[Senate Hearing 112-208]
[From the U.S. Government Publishing Office]
S. Hrg. 112-208
BUILDING AMERICAN TRANSPORTATION
INFRASTRUCTURE THROUGH
INNOVATIVE FUNDING
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JULY 20, 2011
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii KAY BAILEY HUTCHISON, Texas,
JOHN F. KERRY, Massachusetts Ranking
BARBARA BOXER, California OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida JIM DeMINT, South Carolina
MARIA CANTWELL, Washington JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia MARCO RUBIO, Florida
MARK BEGICH, Alaska KELLY AYOTTE, New Hampshire
DEAN HELLER, Nevada
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
Bruce H. Andrews, General Counsel
Todd Bertoson, Republican Staff Director
Jarrod Thompson, Republican Deputy Staff Director
Rebecca Seidel, Republican General Counsel and Chief Investigator
C O N T E N T S
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Page
Hearing held on July 20, 2011.................................... 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Hutchison................................... 2
Statement of Senator Boxer....................................... 3
Prepared statement........................................... 4
Statement of Senator Kerry....................................... 5
Statement of Senator Begich...................................... 6
Statement of Senator Ayotte...................................... 6
Prepared statement........................................... 6
Statement of Senator Lautenberg.................................. 40
Statement of Senator Blunt....................................... 42
Statement of Senator Thune....................................... 47
Statement of Senator McCaskill................................... 49
Statement of Senator Klobuchar................................... 51
Witnesses
Hon. Polly Trottenberg, Assistant Secretary for Transportation
Policy, U.S. Department of Transportation...................... 7
Prepared statement........................................... 9
Robert Dove, Managing Director, The Carlyle Group................ 14
Prepared statement........................................... 16
J. Perry Offutt, Managing Director, Investment Banking Division,
Morgan Stanley & Co. LLC....................................... 19
Prepared statement........................................... 20
Stephen J. Bruno, Vice President, Brotherhood of Locomotive
Engineers and Trainmen......................................... 23
Prepared statement........................................... 24
T. Peter Ruane, President and CEO, American Road & Transportation
Builders Association........................................... 27
Prepared statement........................................... 29
Appendix
Response to written questions submitted to Hon. Polly Trottenberg
by:
Hon. Kay Bailey Hutchinson................................... 59
Hon. John Thune.............................................. 59
Response to written questions submitted to Robert Dove by:
Hon. Mark Pryor.............................................. 62
Hon. John Thune.............................................. 63
Response to written questions submitted by Hon. John Thune to J.
Perry Offutt................................................... 64
Letter dated July 21, 2011 to Hon. Jay Rockefeller IV and Hon.
Kay Bailey Hutchison from Franklin L. Davis, Director of
Government Relations, American Subcontractors Association, Inc. 65
BUILDING AMERICAN TRANSPORTATION
INFRASTRUCTURE THROUGH
INNOVATIVE FUNDING
----------
WEDNESDAY, JULY 20, 2011
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10:05 a.m. in
room SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. Good morning. This is one of those hearings
which can have a lot to do with the future of the country. And
I'm very pleased to see there are a lot of people here because,
often, on infrastructure, people hear the word and they sort of
chill, and yet it's probably about the most important word
other than war and peace that we can be discussing right now.
And I guess the debt ceiling would fit in that category, too.
Anyway, Americans rely on railways, they rely on highways,
on airways, on waterways, and they do that so they can move
goods efficiently and people can continue what they've been
doing in even better ways. States like my home state of West
Virginia need sound infrastructure desperately to boost
economic development in rural communities and, in fact,
throughout the state. That's true of any state. I think it's
true of any state--Massachusetts, too, I suspect, particularly
western Massachusetts, but all of Massachusetts--got a lot of
crumbling bridges?
Senator Kerry. Yes.
The Chairman. Yes. Yet our transportation is showing signs
of wear and tear, and, frankly, much of it is in disrepair.
People don't notice that necessarily, or they think, ``Well, it
won't be me.'' But we're getting past the point.
Across the nation, we're driving on more than 90,000 miles
of crumbling highways. Crumbling is like if you have a crumbled
cookie, you can't eat it. So, if you have a crumbled highway,
it's pretty hard to drive on it--and America has more than
70,000 structurally deficient bridges.
Traffic and congestion keep getting worse. Overall, our
country's infrastructure receives a D-minus grade from a
national rating group, even though mileage traveled by cars has
increased by 94 percent in the last 25 years. Maybe we're
making too many cars.
In 2009 alone, congestion cost consumers and businesses
well over $115 billion in wasted time and fuel. So it's clear
that we have to rebuild and invest in the infrastructure that
so many American people depend on.
You're experts. Some in the House actually are adamant
about the need to slash funding for transportation projects.
That is a problem--hiding under the veil, I would say, of
fiscal responsibility. Or maybe I wouldn't even say that. This
is not an acceptable solution to a very real problem for every
American. As I've said before, we need smart, targeted spending
cuts with smart, targeted revenue increases. They both have to
go.
Given the harsh realities we're facing, it's essential that
we look at new ways, therefore, to stretch the federal dollars
that do exist, which is what this hearing is about. That is why
I introduced legislation to create--along with Senator
Lautenberg, who's not here yet--a transportation infrastructure
investment fund for some very interesting reasons, which I had
not been fully aware of but which I now am and which we're
going to discuss this morning, because they would leverage
federal dollars and encourage private investment into our
transportation network.
Private sector investors--and this is what struck me--have
billions of dollars, billions of dollars ready to be put to
work on infrastructure projects, and we should tap into this
vast amount of capital. Now, PPP means, you know, we all do it
together--partners. This will expand the level of funds
dedicated to repairing, rebuilding, and expanding our
transportation infrastructure. It's an investment that can
create much needed construction jobs, manufacturing jobs,
engineering and design jobs for out-of-work Americans and at
the same time support American competitiveness.
I look forward to hearing from our witnesses today. You're
a group of phenomenal experts, and I'm very proud that you're
here.
The Chairman. And I would ask if the Ranking Member has
comments.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Thank you, Mr. Chairman, I do. And I
appreciate that you are having this hearing and also that we
share a common interest in addressing the challenges facing our
nation's aging transportation infrastructure.
We certainly need a new approach. The American Society of
Civil Engineers' most recent estimate says that the U.S. needs
to invest $2.2 trillion in order to keep pace with the national
infrastructure needs. The Federal Highway Trust Fund is broke.
It has been bailed out now three times at a cost of $34
billion. So, clearly, we need to be looking for other more
innovative answers. More of the same is not going to work.
Raising the gas tax is off the table, from my standpoint, and
instituting a vehicle miles traveled tax is also a nonstarter,
from my standpoint.
I think it is time to look for new solutions that don't
involve higher taxes, and I am supporting an infrastructure
bank that would foster private sector investment in the
nation's large-scale infrastructure projects and ensure that
the most cost-effective projects will generate the most growth.
I am going to leave the synopsis of that to its major sponsor,
Senator Kerry, who has done an incredible job of pushing this
and gaining the support. And I certainly worked with Senator
Kerry to assure that it was something that would be a major
down payment but a revolving fund that would leverage the
federal government money with private sector money and make it
go farther.
I think our bill is the answer, and I really want to
commend Senator Kerry for not only starting the ball rolling
but also working with people who had concerns, as I did, to get
a bill that I could support and do wholeheartedly support. And
with that, I will let the senator who is the main co-sponsor of
our bill give more of the detail.
And, Mr. Chairman, I would love for this committee to pass
our bill, and I'll bet you probably want your bill to be
passed. And so maybe we can work together or maybe we could
report both of them.
The Chairman. Well, we usually work together.
Senator Hutchison. We do. We do.
The Chairman. Yes.
Senator Hutchison. And so Senator Kerry has really worked
hard on it, and I know you're working hard with Senator
Lautenberg. So maybe we can do something together, because if
it's a revolving fund, I think it could really make a
difference.
Thank you.
The Chairman. I know we've got a lot of witnesses--Barbara,
do you want to say something?
STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA
Senator Boxer. Well, because I can't stay, I'd like to give
you just a 2-minute report on what's happening in our
committee, Environment and Public Works, with the
transportation bill. I think it would be instructive. If I
could have 2 minutes, that's all. And I appreciate it.
First of all, isn't it wonderful to see the bipartisanship
behind the infrastructure bank? Count me in. I think it's a
wonderful thing.
Also count me in on an enhanced TIFIA program, which we're
going to do on a bipartisan basis. Even Chairman Mica supports
it at a billion dollars. This is huge. It leverages a billion
dollars--$30 billion--amazing--a billion dollars of federal
funds, $30 billion of other funds matching it. So this is all
terrific.
The one caution I want to throw out--and I want to say to
Senators Rockefeller and Hutchison in a second--I want to throw
out one caution in terms of the Highway Trust Fund. Full
support for the ways to leverage our dollars--we have to do it,
because we're so behind. And if I could have my full statement
put in the record, it dictates how far behind we are.
But the Highway Trust Fund is the bread and butter of what
we do here in America, and the states count on it. And to just
walk away when it is short is short-sighted. That's what
Chairman Mica, unfortunately, did. He's not thrilled about
doing it, but he did it. It's a 36 percent cut in our basic
program. That's a loss of 630,000 jobs.
So what we're trying to do in the Committee--and we have
bipartisan support on a bipartisan bill, which actually freezes
the current spending and says we need to find $6 billion a year
for 2 years to keep it whole plus infrastructure bank plus
TIFIA to get this country moving again and working again. It's
very key.
And how do you do it? The Finance Committee is going to
determine how we make that up. But just to put it into
perspective and note, without any prejudice, whether we support
it or not, we're spending $12 billion a month in Iraq and
Afghanistan. That's what it's costing us. We're asking for $12
billion over 2 years. It's a small amount. We can figure this
out one way or other. I don't support a gas tax increase,
either. But there are other ways to do this and get this done.
So, Mr. Chairman, my full support goes to you and these
wonderful members of this committee to get our country moving
again. We've got to do it. We're the greatest nation on earth,
but if we can't move people, we can't move goods, we're simply
not going to be there in the future.
Thank you.
[The prepared statement of Senator Boxer follows:]
Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
I am pleased that the Committee is holding this hearing to discuss
the importance of investing in transportation infrastructure and
innovative financing tools that can leverage resources in ways that are
complementary to our transportation programs.
We are at a critical moment when it comes to our aging
infrastructure, and the nation's long-term prosperity requires that we
invest in our transportation systems now.
The unacceptable state of the nation's infrastructure is hurting
our ability to be a world leader. Our transportation systems used to be
the best in the world, but investments have not kept up with needs, and
we are now falling behind.
According to the World Economic Forum, the United States ranks 23rd
out of 139 countries on the overall quality of its infrastructure,
putting the United States between Spain and Chile. In 1999, the United
States ranked 7th.
As Chairman of the Environment and Public Works Committee, I have
been working with my colleagues on a bipartisan transportation bill
that will maintain current funding levels for critical transportation
programs.
Our approach is a clear rejection of the House proposal to cut
transportation funding by one third, which would result in 630,000 jobs
being lost next year.
The current surface transportation bill expires on September 30,
and we must choose which path to follow: protect jobs and our nation's
long-term economic health, or damage our country's ability to remain
competitive in the global marketplace while also throwing thousands of
people out of work in a sector that has suffered enormously during the
recession.
Our top priority must be to reauthorize the surface transportation
programs at current funding levels or face massive lay-offs in every
state in the country. We must also be creative with our limited
resources and expand innovative financing options to leverage federal
funds, and so I applaud the efforts of this Committee to examine
methods to expand innovative financing tools.
Once the base transportation programs have been secured, new
innovative financing tools should be considered as we look at ways to
fund our nation's infrastructure needs.
The Transportation Infrastructure Finance and Innovation Act
(TIFIA) program, which is under the jurisdiction of the EPW Committee,
has been proven to deliver extraordinary leveraging of federal funds
for large-scale projects.
Our Senate transportation bill creates a new section called America
Fast Forward, which strengthens the TIFIA program to stretch federal
dollars further than they have been stretched before.
Along with America Fast Forward, we must consider new innovative
financing programs to encourage even greater private sector investment
in transportation infrastructure.
I look forward to this discussion on ways to do just that.
The Chairman. That's a pleasant thought.
Senator Kerry?
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Mr. Chairman, thank you. I wasn't planning
to, but I want to incorporate some of what Senator Boxer has
said, and I want to respond also to Senator Hutchison.
Let me begin by thanking you for having this hearing, for
focusing on infrastructure, and also for your personal efforts
with Senator Lautenberg to introduce a transportation-oriented
infrastructure initiative. It's important. I'm confident we can
find a way to work together. We need to. The most important
thing is we need to get this done.
I want to thank Senator Hutchison, who stepped up early,
worked diligently with us to fine-tune our proposal so that we
could build the bipartisan support we now have. We have Senator
Graham from South Carolina and Senator Warner on our side as
original sponsors, and we have a lot more sponsors of this
legislation and others on the Republican side who are very
supportive and hopeful for it.
The bottom line is this--and this is why we have to get
together. Every expert in the country will tell us that we have
a $2.2 trillion infrastructure deficit in America. We would
have to spend $250 billion a year for 40 years, which we're not
about to do, just to bring our roads up to par. Up to par.
China, meanwhile, is putting 9 percent of GDP into
infrastructure. Europe puts 5 percent of GDP into
infrastructure and has an infrastructure bank. The good old
United States of America that we all love and have enjoyed the
preeminence of puts less than 2 percent of GDP into
infrastructure, and we are living off the infrastructure that
our parents and grandparents invested in for us.
There are no great, enormous, challenging infrastructure
projects. There are some small ones. There are a couple--the
high-speed rail efforts out in California that are sort of
starving and a couple of others. But the fact is we're just
falling behind. We have a train that goes from Washington to
New York that can go 150 miles an hour. It goes 150 miles an
hour for 18 miles of the trip, because you can't go under the
Baltimore Tunnel too fast because the vibrations--it may cave
in; can't go over the bridges of the Chesapeake too fast
because you may have a lot of passengers in the Chesapeake as a
result. I mean, this is crazy. This is lunacy.
We can do better than this, you know. And particularly
those of us who have had the privilege of traveling a little
bit and going to China and riding on a 200-mile-an-hour train
from Beijing to Tianjin or the Shanghai Maglev that goes 300
miles an hour from the airport to downtown or the TGV in Europe
or the bullet train--I mean, just run around the world. And
they're all making investments that we're not. This is the one
way we are going to leverage private dollars to do what,
unfortunately, too many people in Washington don't want to do,
which is invest in the future of our country.
And so, by putting up a small amount of money, we can
leverage money that will fund and create deals that will be
attractive, that will bring sovereign funds, pension funds,
private investment funds to the table for revenue-producing
projects. And what Senator Hutchison and I have done here is
try to focus on how we minimize the governmental component of
this.
Therefore, we chose not to put it into a department. We'd
keep it independent, completely outside, not for profit, no
stock issued, unlike Fannie Mae, Freddie Mac, all these things.
We learned the lessons of all of those things and put together
what we think is a proposal that could fly. And we want to
marry it with yours. We want to try to find a way to get
everybody on the same page here, because this is too important
for our country.
So that's enough said, Mr. Chairman. I want to thank you
for focusing on this and for your own proposal. And I hope this
is the one way we're going to get America building. I might
just comment for a billion dollars of investment in
infrastructure, you get 20,000 to 30,000 jobs. When you have 12
percent unemployment in Nevada and 10 percent in California and
Rhode Island and other states, Florida, and people are
screaming about wanting jobs, here are the jobs with minimal
public tax expenditure. We'd be crazy not to do this. And I
hope, Mr. Chairman, you and others will help create the
critical energy here to get it done.
The Chairman. That was a superb statement, Senator Kerry.
And I guarantee you that I will.
Senator Begich, if you want to put your statement in the
record, you'll get a standing ovation. If you want to speak----
STATEMENT OF HON. MARK BEGICH,
U.S. SENATOR FROM ALASKA
Senator Begich. Mr. Chairman, I want to hear from these
five. But also I'm going to be leaving in a few minutes, but
I'm going to be back. But I'm looking forward to this--I like
building stuff. So I like this committee.
Senator Kerry. Where's the standing O?
Senator Begich. That's it.
The Chairman. All right. Again, we're very privileged to
have an incredible panel.
Oh, Senator Ayotte?
STATEMENT OF HON. KELLY AYOTTE,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Ayotte. I will wait for the witnesses. How is that?
And I look forward to hearing from them.
The Chairman. Can I put your statement in the record?
Senator Ayotte. I would be happy to put my statement in the
record. Thank you.
[The prepared statement of Senator Ayotte follows:]
Prepared Statement of Hon. Kelly Ayotte,
U.S. Senator from New Hampshire
Thank you for being here. There is no question that we must address
our nation's infrastructure needs. I am deeply concerned that over the
past several years Congress has been unwilling to make tough choices
about transportation funding, delaying full reauthorization of our
nation's transportation programs at the taxpayer's expense. It is
important that we reform our nation's critical infrastructure needs.
As we are looking at how to reform transportation policies, I am
concerned that establishing a national infrastructure bank would
increase federal involvement and decision-making when what we need to
be doing is giving more control of spending decisions to the states.
Especially given our fiscal limitations, states shouldn't be subjected
to more federal red tape for local infrastructure projects.
States know how to best prioritize transportation funding. My state
of New Hampshire is concerned about retaining transportation jobs while
improving our infrastructure. Having the flexibility to make decisions
at the state level based on local priorities is vital when faced with
limited dollars.
I look forward to hearing your testimony today and discussing ways
to improve transportation infrastructure, being mindful of our current
fiscal reality, and focusing on each state's ability to prioritize
funds according to their unique needs.
The Chairman. Thank you. Thank you very much. I apologize
for not seeing you.
Ms. Polly Trottenberg, the Assistant Secretary of
Transportation for Policy, which is sort of what we're talking
about here--let's start out with you.
STATEMENT OF HON. POLLY TROTTENBERG,
ASSISTANT SECRETARY FOR TRANSPORTATION POLICY,
U.S. DEPARTMENT OF TRANSPORTATION
Ms. Trottenberg. Thank you, Chairman Rockefeller, Ranking
Member Hutchison, members of the Committee. Thank you for
inviting me to testify before you today at this very important
hearing.
President Obama believes that to compete globally, the U.S.
must innovate and invest in building and maintaining a world-
class transportation system. Innovative finance is a key part
of that effort and an important complement to a robust, long-
term surface transportation program. Today I'll focus on what
we're doing at DOT under the leadership of Secretary Ray LaHood
to encourage that investment through our credit assistance and
discretionary grant programs, and I'll discuss our
infrastructure bank proposal.
DOT's credit assistance programs are now an essential
ingredient in many of the innovative transportation public-
private partnerships currently underway in the U.S. And given
the country's current fiscal situation, our role in supporting
these projects is likely to grow. The infrastructure bank is
one of the most promising ideas for leveraging more private
sector dollars into infrastructure.
President Obama has been a long-time supporter of the
concept, as have many of the leaders here on this committee and
throughout Congress. And the administration's Fiscal Year 2012
budget requests $30 billion over 6 years for a new national
infrastructure bank. Under the president's proposal, the
infrastructure bank will use a competitive, merit-based
selection process to provide grants and loans to a range of
passenger and freight transportation projects in urban,
suburban, and rural areas.
The infrastructure bank will use rigorous benefit-cost
analysis and performance metrics to select projects that will
produce the greatest long-term public benefits and project
outcomes at the lowest cost to the taxpayer. The infrastructure
bank will seek projects that create good-paying jobs and
support national economic goals, such as boosting U.S.
manufacturing, facilitating goods movement, and doubling U.S.
exports.
We propose to house the infrastructure bank within DOT so
that it can build upon the expertise and experience that we've
already developed through our existing programs, including
TIFIA, TIGER, RRIF, private activity bonds. One of the
Department's most successful programs has been TIFIA, as
Senator Boxer mentioned. Since 1999, we've used $604 million of
budget authority to provide $8.3 billion in credit assistance,
and that, in turn, has leveraged a total of $31 billion in
investment for transportation projects throughout the U.S.
In the last 2 years, demand for TIFIA has far outpaced
existing budget authority, and the program has become
increasingly competitive and has required us at DOT to get
creative in combining TIFIA funding with other programs. At the
moment, DOT is using TIGER and TIFIA to help fund a $1.7
billion rail line in Los Angeles, linking the transit system to
the airport. Approximately $20 million in TIGER funds will
support a $546 million TIFIA loan for that project.
TIFIA is leveraging $21.5 million into a $341 million loan
for the $1.1 billion Port of Miami tunnel project. And through
a P3, a private concessionaire is also providing $80 million of
equity and $342 million of private bank debt.
To make the innovative Denver Union Station project
possible, DOT got really creative and combined a TIFIA loan
with federal highways and federal transit grant funding as well
as a loan from our RRIF program, which provides credit
assistance for rail projects. The $516 million project will
create a regional transportation hub in downtown Denver,
connecting commuter rail, light rail, bus rapid transit, and
regular bus service.
While the Denver Union Station project had to work with
each of these federal programs independently, and comply with
each program's specific requirements and deadlines, they,
nonetheless succeeded in assembling a viable financial plan. An
infrastructure bank would allow USDOT to coordinate all this
assistance through one program, which could save project
sponsors substantial time and money and could be the difference
in a project's feasibility.
Projects like those in L.A. and Miami and Denver do require
significant capacity and sophistication on the part of the
public entities involved. There is value for the public sector
in innovative P3s, but there is also complexity and risk. As we
consider increasing the role innovative finance and private
investment play in our transportation system, we must ensure
that applicants of all sizes and in all parts of the country
have the guidance and technical assistance they need to
succeed, and ensure that the public interest is protected. We
already provide some of that guidance through our program
experts at DOT, and in the future we do hope to better
collaborate and tap into the expertise represented here today
from the private sector, labor, and other transportation
stakeholders.
I want to conclude by thanking the Committee for the
opportunity to testify today. At DOT, we look forward to
working with you, and I'll be happy to take any questions.
[The prepared statement of Ms. Trottenberg follows:]
Prepared Statement of Hon. Polly Trottenberg, Assistant Secretary For
Transportation Policy, U.S. Department of Transportation
Chairman Rockefeller, Ranking Member Hutchison and members of the
Committee: thank you for the opportunity to appear before you today to
discuss U.S. Department of Transportation (DOT) efforts to facilitate
greater private sector investment in our nation's transportation
systems.
President Obama believes that the federal government should
encourage more private sector investment in transportation projects to
complement the federal government's commitment to robust public
investment in our nation's infrastructure. Visiting the Chamber of
Commerce earlier this year, the President encouraged the private sector
to ``get in the game'' and invest the $2 trillion sitting on its
balance sheet in America's economic competitiveness; and the President
has consistently made clear that infrastructure is a top priority area
for investment of private capital.
Today I will focus on what we are doing at DOT, under the
leadership of Secretary Ray LaHood, to utilize DOT's many innovative
approaches to transportation investment, including some of DOT's credit
assistance and discretionary grant programs, which are an important
complement to a robust, long-term surface transportation program. I
will also discuss the Administration's proposal for a National
Infrastructure Bank, which will provide a needed proactive tool to
bring private investors to the table.
