[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                  FUNDING THE NATION'S FREIGHT SYSTEM

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

                                (113-38)

                                HEARING

                               BEFORE THE

                                PANEL ON
                  21st-CENTURY FREIGHT TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 10, 2013

                               __________

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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                  BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska                    NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         ELEANOR HOLMES NORTON, District of 
JOHN J. DUNCAN, Jr., Tennessee,          Columbia
  Vice Chair                         JERROLD NADLER, New York
JOHN L. MICA, Florida                CORRINE BROWN, Florida
FRANK A. LoBIONDO, New Jersey        EDDIE BERNICE JOHNSON, Texas
GARY G. MILLER, California           ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri                 RICK LARSEN, Washington
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
CANDICE S. MILLER, Michigan          TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California            MICHAEL H. MICHAUD, Maine
ERIC A. ``RICK'' CRAWFORD, Arkansas  GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas              TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana               STEVE COHEN, Tennessee
BOB GIBBS, Ohio                      ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania         DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York           JOHN GARAMENDI, California
DANIEL WEBSTER, Florida              ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida       JANICE HAHN, California
JEFF DENHAM, California              RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin            ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky              DINA TITUS, Nevada
STEVE DAINES, Montana                SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina             ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma           LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas                CHERI BUSTOS, Illinois
TREY RADEL, Florida
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
RODNEY DAVIS, Illinois
MARK SANFORD, South Carolina
                                ------                                7

              Panel on 21st-Century Freight Transportation

                JOHN J. DUNCAN, Jr., Tennessee, Chairman
GARY G. MILLER, California           JERROLD NADLER, New York
ERIC A. ``RICK'' CRAWFORD, Arkansas  CORRINE BROWN, Florida
RICHARD L. HANNA, New York           DANIEL LIPINSKI, Illinois
DANIEL WEBSTER, Florida              ALBIO SIRES, New Jersey
MARKWAYNE MULLIN, Oklahoma           JANICE HAHN, California
                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY

Hon. Sean T. Connaughton, Secretary of Transportation, 
  Commonwealth of Virginia.......................................     5
Leif Dormsjo, Deputy Secretary, Maryland Department of 
  Transportation.................................................     5
Robert D. Atkinson, President and Founder, Information Technology 
  and Innovation Foundation......................................     5
Jack L. Schenendorf, of Counsel, Covington & Burling LLP.........     5
David Seltzer, Principal, Mercator Advisors LLC..................     5

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Hon. Sean T. Connaughton.........................................    36
Leif Dormsjo.....................................................    47
Robert D. Atkinson...............................................    53
Jack L. Schenendorf..............................................    62
David Seltzer....................................................   105

                       SUBMISSION FOR THE RECORD

American Road and Transportation Builders Association (ARTBA), 
  written statement, and Budgetary Impact of Highway 
  Transportation Services Tax, prepared for ARTBA by 
  PricewaterhouseCoopers.........................................   119
[GRAPHIC] [TIFF OMITTED] T5021.001

[GRAPHIC] [TIFF OMITTED] T5021.002

[GRAPHIC] [TIFF OMITTED] T5021.003

[GRAPHIC] [TIFF OMITTED] T5021.004



                  FUNDING THE NATION'S FREIGHT SYSTEM

                              ----------                              


                       THURSDAY, OCTOBER 10, 2013

                  House of Representatives,
      Panel on 21st-Century Freight Transportation,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The panel met, pursuant to call, at 1:00 p.m., in Room 
2167, Rayburn House Office Building, Hon. John J. Duncan, Jr. 
(Chairman of the panel) presiding.
    Mr. Duncan. I want to go ahead and call this hearing to 
order because we may have some votes here in just a few 
minutes.
    And, first of all, I want to welcome everyone to this 
hearing of the Transportation and Infrastructure Committee's 
Panel on 21st-Century Freight Transportation.
    And, as I mentioned, it looks like we may have votes 
anywhere from 1:40 to 2:10 this afternoon. So, with that, I 
want to recognize Ranking Member Nadler for a unanimous-consent 
request.
    Mr. Nadler. Thank you, Mr. Chairman.
    Mr. Chairman, I request unanimous consent that the chairman 
be permitted to declare a recess during today's hearing.
    Mr. Duncan. All right. Hearing there are no objections, 
that will be so ordered.
    This special panel was created by Chairman Shuster and 
Ranking Member Rahall of the Transportation and Infrastructure 
Committee to examine the current state of freight 
transportation in the United States and how to improve that 
transportation so we can strengthen our economy.
    Under the House and committee rules, this panel exists for 
6 months. We held our first hearing on April 24th, so we have 
less than 2 weeks left before we must conclude our activities.
    In the 6 months that we have been together, the panel has 
held six hearings, participated in three roundtable 
discussions, and traveled to southern California, the Memphis 
region, and the New York City region. We have met with numerous 
members of the freight community and discussed many different 
aspects of the Nation's freight transportation network and how 
it impacts each of us in our everyday lives.
    The panel is working on drafting a report that will provide 
recommendations to the committee on ways to modernize the 
freight network and make the United States competitive in the 
21st century. We have been working very hard toward this goal, 
and we plan to issue our report to the committee in the next 
couple of weeks.
    Our discussion this afternoon is the last public hearing 
the panel will have, and we have saved a very important topic 
for our final hearing. Today, the panel will receive testimony 
on ways to raise new revenue and how to use existing revenue 
more wisely in the funding of freight infrastructure projects.
    There are many sources of funding for freight projects. 
Federal trust funds, State and local revenue, and private 
investment combine to deliver projects that facilitate the 
movement of freight around the United States.
    A safe, efficient, and reliable intermodal freight 
transportation network is critical to the Nation's long-term 
economic health and competitiveness. Unfortunately, a 
congressionally established commission found that, over the 
last several decades, investment in the Nation's freight 
network has not kept pace with the needs of our economy.
    Our purpose today is to hear from our expert panel of 
witnesses on this topic so that we can make better decisions in 
the future regarding how to invest in freight transportation 
infrastructure. There are many different proposals, and all of 
them have strengths and weaknesses. We will hear from our 
witnesses and carefully weigh what they have to tell us.
    We have an excellent panel of witnesses before us today. 
And it is a good timing for them to be here right at this key 
point in the activities of this panel. I am confident that they 
will be able to help us understand the different proposals 
regarding new sources of funding for freight projects as well 
as ways to better use the funds already available to us.
    We have the Honorable Sean Connaughton, who is secretary of 
the Virginia Department of Transportation; Mr. Leif Dormsjo, 
who is the deputy secretary for the Maryland Department of 
Transportation; Mr. Robert Atkinson, who is president of the 
Information Technology and Innovation Foundation; an old 
veteran of this committee, our friend, Jack Schenendorf, former 
staff director of this committee, who is of counsel for 
Covington & Burling; and Mr. David Seltzer, who is the 
principal for Mercator Advisors.
    Thank you very much for being here.
    And I now will yield and recognize the ranking member, Mr. 
Nadler.
    Mr. Nadler. Thank you, Mr. Chairman. And thank you for 
holding this important hearing.
    As I said at the panel's initial hearing, we believe that 
the overarching and most important question facing this panel 
is how best to fund and finance the freight transportation 
system over the long run. Throughout our hearings, we have 
consistently heard testimony that, despite the significant 
growth in use of our infrastructure, we are not making the 
investments necessary to bring these systems up to date, much 
less making the investments necessary to accommodate future 
growth.
    If we fail to address this underlying question of how to 
pay for the Nation's intermodal transportation network, all we 
will have are lofty visions, stacks of plans, and piles of 
freight network maps. That will not address the Nation's goods-
moving needs or strengthen our economic competitiveness.
    SAFETEA-LU established two commissions to frame the choices 
confronting Congress in developing a 21st-century surface 
transportation system and to recommend how best to pay for it. 
In terms of investment levels, both commissions reached very 
similar conclusions: One, we are significantly underinvesting 
in all modes of surface transportation; and, two, significant 
increases in investment from all levels of Government and from 
the private sector are necessary to meet the future needs of 
the Nation's surface transportation network.
    The policy commission called for an annual investment of 
between $225 billion and $340 billion every year by all levels 
of Government in the private sector over the next 50 years. The 
current annual capital investment from all sources in all modes 
of transportation is $85 billion--in other words, between a 
third and a quarter of what is necessary. Unfortunately, 
Congress ignored these findings and recommendations and 
authorized 2 years of relatively flat investment levels in MAP-
21.
    While Congress has avoided making difficult choices to fund 
transportation investment, many States have not. A number of 
States have enacted ambitious legislative solutions--lucrative 
to their infrastructure--to generate additional revenue to meet 
their transportation infrastructure investment needs. We are 
pleased to have two of those States, Maryland and Virginia, 
with us today.
    The message we should take from the passage of State 
transportation revenue packages should not be that the States 
can take care of the funding gap we face on their own. Yes, the 
States are doing more, but so must, emphatically, the Federal 
Government.
    Ensuring that the transportation needs of interstate 
commerce are met is a fundamental role of the Federal 
Government. The safe and efficient movement of freight through 
the United States impacts the day-to-day lives of every 
American and is critical to the long-term economic health and 
competitiveness of the Nation.
    And I would add that, with the possible exception of the 
current day, all the major political parties in the United 
States since Albert Gallatin was Secretary of Treasury, since 
Henry Clay presented his American System, since the Whigs 
supported the American System, the transcontinental railroad, 
right up to today, all major American political parties have 
supported the Federal Government's role in infrastructure. And 
that must continue.
    Mr. Chairman, this panel has the opportunity and the 
responsibility to provide the Federal leadership necessary to 
ensure that funding is available to attain a freight 
transportation network that works for the 21st-century economy. 
The Transportation Committee has traditionally been the lead 
advocate in Congress for increased investments in our Nation's 
infrastructure. If we do not step up to the plate and demand 
that the necessary investments are made, we will continue to 
limp along in current funding levels, and the purchasing power 
of those dollars will continue to decline.
    This panel and its forthcoming report provide an ideal 
opportunity to show that the Transportation and Infrastructure 
Committee is serious about addressing the needs of the Nation's 
intermodal transportation network and reducing the growing 
infrastructure investment deficit. It is my hope that the work 
of this panel will provide a framework for the committee to use 
in developing legislation that include the tools and the 
resources to meet the future needs of all modes of 
transportation and develop a 21st-century intermodal 
transportation network.
    Again, Mr. Chairman, thank you for holding this important 
hearing. I look forward to hearing from the testimony of our 
witnesses on this matter.
    I thank you. I yield back.
    Mr. Duncan. Thank you very much. Mr. Miller.
    Mr. Miller. I am really interested in hearing the 
witnesses. You know, freight movement is extremely important in 
my district. Its critical, competitive nature we need out 
there. Financing is an issue everybody is dealing with. 
Especially with the shutdown today, financing is becoming 
critical.
    I am going to be very brief. I have some questions for the 
panel, but I would like to hear the presentations. I yield 
back.
    Mr. Duncan. Thank you very much. Ms. Brown.
    Ms. Brown. I would like to hear the witnesses also, so I 
yield back on questions.
    Mr. Duncan. All right. Mr. Hanna.
    Mr. Hanna. Nothing, sir.
    Mr. Duncan. All right. Mr. Sires.
    Mr. Sires. I would like to hear the witnesses.
    Mr. Duncan. All right.
    Mr. Nadler. Only Mr. Hanna didn't say he wanted to hear the 
witnesses.
    Mr. Duncan. Mr. Webster.
    Mr. Webster. No, thanks.
    Mr. Duncan. All right. Ms. Hahn.
    Ms. Hahn. I would like to hear the witnesses, but I am 
giving my statement first.
    Mr. Duncan. Go ahead.
    Ms. Hahn. There are 10 microphones, and I have one of them.
    Mr. Duncan. Yeah.
    Ms. Hahn. Chairman Shuster and Ranking Member Rahall both 
said that when it comes down to finding ways to finance our 
Nation's transportation system, all options need to be 
considered. I think this hearing is going to provide a perfect 
forum to discuss all those options.
    In a couple of weeks, our committee is expected to issue a 
set of recommendations to the full committee on freight policy. 
One of the most important recommendations we will need is an 
answer to how we are going to come up with a long-term solution 
to funding our Nation's transportation system. In fact, it is 
questionable how effective any other recommendation will be 
without addressing this issue.
    Nowhere is that more evident than the problem in Los 
Angeles. According to a recent report, nearly 64 percent of our 
roads in Los Angeles County are listed in poor condition and 
costing our drivers $832 a year, well over the national average 
of $377. This is frankly appalling, and I believe it is a 
reason we need to be looking at any and all options to address 
the continuing funding shortfalls in the Highway Trust Fund.
    And as a driver of an electric vehicle who has not been to 
the gas station in 2 years, I am very interested in exploring 
another way so that people like me can pay our fair share by 
vehicle miles traveled. So I hope we can hear some good 
information on that proposal.
    Thank you very much.
    Mr. Duncan. Thank you. Mr. Mullin.
    Mr. Mullin. Well, with, you know, respect to my colleague's 
comment about the electric vehicle, her and I have discussed 
this, my diesel truck more than pays her way. So I am ready to 
just hear what the witnesses have to say.
    Mr. Duncan. All right. Mr. Lipinski, do you have any 
statement?
    Mr. Lipinski. Thank you for holding this hearing.
    Obviously, everyone knows, we have gone through all these 
hearings all over the country, and the bottom line is how are 
we going to pay for this. So I look forward to hearing from the 
witnesses.
    Mr. Duncan. All right. Well, thank you very much.
    And since this is our final hearing, I will say this: that 
almost everybody on this committee wanted to serve on this 
panel, but we wanted to keep this to a smaller size and get 
people who would be more active in it. And it shows you how 
active all the Members are when 10 of the 11 members of this 
panel are here today to hear your testimony. So let's begin.
    Our first witness is the secretary of the Virginia 
Department of Transportation, the Honorable Sean Connaughton.

