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


 
                  FINANCING INFRASTRUCTURE INVESTMENTS

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

                             JOINT HEARING

                               before the

                        COMMITTEE ON THE BUDGET

                                and the

                      COMMITTEE ON TRANSPORTATION
                           AND INFRASTRUCTURE

                               __________

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, MAY 8, 2008

                               __________

                           Serial No. 110-35

                       (Committee on the Budget)

                               __________

           Printed for the use of the Committee on the Budget
         and the Committee on Transportation and Infrastructure


                       Available on the Internet:
       http://www.gpoaccess.gov/congress/house/budget/index.html
                                     

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                        COMMITTEE ON THE BUDGET

             JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut,        PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas                    Ranking Minority Member
JIM COOPER, Tennessee                J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine               JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania    SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio                   MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California           JEB HENSARLING, Texas
LLOYD DOGGETT, Texas                 DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon              MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas               PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida                  CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts     K. MICHAEL CONAWAY, Texas
NIKI TSONGAS, Massachusetts          JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey        PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia  JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina        RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon               ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington              JIM JORDAN, Ohio
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
                                 ------                                

             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

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


                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, May 8, 2008......................     1

Statement of:
    Hon. John M. Spratt, Jr., Chairman, House Committee on the 
      Budget.....................................................     1
    Hon. James L. Oberstar, Chairman, House Committee on 
      Transportation and Infrastructure..........................     2
    Hon. Paul Ryan, ranking minority member, House Committee on 
      the Budget.................................................     4
    Peter Orszag, Director, Congressional Budget Office..........     6
        Prepared statement of....................................     8
        Responses to questions for the record....................   100
    Patricia A. Dalton, Managing Director, Physical 
      Infrastructure Team, Government Accountability Office......    49
        Prepared statement of....................................    52
        Responses to questions for the record....................   102
    Hon. Russ Carnahan, a Representative in Congress from the 
      State of Missouri, prepared statement of...................    96
    Hon. Jerry F. Costello, a Representative in Congress from the 
      State of Illinois, prepared statement of...................    96
    Hon. Rosa L. DeLauro, a Representative in Congress from the 
      State of Connecticut, questions for the record.............    97
    Hon. Harry E. Mitchell, a Representative in Congress from the 
      State of Arizona, prepared statement of....................    99
    Hon. Niki Tsongas, a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............    99
    Hon. Timothy J. Walz, a Representative in Congress from the 
      State of Minnesota, questions for the record...............   100
    Hon. Jason Altmire, a Representative in Congress from the 
      State of Pennsylvania, prepared statement of...............   100


                  FINANCING INFRASTRUCTURE INVESTMENTS

                              ----------                              


                         THURSDAY, MAY 8, 2008

                      House of Representatives,    
                               Committee on the Budget,    
             Committee on Transporation and Infrastructure,
                                                    Washington, DC.
    The Committees met, pursuant to call, at 10:09 a.m., in 
room 2167, Rayburn House Office Building, Hon. John Spratt 
[chairman of the Committee on the Budget] presiding.
    Present for Committee on the Budget: Representatives 
Spratt, Blumenauer, Scott, Baird, Ryan, Simpson, Alexander, and 
Smith.
    Present for Committee on Transportation and Infrastructure: 
Representatives Oberstar, Taylor, Tauscher, Schmidt, Latta, and 
Sires.
    Chairman Spratt. Despite the numerous votes we are about to 
have today, I think it behooves us to begin the hearing. Before 
turning to the two witnesses we have today for their testimony, 
let me ask unanimous consent that the committee agree to the 
following rules to facilitate this hearing. First of all, for 
the purpose of questioning witnesses, we will alternate between 
the two committees beginning with the Budget Committee 
Democrats, followed by the Budget Committee Republicans and 
then proceed to the Transportation and Infrastructure Committee 
Democrats, Republicans. As usual, members who were present at 
the beginning of this hearing will be recognized by seniority, 
and the members arriving later will be recognized in the order 
that they appear. Members will have 5 minutes to ask questions, 
to make statements.
    After all members have had a chance to address the 
witnesses, members may follow up with an additional 5 minutes 
if time permits. All members will be allowed to submit an 
opening statement for the record. Those members who do not have 
the opportunity to ask questions will be given 14 days to 
submit questions for the record. And the written testimony of 
all witnesses will be made part of the record so that they may 
summarize their testimony to allow time for questions and 
answers. Is there any objection to those rules and procedures 
before we begin this hearing? Hearing none, so ordered.
    I told Mr. Oberstar that I felt a bit self-conscious 
sitting in his chair here to which he has long established the 
right. I have a feeling we are being set up for something on 
the Budget Committee by the gracious hospitality that they have 
extended to us, but we are delighted to meet with them today. I 
look forward to this hearing. This is a joint hearing of the 
Committee on the Budget and the Committee on Transportation and 
Infrastructure. Today's hearing is the first joint hearing, to 
the best of my knowledge, held by these two committees.
    Historically, our committees have not always seen eye to 
eye. And I hope this hearing signals the commitment to work 
together on infrastructure issues because they are vitally 
important. Today we will put our budget and infrastructure 
experience together to explore how we can fund or finance 
capital projects in the Federal budget. Our witnesses include 
Dr. Peter Orszag, Director of the Congressional Budget Office, 
and Ms. Patricia Dalton, managing director of GAO's physical 
infrastructure team. Public infrastructure is vital to us and 
to our economy, whether we are talking about highways or mass 
transit or rail or aviation or drinking water or wastewater 
treatment. Despite their vital importance, infrastructure 
investments have not kept pace with repair, maintenance and the 
need for expansion and replacement.
    As a result, there is a growing interest in how we can 
maintain the appropriate level and the proper kind of 
infrastructure investment. The Transportation and 
Infrastructure Committee understands our infrastructure needs, 
after all, it is their charter. The Budget Committee wants to 
better understand ways that we can fund or finance such 
investments and how we can evaluate the assorted options. The 
Federal support for infrastructure usually comes in the form of 
grants embodied in the authorizing legislation and funded 
during the appropriations process. But there are numerous means 
of financing. Some are described as banks, some as revolving 
funds. Some increase borrowing or create new forms of 
borrowing. Some establish entities to manage or operate such 
projects.
    All of these proposals, along with a new highway bill 
looming on the horizon in the not too distant future, give 
these two committees a chance to put our heads together. And 
putting these two committees together, there are a lot of 
heads. Maybe a third of the House, Mr. Oberstar. We want to 
understand the budgetary implications, the amount and manner by 
which we increase our capital investments. We want to know 
under what scenarios it is appropriate to consider investment 
mechanisms other than direct Federal financing, of any policy 
tradeoffs of one mechanism over the other. We need to 
understand the new proposals for financing infrastructure 
improvements, keeping in mind there is never, in the end, such 
a thing as a free lunch. We hope this hearing will be a 
starting point for a longer and larger conversation about how 
to fund and finance infrastructure investments and how to 
evaluate such proposals. I now turn to Chairman Oberstar for 
his opening statement.
    Mr. Oberstar. Thank you very much, Mr. Chairman. Welcome to 
our committee. I am glad to have you here and I am glad to be, 
once again, part of the Budget Committee, which I served on for 
my limited 6 years in the 1980s and into 1990. And I want to 
welcome the gentleman from Wisconsin, Mr. Ryan, who represents 
three of the most important constituents in the United States, 
my granddaughters in Kenosha, Wisconsin.
    And as I said to him, we could be having this meeting at 
Tenuta's Deli in Kenosha, a wonderful welcoming place. But I 
want to welcome everyone back to the subject of capital 
budgeting. Let me just read a few brief highlights--13 percent 
of the Nation's aging dams are classified as ``high hazard.'' 
Municipal water systems need $100 billion to keep up with 
demand. Nearly 1 of every 2 miles of paved highways needs 
resurfacing or reconstruction.
    Half of America's bridges are too old, too weak to 
adequately and safely handle today's traffic; 56 of the 184 
principal locks in the Nation's inland waterways will require 
major repairs over the next 20 years. Deepwater ports have 
insufficient capacity and are stifling trade. That from a 
report by the Subcommittee on Economic Development, which I 
chaired in 1982, a report that my then-colleague and later 
Chair of the House Government Reform Committee, Bill Clinger 
from Pennsylvania, spent an enormous amount of time working on, 
developing the hearings. We spent months crafting this report.
    We concluded in our recommendations to the committee and to 
the House the adoption of a capital investment budget is a move 
toward a prospective public policy, rather than the 
retrospective action that is too often indicative of public 
works decisions. A capital budget would provide important 
information not available to the Congress and the executive 
branch so that they can then make capital decisions weighing 
the evidence, evaluating resources and projecting future needs. 
That is what we need.
    In the course of that hearing, there was an extraordinary 
moment when David Stockman turned around and said, yes, I think 
a capital budget would be a good thing. But as an annex to the 
Federal budget, not as an integral part of it. Now, those 
figures I read off from 1982, you can say that today, 260 of 
the Nation's inland waterway locks are inadequate to handle the 
capacity. Today it takes 820 hours round trip from Clinton, 
Iowa to New Orleans to export grain from America's heartland. 
That is 3 weeks travel one way. We have to do better than that, 
because the locks are 600 feet long and the barge tows are 
1,200 feet long, and you have to split them in half, send 600 
feet through--the next 600 feet through tie them together and 
then go onto the next of those five inadequate locks.
    And on the Illinois-Ohio river system, they need an 
additional 12 each--1,200 foot lock--we passed that legislation 
through this committee, through the House, by an overwhelming 
vote, overrode a presidential veto. Yet not a dime, not a 
single project entered into the President's budget for the 
coming fiscal year.
    I don't want to go back and update all these figures. But 
just on bridges we said half. That meant 73,784 structurally 
deficient bridges in the U.S. that are on the verge of 
collapse. We need to invest in America. On Monday, I 
participated as the keynote speaker for the European transport 
ministers' meeting in Slovenia, the land of half of my 
ancestors, to talk about our investment needs in infrastructure 
in waterways, highways, airways, railways and ports and to 
exchange with the European ministers on their plan. This is 
their plan--the Trans-European Transport Network (TEN-T).
    But this plan was formally presented to the council of 
ministers, all 27 of them, yesterday, by Jacques Barrat, who is 
the European Union Transport Commissioner. The TEN-T Plan would 
provide $350 billion over 10 years for highway, railway, high-
speed passenger, high-speed rail, ports and lockage systems 
that will link the Atlantic Ocean through the English Channel 
to the Black Sea, to the Seine River, to the Rhine, to the 
Danube and to the Black Sea to link with a water highway. They 
already ship enormous amounts of goods. $350 billion. They have 
every one of their priority projects listed page by page, 
process by process, funding source by funding source.
    We don't have that kind of capital budgeting. We need to do 
that. Some say it will be too much money, it will be too big a 
challenge. But if we don't know what the picture is, then how 
can you prioritize? How can you make choices? We have to make 
those choices. They are tough choices to make, of course. But 
that is our responsibility as Members of Congress.
    So I plead to develop a capital budgeting process. I think 
we need to have a roadmap, a water map, an airways map, a 
railways map as Europe is doing or we will fall behind. Just 
one final observation. In 1989, China had 168 miles of 
interstate quality highway. Today, they have 22,500 miles and 
in 10 years they will have 55,000 miles. With their investment, 
they have reduced the travel time by truck from Beijing to Hong 
Kong from 55 hours to 25 hours. Nowhere in America, with all of 
our investments, have we reduced truck travel time by 30 hours 
on any stretch of roadway. We have increased it by that amount 
of time. They have reduced the travel time by truck from 
Beijing to Shanghai from 35 hours to 14 hours. We have not made 
those kinds of investments and improvements. If we are going to 
compete in this world economy, then we have to make those 
investments. Thank you very much.
    Chairman Spratt. Thank you, Mr. Oberstar. Mr. Ryan.
    Mr. Ryan. Thank you, Chairman Spratt. And I also want to 
thank Chairman Oberstar for his gratitude and his kind 
invitation to bring us here. I hope I get invited back after I 
read my opening statement. I also want to thank our witnesses 
for joining us today, Director Orszag and Patricia Dalton, 
managing director of GAO's physical infrastructure team, 
welcome. And I look forward to your testimony. Before I share 
my statement on the subject of this hearing, I am going to take 
just a brief moment to talk about the transportation issue 
first on the minds of the American people. And I hear the bell, 
so I realize we have some time constraints here. And the issue 
that is first on the minds of the American people is clearly 
the skyrocketing price of gasoline.
    One of the things almost certain to come up today as we 
look at alternative financing mechanisms for public 
infrastructure is the possibility of increasing the gas tax. I 
think that is the last thing we want to do at this time. We 
need to be looking at ways of reducing the gas price burden on 
the American people. And that is why today I will introduce 
legislation that will suspend the 18.4 cent tax on gasoline for 
the summer and give American families at least a little relief. 
I know there is a concern, probably a lot in this room about 
the impact this proposal will have on the highway trust fund.
    So my bill holds the highway trust fund harmless and it 
goes a step further. It will actually shore up the trust fund 
by eliminating its 2009 shortfall. This may sound impossible, 
but it is not. We can address both these high priority issues, 
relief from high gas prices and needed infrastructure 
improvements. And we can do it without costing the taxpayers a 
single dime. We will do it by addressing a third issue that is 
also on the list of the American people's concerns and that is 
Congress' pork-barrel spending. If Congress will agree to give 
up earmarks for just one year as laid out in the Kingston-Wolf 
proposal, we could save $14.8 billion. This is a proposal that 
proposes a bipartisan commission to make sure that we have a 
system that is transparent and accountable to the American 
people who have lost faith in the way we spend their dollars. 
We could use that money to give taxpayers a little relief at 
the pump for the summer and still have more than enough money 
left over to shore up the trust fund in 2009, something that I 
know is a major priority for the transportation and 
infrastructure committee. Now, while my bill takes care of the 
highway trust fund's short-term financing problem, there is--
there is a longer-term issue on highway financing and that is 
what we are here to talk about today, clearly public 
infrastructure, from roads and bridges to dams and sewers is 
vitally important to the growth and productivity of our economy 
and to our way of life. There are two issues before us. First, 
how do we ensure Federal funding is allocated to high priority 
infrastructure that has a high benefit cost ratio. And second, 
what is the best means of financing this activity? Today we are 
here to discuss this second issue, what role, if any, 
alternative financing mechanisms can or should play in the 
funding of Federal investment in public infrastructure.
    In the past, the Budget Committees have concluded, as have 
CBO and GAO, that these alternative financing mechanisms from 
sale-leasebacks to third-party financing to tax credit bonds to 
be a more expensive, less transparent way to acquire and use 
capital assets when compared to conventional appropriations in 
treasury borrowing. And as Dr. Orszag notes in his testimony, 
there is no free money here. It is pay me now or pay me later. 
Regardless of what kind of mechanisms we use, alternative or 
otherwise, the bills still have to be paid.
    And while we have many worthy demands of Federal spending, 
the American taxpayers and thus Congress don't have a limitless 
supply of money to fund them. So Congress has got to set 
priorities so we can ensure that our most critical public 
infrastructure projects get every bit of funding they need in 
the most cost effective way.
    Finally, as Dr. Orszag knows and has testified before the 
Budget Committee, the question of how we might finance extra 
spending on infrastructure or anything else will soon be moot 
if we don't get to the business of reforming our entitlement 
programs. If we continue to push off entitlement reform, these 
programs will make most of our funding decisions for us. 
Because after paying for them, there simply won't be enough 
money left in the budget to even finance our highest domestic 
priorities. This will take place regardless of what financing 
methods we use for these other programs.
    Federal infrastructure makes an important contribution to 
our economy. The chairman is right to point out the needs for 
America in the future. And I hope we can find the best way to 
address these key priorities in a transparent and a responsible 
way. And once again, I thank every one for being here. I thank 
you, chairman, for your invitation. And I look forward to the 
views of Dr. Orszag and Ms. Dalton.
    Chairman Spratt. Mr. Mica, the ranking member of this 
committee is not here, I believe. Mr. Oberstar, Mr. Ryan, if it 
is agreeable to you, I thought we would start with Dr. Orszag, 
give him 5 minutes and that will leave us about 5 minutes to 
get to the floor. We have got 6 votes, nearly an hour on the 
floor. And I beg your pardon, but we didn't set the schedule. 
Let's go ahead and see if we can't make use of what time is 
available. Dr. Orszag, we will give you 5 minutes. But you can 
take your time when we come back to make sure you have a full 
presentation of your testimony.

   STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET 
                             OFFICE

    Mr. Orszag. Thank you very much, Mr. Spratt. I will try to 
be brief in this initial period. Mr. Oberstar, Mr. Ryan, 
members of the two committee, thank you for having me this 
morning. Growing delays in air travel and surface 
transportation, bottlenecks in transmitting electricity, 
inadequate school facilities all suggest that some targeted 
additional infrastructure spending would be economically 
justifiable.
    First, let's get some facts. As the first slide shows, the 
Nation spends about $400 billion a year on infrastructure. And 
I tried to give you a breakdown. I don't know if you can see 
that of that $400 billion. Of that, the Federal Government 
provides about $60 billion. This is from 2004. And Federal 
Government spending is very concentrated, particularly in 
highways.
    So $30 billion of the $60 billion or so in Federal spending 
on infrastructure is dedicated towards highway spending. State 
and local governments spend a disproportionate share of their 
money in other areas. You see that on utilities and other. And 
similarly, the private sector spending on infrastructure is 
disproportionately concentrated in things like electricity 
generation and transmission.
    The second slide that I have may be of more interest to 
people. For the first time, the Congressional Budget Office has 
gone through the various studies that exist on what would be 
needed to maintain current service levels from our 
infrastructure and what could be economically justifiable; that 
is, what projects could generate larger benefits than costs. 
And let me focus, for example, on highways. We currently spend 
about $67 billion a year on highway spending. The Federal 
Highway Administration has estimated that it would cost about 
$79 billion a year to maintain current levels of service. And 
so an additional, let's say, $10 to $12 billion a year would be 
required to maintain current levels of service and that as much 
as $132 billion a year could be justified in terms of benefits 
exceeding costs. So that would be an extra roughly $60 billion 
or so.
    In aggregate for transportation infrastructure, additional 
spending to maintain current levels of spending--current levels 
of service would amount to perhaps $20 billion a year and 
perhaps as much as $80 billion a year could pass an 
economically justifiable test. Now, it is important to remember 
that although the economic rationale for some additional 
infrastructure spending is strong, it depends very specifically 
on the individual projects. Some projects generate large 
additional benefits, others not so much.
    So to say that these levels of spending may be economically 
justifiable is not to say that just pumping that amount of 
money into infrastructure would generate benefits. It depends 
very sensitively on which specific projects are chosen or where 
the money is directed. It is also the case that these estimates 
are dependent on and sensitive to what else is happening. And 
in particular, if we priced and used the existing 
infrastructure that we have more efficiently, these numbers 
would go down.
    So, for example, the Federal Highway Administration has 
suggested that widespread implementation of congestion pricing 
would reduce investment needed to maintain the current highway 
system by $20 billion, significantly reducing the necessary 
investments that we are showing there. Fourth, I want to note 
that the existence of additional economically justifiable 
investments does not determine who should pay for it. And in 
general, the benefits principle suggests that Federal taxpayers 
are often the least efficient source for financial support of 
an infrastructure investment after the direct beneficiaries of 
the investment and local and State taxpayers. Even when Federal 
support for a given type of infrastructure is justified in 
principle, implementation problems may make it undesirable in 
practice. GAO for example, found that States offset roughly 
half of the increase in Federal highway grants between 1982 and 
2002 by reducing their own spending and that the rate of 
substitution increased during the 1980s.
    Let me just finally say in my final 30 seconds that I think 
there is a lot that the Federal Government could be doing to 
better utilize and make more efficient the support that we 
already provide for infrastructure. My testimony goes through 
the inefficiencies in the current tax subsidies for tax exempt 
State and local bonds and ways that that could be made more 
efficient. And I would also note that we own a significant 
amount of property and other forms of infrastructure that could 
be much more efficiently managed and that could provide offsets 
or sources of funding for new investments in things like 
highways. Thank you very much, Mr. Chairman.
    [The statement of Peter Orszag follows:]

            Prepared Statement of Peter R. Orszag, Director,
                      Congressional Budget Office



















































































    Chairman Spratt. We will recess----
    [Recess.]
    Chairman Spratt. We will let you proceed with your 
testimony.
    Mr. Orszag. I thought I was done, Mr. Chairman.
    Chairman Spratt. You are completed?
    Mr. Orszag. For now, yeah, sure.
    Chairman Spratt. Okay. Ms. Dalton, we are glad to have you 
and we look forward to your testimony. As in the case of Dr. 
Orszag, your complete statement has been made a part of the 
record. You can summarize it as you see fit, but take your 
time.