Private Sector Investment in Transportation
According to Infrastructure Investor, the 30 largest infrastructure
equity funds raised $180 billion of private capital for infrastructure
investment over the last 5 years. These infrastructure equity funds
include pension plans, private investment funds and infrastructure
developers.
Private investment in transportation projects can take many forms.
Much of the private capital that gets invested in transportation
projects is supported by federal credit assistance programs like TIFIA
and RRIF, which make it easier for the public sector to access capital
markets financing. The federal government also provides for traditional
tax-exempt debt issued by State and local governments and the Build
America Bonds program that expired at the end of last year.
Private capital can be invested in transportation through public-
private partnerships, which allow the private sector to take a much
more robust role in the delivery, financing and management of
transportation infrastructure. PPPs allow the private sector to
incorporate innovations and efficiencies and to put capital at risk for
a project in a way that traditional procurement structures do not.
PPPs can offer an innovative new delivery approach for some of our
country's most complex and challenging projects when they are
appropriately structured, when they provide better value as compared to
traditional public sector delivery approaches, and when the underlying
projects are well-aligned with public policy objectives. DOT's recent
experience demonstrates that, when creatively utilized, the flexibility
afforded by federal credit assistance can be a powerful catalyst for
PPPs--including complex projects involving multiple public and private
sector stakeholders.
In the last 5 years eight major PPPs have been completed in
Florida, Texas, Virginia and Colorado with a total value representing
approximately $13.5 billion of new investment in the transportation
system. The pace has been accelerating lately with several new projects
in active procurement or financing, including the replacement of the
Goethals Bridge in New York and New Jersey and the Presidio Parkway in
California.
Over the last few years, federal programs have proven to be a key
component of most of the major new PPPs that have been entered into in
the U.S. DOT believes that federal programs will continue to facilitate
the majority of successful transportation PPPs in the U.S. It is
therefore important to ensure that we maximize the value of the public
investment and achieve national goals, such as economic competitiveness
and environmental sustainability, through these projects.
TIFIA Program
One of the Department's most important and successful programs for
facilitating private investment has been the Transportation
Infrastructure Finance and Innovation Act of 1998 (TIFIA) program,
which provides credit assistance for major surface transportation
projects. The program offers direct loans, loan guarantees or lines of
credit for up to 33 percent of a project's eligible costs. TIFIA offers
flexible and favorable repayment terms, which help fill market gaps in
financing plans and encourage broader co-investment by the public and
private sectors. These include interest rates that are equivalent to
Treasury rates--on Monday the interest rate was 4.23 percent,
opportunities to defer interest and principal payments in the early
years of the loan, and final maturity dates as much as 35 years from
completion of construction.
Eligibility is open to large-scale surface transportation
projects--highway, transit, rail, intermodal freight, and port access--
with eligible costs exceeding $50 million. TIFIA credit assistance is
available for State and local governments, transit agencies, railroad
companies, special authorities, special districts, and private
entities.
Since its inception the TIFIA program has used $603.6 million of
budget authority to support 22 direct loans and one loan guarantee
totaling $8.3 billion in credit assistance (i.e., the face value of the
loans). This credit assistance facilitates transportation projects
totaling $31 billion in public and private infrastructure investment.
The $1.1 billion Port of Miami Tunnel Project provides a good
example of how TIFIA supports private investment through PPPs. The
project, which is currently under construction, will improve access to
and from the Port of Miami by providing a dedicated roadway connector
linking the Port, located on an island in Biscayne Bay, with the
MacArthur Causeway and I-395 on the mainland. A private company is
responsible for design, construction, financing, operation and
maintenance of the project for 30 years. A relatively small amount of
budget authority, $21.5 million, supported a $341 million TIFIA loan
and facilitated a $1.1 billion investment in a nationally-significant
transportation project.
TIFIA is also increasingly used for transit projects, for which
local taxes and/or other revenue streams related to transit-oriented
development can be leveraged to repay project financing sources. For
example, TIFIA provided a $171 million loan for the Transbay Transit
Center, a major passenger transportation hub connecting San Francisco
with other Bay Area communities. The loan will be repaid with the tax
increment collected from State-owned parcels and passenger facility
charges from AC Transit, the Center's initial primary tenant.
In the last 2 years, demand for TIFIA credit assistance has far
outpaced the program's limited budget authority. The Administration's
Fiscal Year 2012 budget proposed increases to TIFIA's annual funding by
almost four times to $450 million. Senator Barbara Boxer, Chairman of
the Senate Committee on Environment and Public Works, and
Representative John Mica, Chairman of the House Transportation and
Infrastructure Committee, support increasing TIFIA's annual budget
authority to $1 billion.
TIGER Program
The Transportation Investments Generating Economic Recovery (TIGER)
program represents a more proactive approach than TIFIA, being one of
the Department's most ambitious efforts to date to leverage federal
investments. The program catalyzes local, regional and national
planning and facilitates substantial co-investment by the public and
private sectors--the average dollar invested by the TIGER program is
matched by more than three dollars of State, local or private funding.
This far outperforms the leveraging we see in the formula programs.
Among the factors that make this program a success are its ability
to fund a full range of surface transportation projects, not just
particular modes, and its ability to provide funding to any government
project sponsor, not just State DOTs and transit agencies. The
program's flexibility has allowed it to fund an unprecedented number of
innovative and creative projects that the federal government would
otherwise find difficult if not impossible to fund.
The competitive nature of the TIGER program helps spur cooperation
among a variety of project sponsors and brings new sponsors and their
ideas to the table. Applicants understand that whether or not they
secure grants depends, at least in part, on their ability to leverage
as many sources of funding as they can and demonstrate that they can
make federal dollars go further.
As an example, the TIGER program is investing in the Crescent
Corridor freight rail project, a multi-billion dollar program centered
on the continued development of Norfolk Southern's rail intermodal
route from the Gulf Coast to the Mid-Atlantic. DOT provided a $105
million TIGER grant to support construction of two new intermodal
facilities in Memphis and Birmingham, and this investment is being
matched with $72 million of the railroad's private funds. Connecting
the 2,500-mile Crescent Corridor network of rail lines and regional
intermodal freight distribution centers will strengthen domestic and
international freight distribution in the Southeast, Gulf Coast and
Mid-Atlantic markets. This will help the railroad and also achieve key
public objectives--increased freight rail capacity and efficiency,
reduced emissions and fuel consumption, and has the potential to reduce
highway congestion for drivers on neighboring roads, as well as
reducing highway maintenance costs.
The TIGER program also provided $98 million for the National
Gateway Freight Rail Corridor Project, which will allow CSX to increase
freight rail capacity and carry double stacked containers in Ohio, West
Virginia, Pennsylvania and Maryland, from East Coast ports to the
Midwest. Similarly, the CREATE Program, a multi-billion dollar package
of 78 projects that address nationally-significant freight rail
congestion in the Chicago area, received a $100 million TIGER grant to
help complete a handful of its highest priority projects, which will be
matched by $62 million of other private and public funds.
DOT also uses TIGER funds to support TIFIA financing. In one case,
DOT is funding an intermodal project linking the transit system to the
aviation system. Up to $20 million in TIGER funds will support a $546
million TIFIA loan for the Crenshaw/LAX Transit Corridor Project in Los
Angeles, a new 8.5-mile light rail line connecting the Exposition Line
at Exposition/Crenshaw Station and the Metro Green Line. The project
will include six to eight new stations and will directly connect to Los
Angeles Airport. The TIFIA loan will cover approximately one-third of
the total project cost of $1.7 billion. The project is a key piece of
the City's 30/10 initiative, an effort to accelerate 12 major transit
projects in just 10 years, rather than 30 years, using innovative
financing backed by the voter approved Measure R sales tax.
TIGER can also support a more entrepreneurial and experimental
approach to credit assistance. DOT provided four TIGER applicants with
``TIFIA Challenge Grants,'' a $10 million grant, or the opportunity to
use the $10 million as budget authority to support a larger investment
in the form of a TIFIA loan. This gave the project sponsors a unique
opportunity to catalyze an innovative financing strategy that had not
previously been considered, or thought feasible, and enabled DOT to
work proactively with project sponsors to get the best possible return
out of its federal investments.
The first project to successfully leverage a TIFIA Challenge Grant
is the U.S. 36 Managed Lanes/Bus Rapid Transit Project in Colorado. The
project will accommodate bus rapid transit, bikeways and congestion-
reducing managed lanes northwest of Denver. Colorado plans to use the
$10 million TIFIA Challenge Grant to support a $55 million TIFIA loan
which helped galvanize a $300 million financing package that includes a
robust mix of State, local and federal funds. Not only did the TIFIA
Challenge Grant help facilitate a more robust TIGER project than could
have been achieved with a $10 million grant, but it may also create
momentum for Colorado's procurement of the next phase of the project,
extending the lanes an additional eight miles to Boulder. The TIGER-
funded portion of the project is being procured as a design-build
project and the next phase may be structured as a PPP with more private
sector investment.
However, not all of the recipients of the TIGER program's TIFIA
Challenge Grants were successful in catalyzing a more robust financing
package. DOT worked with the South Carolina DOT to turn a $10 million
grant for a portion of the overall I-73 construction project west of
Myrtle Beach into a TIFIA loan, but the SCDOT determined that this
portion of the project in a fairly rural area would not generate
sufficient toll revenue to support financing without the completion of
the much larger link from I-95 to Myrtle Beach.
RRIF Program
The Railroad Rehabilitation and Improvement Financing (RRIF)
program provides direct loans and loan guarantees to acquire, improve,
or rehabilitate intermodal or rail equipment or facilities, including
track, components of track, bridges, yards, buildings and shops and
develop or establish new intermodal or railroad facilities. Under this
program the Federal Railroad Administrator is authorized to provide
direct loans and loan guarantees up to $35 billion. Up to $7 billion is
reserved for projects benefiting freight railroads other than Class I
carriers. The Federal Railroad Administration has made 30 loans
totaling $1.6 billion.
Eligible borrowers include railroads, State and local governments,
government-sponsored authorities and corporations, joint ventures that
include at least one railroad, and limited option freight shippers who
intend to construct a new rail connection. The loans can fund up to 100
percent of a railroad project, with repayment periods of up to 35 years
and interest rates equal to the rate on Treasury securities of a
similar term.
At the end of June, the Department announced a $562.9 million loan
to Amtrak under the RRIF program that will finance the purchase of 70
high-performance, electric locomotives from Siemens Industry USA. The
locomotives will be built by American workers in Norwood, OH, and
Alpharetta, GA, with final assembly in Sacramento, CA, helping create
hundreds of manufacturing jobs and spurring the domestic manufacturing
sector. These locomotives are more energy-efficient and will enable
Amtrak to improve frequency, performance and reliability for regional
and intercity routes along the Northeast and Keystone Corridors. While
the Amtrak loan is the largest loan issued through the RRIF program to
date, recent interest in the program suggests that RRIF could
increasingly be used for major railroad investments, including freight
rail investments that leverage substantial investments by private
freight railroads, among others. At the same time, we recognize DOT's
responsibility to ensure that these loans serve meaningful public
policy ends and are not unduly risky--as well as to consider whether
these investments would be made without federal support.
Significantly, RRIF assistance was also recently combined with
TIFIA assistance to make a unique and innovative financial plan
feasible. The $516 million Denver Union Station Project is a public-
private development venture located on approximately 50 acres in lower
downtown Denver, which includes the historic Denver Union Station
building, rail lines, vacant parcels, street rights-of-way, and offsite
trackage rights. The Project comprises the redevelopment of the site as
an intermodal transit district surrounded by transit-oriented
development, including a mix of residential, retail, and office space.
The transit district will serve as a regional multimodal hub connecting
commuter rail, light rail and bus rapid transit, regularly scheduled
bus service, and other related transportation services. The federal
government is providing a TIFIA loan of $145.6 million, a RRIF loan of
$155.0 million, an FHWA grant of $45.3 million, an FTA grant of $9.5
million, and a Recovery Act grant of $28.4 million.
While the Denver Union Station Project had to approach each of
these federal programs independently, and comply with each program's
specific requirements and timelines, they were ultimately able to
assemble a viable financial plan. A national infrastructure bank would
allow DOT to coordinate most or all of this assistance--senior debt,
subordinated debt and grants--through one institution, which would save
substantial time and money for all of the relevant parties, and could
be the difference in a project's feasibility.
Private Activity Bonds
The Private Activity Bond (PAB) program allows for the issuance of
tax-exempt debt to support private development and financing of public
infrastructure. One active project estimates that PABs could save close
to 9 percent of the total project cost. The bonds are issued by a
public sector conduit and purchased by private investors, but the
private entity developing the project is solely responsible for
repayment of the bonds. SAFETEA-LU amended the Internal Revenue Code to
add highway and freight transfer facilities to the types of private
projects for which PABs may be issued, and PABs are now being
incorporated in the financing plans of several major PPPs.
PABs can be used for surface transportation projects which receive
federal assistance through certain programs, including highways,
transit, passenger rail, and freight transfer facilities. The law
limits the total amount of such bonds that may be issued to $15 billion
and directs the Secretary of Transportation to allocate this amount
among qualified facilities. Providing private developers and operators
with access to tax-exempt interest rates lowers the cost of capital,
enhancing investment prospects. To date, the DOT has approved almost $6
billion of PAB allocations for eight projects, of which over $2 billion
of PABs have been issued for five projects. Increasingly, PABs and
TIFIA credit assistance are being used together to support multi-
billion dollar projects.
One recent example is the I-635 Managed Lanes Project, which will
relieve congestion north of Dallas on 13 miles of Interstate highway.
The total project cost is $2.6 billion, and the project is being
developed as a PPP. The private concessionaire will be responsible for
design, construction, financing, operation and maintenance of the
project for 52 years and is committing $672 million in equity, which
includes an equity commitment from the Dallas Police and Fire Pension
System. DOT played a key role in the financing and helped facilitate
the PPP structure by providing an $850 million TIFIA loan and
authorizing $606 million in PABs.
The I-635 Managed Lanes Project highlights a new element in
financing PPPs, which is the successful incorporation of a direct
pension fund investment in the financial plan. While the involvement of
pension funds as direct investors in public transportation projects is
still rare, this project demonstrates that pension funds are interested
in infrastructure investments through PPPs. Sharing PPP revenue with
public pension systems presents additional potential for the public
sector to realize value from transportation PPPs.
The TIFIA program and PABs demonstrate the extent to which tolling
and pricing can facilitate partnerships with the private sector to
supplement current transportation funding and increase overall
investment in transportation infrastructure. Tolls present a dedicated
source of revenue which can be forecasted and used to repay long-term
debt and equity investments. However, just because tolls make a project
commercially viable does not necessarily mean the project is well-
aligned with national, regional or local public policy considerations.
As with any PPP, a toll road needs to be examined through the lens
of public policy considerations. For example, there are important
ongoing discussions about whether existing Interstate highways should
be tolled or only new capacity; what should be done with excess revenue
generated by tolling; what type of pricing mechanisms are appropriate
for managing demand and changing driver behavior; and whether congested
urban areas might need greater tolling flexibility to address their
needs.
Where a tolling structure makes sense there are increasing
opportunities to implement variable or congestion pricing mechanisms
that not only generate revenue to pay for the facility, but also help
manage demand for the facility by encouraging more use of off- peak
capacity, shared rides and transit use. In addition to generating
funds, pricing can reduce the overall need for investment in new
transportation facilities.
The Capital Beltway High Occupancy Toll (HOT) Lanes project is a
partnership between the Virginia DOT and a private concessionaire to
deliver new lanes and over 50 bridges and overpasses on one of the
busiest stretches of Interstate in the country. The $1.9 billion
project is deploying innovative managed lanes to provide real-time
congestion mitigation options for transit vehicles and drivers paying
tolls from the Springfield Interchange to the Dulles Toll Road. The
private concessionaire will be responsible for design, construction,
financing, operation and maintenance of the project for 85 years. In
addition to public funds, the private partner is committing $350
million in equity. DOT played a key role in the financing by providing
a $589 million TIFIA loan and authorizing $589 million in PABs.
Infrastructure Bank
The infrastructure bank is one of the most promising ideas for
leveraging more private sector dollars into infrastructure and has
generated support from leaders here in Congress, including the Chair
and Ranking Member of this Committee, Senators Lautenberg, Warner and
Kerry and Representatives DeLauro and Ellison. President Obama has been
a long-time supporter and the Administration's budget for Fiscal Year
2012 requests $5 billion for a new national infrastructure bank. This
is the first year of a six-year plan to capitalize the bank with $30
billion.
The infrastructure bank, which would provide grants, loans, loan
guarantees or a combination thereof to the full range of passenger and
freight transportation projects in urban, suburban and rural areas,
marks an important departure from the federal government's traditional
way of spending on infrastructure through mode-specific grants and
loans. By using a competitive, merit-based selection process, and
coordinating or consolidating many of DOT's existing infrastructure
finance programs, the infrastructure bank would have the ability to
spur economic growth and job creation for years to come.
Rigorous benefit-cost analysis would focus funding on those
projects that produce the greatest long-term public benefits at the
lowest cost to the taxpayer. This is achieved, in part, by encouraging
private sector participation in projects in order for them to be
competitive. Other important selection criteria would encourage
accelerated project delivery and risk mitigation.
The increased capacity and coordination of federal infrastructure
finance programs in the infrastructure bank will allow for greater
investment in those projects that have the largest and most immediate
impact on the economy. Many of these projects of national and regional
significance are currently underfunded due to the dispersed nature of
federal investment and lending. The national infrastructure bank would
be able to address this issue in a systemic fashion, partnering with
the private sector as well as State and local governments to address
the most pressing challenges facing our transportation networks. We
expect that an infrastructure bank would be well-positioned to better
align investment decisions with important national economic goals, such
as increasing exports. This would amplify job creation and economic
growth.
The emphasis placed at the federal level on competitive, merit-
based selection will also serve as a model to State and local
governments who will continue to make the bulk of infrastructure
decisions. In Chairman Mica's recent transportation reauthorization
proposal, he focuses on providing incentives for States to create and
capitalize State infrastructure banks. A national infrastructure bank
could leverage State investments through their own infrastructure
banks.
The national infrastructure bank would build on the best practices
developed through DOT's existing credit assistance and discretionary
programs to provide a more robust and effective mechanism for investing
federal funds and attracting substantial private sector co-investment
to our most challenging and complex transportation projects.
Conclusion
The federal government has many programs that facilitate and
encourage private investment in transportation projects. Of particular
note are the TIFIA, TIGER and RRIF programs, PAB and the proposed
national infrastructure bank. These programs reflect an acknowledgement
that the federal government needs to take a more active role in
supporting major transportation projects with targeted grants and
credit assistance. The Department's experience is that competitive
national programs facilitate creative and innovative approaches at the
State and local level to leverage substantial revenue for major
transportation investments.
I think it is also important for the federal government, in close
collaboration with the private companies engaged in PPPs, to do a
better job of educating and supporting all of the relevant public
entities that are considering PPPs. There is value for the public
sector in innovative P3s, but there is also complexity and risk.
As we consider increasing the role innovative finance and private
investment play in our transportation system, we must insure that
applicants of all sizes and in all parts of the country have the
guidance and technical assistance they need to succeed.
We already provide that through our program experts at DOT and in
the future we hope to better tap into the expertise represented here
today from the private sector, labor and other transportation
stakeholders.
Thank you again for the opportunity to discuss these important
programs and DOT's efforts to increase private sector investment in
transportation infrastructure. On behalf of the Administration and the
Secretary, I can underscore that we look forward to working with this
Committee and other Members of Congress to consider innovative ways to
utilize private sector capital and expertise to improve our nation's
transportation infrastructure. I would be pleased to answer any
questions you may have.
The Chairman. Thank you.
Mr. Robert Dove is the Managing Director of Carlyle
Infrastructure Partners, the Carlyle Group. That's a hefty
position.
And you nodded your head when I said all those billions are
available. So I want to hear what you have to say.
STATEMENT OF ROBERT DOVE, MANAGING DIRECTOR,
THE CARLYLE GROUP
Mr. Dove. Thank you. Mr. Chairman, Senator Hutchison, and
members of the Committee, thank you very much for the
opportunity to testify. And I commend you and the Committee for
holding today's hearing on such an important issue.
The Carlyle Group is a global alternative asset manager
with approximately $150 billion in assets under management. I
am the co-head of the Carlyle Infrastructure Fund, Carlyle
Infrastructure Partners, a $1.2 billion fund that was raised
specifically to invest in infrastructure projects here in the
United States.
I would like to highlight for the Committee a recent
investment by our fund that involved a partnership with the
state of Connecticut. In this case, we formed a 35-year public-
private partnership with the state of Connecticut to finance
the redevelopment and operations of 23 highway service areas.
We created a project that all sides of the political landscape,
including labor, supported. Carlyle and our partners will
invest approximately $180 million in improvements and upgrades
over the next 5 years, investments that we estimate will create
375 additional jobs. In total, the state is expected to receive
nearly $500 million in economic benefit from the redevelopment
effort.
Our partnership with the state of Connecticut is a good
example of the benefits of innovative financing and project
delivery. The completion risks, cost-overrun risks, have all
been shifted to Carlyle and its partners, while there is an
ongoing revenue-sharing agreement with the state of
Connecticut. In that context, I would recommend to the
Committee three general points.
First, innovative financing, particularly direct private
investment, is essential to reforming our nation's
infrastructure funding policy. This shift from how much to fund
to how to create more funding is an important opportunity for
this Congress. By making programmatic and regulatory changes in
the federal law, Congress can encourage state and local
governments to develop innovative financing models. It is
important to note that advocating for this kind of financing
does not mean wanting to sell off America's public
infrastructure to private investors. The assumption that
critical infrastructure projects must either be publicly
financed or privatized is a false assumption.
Second, the establishment of a national infrastructure bank
is a means to develop innovative financing and to aid the
delivery of infrastructure project improvements. A national
infrastructure bank can accelerate large capital projects by
leveraging direct private investment into projects that are
critical to the nation's infrastructure.
Mr. Chairman, although I have lived in the United States
for 30 years, as you can tell from my accent, I was not born in
the United States. Being from the United Kingdom, I have the
opportunity to directly observe and work with an infrastructure
bank in Europe, and I believe we can all learn from their
experience.
The European Investment Bank, which Senator Kerry referred
to, provides loans and guarantees. These loans and guarantees
are expected to be repaid. The EIB lends money for long periods
of time, sometimes as much as 40 years, at a very low interest
rate and in doing so provides capital that allows for
participants, both commercial banks and private sector equity
investors like myself, to participate in a project that would
otherwise struggle to obtain financing.
Importantly, the lending policy of the EIB is driven by
government. But the actual credit decisions on specific loans
and guarantee proposals presented to the bank are determined by
a professional staff operating independently within the bank.
Like the EIB, in a U.S. infrastructure bank, the policy
should be determined by Congress and other federal officials.
You, Senators, decide what infrastructure is to be built--
roads, bridges, high-speed rail, alternative energy, water
treatment facilities, or whatever. The bank's function is only
to determine which projects that are submitted for a loan or a
guarantee are creditworthy. Its function is to make sure the
projects are a consequence of the policies you have set and are
financially strong.