      TESTIMONY OF HON. SEAN T. CONNAUGHTON, SECRETARY OF 
TRANSPORTATION, COMMONWEALTH OF VIRGINIA; LEIF DORMSJO, DEPUTY 
  SECRETARY, MARYLAND DEPARTMENT OF TRANSPORTATION; ROBERT D. 
  ATKINSON, PRESIDENT AND FOUNDER, INFORMATION TECHNOLOGY AND 
    INNOVATION FOUNDATION; JACK L. SCHENENDORF, OF COUNSEL, 
COVINGTON & BURLING LLP; AND DAVID SELTZER, PRINCIPAL, MERCATOR 
                          ADVISORS LLC

    Mr. Connaughton. Mr. Chairman, members of the committee, 
thank you very much for having me here today. The opportunity 
to talk----
    Mr. Nadler. Could you use the mic?
    Mr. Connaughton. Is it on? Can you hear it, sir?
    Mr. Duncan. Maybe pull it closer to you maybe. I don't 
know.
    Mr. Connaughton. Is it on? Can you hear me now? OK.
    Mr. Chairman, members of the committee, thank you very much 
for having me here today. We appreciate very much the 
opportunity to talk about freight and freight mobility. This is 
something that is very important to Virginia, and we are very 
excited to see in MAP-21 at least the first real discussion of 
freight and freight planning at a national level.
    In Virginia, we can look at freight as a key ingredient of 
our economy. Just some of the numbers for you to think about is 
that almost 50 percent of our State's gross domestic product is 
actually related to freight-related industries. Twenty-eight 
percent of our GSP and then 34 percent of our employment are 
tied to industries that use our freight system.
    Because of that, Virginia has been a leader when it comes 
to freight. We have, actually, different funds that we use for 
our freight system. We actually have three different funds that 
are paid for out of dedicated fees and taxes that support our 
freight rail system. We have one that is for the Class I 
railroads, another one for the Class III railroads, and another 
one for rail industrial access.
    We also have a specific fund for our port and for 
supporting capital improvements in and around the Port of 
Virginia, which is one of the largest ports on the east coast.
    And then, finally, we have a very, very vibrant freight 
mobility program within our State DOT. And what we do there is 
we have a--we actually were one of the leaders in actually 
coming out with a State freight plan and trying to match it up 
with projects in different parts of the State where we have 
could actually make some improvements on the highway system 
that also would help move our freight system forward.
    One of the challenges that we are facing, like most other 
States and most of our entire program, is that we are 
essentially running out of money because we were completely 
dependent on the gas tax. The gas tax in Virginia had not been 
raised in almost 26 years. Just due to inflation, we saw almost 
a 54-percent reduction in the buying value due to inflation.
    But then on top of it, what we also started seeing is some 
of the comments were made before about the introduction of 
alternative-fuel vehicles, the much higher CAFE standards, and 
the fact that we were just seeing some changes in our driving 
patterns in Virginia and our driving habits. What that 
essentially meant was that we had seen, even though we had more 
cars registered in the State, more vehicle miles being driven 
in the State, we actually saw a decrease in the amount of gas 
tax revenues coming in.
    The State decided, through--you know, we did everything, 
like I say, that we were supposed to do. Been very, very 
innovative with the moneys we had--all types of public-private 
partnerships. We established our own infrastructure bank. We 
did everything that I think most DOTs were encouraged to do 
with innovation. But even after that, we could show very 
clearly to our legislature that we needed additional revenues.
    We ended up actually putting forward a very, very, I am 
going to say, different proposal--and that came from our 
administration, from Governor McDonnell's administration--that 
we would do away with the gas tax and switch it over to a sales 
tax. And, essentially, the sales tax, when we looked at what 
the sales tax reflects, it is much more indicative of economic 
activity in Virginia and obviously in other parts of the 
country.
    Our House of--essentially, our House of Delegates supported 
that and actually reported it out. Our Senate did not, and they 
supported, actually, an increase in the gas tax. What we ended 
up doing was seeing a compromise where we actually reduced the 
amount of gas tax, at the same time bumped up the sales tax, 
and ended up dedicating all of that to transportation.
    We ended up having other additional fees and some general 
revenues that were increasingly dedicated to transportation. We 
put a $64 fee on all alternative-fuel vehicles. And, 
essentially, what this has meant is that we are going to be 
generating about $1.5 billion more a year for our 
transportation program in Virginia, which not only will go to 
highways but it will go to transit, it will go to passenger 
rail, our intercity passenger rail. It will also go to our port 
fund and our rail funds, as well.
    So, essentially, what we have been able to do is make our 
transportation funding program much deeper, much broader, and 
much more well-founded, to the point that, actually, we have 
now been put on--because we have a special fund in Virginia, 
when I sell bonds and go out to the market, like we are 
shortly, we are actually rated a little bit differently, and we 
actually have a positive outlook because of the changes we made 
this year in Virginia.
    And, actually, our estimates are tracking right along with 
what we said they were going to do. And what is interesting 
about it is we saw again and continue to see a decrease in the 
amount of revenues coming in from the gas tax.
    So, I think in Virginia we understand as a jurisdiction, as 
a State, that this is very, very important, freight. It is 
critical to our economic activities and our future. And we very 
much encourage, obviously, the Federal Government to take much 
more of a leadership role in this area, particularly because 
all the improvements that we make in Virginia are for naught if 
our neighbors to the east and west and to the south don't make 
the similar types of improvements, as well.
    So thank you very much.
    Mr. Duncan. All right. Thank you. Mr. Dormsjo.
    Mr. Dormsjo. Chairman Duncan, Ranking Member Nadler----
    Mr. Nadler. Use the mic, please.
    Mr. Duncan. I don't know why these microphones aren't 
picking up, but apparently you are going to have to sit very 
close to the microphones.
    Mr. Dormsjo. OK. I hope that helps.
    I am here to talk about three issues. I wanted to discuss 
how the State of Maryland has used public-private partnerships 
to leverage private investment in infrastructure but freight 
more specifically. I also wanted to talk about the 
comprehensive transportation revenue package that the Maryland 
General Assembly passed earlier this year. It is of a similar 
scale to the Virginia measure, but we got there in a somewhat 
different way. Lastly, I also wanted to talk about some 
successful examples of our State working in partnership with 
the Federal Government.
    First of all, with regard to freight public-private 
partnerships, in 2009 Governor O'Malley launched an initiative 
to develop a marine terminal berth in the Port of Baltimore, 
the Seagirt Marine Terminal, to accommodate larger vessels that 
will transit the Panama Canal after the expansion project is 
completed in 2015. To do so, we needed to attract private 
investment to deepen the berth at our existing terminal and to 
install the most modern, state-of-the-art cranes to handle the 
cargo coming in on those larger vessels.
    We did not have the resources in our budget to execute that 
project at the time. We had the designs completed, but they 
were essentially sitting on a shelf. We were unable to execute 
that critical project.
    We used a 12-month solicitation process to evaluate public-
private partnership proposals, and when we got to the end of 
that process, we successfully contracted with a firm, Ports 
America Chesapeake, to enter into a 50-year lease and 
concession agreement where they would be required to make $250 
million in upfront investment and then have the operations and 
maintenance responsibility for the facility on a go-forward 
basis.
    In addition to shifting those costs to the private sector, 
the State benefited from a revenue share on the cargo that came 
in over time, reducing our exposure to the downside risk that 
the traffic would not show up.
    That deal was consummated in 2010. In 2012, the whole 
project was completed. We had the berth developed, the dredging 
done, and the cranes installed much faster than the State of 
Maryland would have been able to do on our own through a 
traditional procurement.
    It was a very significant project because it represented a 
true partnership between the public and private sectors. Not 
only was the private sector able to use tax-exempt private 
activity bonds for this transaction at investment grade, but we 
were able to bring along our partners in the labor unions, 
particularly the longshoremen and the crane mechanics 
represented by AFSCME. They were all stakeholders in this deal 
to make sure that we had not only the best technology installed 
at the facility, but also solid labor relations and efficient 
and harmonious dealings with the staff. So it was truly an 
example of business, Government, and labor working together.
    We anticipate that the investment and the revenues 
generated from this project will exceed $1.3 billion over the 
life of the 50-year contract.
    With that success, the State of Maryland ventured into 
other P3 projects. In 2012, we completed a P3 project to 
redevelop two travel plazas along Interstate 95. Both the 
Chesapeake House and Maryland House happen to be two of the 
busiest rest areas in the entire country, and they had aged 
significantly in terms of their amenities and were in need of a 
refresh. We entered into a public-private partnership to 
redevelop those facilities, and we are halfway completed with 
that project.
    Next year we will be working with the Federal Transit 
Administration as we go through a solicitation process for a 
public-private partnership to deliver a $2.2 billion light-rail 
project in the suburbs of Washington, DC. That is the Purple 
Line project.
    So we have viewed public-private partnerships as a tool. It 
is not a way to supplant or replace the need for steady 
investment from both the State and Federal Governments in 
transportation, but we do think that for 5 to 15 percent of our 
capital needs, public-private partnerships are a suitable 
application.
    I want to turn my attention briefly to the Transportation 
Infrastructure Investment Act, which was passed in Maryland 
earlier this year.
    We, too, understood that we were falling behind with regard 
to system preservation and transportation investment across 
many modes in the State of Maryland. The General Assembly acted 
earlier this year to raise $4.4 billion over 6 years for the 
Transportation Trust Fund that we have in the State of 
Maryland.
    We did rely on the gas tax. We did not take the more novel 
approach that Virginia did. We do believe that there is a 
linkage between gasoline consumption and the utilization of the 
transportation system.
    There were three components of our bill. The first was a 
CPI adjustment to the existing gas tax. The second component 
was the gradual introduction of the sales tax to gasoline 
purchases. And the third component was tying inflation 
increases to our transit fare policy. And so, between those 
three measures, we were able to bring in $4.4 billion of new 
investment.
    The last thing I wanted to mention is that we have had some 
successful partnerships with the Federal Government through the 
TIGER program. If there were followup questions on that 
specific project, I would be happy to answer those.
    Mr. Duncan. All right. Thank you very much. Mr. Atkinson.
    Mr. Atkinson. Thank you, Chairman Duncan and Ranking Member 
Nadler and other members of the committee. It is a pleasure to 
be here today.
    I am president of ITIF, a think tank, but I served as the 
chair of the National Surface Transportation Infrastructure 
Finance Commission, one of the two commissions that was created 
under SAFETEA-LU. We focused principally on surface 
transportation, so that is what my comments today will be on. 
And I will stress that they are my comments, not necessarily 
the Commission's comments.
    I think one of the key factors to recognize is, because 
truck freight shares so much of the same network with passenger 
vehicles, that improving freight transportation on the roads 
essentially means improving the entire system, not just the 
truck system. And, currently, the performance and conditions of 
highway system in the U.S. are certainly substandard.
    There are certainly specific improvements that could be 
made that would target truck travel. These could include the 
establishment of truck-only toll lanes, a stronger focus on 
expanding last-mile investments around ports, and relieving 
freight bottlenecks. I would add that if we want to move toward 
a truck toll lane system, which the Commission supported, that 
