[Senate Hearing 113-73]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 113-73
                           AND HOW TO FIX IT 



                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES


                             FIRST SESSION


                             JULY 24, 2013


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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

Kevin Brady, Texas, Chairman         Amy Klobuchar, Minnesota, Vice 
John Campbell, California                Chair
Sean P. Duffy, Wisconsin             Robert P. Casey, Jr., Pennsylvania
Justin Amash, Michigan               Mark R. Warner, Virginia
Erik Paulsen, Minnesota              Bernard Sanders, Vermont
Richard L. Hanna, New York           Christopher Murphy, Connecticut
Carolyn B. Maloney, New York         Martin Heinrich, New Mexico
Loretta Sanchez, California          Dan Coats, Indiana
Elijah E. Cummings, Maryland         Mike Lee, Utah
John Delaney, Maryland               Roger F. Wicker, Mississippi
                                     Pat Toomey, Pennsylvania

                 Robert P. O'Quinn, Executive Director
                 Niles Godes, Democratic Staff Director

                            C O N T E N T S


                     Opening Statements of Members

Hon. Amy Klobuchar, Vice Chair, a U.S. Senator from Minnesota....     1
Hon. John K. Delaney, a U.S. Representative from Maryland........     2
Hon. Daniel Coats, a U.S. Senator from Indiana...................     3
Hon. Robert P. Casey, Jr., a U.S. Senator from Pennsylvania......     5


Hon. Edward G. Rendell, Co-Chair, Building America's Future, 
  Washington, DC.................................................     6
Mr. Robert Poole, Searle Freedom Trust Transportation Fellow and 
  Director of Transportation Policy, Reason Foundation, Los 
  Angeles, CA....................................................    10
Mr. Robert Puentes, Senior Fellow, Metropolitan Policy Program, 
  Brookings Institution, Washington, DC..........................    12
Mr. Chris Edwards, Director of Tax Policy Studies, Editor, 
  www.DownsizingGovernment.org, Cato Institute, Washington, DC...    14

                       Submissions for the Record

Prepared statement of Vice Chair Klobuchar.......................    34
Prepared statement of Senator Dan Coats..........................    35
Prepared statement of Hon. Edward G. Rendell.....................    37
Prepared statement of Mr. Robert Poole...........................    39
Prepared statement of Mr. Robert Puentes.........................    45
Prepared statement of Mr. Chris Edwards..........................    50



                        WEDNESDAY, JULY 24, 2013

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 9:55 a.m. in Room 
628 of the Dirksen Senate Office Building, the Honorable Amy 
Klobuchar, Vice Chair, presiding.
    Representatives present: Hanna, Maloney, and Delaney.
    Senators present: Klobuchar, Casey, Warner, Murphy, Coats, 
and Wicker.
    Staff present: Gabriel Adler, Corey Astill, Conor Carroll, 
Gail Cohen, Christina King, Connie Foster, Niles Godes, Colleen 
Healy, and Robert O'Quinn.

                     SENATOR FROM MINNESOTA

    Vice Chair Klobuchar. Okay, we will call this hearing to 
order. We want to thank the Indian Affairs Committee. This is a 
beautiful room, and we hope to be back here. I really like it.
    And we also want to thank our witnesses for being here to 
discuss the critical need to strengthen and improve our 
Nation's infrastructure system.
    I am going to introduce first our distinguished panel of 
witnesses, and then say a few words.
    We have Governor Ed Rendell, who was Governor of 
Pennsylvania from 2003 to 2011, and he previously served two 
terms as the Mayor of Philadelphia. He is Co-Chair and Co-
Founder of Building America's Future, which focuses on the need 
for more significant investment in infrastructure in America.
    Robert Poole is the Searle Freedom Trust Transportation 
Fellow and Director of Transportation Policy at the Reason 
Foundation. Mr. Poole, an MIT-trained engineer, has advised 
both Democratic and Republican administrations.
    We also have Robert Puentes. He is a Senior Fellow with the 
Brookings Institution Metropolitan Policy Program where he also 
directs the program's Metropolitan Infrastructure Initiative. 
He is an expert on transportation and infrastructure, urban 
planning, growth management, suburban issues, and housing.
    Chris Edwards is the Director of Tax Policy Studies at the 
Cato Institute. He is an expert on federal and state tax and 
budget issues. Mr. Edwards previously served as a senior 
economist with the Joint Economic Committee.
    I think if we all look back at American history, we know 
how important infrastructure investment has been to this 
    We connected the East and the West Coasts by rail in 1869, 
which ushered in the Second Industrial Revolution.
    We began building the interstate highway system in the 
1950s. We did it with a Democratic Congress, I will note, and a 
Republican President.
    And we are now at a state of need for infrastructure. I 
know that, coming from the State of Minnesota, where in the 
middle of a summer day, actually the anniversary coming up a 
few weeks from now, a bridge collapsed in the middle of my 
State. And as I said that day: A bridge shouldn't just fall 
down in the middle of America, not a bridge six blocks from my 
house, an eight-lane highway, a bridge that I drive my family 
over every single day. But that's what happened.
    And as many of you know, we rebuilt that bridge with the 
help of the Federal Government in, literally in a year. I was 
just out there with our new Transportation Secretary, Secretary 
Foxx, out there on Monday, as one of his first visits. He also 
went to Connecticut to see where the train derailment had 
occurred just recently.
    I think we all know this aging infrastructure does not suit 
our country. It is not America. And mostly, as we look at how 
we expand our economy so we become a country that makes stuff 
and invents things and exports to the world again, and we are 
in the course of doing that, to do that we need a 
transportation system that matches our needs.
    That means not just highways and bridges, it also means 
rail; it also means, as a state that's on the Mississippi 
River, a lock and dam system that works to transport our 
agriculture products and other products.
    So what we are going to talk about today are not just the 
problems--and we know there are problems--but it is also how we 
fix it. How do we get that funding mechanism that is going to 
get Democrat and Republican support? We certainly need 
bipartisan solutions to get this done.
    The Senate has been acting. The Water Resources Development 
Act is a great example of that, which was a combined work of 
Senator Boxer, and Senator Vitter, and many others, including 
some of my colleagues here, where we were able to come together 
and reach an agreement. The bill is sitting over at the House 
right now, and I know they are working on it, but was an 
example of a piece of our infrastructure but certainly did not 
get to the level that we need at to get at the problems that we 
    Actually the idea for this hearing was Congressman 
Delaney's. I am going to give him a few minutes here to speak, 
and I would also note that my colleague, Senator Warner, is 
here, who has also been a big leader in infrastructure and we 
thank him for being here as well.
    So I am going to give Congressman Delaney some of my time, 
and then we will turn it over to Senator Coats.
    [The prepared statement of Senator Klobuchar appears in the 
Submissions for the Record on page 34.]


    Representative Delaney. Thank you, Vice Chair Klobuchar, 
for organizing this hearing here today on this important topic. 
I want to also thank all of our witnesses for carving out the 
time to discuss this very important topic for our country and 
for all of their insights and expertise and commitment to this 
    As the Vice Chair said, we are all aware of the 
infrastructure challenges that this country has. The American 
Society of Civil Engineers estimates that we have almost a $4 
trillion infrastructure hole as a country. And this is a very 
significant challenge, but it is also a very significant 
    Because if we can in fact put in place smart infrastructure 
policy and design a prudent and efficient and effective way of 
funding the infrastructure in this country, we not only have an 
opportunity to put Americans to work in the short term, which 
should be a top priority of this Congress, but we also have an 
opportunity to improve long-term U.S. competitiveness.
    And that is, to some extent, where the dimension of this 
infrastructure discussion is most important. As we think about 
competing in a world that is increasingly informed and shaped 
by globalization and technology, making sure we have an 
adequate, modern, and forward-looking infrastructure that's 
done in a smart way that allows U.S. corporations to compete is 
one of our central and, in my judgment, our most important 
domestic economic priority.
    Because unless we compete successfully as a country, we 
will never be able to create jobs that have a good standard of 
living. And infrastructure is central to that discussion.
    So I am very much looking forward to the panelists' 
comments today, not only on the needs we have as it relates to 
infrastructure but also talking about how we fund our 
infrastructure. Because I think there's a rich vein of support 
in this country for investing in our infrastructure, but there 
is significant debate and discussion about how we pay for that.
    If you look macro at what is going on in the world today, 
you see this very significant infrastructure need which is 
typically a need that is provided by government, yet we look 
around and federal budgets, state budgets, local governments 
are strained.
    So thinking about creative ways to finance our 
infrastructure that is fiscally appropriate in light of the 
larger fiscal challenges we are facing as a country is also 
part of the challenge. This is one of the reasons we have 
introduced the Partnership To Build America Act, which is a 
bipartisan bill in the House that invests in U.S. 
infrastructure, and ties it to tax incentives for the 
repatriation of overseas corporate earnings.
    So with that, we'll get on with the hearing.
    Vice Chair Klobuchar. Okay. Senator Coats.


    Senator Coats. Well thank you, Madam Chairman. I am 
standing in for Congressman Brady who could not be here, so it 
gives me an opportunity to make an opening statement, which I 
am going to ask unanimous consent to include in the record so 
that we can get to our witnesses.
    Let me just make a couple of quick points here.
    Vice Chair Klobuchar. Okay.
    Senator Coats. It is clear that there is a consensus that 
infrastructure is crumbling all across America. Governor 
Rendell, Pennsylvania is one of the original Colonies, so you 
have some of the oldest infrastructure, but even as we work 
across the Midwest and into the West, we see falling bridges. 
We see crumbling infrastructure. We see pipes bursting 
underground. So clearly there is a consensus that we need to go 
forward and deal with this.
    We all know that we are in this current fiscal dilemma of 
what comes first, almost a chicken-and-egg type of situation, 
where we know we need to spend upwards of a trillion and maybe 
even more dollars to address, over a period of time, to address 
this infrastructure problem.
    We know that in doing so it potentially could provide some 
stimulus to the economy. However, we also realize that we 
simply are not liquid. We have to borrow funds in order to 
accomplish this. And in doing so, we then just fuel more debt, 
more deficit, which acquires more interest payments.
    And when we put that together with the projected increase 
in entitlement spending with the retirement of the Baby Boom 
generation, we realize that the pot of money that falls into 
the discretionary category, that which we have authority over 
how to address, and where to spend it, and establish 
priorities, that continues to squeezed.
    In fact, the projections are that in 10 years from now 90 
percent of our tax revenue will be eaten up through interest 
and mandatory spending.
    So no matter how earnest we are, and how committed we are 
to address a whole number of issues that fall in that 
discretionary category, not to mention health research, and not 
to mention education, not to mention any number of things that 
are priorities for Members of Congress, we have to understand 
the realities of the fiscal situation we are in.
    So just a comment here relative to the fact that we do need 
to address this issue if we are going to go forward with a 
number of the plans that have been proposed, which have some 
real significance.
    In my State of Indiana, we have had to, under a previous 
governor, and I think carried on by this governor, we have had 
to turn to public/private partnerships. That has been very 
successful for us. By leasing our toll road for a 75-year 
lease, we have been able to accomplish some very significant 
improvements in our transportation infrastructure.
    These so-called P3s, Public/Private Partnerships, may be 
ways in which we can work around some of the fiscal limitations 
that we have. I might note, just from entering into that in 
just one area, through our toll road by the end of the year 
2012 in Indiana we have completed 65 roadway projects; 19 
others were accelerated.
    We have completed 375 new centerline miles, 48 new or 
reconstructed interchanges, 5,030 preservation center line 
miles, accounting for 40 percent of the state's inventory, and 
rehabilitated or replaced 720 bridges.
    So this may point a way into which we can address more 
immediately some of our infrastructure problems. I am anxious 
to hear from the panel, Madam Chairman, as to what their 
thoughts are on this and anything else they want to bring to 
us. So thank you, very much, for chairing this Committee and we 
look forward to the testimony of the witnesses.
    [The prepared statement of Senator Coats appears in the 
Submissions for the Record on page 35.]
    Vice Chair Klobuchar. Well thank you, very much. Thank you 
for being so brief. And I know that Senator Casey wanted to say 
a few words about Governor Rendell from his home State before 
we begin.

                       FROM PENNSYLVANIA

    Senator Casey. Governor, you will be happy to hear me say 
that I am going to keep my comments brief.
    But we have had a number of great governors of 
Pennsylvania. One of them was my father, and I certainly put 
him in certainly a special category, but we have had very few 
in the history of the Commonwealth that got as much done in 
four years, and then the second term for a total of eight 
years, as Ed Rendell. Remarkably effective Governor.
    I will just mention, in addition to the focus on 
infrastructure and transportation and economic development, one 
part of his record, which will be an enduring legacy, is 
education--especially investment in early learning, which will 
pay dividends for several generations.
    So we are honored that he is here to talk today about 
infrastructure, but I am especially grateful that my friend is 
here to watch how the Senate works at these hearings, and once 
in awhile we are all very brief, and today will be one of those 
days, Governor.
    We are grateful you are here, as well as the other 
    Vice Chair Klobuchar. And it looked like Senator Warner 
wanted to add something, as a fellow governor.
    Senator Warner. I will simply add two quick points.
    One was, I hope when Senator Coats mentioned that Governor 
Rendell was from one of the first Colonies that he didn't imply 
that Governor Rendell was one of the early Colonists, as well.
    Vice Chair Klobuchar. I was thinking the same thing, but I 
    Senator Coats. Governor, that thought never crossed my 
    Senator Warner. I would simply say that one of the things a 
number of us, and I really appreciate the Chair holding this 
hearing, is not only how we find that permanent source of 
funding, but how we also use tools--and this is something 
Governor Rendell has been working on--on how we create at a 
national level something that every other industrial nation in 
the world has: an infrastructure financing authority that 
allows us to centralize the financing, kind of intellectual 
capacity, to be able to kind of partner with Wall Street in a 
way the public sector gets protected to be able to put in place 
long-term debt, and to be able to have some form of that 
government backstop again that every other nation uses as a 
    My hope is that we can find some consensus around this 
tool. It's not a full solution set, but it is clearly a tool we 
need in our toolbox, and I particularly thank Governor 
Rendell's work on that.
    Thank you, Madam Chair.
    Vice Chair Klobuchar. Okay. Well thank you very much, 
everyone, and I think we are ready to begin with the testimony. 
Governor Rendell.


    Governor Rendell. It's a pleasure to be here, Madam 
Chairman, Senator Coats, Representative Delaney, of course 
Senator Casey, my good friend Senator Warner, and all of the 
Members of the Committee.
    Thank you for holding this hearing. But I go to too many 
hearings on the question of infrastructure and transportation, 
and nothing significant gets done. Nothing significant gets 
    And that is different from what is going on in state 
capitals. It is different than the desires of the private 
sector. We want to get stuff done. We need the Federal 
Government to be a participant.
    Congressman Delaney outlined the American Society of Civil 
Engineers' report. They do it every four years. They found that 
our infrastructure in general ranked at a D+. They found only 
six areas of improvement. And they were slight improvement: 
rail, roads, bridges, solid waste, drinking water and 
    What do three of those things have in common? Over the last 
five years, states and the Stimulus bill invested significant 
dollars in rail with the TIGER (Transportation Investment 
Generating Economic Recovery) program, in bridges and roads, 
and improvements were made because of those investments.
    We cannot be any clearer. In 2012, Building America's 
Future put out a report that was labeled ``Falling Apart and 
Falling Behind,'' and we quoted the World Economic Forum which 
ranks the infrastructures of the world.
    In 2005, the U.S. ranked first in the world for the 
economic competitiveness of our infrastructure. Now we rank 
14th. We were 18th in rail, 19th in ports behind countries like 
Estonia and Iceland, and 30th in air transport behind Malaysia 
and Panama and many, many other countries.
    It is a question of economic competitiveness. It is a 
question of economic survival. If we want to continue to be a 
first-rate economic power, if we want to protect our public, if 
we want to improve the quality of life of our citizens and our 
environment, if we want to create good, well-paying jobs that 
cannot be outsourced, it is time to do something. It is time to 
do something. What has been recommended? The American Society 
of Engineers--actually, Congressman Delaney said $4 trillion, 
over the next 8 years, the unaccounted for dollars come to $1.6 
trillion. So they want to invest over $200 billion additional 
money a year in our infrastructure. That is exactly the figure 
that BAF in its report recommended, $200 billion in additional 
spending over the next 10 years.
    Your own Surface Transportation Reform Commission that the 
Congress authorized reported in 2008 that, just for 
transportation infrastructure you needed to spend at least $225 
billion a year. And the CBO in 2010 said that an additional 
$185 billion annually spent on infrastructure--I recommend you 
read this report--would be justified by the economic and 
societal benefits it would bring to the United States of 
    If you look at these figures they are daunting and 
obviously Senator Coats set the environment that you have to 
deal with. My first suggestion is: Deal with it and find ways 
to reduce spending and increase revenue to fund something that 
is essential to this country's competitiveness going forward. 
Deal with it.
    If we are making all of these spending cuts, and we are 
increasing revenue, let's find a way to fund something that 
will invest in our future and do something for the country. You 
cannot name me one American company that has grown successful 
that did not invest in its own growth.
    We have got to invest, and we have got to start doing it 
now. And the good news is, you do not have to do it by 
yourself. That $200 billion figure does not all have to come 
from the Federal Government. It can come from the states. It 
can come from the private sector. The private sector in the 
U.S., and private sector abroad in places like China and Europe 
that have tens of billions of dollars that they're waiting to 
invest in a stable American infrastructure.
    So let's look at where we are. Look at what the states have 
done. I am going to read you just a quick synopsis of states 
who in the last two years have passed revenue increases to deal 
with their infrastructure problems.
    And, Senator Coats, states have to have a balanced budget. 
They have got more economic pressure than the Federal 
Government has. Listen to this array of states, because it is 
blue and it is red, it is Republican legislatures and 
Democratic legislatures. It is Republican governors and 
Democratic governors: Virginia, Maryland, Wyoming, Nebraska, 
Arkansas, South Carolina, Massachusetts, Texas, and Oklahoma.
    And in Pennsylvania and Michigan, in two of the biggest 
states in the country, governors have proposed--Republican 
governors have proposed significant spending increases for 
transportation infrastructure. It is not blue or red, it is not 
Republican/Democrat. You know it's not Republican/Democrat. 
Senator Inhofe, arguably one of the most conservative Senators 
in the United States Senate, has said that infrastructure 
spending is the second most important thing we can do after 
defense spending.
    I testified before Congressman Shuster's first hearing as 
Chairman in the House, and there were 50 of the 60 members 
present, and virtually every one of them spoke--albeit 
briefly--and almost every one of them pledged themselves to 
find a way to invest in infrastructure. There were Tea Party 
members, conservative Republicans who said I'm a Tea Party 
member but I believe we've got to spend money on our 
infrastructure. I'm a conservative Republican, but we've got to 
find a way to invest in our infrastructure.
    Well, we can find a way. And there is no excuse for not 
doing it. Because the cost is high, Senator Coats? Of course is 
it high. The cost figures I have given you are almost 
astronomical, but one thing that Congress never computes is the 
cost of doing nothing.
    Let me submit to you that the cost of doing nothing to the 
American economy and to the American consumer is greater than 
the cost of spending money, even at the level that I have 
    The United States Chamber of Commerce--not exactly a 
radical leftist-leaning organization--has estimated that each 
year business loses $1 trillion, the GDP loses $1 trillion that 
would be produced by having a first-rate transportation 
infrastructure. That is $1 trillion a year. Think of what a $10 
trillion over the next 10 years increase in the GDP would do 
for your debt problem. Just think about that.
    The Texas Transportation Institute says that the average 
consumer pays $818 a year in wasted time and additional fuel 
costs because of congestion on our roads. $818 a year. If you 
increase the federal gas tax by 20 cents a gallon, that would 
only cost the average consumer around $400. $818 to the average 
    So you are not alone in this fight. We can fund this 
together. The beauty of TIGER was the states competed. And an 
important part of TIGER grants was how much the states were 
willing to put up. They asked for federal money for the 
project, and often there was private money. Two of the most 
successful TIGER projects went through Pennsylvania and six 
other states. They were the National Gateway and the Crescent 
Corridor. One for CSX and one for Norfolk Southern, to increase 
our freight capacity in the Eastern half of the country.
    The companies put up about 40 percent; the states put up 
about 35 percent, and the Federal Government through TIGER put 
up 25 percent. And because of that, our freight capacity in the 
Eastern half of the country is infinitely improved. We are 
going to be much more competitive because of that.
    So you have got states willing to do it. You have got the 
private sector willing to do it. You have the people willing to 
do it. In every federal election, every election that's held on 
an even year since 2000, transportation referendums have been 
approved over 75 percent of the time, with the exception of 
2010--arguably the most conservative election in our history or 
at least in our recent history and 61 percent of transportation 
referendums were approved even in 2010. And those referendums 
all called for increased borrowing, increased tolling, or 
increased taxes. And they were approved in blue states and in 
red states.
    In South Carolina, two increases in the sales tax to fund 
transportation--one to rebuild the Port of Charleston because 
the residents of South Carolina knew how important the Port of 
Charleston was to their own economy.
    So we can do this. BAF recommends that you take a number of 
specific steps--and I will run through these real quickly:
    Number one obviously is find a way to continue funding 
TIGER. That competition for regional projects was--had a 
sensationally beneficial effect.
    Number two, we've got to find a way, either through the 
TRIP (Transportation and Regional Infrastructure Project) Bond 
Program that Senator Wyden has proposed, or by bringing back 
Building America Bonds to aid the states in paying for their 
own investments in building their own infrastructure. The BABs 
program was an incredible catalyst for infrastructure 
development during the Stimulus. It was overlooked, but it was 
an incredible catalyst.
    To generate private-sector involvement, we need to even 
expand the TIFIA (Transportation Infrastructure Finance and 
Innovation Act) Program more than you did in MAP-21 (Moving 
Ahead for Progress in the 21st Century Act). That was a great 
step in the right direction, but we would like to see it 
expanded even more.
    Secondly, we think that we would either raise or eliminate 
the cap on Private Activity Bonds. That would generate a 
significant level of private investment.
    Third, we've got to let the states toll interstates. In 
MAP-21, you allowed the states to toll interstates for 
additional capacity, but you did not allow us to toll 
interstates for existing roads.
    If we are going to get the private sector involved, they 
need a reasonable return on their investment. And to do that, 
if we are going to maintain I-80 in Pennsylvania--Senator Casey 
is well aware of it--I applied to the Transportation Department 
for the authority to toll I-80. Right now, only the three pilot 
projects can be granted for tolling of previously accredited 
federal highways. I-80 cost us $200 million a year to maintain. 
$200 million a year just to maintain. It goes through the 
northern part of Pennsylvania which gets terrible weather.
    We got turned down. We got turned down. But we were turned 
down because, the theory was, well why pay for it twice? The 
Federal Government paid to build the road. Why should we pay to 
maintain it?
    Well that is like telling someone you pay to buy a car, but 
you don't have to pay to maintain the car. It makes absolutely 
no sense. The restriction on tolling federal highways should be 
lifted in the next transportation bill.
    And last but not least, we need to create a national 
infrastructure bank as a catalyst for leveraging private 
investment, as it does in the very successful European 
Infrastructure Bank.
    Senator Warner has a bill soon to be introduced. 
Congressman Delaney has a bill. Congresswoman DeLauro has a 
bill. They are all good bills in concept. It is very important 
that we get this bank moving, we get it funded with just a 
little bit of funding to catalyze the efforts of the 
infrastructure bank. It can be enormously successful, as the 
European Infrastructure Bank has been. The European 
Infrastructure Bank generates over $350 billion of investment 
in the EU's transportation systems, and not just 
transportation. And we can do the same.
    I want to close by harking back to what Senator Klobuchar 
said in her opening. Eighty years ago the Public Works 
Administration bill was signed by President Roosevelt and 
passed by the Congress. That bill led to the building of the 
Triborough Bridge, the Lincoln Tunnel, the Grand Coulee Dam, 
the Overseas Highway bridge that linked Key West to the 
mainland of Florida. It sparked 34,000 transportation and 
infrastructure projects in the United States of America. It 
spent $6 billion, which would be the equivalent of $106 billion 
today, and it did wonders for the country.
    We can do it. We can--Brookings just hosted a policy forum 
about the Can-Do States. If we had a Can-Do Federal Government 
that harkens back to all of the great times in this country's 
history when we faced challenges and met them by investing in 
our future, we could create millions, literally, 4 million new 
well-paying jobs that cannot be outsourced at the $200 billion 
level of investment. We can create millions of jobs. We can 
improve public safety, improve the quality of life, reduce the 
cost of doing nothing for our citizens, and return America to 
economic greatness.
    So there are no excuses. The time to do it is now. The 
Simpson-Bowles Commission recommended doing something even in 
the midst of the debt restructuring. We can do this. We're 
Americans. We've done it in the past. We can do it again.
    [The prepared statement of Governor Rendell appears in the 
Submissions for the Record on page 37.]
    Vice Chair Klobuchar. Thank you very much, Governor. Mr. 
Poole, if our remaining witnesses keep it to five minutes, 
because I know there are a lot of people that want to ask 
questions, and thank you, Governor Rendell, for that great 
statement. Mr. Poole?


