and local governments. I 
would simply say that our own reluctance as a General Assembly 
to raise the fees for the last 20 years, the Indiana Toll Road 
fees, and your reluctance to raise the Federal gas tax have 
contributed to our current dilemma. I am not convinced that 
more taxes are the answer, nor do I believe that we can build 
our way out of congestion. I believe and hope that public mass 
transit deserves to be a part of State and Federal discussions 
and funding considerations.
    I look forward to working in partnership with my Federal 
officials to make this happen.
    Mr. DeFazio. Thank you for your excellent testimony.
    With that, we will proceed to a round of questions.
    Senator Lowenthal, I just wanted to follow up. We have had 
varying opinions on the efficacy or efficiencies that are 
absolutely inherent in public-private partnerships in terms of 
private construction of the roads. I guess I would ask, State 
Route 125, as I understand it, is being built by the Macquarie 
Infrastructure Group. Is that correct?
    Mr. Lowenthal. Yes, it is.
    Mr. DeFazio. That is the same company involved in the 
Indiana and the Chicago Skyway. Now you said, ``It has 
experienced significant cost overruns and project delays.'' 
Could you give us a little insight into why, since we have told 
that this is the panacea to publicly constructed projects?
    Mr. Lowenthal. I think part of it is who is going to assume 
the risk for permitting and delays that have taken place in the 
construction of, or in the planning and permitting for State 
Route 125, which is, incidentally, just a short, I think, nine 
and a half mile route that we are talking about tolling. There 
have been considerable difficulties over the environmental 
permitting, some of the issues around easements, and land 
acquisition.
    And the question has come up as to who is responsible for 
all of those. Is it the private sector, or is it the public 
sector. So those are the kinds of issues that really have to be 
clearly delineated, were not as clearly delineated, and 
therefore have led to tremendous disagreements between the 
public agencies, and that is in San Diego County, and Macquarie 
Bank in terms of who is responsible for these cost overruns.
    The legislature stepped into that by permitting the 
addition of 10 more years of tolling, I believe from 35 to 45 
years, for that lease to meet the costs if the private sector 
would pick up those costs to try to resolve this dispute, which 
still has not been totally resolved between the two. So a lot 
of it, as we have learned, has to do with the details in terms 
of the risk that is taken. If the private sector receives 
benefits, do they also have to take on some of the risks for 
the environmental permitting and others. And in this case, that 
was not real clear and we are kind of caught in that dispute.
    Mr. DeFazio. As I understood it, perhaps you can correct 
me, the environmental review was completed way back in 2001 and 
Macquarie began the financing in 2003. Were there construction 
delays, or was it just all back to the environmental review 
issue?
    Mr. Lowenthal. Well, there were alignment issues. 
Originally, the alignment went over granite and it was too 
difficult to build and too hard to realign.
    Mr. DeFazio. So it had to do with actually unanticipated--
--
    Mr. Lowenthal. Right. Things came up. And the private 
company negotiated community benefits that were more expensive 
than anticipated, also. So there was realignment, and even 
though the environmental permitting was completed, when they 
actually began the construction they found they had to realign 
the project.
    Mr. DeFazio. And in this agreement, Macquarie feels that, 
even though one of the great benefits we hear of public-private 
partnerships is that in ``greenfields'' the private entity 
assumes the risk, in this case they are saying, no, they should 
not have to.
    Mr. Lowenthal. That is right. With having found this out 
that they had to realign, that there were these issues, and 
there was disagreement between the public agency then and the 
private agency, the State legislature stepped in to try to 
resolve that, but realizing this was not what we had intended 
when we started.
    Mr. DeFazio. Right. And what is the value of ten additional 
years of tolling? Do you have a number?
    Mr. Lowenthal. That I do not know. That I do not know. But 
we can get that information. It is significant. Quite 
significant.
    Mr. DeFazio. Yes. Okay.
    Mr. Lowenthal. That is almost one-quarter of the amount of 
time they have. We have increased it by approximately 25 
percent.
    Mr. DeFazio. Right. And just the goods movement, I am very 
intrigued by the focus on a public-private where you have a 
commercial entity using the public-private road. How far along 
are you with that concept?
    Mr. Lowenthal. Well, we have not had any projects come 
forward. But we have begun to identify a number of possible 
projects. What we are finding, and this is not just true for 
California ports but for the Nation's goods movement, is that 
we tend to have our ports of entry in urban areas. And so now 
with the tremendous change in goods movement with the 
tremendous importation of goods, and with the large retailers 
in this Nation wanting to send these goods to distribution 
centers, deconsolidate the goods, and then reconsolidate them 
and send them on to the rest of the Nation, we have trade 
corridors now of 100 to 125 miles from the ports to these large 
distribution centers that are going through some of the most 
congested areas.
    So whether we are talking about truck toll lanes, whether 
we are talking about new kinds of rail infrastructure, because 
we also have issues of pollution that take place, we are going 
to be looking at magnetic levitation projects potentially, we 
are going to be looking at all sorts of technologies that not 
only move goods through urban areas for periods and connect to 
our rail lines and truck lines, but also those that produce 
limited, if not zero, pollution. Those are the ones that we are 
going to have to engage the private sector. And that is really 
what we are looking at now.
    Mr. DeFazio. I would be very interested as you move forward 
with that.
    Mr. Lowenthal. Those are going to be the most fascinating 
projects we believe. And those are projects that the State 
would not be able to undertake without some kind of private 
investment.
    Mr. DeFazio. Excellent.
    Representative Austin, I do not know, have you seen the 
model legislation, so-called, provided by the Administration on 
PPPs?
    Ms. Austin. I have, and I attended the February 9th 
briefing.
    Mr. DeFazio. So I would assume then from your testimony 
where you talk about the amount of time and sort of the 
compartmentalization of the information that the legislature 
felt they needed to make a decision, you would probably 
disagree with some of their points about the proprietary 
nature, the exemption from public disclosure. Do you think 
those are areas where--I think you are saying we need a lot 
more transparency in these agreements. Is that right?
    Ms. Austin. I do believe that we need more transparency. 
These are public assets. And in the case of the toll road, it 
was built with both Federal and State taxpayer dollars. To 
basically lease away--and in the terms of our agreement, there 
was conflicting language because at one point it is referred to 
as a sale for tax purposes, and then in the rest of the 
agreement it is referred to as a lease. So our concern is that 
years down the road if there is a lawsuit that arises regarding 
anything in the developmental, the environmental, how is the 
court going to interpret that. So I really believe not only 
transparency, but the clarity in the language of the agreement 
itself is also crucial.
    This is a new concept here in the United States. And 
although it has taken place in limited projects for the last 20 
years, I think that you really need to give legislators an 
opportunity to build what I would say is a working knowledge 
base about what these agreements are before you ask them to 
vote on something that is going to effectively sign away an 
asset or take someone's land for two, three, and four 
generations.
    I do not know if you followed the Indiana General Assembly 
this past session, I am sure you were busy with your own things 
here, but there were two other proposals that were put forward 
by the administration--the Illiana Expressway, which would have 
been a new route up in the northern part of Indiana, would have 
run somewhat parallel to the toll road that we leased away; and 
also the Indiana Commerce Connector, which would have gone 
through five counties in central Indiana, which basically would 
have been a beltway outside of Interstate 465 connecting 
Interstate 70 and Interstate 69. One of the things that we 
did--this was a new project, it was not on the books, it was 
not anything that there had been any real feasibility studies 
done to support--we took field hearings out to people in those 
counties. And the overwhelming public sentiment was that they 
appreciated the opportunity to speak out about this project and 
ask questions, because they really felt as if they had not been 
given that opportunity in previous instances.
    Mr. DeFazio. That is excellent. I think it also underlines 
a point you made earlier; which is, if these projects are 
outside the State Transportation Improvement Plan, it makes 
them even more problematic and the need greater for, as you 
did, which I congratulate you on, going out to the public and 
saying, well, we have never discussed this before, is there a 
need, do you support it. Excellent. Thank you very much.
    I now turn to the Ranking Member, Mr. Duncan.
    Mr. Duncan. Thank you very much, Mr. Chairman. And thank 
you Senator Lowenthal and Representative Austin for being with 
us.
    Between 1995 and 2001, I had the privilege of chairing the 
Aviation Subcommittee. I always remember the hearing in which 
we had the head of the Atlanta Airport who told us that the 
main newest runway at the Atlanta Airport took 14 years from 
conception to completion, but it took only 99 days of 
construction, and they did those in 33 days. But they were so 
relieved to finally get approval that they did 24-hour 
construction days. Almost all of the delays were environmental 
rules and regulations and red tape.
    So I read with interest, Senator Lowenthal, about this 
project on State Route 125. It says this project was begun in 
1991, but the project approval process proved to be lengthy and 
environmental clearance was not finally granted until 2001. We 
hear and read about, and some of us have been there, some of 
these other countries, China and Japan and so forth, and they 
approve and complete these major highway and airport projects 
in two or three years, even in areas as populous as California.
    I am just wondering, I do not know if you know what the 
original cost estimate was in 1991 compared to what it finally 
ended up being. But when we delay these projects all these 
years, the costs go way up, people end up getting killed when 
roads are not improved. We have got some environmental 
streamlining in the latest highway bill.
    I guess I have a couple of questions. How much are you 
talking about when you say there have been cost overruns? I 
just wonder how much those were. And you say delays, what kind 
of delays are you talking about? It says in your testimony 12.5 
mile project. You said a minute ago 9.5 miles.
    Mr. Lowenthal. I meant 12.5 miles.
    Mr. Duncan. Okay. That is not a lengthy road. I am 
wondering how much in cost overruns we are talking about, and 
how much of a delay we are talking about, and how much more of 
a delay is there expected to be at this point? And secondly, 
has the State considered trying to some way hopefully speed up 
the approval processes?
    Mr. Lowenthal. All those questions. Let me clarify first 
the first part. SR-125 has two parts, they are connector roads 
really between freeways, there is the public part and the 
private part. The private part is the 9.5 mile part that is 
tolled, then there is a public part that is another additional 
3 miles, and that is where we get to the 12.5 miles. So we are 
not talking about the public part now. We are talking just 
about the part that Macquarie has----
    Mr. Duncan. The 9.5 mile private part.
    Mr. Lowenthal. Right. And we have also, you know, it is a 
double-edged sword, California has the California Environmental 
Quality Act which we are very proud of. And on one had, it has 
provided for a tremendous amount of environmental protection; 
on the other hand, we also would like to see when needed some 
streamlining also. And so we are very appreciative when we can 
speed up the process. Earlier, some of the process, as I 
pointed out, slowed down because of the environmental 
permitting. There were protected species that were not early 
identified. That took some time to identify.
    Macquarie was not in this process early on. It was not 
until later on in the process that Macquarie got involved into 
the process. And the real slowing down really did not occur, as 
I pointed out, because of the environmental process, but 
because they did not anticipate when they began this finding so 
much granite underneath and having to realign the road. So some 
of it was, as the Chair pointed out, an unintended consequence 
that would have occurred anyway. The question was, who is going 
to be responsible for that delay?
    Mr. Duncan. How much of a cost overrun are you talking 
about?
    Mr. Lowenthal. We are talking about between I think the 
original cost was $400 million which was allocated, then it 
grew to $682 million with the realignment and the slowing down.
    Mr. Duncan. And in 1991 when this project was first 
approved, when was it supposed to have been completed? And when 
are you talking about completing it now?
    Mr. Lowenthal. I think it is going to be completed this 
year. I think it was supposed to be completed around--I do not 
think we really had a time. It was not anticipated to be 
completed for a number of years. I am just not sure how much 
the environmental part--what the legislature was told when we 
got involved was that it was a two and a half years delay.
    Mr. Duncan. But it is not completed now, though; is that 
correct?
    Mr. Lowenthal. It is just about to be completed. It will be 
open this year. It is a two and a half year delay, and that had 
to do with the construction.
    Mr. Duncan. It seems really sad to me that we would talk 
about a 12.5 mile project that we started in 1991 and in 2007 
it is still not quite completed. That is just getting almost to 
the point of being ridiculous.
    Mr. Lowenthal. It is.
    Mr. Duncan. Let me ask you another question. The Department 
of Transportation recently came out with a report saying that 
we are spending roughly $75 billion a year from all sources, 
Federal, State, and local, on our highways each year and that 
we need to be spending, they estimate, $131.5 billion a year. 
