[Senate Hearing 111-1247]
[From the U.S. Government Publishing Office]





                                                       S. Hrg. 111-1247

                       INNOVATIVE PROJECT FINANCE

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 28, 2010

                               __________

  Printed for the use of the Committee on Environment and Public Works





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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                     ONE HUNDRED ELEVENTH CONGRESS
                             SECOND SESSION

                  BARBARA BOXER, California, Chairman
MAX BAUCUS, Montana                  JAMES M. INHOFE, Oklahoma
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
FRANK R. LAUTENBERG, New Jersey      DAVID VITTER, Louisiana
BENJAMIN L. CARDIN, Maryland         JOHN BARRASSO, Wyoming
BERNARD SANDERS, Vermont             MIKE CRAPO, Idaho
AMY KLOBUCHAR, Minnesota             CHRISTOPHER S. BOND, Missouri
SHELDON WHITEHOUSE, Rhode Island     LAMAR ALEXANDER, Tennessee
TOM UDALL, New Mexico
JEFF MERKLEY, Oregon
KIRSTEN GILLIBRAND, New York
ARLEN SPECTER, Pennsylvania

                    Bettina Poirier, Staff Director
                 Ruth Van Mark, Minority Staff Director
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                            C O N T E N T S

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                           SEPTEMBER 28, 2010
                           OPENING STATEMENTS

Boxer, Hon. Barbara, U.S. Senator from the State of California...     1
Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee..     5
Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland     5
Merkley, Hon. Jeff, U.S. Senator from the State of Oregon........     8
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma, 
  prepared statement.............................................    42

                               WITNESSES

Kienitz, Roy, Under Secretary for Policy, U.S. Department of 
  Transportation.................................................     8
    Prepared statement...........................................    11
    Responses to additional questions from:
        Senator Boxer............................................    17
        Senator Cardin...........................................    18
        Senator Inhofe...........................................    20
Villaraigosa, Antonio R., Mayor, City of Los Angeles, California.    30
    Prepared statement...........................................    33
Kopelousos, Stephanie C., Secretary of Transportation, Florida 
  Department of Transportation...................................    43
    Prepared statement...........................................    45
Seltzer, David, Principal, Mercator Advisors LLC.................    55
    Prepared statement...........................................    57
    Response to an additional question from Senator Inhofe.......    65

                          ADDITIONAL MATERIAL

Testimony submitted by the Riverside County Transportation 
  Commission, September 27, 2010.................................    70

 
                       INNOVATIVE PROJECT FINANCE

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                      TUESDAY, SEPTEMBER 28, 2010

                                       U.S. Senate,
                 Committee on Environment and Public Works,
                                                    Washington, DC.
    The full Committee met, pursuant to notice, at 10 a.m. in 
room 406, Dirksen Senate Office Building, Hon. Barbara Boxer 
(Chairman of the full Committee) presiding.
    Present: Senators Boxer, Alexander, Cardin, and Merkley.

           OPENING STATEMENT OF HON. BARBARA BOXER, 
           U.S. SENATOR FROM THE STATE OF CALIFORNIA

    Senator Boxer. Good morning, everybody, and welcome to our 
hearing.
    There is a growing consensus that smart investments in 
transportation are an important part of the solution to the 
serious economic challenges we are facing. We must make sure 
that our existing infrastructure is sound and plan for future 
investments that create jobs, maximize economic development, 
reduce our dangerous dependence on foreign oil, clean up our 
air, and strengthen our global competitiveness.
    In these difficult economic times it is more important than 
ever to look for tools that can stretch the resources we have. 
We need to get the maximum benefit for every transportation 
dollar we spend.
    Today's hearing is going to focus on potential changes to 
Federal surface transportation programs and funding that will 
encourage additional State, local, and private investments in 
transportation and accelerate the benefits of those 
investments.
    The 30/10 Initiative in Los Angeles County is an example of 
how timely Federal assistance can leverage local investments in 
transportation. In 2008 the citizens of Los Angeles County 
approved a half a cent sales tax dedicated to transportation, a 
powerful statement that the people of L.A. County are willing 
to help pay for a transportation system they need now.
    This measure, known as Measure R, will generate an 
estimated $40 billion over the next 30 years, including $13 
billion for transit projects throughout the County. Mayor 
Villaraigosa, who is going to be joining us, has advocated the 
idea that with Federal assistance Los Angeles could speed up 
delivery of the transit projects expected to be funded with 
Measure R so they could be funded over 10 rather than 30 years.
    I see the Mayor right behind Roy Kienitz. Welcome.
    Accelerating these projects would create an estimated 
160,000 jobs while easing congestion and reducing dangerous 
pollution. That means healthier families and a healthier 
economy in the L.A. region.
    I believe the 30/10 Initiative can serve as a model that 
can be replicated in many cities and States and counties across 
this country. And as we develop the next comprehensive surface 
transportation law, we have this opportunity to make changes to 
programs that will leverage resources to create more jobs and 
build the highway and transit systems our communities need 
faster.
    For example, I have been looking at changes to part of the 
existing transportation law called TIFIA, Transportation 
Infrastructure Finance and Innovation Act. TIFIA helps 
communities leverage their transportation resources by 
providing loans and loan guarantees. According to the Federal 
Highway Administration, every dollar made available through 
TIFIA can mobilize up to a total of $30 in transportation 
investments. So at a time when we are trying to make sure our 
deficit does not increase, we want to leverage investments. 
This is the word, leverage. Everybody comes out the winner 
here.
    We need that kind of tool as we look at the next 
Reauthorization Bill. TIFIA has been a successful program. But 
improvements are needed if it is going to achieve the kind of 
transformative results we all want to see moving forward. 
Already, mayors from across the country are asking for greater 
opportunities for this kind of innovative partnership.
    I would like to place into the record a resolution from the 
U.S. Conference of Mayors calling for expansion of TIFIA and 
bonding programs so communities can accelerate job creation and 
the other benefits of transportation improvements. So, without 
objection, we will put that mayors' letter into the record.
    I want to thank Transportation Secretary LaHood for his 
commitment to this idea--this 30/10 Initiative--and for 
agreeing to work on expanding this model in the upcoming 
transportation bill. We could not ask for a better partner when 
it comes to forward thinking transportation issues.
    So, I look forward to hearing from today's witnesses on the 
best ways we can reform our national transportation policy so 
we can better serve the needs of local communities across this 
country. We all know that the 21st century transportation 
system is absolutely essential to creating jobs and ensuring 
future economic prosperity. There is no leading nation on earth 
that could be a leading nation if they cannot move people, if 
they cannot move goods. Everything would come to a halt.
    So, I am very happy that we have these two panels. We are 
going to need everybody's ideas and advice and everybody's 
engagement as we work across party lines to craft our new 
transportation authorization bill.
    Senator Alexander.
    [The referenced material follows:]

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          OPENING STATEMENT OF HON. LAMAR ALEXANDER, 
            U.S. SENATOR FROM THE STATE OF TENNESSEE

    Senator Alexander. Thanks, Madam Chairman.
    This is a time when we need to be restraining growth on 
spending. But if you were in a private sector and all you could 
think of to do over a long period of time was to freeze 
spending you would be fired for not being willing to make hard 
decisions and not being a good manager.
    So, while freezes may help us get off to the right track, 
over time we are going to have to remember that there are some 
things in which we need to invest and other places we need to 
cut. And one area where we must have a good, a good system to 
stay competitive in the world is in transportation.
    So, I look forward to hearing the witnesses' ideas, and I 
thank the Chairman for calling the hearing.
    Senator Boxer. Thank you so much, Senator.
    Senator Cardin.

         OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 
            U.S. SENATOR FROM THE STATE OF MARYLAND

    Senator Cardin. Thank you, Madam Chair.
    I just really want to thank you for the series of hearings 
that you have had as we determine the next surface 
transportation reauthorization bill. I think we are well 
positioned to bring a bill out, thanks to your leadership. And 
thank you for this hearing because this is a critically 
important issue, how we are going to finance it, not just at 
the national level but with our partners at the States.
    For a long time we relied primarily on the gasoline tax--
not just at the national level, but our States--to finance our 
transportation programs. It may have worked in the past, but it 
will no longer work today or in the future because part of our 
energy policy must be to use less fossil fuels. We are 
investing a lot of money in conservation, a lot of money in 
alternative fuels. That is what we need to do. But on the other 
hand, if that is all we rely upon to finance our transportation 
programs, it is not going to work.
    So, we need to look at new ways to do this. With our 
tremendous needs out there, I agree with Senator Alexander, we 
are going to have to make tough choices. But we know that for 
the sake of our economy, for the sake of our job growth and 
competitiveness, we need to invest in a stronger transportation 
infrastructure. And part of that includes investing much more 
aggressively in public transportation which will help us with 
our energy policy as well as with quality of life.
    In my State of Maryland, Governor O'Malley has put together 
a Blue Ribbon Commission to take a look at transportation 
funding in our State. I know that is being done in many others, 
and I know you need to take a look at the proposals that come 
out of these State commissions. They are looking at private-
public partnerships to advance transportation projects.
    In Maryland we are looking at value capture as one of the 
ways of doing it, consistent with our Smart Growth Initiatives 
in our State where we think we can have win-win programs, that 
a partner with the private sector enable us more flexible 
financing in order to advance economic growth in Maryland and 
our Nation.
    The bottom line is we have got to get this right. This is a 
matter of job growth. This is a matter of economic 
competitiveness. And we need to make sure that at the end of 
the day we have the financing necessary to keep America 
competitive.
    And with that, Madam Chair, I will ask consent to put my 
entire statement in the record and look forward to our 
witnesses.
    [The prepared statement of Senator Cardin follows:]

                 Statement of Hon. Benjamin L. Cardin, 
                U.S. Senator from the State of Maryland

    Thank you, Madam Chairman, for holding this hearing today 
examining a critical issue we need to address as we work toward 
reauthorizing the surface transportation program for the 
country.
    The Highway Trust Fund and its revenue sources--namely the 
gas tax--have been a reliable mechanism for financing highway 
and transit programs for five decades. This is no longer the 
case.
    The combination of higher fuel prices, a growing number of 
fuel efficient vehicles on the road, and a stagnant gas tax 
rate has caused transportation expenses to outpace 
transportation revenues.
    A critical part of U.S. energy policy will be in the area 
of increased energy conservation and energy efficiency. These 
are policies that will reduce our reliance on foreign oil, 
reduce carbon emissions, and during these trying economic times 
save consumers money.
    To many this means driving less, purchasing fuel efficient 
vehicles, perhaps even buying electric cars like the new Nissan 
Leaf or plug-in hybrids like the Chevy Volt, or using public 
transportation to get around.
    Unfortunately, funding for our surface transportation 
system suffers when people make these thoughtful and positive 
transportation decisions. This is because transportation 
funding is so reliant upon sustained--if not increased--fossil 
fuel consumption.
    This divergence in policy and our cultural shift away from 
rampant fuel fossil consumption mean we need to rethink how we 
raise revenue to pay for future transit and road projects.
    States have faced tremendous challenges to raise the funds 
needed to complete transportation projects. Many States are 
reevaluating the means in which they raise revenue and fund 
vital transportation projects.
    This has certainly been the case in Maryland. As a result 
Maryland has assembled a Blue Ribbon Commission to help tackle 
the enormous task of finance assessment and revenue stream 
development.
    The Commission is comprised of 28 different stakeholders 
from the various transportation sectors including freight rail, 
transit providers like WMATA, and highway builders. 
Transportation advocacy organizations like Triple-A and Smart 
Growth organizations as well as labor unions are all working 
together to help the State of Maryland tackle funding questions 
as it relates to:
     Funding sources and structure of the Maryland 
Transportation Trust Fund.
     Short- and long-term transit, highway, and pedestrian/
bicycle construction and maintenance funding needs.
     Options for public-private partnerships, including 
partnerships with local governments.
     The structure of regional transportation authorities and 
the ability of those authorities to meet transportation needs.
     The impact of economic development and smart growth on 
transportation funding.
     Options for sustainable, long-term revenue sources for 
transportation.
This collaborative effort will bring about the next generation 
of financing mechanisms the State will use to advance its 
transportation goals for the future.
    With growing fiscal constraints on the State, Maryland is 
also engaging in a number of private-public partnerships to 
advance transportation projects.
    One of the more common methods being used to maximize the 
benefits of both public and private investment in a project is 
through a ``value-capture'' system.
    Incorporating publicly funded infrastructure into private 
land values is helping finance public infrastructure across the 
State.
    As residents and business owners continue to place greater 
value on mobility and access to multi-modal transportation 
options, value capture financing is helping advance Smart 
Growth initiatives throughout Maryland.
    By increasing the value of land surrounding transit and 
other targeted transportation facilities, the State in 
partnership with municipalities can incentivize compact, 
accessible growth so developers can get the greatest amount of 
return on investments, particularly in transit corridors.
    By capturing profits gleaned through public spending, value 
capture also provides greater funding opportunities for 
community reinvestment and job growth.
    Tackling how we finance transportation infrastructure on a 
national scale is no small task.
    There are certainly lessons we can learn from the States, 
but ultimately we need financing mechanisms that complement the 
national goals we set for the Nation's transportation 
infrastructure.
    As we work to reduce congestion and fossil fuel consumption 
and improve transport efficiency and the safety of our Nation's 
transportation infrastructure we need financing mechanisms that 
work toward these goals as well.
    Public investment in transportation infrastructure is 
incredibly important to getting America back to work, and it is 
imperative we develop sustainable and equitable means to pay 
for these investments.
    I also look forward to working with colleagues on this 
Committee to develop this critical aspect to the next surface 
transportation authorization bill, which must be a priority for 
this Committee to complete.
    President Obama's Labor Day speech calling for renewed 
investment in our Nation's transportation infrastructure is a 
welcome sign. Building roads, bridges, new high speed rail 
lines and developing efficient transit systems are all 
incredibly important initiatives to get thousands of Americans 
back to work on projects that will improve American 
competitiveness in the global economy and vastly improve our 
citizens' quality of life.
    A notable omission from the President's discussion of 
infrastructure investment is a call for critical investment in 
our Nation's crumbling water infrastructure.
    In addition to investments in transportation I would like 
to take this opportunity to point out that we need to make 
similar investments in water infrastructure.
    Infrastructure investment in water systems has one of the 
highest job creation potentials when compared across other 
broad categories of public infrastructure investment. \1\
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    \1\ Political Economy Research Institute, How Infrastructure 
Investments Support the U.S. Economy: Employment, Productivity and 
Growth (January 2009), 26. http://www.peri.umass.edu/fileadmin/pdf/
other_publication_types/green_economics/PERI_Infrastructure_Investments
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    A recent report by the Clean Water Council demonstrates 
that investments in water infrastructure would have 
``immediate, substantial and far-reaching effects on the 
economy.'' \2\
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    \2\ Clean Water Council, Sudden Impact: Assessment of Short-Term 
Economic Impacts of Water and Wastewater Projects in the United States 
(June 2009), 6. http://www.nuca.com/files/public/
CWC_Sudden_Impact_Report_FINAL.pdf
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    In examining short-term economic impacts, a $1 billion 
investment in water infrastructure:
     Could result in an estimated 20,003 to 26,669 jobs across 
the Nation, with more than one-half of the jobs created in 
industries other than water and wastewater construction.
     Almost triples in size throughout the national economy 
based on its total demand for goods and services. \3\
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    \3\ Id.
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     In California, would create 12,390 to 19,574 jobs, with 
about 7,000 of these jobs in the pipe construction sector where 
average earnings of $68,000 exceed the statewide median 
household income. \4\
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    \4\ Id. 12.
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    Over the long-term, the U.S. Conference of Mayors recently 
found that:
     $1 of water and sewer infrastructure investment increases 
Gross Domestic Product (GDP) by $6.35.
     And every job in water and sewer infrastructure creates 
3.68 jobs in the national economy to support that job. \5\
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    \5\ The United States Conference of Mayors, Mayors Water Council, 
Local Government Investment in Municipal Water and Sewer 
Infrastructure: Adding Value to the National Economy 
(August 2008), i. http://usmayors.org/urbanwater/documents/
LocalGovt%20InvtInMunicipalWaterandSewerInfrastructure.pdf
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    I recognize the subject of today's hearing is on 
transportation finance, but given our Committee's broader 
jurisdiction and the focus Mr. Kienitz's written testimony put 
on the President's Labor Day announcement, I wanted to raise 
this issue.
    I want to remind the Administration and my colleagues that 
we must also make much needed investments in water 
infrastructure as well as investments in our transportation 
infrastructure.

    Senator Boxer. Thank you so much.
    Senator Merkley.

            OPENING STATEMENT OF HON. JEFF MERKLEY, 
             U.S. SENATOR FROM THE STATE OF OREGON

    Senator Merkley. Thank you, Madam Chair.
    In Oregon, we have had a process of looking for the choke 
points, if you will, the places where strategic investment 
would make a real difference. And we have had a series of 
programs called ConnectOregon, ConnectOregon I, ConnectOregon 
II and ConnectOregon III.
    Certainly, as we wrestle with addressing key parts of our 
transportation system financing is a fundamental challenge. And 
I am interested to hear all of the creative ideas that we will 
be discussing today, and thank you for coming and sharing your 
thoughts.
    Senator Boxer. Thank you.
    So, with that, we are honored that we have been joined by 
Hon. Roy Kienitz, Under Secretary for Policy, U.S. Department 
of Transportation.
    Will you not proceed, please?