is going to require Congress to alleviate some of the 
restrictions on tolling the existing interstate system.
    When it comes to raising revenues--I think that is the key; 
if we don't raise enough revenues, we are not going to be able 
to make the investments we need--the Commission really focused 
on two areas.
    One is in raising existing revenues. And with regard to 
trucks, one of the key recommendations we made was to increase 
the heavy vehicles use tax. This is a tax that has not been 
increased since 1983 and essentially now, in inflation-adjusted 
dollars, is half of what it was 30 years ago. Doubling this 
would restore the purchasing power to 1983 levels and would 
raise an additional approximately $1 billion a year. In 
addition, we recommended indexing the HVUT and the tire tax, 
excise tax on tires, to inflation.
    In the moderate term, what the Commission strongly 
recommended was that the country transition to a vehicle miles 
travelled tax system, not just because of the issue that the 
Congresswoman raised about nongasoline vehicles, but because 
having a VMT system allows a much more efficient system of 
pricing that is related to costs imposed.
    That is a complex endeavor, to be sure, but one of the 
recommendations that I would make is that for a VMT system, 
that we start with trucks. Trucks are much easier to do. There 
are fewer of them than passenger vehicles. The costs per truck, 
as a share of total costs, is significantly less. And the 
advantages of doing a truck VMT system would be significant 
because trucks impose higher costs on the overall system that a 
VMT system could charge for.
    Now, one of the things that you will hear is that there are 
specific problems with a truck VMT system, and let me just 
mention what some of those objections are.
    One is that a VMT system would essentially be a tax 
increase. It is important to stress that the VMT system is 
completely agnostic toward how much money one raises. You could 
have a VMT system that raises less money, the same amount of 
money, or more money; it is completely separate. So the notion 
that this would be used to raise more money from trucks, I 
think, is not a valid objection.
    A second objection that we hear is that this would be 
double taxation. Trucks already pay money; why would we ask 
them to pay more? And, again, if we did this the way the Oregon 
pilot program did, you would rebate existing taxes. So trucks 
who are in a VMT system would not pay the heavy vehicle use 
tax, the tire tax, other truck taxes, nor would they pay the 
diesel tax. You can design systems that easily make it so they 
don't have to pay double taxes.
    A third concern we hear about is privacy. It is a 
complicated question but, frankly, I think, in some ways quite 
simple. You can design a VMT system that is 100 percent 
private, where nobody knows what roads the truck went on, the 
time of day, any of that. Only the truck knows that, if you 
will. Just as when you drive in your own car with a Garmin or a 
TomTom or other type of device, Garmin doesn't know where you 
are, you know where you are. The satellite just gives you 
information. So I think it is important to recognize the 
privacy issue is really a political issue. It is not a real 
issue, in the sense of you can design systems that are 
completely anonymous.
    Lastly, cost. There have been some claims that such a 
system would cost a lot of money. There is a study done for the 
State of New York moving to a truck-only system, and it found 
that it would cost a little bit more than the gas tax in terms 
of administrative costs but not significantly more.
    Finally, I would say the Commission agreed and argued that 
we need to have a better and more up-to-date cost-allocation 
study on how much trucks actually do pay. The last allocation 
study was more than 12 years old, but what it found was that 
certain trucks--but, overall, heavy trucks only pay between 85 
and 90 percent of the costs they impose on the system, 
suggesting that the actual payments by trucks should go up. 
Now, again, the Commission recommended that Congress charge DOT 
with updating that study and find out if that misallocation is 
still the case today.
    Thank you very much.
    Mr. Duncan. Thank you very much. Mr. Schenendorf.
    Mr. Schenendorf. Thank you, Chairman Duncan, Ranking Member 
Nadler, and other members of the panel, for giving me this 
opportunity to appear before you today.
    This panel has the difficult task of developing 
recommendations on ways to modernize the national freight 
system. In today's political climate, this task must seem 
almost impossible. But I am, nevertheless, optimistic----
    Mr. Duncan. We are going to have to have you get--I am 
sorry, I don't know what is happening. But we are going to have 
to get you a lot closer to the microphone.
    Mr. Schenendorf. Is that any better?
    First, the--but I am optimistic for four reasons.
    First, the need for increased investment in our national 
multimodal freight network is irrefutable. It has been 
thoroughly documented by commission after commission, study 
after study, and report after report. And as you saw in your 
September 24th hearing, the users of the national freight 
network, the ones who pay the freight bills, are pleading for 
increased investment.
    Second, there has been a long tradition of bipartisan 
support for promoting the safe and efficient transportation of 
goods in interstate and international commerce. Since the first 
days of the Republic, our national leaders from all parties 
have made Federal investment in our waterways and ports, our 
railroads, our highways, and our airports a priority. I think 
the vast majority of Republicans and Democrats in Congress 
today are looking for something they can agree on, something 
they can accomplish together. This could be that thing.
    Third, the users of the system are not only willing to pay 
for this increased investing, they are asking to pay more. This 
is extraordinary in today's political climate. All they ask is 
that the fees be fair and that the revenues be invested wisely 
to increase the speed, capacity, and reliability of our 
multimodal freight network so that they can compete in the 
global marketplace.
    Fourth, increased investment and paying for it through user 
fees so as to not increase the deficit or debt is critical to 
any pro-growth economic agenda. Without systemic improvements 
to the national transportation network, freight transportation 
will become less efficient and reliable, hampering the ability 
of American businesses to create private-sector jobs and 
compete in the global marketplace.
    For these reasons, I believe that the vast majority of 
Members of Congress understand the need to act. This provides a 
great opportunity for Republicans and Democrats to once again 
come together and show the American people the two parties can 
solve problems together.
    I would now like to turn to the options for funding and 
financing the improvements to the national network. My written 
testimony, including the appendices, discusses a number of 
options. Suffice it to say that an all-of-the-above approach is 
needed. Federal, State, and local governments and the private 
sector need a full toolbox of funding and financing options if 
we are to close the freight investment gap.
    I would urge you to also think outside the box and consider 
new ideas. One such idea is the proposal set forth in Appendix 
C, which is a paper written by Elizabeth Bell, an associate at 
Covington, and myself. This proposal would employ two targeted 
user fees--a Federal interstate user fee and a Federal motor 
carrier user fee--to supplement, not replace, existing Federal 
transportation revenue sources.
    All vehicles using the Interstate Highway System would pay 
the Federal interstate user fee, which would be collected 
through an E-ZPass type of system that would be entirely 
electronic with no tollbooths. Fees would be established on a 
corridor basis, with the fees on less congested rural portions 
of the interstate less than the fees on highly congested 
portions, thereby reflecting the different costs associated 
with repair and modernization. The fees would be set at the 
level necessary to pay for the improvements--no higher, no 
lower.
    It would be a pay-as-you-go system--no debt service, no 
diversion, no demand management fees. All of the revenues 
generated by the fee would be deposited in a special account in 
the Highway Trust Fund and would be used exclusively to 
modernize the Interstate Highway System, the backbone of the 
national freight network.
    The Federal motor carrier user fee would be imposed on 
commercial trucks' usage of all roads and would be collected 
through a GPS-type system currently being used by many trucking 
companies. Importantly, trucks would not be double-charged for 
miles traveled on the interstate. Rather, those files would be 
recorded through the Federal interstate user program. All of 
the revenues generated by this fee would be deposited in 
another special account in the trust fund and would be used 
exclusively for freight-related improvements, including 
intermodal facilities.
    The entire national highway network would benefit by this 
approach. Together, these two user fees would take pressure off 
the Highway Trust Fund and allow its exiting revenues to be 
used to upgrade the noninterstate highways on the national 
network.
    In conclusion, Mr. Chairman, the national surface 
transportation network is a crucial and dangerously neglected 
driver of our economy. As a country, we cannot avoid making the 
choice to address this problem, and inaction is the wrong 
choice. We must act now.
    Mr. Duncan. Thank you very much, Mr. Schenendorf. Mr. 
Seltzer.
    Mr. Seltzer. Thank you, Mr. Chairman. And I'd like to thank 
the panel for inviting me to testify this afternoon.
    You have heard expert testimony today from several of the 
witnesses concerning Federal policy toward funding issues. I 
would like to briefly survey Federal policy regarding financing 
tools, both those currently available and several potential 
initiatives for the panel's consideration.
    Federal policymakers have four broad policy tools to 
stimulate infrastructure investment: grants, regulatory 
streamlining, credit assistance, and Tax Code incentives.
    Grant funding, as we are all acutely aware, is severely 
constrained by fiscal limitations. Regulatory reforms have 
little, if any, fiscal impact but may not provide a deep enough 
subsidy to advance major projects.
    The last two Federal policy categories, credit assistance 
and Tax Code incentives, appear more promising today because 
they, (A) encourage project sponsors to identify new revenue 
streams to support financing; (B) bring the market discipline 
of private co-investment, which can improve project selection; 
and, (C) avoid the high-scored budgetary cost associated with 
traditional grants.
    There are four existing Federal financing tools applicable 
to freight projects.
    First, private activity bonds, or PABs. To date, a total of 
$8.2 billion of the $15 billion national volume cap for highway 
and intermodal freight PABs have been issued or allocated. Of 
the 17 projects selected by USDOT, 4 are specifically for 
intermodal freight projects, all part of CenterPoint 
Intermodal's Midwest real estate portfolio.
    Second, TIFIA. Since inception, USDOT has made a total of 
$11.8 billion in loans for 36 projects. Two of the loans, 
totalling $390 million, 3 percent of the total, are for 
freight-only or predominantly freight projects--Reno 
Transportation Rail Access Corridor and Port of Miami Tunnel.
    Third, the RRIF program. As of September 30th, FRA reports 
making 33 direct loans, totalling $1.7 billion. Approximately 
half of the dollar volume was for 27 different freight rail 
projects, the balance for passenger rail.
    Finally, State infrastructure banks, or SIBs. These, as you 
know, are loan-revolving funds seeded with Federal grants and 
State matching funds. Most of the loans have been for highway 
projects. To date, only Colorado and Pennsylvania have set up 
Federal loan accounts for freight rail, with relatively small 
loan activity.
    Now, looking toward the future, while TIFIA and RRIF have 
played a useful role, many observers believe that Federal 
credit assistance could be provided more effectively if there 
were a stronger institutional platform, such as an independent 
Government corporation. It could have an independent board of 
directors and an expert staff drawn from industry, whose sole 
mission would be to provide and monitor credit assistance to 
projects of national and regional significance. This national 
entity could also make loans to SIBs, which, in turn, could re-
lend the funds to local freight and other projects.
    In addition, the Federal Tax Code could play an expanded 
role. Unlike Federal credit, tax incentives do not require the 
Government to assume default risk on loans. And if policymakers 
wish to provide long-term financing at rates below the Treasury 
rate--the typical TIFIA and RRIF lending rate, which today is 
about 3.75 percent--the budgetary cost of doing so should be 
cheaper using the Tax Code than Federal credit.
    Now, the administration earlier this year proposed 