So you are talking about a shortfall according to the DOT of 
$56.5 billion a year. In 10 years' time or 20 years' time, that 
would really mount up to some huge money. What I am wondering 
about, you talked about you have not had a gas tax increase 
since I think you said 1994; is that correct?
    Mr. Lowenthal. Yes.
    Mr. Duncan. As angry and upset as people are about gas 
prices all over the country today, we certainly could not come 
in with a gas tax increase I do not suppose. It would be very 
difficult at this point. But how do we make up this shortfall, 
or hopefully part of it, if we do not go more to public-private 
partnerships? What is the solution?
    Mr. Lowenthal. Well, there are a number of solutions that 
can be done. One of the solutions is that the California voters 
this year passed a $40 billion bond package on infrastructure, 
of which $19.9 billion was for transportation related 
infrastructure, $4.5 billion for public transit, $4.5 billion 
to increase corridor mobility, $2 billion for goods movement 
infrastructure, trade corridors. So the first thing is that the 
public, the government, as representative of the people of 
California, decided themselves to give a down payment to invest 
in their infrastructure. I believe it is the largest 
infrastructure package that any State has ever proposed and the 
people have passed. So that is one way.
    Another way is to look at what kinds of projects come 
forward. Right now, our priority in California, in terms of 
inviting the private sector to join with the public sector, is 
in the logistics and the movement of goods. We see that vital 
for both the Nation's and for the State's economy, and for the 
economic well-being of the State. So we are going to be serious 
about looking at goods movement projects, trade corridor 
projects for public-private partnerships. That is going to be 
our focus in the State.
    Mr. Duncan. I will say this----
    Mr. Lowenthal. And we are going to need also to look at 
public tolls. We do not believe that tolling has to necessarily 
be from the lease agreements. We have been doing tolling in 
California through public tolls for a number of years. We have 
our bridge authorities, the Golden Gate Bridge, the Bay Bridge. 
And we will continue to look at public tolling also. So we are 
going to look at all of those ventures. And as I say, we have 
already done two public-private partnerships on new ventures. 
What we are not going to be looking at as a State is existing 
assets.
    Mr. Duncan. All right. Let me move to Representative 
Austin. You did mention, and I have expressed a concern, that 
if we go into these long-term leases by the States and these 
private companies, if we have governors who take all this money 
up front--and I understand that Indiana was paid $3 billion up 
front and nothing in future years.
    Ms. Austin. It was $3.8 billion. And I can tell you that 
the majority of that was allocated to a 10-year transportation 
plan of existing projects. Also, what I did not say but is in 
my written testimony, there was $150 million that was allocated 
to 85 of Indiana's 92 counties for, basically, here, we will 
give some dollars to locals to help them do some street 
projects. But more importantly, $360 million was allocated 
among 7 counties along the tollway. The concern that was 
expressed and one of the criticisms is that the funds were 
actually not distributed in a way that met local needs and in a 
fair and equitable manner, but based on already established 
priorities and population statistics.
    Also, I would say that we took $500 million out--the 
legislation called for $500 million of that $3.8 billion to be 
put in what is called a Next Generation Trust Fund. The money 
actually is supposed to sit there and then they scoop the 
interest out every five years and put it into what is called 
the Major Moves Construction Fund, which is where the bulk of 
the revenue went. That is to help extend the life of the 
agreement. But, essentially, the funding mechanism does run out 
after 10 years. And the question is going to be what do we do 
then, because we have given away the cow, so to speak.
    Mr. Duncan. I know from a public policy perspective, we 
have had widespread private investment in utilities and 
telecommunications networks and in other areas. We do need to 
look at this from a transportation standpoint. I also know that 
people for many years have been moving from the high tax states 
to the low tax states. So you have to take that into 
consideration as well.
    But on some of these situations, if States are going to do 
some of these things, it seems to me they should make provision 
for payments to be made in some way for money to come into the 
States for the entire term of the lease, even with inflation 
factors to be included, so that more money is coming in with 
each year instead of taking everything on the front-end and 
leaving future governors and future taxpayers to hold the bag 
in later years. And I also wonder what provisions are made if 
one of these companies goes bankrupt. What happens then if, 
say, you have got a 75 year situation? That seems to be a 
potential problem there, too.
    At any rate, thank you very much for your testimony.
    Mr. DeFazio. Thank you, Mr. Duncan. I am going to turn to 
Mr. Nadler in just a moment, but just one quick question to 
Senator Lowenthal on this geological assessment. Back to the 
issue that private-public partnerships are good because the 
risk is shifted to the private sector. Would you not think that 
part of their determining they are going to do a project when 
they are given a specified route would be they would go out and 
do geological assessments before they bid and know what it was 
going to cost, and therefore that would be their problem?
    Mr. Lowenthal. I agree.
    Mr. DeFazio. Thanks. Okay, Mr. Nadler.
    Mr. Nadler. Thank you. Let me first thank Congresswoman 
Hirono for agreeing to let me precede her, since I have to 
leave for an 11:00 meeting that I am already late for.
    Let me ask both witnesses, some people say that the way 
public-private partnerships bring revenue into infrastructure 
projects is simply by enabling tolls to be raised faster or 
higher than the public process would permit, and/or enabling 
high priced unionized public employees to be replaced by 
cheaper people who are paid much less as toll booth attendants 
or whatever. My question is the following. Aside from that, how 
can private-public partnership bring more revenue into 
infrastructure projects than would be the case, for example, if 
the State to were monetize the net present value of future 
tolls by bonding against the revenue which came from future 
tolls? In other words, how does this entire mechanism work, 
aside from the two things that I mentioned, to bring more 
revenue into the whole situation? How does it bring more 
revenue, not more revenue, more resources for infrastructure 
maintenance or construction than would otherwise be available?
    Ms. Austin. I think in our case it was the fact that it 
created an up-front flush of cash. The $3.8 million was 
certainly very tempting to many legislators and----
    Mr. Nadler. It brought it up front.
    Ms. Austin. Yes, $3.8 billion.
    Mr. Nadler. But why could not the State, if it wanted to, 
have simply bonded against the future revenue stream tolls and 
gotten the same up-front money?
    Ms. Austin. That was an alternative that was proposed and 
defeated.
    Mr. Nadler. Because?
    Ms. Austin. I can say it went down along party line vote. 
It was not part of the proposal.
    Mr. Nadler. What were the arguments?
    Ms. Austin. Well, one of the criticisms of bonding is that 
then you have to pay all this interest for a number of years 
that you would not normally have to pay. However, in the case 
of bonding, a more limited or shortened agreement might not 
have brought quite so much cash, say we cut it down from 75 to 
25 years and then created options to renew, might have cut it 
by a third, and then that money could then have been turned 
around and used for Garvey bonds and other such things.
    Mr. Nadler. All right. Step away for a moment from getting 
the revenue up front. If you were faced with having to raise $5 
billion for a major new project, how would private-public 
partnership bring some new source of revenue to help realize 
this?
    Ms. Austin. The investors are willing to take that risk to 
build a new project. The Commerce Connector was a perfect 
proposal of that.
    Mr. Nadler. Say again?
    Ms. Austin. The Indiana Commerce Connector. It is a project 
that was newly presented, newly conceived, in many cases local 
communities had no idea that someone had even conceptualized 
it. The Administration came out with the proposal a few days 
after the election and folks immediately began to say where is 
the data for this project, where is the need. One of the 
rationales for the project was to help move freight traffic off 
of Indiana 465, which is a beltway, and also Indiana 70, which 
runs through Ohio and into Missouri.
    Mr. Nadler. But regardless of the debate, let us assume it 
is a needed project, let us assume it is a needed, essential 
project, what you are saying in effect is that private 
investors bring in money.
    Ms. Austin. Well, yes.
    Mr. Nadler. All right. Yes. And they bring in more money 
than the State could get. I assume they expect a return on 
their investment, and their return is going to be from charging 
tolls. Correct?
    Ms. Austin. Not only charging tolls, but what other revenue 
mechanisms are included in the agreement. And in the case of 
the Indiana Toll Road agreement, all of the concessionaires and 
vendors who pay a fee to position themselves along the toll 
road also are part of the revenue.
    Mr. Nadler. Okay. So it is going to be concessionaires, 
vendors, and tolls. And is that a larger amount of money, or is 
it likely to be a larger amount of money, or possibly going to 
be a larger amount of money than the State could get by bonding 
out against the same things?
    Ms. Austin. Not necessarily.
    Mr. Nadler. So what is the advantage? Or is there an 
advantage?
    Ms. Austin. I think the money that you would get through 
bonding actually goes out over a longer period of time, is 
spread out over a longer period of time, versus the one time, 
up-front $3.8 billion that we received. Money in the bank.
    Mr. Nadler. Okay. Thank you.
    Mr. DeFazio. We need to move along quickly with this round 
because Governor Rendell is waiting and he has to get a train 
back.
    So, Mr. Coble.
    Mr. Coble. Mr. Chairman, I will be brief. And I apologize, 
I have had two other meetings, so I have been playing jack-in-
the-box. Good to have you all with us.
    Let me put this question to either of you. There are a 
number of new technologies that exist which are purported to 
make public-private partnerships more efficient and effective 
for both the public and the administrators of the partnership. 
Speak to me, if you will, about the technologies and how they 
may affect commerce. For example, if a number of contiguous 
states or regional areas were to develop and implement public-
private partnerships but used varying technology, what impact, 
if any, would this have on the movement of goods that depend 
upon our highway infrastructure? For example, if Virginia had a 
SmartCard pass, for example, and North Carolina conversely 
would not have the same card that would permit easy flow 
through the toll. Talk to me about that.
    Mr. Lowenthal. I am not sure. We have not confronted that 
issue in California. But the question is, if you had a card 
that worked for registering in, let us say, Virginia but was 
different than the one in North Carolina, the question is would 
that impede the flow of goods through there.
    Mr. Coble. What impact, if any? It may have no impact.
    Mr. Lowenthal. I do not think it would have any impact at 
all potentially. The issue, maybe I am missing the question, I 
think that you are right, in the sense that it would mean that 
one would have to have multiple kinds of abilities to go 
through multiple states, and that might be an inconvenience but 
I do not think it is something that could not be overcome.
    Mr. Coble. Ms. Austin, do you want to weigh in on this?
    Ms. Austin. I would. Thank you, Representative Coble. I can 
tell you that is becoming a problem in Indiana along the toll 
road. One of the provisions of the agreement, in order to gain 
legislative support for the legislation, was to freeze the 
tolls for 10 years and to subsidize back to the private 
consortium, I believe that amount comes to around $260 million, 
because citizens were in such an uproar about their tolls, the 
authority to raise the tolls being given to a private entity 
for a 75-year period of time.
    So what the agreement called for was that if folks who 
lived and worked and resided in those areas would buy something 
called the Easy Pass transponder, they could go through the 
tolls between Illinois and Indiana and those are the ones who 
would have their tolls frozen, they would not have to pay the 
increased tolls, but those who could not afford to buy the 
transponder or chose not to buy it for their car had to pay the 
increased tolls. But more importantly, what we are finding as 
they have rolled this out just recently is the folks who travel 
into Illinois into the Illinois toll road that connects with 
ours, the transponders are not working. And so the technologies 
have got to be compatible.
    Mr. Coble. Well I am not searching for a problem, Mr. 
Chairman, but I can see that this would be a potential problem. 
I thank you, Mr. Chairman. I yield back.
    Mr. DeFazio. Thank you. Ms. Hirono.
    Ms. Hirono. Thank you, Mr. Chairman. Senator Lowenthal, I 
can certainly understand why California and other States would 
want to look for different revenue sources. The long-term 
leases that you talked about fraught with peril and many 
questions. So I can see why charging user fees for the movement 
of goods through your ports would seem like a much simpler way 
to raise the needed revenues. However, I am sure you are aware 
that for a State like Hawaii, which is almost 100 percent 
dependent on ship goods, this kind of a user fee would have a 
tremendous, tremendous impact.
    I note in your testimony as you talked about this approach, 
you say the Federal Government is nowhere in sight. So that 
says to me you believe that this should be a much more 
nationally oriented issue that speaks to a national solution.
    Mr. Lowenthal. Right. Right.
    Ms. Hirono. So do you have any suggestions along those 
lines?