  STATEMENT OF ROY KIENITZ, UNDER SECRETARY FOR POLICY, U.S. 
                  DEPARTMENT OF TRANSPORTATION

    Mr. Kienitz. Thank you, Madam Chair. Thank you, Senators. 
Good morning.
    On Labor Day, as I think everyone here knows, the President 
gave a speech in which he made the first major policy 
announcement about transportation to come from him since taking 
office. And the big news is that he is going to throw his 
support behind a 6-year reauthorization of the transportation 
program here, something that I think every member of this 
Committee has supported for a while. So, I hope we can add our 
voices to yours.
    There are a couple of features of that announcement that I 
wanted to highlight, the first of which is that we believe 
funding levels need to be higher above the current baseline. 
And so we want to work with folks on that going forward, to 
figure out how to do that in a way that is paid for. The second 
of which is, given the economic situation right now, it seems 
appropriate to frontload a significant share of that money and 
we have suggested the first $50 billion to be made available as 
soon as possible.
    So, that is how we start this week. That program could have 
some very tangible accomplishments. That is hopefully enough 
resources to allow us to build or rebuild 150,000 miles of 
roadway, construct or maintain 4,000 miles of rail, and in the 
first year we are hoping to have an aviation component, too, 
which is enough to do at least 150 miles of runway projects. 
But obviously over 6 years there is a huge amount that we can 
do.
    In that reauthorization there are a lot of opportunities. 
One of them that I want to talk about today is the idea of 
supporting programs like the Los Angeles 30/10 Program. I think 
for us that starts with the first thing you have do, which is 
to name your goals if you want to make sure you are pursuing 
them. So, the Secretary has worked on a strategic plan which 
has been released in draft form and hopefully will be released 
in final form soon.
    And our strategic goals are pretty simple: economic 
competitiveness, safety, state of good repair of the existing 
system; environmental sustainability;, and community 
livability. The way to get toward those things starts to get a 
little bit more complicated. I testified before this Committee 
in March about the benefits of programs like the Los Angeles 
30/10 Program, and we continue to believe that the Federal 
Government needs more and better tools to be able to support 
programs like that.
    The tools that we have right now, as I have testified 
before, are very focused on individual projects, what are the 
merits of this project, goes from where to where, what are the 
costs and benefits of a particular project. What they are 
proposing to do is a program of projects which, when pieced 
together, creates a network. And I think that is what we all 
agree is the future. We need to get away from segment by 
segment thinking and get toward network thinking.
    And that is the experience in Oregon and Maryland and other 
places where they look at the system as a whole. Some places we 
propose a transit investment, and some places we have to 
rebuild the bridge that already exist but configure it 
differently, whether it is for bicycles, pedestrians or cars or 
transit, and other places we need to invest in highway 
capacity. But that should be case by case.
    The problem with programs that we have now is that on the 
formula side they tend to be very divided by mode. A highway 
dollar is only a highway dollar, and a transit dollar is only a 
transit dollar. You cannot do this type of place by place 
thinking. And the second of which is, on the loan programs, the 
amounts are small, and the rules are very constrained. This 
created the problem for the Los Angeles Program in that they 
are proposing to do something that is 10 times bigger and much 
more flexible than what are current programs allow.
    These programs, the TIFIA program that the Chair mentioned, 
were imagined in an era when ideas like this were just little 
germs starting out, and so the size was small, and the 
ambitions were modest, and we have now reached an era where we 
have succeeded beyond our wildest dreams, but it means we need 
new tools.
    I will say the TIFIA program also currently has gone from a 
state 5 or 6 years ago of not having enough people to give the 
money away to now being horribly oversubscribed. And in fact, 
we have probably, I think, about $110 million in subsidy that 
we can provide to these projects, and we have had people who 
have asked for $13 billion in subsidy. I do not even know what 
the ratio is there, but it is 40 to 1 or something like that.
    So to remedy these flaws, in our surface reauthorization 
proposal that we are actively working on under the President 
and previewed, we are looking to come up with a method to 
address all of these problems, the first of which is to mix 
grants and loans in a flexible way, to do it without dependence 
on what mode of transportation is involved; it can be highway, 
transit, rail, ports, freight, passenger, whatever that is.
    Third, that the investment decisions are driven by sound 
analytics, whether that is ridership forecasting or benefit 
cost analysis. And fourth, that there is some kind of an 
organization, certainly inside DOT and perhaps involving 
others, whose job it is to do those multi-modal investments.
    The proposal that we have made to do that is this concept 
of an infrastructure bank. That has been somewhat poorly 
defined up until now, and perhaps that is our responsibility as 
much as anyone else's. And the good news is the supporters read 
into it everything that they hope it can be, and the skeptics 
read into it everything they fear it might be. So, we hope that 
as time goes forward we can put together a proposal that 
clarifies a lot of those issues and that hope to put some fears 
to rest about what it might be.
    But our basic goal is to be able to do the things I listed, 
mix grants and loans, pick projects based on merit, and do the 
analysis about what to fund without regard to what mode of 
transportation it comes from.
    There are obviously other ways to achieve those goals, and 
this Committee can consider our proposal and many other ideas. 
But I think we are firm in believing that some decent portion 
of the Federal program needs to transition from being pure 
formula into a discretionary program which is designed to pick 
out the best possible investments on a nationwide level that 
help us advance toward our goals.
    So, I think our goal is to work with this Committee going 
forward and the other Committees of jurisdiction, hopefully as 
soon as possible, to put together a robust proposal. And 
perhaps one of the tests of it will be, does it meet the needs 
of the people who are on the cutting edge trying to do this 
stuff; they are leading, and are we able to follow. And we hope 
we will.
    So, thank you very much.
    [The prepared statement of Mr. Kienitz follows:]
    