 STATEMENT OF PATRICIA A. DALTON, MANAGING DIRECTOR, PHYSICAL 
     INFRASTRUCTURE TEAM, GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Dalton. Thank you, Chairman Spratt and members of the 
committee. I really appreciate the opportunity to testify on 
infrastructure financing issues today. These are important 
issues because the Nation's physical infrastructure is under 
strain raising a host of safety, security and economic 
concerns. My remarks today are going to focus on the challenges 
associated with our infrastructure, principles that we at GAO 
have identified to help guide efforts to address these 
challenges and existing and proposed options to fund 
investments in the nation's infrastructure. The challenges are 
numerous.
    For example, just by increases in transportation spending 
at all levels of government and improvements to the physical 
condition of highways and transit facilities over the past 10 
years, congestion has worsened and safety gains have leveled 
off. In addition, demand has outpaced the capacity of our 
Nation's surface transportation and aviation systems resulting 
in decreased performance and reliability. Water utilities 
nationwide are under increased pressure to make significant 
investments. Needs across the country are estimated to range 
between $485 billion and $1.2 trillion over the next 20 years. 
For example, about a third of our water utilities report that 
20 percent of their pipes are at the end of their useful life. 
Clearly these and other challenges need to be addressed. 
Additional investment is clearly warranted. However, calls for 
increased investment in infrastructure come at a time when 
traditional funding is increasingly strained and the Federal 
Government's fiscal outlook is worse than many may understand.
    Addressing these challenges is complicated by the breadth 
of the Nation's physical infrastructure which is owned, funded 
and operated by all levels of government and the private 
sector. Moreover, infrastructure policy decisions are 
inextricably linked with economic, environmental and energy 
policy concerns. Given these types of challenges and the 
Federal Government's fiscal outlook, it is clear that the 
Federal Government cannot continue with business as usual. 
Rather a fundamental re-examination of government programs, 
policies and activities is needed, including in the 
infrastructure area. Questions to be asked include what are our 
goals and are they tied to the national interest? What is the 
Federal role? Are performance and accountability built into the 
funding decisions? Are we using the right tools, the best 
tools? Is the approach physically sustainable? Funding for the 
Nation's infrastructure comes from a variety of Federal, State, 
local and private sources. As primary owners of the 
infrastructure, State and local governments and the private 
sector generally account for a larger share of infrastructure 
funding than the Federal government, however the Federal 
Government has played and continues to play an important role 
in funding infrastructure.
    Various existing funding approaches could be altered or new 
funding approaches could be developed to help fund investments 
in our infrastructure. These various approaches can be grouped 
into two categories for funding, taxes and user fees. An 
example of a tax is clearly the Federal fuel taxes on gasoline 
and jet fuel, which are attractive because they provide a 
relatively stable stream of revenue and their collection and 
enforcement costs are relatively low. Examples of user fees 
include air passenger facility charges or highway tolls. The 
concept underlying user fees; that is, users pay directly for 
the infrastructure they use is a long standing aspect of 
infrastructure programs.
    Financing strategies on the other hand can provide 
flexibility to bridge gaps when traditional pay as you go 
funding sources are scarce as they are nowadays. Financing 
mechanisms can create potential savings by accelerating 
projects to offset rapidly increasing construction costs and 
offer incentives for investment from State and local 
governments and from the private sector. The Federal Government 
currently offers several programs that provide infrastructure 
financing. For example, the TIFIA program provides loans for 
transportation projects of national significance. The 
government also has authorized a number of revolving funds that 
are used to dedicate capital to be loaned for qualified 
infrastructure projects.
    In general, loan dollars are repaid, recycled back into the 
revolving funds and subsequently reinvested in the 
infrastructure through additional loans. Such funds exist at 
both the Federal and State level. They include State 
infrastructure banks, the clean water State revolving fund and 
the drinking water State revolving fund. Several proposed bills 
would make additional financing mechanisms available for 
infrastructure. For example, the proposed Build America Bond 
Fund would provide $50 billion in new infrastructure funding 
through bonds. The National Infrastructure Development Act bill 
introduced by Ms. DeLauro, would establish a loan program 
administered by a government sponsored entity to fund a variety 
of infrastructure projects.
    A National Infrastructure Bank Act would provide an 
infrastructure bank at the national level as a revolving fund. 
Although each of these financing mechanisms has different 
merits, each mechanism in the final analysis is a form of debt, 
but ultimately must be repaid with interest. Furthermore, since 
the Federal Government's cost of capital is generally lower 
than that of the private sector, financing mechanisms such as 
bonding should be recognized as more expensive than full 
upfront funding.
    To help policymakers make explicit decisions about how much 
overall Federal spending should be devoted to investment, we 
previously have proposed establishing an investment component 
within the unified budget by recognizing the different effects 
of various types of Federal spending. An investment focus 
within the budget would provide a valuable supplement in the 
unified budget's consideration of macroeconomic issues.
    Moreover, with direct attention to the consequent choices 
within the budget under existing budget limitations, a level 
which is now not determined explicitly by policymakers but is 
simply the result of numerous individual decisions. In 
conclusion, various investment options have been and likely 
will be continued to be identified to repair, upgrade, expand 
and better use our Nation's infrastructure.
    Ultimately, Congress and other Federal policymakers will 
have to determine which option or more likely which combination 
of options best meets the needs of the Nation. There is no 
silver bullet. The suitability of any of these options will 
depend on the level of Federal involvement the policymakers 
decide in a given area. We look forward to continuing to work 
with the committees as you consider these various options. 
Thank you, Mr. Chairman.
    [The statement of Ms. Dalton follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman Spratt. Thank you very much. Just to start off the 
questions. We have had several hearings here at which the topic 
of capital budgeting has been raised as if it is a beginning at 
least towards more rational planning, more rational budgeting 
and funding of infrastructure projects. How would we take the 
Federal budget and recast it into capital and noncapital 
operating budgets? Is that a viable idea and does it accomplish 
anything that we couldn't do by other means just as easily?
    Mr. Orszag. I guess I will start on that, Mr. Chairman. As 
you know, we released a study this morning on a capital budget. 
And let's separate how you would do it from whether you would 
want to. With regard to whether you would want to, there are 
trade offs, but I would note it is awkward to move to accrual 
accounting, which is what a capital budget is, just for part of 
the budget. Most of the budget is cash based. And moving to 
accrual accounting for capital spending but not for entitlement 
spending or lots of other parts of the budget is an awkwardness 
and it raises the question of whether one should move to full 
accrual accounting. And on that, I would just note that there 
are lots of countries that have evaluated that question, 
decided not to do it and that also there are many countries 
that have not moved to a capital budget for precisely that 
reason, that it is awkward to do it just for this part of the 
budget. Secondly, that if you were going to do it, just for 
part of the budget, there is a lot of pressure that would come 
to bear on the definition of what capital is. So if you have 
one system for capital and another system for noncapital, it 
becomes very attractive to start labeling everything as capital 
and one would have to pay particular attention to the 
definition of capital spending.
    With regard to how you could do it, that is frankly not as 
complicated as the normative question of whether you should. It 
would involve simply taking out--moving away from a cash basis 
system of accounting for capital investments, however defined, 
instead of when you buy something for a dollar of capital, that 
currently is scored as a dollar. Instead, what would happen is 
that you would not score that dollar; but instead as the 
capital depreciated, there would be an allocation each year, a 
charge each year for the depreciation.
    Chairman Spratt. Mr. Dalton, do you have any observation 
about capital budgeting and what it might offer us?
    Ms. Dalton. The one additional point I would make is one 
thing to consider where I don't think it will work very well at 
the Federal level is that we don't own a lot of the 
infrastructure. We do fund a lot of it, but it is owned at the 
State and local levels. So therefore, when you are looking at 
capital budgeting, fundamentally it assumes that you are owning 
the infrastructure and from an accrual basis, you are using 
that asset over time and depreciating that. When the Federal 
Government doesn't own the infrastructure, you don't have that 
opportunity from an accounting standpoint.
    Chairman Spratt. Would human investments be considered--
could they be considered a capital investment as part of the 
capital budgeting?
    Mr. Orszag. Well, I think you're touching upon one of the 
tensions which is that the theory behind a capital budget is 
that there are things that we pay for today that have long-term 
economic benefits. It is traditionally interpreted as physical 
capital, but many of the same arguments would apply to research 
and development spending, to education spending. Some people 
would even argue things like----
    Chairman Spratt. Do you need a discrete or several discrete 
revenue streams or income streams that you can then attach, 
levy or tax in order to repay the front-end capital costs?
    Mr. Orszag. Not conceptually with regard to a capital 
budget. You do need that sort of thing with regard to other 
financing mechanisms that have been under discussion. But with 
regard to a capital budget by itself, you know, conceptually at 
least you could just say that amount of capital or that 
definition of capital is not counted when it is purchased but 
rather as it depreciates. And that can be independent of 
whether there are user fees or specific tax revenues that are 
tied to that capital.
    Chairman Spratt. And how would you treat the funding of 
capital projects differently from, say, other projects which is 
funded on a year-to-year basis? Would you borrow and then have 
an identified source of money to pay back the capital outlays?
    Mr. Orszag. Well, one of the consequences, again, would 
be--and maybe this is getting to your question--one of the 
consequences would be there would be more of a divergence than 
currently exists between the reported deficit and the amount of 
financing that the Federal Government would require. So if we 
went out and we purchased a dollar of investment goods or of 
capital goods and that was excluded from the budget, only the 
depreciation would be counted in future years, we would still 
need to finance that dollar in terms of borrowing or some other 
financing mechanism. And that would be another source of 
divergence between the reported deficit and the treasury's 
borrowing needs.
    Chairman Spratt. Ms. Dalton?
    Ms. Dalton. There is nothing I could add to that.
    Chairman Spratt. There are different ideas being proposed 
that would give us a different way of identifying activities 
that generate expenses and are different from--that could be 
used to complement existing revenue sources. The gasoline tax, 
for example, which could be complemented by a congestion tax. 
Is a potential congestion tax sufficient to really put much 
stock in what could be done with it in terms of financing 
capital improvements and highway improvements, transportation 
improvements of various kinds?
    Mr. Orszag. I will take a crack at that. Congestion pricing 
has--it is almost a twofer. It has two potential benefits. I 
know there are concerns about it that we could talk about also, 
but it has two significant benefits. First it could raise 
revenue that could be used to finance new investments; and 
secondly, it reduces the amount of investment that is necessary 
to undertake or to maintain current services or to exhaust the 
economically beneficial projects that are out there. It allows 
us to use the infrastructure that we have or that we would 
build much more efficiently and the evidence on this is very 
clear. When you price something by time of day or by 
congestion, you do get the results that you are looking for in 
terms of reducing congestion costs and more efficiently using 
the infrastructure that we have. And that would apply to 
highways. It applies frankly to landing rights at airports. It 
applies in lots of different settings.
    Chairman Spratt. You can see how cities like London and New 
York can apply taxes of this kind. But is it feasible for the 
Federal Government to apply a congestion tax which depends very 
much on local conditions?
    Ms. Dalton. You are correct, Mr. Chairman, in that it does 
depend on local conditions. And traditionally the congestion 
taxes have been imposed at the local level or the State level 
reflecting the demand on the infrastructure in trying to spread 
that demand over time usually.
    Mr. Orszag. But, for example--and I agree that this is 
traditionally not a Federal role. But, for example, one could 
construct scenarios or policy options--I will just give you one 
possibility--that you could require a higher State and local 