    Mr. Lowenthal. I will just tell you, as I pointed out 
before, the State, in terms of just talking about goods 
movement, has put up both in terms of air quality money and 
infrastructure just for goods movement approximately $3 
billion. We are confronting both an infrastructure crisis and a 
public health crisis. We now estimate that we have about 5,400 
premature deaths a year due to goods movement in the State of 
California, and about $200 billion of costs over the next 15 
years in terms of health care costs due to particulates related 
to the movement of goods through our State, primarily through 
our seaborne ports. We have the highest asthma rates in the 
country and the highest cancer rates around our ports due to 
diesel particulates.
    The State can play a role in that, the private sector, but 
the public sector also. When we are moving 45 percent of the 
Nation's goods, we are actually, by our health and our 
infrastructure, subsidizing the rest of the Nation. So we have 
to look at all options to protect our citizens. We are in a 
crisis situation.
    Ms. Hirono. My question was, what can the Federal 
Government do? Because I agree with you that California 
citizens should----
    Mr. Lowenthal. We can have a national policy on goods 
movement and understand that the States, the ability to move 
goods to the rest of the Nation, with the change and becoming 
part of an international global economy, that we are going to 
need national investment in our infrastructure, or else we are 
going to have to do it ourselves because we cannot afford any 
longer just to be basically the tailpipe of the Nation.
    Ms. Hirono. Thank you. I agree.
    Mr. DeFazio. I thank the gentlelady.
    With that, I would thank the panel for their testimony. It 
was very helpful and we look forward to an ongoing dialogue. 
Thank you. We appreciate it.
    Mr. Lowenthal. Thank you.
    Ms. Austin. Thank you for having us.
    Mr. DeFazio. Governor Rendell will be in momentarily and he 
would be the next witness.
    With that, I call on Mr. Altmire for any statement he may 
wish to make.
    Mr. Altmire. Thank you, Mr. Chairman. I want to thank you, 
Governor Rendell, for testifying before us today on your 
efforts to generate additional revenue for the unmet 
transportation needs of the Commonwealth. You have always shown 
a willingness to offer innovative solutions to the serious 
challenges that confront our State. I commend you for your 
leadership on these issues.
    Under Chairman DeFazio's leadership, this Committee has had 
the opportunity to examine how public-private partnerships are 
entered, as well as the impact of recent lease agreements for 
the operation and maintenance of the Chicago Skyway and Indiana 
Toll Road. Other examples include the Pocahontas Parkway in 
Virginia, the Southern Connector in South Carolina, SR-125 in 
California, and the Trans-Texas Corridor. Each of these 
agreements between States and the private sector provides us 
with guidance on how similar deals should or should not be 
structured in the future in order to ensure the public interest 
is protected.
    As Governor Rendell is fully aware, substantial investment 
in Pennsylvania's highways, bridges, and public transit is 
required to meet our Commonwealth's future transportation 
needs. According to the 2006 report of the Transportation 
Funding and Reform Commission, one and three-quarter billion 
dollars in highway and transit funding will be needed per year 
for the foreseeable future. It is critical that we provide the 
necessary resources to meet our growing transportation needs, 
including repair of existing aged infrastructure and proper 
planning for the future.
    While I do have some reservations about this issue, I look 
forward to learning more about Governor Rendell's proposal.
    I want to thank the Chairman again for calling this 
hearing, and thank the Governor for appearing before us today. 
Thank you.
    Mr. DeFazio. All right. With that, I thank the Governor for 
being here. Please proceed with your testimony, Governor.

    TESTIMONY OF THE HONORABLE EDWARD G. RENDELL, GOVERNOR, 
                  COMMONWEALTH OF PENNSYLVANIA

    Governor Rendell. Mr. Chairman, good morning. I thank 
Congressman Altmire for those fine words. We were all proud of 
his stirring election victory and he has done a great job in 
the short time he has been here. Let me echo what Congressman 
Altmire said. I came to this issue with concerns as well. It is 
fair to say that I am not totally without concerns as we 
proceed down the road.
    Let me begin by telling you, and I will try to be as brief 
as I can, the problem in Pennsylvania that has caused us to 
consider entering into a public-private partnership to lease 
the Pennsylvania Turnpike.
    Pennsylvania, as Congressman Altmire knows but probably few 
others do, is a pass-through State. If you want to go from the 
Atlantic corridor to the midwest, you go through Pennsylvania. 
And most of the people who go through Pennsylvania go through 
on the Pennsylvania Turnpike.
    But to give you an example of just how much of a pass-
through State we are, the State maintains more miles of roads 
than the States of New York and New Jersey do combined, even 
though Pennsylvania's population is exactly half of what New 
York and New Jersey's population would be totalled together. 
And the state of our roads, highways, and bridges is not good, 
notwithstanding an unprecedented level of spending that has 
occurred during my first four years as Governor.
    Take Pennsylvania's bridges. We have 25,000 State 
maintained bridges. That is the third highest number of any 
State in the Union. But we lead the Nation in number of bridges 
that are 75 years old or better. When I became Governor, in the 
previous year the State spent $259 million on bridge repair and 
maintenance. We have upped that, Mr. Chairman, to $558 million 
in the last year of my first term. Yet we still have 5,900 
structurally deficient bridges. The highest number in the 
Nation. The cost estimate to repair those 5,900 bridges, to put 
them in safe working condition, is $8 billion alone--$8 billion 
dollars alone.
    Pennsylvania has 8,500 miles of State maintained roads that 
have been designated as in poor condition. That is 20 percent 
of the over 40,000 roads we have and that we maintain. This is 
despite the fact that we have spent $8 billion in the last four 
years. The highest level of spending ever maintaining our 
highways and roads. And as the Committee is well aware, these 
problems are all exacerbated by the tremendous up-tick in road 
construction costs. In the last two years in Pennsylvania, and 
I think this is fairly consistent around the Nation, road 
construction costs have increased by 36 percent in the last two 
years.
    So what are we going to do? Clearly, the welfare of the 
citizens of the Commonwealth of Pennsylvania is very much 
dependent on finding a way to significantly cut into that 
repair backlog. Right now, we are spending 19 percent of all 
dollars on just maintaining the roads and bridges we have, and 
we are not even getting close to doing that. And a lot of new 
needed construction--and I am looking at Congressman Altmire, 
you know about the MonFayette Expressway--we have no dollars to 
even begin going down the road to construct the remaining 
portions of the Monfayette Expressway.
    So what are we going to do?
    Well, like you, I studied what went on in Indiana under the 
leadership of a conservative Republican governor, and in 
Chicago under the leadership of a liberal progressive 
Democratic mayor, and I concluded that was an option that 
Pennsylvania had to look at. To help us down the road to this 
option, we hired Morgan Stanley as our financial advisor. And 
in December of last year, we put out requests for interest to 
find out who was interested in potentially leasing, and I 
stress leasing, not buying, the Pennsylvania Turnpike. We asked 
them to give us a rough estimate of how much they would be 
willing to bid for a 99-year lease. We came back with 48 
responses. And of those 48 responses, the potential dollars 
went from $800 million to $30 billion, that was the potential 
range.
    We have asked Morgan Stanley to do a lot more research 
since that time. And Morgan Stanley has come to the conclusion 
that we have three options. The first option is to enter into 
that type of lease. Morgan Stanley estimates we would get $12 
to $18 billion up-front for that type of lease. What my 
intention would be is to annuitize that money and, let us take 
a middle figure, $15 billion, if we got $15 billion, that would 
produce about $1.4 billion a year in annuity. As you heard 
Congressman Altmire say, the Transportation Reform Commission 
says we need $1.7 billion of additional annual spending for 
roads, bridges, and highways, and, Mr. Chairman, for mass 
transit. The Transportation Reform Commission recommended $1 
billion a year in additional spending for Pennsylvania's roads, 
bridges, and highways, and $700 million a year for mass 
transit, above and beyond what they are receiving today.
    So assuming we got the middle of Morgan Stanley's estimate, 
that would be $15 billion, it would annuitize $1.4 billion and 
put us close to the goal of being able to meet the funding 
needs for roads and highways and for mass transit.
    But Morgan Stanley gave us two other options. Option two 
would be to turn the Turnpike over to a new public corporation 
and refinance the road. It would not be private, it would be a 
public corporation. They believe the refinancing could net us 
somewhere between an annuity of $900 million to $1.4 billion a 
year. It is not quite as potentially lucrative as the private 
leasing because you do not get the private tax advantages that 
people do on the private side for investing in this type of 
deal. But it still could be extremely lucrative.
    And lastly, the Pennsylvania Turnpike Commission itself, as 
Congressman Altmire knows, has advanced their own proposal that 
they would continue to control the turnpike, and by using a 
series of fees and new tolls and some refinancing, they could 
produce approximately $900 million a year.
    Now, it is clear to me that we have to go down the road and 
look at all of these options. What I have asked the legislature 
to do is give us the ability to go out to auction on this 
lease. Without doing that, it is going to be impossible for us 
to make a judgement. When you put your house up for sale there 
is a certain figure you will sell your house at, but if the 
bids come in lower than that you are not going to sell your 
house. So, for example, if we go down this PPP road and the 
bids come back let us say at $8 billion a year, that would give 
us an annuity of $720 million a year. That is insufficient. We 
will not enter into a lease for that. But the only way we are 
going to be able to find out is to test the market. If that is 
the case, then clearly turning it over to a new public 
corporation and refinancing which could produce more than $700 
million a year is preferable. The Turnpike's proposal might be 
preferable if that is all we get.
    But let us assume for the moment that the auction is taken 
and we come back with a $20 billion bid. Not out of the 
question. A $20 billion bid would produce about $1.9 billion in 
yearly annuity. That would take care of the transportation 
concerns of the people of Pennsylvania for the next 30 years.
    I want to close, Mr. Chairman, after giving you those 
examples, by not pointing the finger at the Federal Government. 
The Federal Government has been very good to Pennsylvania in 
highway funding, certainly during the time of Congressman Bud 
Shuster, and you continue to help us in every way you can. But 
the Federal Government realistically, doing the things you do 
right now, can never give to Pennsylvania, or to any older 
State that has these types of built-up transportation needs, 
you will never come close to being able to give us the amount 
of money that we need to bridge this gap.
    There is only one alternative, and I have recommended this 
for years since I was Mayor of the City of Philadelphia. I 
testified before President Clinton's Commission on a Federal 
Capital Budget which, as you may recall, was then chaired by 
John Corzine, head of Goldman-Sachs, and Kathleen Brown, then 
treasurer of the State of California. If you do not want us to 
go down these roads, my suggestion, and it is a sincere and 
legitimate one, one that I have been pushing for 10 years, is 
the Federal Government should join every other political 
subdivision in this country and adopt a capital budget. Every 
one of the G-7 nations has had trillion dollar-plus 
infrastructure repair programs in the last decade, but not 
America. And it is not just roads, bridges, and highways. It is 
water, sewer, ports, airports.
    If we are really serious about doing something about the 
infrastructure of this country and we want to stay away from 
these types of deals, we should move as quickly as we can to 
adopt a Federal capital budget and go on a real serious 
infrastructure program. Not an infrastructure program with a 
lot of earmarks and a lot of pork, but with an infrastructure 
program saying this much for roads and highways, this much for 
mass transportation, this much for water and sewer. That can be 
the solution to this problem.
    But absent Federal action to adopt a capital budget and go 
on a real infrastructure repair program, absent that, there is 
no way that the Federal Government out of its existing yearly 
operating budget is going to be able to help the 
Pennsylvanians, the Michigans, the Illinois, the States like 
that that have these types of old transportation 
infrastructure. There is no way that we are going to be able to 
go down that road and meet the public interest without looking 
at some of these options.
    Mr. DeFazio. Thank you, Governor. I would agree on the 
capital budget part. I have long supported the idea of capital 
budgets and, in fact, two year budget cycles. But we run into 
something called the Appropriations Committee when we talk 
about reasonable things like that. But hopefully we will get 
there some day.
    There is Morgan Stanley, there is sort of a disturbing 
shall we say consistency in these sorts of evaluations that are 
done for states. One that I find here in particular is they say 
``tolls allowed to rise at nominal GDP per capita inflation or 
2 percent a year, whichever is greater.'' Governor Daniels and 
I had an exchange over that. Would you call that a floor or a 
ceiling?