 
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    Senator Boxer. Thank you very much.
    The infrastructure bank has some support in Congress. Other 
people oppose it. So the reason I focus on TIFIA is because it 
is part of our--it is already there. So, I think the 
Administration, I hope, will recognize that if something is 
already in law, it may be easier to go to that model.
    I am not saying give up on infrastructure bank. That would 
probably have to be done over in the Finance Committee, as I 
understand it. Is that correct? It would not be this Committee. 
But TIFIA is there.
    So, what I want to get at is this. The beauty--and you have 
been--the Department has been so supportive of the L.A. idea, 
and I just want to press you on the point. Here you have a 
situation where voters in a local area have voted to say this 
is so important to us, having our roads fixed and our 
transportation systems moving, that we are willing to tax 
ourselves a half a cent for 30 years. And we would hope--I 
would hope--that we can help those local communities that take 
that step. L.A. is not the only one. I mean, when I was in 
Marin County they always passed sales tax measures, and other 
counties and cities all over the country do it.
    So, what I am thinking as we go forward and we look at 
TIFIA, one way to expand the program beyond what it is now is 
to say if there is an area that does vote for a steady stream 
of revenue, that the Federal taxpayers know is coming, that if 
we can come in and accelerate those programs, because it will 
help with jobs, it will get people the results much quicker. I 
mean, some people have voted for this they will not be around 
in 30 years to see the final project completed.
    If this can be speeded up without risk to the taxpayers 
because the steady stream of revenue is coming, is that--are 
you open to working with us, assuming we have support from 
Senator Inhofe on the other side of the aisle? And we are not 
taking this up until after this election is over. It is not 
going to get caught up in election year politics.
    If we can reach some sort of agreement, would you work with 
us to reform TIFIA in such a way that it rewards those 
counties, cities, States that are willing to take that step so 
that we, the Federal Government, is not taking a risk? But what 
we are doing is accelerating the funding at the front end, kind 
of what your idea is for the 6-year bill, to accelerate the 
funding, do not take a risk with it, know you have the steady 
stream, and get it going over 10 years, in this case.
    Mr. Kienitz. In a word, yes, we are absolutely willing to 
do that. What I would say is two points, the first of which is 
the thinking that you are describing is very much in line with 
what we are looking at for the future of credit assistance 
going forward.
    The second point that I would make is that what we are 
discussing internally about how this infrastructure bank might 
actually work actually sounds a lot like what you exactly 
described.
    So, I am hoping by virtue of the policy process we have 
going forward we can end up with something that is, frankly, an 
iteration of the tools of TIFIA but larger, more flexible and 
more integrated with DOT's discretionary grant programs. 
Because in some cases you have a self-help or local option 
sales tax community coming in and saying I have 100 percent of 
the money I need, I just have it at the wrong time.
    Senator Boxer. Right.
    Mr. Kienitz. Another case is you have a poor community, as 
Senator Kerry at our Banking Committee hearing the other day 
that Senator Merkley chaired, came in and spoke about Fall 
River, Massachusetts, which is willing to tax itself to pay for 
the projects that they need, but the community does not have 
the wealth necessary to pay 100 percent of the cost. In that 
case, you might want to do a part grant, part loan. And what we 
are looking to do is set up some kind of entity that can judge 
those things and make those decisions so that enough resources 
are able to help.
    Senator Boxer. And would it run as a--the Bank would put 
money back in as the funds came in to repay the Federal 
Government? Would it just be rolling back into the Bank?
    Mr. Kienitz. We have not finally determined it, but my 
guess is no. Everywhere I go everyone says well you are not 
going to create another Fannie Mae, are you? And I think, 
frankly, that model is substantially out of favor at this 
moment.
    We are working on the Federal Credit Scoring Act, which is 
exactly how TIFIA works. You assess the risk of the loan up 
front, a subsidy amount is set aside, and then that is put back 
into the Treasury----
    Senator Boxer. So the funds would go back into the 
Treasury? They would not go back into the infrastructure bank?
    Mr. Kienitz. Right. And so the----
    Senator Boxer. So how does the infrastructure bank get the 
funding?
    Mr. Kienitz. It would get it through appropriations from 
Congress. You end up having that cycle because if Congress 
appropriates the funds, the funds go back to the Treasury, then 
Congress can appropriate them again. What it means is that the 
cycling of the dollars flows through here rather than flowing 
internally within the Bank. And I think that provides, to some 
degree, I do not know if a check on the process is the right 
way but a check in with authorizers to make sure people feel it 
is being used properly.
    Senator Boxer. Well, I think we ought to discuss that 
because my experience is when the funds go back to the general 
Treasury, then they do not specifically get used for 
transportation. That is why I like the Highway Trust Fund.
    I do not know where Fannie Mae and Freddie Mac come into 
this at all. It has nothing to do with it. Nothing. What I am 
talking about is like the Land and Water Conservation Fund, 
where the funds go there. What I am talking about is like the 
Highway Trust Fund, where the funds go there. So, I do not, I 
would never support an independent infrastructure bank.
    I am just telling you now--this is really important--you 
may not have the support for an infrastructure bank in other 
Committees. I do not even know about in this Committee. But in 
other Committees you may not have it. And so you need to be 
open to using your other tools, such as TIFIA, and making it 
function more like an infrastructure bank. It is a question of 
having to start off with a whole new idea and get the support 
for it as opposed to taking something that is already in the 
law and changing it to meet the need.
    I am open to all the solutions. But this Committee, I think 
if I could just speak, I think, for most of the members, I 
think we are very interested in leveraging the dollars and not 
adding to the deficit. I mean, that is basically what the 
perfect world is. And so I hope you will work with us because I 
do not know whether the infrastructure bank has the support, 
and we do not control that here in this Committee.
    I am just trying to be realistic here. My goal--I do not 
care what we call it because I do not care about those things, 
but what I do care about is that the Federal Government is able 
to leverage State and local funding in a way that does not put 
our taxpayers at risk and accelerates projects and creates jobs 
and does it soon. With all that in mind, we have to be flexible 
on how we approach it.
    So, I hope the Administration will be flexible with us. 
Regardless of what we call it, if we are able to do those 
things, and if it goes through another Committee I am thrilled 
with it, it does not matter. But I just want to make sure that 
we do not lose this opportunity, the great idea that came out 
of Los Angeles that I think is going to benefit the whole 
country. Let us not lose it because we are tied to one 
particular way to, you know, accelerate the funding or generate 
the funding.
    Senator Alexander.
    Senator Alexander. Thanks, Madam Chairman.
    Mr. Under Secretary, thank you for coming. When the 
Department makes its 6-year proposal, I think it would be a 
constructive idea to say this is how much money we have over 
the next 6 years based upon our revenue sources, and this is 
what we can pay for. In other words, say we have this much 
money, and we have this many requests, but to begin with we are 
going to recommend as the top priority for Federal funding the 
following proposals. And then, that is Section One. And Section 
Two would be, here are other areas where we think there is a 
Federal interest, and in these areas we need X more money.
    Would that not be a reality check on the Congress and the 
American people so we could see just what that much money will 
produce for us?
    Mr. Kienitz. Yes, sir. That seems like a reasonable 
approach. I am trying to figure out how we would put that 
together. We have not made any internal decisions yet on total 
size of what the Administration is going to propose so we are 
not quite at a point to do that yet----
    Senator Alexander. Well, I know, which is why I am saying, 
in other words, I mean how much money are we going to have a 
year for the next 6 years based upon the current projections?
    Mr. Kienitz. I think the current revenue allows us $290 
billion over the next 6 years. I think that is something that 
is about right.
    Senator Alexander. OK. Well, let us just say Congress says 
to you, all right, that is all you are going to get. What can 
you buy with that? And you say, well, let us all look at the 
country's future, and for $290 billion a year this is what we 
can afford to do. And then you say after that, but we think 
there are some other things that need to be done, and they are 
going to cost Y, and before we start talking about how to pay 
for them, let us talk about whether we need them.
    The reason I mention that is I was driving the other day in 
Tennessee along what we call I-840, which is a four-lane 
interstate quality highway that we built when I was Governor in 
1985 primarily to--we built 100 miles of interstate highway, 
100 percent paid for by the State government rather than 90 
percent Federal and 10 percent State. That required our third 
gas tax increase in 6 years. But nobody minded because it was 
for the purpose of bringing in the auto industry which is now 
one-third of our manufacturing jobs.
    There is always a discussion about what States should do, 
and what cities should do, and what the Federal Government 
should do. There is nothing to keep Tennessee from deciding 
that it wants the best highway system in the State and that it 
wants other transportation advantages and then finding a way to 
pay for it. And if we have poor communities within the State, 
and this happens every time we raised the gasoline tax which is 
the way we did it then, many of the rural areas benefited from 
the State-wide tax increase because they had, they are relying 
on property tax.
    So, I wonder if we should not get back to the idea of--and 
there is the further argument that States are able to build 
roads sometimes more rapidly and at less of a cost than the 
Federal Government because of Federal rules and regulations and 
the inability of Members of Congress to have a regular 
appropriations process from year to year.
    So, I am wondering whether this is not the time for a good 
discussion about saying, OK, we have got about $290 billion a 
year for about 6 years, these are our priority projects, and 
they are paid for. Now, if you want anything else, you are 
going to have to build them in the States. And there may be a 
few other things that the Federal Government ought to do, and 
then we could focus our new money on that.
    Mr. Kienitz. Yes, Senator, I think that makes an enormous 
amount of sense. What the data has actually shown is in fact 
the Federal contribution to the whole system that has not grown 
in pace with costs. And what you have seen over the last 10 to 
15 years is a gradual but inexorable increase in the share of 
the total system costs that is paid by State----
    Senator Alexander. Well, what is wrong with that? I mean, a 
cent on the gas tax in Tennessee is a cent on the gas tax in 
Tennessee whether the Federal Government raises it or whether 
the State government raises it. And we used to think--it may 
not still be true--that we could build a road faster and 
cheaper than the Federal Government could by the time we got 
through all the rules.
    Mr. Kienitz. There is nothing necessarily wrong with it. My 
point is that it is already happening. The exact thing that you 
stated is already happening. I mean, when I worked in State 
government in Pennsylvania we spent huge amounts of energy 
trying to raise revenues locally or at the State level because 
we knew that, at least in those years, we were unlikely to get 
X amount----
    Senator Alexander. Well, to make a last point, and I look 
forward to discussing this with you because I think this is 
very important, there is a wide bipartisan attitude on this 