expanding the PAB volume cap for highway and intermodal 
projects from $15 billion to $19 billion. While that is a step 
in the right direction, in today's market there is only a 
minimal savings, about a quarter of 1 percent, between PAB and 
taxable borrowing rates.
    The administration has also proposed an optional taxable 
bond program with a 28-percent interest subsidy. If that 
proposal were broadened to also include freight facilities 
conferring public benefits, this would be more cost-effective 
than PABs, further reducing borrowing costs for freight 
projects by a quarter to a half a percent.
    An even more effective tool would be establishing a new 
class of qualified tax credit bonds for surface transportation. 
These are taxable-rate State and local debt obligations where 
investors receive an annual tax credit in lieu of cash interest 
from the borrower. A Federal subsidy of the interest on these 
long-term bonds is tantamount to a 60- to 70-percent outright 
grant in terms of the financial benefit to the project.
    Two companion bills with bipartisan sponsorship were 
introduced in June to establish a $50 billion transportation 
tax credit bond program, H.R. 2534 and S. 1250, the 
Transportation and Regional Infrastructure Project, or TRIP, 
Bonds Act. Either of these bills could serve as a basis for 
legislation assisting freight.
    In conclusion, in an era of constrained Federal resources, 
a combination of credit and tax incentives can play an 
important role in advancing major freight investments with a 
relatively small Federal budgetary impact.
    Thank you for the opportunity to appear before you.
    Mr. Duncan. Well, thank you very much.
    As usual, I am going to save my questions until the end and 
yield to my Members at this time, starting with Mr. Miller.
    Mr. Miller. Thank you, Mr. Chairman.
    Mr. Seltzer, I enjoyed your testimony. I am used to hearing 
a lot about fee increases and taxes and such, and you are being 
a little more innovative out there. I serve on Financial 
Services and we hear a lot of that, and we talk about 
Government involvement in HUD and Export-Import Bank. The 
difference is Export-Import Bank lends to a diverse sector out 
there, so there is no risk associated with one sector crash 
versus another, so they are pretty diverse.
    And in your testimony, I would like to focus on the large 
freight infrastructure projects, independent Government 
platform you talked about. And if you create and amass capital 
to finance these projects, who would underwrite these 
platforms?
    Mr. Seltzer. In my testimony, I suggested a Government 
corporation that could take a portion of the responsibility 
currently being managed by Department of Transportation under 
the TIFIA and RRIF programs. So it would basically be the same 
suite of credit products but through a separate organization 
whose sole focus would be extending credit assistance.
    Mr. Miller. Now, I recognize the benefit we provide through 
HUD and we provide through Export-Import Bank. You know, we are 
concerned about taxpayer risk. But just a question: Why can't 
the private sector finance these projects now?
    I am not opposing what you are saying. I am throwing some 
questions out that you will be asked.
    Mr. Seltzer. Well, in the transportation sector, it is a 
very small segment of projects of any mode that are fully self-
supporting from user charges. Most of them, even the recent 
toll roads and express lanes, have had some segment of 
governmental-contributed capital or assistance, whether it is 
State, local, or Federal dollars, in order to provide the 
service at a cost-effective charge to the public.
    Mr. Miller. There is always going to be a concern about 
politics getting involved, that financial decisions might be 
made in questionable ways. How would you monitor the progress 
of this if it did occur?
    Mr. Seltzer. That is an excellent question. I think 
sunlight is the best disinfectant, and if you had a bipartisan 
board of people from the transportation and finance and 
construction sectors whose deliberations would be open to 
public purview, I think that would reduce the likelihood of 
politically motivated decisions being made.
    Mr. Miller. I introduced a bill to replace Freddie and 
Fannie. And the biggest concern there and I have here is: How 
do you establish the necessary capital reserves to protect the 
taxpayers from losses?
    Mr. Seltzer. Another valid point. So Freddie Mac and Fannie 
Mae were GSEs, Government-sponsored enterprises, that had 
private shareholders. And part of the----
    Mr. Miller. Which never worked. They made the profits, and 
the Government and taxpayers took the risk.
    Mr. Seltzer. Right. So the concept here would be a 
Government corporation, like the Export-Import Bank or Overseas 
Private Investment Corp., that I think most observers feel have 
been operated prudently, but there is no private shareholder--
--
    Mr. Miller. So you are going to have internal underwriting 
done by the facility agency, whatever you want to call it, so 
you are keeping Government and other entities out. You are 
underwriting these projects based on the merit of the project. 
Is that how it is to be done?
    Mr. Seltzer. Yes, sir.
    Mr. Miller. OK.
    You also state in your testimony the regulatory reforms. 
And I did the first one in 2005 that said, if you meet NEPA 
standards, you don't have to go through your, you know, State 
twice and do both. There are adverse financial impacts if you 
don't do that, if you don't streamline it, and that can be very 
helpful to streamlining projects if you do it improperly.
    Then you go on to mention the usefulness of streamlining to 
permit an environmental review process. Beyond permit an 
environmental review process, are there additional ways we can 
reduce regulatory burdens?
    Mr. Seltzer. I am sure there are. And I would like to 
invite my colleagues, particularly the two State DOT----
    Mr. Miller. Well, that is my question. How can Congress 
help you?
    Mr. Seltzer. Well, I think on the environmental side, we 
have seen the benefit of that with the expedited treatment in 
terms of the NEPA process.
    In my own view, that is a necessary but not sufficient 
condition to bring projects to financial feasibility. They 
still, in many cases, need some other form of governmental 
assistance.
    Mr. Miller. OK. The question we need to ask, if you are 
looking for that, is, what obstacles do you foresee in 
attempting to achieve regulatory reform in regards to freight?
    Mr. Seltzer. As a consultant, I think I would answer with 
the standard phrase: Clearly, that is a subject worthy of 
further study.
    Mr. Miller. God bless you. Thank you.
    I yield back.
    Mr. Duncan. Thank you.
    Mr. Nadler?
    Mr. Nadler. Thank you.
    Mr. Connaughton and Mr. Dormsjo, can you address your 
States' freight investment needs under the current highway 
formula program, even with the higher share, or will you still 
have unmet needs?
    Mr. Connaughton. Mr. Nadler, in Virginia, we receive around 
$900 million per year from our highway allocations and our 
transit allocations. That is becoming a smaller and smaller 
portion of our overall program. Just a few years ago, it might 
have been one-fifth. In the next 5 years, it will be down to 
one-seventh of the amount of money we get for transportation.
    Mr. Nadler. So you still have unmet needs.
    Mr. Connaughton. Yes, sir. In fact, and we are--and we 
took, obviously, these steps this year. However, when you look 
at--Virginia is--and I am going to say a positive thing--we are 
continuing to grow, the economy is still strong, population 
growth----
    Mr. Nadler. You are still going to need it.
    Mr. Connaughton [continuing]. But we still have needs.
    Mr. Nadler. Thank you.
    Mr. Dormsjo, same answer?
    Mr. Dormsjo. Essentially, yes. I don't think the 
proportions that Secretary Connaughton mentioned match up 
exactly with Maryland, but----
    Mr. Nadler. OK.
    Mr. Dormsjo [continuing]. The answer is yes.
    Mr. Nadler. Given the significant backlog of maintenance 
and reconstruction needs facing States, given what you just 
said, it is clear we need additional resources.
    We also need a different way to fund these projects, 
because freight investments, particularly large-scale, 
multijurisdictional projects do not fare well in a flat-funded, 
State-based formula plan.
    Mr. Connaughton, do you agree with this assessment? And do 
you agree that there is a need for a strong Federal role and 
dedicated revenue stream to advance intermodal freight 
projects, particularly multi-State?
    Mr. Connaughton. Yes, sir, very much so.
    In fact, just to give you an example for us is the I-81 
corridor that runs through Virginia. We are the largest portion 
of I-81. It is almost 325 miles. And it is the highest 
percentage of trucks in any road in Virginia. The challenge we 
have is it is very expensive. We are taking bits and pieces and 
expanding it. But if you think about it, we get to Maryland and 
West Virginia, which only have between, I think, the two of 
them, only about 25 miles' worth of that road.
    So we can spend all this money; yet, however, if our sister 
States don't end up spending as much money, we are very low 
priority for them. I mean, this is the challenge, and this is 
really where we need Federal leadership, when looking at what 
happens in other States. When you make these investments in 
specific States, what happens in the next State down?
    Mr. Nadler. Mr. Dormsjo, same question.
    Mr. Dormsjo. Yes. I would say that one of the most 
compelling arguments that we articulated during the legislative 
session in Annapolis when we were talking about the need for 
increased investment and infrastructure was the ability to make 
sure that we had adequate matching dollars for Federal funds 
across many modes. That really captured the attention of our 
legislature. The prospect that we would not have adequate local 
dollars to match against the Federal programs was something 
that had great resonance.
    Mr. Nadler. Thank you.
    Mr. Schenendorf and Mr. Atkinson, both commissions on which 
you served called for increasing and indexing the gas tax and 
existing truck-related user fees as part of their 
recommendations for addressing the near-term investment gap. We 
have heard criticisms of this recommendation since many believe 
the gas tax is antiquated and inefficient.
    Can you explain the Commissions' rationale for continuing 
to rely on the gas tax in the near term? And how long do you 
feel the gas tax will remain a viable revenue source to finance 
surface transportation investments?
    Let me give it all to you at the same time.
    And can you discuss some of the other revenue options 
available to Congress to generate revenue for freight-related 
transportation projects? And did your commissions evaluate the 
importance of maintaining or strengthening the user linkage to 
the revenue source?
    So, what is the rationale for continuing to rely on the gas 
tax in the near term? How long will the gas tax remain viable? 
What other revenue options do we have available?
    Mr. Atkinson. I could start.
    The reason we, the Commission--first of all, I should add, 
by the way, our commission was really--was a wonderful 
experience, in many ways, because it was a very diverse group 
of individuals, diverse from political affiliation, diverse 
from across the country.
    And when we started the Commission, as a broad 
generalization, we had a, shall we say, a concern among 
Republican members of the Commission with increasing gas taxes 
and a concern among Democratic members among moving to PPPs and 
tolling and public-private partnerships. By the end of our 
deliberations over 18 months, we all agreed that we needed more 
revenue from the gas tax and we needed more tolling, we needed 
more PPPs. So we were able to come to a consensus.
    The reason we argued for the gas tax so strongly in the 
short and medium term is we believe that the system is best 
funded by user fees. Using other kinds of fees to fund the 
system lead to inefficient behavior. That is the principal 
reason.
    Mr. Duncan. Let me apologize to all the witnesses. We have 
had votes going on for about 8 or 9 minutes now, so we are 
going to have to stop and take a couple of votes. And then we 
will start the questioning at the conclusion of those votes. I 
apologize, but we will be in recess.
    Thank you.
    [Recess.]
    Mr. Duncan. All right. We are going to come back into 
session now, and I am going to have Mr. Nadler repeat his 
question to some extent, and, Mr. Atkinson, you can answer.
    Mr. Nadler. Thank you. I was asking Mr. Schenendorf and Mr. 
Atkinson can you explain the Commission's, referring to the 
Commission that you all served on, rationale for continuing to 
rely on the gas tax in the near term, how long do you feel the 
gals tax will remain a viable revenue source for surface 
transportation, and can you discuss some of the revenue options 
available to Congress for freight-related transportation 
projects? For Mr. Atkinson and Mr. Schenendorf, or Mr. 
Schenendorf and Mr. Atkinson, whichever way you want.
    Mr. Atkinson. Well, thank you.
    I think I talked a little bit about the tax gas. One of the 
key reasons we endorsed the gas tax, or other types of programs 