    Governor Rendell. Neither. Because those are Morgan 
Stanley's recommendations.
    Mr. DeFazio. Right. But they were adopted both by Chicago 
and by Indiana.
    Governor Rendell. Well I do not think you will find that 
Pennsylvania, either myself or the legislature, stands ready to 
just adopt----
    Mr. DeFazio. Okay. But here is the problem with that. The 
assumption of these massive payments are predicated on that 
formula. Because every one of these deals, they do not make the 
money on volume. Macquarie is very up front about it: ``We do 
not make money on efficiency. We do not make money on volume. 
We make money on toll increases.''
    So if you are not going to follow that model, and you would 
have to tell Morgan Stanley that, they would have to recompute 
all these values, and I think you would find much lower up-
front payment if you are not going to allow a floor. And just 
again, I exchanged this with Mr. Daniels just to edify him, if 
that floor had been applied to the Holland Tunnel, the current 
per car one-way toll, given the Great Depression and everything 
else that has happened, it would be $185.13. Now the answer of 
Macquarie is well, my God, we would not do that because we 
would drive traffic away.
    Do you envision non-compete agreements, because they also 
are what helps drive the value of these. You have a non-compete 
agreement. Indiana has a very stringent non-compete agreement.
    Governor Rendell. Well, first of all, all these problems, 
and you are right that there is a balance. Where you set the 
bar, how frequently, and at what degree tolls can be raised 
impacts the amount of money you are going to get. But it is our 
intention to set the bar at what we think is a reasonable 
figure to protect Pennsylvania drivers. And what harm is there 
under your scenario for us going to market? If we set the bar 
at a lower rate than Morgan Stanley recommends and we get a bid 
of $7 billion, we will not enter into an agreement. But if we 
set the bar----
    Mr. DeFazio. Right. But the key is the assumptions that go 
into it and the protections to the public. We had previous 
testimony from the chair of the Indiana State Transportation 
Committee, Representative Austin, who does not agree with the 
deal they entered into. She said the greatest problem they had 
there, which is also mirrored in the model legislation of the 
Bush Administration, and it has been repeated in a number of 
these deals, is the public does not know what the deal is, nor 
does the legislature, until it is done. So are you talking 
about a totally transparent process? If you get bids, those 
bids will be available, no proprietary information, it will be 
out there to be compared by the legislature and the public and 
all the assumptions will be known. Is that the kind of 
legislation you are asking for?
    Governor Rendell. Absolutely. In fact, it is our goal to 
have the legislature agree to the toll schedule that we would 
put into the final auction. That is number one.
    Number two, remember, you are addressing these problems, 
and, look, I give the Committee great credit for looking at 
this, this is the right time to look at it, but you are 
addressing these problems in a vacuum. You are not going to 
give me a Federal capital budget in the next couple of years, 
correct?
    Mr. DeFazio. It is not a vacuum, Governor. The point is the 
Committee is in the midst of a number of hearings about how we 
are going to enhance Federal revenues and assess the need.
    Governor Rendell. Right. But it is unlikely that we are 
going to see a Federal capital budget in the next couple of 
years.
    Mr. DeFazio. Well the question becomes, we had testimony 
from a fellow from Northwest Financial who said, in the case of 
Indiana, they could have bonded more money as a State entity, 
retained control of the Toll Road, not had non-competing 
agreements and everything else, and had more money up front for 
capital investment. We want to protect the public interest. And 
I admit, you have needs and you have got to address them. But 
the question becomes whether you do it through one of these 
privatized agreements, or the State itself, as in your option 
two, might do it. But what is key----
    Governor Rendell. And again, we know what we will get in 
option two. We roughly know what we will get in option two. We 
are going to take a look at option one, and we are going to go 
to market with the type of controls we think is necessary.
    But let me go back. If we are not going to do any of these 
things, and you are not going to give us a Federal capital 
budget, and remember, mass transit is in the state it is today 
because all of you down here removed operating funding for mass 
transit back in the late 1990s, if you are not going to do 
anything to help, and I am not saying that you should, then the 
alternative----
    Mr. DeFazio. I think your State probably does receive very 
substantial funds on an annual basis in the public 
transportation from the FTA.
    Governor Rendell. Absolutely. But we also have 30 cents a 
gallon in gasoline taxes--30 cents a gallon, which places us in 
the top 10. To come close to just the $1 billion that we need, 
according to the Transportation Reform Commission, we would 
have to raise our gas tax 12.5 cents a gallon. So I would ask 
you to get your calculator out. You talk about what tolls would 
go up under this scheme, get your calculator out and over the 
course of time figure out who would pay more, the citizens of 
Pennsylvania paying 12.5 cents additional on every gallon, or a 
sizeable toll increase. You cannot look at it in a vacuum. 
Something has to be done.
    Mr. DeFazio. I am not going to choose your options for you. 
But the concern here, what I am expressing to you and you are 
telling us you will absolutely address, is it will be a totally 
transparent process, you are not going to allow non-compete 
agreements, you are not going to put a floor under toll 
increases, and all of this will be established by the 
legislature and then you will go out to bid with other 
conditions, and all of the bids will be available to the public 
and to the legislature so they can fully understand the bids. 
If you do it that way, it will be an interesting exercise.
    And if you do not adopt the assumptions of Morgan Stanley, 
I expect you are going to find your option two is going to be a 
much more attractive way to finance your needs than option one, 
because the private sector, unless they can extract excessive 
rents in a monopoly situation, is not going to pay a bunch of 
money for it. That is what has happened in these other 
agreement--99 year lease for Chicago, floor under the toll 
increases, non-compete agreements; Indiana, non-compete 
agreements, floor under the toll increases.
    And there are some bad examples of what happens with non-
compete agreements. We had one in California, SR-91. They 
entered into an agreement for a toll road and there was a non-
compete agreement. The State determined they were having a lot 
of accidents at one point, they had to change an intersection, 
and the company said, oh, no, you cannot have safety 
improvements because of the non-compete agreement. They got 
into litigation, they had to buy out the project for twice what 
it cost.
    Governor Rendell. Sure. There are a lot of pitfalls to 
this.
    Mr. DeFazio. I am pleased to hear the approach you are 
going to take. It will be interesting to see the results.
    Governor Rendell. Absolutely. And there are a lot of 
pitfalls. Nobody says there are not pitfalls and nobody says 
there are not red flags that we should watch. But let me be 
clear. Where we are, and the Federal Government's refusal to 
adopt a capital budget has left us--we pay 30 cents tax on a 
gallon of gas. That is far more than Federal----
    Mr. DeFazio. That is a tax assessed at the pump?
    Governor Rendell. Thirty cents a gallon.
    Mr. DeFazio. Right. That is the consumer, or I think you 
also have a producer tax.
    Governor Rendell. Well that is putting them together 
because the producer tax is passed on to the consumer.
    Mr. DeFazio. Well, could it not come out of the producer's 
profits?
    Governor Rendell. I have suggested doing that for mass 
transit, and my legislature tells me there is no way we could 
adequately----
    Mr. DeFazio. Let me just ask, what does regular cost per 
gallon in Pennsylvania today?
    Governor Rendell. Today? About $3.12.
    Mr. DeFazio. Okay. We are at $3.48 in Oregon and we have a 
lower gas tax than you. So something else might be going on 
other than the tax in terms of the pricing.
    Governor Rendell. Oh, there is no question. If you want 
suggestions from me, you are giving me suggestions, if you want 
suggestions from me, let us do what we ought to have done a 
long time ago. The profits that are being made by the oil 
companies are astounding. There is no rhyme or reason that 
gasoline has gone up a dollar in the last five or six months. 
We should do an excess profit tax and give the excess profit 
tax back to the States for transportation money. That would 
make a lot of sense.
    I know there are some proposals here to give it back to the 
individual drivers. You give it back to the individual drivers 
and it is a small stipend and it does not do much. Give it back 
to the States and then I would not have to do any of these 
things. The taxes that our oil companies pay in Pennsylvania 
are pitiful, pitiful compared to the profits that they make.
    Mr. DeFazio. Okay. We have substantial grounds for 
agreement there. I do have a windfall profits tax proposal, I 
do not dedicate it back to the States, but I will take a look 
at that. Thank you.
    Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman. And thank you, 
Governor. I do appreciate your testimony. I believe that there 
is an important place for public-private partnerships and they 
can be good things. We do them, as I pointed out to the last 
panel, in many other areas. Sometimes they have been very good. 
Sometimes they have not been. Particularly in the defense area, 
some have become rip-off sweetheart-type deals, and I am 
concerned about that. A former big city mayor once testified 
before another congressional committee that the problem with 
government is that it does not work. There is no incentive for 
people to work hard, so many do not. There is no incentive to 
save money, so much of it is squandered. That is the problem. 
So, generally, things are done more economically and more 
efficiently in the private sector.
    But I am concerned, and I have expressed this earlier in 
both my opening statement and with the last panel, I have a 
concern about governors, mayors taking money on the front-end, 
seeing dollar signs, not providing for the future and leaving 
governors and taxpayers 25, 50, or 75 years down the road 
holding the bag. So I am pleased, if I understand it correctly, 
that what you are talking about doing is investing this money 
that you get.
    Governor Rendell. Taking annuitized payment.
    Mr. Duncan. Right. And that is what I think should be done. 
Expenses and costs for States are going to grow in future years 
because of inflation and other facts and all of those things 
need to be taken into consideration. So really, in these 
agreements, it should be figured in that more money is going to 
be needed in future years.
    Secondly, I am pleased that you had such interest in your 
request for proposals that you sent out. I think you said 48 
responses.
    Governor Rendell. Yes, 48 responses. But that was request 
for expression of interest.
    Mr. Duncan. Expressions of interest.
    Governor Rendell. We do not anticipate that many bidders if 
we go to auction.
    Mr. Duncan. Right. Right. Well, so far, we have had the 
Macquarie Company out of Australia, and I met with them a few 
years ago on a codel to Australia led by Chairman Rodgers, and 
also we have this Spanish company Cintra. But I noticed one 
article that said the New Jersey Pension Fund has $190 million 
invested in those two companies. I am sure there are other 
American investors in those companies. But we have been sort of 
slow I think in getting a lot of interest by American companies 
and investors to invest in these types of things. So I am 
pleased that you are seeing that kind of interest.
    Governor Rendell. Let me say two things. Number one, the 
Macquarie bid here includes six union pension funds, including 
the major part of the Macquarie bid is the National Carpenters 
Union Pension Fund. And number two, the reason we are seeing 
such high level of interest, my guess, is the Pennsylvania 
Turnpike is close to being the granddaddy of all toll roads.
    So it is different than a little stretch of Indiana or the 
Chicago Skyway. The Chairman said that volume is not of 
importance, and I agree it is not of paramount importance, but 
it is always volume times rate. My taxpayers, I always have to 
remind them that we have to spread the base and grow the base 
on taxes because it is tax rate times tax base. And volume does 
matter, because if volume falls, it does not matter what you 
charge. So that is why I think there is so much interest in our 
turnpike.
    And I would agree with you, Congressman. When I was Mayor 
of the City of Philadelphia, I took over facing a $250 million 
deficit, about a 12 percent deficit based on our operating 
budget. One of the ways we removed that deficit was that over 
the course of time and with public employee unions allowed to 
bid, we privatized 25 functions and those 25 functions saved us 
about $70 million a year in operating costs. And in each and 
every one of those, there was no diminution of service. Well, I 
take that back, maybe one out of 25, and in the other 24 the 
service level stayed the same or actually improved.
    So I think there is a place for the private sector in 
aiding government in reaching its mission. I absolutely accept 
that. It has to be one of the alternatives that we look at. 
Look, you know the anti-tax fever that affects Washington. It 
affects Harrisburg as well. We have to be as creative as we can 
to find ways to do the same or even better at less cost. That 
is why we went down this road. If we were not in this 
condition, we would not be here. We simply would not be here. I 
would not be a witness. We would not have gone down this road.
    But those figures, the figures that Congressman Altmire 
cited, are staggering. By the way, the 12.5 cents gas tax, that 
only takes care of the $1 billion needed for bridges, roads, 
and highways. That would not provide, and under the 
Pennsylvania Constitution could not provide, one dime for our 
mass transit needs. So this is a huge problem. And the public 
interest demands that we deal with the problem. We are going to 
do exactly what the Chairman said. We are going to look at 
option one, hopefully go to market and see what the price is in 
the marketplace, and compare it to the other options.
