[Senate Hearing 113-242]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 113-242

                REBUILDING THE NATION'S INFRASTRUCTURE:
                    LEVERAGING INNOVATIVE FINANCING
                    TO SUPPLEMENT FEDERAL INVESTMENT

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON SURFACE TRANSPORTATION
                  AND MERCHANT MARINE INFRASTRUCTURE,
                          SAFETY, AND SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 24, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
MARTIN HEINRICH, New Mexico          RON JOHNSON, Wisconsin
EDWARD MARKEY, Massachusetts         JEFF CHIESA, New Jersey
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

      SUBCOMMITTEE ON SURFACE TRANSPORTATION AND MERCHANT MARINE 
                  INFRASTRUCTURE, SAFETY, AND SECURITY

MARK WARNER, Virginia, Chairman      ROY BLUNT, Missouri, Ranking 
BARBARA BOXER, California                Member
MARIA CANTWELL, Washington           ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK BEGICH, Alaska                  DAN COATS, Indiana
RICHARD BLUMENTHAL, Connecticut      TIM SCOTT, South Carolina
BRIAN SCHATZ, Hawaii                 TED CRUZ, Texas
EDWARD MARKEY, Massachusetts         DEB FISCHER, Nebraska
                                     RON JOHNSON, Wisconsin
































                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 24, 2013...............................     1
Statement of Senator Warner......................................     1
Statement of Senator Blunt.......................................     3
Statement of Senator Klobuchar...................................     4
Statement of Senator Thune.......................................    31
Statement of Senator Blumenthal..................................    33
Statement of Senator McCaskill...................................    35
Statement of Senator Ayotte......................................    37

                               Witnesses

Hon. Norman Y. Mineta, former United States Secretary of 
  Transportation, former United States Secretary of Commerce.....     5
    Prepared statement...........................................     7
Matt Connelly, Vice President, Transportation, UPS...............     9
    Prepared statement...........................................    11
Peter J. Basso, Principal, Peter J. Basso and Associates, LLC, 
  Transportation Finance Consultants.............................    12
    Prepared statement...........................................    13
Robert Dove, Managing Director, The Carlyle Group................    17
    Prepared statement...........................................    19
J. Perry Offutt, Managing Director, Morgan Stanley & Co. LLC.....    21
    Prepared statement...........................................    22

                                Appendix

John A. Flaherty, Managing Director, Capital Network Partners and 
  Jill Eicher, Managing Director, The Fiduciary Infrastructure 
  Initiative, prepared statement.................................    41
Response to written questions submitted by Hon. Brian Schatz to:
    Robert Dove..................................................    43
    J. Perry Offutt..............................................    44
Response to written questions submitted by Hon. John Thune to:
    J. Perry Offutt..............................................    44
    Peter J. Basso...............................................    45
    Robert Dove..................................................    46
    Burt Wallace.................................................    46

 
                        REBUILDING THE NATION'S
                 INFRASTRUCTURE: LEVERAGING INNOVATIVE
               FINANCING TO SUPPLEMENT FEDERAL INVESTMENT

                              ----------                              


                      TUESDAY, SEPTEMBER 24, 2013

                               U.S. Senate,
         Subcommittee on Surface Transportation and
           Merchant Marine Infrastructure, Safety and Security,    
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:35 p.m., in 
room SR-253, Russell Senate Office Building, Hon. Mark Warner, 
Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank everybody for coming, and I'll call 
to order this hearing of the Surface Transportation 
Subcommittee.
    This is my first time chairing this subcommittee, and, as a 
former governor, it's a committee I look forward to chairing. I 
wish there might have been another way for me to get this 
position. I know, as--and I know Senator Blunt feels the same--
this is the first time I'll be chairing, because of the passing 
of our friend and colleague Senator Lautenberg. He was a great 
Senator and a great personal friend of mine and of this 
committee's.
    But, you know--and I--again, I want to apologize to the 
witnesses and to Senator Blunt for starting 5 minutes late; 
that's not necessarily the way I wanted to start my tenure as 
Chair--but today we're going to get--and, for everyone here, 
we're going to get at least a brief respite from the otherwise 
dysfunction that seems to be floating in the ether around 
Capitol Hill. We're going to be here to talk about challenges 
we face with our nation's infrastructure, what some potential 
tools that we could use to actually make some progress and in 
an area that--where, I think, over the coming weeks, we may be 
able to surprise a lot of people with an awful lot of 
bipartisan agreement.
    Again, some facts that most of the witnesses all know, and 
I know Senator Blunt and I have spent a great deal of time 
talking about, if we look at our nation's infrastructure today 
on any kind of historic basis, we're at all-time lows. As a 
proportion of our GDP, we are down to roughly half of what 
we're investing as a percent of our GDP, versus the 1970s. 
We're down roughly a little lower than 2 percent. And some of 
you may correct me on that, but that's the number I continue to 
use. China and India, they're more up in the 8 and 9 percent 
range. Even the Europeans, who've also got a mature economy, 
are spending double as a percent of their GDP than what we are.
    And let me say, MAP-21, on the transportation side or the 
traditional highway side, put us on a solid policy reform, and 
put in some performance measures that I think were long needed. 
It also was a bill that was basically flat-funded, and, out of 
that flat funding, my numbers say about 27 cents of every 
dollar was taken, not from the Highway Trust Fund, but, from an 
old governor's parlance, from the General Fund. So, it was 
being taken from defense, it was being taken from education, it 
was being taken from research or from Medicare.
    The recent CBO study found that the Highway Trust Fund goes 
broke in 2015. We've transferred 41 billion from the General 
Fund since 2008, and, in 2015, we'll actually need to transfer 
another 14 billion just to get through that year. This is not 
a--I said we--I wasn't going to be gloom and doom; we are going 
to get to the positive, upside of this.
    And I understand--and I talked to her briefly, one of the 
reasons why I was a little late--colleague Senator Boxer, over 
at EPW, will be holding a hearing tomorrow on the solvency of 
the Highway Trust Fund. I applaud that committee's work. And 
everything we can do to find a larger, more permanent funding 
source for the Highway Trust Fund, I look forward to working 
with--in a bipartisan way, with that.
    But, one of the things--and today's subject of the hearing 
is--we can supplement traditional funding streams with 
innovative financing mechanisms, public-private partnerships, 
and other ways of bringing private sector capital in to match 
and leverage our existing Federal and State and local funding 
streams. Senator Blunt and I have been talking about this for 
some time, and we'll have more to say about this in the coming 
weeks. But, as we talk about financing tools, let me, at least 
from my standpoint, say what we are talking about doing or 
creating, and what we're not talking about doing and creating.
    First, any kind of financing authority that might be 
proposed, going forward, is not a full solution set. It does 
not replace the need for permanent transportation funding. But, 
it is a very important tool in the toolbox, and it's a tool in 
the toolbox that I believe could supplement very successful 
existing financing tools, like TIFIA and some of the new WIFIA-
type projects that are already in place.
    Anything that we're talking about, there's been past 
proposals in this area, would be new. Past proposals had, 
perhaps, a broader, more governmental-type vision than some of 
the things we've been talking about. If there was any future 
legislation, there would not be legislation that would include 
grants, it would only be loans and, candidly, more loan 
guarantees. It would not be looking at creating some new giant 
bureaucracy. It would not be trying to get into the area of 
energy generation or financing for public buildings. It would 
really be about more traditional infrastructure. And it would 
have to meet the criteria of being paid for and self-sufficient 
once it was initially capitalized. And I think there are a 
number of models around the world, as well as even within the 
Federal Government--Export-Import Bank, for example--that we 
could use.
    Another area that I think of enormous importance as we look 
at existing public financing activities within the Federal 
Government is, how do we create the kind of public sector 
expertise in a single location or--where that project finance 
expertise can be located--and I know we've got some experts 
from--I won't call Carlyle ``Wall Street,'' but Morgan 
Stanley--from high-level financiers--how do we, on the 
taxpayers' side, have the expertise to go against--or go toe-
to-toe, at least--to make sure that the public sector gets the 
kind of protections and fair and good deals that we need? I 
don't think we have that kind of a expertise right now.
    And one of the things we've also been talking about is, 
while oftentimes infrastructure is talked about in needs or 
talked about in major areas, metropolitan areas, one of the 
things that I think some of the previous proposals lacked was 
enough focus on the fact that large swaths of our rural 
communities have enormous infrastructure needs, as well. So, 
any future financing authority or approach, I think would have 
to broaden its appeal for rural areas.
    Finally, I'd like to say that, you know, we've seen the Fed 
say they're going to continue QE--the quantitative easing--for 
some additional time. We may have different views about the 
effect of that. But, one thing I think none of us would deny, 
no matter what we feel about the Fed's policies, are--interest 
rates are not going to remain at these historic lows forever; 
they are going to start creeping back up. And for us not to 
take advantage of this period of time when credit is relatively 
cheap, on any kind of historic basis, would be a missed 
opportunity, I think, of enormous mistake.
    So, with that, I'd like to ask my Ranking Member and good 
friend, somebody who we've been working very closely on this 
idea, Senator Blunt, for any opening comments.

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Well, thank you, Senator Warner. And I look 
forward to working with you on this committee.
    You know, since the very founding of the government, 
infrastructure and just how much the Federal Government could 
do has been one of the debates that's defined the Federal 
system. A hundred and fifty years ago, the previous Congress 
had just passed the Intercontinental Railroad Act, and Federal 
Government was doing what it needed to do to connect the 
country in that way. And clearly, all of us who travel around 
the United States, or, frankly, live anywhere in the United 
States, realize that the infrastructure is stressed and it 
needs to be a focus.
    I just mentioned to Secretary Mineta that I was in Brazil 
for a few days in August with Secretary Vilsack. And in the 10 
years I've been going to Brazil, one of the things I saw was, 
their productive capacity has greatly increased, but their 
infrastructure no longer handles what they're able to produce.
    That very same thing is happening, and can continue to 
happen, to us. You can't be competitive if you don't have an 
infrastructure that allows you to be competitive. You can't be 
competitive in a global economy if you're not connected the 
right way to the right places that let you get to that global 
economy.
    Senator Klobuchar and I have worked a lot on travel and 
tourism. If you don't have the kind of facilities you need, 
infrastructure-wise, not only do people from other countries 
not visit your country and travel the way they otherwise would, 
but people in the country don't travel. The connectedness of 
families, the opportunity to understand and be part of the 
whole country is very much dependent on what happens in 
infrastructure. That's been a cooperative effort, from the very 
first days of the Federal Government, between the Federal 
Government and State and local governments. That's going to 
continue to be the case.
    And any legislature in America would be delighted to have 
this panel. It's a great panel. And, Chairman, I'm glad you've 
put it together and we've got it here today, because we want to 
talk about and begin to better understand all of the different 
ways that we can do things that encourage the enhancement of 
how we lend, how we travel, how we stay connected to each 
other, and how we advance our own interests and our economic 
interests by doing a better job with that.
    And so, the Chairman and I are working on some proposals. 
One of the reasons we wanted to have this panel today was to 
hear what you had to say about these topics, generally, so that 
we can further hone down the efforts that we hope to make, 
collectively and as a Senate and as a Congress, to create new 
tools and to make the old tools work better.
    And so, again, thank you all for being here. And, Chairman, 
thank you for your leadership on this. And I look forward to 
being part of this subcommittee and this whole committee with 
your leadership on the surface transportation issues.
    Senator Warner. Thank you, Senator Blunt.
    I want to get to the panel, but I just want to acknowledge 
Senator Klobuchar, who can speak firsthand. This is an area 
that she's been interested in for a long time. And we saw, not 
too long ago, the tragedy in Minnesota, about not meeting up 
with our infrastructure needs, so----
    Do you want to add anything, Senator?

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Well, thank you.
    I just want to--appreciate that you brought up the rural 
issues, Senator Warner. And I can't think of a better person to 
lead this subcommittee, and, along with Senator Blunt, that we 
could actually get something done, here.
    I think Secretary Mineta and our panelists know there's 
long been bipartisan support for transportation issues. It is 
there. And so, we just have to figure out the right way to do 
it. And the work with infrastructure banks--I love the River 
Act, the idea of how--the industry being willing to pay higher 
fees to help with our locks and dams. We have a lot going on 
with freight. And there's just a lot of possibilities.
    And I view this whole thing as the way we get the economy 
going, because it's part of exports, it's part of getting goods 
to market. And if we're going to double our exports in 5 years, 
the only way we can get there is if we have a good 
transportation system that carries those goods to market.
    So, thank you.
    Senator Warner. I'm going to move to the panel, although I 
would acknowledge, as well, that the--I think, in the last 30 
or 40 years, the two states that have actually had the real 
results of infrastructure disasters have been Connecticut and 
Minnesota. I remember, in particular--it wasn't that long ago.
    Senator Blumenthal. That's right, Mr. Chairman. And your 
home state appreciates your having this hearing.
    [Laughter.]
    Senator Warner. Let the record show that----
    Senator Blumenthal. And thank you, to the panel.
    Senator Warner.--I'm a proud Virginian.
    [Laughter.]
    Senator Warner. And moving forward with that, we're going 
to get to the panel.
    I'm going to--because we all spoke a little long, I'm going 
to skip the very distinctive, long introductions of each of the 
members of this panel. I'm going to simply introduce them with 
one line each and then let them proceed.
    Obviously, we're going to start with former Secretary, 
former Member of Congress, Norm Mineta, who was Secretary of 
Transportation under President Bush and Secretary of Commerce 
under President Bill Clinton, and is a dear friend of all of 
the members of this panel; Matt Connelly, who is going to bring 
our users' perspective, Vice President of Transportation for 
UPS, a nationwide company obviously very, very concerned with 
transportation; Jack Basso, a Principal of Peter J. Basso and 
Associates, but that may be working for now, but anybody who's 
been involved in transportation over the last 30 years knows 
that Jack Basso was the heart and soul of AASHTO for a long 
time and knows more about transportation--has forgotten more 
about transportation than I'll ever know in my whole lifetime; 
Robert Dove, who's one of the managing directors of Carlyle 
Investment--Infrastructure Partners--Carlyle, here in D.C.--and 
brings both a national and international perspective to this 
issue; and Perry Offutt, the Managing Director for 
Infrastructure Banking at Morgan Stanley--again, one of the 
national and international leaders.
    We're very happy to have all of these distinguished members 
of the panel. And we'll just start with Secretary Mineta and go 
down the list. And we'd ask you all to try to keep your 
comments to about 5 minutes each, because we've got lots of 
questions for you.