match on Federal grants for projects that do not have 
congestion pricing relative to those that do. There are lots of 
different ways that you can have the Federal Government 
encourage this and try to recapture some of the potential 
benefits.
    Chairman Spratt. Thank you very much. Let me turn now to 
Mr. Simpson.
    Mr. Simpson. Thank you, Mr. Chairman. And thank you for 
setting up this hearing. I appreciate it. It is a subject that 
is of interest to me and should be of interest to all of us, 
because, you know, no matter where you travel in the world, you 
come back with the conclusion that one of the reasons that we 
have become the strong economy of the world is because of our 
infrastructure and the investment that we have made in it over 
the years, that our forefathers made in it.
    In fact, it is kind of interesting, I would have liked to 
have heard the debate when the Eisenhower administration 
proposed the interstate highway system. I am sure the debate 
was are you kidding me, we are not going to need interstates in 
Idaho and Montana and Wyoming. And in fact, when they built 
them there, I can remember driving 50 miles down the road and 
never passing another car. And while it was real nice, now 
those areas--actually some of them have some pretty good 
congestion in them. Those were forward looking individuals that 
did that. And I am afraid that we haven't done the same or 
aren't doing the same and future generations are going to pay 
for that if we don't invest in the infrastructure of this 
country, not only roads and bridges and railways and waterways, 
and as you said, our water systems and so forth. Let me ask 
you, does capital budgeting make much sense without capital 
planning?
    Ms. Dalton. I certainly don't believe so. I think one of 
the things that we need to be looking at is having a 
comprehensive capital plan identifying what we are trying to 
achieve, what our goals are, what the role we should be having 
in this infrastructure or any type of capital expenditures so 
that we have a way to prioritize what needs to be done. Clearly 
there is an awful lot that we need, we would like. What are our 
highest priorities and how do we set those. I think a capital 
planning approach would assist in that decision making.
    Mr. Orszag. And I would just agree that again, the return 
to different projects vary substantially and just kind of 
throwing money at infrastructure does not get you what at least 
economists would hope for.
    Mr. Simpson. Let me express one of my frustrations that I 
have had here, is that we don't have plans for those kinds of 
things. And as you know, we are sometimes accused of doing 
congressional directive spending, otherwise known as earmarking 
things, which I'm not opposed to. The problem is I never know 
where that stands in terms of a national need when you start 
looking at what projects are. And my assumption is that a local 
person that represents a district knows that district better 
than I do and so forth. So I have a tendency to listen to them.
    But I don't know how it fits the national need. And another 
example is that I sit on the Energy and Water Subcommittee. The 
Army Corps of Engineers comes in and wants to dredge harbors to 
make deepwater harbors and so forth. There are harbors all over 
this country. And I don't know that there is--well, I know 
there is not a plan to say how are the ones that we are going 
to actually make deepwater harbors going to fit into the 
overall transportation system? We need a plan somehow. Then 
we've got to sit down and say how are we going to pay for that 
plan. And it obviously can't be just the gas tax and the local 
units are about property taxed out. Registration fees in most 
places are getting high. We've got to find some alternative 
ways of doing it.
    And as we were mentioning before this hearing started, I 
think people are willing to pay when they see improvement in 
the system. If they are just hiring more employees and stuff, 
they have got some concerns. Go ahead and respond if you would 
like.
    Ms. Dalton. One of the things I was going to point out was 
one of the things that capital planning will do is that it 
helps you in choosing between projects, because there may be 
three or four different solutions for a particular problem; 
which one is the best? A rigorous analysis and evaluation of 
the project through a capital planning approach lets you 
choose.
    You know, you may be presented with two different things. 
Well, one person says this is the best; another one will say 
that. Well, how do you tell? And through that rigorous 
analysis, hopefully it will lead you to better decision-making, 
so that the return on that investment will be greater.
    What kind of performance can I expect out of a rail project 
versus building another highway?
    Mr. Simpson. Mr. Oberstar, I appreciated his opening 
statement; he seems very interested in this. And I would hope 
the T&I Committee would actually sit down and take some time 
and work on how to put together a capital plan, because, to me, 
that is a multiyear project of putting that together.
    Ms. Dalton. It is one of the reasons that we at GAO believe 
that having an investment component as part of the unified 
budget would be helpful, in that it would, at least as a start, 
start beginning together all of the investment projects and 
efforts that we have under way and identifying them clearly in 
the budget to assist in making those decisions.
    Mr. Simpson. Well, as we mentioned earlier, this is 
something that--I have been interested in the trust funds and 
how the trust funds are used. And Mr. Blumenauer and I are 
going to introduce a resolution dealing with the trust funds 
and studying the trust funds and how they are used. Because 
sometimes I think they are used improperly or not used as they 
should be. Some of them are actually growing in amount when we 
have a need out there.
    And I will be talking to you, I am sure, in the near 
future, as we do that, to see how we can work on that so that 
we are using the resources appropriately.
    And then look at, as I said earlier, how are we going to 
pay for this? We have got to find some innovative ways to pay 
for it, some that we probably don't employ right now that are 
totally different.
    So I appreciate it.
    And, thank you, Mr. Chairman.
    Chairman Spratt. The Chair recognizes Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    And to our witnesses, I appreciate your time.
    In rural Nebraska, we have seen an obvious pattern of 
economic growth along four-lane interstates or expressways, and 
certainly our State trust fund is suffering, just like the 
Federal. And I would say that simply adding the gas tax on a 
per-gallon basis doesn't really address things long-term, kind 
of piggybacking off of Mr. Simpson's comments.
    But as we do look to the future and some population 
differences just within Nebraska, we see congestion being 
addressed using trust fund dollars in the urban areas. I would 
challenge whether or not that is enough forward-thinking, by 
merely adding lanes, actual lane miles. Whereas in rural 
Nebraska we can leverage more economic growth, I think, looking 
to the future, just as the interstate system did many years 
ago.
    Do you have some suggestions of how dollars should be spent 
in terms of adding lane miles versus other types of 
transportation infrastructure?
    Ms. Dalton, if you would?
    Ms. Dalton. Yes, I think there are some things that can be 
looked at, because, in some ways, in some areas, you really 
can't build your way out of the congestion. You have to look at 
how can we use what we have better.
    And there are a number of tools. Congestion pricing is just 
one of them. There is also technology that can be used. We have 
seen that here in this area, with some of the lighting systems 
to get on the interstates and trying to regulate the flow of 
traffic.
    Congestion pricing helps to spread the demand out over 
time, so that if you are going to travel from 4 o'clock to 6 
o'clock in the evenings, it may cost you more than if you are 
traveling at 6:30 or 3:30. And that just helps move the flow of 
traffic.
    And those are certainly tools that should be used in 
conjunction with overall infrastructure, construction and 
development, and trying to look at what are the least expensive 
but also the most effective alternatives in terms of 
performance, and what are we trying--it basically gets down to 
what are we trying to accomplish. If we are trying to reduce 
congestion, are there ways to spread that out? Do we really 
need to, as I said, build another lane? Are there alternative 
transportation systems available, such as bus transit?
    Mr. Smith. I guess also, you know, proactively developing 
things, rather than just waiting for the auto count to get up 
to the point where we can react.
    Ms. Dalton. Exactly. Right. And you mentioned economic 
development. You know, where is that development going to 
occur? Can you anticipate that? And, certainly, if you can 
anticipate it and build ahead of time and accommodate it, you 
are in a much stronger position.
    That is why oftentimes local governments will, as there is 
a housing development going in, they work with the developer to 
build in the infrastructure as part of that development, as one 
example of trying to anticipate what is going to happen.
    Mr. Smith. I see. Very good.
    Dr. Orszag, if you would address, perhaps, any information 
you might have that speaks to the effectiveness of 
transportation dollars being spent in more rural areas in a 
more proactive fashion. Do you guys quantify any of those 
expenditures and how that is leveraged?
    Mr. Orszag. No, we haven't.
    And I would say most of my written testimony, not 
surprisingly, given my background and our outlook, is based on 
cost-benefit analysis and similar things. There obviously are 
other considerations that policymakers want and do take into 
account. But it is the case under most cost-benefit analyses 
that rural projects often don't look as good as projects in 
more concentrated areas.
    Mr. Smith. And how far into the future would that gauge?
    Mr. Orszag. It depends on the outlook of the underlying 
study. Sir, I can't give you a generic answer to that question.
    Mr. Smith. Then, as well, do you ever look at perhaps a 
multi-State effort?
    I mean, the Heartland Expressway is an example in mid-
America where it is several States. Actually, Ports-to-Plains 
Corridor is a multi-State effort, rather than just one State at 
a time.
    Does that get much credit in the big picture?
    Mr. Orszag. Well, let me sort of broaden the question. It 
is clear that, as we tried to lay out, infrastructure 
investments generate additional economic activity. And, 
obviously, the more that the different components of the system 
fit together so that you don't have inconsistencies across the 
Nation's infrastructure, the better, in terms of generating 
economic activity.
    Mr. Smith. All right.
    Thank you, Mr. Chairman.
    Chairman Spratt. Thank you.
    Mr. Blumenauer?
    Mr. Blumenauer. Thank you, Mr. Chairman.
    I deeply appreciate having this hearing, and I hope that 
there will be an opportunity for us to explore in greater 
detail in the future, because I am concerned.
    I heard my friend from Nebraska raise some concerns that he 
has, in terms of making sure that the infrastructure needs are 
appropriately met. And I think, from where I sit, the 
deficiency we have now is not having an overall vision or plan 
about how the pieces fit together. Because there are some 
areas, frankly, that may not pencil out in the short term, but 
they are part of a network. And if we don't have a network, 
rural America and small-town America is shortchanged.
    Too often, we see investments in some rural areas that are 
just like darts thrown at a map. They have political cache, but 
they aren't part of meeting the overall needs of agriculture, 
of electrical infrastructure. And I am hopeful, I know I have 
been in consultation with my friend from Idaho, about a way to 
look at the big picture, maybe actually have an infrastructure 
plan for this century.
    Mr. Orszag, something that is not on your plan in terms 
broken out, but you have ``utilities and other,'' in terms of 
water infrastructure that is going to probably be the greatest 
stressor with climate change, with depletion of water supplies, 
with an aging infrastructure.
    These are things that I am hopeful that we, as a Congress, 
can be able to zero in, flesh out, help have a big picture, and 
then think about what is economically justifiable and how the 
pieces fit together.
    You have passenger rail, an economically justifiable 
investment; we don't have an element there. But we have 
aviation, that with one-third of the trips in this country now 
350 miles or less by airplane, that doesn't pencil with $120-a-
barrel oil. They economically don't work.
    We have the potential, if we could look at it 
comprehensively, with some modest investment in rail passenger 
service, to eliminate some of the pressures for aviation, for 
instance, for airport expansion. We would actually get 
capacity, and we would be able to have something that would be 
more pleasurable for the riding public.
    Mr. Orszag, we have talked in the past about present-value 
accounting that currently in a capital budget may help move us 
in this direction. But there are so many elements here in the 
transportation system that don't take into account the dollars 
we know we are going to spend or the cost that we are going to 
avoid.
    Have you had any further thought about what we could do 
with the Budget Committee to look at this long-term picture of 
infrastructure investment and ways that we will be able to coax 
more value out of the system to deal with rail, to deal with 
water, to deal with surface transportation, motorway, that 
would reflect avoided costs, that would reflect investments 
that will make money over time, that would have a fairer 
application of our budget rules?
    Mr. Orszag. Well, let me answer that in two ways.
    First, we did come out this morning with a report on 
capital budgeting, in particular. And I can talk more about 
that.
    But, secondly, and part of your question is, what is the 
long-term benefit or return to these various different 
investments? And we did try in this document, in the testimony 
that we prepared, the written testimony, which is longer than 
normal for us, to go through the evidence on the returns to 
infrastructure spending. And while they are positive on 