    Mr. Duncan. I appreciate your testimony. I agree with it. 
And all the things you mentioned earlier, the airports, the 
sewers, the highways, these are all things we deal with and 
talk about all the time in this Committee. And I appreciate you 
mentioning Chairman Shuster, because he led this Committee with 
great effectiveness, both for Pennsylvania and the Nation.
    Governor Rendell. No question.
    Mr. Duncan. Do you think there is some way in these 
agreements, if we get more into them in the future, and I think 
we are going to have to, but if we do, do you think there is 
some way to limit these increases in these tolls so we avoid 
the situation that Chairman DeFazio mentioned, where you would 
have to pay $185 toll to get through the Holland Tunnel?
    Governor Rendell. Sure. The answer is the FA recommends 
what will produce the most money. The government officials, who 
in the end can maintain control, they have to decide what is an 
appropriate level of increase. It is easy to say, and the 
Chairman quoted that figure, but what would be the increase in 
the Pennsylvania Turnpike tolls, what would be the increase if 
we just increased our tolls over that same period? It may not 
be quite as much, but it gets up there too. So you have to 
strike the appropriate balance. That is why government should 
never lose control. Remember, we are not selling the house. If 
you sell your house, the new owner can paint it chartreuse and 
you might hate that. If you rent your house, they cannot paint 
it at all. And we are not selling this road. We are leasing it 
and we will maintain the ultimate control. That will be a 
judgement made by government officials. And if the Chairman is 
right, and I hope he is not, but if he is right and we will not 
net the type of money that we are looking for, then we will 
look at other avenues. I think it is just as plain and simple 
as that. It is a basic economic decision balanced against the 
interest of the public.
    Mr. Duncan. Thank you very much. I have far exceeded my 
time. I do want to tell you that the big city mayor that I 
quoted earlier was Mayor Rendell of Philadelphia.
    [Laughter.]
    Governor Rendell. There you go.
    Mr. Duncan. I also remember when we had Mayor Wilson Good, 
one of your predecessors in Philadelphia, and when he 
testified, I remember it was a Tuesday, I said, ``Mayor Good, I 
was in Philadelphia Sunday night.'' He said, ``You were?'' And 
I said, ``Yes. Philadelphia, Tennessee, population 400, in my 
district.''
    [Laughter.]
    Mr. Duncan. But congratulations on your big reelection 
victory. Thank you for being here with us.
    Governor Rendell. Thank you, Congressman.
    Mr. DeFazio. I now turn to Mr. Altmire.
    Mr. Altmire. Governor, as you talked about, the 
Pennsylvania Turnpike runs from one end of the State to the 
other. It crosses the whole State.
    Governor Rendell. And north-south.
    Mr. Altmire. That is right. That is right. And in my 
district, as you know, I have six counties and the turnpike 
runs right through the heart of it, connects to the Ohio 
Turnpike along the Ohio line. This really is different than 
what any other State has done. We can certainly use them as 
examples, but this is much bigger in scope, as you pointed out, 
than what anyone else has ever done.
    But aside from the money part, the financial benefit of 
being able to fix the roads and make up that deficit that you 
have talked about, what are the people who live in my district 
or the people who use the turnpike, the drivers, going to see 
from a positive and a negative perspective? What are the 
downsides that you are trying to avoid? But more importantly, 
what are the good things they are going to see take place if 
this happens?
    Governor Rendell. Well, number one, hopefully we will have 
a controllable toll structure. Now as you know, politicians are 
always reluctant to raise anything, tolls included. But you 
recall when I became Governor, we had not had a toll increase 
on the Pennsylvania Turnpike since 1988. I authorized the 
Turnpike Commission to seek an inflation increase. Tolls went 
up 42 percent. But because we pledged all that money back to 
repair, we got very few negative calls or letters about the 
increase in tolls.
    Under this plan, the toll increases will be more regular. 
They will not be 16 years apart. They will be more regular but 
they will be lower obviously than 42 percent at a time. That is 
the first thing that they will see. Hopefully, if we do it 
right and we draw the balance the right way, the toll increases 
will be moderate.
    Secondly, I think they will see as good or even enhanced 
maintenance. Because remember, and you know this better than 
anyone on the panel, there are a lot of non-toll options to get 
across Pennsylvania. A lot of truckers today take advantage of 
those non-toll options. So the people who run this--again, 
regardless of what the Chairman said, volume times rate is 
crucial--the people who run this are going to want volume. The 
only way they are going to get volume is to maintain a good 
road in good working order. And I think you will see that 
happen. I know in Indiana, the company put up-front money into 
maintenance far above and beyond what the State could have 
done. And I think you will see that because of the competition 
versus non-toll roads.
    Mr. Altmire. Do you have a concern, you obviously know what 
is happening with the public transit system in southwestern 
Pennsylvania, do you have a concern, with gas prices and 
everything else, that what you are proposing may impact 
disproportionately low-income people who are using the turnpike 
to get to work? And with the regular increase in tolls, is 
there some sort of stop----
    Governor Rendell. It will be infinitely less of an impact 
than a 12.5 cents a gallon gas tax hike.
    Mr. Altmire. Right. Last question. What other States have 
you looked at? You talked about Indiana and Chicago. Have you 
looked at some of the smaller States for upside?
    Governor Rendell. No. We have talked to Governor Perry in 
Texas a little bit, but basically I have had long discussions 
with Governor Daniels and with Mayor Daley. It is pretty 
instructive that one of the most progressive liberal Democrats 
in the country has also gone down this road. And he is a 
disciple. In fact, he has offered to come in and talk to the 
Pennsylvania legislature about this issue.
    Mr. Altmire. Thank you, Governor. Thank you, Mr. Chairman.
    Mr. DeFazio. Well, I would caution the Governor, if he is 
going to use Mayor Daley as a model, he may be a progressive 
Democrat, but in fact the agreement there is definitely the 
model of about the worst possible agreement. The money is not 
even dedicated to transportation. It is a 99-year lease. It 
does not have recapture. It has automatic increases. But 
mostly, they are getting away with it because they are 
extorting a lot of money from people who do not live in his 
jurisdiction, so he is not going to have to be accountable at 
the polls.
    Mr. Dent.
    Mr. Dent. Thank you, Mr. Chairman. Good morning, Governor.
    Governor Rendell. Congressman.
    Mr. Dent. I just wanted to say, first of all, it is a 
pleasure working with your Secretary Allen Biehler. A good 
professional and I have enjoyed working with him on a number of 
projects. I am glad to see that the PennDOT office has moved 
into downtown Allentown and appreciate your assistance in 
helping to facilitate that move of about a mile or so. It is 
very beneficial to the city. And I do appreciate all their help 
on various regional projects, transportation projects we have 
been working on together.
    As you know, we are facing a lot of challenges in mass 
transit and on highways in Pennsylvania. I know you mentioned a 
little earlier, and I apologize for not getting here sooner, 
but you were talking about some of the challenges with roads 
and bridge funding. Could you comment a little bit on how the 
Federal highway allocation that Pennsylvania receives is being 
flexed. I know a couple of years ago in 2005 you used some of 
that money, a few hundred million, $300 million or so, to 
support the capital program of some of the mass transit 
systems, including Septa, Pat, and others.
    Governor Rendell. Right.
    Mr. Dent. Because I do have some concerns about the extent 
to which we have flexed. I understand the need for the 
flexibility and I understand the constraint you are under with 
the motor license fund and the State Constitution that 
prohibits you using any of the State highways collections, the 
taxes and the license funds, for the mass transit. So if you 
could just comment on the flexing and how that has impacted 
this.
    Governor Rendell. Sure. First of all, all a governor can do 
is recommend to the MPOs. The MPOs are the ones that decide 
whether flexing occurs or not. We were very fortunate in 2004 
when we flexed, we flexed $420 million to mass transit, but we 
were also able to flex $580 million to roads, bridges, and 
highways. The reason was, number one, PennDOT, under Secretary 
Biehler's leadership, had instituted some cost savings that 
freed up a couple hundred million dollars. And secondly, 
because ISTEA or NEXTEA or BESTEA, whatever it was----
    Mr. Dent. SAFETEA-LU.
    Governor Rendell. Right. Because that was not reauthorized 
immediately, Pennsylvania got money at the old level which was 
higher than we had been planning for. We knew under the new 
level our percentage would go down. But because it took a 
couple of years for the reauthorization, we had a windfall and 
that enabled us to do that. I have told everybody to not look 
at flexing as a way to solve this problem for any length of 
time. We might flex for a few months but with the understanding 
that once the State revenue source kicked in, the flexed money 
would be repaid. So we are not going to look towards flexing as 
a solution here, just maybe as a stopgap.
    Mr. Dent. I think you pointed out something else that is 
interesting, and that is, the fact that the highway bill was 
delayed actually helped Pennsylvania because the formula was--
--
    Governor Rendell. The previous formula was very generous to 
us.
    Mr. Dent. And the new formula is still pretty good.
    Governor Rendell. Still pretty good.
    Mr. Dent. Not as good as the old formula, but it is still 
good.
    Governor Rendell. I would say we are no longer on the 
Shuster formula. We are on a fair formula but it is not the 
Shuster.
    Mr. Dent. We have a new Shuster here now. But I guess my 
other comment on the flexing, you took about $420 million for 
mass transit.
    Governor Rendell. For mass transit, right.
    Mr. Dent. Was that just a one-year allocation?
    Governor Rendell. No. That was for two years. And during 
those two years, that is why I formed the Transportation Reform 
Funding Commission, they are to come back and say that after 
these two years are up, we have to bite the bullet and we have 
to do what we have to do. We have to do something. As I have 
said to the legislature, and the Chairman reflected that, the 
only thing that Pennsylvania cannot do is nothing. That is the 
only thing that we cannot do. If we are going to meet the needs 
of our people, that is the only option that is not an option.
    Mr. Dent. Did I understand you correctly that the monies 
that have been flexed were monies before SAFETEA-LU, previous 
monies?
    Governor Rendell. Yes.
    Mr. Dent. Thank you for that clarification. Thank you. I 
have no further comments. Good to see you, Governor.
    Governor Rendell. Thank you, Congressman.
    Mr. DeFazio. I will take the Democratic round and then we 
will go to Ms. Fallin.
    Governor, first, I am concerned when you refer to Governor 
Daniels and Mayor Daley, again, I think we have already visited 
that ground, they have non-compete agreements, they have floors 
on the tolls, and they entered into these agreements without 
any transparency. We just had testimony from the chair of the 
State House Transportation Committee in Indiana that they were 
rushed into doing something they did not understand and, 
basically, they would undo it if they could. But it is 
committed now for three generations and they are very concerned 
about those terms. So I would hope that unless you want to 
bring them in as examples of what not to do, I would suggest 
that is not going to be particularly instructive.
    But let us just revisit, because, again, I think it is a 
fairly critical point, you are telling us that you have such 
extraordinarily high gas tax. But the Department of Revenue has 
a web site and they say the gas tax is 12 cents a gallon. The 
other part of the web site, they say the franchise rate is 
153.5 mils for liquid fuels, gasoline, 208.5 for fuels, diesel, 
on a cents per gallon basis. It says 57 mils, more than a third 
of the tax, are deposited as unrestricted motor license fund 
revenues, and I will ask you what that means, the remaining 
monies are deposited to various restricted accounts within the 
fund, for example, revenues received from 55 mils of levy on 
fuels are deposited in the highway/bridge restricted account. 
So of all this money that you are collecting in a franchise 
which may or may not get passed through directly to the 
consumer, so I think it is hard to say you are assessing 30 
cents at the pump, is all of that money currently going into 
transportation, all of that franchise fee?
    Governor Rendell. Yes. Some of it goes to restricted areas 
of transportation but it all goes into non-mass transit, by the 
State Constitution. It is 30 cents. And you can bring in any 
oil company or any franchise or distributor and they will tell 
you they pass it on.
    Mr. DeFazio. Because it is not a competitive business, as 
you pointed out, and we agreed on that already about their 
pricing structure.
    I am curious, you have a State pension fund, I assume.
    Governor Rendell. Yes.
    Mr. DeFazio. What is your annualized rate of return on 
investment, do you know?