   STATEMENT OF HON. NORMAN Y. MINETA, FORMER UNITED STATES 
SECRETARY OF TRANSPORTATION, FORMER UNITED STATES SECRETARY OF 
                            COMMERCE

    Mr. Mineta. Thank you very much, Mr. Chairman, members of 
the Committee. And thank you for your invitation to appear 
before the Subcommittee here today.
    Senator Warner, please accept my congratulations on your 
becoming the Chair of this subcommittee. Your experience as the 
Chief Executive of the Commonwealth of Virginia and your 
accomplishments as Governor really do show the accomplishments 
and innovative financing that you were able to accomplish and 
that we should see, on a bipartisan level, at the national 
level.
    And, of course, my friend Senator Blunt, thank you for your 
work on the Subcommittee and your work on the bipartisan 
legislation known as the Revitalization of American 
Manufacturing and Innovation Act. Both show your knowledge of 
the relationship between manufacturing and our nation's 
transportation system.
    In discussing infrastructure financing and what role a 
national financing authority should have, I would like to 
identify some of the existing challenges that we currently 
face. Our nation has challenges that have--and our nation has 
not developed a bipartisan set of financing models which can be 
used by Federal, State, and local governments. The unfortunate 
truth is, projects using innovating financing are more the 
exception than the rule.
    First, both the public and private sectors have not been 
successful in communicating with one another about innovative 
financing models. Too often, public officials have had to rely 
on financial advisors from the public finance community, who 
are now well-versed in these new models. Issues like lifecycle 
cost and other issues have not received the kind of attention 
that they should.
    And the private sector was too slow to recognize that a 
business-to-business model neither successfully addressed the 
needs of the public sector nor was effective in communicating 
with public officials. Too often, they appeared to be 
interested in a de facto privatization model and not a genuine 
partnership.
    Many traditionalists used this time to derail a 
constructive policy discussion. Instead of looking for ways to 
create real partnerships that took the best of both systems, 
the discussion devolved into traditional battles of public 
versus privatization, organized labor versus Wall Street, and 
rural versus urban and suburban. Frankly, none of these labels 
apply. There have been collaborations, which have broken every 
one of these inaccurate criticisms.
    This recent history of this false debate has contributed to 
a second challenge, and that is managing political risk. The 
private sector invests only after assessing the degree of risk 
it faces on getting a return on an investment. State and local 
governments should have a process in which analysis of the 
right model has an identifiable and fair system of review and 
approval. Virtually every infrastructure stakeholder is 
disinclined to invest funds into a potential project if the 
institutional process is set up to be easily manipulated to 
derail a project.
    A third challenge is, private investors often have money 
that is too expensive. The return on investment, or ROI, is 
often in the double digits, and frequently that just can't 
compete with other forms of financing. So, what looks like a 
small pipeline of candidates for innovative financing is often 
just public officials using cheaper money with lower interest 
rates.
    And a fourth hurdle is a familiar one. Whether it's the 
project design process, procurement practices, or environmental 
reviews, the timeline between a project being funded and when 
it is completed is just too long. Procurement between 
environmental and environmental safeguards need to be strong. 
But, the system is too easy to manipulate into unacceptable 
delays, and we cannot expect investors to tie up their funds in 
projects that are locked in a process that is inefficient and 
unpredictable. And this is a problem that affects every 
citizen, but it is particularly costly when developing 
alternative funding models.
    Mr. Chairman, this committee can address every one of these 
challenges that I have identified, address them now, even while 
you are developing a national financing authority.
    First, this subcommittee can serve as resource for 
constructive solution-based education of alternative funding 
models. Mr. Chairman, you are a true pioneer in this area, and, 
with your leadership, you can help Members of Congress in both 
houses learn more about the benefits of these new models.
    Also, Congress can find, and should insist, that Federal 
agencies can--that Federal agencies make it a priority to work 
with State and local governments to develop these models and 
serve as a validator in working with their citizens.
    Third, I would encourage the Subcommittee to develop a 
structure that takes advantage of multiple equity sources. 
Pension funds are becoming increasingly sophisticated at 
infrastructure investment. And State infrastructure banks, 
community banks, and even engineering and construction 
companies can provide cheaper equity to projects in a variety 
of infrastructure modes.
    Mr. Chairman, there are several stakeholders in this 
process who can help the Committee and point to past examples 
of success, Federal systems that can be improved, and new 
innovative models that hold a great deal of promise. Mr. Robert 
Dove, who the Committee will hear from today, created a project 
in Connecticut in which his fund, partnered with a Republican 
Governor and organized labor's SEIU in a State transportation 
project. My former DOT colleague, Jack Basso, who is here 
before the Committee, is a subject-matter expert in identifying 
ways that Federal agencies can gain additional leverage from 
existing models, like TIFIA and TIGER grants, in order to bring 
more investment into the system.
    Your subcommittee, Mr. Chairman, has received written 
testimony from my former Transportation chief of staff, John 
Flaherty and Jill Eicher, who was an innovator in financing 
more infrastructure with pension funds, and I recommend the 
Subcommittee review the models that they have outlined to you.
    And finally, Mr. Chairman, I would encourage the 
Subcommittee to reach out and support leaders in the 
Administration who have made these issues of priority. 
Agriculture Secretary Tom Vilsack has his staff doing some 
outstanding work, developing ways to use the USTA resources to 
get more private investment in rural America.
    So, Mr. Chairman and Senators, best wishes in your efforts. 
Thank you for inviting me here today. And thank you for your 
efforts to address this critical need in our great nation.
    [The prepared statement of Mr. Mineta follows:]

   Prepared Statement of Hon. Norman Y. Mineta, former United States 
Secretary of Transportation, former United States Secretary of Commerce
    Mr. Chairman and Members of the Committee, thank you for your 
invitation to appear before the Subcommittee here today. And Mr. 
Chairman, thank you very much for those kind comments.
    Senator Warner, please accept my congratulations on your becoming 
Chair of this Subcommittee. Your experience as the chief executive of 
the Virginia Commonwealth, and your accomplishments as Governor in 
innovative transportation funding policies are bipartisan examples of 
what is needed at the national level.
    Senator Blunt, thank you for your work on this Subcommittee and 
your leadership on such bipartisan legislation as the ``Revitalize 
American Manufacturing and Innovation Act of 2013.'' Both show your 
knowledge of the interrelationship between transportation and our 
Nation's manufacturing.
    In discussing infrastructure financing, and what role a national 
financing authority should have, I would like to identify some of the 
existing challenges we currently face. Our nation has not developed a 
bipartisan set of financing models which can be used by federal, state, 
and local governments. The unfortunate truth is projects using 
innovative financing are more the exception than the rule.
    First, both the public and private sectors have not been successful 
in communicating with one another about innovative financing models. 
Too often public officials have had to rely on financial advisors from 
the public finance community who are not well-versed in these new 
models. Issues like life cycle costs and other issues have not received 
the attention they should have.
    The private sector was too slow to recognize that a business-to-
business model neither successfully addressed the needs of the public 
sector nor was effective in communicating with public officials. Too 
often they appeared to be interested in a de facto privatization model 
and not a genuine partnership.
    Many traditionalists used this time to derail a constructive policy 
discussion. Instead of looking for ways to create real partnerships 
that took the best of both systems, the discussion devolved into 
traditional battles of public vs. privatization; organized labor vs. 
Wall Street; and rural vs. urban and suburban. Frankly, none of these 
labels apply. There have been collaborations which have broken every 
one of these inaccurate criticisms.
    This recent history of this false debate has contributed to a 
second challenge: managing political risk. The private sector must 
invest only after assessing the degree of risk it faces on getting a 
return on its investment. State and local governments should have a 
process in which analysis of the right model has an identifiable and 
fair system of review and approval. Virtually every infrastructure 
stakeholder is disinclined to invest funds into a potential project if 
the institutional process is set up to be easily manipulated to derail 
a project.
    A third challenge is private investors often have money that is too 
expensive. The return on investment--or ROI--is often in the double 
digits, and frequently that just can't compete with other forms of 
financing. So what looks like a small pipeline of candidate projects 
for innovative financing is often just public officials using cheaper 
money with lower interest rates.
    A fourth hurdle is a familiar one, Mr. Chairman. Whether it is the 
project design process, procurement practices, or environmental 
reviews, the timeline for between when a project is funded when it is 
completed is just too long. Procurement and environmental safeguards 
need to be strong, but the system is too easy to manipulate into 
unacceptable delays. We cannot expect investors to tie up their funds 
in projects that are locked in a process that is inefficient and 
unpredictable. This is a problem that affects every citizen, but it is 
particularly costly when developing alternative funding models.
    Mr. Chairman, this committee can address every one of these 
challenges I have identified, and address then now even while you are 
developing a national financing authority.
    First, this Subcommittee can serve as a resource for constructive, 
solution-based education of alternative funding models. Mr. Chairman 
you are a true pioneer in this area, and with your leadership you can 
help Members of Congress in both houses learn more about the benefits 
of these new models.
    Also, Congress can and should insist that Federal agencies make it 
a priority to work with state and local governments to develop these 
models and serve as validators in working with their citizens.
    Third, I would encourage the Committee to develop a structure that 
takes advantage of multiple equity sources. Pension funds are becoming 
increasingly sophisticated at infrastructure investment, and state 
infrastructure banks, community banks, and even engineering and 
construction companies, can provide cheaper equity to projects in a 
variety of infrastructure modes.
    Finally, Mr. Chairman, there are several stakeholders in this 
process who can help the Committee and point to past examples of 
success; Federal systems that can be improved; and new innovative 
models that hold a great deal of promise.
    Mr. Dove, who the Committee will hear from today created a project 
in Connecticut in which his fund partnered with a Republican governor 
and organized labor's SEIU in a state transportation project.
    My former DOT colleague, Jack Basso, who is here before the 
Committee is a subject matter expert in identifying ways Federal 
agencies can gain additional leverage from existing models like TIFIA 
and Tiger grants in order to bring more investment into the system.
    Your committee has received written testimony from my former 
Transportation chief of staff, John Flaherty, and Jill Eicher, who is 
an innovator in financing more infrastructure with pension funds, and I 
recommend the Committee review the models they have outlined to you.
    And finally, I would encourage the Committee to reach out and 
support leaders in the Administration who have made these issues a 
priority. Agricultural Secretary Tom Vilsack has his staff doing some 
outstanding work developing ways to use the USDA resources to get more 
private investment in rural America.
    So, Mr. Chairman, and Senators, best wishes in your efforts. Thank 
you for inviting me here today, and thank you for your efforts to 
address this critical need for our nation.

    Senator Warner. Thank you, Secretary Mineta, and thank you 
for all the great work you've done for our country in so many 
different roles.
    Mr. Connelly.

STATEMENT OF MATT CONNELLY, VICE PRESIDENT, TRANSPORTATION, UPS

    Mr. Connelly. Chairman Warner, Ranking Member Blunt, and 
members of the Subcommittee, thank you for the opportunity to 
testify.
    At UPS, we use every mode of transportation, so we can 
offer a broad perspective on ways to improve and fund America's 
transportation infrastructure. Each day at UPS, we deliver 16.3 
million packages to 8.8 million customers. We serve every 
address in North America, and we operate in more than 220 
countries and territories.
    It is estimated that, at any given time, the economic value 
of the goods and services that move in the UPS supply chain 
equate to 6 percent of our country's gross domestic product, 2 
percent of our global GDP. Our delivery fleet includes more 
than 96,000 commercial vehicles, which traveled more than 2.3 
billion miles on American roads and highways last year. We 
operate one of the largest airlines in the world, with more 
than 560 owned and leased aircraft, and each year we move over 
500,000 TEUs, or ocean containers, via our UPS ocean freight 
services. And we are the largest--one of the largest customers 
of American freight railroads, moving 3,000 trailers and 
containers by intermodal every day.
    With that kind of volume and breadth of our multimodal 
network, finding ways to eliminate bottlenecks is essential for 
us. Congestion and inefficiency impose real costs in our 
company, our customers, and America's competitiveness. For 
example, if every UPS delivery vehicle is delayed just 5 
minutes per day, it would cost UPS an additional $105 million 
of operating costs annually.
    The Texas Transportation Institute found that congestion 
cost the U.S. economy $121 billion in 2011. In today's just-in-
time manufacturing environment, delays in the flow of inputs 
and finished products make American companies less competitive 
and eventually force consumers to pay higher prices.
    Until our infrastructure is modernized, America's economy 
will fall short of its full potential. That's why UPS supports 
a strong Federal role in transportation policy to ensure 
coordination and national focus. For example, MAP-21 included a 
focus on freight. And we encourage a greater commitment to that 
idea in the next surface transportation bill, along with larger 
investment in projects of national and regional significance.
    Overall, what does 21st century infrastructure look like? 
It provides sufficient capacity, runs seamless across modes, 
and is adequately funded today and into the future.
    It starts with having sufficient capacity to meet the needs 
of all users. According to the American Trucking Association, 
domestic freight demand will double by 2050. Truck freight 
demand will increase by 25 percent in just the next 12 years. 
America's capacity must keep pace with the rising demand.
    Second, a modern infrastructure includes seamless 
connections between modes. Over the years, America's 
transportation system has been built by mode in silos. It's a 
patchwork. What we need is a network and a seamless system 
where freight can move between modes by the most efficient and 
economical path. At UPS, we ship packages between trucks, rail, 
seaports, and airports to find the most efficient, economical, 
and environmentally friendly route. When those intermodal 
connections are backed up, it hurts our customers and it hurts 
our country's productivity. So, improving these connections 
between modes is critical.
    And finally, our transportation infrastructure must be 
adequately funded. At UPS, we believe every funding option 
should be examined. Specifically, we believe that existing user 
fees should be increased and new user fees should be 
considered, as long as they are dedicated solely to 
transportation. For example, we favor increasing the Federal 
fuel tax, indexing it to inflation, and dedicating that revenue 
exclusively to the Highway Trust Fund. Not many companies will 
stand up and say, ``Tax us more for the transportation 
infrastructure we use,'' but that's exactly what UPS is saying, 
as long as the funding is not diverted to other uses. We want 
to be part of the solution, and we're willing to do our part.
    Further, we believe a tax on vehicle miles traveled, or 
VMT, should be considered. This subcommittee is studying an 
infrastructure financing authority, an idea that we are open to 
exploring. So far, we have withheld judgment, because as 
always, the devil is in the details. We would look for 
dedicated funding to improve the flow of goods, such as 
projects that address highway infrastructure, freight rail 
fluidity, air traffic management, seaport connectivity, and 
related challenges.
    Some have suggested adding tolls on interstate highways. 
It's an approach that concerns us. New tolls could divert 
vehicles onto roads that are not designed safely to handle 
increased freight traffic. If Congress wants to pursue tolling, 
we would encourage it for new highway capacity, where toll 
lanes are optional.
    So, in our view, sufficient capacity, seamless 
connectivity, and adequate funding should be important goals of 
the next highway bill.
    Finally, it's worth remembering that 95 percent of the 
world's consumers are outside the American borders. The more we 
can do to sell to them, the stronger our economy will be. 
That's why UPS supports negotiations on the Trans-Pacific 
Partnership, the Trade and International Services Agreement, 
and the Transatlantic Trade and Investment Partnership. 
Congress should also address the barriers that freight faces at 
and behind the border, with particular focus on Customs 
modernization.
    In closing, we believe this subcommittee has a unique 
opportunity to improve freight capacity, connectivity, and 
funding. And we look forward to working with you throughout 
this legislative process.
    [The prepared statement of Mr. Connelly follows:]

 Prepared Statement of Matt Connelly, Vice President, Transportation, 
                                  UPS
    Chairman Warner, Ranking Member Blunt, and members of the 
Subcommittee, thank you for the opportunity to testify. At UPS, we 
deliver using every mode of transportation, so we can offer a broad 
perspective on ways to improve and fund America's transportation 
infrastructure.
UPS Operates in Every Transportation Mode
    Each day at UPS, we deliver 16.3 million packages to 8.8 million 
customers. We serve every address in North America, and we operate in 
more than 220 countries and territories. It is estimated that, at any 
given time, the economic value of the goods and services moving in the 
UPS supply chain equates to 6 percent of our country's Gross Domestic 
Product, and 2 percent of global GDP. Our delivery fleet includes more 
than 96,000 commercial vehicles, which travelled more than 2.3 Billion 
miles on American roads and highways last year. We operate one of the 
largest airlines in the world with more than 560 owned and leased 
aircraft. Every year, we move 500,000 TEUs (containers) via UPS Ocean 
Freight Services. And, we are one of the largest customers of America's 
freight railroads, moving 3,000 trailers and containers by intermodal 
rail every day. With that kind of volume and the breadth of our multi-
modal network, finding ways to eliminate bottlenecks is essential for 
us.
The Costs of Congestion
    Congestion and inefficiency impose real costs on our company, our 
customers, and America's competitiveness. For example, if every UPS 
delivery vehicle is delayed just 5 minutes each day, it would cost UPS 
an additional $105 million in operating costs annually.
    The Texas Transportation Institute found that congestion cost the 
U.S. economy $121 billion in 2011. In today's just-in-time 
manufacturing environment, delays in the flow of inputs and finished 
products make American companies less competitive and eventually force 
consumers to pay higher prices. Until our infrastructure is modernized, 
America's economy will fall short of its full potential.
    That's why UPS supports a strong Federal role in transportation 
policy to ensure coordination and national focus. For example, MAP-21 
included a ``focus on freight,'' and we encourage a greater commitment 
to that idea in the next Surface Transportation Bill, along with a 
larger investment in projects of national and regional significance.
21st Century Transportation Infrastructure
    Overall, what does 21st Century infrastructure look like? It 
provides sufficient capacity, runs seamlessly across modes, and is 
adequately funded today and into the future.
1.  Sufficient Capacity
    It starts with having sufficient capacity to meet the needs of all 
users. According to the American Trucking Associations, domestic 
freight demand will double by 2050, and truck freight demand will 
increase by 25 percent in just the next 12 years. America's capacity 
must keep pace with the rising demand.
2. Seamless Connections
    Second, a modern infrastructure includes seamless connections 
between modes. Over the years, America's transportation system has been 
built mode-by-mode in silos. It's a patchwork. What we need is a 
network--a seamless system where freight can move between modes by the 
most efficient and economical path. At UPS, we shift packages between 
trucks, rail, seaports and airports to find the most efficient, 
economical, and environmentally friendly route. When those intermodal 
connections are backed up, it hurts our customers and our country's 
productivity, so improving the connections between modes is critical.
3. Adequate Funding
    And finally, our transportation infrastructure must be adequately 
funded. At UPS, we believe every funding option should be examined. 
Specifically, we believe that existing user fees should be increased, 
and new user fees should be considered as long as they are dedicated 
solely to transportation.
    For example, we favor increasing the Federal fuel tax, indexing it 
to inflation, and dedicating the revenue exclusively to the Highway 
Trust Fund. Not many companies will stand up and say, ``Tax us more for 
the transportation infrastructure we rely on.'' But that's exactly what 
UPS is saying--as long as the funding is not diverted to other uses. We 
want to be part of the solution, and we're willing to do our part.
    Further, we believe a tax on ``Vehicles Mile Traveled'' (VMT) 
should be considered.
    This Subcommittee is studying an Infrastructure Financing 
Authority, an idea we are open to exploring. So far, we have withheld 
judgment because, as always, the devil is in the details. We would look 
for dedicated funding to improve the flow of goods, such as projects 
that address highway infrastructure, freight rail fluidity, air traffic 
management, seaport connectivity, and related challenges.
    Some have suggested adding tolls on interstate highways. It's an 
approach that concerns us. New tolls could divert vehicles onto roads 
that are not designed to safely handle increased freight traffic. If 
Congress wants to pursue tolling, we would encourage it for new highway 
capacity, where the toll lanes are optional.
    So, in our view, sufficient capacity, seamless connectivity and 
adequate funding should be important goals of the next highway bill.
Strengthening America's Global Competitiveness
    Finally, it's worth remembering that 95 percent of the world's 
consumers are outside America's borders. The more we can do to sell to 
them, the stronger our economy will be. That's why UPS supports 
negotiations on the: Trans-Pacific Partnership (T.P.P.), the Trade and 
International Services Agreement (T.I.S.A.), and the Transatlantic 
Trade and Investment Partnership (TTIP). Congress should also address 
the barriers that freight faces ``at and behind the border,'' with 
particular focus on customs modernization.
    In closing, we believe the Subcommittee has a unique opportunity to 
improve freight capacity, connectivity and funding, and we look forward 
to working with you throughout the legislative process.