like a VMT, is we believe that users should pay the full cost 
of their--the costs they impose on the system, and cross-
subsidies through other means just leads to inefficiency. If 
users have to pay what they are imposing, they will use the 
system most efficiently.
    In terms of your question how long will the gas tax last as 
a viable source, it will last a long, long time. It is just 
really a question of what the rate is. We are a long way away 
from moving to a fleet that is not powered by gasoline, at a 
minimum, I would argue, 20 years away. That is not to say we 
shouldn't plan now and move to a VMT. I think we should move to 
a VMT immediately on trucks because of all the benefits. But 
the gas tax is a long-term sustainable revenue source.
    We did review a lot of other revenue sources in our report, 
which I would encourage you to look at if you haven't. As I 
mentioned, there are vehicle fees for trucks, there are custom 
fees, there are container fees. There are a whole range of fees 
that we can look at. Our whole focus was on aligning those fees 
as closely as possible to what the users should pay.
    Mr. Schenendorf. Mr. Nadler, we came to very, very similar 
conclusions actually as the other commission. We started off by 
projecting out economic growth and population growth out for a 
number of years from the time we started the study, and 
basically what that showed is that you needed to make a very, 
very significant investment in the overall national system in 
order to, one, preserve what we have and rebuild the interstate 
system, which is 50 or 60 years old now, and also to provide 
the additional capacity that is needed. And of all the revenue 
options that we looked at, the only ones that generated in the 
short term the revenue that was needed if you applied the user 
fee principle, which we strongly believed in, was the gas tax. 
That was the only way to generate the money.
    Mr. Nadler. And not the VMT tax?
    Mr. Schenendorf. The VMT tax would generate it, but in 
order to have the VMT tax--and we endorsed the VMT, a shift to 
the VMT tax, but that is going to take a period of time in 
order to implement that. I think Rob is right that you could do 
it more quickly on the trucking side of it. But to actually 
implement that as a replacement for the gas tax is at least, in 
my judgment, 10 to 15 years from now before you would be ready 
for that, if then. And therefore in this interim period, you 
have to find some alternative, and the gas tax is actually a 
very, very good surrogate for a user fee during that period.
    Now, I was asked a question. The paper that we read was 
basically if you couldn't raise the gas tax, and you couldn't 
get to the VMT quickly enough, what could you do in the 
interim, and that is where using the E-ZPass-type system, which 
the public accepts on the interstate to generate the funds for 
the interstate, combined with the truck user tax, which could 
be implemented more quickly, is something that could be put in 
place fairly quickly. Not a year or two; it would probably take 
3 or 4 years to get that completely up and running, but that 
could be done in order to generate the additional revenues that 
you need.
    Again, I would encourage you, we looked at a number of 
options, too, and we had a color chart, which is in appendix B 
of my testimony, which basically lays out those options and 
then kind of analyzes them across a number of criteria.
    Mr. Nadler. Thank you. My time is way expired. I yield 
back.
    Mr. Duncan. Thank you very much.
    Mr. Webster.
    Mr. Webster. Thank you, Mr. Chairman. I can't remember 
exactly who said this, but I think it was one of the two DOT 
Secretaries. Who raised $1.5 billion?
    Mr. Connaughton. Virginia, sir.
    Mr. Webster. Virginia. OK. Is that a 1-year immediate raise 
in $1.5 billion, or is it over a period of time?
    Mr. Connaughton. That is per year.
    Mr. Webster. Per year. And you did a tax swap?
    Mr. Connaughton. What we essentially did was we originally 
proposed to do away with the gas tax and switch over completely 
to a sales tax, essentially make it revenue neutral the first 
year, but because the sales tax grows, it would bring much more 
money in. The compromise at the end of the day was a diversion 
of some general revenues over a swap out, lowering the gas tax 
by almost 7 cents a gallon and then upping the statewide sales 
tax by 0.3 percent.
    Mr. Webster. Was that part revenue neutral?
    Mr. Connaughton. No, sir. But by the time--quite honestly, 
it was started that way, but----
    Mr. Webster. So initially it was revenue neutral, and then 
it grows.
    Mr. Connaughton. That is right. But because of the way it 
has now been set up, this year it will generate close to $1 
billion more, and then it moves up within 2 or 3 years, when 
all of it is phased in, $1.5 billion a year.
    Mr. Webster. Do either of you have an infrastructure trust 
fund or kind of an infrastructure bank of some sort?
    Mr. Connaughton. We do, sir. We have a Federal one, but we 
have a pure State one with only State money that we use to fund 
projects.
    Mr. Dormsjo. Maryland does not.
    Mr. Webster. How do you fund the SIB?
    Mr. Connaughton. We have moved--we are entitled to a 
certain percentage of the State's revenue surplus every year, 
and we have been running surpluses, so we have transferred 
about $400 million into our bank, and we have used it for 
various projects where we have lent money to a bridge project, 
we lent money to a road project, another road project. We have 
something for our port. We lend at very low interest rates just 
so it becomes a foundation loan to help the overall project 
move forward.
    Mr. Webster. So all of the projects that would qualify 
would be revenue-producing?
    Mr. Connaughton. Yes, or the sponsor, such as a locality, 
or in one case it is actually a development that actually is in 
a key location that they are going to have to build this road 
anyway, and they proffered to do it, but we were able to move 
it up faster and actually provide transportation relief now. 
They are paying these proffers, the development proffers, back 
as essentially for the debt service on the loan.
    Mr. Webster. OK. Then when you did the tax swap, you were 
only trading gas tax and sales tax, but I think you said you 
added in some general revenue?
    Mr. Connaughton. Yes, sir. We actually took a small--there 
was a fight. Our senate and our house, one wanted new revenue, 
one wanted diversion from existing revenues. They ended up 
doing a little bit of additional revenues and a little bit of 
additional general fund revenues being dedicated, as well as an 
alternative fuel vehicle tax, as well as an increase, a slight 
increase, in our motor vehicle sales tax, which is a separate 
tax from the sales tax.
    Mr. Webster. And in Maryland you raised money also, 
additional revenue. Didn't you say you did that?
    Mr. Dormsjo. Yes. The gross majority of the revenue was 
from new taxes, but there was some additional bonding capacity 
that came from our general operations. That was a small part of 
it.
    Mr. Webster. Was it sales tax, or was it a gas tax?
    Mr. Dormsjo. It was a combination of an incremental 
increase on the existing gas tax, the volume-based tax, and 
then the gradual application of the sales tax to gasoline, not 
a broad sales tax increase.
    Mr. Webster. I had one other question about the tolling of 
the interstate with an E-ZPass. Was that based on level of 
service, or is it based on just a per-axle cost? So in some 
cases where you do revenue, you know, based on the flow of 
traffic, so you are paying for a service, or was that for axle, 
just a per-axle charge?
    Mr. Schenendorf. First of all, it could be designed in 
different ways. I believe that we concluded that it would 
probably be a different charge for trucks than it would be for 
automobiles. But it was basically the service level. In other 
words, corridors that were--didn't have a great deal of 
traffic, didn't go through urban areas, didn't have big 
congestion problems, those corridors would pay a lower fee than 
the I-95-type corridors, which have very heavy congestion, 
those segments wearing out, that the cost to modernize that 
corridor would be much greater, and so people traveling in that 
corridor should pay a little higher fee. So we thought of it 
mostly in terms of service for the corridors.
    Mr. Webster. Thank you very much.
    Mr. Duncan. Thank you very much.
    Ms. Hahn.
    Ms. Hahn. Thank you, Mr. Chairman.
    So as I said in my opening statement, one of the options I 
am interested in exploring is the VMT. Mr. Atkinson, you talked 
the most about it, but I don't know some of the other members 
of the panel had any comment. I know Oregon has been vetting 
this for, I think, 10 years, and they are going to roll it out 
in a pilot program in 2015.
    Have you looked at what they have studied, what they have 
learned? And what are the--I know you were talking about it 
only in terms of trucks, but I am interested, of course, and as 
we said, we are encouraging more people to drive alternative-
fuel vehicles, electric vehicles, vehicles that get a lot more 
mileage per mile.
    So what are the downsides; what are the upsides; is this 
something we ought to look at at a Federal level?
    Mr. Atkinson, you can answer, but if some of the others 
have any comment on what you think the VMT--what are the 
upsides, what are the problems that you think we would 
encounter?
    Mr. Schenendorf. Well, just as a comment to what Rob had 
said, our commission came to the same conclusion, that we 
definitely in the long term need to find a replacement for the 
gas tax; that VMT types of proposals seem to make the most 
sense, but it is going to take time to get there. There are a 
number of obstacles that have to be overcome, and some of them 
political, some of them technical, some of them just getting 
the entire fleet to be ready to shift to that kind of approach 
that was going to take time.
    You know, I still think that you are talking 10, 15 years 
from now before you could really, on a nationwide basis, move 
to that kind of an approach. We recommended that basically you 
do it as quickly as possible; that you do the research, you do 
the pilot studies, like Oregon, and you do whatever else you 
need to do to be able----
    Ms. Hahn. Do we have to do it again, or can we look at what 
Oregon is doing and learn from them?
    Mr. Schenendorf. Oh, we will learn from what Oregon is 
doing, but I think is going to take more and different kinds of 
approaches to eventually get us to the point where something is 
ready for nationwide implementation.
    Mr. Atkinson. Just quickly, there is a study that DOT 
funded, I think at the University of Iowa, that looked more in 
depth, and I would encourage you to look at what the results of 
that study have been.
    I actually think we can get to a VMT in a certain number of 
years, but each year we wait is another year we won't get to 
it. So it is just really a question of beginning that process. 
That is one of the reasons why going to a truck VMT first is a 
good approach, because the system you will build for that will 
be a system that can scale up and then be used for the 
passenger VMT system.
    Part of what has to happen ultimately is that original 
equipment manufacturers of cars and trucks will need to be 
installing essentially these on-board units as part of the 
original equipment, and that takes a while for the fleet to be 
able to do that.
    Ms. Hahn. Why can't we just use the odometer?
    Mr. Atkinson. You certainly could. But what our commission 
argued is that the biggest benefit from the VMT is actually not 
raising the money, it is being able to price roads more 
accurately. So, for example, lots and lots of places would like 
to move to congestion pricing as a way to manage congestion in 
peak hours. It is very, very hard to do that without a VMT. If 
you had a VMT, you can just easily do congestion pricing by 
just pricing the lookup table that says between 7 a.m. and 9 
a.m., you have to pay this for the road.
    The second thing about that is for trucks you can easily 
install axle weight sensors so that each truck has a weight 
sensor, and then you price according to the road you are on, 
can it handle heavy weights. You price according to the weight 
of the truck.
    In Germany they found after implementing their heavy 
vehicle toll system, VMT system, that they reduced empty truck 
travel by about 10 percent because trucks were now being more 
efficient. So I think that is the main reason is you can just 
get much more efficiency.
    Ms. Hahn. Thank you.
    So, Mr. Dormsjo, how do I--I have heard everybody say it, 
and I wasn't sure how to pronounce it.
    Mr. Dormsjo. Dormsjo.
    Ms. Hahn. OK. We were close.
    So I was very interested in the Port of Baltimore and the 
project, the public-private partnership project that you--I 
couldn't see in the testimony exactly how much that one 
terminal initially cost.
    Mr. Dormsjo. It was about $110 million, and then there were 
$140 million of related highway improvements.
    Ms. Hahn. Were you able to use any of your Harbor 
Maintenance Tax dollars for that project?
    Mr. Dormsjo. No.
    Ms. Hahn. Yeah. That was all I was thinking about, 