The last point I wish to make is for the national
infrastructure bank to be successful, Congress must provide
additional reforms to our transportation public policy. The
creation of a national infrastructure bank should be a
manifestation of a deeper, more profound change to our national
transportation policy. Specifically, outcome-based performance
standards should be established by Congress.
For example, life-cycle costs should be an established
criterion when evaluating a major capital project. Without it,
a true comparison of the benefits of private investment versus
public debt financing is not possible, and a flawed cost of
capital analysis of the private investment option is likely.
Mr. Chairman and members of the Committee, the need for
investment in our infrastructure is significantly larger than
any one revenue source. There is a need to design policies to
access different funding sources while being a good steward of
the nation's infrastructure. A national infrastructure bank is
one method by which private investment can serve as one of
those sources of capital.
Thank you once again for the opportunity to testify, and I
would welcome your questions.
[The prepared statement of Mr. Dove follows:]
Prepared Statement of Robert Dove, Managing Director, The Carlyle Group
Mr. Chairman, Senator Hutchison, and members of the Committee:
Thank you very much for the opportunity to testify on the need for
innovative financing--such as a national infrastructure bank--as we
work to improve America's transportation infrastructure. This subject
is important to our nation's future, and I commend the Committee for
holding today's hearing.
The Carlyle Group is a global alternative asset manager with
approximately $150 billion in assets under management. Carlyle invests
in small, medium and large companies, real estate, infrastructure
projects and financial services firms. Whether an investment is in a
small, growing company, a large infrastructure project, or a real
estate asset, our strategy is the same: we seek to build long-term
value in a company or asset through investments, improvements in
management, and efficiency enhancements. Today, we have investments in
approximately 80 companies based in the United States, 77 percent of
which are small or medium-size businesses (fewer than 2,500 employees),
as well as about 125 real estate projects, which include commercial,
residential, and health care or data centers. Combined, these companies
employ more than 216,000 people in the United States in all 50 states.
I am the co-head of Carlyle's infrastructure group, which has
raised $1.2 billion specifically to invest in infrastructure projects
with its primary focus on the United States. And we are quite proud
that public and private pension funds contributed over forty percent of
the fund that we manage and invest on their behalf.\1\
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\1\ The actual amount that fund investors contribute to a
particular transaction frequently varies from the level of commitment
those fund investors have made to a particular fund. This differential
stems from a number of factors, including the investments made by a
management team or co-investors.
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Carlyle Infrastructure Partners invests in companies that contract
with state and local governments throughout the United States to
provide services, such as treatment of biosolids at the end of the
wastewater treatment process, school bus transportation, and other
infrastructure-based services. I would like to highlight our recent
innovative partnership with the State of Connecticut to redevelop,
operate, and maintain Connecticut's 23 highway service areas across the
state.
In this case, our fund formed a 35-year public-private partnership
with the State of Connecticut to finance the redevelopment and
operations of highway service areas at a time when the Connecticut
state budget was under great stress. We were able to create a project
that garnered support from all sides of the political landscape, as
well as important stakeholders in the business community, organized
labor, local communities, law enforcement, and environmental groups.
Carlyle and our partners plan to invest approximately $180 million in
improvements and upgrades to the service areas over the next 5 years,
investments that we estimate will create approximately 375 additional
permanent and construction-related jobs--a 50 percent increase above
the 750 jobs that supported the service areas before we started our
project. In total, the state is expected to receive nearly $500 million
in economic benefit from the redevelopment effort.
Our partnership with the state of Connecticut is a good example of
the benefits of innovative financing and project delivery. State and
federal entities benefit when the best attributes of publicly-owned
infrastructure are combined with private sector capital and expertise
to create genuine partnerships. Creating innovative funding models--
including a national infrastructure bank--would help develop projects
along the lines of Connecticut.
In that context, I will focus on three general points this morning:
1.The need for innovative financing in critical infrastructure,
and the opportunity it presents for genuine partnerships
between the public and private sectors;
2.The establishment of an infrastructure bank as a means to
develop innovative financing and to aid the delivery of
infrastructure improvements;
3.The need for transportation policy reforms that must
accompany innovative financial practices in order to maximize
private investment.
1. Innovative financing--particularly direct private investment--is
essential to reforming our nation's transportation funding
public policy.
The condition of our national infrastructure and the reliance of
our nation's economic security on increasing the capacity of our
national transportation system are well-documented.\2\ Furthermore,
this Committee is keenly aware of the shrinking Federal, state, and
local resources available to address these needs.
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\2\ See studies, 2009 Report Card for American Infrastructure,
American Society of Civil Engineers, March 25, 2009; Well Within Reach:
America's New Transportation Agenda, the Miller Center of Public
Affairs at the University of Virginia, October 4, 2010.
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As former Secretary of Transportation Norman Y. Mineta said in a
speech last April:
``What traditionally has been a quantitative funding issue for
our nation's infrastructure has now become a qualitative policy
issue. In other words, fighting the perennial battle of getting
more money from traditional sources won't suffice. The needs
are great--and getting greater--and more money isn't coming.''
\3\
---------------------------------------------------------------------------
\3\ ``Should there be a National Infrastructure Bank?'' Norman Y.
Mineta, Speech before the U.S. Chamber of Commerce, April 12, 2010.
This shift from ``how much to fund'' to ``how to create more
funding'' as described by Secretary Mineta is an important opportunity
for this Congress. Financial experts estimate that the amount of
available private sector equity capital raised to invest in global
infrastructure assets is $38 billion.\4\ Several major financial
institutions and a growing number of private equity firms have formed
infrastructure funds to invest in various infrastructure assets. In
addition, several pension funds representing public and private sector
employees have identified the benefits of infrastructure investments:
the potential to receive increased returns over government-issued
securities, at lower risk than traditional equity investments.
Recently, Richard Trumpka, the president of the AFL-CIO announced that
organized labor would invest more than $10 billion in U.S.
infrastructure.\5\
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\4\ ``Road Map to an American Partnership,'' The Combined
Infrastructure Working Group, June 2009.
\5\ ``AFL-CIO Announces Major Commitment to Action on
Infrastructure Investment and Training,'' AFL-CIO press release, June
29, 2010
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By making programmatic and regulatory changes in federal law,
Congress can encourage state and local governments to develop
innovative financing models that access this available private capital.
It is important to note that advocating well-crafted funding models
that access direct private investment does not mean selling off
America's public infrastructure to private interests as some have
asserted.
The assumption that critical infrastructure projects must be either
publicly-financed or privatized is a false choice. State and local
officials responsible for infrastructure project delivery do not have
to be limited to a set of binary decisions if they want to consider
leveraging private investment: organized labor vs. a non-union work
force; existing permitting procedures vs. relaxed environmental
standards; or using public debt vs. surrendering public control to
private interests. Innovative funding models can provide a third way
for designing, building, operating, maintaining, and financing our
capital projects.
At Carlyle, we believe these goals can be accomplished by
developing genuine partnerships with public officials and other key
stakeholders. As I outlined in describing the characteristics of our
Connecticut project, innovative planning, stakeholder involvement, and
a commitment to taking the best elements from the public and the
private sides can create a project that accesses new sources of capital
in a way that supports new infrastructure development.
2. The establishment of an infrastructure bank as a means to develop
innovative financing and to aid the delivery of infrastructure
improvements.
A national infrastructure bank can accelerate large capital
projects by leveraging direct private investment into projects that are
critical to the nation's infrastructure.
Several international entities have implemented infrastructure
banks, and we can learn from their experiences. The European Investment
Bank (EIB) is one and there are others. Giving states and regions the
opportunity to access this funding with U.S. Government backing would
be critical and should not threaten Congressional prerogatives. The EIB
provides loans and makes guarantees. The loans and guarantees are
expected to be repaid or extinguished.
The EIB lends money for very long terms (e.g., 40 years) at a low
interest rate and, in doing so, provides for a level of subordinated
capital that allows other participants, both banks and private sector
investors, to participate in a project that would otherwise struggle to
obtain financing. The lending policy of the EIB is driven by the
government, but the actual credit decisions on specific loans and
guarantee proposals presented to the bank are determined by a
professional staff operating independently within the bank.
This process achieves an important policy goal. Congress and other
federal decisionmakers would still determine the appropriate policy
goals: identifying the targets for infrastructure investment;
prioritizing modes of transportation; deciding where to increase
capacity; testing new infrastructure technologies; and determining
other critical policy questions. The bank's expertise can help assess
the creditworthiness of a certain class of projects and determine
whether these projects can gain investment funding, or if they should
be viewed in a different category of projects that merit funding from
the federal government and other state and local sources.
Congress should look at the infrastructure bank as a true bank that
must make difficult credit decisions. The institution's primary purpose
is to lend to large projects with long-term maturities at a small
margin over its borrowing cost. The bank would provide a project with a
base of capital that could then attract, either at the same time or
later, outside private investment that we need to support our nation's
infrastructure. The bank should cover its costs, but not operate as a
profit-making venture. The purpose of the bank should be to utilize its
expertise to attract additional investment from the private sector for
public infrastructure priorities, rather than replacing existing
funding from government institutions.
3. For innovative financing practices like the infrastructure bank to
be successful, Congress must provide additional reforms to our
current transportation public policy.
The creation of an infrastructure bank should be a manifestation of
deeper, more profound changes to our national transportation policy;
otherwise the bank and other innovative practices risk contributing to
existing shortcomings in our transportation financing policies.
Specifically, outcome-based performance standards should be encouraged
at the baseline policy level. Clear, transparent, and concrete
performance metrics are needed to measure the success and benefits of
major transportation projects.
Life-cycle costs should be an established criterion when evaluating
a major capital project. Without it, an ``apples-to-apples'' comparison
of the benefits of private investment vs. public debt financing is not
possible and a flawed ``cost of capital'' analysis of the private
investment option is likely. Additionally, requiring rigorous standards
for analysis of expected users of a project, such as traffic studies,
should be implemented so that accurate projections that affect costs
and benefits are possible.
Congress should establish measurable performance metrics on the
economic benefits of a major project, or the environmental benefits a
infrastructure project will provide.\6\ Such standards will provide
financing entities like the infrastructure bank with the ability to
provide more extensive and more accurate data to better assess the
impact and worth of an infrastructure project.
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\6\ ``Transitioning to a Performance-Based Federal Surface
Transportation Policy,'' The Bipartisan Policy Center, June 23, 2010.
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Having innovative financing models--including an infrastructure
bank--that attract private capital directly to critical infrastructure
projects will bring other benefits with respect to how projects are
completed. These benefits include increased accountability and a
shifting of financial risk from taxpayers to investors; unlike funding
received from public debt financing, the private investment partner
assumes the risk of success or failure. The private partner works with
the public partner throughout the entire spectrum of the project--the
design, construction, operation, and the maintenance. Therefore, the
private partner has a different role, and risk equation, than a
bondholder because the private partner is accountable for the project
being completed on time and on budget.
Mr. Chairman and members of the Committee, the need for investment
in our nation's infrastructure is significantly larger than any one
revenue source, and there is a need to design policies to access
different revenue sources while being good stewards of the nation's
infrastructure and meeting the challenges its current condition
presents. A national infrastructure bank is one method by which private
investment can serve as one of those revenue sources. Coupled with
genuine reform, the bank could provide needed funding for our national
infrastructure.
Thank you once again for the opportunity to testify.
The Chairman. Mr. Dove, that was an excellent statement,
and I thank you very, very much.
Mr. Dove. Thank you.
The Chairman. Mr. Perry Offutt, who is the Managing
Director, Head of Infrastructure Investment Banking for the
Americas, from a company called Morgan Stanley.
STATEMENT OF J. PERRY OFFUTT, MANAGING DIRECTOR,
INVESTMENT BANKING DIVISION,
MORGAN STANLEY & CO. LLC
Mr. Offutt. Good morning.
The Chairman. Good morning.
Mr. Offutt. Good morning, Mr. Chairman, Senator Hutchison,
and members of the Committee. It's my pleasure to be here this
morning.
My group at Morgan Stanley focuses on innovative
transaction structures to utilize private capital to invest in
infrastructure projects. As a financial advisor focused on
public-private partnerships, or P3s, I appreciate the
opportunity to share my perspective on how federal funds can be
used to leverage and partner with private investment.
Morgan Stanley estimates that over $300 billion of private
capital has been raised to invest in infrastructure projects.
This capital is attracted to these investment opportunities,
given the potential to achieve long-term, stable cash-flows and
attractive risk-adjusted returns. Many of these funds,
typically pension or infrastructure funds, have the ability to
invest in various geographies around the world. However, they
tend to focus on jurisdictions with stable economic and
regulatory environments such as OECD countries and can invest
in various infrastructure verticals such as transportation,
regulated utilities, and energy.
Attracting the private sector as a partner can leverage
public funds and deliver a superior outcome for the project.
For example, the private sector can often build a project more
quickly and at a lower cost as well as drive efficiencies over
time by introducing technology solutions. Given that private
capital can focus on a variety of areas outside U.S.
transportation infrastructure, it is important to demonstrate
that a project is commercially and financially viable and has
political support.
Because of certain return expectations and the desire for
stable cash-flows, some projects might not typically lend
themselves to P3s, such as many transit projects. However, they
could be strong P3 candidates if the project is secured by some
form of availability payment to protect against the risk of
recurring operating losses.
Another challenge facing U.S. P3s is convincing the private
sector that there is political will to complete the P3. Given
the high due diligence costs to reach a binding bid, private
capital focuses early on regulatory and political approval
processes. Leadership from the federal government, as has been
done in Canada, Australia, and the U.K., can help attract
significantly more private capital to a greater number of key
infrastructure projects.
While many states and local governments are focusing on
these matters, top-down leadership is also needed to supply a
vision for the country and common P3 principles. Currently, no
standard or government entity exists to share best practices
across states and localities. The creation of a nonpartisan
infrastructure commission could help address that.
In addition, states and municipalities are in the need of
capital to support critical projects. A national infrastructure
bank could supplement the existing TIFIA, RRIF, TIGER, and
private activity bond programs. In order for the nation to
finance a wide variety of projects, sponsors need to have
access to a large variety of public and private financing
alternatives. That could include grants, loans, and loan
guarantees, all of which I think are very important.
In summary, the P3 programs developed in Canada, Australia,
and the U.K. have been very successful. They've helped
demystify and depoliticize the use of P3s as a financing
alternative. If the U.S. institutes similar programs at the
federal level, I believe P3s can be more widely accepted as a
viable financing alternative relative to traditional financing
sources such as tax-exempt financing.
Thank you very much for the opportunity to testify here
this morning on this very important topic, and I'll be glad to
answer any questions you may have as well.
[The prepared statement of Mr. Offutt follows:]
Prepared Statement of J. Perry Offutt, Managing Director,
Investment Banking Division, Morgan Stanley & Co. LLC
Good morning, Mr. Chairman, Senator Hutchison and members of the
Committee. It is my pleasure to be here this morning.
My name is Perry Offutt. I am a Managing Director in the Investment
Banking Division of Morgan Stanley and am the Head of Infrastructure
Investment Banking for the Americas. My group focuses on innovative
transaction structures to utilize private capital to invest in
infrastructure projects. Many of the transportation projects on which I
work are structured as public-private partnerships (defined below). I
work with both public and private sector clients. For example, I
recently advised on the following transactions:
1. OHL Concesiones/Morgan Stanley Infrastructure Partners on
their bid for the concession of Puerto Rico's PR-22 and PR-5
toll roads (public-private partnership bid submitted in May
2011)
2. City of Indianapolis on concession of City metered parking
system (public-private partnership closed in 2010)
3. City of Pittsburgh on $452 million proposal for concession
of City parking system (public-private partnership suspended
after a city council vote in 2010)
4. Citizens Energy Group on $1.9 billion acquisition of
Indianapolis water and wastewater system (approved by
regulators and scheduled to close in Q3 2011)
5. Morgan Stanley Infrastructure Partners on its acquisition of
NStar's district energy operations (closed in 2010)
As a financial advisor focused on public-private partnerships, I
appreciate the opportunity to share my perspective on how federal funds
can be used to leverage and partner with private investment to
supplement current transportation funding and increase overall
investment into transportation infrastructure projects.
Public-Private Partnerships
A Public-Private Partnership (``P3'') involves a long-term lease
(not a sale) of municipal assets (the ``Concession''). The specific
terms regarding how the asset is operated and maintained are included
in a contract between the public agency/government and a private sector
entity (the ``Concession Agreement''). The government retains ownership
with a right to reclaim the assets if the private operator does not
meet certain standards. Under such an arrangement, some degree of risk
and responsibility is transferred from the public to the private
entity.
Due to the many safety and security concerns associated with
transportation assets, it is essential that all potential private
partners undergo an extensive evaluation of their qualifications. Such
an evaluation is typical in P3 processes. Traditionally, the procuring
government entity will issue a Request for Qualifications (``RFQ'')
that requires private operators to submit a response listing their
qualifications in the areas of design, construction, operations and
maintenance, as well as describing their ability to finance
construction and improvements as necessary. In order to be considered
as a bidder for a P3, a private party needs to pass all criteria in
this qualifications phase. Consequently, the government can screen
which private bidding groups are able to submit a final bid for a P3
project.
Private Capital Available for P3s
Morgan Stanley estimates that over $300 billion of private capital
has been raised to invest in infrastructure projects. This capital is
attracted to these investment opportunities given the potential to
achieve long-term stable cash-flows and attractive risk-adjusted
returns for the project. Many of these funds (typically pension or
infrastructure funds) have the ability to invest in various geographies
around the world and across various infrastructure verticals (e.g.,
transportation, regulated utilities and energy). In order to mitigate
some of the macro risks, investors tend to focus on jurisdictions with
stable economic and regulatory environments.
Attracting the private sector as a partner can both leverage public
funds and deliver a superior outcome for the project. For example, the
private sector can often build a project more quickly and at a lower
cost; drive efficiencies over time by introducing technology solutions;
and develop incremental revenue sources by delivering additional
services.
Given that private capital can focus on a variety of areas outside
U.S. transportation infrastructure, it is important to demonstrate that
a project is commercially/financially viable and has political support.
Because of certain return expectations and the desire for stable cash-
flows, some projects do not lend themselves to P3s. For example, a
typical transit project is only a strong P3 candidate if it is secured
by some form of ``availability payment.'' The following is an example
of a P3 transaction that utilized an availability payment structure:
In October 2009, the Florida Department of Transportation
(``FDOT''), in conjunction with the City of Miami and U.S. DOT,
reached financial close for the Port of Miami Tunnel and Access
Improvement Project. This P3 project involves the construction
of a tunnel under the Port of Miami at an estimated project
cost of approximately $900 million (financed with public and
private capital). The winning bidder (Meridiam and Bouygues)
proposed providing $80 million in equity upfront plus helped
arrange $342 million of senior financing with project finance
banks. Other funding was provided by a TIFIA loan. In addition,
FDOT pledged to make ``milestone'' payments throughout the
construction process, followed by availability payments
following completion. These payments from FDOT helped provide
the winning bidder with comfort that, despite uncertainty
around the total traffic in the tunnel, the government was
willing to serve as a ``buffer'' for future traffic risks.
Depending on the specific projected cash-flows of the project,
this may or may not be needed.
Another challenge facing some U.S. P3s is convincing the private
sector that there is political will to complete the P3. Given the high
costs to reach a binding bid (i.e., significant due diligence costs),
private capital focuses early on the regulatory/political approval
process. Any additional federal support (both monetary and political)
would be very helpful to minimize this risk.
Current Need for Significant Infrastructure Investment
In 2009, the American Society of Civil Engineers (ASCE) reported
that $2.2 trillion would be needed over the next 5 years to raise
America's infrastructure from its current ``poor'' rating to a ``good''
rating, which is required to ensure reliable transportation, energy and
water/wastewater systems. For example, approximately $930 billion would
need to be spent on bridges and roads alone, and the ASCE estimates
that only 40 percent of this amount will be deployed. Such projected
shortfalls are quite troubling. No one wants another bridge to
collapse, as did the I-35W Mississippi River Bridge, so the time for
federal leadership on this topic is now.
When you compare the percentage of GDP that the U.S. is spending on
infrastructure relative to emerging markets, the ASCE's conclusion is
not surprising. For example, between 2000 and 2006, the total public
spending on infrastructure in the U.S. was less than 2.5 percent of GDP
versus China, which spent almost 10 percent.
Unfortunately, the current proposed infrastructure initiatives do
not address the magnitude or the immediate urgency of this problem.
Leadership from the federal government (as has been done in Canada,
Australia and the U.K.) could help attract significantly more private
capital to a greater number of key infrastructure projects.
While many states and local governments are focusing on these
matters, top-down leadership is also needed that includes a vision for
the country and common P3 principles. Currently, no standard or
government entity exists to share best practices across states and
localities. In addition, states and municipalities need capital to
support critical projects. Unfortunately, given: (1) ongoing stresses
on the global banking system; (2) large budget deficits projected for
states and municipalities; and (3) limited additional debt capacity at
state and local levels given current debt loads and large pension
liabilities, the federal government's presence is critical to support
essential projects.
Ideas to Consider
Various types of infrastructure projects need to be funded, ranging
from improvements of high cash generating ``brownfield'' projects
(i.e., existing operating assets) to investments in social services
that are not focused on profitability (e.g., public transit). In order
for the nation to finance such a wide range of projects, sponsors need
to have access to a large variety of public and/or private financing
alternatives. Therefore, I personally see the benefits of providing a
greater number of grants and low-cost loans (e.g., TIFIA and RRIF
loans) as well as taking steps to promote competitive capital market
alternatives (e.g., a healthy tax-exempt bond market). In many cases,
public capital from Federal, state and/or local sources can be
leveraged with additional capital from the private sector.
While states and local governments are pursuing initiatives to
address the U.S. infrastructure crisis such as implementing P3
legislation, the federal government should develop a long-term plan for
development and maintenance of the country's infrastructure as has been
done successfully by other countries. A National Infrastructure Bank
would be a key part of such a plan. However, other ways exist by which
the federal government can facilitate project development of national
significance and help ensure that projects do not get stalled or
terminated due to local issues. From the private market's perspective,
ensuring political will is just as important as ensuring access to
capital for a project; a project will not succeed without both of these
critical components.
Various parties at Morgan Stanley have discussed the concept of
creating a non-partisan infrastructure commission to serve as a
repository of best practices and help inform and empower local
governments to utilize all available tools, including private capital.
While there are several non-partisan groups acting as ``think tanks''
on this topic, no ``national infrastructure commission'' exists. Sadek
Wahba, Global Head and Chief Investment Officer for Morgan Stanley
Infrastructure Partners, has written on this topic. He calls for a
National Infrastructure Commission similar to Infrastructure Australia,
a statutory body established in 2008 to advise governments and
investors.
Examples in Other Countries
Canada, Australia and the U.K. took strong steps to promote public-
private partnerships and have seen the benefits of their efforts. For
example, the Building Canada program, which began in 2007, and the
U.K.'s National Infrastructure Plan announced in October 2010 both
focus on public policy and decision-making initiatives. Britain's plan
calls for creating ``the optimum environment for investment,''
improving the ``quality of data to inform decision-taking,''
``efficient and effective funding models,'' and ``addressing regulatory
failures.'' Most importantly, it calls for delivering
``transformational, large-scale projects that are part of a clear,
long-term strategy.''