    Senator Warner. Thank you, Mr. Connelly.
    Mr. Basso?

            STATEMENT OF PETER J. BASSO, PRINCIPAL,

              PETER J. BASSO AND ASSOCIATES, LLC,

               TRANSPORTATION FINANCE CONSULTANTS

    Mr. Basso. Thank you, Mr. Chairman and members of the 
Committee, for holding this important hearing.
    As we approach the need to reauthorize surface 
transportation programs and, as important, to address the broad 
ways that funding and financing of infrastructure can be 
enhanced, new legislation to enhance, particularly, the 
financing component must be considered.
    As has been well documented, there is a huge gap between 
infrastructure investment needs and the funding that's 
available. The American Society of Civil Engineers documented 
that 1 trillion is needed to meet needs, over the next 5 years, 
just to address current conditions; and, in surface 
transportation sector, we are investing only about 40 percent 
of what is needed at all levels of government.
    In addition, as you mentioned, the Highway Trust Fund, the 
main Federal funding source, according to the Congressional 
Budget Office, according to the Congressional Budget Office, 
will, in fact, fall very short of having sufficient money in 
Fiscal Year 2015 to meet obligations. And, in reality, the $40 
billion highway program would be reduced to a $200 million 
program, or about a 98-percent reduction.
    Let me turn to financing for a minute. Given that backdrop, 
one of the areas we have evolved over the past 15 years is 
financing. This method is different funding, in that it allows, 
through techniques such as GARVEE bonds, the TIFIA program, 
State infrastructure banks, Build America bonds, states to 
finance projects, thus moving forward much more quickly, and 
thus, providing them with needed infrastructure and savings of 
inflationary costs. All of these programs have made a 
contribution to expanding infrastructure investment. They need 
to be continued, and I'll discuss some additional tools that 
need to be added.
    Also, we've experienced the growth of public-private 
partnerships, which brings private capital to the table and 
shares the project risk. In my written testimony, I provide 
some examples of such projects. However, it is clear that the 
private sector has much more in resources and, with the right 
vehicles, could make a larger contribution to the Nation's 
infrastructure needs.
    An important point to mention is that most of these 
approaches require a revenue stream, since effectively, the 
debt must be repaid. Also, we need to consider how to make such 
programs work in rural America. I certainly believe that can be 
done relatively easily.
    We're at a point where we need to consider the next step. A 
legislative approach, such as the BUILD Act proposal, would 
create a Federal corporation to advance loans, loan guarantees, 
and other forms of credit support. As I understand it, after 
the initial capitalization, the corporation would be self-
sustaining and would also be open to such support for 
infrastructure.
    And I'd add one point. For the last 8 years, I've been 
trying to get something like this enacted, and this is a 
wonderful time to take that up.
    This new approach clearly would attract private capital and 
stimulate further growth of public-private partnerships.
    So, let me conclude. At this critical time, we need to 
understand the differences between direct funding and 
financing, how they can work together to begin to address this 
massive infrastructure investment gap, and really fund and 
finance both.
    Thank you.
    [The prepared statement of Mr. Basso follows:]

  Prepared Statement of Peter J. Basso, Principal, Peter J. Basso and 
          Associates, LLC, Transportation Finance Consultants
    Mr. Chairman, I am Peter J. ``Jack'' Basso, Principal of Peter J. 
Basso and Associates, LLC and consultant to Parsons Brinkerhoff. I also 
serve on the advisory board of Meridiam Infrastructure North America. 
and as a Board Member of the Maryland Transportation Authority. I am 
pleased to be here today to discuss the critical need for 
infrastructure investment and ways that increased investment levels 
might be achieved.
    The Federal Government is a key player in partnership with the 
State and local governments and the private sector. There is much to be 
done and achieving enhanced investment in the broad field of 
infrastructure can enhance America's international competitive 
position.
    In my testimony I will discuss:

   the gap between needs for investment and the level of 
        investment by all parties,

   provide information on the evolution of financing approaches 
        that compliment traditional funding approaches,

   discuss new innovative financing approaches, e.g., the 
        advancement of proposals that would create an independent 
        government corporation to enhance and expand financing to the 
        broad infrastructure needs of the nation,

   provide information on how such innovations might be seen by 
        both public and private partners in a way that would expand 
        infrastructure investment
Current Transportation Funding at All Levels of Government Versus 
        Transportation Investestment Needs
    Currently all levels of government (Federal, state and local) 
invest an estimated $90 billion annually in surface transportation 
infrastructure.\1\ The National Transportation Policy and Revenue Study 
Commission estimated that the needs at all levels of government to be 
an average of $225 billion annually. Thus the investment level is about 
forty percent of needs. This underinvest has been documented in various 
studies for at least the past twenty years.
---------------------------------------------------------------------------
    \1\ Source: The National Transportation Policy and Revenue Study 
Commission, 2008.
---------------------------------------------------------------------------
    Historically, the source of this investment has been predominately 
taxes and ``user fees'' complimented beginning in 1993 with the 
development of Federal credit programs for surface transportation. Such 
programs existed prior to that time for water and sewer programs and a 
few other Federal infrastructure programs.
The Current Crisis in Surface Transportaion Infrastructure Investemnt
    While the Highway Trust Fund has served as the backbone of Federal 
surface transportation programs since 1956, it is now expected to reach 
a shortfall situation where virtually all new obligations will be 
eliminated in FY 2015. According to the Congressional Budget Office, 
this is due to the structural deficit between receipts and outlays 
which averages around $15 billion and will continue to increase over 
time.
    If no new revenues are identified for the Highway Trust Fund, 
highway obligations are expected to be reduced by almost 100 percent 
from $40 billion in FY 2014 to $0.2 billion the following year. Transit 
obligations are expected to also experience a significant funding 
reduction.
    The chart that follows graphically presents the impact of these 
reductions:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


The Growing Federal Role for Surface Transportation Finance: 1990S to 
        Today
    In 1993 the Federal Government (Federal Highway Administration) 
began an effort to introduce credit tools into the system using Title 
23 Test and Evaluation authority to solicit projects that might be 
developed using credit and project acceleration tools. States submitted 
multiple proposals and many were used to form the basis for financing 
as a departure from traditional revenue based funding.
    In 1995 Congressional authority was sought using the Credit Reform 
Act of 1990 to make $400 million direct loan to contribute to the 
building of the Alameda Railroad Corridor in California. The key was 
the $400 million became the final piece of a $2 billion project and 
scored on the Federal budget not at $400 million but rather $50 million 
in appropriations. The loan was paid by tolls from the users of the 
corridor.
    In that same period the Federal Government began authorizing states 
to issue Grant Anticipation Revenue Vehicles (GARVEE bonds) which are 
to be paid from future Federal apportionments from the HTF. Some $16.2 
billion of bonds have been issued by twenty six states, the District of 
Columbia and Puerto Rico through, 2012.\2\ The National Highway System 
Designation Act codified this program in 1995.
---------------------------------------------------------------------------
    \2\ Source: U.S. Federal Highway Administration data.
---------------------------------------------------------------------------
    Other the credit concepts: in 1996 and 1997 the Federal Government 
appropriated funds to seed the development of State Infrastructure 
Banks and multiple states acted to create these banks. Many of these 
banks continue to operate today.
    With the passage of TEA-21 the TIFIA program was created to 
provide, a portion of capital for loans, loan guarantees and standby 
lines of credit for transportation programs. The program was 
reauthorized most recently in MAP-21 with a tenfold increase in credit 
subsidy funding ($1.75 billion) with a leverage factor of 10 to 1 to 
the subsidy.
    The Build America Bonds program enacted in the economic stimulus 
legislation further enhanced the advancement of credit financed 
projects.
    It is important to keep in mind that tools like TIFIA loans that 
needs to be paid back over time are not like traditional grant dollars 
(e.g., Federal-aid Highway Program, Federal transit formula program, 
etc.). They fall in the realm of financing vehicles like bonding, which 
are used to leverage transportation funding and allow transportation 
agencies to raise the high upfront costs needed to build projects, and 
expedite the implementation of transportation improvements. As such, in 
order to utilize these financing tools, funding sources such as taxes, 
fees, and user charges--the very same revenues that are in short 
supply--must be pledged for repayment over decades.
Public/Private Partnerships
    A major development complementing the aforementioned financing 
programs has been the development of public-private partnerships (PPP) 
around the country. Early involvement of the private sector can bring 
creativity, efficiency, and capital to address complex transportation 
problems facing State and local governments. As project delivery and 
financing approaches, PPPs do not serve as a funding source; rather, 
private investment must be repaid with general revenue (taxes) or 
project-specific revenue (tolls). Public sector interest in PPPs has 
continued to increase in the recent years, as thirty three states now 
have adopted enabling legislation to permit its use.
    Below are a series of examples of projects at have come about 
through the use of PPPs.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    It is clear from the data that P3s are a growing segment of the 
overall investment pool.
A Next Step Advancing Concepts Such as the Build Legislative Proposal
    Several legislative proposals have been discussed in Congress and 
by the Administration to create new and enhanced financing vehicles. 
They include:

   Tax Credit Bond programs known as TRIP--Senators Wyden and 
        Hoeven

   America Fast Forward Bonds--The Obama Administration

   The proposed Bridge Act--Senator Warner and others (Under 
        development not yet introduced)

    The goal of all of these financing tools are to expand investment 
in all forms of infrastructure highways, transit, water, power, 
selected energy programs rail and airports
    Focusing on the BRIDGE concept it would create an Infrastructure 
Financing Authority to make loans, loan guarantees and lines of credit. 
As I understand it would follow the successful Export-Import Bank 
model. It would ultimately become fiscally self-sustaining. It would 
have broad authority to fund through credit instruments a vast array of 
infrastructure projects.
    One of the key matters to address is the needs of rural America. 
Therefore as the legislation is drafted I urge that special 
consideration be given to those communities and provide for projects 
they can finance.
How Expanded Financing Options May Be Viewed By Public Entities
    Many states are moving to increase investment in particular 
transportation infrastructure by increasing the funding. A discussion 
follows of states that have moved to increase revenue. Almost every 
state has in some form studies or enactments of revenue measures that 
will lead to increased state investment.
    Many states have also adopted various forms of P3 legislation and 
are looking to enhance their financing to leverage revenues to expand 
project activity.
    The chart below shows the increasing activity in the states to 
adopt legislation to incorporate financing P3 options.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Conclusions
    America is at a crossroad. We have fallen from third in the world 
in infrastructure investment to 25th. Our investment level which now 
totals around 2.3 percent of GDP is outranked by twenty-four other 
countries including notably China.
    Federal tax rates to sustain the Federal Highway Trust Fund have 
not been increased in twenty years leading diminished real investment 
by as much as 50 percent due to inflation.
    Funding is critical to address the needs but financing through 
innovative tools such as TIFIA, the introduction of budget 
infrastructure bank proposals and state actions to engage in P3s as 
well as private sector access to larger pools of capital is an 
essential ingredient to making significant progress in re ally 
expanding all areas of infrastructure investment.

    Senator Warner. Thank you, Mr. Basso.
    Mr. Dove?