    Mr. Poole. Thank you, Vice Chair Klobuchar and Members. I 
appreciate being asked to speak today.
    My testimony, like the Governor's, will be limited to 
transportation infrastructure since that is my primary area of 
    Our transportation infrastructure is falling behind our 
global competitors in serious ways. Part of the reason is that 
our competitors make much greater use of long-term public/
private partnerships for transportation infrastructure.
    Today, nearly half of all air passengers in Europe are 
being served by privatized airports. And that trend began in 
1987. We have privatized only one airport, San Juan 
International, and that was only just this year.
    Over 50 countries have corporatized their air traffic 
control systems, giving them a bondable user fee revenue stream 
to make major capital investments, while our attempts to 
implement NextGen through the FAA are struggling, held hostage 
to federal budget problems.
    In highways, much of Europe, Australia, Latin America, and 
even China are using long-term toll concessions to build their 
equivalent of our interstate highways, and we need to rebuild 
and modernize ours and do not have the money to do it.
    A large majority of the world's seaports are either 
investor-owned outright or are using the landlord-port model in 
which the private sector builds and operates all the terminals.
    Most inland waterways are government-owned, but some charge 
tolls, including the Panama Canal, which has issued toll 
revenue bonds to finance the $5 billion expansion that is going 
on. Meanwhile, our tax-funded waterways are plagued with 
obsolete and undersized facilities.
    Now there is now a global infrastructure industry in 
transportation which can finance, build, operate, and maintain 
airports, highways, seaports, et cetera, but none of the major 
players are U.S. companies. We are missing out on this entire 
industry as a participant.
    And of the $300 billion that has been raised over the past 
decade in infrastructure equity investment funds, while 30 
percent of that money has come from U.S. investors, most of 
that money is being spent overseas because that is where the 
PPP opportunities are.
    Now why does this matter? What are other countries getting 
by enabling large use of long-term PPPs in infrastructure? I 
see four major benefits.
    First, as the Governor said, obviously more investment, 
which we desperately need, is important.
    But I think even more important is more-productive 
investment. Because PPP projects, in order to be able to get 
financing, have to meet a market test. They have to demonstrate 
that the project's benefits will exceed the cost, and likely 
produce a return on investments. So that is a very important 
additional benefit.
    Third, we can shift significant risks of infrastructure 
megaprojects from taxpayers to investors for risks of cost 
overruns, risk of late completion of the project, and risks of 
over-optimistic traffic and revenue projections.
    And fourth, we can get guaranteed maintenance of the 
projects that are done by means of long-term PPPs, because the 
same entity that builds it does not just walk away, but is 
responsible for operating and maintaining it for a long period 
of time, as a business, competing for customers.
    Now I think it is time to take a hard look at rethinking 
the 20th Century model the Federal Government has used for 
infrastructure, which is user taxes, trust funds, and grants.
    It is not working very well. First of all, user taxes are 
now seen as just taxes, and any increase even though it would 
go for productive uses is seen as a tax increase and therefore 
very hard to get support for.
    The model builds in a large amount of redistribution, and 
cross subsidy, which is not only inefficient but it also 
creates disaffection such as people believing the program is 
all about bridges to nowhere in Alaska.
    Congress has created many unfunded mandates which using 
federal dollars increases the cost that states have to bear to 
build their projects. And the model encourages states to fund 
projects out of annual revenues rather than financing them over 
the long term, as all investor-owned infrastructure does: 
electric utilities, railroads, toll roads, and so forth.
    The thrust of my written testimony is that it really is 
time to rethink the federal policy for the 21st Century in 
light of the government's ongoing stress. I think there are 
three key points for doing so:
    First, we need to sort out which functions are truly 
federal in nature. Which transportation is truly federal? 
Refocus the Federal Government on that and delegate the rest to 
state and local governments where the need really is.
    Second, shift from funding to financing, which means 
federal policy needs to begin shifting much more from grants to 
loans on a basis preferably that does not put federal taxpayers 
at risk. And a good example of what I like is Representative 
Delaney's American Infrastructure Fund, which would not put 
taxpayers at risk.
    Third, enable states to take on a larger share of 
responsibility by removing tax and regulatory obstacles to 
enable them to make better use of long-term PPP. I suggest in 
my written testimony how this would play out for the different 
modes of transportation.
    And I also provide a near-term list of tax and regulatory 
changes that could begin this transition, and a list of 
organizational changes, including corporatization of the Air 
Traffic Control System along the lines of the very successful 
Nav Canada, and enabling the Army Corps of Engineers to enter 
into long-term PPPs to replace obsolete locks and dams financed 
by toll revenues paid by those using the new facilities.
    This is an ambitious agenda. I will wrap up by making just 
two points.
    One, infrastructure is critically important to our economy. 
We need to do a much better job of funding and managing it. And 
the PPP approach could make a big difference in this.
    The other is that, given the fiscal condition of the 
Federal Government, the 20th Century User Tax/Trust Fund/
Federal Grant Money is unsustainable, and I think we really 
need to think hard about that.
    That is the end of my testimony. I would be happy to answer 
questions when we get to that.
    [The prepared statement of Mr. Poole appears in the 
Submissions for the Record on page 39.]
    Vice Chair Klobuchar. Thank you, Mr. Poole.
    Mr. Puentes.


    Mr. Puentes. Thank you, Vice Chair Klobuchar, Members of 
the Committee. I very much appreciate the invitation to talk 
about this important topic.
    I think the Governor and the members have already kind of 
laid out the need, and made the case for why we need to invest 
in infrastructure, so my remarks are going to focus on the ways 
the Federal Government can engage in new partnerships with both 
the private actors and the public sector to invest in 
infrastructure. And, by so doing, put Americans back to work 
and then rebalance the economy.
    Today, low interest rates, coupled with the attention from 
private firms and foreign funds are presenting growing 
opportunities for a fresh set of focused, federal initiatives 
to support pragmatic public and private sector leaders in 
states and citizens and metropolitan areas as they collaborate 
and innovate around infrastructure investments.
    So, for example, Congress should revive the Build America 
Bonds Program, as the Governor mentioned, to support state and 
local investments. Established in 2009, the two-year program 
authorized special taxable bonds with a direct federal subsidy 
that decreased borrowing costs and stabilized the municipal 
bond market.
    Given the subsidy, they proved wildly popular, as the 
Governor noted. During their short existence, BABs financed 
one-third of new state and local long-term debt issuances. They 
were used in every single state, and for a variety of 
infrastructure, including educational facilities, and most 
notably for water and sewer projects.
    In reviving BABs, lowering the tax subsidy from 35 to 28 
percent would make the program revenue neutral relative to the 
estimated future federal tax expenditure for tax-exempt bonds.
    Since states and municipalities do not really need the same 
aggressive subsidy they did after the financial crisis, I think 
that the lower rate really is appropriate for today's needs.
    Next, while municipal bonds are geared toward 
infrastructure projects with a public benefit, private activity 
bonds are directed at those projects that primarily benefit 
private entities and also serve some public purpose, such as 
    PABs are issued by state and local governments for projects 
with more than 10 percent of the proceeds benefitting a 
nongovernmental entity and are directly or indirectly paid back 
by a private business.
    However, not being exempt from the Alternative Minimum Tax 
limits their ability to attract potential investors over time. 
Based on estimates from the Joint Committee on Taxation, 
eliminating the AMT on all PABs could potentially cost the 
government about $49 million annually over the next 5 years. 
Yet, the exemption would generate billions of dollars in 
additional economic activity and lead to cost savings of almost 
$750 million for airports alone over the next 10 years.
    However, we know that Public/Private Partnerships are 
complicated contractual arrangements and they vary widely from 
project to project and from place to place. As the challenges 
to infrastructure development throughout the U.S. become more 
complex, there is a constant concern that public entities in 
some states, cities, and metro areas are ill-equipped to 
consider such deals and fully protect the public interest.
    So one solution is the creation of a specialized 
institutional entity to assist with those expanding 
opportunities. These so-called PPP units would fill a variety 
of functions, including quality control, policy formulation and 
coordination, technical advice, and standardization.
    These are voluntary and budget costs should be no more than 
about $3 million annually.
    But another way to provide technical assistance and 
expertise to states and other public entities that cannot 
develop internal capacity to deal with the projects themselves 
is through the creation of a national infrastructure bank.
    If designed and implemented appropriately, an 
infrastructure bank has the potential to leverage billions of 
dollars in private investment, as has been mentioned; provide a 
streamlined selection process for projects; and apply a more 
rigorous standard for evaluating critical investments.
    A one-time repatriation tax holiday could be used to unlock 
the billions of dollars of domestically untaxed capital and 
finance the creation of the National Infrastructure Bank.
    Today, American corporations hold over $1.5 trillion in 
domestically untaxed deferred dividend payments overseas. While 
similar repatriation holiday created for the 2004 American Jobs 
Creation Act failed to generate significant domestic stimulus, 
a targeted program focused on infrastructure has the potential 
to deliver job creating and economy building projects for 
decades to come.
    By directing a percentage of the recovered taxes into the 
infrastructure bank, or else compelling corporations to invest 
a portion of repatriated funds into a special class of bonds 
that support the institution, Congress could encourage 
infrastructure investment here in this time of political 
    Depending on the specific goals for the infrastructure 
bank, capitalizing it can occur in a flexible manner as well 
with levels ranging from $10 to $50 billion. Of course there 
are real costs, and there are real hazards associated with any 
repatriation-based program. However, policymakers must also 
weigh the concerns of those things against the strategic and 
financial benefits of a well-functioning strategic 
infrastructure bank.
    Most of what I have described here will require legislative 
action, possibly as part of a major tax reform bill, or through 
budget negotiations, but I think we can do this.
    Madam Vice Chairman, I know it will not be easy, but I 
think the time is right to invest in infrastructure projects 
that do put us on the path to a more productive and sustainable 
    Thank you very much for the opportunity to appear before 
you today.
    [The prepared statement of Mr. Puentes appears in the 
Submissions for the Record on page 45.]
    Vice Chair Klobuchar. Thank you very much, Mr. Puentes. Mr. 