The Building Canada program is also a comprehensive plan that aims
to assist municipalities in addressing their needs. It complements PPP
Canada, a program created to serve as a center of excellence for P3s.
PPP Canada has increased visibility of P3s as a procurement solution
and is consistent with efforts done at the provincial level such as
British Columbia's Partnerships BC. Programs such as PPP Canada help
demystify and depoliticize the use of P3s as a financing alternative.
The absence of this in the U.S. is a key reason that it is taking
longer for P3s to be widely accepted as a viable financing alternative
relative to traditional sources such as tax-exempt debt.
Thank you very much for the opportunity to testify here this
morning on this very important topic. I would be glad to answer any
questions that you may have.
The Chairman. Thank you, Mr. Offutt, very much for that
very hopeful statement.
Mr. Steve Bruno is the Vice President, Brotherhood of
Locomotive Engineers and Trainmen.
STATEMENT OF STEPHEN J. BRUNO, VICE PRESIDENT, BROTHERHOOD OF
LOCOMOTIVE ENGINEERS AND TRAINMEN
Mr. Bruno. Good morning, Chairman Rockefeller, Ranking
Member Hutchison, and members of the Committee.
As Senator Rockefeller stated, my name is Steve Bruno. I'm
Vice President of the Brotherhood of Locomotive Engineers and
Trainmen, which is a division of the Rail Conference of the
Teamsters. My comments have been submitted for the record, and
I'll give you a brief outline of what they say here today.
Everyone acknowledges that our nation's infrastructure is
in dire need of repair and expansion. The safety of the
traveling public and the jobs created by funding the expansion
and maintenance of our infrastructure are a win-win for
everyone affected and the nation as a whole.
The United States, as Senator Kerry referred to earlier, is
falling behind the rest of the world in infrastructure
investment. And according to The Economist, total public
spending on infrastructure in the U.S. now stands at 2.4
percent of GDP, and by contrast, Europe invests twice as much
at 5 percent of GDP, and China invests 9 percent or three times
as much as the United States relative to GDP.
America badly needs the economic boost infrastructure
investment provides. Private investment dollars sit idle on the
sidelines while unemployment stubbornly remains near record
levels. Infrastructure investment is a proven economic
stimulator and a job creator, and it's an investment in the
future of America.
Infrastructure investment creates jobs and grows the
economy, but we need to finance it. And for that, some would
overly rely on the private sector. We believe there's a role
for private capital in infrastructure financing, but strong
conditions must be attached and an appropriate balance must be
achieved.
Private funding must be used to supplement, not replace,
current sources of funds, and certain questions must be
answered before private funding sources are included, such as:
Who maintains control of the infrastructure? Who is liable if
private entities encounter financial difficulty or withdraw if
the rate of return is lower than they expected? What are the
long-term costs to the government? And when does the public's
need supersede the private investor's agenda? And where will
the resources be applied?
The leaders of our country certainly recognize that some
projects are never going to produce a profit. Bridges,
highways, passenger rail, and public transportation facilities
are intended to provide for the public good, not corporate
profit. The people of the United States should be the primary
beneficiaries of any infrastructure legislation, not the
corporate shareholders.
A prime example of a right way and a wrong way to pursue
private funding exists in the competing Northeast Corridor
plans put forth by Amtrak and Representatives Mica and Shuster.
As Amtrak President, Joseph Boardman, has previously testified,
Amtrak has issued a request for proposals for an implementable
business and financial plan for high-speed rail on the
Northeast Corridor as part of their long-term vision. It has
been fully vetted, peer reviewed, and properly balances private
capital investment with public benefits.
Conversely, the recent proposal by Representatives Mica and
Shuster is the wrong way to go. This plan would, in short,
saddle Amtrak with all its debt while removing the Northeast
Corridor, its greatest asset. This would endanger passenger and
commuter rail throughout the country, and it would cause
significant job losses among Amtrak employees. It places
corporate shareholders' interest ahead of the interest of the
general public. I liken that to locusts, corporate locusts.
They swarm in, they acquire all the profitable asset, and leave
nothing but the husk to rot, which is what you would find if
the Mica-Shuster proposal were successful.
Cost-benefit analyses cannot be the only determinant for
infrastructure investment. Safety and other public benefits
must carry greater weight. Frankly, we are concerned that when
private investment is the exclusive or even a predominant
source of financing, profitability will become the deciding
factor.
Inevitably, safety will be compromised with the end result
being that important safety improvements or projects will be
deferred due to a lack of profitability. Projects with the
highest profitability will be pursued while other less
profitable but nonetheless essential projects, such as those
that service poor or rural communities, will languish.
The public good must always outweigh profitability in any
infrastructure project which uses taxpayer money. And you must
ensure this for the working men and women that I represent and
the American people.
So thank you for your time, and I will be happy to try to
answer any questions that you may have.
[The prepared statement of Mr. Bruno follows:]
Prepared Statement of Stephen J. Bruno, Vice President,
Brotherhood of Locomotive Engineers and Trainmen
Good morning, Chairman Rockefeller, Ranking Member Hutchison and
members of the Committee. My name is Stephen Bruno and I am a Vice
President of the Brotherhood of Locomotive Engineers and Trainmen,
which is a Division of the Teamsters Rail Conference.
I am here today to provide you with our perspective regarding
infrastructure financing, and particularly using federal funding to
leverage private investment in public infrastructure.
I would first like to take the opportunity to compliment the
Chairman on his legislation, S. 936, which would finance large scale
projects of state, regional or national scope. We especially applaud
the provision that grants increased flexibility to states for the types
of projects they may fund with their Federal Highway Administration
Surface Transportation program funds, by adding passenger and freight
rail projects to the list of eligible projects.
At the same time, I would also like to encourage the Chairman to
complete the labor protections of working men and women to include
compliance with other laws that that Davis-Bacon does not cover.
Projects initiated pursuant to this legislation must be deemed railroad
projects so that upon completion the operating entity clearly
understands their legal responsibility to comply with provisions of the
Railway Labor Act, Railroad Retirement Act, and other statutes covering
railroad workers.
Everyone acknowledges that our nation's infrastructure is in dire
need of repair and expansion. The safety of the traveling public and
the jobs created by funding the expansion and maintenance of our
infrastructure, and from the resulting revenue created by increasing
employment and productivity are a win-win for every entity affected or
involved and for the nation as a whole.
Our rail corridors are clogged and our highways are even more
congested. Time is money, sitting in traffic is wasteful and these
delays unjustifiably increase the cost of moving goods throughout our
country. This cost is an increasing burden to the shippers and carriers
and is passed along to the consumer. Our truck drivers are more
stressed than ever, having to make split second decisions to avoid
collisions because of the traffic volume. Nearly half of the bridges in
the United States are more than 40 years old, and one of every four
bridges in the U.S. is structurally deficient or functionally obsolete,
as we were reminded when 13 people were killed and 145 were injured in
the tragic 2007 bridge collapse in Minnesota. (National Bridge
Inventory 2008, Federal Highway Administration).
We are way behind our global competitors in investing in our
infrastructure. Our transportation network is crumbling while countries
like China spend hundreds of billions of dollars to improve their
infrastructure and reduce the transportation cost for their goods.
According to the Economist, total public spending on transport and
water infrastructure in the U.S. now stands at 2.4 percent of GDP.
Europe, by contrast, invests 5 percent of GDP in its infrastructure,
while China invests 9 percent (``Life in the Slow Lane,'' The
Economist, April 28, 2011.) If we are to remain competitive in the
global marketplace, then we have to make a commitment to invest in our
ports, rail and highway network.
The economic benefits of infrastructure spending are indisputable.
Countless studies have shown that investment in infrastructure delivers
jobs and economic growth, as many statistics amply prove. At the
present time:
According to the U.S. Department of Transportation, roughly
47,000 jobs are supported for 1 year by each billion dollars of
annual spending on public transportation.
U.S. companies and individuals derive over $788 billion a
year in direct economic benefits from using highways and public
transportation to conduct business and commute to and from
work.
Businesses gain $314.7 billion a year in economic benefits
from their use of the nation's surface transportation system,
mainly through lower costs and higher productivity.
Individual Americans obtain $473.7 billion in direct
economic benefits from their use of highways and public
transportation, in the time they save commuting to work and the
additional income they can earn by working further from home.
Increased investment in highways and public transportation systems
would increase the benefits derived by both businesses and individuals
(APTA, Healthy Returns: The Economic Impact of Public Investment in
Surface Transportation, March 2005).
America badly needs an economic boost, as unemployment stubbornly
remains near record levels, while private investment dollars sit idle
on the sidelines. Infrastructure financing and investment is a proven
job creator and economic stimulator and it is an investment in the
future of America. The jobs directly created through rail
infrastructure investment--employing those who build, maintain and
utilize the infrastructure, such as the men and women the Teamsters
Rail Conference represents--are exactly the types of jobs this country
desperately needs. They pay a living wage, have good health benefits
and provide the security that comes from representation by a labor
organization. And just as importantly, infrastructure jobs cannot be
outsourced and the Americans who secure these jobs cannot have their
middle class wages and benefits cut out from under them unless other
Americans allow it to happen which is why the types of labor
protections we urged above are vital to the long-term success of this
nation.
The political climate of this country has shifted the debate over
financing such projects from the public sector to the private sector,
while ignoring the evolution of the private sector corporations into
multi-national entities who are responsible to their shareholders and
not the American people. Cash-strapped states and localities can barely
meet their current transportation needs, much less address those of the
future. Given these challenges, we do believe there is a role for
private capital in infrastructure financing to bridge that gap, but we
also believe that strong conditions must be attached.
First and foremost, private funding must be used to supplement, not
replace, the current sources of funds. Moreover, Americans--including
labor--must continue to have the same protections they are entitled to
and have fought so hard to acquire.
Certain questions must be answered before private funding sources
are allowed, including: Who maintains control of the infrastructure?
What are long-term costs to government? Who is liable if private
entities encounter financial difficulty, or withdraw when the rate of
return is lower than expected? There are numerous examples of rail
projects around the world, in which for-profit entities often fail to
maintain the same level of service or encounter financial difficulties,
and leave the government and the taxpayers holding the proverbial bag
for the costs of the project. A similar outcome here would be
unacceptable. The leaders of our country must recognize that some
projects are never going to produce a profit. Bridges, highways and
public transportation facilities are intended to provide for the public
good--not corporate profit. Now is the time to place the American
citizens' interests as the primary purpose of legislation not corporate
enticements. The people of the United States should be the primary
beneficiaries of this legislation, not corporate shareholders.
For this reason, cost-benefit analytics cannot be the only
determinant for new starts or improvement projects; safety and other
public benefits must also be weighed. Frankly, we are concerned that
when private investment is the exclusive source--or even a predominant
source--of financing, profitability will become the reason for
decisionmaking. Inevitably, safety will be compromised, with the end
result being that important safety improvements or projects could be
deferred due to lack of profitability. Similarly, projects with the
highest profitability will be pursued, while other more vital, but less
profitable, projects--such as those that service poor or rural
communities--languish. You cannot allow this to happen.
Additionally, while the jobs created by infrastructure development
and funding cannot be off-shored, the profits could be sent overseas if
significant foreign investment is allowed. Accordingly, Buy America
protocols, currently in use in infrastructure projects, must be
maintained. The federal funds contributed by American taxpayers that
leverage private investment should be used for the good of the American
public, and circulate in the American economy; they should not be sent
overseas.
We believe there is a right way and a wrong way to privately
finance infrastructure, and while examples of both abound, I am going
to use the circumstances of one piece of infrastructure that I am very
familiar with to illustrate this--Amtrak's Northeast Corridor. As you
know, Amtrak was founded 40 years ago when the freight railroads won a
15-year battle to cut and run from their common carrier obligation to
operate unprofitable passenger service. At that time, Congress
acknowledged the need to continue running passenger rail as a public
service and created the private entity that is the National Passenger
Rail Corporation.
One of the assets this creation brought to the company was the
Northeast Corridor, which is one of the few pieces of infrastructure
solely owned by Amtrak. Amtrak makes an operating profit in the
Northeast Corridor; that profit offsets operating losses on Amtrak's
other routes and acts to reduce the federal subsidy required for off-
Corridor operations. Amtrak also uses those revenues to help finance
and maintain its rolling stock, as well as more than 500 stations,
mechanical and equipment shops, and other facilities it owns or
operates in 46 states. The Northeast Corridor is also the backbone of
several commuter agencies that provide service to millions of American
citizens weekly. It is easily Amtrak's most valuable asset, and one of
the most valuable pieces of real estate in the Nation. As such, it has
attracted the attention of both Members of Congress and investors who
are now salivating over its profit potential. Once privatized, those
profits will never be reinvested in other less profitable routes or
facilities to the detriment of America.
The Northeast Corridor also represents one of the best
opportunities for the development of true high speed rail in this
country. To accomplish this goal, Amtrak has created an in-depth
business plan that will maximize the opportunity for private investment
to finance the construction of infrastructure and the acquisition of
equipment required to provide the next generation of high speed rail
(220 m.p.h.) in this country. And the railroad is going about this
process in the right way--a way that will not be detrimental to the
public or its workers by maintaining the spirit of public service that
was the reason behind the founding of Amtrak.
In April, Amtrak issued a request for proposals for an
implementable business and financial plan. Amtrak will be the primary
developer and operator of the system, and will identify and develop
both public and private funding to reach its goals. This plan, part of
the long term vision for high speed rail in the Northeast Corridor has
been fully vetted, peer reviewed and properly balances private capital
investments with public benefits.
Conversely, the proposal for the Northeast Corridor recently
unveiled by Representatives Mica and Shuster is severely out of
balance--placing corporate profits ahead of the public's interest. The
proposal would transfer Amtrak's crown jewel--the Northeast Corridor--
to the Department of Transportation and a new Northeast Corridor
Executive Committee. After transferring Amtrak's assets to their
corporate friends, the proposal leaves Amtrak with all its current
debts and liabilities. Their proposal allows corporate locusts to swarm
in, acquire and leverage the profitable assets and leave a rotting
husk.
Under that scenario, Amtrak would have to discontinue services to
many Americans and could not continue operating across the United
States. The proposal would also take the rest of Amtrak--its long-
distance and state-supported routes, which are operated on private,
freight rail lines--and bid it out to the private sector who long ago
determined it's not profitable--delivering a death knell to Amtrak. Let
me be clear, the Mica/Shuster proposal is a plan designed to put
America's national railroad out of existence.
In addition to the impact on the public, the consequences to the
workers from the Mica/Schuster corporate scheme are horrendous. While
its sponsors have repeatedly claimed the proposal would protect Amtrak
workers and maintain current labor standards, the truth is far
different. Basic rights and protections that cover current Amtrak
workers would be eliminated or significantly curtailed once the
conversion to private operation of Amtrak's Northeast Corridor or off-
corridor services occurs. Additionally, because the bill dictates that
the private entities providing rail service are considered rail
carriers ``only for purposes of title 49, United States Code,'' other
important laws and protections that cover rail workers would be
inapplicable and unenforceable because they are not in Title 49 but
elsewhere in the law. Private providers of passenger rail service,
unlike Amtrak and freight railroads, would not be covered by the
Railroad Retirement Act, the Railroad Unemployment Insurance Act, the
Railway Labor Act and numerous other statutes that apply to all rail
carriers and their employees under the Mica/Shuster proposal.
This proposal starkly contrasts with Amtrak's plans, and is a model
for what not to do when planning public/private partnerships. Not only
is the traveling public jeopardized by the Mica/Shuster legislation,
but it would cause 20,000 additional workers to go onto our nation's
unemployment rolls at a time when infrastructure investment should
create jobs--not eliminate them. It also would jeopardize the future
viability of the Railroad Retirement system.
In closing, I want to reiterate that we believe infrastructure
investment is an invaluable means of economic development, and that
there is a role for private investment. However, the infusion of
private funds must be done in a way that minimizes impact on taxpayers,
the public good and railroad workers. We must always remember that
public transportation--whether ports, roads or railroads--is just that:
a service to the public, whose interests must remain foremost.
Thank you again for the opportunity to appear before you and I will
be happy to answer any questions you may have.
The Chairman. Thank you very much, Mr. Bruno, for that.
And, finally, Mr. Peter Ruane, who is President and CEO of
American Road and Transportation Builders' Association. I
assume you have no point of view on this matter.
STATEMENT OF T. PETER RUANE, PRESIDENT AND CEO,
AMERICAN ROAD & TRANSPORTATION BUILDERS ASSOCIATION
Mr. Ruane. Yes, sir. I do.
Good morning, Chairman Rockefeller, Senator Hutchison,
members of the Committee. Thank you for inviting me to
participate in this important discussion about employing
innovative methods to help meet the nation's transportation
infrastructure needs.
The pending surface transportation bill is commonly
referred to as a jobs bill. While that is certainly true, this
characterization, frankly, undersells the value of this
critical legislation. Certainly, federal transportation
investments create jobs in the construction sector and
throughout our economy. But even though our industry's interest
coincides with the public interest, it is not the federal
government's responsibility to support my industry.
However, it is the federal government's responsibility to
ensure that efficient movement of commerce occurs among the
states. In today's global economy, a country's transportation
infrastructure capabilities are either a competitive advantage
or a stumbling block. And it's something that our economic
rivals, as already pointed out by several of the senators here
this morning, already recognize.
Furthermore, every manufacturing plant in the U.S., every
retail store, every service worker, and nearly 80 million total
American jobs are dependent on our highways, our airports, and
our railroads for inputs to deliver products and services. The
efficiency of the nation's surface transportation network
directly, directly, impacts the health of these dependent
industries.
Given the nation's vast transportation needs, we must
utilize every available potential solution, and that includes
the private sector. For over 20 years, over 20 years, our
organization has advocated for support for transportation
public-private partnerships. Through our P3 division, we
continue, we continue to push for specific reforms, as detailed
in our written testimony, that would further incentivize
private sector investment in transportation improvements.
The potential contribution of the private sector is
enormous, but it must be considered in its proper context.
First and foremost, private sector involvement requires the
opportunity to earn a return. Ironically, in today's Washington
Post, front page of the Metro Section, is a story of the
hotlane project in this region--which, unfortunately, the
private company is going to withdraw from part of that because
of their concern about its economic viability.
Second, the private sector will engage in transportation
improvements based on their business objectives and not by some
formula or some preconceived mechanism. Finally, one of the
biggest impediments to increasing private sector involvement in
transportation improvements is the lack of legal authority in
approximately half of the states to conduct actual public-
private partnership projects.
Congress should certainly pursue innovative methods of
delivering transportation improvements and attempt to leverage
public sector resources with private sector resources through
proven programs like TIFIA, Build America Bonds, and concepts
such as an infrastructure bank. We should also be realistic
about the potential in this area and recognize that innovative
financing is a supplement, a supplement to core public sector
involvement.
As pointed out in our written testimony, the reality is
there are not, there are not an abundance at the moment of
viable PPP transportation projects. In fact, the national
forecast is some two to four projects a year, 5 percent of the
market. And I urge you to take a look at the study we
commissioned--it's attached to our statement--that's looked at
this sector over the last 22 years and has identified the
scope, some 54 billion projects, 94, but only in half of our
states.
This should, however, not--this should, however, not deter
establishment of an infrastructure bank. While not a panacea,
bank projects could, in fact, be game changers. These projects
could be the catalyst to major productivity and efficiency
gains for our national economy.
Mr. Chairman, it's no secret that the biggest obstacle to
moving the current multiyear reauthorization bill on surface
transportation is the Highway Trust Fund's financial outlook.
The trust fund can no longer maintain current investments. In
fact, investments in these programs has already been pointed
out by Chairman Boxer. If the Senate or the House does nothing,
we will see a 35 percent cut in investments.
There is no doubt that increased involvement of the private
sector in addressing our nation's transportation challenges can
help when projects are viable. Make no mistake about it, that
we believe the Congress must supplement Highway Trust Fund
receipts or thousands of jobs will be lost in every single
state.
We recognize this is a difficult assignment. It is not easy
to write this legislation. But, frankly, the nation's long-term
economic productivity as well as our jobs are at stake. In a
little more than a month, we'll be 2 months away from the end
of our eighth extension. It's time to get on--it's time to get
on with enacting a multiyear transportation reauthorization
bill in a bipartisan way, as Chairman Boxer and Senator Inhofe
are trying to accomplish--- a bipartisan bill. The most
important thing that Congress can do is to pass legislation and
move this process forward.
Thank you for the opportunity. I look forward to answering
your questions.
[The prepared statement of Mr. Ruane follows:]
Prepared Statement of T. Peter Ruane, President and CEO,
American Road & Transportation Builders Association
Chairman Rockefeller, Senator Hutchison, and members of the
Committee, my name is Pete Ruane and I am the President and CEO of the
American Road and Transportation Builders Association (ARTBA).
ARTBA, which celebrated its 100th anniversary in 2002, has over
5,000 member firms and member public agencies from across the Nation.
They belong to ARTBA because they support strong federal investment in
transportation improvement programs to meet the needs and demands of
the American public and business community. The industry we represent
generates more than $380 billion annually in U.S. economic activity and
sustains 3.4 million American jobs.\1\
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\1\ ARTBA, ``U.S. Transportation Construction Industry Profile,''
http://www.artba.org/economics_research/studies_analyses/.
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We commend the Committee for convening today's hearing and
appreciate you allowing us to take part in this important discussion on
how to help meet the nation's transportation infrastructure needs.
The Time to Act is Now
One of the most attractive benefits of major public investments in
transportation infrastructure is they create tangible capital assets
that are long-lived. In addition to creating jobs and generating tax
revenues throughout the economy during the construction cycle, these
investments provide infrastructure improvements that foster and
facilitate continuing economic growth over many years beyond the
initial investment.
The greatest long-term economic returns can often be found in
strategic investments that facilitate business activity, especially in
industries that depend on the transportation network. Infrastructure
investments aimed at reducing traffic congestion or providing faster
point-to-point travel, for example, can increase productivity by
reducing travel time.
Given the recent economic recession and the challenges our country
continues to face in terms of unemployment, particularly in the
construction sector, passing a robust federal surface transportation
bill will help sustain and create jobs and support future economic
growth.
Current transportation infrastructure investments generate over
$380 billion in annual economic activity for the nation--which is
nearly 3 percent of U.S. Gross Domestic Product. This activity supports
nearly 3.4 million jobs throughout the U.S. economy with a payroll of
over $159.3 billion. This includes approximately 1.7 million direct
jobs for transportation construction workers and supplier firms. As
those 1.7 million people spend their wages by going out to restaurants,
buying cars or trucks, purchasing groceries or consuming housing, their
spending supports an additional 1.7 million jobs in other sectors of
the U.S. economy.
Unfortunately, the politicization of the American Recovery &
Reinvestment Act (ARRA) has led some to question the job creation/
sustaining benefits of federal transportation investment. While there
have been a great deal of flawed claims that the ARRA's transportation
investments did not work, the simple fact is that transportation is
virtually the only construction activity that did not suffer a downturn
during the recent recession--almost solely because of the Recovery Act.