         STATEMENT OF ROBERT DOVE, MANAGING DIRECTOR, 
                       THE CARLYLE GROUP

    Mr. Dove. Mr. Chairman, Senator Blunt, and other members of 
the Committee, thank you for the opportunity to testify. I 
commend you and this committee for holding a hearing on such an 
important issue.
    My name is Robert Dove, and I am a Managing Director of The 
Carlyle Group. The Carlyle Group is a global alternative asset 
manager of approximately $180 billion in assets under 
management. I manage The Carlyle Group's infrastructure fund, 
referred to as Carlyle Infrastructure Partners. Carlyle 
Infrastructure Partners is a $1.2 billion fund that was raised 
specifically to invest in transportation and water 
infrastructure projects in the United States.
    Like most Carlyle funds, the Carlyle Infrastructure Partner 
Fund was raised primarily with investments from large pools of 
capital. These include State pension funds, private pension 
funds, insurance companies, and family offices. I am here today 
to highlight the benefits of private capital in infrastructure 
finance and to illustrate how the Federal Government can 
facilitate access to private capital that is available and 
poised to improve our nation's ailing infrastructure.
    More and more pension funds are recognizing that 
infrastructure, as an asset class, is an important part of 
their asset allocation. Internationally, including Canada, 
pension funds allocate as much as 15 percent of their total 
assets to infrastructure investments. The allocation in the 
United States are not as prevalent, but are growing. For 
example, groups like CalPERS, the California State Retirement 
Fund, have grown its allocation to infrastructure over the past 
5 years. Pension funds are growing their allocation because 
they view infrastructure investments as long-term investments 
and less volatile than other forms of investment. They also 
recognize that the risk of inflation can, in some ways, be 
mitigated, because the infrastructure concessions often include 
a link to consumer price indexes. With these recognitions, I 
expect that infrastructure investment allocations will continue 
to grow over the coming years.
    I would like to highlight one particular investment that my 
colleague and friend Norm Mineta mentioned earlier that our 
fund has made. In 2010, we reached agreement with the state of 
Connecticut to enter into a partnership--and I emphasize the 
word ``partnership''--to renovate and, in some cases, rebuild 
the 23 highway rest stop areas in the state. This is a good 
example of innovative financing and the creativity that is 
possible in a public-private partnership. Carlyle is investing 
approximately $130 million in rebuilding and renovating the 
highway rest areas over the first 5 years of our concession. 
These investments will create approximately 375 additional 
jobs. And, in total, the state is expected to see nearly $500 
million in economic benefit from the redevelopment effort. The 
project is a win-win for the state and also the taxpayers and 
investors. The state and the taxpayers get to shift upfront 
costs and construction risks to the private sector. These risks 
include potential overruns of costs, missed deadlines, or 
project delivery dates. We are contractually bound to complete 
the rebuild and renovation within the first 5 years of the 
concession. Any cost overruns are ours, and not the state's. In 
the meantime, the state has preserved its bonding capability 
for other projects.
    In return, Carlyle is free to develop the rest stops in an 
entrepreneurial manner to maximize consumer appeal. We've 
contracted with popular retail outlets in these centers like 
Dunkin' Donuts and Subway, and there are spacious and airy 
eating areas, as well as free Internet for travelers. As a 
result, we are seeing an increase in customer flow, from 
delivering better, more desirable services.
    An important part of our contract is the partnership 
element. We have also agreed to share with the state our 
revenues above certain predetermined thresholds. Under this 
partnership, the state benefits financially from our success. 
We believe alignment with different stakeholders is an 
important consideration in creating public-private 
partnerships.
    If the Federal Government were to set up an infrastructure 
financing authority, local infrastructure investment like this 
would increase. Bonding authorities would be reserved, and risk 
would be moved to the private sector. We need to face the 
reality that both Federal and local governments are operating 
under ever-growing budget constraints. A Federal financing 
authority is a way to tap into innovative financing and renew 
infrastructure investment.
    In my view, the infrastructure financing authority should 
operate in addition to current Federal investment, not instead 
of current Federal investment. Our goal should be to expand the 
pool of overall capital, not replace the Highway Trust Fund.
    Mr. Chairman, although I have lived in the United States 
for over 30 years, you can tell from my accent that I was not 
born in the United States. Being from the United Kingdom, I 
have had the opportunity to directly observe a working 
infrastructure financing authority in Europe, and I believe 
that we can learn a lot from this experience.
    The European Investment Bank, known commonly as the EIB, 
provides loans, makes guarantees that are expected to be repaid 
or extinguished. The EIB lends money for long periods, 
sometimes as much as 40 years, at a low interest rate, and, in 
doing so, provides a level of capital that allows other 
participants, both commercial banks, the private sector equity 
investors, and others, to participate in a project that 
otherwise would struggle to obtain financing.
    Importantly, the lending of the EIB is driven by 
government, but the actual credit decisions on specific loans, 
guarantee proposals presented to the bank are determined by a 
professional staff operating independently within the bank. 
Like the EIB, any U.S. infrastructure financing authority 
should be independent to determine the creditworthiness of 
proposed projects. Congress should give direction on what 
infrastructure should be built, be it roads, bridges, rail, 
water treatment facilities, et cetera. But, the financing 
authority should be free to make independent financing 
determinations based on a thorough case-by-case review of the 
proposed budget.
    It is my view that the stark reality here is that, if we 
don't find a way to stimulate private financing, our nation's 
infrastructure will continue to decline. The growing interest 
by pension funds and other pools of capital that are looking to 
invest in infrastructure will go where infrastructure 
opportunities are, whether it be an airport in the U.K., a port 
in Latin America, or a road in Australia.
    Mr. Chairman, you are at an important crossroads in this 
committee, and I applaud you for exploring an infrastructure 
financing authority. At a minimum, you are changing the debate 
from how much to fund infrastructure to how to locate more 
funding opportunities. This is an important shift, and I 
applaud your work.
    Thank you for your time today, and I will be happy to 
answer questions in due course.
    [The prepared statement of Mr. Dove follows:]

Prepared Statement of Robert Dove, Managing Director, The Carlyle Group
    Mr Chairman, Senator Blunt and other members of the Committee, 
thank you for the opportunity to testify. I commend you and this 
committee for holding a hearing on such an important issue.
    My name is Robert Dove and I am a Managing Director at The Carlyle 
Group. The Carlyle Group is a global, alternative asset manager with 
approximately $180 billion in assets under management.
    I manage The Carlyle Group's Infrastructure Fund, referred to as 
Carlyle Infrastructure Partners. Carlyle Infrastructure Partners is a 
$1.2 billion fund that was raised specifically to invest in 
transportation and water infrastructure projects in the United States. 
Like most Carlyle funds, the Carlyle Infrastructure Partners fund was 
raised primarily with investments from large pools of capital. This 
includes state pension funds, private pension funds, insurance 
companies and family offices. I am here today to highlight the benefits 
of private capital in infrastructure financing and to illustrate how 
the Federal Government can facilitate access to private capital that is 
available and poised to improve our Nation's ailing infrastructure.
    More and more pension funds are recognizing that infrastructure, as 
an asset class, is an important part of their asset allocation. 
Internationally, including in Canada, pension funds allocate as much as 
15 percent of their assets to infrastructure investments. The 
allocations in the United Sates are not as prevalent, but are growing. 
For example groups like CalPERs, the California State retirement Fund, 
have grown its asset allocation to infrastructure over the past 5 
years. Pension funds are growing their allocation because they view 
infrastructure investments as long-term investments, and less volatile 
than other forms of investment. They also recognize that the risk of 
inflation can be mitigated because the infrastructure concessions often 
include a link to the consumer price index. For these recognitions, I 
expect that infrastructure investment allocations will continue to 
grow.
    I would like to highlight one particular investment that our fund 
has made. In 2010 we reached agreement with the state of Connecticut to 
enter into a partnership to renovate and in some cases rebuild the 23 
highway rest areas in the state. This is a good example of innovative 
financing and the creativity that is possible in a public-private 
partnership.
    Carlyle is investing approximately $130 million in rebuilding and 
renovating the highway rest areas over the first five years of our 
concession. These investments will create approximately 375 additional 
jobs, and in total, the state is expected to see nearly $500 million in 
economic benefit from the redevelopment effort.
    This project is a win for the state, a win for the taxpayer, and a 
win for the investor. The state and the taxpayer get to shift upfront 
costs and risks to the private sector. These risks include potential 
cost over-runs, missed deadlines, or missed project delivery dates. We 
are contractually bound to complete the rebuilds and renovation within 
the first 5 years of the concessions. Any cost over-runs are ours and 
not the States. In the meantime the state has preserved its bonding 
capabilities for other projects.
    In return, Carlyle is free to develop the rest stops in an 
entrepreneurial manner to maximize consumer appeal. We've contracted 
with popular retail outlets in these centers, like Dunkin' Donuts and 
Subway. There are spacious and airy eating areas as well as free 
Internet for travelers. As a result, we are seeing an increase in 
customer flow from delivering better, more desirable services.
    As a part of our contract, we have also agreed to share with the 
state our revenues above certain predetermined thresholds. Under this 
partnership the state benefits financially from our success. We believe 
alignment with the different stakeholders is an important consideration 
in creating public private partnerships.
    If the Federal Government were to set up an infrastructure 
financing authority, local infrastructure investment like this would 
increase, bonding authority would be reserved and risk would be moved 
to the private sector.
    We need to face the reality that both Federal and local governments 
are operating under ever-growing budget constraints. A Federal 
financing authority is a way to tap into innovative financing and renew 
infrastructure investment.
    In my view, the infrastructure financing authority should operate 
in addition to current Federal investment, not instead of current 
Federal investment. Our goal should be to expand the pool of overall 
capital, not replace the Highway Trust Fund.
    Mr. Chairman, although I have lived in the United States for over 
30 years, you can tell from my accent that I was not born in the United 
States. Being from the United Kingdom, I have had the opportunity to 
directly observe a working infrastructure bank in Europe, and I believe 
we can learn from their experience.
    The European Investment Bank (EIB) provides loans and makes 
guarantees that are expected to be repaid or extinguished. The EIB 
lends money for long periods--sometimes as much as 40 years--at a low 
interest rate and, in doing so, provides capital that allows other 
participants, both commercial banks and private sector equity 
investors, to participate in a project that would otherwise struggle to 
obtain financing.
    Importantly, the lending of the EIB is driven by the government, 
but the actual credit decisions on specific loans and guarantee 
proposals presented to the bank are determined by a professional staff 
operating independently within the bank.
    Like the EIB, any U.S. infrastructure financing authority should be 
independent to determine the creditworthiness of proposed projects. 
Congress should give direction on what infrastructure should be built: 
roads, bridges, rail, water treatment facilities, etc., but the 
financing authority should be free to make independent financing 
determinations based on a thorough, case-by-case review of proposed 
projects.
    It is my view that the stark reality here is that if we don't find 
a way to stimulate private financing, our Nation's infrastructure will 
continue to decline. The growing interest by pension funds and other 
pools of capital that are looking to invest in infrastructure will go 
where the investment opportunities are whether it be airports in the UK 
or ports in Latin America or roads in Australia.
    Mr. Chairman, you are at an important crossroads in this committee 
and I applaud you for exploring an infrastructure financing authority. 
At a minimum, you are changing the debate from ``how much to fund'' 
infrastructure to ``how to create more funding''. This is an important 
shift and I applaud your work.
    Thank you for your time today and I will be happy to answer any 
questions.

    Senator Warner. Thank you, Mr. Dove.
    Mr. Offutt?

       STATEMENT OF J. PERRY OFFUTT, MANAGING DIRECTOR, 
                    MORGAN STANLEY & CO. LLC

    Mr. Offutt. Mr. Chairman, Senator Blunt, and members of the 
Subcommittee, it's my pleasure to be here this afternoon.
    My group at Morgan Stanley works with both public- and 
private-sector clients seeking opportunity for private capital 
to invest in U.S. infrastructure projects. For example, I'm 
currently advising a qualified bidding consortium on the 
potential reconstruction and operation of LaGuardia Airport's 
central terminal. As a financial advisor focused on public-
private partnerships, P3s, I appreciate the opportunity to 
share my perspective on how Federal funds can be used to 
partner with private capital to increase overall investment in 
U.S. infrastructure.
    While P3 processes can often be very complex and time-
consuming, I believe that a well-constructed P3 transaction can 
truly be a win-win-win for a government entity, the private 
sector, and the broader community.
    Over $250 billion of private equity capital has been raised 
globally to invest in infrastructure projects, of which at 
least 75 billion of equity capital has not been invested. This 
capital is attracted to these projects, given the potential to 
achieve long-term, stable cash-flows and attractive risk-
adjusted returns. However, since much of this capital can also 
evaluate opportunities outside the United States, it is 
important to demonstrate that a U.S. project is commercially 
and financially viable, as well as has political support, in 
order to attract interest from prospective private investors.
    Assuming equity investors can access competitive debt 
financing, they can add a great deal of value to the public 
partner. One, they can assume much of the construction and 
operating risks associated with a project. Two, they can build 
projects more quickly and at a lower cost. Three, they can 
drive efficiencies, over time, by introducing technology 
solutions. And four, they can develop incremental revenue 
sources by developing additional services.
    It is also important to recognize that, because investor 
return expectations and the desire for stable cash flows, that 
some projects do not lend themselves to P3s on a standalone 
basis. For example, the construction and operation of a typical 
transit project doesn't always generate sufficient fare 
revenues to cover its expenditures. In these cases, some form 
of availability payment from the government entity is required 
for the private sector, either debt or equity investors, to 
earn this adequate return I mentioned. Therefore, availability 
payments similar to passthrough tolls are often used to pay the 
private entity to compensate them for the responsibility to 
design, construct, operate, and maintain an infrastructure 
asset for an agreed-upon time.
    While many states and local governments are already 
pursuing initiatives to address the U.S. infrastructure crisis, 
such as implementing P3 legislation, the Federal Government can 
also play a critical complementary role. Given limited 
additional debt capacity at State and local levels, due to 
significant existing debt and large pension funds liabilities, 
the Federal Government's presence is critical to support some 
of these essential projects. An infrastructure finance 
authority could be a key part of such a plan by having an 
independent organization that can help facilitate and 
financially support projects of national and/or regional 
significance that wouldn't otherwise be completed.
    Of course, this is not to say that the tax-exempt market 
and existing programs, such as TIFIA, are not effective sources 
of financing for many projects, but, Mr. Chairman, as you 
mentioned earlier, there is no single answer to solve the 
national infrastructure needs. And so, having as many tools in 
the toolbox to address this critical issue is important.
    Thank you very much for the opportunity to testify this 
afternoon on this important topic, and I'd be glad to answer 
any questions the Committee has.
    [The prepared statement of Mr. Offutt follows:]

       Prepared Statement of J. Perry Offutt, Managing Director, 
                        Morgan Stanley & Co. LLC
    Good afternoon, Mr. Chairman, Senator Blunt and members of the 
Subcommittee. It is my pleasure to be here this afternoon.
    My name is Perry Offutt. I am a Managing Director in the Investment 
Banking Division of Morgan Stanley and am the Head of Infrastructure 
Investment Banking for the Americas. My group focuses on innovative 
transaction structures to utilize private capital to invest in 
infrastructure projects. Many of the projects on which I work are 
structured as public-private partnerships (defined below). I work with 
both public and private sector clients.
    For example, I am advising or recently advised on the following 
transactions:

  1.  Meridiam/Skanska/Vantage on their potential bid for the LaGuardia 
        Airport Central Terminal Building Replacement Project (RFP 
        issued August 2013, ongoing)

  2.  The Ohio State University on its $483 million parking concession 
        (public-private partnership closed in 2012)

  3.  Potentially privatizing the sewer system in Nassau County, New 
        York to realize operating efficiencies and improve system 
        integrity (studied in 2011 and 2012)

  4.  OHL Concesiones/Morgan Stanley Infrastructure Partners on their 
        bid for the concession of Puerto Rico's PR-22 and PR-5 toll 
        roads (public-private partnership bid submitted in May 2011)

  5.  City of Indianapolis on concession of City metered parking system 
        (public-private partnership closed in 2010)

  6.  Citizens Energy Group on $1.9 billion acquisition of Indianapolis 
        water and wastewater system (sale closed in 2011)

  7.  Morgan Stanley Infrastructure Partners on its acquisition of 
        NStar's district energy operations (sale closed in 2010)

    As a financial advisor focused on public-private partnerships, I 
appreciate the opportunity to share my perspective on how Federal funds 
can be used to partner with private investment to supplement current 
infrastructure funding and increase overall investment into U.S. 
infrastructure projects.
Public-Private Partnerships
    A Public-Private Partnership (``P3'') involves a long-term lease 
(not a sale) of municipal assets (the ``Concession''). The specific 
terms regarding how the asset is operated and maintained are included 
in a contract between the public agency/government and a private sector 
entity (the ``Concession Agreement''). The government retains ownership 
with a right to reclaim the assets if the private operator does not 
meet certain standards. Under such an arrangement, some degree of risk 
and responsibility is transferred from the public to the private 
entity.
    Due to the many safety and security concerns associated with 
operating core infrastructure assets, it is essential that all 
potential private partners undergo an extensive evaluation of their 
qualifications. Such an evaluation is typical in P3 processes. 
Traditionally, the procuring government entity will issue a Request for 
Qualifications (``RFQ'') that requires private operators to submit a 
response listing their qualifications in the areas of design, 
construction, operations and maintenance, as well as describing their 
ability to finance construction and improvements as necessary. In order 
to be considered as a bidder for a P3, a private party needs to pass 
all criteria in this qualifications phase. Consequently, the government 
can screen which private bidding groups are able to submit a final bid 
for a P3 project.
    While these processes can often be very complex and time consuming, 
we at Morgan Stanley believe that a well-constructed P3 transaction can 
truly be a win-win-win for a government entity, the private sector and 
the end users.
Private Capital Available for P3s
    Morgan Stanley estimates that over $250 billion of private capital 
has been raised globally to invest in infrastructure projects (of which 
over $75 billion has not been invested). This capital is attracted to 
these investment opportunities given the potential to achieve long-term 
stable cash flows and attractive risk-adjusted returns for the project. 
Many of these investors (typically pension or infrastructure funds) 
have the ability to invest in various geographies around the world and 
across various infrastructure assets (e.g., transportation, regulated 
utilities, contracted power/energy and telecommunications). In order to 
mitigate potential macro-economic risks, many investors also tend to 
focus on jurisdictions with stable economic and regulatory environments 
so the U.S. is an obvious area of focus.
    Attracting the private sector as a partner can: (i) leverage public 
funds, (ii) deliver a superior outcome for the project and (iii) shift 
risk (e.g., construction and operations) to the private sector. The 
private sector can often build a project more quickly and at a lower 
cost; drive efficiencies over time by introducing technology solutions; 
and develop incremental revenue sources by delivering additional 
services.
    Given that private capital also frequently evaluates opportunities 
outside U.S. infrastructure, it is important to demonstrate that a U.S. 
project is commercially/financially viable and has political support in 
order to attract interest from prospective private investors. However, 
it is important to recognize that because of investors' return 
expectations and desire for stable cash flows, some projects do not 
lend themselves to P3s on a standalone basis.
    For example, the construction and operation of a typical transit 
project does not generate sufficient fare revenues to cover ongoing 
expenditures. In these cases, some form of ``availability payment'' 
from the government entity is required for the private investors (debt 
and equity) to earn an adequate risk-adjusted return. As part of the 
Concession Agreement, availability payments (similar to pass-through 
tolls) are agreed to be paid (often subject to annual appropriation) to 
the private entity as compensation for its responsibility to design, 
construct, operate and/or maintain a roadway for an agreed upon time. 
These payments are based particular milestones or facility performance 
standards.
    The following is an example of a P3 transaction that utilized an 
availability payment structure:

        In October 2009, the Florida Department of Transportation 
        (``FDOT''), in conjunction with the City of Miami and U.S. DOT, 
        reached financial close for the Port of Miami Tunnel and Access 
        Improvement Project. This P3 project involves the construction 
        of a tunnel under the Port of Miami at an estimated project 
        cost of approximately $900 million (financed with public and 
        private capital). The winning bidder (Meridiam and Bouygues) 
        proposed providing equity upfront plus helped arrange $342 
        million of senior financing with project finance banks. Other 
        funding was provided by a TIFIA loan. In addition, FDOT pledged 
        to make ``milestone'' payments throughout the construction 
        process, followed by availability payments following 
        completion. These payments from FDOT helped provide the winning 
        bidder with comfort that, despite uncertainty around the total 
        traffic in the tunnel, the government was willing to serve as a 
        ``buffer'' for future traffic risks. Depending on the specific 
        projected cash flows of the project, this may or may not be 
        needed.