average, they vary a lot by specific project. And they are also 
lower than some early estimates from the early 1980s suggested.
    So, there is a long-term benefit to additional 
infrastructure investment. It obviously depends very 
sensitively on the specific projects, on the specific types of 
infrastructure.
    I would also just note quickly, you had mentioned 
wastewater and drinking water. We do have estimates in the 
testimony that is based on previous work by CBO, suggesting 
that the Nation is spending about $26 billion a year currently 
on those, and that investments would need to average between 
$30 billion and $47 billion a year to basically maintain 
current services and do a little more.
    Mr. Blumenauer. Thank you. I will look to further 
examination. I am sorry we were chopped up a little bit.
    Mr. Chairman, I appreciate your indulgence and having this 
hearing.
    The point of inquiry, I will warn you, next, Dr. Orszag, 
when I am sure our paths will cross, is the notion that, if we 
are able to actually have a comprehensive infrastructure plan 
and a vision, whether that wouldn't help us actually coax more 
value, avoid some of the problems Ms. Dalton is talking about, 
and be able to put us ahead overall.
    Mr. Orszag. I just hope our paths don't cross while we are 
both on bicycles. That could get a little messy.
    Mr. Blumenauer. Thank you.
    Chairman Spratt. Mr. Baird?
    Mr. Baird. I thank the Chair.
    I thank our distinguished witnesses.
    This may have been addressed already. Forgive me. I was at 
another meeting.
    I certainly felt that the most recent stimulus package 
amounted basically to dropping money out of helicopters and was 
not our best investment. There are some business provisions of 
the stimulus package that make sense, but the rebates I did not 
think did.
    We did some surveys in my own State and district about 
projects which were ready to go, in the sense that they were 
permitted, designed, could be actually putting people to work 
in the same time frame it has taken us to get the stimulus 
package out, and that would produce jobs with paychecks and 
lasting infrastructure to the good of people for many years to 
come.
    It has been quite frustrating, because there seems to be 
this sense that--it is a shibboleth but I don't think a fact--
that infrastructure investment doesn't stimulate the economy. I 
wonder if you could talk a little about that, what seems to be 
received wisdom by the economists' side, but in direct conflict 
to the evidence I get on the ground when I talk to school 
boards or local communities, et cetera. Frankly, you walk 
around these Capitol grounds and you see needed infrastructure 
repairs right there.
    Educate us on this, if you would.
    Mr. Orszag. I think that one might be for me. Let me say 
two things.
    First, as I tried to indicate earlier, there is a long-term 
return or a long-term benefit to infrastructure spending. We 
are now just talking about the degree to which money can flow 
out the door quickly in a period of economic weakness, which is 
a different question.
    There I have pushed my folks hard. And I would just again 
say, outside of road resurfacing, where it looks like money can 
flow more rapidly, that I have been eager to receive the list 
of specific projects that people believe can move fast. Because 
it is often the case that, when you start to actually go down 
those lists--and I don't want to just take it on faith; I want 
to be looking at the specifics involved--that you get responses 
like, ``Oh, no, we meant we could get it permitted rapidly, not 
actually have money out the door.'' The question is, how 
quickly can money actually go out the door?
    Mr. Baird. But permitting isn't free. You don't magically 
get a permit. I mean, someone has to be employed to do the 
paperwork for the permitting.
    And so my belief is there is a continuum of projects in the 
pipeline, some of which are at the permitting stage, some of 
which are at the design stage. People actually get paid money 
and then pay taxes on that money.
    Mr. Orszag. Yes. The question is just, what share of the 
cost of the project is occurring rapidly? And the cost of the 
permitting process is often only a very small share of the 
overall cost of the project itself.
    So the question is really, what is the spend-out rate? If 
you are going to spend $100 on this project, what share of that 
$100 do you get out the door rapidly?
    Mr. Baird. Let me ask this: If I pump $20 billion into the 
economy and it is going to transportation infrastructure, 
whether the money is going to employ a geologist or a 
hydrologist to work on permitting, even a lawyer, heaven 
forbid, or whether some of those projects--which I am convinced 
they are, because my school districts have shown me the plans--
actually get some people nailing boards and pulling wire, that 
is money that is going to a domestic workforce in all of those 
cases.
    And whether or not that permit is done now or 5 years from 
now is a bit chronologically fungible. But doing it now sets up 
later projects. So you have to invest in it at some point. So 
the point is, there are many stages on infrastructure projects 
that we could invest money in right now.
    And the second point is this: Relative to a flat-screen 
plasma TV made in Korea, that, except for the exchange, the 
import and export by shipping and the guy that works at Best 
Buy and gets a 2 percent commission, the stimulus to me and the 
long-term benefit for our society is vastly superior.
    The cost-benefit ratio to the feds and the public of 
building a water treatment plant or fixing your school, I would 
wager, pencils out a good bit better than buying that plasma 
TV.
    Mr. Orszag. Well, a couple things.
    First, it is true that the larger the share of imported 
value-added or imported goods and whatever is purchased with 
the stimulus money, the less impact there is on domestic 
production. I would note that a lot of the rebate checks will 
probably go for things like food at restaurants and what have 
you and not just for plasma televisions, and that some 
component of infrastructure spending also involves imported 
inputs or imported goods.
    Again, I think the real question is, out of that $20 
billion, and assuming it is a well-chosen project, there will 
be long-term economic benefits. If your objective, as most of 
the policy debate earlier this year was framed, was to get the 
economy a jumpstart now, within the next 3 or 4 or 5 months, 
what share of that $20 billion can go out the door within that 
3 or 4 months. And that is a separate question from whether we 
should be spending the $20 over time or not or the returns to 
it.
    Again, I would just come back to, I want to see the 
specific projects that can get a big share of their $20 billion 
or their $100 or whatever it is out the door really fast, and 
by that I mean months.
    Mr. Baird. One last comment on that. I don't think it is 
necessary that the checks arrive and the building starts in 
order to get $20 billion of economic stimulus. If you promised 
me that 4 months from now there would be money made available 
to me to do something on my home, I could start working on that 
home today and put the people to work on the promise of the 
money. So I don't have to write the check today to have the 
stimulus effect today.
    I yield back.
    Ms. Dalton. The one thing I would add is, on the spend-out 
rates, when you are going to do a project, you have committed 
the money, you may start spending. Oftentimes with 
infrastructure, that spend-out rate goes over time, often over 
years, so you in all likelihood won't have that immediate 
impact on the economy, which is one of the issues with an 
economic stimulus package.
    There are ways, if you can identify projects that are ready 
to go and the spend-out plans are immediate, yes, they could 
influence the economy.
    Mr. Baird. My problem was I saw no effort to do that in 
this stimulus package. And I think it was a terrible lost 
opportunity.
    Chairman Spratt. Mr. Simpson?
    Mr. Simpson. I just want to say that I agree with my friend 
from Washington, that we could have spent this a lot more 
wisely, and I think it would have had a better stimulus effect. 
I will guarantee you that I can show you communities, cities, 
that have wastewater treatment facilities, they are waiting for 
their match from the Federal Government. And within 4 weeks, 
they could be spending money, literally, because they have 
things ready to go, highways that are ready to be built and so 
forth that we just don't have the money for.
    I think we could have had a much more effective stimulus 
plan, and, quite frankly, that is why I voted against it.
    So, anyway, it is an interesting discussion we are going to 
have, but it is one that is vital to the future of this country 
that we have, because if we are going to have the 
infrastructure for the next generation and if we are going to 
keep America on the leading edge of the economies of this 
world, we had better start investing in our infrastructure. And 
it is one we are going to have to sell the American public, and 
we are going to have to take some political courage to do it.
    So I appreciate it. I am sure that we will be calling you 
and talking to you substantially in the near future about this. 
As Congressman Blumenauer and I were just talking about, we 
plan on making this one of our highest priorities in the next 
Congress.
    So I appreciate it. Thank you.
    Chairman Spratt. A couple of final questions. I thought 
Doris Matsui was here, but she has left.
    Back in January 2008, the National Surface Transportation 
Policy and Revenue Commission recommended an annual investment 
of $225 billion for surface transportation. Has GAO or CBO 
undertaken an examination of that?
    Ms. Dalton. We currently, Mr. Chairman, are taking a look 
at that, the recommendations of the policy commission. That 
work isn't completed yet.
    I will say, on the $225 billion, what we have seen so far 
is that it is based on their highest needs scenario, and we are 
really trying to work to get beneath those numbers at this 
point. We are not----
    Chairman Spratt. Does CBO--excuse me. Go ahead.
    Ms. Dalton. I was going to say, what we are looking for is, 
what is the support for that $225 billion?
    Mr. Orszag. And the reason the figures that I presented to 
you this morning differ from those include that it is not clear 
whether the investments proposed were economically justifiable 
or were, sort of, held to that standard. And also it is not 
clear if the opportunity cost of capital--that is, when you put 
$1 into this project, it means that you either have to pay 
interest, if you want to think about it that way, or are you 
are foregoing opportunity to invest in something else--was 
actual fully taken into account.
    Chairman Spratt. Have you produced any sort of written 
analysis of the $225 billion?
    Mr. Orszag. I don't think we have produced a written 
analysis of it, no.
    Chairman Spratt. Okay. As you know, the Budget Committee's 
principal annual output is something called a budget 
resolution. Do you have any recommendations for whether or not 
we should target or somehow identify or classify how much of 
the budget is going for capital purposes and improve the budget 
system for allocating to capital needs?
    Mr. Orszag. Again, as was earlier discussed, I do think 
there are things that can be done without moving to a full 
capital budget to better identify and classify capital 
investments and to give some structure and rigor to the process 
of deciding both on the aggregate amount and on the specific 
projects.
    With regard to the aggregate amount, as I have already 
said, there does appear to be additional capital spending that 
would be required to maintain current services and that would 
be economically beneficial in the sense of generating larger 
benefits than costs.
    And I would also say that I think there are significant 
things we can do to offset those costs through both some of the 
pricing mechanisms that we discussed and also through better 
management of the infrastructure that we already own, including 
Federal buildings and property and other capital assets that we 
already currently own and, I think, arguably, we are not doing 
a terrific job managing.
    Ms. Dalton. I would add that another benefit would be that 
it would bring together all of the various investment expenses 
and hopefully agreement on what we consider to be investments.
    We have talked a lot about transportation. Dr. Orszag just 
mentioned Federal buildings. We have talked about human 
capital. Are those part of the investment component or not?
    And I think it would be helpful, as part of the budget 
resolution and budget structure, to make some of those 
distinctions and determinations.
    Chairman Spratt. Any further observations from either of 
you before we close the hearing?
    Mr. Orszag. I would just note on this last question that, 
as part of the study on capital budgeting that we put out this 
morning, we do have a section on, for example, creating a 
separate enforcement cap under a possible new statutory pay-as-
you-go rule for capital spending and other things you can do 
along the lines that you seem to have been suggesting.
    Chairman Spratt. Ms. Dalton?
    Ms. Dalton. I would just conclude with that I think this is 
a good opening discussion of what we want in terms of our 
goals, what the Federal role should be, what are we trying to 
achieve. A lot of our programs were developed in the mid-1900s 
or earlier; do they fit with the 21st century?
    And I think, as we start looking at investment in total, it 
will help us in those decisions as to, do these programs still 
work, what do we need in the future? We definitely need more 
investment, but how do we want to go about that and get the 
greatest return from that investment.
    Chairman Spratt. We will definitely continue this inquiry, 
but the next time we hold a hearing, we will look for a better 
day.
    Thank you very much for your patience, your forbearance and 
not least your excellent presentations and testimony. It has 
been extremely useful to us. And while we didn't have as many 
members as we would have liked here, rest assured your work 
product will redound to the benefit of the whole institution, 
particularly our two committees.
    Thank you very much, indeed, for coming and testifying.
    Ms. Dalton. Thank you, Mr. Chairman.
    Chairman Spratt. The hearing is now adjourned.
    [The statement of Mr. Carnahan follows:]
    