                         WASHINGTON, DC

    Mr. Edwards. Thank you very much, Ms. Vice Chair, and 
Members of the Committee. Thanks for having me testify today.
    Infrastructure is extremely important to the economy. We 
need to ensure that investments in infrastructure are as 
efficient as possible, and we can do that in my view by 
decentralizing the financing and ownership of infrastructure 
out of Washington as much as we can.
    State and local governments and the private sector are more 
likely to make sound investment decisions without all the 
federal intervention we have today.
    The first thing that's interesting to note is that most 
U.S. infrastructure is actually provided by the private sector. 
The private sector actually provides more than five times as 
much infrastructure to the U.S. economy as the federal, state, 
and local governments combined: pipelines, cellphone towers, 
you add it all up that is $2 trillion of private investment a 
year in infrastructure. Again, five times the size of 
government infrastructure.
    So the policy upshot from my point of view, looking at 
that, is we need to also focus on things to increase private 
infrastructure investment such as doing tax reform.
    That said, government infrastructure is of course very 
important to the economy, but I think it should be done as much 
as possible at the state and local level, not the federal 
    Why do I say that? A number of reasons.
    Federal infrastructure investment is often misallocated, 
from my point of--from my opinion. Look at Amtrak investment, 
for example. In my view, a lot of it is based on sort of 
political demands and not based on actual customer marketplace 
    Federal infrastructure is often not operated efficiently, 
is often not priced properly. So, for example, if you look at 
the Bureau of Reclamation's vast water infrastructure in the 
Western United States, it does not use market pricing. Water is 
vastly under-priced, which causes inefficiency.
    Federal infrastructure is often mismanaged and has large 
cost overruns. The FAA has a very poor record in terms of 
bureaucratic mismanagement and cost overruns. And the key 
problem with federal intervention, it seems to me, in 
infrastructure is that the Federal Government when it steps it, 
it replicates mistakes across the country.
    States and private companies make mistakes, but when the 
Federal Government makes mistakes it replicates it everywhere. 
The classic example of this is high-rise public housing, which 
everyone agrees now was a disaster, and was replicated in 
dozens of American cities in the mid-20th Century because of 
federal subsidies to cities to do this very inefficient 
infrastructure investment.
    So those are the sorts of short-comings with government 
infrastructure that are one reason why there is growing 
interest in privatization in the United States and around the 
    I fully support P3s and partial privatization of 
infrastructure, and we should explore all those kinds of 
opportunities. But we should also look at full privatization 
where it is possible.
    Airports can be fully privatized. London's Heathrow is a 
good example of that. Bridges can be fully privatized. There's 
a new $140 million Jordan bridge that was recently completed 
near Norfolk, Virginia, completely privately financed, owned 
and operated and constructed.
    And Air Traffic Control, as Bob Poole has pointed out, has 
been privatized in Canada and Britain and other places. Indeed, 
I am really struck by the Canadian Air Traffic Control 
privatization back in 1996.
    The Canadian Air Traffic Control System is a nonprofit 
corporation, separate from government. It does its own 
operations. It funds its own capital investments separate from 
government, and it has been an extremely successful model. It 
is one of the safest systems in the world.
    You compare that to the FAA, the FAA has this big demand 
for funds. There's budget instability in Washington. The FAA 
does not know where it is going to get the funding. We saw with 
the sequester cuts that threatened to disrupt air traffic 
control in this country.
    The solution, it seems to me, is to set up air traffic 
control as a separate nonprofit corporation like the Canadians 
have. So privatization and P3s have swept around the world, but 
not so much in the United States.
    So why not? Well there have been a bunch of sort of built-
in hurdles that Congress needs to look at that are preventing 
more privatization of P3s in the United States. A key one is 
that the Municipal Bond Tax Exemption favors public facilities 
over private facilities. That is a big barrier.
    Canada, for example, does not have that barrier. Muni bonds 
in Canada are not tax-exempt and so private and public are on a 
more even keel.
    Income and property taxation. If you want--if private 
entrepreneurs wanted to set up an airport, they would be taxed 
on their earnings. They would be--they would face property 
taxes. Government facilities don't pay income or property 
    And here is a key thing that people often overlook. Federal 
aid, or federal subsidies are often viewed as a positive, but 
there is a negative crowd-out effect of federal subsidies. And 
here's what I mean:
    Before the 1960s, the vast majority of urban transit bus 
and rail in the United States was private. Bus systems and rail 
systems in cities across America were private. Then Congress 
passed the Urban Mass Transportation Act in 1964.
    That Act gave transit subsidies only to government-owned 
systems at the local level. The effect by the end of the 1960s 
was that virtually all transit systems in America became public 
owned and we lost the competition and the innovation and 
entrepreneurs that private transit brought to America because 
of those federal subsidies.
    So federal subsidies work against privatization at the 
state and local level.
    There are other issues the Governor mentioned: interstate 
tolling requirements. I agree with him. We have to look at 
that. And there are other federal regulations that stand in the 
way of privatization.
    So to sum up, you know there is widespread agreement 
obviously that America needs top-notch infrastructure to 
compete in the global economy. The way forward, in my view, is 
for the Federal Government to reduce its control over the 
Nation's infrastructure. State and local governments should be 
encouraged to innovate with privatization P3s to the fullest 
extent possible.
    Let's get America's great entrepreneurs helping us solve 
our infrastructure challenges.
    Thank you, very much.
    [The prepared statement of Mr. Edwards appears in the 
Submissions for the Record on page 50.]
    Vice Chair Klobuchar. Well thank you very much to all of 
you. I will get started here.
    I note, Governor Rendell, you talked about the investment 
in Europe, the $350 billion that you mentioned, and you talked 
about the fact that they have a history of investment with 
public/private partnership. Could you describe what they are 
doing there, and how they got started in this way that allowed 
for more infrastructure, and what we can learn?
    Governor Rendell. Well it got started similar to what 
Senator Warner and Congresswoman DeLauro want to do. The EU 
countries put money in to begin to capitalize the fund, and now 
the fund makes loans. It's exclusively loans. They make enough 
money on the repayment of those loans not only to cover their 
entire administrative costs, but to add money to the fund 
    So it has been enormously successful.
    Vice Chair Klobuchar. Is it an infrastructure bank, or is 
it a private/public----
    Governor Rendell. It's an infrastructure bank that only 
loans monies to those projects where there's going to be a rate 
of return.
    One thing I wanted to say to my folks from the 
CatoInstitute, I for a Democrat am probably the strongest 
advocate for public/private partnerships in the country, but 
let's not be deluded into thinking that private/public 
partnerships or privatization are going to solve all of our 
    The country has 66,000 structurally deficient bridges, one 
of which was----
    Vice Chair Klobuchar. Yes.
    Governor Rendell [continuing]. Regrettably in Minnesota. Of 
those 66,000, my guess is no more than 1,500 could be tolled 
where there would be a reasonable enough rate of return to do 
the work necessary to rebuild or expand those bridges.
    Some, yes. There is a bridge in Pennsylvania that is on I-
95 going from New Jersey to Pennsylvania. It's not tolled now. 
If we tolled that bridge, we can expand from four lanes to six 
lanes with a side avenue for cars to go off. It would cut 
waiting time from 45 minutes in rush hour to 15 minutes in rush 
    Vice Chair Klobuchar. Right.
    Governor Rendell. We can afford to toll that. But the vast 
majority of bridges, the vast majority of roads, there's not 
going to be a private sector return on investment. Airports, 
yes. Locks and dams, perhaps. But there is some infrastructure 
that the government, whether it be state, local, or federal, is 
going to have to pay for.
    Vice Chair Klobuchar. Right, and I appreciated your point 
that even the Simpson-Bowles report and that group, and the 
work that a lot of us have done in the middle on the budget, 
like Senator Warner, and others, we truly believe that you have 
to invest at the same time; that it is not exclusive. You can 
make that investment in some key things at the same time you're 
doing a long-term debt reduction by making some of the reforms 
that were talked about, and also looking at closing some of the 
loopholes and doing some other things.
    Governor Rendell. And remember, when you're talking about 
federal investment, one of the problems with the way Congress 
scores is that there's never any offsets. That type of 
investment produces significant federal, new federal tax 
revenue by the jobs that are created, by the corporate profits, 
et cetera.
    Where you start offsetting that, and offsetting the 
economic benefits, I again recommend your staffs to CBO 2010 
report where the CBO--again, not exactly a leftist-leaning 
organization--says we can afford $185 billion annual increase 
in infrastructure investment because of the economic and 
societal benefits to us.
    Vice Chair Klobuchar. Okay. Mr. Poole, Mr. Puentes, the 
infrastructure bank does actually include a version of it in 
the Build American Jobs Act that also had some increase--
significant increase in investment on the government's side, 
and we got some support. We got a majority of the Senators, but 
I led that bill last year and we were not able to get it 
through the filibuster.
    But could you talk about the infrastructure bank, how you 
see it working? And by the way, how would rural projects be 
included? I get that question a lot at home.
    Mr. Poole. Rural projects I have not really looked into. 
That is a good question. I mean, you probably could not do the 
same kind of things that you could do in terms of robust 
revenues and things in more urbanized areas.
    But infrastructure banks, I have been critical of most of 
the infrastructure bank proposals that have come along because 
I fear they do not have the same kind of protections that are 
built into TIFIA to ensure, to make it likely that these will 
be sound investments that have a dedicated revenue stream, and 
investment-grade bond ratings, and things like that.
    That is why I draw a distinction between those and 
Congressman Delaney's new proposal that would not put the 
federal taxpayers at risk by creating debts that might not be 
repaid. And so I think we really need to be careful what we are 
    I mean, it was one thing during the Depression----
    Vice Chair Klobuchar. And this is tying it in with 
    Mr. Poole. Yes. And that provides an initial capitalization 
that comes basically from the private sector, not from the 
    Vice Chair Klobuchar. And I think, as Mr. Puentes pointed 
out, we tried this once and I think people are open to looking 
at it again, but the rate has to be right so it actually brings 
in the funding that we would need. And I think that's--and I 
know people in the Administration and others who are looking at 
it, but the rate is what--I think that will have to be 
determined to be the right point so we actually are bringing in 
significant money.
    Mr. Puentes, did you want to comment further on that?
    Mr. Puentes. Yes, thank you, Senator. I think that the 
members here are right. We have to be careful about this. An 
infrastructure bank is not a silver bullet. It is certainly not 
going to address all the challenges we have talked about here 
today. It is certainly not going to address all the things the 
Governor highlighted at the beginning, but we do see when we 
look around the room we see what the needs are in the United 
    And there is an omission right now, and we do not really 
have a way to make decisions on projects that are truly of 
national significance. So what we would like to see, what I 
would like to see, is some kind of entity that is focused on 
delivering the economic goals we have as a country.
    So the President's goal to double exports in five years is 
exactly the kind of far-reaching, ambitious goal connected to 
the global economy that we have right now. An infrastructure 
bank that would kind of actualize some of those goals, there's 
obviously major freight projects that would come along with 
    Mr. Puentes. In and around the United States ports so that 
we are not investing in projects that are--are areas that are 
competing with one another.
    Vice Chair Klobuchar. Right.
    Mr. Puentes. And they would also address the rural areas. 
So freight moves all across this country. The country is very, 
very large and freight moves from Los Angeles, through Chicago, 
and elsewhere--obviously if you're a rural area, the rural 
areas would benefit from that directly.
    Vice Chair Klobuchar. Right.
    Mr. Puentes. So the infrastructure bank is not going to 
solve all challenges. I think that we are doing a good job on 
the transportation side, but I think that we also need 
something that is looking at clean energy; that is looking at 
other areas of infrastructure, water infrastructure, and not 
continuing the siloed nature in which we make infrastructure 
investments today.
    Vice Chair Klobuchar. Yes.
    Mr. Puentes. It is not going to solve every problem, but it 
is certainly going to fill a niche that we know that we need.
    Vice Chair Klobuchar. Yes, and I think we have already seen 
that Congress was willing to come together on that last two-
year transportation bill. Obviously a long-term bill is much 
better, but they are the seeds to get this done.
    And I love your point about the goals, because I thought 
that was one of the best things the President put out there: 
exports doubling in a number of years. Because we are working 
to get to that goal, and it made a difference, and people 
remember that.
    And so that kind of a goal with infrastructure tied in with 
some new ideas. And as the Governor pointed out, it is not a 
one-thing-fits-all. There was a guy, I was telling 
Representative Delaney, up in Moorhead and Fargo near Canada 
that actually is a guy that somehow got permission to be in a 
shack and charge 75 cents every time someone crosses the 
bridge. This is not good public policy.
    And so that is not the one way to solve everything. And so 
I think it is a combination of things that you have talked 
about today, and I know there are people yearning to get this 
done, and I think it is one great thing we could do to bring 
people together. And basing it a lot--people don't talk enough 
about the freight issue, and the exports, and the industry 
willing to pay more for locks and dams. There are a bunch of 
people in the private sector that want to join in and be part 
of this, and we have got to give them the vehicle to do it.
    All right, with that I am going to turn it over to 
Congressman Delaney while I go to Judiciary and hopefully come 
back, and Senator Coats, thank you.
    Representative Delaney [presiding]. Senator Coats.
    Senator Coats. Well this is an interesting topic here. I am 
enjoying the input that has been given us by the witnesses.
    I want to go to an issue relative to what both Governor 
Rendell and Mr. Edwards were talking about, and that is the 
role of the Federal Government, the impact of keeping it within 
a political process.
    You used the example, Mr. Edwards, of Amtrak. When the 
political process intervenes in the decisionmaking process, it 
distorts the market. And while Amtrak running up the East Coast 
is a demonstrated market, stops in your state, Governor, and 
yet in order to continue to subsidize that program--I am not 
going to name any particular states--but the line that runs 
from A to B better stop in Timbuktu to pick up the two 
passengers a month that get on there or I am not supporting 
anything that is going to stop in Philadelphia, or going up the 
    That is just a small example of what we run into. So I 
wonder, how do we address that? How do we pull all this--how do 
we define the federal role in a way that the politization 
process does not distort the market in a way that discourages 
investors from the private sector, in a way that misallocates 
money out of the taxpayer's pocketbook.
    Any comments? I'll start with you, Governor, and then Mr. 
    Governor Rendell. Let me start off with the fact that you 
have dealt successfully with one of the problems, and that is 
over-regulation of transportation infrastructure. MAP-21 did a 
very good job in reducing some of the regulations and cutting 
    The President, as you know, has issued an Executive Order 
to cut those timelines by 50 percent. That would be enormously 
helpful to us both on costs and in getting things done quickly.
    So you have already done that. But the way to get politics 
out of the major projects, you are still going to have to give 
states basic grants to help them with their overall needs. But 
to take a good hunk of what the federal commitment is, give it 
to the infrastructure bank for projects of, as Mr. Puentes 
said, national significance and let states or groups of states, 
or private entities, come in and compete. And the 
infrastructure bank makes those decisions based on cost/benefit 
analysis, based on a review of the project to see whether 
they're workable, whether there's a reasonable return on the 
investment. That is one way of doing it.
    A second way of doing it is through the TIGER grant 
process. The best thing about TIGER, one, it allowed states to 
combine an application. So we got regional projects.
    Two, TIGER leveraged private investment.
    And three, it was competitive. And the decision was made by 
U.S. DOT, and most of TIGER's decisions were based on cost/
benefit, not on politics. Every state did not get a project out 
of TIGER. TIGER funded the major projects.
    So the more competitive you make it, and the more you give 
the decisionmaking--I know Congress is always loathe to devolve 
decisionmaking to someone else, but if you give decisionmaking 
to people who are experts and who are somewhat insulated from 
the political process, we can do this. We can absolutely do it.
    It works in Europe, and it can work here.
    Senator Coats. Mr. Edwards, did you want to respond to 
    Mr. Edwards. You know, part of the idea with an 
infrastructure bank is to get more private financing for 
infrastructure, and that is great and I am all for that. But 
the problem with having a federal national infrastructure bank 
is that the decisionmaking on infrastructure projects becomes, 
you know, national and ultimately political decisions.
    I can name you agency after agency, Army Corps of 
Engineers, on down the list, where politics intrudes decade 
after decade and you just cannot get around it at the Federal 
Government level.
    We need to decentralize decisionmaking. The people spending 
the money need to be raising the money and spending it so that 
they can make the proper cost/benefit analysis. Highspeed rail 
is a good example of this.
    You know, if California wants to raise its own money, as it 
has, with bonds, and go for highspeed rail, you know, good for 
them. Let them experiment. The rest of the country, the other 
49 states can watch how well the system works and decide 
themselves whether they want to go down that road.
    But the problem with federal intervention is it distorts 
the decisionmaking by state and local governments. And one good 
example of this, for example, is federal grants for urban 
transit. A lot of money over the years has gone to lightrail. 
Cities have gone for lightrail systems when bus systems would 
probably be more efficient, because the Federal Government pays 
the capital costs. The lightrail systems have high capital 
costs. Cities figure, well, let's grab the federal money for 
the capital costs for the lightrail, even though really in the 
long term bus systems are usually always more efficient.
    So I am really concerned about the problem when the Federal 
Government intervenes. It distorts the more efficient state and 
local decisionmaking.
    Senator Coats. How do we get around the--when I talk to 
mayors, governors, and others, they say, you know, so much of 
our early cost, and so much of the decisionmaking and the 
timelines are skewed simply because we continue to run into 
lengthy, almost never-ending environmental impact statement 
challenges to those, and so forth. We have that going on in our 
state right now, as well as the permitting process.
    I would like to have whoever wants to speak to that.
    Governor Rendell. Well, again, you did a good job of that 
in MAP-21, and the President's Executive Order cutting the 
timelines for environmental impact statements. Some of them 
take seven, eight years to complete.
    Senator Coats. Right.
    Governor Rendell. There is no reason under God's good earth 
that it cannot be done in six months. You know, if you tell 
people they have got unlimited time, they will use unlimited 
time. If you tell----
    Senator Coats. Sounds a lot like Congress.
    Governor Rendell. Well, right. I always use the example, if 
someone comes into a law firm and says I need an opinion letter 
and I need it next Tuesday, and the head of the firm says: Oh, 
well this is a respectable firm and we could never do it in 
that short period of time.
    He pulls out of his pocket a cashier's check for a million 
dollars? They get it done. They get it done.
    If you give six months for an EIS to be completed, with 
only the most stringent waiver provision, it is amazing how it 
would get done. When we prepared for stimulus, I wanted 
Pennsylvania to spend our money quickly because I knew the 
stimulative effect on roads and bridges.
    I called my contractors in. I said, you usually get six 
months to respond to an RFP. You have two months. You've told 
me nobody is working, so you've got two months.
    I said to my bureaucrats, you usually take six to nine 
months to award. You've got two months. And we had people 
working with stimulus dollars in three months. Congressman 
Oberstar's committee ranked the states on how quickly they 
spent the transportation stimulus money and we were tied for 
first with three other states.
    It can be done. It can be done. That is where Congress can 
I think really do something terrific by insisting that it gets 
    Senator Coats. I want Mr. Poole to respond, but I just want 
to say, Governor, with your permission I want to take some of 
those quotes that you just said. I'll make sure you have 
attribution for those quotes, but I am going to be repeating 
quotes of a Democrat Governor all over the State of Indiana.
    Governor Rendell. No question.
    Mr. Poole. I think the Governor's points about getting the 
time for environmental reviews much shorter illustrates that we 
made some progress with MAP-21, but it isn't really where we 
need to go. It should be much shorter than that with time-
certain time periods.
    But it is also the question that I raised briefly of the 
higher cost of a federal dollar. Many states will not take 
federal money--you know, they try very hard not to use federal 
dollars on highway projects unless they absolutely need it 
because, ``Buy America,'' Davis-Bacon, these other things that 
Congress has imposed mean the cost is much higher.
    And now, with Buy America, FHWA has administratively 
decided that now it applies to utility relocations, as well, 
that everything that is used in a utility relocation has to be 
made in America. Utility companies have no idea where their 
stuff is made. They do not have the inventory system to do 
this. So it is threatening to hold up billions and billions of 
dollars of transportation projects over a new administrative 
    Senator Coats. Thank you.
    Mr. Delaney.
    Representative Delaney. Thank you, Senator Coats.
    I will use my time now, and then I will turn it over to my 
friend from New York.
    You know, as we listen to the conversation that we have 
just had and we talk about the scale of the infrastructure 
challenges we have in this country, which also symmetrically 
indicates that we have a huge opportunity in this country to 
make this investment and get Americans to work, it is clear 
that this problem that we have is a multi-dimensional problem--
meaning, we have it for a variety of reasons.
    We have it for political reasons. We have it for financial 
reasons--in other words, there has not been sufficient money 
allocated against some of these issues. And we have it, quite 
frankly, because the world has moved very quickly. And the 
infrastructure is a long lead, long tail business and there 
have been rapid changes in the world particularly in the last 
20 or 25 years that, particularly around logistics and 
communications and energy, et cetera, have accelerated much 
faster than people could reasonably have predicted. So there 
are lots of reasons we have these problems, which to me means 
we should have multiple solutions against this problem. The 
classic, you know, we need many tools in the toolkit.
    And in my opinion, this issue should be our central, and I 
think, Governor, you said this very well in your testimony--
should be our central economic domestic priority. And all of 
the solutions that we have heard: increasing privatization, 
reducing regulatory burden, coming up with a variety of 
infrastructure financing tools, should all be considered very 
seriously because they are probably all needed.
    As the Governor said, the cost of doing nothing is in fact 
not nothing, and we are paying that price, and we should be 
putting our shoulder against all of these things. Because in 
fact they pencil out.
    This is actually a really good investment for us to be 
making in this country. As Mr. Edwards said, we should not be 
making all this investment. A lot of it can be done by the 
private sector, and we should be laying that groundwork. But at 
the end of the day, there will be certain core governmental 
investments that have to be made. There are certain core 
financings that have to be made.
    One of the things we have tried to work on with our 
legislation is also thinking about the time horizon.
    Because to some extent I think this notion of shovel-ready 
projects, while it is catchy and it makes sense, does not 
always correlate with good infrastructure policy.
    Because in fact if you travel around the country and you 
look at decisions that have been made around infrastructure, 
even if they will take years to actually implement because of 
the scale of the projects, create really good economic activity 
immediately because people know they are going to happen.
    In other words, if there is a commitment to widen a port 
and it is going to take five or six years to do it, even with 
an accelerated approval process, et cetera, everything will 
start changing around that port, which is why we have tried to 
come up with an entity that can operate in a disconnected way 
from the normal political cycle.
    So, maybe, Governor, I would be interested in your views on 
how we should think about the timeframe for some of these 
projects, and planning in general, and then maybe Mr. Edwards 
maybe you would comment on that, as well.
    Governor Rendell. Well in terms of the timeframe, right now 
if you read the ASCE report we need to fix it first. Although 
we do need new capacity--I mean, there is a stunning statistic 
that since 1980 our percentage of vehicles on the road has 
increased by 104 percent. Since 1980, our lane capacity has 
increased by 4 percent.
    So we need to expand our infrastructure. But first we need 
to fix it. And the good thing about fix-it-first is it is very 
stimulative because you do not have to go through EISes. The 
reason I was able to get work done in three months is because 
we were fixing bridges. We were fixing roads. There is very 
little--there is no requirement for an EIS at all. So you can 
get to those projects quickly.
    Right now, the biggest challenge for America is to fix what 
we have. I mean, again I hope you can get your staff to read 
the full ASCE report. It is outright frightening, frightening 
and disturbing. So if you fix it first, that is going to speed 
up the timeline.
    For projects, one thing I would differ with Mr. Edwards on 
is there has to be an entity to help fund regional projects. So 
it does no good for let's say the State of Pennsylvania to put 
in a rail system that goes through to Ohio, and then all the 
way up to Minnesota let's say, with one type of new technology. 
If Ohio is going to have a new type of technology, that will 
not work. The trains will not be able to run if we have a 
MagLev system and they have a conventional highspeed system.
    So there has got to be a vehicle for those projects. So 
there has got to be long-term vision with good controls and 
good speed mechanisms, but fix it first is going to solve a lot 
of our problems.
    Representative Delaney. Mr. Edwards, very quickly.
    Mr. Edwards. You touched on something really important, 
which is it is not the short-term jobs, which is often the 
focus in Washington. It is long-term efficiency. With seaports, 
we need to make them more efficient.
    The issue is not the short-term Army Corps of Engineer jobs 
dredging seaports, it is the long-term efficiency that our 
manufacturers and producers can have more efficient seaports to 
take the bigger ships that are coming with the bigger Panama 
Canal. That is the issue.
    And with seaports, for example, they can be fully 
privatized. Britain has fully privatized most of its seaports. 
The top seaports in the world--Hong Kong and Singapore--are 
private. The advantage is, in a private company they see 
customer demand rising, they see the shipping demand rising, 
they go out to the market and they raise capital. They do the 
work. They do not have to go to Washington to lobby. If you 
have private ports, they can get things done quickly.
    Representative Delaney. Right. Thank you.
    Governor Rendell. But they can't dredge. And the most 
difficult thing that the Atlantic ports have to do is dredge to 
the depth that can accept those big ships coming through the 
Panama Canal. Only 2 of our 12 Eastern ports are dredged 
sufficiently to do that. We are going to lose a whole boatload 
of business to Canada because of that.
    Representative Delaney. It is a really important point.
    I want to turn it over now to my good friend from New York 
who actually happens to know a lot about transportation, 
Congressman Hanna.
    Representative Hanna. And you are right, we ought to use 
the money that is in the Harbor Trust Fund. I mean, it is just 
sitting there as an offset, as opposed to what it is intended 
to do.
    Explicit in this conversation is the notion that the 
private sector is so much more efficient than the public 
sector. We know the public sector does not pay taxes on its 
property. We know that it can issue low-cost bonds, and we are 
all agreed that, generally speaking, the Federal Government, 
with all its rules and prescriptive things that it impugns on 
local and state communities, really add to the overall cost.
    Yet we also know that private businesses need an internal, 
or just a basic rate of return. I want to ask you. If we go 
forward with this, say take an airport, we are basically 
creating mini-monopolies that have long-term projected income 
streams and long-term projected debt streams, and all based on 
the assumption that the government cannot do it as well--which 
I believe.
    I want to ask you, Mr. Edwards, what do you think the 
marginal capacity for those rates of return is based on your 
understanding, and anyone, about the general inefficiency of 
government? And Davis-Bacon aside, and other things like that, 
which I think are not something that, politically, we are not 
going to change in my opinion.
    So what do you think?
    Mr. Edwards. I am not sure exactly what your question is, 
but I mean private investors, there is absolutely no doubt that 
it is absolutely crucial. They want to earn profits. The search 
for profits induces efficiency. It makes companies try to 
reduce costs and maximize the customer's----
    Representative Hanna. Well, Mr. Rendell, Governor Rendell 
has said that there are 1,500 private airports out of thousands 
of airports, correct? Somebody must have looked at those and 
said these are the viable ones for the private sector to take 
over. The rest are not.
    I guess what I am asking is, does anybody have an idea of 
how inefficient government is vis-a-vis the private sector?
    Mr. Edwards. There have been some comparison studies of the 
P3s, for example, on traditional government contracting. I 
mean, there is an Australian study, actually I think I've got 
right here, that compared a couple dozen P3s to traditional 
government contracting. And there is no doubt that private-
sector companies, they get stuff done on time and on budget.
    The Capital Beltway P3, for example, was finished last year 
on time and on budget because there was a strong incentive. If 
private actors put in their own equity, they've got to keep the 
costs low. They've got to make things finish on time.
    Representative Hanna. So two possibilities exist here. We 
have a, take 20 percent if you want an internal rate of 10, so 
the public benefit arguably could be that difference, that 10 
percent; it could be much wider. But we could enjoy both of 
those benefits. We could clean up our own mess.
    Because we run the risk of being too prescriptive going 
forward even to private organizations, plus we run the risk of 
creating these mini-monopolies over some local bridge that 
maybe the math was wrong and these review boards that were done 
locally were not adequate.
    Governor Rendell. Well the key on private/public 
partnerships, Congressman, and your point is well taken, but 
the key is the eventual contract. We tried to lease the 
Pennsylvania Turnpike, and my legislature, my Republican 
Legislature, turned it down because they wanted to control the 
patronage. They did not want to turn it over to a private 
    We got a $12.8 billion bid from Citibank and Albertus. When 
the recession hit, they would have been holding the bag with 
the risk, but the taxpayers of Pennsylvania would have gotten a 
great deal. But the key there is the contract.
    When you lease--you don't ``sell'' to a private entity, you 
lease it. And then you have in the lease the same rights than 
an owner who leases his house has. You have oversight. You put 
in maintenance standards they have to meet.
    So it depends on the level of government oversight. But the 
real savings come on the operational side, because the private 
sector can and almost always--almost always; there are some 
exceptions--operates at a lower cost because of union costs, 
and not necessarily it's going to be nonunion, but because of 
existing contracts, because of the number of people who are in 
a workforce, they can reduce that; because they've got money to 
invest in technology faster than the government does.
    So it is the operational nut. When they figure out what 
their rate of return has to be, they are talking about revenue 
but they are also figuring out how they--what percentage they 
can cut costs, and those two things factor in together.
    Representative Hanna. Airports in France, Mr. Poole, how do 
they compare to ours? We know that there are a great many 
    Mr. Poole. Well, actually in France the airports are still 
largely government airports. Aeroports de Paris has sold about 
a third of the equity to investors, but the government still 
owns the majority share.
    Airports in the UK are mostly privatized, but they do--the 
largest ones, where there are monopoly problems, they do have 
utility regulation on the prices they can charge. So it is 
similar to what we do with electric utilities in this country 
because, again, of monopoly issues, having some form of 
government oversight.
    Representative Hanna. Have there been studies done on the 
differences between say how we do in our airports, what they 
cost, and those elsewhere?
    Mr. Poole. There have been a few. There is a very good 
study out of the University of BC in Canada that looked at a 
database of almost 200 airports worldwide and concluded that 
the ones that were--that had either majority private, or 100 
percent private ownership that could include a long-term lease, 
were more productive, more efficient in terms of operating, and 
that the least productive were full government ownership and 
multi-function port authorities, unfortunately, for the New 
York Port Authority.
    Representative Hanna. Thank you. My time has expired.
    Mr. Puentes. If I can just jump in, I think this 
conversation is very important. I think what I would like to 
take away from this is that we need to get away from just this 
idea of either things being public or private, and this rigid 
kind of notion of privatization.
    What we see emerging throughout the country is an awful lot 
of innovation that is happening outside the Beltway--the 
states, metropolitan areas, cities, all working with the 
private sector in cases where it may or may not fit.
    I mean, so all projects, as you mentioned are not going to 
be appropriate for private interest. They're not going to raise 
revenue. They're just not interested in those kinds of 
    So what I would like to see happen is to kind of get to 
where it is this mix, where it is not the Federal Government on 
top kind of working with states and metropolitan areas, but it 
is all mixed up with the private sector. And some projects are 
going to make sense, and some are not.
    So the BC example is a great model. There is something 
called Partnerships BC in British Columbia where when they are 
evaluating projects they have to decide whether or not a 
private entity is going to make sense for this.
    So they have to look all across the board. Sometimes it is 
going to work, sometimes it is not. So I just want us to get 
past the notion that it is either going to be private or it is 
going to be public, and one is better than the other. It is 
very complex. There are lots of different projects out there, 
and it really depends on what we are trying to do.
    Governor Rendell. And if you widen it beyond just 
transportation--take drinking water, a big problem--EPA 
estimates we are going to have to spend $335 billion in the 
next 20 years to put our drinking water in decent condition to 
preserve it.
    There are some rich areas. You go into Lower Merion 
Pennsylvania and there is not a private water company in the 
world that would not want to provide the water to Lower Merion. 
But you tell them they are going to provide the water to parts 
of north Philadelphia and there would be no bidders. There 
would be no bidders because there is no revenue to support 
increased rates.
    So again, there is no one size that fits all. But I think 
the point we are all making, Democrats and Republicans, the 
witnesses, we are all making that the private sector has to be 
an option going forward--one of the arrows we have in our 
quiver, there is no question about that.
    Vice Chair Klobuchar [presiding]. Very good. I know 
Representative Delaney had some additional questions.
    Representative Delaney. Yes, I thought that was a very good 
discussion. And I think we also should be thinking about 
public/private partnerships both on a project level, which I 
think is the historical kind of framing for how we think about 
these things, but also to some extent on a more macro level.
    One of the things we have tried to do with our legislation 
is fund an infrastructure bank by effectively creating a giant 
public/private partnership. In other words, it is funded by 
private capital and provides a tax incentive by allowing 
companies to repatriate earnings. But again, done in a very 
market-based approach where we actually auction off the bonds, 
and we actually get the best deal for the taxpayer by doing it 
that way.
    But the other--and, Mr. Poole, the other observation or 
question I had for you is: We all need to think about 
efficiencies in terms of how we finance these activities. One 
of the things we have tried to focus on in our legislation is 
having the infrastructure bank, for lack of a better term, be 
more of a bond guarantor.
    Because it seems to me, while it may make sense in other 
countries to lend directly to the projects, in our country 
local governments have the ability to issue debt on a tax-
exempt basis. And for as long as that exists, which I hope it 
exists for a very long time, that is a very advantageous way 
for local governments to borrow money. And to the extent we 
have a larger financial support enterprise, it should be 
actually guaranteeing their debt, as opposed to lending 
directly because of the efficiencies.
    I don't know if you have any views on that?
    Mr. Poole. Yes, I agree, Congressman. I think that is a 
very important point. We used to have bond insurance for 
infrastructure kinds of projects in this country until the 
financial crisis. And Ambac and others basically went out of 
business at that point.
    So there is a gap in the market right now that really would 
be much better for infrastructure investment if there were the 
kind of bond insurance, or analogous bond insurance that used 
to exist before the financial crisis.
    So that is another point that I like about your proposal, 
is that that is a gap that needs to be filled and it would help 
a lot.
    Representative Delaney. And, Mr. Edwards, you talked about 
how local governments should be driving a lot of these 
decisions, which I agree with. I don't think they should be 
driving all the decisions because some of these decisions are 
inherently federal and multi-jurisdictional and of national 
importance, but the model where local governments really have a 
say in determining their own infrastructure. And when you think 
about infrastructure banks proposals, or in our situation more 
of a bond guarantor, which is more geared towards local 
governments, do you see this being more of an enterprise that 
operates against a national strategy? Or do you think these 
enterprises would be better if they are focused on serving the 
needs of local municipalities?
    Mr. Edwards. I haven't looked at your legislation in 
detail, but I mean for me the decisionmaking should be where 
the money is raised and money is spent. If different people are 
raising the money than spending it, you get bad decisionmaking. 
So I just like to see decentralized decisionmaking, which to me 
means decentralized financing and ownership.
    Representative Delaney. Right. Well those are all my 
questions. I just want to again add my thanks to Governor 
Rendell, Mr. Poole, Mr. Puentes, and Mr. Edwards for their 
thoughtful testimony and for carving out their time. It was a 
terrific discussion.
    Vice Chair Klobuchar. Thank you. And just one last question 
I have is just how maintenance fits in with this.
    I always think about when we do these ribbon-cuttings for a 
new transit project, or a new bridge, and when you fix a 
pothole there's not usually a bunch of people celebrating. And 
so--or you fix a gusset under a bridge.
    How do you think the road maintenance and the bridge 
maintenance fits into all of this, Mr. Poole, and then Mr. 
    Mr. Poole. Two answers to that. One is that a growing 
number of state DOTs are having great success with 
competitively contracting for highway maintenance. Virginia is 
one of the pioneers plus Texas and Florida. And so that is a 
way in which you can often get more value, more maintenance per 
dollar spent than doing it with state employees.
    But the other is a point I made briefly, and you may have 
been out of the room when this came up, is that if you do long-
term infrastructure PPPs where the entity created to finance, 
build, and operate the project also maintains it over a life 
that may be anywhere from 30 years to 75 or 99 years, so you 
basically create a guaranteed source of maintenance funding in 
those kinds of long-term arrangements.
    So if you think of the overall highway responsibilities of 
a state DOT, if 20 percent of that can be converted to long-
term P3s, that whole sector then is guaranteed for a long 
period of time to be properly maintained. And the state in an 
annual budget sense only has to come up with, you know, be 
responsible for looking at the maintenance for the rest of it. 
So I think that is an advantage of the long-term P3s that is 
often not fully appreciated.
    Vice Chair Klobuchar. Governor?
    Governor Rendell. First I want to correct one thing Mr. 
Poole said. Most states, I would say 95 percent, almost 100 
percent of the maintenance as well as the building work is done 
by private contractors. The state workers are usually doing 
oversight or a little bit of painting, but we bid out 
everything. Pennsylvania bids out everything, maintenance as 
well as new construction.
    Let me just give you an example of one area in response to 
your question. I-95 runs through the City of Philadelphia for 
18 miles. There are 14 bridges in those 18 miles that I-95 goes 
over. It is estimated to put those bridges, most of which are 
either structurally deficient or functionally obsolete, into 
fair, decent, safe condition would cost $4.5 billion.
    The City of Philadelphia's entire capital budget for 
everything--police stations, fire stations, rec centers, road 
paving--is $120 million a year.
    Now there are two ways to do that. If we were allowed to 
toll I-95--we can't because it is a previously accredited 
federal highway--they grandfathered the states that already 
tolled it, but we can't--we would have a chance to raise some 
of that money.
    Or, alternatively, we are going to need federal investment. 
And that is just maintaining. But it is maintaining the 
Nation's largest highway. It is a state and local 
responsibility and we need help.
    Vice Chair Klobuchar. Okay. Very good.
    I see Representative Maloney is here. If you want to ask a 
few questions, then we are going to end, I think.
    Representative Maloney. Everything is happening at once. We 
had votes in Financial Services, and then we had votes in 
Government Reform and Oversight.
    I just feel that infrastructure is so important, why are we 
not investing more in infrastructure? It creates good jobs. In 
the district that I am privileged to represent, I have two 
major construction projects--the 2nd Avenue Subway and the 
Eastside Connector--both of which have over $4 billion in 
federal funds and are creating over 40,000 jobs.
    My question really is on highspeed rail. Our country used 
to lead the world in infrastructure, and now we are falling 
apart. When you go to Europe, to China, to India, they all have 
highspeed rail. And particularly on the Northeast Corridor, it 
would be a corridor that makes money now for Amtrak, and it 
would make money if we had highspeed rail between--I see 
Governor Rendell--between Philadelphia and Washington and New 
York, to Boston, all of this area.
    Your thoughts on how to move this forward. Do you think it 
would be possible to do a public/private match that would be 
able to protect the union agreements, but would also give us 
the money to move forward? It is obviously a financing deal. 
And there has been a debate in Congress over an infrastructure 
    Some people support it as a financing mechanism. Others say 
it is just another level of bureaucracy. If you want to fund 
it, float your bonds. Float your financing system and just move 
forward. What do you need an infrastructure bank for?
    I would like to open it up for answers and questions. We 
did get a highspeed rail downpayment of $300 million between 
New York and Boston, which I find very exciting. But comments 
on those?
    Governor Rendell. Congresswoman, I think I can speak for 
all four of us. We all endorsed the concept of the 
infrastructure bank. We may have some differences about how it 
should operate, et cetera, but we all endorsed the concept.
    In terms of what you're saying, a Northeast Corridor 
highspeed rail could not be a better example of a PPP. Let me 
preface this by saying I am on the advisory board of Japanese 
MagLev, which if it were instituted on the East Coast you could 
get from New York to Washington in 59 minutes, Philadelphia to 
New York in 23 minutes. They are opening up in Japan in 
November a 310-mile-an-hour MagLev system, and they want to 
construct it, and they are willing to put up part of the 
    It should be like the TIGER grant. The Federal Government 
should put up part of the funding. The majority of the funding 
should come from the private sector. But the states that 
benefit from it should also put up part of the funding.
    We wanted to expand the Philadelphia to Harrisburg Rail 
Line. Amtrak, while I was Governor, wanted to put $75 million 
in. I matched the $75 million. We cut the travel time from 120 
minutes, 2 hours, to 90 minutes. We increased ridership from 
900,000 to 1.2 million.
    If we had highspeed rail in the Northeast Corridor, you 
could end the shuttles, the air shuttles. It would do so much 
for tarmac waiting time to get rid of those shuttles. We ought 
to be doing this. It ought to be our first big infrastructure 
bank PPP partnership.
    You would have not only the Japanese MagLev people, but you 
would have a lot of bidders from the private sector. I think we 
all agree with that. The private sector would be happy to come 
in and bid for that.
    Mr. Edwards. I would just note, if I may, that most 
highspeed rail lines in the world do not make money. And the 
Northeast Corridor, you know absolutely passenger rail probably 
would make sense.
    The problem, if the Federal Government gets heavily 
involved in funding highspeed rail on the Northeast Corridor, 
every state in the Union is going to want federal money for 
their own highspeed rail lines through areas that make--where 
it makes a lot less sense.
    So this is a problem with federal involvement, that there 
is always the political problem that people want the money 
shared around, and yet customer demand wise, highspeed rail may 
only make sense in some areas like the Boston to Washington.
    Governor Rendell. Well the Acela makes money, and Lord 
knows how much money a highspeed rail line would make. But that 
is the job of the infrastructure bank. You insulate the 
infrastructure bank from political pressure, like the BRAC 
Commission, which by and large works pretty well. Philadelphia 
has been the unfortunate negative recipient of a lot of BRAC, 
so I know it works pretty well.
    You insulate it, and you have those decisions made on a 
cost/benefit analysis. He is absolutely right. The Northeast 
Corridor is the first project we should try. If that makes 
money, then maybe we examine California to Oregon and see if 
that would make money. And then we examine the Midwest and see 
if that would make money.
    But everyone knows that if the Acela makes money, and it 
does as a standalone, you know highspeed rail would make money.
    Vice Chair Klobuchar. All right, one last answer.
    Mr. Puentes.
    Mr. Puentes. We need to think differently about the 
partnerships. I mean, the Japanese examples are great because 
it is not just the rail line in which the company is investing, 
it is real estate deals around the Tokyo train station, 3 
million passengers a day, whatever it is. That is all a real 
estate deal also owned by the railway company.
    So we've got to get beyond just thinking about these as 
individual structure projects and think about it more as 
economy shaping type projects.
    Vice Chair Klobuchar. Well thank you. That is a great way 
to end. I want to thank our witnesses, excellent job. We had 
great attendance, once again, at this hearing. And I know that 
there is a lot of work that needs to be done.
    We have people right up here, including Representative 
Delaney, and Senator Warner, and others who are devoted to 
getting something done on the infrastructure bank part of this.
    But as we have discussed with Governor Rendell, there are 
also other things we need to do with bonding and other things 
that I think could be very positive.
    So we are excited to move ahead with this, and I hope it 
will be one of our top bipartisan efforts in the coming year.
    It should be, and it will be. Thank you very much, and the 
record will stay open for the next two weeks, and the hearing 
is adjourned.
    (Whereupon, at 11:03 a.m., Wednesday, July 24, 2013, the 
hearing was adjourned.)
                       SUBMISSIONS FOR THE RECORD