    In the above example, the availability payments from FDOT de-risked 
the project enough for the private sector to secure both equity and 
debt financing for this important infrastructure project. In addition, 
this project is an example of how Federal capital can be leveraged 
(only 1/3 of the project costs were financed with TIFIA financing).
    Another challenge facing some U.S. P3s is convincing the private 
sector that there is sufficient political will to complete the P3. 
Given the high costs to reach a binding bid (i.e., significant due 
diligence costs), private capital focuses early in the process on the 
regulatory/political approval process. If there is not perceived to be 
adequate political support or a clear path to gaining required 
approvals, many private investors will decide not to prepare a bid. 
Consequently, any additional Federal support (both monetary and 
political) would be very helpful to minimize this risk.
Current Need for Significant Infrastructure Investment
    Earlier this year, the American Society of Civil Engineers (ASCE) 
reported that $2.2 trillion would be needed over the next five years to 
raise America's infrastructure from its current ``poor'' rating to a 
``good'' rating, which is required to ensure reliable transportation, 
energy and water/wastewater systems. For example, the Federal Highway 
Administration (FHWA) estimates that to eliminate the Nation's bridge 
deficient backlog by 2028, we would need to invest $20.5 billion 
annually, while only $12.8 billion is being spent currently. Such 
projected shortfalls are quite troubling. No one wants another bridge 
to collapse, as did the I-35W Mississippi River Bridge.
    When you compare the percentage of GDP that the U.S. is spending on 
infrastructure relative to emerging markets, the ASCE's conclusion is 
not surprising. For example, between 2000 and 2006, the total public 
spending on infrastructure in the U.S. was less than 2.5 percent of GDP 
versus China, which spent almost 10 percent.
    Unfortunately, there currently is no specific plan in place to 
address the magnitude or the immediate urgency of this problem. 
Leadership from the Federal Government could help attract significantly 
more private capital to a greater number of key infrastructure 
projects.
    Given limited additional debt capacity at state and local levels 
due to significant existing debt and large pension liabilities, the 
Federal Government's presence is critical to support some of these 
essential projects. However, it does depend on the location and 
complexity of the project; the tax-exempt market and existing programs 
(e.g., TIFIA) are effective funding sources for many projects.
Ideas to Consider
    Various types of infrastructure projects need funding, ranging from 
improvements of high cash generating ``brownfield'' projects (i.e., 
existing operating assets) to investments in social services that are 
not focused on profitability (e.g., public transit). In order for the 
Nation to finance such a wide range of projects, sponsors need to have 
access to a large variety of public and/or private financing 
alternatives. Therefore, at Morgan Stanley we see the benefits of 
programs that provide grants, low-cost loans (e.g., TIFIA and RRIF 
loans) and loan guarantees. In many cases, public capital from Federal, 
state and/or local sources can be leveraged with additional capital 
from the private sector. This can be done while also promoting a 
healthy tax-exempt bond market.
    While many states and local governments are already pursuing 
initiatives to address the U.S. infrastructure crisis such as 
implementing P3 legislation, the Federal Government can also play a 
critical complimentary role. Specifically, the Federal Government 
should develop a long-term plan for development and maintenance of the 
country's infrastructure as has been done successfully by other 
countries. An ``infrastructure finance authority'' would be a key part 
of such a plan. This independent organization could help facilitate and 
financially support (via loans and loan guarantees) projects of 
national and/or regional significance that would otherwise not be 
completed.
    Thank you very much for the opportunity to testify here this 
afternoon on this very important topic. I would be glad to answer any 
questions that you may have.