Committee toward these issues. We do not want to just give the 
impression to cities and counties and States around the country 
there is big grab bag of money here for any project that you 
can compete for.
    I would rather us say, we have some very important Federal 
priorities, and we have enough money to pay for those. Now 
after that, States are going to have to do it, and the Federal 
Government is going to have to consider a discrete number of 
high priority projects that have national significance or 
regional significance, and we will find additional ways to pay 
for those.
    We might have to raise some money, we might have to do 
something like the Chairman is suggesting or expand something, 
but that would help us get away from the idea that there is 
just sort of an unlimited amount of money that everybody should 
go rush to compete for, and in this day and time, that might be 
welcome.
    Thank you, Madam Chairman.
    Senator Boxer. Thank you very much.
    Senator Cardin.
    Senator Cardin. Thank you, Madam Chair.
    Mr. Under Secretary, thank you for your testimony. I am 
going to try to cover a couple of points, if I might, during 
the time that I have.
    I want to start first with my concern on the financing of 
public transit. My, I guess, major concern is that as you look 
at the historical way that we have financed transportation 
programs using a gasoline tax, the advocates for highways and 
roads say, well, that is our money, it goes for highways and 
roads.
    In Maryland our roads are in terrible condition as far as 
volume is concerned; the second most congested area in the 
Nation is right here in the Nation's Capital. You try to get 
from the Capital out to Rockville at 5 p.m. and you have got 
yourself a long drive. It is much better if we had better 
public transportation. We do have transit, but when you try to 
get across county from Prince Georges County to Montgomery 
County, there is a purple line being suggested for public 
transit. Now, that is going to cost a lot of money. And I 
support that. That is going to help us on our highways because 
it is going to take cars off the highways.
    We do not get credit for those dollars. So, tell me your 
thoughts, or the Administration's thoughts, on how we are going 
to capture the transportation revenues to fairly reflect the 
value of the transportation infrastructure so that public 
transit is in a fair position moving forward on surface 
transportation.
    Mr. Kienitz. Thank you, Senator. We are focused on that 
question, and as we are putting together a financial structure 
for our proposal, which we will hopefully be able to unveil, we 
are looking precisely at that matter. It goes to whatever 
revenue source you have, how do you allocate them, but also 
goes to what kind of revenue source do you use to support a 
program. I am not in a position to say anything about it other 
than we hear you, and we hope to have a good answer to your 
concern.
    Senator Cardin. Well, and I am just going to underscore the 
point that the transportation funding proposals in the past 
have enjoyed broader support because it is called a user fee. 
And all I am suggesting is that we need to have a better 
justification in our infrastructure financing to recognize the 
value of public transit. It helps the motorist. And we need to 
be able to articulate that, and it starts with the 
Administration.
    Mr. Kienitz. Yes, sir.
    Senator Cardin. The second point I want to bring up is 
really Senator Alexander's point on how we finance this. I am 
somewhat concerned. I am for creative financing, for leveraging 
the best that we can particularly as it relates to the private 
sector. And in Maryland we have used some creative financing in 
order to advance transportation programs. I think our Governors 
have done that with the public interest in mind and have done 
it in a prudent way.
    However, when you suggest that we are going to frontload 
which, I think most of us agree, or you have this new mechanism 
of this infrastructure bank, I think some of us get concerned 
as to whether we are delaying fiscal reality as far as making 
sure the revenues are there to finance a 6-year program, 
perhaps frontloading the first couple of years expecting 
Congress to come back, or the next Administration to finance 
the last few years, but or running additional deficits and not 
paying for the programs the way that we should.
    Can you give me any sense of comfort from this 
Administration's views on this as to whether in fact we are 
going to have an adequately financed transportation program for 
6 years--you said you favor 6 years, but that we will be able 
to have the type of investments not only the first 2 years but 
for all 6 years?
    Mr. Kienitz. What I can say is that the President's 
statements have been, I hope, pretty clear on this matter which 
is obviously we want a 6-year bill, as you said. Second, we 
want it to be paid for. And third, we want a funding level that 
is robust, above what is currently affordable, and enough to 
support a long-term program.
    The one difference, perhaps, is the pattern in the past has 
always been year 1 of the 5 or 6 years is the smallest and year 
5 or 6 is the largest, and our economic team looked at that and 
compared that against national economic trends where year 1 is 
where the economy is soft, and hopefully by years 4, 5, and 6 
the economy will be roaring again. We felt that the balancing 
time of those dollars should perhaps be reversed just for 
purely macroeconomic reasons.
    Senator Cardin. I understand the need to invest now, but I 
can tell you 5 years from now you are not going to be able to 
buy as much with the same dollars as today. So, if you do not 
build in the natural progression, including maintenance of 
infrastructure, then you are going to shortchange the out 
years.
    Thank you, Madam Chair.
    Senator Boxer. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you very much, Madam Chair. A couple 
of questions.
    We have the program in Oregon of working with TIFIA, and 
one of the comments that our State transportation team gave to 
us is that they largely have not utilized it because they can 
get a lower rate on their own bonding than they can. And I was 
a little surprised about that as to why that would be the case. 
I wanted to ask a question about that.
    They also said because it is limited to one-third of a 
project, their recommendation is to have that one-third 
boundary expanded. So, maybe if you could comment on that as 
well, it would be helpful.
    Mr. Kienitz. Yes, sir. On the matter of one-third, that is 
a comment we have heard from basically everybody who has 
commented on the TIFIA Program. I think the original idea was 
the Federal Government was very inexperienced at doing the 
credit rating on these projects, and so TIFIA would be safer if 
we were making sure that there were enough of other people's 
money in the project, that they were doing the due diligence 
and the credit rating, too, and so we were not sort of exposed 
by ourselves.
    So, I think that was the origin of that idea. We since have 
heard from everybody, particularly in the last 2 years as the 
private financing sources for infrastructure have not dried up 
but become significantly more difficult to get your hands on, 
that the demand for TIFIA to cover 50 percent or two-thirds of 
a project is a lot higher. So, we have heard that from 
everybody and are going to see how far we are able to go on 
that front.
    On the question of interest rates, it is certainly true, 
one of the reasons that the program was undersubscribed 4 or 5 
years ago is for exactly that reason. The rates that were 
available in the private market were just too competitive, and 
you did not have to go through the Federal process. And so 
people went elsewhere.
    What we are finding now is that what we offer now is not so 
much the lowest rate, although the rates are very low, what we 
offer is 25-, 30- or 35-year credit with no repayment of 
principle until your project actually opens the doors and is 
collecting revenue, which could be 5 years, and even deferral 
of principle payments beyond that. Those are terms that the 
private market just is not offering right now.
    Now, in another year or 2 or 3, maybe the private market 
will come back and start offering that. But that is what our 
applicants have told us, it is the patience of the capital that 
the Federal Government can bring to it, and it is the thing 
that the market is not offering right now.
    Senator Merkley. It is helpful. Another comment that they 
put forward was that generally, the structure is more amenable 
to very large projects, and is it feasible to run loans through 
a State bank and therefore break it into smaller pieces and 
make it available to smaller communities often which may have 
more difficulty with bonding?
    Mr. Kienitz. Yes, sir. That is something that when I was in 
Pennsylvania we actually did. We had one of these State 
infrastructure banks in which we could advance dollars to fund 
a local project, and the locals could pay us back over time 
with other grant dollars or formula dollars that they had 
gotten. The repayment period there, though, is typically 3, 4, 
5 years, so if once you are talking about a 25- or a 30-years 
process, much more due diligence is required there. But I take 
your point that TIFIA has tended to give loans in the $100 
million, $200 million, and $300 million range. If you have got 
a community with a $15 million project, that is tougher.
    The State infrastructure banks have filled that niche to 
some degree. But since they are getting repaid with formula 
dollars and the formula dollars are only authorized a couple of 
years out, that has generally been the limitation.
    Senator Merkley. And finally, the Oregon State 
Transportation looked very closely at three potential public-
private partnerships and found, after a number of years of 
studying them, found really two challenges. One is that doing 
the projects required not just tolling upon the project but 
tolling upon parallel roads that had always been toll-free, 
huge public reaction to that. And second, when they ran the 
numbers they consistently found that it was cheaper for the 
State to be the entity than it was the private partner.
    And they looked at a lot of places, a lot of projects done 
elsewhere around the country and around the world, and found 
that often these public-private partnerships were far more 
expensive to the public in the long term than when the public 
put up their own cash. And so they studied those three projects 
and eventually set them aside. But any thoughts or insights 
related to that?
    Mr. Kienitz. Yes, sir. In my experience both at DOT and 
before coming to DOT we found many of the same things, that 
with the private infrastructure investors, their great 
advantage is that they are willing to be creative, go out and 
hunt for capital, and they will set it up however you want to 
set it up. As for the Government, we have a little bit more of 
a regimented structure. But we are not looking to make money. 
We are just looking to get our money back. They are looking to 
make money, and so the return on their investment that they are 
hoping for is going to be significantly higher.
    The question has always been, if you can get pure public 
financing for a project, the financial picture is better than 
if you are going through purely private. The issue has been 
that the Government's ability to do that has always been 
severely constrained.
    I think what the Chairman is talking about is a program 
that would offer a significantly larger share. The TIFIA 
Program has been very safe up until now. Its financial 
performance has been strong. And so I think we all have the 
confidence to expand that model quite a lot and that it would 
still be safe. But that has always been the issue. Governments 
have been afraid, wary about getting into the business in a way 
that the private sector, at least up until a couple of years 
ago, was less wary.
    Senator Merkley. Thank you.
    Mr. Kienitz. Yes, sir.
    Senator Boxer. Well, thank you so much. Can you just tell 
your boss that we appreciate all the work he is doing to help 
us with the 30/10 Initiative?
    Mr. Kienitz. I will. Thank you.
    Senator Boxer. We appreciate it.
    And now we will ask our Panel II, Hon. Antonio 
Villaraigosa, Mayor, city of Los Angeles, great leader in 
transportation, we are so pleased that you are here; and Hon. 
Stephanie Kopelousos, Secretary, Florida Department of 
Transportation, welcome Secretary; and Mr. David Seltzer, 
Principal at Mercator, am I saying it right?
    Mr. Seltzer. Close.
    Senator Boxer. Say it.
    Mr. Seltzer. Mercator.
    Senator Boxer. Mercator, yes? Advisors.
    We are so pleased you are here. We have a vote at 11:30. 
That gives us plenty of time because we have a 15 minute 
window. So, we have a good hour to listen and to ask questions.
    So Mayor, we will start with you.