    
    [The statement of Mr. Costello follows:]

   Prepared Statement of Hon. Jerry F. Costello, a Representative in 
                  Congress From the State of Illinois

    Thank you, Mr. Chairman. I am pleased to be here today as we 
examine financing our infrastructure investment. I would like to 
welcome today's witnesses.
    The United States has an extensive system of highways, ports, locks 
and dams, and airports. Yet, we have neglected our infrastructure over 
the years and as a result, it needs major improvements and 
modernization.
    For example, our Interstate System is almost 50 years old. Thirty-
two percent of our major roads are in poor or mediocre condition; one 
of every eight bridges is structurally deficient; and 36 percent of the 
nation's urban rail vehicles and maintenance facilities are in 
substandard or poor condition.
    I strongly believe we have an obligation to maintain it and 
modernize our infrastructure it as it becomes antiquated. According to 
the Transportation for Tomorrow report, a significant surface 
transportation investment gap exists that can only be filled by an 
annual investment level of between $225 billion and $340 billion by all 
levels of government and the private sector. If we look at our current 
capital investment from all sources in all modes of transportation, it 
is $85 billion, well below the recommended level.
    I am Chairman of the Aviation Subcommittee and according to the 
FAA's Operational Evolution Plan (OEP), new runways and runway 
extensions provide the most significant capacity increases. The FAA's 
2007-2011 National Plan of Integrated Airport Systems (NPIAS) states 
that during the next five years, there will be $41.2 billion of AIP-
eligible infrastructure development, an annual average of $8.2 billion. 
However, the FAA states that the current NPIAS report may understate 
the true cost of needed capital investment. The 2007--2011 Airports 
Council International--North America (ACI-NA) Capital Needs Survey 
estimates total airport capital needs--including the cost of non-AIP-
eligible projects--to be about $87.4 billion or $17.5 billion per year 
from 2007 through 2011.
    The FAA's ``Capacity Needs in the National Airspace System, An 
Analysis of Airport and Metropolitan Area Demand and Operational 
Capacity in the Future'' report found that 18 airports around the 
country are identified as needing additional capacity by 2015, and 27 
by 2025. As you can see, aviation infrastructure is much-needed and 
that is why in HR 2881, we increased the PFC and also increased the 
authorization for AIP by $4 billion over the Administration's proposal.
    Continued congestion and delays in our skies, on our roads, in our 
ports and on our waterways is costing us excessive amounts of money. We 
must and can do better. We must find a way to make the necessary 
improvements to our entire transportation system to make sure the 
highest level of safety is maintained and that the US economy remains 
strong. I am interested in hearing more from our witnesses on their 
recommendations as Congress looks for ways of financing the much needed 
infrastructure investment.
    With that, I look forward to today's hearing as we discuss 
financing infrastructure investment.

    [Questions submitted by Ms. DeLauro follow:]

            Ms. DeLauro's Questions Submitted to Dr. Orszag

    The Government Accountability Office released a report in February 
2006 entitled ``Excess and Underutilized Property Is an Ongoing 
Problem.'' In short, the report makes clear that the problem of unused 
federal property ``puts the government at significant risk for wasting 
taxpayers' money and missing opportunities to benefit taxpayers.'' Such 
properties are costly to maintain and could be put to more cost-
beneficial uses, including being sold to generate revenue. I believe a 
reasonable action for the federal government to take would be to sell 
these unused federal properties, which in a sense is unused and idle 
infrastructure, and use that revenue to benefit the taxpayers by 
putting it toward renovating our public infrastructure. We could, for 
example, use that to offset the $18 billion cost for funding the 
``ready to go'' infrastructure projects identified by state 
transportation departments across the country in a recent American 
Association of State Highway and Transportation Officials (AASHTO) 
survey.
    When we are talking about infrastructure, we are talking about the 
heart of our economy, jobs, GDP growth and fiscal responsibility. 
Government does not always create jobs, but it can set forth creative 
policies that do in fact bring about opportunity. Funding these 
``ready-to-go'' projects would create approximately 850,000 jobs and 
create over $110 billion in economic activity. Offsetting the cost by 
mandating the sale of these unused federal properties would allow us to 
do that in a fiscally responsible and paid for way. I would appreciate, 
from a budgetary perspective, your observations and thoughts on such a 
policy?

            Ms. DeLauro's Questions Submitted to Ms. Dalton

    I introduced a bill, the National Infrastructure Development Act 
(HR 3896). The bill would establish a tax exempt National 
Infrastructure Development Corporation that would make loans, purchase 
securities, issue ``public benefit'' bonds and offer other insured 
financing packages, in order to maximize private investment to fund our 
most critical infrastructure projects. Within five years the 
Corporation would prepare a plan to transition to a government-
sponsored enterprise, including broad distribution to long-term 
investors with all voting securities ultimately transferred to non-
federal government investors. The Corporation would at that point 
become self-financed through user fees or other dedicated sources of 
revenue, as well as the sale of public stock.
    In your prepared testimony you refer to proposals intended to 
increase investment through new financing mechanisms in the nation's 
infrastructure. You touch on bonds as a source of up-front capital, yet 
an expensive investment for the federal government. You also talk about 
a national infrastructure bank and the associated pros and cons, 
including defaults on loans and inflation. In short, you suggest there 
is no silver bullet to address the multi-faceted infrastructure 
challenges we face. I understand that my proposal surely also has pros 
and cons and is by no means a silver bullet, yet I believe it is well 
worth considering as a key component of any bold infrastructure plan to 
rebuild America. In my mind, the Federal Government simply cannot do 
this on its own. We must build effective private-partnerships and we 
must leverage significance private sector investment if we are going 
develop a 21st Century state-of-the art infrastructure.
    Accordingly, I would like to get your expert opinion on the concept 
of a GSE, a Fannie Mae type entity, in the realm of infrastructure. 
What do you see as the pros and cons in relation to the other financing 
proposals out there? Do you think there are certain infrastructure 
sectors, water treatment for example, where it might work better than 
others? Are there perhaps geographic areas where it might work best, 
perhaps funding big city infrastructure projects?