    Senator Warner. Well, I, again, want to thank the panel for 
very good testimony. And I'll be trying to make sure I adhere 
to the 5 minute limit so that all my colleagues get a chance.
    I really think there are three or four reasons why this 
idea ought to be--get serious examination from my colleagues. 
You know, a lot of these projects--I think Mr. Offutt 
mentioned--are complex and have a variety of different sources 
coming--State, local, private capital--that all need to be 
mixed together, and that, oftentimes, to make these projects 
viable, you need the ability of some long-term capital, as you 
mentioned, of 30- to 40-year term, that, candidly, without some 
public-related infrastructure financing ability, the private 
sector's not willing to lend at a competitive rate without that 
long-term capital.
    Second--and I guess one of the things I want to 
reemphasize--is that any financing authority we'd be talking 
about would be independent. I think TIFIA and WIFIA and others 
are great initiatives, but the idea of being able to have the 
decisionmaking made by an independent body so that there is no 
hint of any kind of political interference is critical and 
would have to meet investment-grade criteria. And I--this would 
come to the question I want to pose for Mr. Basso and Mr.--
maybe--and Secretary Mineta--about the question, of expertise.
    And finally, obviously, when you had the backing of the 
Federal Government behind it, and one of the things in--Mr. 
Dove has mentioned it--every other--most every other industrial 
country in the world has one of these tools, when you're 
looking at, say, a port redevelopment, as you would in Virginia 
or Mississippi, you know, it is a tool that we ought to have in 
the toolbox.
    So, maybe starting with Secretary Mineta and Mr. Basso, you 
know, you've both seen these--kind of, the way we segment 
financing in different buckets across the Federal Government at 
the State government. Do you think there would be value in 
having, at least from an expertise component, a--this financing 
authority, in addition to all of these other programs, to be 
able to have the kind of human capital that could go toe-to-toe 
with your colleagues on the panel?
    Secretary Mineta and then----
    Mr. Mineta. Mr. Chairman, there's no question that having 
the financial expertise is a necessity, in terms of putting the 
projects together. And that's something, I think, that we have 
lacked on the public-sector side. The process, I think, is 
really, how long should these concession agreements be for? And 
are there--in that, let's say, 50-75 year time period, are 
there windows of opportunities for reexamination of the 
project?
    I think, in the case of the--like the Chicago skyway, where 
it's a 99 year project, Mayor Daley got the full 3.2 billion up 
front, and that precludes any future mayors from having any 
access to that. And I think that shortfall, or that 
opportunity, came about because, again, the public sector 
didn't have the expertise, in terms of the financing 
capability. And how would that be dealt with during the interim 
of that concession period?
    And I would hope that, whatever mechanism is set up, that 
there would be these opportunities for adjustments to be made 
in the interim and that it's not locked in from the first year, 
to the exclusion of any further examination.
    Senator Warner. Mr. Basso?
    Mr. Basso. Mr. Chairman, let me cite an example. The state 
of Maryland, about 2 years ago, undertook a privatization 
public-private partnership in the Port of Baltimore. The 
expertise that was required to carry that out--I serve on the 
Maryland Transportation Authority Board, so I was involved in 
this project--was not in-house. We had to develop in-house 
capacities; more importantly, bring in outside experts and 
private-sector experts to put these projects together. The end 
result of that was to take a situation where a major marine 
terminal had to be rebuilt. The state had nowhere near the 
resources, but Ports America did.
    A deal was struck. That deal did three things. It, number 
one, expanded the Seagirt marine terminal to be able to deal 
with the Panamax ships coming up. And that was critical. 
Second, it produced $150 million for the tollroads system in 
Maryland to do, basically, system preservation, so forth. And, 
third, it took a situation, which could have put the Port of 
Baltimore out of business, basically, in that competition, and 
put them out in front.
    So, it's critical--I'd say three things--the first is, it's 
critical to recognize, the Federal Government does not have the 
kind of expertise the private sector does in these. So, 
creating a system or a bank or something like that with that 
expertise is crucial. Second, joining the Federal, State, and 
local government and the private sector, bring all that 
expertise together, can produce a dramatically effective 
result. I've seen it in reality. And, third, clearly we need to 
do this--I mean, I had a lot of experience dealing with loan 
programs, and we knew what we didn't know. And therefore, we 
needed to acquire that expertise to really be a successful one.
    Senator Warner. My time's about up, and I would hope, Mr. 
Dove and Mr. Offutt, you could maybe just give me a very 
brief--because we have this hodgepodge of states who are going 
into this, or localities going into this, lacking some national 
entity that can combine this expertise, are we leaving a lot of 
pension fund and other private money that isn't able to look at 
these projects, because they don't have, for example, the 
backing of the full faith and credit of the United States? 
Short answers?
    Mr. Dove. Mr. Chairman, I would say that, as an investor, 
if I was dealing with a counterparty who was sophisticated, 
which is what an international investment--infrastructure 
financing authority would be, by definition, it would give me a 
lot of comfort. A lot of times, when we look at and we hear 
about projects, it's, ``Do they have the political will to get 
it through? And can they actually deliver?''
    Something which comes through an infrastructure financing 
authority, by definition, should have that stature and, 
therefore, would attract a lot more money. So, I think it's 
right.
    Mr. Offutt. Yes. And that was actually the point I wanted 
to underscore, as well, is political will. And it's at the 
local level, you clearly need to have a champion at either the 
Governor's office or the DOT and so on--but, also be able to 
say, at the Federal level, that this is a project that has the 
support, and it is significant, from a regional or a national 
basis, is very important. Because, again, these investors can 
spend their money any way they want, in terms of when they look 
at opportunities around the globe, and political risk is one of 
the biggest areas that they focus on, initially.
    Senator Warner. Thank you.
    Senator Blunt?
    Senator Blunt. Thank you, Chairman.
    Mr. Basso, on the Port of Baltimore, was--obviously, 
there's a management concession involved in that? Is that how 
the outside company would be attracted to come in and become a 
partner?
    Mr. Basso. Senator Blunt, that's correct. There's a 
management incentive. Ports America will manage that particular 
phase of the port. And, second, what they were able to bring 
was close to a billion dollars in capital to make the kind of 
improvements, dredging, and expansion that needed to be made--
again, with the state having--not having to take that on, on 
their balance sheet. So----
    Senator Blunt. Right.
    Mr. Basso.--yes.
    Senator Blunt. Right. And, as a public entity, how did you 
calculate what the proper management length of time the 
concession would be?
    Mr. Basso. The calculation, which was 30 years, was based 
on experiences around the world. And again, this is where I 
made the point, bringing in outside, independent expertise in 
the ports area gave us guidance. We didn't have that expertise, 
but we were able to, if you will, engage that expertise, and 
came to a satisfactory conclusion on what the appropriate time 
frame would be.
    Senator Blunt. And what would you think would be one or two 
of the biggest hurdles in getting the private sector involved 
in financing, improving, managing, whatever you need to do, 
from all of your experience at AASHTO and in Maryland?
    Mr. Basso. I think the biggest risk, first of all, is 
timeliness, being able to actually put a request for proposal 
together, execute it, and not have it become tied up in years 
of both litigation and delay. That's the number one point.
    Second is a very cooperative spirit in government, a 
willingness to say, ``We can adopt a can-do attitude in this. 
We're not going to, basically''--to put it bluntly--
``bureaucrat the thing to death.''
    Senator Blunt. Mr. Dove and Mr. Offutt, the same question, 
from each of you, which is, what do you look for, as an outside 
investor, in terms of what makes an investment an appealing one 
for you to make?
    Mr. Dove. Senator Blunt, the most paramount thing is the 
political will to get this done.
    I talk about ``partnership.'' I genuinely believe that, in 
any infrastructure investment, there are different 
stakeholders. So, you have the users, you have the political 
stakeholders, you have the environmental groups, and you have 
the--people like my investors--the pension fund. And not 
everybody is always aligned. But, if you can structure 
something where there's some sort of partnership--true 
partnership, either through revenue-sharing or through some 
form of concession, where, after a certain number of years, 
it's relooked at and maybe adjusted, things like that--those 
are the types of transactions which are going to be successful. 
Because, as Secretary Mineta said, you know, the ones where you 
get a large amount up front and, 99 years later, you get the 
road back, those have got to have some huge political risk down 
the road. As the owner of that, you're left with it in a very 
difficult political environment.
    So, some form of sharing of the risk, sharing with the 
stakeholders, but, overall, it's the political will to get 
something done.
    Senator Blunt. Mr. Offutt?
    Mr. Offutt. And just to add on to that. Assuming that the 
project has the political will, then it really does come down 
to the financial analysis. And, from that perspective, the 
private sector is very open. If a concession agreement could be 
shorter, it's going to be less value up front, and therefore, 
might demand or might be more difficult to make some of those 
needed capital expenditures up front. So, trying to find a 
happy medium between the private and public sector, a lot of 
times just has to do with the math associated with figuring 
out, how do you maximize the value to the public sector without 
giving away too much of the potential upside? And I think we 
believe that the market really has evolved from the 99-year 
leases that happened in the early days of public-private 
partnerships to much shorter-based concession agreements, and 
ones much more focused on sharing elements of either profits or 
revenues.
    Senator Blunt. And then, in another kind of investment in 
some kind of financing authority, what if there is no real 
concession agreement, but this is just a pension making an 
investment through a financing authority in something that a 
local government's going to pay back? How's that a--it's a 
different decision. Is there still appeal there to a--to that--
does that financing authority still have some appeal to the 
fund or the investor?
    Mr. Dove?
    Mr. Dove. I think what the financing authority does is 
provide a layer of capital. So, in a capital structure, you 
have a layer of capital, which, as I suggested, if you look at 
the EIB as a model, is low-cost money for a very long period of 
time. That allows commercial banks, equity investors, and 
others to come in and add layers of capital to fund the 
project. If you don't have that long-term set of capital, it 
becomes more challenging. Not every project needs it, but a lot 
of the ones which are more difficult to analyze probably will 
need it.
    Senator Blunt. And one quick question, over on this end of 
the table, on--on the intermodal kinds of facilities that both 
UPS would be part of, and, obviously, Secretary, you were part 
of, what are some of the challenges there, from, you know, 
truck-to-rail or rail-to-port? Are--where are those facilities, 
in terms of where they need to be?
    Go ahead, Mr. Connelly.
    Mr. Connelly. Yes, thank you--thank you, Senator Blunt. 
From our point of view in the past, the strategy and the vision 
for each one of those products, whether it be an ocean port or 
whether it be an inland port or a rail terminal, were all done 
in isolation, and they weren't done collectively or 
holistically, or looked at from a regional point of view or a 
national point of view. So, UPS recommends a view of how to 
seamlessly connect those modes, not just on a long-term basis, 
but give the transportation community the ability to toggle 
back between modes in a much more seamless manner. That could 
be having infrastructure tying rail to ocean, rail to highway, 
so it's not as choppy as it sometimes can be if it's not 
planned in aggregate as a network versus a patchwork type of 
deal.
    Senator Blunt. Secretary?
    Mr. Mineta. I was trying to think back on the kinds of 
projects, and I think the closest I can think of is really the 
Alameda Corridor, because of the congestion at the Port of Los 
Angeles, Port of Long Beach, trying to get the rail out of 
there and then get them to a point further away from the 
congestion. And, I think, there we did deal with multiple 
modes, in terms of trying to deal with that.
    But, I think, in the overall, it really depends on, can you 
physically congregate the intermodal intersection that's going 
to be efficient for each of the modes? And I think that becomes 
a very difficult one of trying to find, Where is each mode 
going to be satisfied?--that they're not all going to be able 
to economize on where it's going to be, but it gives them the 
maximum efficiency of the operation. And sometimes those 
efficiencies of operations get lost when they're trying to 
figure out where to do that, as Mr. Connelly said, on a 
seamless basis.
    Senator Blunt. Thank you.
    Senator Warner. Thank you, Senator Blunt.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman.
    Mr. Offutt, investments in transportation, as you know, 
have--it's a percentage of GDP--have declined to its lowest 
level in 20 years. And I really appreciated the discussion you 
had with Senator Blunt about the public maximizing what the 
public can get out of it, but still creating those investments 
for private investment. Can you talk about how this kind of 
funding would lessen the demands on public-sector funding, and 
then why infrastructure, as an asset class, is appealing to 
investors?
    Mr. Offutt. Sure. Senator, in the first part of the 
question, how do you end up leveraging a lot of the capital 
that the public sector can raise, either a typical tax-exempt 
financing or TIFIA loans, which is obviously quite popular for 
a lot of transportation, specifically road transactions? 
Really, it goes back to one of the points that Mr. Dove made. 
When you think about the different capital that needs to be 
raised, with the riskiest capital being the equity capital and, 
obviously, the least risky being potentially, the most senior, 
which could be the TIFIA loan, in some cases, these projects 
are very complicated, but if you structure it the right way, as 
a partnership, it does seem like, not only in terms of the 
operations of the asset, but really from a financing 
perspective, the private and public side should have a lot of 
money at risk with that specific project.
    Senator Klobuchar. You talked, in your testimony, about 
shifting the risk to the private sector.
    Mr. Offutt. Yes.
    Senator Klobuchar. Can you talk about how that would work?
    Mr. Offutt. Sure. The private sector definitely has 
capabilities that they feel very comfortable with. Let's say, 
for example, constructing a very complicated bridge or tunnel. 
The private sector does that all the time. Sometimes they do it 
through a contract, and other times they will put their own 
capital at risk. And in the public-private-partnership 
framework, they actually do that. So, that's one risk: the 
actual construction of a project. And then the operations are 
ones if it doesn't go well, then they could actually lose 
money, and therefore, they are at risk. And the public sector, 
therefore, has transferred that risk to the private sector.
    Senator Klobuchar. OK, thank you.
    Mr. Mineta, I was just on the phone this morning with your 
old friend, former Congressman Oberstar, who is the Chair of 
the House committee. He's still working on transportation. 
Could you talk about the importance of making sure rural areas 
could be able to access funds in an infrastructure bank?
    Mr. Mineta. In terms of the nature of the project, there 
probably should not--or there isn't that much difference 
between a project in an urban area and a rural area. I think, 
in terms of the size, it would probably be much different, and 
it would also be dependent on a mode.
    And I was thinking of the--when you asked the question 
about northwest Arkansas. Here, they were without an airport in 
that area, and yet you had Tyson's, Arkansas Best Freight, 
Walmart--who else?--oh, and J.B. Hunt, the trucking company--
all concentrated in that area. And so, the financing of that 
was really from the Department of Transportation, and there was 
a great deal of private financing that went into the Northwest 
Regional Airport.
    And--but, again, the attractiveness--that really started 
out, first, on an Alliance-type approach. The Alliance Airport 
is really just for commercial aviation, or commercial projects. 
But, it eventually became a general aviation--not general 
aviation in small airplanes, but of all aircraft, whether it be 
freight or passenger. And that came about, I think, because, 
again, the attractiveness of the size of the project and the 
concentration of that business community that made it 
attractive.
    Senator Klobuchar. Very good.
    Mr. Mineta. Are there many communities that can put that 
kind of package together? I'm not really sure.
    Senator Klobuchar. Thank you. Mr. Dove, I know that you 
worked at a package in Connecticut, something that you did, and 
it was an example of how the private sector can get involved in 
transportation.
    I was just with the CEO of Burlington Northern, Matt Rose, 
on Friday with Congressman Oberstar. We did a big 
transportation forum in Minnesota. And I would ask about that 
project and how you think this worked. Because Rochester, right 
now, home of the Mayo Clinic, is working very hard to create a 
Zip Rail system, which would be in partnership with government.
    Mr. Dove. So, I think, again I can only emphasize that it's 
the partnership in--whether it's with a state or whether it's 
with a freight rail line, being able to partner with them in a 
way where there's a win-win for all the stakeholders is very 
important. And I just think that an international--sorry--an 
infrastructure financing authority has that ability to sort of 
bring people together, because everybody will be able to have 
their own needs taken care of through an independent 
organization which has got the structure and expertise.
    Senator Klobuchar. Well, and I will appreciate your help 
with some of our colleagues, because even trying to get--the 
industry in the barge area wants to pay higher fees to improve 
the locks and dams, and we've had some issues trying to get 
that through the House. And I think people are just going to 
have to start thinking of this differently, that it's not a--if 
that's a tax increase, I don't know what is, when the industry 
that uses the infrastructure wants to pay a higher fee so that 
they can have better infrastructure. And that's how we have to 
start looking at this in a different model.
    So, thank you.
    Senator Warner. Thank you, Senator Klobuchar.
    So Senator Blumenthal doesn't think he's getting jumped in 
line, Senator Thune has been, actually, out in the waiting 
room, and, as the Ranking Member of the full committee----
    Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Chairman Warner and Ranking 
Member Blunt, for holding this subcommittee hearing. And I want 
to thank our witnesses for being here today, and for their 
testimony.
    I'm a big advocate of maintaining our nation's 
infrastructure. When you come from a state like South Dakota, 
it's pretty essential that you have a good infrastructure 
system to deliver critical agricultural products and natural 
resources from their source to their markets. And it's 
probably, today's hearing, very timely, given the fact that the 
American Society of Civil Engineers' recent report gave our 
nation's infrastructure an overall grade of D-plus. And that's 
just something that I think all of us agree is unacceptable.
    As I look at the needs that we have out there, and the fact 
that, in 2015, the Highway Trust Fund is going to have 
insufficient resources to meet our obligations, and it's going 
to take an additional $15 billion just to maintain current 
spending levels, plus inflation, it's pretty clear we've got a 
problem there with the Trust Fund, but it's also important 
that, when we think about these new, sort of, innovative 
infrastructure funding mechanisms, that we take into account 
the needs of the entire nation. And I think that has been 
touched upon today by some of my colleagues. But, it's 
important that rural states, like South Dakota, which have 
unique challenges, are also able to participate in those types 
of programs, and that these innovative financing mechanisms are 
not a replacement for, or substitute for, but additive to the 
important role the Federal Government has in ensuring that our 
nation's transportation network is maintained and improved.
    So, I guess what I'm trying to say is, I just don't think 
money ought to be diverted from the Highway Trust Fund to help 
pay for some of these funding mechanisms, because it could 
undermine the very nature of the user finance structure that's 
been so important to our nation's overall transportation 
investments.
    And I appreciate the discussion that you all have been 
having today. And again, I want to thank you, Mr. Chairman and 
Senator Blunt, for having the hearing.
    I did want to ask, with regard to these new ideas and 
things that are out there--the Highway Trust Fund does provide 
a reliable base infrastructure funding to the states each year, 
something many of them count on for a majority of their overall 
construction budget. How do we ensure that an infrastructure 
financing authority is self-financing and doesn't divert funds 
that would otherwise be used to support the Highway Trust Fund? 
And I guess I would open that up to anybody who would like to 
take a shot at that question.
    Mr. Basso. Mr. Chairman?
    Senator Thune, thank you for that question. And I think the 
answer is by how you structure the organization and how it's, 
basically, segregated from the main flow of money.
    There would be a need for an initial capitalization--I 
mean, clearly, from that--whether it's the Highway Trust Fund, 
the General Fund, or even through bonds issued to raise the 
funds. And I think that can be overcome and dealt with.
    I think you--I think you're correct. Right now, when we're, 
basically, at zero, in terms of the support of the revenue, to 
do something else is not going to add much value to that. What 
I believe is--when you do two things. I think we need to 
address the direct revenue question. There are--a number of 
things can be done on that. And the second is, in getting these 
funds off the ground, and this kind of an infrastructure 
mechanism, it could be very helpful, not only to urban or big 
projects, but rural areas. I had a lot of time to contemplate 
this in the stimulus bill, when we tried to move, basically, an 
infrastructure bank proposal, and we made special allocations 
for the rural areas, to help make that more usable and 
attractive along the way.
    Bottom line is, we need an overall growth in all areas of 
infrastructure investment. And to go forward the way we are is 
to really put us in an extremely drastic downturn in our 
competitive position in the world, is my belief. So----
    Senator Thune. Let me ask, if I could--and I'd like to 
direct this to Mr. Dove and/or Mr. Offutt--could you provide 
the Committee with some examples of infrastructure projects 
that have been funded through private investment, and explain, 
in particular, what made those projects right for that sort of 
investment?
    Mr. Dove. In my oral remarks, Senator, there was a 
discussion about a project in Connecticut, which I think is a 
good example, but I will also cite another example, which 
members of the Committee here may be familiar with, which is 
the Miami Ports Tunnel, where there was a need, basically, to 
take trucks off the surface streets between Interstate 95 and 
the port by the construction of a tunnel. And the private 
sector became involved in that, and has financed that, and they 
did it through a combination of different sources of revenue.
    But, at the end of the day, the tunneling risk, basically, 
fell with the private sector and not with the public sector, 
which was a great benefit to the state of Florida. So, that's 
one example of it.
    Mr. Offutt. Yes, the good news is, there are definitely 
examples in the United States. I think it's a growing number. 
We're still fairly small, relative to some other countries, 
like the U.K. and Australia, that have been quite busy at this 
before. But, you can think about one, recently, in the state of 
Indiana, where a bridge between Indiana and Kentucky was built 
also with private capital, and it can be operated by the 
private sector. And it's going to be funded through a 
combination of private activity bonds, which is a great way for 
the private sector to get access to tax-exempt and financing 
and be, therefore, competitive, on a cost perspective, but also 
be able to deliver the benefits that the private sector can on 
the construction and the operation side.
    Senator Thune. OK, appreciate that.
    My time's expired. Thank you, Mr. Chairman, for just 
letting me barge in.
    Senator Warner. Thank you, Senator Thune.
    I'd just want to make three quick points before I move to 
Senator Blumenthal.
    One is, earlier comments would be--I think there's real 
consensus amongst all those of us who have been having 
conversations of no diversions from the Highway Trust Fund. 
Second, any kind of authority would have to have enhanced rural 
components. And, three, actually, the former Governor of 
Indiana, Governor Daniels, I think, has--Senator Coats, who's 
not here, has been part of the discussions--I think he's going 
to be putting in writing some of his ideas about how this new 
idea around an authority might work that might be helpful, as 
well.
    Senator Blumenthal.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you, Mr. Chairman. And thank you 
very, very much for having this hearing and for your 
leadership, Senator Warner, in advancing this idea of an 
infrastructure financing authority.
    And I will say that I'm very familiar with the Connecticut 
work done by Mr. Dove, not only as a former State official 
during the time that some of these agreements were negotiated, 
but also now, as a consumer, every day, literally every day 
that I'm back in the state of Connecticut, stopping at one or 
another of the rest areas that are tremendously enhanced as a 
result of the $130 million that has been invested; and also 
very pleased that the benefits are not going to be only in the 
area of enhanced services to consumers, but also in revenue and 
jobs for the state of Connecticut.
    So, I think that there is a model here that can be 
followed. And maybe just let me ask Mr. Dove, as an initial 
question, from the investor standpoint, how are things going? 
Are you satisfied with the progress, with the rate of 
construction? Obviously, the rest areas are still under 
construction in a number of those places, and maybe you could 
just give us a brief progress report, from your standpoint, now 
that it's in the implementation stage, not just the conceptual 
or design stage.
    Mr. Dove. Thank you, Senator Blumenthal. I would say that, 
by the end of this year, 17 of the 23 rest stops will have been 
either renovated or rebuilt.
    One of the big risks that we took on, and was a subject of 
much debate when you were the attorney general, was the 
environmental risk. It was shocking, the environmental risk 
that we found, and that has delayed our progress. But, that's 
our risk on the private side.
    The other thing which I would say is that we started this 
project as the state of Connecticut's economy was slowly moving 
out of a very difficult period of time. Now the state is doing 
particularly well, and we're finding that construction costs 
are higher as we get to the end than they were at the 
beginning. So, that's another risk that we're having to 
undertake.
    Now, I think we're going to be okay. And if we're not, then 
I have to, as they say, suck it up and just pay. But, that's 
the terms of the concession.
    More rewarding for you and for me is that--the dramatic 
improvement in revenues once you have renovated these sites. 
For members of the Committee, these were sites which had a very 
old McDonald's concession on them, and a Mobil gas station. 
They have been renovated, now, on 95, to have a choice of up to 
eight different suppliers of food and beverage. The revenues 
that we're earning now are--from the food and beverage side is 
significantly above what it was before, and above our 
projections, which allows us to share that revenue with the 
state of Connecticut.
    The amount of gas we're selling is not as high as we 
thought it would be. That is mainly because vehicle miles 
traveled is reduced, and cars--less cars are traveling. But, I 
would comment that we do actually now have two Tesla stations 
in each one of these service plazas. So, even though we don't 
make any money off the gas, they are--the environment is 
getting better.
    Senator Blumenthal. And the environmental risk, just so the 
Committee is fully informed, resulted from the contamination of 
the ground as a result of the previous gasoline----
    Mr. Dove. Right.
    Senator Blumenthal.--servicing and stations that were there 
for decades, literally.
    Mr. Dove. Thirty years, plus, yes.
    Senator Blumenthal. And the state of Connecticut--I know 
from personal experience, because I insisted on this point----
    Mr. Dove. Capped.
    Senator Blumenthal.--was very, very insistent that the 
investors bear that risk. And so, one of the results of this 
private-partner--public-private partnership was, in fact, a 
risk-sharing arrangement that was very beneficial to the state 
and its taxpayers.
    Mr. Dove. Yes, sir.
    Senator Blumenthal. On the subject, by the way, of 
renovating or rebuilding, I would offer the term 
``transforming'' as a better way to describe what has happened 
at those rest areas, because I think that they have been really 
brought up to date in a way that is very powerfully reflective 
of the private sector's influence. I'm not sure, if they had 
remained under the control or operation of the state of 
Connecticut, that we would have those new vendors, with the new 
products that are being offered. But, because of the interest 
in revenue-creation, I think the state itself benefited from 
the increased revenue that you've identified.
    Mr. Dove. Yes, sir.
    Senator Blumenthal. Let me just ask one last question, and 
that is, do you think this model is applicable to other 
infrastructure projects, such as rails, bridges, roads, and so 
forth?
    Mr. Dove. I do. I do, because, as you will recall, we did 
not give any money up front to the state, but we went for the 
revenue-sharing model. And I think that is the way, because--I 
keep coming back to the same point--successful private-sector 
investment requires partnership with all the different 
stakeholders. So, doing that in the rail sector or doing it in 
the port sector, having some sort of revenue-sharing is a way 
where everybody gets aligned.
    And I just would add that the infrastructure financing 
authority, I think, brings us all together.
    Senator Blumenthal. Thank you.
    Thank you, Mr. Dove, and thank you, to all the members of 
the panel, for being here. This hearing has been very 
insightful and informative. Thank you.
    Thank you, Mr. Chairman.
    Senator Warner. Thank you, Senator Blumenthal.
    Senator McCaskill.