 Prepared Statement of Hon. Amy Klobuchar, Vice Chair, Joint Economic 
    I want to thank everyone for being here this morning to discuss the 
critical need to strengthen and improve our nation's infrastructure 
    I'd like to introduce our distinguished panel of witnesses, who 
have a wealth of experience and insight in this area:
    Edward Rendell was Governor of Pennsylvania from 2003 to 2011 and 
previously served two terms as the Mayor of Philadelphia. He is a co-
founder and co-chair of Building America's Future, which focuses on the 
need for more significant investment in infrastructure to ensure 
America maintains its place as a global economic leader.
    Robert Poole is the Searle Freedom Trust Transportation Fellow and 
director of transportation policy at the Reason Foundation. Mr. Poole, 
an MIT-trained engineer, has advised both Democratic and Republican 
    Robert Puentes is a senior fellow with the Brookings Institution 
Metropolitan Policy Program, where he also directs the program's 
Metropolitan Infrastructure Initiative. He is an expert on 
transportation and infrastructure, urban planning, growth management, 
suburban issues and housing.
    Chris Edwards is the director of tax policy studies at the Cato 
Institute. He is an expert on federal and state tax and budget issues. 
Mr. Edwards previously served as a senior economist with the Joint 
Economic Committee.
    If you look back through American history, many of the greatest 
periods of growth and progress were made possible by historic 
investments in infrastructure.
    We connected the East and the West Coasts by rail in 1869, ushering 
in the Second Industrial Revolution.
    We began building the interstate highway system in the 1950s, 
connecting our country and our economy in ways never before possible . 
. . and we did it, by the way, with a Democratic Congress and 
Republican President Dwight D. Eisenhower in the White House.
    America is the country it is today because we've been willing to 
invest in the foundations for growth, innovation and commerce. In 
recent years, however, we've fallen behind. The World Economic Forum 
ranked American infrastructure 6th in the world in its 2007-2008 
report. Five years later, we have slipped to 25th place.
    The cracks in our broken transportation system became tragically 
clear in my home state on the afternoon of August 1, 2007, when the I-
35W bridge collapsed into the Mississippi River . . . taking the lives 
of thirteen and injuring many more.
    As I said that day, a bridge should not just fall down in the 
middle of America . . . .especially not an eight-lane interstate 
highway, which is one of the most heavily traveled bridges in the state 
. . . especially not at rush hour in the heart of a major metropolitan 
area . . . especially not a bridge six blocks from my house that I 
drive over with my family every day.
    I was with Secretary of Transportation Anthony Foxx in Minnesota 
last Monday, and pointed out that the I-35W bridge was rebuilt on-
budget and in just 9 months . . . well ahead of schedule. How were we 
able to do it so quickly? Because we had a bipartisan group of leaders 
working around the clock at the state, local and federal level.
    But our infrastructure problems are by no means limited to just 
    According to the American Society of Civil Engineers 2013 Report 
Card, the U.S scores a D or worse in aviation, dams, drinking water, 
levees, roads, schools and transit. Our bridges and rail system score a 
C+, while our ports get a C. We cannot be satisfied with ``failing,'' 
or even ``average,'' and we need to improve our grades now.
    We know this is a matter of public safety, but it is also a matter 
of economic competitiveness.
    The reason American businesses can operate anywhere, including in 
rural areas, is because our past investments in transportation 
infrastructure allow them to get their products to markets around the 
    Compared to other countries, we're now underinvesting in these 
networks: China and India are spending about 9% and 8%, respectively, 
of their GDPs. Europe spends 5%, while we are spending only about 2%.
    This strategy is penny-wise and pound-foolish, saving dollars in 
the short term while undermining our global competitiveness in the long 
    And in fact, faulty transportation infrastructure is expected to 
drive up the cost of doing business in America by an estimated $430 
billion in the next decade.
    What we need now are smart, targeted solutions to ensure our 
nation's infrastructure is safe, strong and efficient.
    I introduced a bill last Congress called the Rebuild America Jobs 
Act, which would have gotten the ball rolling on desperately needed 
infrastructure investments, in part by creating a national 
infrastructure bank--an idea that has historically won bipartisan 
support as well as the backing of everyone from the AFL-CIO to the 
Chamber of Commerce.
    While we weren't able to bring that particular proposal across the 
finish line, we have made good progress in other areas:
    Over the last four years, we've improved over 350,000 miles of 
roads and more than 6,000 miles of rail.
    We've repaired or replaced over 20,000 bridges.
    We passed a bipartisan highway bill last year that has paved the 
way for critical infrastructure improvements across the county.
    And back in May, the Senate passed the Water Resources Development 
Act (WRDA), which would strengthen our nation's water infrastructure 
and make crucial upgrades to our ports, harbors, locks and dams. WRDA 
includes many provisions of the RIVER Act, which I introduced with 
Senator Casey to improve our nation's inland waterways.
    So we are moving in the right direction. But we're here today 
because we still have more to do.
    There are several good ideas out there, including a number of bond 
proposals and efforts to establish an infrastructure bank. Senator 
Warner and Representative Delaney, both members of this Committee, have 
been leaders in putting new ideas forward and I know we'll be hearing 
about some of those ideas today.
    Ultimately, this is about strengthening our economy. America must 
be a country that makes stuff again, that invents things, that exports 
to the world. Whether it's roads, bridges, transit, airports or 
waterways, the need to rebuild our infrastructure is critical to 
reclaiming our country's competitive edge . . . to getting workers back 
on the job . . . and to ensuring the safety of our people.
    I'd like to thank our witnesses for being here, and I look forward 
to hearing their testimony. Now I would like to yield 2 minutes to 
Representative Delaney.
               Prepared Statement of Senator Daniel Coats
    Thank you Senator Klobuchar, and I am pleased to be here today for 
what is a very important hearing because, to use an infrastructure 
term, we are at a crossroads.
    As a nation, our infrastructure is in a deplorable state according 
to many recent reports. Our funding mechanisms have broken down, and we 
are failing to maintain what we have, let alone build the 21st Century 
infrastructure that we need. The fact is that our current fiscal crisis 
prevents us from having the ability to invest more federal dollars on 
these vital projects, largely because of spiraling mandatory spending. 
Meanwhile, several of our global competitors have turned to innovative 
private financing options to cover their shortfalls. Australia, Canada, 
the EU, and the United Kingdom already rely heavily on private 
investment, with hundreds of privately financed infrastructure projects 
already up and running or in the works. The U.S. is far behind the 
curve on private investment in infrastructure, and unless this is 
addressed it will only continue to impede our economic growth and 
    The need to address our infrastructure crisis is urgent. The Panama 
Canal widening will be completed in the next two years, and with it 
will come container ships calling on America's ports that are almost 
double the size of today's vessels. We expect to see freight movement 
in this country double over the next 20 years. This explosion in 
freight movement comes with additional jobs that grow communities. But 
as we face this dynamic growth over the next 20 years, we as a nation 
do not have a comprehensive strategy to address these expanded 
infrastructure needs at our seaports, on our railways, and across our 
highways, bridges and roads. Our user fee systems are broken. Our 
permitting processes are costly, both in time and money. The cost of 
our inaction is jobs and growth, as global competitors like China, 
India, and Brazil make expensive and necessary investments across their 
entire infrastructure.
    I'm going to brag about my Hoosier State for a minute, where 
freight movement is such a critical part of our economy. Seventy-five 
percent of the United States and Canadian populations, over 261 million 
people, live within one day's truck drive of Indiana. Each year, 724 
million tons of freight travel through Indiana, making it the 5th 
busiest state for commercial freight traffic.
    We have a network of more than 680 commercial and general aviation 
airports, including the 6th largest cargo airport in the nation at 
Indianapolis International Airport.
    Indiana ranks 15th in the nation in total foreign and domestic 
waterborne shipping with 67.5 million tons, 4th in total freight 
railroads, and 9th among all states for railroad mileage.
    Indiana is 1st in the nation for interstate highway access with 14 
interstates, 1st in the nation in pass-through interstates, and 10th in 
the nation in rail tons originated with over 50 million tons. In short, 
Indiana is America's crossroads.
    As such, we recognized early on how important infrastructure is to 
our economy, and how we had to continually maintain and expand our 
infrastructure. Indiana was one of the early adapters in our country in 
the use of innovative financing mechanisms for transportation and 
    Indiana established itself early on as a national leader in 
leveraging private sector capital and innovation to improve existing 
infrastructure and build new infrastructure. The Indiana General 
Assembly passed legislation over the last several years authorizing the 
Indiana Finance Authority to enter into public-private partnerships, or 
``P3s.'' Our first P3 was the 2006 lease of the Indiana Toll Road. The 
second P3 project is the East End Crossing, which will link Indiana 265 
in Utica, Indiana, with Kentucky 841 in Prospect, Kentucky. The East 
End Crossing will complete the I-265 outer beltway around the 
Louisville metro area and create economic development opportunities in 
southern Indiana.
    We're also working on another high profile P3, the Illiana 
Corridor. Illiana is a bi-state expressway project in northwest Indiana 
and northeastern Illinois. Given its central location in the nation, 
the northwest Indiana and northeastern Illinois region is heavily 
utilized by three sectors of travel: roadways, rail, and air. This 
region is also experiencing substantial growth in population and 
employment. Population in the Illiana study area is projected to grow 
by 175%, and with it employment will increase 225%. As a national link 
to transportation and commerce, we see heavy use of our highways. As a 
commerce hub, our region is benefitting from the expansion of large 
inland ports for logistics and intermodal transfer and logistics. I 
fully support this effort and I commend Governor Mike Pence and 
Governor Pat Quinn for their leadership on this critical infrastructure 
    In 2005 our then-Governor, Mitch Daniels, launched an aggressive 
10-year transportation plan called Major Moves. Major Moves 
significantly improved and expanded Indiana's highway infrastructure. A 
total of $2.6 billion was committed to Major Moves from the long-term 
lease of the Indiana Toll Road and the plan called for 104 new roadways 
by 2015 with 1,600 lane miles. No additional debt or increase in taxes 
has been incurred to complete Major Moves projects.
    By the end of calendar year 2012, we invested over $7.5 billion in 
construction and, among other things, accomplished the following:

      65 roadway projects were complete or substantially under 
      19 roadway projects were accelerated--when compared to 
the original 2006 plan;
      We completed 375 new centerline miles, 48 new or 
reconstructed interchanges, and 5,030 preservation centerline miles 
accounting for 40 percent of the state's inventory;
      We rehabilitated or replaced 720 bridges, 13 percent of 
the state's inventory, and anticipate by 2015 having completed 
rehabilitation or replacement of 1,070 bridges comprising 20 percent of 
the state's inventory.

    Between 2001 and 2005, prior to Major Moves, the state averaged 
nearly $750 million for construction per year. Of that $750 million, an 
average of nearly $250 million per year was spent on new construction 
while an average of approximately $500 million per year was spent on 
preservation projects. Backed by Major Moves funding, INDOT averaged 
more than $1 billion in construction dollars invested annually between 
2005 and 2012.
    Why did Indiana take these steps? Because Hoosiers were tired of 
waiting for Congress to act. America is tired of waiting for Congress 
to Act. And the longer Congress waits to act, the more jobs will go to 
China, Mexico, India, Brazil, and our global competitors.
    I recognize that, predominantly, the solution to this funding 
problem in the Senate lies within the jurisdiction of the Finance and 
Environment and Public Works Committees, but the fact of the matter is 
we need to find a solution and we need to find it quickly.
    We have a fundamental problem with regards to the depletion of the 
highway trust fund as a result of a broken motor fuel user fee system. 
We need smart, innovative out of the box solutions.
    The Hoosier model works, and I believe it is a ``best practices'' 
example of what can happen when the legislative and executive branch 
can come together in a bipartisan way with out of the box, innovative 
proposals. I would encourage the members of the Senate to look to 
Indiana as a blueprint for success in this area, and I look forward to 
hearing from the witnesses.
    Prepared Statement of Hon. Edward G. Rendell, Former Governor, 
    Vice Chair Klobuchar and Members of the Committee, thank you for 
the opportunity to testify before you on the urgent need for federal 
infrastructure investment. This hearing could not be more important as 
I believe this issue is one of the most urgent facing our country.
    I am here today as a co-chair of Building America's Future, an 
organization that I co-founded with Mayor Michael Bloomberg and former 
Governor Arnold Schwarzenegger. Together, we represent a diverse and 
bipartisan coalition of state and local officials working to advance 
infrastructure investment to promote economic growth, global 
competitiveness and better quality of life for all Americans.
    Eighty years ago Congress passed and President Franklin Roosevelt 
signed the National Industrial Recovery Act that was responsible for 
creating the Public Works Administration (PWA). Between 1933 and 1939 
the PWA funded and administered the construction of 34,508 large-scale 
construction projects such as roads, dams, sewage treatment plants, 
ports, airports, schools, hospitals and even major warships for the 
Navy. Americans still rely on many of these projects to this very day 
including the Triborough Bridge, the Lincoln Tunnel, the Grand Coulee 
Dam and the Overseas Highway connecting Key West to the Florida 
mainland. With an investment of $6 billion, the PWA funded needed 
projects and employed thousands of skilled workers.
    This era epitomized the American can-do spirit of building big 
things. We need to recapture that spirit because if we don't, we will 
continue to fall behind our economic competitors.
    Late last year Building America's Future released Falling Apart and 
Falling Behind--a comparative analysis of the transportation 
infrastructure investments being made by the U.S. and our global 
economic competitors. As the title suggests, other countries are racing 
ahead of us by making smart, long-term investments in modern 
transportation networks such as rail, ports and electric grids to meet 
the demands of the 21st century global economy.
    The fact that the World Economic Forum had ranked the 
competitiveness of U.S. infrastructure number one in 2005 and number 
fourteen in 2012 illustrates the challenges before us.
    Take a look at some of the port investments being made by our 
global competitors in anticipation of post-Panamax vessels becoming the 
norm once the newly widened Panama Canal is completed. Since 2000, 
China has invested over $3.5 trillion in its ports. Brazil has invested 
over $250 billion since 2008. And as a result China is now home to six 
of the world's ten busiest container ports while the U.S. has none in 
the top ten. Shanghai's port now moves more container traffic in a year 
than the top eight U.S. ports combined. Brazil's investment has gone 
into its Acu Superport, larger than the island of Manhattan, with 
state-of-the-art highway, pipeline and conveyor-belt capacity to ease 
the transfer of raw materials onto ships heading to China.
    Here at home, and despite a large surplus in the Harbor Maintenance 
Trust Fund, the busiest U.S. harbors are under-maintained. The U.S. 
Army Corps of Engineers estimates that full channel dimensions at the 
nation's busiest 59 ports are available less than 35 percent of the 
time. Only two of our ports on the East Coast are deep enough to 
accommodate the post-Panamax ships.
    The situation on our roads is not much better. The Texas 
Transportation Institute's 2012 Urban Mobility Report stated that 
traffic congestion had Americans wasting time and 2.9 billion gallons 
of fuel at a cost of $121 billion--that equates to $818 per commuter. 
And no wonder when one learns that the number of vehicles traveling on 
American highways has increased by 37 percent from 1990 to 2010 yet the 
miles of new highway lanes have grown by only four percent. This comes 
at a time when the nation's population has increased by 25 percent.
    The growing congestion on our railway system plagues the nation's 
freight corridors, choking economic growth and development throughout 
every region of the country. In Chicago alone, the nation's largest 
rail center, congestion is so bad that it takes a freight train longer 
to get through the city limits than it does to reach Los Angeles. The 
cost to mine metallurgical coal in North America is the same as it is 
in Australia, but the cost to ship it to the coasts so that it may be 
exported to Asia is up to four times greater due to transportation and 
logistical costs.
    Earlier this year the American Society of Civil Engineers (ASCE) 
released its 2013 Report Card for America's Infrastructure and awarded 
America's infrastructure a grade of D+. In order to bring the nation's 
infrastructure up to a state of good repair, the ASCE estimates that it 
will take $3.6 trillion between now and 2020; $3.6 trillion--that is a 
very big number. But for America to remain competitive we must have a 
first class infrastructure. And that means all levels of government and 
the private sector must make strategic investments in infrastructure.
    Many at the state and local levels are weary of waiting for 
Washington to act and have begun to take matters into their own hands. 
This year alone, four governors have signed legislation to increase 
revenue for transportation and several others had proposed similar 
measures. And the success rate for local ballot initiatives remains 
high. In 2012, the success rate of such initiatives was 79 percent.
    The West Coast in particular has been a hotbed of innovation and 
activity. Earlier this month, the Oregon legislature approved a bill to 
allow drivers to pay a fee for each mile they drive instead of paying 
the state gasoline tax. The current state gas tax is 30 cents per 
gallon and would be replaced by a fee of 1.5 cents for every mile 
driven. The program is limited to 5,000 volunteer drivers who will have 
several options to report their mileage such as smartphone tracking, 
reading mileage from their car's odometer, and even paying a flat fee 
to address privacy concerns.
    Late last year the states of Oregon, California, and Washington 
joined with British Columbia to form the West Coast Infrastructure 
Exchange. The intent of the Exchange is to combine expertise and 
resources to build projects critical to the region's economic growth 
and competitiveness. By combining several smaller projects that on 
their own may not attract private sector investment, the Exchange seeks 
to maximize investments of public and private sector dollars.
    With regard to leveraging public investments with private dollars, 
more states have approved legislation granting them authority to pursue 
partnerships with the private sector. Currently 36 states and Puerto 
Rico have such authority.
    In Chicago, Mayor Rahm Emanuel fought for and got approval to 
create the Chicago Infrastructure Exchange to leverage private capital 
with public funds to fix rundown schools and upgrade water systems.
    But we still need leadership in Washington to help prioritize and 
fund large-scale projects of regional and national significance that 
are too large for any one state or community to handle. Without an 
overriding national vision and interconnected network, America's 
transportation infrastructure would resemble a patchwork of 
disconnected roads and rails; our aviation system would be untenable; 
and goods movement would be greatly hindered.
    The impending expiration of MAP-21 in September of next year gives 
Congress an opportunity to continue to reform the nation's 
transportation policy and to get creative in raising the revenue 
necessary to keep America moving.
    There is no way around it--more revenue is needed to keep the 
Highway Trust Fund solvent. The Congressional Budget Office has 
reported that ``the current trajectory of the Highway Trust Fund is 
unsustainable.'' By 2015, the Highway Trust Fund will not have 
sufficient revenues to meet its obligations in both the highway and 
transit accounts. Without an increase in revenues or a reduction in 
expenditures or further transfers from the general fund, the cumulative 
shortfalls in the Highway Trust Fund will total $92 billion for the 
highway account and $43 billion for the transit account by the end of 
    To regain our economic status as a world leader and to ensure the 
quality of life that Americans have come to expect, Building America's 
Future recommends:

      Immediately creating a commission charged with producing 
a ten-year critical infrastructure plan--covering transportation, 
water, energy and broadband--that makes significant new investments. 
The Congressional Budget Office has concluded that an annual additional 
investment of $185 billion would be economically justified and the 
American Society of Civil Engineers recommends an investment of $200 
billion over the next eight years to rebuild the American 
      Passing a long-term transportation bill;
      Establishing a National Infrastructure Bank to, among 
other things, target federal dollars to economically strategic freight 
gateways and corridors and invest more strategically in projects of 
national or regional significance that will deliver real economic 
      Further increasing the authorization level of TIFIA;
      Making the TIGER program permanent;
      Raising or lifting the cap on Private Activity Bonds;
      Developing other ways to pay for building and maintaining 
our roads such as:
                        --Incorporating congestion pricing and truck 
                        tolling arrangements to more adequately cover 
                        the costs imposed by highway use;
                        --Lifting the federal ban on tolling 
                        --Reinstating Build America Bonds;
                        --Fees based on miles traveled;
                        --Reserves built into capital budgets;
                        --Once the economy recovers, consider raising 
                        the federal gas tax and indexing it to 