listening to you was I love public-private partnerships. I 
think that is great. I was curious of the $15-per-container fee 
that you added on, it sounded like, to help pay for this 
project and wondering how the shippers are feeling about 
getting doubly taxed.
    I think the Port of Baltimore gets about $40 million--or 
collects $40 million annually in the Harbor Maintenance Tax, 
and yet it comes back to Washington, DC, and sits in a fund 
that we now have about a $9 billion surplus. So I have been 
advocating that we use the Harbor Maintenance Tax to fund our 
infrastructures at our ports so that all of our ports can be 
dredged and ready to accept the big ships that come in, or just 
to keep their main channels open and running. Many ports suffer 
from a constant need for dredging.
    So it is one thing to talk about new taxes and new fees. It 
is another thing to talk about how we should use the tax that 
we are already collecting for the purpose for which it was 
collected. So I would like hear from some of you, I know my 
time is out, on how important you think it is that we actually 
use the money that you are collecting for the purpose at your 
ports for which it was collected. That was a loaded question.
    Mr. Dormsjo. Sure. Let me just try to unpack that a little 
bit. I totally agree that the needs in the harbor dredging 
space are being unmet, and that there is a deficit in terms of 
what we need to do across the country to keep the channels 
open. I do think that once those needs are met, there is a 
logic to making sure that there is flexibility for sponsors and 
port authorities to make land-side investments. I think that 
that is a good idea.
    With this particular case, there was no public investment 
in the project, it was completely privately funded and 
financed, so we didn't put in State dollars or Federal dollars 
or local dollars. It was an investment from the private sector 
because there was a revenue-generation component.
    The $15 per container is not a fee. It is actually a 
revenue share back from the private equity firm to the State of 
Maryland. There will be no additional costs on the shipping 
side of things. We thought that the benefit of that $15 revenue 
share was that over the long term, that would keep the private 
sector and the public sector aligned, focused on trying to grow 
volume, and that $15 per container revenue share is only 
triggered if we get to a certain level. So that was an 
incentive for us to stay working closely with the private 
sector at the terminal itself.
    Ms. Hahn. But you would be in favor of getting more of your 
Harbor Maintenance Tax dollars back.
    Mr. Dormsjo. Oh, yes.
    Mr. Duncan. Thank you very much.
    Mr. Mullin.
    Mr. Mullin. I was just glad she was done. Sorry.
    Ms. Hahn, you know we get along great.
    I tell you, thank you for being here today. Obviously we 
want to continue our economic growth, and the only way we do 
that is being able to move our products from A to B. And we 
have an infrastructure that we have abused, and we have to find 
a revenue source for it.
    One thing we can all agree on this panel, regardless of 
what letter is in front of our name, we know the need of this 
country and the responsibilities of this country falls upon the 
Transportation and Infrastructure Committee, and we have to 
find revenue for it. And even though it is uncomfortable 
sometimes to talk about in a situation like this, in order to 
move forward on any business, you have to invest in it. In this 
country we have to invest, and not just abuse. And I appreciate 
the States that have took the initiative to do it.
    In Oklahoma we are doing the same, but we still have a 
larger network of waterways, of rail, and of roads that it 
takes for the States to be able to get the products there.
    I think, Mr. Atkinson, did you bring up the sales tax--tax 
on diesel?
    Mr. Atkinson. Yes, sir.
    Mr. Mullin. I have a question about that. I drive a diesel. 
I also have a farm that we use a lot of diesel on. At the same 
time I also have diesel trucks, semis on the road. And I 
understand the idea of maybe adding 10 cents for diesel tax, 
but ultimately when I am hauling a product from A to B, I get 
actually to pass that cost on. But there is a whole other area 
of individuals that drive diesels, like myself, that there is 
no way for us to add that cost on.
    Is there any way to separate those two, or would everybody 
that drives a diesel vehicle just have to be paying that price?
    Mr. Atkinson. So we looked at that on the Commission. I am 
going to forget----
    Mr. Mullin. Pull that mic to you, I am sorry.
    Mr. Atkinson. We looked at this on our commission, and Jack 
may know the answers, but there is a provision, I believe, in 
the current system where farmers, for example, who are buying 
diesel----
    Mr. Mullin. No, the farmers are different. I had that, red 
diesel and green diesel.
    Mr. Atkinson. They don't have to pay.
    Mr. Mullin. There is two separate. But when I pull up to a 
diesel pump, which I do literally just about every other day, I 
am pulling up to the same pumps the semis are filling up at.
    Mr. Atkinson. Got it.
    So as I said in my written testimony, if we are going to 
raise taxes on trucks, heavy trucks, and we don't dedicate all 
of it to truck projects, then we should also increase taxes at 
a commensurate level for passenger vehicles, whether they are 
light-duty trucks like you might drive or just a regular gas-
using passenger vehicle.
    So I agree with your point. If we were to raise the diesel 
tax, I would argue we should also raise the gasoline tax so 
that it is equal.
    Mr. Mullin. But at the same time it doesn't--Ms. Hahn, what 
she said in her opening statement about her driving an electric 
vehicle or the natural gas vehicles. So what I am afraid of is 
we just put a diesel tax out there, we are just putting a Band-
Aid on a larger issue, and what this panel needs to do, and 
that is what we are discussing, is an idea of how to fix it, 
not just patch it.
    Go ahead, sir.
    Mr. Connaughton. Yes, sir. We in Virginia, when we changed 
our gas tax, we actually for the first time split out gas and 
diesel. So we lowered the gas tax, but we actually went to a 
percentage, 6 percent on the diesel, which is about 21, 22 
cents per gallon. So it went up. The thing is that for those 
passengers, people who are driving diesel vehicles, like 
yourself, all you have to do is actually declare it on your 
income tax returns, and we will pay you back as if you were 
paying----
    Mr. Mullin. Did you see a drop in your State of sales of 
diesel vehicles? I mean, I would imagine there are a lot of 
manufacturers out there--let us just talk about fuel 
efficiency. Diesel, small diesel motors, your little four 
cylinders, they have done so much with these that they can 
actually get better gas mileage than you have in gas vehicles.
    So over in Europe there is a lot of diesel vehicles, and in 
a lot of other countries there are a lot of diesel vehicles, 
but are we going to shoot ourselves in the foot, because if the 
idea is to get efficiency levels up, which this administration 
is trying to do, if we add so much tax to just the diesel, the 
manufacturers will be--there won't be a big incentive to buy 
those.
    Mr. Connaughton. We worked with some of the manufacturers 
about this issue. Because this mechanism already exists in our 
State revenue collections--you mentioned before about the 
different types of diesel and the farm use, nonfarm use. We 
already had a mechanism in place if a farmer purchased nonfarm 
diesel out in the street, they could go in and actually get a 
tax return. They would get paid back.
    We are using that same mechanism for passenger vehicles. 
The manufacturers seem to be OK with that. So we right now have 
not seen a change in diesel purchases out there, because there 
is a mechanism. For every year, they can actually just come in, 
put it on their tax return, show the receipts, and we will pay 
them back.
    Mr. Mullin. Right. And I won't ask the question, I just 
want to lay it out there for Mr. Schenendorf. This toll that we 
are talking about, I would be curious to know the 
infrastructure, how much cost that we are going to have to 
invest in a toll system for each State for the interstates, and 
who is going to pick up that tab, where it is going to come, 
and then how long it is going to take to get the funding back 
for our investment. I know that is a big question that you 
probably don't have the answer to, but if you could, if you 
have it, could you get it to my office?
    Mr. Schenendorf. Surely. I will do that.
    Mr. Mullin. Thank you.
    I yield back.
    Mr. Duncan. Thank you very much.
    Mr. Sires.
    Mr. Sires. Thank you, Mr. Chairman. I represent--I am from 
New Jersey, which is one big transportation hub, and the 
pressure on the infrastructure is constant. I mean, whether it 
is getting merchandise from the port--you know, the merchandise 
that comes through the ports goes through about 80 percent of 
the region. Only 20 percent goes to the interior of the 
country. So you can see the constant pressure.
    Toll is out of the question, raising the New Jersey 
Turnpike tolls. It is just too high now. Going to the city now 
is about $15.
    Raising the sales tax, we are already, I think, at 7 
percent. I don't know what it is in Virginia. Much lower. I 
figured that. We don't want to get to be as high as New York. 
That is the problem with New Jersey. Sorry, Jerry.
    But, you know, we certainly have to come up with something. 
I don't know exactly what. We have some good ideas, and some of 
the ideas, you know, raising the gas tax and some of the other 
things. But what do you think happens to our economy if we 
can't find a solution to this? And I am not talking about the 
next 6 months or a year, because I know the pressure on the 
roads in New Jersey is just constant. I know they are investing 
a lot of money currently in the turnpike, and that was because 
the tunnel that was going to New York was canceled, and they 
are using some of that money. The transportation trust in New 
Jersey is just about bankrupt. There is no appetite to raise 
the gas tax.
    So, you know, where do we go from here if we don't have 
this appetite to do some of the difficult things that need to 
be done in order to keep our infrastructure going?
    Mr. Schenendorf. I can take a crack at that based on the 
Commission's work. Again, we projected out population growth 
and economic growth, and basically our national infrastructure 
is going to come to gridlock. In the past we have been living 
off of the fact that the Greatest Generation provided a new 
interstate system. We really haven't had to pay on the 
interstate the costs of rehabilitation and reconstruction that 
are coming due. In addition, the interstate had excess capacity 
in it, so our economy and population grew, and it was able to 
absorb that.
    Well, we have reached the point where that is no longer the 
case. And so as we move forward, and we hopefully grow our 
economy, and we are definitely going to have more population, 
the road system and the rail systems aren't going to be able to 
handle it without a significant increase in investment to keep 
what we have in good shape and to provide the take additional 
capacity where it is needed. And it is going to cost money. 
People are going to have to pay for that.
    But people are going to have to see the vision that this is 
what they need, because otherwise they are sitting in traffic, 
it is getting more and more expensive and less and less 
reliable for businesses to move things. And that is why the 
shippers are up here asking you to increase these fees, because 
we have reached that point where they can see what is right 
down--it is not a long tunnel, it is right there. And that is 
why they are coming forward. And they are the ones that have to 
pay the bills, and they are saying, this is a justified 
investment. We are prepared to pay more to get this investment.
    Mr. Sires. Anybody else want to take a----
    Mr. Connaughton. Most of our gas tax actually went into our 
maintenance fund, and over the last 10 years, because we are a 
maintenance-first State by law, we have had to take over $3 
billion from our construction account and move it over to 
maintenance. Actually this year we were going to go up to $500 
million. So we can actually put a price tag on some of this 
inactivity, particularly on the gas tax.
    But the thing is that our legislature, it took them 12 
years of fighting about this issue and everything, and finally 
we had done everything that we have been asked to do looking 
for P3s, infrastructure banks. We laid off 1,000 people. We did 
all the things, squeezed everything out the system we could 
squeeze, and we still showed them at the end of the day we had 
to act, and that was the only way that we finally got everyone 
to agree on the changes we brought in Virginia this year.
    Mr. Sires. Fortunately New Jersey has, I think, one of the 
lowest State taxes on gasoline, but yet there is no will to 
even put a nickel or a dime on the gas tax to deal with the 
Transportation Trust Fund.
    Mr. Connaughton. Sir, one thing we were able to show was a 