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. Thank you.
    I'm very supportive of the Chairman and Ranking Member's 
outline of their legislation that they are proposing, but I do 
think it's important that we're very candid with the American 
people about what this is. And I have noticed that we've talked 
an awful lot about attracting private investment and--but, the 
word ``tolls'' have not been said very often today. And 
obviously, with maybe the exception of the rest area 
partnership, where there is, potentially, other revenue 
streams, that is primarily--am I correct?--the venue stream 
that we're referring to would be tolling?
    Mr. Dove. It's some form of a user fee. It could be 
tolling, but it could also be an availability payment or----
    Senator McCaskill. What does that mean, ``availability 
payment''?
    Mr. Dove. So, if the state--for instance, in Florida there 
has been a number of transactions where there has been new 
roads built, where the state basically underwrites that there 
would be so much of the revenue provided from state resources, 
and the balance would have to come from the private sector. So, 
if we----
    Senator McCaskill. But, what would be the revenue stream 
that the private sector would realize there? I mean, what would 
be the return on investment to the private sector----
    Mr. Dove. Well----
    Senator McCaskill.--if it was not tolling?
    Mr. Dove. It's not--if it's not tolling, it's just the 
availability payment.
    Senator McCaskill. So, the State government just pays them.
    Mr. Dove. Through--but, they transferred the construction 
risk and also the operational risk of the road, or whatever the 
asset is----
    Senator McCaskill. OK, I'm trying to----
    Mr. Dove.--to the private sector.
    Senator McCaskill.--get to what the euphemism 
``availability payment'' means. Does that mean that the state 
agrees just to pay the private entity X amount of dollars?
    Mr. Offutt. That's right. So, basically, the concept would 
be: if it can be proven that the private sector can build that 
specific project cheaper, in terms of total cost, and quicker, 
then the state would make a payment--subject to usual annual 
appropriations--a payment that is known over the period of the 
concession.
    Senator McCaskill. Oh, like the differential. Like you--the 
state would pay them the amount that they would have saved by 
having them build it? Or----
    Mr. Offutt. No, no, it would still be a net benefit for the 
State; otherwise, it wouldn't make sense to do it. But, it 
would be something which would be agreed to up front so the 
private sector could model that they're not concerned about how 
much traffic is there, they're not concerned about if there's a 
toll, at all. If certain amount of millions of dollars, let's 
say, are paid annually, they'll spend billions, up front, to 
build it, and then to spend all the money needed to operate at 
a certain standard.
    Senator McCaskill. So, these partnerships are occurring 
other places without toll roads?
    Mr. Offutt. They are. Sometimes--because, depending on who 
the users are, tolls may not be appropriate. And so, as a 
result, if it's important for the region, then it can be done 
through a State DOT----
    Senator McCaskill. OK.
    Mr. Offutt.--as a--conduit from a funding source.
    Senator McCaskill. OK.
    In the rest area, what is the return on your investment? Is 
that because you all get the revenue from the gas stations and 
the--and you get the lease payments from the Dunkin' Donuts and 
Subways?
    Mr. Dove. It's a revenue-based formula, whereby the 
concession company, which Carlyle has an investment in, along 
with other outside investors, gets a percentage of the revenue, 
and that's then shared with the State.
    Senator McCaskill. OK.
    Yes, because, I mean, I--we're going to have to do this. 
We're going to have to get some private investment, because it 
doesn't appear to me that we're going to be able to step up to 
our infrastructure requirements in this country with all public 
money. And so--but, I do think it's important.
    My daughter went on a trip across the country in a car, not 
too long ago, and she called me from the road and said, ``Is 
Missouri the only state that doesn't have tollroads?'' And I 
said, ``Well, I don't know. We might be one of the few left 
that doesn't have any tollroads.''
    And so, in my state, this is, you know, kind of crossing 
the Rubicon, because we've not had any tolling, even though 
most of the surrounding states have, and we are in desperate 
need of more investment in my state, because we have--we're 
number 10 on the list of deficient bridges, and we have over 5 
million people on those bridges every day that have been ruled 
deficient. So, it is very, very important that we find a new 
way forward.
    I am also concerned about how we make sure that we find the 
right partners. If we're going to allow--in most of these 
instances, are the private entities actually running this 
infrastructure and maintaining it after it's built?
    Mr. Offutt. That's right. The procurement process would 
start with the qualification stage so that anybody that you 
would actually have bid on the project would have to qualify, 
from that standpoint, to be able to operate and maintain 
whatever the infrastructure asset would be.
    Senator McCaskill. In one of my old jobs, when I was 
prosecutor, we had some trouble with this area when we went to 
this model in corrections, building jails. We had a problem 
with some of that. So, I want to make sure that we cover that.
    And finally, how do we address--I know the Chairman talked 
about this in his opening statement, but how do we address the 
fact that the revenue streams are clearly going to be deficient 
in the rural areas? And, other than setting the limit lower, in 
terms of what can be borrowed, how do we attract private 
investment to the rural parts of my state, which are in 
desperate need of investment as it relates to their roads and 
bridges?
    Mr. Basso. Senator, I think--with the rural areas--and I 
think we all recognize that--one of the things that's missing 
is really the deep revenue streams to go forward. You have 
limitations. However, I think mixing some subsidies, for 
example, interest rate write-downs, things like that, that make 
a project more feasible and more affordable in a rural area, is 
possible. And, in fact, in my days at ASHTO and USDOT, I've 
seen these done, so I know, as a practical matter, they can be 
worked out, but they require very careful thought and a very 
careful plan and a realistic expectation of how all of this is 
going to work and what the volumes will be that produce the 
revenue streams.
    Senator McCaskill. Yes, I can see a gold rush for some 
parts of my State, in terms of infrastructure, and then I 
could--think I would hear crickets----
    [Laughter.]
    Senator McCaskill.--in other parts. And so, I want to make 
sure the part where people enjoy hearing crickets don't get 
left behind, because they've got to move their agricultural 
products to support the economy of our state. That's essential.
    Thank you. Thank you----
    Senator Warner. And I would simply, before we move to--
thank you, Senator McCaskill--Senator Ayotte--that the rural 
areas are never going to have that expertise on their own, or a 
rural state is never going to have that capacity on its own. It 
is by having that concentration of expertise, and layering in--
this may not be the total funding source; chances are, many of 
the projects in rural areas would have traditional funding. 
But, because you'd have the ability of this financing authority 
to provide that kind of long-term, you know, 30- to 40-year 
financing on top of the traditional sources, and any project 
would have to be investment-grade quality with an independent 
oversight--you know, one of our big concerns, where we raised, 
earlier on, was--at this point, oftentimes I don't think the 
public sector has the expertise to go toe-to-toe with the 
private-sector guys, and sometimes taxpayers are left holding 
the bag. That's not what we want to repeat.
    Senator Ayotte.

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. I want to thank the panel and, obviously, 
Senator Warner and Senator Blunt for holding this hearing.
    Just to follow up on what Senator McCaskill had just asked 
you, I mean, if you look at the numbers put out from CBO, most 
of the current highway spending actually would account for 
projects that are too small to meet the minimum requirements 
that are being proposed for an infrastructure bank. You know, I 
know that the proposal set the minimum at different levels, 
whether it's 100 million or 25 million. And I think about--
regardless of rural issues in New Hampshire--because we have 
rural areas, but we're a small state, so many of our projects, 
in general, are going to be smaller. And so, I guess I'm trying 
to understand, you know, what is the benefit for smaller states 
for an infrastructure bank, and how could it work for these 
smaller projects, to follow up on the concern, I think, that 
Senator McCaskill raised?
    The other issue that I wanted to get your thoughts on is, 
I--as I understand it, many states already have their own 
infrastructure bank. In fact, I think the numbers are that 
there are 36, but 22 are active right now. How does the layer 
of a Federal infrastructure bank not actually----
    Senator Warner. Authority. Authority.
    Senator Ayotte.--authority for a Federal infrastructure 
bank not take away from some of the projects that are already 
really being done at the State infrastructure bank level? In 
other words, what we don't want to do is create another 
situation where somehow this authority cherry-picks from what's 
already being done at the State level.
    Mr. Basso. On the State infrastructure banks, your numbers 
are right on point. The real origin of those, though, just to 
give you a little history, was, in 1996 and 1997, Congress 
actually put out $150 million in seed moneys, which those 
states took advantage of to create the banks. Some of them have 
continued them actively, some have let them go primarily 
dormant.
    But, I think what the Federal or the national bank would 
add--and it would be a complement, not, basically, a hindrance 
to those banks, because many of them need more capital than 
they can raise individually, locally. And making some 
connection between the capitalization of the national 
infrastructure fund, the State infrastructure banks, can work.
    And I've also seen, in my experience in those days, 
multiple states come together with their banks and pull pools 
together with the national, which the national infrastructure 
fund could do very effectively.
    So, I think it's a complement, actually.
    Senator Ayotte. What do you think about CBO's recent report 
that said--that looked at infrastructure banks and said, 
basically, that they didn't think, for water and energy 
facilities, that this may be needed to finance those types of 
projects because of the availability and stability of revenues 
generated by users on water and for energy facilities? So, I'm 
just thinking, as we look at the structure here, what are your 
thoughts on what the CBO said about that?
    Mr. Basso. Well, I think this. I think, on water--having, 
again, dealt with some of those issues over the years--I think 
there is potential there. I think it's--depends on whether--how 
you set up, basically, the revenue streams coming from water 
that can move forward and make some improvements that 
dramatically need to be made.
    With regard to energy, I think there are different segments 
of energy that can be addressed. Now, those are probably not as 
effective to address. So, I think it really is a--something you 
want to look at, on a case-by-case basis, as you structure.
    Senator Ayotte. And----
    Mr. Mineta. And, Senator, I--if I might also add----
    Senator Ayotte. Oh, of course.
    Mr. Mineta. It seems to me the 18.4-cent Federal tax that 
we've had since 1993, even with vehicle miles going up, with 
the CAFE standards going--rising--revenues into the Highway 
Trust Fund, as we all know, are going down. So that states with 
their own gasoline taxes, or now they supplement the State 
gasoline tax with sales tax on gasoline at the State level and 
at the local level. California, you have California State 
gasoline tax, you have a sales tax on the purchase of gasoline, 
and then you have each of the counties having a local option of 
adding their own sales tax to the gasoline cost.
    The problem, I think, right now, is that all of these 
sources are not keeping up with all of our needs. The question 
is, where is it going to be coming from? And I think that's 
where the Chairman's authority is going to be able to enhance 
the private sector to come in and do that.
    Senator Ayotte. Yes, I don't dispute that. I just want to 
make sure that, if we go forward with this, that we're, 
obviously, addressing for smaller-type projects, which are a 
majority of the projects that are currently going forward on 
transportation, and we're thinking, as well, as making sure 
that, when states have put in their own structure, that we've--
we're accounting for that structure so that we continue to 
allow them the flexibility that they need with resources that 
they've already--ideas that they've already had.
    So, I believe that we have a need for infrastructure in 
this country. And so, I want to make sure, though, in a state 
like mine, that we get it done right so it will benefit New 
Hampshire and not just be another layer of--you know, another 
Federal piece that isn't effective in really delivering on what 
it purports to deliver.
    So, I thank everyone for being here today. I think my 
time's expired.
    Thank you.
    Senator Warner. I want to thank Senator Ayotte for her 
comments, and I want to just--some of the conversations Senator 
Blunt and I have been having, and I can assure you, Senator 
Thune is--urged us, as well--is that some of the previous 
proposals that had a--say, a $25 million minimum, have been cut 
dramatically, down. Number one.
    Number two, this is not--I mean, I think, echoing what 
Senator McCaskill said--you know, some source--this is not free 
money. It's got to get paid for. And this is not a solution 
set, this is just one tool that every other industrial--major 
industrial country in the world has in their toolbox. And by no 
means would it supplement or replace good programs at the 
Federal level, like TIFIA, good investment banks at a State 
level--I don't know if New Hampshire's got an investment bank. 
But, time and again, the complexity of these projects gets 
such--if you've got a local interest, a State interest, you may 
have a private layer of capital.
    And, candidly, smaller states are at an even bigger 
disadvantage. Virginia's been one of the leading states on the 
cutting, and sometimes bleeding, edge, because we've made some 
mistakes along the way. And part of that, I think, was because 
we didn't have the expertise, at the State level, to really 
make the judgment of whether we were getting an investment-
grade product.
    And one of the other things I would simply add, that any 
such entity or authority that I'd want to see us look at or 
examine would have to be independent of whomever was in the 
running administration. This has to be done with investment-
grade criteria. And having that expertise, where people could 
come for a career and perhaps not get quite as well compensated 
as Mr. Offutt or Mr. Dove, but at least be able to go toe-to-
toe with some of our private-sector competitors.
    My fear is, right now, like on what Senator McCaskill 
raised, is, there are times when we've taken private sector--
or, public sector has taken upfront capital, that, on a long 
term basis, is a bad deal. And I'm not sure we've got that 
expertise to go toe-to-toe at this point. But, that's part of 
this discussion.
    And I want to thank the panel for very, very good input. I 
want to really thank my colleagues for their participation.
    And, with that, the hearing is adjourned.
    [Whereupon, at 4:10 p.m., the hearing was adjourned.]
                            A P P E N D I X