The measure provided a critical one-time injection of federal
investment into transportation improvements. In so doing, it preserved
thousands of jobs that would otherwise have disappeared and the
improvements resulting from the 14,000 Recovery Act construction
projects will benefit communities and businesses for years to come. But
the full potential of the Act was undermined by the collapse of private
sector construction activity and cuts in state and local transportation
construction investment over the last 2 years. In fact, a recent U.S.
Government Accountability Office publication references a preliminary
U.S. Department of Transportation report that found 21 states did not
meet the ARRA's maintenance of effort requirement and reduced dedicated
revenues for transportation at the same time the Recovery Act boosted
federal transportation investment.
But direct employment is only the tip of the iceberg. Even more
important are the jobs and economic activity that could not exist
without our nation's modern transportation infrastructure. Every
manufacturing plant in the U.S., every retail store, every plumber and
service worker, every trucker and millions of other jobs depend on
highways, airports and railroads for inputs and to deliver products to
customers. If we let our transportation system decay, American workers
across the economy will be hurt. There are approximately 78.6 million
American jobs in just tourism, manufacturing, transportation and
warehousing, agriculture, general construction, mining, retailing and
wholesaling alone that are dependent on the work done by the U.S.
transportation construction industry. These dependent industries
provide a total payroll in excess of $2.8 trillion.
The U.S. is experiencing intense competition from emerging
economies around the world. Our transportation infrastructure is
critical to our competitiveness. We have started with a great
advantage--the investment America made in the Interstate Highways. But
we are losing that advantage as China, India and Europe are all
investing more in new capacity than we are because they recognize the
importance of transportation infrastructure to their economic
competitiveness.
In China, infrastructure spending has increased an average of 20
percent each year over the last two decades. China, which is roughly
the same size as the continental U.S., has built over 30,000 miles of
new expressways in the last 10 years. Their highway system is expected
to extend over 53,000 miles by 2020, surpassing the current 47,000
miles of Interstate in the United States.\2\
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\2\ Wall Street Journal, ``China Bets Highway Will Drive Its
Growth,'' November 11, 2008.
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One of the most powerful things Congress can do to support existing
jobs, create new jobs and strengthen the foundation of U.S. economic
competitiveness is to pass a robust multi-year reauthorization of the
federal highway and transit programs in 2011.
Investment vs. Spending
The financial requirements to rebuild and improve the nation's
highway, bridge and public transportation systems are well documented.
In 2008, the congressionally-mandated National Surface Transportation
Policy and Revenue Study Commission estimated total unmet annual
surface transportation needs were in the range of $225 to $340 billion.
When compared with current revenue projections for the Highway Trust
Fund, the gap between needs and current resources is staggering. Much
of the current climate and debate that exists in Washington, D.C., and
state legislatures across the country fails to differentiate the
benefits between types of public spending.
Mr. Chairman, firms in the transportation construction industry
that I represent secure their work largely through a low bid
competition. As such, they are keenly aware of the bottom line and the
need to control costs. At the same time, they also know that without
strategic investments in capital and personnel, their companies will
not grow or be prepared to respond to future market conditions.
That simple, but incredibly important, truth seems to be overlooked
in many of the discussions about the need to cut federal spending.
Notwithstanding the political rhetoric on both sides, there is a
difference between investment and spending in the business world and
this is certainly true about the federal transportation programs.
Daunting needs and revenue assessments should not mask the reality that
we cannot have a growing economy with a failing surface transportation
infrastructure. Furthermore, the longer the status quo persists, the
further performance of our highway and public transportation facilities
will deteriorate and the more expensive they will become to fix.
To that end, the most important thing Members of Congress can do at
this stage is to jumpstart the surface transportation reauthorization
debate as soon as possible with tangible legislation. As this process
moves forward, we urge all parties to focus on achieving clearly
defined national transportation goals and to keep an open mind about
the investment levels necessary to meet long-term objectives.
While increased investment from all levels of government is
necessary to help boost the performance of the nation's surface
transportation network, there are also substantial opportunities to
deliver transportation improvements through greater utilization of
public-private partnerships and federal policy reforms.
Capturing the Value of Innovation
The federal highway and public transportation programs have been
incredibly successful. In fact, the Brookings Institution cites the
U.S.'s highway system as one of the top 10 accomplishments of the
federal government. This impressive achievement notwithstanding, past
success cannot serve as a rationalization for the status quo. As is the
case in the business world, elected officials should constantly be
looking for new and innovative opportunities to deliver services.
The increasing involvement of the private sector in project
financing and delivery over the last 20 years has been a welcome and
much-needed addition to the overall effort to improve the nation's
surface transportation network. Public-private partnerships (P3s) offer
not only a source of supplementary resources for transportation
facilities, but also the entrepreneurial power of the private sector to
improve efficiency in managing these endeavors.
ARTBA members have decades of experience across the broad range of
transportation P3s. In fact, the ARTBA P3 Division has been on the
cutting edge in promoting these types of opportunities since its
inception more than 20 years ago. ARTBA remains an ardent supporter of
P3s and federal policy reforms to increase their role in supplementing
core public sector transportation investments. However, the potential
contribution of P3s to the nation's overall surface transportation
challenges must be considered in the proper context.
According to a report ARTBA commissioned from ``Public Works
Financing'' Editor William Reinhardt, 24 states have used innovative
procurement methods and/or public-private financing mechanisms since
1989 to build at least 96 transportation projects valued at more than
$54 billion. Sixty-five percent of these projects have come in eight
states: Florida, California, Texas, Colorado, Virginia, Minnesota,
North Carolina and South Carolina.
Unfortunately, 26 states have not yet taken advantage of a P3
process for transportation improvements. In fact, almost half of the
states have not yet approved P3 enabling legislation and, therefore,
are not able to take advantage of these opportunities.
Mr. Chairman, I would like to request Mr. Reinhardt's full paper be
included in today's hearing record.
P3 projects are certainly a key component of the total solution to
the nation's transportation infrastructure challenge, but they also
currently have limited applications which vary by state. To further
encourage the use of transportation P3s and leverage private sector
resources in the next surface transportation reauthorization bill,
ARTBA recommends that Congress:
Enhance TIFIA--The Transportation Infrastructure Finance &
Innovation Act (TIFIA) has leveraged $7.9 billion of federal
credit assistance to support $29 billion of total project
investment by all parties. This is a return of more than three-
to-one and even greater progress could be made by increasing
the resources allocated to the TIFIA program.
Expand PABs--Private Activity Bonds (PABs) to support
highway and intermodal activities have generated great interest
and activity since this eligibility was established in 2005.
The current authorization expires once the $15 billion cap is
reached and this authorization should be extended to allow
further use of PABs to support infrastructure improvements.
Restore Build America Bonds--The successful Build America
Bonds (BAB) program has lapsed. The continuing state budget
difficulties and the record of BAB support for transportation
improvements make a compelling case for renewal.
Eliminate Restrictions on Tolling--States should be given
maximum flexibility to impose tolls to generate revenues from
new and existing roadways, including the Interstate Highway
System, to support needed infrastructure improvements. Expanded
opportunities to utilize tolling, however, should include a
specific prohibition against using the generated revenues for
non-transportation activities.
Educate Public Officials--The reauthorization bill should
include enhanced strategies to encourage state and local
officials to take advantage of opportunities to utilize P3s to
advance transportation projects. They could range from
technical assistance on individual projects to enacting state
P3 enabling legislation.
Like a number of members of this Committee, ARTBA also supports the
concept of a national infrastructure bank to help fund large, national
or regionally significant transportation projects. Such a mechanism
would fill a clear void in federal transportation policy as these types
of endeavors typically fall outside the scope of existing programs.
While an infrastructure bank can clearly be an additive tool to
complement the core surface transportation programs, there are a number
of issues still to be resolved. While an infrastructure bank is
frequently discussed in the context of the surface transportation
reauthorization bill, a number of infrastructure bank proposals are
broad-based and would extend far beyond the areas of transportation.
I am not suggesting the merits of this concept would not apply to
other types of infrastructure development, but rather that the
application of the bank to transportation should be clear. State
departments of transportation and the industry I represent rely on the
predictability of federal surface transportation investments. While a
broad-based infrastructure bank may be critically important, the fact
is that transportation may or may not benefit from such a construct and
that should be clear up front.
Attracting private investment is frequently cited as a reason to
establish a national infrastructure bank. Certainly, there is a
significant role for private investment to play in supplementing
federal investment. However, we caution against thinking the private
sector alone is a solution to the nation's infrastructure deficit.
As mentioned earlier, a large number of states do not allow for
public-private partnerships. About half of all states have P3 enabling
legislation and within that population, there are varying levels of
flexibility to use P3s--some allow for broad infrastructure investment
while others are limited to consideration of P3s for a single project.
ARTBA is working with the National Conference of State Legislatures
(NCSL) to provide informational resources to interested state
legislatures to advance the use of P3s nationwide. For more detail on
various state P3 enabling laws, I would refer you to a report we
partnered to create with the NCSL, available at http://www.ncsl.org/
default.aspx?tabid=20321.
When considering a national infrastructure bank, there are also
several specific organizational issues to address. For instance, how
would an infrastructure bank be distinguished from other federal
programs that offer loans and credit assistance to transportation
infrastructure programs, such as the successful Transportation
Infrastructure Finance and Innovation Act (TIFIA) program? The TIFIA
program supports regional and nationally significant projects, most of
which have a revenue stream to pay back the financial assistance.
Addressing the nation's transportation challenges will not get
easier over time and it is incumbent on all parties to explore
traditional and innovative approaches to fulfill this core function of
the federal government. The infrastructure bank is a creative proposal
that may very well help advance certain types of needed transportation
improvements. My comments about the infrastructure bank are in no way
intended to be critical, but an attempt to ensure that all involved
stakeholders have reasonable expectations about such a mechanism. We
will work closely with members of this Committee as you move forward.
Surface Transportation Reauthorization
Mr. Chairman, as important as increased federal transportation
investment is to strengthening the nation's economy and overcoming our
job creation challenges, we must acknowledge that investments in this
area are at a crossroads. The failure to generate increased revenues to
support the 2005 surface transportation reauthorization bill created a
situation where Highway Trust Fund spending significantly exceeded
incoming revenues. The combination of this unsustainable approach with
the 2008 recession put the trust fund on the brink of insolvency. While
the fund was able to meet its obligations through a series of general
fund transfers to recoup previously foregone revenue, existing levels
of highway, public transportation and transportation safety investment
can no longer be maintained.
The House of Representatives has received significant notoriety in
recent days for plans to cut surface transportation by as much as 35
percent. All should be clear that this approach is not the result of
hostility toward these investments, but a reflection of the Highway
Trust Fund's financial outlook. The hard truth is that we can no longer
bypass the need to generate new revenues to support surface
transportation investment without seeing adverse effects.
In contrast, the bipartisan leaders of the Senate Environment and
Public Works Committee are developing a two-year surface transportation
reauthorization bill that would maintain FY 2009 levels of highway
investment plus inflation. If all committees of jurisdiction pursue
similar parameters, we understand the total level of investment in such
a multi-year surface transportation bill would be $109 billion, which
would require $12 billion in new revenues.
I am well aware of the political environment and the challenge of
generating new resources for any area of discretionary spending. I am
also aware that Members of Congress on both sides of the aisle are
claiming we must protect jobs and generate new ones. I am also aware
that many elected officials feel like they were elected to cut
spending, but have yet to see one proclaim they were elected to cut
jobs.
Certainly, increased involvement from the private sector in
addressing the nation's transportation challenges can help in the areas
where such projects are viable. Make no mistake about it, however, if
Congress fails to generate or provide revenues to complement incoming
Highway Trust Fund receipts, jobs will be lost in every state.
Conclusion
Mr. Chairman, members of the Committee, again I commend you for
convening today's hearing and thank you for inviting the American Road
& Transportation Builders Association to participate.
The nation's economic recovery is fragile and its surface
transportation network is at a crossroads. We certainly recognize
writing and enacting a multi-year reauthorization bill will not be
easy, but this legislation has the potential to not only create jobs,
but generate long-term economic productivity--two of the key challenges
currently plaguing our nation's economy.
The most important thing Congress can do at this stage, however, is
to produce legislation and move forward. To that end, I urge all
members of this panel to work to produce a bipartisan reauthorization
bill and support generating the necessary revenues to, at minimum,
maintain current levels of surface transportation investment. Delaying
action will only exacerbate the problem.
I would be happy to answer any questions.
The Chairman. Thank you, sir, very much.
Senator Lautenberg has joined us. And since he is the
Chairman of the Subcommittee--Frank, we have two choices. One
is you can say something now, or I'll give you an extra 3
minutes in your Q&A.
Senator Lautenberg. I'll take the extra three. Thank you.
The Chairman. OK.
Number one, I'm--and, frankly, I feel a little naive. But
I'm stunned by the fact that I think--I know it's true in the
case of the Commerce Committee--it may be that Senator Boxer
has had hearings on this. But we have never had a hearing on
the public-private partnership approach. We've just never had a
hearing. And then all of a sudden I'm reading about hundreds of
billions of dollars available, and eagerly available.
And I'm looking at the schedule of people who are
testifying, and you get Managing Director, Carlyle
Infrastructure Partners--that's meant to say something, isn't
it--and Managing Director, Head of Infrastructure Investment
Bank for Morgan Stanley. That sort of says a lot. So I'm not
sure where we've been, but I can't worry about the past. I have
to worry about the future.
It seems to me an extraordinary opportunity. There may be
two different bills. Actually, a number of other people have
also offered bills on this subject. But I think it's imperative
that we come together to make common cause on this, and I think
it'll happen. It'll happen because it has to.
You know, bridges aren't made to last more than 50 years,
are they, Mr. Bruno?
Mr. Bruno. Correct.
The Chairman. Yes.
Mr. Ruane. Some do. But today, most of our bridges are over
50 years and in this country.
The Chairman. I know. Believe me, I know that.
Mr. Ruane. The major ones on the interstate system.
The Chairman. Believe me, I know that. OK. Let me give you
a hypothetical. And this is not being parochial about my state.
But it's sort of a complex problem. Would you help me
understand how you look at what you do? You and Mr. Ruane
indicated that you can't do everything, maybe two to four
projects a year or more or whatever. But you can't do
everything.
I have been suffering for 40 years watching the building of
something called Corridor H. Corridor H would connect to I-66,
go right into the heart of West Virginia, and would probably
transform the area in time--but already property values are
increasing in neighboring counties, not just the counties where
the road is built. There's only 50 miles left to build. And it
would transform the future of West Virginia. I can't help but
be interested in that.
And so my question of you--and whoever wants to--maybe, Mr.
Offutt, you or Mr. Dove could answer. Things have to be paid
back. So in a sense, there's a prospective nature to this. On
the one hand, nothing will happen if we don't have this road
completed, and it's almost done. We've spent 40 years building
it. It cost $25 a mile now.
And on the other hand, if it is built, the world is going
to open up in West Virginia. And that's not a casual statement,
because industries are moving at a rather rapid pace from the
congestion of the Washington, D.C., area into the eastern part
of our state, which is where this would have the greatest
impact.
And so I'm interested--how would you evaluate a project
like that, which isn't like New York to Boston. Right? But it's
Washington to a state wide open for development when businesses
are wishing to get out of the traffic congestion here. What are
your thoughts?
Mr. Offutt. I'll start, Mr. Chairman. First of all, the way
we would define a successful infrastructure project is one
which strikes the right balance between social benefits and
economic benefits. And I think a project such as the one you
just outlined clearly, over the long run, should generate a lot
of significant economic benefits as well. Then the question is
how does the private sector get involved, and, potentially, how
does that turn into an opportunity maybe to get a return on the
type of investment you've made.
There are a host of things that can happen once you end up
connecting, let's say, areas that are more rural to areas that
are more densely populated. If it's real estate development or
other kind of tangential revenue streams or investment
opportunities that maybe don't relate directly to the actual
road, that can develop a whole bunch of either jobs or other
types of, again, economic benefits.
So what's always very difficult when we see projects like
that is always to very narrowly focus and say, ``This road can
generate this amount of tolls and, therefore, it's a good
project.'' I think you have to look much much broader, and if
it can generate economic benefits for the state and create jobs
and other things that have lots of other inherent benefits,
then, therefore, we would define it as a very successful
infrastructure project.
The Chairman. And you have ways of figuring out how large
that growth and development might be. You can't do that out of
the top of your hat.
Mr. Offutt. That's right. And, you know, professionals at
Morgan Stanley can be helpful for a piece of that. But,
inevitably, there are people who specialize, obviously, in
terms of trying to think about--trying to quantify economic
benefits, and I think those professionals can be really helpful
to try to put a project like that in perspective.
The Chairman. Mr. Dove, I've overrun my time. I'll be back.
Senator Hutchison?
Senator Hutchison. Thank you, Mr. Chairman.
I would like to ask both Mr. Offutt and Mr. Dove--the
differences in the two bills that have been introduced are
basically that there's a grant program in one, and the other is
a bank that would be more of a revolving loan fund, and it
would require a revenue stream. And my question to either of
you is if that would make a difference in the kind of projects
that would be put forward. And also would it attract more
private sector funding if you have the bank concept with the
revenue stream as opposed to grants being involved? Or do you
think that there can be cases where grants can be an
enhancement?
Mr. Dove. Senator, that's a good question. I think that the
important thing to understand, as you have heard from many
people on the panel and, indeed, some of your colleagues, there
is a need to generate different sources of funding for
infrastructure. And the infrastructure bank, which I propose
around the sort of EIB model, is a bank which makes loans and
guarantees and seeks repayments. That's not to say that grants
can't continue--TIGER grants--there are other very good federal
programs which my colleagues here have discussed.
But I think the idea of an infrastructure bank, which could
be used to supplement the chairman's particular project in West
Virginia, is the way of providing a level of capital which will
attract people like me, as an equity provider, and commercial
banks to come in on top of that to fund a project which could
not otherwise be funded. So I think that you should see the
infrastructure bank as an additional source of capital for
infrastructure.
Mr. Offutt. I guess what I would just add to that, too, is
I do see a benefit of having grants in some form, either as
part of the infrastructure bank or separately through the TIGER
grant program, because some projects do, I think, require a
piece of the project to be subsidized or supported with grants.
And then once the project is built, then the project can
support itself. It's a matter of, in a lot of cases--and, you
know, high-speed rail has been one area that's been discussed--
where the costs are such where you really need to have a
portion of it supported with grants to be able to overcome the
overall capital requirements.
Senator Hutchison. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator Hutchison.
Senator Kerry?
Senator Kerry. Thank you very much, Mr. Chairman. Let me
build on that a little bit, because I think it's a key
distinction here and a key identifier of differences. But one
thing I want to emphasize--and I didn't do it in my opening and
I think it's really important--is that Senator Hutchison and
myself, Senator Graham, Senator Warner do not envision or want
or believe that there will be any encroachment onto TIFIA or
TIGER grants or any of it. This is a completely above and
beyond effort. And given the infrastructure demands of the
country--$2.2 trillion deficit--even with the infrastructure
bank, we won't get close to doing what we need to do in
America.
So grants will be needed. And TIGER and TIFIA and the
transportation--surface transportation--will all be absolutely
necessary. And, in fact, our bank is structured so as to really
be above and beyond that. There's a $100 million break--limit,
if you will, for the projects--the project has to be $100
million or more. So that's a specific kind of project. Those
are big. Those are big projects that attract capital.
There's also a set-aside for rural states and rural
communities, where you go down to a $25 million level, because
they may not have, obviously, the same kind of projects. And we
want rural to be able to participate as much as other parts of
the country.
So there's a mix there. And I think it's important for that
to be clear in people's minds. There's no competition with the
grant program. But given the political mood and climate of
Washington, there was a powerful feeling on both sides of the
aisle, bipartisanly, that there was not a lot of stomach here
to create an entity within a political department, where
politics may conceivably govern it, or where, for example,
there may be different administrations with different attitudes
about how it's done.
The theory was make it freestanding with its own set of
rules, performing like a bank, professionally, without the
possibility of the politics getting in the way. And that, I
think, gives greater comfort to the investor. And I wanted to
ask both Mr. Dove and Mr. Offutt if you would address that
question.
I heard you particularly put emphasis on the word, Mr.
Dove, independent. And I'm wondering if that is something that
is of value to you as you, as a private sector investor, think
about where to take your capital.
Mr. Dove. Absolutely, Senator. I think it's very important
that the institution that's set up should first of all be seen
as something which supplements the capital which is needed for
infrastructure programs. So grants, TIFIA, whatever they are,
are another form of coming into the project.
But the basic capital structure from the national
infrastructure bank, which, as I said, would be very long- term
debt--so I'm talking 40-year debt or even longer--issued at a
very low rate of interest, maybe 25 basis points over where the
Treasury can issue money. So it's basically very long-term
money. But that makes it very attractive for me, as a private
sector investor, to know that I can get commercial banks in
there on a project financing basis and other equity people to
come in to a project which otherwise would not be feasible.
How those projects are determined has to be done, in my
strong belief, by an independent organization. So this is an
organization which is set up by Congress. The appointments are
agreed by Congress, where they then sit and look at all the
applications which come in for the particular projects, whether
it's a road in West Virginia or a road in California or a road
in Texas, and they can evaluate it from an independent
perspective and say, ``This is the project which deserves to be
given this opportunity to take 50-year money at Treasury plus
25 basis points.''
Senator Kerry. And the other point I just emphasized is
that, as currently constructed, we embrace water and energy. So
it's energy, water, transportation, across the board.
Mr. Dove. The infrastructure needs, if I may, are broader
than transportation. It includes telecommunications, energy,
water, and in water, particularly, I think, in levees. All
these things are potential. But, again, where the bank puts its
money has to be determined by Congress. Congress decides the
policy of what to be put before the bank. But the individual
project--the sponsors will come with the projects which fit the
criteria set down by Congress. And then the independent bank
will then decide which ones are creditworthy and, therefore,
receive the loans, which have to be repaid.
Senator Kerry. Correct. And the judgments about those deals
are made based on the economic viability of the revenue stream
and the flow of the project--capacity to repay. Correct?
Mr. Dove. Correct. And that doesn't necessarily mean, if I
may continue, tolls. There is the opportunity of some sort of
availability payment, which is being used in Florida for the
Miami port tunnel and for the ring road around Jacksonville in
Florida. So there are different structures. It doesn't always
mean user fee tolls. It could be some sort of other structure
which would be put in place and one which I would think be
appropriate for the West Virginia project you were referring
to.
Senator Kerry. Thank you very much, sir.
The Chairman. Thank you, Senator Kerry.
Senator Ayotte?
Senator Ayotte. Thank you, Mr. Chairman. I want to thank
the witnesses for coming here today.
I believe that we do need to take up a reauthorization of
the transportation bill and that we need to make some hard
choices so that people can plan on infrastructure across this
country. And I also believe that we need to get back to some
basics in making those hard choices. With respect to this fund,
I do have a question of Ms. Trottenberg.
In speaking of the national infrastructure bank
representing a public-private partnership, I can tell you that
I think the people of this country are very tired of bailouts.
And one issue that really leaps to my mind in hearing about
this that I think we need to have a very good answer to before
we would establish it is how can we be assured that the
infrastructure bank would not leave the taxpayer on the hook
for bad investments? What would happen if the project fails?