real shock was the new CAFE Standards at 54 miles per gallon 
coming in, and we could show them that just to catch up for 
inflation, we would have to move our current--what was the 17.5 
cent gas tax up to 36 cents, and then to catch up due to the 
new standards coming in, we would have to then move the gas tax 
up to about $1.80 or so. And that is when people finally 
started understanding what was--some of the troubles with the 
gas tax and what we are facing out in the future.
    Mr. Sires. You know, I know people talk about the private 
sector, and I have been involved with combinations of the 
private-public sector, but one of the things that I find is 
that the private sector, they don't really have the time to 
wait 25 years to get their money back.
    I mean, if you are a municipality, you built a parking 
garage, and somehow you work with the private sector, they want 
their money pretty soon. But if you built it with a 
municipality, it will take 20, 25 years, but it is all right, 
you get the money back in 20, 25 years.
    But the private sector seems to be wanting almost instant 
gratification or instant profit, and I am concerned that in 
some of the areas where you are going to be able to work with 
the private sector, it is fine. New Jersey, I mean, it is very 
congested, but some of the other areas in the country where you 
don't have the kind of congestion, I don't think you are going 
to get too many people involved in a public-private sector 
venture. I mean, am I wrong?
    Mr. Schenendorf. No. I think what we found is that the 
innovative financing is an important part of the solution, but 
it is a niche part of the solution. The overall investment that 
is needed in the overall network on a systemwide basis involves 
finding funding sources far beyond the public-private 
partnerships and other kinds of innovative financing 
techniques.
    There is no question they shouldn't be thrown out. There 
are certain projects that they work for, and that is part of 
the solution. But that isn't the solution to investing in the 
national infrastructure.
    Mr. Sires. That is not a total solution.
    Mr. Connaughton. Sir, I should point out, in Virginia last 
year we closed more P3 deals than anyplace in the country. In 
fact, we were number two in the world, right after the United 
Kingdom. The concession out here on the Beltway and 95 are 75 
years. The tunnel deal we have down in Hampton Roads is 
actually a 58-year deal. But there is only--as you mentioned, 
there is only certain places that you can actually do these 
types of deals where there is investors interested in taking 
that sort of long view and building and actually running the 
concession for a long time.
    Mr. Sires. It seems it is something good for the East and 
maybe some parts of the West, but I think some of the places in 
between it may not make a lot of sense for some of these 
private ventures.
    Mr. Atkinson. Our commission probably was a little more 
optimistic than Jack's. If we had the same level of tolling as 
Florida and Texas do, which is not a lot--they have a fair 
amount, but not certainly a lot--we could be raising an 
additional $25 to $30 billion a year nationally.
    The way we looked at it on our commission was that the 
needs are so dramatic that we have to put everything on the 
table. I think if we had a national tolling system, we could 
raise a lot of money, and we could raise a lot of money in the 
middle-of-the-country States. But certainly we have to raise 
the gas tax.
    Americans pay half to travel on a mile of road today than 
they paid 20 years ago in inflation-adjusted dollars. So we 
have had a national policy of saying every year we are going to 
cut the cost you pay, and it should be no surprise what the 
result is.
    Mr. Sires. You are talking about a national toll system 
which will be added on to the State system. Is that what are 
talking about?
    Mr. Atkinson. I think two things. I do think we need to 
toll the interstate to pay for it. But ultimately, as I said 
before, I think we have to move to a VMT system.
    One of the advantages, by the way, of a VMT system is it 
puts private-sector projects on a much more competitive basis. 
The reason--for example, there is a road out here in Virginia, 
the Dulles Greenway. I think that is a 100-percent privately 
funded road. It is very hard to do those because you are 
competing with free. I can drive out to Leesburg on Route 7 and 
not pay anything other than my gas tax, or I can drive on the 
greenway.
    One of the advantages of doing a VMT system is that 
basically every road you have to pay for, and you enable a much 
more robust set of projects to be developed. So, again, I think 
this is such a serious problem, we have to put everything on 
the table.
    Mr. Sires. Thank you very much for being here today. It is 
not easy.
    Mr. Duncan. All right. Thank you very much.
    Secretary Connaughton, did I remember this correctly that 
you said you are receiving approximately $900 million from 
Federal sources a year; is that correct?
    Mr. Connaughton. Yes, sir, $930 million or so.
    Mr. Duncan. And that that now is about one-fifth of your 
total budget.
    Mr. Connaughton. Yes, sir.
    Mr. Duncan. So your budget is $4.5 billion, roughly.
    Mr. Connaughton. $4.5 to $5 billion.
    Mr. Duncan. And then the $1.5 billion that the new taxes 
add on, that will move your budget up to roughly $6 billion a 
year for transportation?
    Mr. Connaughton. Yes, sir.
    Mr. Duncan. But you said that the Federal sources, you 
estimate in a short time, but you didn't really say an exact 
time, are going to go down to maybe one-seventh.
    Mr. Connaughton. Yes, sir. When we start looking at the 
Highway Trust Fund, right now if you just looked at purely 
revenues coming into the Highway Trust Fund, we should be, I 
guess, receiving about $650 million. We start running out those 
numbers on the Highway Trust Fund and how much we are 
receiving, and at some point when you deal with this issue, 
either you increase revenues, or we are going to see a decease 
in our expenditures or the money coming to the State.
    And then we also see with the increased revenues coming 
into the State system that we will be up--in about 6 or 7 
years, we will be up to almost $7 billion in our program.
    Mr. Duncan. Knowing that it is not possible to satisfy any 
Government agency's wish for money, what kind of job are you 
able to do with the budget that you have? Now, I am not saying 
in a dream world you wish you had five times, three times as 
much money as you have now. But are you meeting the needs of 
the State of Virginia at that level, or are you just doing half 
of what you need to be doing, or what can you say about that?
    Mr. Connaughton. We are catching up. Mr. Chairman, I think 
there is never enough money for transportation. It is one of 
these things. And I think in some ways we are our own worst 
enemies when we talk about this from our side of the table in 
that we always throw up these trillions and trillions of 
dollars of needs. The thing is that if you look at the revenues 
coming in, you figure out ways to make it stretch. We are now 
doing design builds. We are doing public-private partnerships. 
We are figuring out ways to, say, looking at more IT. We are 
investing heavily. In fact, we have privatized our traffic 
operations areas, centers, and trying to make it a statewide 
system so that we can actually get more IT, better IT to 
control traffic.
    Out here on 66 you will see next year the new system we are 
putting in, which will control individually the lanes and the 
speeds in the lanes and will open and close lanes based on 
conditions.
    So there is never enough money. The issue is is certainty 
in the system, how much money you have coming in, focusing on 
those projects that have a bigger effect on transportation and 
congestion and mobility.
    Mr. Duncan. I have read in the Washington Post that there 
is NOVA and RVA.
    Mr. Connaughton. Yes, sir.
    Mr. Duncan. And I get the impression that you are having to 
spend a pretty big portion of your transportation budget in 
northern Virginia. How are you figuring that out?
    Mr. Connaughton. Yes, sir. Well, first off, I have a 
special fund, meaning that all the taxes and fees are dedicated 
to transportation, and then we control where they go, the 
allocations, by a statewide board that I chair. We have 
different formulas, you know, that go to different types of 
systems, interstate, primary, secondary, things like that. We 
have transit allocations. We have our port fund. We have all 
these different things.
    Up to recently, actually the rest of the State was actually 
subsidizing the growth and the activity, economic activity, up 
here in northern Virginia, particularly if you saw all the 
money we are putting into transit. But we try to equalize it 
out. The rest of--Virginia is one of the few States where we 
control the entire road system. So we have actually the third 
largest State-controlled road system in the country. And the 
rest of the system has really been seriously degrading because 
of all the money we have had to be putting up here in northern 
Virginia. But we are actually now trying to catch up and do 
more maintenance out there.
    Mr. Duncan. What is the population of Virginia now?
    Mr. Connaughton. It is $8.2 million.
    Mr. Duncan. $8.2 million?
    Mr. Connaughton. Yes, sir.
    Mr. Duncan. And, Mr. Dormsjo, what is the population of 
Maryland now?
    Mr. Dormsjo. It is about $5.5 million.
    Mr. Duncan. And what is your budget for transportation?
    Mr. Dormsjo. On an annual basis it is a little bit north of 
$4 billion.
    Mr. Duncan. $4 billion.
    Secretary Connaughton, how does your infrastructure bank 
work? You said that you got $400 million.
    Mr. Connaughton. Yes, sir.
    Mr. Duncan. Was that just a one-time movement of $400 
million into that? I mean, we have this rail infrastructure 
loan program that is not being used much at all. Are you having 
quite a bit of demand for loans from your infrastructure bank? 
Tell me a little bit about that.
    Mr. Connaughton. Yes, sir. We set up a--we had a Federal 
infrastructure bank where you put Federal money in and 
potentially help loan to Federal projects. But there is lots 
of--I am going to say lots of strings attached to that.
    We decided to set up our own infrastructure bank with 
purely State revenues. Most of the money has come from--we get 
a piece of the State surplus every year. It ranges from $25 to 
$80 million. We take it and put it into this essentially 
revolving account.
    We make loans. We actually have a bridge project down in 
the Hampton Roads area that we are lending to this locality to 
build a bridge that will have a toll on it, and they have 
essentially 30 years to pay that back at a low interest rate. 
They were able then to use that low-interest loan to get much 
better rates on their bonds and improve their overall rating on 
the city.
    I have this project out in Loudoun County where we are 
lending to build this road, and they are paying back on their 
mandated proffers that the developer is paying into. We have 
another one where we use the loan, some money, as a credit 
enhancement to make another project's bond rating stronger and 
more appealing.
    Mr. Duncan. Are you making these loans to private 
companies, or are you making them to cities or counties, or a 
combination?
    Mr. Connaughton. A combination. We want a local sponsor. We 
want a locality to sponsor a project, but actually we can also 
give loans to private entities as well.
    Mr. Duncan. And what has been the reaction so far?
    Mr. Connaughton. It is extremely positive. Because what we 
are looking for are ways for us to essentially take $300 or 
$400 million that we put into this and to actually maximize the 
investment in getting as many different projects going as 
possible, projects that would not normally get to move forward, 
and then we are going to take the revenues in there and 
actually put it back into additional projects as the money 
comes in.
    Mr. Duncan. Right now do you have several projects that are 
on the drawing board or that have been requested, and do you 
have a waiting list?
    Mr. Connaughton. We have quite a few projects who have 
asked to be considered for this, but right now we have 
essentially hit that $400 million, so we are going to have to 
wait for the next tranche of money to come in before we can go 
out.
    We have two more projects, smaller projects. Since we put a 
lot of money into this bridge project, a lot of money into this 
road project, quite a bit of money into this bond essentially 
and revenue--this bond enhancement fund. We only had a small 
amount of money. We have got a couple of small projects that we 
are going to support. One is a rail project, and another one is 
related to my port. And then we will wait to see where the 
revenues are next year, put money into that bank, and then go 
back out again.
    Mr. Duncan. Mr. Dormsjo, I understand that Virginia has 
trust funds that are mode-specific, but Maryland is mostly 
mode-neutral. Is there an advantage or disadvantage to either 
system, or what do you see as to the advantages or 
disadvantages?
    Mr. Dormsjo. I will let Sean comment after I make my 
assessment, but I think the integrated structure is 