    Governor Rendell. We have two funds; one for the teachers, 
and one for the public employees. I think it varies from year 
to year. The teachers fund has done better I think. They have 
been in the last three years about 12 or 13 percent. The public 
employees fund not nearly as well.
    Mr. DeFazio. Okay. Hopefully, you will model, if you do go 
down this route, the teachers fund. Because the assumptions on 
the revenues you are talking about are basically, according to 
Morgan Stanley, to come close to your goal, you would have to 
lease the highway for 99 years and you would have to get a 9 
percent annualized rate of return for those 99 years to get to 
$1.62 billion, which is just shy of where you want to be at 
$1.725 billion.
    Governor Rendell. Right.
    Mr. DeFazio. Anyway, I think we have kind of exhausted that 
topic. But I just wanted to ask that question.
    Ms. Fallin.
    Mr. Fallin. Thank you, Mr. Chairman. Governor, thank you 
for coming today. I had the opportunity in my State to serve as 
Lieutenant Governor to Governor Keating for eight years and 
then Governor Henry for four. So I have been around this trying 
to finance our roads and bridges. I came in late to your 
presentation, but I just wanted to ask you about some of the 
innovative solutions that the governors are thinking about, and 
of course your proposal for public-private partnerships on the 
turnpikes, as we have thought about those things before in 
various States. But how do we protect the public interest, and 
what are you doing to protect the public interest as a Governor 
when it comes to developing these partnerships with other 
innovative solutions on the roads?
    Governor Rendell. What I told the Chairman in response to 
his question, we are going to control the rate of increase in 
tolls, with the understanding that the more controls we put in 
place, the less money we would get to annuitize off of, and we 
are going to control maintenance and repair schedules. That is 
going to be part of the lease that we enact. And that will be 
transparent. In fact, I am going to ask the legislature to join 
with us in setting the appropriate limits.
    But I also want to say one thing, because there is a lot of 
talk in the Committee, in the letter the Committee sent out, 
about protecting the public interest. Well, Madam Congressman, 
protecting the public interest is making sure that in Altoona, 
Pennsylvania, where the transit agency just announced the end 
of night time and weekend service--meaning, if you do not have 
a car in Blair County and you are a nurse and work Saturdays 
and Sundays, you cannot get to work any more; meaning, if you 
are a senior citizen and you depend on that bus to get you into 
see your doctor on Saturdays, you cannot get in there any more. 
That is the public interest I have to protect as well. I have 
to protect the safety. You did not hear that we have 5,900 
unsafe, structurally deficient bridges in Pennsylvania. I have 
to protect the public interest by repairing as many of them as 
quickly as I can.
    So when we talk about protecting the public interest, let 
us remember that there are all sorts of charges to protect the 
public interest. It is not just protecting the public interest 
in the deal we fashion, but how do I protect the public 
interest if I cannot generate these type of dollars?
    Mr. Fallin. That is a good point. I appreciate that. What 
about the liability issue? How do you structure that in a 
proposal with a partnership on the turnpikes as far as who 
assumes liability if there is a huge accident on the road?
    Governor Rendell. That is currently being worked out right 
now by our general counsel's office and the financial advisor. 
I do not have an answer for you yet, but I will be happy to get 
you an answer on that.
    Mr. Fallin. I was just curious how you would work that out. 
You said on the maintenance that the partnership will assume 
maintenance of the roads?
    Governor Rendell. Right. But there will be a required 
maintenance schedule that we build into the lease itself.
    Mr. Fallin. My experience has been that when you have a 
contract with a private entity they many times will come back 
with an addendum or amendment to the contract because they have 
cost overruns. And if you get into that situation with the 
maintenance, have you thought about how you are going to handle 
those issues?
    Governor Rendell. If I am still around, I am going to tell 
them tough luck. You contracted for it, you bargained for it, 
it is on you, go back to your investors.
    Mr. Fallin. And then on your percentage of your people who 
use the toll roads, our experience has been that the majority 
of the people who would use our toll roads are out of State 
people. Do you find that is a large percentage of the people 
who will be paying this ticket item, per se?
    Governor Rendell. Well, if you took truckers out of it, 
with truckers that is absolutely correct, maybe 65 to 70 
percent of the trucks are pass-through. For citizens 
themselves, I would say it is probably slightly more 
Pennsylvanians than non-Pennsylvanians. But if you live in New 
York City and you are going to Chicago, you are going to go 
through the Pennsylvania Turnpike. But it is pretty close. But 
for trucks, clearly a significant majority of them are non-
Pennsylvania based.
    Mr. Fallin. I had a meeting, Mr. Chairman, this morning 
with the American Trucking Associations and they were 
expressing some concern about the level of increases in the 
toll roads and, of course, their increased costs, because they 
have got high fuel costs right now. They were concerned about 
partnerships and how we control the level of increase of the 
tolls. So that is always something we have to keep in mind when 
we are looking at these partnerships.
    Governor Rendell. And I discussed this with Congressman 
Altmire when he was here. For Pennsylvania, you can pass East 
to West through the turnpike, that is probably the easiest, but 
there are two or three other alternate fairly good highways 
that you can pass through right now for free, and many truckers 
take that option. If the private lessee were to let maintenance 
go down, for example, then in fact those truckers might take 
the other option.
    So I think it is important to have that competitive 
structure in place. But I love the truckers. They always 
complain about the conditions of our roads, the way PennDOT or 
the Turnpike Commission keeps them, and now they are 
complaining about the potential condition of the roads under 
private management.
    Mr. Fallin. Can I just say one last thing I heard this 
morning. They were talking about two States that had privatized 
their toll roads and the tolls had gone up really high. So the 
truckers were not going on the toll roads, they would take 
subsidiary highway----
    Governor Rendell. Right. Which they could do in 
Pennsylvania.
    Mr. Fallin. Which cause some problems, too, because then 
the tolls fell because they were not collecting those tolls off 
the truckers, which is a big portion of their revenues, but it 
also caused a lot of damage on the side roads. So I do not know 
how we balance that yet, but it is just an issue we need to 
think about.
    Governor Rendell. We would not have damage to our side 
streets. We have a lot of good pass-through alternative 
highways. So we would not have backups or damage on the side 
streets at all. But again, the goal is to keep these things 
within balance so that people can continue to use them. I think 
we can reach that goal. But as I said to the Chairman, if we 
put in the proper controls and we go to market and find that we 
are not going to yield as much in a yearly annuity as we 
suspect or hope, then we will not do this. Plain and simple.
    This is in many ways a financial decision governed by the 
need to protect that part of the public interest. I understand 
that we have a fiduciary responsibility to protect that very 
significant public interest. But I also have a fiduciary 
responsibility to do something about those 5,900 deficient 
bridges, to do something about mass transit's cuts that are 
unbelievable. I am going up from here to a meeting of the 
Southeastern Pennsylvania Transit Authority, that is 
Philadelphia and its suburbs. The cuts that they are about to 
enact today at their board meeting because we do not have any 
funding, that is more dangerous to the public interest than 
anything we could contemplate here. We have to stop those.
    One of the things I advocated to the Chairman, and I hope 
that you would take a look at it, too, I do not believe America 
will ever cure its infrastructure problems, and I am not just 
talking about transportation--water and sewer, ports, airports, 
et cetera--until we have a Federal capital budget and that 
Federal capital budget is devoted to a significant 
infrastructure repair program, as every one of the G-7 nations 
has undertaken in the last decade. President Clinton had a 
commission on the Federal capital budget. I do not know if you 
remember, Mr. Chairman, what the conclusion of that commission 
was, but it made no recommendation. It made no recommendation.
    The time has come to get serious everywhere. These are 
serious issues for us. If I could have avoided going down this 
road, I would have. But these are serious issues and they are 
borne out of the fact of necessity. Someone has to come up with 
an answer to that necessity.
    Mr. Fallin. Thank you, Mr. Chairman. I appreciate the time. 
And I want to commend you, Governor, for finding innovative 
ways to do things.
    Mr. DeFazio. Governor, thank you for your time. I had 
forgotten to convey Chairman Oberstar's regrets. He had a death 
in the family and could not be here.
    Governor Rendell. I understand.
    Mr. DeFazio. I also want to thank you for coming to what 
you knew might not be the most receptive session. We have 
invited Governor Daniels and he has demurred. So I have got to 
say you are a good sport. I also wish California had said what 
you said to that contractor when they came to unanticipated 
geological conditions and wanted a huge increase. Tough luck 
would have been a good answer. But that may have had something 
to do with the agreement. So you have to be very, very careful 
in these agreements.
    Governor Rendell. And the warnings you have given are 
absolutely accurate. And I will make sure the Committee, if the 
legislature does go down the road and allows us to go to 
auction, I will send the Committee a copy of the lease. I think 
you will find that we are not just seeking to maximize 
revenues. We balance the need to maximize revenues with the 
public concerns that you have raised.
    Mr. DeFazio. All right. And on Ms. Fallin's questions, I 
think she was getting at the issue of non-compete agreements. 
Again, there are a number of things that will drive up the 
value but which have a great detriment to the public. And since 
you earlier agreed that those are not going to be part of 
whatever RFP you put out, we will look forward to seeing how 
you proceed.
    Governor Rendell. Absolutely.
    Mr. DeFazio. Thank you, Governor.
    We welcome the third panel today. There is a series of 
votes coming up. We want to hear your testimony as quickly as 
possible.
    I would first recognize the Honorable Bill Graves, 
President and CEO of American Trucking Associations, former 
Governor of the great State of Kansas.
    Mr. Graves.

TESTIMONY OF BILL GRAVES, PRESIDENT AND CEO, AMERICAN TRUCKING 
  ASSOCIATIONS, ALEXANDRIA, VIRGINIA; TODD SPENCER, EXECUTIVE 
VICE PRESIDENT, OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION, 
GRAIN VALLEY, MISSOURI; GREG COHEN, PRESIDENT, AMERICAN HIGHWAY 
      USERS ALLIANCE, WASHINGTON, D.C.; MICHAEL REPLOGLE, 
TRANSPORTATION DIRECTOR, ENVIRONMENTAL DEFENSE, WASHINGTON, DC.

    Mr. Graves. Mr. Chairman, Congressman Duncan, Members of 
the Subcommittee, thanks for the opportunity to testify on this 
important and timely subject. The trucking industry, as you 
know, is essential to the Nation's economy. A safe, reliable, 
and national network of highways is essential to the delivery 
of the Nation's freight.
    Mr. Chairman, our industry faces growing challenges. 
Significant portions of the highways in this country are 
gridlocked for longer and longer periods of time every day. 
This makes it difficult for our members to meet their 
customers' schedules at a cost that allows these customers, 
that is U.S. businesses, to remain competitive in an 
increasingly global economic environment. Clearly, additional 
highway investment on a very large scale is required if we are 
to have the transportation and logistics system that we need to 
deliver the goods today and meet the ever-greater challenges 
projected for the future.
    The trucking industry is willing to invest in an expanded 
Federal highway program. We have two caveats, however. First, 
the money should be spent on those projects that make the most 
sense from a broad national economic standpoint. This means 
primarily fixing bottlenecks on heavily travelled Interstate 
freight routes. Over the long term, we need to consider whether 
it makes sense from a safety and an economic standpoint to 
invest in a national network of truck-only highways. Our second 
caveat is that the financing mechanism must make sense from an 
economic standpoint primarily, but also in terms of the effects 
on highway safety, the environment, and energy use. How these 
projects are financed is just as important as how the funds are 
spent.
    ATA believes highway user fees should be reasonably uniform 
among various classes of vehicles; they should be based chiefly 
on highway use; they should not be easily avoided; they should 
be inexpensive and easy to comply with and enforce; and they 
should not create impediments to interstate commerce.
    Mr. Chairman, we already have a system of taxation in place 
which meets all of those criteria. It is the fuel tax. 
Unfortunately, some people seem to want to write the fuel tax's 
obituary and replace it with private financing. And while 
private financing may have its place and could play a very 
limited role in highway funding, the reality is that the fuel 
tax is, from our perspective, as close to ideal as we have or 
are likely to have at our disposal within the foreseeable 
future and should be enhanced, not abandoned or minimized. 