What would happen, I suppose, if it overextends this bank?
Obviously, there would have to--what metrics would we use to
measure success? And how can we assure taxpayers that this
doesn't just become another government entity, that we end up
bailing out bad projects and that we end up privatizing the
profits while socializing the losses?
Ms. Trottenberg. That's a very good question. I think it
gets a little bit in part of the debate that, obviously, you
all are having and we've had within the administration about
whether you're locating it within a federal agency, you're
making it separate, how independent its financial authorities
are. The way it works with our credit programs at DOT is,
essentially, Congress grants us budget authority, and the
Treasury determines for a given project what the possible risk
is.
Let's say if we're going to give a $100 million loan, we
may say that the credit risk premium is 10 percent. We will
take $10 million and, basically, the Treasury holds onto it.
And the Treasury builds up a reserve, and that covers the cost
of any projects defaulting. So, we do a very careful financial
analysis and make sure we have the right reserves.
I think one of the things that has sometimes frustrated our
private sector partners is it takes us a long time to do due
diligence, because we are the public sector, and we want to
make sure that the taxpayer dollars are protected. Thus far
with the federal programs, we've had a very, very good track
record. But you're right. You have to design it carefully so
that there is no risk to the taxpayer.
Senator Ayotte. And one of the things I'm--I think this is
probably a good question for Mr. Offutt or Mr. Dove. When I
think about a project, for example, of high-speed rail--why
would the private sector invest in that? I mean, if you look at
projects around the world and the return on investment--I mean,
can you help me with a project like that, why that would be a
project you would want to invest in?
Mr. Offutt. Sure. I can start. When the Florida high-speed
rail project was being considered, we had many conversations
with construction companies, private equity sources, and others
who were very much interested in being part of that project.
But the assumption was that, ultimately, it would be structured
in such a way that when the project is first introduced,
ridership may not cover the operating cost, but ultimately,
over time, it probably would. Therefore, there would need to be
some bridge to make sure that there were not operating losses
that would need to be basically covered by the private sector
over that period.
And there are examples--and Mr. Dove highlighted a few--
where availability payments have been used to try to smooth
that development out. And if it's structured appropriately,
high-speed rail is an example where it could work. But it is
definitely a more difficult type project, because you need high
density areas where you're trying to move enough people.
Senator Ayotte. If I'm remembering correctly in having
looked at this, there's really only one place in the world
where you've actually been able to break even with the
passenger fare in rail. So this is an area where I'd be
concerned--we're investing--if we're going to invest and we're
going to have the private sector join in, that we would be on
the hook for something that--and it's one of my concerns with--
in terms of getting back to basics in our transportation
funding of roads and bridges, because in New Hampshire, I can
tell you there are roads and bridges that need to be fixed
before we start allocating money elsewhere.
So this, to me, is--in terms of how we would decide where
the money is allocated, this is a very important issue, I would
think, for the private sector on return on investment.
Mr. Offutt. That is right. Specifically, in my testimony, I
highlighted transit because it is very difficult for some
transit projects to be able to demonstrate that the revenues
from the fares does cover the operating costs and be able to
ensure that safety is not jeopardized. That's true.
Senator Ayotte. And one final question to Ms. Trottenberg,
which is about--you know, in our state, and I'm sure in many
other states, local officials spend a tremendous amount of time
coming up with a transportation infrastructure plan based on
local priorities, state priorities. And if we create another
national--this would be done through the bank in the DOT--how
do we preserve that local feedback in terms of--in my--I think
the people in New Hampshire make better decisions on where to
put the funding than someone in Washington, and that's a
concern that I have. So I wanted you to address that.
Ms. Trottenberg. I'll say a couple of things. First of all,
to reiterate, these types of programs that we're talking
about--these are to supplement regular highway and transit
formula funds, the bulk of which go to the states and transit
agencies and are spent as the states and local jurisdictions
want to spend them. So this is not to replace that.
But I'll just give you the example of the TIGER program,
which is somewhat of a hybrid of grants and loans. One thing we
did in TIGER that had never been done before was instead of
just having state DOTs and transit agencies apply, we opened it
up to all communities across the country. We actually got a
flood of creative applications at the really local level, and
over half the TIGER grants that we gave were to local
jurisdictions.
So one nice thing that an infrastructure bank can do is
open the door to all kinds of communities and different
entities to apply. It can open the door to more local
creativity, and the ideas are going to come from the local
level. But it is true, the models we're discussing--there is
decisionmaking happening here in Washington. And, again, that's
why--I don't think it's in any way to supplant the bulk of the
formula funds that are going to the states.
Senator Ayotte. And one concern I just have overall--I
understand that this would be a supplement. But how do we know
that it won't be Washington's priorities versus the absolute
needs within that state as you're making these decisions. Can
you comment on that?
Ms. Trottenberg. Yes. I think that's part of the--
hopefully, the negotiations we'll be having here on Capitol
Hill and within the Administration. These are federal dollars,
and federal dollars do tend to come with the priorities of
Congress, and sometimes those priorities are in line with what
local communities want. Sometimes they can be frustrating. And
it's usually a negotiation.
I think in transportation, we've done a pretty good job of
having a lot of decentralization of our programs. States and
localities and transit agencies have a decent amount of
autonomy in project selection and priorities. But we are going
to have to find that right balance.
Senator Ayotte. I want to thank all the witnesses for being
here. Thank you.
The Chairman. Thank you, Senator Ayotte, for your excellent
questioning.
Now, Senator Lautenberg.
STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM NEW JERSEY
Senator Lautenberg. Thanks, Mr. Chairman.
And thank all of you for your presentations here today. It
does open up the subject of the public-private partnerships,
and it appears that there are few other routes we are willing
to take here now that will get us going on our infrastructure
problem. America's roads, railways, runways keep our economy
moving, but much of the infrastructure is now so deficient, you
know. And we look at a situation that escapes attention, in my
view, and that is that in 30 years, our population grew by 100
million people, and it's expected that the next 100 million is
going to happen in shorter time. And the infrastructure wasn't
built for the present population, and you wonder how we're
going to resolve it in the future without spending hours on the
road that otherwise should take 15 minutes.
Across the country, one-third of our roads are in poor
condition, more than a quarter of our bridges deficient, our
aviation transit systems outdated. In my home state of New
Jersey--we can confirm the experience around the country. More
than three-quarters of our major roads are in poor or mediocre
condition. And one-third of the bridges are in need of
immediate repair.
A failing transportation network impairs job creation, and
economic development, productivity, and businesses can't
succeed when the employees or customers are stuck in traffic or
when delivery delays prevent them from putting products in the
hands of customers. Investing in transportation infrastructure
is, I think, the primary hope for people to get back to work
immediately. And make no mistake--there is plenty of work do
to.
And that's why Chairman Rockefeller and I have proposed
creating a national infrastructure investment fund that focuses
on much needed large-scale transportation projects. They're
hard to get financed. This fund will offer loans as well as
loan guarantees that complement existing grant programs. It'll
help our country leverage public funding by encouraging private
investment. And it will give us, I think, a much bigger bang
for our federal dollar.
The infrastructure investment fund will be a new vehicle to
invest in America's future and make sure that we remain
competitive in the global economy. I spent a lot of time in
business. But an early lesson that I learned--if you want to be
successful tomorrow, you'd better start laying the foundation
today or repairing the business infrastructure now to take care
of growth and expansion.
The same principles apply here. If we want to leave our
children and grandchildren a better country, a better
functioning country, we've got to make smart investments on
their behalf now. So I thank the witnesses for their
suggestions on how we can finance these decisions to move our
infrastructure repair and rehabilitation in a much better
fashion.
Amtrak has proposed building a new gateway tunnel under the
Hudson River between New York and New Jersey to increase high-
speed rail and commuter rail service. And this question is for
Ms. Trottenberg. This project will create thousands of
construction jobs and expand access to good-paying
opportunities throughout the region. Can an infrastructure fund
that combines grants and loans be used effectively to support
the development of these regionally significant projects?
Ms. Trottenberg. Yes, Senator Lautenberg. I think, clearly,
that it can, and that's a project, obviously, we have been
hearing from Amtrak about and talking with the delegations
about. It's a very exciting project with a big price tag, and
it's going to take a lot of creative ideas on how to capture
the monetary value of, clearly, the incredible economic
opportunity and efficiency gains that project would bring and
bring that project to fruition. I think an infrastructure bank
could play a very big part of that, and there could potentially
be a loan piece to it and a grant piece as well.
Senator Lautenberg. Mr. Bruno or Mr. Ruane, our friends on
the other side of the Capitol have proposed slashing funds for
surface transportation programs by 35 percent. What's the
effect on progress, on job creation, and our economy if the
House Republicans have their way?
Mr. Bruno. Senator Lautenberg, I have never studied
economics and I don't have a degree in economics. But one of
the things that I know, that I've learned over the course of my
experience in life, is that there's one basic principle in
economics, and that's the supply and demand principle. And what
I see is that there's a significant supply of labor out there
for which there is no demand. And this particular bill presents
an opportunity to satisfy that and to put that supply and
demand back into balance.
I think that as a principle, eliminating or declining to
utilize this opportunity is a bad idea for the American
economy, and I think it would be hurtful to ignore an
opportunity such as this. Infrastructure investment is a proven
job creator. We relied upon it back in the 1950s and after
World War II to develop the interstate highway system, and I
think it worked very well in putting people to work and jump-
starting the economy at that time. I think this is an
opportunity, albeit not as grand a scale as that, to start that
project or to start the economy once again in that direction.
Senator Lautenberg. Mr. Ruane?
Mr. Ruane. Senator, obviously, if there is no action in
this Congress, both in the House and the Senate, we are looking
at a major, major dislocation in the construction industry in
every segment. The number, 600-plus thousand jobs, has been
cited by several senators here this morning. Those are
legitimate numbers. Those are potential losses that could occur
in the coming years if there's no action.
But it's not just a House proposal. And I do not believe,
by the way, that they're making such proposals out of hostility
toward investing in transportation. They are playing, as they
say, the cards they were dealt. But, nonetheless, the same
thing can happen if the Senate is unable to move legislation
here in the coming days.
The construction industry has a 16.3 percent unemployment
rate right now, as compared to a 9.2 nationally for the whole
country. As mentioned by my colleague here, there's excess
labor out there. There are opportunities to do more projects
because of that. And so the imperative here is to get timely
action on this bill, because the consequence--given the flow of
money, by the way, into the Highway Trust Fund, we're going to
see cuts if the Congress does not find a way to come up with
additional resources to keep that program steady. It's
inevitable.
Senator Lautenberg. Well, in my state, our governor chose
to decline $6 billion worth of support to build a tunnel that
would have created 44,000 jobs immediately, get 22,000 cars off
the road every day and he, very shortsightedly, decided to
cancel it because of the possibility of overruns, which could
have been taken care of through other programs, low-cost loan
programs, et cetera.
So these people are sitting on their hands, waiting to go
to work immediately and to relieve the citizens in our area,
the commuters, of excess pollution, of cost of driving, of
delayed schedules. So there is a lot of shortsightedness going
around. We have to get busy.
Thank you all very much.
And thank you, Mr. Chairman.
The Chairman. Thank you, Senator Lautenberg, very much.
You've put more time and energy into transportation than
anybody.
Senator Lautenberg. Thank you.
The Chairman. Senator Blunt?
STATEMENT OF HON. ROY BLUNT,
U.S. SENATOR FROM MISSOURI
Senator Blunt. Thank you, Chairman.
Ms. Trottenberg, you said, of course, this would supplement
the bulk of the formula funds. I may have missed this in the
testimony or the analysis of the bills. But what size
infrastructure bank are we talking about here?
Ms. Trottenberg. The administration's proposal that we had
in our Fiscal Year 2012 budget was $5 billion a year over 6
years, so a total of $30 billion. Admittedly, that was based on
proposing a very large 6-year reauthorization proposal in the
area of $550 billion. Current negotiations in Congress--it's
not clear we'll get to a number that big. But I think that
gives you a sense of the----
Senator Blunt. Was that your anticipated shortfall between
what the Highway Trust Fund would produce and the needs out
there now? How did you come up with that?
Ms. Trottenberg. We came up with that number by taking a
look at the pipeline of projects based on our own experience
through our TIGER and TIFIA and RRIF programs. That was a
number we thought captured the pipeline and that could
reasonably be run through a program and handled through the
personnel at DOT.
Senator Blunt. And, Mr. Offutt, the states just don't have
the capacity to do this through state bonding authority, or the
difference in the percentage they would pay would be--explain
that to me a little bit.
Mr. Offutt. Sure. The states are dealing with their own
budget deficits, and the projections for the next fiscal year
are about the same as the deficits they have had to deal with
over the last fiscal year. They're still very much focused on
trying to close that gap, and as a result, the ability for them
to issue traditional bonds is quite limited these days.
Senator Blunt. Now, why would that be? I mean, I don't
quite understand why, if they could retire these bonds, they
couldn't retire bonds they issued----
Mr. Offutt. I was thinking more in terms of net issuance of
new bonds to support new projects and what that might mean in
terms of potential credit pressure from the rating agencies.
Senator Blunt. But they wouldn't have that same credit
pressure from the rating agencies if they committed to pay back
these bonds?
Mr. Offutt. It depends on how it's structured. But the way
I always thought it would be just like private activity bonds,
where the government entity could be the conduit, but when it
comes down to the repayment obligation, it's really the private
sector that's responsible for that.
Senator Blunt. And then that other term you mentioned,
availability payments--was that--would you define that for me
again?
Mr. Offutt. Sure. For example, the Florida Department of
Transportation used it to fund a couple of their projects. The
idea would be they would be making certain annual payments that
would make up for an estimated shortfall between the revenue of
the project and what the operating costs would be. And there
are ways that that could be phased out over time. But it's a
way in which there is more predictable cash-flows, and,
therefore, it's easier to finance, not only in terms of
accessing funds like TIFIA, but also traditional bank loans
from infrastructure--commercial banks around the world.
Senator Blunt. It sounds like to me in that situation, the
Florida Transportation Authority would be a lot more than just
an intermediary between the people paying the bonds off and the
people getting the money.
Mr. Offutt. Exactly. In that case, it is an obligation for
them. So that is definitely the case of how that deal was--or
those deals were structured.
Senator Blunt. Are there other examples besides that one
that you or Mr. Dove either one--have I--I understand tolls and
how that might pay for a bridge or pay for something. But I'm
not sure I quite get this availability payment concept.
Mr. Offutt. Sure. I'll give one example that's outside of
transportation. The Long Beach Courthouse was a project,
obviously, in California built with the idea that the private
sector could build it at a lower cost and operate it at a lower
cost, but in return for building the courthouse and operating
it and being responsible for all of those ongoing liabilities--
it kind of shifted the risk to the private sector. The private
sector would be able to get certain guaranteed payments backed
by the credit of the City of Long Beach.
And so, yes, that's an obligation for the city ongoing. But
those payments are less of an obligation than it would have
been if they were to build it, finance it on their own, and
then cover the operating costs. So everyone's viewed that, as
other deals that have been done outside of the U.S.,
specifically Canada, as an example where it's a win-win,
something getting built that wouldn't be built otherwise and
having efficiencies that may not have been generated otherwise.
Senator Blunt. All right. Are there examples in Canada of
somebody building a transportation system? I understand the
depreciation and all that that--I think that's actually--
there's some real merit to that, whether it's a college campus
dorm or a courthouse or anything else. But I don't quite see
how that transitions to a non-toll bridge or expressway of some
kind.
And I guess I'm out of time, Mr. Chairman, but I think I
might have gotten my question in within my time.
Either one of you want to explain that a little better to
me, how a nonrevenue producing asset really helps this
situation any?
Mr. Dove. Senator, I used this structure in London for the
London Underground, the metro system in London, where there was
a decision made by the U.K. government to hand over the capital
project--so that's the upgrade of the signals, the lines, new
trains, refurbishing of stations--to the private sector, and in
return, the government would make these availability payments
on a fixed and regular basis. So, so long as the private sector
complied with the concession documents, which was to deliver
the upgrades in time, to refurbish the station, to provide an
environment for the traveling public which met standards of the
contract, then the government would make these availability
payments.
And what the private sector took on was the risk of
actually delivering those projects on time and on budget,
because if there was a cost overrun, that was taken by the
private sector. If it wasn't delivered in time, then the
availability payment would not be made. So that's the sort of
structure, and what it's really doing is shifting a risk from
the public sector to the private sector in partnership with the
public sector. And the partnership is key to making it work.
Senator Blunt. Thank you.
The Chairman. Thank you, Senator Blunt, and that was an
excellent question.
Senator Begich, you have returned.
Senator Begich. Thank you very much, Mr. Chairman. I'll be
very quick here.
First, Ms. Trottenberg, I know Senator Kerry talked about
his infrastructure proposal and kind of the rural impact. Can
you tell me from the administration's standpoint--how you treat
rural?
Ms. Trottenberg. That's a good question.
Senator Begich. Because, just to be very frank with you,
from my perspective from Alaska, you know, we have small
projects that can't compete against these large projects, and
we will lose every time.
Ms. Trottenberg. And I think that's part of the reason,
Senator--and, again, it's some lessons we learned from running
the TIGER program--why in our infrastructure bank proposal, we
propose doing both loans and grants, because we do think--and
this is true in rural areas and other areas--that there are
certain projects that clearly have social benefits that make
them worth investing in, but they're not going to generate a
revenue stream. And that's particularly true in rural areas
where you have small populations where collecting tolls may not
be feasible.
One other thing I would just say we discovered in the
course of our TIGER program--I know there has been a lot of
concern in rural areas--is this going to help us? We wound up
investing a lot of TIGER funds in rural freight projects.
There's a big need in a lot of rural parts of the country to
get agricultural projects, energy projects, other things to
ports and to population centers. And there is huge economic
value to be unlocked there by investing in freight projects.
So I think something like an infrastructure bank--it can
have a lot of value in rural areas. In West Virginia, speaking
of roads, we did a Highway 10 project. That was a project that
had tremendous safety benefits. You're not going to get toll
payers on a road like that. Not enough people use it. But that
is also the kind of project that we think with grants, an
infrastructure bank could also invest in.
Senator Begich. And just to make sure, is your style of
infrastructure bank or grant program development--if you'll use
that as an example, the West Virginia project--would that have
to compete in this bigger pile with all these larger projects?
In other words, my concern is not that you would have some for
rural. It's when a rural project has to compete against a very
intense urban project, when you do the cost-benefit analysis of
how many people will be served and all that, we lose.
Ms. Trottenberg. We require in our infrastructure bank that
there be a geographic balance, and we also have a lower dollar
threshold for rural areas. I know in some of the proposals that
are out there, there is a rural set-aside. We have that now in
TIGER, and I have to say we've found that it has been very
useful and has helped us find some terrific rural projects
around the country. I think that's a decision for you all.
There are a few ways you can design it so that you're sure that
rural projects will compete.
Senator Begich. OK. Let me ask, if I can, Mr. Dove--if I
can ask you some general questions. I come from the background
of being a former mayor. We built more roads, more
infrastructure than in the last two decades in our city.
Everything from vertical to horizontal, you name it, we built
it. We loved building stuff. I liked driving to work every day
and seeing cones on the road blocking off streets, because that
told me there was something happening.
And because of that, that infrastructure we built prepared
the city for this great recession we went into. And it was
Business Week that rated the city that I was mayor of,
Anchorage, as probably one of the most likely cities to recover
the quickest. And Forbes just rated it as one of the cities
that has the best opportunity for jobs because of the
infrastructure investment.
It's a two-part question. One, first, is in the process of
private financing and partnerships, how will you handle that?--
I mean, in a lot of cases--I'll take our city that I was mayor
of--solid rating, solid everything, platinum client to any
finance. How do you determine to make sure that the fee
structures are fair for a client of that nature when you're
doing these large projects, because they're good money on your
end? And so how do you manage that, in other words, to ensure
that at the end of the day, there's not this pile of fees on
these private projects?
Mr. Dove. Well, first of all----
Senator Begich. I'm just being very blunt with you.
Mr. Dove. No, no, and I'll be very----
Senator Begich. Because here's how I operated as mayor.
When people came to see me, and they were from the finance end,
we loved doing business with them. We sold more bonds, but we
were the platinum client and we wanted the best deal.
Mr. Dove. Well, first of all, I wouldn't expect you just to
negotiate a deal with me alone. You would run a competitive
process.
Senator Begich. Right.
Mr. Dove. And in running that competitive process, that
would ensure you that you were getting the best market-
available terms to your particular project. I think what I'm
sort of emphasizing is that maybe as a bigger project where the
user fees or the tolls or the availability payment is not
sufficient on a standalone basis----
Senator Begich. I got you.
Mr. Dove.--to make that work. So maybe this bridge or
development of the airport or whatever it could be needs a
level of capital that could make that project work or make it
more attractive to Carlyle Infrastructure to invest in. And
that's why I'm enthusiastic about the national infrastructure
bank as a provider of that level of capital for whatever the
project is. But at the end of the day, it will be a competitive
process, and everybody recognizes that.
Senator Begich. Very good. And the last question--and I'll
end on this--and that is in saying all that about good credit,
based on the situation we're facing here in the federal
government, can you just give me 2 seconds on--if we're unable
to resolve this in a meaningful way--the debt crisis and the
deficit--how will that affect the markets that you have to tap
into in order to then partner with the government sector who
wants to build infrastructure? And I'll leave it at that.
Mr. Dove. Everything is priced off Treasuries. So it'll be
determinant on where the market feels the risk is for U.S.
Treasuries at that point in time and the rate. And there would
be expected to be a small premium over treasuries for any
funding by a national infrastructure bank. I hope that answers
your question.
Senator Begich. Thank you.
The Chairman. Thank you.
Senator Thune?
STATEMENT OF HON. JOHN THUNE,
U.S. SENATOR FROM SOUTH DAKOTA
Senator Thune. Thank you, Mr. Chairman, and I appreciate
today's hearing. This is a critically important subject for the
entire country.
Maintaining a transportation infrastructure is just
critical to our nation's commerce. We've got a $2.2 trillion
backlog out there of infrastructure projects, and a $12 billion
projected shortfall in gas tax revenues versus current spending
levels over the next 2 years. So our transportation
infrastructure is in desperate need of a facelift. And I
appreciate the opportunity to get at some of these issues and
appreciate your sharing all your thoughts on this, because at
the heart of the problem is the lack of a long-term funding
source that we can make available to pay for a lot of these
needed transportation infrastructure improvements.
There are a couple of questions I want to ask, if I could,
to Assistant Secretary Trottenberg. It wasn't that long ago in
front of the Budget Committee we had Secretary LaHood, and I
asked him about any thoughts he had on long-term funding plans.
And at the time, he didn't have anything specific that he
mentioned in terms of ideas about how the administration
intended to raise revenue to fund our transportation
infrastructure improvements. And I guess my question is since
that hearing, has the administration developed any specific
ideas or plans on how we might raise the revenue that's
necessary to finance some of these infrastructure improvements?
Ms. Trottenberg. Certainly, there has been a lot of debate
and discussion within the administration. I will also say I
think at this point that discussion is caught up, obviously, in
the larger debate that's happening here right now about the
debt ceiling and dealing with all the issues we have there.