         STATEMENT OF ANTONIO R. VILLARAIGOSA, MAYOR, 
                CITY OF LOS ANGELES, CALIFORNIA

    Mr. Villaraigosa. Thank you, Senator Boxer, Senator 
Merkley, members of the Committee. Thank you for the 
opportunity to address you today.
    I want to say, on behalf of the people of Los Angeles, and 
thank Chairman Boxer for her leadership, her support. Her 
interest in transportation infrastructure is critical not just 
to our county and our State, but I think to the Nation. Your 
focus on innovative project finance has helped move this issue 
forward at a very, very critical time. Your ability to 
spearhead a unique coalition of labor, business, and 
environmental leaders in support of L.A.'s 30/10 Initiative has 
been invaluable.
    And I would also like to thank Secretary LaHood and the 
Obama administration for their infrastructure proposal.
    I do not have to tell you all, you know better than anyone 
that the American Society of Civil Engineers gave the U.S. 
infrastructure an overall grade of a D. They estimate that the 
need in the next 5 years for infrastructure is $2.2 trillion. 
The Administration's infrastructure plan is an important one. 
Our roadways, transit, rail systems, and airports ensure the 
vitality of our economy. Jobs are created and the economy grows 
when people and goods move efficiently from place to place.
    We are investing less than other countries as a percentage 
of our GDP. We are investing about 2 percent of our GDP. Europe 
is investing roughly 5 percent. And I do not have to tell you 
that China is investing 9 percent and growing.
    And according to the report of the Congress of the National 
Surface Transportation Infrastructure Financing Commission, the 
total combined highway and transit spending as a share of GDP 
has fallen 25 percent since the beginning of the Federal 
Highway Trust Fund. According to data from the Congressional 
Budget Office, this expenditure has averaged 1.9 percent of GDP 
from 1956 until 1970, but only 1.4 percent from 1990 to 2004.
    I think we all agree that America deserves a first class 
transportation infrastructure network, and innovative financing 
tools such as the national infrastructure bank would help build 
it.
    But as you said, Madam Chair, there are financing 
mechanisms now that we could use to accelerate that. And I want 
to focus on the need for the Federal Government to approve a 
national program of innovative financing tools so that local 
and State government can put people back to work.
    As I have said to this Committee before, but I do not 
believe that Senator Merkley was in the Committee when I made 
those remarks last time, was as Speaker of the California State 
Assembly, I remember in the 1990s when people would come to the 
legislature asking for the State to invest in this or that 
initiative, and I would always say, if it such a good idea, how 
much of your money are you putting up? The beauty of what we 
are proposing here is that we are putting our money up.
    I do not have to also tell you that the national 
unemployment rate is still 9.6 percent in the most recent 
statistics. Simultaneously, the U.S. deficit is estimated at 
$1.5 trillion. We must spend tax dollars more wisely and 
leverage the available funding in a smarter way.
    We cannot expect the Federal Government to bear the entire 
cost of our infrastructure needs. I think Senator Alexander was 
speaking to that a few minutes ago. Cities and States cannot 
pay to build the systems entirely on their own, either. New 
partnerships, new financing mechanisms, and innovation are 
essential to building infrastructure in many regions.
    We need incentives to increase local funding for 
transportation infrastructure. Cities and regions that are 
coming to the table with more local money in hand should be 
rewarded and incentivized. We need tools that let local 
government build infrastructure faster, and to bring projects 
to the shovel-ready stage we need to have certainty that 
financing will be available over time.
    I am suggesting two new tools to encourage investment in 
infrastructure and to help create jobs. These tools will be a 
catalyst for major transit initiatives across the country. They 
will help us put people back to work, and they will help 
improve our air quality. First, the TIFIA Program should be 
expanded and modified. Second, we should establish a new 
category of infrastructure bonds with a high interest rate 
subsidy.
    As you know, TIFIA, the Transportation Infrastructure 
Finance and Innovation Act, is a Federal direct loan program. 
This program can and should be expanded. Congress needs to 
increase the pool of money so that it can support more major 
projects across the country.
    And we need to give TIFIA greater flexibility. We need to 
move beyond project by project loans to think about funding 
transit systems and networks. Finally, we need an up front 
commitment that loans will be available in the future at an 
interest rate lock to increase funding certainty.
    Now, infrastructure takes years to develop and build. We 
need a robust TIFIA Program that can support significant public 
works investments in multiple cities and States. The second 
proposal would create a new category of qualified tax preferred 
bonds to fund major transit projects.
    In the American Recovery and Reinvestment Act of 2009 
Congress created a program for school construction. The program 
provided tax preferred bonds with very high subsidies. We need 
a similar program to help fund major transportation 
infrastructure investment. These bonds would allow issuers to 
finance more than twice the dollar value of capital 
improvements than is possible with traditional tax-exempt bonds 
for any given annual revenue stream. They would not only 
stimulate greater investment, but also take pressure off the 
conventional Federal grant programs.
    These tools will create jobs; they will help cities realize 
the environmental health and mobility benefits associated with 
their transportation projects. These tools should be created 
now or should be incorporated in the next Surface 
Transportation Reauthorization Bill.
    With high unemployment and great needs for infrastructure, 
I am hopeful these tools may be created sooner rather than 
later. That is why, as you said, while the infrastructure bank 
may be a good idea, these programs currently exist; they can be 
expanded in a way to move projects now.
    We would take advantage of these financing tools for our 
30/10 Initiative in L.A. We may be the car capital of the 
world, but we are building a sustainable transit system of the 
future. In 2008, 68 percent of our voters approved Measure R, a 
30-year, $40 billion, half-penny transportation sales tax. At 
least 65 percent of the funds will be spent on transit 
improvement and systems. 30/10 is our proposal to build 12 
Measure R transit projects in a decade instead of a planned 30 
years.
    The 12 transit projects will create 166,000 jobs. Now, we 
talked about the national unemployment rate of 9.9 percent. In 
L.A. it is 14.3 percent. And I can tell you, this would be an 
important shot in the arm for our region. According to the L.A. 
Economic Development Corporation these jobs will have economic 
impact of more than $22 billion.
    I do not have to tell you that L.A. is an economic engine 
for the Nation. L.A. and Long Beach ports move 44 percent of 
the seaborne goods. We have a gross domestic product of $718 
billion. Only California, Texas, New York, and Florida have 
economies larger than L.A. County. We represent 5.5 percent of 
the U.S. economy and 38 percent of the California economy.
    Notwithstanding that, we are struggling. And so a project 
like this could not only reinvigorate us, it could help other 
cities like Houston, Salt Lake City, Atlanta, and Chicago who 
have told us they would benefit from the tools that we are 
proposing.
    Together we can jumpstart regional and national economic 
recovery using our local investments in infrastructure. This 
model will enable the Federal Government to leverage its 
resources strategically based on local community needs and 
their willingness to be bold.
    Again, Madam Chair, I want to thank you for your leadership 
in this effort.
    The one thing that has become crystal clear at a time when 
we are looking at historic deficits and debt is that we need 
creative financing mechanisms to incentivize localities. 
Senator Alexander talked about the State building its highway 
system. This city, this county, is willing to do the yeoman's 
work in doubling the size of our rail system, reducing carbon 
emissions by 500,000 tons, saving 10 million gallons of gas a 
year, increased transit boardings by 77 million. This can be 
replicated around the country with creative financing 
mechanisms of the kind that I have mentioned.
    Thanks very much.
    [The prepared statement of Mr. Villaraigosa follows:]
    
    

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    
    Senator Boxer. Thank you so much for your very important 
leadership. You know, as we get ready to mark up a bill, we are 
making the record here on this important issue.
    Before I call on the Secretary, I wanted to put into the 
record the opening statement from Senator Inhofe who is at an 
Armed Services Committee hearing. And I think it is important 
for me to read to you what he says because we--although 
everyone knows we have had our difference on the environment, 
when it comes to public works we tend to see things alike. So, 
let me read what he says about the TIFIA Program.
    He says, another way to leverage non-Federal funds is a 
loan program contained in the current highway program called 
TIFIA. Although it took time to get going, TIFIA now is very 
popular and recently received applications for 10 times the 
amount it can lend. It is used in many situations including as 
a component of the PPP financing or by States to supplement 
more traditional financing. Clearly, this is a successful 
program that must be dramatically expanded.
    He goes on to talk about the infrastructure bank and 
raises, I would say, some important issues where he feels it 
would actually be a substitute for other mechanisms and not 
really add much to what we have.
    So, I think it is important as we go forward, and the 
reason I think it was so important to have this hearing and 
others before we actually sit down to write the bill, we need 
to find the areas where there is agreement across the aisle. If 
we find that agreement, we will get a bill done. If we do not 
find that agreement, we will not.
    And so I am very pleased with the support for TIFIA here, 
and I think we, you know, definitely have a place here where we 
can join in partnership.
    So, with that, I will put that in the record, if there is 
no objection, and call on Hon. Stephanie C. Kopelousos, 
Secretary, Florida Department of Transportation.
    Madam Secretary, welcome.
    [The prepared statement of Senator Inhofe follows:]