    [The statement of Mr. Mitchell follows:]

    
    
    [The statement of Ms. Tsongas follows:]

 Prepared Statement of Hon. Niki Tsongas, a Representative in Congress 
                    From the State of Massachusetts

    I thank the Committee on Budget and the Committee on Transportation 
and Infrastructure for holding this important hearing to explore 
alternative mechanisms for investing in our nation's infrastructure. 
This hearing could not be more timely or more relevant. In recent 
years, federal appropriations have failed to fully meet the demands of 
our nation's aging infrastructure while current alternative funding 
mechanisms, such as the Highway Trust Fund, are poised to run multi-
billion dollar deficits.
    These shortfalls come at a particularly critical time for 
Massachusetts, which must maintain some of the oldest infrastructure in 
the country in a climate that is often punishing to the state's roads, 
bridges, ports, airports, and railroads. Even though Massachusetts' 
share of the nation's population has decreased, its total number of 
inhabitants continues to grow, further adding to the strain on its 
infrastructure.
    According to data from the American Society of Civil Engineers, 
more than half of the bridges in Massachusetts have been deemed 
``structurally deficient'' or ``functionally obsolete,'' 40 dams have 
been deemed deficient, and 71 percent of major roads are in ``poor or 
mediocre condition.'' Nationwide, 33 percent of the nation's major 
roads are in ``poor or mediocre condition'' and 36 percent of major 
urban highways are congested.
    Failure to adequately invest in our nation's infrastructure has had 
a direct impact on our safety, our energy dependence, and our economic 
health. In my district, examples abound of the effect that 
infrastructural improvements can have on the economy. For instance, 
construction of an interchange on Interstate-93 near Tewksbury and 
Andover would alleviate existing traffic congestion, providing a major 
economic stimulus. The area is home to such global industry leaders as 
Wyeth, Proctor and Gamble/Gillette, Charles River Laboratories and 
others, each of which is currently unable to expand its operations as 
long as transportation resources remain so restricted. Similarly, at 
the national level, investments in infrastructure have been shown to 
stimulate both short term job growth and long-term economic health. 
According to the U.S. Department of Transportation, every $1 billion of 
federal highway investment supports 34,779 jobs. These jobs have a 
subsequent magnifying effect throughout the economy.
    By making critical, coordinated investments in our transportation 
systems, we can spur economic development, create jobs, restore 
confidence in the safety of our system, and maintain our global 
competitiveness.

    [Questions submitted by Mr. Walz follow:]

            Mr. Walz's Questions Submitted to the Witnesses

    To all witnesses:
     How would you say the level of coordination and 
cooperation between units of government at the federal, state, and 
local level is working now, and what would you suggest to improvement 
this coordination?
     We have been hearing a great deal lately about a temporary 
gasoline tax break. What do you think the impact of such a proposal 
would be in helping develop our national infrastructure?
     What incentives for the private sector could intensify 
their participation in public-private partnerships to develop our 
transportation infrastructure?
     Which experiences from foreign countries do you take into 
consideration when determining what strategies we should use?

Prepared Statement of Hon. Jason Altmire, a Representative in Congress 
                     From the State of Pennsylvania

    Thank you, Chairman Oberstar, for holding today's joint hearing 
with the Committee on the Budget to examine methods that can be taken 
to finance investments in our nation's infrastructure. I would like to 
also thank Chairman Spratt for agreeing to join us today. His 
Committee's expertise will be of great benefit to us today as we 
discuss investment opportunities and how these investments will fit 
into our nation's budget.
    Like many of my colleagues on this committee, I have serious 
concerns about the future of our nation's infrastructure. Increased 
congestion on our roads and rail lines is resulting in significant 
costs to American taxpayers. In 2005, congestion on our nation's 
roadways cost motorists over $78 billion, which equates to an average 
cost of $710 per traveler. It is apparent that steps must be taken to 
improve and expand our infrastructure.
    Furthermore, the tragic collapse of the Interstate 35W bridge in 
Minnesota last year brought to America's attention what many members of 
this Committee have known for years--the infrastructure in this nation 
is in desperate need of repair. In the six counties that I represent, 
there are currently more than 1,000 bridges considered structurally 
deficient. These repairs and improvements will not be cheap. It will 
truly take the combined efforts of the Transportation and Budget 
Committees to develop a comprehensive plan for future investments that 
can finally begin to address this growing problem and I look forward to 
being a part of this process.
    Chairman Oberstar, I would like to thank you again for holding this 
hearing.

    [Responses to questions for the record from CBO follow:]

  Responses From the Congressional Budget Office to Questions for the 
                                 Record

    Question: The Government Accountability Office released a report in 
February 2006 entitled ``Excess and Underutilized Property Is an 
Ongoing Problem.'' In short, the report makes clear that the problem of 
unused federal property ``puts the government at significant risk for 
wasting taxpayers' money and missing opportunities to benefit 
taxpayers.'' Such properties are costly to maintain and could be put to 
more cost-beneficial uses, including being sold to generate revenue. I 
believe a reasonable action for the federal government to take would be 
to sell these unused federal properties, which in a sense is unused and 
idle infrastructure, and use that revenue to benefit the taxpayers by 
putting it toward renovating our public infrastructure. We could, for 
example, use that to offset the $18 billion cost for funding the 
``ready to go'' infrastructure projects identified by state 
transportation departments across the country in a recent American 
Association of State Highway and Transportation Officials (AASHTO) 
survey.
    When we are talking about infrastructure, we are talking about the 
heart of our economy, jobs, GDP growth and fiscal responsibility. 
Government does not always create jobs, but it can set forth creative 
policies that do in fact bring about opportunity. Funding these 
``ready-to-go'' projects would create approximately 850,000 jobs and 
create over $110 billion in economic activity. Offsetting the cost by 
mandating the sale of these unused federal properties would allow us to 
do that in a fiscally responsible and paid for way. I would appreciate, 
from a budgetary perspective, your observations and thoughts on such a 
policy?

    Response: As noted in CBO's testimony, the General Services 
Administration reports that about 10 percent of all federal government 
facilities are either underused or empty. Remarkably, no information is 
readily available about the market value of those facilities, and 
federal agencies destroy thousands of facilities each year that have 
little or no market value. Some of the facilities do not meet current 
building and safety standards and some pose environmental hazards.
    Selling unused federal properties could be desirable for a number 
of different reasons. More detailed analyses of the inventory of 
federal facilities and the state of the local markets for such 
facilities appear to be warranted.

  Responses From the Congressional Budget Office to Questions for the 
                      Record for Congressman Walz

    Question 1. How would you say the level of coordination and 
cooperation between units of government at the federal, state, and 
local level is working now, and what would you suggest to improvement 
this coordination?

    Response: As noted in CBO's testimony, the Government 
Accountability Office and other researchers have found that federal 
highway grants generally do not increase total spending dollar for 
dollar, because state and local governments reduce spending from their 
own funds. Greater clarity about the appropriate roles of each of the 
three levels of government (and the private sector) in supporting the 
development of additional infrastructure could facilitate a clearer 
division of responsibility, which in turn could reduce uncertainty and 
allow for better planning.

    Question 2: We have been hearing a great deal lately about a 
temporary gasoline tax break. What do you think the impact of such a 
proposal would be in helping develop our national infrastructure?

    Response: CBO has not analyzed such proposals.

    Question 3: What incentives for the private sector could intensify 
their participation in public-private partnerships to develop our 
transportation infrastructure?

    Response: Private firms will be motivated to participate in 
partnerships with the public sector to the extent that they anticipate 
a level of profits that is sufficiently attractive given the risks 
involved. Partnerships are not sources of ``free money'': Although 
private firms may, in some cases, reduce total costs through management 
efficiencies, all infrastructure is ultimately paid for by some 
combination of users and taxpayers. Accordingly, private firms will 
evaluate the revenues expected from those sources (through contract 
fees and/or rights to charge fees to the users of infrastructure 
services) and any forms of cost-sharing by the public sector (such as 
tax-preferred financing and loan guarantees).

    Question 4: Which experiences from foreign countries do you take 
into consideration when determining what strategies we should use?

    Response: CBO does not make policy recommendations (except on 
issues relating to the budget process) but does examine other 
countries' experiences where relevant to our analyses. In the case of 
investment in infrastructure, foreign experiences with user fees, asset 
management, and capital budgeting can provide useful perspectives on 
questions facing policymakers in the United States. For example, CBO's 
May 2008 ``Capital Budgeting'' paper discusses the use of accrual 
budgeting in Australia and New Zealand--where it is applied not only to 
depreciation of government assets, but also to employees' pension 
benefits and the future cost of environmental cleanup associated with 
government services--and the rejection of separate capital budgets by 
five countries in northern Europe.

    [Responses to questions for the record from GAO follow:]

 Responses From the Government Accountability Office to Questions for 
                               the Record

                  question from congresswoman delauro
    Question: I introduced a bill, the National Infrastructure 
Development Act (HR 3896). The bill would establish a tax exempt 
National Infrastructure Development Corporation that would make loans, 
purchase securities, issue ``public benefit'' bonds and offer other 
insured financing packages, in order to maximize private investment to 
fund our most critical infrastructure projects. Within five years the 
Corporation would prepare a plan to transition to a government-
sponsored enterprise, including broad distribution to long-term 
investors with all voting securities ultimately transferred to non-
federal government investors. The Corporation would at that point 
become self-financed through user fees or other dedicated sources of 
revenue, as well as the sale of public stock.
    In your prepared testimony you refer to proposals intended to 
increase investment through new financing mechanisms in the nation's 
infrastructure. You touch on bonds as a source of up-front capital, yet 
an expensive investment for the federal government. You also talk about 
a national infrastructure bank and the associated pros and cons, 
including defaults on loans and inflation. In short, you suggest there 
is no silver bullet to address the multi-faceted infrastructure 
challenges we face. I understand that my proposal surely also has pros 
and cons and is by no means a silver bullet, yet I believe it is well 
worth considering as a key component of any bold infrastructure plan to 
rebuild America. In my mind, the Federal Government simply cannot do 
this on its own. We must build effective private-partnerships and we 
must leverage significance private sector investment if we are going 
develop a 21st Century state-of-the art infrastructure.
    Accordingly, I would like to get your expert opinion on the concept 
of a GSE, a Fannie Mae type entity, in the realm of infrastructure. 
What do you see as the pros and cons in relation to the other financing 
proposals out there? Do you think there are certain infrastructure 
sectors, water treatment for example, where it might work better than 
others? Are there perhaps geographic areas where it might work best, 
perhaps funding big city infrastructure projects?