We're hopeful in the course of those discussions that we'll be
able to put some of these ideas on the table, obviously working
with Congress, both the House and the Senate, and find some
bipartisan solutions.
Senator Thune. So there's still not really anything
specific?
Ms. Trottenberg. Not that I'm going to put on the table
today.
Senator Thune. Let me ask you if you--could you give us an
assurance that some of those ideas that are on the table but
not, obviously, evidently ready to be made public that generate
revenue for transportation infrastructure projects will be used
exclusively for that? One of the concerns that some of us have
had with proposals that were used during the stimulus was that
they weren't used more for infrastructure and got involved in
financing all kinds of other types of projects. So some of
these ideas, which I assume may include mechanisms that are
similar to some that have been discussed today--that they would
be used exclusively to finance infrastructure projects as
opposed to being used for other purposes.
Ms. Trottenberg. I want to be cautious about
prognosticating, I think, collectively how the administration
and Congress will tackle a lot of the spending and debt issues
we have. I think we understand very much the desire that we
have dedicated sources of revenue for transportation and that
those aren't used for other things and that we put them toward
solving, I think, what we all agree is the very, very big
needs--infrastructure needs in the country.
Senator Thune. Let me express a concern I have about the
proposed creation of a national infrastructure bank. I'm
obviously concerned that that type of fund would primarily
benefit larger, metropolitan areas while ignoring the needs of
rural states. In my own state of South Dakota, we have
residents that frequently travel significant distances on
roadways as part of their daily livelihoods. As such, they
would be looking at paying a significantly large amount in toll
fees or other dedicated revenue sources so as to help repay the
national infrastructure bank loan.
I'd ask you this question--and then perhaps maybe Mr.
Offutt and Mr. Dove could comment--on what your thoughts are on
a national infrastructure bank and how it might impact rural
states. And what, if anything, can Congress do to ensure that
rural states are not penalized due to their smaller population
size?
Ms. Trottenberg. As I was saying to Senator Begich, we did
have that very much in mind when we were designing our
infrastructure bank. And it's part of the reason we chose to do
both grants and loans, because we do particularly think there
are certain types of projects--and the ones you referenced
would be the case--that have a lot of public benefits. But
you're not going to be able to generate toll revenue and maybe
not even availability payments to cover the cost of the
project. But there are still projects that we need to do.
As I was also saying, I think there's another category of
projects, rural projects, that would do very, very well in an
infrastructure bank, and that's freight projects. Under TIGER
grants, we discovered when we looked for projects all over the
country that there were freight projects that scored extremely
well, including projects in South Dakota and all throughout the
Plains States. As you all know, you have a lot of agricultural
and energy products, and lowering the cost of getting those
goods to the ports and to population centers can have a
tremendous economic impact in rural America.
So I think a lot of those projects actually will compete
well and can be monetized and the private sector can help work
on those. And then, certainly, I think for rural safety and
economic development projects, some of those--yes, you're
probably going to want to use grants.
And you can design an infrastructure bank in a variety of
different ways. You can have a rural set-aside or a rural
minimum or lower the requirements on what the match might be. I
think there are a bunch of different proposals on the table to
ensure that rural states and rural areas can compete and
benefit from an infrastructure bank.
Senator Thune. And I see my time has expired, Mr. Chairman.
But if either of you would care to comment on that----
Mr. Dove. I think the importance of having a rural set-
aside--so if we say that the proposals are $100 million minimum
requirements for a national infrastructure bank loan, having
something a lot smaller than that for rural is the right way to
approach that problem. But each project should stand on its own
and should be self- sufficient on its own, and the loan to that
project should be repaid by the funds generated by that
project.
Senator Thune. Thank you, Mr. Chairman.
Thank you all.
The Chairman. Thank you, Senator Thune.
Senator McCaskill?
STATEMENT OF HON. CLAIRE McCASKILL,
U.S. SENATOR FROM MISSOURI
Senator McCaskill. Thank you.
Let me step back from this and look at this from a bird's
eye view. It appears to me that it's in the government's
interest to do an infrastructure bank for one of two reasons,
either to shift risk, or to access capital. Would anybody
disagree with those two reasons that we would want to do this
in the first place? OK. Is there another reason I'm missing
besides access to capital or risk shifting?
Ms. Trottenberg. I would actually add one more. It gives us
an opportunity to do a really rigorous competition and project
analysis and use benefit-cost analysis and the type of tools
that Senator Rockefeller was noting that in other countries
they've been using these for a long time. We've been doing less
of it in the U.S. in part because, I think, we've had a Highway
Trust Fund that until recently was pretty adequately funded.
But this gives us a chance at the federal and the state and
the local level to really improve our analytic skills and do a
better job of project selection and finding projects that are
going to get the most value for the money. I think an
infrastructure bank can really help with that.
Mr. Ruane. Senator, I would echo that, because the
expertise of the private sector in the past projects has been--
they have been especially helpful in the very large complex
projects. Bringing in, particularly, the financial sector to
the table has been of great assistance to the state DOTs in
these projects.
Senator McCaskill. Well, I'm a little worried about that
answer, because it seems to imply that bringing in other
people's capital allows us to have a more rigorous analytical
process as to how we decide what projects to build. What is
there currently that would keep us from having that kind of
analytical process? Why wouldn't we be doing that with all the
money we spend on our infrastructure?
Ms. Trottenberg. Well, I mean, our traditional formula
funds--that money is just basically allocated by formula to
states and transit agencies for the most part.
Senator McCaskill. But aren't they going through an--I
mean, I know the analytical thing in my state is incredibly
intense. And we have required hearings, we have required input,
we have all kinds of bid processes, we have all kinds of--I
mean, it's not as if the states that are making the decision on
this money are doing it by some formula. They're doing it based
on priorities and cost-benefit analysis.
Ms. Trottenberg. I have to say, Senator, it varies greatly
from state to state. And some states are really leaders and on
the forefront of this. Some states are not so far ahead on
this. They've been used to getting a lot of formula funds and
not doing some of the rigorous analytics that would really
benefit at the state level as well. So it's not to say we
aren't doing it, but I think an infrastructure bank gives us a
chance to do it better.
And I can just say that USDOT running the TIGER grant
program--we require benefit-cost analysis for all the
applications. And I would say that the state-of-the-art was all
over the map. I mean, we got some applicants who had done a
phenomenal job and really made a great case and some that
barely knew how to do it at all. And, you know, we've been
working with them and helping them get up to speed. But it's
sort of an ongoing national learning process right now.
Senator McCaskill. Well, if there's something that we can
do as we begin to debate and consider this infrastructure bank,
which I'm not saying in any way that I'm not supportive of. All
the things you're talking about is what we should be doing
anyway.
Ms. Trottenberg. Absolutely.
Senator McCaskill. I mean, there's nothing about an
infrastructure bank that should bring about a requirement for a
highly analytical competitive process and prioritization of
projects with public dollars. I mean, all of that--whatever we
need to be doing--if it's all over the map and if it's just the
TIGER grants that are causing this discipline, maybe we need to
make that requirement on all the money.
Ms. Trottenberg. I think that's absolutely right. And,
certainly, in the reauthorization proposals that we're looking
at, we are trying to help the states and transit agencies do
more of that, provide technical assistance embedded in their
planning process. But it is a--I think there is a real learning
curve going on. And, again, some parts of the country are
further along than others.
But I do think now, as we find ourselves with a Highway
Trust Fund that's running short and we're taking a harder look
at how we spend our dollars, it's definitely true that states
and transit agencies around the country are going to need to
improve their game even more. And we certainly, from DOT's
point of view, want to help with that.
Senator McCaskill. OK. So from the government's standpoint,
you think it will help tighten the analytical and selection
process, plus risk shift and capital. From the private sector,
there's only one reason to do this, and that's profit. Correct?
Mr. Offutt. Correct.
Senator McCaskill. Correct. So----
Mr. Dove. I have to make a return for my investors who
give----
Senator McCaskill. Absolutely. I mean, there's nothing evil
about that. I just wanted to get it out on the table that the
reason the private sector is interested in this is not because
they want to become part of government but because they see an
opportunity to return value to the investors in the form of
profit.
Mr. Dove. Correct, yes.
Senator McCaskill. So as I step back and look at this, that
means that the way they make profit is going to be either off
of the governments that hire them to do this, or it's going to
be off the taxpayers that access the projects. Correct?
Mr. Dove. If I may, I would also suggest that maybe there
is an opportunity for a partnership between the private sector
and the government side or the public sector, generally, to
address an infrastructure problem in a different way, whereby
the capital is spent and deployed and the risk of that spending
is shifted in return for a sharing of revenues going forward.
Senator McCaskill. I don't quarrel that the government gets
something out of this, and I don't quarrel that there is
something to the partnership. But I'm trying to get at the
profit. The profit can only come from one or two places. Right?
It is only either going to come through payments from the
government, or it's going to--and the fact that the project is
managed well so that there is a profit margin based on what you
expect in payments from the government, or it's going to be
revenue generating from the people that are using whatever the
project is that's built.
Mr. Dove. Yes.
Senator McCaskill. OK. That's what I wanted to make sure I
understood. And that's why I think it's really important for us
to keep that in mind, because taxpayers are going to be paying
one way or another. They're either going to be paying through
the money we pay to these companies, or they're going to be
paying by tolls. And I think that sometimes we get caught up in
this new idea, which is great, but I don't want us to get away
from the bottom line--the folks out there are going to pay for
this one way or another. They're going to pay for it.
This isn't going to be a magic bullet that's going to all
of a sudden take away the need for the public to pay for
infrastructure. It's just going to shift how they pay for it in
a nontraditional way. And I just want to make sure that we all
examine that carefully as we move forward.
Thank you, Mr. Chairman.
Thank you all very much.
The Chairman. Point made.
Senator Klobuchar?
STATEMENT OF HON. AMY KLOBUCHAR,
U.S. SENATOR FROM MINNESOTA
Senator Klobuchar. Thank you very much, Mr. Chairman. Thank
you. All of us--as you know, we care a lot about
infrastructure. In our state, that was really brought home to
us when we had our bridge collapse, I-35W bridge. But whether
it's a big thing like that or a little rail spur in Wadena,
Minnesota, these things matter. And so I wanted to thank you
for focusing on this today.
First of all, I want to thank you, Ms. Trottenberg, for
coming to Minnesota and speaking to our transportation alliance
last month. I heard it was a good conversation. So thank you
for that.
One of the goals, of course, for the national
infrastructure bank is to give state and localities resources
for projects that meet merit-based national and regional
economic objectives. And I share some of the concerns of my
colleagues about how mega projects could dominate over smaller
projects. And how do we ensure equity of funding projects of
different types and sizes across the country while still
showing that the return ultimately goes to our national
economy?
Ms. Trottenberg. Again, it's very, very important that you
do achieve geographic and urban and rural balance in a program
like this. Obviously, you all here in Congress will want to
make sure that as you craft--if you're going to collectively
ultimately craft legislation--that you get that balance right.
Again, as we've discovered through the TIGER program, and
also through RRIF, our railroad credit assistance program, we
have made some very big loans, and we have made some incredibly
small loans, and we've made some very small grants, too. I
think you can do both, and there are sort of slightly competing
visions on an infrastructure bank. One is that it is funding
tremendously large projects of national significance, and we
need those, like a CREATE--the big freight rail projects we
have that span many states and would be very, very hard for
individual states to ever make happen through existing formula
funds.
But we also think there are great ideas and very local
needs. We funded through TIGER and through RRIF some very small
local short----
Senator Klobuchar. You mentioned TIGER, and I think that
was a very popular part of AARA. And I just wondered if you
could say--and I know there are efforts to permanently
authorize those grants. Are there ways that TIGER can be
improved as we look at permanently authorizing the program?
Ms. Trottenberg. Just going on our experience at DOT and
some of the feedback we've gotten around the country and from
Members of Congress, I think clarifying and sharpening in a
consensual way what the goals of the TIGER program are--and it
gets at exactly what you're saying--how much is geographic
balance; how much is economic return; how much is achieving
social benefits; how much we want to do in grants; how much we
want to do in TIFIA loans. And we've run the program now for
two years. We're starting the third. We are trying to refine
all the processes, make them more transparent. But I think
that's another area. We would like to work with Congress and
make sure we get it right.
Senator Klobuchar. Very good. You know, the Twin Cities
area in Minnesota is considered to be one of the most livable
places in the U.S. Now that Begich is gone, I can say that, now
that he's done touting Anchorage. And I believe part of that is
that we've placed a big importance on multimodal
transportation, everything from the way we run the bus system
to the bike paths around all the lakes. And it's really kind of
incredible the way it all works together.
Could you talk about how a national infrastructure bank
could fit into the overall goal of consolidating and
streamlining the numerous federal funding silos that currently
exist?
Ms. Trottenberg. Right. That's a good question. One of the
examples I talked about was the Denver Union Station project,
which is a transportation, livability project that had all
kinds of different elements to it and wound up drawing from
four different pots at USDOT, from TIFIA, from RRIF, from
federal highway funding, and federal transit funding. It was
complicated and time-consuming.
In our vision of an infrastructure bank, you could
encompass all those different elements. The applicant would
have one point of contact, and we could structure the best
possible deal and, hopefully, in the process do a lot of
streamlining and cut down on the time and money that it takes
for an applicant to successfully compete.
Senator Klobuchar. Because otherwise we'd run the risk of
just adding a new program----
Ms. Trottenberg. No, no, in----
Senator Klobuchar.--that they would then add funding to, if
that were to----
Ms. Trottenberg. In DOT's vision, we would be, over time,
merging some of our existing programs into the infrastructure
bank. The goal would be some streamlining and making it easier
for states and communities out there that wanted to come to us
and apply.
Senator Klobuchar. OK. Very good. Thank you very much.
Thank you, all of you, and I'll talk to you about the rail spur
later.
The Chairman. Senator Klobuchar----
Ms. Trottenberg. I look forward to it, Senator.
The Chairman.--you've got 20 seconds more to say----
Senator Klobuchar. See, I was brief, Chairman Rockefeller.
The Chairman.--three very good things about Minnesota.
Senator Klobuchar. I was brief. And I have another hearing
to go to, too.
The Chairman. Oh, OK.
Senator Klobuchar. Thank you.
The Chairman. All right. Thank you, Senator Klobuchar. And
I was teasing.
I think this has been an amazing hearing. It may not appear
that way to you, because you deal with these things all the
time. We have not--and, you know, I was the Governor of my
state for 8 years and dealt with wretched transportation
problems during 1982 and 1983 when there wasn't any money for
anything and during 1976 through 1980 when there was quite a
lot of money available--you know, laying off 10,000 highway
workers because we didn't have projects to pay them for.
And all of a sudden, you know, in you walk, to my
embarrassment--I mean, not that you walked in, but the fact
that we hadn't called you three or four or five years ago or 10
years ago to talk about the interest of the private sector to
participate in this, and that it's something that you've
actually done. The underground railroad in London--that's a
rather large statement. If that was a PPP thing with you
heavily involved in that, that's an extraordinary statement.
So to me, this has been a very heartening, embracing
hearing. And we've got, you know, a number of bills. I don't
see why they can't be worked out and put together, because the
cost of not doing it is not passing a bill, and I don't see
anything that would prevent us from passing a bill on something
which, obviously, people care--we had a very large turnout. We
ordinarily don't have that many, so that--people came in
because of various committee meetings at different times, but
they really care about what you're talking about and so do I.
Let me just ask one final question. And Senator Ayotte
raised it, and that is the fact of having a group inside the
Department of Transportation, as opposed to, quote,
``independent and outside.'' The department--the group inside
would not necessarily have to be made up of all government
people. But there was the hint in her question--and I think it
was very fair--that having that would open it up to politics.
And that's a very rapidly spreading concept that people don't
like.
And then on the other hand, if it was done on the outside,
and there weren't, let's say, a lot of government people, but
people who were doing this, I mean, wonderfully for the good of
the country but also to make sure there was a return--what is
my question? My question is sometimes some projects are more
important than others, and they may be cost-effective. That
means, for example, in your projects that you've all done,
you've always finished on time, and you've always finished on
budget. That's my general impression. I mean, it has been a
very effective process.
On the other hand, you want to make sure that you get the
projects that are in the relative form of priority, the
national needs. And so if you just for a moment discuss inside
the department and the politicalization or, on the other hand,
inside the department and then having this kind of nationwide
look at what needs to be done next--obviously, people apply to
the Department of Transportation. That doesn't necessarily make
it political. It means that they care. Now, they could do the
same with an independent group outside.
And I'm asking this question just because I want to know
your views. I'll ask the three of you your views.
And I've got to apologize to you, Mr. Bruno. I have a
question just exactly for you, but I'm not going to get time to
ask it, so I apologize to you.
What is that? Is that a bit of a scare tactic, the
politics? Or does it have truth to it, in your judgment? And if
you were independent, would you be inclined to look at things
that might make a return on investment--and be very, very
careful about that, because you'd have to be--and, therefore,
maybe come up with projects that are very good, because any
project is very good for somebody somewhere but not necessarily
in the order of, you know, a national priority list. And I
think we're dealing here with that kind of discipline simply
because of the lack of money even with you participating. So
maybe the three of you could----
Ms. Trottenberg. Maybe I'll start, because we had a very
genuine debate about this within the administration. I think
there were people really on both sides about whether it made
more sense to have a separate independent entity or house it
within USDOT. And so I think we're open to different solutions.
We're not dogmatic about it.
A couple of things in our thinking--one is can you create
that truly independent entity that is somehow completely
detached from all political and geographic considerations? I
think it's a question mark if you look at the history of some
of our efforts to do that. Some have worked better than others.
I think for us, also, there was a pragmatic consideration
which is--in USDOT we've been running the TIFIA program since
1999. We do have a number of career experts and financial
experts and project delivery experts and experts in all our
offices around the country. And, we thought just in terms of
technical capacity in getting the program up and running, it
really made sense to house it in an agency that has a lot of
expertise and a lot of people on the ground to help do the
analysis.
I think it doesn't mean maybe at some point you wouldn't--
and we structured it in such a way we have actually members on
our council from other cabinet agencies with the notion that
perhaps we would ultimately expand it to other types of
infrastructure and maybe even spin it off at some point. But I
think, pragmatically speaking, we thought it made sense to
start it within DOT to get it up and running, and I think--I
hope--we feel that we have done a good job in picking projects
and not being overtly political. That's obviously a judgment
that, you know, all the members here will have to make as to
whether we've done right or not in that regard.
Mr. Offutt. Just to add on my thoughts, I think the key
thing is that the process of determining which projects are
chosen is very transparent. There's a view that it either is
because the project fulfills a national--is viewed as critical
from a national infrastructure perspective, or it fits in
specifically in a bucket to say that certain projects, you
know, allocated to rural areas--that this would qualify, so
that there's no questioning of why this project was chosen.
And to be able to take the politics away from those
ultimate decisions and so that people can feel very good that
it was very much merit-based is going to be, I think, very
important, because, inevitably, there will be more projects
that are interested in using resources from a national
infrastructure bank than there will be funds going to those
projects. So it's just a matter of, again, making this
transparent and taking politics as much out of that equation as
possible.
Mr. Dove. Mr. Chairman, I don't think you'll be surprised
to hear that I think it should be independent. I think it
should be independent because it gives much more credibility to
the private sector, my investors, who are going to make the
actual equity investment in the transaction, to know that this
is an independent organization that has looked at the loan and
determined that this is a creditworthy loan and will,
therefore, grant a long-term, low interest rate loan. And so I,
as an equity investor, are, therefore, more attracted to it.
I would say, however, that it is important that any
national infrastructure bank does have some sort of
Congressional oversight, inasmuch as it would have to be
reporting to a committee on an annual basis about what sort of
loans it has done to establish this idea that it is sort of
going across the country. But it is also critical to understand
that this is a supplement to other forms of financing. This is
not replacing grants. This is a supplement to. And certain
projects will not pass the creditworthiness test, but maybe
they would be ones which other departments within the
government and the federal agencies would determine merit-
worthy of a grant.
The Chairman. Mr. Bruno, Mr. Ruane?
Mr. Bruno. I don't really have an opinion, to tell you the
truth, either way. I'm not an expert in this field. I would
just, if I have an opportunity here, Senator Rockefeller--just
to remind everyone that I've heard significant comments today
about the risk of the money that's associated with this
project. But there are other risks that are involved here, in
particular, the human risks and the safety issues that are
associated with these projects.
And I would ask the senator to assure that the legislation,
in whatever type of investment situation we eventually settle
upon, maintains that that's the primary interest of the
American people and the responsibility of the government--is to
ensure that the people that use these projects, when they're
eventually completed, do not suffer the consequences of cost
cutting because profit is threatened.
We've seen this in Great Britain with their project, where
cost overruns caused the private entity to cut back on some of
the maintenance and caused a significant safety problem. Any
time that occurs, it's a failure of the government, in my
opinion, to not properly protect the people that they
represent. And I would urge you to consider that and keep that
foremost in your mind during the final development of this
piece of legislation.
The Chairman. Thank you, sir.
Mr. Ruane?
Mr. Ruane. Mr. Chairman, I would echo the need for absolute
transparency, no matter which vehicle is chosen to house the
bank. I think that is crucial to the success of this, because I
have heard----
The Chairman. What you're saying is that OMB should not be
doing this.
Mr. Ruane. Absolutely. They'd have to be involved, but I
think the--to the outside world, you're going to have to--and
this applies to the actual contracts that are reached between
the entities. All that has to be out in the open. The problems
that have been experienced around the country is where people
have not had access to the details, and a lot of rumors take
place, et cetera, as to what the real deal and what the margins
are and the returns and all that. But if it's transparent, open
to the public, I think you can solve a lot of that.
And I would like to add a footnote to the discussion that
Senator McCaskill initiated there a moment ago, and you started
touching on it. One of the other benefits that I see from an
infrastructure bank that has come out of the whole PPP
experience in the last 20 years is there has been a tremendous
amount of innovation in the project management, the delivery
systems, on--as you were referring to--on budget, on time.
And I see the freight intermodal connecter type projects
being ripe for these kind of funding situations from the bank.
And so I think that'll be an additional benefit besides, you
know, the profit and the access to capital that the nation
would gain by doing this whole idea.
The Chairman. All right. I cannot thank you enough. Again,
I'm shocked that we didn't have this 10 years ago, but can't
help that. You have introduced a fundamentally important
concept into additional ways to deal with our national
infrastructure.
One of my observations about the Congress as a whole is
that in spite of sort of theological statements, people--since
people back home really care about infrastructure, and they're
really aware--I mean, I'm thinking in my own mind of when I
drive to our farm in West Virginia of all the one-lane bridges
30 years ago as opposed to none now and what that means, and
that had to be paid for by somebody. And you magnify that by
large projects and small projects throughout the country.
You've made a very, very important contribution in this, our
first ever hearing on this subject. So I thank you. And this
hearing is adjourned.
[Whereupon, at 12:02 p.m., the hearing was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. Kay Bailey Hutchinson
to
Hon. Polly Trottenberg
Question 1. DOT administers several loan programs, including
Railroad Rehabilitation and Investment Financing (RRIF) loans. With
respect to RRIF loans, many applicants have complained about long wait
times for the approval of applications, over a year in some cases. What
is DOT doing to improve the administration of the RRIF program?