    The other option is to let the status quo prevail. We can continue 
to underinvest in our critical infrastructure. We can continue to sit 
on the sidelines and watch countries like Germany, Brazil and Canada 
make the investments in 21st century transportation networks and 
infrastructure. We can continue to ``fall apart and fall behind.''
    Let me be clear. There is a cost associated with doing nothing. The 
American Society of Civil Engineers has recently issued a series of 
``Failure to Act'' reports that compared current and projected needs 
for infrastructure investment against the current funding trends in 
surface transportation; water and wastewater; electricity; and 
airports, inland waterways and seaports. The final report, released 
this January, documents that the total cumulative gap between projected 
needs and likely investment in these important sectors will be $1.1 
trillion by 2020. It further documents that aging and unreliable 
infrastructure will increase the costs to businesses by $1.2 trillion 
and to households by $611 billion by 2020.
    Infrastructure is an economic driver and has the added benefit of 
creating long-term quality jobs. It improves the quality of our lives 
and it enhances our economic competitiveness. There is no better time 
to invest in America's future. We have seen interest rates at record 
lows thereby making it more attractive to build. But as the economy 
continues to recover, those rates will begin to rise and so will the 
costs to build and repair our nation's infrastructure. We must act now.
    Thank you, Vice Chair Klobuchar for the opportunity to testify on 
this very important issue. I look forward to answering the committee's 
Prepared Statement of Robert W. Poole, Jr., Director of Transportation 
                       Policy, Reason Foundation
    My name is Robert Poole, Director of Transportation Policy at the 
Reason Foundation. For more than three decades I have been researching 
privatization and public-private partnerships at local, state, and 
federal levels of government. My book, Cutting Back City Hall (1980), 
was the first book-length treatment of this subject at the city and 
county government level. For the last 15 years or so, my full-time 
focus has been on transportation infrastructure policy, both aviation 
and surface transportation. I am a member of two standing committees of 
the Transportation Research Board and am a member of the Government 
Accountability Office's National Aviation Studies Advisory panel. I am 
a member of the Air Traffic Control Association and serve on the board 
of the Public Private Partnership division of the American Road & 
Transportation Builders Association. I have advised the FAA, the FHWA, 
the FTA, and the Office of the Secretary of Transportation, as well as 
the White House Office of Policy Development and National Economic 
Council. I have also advised or consulted for half a dozen state DOTs.
    the united states lags in using public-private partnerships in 
    We Americans pride ourselves as having an economy that is largely 
market-based with investor ownership of the means of production. Yet 
when it comes to infrastructure, and transportation infrastructure in 
particular, the United States is an outlier compared with our OECD 
allies. A major trend in recent decades--first in Europe, then 
Australia and New Zealand, and more recently Latin America--has been to 
privatize state-owned enterprises that provide major transportation 
infrastructure. By contrast, most U.S. transportation infrastructure 
continues to be state-owned enterprises of various kinds, with many of 
the limitations and disadvantages that we see in state-owned 
enterprises in China, developing countries, and parts of Europe that 
have not yet reformed such infrastructure.
    In most developed countries, the primary model is the long-term 
franchise (usually termed a ``concession'' overseas), similar to U.S. 
practice for investor-owned electric utilities. A smaller number of 
airports, toll road systems, and seaports have been sold outright to 
investors. In either case, the transformation from government ownership 
and operation to investor ownership or concession operation brings a 
transition to direct charges (pricing) of the infrastructure, creating 
bondable revenue streams that facilitate long-term financing of long-
lived capital investments. Revenue bond financing also ensures that the 
capital markets scrutinize the soundness of the investment, which tends 
to weed out poorly justified projects.
    This model may sound familiar, because it is how U.S. toll roads 
and our larger airports are financed, despite being owned by government 
entities. But it is far removed from the way other U.S. transportation 
infrastructure is financed and managed. What follows is a brief 
overview contrasting the provision of five types of transportation 
infrastructure in the United States versus other developed countries.
    Airports Council International recently reported that 450 
commercial airports worldwide have some degree of private-sector 
participation in their management or ownership. In Europe alone, ACI-
Europe reports that 48% of all passengers are handled at airports with 
either full or partial investor ownership as of 2010. There are 25 
airport companies listed on stock exchanges, including two in Southeast 
Asia, three in Mexico, five in China, and the rest in Europe and 
Australasia. The United States has just one commercial airport that has 
been long-term leased under the FAA Airport Privatization Pilot Program 
(San Juan International), with a second one pending (Chicago Midway).
Air Traffic Control
    Over 50 countries have corporatized their ATC providers since 1987. 
This means separating the ATC provider from the government's aviation 
safety regulator and from the government's budget, making it self-
supporting from fees paid to it by airspace users. Most of these air 
navigation service providers (ANSPs) are government corporations, but 
as self-supporting entities, they can issue revenue bonds to finance 
capital modernization programs, unlike the unreformed FAA in this 
country. The larger ANSPs all have investment-grade bond ratings. Two 
of the ANSPs can be considered partially privatized: NATS in the UK, 
which is 49% owned by the government with the balance owned by aviation 
stakeholders (including employees) and Nav Canada, which is a not-for-
profit company with a stakeholder governing board.
Highways and Bridges
    In the 1960s when European countries began building national 
motorway systems, three of them--France, Italy, and Spain--chose to 
finance these new highways via toll revenues, and used a mix of state-
owned and investor-owned companies to finance, build, own, and operate 
the new toll roads. Portugal later adopted a similar system. In the 
late 1990s and early 2000s, all four countries privatized their state-
owned toll road companies, shifting them to long-term concession 
agreements. This long-term concession model was adopted by Australia in 
the 1980s to build tolled urban expressways in Sydney, Melbourne, and 
Brisbane. The model had spread to Latin America by the 1990s, with 
long-term toll concessions awarded in Argentina, Brazil, Chile, 
Colombia, Mexico, and Peru. It has also been used in China, Malaysia, 
the Philippines, and elsewhere in Asia. The United States is a late 
adopter of the concession model, with a handful of projects opened in 
the 1990s and a small but growing number in the 2000s, mostly in 
California, Florida, Texas, and Virginia.
    A global wave of port privatization begin with the sale in 1983 of 
19 UK ports of the British Transport Docks Board as Associated British 
Ports. Other UK ports were sold in subsequent years. By 1997 a World 
Bank report found that a large majority of the 50 largest ports 
worldwide had either mixed or private (investor) ownership, with mixed 
ownership generally referring to the landlord port model in which the 
government owns the land and retains regulatory control while various 
private operators own and operate individual terminals. The United 
States has mostly landlord ports, with only a few totally state-owned 
and operated. Major U.S. seaports are largely self-supporting, but pay 
a Harbor Maintenance tax whose proceeds are used for Army Corps of 
Engineers harbor dredging projects.
    Most commercial waterways worldwide are government-owned and 
operated, but some of the largest are operated on a corporatized basis, 
including the Panama Canal and the Suez Canal. Both charge tolls for 
passage, and in the case of the current Panama Canal widening and 
modernization, this $5 billion project is being financed via revenue 
bonds based on the toll revenue. France is exploring the development of 
new inland canals and the refurbishment of existing ones as long-term 
PPPs. In the United States, the entire inland waterways system is 
managed by the Army Corps of Engineers. Less than 10% of the cost of 
operating, maintaining, and improving the inland waterways system is 
paid for by commercial users, via a tax on diesel fuel; the rest is 
paid for by general federal revenues (i.e., all taxpayers). Waterways 
thus represent the most highly subsidized of all modes of goods-
movement infrastructure in the United States.
Global Companies
    Another difference between the United States and other OECD 
countries is a dearth of U.S. companies experienced not just in 
building but in owning, operating, and maintaining major transportation 
infrastructure such as airports, toll roads, and seaports. Of the 
world's 100 largest airport operators (as compiled by Airline 
Business), 36 are either fully or partially investor-owned--but not a 
single one is based in the United States. And in Public Works 
Financing's annual listing of the world's 35 largest surface 
transportation infrastructure providers, only one (Fluor) is a U.S. 
company. Of the top five, three are from Spain, one from Australia, and 
one from France. Investor-owned transportation infrastructure is a 
large and growing global industry, but thus far US companies are at 
best bit players.
Investment Capital
    According to the 2012 tabulation by Infrastructure Investor, over 
the last five years the 30 largest global infrastructure equity funds 
have raised nearly $172 billion to invest in privatized and PPP 
infrastructure. Over the decade ending in 2012, all such funds have 
raised an estimated $291 billion. When leveraged with debt in a typical 
project financing structure, this amount of equity could support nearly 
$1.2 trillion worth of infrastructure projects. That investment will go 
where it is welcome, and thus far the United States is seen as a 
difficult, emerging market. At least in this segment of infrastructure, 
US funds are playing a significant role, representing 37% of the 
infrastructure investment firms and about 30% of the capital raised. 
But since there are few opportunities so far to invest such funds 
productively here in the USA, much of their investment is overseas.
     why does it matter that the united states lags so far behind?
    High quality infrastructure is essential for a healthy and 
productive economy. In the decades after World War II, when the United 
States was the only developed country not devastated by wartime 
destruction, this country had the world's best infrastructure. Our 
electricity, gas, telecommunications, pipelines, and water utilities 
were mostly investor-owned. Our original superhighways were toll 
financed turnpikes in the Northeast and Midwest, soon followed by the 
nationwide Interstate highway system. Our airports developed revenue 
bond financing and became major facilities. Our investor-owned freight 
railroads struggled until deregulation in 1980 enabled them to begin to 
make a realistic return on their investments, and they invested their 
way to becoming the best in the world. Our seaports did reasonably 
well, with revenue-bond financing much like that of airports.
    Today, in the second decade of the 21st century, U.S. 
infrastructure no longer compares so well. Many of our largest airports 
suffer from chronic congestion and some still lack world-class 
passenger amenities. Our air traffic control system no longer sets the 
pace for advanced technology and streamlined procedures--and is 
struggling to fund what it now estimates as a $42 billion NextGen 
modernization program. Our Interstate highway system is nearing the end 
of its original design life and lacks capacity in numerous key trucking 
corridors, while urban expressways suffer chronic congestion in the 
larger metro areas. Ports compete for limited--and agonizingly slow to 
be approved--federal dredging projects in hopes of remaining 
competitive after the Panama Canal expansion. And our inland waterways 
are plagued by aging and undersized locks that constrain the flow of 
bulk shipping.
    One key benefit from a more robust embrace of PPP approaches would 
be increased investment in upgrading existing transportation 
infrastructure and adding needed capacity in strategic locations. But 
as I see it, an even more important benefit of greater use of the 
market mechanisms that are part of the PPP approach is more-productive 
infrastructure investments. I distrust huge totals of alleged 
infrastructure needs that are compiled by organizations whose members 
hope to design and build more projects. For the most part, those totals 
do not necessarily represent projects that meet a genuine market test--
such as having a positive return on the investment it would take to 
build them. A project finance approach subjects proposed projects to a 
critically important test: will the project generate enough revenues to 
pay for itself, making it worthwhile for infrastructure funds to invest 
equity and for bond buyers to purchase the revenue bonds?
    Another benefit of the PPP approach--and I'm speaking here about 
long-term concessions to either rebuild and modernize a facility or to 
build an entirely new one--is to minimize the risk to taxpayers. Risk 
transfer is one of the major benefits of the PPP approach to 
transportation megaprojects. Megaprojects such as Boston's Big Dig or 
the Los Angeles Red Line Subway have a terrible track record of cost 
overruns, late completion, and significant traffic and revenue 
shortfalls. A global database of 258 highway and rail megaprojects in 
20 countries found that 90% experienced cost overruns, with rail 
projects on average costing 45% more than estimated and highways 
costing 20% more. Most rail projects also had ridership shortfalls, 
averaging 39%. A properly structured long-term concession transfers 
cost-overrun risk, late-completion risk, and traffic and revenue risk 
from the government (i.e., the taxpayers) to the concession company, 
which has strong incentives to build the project within the budget, get 
it completed on time, and properly maintain it so it will attract and 
keep customers. Modernizing US transportation infrastructure will 
involve a very large number of megaprojects, costing upwards of several 
trillion dollars over the next several decades. So it is critically 
important to do this in ways that minimize risks to taxpayers.
    An additional benefit of the long-term PPP approach is guaranteed 
maintenance. Deferred maintenance is a significant problem in much of 
our transportation infrastructure--bridges, some highways, and 
especially waterways. Our institutions seem to be more focused on 
building new things than on properly maintaining what we have already 
built. But the long-term PPP concession creates a quasi-owner of the 
facility for the duration of the concession agreement, and that entity 
has every incentive to keep the facility well-maintained so that it 
continues to attract paying customers. Moreover, maintenance standards 
are generally included in the long-term agreement, and can be enforced 
via financial penalties. So you can think of an infrastructure facility 
that has been modernized via a long-term concession as having the 
equivalent of a maintenance endowment built in.
     underlying problems with the u.s. infrastructure funding model
    The federal government's 20th-century model of funding 
transportation infrastructure relied on a combination of user taxes and 
general revenues, with the user taxes accounted for in four trust 
funds: Airports & Airways, Highways, Harbor Maintenance, and Inland 
Waterways. But that system is breaking down, for several reasons.
    First, the user taxes are widely portrayed and perceived as just 
``taxes,'' and any increase is criticized as a ``tax increase.'' By 
contrast, when electric bills go up to pay for increased energy costs 
or a new power plant, people may grumble but they understand that the 
electric company has to pay the costs of producing and delivering the 
electricity they want, need, and use.
    Second, each of the above trust fund programs builds in significant 
redistribution from one user group to another and from one region to 
another, which is not only economically inefficient but also generates 
political disaffection (and resistance to user tax increases).
    Third, over time Congress has added numerous unfunded mandates 
(such as Buy America and Davis-Bacon) to federal transportation 
dollars, which increases the cost of building things with federal money 
and leads to further disaffection with the program.
    Fourth, since most federal grant money is for new capacity, the 
lure of that money (despite its added cost) tends to bias state and 
local spending decisions toward new construction at the expense, in 
some cases, of maintenance.
    The fifth and most important drawback of the current federal 
approach, in my view, is that by making annual capital spending money 
available, it encourages state and local governments to fund large 
capital projects out of annual appropriations rather than financing 
such long-lived assets. A basic principle of public finance is that 
long-lived assets should be financed, so that their benefits become 
available in the near term and are paid for by their users over the 
useful life of the asset, while the users enjoy the benefits of the 
improved facility. This is, of course, how the majority of people pay 
for their housing. But it is also how electric, gas, and water 
utilities pay for their capital projects, as well as railroads, toll 
roads, air traffic control providers overseas, and, to a considerable 
extent, U.S. airports and seaports (despite their also receiving some 
federal support from their respective trust funds).
    With the ongoing federal government fiscal crisis, general fund 
money to supplement and subsidize the transportation trust funds will 
become an undependable and unsustainable funding source for 
transportation infrastructure. So it is time to fundamentally rethink 
how we fund and manage U.S. transportation infrastructure.
              rethinking infrastructure, sector by sector
    Retooling the federal government's role in transportation 
infrastructure should begin with the principles of federalism. One 
major reason why federal transportation funds don't go far enough is 
that they are spread too thin, trying to do too many things. This is 
especially the case for the Highway Trust Fund, which originated as the 
means to pay for creating a nationwide superhighway network and has 
gradually evolved into an all-purpose transportation public works 
program. So the first principle should be: figure out what is truly 
federal and devolve state-level concerns to the states and urban/
regional concerns to cities and counties.
    The second principle is to shift as much as possible from funding 
to financing. That means two related things. First, shift from federal 
grants to federal loans. And shift from user taxes paid to the US 
Treasury to user fees paid to the actual infrastructure provider.
    And the third principle is to give states and local governments 
tools to do more, such as reducing unfunded mandates and removing 
federal obstacles to increased use of long-term PPPs. One way to do 
that would be to remove entirely any difference in the tax treatment of 
bonds, whether for government infrastructure or PPP infrastructure.
    In a January 2013 Reason Foundation policy brief, I sketched out 
how these principles might apply to the major categories of federally 
supported transportation infrastructure. A brief summary is as follows.
    U.S. commercial airports are already largely user-funded, with 
revenues from airlines (landing charges and space rentals), passengers 
(passenger facility charges), and service providers (car rental firms, 
parking, shops and restaurants) paying for operating costs and debt 
service on airport bonds. Federal Airport Improvement Program (AIP) 
grants are a relatively small portion of airport budgets at large and 
medium hubs. As far back as 1987, a US DOT study demonstrated that 
large, medium, small, and non-hub commercial airports could replace 
their AIP funds with PFCs, and that could be done today. Self-
supporting airports need not be privatized, but those seeking better 
management and lower-risk megaproject improvements should have the 
freedom to opt for privatization, as their counterparts in the rest of 
the developed world already do.
    A separate question is whether there should be a continued federal 
role in funding non-commercial airports. Small towns that have a 
general aviation airport have some degree of competitive advantage as a 
place to live and do business compared with those that don't. That 
argument would support local funding as a choice to be made by such 
communities. The politics of this question at the federal level may be 
daunting, but this is exactly the kind of issue the entire federal 
budget needs to confront in rethinking what functions are truly federal 
and which are more appropriately left to state and local levels of 
Air traffic control
    Nearly all developed countries have de-politicized their ATC 
providers by converting them into self-supporting air navigation 
service providers, regulated at arm's length by the national aviation 
safety regulator. This course has been recommended repeatedly by think 
tanks, the US DOT in 1994, and the Mineta Commission in 1997. This kind 
of reform is now being talked about by aviation stakeholders concerned 
over the FAA's poor track record in modernizing the system and the 
uncertain future of federal aviation funding. Creating a U.S. 
equivalent of the nonprofit, user-governed Nav Canada would be a good 
solution, and is likely to be the best way to ensure that the portions 
of the NextGen modernization that actually provide user benefits 
exceeding their costs get implemented. With its own revenue stream paid 
by aircraft operators, the corporation could issue investment-grade 
revenue bonds to fund modernization investments, and the governing 
board of aviation stakeholders would vet the plans to be sure their 
user benefits exceeded their cost.
Highways and Bridges
    Sorting out responsibilities among levels of government would have 
the federal government responsible for a national network of limited-
access superhighways (the 21st century version of the Interstates), 
states responsible for most other highways, and metro areas responsible 
for their streets and roads. With fuel taxes as a declining revenue 
source over the coming decades, states (as the largest owner of 
highways) would take the lead in phasing in mileage-based user fees for 
state and local roads to replace fuel taxes. For the limited access 
system, tolling and PPPs would facilitate reconstruction and 
modernization of the existing Interstates, urban expressways, and 
portions of the National Highway System that should be upgraded to 
Interstate status. Given the likely ability of toll finance to handle 
most of the cost of Interstate reconstruction and modernization, the 
federal government's funding role would likely shift from grants to 
loans, primarily for states where traffic volume was insufficient to 
generate enough toll revenue. The federal role would also be important 
for ensuring nationwide inter-operability of all-electronic tolling on 
the limited-access system and mileage-based user fees on state and 
local roads.
    Urban transit is an inherently local function of government, 
despite its being included in the Highway Trust Fund since the early 
1980s. This issue is analogous to small general aviation airports--
obviously good things for communities to have, but not obviously 
federal in nature. The politics of devolving this are also analogous to 
those of small airports, but are again part of the overall challenge of 
rethinking the role of the federal government in our multi-tiered 
governmental structure.
    Like airports, seaports are largely user-funded and bond-financed 
today. The Harbor Maintenance Tax is unnecessary, and instead of being 
reformed so that all the dollars collected each year are spent on port 
projects, it should be abolished, for several reasons. First, all ports 
are inherently in competition with other ports, so there are local 
benefits but not national benefits from the improvements funded by this 
trust fund. Second, the Corps of Engineers' feasibility studies can 
take over a decade, which generally delays needed projects which could 
proceed much sooner if judged bondable by the capital markets. Third, 
there is a long history of critical assessment of the objectivity of 
Corps feasibility studies, which provide a much less reliable guide to 
sound investment than the capital markets. Fourth, the tax is based on 
a percentage of the value of the cargo, not the draft of the ship 
(which is the relevant measure for assessing benefits of the dredging 
projects the tax ends up funding). This tax and trust fund are 
counterproductive to a sound US ports industry, overcharging some ships 
and undercharging others, cross-subsidizing ports that need dredging 
with money taken from ports that don't, and favoring some ports at the 
expense of their competitors. No national interest is served by 
continuing this program.
    Unlike ports, waterways are inherently interstate in nature, so it 
is not surprising that federal jurisdiction over inland waterways was 
established in the 19th century, based on the interstate commerce 
clause of the Constitution. However, because the federal government has 
responsibility does not mean that the current federal funding system 
makes sense or is sustainable. That system requires commercial users to 
pay just 8% of the annual cost of operating, maintaining, and improving 
the inland waterways system. The token tax on diesel fuel paid by those 
carriers is almost insignificant, and the heavily subsidized barge 
industry's reform proposals, though calling for an increase in that 
user tax, would put an even larger share of waterways costs on the 
general taxpayer. This is not merely unsustainable going forward; it is 
also grossly unfair to other modes that compete with barge lines, 
primarily railroads and, to a limited extent, trucks. Railroads pay 
100% of the capital and operating cost of their infrastructure, while 
heavy trucks pay a large fraction of theirs, according to DOT cost 
responsibility studies.
    In the last year or so, a few shipper groups and the Army Corps' 
own Institute for Water Resources have begun to discuss ways of tapping 
the capital markets to finance replacement of obsolete and undersized 
locks and dams. PPP concessions, of course, would require a bondable 
revenue stream, such as tolls to use modernized/replaced locks, as on 
the Panama Canal. In addition, repealing the Jones Act would permit 
barge operators to buy less-costly vessels, thereby offsetting part of 
the cost of increased user fees. In addition, since the inland 
waterways system is so extensive and the need to replace obsolete 
facilities is so large, consideration should be given to using long-
term PPP concessions to modernize individual waterway segments, as 
France is beginning to do. Several Senators introduced legislation in 
March of this year to create a pilot program along these lines.
                         needed policy changes
    What I have laid out in this testimony is an overview of how the 
federal role in transportation infrastructure could be rethought to 
better fit with the fiscal realities confronting the federal government 
in the decades ahead. Business as usual is simply not a sustainable 
option. This agenda could not be implemented overnight, but unless 
these ideas begin to be discussed seriously, our vitally important 
transportation infrastructure will continue to be short of investment 
capital, make sub-optimal investments with the capital it has, and 
create artificial winners and losers via cross-subsidies.
    The key reform principles are (1) to sort out what functions are 
properly federal, state and local, (2) switch from funding to financing 
large capital improvements in infrastructure, (3) shift from user taxes 
paid to government to user fees paid directly to infrastructure 
providers, (4) empower all levels of government to make use of long-
term PPP concessions, and (5) remove federal regulatory and tax 
obstacles to states and local governments taking on more infrastructure 
    Near-term federal regulatory and tax changes should include the 

      Remove the federal cap on airport passenger facility 
charges (PFCs) and phase out AIP grants for commercial airports, 
reducing aviation excise tax rates accordingly.
      Remove the 10-airport limit on participating in the FAA's 
Airport Privatization Pilot Program.
      Remove the $15 billion cap on tax-exempt Private Activity 
Bonds for surface transportation PPP projects.
      Authorize states to implement all-electronic tolling on 
Interstate highways for the specific purpose of reconstructing and 
modernizing those highways.
      Return the maximum size of TIFIA loans to 33% of project 
budgets (rather than MAP-21's 49%), consistent with TIFIA's role as 
provider of gap, rather than primary, financing.
      Add TIFIA-like taxpayer protections to all other federal 
infrastructure credit programs, such as the Railroad Rehabilitation and 
Improvement Financing (RRIF) program to (a) limit loan amounts to 33% 
of total project cost, (b) require a dedicated revenue source for such 
projects, and (c) require an investment-grade rating on the project's 
primary financing.
      Eliminate the alternative minimum tax (AMT) on all PABs 
used for transportation infrastructure.
      Exempt harbor and waterway dredging projects from the 
Jones Act.
      Exempt highway and transit projects from the Davis-Bacon 
Act and Buy America Act.