Private financing is a poor substitute for the fuel tax in 
nearly all cases. Ultimately, whether they are paying a fuel 
tax or a toll, highway users pay the price for infrastructure 
improvements. However, when using toll financing, those users 
pay a 20 to 30 percent premium over the fuel tax to pay for 
collection cost. Furthermore, tolls, especially when they are 
imposed on existing roads, push traffic onto secondary roads 
that are likely to be less safe and were not built for heavy 
traffic.
    ATA is particularly concerned about long-term concessions 
on toll roads. Under these deals, not only do the users of 
these facilities pay the normal toll road premium, but they 
also finance the cost of the up-front concession fee, and they 
fund a considerable profit that is paid to concessionaires, 
management, and shareholders. Pawning off critical highway 
assets to the highest bidders and carving up the highway system 
is not in the best long-term interest of the Nation. We urge 
Congress to monitor these deals closely and take action if 
appropriate.
    Mr. Chairman, I would like to thank you and Chairman 
Oberstar for the letter that was sent to the States last week 
urging them to make sure that private financing of highways is 
always done with the best interest of the public in mind. Too 
often safety, mobility, and the larger economic purposes served 
by a national transportation system of highways are overlooked. 
These financing proposals should not force highway users to 
contribute disproportionately to solving public financial 
challenges that are not of their making.
    Mr. Chairman, ATA looks forward to working with you, with 
Mr. Duncan, the other Members of the Subcommittee to come up 
with solutions to the transportation crisis that serves the 
best interests of highway users and the U.S. economy.
    Thank you, Mr. Chairman.
    Mr. DeFazio. Thank you for that very direct testimony.
    We now turn to Mr. Todd Spencer, Executive Vice President, 
Owner-Operator Independent Drivers Association. Mr. Spencer.
    Mr. Spencer. Good morning, Mr. Chairman, Ranking Member 
Duncan. I am pleased to be here today to talk on this very 
important issue.
    OOIDA has been engaged in the debate regarding public-
private partnerships for quite some time now, including 
actively opposing the Chicago Skyway deal and the Indiana Toll 
Road. Our membership is small business truckers that would be 
very negatively impacted by ever-increasing tolls, as what will 
clearly be laid out in both of these situations.
    Given the Nation's infrastructure needs, we are not of the 
impression that all public-private partnerships are necessarily 
bad. There may be situations where it makes sense for public 
entities to team up with the private sector on infrastructure 
projects and where private sector money can help to jump start 
projects that would add capacity to the Nation's roadways. 
However, every transportation deal should be entered into 
cautiously with all factors being weighed and with total 
confidence that the overall net benefits clearly side with the 
public. All public-private partnerships should be done 
transparently and with full input from the public and, most 
importantly, highway users.
    We do not see any such caution about benefitting the public 
in the discussions now taking place in many States. Before 
Governor Mitch Daniels signed away the Indiana Toll Road, he 
claimed there was no political will in his State for increasing 
tolls on the route. But just like magic and over the objections 
of two-thirds of the State's citizens, the political will 
appeared as he singlehandedly doubled the toll rates on that 
toll road to make it more attractive to investors.
    Imposing significant tolls on interstate highways without 
corresponding tax abatement will force truckers and other 
highway users to use alternative routes such as local roads and 
State highways that were never intended for the type of traffic 
that will be on those roads. The decision of truck drivers to 
use these less suitable roads is not based on an attempt to 
maximize their profits; rather it is an exercise in survival 
because they can neither offset or absorb those increased 
costs. As has been seen in States where toll rates have been 
raised, traffic congestion will increase significantly on 
alternative routes, adjacent communities will be disrupted, and 
safety on these roads will be dramatically reduced.
    It is laughable that officials at the U.S. Department of 
Transportation have tried to use the emotional hot button issue 
of traffic congestion to sell the public on deals such as those 
in Chicago and Indiana. Yes, congestion is a major problem in 
many of our Nation's urban centers. However, the companies 
tossing around billions of dollars to invest in U.S. roads are 
out to make the maximum profit they can. The principal way they 
make profit is by producing that congestion. You would be hard 
pressed to find a company willing to ink a deal without the 
contract including non-compete clauses in some form or fashion 
that restrict the State's ability to expand or improve roads 
that compete with the toll road being sold.
    We are not against every form of public-private 
partnership. But I should point out our Nation's highway system 
was built with dedicated highway-user fees paid principally by 
truckers and other highway users. The typical one truck member 
of our organization right now will pay $16,000 every year in 
Federal and State highway user fees--just highway user fees. We 
paid for the highways that we use; we continue to pay for the 
highways we use.
    We have heard nothing from any of the governors or any of 
these proposals that talk about addressing the contributions 
that we made and we continue to make. We think we can do a 
whole lot better than the system that they have of patchwork 
highways, charge what the absolute market will bear, no 
competition from other routes. I really resent the term ``free 
routes'' because, again, $16,000 a year our members pay to use 
the roads we run on. That is 36 percent of the total of the 
Federal Highway Trust Fund plus the State fees on top of that.
    In my concluding comments, I just want to thank you, 
Chairman DeFazio, and also Chairman Oberstar for the direction, 
the guidance that you provided to State lawmakers, who I have 
witnessed first-hand when these issues come up do not have the 
needed perspective, understanding, and awareness of what a 75 
or a 99-year commitment can do to their States. Again, thank 
you for providing that guidance.
    I look forward to working with the Committee. I am happy to 
answer any questions you may have.
    Mr. DeFazio. Thank you, Mr. Spencer. And again thanks for 
very direct testimony
    Mr. Greg Cohen, President, American Highway Users Alliance.
    Mr. Cohen. Chairman DeFazio, Ranking Member Duncan, and 
Members of the Subcommittee, I appreciate this opportunity to 
discuss public-private partnerships on behalf of The Highway 
Users. As you know, The Highway Users Alliance brings together 
the interests of users of all the highway modes that contribute 
to the trust fund. The two gentlemen to my right are members of 
our board.
    But The Highway Users is not just simply a freight-type 
organization. Our roster includes numerous AAA clubs from coast 
to coast, bus companies, motorcyclists, RV enthusiasts, and 
hundreds of other businesses that require safe, reliable, 
efficient roads to facilitate the movement of their employees, 
customers, and products.
    Some may argue that PPPs are not a Federal issue and that 
Congress should not get involved. The Highway Users disagrees 
for two reasons. One, Governor Rendell just spoke about, and 
that is PPP agreements involve tolls on major commerce routes 
often carrying traffic from out of State, they carry interstate 
motorists, truckers, and tourists primarily, and if the tolls 
are not invested directly for the benefits of the motorists, 
they are really highway corridor taxes.
    They impact interstate commerce which makes them a Federal 
issue under the Constitution. U.S. DOT's oversight is a 
legitimate role for T&I Committee as well. Many are concerned 
that DOT's promotion of PPPs may be intended to undercut future 
potential funding decisions that would come from this Committee 
and that would prevent the Federal highway program from growing 
and strengthening the national highway network.
    I would like to make it clear that The Highway Users 
support some PPP agreements; we have in the past and we 
probably will in the future, particularly those that are 
negotiated to build new roads and new highway lanes. 
Traditional Government funding is often not available for new 
roads and new lanes. We do have aging infrastructure, we do 
have tremendous maintenance needs, and we are not building 
roads in this country like in some of the other countries 
around the world. Private companies may be able to raise the 
capital to build roads that would not be otherwise built by 
government agencies.
    So that is one positive opportunity. Another opportunity is 
in forceful performance standards that States may be able to 
enforce. And there are a couple of other opportunities, 
including perhaps faster project development and innovation in 
materials.
    But I would also like to talk to you about some threats 
that our policy committee has listed. We are particularly 
concerned about PPP agreements in which long-term leases or 
concession agreements involving existing toll roads already 
built with highway user fees. In general, public toll roads 
built in the United States were designed to provide a high 
quality ride for the lowest possible toll. This is the mission 
of most turnpike authorities. Under private operation, the 
mission has to change. You are not maximizing the public 
benefits; instead, you are maximizing net revenue.
    Lease agreements typically involve a large up-front 
payment, whether it be received immediately or annuitized, it 
is an up-front payment in which private investors give money to 
the State or local government, and then the private investor 
received the future toll revenues. Behind closed doors, the two 
parties to the agreement may have the financial incentive to 
execute a deal which puts the monied interests above those of 
the road users.
    Let us talk about other threats. Number one is the 
diversion of funds, as the Chair mentioned, in the case of 
Chicago. Highway users are deeply concerned about the windfall 
revenue acquired by State or local government being used for 
non-highway projects.
    Non-compete clauses. As the name suggests, non-compete 
clauses are designed to prevent market competition and would 
prevent new roads and new capacity being added to nearby roads.
    Unfair tolling practices or toll increases. High tolls 
could lead to safety consequences on local streets if there is 
large decision to avoid these roads. Toll increases should be 
limited to levels far below inflation under a PPP, as they are 
in France. In the case of Indiana, you mentioned that the toll 
increases are floored at GDP or 2 percent. But in France, they 
are limited to only 70 percent of CPI inflation. Obviously, 
they are looking out to make sure the toll increases are below 
inflation. We are not doing that here.
    Longevity of agreements. Extremely long leases without 
profit caps generate much larger up-front payments but cannot 
be revisited for three or four generations.
    Also, disruption of Interstate or National Highway System 
continuity.
    And double taxation. On privately-operated roads, highway 
users may still be expected to pay fuel taxes. They should be 
refunded since the user fees were paid while driving on non-
publicly maintained roads.
    In conclusion, considering both the opportunities that I 
mentioned and the risks, we would consider support for PPP 
agreements that:
    Are executed primarily for the construction of new roads;
    Involve substantially streamlined construction;
    Do not restrict vehicular access to free parallel roads;
    If the premium lanes are tolled and the general lanes are 
not tolled, all vehicles should have the choice to use either 
the premium or general lanes;
    Have high safety, mobility, payment, and performance 
standards;
    Direct all government-acquired lease revenue to highway 
projects;
    Do not have non-compete clauses;
    Protect highway users from excessive toll increases; and, I 
think most importantly,
    Have highway users participate in the negotiations 
involving the monied interests.
    Thank you for considering our perspectives on public-
private partnerships. We think PPPs provide some innovative 
opportunities to build new lanes and roads. With public funding 
in short supply, it is something that should be considered but 
we have to watch out for the pitfalls.
    We look forward to working with the Subcommittee and Full 
Committee to support your actions to ensure that highway-
related PPPs serve the highway users' interests. We also are 
committed to strengthening the trust in the Highway Trust Fund 
and supporting continued strong Federal involvement to support 
our national highway network. Thank you.
    Mr. DeFazio. Thank you.
    Next, Mr. Michael Replogle, Transportation Director, 
Environmental Defense, Washington, DC.
    Mr. Replogle. Thank you, Mr. Chairman, Ranking Member 
Duncan, and Members of the Subcommittee. I am transportation 
director for Environmental Defense. We are a nonprofit group 
and our half million members use America's roads and transit 
systems on a daily basis. I am here to thank you for your 
efforts to ensure that those systems are operated and developed 
not only to improve mobility, but also to better protect public 
health and the environment.
    We all breath air that is affected by air pollution. We and 
future generations face unprecedented problems related to 
global climate change which is still growing due to our 
expanding dependence on fossil-fueled transportation. To 
achieve the needed 80 percent reduction in CO2 emissions over 
the next half century, we must adopt an economy-wide cap and 
trade system, cut carbon fuel content, boost vehicle fuel 
economy, and meet our mobility needs with less motor traffic.
    Growing congestion and transportation funding problems 
threaten our economic competitiveness. But new information and 
communication technologies could help us to manage 
transportation systems much more effectively. Public-Private 
partnerships and tolls could play a vital role in accelerating 
this innovation, promoting air quality, public health, and 
greenhouse gas reductions, if these public-private partnerships 
are structured right and with good public oversight. But these 
strategies will gain broad public support only if they deliver 
improved performance and expanded travel choices, and if PPP 
contracts are designed not merely to meet today's weak 
environmental and system standards, but to ensure superior user 
system and environmental performance. My written testimony 
offers more details on these ideas.
    Many construction and finance interests support PPP 
financing and tolls to build and expand their business 
opportunities. Many highway user groups, like those you have 
just heard, oppose a lot of PPPs and tolls. People do not often 
like being asked to pay more especially if they are not sure 
what they are going to get for their money.