    GAO response: We agree that we will need to consider all options, 
and as you mentioned, we will likely need to use a variety of options 
as there is no silver bullet. We also agree that the federal government 
cannot do it all--it will take the collective efforts of all levels of 
government and the private sector to address our infrastructure 
challenges. In considering the different options, one of the first 
steps is determining the federal role--because the suitability of any 
of the options depends heavily on the level of federal involvement 
desired.
    In terms of the advantages, government-sponsored enterprises (GSE) 
can be designed to sustain their operations from business income. In 
addition, GSEs are distinguished from other chartered private entities 
by investors' perception of an implicit federal guarantee of GSEs' debt 
obligations. Therefore, a GSE potentially could borrow funds at a lower 
interest rate since the risk is perceived to be lower. The perceived 
federal guarantee, however, is also a disadvantage--that is, there is 
an assumption that the federal government would step in and bail the 
GSE out if needed.
    One area where GSEs could be particularly useful is in the funding 
of infrastructure projects of regional or national significance--that 
is, projects that benefit regions or the nation as a whole. These 
projects can be large and costly, requiring the cooperation and 
financial support from multi-jurisdictions. However, as we have 
previously reported, it can be difficult for state and local 
governments to secure funding for these kinds of multi-jurisdictional 
projects because transportation projects that provide benefits that are 
more readily discernable to immediate localities are favored. The GSE 
could provide an alternative financing source for these types of 
projects.

                    QUESTIONS FROM CONGRESSMAN WALZ

    Question: How would you say the level of coordination and 
cooperation between units of government at the federal, state, and 
local level is working now, and what would you suggest to improve this 
coordination?

    GAO response: We did not examine the level of coordination and 
cooperation between the different levels of government for our 
testimony. However, last year we issued a report on intermodal 
transportation, which enables freight and passengers to cross between 
different modes of transportation efficiently and can improve mobility, 
reduce congestion, and cut costs. We identified several barriers that 
inhibit intermodal transportation, including limited collaboration 
among the many entities and jurisdictions involved. For example, the 
Department of Transportation (DOT) operating administrations and state 
and local transportation agencies are organized by mode--reflecting the 
structure of funding programs--resulting in an organizational structure 
that DOT's own assessments acknowledge can impede coordination between 
modes. In addition, collaboration between the public and private sector 
can also be challenging; for example, some transportation officials 
told us that private-sector interests in airport, rail, and freight 
have historically not participated in the regional planning process. 
These barriers impede state and local agencies' ability to carry out 
intermodal projects and limit DOT's ability to implement Congress' goal 
of a national intermodal transportation system. To help address these 
barriers, we recommended that the Secretary of Transportation direct 
one office or administration to lead and coordinate intermodal efforts 
at the federal level by improving collaboration and the availability of 
intermodal guidance and resources.

    Question: We have been hearing a great deal lately about a 
temporary gasoline tax break. What do you think the impact of such a 
proposal would be in helping develop our national infrastructure?

    GAO response: We have not examined the gasoline tax break proposals 
in detail. We would note, however, that fuel taxes are the primary 
revenue source for the Highway Trust Fund, which is the major source of 
federal highway and transit funding. Therefore, unless an alternative 
revenue source was identified, the suspension of the gasoline tax would 
negatively impact the balance of the Highway Trust Fund. Furthermore, 
the most recent Highway Trust Fund projections, which do not factor in 
the proposed tax break, predict that the balance of the fund will be 
exhausted by 2012.

    Question: What incentives for the private sector could intensify 
their participation in public-private partnerships to develop our 
transportation infrastructure?

    GAO response: As we reported in February 2008, the private sector 
has traditionally been involved as contractors in the design and 
construction of highways. In recent years, however, the private sector 
has become increasingly involved in assuming other responsibilities 
including planning, designing, and financing. The private sector, and 
in particular, private investment groups, including equity funds and 
pension fund managers, have recently demonstrated an increasing 
interest in investing in public infrastructure. They see the sector as 
representing long-term assets with stable, potentially high-yield 
returns. As a result, the private sector has also entered into a wide 
variety of highway public-private partnership arrangements with public 
agencies.
    In addition to the expected return on investment, there are several 
other incentives that can encourage the private sector to participate 
in highway public-private partnerships. For example, the private sector 
can also receive potential tax deductions from depreciation on assets 
involving private sector investment and the availability of these 
deductions were important incentives to the private sector to enter 
some of the highway public-private partnerships we reviewed. Obtaining 
these deductions, however, may require lengthy concession periods. In 
the United States, federal tax law allows private concessionaires to 
claim income tax deductions for depreciation on a facility (whether new 
highways or existing highways obtained through a concession) if the 
concessionaire has effective ownership of the property. Effective 
ownership requires, among other things, that the length of a concession 
be greater than or equal to the useful economic life of the asset. 
Financial and legal experts, including those who were involved in the 
Chicago and Indiana transactions, told us that since the concession 
lengths of the Chicago Skyway and the Indiana Toll Road agreements each 
exceed their useful life, the private investors can claim full tax 
deductions for asset depreciation within the first 15 years of the 
lease agreement. The requirement to demonstrate effective asset 
ownership contributed to the 99-year and 75-year concession terms for 
the Chicago Skyway and Indiana Toll Road, respectively. One tax expert 
told us that, in general, infrastructure assets (such as highways) 
obtained by the private sector in a highway public-private partnership 
may be depreciated on an accelerated basis over a 15-year period.
    Private investors can also potentially benefit from being able to 
use tax-exempt financing authorized by the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act for the 21st Century--A Legacy of 
Users (SAFETEA-LU) in 2005. Private activity bonds have been provided 
for private sector use to generate proceeds that are then used to 
construct new highway facilities under highway public-private 
partnerships. This exemption lowers private sector costs in financing 
highway public-private partnership projects. As of January 2008, the 
Department of Transportation (DOT) had approved private activity bonds 
for 5 projects totaling $3.2 billion and had applications pending for 3 
projects totaling $2.2 billion. DOT said it expects applications for 
private activity bond allocations from an additional 12 projects 
totaling more than $10 billion in 2008.
    Finally, the private sector can potentially benefit through gains 
achieved in refinancing their investments. Both public and private 
sector officials with whom we spoke agreed that refinancing is common 
in highway public-private partnerships. Refinancing may occur early in 
a concession period as the initial investors either attempt to ``cash 
out'' their investment--that is, sell their investment to others and 
use the proceeds for other investment opportunities--or obtain new, 
lower cost financing for the existing investment. Refinancing may also 
be used to reduce the initial equity investment in highway public-
private partnerships. Refinancing gains can occur throughout a 
concession period; as project risks typically decrease after 
construction, the project may outperform expectations, or there may be 
a general decrease in interest rates.

    Question: Which experiences from foreign countries do you take into 
consideration when determining what strategies we should use?

    GAO response: In previous reports, we have examined how foreign 
countries approach various transportation challenges and solutions. For 
example, based on experiences from foreign countries we recently 
concluded that consideration of highway public-private partnerships in 
the United States could benefit from more consistent, rigorous, 
systematic, up-front analysis. By weighing the potential benefits of 
highway public-private partnerships against potential costs and trade-
offs through careful, comprehensive analysis, decision makers can 
better determine whether public-private partnerships are appropriate in 
specific circumstances and, if so, how best to implement them. We found 
that governments in other countries, such as Australia, have developed 
such systematic approaches to identifying and evaluating public 
interest and require their use when considering private investments in 
public infrastructure. While similar tools have been used to some 
extent in the United States, their use has been more limited. Using up-
front public interest evaluation tools can assist in determining 
expected benefits and costs of projects; not using such tools may lead 
to aspects of protecting the public interest being overlooked. For 
example, projects in Australia require consideration of local and 
regional interests. Concerns by local governments in Texas that their 
interests were being overlooked resulted in state legislation requiring 
their involvement. To balance the potential benefits of highway public-
private partnerships with protecting public and national interests, we 
recommended that Congress consider directing the Secretary of 
Transportation to consult with them and other stakeholders and develop 
and submit to Congress objective criteria for identifying national 
public interests in highway public-private partnerships. We also 
believe that, the Secretary should, when developing these criteria, 
identify what guidance and assessment tools are appropriate and needed 
to protect national public interests in future highway public-private 
partnerships.
    In 2006, we issued a report that examined how other countries--
specifically, Canada, Germany, Japan, France, and the United Kingdom--
approached efforts to reform intercity passenger rail systems. We found 
that intercity passenger rail reform efforts in other countries 
illustrate that, to be more cost effective and offer increased benefits 
in relation to expenditures, there are a variety of approaches--and 
several key reform elements--that need to be addressed when 
implementing any approach. Over the past 20 years, several countries 
have employed a variety of approaches in reforming their intercity 
passenger rail systems to meet national intercity passenger rail 
objectives--that is, primarily achieving more cost effective, value-
added passenger service for the level of subsidies spent. These 
approaches, alone or in combination with each other, have been used to 
support other national objectives as well, such as increasing 
transparency in the use of public funds and providing transportation 
benefits and public benefits. For example, France and Germany changed 
their public funding structure by devolving decision making to local 
and regional governments in order to support the purchase of intercity 
passenger rail service, allowing local and regional governments to be 
more flexible and purchase service that best fits the preferences of 
the users. Prior to, or during, implementation of these various 
approaches, several elements key to comprehensive reform were 
addressed. The national governments of most countries we visited 
focused their efforts on the following elements: (1) clearly defining 
national policy goals; (2) clearly defining the various roles and 
responsibilities of all government entities involved; and (3) 
establishing stable, sustainable funding for intercity passenger rail. 
These elements were important to determining how passenger rail fit 
into the national transportation system and to increase the value of 
both federal and nonfederal expenditures on such systems.

    [Whereupon, at 1:25 p.m., the committees were adjourned.]

                                  
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