    Medium-term changes are mostly structural and organizational in 
nature, and should include the following:

      Separate the Air Traffic Organization (ATO) from the FAA, 
corporatize the ATO, and enable it to create its own bondable revenue 
stream from fees paid by aircraft operators; reduce aviation excise 
taxes accordingly.
      Eliminate the Harbor Maintenance Tax and wind down the 
Harbor Maintenance Trust Fund, allowing ports to be self-supporting.
      Refocus the Highway Trust Fund on interstate commerce, 
devolving its other responsibilities to state and local governments.
      Significantly increase user tax on diesel fuel on 
commercial inland waterway operators, as a step toward making the 
federal waterways program self-supporting.
      Authorize the Army Corps of Engineers to enter into long-
term PPP agreements to rehabilitate and replace lock and dam 
facilities, financed by tolls on the new and refurbished facilities.

    This is an ambitious agenda, affecting just a small part of the 
federal government's operations. But the status-quo federal role in 
transportation infrastructure is unsustainable. As part of putting the 
federal government's fiscal house in order, while ensuring robust and 
productive transportation infrastructure, rethinking the federal role 
along these lines is essential.
    This concludes my testimony. I would be happy to answer questions 
or provide further details on any of the points I have made here.
   Prepared Statement of Robert Puentes, Senior Fellow and Director, 
     Metropolitan Infrastructure Initiative, Brookings Institution 
                      Metropolitan Policy Program
    Good morning Vice Chair Klobuchar and Members of the Committee. I 
very much appreciate the invitation to appear before you today. The 
purpose of my testimony is to discuss ways the federal government can 
engage in new partnerships with public and private investors to 
investment in infrastructure and, by so doing, put Americans back to 
work and rebalance the economy.
    Of course, our challenge today is that the nation's economic 
recession and tense new focus on austerity means public resources for 
infrastructure are strained. As financial markets have contracted, all 
actors are suffering under tightened credit supplies. While state and 
local balance sheets are improving, overstretched budgets have led to a 
larger gap between infrastructure costs and revenues. As a result, 
meeting the nation's great needs for financing infrastructure requires 
an ``all of the above'' strategy.
    Today, record low interest rates, coupled with attention from 
private firms and foreign funds, present growing opportunities for 
pragmatic public- and private-sector leaders to collaborate and 
innovate around infrastructure investments at the metropolitan scale, 
which can motivate state and federal officials to support these 
efforts. Indeed, leaders in many metros are already driving the 
development of new and innovative ways to deliver economically 
important infrastructure projects.
    Modern freight and logistics projects in Los Angeles and Miami, 
state-of-the-art transit investments in Denver and Salt Lake City, 
advanced stormwater treatment upgrades in Washington and Philadelphia, 
broadband installations in Kansas City and Chattanooga are emblematic 
of the growing role states and cities are taking to build the 
infrastructure that will both support and enable the next American 
    And so an enormous opportunity exists for Washington to adopt a 
fresh set of focused initiatives that can drive the nation toward 
economic renewal and support regional and state empowerment.
   revive build america bonds to support state and local investments
    Congress created the Build America Bonds (BABs) program in response 
to the Great Recession's dramatic effect on state, local, and other 
public entities' ability to issue debt. According to the U.S. Treasury, 
this credit crunch eventually led to a 68 percent drop in monthly 
municipal bond issuances and a doubling of borrowing costs.\1\ 
Established through the American Recovery and Reinvestment Act (ARRA) 
of 2009, the two-year program authorized state and local governments to 
issue special taxable bonds that received either a 35 percent direct 
federal subsidy to the borrower (Direct Payment BABs) or a federal tax 
credit worth 35 percent of the interest owed to the investors (Tax-
Credit BABs).
    \1\ U.S. Department of the Treasury, ``Analysis of Build America 
Bond Issuance and Savings,'' 2011.
    By harnessing the efficiencies of the taxable debt market, this 
unique structure decreased average borrowing costs for states and 
localities by 54 to 84 basis points compared to standard municipal 
bonds.\2\ These lower costs, in turn, allowed borrowers to save an 
estimated $20 billion. The taxable nature of the bonds also 
incentivized a much broader group of investors to participate in the 
program, including pension funds and institutional investors. This 
expanded the traditional infrastructure investment base beyond the $2.8 
trillion market for tax-exempt municipal bonds and made BABs appealing 
alternatives in the $30 trillion taxable bond market.
    \2\ U.S. Department of the Treasury and Council of Economic 
Advisors, ``A New Economic Analysis of Infrastructure Investment,'' 
    BABs proved wildly popular. From 2009 through the program's 
expiration in 2010, BABs financed one-third of all new state and local 
long-term debt issuances. In total, more than 2,275 separate bonds were 
issued to finance $182 billion in new infrastructure investment, driven 
by participation by all 50 states, Washington, DC, and two 
territories.\3\ The greatest share of BAB funding (30 percent) went 
toward educational facilities. Water/sewer projects (13.8 percent), 
road/bridge projects (13.7 percent), and transit projects (8.7 percent) 
accounted for the next highest totals.\4\ The use of BABs accelerated 
many of these major projects, which not only tended to have longer 
maturities, but also had a $6.2 million higher issuance value on 
average than tax-exempt municipal bonds.\5\
    \3\ U.S. Congress, Joint Committee on Taxation and the U.S. 
Department of the Treasury, ``The Federal Revenue Effects of Tax-Exempt 
and Direct-Pay Credit Bond Provisions,'' 2011.
    \4\ Robert Puentes and Istrate, Emilia, ``Whither Go the BABs?'' 
The New Republic, 2010.
    \5\ Andrew Ang and others, ``Build America Bonds,'' Cambridge: 
National Bureau of Economic Research, 2010.
    Despite initial skepticism, the BABs program successfully spurred 
investment in job intensive and economically important infrastructure 
projects across the country, while also stabilizing the municipal bond 
market. Importantly, it proved that bond issuers and investors were 
extremely receptive to the tax-credit and subsidy model.\6\ Concerns 
about high origination costs for these unique structures also proved to 
be a minor issue, as prices fell drastically over the life of the 
    \6\ Lily Batchelder and others, ``Efficiency and Tax Incentives: 
The Case for Refundable Tax Credits,'' Stanford Law Review 59 (23) 
    Recently, Congressional budget sequestration put a damper on the 
market as across-the-board spending cuts reduced the federal BABs 
subsidy by 8.7 percent. Smaller localities, in particular, now face 
pressure to call their BABs for a full redemption to cut costs and to 
take advantage of historically low interest rates in the municipal bond 
market. Some large BABs have been called as well, including a nearly 
$500 million refinancing in Columbus, Ohio.
    However, long maturities, large issuances, and contractual 
provisions against par-value calls, are likely to limit the number of 
BAB redemptions. Even in the face of these challenges, BABs still 
outperform both treasuries and tax-exempt municipal bonds in U.S. 
    Relative to the cost-savings for borrowers, the costs of 
administering a BABs program are quite low for the federal government. 
Based on initial government estimates, the annual cost of subsidizing 
the program under ARRA was approximately $340 million. Since the bonds 
were taxable, the government also expected to recoup some of these 
costs through the additional tax revenue produced. More recent 
estimates from the Joint Committee on Taxation put the annual net cost 
of a new BABs program at under $100 million.
    The U.S. Treasury, furthermore, has indicated that lowering the tax 
subsidy from 35 to 28 percent would make the program revenue neutral 
``relative to the estimated future federal tax expenditure for tax-
exempt bonds.'' \7\ States and municipalities do not need the same 
aggressive subsidy they did after the 2008 financial crisis when 
borrowing costs spiked and the monthly issuance of bonds dropped by 
nearly one-third. It is important to note, however, that a significant 
drop in maturities would probably accompany the lower subsidy rate. At 
the same time, the true costs of the program to the federal government 
would not be known with complete precision, given the need to measure 
the amount of revenue currently being collected from tax-exempt debt.
    \7\ U.S. Department of the Treasury, 2011.
     exempt private activity bonds from the alternative minimum tax
    While municipal bonds are geared toward infrastructure projects 
with a public benefit, Private Activity Bonds (PABs) are directed at 
those projects that primarily benefit private entities but also serve 
some public purpose. PABs are issued by state and local governments for 
projects where more than 10 percent of the proceeds benefit a 
nongovernmental entity and are directly or indirectly paid back by a 
private business. In many cases, PABs are not tax-exempt and mainly 
cover privately owned and operated facilities. Depending on the 
specific project, however, there are a range of qualified private 
activities that can be financed by tax-exempt PABs, including sewage 
facilities and high-speed intercity rail facilities.
    Federal tax policy, however, has undercut the potential of PABs to 
pull sorely needed private financing into critical infrastructure 
projects. The Alternative Minimum Tax (AMT), in particular, has limited 
their ability to attract potential investors over time. As a tax on 
individuals and corporations, the AMT is enforced beyond the regular 
income tax and takes into account the taxpayers' alternative minimum 
taxable income, which includes interest earned on PABs. PABs are also 
not necessarily tax-exempt for certain airport facilities and are 
further burdened by the AMT.
    Lacking an AMT exemption, then, PABs hold less appeal for investors 
in many cases, thereby driving down demand for future investment and 
hindering the development of new infrastructure. State and local 
governments, as a result, must pay higher interest rates on PABs--more 
than 25 basis points on average compared to other tax-exempt bonds--to 
compensate investors for their tax liability, which in turn leads to 
higher infrastructure costs.\8\
    \8\ Government Finance Officers Association, ``Issue Brief: AMT and 
Tax-Exempt Bonds,'' Washington, 2010.
    To address these challenges, ARRA included provisions that exempted 
new PABs from the AMT in 2009 and 2010 and allowed refinancing of PABs 
issued from 2004 to 2008, which has helped promote increased 
infrastructure investment. Still, if private investors are continually 
dissuaded from PABs as a result of the AMT, necessary infrastructure 
upgrades may be delayed or put off altogether. Without the proper 
incentives in place, as they appeared under ARRA, project delivery will 
remain slow, innovation will be stifled, and users will be subjected to 
rapidly outdated and increasingly inefficient facilities. Ongoing 
financial and regulatory uncertainty, moreover, will continue to impede 
the competitiveness of metropolitan areas.
    Based on estimates from the Joint Committee on Taxation, 
eliminating the AMT on all PABs (including airports) could potentially 
cost the government about $49 million annually from 2012 to 2017.\9\ At 
the same time, the exemption would generate billions of dollars in 
additional economic activity and lead to cost savings of almost $748 
million for airports alone over the next ten years. Policymakers should 
be encouraged by these factors when considering a possible AMT 
    \9\ U.S. Department of Transportation, ``Final Report: The Future 
of Aviation Advisory Committee,'' 2011.
    PABs play a large role in financing infrastructure projects across 
the country. Although many PABs are subject to a statewide volume cap 
(which creates a ceiling on the aggregate amount of qualified tax-
exempt PABs that can be used in states each year), they help promote 
several short-term and long-term projects annually, ranging from 
highways to freight transfer facilities. Roughly $15 billion of 
qualified tax-exempt PABs have been issued annually in each of the past 
two years, with a notable increase following the AMT exemption in 2009. 
For example, the number of qualified tax-exempt PABs issued in 2010 
marked the first increase in over three years. In contrast, when the 
exemption expired in 2011, the number of qualified tax-exempt PABs 
issued saw a marked decline (13 percent) across these projects 
    \10\ Council of Development Finance Agencies, ``2011 National 
Volume Cap Report,'' Columbus, 2012.
    While some may emphasize the cost of an AMT exemption for PABs, the 
return on such an exemption far outweighs the expenditure. By making 
PABs more attractive to private investors, an AMT exemption can promote 
private and public sector involvement, which helps draw from a larger 
pool of investors and spread the financial risk involved in projects. 
This increased investment can consequently drive the construction of 
new infrastructure, improve public safety, fuel economic output, and 
create numerous jobs in the short and long term--all of which have 
stood as clear benefits in different proposals.
   establish a national ppp unit to support bottom-up infrastructure 
    Leveraging private financial resources and expertise to design, 
build, operate, maintain, and/or finance infrastructure has growing 
appeal. Whether repairing, upgrading, or augmenting an existing asset 
or constructing new infrastructure, the intent is to improve project 
delivery, and better share responsibilities and costs between the 
public and private sectors. The evidence from other countries--
including some with less friendly business environments than in the 
U.S.--shows that these arrangements, if designed and implemented 
correctly, have the potential to improve on infrastructure delivery.
    However, public/private partnerships (PPPs) are complicated 
contractual arrangements that can vary widely from project to project 
and from place to place. As the challenges to infrastructure 
development throughout the U.S. become more complex, there is a 
constant concern that public entities in some states, cities, and 
metropolitan areas are ill equipped to consider such deals and fully 
protect the public interest.
    The U.S. Government Accountability Office recently noted that while 
the U.S. has done much to promote the benefits of PPPs, it needs to do 
more to assist states and metro areas in thinking through potential 
costs and trade-offs, as well as assessing national interests.\11\
    \11\ U.S. Government Accountability Office, ``Highway Public-
Private Partnerships: More Rigorous Up-front Analysis Could Better 
Secure Potential Benefits and Protect the Public Interest,'' GAO-08-44, 
    A possible solution is the creation of a specialized institutional 
entity to assist with the expanding opportunities for PPPs. These so-
called ``PPP units'' fulfill a variety of functions, including quality 
control, policy formulation and coordination, technical advice, 
standardization and dissemination, and promotion of PPPs.
    Creating a federal PPP unit would provide states, cities, and 
metropolitan actors with the support and technical assistance needed 
from the procurement stage through long-term management of the projects 
by helping public actors determine the best Value for Money investment, 
assess long-term economic benefits of projects, and increase capacity 
to deal with contract changes over the life of the PPP. It would also 
create a more attractive, open, and robust environment that encourages 
private investment by creating predictability in the procurement 
process and demonstrating that the government actors involved want to 
``do business.''
    Looking around the world, PPP units are often located in a central 
government ministry (such as the Treasury Department) or in a line 
ministry that is closely related to infrastructure policy (such as the 
Department of Transportation). In the U.S., the Office of Management 
and Budget (OMB) is the most appropriate agency to house a PPP 
    \12\ Emilia Istrate and Robert Puentes, ``Moving Forward on Public 
Private Partnerships: U.S. and International Experience with PPP 
Units,'' Washington: Brookings Institution, 2011.
    Budget costs for a federal PPP Unit should be no more that $3 
million annually. The PPP unit will be roughly the size of the Council 
on Environmental Quality (CEQ), located within the Executive Office of 
the President, which has a similar annual budget that covers support 
and administrative staff, as well as salaries and office and 
communications expenses.
    There is no one-size-fits-all design of a PPP unit, but U.S. public 
entities could learn from experiences of other countries and from the 
growing track record in several U.S. states. A PPP unit reflects not 
only the needs of a particular PPP program, but also the administrative 
capacity and political structure of a specific government. Ultimately, 
the success of an American PPP unit will depend on a clear and 
consistent national plan and strategy for infrastructure development.
      create a repatriation tax holiday to capitalize a national 
                          infrastructure bank
    Another way to provide technical assistance and expertise to states 
and other public entities that cannot develop internal capacity to deal 
with the projects themselves is through the creation of a national 
infrastructure bank (NIB).
    If designed and implemented appropriately, an NIB has the potential 
to leverage billions of dollars of private investment in important 
projects across the country. An NIB can not only provide a streamlined 
selection process for projects, but also apply a more rigorous standard 
for evaluating critical investments in energy, transportation, water, 
telecommunications, and other infrastructure assets attractive to 
private investors. Beyond bridges, roads, and other conventional 
projects, the NIB could spur cutting-edge investments in clean 
technologies, efficient energy distribution, and new resilient 
infrastructure assets.
    The establishment of an NIB will send a strong signal to the 
private sector: the federal government is committed and open to private 
involvement in infrastructure financing and delivery. Today, private-
sector financiers and investors are understandably frustrated with the 
lack of clarity concerning the rules of engagement when working with 
the federal government. This confusion hinders the development of 
robust public-private partnership markets in many states and 
    Among the possible ways to capitalize an NIB, a one-time 
repatriation tax holiday could be used to unlock billions of dollars of 
domestically untaxed capital to fund the creation of a national 
infrastructure bank. In total, American corporations hold over $1.5 
trillion in domestically untaxed deferred dividend payments that are 
routed through foreign countries including Ireland, the Netherlands, 
the Cayman Islands, Barbados, and other so-called ``tax-havens.'' 
Because of the complexity and risk of these tax structures, the 
majority of firms that take advantage of these shelters are large and 
well-established corporations.
    While a similar repatriation holiday created through the 2004 
American Jobs Creation Act failed to generate significant domestic 
stimulus, a targeted program focused on infrastructure has the 
potential to deliver job creating and economy building projects for 
decades to come.
    By directing a percentage of the recovered taxes into the NIB or 
compelling corporations to invest a portion of the repatriated funds 
into a special class of bonds that supports this institution, Congress 
can encourage infrastructure investment in a time of political 
gridlock. Depending on the specific goals of the NIB, capitalizing it 
can occur in a flexible manner as well, with levels ranging from $10 
billion to $50 billion.
    Of course, there are real costs associated with any repatriation 
based program. Firm behavior after 2004, for instance, illustrated how 
a new repatriation holiday can reduce government revenues in following 
years. The Joint Committee on Taxation estimates that a one year 
seventy percent deduction on repatriated profits capped at $500 million 
per firm would cost the Treasury $41.7 billion over the next 
    \13\ U.S. Congress Joint Committee on Taxation, ``Revenue Estimates 
for Two Dividends-Received Deductions Proposals,'' 2011.
    The overall cost of the holiday is driven both by the direct loss 
of revenue on regularly repatriated funds that are taxed at standard 
rates, but also by the long-term consequences of corporate behavior 
change. A repatriation holiday may incentivize corporations to 
restructure their foreign subsidiaries to hold more funds overseas, and 
they may relocate workers to tax-haven countries, hoping to reap the 
benefits of future tax breaks. Among other effects, the holiday can 
further complicate an already byzantine tax-code and increase 
horizontal tax inequality by giving special privileges to firms that 
chose to hold funds overseas, which in effect rewards tax-evading 
behavior. However, policymakers must also weigh the long- and short-
term tax consequences of a repatriation holiday against the strategic 
and financial benefits of an NIB.
    Madam Vice Chairman, in this era of fiscal constraint I firmly 
believe the federal government will need to optimize the workings of 
the emerging federal-state-metro order. The urgency and complexity of 
the challenges facing the nation today suggest the need to devise new 
ways to increase impact and do more with less. At every turn, then, 
Washington should consider how to enhance the performance of the coming 
wave of co-developed, bottom-up problem-solving and then how to scale 
it up.\14\ Most of what I have described would require legislative 
action, possibly as part of a major tax reform bill or through budget 
negotiations. It won't be easy but the time is ripe to invest in 
infrastructure projects that put us on the path to a more productive 
and sustainable economy.
    \14\ Bruce Katz and Mark Muro, ``Remaking Federalism, Renewing the 
Economy: Resetting Federal Policy to Recharge the Economy, Stabilize 
the Budget, and Unleash State and Metropolitan Innovation,'' 
Washington: Brookings Institution, 2012.
    The views expressed in this testimony are those of the author alone 
and do not necessarily represent those of the staff, officers, or 
trustees of The Brookings Institution.
Prepared Statement of Chris Edwards, Director of Tax Policy Studies and 
         Editor of www.DownsizingGovernment.org, Cato Institute
    Mr. Chairman and members of the committee, thank you for inviting 
me to testify today. My comments will examine the federal role in 
infrastructure and discuss opportunities for greater private 
    The importance of infrastructure investment for U.S. economic 
growth is widely appreciated. But policy discussions often get 
sidetracked by a debate regarding the level of federal spending. To 
spur growth, it is more important to ensure that investment is as 
efficient as possible and that investment responsibilities are 
optimally allocated between the federal government, the states, and the 
private sector.
    Federal infrastructure spending often gets bogged down in 
mismanagement and cost overruns. And decades of experience show that 
many federal investments get misallocated to low-value activities 
because of politics. That's why we should tackle the nation's 
infrastructure challenges by decentralizing the financing, management, 
and ownership of investments as much as possible. State and local 
governments and the private sector are more likely to make sound 
investments without the federal subsidies and regulations that distort 
their decisionmaking.
    My testimony will discuss the growing private sector involvement in 
financing, constructing, and operating infrastructure such as highways, 
bridges, and aviation facilities around the world. Privatization of 
infrastructure promises to improve economic efficiency, spur growth, 
and reduce financial burdens on governments and taxpayers. As such, 
policymakers should focus on removing federal barriers to 
                 federal infrastructure in perspective
    Most of America's infrastructure is provided by the private sector, 
not governments. Indeed, private infrastructure spending--on factories, 
freight rail, pipelines, refineries, and other items--is much larger 
than federal, state, and local government infrastructure spending 
    A broad measure of infrastructure spending is gross fixed 
investment, as measured in the national income accounts.\1\ In 2012 
private investment was $2 trillion, compared to federal, state, and 
local government investment of $472 billion. Excluding defense, 
government investment was $367 billion. Thus, private infrastructure 
investment in the United States is five times larger than total 
nondefense government investment.
    One implication of the data is that if policymakers want to boost 
infrastructure spending, they should make policy reforms to spur 
private investment. Cutting the federal corporate income tax rate, for 
example, would increase the net returns to a broad range of private 
infrastructure, and thus spur greater investment.
    Nonetheless, government infrastructure is certainly important to 
the economy. But I am skeptical of claims that the United States has an 
infrastructure crisis because governments are not spending enough. For 
one thing, government investment as a share of gross domestic product 
(GDP) in the United States is in line with the other nations of the 
Organization for Economic Cooperation and Development (OECD). In 2010 
government gross fixed investment in the United States was 3.5 percent 
of GDP, which was a little higher than the OECD average of 3.3 
    Another reason for skepticism that governments are underinvesting 
is that some measures of infrastructure quality have shown steady 
improvement. For example, Federal Highway Administration (FHWA) data 
show that the nation's bridges have steadily improved in quality.\3\ Of 
the roughly 600,000 bridges in the country, the share that are 
``structurally deficient'' has fallen from 22 percent in 1992 to 11 
percent in 2012, while the share that are ``functionally obsolete'' has 
fallen from 16 percent to 14 percent.
    The surface quality of our interstate highways has also steadily 
improved. A study by Federal Reserve economists examining FHWA data 
found that ``since the mid-1990s, our nation's interstate highways have 
become indisputably smoother and less deteriorated.'' \4\ And the 
economists concluded that the interstate system is ``in good shape 
relative to its past condition.''
             problems with federal infrastructure spending
    There are frequent calls for increased federal spending on 
infrastructure, but advocates usually ignore the problems and failures 
of past federal efforts. There is a history of pork-barrel politics and 
bureaucratic mismanagement of many types of federal investment. Here 
are some of the problems:

      Investment is misallocated. Federal investments are often 
not based on actual marketplace demands. Amtrak investment, for 
example, has long been spread around to low-population areas where 
passenger rail makes little economic sense. Most of Amtrak's financial 
losses come from long-distance routes through rural areas that account 
for only a small fraction of all riders.\5\ Every lawmaker wants an 
Amtrak route through their state, so investment gets misallocated away 
from where it is really needed, such as the Northeast corridor.
      Investments are utilized inefficiently. Government 
infrastructure is often utilized inefficiently because supply and 
demand are not balanced by market prices. The vast water infrastructure 
operated by the Bureau of Reclamation, for example, greatly underprices 
irrigation water in western United States. The result has been wasted 
resources, harm to the environment, and a looming water crisis in many 
areas in the West.\6\
      Investment is mismanaged. Federal agencies don't have the 
strong incentives that private businesses do to ensure that 
infrastructure projects are completed and operated efficiently. Federal 
highway, energy, airport, and air traffic control projects, for 
example, have often suffered large cost overruns.\7\ The Big Dig in 
Boston--which was two-thirds funded by the federal government--exploded 
in cost to five times the original estimate.\8\ U.S. and foreign 
studies have found that privately financed infrastructure projects are 
less likely to have cost overruns than traditional government 
      Mistakes are replicated across the nation. Perhaps the 
biggest problem with federal intervention in infrastructure is that 
when Washington makes mistakes it replicates them across the nation. 
High-rise public housing projects, for example, were a terrible idea 
that federal funding helped spread nationwide. Federal subsidies for 
light-rail projects have biased cities to opt for these expensive 
systems, even though they are generally less efficient and flexible 
than bus systems.\10\ High-speed rail represents another federal effort 
to induce the states to spend money on uneconomical infrastructure.\11\
      Burdensome Regulations. A final problem with federal 
infrastructure spending is that it usually comes part and parcel with 
piles of regulations. Federal Davis-Bacon labor rules, for example, 
raise the cost of building state and local infrastructure. In general, 
federal regulations impose one-size-fits-all solutions on the states 
even though the states may have diverse infrastructure needs.
                   global trend toward privatization
    The answer to America's infrastructure challenges is not greater 
federal intervention, but greater involvement by the private sector. 
There has been a worldwide trend toward infrastructure privatization. 
Since 1990 about $900 billion of state-owned assets have been sold in 
OECD countries, about 63 percent of which has been infrastructure 
assets.\12\ What spurred the trend? The OECD says that ``public 
provision of infrastructure has sometimes failed to deliver efficient 
investment with misallocation across sectors, regions, or time, often 
due to political considerations. Constraints on public finance and 
recognized limitations on the public sector's effectiveness in managing 
projects have led to a reconsideration of the role of the state in 
infrastructure provision.'' \13\
    Short of full privatization, many countries have partly privatized 
infrastructure through public-private partnerships (``PPPs'' or 
``P3s''). P3s differ from traditional government contracting by 
shifting various elements of financing, management, operations, and 
project risks to the private sector. In a 2011 report, the OECD found a 
``widespread recognition'' around the world of ``the need for greater 
recourse to private sector finance'' in infrastructure.\14\
    Unfortunately, the United States ``has lagged behind Australia and 
Europe in privatization of infrastructure such as roads, bridges and 
tunnels,'' notes the OECD.\15\ About one fifth of public infrastructure 
spending in Britain is now through the P3 process, and in Canada P3s 
account for between 10 to 20 percent of public infrastructure 
    According to Public Works Financing, only 1 of the top 38 firms 
doing transportation P3s around the world are American.\17\ Of more 
than 700 transportation projects listed in the newsletter, only 28 are 
in the United States. Canada--a country with one-tenth of our 
population--has about the same number of P3 deals as we do.
    Nonetheless, a number of U.S. states have moved ahead with P3s and 
privatization. Some projects in Virginia illustrate the 

      Capital Beltway. Transurban and Fluor have built and are 
now operating new toll lanes along 14 miles of I-495. The firms used 
debt and equity to finance most of the project's $2 billion cost.\19\ 
The lanes were completed on time and on budget in 2012.
      Dulles Greenway. The Greenway is a privately owned toll 
highway in Northern Virginia completed in the mid-1990s with $350 
million of private debt and equity.\20\
      Jordan Bridge. FIGG Engineering Group and partners 
financed and constructed a $142 million highway bridge over the 
Elizabeth River between Chesapeake and Portsmouth. The bridge opened in 
2012, and its cost will be paid back to investors over time with toll 

    There are many advantages of infrastructure P3s and privatization. 
Most fundamentally, when private businesses are taking the risks and 
putting their profits on the line, funding is more likely to get 
allocated to high-return projects and completed in the most efficient 
    U.S. and foreign experience indicate that P3s are more likely to be 
completed on time and on budget than traditional government contracts. 
An Australian study compared 21 P3 (or PPP) projects with 33 
traditional projects and found: ``PPPs demonstrate clearly superior 
cost efficiency over traditional procurement . . . PPPs provide 
superior performance in both the cost and time dimensions, and . . . 
the PPP advantage increases (in absolute terms) with the size and 
complexity of projects.'' \22\ A government official overseeing the 
Capital Beltway P3 lauded the private firms in charge for their rapid 
and nonbureaucratic way of solving problems that arose during 
construction, which is ``not the way government works typically,'' he 
    The publisher of Public Works Financing, William Reinhardt, notes 
that ``the design-build contracting approach used in a P3 guarantees 
the construction price and project completion schedule of large, 
complex infrastructure projects that often befuddle state and local 
governments, as was the case with Boston's Big Dig.'' \24\ Reinhardt 
says that P3 projects typically experience capital cost savings of 15 
to 20 percent compared to traditional government contracting.
    A Brookings Institution study noted that the usual process of 
government investing decouples the construction from the future 
management of facilities, which results in contractors having little 
incentive to build projects that will minimize long-term costs.\25\ P3s 
solve this problem because the same company both builds and operates 
new facilities. ``Many advantages of PPP stem from the fact that they 
bundle construction, operations, and maintenance in a single contract. 
This provides incentives to minimize life-cycle costs,'' notes the 
    Another reason privatized infrastructure is efficient is that 
businesses can tap capital markets to build capacity and meet market 
demands, without having to rely on the instability of government 
budgeting. Our air traffic control (ATC) system, for example, needs 
major upgrades, but the Federal Aviation Administration (FAA) cannot 
count on a stable federal funding stream. The recent threatened 
disruptions to ATC from federal budget sequester cuts illustrate the 
hazards of having infrastructure depend on federal funding.
    The solution in this case is to privatize the U.S. air traffic 
control system, as Canada did with its system in 1996 with very 
favorable results.\26\ Canada's ATC is run by the nonprofit corporation 
Nav Canada separate from the government. It raises revenues from its 
customers to cover its operational and capital costs. Nav Canada is a 
``global leader in delivering top class performance,'' says the 
International Air Transport Association, which has given the company 
multiple awards.
              hurdles to private infrastructure investment
    Despite the benefits of private infrastructure investment, federal 
policies have long created hurdles for the states in pursuing 
privatization. Federal policymakers should free states from regulations 
and subsidies so that they can become ``laboratories of democracy'' for 
infrastructure. Here are some barriers to private infrastructure that 
policymakers should examine:

      Tax exemption on municipal bond interest. When state and 
local governments borrow funds to build infrastructure, the interest on 
the debt is tax-free under the federal income tax. That allows 
governments to finance infrastructure at a lower cost than private 
businesses, which stacks the deck against the private provision of 
infrastructure. Policymakers should consider phasing-out the tax 
exemption on state and local bond interest, perhaps in exchange for 
reducing overall tax rates on capital income.
      Income and Property Taxation. Government facilities don't 
pay income taxes. While state-owned airports are tax-exempt, for 
example, a for-profit airport would have its net earnings taxed at both 
the state and federal levels.\27\ Similarly, government-owned 
facilities are exempt from property taxes almost everywhere in the 
United States, while for-profit businesses often bear a heavy burden of 
property taxes on their land, structures, and machinery and 
equipment.\28\ Note that by privatizing infrastructure and thus 
subjecting it to taxation, governments would be broadening the tax 
base. They could use the added revenues from base broadening to reduce 
overall tax rates, which would spur greater investment of all types in 
the economy.
      Crowding Out. The existence of government 
infrastructure--which is often provided at artificially low prices to 
the public--deters potential private investments. Private highways, for 
example, face an uneven playing field because drivers on a private 
highway would have to pay the private tolls plus the gasoline taxes 
that fund the government's ``free'' highways.
      Federal subsidies. The crowding out problem is 
exacerbated when federal subsidies tilt state and local decisionmakers 
in favor of government provision. Potential private airports, for 
example, are not eligible for most federal airport subsidies. Or 
consider that before the 1960s most urban bus and rail services in 
America were privately owned and operated. But that ended with the 
passage of the Urban Mass Transportation Act of 1964. The Act provided 
subsidies only to government-owned bus and rail systems, not private 
systems.\29\ That prompted state and local governments across the 
country to take over private systems, swiftly ending more than a 
century of private transit investment in America's cities.
      Federal regulations. Federal regulations have restricted 
efforts to privatize state and local infrastructure. One issue has been 
that states receiving federal aid for their facilities have been 
required to repay the aid if the facilities are privatized. These rules 
have been liberalized over the years, but they may still create a 
disincentive to privatize in some cases.\30\ Another issue is that 
tolling has been generally prohibited on interstate highways, which 
prevented P3-style projects. However, the 2012 highway bill (MAP-21) 
allowed for the tolling of new capacity on the interstates, which is a 
step forward.\31\ Federal policymakers should work to eliminate 
remaining regulations that stand in the way of infrastructure 
      Labor Unions. Privatization would undermine the power of 
the public-sector unions that often dominate government services, and 
so unions actively lobby against reforms. Unions lobby against 
contracting-out airport security screening operations.\33\ The National 
Air Traffic Controllers Association lobbies against ATC privatization. 
And in the District of Columbia, unions are trying to block a proposal 
to allow private operation of some bus services.\34\ One solution to 
the problem is to ban monopoly unions (``collective bargaining'') in 
the public sector, which is the rule in a number of states.\35\
      Social Security. The structuring of Social Security as a 
pay-as-you-go system is a negative for privatized infrastructure. One 
of the fuels for the rise in P3s in other countries has been growing 
investment by pension funds. Infrastructure investment is a good fit 
for pension funds because it provides a return over a very long period 
of time, which matches the pattern of long-term liabilities of these 
funds. In Canada and Australia, the growth in P3s has been partly 
driven by the pools of savings created by reformed government 
retirement programs. In the United States, reforms to create Social 
Security private accounts would create a large pool of long-term 
savings to help fuel private infrastructure investment.

    Policymakers should reduce the hurdles to private investment so 
that we can attract more entrepreneurs to tackle the nation's 
infrastructure challenges. After all, private infrastructure is not a 
new or untried idea. Urban transit services used to be virtually all 
private.\36\ And before the 20th century, private turnpike companies in 
America built thousands of miles of toll roads.\37\ The takeover of 
much infrastructure by governments in the 20th century was a mistake, 
and policymakers here and abroad are now working to correct the 
    In sum, there is widespread agreement that America should have top-
notch infrastructure to spur growth and compete in the global economy. 
The way forward is for the federal government to cut subsidies and 
reduce its control over the nation's infrastructure. State and local 
governments should be encouraged to innovate with privatization and P3s 
to the fullest extent possible.
    Thank you for holding these important hearings.
    \1\ U.S. Bureau of Economic Analysis, National Income and Product 
Accounts, Table 1.5.5, www.bea.gov.
    \2\ This is OECD data for government gross fixed capital spending. 
The data underlies Figure 2.1 in OECD, ``Pension Funds Investment in 
Infrastructure: A Survey,'' September 2011.
    \3\ Federal Highway Administration data is available at 
    \4\ Jeffrey R. Campbell and Thomas N. Hubbard, ``The State of Our 
Interstates,'' Federal Reserve Bank of Chicago, July 2009.
    \5\ Tad DeHaven, ``Privatizing Amtrak,'' Cato Institute, June 2010, 
    \6\ Chris Edwards and Peter J. Hill, ``Cutting the Bureau of 
Reclamation and Reforming Water Markets,'' Cato Institute, February 
2012, www.downsizinggovernment.org/interior/cutting-bureau-reclamation.
    \7\ Chris Edwards, ``Government Cost Overruns,'' Cato Institute, 
March 2009, www.downsizinggovernment.org/government-cost-overruns.
    \8\ For background, see the Boston Globe's ``Easy Pass'' series of 
reports by Raphael Lewis and Sean Murphy, www.boston.com/globe/metro/
    \9\ For example, see Allen Consulting Group and the University of 
Melbourne, ``Performance of PPPs and Traditional Procurement in 
Australia,'' November 30, 2007. And see Richard Kerrigan, ``P3 Study: 
Over 80% of U.S. Highway P3s Were On-Time and On-Budget,'' Public Works 
Financing, November 2012, p. 16.
    \10\ Randal O'Toole, ``Urban Transit,'' Cato Institute, June 2010, 
    \11\ Randal O'Toole, ``High-Speed Rail,'' Cato Institute, June, 
2010, www.downsizinggovernment.org/transportation/high-speed-rail.
    \12\ Organization for Economic Cooperation and Development, 
``Pension Funds Investment in Infrastructure: A Survey,'' September 
    \13\ Organization for Economic Cooperation and Development, 
``Pension Funds Investment in Infrastructure: A Survey,'' September 
2011, p. 34.
    \14\ Organization for Economic Cooperation and Development, 
``Pension Funds Investment in Infrastructure: A Survey,'' September 
2011, p. 27.
    \15\ Organization for Economic Cooperation and Development, 
``Pension Funds Investment in Infrastructure: A Survey,'' September 
2011, p. 107.
    \16\ Public Works Financing, October 2011, p. 18, 
    \17\ Public Works Financing, October 2011, p. 3, www.pwfinance.net.
    \18\ Details on Virginia's PPPs are available at www.vappta.org/
    \19\ www.495expresslanes.com/project-background.
    \20\ http://dullesgreenway.com.
    \21\ www.figgbridge.com/jordan--bridge.html.
    \22\ Allen Consulting Group and the University of Melbourne, 
``Performance of PPPs and Traditional Procurement in Australia,'' 
November 30, 2007.
    \23\ Comments of Ron Kirby, Washington Council of Governments, 
Public Works Financing, December 2012, p. 21.
    \24\ William G. Reinhardt, ``The Case For P3s in America,'' Public 
Works Financing, January 2012.
    \25\ Eduardo Engel, Ronald Fischer, and Alexander Galetovic, 
``Public-Private Partnerships to Revamp U.S. Infrastructure,'' 
Brookings Institution, February 2011.
    \26\ Chris Edwards and Robert W. Poole, Jr., ``Airports and Air 
Traffic Control,'' Cato Institute, June 2010, 
www.downsizinggovernment.org/transportation/airports-atc. And see Chris 
Edwards, ``Privatize the FAA!'' Daily Caller, April 24, 2013.
    \27\ There appears to be just one private for-profit commercial 
airport in the United States. The Branson Airport in Branson, Missouri, 
opened in 2009. See www.flybransom.com.
    \28\ For background on the tax exemption on government land, see H. 
Woods Bowman, ``Reexamining the Property Tax Exemption,'' Lincoln 
Institute of Land Policy, July 2003. For information on property tax 
payments by businesses, see Council on State Taxation and Ernst and 
Young, ``Total State and Local Business Taxes,'' July 2012.
    \29\ National Research Council, ``Contracting for Bus and Demand-
Responsive Transit Services,'' Special Report 258, 2001, Chapter 2.
    \30\ President George H.W. Bush's 1992 Executive Order 12803 was 
designed to encourage federal approvals of state privatizations, and it 
liberalized the grant repayment requirements.
    \31\ Robert S. Kirk, ``Tolling of Interstate Highways,'' 
Congressional Research Service, February 13, 2013.
    \32\ For a discussion of the regulatory barriers to privatizing 
airports, see National Academy of Sciences, Transportation Research 
Board, ``Considering and Evaluating Airport Privatization,'' Airport 
Cooperative Research Program report no. 66, 2012, pp. 45-46. See also 
Jerry Ellig, The $7.7 Billion Mistake: Federal Barriers to State and 
Local Privatization, Joint Economic Committee Staff Report, February 
    \33\ Joe Davidson, ``Decision to Keep Federal Screeners at Calif. 
Airport Buoys Labor,'' Washington Post, January 10, 2013.
    \34\ Dana Hedgpeth, ``Union Aims To Block D.C. Bus Plan,'' 
Washington Post, July 20, 2013.
    \35\ Chris Edwards, ``Public-Sector Unions,'' Cato Institute Tax 
and Budget Bulletin no. 61, March 2010.
    \36\ Randal O'Toole, ``Urban Transit,'' Cato Institute, June 2010, 
    \37\ Gabriel Roth, ``Federal Highway Funding,'' Cato Institute, 
June 2010, www.downsizinggovernment.org/transportation/highway-funding.