advantageous, and I think there is a tremendous benefit to the 
State of Maryland to have a common pool of revenues from our 
airport, our port, the Motor Vehicle Administration fees and 
charges that can be flexibly deployed as we try to deliver the 
most worthy capital projects.
    We have periods of time in our State's history when we have 
had to get large highway projects done, so we have overweighted 
our capital program towards those critical projects in the 
highway space, and then there have been other times when we 
needed to make expansions at BWI Airport, and we have had the 
resources to make those investments. Now we are emphasizing 
transit investments more so than we have in the past. So we 
like the structure of a trust fund that is not broken up into 
different accounts.
    Mr. Duncan. All right. Secretary Connaughton, you can 
comment about the question to Mr. Dormsjo if you like, but also 
I am curious about your inland port. How is it going?
    Mr. Connaughton. It is doing excellent.
    One of the things first to address this issue about these 
individual funds, we have this broad fund, special fund called 
Commonwealth Trust Fund, and then we have subaccounts with 
dedicated fees towards it. So I have one for aviation, one for 
my port, and several for my rail, and then the highway 
maintenance, and then the highway construction accounts.
    We like it for a few things. First is it gives us the 
ability to plan out and work with the private sector on the use 
of these funds. And so like the rail accounts, we require some 
sort of participation. We put in some, they put in some. It 
gets more buy-in and more, I am going to say, focus on dealing 
with some--particularly in the freight issues, because it is no 
way. When you look from a place like Virginia where you have 
northern Virginia, a freight rail project is going to have to 
compete with a Metrorail project. And one handles 700,000 
people a day; the other one handles several thousand cars. So 
it is railcars a day. It is very difficult for the rail 
projects to compete in that sort of climate.
    So we have these accounts. We are putting $40 million per 
year into freight rail. We are putting $40 million a year into 
port infrastructure. We are putting about $20 million a year in 
our air. It is not big in the context of all the other funds, 
but we are able to deal with our problems.
    Also, when we came to this political issue of passing 
legislation this year, we had all the modes; we had almost 80 
or 90 different groups from every mode working together to get 
the bill through because they all saw some benefit from it.
    Our inland port is actually--some of the things we are 
trying to do in our freight rail, in our freight plan, in 
trying to cause modal shifts, we move about 35,000 to 40,000 
containers a year at the inland port, and so we are 
intercepting trucks from off of 81 and off of 66 that would 
normally drive all the way down to our port and back. So if you 
drop it at our inland port, it is as if you drove it down to 
Norfolk.
    We are building a similar facility at the southern end of 
81 down in Montgomery County that is going to have the same 
arrangement, and then now we have started up the same sort of 
activity at the Port of Richmond, which is a small port. It is 
right on 95. We are building rail enhancements to it, and we 
are taking a barge service and we are loading containers at the 
port and taking them up the James River. And there we have only 
started service a couple years ago. We have taken about 8,000 
containers, meaning about 16,000 trucks, off of 64 every year. 
And that is what we are trying to do is cause a modal shift. We 
are not trying to make money on it, we are just trying to get 
those trucks off the road and intercept them.
    Mr. Duncan. I remember years ago there was a study about 
having a freight-rail corridor up and down I-81, from 
Harrisburg down through Virginia and so forth. That has been 
sort of a dream, I guess, for a long time.
    Mr. Connaughton. We are actually supporting the Crescent 
Corridor project of Norfolk Southern. We obviously put State 
money into the Heartland Corridor to make them--I mean, the 
Commonwealth of Virginia put money into a project that actually 
made rail improvements in West Virginia and Ohio because we 
viewed it as helping our competitiveness. We have just 
committed over $30 million for this tunnel right over here, the 
Virginia Avenue tunnel, to allow double-stack trains to run on 
the CSX line there.
    So we are doing everything we can, even putting our money 
in States outside of, obviously, Virginia to improve our----
    Mr. Duncan. Well, I will tell you, many, many years ago I 
requested the first money for the first study of that Crescent 
Corridor at the request of Norfolk Southern and because it made 
so much sense to me. In fact, I saw benefit, great benefits, 
even to Tennessee.
    Mr. Atkinson, did I understand you to say that your study 
or your report showed that trucks pay 85 to 90 percent of the 
costs of the damage they do; is that correct?
    Mr. Atkinson. We referred to a study, a cost allocation 
study, that was done by the U.S. Department of Transportation 
in 1997 and then updated in 2000 that indicated on the whole 
that that was about what trucks paid relative to the costs. 
Some trucks--if a truck were traveling with a very light load, 
it would actually pay more than--it would pay less than what 
its overall costs were. A truck with a heavy load would 
actually pay a lot less than its overall costs. But on net it 
appeared from that study that trucks are subsidized relative to 
rail.
    Mr. Duncan. I know I have gone way over.
    Mr. Nadler. Could you yield just for a question on that 
point?
    Mr. Duncan. Go right ahead.
    Mr. Nadler. Thank you.
    Just on that point, there was a study a number of years ago 
which you may be familiar with that said that the--I don't 
remember if it was a 70,000- or 80,000-pound truck did the same 
damage, wear and tear, and vibration damage to a highway as 
9,600 automobiles. Are you familiar with that study? And if so, 
if that is accurate, how can you reconcile it, because they 
don't obviously pay 9,600 times what a car pays?
    Mr. Atkinson. I am not familiar with that particular study. 
I am familiar with studies that suggest that very heavy 
trucks--passenger vehicles do very little damage to most roads. 
Damage is caused principally by heavy trucks, which is why I 
argued in my testimony that you could--the technology does 
exist to move to a VMT system that has axle weight sensors on 
them, and you could charge a truck commensurate with the actual 
damage they are doing on particular roads.
    For example, some roads are not designed even for heavy 
trucks, and when a heavy truck goes on that road, they do a lot 
of damage. Other roads are designed for heavy trucks, and they 
will do less damage. But there is no incentive now for trucks 
to go on the right road, if you will, and there is no incentive 
for trucks to be more efficient in that sense. So that is why I 
do think charging trucks commensurate with their actual costs 
that they impose on the system, particularly pavement damage, 
is an efficient thing for our country to do.
    Mr. Nadler. But agreeing on the concept and the goal of 
doing exactly that, it was a USDOT study from many years ago, 
the 9,600, because I used to quote it when I was in the State 
assembly, so I don't know if it has been updated, but if a very 
heavy truck does that kind of damage, and yet trucks overall do 
pay 85 to 90 percent, it would sort of lead to the implication 
that maybe heavier trucks ought to pay much higher taxes.
    Mr. Atkinson. Yes, it would. I agree with that.
    Mr. Nadler. Thank you. I am finished.
    Mr. Duncan. Mr. Schenendorf, you used the word 
``extraordinary'' in referring to the fact that most of the 
trucking industry seems to be united, and a lot of the inland 
waterway users are at with paying more, and it is pretty 
extraordinary to have industries that are willing to pay more.
    In the report you did, what has been the reaction to other 
parts of your report, like, for instance, from aviation and 
rail and so forth? And I will ask you and Mr. Atkinson both, 
are you satisfied with the reactions to your reports, or the 
action or lack of action since those reports came out?
    Mr. Schenendorf. Well, ours, like Rob's, it all focused on 
surface transportation since we didn't look at aviation, and 
basically both studies came to very, very similar conclusions.
    You know, I will be honest with you: Everybody agrees and 
can recognize what is happening, but nobody wants to raise 
money. Nobody wants to have more investment and to pay for 
that, even though that is what is called for.
    I said it in my testimony, the studies, you know, could 
fill this room that have been done and come to the same 
conclusion, and that is we need to invest more. But then when 
you start talking about, well, how are we going to pay for it, 
nobody wants to raise taxes, nobody wants to put tolls or user 
charges on. And so consequently the investment hasn't been 
made, and because the investment hasn't been made, the system 
functionality is deteriorating.
    That is what business sees. That is why shippers are coming 
to you and saying, we want to pay more if you will help fix 
this system. And that is why it is not just the trucking 
industry and the barge owners, it is the shippers, it is the 
people who are actually using that system. And, of course, they 
ultimately are going to be paying for it because it is their 
goods that are on these trucks or water or barges, and they are 
saying, we are willing to pay more because we are seeing what 
is happening. And they are becoming less competitive, the 
system is less reliable, it is becoming more costly. Inaction 
is becoming more costly to them than actually raising the money 
to do the investment that is needed to provide the capacity and 
the reliability.
    So I am disappointed. And it is not going to change, I 
don't think. I don't think what needs to be done can be done by 
one political party. It is not going to change, in my judgment, 
until the two parties can come together. And I think a lot of 
people think maybe the grand bargain is the way to do that.
    And just because of the economic growth potential, Simpson-
Bowles put in a significant increase in the motor fuels taxes 
and spent it all, because of the linkage to the economic 
growth.
    And so I think that, you know, maybe it will take something 
like that in order to allow this to happen. But it has to be a 
situation where the two parties come together and say, this is 
what is right for America. And today's----
    Mr. Duncan. Well, traditionally, this committee has done 
better at coming together than almost any committee in the 
entire Congress.
    Mr. Seltzer, you know, one of the problems on all these 
transportation-related projects is that they, over the past 
many years, have taken three or four times as long as they 
should have or needed to or compared to other countries. Do you 
think we could do more to speed things up?
    I know, for instance, that you are familiar with the Tappan 
Zee project. I understand the NEPA process was speeded up on 
that project.
    Mr. Seltzer. Correct, sir. But it is not just the 
environmental and regulatory approval. It is the actual design-
build construction that expedites the completion of the 
projects if the funding/financing is there.
    So we are seeing more and more projects, not just toll-
backed projects that are generating their own revenue stream, 
but even projects supported by State highway funds being done 
through public-private partnerships--P3s--with so-called 
availability payments, which are general State or local 
government resources paid to a private team responsible for 
designing, building, delivering, operating, and financing the 
system.
    So it is not just a toll-road concept; it could be applied 
and is being applied more generally.
    Mr. Duncan. Of course, when we are forced to, we can move 
pretty fast, like on the Interstate 35 bridge in Minnesota.
    Mr. Seltzer. Right you are, sir.
    Mr. Duncan. All right.
    Mr. Sires, anything else you want to ask about or add?
    Mr. Sires. No. I was just curious about the last--build, 
design, and operate. In my district, we did a light rail that 
has been very successful, you know, design-build, that moves 
about 50,000 people now in a very congested area. And it has 
worked out very, very well. There was a lot of skepticism when 
we first started with this project. So I have the experience 
where it worked and it saved a lot of money.
    Mr. Duncan. Mr. Nadler, any----
    Mr. Nadler. No.
    Mr. Duncan. Well, we have kept you far too long, but you 
have been very helpful.
    And I will tell you this. We are getting ready to write 
this report and these recommendations here in the next few 
days, so if you have anything you wish to add that we didn't 
get to here today or if you have any specifics you want to have 
us take a look at, get them to us right now. And we need all 
the help we can get.
    Thank you very much. That will conclude this hearing.
    [Whereupon, at 3:27 p.m., the panel was adjourned.]
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