    Environmental Defense, my organization, has no vested 
interest in PPPs and tolls, but we do believe that these tools, 
if properly used, could help reduce environment and public 
health burdens associated with increasing mobility. If used 
just to build more roads faster or to relieve short-term fiscal 
problems, PPPs and tolls could increase congestion on existing 
roads and spur pollution, fuel use, and emissions for years to 
come. Indeed, we are seeing the backlash to PPPs and tolls in 
some States like Texas, due in part to failure to consider 
alternatives that could reduce these burdens together with top-
down secretive deal-making. Such issues should be addressed 
through stronger Federal law, regulation, and enforcement of 
existing environmental and planning laws.
    But if this Committee is serious about doing something 
about climate change, it should encourage tolls and PPPs to 
spur better system management and performance-based pricing on 
both new and existing roads, and use PPPs to spur innovative 
travel to land management and better public transportation. It 
should ensure that such efforts are designed to expand access 
to jobs and public facilities for all without undue time and 
cost burdens. It should foster reforms in how we fund and price 
transportation, correcting perverse incentives that now lead 
consumers and decision makers to make choices that actually 
worsen our problems.
    States like Oregon are pioneering approaches such as VMT 
fees that could lay a foundation for future transition to more 
effective system management. Other areas are encouraging pay-
as-you-drive car insurance and car sharing opportunities that 
boost mobility while saving money for consumers who drive less. 
New York City is launching a strategy like London to charge 
motorists to enter the core to fund better transit. And the 
public in cities like London and Stockholm have really come 
around when they have seen the benefits from congestion 
pricing. We could use these approaches and things like 
emission-based tolls to help better manage our Interstate 
highway system and do this as part of lease deals or public 
financing.
    With your leadership, we can better align how we fund and 
price transportation with our broader system management goals. 
I appreciate and applaud your concern for the protection of the 
public interest in these deals, but urge you to strengthen the 
framework to spur more effective private engagement, not to 
stifle it, and to ensure that investment is consistent with our 
State and metro transportation plans and goals. We look forward 
to working with you on this. Thank you.
    Mr. DeFazio. Thank you for your testimony.
    I guess I would ask each panel member, given I think the 
widespread acknowledgement that the current level of 
infrastructure investment, whether your goal is to mitigate 
congestion, facilitate movement, or you have other goals in 
mind, is that we are not investing enough. So what is your 
preferred alternative to get more Federal investment? Mr. 
Graves?
    Mr. Graves. As I said in my testimony, and I think it has 
been stated before I think in the presentation of Mr. Duncan 
from Federal Express some time ago, we continue to favor the 
fuel tax as the traditional source of funding for highway 
infrastructure investment. The ATA intends to be fully engaged 
in a conversation about the willingness to pay more fuel tax in 
exchange for a more robust reauthorization proposal. We feel 
very strongly about a strong national role in highways.
    Mr. DeFazio. Okay. Thank you. Mr. Spencer?
    Mr. Spencer. Our organization is on record too as 
supporting the fuel tax as the principal means of most 
efficiently addressing highway user issues historically. We are 
certainly willing to come to the table to discuss those issues, 
whatever the appropriate level.
    I can also tell you that our members feel very, very 
strongly about how highway user revenues are used for things 
other than highways. One of the things that was striking from 
Governor Rendell was he talked about safety priorities for how 
they spend transportation dollars and routing transportation 
dollars to transit in Philadelphia. Well, he also mentioned 
they had 1,500 deficient bridges that he implied were somehow 
about to fall down.
    Well, the $420 million came from the money that was 
supposed to be used for those highways and bridges. So that is 
really, really important to our members. We think that is in 
the interest of fairness. That is not to say that other 
transportation things should not be funded. But our highways 
cannot be the cash cow for everything, nor can our members as 
truckers be the cash cows. Small business truckers are the 
majority of the industry and their pockets are not very deep.
    Mr. DeFazio. Thank you, Mr. Spencer. Mr. Cohen?
    Mr. Cohen. I would agree with that sentiment. Also, you 
asked about Federal funding, we would like it to continue to be 
funded by the highway user fees and through a Federal Highway 
Trust Fund. We are also concerned about the diversion. In 
reality, we all know the highway user fees need to be 
increased.
    And the goal--I think it is commendable that the Committee 
is taking this slow, taking time before reauthorization to make 
the case to the American public that this program will really 
serve them--that we take the time, we establish the mission of 
this program, we reconsider exactly what the purpose of this 
thing is, and then groups like The Highway Users Alliance and I 
think a lot of others will be willing to go out and charge out 
to the media, the editorial boards, our own members and our 
grassroots supporters to defend paying more for that program.
    Mr. DeFazio. Mr. Replogle?
    Mr. Replogle. Environmental Defense has not taken a formal 
position on a gas tax increase. But our key concern is that 
whatever revenue mechanisms are used to enhance transportation 
funding, that they come along with better accountability for 
performance to make sure that the revenues are spent in ways 
that help deliver more mobility improvements and support for 
economic development with fewer emissions and less fuel use.
    We need to be making sure that we are making progress on 
managing traffic growth and its contribution to greenhouse gas 
emissions. Fuel taxes could play a role in helping to foster 
more efficiency in vehicle choices and in travel decisions. But 
direct user fees like congestion pricing, VMT fees, and things 
like that also deserve a lot of consideration as you deliberate 
about these matters.
    Mr. DeFazio. Since you raised congestion pricing, it seems 
many times to be sort of accepted as a benign thing. The 
problem I have with congestion pricing, and I will use the 
example of Portland, where I do not live, Portland, Oregon, 
housing in the city is extraordinarily expensive and a lot of 
people are priced out of the city. The system does not 
necessarily accommodate them in any other way than by 
automobile to get to work in the city or on the other side of 
the city, which is virtually impossible to get to with any 
combination of transit from where they live. They do not choose 
when they go to work.
    So, to me, if you are going to have congestion pricing, a 
person has to have a viable alternative that is comparable or 
even better in terms of their time commitment and affordable 
before you can begin to apply congestion pricing. Would you 
agree with that principle?
    Mr. Replogle. I would agree that we need to give people a 
guaranteed better performance and increased travel choices. I 
do not know that we can give everyone completely equivalent 
travel choice to what we get from our deeply subsidized system 
of sprawl and car dependence. We have a lot of people who made 
rational and intelligent decisions on the basis of very cheap 
gasoline, on the basis of roads that have been subsidized out 
of general revenues, and on the basis of car insurance designed 
so that once bought, it is essentially a fixed cost.
    So that the actual marginal cost of driving a mile is only 
about 15 percent for the user of what the real total cost to 
society is. So we are in a situation where our transportation 
system often breaks down because the users do not perceive the 
costs that ultimately each decision to make a trip imposes on 
the rest of the system. When you subsidize any good, people 
tend to consume more of it. So we end up paying for it by being 
stuck in queues in traffic congestion.
    There is some recent work that has been done, the 
Transportation Research Board did a competition about how 
congestion pricing can actually help produce higher efficiency 
on our highways. I think it is a telling thing. If you take a 
pound bag of rice, pour it through a glass funnel and let it 
back up in the funnel and time how long it takes to go through, 
it might take 30 seconds with that backup. If you take that 
same rice and you meter the flow through the funnel and pour it 
at about the rate it comes out the bottom, it will go through 
about a third faster because it does not have the friction of 
the backup.
    So if we use a whole set of tools in our toolbox of 
congestion management, and road pricing is one of them, then we 
can actually get the system to deliver more through-put without 
building more----
    Mr. DeFazio. Right. I understand that. And I am sure the 
$40 round trip here in Washington, D.C. will allow those people 
in the chauffeur-driven limousines to get in and out of the 
city very quickly. That is a very great use of a public asset.
    I will have to turn to Mr. Duncan. I think we have some 
disagreement over that.
    Mr. Duncan. Thank you, Mr. Chairman. I want to thank all of 
the witnesses for very helpful and very informative testimony.
    Governor Graves, I was sitting here thinking this is my 
19th year on the Committee and we have had many governors 
testify but I only remember one former governor. I remember 
Governor Baliles of Virginia who headed up an aviation 
commission. But we are pleased to have you here. I do remember 
seeing the Johnny Carson Show many years ago that Governor Pat 
Brown was on and he said a week after he left the governor's 
office he was stopped by a California Highway Patrolman, and he 
said to the patrolman you must not recognize me, I am Governor 
Brown, and he said the patrolman said you mean ex-Governor 
Brown and wrote him a ticket. And you have a very important 
position now.
    I do appreciate, Mr. Spencer, both yours and Governor 
Graves' groups. The trucking companies and truckers in this 
country do so much for this Nation and we take you so much for 
granted how much you mean to us.
    Governor Graves, I am told by the staff that your group 
supported the Indiana Toll Road leasing. Is that correct?
    Mr. Graves. We have sort of a colored past. We are a 
federation. We have 50 State associations and we tend to 
respect the positions of our States. The State association was 
engaged in and discussed with Governor Daniels the creation of 
the arrangement in Indiana. I think it would be fair to say 
that when the other 49 States, again, most of whom are 
companies engaged in interstate commerce, were able to see the 
details when it was finally revealed as to what all the 
implications might be for the industry as a whole, there was a 
certain push back.
    ATA has taken, and I think that was the catalyst, ATA has 
taken a very strong position in opposition. Not in all 
instances. In fact, I discussed with Governor Daniels in his 
proposal on that commerce corridor around the south part of 
town, it was capacity that otherwise might not have been built. 
That could have been an example of where we might have not had 
the great concerns. But nonetheless we are a little conflicted 
in the original beginnings of that Indiana deal.
    Mr. Duncan. We had Governor Daniels here I think last year 
and he testified about it. As a former governor, you had the 
responsibility of maintaining the State's highways and so 
forth. Would your testimony have been different if you had been 
here as a governor?
    Mr. Graves. During my two terms we raised the fuel tax 
twice in support of a fairly large, at least by Kansas 
measures, a fairly large multimodal transportation plan. I 
think it was the right thing to do then and, as you can tell 
from my testimony, I still think it is the right thing to do.
    And if you would allow me to opine one subject that has not 
been brought up this morning that continues to concern me now 
as a former governor.
    Mr. Duncan. Sure.
    Mr. Graves. That is, if the States who can do these things, 
if there are ways that you can be successful, and let us use 
Governor Rendell's example, if he can in fact create that huge 
pot of money that addresses many of the infrastructure problems 
in Pennsylvania, my concern would be that as you all go forward 
in your difficult and important work, what does that mean in 
terms of the willingness of Members of the Pennsylvania 
delegation in that case to want to join with others who are 
looking for a national solution to transportation finance.
    Do we create a scenario where we have haves and have-nots 
and the haves lose even further interest in casting some tough 
votes that perhaps support a national system of transportation? 
Again, we support very strongly seeing that increased strong 
Federal role occur.
    Mr. Duncan. Thank you.
    Mr. Spencer, we had a nice visit in my office several 
months ago and I appreciated that and also your giving me an 
opportunity to write an article for your magazine. But I notice 
in your testimony you say that the truck operators pay 36 
percent of the cost on the highways now. Do you think your 
members are paying more than their fair share?
    Mr. Spencer. You know, Congressman Duncan, that is a 
really, really dicey issue. Trucks make up something on the 
order of 3 percent of all the vehicles that use the roads, and 
of course we only use a very small percentage. The 36 percent 
represents the total amount that trucking pays into the Highway 
Trust Fund. We think that is a tremendous amount of money.
    There will be plenty of people who will argue whether or 
not it is a fair share or not. But it certainly is a 
significant sum. As you know well, sir, most of trucking is 
small business that struggles to offset those costs. You are 
keenly aware of those in your State of Tennessee, and I was 
somewhat surprised that Governor Rendell did not seem to be 
especially aware of all the small business truckers in 
Pennsylvania because there are thousands there.
    Mr. Duncan. I will tell you what I have always said. I 
think we ought to pin a medal on anybody who survives in small 
business today because every industry seems to be geared so 
much towards the big giants. But we have run out of time. We 
have to go for the votes now. Thank you very much for being 
here. I will turn it back to the Chairman to close.
    Mr. DeFazio. I want to thank the panel for their time. I 
want to thank the Ranking Member for his active participation. 
And with that, the Committee is adjourned.
    [Whereupon, at 12:42 p.m., the Committee was adjourned.]

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