                  Statement of Hon. James M. Inhofe, 
                U.S. Senator from the State of Oklahoma

    As I've said here before, I believe in Federal 
infrastructure spending and see it as one of the primary 
purposes of Government. Given our enormous infrastructure needs 
it is difficult to imagine that the next highway bill could 
ever meet all of these needs--especially since the Highway 
Trust Fund is in dire condition. Not only do we need to get the 
most for our Federal highway dollar, but we also need to 
encourage State and local governments and the private sector to 
invest as much as possible in roads and bridges.
    This hearing is on innovative financing, which really 
accomplishes both: getting the most out of each Federal dollar 
and leveraging non-Federal funds. The two forms of innovative 
financing I'm most excited about are public-private 
partnerships and the TIFIA program.
    One of the most frequently discussed ways to leverage non-
Federal investment is through public-private partnerships, or 
PPPs. With PPPs, State or local governments enter into an 
agreement to raise private capital and transfer risks to the 
private sector, making challenging and unaffordable projects 
possible. This is a way to unleash an enormous amount of 
private investments in public infrastructure. This financing 
source is as important to helping us address our infrastructure 
crisis as a robust Federal highway bill.
    Another way to leverage non-Federal funds is a loan program 
contained in the current highway program called TIFIA. Although 
it took some time to really get going, TIFIA now is very 
popular and recently received applications for 10 times the 
amount it can lend. It is used in many situations, including as 
a component of PPP financing or by States to supplement more 
traditional financing. Clearly, this is a successful program 
that must be dramatically expanded.
    I will end on a final note about infrastructure banks, 
which is a very hot topic these days. First of all, we have 
government infrastructure banks for transportation: at the 
Federal level we have TIFIA, and at the State level we have 
State infrastructure banks which are capitalized by the Federal 
Government. What most proponents of a new infrastructure bank 
want is a mechanism to give out more grants. Banks don't give 
out grants; they give out loans. There is also currently a 
mechanism for giving out Federal transportation grants--it is 
called the highway bill. I don't believe an infrastructure bank 
will increase total transportation investment--it will only 
take money away from what would otherwise go through the 
existing highway and transit programs. The only thing you are 
going to do is move decisionmaking from States to US DOT 
officials in Washington--an outcome I do not support.
    I look forward to the testimony from our witnesses. Thank 
you.

      STATEMENT OF STEPHANIE C. KOPELOUSOS, SECRETARY OF 
      TRANSPORTATION, FLORIDA DEPARTMENT OF TRANSPORTATION

    Ms. Kopelousos. Madam Chairwoman, Senator Merkley, I 
appreciate it. It is a real honor and a privilege to be here 
today to talk about innovative financing for projects. Florida 
has been a real leader, and I want to touch on three today, our 
experience with public-private partnerships, the TIFIA Program, 
as well as tolling.
    When you look at public-private partnerships, we have had a 
real expansion of our program under some legislation that 
Governor Crist did as soon as he got into office that enhanced 
our capabilities. And I will tell you, we have 10 current 
public-private partnerships under contract today, and I will 
give you several of the benefits that we have experienced in 
Florida.
    One is leveraging the financial assistance, clearly 
important. Two has been the innovation that we have gotten from 
the private sector that has helped us move some of these 
important projects forward, also advancing these priority 
projects where they have been sitting on hold because we just 
truly did not have the financing. And probably one of the most 
important things that we have been able to leverage is sharing 
of the risk, sharing the risk with the private sector that 
allows the State to get the best value.
    I want to focus on just a couple of the projects that we 
have experienced and some of the good ideas that we have had. 
We have been able to--a project in southwest Florida that we 
did under a design-build-finance, which was I-75, we added an 
additional lane, now six lanes for 30 miles along that highway. 
We delivered that project 5 years ahead of when we would be 
able to do it by just using the normal funding. So, the 
community is excited about it, we delivered it right before 
Christmas last year, and I will tell you, a great present for 
them.
    Another concept that we have able to use with two of our 
projects is the availability payment that we have used through 
our public-private partnership legislation in the State. We 
have been able to do two significant projects. The Port of 
Miami Tunnel fixed a real congestion problem out of port as 
well as in the downtown area.
    But probably the one that we are the most excited about is 
our 595 Project in Broward County, truly one of our most 
congested areas in the State. We are adding three reversible 
lanes to a tune of about $1.2 billion. We are able to do this 
15 years before we would normally get this program in our 
current system. So, we have seen true success on those.
    I really want to touch on what the Mayor said about the 
TIFIA Program. We have used it. We were the first in the 
country to utilize a TIFIA Program and just applaud USDOT for 
continuing to make it stronger and better. But we do believe 
that there need to be some enhancements, true enhancements.
    Two of the projects that I mentioned, 595 and the Port of 
Miami Tunnel, we truly would not have been able to do those 
projects, get those projects across the goal line, without the 
little help with the TIFIA Program, and that has been 
successful. But to add on to what the Mayor said, we are 
looking for some of the same flexibilities, true increases to 
the moneys that we have going to the program, and look at 
increasing the eligibility amount per project. Right now, it is 
capped at 33 percent. It may need to be a little more on some 
projects; it could be a little less. So, take a look at that.
    One of the other issues we found in our project on 595 was 
really to look at possibly a 30-day window prior to our 
financial close on the project to lock down what the interest 
rate would be on the loan. It provided some instability and 
some concerns with the private sector, and I think if we could 
get that changed that would really help us in moving some of 
these larger projects forward.
    And in tolling, to address some of Senator Merkley's issues 
about public-private partnerships, we in Florida have a 
turnpike enterprise that has been truly successful. We have 
been able to add about 595 lane miles with the enterprise and 
really expand our tolling throughout the State, and I think 
that is where the mix of using public-private partnerships as 
well as our turnpike that we have been able to get the best 
value out of our State resources as well as the innovative 
tools that we are using.
    In closing, if we could just encourage you in the next 
Federal bill to look at enhancing our financial tool box, I 
think to continue to enhance that is important, help facilitate 
public-private partnerships where they are needed and where 
they best serve the States, as well as continue the strong role 
of State DOTs through the formula-based programs that are 
equitable, importantly streamlined and that really meet the 
national goal that we are all looking for in this next Federal 
bill.
    Senator, we are here to help. We appreciate the 
availability of your staff and Senator Inhofe's staff. As 
Florida, we do not have a Senator on this Committee, and your 
staffs have been extremely available to us, and we appreciate 
having that input.
    Thank you.
    [The prepared statement of Ms. Kopelousos follows:]
    

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    Senator Boxer. Well, thank you so much. That means a lot, 
and I will tell Senator Inhofe what you said. We appreciate it.
    Mr. Seltzer.