Answer. SAFETEA-LU established a 90-day clock for the Federal
Railroad Administration (FRA) to act on RRIF loan applications. The 90-
day clock does not start until an application is complete.
In order for an application to be complete:
The NEPA process must be completed and the relevant NEPA
document signed.
An independent Financial Advisor (IFA) must be hired and the
IFA must state that they have all the materials from the
applicant needed to complete their required financial analysis.
The United States Department of Transportation (USDOT) and FRA are
working to help applicants develop and submit complete applications and
to improve the transparency of the application process. This is being
done through a working group composed of industry representatives and
consultants who help potential borrowers prepare applications for RRIF
loans. We are also conducting an outreach effort with presentations by
USDOT and FRA, brochures and articles.
Question 2. DOT recently solicited proposals for a third round of
Transportation Investment Generating Economic Recovery (TIGER) grant
projects. What lessons has DOT learned from the first two rounds of
TIGER grants that will help ensure a fair and transparent selection
process?
Answer. USDOT learned that it is important to establish clear
selection criteria for the TIGER program and to communicate these
criteria to prospective applicants. The Department also learned that it
is important to work with prospective applicants to make sure they know
how to submit a competitive application. The Department has done this
through a variety of outreach mechanisms, including public seminars and
webinars. These sessions also provide USDOT with a valuable opportunity
to hear from prospective applicants about the program itself and how it
can be improved.
USDOT also learned that it is important to document the
discretionary grant award process. In their formal review of the
program GAO, found that USDOT generally did a good job of following
applicable guidance and procedures for discretionary grant programs in
administering the TIGER program. The report recommended that the
Department consider better documentation of certain elements of our
grant making process. We have taken steps to improve in this area.
In addition, USDOT learned that both the TIGER program and its
stakeholders benefit from USDOT personnel taking time to debrief
unsuccessful applicants on the strengths and weaknesses of their
applications. Over the last 2 years, we have conducted hundreds of
debriefings for unsuccessful applicants. As a result, several of these
applicants substantially revised their applications and were awarded
funds in a subsequent round of TIGER.
______
Response to Written Questions Submitted by Hon. John Thune to
Hon. Polly Trottenberg
Question 1. Is the Administration supportive of an Infrastructure
bank being created separate from the Transportation reauthorization
bill?
Answer. The Administration and USDOT are flexible with respect to
the legislative vehicle that would be used to create a national
infrastructure bank. However, we believe it is very important that a
national infrastructure bank be considered as a supplement to the
reauthorization of surface transportation programs, and not a
replacement for these programs. These programs play a critical role in
building and maintaining our nation's transportation infrastructure,
which a national infrastructure bank could not replace.
USDOT believes it is important for a national infrastructure bank
to have the certainty of multi-year funding authorizations. This would
allow credit assistance provided by a national infrastructure bank to
be aligned with the project schedules, many of which would likely have
multi-year development and financing plans.
One benefit of creating a national infrastructure bank in the
context of reauthorization would be to give state and local governments
and other transportation entities a comprehensive view of the resources
available from the federal government both through the national
infrastructure bank and through traditional highway trust fund
formulas.
Question 2. While the Administration has been discussing funding
mechanisms for transportation projects how much have you considered
transportation infrastructure in rural areas and their importance to
the country's commerce?
Answer. USDOT believes that rural transportation infrastructure is
vitally important for the nation's commerce, safety, and livability.
Substantial funding has been provided for rural transportation projects
through our competitive discretionary programs. For example, through
the TIGER I and TIGER II Discretionary Grant programs, USDOT provided
24 grants of about $241 million for projects in rural areas. The total
cost of these projects amounted to about $438 million. The TIGER
program is now set up to devote over one quarter of available funding
for projects in rural areas, while about 17 percent of the population
lives in rural areas. We found that rural freight projects and rural
safety projects in particular were very well aligned with several of
the Department's strategic goals, including economic competitiveness,
safety, state of good repair, and livability.
Examples of rural freight projects funded through TIGER
include:
Reconstruction of the Mitchell-Rapid City Rail (MRC) line
in South Dakota (TIGER grant of $16 million).
Project Description: The MRC line project will rebuild a state-
owned branch line from Mitchell to Chamberlain, South
Dakota. The reconstructed rail line will increase the
capacity and efficiency of the line principally used for
transportation of agricultural commodities. The existing
branch line is in poor condition, limiting the amount of
freight shipped over the railway.
The Aroostook Rail Preservation project in Maine ($10.5
million).
Project Description: The Aroostook rail preservation project will
restore the rail routes serving Northern Maine by replacing
railroad ties and rail sections, and by clearing drainage
ditches. The project will rehabilitate 230 miles of rail in
Northern Maine constructed more than 100 years ago, which
was allowed to fall into disrepair by a previous rail
owner-operator.
Northwest Tennessee Port at Cates Landing ($13 million).
Project Description: Tiger II dollars will be used to build a
port and harbor facility on the Mississippi River, at Cates
Landing in Tennessee. Dock facilities will be constructed
and additional, necessary, on-site improvements will be
made to create a connection between barge traffic at the
port and truck freight movement.
Examples of rural safety projects funded through TIGER
include:
Improvements to US-18 in Oglala and Pine Ridge, South
Dakota ($10 million).
Project Description: The project will reconstruct and surface a
deteriorating 15.6- mile segment of US-18 in Oglala and
Pine Ridge, SD. Shoulders with rumble strips will be
constructed, and other measures will be taken to improve
safety and diminish the high incidence of fatal road
crashes. Additional improvements include adding sidewalks
with lighting and improving access to transit. Curbs,
gutters and storm sewers will also be constructed.
US 491 Safety Improvements through the Navajo Nation in
New Mexico ($31 million).
Project Description: US-491 is the primary north-south highway in
this extremely rural area of northwest New Mexico. The road
connects the local Navajo Nation to other parts of New
Mexico, Colorado, and the Four Corners area. It is a major
trucking route with increasingly high volumes of commercial
traffic. The full project will expand the width of US-491
over a corridor length of approximately 69 miles,
constructing two new lanes adjacent to the two existing
lanes. Additional safety improvements include constructing
turn lanes for acceleration and deceleration in commercial
and high-traffic areas, and improving intersections,
signage, markings and drainage facilities.
Route 10 Safety Improvements in West Virginia ($17
million).
Project Description: This project will convert 12.84 miles of
West Virginia Route 10, a narrow, two-lane road with speeds
limited between 25-45 mph, into a four-lane limited-access
divided highway. The new construction will increase safe
highway speeds to 65 mph, reduce the grade of hills and
straighten out dangerous curves. The project will also
include a 10 foot wide median with a concrete barrier to
separate directions of traffic and enhance safety.
Examples of rural livability projects funded through TIGER
include:
State University Drive Complete Streets in Fort Valley,
Georgia ($1.49 million).
Project Description: This project will construct streetscape
improvements and widen approximately one quarter mile of
State University Drive in the vicinity of Fort Valley State
University, in Fort Valley, Georgia. Currently, only a
portion of State University Drive has a 2-lane, center turn
lane configuration with sidewalks. This project will widen
a portion of this roadway, creating a 2-lane, center turn
lane configuration to match the other section of the
roadway.
Moscow Intermodal Center in Moscow, Idaho ($1.5 million).
Project Description: The Moscow Intermodal project will construct
a 6,800 square foot transit facility featuring exterior
covered structures with a 5,500 square foot passenger
loading zone and secure parking for buses and bicycles. The
new facility provides 34 vehicle and 10 bus stalls to link
services provided by Moscow Valley Transit, the University
of Idaho's Vandal Shuttle and intercity bus service from
Northwest Trailways and Wheatland Express. The facility
will also provide access for taxis, vanpools and carpools,
and will expand pedestrian and bicyclist accessibility
Question 3. Do you foresee an infrastructure bank providing more or
less funding, compared to the current formula fund distribution, for
rural states.
Answer. USDOT sees grants and loans provided through a national
infrastructure bank as supplementing traditional formula funding for
rural states, not replacing it.
We believe that rural areas would compete well for funds under a
national infrastructure bank, as they have under the TIGER
Discretionary Grant program, where rural areas have received funding
for large and small projects.
The Administration's proposal for a National Infrastructure bank
would provide assistance for projects in rural areas with eligible
project costs of at least $10 million, compared with a figure of $50
million for projects not in rural areas.
Question 4. I'm concerned that creating any new loan program,
instead of using existing programs such as the Highway Transportation
Fund, would create additional bureaucracy and not get funding right
away to much needed transportation projects. New loan programs that
require new organizations and new rules take a long time to establish,
even before loan applications are submitted and processed. As such,
authorized and appropriated money would sit idle while bureaucracy was
being created.
Answer. USDOT has substantial, relevant experience establishing new
programs quickly, obligating funds and building much needed
transportation projects. The Department gained valuable experience in
standing up the TIGER Discretionary Grant program and the High-Speed
Rail program under the American Recovery and Reinvestment Act of 2009.
Both of these programs, which were new programs that the Department had
to create from scratch, met all statutory deadlines for announcing and
obligating funds.
USDOT also has considerable experience with administering
transportation infrastructure credit assistance programs such as the
TIFIA program and the RRIF program. A national infrastructure bank
housed in the Department would draw on this experience and the
expertise we have acquired to manage these programs effectively.
The time needed to effectively implement a national infrastructure
bank would depend on the bank requirements established in the
authorizing legislation. However, our experience with administering the
programs above gives USDOT confidence that a national infrastructure
bank could be stood up in a timely and efficient manner, while ensuring
protections for the taxpayer.
Question 5. With the creation of a new loan program like an
infrastructure bank, how quickly could the money be put to work?
Answer. USDOT believes that grant and loan funding from a national
infrastructure bank could be put to work expeditiously, particularly
with a bank housed in the Department. A bank housed in the Department
would be able to draw on the experiences, resources and success of
existing programs like the TIGER Discretionary Grant program, TIFIA and
RRIF. The time necessary to implement a national infrastructure bank
would, of course, depend on the complexity of the program and the
requirements for personnel and setup specified in the authorizing
legislation.
Question 6. What sort of administrative requirements
(organizational structure, rules, staffing) would be required before
loan applications could be accepted and processed?
Answer. USDOT believes that the administrative requirements
required to stand up a national infrastructure bank could be limited,
to the extent the national infrastructure bank was housed within USDOT.
By housing the bank within the Department, the bank could draw on the
experiences, resources and success of existing programs like the TIGER
Discretionary Grant program, TIFIA and RRIF. The administrative
requirements necessary to implement a national infrastructure bank
would depend on the size, scope and complexity of the program.
Question 7. If a new loan program was created, what would the
administrative costs be?
Answer. The President's Budget requested $70 million for
administering a national infrastructure bank in FY 2012.
______
Response to Written Question Submitted by Hon. Mark Pryor to
Robert Dove
Question. Mr. Dove, I have had several constituents contact me
about proposals to remove the ban on commercialized rest areas. These
constituents point out that businesses that have been built up along
the exits rely on motorists leaving the interstate for food and fuel,
and have expressed concern about changing the law after businesses have
been built on the premise that motorists must leave the interstate. If
rest stops are commercialized, what would be financial impact on
businesses at the exit interchanges?
Also, with a decrease of traffic and business to exit interchanges,
what would be the effect on the tax base of these cities, towns, and
counties in which those businesses are located?
Answer. If rest stops add commercial services, the financial impact
on existing business located in the region is difficult to quantify
without knowing the specifics of a particular area. In some locations
it may attract more traffic as a result of an increase in food and fuel
options for the drivers. In other instances owners of existing
businesses--many who own large franchises in the area--may be offered
to expand those franchises to the rest stops that are being developed.
With respect to the second part of your question--the impact on the
communities--I'm not certain one can assume a decrease in traffic to a
particular business would occur as a result of commercial rest stops.
Again without knowing the specific context of a particular area, it
would be hard to quantify the impact. For example, it may be that the
additional employment opportunities (new jobs) created as a result of
these new projects would effect the local tax base. Additionally,
potential increases in sales may occur which would impact a local
jurisdiction's tax base to the extent that it may find little change or
even additional revenues if more customers stop at these locations.
One possible way to obtain useful data on the questions being asked
would be to examine data in areas where existing rest stops are being
virtually rebuilt and expanded into new facilities. In many instances
these service plazas are run down and offer few options to the
traveler, and many travelers opt for other choices. Some are even
dangerous with child trafficking, prostitution, and cargo theft a
problem--traits, incidentally, shared by some non-commercial rest
areas. As these areas are rebuilt, services and customer options are
being expanded; environmental improvements are being installed that
provide cleaner air, safer traffic patterns, less noise, and a more
attractive environment. In some instances increased participation by
state troopers at small substations are being added. Reviewing the
impact of these projects on businesses similar to what you describe as
well as the rest of the local community, the tax base, etc., may be
helpful. It also may be helpful to review how the balance of residents
in the local community view the project.
Additionally, there are currently Governors in several states who
want to add commercial rest stops in order to their states to benefit
from increased economic growth; providing more services to their
constituents; increasing revenue from out-of-state visitors; and using
the additional revenues for the operation and maintenance of their
existing non-commercial rest stops. They would welcome the opportunity
to add commercial rest stops to their interstates. The Congress may
want to consider developing a set of pilot programs in some willing
states that would create data that would also provide additional
information the Senator is seeking.
Thank you for the opportunity to answer your question.
______
Response to Written Questions Submitted by Hon. John Thune to
Robert Dove
Question 1. Do you foresee an infrastructure bank providing more or
less funding compared to the current formula fund distribution for
rural states?
Answer. More funding. Rural America has significant infrastructure
needs that can benefit from direct private investment outside of
current formula funding, and an infrastructure bank can assist in that
investment. Water systems in rural America need significant capital
investment and management partnerships. And, as I mentioned in an
earlier response, South Dakota and other states can benefit greatly
with the rebuilding of their levees to protect against flooding; and
refurbishing our the locks and dams in our inland waterways to help
ship products from rural America. There is an opportunity for
innovative mayors and other state and local officials in rural areas to
take advantage of the potential for private investment in the
infrastructure they are responsible for. Nevertheless, although the
establishment of the bank would assist them, they shouldn't wait for a
bank to be created. Economic models can be created that do not replace
federal formula funding to rural areas but instead can provide
additional resources. I would be pleased to work with you, Senator
Thune, and your staff to provide additional information on this
important issue as I know it is one of your chief concerns.
Question 2. I'm concerned that creating any new loan program,
instead of using existing programs such as the Highway Transportation
Fund, would create additional bureaucracy and not get funding right
away to much needed transportation projects. New loan programs that
require new organizations and new rules take a long time to establish,
even before loan applications are submitted and processed. As such,
authorized and appropriated money would sit idle while bureaucracy was
being created.
Answer. Currently, one of the major problems currently is that
existing programs take too long in getting funding to infrastructure
projects. And when they are sped up, safeguards like solid due
diligence, transparency and other important practices become casualties
of the bureaucratic process. An infrastructure bank can be established
that would evaluate important criteria like performance metrics, apply
creditworthiness data, and process funding requests faster than any
existing structure at the Department of Transportation or Environmental
Protection Agency--and still maintain appropriate safeguards with
respect to fund distribution. Respectfully, the objective is not
creating another government bureaucracy. The goal is to design a
funding process that allows new sources of capital speedily inserted
into the infrastructure market in an innovative way and which would
attract additional capital.
Question 3. With the creation of a new loan program like an
infrastructure bank, how quickly could the money be put to work?
Answer. Again, one of the glaring weaknesses of the current project
is the long horizon of any infrastructure project from the time it is
approved to the time construction is completed. Most of that is time
taken up in permit approvals, design changes and other issues that
private investment in infrastructure can not sustain the way that much
of the current process allows for. The issue is more fundamental than
whether an infrastructure bank is established, but a bank that
encourages private sector participation will encourage the horizon of
these projects to be shortened. An infrastructure bank will encourage
projects that include ``design-build-finance,'' (and in some instances
``operate and maintain'') qualities that traditionally have much
shorter horizons--and often much higher efficiencies.
Question 4. What sort of administrative requirements
(organizational structure, rules, staffing) would be required before
loan applications could be accepted and processed?
Answer. There are different models currently in other parts of the
world--I mentioned the European Infrastructure Bank earlier in my
testimony. I would be pleased to work with the Senator and this
Committee to identify the structure and methods that would be most
efficient and provide the most value to the bank's operation. I also
believe it is critical for the bank to regularly report to the Congress
on its performance.
Question 5. If a new loan program was created, what would the
administrative costs be?
Answer. If the bank is set up and managed appropriately the bank
would--and should--pay for itself. Also, it may be helpful for the
Committee to review the current administrative costs of existing
federal funding programs in the federal agencies, particularly programs
designed to distribute funds for infrastructure projects. I am
confident that a side-by-side comparison with these infrastructure
federal agency funding programs would show that dollar for dollar, a
bank's operation would be more efficient and more expedient in getting
funds invested in projects. I would be pleased to work with the Senator
and the Committee to determine what the administrative costs would be.
______
Response to Written Questions Submitted by Hon. John Thune to
J. Perry Offutt
Question 1. Do you foresee an infrastructure bank providing more or
less funding, compared to the current formula fund distribution, for
rural states.
Answer. As part of the formation of a National Infrastructure Bank
(the ``Bank'') a methodology by which it will deploy any funds needs to
be determined. While certain formula funding programs currently aim to
alleviate specific issues that are primarily urban in nature (i.e.,
improve aging infrastructure, address congestion), the Bank can also
adopt as a core value the funding of new infrastructure development in
locations where an adequate transportation alternative does not
currently exist. Such a formalized approach will help ensure that
funding provided by the Bank is allocated appropriately to all regions.
Therefore, there could be more funding for infrastructure projects in
rural states.
Question 2. I'm concerned that creating any new loan program,
instead of using existing programs such as the Highway Transportation
Fund, would create additional bureaucracy and not get funding right
away to much needed transportation projects. New loan programs that
require new organizations and new rules take a long time to establish,
even before loan applications are submitted and processed. As such,
authorized and appropriated money would sit idle while bureaucracy was
being created.
Answer. Given the country's great infrastructure funding needs, it
is very important that the Bank accelerates rather than slows potential
project development. To accomplish this, the bureaucracy associated
with the Bank should be kept to a minimum. Instead, there should be
clear standards and criteria for the deployment of funds, such that
assuming that the project meets certain criteria, such as achieving
some or all of certain Bank objectives and also fully incorporating
other funding sources. Such standards will reduce the need for a
qualitative review of all applications and, consequently, the
requirement for extensive bureaucracy. In summary, the Bank should be
an additional resource, not another ``bureaucratic hurdle'' that could
impede a project.
Question 3. With the creation of a new loan program like an
infrastructure bank, how quickly could the money be put to work?
Answer. The ability to move quickly and nimbly should be a core
objective of the Bank. As mentioned during my testimony, infrastructure
needs in the U.S. top more than $2.2 trillion. Part of the issue is the
time required to bring projects from initial development to realization
given the time requirements of environmental and technical permitting
and, in particular, financing. By providing funding early in a
project's lifecycle, assuming it meets certain general criteria and
ultimately contingent on securing required permitting, Bank loans could
help take significant uncertainty off the table for projects and,
consequently, improve the speed with which they reach fruition.
Identifying the right group of people to administer the Bank's
objectives will be a critical next step.
Question 4. What sort of administrative requirements
(organizational structure, rules, staffing) would be required before
loan applications could be accepted and processed?
Answer. As discussed, the Bank should have a relatively flat/non-
bureaucratic structure and clear objectives regarding the qualification
and deployment of capital. For example, the Bank could limit the amount
of capital that it deploys in any single sector to ensure that a large
number of projects of all types receive funding.
Question 5. If a new loan program was created, what would the
administrative costs be?
Answer. The Bank would require an appropriate level of staffing to
review applications, provide oversight regarding the appropriate
dissemination of funds and ensure coordination with other federal
funding programs such as TIFIA and RRIF. However, to limit ongoing
administrative costs, the requirements and mission of the National
Infrastructure Bank could be closely linked with the goals of a
potential Congressional National Infrastructure Commission (the
``Commission''). Through it's specific focus on national infrastructure
objectives, the Commission could also drive the funding criteria for
the National Infrastructure Bank.
______
American Subcontractors Association, Inc.
Alexandria, VA, July 21, 2011
Hon. Jay Rockefeller IV,
Chairman,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Hon. Kay Bailey Hutchinson,
Ranking Member,
U.S. Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Re: Hearing on ``Innovative Funding for Transportation Infrastructure''
Dear Mr. Chairman and Ranking Member:
The American Subcontractors Association, Inc. (ASA) is a national
trade association representing more than 5,000 construction
subcontractors, specialty contractors and suppliers in the construction
Industry. Please include this letter in the record of the Committee's
hearing on ``Innovative Funding for Transportation Infrastructure.''
ASA members work in virtually all of the construction trades and on
virtually every type of horizontal and vertical construction. They have
a significant interest in assuring that such construction is adequately
funded and thus how federal funds can be used to leverage and partner
with private sector capital to supplement existing transportation
funding and increase overall investment into transportation projects.''
ASA asks the Committee to assure that any such public-private
funding programs include a requirement to assure payment to
construction subcontractors and suppliers on the funded projects.
Specifically, ASA recommends that Congress extend the requirements of
the Miller Act (40 U.S.C.Section 3131 to 3134) to projects financed by
public-private partnerships.
Construction subcontractors and suppliers extend large amounts of
credit on construction projects. Indeed, they pay most of the laborers,
vendors, and taxes even before submitting an invoice for their work to
the prime contractors or construction owners. All 50 states have
adopted mechanic's lien laws that allow a subcontractor to secure
payment on private construction by asserting a claim for the amount it
is owed to the property it is improving. The federal government and all
50 states also have adopted laws (i.e., Federal Miller Act, state
``little'' Miller Acts) that require a prime contractor on public
construction to provide a payment bond to assure payment to
subcontractors and suppliers on such projects.
But, depending on how a project funded by both public and private
funding is structured, such projects may be exempt from both mechanic's
liens and payment bond requirements, and thus provide no payment
assurance to the subcontractors and suppliers that extend credit to the
project. Further, subcontractors and suppliers may not have access to
the information that would allow them to determine the extent of
payment protections or whether there even is payment assurance until
they already have extended credit. Construction subcontractors and
suppliers that have doubt about the adequacy of project funding or
assurance of payment for work performed will charge higher prices in an
attempt to account for their higher risk. However, higher prices alone
cannot protect a construction subcontractor or supplier from business
failure when they are not paid for work performed.
In summary, failure to assure payment to construction
subcontractors and suppliers on construction projects financed with
innovative methods could both increase the costs of such projects and
put at risk small businesses that pay taxes, provide jobs and otherwise
support the economic well-being of the Nation. The best solution to
providing payment assurance to these businesses is to extend the
Federal Miller Act to such projects.
Please do not hesitate to contact me if you have any questions or
require more information. I can be reached at (703) 684-3450, Ext.
1317.
Sincerely,
Franklin L. Davis,
Director of Government Relations,
American Subcontractors Association, Inc.