[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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