            STATEMENT OF DAVID SELTZER, PRINCIPAL, 
                     MERCATOR ADVISORS LLC

    Mr. Seltzer. Chairman Boxer, thank you for inviting me to 
testify this morning.
    My name is David Seltzer, and I am a principal at Mercator 
Advisors. We are a consulting firm that advises policymakers 
and project sponsors on how best to finance major 
infrastructure projects and programs. I would like to briefly 
share with you our firm's views on innovative project finance 
tools that could stimulate more investment in this fiscally 
constrained environment.
    Credit assistance and tax incentives are powerful Federal 
policy tools today because A, they maximize the financial 
capacity of State, local, and project revenue streams by 
lowering interest costs, and B, they have a much smaller 
budgetary impact than traditional grants.
    USDOT's primary credit program for surface transportation 
is, of course, TIFIA. And from a budgetary viewpoint Federal 
credit is more cost effective than grants since the fiscal 
charge is based not on the face amount of the loan but on its 
expected losses from default.
    The average budget score on TIFIA loans has been only 10 
cents on the dollar. And as Under Secretary Kienitz said, 
earlier this year DOT announced that it had received 39 letters 
of interest from project sponsors seeking $12.5 billion in new 
TIFIA loans for projects totaling nearly $41 billion. However, 
available funding can support less than 10 percent of that 
expressed credit demand.
    So, the three recommendations that we would offer for the 
TIFIA Program are first, increase the TIFIA funding. Based on 
the tangible demand, the funding level should be at least 
tripled to about $375 million per year over the next 6 years. 
That would support $20 billion-plus of new loans, leveraging 
over $60 billion in total investment.
    Second, incentivize applicants to identify those new 
funding streams. The primary reason for the Nation's 
infrastructure gap is insufficient revenue streams to support 
the new investment. If TIFIA prioritized applications where a 
vast majority of project funding, say at least two-thirds, came 
from sources other than Federal grants, it would reward State 
and local governments like Los Angeles County who make the 
difficult decision to impose the taxes, fees, or user charges 
necessary to support new programs.
    And third, allow up front credit commitments for 
transformational programs. TIFIA was originally conceived as a 
project finance tool oriented toward individual projects. And 
as a result, the Federal credit commitments were tied to 
project-specific milestones such as environmental approvals. 
Today, however, transportation agencies are recognizing that a 
portfolio of large interrelated projects can produce systemic 
regional benefits in terms of mobility, air quality, and 
economic development.
    It would aid these plans, like the 30/10 Proposal or 
Initiative, if the TIFIA financing commitments were more 
predictable over the multi-project delivery period. And this 
could be achieved by authorizing DOT to make up front, 
programmatic, conditional commitments provided that no 
underlying loan would be funded until the applicable 
environment and other public approvals were met.
    Now in addition to credit assistance, we believe tax 
incentives should be a central component of any comprehensive 
Federal strategy. Like credit, tax incentives encourage greater 
investment through reducing financing costs, and they, too, are 
scored at just a fraction of the cost of grants. And while Tax 
Code changes are not under this Committee's jurisdiction, we 
recommend Congress consider expanding two existing tax 
incentive programs.
    First, the Qualified Tax Credit Bonds. Last year, Congress 
authorized various tax subsidies to reduce State and local 
borrowing costs, including the $22 billion School Bond Program 
with a 100 percent Federal interest subsidy. A similar program 
targeted to major transportation projects could more than 
double the level of investment compared to tax-exempt bonds. 
Congress could specify an annual volume cap to control the 
fiscal impact, which could be allocated by the Transportation 
Secretary to those projects conferring the highest economic and 
social return.
    Second, Build America Bonds. It appears that Congress may 
extend the expiring Build America Bonds, or BABs Program, for 
at least another year. BABs, which subsidize 35 percent of 
interest, currently are limited to projects without private 
sector involvement.
    In recent years, however, the private sector has played a 
larger role in developing, managing, and financing projects and 
taking risk. We think a strong policy argument could be made to 
extend BABs eligibility to projects with private participation 
that are available to and benefit the general public, such as 
highway transit and other transportation facilities.
    Thank you for the opportunity to appear before you.
    [The prepared statement of Mr. Seltzer follows:]
    

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    Senator Boxer. Well, thank you all.
    I wanted to start with you, Mr. Seltzer. When we talk about 
dramatically increasing TIFIA, which I support, the point you 
make is very key. That you dramatically expand it, but it is 
leveraged so the Federal Government is not spending that much 
more, but the dollars go much further. What is the multiplier 
effect, do you think, approximately, for every dollar we put in 
there?
    Mr. Seltzer. Well, based on the historic TIFIA performance, 
the average budgetary cost of each loan has been say 10 cents 
on the dollars. So, there is a 10 to 1 leverage in terms of 
budgetary cost effectiveness. And then the TIFIA share is 
limited to not more than one-third, and oftentimes less than 
that, so there is at a least a threefold multiple on that. So, 
it is in excess of 30 to 1 multiplier for the budgetary scored 
cost of the program.
    Senator Boxer. Thank you. I think that is very key, and I 
think that is why you see support for expanding this program 
from Senator Inhofe, and I think we have it across party lines. 
And that is why I am harping on TIFIA so much because I see 
people coming together around it, rather than getting off in an 
argument about some new program which may be very good but 
could slow us down. And I think it is key.
    Mayor, I wanted to ask you about the support for this 
program from the Mayors. We do have a letter from them. Could 
you describe the level of interest in this as you speak to your 
colleagues?
    Mr. Villaraigosa. The U.S. Conference of Mayors 
unanimously, on consent, approved the 30/10 Initiative as a 
model for the kind of innovative financing cities need across 
the country. In addition to that, I mentioned a number of 
cities that have specifically indicated interest. And, in 
addition to that, Secretary LaHood was last week here in DC at 
the Conference of Mayors where he mentioned the 30/10 
Initiative as a model. So has Governor Rendell, who has talked 
about this as a template for infrastructure investment across 
the country.
    Senator Boxer. Well, I want to pursue this because, in a 
time when everybody talks about partisanship, I was so 
impressed with the group that you brought back here when we had 
that press conference. And as I remember it, correct me if I am 
wrong, you had business leaders, you had labor leaders, you 
had----
    Mr. Villaraigosa. Public health and environmental leaders--
--
    Senator Boxer. All right. So, you describe----
    Mr. Villaraigosa. We had a broad cross section of----
    Senator Boxer. Just describe to us the support for this 
concept.
    Mr. Villaraigosa. Well, bankers, small business people, the 
Chamber of Commerce, some of the ethnic business organizations, 
the public health advocates were there, environmental 
organizations, labor, the leader of the AFL-CIO, Mr. Trumka, 
was with you and I at a rally in Los Angeles where he said that 
this is a template for what we need to do, that we need to 
replicate 30/10 across the country.
    Senator Boxer. Well, let me just close my question to the 
Secretary.
    To me, you know, I am sitting here, and I am thinking of 
the beauty of this proposal, and three words come to my mind, 
leveraging, accelerating, and partnership. And you are blending 
all of these ideas together. And to me, and I think to others 
on this Committee, those are three things we really need to do. 
So, Madam Secretary, how would you respond to this 30/10 idea?
    Ms. Kopelousos. Senator, I think the issues are clear. 
There is much need around this country for infrastructure, from 
all aspects of it, and I think the more we can leverage at 
every level--not just State or local but at the Federal level 
as well--the better off we are going to be in delivering the 
infrastructure that we need. We need to determine, are we going 
to have a world class infrastructure around our country----
    Senator Boxer. No question.
    Ms. Kopelousos. And what level we want, and then how are we 
going to get there.
    Senator Boxer. And do you think if we were to include this 
notion, an expansion of TIFIA with a commitment to leverage 
local funds, to accelerate funding so we get it done quicker 
because right now, as the Mayor has told me, bids are coming in 
25 and 30 percent less. Is that true in Florida?
    Ms. Kopelousos. Yes, absolutely. We are seeing 20, 27 
percent.
    Senator Boxer. My goodness. So, you could actually save so 
much money you could even do more at the end of the day. So, 
the answer here is, if we were to do this, and encourage local 
action, do you think it would send a signal to the cities and 
counties and States that they will have funds, the possibility 
of having their funds leveraged and accelerated, do you think 
that would help local communities step up to the plate?
    Ms. Kopelousos. Chairwoman, I think it would. I think, too, 
in high growth States like you and I live in, we have had to 
address those issues numerous ways, and I think any enhancement 
of the tools with TIFIA, we have been able to use it in 
Florida, it has been through some tweaks, and I applaud Chris 
Bertram and the team at USDOT for what they have done with the 
TIFIA Program now, but any enhancement of that would truly 
benefit, I think, at least those in Florida.
    Senator Boxer. Excellent. Mayor, anyone who wants to add, 
we have a little time.
    Mr. Villaraigosa. I just wanted to mention, and thank you 
for your testimony, Mr. Seltzer, that 30 to 10 multiplier 
effect with TIFIA, that is with the expansion of TIFIA, well, 
that is with the TIFIA Program and obviously if it was expanded 
threefold, all the more. But with the creation of Qualified 
Transit Improvement Bonds, you would be adding another 
multiplier effect here because you are creating a new category 
of bonds for transportation infrastructure much as you have for 
forestry conservation, renewable energy projects, energy 
conservation, and new schools.
    Senator Boxer. You mean the Build America Bonds that Mr. 
Seltzer spoke about. Is that correct?
    Mr. Seltzer. Senator, there are actually two different 
classes of bonds, expanding Build America Bonds to allow the 
public-private partnerships and expanding the existing 
Qualified Tax Credit Bonds to allow major surface 
transportation projects to take advantage of that same tool.
    And while I recognize it is not--it has to go to the tax 
writing committees, many good ideas for Tax Code measures in 
the past have come out of this Committee, such as the Private 
Activity Bonds for highway and intermodal facilities.
    Senator Boxer. Anything else that anyone on the panel would 
like to add? If not, I would ask the three panelists if they 
could meet me in this room so I can thank you so much for 
coming today. So, see you there shortly.
    I want to thank Senator Inhofe's staff for giving us his 
opening statement so I could read part of it into the record.
    And we stand adjourned, and our hope is to get a bill done, 
to at least start the bill writing process before the end of 
this year.
    Thank you very much.
    [Whereupon, at 11:15 a.m., the Committee was adjourned.]
    [Additional material submitted for the record follows:]
    

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