  Prepared Statement of John A. Flaherty, Managing Director, Capital 
  Network Partners and Jill Eicher, Managing Director, The Fiduciary 
                       Infrastructure Initiative
    Mr. Chairman and Members of the Subcommittee please accept our 
thanks for allowing us to submit this testimony for the hearing.
    We would like to congratulate the Subcommittee for its work on 
infrastructure financing and specifically your efforts to create a 
national infrastructure financing authority. We believe that such an 
entity would significantly increase the capabilities of state and local 
government entities to use heretofore untapped resources for their 
infrastructure projects.
    We also believe that the sponsors have worked hard to create a 
properly designed Authority which will avoid the chief concerns that 
many Senators and Representatives have cited in the past--how will 
rural communities continue to benefit from Federal funding policies; 
and will Members of Congress elected to represent their constituents 
and ensure the economic strength of the Nation cede too much authority 
to a bureaucratic structure.
Interim Steps Can Be Taken Now by the Federal Government
    While structures like the Financing Authority are being considered, 
the Federal Government--including this Subcommittee--can take steps now 
to develop a model that can be used to start building infrastructure 
projects now, and would create momentum to create a successful national 
Financing Authority.
    In order to get a widespread successful model of direct investment 
the Federal Government should move decisively in two specific areas.
    First, the Federal Government must make greater and more efficient 
use of its existing financing tool. Federal agencies must take their 
existing financing structures and use them to leverage and reward 
innovative projects that are brought to them by that state and local 
governments working with other partners. The Department of 
Transportation should increase the resources and elevate the management 
of its effort including the TIFIA process. TIFIA is a victim of its own 
success and many observers are concerned its dedicated staff is 
overwhelmed and under resourced. Direct investment and supporting 
innovative financing models should be made a genuine priority in the 
Department. Also in other agencies--the Environmental Protection 
Agency, the Department of Commerce, the Department of Energy, and the 
Department of Agriculture--all of them should be asked to review their 
existing funding mechanisms and see how they can be adapted to 
encourage innovative financing for infrastructure.
    Second, the Federal Government has an important role to play as 
validator in creating successful partnerships that go beyond funding 
mechanisms. The Federal Government should not wait for the investors 
and state and local governments to develop projects. They should be 
helping to put these important stakeholders together, looking for ways 
to support efforts by local and state governments to develop these 
projects, and seeking out financial partners, engineering and 
construction firms that want to participate. There are several state 
and local entities--state infrastructure banks, regional water 
authorities, rural county organizations, and others that would benefit 
from active Federal outreach. A set of signals from Federal agencies to 
their constituent stakeholders is critical, and putting time and 
resources into this effort will encourage the development of these 
projects.
Other Stakeholders Must Join In A Working Model
    Three other stakeholder groups must be willing to join in active 
partnerships to build infrastructure in order for the Federal 
Government's actions to reap benefits.
State and Local Governments Must Step Forward
    First, state and local governments must step forward to help 
identify projects in their states and localities which can benefit from 
direct investment. There are many ways that state, local, and regional 
authorities can identify projects and join with other partners to come 
up with new projects. Water facilities can be consolidated and made 
more efficient and capacities expanded. Availability payment models can 
be employed to rebuild bridges throughout a state, reliable micro grids 
can be built, 9/11 centers can be constructed, and pipelines that 
transport energy products and water can be built. Mr. Chairman, you 
were a pioneer in this effort as the Governor of Virginia, and there 
are other leaders in our nation that can provide their time, policy and 
political support.
Engineering Firms, Construction Companies, and other Strategic Partners
    A second important group is the strategic infrastructure companies. 
Engineering firms and construction firms have a critical role to play 
in developing these infrastructure projects. These firms can contribute 
to a strong partnership by working with state and local governments--
who are often their clients in building and/or operating their current 
infrastructure assets. These strategic infrastructure companies need to 
play a larger role in developing projects with state and local 
governments that can attract the right type of direct investment and 
give Federal authorities confidence that the components of a successful 
infrastructure project are there.
Pension Funds Have a Key Role to Play
    The third group that must step forward to build a working 
partnership for infrastructure projects using innovative financing are 
the public pension funds. We believe two important reasons the ``P3 
market'' has not developed is political risk and expensive money.
    First, state and local officials have been reluctant to turn over 
public assets to a private financing entity. Rightly or wrongly, they 
fear they can be criticized for ``privatizing'' public assets. The 
political risk often is calculated to be too high, or ``off-ramps'' are 
included in the process that makes it too risky for the private sector 
to invest in a project. Groups that oppose direct investment can gain 
traction by capitalizing on fears that elected officials are turning 
over public assets to ``Wall Street.''
    Second, many of the prospective financing partners require a return 
on investment that makes using their money too expensive. Private 
sector partners have a great deal to offer a partnership. They 
incorporate several characteristics into a project that public 
financing frequently does not include--life cycle costs, a strong on-
site presence, stronger accountability for deadlines and budget 
discipline.
    Yet, in several instances state and local authorities conclude that 
the money offered by these financial entities is too expensive. The 
return on investment for a private sector investment fund often must be 
in the double digits in order to make an acceptable return to their 
investors. While the efficiencies they bring to a project's partnership 
are highly desirable, the financial cost of their money is too high. 
Either the Government entity chooses another funding option, or the 
financial partner concludes that the project will not pass their 
investment committee.
    We believe pension funds becoming equity partners can become 
transitional agents in the effort to get more direct investment in 
infrastructure projects. Currently, many pension funds are invested in 
infrastructure funds, however many pension fund officials are beginning 
to look at the opportunities that may exist for their funds to become 
direct investment partners in infrastructure projects.
    Pension funds interest in investing in infrastructure assets is 
fueled by an acute need for predictable, long-dated income. As return 
expectations for fixed income investments have declined from 5-7 
percent to 3-5 percent, institutional investors have correspondingly 
reduced fixed income asset allocation levels from 30-40 percent to 20-
30 percent. The median allocation to fixed income for public pension 
funds is currently 26.8 percent. This shift reflects the widespread 
view among institutional investors that a prolonged bear market in 
bonds will unfold over the next decade as interest rates move higher 
and developed countries remain mired in debt. This shift has 
necessitated a search for bond alternatives, which has led 
institutional investors to consider core infrastructure assets, i.e., 
those with strong operating histories and contracted, inflation-linked 
cash flows, to replace income traditionally generated by fixed income 
investments.
    On April 16, the Fiduciary Infrastructure Initiative convened a 
roundtable of 12 public pension fiduciaries representing over $850 
billion in capital to discuss their views towards infrastructure, 
specifically current product offerings, return expectations, allocation 
levels, and investment experience to date. The group represented large, 
medium, and small pension funds, as well as state/municipal and public/
union funds. Pension fiduciaries expressed an eagerness to determine 
whether there is a pipeline of projects that would meet their 
investment criteria.
    Against an industry median 7.8 percent assumed annual rate of 
return and a negative outlook for fixed income returns over the next 
decade, the potential income and return potential of long-lived 
physical assets is compelling. Moreover, recent market performance 
revealed a mismatch between the volatility of equities and the bond-
like nature of pension liabilities. While fixed-income investment 
vehicles are better matched against pension liabilities, the average 
duration in fixed income portfolios has been much shorter than most 
plan liability durations, thus producing significant exposure to 
interest rates.
    Recognizing this exposure has heightened public pension interest in 
employing inflation linked, cash yielding infrastructure assets to 
offset interest rate exposure. This has also led to a shift in thinking 
about the optimal role for infrastructure in a pension fund portfolio. 
Instead of utilizing infrastructure as part of a pension fund's 
alternatives portfolio with a 12-15 percent target IRR, fiduciaries now 
see a more nuanced role for infrastructure as part of their fixed 
income or liability-matching portfolios targeting 4-8 percent real 
rates of return.
    The performance imperative articulated demonstrates public pension 
interest in infrastructure and is further supported by increasing asset 
allocation levels to infrastructure. We estimate that our roundtable 
participants and interested fiduciaries have approximately $50 billion 
of equity capital to deploy into infrastructure. It was noted that 
international pension fiduciaries have realized attractive returns in 
infrastructure investments by investing collectively. The returns 
realized by these pension investment collectives are compelling pension 
fiduciaries to take a hard look at the value proposition of direct 
ownership of core infrastructure assets.
    It is challenging, however, for pension funds to make direct 
investments due to their restrictive budgets and limited resources. 
Only two U.S. public pension funds have made direct investments in 
infrastructure assets to date. In 2009, the Dallas Fire and Police 
Pension System invested in the Dallas/Fort Worth I-635 highway managed 
lane project. In 2010, the California Public Employees Retirement 
System (CalPERS) took a 12.7 percent equity stake in Gatwick Airport. 
In 2012, CalPERS made its second direct investment in a 65-mile 
underwater power transmission line between New York and New Jersey.
    We believe that may be changing. Making direct investments on a 
collective basis, however, could facilitate programmatic objectives and 
achieve economies of scale. Several Roundtable Participants have 
allocated capital to an Australian investment collective, Industry 
Funds Management (IFM), which is owned by 32 Australian superannuation 
funds. It was also noted that the United Kingdom is developing an 
investment collective based on the IFM model. The UK government is 
encouraging the collective platform to invest in in-country 
infrastructure through several legislative policy initiatives and 
incentive programs.
Conclusion
    Mr. Chairman, and Members of the Committee, we believe that a model 
currently exists that can help begin a series of infrastructure 
projects throughout the country and across different types of critical 
infrastructure--transportation, water, energy, and emergency 
telecommunications.
    A set of strong partnerships are needed. The partnerships must 
include: (1) innovative state and/local leadership, (2) expert 
engineering and construction firms, (3) public pension funds and 
community banks providing needed equity at acceptable return rates; and 
(4) Federal agencies providing existing debt mechanisms and strong 
project support on the political and policy fronts.
    Each partner is essential to the project. And each partner has a 
critical role to play in supporting the efforts of the other three 
partners.
    We respectfully request that the Subcommittee support the 
development of these partnerships. And we believe that as these 
partnerships develop, and successful projects are started in urban, 
suburban, and rural regions of the country, a national infrastructure 
financing authority will garner additional support from constituencies 
across the political spectrum.
    Thank you for giving us the opportunity to submit this testimony 
and we look forward to working with the Subcommittee in the future.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Brian Schatz to 
                              Robert Dove
    Question 1. The Carlyle Group has been a partner in a number of 
projects financing real estate investments in proximity to current or 
planned public transportation hubs. The City and County of Honolulu are 
planning for transit oriented development around new rail stations 
Honolulu Rail Transit Project. How can transit oriented development 
public private partnerships help communities capture a return on 
transit investment?
    Answer. I regret that this is not my area of expertise, but Carlyle 
would be happy to set up a meeting with you and our real estate 
development experts to discuss this specific topic.

    Question 2. In Hawaii, we are constructing the first rail transit 
in the state, the Honolulu Rail Transit Project. Transit oriented 
development (TOD) infrastructure along the corridor could help a return 
on investment, increase ridership, and generate significant economic 
development. In testimony, you noted that a Federal financing authority 
is a way to tap into innovative financing and renew infrastructure 
investment. Public entities have paired with the private sector to 
generate TOD--some public-private partnership examples include 
Portland's Pearl District and more recently, the Denver Union Station. 
How could a Federal financing authority, such as an infrastructure 
bank, facilitate public private partnerships to build infrastructure 
that supports transit oriented development?
    Answer. Assuming that the project is credit worthy, an 
infrastructure financing authority will provide a large source of 
capital that will attract other project financing or equity.

    Question 3. What other steps could be taken at the Federal level to 
engage the private sector on TOD projects?
    Answer. Congress should take steps to reform the Foreign Investment 
in Real Property Tax Act (FIRPTA). This will spur billions of foreign 
investment in U.S. real estate debt and equity markets, help stabilize 
troubled domestic lending markets, create jobs and lead to economic 
growth.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Brian Schatz to 
                            J. Perry Offutt
    Question 1. In Hawaii, we are constructing the first rail transit 
in the state, the Honolulu Rail Transit Project. Transit oriented 
development (TOD) infrastructure along the corridor could help a return 
on investment, increase ridership, and generate significant economic 
development. In testimony, you noted that a Federal financing authority 
is a way to tap into innovative financing and renew infrastructure 
investment. Public entities have paired with the private sector to 
generate TOD--some public-private partnership examples include 
Portland's Pearl District and more recently, the Denver Union Station. 
How could a Federal financing authority, such as an infrastructure 
bank, facilitate public private partnerships to build infrastructure 
that supports transit oriented development?
    Answer. Assuming the TOD project can achieve an investment-grade 
credit rating (either via a credible ridership study or contracted 
``availability payments''), any material funding from a Federal finance 
authority would help attract private sector capital. Like any 
infrastructure development project, it is important to keep the funding 
cost as low as possible. A significant contribution from a Federal 
finance authority could materially lower the total cost of capital to 
build such a project.

    Question 2. What other steps could be taken at the Federal level to 
engage the private sector on TOD projects?
    Answer. Both the Eagle P3 project in Denver and the proposed Purple 
Line in Maryland are transit projects that are not projected to 
generate enough revenue to adequately compensate the private sector to 
design, build, operate, maintain and finance the projects. As a result, 
both projects decided to use ``availability payments'' (as defined in 
my written testimony) to help finance the project.
    Since many states or local governments are not familiar with the 
use of ``availability payments'' to finance projects, I believe that 
the Federal Government could be a repository for such information so 
that could be disseminated to various transit authorities.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                            J. Perry Offutt
    Question 1. With the creation of any new program there is always 
startup time. Do you have any estimates on the amount of time it would 
take to get the first dollars out the door if a new infrastructure 
financing authority was created? Do you envision all the applicable 
Federal regulations also applying to such new programs and structures?
    Answer. I do not have an opinion on this.

    Question 2. As you know, the private sector can often complete 
projects more quickly and efficiently than the government. If an 
infrastructure authority was created, do you believe that this would 
still be the case? If so, by what rough percentage in improved project 
delivery do you envision infrastructure projects being completed? What 
types of projects do you foresee being most attractive to investors?
    Answer. If the infrastructure finance authority is able to review 
opportunities and invest capital in a formulaic manner based on 
transparent investment criteria, then I do not believe this will hinder 
the project procurement/investment process.
    However, as I stated in my testimony, not all greenfield projects 
will require/desire the involvement of an infrastructure finance 
authority. For example, a typical DBOMF (design, build, operate, 
maintain, finance) P3 road project that utilizes ``availability 
payments'' can secure TIFIA, Private Activity Bond and equity financing 
without the involvement of an infrastructure finance authority.
    Of course, there are projects of national/regional significance 
that would not be able to secure financing without the involvement of 
an infrastructure finance authority. For those projects, Federal 
involvement is critical.
    For the investors that I spend the most time with (pension funds 
and infrastructure funds), medium to large water and wastewater systems 
that need significant capital investment would be of particular 
interest. These opportunities would offer the private sector the 
ability to invest in a regulated asset that needs its private-sector 
expertise and significant capital.

    Question 3. The Simpson/Bowles Commission has recommended that the 
Federal gas tax be increased, or alternatively, indexed to inflation. 
What are your thoughts on this recommendation?
    Answer. I do not have an opinion on this.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                             Peter J. Basso
    Question 1. With the creation of any new program there is always 
startup time. Do you have any estimates on the amount of time it would 
take to get the first dollars out the door if a new infrastructure 
financing authority was created? Do you envision all the applicable 
Federal regulations also applying to such new programs and structures?
    Answer. In response to the question on start-up time while standing 
up a new entity can take time I expect that if the legislation is 
promptly enacted and the initial funding provided than with a full 
effort the entity could be operational within one year. This is a ball 
park estimate and the details will need to be better known to be more 
accurate.
    I do assume that most Federal requirements would apply to the 
entity.

    Question 2. As a former director of the American Association of 
State Highway and Transportation Officials, you understand the funding 
challenges faced by states. What options do states have to generate 
revenue to fund infrastructure programs that they are not currently 
availing themselves of today?
    Answer. Actually most states utilize a combination of dedicated 
user fees (fuel taxes and registration fees), tolling to some degree 
and bonding to invest in infrastructure.
    The financing side of the equation includes GARVEE bonds, TIFIA 
loans and in about two thirds of the states to some degree State 
Infrastructure Banks. The broad categories of user fees, bonding and 
credit programs are likely the full range of state options to finance 
infrastructure. So in my view there is no unturned stone that would 
solve our infrastructure underinvestment problem.

    Question 3. The Simpson/Bowles Commission has recommended that the 
Federal gas tax be increased, or alternatively, indexed to inflation. 
What are your thoughts on this recommendation?
    Answer. In the short run for Federal funding the most immediate 
revenue raiser would be the Simpson/Bowles proposal; therefore I 
support it because of the critical condition of the Highway Trust Fund.
    However, it is also clear that given the reports from the 
Congressional Budget Office on the impact of CAFE standards and the 
minimal growth of VMT that there is a requirement for a long-term 
solution. One option might be to pilot test mileage based user fees as 
a way to meet our long-term revenue needs.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Robert Dove
    Question 1. With the creation of any new program there is always 
startup time. Do you have any estimates on the amount of time it would 
take to get the first dollars out the door if a new infrastructure 
financing authority was created?
    Answer. Without knowing the exact structure of the entity, it is 
difficult for me to provide an informed opinion.

    Question 1a. Do you envision all the applicable Federal regulations 
also applying to such new programs and structures?
    Answer. I would prefer to hear all the specific Federal regulations 
that this encompasses before I respond.

    Question 2. As you know, the private sector can often complete 
projects more quickly and efficiently than the government. If an 
infrastructure authority was created, do you believe that this would 
still be the case? If so, by what rough percentage in improved project 
delivery do you envision infrastructure projects being completed?
    Answer. An infrastructure authority could help close the time gap. 
The private sector is just more nimble, able to move more quickly. An 
infrastructure authority that operates independent of Congress should 
help close the time gap that exists between completion of Federal 
project and private projects.

    Question 2a. What types of projects do you foresee being most 
attractive to investors?
    Answer. Projects with associated cash flow or contracted revenue 
are the most attractive. This is the arrangement that attracted Carlyle 
to the successful Connecticut public-private partnership that I 
referenced in my testimony.

    Question 3. The Simpson/Bowles Commission has recommended that the 
Federal gas tax be increased, or alternatively, indexed to inflation. 
What are your thoughts on this recommendation?
    Answer. My expertise is private capital so I leave this question to 
the tax experts.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              Burt Wallace
    Question 1. With the creation of any new program there is always 
startup time. Do you have any estimates on the amount of time it would 
take to get the first dollars out the door if a new infrastructure 
financing authority was created? Do you envision all the applicable 
Federal regulations also applying to such new programs and structures?
    Answer. No, UPS does not have any estimates on how long it would 
take a new infrastructure financing authority to get up and running, 
but is keenly interested in finding out the timetable for such an 
apparatus, if one was indeed created. Generally speaking, we are 
supportive of the concept, but would need to analyze and consider the 
details of such a program, including the applicability of Federal rules 
and regulations related to the funding mechanism.

    Question 2. The Simpson/Bowles Commission has recommended that the 
Federal gas tax be increased, or alternatively, indexed to inflation. 
What are your thoughts on this recommendation?
    Answer. UPS strongly supports increasing the Federal motor fuel tax 
on gas and diesel fuel, with the key caveat being that all new funds 
generated by the fuel tax increase be directly reinvested into the 
nation's surface transportation infrastructure (i.e.--the Highway Trust 
Fund), and not siphoned off for other non-transportation programs. If 
it is not politically feasible to increase the fuel tax, indexing the 
motor fuels tax to inflation should be pursued.

                                  
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